<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 3, 2000
REGISTRATION NO. 333-
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------------------------
<TABLE>
<S> <C>
WEEKLY READER
WRC MEDIA INC. CORPORATION
(Exact name of Registrant as specified in (Exact name of Registrant as specified in
its charter) its charter)
DELAWARE DELAWARE
(State or other jurisdiction of (State or other jurisdiction of
incorporation incorporation
or organization) or organization)
2731 2721
(Primary Standard Industrial (Primary Standard Industrial
Classification Number) Classification Number)
13-4066536 13-3603780
(I.R.S. Employer Identification Number) (I.R.S. Employer Identification Number)
----------------------------------
WRC MEDIA INC. WEEKLY READER CORPORATION
1 ROCKEFELLER PLAZA, 32ND FLOOR 1 ROCKEFELLER PLAZA, 32ND FLOOR
NEW YORK, NY 10020 NEW YORK, NY 10020
(212) 582-6700 (212) 582-6700
<S> <C>
WRC MEDIA INC. COMPASSLEARNING, INC.
(Exact name of Registrant as specified in (Exact name of Registrant as specified in
its charter) its charter)
DELAWARE DELAWARE
(State or other jurisdiction of (State or other jurisdiction of
incorporation incorporation
or organization) or organization)
2731 7372
(Primary Standard Industrial (Primary Standard Industrial Classification
Classification Number) Number)
13-4066536 13-4066535
(I.R.S. Employer Identification Number) (I.R.S. Employer Identification Number)
---------------- ----------------------------------
WRC MEDIA INC. COMPASSLEARNING, INC.
1 ROCKEFELLER PLAZA, 32ND FLOOR 1 ROCKEFELLER PLAZA, 32ND FLOOR
NEW YORK, NY 10020 NEW YORK, NY 10020
(212) 582-6700 (212) 582-6700
</TABLE>
(Address, including zip code, and telephone number, including area code,
of each Registrant's principal executive offices)
----------------------------------
MARTIN E. KENNEY, JR.
CHIEF EXECUTIVE OFFICER, WRC MEDIA INC.
DIRECTOR, WRC MEDIA INC., WEEKLY READER
CORPORATION AND COMPASSLEARNING, INC.
1 ROCKEFELLER PLAZA, 32ND FLOOR
NEW YORK, NY 10020
(212)582-6700
(Address, including zip code, and telephone
number, including area code, of each
Registrant's agent for service)
----------------------------------
COPIES TO:
JULIE T. SPELLMAN, ESQ.
CRAVATH, SWAINE & MOORE
825 EIGHTH AVENUE
NEW YORK, NEW YORK 10019
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<CAPTION>
NAMES OF ADDITIONAL REGISTRANTS STATE OR OTHER JURISDICTION OF I.R.S. EMPLOYER
AS SPECIFIED IN THEIR CHARTERS INCORPORATION OR ORGANIZATION IDENTIFICATION NO.
- ------------------------------- ------------------------------ ------------------
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Lifetime Learning Systems, Inc. Delaware 13-3783276
American Guidance Service, Inc. Minnesota 41-0802162
AGS International Sales, Inc. Minnesota 41-0982023
World Almanac Education Group, Inc. Delaware 13-3603781
Funk & Wagnalls Yearbook Corp. Delaware 13-3603787
Gareth Stevens, Inc. Wisconsin 39-1462742
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, check the following
box and list the Securities Act of 1933 registration statement number of the
earlier effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act of 1933, check the following box and list the
Securities Act of 1933 registration statement number of the earlier effective
registration statement for the same offering. / /
----------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED UNIT(2) PRICE(2)(3) REGISTRATION FEE(4)
<S> <C> <C> <C> <C>
12 3/4% Senior Subordinated Notes due 2009(1) $152,000,000 100% $152,000,000 $40,128.00
15% Senior Preferred Stock due 2011 $75,000,000 100% $75,000,000 $19,800.00
</TABLE>
(1) The note guarantees of Lifetime Learning Systems, Inc., American Guidance
Service, Inc., AGS International Sales, Inc., World Almanac Education
Group, Inc., Funk & Wagnalls Yearbook Corp. and Gareth Stevens, Inc. of the
payment of principal, premium, if any, and interest on the new notes being
registered hereby are also being registered hereby. Pursuant to
Rule 457(n), no registration fee is required with respect to such note
guarantees.
(2) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(f).
(3) Exclusive of accrued interest, if any.
(4) Calculated pursuant to Rule 457.
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE>
SUBJECT TO COMPLETION, DATED FEBRUARY 3, 2000
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PROSPECTUS WRC MEDIA INC.,
WEEKLY READER CORPORATION [LOGO]
AND COMPASSLEARNING, INC.
$152,000,000
EXCHANGE OFFER FOR
12 3/4% SENIOR SUBORDINATED NOTES
DUE 2009
WRC MEDIA INC.
$75,000,000
EXCHANGE OFFER FOR
15% SENIOR PREFERRED STOCK
DUE 2011
</TABLE>
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This is an offer to exchange (1) the outstanding, unregistered 12 3/4% Senior
Subordinated Notes due 2009 for substantially identical 12 3/4% Senior
Subordinated Notes due 2009 and (2) the outstanding, unregistered 15% Senior
Preferred Stock due 2011 for substantially identical 15% Senior Preferred Stock
due 2011 that will be free of the transfer restrictions that apply to the old
notes and the old senior preferred stock. This offer will expire at 5:00 p.m.,
New York City time, on , 2000 unless we extend it. Interest on the
notes is payable on November 15 and May 15 of each year, beginning May 15, 2000.
We refer to the old notes and the new notes collectively as the notes. We refer
to the old senior preferred stock and the new senior preferred stock
collectively as the senior preferred stock.
WRC Media Inc., Weekly Reader Corporation and CompassLearning, Inc. may redeem
all or part of the new notes on or after November 15, 2004. Prior to
November 15, 2002, WRC Media Inc., Weekly Reader Corporation and
CompassLearning, Inc. may redeem up to 35% of the new notes from the net cash
proceeds of certain sales of equity at a redemption price equal to 112.75% of
the principal amount. The certain types of equity sales are specified under
"Description of New Notes--Optional Redemption."
The new notes will be unsecured and subordinated to all of our existing and
future senior debt. The new notes will be guaranteed by Lifetime Learning
Systems, Inc., American Guidance Service, Inc., AGS International Sales, Inc.,
World Almanac Education Group, Inc., Funk & Wagnalls Yearbook Corp. and Gareth
Stevens, Inc. and some of our future subsidiaries on a senior subordinated basis
as specified in this prospectus under "Description of New Notes." Each of the
note guarantees also is being registered by the guarantors under the
registration statement of which this prospectus is a part.
On and after the issuance date (but not including from November 17, 2002 to
November 17, 2004), WRC Media Inc. may, at its option, redeem the new senior
preferred stock, in whole but not in part, at a redemption price equal to the
liquidation preference of shares of senior preferred stock, plus a stated
premium, plus any accrued and unpaid cash dividends thereon to the date of
redemption, without interest on such redemption price. Redemption prices are
specified in this prospectus under "Description of New Senior Preferred
Stock--Redemption of Senior Preferred Stock."
SEE "RISK FACTORS" COMMENCING ON PAGE 19 FOR A DISCUSSION OF IMPORTANT FACTORS
THAT HOLDERS OF OLD NOTES AND OLD SENIOR PREFERRED STOCK SHOULD CONSIDER IN
CONNECTION WITH THE EXCHANGE OFFER AND INVESTING IN THE NEW NOTES AND THE NEW
SENIOR PREFERRED STOCK.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE NEW NOTES OR THE NEW SENIOR
PREFERRED STOCK OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
WE ARE NOT MAKING AN OFFER TO EXCHANGE NOTES OR SENIOR PREFERRED STOCK IN ANY
JURISDICTION WHERE THE OFFER IS NOT PERMITTED.
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The date of this prospectus is , 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
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PAGE
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Where You Can Find More Information... i
Forward-Looking Statements............ iii
Prospectus Summary.................... 1
Risk Factors.......................... 19
The Exchange Offer.................... 34
Transactions.......................... 46
Use of Proceeds....................... 48
Dividend Policy....................... 48
Unaudited Pro Forma Consolidated
Financial Information............... 49
Selected Historical Consolidated
Financial Information for Weekly
Reader Corporation.................. 58
Selected Historical Consolidated
Financial Information for American
Guidance Service, Inc............... 60
Selected Historical Financial
Information for WRC Media Inc. and
its Subsidiary (CompassLearning,
Inc.)............................... 62
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 64
</TABLE>
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PAGE
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Industry.............................. 93
Business.............................. 102
Management............................ 131
Certain Relationships and Related
Transactions........................ 148
Ownership of Stock.................... 151
Description of Senior Credit
Facilities.......................... 160
Description of Capital Stock.......... 162
Equity Sponsors....................... 164
Description of New Notes.............. 165
Description of New Senior Preferred
Stock............................... 206
Book-Entry, Delivery and Form......... 214
Registration Rights................... 217
Certain U.S. Federal Tax
Considerations...................... 223
Plan of Distribution.................. 229
Legal Matters......................... 229
Independent Public Accountants........ 229
Index to Financial Statements......... F-1
</TABLE>
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-4 under the Securities Act of 1933 relating to the exchange
offer that incorporates important business and financial information about us
that is not included in or delivered with this prospectus. This prospectus does
not contain all of the information included in the registration statement. This
information is available from us without charge to holders of the notes or
senior preferred stock as specified below. Any statement made in this prospectus
concerning the contents of any contract, agreement or other document is
qualified in its entirety by reference to such contract, agreement or document.
If we have filed any of those contracts, agreements or other documents as an
exhibit to the registration statement, you should read the exhibit for a more
complete understanding of the document or matter involved. Following the
exchange offer, we will be required to file periodic reports and other
information with the Securities and Exchange Commission under the Securities
Exchange Act of 1934. In the notes indenture and the senior preferred
stockholders agreement, we have agreed that, whether or not we are required to
do so by the rules and regulations of the Securities and Exchange Commission,
for so long as any of the notes and the senior preferred stock remain
outstanding, we will furnish to the holders of the notes and the senior
preferred stock and file with the Securities and Exchange Commission (unless the
Securities and Exchange Commission will not accept such a filing):
(1) all quarterly and annual financial information that would be required to
be contained in such a filing with the Securities and Exchange Commission
on Forms 10-Q and 10-K if we were required to file such forms, including
a "Management's Discussion and Analysis of Results of Operations and
Financial Condition" and, with respect to the annual information only, a
report thereon by our certified independent public accountants; and
i
<PAGE>
(2) all reports that would be required to be filed with the Securities and
Exchange Commission on Form 8-K if we were required to file such reports.
In addition, for so long as any of the notes and the senior preferred stock
remain outstanding, we have agreed to make available to any prospective
purchaser of the notes and the senior preferred stock or beneficial owner of the
notes and the senior preferred stock in connection with any sale thereof, the
information required by Rule 144A(d)(4) under the Securities Act of 1933. We
will also furnish such other reports as we may determine or as the law requires.
Information that we file with the Securities and Exchange Commission after
the date of this prospectus will automatically supersede the information in this
prospectus and any earlier filed incorporated information. We are also
incorporating any future filings made with the Securities and Exchange
Commission under sections 13(a), 13(e), 14, or 15(d) of the Securities Exchange
Act of 1934 until the termination of the exchange offer.
You may read and copy the registration statement, including the attached
exhibits, and any reports, statements or other information that we file at the
Securities and Exchange Commission's public reference room at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington D.C. 20549. Please call the
Securities and Exchange Commission at 1-800-SEC-0330 for further information on
the operation of the public reference room. Our Securities and Exchange
Commission filings will also be available to the public from commercial document
retrieval services and at the Securities and Exchange Commission's Internet site
(http:// www.sec.gov).
You may request a copy of any of our filings with the Securities and
Exchange Commission, or any of the agreements or other documents that constitute
exhibits to those filings, at no cost, by writing or telephoning us at the
following address or phone number:
WRC Media Inc.
1 Rockefeller Plaza, 32nd Floor
New York, NY 10020
(212) 582-6700
Attention: Charles L. Laurey
TO OBTAIN TIMELY DELIVERY OF ANY OF OUR FILINGS, AGREEMENTS OR OTHER
DOCUMENTS, YOU MUST MAKE YOUR REQUEST TO US NO LATER THAN FIVE BUSINESS DAYS
BEFORE THE EXPIRATION DATE OF THE EXCHANGE OFFER. THE EXCHANGE OFFER WILL EXPIRE
ON 5:00 P.M., NEW YORK CITY TIME ON , 2000 (30 DAYS FOLLOWING THE
COMMENCEMENT OF THE EXCHANGE OFFER) UNLESS EXTENDED BY US IN OUR SOLE
DISCRETION. SEE "THE EXCHANGE OFFER."
You should rely only on the information provided in this prospectus. No
person has been authorized to provide you with different information. The
information in this prospectus is accurate as of the date on the front cover.
You should not assume that the information contained in this prospectus is
accurate as of any other date.
ii
<PAGE>
FORWARD-LOOKING STATEMENTS
This prospectus contains "forward-looking statements" within the meaning of
section 27A of the Securities Act of 1933 and section 21E of the Securities
Exchange Act of 1934, as amended. In particular, the statements about our plans,
strategies and prospects under the headings "Prospectus Summary," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business," and in the unaudited pro forma consolidated financial statements
included in this prospectus and the related notes thereto are forward-looking
statements. Although we believe that our plans, intentions and expectations
reflected in or suggested by such forward-looking statements are reasonable, we
can not assure you that such plans, intentions or expectations will be achieved.
These forward-looking statements are subject to risks, uncertainties and
assumptions about us. Important factors that could cause actual results to
differ materially from the forward-looking statements we make in this prospectus
are described in this prospectus, including under the headings:
- "Risk Factors;"
- "Management's Discussion and Analysis of Financial Condition and Results
of Operations;" and
- "Business."
All forward-looking statements attributable to us or persons acting on our
behalf are expressly qualified in their entirety by the cautionary statements
and risk factors contained throughout this prospectus.
------------------------
INTERNET WEB SITES
This offering memorandum includes references to certain Internet web sites
that we maintain. None of these web sites, or their content, are incorporated by
reference in this offering memorandum.
iii
<PAGE>
PROSPECTUS SUMMARY
This summary highlights some of the information described in greater detail
in other parts of this prospectus and may not contain all of the information
that is important to you. Before making an investment decision, you should read
this entire prospectus, including "Risk Factors" and the financial statements
(including the related notes to the financial statements) that we have included.
Unless the context otherwise requires, the terms "we," "our" and "us" refer
to WRC Media Inc. ("WRC Media") and its subsidiaries and their predecessor
companies after giving effect to the transactions described under
"Transactions." As of January 25, 2000, we changed the name of JLC Learning
Corporation, one of WRC Media's subsidiaries and a registrant, to
CompassLearning, Inc. On December 23, 1999, we changed the name of PRIMEDIA
Reference Inc., one of WRC Media's subsidiaries and a guarantor of the notes, to
World Almanac Education Group, Inc. When we refer to Weekly Reader Corporation
("Weekly Reader"), American Guidance Service, Inc. ("American Guidance"),
CompassLearning, Inc. ("CompassLearning") and World Almanac Education
Group, Inc. ("World Almanac"), each of their predecessor companies are included.
When we refer to the financial information of Weekly Reader, unless otherwise
specified, we include the results of operations of Weekly Reader and its
subsidiaries, including American Guidance and World Almanac. When we refer to
"pro forma" financial results, we mean the financial results of WRC Media and
its subsidiaries on a consolidated basis as if the transactions described under
"Transactions" had occurred at the beginning of the relevant time period. See
"Unaudited Pro Forma Consolidated Financial Information."
THE COMPANY
We are a leading publisher of supplemental education materials for the
pre-kindergarten to twelfth grade ("Pre K-12") market. Our portfolio of products
includes a broad range of print and electronic supplemental instructional
materials, testing and assessment products and library materials. Our products
have well-known brand names and we believe they are recognized by our customers
for their effectiveness and consistent, high quality educational content. Our
strong brand names, several of which have been published for over 40 years,
include:
- WEEKLY READER;
- TEEN NEWSWEEK;
- the PEABODY PICTURE VOCABULARY TEST;
- TOMORROW'S PROMISE;
- THE WORLD ALMANAC AND BOOK OF FACTS; and
- FACTS ON FILE WORLD NEWS DIGEST.
Utilizing sophisticated sales and marketing methods, which include the use
of proprietary databases, we have established long standing customer
relationships and an extensive network with direct distribution channels. Our
targeted customers are:
- teachers;
- school and school district-level administrators;
- librarians;
- other educational professionals; and
- parents.
One or more of our products are used in over 90% of the school districts and
over 80,000, or approximately 75%, of the elementary, middle and secondary
schools in the United States.
1
<PAGE>
We sell our products and services in the rapidly growing supplemental
education materials segment of the education materials market. We estimate this
segment had approximately $3.6 billion in sales in 1998, representing 58% of the
overall Pre K-12 education materials market. The supplemental education
materials segment consists of:
- print and electronic instructional materials;
- testing and assessment products; and
- materials for school libraries.
Growth in the education materials market has been, and is expected to continue
to be, driven by several factors, including:
- increasing Pre K-12 student enrollment;
- a rise in the number of Pre K-12 teachers;
- additional educational spending fueled by public concern over the quality
of education in the United States; and
- the growing installed base of personal computers in libraries, labs,
classrooms and homes.
In addition to the growth factors that affect the overall education materials
market, growth in the supplemental education materials segment is driven by:
- increasingly diverse sources of education funding;
- teachers and school and school district-level administrators using a
greater amount of supplemental education materials to improve student
performance, as they are increasingly held accountable for student
achievement; and
- a growing acceptance among teachers of theories of teaching that support
the use of different instructional methods to accommodate the many ways in
which students learn.
Together, Simba Information Inc.'s Print Publishing for the School Market,
1999-2000 and Simba Information Inc.'s Print Publishing for the School Market,
1997-1998 show that the supplemental education materials segment (excluding the
materials described immediately below) has grown at a compound annual growth
rate of 10.7% during the five-year period ending December 31, 1998. Simba
Information Inc. does not report statistics for some supplemental education
materials included in this segment, consisting primarily of some testing and
assessment products and library materials, which we estimate accounted for
approximately $1.3 billion in sales during 1998.
Our operations are conducted primarily through four operating subsidiaries
listed below, each of which is a market leader in its product categories:
- Weekly Reader;
- American Guidance;
- CompassLearning; and
- World Almanac.
------------------------
The principal executive offices of WRC Media, Weekly Reader, CompassLearning
and each of the guarantors of the notes are each located at 1 Rockefeller Plaza,
32nd Floor, New York, New York 10020 and the telephone number for that location
is (212) 582-6700.
2
<PAGE>
CORPORATE STRUCTURE
The following chart shows our corporate structure and ownership of the
common stock of WRC Media's four primary operating subsidiaries following the
consummation of the transactions described under "Transactions."
[CHART]
(1) Issuers of the units issued in connection with the financing of the
transactions described under "Transactions."
(2) WRC Media is:
- the issuer of $75.0 million of old senior preferred stock issued in
connection with the financing of the transactions described under
"Transactions;" and
- the guarantor of the senior credit facilities.
(3) Co-borrowers under the senior credit facilities and issuers of the warrants
issued to the senior preferred stockholders in connection with the financing
of the transactions described under "Transactions."
(4) Together with each of their respective subsidiaries and Lifetime Learning
Systems, Inc., the only other direct subsidiary of Weekly Reader, guarantors
of the notes and the senior credit facilities.
(5) Assumes that the warrants to purchase common stock of Weekly Reader and
CompassLearning issued to the senior preferred stockholders have not been
exercised.
3
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THE EXCHANGE OFFER
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The Exchange Offer.............................. We are offering to exchange pursuant to the
exchange offer an aggregate principal amount of up
to $152,000,000 of the new notes for a like
principal amount of the old notes. We are also
offering to exchange pursuant to the exchange offer
up to 3,000,000 shares of new senior preferred
stock for a like number of old senior preferred
stock. We will issue the new notes and the new
senior preferred stock on or promptly after the
exchange date. As of the date of this prospectus,
$152,000,000 aggregate principal amount of the old
notes and 3,000,000 shares of old senior preferred
stock are outstanding.
The new notes will have terms substantially
identical to the terms of the old notes. The new
notes will not contain terms with respect to
transfer restrictions and will not require us to
consummate a registered exchange offer. Except as
described in the previous sentence, the new notes
will evidence the same debt as the old notes and
will be entitled to the same benefits under the
notes indenture as the old notes.
The new senior preferred stock will have terms
substantially identical to the terms of the old
senior preferred stock. The new senior preferred
stock will not contain terms with respect to
transfer restrictions and will not require us to
consummate a registered exchange offer. Except as
described in the previous sentence, the new senior
preferred stock will evidence the same rights and
obligations as the old senior preferred stock and
will be entitled to the same benefits under the
preferred stockholders agreement and the
certificate of designations relating to the senior
preferred stock as the old senior preferred stock.
The issuance of the new notes and the new senior
preferred stock and the exchange offer are intended
to satisfy our obligations under the registration
rights agreement and the senior preferred
stockholders agreement to commence and consummate a
registered exchange offer. See "The Exchange Offer"
and "Registration Rights."
Expiration Date................................. The exchange offer will expire at 5:00 p.m., New
York City time on , 2000 (30 days
following the commencement of the exchange offer)
unless extended by us in our sole discretion. See
"The Exchange Offer--Expiration Date; Extensions;
Amendments."
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4
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Exchange Date................................... The date of acceptance for exchange of the old
notes and the old senior preferred stock and the
consummation of the exchange offer will be the
first business day following the expiration date
unless extended. See "The Exchange Offer--Terms of
the Exchange--Tender and Acceptance."
Withdrawal Rights............................... Tenders may be withdrawn at any time prior to 5:00
p.m., New York City time, on the expiration date;
otherwise, all tenders will be irrevocable. See
"The Exchange Offer--Withdrawal of Tenders."
Procedures for Tendering Old Notes and Old
Senior Preferred Stock.......................... See "The Exchange Offer--Procedures for Tendering."
Taxation........................................ The exchange of the old notes for the new notes and
the exchange of the old senior preferred stock for
the new senior preferred stock pursuant to the
exchange offer will not result in any income, gain
or loss to holders who participate in the exchange
offer or to us for U.S. Federal income tax
purposes. See "Certain U.S. Federal Tax
Considerations."
Resale.......................................... We are making the exchange offer in reliance on the
position of the staff of the Securities and
Exchange Commission as described in previous
no-action letters. However, we have not sought our
own no-action letter.
Based upon this position, we believe that a holder
who exchanges the old notes for the new notes or
the old senior preferred stock for the new senior
preferred stock in the exchange offer generally may
offer for resale, sell and otherwise transfer the
new notes or the new senior preferred stock without
further registration under the Securities Act of
1933 and without delivery of a prospectus that
satisfies the requirements of section 10 of the
Securities Act of 1933 if the conditions listed in
the next sentence are satisfied. A holder who
wishes to participate in the exchange offer, as
represented to us in the applicable letter of
transmittal, must:
- not be an "affiliate" of ours, as that term is
defined in Rule 405 of the Securities Act of 1933;
- acquire the new notes or the new senior preferred
stock in the ordinary course of business; and
- not participate, not intend to participate and
have no arrangement or understanding with any
person to participate in a distribution of the
new notes or the new senior preferred stock.
</TABLE>
5
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<TABLE>
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Any holder who fails to satisfy the above
conditions may not rely on the position of the
Securities and Exchange Commission as described in
these no-action letters and would have to comply
with the registration and prospectus delivery
requirements of the Securities Act of 1933 and the
applicable state securities laws in connection with
any secondary resale transaction in the absence of
an exemption from such requirements.
Any holder of the old notes or the old senior
preferred stock using the exchange offer to
participate in a distribution of the new notes or
the new senior preferred stock cannot rely on the
no-action letters referred to above. This includes
a broker-dealer that acquired the old notes or the
old senior preferred stock directly from us, but
not as a result of market-making activities or
other trading activities.
Each broker-dealer that receives new notes or new
senior preferred stock for its own account in
exchange for old notes or old senior preferred
stock, as a result of market-making activities or
other trading activities must represent and
acknowledge pursuant to the applicable letter of
transmittal that it will deliver a prospectus in
connection with any resale of such new notes or new
senior preferred stock. This prospectus, as it may
be amended or supplemented from time to time, may
be used by a broker-dealer in connection with
resales of new notes or new senior preferred stock
received in exchange for old notes or old senior
preferred stock where such old notes or old senior
preferred stock were acquired by such broker-dealer
as a result of market-making activities or other
trading activities. The applicable letter of
transmittal states that by acknowledging that it
will deliver and by delivering a prospectus in
connection with any resale of new notes or new
senior preferred stock, a broker-dealer will not be
considered to admit that it is an "underwriter"
within the meaning of the Securities Act of 1933.
We have agreed that for a period of one year after
the expiration date, we will make this prospectus
available to broker-dealer for use in connection
with any such resale. See "Plan of Distribution."
Except as described above, this prospectus may not
be used for an offer to resell, resale or other
retransfer of new notes or new senior preferred
stock.
</TABLE>
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<TABLE>
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The exchange offer is not being made to, nor will
we accept tenders for exchange from, holders of old
notes or old senior preferred stock in any
jurisdiction in which the exchange offer or the
acceptance of it would not be in compliance with
the securities or blue sky laws of such
jurisdiction.
Remaining Old Notes and Old Senior Preferred
Stock........................................... If you do not tender your old notes or old senior
preferred stock in the exchange offer or if your
old notes or old senior preferred stock are not
accepted for exchange you will continue to hold
such old notes and old senior preferred stock.
In general, we will not accept for exchange old
notes or old senior preferred stock which has been
tendered if:
- the notes or the senior preferred stock were not
validly tendered pursuant to the procedures for
tendering; see "The Exchange Offer--Procedures
for Tendering;"
- we determine in our reasonable discretion, that
any of the conditions to the exchange offer have
not been satisfied; see "The Exchange
Offer--Conditions to the Exchange Offer;"
- a holder has validly withdrawn a tender of old
notes or old senior preferred stock as described
under "The Exchange Offer--Withdrawal of
Tenders;" or
- we have, in our reasonable judgment, delayed or
terminated the exchange offer; see "The Exchange
Offer--Expiration Date; Extension; Amendments."
All untendered and tendered but unaccepted old
notes and all untendered and tendered but
unaccepted old senior preferred stock will continue
to bear legends restricting their transfer. In
general, you may not offer or sell the old notes or
the old senior preferred stock, unless such old
notes and old senior preferred stock are registered
under the Securities Act of 1933, except pursuant
to an exemption from, or in a transaction not
subject to, the Securities Act of 1933 and
applicable state securities laws. To the extent
that the exchange offer is effected, the trading
market, if any, for remaining old notes and
remaining old senior preferred stock could be
adversely affected. See "Risk Factors--Failure to
Exchange Your Old Notes or Old Senior Preferred
Stock" and "The Exchange Offer--Terms of the
Exchange."
</TABLE>
7
<PAGE>
<TABLE>
<S> <C>
The old notes which are not tendered for exchange
or are tendered but not accepted in connection with
the exchange offer will remain outstanding and be
entitled to the benefits of the notes indenture,
but will not be entitled to any future registered
exchange offer under the registration rights
agreement. Holders of any old notes after
expiration of the exchange offer may be entitled to
shelf registration rights under the circumstances
described under "Registration Rights."
The old senior preferred stock which is not
tendered for exchange or is tendered but not
accepted in connection with the exchange offer will
remain outstanding and be entitled to the benefits
of the senior preferred stockholders agreement and
the certificate of designations relating to the
senior preferred stock, but will not be entitled to
any future registered exchange offer. Holders of
such old senior preferred stock may, under the
circumstances described under "Registration
Rights," be entitled pursuant to the senior
preferred stockholders agreement to demand
registration of the old senior preferred stock on
two separate occasions and to request registration
incidental to any planned registration of WRC Media
capital stock. In the event the exchange offer for
the old senior preferred stock is completed, except
as described in the previous sentence, we will not
be required to register the remaining old senior
preferred stock.
Exchange Agent.................................. The exchange agent with respect to the exchange
offer is the Bankers Trust Company. The address and
telephone number of the exchange agent are stated
in "The Exchange Offer--Exchange Agent."
Use of Proceeds................................. There will be no proceeds to us from the exchange
pursuant to the exchange offer. See "Use of
Proceeds."
</TABLE>
8
<PAGE>
DESCRIPTION OF NEW NOTES
<TABLE>
<S> <C>
Issuers......................................... WRC Media Inc., Weekly Reader Corporation and
CompassLearning, Inc.
Securities Offered.............................. $152.0 million in aggregate principal amount of
12 3/4% Senior Subordinated Notes due 2009, which
we refer to as the new notes.
Maturity Date................................... November 15, 2009.
Interest and Payment Dates...................... We will pay interest on the notes semi-annually at
the rate of 12 3/4% per annum in cash in arrears on
November 15 and May 15 of each year, commencing May
15, 2000.
Optional Redemption............................. On or after November 15, 2004, we may redeem some
or all of the notes at any time at the redemption
prices listed under "Description of New
Notes--Optional Redemption." Prior to such date, we
may not redeem the notes, except as described in
the following sentence.
Prior to November 15, 2002, we may redeem up to 35%
of the notes with the net cash proceeds of certain
sales of our equity at a redemption price equal to
112.75% of the principal amount thereof, plus
accrued and unpaid interest and liquidated damages
thereon, if any, to the redemption date. See
"Description of New Notes--Optional Redemption" for
a description of these certain sales of or equity.
Change of Control............................... If a change of control occurs, you will have the
right to require us to repurchase all or a portion
of your notes at a purchase price in cash equal to
101% of the principal amount thereof, plus accrued
and unpaid interest and liquidated damages, if any,
to the date of repurchase; PROVIDED, HOWEVER, that
notwithstanding a change of control, we will not be
obligated to repurchase the notes pursuant to a
change of control offer if we have exercised our
right to redeem all the notes, as described under
"Optional Redemption" above. See "Description of
New Notes--Repurchase at the Option of Holders--
Change of Control."
Note Guarantees................................. The notes will be fully and unconditionally
guaranteed on a senior subordinated basis by note
guarantors consisting of our existing subsidiaries,
excluding Weekly Reader and CompassLearning, and
some future restricted subsidiaries. See
"Description of New Notes--Note Guarantees."
</TABLE>
9
<PAGE>
<TABLE>
<S> <C>
Ranking......................................... The notes and the note guarantees are senior
subordinated debt. They are subordinated to all of
the issuers' and the note guarantors' current and
future debt, except debt that expressly provides
that it is not senior to the notes and the note
guarantees. The new notes are equal in right of
payment with the old notes. See "Description of New
Notes--Subordination."
On a pro forma basis, after giving effect to the
transactions described under "Transactions," as of
September 30, 1999, the old notes were and the new
notes will be subordinated to $131.0 million of
senior secured debt (excluding unused commitments
under the revolving credit facility).
Registration Rights............................. We agreed to exchange the old notes within 210 days
after the issuance of the old notes for a new issue
of substantially identical debt securities
registered under the Securities Act of 1933 as
evidence of the same underlying obligation. This
exchange offer is in satisfaction of that
agreement.
We have also agreed to provide a shelf registration
statement to cover resales of the notes if:
- this exchange offer is not permitted by
applicable law, or rules, regulations or policies
of the Securities and Exchange Commission; or
- any holder of the old notes notifies us, prior to
the 20th day following consummation of the exchange
offer, that it cannot participate in the exchange
offer due to law, securities law policy or
prospectus delivery requirements or because it is
a broker-dealer who acquired the old notes from
us or an affiliate of ours.
If we fail to satisfy our obligations relating to
registration, we have agreed to pay liquidated
damages to you. See "Registration Rights--The
Notes."
Original Issue Discount......................... The notes are considered to be issued with original
issue discount for U.S. Federal income tax
purposes. As a result, you generally will be
required to include original issue discount (i.e.,
the difference between (1) the sum of all principal
and interest payable on the old notes other than
"qualified stated interest" and (2) the "issue
price" of the old notes) in your gross income for
U.S. Federal income tax purposes as it accrues, in
advance of the receipt of cash attributable to
income from original issue discount. See "Certain
U.S. Federal Tax Considerations."
</TABLE>
10
<PAGE>
DESCRIPTION OF NEW SENIOR PREFERRED STOCK
The new senior preferred stock will have the same financial terms and
covenants as the old senior preferred stock, which are as follows:
<TABLE>
<S> <C>
Securities Offered.............................. 3,000,000 shares of 15% Series B Senior Preferred
Stock due 2011 with a liquidation preference of
$25.00 per share.
Dividends....................................... To be paid out of funds legally available for the
payment of dividends at an annual fixed rate of (1)
15% or (2) 15.5% if WRC Media fails to comply with
its registration obligations with respect to the
old senior preferred stock. In addition, if WRC
Media fails to redeem all outstanding shares of the
senior preferred stock in connection with a
mandatory redemption of the senior preferred stock
on November 17, 2011 or a change of control, the
dividend rate on the new senior preferred stock
will increase by 0.50% each quarter or portion
thereof following the date on which such redemption
was required to be made until such default is
cured; however, the aggregate increase in such
dividend rate due to such failure to redeem will
not exceed 10%. See "Risk Factors--Dividends."
WRC Media will declare and pay dividends on
March 31, June 30, September 30 and December 31 of
each year, beginning on March 31, 2000.
Prior to December 31, 2004, or such earlier
dividend payment date as WRC Media may elect in its
sole discretion, dividends will not be payable in
cash, but will accrete to the liquidation
preference of the shares of the new senior
preferred stock, except as described in the next
sentence. Prior to December 31, 2004, at the
request of a majority of the holders of the new
senior preferred stock, WRC Media will pay
dividends in additional fully-paid and
nonassessable shares of senior preferred stock
having an aggregate liquidation preference equal to
the amount of such accrued and unpaid cash
dividends, in lieu of the dividends accreting to
the liquidation preference of the shares of the
senior preferred stock. After December 31, 2004,
WRC Media will pay dividends only in cash on the
liquidation preference per share of the new senior
preferred stock.
</TABLE>
11
<PAGE>
<TABLE>
<S> <C>
Optional Redemption............................. On and after November 17, 1999 (but not including
from November 17, 2002 to November 17, 2004), to
the extent WRC Media has legally available funds
for such payment, WRC Media may, at its option,
redeem, in whole but not in part, the shares of the
senior preferred stock at the applicable redemption
prices listed under "Description of New Senior
Preferred Stock--Redemption of Senior Preferred
Stock--Optional." If WRC Media redeems shares of
new senior preferred stock, WRC Media also will pay
accrued and unpaid cash dividends, if any, to the
date of redemption, without interest on such
redemption price.
Mandatory Redemption............................ WRC Media will be required to redeem all, if any,
of the shares of the new senior preferred stock
outstanding on November 17, 2011, to the extent it
has legally available funds for such payment, at a
redemption price equal to the aggregate liquidation
preference of such shares of senior preferred
stock, in cash, together with accrued and unpaid
cash dividends, if any, to the date of redemption,
without interest on such redemption price.
Change of Control............................... If a change of control occurs, to the extent WRC
Media has legally available funds for such payment
and to the extent permitted by the notes indenture,
WRC Media must offer to redeem any and all shares
of the senior preferred stock then outstanding in
cash at the redemption prices listed under
"Description of New Senior Preferred
Stock--Redemption of Senior Preferred Stock--Change
of Control."
If WRC Media fails to satisfy any of its redemption
obligations upon a change of control (including
because the notes indenture prohibits WRC Media
from complying with such obligation or because WRC
Media does not have funds legally available for a
redemption) then holders of the senior preferred
stock would be entitled to:
- additional voting rights; and
- an increase in the dividend rate;
and WRC Media would be prevented from:
- purchasing or redeeming securities that are on a
parity with the senior preferred stock; and
- making any distribution to securities that rank
junior to senior preferred stock.
</TABLE>
12
<PAGE>
<TABLE>
<S> <C>
We cannot assure you that:
- WRC Media will have sufficient funds to redeem
the senior preferred stock in the event of a change
of control;
- WRC Media will be able to make any such
redemption under the notes indenture; or
- our creditors will otherwise allow us to make the
redemption.
See "Risk Factors--Inability to Repurchase the
Notes Prior to or at Maturity or to Redeem the
Senior Preferred Stock Prior to or at Maturity."
Material Covenants.............................. The certificate of designations governing the new
senior preferred stock contains covenants for your
benefit which, among other things, limit WRC
Media's ability to:
- authorize, create or issue any class of
securities that rank senior to or equally with the
senior preferred stock; and
- declare or pay dividends on, or redeem, purchase
or acquire, any class of our capital stock that
ranks junior to or equally with the senior
preferred stock.
These covenants are subject to important exceptions
and qualifications which are described in
"Description of New Senior Preferred
Stock--Covenants." See "Risk Factors--Ranking of
the Senior Preferred Stock."
Voting Rights................................... Holders of the new senior preferred stock will not
have any voting rights, other than (1) those
required by law and (2) those specified in the
certificate of designations, including those
described in the next sentence. The holders of the
new senior preferred stock, voting together as a
single class with holders of other classes or
series of WRC Media's preferred stock having
similar voting rights, will be entitled to elect
one additional member of WRC Media's board of
directors, upon WRC Media's failure to:
- pay in full four consecutive or six quarterly
cash dividends;
- discharge an obligation to redeem all outstanding
shares of the new senior preferred stock in
connection with a mandatory redemption or a
change of control with respect to the senior
preferred stock for any reason (including because
there are no funds legally available for a
redemption);
- give the notice required to be given in
connection with any mandatory redemption provided
for in the certificate of designations; or
</TABLE>
13
<PAGE>
<TABLE>
<S> <C>
- comply with our covenants described in the
certificate of designations.
See "Description of New Senior Preferred
Stock--Voting Rights."
Exchange Feature................................ We may, at our option, but only in connection with
a reorganization transaction relating to an initial
public offering, redeem all but not less than all
of the shares of the senior preferred stock then
outstanding in exchange for an equivalent number of
shares of preferred stock of Weekly Reader of
identical type and liquidation preference, having
identical terms and conditions as the new senior
preferred stock (except that the issuer of such
stock will be Weekly Reader) and with equal amounts
of accrued and unpaid cash dividends.
DLJ Merchant Banking Partners II, L.P. and its
affiliates and their permitted transferees who
invested in the old senior preferred stock as part
of the transactions described under "Transactions,"
may, at their option, cause WRC Media to exchange
all, but not less than all, outstanding shares of
the senior preferred stock for an equal number of
shares of preferred stock of Weekly Reader and/or
CompassLearning of identical type and liquidation
preference, having identical terms and conditions
as the new senior preferred stock (except that the
issuer of such stock will be Weekly Reader and/or
CompassLearning) and with equal amounts of accrued
and unpaid cash dividends.
See "Description of New Senior Preferred Stock--
Exchange."
Registration Rights............................. WRC Media agreed to exchange the old senior
preferred stock within 210 days after issuance of
the old senior preferred stock for a new issue of
substantially identical preferred stock registered
under the Securities Act of 1933 as evidence of the
same underlying obligation. This exchange offer is
in satisfaction of that agreement.
WRC Media also agreed to file and keep effective a
shelf registration statement to cover resales of
the old senior preferred stock if:
- the exchange offer with respect to the old senior
preferred stock is not permitted by applicable
law or, rules, regulations or policies of the
Securities and Exchange Commission; or
</TABLE>
14
<PAGE>
<TABLE>
<S> <C>
- any holder of the old senior preferred stock
notifies us, prior to the 20th day following
consummation of the exchange offer, that it
cannot participate in the exchange offer due to
law, securities law policy or prospectus delivery
requirements or because it is a broker-dealer who
acquired the old senior preferred stock from us
or an affiliate of ours.
If we fail to satisfy our obligations relating to
registration, the dividend rate applicable to the
senior preferred stock will increase. See
"Registration Rights--The Senior Preferred Stock."
In addition, the senior preferred stockholders will
be entitled to certain demand registration and
"piggy-back" registration rights pursuant to the
senior preferred stockholders agreement. See
"Ownership of Stock--Senior Preferred Stockholders
Agreement" and "Registration Rights--The Senior
Preferred Stock."
Preferred Stockholders Agreement................ WRC Media entered into a stockholders agreement
concerning the relative rights and relationships of
the senior preferred stockholders with respect to
the senior preferred stock, governing, among other
things:
- corporate governance;
- transfer rights and restrictions;
- tag-along and drag-along rights; and
- registration rights.
For a summary of the terms of the senior preferred
stockholders agreement, see "Ownership of Stock--
Senior Preferred Stockholders Agreement."
Constructive Distributions...................... The new senior preferred stock will be considered
to be issued with redemption premium (i.e., the
excess of the redemption price of the new senior
preferred stock over its issue price) for U.S.
Federal income tax purposes. You will be required
to include such excess in your gross income over
the life of the new senior preferred stock
notwithstanding that the cash attributable to such
excess will not be received until a subsequent
period. In addition, any distributions on the new
senior preferred stock that are in the form of
additional shares of new senior preferred stock
will be taxable on the distribution date in the
same manner as a cash distribution on such new
senior preferred stock, and additional shares of
new senior preferred stock may be subject to the
redemption premium rules referred to above. See
"Certain U.S. Federal Tax Considerations."
</TABLE>
YOU SHOULD REFER TO THE SECTION ENTITLED "RISK FACTORS" FOR AN EXPLANATION
OF THE RISKS OF INVESTING IN THE NEW NOTES AND THE NEW SENIOR PREFERRED STOCK.
15
<PAGE>
SUMMARY UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
This table presents summary unaudited pro forma consolidated financial
information derived from our unaudited pro forma consolidated financial
statements for the year ended December 31, 1998, and the nine-month period ended
September 30, 1999, which statements are included in this prospectus. The
summary unaudited pro forma consolidated operating information gives effect to
the transactions described under "Transactions," and to the acquisition of
American Guidance by PRIMEDIA Inc. ("PRIMEDIA") as if they had occurred on
January 1, 1998. The summary unaudited pro forma consolidated balance sheet
information gives effect to the transactions described under "Transactions" as
if they had occurred on September 30, 1999. The summary unaudited pro forma
consolidated financial information does not purport to represent what our
consolidated results of operations would have been had the transactions
described under "Transactions" and PRIMEDIA's acquisition of American Guidance
in fact occurred on these dates and does not project our consolidated financial
position or consolidated results of operations for the current year or any
future period.
<TABLE>
<CAPTION>
NINE
YEAR ENDED MONTHS ENDED
DECEMBER 31, 1998 SEPTEMBER 30, 1999
----------------- ------------------
PRO FORMA
(DOLLARS IN THOUSANDS)
<S> <C> <C>
INCOME STATEMENT DATA:
Net revenue............................................... $206,718 $150,500
Cost of products sold..................................... 64,317 46,624
-------- --------
Gross profit.............................................. 142,401 103,876
Selling and administrative expenses:
Sales and marketing..................................... 46,328 32,496
Research and development................................ 8,022 5,655
Editorial............................................... 11,415 7,251
General, administrative and other....................... 41,018 27,844
Depreciation and amortization (a)....................... 35,460 26,752
Restructuring (b)....................................... 3,012 --
Write-off of in-process research & development costs
(c)................................................... -- 9,000
-------- --------
Net Loss from operations.................................. (2,854) (5,122)
Other expense............................................. (151) (161)
Interest expense (d)...................................... (35,381) (25,288)
-------- --------
Net loss before income taxes (e).......................... (38,386) (30,571)
Income tax benefit (expense).............................. -- --
-------- --------
Net loss (e).............................................. $(38,386) $(30,571)
======== ========
OTHER DATA:
EBITDA (f)................................................ $ 39,247 33,627
Depreciation and amortization (g)......................... 39,240 28,811
Capital expenditures...................................... 7,024 4,423
Cash interest expense (h)................................. 24,014
Ratio of EBITDA to cash interest expense.................. 1.4x
Ratio of total net debt to EBITDA (i)..................... 8.24x
BALANCE SHEET DATA (AT SEPTEMBER 30, 1999):
Cash on hand.............................................. $ 8,009
Total assets.............................................. 577,751
Total debt................................................ 277,193
Old senior preferred stock and Preferred Stockholder
Warrants (j)............................................ 75,000
Shareholders' equity...................................... 112,922
</TABLE>
(FOOTNOTES APPEAR ON THE FOLLOWING PAGE)
16
<PAGE>
(FOOTNOTES FROM TABLE ON PRIOR PAGE)
(a) Some depreciation and amortization charges are reflected in other expense
line items.
(b) In 1998, CompassLearning adopted a formal action plan for restructuring its
operations. The charge to earnings was $3.0 million. This restructuring
included a realignment of sale and service functions, certain on-line
training initiatives and headcount reductions. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Overview--
CompassLearning Restructuring."
(c) As part of the acquisition by WRC Media, CompassLearning wrote off certain
costs related to in-process research and development activities.
(d) For more information regarding our calculation of pro forma interest
expense, see note (f) to the Unaudited Pro Forma Consolidated Statements of
Operations included in this prospectus.
(e) Balances presented are before extraordinary items.
(f) EBITDA is defined as income before income taxes, interest expense,
depreciation and amortization, restructuring charges (described in note (b)
above) and non-recurring items (consisting solely of the non-recurring
income described in this paragraph). For the nine months ended
September 30, 1999, non-recurring income of $0.4 million and $1.5 million of
non-cash charges have been excluded from EBITDA. For more information
regarding our calculation of EBITDA, see notes (h) and (i) to the Unaudited
Pro Forma Consolidated Statements of Operations included in this prospectus.
EBITDA data is included because we understand that such information is
considered by certain investors as an additional basis on which to evaluate
WRC Media's ability to pay interest, repay debt and make capital
expenditures. Because all companies do not calculate EBITDA identically, the
presentation of EBITDA herein is not necessarily comparable to similarly
titled measures of other companies. EBITDA does not represent and should not
be considered more meaningful than, or an alternative to, measures of
operating performance as determined by generally accepted accounting
principles.
(g) Represents pro forma depreciation and amortization including depreciation
and amortization reflected in other cost line items, other than amortization
of deferred financing costs, which is included in interest expense.
(h) Cash interest expense excludes amortization of deferred financing costs and
original issue discount.
(i) Net debt represents total debt net of cash on hand.
(j) Represents $75.0 million in initial liquidation value of the old senior
preferred stock issued in connection with the transactions described under
"Transactions." Approximately $11.8 million is attributable to the value of
the warrants to acquire 13.0% of the common stock of Weekly Reader and 13.0%
of the common stock of CompassLearning. These warrants were issued in
connection with the old senior preferred stock mentioned above.
17
<PAGE>
RATIO OF EARNINGS TO FIXED CHARGES
(IN THOUSANDS)
We present below the ratio of (1) our earnings to fixed charges and (2) our
earnings to combined fixed charges and preferred stock dividends. Earnings
consist of net income (loss) plus fixed charges. Fixed charges consist of
interest expense, including amortization of debt issuance costs. The "pro forma"
information for the nine months ended September 30, 1999 and the year ended
December 31, 1998, reflects the original issuance of the 12 3/4% Senior
Subordinated Notes due 2009 and the issuance of the 15% Senior Preferred Stock
due 2011, as if these events had occurred as of January 1, 1998.
<TABLE>
<CAPTION>
PRE-
SUCCESSOR PREDECESSOR PREDECESSOR
--------- --------------------------------------------------------- -----------
FOR THE YEARS ENDED DECEMBER 31,
7/14-9/30 1/1-7/13 -------------------------------- 6/30-12/31 7/6/94-
1999 1999 1998 1997 1996 1995 6/29/95
--------- -------- --------- --------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
WRC MEDIA INC. AND SUBSIDIARY
(COMPASSLEARNING)
(Deficiency) excess of
earnings to fixed
charges................. $(10,296) $(778) $(7,773) $(56,204) $(22,279) $(21,273) $(12,399)
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JUNE 30,
----------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
ACTUAL
<S> <C> <C> <C> <C> <C>
AMERICAN GUIDANCE
Ratio of earnings to cover
fixed charges...................... 46.56x 14.24x 4.59x 2.80x --
(Deficiency) of earnings to
fixed charges...................... -- -- -- -- $(6,445)
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30, FOR THE YEARS ENDED DECEMBER 31,
------------- ----------------------------------------------------
1999 1998 1997 1996 1995 1994
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
WEEKLY READER
Ratio of earnings to cover
fixed charges...................... 1.13x 1.62x 1.52x -- 1.01x --
(Deficiency) of earnings to
fixed charges...................... -- -- -- $(2,863) -- $(1,708)
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 1999, DECEMBER 31, 1998
------------------- -----------------
(PRO FORMA) (PRO FORMA)
<S> <C> <C>
WRC MEDIA INC. AND SUBSIDIARY
(Deficiency) excess of earnings to fixed
charges......................................... $(30,571) $(38,386)
</TABLE>
18
<PAGE>
RISK FACTORS
BEFORE YOU INVEST IN THE NEW NOTES OR THE NEW SENIOR PREFERRED STOCK, YOU SHOULD
BE AWARE THAT AN INVESTMENT IN THE NEW NOTES OR THE NEW SENIOR PREFERRED STOCK
INVOLVES VARIOUS RISKS, INCLUDING THOSE DESCRIBED IN THIS SECTION. YOU SHOULD
CAREFULLY CONSIDER THESE RISK FACTORS, TOGETHER WITH THE OTHER INFORMATION IN
THIS PROSPECTUS, BEFORE DECIDING TO EXCHANGE THE OLD NOTES OR THE OLD SENIOR
PREFERRED STOCK.
FAILURE TO EXCHANGE YOUR OLD NOTES OR OLD SENIOR PREFERRED STOCK--IF YOU FAIL TO
EXCHANGE YOUR OLD NOTES OR OLD SENIOR PREFERRED STOCK, THEY WILL CONTINUE TO BE
RESTRICTED SECURITIES AND MAY BECOME LESS LIQUID.
The old notes and the old senior preferred stock which you do not tender or
we do not accept will, following the exchange offer, continue to be restricted
securities. Therefore, you may only transfer or resell them in a transaction
registered under or exempt from the Securities Act of 1933 and applicable state
securities laws. We will issue the new notes in exchange for the old notes and
the new senior preferred stock in exchange for the old senior preferred stock
pursuant to the exchange offer only following the satisfaction of the procedures
and conditions described in "The Exchange Offer." Following the exchange offer,
if you did not tender your old notes, or we did not accept your tender, you
generally will not have any further registration rights unless you qualify for
the shelf registration rights described under "Registration Rights." Following
the exchange offer, if you did not tender your old senior preferred stock, or we
did not accept your tender, you may have the demand and incidental registration
rights described under "Registration Rights--the Senior Preferred Stock."
We do not currently anticipate that we will register the remaining old notes
under the Securities Act of 1933 or that we will register the remaining old
senior preferred stock unless required to do so pursuant to the senior preferred
stockholders agreement.
Because we anticipate that most holders of the old notes and old senior
preferred stock will elect to exchange such old notes or such old senior
preferred stock, we expect that the liquidity of the markets, if any, for any
old notes and old senior preferred stock remaining after the completion of the
exchange offer may be substantially limited. Any old notes tendered and
exchanged in the exchange offer will reduce the aggregate principal amount of
the old notes outstanding. Any old senior preferred stock tendered and exchanged
in the exchange offer will reduce the aggregate liquidation value of the old
senior preferred stock outstanding.
SUBSTANTIAL LEVERAGE AND DEBT SERVICE--WE HAVE SUBSTANTIAL DEBT AND HAVE
SIGNIFICANT INTEREST PAYMENT REQUIREMENTS WHICH COULD ADVERSELY AFFECT OUR
ABILITY TO FULFILL OUR OBLIGATIONS UNDER THE NOTES AND THE SENIOR PREFERRED
STOCK AND TO OPERATE OUR BUSINESS.
We have a significant amount of indebtedness. On a pro forma basis, after
giving effect to the transactions described under "Transactions," as of
September 30, 1999, we would have had total indebtedness of approximately
$277.2 million and total shareholders' equity of $112.9 million. This pro forma
total indebtedness amount excludes unused commitments under the revolving credit
facility and is net of original issue discount on the old notes of $2.1 million
and discount of $3.7 million associated with the WRC Media common stock portion
of the units issued in connection with the transactions described under
"Transactions."
We will be able to incur substantial additional indebtedness in the future,
including $30.0 million of additional debt under the revolving credit facility.
All borrowings under the senior credit facilities, and WRC Media's and the note
guarantors' guarantees of them, will be secured and senior to the senior
preferred stock, the notes and the note guarantees.
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Our substantial indebtedness could have important consequences to the
holders of the notes and the senior preferred stock. For example, it could:
- make it more difficult for us to satisfy our obligations with respect to
the notes and the senior preferred stock;
- require us to dedicate a substantial portion of our cash flow from
operations to payments on our indebtedness, thereby reducing the
availability of our cash flow to fund the implementation of our business
strategy, working capital, capital expenditures, product development
efforts and other general corporate purposes;
- increase our interest expense if interest rates in general increase
because certain of our debt will bear interest based on market rates;
- increase our vulnerability to general adverse economic and industry
conditions;
- limit our flexibility in planning for, or reacting to, changes in our
business and the industry in which we operate;
- place us at a competitive disadvantage compared to our competitors that
have less debt;
- prevent us from raising the funds necessary to repurchase all of the notes
tendered to us upon the occurrence of certain changes of control, which
would constitute an event of default under the notes;
- prevent us from raising the funds necessary to redeem all of the senior
preferred stock upon the occurrence of a change of control; and
- limit, along with the financial and other restrictive covenants in our
indebtedness, among other things, our ability to borrow additional funds;
failing to comply with those covenants could result in an event of default
which, if not cured or waived, could have a material adverse effect on us.
We expect to pay our expenses and principal and interest on the notes and
other debt and interest and dividends on senior preferred stock with cash flow
from operations and future borrowings under the revolving credit facility. Our
ability to make payments on and to refinance our indebtedness, including the
notes and the senior preferred stock, and to fund our business strategy, working
capital, product development efforts and capital expenditures will depend on our
ability to generate cash in the future, which is subject to:
- general economic;
- financial;
- competitive;
- legislative;
- regulatory; and
- other factors that are beyond our control.
On a pro forma basis after giving effect to the transactions described under
"Transactions," our earnings would have been insufficient to cover our fixed
charges by $38.4 million for the year ended December 31, 1998, and
$30.6 million for the nine months ended September 30, 1999.
We cannot assure the holders of the notes and the senior preferred stock
that our business will generate sufficient cash flow from operations, or that
future borrowings will be available to us and our subsidiaries under the
revolving credit facility in an amount sufficient to enable us to pay our
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indebtedness, including the notes and the senior preferred stock, or to fund our
other liquidity needs. If we cannot service our indebtedness, we will be forced
to take actions such as:
- delaying or reducing the implementation of our business strategy, capital
expenditures or product development efforts;
- selling assets;
- restructuring or refinancing our indebtedness (which could include the
notes); or
- seeking additional equity capital or bankruptcy protection.
We cannot assure the holders of the notes and the senior preferred stock
that any of these remedies can be effected on commercially reasonable terms or
at all. In addition, the terms of existing or future debt agreements, including
the credit agreement relating to the senior credit facilities and the notes
indenture, may restrict us from adopting any of these alternatives.
See "--Restrictive Covenants in Our Debt Instruments," "Description of
Senior Credit Facilities," "Description of New Notes--Repurchase at the Option
of Holders--Change of Control" and "Description of New Senior Preferred
Stock--Redemption of Senior Preferred Stock--Change of Control."
RANKING OF THE NOTES--YOUR RIGHT TO RECEIVE PAYMENTS ON THE NOTES WILL BE JUNIOR
TO OUR SENIOR DEBT AND MAY BE SUBJECT TO CERTAIN OTHER RESTRICTIONS.
The notes and the note guarantees will rank behind all of the issuers' and
the note guarantors' senior debt, which is all of their existing indebtedness
(other than trade payables) and future borrowings (other than trade payables)
except any future indebtedness that expressly provides that it ranks equal with,
or subordinated in right of payment to, the notes or the note guarantees.
Assuming we had completed the transactions described under "Transactions" on
September 30, 1999, the notes and the note guarantees would have been
subordinated to $131.0 million of senior debt (excluding $30.0 million of
available borrowings under the revolving credit facility). We will be permitted
to borrow substantial additional indebtedness, including senior debt, in the
future under the notes indenture.
None of the issuers or the note guarantors may pay principal, premium (if
any), interest or other amounts on account of the notes or any note guarantee if
they default on a payment on any senior debt or if they default on any
obligation that has resulted in the acceleration of designated senior debt,
including the senior credit facilities, unless such debt has been paid in full
or the default has been cured or waived. In the event of certain other defaults
with respect to designated senior debt, neither the issuers nor the note
guarantors may be permitted to pay any amount on account of the notes or any
note guarantee for up to 179 of 360 consecutive days. See "Description of New
Notes--Subordination" for a description of the designated senior debt. In the
event of a bankruptcy, liquidation, dissolution, reorganization or similar
proceeding with respect to any of the issuers or note guarantors, such issuer's
or note guarantor's assets will be available to pay obligations on the notes or
such note guarantor's note guarantee, as applicable, only after the senior debt
of such issuer or note guarantor has been paid in full. As a result, we cannot
assure the holders of the notes that there will be sufficient assets remaining
to pay amounts due on all or any of the notes or any note guarantee.
In addition, Weekly Reader's and CompassLearning's indebtedness under the
senior credit facilities and WRC Media's and the note guarantors' guarantees
relating to such senior credit facilities are secured by liens on substantially
all of the issuers' and the note guarantors' assets. If any of the issuers, the
note guarantors or certain of their subsidiaries are declared bankrupt or
insolvent or if any of them default under the senior credit facilities, the
lenders could declare all of the funds borrowed under the senior credit
facilities, together with accrued and unpaid interest, immediately due and
payable. If CompassLearning or Weekly Reader were unable to repay such
indebtedness or if WRC Media or any
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of the other guarantors of the senior credit facilities were unable to satisfy
their guarantees under the senior credit facilities, the lenders could foreclose
on the pledged stock and on the assets in which they have been granted a
security interest, in each case to the exclusion of the holders of the notes,
even if an event of default exists under the notes indenture at such time.
Furthermore, under the note guarantees, if all shares of any note guarantor are
sold to persons pursuant to an enforcement of the pledge of shares of such note
guarantor for the benefit of the lenders under the senior credit facilities,
then the applicable note guarantor will be released from its note guarantee
automatically and immediately upon such sale. See "Description of Senior Credit
Facilities."
WRC Media conducts all of its operations through its subsidiaries, while
Weekly Reader conducts some of its operations through its subsidiaries. The
ability of subsidiaries of the issuers of the notes and the note guarantors to
pay dividends and make other payments may be restricted by, among other things,
applicable corporate and other laws and regulations and agreements of these
subsidiaries. Although the notes indenture will limit the ability of these
subsidiaries to enter into consensual restrictions on their ability to pay
dividends and make other payments, such limitations are subject to a number of
significant qualifications and exceptions. See "Description of New
Notes--Material Covenants--Dividend and Other Payment Restrictions Affecting
Restricted Subsidiaries."
RANKING OF THE SENIOR PREFERRED STOCK--THE SENIOR PREFERRED STOCK IS
SUBORDINATED TO OUR DEBT. AS A RESULT, UPON ANY DISTRIBUTION TO OUR CREDITORS IN
A BANKRUPTCY, LIQUIDATION OR REORGANIZATION OR SIMILAR PROCEEDING RELATING TO US
OR OUR PROPERTY, THE HOLDERS OF OUR DEBT WILL BE ENTITLED TO BE PAID IN CASH
BEFORE ANY PAYMENT MAY BE MADE WITH RESPECT TO THE SENIOR PREFERRED STOCK.
Our obligations with respect to the senior preferred stock are subordinate
and junior in right of payment to all our present and future indebtedness,
including the senior credit facilities and the old and new notes, but will rank
senior to our existing equity securities. The old and new senior preferred stock
will have an equal rank. In the event of our bankruptcy, liquidation or
reorganization, our assets will be available to pay obligations on the senior
preferred stock only after all holders of our indebtedness and all our other
creditors have been paid, and there may not be sufficient assets remaining to
pay amounts due on any or all of the senior preferred stock then outstanding.
See "Description of New Senior Preferred Stock--Ranking."
While any shares of the senior preferred stock are outstanding, without the
written consent of a majority of the outstanding shares of the senior preferred
stock, we may not create, authorize, issue or reclassify:
- any class of stock ranking prior to, or on parity with, the senior
preferred stock with respect to dividends or upon liquidation,
dissolution, winding up or otherwise; or
- any security that is convertible or exchangeable into such stock.
However, without such approval, we may create, authorize, issue or reclassify
shares of securities that rank equally in right of payment with the senior
preferred stock if we use the proceeds from the issuance of such securities for
the redemption of all outstanding shares of the senior preferred stock in
accordance with the terms of the certificate of designations relating to the
senior preferred stock.
DIVIDENDS--OUR ABILITY TO PAY ANY DIVIDENDS ON THE SENIOR PREFERRED STOCK MAY BE
LIMITED.
Our ability to pay any cash or noncash dividends on the senior preferred
stock is subject to applicable provisions of state law and to the terms of the
notes indenture, the senior credit facilities and any other outstanding
indebtedness. We are not required to pay cash dividends on the senior preferred
stock until December 31, 2004. The terms of the notes indenture permit us to pay
any cash dividend on the senior preferred stock only if the amount of the cash
dividend is permitted under the covenant for restricted payments described under
"Description of New Notes--Material Covenants" and in the absence of any default
under the notes indenture. We cannot assure the holders of the
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senior preferred stock that the notes indenture or the terms of our other
indebtedness will permit us to pay cash dividends on the senior preferred stock.
Moreover, under Delaware law, we are permitted to pay cash or noncash
dividends on our capital stock, including the senior preferred stock, only out
of surplus, or in the event that there is no surplus, out of our net profits for
the fiscal year in which a dividend is declared or for the immediately preceding
fiscal year. Surplus is defined as the excess of a company's total assets over
the sum of its total liabilities plus the par value of its outstanding capital
stock. In order to pay dividends, we must have surplus or net profits equal to
the full amount of the dividends at the time such dividend is declared. In
determining our ability to pay dividends, Delaware law permits our board of
directors to revalue our assets and liabilities from time to time to their fair
market values in order to establish the amount of surplus. We cannot predict
what the value of our assets or the amount of our liabilities will be in the
future and, accordingly, we cannot assure the holders of the senior preferred
stock that we will be able to pay dividends on the senior preferred stock.
RESTRICTIVE COVENANTS IN OUR DEBT INSTRUMENTS--RESTRICTIVE DEBT COVENANTS IN THE
CREDIT AGREEMENT RELATING TO THE SENIOR CREDIT FACILITIES, THE NOTES INDENTURE
AND FUTURE DEBT AGREEMENTS MAY ADVERSELY AFFECT US.
The credit agreement relating to the senior credit facilities and the notes
indenture will restrict our and our subsidiaries' ability to:
- incur additional indebtedness;
- pay dividends and make other distributions;
- prepay subordinated debt;
- make restricted payments;
- create liens;
- sell and otherwise dispose of assets; and
- enter into certain transactions with affiliates.
We cannot assure the holders of the notes and the senior preferred stock
that these restrictions will not adversely affect our ability to finance future
operations, implement our business strategy, fund our capital needs or engage in
other business activities that may be in our interest. In addition, the credit
agreement relating to the senior credit facilities will require us to maintain
compliance with certain financial ratios. Our ability to comply with these
ratios may be affected by events beyond our control.
A breach of any of these restrictive covenants or our inability to comply
with the required financial ratios could result in a default under the senior
credit facilities. In the event of any such default, the lenders under the
senior credit facilities may elect to:
- declare all borrowings outstanding, together with accrued and unpaid
interest and other fees, to be immediately due and payable;
- require us to apply all of our available cash to repay such borrowings; or
- prevent us from making debt service payments on the notes which would
result in an event of default under the terms of the notes.
The lenders will also have the right in such circumstances to terminate any
commitments they have to provide further financing, including under the
revolving credit facility.
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If we are unable to repay any such borrowings when due, the lenders under
the senior credit facilities also will have the right to proceed against the
collateral, which will consist of substantially all of the assets of WRC Media
and each of its direct and indirect domestic subsidiaries, including:
- Weekly Reader;
- American Guidance;
- CompassLearning; and
- World Almanac.
The lenders under the senior credit facilities will also have the right to
proceed against up to 65% of the capital stock of any future direct and indirect
foreign subsidiary of WRC Media. If the indebtedness under the senior credit
facilities and the notes were to be accelerated, we cannot assure the holders of
the notes and the senior preferred stock that our assets would be sufficient to
repay such indebtedness in full. Any future credit agreements or other agreement
relating to our indebtedness to which we or any of our subsidiaries may become a
party or under which we are or any one of our subsidiaries is a guarantor may
include the covenants described above and other restrictive covenants.
See "Description of New Notes--Material Covenants" and "Description of
Senior Credit Facilities."
HISTORY OF NET LOSSES--WE HAVE INCURRED NET LOSSES AT COMPASSLEARNING AND MAY
CONTINUE TO INCUR NET LOSSES.
We cannot assure the holders of the notes and the senior preferred stock
that CompassLearning will be able to achieve net income in the future on a
sustained basis or at all. CompassLearning reported net losses of:
- $22.3 million for the year ended December 31, 1996;
- $56.2 million for the year ended December 31, 1997; and
- $7.8 million for the year ended December 31, 1998.
Such net losses resulted principally from two factors: product introduction
issues and a disruption in its sales force. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Results of
Operations--WRC Media and its Subsidiary (CompassLearning)."
NO PRIOR OPERATIONS AS AN INDEPENDENT COMPANY--WE DO NOT HAVE A HISTORY OF
OPERATING AS AN INDEPENDENT COMPANY AND WE MAY NOT ACHIEVE THE ANTICIPATED COST
SAVINGS OF OPERATING INDEPENDENTLY.
Our business plan anticipates that we will have the ability to operate our
subsidiaries with lower costs than the management overhead allocated by PRIMEDIA
prior to the consummation of the transactions described under "Transactions."
These potential annualized cash cost savings are reflected as adjustments in the
unaudited pro forma consolidated financial information in this prospectus. See
"Unaudited Pro Forma Consolidated Financial Information." Actual cost savings,
to the extent realized, may vary considerably, or be considerably delayed,
compared to the estimates described in this prospectus. The potential cost
savings are based on analyses completed by members of our management. Such
analyses involve assumptions as to future events, including:
- general business and industry conditions;
- competitive factors;
- local labor markets; and
- labor productivity.
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Many of these factors are beyond our control and may not materialize. While we
believe these analyses and underlying assumptions to be reasonable, there could
be unforeseen factors that may offset the estimated cost savings or other
components of our business plan in whole or in part.
BUSINESS STRATEGY--WE MAY BE ADVERSELY AFFECTED IF WE ARE UNABLE TO IMPLEMENT
OUR BUSINESS STRATEGY.
Our future financial performance and success are largely dependent on our
ability to successfully implement our business strategy. We cannot assure the
holders of the notes and the senior preferred stock that the implementation of
the business strategy we describe in this prospectus will be successful or that
it will improve our operating results. In particular, we cannot assure the
holders of the notes and the senior preferred stock that:
- we will be able to capitalize on any growth in the supplemental education
materials market;
- extend our brand names into new markets;
- expand our electronic delivery capabilities; or
- successfully cross-sell our products in different distribution channels.
Furthermore, any growth through acquisition or investment will depend upon our
identification of suitable acquisition or investment candidates and our
successful consummation of such transactions on favorable terms. Such
acquisitions and investments may require additional funding which may be
provided in the form of additional debt or equity financing or a combination
thereof. We cannot assure the holders of the notes and the senior preferred
stock that any such additional financing will be available to us on acceptable
terms. In addition, we cannot assure the holders of the notes and the senior
preferred stock that we will be permitted under the senior credit facilities (or
any replacement thereof) or under the terms of the notes indenture to obtain
such financing for such purposes. Moreover, such additional indebtedness may
reduce our liquidity and financial flexibility. Other risks include:
- integrating acquisitions into our business, which would require members of
management to divert their time and resources away from our existing
operations;
- the increasing demands on our operational systems;
- adverse effects on our reported operating results;
- the loss of key employees; and
- the difficulty of presenting a unified corporate image.
See "--History of Net Losses," "--Competition," "Business--Business Strategy,"
"Description of Senior Credit Facilities" and "Description of New
Notes--Material Covenants."
We base our business strategy in part on our assumptions about future demand
for our current products and the new products we are developing, as well as on
our ability to continue to produce our products profitably and to adapt to
changes in our markets. Each of these assumptions could be affected by a number
of factors beyond our control, including:
- trends in the supplemental education materials market;
- increased competition;
- pricing pressures;
- legal developments;
- general economic conditions; or
- increased operating costs or expenses.
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For example, our strategy to expand our electronic delivery capabilities could
be adversely affected by trends in the industry as products in the supplemental
education materials market increasingly move toward an Internet-based delivery
mechanism. Our experience in electronic delivery of courseware is primarily in
networked environments and not over the Internet. In addition, our strategy to
capitalize on any growth in the supplemental education materials market may be
adversely affected by increased competition in so far as growth in the market
may come in segments which are not currently the focus of our product portfolio
but are the focus of one or more of our competitors' products. This type of
growth would necessitate the expansion of our existing product lines or the
development of new products.
Failure to successfully implement our business strategy may adversely affect
our ability to service our indebtedness, including our ability to:
- make principal and interest payments on the notes; and
- pay cash dividends on the senior preferred stock.
We may, in addition, decide to alter or discontinue aspects of our business
strategy at any time.
INCREASES IN PAPER PRICES OR POSTAGE COSTS--OUR BUSINESS MAY BE ADVERSELY
AFFECTED BY INCREASES IN PAPER PRICES OR IN POSTAGE COSTS.
The price of paper is a significant expense of ours relating to our print
products and direct mail solicitations. The price of paper rose dramatically in
1995 and significantly affected our operating income and continues to experience
moderate increases. Postage for product distribution and direct mail
solicitation is also a significant expense for us. We generally use the United
States Postal Service or the United Parcel Service. Postage costs increase
periodically and can be expected to increase in the future. If paper or postage
prices increase significantly and we are unable to pass such increased costs on
to our customers, any such increases could have a material adverse effect on our
business, financial condition and results of operations. We cannot assure the
holders of the notes and the senior preferred stock that we can pass such paper
or postage cost increases through to our customers.
CUSTOMER PURCHASING POWER--MANY OF OUR CUSTOMERS DEPEND ON VARIOUS SOURCES OF
GOVERNMENT FUNDING AND A REDUCTION IN THIS FUNDING COULD ADVERSELY AFFECT US.
Most of our customers make purchases of our products with monies received
from various sources of governmental funding, including Federal, state and local
governments. Although we believe most of our customers are not dependent on a
single source of funding, any reduction in governmental funding earmarked for
education could have a material adverse effect on us.
COMPETITION--WE MAY NOT BE ABLE TO COMPETE SUCCESSFULLY.
The supplemental education materials market is highly competitive and each
of our operating companies faces significant competition within its particular
field of product offerings. In each case, several of our competitors are larger,
with greater financial and other resources, and have more prominent brand names.
Competition from each of our competitors has increased over the past several
years, and we expect it to continue to increase. In addition, our strategy to
capitalize on any growth in the supplemental education materials market may be
adversely affected to the extent that growth occurs in segments that are not
currently the focus of our product portfolio, necessitating the expansion of our
existing product lines or the development of new products. In this respect, we
may be at a competitive disadvantage with entities that already offer such
products, are able to develop new products faster or have superior products.
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In addition, the environment in which we conduct our business is rapidly
evolving. There is a trend towards offering certain supplemental education
materials in an electronic format and in particular over the Internet. We are
likely to see new competitors emerge, increasing competition for customers and
increasing price pressure for our products, particularly from Internet-based
products. Our experience in the electronic delivery of courseware is primarily
in networked environments and not over the Internet. Our failure to adapt to new
technology or delivery methods, or our choice of one technological innovation
over another, may have an adverse impact on our ability to compete for new
customers or meet demands of our existing customers. Therefore, should one or
more of our competitors formulate a business plan to offer supplemental
educational materials to students through the Internet or other media and we
fail to effectively respond, our business, financial condition or results of
operations could suffer a material adverse effect.
Competition from each of our competitors has increased over the past several
years and we expect it to continue to increase. Weekly Reader's primary
competitors are Scholastic Inc. and Time, Inc. Weekly Reader's percentage of the
total circulation of classroom periodicals offered by these three major
publishers of classroom periodicals declined when Time, Inc. expanded the size
of the classroom periodicals market, and captured essentially all of this
expansion of the market, as well as certain existing purchasers of classroom
periodicals, by introducing TIME FOR KIDS in 1995. For additional information
concerning our competitors, including CompassLearning's, American Guidance's and
World Almanac's competitors, see "Business--Competition."
SEASONALITY--OUR BUSINESS IS SEASONAL AND SEASONAL FLUCTUATIONS MAY ADVERSELY
AFFECT US.
Our operating results have varied and are expected to continue to vary from
quarter to quarter as a result of seasonal patterns. Weekly Reader's and
CompassLearning's sales are significantly affected by the school year. Weekly
Reader's sales in the third, and to a lesser extent the fourth, quarter are
typically the strongest as products are shipped in connection with the start of
the school year. CompassLearning's sales are typically strongest in the second
quarter, and to a lesser extent the fourth quarter. CompassLearning's sales are
generally strongest in the second quarter because schools frequently couple
funds from two budget years, which typically end on June 30 of each year, to
make significant purchases, such as purchases of CompassLearning's electronic
courseware, and because by purchasing in the second quarter, schools are able to
have the software products that they purchase installed over the summer and
ready to train teachers when they return from summer vacation. CompassLearning's
fourth quarter sales are strong as a result of sales patterns driven in part by
its commissioned sales force seeking to meet year end sales goals as well as by
schools purchasing software to be installed in time for teachers to be trained
prior to the end of the school year in June. We cannot assure the holders of the
notes and the senior preferred stock that seasonal and quarterly fluctuations
will not have a material adverse effect on our business, financial condition or
results of operations in the future.
DEPENDENCE ON INTELLECTUAL PROPERTY--WE DEPEND UPON BEING ABLE TO USE OUR
LICENSED INTELLECTUAL PROPERTY AND PROTECT OUR OWNED INTELLECTUAL PROPERTY.
DISRUPTIONS OF THE USE OF THIS INTELLECTUAL PROPERTY AND THE CONTRACTUAL
REQUIREMENTS THAT WE TERMINATE THE USE OF THE INTELLECTUAL PROPERTY DESCRIBED
BELOW COULD ADVERSELY AFFECT US.
We rely on copyrights and, in some cases, trademarks to protect our
products. Effective trademark and copyright protection may be unavailable or
limited, or may not be applied for, in the United States. In addition, we have
been, and may in the future be, notified of claims that our products may be
infringing on trademarks, copyrights or other intellectual property rights of
others. Such claims, including any litigation with respect to those claims,
could result in significant expense to us and adversely affect our sales of the
relevant products, whether or not such litigation is resolved in our favor.
In connection with WRC Media's acquisition of CompassLearning,
CompassLearning was granted an exclusive license to use certain trademarks owned
by Jostens, Inc., the former parent company of
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CompassLearning, including "Jostens Learning" and "Jostens Learning
Corporation." We believe that our right to use these trademarks provides us with
a competitive advantage. However, pursuant to the terms of the license
agreement, our right to use these trademarks expires on December 31, 2000.
As a result, as of January 24, 2000, we changed the name of JLC Learning
Corporation to
CompassLearning, Inc. (which we refer to throughout this prospectus as
CompassLearning). Our decision to change the name of CompassLearning, Inc. and
inability to use these trademarks after that date may adversely affect our
business.
From 1991 until November 1999, Weekly Reader and World Almanac were owned by
PRIMEDIA. Subsequent to its acquisition in 1998 and through November 1999,
American Guidance was owned by PRIMEDIA. Although each of Weekly Reader, World
Almanac and American Guidance has maintained its own brands during its ownership
by PRIMEDIA and will continue to retain these brands, Weekly Reader and World
Almanac have previously used the "PRIMEDIA" name in various promotional and
other materials. Under the recapitalization agreement with PRIMEDIA described
under "Transactions," we must cease any use of PRIMEDIA's name in connection
with Weekly Reader's, World Almanac's and American Guidance's ongoing operations
as soon as reasonably practicable, but no later than May 17, 2000. As a result,
we changed the name of PRIMEDIA Reference Inc., to World Almanac Education
Group, Inc. on December 23, 1999 (which we refer to throughout this prospectus
as "World Almanac"). The businesses of each of Weekly Reader, World Almanac and
American Guidance could be materially adversely affected by ceasing to be a part
of PRIMEDIA's operations and being prohibited from using PRIMEDIA's name in
their promotional materials or otherwise.
DEPENDENCE ON KEY MANAGEMENT AND HIGHLY-SKILLED PERSONNEL--WE DEPEND ON OUR
ABILITY TO RETAIN OUR SENIOR MANAGEMENT AND TO RECRUIT AND RETAIN KEY PERSONNEL,
AND ANY FAILURE TO RETAIN SUCCESSFULLY AND RECRUIT SUCH MANAGEMENT OR PERSONNEL
COULD ADVERSELY AFFECT US.
We believe that our success depends on our ability to retain our senior
management team, including, in particular, Martin E. Kenney, Jr., our Chief
Executive Officer. Our business will be managed by a small group of key
executive officers. The loss of services of Mr. Kenney or one or more of these
senior executives could adversely affect our ability to effectively manage our
overall operations or successfully execute current or future business
strategies. We have entered into employment agreements with several of our top
executives, including Mr. Kenney. See "Management."
In addition, our success depends on our continued ability to recruit and
retain highly skilled, knowledgeable and sophisticated technical, managerial,
sales and professional personnel. Competition for highly skilled personnel to
create our supplemental instructional materials and assessment products, and, in
particular, our electronically delivered and Internet-based supplemental
education materials, is intense. Accordingly, we cannot assure the holders of
the notes and the senior preferred stock of our ongoing ability to attract and
retain such qualified employees.
OWNERSHIP OF WRC MEDIA AND ITS SUBSIDIARIES--THE INTERESTS OF OUR CONTROLLING
STOCKHOLDER MAY CONFLICT WITH THE INTERESTS OF THE HOLDERS OF THE NOTES AND THE
SENIOR PREFERRED STOCK.
After consummation of the transactions described under "Transactions,"
Ripplewood Holdings L.L.C., through its beneficial ownership of our common stock
and the rights granted to it under certain shareholder agreements and the
limited liability company agreement of EAC III L.L.C., owns approximately 73.3%
of our voting equity, and has effective control of us by virtue of its ability
to elect the majority of our directors and the directors of our subsidiaries, to
approve any action requiring the approval of our stockholders, such as
amendments to our charter documents, and to effect fundamental corporate
transactions such as mergers and certain asset sales. The interests of
Ripplewood Holdings L.L.C. as a stockholder may differ from the interests of the
holders of the senior preferred stock and the notes. See "Ownership of Stock."
In addition, Ripplewood Holdings L.L.C. may in the future make significant
investments in other education-based companies. Some of these companies may be
our competitors. Ripplewood Holdings
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L.L.C. and its affiliates are not obligated to advise us of any investment or
business opportunities of which they are aware.
INABILITY TO REPURCHASE THE NOTES PRIOR TO OR AT MATURITY OR TO REDEEM THE
SENIOR PREFERRED STOCK PRIOR TO OR AT MATURITY--WE MAY BE UNABLE TO MAKE A
CHANGE OF CONTROL OFFER OR AN ASSET SALE OFFER WHEN REQUIRED BY THE CERTIFICATE
OF DESIGNATIONS RELATING TO THE SENIOR PREFERRED STOCK OR THE NOTES INDENTURE
BECAUSE OF PROHIBITIONS IN THE SENIOR CREDIT FACILITIES AND THE NOTES INDENTURE.
If we experience certain changes of control:
- holders of the notes will have the right to require us to repurchase the
notes at a purchase price equal to 101% of the principal amount of the
notes plus accrued and unpaid interest and liquidated damages; or
- to the extent WRC Media has legally available funds for such payment and
to the extent permitted by the notes indenture, WRC Media must offer to
redeem any and all shares of senior preferred stock then outstanding in
cash.
In addition, if we make certain asset sales, we may be required to repurchase
some or all of the notes at a purchase price in cash equal to 100% of the
principal amount of the notes plus accrued and unpaid interest and liquidated
damages. However, we are prohibited by the senior credit facilities from
repurchasing any notes or redeeming any shares of senior preferred stock. The
senior credit facilities also provide that certain change of control events and
asset sales with respect to us constitute a default under the senior credit
facilities. We may also become a party to, or guarantor under, future credit
agreements or other agreements relating to senior indebtedness that contain
similar restrictions or provisions.
If we experience certain changes of control or make certain asset sales when
we are prohibited from repurchasing notes or redeeming senior preferred stock,
we could seek the consent of the lenders under the senior credit facilities to
purchase the notes or redeem the senior preferred stock or could attempt to
refinance the borrowings that contain such a prohibition. If we do not obtain
such consent and do not refinance such borrowings, we would remain prohibited
from purchasing the notes or redeeming the senior preferred stock. In such case,
our failure to purchase tendered notes would constitute a default under the
notes indenture. This in turn, could result in amounts outstanding under the
senior credit facilities and other senior indebtedness being declared due and
payable. Any such declaration could have adverse consequences to both the
holders of the notes and the senior preferred stock as well as us. If we
experience certain changes of control or make certain asset sales, we cannot
assure the holders of the notes and the senior preferred stock that we would
have sufficient funds to satisfy all of our obligations under the senior credit
facilities, the notes and the senior preferred stock. If a default occurs with
respect to any senior indebtedness, the subordination provisions of the notes
would likely restrict payments to the holders of the notes and the senior
preferred stock. The provisions relating to a change of control included in the
notes indenture or the certificate of designations relating to the senior
preferred stock may increase the difficulty of a potential acquiror obtaining
control of us. See "Description of Senior Credit Facilities," "Description of
New Notes--Repurchase at the Option of Holders--Change of Control" and
"Description of New Notes--Repurchase at the Option of Holders--Asset Sales."
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FRAUDULENT CONVEYANCE MATTERS--UNDER FEDERAL AND STATE STATUTES, UNDER SPECIFIC
CIRCUMSTANCES, A COURT MAY VOID OUR OBLIGATIONS AND A NOTE GUARANTOR'S
OBLIGATIONS TO THE HOLDERS OF THE NOTES WITH RESPECT TO THE NOTES AND REQUIRE
THE RETURN OF CERTAIN PAYMENTS RECEIVED FROM US OR THE NOTE GUARANTORS BY THE
HOLDERS OF THE NOTES.
Under Federal bankruptcy law and comparable provisions of state fraudulent
transfer laws, a note or note guarantee could be voided, or claims in respect of
a note or note guarantee could be subordinated to all other debts of any of the
issuers of the notes or the applicable note guarantor if, among other things,
such issuer or note guarantor, at the time the indebtedness represented by the
old notes or the applicable note guarantee was incurred:
- incurred such indebtedness with the intent to hinder, delay or defraud
creditors; or
- received less than reasonably equivalent value or fair consideration for
the incurrence of such indebtedness; and
- was insolvent or rendered insolvent because of such incurrence; or
- was engaged or about to engage in a business or transaction for which its
remaining assets constituted unreasonably small capital; or
- intended to incur, or believed that it would incur, debts beyond its
ability to pay such debts as they mature.
In addition, any payment by any of the issuers of the notes pursuant to the
terms of the notes or by a note guarantor pursuant to its note guarantee could
be voided and required to be returned to such issuer or note guarantor, or to a
fund for the benefit of such issuer's or note guarantor's creditors.
The measures of insolvency for purposes of these fraudulent transfer laws
will vary depending upon the law applied in any proceeding to determine whether
a fraudulent transfer has occurred. Generally, however, a person would be
considered insolvent if:
- the sum of its debts, including contingent liabilities, were greater than
the fair saleable value of all of its assets; or
- if the present fair saleable value of its assets were less than the amount
that would be required to pay its probable liability on its existing
debts, including contingent liabilities, as they become absolute and
mature; or
- it could not pay its debts as they become due.
On the basis of historical financial information, recent operating history
and other factors, we believe that each issuer and each note guarantor, after
giving effect to the indebtedness incurred in connection with the transactions
described under "Transactions," will:
- not be insolvent;
- not have unreasonably small capital for the business in which it is
engaged; and
- not have incurred debts beyond its ability to pay such debts as they
mature.
We cannot assure the holders of the notes, however, as to what standard a court
would apply in making such determinations or that a court would agree with our
conclusions in this regard.
Moreover, although the note guarantees provide the holders of the notes with
a direct claim against the assets of the note guarantors, enforcement of the
note guarantees against any note guarantor may be subject to a legal challenge
in a bankruptcy or reorganization case or a lawsuit by or on behalf of creditors
of such note guarantor and would be subject to certain defenses available to
guarantors generally. Although the notes indenture contains waivers of most
guarantor defenses, certain of those waivers may not be enforced by a court in a
particular case. To the extent that the note guarantees are not enforceable, the
notes would be effectively subordinated to all liabilities of the note
guarantors, including trade payables, whether or not such liabilities constitute
senior debt under the notes indenture.
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THERE IS NO PRIOR MARKET FOR THE SECURITIES--HOLDERS OF THE NEW NOTES AND THE
NEW SENIOR PREFERRED STOCK CANNOT BE SURE THAT AN ACTIVE TRADING MARKET WILL
DEVELOP FOR THE NEW NOTES OR THE NEW SENIOR PREFERRED STOCK. IF AN ACTIVE
TRADING MARKET FOR THE NEW NOTES OR THE NEW SENIOR PREFERRED STOCK DOES NOT
DEVELOP, THE LIQUIDITY AND VALUE OF THE SECURITIES COULD BE HARMED.
The securities are new securities for which there is currently no trading
market. This exchange offer is not conditioned on any minimum or maximum
aggregate principal amount of old notes and the number of old senior preferred
stock being tendered for exchange. Although Donaldson, Lufkin & Jenrette
Securities Corporation and Banc of America Securities LLC have advised us that
they currently intend to make a market in the new notes, they are not obligated
to do so and they may cease any market-making at any time without notice. In
addition, such market making activity may be limited during the pendency of the
exchange offer for the notes or the effectiveness of a shelf registration
statement in lieu thereof. Accordingly, we cannot assure the holders of the new
notes and the new senior preferred stock as to the development or liquidity of
any market for the new notes and the new senior preferred stock. We do not
intend to apply for listing of the new notes or the new senior preferred stock
on any securities exchange or interdealer quotation system.
ORIGINAL ISSUE DISCOUNT--THE NOTES WILL BE CONSIDERED TO BE ISSUED WITH ORIGINAL
ISSUE DISCOUNT, WHICH MAY RESULT IN THE CREATION OF TAXABLE INTEREST INCOME FOR
THE HOLDERS AND MAY LIMIT THE HOLDERS' CLAIMS IN THE EVENT OF A BANKRUPTCY.
The notes will be considered to be issued with original issue discount for
U.S. Federal income tax purposes. Original issue discount is the difference
between the stated redemption price at maturity of the notes and the issue price
of the notes and will accrue from the issue date of the notes and generally will
be includable as interest income in the holder's gross income for U.S. Federal
income tax purposes in advance of the cash payments to which the income is
attributable. For a more detailed discussion of the U.S. Federal income tax
consequences to the holders of the notes of the exchange, ownership and
disposition of such notes, see "Certain U.S. Federal Tax Considerations."
If a bankruptcy case is commenced by or against us under Federal bankruptcy
law after the issuance of the notes, the claim of a holder of any of the notes
with respect to the principal amount thereof may be limited to an amount equal
to the sum of:
(1) the initial offering price allocable to the notes; and
(2) the portion of original issue discount which is not deemed to constitute
"unmatured interest" for purposes of Federal bankruptcy law.
Any original issue discount that was not amortized as of any such bankruptcy
filing would constitute "unmatured interest."
CERTAIN TAX CONSIDERATIONS FOR THE SENIOR PREFERRED STOCK--HOLDERS OF THE SENIOR
PREFERRED STOCK WILL HAVE TO RECOGNIZE INCOME IN ADVANCE OF THEIR RECEIPT OF THE
CASH ATTRIBUTABLE TO SUCH INCOME.
Because the redemption price of the senior preferred stock exceeds its issue
price by more than a DE MINIMIS amount, a holder of the senior preferred stock
will be required to treat such excess as a series of constructive distributions
over the term of the senior preferred stock notwithstanding that the cash
attributable to such excess will not be received by the holder until a
subsequent period.
In the case of a distribution on the senior preferred stock that is paid in
the form of additional shares of the senior preferred stock ("additional
preferred shares," each, individually, an "additional preferred share"), the
fair market value of the additional preferred shares on the distribution date
will be taxable for U.S. Federal income tax purposes in the same manner as a
cash distribution on the distribution date notwithstanding that the cash
attributable to such distribution will not be received by the holder until a
subsequent period. In addition, if the redemption price of an additional
preferred share exceeds the issue price of such share by more than a DE MINIMIS
amount, then a holder thereof
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would be required to treat such excess as a series of constructive distributions
over the term of the additional preferred share as described under the rules
above. For a more detailed discussion of the U.S. Federal income tax
consequences to the holders of the senior preferred stock of the exchange,
ownership and disposition of such preferred stock, see "Certain U.S. Federal Tax
Considerations."
YEAR 2000 COMPLIANCE PROBLEMS COULD AFFECT OUR BUSINESS--IF WE FAIL TO RESOLVE
POTENTIAL YEAR 2000 PROBLEMS IN A TIMELY MANNER, WE COULD EXPERIENCE SIGNIFICANT
BUSINESS DISRUPTIONS.
We cannot assure the holders of the notes and the senior preferred stock
that our Year 2000 program or the programs of third parties who do business with
us has been effective. To date, we have not experienced any problem in light of
Year 2000 information processing issues. To our knowledge, all products and
services were provided through January 1, 2000 without any interruption or loss.
However, it is still too early to assess whether we will experience any of the
potential Year 2000 information processing problems. Significant Year 2000
information processing problems which may yet be encountered by us or certain of
our customers or suppliers could have an adverse effect on our business. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Year 2000 Risk."
The Year 2000 issue is the result of computer programs that were written
using only two digits, rather than four, to represent a year. Date-sensitive
software or hardware may not be able to distinguish between the years 1900 and
2000 and programs that perform arithmetic operations, comparisons or sorting of
date fields may begin yielding incorrect results. This could potentially cause a
system failure or miscalculations.
Our operations may be affected by Year 2000-related risks resulting from:
- noncompliance in our own products or facilities;
- noncompliance in hardware and software systems used in conjunction with
our products or interacting with our products; or
- noncompliance in the products or services of significant suppliers of
goods and services.
Such Year 2000-related defects could result in disruption in our operations,
damage to our reputation, possible litigation and significant losses in revenue,
all or any of which could have a significant adverse effect on our future
results of operations, financial position or cash flow.
The majority of CompassLearning's products and some of World Almanac's
computer-based products operate in complex computer networked environments and
directly or indirectly interact with a number of our customers' or potential
customers' hardware and software systems. Furthermore, some of CompassLearning's
computer-based products are designed to operate in conjunction with hardware and
software systems designed by third parties, such as Apple and Novell. These
third-party hardware and software systems may contain errors or defects
associated with Year 2000 date functions. We are presently unable to predict to
what extent our business may be affected if such third-party hardware or
software systems contain errors or defects associated with Year 2000 date
functions.
In addition, all of our products and operations are subject to Year
2000-related risks that may be caused by the noncompliance of the products or
services of third-party suppliers. We rely on a broad range of suppliers to
deliver goods and services such as:
- utilities;
- pre-press operations;
- printing services;
- paper;
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- wholesale distribution;
- mailings; and
- banking services.
Although we have communicated with suppliers, financial institutions and other
third parties we do business with to obtain reasonable assurance that their
products and services were Year 2000 compliant, we cannot assure the holders of
the notes and the senior preferred stock that their responses are reliable or
that the Year 2000 compliance programs of such third parties were effective or
completed by December 31, 1999.
Although we believe, based on efforts to date, that our products and
facilities will be substantially Year 2000 ready, any inability to remedy
unforeseen Year 2000 problems or the failure of third parties to do so may
cause:
- business interruptions or shutdown;
- financial loss;
- regulatory actions;
- reputational harm; or
- legal liability.
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THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
In connection with the sale of the old notes, we entered into a registration
rights agreement with Donaldson, Lufkin & Jenrette Securities Corporation and
Banc of America Securities LLC under which we agreed to file with the Securities
and Exchange Commission an exchange offer registration statement with respect to
the exchange of the old notes for a series of registered notes with
substantially identical terms as the old notes. The new notes, however, will not
contain terms with respect to transfer restrictions and will not require us to
consummate a registered exchange offer. In the event the exchange offer for the
old notes is completed, we will not be required to register the remaining old
notes unless holders are entitled to shelf registration rights under the
circumstances described under "Registration Rights--The Notes."
In connection with the sale of the old senior preferred stock, we entered
into a senior preferred stockholders agreement with DLJ Merchant Banking
Partners II, L.P. and the other parties signatory thereto under which we agreed
to file with the Securities and Exchange Commission an exchange offer
registration statement with respect to the exchange of the old senior preferred
stock for registered senior preferred stock with identical terms as the old
senior preferred stock, except that the new senior preferred stock will not
contain terms with respect to transfer restrictions and will not require us to
consummate a registered exchange offer. Even if the exchange offer for the old
senior preferred stock is consummated, holders of old senior preferred stock
may, under the circumstances described under "Registration Rights," be entitled
pursuant to the senior preferred stockholders agreement, to demand registration
of the senior preferred stock on two occasions and to request registration
incident to any planned registration of WRC Media capital stock. In the event
the exchange offer for the old senior preferred stock is completed, except as
described in the previous sentence, we will not be required to register the
remaining old senior preferred stock.
We are making the exchange offer in reliance on the position of the
Securities and Exchange Commission as stated in previous no-action letters.
However, we have not sought our own no-action letter. Based upon this position,
we believe that a holder who exchanges the old notes for the new notes or the
old senior preferred stock for the new senior preferred stock in the exchange
offer generally may offer for resale, sell and otherwise transfer the new notes
or the new senior preferred stock without further registration under the
Securities Act of 1933 and without delivery of a prospectus that satisfies the
requirements of section 10 of the Securities Act of 1933 if the conditions
listed in the next sentence are satisfied. A holder who wishes to participate in
the exchange offer must:
- not be an "affiliate" of ours, as that term is defined in Rule 405 of the
Securities Act of 1933;
- acquire the new notes or the new senior preferred stock in the ordinary
course of business; and
- not participate, not intend to participate and have no arrangement or
understanding with any person to participate in a distribution of the new
notes or the new senior preferred stock.
Any holder of the old notes or the old senior preferred stock using the
exchange offer to participate in a distribution of the new notes or the new
senior preferred stock cannot rely on the no-action letters referred to above.
This includes a broker-dealer that acquired the old notes or the old senior
preferred stock directly from us, but not as a result of market-making
activities or other trading activities. Consequently, the holder must comply
with the registration and prospectus delivery requirements of the Securities Act
of 1933 and the applicable state securities laws in the absence of an exemption
from such requirements.
Each broker-dealer that receives new notes or new senior preferred stock for
its own account in exchange for old notes or old senior preferred stock, as a
result of market-making activities or other trading activities, must represent
and acknowledge pursuant to the applicable letter of transmittal that
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it will deliver a prospectus in connection with any resale of such new notes or
new senior preferred stock. This prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of new notes or new senior preferred stock received in exchange for
old notes or old senior preferred stock where such old notes or old senior
preferred stock were acquired by such broker-dealer as a result of market-making
activities or other trading activities. The applicable letter of transmittal
states that by acknowledging that it will deliver and delivering a prospectus in
connection with any resale of new notes or new senior preferred stock, a
broker-dealer will not be considered to admit that it is an "underwriter" within
the meaning of the Securities Act of 1933. We have agreed that for a period of
one year after the expiration date, we will make this prospectus available to
broker-dealers for use in connection with any such resale. See "Plan of
Distribution."
Except as described above, this prospectus may not be used for an offer to
resell, resale or other retransfer of new notes or new senior preferred stock.
The exchange offer is not being made to, nor will we accept tenders for
exchange from, holders of old notes or old senior preferred stock in any
jurisdiction in which the exchange offer or the acceptance of it would not be in
compliance with the securities or blue sky laws of such jurisdiction.
TERMS OF THE EXCHANGE
Upon the terms and subject to the conditions of the exchange offer, we will,
unless such old notes or old senior preferred stock are withdrawn in accordance
with the withdrawal right specified in "Withdrawal of Tenders" below, accept any
and all old notes and old senior preferred stock validly tendered prior to
5:00 p.m., New York City time, on , 2000. The date of acceptance for
exchange of the old notes and the old senior preferred stock, and completion of
the exchange offer, is the exchange date, which will be the first business day
following the expiration date (unless extended as described in this document).
We will issue, on, or promptly after, the exchange date:
- an aggregate principal amount of up to $152,000,000 of new notes in
exchange for an equal principal amount of outstanding old notes tendered
and accepted in connection with the exchange offer; and
- an aggregate of up to 3,000,000 shares of new senior preferred stock for
an equal number of outstanding shares of old senior preferred stock
tendered and accepted in connection with the exchange offer.
The new notes and the new senior preferred stock issued in connection with the
exchange offer will be delivered on the earliest practicable date following the
exchange date. Holders may tender some or all of their old notes or old senior
preferred stock in connection with the exchange offer. However, old notes may be
tendered only in integral multiples of $1,000 and the old senior preferred stock
may not be tendered in fractional shares.
Holders of old notes and old senior preferred stock do not have any
appraisal or dissenters' rights in connection with the exchange offer.
TERMS OF NEW NOTES AND NEW SENIOR PREFERRED STOCK
The new notes will have terms substantially identical to the terms of the
old notes. The new notes will not contain terms with respect to transfer
restrictions and will not require us to consummate a registered exchange offer.
Except as described in the previous sentence, the new notes will evidence the
same debt as the old notes and will be entitled to the same benefits under the
notes indenture as the old notes. As of the date of this prospectus,
$152,000,000 aggregate principal amount of the old notes is outstanding. See
"Description of New Notes."
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The new senior preferred stock will have terms substantially identical to
the terms of the old senior preferred stock. The new senior preferred stock will
not contain terms with respect to transfer restrictions and will not require us
to consummate a registered exchange offer. Except as described in the previous
sentence, the new senior preferred stock will evidence the same rights and
obligations as the old senior preferred stock and will be entitled to the same
benefits under the preferred stockholders agreement and the certificate of
designations relating to the senior preferred stock as the old senior preferred
stock. As of the date of this prospectus, 3,000,000 shares of old senior
preferred stock are outstanding. See "Description of New Senior Preferred
Stock."
METHOD OF EXCHANGE
In connection with the issuance of the old notes, we have arranged for the
old notes originally purchased by qualified institutional buyers to be issued in
the form of global notes and transferable in book-entry form through the
facilities of The Depository Trust Company (the "DTC"), acting as depositary.
Except as described under "Book-Entry, Delivery and Form," the new notes will be
issued in the form of a global note registered in the name of DTC or its nominee
and each holder's interest in it will be transferable in book-entry form through
DTC. See "Book-Entry, Delivery and Form."
In connection with the issuance of the old senior preferred stock, we have
arranged for the old senior preferred stock to be issued in certificated form
and transferable through physical delivery.
TENDER AND ACCEPTANCE
We shall be considered to have accepted validly tendered old notes and old
senior preferred stock if and when we have given oral or written notice to the
exchange agent. The exchange agent will act as agent for the tendering holders
for the purposes of receiving the new notes and the new senior preferred stock
from us. The exchange agent will make the exchange promptly on the date of
acceptance for exchange of the old notes and the old senior preferred stock.
This exchange date will be the first business day following the expiration date
(unless extended as described in this document). The exchange shall be deemed to
be effected immediately after the close of business on this exchange date and,
as a result, the holders in whose names the new notes and the new senior
preferred stock shall be issuable upon exchange shall be deemed to be the
holders of record of the new notes and the new senior preferred stock.
If we do not accept any tendered old notes and old senior preferred stock
for exchange because:
- the notes or the senior preferred stock were not validly tendered pursuant
to the procedures for tendering; see "--Procedures for Tendering;"
- we determine in our reasonable discretion, that any of the conditions to
the exchange offer have not been satisfied; see "--Conditions to the
Exchange Offer;"
- a holder has validly withdrawn a tender of old notes or old senior
preferred stock as described under "--Withdrawal of Tenders;" or
- we have, in our reasonable judgment, delayed or terminated the exchange
offer; see "--Expiration Date; Extensions; Amendments;"
as quickly as possible after the expiration date, we will:
- return certificates for such unaccepted old senior preferred stock and any
old notes held in certificated form, without expense, to the tendering
holder; and
- cause a financial institution that participates in DTC's book-entry
transfer facility system to make a book-entry delivery of the old notes
which have been tendered in book-entry form into
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the account from which the notes were originally transferred, without
expense to the tendering holders.
Pursuant to such delivery, DTC will credit the old notes back into the account
from which the notes were originally transferred. See "--Procedures for
Tendering" for a more complete description of how to tender your old notes and
old senior preferred stock.
Old notes which are not tendered for exchange or are tendered but not
accepted in connection with the exchange offer will remain outstanding and be
entitled to the benefits of the notes indenture, but will not be entitled to any
future registered exchange offer under the registration rights agreement.
Holders of any old notes after expiration of the exchange offer may be entitled
to shelf registration rights under the circumstances described under
"Registration Rights." Old senior preferred stock which is not tendered for
exchange or is tendered but not accepted in connection with the exchange offer
will remain outstanding and be entitled to the benefits of the senior preferred
stockholders agreement and the certificate of designations relating to the
senior preferred stock, but will not be entitled to any future registered
exchange offer. Holders of such old senior preferred stock may, under the
circumstances described under "Registration Rights," be entitled pursuant to the
senior preferred stockholders agreement to demand registration of the old senior
preferred stock on two occasions and to request registration incidental to any
planned registration of WRC Media capital stock. In the event the exchange offer
for the old senior preferred stock is completed, except as described in the
previous sentence, we will not be required to register the remaining old senior
preferred stock.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The expiration date for the exchange offer is , 2000 (30 days
following the commencement of the exchange offer), unless extended by us in our
sole discretion, in which case the term "expiration date" shall mean the latest
date and time to which the exchange offer is extended.
We reserve the right, in our sole discretion:
- to delay, to extend or to terminate the exchange offer if, in our
reasonable judgment, any of the conditions described below shall not have
been satisfied, by giving oral or written notice of the delay, extension
or termination to the exchange agent; or
- to amend the terms of the exchange offer in any manner deemed by us to be
advantageous to the holders of the old notes or the old senior preferred
stock.
If we amend the exchange offer in a manner that we consider material, we
will:
- disclose such amendment by means of a prospectus supplement; and
- extend the exchange offer for a period of five to ten business days,
depending upon the significance of the amendment and the manner of
disclosure to the registered holders, if the exchange offer would
otherwise expire during such five to ten business day period.
If we determine to make a public announcement of any delay, extension,
amendment or termination of the exchange offer, we will do so by making a timely
release through an appropriate news agency.
CONDITIONS TO THE EXCHANGE OFFER
Despite any other term of the exchange offer, we will not be required to
accept for exchange any old notes or old senior preferred stock and may
terminate or amend the exchange offer before the acceptance of the old notes or
the old senior preferred stock, if:
- the exchange offer is not permitted by applicable law or rules,
regulations or policies of the Securities and Exchange Commission; or
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- the exchange offer would impair or interfere with, in any material
respect, any contemplated financing, acquisition, disposition, corporate
reorganization or other similar material corporate transaction involving
WRC Media or any subsidiary.
The conditions listed above are for our sole benefit and may be asserted by
us regardless of the circumstances giving rise to any of these conditions. We
may waive these conditions in our sole discretion in whole or in part at any
time and from time to time. The failure by us at any time to exercise any of the
above rights shall not be considered a waiver of such right and such right shall
be considered an ongoing right which may be asserted at any time and from time
to time.
We have no obligation to, and will not knowingly, permit acceptance of
tenders of old notes or old senior preferred stock:
- from our affiliates within the meaning of Rule 405 under the Securities
Act of 1933;
- from any other holder or holders who are not eligible to participate in
the exchange offer under applicable law or interpretations by the
Securities and Exchange Commission; or
- if the new notes or the new senior preferred stock to be received by such
holder or holders of old notes or old senior preferred stock in the
exchange offer, upon receipt, will not be tradable by such holder without
restriction under the Securities Act of 1933 and the Securities Exchange
Act of 1934 and without material restrictions under the "blue sky" or
securities laws of substantially all of the states of the United States.
If we determine in our reasonable discretion that any of the conditions are
not satisfied, we may:
- refuse to accept any old notes or old senior preferred stock and return
all tendered old notes or old senior preferred stock to the tendering
holders;
- extend the exchange offer and retain all old notes or old senior preferred
stock tendered before the expiration of the exchange offer, subject,
however, to the rights of holders to withdraw these old notes or old
senior preferred stock (See "--Withdrawal of Tenders" below); or
- waive unsatisfied conditions relating to the exchange offer and accept all
properly tendered old notes or old senior preferred stock which have not
been withdrawn.
PROCEDURES FOR TENDERING
VALID TENDER:
To tender old notes held in DTC global form, a holder of old notes must
cause a financial institution that participates in DTC's book entry transfer
facility system to make a book-entry delivery of the old notes. Pursuant to such
delivery, DTC will credit the old notes into the exchange agent's account.
Unless the transferring financial institution causes delivery to the exchange
agent, and the exchange agent receives, timely confirmation of the book-entry
transfer of the old notes into the exchange agent's account at DTC prior to
5:00 p.m., New York City time, on the expiration date, such transfer will not
constitute delivery to the exchange agent. DELIVERY OF DOCUMENTS TO DTC IN
ACCORDANCE WITH ITS PROCEDURES WITHOUT TIMELY CONFIRMATION TO THE EXCHANGE AGENT
DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT. In addition, although
delivery of old notes held in DTC global form may be effected through book-entry
transfer into the exchange agent's account at DTC, a holder of old notes held in
DTC global form must, prior to 5:00 p.m., New York City time, on the expiration
date:
- mail or otherwise deliver a completed, signed and dated letter of
transmittal applicable to the old notes (or a facsimile), with the
required signature guarantees and any other required documents, to the
exchange agent at its addresses listed under the caption "--Exchange
Agent;" or
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- cause DTC to transmit to the exchange agent a message stating that the
tendering holder has expressly acknowledged receipt of, and agreement to
be bound by and held accountable under, the applicable letter of
transmittal.
To receive confirmation of book-entry delivery, a holder should contact
financial institution that made the book-entry delivery of the old notes. In
addition, to receive confirmation of valid tender of the old notes, a holder
should contact the exchange agent at the telephone number listed under the
caption "--Exchange Agent."
A holder of old notes held in DTC global form may also tender pursuant to
the "Guaranteed Delivery Procedures" described below.
To tender old senior preferred stock and any old notes held in certificated
form, a holder must mail or otherwise deliver to the exchange agent at its
addresses listed under the caption "Exchange Agent" prior to 5:00 p.m., New York
City time, on the expiration date:
- a completed, signed and dated letter of transmittal on the form applicable
to the securities tendered (or a facsimile), with the required signature
guarantees; and
- certificates representing the old senior preferred stock and the old notes
held in certificated form and any other required documents.
A holder of old senior preferred stock and any old notes held in
certificated form may also tender pursuant to the "--Guaranteed Delivery
Procedures" described below.
To receive confirmation of valid tender of old senior preferred stock and
any old notes held in certificated form, a holder should contact the exchange
agent at the telephone number listed under the caption "--Exchange Agent."
Holders should receive copies of the applicable letter of transmittal with
this prospectus. A holder may obtain additional copies of the applicable letter
of transmittal for the old notes and the old senior preferred stock from the
exchange agent at its offices listed under the caption "--Exchange Agent." By
executing and delivering the applicable letter of transmittal, each holder of
old notes or old senior preferred stock will represent to us that, among other
things:
- any new notes or new senior preferred stock acquired in connection with
the exchange offer will be obtained in the ordinary course of business of
the person receiving the new notes or the new senior preferred stock,
whether or not such person is the holder;
- neither the holder nor any such other person has an arrangement or
understanding with any person to participate in the distribution, within
the meaning of the Securities Act of 1933, of such new notes or new senior
preferred stock; and
- neither the holder nor any such other person is our "affiliate" (as
defined in Rule 405 under the Securities Act of 1933).
If a holder of old notes or old senior preferred stock is our "affiliate"
(as defined in Rule 405 under the Securities Act of 1933), or has an arrangement
or understanding with respect to the distribution of the new notes or the new
senior preferred stock to be acquired pursuant to the exchange offer, such
holder cannot rely on the applicable interpretations of the staff of the
Securities and Exchange Commission and must comply with the registration and
prospectus delivery requirement of the Securities Act of 1933 in connection with
any secondary resale transaction. If the holder is a broker-dealer which will
receive new notes or new senior preferred stock for its own account in exchange
of old notes or old senior preferred stock, it will acknowledge that it acquired
such old notes or old senior preferred stock as the result of market making
activities or other trading activities and it will deliver a prospectus in
connection with any resale of such old notes or old senior preferred stock. See
"Plan of Distribution."
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The tender by a holder of old notes and old senior preferred stock will
constitute an agreement between us and the holder in accordance with the terms
and subject to the conditions set forth in this prospectus and in the applicable
letter of transmittal. If a holder tenders less than all the old notes or the
old senior preferred stock held by such holder, such tendering holder should
fill in the applicable box of the applicable letter of transmittal. The amount
of old notes and the number of old senior preferred stock delivered to the
exchange agent, whether by book-entry or physical delivery, will be deemed to
have been tendered unless otherwise indicated.
Any beneficial owner whose old notes or old senior preferred stock are
registered in the name of a broker, dealer, commercial bank, trust company or
other nominee and who wishes to tender should contact the registered holder
promptly and instruct such registered holder to tender on behalf of the
beneficial owner. If the beneficial owner wishes to tender on that owner's own
behalf, the owner must, prior to completing and executing the applicable letter
of transmittal and delivery of such owner's old notes or old senior preferred
stock, either make appropriate arrangements to register ownership of the old
notes or the old senior preferred stock in the owner's name or obtain a properly
completed bond power from the registered holder. The transfer of registered
ownership may take considerable time.
If the applicable letter of transmittal or any old notes or old senior
preferred stock or bond powers are signed or endorsed by trustees, executors,
administrators, guardians, attorneys-in-fact, officers of corporations or others
acting in a fiduciary or representative capacity, such persons should so
indicate when signing, and unless waived by us, submit to the exchange agent
evidence satisfactory to us of their authority to act in that capacity with the
letter of transmittal.
THE METHOD OF DELIVERY OF OLD NOTES AND OLD SENIOR PREFERRED STOCK AND THE
LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS
AT THE ELECTION AND RISK OF THE HOLDERS. INSTEAD OF DELIVERY BY MAIL, WE
RECOMMEND THAT HOLDERS USE AN OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES,
HOLDERS SHOULD ALLOW SUFFICIENT TIME TO ASSURE DELIVERY TO THE EXCHANGE AGENT
BEFORE THE EXPIRATION DATE. NO LETTER OF TRANSMITTAL OF OLD NOTES OR OLD SENIOR
PREFERRED STOCK SHOULD BE SENT TO US. HOLDERS MAY REQUEST THEIR RESPECTIVE
BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THE
TENDERS FOR SUCH HOLDERS.
SIGNATURES, SIGNATURE GUARANTEES, ENDORSEMENTS:
If the applicable letter of transmittal is signed by the record holder(s) of
the old notes and the old senior preferred stock tendered, the signature must
correspond with the name(s) written on the face of the old note and the old
senior preferred stock without alteration, enlargement or any change whatsoever.
If the applicable letter of transmittal is signed by a participant in DTC, the
signature must correspond with the name as it appears on the security position
listing as the holder of the old notes.
A signature on a letter of transmittal or a notice of withdrawal must be
guaranteed by an eligible guarantor institution within the meaning of
Rule 17Ad-15 under the Securities Exchange Act of 1934, unless the old notes or
the old senior preferred stock tendered pursuant thereto are tendered:
- by a registered holder who has not completed the box entitled "Special
Payment Instructions" or "Special Delivery Instructions" on the applicable
letter of transmittal; or
- for the account of an eligible guarantor institution.
In the event that signatures on a letter of transmittal or a notice of
withdrawal are required to be guaranteed, such guarantee must be by:
- a member firm of a registered national securities exchange or of the
National Association of Securities Dealers, Inc.;
- a commercial bank or trust company having an office or correspondent in
the United States; or
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- an "eligible guarantor institution."
If the letter of transmittal is signed by a person other than the registered
holder of any old notes or old senior preferred stock, the old notes and the old
senior preferred stock must be endorsed by the registered holder or accompanied
by a properly completed bond power, in each case signed or endorsed in blank by
the registered holder.
DETERMINATION OF VALIDITY, RECEIPT, ACCEPTANCE:
We will determine all questions as to the validity, form, eligibility
(including time of receipt) and acceptance and withdrawal of tendered old notes
or old senior preferred stock in our sole discretion. We reserve the absolute
right to reject any and all old notes or old senior preferred stock not properly
tendered or any old notes or old senior preferred stock whose acceptance by us
would, in the opinion of our U.S. counsel, be unlawful. We also reserve the
right to waive any defects, irregularities or conditions of tender as to any
particular old notes or old senior preferred stock either before or after the
expiration date. Our interpretation of the terms and conditions of the exchange
offer (including the instructions in the applicable letter of transmittal) will
be final and binding on all parties.
Unless waived, any defects or irregularities in connection with tenders of
old notes or old senior preferred stock must be cured within a time period we
will determine. Although we intend to request the exchange agent to notify
holders of defects or irregularities relating to tenders of old notes or old
senior preferred stock, neither we, the exchange agent nor any other person will
have any duty or incur any liability for failure to give such notification.
Tenders of old notes or old senior preferred stock will not be considered to
have been made until such defects or irregularities have been cured or waived.
Any old notes or old senior preferred stock received by the exchange agent that
are not properly tendered and as to which the defects or irregularities have not
been cured or waived will be returned by the exchange agent to the tendering
holders, unless otherwise provided in the letter of transmittal, as soon as
practicable following the expiration date.
In addition, we reserve the right, as described above under the caption
"--Conditions to the Exchange Offer," to terminate the exchange offer.
A tender will be deemed to have been received as of the date when the
exchange agent receives:
- the tendering holder's duly signed letter of transmittal accompanied by
old notes and old senior preferred stock;
- a timely confirmation of book-entry transfer of old notes into the
exchange agent's account at DTC with a message from DTC stating that the
tendering holder has expressly acknowledged receipt of, and agreement to
be bound by and held accountable under, the applicable letter of
transmittal; or
- a notice of guaranteed delivery from an eligible institution.
If less than all of the old senior preferred stock or the old notes held in
certificated form evidenced by a submitted certificate are to be tendered, the
tendering holder(s) should fill in the aggregate liquidation preference of the
old senior preferred stock or aggregate principal amount of the old notes to be
tendered, in the applicable "Letter of Transmittal." A newly reissued
certificate for the old senior preferred stock or the old notes held in
certificated form submitted but not tendered will be sent to such holder as soon
as practicable after the expiration date. All of the old senior preferred stock
or the old notes held in certificated form delivered to the exchange agent will
be deemed to have been tendered unless otherwise clearly indicated.
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Issuances of new notes and new senior preferred stock in exchange for old notes
and old senior preferred stock tendered pursuant to a notice of guaranteed
delivery by an eligible institution will be made only against:
- delivery of the applicable letter of transmittal and any other required
documents; and
- the tendered old notes or old senior preferred stock or a timely
confirmation received of a book-entry transfer of old notes into the
exchange agent's account at DTC with the exchange agent.
We will not accept for exchange old notes or old senior preferred stock
which has been tendered if:
- the old notes or the old senior preferred stock were not validly tendered
pursuant to the procedures for tendering;
- we determine in our reasonable discretion, that any of the conditions to
the exchange offer have not been satisfied; see "--Conditions to the
Exchange Offer;"
- a holder has validly withdrawn a tender of old notes or old senior
preferred stock as described under "--Withdrawal of Tenders;" or
- we have, in our reasonable judgment, delayed or terminated the exchange
offer; see "--Expiration Date; Extensions; Amendments."
GUARANTEED DELIVERY PROCEDURES
A holder who wishes to tender its old notes or old senior preferred stock
and:
- whose old notes or old senior preferred stock are not immediately
available;
- who cannot deliver the holder's old notes or old senior preferred stock,
the applicable letter of transmittal or any other required documents to
the exchange agent prior to the expiration date; or
- who cannot complete, with respect to the old notes, the procedures for
book-entry transfer, before the expiration date,
may effect a tender if:
- the holder makes the tender through an eligible guarantor institution
within the meaning of Rule 17Ad-15 under the Securities Exchange Act of
1934;
- before the expiration date, the exchange agent receives from the eligible
guarantor institution a properly completed and duly executed notice of
guaranteed delivery substantially in the form accompanying the applicable
letter of transmittal, by facsimile transmission, mail or hand delivery
including:
-- the name and address of the holder,
-- the certificate number(s) of the old notes held in certificated form
and the certificate number(s) of the old senior preferred stock,
-- the principal amount of old notes and the number of shares of old
senior preferred stock tendered,
-- a statement that the tender is being made, and
-- a guarantee that the eligible guarantor institution will deliver to
the exchange agent, within five New York Stock Exchange trading days
after the expiration date, a properly
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completed and duly executed letter of transmittal, or facsimile
thereof, a confirmation of book-entry transfer of the old notes and
the certificate(s) representing the old notes held in certificated
form and the old senior preferred stock in proper form for transfer,
and any other documents required by the applicable letter of
transmittal; and
- the eligible guarantor institution mails or otherwise delivers to the
exchange agent within five New York Stock Exchange trading days after the
expiration date, a properly completed and executed letter of transmittal,
or facsimile thereof, as well as a confirmation of book-entry transfer of
the old notes and the certificate(s) representing all tendered old notes
held in certificated form or old senior preferred stock in proper form for
transfer, and all other documents required by the applicable letter of
transmittal.
A holder or eligible guarantor institution may obtain additional forms for
the notice of guaranteed delivery from the exchange agent at its offices listed
under "--Exchange Agent."
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, holders may withdraw their tenders of
old notes and old senior preferred stock at any time prior to 5:00 p.m., New
York City time, on the expiration date.
To withdraw a tender of old notes and old senior preferred stock in
connection with the exchange offer, a holder must mail or otherwise deliver to
the exchange agent at its offices listed under "--Exchange Agent" a written
notice of withdrawal by mail or by facsimile transmission prior to 5:00 p.m.,
New York City time, on the expiration date of the exchange offer. Any such
notice of withdrawal must:
- specify the name of the person who deposited the old notes or the old
senior preferred stock to be withdrawn;
- identify the old notes or the old senior preferred stock to be withdrawn
(including the principal amount of such old notes or the aggregate
liquidation preference of old senior preferred stock and the certificate
number or numbers of the old senior preferred stock or the old notes
tendered in certificated form);
- be signed by the holder in the same manner as the original signature on
the applicable letter of transmittal by which such old notes or old senior
preferred stock were tendered, with any required signature guarantees, or
be accompanied by documents of transfer sufficient to have the trustee
register the transfer of such old notes or old senior preferred stock into
the name of the person withdrawing the tender; and
- specify the name in which any such old notes or old senior preferred stock
are to be registered, if different from that of the depositor.
If old notes have been tendered pursuant to the procedures of book-entry
transfer described above under "--Procedures for Tendering," any notice of
withdrawal must specify the name and number of the account at DTC's book-entry
transfer facility to be credited with the withdrawn old notes and otherwise
comply with the procedures of such facility.
A holder may obtain a form of the notice of withdrawal from the exchange
agent at its offices listed under "--Exchange Agent."
We will determine all questions as to the validity, form and eligibility
(including time of receipt) of such withdrawal notices. Any old notes and old
senior preferred stock so withdrawn will be considered not to have been validly
tendered for purposes of the exchange offer and no new notes and new senior
preferred stock will be issued unless the old notes and the old senior preferred
stock withdrawn are validly re-tendered. Any old notes and old senior preferred
stock which have been tendered but which
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are not accepted for exchange or which are withdrawn will be returned to the
holder without cost to such holder (or, in the case of the old notes tendered by
book-entry transfer into the exchange agent's account at DTC's book-entry
transfer facility pursuant to the book-entry transfer procedures described above
under "--Procedures for Tendering," such old notes) will be credited to an
account maintained with such book-entry transfer facility for the old notes as
soon as practicable after withdrawal, rejection of tender or termination of the
exchange offer. Properly withdrawn old notes and old senior preferred stock may
be retendered by following one of the procedures described above under the
caption "--Procedures for Tendering" at any time prior to the expiration date.
EXCHANGE AGENT
Bankers Trust Company has been appointed as exchange agent in connection
with the exchange offer. Questions and requests for assistance, requests for
additional copies of this prospectus or of the applicable letter of transmittal,
the form of notice guaranteed delivery and the form of notice of withdrawal
should be directed to the exchange agent, by one of the following methods:
- if by mail, to BT Services Tennessee, Inc. Reorganization Unit, P.O. Box
292737 Nashville, TN 37229-2737;
- if by overnight mail or courier, to BT Services Tennessee, Inc., Corporate
Trust & Agency Services, Reorganization Unit, 648 Grassmere Park Road,
Nashville, TN 37211 (to confirm by telephone, call (615) 835-3572);
- if by hand, to Bankers Trust Company, Corporate Trust & Agency Services,
Attn: Reorganization Department, Receipt & Delivery Window, 123 Washington
Street, 1st Floor, New York, NY 10006;
- if by fax, to BT Services Tennessee, Inc., Corporate Trust & Agency
Service, Reorganization Unit at facsimile number (615) 835-7301; or
- if by phone, to Bankers Trust Company at phone number 1-800-735-7777.
FEES AND EXPENSES
We will bear the expenses of soliciting tenders pursuant to the exchange
offer. We will not make any payment to brokers, dealers or others soliciting
acceptances of the exchange offer. We will pay other expenses to be incurred in
connection with the exchange offer, including the fees and expenses of the
exchange agent, accounting and the reasonable legal fees of the holders of old
notes and old senior preferred stock as defined in the registration rights
agreement and the senior preferred stockholders agreement. Holders who tender
old notes or old senior preferred stock in connection with the exchange offer
will not be required to pay brokerage commissions or fees.
Holders who tender their old notes or old senior preferred stock for
exchange will not be obligated to pay any transfer taxes. A tendering holder,
however, will be required to pay any transfer taxes (whether imposed on the
registered holder or any other person) incurred if:
- new notes or new senior preferred stock are to be delivered to, or issued
in the name of, any person other than the registered holder of the old
notes or the old senior preferred stock tendered; or
- tendered old notes or the shares of old senior preferred stock are
registered in the name of any person other than the person signing the
applicable letter of transmittal; or
- a transfer tax is imposed for any reason other than the exchange of old
notes or old senior preferred stock in connection with the exchange offer.
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If satisfactory evidence of payment of such taxes or exemption from them is
not submitted with the applicable letter of transmittal, the amount of such
transfer taxes will be billed directly to the tendering holder.
ACCOUNTING TREATMENT
The new notes and the new senior preferred stock will be recorded in our
accounting records at the same carrying value as the old notes and the old
senior preferred stock, respectively, as reflected in our accounting records on
the date of the exchange. Accordingly, we will not recognize any gain or loss
for accounting purposes upon the completion of the exchange offer. Any expenses
of the exchange offer that we pay will be charged against our earnings in
accordance with generally accepted accounting principles.
CONSEQUENCES OF FAILURES TO PROPERLY TENDER OLD NOTES AND OLD SENIOR PREFERRED
STOCK IN THE EXCHANGE
Issuance of the new notes in exchange for the old notes and issuance of the
new senior preferred stock in exchange for the old senior preferred stock under
the exchange offer will be made only after timely receipt by the exchange agent
of such old notes and old senior preferred stock, a properly completed and duly
executed letter of transmittal and all other required documents. Therefore,
holders desiring to tender old notes and old senior preferred stock in exchange
for new notes and new senior preferred stock should allow sufficient time to
ensure timely delivery. We are under no duty to give notification of defects or
irregularities of tenders of old notes and old senior preferred stock for
exchange. Old notes and old senior preferred stock that are not tendered or that
are tendered but we do not accept, will, following completion of the exchange
offer, continue to be subject to the existing restrictions upon transfer thereof
under the Securities Act of 1933.
Upon completion of the exchange offer, we will no longer be required to
consummate a registered exchange offer, pursuant to the registration rights
agreement and the senior preferred stockholders agreement, for the old notes and
the old senior preferred stock which remain outstanding. In addition, in the
event the exchange offer for the old notes is completed, we will not be required
to register the remaining old notes unless holders are entitled to shelf
registration rights under the circumstances described under "Registration
Rights." Even if the exchange offer for the old senior preferred stock is
consummated, holders of old senior preferred stock may, under the circumstances
described under "Registration Rights," be entitled pursuant to the senior
preferred stockholders agreement, to demand registration of the old senior
preferred stock on two occasions and to request registration incident to any
planned registration of WRC Media capital stock. In the event the exchange offer
for the old senior preferred stock is completed, except as described in the
previous sentence, we will not be required to register the remaining old senior
preferred stock.
Remaining old notes and old senior preferred stock will continue to be
subject to the following restrictions on transfer:
- the remaining old notes and old senior preferred stock may be resold only
if registered pursuant to the Securities Act of 1933, if any exemption
from registration is available, or if neither such registration nor such
exemption is required by law; and
- the remaining old notes and old senior preferred stock will bear a legend
restricting transfer in the absence of registration or an exemption.
We do not currently anticipate that we will register the remaining old notes
under the Securities Act of 1933 or that we will register the remaining old
senior preferred stock unless required to do so pursuant to the senior preferred
stockholders agreement. To the extent that old notes and old senior preferred
stock are tendered and accepted in connection with the exchange offer, any
trading markets for the remaining old notes and the remaining old senior
preferred stock could be adversely affected. See "Risk Factors--Failure to
Exchange Your Old Notes or Old Senior Preferred Stock."
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TRANSACTIONS
The exchange offer is related to a series of acquisition and
recapitalization transactions that were completed on November 17, 1999. On
July 14, 1999, WRC Media acquired 100% of the capital stock of CompassLearning
through a wholly owned subsidiary for aggregate consideration in the amount of
$55.2 million including the assumption and repayment of certain indebtedness and
redemption of preferred stock. In connection with the financing of the
acquisition of CompassLearning:
- Ripplewood Partners, L.P., its affiliates and co-investors made a cash
equity contribution of $28.7 million to WRC Media; and
- CompassLearning entered into, and made initial borrowings under, old
senior credit facilities in an amount of $12.0 million and issued
$19.0 million of senior subordinated notes.
A portion of the net proceeds from the financings described below has been used
to refinance the indebtedness entered into in connection with the acquisition of
CompassLearning.
On November 17, 1999, we completed the recapitalization of the Supplemental
Education Group of PRIMEDIA, consisting of the businesses of Weekly Reader,
American Guidance and World Almanac and their respective subsidiaries, and other
related transactions. In connection with the recapitalization:
- PRIMEDIA contributed 100% of the outstanding capital stock of American
Guidance and World Almanac to Weekly Reader; and
- WRC Media, Weekly Reader, and CompassLearning made cash payments of
$395 million to PRIMEDIA.
As a result of the recapitalization:
- WRC Media owns 94.9% and PRIMEDIA owns 5.1% of the voting stock of Weekly
Reader;
- Ripplewood Partners, L.P., EAC III, L.L.C. ("EAC III"), EAC IV, L.L.C.,
those co-investors and members of our management listed under "Ownership
of Stock--Beneficial Ownership of WRC Media," own 100% of the voting stock
of WRC Media; and
- WRC Media, Weekly Reader, American Guidance and World Almanac have no
outstanding indebtedness other than the indebtedness described below.
To finance the repayment of the indebtedness entered into in connection with
the acquisition of CompassLearning and the recapitalization:
- WRC Media, Weekly Reader and CompassLearning issued units consisting of
the old notes and shares of WRC Media common stock;
- CompassLearning and Weekly Reader entered into, and made initial
borrowings under, the senior credit facilities, providing for credit
facilities of up to $161.0 million. The senior credit facilities consist
of a $30.0 million revolving credit facility, a $31.0 million term loan A
facility, and a $100.0 million term loan B facility;
- WRC Media issued to the senior preferred stockholders $75.0 million of the
old senior preferred stock which we are offering to exchange for new
senior preferred stock in the exchange offer. The senior preferred
stockholders consist of DLJ Merchant Banking Partners II, L.P. and certain
of its affiliates (collectively, the "DLJMB Investors") and other
investors;
- Weekly Reader and CompassLearning issued to the senior preferred
stockholders warrants (the "Preferred Stockholder Warrants") to acquire
13.0% of the common stock of Weekly Reader and 13.0% of the common stock
of CompassLearning; and
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- WRC Media issued common stock in exchange for the cash equity contribution
of $95.0 million by Ripplewood Partners, L.P., its affiliates and
co-investors and their designees.
Certain lenders providing the financing for the acquisition of
CompassLearning also received warrants to acquire WRC Media common stock. In
connection with the recapitalization, these warrants were exercised and the
common stock received was contributed to EAC III in exchange for membership
interests in EAC III. EAC III is the investment vehicle owned by Ripplewood
Partners, L.P., its affiliates and certain co-investors, that owns approximately
71.0% of the WRC Media common stock. See "Use of Proceeds," "Description of
Senior Credit Facilities," "Description of New Notes" and "Description of New
Senior Preferred Stock."
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USE OF PROCEEDS
We will not receive any cash proceeds from the issuance of the new notes and
the new senior preferred stock under the exchange offer. In consideration for
issuing the new notes and the new senior preferred stock as contemplated in this
prospectus, we will receive old notes in like principal amount and old senior
preferred stock of like liquidation preference, the terms of which are identical
in all material respects to the new notes and the new senior preferred stock.
The old notes and the old senior preferred stock surrendered in exchange for the
new notes and the new senior preferred stock will be retired and canceled and
cannot be reissued. Accordingly, the issuance of the new notes and the new
senior preferred stock will not result in any increase in our indebtedness or
capital stock. The proceeds received from the sale of the old notes and the old
senior preferred stock were used to help finance the transactions described
under "Transactions."
DIVIDEND POLICY
We have not declared or paid any cash dividends on our capital stock and do
not expect to pay cash dividends on our capital stock in the foreseeable future,
except that we are required to, by the terms of our outstanding senior preferred
stock, pay dividends on our senior preferred stock only in cash after
December 31, 2004. It is the current intention of our boards of directors to
retain future earnings, if any, to finance the expansion of our businesses.
Future declaration and payment of dividends, if any, will be determined in light
of the then-current conditions, including our earnings, operations, capital
requirements, financial condition and other factors deemed relevant by our
boards of directors. The notes indenture and the senior credit facilities
restrict our ability to pay dividends. Any future indebtedness incurred by us
may also restrict our ability to pay dividends. See "Description of Senior
Credit Facilities," Description of New Senior Preferred Stock" and "Description
of New Notes."
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UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
We are presenting below our unaudited consolidated pro forma financial
statements to show how our financial statements might have looked if we had been
an independent company for the periods presented.
The unaudited pro forma consolidated statement of operations data give
effect to the transactions described under "Transactions" and the acquisition of
American Guidance by PRIMEDIA as if they had occurred on January 1, 1998. The
unaudited pro forma consolidated balance sheet data give effect to the
transactions described under "Transactions" as if they had occurred as of
September 30, 1999.
In the following unaudited consolidated pro forma financial statements of
WRC Media, we accounted for the acquisition of 94.9% of the stock of Weekly
Reader and for the acquisition of CompassLearning by WRC Media as a purchase.
Under purchase accounting, the total purchase cost and fair value of liabilities
assumed are allocated to the tangible and intangible assets of the company
acquired based upon their respective fair values as of the closing date based on
valuations and studies. A preliminary allocation of the purchase cost has been
made to major categories of assets and liabilities in the accompanying unaudited
pro forma consolidated financial information based on estimates. The actual
allocation of purchase cost and the resulting effect on income from operations
may differ from the pro forma amounts included in this prospectus.
The historical Weekly Reader balances included in the unaudited pro forma
consolidated information include a retroactive adjustment to reflect the
contribution of 100% of the capital stock of American Guidance and World Almanac
by PRIMEDIA to Weekly Reader using the historical carrying value of such stock.
The historical Weekly Reader balances include the operations of American
Guidance from July 1, 1998, the effective date of PRIMEDIA's acquisition of all
of the capital stock of American Guidance. For periods prior to July 1, 1998, we
present American Guidance financial information on a stand-alone basis.
The unaudited pro forma consolidated financial information is for
informational purposes only and does not purport to be indicative of our
financial position or the results of our operations that would have actually
been obtained had the transactions described under "Transactions" and PRIMEDIA's
acquisition of American Guidance in fact occurred as of the assumed dates or for
the periods presented, nor are they indicative of, or projections for our
results of operations or financial position for any future period or date. The
pro forma adjustments are based on preliminary estimates of purchase price
allocation, available information and assumptions that we deem appropriate. You
should read the following unaudited pro forma consolidated financial information
in conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," the selected historical financial information and
the financial statements and the related notes included in this prospectus.
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WRC MEDIA INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
HISTORICAL (A) PRO FORMA
------------------------------ -----------------------------
WRC MEDIA
COMPASS- WEEKLY AMERICAN TRANSACTION INC. AND ITS
LEARNING READER GUIDANCE ADJUSTMENTS SUBSIDIARIES
-------- -------- -------- ----------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT:
Net revenue........................... $68,898 $118,236 $19,584 $ -- $206,718
Cost of products sold................. 29,400 30,646 4,164 107 (b) 64,317
------- -------- ------- -------- --------
Gross profit.......................... 39,498 87,590 15,420 (107) 142,401
Selling and administrative expenses:
Sales and marketing................. 24,034 17,636 4,658 -- 46,328
Research and development............ 8,022 -- -- -- 8,022
Editorial........................... -- 10,596 2,700 (1,881)(c) 11,415
General, administrative and other... 7,705 31,739 6,552 (4,978)(d) 41,018
Depreciation and amortization (e)... 245 12,212 404 22,599 (e) 35,460
Restructuring....................... 3,012 -- -- -- 3,012
------- -------- ------- -------- --------
Net (loss) income from operations..... (3,520) 15,407 1,106 (15,847) (2,854)
Other income (expense)................ 33 (368) -- 184 (f) (151)
Interest expense, net................. (4,286) (9,232) (37) (21,826)(f) (35,381)
------- -------- ------- -------- --------
Net (loss) income before income taxes
(g)................................. (7,773) 5,807 1,069 (37,489) (38,386)
Income tax (expense) benefit.......... -- (3,942) (378) 4,320 --
------- -------- ------- -------- --------
Net (loss) income (g)................. $(7,773) $ 1,865 $ 691 $(33,169) $(38,386)
======= ======== ======= ======== ========
OTHER DATA:
EBITDA (h)............................ $ 3,550 $ 27,435 $ 1,510 $ 6,752 (i) $ 39,247
Capital expenditures (c).............. 536 4,299 308 1,881 (c) 7,024
</TABLE>
See notes to unaudited pro forma consolidated statements of operations.
50
<PAGE>
WRC MEDIA INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
HISTORICAL (A) PRO FORMA
---------------------------------- --------------------------
WRC MEDIA
INC. AND ITS
SUBSIDIARY WRC MEDIA
(COMPASS- COMPASS- WEEKLY TRANSACTION INC. AND ITS
LEARNING) LEARNING READER ADJUSTMENTS SUBSIDIARIES
------------ -------- -------- ----------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT:
Net revenue.......................... $ 14,847 $34,023 $101,630 $ -- $150,500
Cost of products sold................ 5,329 13,374 27,921 -- 46,624
-------- ------- -------- -------- --------
Gross profit......................... 9,518 20,649 73,709 -- 103,876
Selling and administrative expenses:
Sales and marketing................ 4,971 11,038 16,487 -- 32,496
Research and development........... 1,824 3,831 -- -- 5,655
Editorial.......................... -- -- 7,251 -- 7,251
General, administrative and
other............................ 1,382 3,978 25,888 (3,404) 27,844
Depreciation and amortization
(e).............................. 1,739 131 11,884 12,998 26,752
Write-off of purchased research and
development...................... 9,000 -- -- -- 9,000
-------- ------- -------- -------- --------
Net income (loss) from operations.... (9,398) 1,671 12,199 (9,594) (5,122)
Other income (expense)............... 16 405 (736) 154 161
Interest expense, net................ (914) (2,854) (10,133) (11,387) (25,288)
-------- ------- -------- -------- --------
Net loss before income taxes (g)..... (10,296) (778) 1,330 (20,827) (30,571)
Income tax benefit (expense)......... -- -- (1,938) 1,938 --
-------- ------- -------- -------- --------
Net loss (g)......................... $(10,296) $ (778) $ (608) $(18,889) $(30,571)
======== ======= ======== ======== ========
OTHER DATA:
EBITDA (h)........................... $ 1,834 $ 3,393 $ 24,995 $ 3,404 $ 33,627
Capital expenditures................. 167 142 4,114 -- 4,423
</TABLE>
See notes to unaudited pro forma consolidated statements of operations.
51
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
(a) The historical Weekly Reader balances include a retroactive adjustment to
reflect the contribution of 100% of the capital stock of American Guidance
and World Almanac by PRIMEDIA to Weekly Reader using the historical carrying
value of such stock. The historical Weekly Reader balances include the
operations of American Guidance from July 1, 1998, the effective date of
PRIMEDIA's acquisition of all of the capital stock of American Guidance. For
periods prior to July 1, 1998, American Guidance financial information is
presented on a stand alone basis. CompassLearning financial information is
presented on a stand-alone basis for periods prior to its acquisition by WRC
Media, on July 14, 1999. Subsequent to July 14, 1999, CompassLearning's
balances are included in WRC Media and Subsidiary's operations.
(b) Pro forma adjustment of $107 to conform American Guidance's accounting,
prior to its acquisition by PRIMEDIA, for inventory on a LIFO basis to
Weekly Reader's accounting for inventory on a FIFO basis.
(c) Pro forma adjustment of $1,881 to conform American Guidance's accounting,
prior to its acquisition by PRIMEDIA, for prepublication costs to Weekly
Reader's policy of capitalizing such costs, effective as of January 1, 1998.
Historically, such costs were expensed by American Guidance. Capitalized
prepublication costs are amortized over a period of five to ten years, and
are considered capital expenditures.
(d) Pro forma adjustments to general, administrative and other expenses reflect
the following:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1998 SEPTEMBER 30, 1999
----------------- ------------------
<S> <C> <C>
Elimination of American Guidance Employee Stock
Ownership Plan ("ESOP") contribution and other benefit
plan costs not continued.............................. $(2,230) $ --
Elimination of historical allocated corporate overhead
charges............................................... (4,438) (5,114)
Estimated new salaries and fees for outside services
less savings from headcount reductions................ 1,690 1,710
------- -------
Total................................................... $(4,978) $(3,404)
======= =======
</TABLE>
(e) Certain depreciation and amortization charges are reflected in other cost
line items. The pro forma depreciation and amortization adjustment is
calculated as follows:
<TABLE>
<CAPTION>
YEAR NINE MONTHS
ENDED ENDED
DECEMBER 31, 1998 SEPTEMBER 30, 1999
----------------- ------------------
<S> <C> <C>
Additional amortization related to the increase in
goodwill and other intangibles........................ $22,449 $12,998
Additional amortization of capitalized prepublication
costs (1)............................................. 150 --
------- -------
$22,599 $12,998
======= =======
</TABLE>
----------------------------
(1) See note (c) above.
52
<PAGE>
(f) Pro forma adjustment to interest expense is based on the pro forma borrowing
amounts of WRC Media as of September 30, 1999 and the rates that are
expected to be in effect as of the closing, as presented below:
<TABLE>
<CAPTION>
YEAR NINE MONTHS
ENDED ENDED
DECEMBER 31, 1998 SEPTEMBER 30, 1999
----------------- ------------------
<S> <C> <C>
Term loan A facility (estimated at 9.280%).............. $ 2,877 $ 2,158
Term loan B facility (estimated at 10.030%)............. 10,030 7,523
12.75% Senior subordinated notes due 2009............... 19,380 14,535
Commitment fee on unutilized revolving credit facility
commitments (0.5%).................................... 150 113
Accretion of discount................................... 298 252
Amortization of deferred financing costs related to:
Senior credit facilities............................ 690 367
Senior subordinated notes due 2009.................. 456 342
Write-off of financing costs............................ 1,500 --
Elimination of historical interest expense and
amortization of deferred financing costs.............. (13,555) (13,903)
-------- --------
Net increase in interest expense........................ $ 21,826 $ 11,387
======== ========
</TABLE>
Weekly Reader's amortization of deferred financing costs was reclassified
from other income (expense) to interest expense, net on a pro forma basis to
conform the presentation to that of WRC Media.
The effect of a 0.125% change in the interest rate on the senior credit
facilities would increase or decrease pro forma interest expense by $123 for
the nine-month periods and $164 for the twelve-month periods.
(g) Balances presented are before extraordinary items.
(h) EBITDA is defined as net income before income taxes, interest expense,
depreciation and amortization, restructuring charges and non-recurring items
(as shown in the table). EBITDA data is included because we understand that
such information is considered by certain investors as an additional basis
on which to evaluate WRC Media's ability to pay interest, repay debt and
make capital expenditures. Because all companies do not calculate EBITDA
identically, the presentation of EBITDA in this prospectus is not
necessarily comparable to similarly titled measures of other companies.
EBITDA does not represent and should not be considered more meaningful than,
or an alternative to, measures of operating performance as determined in
accordance with generally accepted accounting principles.
53
<PAGE>
For the pro forma periods, EBITDA was calculated as follows:
<TABLE>
<CAPTION>
YEAR NINE MONTHS
ENDED ENDED
DECEMBER 31, 1998 SEPTEMBER 30, 1999
----------------- ------------------
<S> <C> <C>
Pro forma net loss before income taxes.................. $(38,386) $(30,571)
Interest expense........................................ 35,381 25,288
Depreciation and amortization (1)....................... 39,240 28,811
Restructuring charges................................... 3,012 --
Write-off of research and development................... -- 9,000
Non-cash excess inventory and litigation charge......... -- 1,494
Non-recurring income from sale of investment............ -- (396)
-------- --------
EBITDA.................................................. $ 39,247 $ 33,627
======== ========
</TABLE>
----------------------------
(1) Represents pro forma depreciation and amortization including
depreciation and amortization reflected in other cost line items, other
than amortization of deferred financing costs, which is included in
interest expense.
(i) The pro forma adjustment for EBITDA is reconciled as follows:
<TABLE>
<CAPTION>
YEAR NINE MONTHS
ENDED ENDED
DECEMBER 31, 1998 SEPTEMBER 30, 1999
------------------ -------------------
<S> <C> <C>
Elimination of American Guidance ESOP contribution and
change in accounting for inventory to a FIFO basis
(see notes (b) and (d) above)......................... $(2,123) $ --
Prepublication costs now capitalized which were
historically expensed (see note (c) above)............ (1,881) --
Elimination of certain historical corporate overhead
allocations and redundant employees net of new
salaries and other expenses (see note (d) above)...... (2,748) (3,404)
------- -------
Total................................................... $(6,752) $(3,404)
======= =======
</TABLE>
54
<PAGE>
WRC MEDIA INC.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AT SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
HISTORICAL
WRC MEDIA INC. PRO FORMA
AND ITS WRC MEDIA INC.
SUBSIDIARY HISTORICAL ADJUSTMENTS FOR AND ITS
(COMPASSLEARNING) WEEKLY READER THE TRANSACTIONS SUBSIDIARIES
----------------- ------------- ---------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............. $ 258 $ 2,282 $ 5,469 (a) $ 8,009
Accounts receivable, net.............. 19,004 41,363 -- 60,367
Inventories........................... 624 14,269 -- 14,893
Prepaid expenses...................... 1,595 2,343 -- 3,938
Other current assets.................. 23 18,766 -- 18,789
-------- -------- -------- --------
Total current assets................ 21,504 79,023 5,469 105,996
Property and equipment, net............. 1,601 6,322 -- 7,923
Deferred financing costs................ 1,937 1,139 4,905 (b) 7,981
Deferred income taxes................... -- 5,854 (5,854)(c) --
Software development costs.............. 7,063 -- -- 7,063
Intangibles............................. 46,383 38,634 87,133 (d) 172,150
Goodwill................................ -- 107,766 159,166 (d) 266,932
Other assets............................ -- 9,706 -- 9,706
-------- -------- -------- --------
Total............................... $ 78,488 $248,444 $250,819 $577,751
======== ======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued
expenses............................ $ 8,180 $ 19,538 -- $ 27,718
Salaries and related items............ 6,983 4,493 -- 11,476
Deferred revenue...................... 16,018 31,210 -- 47,228
Short-term debt....................... -- -- -- --
Other current liabilities............. -- 22,954 -- 22,954
-------- -------- -------- --------
Total current liabilities........... 31,181 78,195 -- 109,376
Non-current portion of deferred
revenue............................... 941 -- -- 941
Non-current other accrued liabilities... 319 -- -- 319
Long-term debt:
Existing CompassLearning
Indebtedness........................ 25,499 -- (25,499)(e) --
Senior credit facilities.............. -- -- 131,000 (e) 131,000
Senior subordinated notes due 2009.... -- -- 146,193 (e) 146,193
-------- -------- -------- --------
Total long-term debt................ 25,499 -- 251,694 277,193
WRC Media preferred stock and
warrants.............................. -- -- 75,000 (f) 75,000
Common stock subject to redemption...... -- -- 2,000 (g) 2,000
Shareholders' equity:
Common stock.......................... 14 100 (70)(g) 44
Additional paid-in capital............ 30,844 187,316 (90,635)(g) 127,525
Accumulated deficit................... (10,296) (17,167) 12,830 (g) (14,633)
Comprehensive loss.................... (14) -- -- (14)
-------- -------- -------- --------
Total equity........................ 20,548 170,249 (77,875) 112,922
-------- -------- -------- --------
Total............................... $ 78,488 $248,444 $250,819 $577,751
======== ======== ======== ========
</TABLE>
See accompanying notes to unaudited pro forma consolidated balance sheet.
55
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET DATA
(DOLLARS IN THOUSANDS)
For the purpose of our unaudited pro forma financial statements, "Existing
CompassLearning Indebtedness" represents the financing in connection with the
acquisition of CompassLearning which consisted of (1) $12.0 million initial
borrowings made under the old senior credit facilities and (2) the issuance of
$19.0 million of senior subordinated notes. "Common Equity Contribution"
represents the financing in connection with the recapitalization and repayment
of the Existing CompassLearning Indebtedness which consisted of the cash equity
contribution of $95.0 million by Ripplewood Partners, L.P., its affiliates and
co-investors in exchange for WRC Media common stock.
The following unaudited pro forma adjustments relate to the transactions
described under "Transactions," other than the acquisition of CompassLearning,
as if they had occurred as of September 30, 1999:
<TABLE>
<S> <C> <C>
(a) Change in cash and cash equivalents, calculated as follows:
Senior secured term loans................................... $ 131,000
Units offered on November 17, 1999.......................... 149,904
WRC Media preferred stock and Preferred Stockholder
Warrants................................................ 75,000
Common Equity Contribution.................................. 95,000
PRIMEDIA cash payments...................................... (395,000)
Repayment of Existing CompassLearning Indebtedness.......... (25,499)
Estimated transaction costs................................. (22,654)
Cash retained by PRIMEDIA................................... (2,282)
---------
Net change in cash and cash equivalents..................... $ 5,469
=========
(b) Debt issuance costs for the senior credit facilities and the
notes offered........................................... $ 9,481
Write-off of certain financing costs........................ (1,500)
Write-off of deferred financing costs related to the
Existing CompassLearning Indebtedness................... (3,076)
---------
Total change................................................ $ 4,905
=========
(c) Decrease in the deferred tax asset due to the other pro
forma adjustments:
Long-term................................................... $ (5,854)
(d) Change to goodwill and intangibles:
Purchase price.............................................. $ 395,000
Net assets acquired......................................... (169,110)
Cash retained by PRIMEDIA................................... 2,282
Adjustment to the deferred tax asset........................ 5,854
Estimated transaction and advisory costs.................... 12,273
---------
Total....................................................... 246,299
Increase in identified intangibles (e.g., tradename,
customer lists)......................................... (87,133)
---------
Increase in excess of purchase price over net assets
acquired................................................ $ 159,166
=========
</TABLE>
56
<PAGE>
<TABLE>
<S> <C> <C>
(e) New borrowings and payments of indebtedness:
Repayment of Existing CompassLearning Indebtedness (net of
$1,543 attributable to the value of certain of the
warrants issued in connection therewith)................ $ (25,499)
Senior secured term loans................................... $ 131,000
Proceeds of notes offered (net of $2,096 discount and $3,711
of the value of common stock offered with the notes).... $ 146,193
(f) WRC Media preferred stock, including $11,751 attributable to
the value of the Preferred Stockholder Warrants......... $ 75,000
(g) Represents common stock subject to redemption............... $ 2,000
Elimination of the historical equity balances and recording
of the equity investment less estimated fees and
expenses:
Common Equity Contribution.................................. $ 28
Common equity associated with notes offered on November 17,
1999.................................................... 2
Elimination of historical equity contribution............... (100)
---------
Change in WRC Media common stock............................ $ (70)
=========
Elimination of historical equity............................ $(187,316)
Additional paid-in capital contribution..................... 94,972
Common stock subject to redemption.......................... (2,000)
Additional paid-in capital associated with notes offered on
November 17, 1999....................................... 3,709
---------
Change in additional paid-in-capital........................ $ (90,635)
=========
Elimination of historical accumulated deficit............... $ 17,167
Loss related to a write-off of certain financing costs...... (1,500)
Charges related to recapitalization of Weekly Reader........ (900)
Extraordinary loss related to write-off of deferred
financing costs and debt discount related to the
Existing CompassLearning Indebtedness................... (1,937)
---------
Change in accumulated deficit............................... $ 12,830
=========
</TABLE>
57
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
WEEKLY READER CORPORATION
The following table presents selected historical consolidated financial
information for Weekly Reader and its subsidiaries for each of the five fiscal
years in the period ended December 31, 1998 and the nine-month periods ended
September 30, 1998 and 1999. The financial statements of Weekly Reader included
in this prospectus, including the selected historical consolidated financial
information presented below, include a retroactive adjustment to reflect the
contribution of 100% of the capital stock of American Guidance and World Almanac
by PRIMEDIA to Weekly Reader using the historical carrying value of such stock.
The selected historical consolidated financial information presented below is
based on the unaudited historical consolidated financial statements of Weekly
Reader for the fiscal years ended December 31, 1994 and 1995, which are not
included in this prospectus, as well as the audited historical consolidated
financial statements of Weekly Reader for the fiscal years ended December 31,
1996, 1997 and 1998, and the unaudited historical condensed consolidated interim
financial statements for the nine-month periods ended September 30, 1998 and
1999, which are included elsewhere in this prospectus. The selected historical
consolidated financial information for the fiscal years ended December 31, 1994
and 1995 and for the nine-month periods ended September 30, 1998 and 1999, are
unaudited, and in the opinion of management, reflect all adjustments, consisting
of normal recurring adjustments, that are necessary to present fairly the
financial results for these periods. The selected historical consolidated
financial statements do not indicate results of operations as of any future date
or for any future period. This information should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Results of Operations--Weekly Reader" and the financial statements
and related notes to them included elsewhere in this prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, (A) SEPTEMBER 30, (A)
---------------------------------------------------- -------------------
1994 1995 1996 1997 1998 1998 1999
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Sales, net (b)..................................... $ 85,817 $101,061 $ 89,733 $ 92,904 $118,236 $ 74,002 $101,630
Cost of goods sold................................. 21,723 21,167 25,503 23,825 30,646 19,082 27,921
-------- -------- -------- -------- -------- -------- --------
Gross profit....................................... 64,094 79,894 64,230 69,079 87,590 54,920 73,709
Operating costs and expenses:
Marketing and selling............................ 12,350 11,830 13,067 11,745 17,636 10,590 16,487
Distribution, circulation and fulfillment........ 11,713 10,510 10,836 11,593 10,881 7,130 8,436
Editorial........................................ 8,470 8,354 8,889 9,030 10,596 7,423 7,251
General and administrative....................... 9,861 10,450 11,598 12,736 15,281 10,382 11,903
Corporate and group overhead (c)................. 1,840 2,044 2,728 2,456 5,577 2,903 5,549
Depreciation and amortization.................... 14,214 30,266 13,168 11,428 12,212 7,993 11,884
-------- -------- -------- -------- -------- -------- --------
Operating income................................... 5,646 6,440 3,944 10,091 15,407 8,499 12,199
Other income (expense):
Intercompany interest expense.................... (6,262) (6,134) (5,851) (6,968) (9,232) (3,966) (10,133)
Amortization of deferred financing costs......... (236) (268) (963) (663) (184) (137) 154
Other, net....................................... (856) 5 7 1,545 (184) (191) (582)
-------- -------- -------- -------- -------- -------- --------
Income (loss) before income tax provision
(benefit)........................................ (1,708) 43 (2,863) 4,005 5,807 4,205 1,330
Income tax provision (benefit)..................... (341) 7,207 (1,108) 5,772 3,942 2,992 1,938
-------- -------- -------- -------- -------- -------- --------
Net income (loss).................................. $ (1,367) $ (7,164) $ (1,755) $ (1,767) $ 1,865 $ 1,213 $ (608)
======== ======== ======== ======== ======== ======== ========
OTHER DATA:
EBITDA (d)......................................... $ 19,004 $ 36,711 $ 17,119 $ 23,064 $ 27,435 $ 16,301 $ 24,995
Capital expenditures............................... 1,475 509 782 387 4,299 2,039 4,114
Ratio of earnings to fixed charges (e)............. -- 1.01x -- 1.52x 1.62x 2.02x 1.13x
BALANCE SHEET DATA (AT END OF PERIOD):
Total assets....................................... $133,691 $101,118 $107,573 $108,138 $237,276 $261,118 $248,444
Total debt......................................... -- -- -- -- -- -- --
Total shareholder's equity......................... 99,908 64,507 68,906 73,071 167,392 182,844 170,249
</TABLE>
58
<PAGE>
(a) The financial statements include the operations of American Guidance from
July 1, 1998, the effective date of PRIMEDIA's acquisition of all of the
capital stock of American Guidance. The financial statements of Weekly
Reader included in this prospectus, including the selected historical
consolidated financial information presented in the table above, include a
retroactive adjustment to reflect the contribution of 100% of the capital
stock of American Guidance and World Almanac by PRIMEDIA to Weekly Reader
using the historical carrying value of such stock.
(b) In 1994 and 1995, sales, net includes revenue from a license agreement for
the FUNK & WAGNALLS ENCYCLOPEDIA database of $2.8 million in 1994 and
$20.6 million in 1995. During 1995, the licensee made a one time payment to
acquire a perpetual, royalty-free license to use the database. Following
1995, no subsequent cash payments were received. Sales, net includes sales
of Facts On File News Services, Gareth Stevens, Inc. and American Guidance
following Facts On File News Services' acquisition in March 1996, Gareth
Stevens, Inc.'s acquisition in February 1997 and American Guidance's
acquisition in July 1998. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Results of Operations--Weekly
Reader."
(c) Includes cost for: (1) amounts allocated as corporate overhead to Weekly
Reader by PRIMEDIA for services and administrative functions shared with
PRIMEDIA and its other operating companies, such as, executive management
costs, salaries and fringe benefits for certain legal, financial,
information technology and human resources personnel, information technology
expenses, real estate expenses and third party costs; and (2) direct group
overhead costs such as the salaries, fringe benefits and expenses for
PRIMEDIA staff directly involved in Weekly Reader's operations.
(d) EBITDA is defined as net income (loss) before interest expense, income taxes
and depreciation and amortization. EBITDA data is included because we
understand that such information is considered by certain investors as an
additional basis on which to evaluate Weekly Reader's ability to pay
interest, repay debt and make capital expenditures. Because all companies do
not calculate EBITDA identically, the presentation of EBITDA in this
prospectus is not necessarily comparable to similarly titled measures of
other companies. EBITDA does not represent and should not be considered more
meaningful than, or an alternative to, measures of operating performance as
determined in accordance with generally accepted accounting principles.
(e) Ratio of earnings to fixed charges is calculated as net earnings, which is
defined as net income (loss) before income tax provision (benefit) plus
fixed charges, divided by fixed charges. Fixed charges are defined as
interest expensed and capitalized, amortized premiums, discounts and
capitalized expenses related to indebtedness and estimated interest included
in rental expense. Earnings were insufficient to cover fixed charges by
$1,708 in 1994 and $2,863 in 1996.
59
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
AMERICAN GUIDANCE SERVICE, INC.
The following table presents selected historical consolidated financial
information for American Guidance for each of the five fiscal years in the
period ended June 30, 1998. This information is based on the audited historical
consolidated financial statements of American Guidance for the fiscal years
ended June 30, 1994 and 1995, which are not included in this prospectus, and the
audited historical consolidated financial statements of American Guidance for
the fiscal years ended June 30, 1996, 1997 and 1998, which are included
elsewhere in this prospectus. The financial statements of Weekly Reader in this
prospectus include the operations of American Guidance since PRIMEDIA acquired
all of its capital stock, which was effective on July 1, 1998. Following its
acquisition by PRIMEDIA, American Guidance's fiscal year was changed to end on
December 31 of each year. This information should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Results of Operations--American Guidance" and the financial
statements and the related notes to them included elsewhere in this prospectus.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
----------------------------------------------------
1994 1995 1996 1997 1998
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Sales (a)............................................. $26,257 $28,303 $29,390 $33,449 $42,680
Cost of sales......................................... 7,475 7,928 8,548 9,480 11,779
------- ------- ------- ------- -------
Gross profit.......................................... 18,782 20,375 20,842 23,969 30,901
Expenses:
Development......................................... 5,165 6,007 4,947 4,407 5,349
Sales............................................... 5,691 5,954 6,824 7,455 8,447
General and administrative.......................... 4,793 5,144 5,759 6,346 7,044
Pension............................................. 242 363 402 486 452
ESOP contribution (b)............................... 1,054 1,156 1,462 1,307 1,600
Writedown of certain assets (c)..................... 7,595 323 -- -- --
------- ------- ------- ------- -------
Operating income...................................... (5,758) 1,428 1,448 3,968 8,009
Other income (expense) (d)............................ (687) (456) (113) (935) (765)
------- ------- ------- ------- -------
Income (loss) before income tax (expense) benefit..... (6,445) 972 1,335 3,033 7,244
Income tax (expense) benefit.......................... 1,615 30 200 (775) (2,700)
------- ------- ------- ------- -------
Net income (loss)..................................... $(4,830) $ 1,002 $ 1,535 $ 2,258 $ 4,544
======= ======= ======= ======= =======
OTHER DATA:
EBITDA (c)............................................ $ 3,813 $ 2,650 $ 2,435 $ 3,886 $ 8,145
Depreciation and amortization......................... 1,975 815 728 624 742
Capital expenditures.................................. 833 390 354 391 387
Interest expense...................................... 688 540 372 229 159
Ratio of earnings to fixed charges (e)................ -- 2.8x 4.6x 14.2x 46.6x
BALANCE SHEET DATA (AT END OF PERIOD):
Total assets.......................................... $14,769 $13,199 $13,615 $14,479 $16,852
Total debt............................................ 10,541 4,536 2,117 1,453 1,500
Total stockholders' equity............................ 171 2,159 4,597 5,442 6,971
</TABLE>
60
<PAGE>
(a) Includes sales attributable to certain assets acquired from Craig-Hart
Publishing Company in October 1997, International Thomson Publishing Inc. in
March 1997 and Lake Publishing Company in April 1996.
(b) ESOP contribution expenses represent American Guidance contributions to its
leveraged ESOP plan, primarily used to repay debt of such ESOP. These
contributions ended with the acquisition of American Guidance by PRIMEDIA
and will not recur in the future.
(c) EBITDA is defined as net income (loss) before interest expense, income
taxes, depreciation and amortization and non-recurring writedowns. American
Guidance recorded non-recurring writedowns relating to copyrights and
associated inventory of $7,595 in 1994 and, for certain data processing
software, of $323 in 1995, in each case to net realizable value. EBITDA data
is included because we understand that such information is considered by
certain investors as an additional basis on which to evaluate American
Guidance's ability to pay interest, repay debt and make capital
expenditures. Because all companies do not calculate EBITDA identically, the
presentation of EBITDA in this prospectus is not necessarily comparable to
similarly titled measures of other companies. EBITDA does not represent and
should not be considered more meaningful than, or an alternative to,
measures of operating performance as determined in accordance with generally
accepted accounting principles.
(d) Amounts include interest expense, net of interest income.
(e) Ratio of earnings to fixed charges is calculated as earnings, which is
defined as net income (loss) before income tax (expense) benefit plus fixed
charges, divided by fixed charges. Fixed charges are defined as interest
expensed and capitalized, amortized premiums, discounts and capitalized
expenses related to indebtedness and estimated interest included in rental
expense. Earnings were insufficient to cover fixed charges by $6,445 in
fiscal year 1994.
61
<PAGE>
SELECTED HISTORICAL FINANCIAL INFORMATION
WRC MEDIA INC. AND ITS SUBSIDIARY (COMPASSLEARNING)
The following table presents selected historical financial information for
CompassLearning for the fiscal year ended June 30, 1994, the period July 6, 1994
through June 29, 1995, the six months ended December 31, 1995, the fiscal years
ended December 31, 1996, 1997 and 1998, and the nine-month periods ended
September 30, 1998 and the period from January 1, 1999 through July 13, 1999 and
the period July 14, 1999 through September 30, 1999. The selected historical
financial information presented in the table below is based on the audited
historical financial statements of CompassLearning for the fiscal year ended
June 30, 1994, the period July 6, 1994 through June 29, 1995 and the six months
ended December 31, 1995, which are not included in this prospectus, as well as
the audited historical financial statements of CompassLearning for the fiscal
years ended December 31, 1996, 1997 and 1998, and the unaudited historical
condensed financial statements for the nine-month period ended September 30,
1998 and the period from January 1, 1999 through July 13, 1999 and the period
July 14, 1999 through September 30, 1999, which are included elsewhere in this
prospectus. The selected historical condensed financial information for the
nine-month period ended September 30, 1998 is unaudited, and in the opinion of
management, reflects all adjustments, consisting of normal recurring
adjustments, that are necessary to present fairly the financial results for
these periods. The selected historical financial information does not purport to
indicate results of operations as of any future date or for any future period.
This information should be read in conjunction with "Management's Discussion and
Analysis of Financial Conditions and Results of Operations--Results of
Operations--WRC Media and its Subsidiary (CompassLearning)," and the audited and
unaudited financial statements of CompassLearning and the notes to them,
included elsewhere in this prospectus.
<TABLE>
<CAPTION>
PRE-PREDECESSOR PREDECESSOR
--------------------------- ---------------------------------------------------------------
PERIOD FROM PERIOD FROM NINE MONTHS
YEAR ENDED JULY 6, 1994- JUNE 30, 1995- ENDED
JUNE 30, JUNE 29, DECEMBER 31, YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------- ------------- -------------- ------------------------------ -------------
1994(A) 1995(A) 1995(A) 1996 1997 1998 1998
----------- ------------- -------------- -------- -------- -------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net revenue:
Software.................... $ 68,970 $ 43,720 $ 26,950 $ 40,423 $ 29,159 $30,949 $23,096
Service..................... 57,675 46,699 19,783 35,385 36,029 33,935 25,737
Hardware (b)................ 50,824 20,303 14,428 10,924 6,624 4,014 3,227
-------- -------- -------- -------- -------- ------- -------
177,469 110,722 61,161 86,732 71,812 68,898 52,060
Cost of products sold (c)..... 130,103 71,482 40,293 50,161 59,384 29,400 21,779
-------- -------- -------- -------- -------- ------- -------
Gross profit.................. 47,366 39,240 20,868 36,571 12,428 39,498 30,281
Selling and administrative
expenses:
Sales and marketing......... 42,203 28,826 15,994 28,019 31,357 24,034 19,477
Research and development.... 12,902 9,558 5,093 11,715 11,177 8,022 6,393
Write-off of in-process
research and development.. -- -- 11,772
General and administrative
(d)....................... 13,242 10,202 4,733 11,281 13,508 7,705 6,392
Amortization of
intangibles............... -- -- 1,853 3,245 5,449 245 184
Restructuring (e)........... 59,336 -- -- -- -- 3,012 3,012
-------- -------- -------- -------- -------- ------- -------
Income (loss) from
operations.................. (80,317) (9,346) (18,577) (17,689) (49,063) (3,520) (5,177)
Other (expense) income (f).... -- (3,053) (789) -- (2,128) 33 24
Interest expense, net......... (1,940) -- (1,907) (4,590) (5,013) (4,286) (3,193)
-------- -------- -------- -------- -------- ------- -------
Loss before income taxes...... (82,257) (12,399) (21,273) (22,279) (56,204) (7,773) (8,346)
Income tax (expense)
benefit..................... 15,547 (175) (208) -- -- -- --
-------- -------- -------- -------- -------- ------- -------
Net Loss...................... $(66,710) $(12,574) $(21,481) $(22,279) $(56,204) $(7,773) $(8,346)
======== ======== ======== ======== ======== ======= =======
OTHER DATA:
EBITDA (g).................... $ 2,531 $ 1,509 $ 755 $ (1,943) $(15,301) $ 3,550 $ (781)
Depreciation and
amortization................ 23,512 13,908 8,349 15,746 33,733 4,025 2,922
Capital expenditures.......... 3,994 2,582 1,323 901 1,136 536 257
Ratio of earnings to fixed
charges (h)................... -- -- -- -- -- -- --
BALANCE SHEET DATA (AT END OF ) (UNAUDITED
PERIOD):
Total assets.................. $119,999 $ 85,756 $123,672 $ 95,063 $ 41,816 $31,753 36,881
Total debt.................... -- -- 26,450 16,020 25,500 28,989 32,312
Total stockholder's equity
(deficit)................... 51,028 39,901 18,076 23,138 (33,066) (40,525) (52,372)
<CAPTION>
PREDECESSOR SUCCESSOR
------------ --------------
PERIOD FROM PERIOD FROM
JANUARY 1, JULY 14, 1999-
1999-JULY 13 SEPTEMBER 30,
------------ --------------
1999 1999
------------ --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
INCOME STATEMENT DATA:
Net revenue:
Software.................... $16,231 $ 7,821
Service..................... 15,923 6,291
Hardware (b)................ 1,669 735
------- --------
33,823 14,847
Cost of products sold (c)..... 13,374 5,329
------- --------
Gross profit.................. 20,449 9,518
Selling and administrative
expenses:
Sales and marketing......... 11,038 4,971
Research and development.... 3,831 1,824
Write-off of in-process
research and development.. 9,000
General and administrative
(d)....................... 3,978 1,382
Amortization of
intangibles............... 131 1,739
Restructuring (e)........... -- --
------- --------
Income (loss) from
operations.................. 1,471 (9,398)
Other (expense) income (f).... 605 16
Interest expense, net......... (2,854) (914)
------- --------
Loss before income taxes...... (778) (10,296)
Income tax (expense)
benefit..................... -- --
------- --------
Net Loss...................... $ (778) $(10,296)
======= ========
OTHER DATA:
EBITDA (g).................... $ 3,393 $ 1,834
Depreciation and
amortization................ 1,720 2,216
Capital expenditures.......... 142 167
Ratio of earnings to fixed
charges (h)................... -- --
BALANCE SHEET DATA (AT END OF
PERIOD):
Total assets.................. $27,695 $ 78,488
Total debt.................... 31,642 25,499
Total stockholder's equity
(deficit)................... 41,619 20,548
</TABLE>
62
<PAGE>
(a) The financial position and results of operations on and prior to June 29,
1995 are shown on a predecessor basis prior to the purchase accounting
related to the acquisition of CompassLearning by its prior owner. In
connection with a change in independent accountants, the five-day period
from July 1, 1994 through July 5, 1994 was not audited. Management believes
that there was no revenue and expense activity during this period. Following
the acquisition of CompassLearning by its previous owner on June 29, 1995,
CompassLearning's fiscal year end was changed from June 30 to December 31.
(b) During the year ended June 30, 1994, CompassLearning began discontinuing its
wholesale hardware business because of its lower profit margins as compared
to CompassLearning's other businesses as well as to reduce the need for
inventory and the risk of technological change rendering inventory obsolete.
(c) During the year ended June 30, 1994, CompassLearning accelerated the
amortization charge on capitalized software development costs by $27,222 and
during the year ended December 31, 1997, by $17,269, to reflect net
realizable value of capitalized software development cost on hand as of
these dates. Subsequent to January 1, 1998, all software development costs
have been expensed as incurred as no such costs have been considered
eligible for capitalization.
(d) The balance for the period ended June 29, 1995, includes $2,013 of executive
bonuses paid in connection with the acquisition of CompassLearning by its
former owner that were previously included in intercompany charges.
(e) In 1994 and 1998, CompassLearning adopted formal action plans for
restructuring its operations. The charge to earnings was $59,336 in 1994 and
$3,012 in 1998. The 1994 restructuring included the exiting of certain lines
of business and headcount reductions. The 1998 restructuring included a
realignment of sale and service functions, certain on-line training
initiatives and headcount reductions. See "Management's Discussion and
Analysis of Financial Condition and Results of
Operations--Overview--CompassLearning Restructuring."
(f) For the year ended December 31, 1997 and for the six months period ended
July 13, 1999, $2,157 of other expense and $396 of other income, was
recorded to account for the non-recurring loss and gain associated with the
sale of stock, respectively, and is excluded from EBITDA.
(g) EBITDA is defined as income (loss) before interest expense, income taxes,
depreciation and amortization, restructuring charges and non-recurring
items. CompassLearning recorded restructuring charges of $59,336 in 1994 and
$3,012 in 1998. EBITDA excludes non-recurring charges of $11,772, related to
an in-process research and development write-off in the period from
June 30, 1995 to December 31, 1995, and $2,157, related to the write-off of
an investment in the year ended December 31, 1997, and non-recurring income
of $396, related to the gain on the sale of an investment, in the six month
period ended July 13, 1999. EBITDA data is included because we understand
that such information is considered by certain investors as an additional
basis on which to evaluate CompassLearning's ability to pay interest, repay
debt and make capital expenditures. Because all companies do not calculate
EBITDA identically, the presentation of EBITDA in this prospectus is not
necessarily comparable to similarly titled measures of other companies.
EBITDA does not represent and should not be considered more meaningful than,
or an alternative to, measures of operating performance as determined in
accordance with generally accepted accounting principles.
(h) Ratio of earnings to fixed charges is calculated as earnings, which is
defined as income (loss) before income tax provision (benefit) plus fixed
charges, divided by fixed charges. Fixed charges are defined as interest
expensed and capitalized, amortized premiums, discounts and capitalized
expenses related to indebtedness and estimated interest included in rental
expense. Earnings were insufficient to cover fixed charges by $12,399,
$21,273, $22,279, $56,204, $7,773, $8,346, $778 and $10,296 for the periods
July 6, 1994 through June 29, 1995; June 30, 1995 through December 31, 1995;
the years ended December 31, 1996; 1997 and 1998; the nine months ended
September 30, 1998; the period from January 1, 1999 through July 13, 1999;
and July 14, 1999 through September 30, 1999, respectively.
63
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
YOU SHOULD READ THE FOLLOWING DISCUSSION IN CONJUNCTION WITH THE FINANCIAL
STATEMENTS AND THE RELATED NOTES OF WEEKLY READER, COMPASSLEARNING AND AMERICAN
GUIDANCE, AND THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION OF WRC
MEDIA, IN EACH CASE THAT ARE INCLUDED ELSEWHERE IN THIS PROSPECTUS. THE
FOLLOWING DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF WEEKLY READER, WRC MEDIA AND ITS SUBSIDIARY (COMPASSLEARNING), AND
AMERICAN GUIDANCE COVER PERIODS PRIOR TO THE CONSUMMATION OF ALL THE
TRANSACTIONS, EXCEPT FOR THE PERIODS THAT REFLECT THE ACQUISITION OF
COMPASSLEARNING ON JULY 14, 1999, DESCRIBED UNDER "TRANSACTIONS." THUS, THIS
DISCUSSION DOES NOT FULLY REFLECT THE IMPACT OF THESE EVENTS OR OF THE BUSINESS
STRATEGY IMPLEMENTED AFTER THE CONSUMMATION OF THE TRANSACTIONS DESCRIBED UNDER
"TRANSACTIONS." SEE "RISK FACTORS" AND "--LIQUIDITY AND CAPITAL RESOURCES."
UNLESS THE CONTEXT OTHERWISE REQUIRES, REFERENCES TO "WEEKLY READER" IN THIS
SECTION ARE TO WEEKLY READER AND ITS SUBSIDIARIES, INCLUDING AMERICAN GUIDANCE,
WORLD ALMANAC AND LIFETIME LEARNING SYSTEMS, INC.
OVERVIEW
We are a leading publisher of supplemental education materials for the Pre
K-12 education market. Our portfolio of products includes a broad range of both
print and electronic supplemental instructional materials, testing and
assessment products and library materials, several of which have been published
for over 40 years, including, but not limited to:
- WEEKLY READER;
- TEEN NEWSWEEK;
- the PEABODY PICTURE VOCABULARY TEST;
- TOMORROW'S PROMISE;
- THE WORLD ALMANAC AND BOOK OF FACTS; and
- FACTS ON FILE WORLD NEWS DIGEST.
Our targeted customers are:
- teachers;
- school and school district-level administrators;
- librarians;
- other educational professionals; and
- parents.
One or more of our products are used in over 80,000, or approximately 75% of the
elementary, middle and secondary schools in the United States.
Our revenues consist primarily of:
- subscription revenues for our periodicals;
- revenues from sales of printed products (including nonfiction and fiction
books, workbooks, worktexts, reference materials and test preparation
materials);
- computer courseware and hardware;
- professional development services; and
- technical support services.
64
<PAGE>
Our operations are conducted primarily through the following four operating
subsidiaries:
- Weekly Reader;
- American Guidance;
- World Almanac; and
- CompassLearning.
On July 14, 1999, WRC Media acquired 100% of the capital stock of
CompassLearning through a wholly owned subsidiary. On August 13, 1999, WRC Media
entered into the recapitalization agreement providing for the recapitalization
of PRIMEDIA's Supplemental Education Group. In connection with the
recapitalization, PRIMEDIA contributed 100% of the outstanding capital stock of
American Guidance and World Almanac to Weekly Reader, prior to WRC Media's
acquisition of 94.9% of the outstanding common stock of Weekly Reader, with the
remaining 5.1% being retained by PRIMEDIA.
The financial statements for Weekly Reader included in this prospectus and
used as a basis for the financial presentation and discussion of Weekly Reader's
results of operations below include a retroactive adjustment on Weekly Reader's
financial statements reflecting the contribution of 100% of the capital stock of
American Guidance and World Almanac by PRIMEDIA to Weekly Reader using the
historical carrying value of such stock. Such financial statements include the
operations of American Guidance since PRIMEDIA acquired all of its capital
stock, which was effective on July 1, 1998. Separate financial statements for
American Guidance's fiscal years ended June 30, 1996, 1997 and 1998, the most
recently reported financial periods prior to its acquisition by PRIMEDIA, are
also included in this prospectus with a related separate results of operations
discussion for such periods. Upon acquisition by PRIMEDIA, the fiscal year of
American Guidance was changed to end on December 31 each year.
REVENUES.
For the nine months ended September 30, 1999, Weekly Reader (not including
American Guidance or World Almanac) had net revenue of $28.0 million, American
Guidance had net revenue of $39.5 million, World Almanac had net revenue of
$34.2 million. For the period between January 1, 1999 to July 13, 1999,
CompassLearning had net revenue of $34.0 million and for the period between
July 14, 1999 to September 30, 1999, WRC Media and its Subsidiary
(CompassLearning) had net revenue of $14.8 million.
WEEKLY READER. Weekly Reader's revenues are derived from its own
operations, including those of its subsidiary Lifetime Learning Systems, Inc.,
as well as from the operations of American Guidance and World Almanac. Weekly
Reader (not including American Guidance or World Almanac) derives revenues from
three primary sources:
- periodicals;
- skills books; and
- sponsored instructional materials published by Lifetime Learning
Systems, Inc.
Weekly Reader's periodicals are sold as subscriptions, all of which are for
periods of twelve months or less, with a significant amount of each year's
revenues coming from subscription renewals. Lifetime Learning Systems, Inc.'s
sponsored supplemental educational materials are paid for by corporate, trade
association or not-for-profit sponsors and are distributed for free primarily to
K-12 students. American Guidance derives revenues from two product lines:
- testing and assessment products; and
- supplemental instructional materials.
65
<PAGE>
Testing and assessment products are typically sold in kits containing the test,
test record forms, easels used to administer the test, scoring sheets and a
manual describing the proper use of the test. Each test uses a different test
record form, which typically come in packages of 25 and must be purchased from
American Guidance for as long as the school uses the test (some tests are used
for over 15 years). Approximately 37% of American Guidance's revenues from
testing and assessment products for the twelve months ended June 30, 1999 were
from replenishment sales for these test record forms. American Guidance's
supplemental instructional materials consist of curriculum-based instructional
materials and are sold primarily to middle and secondary schools. World Almanac
derives revenues primarily from the sale of its reference and informational
materials, including:
- printed products and electronic databases;
- nonfiction and fiction books; and
- the distribution of third-party products targeted for K-12 students.
Weekly Reader's subscriptions are recorded as deferred revenue when received and
recognized as income over the term of the subscription, whereas sales of its
other products, including sponsored instructional materials, skills books, tests
and other supplemental instructional materials, are recognized as revenue upon
shipment, generally net of an allowance for returns.
COMPASSLEARNING. CompassLearning's revenues are derived from its:
- software products;
- professional development services;
- technical support services; and
- hardware sales.
CompassLearning's software products include:
- electronic courseware;
- assessment software;
- management systems; and
- Internet-based products.
Sales of software products historically have been negatively impacted primarily
due to two factors:
- product introduction issues; and
- a disruption in CompassLearning's sales force.
Prior to 1995, CompassLearning's product development strategy focused on
providing certain product features and functions that were dependent on emerging
technological advances which typically required proprietary hardware to function
and were not compatible with many third-party products. Following the 1995
acquisition by its former owner, CompassLearning changed its strategy to develop
products based on known technology platforms which included standard hardware
configurations and were more compatible with third-party products, thereby
addressing a broader marketplace and minimizing the risk of product
obsolescence. The acquisition of Ideal Learning, Inc. in December 1995, allowed
CompassLearning to accelerate its strategic direction to release a management
system that functioned in an open environment and co-existed with third-party
products and to package its curriculum products by subject and by grade. In
order to decrease time to market, the new product offerings of TOMORROW'S
PROMISE and COMPASS were released in stages throughout 1997. While market
acceptance of the new products was strong, customers were reluctant to migrate
to the new product
66
<PAGE>
line until some features were available, which occurred in early 1998.
Therefore, the full benefit of this new product line was not realized until
1998, when software revenue grew by 6%.
In addition, during the nine months following the 1995 acquisition of
CompassLearning by its former owner, a significant portion of the
CompassLearning's seasoned sales personnel left to join a start-up company. The
departing sales representatives collectively accounted for approximately
$20 million of new software sales in the twelve-month period prior to their
respective departures. This disruption in the sales force negatively impacted
CompassLearning's sales cycle and resulted in reduced sales in 1997.
CompassLearning typically sells its professional development services and
technical support services on an annual basis. Professional development services
generally consist of a specific number of days of training. Technical support
service contracts are typically for one-year periods and are provided at varying
levels, from telephone help-line services to priority systems engineer
dispatching. CompassLearning's electronic courseware customers purchase, on
average, eight days of professional development services and a one-year
technical support contract for help-line and systems engineer services in
connection with their software purchases. These service contracts are frequently
renewed following the expiration of the initial service period, with
approximately 23% of professional development services revenue and approximately
57% of technical support services revenue for the twelve months ended June 30,
1999 coming from renewal sales. CompassLearning's services revenues,
particularly those attributable to renewals of existing services contracts, have
been decreasing recently as a result of:
- the decrease in new software sales, which reduces the amount of new
service sales as well as subsequent renewal sales;
- the improved quality of our software products, which require less
technical support;
- more customers supplying their own training and support services through
in-house expertise; and
- the allocation by customers of a greater amount of limited resources to
upgrade their hardware and software systems for Year 2000 compliance.
Services revenues are recognized over the period of the applicable service
contract.
CompassLearning's hardware business revenues are generally derived from
reselling hardware to customers who request that CompassLearning provide a
package of software and hardware. Prior to 1995, CompassLearning offered
hardware to customers as a wholesaler of private label and other products.
However, because of the less profitable nature of the business compared to
CompassLearning's other businesses and to reduce the need for inventory and the
risk of technological change rendering inventory obsolete, CompassLearning began
discontinuing its wholesale hardware business in 1994. Currently,
CompassLearning is a reseller for Apple, IBM, Compaq and Dell computers in order
to accommodate requests by customers for complete hardware and software
solutions. Revenues from sales of hardware are typically recognized upon
shipment.
OPERATING COSTS AND EXPENSES.
WEEKLY READER. For Weekly Reader, operating costs and expenses are
comprised primarily of:
- cost of goods sold;
- marketing and selling;
- distribution;
- circulation and fulfillment;
67
<PAGE>
- editorial;
- general and administrative expenses;
- corporate and group overhead costs; and
- depreciation and amortization.
Weekly Reader's cost of goods sold for its products consist primarily of paper,
printing and binding costs. Marketing and selling expenses are typically for
direct mail costs including:
- postage;
- paper;
- printing;
- advertising;
- mailing list rental fees;
- telemarketing costs; and
- the costs of sales employees.
Distribution, circulation and fulfillment expenses are typically for postage,
third-party fulfillment, warehousing and shipping. Weekly Reader's editorial
costs consist of expenses incurred for its staff of writers as well as
third-party contractors, such as freelance writers. General and administrative
expenses consist primarily of:
- salaries and fringe benefits for executives as well as for finance,
information technology and human resources employees;
- information technology expenses (other than salaries); and
- real estate expenses.
Corporate and group overhead costs include costs for:
- amounts allocated as corporate overhead by PRIMEDIA for services and
administrative functions shared with PRIMEDIA and its other operating
companies, including, but not limited to:
-- executive management costs,
-- salaries and fringe benefits for certain legal, financial,
information technology and human resources personnel,
-- information technology expenses,
-- real estate expenses,
-- third-party costs; and
- direct group overhead, such as salaries, fringe benefits and other
expenses for PRIMEDIA staff directly involved in operating Weekly Reader.
COMPASSLEARNING. CompassLearning's operating costs and expenses consist
primarily of:
- cost of products sold;
- sales and marketing;
- research and development; and
68
<PAGE>
- general and administrative expenses.
Sales and marketing expenses are the largest component of operating costs and
expenses and consist primarily of direct sales force expenses as well as
expenses for promotional activities. Sales and marketing expenses increased
significantly in 1997 and 1998 as a result of the introduction of TOMORROW'S
PROMISE and COMPASS in April 1997, including the development of new promotional
materials for the products, and the need to hire and train sales personnel to
replace those lost to a competitor following the prior owner's acquisition of
CompassLearning in 1995. Cost of products sold consist primarily of:
- production and packaging costs, royalty expenses and amortization of
capitalized software development costs for software products;
- salaries and related costs of employees providing professional development
services and technical support services for CompassLearning's services
business; and
- the cost to CompassLearning to purchase the hardware for resale, as well
as the internal cost to support this line of business, for its hardware
business.
Research and development costs consist primarily of salaries and related costs
of employees, as well as temporary staff hired as needed, and are typically
expensed as incurred. Prior to 1996, CompassLearning had been capitalizing
approximately 50% or more of its software development costs. In 1997,
CompassLearning's product focus changed with the introduction of TOMORROW'S
PROMISE, and amortization charges of approximately $17.3 million in connection
with older capitalized software were accelerated to reflect such software's new
net realizable values. This cost is included in cost of goods sold. Since
January 1, 1998, all new software development costs have been expensed as
incurred as no such costs have been considered eligible for capitalization.
COMPASSLEARNING RESTRUCTURING.
In July 1998, CompassLearning implemented an extensive re-engineering effort
to reduce operating costs through increased efficiencies. As part of this
effort, the following major steps were taken:
- sales and services were realigned geographically to reduce travel time and
expenses;
- on-line training was introduced and new productivity tools for the field
support staff were implemented to reduce costs and increase operational
leverage; and
- headcount was reduced from 695 to a targeted level of 545, primarily
through reductions in sales and administrative, service and training
areas.
CompassLearning recorded a $3.0 million charge for the year ended
December 31, 1998, in connection with these restructuring efforts. Primarily as
a result of these efforts, cost of goods sold for our services and selling and
administrative expenses at CompassLearning were reduced by at least
$20.0 million during the year ended December 31, 1998 compared to the year ended
December 31, 1997.
69
<PAGE>
RESULTS OF OPERATIONS--WEEKLY READER
The following table sets forth, for the periods indicated, statements of
consolidated operations data, expressed in millions of dollars and as a
percentage of net sales. The financial statements for Weekly Reader included in
this prospectus and used as a basis for the financial presentation and
discussion of Weekly Reader's results of operations herein reflect the
contribution by PRIMEDIA of 100% of the capital stock of American Guidance and
World Almanac to Weekly Reader. For accounting purposes, such contribution has
been reflected as a reorganization of entities under common control.
Accordingly, all prior periods have been restated to reflect that reorganization
using the historical carrying value of such stock. The financial statements
include the operations of American Guidance since PRIMEDIA acquired its capital
stock, which was effective on July 1, 1998. For a discussion of the results of
operations of American Guidance prior to July 1, 1998, see "--Results of
Operations--American Guidance."
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------------------
1998 1999
-------------------- --------------------
% OF % OF
AMOUNT NET SALES AMOUNT NET SALES
-------- --------- -------- ---------
(UNAUDITED)
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Sales, net................................................ $74.0 100.0% $101.6 100.0%
Cost of goods sold........................................ 19.1 25.8% 27.9 27.5%
----- ----- ------ -----
Gross profit.............................................. 54.9 74.2% 73.7 72.5%
OPERATING COSTS AND EXPENSES:
Marketing and selling................................... 10.6 14.3% 16.5 16.2%
Distribution, circulation and fulfillment............... 7.1 9.6% 8.4 8.3%
Editorial............................................... 7.4 10.0% 7.3 7.2%
General and administrative.............................. 10.4 14.1% 11.9 11.7%
Corporate and group overhead (a)........................ 2.9 3.9% 5.5 5.4%
Depreciation and amortization........................... 8.0 10.8% 11.9 11.7%
----- ----- ------ -----
Operating income.......................................... 8.5 11.5% 12.2 12.0%
Other income (expense):
Intercompany interest expense (b)....................... (4.0) (5.4%) (10.1) (9.9%)
Amortization of deferred financing costs................ (0.1) (0.1%) (0.2) (0.2%)
Other, net.............................................. (0.2) (0.3%) (0.6) (0.6%)
----- ----- ------ -----
Income (loss) before income tax provision (benefit)....... 4.2 5.7% 1.3 1.3%
Income tax provision...................................... 3.0 4.1% 1.9 1.9%
----- ----- ------ -----
Net income (loss)......................................... $ 1.2 1.6% $ (0.6) (0.6%)
===== ===== ====== =====
</TABLE>
- ------------------------
(a) Includes costs for: (1) amounts allocated as corporate overhead to Weekly
Reader by PRIMEDIA for services and administrative functions shared with
PRIMEDIA and its other operating companies including, but not limited to,
executive management costs, salaries and fringe benefits for certain legal,
financial, information technology and human resources personnel, information
technology expenses, real estate expenses and third-party costs; and
(2) direct group overhead costs, such as the salaries, fringe benefits and
expenses for PRIMEDIA staff directly involved in operating Weekly Reader.
(b) Allocation of interest expense arising from borrowings at the PRIMEDIA
corporate level.
70
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------
1996 1997 1998
-------------------- -------------------- --------------------
% OF % OF % OF
AMOUNT NET SALES AMOUNT NET SALES AMOUNT NET SALES
-------- --------- -------- --------- -------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Sales, net....................................... $89.7 100.0% $92.9 100.0% $118.2 100.0%
Cost of goods sold............................... 25.5 28.4% 23.8 25.6% 30.6 25.9%
----- ----- ----- ----- ------ -----
Gross profit..................................... 64.2 71.6% 69.1 74.4% 87.6 74.1%
OPERATING COSTS AND EXPENSES:
Marketing and selling.......................... 13.1 14.6% 11.8 12.7% 17.6 14.9%
Distribution, circulation and fulfillment...... 10.8 12.1% 11.6 12.5% 10.9 9.2%
Editorial...................................... 8.9 9.9% 9.0 9.7% 10.6 9.0%
General and administrative..................... 11.6 12.9% 12.7 13.7% 15.3 12.9%
Corporate and group overhead (a)............... 2.7 3.0% 2.5 2.6% 5.6 4.8%
Depreciation and amortization.................. 13.2 14.7% 11.4 12.3% 12.2 10.3%
----- ----- ----- ----- ------ -----
Operating income................................. 3.9 4.4% 10.1 10.9% 15.4 13.0%
Other income (expense):
Intercompany interest expense (b).............. (5.9) 6.6% (7.0) 7.5% (9.2) 7.7%
Amortization of deferred financing costs....... (0.9) 1.0% (0.6) 0.7% (0.2) 0.2%
Other, net..................................... -- -- 1.5 1.6% (0.2) 0.2%
----- ----- ----- ----- ------ -----
Income (loss) before income tax provision
(benefit)...................................... (2.9) 3.2% 4.0 4.3% 5.8 4.9%
Income tax provision (benefit)................... (1.1) 1.2% 5.8 6.2% 3.9 3.3%
----- ----- ----- ----- ------ -----
Net income (loss)................................ $(1.8) 2.0% $(1.8) 1.9% $ 1.9 1.6%
===== ===== ===== ===== ====== =====
</TABLE>
- ------------------------
(a) Includes costs for: (1) amounts allocated as corporate overhead to Weekly
Reader by PRIMEDIA for services and administrative functions shared with
PRIMEDIA and its other operating companies including, but not limited to,
executive management costs, salaries and fringe benefits for certain legal,
financial, information technology and human resources personnel, information
technology expenses, real estate expenses and third party costs; and
(2) direct group overhead costs, such as the salaries, fringe benefits and
expenses for PRIMEDIA staff directly involved in operating Weekly Reader.
(b) Allocation of interest expense arising from borrowings at the PRIMEDIA
corporate level.
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1998
SALES, NET. For the nine months ended September 30, 1999, net sales
increased $27.6 million, or 37.3%, to $101.6 million from $74.0 million for the
same period in 1998. This increase was primarily due to the inclusion of an
additional $21.7 million of sales attributable to American Guidance as it was
included in the operations for the full nine months in 1999, compared to three
months in 1998, as American Guidance was acquired as of July 1, 1998.
Additionally, Weekly Reader's (not including World Almanac and American
Guidance) net sales increased by $3.3 million or 13.4%, due to an increase in
sales of sponsored instructional material by Lifetime Learning Systems, Inc.
Further, World Almanac's sales increased by $2.6 million, or 8.2%, primarily due
to increased sales by World Almanac Education as a result of increases in the
number of products offered in, and in the mailing volume of, certain catalogs.
GROSS PROFIT. For the nine months ended September 30, 1999, gross profit
increased by $18.8 million, or 34.2%, to $73.7 million from $54.9 million for
the same period in 1998. This increase was primarily due to the inclusion of an
additional $16.6 million of gross profit attributable to American Guidance as it
was included in the operations for a full nine months in 1999, compared to
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<PAGE>
three months in 1998. In addition, Weekly Reader's (not including World Almanac
and American Guidance) gross profit increased by $1.8 million, or 8.6% due to
increased sales of Lifetime Learning Systems, Inc.'s instructional materials.
World Almanac's gross profit increased by a net of $0.4 million, or 1.7%,
resulting from increased sales, which was offset by a charge of $1.2 million
related to excess inventory levels at World Almanac's Gareth Stevens, Inc.
division. Gross profit as a percentage of sales decreased to 72.5%, from 74.2%
for the same period in 1998. This decrease was due to a slight product mix
change, as Lifetime Learning System, Inc.'s sponsored instructional materials
are sold at a lower gross profit margin than Weekly Reader's classroom
periodicals. Additionally, the gross profit margin decreased due to World
Almanac's inventory related charge previously noted.
OPERATING COSTS AND EXPENSES. For the nine months ended September 30, 1999,
operating costs and expenses increased by $15.1 million, or 32.5%, to
$61.5 million from $46.4 million for the same period in 1998. The increase was
primarily due to the inclusion of an additional $14.8 million of additional
operating expenses attributable to American Guidance as it was included in the
operations for a full nine months in 1999, compared to three months in 1998. For
the nine months ended September 30, 1999, operating costs and expenses as a
percentage of sales decreased to 60.5% from 62.7% for the same period in 1998.
This decrease was primarily due to increased sales at Weekly Reader (excluding
World Almanac and American Guidance) and World Almanac. Sales for these two
units combined increased by $6.0 million or 10.7%, while operating costs and
expenses increased at a lower rate, by $0.3 million or 0.8% to $39.4 million
from $39.1 million, for the same period in 1998.
OPERATING INCOME. For the nine months ended September 30, 1999, operating
income increased by $3.7 million, or 43.5%, to $12.2 million from $8.5 million
for the same period in 1998, and operating income as a percentage of sales
increased to 12.0% from 11.5% for the same period in 1998. These increases were
primarily due to the factors described above.
INTERCOMPANY INTEREST EXPENSE. For the nine months ended September 30,
1999, intercompany interest expense increased by $6.1 million, or 152.5%, to
$10.1 million from $4.0 million for the same period in 1998, and intercompany
interest expense as a percentage of sales increased to 9.9% from 5.4% for the
same period in 1998. These increases were primarily as a result of the inclusion
of additional PRIMEDIA allocations of intercompany interest expense related to
the acquisition of American Guidance.
OTHER, NET. For the nine months ended September 30, 1999, other expense,
net increased by $0.4 million, to $0.6 million from $0.2 million for the same
period in 1998. This increase was a result of an increase in miscellaneous taxes
at Weekly Reader (not including World Almanac and American Guidance) and
American Guidance.
INCOME TAX PROVISION. For the nine months ended September 30, 1999, income
tax provision decreased by $1.1 million, or 36.7%, to $1.9 million from
$3.0 million for the same period in 1998. This decrease was primarily due to
lower income before income tax provision for the nine months ended
September 30, 1999 compared to the same period in 1998. Income tax provision as
a percentage of income before income tax provision, or the effective income tax
rate, increased to 146.2% for the nine months ended September 30, 1999 from
71.4% for the same period in 1998. This increase is mainly attributable to the
non-deductible goodwill relating to the acquisition of American Guidance. Weekly
Reader's high effective tax rate is attributable to PRIMEDIA's accounting policy
whereby Weekly Reader, American Guidance, and World Almanac are not permitted to
offset income/losses among that group but rather receive tax benefits only if
such entities would have received such benefits on a separate company return
basis.
NET INCOME (LOSS). For the nine months ended September 30, 1999, net income
decreased by $1.8 million, to a net loss of $0.6 million from net income of
$1.2 million for the same period in 1998. Net income (loss) as a percentage of
net sales decreased to a negative 0.6% for the nine months ended
72
<PAGE>
September 30, 1999 from a positive 1.6% for the same period in 1998. These
decreases were primarily due to the factors described above.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
SALES, NET. For the year ended December 31, 1998, net sales increased by
$25.3 million, or 27.2%, to $118.2 million from $92.9 million in 1997. This
increase was primarily due to the acquisition of American Guidance, which added
$26.6 million in sales. This increase was partially offset by a decrease in
Weekly Reader's (not including World Almanac and American Guidance) net sales of
$1.5 million, or 3.3%, to $43.7 million in 1998 from $45.2 million in 1997 as a
result of a change in the publishing schedule in 1997 which shifted one issue of
the periodicals from January 1998 to December 1997. As a result of this
permanent change, 1997 contained 27 issues instead of the conventional 26 that
were shipped in 1998, as well as years prior to and subsequent to 1997. World
Almanac sales increased by $0.2 million, or 0.4%, to $47.9 million in 1998 from
$47.7 million in 1997 as a result of a sales increase of $1.6 million due to
increases in the number of products offered in, and in the mailing volume of,
certain catalogs and as a result of a sales increase of $1.4 million as a result
of the February 1997 acquisition of Gareth Stevens, Inc. (1997 results do not
include Gareth Stevens, Inc. for January 1997). These increases were partially
offset by a sales decrease of $2.4 million at Funk & Wagnalls from the decline
in print encyclopedia sales and attrition to the annuals customer list.
GROSS PROFIT. For the year ended December 31, 1998, gross profit increased
by $18.5 million, or 26.8%, to $87.6 million from $69.1 million in 1997. Gross
profit as a percentage of net sales decreased to 74.1% in 1998 from 74.4% in
1997. This increase and decrease, respectively, were primarily due to the
acquisition of American Guidance which added $19.0 million in gross profit but
operated at a lower gross margin than Weekly Reader's other businesses.
OPERATING COSTS AND EXPENSES. For the year ended December 31, 1998,
operating costs and expenses increased by $13.2 million, or 22.4%, to
$72.2 million from $59.0 million in 1997. This increase was primarily due to the
acquisition of American Guidance, which added $17.1 million to operating costs
and expenses, partially offset by a reduction of $3.8 million in operating
expenses at World Almanac, as a result of lower intangible amortization at Facts
On File News Services and Funk & Wagnalls. For the year ended December 31, 1998,
operating costs and expenses as a percentage of sales decreased to 61.1% from
63.5% in 1997. This decrease was primarily due to the decline in intangible
asset amortization at World Almanac, which decreased World Almanac's operating
costs and expenses as a percentage of sales to 56.2% in 1998 from 64.4% in 1997
and was partially offset by the inclusion of American Guidance which had higher
operating costs and expenses as a percentage of sales than Weekly Reader's other
businesses for the period.
OPERATING INCOME. For the year ended December 31, 1998, operating income
increased by $5.3 million, or 52.5%, to $15.4 million from $10.1 million in 1997
and operating income as a percentage of net sales increased to 13.0% from 10.9%
in 1997. These increases were primarily due to the factors described above.
INTERCOMPANY INTEREST EXPENSE. For the year ended December 31, 1998,
intercompany interest expense increased $2.2 million, or 31.4%, to $9.2 million
from $7.0 million in 1997 and intercompany interest expense as a percentage of
net sales increased to 7.7% from 7.5% for the same period in 1997. These
increases were primarily due to increased allocations from PRIMEDIA as a result
of the acquisition of American Guidance.
OTHER, NET. For the year ended December 31, 1998, other, net decreased by
$1.7 million to $(0.2) million from $1.5 million. This decrease was the result
of a gain on the sale of assets realized by Weekly Reader in 1997 that did not
recur in 1998.
INCOME TAX PROVISION (BENEFIT). For the year ended December 31, 1998,
income tax provision decreased $1.9 million, or 32.8%, to $3.9 million from
$5.8 million in 1997 and income tax provision as
73
<PAGE>
a percentage of income (loss) before income tax provision (benefit), or the
effective income tax rate, decreased to 67.2% from 145.0%. In both years, the
effective income tax rate was higher than the statutory income tax rate
primarily due to provisions recorded to establish a valuation allowance, in each
such year, against net deferred income tax assets of Weekly Reader. The
effective income tax rate decreased during 1998 primarily due to a reduction in
the provision to record the valuation allowance.
NET INCOME (LOSS). For the year ended December 31, 1998, net income
increased by $3.7 million to $1.9 million, from a net loss of $1.8 million in
1997 and net income as a percentage of sales increased to 1.6% from a net loss
for the same period in 1997. These increases were primarily due to the factors
described above.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
SALES, NET. For the year ended December 31, 1997, net sales increased
$3.2 million, or 3.6%, to $92.9 million from $89.7 million in 1996. This
increase was primarily due to:
- the inclusion of $9.7 million of sales at Gareth Stevens, Inc., which was
acquired in February 1997;
- a $1.1 million increase in Weekly Reader (not including American Guidance
and World Almanac) sales as a result of a change in the publishing
schedule which resulted in 27 periodical issues being shipped in 1997,
versus 26 issues in 1996; and
- the inclusion of $1.0 million in sales resulting from a full year of Facts
On File News Services, which was acquired in March 1996.
This increase was partially offset by decreases of $6.2 million at Funk &
Wagnalls due to the decline in the print encyclopedia business and the attrition
to the annuals customer list, a decrease of $2.7 million for World Almanac due
to the absence in 1997 of one title published in 1996 and the loss of a
significant customer and a decrease in skills book sales of $1.1 million caused
by the Presidential election books sales in 1996 that were not repeated in 1997.
GROSS PROFIT. For the year ended December 31, 1997, gross profit increased
$4.9 million, or 7.6%, to $69.1 million from $64.2 million in 1996 and gross
profit as a percentage of sales increased to 74.4% from 71.6% in 1996. These
increases were primarily due to the inclusion of a full year of Facts On File
News Services, the acquisition of Gareth Stevens, Inc. and a favorable product
mix at World Almanac's other lines of business related to increased sales from
product lines with lower cost of goods/higher gross profit (World Almanac
Education and Gareth Stevens, Inc.), and decreased sales from product lines with
higher cost of goods/lower gross profit (World Almanac and print version of the
FUNK & WAGNALLS ENCYCLOPEDIA).
OPERATING COSTS AND EXPENSES. For the year ended December 31, 1997,
operating costs and expenses decreased $1.3 million, or 2.2%, to $59.0 million
from $60.3 million in 1996 and operating costs and expenses as a percentage of
net sales decreased to 63.5% from 67.2% in 1996. These decreases were primarily
due to a decrease in operating expenses at Weekly Reader (not including American
Guidance and World Almanac) as a result of a decline in promotional expenses
related to a strategic decision to reduce the number of promotional campaigns
and to attempt to focus promotional spending to be more efficient. The decrease
in absolute dollars was partially offset by, and the decrease as a percentage of
sales was partially the result of, the inclusion of Gareth Stevens, Inc. in
1997.
OPERATING INCOME. For the year ended December 31, 1997, operating income
increased by $6.2 million, or 159.0%, to $10.1 million from $3.9 million in 1996
and operating income as a percentage of net sales increased to 10.9% from 4.4%
in 1996. These increases were primarily due to the factors described above.
INTERCOMPANY INTEREST EXPENSE. For the year ended December 31, 1997,
intercompany interest expense increased by $1.1 million, or 18.6%, to
$7.0 million from $5.9 million in 1996. These increases
74
<PAGE>
were due to additional allocations by PRIMEDIA to World Almanac as a result of
the acquisition of Gareth Stevens, Inc.
OTHER, NET. For the year ended December 31, 1997, other, net increased by
$1.5 million, to $1.5 million from $0.0 million in 1996. This increase was due
to a gain on the sale of assets realized by Weekly Reader in 1997.
INCOME TAX PROVISION (BENEFIT). For the year ended December 31, 1997,
income tax provision increased $6.9 million, to $5.8 million from a benefit of
$1.1 million in 1996 and income tax provision (benefit) as a percentage of
income (loss) before income tax provision (benefit), or the effective income tax
rate, increased to 145.0% from (37.9)%. The effective income tax rate in 1997 is
higher than the statutory income tax rate primarily due to a provision recorded
to establish a valuation allowance against net deferred income tax assets of
Weekly Reader. The effective income tax rate also increased during 1997
primarily due to the provision to record a valuation allowance against deferred
income tax assets.
NET LOSS. For the year ended December 31, 1997, net loss remained constant
at $1.8 million primarily due to the factors described above.
75
<PAGE>
RESULTS OF OPERATIONS--AMERICAN GUIDANCE
The following table sets forth, for the periods indicated, statement of
income data, expressed in millions of dollars and as a percentage of sales.
PRIMEDIA acquired all of the capital stock of American Guidance effective as of
July 1, 1998. Prior to PRIMEDIA's acquisition of American Guidance, American
Guidance's fiscal year ended on June 30 of each year. Following its acquisition
by PRIMEDIA, the fiscal year of American Guidance was changed to December 31 of
each year. American Guidance's results of operations subsequent to July 1, 1998
are included in the results of operations of Weekly Reader.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------------------------------------------
1996 1997 1998
-------------------- -------------------- --------------------
% OF % OF % OF
AMOUNT NET SALES AMOUNT NET SALES AMOUNT NET SALES
-------- --------- -------- --------- -------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Sales................................................. $29.4 100.0% $33.5 100.0% $42.7 100.0%
Cost of sales......................................... 8.6 29.3% 9.5 28.4% 11.8 27.6%
----- ----- ----- ----- ----- -----
Gross Profit.......................................... 20.8 70.7% 24.0 71.6% 30.9 72.4%
EXPENSES:
Development......................................... 4.9 16.7% 4.4 13.1% 5.3 12.4%
Sales............................................... 6.8 23.1% 7.5 22.4% 8.5 19.9%
General and administrative.......................... 5.8 19.7% 6.3 18.8% 7.0 16.4%
Pension............................................. 0.4 1.4% 0.5 1.5% 0.5 1.2%
ESOP contribution (a)............................... 1.5 5.0% 1.3 3.9% 1.6 3.8%
----- ----- ----- ----- ----- -----
Operating income...................................... 1.4 4.8% 4.0 11.9% 8.0 18.7%
Other expense (b)..................................... 0.1 0.4% 0.9 2.6% 0.8 1.8%
----- ----- ----- ----- ----- -----
Income before income tax (expense) benefit............ 1.3 4.4% 3.1 9.3% 7.2 16.9%
Income tax (expense) benefit.......................... 0.2 0.7% (0.8) 2.4% (2.7) 6.4%
----- ----- ----- ----- ----- -----
Net income............................................ $ 1.5 5.1% $ 2.3 6.9% $ 4.5 10.5%
===== ===== ===== ===== ===== =====
</TABLE>
- --------------------------
(a) Employee Stock Ownership Plan ("ESOP") contribution expenses represent
American Guidance contributions to its leveraged ESOP plan, primarily used
to repay debt of the ESOP. These contributions ended with the acquisition of
American Guidance by PRIMEDIA and will not recur in the future.
(b) Amounts shown net of interest income.
YEAR ENDED JUNE 30, 1998 COMPARED TO YEAR ENDED JUNE 30, 1997
SALES. For the year ended June 30, 1998, sales increased $9.2 million, or
27.5%, to $42.7 million from $33.5 million for the same period in 1997. This
increase was primarily due to revisions of American Guidance products, resulting
in increased sales of testing and assessment products of $4.4 million and
supplemental hard cover textbooks of $2.7 million. In addition, sales of
supplemental instructional materials increased $2.1 million primarily as a
result of increased purchases of some of our products by a provider of
nationwide language education programs and increased sales of new test
preparation materials.
GROSS PROFIT. For the year ended June 30, 1998, gross profit increased
$6.9 million, or 28.8%, to $30.9 million from $24.0 million for the same period
in 1997. The increase in gross profit was primarily due to the increase in
sales. For the year ended June 30, 1998, gross profit as a percentage of sales
increased to 72.4% from 71.6% for the same period in 1997. The increase in gross
profit margin was due to product mix.
EXPENSES. For the year ended June 30, 1998, expenses increased
$2.9 million, or 14.5%, to $22.9 million from $20.0 million for the same period
in 1997. Development expenses increased by
76
<PAGE>
$0.9 million as a result of the American Guidance strategy of fueling sales
growth with new and revised products. Sales expenses increased by $1.0 million,
due to expanded marketing campaigns to support new and revised products, and
increased costs related to growth in the sales force. General and administrative
costs increased by $0.7 million while an increase in contribution to the ESOP
accounted for $0.3 million. For the period ended June 30, 1998, expenses as a
percentage of net sales decreased to 53.6% from 59.7% in the same period in
1997. This decrease was primarily due to improved operating margins primarily
resulting from growth in sales exceeding growth rates in expenses.
OPERATING INCOME. For the year ended June 30, 1998, operating income
increased by $4.0 million, or 100.0%, to $8.0 million from $4.0 million for the
same period in 1997 and operating income as a percentage of sales increased to
18.7% from 11.9% for the same period in 1997. These increases were primarily due
to the factors described above.
OTHER EXPENSE. For the year ended June 30, 1998, other expense decreased
$0.1 million, or 11.1% to $0.8 million from $0.9 million for the same period in
1997 and other expense as a percentage of sales decreased to 1.8% from 2.6% for
the same period in 1997. These decreases were primarily due to lower interest
expense related to lower debt.
INCOME TAX EXPENSE. For the years ended June 30, 1998 and 1997, income tax
expense increased by $1.9 million, or 237.5%, to $2.7 million from
$0.8 million. The effective tax rates were 37.5% and 25.8%. The effective tax
rate for the year ended June 30, 1998 is higher than the statutory rate
primarily due to state income taxes. The effective tax rate for the year ended
June 30, 1997, is less than the statutory rate primarily due to the tax benefit
recorded for the reduction of the valuation allowance for net deferred income
tax assets.
NET INCOME. For the year ended June 30, 1998, net income increased
$2.2 million, or 95.7%, to $4.5 million from $2.3 million for the same period in
1997 and net income as a percentage of sales increased to 10.5% from 6.9% for
the same period in 1997. These increases were primarily due to the factors
described above.
YEAR ENDED JUNE 30, 1997 COMPARED TO YEAR ENDED JUNE 30, 1996
SALES. For the year ended June 30, 1997, sales increased $4.1 million, or
13.9%, to $33.5 million from $29.4 million in 1996. This increase was primarily
due to a $2.4 million increase in sales of testing and assessment products and a
$0.6 million increase in sales of supplemental instructional materials, in each
case as a result of revisions to existing products. In addition, a nationwide
provider of language education programs adopted one of our language development
products, contributing to a further increase in sales of supplemental
instructional materials of $1.0 million.
GROSS PROFIT. For the year ended June 30, 1997, gross profit increased
$3.2 million, or 15.4%, to $24.0 million from $20.8 million for the same period
in 1996. This increase was primarily due to the sales increase. Gross profit as
a percentage of sales increased to 71.6% from 70.7% for the same period in 1996.
This increase in gross profit margin was primarily due to product mix.
EXPENSES. For the year ended June 30, 1997, operating costs and expenses
increased by $0.6 million, or 3.1%, to $20.0 million from $19.4 million for the
same period in 1996. The increase in expenses was primarily due to a
$0.7 million increase in sales expenses to support expanded marketing campaigns
for new products and a $0.5 million increase in general and administrative
expenses from increased compensation expenses, partially offset by a
$0.5 million decrease in development expense as a result of including the
purchase of copyrights for new product lines in other expenses. For the year
ended June 30, 1997, expenses as a percentage of sales decreased to 59.7% from
66.0% for the same period in 1996. This decrease was primarily due to the sales
growth rate being 13.9% while the growth rate in operating expenses was 3.1%.
77
<PAGE>
OPERATING INCOME. For the year ended June 30, 1997, operating income
increased $2.6 million, or 185.7%, to $4.0 million from $1.4 million for the
same period in 1996 and operating income as a percentage of sales increased to
11.9% from 4.8% for the same period in 1996. These increases were primarily a
result of the factors described above.
OTHER EXPENSE. For the year ended June 30, 1997, other expense increased
$0.8 million to $0.9 million from $0.1 million for 1996 and other expense as a
percentage of sales increased to 2.6% from 0.4% for 1996. These increases were
primarily the result of $0.7 million of copyright acquisition costs recorded in
1997.
INCOME TAX (EXPENSE) BENEFIT. For the years ended June 30, 1997 and 1996,
income tax expense increased by $1.0 million to an expense of $0.8 million from
a benefit of $0.2 million from the same period in 1996. The effective tax rate
in 1997, was 25.8% and was less than the statutory rate primarily due to the tax
benefit recorded for the reduction of the valuation allowance for net deferred
income tax assets. The tax benefit for the year ended June 30, 1996 is primarily
due to nontaxable life insurance proceeds and a tax benefit for dividends paid
to the ESOP on allocated shares of common stock.
NET INCOME. For the year ended June 30, 1997, net income increased
$0.8 million, or 53.3%, to $2.3 million from $1.5 million for the same period in
1996 and net income as a percentage of sales increased to 6.9% from 5.1% for the
same period in 1996. These increases were due to the factors described above.
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RESULTS OF OPERATIONS--WRC MEDIA AND ITS SUBSIDIARY (COMPASSLEARNING)
The following tables set forth, for the periods indicated, statement of
operations data, expressed in millions of dollars and as a percentage of net
revenue:
<TABLE>
<CAPTION>
THREE MONTHS ENDED PERIOD
SEPTEMBER 30 JULY 14-SEPTEMBER 30
-------------------------- --------------------------
1998 1999
-------------------------- --------------------------
% OF % OF
AMOUNT NET REVENUE AMOUNT NET REVENUE
-------- ----------- -------- -----------
(UNAUDITED)
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
NET REVENUE:
Software license................................ $ 6.1 40.0% $ 7.8 52.7%
Service......................................... 7.7 50.9% 6.3 42.4%
Hardware........................................ 1.4 9.1% 0.7 5.0%
----- ----- ------ -----
Net revenue....................................... 15.2 100.0% 14.8 100.0%
COST OF PRODUCTS SOLD:
Software license................................ 0.9 5.8% 1.4 9.3%
Service......................................... 4.1 27.2% 3.6 24.3%
Hardware........................................ 0.9 6.0% 0.3 2.3%
----- ----- ------ -----
Cost of products sold............................. 5.9 39.0% 5.3 35.9%
----- ----- ------ -----
Gross Profit...................................... 9.3 61.0% 9.5 64.1%
SELLING AND ADMINISTRATIVE EXPENSES:
Sales and marketing............................. 5.4 35.1% 5.0 33.5%
Research and development........................ 2.0 13.2% 1.8 12.3%
General and administrative...................... 1.6 10.8% 1.4 9.3%
Restructuring................................... 3.0 19.7% -- --
Write-off of in-process research and
development................................... -- -- 9.0 60.6%
Amortization of intangible assets............... 0.1 0.4% 1.7 11.7%
----- ----- ------ -----
Selling and administrative expenses............. 12.1 79.2% 18.9 127.4%
----- ----- ------ -----
Loss from operations.............................. (2.8) 18.2% (9.4) 63.3%
Interest expense, net............................. (1.3) 8.6% (0.9) 6.2%
Other income...................................... -- 0.2% -- 0.1%
----- ----- ------ -----
Loss before income taxes.......................... (4.1) 26.7% (10.3) 69.3%
Income tax expense................................ -- -- -- --
----- ----- ------ -----
Net loss.......................................... $(4.1) 26.7% $(10.3) 69.3%
===== ===== ====== =====
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED PERIOD
JUNE 30 JANUARY 1-JULY 1
-------------------------- --------------------------
1998 1999
-------------------------- --------------------------
% OF % OF
AMOUNT NET REVENUE AMOUNT NET REVENUE
-------- ----------- -------- -----------
(UNAUDITED)
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
NET REVENUE:
Software license........................... $17.0 46.2% $16.2 47.7%
Service.................................... 18.0 48.8% 16.1 47.4%
Hardware................................... 1.8 5.0% 1.7 4.9%
----- ----- ----- -----
Net revenue.................................. 36.8 100.0% 34.0 100.0%
COST OF PRODUCTS SOLD:
Software license........................... 3.2 8.7% 2.7 8.2%
Service.................................... 10.9 29.6% 9.3 27.3%
Hardware................................... 1.7 4.8% 1.3 3.8%
----- ----- ----- -----
Cost of products sold........................ 15.8 43.0% 13.3 39.3%
----- ----- ----- -----
Gross Profit................................. 21.0 57.0% 20.7 60.7%
SELLING AND ADMINISTRATIVE EXPENSES:
Sales and marketing........................ 14.1 38.4% 11.0 32.4%
Research and development................... 4.4 11.9% 3.8 11.3%
General and administrative................. 4.8 12.9% 4.0 11.7%
Amortization of intangible assets.......... 0.1 0.3% 0.1 0.4%
----- ----- ----- -----
Selling and administrative expenses........ 23.4 63.5% 19.0 55.8%
----- ----- ----- -----
Income (loss) from operations................ (2.4) 6.5% 1.7 4.9%
Interest expense, net........................ (1.9) 5.1% (2.9) 8.4%
Other income................................. -- -- 0.4 1.2%
----- ----- ----- -----
Loss before income taxes..................... (4.3) 11.6% (0.8) 2.3%
Income tax expense........................... -- -- -- --
----- ----- ----- -----
Net loss..................................... $(4.3) 11.6% $(0.8) 2.3%
===== ===== ===== =====
</TABLE>
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<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------
1996 1997 1998
---------------------- ---------------------- ----------------------
% OF % OF % OF
AMOUNT NET REVENUE AMOUNT NET REVENUE AMOUNT NET REVENUE
-------- ----------- -------- ----------- -------- -----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
NET REVENUE:
Software.......................... $ 40.4 46.6% $ 29.2 40.6% $ 31.0 44.9%
Service........................... 35.4 40.8% 36.0 50.2% 33.9 49.3%
Hardware.......................... 10.9 12.6% 6.6 9.2% 4.0 5.8%
------ ----- ------ ----- ------ -----
Net revenue......................... 86.7 100.0% 71.8 100.0% 68.9 100.0%
COST OF PRODUCTS SOLD:
Software.......................... 12.9 14.9% 30.4 42.4% 6.9 10.1%
Service........................... 29.0 33.4% 23.4 32.6% 19.3 27.9%
Hardware.......................... 8.3 9.5% 5.6 7.7% 3.2 4.7%
------ ----- ------ ----- ------ -----
Cost of products sold............... 50.2 57.8% 59.4 82.7% 29.4 42.7%
Gross Profit........................ 36.5 42.2% 12.4 17.3% 39.5 57.3%
SELLING AND ADMINISTRATIVE EXPENSES:
Sales and marketing............... 28.0 32.3% 31.4 43.7% 24.0 34.9%
Research and development.......... 11.7 13.5% 11.2 15.6% 8.0 11.6%
General and administrative........ 11.3 13.0% 13.5 18.8% 7.7 11.2%
Amortization of intangibles....... 3.2 3.7% 5.4 7.6% 0.3 0.4%
Restructuring (a)................. -- -- -- -- 3.0 4.4%
------ ----- ------ ----- ------ -----
Income (loss) from operations....... (17.7) 20.4% (49.1) 68.3% (3.5) 5.1%
Interest expense, net............... (4.6) 5.3% (5.0) 7.0% (4.3) 6.2%
Other income (expense).............. -- -- (2.1) 3.0% -- --
------ ----- ------ ----- ------ -----
Loss before income taxes............ (22.3) 25.7% (56.2) 78.3% (7.8) 11.3%
Income tax expense.................. -- -- -- -- -- --
------ ----- ------ ----- ------ -----
Net loss............................ $(22.3) 25.7% $(56.2) 78.3% $ (7.8) 11.3%
====== ===== ====== ===== ====== =====
</TABLE>
- ------------------------
(a) In 1998, CompassLearning adopted a formal action plan for restructuring its
operations. The restructuring included a realignment of sale and service
functions, certain on-line training and headcount reductions. See
"--Overview--CompassLearning Restructuring."
PERIOD FROM JULY 14, 1999 TO SEPTEMBER 30, 1999 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1998
NET REVENUE. For the period ended September 1999, total revenue decreased
$0.4 million, or 2.7%, to $14.8 million from $15.2 million compared to the
three-month period ending September 30, 1998. This decrease was primarily due to
the decrease in revenues attributable to service contract renewals. Software
revenue increased $1.7 million, or 28.2%, primarily due to higher volume of
sales related to customers migrating to COMPASS and TOMORROW'S PROMISE products.
Services revenue decreased $1.5 million, or 19.1%, to $6.3 million in 1999 from
$7.8 million in 1998, primarily due to the lower renewal sales in 1998 and 1999.
Hardware revenue decreased $0.7 million, or 47.2%, to $0.7 million in 1999 from
$1.4 million consistent with our strategy to exit the hardware business.
GROSS PROFIT. For the period ended September 30, 1999, gross profit
increased $0.2 million, or 2.2%, to $9.5 million from $9.3 million in 1998.
Gross profit as a percentage of net revenue increased to 64.1% in 1999 from
61.0% in 1998. This increase was primarily due to a shift in mix of business
with software gross profit comprising 67.7% of total gross profit in 1999
compared to 55.4% in 1998. This increase was primarily due to the increase in
software revenue described above, which has a higher gross profit percentage and
a decrease in service revenue which has a lower gross profit percentage.
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SELLING AND ADMINISTRATIVE EXPENSES. For the period ended September 30,
1999, selling and administrative expenses increased $6.8 million, or 56.4%, to
$18.9 million from $12.1 million in 1998. This increase was primarily due to a
$9.0 million write-off of in-process research and development and the
$1.7 million increase in amortization of intangibles related to the July 14,
1999 acquisition of CompassLearning, partially offset by a $3.0 million
reduction in restructuring expense from 1998 and the associated effects
including $0.8 million of reduced expenses, primarily in compensation and
outside services.
LOSS FROM OPERATIONS. For the period ended September 30, 1999, loss from
operations increased $6.6 million to $9.4 million from $2.8 million in 1998 and
operating loss as a percentage of net revenue increased to 63.3% from 18.2%.
These increases were primarily due to the factors described above.
INTEREST EXPENSE. For the period ended September 30, 1999, interest expense
decreased by $0.4 million, or 30.4%, to $0.9 million from $1.3 million in 1998
and interest as a percentage of net revenue decreased to 6.2% from 8.6% in 1998.
This decrease was primarily due to lower debt balances in 1999.
NET LOSS. For the period ended September 30, 1999, net loss increased
$6.2 million to $10.3 million from $4.1 million in 1998 and net loss as a
percentage of revenue increased to 69.3% from 26.7% for the same period in 1998.
These increases were primarily due to the factors described above.
PERIOD FROM JANUARY 1, 1999 TO JULY 13, 1999 COMPARED TO SIX MONTHS ENDED
JUNE 30, 1998
NET REVENUE. For the period ended July 13, 1999, total revenue decreased
$2.8 million, or 7.5%, to $34.0 million from $36.8 million in 1998. This
decrease was primarily due to a $1.8 million, or 10.3% decrease in revenues
attributable to service contract renewals. Revenues attributable to service
contract renewals declined primarily due to a reduction in contract renewals in
professional development services, and to a lesser extent in technical support
services, as the decrease in software revenue in prior periods continued to
reduce the number of services contracts available for renewal and the improved
quality of our product offerings and growing familiarity of our long-term
customers with our products reduced the need for such services by such
customers. Additionally, a decrease of $0.8 million, or 4.5%, in software
revenue from the timing of certain large orders which favored revenues in the
1998 period but not in the 1999 period also contributed to this overall
decrease.
GROSS PROFIT. For the period ended July 13, 1999, gross profit decreased
$0.3 million, or 1.5%, to $20.7 million from $21.0 million in 1998. This
decrease was primarily due to the decrease in net revenue discussed above. Gross
profit as a percentage of net revenue increased to 60.7% in the period ended
July 13, 1999 from 57.0% in 1998. This increase was primarily due to:
- an increase in the software gross profit rate to 82.9% from 81.2% in 1998,
as a result of:
-- lower royalty payments to providers of third-party content in our
courseware as such third-party content became a smaller component of
our overall product offerings, and
-- reduced software amortization expense, partially offset by increased
cost of goods sold in connection with sales, typically at a discount,
to existing customers migrating to our new product lines; and
- an increase in the services gross profit rate to 42.3% from 39.4% in 1998
due to the effects of CompassLearning's restructuring efforts, which
included staff reductions and re-tooling to improve productivity.
SELLING AND ADMINISTRATIVE EXPENSES. For the period ended July 13, 1999,
selling and administrative expenses decreased $4.4 million, or 18.8%, to
$19.0 million from $23.4 million in 1998 and selling and
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administrative expenses as a percentage of net revenue decreased to 55.8% from
63.5% for the same period in 1998. These decreases were primarily due to the
effects of CompassLearning's restructuring efforts in all selling and
administrative areas which resulted in:
- $2.6 million reduction compensation and outside services expenses;
- $0.4 million reduction in travel expenses;
- $0.3 million reduction in supplies and telephone expenses;
- $0.5 million reduction in advertising expenses; and
- rent reduction of $0.4 million.
In addition, product development expenses for the period ended July 13, 1999,
were below levels for the same period in 1998 as a result of project timing.
INCOME (LOSS) FROM OPERATIONS. For the period ended July 13, 1999,
operating income increased $4.1 million to $1.7 million from an operating loss
of $2.4 million for the same period in 1998 and operating income as a percentage
of net revenue increased to 4.9% from (6.5)% in 1998. These increases were
primarily due to the factors described above.
INTEREST EXPENSE. For the period ended July 13, 1999, interest expense
increased $1.0 million, or 51.9%, to $2.9 million from $1.9 million for the same
period in 1998 and interest as a percentage of net revenue increased to 8.4%
from 5.1% for the same period in 1998. These increases were primarily due to
higher loan balances on subordinated debt which carried a higher interest rates
and, to a lesser extent, interest attributable to an additional debt instrument
issued in June of 1998 as a payment to a related party.
NET LOSS. For the period ended July 13, 1999, net loss decreased
$3.5 million, or 81.7%, to $0.8 million from $4.3 million for the same period in
1998 and net loss as a percentage of net revenue decreased to 2.3% from 11.6%
for the same period in 1998. These decreases were primarily due to the factors
described above.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
NET REVENUE. For the year ended December 31, 1998, net revenue decreased
$2.9 million, or 4.1%, to $68.9 million from $71.8 million in 1997. This
decrease was primarily due to a $2.6 million, or 39.4%, decrease in hardware net
revenue as a result of CompassLearning's decision to de-emphasize its hardware
sales business. The decrease was also the result of a decline in services net
revenue, primarily in professional development services, and to a lesser extent
in technical support services, of $2.1 million, or 5.8%, due to lower software
sales in 1997 which led to fewer service contracts being signed in that year,
causing fewer service contracts to be available for renewal in 1998. Services
revenue also decreased as a result of reduced customer demand for training and
support services due to improved software product quality and customers'
increasing abilities to provide such services internally. These decreases were
partially offset by a $1.8 million, or 6.1%, increase in software net revenue in
the 1998 period due to an increased number of units sold in this first full year
of COMPASS and TOMORROW'S PROMISE sales.
GROSS PROFIT. For the year ended December 31, 1998, gross profit increased
$27.1 million, or 217.8%, to $39.5 million from $12.4 million for the same
period in 1997 and gross profit as a percentage of net revenue increased to
57.3% from 17.3% for the same period in 1997. These increases were primarily due
to the software gross profit improving to $24.0 million, or 77.6%, in 1998 from
a loss of $1.3 million, or (4.4)%, in 1997. Software gross profit increased
primarily as a result of a $1.8 million increase in revenue and a $23.5 million
reduction in cost of products sold, principally from lower amortization cost due
to amortization of capitalized software declining by $22.6 million in 1998
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due to the 1997 accelerated amortization charges of $17.3 million for the
reduction of certain capitalized costs to their new net realizable value in
connection with a change in product focus. Services gross profit also increased
to $14.7 million, or 43.3%, in 1998 from $12.6 million, or 35.1%, in 1997. These
increases in services gross profit were primarily the result of:
- $4.2 million, or 17.8%, decrease in services cost of products sold
primarily from a $2.6 million reduction in staffing costs associated with
the delivery of services;
- $1.0 million reduction in travel costs; and
- $0.5 million reduction in third party costs as hardware support revenue
declined.
Many of these cost savings are a direct result of CompassLearning's
restructuring efforts.
These increases were partially offset by a $2.3 million, or 41.8%, decline in
hardware gross profit primarily due to lower sales volume. However, the hardware
gross profit rate improved to 19.6% in 1998 from 16.2% in 1997 primarily as a
result of internal cost reductions.
SELLING AND ADMINISTRATIVE EXPENSES. For the year ended December 31, 1998,
selling and administrative expenses decreased $18.5 million, or 30.0%, to
$43.0 million from $61.5 million in 1997 and selling and administrative expense
as a percentage of net revenue decreased to 62.4% in 1998 from 85.6% in 1997.
Sales and marketing expenses decreased $7.3 million, or 23.4%, to $24.0 million
in 1998 from $31.4 million in 1997 and as a percentage of net revenue decreased
to 34.9% in 1998 from 43.7% in 1997. These decreases were primarily due to:
- $2.7 million reduction resulting from staffing reductions and their
associated expenses;
- $0.8 million reduction in commissions;
- $1.9 million reduction in marketing campaigns and promotional materials;
- $0.9 million reduction in recruiting expenses; and
- $0.3 million decrease in depreciation.
Research and development expenses decreased $3.2 million, or 28.2%, to
$8.0 million in 1998 from $11.2 million in 1997, on a net spending basis, and
$5.5 million, or 40.8%, on a gross spending basis (prior to capitalizing
software development costs). As a percentage of net revenue, research and
development expenses decreased to 11.6% in 1998 from 15.6% in 1997. These
reductions were primarily as a result of a $3.8 million reduction in the use of
temporary employees, a $0.8 million reduction in depreciation and a
$0.3 million reduction in rental expense from reduced space, partially offset by
a $2.4 million increase in software development costs being expensed due to the
fact that in 1998 no software development costs were considered eligible for
capitalization. General and administrative expenses decreased $5.8 million, or
43.0%, to $7.7 million in 1998 from $13.5 million in 1997 and as a percentage of
net revenue decreased to 11.2% in 1998 from 18.8% in 1997. These decreases were
primarily due to:
- $1.4 million reduction in staffing and associated expenses;
- $0.6 million reduction in depreciation;
- $0.7 million reduction in bad debt;
- $0.9 million reduction in rental expense; and
- $0.3 million reduction in telephone expense.
Amortization of intangibles decreased $5.2 million, or 95.5%, to $0.2 million in
1998 from $5.4 million in 1997 primarily as a result of the acceleration of
amortization of intangibles that resulted from a change in product focus in
1997. The above 1998 expense reductions were primarily the result of
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CompassLearning's restructuring efforts, partially offset by a $3.0 million
charge associated with such restructuring.
LOSS FROM OPERATIONS. For the year ended December 31, 1998, loss from
operations decreased $45.6 million, or 92.8%, to $3.5 million from
$49.1 million for the same period in 1997 and loss from operations as a
percentage of net revenue decreased to 5.1% in 1998 from 68.3% in 1997. These
decreases were primarily due to the factors described above.
INTEREST EXPENSE. For the year ended December 31, 1998, interest expense
decreased $0.7 million, or 14.5%, to $4.3 million from $5.0 million in 1997 and
interest expense as a percentage of net revenue decreased to 6.2% in 1998 from
7.0% in 1997. These decreases were primarily due to lower borrowing levels on
the revolving credit line resulting from shorter average collection periods for
receivables.
NET LOSS. For the year ended December 31, 1998, net loss decreased
$48.4 million, or 86.2%, to $7.8 million from $56.2 million in 1997 and net loss
as a percentage of net revenue decreased to 11.3% in 1998 from 78.3% in 1997.
These decreases were primarily due to the factors described above as well as the
1997 write-off of a $2.2 million investment.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
NET REVENUE. For the year ended December 31, 1997, net revenue decreased
$14.9 million, or 17.2%, to $71.8 million from $86.7 million in 1996. The
decrease was primarily due to a $11.3 million, or 27.9%, decrease in software
revenue, as a result of:
- the continued effect of the loss of many of CompassLearning's seasoned
sales personnel to a competitor in 1995 and 1996 following the acquisition
of CompassLearning by its former owners;
- a delay in the upgrade of an existing product for compatibility with
current operating systems; and
- the reluctance of customers to migrate to our new products, TOMORROW'S
PROMISE and COMPASS, which were released in stages, until certain features
were available.
In addition, hardware sales declined $4.3 million, or 39.4%, primarily from a
decrease in accompanying software sales and due to CompassLearning's strategy to
be a software and service provider and to only provide hardware on a reseller
basis. Revenues for both professional development services and technical support
services in 1997 remained stable compared with 1996.
GROSS PROFIT. For the year ended December 31, 1997, gross profit decreased
$24.1 million, or 66.0%, to $12.4 million from $36.5 million in 1996 and gross
profit as a percentage of net revenue decreased to 17.3% for 1997 from 42.2% in
1996. These decreases were primarily due to a $28.8 million, or 104.6%, decrease
in software gross profit, as a result of the $11.3 million reduction in software
sales and the $17.3 million acceleration of amortization of capitalized software
to reflect new net realizable value from a change in product focus. In addition,
hardware gross profit decreased $1.6 million, or 59.8%, and the corresponding
profit rate declined to 16.2% in 1997 from 24.5% in 1996, primarily due to the
revenue decline described above. These decreases were partially offset by a
$6.2 million, or 97.0% increase in gross profit on services with the gross
profit rate on services increasing to 35.1% in 1997 from 18.1% in 1996. Gross
profits and gross profit rates improved for both professional development
services and technical support services primarily as a result of a
$5.6 million, or 19.2%, reduction in services cost of products sold resulting
from staffing reductions and reclassifications of training costs to selling and
administrative expense.
SELLING AND ADMINISTRATIVE EXPENSES. For the year ended December 31, 1997,
selling and administrative expenses increased $7.2 million, or 13.3%, to
$61.5 million from $54.2 million in 1996 and selling and administrative expenses
as a percentage of net revenue increased to 85.7% in 1997
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from 62.6% in 1996. These increases were primarily due to a $3.3 million
increase in sales and marketing expense, principally resulting from:
- a $0.9 million increase in compensation as a result of replacement hiring
to rebuild the sales force following the loss of seasoned sales personnel
discussed above;
- $1.3 million in special compensation programs to increase sales;
- $1.1 million in additional hiring of marketing personnel; and
- $1.4 million in marketing programs to launch new products.
These increases were partially offset by a $1.2 million reduction in selling and
administrative expenses from consolidating certain business lines. General and
administrative expenses increased $2.2 million, or 19.7%, in 1997 primarily from
the establishment of a corporate training department. Also, in connection with
the introduction of TOMORROW'S PROMISE in 1997, amortization of intangibles was
accelerated by $2.4 million, to $5.4 million, in 1997 primarily due to a
revaluation of goodwill, which had been established in connection with the
acquisition of CompassLearning by its prior owners.
LOSS FROM OPERATIONS. For the year ended December 31, 1997, operating loss
increased $31.4 million, or 177.4%, to $49.1 million from $17.7 million for the
same period in 1996 and operating loss as a percentage of net revenue increased
to 68.3% in 1997 from 20.4% in 1996. These increases were primarily due to the
factors described above.
INTEREST EXPENSE. For the year ended December 31, 1997, interest expense
increased $0.4 million, or 9.2%, to $5.0 million from $4.6 million for the same
period in 1996 and interest expense as a percentage of net revenue increased to
7.0% in 1997 from 5.3% in 1996. These increases were primarily due to higher
revolving credit borrowing levels on the revolving credit line to fund working
capital requirements in connection with a major sales contract in 1997.
NET LOSS. For the year ended December 31, 1997, net loss increased
$33.9 million, or 152.3%, to $56.2 million from $22.3 million for the same
period in 1996. These increases were primarily due to the factors described
above as well as the write-off of a $2.2 million investment.
LIQUIDITY AND CAPITAL RESOURCES
HISTORICAL.
WEEKLY READER. Weekly Reader's principal uses of cash are for debt service,
capital expenditures, working capital and acquisitions. Funds for these purposes
have been principally generated by income from operations and funding from
PRIMEDIA. During the year ended December 31, 1998, Weekly Reader generated net
cash from operating activities of approximately $32.2 million. During the nine
months ended September 30, 1999, Weekly Reader generated net cash from operating
activities of approximately $19.2 million, and for the nine months ended
September 30, 1998, Weekly Reader generated net cash from operating activities
of approximately $12.6 million. Cash flow from operating activities at Weekly
Reader is seasonal primarily because the majority of cash receipts for
periodical subscriptions are received in the fourth quarter, and to a lesser
extent the third quarter, of the year in which such subscriptions were sold.
Funding from PRIMEDIA is reflected on its financial statements as investment by
PRIMEDIA, net and relates to net transfers of cash under the centralized cash
management system of PRIMEDIA and allocations of certain expenses and PRIMEDIA
debt and equity. As of September 30, 1999, the investment by PRIMEDIA, net
balance was $187.3 million.
Weekly Reader made capital expenditures of approximately $4.3 million in
1998 and approximately $2.0 million in the nine-month period ended
September 30, 1998 and $4.1 million in the nine-month period ended
September 30, 1999. Weekly Reader's capital expenditures consist primarily of
property and equipment and prepublication costs for American Guidance.
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COMPASSLEARNING. CompassLearning's principal uses of cash are for debt
service, capital expenditures, working capital and acquisitions. Funds for these
purposes have been principally generated by income from operations and
borrowings under CompassLearning's old senior credit facilities. During the year
ended December 31, 1998, CompassLearning used net cash of approximately
$0.3 million for operating activities. Furthermore, CompassLearning used net
cash of approximately $2.3 million in the nine-month period ended September 30,
1998 and $3.1 million in the nine-month period ended September 30, 1999 for
operating activities.
CompassLearning made capital expenditures of approximately $0.5 million in
1998 and approximately $0.3 million in the nine-month period ended
September 30, 1998 and $0.3 million in the nine-month period ended
September 30, 1999. CompassLearning's capital expenditures consist primarily of
expenses related to personal computers for the product development team,
mainframe computer upgrades and infrastructure/hardware upgrades.
In order to consummate the acquisition of CompassLearning:
- CompassLearning incurred indebtedness totaling $31.0 million, of which
$12.0 million represented borrowings under old senior credit facilities
and $19.0 million represented senior subordinated notes; and
- Ripplewood Partners, L.P., its affiliates and co-investors made a
$28.7 million cash equity investment in WRC Media.
The loans under CompassLearning's old senior credit facilities bear interest at
a floating rate of LIBOR plus 2.25%, which, as of September 30, 1999, was 7.60%
on a weighted average basis. The CompassLearning senior subordinated notes bear
interest at a fixed rate of 13.38% per annum. CompassLearning's old senior
credit facilities and senior subordinated notes will be repaid and canceled as
part of the transactions described under the "Transactions."
PROSPECTIVE.
As part of the transactions described under "Transactions," Weekly Reader
and CompassLearning entered into a credit agreement relating to the senior
credit facilities pursuant to which $131.0 million of committed senior secured
term loans and a $30.0 million revolving credit facility for general corporate
purposes are available. All of the senior secured term loans were borrowed as
part of the financing for the transactions described under "Transactions." We
have not drawn on the revolving credit facility since the consummation of the
recapitalization and the related transactions. The senior secured term loans
under the senior credit facilities consist of a $31.0 million term loan A
facility that fully amortizes within six years and a $100.0 million term loan B
facility that fully amortizes over seven years. The revolving credit facility
matures on the date that is six years after the date of the initial funding
under the senior credit facilities.
Loans under the senior credit facilities bear interest at a rate per annum
equal to:
(1) for the revolving credit facility and the term loan A facility, the LIBO
rate as defined in the credit agreement, plus 3.25% or the alternate base
rate as defined in the credit agreement, plus 2.25% (subject to
performance based stepdowns); and
(2) for the term loan B facility, the LIBO rate plus 4.00% or the alternate
base rate plus 3.00%.
The senior credit facilities and the new notes offered hereby will, and
other debt instruments of ours may, impose various restrictions and covenants on
us. In addition, both the old and new senior preferred stock will continue to
accrue dividends at 15% payable quarterly in cash, or at the option of WRC Media
and prior to the fifth anniversary of first dividend payment date through
accretion to the liquidation preference of such senior preferred stock. In
addition, prior to the fifth anniversary of the first dividend payment date, at
the election of the senior preferred stockholders, dividends may be
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payable in additional shares of senior preferred stock, rather than through an
accretion to the liquidation preference. See "Description of Senior Credit
Facilities" and "Description of New Notes."
Our primary future cash needs will continue to be for debt service, capital
expenditures, working capital and acquisitions. Our indebtedness increased
substantially upon consummation of the transactions described under
"Transactions." As a result of the senior credit facilities and the notes, our
liquidity requirements will be significantly increased, primarily due to
increased interest expense obligations and principal payment obligations under
the senior credit facilities and the notes. See "Risk Factors--Substantial
Leverage and Debt Service." In 1999, capital expenditures were $6.4 million, of
which $4.4 million was spent as of September 30, 1999. These primarily consisted
of property, equipment and prepublication costs for American Guidance.
We believe that the net cash generated by operating activities and amounts
available under the $30.0 million revolving credit facility will be sufficient
to fund our debt service requirements under the senior credit facilities and the
new notes offered hereby, to make capital expenditures, to cover working capital
requirements and to fund the implementation of our business strategy for at
least the next few years. To the extent we make future acquisitions, we may
require new sources of funding, including additional debt or equity financing or
some combination thereof. See "Risk Factors--Business Strategy" and "Risk
Factors--Substantial Leverage and Debt Service."
SEASONALITY
Our operating results have varied and are expected to continue to vary from
quarter to quarter as a result of seasonal patterns. Weekly Reader's and
CompassLearning's sales are significantly affected by the school year. Weekly
Reader's sales in the third, and to a lesser extent the fourth, quarter are
generally the strongest as products are shipped for delivery prior to the start
of the school year. CompassLearning's sales are generally strongest in the
second quarter, and to a lesser extent the fourth quarter. CompassLearning's
sales are strong in the second quarter generally because schools frequently
combine funds from two budget years, which typically end on June 30 of each
year, to make significant purchases, such as purchases of CompassLearning's
electronic courseware, and because by purchasing in the second quarter, schools
are able to have the software products purchased installed over the summer and
ready to train teachers when they return from summer vacation. CompassLearning's
fourth-quarter sales are strong as a result of sales patterns driven in part by
its commissioned sales force seeking to meet year-end sales goals as well as by
schools purchasing software to be installed in time for teachers to be trained
prior to the end of the school year in June.
WORKING CAPITAL
As of September 30, 1999, working capital for Weekly Reader was composed of
$0.8 million. As of September 30, 1999, working capital for WRC Media and its
subsidiary, CompassLearning, was composed of a deficit of $9.7 million. There
are no unusual registrant or industry practices or requirements relating to
working capital items.
MARKET RISK
We are exposed to market risk. Market risk, with respect to our business, is
the potential loss arising from adverse changes in interest rates. We manage our
exposure to this market risk through regular operating and financing activities,
and, when deemed appropriate, through the use of derivatives. We use derivatives
as risk management tools and not for trading purposes.
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We will be subject to market risk exposure related to changes in interest
rates on the senior credit facilities. Interest on borrowings under the senior
credit facilities will bear interest at a rate per annum equal to:
(1) for the $30.0 million revolving credit facility maturing in six years
and the $31.0 million secured term loan A facility maturing in six years,
the LIBO rate as defined in the credit agreement, plus 3.25% or the
alternate base rate as defined in the credit agreement, plus 2.25%
(subject to performance-based step downs); and
(2) for the $100.0 million term loan B facility maturing in seven years, the
LIBO rate plus 4.00% or the alternate base rate plus 3.00%.
Under the senior credit facilities, within 170 days of the consummation of the
transactions described under "Transactions," we are required to obtain interest
rate protection for at least 50% of the senior secured term loans for the
duration of the senior credit facilities. Historically, we have, on occasion,
entered into interest rate swap agreements to exchange fixed and variable
interest rates based on agreed upon notional amounts and have entered into
interest rate lock contracts to hedge the interest rate of an anticipated debt
issue. As of the date of this prospectus, no derivative financial instruments
were outstanding to hedge interest rate risk.
INFLATION
We do not believe that inflation has had a material impact on its financial
position or results of operations for the periods discussed above. Although
inflationary increases in paper, postage, labor or operating costs could
adversely affect operations, we have generally been able to offset increases in
costs through price increases, labor scheduling and other management actions.
YEAR 2000 RISK
To date, we have not experienced any problem in light of Year 2000
information processing issues. All products and services were provided through
January 1, 2000 without any interruption or loss. However, it is still too early
to assess whether we will experience any of the potential Year 2000 information
processing problems. Significant Year 2000 information processing problems which
may yet be encountered by us or certain of our customers or suppliers could have
an adverse effect on our business.
RISKS. Our operations may be affected by Year 2000-related risks resulting
from:
- noncompliance in our own products or facilities;
- noncompliance in hardware and software systems used in conjunction with
our products or interacting with our products; or
- noncompliance in the products or services of significant suppliers of
goods and services.
Such Year 2000-related defects could result in disruption in our operations,
damage to our reputation, possible litigation and significant losses in revenue,
all or any of which could have a significant adverse effect on our future
results of operations, financial position or cash flow.
The majority of CompassLearning's products and some of World Almanac's
computer-based products operate in complex computer networked environments and
directly or indirectly interact with a number of our customers' or potential
customers' hardware and software systems. Furthermore, some of CompassLearning's
computer-based products are designed to operate in conjunction with hardware and
software systems designed by third parties, such as Apple and Novell. These
third-party hardware and software systems may contain errors or defects
associated with Year 2000 date functions. We are
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presently unable to predict to what extent our business may be affected if such
third-party hardware or software systems contain errors or defects associated
with Year 2000 date functions.
In addition, all of our products and operations are subject to Year
2000-related risks that may be caused by the noncompliance of the products or
services of third-party suppliers. We rely on a broad range of suppliers to
deliver goods and services such as:
- utilities;
- pre-press operations;
- printing services;
- paper;
- wholesale distribution; and
- mailings and banking services.
Although we have communicated with suppliers, financial institutions and other
third parties we do business with to obtain reasonable assurance that their
products and services were Year 2000 compliant, we cannot assure you that their
responses are reliable or that the Year 2000-compliance programs of such third
parties were effective or completed by December 31, 1999.
STATE OF READINESS. All of Weekly Reader's (not including American Guidance
or World Almanac) critical business systems which were subject to Year 2000
problems were replaced or upgraded pursuant to a Year 2000-compliance project
undertaken by its information technology department. Order fulfillment and
marketing systems that had been running on mainframe technology were replaced
with Year 2000-compliant client server technology. Hardware and software systems
running the finance infrastructure of Weekly Reader (not including American
Guidance or World Almanac) were upgraded to be Year 2000 compliant. All of
Weekly Reader's (not including American Guidance or World Almanac) desktop
publishing hardware and the related critical application software were tested
and are Year 2000 compliant. In addition, we have communicated with our
significant third-party printers, World Color Press and Quad/Graphics, and
pre-press service provider, TypeHouse, and each of them has informed us that
they expected to be Year 2000 compliant.
American Guidance undertook a rigorous evaluation and testing program to
prevent Year 2000 problems from having a material adverse impact on business
operations. During 1994 and 1995, American Guidance replaced all of its order
fulfillment and business-related systems, migrating from a mainframe system to a
Year 2000 compliant client server environment. Software running the internal
telephone system also was upgraded in December 1998 to be Year 2000 compliant.
American Guidance believes that all of its information systems, as a result of
the testing and necessary upgrading and replacements, are Year 2000 ready. In
addition, inquiries were made to all significant vendors to ensure uninterrupted
business operations and we believe that each of these vendors will be capable of
providing services in 2000 without interruption.
CompassLearning has a Year 2000 and product life cycle process that tests
all of its actively sold and serviced electronic courseware and management
products. Since the design of some of CompassLearning's products depend on
date-sensitive information, CompassLearning has certified as Year 2000 compliant
all versions of its software products currently being marketed.
CompassLearning's software products are reviewed on an annual basis for their
End-of-Life status. End-of-Life process is a two-phased process for "obsoleting"
a product: first by discontinuing the sale of the product and second, in the
subsequent year, by discontinuing technical support services for such product.
Customers are generally notified 90 days prior to the commencement of the first
phase of the End-of-Life process regarding the End-of-Life status of a product
which they own and for which they receive technical support services. Some of
CompassLearning's older products which are not, and will not be, Year 2000
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compliant are in the first phase of the End-of-Life process. Alterations have
been made to these noncompliant products to accommodate some of the Year 2000
issues, so that customers may continue to use some of them for some time.
Customers with inquiries concerning Year 2000 compliance are referred to the
CompassLearning website, where up-to-date, product-specific, Year 2000
information is available. In addition to preparations relating to its product
offerings, CompassLearning has substantially completed preparing its
administrative information systems for 2000. All hardware and software systems
relating to critical business applications, including finance, sales order and
inventory processing and reporting, have either been replaced with Year
2000-compliant systems or upgraded to be Year 2000 compliant.
World Almanac has established internal task forces consisting of management
information systems and finance personnel at each of its operating sites. These
task forces have identified and implemented solutions to address any of World
Almanac's Year 2000-related problems, and have also sought assurances from
significant vendors as to their respective Year 2000 compliance efforts.
Although we believe, based on efforts to date, that our products and
facilities are substantially Year 2000 compliant, any inability to remedy
unforeseen Year 2000 problems or the failure of third parties to do so may cause
business interruptions or shutdown, financial loss, regulatory actions, damage
to our reputation or legal liability. We cannot assure you that our Year 2000
program or the programs of third parties doing business with us were effective.
COSTS. As of December 31, 1999, the aggregate amount of Year 2000-related
expenses incurred by Weekly Reader, American Guidance, CompassLearning and World
Almanac was approximately $4.4 million. We do not expect to incur any additional
Year 2000 related expenses in 2000. However, we may incur presently
unanticipated material Year 2000-related expenses that could seriously harm our
business. Such expenses have been, and in the future will be, funded through
cash flows from operations.
RECENT ACCOUNTING PRONOUNCEMENTS
WEEKLY READER
In 1998, Weekly Reader adopted the American Institute of Certified Public
Accountants' ("AICPA") Statement of Position ("SOP") 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use." Under Weekly
Reader's previous accounting policy, internal use software costs, whether
developed or obtained, were generally expensed as incurred. In compliance with
SOP 98-1, Weekly Reader expenses costs incurred in the preliminary project stage
and, thereafter, capitalizes costs incurred in the developing or obtaining of
internal use software. Some costs, such as maintenance and training, are
expensed as incurred. Capitalized costs are amortized over a period of not more
than five years and are subject to impairment evaluation in accordance with the
provisions of Statement of Financial Accounting Standards ("SFAS") No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of." The adoption of SOP 98-1, which primarily related to the
non-recurring replacement of a marketing and fulfillment system at Weekly
Reader, resulted in an increase in net income of approximately $0.7 million for
the year ended December 31, 1998.
In 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities", which becomes
effective for Weekly Reader's 2001 consolidated financial statements. SFAS
No. 133 requires that derivative instruments be measured at fair value and
recognized as assets or liabilities in a company's balance sheet. Weekly Reader
is currently evaluating the effect, if any, that SFAS No. 133 will have on its
consolidated financial statements.
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In 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of Start-up
Activities," which requires that costs of start-up activities, including
organizational costs, be expensed as incurred. This SOP will be effective for
Weekly Reader's 1999 consolidated financial statements. In the opinion of Weekly
Reader management it is not anticipated that the adoption of SOP 98-5 will have
a material effect on the consolidated financial statements of Weekly Reader.
COMPASSLEARNING
CompassLearning adopted SFAS No. 130, "Reporting Comprehensive Income" for
the year ended December 31, 1998. SFAS 130 requires CompassLearning to measure
and disclose all elements of comprehensive income that result from recognized
transactions and other events in the financial statements. Accordingly,
CompassLearning has reported unrealized gains on marketable securities as a
separate component of stockholders' deficit.
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INDUSTRY
THE PRE K PORTION OF THE EDUCATION MATERIALS MARKET DESCRIBED IN THIS
SECTION REFERS TO PRE-KINDERGARTEN CLASSES HELD AT K-12 PUBLIC OR PRIVATE
SCHOOLS AND DOES NOT INCLUDE SALES TO PRE-KINDERGARTEN FACILITIES SEPARATE FROM
K-12 PUBLIC OR PRIVATE SCHOOLS SUCH AS DAY CARE FACILITIES.
Unless otherwise specified, all industry and market data, including industry
data concerning the size of the industry, numbers of schools, teachers and
libraries, our share of sales in any market and the numbers of schools, school
districts and libraries that use our products, are based on management
estimates, market research, publicly available sources, industry experts and a
variety of industry publications. The statements made in this prospectus
concerning the size of the supplemental education materials market (as defined
herein) and the size of the four components thereof are management estimates
based on a review of available information, and are not derived from any single
industry source. Industry publications generally state that the information
contained therein has been obtained from sources believed to be reliable, but
that the accuracy and completeness of such information is not guaranteed.
Similarly, management estimates, market research, industry experts and publicly
available sources, while believed to be reliable, have not been independently
verified, and no representations as to the accuracy or completeness of such
information are being made. Unless otherwise indicated, "schools" refers to all
public and private schools for all K-12 students in the United States and
"teachers" refers to teachers in those schools.
We estimate, based on various industry sources, that the Pre K-12 education
materials market had approximately $6.2 billion in sales of products and related
services in 1998. Sales of our products and services are included in the rapidly
growing supplemental education materials segment of the overall education
materials market. We estimate this segment had approximately $3.6 billion in
sales in 1998, representing 58% of the overall Pre K-12 education materials
market, with the remainder consisting of the approximately $2.6 billion basal
materials segment. The supplemental education materials segment consists of:
- print and electronic instructional materials;
- testing and assessment products; and
- materials for school libraries.
The basal materials segment, in which we do not compete, consists primarily of
textbook programs that include student editions, teacher editions and companion
materials to teach particular subject areas, with each program offering a grade
specific textbook in the subject area for a span of grades.
According to Simba, Simba Information Inc.'s Print Publishing for the School
Market, 1999-2000 and Simba Information Inc.'s Print Publishing for the School
Market, 1997-1998 (a publisher of news, analysis, statistics and forecasts,
including in the education market, and a subsidiary of PRIMEDIA), the
supplemental education materials segment (excluding the supplemental education
materials described below) has grown from approximately $1.4 billion in sales in
1993, to $2.3 billion in 1998, representing a compound annual growth rate of
10.7%. Simba Information Inc. does not report statistics for some supplemental
education materials included in this segment, consisting primarily of some
testing and assessment products and some library materials, which we estimate
accounted for approximately $1.3 billion in sales during 1998.
Growth in the education materials market is expected to continue to be
driven by several factors, including:
- increasing Pre K-12 student enrollment;
- a rise in the number of Pre K-12 teachers;
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- additional educational spending fueled by public concern over the quality
of education in the United States; and
- the growing installed base of personal computers in libraries, labs,
classrooms and homes.
In addition to the growth factors that affect the overall education materials
market, growth in the supplemental education materials segment is driven by:
- the increasingly diverse sources of education funding;
- teachers and school and school district-level administrators using a
greater amount of supplemental education materials to improve student
performance, as they are increasingly held accountable for student
achievement; and
- a growing acceptance among teachers of theories of teaching that support
the use of different instructional methods to accommodate the many ways in
which students learn.
PRE K-12 EDUCATION MATERIALS MARKET
The Pre K-12 education materials market serves the approximately 108,000
public and private Pre K-12 schools and school libraries in the United States.
Purchasing decisions for supplemental education materials are primarily made by
teachers and school-level administrators, as opposed to the basal materials
segment where such decisions are typically made at the school district level.
Funding for education materials comes from a variety of Federal, state and local
sources. Some of these sources are allocated for specific uses, such as to
improve reading or increase access to technology, depending on the policy
objectives of the funding source.
The Pre K-12 education materials market has grown and is expected to
continue to grow, due to a number of factors, including the factors described
below.
INCREASING STUDENT ENROLLMENT. As student enrollment rises, schools must
increase their expenditures to purchase education materials for their new
students. Student enrollment in K-12 grades has grown from approximately
49 million students in the 1993-94 school year to approximately 52 million in
the 1997-98 school year. The National Center for Educational Statistics
estimates student enrollment will continue to grow every year until at least
2009.
GROWING NUMBER OF NEW TEACHERS. According to a report by the 1997
President's Committee of Advisors on Science and Technology, Panel on
Educational Technology (the "President's Committee Report"), over 200,000 new
teachers will enter the profession each year for the next 15 years. Many states
are accelerating their recruitment efforts to increase the size of the teacher
workforce and replace exiting teachers. New teachers typically must purchase new
education materials and are often more open to new methods of teaching and types
of instructional materials. For example, younger teachers are often familiar
with the use of personal computers and the Internet, making them more open to
using supplemental electronic instructional materials. The number of new
teachers in any year is due to both an increase in the number of teachers and to
turnover among current teachers. The number of K-12 teachers has grown from
approximately 2.9 million in the 1993-94 school year to approximately
3.1 million in the 1997-98 school year. The National Center for Educational
Statistics estimates the number will continue to increase each year through at
least the 2005-2006 school year. This growth has been driven by increasing
student enrollment and, to a lesser extent, by recent initiatives to maintain or
decrease the student to teacher ratio in elementary schools, generally in
kindergarten through third grade. In addition, the President's Committee Report
estimates that approximately 50% of the teacher workforce will turnover in the
next 15 years.
INCREASING SPENDING/FUNDING. Partially as a response to a growing
dissatisfaction among parents with the quality of education, average spending
per pupil for educational materials, as well as the type
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and amount of funding, has been increasing and is expected to continue to
increase, particularly for supplemental education materials. In recent years,
GALLUP polls have indicated that lack of financial support and quality of
education have been among the top concerns of the general public regarding
education. The average spending per student for educational materials in
elementary, middle and secondary schools has grown from $5,584 per student in
1993 to $6,562 in 1998. The National Center for Educational Statistics estimates
average spending per pupil will grow to $7,927 in 2003. Growth in the number of
students up to 21 years old who are classified as special education students
also has contributed to the increase in per pupil spending in the United States.
A school, by law, must expend the resources necessary to provide an equivalent
educational environment for these students, including individualized educational
programs for each such student. The number of students classified for special
education has increased to 2.6 million in the 1996-97 school year from
2.4 million in the 1993-94 school year and is expected to continue to grow in
the future. The amount and types of funding also have been increasing. For
example, since the early 1990s, government policy and funding has supported the
increased use of technology in education, a key driver of growth in the
supplemental education materials segment. One of the results of this policy was
The Technology Literacy Challenge Fund, a five-year, $2.0 billion Federal fund
initiated in 1995, that has been providing grants to state education agencies to
support grassroots efforts at the state and local levels to meet national
education goals.
INCREASING TEACHER ACCOUNTABILITY. Parents and policy makers are exerting
greater pressure to hold teachers and school administrators accountable for poor
student performance. Many different teacher and school administrator
accountability mechanisms have been implemented. Examples include:
- requiring schools to issue "school report cards" indicating student
performance on achievement tests;
- financial incentives based on student, school or school district
attainment of specified objectives; and
- states taking control of seriously under performing schools.
Greater accountability has helped increase the use of supplemental education
materials to help students improve learning and performance.
One area of particular note is the use of supplemental education materials that
enhance performance on achievement tests. Achievement tests are used by states
and school districts as a method of evaluating student progress. There are two
types of achievement tests: criterion reference tests, which are based on a
state or district standard of learning and norm reference tests, such as the
Iowa Test of Basic Skills, which are designed to produce statistics to compare
to the national population. Currently 40 states have mandated or are in the
process of mandating state-specific standards of learning which are evaluated
through statewide criterion reference testing, typically at the fourth, eighth
and eleventh grade levels.
INCREASING SCHOOL-LEVEL DECISION MAKING. Generally, there has been a trend
toward more school-level decision making for the supplemental education
materials segment. This trend is a result of the belief that such localized
decision making is better able to match students' needs with the materials being
provided. This trend is consistent with the increased accountability being
demanded of schools and teachers, each of whom are increasingly being given the
right to make decisions but also are being held responsible for the results.
INCREASED ACCESS TO TECHNOLOGY. One of the most rapidly growing categories
of the supplemental education materials segment is electronic instructional
materials. This growth has been fueled by increased access by schools and
libraries to technology. There has been widespread introduction of computers
into elementary and secondary schools in recent years. In the 1993-1994 school
year, the installed base of computers in U.S. schools was approximately
4.1 million. This number rose to
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7.4 million in the 1997-1998 school year. In addition there was an average of
seven students per computer in the 1997-1998 school year compared to an average
of 12 students per computer in the 1993-1994 school year. One important
technological innovation that has become available to schools following the
introduction of computers is the Internet. The percentage of schools with
Internet access has increased rapidly from 35% in 1994 to 89% in 1998. Many of
those schools provide Internet access primarily in their school libraries or
media centers, rather than classrooms. We expect the rate at which schools are
connected to the Internet to continue to grow, due in part to the funds
available through the Education rate program, which was established by the
Telecommunications Act of 1996 to help make telecommunications services and
technologies available to schools and libraries at discount rates.
DECREASING CLASS SIZES. Seventeen states have mandated and funded a reduced
student/teacher ratio at the elementary school level. In addition to the hiring
of new teachers, the demand for teachers imposed by these reduced ratios has
been partially satisfied by a shift in teachers from middle and secondary
schools to elementary school classrooms (generally kindergarten through third
grade), with larger classroom sizes after elementary school. New teachers and
teachers undergoing such a shift generally need to purchase new education
materials designed for elementary school students.
INCREASING LENGTH OF SCHOOL DAY. Over 30% of school districts in the United
States have extended day programs, a high percentage of which are located in
urban schools, and an increasing number of these programs include an
instructional component. Such programs lengthen the school day and require the
expenditure of additional funds for their operation, including for education
materials.
GROWTH IN CHARTER SCHOOLS. Charter schools typically receive state and
local funding and are an alternative form of schooling to traditional public and
private schools, usually with a distinct mission such as a school focused on the
basics or science. Charter schools began in 1991, with the passage of charter
legislation at the state level and the number of charter schools has grown to
over 1,000 in 1998. As with the opening of any new school, charter schools
typically purchase substantial amounts of education materials before they become
operational.
DEVELOPING PARENT MARKET. Due to the growing dissatisfaction among parents
with public schools and increasing interest in education, there is a rapidly
developing market of parents seeking education materials, which we believe will
contribute to future growth in this market. A significant part of this
developing market is due to parents of children in public and private schools
buying supplemental instructional materials to use in their homes to augment
their children's education. In addition, part of this developing market is due
to the trend toward more home schooling. In 1993, it became legal in all 50
states for parents to teach their children themselves at home. In the 1997-1998
school year, there were an estimated 800,000 to 1.0 million children receiving
home schooling.
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The following table sets forth some of the trends described above. Unless
otherwise specified, the statistics in the following table are for the school
year ending in such year.
<TABLE>
<CAPTION>
HISTORICAL ESTIMATED PROJECTED
---------------------------------------------------- ------------------- --------
1993 1994 1995 1996 1997 1998 1999 2000
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
K-12 student enrollment(a)(b).............. N/A 48.9 49.7 50.5 51.4 51.8 52.7 53.1
Number of K-12 teachers(a)................. N/A 2.9 2.9 3.0 3.1 3.0 3.1 3.1
Students classified as special ed(a)(c).... N/A 2.4 2.5 2.6 2.7 N/A N/A N/A
Number of public K-12 schools(d)........... N/A 85,393 86,221 87,125 88,223 N/A N/A N/A
Total number of charter schools(e)......... 2 36 100 254 432 721 1050 N/A
Current expenditure per student in average
daily attendance, public K-12(f)......... $5,584 $5,767 $5,989 $6,146 $6,378 $6,562 $6,771 $7,053
<CAPTION>
PROJECTED
------------------------------
2001 2002 2003
-------- -------- --------
<S> <C> <C> <C>
K-12 student enrollment(a)(b).............. 53.5 53.7 54.0
Number of K-12 teachers(a)................. 3.1 3.1 3.1
Students classified as special ed(a)(c).... N/A N/A N/A
Number of public K-12 schools(d)........... N/A N/A N/A
Total number of charter schools(e)......... N/A N/A N/A
Current expenditure per student in average
daily attendance, public K-12(f)......... $7,305 $7,640 $7,927
</TABLE>
- ------------------------------
(a) Numbers in millions.
(b) Includes most kindergarten and some nursery school enrollment.
(c) Students classified in this category are students with learning disabilities
receiving additional school supplied resources.
(d) Number of private schools for each year is not available. For the 1993-94
and 1995-96 school years, there were 26,093 and 27,686, respectively,
private K-12 schools.
(e) The 1999 figure represents the total number of charter schools operating as
of September 1998.
(f) Numbers are for the calendar year.
Sources: National Center for Education Statistics, PROJECTIONS OF EDUCATION
STATISTICS TO 2009 and DIGEST OF EDUCATION STATISTICS, 1998 and U.S.
Department of Education, Office of Educational Research and
Improvement, THE STATE OF CHARTER SCHOOLS (1999).
SUPPLEMENTAL EDUCATION MATERIALS
We compete in the approximately $3.6 billion supplemental education
materials segment of the education materials market. The supplemental education
materials segment benefits not only from increases in total educational spending
but from the variety of funding sources with money targeted to specific
programs. Virtually any instructional materials or supplies funds not designated
for textbooks can be used to purchase supplemental education materials. An
increasing number of these funding sources have targeted dollars to specific
programs and initiatives. One example of targeted funding is Title I, the
largest elementary, middle and secondary school Federal education program, which
accounted for $7.8 billion of Federal educational spending in 1998. Title I
supplements state and local funding for low-performing children, particularly in
economically deprived schools. The program finances the additional academic
support and learning opportunities that are often required to help disadvantaged
students achieve the same level of progress as their classmates. Two other
examples of targeted funding are the Technology Literacy Challenge Fund and the
National Challenge Grants for Technology in Education. These Federal programs
are designed to foster growth and development of technology in the classroom.
The supplemental education materials segment has four categories of
materials:
- print instructional materials;
- electronic instructional materials;
- testing and assessment products; and
- materials for school libraries.
Growth in the supplemental education materials segment is driven by the factors
influencing the overall market, some of which we believe are having a greater
effect on this particular segment.
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SUPPLEMENTAL PRINT INSTRUCTIONAL MATERIALS
We estimate that supplemental print instructional materials accounted for
approximately $1.6 billion of the supplemental education materials segment in
1998. The supplemental print instructional materials category consists of the
following:
- supplementary texts and workbooks;
- magazines/periodicals;
- manipulatives;
- teaching aids and guides;
- games/puzzles; and
- trade books.
Manipulatives are instructional materials designed to provide concrete, tactile
learning experiences, such as blocks used to teach the base ten math system and
materials used for scientific experiments. Of this approximately $1.6 billion
category, approximately $585 million consists primarily of manipulatives, trade
books and games/puzzles, which are products that we do not offer but which we
consider to be alternatives to certain of our supplemental print instructional
materials.
Purchase decisions for supplemental print instructional materials are made
primarily by individual teachers. These decisions are generally based on the
product's quality, price, educational content, consistency and its ease of
integration into the school curriculum. Strong brand names and long histories
are important for companies serving this category to better address teachers'
purchasing criteria.
SUPPLEMENTAL ELECTRONIC INSTRUCTIONAL MATERIALS
We estimate that sales of supplemental electronic instructional materials
accounted for approximately $870 million of the supplemental education materials
segment in 1998. The supplemental electronic instructional materials category is
comprised of the following:
- comprehensive courseware and modular courseware;
- stand-alone/non-networked software (e.g., CD-ROMs);
- Internet/browser-based products;
- TV satellite distance learning; and
- video cassettes and video disks.
Of the $870 million supplemental electronic instructional materials category,
approximately $230 million is comprised of TV satellite distance learning and
video disks, which are products that we do not offer.
The success of companies competing in the supplemental electronic
instructional materials segment is based on their ability to deliver engaging,
effective, pedagogically sound content that is easy for students and teachers to
use. A recognized brand name and references and testimonials from product users
are important, particularly to help purchasers distinguish among a variety of
offerings which, because of their electronic format, are not as easy to review
for content. Unlike other categories of the supplemental education materials
segment, the purchasing decisions for electronic instructional materials, other
than stand-alone/non-networked software, are primarily made by school
district-level administrators, including superintendents, curriculum directors
and technology directors. Sales also are made, however, at the state and local
level. In addition, although individual teachers do not typically make final
purchasing decisions, they frequently have substantial input in the decision
making process.
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Electronic instructional materials, which were infrequently used in the
early 1990s, have shown the most growth in the supplemental education materials
market. In 1998, at least one-third of elementary, middle and secondary school
teachers used some form of electronic delivery of instruction. Although
electronic delivery through mainframe computers as a medium for the transmission
of educational materials has existed for over thirty years, the introduction of
the personal computer in the early 1980s, and more importantly, its widespread
use over the past decade have changed the landscape for instructional providers.
The use of electronic instructional materials is expected to continue to rapidly
grow. Fueling this growth are four national technology goals set by the Federal
government for schools:
- universal student accessibility to modern computers;
- the inclusion of engaging, educationally sound software in school
curriculums;
- teachers ready to use and teach with technology; and
- classrooms electronically connected to one another and the Internet.
Government policy and funding have supported these goals. In addition to The
Technology Literacy Challenge Fund, the National Challenge Grants for Technology
in Education, a Federal initiative beginning in 1995, challenges communities to
form partnerships among local schools, students, colleges, universities and
private businesses to develop new ways to use technology in learning. Since
1995, the National Challenge Grants program has funded 62 projects in 33 states
including over 500 school districts. These government policies have led to
increased technology spending, with approximately $5 billion expected to be
spent by schools on educational technology infrastructure, including hardware,
in 1999. Furthermore, the Education rate program is expected to continue to fund
the connection of schools and libraries to the Internet.
TESTING AND ASSESSMENT PRODUCTS
We estimate that testing and assessment products accounted for approximately
$600 million of the supplemental education materials segment in 1998. This
category consists of two primary groups of products and related services:
- an approximately $525 million to $550 million group of testing products
and related scoring and reporting services used to determine entrance to
post-secondary schools such as the American College Testing Assessment
(ACT) or the Scholastic Aptitude Test (SAT), achievement tests that assess
the academic performance of individuals or groups against a normed
population and related scoring and reporting services, and some other
similar tests (collectively, "Academic Assessment Products"); and
- an approximately $50 million to $75 million group of testing and
assessment products that are individually administered to assess the
progress of individuals and provide counseling on a course of study to
achieve a set of learning objectives ("Academic Guidance Testing
Products").
We compete in the Academic Guidance Testing Products group. In addition,
some of our testing and assessment products are also used by clinical
professionals for both children and adults in settings such as clinics,
hospitals and community mental health centers as well as in correctional
facilities. We estimate that the combined supplemental and other testing and
assessment products markets in which we compete had total sales of products and
related services in 1998 of approximately $125 million.
Purchasing decisions for Academic Assessment Products are typically made by
individuals, in the case of tests used to determine entrance to post-secondary
schools, and by school districts in the case of achievement and other tests.
Purchasing decisions for Academic Guidance Testing Products are made by a wide
variety of professionals, including school district administrators, guidance
counselors, speech pathologists and psychologists. These professionals generally
purchase products from several different developers and use them as appropriate.
In order to compare performance of their student
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populations over time, these professionals tend to use the same tests
repeatedly. These products do not tend to be particularly price sensitive
because of their specialized nature. Competition for all testing and assessment
products is based primarily on quality and reputation.
Criterion reference tests are usually commissioned, and paid for, by the
state. Because these tests are paid for by the state, they have not been
included in the $600 million testing and assessment products category described
above. The size of this market changes each year depending on the number of new
state criterion testing programs commissioned in such year.
LIBRARY MATERIALS
According to Publishing for Library Markets, 1999 by Simba
Information Inc., libraries in the United States spent $5.1 billion in 1998 on
information both print and electronic. In addition, in Publishing for Library
Markets, 1999, Simba Information Inc. estimates that, spending in the United
States library materials segment will experience a compound annual growth rate
from 1997 to 1999 of 6.5%. There were over 139,000 libraries in the United
States in 1998, consisting of four types: academic (college and other higher
education libraries), public, school (K-12) and special (corporate, government,
legal and medical). Of these libraries, approximately 108,000 were K-12 school
libraries, approximately 16,000 were public libraries and the remainder were
academic and special libraries. Approximately $600 million of the $5.1 billion
in sales in the library materials market in 1998 were made to school libraries
for print materials. We include library materials targeted to school libraries
in the supplemental education materials market because students often use these
materials to complete homework assignments and school reports. We sell products
to school libraries and to a lesser extent to public, academic and special
libraries.
School libraries are primarily funded by state and local sources and to a
lesser extent Federal sources. Public libraries are primarily funded by local
sources and to a lesser extent state and Federal sources. Academic and special
libraries have a variety of funding sources, both public and private.
Libraries generally are becoming multimedia centers, providing both print
and electronic information. Although libraries have rapidly increased spending
on electronic information, print remains the dominant medium in libraries. Print
information (books, periodicals, audiovisual and microform products), accounted
for approximately 73% of sales to libraries in 1998 and in Publishing for
Library Markets, 1999, Simba Information Inc. estimates that sales of print
information, including books and periodicals, will continue to experience
moderate growth. Books were the leading source of revenue for products in print
format, followed by periodicals and journals. In Publishing for Library Markets,
1999, Simba Information Inc. estimates that by 2003, electronic materials will
generate 32% of information sales to all libraries. Within electronic
information, Internet delivery of library materials is the fastest growing
medium, while spending for CD-ROMs and software is showing a decline after
leading growth during the early 1990s. The majority of libraries in public
schools have Internet access. As the amount of online materials has increased,
there has been a trend, which is expected to continue, away from information on
CD-ROMs.
The number of competitors in the library materials market varies depending
on the category of products involved. Competition is primarily based on
reputation and brand names of products, the length of time products have been on
the market, the uniqueness of a product and suitability for libraries (e.g.,
libraries primarily buy hardcover books). Therefore, products in this library
materials market tend to be less price sensitive than in other consumer markets.
The primary distribution channel for libraries is wholesalers. Libraries also
often purchase through catalogs, direct mail packages and brochures and to a
lesser extent from direct sales or telemarketing.
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BASAL MATERIALS
The approximately $2.6 billion basal materials segment of the overall
education materials market primarily consists of textbook programs that include
student editions, teacher editions and companion materials to teach particular
subject areas, with each program offering a grade specific textbook in the
subject area for a span of grades. Basal materials are generally designed to be
useful for a period of five to seven years before requiring a major revision.
Basal textbooks are typically purchased at the school district level, often
using textbook selection committees that include administrators, teachers and,
occasionally, parents. School districts may purchase textbooks in any given
subject area for one or more of the grades for which textbooks in a program are
available. School districts usually employ a selection process that can be
lengthy and time consuming for publishers. Most states and districts earmark a
certain portion of their education funds specifically for textbooks.
The processes and practices used in selecting and adopting textbooks vary by
state. Twenty-two states, mostly in the Southern and Western United States, make
available all or a portion of their textbook funds only for approved textbooks.
These states have statutes that provide procedures for the approval and
selection of textbooks for use in each state school. In general, most states
with statutes governing adoption of textbooks use textbook selection committees
to approve textbooks. These committees typically include teachers and
administrators, and sometimes parents. Textbooks are reviewed according to a
list of specific curricular requirements developed by the state and made
available to publishers well before the selection process begins. Once the
review is concluded, the committee "lists" approved textbooks. The actual
selection of textbooks is left to individual districts. School districts may
purchase "off-list" texts, but may receive reduced or no funding from the state
textbook funding source for such purchases. In states without statutes governing
the approval and selection of textbooks, each school district generally selects
and adopts textbooks for such school district without using any approved list.
Because a significant number of states require that textbooks satisfy
certain criteria, textbook publishers must incur significant up-front costs to
produce materials that meet these standards before they know whether their
products will be adopted and purchased. Because supplemental education materials
are intended to address individual needs or to supplement parts of the
curriculum, they have not been the subject of the kind of approval process that
adoption states use for textbooks, which are focused on standards for the entire
population of students.
Textbook funds in both states with and without statutes governing the
approval and selection of textbooks are usually used to purchase basal textbooks
and companion materials. For adoption states, basal material publishers are
typically the publishers willing to incur the significant up-front costs
described above. In states without adoption statutes, basal materials also are
usually purchased with textbooks funding because basal materials are correlated
to accepted scope and sequencing (i.e., the order in which a subject is taught)
of a course. Some publishers, however, do sell their products in both the basal
and supplemental education materials segments.
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BUSINESS
OVERVIEW
We are a leading publisher of supplemental education materials for the Pre
K-12 market. Our portfolio of products includes a broad range of print and
electronic supplemental instructional materials, testing and assessment products
and library materials. Our products have well-known brand names and we believe
they are recognized by our customers for their effectiveness and consistent,
high quality educational content. Our strong brand names, several of which have
been published for over 40 years, include:
- WEEKLY READER;
- TEEN NEWSWEEK;
- THE PEABODY PICTURE VOCABULARY TEST;
- TOMORROW'S PROMISE;
- THE WORLD ALMANAC AND BOOK OF FACTS; and
- FACTS ON FILE WORLD NEWS DIGEST.
Utilizing sophisticated sales and marketing methods, which include the use of
proprietary databases, we have established long standing customer relationships
and an extensive network with direct distribution channels. Our targeted
customers are:
- teachers;
- school and school district-level administrators;
- librarians;
- other educational professionals; and
- parents.
One or more of our products are used in over 90% of the school districts and
over 80,000, or approximately 75%, of the elementary, middle and secondary
schools in the United States.
We sell our products and services in the rapidly growing supplemental
education materials segment of the education materials market. We estimate this
segment had approximately $3.6 billion in sales in 1998, representing 58% of the
overall Pre K-12 education materials market. The supplemental education
materials segment consists of:
- print and electronic instructional materials;
- testing and assessment products; and
- materials for school libraries.
Growth in the education materials market has been, and is expected to continue
to be, driven by several factors, including:
- increasing Pre K-12 student enrollment;
- a rise in the number of Pre K-12 teachers;
- additional educational spending fueled by public concern over the quality
of education in the United States; and
- the growing installed base of personal computers in libraries, labs,
classrooms and homes.
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In addition to the growth factors that affect the overall education materials
market, growth in the supplemental education materials segment is driven by:
- increasingly diverse sources of education funding;
- teachers and school and school district-level administrators using a
greater amount of supplemental education materials to improve student
performance, as they are increasingly held accountable for student
achievement; and
- a growing acceptance among teachers of theories of teaching that support
the use of different instructional methods to accommodate the many ways in
which students learn.
Together, Simba Information Inc.'s Print Publishing for the School Market,
1999-2000 and Simba Information Inc.'s Print Publishing for the School Market,
1999-1998, show that the supplemental education materials segment, (excluding
the materials described immediately below) has grown at a compound annual growth
rate of 10.7% during the five-year period ending December 31, 1998. Simba
Information Inc. does not report statistics for some supplemental education
materials included in this segment, consisting primarily of some testing and
assessment products and library materials, which we estimate accounted for
approximately $1.3 billion in sales during 1998.
Our operations are conducted primarily through the following four operating
subsidiaries, each of which is a market leader in its respective product
categories.
WEEKLY READER. Weekly Reader has been a leading publisher of classroom
periodicals for Pre K-12 students for over 70 years. We were the largest
publisher of classroom periodicals during the 1997-1998 school year in terms of
total circulation with over 8.7 million subscribers, more than the other two
primary competitors in this market combined. Many of our periodicals experience
high rates of renewal. In each of the last ten years, approximately 80% of
elementary, middle and secondary schools at which subscriptions to one or more
of our periodicals were sold in the previous year subscribed to one or more of
our periodicals in the following year. In addition to our well recognized
classroom periodicals, such as WEEKLY READER, TEEN NEWSWEEK and CURRENT EVENTS,
we publish 177 distinct, grade-specific basic and life skills workbooks. We also
publish instructional materials paid for by various sponsors, such as Chrysler
and the American Health Foundation, which are distributed for free primarily to
K-12 students throughout the United States. For the twelve months ended
June 30, 1999, Weekly Reader (not including American Guidance or World Almanac)
had net revenue of $43.7 million, representing approximately 21% of our total
pro forma net revenue during such period.
AMERICAN GUIDANCE. American Guidance has been a leading publisher of
individually administered testing and assessment products and supplemental
instructional materials for over 35 years. American Guidance's testing and
assessment products are primarily for K-12 students and its supplemental
instructional materials are primarily for low-performing students in middle and
secondary schools. One or more of American Guidance's testing and assessment
products or supplemental instructional materials are used in over 12,000 school
districts, or approximately 80% of the school districts in the United States.
Our testing and assessment products are used to diagnose learning disabilities
and measure the cognitive ability, educational achievement or personal and
social adjustment of individual students. American Guidance's supplemental
instructional materials include various textbooks and worktexts, many of which
we believe set the standard for quality in their respective product categories,
with full color content and accompanying extensive teacher support materials.
For the twelve months ended June 30, 1999, American Guidance had net revenue of
$50.3 million, representing approximately 24% of our total pro forma net revenue
during such period.
COMPASSLEARNING. CompassLearning is a leading publisher of electronically
delivered supplemental instructional materials and teacher management and
student assessment products for the K-12 market. CompassLearning has been
serving this market for over 20 years and one or more of its
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products have been sold to more than 20,000 K-12 schools, representing
approximately 19% of all schools in the United States. We have approximately
7,000 hours of proprietary electronic courseware providing interactive
curriculum lessons for K-12 students. Our electronic courseware primarily covers
reading, math and language arts, is generally correlated to the five leading
achievement tests for K-12 students, and can be customized to correlate with
specific state tests or school district standards. Our management and assessment
tools and services are integrated with our courseware and assess and report each
student's progress, assist the teacher in developing the appropriate response to
each student's performance and allow the teacher to incorporate our products
into his or her specific lesson plan. For the twelve months ended June 30, 1999,
CompassLearning had net revenue of $64.5 million, representing approximately 31%
of our total pro forma net revenue during such period.
WORLD ALMANAC. World Almanac has been a leading publisher of reference and
informational materials targeted to K-12 students, as well as other well-known
general reference and informational materials, for over 40 years. During the
past three years, over 55% of the approximately 124,000 school and public
libraries in the United States have purchased products from World Almanac. World
Almanac publishes well-known print reference materials, such as THE WORLD
ALMANAC AND BOOK OF FACTS and nonfiction and fiction books for K-6 students
under the GARETH STEVENS brand. In addition, World Almanac publishes electronic
reference materials such as the FUNK & WAGNALLS ENCYCLOPEDIA database and CD-ROM
and Internet-based versions of FACTS ON FILE WORLD NEWS DIGEST, which in its
print version is World Almanac's leading subscription-based product with renewal
rates averaging approximately 90% from 1996 through 1998. World Almanac also
distributes third-party products that are targeted for K-12 students through its
World Almanac Education catalogs. For the twelve months ended June 30, 1999,
World Almanac had net revenue of $49.4 million, representing approximately 24%
of our total pro forma net revenue during such period.
COMPETITIVE STRENGTHS
A number of competitive strengths have contributed to our leading market
positions, including:
BROAD PRODUCT PORTFOLIO. We are a leading publisher in the supplemental
education materials market and one of the few companies with a comprehensive
portfolio of products covering all the major segments of this market. We offer a
wide range of products to our customers which consists of:
- 25 periodicals;
- 310 instructional books and workbooks;
- approximately 7,000 hours of proprietary electronic courseware;
- 29 testing and assessment products;
- six reference products;
- over 1,000 nonfiction and fiction books and videos; and
- over 3,750 books and other products that we distribute for third parties.
This broad product portfolio allows us to address the most attractive segments
of the market and respond to emerging trends and funding sources, including the
rapidly developing market of parents seeking to buy supplemental education
materials.
STRONG, WELL-ESTABLISHED BRAND NAMES. We have strong brand names in each of
the market segments we serve. Several of our most recognized print titles have
been in circulation for over 40 years, including WEEKLY READER, which was first
published in 1928, the PEABODY PICTURE VOCABULARY TEST, which was first
published in 1959, and THE WORLD ALMANAC AND BOOK OF FACTS, which was first
published in 1868. We believe that our products are well-known and trusted by
teachers, other
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educational professionals and parents for their effectiveness and consistent,
high quality educational content. Brand name and reputation are significant
criteria in the purchasing decision process for supplemental education materials
as they are usually selected at the discretion of individual teachers, school
and school district-level administrators or parents.
STABLE REVENUE BASE. We have a significant base of long-term customers who
have exhibited substantial product loyalty, resulting in a consistent level of
revenues from recurring sales to such customers. In our experience, once a
teacher or administrator is familiar with and accustomed to using a supplemental
instructional product and has developed lesson plans using the product, it is
difficult to convince that teacher to switch to new products. In addition, we
believe there is an important component of trust in the quality, consistency and
support of many of our products which makes it difficult for a competitor to
introduce new products for the same subject area without significant investment
and the support of key opinion makers in the industry. As a result of this
loyalty, many of our products enjoy long customer histories with high renewal
rates. For example, in each of the last ten years, over 80% of elementary,
middle and secondary schools at which subscriptions to one or more of our
periodicals were sold in the previous year subscribed to one or more of our
periodicals in the following year. In addition, six of our top ten testing and
assessment products, based on net revenues, have been published for over
25 years.
SUBSTANTIAL ELECTRONIC DELIVERY PLATFORM. At CompassLearning, we have over
20 years of experience in developing and providing electronically delivered
supplemental instructional materials and are well positioned to capitalize on
this rapidly growing market segment. One or more of CompassLearning's products
have been sold to over 20,000 K-12 schools in the United States, more schools
than have been reached by any other publisher of comprehensive electronic
courseware. In addition, each of our primary operating subsidiaries have web
sites that promote their respective products, provide product information and,
in some cases, enable users to order products over the Internet. Given the
importance of quality and name recognition to the development of Internet-based
business, we believe that the strength of our brands and our direct distribution
channels position us well for significant growth in this area.
STRONG DISTRIBUTION CHANNELS. Our products are used in over 80,000 schools,
by over ten million students, in over 6.5 million homes (through Weekly Reader
periodicals being taken home) and in over 68,000 school and public libraries. We
have an extensive network with direct distribution channels into these end user
markets. Some of our products are sold using direct field and telephone sales,
emphasizing personal relationships with teachers, school and school
district-level administrators and other educational professionals.
CompassLearning, for example, uses a three-pronged approach that provides every
customer a sales contact, an educational consultant and a technology support
person, for comprehensive customer service. We also utilize sophisticated direct
mail campaigns, which at Weekly Reader and World Almanac are enhanced by our
proprietary databases. These databases track the purchasing habits of teachers,
schools and/or librarians for many of our products as well as certain
demographic and other factors we believe affect purchasing habits.
EXPERIENCED MANAGEMENT TEAM. We have assembled an experienced management
team at both the administrative and the operating levels. This management team
is led by Martin E. Kenney, Jr., our Chief Executive Officer, who has over
25 years of experience in educational publishing and electronic courseware.
Prior to joining WRC Media, Mr. Kenney was Executive Vice President of the
Educational Publishing Group and President of the Education Technology Group at
Simon & Schuster, the world's largest educational publisher at that time. The
top 11 members of our management team have an average of approximately 15 years
of experience in the educational publishing industry.
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BUSINESS STRATEGY
Our objective is to become the leading publisher of supplemental education
materials in the United States by using our competitive strengths to maintain
and solidify our leading market positions as well as to selectively emphasize
those market segments which demonstrate sustainable and high rates of growth and
return. To achieve this objective, we are focusing on the following strategies:
CAPITALIZE ON THE GROWING SUPPLEMENTAL EDUCATION MATERIALS MARKET. We are a
leading publisher in the supplemental education materials market and one of the
few companies with a comprehensive portfolio of products covering all the major
market segments. This market has experienced strong growth in recent years, and
we believe that usage of supplemental education materials will continue to
increase and that the breadth of our product portfolio and our leading market
positions will allow us to continue to benefit from this market growth. As
educational priorities and funding shift over time, we intend to focus on the
growth segments of the market, which we believe will generate high returns on
investment, by selectively allocating resources to products and services in
response to industry trends.
EXTEND OUR STRONG BRAND NAMES INTO NEW PRODUCTS, SERVICES AND END-USER
MARKETS. We intend to use our strong brand names, significant market presence
and extensive base of existing customers to extend our brands into new products
and services and to expand into new end-user markets. We believe that the home
market will be an important market for our products in the future because of the
heightened awareness, interest and concern among parents for education and the
increasing number of home computers. Charter schools are also an attractive
emerging segment because these new schools start without any supplemental
education materials or instructional materials and are growing at a rapid rate.
The number of charter schools has grown from less than ten in 1993 to over 1,000
in 1998.
EXPAND THROUGH ELECTRONIC DELIVERY CAPABILITIES. We intend to focus on the
rapidly growing electronic delivery segments of our market. Although delivery of
supplemental education materials over the Internet currently accounts for a
small segment of our market, it constitutes one of the most rapidly growing
areas and provides significant expansion potential for each of our primary
operating subsidiaries through brand extension and continuing conversion of our
print materials for electronic delivery. In the 1993-1994 school year, there was
an average of 12 students per computer as compared to seven students per
computer in the 1997-1998 school year. Furthermore, the number of schools with
Internet access has increased significantly from 35% in 1994 to 89% in 1998. We
are well-positioned to expand in this area because of our significant experience
in electronic delivery of materials, strong brand names and extensive
educational content. In addition, we developed our existing electronic
courseware products using a standardized authoring tool which facilitates,
expedites and reduces the cost to convert such products into a format for
delivery over the Internet.
SELL ACROSS DISTRIBUTION CHANNELS. We intend to leverage the experience,
market contacts, installed base and distribution channels that our four primary
operating subsidiaries have developed in their respective market segments to
increase sales to new and existing customers. For example, we may conduct
cooperative direct marketing of multiple product lines. In addition, we intend
to bundle or repackage different products together, such as linking electronic
reference materials with electronic courseware or bundling periodicals with
supplemental instructional materials in social studies.
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PRODUCTS AND SERVICES
The following chart outlines our product offerings by primary operating
subsidiary in each of the segments of the supplemental education market in which
we compete:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
WEEKLY READER AMERICAN GUIDANCE COMPASSLEARNING
PRINT AND ELECTRONIC PERIODICALS: 20 grade or BASIC SKILLS: Supplemental ELECTRONIC COURSEWARE:
INSTRUCTIONAL MATERIALS subject- specific periodicals textbooks and worktexts Approximately 7,000 hours of
for Pre K-12 students, targeted for low-performing proprietary electronic
including Weekly Reader, Teen students in middle and courseware for K-12 students,
Newsweek and Current Events. secondary schools covering primarily for reading, math
SKILLS BOOKS: 177 distinct, core curriculum subjects. and language arts, including
grade specific, workbooks for TEST PREPARATION: TOMORROW'S PROMISE.
K-9 students that build and Instructional materials to MANAGEMENT SYSTEMS: COMPASS
reinforce basic skills, prepare for three of the management system enables
including the Map Skills leading achievement tests for teachers to track student
series, or focus on current K-12 students. performance, record grades,
topics such as health issues PERSONAL GROWTH: Various report on progress and
or upcoming Presidential personal growth materials prescribe lessons based on
elections. covering topics such as drug results.
SPONSORED INSTRUCTIONAL use prevention and career INTERNET-BASED PRODUCTS:
MATERIALS: A variety of free education targeted for K-12 Worldware software integrates
instructional materials, students. more than 400 pre-selected
including print and video "safe" web sites into the
products, paid for by curriculum and is also a web
corporate, trade association site with educational
and/or not-for-profit sponsors activities for students.
primarily for K-12 students. Compass Virtual Classroom
allows teachers and students
to access Compass through the
Internet.
TESTING AND ASSESSMENT N/A INDIVIDUALLY ADMINISTERED COMPUTERIZED ASSESSMENT TESTS:
PRODUCTS TESTS: Assessment products for COMPASS COMPREHENSIVE
K-12 students and adults ASSESSMENT TESTS, electronic
including the PEABODY PICTURE tests based on the test items
VOCABULARY TEST, KAUFMAN TEST in the five leading
OF EDUCATIONAL ACHIEVEMENT AND achievement tests. Based on
BEHAVIOR ASSESSMENT SYSTEM FOR COMPASS COMPREHENSIVE
CHILDREN. ASSESSMENT TESTS evaluations,
electronic courseware can be
assigned to students.
LIBRARY MATERIALS N/A N/A N/A
<CAPTION>
<S> <C>
WORLD ALMANAC
PRINT AND ELECTRONIC TEACHING KITS: Kits developed
INSTRUCTIONAL MATERIALS by World Almanac Education
used to teach a variety of
skills including research
skills, map skills and
Internet skills.
TESTING AND ASSESSMENT N/A
PRODUCTS
LIBRARY MATERIALS K-12 REFERENCE AND OTHER
INFORMATIONAL MATERIALS:
Materials developed by us
targeted to K-12 students such
as THE WORLD ALMANAC FOR KIDS
AND GARETH STEVENS, INC.
products as well as materials
developed by third parties and
distributed by us.
GENERAL REFERENCE AND OTHER
INFORMATION MATERIALS:
Materials developed by us,
such as THE WORLD ALMANAC AND
BOOK OF FACTS, FUNK & WAGNALLS
ENCYCLOPEDIA database and
FACTS ON FILE WORLD NEWS
DIGEST.
</TABLE>
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WEEKLY READER.
Weekly Reader has four primary product lines:
- elementary school periodicals;
- middle and secondary school periodicals;
- sponsored instructional materials published by its subsidiary, Lifetime
Learning Systems, Inc.; and
- skills books.
In addition, Weekly Reader licenses the content of certain of its publications
for commercial use by third parties and sells advertising space in some of its
publications and on its WEEKLY READER GALAXY web site.
ELEMENTARY SCHOOL PERIODICALS. WEEKLY READER, first published in 1928, has
established itself as a leading source for current events information for
students in grades Pre K-6. WEEKLY READER features seven grade-specific editions
for students, with between 25 and 32 issues per school year for each edition.
Weekly Reader also offers two optional monthly supplements, SCIENCESPIN and
GEOSPIN and SUMMER WEEKLY READER, an additional periodical targeted for use at
home. The following table lists each edition of the WEEKLY READER and our other
elementary school periodicals indicating issues per subscription and
subscription price.
<TABLE>
<CAPTION>
ISSUES PER 1999 SUBSCRIPTION PRICE
PUBLICATION SUBSCRIPTION (PER STUDENT, PER YEAR)(A)
- ----------- ------------ --------------------------
<S> <C> <C>
WEEKLY READER:
Pre K..................................................... 28 $5.20
K......................................................... 28 4.36
Grade 1................................................... 32 3.10
Grade 2................................................... 25 3.10
Grade 3................................................... 25 3.52
Grade 4................................................... 25 3.52
Grades 5-6................................................ 25 3.83
SCIENCESPIN................................................. 7 1.00
GEOSPIN..................................................... 7 1.00
SUMMER WEEKLY READER........................................ 3 5.00
</TABLE>
- ------------------------
(a) Includes shipping and handling costs.
Subscriptions to Weekly Reader elementary school periodicals in the
1997-1998 school year represented approximately 54.5% of all elementary school
periodical subscriptions circulated in that year by the three major publishers
of these periodicals which we believe together account for virtually all such
periodicals targeted for classrooms. Weekly Reader's periodicals had the highest
total circulation of elementary school periodicals in the 1997-1998 school year,
totaling approximately 7.1 million subscriptions (including approximately
0.5 million unpaid (promotional or teacher reference) subscriptions).
Subscriptions to Weekly Reader's elementary school periodicals have a high
rate of renewal. In each of the last ten years, over 80% of elementary schools
that have subscribed to one or more of our elementary school periodicals
subscribed to one or more of our periodicals in the following year. We believe
our school renewal rates are important because of the value we place on ensuring
that our periodicals remain available within any given school, providing us with
a base on which to further penetrate that school.
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Each edition of WEEKLY READER is specifically written and designed for
particular grade levels in order to bring information on current events to
elementary school students at a conceptually appropriate level. The editions for
younger audiences contain "soft" news focusing on topics such as fire prevention
and animals. Higher grade level editions contain "hard" news concerning topics
such as world news and current events, including, for example, the Kosovo
conflict, the 2000 Presidential elections and the Olympics bribery scandal. A
teacher's guide with background information, discussion topics and follow-up
questions is included with each issue of each edition.
To capitalize on our large customer base of elementary school teachers and
schools, in the 1997-1998 school year, we launched SCIENCESPIN, an optional
monthly science news supplement to WEEKLY READER. Each edition of SCIENCESPIN
contains science news tailored to student reading levels and school curriculum.
In the summer of 1998, we followed the successful launch of SCIENCESPIN with
SUMMER WEEKLY READER, a new periodical targeted at K-3 students for use at home,
which focuses on entertainment and other non-academic subjects. In addition, in
the fall of 1999, we launched GEOSPIN, our additional monthly geography news
supplement to our WEEKLY READER periodicals.
MIDDLE AND SECONDARY SCHOOL PERIODICALS. We publish ten subject-specific
periodicals covering six subject areas for students in middle and secondary
schools, with between six and 30 issues per school year per periodical. For
example, CURRENT EVENTS, one of our most popular periodicals for middle school
students, provides information on current events tailored to the reading levels
and school curriculum of students in the sixth through ninth grades. The
following table lists each of our middle and secondary school periodicals
indicating target grades, issues per subscription, subject area and subscription
price.
<TABLE>
<CAPTION>
1999 SUBSCRIPTION PRICE
ISSUES PER (PER STUDENT, PER
PUBLICATION GRADE SUBSCRIPTION SUBJECT AREA YEAR)(A)
- ----------- -------- ------------ -------------------------- -----------------------
<S> <C> <C> <C> <C>
CURRENT EVENTS............ 6-9 25 Social Studies $8.85
CURRENT SCIENCE........... 6-9 16 Science 9.49
READ...................... 6-9 18 Language Arts 9.49
WRITING................... 7-10 6 Language Arts 9.28
EXTRA..................... 5-9 12 Remedial Reading 10.55
CAREER WORLD.............. 7-12 6 Career Guidance 9.81
CURRENT HEALTH 1.......... 5-6 8 Health 9.49
CURRENT HEALTH 2.......... 7-12 8 Health 9.49
HUMAN SEXUALITY........... 7-12 8 Health 3.45
TEEN NEWSWEEK............. 6-9 30 Social Studies 5.95
</TABLE>
- ------------------------
(a) Includes shipping and handling costs.
Weekly Reader's middle and secondary school periodical subscriptions in the
1997-1998 school year represented approximately 39.9% of all middle and
secondary school periodical subscriptions circulated that year by the three
major publishers which we believe account for virtually all such periodicals
targeted for classrooms. Weekly Reader's middle and secondary school periodicals
had the second highest total circulation of periodicals for these schools in the
1997-1998 school year with approximately 1.6 million subscriptions (including
approximately 0.2 million unpaid (promotional or teacher reference)
subscriptions). In each of the last ten years, over 70% of middle and secondary
schools that have subscribed to one or more of our middle or secondary school
periodicals subscribed to one or more of our middle or secondary school
periodicals in the following year.
To specifically target the growing sixth to ninth grade market, Weekly
Reader recently entered into a partnership with NEWSWEEK magazine to create TEEN
NEWSWEEK, which was launched in September 1999. TEEN NEWSWEEK focuses on social
studies and current events and contains grade-appropriate news stories that link
history, geography, government and cultures to the news stories. The
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partnership is intended to capitalize on Weekly Reader's expertise in publishing
and marketing materials for classroom use and NEWSWEEK's strong news image,
rapid distribution capabilities and experience in advertising sales.
LIFETIME LEARNING SYSTEMS, INC. Our Lifetime Learning Systems, Inc.
business is a leader in the creation and distribution of a variety of
supplemental education materials which are paid for by corporate, trade
association and/or not-for-profit sponsors and are distributed free to a target
audience. The materials produced focus on topics chosen by the sponsor and are
typically targeted for use in K-12 classrooms. Lifetime Learning Systems, Inc.
also produces sponsored supplemental education materials targeted for the
college and senior citizen markets. Lifetime Learning Systems, Inc. has created
a variety of formats for supplemental education materials over the years,
ranging from:
- posters, teacher's guides and reproducible student activities;
- audio and video tapes; and
- web sites.
Sponsors of Lifetime Learning Systems, Inc. projects have included corporate
sponsors such as Chrysler, Home Box Office, ABC-TV and Ford as well as
not-for-profit sponsors such as the American Health Foundation, the Tennessee
Valley Authority and Save the Children.
SKILLS BOOKS. We offer skills books, a line of workbooks and other
supplemental education materials that build and reinforce students' basic skills
in curriculum areas such as math or language arts as well as other titles which
focus on life issues, such as current events or health. The skills book product
line includes 30 different series of workbooks including 177 distinct,
grade-specific titles spanning K-9 grades. For example, the highly successful
Map Skills series builds geographic literacy by teaching students basic
map-reading concepts and skills. The success of this series is attributable to a
proven sequential approach to teaching map skills that matches the curriculum
established by many school systems. Additional products include series covering
topics such as AIDS and Presidential elections.
WEEKLY READER GALAXY. In addition to our presence in the classroom through
printed materials, in 1996 we launched our web site, WEEKLY READER GALAXY, with
the goal of strengthening the brand image of our print products and positioning
Weekly Reader to capitalize on electronic distribution opportunities. WEEKLY
READER GALAXY is a free web site with pages specifically addressing students,
teachers and parents. It offers materials, in the form of puzzles, experiments
and games, which correlate with the content of Weekly Reader periodicals. The
web site is also connected to various other resources such as the "world's
largest classroom key pal network," which connects classrooms from 103
countries. In addition, the WEEKLY READER GALAXY web site informs users about
our periodicals and allows them to subscribe over the Internet. For the twelve
months ended December, 1999, the web site had approximately 36 million page
views with the average user spending approximately nine minutes on the site per
visit.
OTHER PRODUCTS AND SERVICES. Weekly Reader also licenses the content of
some of its publications, promotes other products in its publications and
provides its "seal of approval" to various products. For example, Weekly Reader
is one of several educational publishers providing content to JUNIORNET, a
subscription based web site launched in March 1999 targeted to children ages
3-12. Weekly Reader licenses the content of certain of its publications for use
on JUNIORNET and is compensated for the use of such content based upon the
amount of time visitors to the web site spend viewing Weekly Reader's licensed
content. In addition, in November 1998, Weekly Reader began its "Weekly Reader
Seal of Approval" program. Pursuant to this program, producers of educational
products submit their products to Weekly Reader for review and, if approved by
Weekly Reader based upon the educational value of the product, these products
are granted the Weekly Reader Seal of Approval. Producers of the products pay
Weekly Reader an annual licensing fee in exchange for such endorsement.
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AMERICAN GUIDANCE.
American Guidance has two product lines:
- testing and assessment products; and
- supplemental instructional materials.
Our testing and assessment products and supplemental instructional materials
are primarily used in K-12 schools. In addition to K-12 schools, American
Guidance's testing and assessment products and supplemental instructional
materials are used in:
- community health centers;
- clinics;
- hospitals;
- correctional facilities;
- community colleges; and
- other adult education programs.
Approximately 16% of American Guidance's net revenue for the twelve months ended
June 30, 1999 were from sales of testing and assessment products and
supplemental instructional materials in which the end users were not K-12
schools. This percentage is consistent with the percentage of net revenue for
sales of these products in 1996 through 1998.
TESTING AND ASSESSMENT PRODUCTS. American Guidance's testing and assessment
products provide educators and clinicians, including school psychologists,
guidance counselors, special education teachers, speech pathologists and other
similar school or district-level specialists with reliable individually
administered tests and manuals explaining how to administer our tests. The
testing and assessment products also include related third-party professional
development books covering various theories of testing which we offer through
our catalogs. American Guidance's testing and assessment products are used to
diagnose learning disabilities and measure the cognitive ability, educational
achievement and personal and social adjustment of students, for example:
- the PEABODY PICTURE VOCABULARY TEST (PPVT) measures a student's listening
comprehension for "Standard American English" and screens for verbal
ability;
- the KAUFMAN TEST OF EDUCATIONAL ACHIEVEMENT (KTEA) measures a student's
reading, mathematics and spelling skills; and
- the BEHAVIOR ASSESSMENT SYSTEM FOR CHILDREN (BASC) test assesses the
behaviors and emotions of children and is used, among other things, to
assess whether a student has attention deficit hyperactivity disorder.
American Guidance currently publishes over 25 testing and assessment
products. Six of American Guidance's top ten testing products (based on sales)
have been published for over 25 years and its leading testing publication, the
PEABODY PICTURE VOCABULARY TEST, was initially developed in 1959 and continues
to rank among American Guidance's top selling products. American Guidance's
tests are revised periodically to ensure that they reliably measure existing
populations. Achievement tests generally require revisions every eight to ten
years while tests that measure personal and social adjustment or cognitive
ability in certain cases do not require revision for as long as 15 years.
American Guidance's tests are generally sold as part of a test kit. Test
kits typically contain the test, test record forms, "easels" used to administer
the test, scoring sheets used to score the test and a manual describing the
proper method to score and evaluate the particular test. Test kits range in
price
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from $80 to $600 depending on the content of the test kit and the demand for the
test. Each test uses a different test record form which must be reordered from
us. Test record forms are generally sold in packages of 25 with an average price
range of $25 to $40 per package. A test kit usually contains one package of 25
test record forms. Sales from our top ten testing and assessment products and
related materials (e.g., easels and scoring sheets) represented approximately
71.5% of American Guidance's total net revenue from testing and assessment
products for the twelve months ended June 30, 1999, with no individual set of
testing products accounting for more than 12%.
Educators and clinicians apply American Guidance's testing and assessment
products on an individual basis to understand a student's particular educational
needs. The need for our testing and assessment products generally arises after
someone close to the student, either a parent or teacher, determines that the
student is having behavioral or academic difficulty. The student is then
referred to the appropriate clinician or educator at the school who has
responsibility for determining what test or tests should be administered in
order to correctly diagnose the student's problem.
In our experience, once the validity and effectiveness of a test is
established and accepted in the educational community, educators',
psychologists' and clinicians' familiarity with the product grows along with
their reluctance to change suppliers and learn different assessment content,
administration approaches and scoring techniques. These professionals often
prefer to use the same tests over a long period of time in order to compare
performance of their student populations.
SUPPLEMENTAL INSTRUCTIONAL MATERIALS. American Guidance's supplemental
instructional materials consist of curriculum-based instructional materials,
many of which are for low-performing students. Low-performing students are
defined as those students scoring in the lower 50th percentile of the student
population at a particular grade level. We focus primarily on serving middle and
secondary schools with additional sales to post-secondary markets, such as
community colleges and correctional facilities. We generally produce four types
of instructional materials:
- supplemental hardcover textbooks in core curriculum areas for
low-performing students, with related products such as workbooks;
- softcover worktexts in core curriculum areas for low-performing students;
- test preparation materials which can be used to prepare all students for
leading achievement tests; and
- personal growth products.
American Guidance's supplemental hardcover textbooks are designed to provide
comprehensive coverage of skills and concepts in short, concise lessons. They
are geared to a fourth grade reading level or below with photography and content
that are appropriate for middle and secondary school students as well as adults.
American Guidance's current catalog offers supplemental hardcover textbooks in
the following subject areas:
<TABLE>
<S> <C>
Basic English Grammar General Science
Basic English Composition Earth Science
English for the World of Work Physical Science
English to Use United States Government
Life Skills English United States History
Life Skills Math World History
Algebra World Literature
Pre-Algebra Exploring Literature
Geometry American Literature
Consumer Mathematics Life Skills Health
Basic Math Skills Discover Health
Biology
</TABLE>
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We believe American Guidance's supplemental hardcover textbooks set the
standard for quality in the market, with full-color content and accompanying
extensive teacher support materials. Each textbook has a wrap-around teacher's
edition that reproduces the student edition with notes for the teacher indicated
next to the text such as overviews for each new lesson, alternative questions a
teacher may ask and answers to questions in the text. Each textbook has
available a set of quizzes, worksheets, problem sets and other materials that
teachers are permitted to reproduce for their classes. These materials also are
available on CD-ROM. Most of American Guidance's supplemental hardcover
textbooks have related softcover workbooks (generally 50 to 60 pages in length),
activity books and study guide programs (sometimes including videos) available
in print and on CD-ROM for self-guided learning. Pricing for American Guidance's
hardcover textbooks ranges from $33 to $40 dollars each; workbooks range from $7
to $10 each; and the CD-ROMs containing the quizzes, worksheets, problem sets
and other materials are approximately $160 each.
American Guidance's softcover worktexts also cover core curriculum areas.
These worktexts (generally 90 to 120 pages in length) are designed as
stand-alone products so that a teacher may use them to supplement any textbook.
These softcover worktexts cover smaller portions of any given curriculum area
than our supplemental hardcover textbooks. For example, we have a softcover
worktext on how to balance a checkbook which is only one topic of many that are
covered in our hardcover Life Skills Math textbook. Pricing for our softcover
worktexts ranges from $6 to $13 each.
American Guidance also publishes a rapidly growing line of test-preparation
materials developed to assist students preparing to take three of the leading
achievement tests:
- Stanford Achievement Test (SAT9);
- Iowa Test of Basic Skills (ITBS); and
- TERRANOVA (Comprehensive Test of Basic Skills (CTBS) and Multiple
Assessments tests).
American Guidance's test preparation materials are sold in package format and
generally contain 25 activity books per package covering one subject area.
Prices for test preparation packages range from $40 to $90 each. The emphasis in
education on accountability for teachers and school administrators for the
performance of their students on these achievement tests has helped make this a
rapidly growing segment for our business.
American Guidance also markets a full line of personal growth products aimed
at:
- developing behavior skills;
- parenting training;
- drug use prevention and anti-violence training;
- self-esteem; and
- career education.
These materials have differing audiences ranging from the entire K-12 student
population to teachers and adults, and are produced using various formats
including print, computer software and video.
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COMPASSLEARNING.
CompassLearning derives revenues from three sources:
- software products;
- professional development services and technical support services; and
- sales of hardware.
CompassLearning's electronic courseware, assessment software and management
systems products are purchased pursuant to perpetual license agreements between
CompassLearning and the applicable purchaser. Courseware products sell for an
average of approximately $120 per subject per grade level plus $100 per
workstation for simultaneous access. The COMPASS management system sells for
$3,500 and the assessment software sells for $2,000, subject to any applicable
discount. Electronic courseware, assessment software and a management system are
typically sold as a package, together with certain professional development and
technical support services. These packages sell for an average of approximately
$25,000 per school. CompassLearning's professional development services range in
price from $850 per day for a standard course to $1,000 per day for a customized
training session. These services are typically purchased under a contract for a
certain number of days of service to be provided over a period of up to one
year. Technical support services are typically purchased under one year
contracts for an average cost of $5,500 per year. After the expiration of any
service contract, such services may be purchased on an ongoing basis.
SOFTWARE PRODUCTS. CompassLearning's software products consist of
electronic courseware, assessment software, management systems and
Internet-based products. Most of CompassLearning's current electronic
courseware, assessment software and management systems operate in:
- a networked environment with file servers and several student stations;
- a peer-to-peer environment connecting several student stations in a
"mini-network;" and
- a stand-alone CD-ROM environment.
These products are typically compatible with both Windows and Macintosh
operating systems. CompassLearning also has two products that are
Internet-based, which were introduced in 1996 and 1999, respectively. In
addition, CompassLearning distributes a small amount of third-party products,
typically bundled with its own products.
Electronic Courseware: CompassLearning's primary product line is its
proprietary electronic courseware. CompassLearning has approximately
7,000 hours of such courseware, including TOMORROW'S PROMISE, a comprehensive
library of over 3,600 hours of electronic courseware with complete correlation
to major national and state educational standards. The content of
CompassLearning's electronic courseware curriculum is grade-specific and focuses
on core curriculum topics such as reading, spelling, math, science and language
arts, as well as emphasizing higher-order thinking and problem solving skills.
Most of our current courseware is available in a networked, peer-to-peer or
CD-ROM environment. In addition, our existing electronic courseware products
have been developed using a standardized authoring tool which facilitates,
expedites and reduces the cost to convert such products into a format for
delivery over the Internet.
Most of CompassLearning's electronic courseware covering core curriculum
topics such as reading, math and language arts, is available in comprehensive,
modular or stand-alone formats. In the comprehensive format, which accounted for
approximately 60% of CompassLearning's sales of electronic courseware for the
twelve months ended June 30, 1999, customers purchase all current electronic
courseware for a particular subject in each of the grades offered by
CompassLearning (typically K-6 or K-8). The remaining 40% of CompassLearning's
electronic courseware sales were made in the modular and stand-alone formats. In
the modular format, customers purchase grade and/or
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subject specific electronic courseware according to their specific needs. The
modular format allows, for example, a school to add courseware over the years as
additional funds become available or to buy courseware to address a specific
need or implementation plan. Typically, schools intending to use courseware in a
computer lab often purchase courseware in a comprehensive format while schools
intending to use courseware in a classroom often purchase courseware in a
modular format. Finally, in the stand-alone format, customers purchase
courseware on stand-alone CD-ROMs for use without the need for a computer
connected to file servers running CompassLearning's system software.
Assessment Software: CompassLearning offers a series of comprehensive
assessment tests referred to as Compass Comprehensive Assessment Test. Compass
Comprehensive Assessment Test is a series of computerized achievement tests
based on the subjects typically tested in the following five leading achievement
tests for K-12 students:
- the Iowa Test of Basic Skills examination (ITBS);
- Metropolitan Achievement Test examination (MAT);
- Stanford Achievement Test examination (SAT9);
- California Achievement Test examination (CAT); and
- TERRANOVA examination (Comprehensive Test of Basic Skills (CTBS) and
Multiple Assessments tests).
The computerized tests seek to establish the test taker's knowledge of subject
matters that are typically tested on the achievement tests mentioned above, with
a computerized test emulating each of the five achievement tests. In addition,
the computerized test items can be customized by teachers to reflect other
tests, subjects or testing strategies. CompassLearning's assessment software has
been customized for educational requirements in states such as Florida and
Texas. CompassLearning's assessment software scores the computerized tests and
determines whether the test taker possesses the particular skills tested. If a
test taker fails any particular subject on the computerized test, the assessment
software prescribes lessons found in CompassLearning's electronic courseware.
Management Systems: CompassLearning offers the COMPASS management program.
COMPASS is a computerized management system that enables teachers with students
using CompassLearning's electronic courseware to:
- create student lesson plans;
- track student performance;
- record grades;
- report on progress; and
- assess results against major state, national or self-defined standards.
Using the COMPASS system, a teacher is able to directly assess an individual
student's performance on CompassLearning's electronic courseware and assessment
software products and devise individualized learning paths for each student.
Internet-based Products: WORLDWARE is an Internet-based classroom
integration product for use with our electronic courseware, assessment software
and management systems, which we introduced in 1996. WORLDWARE has two parts:
the software and the web site. The WORLDWARE software enables teachers to
integrate a comprehensive collection of more than 400 pre-selected "safe" web
sites into their daily lessons in a controlled manner by providing web controls
limiting students' access to other Internet sites. The WORLDWARE web site
features educational activities for students and resources for parents and
teachers. In addition, CompassLearning now offers COMPASS VIRTUAL CLASSROOM,
with the first
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installations made in September 1999. COMPASS VIRTUAL CLASSROOM works with our
electronic courseware, assessment software and management systems by allowing
students and teachers working on computers at home to access COMPASS functions
through the Internet. Students can have at-home access to assessment tests and
electronic courseware for self-paced learning. Teachers can have full access
from remote computers to all COMPASS functions from creating assignments to
reviewing results.
SERVICES. CompassLearning provides professional development services and
technical support services. CompassLearning has a team of over 90 full-time
educational consultants providing professional development services to teachers,
ranging from basic software training to services designed to assist teachers in
implementing and integrating technology into the classroom. These services are
provided in connection with our software products as well as third-party
products. An initial buyer of our software products typically purchases eight
days of professional development services for training on the software
purchased, to be provided over a period of up to one year. Following the
completion of the eight days of training, our customers can purchase additional
days of professional development services. In 1998, we were chosen as the leader
in customer training according to a survey by Education Market Research. In
addition, in October 1998, we began to offer a series of training courses for
teachers that address topics such as productivity, leadership, parental
involvement and Internet use and implementation.
CompassLearning offers various technical support services in connection with
the purchase and ongoing use of its software products. An initial buyer of our
software products typically purchases one year of toll-free telephone help line
services, on-site system engineer services and software updates. Following the
expiration of the initial technical support services contract, our customers can
purchase continuing support at varying levels, ranging from limited telephone
help line services to priority systems engineer dispatching. We also offer our
customers hardware support services, which we provide through a contract with a
third party.
HARDWARE. In 1994, we essentially exited the business of selling hardware
due to the lower profitability of such business compared to our other segments,
high inventory requirements and the risk of obsolescence associated with such
products. Today, upon request, we resell hardware to customers who request a
package of hardware and software.
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WORLD ALMANAC.
World Almanac's operations are divided into five divisions. The following
table describes the product lines and their prices for each of its divisions.
<TABLE>
<CAPTION>
DIVISION PRODUCT LINES PRICING
- -------- ------------- -------
<S> <C> <C>
World Almanac Books............ Publishes:
THE WORLD ALMANAC AND BOOK OF FACTS $11
THE WORLD ALMANAC FOR KIDS $11
THE WORLD ALMANAC OF U.S. POLITICS various prices
World Almanac Education........ Catalog-based distribution of:
Third-party and World Almanac $5-$475
publications targeted for the K-12 market
Gareth Stevens, Inc............ Publishes:
K-6 nonfiction and fiction books $13-$20
Distributes:
Two nonfiction book product lines of a $12-$20
third-party publisher
Facts On File News Services.... Publishes:
FACTS ON FILE WORLD NEWS DIGEST $480-$795 print;
$595-$1,150 CD-ROM;
$1,350 Internet
ISSUES AND CONTROVERSIES ON FILE $375
TODAY'S SCIENCE ON FILE $225
EDITORIALS ON FILE $495
SOFTWARE AND CD-ROM REVIEWS ON FILE $295
Funk & Wagnalls................ Publishes:
Electronic FUNK & WAGNALLS ENCYCLOPEDIA various prices
database
A general yearbook $24
A science yearbook $23
</TABLE>
WORLD ALMANAC BOOKS. THE WORLD ALMANAC AND BOOK OF FACTS is, we believe,
one of the most widely used and well-respected general reference publications in
the United States. In 1998, the American Library Association named it one of the
three most important information sources found in libraries and the best almanac
overall. In 1998, market research was completed that indicated that 56% of those
surveyed who purchase the almanac purchase it on an annual basis. We believe THE
WORLD ALMANAC AND BOOK OF FACTS provides more complete and up-to-date
information than competing almanacs. Its comprehensiveness and brand identity
are critical assets. In print for over 130 years, THE WORLD ALMANAC AND BOOK OF
FACTS perennially makes the NEW YORK TIMES' bestseller list. World Almanac Books
also licenses the content of THE WORLD ALMANAC AND BOOK OF FACTS to third
parties for inclusion in their products. Since 1995, World Almanac Books has
also published THE WORLD ALMANAC FOR KIDS, with over 1,000,000 copies sold to
date.
WORLD ALMANAC EDUCATION. World Almanac Education is a niche distributor of
reference and informational materials, which it targets primarily to K-12 school
and public libraries. This market segment is especially attractive because of
the large number of such libraries (approximately 108,000 K-12 school and 16,000
public libraries) in the United States. World Almanac Education reviews and
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selects materials from third-party publishers for inclusion in its nine
catalogs. The catalogs also include THE WORLD ALMANAC AND BOOK OF FACTS, THE
WORLD ALMANAC FOR KIDS and certain Gareth Stevens, Inc. products. World Almanac
Education mails a total of approximately 1.6 million catalogs annually. World
Almanac Education also publishes a small amount of proprietary teaching kits,
including kits covering research skills, map skills and Internet skills, which
include items such as lesson plans for certain books to encourage multiple-copy
sales.
GARETH STEVENS, INC. Gareth Stevens, Inc. publishes nonfiction and fiction
books for K-6 students. These books cover a broad spectrum of topics including
nature, science, social studies and the arts. Approximately 83% of Gareth
Stevens, Inc.'s sales are derived from books that are published under the GARETH
STEVENS imprint. A majority of these titles are sourced from domestic and
international third parties for which Gareth Stevens, Inc. holds exclusive
distribution rights for K-12 school and public libraries in North America. The
remaining approximately 17% of Gareth Stevens, Inc.'s sales are derived from the
distribution of two product lines from Rosen Publishing, with one line targeted
for secondary school students and the other targeted for K-6 students.
FACTS ON FILE NEWS SERVICES. World Almanac, through Facts On File News
Services, publishes and sells subscription news reference products in print,
CD-ROM and Internet formats. There are five products:
- FACTS ON FILE WORLD NEWS DIGEST;
- ISSUES AND CONTROVERSIES ON FILE;
- TODAY'S SCIENCE ON FILE;
- EDITORIALS ON FILE; and
- SOFTWARE AND CD-ROM REVIEWS ON FILE.
Its core product, FACTS ON FILE WORLD NEWS DIGEST, is a highly respected
publication used by libraries as a comprehensive index of world events beginning
in 1940 (print version) and 1988 (electronic version). Librarians, journalists
and library patrons typically use Facts On File News Services products to
research historical events. The in-house editorial staff of FACTS ON FILE WORLD
NEWS DIGEST distills key news information from more than 100 different
newspapers, periodicals, journals and government Internet sources and uses it to
update the product weekly in the print and Internet formats and quarterly for
the CD-ROM format. The core print product has an annual subscription list price
of $795, which is discounted for public and school libraries. The print edition
of FACTS ON FILE WORLD NEWS DIGEST sold over 5,400 subscriptions in 1998 and
continues to meet with great acceptance, as evidenced by renewal rates averaging
approximately 90% from 1996 through 1998. Subscriptions to the print edition,
however, are expected to decline gradually as it is replaced by Internet-based
versions of the product described below.
To take advantage of accelerated library spending on electronic delivery of
reference materials, in 1997 we developed a Windows compatible CD-ROM version of
FACTS ON FILE WORLD NEWS DIGEST. In April 1999, World Almanac launched an
Internet version of FACTS ON FILE WORLD NEWS DIGEST which currently has 1,720
subscribers, or 23% of the total number of print and CD-ROM subscribers for this
product. The increased functionality of the Internet version allows World
Almanac to price this product higher than the print or CD-ROM versions. The
Internet version has a list price of $1,350 for a single-site installation, with
price discounts per site for multiple-site installation. By the end of the first
quarter of 2000, we expect to have launched three additional World Almanac
databases as part of the Facts On File News Services web site.
FUNK & WAGNALLS. World Almanac operates in the electronic encyclopedia
business through Funk & Wagnalls. Although the FUNK & WAGNALLS ENCYCLOPEDIA is
no longer published in print format,
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Funk & Wagnalls licenses an electronic version of its encyclopedic database to
various third parties. Funk & Wagnalls also annually publishes a general
yearbook containing a review of the major news events that transpired in the
previous year and a science yearbook containing a review of the major scientific
events in the previous year. The general yearbook is licensed from World Book
Encyclopedia, Inc. and the science yearbook is licensed from Grolier
Enterprises Inc. The active subscriber list for these two publications, which
primarily consists of former subscribers to the print edition of the FUNK &
WAGNALLS ENCYCLOPEDIA, is approximately 80,000 for the general yearbook and
39,000 for the science yearbook. Most science yearbook subscribers are also
general yearbook subscribers. We do not target new subscribers for these
yearbooks; however, renewal rates have averaged approximately 78% for the
general yearbook and 75% for the science yearbook from 1996 through 1998.
PRODUCT AND CONTENT DEVELOPMENT
WEEKLY READER. Weekly Reader has a team of 62 people working in product and
content development. This team includes:
- editors and writers, who are typically grade and subject specialists with
journalism or teaching experience; and
- designers, who are responsible for the "look and feel" of the products,
including the layout of each publication.
Editors, writers and designers work in teams on any particular project
including planning meetings used for determining content and educational focus,
the selection of appropriate graphics and photographs and final editing before
submission for printing. The time it takes to develop our products varies
substantially according to the type of product. Product development for a new
periodical typically takes approximately nine months from concept to initial
marketing, whereas new issues of our existing periodicals typically take
approximately one to two weeks from conception to printing. Our skills books
typically take approximately eight to twelve months from concept to initial
marketing for an entirely new title, and approximately four to six months for
updated versions of existing titles. Development times for Lifetime Learning
Systems, Inc.'s products vary substantially depending upon the type of product
involved, but typically take approximately three to four months from concept to
distribution.
Weekly Reader's periodicals are written by a combination of staff and
freelance writers. WEEKLY READER, for example, is written internally. Our staff
of editors, writers and designers determine the subject matter for the
particular edition after which the content is written and edited by Weekly
Reader's employees. For SCIENCESPIN, however, once the content and educational
focus for a particular issue is determined internally, the writing is contracted
out to third parties with the relevant scientific knowledge and the ability to
write for the applicable target audience. TEEN NEWSWEEK is written internally
based upon content from upcoming stories in NEWSWEEK made available to our
writers prior to NEWSWEEK'S publication, and our own internally created content.
The TEEN NEWSWEEK writers determine which stories are appropriate for the
targeted audience and then rewrite the stories with age appropriate information
and language. TEEN NEWSWEEK'S content is subject, in all cases, to NEWSWEEK'S
approval.
Weekly Reader's skills books are typically written by freelance writers at
the direction of Weekly Reader's editors. Lifetime Learning Systems, Inc.'s
products are developed in a variety of formats by an in-house editorial and
design staff with varying degrees of direction provided by the applicable
sponsor. In the past, certain sponsors of Lifetime Learning Systems, Inc.
projects have approached Lifetime Learning Systems, Inc. with a definitive
concept for which they are seeking implementation and production, while other
sponsors simply have a message they wish to get across to a target audience and
request proposals as how best to accomplish that goal.
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Prior to distribution, whether created internally or externally, all of
Weekly Reader's products are reviewed by either the Editor in Chief of Weekly
Reader or one or more Senior Managing Editors to ensure that the content of the
applicable product is appropriate for the age group targeted by the product,
according to standards developed by Weekly Reader. Lifetime Learning
Systems, Inc.'s products are reviewed by its editorial director for their age
and content appropriateness.
AMERICAN GUIDANCE. American Guidance's new testing and assessment products
and revisions to existing products are developed internally by in-house
personnel which include 27 full-time employees, most of whom are trained in one
or more specialties including psychology, education, early childhood development
and speech/language, among other disciplines.
Our testing and assessment products are firmly rooted in established
psychological and pedagogic theory, and our product development philosophy is
customer-focused. New test concepts are usually derived from the marketplace,
often from our sales representatives who are in contact with:
- teachers;
- guidance counselors;
- school psychologists;
- school administrators; and
- other professionals who identify a testing need.
We also develop new products through a systematic review of industry trends,
including emerging trends in the education community, or in conversations with
educators and other professionals who attend various trade and professional
conferences where we are an exhibitor or attendee. Occasionally, we will be
approached by an author with a new test concept, which we will then evaluate in
terms of its overall market potential.
After we have created a test, we then subject it to field tests. Once field
testing and any indicated adjustments are complete, the test undergoes
standardization, generally being tested on 200 students per age year targeted by
the test and covering a broad range of demographic characteristics. In addition,
we seek support for the test from key opinion makers in the subject area of the
test. Only at this stage do we begin to market the test. The process is similar
for most revisions of existing tests because when a test is updated, the new
content similarly must be field-tested and then the revised test must undergo
standardization. The development cycle for a new test or to make revisions to an
existing test is typically five years from concept through the launch of the new
or revised test. The life cycle for the new or revised test can be up to
15 years or more. We are continuously working on new products or product
concepts or revisions of existing products. For example, in June 1999, we
released a new test, CASL (COMPREHENSIVE ASSESSMENT OF SPOKEN LANGUAGE), an
in-depth assessment of oral language skills.
We develop supplemental instructional products internally and externally
with developers and in close consultation with outside authors, on a royalty
basis or on a fee-for-service arrangement. Our in-house development team for
supplemental instructional materials consists of eight full-time employees. New
product concepts are derived from various sources, including:
- our in-house development staff;
- outside authors; and
- our sales force based on their regular meetings with educators and
administrators.
Most of these products have a development cycle of approximately one year. In
general, we solicit bids for our new products from outside developers and award
the contract based on price and other factors relating to the developer's
ability to deliver the finished product according to our exact specifications.
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We continuously work on product development for existing supplemental
instructional materials in addition to development of new products. Our
1999-2000 supplemental instructional materials catalog offers new textbooks in
four different subject areas. In 1997 and 1998, we released a total of 14 new
and revised hardcover supplemental texts in language arts, math, science and
social studies, as well as 21 softcover worktexts and three parent training
programs.
Our product and content development staff includes eight Ph.D.s and 23
former certified teachers. We supplement our product development with selective
acquisitions of product lines. For example, in October 1997, we acquired a line
of test preparation materials for achievement tests from Craig-Hart Publishing
Company. In March 1997, we acquired a line of grade equivalency diploma and
pre-grade equivalency diploma test preparation materials along with a line of
life skills worktexts from International Thompson Publishing Inc. In
April 1996, we acquired a line of paperback fiction books for low-level readers
from Lake Publishing Company.
COMPASSLEARNING. CompassLearning has a product development team of 83
employees, including 22 individuals with state issued teaching credentials and
an average of nine years of teaching experience. These 83 employees also have on
average nine years of software development experience and have been working for
CompassLearning for an average of six years. In addition, CompassLearning
periodically hires temporary employees or outsources work to supplement its
in-house product development team. These temporary employees and third-party
contractors are generally used for functions such as product testing, while
CompassLearning employees perform the core competency functions necessary for
the development of its products. The time it takes to develop our products
varies according to the type of product, but typically ranges from
12-18 months.
CompassLearning's product development team is divided into the following
four groups:
- the curriculum and assessment design group;
- the integration and management systems group;
- the quality assurance group; and
- the documentation group.
The curriculum and assessment design group develops the content and
functionality for the curriculum lessons and assessment components of
CompassLearning products. This group is responsible for designing products which
meet the educational objectives for the curriculum or assessment element being
addressed. They use an "authoring tool," a computer program which enables the
curriculum and assessment design group to choose from a variety of standardized
computer program features, such as lesson templates, without the need to write
extensive source code in order to create the basic computer program for the new
product. The integration and management systems group is responsible for
developing current and future management programs and the integration of the
management programs with the curriculum and assessment offerings. This group
also is responsible for maintaining all of the source code for CompassLearning's
products and addressing any problems which arise within the code. The quality
assurance group tests all of our new products. The documentation group is
responsible for the documentation that accompanies the new product offerings.
WORLD ALMANAC. World Almanac has a 51 person in-house editorial staff that:
- in the case of the World Almanac Books and Funk & Wagnalls, works in
conjunction with outside work-for-hire editors to develop its content; and
- in the case of the Facts On File New Services products, develops the
content of these products.
Individual members of the in-house editorial staff are generally responsible for
only one of the product lines. The content of our Funk & Wagnalls yearbooks are
licensed from third parties. The Gareth Stevens, Inc. nonfiction and fiction
books are comprised of either content licensed from third parties
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and repackaged and/or rewritten for the K-12 market in the United States or
content written by in-house staff or freelance writers. World Almanac Education
has a 3 person creative staff which designs the layout for the catalogs and
selects the reference and informational materials which will be included in the
catalogs.
World Almanac Education updates its catalogs twice each year. New editions
of THE WORLD ALMANAC AND BOOK OF FACTS and THE WORLD ALMANAC FOR KIDS are
published each year. New product development is currently focused on offering
certain products through Internet delivery such as the expected launch by the
end of 1999 of two additional World Almanac databases on the Facts On File News
Services web site.
CUSTOMERS
Our targeted customers, which vary depending on the product line, are
teachers, school and school district-level administrators, librarians, other
educational professionals and parents.
Weekly Reader's periodicals and other instructional materials are purchased
mainly by teachers, as well as by school and school district-level
administrators. In addition, schools sometimes ask parents of students to pay
for their children's subscriptions to Weekly Reader periodicals. The SUMMER
WEEKLY READER, which has been published for the last two summers, is targeted to
parents for home use. Weekly Reader was the largest publisher of classroom
periodicals in terms of total circulation in the 1997-1998 school year with over
8.7 million subscribers, more than our two primary competitors in this market
combined.
Customers of Lifetime Learning System, Inc.'s products generally are:
- corporations;
- trade associations;
- not-for-profit organizations; and
- government agencies.
Customers of American Guidance's testing products generally are:
- guidance counselors;
- school psychologists;
- speech pathologists;
- special education teachers; and
- other similar school and school district-level specialists.
Customers of American Guidance's supplemental instructional materials generally
are teachers and school-level administrators as well as school district-level
administrators. American Guidance also has customers outside of K-12 schools for
its testing and assessment products and supplemental instructional materials
which include:
- clinical psychologists;
- community colleges;
- adult educational programs; and
- correctional facilities.
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One or more of American Guidance's testing and assessment or supplemental
instructional products are used in over 12,000 school districts, or
approximately 80% of the school districts in the United States.
CompassLearning's customers consist primarily of school and school
district-level administrators, including:
- superintendents;
- curriculum directors;
- technology directors; and
- principals.
Although individual teachers do not typically make final purchasing decisions,
they frequently have substantial input in the decision making process. One or
more of CompassLearning's products has been sold to more than 20,000 K-12
schools, representing approximately 19% of all schools in the United States.
In 1998, approximately 77% of World Almanac's sales were to schools and
libraries. The remaining 23% of its sales consisted of sales of yearbooks to
former encyclopedia purchasers and sales of THE WORLD ALMANAC AND BOOK OF FACTS
and THE WORLD ALMANAC FOR KIDS. The World Almanac products were sold through:
- independent and chain bookstores through trade channels;
- supermarkets and newsstands through mass-market/wholesale channels; and
- other customers, such as book clubs and fairs, through speciality sales
channels (other direct marketing channels and resellers).
Funk & Wagnalls licenses its electronic encyclopedia database to various
licensees, the largest of which is Versaware Technologies Inc., and sells its
yearbooks primarily to former print encyclopedia purchasers. Facts On File News
Services sells FACTS ON FILE WORLD NEWS DIGEST and its other publications to
libraries of all types. World Almanac Education and Gareth Stevens, Inc. sell
their products primarily to school libraries and to a lesser extent to public
libraries. In the last three years, over 55% of the approximately 124,000 school
and public libraries in the United States have purchased products from World
Almanac.
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SALES, MARKETING AND DISTRIBUTION
We have an extensive network with direct distribution channels to reach our
primary customers. Our four primary operating subsidiaries use one or more of
the following methods to sell and market our products: direct mail, direct
sales, telemarketing and distribution through retail channels. The chart set
forth below contains information regarding sales, marketing and distribution by
Weekly Reader, American Guidance, CompassLearning and World Almanac, including
their primary distribution channels.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
WEEKLY READER AMERICAN GUIDANCE COMPASSLEARNING WORLD ALMANAC
PRIMARY METHOD OF Direct Mail Direct Sales Force Direct Sales Force Direct Mail: Facts On File News Services,
SALES AND MARKETING (field and World Almanac Education and Funk &
telesales) Wagnalls
Telemarketing: Gareth Stevens, Inc. and
Facts On File News Services
Retail Marketing: World Almanac Books
SIZE OF STAFF 10 38 65 115
NUMBER OF MAILINGS IN 2 (in February and 3 (in March, August N/A Facts On File News Services generally
1998 August) and December or mails twice a year; World Almanac
January) Education generally mails four times a
year; Yearbook mail campaigns once a year
NUMBER OF SCHOOLS/ 108,000 schools; 250,000 customer N/A Approximately 103,800 schools, 16,500
TEACHERS/LIBRARIES IN 2.7 million locations school districts, 15,700 public
DATABASE teachers libraries, 4,600 academic libraries
ESTIMATED NUMBER OF 75,000 schools Over 12,000 school Over 20,000 schools Over 68,000 school and public libraries
SCHOOLS/ SCHOOL districts have purchased our have purchased products from World
DISTRICTS/LIBRARIES products Almanac in the past three years
WITH OUR PRODUCTS AS
OF SUMMER, 1999
</TABLE>
DIRECT MAIL. Direct mail consists mainly of well-planned mailings that
target current and prospective customers, often with enclosed product samples
and catalogs, which are used to generate product sales. This marketing technique
is utilized to a significant extent by Weekly Reader, World Almanac's Facts On
File News Services and World Almanac Education, and to a lesser extent by
American Guidance, CompassLearning and World Almanac's Funk & Wagnalls.
Weekly Reader's classroom periodicals are marketed primarily through the use
of direct mailings. Its experienced and skilled marketing staff of ten people
has developed detailed mailing schedules and marketing strategies to reach
current and prospective customers. In the marketing of its classroom
periodicals, Weekly Reader has developed and maintained a valuable and
proprietary database tracing the purchasing habits of approximately 2.7 million
individual teachers and administrators and approximately 108,000 schools over
the past five years as well as certain demographic factors in each locale. In
1998, Weekly Reader mailed over 0.4 million catalogs and 6.9 million direct mail
pieces primarily to teachers as well as to school and school district-level
administrators, librarians and parents. Schools are segmented for mailings
according to "purchasing" and "non-purchasing" status, with marketing campaigns
based on purchasing history specifically targeted to teachers, who are typically
the key decision makers in connection with the purchase of Weekly Reader's
classroom periodicals. Schools that currently purchase Weekly Reader's classroom
periodicals are then further segmented according to penetration levels for each
elementary school grade or middle or secondary school subject area. The timing
of mailings, inclusion of product samples and timing and amount of discounts
offered, among other things, vary depending on which segment is being targeted.
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World Almanac also uses direct mail to generate sales. For example, Facts On
File News Services uses direct mailings for general product announcements, to
generate sales leads and for order procurement from new customers. The strategy
for attracting new customers consists of using targeted direct mail, followed by
telesales calls from representatives who are recruited and trained by Facts On
File News Services. World Almanac's World Almanac Education also uses direct
mail to sell its products. This division of World Almanac has developed a
sophisticated database over five years that tracks customers and purchasing
habits, including monetary value of an average purchase and other relevant
factors, which it uses to target customers with the appropriate catalogs. Most
of World Almanac Education's sales are generated from mailings of its main
catalog, which is sent to existing customers, and its prospect catalog, which is
mailed to prospective customers. World Almanac mailed approximately 1.9 million
direct mail pieces in 1998, including 1.6 million catalogs.
American Guidance printed and mailed more than one million promotional
pieces and 1.6 million catalogs in 1998, aimed at developing customer leads,
spurring direct-response sales and building overall marketplace awareness of its
brand and products. CompassLearning also sells its products with the aid of
mailings and catalogs targeted at smaller schools and school districts. World
Almanac's Funk & Wagnalls primarily markets its yearbooks to former subscribers
of its previously published print format encyclopedia using direct mail.
TELEMARKETING. Telemarketing involves the use of the telephone to contact
current and prospective customers as a means of generating sales. World
Almanac's Gareth Stevens, Inc. and Facts On File News Services utilize this
marketing technique to a significant extent, while CompassLearning, Weekly
Reader and World Almanac Education use it to a lesser extent.
Gareth Stevens, Inc.'s marketing strategy consists primarily of selling
products through its active and growing telemarketing program. Telemarketing
representatives generate approximately 57% of all Gareth Stevens, Inc. sales by
contacting existing and prospective accounts to solicit commitments to preview
Gareth Stevens, Inc. titles. Through the preview process, librarians are invited
to receive copies of Gareth Stevens, Inc. titles or the third-party titles it
distributes. The librarians then have the opportunity to review actual copies of
the selected titles at their convenience. Gareth Stevens, Inc. telemarketers
follow up with these librarians over a specified time period to ensure that the
product has been received and reviewed. Librarians have purchased an average of
23% of the titles they previewed for the period 1996 to 1998. Any titles not
selected for purchase are picked up from the librarian's location, with all
postage and handling expenses borne by Gareth Stevens, Inc.
CompassLearning's telemarketing group, comprised of ten people, assists its
direct sales force by pursuing sales leads generated at educational conferences
or through other means and also promotes renewal sales of professional
development and technical support services contracts. World Almanac's Facts On
File News Services' strategy for attracting new customers consists of using
targeted direct mail, followed by telemarketing calls from representatives who
are recruited and trained by Facts On File News Services. World Almanac
Education also has recently begun using telemarketing to promote its products.
Weekly Reader's telemarketing efforts, conducted externally by contractors, are
used to assist in the generation of renewal sales.
DIRECT SALES FORCES. American Guidance, CompassLearning and Weekly Reader's
Lifetime Learning Systems, Inc. each primarily use a direct sales force to sell
and market their products.
To market its testing and supplemental instructional materials, American
Guidance pursues a strategy of developing strong relationships with its current
and prospective customers primarily by using its sales organization, consisting
of:
- 21 field sales representatives;
- 13 telephone sales representatives; and
- four managers.
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These representatives work closely with schools to determine which of American
Guidance's products best serve the needs of a specific school's student body.
Unlike traditional telemarketing, American Guidance's telephone sales
representatives develop relationships with customers and occasionally make field
visits. All of American Guidance's sales representatives go through a training
process with defined objectives that they must satisfy during the initial six
months of their employment and each year thereafter. In addition, American
Guidance enlists professionals on a per diem basis to provide instruction to
educators concerning test administration, scoring and other professional
training such as disciplinary methods and substance abuse and violence
prevention techniques.
CompassLearning uses a three-pronged approach to sales and service that
provides every customer with a sales contact, an educational consultant and a
technology support person for comprehensive customer service. It maintains a
direct sales force of 65 sales representatives. The sales representatives are
each assigned to a sales region within the United States. Each member of the
direct sales force has access to CompassLearning's database of detailed
information concerning the school districts, current customers, school funding
and other data for its sales territories. On the basis of this information, the
sales representatives seek to establish relationships with, and brand awareness
for, CompassLearning's products among existing and potential customers in their
respective districts by making personal sales visits to the schools or school
administrators.
Weekly Reader's Lifetime Learning Systems, Inc. has a dedicated marketing
and sales team of eight people who make presentations directly to potential
corporate, trade association and not-for-profit organization clients.
Presentations generally consist of proposals for education materials and
programs to be shipped free to teachers and schools under the client's
sponsorship.
RETAIL MARKETING/WHOLESALERS. Approximately 66% of World Almanac Books'
products are sold through retail bookstores or through wholesalers into
mass-market locations such as supermarkets and newsstands. World Almanac Books'
products are also sold to book clubs and other resellers as well as into
libraries through World Almanac Education. In addition, Gareth Stevens, Inc.
distributes approximately 30% of its products through its network of wholesalers
to libraries.
INTERNET WEB SITES. Each of Weekly Reader, American Guidance and World
Almanac have free Internet web sites, which allow customers to order their
products. The Weekly Reader web site:
- features pages specifically addressing students, teachers, and parents;
and
- offers materials in the form of puzzles, experiments and games that
correlate with the content of Weekly Reader periodicals.
The American Guidance web site, launched in 1996, provides extensive company
information, customer service information, order placement information and a
complete description of its products. The World Almanac web site offers Internet
ordering for World Almanac Education.
SHIPMENT. Our periodicals are typically shipped second class mail directly
from the location at which they were printed. TEEN NEWSWEEK, however, is
delivered by truck and/or air directly to United States Postal Service bulk mail
centers to speed delivery using NEWSWEEK'Sdistribution network. Our other print
materials are typically delivered by fourth class mail or, in some cases, by the
United Parcel Service or other courier services. Since 1986, we have distributed
FACTS ON FILE WORLD NEWS DIGEST through third parties which provide electronic
on-line delivery of databases to libraries and have paid such distributors a
royalty for each subscription. Because we have now developed our own Internet
delivery format, we expect our use of these distributors to decline.
COMPETITION
WEEKLY READER. Our primary competitors in the Pre K-12 classroom
periodicals market are Scholastic Inc. and Time, Inc. These publishers together
with Weekly Reader constitute virtually the
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entire market of periodicals targeted for Pre K-12 classrooms. Scholastic Inc.
publishes six editions in the elementary school market and eight editions in the
middle and secondary school market. Time, Inc. publishes two editions in the
elementary school market and no editions in the middle and secondary school
market. Competition in the school periodicals market is based primarily on:
- content;
- reputation; and
- customer service.
In skills books we compete with many large and small publishers, primarily on
the basis of:
- subject matter expertise;
- breadth of offerings; and
- price.
Finally, in the Lifetime Learning Systems, Inc. business, we compete primarily
with Scholastic Inc., as well as with other regional competitors. Competition in
this business is based primarily on distribution capability and cost.
AMERICAN GUIDANCE. In the assessment area, our principal competitors are
The Psychological Corporation, The Riverside Publishing Company and
CTB/McGraw-Hill. These companies focus mainly on norm reference achievement
tests, which are administered in large groups, while individually administered
assessment tests, our target market, represent a secondary product line. In the
individually administered assessment test market, where quality and reputation
are the primary decision criteria, we have been providing market leading
materials for over 35 years. In the supplemental print instructional materials
market, we compete directly with Globe-Fearon Inc., which also targets
low-performing students. Other competitors include Steck-Vaughn Company,
Scholastic Inc., NTC/Contemporary Publishing Group, Inc. and other large and
small publishers which have some products for low-performing students, but none
of these large publishers focus exclusively on low-performing students as we do.
COMPASSLEARNING. Within the supplemental electronic instructional materials
market, we compete primarily with other providers of integrated curriculum
software and, to a lesser extent, with independent software vendors and
traditional print education publishers. Our primary competitors are:
- Pearson Education;
- TRO Learning Inc.;
- Broderbund Software, Inc.;
- Educational Resources;
- McGraw-Hill School Division;
- Edmark Corporation;
- American Education Company;
- Knowledge Adventure, Inc.; and
- Advantage Learning Systems, Inc.
Competition in the supplemental electronic instructional materials market is
based primarily upon product effectiveness, design flexibility and relationships
with customers.
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WORLD ALMANAC. World Almanac Education is a niche player in the school and
public library distribution business. Competitors range from full service
distributors, such as Follet Library Resources and Baker & Taylor Corporation,
to smaller ones such as Gumdrop Books, Inc. and Davidson Publishing, Inc. World
Almanac Education competes with larger distributors by providing:
- more product information;
- better customer service; and
- a pre-screened selection of the season's titles.
Gareth Stevens, Inc. competes in the K-12 nonfiction and fiction publishing
segment of this market which is highly fragmented with many competitors ranging
from small publishers focused exclusively on the library market to large
publishers which also sell into the trade market. Competition in the electronic
reference materials category is somewhat more concentrated. Some of the larger
competitors in this category include The Gale Group, Inc., EBSCO
Industries, Inc., Online Computer Library Center, Incorporated (a not-for-profit
organization) and UMI Company. Products sold to school and public libraries tend
to be less price sensitive than in a consumer market. The WORLD ALMANAC AND BOOK
OF FACTS competes primarily with the three other almanacs currently available:
- THE TIME/INFORMATION PLEASE ALMANAC;
- THE NEW YORK TIMES ALMANAC; and
- THE WALL STREET JOURNAL ALMANAC.
We believe that our almanac has a market share greater than 70%. THE WORLD
ALMANAC FOR KIDS competes primarily with SCHOLASTIC KID'S ALMANAC FOR THE 21ST
CENTURY, which was introduced in 1999. We believe our almanac for kids has a
market share greater than 70%. Competition in all of these segments is primarily
based on reputation and brand names of products, the length of time products
have been on the market and the uniqueness of a product.
PRODUCTION, FULFILLMENT AND CUSTOMER SERVICE
All of our print products are printed and bound by third parties with whom
we have contracts. We believe that outside printing and binding services at
competitive prices are available, and we currently use a different printer for
each product line. Most of our pre-press production, typesetting, layout and
design functions are conducted in-house, with the exception of American Guidance
where some pre-press and product assembly is conducted by third-party vendors.
Our non-print products, such as Lifetime Learning Systems, Inc.'s videos and
CompassLearning's CD-ROMs, are produced internally and, if necessary, replicated
by third parties. Certain of World Almanac's divisions rely on internal
production capabilities while others utilize third-party manufacturers.
The principal raw materials utilized in our products are paper and ink.
Paper is purchased by Weekly Reader and several of World Almanac's divisions
from suppliers directly based on pricing and, to a lesser extent, availability,
while American Guidance purchases paper from the printers of its publications.
Ink utilized by our publications is provided by the respective printers of our
publications and included in the cost of print production. Both paper and ink
are commodity products which are affected by demand, capacity and economic
conditions. We believe that adequate sources of supply are, and will continue to
be, available to fulfill our requirements.
Order processing, customer service, cash application, collection functions
and fulfillment are typically performed at separate locations for each of our
operating subsidiaries, including at:
- Delran, New Jersey for Weekly Reader;
- Circle Pines, Minnesota for American Guidance;
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- Phoenix, Arizona, Springfield, Illinois and San Diego, California for
CompassLearning; and
- Mahwah, New Jersey, Milwaukee, Wisconsin, New York, New York and
Cleveland, Ohio for World Almanac.
However, fulfillment and customer service for some of World Almanac's products
are conducted by third parties. In 1998, a new and improved fulfillment system
was installed for Weekly Reader in Delran, New Jersey at a cost of
$1.5 million. This system is client server based, reducing maintenance and
operating costs, and provides electronic access to customer information,
including past purchases, as well as automated cash application and improved
collection processes.
SEASONALITY
Our operating results have varied and are expected to continue to vary from
quarter to quarter as a result of seasonal patterns. Weekly Reader's and
CompassLearning's sales are significantly affected by the school year. Weekly
Reader's sales in the third, and to a lesser extent the fourth, quarter are
typically the strongest as products are shipped for delivery prior to the start
of the school year. CompassLearning's sales are typically strongest in the
second quarter, and to a lesser extent the fourth quarter. CompassLearning's
sales are generally strongest in the second quarter because schools frequently
couple funds from two budget years, which typically end on June 30 of each year,
to make significant purchases, such as purchases of CompassLearning's electronic
courseware, and because by purchasing in the second quarter, schools are able to
have the software products purchased installed over the summer and ready to
train teachers when they return from summer vacation. CompassLearning's fourth
quarter sales are strong as a result of sales patterns driven in part by its
commissioned sales force seeking to meet year end sales goals as well as by
schools purchasing software to be installed in time for teachers to be trained
prior to the end of the school year in June.
INTELLECTUAL PROPERTY
WEEKLY READER. Each printed periodical or skills book is copyrighted by
Weekly Reader, including any materials written by freelance or third-party
contract writers. Photographs or artwork used in our products are typically used
pursuant to one-time licenses which grant us the right to use the photograph or
artwork in the particular product and within the United States only. Some
material from third parties is reprinted with permission for one-time use.
Ownership of the intellectual property rights in the materials produced by
Lifetime Learning Systems, Inc. are negotiated on a case by case basis with each
sponsor.
AMERICAN GUIDANCE. Our tests, the accompanying score sheets and test record
forms, and supplemental instructional materials all have registered copyrights.
Some material from third parties is reprinted with permission for one-time use.
In addition, certain products use registered trademarks.
COMPASSLEARNING. CompassLearning's computer software products are
copyrighted by CompassLearning. In addition, we periodically obtain permission
to use excerpts of third-party materials on an ongoing basis in certain of our
products or obtain a license from such parties to act as a distributor of their
products. Furthermore, in connection with WRC Media's acquisition of
CompassLearning, it was granted an exclusive license to use certain trademarks
owned by Jostens, Inc., the former parent company of CompassLearning, including
"Jostens Learning" and "Jostens Learning Corporation." Pursuant to the terms of
the license agreement, our right to use these trademarks expires on
December 31, 2000. In connection with the expiration of these licenses, we
intend to change the name of CompassLearning and are currently considering
potential names. We do not believe that the loss of these trademarks or the
change of name will have a material adverse effect on our business.
WORLD ALMANAC. World Almanac has registered copyrights for THE WORLD
ALMANAC AND BOOK OF FACTS, THE WORLD ALMANAC FOR KIDS, all Facts On File News
Services products other than EDITORIALS ON
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FILE (which consists of editorials reprinted with permission), all Gareth
Stevens, Inc. books which are written in-house or with outside work-for-hire
authors, the FUNK & WAGNALLS ENCYCLOPEDIA database and the World Almanac
Education catalogs. World Almanac is typically a licensee of the content of the
remainder of its products, other than products it solely distributes, in which
it has no intellectual property rights. With respect to all other products,
World Almanac is the distributor only with no rights with respect to the content
of the products.
OTHER. From 1991 until November 1999, Weekly Reader and World Almanac were
owned by PRIMEDIA. Subsequent to its acquisition in 1998 and through
November 1999, American Guidance was owned by PRIMEDIA. Under the
recapitalization agreement with PRIMEDIA described under "Transactions," we must
cease any use of PRIMEDIA name in connection with any of our operations. As a
result, we changed the name of PRIMEDIA Reference Inc. to World Almanac
Education Group, Inc. on December 23, 1999 which we refer to as "World Almanac"
throughout this prospectus. Similarly, prior to July 1999, CompassLearning was
owned by Jostens, Inc. Under the trademark license agreement dated June 2, 1999
with Jostens, Inc., we must cease any use of the name "Jostens" among other
trademarks, in connection with our operations by December 31, 2000. As a result,
we changed the name of JLC Learning Corporation to CompassLearning, Inc. as of
January 24, 2000, which we refer to as "CompassLearning" throughout this
prospectus. We do not believe that the change of the name under which World
Almanac or CompassLearning conduct business, or any other effect of ceasing to
use PRIMEDIA's or Josten's name in connection with our business, will have a
material adverse affect on our business.
ENVIRONMENTAL MATTERS
We are subject to environmental laws and regulations relating to the
protection of the environment, including those that regulate the generation and
disposal of hazardous materials and worker health and safety. We believe that we
currently conduct our operations in substantial compliance with applicable
environmental laws and regulations. Based on our experience to date, the nature
of our operations and our environmental indemnity from PRIMEDIA, we believe that
the future cost of compliance with existing environmental laws and regulations
and liability for known environmental claims will not have a material adverse
effect on our financial condition or results of operations.
EMPLOYEES
We have a total of approximately 1,100 employees. None of our employees are
represented by any union or other labor organization, and we have had no recent
strikes or work stoppages and believe our relations with our employees are good.
PROPERTIES
We own 10,000 square feet of office space in Minnesota. In addition to our
owned property, we will lease an aggregate of approximately 446,000 square feet
of office, warehouse and mixed use space in New York, Connecticut, Kentucky,
California, Arizona, Illinois, Minnesota, Georgia, West Virginia, Florida, New
Jersey, Ohio and Wisconsin.
LITIGATION
From time to time, we are involved in litigation that we consider to be in
the normal course of business. However, we are not presently involved in any
legal proceedings which we expect individually or in the aggregate to have a
material adverse effect on our financial condition, results of operations or
liquidity.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information with respect to the persons who,
as of the date of this prospectus, were serving as Directors and executive
officers of each of WRC Media, Weekly Reader and CompassLearning, as well as
those executive officers and employees of American Guidance, World Almanac,
Lifetime Learning Systems, Inc. and Gareth Stevens, Inc. who make significant
contributions to our business. Each Director will hold office until the next
annual meeting of shareholders or until his successor has been elected and
qualified.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- -------- --------
<S> <C> <C>
Timothy C. Collins........................ 43 Director, WRC Media, Weekly Reader and
CompassLearning
D. Ronald Daniel.......................... 69 Non-Executive Chairman, WRC Media, Weekly
Reader and CompassLearning
Ralph D. Caulo............................ 61 Non-Executive Vice-Chairman, WRC Media
Charles L. Laurey......................... 29 Director, WRC Media, Weekly Reader and
CompassLearning; and Secretary, WRC Media,
Weekly Reader and CompassLearning
Robert S. Lynch........................... 42 Director, WRC Media, Weekly Reader and
CompassLearning; Vice President, WRC Media
and CompassLearning; and Treasurer, WRC
Media, Weekly Reader and CompassLearning
Martin E. Kenney, Jr...................... 52 Director, WRC Media, Weekly Reader and
CompassLearning; Chief Executive Officer,
WRC Media; Executive Vice President,
Weekly Reader and CompassLearning
James N. Lane............................. 48 Director, WRC Media, Weekly Reader and
CompassLearning
William F. Dawson, Jr..................... 35 Director, WRC Media, Weekly Reader and
CompassLearning
Peter E. Bergen........................... 47 President and Chief Executive Officer,
Weekly Reader
Robert J. Jackson......................... 45 Executive Vice President, Weekly Reader
Lester Rackoff............................ 50 Executive Vice President and Chief
Financial Officer, Weekly Reader
Kenneth P. Slivken........................ 45 Senior Vice President, Weekly Reader
Sandra F. Maccarone....................... 61 Senior Vice President and Editor in Chief,
Weekly Reader
Thaddeus C. Kozlowski..................... 47 Senior Vice President and Group Product
Director, Elementary, Weekly Reader
Eric M. Ecker............................. 47 Vice President and Group Product Director,
Secondary, Weekly Reader
</TABLE>
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<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- -------- --------
<S> <C> <C>
Dr. Therese K. Crane...................... 49 President, CompassLearning
Joyce F. Russell.......................... 47 Senior Vice President and Chief Financial
Officer, CompassLearning
Timothy Conroy............................ 41 Executive Vice President and General
Manager, CompassLearning
Michael W. DePasquale..................... 45 Senior Vice President, Sales,
CompassLearning
Nancy G. Lockwood......................... 52 Senior Vice President, Product
Development, CompassLearning
C. Michael Hayes.......................... 50 Senior Divisional Sales Vice President,
CompassLearning
R. Alfred Knechel......................... 47 Regional Vice President, CompassLearning
Edward P. Ponikvar, Jr.................... 31 Regional Marketing Executive,
CompassLearning
Larry J. Rutkowski........................ 51 President and Chief Executive Officer,
American Guidance
Gerald G. Adams........................... 51 Executive Vice President Finance and Chief
Financial Officer, American Guidance
Alfred De Seta............................ 37 President, World Almanac
Janice P. Bailey.......................... 35 Vice President and Chief Financial
Officer, World Almanac
Terry Bromberg............................ 48 President, Lifetime Learning Systems, Inc.
Leigh Ann Price........................... 41 Director, Client Services, Lifetime
Learning Systems, Inc.
</TABLE>
TIMOTHY C. COLLINS, DIRECTOR, WRC MEDIA, WEEKLY READER AND
COMPASSLEARNING. Since June 2, 1999, Timothy C. Collins has served as a
Director of WRC Media and CompassLearning. Mr. Collins was named a Director of
Weekly Reader as of November 17, 1999. Since October 1995, he has served as
Senior Managing Director and Chief Executive Officer of Ripplewood Holdings
L.L.C., which specializes in private equity investments, and is the general
partner of Ripplewood Partners, L.P. which controls EAC III, the majority owner
of WRC Media. He currently serves as Co-head of RHJ Industrial Partners, an
investment fund managed by Ripplewood Holdings L.L.C., with which he has been
affiliated since November 1999. In October 1995, he founded Ripplewood Holdings
L.L.C., to continue the industrial partnership approach to leveraged
acquisitions pioneered at Onex Corporation where he served as Senior Managing
Director from January, 1990 until September, 1995. Prior to joining Onex
Corporation, he was a Vice President at Lazard Freres & Company.
D. RONALD DANIEL, NON-EXECUTIVE CHAIRMAN, WRC MEDIA, WEEKLY READER AND
COMPASSLEARNING. As of November 17, 1999, Mr. Daniel was named Non-Executive
Chairman of WRC Media, Weekly Reader and CompassLearning. Mr. Daniel is a
Director of McKinsey & Company, Inc., having served as Managing Director from
1976 to 1988. He has been a management consultant for over 42 years. He serves
as the non-executive chairman of Ripplewood Holdings L.L.C., which specializes
in private equity investments, and is the general partner of Ripplewood
Partners, L.P., which controls EAC III, the majority owner of WRC Media. Since
September 1998, he has served as an advisory board member of IMG Chase Sports
Capital, LLC. Since October 1997, Mr. Daniel has served on the Board of
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Directors of TRICON Global Restaurants, Inc. He has also served on the Board of
Directors of Alliant FoodService since 1996. In addition, he serves as Treasurer
of Harvard University, a member of Harvard University's seven-person
Corporation, a member of the Harvard University Board of Overseers, Chairman of
the Harvard Management Company and Chairman of the Board of Fellows of the
Harvard Medical School.
RALPH D. CAULO, NON-EXECUTIVE VICE-CHAIRMAN, WRC MEDIA. As of January 15,
2000, Mr. Ralph D. Caulo was named Non-Executive Vice-Chairman of WRC Media.
Since 1998, Mr. Caulo has served as an outside consultant at Ripplewood Holdings
L.L.C., which specializes in private equity investments, and is the general
partner of Ripplewood Partners, L.P. which controls EAC III, the majority owner
of WRC Media. From 1991 to 1998, Ralph Caulo held the dual position of Executive
Vice President of Simon & Schuster and President of its Educational Publishing
Group. In this position, Mr. Caulo oversaw one of the world's largest
educational publishers and its Allyn & Bacon, Prentice Hall, Silver Burdett
Ginn, Modern Curriculum, Computer Curriculum Corporation (CCC) and Educational
Management Group (EMG) imprints. From 1989 until 1991, Mr. Caulo was President
and Chief Executive Officer of Harcourt Brace Jovanovich. He began his career at
Harcourt Brace Jovanovich in sales in 1974, and then moved through marketing,
editorial, development and senior management to become President and Chief
Operating Officer in 1988. See "Certain Relationships and Related
Transactions--Other Transactions."
CHARLES L. LAUREY, DIRECTOR, WRC MEDIA, WEEKLY READER AND COMPASSLEARNING
AND SECRETARY, WRC MEDIA, WEEKLY READER AND COMPASSLEARNING. Since June 2,
1999, Charles L. Laurey has served as a Director of WRC Media and
CompassLearning. As of November 17, 1999, Mr. Laurey was named a Director of
Weekly Reader and Secretary of CompassLearning and Weekly Reader. In
October 1997, he joined Ripplewood Holdings L.L.C., which specializes in private
equity investments and is the general partner of Ripplewood Partners, L.P. which
controls EAC III, the majority owner of WRC Media. Prior to joining Ripplewood
Holdings L.L.C., Mr. Laurey worked from August 1994 until September 1997 in
Morgan Stanley & Co.'s Corporate Finance Department in New York and in the
Mergers, Acquisitions and Restructurings Department in London, most recently as
an associate. He started his career as a strategy consultant in The Hague, The
Netherlands.
ROBERT S. LYNCH, DIRECTOR, WRC MEDIA, WEEKLY READER AND COMPASSLEARNING,
VICE PRESIDENT, WRC MEDIA AND COMPASSLEARNING, AND TREASURER, WRC MEDIA, WEEKLY
READER AND COMPASSLEARNING. Since June 2, 1999, Robert S. Lynch has served as a
Director of WRC Media and CompassLearning. As of November 17, 1999, Mr. Lynch
was named a Director of Weekly Reader, Vice President of WRC Media and
CompassLearning and Treasurer of WRC Media, Weekly Reader and CompassLearning.
Mr. Lynch joined Ripplewood Holdings L.L.C., which specializes in private equity
investments and is the general partner of Ripplewood Partners, L.P. which
controls EAC III, the majority owner of WRC Media, in April 1998 where he serves
as Chief Financial Officer. He was a partner at Arthur Andersen L.L.P. where he
was in charge of the Metropolitan New York Industrial Products Industry Program
from 1990 until April 1998.
MARTIN E. KENNEY, JR., DIRECTOR, WRC MEDIA, WEEKLY READER AND
COMPASSLEARNING, CHIEF EXECUTIVE OFFICER, WRC MEDIA, AND EXECUTIVE VICE
PRESIDENT, WEEKLY READER AND COMPASSLEARNING. Since July 13, 1999 Martin E.
Kenney, Jr. has served as a Director of WRC Media and CompassLearning. As of
November 17, 1999, Mr. Kenney was named Chief Executive Officer of WRC Media, a
Director of Weekly Reader and Executive Vice President of Weekly Reader and
CompassLearning. He has held several executive and management positions,
including serving as Executive Vice President of the Education Publishing Group
and President of the Education Technology Group both from May 1995 to
December 1998 at Simon & Schuster. From May 1994 to May 1995, he held the dual
positions of President of the Business, Training and Healthcare Group and Senior
Vice President of Marketing at Simon & Schuster.
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JAMES N. LANE, DIRECTOR, WRC MEDIA, WEEKLY READER AND
COMPASSLEARNING. Since July 13, 1999, James N. Lane has served as a Director of
WRC Media. As of November 17, 1999, Mr. Lane was named a Director of Weekly
Reader and CompassLearning. Since August 1998, he has served as President and
Chief Executive Officer of SG Capital Partners LLC which is the general partner
of SG Merchant Banking Fund L.P. which controls SGC Partners II LLC, which in
turn owns 24.7% of WRC Media common stock. He has also served as the Head of
Merchant Banking for Societe Generale Groupe in the Americas since March 1997.
Prior to joining Societe Generale, his career spanned approximately 20 years at
Goldman Sachs & Co., where he was a General Partner, a founding member and
co-head of the Principal Investment Area, and managed the Leveraged Finance
Group in New York and the European Corporate Finance and Merchant Banking
businesses in London.
WILLIAM F. DAWSON, JR., DIRECTOR, WRC MEDIA, WEEKLY READER AND
COMPASSLEARNING. As of November 17, 1999, William F. Dawson, Jr., was named a
Director of WRC Media, Weekly Reader and CompassLearning. Since January 2000,
Mr. Dawson has been a Managing Director of DLJ Merchant Banking Partners II,
L.P., an equity investment fund which acquired 37.8% of the old senior preferred
stock pursuant to the transactions described under "Transactions." From August
1997, to January 2000, he was a principal of DLJ Merchant Banking Partners II,
L.P. From December 1995 to August 1997, he was a Senior Vice President in
Donaldson Lufkin & Jenrette, Inc.'s high yield capital markets group. Prior to
that time, Mr. Dawson was a Vice President in the leveraged finance group within
Donaldson, Lufkin & Jenrette, Inc.'s investment banking group. Mr. Dawson serves
as Director of Thermadyne Holdings Corporation, Von Hoffmann Press, Inc. and
Insilco Corporation.
PETER E. BERGEN, PRESIDENT AND CHIEF EXECUTIVE OFFICER, WEEKLY
READER. Peter E. Bergen was named President and Chief Executive Officer of
Weekly Reader in April 1998. He has held several executive and management
positions, including serving as Chief Executive Officer from March, 1992 to
October, 1997 at Krames Communications, Inc., a publishing company, which
PRIMEDIA owned until 1997. From 1989 to 1992, he held positions at Newbridge
Communications, Inc., a book club and continuity publisher, where he helped
start Newbridge Educational Publishing, serving as Vice President of New Member
Marketing and Senior Vice President of Marketing. From 1979 to 1989, he served
as Advertising Manager and Director of Advertising at Macmillan Book
Clubs, Inc., a publishing company. He began his career at publisher Doubleday
and Company.
ROBERT J. JACKSON, EXECUTIVE VICE PRESIDENT, WEEKLY READER. As of
November 17, 1999, Robert J. Jackson was named Executive Vice President of
Weekly Reader. Since 1974, when he joined Funk & Wagnalls Yearbook Corp., now a
subsidiary of World Almanac, he has held several executive and management
positions, including serving as Vice President and Chief Financial Officer of
PRIMEDIA's Supplemental Education Group during 1998 and 1999 and as Chief
Operating Officer of World Almanac from November, 1995 to December, 1997.
LESTER RACKOFF, EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER, WEEKLY
READER. Lester Rackoff was hired as Senior Vice President and Chief Financial
Officer of Weekly Reader in August 1998. In January, 2000 he was promoted to
Executive Vice President and Chief Financial Officer. He has held several
executive and management positions, including serving as Chief Financial Officer
at Grolier, Inc., a publisher, from May, 1994 to February, 1998 and Chief
Financial Officer at Macmillan Publishing Co., a publisher, from 1991 to 1994.
Since leaving public accounting twenty-five years ago to join Macmillan
Publishing Co., he has spent virtually his entire career in publishing.
KENNETH P. SLIVKEN, SENIOR VICE PRESIDENT, WEEKLY READER. As of
November 17, 1999, Kenneth P. Slivken was named Senior Vice President of Group
Human Resources of Weekly Reader. From 1996, when he joined PRIMEDIA, until
November 1999, he held several executive and management positions, including
Vice President of Human Resources for PRIMEDIA's Information Group, Vice
President of Human Resources for PRIMEDIA's Supplemental Education Group and
Director of Employee Benefits. Before joining PRIMEDIA, he was Vice President of
Human Resources and Corporate Secretary for Brooks Fashion Stores, a retailer,
from 1987 to 1996.
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SANDRA F. MACCARONE, SENIOR VICE PRESIDENT AND EDITOR IN CHIEF, WEEKLY
READER. In February, 1998 Sandy Maccarone was appointed Senior Vice President
and Editor in Chief of Weekly Reader. From May, 1992 when she joined Weekly
Reader until February, 1998, Ms. Maccarone served as Vice President and Editor
in Chief of Weekly Reader.
THADDEUS C. KOZLOWSKI, SENIOR VICE PRESIDENT AND GROUP PRODUCT DIRECTOR,
WEEKLY READER. On June 6, 1998, Thaddeus Kozlowski was named Senior Vice
President and Group Product Director of Weekly Reader. From June 28, 1993 when
Mr. Kozlowski joined the company, until June 22, 1998 he served as a Vice
President and Group Product Director of Weekly Reader.
ERIC M. ECKER, VICE PRESIDENT AND GROUP PRODUCT DIRECTOR, SECONDARY, WEEKLY
READER. Eric Ecker has served as Vice President of Weekly Reader since
July 1993. He has held a number of increasingly responsible management
positions, including Marketing Director and Group Product Manager, since he
joined Weekly Reader in 1980. Prior to joining Weekly Reader, he worked for
Hearst Magazines as Circulation Marketing Manager.
DR. THERESE K. CRANE, PRESIDENT, COMPASSLEARNING. Dr. Therese K. Crane has
been President of CompassLearning since 1997. She has more than 25 years of
experience as an educator (teacher and principal) and as a business executive.
Prior to joining CompassLearning, she led Apple Computer Inc.'s
multibillion-dollar education division from July, 1994 to June, 1996. She was
also the 1998 Co-Chairman of the National CEO Forum for Education and Technology
and Chairman of the National School Boards Foundation Board of Trustees.
JOYCE F. RUSSELL, SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER,
COMPASSLEARNING. As of November 17, 1999, Joyce F. Russell was named Senior
Vice President, Finance and Administration, and Chief Financial Officer of
CompassLearning. She has been Chief Financial Officer of CompassLearning since
1995. Ms. Russell served as Vice President of CompassLearning from July, 1997 to
November, 1999 and as Secretary from July, 1996 to July, 1999. She joined
CompassLearning in August, 1994 as Chief Administrative Officer, a position she
held until October, 1995. Prior to joining CompassLearning, Ms. Russell held
several executive and management positions, including serving as Controller of
the U.S. Engineering and Product Management Division from 1990 to 1994, the
Director of Administrative Operations from 1989 to 1990 and the Manager of
Financial Operations in the South Central/West from 1987 to 1989, in each case
at Bull HN Information Systems Inc./ Honeywell, an information technology
company.
TIMOTHY CONROY, EXECUTIVE VICE PRESIDENT AND GENERAL MANAGER,
COMPASSLEARNING. On January 24, 1999, Timothy Conroy began work as Executive
Vice President and General Manager of CompassLearning. Prior to joining
CompassLearning, he held several senior management positions with Simon &
Schuster Education Group including, from February 1995 to July 1999, Chief
Financial Officer--Educational Management Group and, from November 1990 to
February 1995, Corporate Controller--Computer Curriculum Corporation.
MICHAEL W. DEPASQUALE, SENIOR VICE PRESIDENT, SALES,
COMPASSLEARNING. Michael DePasquale has been Senior Vice President, Sales, of
CompassLearning since December, 1996. From December 1994 until joining
CompassLearning, Mr. DePasquale served as a Senior Vice President responsible
for sales and marketing at The McGraw Hill Companies, a publishing company.
NANCY G. LOCKWOOD, SENIOR VICE PRESIDENT, PRODUCT DEVELOPMENT,
COMPASSLEARNING. Nancy Lockwood has served as Senior Vice President, Product
Development of CompassLearning since December 1995. From December 1992 until
joining CompassLearning, she served as Senior Vice President in charge of
software development for The McGraw-Hill Companies, a publishing company.
C. MICHAEL HAYES, SENIOR DIVISIONAL SALES VICE PRESIDENT,
COMPASSLEARNING. Michael Hayes has served CompassLearning for over twelve
years. Mr. Hayes joined CompassLearning in February 1988 as the Vice President
of Educational Technology. From September, 1994 to August, 1995 he served as the
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Area Vice President of Sales. From August, 1995 to July, 1997 he served as the
Regional Vice President of Sales. In July, 1997 he became the Senior Divisional
Sales Vice President.
R. ALFRED KNECHEL, REGIONAL VICE PRESIDENT, COMPASSLEARNING. R. Alfred
Knechel has served as Regional Vice President of CompassLearning since
January 2000. From October 1984 to January 2000, he served as Area Vice
President. In these positions, he has concentrated on sales.
EDWARD P. PONIKVAR, JR., REGIONAL MARKETING EXECUTIVE,
COMPASSLEARNING. Edward P. Ponikvar, Jr. has served as Regional Marketing
Executive of CompassLearning since 1998. Serving as such, Mr. Ponikvar has
generated more revenue for CompassLearning than any other employee. Since he
began his career at CompassLearning in 1988 until his appointment to Regional
Marketing Executive, Mr. Ponikvar held several positions at CompassLearning
including Technician, System Engineer, Project Manager and Regional Marketing
Manager.
LARRY J. RUTKOWSKI, PRESIDENT AND CHIEF EXECUTIVE OFFICER, AMERICAN
GUIDANCE. Larry Rutkowski has been President and Chief Executive Officer of
American Guidance since January 1999. Since joining American Guidance in 1993 as
Vice President of Sales and Marketing, he also served as Vice President and
Publisher from January 1996 to January 1999, pursuant to which he was
responsible for development, marketing and sale of all products. Prior to
joining American Guidance, he served as Vice President and Director of Sales at
NTC Publishing Group where he was responsible for school, college, library,
trade, business-to-business, special markets and international sales. He has
also been a teacher and principal.
GERALD G. ADAMS, EXECUTIVE VICE PRESIDENT FINANCE AND CHIEF FINANCIAL
OFFICER, AMERICAN GUIDANCE. Gerald G. Adams has been Executive Vice President
Finance and Chief Financial Officer of American Guidance since July, 1996. He
joined American Guidance as its Controller in April, 1992. Prior to joining
American Guidance, he served as Division Controller and Operations Finance
Director for Honeywell, Inc., a technology and manufacturing company, and as an
audit manager at Deloitte & Touche LLP, certified public accountants.
ALFRED DE SETA, PRESIDENT, WORLD ALMANAC. As of November 17, 1999, Alfred
De Seta was named President of World Almanac. Since joining World Almanac in
1993, he served as Director from 1993 to 1995, Vice President from 1995 to 1997
and General Manager and Senior Vice President from 1998 until November 1999.
Mr. De Seta played a key role in the acquisitions of Facts On File News Services
and Gareth Stevens, Inc. He also has had operational responsibility for World
Almanac Education, Facts On File News Services, World Almanac Books and, most
recently, Gareth Stevens, Inc. Prior to joining PRIMEDIA, he held several
positions at AT&T Bell Laboratories including Strategic Planning Manager,
Product Manager, and Systems Engineer.
JANICE P. BAILEY, VICE PRESIDENT AND CHIEF FINANCIAL OFFICER, WORLD
ALMANAC. Janice P. Bailey has been Vice President and Chief Financial Officer
of World Almanac since June 1997. Since joining World Almanac in January 1995,
she has held several management and executive positions, including Director,
Corporate Finance from January, 1995 to February, 1996 and Director of Corporate
Operations and Strategy from February, 1996 to June, 1997. Prior to joining
PRIMEDIA, she worked for General Motors, Inc. as a Senior Financial Analyst from
August, 1991 to January, 1995.
TERRY BROMBERG, PRESIDENT, LIFETIME LEARNING SYSTEMS, INC. Terry Bromberg
has been President of Lifetime Learning Systems, Inc. since January 1, 2000.
Since joining Lifetime Learning Systems, Inc. in May 1995, he has served in
several management positions including Sales Director from May 1995 to
January 1998, Vice President from January 1998 to September 1998 and Senior Vice
President from September 1998 to December 1999.
LEIGH ANN PRICE, DIRECTOR, CLIENT SERVICES, LIFETIME LEARNING
SYSTEMS, INC. Leigh Ann Price has been Director of Client Services of Lifetime
Learning Systems, Inc. since January 15, 1991. Prior to joining Lifetime
Learning Systems, Inc., she worked for the Zimmerman Group as a Senior Account
Executive from December, 1987 to July, 1990.
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EXECUTIVE COMPENSATION
The following table summarizes, for the fiscal year ended the last day of
December 1999, all plan and non-plan compensation awarded to, earned by, or paid
to (i) the chief executive officer of each registrant for fiscal year 1999,
(ii) the six most highly compensated executive officers other than the CEO of
Weekly Reader serving at the end of December 1999 in all capacities in which
they served (including those executive officers of World Almanac, American
Guidance, Gareth Stevens, Inc. and Lifetime Learning Systems, Inc. who performed
policy making functions for Weekly Reader and were serving as such at the end of
December 1999 in all capacities in which they served), (iii) the four most
highly compensated executive officers other than the president of
CompassLearning serving at the end of December 1999 in all capacities in which
they served and (iv) up to two additional individuals employed by each
registrant who were not serving as executive officers at the end of
December 1999 but received at least as much compensation as the fourth most
highly compensated executive officer of the registrant for whom they were
employed:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION AWARDS
------------------------------------ -----------------------------------------
SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
COMPENSATION OPTIONS/ COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($)(A) ($) SARS (#)(B) ($)
- --------------------------- -------- ---------- ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Martin E. Kenney, Jr........ 1999 209,983(c) 112,500(d) -- 204,294 765,000(e)
Chief Executive Officer
WRC Media, Executive Vice
President, Weekly Reader,
Executive Vice President,
CompassLearning
Dr. Therese K. Crane........ 1999 319,179(f) 109,890(g) -- 150,000 350,000(h)
President, CompassLearning
Peter E. Bergen............. 1999 250,000 100,922 -- 5,376 10,400(i)
President and Chief
Executive Officer, Weekly
Reader
Robert J. Jackson........... 1999 30,220(j) 114,400 -- 7,168 14,394(k)
Executive Vice President,
Weekly Reader
Lester Rackoff.............. 1999 175,000 60,553 -- 2,688 3,450(l)
Executive Vice President
and Chief Financial
Officer, Weekly Reader
Sandra F. Maccarone......... 1999 182,537(m) 41,480 -- 358 10,185(n)
Senior Vice President and
Editor in Chief, Weekly
Reader
Larry J. Rutkowski.......... 1999 260,000 182,650 11,507(o) 8,064 4,800(p)
President and Chief
Executive Officer,
American Guidance
</TABLE>
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<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION AWARDS
------------------------------------ -----------------------------------------
SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
COMPENSATION OPTIONS/ COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($)(A) ($) SARS (#)(B) ($)
- --------------------------- -------- ---------- ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Alfred De Seta.............. 1999 173,036(q) 83,793 -- 7,706 10,400(r)
President, World Almanac
Terry Bromberg.............. 1999 120,000 36,000 6,378(o) 358 7,501(s)
President, Lifetime
Learning Systems, Inc.
Gary Spears................. 1999 242,912(t) 55,391 5,755(o) -- 10,400(u)
President and Chief
Executive Officer, Gareth
Stevens, Inc.
Gerald G. Adams............. 1999 180,000 126,450 5,736(o) 717 4,800(p)
Executive Vice President
Finance and Chief
Financial Officer,
American Guidance
Leigh Ann Price............. 1999 62,928 -- -- -- 283,388(v)
Director, Client Services,
Lifetime Learning Systems,
Inc.
Joyce F. Russell............ 1999 191,611(w) 50,000 -- 62,500 240,000(x)
Senior Vice President and
Chief Financial Officer,
CompassLearning
Michael W. DePasquale....... 1999 180,007 25,000(y) -- 62,500 318,168(z)
Senior Vice President,
Sales, CompassLearning
Nancy G. Lockwood........... 1999 178,090(aa) 47,500(bb) -- 62,500 113,168(cc)
Senior Vice President,
Product Development,
CompassLearning
C. Michael Hayes............ 1999 150,006 -- -- 62,500 209,418(dd)
Senior Divisional Sales
Vice President,
CompassLearning
R. Alfred Knechel........... 1999 80,003 37,500(y) -- 17,500 288,146(ee)
Regional Vice President,
CompassLearning
Edward P. Ponikvar, Jr...... 1999 53,960 35,073(y) -- 5,000 333,913(ff)
Regional Marketing
Executive, CompassLearning
</TABLE>
- ------------------------
(a) Represent bonuses accrued in fiscal year 1999. Such bonuses will not be paid
until fiscal year 2000.
(b) See "--Option/SAR Grants in Last Fiscal Year".
(c) Mr. Kenney earned $151,644 during the period from July 16, 1999 until
November 16, 1999 for services provided to CompassLearning as Chief
Executive Officer based on an annual salary of $450,000. He earned $58,249
during the period from November 16 until December 31, 1999 for
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services provided as Chief Executive Officer of WRC Media, as Executive Vice
President of Weekly Reader and as Executive Vice President of
CompassLearning, based on an annual salary of $480,000.
(d) Represents a guaranteed bonus of $100,000 and an estimated additional bonus
payment of $12,500 based on the realization of performance targets still
subject to calculation as of the date of this prospectus.
(e) Represents a consulting fee of $140,000 and transaction fee of $625,000,
$300,000 of which was used to purchase 16,128 shares of WRC Media common
stock, realized in connection with the transactions described under
"Transactions."
(f) Ms. Crane earned $165,000 during the period from January 1, 1999 until
July 14, 1999 based on an annual salary of $310,000. She earned $153,959
during the period from July 15, 1999 until December 31, 1999 based on an
annual salary of $330,000.
(g) Represents a guaranteed bonus of $40,000 and an estimated additional bonus
payment of $69,890 based on the realization of performance targets still
subject to calculation as of the date of this prospectus.
(h) Represents a fixed sale bonus of $200,000 realized in connection with the
transactions described under "Transactions" and a retention bonus of
$150,000.
(i) Represents the fiscal year 1999 contribution by Weekly Reader to its 401(k)
plan of $4,800 and to a vested retirement plan of $5,600.
(j) Mr. Jackson began working for Weekly Reader on November 17, 1999, at an
annual salary of $250,000.
(k) Represents the contribution by Weekly Reader to PRIMEDIA's 401(k) plan of
$4,800 to PRIMEDIA's vested retirement plan of $5,600 and to PRIMEDIA's
Supplemental Employee Retirement Plan of $3,994.
(l) Represents the contributions by Weekly Reader to its 401(k) plan of $1,615
and to a vested retirement plan of $1,885.
(m) Ms. Maccarone earned $107,677 during the period from January 1, 1999 until
August 9, 1999 based on an annual salary of $177,100. She earned $74,860
during the period from August 10, 1999 until December 31, 1999 based on an
annual salary of $190,000.
(n) Represents the contributions by Weekly Reader to its 401(k) plan of $4,585
and to a vested retirement plan of $5,600.
(o) Represents an auto allowance.
(p) Represents the contribution by American Guidance to its 401(k) plan.
(q) Mr. De Seta earned $144,602 during the period from January 1, 1999 until
November 16, 1999 based on an annual salary of $165,000. He earned $28,434
during the period from November 17, 1999 until December 31, 1999, based on
an annual salary of $230,000.
(r) Represents contributions by World Almanac to its 401(k) plan of $4,800 and
to a vested retirement plan of $5,600.
(s) Represents the contributions by Weekly Reader to its 401(k) plan of $3,462
and to a vested retirement plan of $4,039.
(t) Mr. Spears earned $23,489 during the period from January 1, 1999 until
February 7, 1999 based on an annual salary of $225,000. He earned $219,423
during the period from February 8, 1999 until December 31, 1999 based on an
annual salary of $245,000.
(u) Represents the contributions by Gareth Stevens, Inc. to its 401(k) plan of
$4,800 and to a vested retirement plan of $5,600.
(v) Represents commissions paid by Weekly Reader.
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(w) Ms. Russell earned $98,332 during the period from January 1, 1999 until
July 14, 1999 based on an annual salary of $184,500. She earned $93,279
during the period from July 15, 1999 until December 31, 1999 based on an
annual salary of $200,000.
(x) Represents a fixed sale bonus of $120,000 realized in connection with the
transaction described under "Transactions" and a retention bonus of
$120,000.
(y) Represents a bonus based on realization of quarterly performance targets.
(z) Represents estimated total commissions of 240,000 due for sales in 1999 a
fixed sale bonus of $75,000 and the contribution by CompassLearning to its
401(k) plan of $3,168. Some commissions will actually be paid in fiscal
2000.
(aa) Ms. Lockwood earned $89,539 during the period from January 1, 1999 until
July 14, 1999 based on an annual salary of $168,000. She earned $88,736
during the period from July 15, 1999 until December 31, 1999 based on an
annual salary of $190,000.
(bb) Represents a guaranteed bonus of $18,000 and an estimated additional bonus
payment of $29,500 based on the realization of performance targets still
subject to calculation.
(cc) Represents a fixed sale bonus of $50,000 realized in connection with the
transactions described under "Transactions," a retention bonus of $60,000
and the contribution by CompassLearning to its 401(k) plan of $3,168.
(dd) Represents estimated total commissions of $131,250 due for sales in 1999, a
fixed sale bonus of $75,000 realized in connection with the transactions
described under "Transactions" and the contribution by CompassLearning to
its 401(k) plan of $3,168.
(ee) Represents estimated total commissions of $260,100 due for sales in 1999, a
fixed sale bonus of $25,000 and the contribution by CompassLearning to its
401(k) plan of $3,046. Some commissions will actually be paid in fiscal
2000.
(ff) Represents estimated total commissions of $330,745 due for sales in 1999 as
well as the contribution by CompassLearning to its 401(k) plan of $3,168.
Some commissions will actually be paid in fiscal 2000.
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<PAGE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
POTENTIAL REALIZED
VALUE AT
ASSUMED ANNUAL
RATES OF STOCK PRICE
APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM (A)
- ------------------------------------------------------------------------------------------ ---------------------
(1) (2) (3) (4) (5) (6) (7)
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARS EXERCISE
UNDERLYING GRANTED TO OR BASE
OPTIONS/SARS EMPLOYEES IN PRICE EXPIRATION
NAME GRANTED (#) FISCAL YEAR ($/SH) DATE 5% ($) 10% ($)
- ---- ------------ ------------ -------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Martin E. Kenney, Jr............. 204,294(b)(c) 67.7% 18.60065 --(a) 1,049,870 2,319,939
Chief Executive Officer, WRC
Media, Executive Vice
President, Weekly Reader,
Executive Vice President,
CompassLearning
Dr. Therese K. Crane............. 150,000(d) 14.8% 4.0 --(e) (f) (f)
President, CompassLearning
Peter E. Bergen.................. 5,376(b)(g) 1.8% 18.60065 --(a) 27,627 61,049
President and Chief Executive
Officer, Weekly Reader
Robert J. Jackson................ 7,168(b)(g) 2.4% 18.60065 --(a) 36,836 81,399
Executive Vice President,
Weekly Reader
Lester Rackoff................... 2,688(b)(g) 0.9% 18.60065 --(a) 13,814 30,525
Executive Vice President and
Chief Financial Officer, Weekly
Reader
Sandra F. Maccarone.............. 358(b)(g) 0.1% 18.60065 --(a) 1,840 4,065
Senior Vice President and
Editor in Chief Weekly Reader
Larry J. Rutkowski............... 8,064(b)(g) 2.7% 18.60065 --(a) 41,441 91,574
President and Chief Executive
Officer, American Guidance
Alfred De Seta................... 7,706(b)(g) 2.6% 18.60065 --(a) 39,601 87,508
President, World Almanac
Terry Bromberg................... 358(b)(g) 0.1% 18.60065 --(a) 1,840 4,065
President, Lifetime Learning
Systems, Inc.
Gary Spears...................... -- -- -- -- -- --
President and Chief Executive
Officer, Gareth Stevens Inc.
Gerald G. Adams.................. 717(b)(g) 0.2% 18.60065 12/31/01(a) 3,685 8,142
Executive Vice President
Finance and Chief Financial
Officer, American Guidance
Leigh Ann Price.................. -- -- -- -- -- --
Director, Client Services,
Lifetime Learning
Systems, Inc.
Joyce F. Russell................. 62,500(d) 6.2% 4.0 --(e) (f) (f)
Senior Vice President and Chief
Financial Officer,
CompassLearning
</TABLE>
141
<PAGE>
<TABLE>
<CAPTION>
POTENTIAL REALIZED
VALUE AT
ASSUMED ANNUAL
RATES OF STOCK PRICE
APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM (A)
- ------------------------------------------------------------------------------------------ ---------------------
(1) (2) (3) (4) (5) (6) (7)
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARS EXERCISE
UNDERLYING GRANTED TO OR BASE
OPTIONS/SARS EMPLOYEES IN PRICE EXPIRATION
NAME GRANTED (#) FISCAL YEAR ($/SH) DATE 5% ($) 10% ($)
- ---- ------------ ------------ -------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Michael W. DePasquale............ 62,500(d) 6.2% 4.0 --(e) (f) (f)
Senior Vice President, Sales,
CompassLearning
Nancy G. Lockwood................ 62,500(d) 6.2% 4.0 --(e) (f) (f)
Senior Vice President, Product
Development, CompassLearning
C. Michael Hayes................. 62,500(d) 6.2% 4.0 --(e) (f) (f)
Senior Divisional Sales Vice
President, CompassLearning
R. Alfred Knechel................ 17,500(d) 1.7% 4.0 --(e) (f) (f)
Regional Vice President,
CompassLearning
Edward P. Ponikvar, Jr........... 5,000(d) 0.5% 4.0 --(e) (f) (f)
Regional Marketing Executive,
CompassLearning
</TABLE>
- --------------------------
(a) The options expire only if the employee's employment is terminated or his
employment contract is not renewed. However, for ease of calculation, under
columns (6) and (7) above we have assumed that the expiration date of the
options and the SARs is five years from the time of grant.
(b) Represents options which are exercisable for WRC Media common stock. There
were a total of 301,724 options to purchase WRC Media common stock granted
in the fiscal year 1999. The percent of options granted to each employee is
based on the total aggregate amount of WRC Media options granted.
(c) Mr. Kenney was granted, subject to cancelation if Mr. Kenney's employment is
terminated for good cause as defined in his employment agreement, the option
to acquire 204,294 shares of WRC Media common stock, of which 33% vested on
November 17, 1999. The remainder will vest 33% on December 31, 2000 and 34%
on December 31, 2001, unless deemed fully vested on a prior date due to the
occurrence of a change in control as defined in the employment agreement.
See, "Employment Agreements--WRC Media Agreement with Martin E. Kenney, Jr."
(d) Represents SARs (Stock Appreciation Rights) of CompassLearning. There were a
total of 1,013,500 SARs of CompassLearning granted in the fiscal year 1999.
The percent of SARs granted to each employee is based on the total aggregate
amount of CompassLearning SAR's granted. The SARS were exercised on
November 15, 1999.
(e) There are no expiration dates for these SARs because they have already been
exercised.
(f) Because the SARs for these individuals have already been exercised, there is
no "Potential Realized Value" and columns (6) and (7) above are
inapplicable.
(g) 33% of these options vested on December 31, 1999. Unless deemed fully vested
on a prior date due to the occurrence of a change in control as defined in
the employment agreements, an additional 33% will vest on December 31, 2000
and, if their employment is renewed for an additional year ending
December 31, 2002, as described under "Employment Agreements," the final 34%
will vest on December 31, 2001. See, "Employment Agreements."
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AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5)
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SAR'S AT FY- OPTIONS/SAR'S AT FY-
SHARES ACQUIRED END(#)EXERCISABLE/ END($) EXERCISABLE/
NAME ON EXERCISE (#) VALUE REALIZED ($) UNEXERCISABLE UNEXERCISABLE
- ---------------------------- --------------- ------------------ -------------------- --------------------
<S> <C> <C> <C> <C>
Dr. Therese K. Crane........ 150,000 165,750.00(a) 0 0
President, CompassLearning
Joyce F. Russell............ 62,500 69,062.50(b) 0 0
Senior Vice President and
Chief Financial Officer,
CompassLearning
Michael DePasquale.......... 62,500 69,062.50(b) 0 0
Senior Vice President,
Sales, CompassLearning
Nancy Lockwood.............. 62,500 69,062.50(b) 0 0
Senior Vice President,
Product Development,
CompassLearning
C. Michael Hayes............ 62,500 69,062.50(b) 0 0
Senior Divisional Sales
Vice President,
CompassLearning
R. Alfred Knechel........... 17,500 19,337.50(c) 0 0
Regional Vice President,
CompassLearning
Edward P. Ponikvar, Jr...... 5,000 5,525.00(d) 0 0
Regional Marketing
Executive, CompassLearning
</TABLE>
- --------------------------
(a) An additional $59,250.00 was realized. These funds remain in escrow to
satisfy certain potential unasserted claims against CompassLearning and will
be released July 14, 2000.
(b) An additional $24,687.50 was realized. These funds remain in escrow to
satisfy certain potential unasserted claims against CompassLearning and will
be released July 14, 2000.
(c) An additional $6,912.50 was realized. These funds remain in escrow to
satisfy certain potential unasserted claims against CompassLearning and will
be released July 14, 2000.
(d) An additional $1,975.00 was realized. These funds remain in escrow to
satisfy certain potential unasserted claims against CompassLearning and will
be released July 14, 2000.
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DIRECTOR COMPENSATION
Our directors do not receive compensation, except as officers or employees.
However, WRC Media has entered into a letter agreement with Mr. Caulo, the
Non-Executive Vice-Chairman of WRC Media providing terms for a consulting
agreement beginning on January 1, 2000 through December 31, 2002. Under this
arrangement, Mr. Caulo will be paid, among other compensation, an annual salary
of $200,000 by WRC Media and $150,000 by Ripplewood Holdings L.L.C. for services
in connection with the identification, evaluation and consummation of new
investment opportunities. See "Certain Relationships and Related
Transactions--Other Transactions."
EMPLOYMENT AGREEMENTS
The following summary of the material provisions of the employment
agreements for the executives listed pursuant to "Executive Compensation" is
qualified in its entirety by reference to such agreements.
WRC MEDIA AND COMPASSLEARNING AGREEMENT WITH MARTIN E. KENNEY, JR. On
November 17, 1999, WRC Media and CompassLearning entered into an employment
agreement with Martin E. Kenney, Jr. This agreement will remain in effect until
December 31, 2002 unless earlier terminated by either party upon 90 days' prior
written notice. Mr. Kenney shall receive a minimum annual base salary of
$480,000, subject to increase after an annual review, as well as a bonus of up
to 156% of his annual base salary based on the achievement of annual performance
objectives. Mr. Kenney is guaranteed to receive an annual bonus of at least
$200,000, regardless of whether any performance objectives are achieved.
Mr. Kenney was granted, subject to cancelation if Mr. Kenney's employment is
terminated for good cause as defined in the agreement, the option to acquire
193,546.23 shares of WRC Media common stock, of which 33% vested on
November 17, 1999. The remainder will vest 33% on December 31, 2000 and 34% on
December 31, 2001, unless deemed fully vested on a prior date due to the
occurrence of a change in control as defined in the agreement. In addition,
Mr. Kenney shall receive, upon achievement of performance objectives in fiscal
year 2000, bonus stock options, valued up to $400,000, which shall be fully
vested upon grant. In the event of an initial public offering of WRC Media
common stock, Mr. Kenney shall participate in a stock option plan commensurate
with industry standards. If his employment is terminated due to death or
disability or without cause, Mr. Kenney shall receive his base salary and
guaranteed bonus for the balance of his term or eighteen months, whichever is
longer. In the event Mr. Kenney elects to receive the severance payment as
salary continuation payments for eighteen months rather than as a lump sum, he
shall continue to receive medical, dental and vision coverage for such period.
If Mr. Kenney's employment is terminated for any reason, WRC Media shall have an
option to purchase all or any portion of his shares of common stock of WRC Media
(including any shares obtained or obtainable through the exercise of any option)
at fair market value. If Mr. Kenney's employment is terminated without cause, he
shall have the option to sell to WRC Media all of his 16,128 shares of WRC Media
common stock purchased on November 17, 1999, then held at fair market value. In
addition, Mr. Kenney is subject to customary non-competition, non-solicitation
of employees and confidentiality provisions.
COMPASSLEARNING AGREEMENT WITH THERESE K. CRANE. On July 14, 1999,
CompassLearning entered into an employment agreement with Therese K. Crane. This
agreement will remain in effect until terminated by either party upon 30 days'
prior written notice. Dr. Crane shall receive a minimum annual base salary of
$330,000, subject to increase after annual review, as well as an annual bonus of
up to 121.0% of her base salary based on the achievement of annual performance
objectives. In the event of an initial public offering of CompassLearning common
stock, Dr. Crane shall participate in a stock option plan commensurate with
industry standards. If her employment is terminated because of death or
disability or without cause, Dr. Crane shall receive, among other things, as a
lump sum payment her base salary for eighteen months less the term of her
employment since execution of the agreement or one year, whichever is greater.
If Dr. Crane elects to receive the severance payment as
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salary continuation payments for the period used to calculate such payment
rather than as a lump sum, she shall receive medical, dental and vision coverage
for such period. In addition, Dr. Crane is subject to customary non-competition,
non-solicitation of employees and confidentiality provisions.
WEEKLY READER AGREEMENT WITH PETER E. BERGEN. On November 17, 1999, Weekly
Reader entered into an employment agreement with Peter E. Bergen. This agreement
will remain in effect until December 31, 2001 unless earlier terminated by
either party upon 30 days' prior written notice. The agreement will
automatically be renewed for successive one-year periods unless terminated by
either party at least 90 days prior to an applicable expiration date.
Mr. Bergen received an annual base salary of $250,000 until January 1, 2000. He
shall receive a minimum annual base salary for the duration of his employment of
$275,000, subject to increase after annual review, as well as an annual bonus of
up to 52.5% of his base salary based on the achievement of annual performance
objectives. If his employment is terminated without cause, Mr. Bergen shall
receive, among other things, as a lump sum payment his base salary for the
balance of his term or one year, whichever is longer, and, if his bonus
objectives have been achieved, a prorated portion of his bonus for the portion
of the year worked during the year of termination. In addition, Mr. Bergen is
subject to customary non-competition, non-solicitation of employees and
confidentiality provisions.
WEEKLY READER AGREEMENT WITH ROBERT J. JACKSON. On November 17, 1999,
Weekly Reader entered into an employment agreement with Robert Jackson. This
agreement will remain in effect until December 31, 2001 unless earlier
terminated by either party upon 30 days' prior written notice. The agreement
will automatically be renewed for successive one-year periods unless terminated
by either party at least 90 days prior to an applicable expiration date.
Mr. Jackson shall receive a minimum annual base salary of $250,000, subject to
increase after annual review, as well as an annual bonus of up to 52.5% of his
base salary based on the achievement of annual performance objectives. If his
employment is terminated without cause, Mr. Jackson shall receive, among other
things, as a lump sum payment his base salary for the balance of his term or one
year, whichever is longer, and, if his bonus objectives have been achieved, a
prorated portion of his bonus for the portion of the year worked during the year
of termination. In addition, Mr. Jackson is subject to customary
non-competition, non-solicitation of employees and confidentiality provisions.
WEEKLY READER AGREEMENT WITH LESTER RACKOFF. On November 17, 1999, Weekly
Reader entered into an employment agreement with Lester Rackoff. This agreement
will remain in effect until December 31, 2001 unless earlier terminated by
either party upon 30 days' prior written notice. The agreement will
automatically be renewed for successive one-year periods unless terminated by
either party at least 90 days prior to an applicable expiration date.
Mr. Rackoff received an annual base salary of $175,000 until January 1, 2000. He
shall receive a minimum annual base salary of $210,000 for the duration of his
employment, subject to increase after annual review, as well as an annual bonus
of up to 45% of his base salary based on the achievement of annual performance
objectives. If his employment is terminated without cause, Mr. Rackoff shall
receive, among other things, as a lump sum payment his base salary and, if his
bonus objectives have been achieved and termination occurs more that six months
after the beginning of the calender year, a prorated portion of his bonus for
the portion of the year worked during the year of termination. In addition,
Mr. Rackoff is subject to customary non-competition, non-solicitation of
employees and confidentiality provisions.
WEEKLY READER AGREEMENT WITH SANDY MACCARONE. On November 17, 1999, Weekly
Reader entered into an employment agreement with Sandy Maccarone. This agreement
will remain in effect until December 31, 2001 unless earlier terminated by
either party upon 30 days' prior written notice. The agreement will
automatically be renewed for successive one-year periods unless terminated by
either party at least 90 days prior to an applicable expiration date.
Ms. Maccarone shall receive a minimum annual base salary of $190,000, subject to
increase after annual review, as well as an annual bonus of up to 37.5% of her
base salary based on the achievement of annual performance objectives. If her
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employment is terminated without cause, Ms. Maccarone shall receive, among other
things, as a lump sum payment her base salary and, if her bonus objectives have
been achieved and termination occurs more that six months after the beginning of
the calender year, a prorated portion of her bonus for the portion of the year
worked during the year of termination. In addition, Ms. Maccarone is subject to
customary non-competition, non-solicitation of employees and confidentiality
provisions.
AMERICAN GUIDANCE AGREEMENT WITH LARRY RUTKOWSKI. On November 17, 1999,
American Guidance entered into an employment agreement with Larry Rutkowski.
This agreement will remain in effect until December 31, 2001 unless earlier
terminated by either party upon 30 days' prior written notice. The agreement
will automatically be renewed for successive one-year periods unless terminated
by either party at least 90 days prior to an applicable expiration date.
Mr. Rutkowski shall receive a minimum annual base salary of $260,000, subject to
increase after review on February 28, 2000 and annually thereafter, as well as
an annual bonus of up to 75.0% of his base salary based on the achievement of
annual performance objectives. If his employment is terminated without cause,
Mr. Rutkowski shall receive, among other things, as a lump sum payment his base
salary for the balance of his term, one year or eighteen months (provided
certain conditions described in the agreement are satisfied), whichever is
longer, and, if his bonus objectives have been achieved, a prorated portion of
his bonus for the portion of the year worked during the year of termination. If
Mr. Rutkowski's employment is terminated for good cause, as defined in the
agreement, he or his beneficiary may under certain circumstances described in
the agreement, be eligible to receive, among other compensation, his salary then
in effect for a 120 day period following his termination. In addition,
Mr. Rutkowski is subject to customary non-competition, non-solicitation of
employees and confidentiality provisions.
PRIMEDIA REFERENCE INC. AGREEMENT WITH AL DE SETA. On November 17, 1999,
PRIMEDIA Reference Inc. entered into an employment agreement with Al De Seta.
This agreement will remain in effect until December 31, 2001 unless earlier
terminated by either party upon 30 days' prior written notice. The agreement
will automatically be renewed for successive one-year periods unless terminated
by either party at least 90 days prior to an applicable expiration date. Mr. De
Seta shall receive a minimum annual base salary of $230,000 until January 1,
2000 and $255,000 thereafter, subject to increase after annual review, as well
as an annual bonus of up to 52.5% of his base salary based on the achievement of
annual performance objectives. If his employment is terminated without cause,
Mr. De Seta shall receive, among other things, as a lump sum payment his base
salary for the balance of his term or one year, whichever is longer, and, if his
bonus objectives have been achieved, a prorated portion of his bonus for the
portion of the year worked during the year of termination. In addition, Mr. De
Seta is subject to customary non-competition, non-solicitation of employees and
confidentiality provisions.
WEEKLY READER AGREEMENT WITH TERRY BROMBERG. On November 17, 1999, Weekly
Reader entered into an employment agreement with Terry Bromberg. This agreement
will remain in effect until December 31, 2001 unless earlier terminated by
either party upon 30 days' prior written notice. The agreement will
automatically be renewed for successive one-year periods unless terminated by
either party at least 90 days prior to an applicable expiration date.
Mr. Bromberg received an annual base salary of $120,000 until January 1, 2000.
He shall receive a minimum annual base salary of $150,000 for the duration of
his employment, subject to increase after annual review, as well as an annual
bonus of up to 30% of his base salary based on the achievement of annual
performance objectives. If his employment is terminated without cause,
Mr. Bromberg shall receive, among other things, as a lump sum payment his base
salary and, if his bonus objectives have been achieved and termination occurs
more that six months after the beginning of the calender year, a prorated
portion of his bonus for the portion of the year worked during the year of
termination. In addition, Mr. Bromberg is subject to customary non-competition,
non-solicitation of employees and confidentiality provisions.
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AMERICAN GUIDANCE AGREEMENT WITH GERALD ADAMS. On November 17, 1999,
American Guidance entered into an employment agreement with Gerald Adams. This
agreement will remain in effect until December 31, 2001 unless earlier
terminated by either party upon 30 days' prior written notice. The agreement
will automatically be renewed for successive one-year periods unless terminated
by either party at least 90 days prior to an applicable expiration date.
Mr. Adams received an annual base salary of $180,000 until January 1, 2000. He
shall receive a minimum annual base salary of $195,000 for the duration of his
employment, subject to increase after annual review, as well as an annual bonus
of up to 75% of his base salary based on the achievement of annual performance
objectives. If his employment is terminated without cause, Mr. Adams shall
receive, among other things, as a lump sum payment his base salary for the year
in which termination occurs or eighteen months (provided certain conditions
described in the agreement are satisfied) and, if his bonus objectives have been
achieved and termination occurs more that six months after the beginning of the
calender year, a prorated portion of his bonus for the portion of the year
worked during the year of termination. If Mr. Adams's employment is terminated
for good cause, as defined in the agreement, he or his beneficiary may under
certain circumstances described in the agreement, be eligible to receive, among
other compensation, his salary then in effect for a 120 day period following his
termination. In addition, Mr. Adams is subject to customary non-competition,
non-solicitation of employees and confidentiality provisions.
COMPASSLEARNING AGREEMENT WITH JOYCE F. RUSSELL. On November 17, 1999,
CompassLearning entered into an employment agreement with Joyce F. Russell. This
agreement will remain in effect unless terminated by either party upon 30 days'
prior written notice. Ms. Russell shall receive a minimum annual base salary of
$200,000, subject to increase after annual review, as well as an annual bonus of
up to 100.0% of her base salary based on the achievement of annual performance
objectives. In the event of an initial public offering of CompassLearning common
stock, Ms. Russell shall participate in a stock option plan commensurate with
industry standards. If her employment is terminated because of death or total
disability or without cause, Ms. Russell shall receive, among other things, as a
lump sum payment her base salary. If Ms. Russell elects to receive the severance
payment as salary continuation payments for twelve months rather than as a lump
sum, she shall receive medical, dental and vision coverage for such period. In
addition, Mr. Russell is subject to customary non-competition, non-solicitation
of employees and confidentiality provisions.
COMPASSLEARNING AGREEMENT WITH MICHAEL DEPASQUALE. Mr. DePasquale, who
serves as an employee-at-will of CompassLearning, shall receive his annual base
salary as a lump sum severance payment if his employment is terminated without
cause.
COMPASSLEARNING AGREEMENT WITH NANCY LOCKWOOD. On July 14, 1999,
CompassLearning entered into an employment agreement with Nancy Lockwood. This
agreement will remain in effect until terminated by either party upon 30 days'
prior written notice. Ms. Lockwood shall receive a minimum annual base salary of
$190,000, subject to increase after annual review, as well as an annual bonus of
up to 95.0% of her base salary based on the achievement of annual performance
objectives. In the event of an initial public offering of CompassLearning common
stock, Ms. Lockwood shall participate in a stock option plan commensurate with
industry standards. If her employment is terminated because of death or total
disability or without cause, Ms. Lockwood shall receive, among other things, as
a lump sum payment her base salary. If Ms. Lockwood elects to receive the
severance payment as salary continuation payments for the period used to
calculate such payment rather than as a lump sum, she shall receive medical,
dental and vision coverage for such period. In addition, Ms. Lockwood is subject
to customary non-competition, non-solicitation of employees and confidentiality
provisions.
COMPASSLEARNING AGREEMENT WITH C. MICHAEL HAYES. Mr. Hayes, who serves as
an employee-at-will of CompassLearning, shall receive his annual base salary as
a lump sum severance payment if his employment is terminated without cause.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
MANAGEMENT AGREEMENTS
In connection with the acquisition of CompassLearning, CompassLearning
entered into a management agreement with Ripplewood Holdings L.L.C., and after
the consummation of the transactions described under "Transactions," Weekly
Reader entered into a management agreement with Ripplewood Holdings L.L.C. The
following summary of the material provisions of these management agreements is
qualified in its entirety by reference to the management agreements as entered
into or amended as of the date of this prospectus.
Pursuant to the terms of CompassLearning's management agreement with
Ripplewood Holdings L.L.C., and since the date of the acquisition of
CompassLearning, Ripplewood Holdings L.L.C. has been providing to
CompassLearning management consulting and financial advisory services, and
CompassLearning has been paying to Ripplewood Holdings L.L.C. an annual
management fee of $150,000, payable quarterly, and has reimbursed Ripplewood
Holdings L.L.C. for its reasonable out-of-pocket costs and expenses incurred in
connection with the performance of its services. On November 17, 1999,
CompassLearning and Ripplewood Holdings L.L.C. amended the terms of the
CompassLearning's management agreement with Ripplewood Holdings L.L.C. to
relieve CompassLearning of its obligation to pay management fees to Ripplewood
Holdings L.L.C. until 2001.
Pursuant to the terms of the Weekly Reader's management agreement with
Ripplewood Holdings L.L.C., Ripplewood Holdings L.L.C. provides to Weekly Reader
management consulting and financial advisory services. As a result of the Weekly
Reader's management agreement and the amendment of the CompassLearning's
management agreement, CompassLearning and Weekly Reader will reimburse
Ripplewood Holdings L.L.C. for its reasonable out-of-pocket costs and expenses
incurred in connection with the performance of its services and, beginning in
the first quarter of 2001, will be obligated to pay to Ripplewood Holdings
L.L.C. annual aggregate management fees for services to both CompassLearning and
Weekly Reader totaling $950,000, payable quarterly. In connection with the
transactions described under "Transactions," Ripplewood Holdings L.L.C. also
received an advisory fee customary for transactions of this nature.
Pursuant to these management agreements, Weekly Reader and CompassLearning
are obligated to indemnify, defend and hold harmless Ripplewood Holdings L.L.C.,
its affiliates and each of their respective directors, stockholders, advisory
directors, officers, members, employees and agents from any damages related to
the performance by Ripplewood Holdings L.L.C. of its obligations under these
management agreements. Ripplewood Holdings L.L.C. may terminate these management
agreements at any time on five days' prior written notice to Weekly Reader or
CompassLearning, as applicable.
MANAGEMENT SHAREHOLDER AGREEMENTS
Simultaneously with the closing of the transactions described under
"Transactions," and pursuant to the terms of their respective employment
agreements with Weekly Reader and CompassLearning some executives of WRC Media,
Weekly Reader, and CompassLearning purchased shares of WRC Media common stock
and entered into management shareholder agreements with WRC Media and EAC III
with respect to the WRC Media common stock held by such executives. The
following summary of the material provisions of these management shareholder
agreements is qualified in its entirety by reference to the management
shareholder agreements.
VOTING AGREEMENT. Each executive who is a party to a management shareholder
agreement with WRC Media and EAC III with respect to WRC Media common stock will
grant to EAC III an irrevocable proxy to vote the WRC Media common stock held by
such executive as well as all WRC Media common stock thereafter acquired by such
executive on all matters except for any matter that would both adversely affect
and treat such executive differently from other holders of WRC Media
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<PAGE>
common stock. Such proxy shall terminate upon any transfer of such shares to a
third party after or upon completion of an initial public offering of WRC Media
common stock and the expiration of any "lock-up" period agreed upon by the
executives and the underwriters in connection with such initial public offering.
TRANSFER RESTRICTIONS. Each management shareholder agreement with WRC Media
and EAC III with respect to WRC Media common stock restricts the right of an
executive to transfer the WRC Media common stock such executive holds without
the prior written consent of EAC III to any person other than a permitted
transferee of such executive. With respect to each executive who is a party to a
management shareholder agreement, permitted transferees will include EAC III,
another such executive, such executive's spouse or lineal descendants or any
trust the beneficiaries of which include only such executive's spouse or lineal
descendants. Each executive may also transfer, without restriction, the WRC
Media common stock that such executive holds after the consummation of an
initial public offering of WRC Media common stock.
OPTIONS. Certain executives who are parties to a management shareholder
agreement with WRC Media and EAC III with respect to WRC Media common stock were
also granted options to purchase a specified number of shares of WRC Media
common stock. With respect to each such executive, to the extent that such
executive remains employed with Weekly Reader or CompassLearning, as applicable,
33% of such options will vest on December 31, 1999, a further 33% on
December 31, 2000 and the remaining 34% on December 31, 2001. If such
executive's employment with Weekly Reader or CompassLearning, as applicable, is
terminated for any reason other than those specified in the applicable
management shareholder agreement such options will vest immediately.
TAG-ALONG RIGHTS. The management shareholder agreements with WRC Media and
EAC III with respect to WRC Media common stock provide that, if EAC III
determines to sell in excess of 5% of its WRC Media common stock to a third
party other than a permitted transferee and, after giving effect to such sale,
EAC III will have transferred in excess of 35% of its WRC Media common stock to
a third party other than a permitted transferee, the executives who are party to
the management shareholder agreements will have the right to sell a
proportionate amount of their WRC Media common stock in such transaction at the
same price per share and on the same terms and conditions as apply to the sale
of WRC Media common stock by EAC III.
DRAG-ALONG RIGHTS. In the event that EAC III determines to sell all or any
portion in excess of 35% of its WRC Media common stock to any third party, EAC
III will have the right to cause the executives who are party to the management
shareholder agreements with WRC Media and EAC III to sell a proportionate amount
of their WRC Media common stock in such transaction, all at the same price per
share and on the same terms and conditions as apply to the sale of WRC Media
common stock by EAC III.
OPTION UPON TERMINATION. In the event that the employment of an executive
who is party to a management shareholder agreement with WRC Media and EAC III
with respect to WRC Media common stock is terminated for any reason, EAC III has
the option to purchase all or any portion of the WRC Media common stock held by
such executive at fair market value as determined pursuant to the terms of such
management shareholder agreement. In addition, in the event that an executive's
employment is terminated other than for good cause, as defined in such
executive's employment agreement, or because of a notice of non-renewal given by
such executive's employer, in the event of financial hardship as determined by
the Board of Directors of WRC Media or because of death, such executive or such
executive's estate will have the right to require WRC Media to purchase any or
all of such executive's WRC Media common stock, subject to certain exceptions
and customary limitations.
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TRANSITION SERVICES AGREEMENT
As part of the recapitalization, PRIMEDIA, Weekly Reader and WRC Media
entered into a transition services agreement pursuant to which PRIMEDIA and
Weekly Reader will each provide certain services following the consummation of
the transactions described under "Transactions" to the other and will each pay
the other for these services at rates determined under such transition services
agreement. The following summary of the material provisions of such transition
services agreement is qualified in its entirety by reference to such transition
services agreement. PRIMEDIA will:
- make available to all the employees of Weekly Reader, together with its
subsidiaries that are participating in the relevant plan as of the
consummation of the Transactions, participation in each of the employee
benefit plans sponsored by PRIMEDIA;
- provide administrative services in respect of such employee benefit plans
until December 31, 1999;
- continue to make available office space currently occupied by certain
individuals who have become our employees upon consummation of the
transactions described under "Transactions;" and
- provide related services such as security, cleaning and access to
administrative and secretarial services at a monthly rental fee of
approximately $8,500, plus any incremental direct costs associated with
such services.
Weekly Reader will continue to provide some computer services to PRIMEDIA until
March 31, 2000, including maintenance of some hardware and software systems, and
PRIMEDIA will pay incremental costs reasonably incurred by Weekly Reader in
connection with such services.
OTHER TRANSACTIONS
WRC Media, Ripplewood Holdings L.L.C. and Mr. Ralph D. Caulo, the
Vice-Chairman of WRC Media, were party to a letter agreement providing terms for
consulting agreements beginning on January 1, 2000 through December 31, 2002.
Under these agreements, Mr. Caulo will be paid, among other compensation, an
annual salary of $200,000 by WRC Media and $150,000 by Ripplewood Holdings
L.L.C. for services in connection with the identification, evaluation and
consummation of new investment opportunities.
As additional consideration for his consulting services to WRC Media, WRC
Media will also pay Mr. Caulo a transaction fee of $250,000 and grant him 53,762
options to purchase common stock of WRC Media at an exercise price of $18.60065.
Subject to termination for "good cause" as defined in such agreement, 33% of the
options will vest upon signing, 34% on December 31, 2000 and 33% on
December 31, 2001 and will expire only if Mr. Caulo's contract is not renewed or
is terminated. These options represent a potential realized value:
- of $276,284 at an assumed annual stock price appreciation rate of 5% over
five years; and
- of $610,515 at an assumed annual stock price appreciation rate of 5% over
ten years.
Pursuant to Mr. Caulo's agreement with Ripplewood Holdings L.L.C.,
Ripplewood Holdings L.L.C. will also grant him stock options based upon the size
of each transaction for which he provides services.
Although not yet determined as of the date of this prospectus, Mr. Caulo may
receive additional compensation pursuant to these agreements as well.
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OWNERSHIP OF STOCK
As used in the three sections below describing the beneficial ownership of
WRC Media, Weekly Reader and CompassLearning, "beneficial ownership" means the
sole or shared power to vote, or direct the voting of, a security, or the sole
or shared investment power with respect to a security (i.e. the power to dispose
of, or direct the disposition of, a security). A person is deemed as of any date
to have "beneficial ownership" of any security that such person has the right to
acquire within 60 days after such date. For purposes of computing the
percentages of outstanding shares held by each person named in the three
sections below, any security that such person has the right to acquire within
60 days of the date of calculation is deemed to be outstanding, but such
security is not deemed to be outstanding for purposes of calculating the
percentage ownership of any other person.
BENEFICIAL OWNERSHIP OF WRC MEDIA
The following tables list, as of the date of this prospectus, information
known to us regarding the beneficial ownership of WRC Media common stock by:
- each person known by WRC Media to be the beneficial owner of more than 5%
of the outstanding WRC Media common stock;
- each of the directors and the executive officers listed pursuant to
"Management--Executive Compensation;" and
- all directors and the executive officers listed pursuant to
"Management--Executive Compensation," as a group.
As of the date of this prospectus, the total number of outstanding shares of
WRC Media common stock was 6,855,853. Except as otherwise noted, the persons
named in the tables have sole voting and investment power with respect to all
shares shown as beneficially owned by them. The information concerning
beneficial ownership is based on statements furnished to us by the beneficial
owners and assumes that 6,855,853 shares of common stock have been issued and
are outstanding.
WRC MEDIA COMMON STOCK
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
-------------------------------
NAME AND ADDRESS SHARES(A) PERCENT OF CLASS(A)
- ---------------- --------- -------------------
<S> <C> <C>
EAC III (b)
c/o Ripplewood Holdings L.L.C.
1 Rockefeller Plaza
32nd Floor
New York, NY 10020........................................ 5,037,985 73.3%
SGC Partners II LLC
1221 Avenue of the Americas
New York, NY 10020........................................ 1,694,039 24.7%
EAC IV, L.L.C.
c/o Ripplewood Holdings L.L.C.
1 Rockefeller Plaza
32nd Floor
New York, NY 10020........................................ 5,037,985(c) 73.3%
Martin E. Kenney, Jr........................................ 83,545(d) 1.2%
Timothy C. Collins.......................................... 58,342(e) *
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
-------------------------------
NAME AND ADDRESS SHARES(A) PERCENT OF CLASS(A)
- ---------------- --------- -------------------
<S> <C> <C>
Charles L. Laurey........................................... 1,636(f) *
Robert S. Lynch............................................. 5,283(g) *
D. Ronald Daniel............................................ --(h) *
William F. Dawson........................................... -- *
James N. Lane............................................... --(i) *
Dr. Therese K. Crane........................................ 4,032(f) *
Alfred De Seta.............................................. 14,102(j) *
Larry J. Rutkowski.......................................... 14,757(k) *
Ralph D. Caulo.............................................. 17,741(l) *
Robert J. Jackson........................................... 13,118(m) *
Peter E. Bergen............................................. 9,838(n) *
Joyce F. Russell............................................ -- *
Michael W. DePasquale....................................... -- *
Nancy G. Lockwood........................................... -- *
C. Michael Hayes............................................ -- *
R. Alfred Knechel........................................... -- *
Edward P. Ponikvar, Jr...................................... -- *
Lester Rackoff.............................................. 4,919(o) *
Sandra F. Maccarone......................................... 656(p) *
Terry Bromberg.............................................. 656(p) *
Gary Spears................................................. -- *
Gerald G. Adams............................................. 1,312(q) *
Leigh Ann Price............................................. -- *
All directors of WRC Media and the executive officers listed
pursuant to "Management--Executive Compensation," as a
group..................................................... 237,704 3.42%
</TABLE>
- ------------------------
* Represents holdings of less than 1%.
(a) Calculated excluding all shares issuable pursuant to options except, as to
each person, the shares issuable to such person pursuant to options
immediately exercisable or exercisable within 60 days from the date of this
prospectus.
(b) Represents 4,870,494 shares held directly and 167,491 shares held indirectly
through its rights granted to it under certain shareholder agreements. See
"Certain Relationships and Related Transactions--Management Shareholder
Agreements." Each of EAC IV L.L.C., Co-Investment Partners, L.P., The
Northwestern Mutual Life Insurance Company, Jackson National Life Insurance
Company and Blue Ridge Investments, L.L.C., an affiliate of Bank of America,
N.A. owns 66.4%, 16.6%, 10.9%, 5.5% and 0.6%, respectively, of the
membership interests in EAC III.
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(c) Represents the beneficial ownership of shares through its ownership of 66.4%
of the membership interests of EAC III and the rights granted to EAC III
under certain shareholder agreements and the limited liability company
agreement of EAC III. EAC IV L.L.C. is controlled by Ripplewood
Partners, L.P., an affiliate of Ripplewood Holdings L.L.C. See "Risk
Factors--Ownership of WRC Media and its Subsidiaries" and "Certain
Relationships and Related Transactions."
(d) Represents 16,128 shares held directly and 67,417 shares issuable upon
exercise of options granted pursuant to his employment agreement. See
"Management--Employment Agreements--WRC Media and CompassLearning Agreement
with Martin E. Kenney Jr."
(e) Excludes shares listed above as beneficially owned by EAC III or EAC IV,
L.L.C., which may be deemed an affiliate of Timothy C. Collins.
(f) Represents shares held directly.
(g) Excludes shares listed above as beneficially owned by EAC III or EAC IV,
L.L.C., which may be deemed an affiliate of Robert S. Lynch.
(h) Excludes shares listed above as beneficially owned by EAC III or EAC IV,
L.L.C., which may be deemed an affiliate of D. Ronald Daniel.
(i) Excludes shares listed above as beneficially owned by SGC Partners II
L.L.C., which may be deemed an affiliate of James N. Lane.
(j) Represents 11,559 shares held directly and 2,543 shares issuable upon
exercise of options granted pursuant to the Management Shareholder
Agreement. See "Certain Relationships and Related Transactions--Management
Shareholder Agreements--Options."
(k) Represents 12,096 shares held directly and 2,661 shares issuable upon
exercise of options granted pursuant to the Management Shareholder
Agreement. See "Certain Relationships and Related Transactions--Management
Shareholder Agreements--Options."
(l) Represents 17,741 shares issuable upon exercise of options to be granted
pursuant to Mr. Caulo's consulting agreement with WRC Media. See "Certain
Relationships and Related Party Transactions--Other Transactions."
(m) Represents 10,752 shares held directly and 2,366 shares issuable upon
exercise of options granted pursuant to the Management Shareholder
Agreement. See "Certain Relationships and Related Transactions--Management
Shareholder Agreements--Options."
(n) Represents 8,064 shares held directly and 1,774 shares issuable upon
exercise of options granted pursuant to the Management Shareholder
Agreement. See "Certain Relationships and Related Transactions--Management
Shareholder Agreement--Options."
(o) Represents 4,032 shares held directly and 887 shares issuable upon exercise
of options granted pursuant to the Management Shareholder Agreement. See
"Certain Relationships and Related Transactions--Management Shareholder
Agreement--Options."
(p) Represents 538 shares held directly and 118 shares issuable upon exercise of
options granted pursuant to the Management Shareholder Agreement. See
"Certain Relationships and Related Transactions--Management Shareholder
Agreement--Options."
(q) Represents 1,075 shares held directly and 237 shares issuable upon exercise
of options granted pursuant to the Management Shareholder Agreement. See
"Certain Relationships and Related Transactions--Management Shareholder
Agreement--Options."
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BENEFICIAL OWNERSHIP OF WEEKLY READER COMMON STOCK
The following table lists, as of the date of this prospectus, information
known to us regarding the beneficial ownership of Weekly Reader common stock,
which consists of Weekly Reader's Class A and Class B non-voting common stock
and Weekly Reader voting common stock, by:
- each person known by Weekly Reader to be the beneficial owner of more than
5% of the outstanding Weekly Reader common stock;
- each of the directors and the executive officers listed pursuant to
"Management--Executive Compensation;" and
- all directors and the executive officers listed pursuant to
"Management--Executive Compensation," as a group.
As of the date of this prospectus, no shares of Weekly Reader's class A and
class B non-voting common stock are outstanding.
As of the date of this prospectus, the total number of outstanding shares of
Weekly Reader voting common stock was 2,830,000. Except as otherwise noted, the
persons named in the table have sole voting and investment power with respect to
all shares shown as beneficially owned by them. The information concerning
beneficial ownership is based on statements furnished to us by the beneficial
owners and assumes that 2,830,000 shares of voting common stock have been issued
and are outstanding.
WEEKLY READER VOTING COMMON STOCK
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
----------------------------
NAME AND ADDRESS SHARES PERCENT OF CLASS
- ---------------- --------- ----------------
<S> <C> <C>
WRC Media
c/o Ripplewood Holdings L.L.C.
1 Rockefeller Plaza
32nd Floor
New York, NY 10020........................................ 2,685,670 94.9%
PRIMEDIA, Inc.
745 Fifth Avenue
New York, NY 10151........................................ 144,330 5.1%
DLJ Merchant Banking Partners II, L.P. and affiliates (a)... 310,109 9.9%
c/o DLJ Merchant Banking Partners
277 Park Avenue
New York, NY 10172........................................
All directors and the executive officers listed pursuant to
"Management--Executive Compensation," as a group.......... 0 *
</TABLE>
- ------------------------
* Represents holdings of less than 1%.
(a) Represents ownership by DLJ Merchant Banking Partners II, L.P. of 159,828
warrants to purchase Weekly Reader common stock; ownership by DLJ Merchant
Banking Partners II-A, L.P of 6,365 warrants to purchase Weekly Reader
common stock; ownership by DLJ Offshore Partners II, C.V. of 7,860 warrants
to purchase Weekly Reader common stock; ownership by DLJ Diversified
Partners, L.P. of 9,344 warrants to purchase Weekly Reader common stock;
ownership by DLJ Diversified Partners-A, L.P. of 3,470 warrants to purchase
Weekly Reader common stock;
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ownership by DLJMB Funding II, Inc. of 88,988 warrants to purchase Weekly
Reader common stock; ownership by DLJ Millennium Partners, L.P. of 2,584
warrants to purchase Weekly Reader common stock; ownership by DLJ Millennium
Partners-A, L.P. of 504 warrants to purchase Weekly Reader common stock;
ownership by DLJ EAB Partners, L.P. of 718 warrants to purchase Weekly
Reader common stock; ownership by DLJ ESC II, L.P. of 30,140 warrants to
purchase Weekly Reader common stock; ownership by DLJ First ESC, L.P. of 308
warrants to purchase Weekly Reader common stock. Because the various funds
are under common control, each fund may be deemed to beneficially own the
shares underlying the warrants held by all the other funds.
BENEFICIAL OWNERSHIP OF COMPASSLEARNING COMMON STOCK
The following table lists, as of the date of this prospectus, information
known to us regarding the beneficial ownership of CompassLearning common stock
by:
- each person known by WRC Media to be the beneficial owner of more than 5%
of the outstanding WRC Media common stock;
- each of the directors and the executive officers listed pursuant to
"Management--Executive Compensation," and
- all directors and executive officers listed pursuant to
"Management--Executive Compensation," as a group.
As of the date of this prospectus, the total number of outstanding shares of
CompassLearning common stock was 10,000. Except as otherwise noted, the persons
named in the table have sole voting and investment power with respect to all
shares shown as beneficially owned by them. The information concerning
beneficial ownership is based on statements furnished to us by the beneficial
owners and assumes that 10,000 shares of common stock have been issued and are
outstanding.
COMPASSLEARNING COMMON STOCK
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
---------------------------
NAME AND ADDRESS SHARES PERCENT OF CLASS
- ---------------- -------- ----------------
<S> <C> <C>
WRC Media
c/o Ripplewood Holdings L.L.C.
1 Rockefeller Plaza
32nd Floor
New York, NY 10020........................................ 10,000 100%
DLJ Merchant Banking Partners II, L.P. and affiliates (a)
c/o DLJ Merchant Banking Partners
277 Park Avenue
New York, NY 10172........................................ 1,098 9.9%
All directors and the executive officers listed pursuant to
"Management--Executive Compensation," as a group.......... 0 *
</TABLE>
- ------------------------
* Represents holdings of less than 1%.
(a) Represents ownership by DLJ Merchant Banking Partners II, L.P. of 566
warrants to purchase CompassLearning common stock; ownership by DLJ Merchant
Banking Partners II-A, L.P of 23 warrants to purchase CompassLearning common
stock; ownership by DLJ Offshore Partners II, C.V. of 28 warrants to
purchase CompassLearning common stock; ownership by DLJ Diversified
Partners, L.P. of 33 warrants to purchase CompassLearning common stock;
ownership by DLJ
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Diversified Partners-A, L.P. of 12 warrants to purchase CompassLearning
common stock; ownership by DLJMB Funding II, Inc. of 314 warrants to
purchase CompassLearning common stock; ownership by DLJ Millennium Partners,
L.P. of 9 warrants to purchase CompassLearning common stock; ownership by
DLJ Millennium Partners-A, L.P. of 2 warrants to purchase CompassLearning
common stock; ownership by DLJ EAB Partners, L.P. of 3 warrants to purchase
CompassLearning common stock; ownership by DLJ ESC II, L.P. of 107 warrants
to purchase CompassLearning common stock; ownership by DLJ First ESC, L.P.
of 1 warrant to purchase CompassLearning common stock. Because the various
funds are under common control, each fund may be deemed to beneficially own
the shares underlying the warrants held by all the other funds.
PRIMEDIA SHAREHOLDER AGREEMENT
WRC Media owns 2,685,070 shares, or 94.9% of the voting common stock of
Weekly Reader. In connection with the consummation of the transactions described
under "Transactions," WRC Media, PRIMEDIA and Weekly Reader entered into a
shareholder agreement relating to registration rights, transfers of Weekly
Reader voting common stock and other matters. The PRIMEDIA shareholder agreement
will terminate (other than with respect to the demand registration rights
described below) upon an initial public offering of the Weekly Reader voting
common stock or WRC Media common stock. The following summary of the material
provisions of the PRIMEDIA shareholder agreement is qualified in its entirety by
reference to the PRIMEDIA shareholder agreement.
TRANSFER RESTRICTIONS. The PRIMEDIA shareholder agreement restricts
PRIMEDIA's right to transfer Weekly Reader voting common stock held by PRIMEDIA
without the prior written consent of the board of directors of Weekly Reader to
any person other than a wholly-owned subsidiary of PRIMEDIA.
REGISTRATION RIGHTS. Pursuant to the PRIMEDIA shareholder agreement, after
the occurrence of an initial public offering of Weekly Reader voting common
stock, PRIMEDIA will have one demand registration right to require Weekly Reader
to register the Weekly Reader voting common stock held by PRIMEDIA under the
Securities Act of 1933. In addition, PRIMEDIA will have "piggyback" registration
rights on a proportional basis in any public offering that includes shares of
Weekly Reader voting common stock owned by WRC Media. Weekly Reader will pay
certain expenses related to registration, including, without limitation, filing
fees and the fees and expenses of counsel for PRIMEDIA, and will provide
customary indemnities in connection with such registration.
TAG-ALONG RIGHTS. The PRIMEDIA shareholder agreement provides that, if WRC
Media determines to sell all or any portion in excess of 35% of its Weekly
Reader voting common stock to any third party other than a permitted transferee
or that EAC III determines to sell all or any portion in excess of 35% of its
WRC Media common stock to any third party other than a permitted transferee,
subject to customary exceptions, PRIMEDIA will have the right to participate
proportionately in such transactions as a seller on the same terms and
conditions as apply to WRC Media's sale of Weekly Reader voting common stock or,
in the case of EAC III's sale of WRC Media common stock, at a price to be
determined in good faith by the board of directors of Weekly Reader, which will,
as nearly as reasonably practicable, provide PRIMEDIA economic treatment
comparable to that which it would have received as a holder of WRC Media common
stock. With respect to WRC Media and EAC III, a permitted transferee is an
affiliate, shareholder, partner, member or employee of Ripplewood Partners, L.P.
or an employee of Weekly Reader. The PRIMEDIA shareholder agreement also
provides that, in the event that an initial public offering of WRC Media common
stock shall occur, PRIMEDIA will have the right to exchange all or any portion
of its Weekly Reader voting common stock for shares of WRC Media common stock
having an equivalent fair market value.
DRAG-ALONG RIGHTS. In the event that WRC Media determines to sell all or
any portion in excess of 35% of its Weekly Reader voting common stock to any
third party or that EAC III determines to
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sell all or any portion in excess of 35% of its WRC Media common stock to any
third party, subject to customary exceptions, WRC Media will have the right to
require PRIMEDIA to sell its shares of Weekly Reader voting common stock in such
transaction, all at the same price per share and on the same terms and
conditions as apply to the sale of Weekly Reader voting common stock held by WRC
Media or, in the case of EAC III's sale of WRC Media common stock, at a price to
be determined in good faith by the board of directors of Weekly Reader, which
will, as nearly as reasonably practicable, provide PRIMEDIA economic treatment
comparable to that which it would have received as a holder of WRC Media common
stock.
STOCKHOLDERS AGREEMENT
On November 17, 1999, WRC Media and EAC III entered into a stockholders
agreement with SGC Partners II LLC as purchaser concerning the relative rights
and relationships of SGC Partners II LLC and the other parties to the agreement
with respect to WRC Media common stock. The following summary of the material
provisions of this stockholders agreement is qualified in its entirety by
reference to the stockholders agreement with SGC Partners II LLC.
TAG-ALONG RIGHTS. The stockholders agreement with SGC Partners II LLC as
purchaser provides that if EAC III determines to sell all or any portion in
excess of 20% of its WRC Media common stock or Ripplewood Partners, L.P.
determines to sell in excess of 10% of its membership interests in EAC III to
any third party, subject to certain exceptions, SGC Partners II LLC will have
the right to participate proportionately in such transactions as a seller on the
same terms and conditions as apply to EAC III's sale of WRC Media common stock.
The stockholders agreement also provides that if Ripplewood Partners, L.P.
determines to sell its membership interests in EAC III, SGC Partners II LLC will
have the right to participate at a price to be determined in good faith by the
Board of Directors of WRC Media which will, as nearly as reasonably practicable,
provide SGC Partners II LLC economic treatment comparable to that which it would
have received had the sale been of WRC Media common stock in lieu of membership
interests in EAC III.
DRAG-ALONG RIGHTS. This stockholders agreement with SGC Partners II LLC as
purchaser provides that, in the event that EAC III determines to enter into an
agreement for the sale of 90% or more of the WRC Media common stock it holds in
certain qualifying transactions as described in this stockholders agreement, it
will have the right to require SGC Partners II LLC to sell the same percentage
of its WRC Media common stock in such transaction, at the same price per share
and on the same terms and conditions as apply to EAC III's sale of WRC Media
common stock.
INFORMATION AND OBSERVATION RIGHTS. Pursuant to the agreement, WRC Media
will be obligated to provide certain financial and business information to SGC
Partners II LLC, such as quarterly and annual financial statements, filings made
with the Securities and Exchange Commission and other reports or information
that may be reasonably requested by SGC Partners II LLC.
CORPORATE GOVERNANCE. Pursuant to the agreement, SGC Partners II LLC will
be entitled to appoint one person to the board of directors of WRC Media, or two
persons, if the board of directors consists of ten or more directors, as long as
SGC Partners II LLC continues to hold at least 50% of the WRC Media common stock
it purchased in connection with the recapitalization of PRIMEDIA's Supplemental
Education Group and the acquisition of CompassLearning.
TRANSFER RIGHTS AND RESTRICTIONS; RIGHT OF FIRST OFFER. Other than in a
public offering, WRC Media will not issue any shares of WRC Media common stock
to any person, unless such person acknowledges that it has notice of the
provisions of this agreement. No shares of WRC Media common stock shall be
transferred by EAC III or SGC Partners II LLC to any third party unless such
third party assumes in writing all of the obligations of its transferor under
the stockholders agreement. In addition, in the
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event that SGC Partners II LLC wishes to transfer its shares of WRC Media common
stock to any third party (other than one or more of its affiliates), it must
first offer to sell such shares to EAC III.
REGISTRATION RIGHTS. Pursuant to this stockholders agreement with SGC
Partners II LLC as purchaser, both SGC Partners II LLC and EAC III will be
entitled to require WRC Media to effect registration of its WRC Media common
stock under the Securities Act of 1933. SGC Partners II LLC will be entitled to
make one such demand registration and EAC III will be entitled to make any
number of such demand registrations after the earlier to occur of an initial
public offering of WRC Media common stock or July 13, 2004. Notwithstanding the
foregoing, WRC Media will not be required to effect a registration unless the
gross aggregate offering price of all securities to be included in such
registration exceeds $30.0 million or the requested registration includes all
the registrable securities of SGC Partners II L.L.C. In addition, if WRC Media
proposes to register any WRC Media common stock for sale in a public offering,
including an initial public offering, each of SGC Partners II LLC and EAC III
will have "piggy-back" registration rights with respect to the WRC Media common
stock it owns. WRC Media will bear the costs and expenses of registration,
including the costs and expenses of one counsel for SGC Partners II LLC or EAC
III, and will provide customary indemnities in connection therewith.
SENIOR PREFERRED STOCKHOLDERS AGREEMENT
On November 17, 1999, WRC Media, CompassLearning, Weekly Reader, the senior
preferred stockholders, SGC Partners II LLC (only with respect to certain
provisions, including voting for the nominee of the DLJMB Investors and their
permitted transferees as described below and related matters and certain
transfer restrictions) and EAC III entered into a stockholders agreement
concerning the relative rights and relationships of the senior preferred
stockholders and the other parties to the agreement with respect to the senior
preferred stock and the Preferred Stockholder Warrants. The following summary of
the material provisions of the senior preferred stockholders agreement is
qualified in its entirety by reference to the senior preferred stockholders
agreement.
CORPORATE GOVERNANCE. The DLJMB Investors and their permitted transferees
have the right, for so long as any of them owns senior preferred stock,
Preferred Stockholders Warrants or any securities of WRC Media, Weekly Reader or
CompassLearning into which such senior preferred stock or Preferred Stockholder
Warrants are convertible or exchangeable, to nominate one director to the boards
of directors of WRC Media, Weekly Reader and CompassLearning. In addition, EAC
III and SGC Partners II LLC are required to vote their shares of WRC Media
common stock, and EAC III will cause WRC Media to vote its shares of Weekly
Reader voting common stock and CompassLearning's voting common stock, in favor
of the election of such nominee designated by the DLJMB Investors and their
permitted transferees.
TRANSFER RIGHTS AND RESTRICTIONS. The senior preferred stockholders
agreement restricts the right of the senior preferred stockholders to transfer
the senior preferred stock and the Preferred Stockholder Warrants to certain
adverse parties and require transferees to become party to and be bound by the
senior preferred stockholders agreement to the same extent as the transferor.
Transfers of the senior preferred stock and the Preferred Stockholder Warrants
and any other securities of WRC Media, Weekly Reader or CompassLearning into
which the senior preferred stock and Preferred Stockholder Warrants are
convertible or exchangeable, are otherwise unrestricted, subject to compliance
with the securities laws.
TAG-ALONG AND DRAG-ALONG RIGHTS. The senior preferred stockholders
agreement provides for certain "tag-along" and "drag-along" rights in certain
situations, including in connection with certain sales of the capital stock of
WRC Media, Weekly Reader or CompassLearning.
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REGISTRATION RIGHTS. Pursuant to the senior preferred stockholders
agreement, the DLJMB Investors and their permitted transferees are entitled to
require WRC Media, Weekly Reader or CompassLearning, as applicable, to register
under the Securities Act of 1933:
- the old senior preferred stock and any other securities into which such
old senior preferred stock is exchangeable on two separate occasions; and
- on two separate occasions, the new senior preferred stock, the Preferred
Stockholder Warrants and the shares of Weekly Reader's Class A and
Class B non-voting common stock and Weekly Reader voting common stock or
the common stock of CompassLearning, into which such Preferred Stockholder
Warrants are exchangeable.
In addition, the senior preferred stockholders are entitled to "piggy back"
registration rights with respect to the old senior preferred stock, the new
senior preferred stock, Preferred Stockholder Warrants and any securities of WRC
Media, Weekly Reader or CompassLearning into which such old senior preferred
stock, new senior preferred stock or Preferred Stockholder Warrants are
convertible or exchangeable. WRC Media, Weekly Reader or CompassLearning, as
applicable, will bear the costs and expenses of registration, including the
costs and expenses of one counsel for the DLJMB Investors, and will provide
customary indemnities in connection therewith.
See "Description of Capital Stock."
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DESCRIPTION OF SENIOR CREDIT FACILITIES
This description is qualified in its entirety by reference to the agreements
which define the principal terms and conditions of the senior credit facilities.
As part of the financing for the recapitalization and the related
transactions, Weekly Reader and CompassLearning obtained the senior credit
facilities pursuant to a credit agreement among WRC Media as parent and
guarantor, Weekly Reader and CompassLearning as borrowers, the other direct and
indirect domestic subsidiaries of WRC Media as guarantors, DLJ Capital Funding
as the lead arranger, sole book manager and syndication agent, Bank of America,
N.A. as administrative agent, and a syndicate of banks and other financial
institutions as the lenders. The senior credit facilities are comprised of
$30.0 million revolving credit facility (which includes a letter of credit
subfacility) maturing in six years, the $31.0 million term loan A facility
maturing in six years and the $100.0 million term loan B facility maturing in
seven years, with such term loan A facility and the term loan B facility to
amortize in quarterly installments beginning on December 31, 1999 based upon the
annual amounts shown below:
<TABLE>
<CAPTION>
TERM LOAN A TERM LOAN B
FACILITY FACILITY
(IN THOUSANDS) (IN THOUSANDS)
TWELVE MONTHS ENDING SEPTEMBER 30 -------------- --------------
<S> <C> <C>
2000.................................................. $ 1,550 $ 1,000
2001.................................................. 3,100 1,000
2002.................................................. 4,650 1,000
2003.................................................. 6,200 1,000
2004.................................................. 7,750 1,000
2005.................................................. 6,200 1,000
2006.................................................. -- 75,200
FINAL PAYMENT
November 2005......................................... 1,550 --
November 2006......................................... -- 18,800
------- --------
$31,000 $100,000
</TABLE>
Loans under the senior credit facilities bear interest at a rate per annum
equal to:
(1) for the revolving credit facility and the term loan A facility, the LIBO
rate as defined in the credit agreement, plus 3.25% or the alternate base
rate as defined in the credit agreement, plus 2.25% (subject to
performance-based step downs); and
(2) for the term loan B facility, the LIBO rate plus 4.00% or the alternate
base rate plus 3.00%.
In addition to paying interest on outstanding loans under the senior credit
facilities, we are required to pay a commitment fee to the lenders under the
revolving credit facility in respect of the unused commitments thereunder at a
rate of 0.5% per annum (subject to performance-based step downs).
The senior credit facilities are subject to mandatory prepayments with:
- the proceeds of the incurrence of certain indebtedness;
- the proceeds of certain asset sales or other dispositions (including as a
result of casualty or condemnation);
- the proceeds of issuances of certain equity offerings of WRC Media, Weekly
Reader, CompassLearning and their respective subsidiaries; and
- annually beginning in 2000, 50% of the borrowers' excess cash flow (as
defined in the credit agreement) from the prior year.
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Weekly Reader's and CompassLearning's obligations under the senior credit
facilities are guaranteed by WRC Media and the borrowers' domestic subsidiaries.
The senior credit facilities are secured by a first priority security interest
in substantially all assets of WRC Media, the borrowers and their domestic
subsidiaries, including all of the capital stock (other than certain warrants
and warrant shares issued in connection with them and certain shares of
preferred and common stock) of the borrowers and their domestic subsidiaries,
and up to 65% of the capital stock of foreign subsidiaries that are direct
subsidiaries of their domestic subsidiaries.
The senior credit facilities contain covenants that, among other things,
restrict the ability of WRC Media, the borrowers and their subsidiaries to:
- borrow money or incur liens;
- guarantee indebtedness of others;
- pay dividends or make other distributions;
- make investments or acquisitions;
- make capital expenditures;
- use assets as security in other transactions;
- sell certain assets or merge with or into other companies;
- enter into sale and leaseback transactions; and
- enter into transactions with affiliates.
The senior credit facilities also contain financial covenants, including a
leverage ratio and a fixed charge coverage ratio, and customary events of
default.
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DESCRIPTION OF CAPITAL STOCK
Each of the following summaries of the capital stock of WRC Media, Weekly
Reader and CompassLearning and related agreements is qualified in its entirety
by reference to the instruments and agreements to which each summary relates.
Copies of such instruments and agreements are available upon request to us.
CAPITAL STOCK OF WRC MEDIA
WRC MEDIA COMMON STOCK
GENERAL. WRC Media has authorized the issuance of an aggregate of
20,000,000 shares of voting common stock, par value $.01 per share, of which
6,855,853 is outstanding, excluding shares that will be reserved for issuance of
options. In connection with the transactions described under "Transactions," WRC
Media granted to certain members of management, including, but not limited to,
persons listed under "Ownership of Stock," options to purchase 301,724 shares of
WRC Media common stock. The following is a summary of certain of the rights and
privileges pertaining to the WRC Media common stock. For a full description of
WRC Media's capital stock, reference is made to WRC Media's Certificate of
Incorporation then in effect, a copy of which is available from WRC Media.
VOTING RIGHTS. The holders of WRC Media common stock are entitled to one
vote per share on all matters submitted for action by the shareholders. There is
no provision for cumulative voting with respect to the election of directors.
Accordingly, the holders of more than 50% of the shares of WRC Media common
stock can, if they choose to do so, elect the board of directors of WRC Media
and determine most matters on which stockholders are entitled to vote. See
"Ownership of Stock."
DIVIDEND RIGHTS. Holders of the WRC Media common stock are entitled to
share equally, share for share, if dividends are declared on WRC Media common
stock, whether payable in cash, property or securities of WRC Media.
LIQUIDATION RIGHTS. In the event of any voluntary or involuntary
liquidation, dissolution or winding up of WRC Media, after payment has been made
from the funds available therefor to the holders of the senior preferred stock,
if any, for the full amount to which they are entitled, the holders of the
shares of WRC Media common stock are entitled to share equally, share for share,
in the assets available for distribution. Holders of common stock issued as part
of the units issued on November 17, 1999 have no conversion (except as provided
in the shareholders agreement relating to such units), redemption or preemptive
rights.
WRC MEDIA PREFERRED STOCK
WRC Media's certificate of incorporation allows the issuance, without
stockholder approval, of preferred stock having rights senior to those of our
common stock. The board of directors of WRC Media is authorized, without further
stockholder approval, to issue up to 20,000,000 shares of preferred stock in one
or more series and to fix and designate the rights, preferences, privileges and
restrictions of the preferred stock, including:
- dividend rights;
- conversion rights;
- voting rights;
- terms of redemption; and
- liquidation preferences.
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The board of directors of WRC Media may fix the number of shares
constituting any series and the designations of these series. See "Description
of New Senior Preferred Stock."
CAPITAL STOCK OF WEEKLY READER
WEEKLY READER COMMON STOCK
GENERAL. Weekly Reader has authorized the issuance of:
- 20,000,000 shares of preferred stock; and
- 22,000,000 shares of Weekly Reader common stock, par value $0.01 per
share, which consist of:
-- 20,000,000 shares of Weekly Reader voting common stock,
-- 1,000,000 shares of Weekly Reader Class A non-voting common stock, and
-- 1,000,000 shares of Weekly Reader Class B non-voting common stock.
Except with regard to voting rights, the three designations of Weekly Reader
common stock have the same rights, powers and limitations. The Weekly Reader
Class A non-voting common stock will automatically convert into Weekly Reader
voting common stock upon an initial public offering of Weekly Reader. The Weekly
Reader Class B non-voting common stock shall automatically convert upon transfer
to any party other than a DLJMB Investor or any affiliate thereof.
VOTING RIGHTS. The holders of Weekly Reader voting common stock are
entitled to one vote per share on all matters submitted for action by the
shareholders. There is no provision for cumulative voting with respect to the
election of directors. Accordingly, the holders of more than 50% of the shares
of Weekly Reader voting common stock can, if they choose to do so, elect the
board of directors of Weekly Reader and determine most matters on which
stockholders are entitled to vote. See "Ownership of Stock."
DIVIDEND RIGHTS. Holders of the Weekly Reader common stock are entitled to
share equally, share for share, if dividends are declared on Weekly Reader
common stock, whether payable in cash, property or securities of Weekly Reader.
LIQUIDATION RIGHTS. In the event of any voluntary or involuntary
liquidation, dissolution or winding up of Weekly Reader, after payment has been
made from the funds available therefor to the holders of Weekly Reader's
preferred stock, if any, for the full amount to which they are entitled, the
holders of the shares of Weekly Reader common stock are entitled to share
equally, share for share, in the assets available for distribution. Holders of
Weekly Reader common stock have no conversion, redemption or preemptive rights.
WEEKLY READER PREFERRED STOCKHOLDER WARRANTS
In connection with the sale of the old senior preferred stock to the senior
preferred stockholders, Weekly Reader issued to the senior preferred
stockholders Preferred Stockholder Warrants to acquire 422,874 shares of Weekly
Reader voting common stock, representing 13% of its common stock on a fully
diluted basis, at an exercise price of $0.01 per share; PROVIDED, HOWEVER, for
so long as any such warrants are held by any of the DLJMB Investors or any of
their affiliates, they shall be warrants to acquire Weekly Reader Class B
non-voting common stock. All such warrants that are held by the DLJMB Investors
or any of their affiliates shall automatically convert into warrants to acquire,
and all shares of Weekly Reader Class B non-voting common stock held by the
DLJMB Investors or any of their affiliates shall automatically convert into
shares of, Weekly Reader voting common stock upon their transfer of such
warrants or common stock to a party other than a DLJMB Investor or any affiliate
thereof. The Preferred Stockholder Warrants issued by Weekly Reader are not
exercisable after
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the twelfth anniversary of the issuance date and contain antidilution
provisions. The Preferred Stockholder Warrants issued by Weekly Reader also
include the right to share ratably in stock splits, stock dividends, mergers and
rights offerings to existing holders of Weekly Reader common stock, and are
freely transferable, subject to certain customary restrictions. See "Ownership
of Stock--Senior Preferred Stockholders Agreement."
COMPASSLEARNING PREFERRED STOCKHOLDER WARRANTS
In connection with the sale of the old senior preferred stock to the senior
preferred stockholders, CompassLearning issued to the WRC Media senior preferred
stockholders Preferred Stockholder Warrants to acquire 1,495 shares of
CompassLearning common stock representing 13% of its common stock on a fully
diluted basis, at an exercise price of $0.01 per share. The Preferred
Stockholder Warrants issued by CompassLearning are not exercisable after the
twelfth anniversary of the issuance date and contain antidilution provisions.
The Preferred Stockholder Warrants issued by CompassLearning also include the
right to share ratably in stock splits, stock dividends, mergers and rights
offerings to existing holders of CompassLearning common stock, and is freely
transferable, subject to certain customary restrictions. See "Ownership of
Stock--Senior Preferred Stockholders Agreement."
EQUITY SPONSORS
As part of the transactions described under "Transactions", funds managed by
an investor group led by Ripplewood Partners, L.P. and including SGC Partners II
LLC, Co-Investment Partners, L.P., The Northwestern Mutual Life Insurance
Company, Jackson National Life Insurance Company, DLJ Merchant Banking Partners
II, L.P. and certain other investors, together with Company management, will
have invested, directly and indirectly, an aggregate of approximately
$198.7 million in common and preferred equity of WRC Media to finance the
transactions described under "Transactions." Ripplewood Partners, L.P. is
managed by Ripplewood Holdings L.L.C., its general partner, which was founded in
1995. Ripplewood Partners, L.P. makes direct investments in select leveraged
acquisitions, which provide opportunities for significant growth, consolidation
and high rates of return. Together with its industrial partners, Ripplewood
Partners, L.P. typically buys platform companies as core holdings, then pursues
predefined strategies to support the operating management and enhance the value
of these businesses. Ripplewood Holdings L.L.C. manages approximately
$430 million of committed capital and currently has seven "partnerships" in the
automotive retail (Asbury Automotive Group), food manufacturing (Lighthouse
Holdings), technology (Leeward Technology Group), industrial manufacturing
(McClintock Industries), chemicals (Resolute Partners), financial services (New
LTCB Partners) and media (WRC Media) industries. WRC Media is Ripplewood
Holdings L.L.C.'s partnership with Martin E. Kenney, Jr., an experienced print
and electronic media executive. Ripplewood Holdings L.L.C. will provide certain
management services to us pursuant to the management agreement described under
"Certain Relationships and Related Transactions." Certain Co-investors
separately manage several private equity funds which aggregate over
$6.5 billion of committed capital.
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DESCRIPTION OF NEW NOTES
Unless otherwise specified, you can find the definitions of capitalized
terms used in this description under "--Definitions." In this description, the
word "Issuers" refers only to WRC Media, Weekly Reader and CompassLearning
collectively, and not to any of their respective subsidiaries. For purposes of
this section, WRC Media refers only to WRC Media and not to any of its
subsidiaries.
The Issuers issued the old notes and will issue the new notes as a joint and
several obligations under the notes indenture among the Issuers, the Note
Guarantors and Bankers Trust Company as trustee (the "Trustee"), which has been
filed as an exhibit to the registration statement of which this prospectus forms
a part. The terms of the new notes will be substantially identical to the terms
of the old notes, except that the new notes will not contain terms with respect
to transfer restrictions and will not require the Issuers to consummate a
registered exchange offer. Except as described in the previous sentence, the new
notes will evidence the same debt as the old notes and will be entitled to the
same benefits under the notes indenture as the old notes. Accordingly, unless
specifically stated to the contrary, the following description applies equally
to the old notes and the new notes. The terms of the notes include those stated
in the notes indenture and those made part of the notes indenture by reference
to the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"). The
notes are subject to all such terms, and prospective investors are referred to
the notes indenture and the Trust Indenture Act for a statement thereof.
The following description is a summary of the material provisions of the
notes indenture. It does not restate the agreement in its entirety. We urge you
to read the notes indenture because it, and not this description, define your
rights as holders of the new notes. Copies of the notes indenture are available
as described under "Where You Can Find More Information."
BRIEF DESCRIPTION OF THE NOTES AND THE NOTE GUARANTEES
THE NOTES
The notes:
- are general unsecured obligations of the Issuers;
- are subordinated in right of payment to all existing and future Senior
Debt of the Issuers;
- are equal in right of payment with any future senior subordinated
Indebtedness of the Issuers;
- are senior in right of payment to any future subordinated Indebtedness of
the Issuers;
- are effectively subordinated to all existing and future secured
Indebtedness of the Issuers to the extent of the value of the assets
securing such Indebtedness; and
- are unconditionally guaranteed by the Note Guarantors.
THE NOTE GUARANTEES
The notes are guaranteed by all existing and future Domestic Subsidiaries of
WRC Media, other than Weekly Reader and CompassLearning.
Each Note Guarantee of the notes:
- is a general unsecured obligation of the Note Guarantor;
- is subordinated in right of payment to all existing and future Senior Debt
of the Note Guarantor;
- is equal in right of payment with any future senior subordinated
Indebtedness of the Note Guarantor;
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- is effectively subordinated to all existing and future secured
Indebtedness of such Note Guarantor to the extent of the value of the
assets securing such Indebtedness; and
- is senior in right of payment to any future subordinated Indebtedness of
the Note Guarantor.
Assuming we had completed the offering of the old notes and the other
transactions described under "Transactions" and applied the proceeds as
intended, as of September 30, 1999, the Issuers and the Note Guarantors would
have had total Senior Debt of approximately $131.0 million. As indicated above
and as discussed in detail below under the subheading "--Subordination,"
payments on the notes and the Note Guarantees will be subordinated to the
payment of Senior Debt. The notes indenture will permit us and the Note
Guarantors to incur additional Senior Debt.
As of the date of the notes indenture, all existing Subsidiaries of WRC
Media became "Restricted Subsidiaries." However, under the circumstances
described below under the subheading "--Material Covenants--Designation of
Restricted and Unrestricted Subsidiaries," WRC Media will be permitted to
designate certain of its subsidiaries as "Unrestricted Subsidiaries." The
Unrestricted Subsidiaries will not be subject to many of the restrictive
covenants in the notes indenture. The Unrestricted Subsidiaries will not
guarantee the notes.
PRINCIPAL, MATURITY AND INTEREST
The notes indenture provides for the issuance by the Issuers of notes with a
maximum aggregate principal amount of $250.0 million, of which $152.0 million
was issued pursuant to the offering of the old notes. The Issuers may issue
additional notes (the "Additional Notes") from time to time. Any offering of
Additional Notes is subject to the covenant described below under the caption
"--Material Covenants--Incurrence of Indebtedness and Issuance of Preferred
Stock." The old notes, the new notes and any Additional Notes subsequently
issued under the notes indenture would be treated as a single class for all
purposes under the notes indenture, including, without limitation, waivers,
amendments, redemptions and offers to purchase. The Issuers issued old notes in
denominations of $1,000 and integral multiples of $1,000. The new notes will
also be issued in denominations of $1,000 and integral multiples of $1,000. The
notes will mature on November 15, 2009.
Interest on the notes is payable semi-annually in arrears on November 15 and
May 15, commencing on May 15, 2000. The Issuers will make each interest payment
to the Holders of record on the immediately preceding November 1 and May 1.
Interest on the notes accrues from the date of original issuance or, if
interest has already been paid, from the date it was most recently paid.
Interest will be computed on the basis of a 360-day year comprised of twelve
30-day months.
METHODS OF RECEIVING PAYMENTS ON THE NOTES
If a Holder has given wire transfer instructions to the Issuers, the Issuers
will pay all principal, interest and premium and Liquidated Damages, if any, on
that Holder's notes in accordance with those instructions. All other payments on
notes will be made at the office or agency of the Paying Agent (as defined in
the notes indenture) and Registrar (as defined in the notes indenture) within
the City and State of New York unless the Issuers elect to make interest
payments by check mailed to the Holders at their addresses set forth in the
register of Holders.
PAYING AGENT AND REGISTRAR FOR THE NOTES
The Trustee will initially act as Paying Agent and Registrar. The Issuers
may change the Paying Agent or Registrar without prior notice to the Holders,
and WRC Media or any of its Restricted Subsidiaries may act as Paying Agent or
Registrar.
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TRANSFER AND EXCHANGE
A Holder may transfer or exchange notes in accordance with the notes
indenture. The Registrar and the Trustee may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents, and the
Issuers may require a Holder to pay any taxes and fees required by law or
permitted by the notes indenture. The Issuers are not required to transfer or
exchange any note selected for redemption. Also, the Issuers are not required to
transfer or exchange any note for a period of 15 days before a selection of
notes to be redeemed.
The registered Holder of a note will be treated as the owner of it for all
purposes.
NOTE GUARANTEES
The Note Guarantors will jointly and severally guarantee the Issuers'
obligations under the notes. Each Note Guarantee will be subordinated to the
prior payment in full in cash or cash equivalents of all Senior Debt of that
Note Guarantor, including that Note Guarantor's Guarantee of the Credit
Agreement, to the same extent that the notes are subordinated to the Senior Debt
of the Issuers. The obligations of each Note Guarantor under its Note Guarantee
will be limited as necessary to prevent that Note Guarantee from constituting a
fraudulent conveyance under applicable law. See "Risk Factors--Fraudulent
Conveyance Matters."
If a Note Guarantee were to be rendered voidable, it could be subordinated
to all other indebtedness (including Guarantees and contingent liabilities) of
the applicable guarantor, and, depending on the amount of such Indebtedness, a
Note Guarantor's liability in respect of its Note Guarantee could be rendered to
zero. Each Note Guarantor that makes a payment under its Note Guarantee will be
entitled to a contribution from each other Note Guarantor in an amount equal to
such Note Guarantor's pro rata portion of such payment based on the respective
net assets of all Note Guarantors at the time of such payment, as determined in
accordance with GAAP.
A Note Guarantor may not sell or otherwise dispose of all or substantially
all of its assets to, or consolidate with or merge with or into (whether or not
such Note Guarantor is the surviving Person), another Person, other than WRC
Media or another Note Guarantor, unless:
(1) immediately after giving effect to that transaction, no Default or Event
of Default exists; and
(2) either:
(a) the Person acquiring the property in any such sale or disposition or
the Person formed by or surviving any such consolidation or merger
- is a Domestic Subsidiary of WRC Media and assumes all the
obligations of that Note Guarantor under the notes indenture, its
Note Guarantee and the Registration Rights Agreement pursuant to a
supplemental indenture satisfactory to the Trustee, or
- is a Wholly Owned Restricted Subsidiary that is not a Domestic
Subsidiary; or
(b) the Net Proceeds of such sale or other disposition are applied in
accordance with the covenant described under "--Repurchase at the
Option of Holders--Asset Sales."
The Note Guarantee of a Note Guarantor will be released:
(1) in connection with any sale or other disposition of all or substantially
all of the assets of that Note Guarantor (including by way of merger or
consolidation) to a Person that is not (either before or after giving
effect to such transaction) a Restricted Subsidiary of WRC Media, if the
Note Guarantor applies the Net Proceeds of that sale or other disposition
in accordance with the covenant described under "--Repurchase at the
Option of Holders--Asset Sales;"
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(2) in connection with any sale of all of the Capital Stock of a Note
Guarantor to a Person that is not (either before or after giving effect
to such transaction) a Restricted Subsidiary of WRC Media, if no Default
or Event of Default has occurred and is continuing;
(3) if WRC Media properly designates any Restricted Subsidiary that is a
Note Guarantor as an Unrestricted Subsidiary; or
(4) with respect to any Note Guarantor, upon the release or discharge of all
Guarantees by such Note Guarantor, including all pledges of property or
assets securing and all direct and indirect credit support of, all other
Indebtedness of WRC Media and the Note Guarantors; PROVIDED that no
Default or Event of Default shall have occurred and be continuing.
See "--Repurchase at the Option of Holders--Asset Sales."
SUBORDINATION
The payment of Subordinated Note Obligations will be subordinated to the
prior payment in full in cash or cash equivalents of all Senior Debt of the
Issuers, including Senior Debt incurred after the date of the notes indenture.
However, payment from the money or the proceeds of U.S. government obligations
held in any defeasance trust described below under "--Legal Defeasance and
Covenant Defeasance" will not be subordinated to any Senior Debt or subject to
the restrictions described therein.
The holders of Senior Debt will be entitled to receive payment in full in
cash or cash equivalents of all Obligations due in respect of Senior Debt
(including interest after the commencement of any bankruptcy proceeding at the
rate specified in the applicable Senior Debt) before the Holders of notes will
be entitled to receive any payment with respect to the Subordinated Note
Obligations. Also, until all Obligations with respect to Senior Debt are paid in
full in cash or cash equivalents, any distribution to which the Holders of notes
would be entitled shall be made to the holders of Senior Debt (except that
Holders of notes may receive and retain Permitted Junior Securities and payments
made from the trust described under "--Legal Defeasance and Covenant
Defeasance"), in the event of any distribution to creditors of any Issuer:
(1) in a liquidation or dissolution of such Issuer;
(2) in a bankruptcy, reorganization, insolvency, receivership or similar
proceeding relating to such Issuer or its property;
(3) in an assignment for the benefit of creditors; or
(4) in any marshaling of such Issuer's assets and liabilities.
The Issuers also may not make any payment in respect of the notes (except in
Permitted Junior Securities or from the trust described under "--Legal
Defeasance and Covenant Defeasance") if:
(1) a default in the payment of the principal (including reimbursement
obligations in respect of letters of credit) of, premium, if any, or
interest on or commitment, letter of credit or administrative fees
relating to, Designated Senior Debt occurs and is continuing beyond any
applicable period of grace; or
(2) any other default occurs and is continuing on any series of Designated
Senior Debt that permits holders of that series of Designated Senior Debt
as to which that default relates to accelerate its maturity and the
Trustee receives a notice of such default (a "Payment Blockage Notice")
from the Issuers or the holders of any Designated Senior Debt.
Payments on the notes may and shall be resumed:
(1) in the case of a payment default, upon the date on which such default is
cured or waived; and
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(2) in case of a nonpayment default, the earlier of the date on which such
nonpayment default is cured or waived or 179 days after the date on which
the applicable Payment Blockage Notice is received, unless the maturity
of any Designated Senior Debt has been accelerated.
No new Payment Blockage Notice may be delivered unless and until 360 days
have elapsed since the delivery of the immediately prior Payment Blockage
Notice.
No nonpayment default that existed or was continuing on the date of delivery
of any Payment Blockage Notice to the Trustee shall be, or be made, the basis
for a subsequent Payment Blockage Notice unless such default shall have been
cured or waived for a period of not less than 90 days.
If the Trustee or any Holder of the notes receives a payment in respect of
the notes (except in Permitted Junior Securities or from the trust described
under "--Legal Defeasance and Covenant Defeasance") when the payment is
prohibited by these subordination provisions the Trustee or the Holder, as the
case may be, shall promptly turn over such payment to the holders of Senior Debt
or their proper representative. Until the Trustee or the Holder shall have so
turned over such payment, the Trustee or the Holder shall be deemed to have held
such payment in trust for the benefit of the holders of Senior Debt.
The Issuers and the Trustee must promptly notify holders of Senior Debt (or
their representative) if payment of the notes is accelerated because of an Event
of Default.
As a result of the subordination provisions described above, in the event of
a bankruptcy, liquidation or reorganization of any Issuer, Holders of notes may
recover less ratably than creditors of such Issuers who are holders of Senior
Debt. See "Risk Factors--Ranking of the Notes."
OPTIONAL REDEMPTION
At any time prior to November 15, 2002, the Issuers may on any one or more
occasions redeem up to 35% of the aggregate principal amount of notes
(calculated giving effect to any issuance of Additional Notes) issued under the
notes indenture at a redemption price of 112.75% of the principal amount
thereof, plus accrued and unpaid interest and Liquidated Damages, if any, to the
redemption date, with the net cash proceeds of one or more Equity Offerings;
PROVIDED that:
(1) at least 65% of the aggregate principal amount of notes (calculated
giving effect to any issuance of Additional Notes) issued under the notes
indenture remains outstanding immediately after the occurrence of such
redemption (excluding notes held by WRC Media and its Subsidiaries); and
(2) the redemption must occur within 45 days of the date of the closing of
such Equity Offering.
Except pursuant to the preceding paragraph, the notes will not be redeemable
at the Issuers' option prior to November 15, 2004.
On or after November 15, 2004, the Issuers may redeem all or a part of the
notes upon not less than 30 nor more than 60 days' notice, at the redemption
prices (expressed as percentages of principal amount) set forth below plus
accrued and unpaid interest and Liquidated Damages, if any, thereon, to the
applicable redemption date, if redeemed during the twelve-month period beginning
on November 15 of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ---- ----------
<S> <C>
2004........................................................ 106.375%
2005........................................................ 104.250%
2006........................................................ 102.125%
2007 and thereafter......................................... 100.000%
</TABLE>
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MANDATORY REDEMPTION
Except as set forth below under "Repurchase at the Option of Holders," the
Issuers are not required to make mandatory redemption or sinking fund payments
with respect to the notes.
REPURCHASE AT THE OPTION OF HOLDERS
CHANGE OF CONTROL
If a Change of Control occurs, unless the Issuers have given notice of
redemption of the notes pursuant to the provisions described above under the
caption "--Optional Redemption," each Holder of notes will have the right to
require the Issuers to repurchase all or any part (equal to $1,000 or an
integral multiple thereof) of that Holder's notes pursuant to an offer (the
"Change of Control Offer") on the terms set forth in the notes indenture. In the
Change of Control Offer, the Issuers will offer a payment in cash (the "Change
of Control Payment") equal to 101% of the aggregate principal amount of notes
repurchased plus accrued and unpaid interest and Liquidated Damages, if any,
thereon, to the date of purchase (subject to the right of Holders of record on
the relevant record date to receive interest due on the relevant interest
payment date). Within thirty days following any Change of Control, the Issuers
will mail a notice to each Holder describing the transaction or transactions
that constitute the Change of Control and offering to repurchase notes on the
date specified in such notice (the "Change of Control Payment Date"). The Change
of Control Payment Date shall be no earlier than 30 days and no later than
60 days from the date such notice is mailed, pursuant to the procedures required
by the notes indenture and described in such notice. The Issuers will comply
with the requirements of Rule 14e-1 under the Exchange Act and any other
securities laws and regulations thereunder to the extent such laws and
regulations are applicable in connection with the repurchase of the notes as a
result of a Change of Control. To the extent that the provisions of any
securities laws or regulations conflict with the Change of Control provisions of
the notes indenture, the Issuers will comply with the applicable securities laws
and regulations and will not be deemed to have breached its obligations under
the Change of Control provisions of the notes indenture by virtue of such
conflict.
On the Change of Control Payment Date, the Issuers will, to the extent
lawful:
(1) accept for payment all notes or portions thereof properly tendered
pursuant to the Change of Control Offer;
(2) deposit with the Paying Agent an amount equal to the Change of Control
Payment in respect of all notes or portions thereof so tendered; and
(3) deliver or cause to be delivered to the Trustee for cancellation the
notes so accepted together with an Officers' Certificate stating the
aggregate principal amount of notes or portions thereof being purchased
by the Issuers.
The Paying Agent will promptly mail to each Holder of notes so tendered the
Change of Control Payment for such notes, and the Trustee will promptly
authenticate and mail (or cause to be transferred by book entry) to each Holder
a newly issued note equal in principal amount to any unpurchased portion of the
notes surrendered, if any; PROVIDED that each such newly issued note will be in
a principal amount of $1,000 or an integral multiple thereof.
Prior to complying with any of the provisions of this "Change of Control"
covenant, but in any event within 90 days following a Change of Control, the
Issuers will either repay all outstanding Senior Debt or obtain the requisite
consents, if any, under all agreements governing outstanding Senior Debt to
permit the repurchase of notes required by this covenant. The Issuers will
publicly announce the results of the Change of Control Offer on or as soon as
practicable after the Change of Control Payment Date.
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The provisions described above that require the Issuers to make a Change of
Control Offer following a Change of Control will be applicable regardless of
whether any other provisions of the notes indenture are applicable. Except as
described above with respect to a Change of Control, the notes indenture does
not contain provisions that permit the Holders of the notes to require that the
Issuers repurchase or redeem the notes in the event of a takeover,
recapitalization or similar transaction.
The Issuers will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set forth
in the notes indenture applicable to a Change of Control Offer made by the
Issuers and purchases all notes validly tendered and not withdrawn under such
Change of Control Offer.
The Issuers' ability to pay cash to the Holders upon a repurchase may be
limited by the Issuers' then existing financial resources. There can be no
assurance that the Issuers will have sufficient assets to satisfy their
repurchase obligation under the notes indenture. The provisions under the notes
indenture relating to the Issuers' obligation to make an offer to repurchase the
notes as a result of a Change of Control may be waived or modified with the
written consent of the Holders of a majority in principal amount of the notes.
The existence of a Holder's right to require the Issuers to repurchase such
Holder's notes upon the occurrence of a Change of Control may deter a third
party from seeking to acquire the Issuers in a transaction that would constitute
a Change of Control.
The definition of Change of Control includes a phrase relating to the direct
or indirect sale, lease, transfer, conveyance or other disposition of "all or
substantially all" of the properties or assets of WRC Media and its Subsidiaries
taken as a whole. Although there is a limited body of case law interpreting the
phrase "substantially all," there is no precise established definition of the
phrase under applicable law. Accordingly, the ability of a Holder of notes to
require the Issuers to repurchase such notes as a result of a sale, lease,
transfer, conveyance or other disposition of less than all of the assets of WRC
Media and its Subsidiaries taken as a whole to another Person or group may be
uncertain.
ASSET SALES
WRC Media will not, and will not permit any of its Restricted Subsidiaries
to, consummate an Asset Sale unless:
(1) WRC Media or such Restricted Subsidiary receives consideration at the
time of such Asset Sale at least equal to the fair market value of the
assets or Equity Interests issued or sold or otherwise disposed of;
(2) such fair market value is determined by WRC Media's Board of Directors
and evidenced by a resolution of the Board of Directors set forth in an
Officers' Certificate delivered to the Trustee; and
(3) at least 75% of the consideration therefor received by WRC Media or such
Restricted Subsidiary is in the form of (A) Cash Equivalents or
(B) Qualified Proceeds; PROVIDED that the aggregate fair market value of
Qualified Proceeds (other than Cash Equivalents), which may be received
in consideration for Asset Sales pursuant to this clause (3)(B) shall not
exceed $20.0 million since the date of the notes indenture. For purposes
of this provision, each of the following shall be deemed to be cash:
(a) any liabilities (as shown on WRC Media's or such Restricted
Subsidiary's most recent balance sheet), of WRC Media or any
Restricted Subsidiary (other than contingent liabilities and
liabilities that are by their terms subordinated to the notes or any
Note
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Guarantee) that are assumed by the transferee of any such assets
pursuant to a customary novation agreement that releases WRC Media or
such Restricted Subsidiary from further liability; and
(b) any securities, notes or other obligations received by WRC Media or
any such Restricted Subsidiary from such transferee that are
contemporaneously (subject to ordinary settlement periods) converted
by WRC Media or such Restricted Subsidiary into cash (to the extent
of the cash received in that conversion).
Within 365 days after the receipt of any Net Proceeds from an Asset Sale,
WRC Media may apply such Net Proceeds at its option:
(1) to repay Senior Debt and, if the Senior Debt repaid is revolving credit
Indebtedness, to correspondingly reduce commitments with respect thereto;
(2) to acquire all or substantially all of the assets of, or a majority of
the Voting Stock of, another Permitted Business;
(3) to make a capital expenditure; or
(4) to acquire other long-term assets that are used or useful in a Permitted
Business.
Pending the final application of any such Net Proceeds, WRC Media may
temporarily reduce revolving credit borrowings or otherwise invest such Net
Proceeds in any manner that is not prohibited by the notes indenture.
Any Net Proceeds from Asset Sales that are not applied or invested as
provided in the preceding paragraph will constitute "Excess Proceeds." When the
aggregate amount of Excess Proceeds exceeds $10.0 million, the Issuers will make
an Asset Sale Offer (as defined in the notes indenture) to all Holders of notes
and all holders of other Indebtedness that is PARI PASSU with the notes
containing provisions similar to those set forth in the notes indenture with
respect to offers to purchase or redeem with the proceeds of sales of assets to
purchase the maximum principal amount of notes (including Additional Notes) and
such other PARI PASSU Indebtedness that may be purchased out of the Excess
Proceeds. The offer price in any Asset Sale Offer will be equal to 100% of
principal amount plus accrued and unpaid interest and Liquidated Damages, if
any, to the date of purchase, and will be payable in cash. If any Excess
Proceeds remain after consummation of an Asset Sale Offer, the Issuers may use
such Excess Proceeds for any purpose not otherwise prohibited by the notes
indenture. If the aggregate principal amount of notes and such other PARI PASSU
Indebtedness tendered into such Asset Sale Offer exceeds the amount of Excess
Proceeds, the Trustee shall select the notes and such other PARI PASSU
Indebtedness to be purchased on a pro rata basis based on the principal amount
of notes and such other PARI PASSU Indebtedness tendered. Upon completion of
each Asset Sale Offer, the amount of Excess Proceeds shall be reset at zero.
The Issuers will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with each
repurchase of notes pursuant to an Asset Sale Offer. To the extent that the
provisions of any securities laws or regulations conflict with the Asset Sales
provisions of the notes indenture, the Issuers will comply with the applicable
securities laws and regulations and will not be deemed to have breached its
obligations under the Asset Sale provisions of the notes indenture by virtue of
such conflict.
The agreements governing the Issuers' outstanding Senior Debt currently
prohibit the Issuers from purchasing any notes, and also provide that certain
change of control or asset sale events with respect to WRC Media would
constitute a default under these agreements. Any future credit agreements or
other agreements relating to Senior Debt to which the Issuers become a party may
contain similar restrictions and provisions. In the event a Change of Control or
Asset Sale occurs at a time when the
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Issuers are prohibited from purchasing notes, the Issuers could seek the consent
of their senior lenders to the purchase of notes or could attempt to refinance
the borrowings that contain such prohibition. If the Issuers do not obtain such
a consent or repay such borrowings, the Issuers will remain prohibited from
purchasing notes. In such case, the Issuers' failure to purchase tendered notes
would constitute an Event of Default under the notes indenture, which would, in
turn, constitute a default under such Senior Debt. In such circumstances, the
subordination provisions in the notes indenture would likely restrict payments
to the Holders of notes.
SELECTION AND NOTICE
If less than all of the notes are to be redeemed at any time, the Trustee
will select notes for redemption as follows:
(1) if the notes are listed, in compliance with the requirements of the
principal national securities exchange on which the notes are listed; or
(2) if the notes are not so listed, on a pro rata basis, by lot or by such
method as the Trustee shall deem fair and appropriate.
No notes of $1,000 or less shall be redeemed in part. Notices of redemption
shall be mailed by first class mail at least 30 but not more than 60 days before
the redemption date to each Holder of notes to be redeemed at its registered
address. Notices of redemption may not be conditional.
If any note is to be redeemed in part only, the notice of redemption that
relates to that note shall state the portion of the principal amount thereof to
be redeemed. A newly issued note in principal amount equal to the unredeemed
portion of the original note will be issued in the name of the Holder thereof
upon cancellation of the original note. Notes called for redemption become due
on the date fixed for redemption. On and after the redemption date, interest
ceases to accrue on notes or portions of them called for redemption.
MATERIAL COVENANTS
Set forth below are covenants from the notes indenture which we believe are
material to us. Holders of the notes may decide other covenants not included
below are material. Therefore, we urge holders to read the notes indenture in
its entirety.
RESTRICTED PAYMENTS
WRC Media will not, and will not permit any of its Restricted Subsidiaries
to, directly or indirectly:
(1) declare or pay any dividend or make any other payment or distribution on
account of WRC Media's or any of its Restricted Subsidiaries' Equity
Interests (including, without limitation, any payment in connection with
any merger or consolidation involving WRC Media or any of its Restricted
Subsidiaries) or to the direct or indirect holders of WRC Media's or any
of its Restricted Subsidiaries' Equity Interests in their capacity as
such (other than:
(a) dividends or distributions payable in Equity Interests (other than
Disqualified Stock but including payments of dividends on the Senior
Preferred Stock paid in additional shares of Senior Preferred Stock)
and dividends or distributions payable through accretion to the
liquidation preference of such Senior Preferred Stock or in options,
warrants or other rights to purchase such Equity Interests of WRC
Media,
(b) to WRC Media or a Restricted Subsidiary of WRC Media or
(c) pursuant to the exercise of warrants to purchase common stock of an
Issuer);
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(2) purchase, redeem or otherwise acquire or retire for value (including,
without limitation, in connection with any merger or consolidation
involving the Issuers) any Equity Interests of the Issuers or any direct
or indirect parent of the Issuers;
(3) make any payment on or with respect to, or purchase, redeem, defease or
otherwise acquire or retire for value any Indebtedness that is
subordinated to the notes or the Note Guarantees, except a payment of
interest or principal at the Stated Maturity or any scheduled repayment
thereof other than (a) Indebtedness permitted under clause (6) of the
covenant described under "--Incurrence of Indebtedness and Issuance of
Preferred Stock" or (b) the purchase, repurchase or other acquisition of
subordinated Indebtedness purchased in anticipation of satisfying a
sinking fund obligation, principal installment or final maturity, in each
case due within one year of the date of purchase, repurchase or
acquisition; or
(4) make any Restricted Investment (all such payments and other actions set
forth in clauses (1) through (4) above being collectively referred to as
"Restricted Payments"),
unless, at the time of and after giving effect to such Restricted Payment:
(1) no Default or Event of Default shall have occurred and be continuing or
would occur as a consequence thereof; and
(2) WRC Media would, at the time of such Restricted Payment and after giving
pro forma effect thereto as if such Restricted Payment had been made at
the beginning of the applicable four-quarter period, have been permitted
to incur at least $1.00 of additional Indebtedness pursuant to the Debt
to EBITDA Ratio test set forth in the first paragraph of the covenant
described below under the caption "--Incurrence of Indebtedness and
Issuance of Preferred Stock;" and
(3) such Restricted Payment, together with the aggregate amount of all other
Restricted Payments made by WRC Media and its Restricted Subsidiaries
after the date of the notes indenture (excluding Restricted Payments
permitted by clauses (2) through (10) and clauses (12) and (13) of the
next succeeding paragraph), is less than the sum, without duplication,
of:
(a) 50% of the Consolidated Net Income of WRC Media for the period (taken
as one accounting period) from the beginning of the first fiscal
quarter commencing after the date of the notes indenture to the end
of WRC Media's most recently ended fiscal quarter for which internal
financial statements are available at the time of such Restricted
Payment (or, if such Consolidated Net Income for such period is a
deficit, less 100% of such deficit), PLUS
(b) 100% of the aggregate net cash proceeds and the fair market value of
Cash Equivalents and Qualified Proceeds received by the Issuers since
the date of the notes indenture as a contribution to their common
equity capital or from the issue or sale of Equity Interests of the
Issuers (other than Disqualified Stock and Excluded Contributions) or
from the issue or sale of convertible or exchangeable Disqualified
Stock or convertible or exchangeable debt securities of the Issuers
that have been converted into or exchanged for such Equity Interests
(other than Equity Interests (or Disqualified Stock or debt
securities and Excluded Contributions) sold to a Subsidiary of WRC
Media or WRC Media), PLUS
(c) to the extent that any Restricted Investment that was made after the
date of the notes indenture is sold for cash, Cash Equivalents or
Qualified Proceeds or is otherwise liquidated or repaid for cash,
Cash Equivalents or Qualified Proceeds, the lesser of (1) the return
of capital with respect to such Restricted Investment (less the cost
of disposition, if any) and (2) the initial amount of such Restricted
Investment, PLUS
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(d) the aggregate amount equal to the net reduction in Investments in
Unrestricted Subsidiaries resulting from:
- dividends, distributions, return of capital, repayments of
investments or other transfers of assets to WRC Media or any
Restricted Subsidiary from any Unrestricted Subsidiary, or the
sale of any interest in any Unrestricted Subsidiary, in each case
in the form of cash, Cash Equivalents or Qualified Proceeds, or
- the redesignation of any Unrestricted Subsidiary as a Restricted
Subsidiary (valued in each case as provided in the definition of
"Investment"), not to exceed in the case of any such Unrestricted
Subsidiary the fair market value of such Investment in such
Unrestricted Subsidiary at the time of such reduction in
Investment, after deducting any Indebtedness associated with the
Unrestricted Subsidiary; PROVIDED that the amount of such net
reduction in Investment in such Unrestricted Subsidiary shall be
excluded from Consolidated Net Income for purposes of calculating
clause 3(a) above.
So long as no Default has occurred and is continuing or would be caused
thereby, the preceding provisions will not prohibit:
(1) the payment of any dividend within 60 days after the date of declaration
thereof, if at said date of declaration such payment would have complied
with the provisions of the notes indenture;
(2) (a) the redemption, repurchase, retirement, defeasance or other
acquisition of any subordinated Indebtedness of the Issuers or any
Restricted Subsidiary or of any Equity Interests of the Issuers
("Retired Capital Stock") in exchange for, or out of the net cash
proceeds of the substantially concurrent sale (other than to a
Restricted Subsidiary of WRC Media or to WRC Media) of, Equity
Interests of any of the Issuers (other than Disqualified Stock)
("Refunding Capital Stock"); PROVIDED that the amount of any such
net cash proceeds that are utilized for any such redemption,
repurchase, retirement, defeasance or other acquisition shall be
excluded from clause (3)(b) of the preceding paragraph and
(b) the declaration and payment of dividends on the Refunding Capital
Stock in an aggregate amount per year no greater than the aggregate
amount of dividends per annum that was declarable and payable on such
Retired Capital Stock in a manner not in violation of the notes
indenture immediately prior to such retirement;
(3) the defeasance, redemption, repurchase or other acquisition or
retirement of subordinated Indebtedness of WRC Media or any Restricted
Subsidiary with the net cash proceeds from an incurrence of Permitted
Refinancing Indebtedness;
(4) the payment of any dividend by a Restricted Subsidiary of WRC Media
(other than Weekly Reader or CompassLearning) to the holders of its
common Equity Interests on a pro rata basis; and
(5) the repurchase, redemption or other acquisition or retirement for value
of any Equity Interests of WRC Media or any Restricted Subsidiary of WRC
Media or any direct or indirect parent of WRC Media held by any future,
present or former member of WRC Media's (or any of its Restricted
Subsidiaries') management or any director, employee or consultant of WRC
Media or any of its Restricted Subsidiaries pursuant to any management
equity plan or stock option plan or any other management or employee
benefit plan or agreement; PROVIDED that the aggregate price paid for all
such repurchased, redeemed, acquired or retired Equity Interests shall
not exceed in any calendar year $1.0 million (with unused amounts in any
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calendar year being carried over to succeeding calendar years subject to
a maximum (without giving effect to the following proviso) of
$2.0 million in any calendar year); PROVIDED FURTHER that such amount in
any calendar year may be increased by an amount not to exceed:
(a) the cash proceeds from the sale of Equity Interests of WRC Media to
members of management of WRC Media and its Subsidiaries that occurs
after the date of the notes indenture (to the extent the cash
proceeds from the sale of such Equity Interests have not otherwise
been applied to the payment of Restricted Payments by virtue of the
preceding paragraph (3)(b)) plus
(b) the cash proceeds of key man life insurance policies received by WRC
Media and its Restricted Subsidiaries after the date of the notes
indenture less
(c) the amount of any Restricted Payments previously made pursuant to
this proviso;
(6) repurchases of Equity Interests deemed to occur upon exercise of stock
options if such Equity Interests represent a portion of the exercise
price of such options;
(7) the retirement of any shares of Disqualified Stock of WRC Media by
conversion into, or by exchange for, shares of Disqualified Stock of WRC
Media, or out of the Net Proceeds of the substantially concurrent sale
(other than to a Subsidiary of WRC Media) of other shares of Disqualified
Stock of WRC Media; PROVIDED that:
(a) the amount of such Disqualified Stock does not exceed the amount of
the Disqualified Stock so converted or exchanged or concurrently
retired (plus the amount of all fees, commissions, discounts, costs
and expenses incurred in connection therewith) and
(b) either:
- such Disqualified Stock by its terms, or upon the happening of any
event, matures or is mandatorily redeemable, pursuant to a sinking
fund obligation or otherwise, or is redeemable at the option of the
holder thereof, in whole or in part, later than the final maturity
date or date that the Disqualified Stock being converted or
exchanged is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or is redeemable at the option of the
holder thereof, in whole or in part, or
- all scheduled payments on or in respect of such Disqualified Stock
(other than dividends) shall be at least 91 days following the
final scheduled maturity of the notes;
(8) Investments that are made with Excluded Contributions;
(9) other Restricted Payments in an aggregate amount not to exceed
$10.0 million;
(10) cash dividends and other payments required to be made under the
Recapitalization Agreement;
(11) the payment of dividends on the common stock of an Issuer following the
first public offering of such Issuer's common stock after the date of the
notes indenture, of up to an aggregate of 6% per annum of the net cash
proceeds received by such Issuer in all such public offerings of common
stock, other than public offerings with respect to common stock of an
Issuer registered on Form S-8; PROVIDED that the amount of any such net
cash proceeds that are utilized for any such payments shall be excluded
from clause 3(b) of the preceding paragraph;
(12) advances to employees (including guarantees of loans made to employees)
not in excess of $7.5 million outstanding at any one time in the
aggregate; and
(13) the payment to any direct or indirect parent of WRC Media of amounts
required for such parent to pay franchise taxes and other fees and
operating costs reasonably required to
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maintain its corporate existence, together with any amounts permitted to
be paid pursuant to clause (8) of the covenant described below under the
caption "--Transactions with Affiliates."
In addition, this covenant will not prohibit the exchange of Senior
Preferred Stock into preferred stock of Weekly Reader and/or CompassLearning,
pursuant to the terms of the certificate of designations or the stockholders
agreement relating thereto, as in effect on the date of the notes indenture or
the exchange of Unit Common Stock for Exchange Common Stock pursuant to the
stockholders agreement, as in effect on the date of the notes indenture.
The amount of all Restricted Payments (other than cash) shall be the fair
market value on the date of the Restricted Payment of the asset(s) or securities
proposed to be transferred or issued to or by WRC Media or such Restricted
Subsidiary, as the case may be, pursuant to the Restricted Payment. The fair
market value of any assets or securities that are required to be valued by this
covenant shall be determined by the Board of Directors. The Board of Directors'
determination must be based upon an opinion or appraisal issued by an
accounting, appraisal or investment banking firm of national standing if the
fair market value exceeds $5.0 million.
INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK
WRC Media will not, and will not permit any of its Restricted Subsidiaries
to, directly or indirectly, create, incur, issue, assume, guarantee or otherwise
become directly or indirectly liable, contingently or otherwise, with respect to
(collectively, "incur") any Indebtedness (including Acquired Debt), and the
Issuers and the Note Guarantors will not issue any Disqualified Stock and WRC
Media will not permit any Restricted Subsidiary that is not an Issuer or a Note
Guarantor to issue any shares of preferred stock; PROVIDED, HOWEVER, that the
Issuers and the Note Guarantors may incur Indebtedness (including Acquired Debt)
or issue Disqualified Stock if WRC Media's Debt to EBITDA Ratio for its four
full fiscal quarters ending immediately prior to the date such additional
Indebtedness is Incurred would have been no greater than (x) 6.5 to 1.0 with
respect to any such four-quarter period ending on or prior to November 15, 2001
and (y) 6.0 to 1.0 with respect to any such four-quarter period ending
thereafter.
The first paragraph of this covenant will not prohibit the incurrence of any
of the following items of Indebtedness (collectively, "Permitted Debt"):
(1) the incurrence by WRC Media and its Restricted Subsidiaries of
additional Indebtedness and letters of credit under Credit Facilities in
an aggregate principal amount at any one time outstanding under this
clause (1) (with letters of credit being deemed to have a principal
amount equal to the maximum potential liability of WRC Media and its
Restricted Subsidiaries thereunder) not to exceed $170.0 million
outstanding at any one time, LESS the aggregate amount of all Net
Proceeds of Asset Sales that have been applied by WRC Media or any of its
Restricted Subsidiaries since the date of the notes indenture to repay
any Indebtedness under a Credit Facility pursuant to the covenant
described above under the caption "--Repurchase at the Option of
Holders--Asset Sales;"
(2) Existing Indebtedness of WRC Media and its Restricted Subsidiaries;
(3) the incurrence by the Issuers and the Note Guarantors of Indebtedness
represented by the notes and the related Note Guarantees to be issued on
the date of the notes indenture and the new notes and the related Note
Guarantees to be issued pursuant to the registration rights agreement;
(4) the incurrence by WRC Media or any of its Restricted Subsidiaries of
Indebtedness represented by Capital Lease Obligations, mortgage
financings or purchase money obligations, in each case, incurred for the
purpose of directly or indirectly financing all or any part of the
purchase price or cost of construction or improvement of property, plant
or equipment used in
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the business of WRC Media or such Restricted Subsidiary (whether through
the direct purchase of assets or Capital Stock of any Person owning such
assets), in an aggregate principal amount, including all Permitted
Refinancing Indebtedness incurred to refund, refinance or replace any
Indebtedness incurred pursuant to this clause (4), not to exceed 6% of
Total Tangible Assets at any time outstanding;
(5) the incurrence by WRC Media or any of its Restricted Subsidiaries of
Permitted Refinancing Indebtedness in exchange for, or the net proceeds
of which are used to refund, refinance or replace Indebtedness (other
than intercompany Indebtedness) that was permitted by the notes indenture
to be incurred under the first paragraph of this covenant or clauses (2),
(3), (4), (5) or (10) of this paragraph;
(6) the incurrence by WRC Media or any of its Restricted Subsidiaries of
intercompany Indebtedness between or among WRC Media and any of its
Restricted Subsidiaries; PROVIDED, HOWEVER:
(a) that if the Issuers or any Note Guarantor is the obligor on such
Indebtedness and the obligee with respect to such Indebtedness is not
an Issuer or a Note Guarantor, such Indebtedness must be expressly
subordinated to all Obligations with respect to the notes, in the
case of the Issuers, or the Note Guarantee, in the case of a Note
Guarantor; and
(b) that,
- any subsequent issuance or transfer of Equity Interests that
results in any such Indebtedness being held by a Person other than
WRC Media or a Restricted Subsidiary of WRC Media and
- any sale or other transfer of any such Indebtedness to a Person
that is not either WRC Media or a Restricted Subsidiary of WRC
Media; shall be deemed, in each case, to constitute an incurrence
of such Indebtedness by WRC Media or such Restricted Subsidiary
that was not permitted by this clause (6);
(7) the incurrence by WRC Media or any of its Restricted Subsidiaries of
Hedging Obligations that are incurred for the purpose of fixing or
hedging:
(a) interest rate risk with respect to any floating rate Indebtedness
that is permitted by the terms of the notes indenture to be
outstanding,
(b) the value of foreign currencies purchased or received by WRC Media
and its Restricted Subsidiaries in the ordinary course of business or
(c) commodity prices with respect to commodities used in the ordinary
course of business;
(8) the Guarantees by the Issuers or any of the Note Guarantors of
Indebtedness or any other obligations of WRC Media or a Restricted
Subsidiary of WRC Media that is permitted to be incurred by another
provision of this covenant;
(9) the accrual of interest, the accretion or amortization of original issue
discount, the payment of interest on any Indebtedness in the form of
additional Indebtedness with the same terms, and the payment of dividends
on Disqualified Stock in the form of additional shares of the same class
of Disqualified Stock will not be deemed to be an incurrence of
Indebtedness or an issuance of Disqualified Stock for purposes of this
covenant; PROVIDED, in each such case, that the amount thereof is
included in Consolidated Indebtedness of WRC Media as accrued;
(10) the incurrence by WRC Media or any of its Restricted Subsidiaries of
additional Indebtedness in an aggregate principal amount (or accreted
value, as applicable) at any time outstanding,
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including all Permitted Refinancing Indebtedness incurred to refund,
refinance or replace any Indebtedness incurred pursuant to this
clause (10), not to exceed $10.0 million;
(11) the incurrence by WRC Media or any of its Restricted Subsidiaries of
Indebtedness constituting reimbursement obligations with respect to
letters of credit issued in the ordinary course of business, including,
without limitation, letters of credit in respect of workers' compensation
claims or self-insurance, or other Indebtedness with respect to
reimbursement type obligations regarding workers' compensation claims or
self-insurance;
(12) the incurrence by WRC Media or any of its Restricted Subsidiaries of
Indebtedness arising from agreements of WRC Media or such Restricted
Subsidiary providing for indemnification, adjustment of purchase price or
similar obligations incurred or assumed in connection with the
disposition of any business, assets or Capital Stock of a Subsidiary,
other than guarantees of Indebtedness incurred by any Person acquiring
all or any portion of such business, assets or a Subsidiary for the
purpose of financing such acquisition; PROVIDED that the maximum
assumable liability in respect of all such Indebtedness shall at no time
exceed the gross proceeds including noncash proceeds consisting of Cash
Equivalents or Qualified Proceeds (the fair market value of such noncash
proceeds being measured at the time received and without giving effect to
any subsequent changes in value) actually received by WRC Media and its
Restricted Subsidiaries in connection with such disposition;
(13) the issuance of preferred stock by any of WRC Media's Restricted
Subsidiaries issued to WRC Media or another Restricted Subsidiary;
PROVIDED that any subsequent issuance or transfer of any Equity Interests
or any other event that results in any such Restricted Subsidiary ceasing
to be a Restricted Subsidiary or any other subsequent transfer of any
such shares of preferred stock (except to WRC Media or another Restricted
Subsidiary) shall be deemed, in each case, to be an issuance of such
shares of preferred stock; and
(14) the incurrence by WRC Media or any of its Restricted Subsidiaries of
obligations in respect of performance and surety bonds and completion
guarantees provided by WRC Media or such Restricted Subsidiary in the
ordinary course of business.
For purposes of determining compliance with this "Incurrence of Indebtedness
and Issuance of Preferred Stock" covenant, in the event that an item of proposed
Indebtedness meets the criteria of more than one of the categories of Permitted
Debt described in clauses (1) through (14) above, or is entitled to be incurred
pursuant to the first paragraph of this covenant, WRC Media will be permitted to
classify such item of Indebtedness on the date of its incurrence, or later
reclassify all or a portion of such item of Indebtedness, in any manner that
complies with this covenant. Indebtedness under Credit Facilities outstanding on
the date on which notes are first issued and authenticated under the notes
indenture shall be deemed to have been incurred on such date in reliance on the
exception provided by clause (1) of the definition of Permitted Debt.
NO SENIOR SUBORDINATED DEBT
The Issuers will not incur, create, issue, assume, guarantee or otherwise
become liable for any Indebtedness that is subordinate or junior in right of
payment to any Indebtedness of the Issuers and senior in any respect in right of
payment to the notes. No Note Guarantor will incur, create, issue, assume,
guarantee or otherwise become liable for any Indebtedness that is subordinate or
junior in right of payment to any Indebtedness of such Note Guarantor and senior
in any respect in right of payment to such Note Guarantor's Note Guarantee.
LIENS
WRC Media will not, and will not permit any of its Restricted Subsidiaries
to, create, incur, assume or otherwise cause or suffer to exist or become
effective any Lien of any kind securing
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Indebtedness (other than Permitted Liens) upon any of their property or assets,
now owned or hereafter acquired, unless all payments due under the notes
indenture and the notes are secured on an equal and ratable basis with the
obligations so secured until such time as such obligations are no longer secured
by such Lien.
DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED SUBSIDIARIES
WRC Media will not, and will not permit any of its Restricted Subsidiaries
to, directly or indirectly, create or permit to exist or become effective any
consensual encumbrance or restriction on the ability of any Restricted
Subsidiary to:
(1) (a) pay dividends or make any other distributions on its Capital Stock
to WRC Media or any of its Restricted Subsidiaries, or with respect to
any other interest or participation in, or measured by, its profits, or
(b) pay any indebtedness owed to WRC Media or any of its Restricted
Subsidiaries;
(2) make loans or advances to WRC Media or any of its Restricted
Subsidiaries; or
(3) transfer any of its properties or assets to WRC Media or any of its
Restricted Subsidiaries.
However, the preceding restrictions will not apply to encumbrances or
restrictions existing under or by reason of:
(1) contractual encumbrances or restrictions in effect on the date of the
notes indenture, including, without limitation, pursuant to Existing
Indebtedness or the Credit Agreement as in effect on the date of the
notes indenture and any amendments, modifications, restatements,
renewals, increases, supplements, refundings, replacements or
refinancings thereof, PROVIDED that such amendments, modifications,
restatements, renewals, increases, supplements, refundings, replacement
or refinancings are, in the good faith judgment of the Board of Directors
of WRC Media, no more restrictive in any material respect, taken as a
whole, with respect to such dividend and other payment restrictions than
those contained in such Existing Indebtedness, as in effect on the date
of the notes indenture;
(2) contractual encumbrances or restrictions in any preferred stock of any
Issuer issued in exchange for the Senior Preferred Stock; PROVIDED that
such contractual encumbrances or restrictions are, in the good faith
judgment of the Board of Directors of WRC Media, no more restrictive in
any material respect, taken as a whole, with respect to such dividend and
other payment restrictions than those contained in the Senior Preferred
Stock, as in effect on the date of the notes indenture;
(3) the notes indenture, the notes and the Note Guarantees;
(4) applicable law or any applicable rule, regulation or order;
(5) any instrument governing Indebtedness or Capital Stock of a Person
acquired by WRC Media or any of its Restricted Subsidiaries as in effect
at the time of such acquisition (except to the extent such Indebtedness
was incurred in connection with or in contemplation of such acquisition),
which encumbrance or restriction is not applicable to any Person, or the
properties or assets of any Person, other than the Person, or the
property or assets of the Person, so acquired, PROVIDED that, in the case
of Indebtedness, such Indebtedness was permitted by the terms of the
notes indenture to be incurred;
(6) customary non-assignment provisions in leases entered into in the
ordinary course of business;
(7) purchase money obligations for property acquired in the ordinary course
of business that impose restrictions on the property so acquired of the
nature described in clause (3) of the preceding paragraph;
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(8) any agreement for the sale or other disposition of all or substantially
all of the Capital Stock or assets of a Subsidiary that restricts
distributions by that Subsidiary pending its sale or other disposition;
PROVIDED that with respect to a sale of less than all of the assets of
such Restricted Subsidiary such agreement only encumbers the assets
subject to such sale;
(9) Liens securing Indebtedness that limit the right of the debtor to
dispose of the assets subject to such Lien;
(10) provisions with respect to the disposition or distribution of assets or
property in joint venture agreements, assets sale agreements, stock sale
agreements and other similar agreements entered into in the ordinary
course of business;
(11) restrictions on cash or other deposits or net worth imposed by
customers under contracts entered into in the ordinary course of
business; and
(12) any encumbrances or restrictions imposed by any amendments,
modifications, restatements, renewals, increases, supplements,
refundings, replacements or refinancings of the contracts, instruments or
obligations referred to in clauses (1) through (11) or any Permitted
Refinancing Indebtedness, PROVIDED that such amendments, modifications,
restatements, renewals, increases, supplements, refundings, replacements,
refinancings or Permitted Refinancing Indebtedness are, in the good faith
judgment of the Board of Directors of WRC Media, no more restrictive in
any material respect, taken as a whole, with respect to such dividend and
other payment restrictions than those in existence prior to such
amendment, modification, restatement, renewal, increase, supplement,
refunding, replacement or refinancing.
MERGER, CONSOLIDATION OR SALE OF ASSETS
An Issuer may not, directly or indirectly: (1) consolidate or merge with or
into another Person (whether or not such Issuer is the surviving corporation);
or (2) sell, assign, transfer, convey, lease or otherwise dispose of all or
substantially all of the properties or assets of any such Issuer and its
Restricted Subsidiaries taken as a whole, in one or more related transactions,
to another Person; unless:
(1) either: (a) an Issuer is the surviving corporation; or (b) the Person
formed by or surviving any such consolidation or merger (if other than an
Issuer) or to which such sale, assignment, transfer, conveyance, lease or
other disposition shall have been made is a corporation organized or
existing under the laws of the United States, any state thereof or the
District of Columbia (such Issuer or Person, as the case may be, being
herein referred to as the "Successor Company");
(2) the Successor Company (if other than any of the Issuers) expressly
assumes all the obligations of such Issuer under the notes, the notes
indenture and the Registration Rights Agreement pursuant to agreements
reasonably satisfactory to the Trustee;
(3) immediately after such transaction no Default or Event of Default
exists; and
(4) such Issuer or the Person formed by or surviving any such consolidation
or merger (if other than any of the Issuers), or to which such sale,
assignment, transfer, conveyance, lease or other disposition shall have
been made, and its Restricted Subsidiaries will, on the date of such
transaction after giving pro forma effect thereto and any related
financing transactions as if the same had occurred at the beginning of
the applicable four-quarter period, have a Debt to EBITDA Ratio equal to
or less than the Debt to EBITDA Ratio for WRC Media and its Restricted
Subsidiaries immediately prior to such transaction.
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In addition, an Issuer may not, directly or indirectly, lease all or
substantially all of its properties or assets, in one or more related
transactions, to any other Person. This "Merger, Consolidation or Sale of
Assets" covenant will not apply to a sale, assignment, transfer, conveyance or
other disposition of assets between or among the Issuers and any Note Guarantor.
Notwithstanding the foregoing, any Issuer may merge with an Affiliate
incorporated or organized solely for the purpose of reincorporating or
reorganizing such Issuer in another jurisdiction to realize tax or other
benefits and may, through merger or otherwise, become a limited liability
company; PROVIDED, HOWEVER, that at all times at least one Issuer must be a
corporation duly formed under the laws of the United States or any state thereof
or the District of Columbia.
TRANSACTIONS WITH AFFILIATES
WRC Media will not, and will not permit any of its Restricted Subsidiaries
to, make any payment to, or sell, lease, transfer or otherwise dispose of any of
its properties or assets to, or purchase any property or assets from, or enter
into or make or amend any transaction, contract, agreement, understanding, loan,
advance or guarantee with, or for the benefit of, any Affiliate (each, an
"Affiliate Transaction"), involving aggregate payments or consideration in
excess of $1.0 million unless:
(1) such Affiliate Transaction is on terms that are not materially less
favorable to WRC Media or the relevant Restricted Subsidiary than those
that would have been obtained in a comparable transaction by WRC Media or
such Restricted Subsidiary with an unrelated Person; and
(2) WRC Media obtains:
(a) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of
$2.0 million, a resolution of the Board of Directors set forth in an
Officers' Certificate certifying that such Affiliate Transaction
complies with this covenant and that such Affiliate Transaction has
been approved by the Board of Directors in good faith; and
(b) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of
$5.0 million, an opinion as to the fairness to the Holders of such
Affiliate Transaction from a financial point of view issued by an
accounting, appraisal or investment banking firm of national
standing.
The following items shall not be deemed to be Affiliate Transactions and,
therefore, will not be subject to the provisions of the prior paragraph:
(1) any employment agreement or other compensation plan or arrangement
entered into by WRC Media or any of its Restricted Subsidiaries in the
ordinary course of business;
(2) transactions between or among WRC Media and/or its Restricted
Subsidiaries;
(3) payment of reasonable fees and the provision of reasonable indemnities
to directors, officers or employees of WRC Media or any of its Restricted
Subsidiaries as determined in good faith by the Board of Directors of WRC
Media;
(4) sales of Equity Interests (other than Disqualified Stock) to Affiliates
of WRC Media;
(5) the payment of customary management, consulting and advisory fees and
related expenses made pursuant to any financial advisory, financing,
underwriting or placement agreement or in respect of other investment
banking activities, including, without limitation, in connection with
acquisitions or divestitures and, including without limitation, any such
fees and expenses paid to DLJ Merchant Banking Partners II, L.P. and its
Affiliates; PROVIDED, HOWEVER, that the agreement or arrangement
governing any such fees is approved by the Board of Directors of WRC
Media or such Restricted Subsidiary;
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(6) Restricted Payments that are permitted by the provisions of the notes
indenture described above under the caption "--Restricted Payments;"
(7) any agreement as in effect as of the date of the notes indenture
(including, without limitation, each of the agreements entered into in
connection with the transactions described under "Transactions") or any
amendment thereto (so long as any such amendment is not disadvantageous
to the Holders in any material respect) and any transactions contemplated
thereby;
(8) payments pursuant to the Tax Sharing Agreement as in effect on the date
of the notes indenture and as amended thereafter so long as any such
amendment is not disadvantageous to the Holders of Notes in any material
respect;
(9) the existence of, or the performance by WRC Media or any of its
Restricted Subsidiaries of its obligations under the terms of, any
stockholders agreement (including any registration rights agreement or
purchase agreement related thereto) to which it is a party as of the date
of the notes indenture and any similar agreements which it may enter into
thereafter; PROVIDED, HOWEVER, that the existence of, or the performance
by WRC Media or any of its Restricted Subsidiaries of obligations under
any future amendment to any such existing agreement or under any similar
agreement entered into after the date of the notes indenture shall only
be permitted by this clause (9) to the extent that the terms of any such
amendment or new agreement are not otherwise disadvantageous to the
Holders in any material respect; and
(10) transactions with customers, clients, suppliers, or purchasers or
sellers of goods or services, in each case in the ordinary course of
business and otherwise in compliance with the terms of the notes
indenture which are fair to WRC Media or its Restricted Subsidiaries, in
the reasonable determination of the Board of Directors of WRC Media or
its Restricted Subsidiaries, in the reasonable determination of the Board
of Directors of WRC Media or the senior management thereof, or are on
terms at least as favorable as might reasonably have been obtained at
such time from an unaffiliated party.
ADDITIONAL NOTE GUARANTEES
If WRC Media or any of its Restricted Subsidiaries acquires or creates
another Domestic Subsidiary after the date of the notes indenture, then that
newly acquired or created Domestic Subsidiary must become a Note Guarantor and
execute a supplemental indenture and deliver an Opinion of Counsel to the
Trustee within ten Business Days of the date on which it was acquired or
created; PROVIDED that all Subsidiaries that have been properly designated as
Unrestricted Subsidiaries in accordance with the notes indenture shall not
become Note Guarantors for so long as they continue to constitute Unrestricted
Subsidiaries.
DESIGNATION OF RESTRICTED AND UNRESTRICTED SUBSIDIARIES
The Board of Directors may designate any Restricted Subsidiary of WRC Media
(other than Weekly Reader or CompassLearning) to be an Unrestricted Subsidiary
if that designation would not cause a Default. If a Restricted Subsidiary of WRC
Media is designated as an Unrestricted Subsidiary, the aggregate fair market
value of all outstanding Investments owned by WRC Media and its Restricted
Subsidiaries in the Subsidiary so designated will be deemed to be an Investment
made as of the time of such designation and will either reduce the amount
available for Restricted Payments under the first paragraph of the covenant
described above under the caption "--Restricted Payments" or reduce the amount
available for future Investments under one or more clauses of the definition of
Permitted Investments, as WRC Media shall determine. That designation will only
be permitted if such Investment would be permitted at that time and if such
Restricted Subsidiary otherwise meets the
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definition of an Unrestricted Subsidiary. The Board of Directors may redesignate
any Unrestricted Subsidiary to be a Restricted Subsidiary if the redesignation
would not cause a Default.
BUSINESS ACTIVITIES
WRC Media will not, and will not permit any Restricted Subsidiary to, engage
in any business other than Permitted Businesses, except to such extent as would
not be material to WRC Media and its Restricted Subsidiaries taken as a whole.
PAYMENTS FOR CONSENT
WRC Media will not, and will not permit any of its Restricted Subsidiaries
to, directly or indirectly, pay or cause to be paid any consideration to or for
the benefit of any Holder of notes for or as an inducement to any consent,
waiver or amendment of any of the terms or provisions of the notes indenture or
the notes unless such consideration is offered to be paid or is paid to all
Holders of the notes that consent, waive or agree to amend in the time frame set
forth in the solicitation documents relating to such consent, waiver or
agreement.
REPORTS
Whether or not required by the Securities and Exchange Commission, so long
as any notes are outstanding, the Issuers will furnish to the Holders of notes,
within the time periods specified in the Securities and Exchange Commission's
rules and regulations:
(1) all quarterly and annual financial information that would be required to
be contained in a filing with the Securities and Exchange Commission on
Forms 10-Q and 10-K if WRC Media were required to file such Forms,
including a "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and, with respect to the annual information
only, a report on the annual financial statements by WRC Media's
certified independent accountants; and
(2) all current reports that would be required to be filed with the
Securities and Exchange Commission on Form 8-K if WRC Media were required
to file such reports.
In addition, following the consummation of the exchange offer contemplated
by the Registration Rights Agreement, whether or not required by the Securities
and Exchange Commission, the Issuers will file a copy of all of the information
and reports referred to in clauses (1) and (2) above with the Securities and
Exchange Commission for public availability within the time periods specified in
the Securities and Exchange Commission's rules and regulations (unless the
Securities and Exchange Commission will not accept such a filing) and make such
information available to securities analysts and prospective investors upon
request. In addition, the Issuers and the Note Guarantors have agreed that, for
so long as any notes remain outstanding, they will furnish to the Holders and to
securities analysts and prospective investors, upon their request, the
information required to be delivered pursuant to Rule 144A(d)(4) under the
Securities Act of 1933.
If WRC Media has designated any of its Subsidiaries as Unrestricted
Subsidiaries, then the quarterly and annual financial information required by
the preceding paragraph shall include a reasonably detailed presentation, either
on the face of the financial statements or in the footnotes to the financial
statements, and in Management's Discussion and Analysis of Financial Condition
and Results of Operations, of the financial condition and results of operations
of WRC Media and its Restricted Subsidiaries separate from the financial
condition and results of operations of the Unrestricted Subsidiaries of WRC
Media.
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EVENTS OF DEFAULT AND REMEDIES
Each of the following is an Event of Default:
(1) default for 30 days in the payment when due of interest on, or
Liquidated Damages with respect to the notes, whether or not prohibited
by the subordination provisions of the notes indenture;
(2) default in payment when due of the principal of, or premium, if any, on
the notes, whether or not prohibited by the subordination provisions of
the notes indenture;
(3) failure by WRC Media or any of its Subsidiaries to comply for 30 days
after written notice by the Trustee or Holders of at least 25% in
principal amount of the notes then outstanding with the provisions
described under the captions "--Repurchase at the Option of
Holders--Change of Control," "--Repurchase at the Option of
Holders--Asset Sales," "--Material Covenants--Restricted Payments,"
"--Material Covenants--Incurrence of Indebtedness and Issuance of
Preferred Stock" or "--Material Covenants--Merger, Consolidation or Sale
of Assets;"
(4) failure by WRC Media or any of its Subsidiaries for 60 days after
written notice given by the Trustee or the Holders of at least 25% in
principal amount of the notes then outstanding to comply with any of the
other agreements in the notes indenture;
(5) default under any mortgage, indenture or instrument under which there is
issued or by which there may be secured or evidenced any Indebtedness for
money borrowed by WRC Media or any of its Restricted Subsidiaries or the
payment of which is guaranteed by WRC Media or any of its Restricted
Subsidiaries (other than Indebtedness owed to WRC Media or one of its
Restricted Subsidiaries) whether such Indebtedness or guarantee now
exists, or is created after the date of the notes indenture, if that
default:
(a) is caused by a failure to pay any such Indebtedness at its stated
final maturity (after giving effect to any applicable grace period
provided in such Indebtedness) (a "Payment Default"); or
(b) results in the acceleration of such Indebtedness prior to its stated
final maturity,
and, in each case, the principal amount of any such Indebtedness,
together with the principal amount of any other such Indebtedness under
which there has been a Payment Default or the maturity of which has been
so accelerated, aggregates $5.5 million or more;
(6) failure by WRC Media or any of its Restricted Subsidiaries to pay final
non-appealable judgments (net of any amounts with respect to which a
reputable and creditworthy insurance company has acknowledged liability
in writing) aggregating in excess of $5.5 million, which judgments have
remained outstanding and have not been paid, discharged or stayed for a
period of 60 days after having been rendered;
(7) except as permitted by the notes indenture, any Note Guarantee shall be
held in any judicial proceeding to be unenforceable or invalid or shall
cease for any reason to be in full force and effect or any Note
Guarantor, or any Person acting on behalf of any Note Guarantor, shall
deny or disaffirm its obligations under its Note Guarantee; and
(8) certain events of bankruptcy or insolvency with respect to the Issuers
or any of their Restricted Subsidiaries.
In the case of an Event of Default arising from certain events of bankruptcy
or insolvency, with respect to an Issuer or any Restricted Subsidiary that is a
Significant Subsidiary, all outstanding notes will become due and payable
immediately without further action or notice. If any other Event of Default
occurs and is continuing, the Trustee or the Holders of at least 25% in
principal amount of the
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then outstanding notes may declare all the notes to be due and payable
immediately. However, so long as any Indebtedness permitted to be incurred
pursuant to the Credit Agreement shall be outstanding, that acceleration shall
not be effective until the earlier of: (1) an acceleration of any such
Indebtedness under the Credit Agreement; or (2) five business days after receipt
by the Issuers and the administrative agent under the Credit Agreement of
written notice of that acceleration.
Holders of the notes may not enforce the notes indenture or the notes except
as provided in the notes indenture. Subject to certain limitations, Holders of a
majority in principal amount of the then outstanding notes may direct the
Trustee in its exercise of any trust or power. The Trustee may withhold from
Holders of the notes notice of any continuing Default or Event of Default
(except a Default or Event of Default relating to the payment of principal or
interest or Liquidated Damages) if it determines that withholding notice is in
their interest. In addition, the Trustee shall have no obligation to accelerate
the notes if the acceleration does not result from a payment default and in the
best judgment of the Trustee acceleration is not in the best interests of the
Holders.
The Holders of a majority in aggregate principal amount of the notes then
outstanding by notice to the Trustee may on behalf of the Holders of all of the
notes waive any existing Default or Event of Default and its consequences under
the notes indenture except a continuing Default or Event of Default in the
payment of interest or Liquidated Damages on, or the principal of, the notes.
The Issuers are required to deliver to the Trustee annually a statement
regarding compliance with the notes indenture. Upon becoming aware of any
Default or Event of Default, the Issuers are required to deliver to the Trustee,
within five business days, a statement specifying such Default or Event of
Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of any of the
Issuers or any Note Guarantor, as such, shall have any liability for any
obligations of the Issuers or the Note Guarantors under the notes, the notes
indenture, the Note Guarantees, or for any claim based on, in respect of, or by
reason of, such obligations or their creation. Each Holder of notes by accepting
a note waives and releases all such liability. The waiver and release are part
of the consideration for issuance of the notes. The waiver may not be effective
to waive liabilities under the Federal securities laws and it is the view of the
Securities and Exchange Commission that such a waiver is against public policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Issuers may, at their option and at any time, elect to have all of their
obligations discharged with respect to the outstanding notes and all obligations
of the Note Guarantors discharged with respect to their Note Guarantees ("Legal
Defeasance") except for:
(1) the rights of Holders of outstanding notes to receive payments in
respect of the principal of, or interest or premium and Liquidated
Damages, if any, on such notes when such payments are due from the trust
referred to below;
(2) the Issuers' obligations with respect to the notes concerning issuing
temporary notes, registration of notes, mutilated, destroyed, lost or
stolen notes and the maintenance of an office or agency for payment and
money for security payments held in trust;
(3) the rights, powers, trusts, duties and immunities of the Trustee, and
the Issuers' and the Note Guarantor's obligations in connection with the
rights, powers, trusts, duties and immunities of the Trustee; and
(4) the Legal Defeasance provisions of the notes indenture.
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In addition, the Issuers may, at their option and at any time, elect to have
the obligations of the Issuers and the Note Guarantors released with respect to
certain covenants that are described in the notes indenture ("Covenant
Defeasance") and thereafter any omission to comply with those covenants shall
not constitute a Default or Event of Default with respect to the notes. In the
event Covenant Defeasance occurs, certain events (not including non-payment,
bankruptcy, receivership, rehabilitation and insolvency events) described under
"Events of Default" will no longer constitute an Event of Default with respect
to the notes.
In order to exercise either Legal Defeasance or Covenant Defeasance:
(1) the Issuers must irrevocably deposit with the Trustee, in trust, for the
benefit of the Holders of the notes, cash in U.S. dollars, non-callable
Government Securities, or a combination thereof, in such amounts as will
be sufficient, in the opinion of a nationally recognized firm of
independent public accountants, to pay the principal of, or interest and
premium and Liquidated Damages, if any, on the outstanding notes on the
stated maturity or on the applicable redemption date, and the Issuers
must specify whether the notes are being defeased to maturity or to a
particular redemption date;
(2) in the case of Legal Defeasance, the Issuers shall have delivered to the
Trustee an Opinion of Counsel reasonably acceptable to the Trustee
confirming that, subject to customary assumptions and exclusions,
(a) the Issuers have received from, or there has been published by, the
Internal Revenue Service a ruling or
(b) since the date of the notes indenture, there has been a change in the
applicable U.S. Federal income tax law, in either case to the effect
that, and based thereon such Opinion of Counsel shall confirm that,
subject to customary assumptions and exclusions, the Holders of the
outstanding notes will not recognize income, gain or loss for U.S.
Federal income tax purposes as a result of such Legal Defeasance and
will be subject to U.S. Federal income tax on the same amounts, in
the same manner and at the same times as would have been the case if
such Legal Defeasance had not occurred;
(3) in the case of Covenant Defeasance, the Issuers shall have delivered to
the Trustee an Opinion of Counsel reasonably acceptable to the Trustee
confirming that the Holders of the outstanding notes will not recognize
income, gain or loss for U.S. Federal income tax purposes as a result of
such Covenant Defeasance and will be subject to U.S. Federal income tax
on the same amounts, in the same manner and at the same times as would
have been the case if such Covenant Defeasance had not occurred;
(4) no Default or Event of Default shall have occurred and be continuing
either: (a) on the date of such deposit (other than a Default or Event of
Default resulting from the borrowing of funds to be applied to such
deposit); or (b) or insofar as Events of Default from bankruptcy or
insolvency events are concerned, at any time in the period ending on the
91st day after the date of deposit;
(5) such Legal Defeasance or Covenant Defeasance will not result in a breach
or violation of, or constitute a default under any material agreement or
instrument (other than the notes indenture) to which the Issuers or Note
Guarantors is a party or by which WRC Media or any of its Subsidiaries is
bound;
(6) 91 days shall have passed between the date of deposit and no intervening
bankruptcy of the Issuers shall have occurred under applicable bankruptcy
law;
(7) the Issuers shall have delivered to the Trustee an Officers' Certificate
stating that the deposit was not made by the Issuers with the intent of
preferring the Holders of notes over the other
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creditors of the Issuers with the intent of defeating, hindering,
delaying or defrauding any creditors of the Issuers, Note Guarantors or
others; and
(8) each of the Issuers shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel (which opinion of counsel may be
subject to customary assumptions and exclusions), each stating that all
conditions precedent relating to the Legal Defeasance or the Covenant
Defeasance, as the case may be, have been complied with.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next three succeeding paragraphs, the notes
indenture or the notes may be amended or supplemented with the consent of the
Holders of at least a majority in principal amount of the notes then outstanding
(including, without limitation, consents obtained in connection with a purchase
of, or tender offer or exchange offer for, notes), and any existing default or
compliance with any provision of the notes indenture or the notes may be waived
with the consent of the Holders of a majority in principal amount of the then
outstanding notes (including, without limitation, consents obtained in
connection with a purchase of, or tender offer or exchange offer for, notes).
Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any notes held by a non-consenting Holder):
(1) reduce the principal amount of notes whose Holders must consent to an
amendment, supplement or waiver;
(2) reduce the principal of or change the fixed maturity of any note or
alter the provisions with respect to the redemption of the notes (other
than provisions relating to the covenants described above under the
caption "--Repurchase at the Option of Holders");
(3) reduce the rate of or change the time for payment of interest on any
note;
(4) waive a Default or Event of Default in the payment of principal of, or
interest or premium, or Liquidated Damages, if any, on the notes (except
a rescission of acceleration of the notes by the Holders of at least a
majority in aggregate principal amount of the notes and a waiver of the
payment default that resulted from such acceleration);
(5) make any note payable in money other than that stated in the notes;
(6) make any change in the provisions of the notes indenture relating to
waivers of past Defaults or the rights of Holders of notes to receive
payments of principal of, or interest or premium or Liquidated Damages,
if any, on the notes;
(7) waive a redemption payment with respect to any note (other than a
payment required by one of the covenants described above under the
caption "--Repurchase at the Option of Holders");
(8) impair the right of any Holder to receive payment of or interest on such
Holder's notes on or after the due dates therefor or to institute suit
for the enforcement of any payment on or with respect to such Holder's
notes;
(9) release any Note Guarantor from any of its obligations under its Note
Guarantee or the notes indenture, except in accordance with the terms of
the notes indenture; or
(10) make any change in the preceding amendment and waiver provisions.
In addition, any amendment to, or waiver of, the provisions of the notes
indenture relating to subordination that adversely affects the rights of the
Holders of the notes will require the consent of the Holders of at least 75% in
aggregate principal amount of notes then outstanding.
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Notwithstanding the preceding, without the consent of any Holder of notes,
the Issuers, the Note Guarantors and the Trustee may amend or supplement the
notes indenture or the notes:
(1) to cure any ambiguity, defect or inconsistency;
(2) to provide for uncertificated notes in addition to or in place of
certificated notes;
(3) to provide for the assumption of any Issuer's or any Note Guarantor's
obligations to Holders of notes under the notes indenture;
(4) to make any change that would provide any additional rights or benefits
to the Holders of notes or that does not adversely affect the legal
rights under the notes indenture of any such Holder;
(5) to evidence and provide for the acceptance and appointment under the
notes indenture of a successor Trustee;
(6) to add a Note Guarantor under the notes indenture;
(7) to add to the covenants of the Issuers and the Note Guarantors for the
benefit of the Holders or to surrender any right or power conferred upon
the Issuers;
(8) to secure the notes;
(9) to make any change in the subordination provisions of the notes
indenture that would limit or terminate the benefits available to any
holder of Senior Debt of WRC Media (or any representative thereof) under
such subordination provisions; or
(10) to comply with requirements of the Securities and Exchange Commission
in order to effect or maintain the qualification of the notes indenture
under the Trust Indenture Act of 1939.
SATISFACTION AND DISCHARGE
The notes indenture will be discharged and will cease to be of further
effect as to all notes issued thereunder, when either:
(1) all notes that have been authenticated and delivered (except lost,
stolen or destroyed notes that have been replaced or paid and notes for
whose payment money has until that time been deposited in trust and
thereafter repaid to the Issuers) have been delivered to the Trustee for
cancellation; or
(2) (a) all notes that have not been delivered to the Trustee for
cancellation have become due and payable by reason of the making of
a notice of redemption or otherwise or will become due and payable
within one year and the Issuers or any Note Guarantor has
irrevocably deposited or caused to be deposited with the Trustee as
trust funds in trust solely for the benefit of the Holders, cash in
U.S. dollars, non-callable Government Securities, or a combination
thereof, in such amounts as will be sufficient without consideration
of any reinvestment of interest, to pay and discharge the entire
indebtedness on the notes not delivered to the Trustee for
cancellation for principal, premium and Liquidated Damages, if any,
and accrued interest to the date of maturity or redemption,
(b) no Default or Event of Default shall have occurred and be continuing
on the date of such deposit or shall occur as a result of such
deposit and such deposit will not result in a breach or violation of,
or constitute a default under, any other instrument to which the
Issuers or any Note Guarantor is a party or by which the Issuers or
any Note Guarantor is bound,
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(c) the Issuers and the Note Guarantors have paid or caused to be paid
all sums payable by them under the notes indenture and
(d) the Issuers have delivered irrevocable instructions to the Trustee
under the notes indenture to apply the deposited money toward the
payment of the notes at maturity or the redemption date.
In addition, the Issuers must deliver an Officers' Certificate and an
Opinion of Counsel to the Trustee stating that all conditions precedent to
satisfaction and discharge have been satisfied.
CONCERNING THE TRUSTEE
If the Trustee becomes a creditor of any Issuer or Note Guarantor, the notes
indenture limits its right to obtain payment of claims in certain cases, or to
realize on certain property received in respect of any such claim as security or
otherwise. The Trustee will be permitted to engage in other transactions;
however, if it acquires any conflicting interest it must eliminate such conflict
within 90 days, apply to the Securities and Exchange Commission for permission
to continue or resign.
The Holders of a majority in principal amount of the then outstanding notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The notes indenture provides that in case an Event of
Default shall occur and be continuing, the Trustee will be required, in the
exercise of its power, to use the degree of care of a prudent man in the conduct
of his own affairs. Subject to such provisions, the Trustee will be under no
obligation to exercise any of its rights or powers under the notes indenture at
the request of any Holder notes, unless such Holder shall have offered to the
Trustee security and indemnity satisfactory to it against any loss, liability or
expense.
GOVERNING LAW
The internal law of the state of New York shall govern and be used to
construe this indenture, the notes and the note guarantees without giving effect
to applicable principles of conflicts of law to the extent that the application
of the laws of another jurisdiction would be required thereby.
DEFINITIONS
Set forth below are defined terms used in the notes indenture which are used
in this "Description of New Notes." Reference is made to the notes indenture for
a full disclosure of all such terms. For purposes of the notes indenture, unless
otherwise specifically indicated, the term "consolidated" with respect to any
person refers to such person consolidated with its Restricted Subsidiaries, and
excludes from such consolidation any Unrestricted Subsidiary as if such
Unrestricted Subsidiary were not an Affiliate of such Person.
"ACQUIRED DEBT" means, with respect to any specified Person:
(1) Indebtedness of any other Person existing at the time such other Person
is merged with or into or became a Restricted Subsidiary of such
specified Person, whether or not such Indebtedness is incurred in
connection with, or in contemplation of, such other Person merging with
or into, or becoming a Restricted Subsidiary of, such specified Person;
and
(2) Indebtedness secured by a Lien encumbering any asset acquired by such
specified Person.
"ADDITIONAL NOTES" means up to $100.0 million aggregate principal amount of
notes (other than the notes) issued under the notes indenture in accordance with
sections 2.02 and 4.09 of the notes indenture, as part of the same series as the
notes.
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"AFFILIATE" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control,"
as used with respect to any Person, shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of such Person, whether through the ownership of voting securities, by
agreement or otherwise; PROVIDED that beneficial ownership of 10% or more of the
Voting Stock of a Person shall be deemed to be control. For purposes of this
definition, the terms "controlling," "controlled by" and "under common control
with" shall have correlative meanings.
"ASSET SALE" means:
(1) the sale, lease, conveyance, transfer or other disposition of any assets
or rights, other than sales of inventory in the ordinary course of
business; PROVIDED that the sale, conveyance or other disposition of all
or substantially all of the assets of WRC Media and its Subsidiaries
taken as a whole will be governed by the provisions of the notes
indenture described above under the caption "--Repurchase at the Option
of Holders--Change of Control" and/or the provisions described above
under the caption "--Material Covenants--Merger, Consolidation or Sale of
Assets" and not by the provisions of the covenant described under
"--Repurchase at Option of Holders--Asset Sales;" and
(2) the issuance of Equity Interests in any of WRC Media's Restricted
Subsidiaries (other than Weekly Reader or CompassLearning) or the sale of
Equity Interests in any of its Subsidiaries.
Notwithstanding the preceding, the following items shall not be deemed to be
Asset Sales:
(1) any single transaction or series of related transactions that involves
assets having a fair market value of less than $1.0 million;
(2) a transfer of assets between or among the Issuers and their Restricted
Subsidiaries,
(3) an issuance of Equity Interests by a Restricted Subsidiary to an Issuer
or to another Restricted Subsidiary;
(4) the sale or lease of equipment, accounts receivable or other real or
personal property in the ordinary course of business;
(5) the sale or other disposition of cash or Cash Equivalents;
(6) a Restricted Payment or Permitted Investment that is permitted by the
covenant described above under the caption "--Material
Covenants--Restricted Payments;"
(7) any sale of Equity Interests in, or Indebtedness or other securities of,
an Unrestricted Subsidiary;
(8) the exchange of Senior Preferred Stock for preferred stock of any Issuer
issued in exchange for the Senior Preferred Stock in accordance with the
terms thereof and the terms of the stockholders agreement related
thereto, the exchange of Unit Common Stock for Exchange Common Stock in
accordance with the stockholders agreement related thereto and the
issuance of common stock of an Issuer pursuant to the exercise of
warrants to purchase such common stock as such warrants are in effect on
the date of the notes indenture; and
(9) foreclosures on assets.
"BENEFICIAL OWNER" has the meaning assigned to such term in Rule 13d-3 and
Rule 13d-5 under the Exchange Act, except that in calculating the beneficial
ownership of any particular "person" (as that term is used in Section 13(d)(3)
of the Exchange Act), such "person" shall be deemed to have beneficial ownership
of all securities that such "person" has the right to acquire by conversion or
exercise of other securities, whether such right is currently exercisable or is
exercisable only upon the
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occurrence of a subsequent condition. The terms "Beneficially Owns" and
"Beneficially Owned" shall have a corresponding meaning.
"BOARD OF DIRECTORS" means:
(1) with respect to a corporation, the board of directors of the
corporation;
(2) with respect to a partnership, the Board of Directors of the general
partner of the partnership; and
(3) with respect to any other Person, the board or committee of such Person
serving a similar function.
"CAPITAL LEASE OBLIGATION" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at that time be required to be capitalized on a balance sheet in accordance with
GAAP.
"CAPITAL STOCK" means:
(1) in the case of a corporation, corporate stock;
(2) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however
designated) of corporate stock;
(3) in the case of a partnership or limited liability company, partnership
or membership interests (whether general or limited); and
(4) any other interest or participation that confers on a Person the right
to receive a share of the profits and losses of, or distributions of
assets of, the issuing Person.
"CASH EQUIVALENTS" means:
(1) United States dollars;
(2) securities issued or directly and fully guaranteed or insured by the
United States government or any agency or instrumentality thereof
(PROVIDED that the full faith and credit of the United States is pledged
in support thereof) having maturities of not more than one year from the
date of acquisition;
(3) certificates of deposit and eurodollar time deposits with maturities of
one year or less from the date of acquisition, bankers' acceptances with
maturities not exceeding one year, and overnight bank deposits, in each
case, with any lender party to the Credit Agreement or with any domestic
commercial bank having capital and surplus in excess of $500.0 million
and a Thomson Bank Watch Rating of "B" or better;
(4) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clauses (2) and
(3) above entered into with any financial institution meeting the
qualifications specified in clause (3) above;
(5) commercial paper having the highest rating obtainable from Moody's
Investors Service, Inc. or Standard & Poor's Rating Services and in each
case maturing within one year after the date of acquisition; and
(6) money market funds at least 95% of the assets of which constitute Cash
Equivalents of the kinds described in clauses (1) through (5) of this
definition.
"CHANGE OF CONTROL" means the occurrence of any of the following:
(1) the direct or indirect sale, transfer, conveyance or other disposition
(other than by way of merger or consolidation), in one or a series of
related transactions, of all or substantially all of
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the properties or assets of WRC Media and its Restricted Subsidiaries
(other than CompassLearning) taken as a whole to any "person" (as that
term is used in Section 13(d)(3) of the Exchange Act) other than a
Principal or a Related Party of a Principal;
(2) the adoption of a plan of liquidation or dissolution of WRC Media or
Weekly Reader;
(3) the consummation of any transaction (including, without limitation, any
merger or consolidation) the result of which is that any "person" (as
defined above), other than the Principals and their Related Parties,
becomes the Beneficial Owner, directly or indirectly, of more than 50% of
the Voting Stock of either of WRC Media or Weekly Reader, measured by
voting power rather than number of shares; or
(4) the first day on which a majority of the members of the Board of
Directors of WRC Media or Weekly Reader are not Continuing Directors.
"CONSOLIDATED INDEBTEDNESS" means, with respect to any specified Person for
any date of determination, the sum, without duplication, of:
(1) the total amount of Indebtedness of such Person and its Restricted
Subsidiaries, PLUS
(2) the total amount of Indebtedness of any other Person, to the extent that
such Indebtedness has been guaranteed by the specified Person or one or
more of its Restricted Subsidiaries, PLUS
(3) the aggregate liquidation value of all Disqualified Stock of such Person
and its Restricted Subsidiaries and all the preferred stock of the
Restricted Subsidiaries of such Person (other than the Issuers), in each
case, determined on a consolidated basis and in accordance with GAAP.
"CONSOLIDATED NET INCOME" means, with respect to any specified Person for
any period, the aggregate of the Net Income of such Person and its Restricted
Subsidiaries for such period, on a consolidated basis, determined in accordance
with GAAP; PROVIDED that:
(1) the Net Income of any Person that is not a Restricted Subsidiary or that
is accounted for by the equity method of accounting shall be excluded
except that:
(a) WRC Media's equity in the net income of any such Person for such
period shall be included in such Consolidated Net Income up to the
aggregate amount of cash actually distributed by such Person during
such period to WRC Media or a Restricted Subsidiary as a dividend or
other distribution (subject, in the case of a dividend or other
distribution made to a Restricted Subsidiary, to the limitations
contained in clause (2) below) and
(b) WRC Media's equity in a net loss of any such Person for such period
shall be included in determining such Consolidated Net Income;
(2) the Net Income of any Restricted Subsidiary shall be excluded to the
extent that the declaration or payment of dividends or similar
distributions by that Restricted Subsidiary of that Net Income is not at
the date of determination permitted without any prior governmental
approval (that has not been obtained) or, directly or indirectly, by
operation of the terms of its charter or any agreement, instrument,
judgment, decree, order, statute, rule or governmental regulation
applicable to that Restricted Subsidiary or its stockholders except that:
(a) WRC Media's equity in the net income of any such Restricted
Subsidiary for such period shall be included in such Consolidated Net
Income up to the aggregate amount of cash actually distributed by
such Restricted Subsidiary during such period to WRC Media or another
Restricted Subsidiary as a dividend or other distribution (subject,
in the case of a
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dividend or other distribution made to another Restricted Subsidiary,
to the limitation contained in this clause) and
(b) WRC Media's equity in a net loss of any such Restricted Subsidiary
for such period shall be included in determining such Consolidated
Net Income;
(3) unrealized gains or losses due solely to fluctuations in currency values
and the related tax effects according to GAAP shall be excluded;
(4) the Net Income of any Person acquired in a pooling of interests
transaction for any period prior to the date of such acquisition shall be
excluded;
(5) one-time noncash charges recorded in accordance with GAAP resulting from
any merger, recapitalization or acquisition transaction shall be
excluded; and
(6) the cumulative effect of a change in accounting principles shall be
excluded.
"CONTINUING DIRECTORS" means, as of any date of determination, any member of
the Board of Directors of WRC Media who:
(1) was a member of such Board of Directors on the date of the notes
indenture; or
(2) was nominated for election or elected to such Board of Directors with
the approval of a majority of the Continuing Directors who were members
of such Board at the time of such nomination or election.
"CREDIT AGREEMENT" means that certain Credit Agreement, dated as of
November 17, 1999, by and among CompassLearning, Weekly Reader, WRC Media as
guarantor and the various financial institutions from time to time parties
thereto, DLJ Capital Funding, Inc., as syndication agent for such financial
institutions, lead arranger and sole book running manager, Bank of America,
N.A., as administrative agent for such financial institutions, including any
related notes, guarantees, collateral documents, instruments and agreements
executed in connection therewith. Without limiting the generality of the
foregoing, the term "Credit Agreement" shall include any amendment, amendment
and restatement, supplement or other modification to such Credit Agreement and
ancillary documents and all renewals, extensions, refundings, replacements and
refinancings thereof, including, without limitation, any agreement or agreements
(1) extending or shortening the maturity of any Indebtedness incurred thereunder
or contemplated thereby, (2) adding or deleting borrowers or guarantors
thereunder or (3) increasing the amount of Indebtedness incurred thereunder or
available to be borrowed thereunder to the extent permitted under the notes
indenture.
"CREDIT FACILITIES" means, one or more debt facilities (including, without
limitation, the Credit Agreement) or commercial paper facilities, in each case
with banks or other institutional lenders or indentures providing for revolving
credit loans, term loans, receivables financing (including through the sale of
receivables to such lenders or to special purpose entities formed to borrow from
such lenders against such receivables), letters of credit or other long-term
Indebtedness, in each case, as amended, restated, modified, renewed, refunded,
replaced or refinanced in whole or in part from time to time.
"DEBT TO EBITDA RATIO" means, with respect to any Person as of the date of
determination (the "Calculation Date"), the ratio of the Consolidated
Indebtedness of WRC Media as of such date to the EBITDA of WRC Media for the
most recent full Reference Period ending immediately prior to such date for
which internal financial statements are available, determined on a pro forma
basis after giving effect to all acquisitions or dispositions of assets made by
WRC Media and its Restricted Subsidiaries from the beginning of such Reference
Period through and including such date of determination (including any financing
transactions in connection with such acquisitions or dispositions) as if such
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acquisitions and dispositions had occurred at the beginning of such quarter. In
addition, for the purposes of making the computation referred to above, the
following shall be excluded:
(1) acquisitions that have been made by WRC Media or any of its Restricted
Subsidiaries, including through mergers or consolidations and including
any related financing transactions, during the reference period or
subsequent to such reference period and on or prior to the Calculation
Date shall be deemed to have occurred on the first day of the reference
period, and EBITDA for such reference period shall be calculated without
giving effect to clause (4) of the proviso set forth in the definition of
Consolidated Net Income, and
(2) the EBITDA attributable to discontinued operations, as determined in
accordance with GAAP, and operations of businesses disposed of prior to
the Calculation Date.
For purposes of this definition, whenever pro forma effect is to be given to
an acquisition of assets, the amount of income or earnings relating thereto and
the amount of Consolidated Interest Expense associated with any Indebtedness
incurred in connection therewith, the pro forma calculations shall be determined
in good faith by a responsible financial or accounting officer of WRC Media.
"DEFAULT" means any event that is, or with the passage of time or the giving
of notice or both would be, an Event of Default.
"DESIGNATED SENIOR DEBT" means:
(1) any Indebtedness outstanding under the Credit Agreement; and
(2) any other Senior Debt permitted under the notes indenture the principal
amount of which is $25.0 million or more and that has been designated by
WRC Media as "Designated Senior Debt."
"DISQUALIFIED STOCK" means, with respect to any Person, any Capital Stock
that, by its terms (or by the terms of any security into which it is
convertible, or for which it is exchangeable, in each case at the option of the
holder thereof), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at
the option of the holder thereof, in whole or in part, on or prior to the date
that is 91 days after the date on which the notes mature. Notwithstanding the
preceding sentence, (a) any Capital Stock that would constitute Disqualified
Stock solely because the holders thereof have the right to require WRC Media to
repurchase such Capital Stock upon the occurrence of a change of control or an
asset sale shall not constitute Disqualified Stock if the terms of such Capital
Stock provide that WRC Media may not repurchase or redeem any such Capital Stock
pursuant to such provisions unless such repurchase or redemption complies with
the covenant described above under the caption "--Material Covenants--
Restricted Payments;" and (b) any Capital Stock that would constitute
Disqualified Stock solely because such Capital Stock is issued pursuant to any
plan for the benefit of employees of WRC Media or its Restricted Subsidiaries or
by any such plan to such employees and may be required to be repurchased by WRC
Media in order to satisfy applicable statutory or regulatory obligations shall
not constitute Disqualified Stock; PROVIDED that any amount of Disqualified
Stock shall be its mandatory maximum redemption price or liquidation preference,
as applicable, plus accrued dividends.
"DOMESTIC SUBSIDIARY" means (a) any Restricted Subsidiary that was formed
under the laws of the United States or any state thereof or the District of
Columbia or (b) any Restricted Subsidiary (including any Restricted Subsidiary
whose Note Guarantee was previously released in accordance with the notes
indenture) that guarantees or otherwise provides direct or indirect credit
support for any Indebtedness of any Issuer or Note Guarantor.
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"EBITDA" means, with respect to any specified Person for any period, the
Consolidated Net Income of such Person for such period PLUS:
(1) an amount equal to any extraordinary loss plus any net loss realized by
such Person or any of its Restricted Subsidiaries in connection with an
Asset Sale, to the extent such losses were deducted in computing such
Consolidated Net Income; PLUS
(2) provision for taxes based on income or profits of such Person and its
Restricted Subsidiaries for such period, to the extent that such
provision for taxes was deducted in computing such Consolidated Net
Income; PLUS
(3) consolidated interest expense of such Person and its Restricted
Subsidiaries for such period, whether paid or accrued and whether or not
capitalized (including, without limitation, amortization of debt issuance
costs and original issue discount, noncash interest payments, the
interest component of any deferred payment obligations, the interest
component of all payments associated with Capital Lease Obligations,
commissions, discounts and other fees and charges incurred in respect of
letter of credit or bankers' acceptance financings, and net of the effect
of all payments made or received pursuant to Hedging Obligations), to the
extent that any such expense was deducted in computing such Consolidated
Net Income; PLUS
(4) depreciation, amortization (including amortization of goodwill and other
intangibles but excluding amortization of prepaid cash expenses that were
paid in a prior period) and other noncash expenses (excluding any such
noncash expense to the extent that it represents an accrual of or reserve
for cash expenses in any future period or amortization of a prepaid cash
expense that was paid in a prior period) of such Person and its
Restricted Subsidiaries for such period to the extent that such
depreciation, amortization and other noncash expenses were deducted in
computing such Consolidated Net Income; PLUS
(5) any fees, expenses or charges related to any Equity Offering, Permitted
Investment, acquisition, disposition or recapitalization or Indebtedness
permitted to be incurred by the notes indenture (whether or not
successful) and fees, expenses or charges related to the transactions
contemplated by the Recapitalization Agreement (including fees to the
Principals); PLUS
(6) the amount of any minority interest expense of an Issuer deducted in
calculating Consolidated Net Income; PLUS
(7) the amount of non-recurring charges deducted in such period in computing
Consolidated Net Income; MINUS
(8) noncash items or non-recurring items increasing such Consolidated Net
Income for such period, other than the accrual of revenue in the ordinary
course of business, in each case, on a consolidated basis and determined
in accordance with GAAP.
Notwithstanding the preceding, the provision for taxes based on the income
or profits of, and the depreciation and amortization and other noncash expenses
of, a Restricted Subsidiary of WRC Media that is not an Issuer shall be added to
Consolidated Net Income to compute EBITDA of WRC Media only to the extent that a
corresponding amount would be permitted at the date of determination to be
dividended to the Issuers by such Restricted Subsidiary without prior
governmental approval (that has not been obtained), and without direct or
indirect restriction pursuant to the terms of its charter and all agreements,
instruments, judgments, decrees, orders, statutes, rules and governmental
regulations applicable to that Restricted Subsidiary or its stockholders.
"EQUITY INTERESTS" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
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"EQUITY OFFERING" means any public or private sale of any Equity Interests
(other than Disqualified Stock) of an Issuer, other than public offerings with
respect to Equity Interests registered on Form S-8 and any such public or
private sale that constitutes an Excluded Contribution.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"EXCHANGE COMMON STOCK" means shares of common stock of Weekly Reader into
which the Unit Common Stock is exchangeable pursuant to the stockholders
agreement related thereto, as in effect on the date of the notes indenture.
"EXCLUDED CONTRIBUTION" means net cash proceeds, Cash Equivalents or
Qualified Proceeds, in each case, received by WRC Media from (a) contributions
to its common equity capital and (b) the sale (other than to a Subsidiary or to
any Company or Subsidiary management equity plan or stock option plan or any
other management or employee benefit plan or agreement) of Capital Stock (other
than Disqualified Stock) of WRC Media (other than a public Equity Offering), in
each case designated as Excluded Contributions pursuant to an Officers'
Certificate executed by the principal executive officer and the principal
financial officer of WRC Media on the date such capital contributions are made
or the date such Equity Interests are sold, as the case may be, which are
excluded from the calculation set forth in clause (3) of the first paragraph
under "Material Covenants--Restricted Payments."
"EXISTING INDEBTEDNESS" means Indebtedness of WRC Media and its Subsidiaries
(other than Indebtedness under the Credit Agreement) in existence on the date of
the notes indenture, until such amounts are repaid.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect on the date of the notes indenture.
"GOVERNMENT SECURITIES" means direct obligations of, or obligations
guaranteed by, the United States of America, and the payment for which the
United States pledges its full faith and credit.
"GUARANTEE" means a guarantee other than by endorsement of negotiable
instruments for collection in the ordinary course of business, direct or
indirect, in any manner including, without limitation, by way of a pledge of
assets or through letters of credit or reimbursement agreements in respect
thereof, of all or any part of any Indebtedness.
"HEDGING OBLIGATIONS" means, with respect to any specified Person, the
obligations of such Person under:
(1) interest rate swap agreements, interest rate cap agreements and interest
rate collar agreements; and
(2) other agreements or arrangements designed to protect such Person against
fluctuations in interest rates, the value of foreign currencies or
commodity prices.
"HOLDER" means a person in whose name a note is registered.
"INDEBTEDNESS" means, with respect to any specified Person, any indebtedness
of such Person, whether or not contingent, in respect of:
(1) borrowed money;
(2) evidenced by bonds, notes, debentures or similar instruments or letters
of credit (or reimbursement agreements in respect thereof);
(3) banker's acceptances;
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(4) representing Capital Lease Obligations;
(5) the balance deferred and unpaid of the purchase price of any property,
except any such balance that constitutes an accrued expense or trade
payable; or
(6) representing any Hedging Obligations,
if and to the extent any of the preceding items (other than letters of
credit and Hedging Obligations) would appear as a liability upon a balance sheet
(excluding the footnotes thereto) of the specified Person prepared in accordance
with GAAP. In addition, the term "Indebtedness" includes all Indebtedness of
others secured by a Lien on any asset of the specified Person (whether or not
such Indebtedness is assumed by the specified Person) and, to the extent not
otherwise included, the Guarantee by the specified Person of any indebtedness of
any other Person.
The amount of any Indebtedness outstanding as of any date shall be:
(1) the accreted value thereof, in the case of any Indebtedness issued with
original issue discount; and
(2) the principal amount thereof, together with any interest thereon that is
more than 30 days past due, in the case of any other Indebtedness.
"INVESTMENTS" means, with respect to any Person, all direct or indirect
investments by such Person in other Persons (including Affiliates) in the forms
of loans (including Guarantees or other obligations), advances or capital
contributions (excluding accounts receivable, trade credit, advances to
customers, commission, travel and similar advances to officers and employees
made in the ordinary course of business), purchases or other acquisitions for
consideration of Indebtedness, Equity Interests or other securities, together
with all items that are or would be classified as investments on a balance sheet
prepared in accordance with GAAP. If WRC Media or any Subsidiary of WRC Media
sells or otherwise disposes of any Equity Interests (other than by way of a
public Equity Offering) of any direct or indirect Subsidiary of WRC Media such
that, after giving effect to any such sale or disposition, such Person is no
longer a Subsidiary of WRC Media, WRC Media shall be deemed to have made an
Investment on the date of any such sale or disposition equal to the fair market
value of the Equity Interests of such Subsidiary not sold or disposed of in an
amount determined as provided in the final paragraph of the covenant described
above under the caption "--Material Covenants--Restricted Payments." The
acquisition by WRC Media or any Subsidiary of WRC Media of a Person that holds
an Investment in a third Person shall be deemed to be an Investment by WRC Media
or such Subsidiary in such third Person in an amount equal to the fair market
value of the Investment held by the acquired Person in such third Person in an
amount determined as provided in the final paragraph of the covenant described
above under the caption "--Material Covenants--Restricted Payments;" PROVIDED
that any such acquisition will not be deemed to be an Investment by WRC Media or
such Subsidiary in such third Person to the extent that all such Investments,
taken as a whole, are not material to such Person and all such Investments were
not made in contemplation of such acquisition.
"LIEN" means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such asset, whether
or not filed, recorded or otherwise perfected under applicable law, including
any conditional sale or other title retention agreement, any lease in the nature
thereof, any option or other agreement to sell or give a security interest in
and any filing of or agreement to give any financing statement under the Uniform
Commercial Code (or equivalent statutes) of any jurisdiction; PROVIDED that in
no event shall an operating lease be deemed to constitute a Lien.
"LIQUIDATED DAMAGES" means all liquidated damages then owing pursuant to
section 5 of the registration rights agreement.
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"NET INCOME" means, with respect to any specified Person, the net income
(loss) of such Person, determined in accordance with GAAP and before any
reduction in respect of preferred stock dividends, excluding, however:
(1) any gain (or loss), together with any related provision for taxes on
such gain (or loss), realized in connection with: (a) any Asset Sale; or
(b) the disposition of any securities by such Person or any of its
Restricted Subsidiaries or the extinguishment of any Indebtedness of such
Person or any of its Restricted Subsidiaries; and
(2) any extraordinary gain (or loss), together with any related provision
for taxes on such extraordinary gain (or loss).
"NET PROCEEDS" means the aggregate cash proceeds received by WRC Media or
any of its Restricted Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received upon the sale or other disposition of any
noncash consideration received in any Asset Sale), net of the direct costs
relating to such Asset Sale, including, without limitation, legal, accounting
and investment banking fees, and sales commissions, and any relocation expenses
incurred as a result thereof, taxes paid or payable as a result thereof, in each
case, after taking into account any available tax credits or deductions and any
tax sharing arrangements, and amounts required to be applied to the repayment of
Indebtedness, other than Senior Debt under a Credit Facility, secured by a Lien
on the asset or assets that were the subject of such Asset Sale and any
deduction of appropriate amounts to be provided by WRC Media as a reserve in
accordance with GAAP against any liabilities associated with the asset disposed
of in such Asset Sale and retained by WRC Media after such Asset Sale or other
disposition thereof, including, without limitation, pension and other
post-employment benefit liabilities and liabilities related to environmental
matters or against any indemnification obligations associated with such
transaction.
"NON-RECOURSE DEBT" means Indebtedness:
(1) as to which neither WRC Media nor any of its Restricted Subsidiaries
(a) provides credit support of any kind (including any undertaking,
agreement or instrument that would constitute Indebtedness), (b) is
directly or indirectly liable as a guarantor or otherwise, or
(c) constitutes the lender;
(2) no default with respect to which (including any rights that the holders
thereof may have to take enforcement action against an Unrestricted
Subsidiary) would permit upon notice, lapse of time or both any holder of
any other Indebtedness (other than the notes) of WRC Media or any of its
Restricted Subsidiaries to declare a default on such other Indebtedness
or cause the payment thereof to be accelerated or payable prior to its
stated maturity; and
(3) as to which the lenders have been notified in writing that they will not
have any recourse to the stock or assets of WRC Media or any of its
Restricted Subsidiaries.
"NOTE GUARANTEE" means any Guarantee of the obligations of the Issuer under
the notes indenture and the notes in accordance with the provisions of the notes
indenture.
"NOTE GUARANTOR" means each of WRC Media's Domestic Subsidiaries that
executes a Note Guarantee in accordance with the provisions of the notes
indenture, and its respective successors and assigns.
"OBLIGATIONS" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"OFFICERS' CERTIFICATE" means a certificate signed on behalf of an Issuer
(or, if the context requires, a Note Guarantor) by two officers of such Issuer
(or such Note Guarantor, if applicable), one of whom must be the principal
executive officer, the principal financial officer, the treasurer or the
principal
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accounting officer of such Issuer (or such Note Guarantor), that meets the
requirements of section 13.05 of the notes indenture.
"OPINION OF COUNSEL" means an opinion from legal counsel, who is reasonably
acceptable to the Trustee, that meets the requirements of section 13.05 of the
notes indenture. The counsel may be an employee of or counsel to WRC Media, any
subsidiary of WRC Media or the Trustee.
"PERMITTED BUSINESS" means the business conducted by WRC Media and its
Subsidiaries on the date of the notes indenture and reasonable extensions
thereof and such other business activities that are incidental or related
thereto.
"PERMITTED INVESTMENTS" means:
(1) any Investment in an Issuer or in a Restricted Subsidiary of an Issuer;
(2) any Investment in Cash Equivalents;
(3) any Investment by WRC Media or any Subsidiary of WRC Media in a Person,
if as a result of such Investment:
(a) such Person becomes a Restricted Subsidiary of an Issuer; or
(b) such Person is merged, consolidated or amalgamated with or into, or
transfers or conveys substantially all of its assets to, or is
liquidated into, an Issuer or a Restricted Subsidiary of an Issuer;
(4) any Investment made as a result of the receipt of noncash consideration
from an Asset Sale that was made pursuant to and in compliance with the
covenant described above under the caption "--Repurchase at the Option of
Holders--Asset Sales;"
(5) Hedging Obligations;
(6) any Investment existing on the date of the notes indenture;
(7) any Investment acquired by WRC Media or any of its Restricted
Subsidiaries (a) in exchange for any other Investment or accounts
receivable held by WRC Media or any such Restricted Subsidiary in
connection with or as a result of a bankruptcy, workout, reorganization
or recapitalization of the issuer of such other Investment or accounts
receivable or (b) as a result of a foreclosure by WRC Media or any of its
Restricted Subsidiaries with respect to any secured Investment or other
transfer of title with respect to any secured Investment in default;
(8) Investments the payment for which consists solely of Equity Interests of
WRC Media (exclusive of Disqualified Stock); PROVIDED, HOWEVER,that such
Equity Interests will not increase the amount available for Restricted
Payments under clause (3) of the first paragraph of the "Restricted
Payments" covenant;
(9) loans and advances to officers, directors and employees for
business-related travel, expenses, moving expenses and other similar
expenses, in each case incurred in the ordinary course of business;
(10) Guarantees (including Note Guarantees) of Indebtedness of WRC Media or
a Restricted Subsidiary which Indebtedness is permitted under the
covenant "Incurrence of Indebtedness and Issuance of Preferred Stock;"
(11) Investments consisting of the licensing or contribution of intellectual
property pursuant to joint marketing arrangements with other Persons made
in the ordinary course of business; and
(12) other Investments in any Person having an aggregate fair market value
(measured on the date each such Investment was made and without giving
effect to subsequent changes in value),
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when taken together with all other Investments made pursuant to this
clause (9) not to exceed $10.0 million.
"PERMITTED JUNIOR SECURITIES" means:
(1) Equity Interests in WRC Media, an Issuer or any Note Guarantor; or
(2) debt securities of WRC Media, an Issuer or the relevant Note Guarantor
that are subordinated to all Senior Debt and any debt securities issued
in exchange for Senior Debt to substantially the same extent as, or to a
greater extent than, the notes and the Note Guarantees are subordinated
to Senior Debt under the notes indenture.
"PERMITTED LIENS" means:
(1) Liens of the Issuers and any Note Guarantor securing Senior Debt that
was permitted by the terms of the notes indenture to be incurred;
(2) Liens in favor of the Issuers or the Note Guarantors;
(3) Liens on property of a Person existing at the time such Person is merged
with or into or consolidated with WRC Media or any Restricted Subsidiary
of WRC Media; PROVIDED that such Liens were in existence prior to the
contemplation of such merger or consolidation and do not extend to any
assets other than those of the Person merged into or consolidated with
WRC Media or the Restricted Subsidiary;
(4) Liens on property existing at the time of acquisition thereof by WRC
Media or any Restricted Subsidiary of WRC Media, PROVIDED that such Liens
were in existence prior to the contemplation of such acquisition;
(5) Liens to secure the performance of statutory obligations, surety or
appeal bonds, performance bonds or other obligations of a like nature
incurred in the ordinary course of business;
(6) Liens to secure Indebtedness (including Capital Lease Obligations)
permitted by clause (4) of the second paragraph of the covenant entitled
"--Material Covenants--Incurrence of Indebtedness and Issuance of
Preferred Stock" covering only the assets acquired with such Indebtedness
or assets ancillary thereto;
(7) Liens existing on the date of the notes indenture;
(8) Liens for taxes, assessments or governmental charges or claims that are
not yet delinquent or that are being contested in good faith by
appropriate proceedings promptly instituted and diligently concluded,
PROVIDEDthat any reserve or other appropriate provision as shall be
required in conformity with GAAP shall have been made therefor;
(9) Liens securing (a) Indebtedness (including, without limitation, all
Obligations) under the Credit Agreement and (b) Hedging Obligations
payable to a lender under the Credit Agreement or an Affiliate thereof or
to a Person that was a lender or an Affiliate thereof at the time the
agreement relating to such Hedging Obligations was entered into to the
extent such Hedging Obligations are secured by Liens on assets also
securing Indebtedness (including, without limitation, all Obligations)
under the Credit Agreement;
(10) Liens securing Permitted Refinancing Indebtedness permitted to be
incurred under the notes indenture to refinance Indebtedness secured by a
Lien permitted under the notes indenture or amendments or renewals of
Liens that were permitted to be incurred, PROVIDED, in each case, that
such Liens do not extend to an additional property or asset of WRC Media
or any restricted Subsidiary; and
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(11) Liens incurred in the ordinary course of business of WRC Media or any
Subsidiary of WRC Media with respect to obligations that do not exceed
$5.0 million at any one time outstanding.
"PERMITTED REFINANCING INDEBTEDNESS" means any Indebtedness of WRC Media or
any of its Restricted Subsidiaries issued in exchange for, or the net proceeds
of which are used to extend, refinance, renew, replace, defease or refund other
Indebtedness of WRC Media or any of its Restricted Subsidiaries (other than
intercompany Indebtedness); PROVIDED that:
(1) the principal amount (or accreted value, if applicable) of such
Permitted Refinancing Indebtedness does not exceed the principal amount
(or accreted value, if applicable) of the Indebtedness so extended,
refinanced, renewed, replaced, defeased or refunded (plus all accrued
interest thereon and the amount of all expenses and premiums incurred in
connection therewith);
(2) such Permitted Refinancing Indebtedness has a final maturity date later
than the final maturity date of, and has a Weighted Average Life to
Maturity equal to or greater than the Weighted Average Life to Maturity
of, the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded;
(3) if the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded is subordinated in right of payment to the notes,
such Permitted Refinancing Indebtedness has a final maturity date equal
to or later than the final maturity date of, and is subordinated in right
of payment to, the notes on terms at least as favorable in all material
respects to the Holders of notes as those contained in the documentation
governing the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded; and
(4) such Indebtedness is incurred by (a) an Issuer or a Note Guarantor or
(b) the Restricted Subsidiary that is the obligor on the Indebtedness
being extended, refinanced, renewed, replaced, defeased or refunded.
"PERSON" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization, limited
liability company or government or other entity.
"PRINCIPALS" means Ripplewood Partners, L.P., DLJ Merchant Banking Partners
and any member of management of any of the Issuers as of the date of the notes
indenture.
"QUALIFIED PROCEEDS" means assets that are used or useful in, or a majority
of the Voting Stock of any Person engaged in, a Permitted Business; PROVIDED
that the fair market value of any such assets or Capital Stock shall be
determined by the Board of Directors in good faith, except that in the event the
value of any such assets or Capital Stock may exceed $5.0 million or more, the
fair value shall be determined in writing by an independent investment banking
firm of nationally recognized standing.
"RECAPITALIZATION AGREEMENT" means the recapitalization agreement described
under the caption "Transactions."
"REFERENCE PERIOD" means the most recently ended four full fiscal quarters
for which internal financial statements are available.
"RELATED PARTY" means:
(1) any controlling stockholder, majority (or more) owned Subsidiary, or
immediate family member (in the case of an individual) of any Principal;
or
(2) any trust, corporation, partnership or other entity, the beneficiaries,
stockholders, partners, owners or Persons beneficially holding a majority
or more controlling interest of which consist of any one or more
Principals and/or such other Persons referred to in the immediately
preceding clause (1).
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"RESTRICTED INVESTMENT" means any Investment other than a Permitted
Investment.
"RESTRICTED SUBSIDIARY" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary. In the case of WRC Media,
Restricted Subsidiary shall include Weekly Reader and CompassLearning.
"SENIOR DEBT" means:
(1) all Obligations of an Issuer or any Note Guarantor outstanding under
Credit Facilities and all Hedging Obligations payable to a Person that
was a lender under the Credit Facilities (or an affiliate of a lender
under the Credit Facilities) at the time the agreement relating to such
Hedging Obligations pursuant to which such Obligations are payable was
entered into, including, in each case, interest accruing subsequent to
the filing of, or which would have accrued but for the filing of, a
petition for bankruptcy, reorganization or similar proceeding, whether or
not such interest is an allowable claim in such proceeding;
(2) any other Indebtedness of an Issuer or any Note Guarantor permitted to
be incurred under the terms of the notes indenture, unless the instrument
under which such Indebtedness is incurred expressly provides that it is
on a parity with or subordinated in right of payment to the notes or any
Note Guarantee; and
(3) all Obligations with respect to the items listed in the preceding
clauses (1) and (2).
Notwithstanding anything to the contrary in the preceding, Senior Debt will
not include:
(1) any liability for Federal, state, local or other taxes owed or owing by
an Issuer;
(2) any Obligations of an Issuer to any of its Subsidiaries or other
Affiliates;
(3) any trade payables (including Guarantees thereof or instruments
evidencing such liabilities;
(4) the portion of any Indebtedness that is incurred in violation of the
notes indenture; or
(5) Non-Recourse Debt;
(6) Any Indebtedness, Guarantee or Obligation of the Issuers or the Note
Guarantors which is subordinate or junior to any other Indebtedness,
Guarantee or Obligation of the Issuers or the Note Guarantors;
(7) Indebtedness evidenced by the notes and the Note Guarantees; and
(8) Capital Stock of an Issuer or a Note Guarantor.
"SENIOR PREFERRED STOCK" means $75.0 million in initial liquidation
preference of senior accreting preferred stock of WRC Media issued on the date
of the notes indenture and including any preferred stock of any Issuer issued in
exchange therefor in accordance with the terms thereof and the terms of the
stockholders agreement related thereto, in each case, as in effect on the date
of the notes indenture.
"SIGNIFICANT SUBSIDIARY" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Securities Act of 1933, as such Regulation is in effect on the
date hereof.
"STATED MATURITY" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations to
repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.
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"SUBORDINATED NOTE OBLIGATIONS" means all Obligations with respect to the
notes, including, without limitation, principal, premium, if any, interest and
liquidated damages, if any, payable pursuant to the terms of the notes
(including, without limitation, upon the acceleration or redemption thereof),
together with and including, without limitation, any amounts received or
receivable upon the exercise of rights of rescission or other rights of action,
including, without limitation, claims for damages, or otherwise.
"SUBSIDIARY" means, with respect to any specified Person:
(1) any corporation, association or other business entity of which more than
50% of the total voting power of shares of Capital Stock entitled
(without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees thereof is at the time owned
or controlled, directly or indirectly, by such Person or one or more of
the other Subsidiaries of that Person (or a combination thereof); and
(2) any partnership (a) the sole general partner or the managing general
partner of which is such Person or a Subsidiary of such Person or
(b) the only general partners of which are such Person or one or more
Subsidiaries of such Person (or any combination thereof).
"TAX SHARING AGREEMENT" means the Tax Sharing Agreement among the Issuers
and their Subsidiaries, as in effect on the date of the notes indenture.
"TOTAL TANGIBLE ASSETS" means the total consolidated assets, excluding
goodwill and other intangible assets, of WRC Media and its Restricted
Subsidiaries determined in accordance with GAAP, as set forth on WRC Media's
most recent consolidated balance sheet.
"UNIT COMMON STOCK" means the 205,656 shares of common stock of WRC Media
initially offered with the notes as a unit.
"UNRESTRICTED SUBSIDIARY" means any Subsidiary of WRC Media (other than
Weekly Reader and CompassLearning) that is designated by the Board of Directors
as an Unrestricted Subsidiary pursuant to a Board Resolution, but only to the
extent that such Subsidiary:
(1) has no Indebtedness other than Non-Recourse Debt;
(2) is not party to any agreement, contract, arrangement or understanding
with WRC Media or any Restricted Subsidiary of WRC Media unless the terms
of any such agreement, contract, arrangement or understanding are no less
favorable to WRC Media or such Restricted Subsidiary than those that
might be obtained at the time from Persons who are not Affiliates of WRC
Media;
(3) is a Person with respect to which neither WRC Media nor any of its
Restricted Subsidiaries has any direct or indirect obligation (a) to
subscribe for additional Equity Interests or (b) to maintain or preserve
such Person's financial condition or to cause such Person to achieve any
specified levels of operating results; and
(4) has not guaranteed or otherwise directly or indirectly provided credit
support for any Indebtedness of WRC Media or any of its Restricted
Subsidiaries.
Any designation of a Subsidiary of WRC Media as an Unrestricted Subsidiary
shall be evidenced to the Trustee by filing with the Trustee a certified copy of
the Board Resolution giving effect to such designation and an Officers'
Certificate certifying that such designation complied with the preceding
conditions and was permitted by the covenant described above under the caption
"--Material Covenants--Restricted Payments." If, at any time, any Unrestricted
Subsidiary would fail to meet the preceding requirements as an Unrestricted
Subsidiary, it shall thereafter cease to be an Unrestricted Subsidiary for
purposes of the notes indenture and any Indebtedness of such Subsidiary shall be
deemed to be incurred by a Restricted Subsidiary of WRC Media as of such date
and, if such
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Indebtedness is not permitted to be incurred as of such date under the covenant
described under the caption "--Material Covenants--Incurrence of Indebtedness
and Issuance of Preferred Stock," WRC Media shall be in default of such
covenant. The Board of Directors of WRC Media may at any time designate any
Unrestricted Subsidiary to be a Restricted Subsidiary; PROVIDED that such
designation shall be deemed to be an incurrence of Indebtedness by a Restricted
Subsidiary of WRC Media of any outstanding Indebtedness of such Unrestricted
Subsidiary and such designation shall only be permitted if (1) such Indebtedness
is permitted under the covenant described under the caption "--Material
Covenants--Incurrence of Indebtedness and Issuance of Preferred Stock,"
calculated on a pro forma basis as if such designation had occurred at the
beginning of the four-quarter reference period; and (2) no Default or Event of
Default would be in existence following such designation.
"VOTING STOCK" of any Person as of any date means the Capital Stock of such
Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
"WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing:
(1) the sum of the products obtained by multiplying (a) the amount of each
then remaining installment, sinking fund, serial maturity or other
required payments of principal, including payment at final maturity, in
respect thereof, by (b) the number of years (calculated to the nearest
one-twelfth) that will elapse between such date and the making of such
payment; by
(2) the then outstanding principal amount of such Indebtedness.
"WHOLLY OWNED RESTRICTED SUBSIDIARY" of any specified Person means a
Restricted Subsidiary of such Person all of the outstanding Capital Stock or
other ownership interests of which (other than directors' qualifying shares and
shares of its Capital Stock pursuant to the exercise of warrants outstanding on
the date of the notes indenture) shall at the time be owned by such Person or by
one or more Wholly Owned Restricted Subsidiaries of such Person and one or more
Wholly Owned Restricted Subsidiaries of such Person.
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DESCRIPTION OF NEW SENIOR PREFERRED STOCK
The old senior preferred stock was and the new senior preferred stock will
be issued under a Certificate of Designations, Preferences and Rights of 15%
Series A Senior Preferred Stock and 15% Series B Senior Preferred Stock, a copy
of which is filed as an exhibit to the registration statement of which this
prospectus constitutes a part. The following description is a summary of the
material provisions of the certificate of designations and the senior preferred
stockholders agreement and does not restate the certificate of designations and
the senior preferred stockholders agreement in their entirety. We urge you to
read the certificate of designations and the senior preferred stockholders
agreement because they, and not this description, define your rights as holders
of the senior preferred stock. Copies of the certificate of designations and the
senior preferred stockholders agreement are available as stated under "Where You
Can Find More Information." In this description, the terms "we," "our" and "us"
refer only to WRC Media and not to any of its subsidiaries.
The terms of the new senior preferred stock and the old senior preferred
stock are identical except that the new senior preferred stock (1) will not
contain terms with respect to transfer restrictions and (2) will not require us
to consummate a registered exchange offer. Except as described in the previous
sentence, the new senior preferred stock will evidence the same rights and
obligations as the old senior preferred stock and will be entitled to the same
benefits under the preferred stockholders agreement and the certificate of
designations as the old senior preferred stock.
Senior preferred stockholders whose shares of old senior preferred stock are
accepted for exchange will receive new senior preferred stock having a
liquidation preference equal to that of the surrendered old senior preferred
stock. All old senior preferred stock and new senior preferred stock will be
treated as a single class of securities under the certificate of designations.
GENERAL
The certificate of designations designates 6,400,000 shares of our
authorized preferred stock as 15% Series A Senior Preferred Stock due 2011 and
6,400,000 shares of our authorized preferred stock as 15% Series B Senior
Preferred Stock, in each case with an original liquidation preference of $25.00
per share. The old senior preferred stock was and the new senior preferred stock
will, when issued, be fully paid and nonassessable and the senior preferred
stockholders will have no preemptive rights in connection therewith.
The liquidation preference of the senior preferred stock is not necessarily
indicative of the price at which shares of the senior preferred stock will
actually trade at or after the time of their issuance, and the senior preferred
stock may trade at prices below its liquidation preference. The market price of
the senior preferred stock can be expected to fluctuate with changes in the
financial markets and economic conditions, our financial condition and prospects
and other factors that generally influence the market prices of securities.
All "distributions" with respect to the senior preferred stock, including
the payment of dividends, the accrual of dividends, the exchange of the senior
preferred stock for preferred stock of Weekly Reader and/or CompassLearning,
redemptions, repurchases and distributions upon a liquidation, dissolution or
winding up of WRC Media, are subject to the provisions of the Delaware Business
Corporation Law, including provisions which prohibit any "distributions" if,
after giving effect thereto, we would be unable to pay our debts as they become
due in the usual course of our business or our total assets would be less than
our total liabilities. See "Risk Factors--Dividends."
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RANKING
The old senior preferred stock does and the new senior preferred stock will,
with respect to dividend rights and rights on liquidation, winding up and
dissolution of WRC Media, rank:
- senior to all classes or series of our common stock, par value $0.01 per
share, and each other class of capital stock (including any rights or
options exercisable for or convertible into such capital stock) issued by
us the terms of which do not expressly provide that such series will rank
senior to, or on a parity with, the senior preferred stock or which do not
specify any rank relative to the senior preferred stock (collectively
referred to herein as "JUNIOR SECURITIES");
- on a parity with each other class of capital stock (including any rights
or options exercisable for or convertible into such capital stock) issued
by us the terms of which specifically provide that such series will rank
on a parity with the senior preferred stock (collectively referred to as
"PARITY SECURITIES"); and
- junior to each other class of capital stock (including any rights or
options exercisable for or convertible into such capital stock) issued by
us the terms of which specifically provide that such series will rank
senior to the senior preferred stock (collectively referred to as "SENIOR
SECURITIES").
Without the written consent of the holders of a majority of the then
outstanding senior preferred stock or the majority vote of holders of the then
outstanding senior preferred stock at a meeting of the senior preferred
stockholders called for such purpose, we may not authorize, create (by way of
reclassification or otherwise) or issue:
(1) Parity Securities or Senior Securities; or
(2) any obligation or security convertible or exchangeable into, or
evidencing a right to purchase, shares of any class or series of Senior
Securities or Parity Securities.
Notwithstanding the foregoing, we may, without the consent of the senior
preferred stockholders, authorize, create (by way of reclassification or
otherwise) or issue Parity Securities for the purpose of using the proceeds of
such Parity Securities for the redemption of all outstanding shares of senior
preferred stock. See "--Voting Rights."
DIVIDENDS
The new senior preferred stock will accrue dividends at an annual rate of
(1) 15% and (2) 15.5% if we fail to comply with our registration obligations
with respect to the old senior preferred stock. See "Registration Rights--The
Senior Preferred Stock." In addition, if we are unable or fail to discharge our
obligation to redeem all outstanding shares of the senior preferred stock in
connection with a mandatory redemption or a change of control, the dividend rate
will increase by 0.50% each quarter or portion thereof following the date on
which such redemption was required to be made until such default is cured;
however, the aggregate increase in such dividend rate will not exceed 10%. See
"--Redemption of Senior Preferred Stock--Change of Control" and "--Redemption of
Senior Preferred Stock--Mandatory." The board of directors will declare
dividends out of legally available funds. We will pay dividends on the new
senior preferred stock quarterly in arrears on March 31, June 30, September 30
and December 31 of each year, commencing on December 31, 2000.
Prior to December 31, 2004, or such earlier dividend payment date as we may
elect in our sole discretion, dividends will not be payable in cash, but will
accrete to the liquidation preference of the shares of the senior preferred
stock, except as described in the next sentence. Prior to December 31, 2004, at
the request of a majority of the holders of the senior preferred stock, we will
pay dividends in additional fully-paid and nonassessable shares of senior
preferred stock having an aggregate liquidation preference equal to the amount
of such accrued and unpaid cash dividends in lieu of the dividends
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accreting to the liquidation preference of the shares of the senior preferred
stock. After December 31, 2004, we will pay dividends only in cash on the
liquidation preference per share of the senior preferred stock.
Dividends will be payable to holders of record as of a record date preceding
the relevant quarterly dividend payment date, not more than 60 days or less than
10 days preceding the payment of such dividends, as fixed by our board of
directors. Following December 31, 2004, any accrued and unpaid cash dividends
may be declared and paid at any time to holders of record as of such date, but
not more than 45 days preceding the payment date of such dividends, as may be
fixed by our board of directors.
We do not expect to pay any dividends in cash before December 31, 2004.
Holders of shares of senior preferred stock will not be entitled to any
dividends, whether in cash, property or stock, in excess of the cumulative
dividends payable on the senior preferred stock. No interest or sum of money in
lieu of interest will be payable in respect of any dividend payment on the
senior preferred stock that may be in arrears unless specifically provided for
in the certificate of designations.
Dividends payable on the new senior preferred stock will accrue from the
most recent date to which dividends have been paid on the old senior preferred
stock, or if no dividends have been paid on the old senior preferred stock, from
November 17, 1999. Dividends will be computed on the basis of a 360-day year
comprised of twelve 30-day months. Accordingly, registered holders of the new
senior preferred stock on the relevant record date for the first dividend
payment date following the consummation of the exchange offer will receive
dividends accruing from December 31, 1999, the most recent date to which
dividends have been paid or accreted. All dividends will be cumulative from the
date of issuance of the senior preferred stock, whether or not in any dividend
period we have funds legally available for the payment of such dividends.
With respect to the old senior preferred stock accepted for exchange, the
holders of such old senior preferred stock will receive new senior preferred
stock having a liquidation preference equal to that of the surrendered old
senior preferred stock. Dividends will cease to accrue in respect of shares of
the old senior preferred stock on the date that such shares are exchanged or on
the date of their earlier redemption or repurchase by us. See "Certain U.S.
Federal Tax Considerations." Holders of old senior preferred stock whose old
senior preferred stock is accepted for exchange will not receive any payment in
respect of accrued dividends on such old senior preferred stock.
REDEMPTION OF SENIOR PREFERRED STOCK
OPTIONAL. On or after November 17, 1999 (but not including from
November 17, 2002 to November 17, 2004), we may, to the extent we have funds
legally available for such redemption, at our option in whole but not in part,
at the redemption prices per share in cash listed in the table below, together
with all accrued and unpaid cash dividends thereon to the date of redemption,
without interest on such redemption price, if redeemed during the 12-month
period beginning on November 17 of the years indicated below:
<TABLE>
<CAPTION>
PERCENTAGE OF
YEAR LIQUIDATION VALUE
- ---- -----------------
<S> <C>
1999........................................................ 115.000%
2000........................................................ 115.000
2001........................................................ 115.000
2004........................................................ 107.500
2005........................................................ 105.625
2006........................................................ 103.750
2007........................................................ 101.875
2008 and thereafter......................................... 100.000
</TABLE>
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MANDATORY. To the extent we have funds legally available for such payment,
on November 17, 2011, if any shares of the senior preferred stock are
outstanding, we will be required to redeem all outstanding shares of senior
preferred stock at a redemption price equal to the aggregate liquidation value
of the shares redeemed, in cash, together with any accrued and unpaid cash
dividends, if any, to the date of redemption, without interest on such
redemption price.
CHANGE OF CONTROL. If a change of control occurs, we, to the extent we have
legally available funds for such payment and to the extent permitted by the
notes indenture, will offer to redeem the shares of senior preferred stock then
outstanding and will redeem the senior preferred stock of any holder who will
consent to such redemption upon a date that is no later than 30 days following
the change of control (or, if a later date is required in order to comply with
the federal securities laws, the first date thereafter on which such redemption
is permitted), at the redemption prices per share in cash listed in the table
below, together with accrued and unpaid cash dividends to the date of
redemption, without interest on such redemption price, if redeemed during the
12-month period beginning on November 17 of the years indicated below:
<TABLE>
<CAPTION>
PERCENTAGE OF
YEAR LIQUIDATION VALUE
- ---- -----------------
<S> <C>
1999........................................................ 107.5000%
2000........................................................ 107.5000
2001........................................................ 107.5000
2002........................................................ 100.0000
2003........................................................ 100.0000
2004........................................................ 103.7500
2005........................................................ 102.8125
2006........................................................ 101.8750
2007........................................................ 100.9375
2008 and thereafter......................................... 100.0000
</TABLE>
The definition of "change of control" under the certificate of designations
is substantially the same as the definition of such term under the notes
indenture. See "Description of New Notes--Definitions."
EXCHANGE
We may, at our option, but only in connection with a reorganization (as
described below), redeem all, but not less than all, of the shares of the senior
preferred stock then outstanding in exchange for an equivalent number of shares
of preferred stock of Weekly Reader, of identical type and liquidation
preference, having identical terms and conditions as the senior preferred stock
(except that the issuer of such preferred stock shall be Weekly Reader), with
equal amounts of accrued and unpaid cash dividends.
The DLJMB Investors and their permitted transferees may, pursuant to the
senior preferred stockholders agreement, at their option, cause us to exchange
all, but not less than all, outstanding shares of the senior preferred stock for
an equal number of shares of preferred stock of Weekly Reader and/or
CompassLearning, of identical type and liquidation preference, having
substantially identical terms and conditions as the senior preferred stock
(except that the issuer of such preferred stock shall be Weekly Reader and/or
CompassLearning, as applicable), with equal amounts of accrued and unpaid cash
dividends.
A "reorganization" means a reorganization completed in connection with an
initial public offering, pursuant to which we will transfer, or cause to be
transferred, all or substantially all of our assets to Weekly Reader in exchange
for the assumption by Weekly Reader of all or substantially all of our
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liabilities, the issuance to us by Weekly Reader of new common stock and a
number of shares of Weekly Reader preferred stock equal to the number of shares
of senior preferred stock then outstanding in exchange for the senior preferred
stock; PROVIDED that after giving effect to such reorganization the overall
economic position of a holder of Weekly Reader preferred stock is not worse than
the overall economic position of a holder of the senior preferred stock
immediately prior to such transaction with respect to the investment by such
holder in us (and relative to our other creditors, lenders and equity holders).
Pursuant to the senior preferred stockholders agreement, such reorganization
will also be conditional upon whether:
(1) the assets and liabilities Weekly Reader immediately subsequent to such
a reorganization are substantially identical to our assets and
liabilities prior to such reorganization; and
(2) Weekly Reader delivered to the senior preferred stockholders who are
party to the senior preferred stockholders agreement an opinion of
outside counsel from a firm that is reasonably acceptable to such
stockholders that
(a) the reorganization should qualify as a reorganization under
Section 368(a) of the Internal Revenue Code of 1986, as amended; and
(b) there should be no adverse tax consequences to such stockholders or
to Weekly Reader that result from, are caused by, or are incurred by
such stockholder or Weekly Reader in connection with the consummation
of the reorganization.
LIQUIDATION RIGHTS
Except as provided in the certificate of designations, the holders of senior
preferred stock will not be entitled to any distribution in the event of
liquidation, dissolution or winding up of WRC Media. In the event of any
voluntary or involuntary liquidation, dissolution or winding up, each holder of
the new senior preferred stock will be entitled to payment, out of our assets
available for distribution, before any payment or distribution is made on any
Junior Securities, including, without limitation, our common stock. We will pay
to each holder of senior preferred stock an amount equal to the liquidation
value per share of senior preferred stock held by such holder, plus accrued and
unpaid cash dividends, if any, to the date fixed for liquidation, dissolution or
winding up.
Liquidation value with respect to shares of senior preferred stock (other
than those distributed as dividends to the senior preferred stockholders upon
their request in lieu of accretion of interest to the liquidation value as
described under "--Dividends" above) means, as of any date, the sum of
(1) $25.00 per share and (2) the aggregate of all dividends accreted on such
share until the most recent dividend payment date upon which an accretion to
liquidation value has occurred (or if such date is a dividend payment date upon
which an accretion to liquidation value has occurred, such date). In the event
of an actual liquidation, dissolution or winding up of WRC Media or the
redemption of senior preferred stock, such amount will be calculated by
including dividends to the actual date of such liquidation, dissolution, winding
up or redemption rather than the most recent dividend payment date. In addition,
dividends will in no event accrete beyond the earlier of (1) December 31, 2004
(or such earlier dividend payment date as we may elect to pay dividends in cash)
and (2) the most recent dividend payment date prior to the dividend payment date
on which we begin paying dividends on the new senior preferred stock in
additional shares of senior preferred stock in lieu of accretion of interest to
the liquidation value. Shares distributed as dividends to the senior preferred
stockholders upon their request in lieu of accretion to the liquidation value
will have the liquidation value of the senior preferred stock outstanding
immediately prior to the first dividend payment date occurring after the senior
preferred stockholders request payment of dividends in additional shares of
senior preferred stock.
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If upon any voluntary or involuntary liquidation, dissolution or winding up
of our assets, the application of all amounts available for payments with
respect to the senior preferred stock and all other Parity Securities would not
result in payment in full of the preferential amounts on the senior preferred
stock and liquidating payments on any Parity Securities, holders of the senior
preferred stock and the Parity Securities will share ratably in any distribution
of our assets, or the proceeds of such assets, in proportion to the full amount
payable upon liquidation to which each is entitled. After payment in full of all
amounts to which holders of senior preferred stock are entitled, such holders
will not be entitled to any further participation in any distribution of our
assets. However, neither the voluntary sale, conveyance, exchange or transfer
(for cash, shares of stock, securities or other consideration) of all or
substantially all of our property or assets nor the consolidation or merger of
WRC Media with one or more corporations will be deemed to be a voluntary or
involuntary liquidation, dissolution or winding up, unless such sale,
conveyance, exchange or transfer shall be in connection with a liquidation,
dissolution or winding up of our business.
The certificate of designations does not contain any provision requiring
funds to be set aside to protect the liquidation preference of the senior
preferred stock, although such liquidation preference will be substantially in
excess of the par value of such shares of senior preferred stock.
VOTING RIGHTS
Holders of the new senior preferred stock will not have any voting rights
other than (1) those required by law and (2) those specified in the certificate
of designations, including those described herein. Upon our failure to:
- pay in full four consecutive or six quarterly cash dividends;
- discharge any obligation in connection with a mandatory redemption or a
change of control with respect to the senior preferred stock for any
reason (including because there are no funds legally available for a
redemption);
- give notice required to be given in connection with mandatory redemption
provided for in the certificate of designations; or
- comply with our covenants described in the certificate of designations,
the number of directors constituting our board of directors will be increased by
one and the majority holders of the new senior preferred stock, voting together
as a single class with holders of other classes or series of our preferred stock
having similar voting rights, will be entitled to elect one additional member of
our board of directors.
The term of office of any director elected as a result of any of the events
described above will continue until all dividends in arrears on the senior
preferred stock are paid in full and all other such events or defaults have been
cured or waived, at which time the term of office of any such directors shall
terminate and the number of directors constituting our board of directors will
be reduced accordingly.
In addition, as provided above under "--Ranking," we may not authorize,
create (by way of reclassification or otherwise) or issue any Parity Securities
or Senior Securities, or any obligation or security convertible into or
evidencing the right to purchase Parity Securities or Senior Securities without
the consent of the holders of a majority of the then outstanding senior
preferred stock, except that we may, without the consent of the senior preferred
stockholders, authorize, create (by way of reclassification or otherwise) or
issue Parity Securities for the purpose of using the proceeds of such Parity
Securities for the redemption of all outstanding shares of senior preferred
stock.
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Under Delaware law, holders of preferred stock are entitled to vote as a
class upon a proposed amendment to the certificate of incorporation if the
amendment would:
(1) increase or decrease the par value of the shares of that class of
preferred stock; or
(2) alter or change the powers, preferences or special rights of the shares
of that class of preferred stock in a way that would affect the Holders
of that preferred stock adversely.
COVENANTS
Without the consent of a majority of the then outstanding senior preferred
stock, we may not amend, alter or repeal any provision of our certificate of
incorporation (by merger or otherwise) so as to adversely affect the
preferences, rights or powers of the senior preferred stock, PROVIDED that any
such amendment that decreases the dividend payable on or the liquidation value
of the senior preferred stock shall require the affirmative vote of holders of
each share of senior preferred stock at a meeting of senior preferred
stockholders called for such purpose or written consent of each such senior
preferred stockholder.
PAYMENTS TO PARITY SECURITIES. So long as any shares of the senior
preferred stock are outstanding, except as described in the next paragraph, we
will not (1) declare, pay or set apart for payment on any Parity Securities any
dividends or declare or make any other distribution on any Parity Securities; or
(2) redeem, purchase or otherwise acquire any Parity Securities for any
consideration, directly or indirectly; or (3) pay or make available any monies
for a sinking for the redemption of any shares of any Parity Securities, unless,
in each case, we declare and pay, or set apart for payment a sum sufficient for
the payment of, full cumulative dividends (to the extent such dividends on the
senior preferred stock are payable in cash) on the senior preferred stock for
all quarterly dividend periods terminating on or prior to the payment of the
dividend on, or the acquisition of, the Parity Securities.
When dividends (to the extent such dividends on the senior preferred stock
are payable in cash) are not paid in full or a sum sufficient for the payment
thereof is not set apart as described in the preceding paragraph, all dividends
declared upon the shares of senior preferred stock and all dividends declared
upon any Parity Securities shall (in each case, to the extent payable in cash)
be declared ratably in proportion to the respective amounts of dividends
accumulated and unpaid on the senior preferred stock and accumulated and unpaid
on such Parity Securities.
PAYMENTS TO JUNIOR SECURITIES. So long as any shares of senior preferred
stock are outstanding, we will not (1) declare, pay or set apart for payment on
any Junior Securities any dividends (other than pay-in-kind dividends or
distributions paid in shares of, or options, warrants or rights to subscribe for
or purchase shares of Junior Securities) or declare or make any other
distribution on the Junior Securities; or (2) redeem, purchase or otherwise
acquire any Junior Securities for any consideration, directly or indirectly
(except by conversion into or exchange for Junior Securities); or (3) pay or
make available any monies for a sinking fund for the redemption of any Junior
Securities, unless, in each case; (a) the full cumulative dividends to which the
holders of senior preferred stock and any Parity Securities will have been
entitled at the time of such payment to Junior Securities will have been paid or
declared and (b) a sum of money sufficient for the payment of such dividends for
the current dividend period has been set apart. The foregoing provisions will
not prohibit the redemption, purchase or other acquisition of any shares of WRC
Media common stock for purposes of any of our or our subsidiaries' employee
benefit or incentive plans.
MERGER, CONSOLIDATION AND ASSET SALES. Without the written consent of the
majority of the senior preferred stockholders or the majority vote of the senior
preferred stockholders at a meeting called for such purpose, we may not merge or
consolidate, or sell, exchange or convey all or substantially all of our assets,
property or business unless in the case of a merger or consolidation:
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(1) if we are not the surviving corporation, the seniority, rights, powers
or preferences of the senior preferred stock continue unimpaired and on
identical terms after such transaction; or
(2) the surviving corporation has a consolidated net worth (immediately
following such transaction) at least equal to that of WRC Media prior to
such transaction.
For purposes of this covenant, "consolidated net worth" (at any date and
with respect to any person) is defined in the certificate of designations as
(1) the consolidated stockholders' equity of such person and its consolidated
subsidiaries, LESS (2) their consolidated intangible assets (as defined in the
certificate of designations).
Notwithstanding any of the foregoing, this covenant will not prohibit any
reorganization described under "--Exchange" consummated in compliance with the
terms of the senior preferred stock.
REPORTS. So long as any shares of senior preferred stock are outstanding,
we will furnish the senior preferred stockholders with the quarterly and annual
financial reports that we are required to file with the Securities and Exchange
Commission pursuant to section 13 or section 15(d) of the Securities Exchange
Act of 1934 or, if we are not required to file such reports, reports containing
the same information as would be required in such reports.
SENIOR PREFERRED STOCKHOLDERS AGREEMENT
The relative rights and relationships of the senior preferred stockholders
are determined pursuant to the senior preferred stockholders agreement. See
"Certain Relationships and Related Transactions--Senior Preferred Stockholders
Agreement."
TRANSFER AGENT AND REGISTRAR
We will act as the transfer agent and registrar for the new senior preferred
stock until and unless we select a successor.
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BOOK-ENTRY, DELIVERY AND FORM
THE NEW NOTES
The new notes will be issued in the form of one or more fully registered new
notes in the form of global notes.
DEPOSITARY PROCEDURES
The global notes will be deposited upon issuance with, or on behalf of, DTC
and registered in the name of DTC or its nominee. Except as described below, the
global notes may be transferred, in whole and not in part, only to DTC or
another nominee of DTC. Investors may hold their beneficial interests in the
global notes directly through DTC if they have an account with DTC or indirectly
through organizations which have accounts with DTC. Upon the issuance of the
global notes, DTC or its nominee will credit, on its book-entry registration and
transfer system, the number of new notes represented by such global notes to the
accounts of institutions that have accounts with DTC or its nominee
("participants"). The accounts to be credited shall be designated by the initial
purchasers.
Ownership of beneficial interests in the global notes will be limited to
participants or persons that may hold interests through participants. Ownership
of beneficial interests in the global notes will be shown on, and the transfer
of those ownership interests will be effected only through, records maintained
by DTC or its nominee (with respect to participants' interests) for such global
notes, or by participants or persons that hold interests through participants
(with respect to beneficial interests in the global notes of persons other than
participants). The laws of some jurisdictions may require that some purchasers
of securities take physical delivery of such securities in definitive form. Such
limits and laws may impair the ability to transfer or pledge beneficial
interests in the global notes.
So long as DTC, or its nominee, is the registered holder and owner of any
global notes, DTC or such nominee, as the case may be, will be considered the
sole legal owner and holder of such new notes represented by such global notes
for all purposes under the notes indenture. Except as set forth below, owners of
beneficial interests in the global notes will not:
- be entitled to have such global notes or new notes represented thereby
registered in their names;
- receive or be entitled to receive physical delivery of certificated notes
in definitive form; and
- be considered to be the owners or holders of such global notes or any new
notes represented thereby for any purpose under the notes indenture.
We understand that under existing industry practice, in the event an owner
of a beneficial interest in a global note desires to take any action that DTC,
as the holder of such global note, is entitled to take, DTC would authorize the
participants to take such action, and that the participants would authorize
beneficial owners owning through such participants to take such action or would
otherwise act upon the instructions of beneficial owners owning through them.
Any payment of principal or interest due on the global notes on any payment
date or at maturity or upon mandatory redemption will be made available by us to
the trustee by such date. As soon as possible thereafter, the trustee will make
such payments to DTC or its nominee, as the case may be, as the registered owner
of the global notes in accordance with existing arrangements between the trustee
and DTC.
We expect that:
- DTC or its nominee, upon receipt of any payment of principal or interest
in respect of the global notes, DTC will credit immediately the accounts
of the related participants with payments
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in amounts proportionate to their respective beneficial interests in such
global note as shown on the records of DTC; and
- payments by participants to owners of beneficial interests in the global
notes held through such participants will be governed by standing
instructions and customary practices, as is now the case with securities
held for the accounts of customers in bearer form or registered in "street
name," and will be the responsibility of such participants.
None of us, the trustee and any payment agent for the global notes will have
any responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in any of the global
notes or for maintaining, supervising or reviewing any records relating to such
beneficial ownership interests or for other aspects of the relationship between
DTC and its participants or the relationship between such participants and the
owners of beneficial interests in the global notes owning through such
participants.
As long as the new notes are represented by a global note, DTC's nominee
will be the holder of such new notes and therefore will be the only entity that
can exercise a right to repayment or repurchase of such new notes, including
following a change of control or a tender offer for such new notes. Notice by
participants or by owners of beneficial interests in a global note held through
such participants of the exercise of the option to elect repayment of beneficial
interests in the new notes represented by a global note must be transmitted to
DTC in accordance with its procedures on a form required by DTC and provided to
participants. In order to ensure that DTC's nominee will timely exercise a right
to repayment with respect to a particular new note, the beneficial owner of such
new note must instruct the broker or other participant to exercise a right to
repayment. Different firms have cut-off times for accepting instructions from
their customers, and, accordingly, each beneficial owner should consult the
broker or other participant through which it holds an interest in a security in
order to ascertain the cut-off time by which such an instruction must be given
in order for timely notice to be delivered to DTC. We will not be liable for any
delay in delivery of notices of the exercise of the option to elect repayment.
Unless and until exchanged in whole or in part for certificated notes in
definitive form, the global notes may not be transferred except as a whole by
DTC to a nominee of such DTC or by a nominee of such DTC to such DTC or another
nominee of such DTC.
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in the global notes among participants of DTC, it is
under no obligation to perform or continue to perform such procedures, and such
procedures may be discontinued at any time. Neither the trustee nor we will have
any responsibility for the performance by DTC or its participants or indirect
participants of their respective obligations under the rules and procedures
governing their operations.
DTC has advised us that DTC is:
- a limited-purpose trust company organized under the laws of the State of
New York;
- a member of the Federal Reserve System;
- a "clearing corporation" within the meaning of the New York Uniform
Commercial Code; and
- a "clearing agency" registered pursuant to the provisions of Section 17A
of the Exchange Act.
DTC was created to hold securities of institutions that have accounts with
DTC and to facilitate the clearance and settlement of securities transactions
among its participants in such securities through electronic book-entry changes
in accounts of the participants, thereby eliminating the need for physical
movement of securities certificates. DTC's participants include securities
brokers and dealers (which may include Donaldson, Lufkin & Jenrette Securities
Corporation and Banc of America Securities LLC), banks, trust companies,
clearing corporations and other organizations. Access to DTC's
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book-entry system is also available to others, such as banks, brokers, dealers
and trust companies that clear through or maintain a custodial relationship with
a participant, whether directly or indirectly.
EXCHANGE OF GLOBAL NOTES FOR CERTIFICATED NOTES
A global note shall be exchangeable for corresponding certificated notes
registered in the name of persons other than DTC or its nominee only if:
- DTC (1) notifies us that it is unwilling or unable to continue as
depositary for such global note or (2) at any time ceases to be a clearing
agency registered under the Securities Exchange Act of 1934 and a
successor depositary is not appointed by us within 90 days;
- we in our discretion at any time determine not to have all of the
securities represented by the global notes; or
- an Event of Default (as defined in the notes indenture) with respect to
the new notes (has) occurred and is continuing.
Any new note that is exchangeable pursuant to the preceding sentence is
exchangeable for certificated notes issuable in authorized denominations and
registered in such names as DTC shall direct. Subject to the foregoing, the
global notes are not exchangeable, except for global notes of the same aggregate
denomination to be registered in the name of DTC or its nominee.
SAME-DAY PAYMENT
The notes indenture requires that payments in respect of the new notes
(including principal, premium and interest) be made by wire transfer of
immediately available U.S. dollar funds to the accounts specified by the holders
of such new note, or, if no such account is specified, by mailing a check to
each such holder's registered address.
THE NEW SENIOR PREFERRED STOCK
Shares of the new senior preferred stock will be issued only in registered,
certificated (I.E., non-global form). Shares of the new senior preferred stock
may not be exchanged for beneficial interests in any new senior preferred stock
in global form.
The certificate of designations for the senior preferred stock requires that
cash payments in respect of the new senior preferred stock shall be payable to
holders of record on a date that is not more than 45 days prior to the date of
such payment, as fixed by our board of directors. Any cash payment of dividends
due on the new senior preferred stock on any dividend payment date or upon
mandatory redemption will be made by us directly to the holders of such new
senior preferred stock. We will make any cash payments in respect of the new
senior preferred stock by mailing a check to each holder's registered address.
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REGISTRATION RIGHTS
The following description is a summary of the material provisions of the
registration rights agreement relating to the notes and the senior preferred
stockholders agreement. It does not restate these agreements in their entirety.
We urge you to read the registration rights agreement relating to the notes and
the senior preferred stockholders agreement in their entirety because they, and
not this description, define your registration rights as holders of the new
notes or the new senior preferred stock. Holders of new notes are not entitled
to any registration rights with respect to the new notes except for shelf
registration rights under the circumstances described below. Holders of new
senior preferred stock will have limited demand registration rights, piggy back
registration rights and shelf registration rights as described in this section.
Pursuant to the registration rights agreement relating to the notes, we and
the note guarantors agreed to file with the Securities and Exchange Commission
an exchange offer registration statement on the appropriate form under the
Securities Act of 1933 with respect to the old notes. Pursuant to the senior
preferred stockholders agreement, WRC Media agreed to file with the Securities
and Exchange Commission an exchange offer registration statement on the
appropriate form under the Securities Act of 1933 with respect to the old senior
preferred stock. The registration statement of which this prospectus is a part
constitutes the exchange offer registration statement for both the old notes and
the old senior preferred stock. The exchange offer being made hereby, if
commenced and consummated within the time periods described under "The Exchange
Offer--Expiration Date; Extensions; Amendments," will satisfy these requirements
under the registration rights agreement relating to the notes and the senior
preferred stockholders agreement.
THE NOTES
If:
(1) we and the note guarantors are not permitted to consummate the exchange
offer because the exchange offer is not permitted by applicable law or
Securities and Exchange Commission policy; or
(2) any holder of transfer restricted securities notifies us prior to the
20th day following consummation of the exchange offer that:
(a) it is prohibited by law or Securities and Exchange Commission policy
from participating in the exchange offer; or
(b) that it may not resell the new notes acquired by it in the exchange
offer to the public without delivering a prospectus and the
prospectus contained in the exchange offer registration statement is
not appropriate or available for such resales; or
(c) that it is a broker-dealer and owns notes acquired directly from us
or our "affiliate" (as defined in Rule 405 under the Securities Act
of 1933),
we and the note guarantors will file with the Securities and Exchange Commission
a shelf registration statement to cover resales of the notes by each holder
thereof who provides the information specified in Item 507 or 508 of
Regulation S-K under the Securities Act of 1933 and any additional information
required to be disclosed in order to make the information previously furnished
by the holder not materially misleading.
We and the note guarantors will use our respective best efforts to cause the
applicable registration statement to be declared effective as promptly as
possible by the Securities and Exchange Commission.
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For purposes of the preceding, "transfer restricted securities" means each
old note until:
(1) the date on which such old note has been exchanged by a person other
than a broker-dealer for a new note in the exchange offer;
(2) following the exchange by a broker-dealer in the exchange offer of an
old note for a new note, the date on which such new note is sold to a
purchaser who receives from such broker-dealer on or prior to the date of
such sale a copy of the prospectus contained in the exchange offer
registration statement;
(3) the date on which such old note has been effectively registered under
the Securities Act of 1933 and disposed of in accordance with the shelf
registration statement; or
(4) the date on which such old note is distributed to the public pursuant to
Rule 144 under the Securities Act of 1933.
The registration rights agreement provides that:
(1) we and the note guarantors will file an exchange offer registration
statement with the Securities and Exchange Commission on or prior to
90 days after the closing of the offering of the old notes.
(2) we and the note guarantors will use our respective best efforts to have
the exchange offer registration statement declared effective by the
Securities and Exchange Commission on or prior to 210 days after the
closing of the offering of the old notes.
(3) unless the exchange offer would not be permitted by applicable law or
Securities and Exchange Commission policy, we and the note guarantors
will
(a) commence the exchange offer; and
(b) use respective best efforts to issue on or prior to 30 business days,
or longer, if required by the Federal securities laws, after the date
on which the exchange offer registration statement was declared
effective by the Securities and Exchange Commission, new notes in
exchange for all old notes tendered prior thereto in the exchange
offer; and
(4) if obligated to file the shelf registration statement, we and the note
guarantors will use our respective best efforts to file the shelf
registration statement with the Securities and Exchange Commission on or
prior to 45 days after such filing obligation arises and to cause the
shelf registration to be declared effective by the Securities and
Exchange Commission on or prior to 90 days after such obligation arises.
The exchange offer being made hereby, if commenced and consummated within the
time periods described in this paragraph, will satisfy the requirements under
the registration rights agreement listed in (1), (2) and (3) of this paragraph.
If:
(1) we and the note guarantors fail to file any of the registration
statements required by the registration rights agreement on or before the
date specified for such filing; or
(2) any of such registration statements is not declared effective by the
Securities and Exchange Commission on or prior to the date specified for
such effectiveness; or
(3) we and the note guarantors fail to consummate the exchange offer within
30 business days of the date specified for effectiveness with respect to
the exchange offer registration statement; or
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(4) the shelf registration statement or the exchange offer registration
statement is declared effective but thereafter ceases to be effective or
usable in connection with resales of transfer restricted securities
during the periods specified in the registration rights agreement (each
such event referred to in clauses (1) through (4) above, a "registration
default"),
then we and the note guarantors will pay liquidated damages to each holder of
the old notes, with respect to the first 90-day period immediately following the
occurrence of the first registration default in an amount equal to $0.05 per
week per $1,000 principal amount of the old notes held by such holder.
The amount of the liquidated damages will increase by an additional $0.05
per week per $1,000 principal amount of the old notes with respect to each
subsequent 90-day period until all registration defaults have been cured, up to
a maximum amount of liquidated damages for all registration defaults of $0.50
per week per $1,000 principal amount of the old notes.
All accrued liquidated damages will be paid by us and the note guarantors on
each damages payment date to the global note holder by wire transfer of
immediately available funds or by Federal funds check and to holders of
certificated notes by wire transfer to the accounts specified by them or by
mailing checks to their registered addresses if no such accounts have been
specified.
Following the cure of all registration defaults, the accrual of liquidated
damages will cease.
THE SENIOR PREFERRED STOCK
If:
(1) WRC Media is not permitted to consummate the exchange offer because the
exchange offer is not permitted by applicable law or Securities and
Exchange Commission policy; or
(2) any holder of transfer restricted securities notifies WRC Media prior to
the 20th day following consummation of the exchange offer that:
(a) it is prohibited by law or Securities and Exchange Commission policy
from participating in the exchange offer; or
(b) that it may not resell the new senior preferred stock acquired by it
in the exchange offer to the public without delivering a prospectus
and the prospectus contained in the exchange offer registration
statement is not appropriate or available for such resales; or
(c) that it is a broker-dealer and owns senior preferred stock acquired
directly from us or our "affiliate" (as defined in Rule 405 under the
Securities Act of 1933),
WRC Media will file with the Securities and Exchange Commission a shelf
registration statement to cover resales of the senior preferred stock by each
holder thereof who provides the information specified in Item 507 or 508 of
Regulation S-K under the Securities Act of 1933 and any additional information
required to be disclosed in order to make the information previously furnished
by the holder not materially misleading.
WRC Media will use its best efforts to cause the applicable registration
statement to be declared effective as promptly as possible by the Securities and
Exchange Commission.
For purposes of the preceding, "transfer restricted securities" means each
share of old senior preferred stock until:
(1) the date on which such share of old senior preferred stock is exchanged
in the exchange offer for a share of new senior preferred stock which is
entitled to be resold to the public by the holder thereof without
complying with the prospectus delivery requirements of the Securities Act
of 1933;
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(2) the date on which such share of old senior preferred stock has been
disposed of in accordance with a shelf registration statement (and the
purchasers thereof have been issued new senior preferred stock); or
(3) the date on which such share of old senior preferred stock is
distributed to the public pursuant to Rule 144 under the Securities Act
of 1933.
The senior preferred stockholders agreement provides that:
(1) WRC Media will file an exchange offer registration statement with the
Securities and Exchange Commission on or prior to 90 days after
November 17, 1999, the closing of the offering of the old senior
preferred stock;
(2) WRC Media will use its best efforts to have the exchange offer
registration statement declared effective by the Securities and Exchange
Commission on or prior to 210 days after the closing of the offering of
the old senior preferred stock;
(3) unless the exchange offer would not be permitted by applicable law or
Securities and Exchange Commission policy, WRC Media will
(a) commence the exchange offer; and
(b) use its best efforts to issue on or prior to 30 business days, or
longer, if required by the Federal securities laws, after the date on
which the exchange offer registration statement was declared
effective by the Securities and Exchange Commission, new senior
preferred stock in exchange for all old senior preferred stock
tendered prior thereto in the exchange offer; and
(4) if obligated to file the shelf registration statement, WRC Media will
use its best efforts to file the shelf registration statement with the
Securities and Exchange Commission on or prior to 45 days after such
filing obligation arises and to cause the shelf registration to be
declared effective by the Securities and Exchange Commission on or prior
to 90 days after such obligation arises.
The exchange offer being made hereby, if commenced and consummated within the
time periods described in this paragraph, will satisfy the requirements under
the senior preferred stockholders agreement listed in (1), (2) and (3) of this
paragraph.
If:
(1) WRC Media fails to file any of the registration statements required by
the senior preferred stockholders agreement on or before the date
specified for such filing; or
(2) any of such registration statements is not declared effective by the
Securities and Exchange Commission on or prior to the date specified for
such effectiveness; or
(3) WRC Media fails to consummate the exchange offer within 30 business days
of the date specified for effectiveness with respect to the exchange
offer registration statement; or
(4) the shelf registration statement or the exchange offer registration
statement is declared effective but thereafter ceases to be effective or
usable in connection with resales of transfer restricted securities
during the periods specified in the preferred stockholders agreement
(each such event referred to in clauses (1) through (4) above, a
"registration default"),
the holders of shares of the senior preferred stock will be entitled to receive
15.5% per annum for each week or portion thereof that the registration default
continues. Notwithstanding anything to the contrary set forth in the certificate
of designations,
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(1) upon filing of the exchange offer registration statement (and/or, if
applicable, the shelf registration statement); or
(2) upon the effectiveness of the exchange offer registration statement
(and/or, if applicable, the shelf registration statement); or
(3) upon consummation of the exchange offer; or
(4) upon the filing of a post-effective amendment to the registration
statement or an additional registration statement that causes the
exchange offer registration statement (and/or, if applicable, the shelf
registration statement) to again be declared effective or made usable;
the dividend rate shall return to 15% (before giving effect to any applicable
default dividend).
Even if the exchange offer for the old senior preferred stock is
consummated, the remaining old senior preferred stockholders will have the
following additional registration rights with respect to old senior preferred
stock. Pursuant to the senior preferred stockholders agreement the DLJMB
Investors and their permitted transferees will be entitled to require WRC Media,
Weekly Reader or CompassLearning, as applicable, to register under the
Securities Act of 1933 (1) the old senior preferred stock and any other
securities into which such old senior preferred stock is exchangeable on two
separate occasions and (2) the Preferred Stockholder Warrants (described under
"Transactions") and the shares of the Weekly Reader common stock or
CompassLearning common stock into which such Preferred Stockholders Warrants are
exchangeable on two separate occasions.
In addition, pursuant to the senior preferred stockholders agreement, the
old senior preferred stockholders will be entitled to "piggy back" registration
rights with respect to the old senior preferred stock, Preferred Stockholder
Warrants and any securities of WRC Media, Weekly Reader or CompassLearning into
which such old senior preferred stock or Preferred Stockholder Warrants are
convertible or exchangeable. The piggy back registration rights provide that
when WRC Media proposes to register any of its capital stock or rights under the
Securities Act of 1933 for sale in a public offering, including, without
limitation, in connection with its initial public offering, it will give written
notice to the senior preferred stockholders who hold registrable securities.
Upon an old senior preferred stockholder's written request to include its
registrable securities issued by WRC Media, Weekly Reader or CompassLearning
under the registration statement, WRC Media will use its best efforts to
register all of the registrable securities that the old senior preferred
stockholders have requested to be registered.
In addition to the registration rights outlined above, the new senior
preferred stockholders will have the following additional registration rights
with respect to new senior preferred stock. Pursuant to the senior preferred
stockholders agreement, the DLJMB Investors and their permitted transferees will
be entitled to require WRC Media, Weekly Reader or CompassLearning, as
applicable, to register under the Securities Act of 1933 (1) the new senior
preferred stock and the securities into which such new senior preferred stock is
exchangeable on two separate occasions and (2) the Preferred Stockholder
Warrants (described under "Transactions") and the shares of the Weekly Reader
common stock or CompassLearning common stock into which such Preferred
Stockholders Warrants are exchangeable on two separate occasions.
Also, pursuant to the senior preferred stockholders agreement the new senior
preferred stockholders will be entitled to "piggy back" registration rights with
respect to the new senior preferred stock, the Preferred Stockholder Warrants
and any securities of WRC Media, Weekly Reader or CompassLearning into which the
new senior preferred stock or preferred stockholder warrants are convertible or
exchangeable. The piggy back registration rights provide that when WRC Media
proposes to register any of its capital stock or rights under the Securities Act
of 1933 for sale in a public offering, including, without limitation, in
connection with its initial public offering, it will give written notice to the
senior preferred stockholders who hold registrable securities. Upon a senior
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preferred stockholder's written request to include its registrable securities
issued by WRC Media Weekly Reader or CompassLearning under the registration
statement, WRC Media will use its best efforts to register all of the
registrable securities that the senior preferred stockholders have requested to
be registered.
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CERTAIN U.S. FEDERAL TAX CONSIDERATIONS
The following is a discussion of material United States Federal income tax
consequences and other tax consequences of the acquisition, ownership and
disposition of the notes and the senior preferred stock. Unless otherwise
stated, this discussion is limited to the tax consequences to original
beneficial owners of the notes and the senior preferred stock who acquired the
old notes and the old senior preferred stock at their initial issuance and who
hold such notes and senior preferred stock as capital assets ("Holders"). This
discussion does not purport to be a comprehensive description of all tax
considerations that may be relevant to a particular investor and does not
address specific tax consequences that may be relevant to particular persons
(including, for example, financial institutions, broker-dealers, insurance
companies, tax-exempt organizations, persons that have a functional currency
other than the U.S. dollar and persons in special situations, such as those who
hold the notes or the senior preferred stock as part of a straddle, hedge,
conversion transaction or other integrated investment). This discussion does not
address U.S. Federal alternative minimum tax consequences, and does not describe
any tax consequences arising under U.S. Federal gift and estate or other Federal
tax laws or under the tax laws of any state, local or foreign jurisdiction. This
discussion is based upon the Internal Revenue Code of 1986, as amended (the
"Code"), the Treasury Department regulations promulgated thereunder, and
administrative and judicial interpretations thereof, all as of the date hereof
and all of which are subject to change, possibly on a retroactive basis.
INVESTORS ARE URGED TO CONSULT THEIR TAX ADVISORS CONCERNING THE U.S.
FEDERAL INCOME TAX CONSEQUENCES TO THEM, AS A RESULT OF THEIR INDIVIDUAL
CIRCUMSTANCES, FROM THE EXCHANGE OF THE OLD NOTES FOR THE NEW NOTES AND OF THE
OLD SENIOR PREFERRED STOCK FOR THE NEW SENIOR PREFERRED STOCK AND OF THE
OWNERSHIP AND DISPOSITION OF THE NEW NOTES AND THE NEW SENIOR PREFERRED STOCK
RECEIVED IN THE EXCHANGE OFFER, INCLUDING THE APPLICATION OF STATE, LOCAL AND
FOREIGN INCOME AND OTHER TAX LAWS.
U.S. FEDERAL INCOME TAXATION OF U.S. HOLDERS
The following discussion is limited to the U.S. Federal income tax
consequences relevant to a Holder that is a citizen or individual resident of
the United States, a U.S. domestic corporation or any other person that is
subject to U.S. Federal income tax on a net income basis in respect of its
investment in the notes or senior preferred stock, as applicable, (a "U.S.
Holder").
EXCHANGE OFFER
The exchange of old notes for new notes and old senior preferred stock for
new senior preferred stock, as applicable, in the exchange offer will not
constitute a taxable event for U.S. Holders. A U.S. Holder's holding period for
a new note or new senior preferred stock, as applicable, will include the
holding period for the old note or the old senior preferred stock exchanged
pursuant to the exchange offer, and such Holder's adjusted basis in a new note
or new senior preferred stock will be the same as such Holder's adjusted basis
in the old note or the old senior preferred stock. The new notes will have the
same U.S. Federal income tax characteristics as the old notes. The new senior
preferred stock will have the same U.S. Federal income tax characteristics as
the old senior preferred stock.
STATED INTEREST ON THE NOTES
Stated interest on a note will generally be includible in a U.S. Holder's
gross income as ordinary income at the time it is accrued or received in
accordance with the U.S. Holder's regular method of accounting for U.S. Federal
income tax purposes.
ORIGINAL ISSUE DISCOUNT ON THE NOTES
A debt obligation that has an issue price that is less than its stated
redemption price at maturity by more than a DE MINIMIS amount will be treated as
issued with original issue discount for U.S. Federal
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income tax purposes. The stated redemption price at maturity of a debt
obligation is the sum of all payments to be made on such debt obligation that
are not "qualified stated interest" payments. "Qualified stated interest"
generally means stated interest that is unconditionally payable at least
annually at a single fixed rate (or at certain qualifying variable rates). The
semi-annual interest payments on the notes should constitute qualified stated
interest. Accordingly, the stated redemption price at maturity of the notes
should equal their principal amount.
The issue price of a debt obligation is less than its stated redemption
price at maturity by more than a DE MINIMIS amount for this purpose if the
difference between the stated redemption price at maturity of such debt
obligation and its issue price is at least 0.25 percent of the stated redemption
price at maturity multiplied by the number of complete years to maturity.
Because the old notes were issued with original issue discount in excess of
a DE MINIMIS amount, U.S. Holders of the notes must generally include original
issue discount in gross income (as interest) for U.S. Federal income tax
purposes on an annual basis under a constant yield method without regard to the
Holder's method of accounting for tax purposes. As a result, U.S. Holders
generally will be required to include original issue discount in income in
advance of the receipt of some or all of the related cash payments. The amount
of original issue discount includible in income by a U.S. Holder of a note is
the sum of the "daily portions" of original issue discount with respect to such
note for each day during the Holder's taxable year on which it held such note.
The daily portion is determined by allocating to each day in any "accrual
period" a pro rata portion of the original issue discount allocable to that
accrual period. The accrual period for a note may be of any length and may vary
in length over the term of the note, provided that each accrual period is no
longer than one year and each scheduled payment of principal or interest occurs
on the first day or the final day of an accrual period.
In general, the amount of original issue discount allocable to an accrual
period is an amount equal to the excess (if any) of (1) the product of the
note's "adjusted issue price" at the beginning of such accrual period and its
yield to maturity (determined on the basis of compounding at the close of each
accrual period and properly adjusted for the length of the accrual period) over
(2) the sum of any qualified stated interest allocable to the accrual period.
The following rules apply to determine original issue discount allocable to an
accrual period:
- if an interval between payments of qualified stated interest contains more
than one accrual period,
-- the amount of qualified stated interest payable at the end of the
interval is allocated on a pro rata basis to each accrual period in
the interval and the adjusted issue price at the beginning of each
accrual period in the interval must be increased by the amount of any
qualified stated interest that has accrued prior to the beginning of
the first day of the accrual period but is not payable until the end
of the interval;
- if the accrual period is the final accrual period,
-- the amount of original issue discount allocable to the final accrual
period is the difference between the amount payable at maturity
(other than a payment of qualified stated interest) and the adjusted
issue price of the note at the beginning of the final accrual period;
and
- if all accrual periods are of equal length, except for an initial short
accrual period,
-- the amount of original issue discount allocable to the initial short
accrual period may be computed under any reasonable method.
The adjusted issue price of a note at the beginning of any accrual period is
equal to its issue price increased by the accrued original issue discount for
each prior accrual period and reduced by any prior payments made on such note
that were not qualified stated interest payments. Under these rules, U.S.
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Holders of notes with original issue discount will be required to include in
income increasingly greater amounts of original issue discount in successive
accrual periods.
OPTIONAL REDEMPTION OF NOTES
The notes are redeemable at our option in whole or in part and subject to
certain conditions. For purposes of computing the yield to maturity on the
notes, we will be deemed to exercise our option to redeem the notes if such
deemed exercise could produce (realizing the redemption price on any date on
which the option could be exercised as the stated redemption price at maturity)
a lower yield on the notes than the stated yield to maturity. Our option to
redeem the notes prior to their stated maturity date should not affect the
computation of the amount of original issue discount on the notes.
REDEMPTION PREMIUM ON THE SENIOR PREFERRED STOCK AND ADDITIONAL PREFERRED SHARES
Under Section 305 of the Code and the applicable Treasury Regulations, if
the redemption price of preferred stock exceeds its issue price by more than a
DE MINIMIS amount, then such excess will be treated as a series of constructive
distributions over the life of the preferred stock under a constant yield
method. The issue price of preferred stock is less than its redemption price by
more than a DE MINIMIS amount if the difference between the redemption price and
the issue price is at least 0.25 percent of the redemption price of the
preferred stock multiplied by the number of complete years to mandatory
redemption. The redemption price of the senior preferred stock exceeds its issue
price by more than a DE MINIMIS amount. The amount of each constructive
distribution will be treated in the same manner as actual dividends as described
below under "Distributions on the Senior Preferred Stock."
The issue price of an additional preferred share will be the fair market
value of such share on the date of distribution. If the redemption price of an
additional preferred share exceeds the issue price of such share by more than a
DE MINIMIS amount, then a U.S. Holder thereof would be required to treat such
excess as a series of constructive distributions over the term of the additional
preferred share (as described above), which distributions would be treated in
the same manner as distributions described below under "Distributions on the
Senior Preferred Stock." Because additional preferred shares may be issued at
different times, it is possible that a U.S. Holder would own additional
preferred shares with different issue prices. Consequently, if WRC Media had
current or accumulated earnings and profits in such a case, a U.S. Holder would
be treated as having received constructive dividends on its additional preferred
shares in differing amounts depending on the issue price of each additional
preferred share, and those shares would not be fungible with each other or with
the old senior preferred stock purchased in the transactions described under
"Transactions" (which term "senior preferred stock" shall hereinafter mean,
unless otherwise indicated, the senior preferred stock and the additional
preferred shares that shall have been issued with respect thereto) due to their
differing U.S. Federal income tax characteristics. As a result, WRC Media might
not be able to determine the proper amount of income to be accrued for any
particular share of senior preferred stock. Moreover, purchasers of senior
preferred stock in the secondary market might not be able to determine the
proper amount of income to be accrued with respect to such stock.
DISTRIBUTIONS ON THE SENIOR PREFERRED STOCK
Distributions on the senior preferred stock will constitute dividends
taxable as ordinary income for U.S. Federal income tax purposes to the extent of
the current or accumulated earnings and profits of WRC Media as determined under
U.S. Federal income tax principles. Any such dividends paid to U.S. Holders that
are U.S. corporations may qualify for the dividends-received deduction.
To the extent, if any, that a U.S. Holder receives a distribution on its
senior preferred stock that exceeds the current and accumulated earnings and
profits of WRC Media, the distribution will be
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treated first as a non-taxable return of capital reducing the Holder's basis in
its shares of senior preferred stock. Any such distribution in excess of the
Holder's basis in its senior preferred stock will be treated as capital gain.
If a distribution with respect to the senior preferred stock is paid in the
form of additional preferred shares, (1) the amount of the distribution will be
the fair market value of the additional preferred shares as of the date of
distribution, and (2) the distribution will be treated as described in the
preceding two paragraphs.
DISPOSITION OF THE NOTES OR THE SENIOR PREFERRED STOCK
Upon the sale, exchange, redemption, retirement at maturity or other
disposition of a note or senior preferred stock, as applicable, a U.S. Holder
generally will recognize taxable gain or loss equal to the difference between
(1) the sum of cash plus the fair market value of all other property received on
such disposition (less, in the case of a note, any accrued interest which would
be taxable as such) and (2) such beneficial owner's adjusted tax basis in the
note or the senior preferred stock, as applicable. Special rules may apply to
any redemptions of the senior preferred stock which may result in the amount
paid being treated as a dividend for U.S. Federal income tax purposes.
A U.S. Holder's adjusted tax basis in a note generally will equal the amount
of the original issue price of the old notes (net of accrued interest), less any
principal payments received by such Holder. A U.S. Holder's initial tax basis in
the senior preferred stock (other than additional preferred shares) will
generally be the price such Holder paid for the old senior preferred stock. A
U.S. Holder's initial tax basis in an additional preferred share will be the
fair market value of such additional preferred share on the date of
distribution. Thereafter, the initial tax basis in the senior preferred stock or
additional preferred shares will be (1) increased by the amount, if any, of any
constructive distributions the Holder is treated as having received pursuant to
the rules described above under "Redemption Premium on the Senior Preferred
Stock and Additional Preferred Shares" and (2) decreased by the portion of any
distribution (actual or constructive) that is treated as a tax-free recovery of
basis as described above under "Distributions on the Senior Preferred Stock."
Gain or loss recognized on the disposition of a note or senior preferred
stock, as applicable, generally will be capital gain or loss, and will be
long-term capital gain or loss if, at the time of such disposition, the U.S.
Holder's holding period for the note or the senior preferred stock, as
applicable, is more than 12 months. The maximum Federal long-term capital gain
rate is 20% for noncorporate U.S. Holders and 35% for corporate U.S. Holders.
The deductibility of capital losses by U.S. Holders is subject to limitations.
U.S. FEDERAL INCOME TAXATION OF NON-U.S. HOLDERS
EXCHANGE OFFER
The exchange of old notes for new notes and old senior preferred stock for
new senior preferred stock in the exchange offer will not constitute a taxable
event for a holder that is, with respect to the United States, a foreign
corporation or non-resident alien individual (a "Non-U.S. Holder"). A Non-U.S.
Holder's holding period for a new note or new senior preferred stock, as
applicable, will include the holding period for the old note or the old senior
preferred stock exchanged pursuant to the exchange offer, and such Holder's
adjusted basis in a new note or new senior preferred stock will be the same as
such Holder's adjusted basis in the old note or the old senior preferred stock.
The new notes will have the same U.S. Federal income tax characteristics as the
old notes. The new senior preferred stock will have the same U.S. Federal income
tax characteristics as the old senior preferred stock.
226
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PAYMENTS OF INTEREST ON THE NOTES
Subject to the discussion of backup withholding below, payments of principal
and interest on the notes by us or any of our agents to a Non-U.S. Holder will
not be subject to withholding of U.S. Federal income tax, provided that, with
respect to payments of interest, (1) the Non-U.S. Holder does not actually or
constructively own 10 percent or more of the combined voting power of all
classes of stock of any of WRC Media, Weekly Reader and CompassLearning and is
also not a controlled foreign corporation related to any of these entities
through stock ownership and (2) the beneficial owner provides a statement
signed, under penalties of perjury, that includes its name and address and
certifies that it is a Non-U.S. Holder in compliance with applicable
requirements (or, with respect to payments made after December 31, 2000,
satisfies certain documentary evidence requirements ("New Regulations") for
establishing that it is a Non-U.S. Holder).
DISTRIBUTIONS ON THE SENIOR PREFERRED STOCK
Dividends on the senior preferred stock (including dividends in the form of
additional preferred shares and constructive dividends) actually or deemed paid
to a Non-U.S. Holder of the senior preferred stock generally will be subject to
withholding tax at a rate of 30% or such lower rate as may be specified by an
applicable income tax treaty. Currently, for purposes of determining whether tax
is to be withheld at a rate of 30% or at a reduced rate, WRC Media ordinarily
will presume that dividends paid on or before December 31, 2000 to an address in
a foreign country are paid to a resident of such country absent knowledge that
such presumption is not warranted. After December 31, 2000, a Non-U.S. Holder
will be required to properly certify its entitlement to the treaty benefits on
Internal Revenue Service Form W-8BEN (or other appropriate successor form).
DISPOSITION OF THE NOTES OR THE SENIOR PREFERRED STOCK
No withholding of U.S. Federal income tax will be required with respect to
any gain or income realized by a Non-U.S. Holder upon the sale, exchange,
redemption, retirement at maturity or other disposition of a note or senior
preferred stock, as applicable. A Non-U.S. Holder will not be subject to U.S.
Federal income tax on gain realized on the sale or other disposition of a note
or senior preferred stock, as applicable, unless (1) the Non-U.S. Holder is an
individual who is present in the United States for a period or periods
aggregating 183 or more days in the taxable year of the disposition and certain
other conditions are met or (2) such gain or income is effectively connected
with the conduct by the Non-U.S. Holder of a trade or business in the United
States.
Notwithstanding the foregoing, a Non-U.S. Holder generally will be subject
to U.S. Federal income tax on gain recognized on the sale, exchange or
disposition of senior preferred stock if WRC Media is a "United States real
property holding corporation" for U.S. Federal income tax purposes at any time
within the shorter of the five-year period preceding the disposition or the
Holder's holding period for the senior preferred stock. WRC Media does not
believe that it currently is a "United States real property holding
corporation," and it expects that it will not become one in the future (although
there can be no assurance in that regard).
EACH NON-U.S. HOLDER IS URGED TO CONSULT THE HOLDER'S TAX ADVISOR AS TO THE
APPLICATION OF THE NEW REGULATIONS AND THE PROCEDURES FOR ESTABLISHING AN
EXEMPTION FROM WITHHOLDING TAX.
INFORMATION REPORTING AND BACKUP WITHHOLDING
We are required to file information returns with the Internal Revenues
Service for certain non-corporate U.S. Holders with respect to:
- payments made in respect of a note (including original issue discount);
- payment of the proceeds from the sale of a note;
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- dividends received with respect to senior preferred stock; and
- payment of the proceeds from the sale of senior preferred stock.
In addition, non-corporate U.S. Holders may be subject to a 31% backup
withholding tax in respect of such payments if they:
- fail to furnish or certify their correct taxpayer identification number to
the payor in the manner required;
- are notified by the Internal Revenue Service that they have failed to
report payments of interest and dividends properly; or
- under certain circumstances, fail to certify, under penalties of perjury,
that they have not been notified by the Internal Revenue Service that they
are subject to backup withholding for failure to report interest and
dividend payments.
Non-U.S. Holders of the notes and the senior preferred stock may be required to
comply with applicable certification procedures to establish that they are not
U.S. holders in order to avoid the application of such information reporting
requirements and backup withholding tax. Any amounts withheld under the backup
withholding rules will be allowed as a refund or a credit against the person's
U.S. Federal income tax liability provided that the required information is
furnished to the Internal Revenue Service.
EACH NON-U.S. HOLDER IS URGED TO CONSULT SUCH HOLDER'S TAX ADVISOR AS TO THE
APPLICATION OF THE NEW REGULATIONS AND THE PROCEDURES FOR ESTABLISHING AN
EXEMPTION FROM BACKUP WITHHOLDING.
228
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PLAN OF DISTRIBUTION
Each broker-dealer that receives new notes or new senior preferred stock for
its own account pursuant to the exchange offer must acknowledge that it will
deliver a prospectus in connection with any resale of such new notes or new
senior preferred stock. This prospectus, as it may be amended or supplemented
from time to time, may be used by a broker-dealer in connection with resales of
new notes or new senior preferred stock received in exchange for old notes or
old senior preferred stock where such old notes or old senior preferred stock
were acquired as a result of market-making activities or other trading
activities. We have agreed that for a period of one year after the expiration
date, we will make available a prospectus meeting the requirements of the
Securities Act of 1933 to any broker-dealer for use in connection with any such
resale. In addition, until , all dealers effecting transactions in the new
notes or the new senior preferred stock may be required to deliver a prospectus.
We will not receive any proceeds from any sale of new notes or new senior
preferred stock by broker-dealers. The new notes or the new senior preferred
stock received by broker-dealers for their own account pursuant to the exchange
offer may be sold from time to time in one or more transactions in the
over-the-counter market, in negotiated transactions, through the writing of
options on the new notes or the new senior preferred stock or a combination of
such methods of resale, at market prices prevailing at the time of resale, at
prices related to such prevailing market prices or negotiated prices. Any such
resale may be made directly to purchasers or to or through brokers or dealers
who may receive compensation in the form of commissions or concessions from any
such broker-dealer or the purchasers of any such new notes or new senior
preferred stock. Any broker-dealer that resells the new notes or the new senior
preferred stock that were received by it for its own account pursuant to the
exchange offer and any broker or dealer that participates in a distribution of
such new notes or new senior preferred stock may be deemed to be an
"underwriter" within the meaning of the Securities Act of 1933 and any profit on
any such resale of such new notes or new senior preferred stock and any
commissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act of 1933. The letter of
transmittal states that by acknowledging that it will deliver and by delivering
a prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act of 1933.
For a period of one year after the expiration date, we will promptly send
additional copies of this prospectus and any amendment or supplement to this
prospectus to any broker-dealer that requests such documents in the letter of
transmittal. We have agreed to pay all expenses incident to the exchange offer
(including the reasonable fees and expenses of one counsel for the holders of
the old notes and the old senior preferred stock) other than commissions or
concessions of any broker-dealers and will indemnify the holders of the old
notes and the old senior preferred stock (including any broker-dealers) against
certain liabilities, including liabilities under the Securities Act of 1933.
LEGAL MATTERS
Certain legal matters with respect to the new notes and the new senior
preferred stock offered hereby will be passed upon for us by Cravath, Swaine &
Moore, New York, New York. Certain legal matters with respect to the new notes
and the new senior preferred stock offered hereby will be passed upon for the
holders by Latham & Watkins, New York, New York and Davis Polk & Wardwell, New
York, New York.
INDEPENDENT PUBLIC ACCOUNTANTS
The consolidated financial statements of WRC Media, Inc. and subsidiary as
of September 30, 1999 and for the period from July 14, 1999 to September 30,
1999 and the statement of operations and cash flows of the Company's predecessor
for the period from January 1, 1999 to July 13, 1999, included
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in this prospectus and elsewhere in the registration statement have been audited
by Arthur Andersen LLP, independent public accountants, as indicated in their
report with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said report.
The consolidated financial statements of Weekly Reader as of December 31,
1997 and 1998 and for each of the three years in the period ended December 31,
1998, and the consolidated financial statements of American Guidance as of
June 30, 1997 and 1998 and for each of the three years in the period ended
June 30, 1998, included in this prospectus have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their reports appearing herein,
and are included in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing.
The financial statements of CompassLearning (formerly known as JLC Learning
Corporation) as of December 31, 1997 and 1998 and for each of the three years in
the period ended December 31, 1998, included in this prospectus have been
audited by PricewaterhouseCoopers LLP, independent public accountants, as stated
in their report appearing herein.
In September, 1999, pursuant to authorization of its Board of Directors,
CompassLearning (formerly known as JLC Learning Corporation) dismissed the firm
of PricewaterhouseCoopers LLP, the former accountants of CompassLearning, as its
auditor and retained Arthur Andersen LLP.
On December 13, 1999, pursuant to authorization of its Board of Directors,
Weekly Reader dismissed the firm of Deloitte & Touche LLP, the former
accountants of Weekly Reader, as its auditor and retained Arthur Andersen LLP.
During the fiscal years ended December 31, 1997, and December 31, 1998, and
the subsequent interim periods immediately preceding the change in accountants,
there were no disagreements with PricewaterhouseCoopers LLP or Deloitte & Touche
LLP on any matter of accounting principles or practice, financial statement
disclosure, or auditing scope or procedure, which if not resolved to the
satisfaction of PricewaterhouseCoopers LLP or Deloitte & Touche LLP would have
caused them to make reference to the subject matter of the disagreement in
connection with their reports on CompassLearning's, Weekly Reader's or American
Guidance's financial statements. During the fiscal years ended December 31,
1997, and December 31, 1998, and the subsequent interim periods immediately
preceding the change in accountants, there were no reportable events, as that
term is used in Regulation S-K, Item 304(a)(1)(v)(A) through (D) of the
Securities Exchange Act of 1934.
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
WEEKLY READER CORPORATION AND SUBSIDIARIES:
CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE YEARS
ENDED DECEMBER 31, 1996, 1997 AND 1998:
Report of Independent Auditors--Deloitte & Touche LLP..... F-3
Consolidated Balance Sheets as of December 31, 1997 and
1998.................................................... F-4
Statements of Consolidated Operations and Accumulated
Deficit for the Years Ended December 31, 1996, 1997 and
1998.................................................... F-5
Statements of Consolidated Cash Flows for the Years Ended
December 31, 1996, 1997 and 1998........................ F-6
Notes to Consolidated Financial Statements................ F-7
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF
SEPTEMBER 30, 1999 AND FOR THE NINE MONTHS ENDED SEPTEMBER
30, 1998 AND 1999:
Condensed Consolidated Balance Sheets (Unaudited) as of
December 31, 1998 and September 30, 1999................ F-19
Condensed Statements of Consolidated Operations
(Unaudited) for the Three-Month Periods and the
Nine-Month Periods Ended September 30, 1998 and 1999.... F-20
Condensed Statements of Consolidated Cash Flows
(Unaudited) for the Nine-Month Periods Ended September
30, 1998 and 1999....................................... F-21
Notes to Condensed Consolidated Financial Statements
(Unaudited)............................................. F-22
AMERICAN GUIDANCE SERVICE, INC.:
CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE YEARS
ENDED JUNE 30, 1996, 1997 AND 1998:
Report of Independent Auditors--Deloitte & Touche LLP..... F-24
Consolidated Balance Sheets as of June 30, 1997 and
1998.................................................... F-25
Consolidated Statements of Income for the Years Ended June
30, 1996, 1997 and 1998................................. F-26
Consolidated Statements of Stockholders' Equity for the
Years Ended June 30, 1996, 1997 and 1998................ F-27
Consolidated Statements of Cash Flows for the Years Ended
June 30, 1996, 1997 and 1998............................ F-28
Notes to Consolidated Financial Statements................ F-29
COMPASSLEARNING, INC.
FINANCIAL STATEMENTS AS OF AND FOR THE YEARS ENDED DECEMBER
31, 1996, 1997 AND 1998:
Report of Independent Accountants--PricewaterhouseCoopers
LLP..................................................... F-39
Balance Sheet as of December 31, 1997 and 1998............ F-40
Statement of Operations for the Years Ended December 31,
1996, 1997 and 1998..................................... F-41
Statement of Stockholders' Equity (Deficit) for the Years
Ended December 31, 1996, 1997 and 1998.................. F-42
Statement of Cash Flows for the Years Ended December 31,
1996, 1997 and 1998..................................... F-43
Notes to Financial Statements............................. F-44
UNAUDITED CONDENSED FINANCIAL STATEMENTS AS OF JUNE 30, 1999
AND FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1999:
Condensed Balance Sheets (Unaudited) as of June 30, 1999
and December 31, 1998................................... F-55
Condensed Statements of Operations and Comprehensive
Income (Loss) (Unaudited) for the Three-Month Periods
and for the Six-Month Periods Ended June 30, 1998 and
1999.................................................... F-56
Condensed Statements of Cash Flows (Unaudited) for the
Six-Month Periods Ended June 30, 1998 and 1999.......... F-57
Notes to Condensed Financial Statements (Unaudited)....... F-58
</TABLE>
F-1
<PAGE>
<TABLE>
<S> <C>
UNAUDITED CONDENSED FINANCIAL STATEMENTS AS OF SEPTEMBER 30,
1998 AND FOR THE NINE MONTHS THEN ENDED:
Condensed Balance Sheet (unaudited) as of September 30,
1998.................................................... F-60
Condensed Statement of Operations and Comprehensive Income
(Loss) (unaudited) for the Three Months Ended September
30, 1998 and the Nine Months Ended September 30, 1998... F-61
Condensed Statements of Cash Flows (unaudited) for
Nine-Month Period Ended September 30, 1998.............. F-62
Notes to Condensed Financial Statements (unaudited)....... F-63
WRC MEDIA INC. AND ITS SUBSIDIARY (COMPASSLEARNING, INC.)
Report of Independent Public Accountants--Arthur Andersen
LLP..................................................... F-65
Balance Sheet as of September 30, 1999.................... F-66
Statement of Operations and Comprehensive Loss for the
Periods January 1, 1999 through July 13, 1999
(Predecessor) and July 14, 1999 through September 30,
1999 (Successor)........................................ F-67
Statement of Stockholders' Equity for the Periods January
1, 1999 through July 13, 1999 and July 14, 1999 through
September 30, 1999...................................... F-68
Statement of Cash Flows for the Periods January 1, 1999
through July 13, 1999 and July 14, 1999 through
September 30, 1999...................................... F-69
Notes to Financial Statements............................. F-70
</TABLE>
F-2
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors of
PRIMEDIA Inc.
New York, New York
We have audited the accompanying consolidated balance sheets of Weekly
Reader Corporation and subsidiaries ("Weekly Reader"), a wholly-owned subsidiary
of PRIMEDIA Inc., as of December 31, 1997 and 1998, and the related statements
of consolidated operations and accumulated deficit, and of consolidated cash
flows for each of the three years in the period ended December 31, 1998. These
consolidated financial statements are the responsibility of Weekly Reader's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
As further described in Notes 1 and 12, the consolidated financial
statements have been prepared depicting Weekly Reader as a separate business
unit of PRIMEDIA Inc.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Weekly Reader at December 31,
1997 and 1998, and the results of its operations and accumulated deficit, and
its cash flows for each of the three years in the period ended December 31, 1998
in conformity with generally accepted accounting principles.
As discussed in Note 2 to the consolidated financial statements, Weekly
Reader changed its method of accounting for internal use computer software costs
to conform with Statement of Position 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use," of the American
Institute of Certified Public Accountants in 1998.
/s/ DELOITTE & TOUCHE LLP
New York, New York
August 30, 1999
(November 17, 1999 as to Note 1)
F-3
<PAGE>
WEEKLY READER CORPORATION AND
SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
NOTES 1997 1998
-------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash...................................................... $ 432 $ 1,962
Accounts receivable, net.................................. 4 18,770 24,933
Inventories, net.......................................... 5 6,144 13,641
Deferred income tax asset, net............................ 9 2,025 5,809
Prepaid expenses.......................................... 2,021 1,701
Other current assets...................................... 3 -- 19,405
-------- --------
Total current assets.................................... 29,392 67,451
Property and equipment, net................................. 6 3,071 6,608
Other intangible assets, net................................ 7 26,584 46,636
Excess of purchase price over net assets acquired, net...... 7 38,700 109,992
Deferred income tax asset, net.............................. 9 7,361 1,224
Other non-current assets.................................... 3,030 5,365
-------- --------
$108,138 $237,276
======== ========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Accounts payable.......................................... $ 9,510 $ 16,327
Deferred revenues......................................... 19,524 21,270
Accrued expenses and other................................ 3,8 5,366 31,620
-------- --------
Total current liabilities............................... 34,400 69,217
-------- --------
Other non-current liabilities............................... 667 667
-------- --------
Commitments and contingencies............................... 11
Shareholder's equity:
Common stock ($.01 par value, 20,000,000 shares
authorized; 10,000,000 shares issued at December 31,
1997 and 1998).......................................... 1 100 100
Investment by PRIMEDIA, net............................... 12 91,397 183,853
Accumulated deficit....................................... (18,426) (16,561)
-------- --------
Total shareholder's equity.............................. 73,071 167,392
-------- --------
$108,138 $237,276
======== ========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
WEEKLY READER CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED OPERATIONS AND ACCUMULATED DEFICIT
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
NOTES 1996 1997 1998
-------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Sales, net.............................................. $ 89,733 $ 92,904 $118,236
Cost of goods sold...................................... 25,503 23,825 30,646
-------- -------- --------
Gross profit............................................ 64,230 69,079 87,590
Operating costs and expenses:
Marketing and selling................................. 13,067 11,745 17,636
Distribution, circulation and fulfillment............. 10,836 11,593 10,881
Editorial............................................. 8,889 9,030 10,596
General and administrative............................ 11,598 12,736 15,281
Corporate and group overhead.......................... 2,728 2,456 5,577
Depreciation and amortization......................... 6,7 13,168 11,428 12,212
-------- -------- --------
Operating income........................................ 3,944 10,091 15,407
Other income (expense):
Intercompany interest expense......................... (5,851) (6,968) (9,232)
Amortization of deferred financing costs.............. (963) (663) (184)
Other, net............................................ 7 1,545 (184)
-------- -------- --------
Income (loss) before income tax provision (benefit)..... (2,863) 4,005 5,807
Income tax provision (benefit).......................... 9 (1,108) 5,772 3,942
-------- -------- --------
Net income (loss)....................................... (1,755) (1,767) 1,865
Accumulated deficit at beginning of period.............. (14,904) (16,659) (18,426)
-------- -------- --------
Accumulated deficit at end of period.................... $(16,659) $(18,426) $(16,561)
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
WEEKLY READER CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1996 1997 1998
-------- -------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)........................................... $ (1,755) $ (1,767) $ 1,865
Adjustments to reconcile net income (loss) to net cash
provided by
operating activities:
Depreciation and amortization............................. 13,168 11,428 12,212
Amortization of deferred financing costs.................. 963 663 184
Intercompany interest expense............................. 5,851 6,968 9,232
Corporate and group overhead.............................. 2,728 2,456 5,577
Deferred income taxes..................................... (1,108) 5,112 3,142
Other, net................................................ -- (1,531) (4)
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable, net.................................. (723) 2,839 (2,578)
Inventories, net.......................................... 5,001 1,951 (1,211)
Prepaid expenses and other................................ 946 (575) 1,710
Increase (decrease) in:
Accounts payable.......................................... (1,513) (1,811) 3,976
Deferred revenues......................................... (506) (3,733) 1,746
Accrued expenses and other................................ (611) (1,390) (3,662)
-------- -------- ---------
Net cash provided by operating activities............... 22,441 20,610 32,189
-------- -------- ---------
INVESTING ACTIVITIES:
Additions to property, equipment and other, net........... (782) (387) (4,299)
Payments for businesses acquired.......................... (18,564) (17,941) (105,584)
-------- -------- ---------
Net cash used in investing activities................... (19,346) (18,328) (109,883)
-------- -------- ---------
FINANCING ACTIVITIES--Intercompany activity, net............ (3,159) (2,334) 79,224
-------- -------- ---------
Increase (decrease) in cash................................. (64) (52) 1,530
Cash, beginning of period................................... 548 484 432
-------- -------- ---------
Cash, end of period......................................... $ 484 $ 432 $ 1,962
======== ======== =========
Supplemental information--Income taxes paid................. $ 34 $ 195 $ 211
======== ======== =========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
WEEKLY READER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
1. BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS
Weekly Reader Corporation ("WRC"), PRIMEDIA Reference, Inc. ("PRI") and American
Guidance Service, Inc. ("American Guidance") are brother-sister companies and
are all wholly-owned subsidiaries of PRIMEDIA Inc. ("PRIMEDIA"). On August 13,
1999, PRIMEDIA entered into a Redemption, Stock Purchase and Recapitalization
Agreement (as amended as of October 26, 1999, the "Recapitalization Agreement")
with WRC Media Inc., formerly EAC II Inc. ("WRC Media"). The terms of the
Recapitalization Agreement require that all of the outstanding capital stock of
PRI and American Guidance be contributed to WRC prior to WRC Media's purchase of
a majority interest in WRC for a purchase price of $395,000. The presentation of
these financial statements reflects that on September 30, 1999, PRIMEDIA made a
capital contribution to WRC of all the PRI and American Guidance shares at their
historical carrying values. In addition, on October 5, 1999, the authorized
capital of WRC was amended to consist of 20,000,000 shares of common stock, par
value $.01/share, and WRC declared a 10,000-for-one stock split effective on
October 5, 1999. This amendment was retroactively reflected on the accompanying
financial statements. On November 17, 1999, WRC Media completed its
recapitalization of WRC. The consolidated financial statements include the
accounts of WRC and its subsidiary, Lifetime Learning Systems, Inc. ("Lifetime
Learning"), PRI and its subsidiaries, Funk & Wagnalls Yearbook Corporation and
Gareth Stevens, Inc. ("Gareth Stevens"), and American Guidance and its
subsidiary, AGS International Sales, Inc. (collectively referred to as "Weekly
Reader").
All significant intercompany accounts and transactions have been eliminated in
consolidation. The accompanying consolidated financial statements include the
accounts specifically attributed to Weekly Reader, including allocations of
certain assets, liabilities and expenses relating to shared services and
administrative functions incurred at the corporate and group levels of PRIMEDIA
(see Note 12, Related Party Transactions). The preparation of financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the amount of assets,
liabilities, revenues and expenses reported in the consolidated financial
statements. Significant accounting estimates used include estimates for sales
returns and allowances, bad debts and estimates for the realization of deferred
income tax assets. Management has exercised reasonableness in deriving these
estimates. However, actual results may differ from these estimates.
PRIMEDIA classifies the operations of Weekly Reader in one segment--educational
publishing. WRC is a publisher of classroom periodicals and skills books serving
the Pre-Kindergarten through twelfth grade ("Pre K-12") market. WRC's
subsidiary, Lifetime Learning, creates and distributes sponsored instructional
materials primarily for use in the Pre K-12 market. PRI is a publisher and
distributor of reference and informational materials targeted to kindergarten
through twelfth grade ("K-12") students, as well as other general reference and
informational materials. American Guidance is a publisher of individually
administered testing products primarily for K-12 students and supplemental
instructional materials primarily for low-performing students in middle and
secondary schools. Substantially all of Weekly Reader's sales are in the United
States.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
RECENT ACCOUNTING PRONOUNCEMENTS--In 1998, Weekly Reader adopted the American
Institute of Certified Public Accountants' ("AICPA") Statement of Position
("SOP") 98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use." Under Weekly Reader's previous
F-7
<PAGE>
WEEKLY READER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
accounting policy, internal use software costs, whether developed or obtained,
were generally expensed as incurred. In compliance with SOP 98-1, Weekly Reader
expenses costs incurred in the preliminary project stage and, thereafter,
capitalizes costs incurred in the developing or obtaining of internal use
software. Certain costs, such as maintenance and training, are expensed as
incurred. Capitalized costs are amortized over a period of not more than five
years and are subject to impairment evaluation in accordance with the provisions
of Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of." The adoption of SOP 98-1, which primarily related to the non-recurring
replacement of a marketing and fulfillment system, resulted in an increase in
net income of approximately $700 for the year ended December 31, 1998.
In 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which becomes
effective for Weekly Reader's 2001 consolidated financial statements. SFAS
No. 133 requires that derivative instruments be measured at fair value and
recognized as assets or liabilities in a company's balance sheet. Weekly Reader
is currently evaluating the effect, if any, that SFAS No. 133 will have on its
consolidated financial statements.
In 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of Start-up
Activities," which requires that costs of start-up activities, including
organizational costs, be expensed as incurred. This SOP will be effective for
Weekly Reader's 1999 consolidated financial statements. In the opinion of Weekly
Reader's management, it is not anticipated that the adoption of SOP 98-5 will
have a material effect on its consolidated financial statements.
INVENTORIES--Inventories, including paper, are valued at the lower of cost or
market on a first-in, first-out ("FIFO") basis.
PROPERTY AND EQUIPMENT--Property and equipment are stated at cost less
accumulated depreciation and amortization. Depreciation of property and
equipment and the amortization of leasehold improvements were provided at rates
based on the estimated useful lives or lease terms, if shorter, using the
straight-line method. Improvements are capitalized while maintenance and repairs
are expensed as incurred.
PURCHASE ACCOUNTING--With respect to acquisitions, the total purchase price has
been allocated to tangible and intangible assets and liabilities based on their
respective fair values. The consolidated financial statements include the
operating results of these acquisitions subsequent to their respective date of
acquisition.
EXCESS OF PURCHASE PRICE OVER NET ASSETS ACQUIRED AND OTHER INTANGIBLE
ASSETS--Intangible assets are being amortized using both accelerated and
straight-line methods over periods ranging from 3 years to 40 years. The excess
of purchase price over net assets acquired is being amortized on a straight-line
basis over 40 years. The recoverability of the carrying values of the excess of
the purchase price over the net assets acquired and intangible assets is
evaluated quarterly to determine if an impairment in value has occurred. An
impairment in value will be considered to have occurred when it is determined
that the undiscounted future operating cash flows generated by the business are
not sufficient to recover the carrying values of such intangible assets. If it
has been determined that an impairment in value has occurred, the excess of the
purchase price over the net assets acquired and intangible assets
F-8
<PAGE>
WEEKLY READER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
would be written down to an amount which will be equivalent to the present value
of the future operating cash flows to be generated by the business.
REVENUE RECOGNITION--Subscriptions are recorded as deferred revenue when
received and recognized as income over the term of the subscription. Sales of
books, tests and other items are generally recognized as revenue upon shipment,
net of an allowance for returns. Advertising revenues are recognized as income
on the issue date, net of provisions for rebates, adjustments and discounts.
EXPENSE RECOGNITION AND DIRECT--RESPONSE ADVERTISING COSTS--Marketing, selling,
distribution, editorial, and other general and administrative expenses are
generally expensed as incurred. Editorial costs relating to major revisions of
the FUNK & WAGNALLS ENCYCLOPEDIA and certain editorial costs relating to the
American Guidance product lines are deferred and amortized using both
straight-line and accelerated methods over a period of up to ten years.
Amortization of editorial costs, which is included in depreciation and
amortization on the accompanying statements of consolidated operations and
accumulated deficit, was $1,168, $66 and $12 for the years ended December 31,
1996, 1997 and 1998, respectively. Advertising and subscription acquisition
costs are expensed the first time the advertising takes place, except for
direct-response advertising, the primary purpose of which is to elicit sales
from customers who can be shown to have responded specifically to the
advertising and that results in probable future economic benefits.
Direct-response advertising consists of product promotional mailings, catalogs
and subscription promotions. These direct-response advertising costs are
capitalized as assets and amortized over the estimated period of future benefit
using a ratio of current period revenues to total current and estimated future
period revenues. The amortization periods range from six months to twelve months
subsequent to the promotional event. Amortization of direct-response advertising
costs is included in marketing and selling expenses on the accompanying
statements of consolidated operations and accumulated deficit. Direct response
advertising costs of approximately $2,600 and $2,500 at December 31, 1997 and
1998, respectively, included in other non-current assets on the accompanying
consolidated balance sheets, are net of accumulated amortization of
approximately $8,500 and $6,200 at December 31, 1997, and 1998, respectively.
Advertising and promotion expense, which includes amortization of direct
response advertising of approximately $6,600, $7,000 and $6,400 in 1996, 1997
and 1998, respectively, was approximately $8,600, $8,300 and $11,000 during the
years ended December 31, 1996, 1997 and 1998, respectively.
CONCENTRATION OF CREDIT RISK--Weekly Reader's customers include schools and
other institutions. Accounts receivable are generally unsecured. A provision for
estimated doubtful accounts is provided for accounts receivable. There are no
concentrations of business transacted with a particular customer or supplier,
nor concentrations of revenue from a particular service or geographic area that
could severely impact Weekly Reader in the near future.
INCOME TAXES--Weekly Reader's subsidiaries file their Federal income taxes as
members of PRIMEDIA's consolidated return and file their state and local income
taxes on either a separate basis or a combined basis in various jurisdictions.
Income taxes have been calculated on a separate return basis and are presented
in accordance with SFAS No. 109, "Accounting for Income Taxes", using the asset
and liability approach. Deferred taxes reflect the tax consequences in future
years of differences between the financial reporting and tax bases of assets and
liabilities. Income tax expense or benefit is the amount payable or refundable
for the period plus or minus the change during the period in deferred tax assets
and liabilities.
F-9
<PAGE>
WEEKLY READER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS--For instruments including cash, accounts
receivable, accounts payable and accrued expenses and other, the carrying amount
approximates fair value because of the short maturity of these instruments.
3. ACQUISITIONS
Weekly Reader acquired Facts On File News Services ("FOF"), Gareth Stevens and
American Guidance in 1996, 1997 and 1998, respectively. These acquisitions were
financed through borrowings from PRIMEDIA. The cash payments for these
acquisitions on an aggregate basis (including certain immaterial purchase price
adjustments related to prior year acquisitions) were $18,564, $17,941 and
$105,584 for the years ended December 31, 1996, 1997 and 1998, respectively (net
of liabilities assumed of approximately $5,100, $4,700 and $34,700 for the years
ended December 31, 1996, 1997 and 1998, respectively). The excess purchase price
over net assets acquired was approximately $11,100, $12,700 and $73,400 for the
years ended December 31, 1996, 1997 and 1998, respectively.
Approximately $19,600 of the American Guidance purchase price was paid through
contributions to a Rabbi Trust. At December 31, 1998, approximately $19,400
related to the Rabbi Trust is included in other current assets and accrued
expenses and other current liabilities on the consolidated balance sheet.
Marketable securities in the Rabbi Trust have been recorded at fair value, based
on quoted market prices, on the accompanying consolidated balance sheet. The
marketable securities in the Rabbi Trust have been classified as trading
securities and investment income has been netted with the related expense on the
accompanying statement of consolidated operations and accumulated deficit.
The Gareth Stevens acquisition, had it occurred on January 1, 1996, would not
have had a material impact on the results of operations. The following unaudited
pro forma information presents the results of operations of Weekly Reader for
the years ended December 31 as if the acquisition of American Guidance had taken
place on January 1, 1997:
<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
Sales, net.............................................. $131,971 $137,820
Operating income........................................ $ 7,958 $ 14,334
Net income (loss)....................................... $ (3,379) $ 664
</TABLE>
4. ACCOUNTS RECEIVABLE, NET
Accounts receivable consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1997 1998
-------- --------
<S> <C> <C>
Accounts receivable......................................... $23,589 $29,929
Less: Allowance for doubtful accounts....................... 1,499 1,737
Allowance for returns and rebates...................... 3,320 3,259
------- -------
$18,770 $24,933
======= =======
</TABLE>
F-10
<PAGE>
WEEKLY READER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
5. INVENTORIES, NET
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1997 1998
-------- --------
<S> <C> <C>
Finished goods.............................................. $6,590 $14,581
Raw materials............................................... 806 929
Less: Allowance for obsolescence............................ 1,252 1,869
------ -------
$6,144 $13,641
====== =======
</TABLE>
6. PROPERTY AND EQUIPMENT, NET
Property and equipment consist of the following:
<TABLE>
<CAPTION>
RANGE OF DECEMBER 31,
LIVES -------------------
(YEARS) 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Machinery, equipment and other.............................. 3-10 $3,604 $6,246
Furniture and fixtures...................................... 5-10 1,666 2,701
Leasehold improvements...................................... 5-10 664 1,092
Buildings and improvements.................................. 32 -- 670
------ ------
5,934 10,709
Less: Accumulated depreciation and amortization............. 2,863 4,101
------ ------
$3,071 $6,608
====== ======
</TABLE>
Depreciation and amortization of property and equipment was $741, $910 and
$1,258 for the years ended December 31, 1996, 1997 and 1998, respectively.
F-11
<PAGE>
WEEKLY READER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
7. OTHER INTANGIBLE ASSETS AND EXCESS OF PURCHASE PRICE OVER NET ASSETS
ACQUIRED, NET
Other intangible assets consist of the following:
<TABLE>
<CAPTION>
RANGE OF DECEMBER 31,
LIVES -------------------
(YEARS) 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Customer and subscriber lists............................... 3-14 $58,671 $58,671
Non-compete agreements...................................... 3-6 25,100 25,100
Product titles.............................................. 7 -- 22,400
Trademarks.................................................. 40 11,069 17,569
Copyrights.................................................. 9 11,100 11,100
Databases................................................... 10 5,812 5,812
Trademark license agreements................................ 40 3,795 3,795
Advertiser lists............................................ 10 1,780 1,780
Other....................................................... 4-10 216 216
------- -------
117,543 146,443
Less: Accumulated amortization.............................. 90,959 99,807
------- -------
$26,584 $46,636
======= =======
</TABLE>
The excess of purchase price over the fair market value of the net assets
acquired is net of accumulated amortization of $23,446 and $25,540 at
December 31, 1997 and 1998, respectively. Amortization of other intangible
assets and excess of purchase price over net assets acquired was $11,259,
$10,452 and $10,942 for the years ended December 31, 1996, 1997 and 1998,
respectively.
8. ACCRUED EXPENSES AND OTHER
Accrued expenses and other current liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1997 1998
-------- --------
<S> <C> <C>
Rabbi Trust (see Note 3).................................... $ -- $19,405
Payroll and related employee benefits....................... 2,018 4,135
Acquisition costs........................................... 1,019 2,882
Non-income taxes............................................ 48 1,417
Pension liability (see Note 10)............................. -- 1,036
Royalties................................................... 224 1,003
Professional fees........................................... -- 565
Deferred purchase price liability........................... 733 --
Other....................................................... 1,324 1,177
------ -------
$5,366 $31,620
====== =======
</TABLE>
9. INCOME TAXES
At December 31, 1998, Weekly Reader had aggregate net operating loss ("NOLs")
carryforwards for Federal income tax purposes of approximately $18,500. The
utilization of such NOLs, however, is
F-12
<PAGE>
WEEKLY READER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
9. INCOME TAXES (CONTINUED)
subject to certain limitations under Federal income tax laws. Specifically, as a
result of a certain tax election relating to the Recapitalization Agreement, the
NOLs, except those relating to American Guidance, are expected to remain with
PRIMEDIA. Therefore, it is expected that these losses will not be available to
Weekly Reader or its subsidiaries. The NOL of American Guidance will be limited,
by tax law, to a ratable portion of PRIMEDIA's consolidated NOL for the tax year
ended December 31, 1998. The amount so limited may be available to Weekly Reader
and its subsidiaries and is scheduled to expire in 2018.
Deferred income taxes reflect the net tax effects of (a) temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes, and (b) operating loss
carryforwards. The tax effects of significant items comprising Weekly Reader's
net deferred income tax assets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1997
------------------------------
FEDERAL STATE TOTAL
-------- -------- --------
<S> <C> <C> <C>
DEFERRED INCOME TAX ASSETS:
Difference between book and tax basis of inventory.......... $ 279 $ 54 $ 333
Difference between book and tax basis of accrued expenses
and other................................................. 918 212 1,130
Reserves not currently deductible........................... 1,566 348 1,914
Difference between book and tax basis of other intangible
assets.................................................... 5,432 1,250 6,682
Operating loss carryforwards................................ 5,717 1,114 6,831
------- ------ -------
Total....................................................... 13,912 2,978 16,890
------- ------ -------
DEFERRED INCOME TAX LIABILITIES:
Difference between book and tax basis of other intangible
assets.................................................... 1,638 375 2,013
Difference between book and tax basis of property and
equipment................................................. 1,013 172 1,185
Other....................................................... 343 196 539
------- ------ -------
Total....................................................... 2,994 743 3,737
------- ------ -------
Net deferred income tax assets.............................. 10,918 2,235 13,153
Less: Valuation allowances.................................. 3,119 648 3,767
------- ------ -------
Net......................................................... $ 7,799 $1,587 $ 9,386
======= ====== =======
</TABLE>
F-13
<PAGE>
WEEKLY READER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
9. INCOME TAXES (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, 1998
------------------------------
FEDERAL STATE TOTAL
-------- -------- --------
<S> <C> <C> <C>
DEFERRED INCOME TAX ASSETS:
Difference between book and tax basis of inventory.......... $ 679 $ 117 $ 796
Difference between book and tax basis of accrued expenses
and other................................................. 8,628 1,467 10,095
Reserves not currently deductible........................... 1,596 346 1,942
Difference between book and tax basis of other intangible
assets.................................................... 5,815 1,331 7,146
Operating loss carryforwards................................ 6,082 1,073 7,155
------- ------ -------
Total....................................................... 22,800 4,334 27,134
------- ------ -------
DEFERRED INCOME TAX LIABILITIES:
Difference between book and tax basis of other intangible
assets.................................................... 8,920 1,523 10,443
Difference between book and tax basis of property and
equipment................................................. 1,514 254 1,768
Other....................................................... 2,472 446 2,918
------- ------ -------
Total....................................................... 12,906 2,223 15,129
------- ------ -------
Net deferred income tax assets.............................. 9,894 2,111 12,005
Less: Valuation allowances.................................. 4,170 802 4,972
------- ------ -------
Net......................................................... $ 5,724 $1,309 $ 7,033
======= ====== =======
</TABLE>
Certain deferred tax assets are subject to a valuation allowance, as management
believes it is more likely than not that these assets will not be realized.
The net deferred tax assets, except those relating to American Guidance and
Gareth Stevens, are expected to remain with PRIMEDIA as a result of a certain
tax election relating to the Recapitalization Agreement.
The provision for Federal, state and local income taxes consists of the
following:
<TABLE>
<CAPTION>
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
CURRENT--Federal............................................ $ -- $ 660 $ 800
-- 660 800
-------
DEFERRED:
State and local........................................... (380) 576 246
Federal................................................... (728) 4,536 2,896
------- ------ ------
(1,108) 5,112 3,142
------- ------ ------
Income tax provision (benefit).............................. $(1,108) $5,772 $3,942
======= ====== ======
</TABLE>
F-14
<PAGE>
WEEKLY READER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
9. INCOME TAXES (CONTINUED)
Weekly Reader's provision for income taxes differs from the amount computed by
applying the statutory U.S. Federal income tax rate to income (loss) before
income tax provision as follows:
<TABLE>
<CAPTION>
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Provision for taxes at the statutory rate................... $(1,002) $1,402 $2,032
State income taxes, net of Federal tax benefit.............. (247) 374 160
Non-deductible goodwill amortization........................ 131 219 555
Change in valuation allowance............................... -- 3,767 1,205
Other....................................................... 10 10 (10)
------- ------ ------
Total....................................................... $(1,108) $5,772 $3,942
======= ====== ======
</TABLE>
10. RETIREMENT PLANS
Substantially all of Weekly Reader's employees are eligible to participate in a
defined contribution plan of PRIMEDIA. The expense recognized by Weekly Reader
for the plan was $438 in 1996, $502 in 1997 and $425 in 1998.
American Guidance sponsors a defined benefit pension plan (the "American
Guidance Plan") for the benefit of its employees. The allocation of the purchase
price of American Guidance included a liability of $792 related to this plan.
The benefits to be paid under the American Guidance Plan are based on years of
service and compensation amounts for the average of the highest five consecutive
plan years. The American Guidance Plan is funded by means of contributions to
the plan's trust. The pension funding policy is consistent with the funding
requirements of U.S. Federal and other governmental laws and regulations. Plan
assets consist primarily of fixed income, equity and other short-term
investments.
F-15
<PAGE>
WEEKLY READER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
10. RETIREMENT PLANS (CONTINUED)
The following tables set forth the American Guidance Plan's funded status as of
December 31, 1998 and the amounts recognized in Weekly Reader's statement of
consolidated operations and accumulated deficit from the acquisition date
through December 31, 1998.
<TABLE>
<S> <C>
Change in benefit obligation:
Projected benefit obligation at acquisition date............ $ 8,682
Service cost.............................................. 318
Interest cost............................................. 287
Actuarial loss............................................ 308
Benefits paid............................................. (137)
-------
Projected benefit obligation at December 31, 1998........... 9,458
-------
Change in plan assets:
Fair value of plan assets at acquisition date............... 8,198
Actual return on plan assets.............................. (276)
Benefits paid............................................. (137)
-------
Fair value of plan assets at December 31, 1998.............. 7,785
-------
Funded status............................................... (1,673)
Unrecognized actuarial loss................................. 637
-------
Accrued pension cost........................................ $(1,036)
=======
Components of net periodic pension expense:
Service cost.............................................. $ 318
Interest cost............................................. 287
Expected return on plan assets............................ (361)
-------
Net periodic pension expense................................ $ 244
=======
Weighted-average assumptions as of December 31, 1998:
Discount rate............................................... 6.50%
Expected return on plan assets.............................. 9.00%
Rate of compensation increase............................... 4.50%
</TABLE>
11. COMMITMENTS AND CONTINGENCIES
COMMITMENTS--Total rent expense under operating leases was $1,122, $1,776 and
$1,836 for the years ended December 31, 1996, 1997 and 1998, respectively.
Certain leases are subject to escalation clauses
F-16
<PAGE>
WEEKLY READER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
11. COMMITMENTS AND CONTINGENCIES (CONTINUED)
and certain leases contain renewal options. Minimum rental commitments under
noncancelable operating leases are as follows:
<TABLE>
<S> <C>
YEARS ENDING DECEMBER 31,
- ------------------------------------------------------------
1999........................................................ $ 2,218
2000........................................................ 1,953
2001........................................................ 1,385
2002........................................................ 1,180
2003........................................................ 1,092
Thereafter.................................................. 2,586
-------
$10,414
=======
</TABLE>
CONTINGENCIES--Weekly Reader is involved in ordinary and routine litigation
incidental to its business. In the opinion of management, there is no pending
legal proceeding that would have a material adverse affect on the consolidated
financial statements of Weekly Reader.
12. RELATED PARTY TRANSACTIONS
The consolidated financial statements include the net investment by PRIMEDIA
which relates to net transfers of cash under a centralized cash management
system, allocations of PRIMEDIA's debt with related deferred financing fees and
interest and allocations of PRIMEDIA's equity. Outstanding intercompany debt was
approximately $74,100 and $167,700 at December 31, 1997 and 1998, respectively.
PRIMEDIA's borrowings under its' bank credit facilities and senior notes are
guaranteed by Weekly Reader and each of PRIMEDIA's other domestic wholly-owned
subsidiaries. Deferred financing costs are being amortized by the straight-line
method over the terms of the related indebtedness of PRIMEDIA.
The consolidated financial statements also include costs allocated to Weekly
Reader from PRIMEDIA consisting of: (1) corporate overhead for services and
administrative functions shared with PRIMEDIA and its other operating companies
including, but not limited to, executive management costs, salaries and fringe
benefits for certain legal, financial, information technology and human
resources personnel, information technology expenses, real estate expenses and
third party costs; and (2) direct group overhead costs such as the salaries,
fringe benefits and expenses for PRIMEDIA staff directly involved in operating
Weekly Reader. Corporate overhead costs were allocated based on relative
budgeted profitability measures. Management believes that these allocations were
made on a reasonable basis. This accounting treatment is common in subsidiary
financial statements and may not reflect the actual access to financial
resources and actual expenses which Weekly Reader might have incurred as a
stand-alone operation.
Payment of trade payables and other disbursements are processed through the
centralized cash management system operated by PRIMEDIA. All receipts from
customers are collected in Weekly Reader's lock boxes and then transferred to
PRIMEDIA.
F-17
<PAGE>
WEEKLY READER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
12. RELATED PARTY TRANSACTIONS (CONTINUED)
The activity in the Investment by PRIMEDIA, net account for the years ended
December 31, 1996, 1997 and 1998 is as follows:
<TABLE>
<CAPTION>
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Balance, beginning of year.................................. $77,758 $84,141 $ 91,397
Push down accounting relating to acquisitions............... 18,136 17,452 107,411
Transfers from PRIMEDIA and subsidiaries--net............... (11,753) (10,196) (14,955)
------- ------- --------
Balance, end of year........................................ $84,141 $91,397 $183,853
======= ======= ========
</TABLE>
PRIMEDIA does not assess interest to Weekly Reader on its outstanding
intercompany balances other than on the outstanding intercompany debt.
Certain management members of Weekly Reader receive stock options for the
purchase of PRIMEDIA common stock. The stock options were granted with exercise
prices equal to the quoted market price at the time of issuance. The number of
stock options granted during 1996, 1997 and 1998 was 60,000, 0 and 110,660,
respectively. The number of stock options exercised during 1996, 1997 and 1998
was 26,460, 4,200 and 600, respectively. The number of stock options outstanding
at December 31, 1998 was 303,100.
F-18
<PAGE>
WEEKLY READER CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
ASSETS
Current Assets:
Cash...................................................... $ 2,282 $ 1,962
Accounts receivable, net.................................. 41,363 24,933
Inventories, net.......................................... 14,269 13,641
Deferred income tax asset, net............................ -- 5,809
Prepaid expenses.......................................... 2,343 1,701
Other current assets...................................... 18,766 19,405
-------- --------
Total current assets.................................. 79,023 67,451
Property and equipment, net................................. 6,322 6,608
Other intangible assets, net................................ 38,634 46,636
Excess of purchase price over net assets acquired, net...... 107,766 109,992
Deferred income tax asset, net.............................. 5,854 1,224
Other non-current assets.................................... 10,845 5,365
-------- --------
$248,444 $237,276
======== ========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Accounts payable.......................................... $ 14,499 $ 16,327
Deferred revenues......................................... 31,210 21,270
Accrued expenses and other................................ 32,486 31,620
-------- --------
Total current liabilities............................. 78,195 69,217
Other non-current liabilities........................... -- 667
-------- --------
Shareholder's equity:
Common stock ($.01 par value, 20,000,000 shares
authorized;
10,000,000 shares issued at September 30, 1998 and
1999)................................................... 100 100
Investment by PRIMEDIA, net............................... 187,316 183,853
Accumulated deficit....................................... (17,167) (16,561)
-------- --------
Total shareholder's equity.................................. 170,249 167,392
-------- --------
$248,444 $237,276
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
F-19
<PAGE>
WEEKLY READER CORPORATION AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS NINE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30 SEPTEMBER 30, SEPTEMBER 30,
------------- ------------ ------------- -------------
1998 1999 1998 1999
------------- ------------ ------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Sales, net................................ $37,376 $39,796 $74,002 $101,630
Cost of goods sold........................ 10,315 11,987 19,082 27,921
------- ------- ------- --------
Gross profit.............................. 27,061 27,809 54,920 73,709
Operating costs and expenses:
Marketing and selling................... 5,215 6,139 10,590 16,487
Distribution, circulation and
fulfillment........................... 2,629 3,191 7,130 8,436
Editorial............................... 2,600 2,481 7,423 7,251
General and administrative.............. 4,710 4,469 10,382 11,903
Corporate and group overhead............ 909 1,033 2,903 5,549
Depreciation and amortization........... 4,200 3,670 7,993 11,884
------- ------- ------- --------
Operating income.......................... 6,798 6,826 8,499 12,199
Other expense:
Intercompany interest expense........... (1,296) (3,442) (3,966) (10,133)
Amortization of deferred financing
costs................................. (47) (61) (137) (154)
Other, net.............................. (154) (65) (191) (582)
------- ------- ------- --------
Loss before income tax provision.......... 5,301 3,258 4,205 1,330
Income tax provision...................... (3,284) 2,193 (2,992) (1,938)
------- ------- ------- --------
Net Income loss........................... $ 2,017 $ 1,065 $ 1,213 $ (608)
======= ======= ======= ========
</TABLE>
See notes to condensed consolidated financial statements.
F-20
<PAGE>
WEEKLY READER CORPORATION AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------
1998 1999
-------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)......................................... $ 1,213 $ (608)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization........................... 7,993 11,884
Amortization of deferred financing costs................ 137 154
Intercompany interest expense........................... 3,966 10,133
Corporate and group overhead............................ 2,903 5,549
Deferred income taxes................................... 2,992 1,181
Other, net.............................................. 191 582
Changes in operating assets and liabilities:
Increase in:
Accounts receivable, net................................ (16,812) (16,430)
Inventories, net........................................ (778) (628)
Prepaid expenses and other.............................. (147) (1,624)
Increase (decrease) in:
Accounts payable........................................ (853) (1,828)
Deferred revenues....................................... 13,615 9,940
Accrued expenses and other.............................. (1,778) 866
------- -------
Net cash provided by operating activities............. 12,642 19,171
------- -------
INVESTING ACTIVITIES:
Additions to property, equipment and other, net........... (2,039) (4,114)
Payments for businesses acquired.......................... (733) (667)
------- -------
Net cash used in investing activities................. (2,772) (4,781)
------- -------
FINANCING ACTIVITIES--Intercompany activity, net............ (8,239) (14,070)
------- -------
Increase in cash............................................ 1,631 320
Cash, beginning of period................................... 3,569 1,962
------- -------
Cash, end of period......................................... $ 5,200 $ 2,282
======= =======
Supplemental information--Income taxes paid................. $ 105 $ 74
======= =======
</TABLE>
See notes to condensed consolidated financial statements.
F-21
<PAGE>
WEEKLY READER CORPORATION AND SUBSIDIARIES NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
1. BASIS OF PRESENTATION
Weekly Reader Corporation ("WRC"), PRIMEDIA Reference, Inc. ("PRI") and American
Guidance Service, Inc. ("American Guidance") are brother-sister companies and
are all wholly-owned subsidiaries of PRIMEDIA Inc. ("PRIMEDIA"). On August 13,
1999, PRIMEDIA entered into a Redemption, Stock Purchase and Recapitalization
Agreement (as amended as of October 26, 1999, the "Recapitalization Agreement")
with WRC Media Inc., formerly EAC II Inc. ("WRC Media"). The terms of the
Recapitalization Agreement require that all of the outstanding capital stock of
PRI and American Guidance be contributed to WRC prior to WRC Media's purchase of
a majority interest in WRC for a purchase price of $395,000. The presentation of
these financial statements reflects that on September 30, 1999, PRIMEDIA made a
capital contribution to WRC of all the PRI and American Guidance shares at their
historical carrying values. In addition, on October 5, 1999, the authorized
capital of WRC was amended to consist of 20,000,000 shares of common stock, par
value $.01/share, and WRC declared a 10,000-for-one stock split effective on
October 5, 1999. This amendment was retroactively reflected on the accompanying
financial statements. On November 17, 1999, WRC Media completed its
recapitalization of WRC. The consolidated financial statements include the
accounts of WRC and its subsidiary, Lifetime Learning Systems, Inc. ("Lifetime
Learning"), PRI and its subsidiaries, Funk & Wagnalls Yearbook Corporation and
Gareth Stevens, Inc. ("Gareth Stevens"), and American Guidance and its
subsidiary, AGS International Sales, Inc. (collectively referred to as "Weekly
Reader").
In the opinion of Weekly Reader's management, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair presentation have
been included. The accompanying condensed consolidated financial statements
include the accounts specifically attributed to Weekly Reader, including
allocations of certain assets, liabilities and expenses relating to shared
services and administrative functions incurred at the corporate and group levels
of PRIMEDIA. All significant intercompany accounts and transactions have been
eliminated in consolidation. The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the amount of assets, liabilities,
revenues and expenses reported in the consolidated financial statements.
Significant accounting estimates used include estimates for sales returns and
allowances, bad debts and estimates for the realization of deferred income tax
assets. Management has exercised reasonableness in deriving these estimates.
However, actual results may differ from these estimates. These statements should
be read in conjunction with Weekly Reader's annual financial statements and
related notes for the year ended December 31, 1998. The operating results for
the nine-month period ended September 30 are not necessarily indicative of the
results that may be expected for a full year.
F-22
<PAGE>
WEEKLY READER CORPORATION AND SUBSIDIARIES NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
2. INVENTORIES, NET
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1998 1999
------------ -------------
<S> <C> <C>
Finished goods.............................................. $14,581 $15,634
Raw materials............................................... 929 1,507
------- -------
15,510 17,141
Less: Allowance for obsolescence............................ 1,869 2,872
------- -------
$13,641 $14,269
======= =======
</TABLE>
3. ACQUISITIONS
During the second half of 1998, Weekly Reader acquired the stock of American
Guidance for approximately $105,000 and Weekly Reader's results of operations
include American Guidance for the period subsequent to the acquisition date.
This acquisition was financed through borrowings from PRIMEDIA.
The following unaudited pro forma information presents the results of operations
of Weekly Reader for the period ended September 30, 1998 as if the acquisition
of American Guidance had taken place on January 1, 1998:
<TABLE>
<CAPTION>
1998
--------
<S> <C>
Sales, net.................................................. $93,586
Operating income............................................ $ 9,605
Net income.................................................. $ 1,904
</TABLE>
F-23
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
American Guidance Service, Inc.
Circle Pines, Minnesota
We have audited the accompanying consolidated balance sheets of American
Guidance Service, Inc. (the "Company") as of June 30, 1997 and 1998 and the
related consolidated statements of income, stockholders' equity, and cash flows
for each of the three years in the period ended June 30, 1998. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company as of June 30, 1997
and 1998 and the results of its operations and its cash flows for each of the
three years in the period ended June 30, 1998, in conformity with generally
accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
Minneapolis, Minnesota
July 31, 1998
(August 5, 1998 as to Note 14)
F-24
<PAGE>
AMERICAN GUIDANCE SERVICE, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30,
-----------------------
1997 1998
---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................... $ 3,756 $ 3,137
Accounts and notes receivable:
Trade, less allowance for doubtful accounts and sales
returns of $490 and $445, respectively.................. 2,534 3,587
Author and other receivables (Note 5)..................... 132 14
Inventories (Note 2)........................................ 2,662 4,237
Prepaids and other.......................................... 103 1,414
Deferred income taxes (Note 9).............................. 1,230 700
------- -------
Total current assets.................................. 10,417 13,089
Other Assets:
Author and other receivables, less allowance for doubtful
accounts of $190 and $70, respectively, net of current
maturities (Note 5)....................................... -- 18
Intangibles, net of accumulated amortization of $4,323 and
$4,615, respectively (Note 2)............................. 90 798
Cash surrender value of life insurance, net of policy loans
of $1,206 and $1,930, respectively........................ 612 295
Deferred income taxes (Note 9).............................. 2,095 1,450
------- -------
Total other assets.................................... 2,797 2,561
Property, Equipment, and Leasehold Improvements, net (Note
4)........................................................ 1,265 1,202
------- -------
$14,479 $16,852
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Note payable (Note 6)..................................... -- $ 1,500
Current maturities of long-term debt (Note 6)............. $ 1,277 --
Accounts payable.......................................... 2,295 2,843
Accrued liabilities:
Salaries and wages...................................... 1,746 1,832
Royalties............................................... 275 412
State, local, and payroll taxes......................... 258 261
Pension and other accrued liabilities................... 1,014 1,279
Income taxes............................................ 1,130 961
Current maturities of deferred compensation (Note 7)...... 173 39
------- -------
Total current liabilities........................... 8,168 9,127
Long-Term Debt, net of current maturities (Note 6).......... 176 --
Deferred Compensation, net of current maturities (Note 7)... 693 754
Commitments and Contingencies (Notes 8, 10, and 13)
Stockholders' Equity:
Common stock.............................................. 23 21
Additional paid-in capital................................ 2,356 2,866
Retained earnings......................................... 3,801 5,444
------- -------
6,180 8,331
Guaranteed ESOP debt obligations (Note 8)................. (738) --
Notes receivable from ESOP and Profit Sharing Plan (Note
8)...................................................... -- (1,360)
------- -------
Total stockholders' equity............................ 5,442 6,971
------- -------
$14,479 $16,852
======= =======
</TABLE>
See notes to consolidated financial statements.
F-25
<PAGE>
AMERICAN GUIDANCE SERVICE, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
--------------------------------------
1996 1997 1998
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Sales....................................................... $29,390 $33,449 $42,680
Cost of Sales............................................... 8,548 9,480 11,779
------- ------- -------
Gross profit............................................ 20,842 23,969 30,901
Expenses:
Development............................................... 4,947 4,407 5,349
Sales..................................................... 6,824 7,455 8,447
General and administrative................................ 5,759 6,346 7,044
Pension................................................... 402 486 452
ESOP contribution......................................... 1,462 1,307 1,600
Interest expense.......................................... 372 229 159
Interest income........................................... (29) (129) (126)
Other expense (income).................................... (230) 835 732
------- ------- -------
Total expenses.......................................... 19,507 20,936 23,657
------- ------- -------
Income Before Income Tax (Expense) Benefit.................. 1,335 3,033 7,244
Income Tax (Expense) Benefit (Note 9)....................... 200 (775) (2,700)
------- ------- -------
Net Income.................................................. $ 1,535 $ 2,258 $ 4,544
======= ======= =======
</TABLE>
See notes to consolidated financial statements.
F-26
<PAGE>
AMERICAN GUIDANCE SERVICE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
VOTING PAR VOTING PAR NONVOTING PAR
VALUE $.01 VALUE $.01 VALUE $.01 ADDITIONAL
CLASS A CLASS B CLASS C PAID-IN RETAINED
COMMON STOCK COMMON STOCK COMMON STOCK CAPITAL EARNINGS
-------------------- ------------------- -------------------- ---------- --------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
--------- -------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JUNE 30, 1995........... 1,460,497 $14 10,800 $ 1 1,091,831 $11 $2,142 $3,429
Repurchases and retirement of
stock............................ (64,472) (1) (721)
Dividends paid..................... (929)
ESOP contributions to reduce
guaranteed debt..................
Issuance of stock options.......... 293
Tax benefit of dividends paid on
unallocated ESOP shares.......... 38
Net income......................... 1,535
--------- --- ------- ---- --------- --- ------ ------
BALANCE AT JUNE 30, 1996........... 1,460,497 14 10,800 1 1,027,359 10 1,714 4,073
Repurchases and retirement of
stock............................ (88,830) (1) (122,837) (1) (127) (2,530)
ESOP contributions to reduce
guaranteed debt..................
Issuance of stock options.......... 769
Net income......................... 2,258
--------- --- ------- ---- --------- --- ------ ------
BALANCE AT JUNE 30, 1997........... 1,371,667 13 10,800 1 904,522 9 2,356 3,801
Conversion to Class A Common
Stock............................ 915,322 10 (10,800) (1) (904,522) (9)
Repurchase and retirement of Class
A Common Stock................... (163,398) (2) (320) (2,901)
Advances on notes receivable to
ESOP and Profit Sharing Plan.....
ESOP contributions to reduce
guaranteed debt..................
ESOP contributions to reduce note
receivable from ESOP.............
Issuance of stock options.......... 795
Stock options exercised............ 14,000 35
Net income......................... 4,544
--------- --- -------
BALANCE AT JUNE 30, 1998........... 2,137,591 $21 -- $ -- -- $-- $2,866 $5,444
========= === ======= ==== ========= === ====== ======
<CAPTION>
NOTES
RECEIVABLE
GUARANTEED FROM ESOP TOTAL
ESOP DEBT AND PROFIT STOCKHOLDERS'
OBLIGATIONS SHARING PLAN EQUITY
----------- ------------ -------------
<S> <C> <C> <C>
BALANCE AT JUNE 30, 1995........... $(3,438) $2,159
Repurchases and retirement of
stock............................ (722)
Dividends paid..................... 76 (168)
ESOP contributions to reduce
guaranteed debt.................. 1,462 1,462
Issuance of stock options.......... 293
Tax benefit of dividends paid on
unallocated ESOP shares.......... 38
Net income......................... 1,535
------- ------- ------
BALANCE AT JUNE 30, 1996........... (1,215) 4,597
Repurchases and retirement of
stock............................ (2,659)
ESOP contributions to reduce
guaranteed debt.................. 477 477
Issuance of stock options.......... 769
Net income......................... 2,258
------- ------- ------
BALANCE AT JUNE 30, 1997........... (738) 5,442
Conversion to Class A Common
Stock............................
Repurchase and retirement of Class
A Common Stock................... (3,223)
Advances on notes receivable to
ESOP and Profit Sharing Plan..... $(2,222) (2,222)
ESOP contributions to reduce
guaranteed debt.................. 738 738
ESOP contributions to reduce note
receivable from ESOP............. 862 862
Issuance of stock options.......... 795
Stock options exercised............ 35
Net income......................... 4,544
------
BALANCE AT JUNE 30, 1998........... $ -- $(1,360) $6,971
======= ======= ======
</TABLE>
See notes to consolidated financial statements.
F-27
<PAGE>
AMERICAN GUIDANCE SERVICE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
------------------------------
1996 1997 1998
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income................................................ $1,535 $2,258 $4,544
Adjustments to reconcile net income to net cash provided
by operating activities:
ESOP contributions to reduce guaranteed debt............ 1,462 477 738
ESOP contributions...................................... -- -- 862
Compensation from issuance of stock options............. 293 769 795
Depreciation and amortization........................... 728 624 742
Income tax benefit from dividends paid on unallocated
ESOP Shares........................................... 38 -- --
Deferred compensation expense........................... 148 209 394
Deferred income taxes................................... (375) 200 1,175
Change in assets and liabilities, net of acquisitions:
Accounts receivable--trade............................ 570 282 (1,053)
Inventories........................................... 548 (425) (1,355)
Prepaids and other.................................... (787) 1,374 (981)
Accounts payable...................................... (1,316) (139) 548
Accrued liabilities................................... 1,061 285 491
Income taxes.......................................... 637 456 (169)
------ ------ ------
Net cash provided by operating activities........... 4,542 6,370 6,731
Cash Flows From Investing Activities:
Acquisition of property and equipment..................... (354) (391) (387)
Net payments on author and other receivables.............. 124 28 100
Net increase in cash surrender value of life insurance.... (322) (263) (375)
Cash paid for business acquisitions (Note 12)............. (731) (782) (1,550)
Change in other assets.................................... 40 -- --
------ ------ ------
Net cash used in investing activities............... (1,243) (1,408) (2,212)
Cash Flows From Financing Activities:
Proceeds from note payable................................ -- -- 1,500
Proceeds from life insurance policy loans................. 1,075 -- 692
Payments of long-term debt................................ (1,658) (664) (1,453)
Payments of deferred compensation......................... (133) (128) (467)
Repurchase of common stock................................ (722) (2,659) (3,223)
Dividends paid on Class A common stock.................... (929) -- --
Advances on notes receivable to ESOP and Profit Sharing
Plan.................................................... -- -- (2,222)
Proceeds from exercise of stock options................... -- -- 35
------ ------ ------
Net cash used in financing activities............... (2,367) (3,451) (5,138)
------ ------ ------
Net (Decrease) Increase in Cash and Cash Equivalents........ 932 1,511 (619)
Cash and Cash Equivalents at Beginning of Year.............. 1,313 2,245 3,756
------ ------ ------
Cash and Cash Equivalents at End of Year.................... $2,245 $3,756 $3,137
====== ====== ======
</TABLE>
See note to consolidated financial statements.
F-28
<PAGE>
AMERICAN GUIDANCE SERVICE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
1. NATURE OF BUSINESS
American Guidance Service, Inc. ("American Guidance") is a publisher of
individually administered testing products primarily for kindergarten through
twelfth grade students and supplemental instructional materials primarily for
low performing students in middle and secondary grades.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION--The consolidated financial statements include the
accounts of American Guidance and its 100%-owned subsidiary, AGS International
Sales, Inc. All significant intercompany accounts and transactions have been
eliminated.
CASH EQUIVALENTS--American Guidance considers investments with an original
maturity of three months or less at the time of purchase to be cash equivalents.
SIGNIFICANT GROUP CONCENTRATIONS OF CREDIT RISK--American Guidance's business
activity is conducted primarily in the United States. Customers include schools
and other institutions. Accounts receivable are generally unsecured. A provision
for estimated doubtful accounts is provided for accounts receivable. There are
no concentrations of business transacted with a particular customer or supplier
nor concentrations of revenue from a particular service or geographic area that
could severely impact American Guidance in the near future.
INVENTORIES--Inventories are valued at the lower of cost or market. Cost is
determined by the last-in, first-out ("LIFO") method. If the first-in, first-out
("FIFO") cost method had been used to value inventories, inventories would have
been greater by approximately $2,304 and $2,222 at June 30, 1997 and 1998,
respectively.
PROPERTY, EQUIPMENT, AND LEASEHOLD IMPROVEMENTS--Property, equipment, and
leasehold improvements are depreciated over the estimated useful lives of the
assets using the straight-line method of depreciation.
AMORTIZATION OF OTHER ASSETS--Copyrights, noncompete agreements, and customer
lists are amortized by the straight-line method over their estimated lives,
which generally range from one to five years.
IMPAIRMENT OF LONG-LIVED ASSETS--Management of American Guidance periodically
reviews the carrying value of long-lived assets for potential impairment
whenever circumstances indicate that the carrying amount of an asset may not be
recoverable. In performing the review of recoverability of such assets, American
Guidance compares the expected undiscounted future cash flows that result from
the use of the asset and its disposition and recognizes an impairment loss,
based on the discounted cash flows, when such undiscounted cash flows are less
than the carrying amount of the asset.
STOCK-BASED COMPENSATION--American Guidance has adopted Statement of Financial
Accounting Standards ("SFAS") No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION.
This Statement defines a fair value based method of accounting for an employee
stock option or similar equity instrument and encourages all entities to adopt
that method of accounting for all of their employee stock compensation plans.
However, it also allows an entity to continue to measure compensation cost for
those plans using the intrinsic value based method of accounting prescribed by
Accounting Principles Board ("APB") Opinion No. 25, ACCOUNTING FOR STOCK ISSUED
TO EMPLOYEES. Under the fair value based method, compensation cost is measured
at the grant date based on the value of the award and is recognized over the
service period, which is usually the vesting period. Under the intrinsic value
based method,
F-29
<PAGE>
AMERICAN GUIDANCE SERVICE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
compensation cost is the excess, if any, of the quoted market price of the stock
at the grant date or other measurement date over the amount an employee must pay
to acquire the stock. American Guidance accounts for stock option grants and
awards to employees in accordance with APB Opinion No. 25 and related
interpretations.
REVENUE RECOGNITION AND EDITORIAL COSTS--Sales of books, tests and other items
are generally recognized as revenue upon shipment, net of an allowance for
returns. Editorial costs are expensed as incurred.
INCOME TAXES--American Guidance records income taxes in accordance with SFAS
No. 109, ACCOUNTING FOR INCOME TAXES. SFAS No. 109 requires an asset and
liability approach to financial accounting and reporting for income taxes.
Deferred income tax assets and liabilities are computed annually for the
differences between the financial statement and tax basis of assets and
liabilities that will result in taxable or deductible amounts in the future
based on enacted tax laws and rates applicable to the periods in which the
differences are expected to affect taxable income. Income tax expense is the
taxes payable or refundable for the period plus or minus the change during the
period in deferred tax assets and liabilities.
USE OF ESTIMATES--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
3. CASH FLOWS
Cash provided by operating activities includes the following for the years ended
June 30:
<TABLE>
<CAPTION>
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Interest paid......................................... $ 372 $229 $ 159
Income taxes paid (refunded).......................... (500) 119 1,715
</TABLE>
4. PROPERTY, EQUIPMENT, AND LEASEHOLD IMPROVEMENTS
<TABLE>
<CAPTION>
ESTIMATED
1997 1998 USEFUL LIFE
-------- -------- -----------
<S> <C> <C> <C>
Land and building............................... $ 495 $ 495 30 years
Office furniture and equipment.................. 3,589 3,795 3-10 years
Machinery and equipment......................... 847 1,034 5-10 years
Leasehold improvements.......................... 1,058 1,052 10-32 years
------ ------
5,989 6,376
Less: accumulated depreciation.................. 4,724 5,174
------ ------
$1,265 $1,202
====== ======
</TABLE>
F-30
<PAGE>
AMERICAN GUIDANCE SERVICE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
5. AUTHOR RECEIVABLES
Receivables from authors consist of royalty advances made prior to publication
and the authors' portion of developmental costs related to the publication. All
amounts are secured by future royalties and are due in quarterly installments.
Of these receivables, approximately $30 and $0 at June 30, 1997 and 1998,
respectively, bear interest ranging from 6.0% to 10.0%.
6. FINANCING
NOTES PAYABLE--At June 30, 1998, American Guidance had a revolving credit
agreement (the "Revolver") with a bank providing up to $3,000 in borrowings
through August 31, 2000. The Revolver bears interest at the bank's reference
rate or, at American Guidance's option, a LIBOR advance rate. The LIBOR advance
rate may vary between 1.25% and 1.75% over the prevailing LIBOR rates based on
certain financial ratios of American Guidance. The interest rate on outstanding
borrowings of $1,500 at June 30, 1998 was 8.5%. American Guidance may borrow up
to 75% of eligible accounts receivable and 40% of eligible inventory, as
defined. At June 30, 1998, there was $1,500 borrowing availability under the
line. American Guidance's accounts receivable and inventories serve as
collateral under the Revolver.
If total Revolver borrowings exceed $1,000, American Guidance is required to
comply with restrictive covenants including ratios on cash flow leverage, fixed
charge coverage, and debt to tangible net worth, and restrictions on capital
expenditures, acquisitions, stock repurchases, and the payment of dividends. As
of June 30, 1998, American Guidance was in compliance with these financial
covenants.
LONG-TERM DEBT--Long-term debt consisted of the following at June 30, 1997:
<TABLE>
<S> <C>
Note payable, guaranteed ESOP obligation, paid in July
1997...................................................... $ 738
Note payable, paid in July 1997............................. 365
Note payable, paid in December 1997......................... 344
Note payable, paid in December 1997......................... 6
------
1,453
Less: current maturities.................................... 1,277
------
$ 176
======
</TABLE>
7. DEFERRED COMPENSATION
American Guidance entered into deferred compensation agreements with an officer
of American Guidance in 1967 and 1985. The officer retired in 1992. Pursuant to
the terms of the 1967 agreement, minimum annual payments of $9 (adjusted for a
price index) will be made for a 12-year period beginning the first day of the
calendar month following the date of separation from active employment. The 1985
agreement, as amended, requires American Guidance to make payments of $100 per
year, including interest at 6%, through September 1999. In fiscal 1998, American
Guidance and the former officer agreed to terminate the agreements. In
connection with the termination of the agreements, American Guidance made a $383
lump-sum distribution to the former officer.
During 1996, American Guidance established two supplemental executive retirement
plans (a defined contribution plan and a defined benefit plan) for certain
officers of American Guidance. At June 30,
F-31
<PAGE>
AMERICAN GUIDANCE SERVICE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
7. DEFERRED COMPENSATION (CONTINUED)
1998, American Guidance has an accrued contribution to the defined contribution
plan of $356 and an accrued pension cost of $369 for the defined benefit plan.
The liability for the above agreements as of June 30 is as follows:
<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
1967 agreement $261 --
1985 agreement 204 --
Supplemental executive retirement plans..................... 344 $725
Other....................................................... 57 68
---- ----
866 793
Less: current portion....................................... 173 39
---- ----
$693 $754
==== ====
</TABLE>
Deferred compensation expense totaled $148, $209, and $394 for the years ended
June 30, 1996, 1997, and 1998, respectively.
8. EMPLOYEE BENEFIT PLANS
EMPLOYEE STOCK OWNERSHIP PLAN--During 1990, American Guidance formed an Employee
Stock Ownership Plan and Trust ("ESOP") for the benefit of employees meeting
certain eligibility requirements. Simultaneously with the formation of the ESOP,
the ESOP entered into agreements with certain of its stockholders to purchase
3,100 shares of its Class B common stock and 787,762 shares of its Class C
common stock for $9,000. In addition, the ESOP subscribed to purchase 439,490
shares of Class A common stock from American Guidance for $5,001. During 1991,
the ESOP borrowed $11,650, which was guaranteed by American Guidance, the
proceeds of which were used by the ESOP to retire the notes payable to
stockholders and pay the stock subscription to American Guidance. In 1992,
American Guidance sold 230,769 shares of Class A common stock to the ESOP for
$3,000, which the ESOP financed with additional guaranteed ESOP borrowings.
American Guidance reflected the guaranteed ESOP borrowings as long-term debt in
the 1997 consolidated balance sheet. A like amount of "Guaranteed ESOP Debt
Obligations" was recorded as a reduction of stockholders' equity. As American
Guidance made annual contributions to the ESOP, these contributions, plus the
dividends paid, if any, on the Class A common stock held by the ESOP, are used
to repay the loans. The principal amount of the loans was repaid in fiscal 1998
and the amount of the "Guaranteed ESOP Debt Obligations" was reduced to zero.
Dividends paid on the Class A common stock totaled $929 for the year ended
June 30, 1996. Additionally, contributions to the ESOP totaled $1,462, $1,307,
and $1,600 for the years ended June 30, 1996, 1997, and 1998, respectively.
Terms of the ESOP and the Profit Sharing Plan require that, under certain
conditions, American Guidance purchase stock which has been distributed to
participants. As of June 30, 1998, 100% of American Guidance's stock is held by
the ESOP and the Profit Sharing Plan. Management currently believes that any
requirements to purchase stock distributed to participants for the next three to
five
F-32
<PAGE>
AMERICAN GUIDANCE SERVICE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
8. EMPLOYEE BENEFIT PLANS (CONTINUED)
years can be met by cash reserves and future cash flows without adversely
affecting the financial resources of American Guidance.
NOTES RECEIVABLE FROM ESOP AND PROFIT SHARING PLAN--During 1998, American
Guidance entered into notes receivable aggregating $2,222 with the ESOP and the
Profit Sharing Plan. At June 30, 1998, the notes receivable from the ESOP and
the Profit Sharing Plan had a balance of $1,360.
DEFINED CONTRIBUTION PLAN--On July 1, 1998, the profit sharing and savings plan
was merged with the ESOP. The profit sharing and savings plan provided for an
annual contribution up to the maximum amount allowed as a deduction by the
Internal Revenue Code. The Board of Directors, at its sole discretion,
determined the amount of American Guidance's contribution. No American Guidance
contributions were made for the years ended June 30, 1996, 1997, and 1998.
During 1997, American Guidance repurchased 122,027 shares of its Class C common
stock at $12.00 per share from the profit sharing and savings plan. During 1996,
American Guidance repurchased 63,562 shares of American Guidance Class C common
stock at $11.20 per share from the profit sharing and savings plan. Per share
repurchase prices are based on annual independent appraisals of American
Guidance.
DEFINED BENEFIT PENSION PLAN--American Guidance has a defined benefit pension
plan covering substantially all of its employees. The benefits payable are based
on years of service and the employee's average compensation for the highest
salaried five years of employment.
The following table sets forth the plan's funded status and amounts recognized
in the consolidated balance sheets as of June 30:
<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
Actuarial present value of benefit obligations--accumulated
benefit obligations, including vested benefits of $5,044
and $6,842, respectively.................................. $ 5,465 $ 7,214
======= =======
Plan assets at fair value................................... $ 7,082 $ 8,198
Projected benefit obligation................................ (6,616) (8,682)
Deferred transition obligation.............................. 37 32
Unrecognized prior service cost............................. (60) (56)
Unrecognized (gain) loss.................................... (679) 456
------- -------
Accrued pension cost........................................ $ (236) $ (52)
======= =======
</TABLE>
Net pension cost includes the following components for the years ended June 30:
<TABLE>
<CAPTION>
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Service costs............................................... $ 332 $ 402 $ 396
Interest cost on projected benefit obligation............... 409 470 507
Actual return on plan assets................................ (825) (1,560) (955)
Net amortization and deferral............................... 406 1,074 315
----- ------- -----
$ 322 $ 386 $ 263
===== ======= =====
</TABLE>
F-33
<PAGE>
AMERICAN GUIDANCE SERVICE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
8. EMPLOYEE BENEFIT PLANS (CONTINUED)
The following rates were used in determining the actuarial present value of the
projected benefit obligations:
<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
Weighted-average discount rate.............................. 8.0% 6.5%
Rate of increase in future compensation levels.............. 4.5 4.5
Expected long-term rate of return on assets................. 9.0 9.0
</TABLE>
9. INCOME TAXES
Income tax (expense) benefit for the years ended June 30 consists of the
following:
<TABLE>
<CAPTION>
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Current:
Federal........................................... $(165) $ (475) $(1,300)
State............................................. (10) (100) (225)
----- ------ -------
(175) (575) (1,525)
Deferred:
Federal........................................... 415 (170) (1,000)
State............................................. (40) (30) (175)
----- ------ -------
375 (200) (1,175)
----- ------ -------
$ 200 $ (775) $(2,700)
===== ====== =======
</TABLE>
Reconciliations of the expected Federal income tax expense at the statutory rate
with the actual income tax (expense) benefit for the years ended June 30 are as
follows:
<TABLE>
<CAPTION>
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Tax computed at Federal statutory rate............. $(467) $(1,062) $(2,535)
State tax (net of Federal benefit)................. (34) (86) (264)
Tax benefit of dividends paid to ESOP on allocated
shares........................................... 278 -- --
Nontaxable life insurance proceeds................. 366 -- --
Change in valuation allowance...................... 100 500 --
Other.............................................. (43) (127) 99
----- ------- -------
$ 200 $ (775) $(2,700)
===== ======= =======
</TABLE>
F-34
<PAGE>
AMERICAN GUIDANCE SERVICE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
9. INCOME TAXES (CONTINUED)
The tax effect of temporary differences and income tax carryforwards comprising
the deferred taxes shown on the consolidated balance sheets as net assets at
June 30 is as follows:
<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
Current:
Allowance for returns and doubtful accounts............... $ 221 $ 184
Inventory costs........................................... 922 785
Prepaid expenses.......................................... -- (475)
Accrued liabilities....................................... 87 206
------ ------
1,230 700
Noncurrent:
Depreciation and amortization............................. 337 153
Deferred compensation..................................... 332 304
Deferred gross profit..................................... (322) (397)
Options granted below fair market value................... 613 920
Net operating loss carryforwards.......................... 55 --
Alternative minimum tax carryforwards..................... 1,080 470
------ ------
2,095 1,450
------ ------
Total................................................... $3,325 $2,150
====== ======
</TABLE>
At June 30, 1998, American Guidance has available alternative minimum tax credit
carryforwards of approximately $470 for Federal tax purposes; this Federal
credit can be carried forward indefinitely.
10. LEASES
American Guidance leases its building under an operating lease agreement from a
stockholder. The agreement, which was effective June 1995, calls for an initial
lease period of five years with an option to renew the lease for one additional
five-year term. In addition to the monthly lease payments, American Guidance is
responsible for all operating expenses and real estate taxes associated with the
building. American Guidance had previously leased this property under the
provisions of a 1985 lease agreement.
Future minimum requirements for the lease payments required under the operating
lease are $240 per year for fiscal years ending June 30, 1999 through June 30,
2000 or $480 in aggregate.
Rent expense was $288, $297, and $267 for the years ended June 30, 1996, 1997,
and 1998, respectively.
11. STOCK OPTIONS
During fiscal 1995, American Guidance established a stock option plan, which
provides for the granting of nonqualified stock options to purchase Class A
common stock to employees. The options become exercisable two years after the
date of grant or upon a change in control of American Guidance, as defined, and
expire ten years from the date of grant. American Guidance has also granted
options to its Board of Directors in lieu of compensation.
F-35
<PAGE>
AMERICAN GUIDANCE SERVICE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
11. STOCK OPTIONS (CONTINUED)
Stock option transactions are summarized as follows:
<TABLE>
<CAPTION>
1996 1997 1998
------------------- ------------------- -------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year.............. 112,000 $12.27 172,500 $ 8.62 208,286 $ 8.18
Granted....................................... 60,500 1.85 62,786 6.83 127,528 7.23
Terminated.................................... -- -- (27,000) 7.81 (907) 7.23
Exercised..................................... -- -- -- -- (14,000) 2.57
------- ------ ------- ------ ------- ------
Outstanding at end of year.................... 172,500 $ 8.62 208,286 $ 8.18 320,907 $ 8.09
------- ------ ------- ------ ------- ------
Options exercisable at end of year............ 52,000 $13.11 98,786 $12.04 222,314 $10.48
======= ====== ======= ====== ======= ======
</TABLE>
The following table summarizes information about stock options at June 30, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- --------------------------------------------------------------------- ----------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
RANGE OF NUMBER CONTRACTUAL LIFE EXERCISE NUMBER EXERCISE
EXERCISE PRICE OUTSTANDING (YEARS) PRICE EXERCISABLE PRICE
- --------------------- --------------- ---------------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$0.00 89,528 7 $ 0.00 36,528 $ 0.00
5.75 46,500 8 5.75 -- --
11.20-13.25..... 184,879 7 12.60 185,786 12.54
------- ------- ------- ------
$0.00-$13.25.... 320,907 $ 8.09 222,314 $10.48
======= ======= ======= ======
</TABLE>
During the years ended June 30, 1996, 1997, and 1998, American Guidance recorded
an increase in additional paid-in capital and compensation expense of $293,
$702, and $735 related to the granting of options to purchase 51,000, 52,000,
and 52,500 shares, respectively, of common stock to officers and employees of
American Guidance in accordance with an established variable compensation plan.
The exercise price per share of these options was dependent on American
Guidance's fiscal 1996, 1997, and 1998 performance. These options will have
exercise prices ranging from $0 to $5.75.
During the years ended June 30, 1997 and 1998, American Guidance also recorded
an increase in additional paid-in capital and compensation expense of $67 and
$60 relating to the granting of options to purchase 5,700 and 4,528 shares of
Class A common stock, respectively, to certain Board members. These options will
have an exercise price of $0.
Had compensation costs for the stock options issued in 1996, 1997, and 1998 been
determined based on the fair value at the grant date, consistent with the
provisions of SFAS No. 123, American Guidance's 1996, 1997, and 1998 pro forma
net income would have been $1,365, $2,220, and $4,404, respectively, compared
with actual net income of $1,535, $2,258, and $4,544, respectively.
Under SFAS No. 123, the value of each option grant is estimated on the date of
grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions: dividend yield of 0%; a
F-36
<PAGE>
AMERICAN GUIDANCE SERVICE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
11. STOCK OPTIONS (CONTINUED)
risk-free interest rate of 6.28%, 6.86%, and 5.50% in 1996, 1997, and 1998,
respectively; and an expected life of ten years.
12. ACQUISITIONS
In October 1997, American Guidance acquired certain assets of Craig-Hart
Publishing Company. The acquisition was accounted for as a purchase. Craig-Hart
Publishing Company publishes and sells test preparation and other educational
materials. Craig-Hart Publishing Company was purchased for $1,550 cash. The
purchase price was allocated as follows:
<TABLE>
<S> <C>
Copyrights.................................................. $ 50
Other current assets........................................ 330
Inventory................................................... 220
Customer lists.............................................. 950
------
$1,550
======
</TABLE>
In March 1997, American Guidance acquired certain assets of International
Thomson Publishing Inc. ("ITP"). The acquisition was accounted for as a
purchase. ITP publishes and sells adult educational materials. ITP was purchased
for $782 in cash. The purchase price was allocated as follows:
<TABLE>
<S> <C>
Copyrights.................................................. $ 60
Other current assets........................................ 300
Inventory................................................... 422
------
$ 782
======
</TABLE>
In April 1996, American Guidance acquired certain assets of Lake Publishing
Company ("Lake"). The acquisition was accounted for as a purchase. Lake develops
various renditions of literature classics. Lake was purchased for $731 in cash.
The purchase price was allocated as follows:
<TABLE>
<S> <C>
Inventory................................................... $ 410
Other assets................................................ 285
Author receivables.......................................... 36
------
$ 731
======
</TABLE>
Pro forma results were not materially different than actual operating results.
13. COMMITMENTS AND CONTINGENCIES
American Guidance has employment agreements with certain executives that require
it to pay those executives' salary, bonus, and benefits for up to the greater of
the term of the agreement or 30 months if American Guidance terminates that
executive's employment for reasons other than disability or for cause, as
defined. American Guidance would also have to pay the executive's nonvested
portion of American Guidance's employee stock ownership plan. The employment
agreements also provide that in
F-37
<PAGE>
AMERICAN GUIDANCE SERVICE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
13. COMMITMENTS AND CONTINGENCIES (CONTINUED)
the event of a sale or merger of American Guidance, the executives will receive
a percentage of the sale price if American Guidance's value exceeds $65,000. No
provision has been recorded in the consolidated financial statements for this
contingency.
In 1998, American Guidance entered into various Share Redemption Agreements
requiring it to pay the former stockholders an amount greater than the original
repurchase price in the event of a sale or merger of American Guidance before
June 30, 2001. No provision has been recorded in the consolidated financial
statements for this contingency.
14. SUBSEQUENT EVENT
Subsequent to year end, American Guidance's Board of Directors, which has
authority under the ESOP and Profit Sharing Plan, signed a letter of intent to
sell all of the issued and outstanding common stock for approximately $100,000.
F-38
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
CompassLearning, Inc.
In our opinion, the accompanying balance sheet and the related statements of
operations, stockholders' equity (deficit) and cash flows present fairly, in all
material respects, the financial position of CompassLearning, Inc. (formerly
known as JLC Learning Corporation) at December 31, 1997 and 1998, and the
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1998 in conformity with generally accepted accounting
principles. These financial statements are the responsibility of CompassLearning
Inc.'s management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
Phoenix, Arizona
July 14, 1999
F-39
<PAGE>
COMPASSLEARNING, INC.
BALANCE SHEET--(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
DECEMBER 31, 1997 AND 1998
<TABLE>
<CAPTION>
1997 1998
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 860 $ --
Accounts receivable, less allowance of $2,393 and $1,327,
respectively............................................ 29,440 21,087
Inventories............................................... 1,050 1,011
Prepaid expenses.......................................... 1,238 2,743
Investment in equity securities........................... -- 314
--------- ---------
Total current assets.................................. 32,588 25,155
Other assets:
Software development costs, net........................... 4,879 2,690
Intangible assets, net.................................... 1,204 959
Deferred financing fees, net.............................. -- 859
Fixed assets, net........................................... 3,145 2,090
--------- ---------
Total assets.......................................... $ 41,816 $ 31,753
========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable.......................................... $ 2,817 $ 2,678
Due to related parties.................................... 1,070 955
Salaries and related items................................ 5,388 5,942
Other accrued liabilities................................. 8,976 9,587
--------- ---------
18,251 19,162
Deferred revenue.......................................... 25,648 20,936
Senior subordinated debt.................................. 17,000 17,000
--------- ---------
Total current liabilities............................. 60,899 57,098
Non-current portion of deferred revenue..................... 3,873 1,723
Non-current portion of due to related parties............... 712 2,901
Revolving line of credit.................................... 8,500 2,238
Non-current other accrued liabilities....................... 898 818
Term note payable to bank................................... -- 7,500
--------- ---------
Total liabilities..................................... 74,882 72,278
--------- ---------
Stockholders' deficit:
Mandatorily redeemable preferred stock, $0.01 par value;
10,000 shares authorized, issued and outstanding
($10,153 and $11,230 liquidation preference,
respectively)........................................... 10,153 11,230
Redeemable preferred stock, $.01 par value; 20,000 shares
authorized, issued and outstanding...................... -- --
Common stock, $.001 par value; 120,565,000 shares
authorized, 1,000 shares issued and outstanding......... -- --
Additional paid-in capital................................ 75,803 75,803
Accumulated deficit....................................... (101,041) (109,891)
Unallocated purchase consideration........................ (17,981) (17,981)
Accumulated other comprehensive income.................... -- 314
--------- ---------
Total stockholders' deficit........................... (33,066) (40,525)
--------- ---------
Total liabilities and stockholders' deficit........... $ 41,816 $ 31,753
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-40
<PAGE>
COMPASSLEARNING, INC.
STATEMENT OF OPERATIONS--(IN THOUSANDS)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
<TABLE>
<CAPTION>
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Net revenue:
Software.................................................. $ 40,423 $ 29,159 $30,949
Service................................................... 35,385 36,029 33,935
Hardware.................................................. 10,924 6,624 4,014
-------- -------- -------
86,732 71,812 68,898
-------- -------- -------
Cost of products sold:
Software.................................................. 12,937 30,435 6,936
Service................................................... 28,973 23,399 19,235
Hardware.................................................. 8,251 5,550 3,229
-------- -------- -------
50,161 59,384 29,400
-------- -------- -------
Gross profit................................................ 36,571 12,428 39,498
-------- -------- -------
Selling and administrative expenses:
Sales and marketing....................................... 28,019 31,357 24,034
Research and development.................................. 11,715 11,177 8,022
General and administrative................................ 11,281 13,508 7,705
Amortization of intangibles............................... 3,245 5,449 245
Restructuring............................................. -- -- 3,012
-------- -------- -------
54,260 61,491 43,018
-------- -------- -------
Loss from operations........................................ (17,689) (49,063) (3,520)
Interest expense............................................ (4,590) (5,013) (4,286)
Other income (expense)...................................... -- (2,128) 33
-------- -------- -------
Loss before income taxes.................................... (22,279) (56,204) (7,773)
Income tax expense.......................................... -- -- --
-------- -------- -------
Net loss.................................................... $(22,279) $(56,204) $(7,773)
======== ======== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-41
<PAGE>
COMPASSLEARNING, INC.
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)--(IN THOUSANDS EXCEPT PER SHARE
DATA)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
<TABLE>
<CAPTION>
MANDATORILY REDEEMABLE
REDEEMABLE PREFERRED COMMON
PREFERRED STOCK STOCK STOCK ADDITIONAL
------------------- ------------------- ------------------- PAID-IN ACCUMULATED
SHARES $ SHARES $ SHARES $ CAPITAL DEFICIT
-------- -------- -------- -------- -------- -------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1995........ -- $ -- -- $ -- 1,000 $ -- $57,538 $ (21,481)
Issuance of redeemable preferred
stock........................... 20,000 18,165
Contribution from Holdings........ 100
Issuance of mandatorily redeemable
preferred stock................. 10,000 9,076
Net loss for the year ended
December 31, 1996...............
(22,279)
------ ------- ------ ---- ------ ---- ------- ---------
BALANCE, December 31, 1996........ 10,000 9,076 20,000 -- 1,000 -- 75,803 (43,760)
Accrued dividends on mandatorily
redeemable preferred stock...... 1,000 (1,000)
Accretion of stock issuance costs
and related discount............ 77 (77)
Net loss for the year ended
December 31, 1997...............
(56,204)
------ ------- ------ ---- ------ ---- ------- ---------
BALANCE, December 31, 1997........ 10,000 10,153 20,000 -- 1,000 -- 75,803 (101,041)
Accrued dividends on mandatorily
redeemable preferred stock...... 1,000 (1,000)
Accretion of stock issuance costs
and related discount............ 77 (77)
Comprehensive income (loss):
Net loss for the year ended
December 31, 1998............. (7,773)
Unrealized gain on available for
sale securities...............
Total comprehensive income
(loss)..........................
------ ------- ------ ---- ------ ---- ------- ---------
Balance at December 31, 1998...... 10,000 $11,230 20,000 $ -- 1,000 $ -- $75,803 $(109,891)
====== ======= ====== ==== ====== ==== ======= =========
<CAPTION>
ACCUMULATED
UNALLOCATED OTHER
PURCHASE COMPREHENSIVE
CONSIDERATION INCOME TOTAL
------------- -------------- --------
<S> <C> <C> <C>
BALANCE, December 31, 1995........ $(17,981) $ -- $ 18,076
Issuance of redeemable preferred
stock........................... 18,165
Contribution from Holdings........ 100
Issuance of mandatorily redeemable
preferred stock................. 9,076
Net loss for the year ended
December 31, 1996...............
(22,279)
-------- ---- --------
BALANCE, December 31, 1996........ (17,981) -- 23,138
Accrued dividends on mandatorily
redeemable preferred stock...... --
Accretion of stock issuance costs
and related discount............ --
Net loss for the year ended
December 31, 1997...............
(56,204)
-------- ---- --------
BALANCE, December 31, 1997........ (17,981) -- (33,066)
Accrued dividends on mandatorily
redeemable preferred stock...... --
Accretion of stock issuance costs
and related discount............ --
Comprehensive income (loss):
Net loss for the year ended
December 31, 1998............. (7,773)
Unrealized gain on available for
sale securities............... 314 314
Total comprehensive income
(loss)..........................
-------- ---- --------
Balance at December 31, 1998...... $(17,981) 314 $(40,525)
======== ==== ========
</TABLE>
The accompanying notes are an integral part of these financial statements
F-42
<PAGE>
COMPASSLEARNING, INC.
STATEMENT OF CASH FLOWS--(IN THOUSANDS)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
<TABLE>
<CAPTION>
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Cash flows used in operating activities:
Net loss.................................................. $(22,279) $(56,204) $ (7,773)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization........................... 15,746 33,733 4,025
Impairment of investments in equity securities.......... -- 2,157 --
Amortization of deferred financing fees................. 365 1,322 286
Amortization of debt discount........................... 270 980 --
Changes in assets and liabilities:
Decrease in accounts receivable....................... 26,240 5,348 8,353
Decrease in inventories............................... 396 1,483 39
Decrease (increase) in prepaid expenses............... (315) 2,872 106
Decrease in accounts payable.......................... (4,150) (1,120) (139)
Increase (decrease) in due to related parties......... (7,560) 700 (15)
Increase (decrease) in salaries and related items..... (1,042) 12 554
Decrease in current and noncurrent deferred revenue... (3,776) (2,333) (6,862)
Increase (decrease) in current and noncurrent accrued
liabilities......................................... (6,494) (3,603) 1,171
-------- -------- --------
Net cash used in operating activities............... (2,599) (14,653) (255)
-------- -------- --------
Cash flows used in investing activities:
Capital expenditures...................................... (901) (1,136) (536)
Software development costs capitalized.................... (2,841) (3,125) --
-------- -------- --------
Net cash used in investing activities............... (3,742) (4,261) (536)
-------- -------- --------
Cash flows provided by (used in) financing activities:
Decrease in due to former parent.......................... (219) (179) (162)
Repayments of borrowings on revolving line of credit...... (34,700) (14,300) (65,552)
Proceeds from revolving line of credit, net of financing
fees of $1,145 in 1998.................................. 24,000 22,800 66,645
Retirement of previous line of credit, net................ -- -- (8,500)
Borrowings on long-term note payable to bank.............. -- -- 7,500
Proceeds from sale of preferred stock, net................ 27,241 -- --
Contribution from Holdings................................ 100 -- --
-------- -------- --------
Net cash provided by (used in) financing
activities........................................ 16,422 8,321 (69)
-------- -------- --------
Increase (Decrease) in cash and cash equivalents............ 10,081 (10,593) (860)
Cash and cash equivalents, beginning of period.............. 1,372 11,453 860
-------- -------- --------
Cash and cash equivalents, end of period.................... $ 11,453 $ 860 $ --
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-43
<PAGE>
COMPASSLEARNING, INC.
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
1. NATURE OF THE BUSINESS
CompassLearning, Inc. ("CompassLearning" or the "Company," formerly known as
Jostens Learning Corporation or JLC Learning Corporation), is a leading provider
of technology-based educational programs to school districts for kindergarten
through twelfth grade. CompassLearning is a wholly-owned subsidiary of Software
Systems Corporation ("SSC"), a wholly-owned subsidiary of JLC Learning
Holdings, Inc. ("Holdings").
CompassLearning operates in the education software industry and has
maintained a leadership position among a multitude of providers.
CompassLearning's products and services include fully integrated software
systems, standalone CD ROM delivery, connection to the Internet and a full
service offering, including installation, teacher training, onsite and remote
diagnostics and maintenance.
CompassLearning focuses its market efforts in the educational channel, with
sales and service coverage in the United States and several U.S. territories and
is exploring opportunities in international markets. The Company's selling and
distribution efforts include a direct sales force, telemarketing and catalog
sales.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid financial instruments with
maturities of three months or less at date of purchase to be cash equivalents.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined on
the first-in, first-out ("FIFO") basis.
INVESTMENTS
The Company classifies its investments in marketable securities as
available-for-sale. Accordingly, investments are recorded at fair value with
unrealized gains or losses, net of the related tax effect, excluded from income
and reported as a separate component of stockholders' equity (deficit) until
realized. A loss included in other expense of $2,157 was realized on investments
in 1997 due to what was considered a nontemporary decline in fair value. During
1998, pursuant to a business combination involving the Company's investee, the
investment which was written down to zero in 1997 was exchanged for shares of a
publicly traded company. The unrealized gain of $314 at December 31, 1998
reflects the market value of this investment. There were no realized gains or
losses in 1998. During 1996, the Company sold one of its investments with a book
value of $0 for $500. In conjunction with the sale, the Company entered into a
royalty agreement with a former investee. The gain on the sale of this
investment was deferred and will be recovered over the life of the royalty
agreement on a units-of-production basis.
SOFTWARE DEVELOPMENT COSTS
The Company, in accordance with Statement of Financial Accounting Standards
("SFAS") No. 86, "Accounting for the Costs of Computer Software to Be Sold,
Leased, or Otherwise Marketed,"
F-44
<PAGE>
COMPASSLEARNING, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
capitalizes software development costs by project commencing when technological
feasibility is established and concluding when the product is ready for release.
Software development costs are amortized on a straight-line basis over five
years or the expected life of the product, whichever is less. The Company
periodically evaluates the net realizable value of capitalized software
development costs based on factors such as budgeted sales, product development
cycles and management's market emphasis. Research and development costs are
charged to expense when incurred.
INTANGIBLE ASSETS
Intangible assets include goodwill. Goodwill represents the excess of the
purchase price over the fair value of assets acquired and is being amortized
over seven years. Impairment of intangible assets, if any, is measured
periodically on the basis of whether anticipated undiscounted operating cash
flows generated by the acquired businesses will recover the recorded net
goodwill balances over the remaining amortization period.
DEFERRED FINANCING FEES
Deferred financing fees are direct costs paid by the Company in connection
with their revolving credit agreement (see Note 8). These costs are being
amortized over the term of the related debt. Amortization for the years ended
December 31, 1996, 1997 and 1998 approximated $365, $1,322 and $286,
respectively. Included in amortization for the year ended December 31, 1997 were
accelerated amortization charges of $1,047.
FIXED ASSETS
Fixed assets are recorded at cost and depreciated over the estimated useful
lives of the related assets. Depreciation is provided principally on the
straight-line method for financial reporting purposes and on accelerated methods
for income tax purposes. Leasehold improvements are depreciated over the shorter
of their useful life or the lease term.
REVENUE RECOGNITION
The Company adopted the provisions of Statement of Position 97-2 ("SOP
97-2"), "Software Revenue Recognition," as amended by Statement of Position
98-4, "Deferral of the Effective Date of Certain Provisions of SOP 97-2,"
effective January 1, 1998. SOP 97-2 supersedes Statement of Position 91-1,
"Software Revenue Recognition," and delineates the accounting for software
product and maintenance revenue. Under SOP 97-2, the Company recognizes revenue
for hardware and software sales upon shipment of the product provided collection
of the resulting receivable is deemed probable. Revenue from service contracts,
instruction and user training and post-contract customer support is recognized
ratably over the period of the related contract. Deferred revenue represents the
Company's obligation to perform under signed contracts.
For contracts with multiple obligations (e.g. deliverable and undeliverable
products, maintenance and other services,) the Company allocates revenue to each
component of the contract based on objective evidence of its fair value, which
is specific to the Company, or for products not being sold
F-45
<PAGE>
COMPASSLEARNING, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
separately, the price established by management. The Company recognizes revenue
allocated to undelivered products when the criteria for product revenue set
forth above are met.
ADVERTISING
Advertising costs are expensed as incurred. Advertising expense totaled
$2,279, $1,832 and $705 for the years ended December 31, 1996, 1997 and 1998,
respectively.
INCOME TAXES
The Company accounts for income taxes in accordance with SFAS 109,
"Accounting for Income Taxes," which requires the recognition of deferred tax
liabilities and assets for the expected future tax consequences of temporary
differences between the carrying amounts and the tax basis of assets and
liabilities. A valuation allowance is required to offset any net deferred tax
assets if, based upon the available evidence, it is more likely than not that
some or all of the deferred tax asset will not be realized.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
COMPREHENSIVE INCOME
The Company adopted SFAS No. 130, "Reporting Comprehensive Income" for the
year ended December 31, 1998. SFAS 130 requires the Company to measure and
disclose all elements of comprehensive income that result from recognized
transactions and other events in the financial statements. Accordingly, the
Company has reported unrealized gains on marketable securities as a separate
component of stockholders' deficit.
3. BUSINESS ACQUISITION
Effective December 19, 1995, Holdings acquired all of the outstanding stock
of Ideal for $4,100 in cash, a $900 note payable and a warrant to purchase a
specified number of shares of Holdings Common Stock. The acquisition was
accounted for under the purchase method. Goodwill in the amount of $1,718 was
recorded in conjunction with the acquisition of Ideal. Effective July 1, 1996,
the assets and liabilities of Ideal were transferred to CompassLearning. Because
the transfer of assets occurred among entities under common control, the Company
has accounted for the transfer in a manner similar to a pooling of interests
and, accordingly, the Company's financial statements include the historical
results of Ideal from the date of acquisition by Holdings.
F-46
<PAGE>
COMPASSLEARNING, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
4. INVENTORIES
Inventories are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1997 1998
-------- --------
<S> <C> <C>
Finished products........................................... $ 862 $ 836
Materials and supplies...................................... 188 175
------ ------
$1,050 $1,011
====== ======
</TABLE>
5. SOFTWARE DEVELOPMENT COSTS
Software development costs are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1997 1998
-------- --------
<S> <C> <C>
Capitalized software costs................................ $39,713 $39,713
Less accumulated amortization............................. (34,834) (37,023)
------- -------
$ 4,879 $ 2,690
======= =======
</TABLE>
Amortization of capitalized computer software development costs is included
in cost of products sold and aggregated $7,201, $24,751 and $2,189 for the years
ended December 31, 1996, 1997 and 1998, respectively. Included in amortization
of capitalized computer software development costs for the year ended
December 31, 1997 were accelerated amortization charges of $17,269 for the
reduction of certain capitalized costs to their net realizable value due to a
change in the Company's product focus. Accelerated amortization charges in 1998
were not material.
6. INTANGIBLE ASSETS
Intangible assets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1997 1998
-------- --------
<S> <C> <C>
Goodwill, Ideal............................................. $1,718 $1,718
Less accumulated amortization............................... (514) (759)
------ ------
$1,204 $ 959
====== ======
</TABLE>
Goodwill amounts at December 31, 1997 and 1998 are a result of the Company's
acquisition of Ideal Learning, Inc. ("Ideal") which took place in 1995.
Amortization expense related to intangible assets was $3,245, $5,449 and
$245 for the years ended December 31, 1996, 1997 and 1998, respectively.
Included in amortization for the year ended December 31, 1997 were accelerated
amortization charges of approximately $2,415. These charges were a result of an
impairment of the trade name, workforce in place, and goodwill assets, which had
been
F-47
<PAGE>
COMPASSLEARNING, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
6. INTANGIBLE ASSETS (CONTINUED)
established as a result of the original acquisition of the Company by Holdings,
due to a change in the Company's product focus.
7. FIXED ASSETS
Fixed assets are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
DEPRECIABLE -------------------
LIFE 1997 1998
------------ -------- --------
<S> <C> <C> <C>
Computer equipment.......................................... 1 to 3 years $8,644 $2,914
Warehouse equipment......................................... 1 to 3 years 181 60
Leasehold improvements...................................... 3 to 5 years 349 252
Other furniture and fixtures................................ 2 to 7 years 3,298 2,012
------ ------
12,472 5,238
Less accumulated depreciation............................... (9,327) (3,148)
------ ------
$3,145 $2,090
====== ======
</TABLE>
Depreciation expense aggregated $5,129, $3,532 and $1,591 for the years
ended December 31, 1996, 1997 and 1998, respectively. In 1998 the Company wrote
off $7,770 of fully depreciated fixed assets which are no longer in use.
8. REVOLVING CREDIT AGREEMENT
On June 29, 1995, the Company entered into a revolving credit agreement with
a maximum loan availability of $40,000, including up to $3,000 of letters of
credit (the "Loan Facility"). Borrowings outstanding under this agreement at
December 31, 1997 were $8,500. The original termination date for the revolving
line of credit was the last business day of June 2000; however in March 1998,
the Company paid all outstanding amounts under this agreement and terminated the
Loan Facility.
In March 1998, the Company entered into a new loan facility which includes a
new revolving line of credit agreement with a maximum loan availability of
$20,000, including up to $2,000 of letters of credit and a term loan of $7,500
(see Note 10). Advances on the line of credit are limited to the lesser of 75%
of eligible billed accounts plus 40% of eligible unbilled accounts or $2,000,
whichever is less, and the amount collected on accounts by the Company for a
defined period immediately preceding the advance. Loans under this agreement are
secured by 100% of all capital or other equity interests, as well as accounts
receivable, inventory, fixed assets, intangibles and contract rights. Interest
is computed at 0.0875% to 2.75%, depending on the amount outstanding, plus the
prime lending rate as most recently announced by Norwest Bank Minnesota, NA and
at a minimum, a rate of 9%. At December 31, 1998 the minimum rate was being
used. The agreement described above contains certain restrictive covenants,
which include requiring the Company to meet certain profitability levels and to
maintain a certain tangible net worth. The new line of credit agreement matures
in March 2001. Borrowings outstanding under this line of credit agreement at
December 31, 1998 were $2,238.
F-48
<PAGE>
COMPASSLEARNING, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
9. SENIOR SUBORDINATED NOTES
On June 29, 1995, the Company entered into a senior subordinated note
purchase agreement whereby the Company borrowed a total of $17,000 from two
lending institutions under note agreements which bear interest at 12.25% and
mature on the last business day of June 2002. Interest is payable quarterly. The
notes are secured by the same collateral as the $20,000 revolving credit
agreement (see Note 8) and are guaranteed by Holdings.
In connection with the issuance of the note agreements, the lending
institutions each received warrants to acquire a specified number of shares of
Holdings Common Stock. The value ascribed to the warrants of approximately
$1,260 was recorded as a discount from the face value of the debt and was being
amortized over the term of the Senior Subordinated Notes. During 1997, the
Company accelerated the amortization on the warrants due to an impairment in the
value.
The subordinated agreements require the Company to meet certain operating
ratios and limits. The Company failed to meet certain covenants during the years
ended December 31, 1997 and 1998. In addition, the Company failed to make
quarterly interest payments due on December 31, 1997 and for each of the four
quarters in 1998. Accordingly, amounts outstanding under the senior subordinated
notes have been classified as current liabilities at December 31, 1997 and 1998.
On July 14, 1999 the Company repaid the senior subordinated notes including
accrued interest in conjunction with a Stock Purchase Agreement (see Note 22).
10. TERM NOTE PAYABLE TO BANK
In March 1998, in connection with a new loan facility (see Note 8) the
Company obtained a term loan in the amount of $7,500, which matures in
March 2000. The term loan is secured by 100% of all capital or other equity
interests, as well as accounts receivable, inventory, fixed assets, intangibles
and contract rights. The term loan bears interest at 13.0% up to February 1,
1999 and at 15% thereafter. The loan agreement contains certain restrictive
covenants which are consistent with those described in Note 8.
11. LEASE OBLIGATIONS, COMMITMENTS AND CONTINGENCIES
The Company has operating leases for certain equipment, offices and
warehouse space that include remaining noncancelable minimum rental commitments
as follows:
<TABLE>
<CAPTION>
AMOUNT
Year ending December 31: --------
<S> <C>
1999...................................................... $ 3,485
2000...................................................... 3,159
2001...................................................... 2,098
2002...................................................... 1,370
2003...................................................... 600
-------
Total minimum lease payments.............................. 10,712
Total minimum noncancelable sublease rentals.............. (330)
-------
$10,382
=======
</TABLE>
F-49
<PAGE>
COMPASSLEARNING, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
11. LEASE OBLIGATIONS, COMMITMENTS AND CONTINGENCIES (CONTINUED)
Of the $10,382 minimum rental commitments net of sublease rentals, $1,005
has been accrued in the accompanying balance sheet at December 31, 1998 as they
represent excess space liabilities a portion of which are a result of the
Company's restructuring activities (see Note 20).
Rent expense for all operating leases aggregated $3,843, $4,370 and $3,060,
net of sublease rentals of $611, $647 and $447, for the years ended
December 31, 1996, 1997 and 1998, respectively.
The Company is a party to litigation arising in the normal course of
business. Management regularly analyzes current information and, as necessary,
provides accruals for probable liabilities on the eventual disposition of these
matters. Management believes that the effect on the Company's results of
operations and financial position, if any, for the disposition of these matters,
will not be material.
12. ROYALTY AGREEMENTS
At December 31, 1998 the Company had a minimum guaranteed royalty commitment
under a software license agreement of $900 and $600 for the years ended
December 31, 1999 and 2000, respectively, which have been accrued in the
accompanying balance sheet at December 31, 1998.
In June 1998, CompassLearning restructured a significant software license
agreement with a third party. CompassLearning returned investment securities
valued at $2,285 by the third party and also accepted reduced rights under the
license agreement in order to settle $5,500 in minimum future royalty
obligations which CompassLearning owed. CompassLearning retained the right to
sell product from this third party through 2001. CompassLearning has remaining
unamortized prepaid royalties with respect to this license agreement of $2,700
with a net carrying value of $1,420 as of December 31, 1998 to be amortized on a
units-of-production basis.
13. INCOME TAXES
Due to losses incurred from operations, the Company has no provision for
income tax for the years ended December 31, 1996, 1997 and 1998.
Significant components of the deferred tax balances are:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1998
------------------- -------------------
NON- NON-
CURRENT CURRENT CURRENT CURRENT
ASSETS ASSETS ASSETS ASSETS
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Depreciation and amortization............................. $ -- $22,274 $ -- $20,427
Net operating loss carryovers............................. -- 19,266 -- 23,717
Accrued expenses.......................................... 1,751 -- 1,827 --
Asset reserves............................................ 2,490 -- 1,657 --
Capital loss carryover.................................... -- -- -- 871
Valuation allowance....................................... (4,241) (41,540) (3,484) (45,015)
------ ------- ------ -------
$ -- $ -- $ -- $ --
====== ======= ====== =======
</TABLE>
In assessing the realizability of its deferred tax assets, the Company
considers whether it is more likely than not that some or all of such assets
will be realized. As a result of historical operating losses,
F-50
<PAGE>
COMPASSLEARNING, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
13. INCOME TAXES (CONTINUED)
the Company has fully reserved its net deferred tax assets as of December 31,
1997 and 1998. The Company will consider release of the valuation allowance once
profitable operations have been sustained.
As of December 31, 1998, the Company had net operating loss carryforwards of
approximately $60,400, which will begin to expire in 2010. Past and future
transactions in the Company's stock could result in restrictions on the
Company's ability to utilize its net operating loss carryforwards pursuant to
Section 382 (g) of the Internal Revenue Code.
14. RELATED PARTY TRANSACTIONS
The Company benefited from a management and advisory services agreement
between Holdings and an affiliate of Holdings' shareholders. Out-of-pocket
expenses were paid to this affiliate of $46, $50 and $25 during the years ended
December 31, 1996, 1997 and 1998, respectively. Approximately $427 of additional
fees were paid to this affiliate in the year ended December 31, 1996 and were
included as issuance costs of the Company's Preferred Stock (see Notes 15 and
16).
In conjunction with the issuance of the Class A Preferred Stock, the Company
entered into a consulting arrangement with an investor. The arrangement provided
for $500 per year to be paid to the investor for consulting services through
November 1999. At December 31, 1997 and 1998, prepaid consulting fees of $458
and $417, respectively, were included in prepaid expenses and the Company
incurred consulting expenses of $84, $459 and $499 for the years ended
December 31, 1996, 1997 and 1998, respectively, relating to this arrangement.
Amounts due to this investor for consulting fees at December 31, 1997 and 1998
are $1,400. The current portion of these amounts at December 31, 1997 and 1998
are $850 and $750, respectively, and are included in due to related parties.
In addition to the consulting arrangement, the Company entered into a sales
and marketing agreement with this investor whereby the Company would sell
product to the investor at a discount. Approximately $192, $736 and $354 in
sales were made to the investor during the years ended December 31, 1996, 1997
and 1998, respectively. Included in accounts receivable at December 31, 1997 and
1998, was $349 and $314, respectively, from sales to this investor.
In June 1998, the Company delivered a promissory note to this investor to
repurchase securities sold to the investor in November 1996. The note accrues
interest at 10% with principal and accrued interest payable on April 15, 2001.
The balance as of December 31, 1998 was $2,251 which is included in the non
current portion of due to related party on the accompanying balance sheet. As of
December 31, 1997, $500 was accrued and included in due to related parties
relating to this same agreement.
At December 31, 1997 and 1998 the Company had amounts due to its former
parent relating to the settlement of intercompany transactions of $382 and $205,
respectively. Of the amounts due at December 31, 1997 and 1998, $220 and $205,
respectively, were included in due to related parties.
During 1998, the Company re-engaged a consultant of an affiliate to explore
additional investment alternatives. Fees paid to this consultant for the year
ended December 31, 1998 were $647.
F-51
<PAGE>
COMPASSLEARNING, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
15. MANDATORILY REDEEMABLE PREFERRED STOCK
On December 19, 1996, the Company issued 10,000 shares of $.01 par value
Class B Preferred Stock and recorded the stock at $10,000 less issuance costs of
approximately $900, its fair value on date of issuance. These shares represent
all of the authorized shares of the Class B Preferred Stock. The Company is
required to redeem all outstanding shares of the Class B Preferred Stock, at a
redemption price of $1,000 per share plus any accrued and unpaid dividends, by
December 19, 2008. Holders of Class B Preferred Stock have no voting rights, are
entitled to a preferential distribution of $1,000 per share plus accrued and
unpaid dividends in the event of a liquidation, and are entitled to annual
dividends of $100 per share until the Company redeems the stock. At
December 31, 1997 and 1998 accrued dividends of $1,000 and $2,000 are included
in stockholders' equity, respectively. The stock will be accreted to its
redemption value through charges to accumulated deficit.
16. STOCKHOLDERS' DEFICIT
On November 1, 1996, the Company issued 20,000 shares of $.01 par value
Class A Preferred Stock for $20,000 less issuance costs of $1,835. In
conjunction with the Class A Preferred Stock, $100 was paid to Holdings for a
warrant to purchase a specified number of shares of Holdings Common Stock.
Concurrent with the sale of the warrant, Holdings contributed the proceeds
received to the Company.
The authorized redeemable preferred stock and common stock of the Company
consists of 20,000 shares of $.01 par value Class A Preferred Stock and
120,565,000 shares of $.001 par value Class A Common Stock. At December 31, 1997
and 1998, 1,000 shares of the Class A Common Stock were issued and outstanding.
All outstanding shares of Class A Common Stock are held by SSC. At December 31,
1997 and 1998, all 20,000 shares of the Class A Preferred Stock were issued and
outstanding. Holders of Class A Common stock are entitled to one vote per share.
Holders of Class A Preferred Stock have no voting rights. In the event of a
liquidation of the Company, holders of Class A Preferred Stock are entitled to a
preferential distribution of $1,000 per shares plus accrued and unpaid
dividends. Distribution amounts in excess of the Class A and Class B preferred
stock distribution preference are to be distributed ratably to all of the
Class A common stockholders. The Company, at its option, may redeem all the
shares of Class A Preferred Stock at a redemption price of $1,000 per share plus
any accrued and unpaid dividends. Holders of Class A Preferred Stock are
entitled to annual dividends of $100 per share. As of December 31, 1997 and 1998
accrued and unpaid dividends on the Class A Preferred Stock was $2,000 and
$4,000, respectively.
Included in the paid-in capital of the Company is $40,000 in debt payable by
SSC to the Company's former parent, as part of the purchase consideration. Such
debt is not payable by the Company, guaranteed by the Company, nor subject to
repayment from the proceeds of any future equity transactions of the Company.
17. UNALLOCATED PURCHASE CONSIDERATION
In conjunction with the acquisition of the Company by Holdings on June 29,
1995, warrants and an exchangeable note issued to the Company's former parent
allowed the former parent to acquire up to a 30.7% interest in Holdings.
Accordingly, 69.3% of the purchase consideration was allocated to the assets
acquired and liabilities assumed at their respective fair values, with the
remainder allocated at CompassLearning's book value as of the date of
acquisition. The application of the purchase method
F-52
<PAGE>
COMPASSLEARNING, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
17. UNALLOCATED PURCHASE CONSIDERATION (CONTINUED)
resulted in an allocation of the excess purchase consideration over historical
carryover basis of CompassLearning ("unallocated purchase consideration") of
approximately $17,981.
18. EMPLOYEE BENEFIT PLANS
STOCK APPRECIATION RIGHTS PLAN
In February 1999, the Board of Directors adopted the 1998 Stock Appreciation
Rights Plan (the "Plan"). Stock Appreciation Rights ("SAR(s)") in the aggregate
of 1,500,000 were created and approximately 1,000,000 SARs, at a base value, as
determined by the Board of Directors, of $4.00, were initially granted to select
employees in 1999. These SARs shall vest according to the following schedule:
50% on the second anniversary of October 1, 1998 and an additional 25% shall
vest on each of the third and fourth anniversaries of October 1, 1998. The SAR
represents the right to receive additional compensation equal to the redemption
price of the SAR based on an enterprise value determined at the sole discretion
of the Board of Directors. SARs shall be redeemed out of available funds upon
certain liquidity events, as defined, or at the discretion of the Board of
Directors.
Additionally, in connection with signing the Stock Appreciation Rights
Agreement, employees waive and surrender any rights and interest in options
previously granted to them under the JLC Learning Holdings Stock Option Plan.
401(K) RETIREMENT PLAN (401(K) PLAN)
The Company has a retirement savings plan covering substantially all
eligible employees. The 401(k) Plan provides for a 33% matching contribution by
the Company, limited to eligible contributions by employees. The Company's
matching contribution to the 401(k) Plan for the years ended December 31, 1996,
1997 and 1998 were $350, $442 and $360, respectively.
19. SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental disclosures of cash flow information:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
------------------------------
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Cash paid during the year for interest...................... $4,686 $2,208 $1,561
Cash paid during the year for income taxes.................. 127 -- --
Non-cash investing and financing activity:
Note payable issued for equity securities (see Note 14)... -- -- 2,251
Equity Securities exchanged for Prepaid Royalty (see Note
12)..................................................... -- -- 2,285
Holdings purchased certain assets of Ideal for a total
purchase price of $5,500. In conjunction with the
acquisition, liabilities were assumed as follows:
Fair value of assets acquired......................... $5,746 -- --
Less cash paid for Ideal.............................. (4,100) -- --
------
Liabilities assumed................................. $1,646
======
</TABLE>
F-53
<PAGE>
COMPASSLEARNING, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
20. RESTRUCTURING
During July 1998 the Company recorded a restructuring charge of $3,012
related to the adoption by the Company of a formal action plan for restructuring
its operations. This restructuring was adopted in an effort to establish a more
competitive cost structure in response to current sales levels.
In connection with the plan in 1998 the Company paid employee severance and
benefit costs of approximately $1,400 when it decreased its workforce by
approximately 90 employees.
As of December 31, 1998, the remaining accrual associated with this
restructuring was approximately $1,400. This accrual consists of estimated
future severance and related obligations of $600; estimated future rent
obligations associated with excess lease space of $600; and an accrual for other
related costs of $200.
21. LIQUIDITY
For the years ended December 31, 1996, 1997 and 1998, the Company reported a
$22,279, $56,204 and $7,773 net loss, respectively. In addition, the Company is
in violation of certain financial covenants in connection with its Senior
Subordinated Debt, and has failed to make quarterly interest payments due on
December 31, 1997 and for each of the four quarters in 1998 on this debt.
Accordingly, the entire amount outstanding under the Senior Subordinated Debt
has been classified as a current liability. In order to address liquidity needs,
the Company has retained outside consultants to render advice regarding various
alternatives available to the Company. These efforts have resulted in the
Company restructuring its operations in July 1998 (see Note 20) and entering
into a definitive agreement to be acquired which will include the retirement of
all of the Company's outstanding debt (see Note 22). In consideration of these
events, management believes that forecasted cash flows from operations and
available credit will be sufficient to sustain the Company's operations for the
next twelve months.
22. SUBSEQUENT EVENT
On July 14, 1999, the Shareholders of the Company and Ripplewood Holdings
L.L.C. ("Ripplewood") entered into a Stock Purchase Agreement, under which
Ripplewood acquired all the issued and outstanding capital stock of the Company.
Under the terms of the agreement, the Company repaid all outstanding debt,
including interest accrued through that date.
Given the fact that all amounts owed under the Company's senior subordinated
debt have been repaid, thereby eliminating the contingencies related to the
Company's violation of certain covenants with respect to these obligations (see
Note 9), management of the Company believes that expected cash flows from
operations and its available line of credit will be sufficient to sustain
operations for the next twelve months.
In May 1999 the Company reached a settlement reducing their guaranteed
minimum royalty commitment by approximately $320 (see Note 12).
In May 1999 the Company entered into an agreement to establish an additional
$1.5 million of available credit on the Company's revolving credit agreement
(see Note 8). The additional available credit is not subject to borrowing base
calculations and when used bears a monthly fee of 1.5% times the average daily
balance for the month, or $3 thousand if greater. The additional available
credit is set to expire on July 15, 1999.
F-54
<PAGE>
COMPASSLEARNING, INC.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, 1999 DECEMBER 31, 1998
------------- -----------------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C>
ASSETS:
Current Assets:
Account receivable, net................................... $ 21,727 $ 21,087
Inventories, net.......................................... 656 1,011
Prepaid expenses.......................................... 1,498 2,743
Investment in marketable securities....................... 39 314
-------- --------
Total current assets.................................. 23,920 25,155
Other Assets:
Software development costs, net........................... 1,858 2,690
Intangible assets, net.................................... 837 959
Deferred financing fees, net.............................. 668 859
Fixed Assets, net......................................... 1,566 2,090
-------- --------
Total assets.......................................... $ 28,849 $ 31,753
======== ========
LIABILITIES AND STOCKHOLDERS' DEFICIT:
Current Liabilities:
Accounts payable.......................................... $ 2,688 $ 2,678
Due to related parties.................................... 1,142 955
Accrued salaries and related items........................ 4,712 5,942
Other accrued liabilities................................. 9,450 9,587
-------- --------
Current Liabilities....................................... 17,992 19,162
Deferred revenue............................................ 16,004 20,936
Term note payable to bank................................... 7,500 --
Senior subordinated notes................................... 17,000 17,000
-------- --------
Total current liabilities............................. 58,496 57,098
Deferred Revenue, net of current portion.................... 1,379 1,723
Due to Related Parties, net of current portion.............. 150 650
Note Payable to Related Party............................... 2,358 2,251
Revolving Line of Credit.................................... 7,643 2,238
Other Long-Term Liabilities................................. 293 818
Term note payable to Bank................................... -- 7,500
-------- --------
Total liabilities..................................... 70,319 72,278
-------- --------
Commitments and Contingencies
Mandatorily Redeemable Class B Preferred Stock.............. 11,769 11,230
-------- --------
Stockholders' Deficit:
Redeemable Class A Preferred Stock........................ -- --
Class A Common Stock...................................... -- --
Additional paid-in capital................................ 75,803 75,803
Accumulated deficit....................................... (111,100) (109,891)
Unallocated purchase consideration........................ (17,981) (17,981)
Cumulative other comprehensive income..................... 39 314
-------- --------
Total stockholders' deficit........................... (53,239) (51,755)
-------- --------
Total liabilities & stockholders' deficit............. $ 28,849 $ 31,753
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed balance sheets.
F-55
<PAGE>
COMPASSLEARNING, INC.
CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- -------------------
1999 1998 1999 1998
-------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Net Revenue:
Software license...................................... $10,667 $12,828 $15,678 $16,995
Service............................................... 7,608 9,403 14,941 17,964
Hardware.............................................. 538 538 1,776 1,834
------- ------- ------- -------
18,813 22,769 32,395 36,793
------- ------- ------- -------
Cost of Products Sold:
Software license...................................... 1,452 1,909 2,653 3,198
Service............................................... 4,492 5,163 8,774 10,880
Hardware.............................................. 374 627 1,245 1,750
------- ------- ------- -------
6,318 7,699 12,672 15,828
------- ------- ------- -------
Gross profit...................................... 12,495 15,070 19,723 20,965
------- ------- ------- -------
Selling and Administrative Expenses:
Sales and marketing................................... 5,752 7,107 10,688 14,120
Research and development.............................. 1,882 2,087 3,601 4,378
General and administrative............................ 1,794 2,534 3,726 4,741
Amortization of intangible assets..................... 61 61 122 122
------- ------- ------- -------
9,489 11,789 18,137 23,361
------- ------- ------- -------
Income (Loss) From Operations........................... 3,026 3,281 1,586 (2,396)
Interest Expense........................................ (1,382) (1,036) (2,661) (1,879)
Other Income............................................ 1 -- 405 --
------- ------- ------- -------
Income (Loss) Before Income Taxes....................... 1,675 2,245 (670) (4,275)
Income Tax Expense...................................... -- -- -- --
------- ------- ------- -------
Net Income (Loss)....................................... 1,675 2,245 (670) (4,275)
Other Comprehensive Income (Loss), net of income tax:
Unrealized holding gains arising during the period.... -- -- 121 --
Less: reclassification adjustment for gains included
in net loss......................................... -- -- (396) --
------- ------- ------- -------
Comprehensive Income (Loss)............................. $ 1,675 $ 2,245 $ (945) $(4,275)
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
F-56
<PAGE>
COMPASSLEARNING, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
30,
-----------------------
1999 1998
-------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Cash Flows From Operating Activities:
Net loss.................................................. $ (670) $(4,275)
Adjustments to reconcile net loss to net cash used in
operating activities--
Depreciation and amortization............................. 1615 1985
Gain on disposition of marketable securities.............. (396) --
Provision for doubtful accounts receivable................ 225 135
Amortization of deferred financing fees................... 191 --
Change in assets and liabilities:
Increase in accounts receivable......................... (865) (806)
Decrease in Inventories, net............................ 356 651
(Increase) decrease in prepaid expenses................. 1,244 (1,698)
Increase in accounts payable............................ 10 857
Decrease in due to related parties...................... (206) (500)
Increase (decrease) in accrued salaries and related
items................................................. (1,230) 544
Decrease in deferred revenue............................ (5,276) (4,541)
Net increase (decrease) in other accrued liabilities and
other long-term liabilities........................... (662) 516
------- -------
Net cash used in operating activities............... (5,664) (7,132)
------- -------
Cash Flows From Investing Activities:
Capital expenditures...................................... (137) (239)
Proceeds from disposition of marketable securities........ 396 --
------- -------
Net cash provided by or (used) in by investing
activities........................................ 259 (239)
------- -------
Cash Flows From Financing Activities:
Increase in due to former parent.......................... -- 28
Increase in notes payable................................. -- 9,643
Increase (decrease) in revolving line of credit, net...... 5,405 (2,092)
Payment of financing fees................................. -- (1,068)
------- -------
Net cash provided by financing activities........... 5,405 6,511
------- -------
Change in Cash.............................................. -- (860)
Cash, beginning of period................................... -- 860
------- -------
Cash, end of period......................................... $ -- $ --
======= =======
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for interest.................. $ 1,040 $ 680
======= =======
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
F-57
<PAGE>
COMPASSLEARNING, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
NOTE 1. BASIS OF PRESENTATION
The condensed financial statements included herein have been prepared pursuant
to the rules and regulations of the Securities and Exchange Commission. The
statements presented do not include all information and footnotes required to be
in conformity with generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring adjustments) considered necessary for a fair presentation
have been included. Results of operations in interim periods are not necessarily
indicative of results for a full year. These condensed financial statements and
notes thereto should be read in conjunction with the CompassLearning, Inc.'s
("CompassLearning" or the "Company," formerly known as Jostens Learning
Corporation or JLC Learning Corporation) financial statements and notes thereto
for the year ended December 31, 1998. The preparation of financial statements in
accordance with generally accepted accounting principles requires management to
make estimates and assumptions. Such estimates and assumptions affect the
reported amounts of assets and liabilities as well as disclosure of contingent
assets and liabilities at the date of the accompanying condensed financial
statements, and the reported amounts of the revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
NOTE 2. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
The Company adopted Statements of Financial Accounting Standards ("SFAS")
No. 130, "Reporting Comprehensive Income," for the year ended December 31, 1998.
SFAS No. 130 requires the Company to measure and disclose all elements of
comprehensive income that result from recognized transactions and other events
in the financial statements. Accordingly, the Company has reported unrealized
gains on marketable securities as a separate component of stockholders' deficit.
The Company adopted SFAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information," on January 1, 1998. In management's opinion, the
Company does not have any reportable segments as defined by SFAS 131.
NOTE 3. REVOLVING CREDIT AGREEMENT
In May 1999, the Company amended its revolving credit agreement (the
"Agreement"), which includes a revolving line of credit with a maximum loan
availability of $20,000, including up to $2,000 of letters of credit. This
amendment permitted the Company, under the line of credit, to receive additional
advances up to $1,500 for the period from May 1, 1999 to July 15, 1999. These
advances bear interest at rates similar to those existing under the line of
credit, but are not subject to the borrowing base calculations, as defined.
NOTE 4. COMMITMENTS AND CONTINGENCIES
LITIGATION
The Company is a party to litigation arising in the normal course of business.
Management regularly analyzes current information and, if necessary, provides
accruals for probable liabilities on the eventual
F-58
<PAGE>
COMPASSLEARNING, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(DOLLARS IN THOUSANDS)
NOTE 4. COMMITMENTS AND CONTINGENCIES (CONTINUED)
disposition of these matters. Management believes that the effect on its results
of operations and financial position, if any, for the disposition of these
matters, will not be material.
ROYALTY AGREEMENTS
The Company had a minimum guaranteed royalty commitment under a software license
agreement of approximately $1,275. In May 1999, the Company reached a settlement
reducing their minimum guaranteed royalty commitment by approximately $320, in
exchange for the Company releasing certain limited exclusivity rights.
NOTE 5. SUBSEQUENT EVENT
On July 14, 1999, Ripplewood Partners, L.P., EAC I, a Delaware corporation,
purchased all the outstanding common stock and preferred stock of the Company.
Concurrent with the closing, the Company's existing revolving line of credit,
term note payable to bank, senior subordinated notes, and note payable to
related party were refinanced with a revolving credit facility of $16,000, a
term loan facility of $3,000 and senior subordinated notes of $19,000
(collectively; the "Existing CompassLearning Indebtedness"), all with new
lenders. Portions of the Existing CompassLearning Indebtedness begin to mature
in July 2000. The Existing CompassLearning Indebtedness was refinanced on
November 17, 1999.
F-59
<PAGE>
COMPASSLEARNING, INC.
CONDENSED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
ASSETS:
CURRENT ASSETS:
Cash...................................................... $ 1,012
Account receivable, net................................... 24,601
Inventories, net.......................................... 866
Prepaid expenses.......................................... 2,885
Investment in marketable securities....................... --
--------
Total current assets.................................... 29,364
OTHER ASSETS:
Software development costs, net........................... 3,371
Intangible assets, net.................................... 1,021
Deferred financing fees, net.............................. 954
FIXED ASSETS, net........................................... 2,171
--------
Total assets............................................ $ 36,881
========
LIABILITIES AND STOCKHOLDERS' DEFICIT:
Current Liabilities:
Accounts payable.......................................... $ 3,697
Due to related parties.................................... 570
Accrued salaries and related items........................ 6,263
Other accrued liabilities................................. 10,494
--------
21,024
Deferred revenue............................................ 22,179
Term note payable to bank................................... 7,500
Senior subordinated notes................................... 17,000
--------
Total current liabilities............................... 67,703
Deferred Revenue, net of current portion.................... 1,879
Due to Related Parties, net of current portion.............. 750
Note Payable to Related Party............................... 2,197
Revolving Line of Credit.................................... 4,865
Other Long-term Liabilities................................. 898
--------
Total liabilities....................................... 78,292
========
Commitments and Contingencies
Mandatorily Redeemable Class B Preferred Stock.............. 10,961
--------
Stockholders' Deficit:
Class A Common Stock........................................
Additional paid-in capital.................................. 75,803
Accumulated deficit......................................... (110,194)
Unallocated purchase consideration.......................... (17,981)
--------
Total stockholders' deficit............................. (52,372)
--------
Total liabilities & stockholders' deficit............... $ 36,881
========
</TABLE>
F-60
<PAGE>
COMPASSLEARNING, INC.
CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, 1998 SEPTEMBER 30, 1998
------------------ ------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Net Revenue
Software license.......................................... $ 6,101 $23,096
Service................................................... 7,772 25,737
Hardware.................................................. 1,393 3,227
------- -------
15,266 52,060
------- -------
Cost of Products Sold
Software license.......................................... 893 4,091
Service................................................... 4,145 15,024
Hardware.................................................. 914 2,664
------- -------
5,952 21,779
------- -------
Gross profit............................................ 9,314 30,281
------- -------
Selling and Administrative Expenses
Sales and marketing....................................... 5,357 19,477
Research and development.................................. 2,015 6,393
General and administrative................................ 1,651 6,392
Restructuring............................................. 3,012 3,012
Amortization of intangible assets......................... 61 184
------- -------
12,096 35,458
------- -------
Income (Loss) From Operations............................... (2,782) (5,177)
Interest Expense............................................ (1,313) (3,193)
Other Income................................................ 24 24
------- -------
Income (Loss) Before Income Taxes........................... (4,071) (8,346)
------- -------
Income Tax Expense.......................................... -- --
------- -------
Net Income (Loss)........................................... (4,071) (8,346)
======= =======
Other Comprehensive Income (Loss), net of income tax
Unrealized holding gains arising during the period........ -- --
Less: reclassification adjustment for gains included in
net loss................................................ -- --
Comprehensive Income (Loss)............................... $(4,071) $(8,346)
======= =======
</TABLE>
F-61
<PAGE>
COMPASSLEARNING, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, 1998
------------------
<S> <C>
Cash Flows from Operating Activities:
Net loss.................................................... $(8,346)
Adjustments to reconcile net loss to net cash used in
operating activities--
Depreciation and amortization............................... 2,922
Gain on disposition of marketable securities................ --
Provision for doubtful accounts receivable.................. 195
Amortization of deferred financing fees and debt discount... 191
Change in assets and liabilities:
Increase in accounts receivable........................... 4,644
Decrease in inventories, net.............................. 184
(Increase) decrease in prepaid expenses................... (1,646)
Increase in accounts payable.............................. 880
Decrease in due to related parties........................ 1,735
Increase (decrease) in accrued salaries and related
items................................................... 875
Decrease in deferred revenue.............................. (5,463)
Net increase (decrease) in other accrued liabilities and
other long-term liabilities............................. 1,518
-------
Net cash used in operating activities................... (2,311)
-------
Cash Flows From Investing Activities:
Capital expenditures...................................... (257)
Software development costs, net........................... --
-------
Net cash provided (used) by investing activities........ (257)
-------
Cash Flows From Financing Activities:
Increase in due to former parent.......................... --
Increase in notes payable................................. 7,500
(Decrease) in revolving line of credit, net............... (3,635)
(Increase) in financing fees.............................. (1,145)
-------
Net cash provided by financing activities............... 2,720
-------
CHANGE IN CASH
Cash, beginning of period................................... 152
Cash, end of period......................................... 860
-------
$ 1,012
=======
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for interest.................. $ 1,040
=======
</TABLE>
F-62
<PAGE>
COMPASSLEARNING, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
NOTE 1. BASIS OF PRESENTATION
The condensed financial statements included herein have been prepared pursuant
to the rules and regulations of the Securities and Exchange Commission. The
statements presented do not include all information and footnotes required to be
in conformity with generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring adjustments) considered necessary for a fair presentation
have been included. Results of operations in interim periods are not necessarily
indicative of results for a full year. These condensed financial statements and
notes thereto should be read in conjunction with the CompassLearning, Inc.'s
("CompassLearning" or the "Company," formerly known as Jostens Learning
Corporation or JLC Learning Corporation) financial statements and notes thereto
for the year ended December 31, 1998. The preparation of financial statements in
accordance with generally accepted accounting principles requires management to
make estimates and assumptions. Such estimates and assumptions affect the
reported amounts of assets and liabilities as well as disclosure of contingent
assets and liabilities at the date of the accompanying condensed financial
statements, and the reported amounts of the revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
NOTE 2. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
The Company adopted Statements of Financial Accounting Standards ("SFAS")
No. 130, "Reporting Comprehensive Income," for the year ended December 31, 1998.
SFAS No. 130 requires the Company to measure and disclose all elements of
comprehensive income that result from recognized transactions and other events
in the financial statements. Accordingly, the Company has reported unrealized
gains on marketable securities as a separate component of stockholders' deficit.
The Company adopted SFAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information," on January 1, 1998. In management's opinion, the
Company does not have any reportable segments as defined by SFAS 131.
NOTE 3. REVOLVING CREDIT AGREEMENT
In May 1999, the Company amended its revolving credit agreement (the
"Agreement"), which includes a revolving line of credit with a maximum loan
availability of $20,000, including up to $2,000 of letters of credit. This
amendment permitted the Company, under the line of credit, to receive additional
advances up to $1,500 for the period from May 1, 1999 to July 15, 1999. These
advances bear interest at rates similar to those existing under the line of
credit, but are not subject to the borrowing base calculations, as defined.
NOTE 4. COMMITMENTS AND CONTINGENCIES
LITIGATION
The Company is a party to litigation arising in the normal course of business.
Management regularly analyzes current information and, if necessary, provides
accruals for probable liabilities on the eventual disposition of these matters.
Management believes that the effect on its results of operations and financial
position, if any, for the disposition of these matters, will not be material.
F-63
<PAGE>
COMPASSLEARNING, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(DOLLARS IN THOUSANDS)
NOTE 4. COMMITMENTS AND CONTINGENCIES (CONTINUED)
ROYALTY AGREEMENTS
The Company had a minimum guaranteed royalty commitment under a software license
agreement of approximately $1,275. In May 1999, the Company reached a settlement
reducing their minimum guaranteed royalty commitment by approximately $320, in
exchange for the Company releasing certain limited exclusivity rights.
NOTE 5. SUBSEQUENT EVENT
On July 14, 1999, Ripplewood Partners, L.P., EAC I, a Delaware corporation,
purchased all the outstanding common stock and preferred stock of the Company.
Concurrent with the closing, the Company's existing revolving line of credit,
term note payable to bank, senior subordinated notes, and note payable to
related party were replaced with a revolving credit facility of $16,000, a term
loan facility of $3,000 and senior subordinated notes of $19,000 (collectively;
the "Existing CompassLearning Indebtedness"), all with new lenders. Portions of
the Existing CompassLearning Indebtedness begin to mature in July 2000. On
November 17, 1999, approximately $25,499 the entire existing CompassLearning
Indebtedness, was refinanced.
F-64
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To WRC Media Inc. and
Ripplewood Holding, L.L.C.:
We have audited the accompanying balance sheet of WRC MEDIA INC. (formerly EAC
II, INC.) and subsidiary (a Delaware corporation) (the "Company") as of
September 30, 1999, and the related statements of operations and comprehensive
loss, and cash flows for the period from July 14, 1999 (commencement of
operations) to September 30, 1999, and the related statement of stockholders'
equity for the period from May 14, 1999 (inception) to September 30, 1999, and
the accompanying statements of operations and comprehensive loss, stockholders'
deficit and cash flows of the Company's predecessor, CompassLearning, Inc., for
the period from January 1, 1999 to July 13, 1999. These financial statements are
the responsibility of the Companies' management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Company as of
September 30, 1999, and the results of the Company's and its predecessor's
operations and cash flows for the periods from July 14, 1999 to September 30,
1999 and from January 1, 1999 to July 13, 1999, respectively, in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Phoenix, Arizona,
November 17, 1999
F-65
<PAGE>
WRC MEDIA INC. AND SUBSIDIARY
BALANCE SHEET
SEPTEMBER 30, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
ASSETS
Current Assets:
Cash...................................................... $ 258
Accounts Receivable, Net of Allowance for Doubtful
Accounts of $768........................................ 19,004
Inventories, net.......................................... 624
Prepaid Expenses.......................................... 1,595
Investment in Marketable Securities....................... 23
--------
Total Current Assets.................................... 21,504
Other Assets:
Purchased Software, Net............................. 7,063
Other Acquired Intangible Assets, Net............... 46,383
Deferred Financing Fees, Net........................ 1,937
Fixed Assets, net........................................... 1,601
--------
$ 78,488
========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable.......................................... $ 2,203
Accrued salaries and related Items........................ 6,983
Other accrued liabilities................................. 5,977
Current portion of deferred revenue....................... 16,018
--------
Total current liabilities............................... 31,181
Deferred Revenue, Net of Current Portion.................... 941
Revolving Line of Credit.................................... 5,000
Term Note Payable to Bank................................... 3,000
Senior Subordinated Notes, Net.............................. 17,499
Other Long-Term Liabilities................................. 319
--------
Total Liabilities....................................... 57,940
--------
Commitments and Contingencies
Stockholders' Equity:
Class A Common Stock, $0.01 Par Value; 3,000,000 Shares
Authorized, 1,434,900 Shares Issued and Outstanding....... 14
Additional Paid-in Capital.................................. 30,844
Accumulated Deficit......................................... (10,296)
Cumulative Other Comprehensive Loss......................... (14)
--------
Total Stockholders' Equity.............................. 20,548
--------
$ 78,488
========
</TABLE>
The accompanying notes are an integral part of this balance sheet.
F-66
<PAGE>
WRC MEDIA INC. AND SUBSIDIARY WITH PREDECESSOR
STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(DOLLARS IN THOUSANDS)
<TABLE>
COMPANY
PREDECESSOR JULY 14,
JANUARY 1, 1999 TO
1999 TO SEPTEMBER
JULY 13, 30,
1999 1999
------- --------
<S> <C> <C>
Net Revenue:
Software license.......................................... $16,231 $ 7,821
Service................................................... 16,123 6,291
Hardware.................................................. 1,669 735
------- --------
34,023 14,847
------- --------
Cost of Products Sold:
Software license.......................................... 2,783 1,379
Service................................................... 9,295 3,607
Hardware.................................................. 1,296 343
------- --------
13,374 5,329
------- --------
Gross profit............................................ 20,649 9,518
------- --------
Selling and Administrative Expenses:
Sales and marketing....................................... 11,038 4,971
Research and development.................................. 3,831 1,824
Write-off of purchased in-process research and
development............................................. -- 9,000
General and administrative................................ 3,978 1,382
Amortization of intangible assets......................... 131 1,739
------- --------
18,978 18,916
------- --------
Income (Loss) From Operations............................... 1,671 (9,398)
Interest Expense............................................ (2,854) (914)
Other Income, Net........................................... 405 16
------- --------
Loss Before Income Taxes.................................... (778) (10,296)
Income Tax Expense.......................................... -- --
------- --------
Net Loss.................................................... (778) (10,296)
Other Comprehensive Loss, Net of Income Tax:
Unrealized Holding Gain (Loss) Arising During The
period.................................................. 119 (14)
Less: reclassification adjustment for gains included in
net loss................................................ (396) --
Comprehensive Loss.......................................... $(1,055) $(10,310)
======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-67
<PAGE>
WRC MEDIA INC. AND SUBSIDIARY WITH PREDECESSOR
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD FROM JANUARY 1, 1999 TO JULY 13, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
MANDATORILY
REDEEMABLE REDEEMABLE
CLASS B CLASS A CLASS A
PREFERRED STOCK PREFERRED STOCK COMMON STOCK ADDITIONAL
------------------- ------------------- ------------------- PAID-IN ACCUMULATED
PREDECESSOR SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT
- ----------- -------- -------- -------- -------- -------- -------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1998......... 10,000 $11,230 20,000 $ -- 1,000 $ -- $75,803 $(109,894)
Accrued dividends on mandatorily
redeemable preferred stock..... -- 500 -- -- -- -- -- (500)
Accretion of stock issuance costs
and related discount........... -- 39 -- -- -- -- -- (39)
Comprehensive loss............... -- -- -- -- -- -- -- --
Net loss......................... -- -- -- -- -- -- -- (778)
------ ------- ------ ------- ----- ------- ------- ---------
BALANCE, July 13, 1999............. 10,000 $11,769 20,000 $ -- 1,000 $ -- $75,803 $(111,211)
====== ======= ====== ======= ===== ======= ======= =========
<CAPTION>
CUMULATIVE
UNALLOCATED OTHER
PURCHASE COMPREHENSIVE
PREDECESSOR CONSIDERATION INCOME TOTAL
- ----------- ------------- -------------- --------
<S> <C> <C> <C>
BALANCE, December 31, 1998......... $(17,981) $ 314 $(40,528)
Accrued dividends on mandatorily
redeemable preferred stock..... -- -- --
Accretion of stock issuance costs
and related discount........... -- -- --
Comprehensive loss............... -- (277) (277)
Net loss......................... -- -- (778)
-------- ----- --------
BALANCE, July 13, 1999............. $(17,981) $ 37 $(41,583)
======== ===== ========
</TABLE>
FOR THE PERIOD FROM MAY 14, 1999 (INCEPTION) TO SEPTEMBER 30, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
CLASS A
COMMON STOCK ADDITIONAL CUMULATIVE OTHER TOTAL
-------------------- PAID-IN ACCUMULATED COMPREHENSIVE STOCKHOLDERS
COMPANY SHARES AMOUNT CAPITAL DEFICIT LOSS EQUITY
- ------- --------- -------- ---------- ------------ ---------------- ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, May 14, 1999 (inception)............ -- $-- $ -- $ -- $ -- $ --
Issuance of Class A Common Stock........... 1,434,900 14 28,684 -- -- 28,698
Issuance of warrants....................... -- -- 2,160 -- -- 2,160
Comprehensive loss......................... -- -- -- -- (14) (14)
Net loss................................... -- -- -- (10,296) (10,296)
--------- --- ------- -------- ---- --------
BALANCE, September 30, 1999.................. 1,434,900 $14 $30,844 $(10,296) $(14) $ 20,548
========= === ======= ======== ==== ========
</TABLE>
The accompanying notes are an integral part of these financial statements
F-68
<PAGE>
WRC MEDIA INC. AND SUBSIDIARY WITH PREDECESSOR
STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMPANY
PREDECESSOR JULY 14, 1999 TO
JANUARY 1, 1999 SEPTEMBER 30,
TO JULY, 13, 1999 1999
----------------- ----------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net loss.................................................. $ (778) $(10,296)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities--
Depreciation and amortization........................... 1,713 2,216
Write off of purchased in-process research and
development........................................... -- 9,000
Gain on disposition of marketable securities............ (396) --
Provision for doubtful accounts receivable.............. 225 (20)
Amortization of deferred financing fees and debt
discount.............................................. 204 185
Changes in assets and liabilities, net of effect of
business acquired:
Decrease in accounts receivable....................... 966 170
Decrease in inventories, net.......................... 269 118
Decrease (increase) in prepaid expenses............... 1,107 (271)
(Decrease) increase in accounts payable............... (554) 79
Decrease in accrued salaries and related items........ (144) (848)
(Decrease) increase in deferred revenue............... (6,267) 909
Net (decrease) increase in other accrued liabilities
and other long-term liabilities..................... (908) 221
------ --------
Net cash provided by (used in) operating activities... (4,563) 1,463
------ --------
Cash Flows From Investing Activities:
Purchase of acquired business............................. -- (55,493)
Capital expenditures...................................... (142) (167)
Proceeds from disposition of marketable securities........ 396 --
Investment in tradename................................... -- (375)
------ --------
Net cash provided by (used in) investing activities... 254 (56,035)
------ --------
Cash Flows From Financing Activities:
Proceeds from issuance of common stock.................... -- 28,698
Increase in revolving line of credit, net................. 4,904 5,000
Proceeds from increase in senior subordinated notes....... -- 19,000
Proceeds from term loan................................... -- 3,000
Payment of financing fees................................. -- (1,463)
------ --------
Net cash provided by financing activities............. 4,904 54,235
------ --------
Change in Cash.............................................. 595 (337)
Cash, beginning of period................................... -- 595
------ --------
Cash, end of period......................................... $ 595 $ 258
====== ========
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for interest.................. $ 925 $ 101
====== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-69
<PAGE>
WRC MEDIA INC. AND SUBSIDIARY WITH PREDECESSOR
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 1. NATURE OF BUSINESS
The accompanying consolidated financial statements include the accounts of WRC
Media Inc. (formerly EAC II INC.), and its wholly owned subsidiary, (the
"Company"), CompassLearning, Inc. ("CompassLearning") (formerly EAC I, INC.,
Jostens Learning Corporation or JLC Learning Corporation), a provider of
technology-based educational programs to school districts for kindergarten
through twelfth grade.
CompassLearning operates in the education software industry and management
believes it has maintained a leadership position among a multitude of providers.
CompassLearning's products and services include fully integrated software
systems, standalone CD ROM delivery, and a full service offering, including
installation, teacher training, onsite and remote diagnostics and maintenance.
CompassLearning focuses its market efforts in the United States and several U.S.
territories, and is exploring opportunities in international markets.
CompassLearning's selling and distribution efforts include a direct sales force,
telemarketing and catalog sales.
The Company's Predecessor (the "Predecessor") was acquired by the Company on
July 14, 1999 (the "Purchase Date"). The Company's consolidated statement of
operations and comprehensive loss and cash flows for the period from July 14,
1999 to September 30, 1999 include the operations of the Predecessor since the
Purchase Date. The SEC staff deems an acquired business to be a predecessor when
the registrant is in substantially the same business of the entity acquired and
the registrant's own operations prior to the acquisition appear insignificant
relative to the business acquired. A predecessor must present audited financial
statements for the interim period between the predecessor's most recent year-end
and the date of the acquisition by the registrant. Accordingly, the accompanying
financial statements for the period from January 1, 1999 to July 13, 1999 of the
Predecessor, and for the period from July 14, 1999 to September 30, 1999 of the
Company are presented. The purchase method of accounting was used to record
assets acquired and liabilities assumed by the Company. Such accounting
generally results in increased amortization and depreciation reported in future
periods. Accordingly, the accompanying financial statements of the Predecessor
and the Company are not comparable in all material respects since those
financial statements report financial position, results of operations, and cash
flows of two separate entities.
FORMATION OF THE COMPANY
The Company and its subsidiary, EAC I, INC., were incorporated on May 14 1999
and May 12, 1999, respectively, for the purpose of acquiring the Predecessor.
The acquisition was consummated by EAC I, INC. merging with the Predecessor,
with EAC I, INC. being the surviving entity. EAC I, INC. then changed its name
to CompassLearning.
ACQUISITION OF THE PREDECESSOR
On July 14, 1999, the Company purchased all the outstanding common stock and
preferred stock of the Predecessor for approximately $55,200. The purchase price
and acquisition costs were funded by approximately $28,700 in equity
contributions, and a senior credit facility and senior subordinated notes of
approximately $29,537. There was approximately $350 in cash after the
acquisition. Concurrent with the closing, the Predecessor's existing line of
credit, term note payable to the bank, senior subordinated notes and notes
payable to related parties were refinanced (see Note 8).
F-70
<PAGE>
WRC MEDIA INC. AND SUBSIDIARY WITH PREDECESSOR
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 1. NATURE OF BUSINESS (CONTINUED)
The acquisition of the Predecessor was accounted for using the purchase method
of accounting. The total cost of the acquisition of $57,887 (including $2,687 of
acquisition costs) was allocated, on a preliminary basis which is subject to
adjustment, to assets and liabilities based on an independent valuation of their
estimated fair values as of the Purchase Date as follows:
<TABLE>
<S> <C>
Net liabilities assumed..................................... $(6,290)
Purchased software.......................................... 7,430
In-process research and development......................... 9,000
Other intangible assets..................................... 24,700
Goodwill.................................................... 23,047
-------
$57,887
=======
</TABLE>
Included in net liabilities assumed are obligations related to bonuses payable
as a result of the acquisition and Stock Appreciation Rights ("SARs") (see
Note 12).
During the period from July 14, 1999 to September 30, 1999, the Company
recognized a $9,000 charge related to the write-off of purchased in-process
research and development ("R&D") costs acquired in connection with the
acquisition described above.
The nature of the efforts required to develop the acquired in-process
technologies into commercially viable products principally relate to the
completion of all planning, designing, coding, and testing activities that are
necessary to establish that the products can be produced to meet their design
requirements, including functions, features and technical and economic
performance requirements.
The valuation of the acquired in-process research and development was predicated
on the determination that the developmental projects at the time of the
acquisition were not technologically feasible and had no alternative future use.
This conclusion was attributable to the fact that the Company had not completed
a working model that had been tested and proven to work at performance levels
which were expected to be commercially viable and that the technologies of the
projects have no alternative use other than as a software application. The value
is attributable solely to the development efforts completed as of the
acquisition date.
As of the acquisition date, the Predecessor's significant ongoing R&D projects
included the development of:
- Curriculum: Next-generation reading system (5-8)
- Assessment: Web-based JCAT platform
- Management: Compass 4.x and Compass 5.0 (next-generation)
The Company allocated values to the in-process R&D based on an assessment by an
independent valuation expert of the R&D projects. The value assigned to these
assets was limited to significant research projects for which technological
feasibility had not been established, including development, engineering and
testing activities associated with the introduction of the Predecessor's
next-generation Internet-based technologies and products.
The value assigned to purchased in-process technology was determined by
estimating the costs to develop the purchased in-process technology into
commercially viable products, estimating the resulting
F-71
<PAGE>
WRC MEDIA INC. AND SUBSIDIARY WITH PREDECESSOR
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 1. NATURE OF BUSINESS (CONTINUED)
net cash flows from the projects, and discounting the net cash flows to their
present value. The present value calculations were then adjusted to reflect the
estimated percent complete of each project, a procedure designed to reflect the
value creation efforts of the target companies prior to the close of the
acquisition.
The developmental projects were evaluated in the context of Statement of
Financial Accounting Standards ("SFAS") No. 2, ACCOUNTING FOR RESEARCH AND
DEVELOPMENT COSTS, including its related interpretation, and SFAS No. 86,
ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE TO BE SOLD LEASED, OR OTHERWISE
MARKETED,. In-process R&D involves products which fall under the following
definitions of R&D (as defined in SFAS No. 2):
- Research is defined as the planned search or critical investigation aimed
at discovery of new knowledge with the hope that such knowledge will be
useful in developing a new product, service, process, or technique, or in
bringing about a significant improvement to an existing product or
process.
- Development is defined as the translation of research findings or other
knowledge into a plan or design for a new product or process or for a
significant improvement to an existing product or process whether intended
for sale or use. It includes the conceptual formulation, design, and
testing of product alternatives, construction of prototypes, and operation
of pilot plants.
Activities specifically excluded from R&D include engineering follow-through in
an early phase of commercial production; routine, ongoing efforts to refine or
enhance an existing product; and the adaptation of existing capabilities to a
particular customer's needs.
In order to calculate the value of the in-process R&D, the income approach was
employed. Each of the significant ongoing R&D projects was identified and valued
through interviews and analysis of product development data provided by
management concerning project descriptions, their respective stage of
development, the time and resources needed to complete the projects, expected
income generating ability, and associated risks. Of the $9,000 in-process R&D
write-off, $220, $80 and $8,700 was allocated to the management, assessment, and
curriculum described above.
The resulting cash flows were discounted to their present value by applying
appropriate discount rates considering each asset's relative risk. The discount
rate selected for the in-process technologies was 20%. In the selection of the
appropriate discount rate, consideration was given to the weighted average cost
of capital. The discount rate utilized for the in-process technologies was
higher than the Company's overall rates of return due to the risk of realizing
cash flows from products that had yet to reach technological feasibility. The
returns on all the acquired assets were established and weighted to ensure the
rates were reasonable in the context of the overall required return.
Accordingly, the assets, including in-process R&D, and liabilities, are recorded
based on their fair values at the date of acquisition and the results of
operations for the acquisition has been included in the financial statements for
the periods subsequent to acquisition. The Company allocated the fair values of
the net assets acquired between acquired in-process R&D, developed technology
and goodwill.
F-72
<PAGE>
WRC MEDIA INC. AND SUBSIDIARY WITH PREDECESSOR
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 1. NATURE OF BUSINESS (CONTINUED)
UNAUDITED PROFORMA INFORMATION
The following unaudited proforma information includes the combined results of
operations of the Company and its Predecessor for the period from January 1,
1999 to September 30, 1999 and gives effect to the acquisition of the
Predecessor as if it had been consummated on January 1, 1999.
<TABLE>
<S> <C>
Net revenue................................................. $48,870
Loss from operations........................................ (2,594)
Net loss.................................................... (2,087)
</TABLE>
The unaudited pro forma information excludes the effect of the approximate
$9,000 charge related to the write off of purchased in-process research and
development and has been adjusted for interest expense, depreciation and
amortization expense resulting from the acquisition. The unaudited pro forma
information is provided for illustrative purposes only and is not necessarily
indicative of the combined results of operations that would have been achieved
had the acquisition occurred on the date indicated, nor does it purport to
project the results of operations of the Company for the year or for any future
period.
ACQUISITION OF THE SUPPLEMENTAL EDUCATIONAL GROUP OF PRIMEDIA INC.
On November 17, 1999, the Company completed the Recapitalization of
PRIMEDIA Inc. ("PRIMEDIA") Supplemental Education Group, consisting of the
businesses of Weekly Reader, American Guidance and World Almanac and their
respective subsidiaries (collectively known as "Weekly Reader"), and certain
other related transactions (the "Recapitalization"). Upon consummation of this
transaction, the Company acquired 94.9% of Weekly Reader's outstanding common
stock with PRIMEDIA retaining the remaining 5.1%. As a result of the retained
ownership of Weekly Reader's original shareholders, push-down accounting to
Weekly Reader was not required. Therefore, approximately $246,299 of goodwill
has been recorded and will remain on the books of the Company related to the
Recapitalization. Weekly Reader will expense approximately $900 in
November 1999 related to expenses for the Recapitalization. The Company, Weekly
Reader, American Guidance and World Almanac will have no outstanding
indebtedness, other than the indebtedness described below.
To finance the Recapitalization and repayment of the Company's existing
indebtedness:
(1) The Company issued 152,000 units consisting of a 12.75% senior
subordinated notes and 205,656 shares of the Company's common stock for
proceeds of $152,000;
(2) Certain Company subsidiaries entered into new senior secured bank credit
facilities, providing for credit facilities of up to $161,000. These
consisted of two term loans which totaled $131,000 and a revolving credit
facility of $30,000. The revolving credit facility was not used at the
closing of the Recapitalization;
(3) The Company issued to a merchant bank and certain of its affiliates,
$75,000 of senior accreting preferred stock which included warrants to
acquire 13.0% of the common stock of Weekly Reader and 13.0% of the
common stock of CompassLearning; and
(4) The Company will issue $95,000 in common stock in exchange for the cash
equity contribution of certain existing stockholders or their designees.
F-73
<PAGE>
WRC MEDIA INC. AND SUBSIDIARY WITH PREDECESSOR
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 1. NATURE OF BUSINESS (CONTINUED)
The lenders who provided the Senior Credit Facility and Senior Subordinated
Notes of the Company (see Note 8) exercised their warrants and the common stock
received was contributed to a partnership of an existing stockholder for certain
membership interests in that partnership.
In connection with the Recapitalization described above, the Company will incur
an extraordinary charge, net of income taxes, related to the extinguishment of
the Senior Credit Facility and the Senior Subordinated Notes of approximately
$3,326.
In connection with the Recapitalization described above, the Company authorized
CompassLearning to enter into a new management agreement (see Note 11) with
Ripplewood Holdings, L.L.C. ("Ripplewood"). This new agreement begins on
January 1, 2001, and provides for payments to Ripplewood of $150 per year.
Additionally, the Company authorized Weekly Reader to enter into a management
agreement with Ripplewood that provides for payments to Ripplewood of $800 per
year. In return for these payments, CompassLearning and Weekly Reader will
receive management consulting and financial advisory services.
In connection with the Recapitalization described above, the Company entered
into several new employment agreements with its executives. These agreements
included provisions that required the executives to purchase shares from the
Company, authorized the issuance of stock options, some that are fixed and
others that are performance-based, and provided certain executives the right to
put their shares back to the Company under certain circumstances.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements.
Actual results could differ from those estimates.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined on the
first-in, first-out ("FIFO") basis. The Company periodically evaluates the
realizability of inventories and adjusts its reserve as necessary.
INVESTMENT IN MARKETABLE SECURITIES
The Company classifies its investment in marketable securities as available for
sale. Accordingly, the investment is recorded at fair value with unrealized
gains or losses, net of the related tax effect, excluded from income and
reported as other comprehensive income (loss).
SOFTWARE DEVELOPMENT COSTS
In accordance with SFAS No. 86, the Company capitalizes software development
costs by project commencing when technological feasibility is established and
concluding when the product is ready for commercial release. Additionally, the
Company capitalizes acquired technologies that meet the provisions of SFAS
No. 86. The establishment of technological feasibility and the ongoing
assessment of
F-74
<PAGE>
WRC MEDIA INC. AND SUBSIDIARY WITH PREDECESSOR
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
the recoverability of these costs require considerable judgment by management
with respect to certain external factors, including, but not limited to,
anticipated future gross product revenues, estimated economic product lives and
changes in software and hardware technology. Software development costs are
amortized on a straight-line basis over four years or the expected life of the
product, whichever is less. The Company periodically evaluates the net
realizable value of capitalized software development costs based on factors such
as budgeted sales, product development cycles and management's market emphasis.
R&D costs are charged to expense when incurred.
INTANGIBLE ASSETS
Intangible assets include goodwill, tradenames, trademark, customer lists and
workforce in place. Goodwill represents the excess of the purchase price over
the fair value of assets acquired as a result of the acquisition of the
Predecessor by the Company on July 14, 1999.
DEFERRED FINANCING FEES
Deferred financing fees are direct costs paid by the Company in connection with
their revolving credit agreement (see Note 8). These costs are being amortized
over the term of the related debt. Amortization for the period from January 1,
1999 to July 13, 1999 was approximately $204 and for the period from July 14,
1999 to September 30, 1999, was approximately $143. Accumulated amortization as
of September 30, 1999 was $143.
FIXED ASSETS
Fixed assets are recorded at cost and depreciated over the estimated useful
lives of the related assets. Depreciation is provided principally on the
straight-line method for financial reporting purposes and on accelerated methods
for income tax purposes. Leasehold improvements are depreciated over the shorter
of their useful life or lease term.
LONG-LIVED ASSETS
The Company periodically evaluates the carrying value of long-lived assets in
accordance with SFAS No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS
AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF. Under SFAS No. 121, long-lived
assets and certain identifiable intangible assets, including goodwill, are
reviewed for impairment whenever events or circumstances indicate that the
carrying amount of an asset may not be fully recoverable. An impairment loss is
recognized if the sum of the expected long-term undiscounted cash flows is less
than the carrying amount of the long-lived assets being evaluated.
REVENUE RECOGNITION
The Company recognizes revenues in accordance with the provisions of Statement
of Position ("SOP") 97-2, SOFTWARE REVENUE RECOGNITION, as amended by SOP 98-4,
DEFERRAL OF THE EFFECTIVE DATE OF CERTAIN PROVISIONS of SOP 97-2. Under SOP
97-2, the Company recognizes revenue for hardware and software sales upon
shipment of the product, provided collection of the receivable is probable,
payment is due within one year and the fee is fixed or determinable. If an
acceptance period is required, revenues are recognized upon the earlier of
customer acceptance or the expiration of the acceptance period. If
F-75
<PAGE>
WRC MEDIA INC. AND SUBSIDIARY WITH PREDECESSOR
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
significant post-delivery obligations exist or if a product is subject to
customer acceptance, revenues are deferred until no significant obligations
remain or acceptance has occurred. Revenue from service contracts, instruction
and user training is recognized ratably as the services are performed and
post-contract support is recognized ratably over the related contract. Deferred
revenue represents the Company's obligation to perform under signed contracts.
For contracts with multiple obligations (e.g., deliverable and undeliverable
products, maintenance and other services), the Company allocates revenue to each
component of the contract based on vendor specific objective evidence of its
fair value, which is specific to the Company, or for products not being sold
separately, the price established by management. The Company recognizes revenue
allocated to undelivered products when the criteria for product revenue set
forth above are met.
Several of the Company's customers are subject to fiscal funding requirements.
If the funding requirements are subject to governmental approval, the likelihood
of cancellation is assessed. If the likelihood of cancellation is assessed as
remote, revenue is recognized. If the likelihood of cancellation is assessed as
other than remote, revenue is deferred. If the funding requirements are subject
to non-governmental approval, revenue is deferred and recognized in accordance
with the remaining provisions of SOP 97-2.
INCOME TAXES
The Company accounts for income taxes in accordance with SFAS No. 109,
ACCOUNTING FOR INCOME TAXES, which requires the recognition of deferred tax
liabilities and assets for the expected future tax consequences of temporary
differences between the carrying amounts and the tax basis of assets and
liabilities. A valuation allowance is required to offset any net deferred tax
assets if, based upon the available evidence, it is more likely than not that
some or all of the deferred tax asset will not be realized. The Company will
consider the elimination of the valuation allowance when available evidence
indicates the deferred assets will be realized.
ADVERTISING
Advertising costs are expensed as incurred. Advertising expense was
approximately $509 for the period from January 1, 1999 to July 13, 1999 and $383
for the period from July 14, 1999 to September 30, 1999.
SEGMENT REPORTING
The Company has determined that it has three reportable segments in accordance
with SFAS No. 131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED
INFORMATION. These three segments are software licenses, service and hardware.
These segments are separately stated in the accompanying statements of
operations and comprehensive loss. The Company does not allocate selling and
administrative expenses to these individual segments and reviews them
individually on a gross margin basis only. The Company does not track individual
balance sheet information for its three reportable segments and, therefore, has
not provided separate balance sheet and cash flow information for each of the
reportable segments.
F-76
<PAGE>
WRC MEDIA INC. AND SUBSIDIARY WITH PREDECESSOR
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 3. INVENTORIES
Inventories at September 30, 1999, are as follows:
<TABLE>
<S> <C>
Materials and supplies...................................... $166
Finished products, net...................................... 458
----
$624
====
</TABLE>
NOTE 4. PURCHASED SOFTWARE
Purchased software at September 30, 1999, are as follows:
<TABLE>
<S> <C>
Purchased software.......................................... $7,430
Less--accumulated amortization.............................. (367)
------
$7,063
======
</TABLE>
Amortization of purchased software and capitalized software development costs
are included in cost of products sold and was approximately $887 for the period
from January 1, 1999 to July 13, 1999 and $367 for the period from July 14, 1999
to September 30, 1999. In prior periods, the Predecessor recorded additional
charges to reduce capitalized software costs to their net realizable value.
NOTE 5. OTHER ACQUIRED INTANGIBLE ASSETS
Intangible assets at September 30, 1999, are as follows:
<TABLE>
<CAPTION>
LIFE
----
<S> <C> <C>
Tradename....................... 4 years......................... $ 3,520
Customer list................... 7 years......................... 18,200
Workforce in place.............. 3 years......................... 2,980
Trademark....................... 18 months....................... 375
Goodwill........................ 7 years......................... 23,047
-------
48,122
Less--accumulated amortization.................................... (1,739)
-------
$46,383
=======
</TABLE>
F-77
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 6. FIXED ASSETS
Fixed assets at September 30, 1999, are as follows:
<TABLE>
<S> <C>
Computer equipment.......................................... $1,429
Leasehold improvements...................................... 98
Other furniture and fixtures................................ 184
------
1,711
Less--accumulated depreciation.............................. (110)
------
$1,601
======
</TABLE>
Estimated useful lives for all fixed assets are three years. Depreciation
expense was approximately $695 for the period from January 1, 1999 to July 13,
1999 and $117 for the period from July 14, 1999 to September 30, 1999.
NOTE 7. OTHER ACCRUED LIABILITIES
Other accrued liabilities at September 30, 1999 are as follows:
<TABLE>
<S> <C>
Customer deposits........................................... $1,017
Royalties................................................... 1,168
Other....................................................... 3,792
------
$5,977
======
</TABLE>
NOTE 8. DEBT
SENIOR CREDIT FACILITY
The Company's Senior Credit Facility includes a revolving line of credit (the
"Line of Credit") with a maximum loan availability of $16,000, including up to
$2,000 of letters of credit, and a $3,000 term loan ("Term Loan"). At
September 30, 1999, $5,000 was outstanding on the Line of Credit, with an
additional $7,400 of the $16,000 available due to minimum borrowing base
calculations. There were no letters of credit outstanding under the Line of
Credit, and $3,000 was outstanding on the Term Loan. Advances under the Line of
Credit are limited to 70% of the book value of eligible accounts receivable, as
defined. The Senior Credit Facility is secured by all personal property, assets
and intellectual property of the Company. The Senior Credit Facility requires
the Company to meet certain financial covenants, including a consolidated senior
leverage ratio, consolidated fixed charge ratio, minimum consolidated earnings
before interest, taxes, depreciation and amortization ("EBITDA").
Principal on the Line of Credit is due on July 13, 2002. Principal on the Term
Loan is repayable in 24 equal monthly installments of $125 commencing July 31,
2000. Interest on borrowings under the Senior Credit Facility is computed at the
prime lending rate, as most recently announced by Bank of America, N.A. (8%
effective rate as of September 30, 1999), plus 0% to 0.5%, or Eurodollar Rate,
plus 2.25% to 2.75% depending on the consolidated senior leverage ratio, and is
generally payable quarterly. The Company is subject to a commitment fee computed
at a rate equal to 0.5% of the average daily unutilized commitment under the
Line of Credit.
F-78
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 8. DEBT (CONTINUED)
In connection with the issuance of the Senior Credit Facility, the lender
received 30,858 warrants to acquire a specified number of Class A common stock
of the Company. The value ascribed to the warrants of $617 was recorded as
deferred financing fees and is being amortized over three years as additional
interest expense. The warrants expire on July 13, 2009.
SENIOR SUBORDINATED NOTES
The Company has $19,000 in senior subordinated notes ("Notes") outstanding which
bear interest at 13.375%. Principal of $6,333 is due in three annual payments,
commencing on July 13, 2005, and interest is payable quarterly. The Notes are
secured by the same collateral as the Senior Credit Facility. The Notes require
the Company to meet certain financial covenants, including restrictions on new
debt, a minimum interest coverage ratio, and a total consolidated debt to
consolidated EBITDA ratio.
In connection with the issuance of the Notes, the lender received 77,145
warrants to acquire a specified number of Class A common stock of the Company.
The value ascribed to the warrants of $1,543 was recorded as a discount from the
face value of the Notes and is being amortized over the term of the Notes as
additional interest expense. The unamortized discount on the Notes was $1,501 at
September 30, 1999. The warrants expire on July 13, 2009.
NOTE 9. INCOME TAXES
Due to the losses incurred from operations, the Company and its Predecessor have
no provisions for (benefits from) income taxes for the periods from January 1,
1999 to July 13, 1999 and for the period from July 14, 1999 to
September 30,1999.
The Company accounts for income taxes using a balance sheet approach whereby
deferred tax assets and liabilities are determined based on the differences in
financial reporting and income tax basis of assets. The differences are measured
using the income tax rate in effect during the year of measurement.
There was no current or deferred benefit for income taxes for the periods from
January 1, 1999 to July 13, 1999 and for the period from July 14, 1999 to
September 30, 1999. The following table provides a reconciliation between the
amount determined by applying the statutory federal income tax rate to the
pretax loss and benefit for income taxes:
<TABLE>
<CAPTION>
JANUARY 1, 1999 JULY 14, 1999 TO
TO JULY 13, 1999 SEPTEMBER 30, 1999
---------------- ------------------
<S> <C> <C>
Benefit at statutory rate................... $ 342 $ 3,604
State income tax, net....................... 49 515
Write off of in-process R&D................. -- (3,600)
Goodwill amortization....................... -- (286)
Other permanent differences................. (50) (25)
Valuation allowance......................... (341) (208)
----- -------
$ -- $ --
===== =======
</TABLE>
F-79
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 9. INCOME TAXES (CONTINUED)
The income tax effects of loss carryforwards and temporary differences between
financial and income tax reporting that give rise to the deferred income tax
assets and liabilities are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
1999
-------------
<S> <C>
Net operating loss carryforward............................. $6,900
Bad debt expense............................................ 135
Accrued liabilities......................................... 1,658
Other....................................................... 1,460
Deferred tax asset valuation allowance...................... (8,027)
Gross deferred tax liabilities (depreciation and
amortization)............................................. (2,126)
------
Net deferred tax assets..................................... $ --
======
</TABLE>
In assessing the realizability of its deferred tax assets, the Company considers
whether it is more likely than not that some or all of such assets will be
realized. As a result of historical operating losses, the Company has fully
reserved its net deferred tax assets as of September 30, 1999.
As of September 30, 1999, the Company had a net operating loss carryforward
("NOLC") for federal income tax purposes of approximately $80,000. The Company
experienced an ownership change as a result of the acquisition of the
Predecessor on July 14, 1999. As a result of the change, the NOLC existing as of
that change date is subject to an annual limitation of approximately $710. As a
result of the ownership change, the Company projects that approximately all but
$17,250 of the NOLC will expire. The Company has reduced its gross deferred tax
asset related to the NOLC to reflect the exclusion of that portion of the loss
that is expected to expire as a result of the change of ownership limitation.
NOTE 10. COMMITMENTS AND CONTINGENCIES
LEASES
The Company has operating leases for equipment, office and warehouse space that
include remaining noncancelable minimum rental commitments as follows:
<TABLE>
<CAPTION>
TWELVE MONTHS ENDING
SEPTEMBER 30,
- ------------------------------------------------------------
<S> <C>
2000.................................................. $3,388
2001.................................................. 2,456
2002.................................................. 1,386
2003.................................................. 766
2004.................................................. 140
------
Total minimum lease payments.......................... 8,136
Total minimum noncancelable sublease rentals.......... (361)
------
$7,775
======
</TABLE>
F-80
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 10. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Of the approximate $7,775 in minimum rental commitments, net of sublease
rentals, approximately $553 has been accrued in the accompanying balance sheet
at September 30, 1999, as they represent excess space liabilities.
Rent expense for all operating leases was approximately $1,482 for the period
from January 1, 1999 to July 13, 1999, and $716 for the period from July 14,
1999 to September 30, 1999, net of sublease rentals of approximately $122 for
the period from January 1, 1999 to July 13, 1999, and $46 for the period from
July 14, 1999 to September 30, 1999.
LITIGATION
The Company is a party to litigation arising in the normal course of business.
Management regularly analyzes current information and, as necessary, provides
accruals for probable liabilities on the eventual disposition of these matters.
Management believes that the effect on its results of operations and financial
position, if any, for the disposition of these matters, will not be material.
ROYALTY AGREEMENT
The Company has a minimum royalty commitment under a software license agreement
with monthly payments due through March 2000. Accordingly, the Company has
accrued approximately $482 associated with this royalty agreement at
September 30, 1999.
NOTE 11. RELATED PARTY TRANSACTIONS
STRATEGIC ALLIANCE AGREEMENT
In anticipation of the acquisition of the Predecessor by the Company, the
Predecessor entered into a strategic alliance agreement ("Agreement") with a
then related party. This related party was a creditor, investor and customer of
the Company. As a result of the acquisition, those relationships were terminated
and the agreement was executed to specify terms for the sale of specific
software product and services to the related party.
The Company granted the related party $11,500 in Purchase Credits ("Credits"),
as defined, to be used over four years toward the purchase of non-specialized
products and services. The Credits may be used for up to 60% of the purchase
price of non-specialized products and services, with the balance paid in cash.
The available balance of the Credits shall be permanently reduced by the use of
the Credits and by a certain amount each year. If the cumulative Credits
utilized do not exceed $2,875, $5,750, and $8,625 as of July 14, 2000, 2001, and
2002, respectively, the total Credits will be reduced by such shortfall each
year. If the Credits are not used by the end of the fourth year, they will be
reduced to zero. The Company will account for the Credits by recording them as
discounts to product sales in the future. Under the Agreement, the related party
is obligated to purchase products and services of at least $2,000 during any
one-year period.
TRADEMARK LICENSE AGREEMENT
The Company entered into a trademark license agreement with the Predecessor's
former parent to permit the Company to use specific trademarks until
December 31, 2000 in return for $375 in cash payments. At September 30, 1999,
$250 is accrued in other accrued liabilities to the Predecessor's
F-81
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 11. RELATED PARTY TRANSACTIONS (CONTINUED)
former parent. The $375 is recorded as an intangible asset and is being
amortized over 18 months (see Note 5).
MANAGEMENT AGREEMENT
In connection with the acquisition of the Predecessor by the Company, the
Company authorized CompassLearning to enter into a management agreement with
Ripplewood. This agreement provides for payments to Ripplewood of $500 per year
in exchange for management consulting and financial advisory services.
NOTE 12. EMPLOYEE BENEFIT PLANS
STOCK APPRECIATION RIGHTS
In February 1999, the Predecessor's Board of Directors adopted the 1998 Stock
Appreciation Rights Plan. SAR's in the aggregate of 1,500,000 were created and
1,013,500 SARs, at a base value of $4.00 per SAR, as determined by the Board of
Directors were granted. As a result of the acquisition of the Predecessor by the
Company, the SARs became 100% vested and are no longer subject to value changes.
The SARs were valued at $5.50 per share at the time of the acquisition. In
connection with the acquisition, approximately $1,520 was ascribed to the value
of the SAR's. Of the $1,520 value ascribed to the SAR's, $1,120 was paid to
employees in November 1999 and $400 is being held in escrow for distribution in
June 2000 in accordance with the terms of the acquisition.
SALE BONUS
In January 1999, the Predecessor entered into agreements to pay a sale bonus to
select members of management. As a result of the acquisition of the Predecessor
by the Company, $913 has been accrued at September 30, 1999, and was paid in
November 1999.
401(K) RETIREMENT PLAN
The Company has a retirement savings plan covering substantially all eligible
employees. This 401(k) Plan provides for a 33% matching contribution by the
Company, limited to eligible contributions by the employees. The Company accrued
$175 and $88 during the period January 1, 1999 to July 13, 1999, and July 14,
1999 to September 30, 1999, respectively, for 1999 contributions to be paid in
2000.
F-82
<PAGE>
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR
TO REPRESENT ANYTHING NOT CONTAINED IN THIS PROSPECTUS OR IN THE ACCOMPANYING
LETTER OF TRANSMITTAL. YOU MUST NOT RELY ON ANY UNAUTHORIZED INFORMATION OR
REPRESENTATIONS. THIS PROSPECTUS AND THE ACCOMPANYING LETTER OF TRANSMITTAL ARE
AN OFFER TO SELL OR TO BUY ONLY THE SECURITIES OFFERED HEREBY, BUT ONLY UNDER
CIRCUMSTANCES AND IN JURISDICTIONS WHERE IT IS LAWFUL TO DO SO. THE INFORMATION
CONTAINED IN THIS PROSPECTUS AND IN THE ACCOMPANYING LETTER OF TRANSMITTAL ARE
CURRENT ONLY AS OF THEIR RESPECTIVE DATES.
- --------------------------------------------------------------------------------
[LOGO]
- --------------------------------------------------------------------------------
THROUGH AND INCLUDING , (THE 90TH DAY AFTER THE DATE OF THIS PROSPECTUS),
ALL DEALERS EFFECTING TRANSACTIONS IN THESE SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS
IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENT OR SUBSCRIPTIONS.
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the General Corporation Law of the State of Delaware provides
that WRC Media Inc., CompassLearning, Inc. and Weekly Reader Corporation have
the power to indemnify any director or officer, or former director or officer,
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of the
corporation) against the expenses (including attorney's fees), judgments, fines
or amounts paid in settlement actually and reasonably incurred by them in
connection with the defense of any action by reason of being or having been
directors or officers, if such person shall have acted in good faith and in a
manner reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding; PROVIDED
that such person had no reasonable cause to believe his conduct was unlawful,
except that, if such action shall be in the right of the corporation, no such
indemnification shall be provided as to any claim, issue or matter as to which
such person shall have been judged to have been liable to the corporation unless
and to the extent that the Court of Chancery of the State of Delaware, or any
court in such suit or action was brought, shall determine upon application that,
in view of all of the circumstances of the case, such person is fairly and
reasonably entitled to indemnify for such expenses as such court shall deem
proper.
WRC Media Inc., CompassLearning, Inc. and Weekly Reader Corporation's
(collectively the "CORPORATION") bylaws provide that subject to Section 3 of
Article VII of the bylaws, the Corporation shall indemnify any person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation) by
reason of the fact that such person is or was a director, officer, employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by such person in connection with
such action, suit or proceeding if such person acted in good faith and in a
manner such person reasonably believed to be in or not opposed to the best
interests of the Corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe such person's conduct was
unlawful. The termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of NOLO CONTENDERE or its equivalent,
shall not, of itself, create a presumption that the person did not act in good
faith and in a manner which such person reasonably believed to be in or not
opposed to the best interests of the Corporation, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that such
person's conduct was unlawful.
Subject to Section 3 of Article VII of the bylaws, the Corporation shall
have the power to indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action or suit by or in
the right of the Corporation to procure a judgment in its favor by reason of the
fact that such person is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by such person in connection with the defense
or settlement of such action or suit if such person acted in good faith and in a
manner such person reasonably believed to be in or not opposed to the best
interests of the Corporation; except that no indemnification shall be made in
respect of any claim, issue or matter as to which such person shall
II-1
<PAGE>
have been adjudged to be liable to the Corporation unless and only to the extent
that the Court of Chancery or the court in which such action or suit was brought
shall determine upon application that, despite the adjudication of liability but
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the Court of Chancery
or such other court shall deem proper.
Any indemnification under Article VII of the bylaws (unless ordered by a
court) shall be made by the Corporation only as authorized in the specific case
upon a determination that indemnification of the present or former director,
officer, employee or agent is proper in the circumstances because such person
has met the applicable standard of conduct set forth in Section 1 or Section 2
of Article VII of the bylaws, as the case may be. Such determination shall be
made, with respect to a person who is a director or officer at the time of such
determination, (1) by a majority vote of the directors who are not parties to
such action, suit or proceeding, even though less than a quorum, or (2) by a
committee of such directors designated by majority vote of such directors, even
though less than a quorum, or (3) if there are no such directors, or if such
directors so direct, by independent legal counsel in a written opinion, or
(4) by the stockholders. To the extent, however, that a director, officer,
employee or agent of the Corporation has been successful on the merits or
otherwise in defense of any action, suit or proceeding described above, or in
defense of any claim, issue or matter therein, such person shall be indemnified
against expenses (including attorneys' fees) actually and reasonably incurred by
such person in connection therewith, without the necessity of authorization in
the specific case.
For purposes of any determination under Section 3 of Article VII of the
bylaws, a person shall be deemed to have acted in good faith and in a manner
such person reasonably believed to be in or not opposed to the best interests of
the Corporation, or, with respect to any criminal action or proceeding, to have
had no reasonable cause to believe such person's conduct was unlawful, if such
person's action is based on the records or books of account of the Corporation
or another enterprise, or on information supplied to such person by the officers
of the Corporation or another enterprise in the course of their duties, or on
the advice of legal counsel for the Corporation or another enterprise or on
information or records given or reports made to the Corporation or another
enterprise by an independent certified public accountant or by an appraiser or
other expert selected with reasonable care by the Corporation or another
enterprise. The term "another enterprise" as used in Section 4 of Article VII of
the bylaws shall mean any other corporation or any partnership, joint venture,
trust, employee benefit plan or other enterprise of which such person is or was
serving at the request of the Corporation as a director, officer, employee or
agent. The provisions of Section 4 of Article VII of the bylaws shall not be
deemed to be exclusive or to limit in any way the circumstances in which a
person may be deemed to have met the applicable standard of conduct set forth in
Section 1 or 2 of Article VII of the bylaws, as the case may be.
Notwithstanding any contrary determination in the specific case under
Section 3 of Article VII of the bylaws, and notwithstanding the absence of any
determination thereunder, any director, officer, employee or agent may apply to
any court of competent jurisdiction in the State of Delaware for indemnification
to the extent otherwise permissible under Sections 1 and 2 of Article VII of the
bylaws. The basis of such indemnification by a court shall be a determination by
such court that indemnification of the director, officer, employee or agent is
proper in the circumstances because such person has met the applicable standards
of conduct set forth in Sections 1 or 2 of Article VII of the bylaws, as the
case may be. Neither a contrary determination in the specific case under
Section 3 of Article VII of the bylaws nor the absence of any determination
thereunder shall be a defense to such application or create a presumption that
the director, officer, employee or agent seeking indemnification has not met any
applicable standard of conduct. Notice of any application for indemnification
pursuant to Section 5 of the bylaws shall be given to the Corporation promptly
upon the filing of such application. If successful, in whole or in part, the
director, officer, employee or agent seeking indemnification shall also be
entitled to be paid the expense of prosecuting such application.
II-2
<PAGE>
Expenses incurred in defending or investigating a threatened or pending
action, suit or proceeding shall be paid by the Corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director, officer, employee or agent to
repay such amount if it shall ultimately be determined that such person is not
entitled to be indemnified by the Corporation as authorized in Article VII of
the bylaws.
The indemnification and advancement of expenses provided by or granted
pursuant to Article VII of the bylaws shall not be deemed exclusive of any other
rights to which those seeking indemnification or advancement of expenses may be
entitled under any By-law, agreement, contract, vote of stockholders or
disinterested directors or pursuant to the direction (howsoever embodied) of any
court of competent jurisdiction or otherwise, both as to action in such
director's official capacity and as to action in another capacity while holding
such office, it being the policy of the Corporation that indemnification of the
persons specified in Sections 1 and 2 of Article VII of the bylaws shall be made
to the fullest extent permitted by law. The provisions of Article VII of the
bylaws shall not be deemed to preclude the indemnification of any person who is
not specified in Section 1 or 2 of Article VII of the bylaws but whom the
Corporation has the power or obligation to indemnify under the provisions of the
General Corporation Law of the State of Delaware or otherwise.
The Corporation may purchase and maintain insurance on behalf of any person
who is or was a director, officer, employee or agent of the Corporation, or is
or was serving at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise against any liability asserted against
such person and incurred by such person in any such capacity, or arising out of
such person's status as such, whether or not the Corporation would have the
power or the obligation to indemnify such person against such liability under
the provisions of Article VII of the bylaws.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- --------------------- -----------------------
<S> <C>
1.1 Purchase Agreement dated November 10, 1999 among WRC Media
Inc., Weekly Reader Corporation and CompassLearning, Inc.
2.1 Redemption, Stock Purchase and Recapitalization Agreement
dated August 13, 1999 among WRC Media Inc. and Primedia Inc.
3.1 Articles of Incorporation of WRC Media Inc.
3.2 Bylaws of WRC Media Inc.
3.3 Articles of Incorporation of Weekly Reader Corporation
3.4 Bylaws of Weekly Reader Corporation
3.5 Articles of Incorporation of CompassLearning, Inc.
3.6 Bylaws of CompassLearning, Inc.
3.7 Articles of Incorporation of Lifetime Learning Systems, Inc.
3.8 Bylaws of Lifetime Learning Systems, Inc.
3.9* Articles of Incorporation of American Guidance Service, Inc.
3.10 Bylaws of American Guidance Service, Inc.
3.11 Articles of Incorporation of AGS International Sales, Inc.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- --------------------- -----------------------
<S> <C>
3.12 Bylaws of AGS International Sales, Inc.
3.13 Articles of Incorporation of World Almanac Education Group,
Inc.
3.14 Bylaws of World Almanac Education Group, Inc.
3.15 Articles of Incorporation of Funk & Wagnalls Yearbook Corp.
3.16 Bylaws of Funk & Wagnalls Yearbook Corp.
3.17 Articles of Incorporation of Gareth Stevens, Inc.
3.18 Bylaws of Gareth Stevens, Inc.
4.1 Indenture dated November 17, among WRC Media Inc., Weekly
Reader Corporation, CompassLearning, Inc. and Bankers Trust
Company
4.2 Registration Rights Agreement dated November 17, 1999 among
WRC Media Inc., Weekly Reader Corporation, CompassLearning,
Inc., Primedia Reference Inc., Funk & Wagnalls Yearbook
Corp., Lifetime Learning Systems, Inc., Gareth Stevens,
Inc., American Guidance Service, Inc. and AGS International
Sales, Inc.
4.3* Certificate of Designations, Preferences and Rights of 15%
Senior Preferred Stock due 2011 of WRC Media Inc.
4.4 WRC Media Inc. Preferred Stockholders Agreement dated
November 17, 1999 between WRC Media Inc., Weekly Reader
Corporation and CompassLearning, Inc. and the preferred
shareholders listed on the signature pages thereto
4.5 Form of Note
4.6 Certificate of Preferred Stock
5.1* Opinion of Cravath, Swaine & Moore regarding the legality of
the new notes and the new senior preferred stock
10.1 Note Agreement, dated as of July 13, 1999, among
CompassLearning, Inc. (as successor by merger to EAC I
Inc.), The Northwestern Mutual Life Insurance Company and
SGC Partners II L.L.C.
10.2 Stock Purchase Agreement, dated July 13, 1999, among
Software Systems Corp., Sylvan Learning Systems, Inc.,
Pyramid Ventures, Inc., GE Capital Equity Investments, Inc.
and CompassLearning, Inc. (as successor by merger to EAC I
Inc.)
10.3 Credit Agreement dated November 17, 1999 among Weekly Reader
Corporation, CompassLearning, Inc., WRC Media Inc., DLJ
Capital Funding, Inc., Bank of America, N.A. and General
Electric Capital Corporation
10.4 Security and Pledge Agreement dated November 17, 1999 among
Weekly Reader Corporation, CompassLearning, Inc., WRC Media
Inc., Primedia Reference Inc., American Guidance Service
Inc., Lifetime Learning Systems, Inc., AGS International
Sales, Inc., Funk & Wagnalls Yearbook Corp. and Gareth
Stevens, Inc.
10.5 Subsidiary Guaranty dated November 17, 1999 among Primedia
Reference Inc., American Guidance Service Inc., Lifetime
Learning Systems, Inc., AGS International Sales, Inc., Funk
& Wagnalls Yearbook Corp. and Gareth Stevens, Inc.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- --------------------- -----------------------
<S> <C>
10.6 Stockholders Agreement dated November 17, 1999 among Weekly
Reader Corporation, CompassLearning, Inc., WRC Media Inc.,
EAC III L.L.C., Donaldson, Lufkin & Jenrette and Banc of
America Securities
10.7 Shareholders Agreement dated as of November 17, 1999 among
WRC Media, Weekly Reader Corporation and PRIMEDIA, Inc.
10.8 Employment Agreement dated as of the 17th day of November,
1999 among WRC Media Inc., EAC III L.L.C., CompassLearning,
Inc. and Martin E. Kenney, Jr.
10.9 Employment Agreement dated as of the 17th day of November,
1999 among Weekly Reader Corporation and Terry Bromberg
10.10 Employment Agreement dated as of the 17th day of November,
1999 among Weekly Reader Corporation and Peter Bergen
10.11 Employment Agreement dated as of the 17th day of November,
1999 among Weekly Reader Corporation and Robert Jackson
10.12 Employment Agreement dated as of the 17th day of November,
1999 among Weekly Reader Corporation and Kenneth Slivken
10.13 Employment Agreement dated as of the 17th day of November,
1999 among Weekly Reader Corporation and Sandy Maccarone
10.14 Employment Agreement dated as of the 17th day of November,
1999 among Weekly Reader Corporation and Thaddeus Kozlowski
10.15 Employment Agreement dated as of the 17th day of November,
1999 among Weekly Reader Corporation and Eric Ecker
10.16 Employment Agreement dated as of the 17th day of November,
1999 among Weekly Reader Corporation and Lester Rackoff
10.17 Employment Agreement dated as of the 14th day of July, 1999
among CompassLearning, Inc. and Therese K. Crane
10.18 Employment Agreement dated as of the 14th day of July, 1999
among CompassLearning, Inc. and Joyce F. Russell
10.19 Employment Agreement dated as of the 17th day of November,
1999 among American Guidance Service Inc. and Larry
Rutkowski
10.20 Employment Agreement dated as of the 17th day of November,
1999 among American Guidance Service, Inc. and Gerald Adams
10.21 Employment Agreement dated as of the 17th day of November,
1999 among Primedia Reference Inc. and Al De Seta
10.22 Employment Agreement dated as of the 17th day of November,
1999 among Primedia Reference Inc. and Janice P. Bailey
10.23 Employment Agreement dated as of the 14th day of July, 1999
among CompassLearning, Inc. and Nancy Lockwood
10.24 Transitional Services Agreement dated as of November 17,
1999, among Primedia Inc., WRC Media Inc. and Weekly Reader
Corporation
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- --------------------- -----------------------
<S> <C>
10.25 Shareholder Agreement dated as of the 17th day of November,
1999 among EAC III L.L.C., Therese K. Crane and WRC Media
Inc.
10.26 Shareholder Agreement dated as of the 17th day of November,
1999 among EAC III L.L.C., Peter Bergen, Larry Rutkowski, Al
De Seta, Robert Jackson, Kenneth Slivken and WRC Media Inc.
10.27 Shareholder Agreement dated as of the 17th day of November,
1999 among EAC III L.L.C., Martin Kenney and WRC Media Inc.
10.28 Preferred Stock and Warrants Subscription Agreement dated
November 17 between WRC Media Inc., Weekly Reader
Corporation, CompassLearning, Inc. and the other signatories
thereto
12.1 Statement regarding Computation of Ratios of Earnings to
Fixed Charges
21.1 List of Subsidiaries of the Registrants
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Deloitte & Touche LLP
23.3 Consent of PricewaterhouseCoopers LLP
23.4 Consent of Cravath, Swaine & Moore (included in its opinion
filed as Exhibit 5.1)
23.5 Consent of Simba Information Inc.
25.1 Statement of Eligibility of Bankers Trust Corporation under
the Trust Indenture Act of 1939, as amended, on Form T-1.
27.1 Financial Data Schedule
99.1 Letter of Transmittal for Tender of 15% Senior Preferred
Stock Due 2011 of WRC Media Inc.
99.2 Letter of Transmittal for Tender of 12 3/4% Senior
Subordinated Notes Due 2009 of WRC Media Inc., Weekly Reader
Corporation, and CompassLearning, Inc.
99.3 Notice of Guaranteed Delivery for Tender of 12 3/4% Senior
Subordinated Notes Due 2009 of WRC Media Inc., Weekly Reader
Corporation, and CompassLearning, Inc.
99.4 Notice of Guaranteed Delivery for Tender of 15% Senior
Preferred Stock Due 2011 of WRC Media Inc.
99.5 Notice of Withdrawal of Tender of 12 3/4% Senior
Subordinated Notes Due 2009 of WRC Media Inc., Weekly Reader
Corporation, and CompassLearning, Inc.
99.6 Notice of Withdrawal of Tender of 15% Senior Preferred Stock
Due 2011 of WRC Media Inc.
99.7 Form of Letter to Securities Dealers, Commercial Banks,
Trust Companies and other Nominees for Tender of all
Outstanding 12 3/4% Senior Subordinated Notes Due 2009 of
WRC Media Inc., Weekly Reader Corporation and
CompassLearning, Inc.
99.8 Form of Letter to Securities Dealers, Commercial Banks,
Trust Companies and other Nominees for Tender of all
Outstanding 15% Senior Preferred Stock Due 2011 of WRC Media
Inc.
99.9 Form of Letter to Clients for 12 3/4% Senior Subordinated
Notes Due 2009 of WRC Media Inc.
99.10 Form of Letter to Clients for 15% Senior Preferred Stock Due
2011 of WRC Media Inc.
99.11 Guidelines for Certification of Taxpayer Identification
Number on Substitute Form 99
</TABLE>
* To be filed by amendment.
II-6
<PAGE>
ITEM 22. UNDERTAKINGS
Each of the undersigned Registrants hereby undertakes (i) to respond to
requests for information that are incorporated by reference into the Prospectus
pursuant to Item 4, 10(b), 11, or 13 of Form S-4, within one business day of
receipt of such request, and to send the incorporated documents by first class
mail or other equally prompt means. This undertaking also includes information
in documents filed subsequent to the effective date of the Registration
Statement through the date of responding to the request.
Each of the undersigned Registrants hereby undertakes to supply by means of
a post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
Each of the undersigned Registrants hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
Registration Statement shall be deemed to be a new Registration Statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be initial bona fide offering thereof.
Each of the undersigned Registrants hereby undertakes as follows: that prior
to any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this Registration Statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
undersigned undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other Items of the applicable form.
Each of the undersigned Registrants hereby undertakes that every prospectus:
(i) that is filed pursuant to the immediately preceding paragraph or (ii) that
purports to meet the requirements of Section 10(a)(3) of the Securities Act of
1933 and is used in connection with an offering of securities subject to
Rule 415, will be filed as a part of an amendment to the registration statement
and will not be used until such amendment is effective, and that, for purposes
of determining any liability under the Securities Act of 1933, each such
post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
The undersigned registrant hereby undertakes to provide to the underwriter
at the closing specified in the underwriting agreements certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
II-7
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF NEW YORK, STATE OF NEW
YORK, ON THIS 3RD DAY OF FEBRUARY, 2000.
<TABLE>
<S> <C> <C>
WRC MEDIA INC.,
By: /s/ MARTIN E. KENNEY, JR.
-----------------------------------------
Name: Martin E. Kenney, Jr.
Title: CHIEF EXECUTIVE OFFICER
</TABLE>
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
Charles L. Laurey, his or her true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, for him or her and in his or her
name, place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement and all
documents relating hereto, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
necessary or advisable to be done in and about the premises, as fully to all
intents and purposes as he or she might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents, or any of them, or
their substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES INDICATED ON THIS 3RD DAY OF FEBRUARY, 2000.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ MARTIN E. KENNEY, JR.
- ------------------------------------------- Chief Executive Officer/Director
Martin E. Kenney, Jr.
/s/ TIMOTHY C. COLLINS
- ------------------------------------------- Director
Timothy C. Collins
/s/ D. RONALD DANIEL
- ------------------------------------------- Director
D. Ronald Daniel
/s/ CHARLES L. LAUREY
- ------------------------------------------- Director/Secretary
Charles L. Laurey
/s/ ROBERT S. LYNCH
- ------------------------------------------- Director/Treasurer
Robert S. Lynch
/s/ JAMES N. LANE
- ------------------------------------------- Director
James N. Lane
/s/ WILLIAM F. DAWSON, JR.
- ------------------------------------------- Director
William F. Dawson, Jr.
/s/ RALPH D. CAULO
- ------------------------------------------- Vice-Chairman
Ralph D. Caulo
</TABLE>
S-1
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF NEW YORK, STATE OF NEW
YORK, ON THIS 3RD DAY OF FEBRUARY, 2000.
<TABLE>
<S> <C> <C>
WEEKLY READER CORPORATION,
By: /s/ PETER E. BERGEN
-----------------------------------------
Name: Peter E. Bergen
Title: PRESIDENT
</TABLE>
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
Charles L. Laurey, his or her true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, for him or her and in his or her
name, place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement and all
documents relating hereto, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
necessary or advisable to be done in and about the premises, as fully to all
intents and purposes as he or she might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents, or any of them, or
their substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES INDICATED ON THIS 3RD DAY OF FEBRUARY, 2000.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ PETER E. BERGEN
- ------------------------------------------- President/Chief Executive Officer
Peter E. Bergen
/s/ LESTER RACKOFF
- ------------------------------------------- Chief Financial Officer
Lester Rackoff
/s/ D. RONALD DANIEL
- ------------------------------------------- Chairman
D. Ronald Daniel
/s/ TIMOTHY C. COLLINS
- ------------------------------------------- Director
Timothy C. Collins
/s/ CHARLES L. LAUREY
- ------------------------------------------- Director/Secretary
Charles L. Laurey
/s/ ROBERT S. LYNCH
- ------------------------------------------- Director/Treasurer
Robert S. Lynch
/s/ MARTIN E. KENNEY, JR.
- ------------------------------------------- Director/Executive Vice President
Martin E. Kenney, Jr.
/s/ JAMES N. LANE
- ------------------------------------------- Director
James N. Lane
/s/ WILLIAM F. DAWSON, JR.
- ------------------------------------------- Director
William F. Dawson, Jr.
</TABLE>
S-2
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF NEW YORK, STATE OF NEW
YORK, ON THIS 3RD DAY OF FEBRUARY, 2000.
<TABLE>
<S> <C> <C>
COMPASSLEARNING, INC.,
By: /s/ DR. THERESE K. CRANE
-----------------------------------------
Name: Dr. Therese K. Crane
Title: PRESIDENT
</TABLE>
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
Charles L. Laurey, his or her true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, for him or her and in his or her
name, place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement and all
documents relating hereto, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
necessary or advisable to be done in and about the premises, as fully to all
intents and purposes as he or she might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents, or any of them, or
their substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES INDICATED ON THIS 3RD DAY OF FEBRUARY, 2000.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ DR. THERESE K. CRANE
- ------------------------------------------- President
Dr. Therese K. Crane
/s/ JOYCE F. RUSSELL
- ------------------------------------------- Chief Financial Officer
Joyce F. Russell
/s/ TIMOTHY C. COLLINS
- ------------------------------------------- Director
Timothy C. Collins
/s/ D. RONALD DANIEL
- ------------------------------------------- Director
D. Ronald Daniel
/s/ CHARLES L. LAUREY
- ------------------------------------------- Director/Secretary
Charles L. Laurey
/s/ ROBERT S. LYNCH
- ------------------------------------------- Director/Treasurer
Robert S. Lynch
/s/ MARTIN E. KENNEY, JR.
- ------------------------------------------- Director/Executive Vice President
Martin E. Kenney, Jr.
/s/ JAMES N. LANE
- ------------------------------------------- Director
James N. Lane
/s/ WILLIAM F. DAWSON, JR.
- ------------------------------------------- Director
William F. Dawson, Jr.
</TABLE>
S-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF NEW YORK, STATE OF NEW
YORK, ON THIS 3RD DAY OF FEBRUARY, 2000.
<TABLE>
<S> <C> <C>
LIFETIME LEARNING SYSTEMS, INC.,
By: /s/ PETER E. BERGEN
-----------------------------------------
Name: Peter E. Bergen
Title: PRESIDENT
</TABLE>
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
Charles L. Laurey, his or her true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, for him or her and in his or her
name, place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement and all
documents relating hereto, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
necessary or advisable to be done in and about the premises, as fully to all
intents and purposes as he or she might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents, or any of them, or
their substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES INDICATED ON THIS 3RD DAY OF FEBRUARY, 2000.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ PETER E. BERGEN
- ------------------------------------------- Chief Executive Officer/President
Peter E. Bergen
/s/ LESTER RACKOFF
- ------------------------------------------- Chief Financial Officer
Lester Rackoff
/s/ D. RONALD DANIEL
- ------------------------------------------- Chairman
D. Ronald Daniel
/s/ TIMOTHY C. COLLINS
- ------------------------------------------- Director
Timothy C. Collins
/s/ CHARLES L. LAUREY
- ------------------------------------------- Director/Secretary
Charles L. Laurey
/s/ ROBERT S. LYNCH
- ------------------------------------------- Director/Treasurer
Robert S. Lynch
/s/ MARTIN E. KENNEY, JR.
- ------------------------------------------- Director
Martin E. Kenney, Jr.
/s/ JAMES N. LANE
- ------------------------------------------- Director
James N. Lane
/s/j WILLIAM F. DAWSON, JR.
- ------------------------------------------- Director
William F. Dawson, Jr.
</TABLE>
S-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF NEW YORK, STATE OF NEW
YORK, ON THIS 3RD DAY OF FEBRUARY, 2000.
<TABLE>
<S> <C> <C>
AMERICAN GUIDANCE SERVICE, INC.,
By: /s/ LARRY RUTKOWSKI
-----------------------------------------
Name: Larry Rutkowski
Title: PRESIDENT
</TABLE>
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
Charles L. Laurey, his or her true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, for him or her and in his or her
name, place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement and all
documents relating hereto, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
necessary or advisable to be done in and about the premises, as fully to all
intents and purposes as he or she might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents, or any of them, or
their substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES INDICATED ON THIS 3RD DAY OF FEBRUARY, 2000.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ LARRY RUTKOWSKI
- ------------------------------------------- President/Chief Executive Officer
Larry Rutkowski
/s/ GERALD G. ADAMS
- ------------------------------------------- Chief Financial Officer
Gerald G. Adams
/s/ D. RONALD DANIEL
- ------------------------------------------- Chairman
D. Ronald Daniel
/s/ TIMOTHY C. COLLINS
- ------------------------------------------- Director
Timothy C. Collins
/s/ CHARLES L. LAUREY
- ------------------------------------------- Director/Secretary
Charles L. Laurey
/s/ ROBERT S. LYNCH
- ------------------------------------------- Director/Treasurer
Robert S. Lynch
/s/ MARTIN E. KENNEY, JR.
- ------------------------------------------- Director
Martin E. Kenney, Jr.
/s/ JAMES N. LANE
- ------------------------------------------- Director
James N. Lane
/s/ WILLIAM F. DAWSON, JR.
- ------------------------------------------- Director
William F. Dawson, Jr.
</TABLE>
S-5
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF NEW YORK, STATE OF NEW
YORK, ON THIS 3(RD) DAY OF FEBRUARY, 2000.
<TABLE>
<S> <C> <C>
AGS INTERNATIONAL SALES, INC.,
By: /s/ LARRY RUTKOWSKI
-----------------------------------------
Name: Larry Rutkowski
Title: PRESIDENT
</TABLE>
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
Charles L. Laurey, his or her true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, for him or her and in his or her
name, place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement and all
documents relating hereto, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
necessary or advisable to be done in and about the premises, as fully to all
intents and purposes as he or she might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents, or any of them, or
their substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES INDICATED ON THIS 3(RD) DAY OF FEBRUARY, 2000.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ LARRY RUTKOWSKI
- ------------------------------------------- President/Chief Executive Officer
Larry Rutkowski
/s/ GERALD G. ADAMS
- ------------------------------------------- Chief Financial Officer
Gerald G. Adams
/s/ D. RONALD DANIEL
- ------------------------------------------- Chairman
D. Ronald Daniel
/s/ TIMOTHY C. COLLINS
- ------------------------------------------- Director
Timothy C. Collins
/s/ CHARLES L. LAUREY
- ------------------------------------------- Director/Secretary
Charles L. Laurey
/s/ ROBERT S. LYNCH
- ------------------------------------------- Director/Treasurer
Robert S. Lynch
/s/ MARTIN E. KENNEY, JR.
- ------------------------------------------- Director
Martin E. Kenney, Jr.
/s/ JAMES N. LANE
- ------------------------------------------- Director
James N. Lane
/s/ WILLIAM F. DAWSON, JR.
- ------------------------------------------- Director
William F. Dawson, Jr.
</TABLE>
S-6
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF NEW YORK, STATE OF NEW
YORK, ON THIS 3RD DAY OF FEBRUARY, 2000.
<TABLE>
<S> <C> <C>
WORLD ALMANAC EDUCATION GROUP, INC.,
By: /s/ ALFRED DE SETA
-----------------------------------------
Name: Alfred De Seta
Title: PRESIDENT
</TABLE>
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
Charles L. Laurey, his or her true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, for him or her and in his or her
name, place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement and all
documents relating hereto, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
necessary or advisable to be done in and about the premises, as fully to all
intents and purposes as he or she might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents, or any of them, or
their substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES INDICATED ON THIS 3RD DAY OF FEBRUARY, 2000.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ ALFRED DE SETA
- ------------------------------------------- President
Alfred De Seta
/s/ JANICE P. BAILEY
- ------------------------------------------- Chief Financial Officer
Janice P. Bailey
/s/ D. RONALD DANIEL
- ------------------------------------------- Director
D. Ronald Daniel
/s/ TIMOTHY C. COLLINS
- ------------------------------------------- Director
Timothy C. Collins
/s/ CHARLES L. LAUREY
- ------------------------------------------- Director/Secretary
Charles L. Laurey
/s/ ROBERT S. LYNCH
- ------------------------------------------- Director/Treasurer
Robert S. Lynch
/s/ MARTIN E. KENNEY, JR.
- ------------------------------------------- Director
Martin E. Kenney, Jr.
/s/ JAMES N. LANE
- ------------------------------------------- Director
James N. Lane
/s/ WILLIAM F. DAWSON, JR.
- ------------------------------------------- Director
William F. Dawson, Jr.
</TABLE>
S-7
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF NEW YORK, STATE OF NEW
YORK, ON THIS 3RD DAY OF FEBRUARY, 2000.
<TABLE>
<S> <C> <C>
FUNK & WAGNALLS YEARBOOK CORP.,
By: /s/ ALFRED DE SETA
-----------------------------------------
Name: Alfred De Seta
Title: PRESIDENT
</TABLE>
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
Charles L. Laurey, his or her true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, for him or her and in his or her
name, place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement and all
documents relating hereto, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
necessary or advisable to be done in and about the premises, as fully to all
intents and purposes as he or she might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents, or any of them, or
their substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES INDICATED ON THIS 3RD DAY OF FEBRUARY, 2000.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ ALFRED DE SETA
- ------------------------------------------- President
Alfred De Seta
/s/ JANICE P. BAILEY
- ------------------------------------------- Chief Financial Officer
Janice P. Bailey
/s/ D. RONALD DANIEL
- ------------------------------------------- Chairman
D. Ronald Daniel
/s/ TIMOTHY C. COLLINS
- ------------------------------------------- Director
Timothy C. Collins
/s/ CHARLES L. LAUREY
- ------------------------------------------- Director/Secretary
Charles L. Laurey
/s/ ROBERT S. LYNCH
- ------------------------------------------- Director/Treasurer
Robert S. Lynch
/s/ MARTIN E. KENNEY, JR.
- ------------------------------------------- Director/Executive Vice President
Martin E. Kenney, Jr.
/s/ JAMES N. LANE
- ------------------------------------------- Director
James N. Lane
/s/ WILLIAM F. DAWSON, JR.
- ------------------------------------------- Director
William F. Dawson, Jr.
</TABLE>
S-8
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF NEW YORK, STATE OF NEW
YORK, ON THIS 3RD DAY OF FEBRUARY, 2000.
<TABLE>
<S> <C> <C>
GARETH STEVENS, INC.,
By: /s/ ALFRED DE SETA
-----------------------------------------
Name: Alfred De Seta
Title: PRESIDENT
</TABLE>
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
Charles L. Laurey, his or her true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, for him or her and in his or her
name, place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement and all
documents relating hereto, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
necessary or advisable to be done in and about the premises, as fully to all
intents and purposes as he or she might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents, or any of them, or
their substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES INDICATED ON THIS 3RD DAY OF FEBRUARY, 2000.
<TABLE>
<CAPTION>
NAME TITLE
---- -----
<S> <C>
/s/ ALFRED DE SETA
- ------------------------------------------- President
Alfred De Seta
/s/ JANICE P. BAILEY
- ------------------------------------------- Chief Financial Officer
Janice P. Bailey
/s/ TIMOTHY C. COLLINS
- ------------------------------------------- Director
Timothy C. Collins
/s/ CHARLES L. LAUREY
- ------------------------------------------- Director/Secretary
Charles L. Laurey
/s/ ROBERT S. LYNCH
- ------------------------------------------- Director/Treasurer
Robert S. Lynch
/s/ MARTIN E. KENNEY, JR.
- ------------------------------------------- Director
Martin E. Kenney, Jr.
/s/ JAMES N. LANE
- ------------------------------------------- Director
James N. Lane
</TABLE>
S-9
<PAGE>
Exhibit 1.1
Execution Copy
WRC MEDIA INC.
WEEKLY READER CORPORATION
JLC LEARNING CORPORATION
AND
THE NOTE GUARANTORS LISTED HEREIN
$152,000,000
152,000 UNITS CONSISTING OF
12 3/4% SENIOR SUBORDINATED NOTES DUE 2009 and
205,656 SHARES OF COMMON STOCK OF WRC MEDIA INC.
PURCHASE AGREEMENT
NOVEMBER 10, 1999
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
BANC OF AMERICA SECURITIES LLC
<PAGE>
WRC MEDIA INC.
WEEKLY READER CORPORATION
JLC LEARNING CORPORATION
$152,000,000
152,000 Units consisting of
12 3/4% Senior Subordinated Notes due 2009 and
205,656 shares of the Common Stock of WRC Media Inc.
PURCHASE AGREEMENT
November 10, 1999
Donaldson, Lufkin & Jenrette
Securities Corporation
Banc of America Securities LLC
c/o Donaldson, Lufkin & Jenrette
Securities Corporation
277 Park Avenue
New York, New York 10172
Ladies and Gentlemen:
WRC Media Inc., a Delaware corporation (the "COMPANY"), Weekly
Reader Corporation, a Delaware corporation ("WEEKLY READER"), and JLC Learning
Corporation, a Delaware corporation ("JLC LEARNING" and, together with the
Company and Weekly Reader, the "ISSUERS"), propose to issue and sell to
Donaldson, Lufkin & Jenrette Securities Corporation and Banc of America
Securities LLC (collectively, the "INITIAL PURCHASERS") 152,000 units (the
"Units"), each consisting of $1,000 in aggregate principal amount of their
12 3/4% Senior Subordinated Notes due 2009 (the "SENIOR SUBORDINATED NOTES") and
1.353 shares of common stock of the Company (the "COMMON STOCK") issued as part
of the Units par value $0.01 per share (the "UNIT COMMON STOCK"), subject to the
terms and conditions set forth herein. The Units will be issued pursuant to a
unit agreement (the "UNIT AGREEMENT"), to be dated as of the Closing Date, in
form and substance reasonably satisfactory to the Initial Purchasers and the
Company, between the Issuers, the Note Guarantors and The Bankers Trust Company,
as unit agent (the "UNIT AGREEMENT"). The Senior Subordinated Notes are to be
issued pursuant to the provisions of an indenture (the "INDENTURE"), to be dated
as of the Closing Date (as defined below), among the Issuers, the Note
Guarantors (as defined below) and The Bankers Trust Company, as trustee (the
"TRUSTEE"). The Senior Subordinated Notes and the New Senior Subordinated Notes
(as defined below) issuable in exchange therefor are collectively referred to
herein as the "NOTES." The Notes will be guaranteed (the "NOTE GUARANTEES") by
each of the entities listed on Schedule A hereto (each, a "NOTE
<PAGE>
2
GUARANTOR" and collectively the "NOTE GUARANTORS"). Capitalized terms used but
not defined herein shall have the meanings given to such terms in the Offering
Memorandum (as defined below).
The Units, the Notes and the Unit Common Stock are
collectively referred to herein as the "SECURITIES."
The Units are being issued and sold in connection with the
recapitalization of PRIMEDIA, Inc.'s ("PRIMEDIA") Supplemental Education Group
(the "RECAPITALIZATION") pursuant to the terms of a Redemption, Stock Purchase
and Recapitalization Agreement, dated August 13, 1999, by and between PRIMEDIA
and the Company, as amended by the amendment dated October 26, 1999, and as may
further be amended prior to the Closing Date (provided that any such further
amendments are in form and substance reasonably satisfactory to the Initial
Purchasers) (the "RECAPITALIZATION AGREEMENT"). Pursuant to the Recapitalization
Agreement, PRIMEDIA will contribute 100% of the outstanding capital stock of
American Guidance Service, Inc. and PRIMEDIA Reference Inc. to Weekly Reader and
the Issuers will make cash payments to PRIMEDIA. Upon consummation of the
transactions contemplated by the Recapitalization Agreement, the Company will
own 94.9% of Weekly Reader's common stock with PRIMEDIA retaining the remaining
5.1%.
Immediately following consummation of the offering of the
Units, the Company will consummate the Recapitalization. For purposes of this
Agreement, the consummation of the offering of the Units and the consummation of
the Recapitalization will be deemed to occur simultaneously. For purposes of
this Agreement, the parties hereby acknowledge and agree that the
representations and warranties relating to due authorization, execution and
delivery with respect to Weekly Reader and the Note Guarantors contained in
Sections 6(e) through 6(s) hereof and the covenants relating to delivery of
certificates hereto by Weekly Reader and the Note Guarantors shall be made
immediately following consummation of the offering of the Units but shall be
deemed to have been made immediately prior to the consummation of such offering.
1. OFFERING MEMORANDUM. The Units will be offered and sold to
the Initial Purchasers pursuant to one or more exemptions from the registration
requirements under the Securities Act of 1933, as amended (the "ACT"). The
Issuers and the Note Guarantors have prepared a preliminary offering memorandum,
dated October 26, 1999 (the "PRELIMINARY OFFERING MEMORANDUM") relating to the
Senior
<PAGE>
3
Subordinated Notes and Note Guarantees, and a final offering memorandum, dated
November 10, 1999 (the "OFFERING MEMORANDUM"), relating to the Units and the
Note Guarantees.
Upon original issuance thereof, and until such time as the
same is no longer required pursuant to the Indenture the Unit Agreement and the
Stockholders Agreement (as defined below), the Securities (and all securities
issued in exchange therefor, in substitution thereof or upon conversion thereof)
shall bear the following legend:
"This Security (or its predecessor) has not been registered under the
U.S. Securities Act of 1933, as amended (the "Securities Act of 1933"),
and, accordingly, may not be offered, sold, pledged or otherwise
transferred within the United States or to, or for the account or
benefit of, U.S. Persons, except as set forth in the next sentence. By
its acquisition hereof or of a beneficial interest herein, the holder:
(1) Represents that (a) it is a "Qualified Institutional
Buyer" (as defined in Rule 144A under the Securities Act of
1933) (a "QIB"), (b) it has acquired this Security in an
offshore transaction in compliance with Regulation S under the
Act or (c) it is an institutional "Accredited Investor" (as
defined in Rule 501(a)(1), (2), (3) or (7) of Regulation D
under the Securities Act of 1933 (an "IAI")),
(2) Agrees that it will not resell or otherwise transfer this
Security except (a) to the Company or any of its subsidiaries,
(b) to a person whom the Seller reasonably believes is a QIB
purchasing for its own account or for the account of a QIB in
a transaction meeting the requirements of Rule 144A, (c) in an
offshore transaction meeting the requirements of Rule 903 or
904 of the Securities Act of 1933, (d) in a transaction
meeting the requirements of Rule 144 under the Securities Act
of 1933, (e) to an IAI that, prior to such transfer, furnishes
the [Trustee] [Unit Agent] [Company] a signed letter
containing certain representations and agreements relating to
the transfer of this Security (the form of which can be
obtained from the [Trustee] [Unit Agent] [Company]) and, if
such transfer is in respect of an aggregate principal amount
of Security less than $250,000, an opinion of counsel
acceptable to the Company that such transfer is in compliance
with the Securities Act of 1933, (f) in accordance
<PAGE>
4
with another exemption from the registration requirements of
the Securities Act of 1933 (and based upon an opinion of
counsel acceptable to the Company) or (g) pursuant to an
effective registration statement and, in each case, in
accordance with the applicable securities laws of any state of
the United States or any other applicable jurisdiction and
(3) Agrees that it will deliver to each person to whom this
Security or an interest herein is transferred a notice
substantially to the effect of this Legend.
As used herein, the terms "Offshore Transaction" and "United States" have the
meanings given to them by Rule902 of Regulation S under the Securities Act of
1933. The [Indenture] [Unit Agreement] [Stockholders Agreement] will contain a
provision requiring the [Trustee] [Unit Agent] [Company] to refuse to register
any transfer of this Security in violation of the foregoing."
2. AGREEMENTS TO SELL AND PURCHASE. On the basis of the
representations, warranties and covenants contained in this Agreement, and
subject to the terms and conditions contained herein, the Issuers agree to issue
and sell to the Initial Purchasers, and the Initial Purchasers agree, severally
and not jointly, to purchase from the Issuers, the principal amounts of Units
set forth opposite the name of such Initial Purchaser on Schedule C hereto at a
purchase price equal to $956.21 per unit (the "PURCHASE PRICE").
3. TERMS OF OFFERING. The Initial Purchasers have advised the
Issuers that the Initial Purchasers will make offers (the "EXEMPT RESALES") of
the Units purchased hereunder on the terms set forth in the Offering Memorandum,
as amended or supplemented, solely to (i) persons whom the Initial Purchasers
reasonably believe to be "qualified institutional buyers" as defined in Rule
144A under the Act ("QIBS") and (ii) to persons permitted to purchase the Units
in offshore transactions in reliance upon Regulation S under the Act (each, a
"REGULATION S PURCHASER") (such persons specified in clauses (i) and (ii) being
referred to herein as the "ELIGIBLE PURCHASERS"). The Initial Purchasers will
offer the Units to Eligible Purchasers initially at a price equal to $986.21 per
Unit. Such price may be changed at any time without notice.
Holders (including subsequent transferees) of the Senior
Subordinated Notes will have the registration rights set forth in the
registration agreement (the "REGISTRATION
<PAGE>
5
RIGHTS AGREEMENT"), to be dated the Closing Date, in form and substance
reasonably satisfactory to the Initial Purchasers and the Company, for so long
as such Senior Subordinated Notes constitute "Transfer Restricted Securities"
(as defined in the Registration Rights Agreement). Pursuant to the Registration
Rights Agreement, the Issuers and the Note Guarantors will agree to file with
the Securities and Exchange Commission (the "COMMISSION") under the
circumstances set forth therein, (i) a registration statement under the Act (the
"EXCHANGE OFFER REGISTRATION STATEMENT") relating to the Issuers' 12 3/4% new
Senior Subordinated Notes due 2009 (the "NEW SENIOR SUBORDINATED NOTES"), to be
offered in exchange for the Senior Subordinated Notes (such offer to exchange
being referred to as the "EXCHANGE OFFER") and the Note Guarantees thereof and
(ii) a shelf registration statement pursuant to Rule 415 under the Act (the
"SHELF REGISTRATION STATEMENT" and, together with the Exchange Offer
Registration Statement, the "REGISTRATION STATEMENTS") relating to the resale by
certain holders of the Senior Subordinated Notes and to use their reasonable
best efforts to cause such Registration Statements to be declared and remain
effective and usable for the periods specified in the Registration Rights
Agreement and to consummate the Exchange Offer.
Holders (including subsequent transferees) of the Unit Common
Stock will have the registration rights set forth in a stockholders agreement
(the "STOCKHOLDERS AGREEMENT"), dated as of the Closing Date, in form and
substance reasonably satisfactory to the Initial Purchasers and the Company,
among each of the Issuers, EAC III Inc. and certain of its affiliates (the "WRC
STOCKHOLDERS"), and the Initial Purchasers. Holders of the Unit Common Stock
shall also have certain "tag-along" rights and will be subject to certain
"drag-along" rights with respect to sales of Common Stock by EAC III Inc. and
its affiliates to third parties. Pursuant to the Stockholders Agreement, the
Company will agree to file a registration statement upon exercise of a demand
registration right of the holders of the Unit Common Stock (the "EQUITY
REGISTRATION STATEMENT") covering the resale of the Unit Common Stock by the
holder thereof and to use all commercially reasonable best efforts to cause such
Equity Registration Statement to be declared effective and to remain effective
for the period specified in the Stockholders Agreement.
This Agreement, the Securities, the Unit Agreement, the
Stockholders Agreement, the Indenture, the Notes, the Note Guarantees, the
Senior Credit Facilities (as described in the Offering Memorandum) and the
Registration
<PAGE>
6
Rights Agreement are hereinafter sometimes referred to collectively as the
"OPERATIVE DOCUMENTS."
4. DELIVERY AND PAYMENT.
(a) Delivery of, and payment of the Purchase Price for, the
Units shall be made at the offices of Cravath, Swaine & Moore, Worldwide Plaza,
825 Eighth Avenue, New York, New York 10019, or such other location as may be
mutually acceptable. Such delivery and payment shall be made at 9:00 a.m. New
York City time, on November 17, 1999 or at such other time on the same date or
such other date as shall be agreed upon by the Initial Purchasers and the
Issuers in writing. The time and date of such delivery and the payment for the
Units are herein called the "CLOSING DATE."
(b) One or more of the Units in definitive global form,
registered in the name of Cede & Co., as nominee of The Depository Trust Company
("DTC"), having an aggregate principal amount corresponding to the aggregate
principal amount of the Units (collectively, the "GLOBAL UNITS"), shall be
delivered by the Issuers to the Initial Purchasers (or as the Initial Purchasers
direct) in each case with any transfer taxes thereon duly paid by the Issuers
against payment by the Initial Purchasers of the Purchase Price thereof by wire
transfer in same day funds to the order of the Issuers. The Global Units shall
be made available to the Initial Purchasers for inspection not later than 9:30
a.m., New York City time, on the business day immediately preceding the Closing
Date.
5. AGREEMENTS OF THE ISSUERS AND THE NOTE GUARANTORS. Each of
the Issuers and the Note Guarantors hereby agrees with the Initial Purchasers as
follows:
(a) To advise the Initial Purchasers promptly (and, if
requested by the Initial Purchasers, confirm such advice in writing) of (i) the
issuance by any state securities commission of any stop order suspending the
qualification or exemption from qualification of the Securities for offering or
sale in any jurisdiction designated by the Initial Purchasers pursuant to
Section 5(e) hereof, or the initiation of any proceeding by any state securities
commission or any other federal or state regulatory authority for such purpose
and (ii) the happening of any event during the period referred to in Section
5(c) below that makes any statement of a material fact made in the Preliminary
Offering Memorandum or the Offering Memorandum untrue or that requires any
additions to or changes in the Preliminary Offering Memorandum or the
<PAGE>
7
Offering Memorandum in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. The Issuers and the
Note Guarantors shall use their reasonable best efforts to prevent the issuance
of any stop order or order suspending the qualification or exemption of any of
the Securities under any state securities or Blue Sky laws and, if at any time
any state securities commission or other federal or state regulatory authority
shall issue an order suspending the qualification or exemption of any of the
Securities under any state securities or Blue Sky laws, the Issuers and the Note
Guarantors shall use their reasonable best efforts to obtain the withdrawal or
lifting of such order at the earliest possible time.
(b) To furnish the Initial Purchasers and those persons
identified by the Initial Purchasers to the Issuers as many copies of the
Preliminary Offering Memorandum and the Offering Memorandum, and any amendments
or supplements thereto, as the Initial Purchasers may reasonably request for the
time period specified in Section 5(c). Subject to the Initial Purchasers'
compliance with its representations and warranties and agreements set forth in
Section 7 hereof, the Issuers consent to the use of the Preliminary Offering
Memorandum and the Offering Memorandum, and any amendments and supplements
thereto required pursuant hereto, by the Initial Purchasers in connection with
Exempt Resales.
(c) During such period as in the opinion of counsel for the
Initial Purchasers an Offering Memorandum is required by law to be delivered in
connection with Exempt Resales by the Initial Purchasers, not to make any
amendment or supplement to the Offering Memorandum of which the Initial
Purchasers shall not previously have been advised or to which the Initial
Purchasers shall reasonably object after being so advised and to prepare
promptly upon the Initial Purchasers' reasonable request, any amendment or
supplement to the Offering Memorandum which may be necessary or advisable in
connection with such Exempt Resales.
(d) If, during the period referred to in Section 5(c) above,
any event shall occur or condition shall exist as a result of which, in the
opinion of counsel to the Initial Purchasers, it becomes necessary to amend or
supplement the Offering Memorandum in order to make the statements therein, in
the light of the circumstances when such Offering Memorandum is delivered to an
Eligible Purchaser, not misleading, or if, in the opinion of counsel to the
Initial Purchasers, it is necessary to amend or supplement the Offering
Memorandum to comply with any applicable law, forthwith to prepare an
appropriate
<PAGE>
8
amendment or supplement to such Offering Memorandum so that the statements
therein, as so amended or supplemented, will not, in the light of the
circumstances when it is so delivered, be misleading, or so that such Offering
Memorandum will comply with applicable law, and to furnish to the Initial
Purchasers and such other persons as the Initial Purchasers may designate such
number of copies thereof as the Initial Purchasers may reasonably request.
(e) Prior to the sale of all Units pursuant to Exempt Resales
as contemplated hereby, to cooperate with the Initial Purchasers and counsel to
the Initial Purchasers in connection with the registration or qualification of
the Units for offer and sale to the Initial Purchasers and pursuant to Exempt
Resales under the securities or Blue Sky laws of such jurisdictions as the
Initial Purchasers may request and to continue such registration or
qualification in effect so long as required for Exempt Resales and to file such
consents to service of process or other documents as may be necessary in order
to effect such registration or qualification; PROVIDED, HOWEVER, that neither
the Issuers nor any Note Guarantor shall be required in connection therewith to
qualify as a foreign corporation in any jurisdiction in which it is not now so
qualified or to take any action that would subject it to general consent to
service of process or taxation in any jurisdiction in which it is not now so
subject.
(f) So long as the Securities are outstanding, to furnish to
the Initial Purchasers upon their request as soon as available copies of all
reports or other communications furnished by the Issuers or any of the Note
Guarantors to their security holders their security or furnished to or filed
with the Commission or any national securities exchange on which any class of
securities of the Issuers or any of the Note Guarantors is listed and such other
publicly available information concerning the Company and/or its subsidiaries as
the Initial Purchasers may reasonably request.
(g) So long as any of the Securities remain outstanding and
are "restricted securities" within the meaning of Rule 144(a)(3) under the Act,
and during any period in which the Issuers and the Note Guarantors are not
subject to Section 13 or 15(d) of the Securities Exchange Act of 1934, as
amended (the "EXCHANGE ACT"), to make available upon request to any holder of
Securities in connection with any sale thereof and any prospective purchaser of
such Securities from such holder, the information ("RULE 144A INFORMATION")
required by Rule 144A(d)(4) under the Act.
<PAGE>
9
(h) Whether or not the transactions contemplated in this
Agreement are consummated or this Agreement is terminated, to pay or cause to be
paid all expenses incident to the performance of the obligations of the Issuers
and the Note Guarantors under this Agreement, including: (i) the fees,
disbursements and expenses of counsel to the Issuers and the Note Guarantors and
accountants of the Issuers and the Note Guarantors in connection with the sale
and delivery of the Units to the Initial Purchasers and pursuant to Exempt
Resales, and all other fees and expenses in connection with the preparation,
printing, filing and distribution of the Preliminary Offering Memorandum, the
Offering Memorandum and all amendments and supplements to any of the foregoing
(including financial statements), including the mailing and delivering of copies
thereof to the Initial Purchasers and persons designated by it in the quantities
specified herein, (ii) all costs and expenses related to the transfer and
delivery of the Units to the Initial Purchasers and pursuant to Exempt Resales,
including any transfer or other taxes payable thereon, (iii) all expenses in
connection with the registration or qualification of the Units and the Note
Guarantees for offer and sale under the securities or Blue Sky laws of the
several states and all costs of printing or producing any preliminary and
supplemental Blue Sky memoranda in connection therewith (including the filing
fees and fees and disbursements of counsel for the Initial Purchasers in
connection with such registration or qualification and memoranda relating
thereto), (iv) the cost of printing certificates representing the Units and the
Note Guarantees, (v)all expenses and listing fees in connection with the
application for quotation of the Units in the National Association of Securities
Dealers, Inc. ("NASD") Automated Quotation System - PORTAL ("PORTAL"), (vi) the
fees and expenses of the Trustee and the Trustee's counsel in connection with
the Indenture, the Notes and the Note Guarantees, (vii) the fees and expenses of
the Unit Agent and the Unit Agent's counsel in connection with the Unit
Agreement, (viii)the costs and charges of any transfer agent, registrar and/or
depositary (including DTC), (ix) any fees charged by rating agencies for the
rating of the Notes, (x) all costs and expenses of the Exchange Offer and any
Registration Statement, as set forth in the Registration Rights Agreement, (xi)
all costs and expenses of the Equity Registration Statement, as set forth in the
Stockholders Agreement and (xii) and all other costs and expenses incident to
the performance of the obligations of the Issuers and the Note Guarantors
hereunder for which provision is not otherwise made in this Section.
Notwithstanding the foregoing, the parties to this Agreement
<PAGE>
10
hereby acknowledge and agree that all costs incurred for the "road show" shall
be borne by the Initial Purchasers.
(i) To use its reasonable best efforts to effect the inclusion
of the Securities in PORTAL and to maintain the listing of the Securities on
PORTAL until completion of the Exchange Offer.
(j) To obtain the approval of DTC for "book-entry" transfer of
the Securities, and to comply with all of its agreements set forth in the
representation letters of the Issuers and the Note Guarantors to DTC relating to
the approval of the Securities by DTC for "book-entry" transfer.
(k) During the period beginning on the date hereof and
continuing to and including the Closing Date, not to offer, sell, contract to
sell or otherwise transfer or dispose of any debt securities of the Issuers or
any Note Guarantor or any warrants, rights or options to purchase or otherwise
acquire debt securities of the Issuers or any Note Guarantor substantially
similar to the Securities and the Note Guarantees (other than the Securities and
the Note Guarantees) without the prior written consent of the Initial
Purchasers.
(l) Not to sell, offer for sale or solicit offers to buy or
otherwise negotiate in respect of any security (as defined in the Act) that
would be integrated with the sale of the Units to the Initial Purchasers or
pursuant to Exempt Resales in a manner that would require the registration of
any such sale of the Units under the Act.
(m) Not to voluntarily claim, and to actively resist any
attempts to claim, the benefit of any usury laws against the holders of any
Securities and the related Note Guarantees.
(n) To cause the Exchange Offer to be made in the appropriate
form to permit the New Senior Subordinated Notes and guarantees thereof by the
Note Guarantors registered pursuant to the Act to be offered in exchange for the
Senior Subordinated Notes and the Note Guarantees and to comply with all
applicable federal and state securities laws in connection with the Exchange
Offer.
(o) To cause the Equity Registration Statement to be made on
the appropriate form and to comply with all applicable federal and state
securities laws in connection therewith.
<PAGE>
11
(p) To comply with all of its agreements set forth in the
Registration Rights Agreement and the Stockholders Agreement.
(q) To comply with all of its agreements set forth in the Unit
Agreement.
(r) To use its reasonable best efforts to do and perform all
things required or necessary to be done and performed under this Agreement by it
prior to the Closing Date and to satisfy all conditions precedent to the
delivery of the Units and the Note Guarantees.
6. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE ISSUERS.
The Issuers represent and warrant to, and agree with, the Initial Purchasers
that:
(a) The Preliminary Offering Memorandum and the Offering
Memorandum do not, and any supplement or amendment to them will not, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading, except that the
representations and warranties contained in this paragraph (a) shall not apply
to statements in or omissions from the Preliminary Offering Memorandum or the
Offering Memorandum (or any supplement or amendment thereto) based upon
information furnished to the Issuers in writing by the Initial Purchasers
expressly for use therein. No stop order preventing the use of the Preliminary
Offering Memorandum or the Offering Memorandum, or any amendment or supplement
thereto, or any order asserting that any of the transactions contemplated by
this Agreement are subject to the registration requirements of the Act, has been
issued.
(b) Each of the Issuers and each of the Note Guarantors is
and, after giving effect to the Recapitalization in accordance with the terms of
the Recapitalization Agreement, will be a corporation duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation and has the corporate power and authority to carry on its business
as described in the Preliminary Offering Memorandum and the Offering Memorandum
and to own, lease and operate its properties, and each is, and after giving
effect to the Recapitalization in accordance with the terms of the
Recapitalization Agreement, will be duly qualified and in good standing as a
foreign corporation authorized to do business in each jurisdiction in which the
nature of its business or its ownership or lease of property requires such
<PAGE>
12
qualification, except where the failure to be so qualified would not,
individually or in the aggregate, reasonably be expected to have a material
adverse effect on the business, assets, condition (financial or otherwise),
results of operations or prospects of the Issuers and the Note Guarantors, taken
as a whole (a "MATERIAL ADVERSE EFFECT").
(c) All outstanding shares of capital stock of each of the
Issuers have been duly authorized and validly issued and are fully paid,
non-assessable and not subject to any preemptive or similar rights.
(d) The entities listed on Schedule A hereto are the only
subsidiaries, direct or indirect, of the Company (other than JLC Learning and
Weekly Reader) after giving effect to the Recapitalization in accordance with
the terms of the Recapitalization Agreement. The entity listed on Schedule B
hereto is the only subsidiary, direct or indirect, of the Company before giving
effect to the Recapitalization in accordance with the terms of the
Recapitalization Agreement. All of the outstanding shares of capital stock of
each of the Company's subsidiaries have been and, after giving effect to the
Recapitalization in accordance with the terms of the Recapitalization Agreement,
will be duly authorized and validly issued, fully paid and non-assessable, and,
except for 5.1% of the common stock of Weekly Reader that PRIMEDIA will retain
upon consummation of the Recapitalization and the Preferred Stockholder
Warrants, owned by the Company, directly or indirectly through one or more
subsidiaries, free and clear of any security interest, claim, lien, encumbrances
or adverse interest of any nature (each, a "LIEN"), except as otherwise
disclosed in the Offering Memorandum and except Liens which would not, singly or
in the aggregate, reasonably be expected to have a Material Adverse Effect.
(e) This Agreement has been duly authorized, executed and
delivered by the Company and JLC Learning. On the Closing Date, this Agreement
will have been duly authorized, executed and delivered by Weekly Reader and the
Note Guarantors.
(f) On or prior to the Closing Date, the Indenture will have
been duly authorized by each of the Issuers and the Note Guarantors and will
have been validly executed and delivered by each of the Issuers and each of the
Note Guarantors. When the Indenture has been duly executed and delivered by each
of the Issuers and each of the Note Guarantors, the Indenture will be a valid
and binding agreement of each of the Issuers and each Note Guarantor,
enforceable against the Issuers and each Note
<PAGE>
13
Guarantor in accordance with its terms, except as (i) the enforceability thereof
may be limited by bankruptcy, insolvency or similar laws affecting creditors'
rights generally and (ii) rights of acceleration and the availability of
equitable remedies may be limited by equitable principles of general
applicability. On the Closing Date, the Indenture will conform in all material
respects to the requirements of the Trust Indenture Act of 1939, as amended (the
"TIA" or "TRUST INDENTURE ACT"), and the rules and regulations of the Commission
applicable to an indenture which is qualified thereunder.
(g) Each of the Issuers will have duly and validly authorized
the issuance of the Notes and the Unit Common Stock as a Unit. On the Closing
Date, the Units will conform in all material respects to the description thereof
contained in the Offering Memorandum.
(h) On or prior to the Closing Date, the Senior Subordinated
Notes will have been duly authorized and will have been validly executed and
delivered by each of the Issuers. When the Senior Subordinated Notes have been
issued, executed and authenticated in accordance with the provisions of the
Indenture and delivered to and paid for by the Initial Purchasers in accordance
with the terms of this Agreement (assuming due authorization, execution and
delivery of the Indenture by the Trustee and due authentication of the Senior
Subordinated Notes by the Trustee), the Senior Subordinated Notes will be
entitled to the benefits of the Indenture and will be valid and binding
obligations of the Issuers, enforceable in accordance with their terms except as
(i) the enforceability thereof may be limited by bankruptcy, insolvency or
similar laws affecting creditors' rights generally and (ii) rights of
acceleration and the availability of equitable remedies may be limited by
equitable principles of general applicability. On the Closing Date, the Senior
Subordinated Notes will conform in all material respects to the description
thereof in the Offering Memorandum.
(i) On or prior to the Closing Date, the New Senior
Subordinated Notes will have been duly authorized by each of the Issuers. When
the New Senior Subordinated Notes are issued, executed and authenticated in
accordance with the terms of the Exchange Offer and the Indenture (assuming due
authorization, execution and delivery of the Indenture by the Trustee and due
authentication of the New Senior Subordinated Notes by the Trustee), the New
Senior Subordinated Notes will be entitled to the benefits of the Indenture and
will be the valid and binding obligations of each of the Issuers, enforceable
against each of the Issuers
<PAGE>
14
in accordance with their terms, except as (i) the enforceability thereof may be
limited by bankruptcy, insolvency or similar laws affecting creditors' rights
generally and (ii) rights of acceleration and the availability of equitable
remedies may be limited by equitable principles of general applicability.
(j) The Unit Common Stock has been duly and validly authorized
by the Company and, on the Closing Date, when issued and delivered to and paid
for by the Initial Purchasers, will be validly issued, fully paid and
nonassessable and will not be subject to any preemptive or similar rights other
than those that have been waived in connection with the Transactions. On the
Closing Date, the rights of the holders of the Unit Common Stock will conform in
all material respects to the description thereof in the Offering Memorandum.
(k) On or prior to the Closing Date, the shares of common
stock of Weekly Reader issuable upon exchange of the Unit Common Stock will have
been duly authorized and reserved for issuance and upon such exchange in
accordance with the terms of the Stockholders Agreement will be validly issued,
fully paid and nonassessable and not subject to any preemptive or similar rights
other than those that have been waived in connection therewith.
(l) On or prior to the Closing Date, the Note Guarantee to be
endorsed on the Senior Subordinated Notes by each Note Guarantor will have been
duly authorized by each Note Guarantor and will have been duly executed and
delivered by each Note Guarantor. When the Senior Subordinated Notes have been
issued, executed and authenticated in accordance with the Indenture and
delivered to and paid for by the Initial Purchasers in accordance with the terms
of this Agreement (assuming due authorization, execution and delivery of the
Indenture by the Trustee and due authentication of the Senior Subordinated Notes
by the Trustee), the Note Guarantee of each Note Guarantor endorsed thereon will
be entitled to the benefits of the Indenture and will be the valid and binding
obligation of each Note Guarantor, enforceable against each Note Guarantor in
accordance with its terms, except as (i) the enforceability thereof may be
limited by bankruptcy, insolvency or similar laws affecting creditors' rights
generally and (ii) rights of acceleration and the availability of equitable
remedies may be limited by equitable principles of general applicability. On the
Closing Date, the Note Guarantees to be endorsed on the Senior Subordinated
Notes will conform in all material respects to the description thereof in the
Offering Memorandum.
<PAGE>
15
(m) On or prior to the Closing Date, the Note Guarantee to be
endorsed on the New Senior Subordinated Notes by each Note Guarantor will have
been duly authorized by each Note Guarantor and, when issued, will have been
duly executed and delivered by each Note Guarantor. When the New Senior
Subordinated Notes have been issued, executed and authenticated in accordance
with the terms of the Exchange Offer and the Indenture (assuming due
authorization, execution and delivery of the Indenture by the Trustee and due
authentication of the New Senior Subordinated Notes by the Trustee), the Note
Guarantee of each Note Guarantor endorsed thereon will be entitled to the
benefits of the Indenture and will be the valid and binding obligation of each
Note Guarantor, enforceable against each Note Guarantor in accordance with its
terms, except as (i) the enforceability thereof may be limited by bankruptcy,
insolvency or similar laws affecting creditors' rights generally and (ii) rights
of acceleration and the availability of equitable remedies may be limited by
equitable principles of general applicability. When the New Senior Subordinated
Notes are issued, authenticated and delivered, the Note Guarantees to be
endorsed on the New Senior Subordinated Notes will conform in all material
respects to the description thereof in the Offering Memorandum.
(n) On or prior to the Closing Date, the Registration Rights
Agreement will have been duly authorized by each of the Issuers and the Note
Guarantors and will have been duly executed and delivered by each of the Issuers
and each of the Note Guarantors. When the Registration Rights Agreement has been
duly executed and delivered, the Registration Rights Agreement will be a valid
and binding agreement of each of the Issuers and each of the Note Guarantors,
enforceable against each of the Issuers and each of the Note Guarantors in
accordance with its terms, except as (i) the enforceability thereof may be
limited by bankruptcy, insolvency or similar laws affecting creditors' rights
generally and (ii) the availability of equitable remedies may be limited by
equitable principles of general applicability. On the Closing Date, the
Registration Rights Agreement will conform in all material respects to the
description thereof in the Offering Memorandum.
(o) On or prior to the Closing Date, the Unit Agreement will
have been duly and validly authorized by each of the Issuers and the Note
Guarantors and, when duly executed and delivered by each of the Issuers and the
Note Guarantors, will be a valid and binding agreement of the Company,
enforceable against each of the Issuers and the Note Guarantors in accordance
with its terms, except as
<PAGE>
16
(i) the enforceability thereof may be limited by bankruptcy, insolvency or
similar laws affecting creditors' rights generally, (ii) rights of acceleration
and the availability of equitable remedies may be limited by equitable
principles of general applicability and (iii) rights to indemnity and
contribution thereunder may be limited by applicable law.
(p) On or prior to the Closing Date, the Issuers and the Note
Guarantors will have duly and validly authorized the issuance of the Senior
Subordinated Notes and the Unit Common Stock as a Unit. When the Units are
issued and delivered to and paid for by the Initial Purchasers in accordance
with the terms of this Agreement, the Units will be valid and binding
obligations of the Issuers and the Note Guarantors, enforceable in accordance
with their terms except as (i) the enforceability thereof may be limited by
bankruptcy, insolvency or similar laws affecting creditors' rights generally and
(ii) rights of acceleration and the availability of equitable remedies may be
limited by equitable principles of general applicability. On the Closing Date,
the Units will conform in all material respects to the description thereof in
the Offering Memorandum.
(q) On or prior to the Closing Date, the Stockholders
Agreement will have been duly authorized by the Company and each of the WRC
Stockholders and will have been duly executed and delivered by the Company and
each of the WRC Stockholders. When the Stockholders Agreement has been duly
executed and delivered by the Company and the WRC Stockholders, the Stockholders
Agreement will be a valid and binding agreement of the Company and each of the
WRC Stockholders, enforceable against the Company and each WRC Stockholder in
accordance with its terms, except as (i) the enforceability thereof may be
limited by bankruptcy, insolvency, fraudulent transfer or similar laws affecting
creditors' rights generally, (ii) rights of acceleration and the availability of
equitable remedies may be limited by equitable principles of general
applicability and (iii) rights of indemnification in connection with violations
of any securities laws, statutory duties or willful, reckless or unlawful acts.
On the Closing Date, the Stockholders Agreement will conform in all material
respects to the description of the Offering Memorandum.
(r) The Recapitalization Agreement has been duly authorized,
executed and delivered by the Company and is a valid and binding agreement of
the Company, enforceable against the Company in accordance with its terms,
except as (i) the enforceability thereof may be limited by bankruptcy,
insolvency or similar laws affecting creditors' rights
<PAGE>
17
generally, (ii) the availability of equitable remedies may be limited by
equitable principles of general applicability, and (iii) the enforceability
thereof may be limited by an implied covenant of good faith and fair dealing. On
the Closing Date, the Recapitalization Agreement will conform in all material
respects to the description thereof in the Offering Memorandum.
(s) On or prior to the Closing Date, the Senior Credit
Facilities will have been duly authorized by each of the Issuers and each of the
Note Guarantors and will have been duly executed and delivered by each of the
Issuers and each of the Note Guarantors. When the Senior Credit Facilities have
been duly executed and delivered, the Senior Credit Facilities will be a valid
and binding agreement of each of the Issuers and each of the Note Guarantors,
enforceable against each of the Issuers and each of the Note Guarantors in
accordance with its terms, except as (i) the enforceability thereof may be
limited by bankruptcy, insolvency or similar laws affecting creditors' rights
generally and (ii) rights of acceleration and the availability of equitable
remedies may be limited by equitable principles of general applicability. On the
Closing Date, the Senior Credit Facilities will conform in all material respects
to the description thereof in the Offering Memorandum.
(t) The indebtedness represented by the Senior Subordinated
Notes is being incurred for proper purposes and in good faith. On the Closing
Date (after giving effect to the application of the proceeds from the issuance
of the Units), (a) the fair value and present fair saleable value of the
Issuers' assets exceeds and would exceed its stated liabilities and identified
contingent liabilities, (b) each of the Issuers should be able to pay its debts
as they become absolute and matured and (c) the capital the Issuers is not and
would not be unreasonably small for the business in which it is engaged.
(u) (i)(A) As of the date hereof, neither the Company nor JLC
Learning is in violation of its respective charter or by-laws and (B) as of the
Closing Date, none of Weekly Reader or the Note Guarantors will be in violation
of its respective charter or by-laws and (ii) neither the Company nor JLC
Learning is in default in the performance of any obligation, agreement, covenant
or condition contained in any indenture, loan agreement, mortgage, lease or
other agreement or instrument that is material to the Issuers and the Note
Guarantors, taken as a whole, to which the Company or JLC Learning is a party or
by which the Company or JLC Learning or their respective properties are bound
and none
<PAGE>
18
of Weekly Reader or the Note Guarantors is in default in the performance of any
obligation, agreement, covenant or condition contained in any Material Contract
(as defined in the Recapitalization Agreement) that is material to the Issuers
and the Note Guarantors, taken as a whole, to which Weekly Reader or any of the
Note Guarantors is a party or by which Weekly Reader or any of the Note
Guarantors or their respective properties are bound except, in the case of
clause (i)(B) and clause(ii), for such defaults which, singly or in the
aggregate, would not reasonably be expected to have a Material Adverse Effect.
(v) The execution, delivery and performance of this Agreement,
the other Operative Documents and the Recapitalization Agreement by each of the
Issuers and each of the Note Guarantors, compliance by each of the Issuers and
each of the Note Guarantors with all provisions hereof and thereof and the
consummation of the transactions contemplated hereby, thereby and the
consummation of the Transactions will not (i) require any consent, approval,
authorization or other order of, or qualification with, any court or
governmental body or agency (except such as (a) have been or will be obtained
prior to the Closing Date and (b) may be required under the securities or Blue
Sky laws of the various states), (ii) conflict with or constitute a breach of
any of the terms or provisions of, or a default under (a) the charter or by-laws
of any of the Issuers or the Note Guarantors (in the case of Weekly Reader, as
amended by the Charter Amendment (as defined in the Recapitalization Agreement))
or (b) any indenture, loan agreement, mortgage, lease or other agreement or
instrument that is material to the Issuers and the Note Guarantors, taken as a
whole, to which any of the Issuers or the Note Guarantors is a party or by which
the Issuers or any of the Note Guarantors or their respective properties are
bound, (iii) violate or conflict with any applicable law or any rule,
regulation, judgment, order or decree of any court or any governmental body or
agency having jurisdiction over any of the Issuers or the Note Guarantors or
their respective properties, (iv) result in the imposition or creation of (or
the obligation to create or impose) a Lien under any agreement or instrument to
which any of the Issuers or the Note Guarantors are a party or by which any of
the Issuers or the Note Guarantors or their respective properties are bound, or
(v) result in the termination, suspension or revocation of any Authorization (as
defined below) of any of the Issuers or the Note Guarantors or result in any
other impairment of the rights of the holder of any such Authorization, except,
in the case of clauses (i), (ii)(b), (iii), (iv) and (v), as singly or in the
aggregate, would
<PAGE>
19
not reasonably be expected to have a Material Adverse Effect.
(w) There are no legal or governmental proceedings pending or,
to any Issuer's or any Note Guarantor's knowledge, threatened to which any of
the Issuers or the Note Guarantors is, or, to any Issuer's or any Note
Guarantor's knowledge, is threatened to be made, a party or to which any of
their respective properties are, or, to any Issuer's or any Note Guarantor's
knowledge, are threatened to be made, subject, which would, singly or in the
aggregate, reasonably be expected to have a Material Adverse Effect.
(x) None of the Issuers or the Note Guarantors has and, after
giving effect to the Recapitalization in accordance with the terms of the
Recapitalization Agreement, will have violated any foreign, federal, state or
local law or regulation relating to the protection of human health and safety,
the environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("ENVIRONMENTAL LAWS"), any provisions of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), or any provisions of the
Foreign Corrupt Practices Act or the rules and regulations promulgated
thereunder, except for such violations which would not, singly or in the
aggregate, reasonably be expected to have a Material Adverse Effect.
(y) There are no and, after giving effect to the
Recapitalization in accordance with the terms of the Recapitalization Agreement,
there will be no costs or liabilities associated with Environmental Laws in
effect as of or prior to the Closing Date (including, without limitation, any
capital or operating expenditures required for clean-up, closure of properties
or compliance with Environmental Laws or any Authorization, any related
constraints on operating activities and any potential liabilities to third
parties) which would, singly or in the aggregate, reasonably be expected to have
a Material Adverse Effect.
(z) Each of the Issuers and the Note Guarantors has and, after
giving effect to the Recapitalization in accordance with the terms of the
Recapitalization Agreement, will have such permits, licenses, consents,
exemptions, franchises, authorizations and other approvals (each, an
"AUTHORIZATION") of, and has and, after giving effect to the Recapitalization in
accordance with the terms of the Recapitalization Agreement, will have made all
filings with and notices to, all governmental or regulatory authorities and
self-regulatory organizations and all courts and other
<PAGE>
20
tribunals, including without limitation, under any applicable Environmental
Laws, as are necessary to own, lease, license and operate its respective
properties and to conduct its business, except where the failure to have any
such Authorization or to make any such filing or notice would not, singly or in
the aggregate, reasonably be expected to have a Material Adverse Effect. Each
such Authorization is and, after giving effect to the Recapitalization in
accordance with the terms of the Recapitalization Agreement, will be valid and
in full force and effect, and each of the Company and its subsidiaries is and,
after giving effect to the Recapitalization in accordance with the terms of the
Recapitalization Agreement, will be in compliance with all the terms and
conditions thereof and with the rules and regulations of the authorities and
governing bodies having jurisdiction with respect thereto; and no event has
occurred (including, without limitation, the receipt of any notice from any
authority or governing body) which allows or, after notice or lapse of time or
both, would allow, revocation, suspension or termination of any such
Authorization or results or, after notice or lapse of time or both, would result
in any other impairment of the rights of the holder of any such Authorization;
and such Authorizations contain and, after giving effect to the Recapitalization
in accordance with the terms of the Recapitalization Agreement, will contain, no
restrictions that are burdensome to any of the Issuers or the Note Guarantors;
except where such failure to be valid and in full force and effect or to be in
compliance, the occurrence of any such event or the presence of any such
restriction would not, singly or in the aggregate, reasonably be expected to
have a Material Adverse Effect.
(aa) Each of the Issuers and the Note Guarantors has and,
immediately after the Recapitalization in accordance with the terms of the
Recapitalization Agreement, will have, good and marketable title in fee simple
to all real property owned by any of them, good and valid title to the leasehold
estates on all real property leased by them, and good and valid title to all
personal property owned by it that is material to the business of the Issuers
and the Note Guarantors, in each case free and clear of all Liens and defects,
except Liens described in the Offering Memorandum and except Liens which would
not, singly or in the aggregate, reasonably be expected to have a Material
Adverse Effect.
(bb) Each of the Issuers and the Note Guarantors owns or
possesses, and immediately after the Recapitalization in accordance with the
terms of the
<PAGE>
21
Recapitalization Agreement, will own or possess, or has acquired sufficient
right to use or otherwise exploit, or can acquire on reasonable terms, all
patents, patent rights, licenses, inventions, copyrights, know-how (including
trade secrets and other unpatented and/or unpatentable proprietary or
confidential information, systems or procedures), trademarks, service marks and
trade names ("INTELLECTUAL PROPERTY") currently employed by it in connection
with the business now operated, or immediately after the Recapitalization in
accordance with the terms of the Recapitalization Agreement, to be operated by
the Issuers and the Note Guarantors, except where the failure to own or possess
or have sufficient right to use or otherwise exploit or otherwise be able to
acquire such intellectual property would not, singly or in the aggregate, have a
Material Adverse Effect. None of the Issuers or the Note Guarantors received any
notice of infringement of or conflict with asserted rights of others with
respect to any of such intellectual property that, singly or in the aggregate,
if the subject of an unfavorable decision, ruling or finding, would have a
Material Adverse Effect.
(cc) Each of the Issuers and the Note Guarantors has and,
immediately after the Recapitalization in accordance with the terms of the
Recapitalization Agreement, will have insurance covering their respective
businesses, which insurance is in amounts and insures against such losses and
risks as are adequate to protect each of them and their respective businesses
and is customary for companies engaged in similar businesses or similar
industries. To the best of their knowledge, none of the Issuers or the Note
Guarantors has received notice from any insurer or agent of such insurer that
substantial capital improvements or other material expenditures will have to be
made in order to continue such insurance.
(dd) The accountants that have certified the financial
statements included in the Preliminary Offering Memorandum and the Offering
Memorandum are independent public accountants with respect to the Issuers and
the Note Guarantors, as required by Rule 101 of the American Institute of
Certified Public Accountants' Code of Professional Conduct and its
interpretations and rulings thereunder.
(ee) The historical financial statements, together with
related notes forming part of the Offering Memorandum (and any amendment or
supplement thereto), present fairly the consolidated financial position, results
of operations and changes in financial position of (i) Weekly Reader and its
subsidiaries, (ii) American
<PAGE>
22
Guidance Service, Inc. and (iii) JLC Learning on the basis stated in the
Offering Memorandum at the respective dates or for the respective periods to
which they apply; such statements and related notes have been prepared in
accordance with generally accepted accounting principles consistently applied
throughout the periods involved, except as disclosed therein; and the other
financial and statistical information and data set forth in the Offering
Memorandum (and any amendment or supplement thereto) are, in all material
respects, accurately presented and prepared on a basis consistent with such
financial statements and the books and records of the entities for which they
were prepared.
(ff) The PRO FORMA financial statements included in the
Preliminary Offering Memorandum and the Offering Memorandum have been prepared
on a basis consistent with the historical financial statements included in the
Offering Memorandum (except for the PRO FORMA adjustments specified therein) and
give effect to assumptions used in the preparation thereof on a reasonable basis
and in good faith and present fairly the historical and proposed transactions
contemplated by the Preliminary Offering Memorandum and the Offering Memorandum;
and such PRO FORMA financial statements include all material adjustments to the
historical financial information required by Rule 11-02 of Regulation S-X under
the Act to reflect the transactions described in the Offering Memorandum. The
other PRO FORMA financial and statistical information and data included in the
Offering Memorandum are, in all material respects, accurately presented and
prepared on a basis consistent with the PRO FORMA financial statements.
(gg) The Issuers and the Note Guarantors are not and, after
giving effect to the Recapitalization in accordance with the terms of the
Recapitalization Agreement, the offering and sale of the Units and the
application of the net proceeds thereof as described in the Offering Memorandum,
will not be, an "investment company," as such term is defined in the Investment
Company Act of 1940, as amended.
(hh) Except as disclosed in the Offering Memorandum, there are
and, after giving effect to the Recapitalization in accordance with the terms of
the Recapitalization Agreement, there will be no contracts, agreements or
understandings between any Issuer or any Note Guarantor and any person granting
such person the right to require such Issuer or each Note Guarantor to file a
registration statement under the Act with respect to any securities of such
Issuer or each Note Guarantor or to
<PAGE>
23
require such Issuer or each Note Guarantor to include such securities with the
Securities and Note Guarantees registered pursuant to any Registration Statement
or the Equity Registration Statement.
(ii) None of the Issuers or the Note Guarantors or any agent
thereof acting on the behalf of them has taken, and none of them will take, any
action that might cause this Agreement or the issuance or sale of the Units to
violate, Regulation T (12 C.F.R. Part 220), Regulation U (12 C.F.R. Part 221) or
Regulation X (12 C.F.R. Part 224) of the Board of Governors of the Federal
Reserve System.
(jj) Since the date of the Preliminary Offering Memorandum, no
"nationally recognized statistical rating organization" as such term is defined
for purposes of Rule 436(g)(2) under the Act (i) has imposed (or has informed
any Issuer or any Note Guarantor that it is considering imposing) any condition
(financial or otherwise) on any Issuer's or any Note Guarantor's retaining any
rating assigned to any Issuer or any Note Guarantor, any securities of any
Issuer or any Note Guarantor or (ii) has indicated to any Issuer or any Note
Guarantor that it is considering (a) the downgrading, suspension, or withdrawal
of, or any review for a possible change that does not indicate the direction of
the possible change in, any rating so assigned or (b) any change in the outlook
for any rating of any Issuer, any Note Guarantor or any securities of any Issuer
or any Note Guarantor.
(kk) Since the respective dates as of which information is
given in the Offering Memorandum, other than as set forth in the Offering
Memorandum (exclusive of any amendments or supplements thereto subsequent to the
date of this Agreement), (i) there has not occurred any material adverse change
or any development involving a prospective material adverse change in the
business, assets, condition (financial or otherwise), results of operations, or
prospects of the Issuers and the Note Guarantors, taken as a whole, (ii) there
has not been any material adverse change or any development involving a
prospective material adverse change in the capital stock or in the long-term
debt of any of the Issuers or the Note Guarantors and (iii) none of the Issuers
or the Note Guarantors has incurred any material liability or obligation, direct
or contingent, except, in the case of this clause (iii), for such liabilities or
obligations which, singly or in the aggregate, would not reasonably be expected
to have a Material Adverse Effect.
(ll) The Company has delivered to the Initial
Purchasers true and correct conformed copies of the
<PAGE>
24
Recapitalization Agreement, including all schedules and exhibits thereto, and
there have been no amendments, alterations, modifications or waivers thereto or
in the exhibits or schedules thereto, except as have been delivered to the
Initial Purchasers.
(mm) No labor disturbance by or dispute with the employees of
any of the Issuers or the Note Guarantors exists, or, to the best of their
knowledge, is contemplated or threatened, except for such disturbances or
disputes that, singly or in the aggregate, would not have a Material Adverse
Effect.
(nn) The Issuers and the Note Guarantors maintain a system of
internal accounting controls sufficient to provide reasonable assurance that:
(i) transactions are executed in accordance with management's general or
specific authorizations; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain asset accountability; (iii) access to
assets is permitted only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(oo) All material tax returns required to be filed by the
Issuers and the Note Guarantors in any jurisdiction have been filed, other than
those filings being contested in good faith, and all material taxes, including
withholding taxes, penalties and interest, assessments, fees and other charges
due pursuant to such returns or pursuant to any assessment received by any of
the Issuers or the Note Guarantors have been paid, other than those being
contested in good faith and for which adequate reserves have been provided or
other than those which, singly or in the aggregate, would not reasonably be
expected to have a Material Adverse Effect.
(pp) Each of the Preliminary Offering Memorandum and the
Offering Memorandum, as of its date, contains all the information specified in,
and meeting the requirements of, Rule 144A(d)(4) under the Act.
(qq) When the Securities and the Note Guarantees are issued
and delivered pursuant to this Agreement, neither the Securities nor the Note
Guarantees will be of the same class (within the meaning of Rule 144A under the
Act) as any security of the Issuers or the Note Guarantors that is listed on a
national securities exchange registered under
<PAGE>
25
Section 6 of the Exchange Act or that is quoted in a United States automated
inter-dealer quotation system.
(rr) No form of general solicitation or general advertising
(as defined in Regulation D under the Act) was used by the Issuers, the Note
Guarantors or any of their respective representatives (other than the Initial
Purchasers, as to whom the Issuers make no representation) in connection with
the offer and sale of the Units contemplated hereby, including, but not limited
to, articles, notices or other communications published in any newspaper,
magazine, or similar medium or broadcast over television or radio, or any
seminar or meeting whose attendees have been invited by any general solicitation
or general advertising. No securities of the same class as the Units have been
issued and sold by the Issuers within the six-month period immediately prior to
the date hereof.
(ss) Prior to the effectiveness of any Registration
Statement, the Indenture is not required to be qualified under the TIA.
(tt) None of the Issuers, the Note Guarantors nor any of their
respective affiliates or any person acting on its or their behalf (other than
the Initial Purchasers, as to whom the Issuers make no representation) has
engaged or will engage in any directed selling efforts within the meaning of
Regulation S under the Act ("REGULATION S") with respect to the Units or the
Note Guarantees.
(uu) The Units offered and sold in reliance on Regulation S
have been and will be offered and sold only in offshore transactions.
(vv) The sale of the Units pursuant to Regulation S is not
part of a plan or scheme to evade the registration provisions of the Act;
provided that, the Issuers and the Note Guarantors make no representation as to
actions taken by the Initial Purchasers.
(ww) The Issuers, the Note Guarantors and their respective
affiliates and all persons acting on their behalf (other than the Initial
Purchasers, as to whom the Issuers makes no representation) have complied with
and will comply with the offering restrictions requirements of Regulation S in
connection with the offering of the Units outside the United States and, in
connection therewith, the Offering Memorandum will contain the disclosure
required by Rule 902(g).
<PAGE>
26
(xx) The Securities sold in reliance on Regulation S will be
represented upon issuance by a temporary global security that may not be
exchanged for definitive securities until the expiration of the distribution
compliance periods referred to in Rule 903(c)(3) of the Act and only upon
certification of beneficial ownership of such Security by non-U.S. persons or
U.S. persons who purchased such Securities in transactions that were exempt from
the registration requirements of the Act.
(yy) No registration under the Act of the Securities or the
Note Guarantees is required for the sale of the Securities and the Note
Guarantees to the Initial Purchasers as contemplated hereby or for the Exempt
Resales, assuming the accuracy of the Initial Purchasers' representations and
warranties and agreements set forth in Section 7 hereof.
(zz) Each certificate signed by any officer of any Issuer or
any Note Guarantor and delivered to the Initial Purchasers or counsel for the
Initial Purchasers shall be deemed to be a representation and warranty by such
Issuer or each Note Guarantor to the Initial Purchasers as to the matters
covered thereby.
(aaa) The Unit Common Stock, when issued on the Closing Date,
will represent 3.0% of the fully-diluted Common Stock of the Company.
The Issuers acknowledge that the Initial Purchasers and, for
purposes of the opinions to be delivered to the Initial Purchasers pursuant to
Section 9 hereof, counsel to the Issuers and the Note Guarantors and counsel to
the Initial Purchasers, will rely upon the accuracy and truth of the foregoing
representations and hereby consents to such reliance.
7. INITIAL PURCHASERS' REPRESENTATIONS AND WARRANTIES. Each of
the Initial Purchasers, severally and not jointly, represents and warrants to
the Issuers and the Note Guarantors, and agrees that:
(a) Such Initial Purchaser is either a QIB or an institutional
"accredited investor" (as defined in Rule 501(a)(1), (2), (3) or (7) under the
Act) (an "ACCREDITED INSTITUTION"), in either case, with such knowledge and
experience in financial and business matters as is necessary in order to
evaluate the merits and risks of an investment in the Units.
<PAGE>
27
(b) Such Initial Purchaser (A) is not acquiring the Units with
a view to any distribution thereof or with any present intention of offering or
selling any of the Units in a transaction that would violate the Act or the
securities laws of any state of the United States or any other applicable
jurisdiction and (B) will be reoffering and reselling the Units only (x) to QIBs
in reliance on the exemption from the registration requirements of the Act
provided by Rule 144A and (y) in offshore transactions in reliance upon
Regulation S under the Act.
(c) Such Initial Purchaser agrees that no form of general
solicitation or general advertising (within the meaning of Regulation D under
the Act) has been or will be used by such Initial Purchaser or any of its
representatives in connection with the offer and sale of the Units pursuant
hereto, including, but not limited to, articles, notices or other communications
published in any newspaper, magazine or similar medium or broadcast over
television or radio, or any seminar or meeting whose attendees have been invited
by any general solicitation or general advertising.
(d) Such Initial Purchaser agrees that, in connection with
Exempt Resales, such Initial Purchaser will solicit offers to buy the Units only
from, and will offer to sell the Units only to, Eligible Purchasers. Each
Initial Purchaser further agrees that it will offer to sell the Units only to,
and will solicit offers to buy the Units only from (A) Eligible Purchasers that
the Initial Purchaser reasonably believes are QIBs and (B) Regulation S
Purchasers, in each case, that agree that (x) the Units purchased by them may be
resold, pledged or otherwise transferred within the time period referred to
under Rule 144(k) (taking into account the provisions of Rule 144(d) under the
Act, if applicable) under the Act, as in effect on the date of the transfer of
such Units, only (I) to the Company or any of its subsidiaries, (II) to a person
whom the seller reasonably believes is a QIB purchasing for its own account or
for the account of a QIB in a transaction meeting the requirements of Rule 144A
under the Act, (III) in an offshore transaction (as defined in Rule 902 under
the Act) meeting the requirements of Rule 904 of the Act, (IV) in a transaction
meeting the requirements of Rule 144 under the Act, (V) to an Accredited
Institution that, prior to such transfer, furnishes the Trustee a signed letter
containing certain representations and agreements relating to the registration
of transfer of such Units (the form of which is substantially the same as an
exhibit to the Indenture) and, if such transfer is in respect of an aggregate
principal amount of Units less than $250,000, an opinion of counsel acceptable
to the Company that such
<PAGE>
28
transfer is in compliance with the Act, (VI) in accordance with another
exemption from the registration requirements of the Act (and based upon an
opinion of counsel acceptable to the Company) or (VII) pursuant to an effective
registration statement and, in each case, in accordance with the applicable
securities laws of any state of the United States or any other applicable
jurisdiction and (y) they will deliver to each person to whom such Units or an
interest therein is transferred a notice substantially to the effect of the
foregoing.
(e) Neither such Initial Purchaser nor any of its affiliates
or any person acting on its or their behalf has engaged or will engage in any
directed selling efforts within the meaning of Regulation S with respect to the
Units or the Note Guarantees.
(f) The Units offered and sold by such Initial Purchaser
pursuant hereto in reliance on Regulation S have been and will be offered and
sold only in offshore transactions.
(g) The sale of the Units offered and sold by such Initial
Purchaser pursuant hereto in reliance on Regulation S is not part of a plan or
scheme to evade the registration provisions of the Act.
(h) Such Initial Purchaser agrees that it has not offered or
sold and will not offer or sell the Units in the United States or to, or for the
benefit or account of, a U.S. Person (other than a distributor), in each case,
as defined in Rule 902 under the Act (i) as part of its distribution at any time
and (ii) otherwise until the end of the distribution compliance periods in
connection with the commencement of the offering of the Units pursuant hereto
and the Closing Date, other than in accordance with Regulation S of the Act or
another exemption from the registration requirements of the Act. Such Initial
Purchaser agrees that, during such distribution compliance periods, it will not
cause any advertisement with respect to the Units (including any "tombstone"
advertisement) to be published in any newspaper or periodical or posted in any
public place and will not issue any circular relating to the Units, except such
advertisements as permitted by and include the statements required by Regulation
S.
(i) Such Initial Purchaser agrees that, at or prior to
confirmation of a sale of Units by it to any distributor, dealer or person
receiving a selling concession, fee or other remuneration during the
distribution compliance periods referred to in
<PAGE>
29
Rule 903(c)(3) under the Act, it will send to such distributor, dealer or person
receiving a selling concession, fee or other remuneration a confirmation or
notice to substantially the following effect:
"The Securities covered hereby have not been registered under the U.S.
Securities Act of 1933, as amended (the "Act"), and may not be offered
and sold within the United States or to, or for the account or benefit
of, U.S. persons (i) as part of your distribution at any time or (ii)
otherwise until the end of the distribution compliance period in
connection with the commencement of the Offering and the Closing Date,
except in either case in accordance with Regulation S under the Act (or
Rule 144A or to Accredited Institutions in transactions that are exempt
from the registration requirements of the Act), and in connection with
any subsequent sale by you of the Securities covered hereby in reliance
on Regulation S during the period referred to above to any distributor,
dealer or person receiving a selling concession, fee or other
remuneration, you must deliver a notice to substantially the foregoing
effect. Terms used above have the meanings assigned to them in
Regulation S."
(j) Such Initial Purchaser agrees that the Units offered and
sold in reliance on Regulation S will be represented upon issuance by a global
security that may not be exchanged for definitive securities until the
expiration of the distribution compliance period referred to in Rule 903(c)(3)
of the Act and only upon certification of beneficial ownership of such Units by
non-U.S. persons or U.S. persons who purchased such Units in transactions that
were exempt from the registration requirements of the Act.
Such Initial Purchaser acknowledges that the Issuers and the
Note Guarantors and, for purposes of the opinions to be delivered to each
Initial Purchaser pursuant to Section 9 hereof, counsel to the Issuers and the
Note Guarantors and counsel to the Initial Purchasers will rely upon the
accuracy and truth of the foregoing representations, and such Initial Purchaser
hereby consents to such reliance.
8. INDEMNIFICATION.
(a) Each of the Issuers and the Note Guarantors agree, jointly
and severally, to indemnify and hold harmless each Initial Purchaser, its
directors, its officers and each person, if any, who controls such Initial
Purchaser within the meaning of Section 15 of the Act or Section 20 of the
<PAGE>
30
Exchange Act, from and against any and all losses, claims, damages, liabilities
and judgments (including, without limitation, any legal or other expenses
incurred in connection with investigating or defending any matter, including any
action, that could give rise to any such losses, claims, damages, liabilities or
judgments) caused by any untrue statement or alleged untrue statement of a
material fact contained in the Offering Memorandum (or any amendment or
supplement thereto), the Preliminary Offering Memorandum or any Rule 144A
Information provided by any Issuer or any Note Guarantor to any holder or
prospective purchaser of Units pursuant to Section 5(h) or caused by any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading,
except insofar as such losses, claims, damages, liabilities or judgments are
caused by any untrue statement or omission or alleged untrue statement or
omission made in reliance upon and in conformity with information furnished to
the Issuers in writing by any Initial Purchaser expressly for use therein;
PROVIDED, HOWEVER, that the foregoing indemnity agreement with respect to any
Preliminary Offering Memorandum shall not inure to the benefit of any Initial
Purchaser from whom the person asserting any such losses, claims, damages or
liabilities purchased Units, or any person controlling such Initial Purchaser,
if a copy of the Offering Memorandum (as then amended or supplemented if the
Issuers shall have furnished any amendments or supplements thereto) was not seen
or given by or on behalf of such Initial Purchaser to such person, if required
by law so to have been delivered, at or prior to the written confirmation of the
sale of the Units to such person, and if the Offering Memorandum (as so amended
or supplemented) would have corrected any such untrue statement of a material
fact contained in, and each omission or alleged omission of material fact from,
such Preliminary Offering Memorandum giving rise to such losses, claims, damages
or liabilities, unless such failure is the result of noncompliance by the
Issuers with Section 5(b) hereof.
(b) The Initial Purchasers agree, severally and not jointly,
to indemnify and hold harmless the Issuers and the Note Guarantors, and their
respective directors and officers and each person, if any, who controls (within
the meaning of Section 15 of the Act or Section 20 of the Exchange Act) the
Issuers or any Note Guarantor, to the same extent as the foregoing indemnity
from the Issuers and the Note Guarantors to each Initial Purchaser but only with
reference to information furnished in writing to the Issuers by any Initial
Purchaser expressly for use in the Preliminary Offering Memorandum or the
Offering Memorandum.
<PAGE>
31
(c) In case any action shall be commenced involving any person
in respect of which indemnity may be sought pursuant to Section 8(a) or 8(b)
(the "INDEMNIFIED PARTY"), the indemnified party shall promptly notify the
person against whom such indemnity may be sought (the "INDEMNIFYING PARTY") in
writing and the indemnifying party shall assume the defense of such action,
including the employment of counsel reasonably satisfactory to the indemnified
party and the payment of all fees and expenses of such counsel, as incurred
(except that in the case of any action in respect of which indemnity may be
sought pursuant to both Sections 8(a) and 8(b), the Initial Purchasers shall not
be required to assume the defense of such action pursuant to this Section 8(c),
but may employ separate counsel and participate in the defense thereof, but the
fees and expenses of such counsel, except as provided below, shall be at the
expense of the Initial Purchasers). Any indemnified party shall have the right
to employ separate counsel in any such action and participate in the defense
thereof, but the fees and expenses of such counsel shall be at the expense of
the indemnified party unless (i) the employment of such counsel shall have been
specifically authorized in writing by the indemnifying party, (ii) the
indemnifying party shall have failed to assume the defense of such action or
employ counsel reasonably satisfactory to the indemnified party or (iii) the
named parties to any such action (including any impleaded parties) include both
the indemnified party and the indemnifying party, and the indemnified party
shall have been advised by such counsel that there may be one or more legal
defenses available to it which are different from or additional to those
available to the indemnifying party (in which case the indemnifying party shall
not have the right to assume the defense of such action on behalf of the
indemnified party). In any such case, the indemnifying party shall not, in
connection with any one action or separate but substantially similar or related
actions in the same jurisdiction arising out of the same general allegations or
circumstances, be liable for the fees and expenses of more than one separate
firm of attorneys (in addition to any local counsel) for all indemnified parties
and all such fees and expeses shall be reimbursed as they are incurred. Such
firm shall be designated in writing by Donaldson, Lufkin & Jenrette Securities
Corporation, in the case of the parties indemnified pursuant to Section 8(a),
and by the Issuers, in the case of parties indemnified pursuant to Section 8(b).
No indemnifying party shall be liable for any settlement of any such action
effected without its written consent, but if settled with its written consent,
which consent will not be unreasonably withheld, the indemnifying party shall
indemnify and hold harmless the indemnified party from and
<PAGE>
32
against any and all losses, claims, damages, liabilities and judgments by reason
of any settlement of any action effected with its written consent. No
indemnifying party shall, without the prior written consent of the indemnified
party, effect any settlement or compromise of, or consent to the entry of
judgment with respect to, any pending or threatened action in respect of which
the indemnified party is or could have been a party and indemnity or
contribution may be or could have been sought hereunder by the indemnified
party, unless such settlement, compromise or judgment (i) includes an
unconditional release of the indemnified party from all liability on claims that
are or could have been the subject matter of such action and (ii) does not
include a statement as to or an admission of fault, culpability or a failure to
act, by or on behalf of the indemnified party.
(d) To the extent the indemnification provided for in this
Section 8 is unavailable to an indemnified party or insufficient in respect of
any losses, claims, damages, liabilities or judgments referred to therein, then
each indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages, liabilities and judgments (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Issuers and the Note Guarantors, on the one hand, and the Initial Purchasers, on
the other hand, from the offering of the Units or (ii) if the allocation
provided by clause 8(d)(i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause 8(d)(i) above but also the relative fault of the Issuers and the
Note Guarantors, on the one hand, and the Initial Purchasers, on the other hand,
in connection with the statements or omissions which resulted in such losses,
claims, damages, liabilities or judgments, as well as any other relevant
equitable considerations. The relative benefits received by the Issuers and the
Note Guarantors, on the one hand, and the Initial Purchasers, on the other hand,
shall be deemed to be in the same proportion as the total net proceeds from the
offering of the Units (after underwriting discounts and commissions, but before
deducting expenses) received by the Issuers, and the total discounts and
commissions received by the Initial Purchasers bear to the total price to
investors of the Units, in each case as set forth in Schedule C hereto. The
relative fault of the Issuers and the Note Guarantors, on the one hand, and the
Initial Purchasers, on the other hand, shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to
<PAGE>
33
state a material fact relates to information supplied by the Issuers or the Not
Guarantors, on the one hand, or the Initial Purchasers, on the other hand, and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission.
The Issuers and the Note Guarantors and the Initial Purchasers
agree that it would not be just and equitable if contribution pursuant to this
Section 8(d) were determined by pro rata allocation (even if the Initial
Purchasers were treated as one entity for such purpose) or by any other method
of allocation which does not take account of the equitable considerations
referred to in the immediately preceding paragraph. The amount paid or payable
by an indemnified party as a result of the losses, claims, damages, liabilities
or judgments referred to in the immediately preceding paragraph shall be deemed
to include, subject to the limitations set forth above, any legal or other
expenses incurred by such indemnified party in connection with investigating or
defending any matter, including any action, that could have given rise to such
losses, claims, damages, liabilities or judgments. Notwithstanding the
provisions of this Section 8, the Initial Purchasers shall not be required to
contribute any amount in excess of the amount by which the total discounts and
commissions received by such Initial Purchasers exceeds the amount of any
damages which the Initial Purchasers have otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. The Initial Purchasers'
obligation to contribute pursuant to this Section 8(d) are several in proportion
to the respective principal amount of Units purchased by each of the Initial
Purchasers hereunder and not joint.
(e) The remedies provided for in this Section 8 are not
exclusive and shall not limit any rights or remedies which may otherwise be
available to any indemnified party at law or in equity.
9. CONDITIONS OF INITIAL PURCHASERS' OBLIGATIONS. The
obligations of the Initial Purchasers to purchase the Units under this Agreement
are subject to the satisfaction of each of the following conditions:
(a) All the representations and warranties of the
Issuers and the Note Guarantors contained in this Agreement
<PAGE>
34
shall be true and correct in all material respects on the Closing Date with the
same force and effect as if made on and as of the Closing Date.
(b) On or after the date hereof, (i) there shall not have
occurred any downgrading, suspension or withdrawal of, nor shall any notice have
been given of any potential or intended downgrading, suspension or withdrawal
of, or of any review (or of any potential or intended review) for a possible
change that does not indicate the direction of the possible change in, any
rating of any Issuer or any Note Guarantor or any securities of any Issuer or
any Note Guarantor (including, without limitation, the placing of any of the
foregoing ratings on credit watch with negative or developing implications or
under review with an uncertain direction) by any "nationally recognized
statistical rating organization" as such term is defined for purposes of Rule
436(g)(2) under the Act, (ii) there shall not have occurred any change, nor
shall notice have been given of any potential or intended change, in the outlook
for any rating of any Issuer or any Note Guarantor or any securities of any
Issuer or any Note Guarantor by any such rating organization and (iii) no such
rating organization shall have given notice that it has assigned (or is
considering assigning) a lower rating to the Units than that on which the Units
were marketed.
(c) Since the respective dates as of which information is
given in the Offering Memorandum, other than as set forth in the Offering
Memorandum (exclusive of any amendments or supplements thereto subsequent to the
date of this Agreement), (i) there shall not have occurred any change or any
development involving a prospective change in the business, assets, condition
(financial or otherwise), results of operations or prospects of the Issuers and
the Note Guarantors, taken as a whole, (ii) there shall not have been any change
or any development involving a prospective change in the capital stock or in the
long-term debt of the Issuers or any of the Note Guarantors and (iii) neither
any of the Issuers nor any of the Note Guarantors shall have incurred any
liability or obligation, direct or contingent, the effect of which, in any such
case described in clause 9(c)(i), 9(c)(ii) or 9(c)(iii), in your judgment, is
material and adverse and, in your judgment, makes it impracticable to market the
Units on the terms and in the manner contemplated in the Offering Memorandum.
(d) The Initial Purchasers shall have received on the Closing
Date a certificate dated the Closing Date, signed by the Presidents and the
Chief Financial Officers of the Issuers, confirming the matters set forth in
<PAGE>
35
Sections 6(kk), 9(a) and 9(b) and stating that each of the Issuers and the Note
Guarantors has complied in all material respects with all the agreements and
satisfied in all material respects all of the conditions herein contained and
required to be complied with or satisfied on or prior to the Closing Date.
(e) The Initial Purchasers shall have received on the Closing
Date an opinion (satisfactory to the Initial Purchasers and counsel for the
Initial Purchasers), dated the Closing Date, of Cravath, Swaine & Moore, counsel
for the Issuers and the Note Guarantors substantially in the form attached
hereto as Exhibit A.
(f) The Initial Purchasers shall have received on the Closing
Date an opinion, dated the Closing Date, of Latham & Watkins, counsel for the
Initial Purchasers, in form and substance reasonably satisfactory to the Initial
Purchasers.
(g) The Initial Purchasers shall have received, at the time
this Agreement is executed and at the Closing Date, letters dated the date
hereof or the Closing Date, as the case may be, in form and substance
satisfactory to the Initial Purchasers each of (i) Arthur Andersen LLP, (ii)
Deloitte & Touche LLP, and (iii) PricewaterhouseCoopers LLP, all of which are
independent public accountants, containing the information and statements of the
type ordinarily included in accountants' "comfort letters" to the Initial
Purchasers with respect to the financial statements and certain financial
information contained in the Offering Memorandum.
(h) The Units shall have been approved by the NASD for trading
and duly listed in PORTAL.
(i) The Initial Purchasers shall have received, or receive
substantially simultaneously with the closing of the offering of the Units, a
counterpart, conformed as executed, of the Indenture which shall have been
entered into by the Issuers, the Note Guarantors and the Trustee.
(j) The Company and JLC Learning shall have executed the
Registration Rights Agreement and the Initial Purchasers shall have received, or
receive substantially simultaneously with the closing of the offering of the
Units, an original copy thereof, duly executed by the Issuers and the Note
Guarantors.
<PAGE>
36
(k) The Company shall have executed the Unit Agreement and the
Initial Purchasers shall have received an original copy thereof, duly executed
by the Company.
(l) Each of the Issuers and the WRC Stockholders shall have
executed the Stockholders Agreement, and the Initial Purchasers shall have
received an original copy thereof, duly executed by the Company and each of the
Issuers and WRC Stockholders.
(m) The Senior Credit Facilities shall have been entered into
by the parties thereto, and the Initial Purchasers shall have received
counterparts, conformed as executed, thereof and of all other documents and
agreements entered into in connection therewith. Each condition to the closing
contemplated by the Senior Credit Facilities shall have been satisfied or
waived. There shall exist at and as of the Closing Date (after giving effect to
the transactions contemplated by this Agreement and the Recapitalization
Agreement) no conditions that would constitute a default (or an event that, with
notice or the lapse of time or both, would constitute a default) under the
Senior Credit Facilities. On the Closing Date, the closing under the Senior
Credit Facilities shall have been consummated on terms that conform in all
material respects to the description thereof in the Offering Memorandum.
(n) All documents relating to the Recapitalization shall have
been entered into by the parties thereto, and the Initial Purchasers shall have
received counterparts, conformed as executed, thereof and of all other documents
and agreements entered into in connection therewith. Each condition to the
closing of the transactions contemplated by the documents relating to the
Recapitalization shall have been satisfied or, with the Initial Purchasers'
specific approval, waived. There shall exist at and as of the Closing Date
(after giving effect to the transactions contemplated by this Agreement, the
Recapitalization Agreement and the Senior Credit Facilities) no condition that
would constitute a default (or an event that with notice or the lapse of time,
or both, would constitute a default) under the documents relating to the
Recapitalization. Prior to, or simultaneously with, the closing of the Offering,
the Recapitalization shall have been consummated on terms that conform in all
material respects to the description thereof in the Offering Memorandum. The
Initial Purchasers shall have received evidence satisfactory to the Initial
Purchasers that the Recapitalization has been so consummated.
<PAGE>
37
(o) On the Closing Date, Weekly Reader and the Note Guarantors
shall have approved, adopted, ratified and confirmed the execution, delivery and
performance of this Agreement by the Company and JLC Learning, and the Initial
Purchasers shall have received a counterpart of this Agreement executed by
Weekly Reader and each Note Guarantor as parties hereto.
(p) The Issuers and Note Guarantors shall not have failed in
any material respect at or prior to the Closing Date to perform or comply with
any of the agreements herein contained and required to be performed or complied
with by the Issuers or the Note Guarantors, as the case may be, at or prior to
the Closing Date.
(q) The Initial Purchasers shall have received, addressed to
the Initial Purchasers, a solvency certificate of the Chief Financial Officers
of the Issuers that is identical to the solvency certificate required to be
delivered to the lenders under the Senior Credit Facilities.
(r) The Initial Purchasers shall have received executed copies
of each of the employment agreements described in the Offering Memorandum under
the caption "Management- Employment Agreements."
10. INITIAL PURCHASERS' INFORMATION. The Issuers and the
Initial Purchasers acknowledge and agree for all purposes under this Agreement
that the statements with respect to the offering of the Units set forth in the
first sentence of the third paragraph, in the fourth sentence of the fourth
paragraph, in the sixth paragraph and in the fourth sentence of the eighth
paragraph under the caption "Plan of Distribution" in the Offering Memorandum
constitute the only information furnished to the Issuers in writing by the
Initial Purchasers expressly for use in the Offering Memorandum (or any
amendment or supplement thereto).
11. EFFECTIVENESS OF AGREEMENT AND TERMINATION. This Agreement
shall become effective upon the execution and delivery of this Agreement by the
parties hereto.
This Agreement may be terminated at any time on or prior to
the Closing Date by the Initial Purchasers by written notice to the Issuers if
any of the following has occurred: (i) any outbreak or escalation of hostilities
or other national or international calamity or crisis or change in economic
conditions or in the financial markets of the United States or elsewhere that,
in the Initial Purchasers' judgment, is material and adverse and, in the Initial
Purchasers' judgment, makes it impracticable to market the
<PAGE>
38
Units on the terms and in the manner contemplated in the Offering Memorandum,
(ii) the suspension or material limitation of trading in securities or other
instruments on the New York Stock Exchange, the American Stock Exchange, the
Chicago Board of Options Exchange or the Nasdaq National Market or limitation on
prices for securities or other instruments on any such exchange or the Nasdaq
National Market, (iii) the suspension of trading of any securities of any of the
Issuers or the Note Guarantors on any exchange or in the over-the-counter
market, (iv) the enactment, publication, decree or other promulgation of any
federal or state statute, regulation, rule or order of any court or other
governmental authority which in your opinion materially and adversely affects,
or will materially and adversely affect, the business, prospects, financial
condition or results of operations of the Issuers and the Note Guarantors, taken
as a whole, (v) the declaration of a banking moratorium by either federal or New
York State authorities or (vi) the taking of any action by any federal, state or
local government or agency in respect of its monetary or fiscal affairs which in
your opinion has a material adverse effect on the financial markets in the
United States and, in your judgment, makes it impracticable to market the Units
on the terms and in the manner contemplated in the Offering Memorandum.
12. MISCELLANEOUS.
Notices given pursuant to any provision of this Agreement
shall be addressed as follows: (i) if to the Issuers or any Note Guarantor, to 1
Rockefeller Plaza, 32nd Floor, New York, New York 10020 and (ii) if to the
Initial Purchasers, Donaldson, Lufkin & Jenrette Securities Corporation, 277
Park Avenue, New York, New York 10172, Attention: Syndicate Department, or in
any case to such other address as the person to be notified may have requested
in writing.
The respective indemnities, contribution agreements,
representations, warranties and other statements of the Issuers and the Note
Guarantors and the Initial Purchasers set forth in or made pursuant to this
Agreement shall remain operative and in full force and effect, and will survive
delivery of and payment for the Units, regardless of (i) any investigation, or
statement as to the results thereof, made by or on behalf of the Initial
Purchasers, the officers or directors of the Initial Purchasers, any person
controlling the Initial Purchasers, the Issuers and any Note Guarantor, the
officers or directors of the Issuers or any Note Guarantor, or any person
controlling the Issuers or any Note Guarantor, (ii)
<PAGE>
39
acceptance of the Units and payment for them hereunder and (iii) termination of
this Agreement.
If for any reason the Units are not delivered by or on behalf
of the Issuers as provided herein (other than as a result of any termination of
this Agreement pursuant to Section 11), the Issuers and each Note Guarantor,
jointly and severally, agree to reimburse the Initial Purchasers for all
out-of-pocket expenses (including the fees and disbursements of counsel)
incurred by them. Notwithstanding any termination of this Agreement, the Issuers
shall be liable for all expenses which it has agreed to pay pursuant to Section
5(i) hereof. The Issuers and each Note Guarantor also agree, jointly and
severally, to reimburse each Initial Purchaser and its officers, directors and
each person, if any, who controls such Initial Purchaser within the meaning of
Section 15 of the Act or Section 20 of the Exchange Act for any and all fees and
expenses (including without limitation the fees and expenses of counsel)
incurred by it in connection with enforcing its rights under this Agreement
(including without limitation its rights under Section 8).
Except as otherwise provided, this Agreement has been and is
made solely for the benefit of and shall be binding upon the Issuers and the
Note Guarantors, the Initial Purchasers, the Initial Purchasers' directors and
officers, any controlling persons referred to herein, the directors of the
Issuers and the Note Guarantors and their respective successors and assigns, all
as and to the extent provided in this Agreement, and no other person shall
acquire or have any right under or by virtue of this Agreement. The term
"successors and assigns" shall not include a purchaser of any of the Units from
the Initial Purchasers merely because of such purchase.
This Agreement shall be governed and construed in accordance
with the laws of the State of New York.
This Agreement may be signed in various counterparts which
together shall constitute one and the same instrument.
<PAGE>
40
Please confirm that the foregoing correctly sets forth the
agreement between the Issuers and the Initial Purchasers.
Very truly yours,
WRC MEDIA INC.
By: /s/ Charles Laurey
----------------------------------
Name: Charles Laurey
Title: Secretary
JLC LEARNING CORPORATION
By: /s/ Charles Laurey
----------------------------------
Name: Charles Laurey
Title: Secretary
<PAGE>
41
The foregoing Purchase Agreement is hereby confirmed and accepted as of the date
first above written.
Donaldson, Lufkin & Jenrette
Securities Corporation
By: /s/ D. Kete Cockrell, I
------------------------------
Name: Kete Cockrell, I
Title: Vice President
Banc of America Securities LLC
By: /s/ Daniel Kelly
------------------------------
Name: Daniel Kelly
Title: Principal
<PAGE>
42
To be executed on the Closing Date:
The undersigned hereby confirms that the foregoing letter, as of the date
thereof, correctly sets forth the agreement between the Initial Purchasers, WRC
Media Inc., JLC Learning Corporation and the undersigned.
Weekly Reader Corporation
By: /s/ Charles Laurey
------------------------------
Name: Charles Laurey
Title: Secretary
PRIMEDIA Reference Inc.
By: /s/ Charles Laurey
------------------------------
Name: Charles Laurey
Title: Secretary
Funk & Wagnalls Yearbook Corporation
By: /s/ Charles Laurey
------------------------------
Name: Charles Laurey
Title: Secretary
Lifetime Learning Systems, Inc.
By: /s/ Charles Laurey
------------------------------
Name: Charles Laurey
Title: Secretary
<PAGE>
43
Gareth Stevens, Inc.
By: /s/ Charles Laurey
------------------------------
Name: Charles Laurey
Title: Secretary
American Guidance Service, Inc.
By: /s/ Charles Laurey
------------------------------
Name: Charles Laurey
Title: Secretary
AGS International Sales, Inc.
By: /s/ Charles Laurey
------------------------------
Name: Charles Laurey
Title: Secretary
<PAGE>
44
SCHEDULE A
Note Guarantors
PRIMEDIA Reference Inc.
Funk & Wagnalls Yearbook Corporation
Lifetime Learning Systems, Inc.
Gareth Stevens, Inc.
American Guidance Service, Inc.
AGS International Sales, Inc.
<PAGE>
45
SCHEDULE B
Subsidiary of the Company Immediately Prior to the
Recapitalization
JLC Learning Corporation
<PAGE>
46
SCHEDULE C
<TABLE>
<CAPTION>
Principal Amount
Initial Purchaser of Units
- ---------------------------- ----------------
<S> <C>
Donaldson, Lufkin & Jenrette
Securities Corporation $106,400,000
Banc of America Securities LLC 45,600,000
-----------
Total $152,000,000
-----------
-----------
</TABLE>
<PAGE>
47
EXHIBIT A
Form of Cravath, Swaine & Moore Opinion
<PAGE>
Exhibit 2.1
EXECUTION COPY
SUPPLEMENTAL EDUCATION GROUP
---------------
REDEMPTION, STOCK PURCHASE AND
RECAPITALIZATION AGREEMENT
-----------------
DATED AS OF AUGUST 13, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I. REDEMPTION AND PURCHASE AND SALE OF THE SHARES...............................................3
1.01 Purchase and Sale of Shares; Recapitalization...................................................3
1.02 Closing Date Payments...........................................................................4
1.03 Working Capital Adjustment......................................................................4
ARTICLE II. CLOSING. ..................................................................................9
2.01 Date of Closing.................................................................................9
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF SELLER.................................................10
3.01 Organization of Seller and WRC.................................................................10
3.02 Capitalization of PRI, AGS and WRC and Title to Shares.........................................11
3.03 Subsidiaries...................................................................................14
3.04 Authorization of Agreement.....................................................................16
3.05 No Conflicts...................................................................................16
3.06 No Consents....................................................................................18
3.07 Compliance with Laws...........................................................................19
3.08 Litigation.....................................................................................19
3.09 No Brokers.....................................................................................19
3.10 Organization and Authority.....................................................................20
3.11 Financial Statements...........................................................................20
3.12 Undisclosed Liabilities........................................................................21
3.13 Intellectual Property..........................................................................21
3.14 Contracts and Commitments......................................................................23
3.15 Employee Benefits..............................................................................27
3.16 Absence of Certain Changes.....................................................................32
3.17 Taxes..........................................................................................33
3.18 Transactions with Affiliates...................................................................38
3.19 Insurance......................................................................................38
3.20 Environmental Matters..........................................................................38
3.21 Assets Other than Real Property Interests......................................................40
3.22 Real Property..................................................................................41
3.23 Accounts; Safe Deposit Boxes; Officers and Directors...........................................42
3.24 Permits........................................................................................42
3.25 Effect of Transaction..........................................................................43
3.26 Suppliers......................................................................................43
3.27 Year 2000......................................................................................43
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF PURCHASER...............................................44
4.01 Organization of Purchaser......................................................................44
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
4.02 Authorization of Agreement.....................................................................44
4.03 No Conflicts...................................................................................45
4.04 No Consents....................................................................................46
4.05 Litigation.....................................................................................46
4.06 No Brokers.....................................................................................46
4.07 Investment Purpose.............................................................................46
4.08 Purchaser's Examination........................................................................47
4.09 Financial Ability..............................................................................47
ARTICLE V. FURTHER AGREEMENTS OF THE PARTIES...........................................................47
5.01 Expenses.......................................................................................47
5.02 Resignations...................................................................................48
5.03 Employees......................................................................................48
5.04 Further Assurances.............................................................................51
5.05 Correspondence.................................................................................51
5.06 Record Retention...............................................................................51
5.07 Regulatory and Other Authorizations............................................................52
5.08 Conduct of Business Pending the Closing........................................................53
5.09 No Shop........................................................................................57
5.10 No Disclosure..................................................................................57
5.11 Bank Accounts..................................................................................58
5.12 Release of Guarantees..........................................................................58
5.13 Intercompany Accounts..........................................................................58
5.14 Transfer Taxes.................................................................................59
5.15 Covenant Not to Compete........................................................................59
5.16 Guarantees, Joint Obligations..................................................................61
5.17 Reasonable Best Efforts to Close...............................................................61
5.18 Location of AGS................................................................................62
5.19 Access to the Companies........................................................................63
5.20 Assumption of Liabilities......................................................................64
5.21 Confidentiality................................................................................64
5.22 Financial Statements...........................................................................64
5.23 Supplemental Disclosure........................................................................66
5.24 Use of PRIMEDIA Name...........................................................................66
5.25 Post-Closing Access and Cooperation............................................................67
5.26 Pledge of Retained Shares......................................................................67
5.27 Reorganization.................................................................................67
5.28 Charter Amendment..............................................................................67
5.29 Bank Consent...................................................................................67
ARTICLE VI. CONDITIONS TO CLOSING......................................................................68
6.01 Conditions to Closing..........................................................................68
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
6.02 Documents to be Delivered by Seller............................................................72
6.03 Documents to be Delivered by WRC...............................................................73
6.04 Documents to be Delivered by Purchaser.........................................................73
6.05 Funds to be Delivered..........................................................................73
6.06 Frustration of Closing Conditions..............................................................73
ARTICLE VII. INDEMNIFICATION...........................................................................73
7.01 Survival.......................................................................................73
7.02 Indemnification by Seller......................................................................74
7.03 Indemnification by Purchaser...................................................................77
7.04 Notice to the Indemnitor.......................................................................78
7.05 Right of Parties to Settle or Defend...........................................................79
7.06 Exclusive Remedy...............................................................................80
7.07 Certain Adjustments............................................................................80
ARTICLE VIII. TAX MATTERS.............................................................................81
8.01 Taxable Periods Straddling Closing Date........................................................81
8.02 Preparation of Tax Returns and Payment of Taxes................................................82
8.03 Tax Audits of Pre-Closing Tax Periods..........................................................82
8.04 Refunds........................................................................................83
8.05 Cooperation....................................................................................84
8.06 Purchaser's Election...........................................................................85
8.07 Tax Covenants..................................................................................86
ARTICLE IX. TERMINATION................................................................................87
9.01 Termination....................................................................................87
9.02 No Liabilities in Event of Termination.........................................................88
ARTICLE X. MISCELLANEOUS...............................................................................89
10.01 Entire Agreement...............................................................................89
10.02 Governing Law; Jurisdiction....................................................................89
10.03 Amendment; Waiver..............................................................................89
10.04 Notices........................................................................................90
10.05 Separability...................................................................................91
10.06 Assignment and Binding Effect..................................................................91
10.07 No Benefit to Others...........................................................................91
10.08 Counterparts...................................................................................92
10.09 Interpretation.................................................................................92
10.10 Disclosure.....................................................................................93
10.11 No Presumption.................................................................................93
</TABLE>
iii
<PAGE>
Exhibits
- --------
Exhibit A Form of Services Agreement
Exhibit B Form of Shareholder Agreement
Exhibit C Form of Opinion of Counsel to Seller
Exhibit D Form of Opinion of Counsel to Purchaser
Schedules
- ---------
Schedule 1.03 (a)(iii) Working Capital Adjustment
Schedule 3.02 Capitalization of PRI. AGS and WRC and Title to Shares
Schedule 3.03 Subsidiaries
Schedule 3.05 No Conflicts (Seller)
Schedule 3.07 Compliance with Laws
Schedule 3.08 Litigation
Schedule 3.10 Organization and Authority
Schedule 3.11 Financial Statements
Schedule 3.12 Undisclosed Liabilities
Schedule 3.13 Intellectual Property
Schedule 3.14 Contracts and Commitments
Schedule 3.15 Employee Benefits
Schedule 3.16 Absence of Certain Changes
Schedule 3.17 Taxes
Schedule 3.18 Transactions with Affiliates
Schedule 3.19 Insurance
Schedule 3.20 Environmental Matters
Schedule 3.21 Assets Other Than Real Property Interests
Schedule 3.22 Real Property
Schedule 3.23 Accounts; Safe Deposit Boxes; Office and Directors
Schedule 3.24 Permits
Schedule 3.25 Effect of Transaction
Schedule 3.26 Supplies
Schedule 3.27 Year 2000
Schedule 4.03 No Conflicts (Purchaser)
Schedule 5.03 Employees
Schedule 5.08 Conduct of Business Pending the Closing
Schedule 5.13 Intercompany Amounts
Schedule 5.16 Guarantees, Joint Obligations
Schedule 5.20 Assumption of Liabilities
Schedule 5.22 Financial Statements
Schedule 8.06 Purchaser's Election
Schedule 10.10 Disclosure
iv
<PAGE>
<TABLE>
<CAPTION>
TABLE OF DEFINED TERMS
<S> <C>
401(K) Plan..................................................................28
AAA...........................................................................9
Accounts Payable..............................................................5
Accounts Receivable...........................................................5
Accrued Taxes.................................................................6
Additional Agreements........................................................47
adjusted grossed-up basis....................................................86
Affiliated Group.............................................................37
Agreement.....................................................................1
AGS...........................................................................1
AGS Shares....................................................................1
Applicable Law...............................................................18
Arbitrator....................................................................8
Article......................................................................93
Balance Sheet................................................................20
Cash..........................................................................4
CERCLA.......................................................................39
Charter Amendment.............................................................1
Circle Pines Area............................................................62
Closing.......................................................................9
Closing Date.................................................................10
Closing Date Assets...........................................................4
Closing Date Liabilities......................................................5
Closing Date Purchase Price...................................................4
Closing Date Statement........................................................4
Closing Payment...............................................................4
Code.........................................................................28
Company.......................................................................4
Company Employee.............................................................48
Company Property.............................................................42
Competing Entity.............................................................59
Competing Publication........................................................59
Confidentiality Agreement....................................................64
Contract.....................................................................11
Controlled Affiliates........................................................59
Copyrights...................................................................22
D&T...........................................................................8
Deficiency....................................................................6
Defined Benefit Plan.........................................................31
Disputed Item.................................................................7
Domain Names.................................................................22
EICP..........................................................................5
</TABLE>
v
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Employee Agreements..........................................................28
Employee Benefit Program.....................................................28
Environmental Laws...........................................................40
Environmental Losses.........................................................76
Environmental Permits........................................................39
Environmental Tests..........................................................77
ERISA........................................................................28
Estimated Deficiency..........................................................7
Estimated Excess..............................................................7
Estimated Working Capital Amount..............................................6
Excess........................................................................6
Exchange Act.................................................................18
Financial Statements.........................................................21
Financing....................................................................47
Fiscal 1998..................................................................62
Form 8023....................................................................85
GAAP.........................................................................21
Generally accepted accounting principles.....................................93
Governmental Entity..........................................................17
Hazardous Materials..........................................................40
HSR..........................................................................16
Income Taxes.................................................................37
Indebtedness.................................................................27
Indemnitee...................................................................78
Indemnitor...................................................................78
Intellectual Property........................................................22
Inventory....................................................................66
IRS..........................................................................29
ISRA.........................................................................18
Judgment.....................................................................17
Leased Property..............................................................41
Liens........................................................................41
Losses.......................................................................74
Marks........................................................................22
Material Adverse Effect......................................................18
Material Contracts...........................................................26
Multiemployer Plan...........................................................29
Non-Compete Period...........................................................59
Note Purchase.................................................................3
Note Purchase Price...........................................................3
Notice........................................................................7
Old WRC Shares................................................................1
</TABLE>
vi
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Owned Property...............................................................41
Pension Plan.................................................................30
Permits......................................................................42
Permitted Liens..............................................................41
Plan.........................................................................28
PR............................................................................8
Pre-Closing Tax Period.......................................................75
Preferred Purchase Price......................................................3
Preferred Stock Purchase......................................................3
PRI...........................................................................1
PRI Shares....................................................................1
PRIMEDIA Benefits.............................................................6
Prior Service................................................................48
Proceedings..................................................................19
Product Line.................................................................59
Project......................................................................43
Purchase......................................................................4
Purchase Price................................................................4
Purchased Common Shares.......................................................2
Purchased Preferred Shares....................................................2
Purchaser.....................................................................1
Purchaser Indemnified Parties................................................74
Purchaser's Additional Agreements............................................44
Records......................................................................51
Redeemed Shares...............................................................2
Redemption....................................................................3
Redemption Price..............................................................3
Release......................................................................40
Relevant Calendar Year.......................................................62
Relevant Period..............................................................62
Remedial Activities..........................................................76
Reorganization................................................................1
Retained Shares...............................................................2
Section 338(h)(10) Election..................................................85
SEG Plans....................................................................28
Seller........................................................................1
Seller's Additional Agreements...............................................11
Services Agreement...........................................................72
Shareholder Agreement........................................................72
Straddle Period..............................................................81
Subsidiaries.................................................................14
Subsidiary...................................................................14
</TABLE>
vii
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Subsidiary Shares............................................................14
Subsidiary Voting Debt.......................................................15
Taxes........................................................................37
Taxing Authority.............................................................37
Trademarks...................................................................22
Transaction Costs............................................................86
Transactions.................................................................16
Voting Debt..................................................................12
Welfare Plan.................................................................31
Working Capital Amount........................................................6
WRC...........................................................................1
WRC Additional Agreements....................................................11
WRC Common Stock..............................................................1
WRC Note......................................................................2
WRC Preferred Stock...........................................................1
Year 2000 Compliant..........................................................44
</TABLE>
viii
<PAGE>
REDEMPTION, STOCK PURCHASE AND
RECAPITALIZATION AGREEMENT
AGREEMENT, dated as of August 13, 1999 (this "Agreement")
between PRIMEDIA Inc., a Delaware corporation ("Seller"), and EAC II Inc., a
Delaware corporation ("Purchaser").
WHEREAS, Seller owns all the issued and outstanding capital
stock of PRIMEDIA Reference Inc., a Delaware corporation ("PRI"), American
Guidance Service Inc., a Minnesota corporation ("AGS"), and Weekly Reader
Corporation, a Delaware corporation ("WRC"), consisting of (a) 1,000 shares of
Common Stock, par value $.01 per share, of PRI (the "PRI Shares"), (b) 2,137,591
shares of Class A Common Stock, par value $.01 per share, of AGS (the "AGS
Shares") and (c) 1,000 shares of Common Stock, par value $.01 per share, of WRC
(the "Old WRC Shares"), which together with their Subsidiaries constitute the
portion of Seller's business known as the Supplemental Education Group;
WHEREAS, Seller desires to make a capital contribution to WRC
of (i) all the AGS Shares and (ii) all the PRI Shares (collectively, the
"Reorganization");
WHEREAS, Seller desires to cause WRC to amend its certificate
of incorporation (a) to provide that immediately prior to the Closing (as
hereinafter defined) the authorized capital stock of WRC shall be amended to
consist of (i) 20,000,000 shares of Common Stock, par value $.01 per share (the
"WRC Common Stock"), and (ii) 5,000,000 shares, of preferred stock having terms
designated by Purchaser (the "WRC
<PAGE>
2
Preferred Stock") and (b) to provide that, upon such change in the authorized
capital stock, each outstanding Old WRC Share shall be converted into 10,000
shares of WRC Common Stock (the "Charter Amendment");
WHEREAS, Seller desires to cause WRC to issue to Purchaser,
and Purchaser desires to purchase from WRC, a promissory note of WRC in the
principal amount of $138,400,000 and having such terms as may be designated by
Purchaser (the "WRC Note") on the terms and subject to the conditions set forth
herein;
WHEREAS, Seller desires to cause WRC to enter into (i) a term
loan facility (the "Term Facility") under which WRC will receive the principal
amount of $94,000,000 (the "Term Borrowing") and (ii) a revolving credit
facility (the "Revolving Facility"), in each case with certain providers of
financing arranged by Purchaser and on such terms as may be designated by
Purchaser;
WHEREAS, Seller desires to cause WRC to issue to Purchaser,
and Purchaser desires to purchase from WRC, 1,000,000 shares of WRC Preferred
Stock (the "Purchased Preferred Shares") on the terms and subject to the
conditions set forth herein;
WHEREAS, the proceeds from the issuance of the WRC Note and
the WRC Preferred Stock to Purchaser and the Borrowing shall be used by WRC to
redeem from Seller 7,170,000 shares of WRC Common Stock (the "Redeemed Shares"),
as a result of which Seller shall continue to hold 2,830,000 shares of WRC
Common Stock immediately after such redemption; and
<PAGE>
3
WHEREAS, immediately after the redemption of the Redeemed
Shares, Seller desires to sell to Purchaser, and Purchaser desires to purchase
from Seller, 2,685,670 shares of WRC Common Stock (the "Purchased Common
Shares") on the terms and subject to the conditions set forth herein, as a
result of which Seller shall continue to hold 144,330 shares of WRC Common Stock
(the "Retained Shares").
NOW, THEREFORE in consideration of the mutual covenants and
the respective representations and warranties contained herein, the parties
hereby agree as follows:
ARTICLE I. REDEMPTION AND PURCHASE AND SALE OF THE SHARES.
1.01. PURCHASE AND SALE OF SHARES; RECAPITALIZATION. At the
Closing, and upon the terms and subject to the conditions set forth herein, the
following transactions shall be effected:
(a) WRC shall issue, sell and deliver to Purchaser, and
Purchaser shall purchase, accept and acquire from WRC, the WRC Note (the "Note
Purchase"), in consideration for an aggregate purchase price of $138,400,000
(the "Note Purchase Price"), payable as set forth in Section 1.02;
(b) WRC shall make the Term Borrowing and enter into the
Revolving Facility;
(c) WRC shall issue, deliver and sell to Purchaser, and
Purchaser shall purchase, accept and acquire from WRC, the Purchased Preferred
Shares (the "Preferred
<PAGE>
4
Stock Purchase"), in consideration for an aggregate purchase price of
$65,000,000 (the "Preferred Purchase Price"), payable as set forth in Section
1.02;
(d) WRC shall redeem all the Redeemed Shares (the
"Redemption") for $297,400,000 (the "Redemption Price"), payable as set forth in
Section 1.02. The Redeemed Shares shall be assigned, transferred and delivered
by Seller to WRC upon redemption free and clear of all liens, claims, pledges,
options, security interests, encumbrances and restrictions of any kind; and
(e) Seller shall sell, convey, assign, transfer and deliver to
Purchaser, and Purchaser shall purchase, accept and acquire from Seller, the
Purchased Common Shares (the "Purchase"), in consideration for an aggregate
purchase price of $111,600,000 (the "Closing Date Purchase Price") plus 75% of
the Estimated Excess (as hereinafter defined) or minus 75% of the Estimated
Deficiency (as hereinafter defined), as the case may be (the "Closing Payment"),
payable as set forth in Section 1.02 and subject to further adjustment as
provided in Section 1.03 (as so adjusted, the "Purchase Price").
1.02. CLOSING DATE PAYMENTS. All payments to be made to Seller
and WRC on the Closing Date shall be made by wire transfer of immediately
available funds in New York City to the accounts specified in writing by Seller
(such specification to be made at least two business days prior to the Closing
Date).
<PAGE>
5
1.03. WORKING CAPITAL ADJUSTMENT.
(a) DEFINITIONS. For the purposes of this Agreement, the
following terms shall have the following respective meanings:
(i) "Companies" shall mean PRI, AGS, WRC and each of
their respective Subsidiaries (as hereinafter defined), taken
as a whole. Any reference to "Company" shall mean any of PRI,
AGS, WRC or one of their respective Subsidiaries,
individually.
(ii) "Closing Date Statement" shall mean the final
statement of Closing Date Assets and Closing Date Liabilities.
(iii) "Closing Date Assets" shall mean the net amount
of those assets of the Companies on the Closing Date under the
captions "Cash," "Accounts Receivable - Net," "Inventories -
Net," "Prepaid Expenses" and "Other Assets" as determined in a
manner consistent with the accounting practices used in the
preparation of the combined statement of assets and
liabilities of the Companies attached hereto as SCHEDULE
1.03(A)(III), except that (A) obsolescence policies for
"Inventories - Net" shall be determined in accordance with
SCHEDULE 1.03(A)(III), (B) credit balances in "Accounts
Receivables" shall be reclassified to "Accounts Payable
Trade", (C) "Cash" shall include cash in bank accounts of the
Companies (after giving effect to any sweep of cash pursuant
to Section 5.11), any deposits in transit including amounts in
transit from the Companies to the
<PAGE>
6
Companies' banks and any cash or checks in the possession of
the Companies on the Closing Date, (D) uncleared checks shall
be reclassified to "Accounts Payable - Trade" and (E) no
amounts shall be included in respect of prepaid insurance.
(iv) "Closing Date Liabilities" shall mean the net
amount of those liabilities of the Companies on the Closing
Date under the captions "Accounts Payable - Trade," "Deferred
Revenue," "Accrued Payroll and Benefits," "Accrued Taxes," and
"Other Accrued Liabilities," as determined in a manner
consistent with the accounting practices used in the
preparation of the combined statement of assets and
liabilities of the Companies attached hereto as SCHEDULE
1.03(a)(iii), except that (A) no amounts shall be accrued in
respect of acquisition reserves (other than any increases in
acquisition reserves between May 31, 1999 and the Closing
Date), (B) credit balances in "Accounts Receivable" shall be
reclassified to "Accounts Payable - Trade," (C) no amounts
shall be accrued in respect of the AGS Pension Plan, (D)
amounts payable to eligible employees of the Companies under
the Short Term Incentive Compensation Plan ("EICP") of the
Companies shall be accrued pro-rata based upon the "target"
(to be adjusted in the ordinary course based on the relevant
Company's estimated financial performance) for each such
employee as set forth in such employees' EICP letters, (E) no
amounts shall be
<PAGE>
7
included for amounts payable to employees of the Companies in
the form of stay bonuses or commission payments pursuant to
agreements entered into in connection with the sale of the
Companies (the "PRIMEDIA Benefits"), which amounts shall be
paid by Seller, (F) no amounts shall be included in respect of
liabilities retained by Seller or for which Seller indemnifies
Purchaser including, without limitation, the expenses of
brokers, accountants and other advisers retained by Seller in
connection with the transactions contemplated hereby, (G)
"Accrued Taxes" shall exclude all Federal, state and local
income taxes, (H) uncleared checks shall be reclassified to
"Accounts Payable - Trade," (I) no amounts shall be accrued in
respect of any litigation of the Companies and (J) no amounts
shall be accrued for incurred but not reported claims
associated with any medical or dental plans sponsored by
Seller, as identified on SCHEDULE 3.15 attached hereto.
(v) "Working Capital Amount" shall mean the Closing
Date Assets less the Closing Date Liabilities. The Working
Capital Amount can be represented by a positive or negative
number.
(vi) "Deficiency" shall mean the amount, if any, by
which the Working Capital Amount is less than Six Million
Eight Hundred Twenty-One Thousand Dollars ($6,821,000), as set
forth on the Closing
<PAGE>
8
Date Statement as modified as a result of the resolution of
any Disputed Items (as hereinafter defined).
(vii) "Excess" shall mean the amount, if any, by
which the Working Capital Amount is more than Six Million
Eight Hundred Twenty-One Thousand Dollars ($6,821,000), as set
forth on the Closing Date Statement as modified as a result of
the resolution of any Disputed Items.
(viii) "Estimated Working Capital Amount" shall mean
the Closing Date Assets less the Closing Date Liabilities as
estimated by Seller in good faith three business days before
the Closing. The Estimated Working Capital Amount can be
represented by a positive or negative number.
(ix) "Estimated Deficiency" shall mean the amount, if
any, by which the Estimated Working Capital Amount is less
than Six Million Eight Hundred Twenty-One Thousand Dollars
($6,821,000).
(x) "Estimated Excess" shall mean the amount, if any,
by which the Estimated Working Capital Amount is more than Six
Million Eight Hundred Twenty-One Thousand Dollars
($6,821,000).
(b) EFFECT OF DEFICIENCY/EXCESS. The Closing Date Purchase
Price shall be reduced dollar-for-dollar by the amount of the Deficiency, if
any, or increased dollar-for-dollar by the amount of the Excess, if any.
<PAGE>
9
(c) DELIVERY OF CLOSING DATE BALANCE SHEET.
(i) No later than ninety (90) days after the Closing
Date, Purchaser shall deliver to Seller the Closing Date
Statement setting forth the Closing Date Assets and Closing
Date Liabilities.
(ii) Seller shall have thirty (30) days from its
receipt of such statement to notify Purchaser in writing (a
"Notice") of any objections to any item or items on the
Closing Date Statement. Any such Notice shall specify the item
or items in dispute (a "Disputed Item" or "Disputed Items").
Any Disputed Item shall be resolved in the manner set forth in
Section 1.03(d) below.
(iii) If either (A) Seller does not deliver to
Purchaser a Notice of Disputed Items within thirty (30) days
of its receipt of the Closing Date Statement, (B) Seller
acknowledges in writing that the Closing Date Statement is
accurate or (C) Purchaser and Seller resolve all Disputed
Items in accordance with Section 1.03(d) below, then the
Closing Date Statement (in the case of clause (C) above, as
adjusted for the resolution of any Disputed Items) shall be
final, binding and conclusive on all parties.
(d) ARBITRATION. If Purchaser and Seller shall be unable to
resolve any Disputed Items within thirty (30) days after Notice from Seller to
Purchaser of the Disputed Items, then Seller's independent accounting
representative, Deloitte & Touche
<PAGE>
10
("D&T"), and Arthur Andersen, Purchaser's independent accounting representative
("PR"), shall endeavor in good faith to resolve any Disputed Item(s). Either
party may change its representative to any "big five" accounting firm other than
D&T or PR at any time prior to the thirtieth (30th) day after any notice as set
forth in the preceding sentence has been given, by notice in writing to the
other party in which event the references in this Agreement shall be to such
substitute representative. In the event that D&T and PR are unable to resolve
the Disputed Item(s) within thirty (30) days, D&T and PR shall together, within
ten (10) business days thereafter, appoint a representative from a "big five"
accounting firm (other than D&T or PR or any substitute representative referred
to in the preceding sentence) to arbitrate the dispute (the "Arbitrator").
Seller and Purchaser shall, within the next twenty (20) days thereafter, present
their positions with respect to the Disputed Item(s) to the Arbitrator together
with such other materials as the Arbitrator deems appropriate. The Arbitrator
shall, after the submission of the evidentiary materials, submit its written
decision on each Disputed Item to Seller and Purchaser. Any determination by the
Arbitrator with respect to any Disputed Item shall be final, binding and
conclusive on each party to this Agreement. Except as specifically set forth to
the contrary in this Section 1.03(d) or specifically agreed to by the parties in
writing, the Arbitrator shall comply with, and the arbitration shall be
conducted in New York, New York in accordance with, the commercial arbitration
rules of the American Arbitration Association ("AAA") as in effect for
commercial arbitrations conducted in Manhattan by the AAA. Seller and Purchaser
agree that the cost of the Arbitrator shall
<PAGE>
11
be allocated as determined by the Arbitrator based on the extent to which the
parties do not prevail.
(e) RESOLUTION OF DEFICIENCY/EXCESS. In the event that the
Closing Payment is more than the result of the Closing Date Purchase Price plus
the Excess or minus the Deficiency, as the case may be, then Seller shall pay to
Purchaser the amount by which it is more. In the event that the Closing Payment
is less than the result of the Closing Date Purchase Price plus the Excess or
minus the Deficiency, as the case may be, then Purchaser shall pay to Seller the
amount by which it is less.
(f) PAYMENT. All payments pursuant to clause (e) above shall
be made by wire transfer of immediately available funds to the account or
accounts designated by Purchaser or Seller, as the case may be, within ten (10)
days after the final determination thereof and shall be accompanied by a payment
of simple interest thereon calculated at the annual rate of seven percent (7%)
(assuming a 360 day year) from the Closing Date to the actual date of payment.
ARTICLE II. CLOSING.
2.01. DATE OF CLOSING.
(a) The closing (the "Closing") of the transactions
contemplated by this Agreement shall take place at the offices of Seller, 745
Fifth Avenue, New York, New York 10151, on the third business day following the
satisfaction (or, to the extent permitted, the waiver) of the conditions set
forth in Section 6.01(other than those conditions that by their terms are to be
satisfied simultaneously with the Closing), or at
<PAGE>
12
such other place, time and date as shall be agreed between Seller and Purchaser.
All actions that take place at the Closing shall be deemed to take place
simultaneously and no such actions shall be effective unless (i) Purchaser shall
have delivered to WRC the Note Purchase Price, (ii) WRC shall have delivered to
Purchaser the WRC Note, (iii) WRC shall have executed the Term Facility and the
Revolving Facility and received the proceeds of the Term Borrowing, (iv)
Purchaser shall have delivered to WRC the Preferred Purchase Price, (v) WRC
shall have delivered to Purchaser the Purchased Preferred Shares, (vi) WRC shall
have delivered to Seller the Redemption Price, (vii) Seller shall have delivered
to WRC the Redeemed Shares, (viii) Purchaser shall have delivered to Seller the
Closing Payment and (ix) Seller shall have delivered to Purchaser the Purchased
Common Shares. For purposes of this Agreement, all calculations to be made as of
the Closing Date shall be made as of 11:59 p.m. on the Closing Date. The actual
time and date of the Closing are referred to herein as the "Closing Date."
(b) At the Closing (i) the parties and WRC shall execute and
deliver to each other the documents referred to in Sections 6.02, 6.03 and 6.04
hereof, (ii) Purchaser shall deliver to WRC the Note Purchase Price, payable as
set forth in Section 1.02, (iii) WRC shall execute the Term Facility and the
Revolving Facility and receive the proceeds of the Term Borrowing, (iv)
Purchaser shall deliver to WRC the Preferred Purchase Price, payable as set
forth in Section 1.02, (v) WRC shall deliver to Seller the Redemption Price,
payable as set forth in Section 1.02, and (vi) Purchaser shall deliver to Seller
the Closing Payment, payable as set forth in Section 1.02.
<PAGE>
13
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF SELLER.
Seller represents and warrants to Purchaser as follows:
3.01. ORGANIZATION OF SELLER AND WRC. Seller is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware, and has the full corporate power and authority to enter into
this Agreement and the other agreements and instruments referred to in this
Agreement that Seller is executing and delivering (the "Seller's Additional
Agreements") and to consummate, or cause the consummation of, the transactions
contemplated hereby and thereby (including the Reorganization, the Charter
Amendment, the Note Purchase, the Term Borrowing, the entering into of the
Revolving Facility, the Preferred Stock Purchase, the Redemption and the
Purchase). WRC is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware, and has the full corporate
power and authority to enter into the agreements and instruments referred to in
this Agreement that WRC is executing and delivering (the "WRC Additional
Agreements") and to consummate the transactions contemplated hereby and thereby
(including the Reorganization, the Charter Amendment, the Note Purchase, the
Term Borrowing, the entering into of the Revolving Facility, the Preferred Stock
Purchase, the Redemption and the Purchase).
3.02. CAPITALIZATION OF PRI, AGS AND WRC AND TITLE TO SHARES.
(a) The authorized capitalization of PRI, AGS and, as of the
date hereof, WRC consists of the amounts set forth on SCHEDULE 3.02 attached
hereto, of
<PAGE>
14
which the PRI Shares, the AGS Shares and the Old WRC Shares are the only
securities issued, reserved for issuance or outstanding as of the date of
hereof. The PRI Shares, the AGS Shares and, as of the date hereof, the Old WRC
Shares have been duly and validly authorized and issued, are fully paid and
non-assessable and are not subject to or issued in violation of any purchase
option, call option, right of first refusal, preemptive right, subscription
right or any similar right under any provision of the Delaware General
Corporation Law, the Minnesota Business Corporation Act or the Minnesota Old
General Corporation Law, the certificate of incorporation or by-laws of PRI, AGS
or WRC or any note, bond, mortgage, instrument, contract, lease, license,
indenture, agreement, commitment or other legally binding arrangement (a
"Contract") to which any Company is a party or by which any Company is otherwise
bound. As of the Closing, except for the Purchased Preferred Shares, the
Purchased Common Shares and the Retained Shares, WRC will not have any other
shares of capital stock or other equity securities issued, reserved for issuance
or outstanding. As of the Closing, except for the PRI Shares and the AGS Shares,
PRI and AGS will not have any other shares of capital stock or other equity
securities issued, reserved for issuance or outstanding. As of the Closing, the
Purchased Preferred Shares, the Purchased Common Shares and the Retained Shares
will be duly and validly authorized and issued, fully paid and non-assessable
and will not be subject to or issued in violation of any purchase option, call
option, right of first refusal, preemptive right, subscription right or any
similar right under any provision of the Delaware General Corporation Law, the
certificate of incorporation or by-laws of WRC
<PAGE>
15
or any Contract to which WRC is a party or by which WRC is otherwise bound.
There are not any bonds, debentures, notes or other Indebtedness of PRI, AGS or
WRC having the right to vote (or convertible into, or exchangeable for,
securities having the right to vote) on any matters on which holders of the PRI
Shares, the AGS Shares, the Old WRC Shares, shares of WRC Preferred Stock or
shares of WRC Common Stock may vote ("Voting Debt"). Except for this Agreement,
there are not any options, warrants, rights, convertible or exchangeable
securities, "phantom" stock rights, stock appreciation rights, stock-based
performance units, Contracts or undertakings of any kind to which any Company is
a party or by which any Company is bound (i) obligating PRI, AGS or WRC to
issue, deliver or sell, or cause to be issued, delivered or sold, additional
shares of capital stock or other equity interests in, or any security
convertible or exercisable for or exchangeable into any capital stock of or
other equity interest in, PRI, AGS or WRC or any Voting Debt, (ii) obligating
PRI, AGS or WRC to issue, grant, extend or enter into any such option, warrant,
call, right, security, Contract or undertaking or (iii) that give any person the
right to receive any economic benefit or right similar to or derived from the
economic benefits and rights occurring to holders of the PRI Shares, the AGS
Shares, the Old WRC Shares, shares of WRC Preferred Stock or shares of WRC
Common Stock. Except for this Agreement, there are not any outstanding
contractual obligations of any Company to repurchase, redeem or otherwise
acquire any shares of capital stock of PRI, AGS or WRC.
<PAGE>
16
(b) As of the date hereof, Seller is the owner, beneficially
and of record, of all the PRI Shares, the AGS Shares and the Old WRC Shares. As
of the date hereof, Seller has good and valid title to the PRI Shares, the AGS
Shares and the Old WRC Shares free and clear of any Liens (as defined in Section
3.21) (other than Liens described in Section 3.21(a)(iv)), and free and clear of
any covenant, condition, restriction, voting trust arrangement or adverse
claims. Immediately prior to the Closing, Seller will be the owner, beneficially
and of record, of all the Redeemed Shares, the Purchased Common Shares and the
Retained Shares. As of the Closing, Seller will be the owner, beneficially and
of record, of all the Retained Shares. As of the Closing, WRC will be the owner,
beneficially and of record, of all the PRI Shares and the AGS Shares.
Immediately prior to the Closing, Seller will have good and valid title to the
Redeemed Shares, the Purchased Common Shares and the Retained Shares and, as of
the Closing, Seller will have good and valid title to all the Retained Shares
and WRC will have good and valid title to all the PRI Shares and the AGS Shares,
in each case free and clear of any covenant, condition, restriction, voting
trust arrangement or adverse claims (other than Liens described in Section
3.21(a)(iv). The Purchased Preferred Shares, when issued and delivered at the
Closing in accordance herewith, shall be duly authorized, validly issued, fully
paid and non-assessable. The delivery of the certificates representing the
Purchased Preferred Shares will transfer to Purchaser good and valid title to
the Purchased Preferred Shares, free and clear of any Liens. Assuming Purchaser
has the requisite power and authority to be the lawful owner of the Purchased
Common
<PAGE>
17
Shares, upon delivery to Purchaser at the Closing of certificates representing
the Purchased Common Shares, duly endorsed by Seller for transfer to Purchaser,
and upon Seller's receipt of the Closing Payment payable at the Closing, good
and valid title to the Purchased Common Shares will pass to Purchaser, free and
clear of any Liens, other than those arising from acts of Purchaser or its
affiliates.
3.03. SUBSIDIARIES.
(a) Each of PRI, AGS and, as of the date hereof, WRC does not
own, directly or indirectly, any interest or investment (whether equity or debt)
in any corporation, partnership, limited liability company or other entity
except as set forth on SCHEDULE 3.03. As of the Closing Date, WRC will not own,
directly or indirectly, any interest or investment (whether equity or debt) in
any corporation, partnership, limited liability company or other entity except
for the PRI Shares, the AGS Shares and the Subsidiary Shares (as defined in
Section 3.03(b)). The term "Subsidiary" shall mean each corporation,
partnership, limited liability company or other entity required to be set forth
on SCHEDULE 3.03, including, as of the Closing Date, PRI and AGS. The term
"Subsidiaries" shall mean all such entities collectively.
(b) The authorized capital stock and issued and outstanding
shares of each of the Subsidiaries (other than PRI and AGS) is as set forth on
SCHEDULE 3.03. One of PRI, AGS and WRC is the owner, beneficially and of record,
of all the issued and outstanding shares of each of the other Subsidiaries
(collectively, the "Subsidiary Shares"). Except as set forth on SCHEDULE 3.03,
there are no shares of capital stock or
<PAGE>
18
other equity securities of any Subsidiary issued, reserved for issuance or
outstanding. Except as set forth on SCHEDULE 3.03, the Subsidiary Shares have
been duly and validly authorized and issued, are fully paid and non-assessable
and are not subject to or issued in violation of any purchase option, call
option, right of first refusal, preemptive right, subscription right or any
similar right under any provision of the Delaware General Corporation Law, the
Minnesota Business Corporation Act, the Minnesota Old General Corporation Law or
the Wisconsin Business Corporation Law, the certificate of incorporation or
by-laws of any Subsidiary or any Contract to which any Company is a party or by
which any Company is otherwise bound. There are not any bonds, debentures, notes
or other Indebtedness of any Subsidiary having the right to vote (or convertible
into, or exchangeable for, securities having the right to vote) on any matters
on which holders of Subsidiary Shares may vote ("Subsidiary Voting Debt").
Except as set forth above, there are not any options, warrants, rights,
convertible or exchangeable securities, "phantom" stock rights, stock
appreciation rights, stock-based performance units, Contracts or undertakings of
any kind to which any Company is a party or by which any Company is bound (i)
obligating any Subsidiary to issue, deliver or sell, or cause to be issued,
delivered or sold, additional shares of capital stock or other equity interests
in, or any security convertible or exercisable for or exchangeable into any
capital stock of or other equity interest in, any Subsidiary or any Subsidiary
Voting Debt, (ii) obligating any Subsidiary to issue, grant, extend or enter
into any such option, warrant, call, right, security, Contract or undertaking or
(iii) that give any person the
<PAGE>
19
right to receive any economic benefit or right similar to or derived from the
economic benefits and rights occurring to holders of Subsidiary Shares. Except
for this Agreement, there are not any outstanding contractual obligations of any
Company to repurchase, redeem or otherwise acquire any shares of capital stock
of any Subsidiary.
(c) As of the date hereof, each of PRI, AGS and WRC has, and,
as of the Closing, each of PRI, AGS and WRC will have, good and valid title to
its respective Subsidiary Shares free and clear of any Liens (other than Liens
described in Section 3.21(a)(iv)) and free and clear of any covenant, condition,
restriction, voting trust arrangement or adverse claims.
3.04. AUTHORIZATION OF AGREEMENT. The execution, delivery and
performance by Seller of this Agreement and Seller's Additional Agreements, the
execution, delivery and performance by WRC of the WRC Note, the Term Facility,
the Revolving Facility and the WRC Additional Agreements and the consummation by
Seller and the Companies of the transactions contemplated hereby and thereby,
including the Reorganization, the Charter Amendment, the Note Purchase, the Term
Borrowing, the entering into of the Revolving Facility, the Preferred Stock
Purchase, the Redemption and the Purchase (the "Transactions"), have been duly
authorized by all necessary corporate and stockholder action of Seller and the
Companies. Seller has duly executed and delivered this Agreement and prior to
the Closing will have duly executed and delivered each of Seller's Additional
Agreements, and this Agreement constitutes, and each of Seller's Additional
Agreements when executed will constitute, legal, valid and
<PAGE>
20
binding obligations of Seller, enforceable against Seller in accordance with
their respective terms, except as the enforceability thereof may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws relating to
or affecting the rights of creditors generally and by general equitable
principles (regardless of whether such enforceability is considered in a
proceeding in equity or at law) and by an implied covenant of good faith and
fair dealing. Immediately prior to the Closing, WRC will have duly filed the
Charter Amendment with the Secretary of State of the State of Delaware and duly
executed the WRC Note, the Term Facility, the Revolving Facility and each WRC
Additional Agreement.
3.05. NO CONFLICTS. Except as provided on SCHEDULE 3.05,
assuming compliance with the notification requirements of the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, and the rules and regulations
promulgated thereunder ("HSR"), (a) the execution, delivery and performance of
this Agreement do not, the execution, delivery and performance of the WRC Note,
the Term Facility, the Revolving Facility, each WRC Additional Agreement and
each Seller Additional Agreement will not, and the consummation by Seller and
the Companies of the Transactions, and compliance by Seller and the Companies
with the terms and provisions hereof and thereof, will not (i) conflict with the
certificate of incorporation or by-laws of Seller or any of the Companies (in
the case of WRC, as amended by the Charter Amendment), (ii) conflict with, or
result in the breach or termination of, or constitute a default (or with notice
or lapse of time or both, constitute a default) under or result in the
<PAGE>
21
termination or suspension of any obligation or in loss of a material benefit
under, or in increased, additional, accelerated or guaranteed rights or
entitlements of any person under, or accelerate the performance required by the
terms, conditions or provisions of, any Contract to which Seller or any of the
Companies is a party or by which any of the foregoing is bound; (iii) constitute
a violation by Seller or any of the Companies of any judgment, order or decree
("Judgment") of any Federal, state, local or foreign government or any court of
competent jurisdiction, administrative agency or commission or other
governmental authority or instrumentality, domestic or foreign (a "Governmental
Entity"), applicable to any of the foregoing, the Old WRC Shares, the Purchased
Preferred Shares, the Purchased Common Shares, the Redeemed Shares, the PRI
Shares, the AGS Shares or the Subsidiary Shares or any of the properties of any
Company; or (iv) result in the creation of any Lien upon any of the Old WRC
Shares, the Purchased Preferred Shares, the Purchased Common Shares, the
Redeemed Shares, the PRI Shares, the AGS Shares or the Subsidiary Shares or any
of the properties of any Company; except, in the case of clause (ii) above, for
such conflicts, defaults, breaches, terminations, suspensions or acceleration of
performance which, individually or in the aggregate, would not have a material
adverse effect (A) on the business, assets, condition (financial or otherwise),
results of operations or prospects of the Companies, taken as a whole, other
than changes relating to United States or foreign economies in general or the
Companies' industries in general and not specifically relating to a Company, or
(B) on the ability of Seller and the Companies to consummate the Transactions (a
"Material
<PAGE>
22
Adverse Effect") and (b) the execution, delivery and performance (other than the
consummation of the Reorganization, the Charter Amendment, the Note Purchase,
the Term Borrowing, the entering into of the Revolving Facility, the Preferred
Stock Purchase and the Redemption) of this Agreement do not constitute a
violation by Seller or any of the Companies of any statute, law, ordinance, rule
or regulation ("Applicable Law") of any Governmental Entity. Notwithstanding
anything in this Agreement to the contrary, the Companies' inability to meet the
projections provided to Purchaser prior to the date hereof shall not, in and of
itself, constitute a material adverse effect on the "prospects" of the Companies
.
3.06. NO CONSENTS. No order, permission, consent, approval,
license, authorization, registration, or validation of, or filing with, or
notice to, or exemption by, any Governmental Entity is required to be obtained
or made by or with respect to Seller or any Company to authorize, or in
connection with the execution, delivery or performance by Seller or any Company
of, this Agreement or Seller's Additional Agreements or the consummation of the
Transactions (other than the Reorganization, the Charter Amendment, the Note
Purchase, the Term Borrowing, the entering into of the Revolving Facility, the
Preferred Stock Purchase and the Redemption), other than the filing of the
Charter Amendment, filings required under HSR or the New Jersey Industrial Site
Recovery Act ("ISRA"), filings under Section 13(a) of the Securities Exchange
Act of 1934 (the "Exchange Act") and filings required solely by reason of
Purchaser's (as opposed to any other third party's) participation in the
Transactions.
<PAGE>
23
3.07. COMPLIANCE WITH LAWS. The Companies are and have been in
compliance with all Applicable Laws as such Applicable Laws apply to the
Companies except for possible instances of noncompliance that, individually or
in the aggregate, would not have a Material Adverse Effect. Except as set forth
on SCHEDULE 3.07, none of Seller and the Companies has received any written
communication during the three years preceding the date hereof from any person
that alleges that any Company is not in
material compliance with any Applicable Law. This Section 3.07 shall not be
applicable to environmental matters or employee benefit matters.
3.08. LITIGATION. Except as set forth on SCHEDULE 3.08
attached hereto, on the date hereof, there are no actions, suits, inquiries,
proceedings or investigations ("Proceedings") pending or, to Seller's knowledge,
threatened before any Governmental Entity (a) against or affecting the Companies
(i) in which the aggregate amount claimed, or if no amount is claimed, the
aggregate amount reasonably estimated to be payable, is more than $100,000, (ii)
which seeks any material injunctive relief or (iii) which relates to the
Transactions, or (b) against Seller relating to the Transactions. Except as set
forth on SCHEDULE 3.08, neither the Company nor any Subsidiary is a party or
subject to or in default in any material respect under any Judgment. Except as
set forth on SCHEDULE 3.08, as of the date hereof there is no material
Proceeding or material claim by any Company pending, or which any Company
intends to initiate, against any other person. This Section 3.08 shall not be
applicable to environmental matters or employee benefit matters.
<PAGE>
24
3.09. NO BROKERS. Seller has not incurred any obligation or
liability, contingent or otherwise, for brokers' or finders' fees or commissions
in connection with the Transactions for which the Companies are liable.
3.10. ORGANIZATION AND AUTHORITY. Each of the Companies is a
corporation duly organized, validly existing and in good standing under the laws
of its state of incorporation as listed on SCHEDULE 3.10 attached hereto and has
the full corporate power and authority to carry on its business as currently
conducted. Each of the Companies possesses all governmental franchises,
licenses, permits, authorizations and approvals necessary to enable it to own,
lease or otherwise hold its properties and assets and to carry on its business
as currently conducted except such as would not have a Material Adverse Effect.
Each Company is duly qualified and in good standing to do business as a foreign
corporation in each jurisdiction in which the conduct or nature of its business
or the ownership, leasing or holding of its properties makes such qualification
necessary, except such jurisdictions where the failure to be so qualified or in
good standing, individually or in the aggregate, would not have a Material
Adverse Effect. A list of the jurisdictions in which each Company is so
qualified on the date hereof is set forth on SCHEDULE 3.10. No Company is
subject to or bound by any charter or other corporate restriction, which has had
or is reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect. True and complete copies of the certificate of incorporation and
by-laws of each of the Companies, each as amended to date, have been made
available to Purchaser prior to the execution of this Agreement. Seller has made
<PAGE>
25
available for inspection by Purchaser true and correct copies of the stock
certificate and transfer books and the minute books of each Company.
3.11. FINANCIAL STATEMENTS. Attached hereto as SCHEDULE 3.11
are (a) the unaudited combined statements of income for the Companies for each
of the years ended December 31, 1997 and December 31, 1998 and for the five
month period ended May 31, 1999; and (b) the unaudited combined balance sheets
of the Companies as at December 31, 1997 and December 31, 1998 and the unaudited
combined balance sheet of the Company (the "Balance Sheet") as at May 31, 1999
(collectively, the "Financial Statements"). The Financial Statements have been
prepared from books and records maintained by the Companies consistent with past
practice. The Financial Statements have been prepared in accordance with
generally accepted accounting principles ("GAAP") consistently applied, except
that (i) the Financial Statements do not include footnotes, (ii) any of the
Financial Statements for the five month period ended or as at May 31, 1999 do
not include normal year end adjustments, (iii) any intercompany amounts between
Seller or any of its affiliates on the one hand and any Company on the other
hand are excluded from the balance sheets referred to in clause (b) above and
(iv) as set forth on SCHEDULE 3.11. The Financial Statements fairly present, in
all material respects, the financial condition and results of operations of the
Companies, taken as a whole, for the periods and as of the dates indicated.
3.12. UNDISCLOSED LIABILITIES. Except for liabilities (a) set
forth on the Financial Statements; (b) set forth on SCHEDULE 3.12 attached
hereto; (c) of a type which
<PAGE>
26
are the subject matter of any other representation (without regard to any
specific exclusions from such representation) in this Article III (other than
the representation and warranty in Section 3.16); (d) specifically disclosed
pursuant to any schedule modifying any of the representations and warranties set
forth in this Article III; or (e) incurred in the ordinary course of business
consistent with past practice since May 31, 1999 and not prohibited by the terms
of this Agreement, none of the Companies is subject to any liability, whether
absolute, accrued, contingent, unasserted or otherwise and whether due or to
become due, which would have a Material Adverse Effect.
3.13. INTELLECTUAL PROPERTY.
(a) SCHEDULE 3.13 attached hereto contains an accurate and
complete list and description, as of the date hereof, of all registered
trademarks and service marks owned by the Companies and all existing and pending
Federal, state and foreign registrations and applications therefor (the
"Trademarks") and all material Internet domain names owned by the Companies (the
"Domain Names", and, together with the Trademarks, the "Marks"). Except as set
forth on SCHEDULE 3.13, to the knowledge of Seller, neither the Marks nor the
copyrights owned, used or licensed by the Companies (the "Copyrights" and,
together with the Marks, the "Intellectual Property") infringe, dilute, or
misappropriate any trademarks, service marks, trade names, Internet domain
names, patents, trade secrets, copyrights, privacy rights, publicity rights or
any other rights of any person or entity, which infringement, dilution or
misappropriation, if decided adversely to any of the Companies in connection
with any claim or charge of
<PAGE>
27
infringement, dilution or misappropriation, would, individually or in the
aggregate, have a Material Adverse Effect. Except as set forth on SCHEDULE 3.13,
since January 1, 1998, no suits or claims have been asserted in writing by any
third party based on or challenging the ownership, use, exploitation or
distribution by the Companies of any Intellectual Property. Except as set forth
on SCHEDULE 3.13, all Trademarks which are registered and the registrations
therefor are valid and subsisting and in full force and effect and all
affidavits or declarations of continuing use, affidavits or declarations of
incontestability, renewals and all other maintenance actions have been filed on
a timely basis with respect to the Trademarks. Except as set forth on SCHEDULE
3.13, Trademarks which are registered on the Principal Register are enforceable
in the United States against the unauthorized use of the same trademark by third
parties for the goods and/or services for which such Trademarks are registered.
Except as set forth on SCHEDULE 3.13, all Copyrights owned by the Companies
which are material to the business as currently conducted by the Companies,
taken as a whole, are valid and subsisting and in full force and effect and
enforceable against the unauthorized exploitation in the United States by third
parties of the Companies' exclusive rights under 17 U.S.C. Section 106 to the
Copyrights except to the extent such rights are elsewhere limited under the
Copyright Law of the United States. Except as set forth on SCHEDULE 3.13, none
of the material Trademarks have been abandoned by the Companies and none of the
Marks or copyrights owned by the Companies is subject to any outstanding
Judgment restricting the scope of use thereof, in either case which would,
individually or in the aggregate, have a Material
<PAGE>
28
Adverse Effect. Except as set forth on SCHEDULE 3.13, none of the Marks or the
Companies' rights in the Copyrights are subject to any Liens; all works
published by the Companies or any licensees of the Companies have displayed
copyright notices as provided under the U.S. Copyright Act, except where such
failure, individually or in the aggregate, would not have a Material Adverse
Effect; and there are no patents owned by any of the Companies. Except as set
forth on SCHEDULE 3.13, to the knowledge of Seller, there are no infringing,
diluting, or misappropriating uses of any of the Intellectual Property which
would, individually or in the aggregate, have a Material Adverse Effect. None of
Seller and the Companies has granted any right (other than licenses and
permissions for one time or limited use granted in the ordinary course of
business) to any person or entity to use any of the Marks, except as listed on
SCHEDULE 3.14.
(b) Except as set forth on SCHEDULE 3.13, with respect to each
book, publication, software program, audio or video product or other multimedia
product, or other product or material published or distributed by a Company,
each Company owns or has acquired sufficient rights to use or otherwise exploit
same, as currently exploited, except where the failure to own or acquire such
rights, individually or in the aggregate, would not have a Material Adverse
Effect.
3.14. CONTRACTS AND COMMITMENTS.
(a) SCHEDULE 3.14 attached hereto lists:
(i) all Contracts that require the expenditure of or
have an aggregate future liability in excess of, or involve
the receipt of, more than
<PAGE>
29
One Hundred Fifty Thousand Dollars ($150,000) in any
consecutive twelve month period after the date hereof by any
Company, other than those terminable by such Company on not
more than sixty (60) days notice without penalty or payment;
(ii) all Contracts under which (A) any Company has
borrowed any money from, or issued any note, bond, debenture
or other evidence of Indebtedness (as hereinafter defined) to,
any person (other than a Company) and all other notes, bonds,
debentures and other evidences of Indebtedness of any Company
(other than in favor of a Company) and (B) any person (other
than a Company) has directly or indirectly guaranteed
Indebtedness, liabilities or obligations of a Company or a
Company has directly or indirectly guaranteed Indebtedness,
liabilities or obligations of any person;
(iii) all material licensing agreements with third
parties to which any Company is a party and all material
license, sublicense, option and other agreements relating in
whole or in part to the Intellectual Property (including any
material license and other agreements under which a Company is
licensee or licensor of any Intellectual Property);
(iv) all real property leases and subleases to which
any Company is a party;
<PAGE>
30
(v) each employment agreement that a Company is party
to or bound by that has an aggregate future liability in
excess of $150,000;
(vi) each collective bargaining agreement and other
contract with any labor organization, union or association
that a Company is party to or bound by;
(vii) each covenant not to compete or other
contractual restriction prohibiting the distribution of
products in any jurisdiction (other than those arising out of
the limitation of the scope of a license of Intellectual
Property) that a Company is party to or bound by;
(viii) each Contract (other than this Agreement) that
a Company is party to or bound by with (A) Seller or any
affiliate of Seller (other than a Company) or (B) any current
or former officer, director or employee of a Company, Seller
or any affiliate of Seller (other than employment agreements
covered by clause (v) above);
(ix) each Contract under which a Company has,
directly or indirectly, made any advance, loan, extension of
credit or capital contribution to, or other investment in, any
person (other than a Company and other than extensions of
trade credit in the ordinary course of business);
<PAGE>
31
(x) each Contract granting a Lien upon any Company
Property (as defined in Section 3.22) or any other asset
(other than Liens relating to leased equipment);
(xi) each Contract providing for indemnification of
any person with respect to material liabilities (other than
pursuant to license agreements, leases and other agreements
entered into in the ordinary course of business) and each
Contract regarding the sale of any business providing for
indemnification of any person;
(xii) each power of attorney (other than a power of
attorney given in the ordinary course of business with respect
to routine tax matters or the registration of trademarks) that
a Company is party to or bound by;
(xiii) each confidentiality agreement that a Company
is party to or bound by;
(xiv) each Contract for the sale of any asset of a
Company (other than inventory sales in the ordinary course of
business) or the grant of any preferential rights to purchase
any such asset or requiring the consent of any party to the
transfer thereof, other than any such Contract entered into in
the ordinary course of business after the date of this
Agreement and not in violation of this Agreement;
(xv) each currency exchange, interest rate exchange,
commodity exchange or similar Contract that a Company is party
to or bound by; and
<PAGE>
32
(xvi) each Contract for any joint venture or
partnership that a Company is party to or bound by
(collectively, "Material Contracts").
(b) None of the Companies has obtained any letter of credit
that is outstanding or will be in effect on the Closing Date to any person, firm
or corporation for any purpose whatsoever.
(c) None of the Companies is (with or without the lapse of
time or the giving of notice, or both) in breach or default, nor to Seller's
knowledge is there any basis for any claim of default, nor to Seller's knowledge
is any other party to any Material Contract (with or without the lapse of time
or the giving of notice, or both) in breach or default, under any of the
Material Contracts, except for such breaches and defaults that, individually or
in the aggregate, would not have a Material Adverse Effect. To the knowledge of
Seller, all the Material Contracts are in full force and effect and are valid
and binding and are enforceable by the Company that is a party thereto in
accordance with their terms.
(d) As of the date hereof, none of Seller and the Companies
has, except as set forth on SCHEDULE 3.14, received any notice of the intention
of any party to terminate any Material Contract. Seller has delivered or made
available to Purchaser prior to the execution of this Agreement true and correct
copies of all the Material Contracts, together with all modifications and
amendments thereto, in effect as of the date hereof.
<PAGE>
33
(e) For purposes of this Agreement, "Indebtedness" shall mean
(i) all obligations for borrowed money or for the deferred purchase price of
property or services (other than current trade liabilities incurred in the
ordinary course of business and payable in accordance with customary practices)
or with respect to deposits or advances of any kind (other than pursuant to
license agreements, leases and other agreements entered into in the ordinary
course of business), (ii) any other obligation that is evidenced by a note,
bond, debenture or similar instrument or on which interest charges are
customarily paid, (iii) all obligations under financing leases, (iv) all
obligations in respect of acceptances issued or created, (v) all liabilities
secured by any Lien on any property other than Permitted Liens and (vi) all
guarantee obligations.
3.15. EMPLOYEE BENEFITS.
(a) SCHEDULE 3.15 hereto lists:
(i) all written employment or severance agreements
with any current or former employee of any of the Companies
(other than the PRIMEDIA Benefits) and collective bargaining
or other labor agreements covering any employees of any of the
Companies under which any of the Companies has any on-going
obligations (collectively, the "Employee Agreements");
(ii) Each "employee benefit plan" as such term is
defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA") or comparable
provisions of foreign law, that is
<PAGE>
34
covered by ERISA and that is maintained for the benefit of any
employee of any of the Companies (a "Plan"; collectively, the
"Plans"); and
(iii) Each written plan or arrangement not subject to
ERISA maintained for the benefit of any employee of any of the
Companies which provides for retirement benefits, termination
bonuses, deferred compensation, bonuses and other
compensation, stock options, stock purchases, other
equity-based compensation, employee insurance coverage or any
similar compensation or welfare benefit plan (individually, an
"Employee Benefit Program"; collectively, the "Employee
Benefit Programs") (other than the PRIMEDIA Benefits).
(b) Each Plan and Employee Benefit Program that is designated
as a Plan or Employee Benefit Program sponsored by a Company on SCHEDULE 3.15
(collectively, the "SEG Plans") and the PRIMEDIA Thrift and Retirement Plan (the
"401(K) Plan") has been maintained and administered at all times in material
compliance with all Applicable Laws, including but not limited to ERISA and the
Internal Revenue Code of 1986, as amended, and the rules and regulations
promulgated thereunder (the "Code"), applicable to such Plan and Employee
Benefit Program.
(c) No "reportable event" (as such term is used in Section
4043 of ERISA), "prohibited transaction" (as such term is used in Section 406 of
ERISA or Section 4975 of the Code) or "accumulated funded deficiency" (as such
term is used in Section 412 or Section 4971 of the Code) has heretofore occurred
with respect to any
<PAGE>
35
SEG Plan and there exists no condition or set circumstances which could result
in a "reportable event".
(d) None of the Companies has at any time contributed to (or
been obligated to contribute) or participated in any pension plan which is a
"multiemployer plan," as defined in Section 3(37) of ERISA ("Multiemployer
Plan"), in respect of any current or former employees of the Companies and none
of the Companies has any liability with respect to any Multiemployer Plan with
respect to which Seller or any of its affiliates is or was a contributing
employer.
(e) No litigation or administrative or other proceedings
involving any SEG Plan or the 401(K) Plan have occurred or, to the knowledge of
Seller, have been threatened in writing.
(f) Except for the PRIMEDIA Benefits or as set forth on
SCHEDULE 3.15 hereto, there are no written employment, stay bonus or severance
agreements with any employee of any of the Companies.
(g) Complete and correct copies of all Employee Agreements,
Plans and Employee Benefit Programs listed on SCHEDULE 3.15 hereto other than
the PRIMEDIA Benefits have been delivered or otherwise been made available by
Seller to Purchaser prior to the execution of this Agreement. Seller has
delivered to Purchaser correct and complete copies of (i) the two most recent
annual reports on Form 5500 (including all schedules and attachments thereto)
filed with the Internal Revenue Service ("IRS") with respect to each Plan (if
any such report was required by Applicable Law),
<PAGE>
36
(ii) the most recent summary plan description (or similar document) for each
Plan for which such a summary plan description is required by Applicable Law or
was otherwise provided to plan participants or beneficiaries and (iii) each
trust agreement and insurance or annuity contract or other funding or financing
arrangement relating to any Plan. To the knowledge of Seller, each such Form
5500 and each such summary plan description (or similar document) was and is as
of the date hereof correct and complete in all material respects.
(h) (i) All contributions to, and payments from, the Plans and
Employee Benefit Programs that may have been required to be made in accordance
with the terms of the Plans and Employee Benefit Programs, any applicable
collective bargaining agreement and, when applicable, Section 302 of ERISA or
Section 412 of the Code, have been timely made and (ii) there has been no
application for waiver or waiver of the minimum funding standards imposed by
Section 412 of the Code with respect to any Plan that is an "employee pension
benefit plan" within the meaning of Section 3(2) of ERISA (hereinafter a
"Pension Plan").
(i) Each Pension Plan that is intended to be a tax-qualified
plan has been the subject of a determination letter from the Internal Revenue
Service to the effect that such Pension Plan and related trust is qualified and
exempt from Federal income taxes under Sections 401(a) and 501(a), respectively,
of the Code; no such determination letter has been revoked, and, to the
knowledge of Seller, revocation has not been threatened; no event has occurred
and no circumstances exist that would adversely affect
<PAGE>
37
the tax-qualification of such Pension Plan. Each Pension Plan that is an SEG
Plan has not been amended since the effective date of its most recent
determination letter in any respect that might adversely affect its
qualification, materially increase its cost or require security under Section
307 of ERISA. Seller has delivered to Purchaser a copy of the most recent
determination letter received with respect to each Pension Plan for which such a
letter has been issued, as well as a copy of any pending application for a
determination letter. Seller has also provided to Purchaser a list of all
amendments to each Pension Plan that is an SEG Plan as to which a favorable
determination letter has not yet been received.
(j) None of the Companies or, to the knowledge of Seller, any
trustee, administrator or other fiduciary of any Benefit Plan or any agent of
any of the foregoing has engaged in any transaction or acted in a manner that
could, or has failed to act so as to, subject the Companies or any trustee,
administrator or other fiduciary to any liability for breach of fiduciary duty
under ERISA or any other Applicable Law.
(k) As of the most recent valuation date for each Pension Plan
that is a "defined benefit plan" as defined in Section 3(35) of ERISA
(hereinafter a "Defined Benefit Plan"), plan assets exceeded the present value
of accumulated benefits, and Seller is not aware of any facts or circumstances
that would materially change the funded status of any such Defined Benefit Plan.
Seller has furnished to Purchaser the most recent actuarial report or valuation
with respect to each Defined Benefit Plan. The information supplied to the plan
actuary by Seller, the Companies or any of their respective affiliates
<PAGE>
38
for use in preparing those reports or valuations was complete and accurate in
all material respects and Seller has no reason to believe that the conclusions
expressed in those reports or valuations are incorrect.
(l) No entity which is treated as being a single employer with
any of the Companies by reason of Section 414(b), (c), (m) or (o) of the Code
has incurred any liability to a Pension Plan (other than for contributions not
yet due) or to the Pension Benefit Guaranty Corporation (other than for the
payment of premiums not yet due), which liability has not been fully paid as of
the date hereof.
(m) The list of Plans which are "employee welfare benefit
plans" within the meaning of Section 3(l) of ERISA (hereinafter a "Welfare
Plan") on SCHEDULE 3.15 discloses whether each Welfare Plan is (i) unfunded,
(ii) funded through a "welfare benefit fund", as such term is defined in Section
419(e) of the Code, or other funding mechanism or (iii) insured. Each such
Welfare Plan may be amended or terminated without material liability to any of
the Companies as of the Closing Date. The Companies comply with the applicable
requirements of Section 4980B(f) of the Code with respect to each Welfare Plan
that is a group health plan, as such term is defined in Section 5000(b)(1) of
the Code.
(n) Except for the PRIMEDIA Benefits and except as set forth
on SCHEDULE 3.15, no employee of the Companies will be entitled to any
additional benefits or any acceleration of the time of payment or vesting of any
benefits under any Plans, Employee Benefit Programs or Employee Agreements as a
result of the transactions
<PAGE>
39
contemplated by this Agreement. No amount payable to any employee of any of the
Companies as a result of the transactions contemplated by this Agreement will
fail to be deductible by reason of Section 280G of the Code.
(o) Except as set forth on SCHEDULE 3.15, each of the
Companies has no liability for nonqualified deferred compensation. SCHEDULE 3.15
sets forth the amount of funding, if any, by each of the Companies with respect
to any such deferred compensation liability.
3.16. ABSENCE OF CERTAIN CHANGES. Except as set forth on
SCHEDULE 3.16, since May 31, 1999, there has not been any material adverse
change in the business, assets, condition (financial or otherwise), results of
operations or prospects of the Companies, taken as a whole, other than changes
relating to United States or foreign economies in general or the Companies'
industries in general and not specifically relating to a Company.
Notwithstanding anything in this Agreement to the contrary, the Companies'
inability to meet the projections provided to Purchaser prior to the date hereof
shall not, in and of itself, constitute a material adverse change in the
"prospects" of the Companies. Except for the Reorganization or as and to the
extent set forth on SCHEDULE 3.16 attached hereto, since May 31, 1999, none of
the Companies has:
(a) written off as uncollectible any notes or accounts
receivable or any portion thereof, except in the ordinary course of business
consistent with past practice;
(b) sold or transferred any properties or assets, real,
personal, fixed, tangible or intangible that, individually or in the aggregate,
are material to the
<PAGE>
40
Companies, taken as a whole, except for sales of inventory in the ordinary
course of business;
(c) made any commitments for capital expenditures or assets
that continue in effect on or after the Closing Date, except in the ordinary
course of business, consistent with past practice;
(d) made any change in any accounting practice, principle,
policy or method, except as required by law or a change in GAAP;
(e) reduced insurance coverage in any manner that is material
to the Companies, taken as a whole;
(f) (i) entered into any material written employment, deferred
compensation or other similar agreement (or any amendment to any such existing
agreement), (ii) amended any of the Plans described on SCHEDULE 3.15 annexed
hereto or (iii) granted any general increase in compensation, bonus or other
benefits payable to any employee of any of the Companies except for annual merit
raises in the ordinary course of business; or
(g) agreed, whether in writing or otherwise, to take any
action referred to in this Section 3.16 in the future or taken any action that,
if taken after the date of this Agreement, would constitute a breach of Section
5.08.
3.17. TAXES. Except as set forth on SCHEDULE 3.17:
(a) The Companies and any Affiliated Group of which any of the
Companies are or have been a member have duly and timely filed (including
extensions)
<PAGE>
41
with the appropriate Federal, state, local, foreign and other governmental
agencies all material Tax returns and reports due on or before the date hereof,
all such tax returns and reports have been prepared in accordance with
Applicable Law in all material respects, and the Companies and any such
Affiliated Group have timely paid all material Taxes due with respect to such
returns and reports, other than any Taxes being contested in good faith for
which an adequate reserve is maintained on the Balance Sheet (except to the
extent accruing after the date of the Balance Sheet). No material liens exist
for Taxes (other than liens for Taxes not yet due and payable or being contested
in good faith and for which an adequate reserve is maintained on the Balance
Sheet (except to the extent accruing after the date of the Balance Sheet)) with
respect to any of the assets or properties of the Companies or any such
Affiliated Group.
(b) Any material deficiency resulting from any audit or
examination relating to Taxes of any Company or any Affiliated Group of which
any of the Companies are or have been a member by any Taxing Authority (i) has
been timely paid or (ii) is being contested in good faith and an adequate
reserve is maintained on the Balance Sheet (except to the extent accruing after
the date of the Balance Sheet) with respect to such deficiency. As of the date
hereof, no issues relating to Taxes of any of the Companies have been raised in
writing by the relevant Taxing Authority in any completed audit or examination
that can reasonably be expected to recur as to the Companies in a taxable period
ending after the Closing Date. As of the date hereof, no material Tax returns of
the Companies or any Affiliated Group that includes any of the
<PAGE>
42
Companies are currently under audit or examination by any Taxing Authority, and
no written notice of any such audit or examination has been received by the
Companies or any such Affiliated Group.
(c) As of the date hereof, neither the Companies nor any
Affiliated Group of which any of the Companies are a member has outstanding any
agreement or waivers extending, or having the effect of extending, the statute
of limitations with respect to the assessment or collection of any Tax. The Tax
returns of the Companies and any Affiliated Group of which any of the Companies
are, or have been, a member with respect to Federal Income Taxes have been
examined by the Internal Revenue Service, or the statute of limitations with
respect to the assessment or collection of the relevant Tax liability has
expired, for all taxable periods through and including the year ended December
31, 1994.
(d) None of the Companies is a party to or bound by any
tax-sharing agreement, tax indemnity obligation or similar agreement,
arrangement or practice with respect to Taxes. None of the Companies is required
to include in a taxable period ending after the Closing Date any material amount
of taxable income attributable to income that economically accrued (not
including any unrealized gains in the assets of the Companies) in a prior
taxable period but was not recognized for tax purposes in any prior taxable
period as a result of the installment method of accounting, the long-term
contract method of accounting, the cash method of accounting or Section 481 of
the Code or any
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43
comparable provision of state, local or foreign Tax law or, with respect to AGS
and its Subsidiaries and Gareth Stevens, Inc., for any other reason.
(e) Neither Seller nor any of its affiliates has made with
respect to any of the Companies, or any property held by the Companies, any
consent under Section 341 of the Code, no property of the Companies is "tax
exempt use property" within the meaning of Section 168(h) of the Code, none of
the Companies is a party to any lease made pursuant to Section 168(f)(8) of the
Internal Revenue Code of 1954, and none of the assets of the Companies is
subject to a lease under Section 7701(h) of the Code or under any predecessor
section thereof.
(f) The Companies have complied in all material respects with
all Applicable Laws relating to the payment and withholding of Taxes (including
withholding of Taxes pursuant to Sections 1441, 1442, 3121 and 3402 of the Code
or any comparable provision of any state, local or foreign laws) and have,
within the time and in the manner prescribed by Applicable Law, withheld from
and paid over to the proper Taxing Authorities all material amounts required to
be so withheld and paid over under Applicable Laws.
(g) As of the date hereof, there are no private letter rulings
issued by, and no closing or similar agreements with, any Taxing Authority that
would bind the Companies in a taxable period ending after the Closing Date, and
there are no material revenue agent reports, notices of proposed adjustment or
similar items relating to any pending proceeding relating to the Companies.
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44
(h) The Federal Income Tax returns of the Companies and any
Federal Affiliated Group of which any of the Companies is a member have
disclosed any Tax positions of the Companies that, if not disclosed, could give
rise to penalties under Section 6662 of the Code.
(i) Seller is not a "foreign person" within the meaning of
Section 1445 of the Code. No Company is a "United States real property holding
corporation" within the meaning of Section 897 of the Code.
(j) On the Closing Date and immediately prior to the
Reorganization, the Companies will be members of the consolidated group, within
the meaning of Treasury Regulation Section 1.1502-1(h), of which Seller is the
common parent, and such consolidated group will actually file a consolidated
Federal Income Tax return for the taxable year including the Closing Date.
(k) To the knowledge of Seller, the Companies file Tax returns
in all jurisdictions where they are required to file Tax returns except where
failure to file would not have a Material Adverse Effect. SCHEDULE 3.17(K)
includes a list of all state and local Tax jurisdictions in with the Companies
file Income Tax returns.
(l) AGS properly elected to be treated, for Federal and
applicable state income Tax purposes, as an "S Corporation" (as defined in
Section 1361(a)(1) of the Code) for the taxable period from July 1, 1998,
through October 21, 1998, and qualified as such for such period, provided that
in no event shall a breach of this
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45
representation be taken into account for purposes of determining whether the
condition set forth in Section 6.01(a)(i) is satisfied.
(m) For purposes of this Agreement, (i) "Taxes" shall mean all
Federal, state, local and foreign income, profits, franchise, gross receipts,
payroll, sales, employment, use, property, excise, withholding and other taxes,
duties or assessments, together with all interest, penalties and additions
imposed with respect to such amounts; (ii) "Income Taxes" shall mean all
franchise Taxes and all Taxes imposed on or measured by net income or gross
profits or gross receipts or capital (but excluding sales, use, value added and
property Taxes), together with all interest, penalties and additions imposed
with respect to such amounts; (iii) "Code" shall mean the Internal Revenue Code
of 1986, as amended; (iv) "Affiliated Group" shall mean any consolidated,
combined, unitary, affiliated, or aggregate group for Federal, state, local, or
foreign Income Tax purposes; and (v) "Taxing Authority" shall mean any domestic,
foreign, Federal, national, state, county or municipal or other local
government, any subdivision, agency, commission or authority thereof, or any
quasi-governmental body exercising tax regulatory authority.
3.18. TRANSACTIONS WITH AFFILIATES. Except as described on
SCHEDULE 3.18, (a) there are no services currently being provided to the
Companies by Seller or any affiliate of the Companies (other than the Companies)
and (b) since January 1, 1997 there have been no transactions between any of the
Companies, on the one hand, and Seller or any of its affiliates (other than the
Companies), on the other hand. Except as set forth on
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46
SCHEDULE 3.18, none of the Contracts set forth on SCHEDULE 3.18 between any
Company, on the one hand, and Seller or any of its affiliates (other than the
Companies), on the other hand, will continue in effect subsequent to the
Closing. Except as set forth on SCHEDULE 3.18 and except for assets of Seller or
its affiliates used in performing the Services Agreement (but not otherwise used
in or pertaining to any Company's business), after the Closing none of Seller or
its affiliates will have any interest in any property (real or personal,
tangible or intangible) or Contract (other than the Retained Shares) (i) of any
Company or (ii) used in or pertaining to any Company's business.
3.19. INSURANCE. SCHEDULE 3.19 hereto contains a list and
brief description of all policies or binders of insurance held by or on behalf
of the Companies, or providing coverage for any of the properties or assets used
in connection with the business of any of the Companies (in each case specifying
the insurer, the amount of coverage, the type of insurance).
3.20. ENVIRONMENTAL MATTERS.
(a) None of the Companies has engaged in any operation upon
real property involving the handling, manufacture, treatment, storage, use,
disposal or generation of any Hazardous Materials (as hereinafter defined),
except (i) for such quantities handled, manufactured, treated, stored, used,
disposed of or generated in compliance with all applicable Environmental Laws,
(ii) as set forth in Section 3.20 or (iii) as would not, individually or in the
aggregate, have a Material Adverse Effect.
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47
(b) Except as set forth on SCHEDULE 3.20, there are no pending
or, to Seller's knowledge, threatened claims or Proceedings arising under
Environmental Law relating to any of the Companies or their respective current
or former subsidiaries, divisions, businesses, operations, facilities or
properties, nor has any of the Companies received written notice of any
allegation or investigation of the possibility, that it or any of its assets is
subject to any liability, clean-up or other obligation arising under
Environmental Law, including but not limited to any request for information
pursuant to the Comprehensive Environmental Response, Compensation, and
Liability Act, as amended ("CERCLA"), or analogous state law, except as would
not, individually or in the aggregate, have a Material Adverse Effect.
(c) Except as set forth on SCHEDULE 3.20, each of the
Companies is and has been in compliance with all Environmental Laws (as
hereinafter defined), except as would not, individually or in the aggregate,
have a Material Adverse Effect. Except as set forth on SCHEDULE 3.20, each of
the Companies holds, and is in compliance with, all permits, licenses,
authorizations, approvals and consents from Governmental Entities required to
conduct their respective business operations under Environmental Laws
("Environmental Permits"), except as would not, individually or in the
aggregate, result in a Material Adverse Effect. Except as set forth on SCHEDULE
3.20, none of the Companies has received any written communication that any of
the Companies is not in full compliance with all applicable Environmental Laws
and all Environmental Permits and, to Seller's knowledge, there are no
circumstances that are reasonably likely to
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48
prevent or interfere with such compliance in the future, except as would not,
individually or in the aggregate, have a Material Adverse Effect.
(d) Except as set forth on SCHEDULE 3.20, there have been no
Releases or threatened Releases of Hazardous Materials on, at, under or from any
property currently or formerly owned, operated or leased by any of the Companies
or any of their Subsidiaries, and none of the Companies or their Subsidiaries
has disposed or arranged for the disposal of Hazardous Materials at any off-site
location, or is otherwise responsible for the off-site Release or threatened
Release of Hazardous Materials, except as would not, individually or in the
aggregate, result in a Material Adverse Effect.
(e) "Environmental Laws" means all Federal, state, local and
foreign laws and regulations relating to pollution or protection of human health
or the environment (including, without limitation, ambient air, surface water,
groundwater, land surface or subsurface strata), including, without limitation,
laws and regulations relating to emissions, discharges, Releases or threatened
Releases of Hazardous Materials, or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, generation,
transport or handling of Hazardous Materials.
(f) "Hazardous Materials" means any material defined as a
"hazardous substance" under Section 101(14) of CERCLA, petroleum or petroleum
products (including fractions thereof), asbestos or asbestos-containing
materials, polychlorinated biphenyls, and any other substance or material
regulated pursuant to any applicable Environmental Law.
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49
(g) "Release" means any spilling, leaking, pumping, pouring,
discharging, emitting, emptying, leaching, injecting, dumping, disposing or
migrating into the environment.
3.21. ASSETS OTHER THAN REAL PROPERTY INTERESTS.
(a) A Company has good and valid title to all the material
assets reflected on the Balance Sheet or thereafter acquired, other than (A)
those set forth on SCHEDULE 3.21 or (B) as otherwise disposed of since the date
of the Balance Sheet in the ordinary course of business consistent with past
practice, in each case free and clear of all mortgages, liens, security
interests, charges, easements, leases, subleases, covenants, rights of way,
options, claims, restrictions or encumbrances of any kind (collectively,
"Liens"), except (i) such Liens as are set forth on SCHEDULE 3.21 (all of which
shall be discharged on or prior to the Closing), (ii) mechanics', carriers',
workmen's, repairmen's or other like Liens arising or incurred in the ordinary
course of business, (iii) Liens arising under original purchase price
conditional sales contracts and equipment leases with third parties entered into
in the ordinary course of business, (iv) Liens for Taxes that are not due and
payable or that may thereafter be paid without penalty or that are being
contested in good faith in appropriate proceedings and for which an adequate
reserve is maintained on the Balance Sheet (except to the extent accruing after
the date of the Balance Sheet), (v) Liens that secure debt that is reflected as
a liability on the Balance Sheet and (vi) other imperfections of title or
encumbrances, if any, that, individually or in the aggregate, do not materially
impair, and could not reasonably be expected
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50
materially to impair, the continued use and operation of the assets to which
they relate in the conduct of the business of the Companies as presently
conducted (the Liens described in clauses (i) and (vi) above, together with the
Liens referred to in clauses (ii) through (vi) of Section 3.22, are referred to
collectively as "Permitted Liens").
(b) This Section 3.21 does not relate to real property or
interests in real property, such items being the subject of Section 3.22.
3.22. REAL PROPERTY. SCHEDULE 3.22 sets forth a complete list
of all real property and interests in real property owned in fee by any Company
(individually, an "Owned Property"). SCHEDULE 3.22 sets forth a complete list of
all real property and interests in real property leased by any Company
(individually, a "Leased Property"). A Company has good and marketable fee title
to all Owned Property and good and valid title to the leasehold estates in all
Leased Property (an Owned Property or Leased Property being sometimes referred
to herein, individually, as a "Company Property"), in each case free and clear
of all Liens, except (i) Liens described in clauses (i) through (vi) of Section
3.21(a), (ii) such Liens as are set forth on SCHEDULE 3.22, (iii) leases,
subleases and similar agreements set forth on SCHEDULE 3.14, (iv) easements,
covenants, rights-of-way and other similar restrictions of record, (v) any
conditions that may be shown by a current, accurate survey or physical
inspection of any Company Property made prior to the Closing and (vi) (A)
zoning, building and other similar restrictions, (B) Liens that have been placed
by any developer, landlord or other third party on property over which any
Company has easement rights or on any Leased Property and
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51
subordination or similar agreements relating thereto and (C) unrecorded
easements, covenants, rights-of-way and other similar restrictions. None of the
items set forth in clauses (iv), (v) and (vi) above, individually or in the
aggregate, materially impairs, or could reasonably be expected materially to
impair, the value or continued use and operation of the Company Property to
which they relate in the conduct of the business of the Companies as presently
conducted.
3.23. ACCOUNTS; SAFE DEPOSIT BOXES; OFFICERS AND DIRECTORS.
SCHEDULE 3.23 sets forth (i) a true and correct list of all bank and savings
accounts, certificates of deposit and safe deposit boxes of the Companies and
those persons authorized to sign thereon and (ii) a true and correct list of all
officers and directors of the Companies.
3.24. PERMITS. Except as set forth on SCHEDULE 3.24, all
certificates, licenses, permits, authorizations and approvals ("Permits") used
in connection with the Companies' business have been issued or granted to a
Company, and none of such Permits that are material will be subject to
suspension, modification, revocation or nonrenewal as a result of the execution
and delivery of this Agreement, the WRC Note, the WRC Additional Agreements or
Seller's Additional Agreements or the consummation of the Transactions.
3.25. EFFECT OF TRANSACTION. As of the date hereof, except as
set forth on SCHEDULE 3.25, no creditor, employee, client, customer or other
person having a material business relationship with any Company has changed, or
informed Seller or any
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52
Company in writing that such person intends to change, such relationship because
of the purchase and sale of the Companies or the consummation by Seller and the
Companies of the Transactions.
3.26. SUPPLIERS. Except for the suppliers named on SCHEDULE
3.26, there is no supplier (other than a Company) from whom the Companies taken
as a whole have purchased more than 5% of the total amount of goods and services
purchased by the Companies during the most recent full fiscal year.
3.27. YEAR 2000. Seller instituted a company-wide Year 2000
project (the "Project") beginning in early 1997. The Project has addressed
issues regarding computer infrastructure, system software and third party
vendors. Seller has communicated with key suppliers and business partners of the
Companies as to whether they are Year 2000 Compliant (as hereinafter defined),
and the responses to each of these companies has been provided to Purchaser. In
addition, critical software systems and hardware have been upgraded in an effort
to be Year 2000 Compliant and testing is scheduled to be completed by September
30, 1999. Except as set forth on SCHEDULE 3.27, Seller does not have any
knowledge on the date hereof that any critical software systems and hardware
owned by the Companies will not be Year 2000 Compliant by December
31, 1999. Notwithstanding the foregoing, Purchaser acknowledges that Seller is
not representing and warranting that any software systems and hardware owned by
the Companies or any suppliers and business partners to the Companies are Year
2000 Compliant. For the purposes hereof, the term "Year 2000 Compliant" shall
mean, with
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53
respect to a computer system or software program, that such computer program or
software program (a) is capable of recognizing, processing, managing,
representing, interpreting and manipulating correctly date-related data for
dates earlier and later than January 1, 2000; (b) has the ability to provide
date recognition for any data element without limitation; (c) has the ability to
function automatically into and beyond the year 2000 without human intervention
and without any change in operations associated with the advent of the year
2000; (d) has the ability to interpret data, dates and time correctly into and
beyond the year 2000; (e) has the ability not to produce noncompliance in
existing data, nor otherwise corrupt such data, into and beyond the year 2000;
(f) has the ability to process correctly after January 1, 2000, data containing
dates before that date; and (g) has the ability to recognize all "leap year"
dates, including February 29, 2000.
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF PURCHASER.
Purchaser represents and warrants to Seller as follows:
4.01. ORGANIZATION OF PURCHASER. Purchaser is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware and has the full corporate power and authority to enter into
this Agreement and the other agreements and instruments referred to in this
Agreement that Purchaser is executing and delivering to Seller or one of the
Companies (the "Purchaser's Additional Agreements") and to consummate the
transactions contemplated hereby and thereby.
4.02. AUTHORIZATION OF AGREEMENT. The execution, delivery and
performance by Purchaser of this Agreement and Purchaser's Additional Agreements
and
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54
the consummation by Purchaser of the transactions contemplated hereby and
thereby have been duly authorized by all necessary corporate and stockholder
action of Purchaser. Purchaser has duly executed and delivered this Agreement
and prior to the Closing will have duly executed and delivered each of
Purchaser's Additional Agreements, and this Agreement constitutes, and each of
Purchaser's Additional Agreements when executed will constitute, legal, valid
and binding obligations of Purchaser, enforceable against Purchaser in
accordance with their respective terms, except as the enforceability thereof may
be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws
relating to or affecting the rights of creditors generally and by general
equitable principles (regardless of whether such enforceability is considered in
a proceeding in equity or at law) and by an implied covenant of good faith and
fair dealing.
4.03. NO CONFLICTS. Except as set forth on SCHEDULE 4.03,
assuming compliance with the notification requirements of HSR, the execution,
delivery and performance of this Agreement do not, the execution, delivery
and performance of each Purchaser Additional Agreement will not, and the
consummation by Purchaser of the transactions contemplated hereby and
thereby, and compliance by Purchaser with the terms and provisions hereof and
thereof will not (a) conflict with the certificate of incorporation or
by-laws of Purchaser; (b) conflict with, or result in the breach or
termination of, or constitute a default (or with notice or lapse of time or
both, constitute a default) under or result in the termination or suspension
of any obligation or in loss of a
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55
material benefit under, or in increased, additional, accelerated or guaranteed
rights or entitlements of any person under, or accelerate the performance
required by any of the terms, conditions or provisions of, any note, bond,
mortgage, indenture, license, lease, agreement, commitment or other instrument
to which Purchaser is a party or by which Purchaser is bound; or (c) constitute
a violation by Purchaser of any Judgment or Applicable Law of any Governmental
Entity applicable to Purchaser or any of its properties; except, in the case of
clause (b) above, for such conflicts, defaults, breaches, terminations,
suspensions or acceleration of performance which, individually or in the
aggregate, would not have a material adverse effect on the ability of Purchaser
to consummate the transactions contemplated hereby and by Purchaser's Additional
Agreements.
4.04. NO CONSENTS. No order, permission, consent, approval,
license, authorization, registration, or validation of, or filing with, or
notice to, or exemption by, any Governmental Entity is required to be obtained
or made by or with respect to Purchaser to authorize, or in connection with the
execution, delivery or performance of this Agreement or any of Purchaser's
Additional Agreements or the consummation of the transactions contemplated
hereby and thereby other than filings required under HSR or ISRA and filings
required solely by reason of Seller's or any Company's (as opposed to any other
third party's) participation in the transactions contemplated hereby and by
Purchaser's Additional Agreements.
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56
4.05. LITIGATION. As of the date of this Agreement, there are
no Proceedings pending, or, to Purchaser's knowledge, threatened before any
Governmental Entity against Purchaser relating to the transactions contemplated
by this Agreement or Purchaser's Additional Agreements.
4.06. NO BROKERS. Purchaser has not incurred any obligation or
liability, contingent or otherwise, for brokers' or finders' fees or commissions
in connection with the transactions contemplated by this Agreement and
Purchaser's Additional Agreements.
4.07. INVESTMENT PURPOSE.
(a) Purchaser is purchasing the Purchased Preferred Shares and
the Purchased Common Shares for its own account for investment purposes and not
with a view toward distribution or re-sale in violation of the Securities Act.
(b) Purchaser acknowledges that none of the Purchased
Preferred Shares and the Purchased Common Shares have been registered under the
Securities Act or qualified under state securities law, but rather have been
offered for sale in accordance with certain exemptions under applicable
securities law and that the Purchased Preferred Shares and the Purchased Common
Shares may not be resold by it unless they are subsequently registered or
qualified under Applicable Law, or an exemption from registration and
qualification is then available.
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57
4.08. PURCHASER'S EXAMINATION.
(a) Purchaser is not relying on any forecasted operating
results or budgets of the Companies prepared by or on behalf of Seller; and
(b) Purchaser acknowledges and agrees that no representation
or warranty has been or is being made by Seller except as expressly set forth in
this Agreement.
4.09. FINANCIAL ABILITY. Purchaser has debt financing and
equity commitments and a "highly confident" letter that, if the financing
described therein is provided, are sufficient to enable (a) it to consummate the
acquisition of the WRC Note, the Purchased Preferred Shares and the Purchased
Common Shares as contemplated by this Agreement and (b) WRC to consummate the
Term Borrowing and enter into the Revolving Facility. True and correct copies of
any such debt financing and equity commitments and "highly confident" letter
have been provided to Seller. The financing required to consummate the
transactions contemplated by this Agreement is collectively referred to as the
"Financing."
ARTICLE V. FURTHER AGREEMENTS OF THE PARTIES.
5.01. EXPENSES. Purchaser and Seller shall bear their own
respective expenses (including, in the case of Seller, all the expenses of the
Companies) incurred in connection with the negotiation and preparation of this
Agreement and the WRC Note, the WRC Additional Agreements, Purchaser's
Additional Agreements and Seller's Additional Agreements (collectively, the
"Additional Agreements"), and the
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58
consummation and performance of the Transactions and in connection with all
obligations required to be performed by each of them under this Agreement and
the Additional Agreements, except as may otherwise be expressly provided herein.
5.02. RESIGNATIONS. On the Closing Date, Seller shall cause
all directors of the Companies to resign and shall cause any officers that are
not employees of the Companies to resign as officers of the foregoing, in each
case effective immediately after the Closing, and shall deliver such
resignations to Purchaser at the Closing.
5.03. EMPLOYEES.
(a) Immediately following the Closing, each employee of each
of the Companies shall be employed at no less than the wage or salary,
commission and bonus formula of that employee in effect on the Closing Date. For
a period of one (1) year from the Closing, Purchaser shall provide to those
employees employed by any of the Companies as of the Closing Date (including any
employees on disability or other leave) ("Company Employees"; individually, a
"Company Employee") compensation and employee benefits programs which, in the
aggregate, are at least as beneficial as the compensation and employee benefit
programs in effect prior to the Closing for such Company Employees.
(b) Purchaser shall, as to all Company Employees, cause its
insurance carriers and benefit plan administrators or trustees to (i) recognize
service with any of the Companies (and any predecessors or subsidiary of Seller)
prior to the Closing ("Prior Service") for purposes of eligibility to enroll in
its welfare plans (e.g. its life, medical,
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59
dental, accident, disability and similar benefit plans); and (ii) provide each
Company Employee with credit under its medical and dental plans for payments
made under the PRIMEDIA Medical and Dental Plans in satisfying any deductible or
out-of-pocket limit requirements in respect of the calendar year in which the
Closing Date occurs.
(c) Purchaser shall recognize Prior Service for all Company
Employees for purposes of determining entitlement to vacation and sick leave as
employees under its applicable vacation and sick leave policies. Purchaser shall
recognize Prior Service for purposes of determining entitlement to and the
amount of any severance benefits which may be payable by Purchaser to any
Company Employee. Purchaser shall pay to any Company Employee who has a written
agreement regarding severance (copies of which have been made available to
Purchaser) the amount set forth therein or, in the absence of a written
agreement with such Company Employee, for a period of one (1) year from the
Closing Date, Purchaser shall pay to such Company Employee that is terminated
"without cause", severance in an amount no less than one week of severance for
each year of employment up to a maximum of 26 weeks.
(d) Purchaser shall recognize Prior Service for all Company
Employees for purposes of eligibility and vesting, but not for benefit accrual,
under each benefit program that provides pension, savings, or other deferred
benefits which is adopted, maintained or contributed to by Purchaser or any of
its affiliates to the extent Company Employees participate or are eligible for
participation after the Closing.
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60
(e) Purchaser agrees to assume the obligations to continue to
offer to former employees of any of the Companies and their dependents, or
dependents of employees of the Companies prior to the Closing, health care
benefits in accordance with the provisions of the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended.
(f) Seller agrees that it shall retain the obligation to pay
any medical and dental expenses incurred by employees of the Companies and that
are to be reimbursed by the Companies to the administrators of a medical or
dental plan sponsored by Seller, as identified on SCHEDULE 3.15 attached hereto,
under any self-insured arrangements in which the Companies participate, but have
not been reimbursed to the administrators prior to the Closing Date.
(g) Purchaser agrees to assume the obligation to pay any
medical and dental expenses incurred by employees of the Companies and that are
to be reimbursed by the Companies to the administrators of a medical or dental
plan sponsored by any of the Companies under any self-insured arrangements in
which the Companies participate, but have not been reimbursed to the
administrators prior to the Closing Date.
(h) Except as set forth on SCHEDULE 5.03, on or prior to the
Closing Date, Seller shall fully vest all individuals employed by any of the
Companies immediately prior to the Closing Date in their respective accrued
benefits and account balances under the applicable tax-qualified and
non-qualified pension benefit plans
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61
(within the meaning of Section 3(2) of ERISA) in which they are participating
prior to the Closing Date.
(i) Nothing herein shall be construed as (i) limiting
Purchaser's ability to terminate the employment of any employee of the Companies
on or following the Closing Date or (ii) requiring Purchaser to maintain any
particular plan, policy, program or arrangement on or following the Closing
Date.
(j) As soon as practicable following the later of (i) the
Closing Date and (ii) receipt by Purchaser of a copy of a favorable
determination letter from the Internal Revenue Service to the effect that the
401(K) Plan meets the requirements for qualification under Section 401(a) of the
Code (or an opinion of Seller's counsel reasonably satisfactory to Purchaser to
such effect), Seller shall cause to be transferred to Purchaser's 401(K) Plans
cash or, if acceptable to Purchaser, marketable securities selected by Seller
having a fair market value equal to the aggregate value of the account balances
in Seller's 401(K) Plans as of the date of transfer for Company Employees and
former Company Employees (such transfer to be in notes evidencing loans to
employees and former Company Employees from their account balances and the
balance in cash or marketable securities as provided above), and shall also
transfer all qualified domestic relations orders within the meaning of Section
414(p) of the Code.
5.04. FURTHER ASSURANCES. Each of Purchaser and Seller shall
execute such documents and other papers and take such further actions as the
other party may reasonably request in order to carry out the provisions hereof
and the Transactions,
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62
including without limitation using commercially reasonable efforts to obtain any
consents from any party to any Contract which is required in connection with the
Transactions, provided that such obligation shall not require more than a
commercially reasonable expenditure of money by Seller or any expenditure of
money or future commitment by Purchaser. The parties shall cooperate with each
other in connection with any litigation relating to the Companies, including
providing reasonable access to books and records and employees (current or
former), provided that in no event shall either party be required to make more
than a reasonable expenditure of money in connection therewith.
5.05. CORRESPONDENCE. Seller and the Companies will promptly
remit to the Companies or Seller, respectively, any correspondence received by
it which properly belongs to the Companies or Seller, respectively.
5.06. RECORD RETENTION. Each party shall maintain the
agreements, documents, books, records and files relating to the Companies
(collectively, "Records") for a period of six (6) years following the Closing
Date. From and after the Closing Date, upon reasonable written notice, Purchaser
and Seller shall furnish or cause to be furnished to each other and their
representatives, employees, counsel and accountants access, during normal
business hours and upon reasonable prior written notice, to Records relating to
periods prior to the Closing Date, and shall permit such persons to examine and
copy, at such persons' sole cost and expense, such Records to the extent
reasonably requested by the other party as is reasonably necessary for financial
reporting
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63
and accounting matters, the preparation and filing of any returns, reports or
forms or the defense of any claim or assessment. From and after the Closing
Date, with respect to Records relating to periods prior to the Closing Date that
the Companies do not possess, Seller shall furnish or cause to be furnished to
Purchaser, upon reasonable written notice, such Records reasonably requested by
Purchaser; provided that if such Records are intermingled with the records of
any other subsidiaries of Seller and Seller is unable to redact such Records,
Seller shall not be required to furnish such Records to Purchaser. The parties
agree to cooperate so that such access does not unreasonably disrupt the normal
operations of Purchaser, any of the Companies or Seller.
5.07. REGULATORY AND OTHER AUTHORIZATIONS. Each of Purchaser
and Seller shall use its reasonable best efforts to obtain all governmental
authorizations of all Governmental Entities that may be or become necessary for
its respective execution and delivery of, and the respective performance of its
obligations pursuant to, this Agreement. Not later than five (5) business days
after the date hereof, Purchaser and Seller shall file their respective
Notification and Report Forms under HSR with respect to the Transactions and
shall request early termination of the waiting period applicable to such filings
under HSR. Each of Purchaser and Seller agrees to respond as promptly as
practicable to any request for additional information or documentary material
made pursuant to HSR. Any such Notification and Report Form and additional
information shall be in substantial compliance with the requirements of HSR.
Each of Seller and Purchaser shall furnish to the other such necessary
information and reasonable assistance
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as the other may request in connection with its preparation of any filing or
submission that is necessary under HSR. Seller and Purchaser shall keep each
other apprised of the status of any communications with, and any inquiries or
requests for additional information from, any governmental antitrust
authorities. Each party shall use its reasonable best efforts to obtain any
clearance required under HSR for the consummation of the Transactions. Each of
Purchaser and Seller shall use its reasonable best efforts to oppose any motion
or action for a temporary, preliminary or permanent injunction against the
Transactions.
5.08. CONDUCT OF BUSINESS PENDING THE CLOSING.
(a) From the date hereof until the Closing, except as set
forth on SCHEDULE 5.08 or otherwise expressly contemplated by this Agreement,
Seller shall cause each of the Companies to operate its respective business in
the usual, regular and ordinary course in substantially the same manner as
previously conducted (including with respect to marketing, promotions,
prepublication spending, capital expenditures and inventory levels) and use all
reasonable efforts to keep intact its respective business, keep available the
services of its current employees and preserve its relationships with customers,
suppliers, licensors, licensees, distributors and others with whom it deals
except as otherwise expressly prohibited pursuant to the provisions hereof. In
addition (and without limiting the generality of the foregoing), except as set
forth on SCHEDULE 5.08 or as otherwise expressly permitted or required by the
terms of this Agreement,
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65
Seller shall not permit any Company to do any of the following without the prior
written consent of Purchaser:
(i) except, in the case of WRC, as contemplated by
this Agreement with respect to the Charter Amendment, amend
its certificate of incorporation or by-laws;
(ii) declare or pay any dividend or make any other
distribution to its stockholders whether or not upon or in
respect of any shares of its capital stock; provided that (A)
dividends and distributions may continue to be made by the
Subsidiaries to PRI, AGS and WRC, (B) dividends and
distributions payable in cash prior to the Closing may
continue to be made by PRI, AGS and WRC to Seller and (C) WRC
may make the distribution to Seller contemplated with respect
to the Redemption;
(iii) except as contemplated by this Agreement with
respect to the Redemption and the Preferred Stock Purchase,
redeem or otherwise acquire any shares of its capital stock or
issue any capital stock or any option, warrant or right
relating thereto or any securities convertible into or
exchangeable for any shares of capital stock;
(iv) except as required by Applicable Law, enter
into, adopt or amend in any material respect or terminate any
Plan, Employee Benefit Program, Employee Agreement or any
other agreement, arrangement, plan or policy involving the
Companies and one or more of their
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66
employees or directors, or change any actuarial or other
assumption used to calculate funding obligations with respect
to any Pension Plan, or change the manner in which
contributions to any Pension Plan are made or the basis on
which such contributions are determined;
(v) increase the compensation of any key employee,
officer or director or, except to the extent that such
obligation is solely that of Seller, pay any benefit or amount
not required by a plan or arrangement as in effect on the date
of this Agreement, or enter into any arrangement or commitment
to do any of the foregoing, except for annual merit raises in
the ordinary course of business;
(vi) except as contemplated by this Agreement with
respect to the Note Purchase, incur or assume any liabilities,
obligations or Indebtedness or guarantee any such liabilities,
obligations or Indebtedness, other than in the ordinary course
of business and consistent with past practice; provided that
in no event shall any Company incur or assume any long-term
indebtedness for borrowed money other than pursuant to
guarantees of Seller's Indebtedness which guarantees shall be
released at the Closing;
(vii) permit, allow or suffer any of its assets to
become subjected to any Lien of any nature whatsoever that
would have been
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required to be set forth on SCHEDULE 3.21 or SCHEDULE 3.22 if
existing on the date of this Agreement;
(viii) cancel any material Indebtedness (individually
or in the aggregate) or waive any claims or rights of material
value;
(ix) pay, loan or advance any amount to, or sell,
transfer or lease any of its assets to, or enter into any
agreement or arrangement with, Seller or any of its
affiliates, except for (A) transactions among the Companies,
(B) dividends and distributions permitted under clause (ii)
above and (C) intercompany transactions with respect to the
services described on SCHEDULE 3.18 in the ordinary course of
business consistent with past practice;
(x) make any change in any method of accounting or
accounting practice or policy other than those required by law
or GAAP;
(xi) acquire by merging or consolidating with, or by
purchasing a substantial portion of the assets of, or by any
other manner, any business or any corporation, partnership,
association or other business organization or division thereof
or otherwise acquire any assets (other than inventory and
intellectual property in the ordinary course of business and
consistent with past practice) that are material;
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(xii) commit to make any capital expenditure after
the Closing individually in excess of $75,000 or in the
aggregate in excess of $200,000;
(xiii) sell, lease or otherwise dispose of any of its
material assets (other than pursuant to license), except
inventory sold in the ordinary course of business and
consistent with past practice;
(xiv) license any of its material assets, except in
the ordinary course of business and consistent with past
practice;
(xv) enter into any lease of real property, except
the renewal of the Circle Pines lease and any other renewals
of existing leases in the ordinary course of business and
consistent with past practice, with respect to which Purchaser
shall have the right to participate; or
(xvi) authorize any of, or commit or agree to take,
whether in writing or otherwise, to do any of, the foregoing
actions.
(b) AFFIRMATIVE COVENANTS. Until the Closing, Seller shall
cause the Companies to:
(i) maintain their respective assets in the ordinary
course of business in good operating order and condition,
reasonable wear and tear excepted; and
(ii) upon any damage, destruction or loss to any
asset, apply any and all insurance proceeds received with
respect thereto to the prompt
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69
repair, replacement and restoration thereof to the condition
of such asset before such event or, if required, to such other
(better) condition as may be required by Applicable Law.
(c) REPORTING. Seller shall use reasonable efforts to cause
the Companies to report to Purchaser the general status of ongoing operations
no less than once a month.
(d) INSURANCE. Seller shall keep, or cause to be kept, all
insurance policies set forth on SCHEDULE 3.19 or suitable replacements therefor,
in full force and effect through the close of business on the Closing Date. To
the extent that any of the Companies' rights under such insurance policies
covering claims relating to the period on or prior to the Closing Date for which
Purchaser and/or the Companies are not indemnified by Seller cannot be asserted
by the Companies, Seller shall prosecute such rights on behalf of Purchaser and
the Companies.
(e) ACTIONS AFFECTING CONDITIONS. Each of Purchaser and Seller
shall not, and Seller shall not permit any Company to, take any action that
would, or that could reasonably be expected to, result in any of the conditions
to the Closing set forth in Article VI not being satisfied.
5.09. NO SHOP. From the date hereof until the Closing or until
the date that this Agreement is terminated pursuant to Section 9.01 below,
Seller agrees that neither Seller nor its representatives, agents or parent
corporation will entertain any proposal, negotiate or enter into any agreement,
or take any steps, to consummate the
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sale or disposition of any capital stock of any of the Companies or any material
portion of the assets of the Companies (except for inventory sold in the
ordinary course of business) with any person other than Purchaser and its
representatives.
5.10. NO DISCLOSURE. Each of Purchaser and Seller agree that
it shall not make any public announcement or issue any press release in
connection with the transactions consummated hereby, except as provided in this
Section 5.10 and except if Purchaser or Seller (a) is ordered to make such
disclosure by a court of competent jurisdiction or (b) is advised by legal
counsel that such disclosure is required under Applicable Laws or the rules and
regulations of any stock exchange upon which Purchaser's or Seller's securities
are traded, in which case the party making the required disclosure shall inform
the other party as to the timing and contents of such disclosure prior to making
such disclosure. Purchaser and Seller shall jointly agree upon and approve a
press release to be issued on or about the date hereof and/or on or about the
Closing Date, as mutually determined by the parties hereto. Any subsequent press
release or public announcement made by either party hereto after approval of any
such press release shall be consistent with (including in scope) the mutually
agreed upon press release or releases.
5.11. BANK ACCOUNTS. On or prior to the Closing Date, Seller
shall use reasonable efforts to withdraw from the bank accounts of the Companies
substantially all cash deposited therein. On or prior to the Closing Date,
Seller shall disengage all bank accounts of the Companies from those of Seller
and its affiliates. Purchaser shall cause
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71
the Companies to honor and cause to be paid all checks written on such accounts
of the Companies prior to the Closing Date.
5.12. RELEASE OF GUARANTEES. Effective as of the Closing Date,
Seller shall obtain a release of (a) any guarantees entered into by any of the
Companies of the Indebtedness of Seller or any of Seller's subsidiaries other
than the Companies and (b) any security interests granted by any Company or with
respect to the Purchased Preferred Shares, the Purchased Common Shares, the
Subsidiary Shares or the assets of any Company which secure the Indebtedness of
Seller or any of Seller's subsidiaries other than the Companies.
5.13. INTERCOMPANY ACCOUNTS. On or prior to the Closing Date,
Seller shall cause each of the Companies to eliminate all intercompany accounts
and liabilities with any of Seller or its subsidiaries (other than between any
of the Companies), except as set forth on SCHEDULE 5.13. The elimination of any
intercompany indebtedness shall be accomplished by debiting or crediting the
intercompany account and inversely crediting or debiting stockholders' equity of
the relevant Companies in such a way as to not create adverse consequences to
any of the Companies.
5.14. TRANSFER TAXES. Seller shall pay up to $40,000 of any
state or local sales, transfer, recording, ad valorem, stamp or like Taxes
payable in connection with the transactions contemplated pursuant to this
Agreement, and the remainder of such Taxes shall be paid one-half by each of
Purchaser and Seller.
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72
5.15. COVENANT NOT TO COMPETE.
(a) Seller agrees that for a period of two (2) years from and
after the date hereof (the "Non-Compete Period"), Seller shall not and shall
cause its subsidiaries or any affiliates over which Seller has the right to
determine the kinds of business in which such affiliates are involved (the
"Controlled Affiliates") not to (i) own, acquire, manage, operate, control or
participate in the ownership, management, operation or control of any company or
other entity (in each case, a "Competing Entity"), which engages in any of the
following businesses, in each case, in the United States, (A) distributing books
and reference materials in print that compete with those currently distributed
by PRI for distribution to libraries and schools, (B) publishing books in print
that compete with those currently published by Gareth Stevens, Inc. for
distribution to school libraries, (C) publishing an annual general interest
almanac for consumers, (D) publishing assessment test materials in print which
are targeted to elementary and secondary school students who are in the lower
fiftieth percentile of achievement, and which compete with the assessment test
materials published by AGS and its Subsidiaries, or (E) publishing print
periodicals and supplemental educational materials in print, in each case, sold
on an annual subscription basis to teachers, schools, or school districts for
in-school distribution to grades Kindergarten through 12, and which compete with
those published by WRC and its Subsidiaries (any of the foregoing is hereinafter
referred to as a "Competing Publication or Product Line"), (ii) solicit or hire
any Company Employee (or any employee employed by any of the Companies as of the
date hereof), except for
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Company Employees (or any employees employed by any of the Companies as of the
date hereof) who (A) are fired or otherwise involuntarily terminated by
Purchaser or any Company or (B) respond to a general advertisement for
employment, provided that in the case of clause (B) Seller shall not
subsequently hire any such Company Employee (or any employee employed by any of
the Companies as of the date hereof) if such Company Employee (or any employee
employed by any of the Companies as of the date hereof) is other than a
secretarial or administrative level employee unless such Company Employee (or
any employee employed by any of the Companies as of the date hereof) is fired or
otherwise involuntarily terminated by Purchaser or any Company and (iii)
disclose or furnish to any other Person any confidential information relating to
the Companies which Seller or its subsidiaries possess as of the Closing other
than (A) as required by law or legal process or (B) if such information is
generally available to the public prior to the Closing or thereafter (except as
a result of a disclosure in violation of this clause (iii)).
(b) Notwithstanding the foregoing, nothing shall prohibit
Seller or its subsidiaries or Controlled Affiliates from (i) owning less than
ten percent (10%) of the equity or similar financial interest of such a
Competing Entity so long as neither Seller nor its subsidiaries or Controlled
Affiliates shall have the ability or right to direct or control the management
of such Competing Entity; (ii) acquiring any corporation or entity that owns,
acquires or participates in the business of owning and publishing
Competing Publications, provided that not greater than fifteen percent (15%) of
the annual revenues of such entity in either the calendar year immediately
preceding its
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74
acquisition by Seller or its subsidiaries or Controlled Affiliates or, as a
result of a disposition or dispositions of certain publications or product
lines, in the calendar year immediately succeeding such acquisition, are derived
from the publication and sale of a Competing Publication or Product Line; or
(iii) the continued operation of the business of Channel One conducted by
Channel One Communications Corporation substantially as conducted on the date
hereof.
(c) Notwithstanding any other provision of this Agreement, it
is understood and agreed that the remedy of indemnity payments pursuant to
Article VII and other remedies at law would be inadequate in the case of any
breach of the covenants contained in the first paragraph of this Section 5.15.
Purchaser shall be entitled to equitable relief, including the remedy of
specific performance, with respect to any breach or attempted breach of such
covenants.
5.16. GUARANTEES, JOINT OBLIGATIONS. To the extent that Seller
or any of its subsidiaries other than the Companies is a guarantor of any
obligations of any of the Companies to any third party under any lease listed on
SCHEDULE 5.16, Purchaser agrees that (i) prior to the Closing Date it shall use
its reasonable commercial efforts (without any expenditure of monies) to have
Seller or any of such subsidiaries released from all such guarantees and (ii)
Purchaser shall be solely responsible for the breach of any such contract to the
extent that such breach arises from the conduct of the business of any of the
Companies from and after the Closing Date. Notwithstanding the foregoing, in the
event that any of the leases guaranteed by Seller or any of its subsidiaries
other
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75
than the Companies contains an option to renew, Purchaser shall not renew such
lease without having Seller and/or its respective subsidiaries released from
such guarantee.
5.17. REASONABLE BEST EFFORTS TO CLOSE. During the period
commencing on the date of execution of this Agreement and continuing until the
earlier of the Closing Date or the termination of this Agreement pursuant to
Section 9.01, Purchaser and Seller shall use their respective reasonable best
efforts to consummate the Financing and the Transactions. Seller shall use its
reasonable best efforts to make Company Employees available for the preparation
of documentation and any roadshows in connection with the Financing and the
Transactions, so long as such activities do not materially interfere with the
day-to-day operations of Seller or any of the Companies. Seller shall cause WRC
to execute and deliver, subject to the Closing, the agreements and instruments
relating to the Term Borrowing and the Revolving Facility.
5.18. LOCATION OF AGS. Purchaser hereby agrees that through
October 2, 2003 (the "Relevant Period"), it will cause AGS to maintain its
operations and physical plant within a fifty (50) mile radius of Circle Pines,
Minnesota (the "Circle Pines Area"); provided, however, that (a) Purchaser shall
be entitled to move AGS from the Circle Pines Area in the event that (i) AGS'
consolidated revenues in any calendar year during the Relevant Period (the
"Relevant Calendar Year") increase to more than 150% of the consolidated
revenues of AGS for the fiscal year ended June 30, 1998 ("Fiscal 1998") and
Purchaser, after using commercially reasonable efforts to obtain additional
space, is unable to do so at rental rates substantially equivalent to those
being
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76
paid as of the date hereof, adjusted annually in accordance with the Revised
Consumer's Price Index for All Urban Consumers, U.S. City Average, Subgroup
"All-items" (1967=100) issued by the Bureau of Labor Statistics of the U.S.
Department of Labor in the Current Labor Statistics Section of the Monthly Labor
Review, (ii) AGS' consolidated revenues in a Relevant Calendar Year decrease to
less than 50% of the consolidated revenues of AGS for Fiscal 1998, (iii) all of
Messrs. Rutkowski and Adams and Ms. Herpers voluntarily terminate their
employment with AGS and AGS is unable to obtain suitable replacements for such
employees in the Circle Pines Area after using commercially reasonable efforts
to do so, (iv) more than 25% of the development staff employed by AGS on October
2, 1998 have voluntarily terminated their employment with AGS and AGS is unable
to obtain suitable replacements for such employees in the Circle Pines Area
after using commercially reasonable efforts to do so, and (b) the provisions of
this Section 5.18 shall not obligate Purchaser to relocate businesses acquired
for AGS and/or its Subsidiary to the Circle Pines Area. In the event of a breach
of the obligations arising under this Section 5.18, Purchaser (x) shall pay, as
liquidated damages, to Seller an amount equal to Eleven Million Two Hundred
Fifty Thousand Dollars ($11,250,000) multiplied by 100% if AGS is moved during
the period commencing on the Closing Date and ending on October 2, 1999 and
declining ratably by 20% each year to 20% in the event that AGS is moved during
the period commencing on October 3, 2002 and ending on October 2, 2003, and (y)
shall reimburse Seller for all reasonable legal fees and disbursements incurred
in connection with (i) any litigation
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with a third party as to whether there is a breach by Purchaser of Section 5.17
of the Agreement dated as of September 15, 1998 between Seller and AGS and (ii)
enforcing Purchaser's obligations in this Section 5.18, provided that, with
respect to clause (ii), Seller is the prevailing party. Seller may participate
in the defense of any litigation described in the preceding clause (y)(i),
subject to entering into a joint defense agreement with Purchaser. The
provisions of Sections 7.04, 7.05 and 7.07 shall apply to any indemnification
pursuant to this Section 5.18 to the same extent as if it were included in
Section 7.03.
5.19. ACCESS TO THE COMPANIES. Prior to the Closing Date,
Purchaser shall have access to and be entitled, through its employees,
accountants, counsel and representatives, to make such reasonable investigation
of the assets, properties, business, personnel, books, Contracts, commitments,
tax returns, records and operations of the Companies as Purchaser may reasonably
request. Prior to the Closing Date, Seller shall, and shall cause the Companies
to, furnish promptly to Purchaser any information concerning the Companies as
Purchaser may reasonably request. Any such investigation shall be conducted at
reasonable times, on prior notice and under reasonable circumstances.
5.20. ASSUMPTION OF LIABILITIES. Purchaser agrees to assume
and be liable for the obligations listed on SCHEDULE 5.20 attached hereto.
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5.21. CONFIDENTIALITY.
(a) Purchaser acknowledges that the information being provided
to it in connection with the consummation of the Transactions is subject to the
terms of the confidentiality agreement between Purchaser and Seller (the
"Confidentiality Agreement"), the terms of which are incorporated herein by
reference. Effective upon, and only upon, the Closing, the Confidentiality
Agreement shall terminate with respect to information relating solely to the
Companies; provided that Purchaser acknowledges that any and all other
information provided to it by Seller or Seller's representatives concerning
Seller shall remain subject to the terms and conditions of the Confidentiality
Agreement after the Closing Date.
(b) Seller hereby assigns, effective at the Closing, to
Purchaser its rights under all confidentiality agreements entered into by or on
behalf of Seller with any person in connection with the proposed sale of the
Companies to the extent such rights relate to the Companies. Copies of such
confidentiality agreements shall be provided to Purchaser on the Closing Date.
5.22. FINANCIAL STATEMENTS. No later than August 31, 1999,
Seller shall cause to be delivered to Purchaser (a) the Companies' draft audited
combined balance sheets as of December 31, 1997 and December 31, 1998, and the
draft audited combined statements of income and cash flows of the Companies for
the fiscal years ended December 31, 1996, December 31, 1997 and December 31,
1998, together with the notes to such financial statements and the report
thereon of D&T, prepared by Seller in
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conformity with GAAP applied on a consistent basis (except, with respect to
consistency, in each case as described in the notes thereto), which balance
sheets and statements, in the case of the balance sheets as of and statements of
income for the fiscal years ended December 31, 1997 and December 31, 1998, shall
not be materially different (except for the inclusion of notes thereto, for
adjustments related to and inclusion of any Companies or businesses prior to
their acquisition by Seller or one of the Companies and as set forth on SCHEDULE
5.22) from the balance sheets as of and statements of income for the fiscal
years ended December 31, 1997 and December 31, 1998 set forth on SCHEDULE 3.11,
(b) the Companies' unaudited combined balance sheets as of June 30, 1998 and
June 30, 1999 and the related unaudited combined statements of income and cash
flows of the Companies for the six months then ended, together with the notes
thereto, prepared in conformity with GAAP applied on a consistent basis (except,
with respect to consistency, in each case as described in the notes thereto),
(c) unaudited summary historical financial information as of and for the fiscal
years ended December 31, 1994 and December 31, 1995 and (d) the draft audited
historical financial statements of AGS for each of the three years ended June
30, 1996, 1997 and 1998, together with the notes to such financial statements
and the report thereon of D&T, prepared in conformity with GAAP applied on a
consistent basis (except, with respect to consistency, in each case as described
in the notes thereto). Immediately prior to printing the preliminary offering
memorandum or prospectus for the financing referred to in the "highly confident"
letter referenced in Section 4.09, Seller shall cause to be delivered to
Purchaser final versions of the financial
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statements previously delivered to Purchaser pursuant to this Section 5.22;
provided that Purchaser has given D&T timely access to such memorandum or
prospectus prior to printing. Such final versions shall not be materially
different from the draft versions, except for subsequent events disclosure.
Seller shall be responsible for and hold Purchaser harmless from up to $800,000
of the fees and expenses of D&T in connection with the foregoing and Purchaser
shall be responsible for and hold Seller harmless from the remainder of the fees
and expenses of D&T in connection with the foregoing.
5.23. SUPPLEMENTAL DISCLOSURE. Each of Purchaser and Seller
shall have the continuing obligation until the Closing promptly to supplement or
amend the Schedules relating to its respective representations and warranties
with respect to any matter hereafter arising or discovered that, if existing or
known as of the date of this Agreement, would have been required to be set forth
or described in such Schedules; provided that no supplement or amendment to such
Schedules shall have any effect for the purpose of determining the satisfaction
of the conditions set forth in Sections 6.01(a) and (b) or for purposes of
determining whether any person is entitled to indemnification pursuant to
Article VII.
5.24. USE OF PRIMEDIA NAME. After the Closing, Purchaser will
have in inventory a quantity of preprinted stationery, invoices, receipts,
forms, advertising and promotional materials, training and source literature,
packaging materials and other supplies (collectively "Inventory") which bear the
PRIMEDIA name. Seller hereby grants to Purchaser a paid-up license, to remain in
effect until the exhaustion, but in any
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event no later than six months after the Closing, of such Inventory in the
ordinary course of business, to use any trademarks, service marks, trade names,
trade dress, copyrights or other proprietary rights of Seller associated with
such Inventory. Purchaser agrees to exhaust such Inventory in the ordinary
course of business as soon as reasonably practicable after the Closing, but in
any event no later than six months after the Closing. Except as provided in this
Section 5.24, no interest in or right to use the name "PRIMEDIA" or any
derivation thereof is being transferred to Purchaser pursuant hereto. Within
thirty (30) days after the Closing, Purchaser shall amend the certificate of
incorporation of PRI so as to remove the "PRIMEDIA" name therefrom and shall
provide Seller with evidence thereof.
5.25. POST-CLOSING ACCESS AND COOPERATION. With respect to any
third party claim for which Seller may be required to provide indemnification
pursuant to this Agreement, Purchaser shall cause the Companies to give Seller,
its employees, counsel and representatives access to the Companies' records
relating to such claim and, to the extent set forth in Sections 7.04 and 7.05,
to cooperate with Seller in the defense of such claim; provided that any such
cooperation shall not require any expenditure of money not reimbursed by Seller.
Any such access shall be provided only at reasonable times, on prior notice and
under reasonable circumstances.
5.26. PLEDGE OF RETAINED SHARES. At the Closing, Seller shall
pledge the Retained Shares as security for the Financing on a non-recourse basis
as contemplated by the Shareholder Agreement (as hereinafter defined).
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5.27. REORGANIZATION. Immediately prior to the Closing, Seller
shall cause the Companies to consummate the Reorganization.
5.28. CHARTER AMENDMENT. Immediately prior to the Closing,
Seller shall cause the Charter Amendment to be adopted, executed, acknowledged
and filed in accordance with Subchapter VII of the Delaware General Corporation
Law and any other applicable Delaware law.
5.29. BANK CONSENT. Within five (5) days after the date
hereof, Seller shall request a consent from The Chase Manhattan Bank as agent to
the lenders parties to the $1,500,000,000 Amended and Restated Credit Agreement,
dated as of May 24, 1996, as amended and restated as of March 11, 1999, among
Seller, Canadian Sailings Inc., various lending institutions, The Bank of New
York and Bankers Trust Company, as Co-Syndication Agents, The Bank of Nova
Scotia, as Documentation Agent, and The Chase Manhattan Bank, as Administrative
Agent; the $250,000,000 Credit Agreement, dated as of May 24, 1996, among
Seller, various lending institutions, The Bank of New York and Bankers Trust
Company, as Co-Syndication Agents, The Bank of Nova Scotia, as Documentation
Agent, and The Chase Manhattan Bank, as Administrative Agent; and the
$150,000,000 Credit Agreement, dated as of March 11, 1999, among Seller, various
lending institutions, The Bank of New York and Bankers Trust Company, as
Co-Syndication Agents, The Bank of Nova Scotia, as Documentation Agent, and The
Chase Manhattan Bank, as Administrative Agent, with respect to Seller holding an
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interest in the capital stock of WRC after the Closing and the transactions
required by the Reorganization.
ARTICLE VI. CONDITIONS TO CLOSING.
6.01. CONDITIONS TO CLOSING.
(a) The obligations of Purchaser to purchase and pay for the
WRC Note, the Purchased Preferred Shares and the Purchased Common Shares are
subject to the fulfillment or waiver by Purchaser, as of the Closing Date, of
each of the following conditions:
(i) Each of the representations and warranties of
Seller in this Agreement that is qualified as to materiality
shall be true and correct, and those not so qualified shall be
true and correct in all material respects, as of the Closing
Date as though made on the Closing Date, except to the extent
such representations and warranties expressly relate to an
earlier date (in which case such representations and
warranties qualified as to materiality shall be true and
correct, and those not so qualified shall be true and correct
in all material respects, on and as of such earlier date);
(ii) Seller shall have performed and complied in all
material respects with all covenants, obligations and
undertakings required by this Agreement to be performed or
complied with on or prior to the Closing Date;
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(iii) The applicable waiting period, including any
extension thereof, under HSR shall have expired without action
taken to prevent consummation of the transactions contemplated
by this Agreement;
(iv) No Judgment shall have been rendered which has
the effect of enjoining the consummation of the transactions
contemplated by this Agreement, and there shall be no pending
Proceeding relating to the transactions contemplated by this
Agreement which would materially adversely affect such
transactions or Purchaser;
(v) Purchaser and WRC shall have obtained the funds
described in, and on the terms and conditions set forth in,
the commitment letters and highly confident letter previously
delivered to Seller or if such funds are not available on such
terms, upon such other terms and conditions that are
reasonably satisfactory to Purchaser;
(vi) Seller shall have received a consent from the
lenders parties to the $1,500,000,000 Amended and Restated
Credit Agreement, dated as of May 24, 1996, as amended and
restated as of March 11, 1999, among Seller, Canadian Sailings
Inc., various lending institutions, The Bank of New York and
Bankers Trust Company, as Co-Syndication Agents, The Bank of
Nova Scotia, as Documentation Agent, and The Chase Manhattan
Bank, as Administrative Agent; the $250,000,000 Credit
Agreement, dated as of May 24, 1996, among Seller, various
lending
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85
institutions, The Bank of New York and Bankers Trust Company,
as Co-Syndication Agents, The Bank of Nova Scotia, as
Documentation Agent, and The Chase Manhattan Bank, as
Administrative Agent; and the $150,000,000 Credit Agreement,
dated as of March 11, 1999, among Seller, various lending
institutions, The Bank of New York and Bankers Trust Company,
as Co-Syndication Agents, The Bank of Nova Scotia, as
Documentation Agent, and The Chase Manhattan Bank, as
Administrative Agent, with respect to Seller holding an
interest in the capital stock of WRC after the Closing and the
transactions required by the Reorganization;
(vii) The Charter Amendment shall have been duly
adopted, executed, acknowledged and filed and shall have
become effective in accordance with Subchapter VII of the
Delaware General Corporation Law and any other applicable
Delaware law, and Purchaser shall have received a copy of the
Charter Amendment certified by the Secretary of State of the
State of Delaware;
(viii) The Reorganization shall have been
consummated; and
(ix) Purchaser shall have received written consents
from the lessors of the Stamford property listed on SCHEDULE
3.05.
(b) The obligations of Seller to cause WRC to issue the WRC
Note and the Purchased Preferred Shares and to sell the Purchased Common Shares
are subject
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86
to the fulfillment or waiver by Seller, as of the Closing Date, of each of the
following conditions:
(i) Each of the representations and warranties of
Purchaser in this Agreement that is qualified as to
materiality shall be true and correct, and those not so
qualified shall be true and correct in all material respects,
as of the Closing Date as though made on the Closing Date,
except to the extent such representations and warranties
expressly relate to an earlier date (in which case such
representations and warranties qualified as to materiality
shall be true and correct, and those not so qualified shall be
true and correct in all material respects, on and as of such
earlier date);
(ii) Purchaser shall have performed and complied in
all material respects with all covenants, obligations and
undertakings required by this Agreement to be performed or
complied with on or prior to the Closing Date;
(iii) The applicable waiting period, including any
extension thereof, under HSR shall have expired without action
taken to prevent consummation of the transactions contemplated
by this Agreement;
(iv) No Judgment shall have been rendered which has
the effect of enjoining the consummation of the transactions
contemplated by this Agreement, and there shall be no pending
Proceeding relating to the
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87
transactions contemplated by this Agreement which would
materially adversely affect such transactions or Seller; and
(v) Seller shall have received a consent from the
lenders parties to the $1,500,000,000 Amended and Restated
Credit Agreement, dated as of May 24, 1996, as amended and
restated as of March 11, 1999, among Seller, Canadian Sailings
Inc., various lending institutions, The Bank of New York and
Bankers Trust Company, as Co-Syndication Agents, The Bank of
Nova Scotia, as Documentation Agent, and The Chase Manhattan
Bank, as Administrative Agent; the $250,000,000 Credit
Agreement, dated as of May 24, 1996, among Seller, various
lending institutions, The Bank of New York and Bankers Trust
Company, as Co-Syndication Agents, The Bank of Nova Scotia, as
Documentation Agent, and The Chase Manhattan Bank, as
Administrative Agent; and the $150,000,000 Credit Agreement,
dated as of March 11, 1999, among Seller, various lending
institutions, The Bank of New York and Bankers Trust Company,
as Co-Syndication Agents, The Bank of Nova Scotia, as
Documentation Agent, and The Chase Manhattan Bank, as
Administrative Agent, with respect to Seller holding an
interest in the capital stock of WRC after the Closing and the
transactions required by the Reorganization;.
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88
6.02. DOCUMENTS TO BE DELIVERED BY SELLER.
(a) At the Closing, Seller shall deliver to Purchaser the
following:
(i) the certificates representing all the Purchased
Common Shares, PRI Shares, AGS Shares and other Subsidiary
Shares, together, in the case of the Purchased Common Shares,
with appropriate stock powers attached and duly endorsed in
blank in proper form for transfer, with appropriate transfer
tax stamps, if any;
(ii) the minute books, corporate seal, stock transfer
books and records for each of the Companies;
(iii) the resignations referred to in Section 5.02;
(iv) the releases referred to in Section 5.12;
(v) a certificate in the form prescribed by Treasury
Regulation Section 1.1445- (b)(2) certifying that Seller is a
nonforeign person for purposes of Section 1445 of the Code;
(vi) certificates duly executed by an officer of
Seller with respect to the matters set forth in Section
6.01(a)(i) and (ii);
(vii) the Services Agreement among Seller, WRC and
Purchaser substantially in the form of Exhibit A hereto (the
"Services Agreement");
(viii) the Shareholder Agreement among Seller, WRC
and Purchaser substantially in the form of Exhibit B hereto
(the "Shareholder Agreement"); and
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89
(ix) an opinion dated the Closing Date of Beverly
Chell, Esq. and/or Simpson Thacher & Bartlett, counsel to
Seller, substantially in the form of Exhibit C hereto.
(b) At the Closing, Seller shall deliver to WRC the Redeemed
Shares.
6.03. DOCUMENTS TO BE DELIVERED BY WRC. At the Closing, WRC
shall deliver to Purchaser the WRC Note and certificates representing the
Purchased Preferred Shares.
6.04. DOCUMENTS TO BE DELIVERED BY PURCHASER. At the Closing,
Purchaser shall deliver to Seller the following:
(a) the releases, if any, referred to in Section 5.16;
(b) certificates duly executed by an officer of Purchaser with
respect to the matters set forth in Section 6.01(b)(i) and (ii);
(c) the Services Agreement;
(d) the Shareholder Agreement; and
(e) an opinion dated the Closing Date of Cravath, Swaine &
Moore, counsel to Purchaser, substantially in the form of Exhibit D hereto.
6.05. FUNDS TO BE DELIVERED. On the terms and subject to the
conditions of this Agreement, Purchaser shall cause the wire or other transfers
of funds referred to in Article I to be made on the Closing Date.
6.06. FRUSTRATION OF CLOSING CONDITIONS. Neither Purchaser nor
Seller may rely on the failure of any condition set forth in this Article VI to
be satisfied if such
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90
failure was caused by such party's failure to act in good faith or to use its
reasonable best efforts to consummate the transactions contemplated by this
Agreement, as required by Section 5.17.
ARTICLE VII. INDEMNIFICATION.
7.01. SURVIVAL. The covenants to the extent to be performed
prior to the Closing Date and the representations and warranties of Seller, on
the one hand, and Purchaser, on the other, shall survive the Closing Date until
March 31, 2001; provided that the representations and warranties contained in
Section 3.17 shall expire sixty (60) days after the expiration of the applicable
statute of limitations. The expiration of any representation, warranty or
covenant shall have no effect on the continued validity of any claim if written
notice was given in accordance with this Article VII before the date of such
expiration.
7.02. INDEMNIFICATION BY SELLER.
(a) Seller shall indemnify Purchaser and hold Purchaser,
Purchaser's subsidiaries (including, after the Closing, the Companies),
affiliates and their respective officers, directors, stockholders, employees,
members and partners ("Purchaser Indemnified Parties") harmless against and in
respect of any and all damages, losses, claims, penalties, liabilities, costs
and expenses (including, without limitation, all fines, interest, reasonable
legal fees and expenses and amounts paid in settlement) ("Losses"), that arise
from or relate or are attributable to
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91
(i) any misrepresentation by Seller or breach of a
warranty made by Seller, in each case, under this Agreement or
any certificate delivered at the Closing;
(ii) any breach of any (A) covenant or agreement to
the extent to be performed prior to the Closing Date or (B)
covenant or agreement to the extent to be performed after the
Closing Date, on the part of Seller set forth herein;
(iii) any liability or obligation to brokers,
financial advisors or comparable other persons retained by
Seller or any of its subsidiaries (including the Companies) in
connection with the transactions contemplated by this
Agreement;
(iv) any liability, obligation or commitment arising
out of any third party Proceeding arising in connection with
any action or omission by Seller or any of the Companies prior
to the Closing Date including any Proceeding pending as of the
Closing Date (other than as relates to any Tax claim or
Environmental Losses (as hereinafter defined) which are
governed by other provisions of this Agreement);
(v) any liability for Taxes of the Companies or any
Affiliated Group of which any of the Companies are, or have
been, a member (other than Accrued Taxes on the Closing
Statement) for any taxable period (or
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92
portion thereof) ending on or before the Closing Date (a "Pre-
Closing Tax Period");
(vi) the failure of Seller to comply with ISRA; or
(vii) subject to Section 7.02(d), any Environmental
Losses (as hereinafter defined).
(b) Seller shall not be required to indemnify any Purchaser
Indemnified Party, and shall not have any liability
(i) under clause (i) of Section 7.02(a) unless the
aggregate of all Losses for which Seller would, but for this
clause (i), be liable thereunder exceeds on a cumulative basis
an amount equal to $5,000,000, and then only to the extent of
any such excess;
(ii) under clause (i) and (ii) of Section 7.02(a) in
excess of $100,000,000 with respect to any breach under
Article III and Sections 5.02, 5.05, 5.06, 5.08, 5.10, 5.11,
5.17, 5.19, 5.22 (other than the last sentence thereof) and
5.23; or
(iii) for any breach of a representation, warranty,
covenant or agreement contained herein that was resolved by
the parties pursuant to the working capital adjustment
provided in Section 1.03 of this Agreement.
(c) Seller's obligations to indemnify and hold harmless any
Purchaser Indemnified Party (i) pursuant to Section 7.02(a)(i) or 7.02(a)(ii)(A)
shall terminate
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93
when the applicable covenant, representation or warranty
terminates pursuant to Section 7.01, (ii) pursuant to Section 7.02(a)(v) shall
terminate sixty (60) days after the expiration of the applicable statute of
limitations and (iii) pursuant to the other clauses of Section 7.02 shall not
terminate.
(d) For the purposes hereof, "Environmental Losses" shall mean
Losses that arise from or relate to or are attributable to (i) any Hazardous
Materials present in, on, under or above any Company Property prior to the
Closing Date; (ii) any claims by any Governmental Entity or other third party in
connection with any violation of, or other liability arising under, any
Environmental Laws relating to any Company Property or the operations of the
Companies prior to the Closing Date; (iii) the breach of any representation or
warranty of Seller in Section 3.20; and (iv) all liabilities and obligations in
connection with any sites to which any Hazardous Materials were transported or
to which any Hazardous Materials migrated or were disposed of or arrangements
were made for transportation to or disposal at such sites of any Hazardous
Materials originating from or existing at any Company Property or the operations
of the Companies prior to the Closing Date (any of the matters addressed in the
preceding clauses (i), (ii), (iii) or (iv) are collectively "Environmental
Losses"); provided, however, that Seller's obligations for Environmental Losses
shall be subject to the following:
(A) with respect to any Hazardous Materials present in, on,
under or above any Company Property, Seller's obligations under Section
7.02(a)(vii) shall only apply to Environmental Losses arising out of the
investigation, sampling, monitoring,
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94
treatment, remediation, removal, closure, corrective action or cleanup
("Remedial Activities") of any Hazardous Materials existing prior to the Closing
Date, (x) to the extent that such Remedial Activities are required by any
Governmental Entity under any Environmental Law or (y) as is affirmatively
required to be undertaken under applicable Environmental Laws, provided that
Seller's obligations shall not include Environmental Losses in respect of
voluntary Remedial Activities;
(B) with respect to any Company Property, Seller's obligations
under Section 7.02(a)(vii) shall not include the cost of the Remedial Activities
which are required under any applicable Environmental Law because of (i) a
material change by Purchaser or the Companies on or after the Closing Date in
the nature of the use of the Company Property from the use thereof at the time
of the Closing Date or (ii) the physical alteration or modification of any
Company Property on or after the Closing Date (other than any alteration or
modification that is a Remedial Activity for which Seller is otherwise required
to indemnify Purchaser pursuant to Section 7.02(a)(vii)), including, but not
limited to, the remodeling or demolition of any structure located at any Company
Property; and
(C) Purchaser shall not be entitled to indemnification under
Section 7.02(a)(vii) if the condition, event or circumstance that gave rise to
the obligation to indemnify was discovered as a result of a Phase II or other
intrusive environmental sampling, testing or investigation (collectively,
"Environmental Tests") at any Company Property, except for Environmental Tests
undertaken (1) to respond to, investigate or
<PAGE>
95
otherwise remediate environmental conditions that could reasonably be expected
to create an imminent and substantial endangerment to the health, safety and
welfare of the employees of Purchaser or the Companies, the public or the
environment; (2) in response to an inquiry, request, claim or demand by a
Governmental Entity; (3) in connection with a possible sale of all or part of
Purchaser, the Companies or their respective assets; or (4) as affirmatively
required under Environmental Laws.
7.03. INDEMNIFICATION BY PURCHASER.
(a) Purchaser shall indemnify Seller and hold Seller, Seller's
subsidiaries (other than any of the Companies), affiliates and their respective
officers, directors, stockholders, employees, members and partners harmless
against and in respect of any and all Losses that arise from or relate or are
attributable to (i) any misrepresentation by Purchaser or breach of a warranty
made by Purchaser, in each case, under this Agreement or any certificate
delivered at the Closing, (ii) any breach of any (A) covenant or agreement to
the extent to be performed prior to the Closing Date or (B) covenant or
agreement to the extent to be performed after the Closing Date on the part of
Purchaser set forth herein or (iii) any liability or obligation to brokers,
financial advisors or comparable other persons retained by Purchaser in
connection with the transactions contemplated by this Agreement.
(b) Purchaser's obligations to indemnify and hold harmless any
party (i) pursuant to Section 7.03(a)(i) or 7.03(a)(ii)(A) shall terminate when
the applicable
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96
covenant, representation or warranty terminates pursuant to Section 7.01 and
(ii) pursuant to the other clauses of Section 7.03 shall not terminate.
7.04. NOTICE TO THE INDEMNITOR.
(a) In order for a person ("Indemnitee") to be entitled to any
indemnification provided for under Section 7.02 or 7.03 in respect of, arising
out of or involving a claim made by any person against the Indemnitee, the
Indemnitee shall notify the indemnifying party (the "Indemnitor") in writing of
such claim promptly following such Indemnitee's receipt of notice of such third
party claim; provided that failure to give such notification shall not affect
the indemnification provided hereunder except to the extent the Indemnitor shall
have been prejudiced as a result of such failure (except that the Indemnitor
shall not be liable for any expenses incurred during the period in which the
Indemnitee failed to give such notice). Promptly upon receipt of such notice,
but in any event no later than thirty (30) days after such receipt, the
Indemnitor shall advise the Indemnitee whether the Indemnitor chooses to assume
the defense of such claim with counsel selected by the Indemnitor; provided that
such counsel is not reasonably objected to by the Indemnitee. Should the
Indemnitor so elect to assume the defense of such a claim, the Indemnitor shall
not be liable to the Indemnitee for any legal expenses subsequently incurred by
the Indemnitee in connection with the defense thereof. The Indemnitor shall be
liable for the fees and expenses of counsel employed by the Indemnitee for any
period during which the Indemnitor has not assumed the defense thereof (other
than during any period in which the Indemnitee shall have failed to give
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97
notice of the claim as provided above). Notwithstanding the foregoing, the
Indemnitor shall not be entitled to assume the defense of any third party claim
(and shall be liable for the reasonable fees and expenses of counsel (with
selection of counsel to be approved by the Indemnitor which approval shall not
be unreasonably withheld) incurred by the Indemnitee in defending such third
party claim) if (i) such third party claim seeks an order, injunction or other
equitable relief or relief for other than money damages against the Indemnitee,
(ii) such third party claim is not reasonably separable from a claim for money
damages and (iii) Indemnitee elects to assume and is assuming the defense of
such third party claim; provided that, if after the initial claim is brought,
the claim for an order, injunction, other equitable relief or relief other than
money damages is dismissed and the only claim that remains is for money damages,
Indemnitor shall at such time be entitled to assume the defense of such claim.
In no event shall the Indemnitor be responsible for the fees and expenses of
more than one counsel in each jurisdiction for all Indemnitees.
(b) Notwithstanding anything to the contrary in the foregoing,
Seller and Purchaser acknowledge that Seller shall be responsible for defending
the proceedings set forth on SCHEDULE 3.08.
7.05. RIGHT OF PARTIES TO SETTLE OR DEFEND. If the Indemnitor
determines to accept the defense of such third party claim, the Indemnitee shall
have the right to be represented by its own counsel at its own expense, its
participation to be subject to reasonable direction of the Indemnitor, and the
Indemnitee shall provide all
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98
reasonably requested waivers and authorities for the Indemnitor to act on behalf
of the Companies subject to a joint defense agreement. If the Indemnitor assumes
the defense of a third party claim, the Indemnitee shall agree to any
settlement, compromise or discharge of such third party claim that the
Indemnitor may recommend and that by its terms obligates the Indemnitor to pay
the full amount of the liability in connection with such third party claim,
which releases the Indemnitee completely in connection with such third party
claim. If the Indemnitor fails to undertake the defense of or settle or pay any
such third party claim promptly or in any event within thirty (30) days after
the Indemnitee has given written notice to the Indemnitor of the claim, or if
the Indemnitor, after having given such notification to the Indemnitee, fails to
defend, settle or pay such claim, then the Indemnitee may take any and all
necessary action to dispose of such claim; provided, however, that in no event
shall the Indemnitee settle such claim without the prior consent of the
Indemnitor.
7.06. EXCLUSIVE REMEDY. Following the Closing, except as set
forth in Section 5.15(c) or in the event of fraud, the indemnification
obligations of this Article VII shall be the exclusive remedy for breaches of
this Agreement and no other remedy shall be had in contract, tort or otherwise.
7.07. CERTAIN ADJUSTMENTS. The amount of any Losses for which
indemnification is provided under this Article VII shall be net of any amounts
actually recovered by the Indemnitee under insurance policies with respect to
such Losses and shall be (a) to the extent an indemnity payment hereunder is not
treated as an adjustment
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99
to purchase price for Federal Income Tax purposes, increased to take account of
any net Tax cost incurred by the Indemnitee arising from the receipt of
indemnity payments hereunder (grossed up for such increase) and (b) reduced to
take account of any net Tax benefit realized by the Indemnitee arising from the
incurrence or payment of any such Losses. In computing the amount of any such
Tax cost or Tax benefit, the Indemnitee shall be deemed to recognize all other
items of income, gain, loss deduction or credit before recognizing any item
arising from the receipt of any indemnity payment hereunder or the incurrence or
payment of any indemnified Losses. Any indemnity payment under this Agreement
shall be treated as an adjustment to the purchase price for Tax purposes, unless
a final determination (which shall include the execution of a Form 870-AD or
successor form) with respect to the Indemnitee or any of its affiliates causes
any such payment not to be treated as an adjustment to the purchase price for
Federal Income Tax purposes.
ARTICLE VIII. TAX MATTERS.
8.01. TAXABLE PERIODS STRADDLING CLOSING DATE. Purchaser and
Seller agree that if any of the Companies is permitted but not required under
applicable Federal, state, local or foreign Tax laws to treat the Closing Date
or the day before the Closing Date as the last day of a taxable period,
Purchaser, Seller or any of the Companies, as the case may be, shall treat such
day as the last day of a taxable period. For any taxable period of any of the
Companies that includes (but does not end on) the Closing Date (a "Straddle
Period"), Purchaser shall timely prepare and file with the appropriate
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100
authorities all Tax returns, reports and forms required to be filed, and will
pay all Taxes due with respect to such returns, reports and forms except that
Seller shall reimburse Purchaser for any amount owed by Seller pursuant to
Section 7.02(a)(v) with respect to any Straddle Period covered by such Returns.
In the case of any Straddle Period:
(a) all property Taxes of the Companies for the Pre-Closing
Tax Period shall equal the amount of such Taxes for the entire Straddle Period
multiplied by a fraction, the numerator of which is the number of days during
the Straddle Period that are in the Pre-Closing Tax Period and the denominator
of which is the number of days in the Straddle Period; and
(b) all Income Taxes and other Taxes not described in clause
(a) above for the Pre-Closing Tax Period shall be computed as if such taxable
period ended as of the close of business on the Closing Date. For the purposes
of this Section, Seller has the first right to utilization of all Tax net
operating loss carryforwards to the extent permitted by Applicable Law.
8.02. PREPARATION OF TAX RETURNS AND PAYMENT OF TAXES. Seller
shall be responsible, at its sole cost and expense, for the preparation and
timely filing of all Tax returns for any of the Companies for all taxable
periods ending on or prior to the Closing Date; provided that any such Tax
return (including any amended Tax return) shall be prepared on a basis
consistent with the past practices of the Companies and any Affiliated Group
that includes the Companies. Seller shall be responsible for the payment of all
amounts due on such Tax returns; provided that Purchaser shall reimburse
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101
Seller for amounts paid with respect to Accrued Taxes set forth on the Closing
Statement. Purchaser and Seller shall cooperate in the filing of such Tax
returns. Purchaser shall be responsible, at its sole cost and expense, for the
preparation of all Tax returns for all taxable periods ending after the Closing
Date. Purchaser shall be responsible for the payment of all amounts due with
respect to such Tax returns. Seller shall reasonably cooperate with Purchaser in
the preparation of such Tax returns.
8.03. TAX AUDITS OF PRE-CLOSING TAX PERIODS. Seller shall have
responsibility, at its sole cost and expense, for the conduct of any audit of
any taxable period ending on or prior to the Closing Date; provided, however,
that in the event that Seller receives notice of any audit from the IRS or any
other Taxing Authority with respect to the Companies, Seller shall promptly
notify Purchaser of such audit and of any action taken or proposed to be taken
and keep Purchaser fully informed with respect thereto; provided that Seller
shall not, without the prior written consent of Purchaser (which consent shall
not be unreasonably withheld), enter into any settlement or closing agreement or
take any other action with respect to any audit of any such taxable period which
could materially reduce any Tax attribute, or materially increase the Tax
liability, of any Company for a post-Closing period. In the event Purchaser
wishes to participate in such audit as it relates to the Companies it may do so,
provided that any costs incurred by Purchaser shall be borne by Purchaser.
8.04. REFUNDS. Purchaser shall pay to Seller all refunds or
credits of Income Taxes, and other Taxes received by Purchaser, or any of the
Companies or any of
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102
their affiliates after the Closing Date and attributable to Taxes paid by or on
behalf of the Companies (or any predecessor thereof) with respect to a
Pre-Closing Tax Period; provided, however, that Purchaser shall not be obligated
to make such payment if such refund or credit is attributable (determined on a
marginal basis) to the carry-back of losses, deductions or credits from a
taxable period other than a Pre-Closing Tax Period. Any refund or credit of
Taxes of the Companies for any taxable period beginning after the Closing Date
shall be for the account of Purchaser. Any refund or credit of Taxes of the
Companies for any taxable period of any of the Companies that includes (but does
not end on) the Closing Date shall be equitably apportioned in a manner
consistent with Section 8.01 between Seller and Purchaser. Each such payment
(which shall include any interest received or credited with respect to such
refund or credit) shall be made to the other party promptly after receipt of any
such refund from, or allowance of such credit by, the relevant Taxing Authority.
Seller and Purchaser shall cooperate, and shall cause the Companies to
cooperate, in obtaining any refund or credit of Taxes available from the
relevant Taxing Authority.
8.05. COOPERATION. Seller and Purchaser agree to furnish or
cause to be furnished to each other, upon request, as promptly as practicable,
such information (including access to books and records) and assistance relating
to the Companies as is reasonably requested for the filing of any Tax returns
(including, but not limited to, any Tax return relating to state or local real
property transfer or gains Taxes), for the preparation of any audit, and for the
prosecution or defense of any claim, suit or
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103
proceeding relating to any proposed adjustment; provided that in no event shall
Purchaser be required to provide any Tax return to Seller for any taxable period
beginning after the Closing Date. Seller and Purchaser shall reasonably
cooperate with each other in the conduct of any audit or other proceeding
involving or otherwise relating to the Companies (or its income or assets) with
respect to any Tax and each shall execute and deliver such powers of attorney
and other documents as are necessary to carry out the intent of this Section
8.05 and Section 8.03 of this Agreement. Purchaser shall promptly notify Seller
of receipt of notice by Purchaser, any of the Companies or any affiliate of the
foregoing of any audit or dispute with respect to any Taxes as to which Seller
may be obligated to indemnify Purchaser Indemnified Parties pursuant to this
Agreement and with respect to any issue raised in an audit of or dispute with
respect to any taxable period (or any portion thereof) ending after the Closing
Date if Purchaser reasonably believes that the disposition of such issue would
affect the treatment of any Taxes as to which Seller may be obligated to
indemnify Purchaser Indemnified Parties pursuant to this Agreement. Purchaser
shall not and shall not permit any of the Companies or any affiliate of the
foregoing to enter into any agreement or settlement with the relevant Taxing
Authority with respect to any Tax as to which Seller is required to indemnify
Purchaser Indemnified Parties pursuant to this Agreement without the prior
written consent of Seller, which consent shall not be unreasonably withheld.
8.06. PURCHASER'S ELECTION. At Purchaser's election in its
sole discretion (the "Section 338(h)(10) Election"), Seller shall (a) join
Purchaser in timely
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making an election under Section 338(h)(10) of the Code (and any comparable
election available under applicable state or local Tax law) with respect to one
or more of the Companies and/or their subsidiaries (as determined by Purchaser
in its sole discretion); provided that no Section 338(h)(10) Election shall be
made with respect to AGS and its Subsidiaries and Gareth Stevens, Inc. and (b)
cooperate with Purchaser in the completion and timely filing of such elections
in accordance with the provisions of Treasury Regulation Section 1.338(h)(10)-1
(or any comparable provisions of state or local Tax law). Seller and Purchaser
agree that, for purposes of Section 338(h)(10) of the Code (and any comparable
provisions of state or local tax law), the fair market value of each Company is
as set forth on SCHEDULE 8.06 hereto. In the event Purchaser makes the Section
338(h)(10) Election, Purchaser and Seller shall endeavor in good faith to agree
upon the fair market value of the assets of the Companies for purposes of
Section 338(h)(10) of the Code (and any comparable provisions of state or local
Tax law) within 45 days after the date on which Purchaser notifies Seller of its
final decision to make the Section 338(h)(10) Election. To facilitate such
agreement, Purchaser shall initially prepare a completed set of Internal Revenue
Service Forms 8023 and all attachments required to be filed therewith pursuant
to applicable Treasury Regulations ("Form 8023") (and any comparable forms
required to be filed under state or local Tax law) and, no later than 15 days
before making the Section 338(h)(10) Election, deliver said forms to Seller for
approval and execution, which approval and execution shall not be unreasonably
delayed or withheld; provided that if Purchaser and Seller cannot agree upon the
fair market
<PAGE>
105
value of the assets of the Companies, then Purchaser may finalize and file said
forms (and Seller must execute said forms) after good faith consideration of the
views of Seller as to the fair market value of the assets of the Companies;
provided that the fair market value of the assets of the Companies shown thereon
is consistent with SCHEDULE 8.06. None of the parties (nor any of their
respective affiliates) shall take any position on any Tax return or with any
Taxing Authority that is inconsistent with the fair market values set forth in
such Form 8023 (and any such comparable forms). To the extent permissible under
Applicable Law, for purposes of determining the "adjusted grossed-up basis" of
the shares of the 338(h)(10) Companies, the respective investment banking,
legal, accounting and other fees or costs incurred by each of Purchaser and
Seller as a result of the transactions contemplated by this Agreement
(collectively, "Transaction Costs") shall not be taken into account; provided,
however, that Purchaser shall be entitled to add its Transaction Costs to the
"adjusted grossed-up basis" for purposes of allocating among the assets and
Seller will be entitled to subtract its Transaction Costs when calculating gain
or loss on the sale of the shares of the 338(h)(10) Companies.
8.07. TAX COVENANTS.
(a) Seller shall cause the provisions of any Tax sharing
agreement between Seller or any of its affiliates (other than the Companies) and
any of the Companies to be terminated on or before the Closing Date. After the
Closing Date, no party shall have any rights or obligations under any such Tax
sharing agreement.
<PAGE>
106
(b) Seller agrees that it shall not elect to reattribute to
itself pursuant to Treasury Regulation Section 1.1502-20(g) any net operating
loss carryovers or net capital loss carryovers of any of the Companies.
(c) After the date this Agreement is signed, none of Seller or
any of the Companies or any Affiliated Group of which any of the Companies is a
member shall, without the prior written consent of Purchaser (which consent
shall not be unreasonably withheld), make or change any Tax election, change an
annual Tax Accounting period, adopt or change any Tax accounting method, file
any amended Tax return, enter into any closing agreement, settle any Tax Claim
or assessment, surrender any right to claim a refund of Taxes, take any other
action or omit to take any action relating to Taxes, if any such election,
adoption, change, amendment, agreement, settlement, surrender, consent or other
action or omission would have the effect of materially increasing the Tax
liability of any of the Companies in a post-Closing period or materially
reducing any net operating loss, net capital loss, investment tax credit,
foreign tax credit, charitable deduction or tax basis or any other credit or tax
attribute of any of the Companies which could reduce Taxes (including, without
limitation, deductions and credits related to alternative minimum Taxes) of any
of the Companies in a post-Closing period.
(d) On the Closing Date, Purchaser shall not permit any of the
Companies to effect any extraordinary transactions (other than any such
transactions expressly required by Applicable Law or by this Agreement) that
could result in Tax
<PAGE>
107
liability to the Companies in excess of the Tax liability associated with the
conduct of its business in the ordinary course.
(e) Notwithstanding any other provision of this Agreement,
Seller shall be permitted to make the election under Treasury Regulation Section
1.1502-13(f)(5) with respect to the Companies.
ARTICLE IX. TERMINATION.
9.01. TERMINATION. This Agreement may be terminated and the
transactions contemplated herein may be abandoned prior to the Closing, (a) by
mutual written agreement of the parties hereto, (b) by either party by written
notice to the other party if the Closing Date shall not have occurred on or
before October 31, 1999, (c) by Seller after sixty (60) days from the date
hereof if Purchaser shall not have delivered a reconfirmation of the commitments
and highly confident letter referred to in Section 4.09, which reconfirmation
shall be dated no earlier than fifty-five (55) days from the date hereof, (d) by
Seller if any of the conditions set forth in Section 6.01(b) shall have become
incapable of fulfillment and shall not have been waived by Seller, (e) by
Purchaser if any of the conditions set forth in Section 6.01(a) shall have
become incapable of fulfillment and shall not have been waived by Purchaser or
(f) by Purchaser if the condition set forth in Section 6.01(b)(v) has not been
fulfilled or waived by September 30, 1999 (unless such failure is as a result of
a change in the structure of the Transactions requested by Purchaser); provided
that the party seeking termination
<PAGE>
108
pursuant to clause (c), (d), (e) or (f) is not then in material breach of any of
its representations, warranties, covenants or agreements contained in this
Agreement.
9.02. NO LIABILITIES IN EVENT OF TERMINATION. In the event of
any termination of this Agreement as provided in Section 9.01 above, this
Agreement shall forthwith become wholly void and of no further force and effect
except for the provisions of Section 5.01, Section 5.10 and this Section 9.02
and the provisions of the Confidentiality Agreement which shall remain in full
force and effect and there shall be no liability on the part of any of the
parties hereto, except that such termination shall not preclude any party from
pursuing its judicial remedies for damages and other relief as a result of the
willful breach of any representation or warranty or the breach of any covenant
or agreement contained herein prior to termination by the other party (it being
understood that the mere failure to obtain a third party consent shall not be
considered such a breach).
ARTICLE X. MISCELLANEOUS.
10.01. ENTIRE AGREEMENT. This Agreement (together with the
Schedules and Exhibits hereto and the documents referred to herein), the WRC
Note, the WRC Additional Agreements, Seller's Additional Agreements, Purchaser's
Additional Agreements and the Confidentiality Agreement contain, and are
intended as, a complete statement of all the terms of the arrangements between
the parties with respect to the matters provided for herein, and supersede any
previous agreements and understandings between the parties with respect to those
matters.
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109
10.02. GOVERNING LAW; JURISDICTION. This Agreement shall be
governed by, and construed and enforced in accordance with, the internal laws of
the state of New York. Each party hereby irrevocably submits to the jurisdiction
of any New York State or United States Federal Court sitting in New York City
(and any appellate court therefrom) over any action or proceeding arising out of
or relating to this Agreement, the WRC Note, the WRC Additional Agreements,
Seller's Additional Agreements or Purchaser's Additional Agreements. Each party
hereby irrevocably waives any objection it may have to venue and the defense of
an inconvenient forum to the maintenance of such action or proceeding.
10.03. AMENDMENT; WAIVER. No provision of this Agreement may
be amended or modified except by an instrument or instruments in writing signed
by the parties hereto. Any party may waive compliance by another with any of the
provisions of this Agreement. No waiver of any provision hereof shall be
construed as a waiver of any other provision or subsequent breach. Any waiver
must be in writing. The failure of any party hereto to enforce at any time any
provision hereof shall not be construed to be a waiver of such provision, nor in
any way to affect the validity hereof or any part hereof or the right of any
party thereafter to enforce each and every such provision.
10.04. NOTICES. All notices and other communications under
this Agreement shall be in writing and shall be deemed given when delivered
personally, mailed by registered mail, return receipt requested, sent by
documented overnight delivery service or, to the extent receipt is confirmed, by
telecopy to the parties at the
<PAGE>
110
following addresses (or to such other address as a party may have specified by
notice given to the other party pursuant to this provision):
If to Seller, to it at:
PRIMEDIA Inc.
745 Fifth Avenue
New York, NY 10151
Attention: Mark Colodny
Phone: (212) 745-0100
Fax: (212) 745-0645
With a copy to:
PRIMEDIA Inc.
745 Fifth Avenue
New York, NY 10151
Attention: Ann M. Riposanu, Esq.
Phone: (212) 745-0100
Fax: (212) 745-0131
If to Purchaser, to it at:
Ripplewood Partners, L.P.
One Rockefeller Plaza
32nd Floor
New York, NY 10020
Attention: Mr. Timothy C. Collins
Mr. Charles L. Laurey
Phone: (212) 218-2719
Fax: (212) 582-4110
With a copy to:
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, NY 10019
Attention: Peter S. Wilson, Esq.
Phone: (212) 474-1767
Fax: (212) 765-0978
<PAGE>
111
10.05. SEPARABILITY. If any provision of this Agreement is
held by any court of competent jurisdiction to be illegal, invalid or
unenforceable, such provision shall be of no force and effect, but the
illegality, invalidity or unenforceability shall have no effect upon and shall
not impair the enforceability of any other provision of this Agreement.
10.06. ASSIGNMENT AND BINDING EFFECT. None of the parties
hereto may assign any of its rights or delegate any of its duties under this
Agreement without the prior written consent of the other parties hereto.
Notwithstanding the foregoing, (a) Purchaser may assign its right to purchase
the WRC Note, Purchased Preferred Shares and Purchased Common Shares to an
affiliate of Purchaser without the prior written consent of any other party and
(b) Purchaser may assign its rights hereunder by way of security and such
secured party may assign such rights by way of exercise of remedies; provided
that no assignment shall limit or affect the assignor's obligations hereunder.
All the terms and provisions of this Agreement shall be binding on, and shall
inure to the benefit of, the respective legal successors and permitted assigns
of the parties. Any assignment or delegation in violation of this Section 10.06
shall be void.
10.07. NO BENEFIT TO OTHERS. The representations, warranties,
covenants and agreements contained in this Agreement are for the sole benefit of
the parties hereto and their respective successors and permitted assigns and
they shall not be construed as conferring and are not intended to confer any
rights on any other persons.
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112
10.08. COUNTERPARTS. This Agreement may be executed in two (2)
or more counterparts, each of which shall be deemed an original, and each party
thereto may become a party hereto by executing a counterpart hereof. This
Agreement and any counterpart so executed shall be deemed to be one and the same
instrument.
10.09. INTERPRETATION. Article titles, headings to sections
and the table of contents are inserted for convenience of reference only and are
not intended to be a part or to affect the meaning or interpretation hereof. The
Schedules referred to herein shall be construed with and as an integral part of
this Agreement to the same extent as if they were set forth verbatim herein. The
specification of any dollar amount in the representations and warranties
contained in this Agreement or the inclusion of any specific item in any
Schedule hereto is not intended to imply that such amounts or higher or lower
amounts, or the items so included or other items, are or are not material, and
no party hereto shall use the fact of the setting of such amounts or the
inclusion of any such item in any dispute or controversy between the parties as
to whether any obligation, item or matter not described herein or included in a
Schedule is or is not material for purposes hereof. As used herein, "include",
"includes" and "including" are deemed to be followed by "without limitation"
whether or not they are in fact followed by such words or words of like import;
"writing", "written" and comparable terms refer to printing, typing, lithography
and other means of reproducing words in a visible form; references to a person
are also to its successors and permitted assigns; "hereof", "herein",
"hereunder" and comparable terms refer to the entirety hereof and not to any
particular article, section
<PAGE>
113
or other subdivision hereof or attachment hereto; references to any gender
include references to other genders and references to the singular include
references to the plural and vice versa; references to this Agreement or other
documents are as amended or supplemented from time to time; references to
"Article", "Section" or another subdivision or to an attachment or "Schedule"
are to an article, section or subdivision hereof or an attachment or "Schedule"
hereto; references to "generally accepted accounting principles" shall mean
generally accepted accounting principles in the United States.
10.10. DISCLOSURE. For the purpose of this Agreement, any
disclosure made on one Schedule to this Agreement shall be deemed to be a
disclosure for the purposes of all Schedules (other than SCHEDULE 3.16) to this
Agreement to the extent that such disclosure would be reasonably determinable
from such Schedule. Any representation made "to Seller's knowledge" or "to the
knowledge of Seller" shall mean to the knowledge of the persons listed on
SCHEDULE 10.10 attached hereto.
10.11. NO PRESUMPTION. This Agreement shall be construed
without regard to any presumption or rule requiring construction or
interpretation against the party drafting.
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114
IN WITNESS WHEREOF, the undersigned have executed this Stock
Purchase Agreement as of the date first above written.
EAC II INC.
By: /s/ Charles Laurey
---------------------------------
Name: Charles Laurey
Title: Secretary
PRIMEDIA INC.
By: /s/ Beverly C. Chell
---------------------------------
Name: Beverly C. Chell
Title: Vice Chairman
<PAGE>
EXHIBIT A
TRANSITIONAL SERVICES AGREEMENT ("SERVICES
AGREEMENT") dated as of [insert Closing Date], 1999,
between PRIMEDIA INC., a Delaware corporation
("PRIMEDIA"), EAC II INC., a Delaware corporation
("PURCHASER"), and WEEKLY READER CORPORATION, a
Delaware corporation ("WRC").
WHEREAS PRIMEDIA and Purchaser have entered into a Redemption,
Stock Purchase and Recapitalization Agreement (the "PURCHASE AGREEMENT") dated
as of August 13, 1999, relating to the purchase by Purchaser of 2,685,670 shares
of Common Stock, par value $.01, of WRC from PRIMEDIA and certain other
transactions; and
WHEREAS WRC is interested in purchasing certain services from
PRIMEDIA during a transition period commencing on the date hereof.
NOW, THEREFORE, the parties, intending to become legally
bound, hereby agree as follows:
ARTICLE I
AGREEMENT TO BUY AND SELL SERVICES
SECTION 1.01. DEFINITIONS. Capitalized terms
used herein but not defined herein are used as defined in
the Purchase Agreement. The words "include", "includes" and
"including" shall be deemed to be followed by the phrase
"without limitation".
SECTION 1.02. PROVISION OF SERVICES. (a) PRIMEDIA shall
provide to the Companies the Services listed and described on Schedule A (the
"SERVICES"). The Companies shall pay to PRIMEDIA the incremental costs
reasonably incurred by PRIMEDIA in providing such Services. In every case, all
the Services shall be provided in accordance with the terms, limitations and
conditions set forth herein and on Schedule A.
(b) The Companies shall provide to PRIMEDIA the Company
Services listed and described on Schedule B (the "Company Services"). PRIMEDIA
shall pay to the applicable Companies the incremental costs reasonably incurred
in providing such Company Services. In every case, all the Company Services
shall be provided in accordance with the terms, limitations and conditions set
forth on Schedule B
<PAGE>
and herein, PROVIDED that with respect to the Company Services, all provisions
of this Services Agreement other than this Section 1.02(b), Section 7.01 and
Article IV shall be read and apply as if (i) "PRIMEDIA" is substituted for "WRC"
and "the Companies", (ii) "WRC" or "the Companies", as applicable, is
substituted for "PRIMEDIA" and (iii) "Company Services" is substituted for
"Services".
SECTION 1.03. ACCESS. WRC shall, and shall cause the Companies
to, make available on a timely basis to PRIMEDIA all information reasonably
requested by PRIMEDIA to enable it to provide the Services. WRC shall, and shall
cause the Companies to, give PRIMEDIA reasonable access, during regular business
hours and at such other times as are reasonably required, to the Companies'
premises for the purposes of providing Services.
SECTION 1.04. BOOKS AND RECORDS. PRIMEDIA shall keep books and
records of the Services provided and reasonable supporting documentation of all
charges incurred in connection with providing such Services and shall produce
records that verify the Services were performed and when such Services were
performed, and shall make such books and records available to Purchaser and the
Companies, upon reasonable notice, during regular business hours.
ARTICLE II
SERVICES; PAYMENT; INDEPENDENT CONTRACTOR
SECTION 2.01. SERVICES TO BE PROVIDED. (a) Unless otherwise
agreed by the parties, the Services shall be performed by PRIMEDIA for the
Companies in a manner that is substantially the same as the manner in which such
Services were generally performed by PRIMEDIA for the Companies prior to the
date of this Services Agreement and the Companies shall use such Services for
substantially the same purposes and in substantially the same manner as the
Companies had used such Services prior to the date hereof. PRIMEDIA shall act
under this Services Agreement solely as an independent contractor and not as an
agent of the Companies.
(b) PRIMEDIA shall not be obligated to pay any amounts to the
Companies or any of their employees in respect of payroll, benefits or similar
obligations unless PRIMEDIA has received such amounts from the Companies or any
third party.
<PAGE>
SECTION 2.02. PAYMENT. Statements will be rendered each month
by PRIMEDIA to WRC for Services delivered during the preceding month, and each
such statement shall set forth in reasonable detail a description of such
Services and the amounts charged therefor and shall be payable net thirty (30)
days after the date thereof.
SECTION 2.03. PRIORITIES. In providing Services, PRIMEDIA
shall accord the Companies the same priority it accords it own operations.
SECTION 2.04. USE OF SERVICES. PRIMEDIA shall be required to
provide Services only to the Companies in connection with the conduct by them of
their businesses. The Companies shall not resell any Services to any person
whatsoever or permit the use of the Services by any person other than in
connection with the conduct of business in the ordinary course by the Companies.
SECTION 2.05. OBLIGATION TO REPERFORM. In the event of any
breach of this Services Agreement by PRIMEDIA with respect to any error or
defect in the provision of any Service, PRIMEDIA shall, at WRC's request,
correct such error or defect or reperform such Services at the expense of
PRIMEDIA.
SECTION 2.06. RELEASE AND INDEMNITY. Except as specifically
set forth in this Services Agreement, WRC hereby releases PRIMEDIA, its
subsidiaries, affiliates and their employees, agents, officers, directors,
stockholders, members and partners ("PRIMEDIA INDEMNITEES") and agrees to
indemnify and hold harmless the PRIMEDIA Indemnitees, from any and all claims,
demands, complaints, liabilities, losses, damages (other than special, indirect,
incidental or consequential damages of the PRIMEDIA Indemnitees) and all
incremental costs arising from or relating to the use of any Service provided
hereunder by WRC to the extent not arising from the gross negligence or willful
misconduct of PRIMEDIA. PRIMEDIA represents and warrants that it has all
necessary right and authority to provide the Services to the Companies
hereunder.
ARTICLE III
TERM OF PARTICULAR SERVICES
SECTION 3.01. TERM OF PARTICULAR SERVICES. (a) The provision
of Services shall commence on the date hereof and shall terminate at the close
of business on March 31, 2000; PROVIDED that WRC may cancel any Service
<PAGE>
upon thirty (30) days' written notice subject to the requirement that WRC pays
to PRIMEDIA the out of pocket costs reasonably incurred by PRIMEDIA as a result
of such cancellation, which costs shall be set forth in reasonable detail in a
written statement provided to WRC.
(b) Upon the termination of a Service or Services with respect
to which PRIMEDIA holds books, records or files, including current and archived
copies of computer files, owned by a Company and used by PRIMEDIA in connection
with the provision of a Service to the Companies, PRIMEDIA will return all of
such books, records or files as soon as reasonably practicable. At its expense,
PRIMEDIA may make a copy of such books, records or files for its legal files.
ARTICLE IV
POST CLOSING COOPERATION
SECTION 4.01. POST CLOSING COOPERATION. (a) PRIMEDIA and
Purchaser shall cooperate with each other, and shall cause their affiliates and
their officers, employees, agents, auditors and representatives to cooperate
with each other, for a period of six months after the Closing with a view to
minimizing any disruption to the Companies and the other respective businesses
of PRIMEDIA and Purchaser that might result from the change of control of the
Companies contemplated by the Purchase Agreement.
(b) Each of PRIMEDIA and Purchaser shall reimburse the other
for incremental costs reasonably incurred in assisting the other pursuant to
this Section 4.01. Neither PRIMEDIA nor Purchaser shall be required by this
Section 4.01 to take any action that would unreasonably interfere with the
conduct of its business or unreasonably disrupt its normal operations (or, in
the case of Purchaser, those of the Companies).
ARTICLE V
FORCE MAJEURE
SECTION 5.01. FORCE MAJEURE. PRIMEDIA shall not be liable for
any interruption of Service, delay or failure to perform under this Services
Agreement when such interruption, delay or failure results from causes beyond
its reasonable control, including any strikes, lock-outs or other labor
difficulties, acts of any government, riot, insurrection or other hostilities,
embargo, fuel or energy shortage, fire, flood, acts of God, wrecks or
transportation
<PAGE>
delays, or inability to obtain necessary labor, materials or utilities. In any
such event, PRIMEDIA's obligations hereunder shall be postponed for such time as
its performance is suspended or delayed on account thereof. PRIMEDIA will
promptly notify WRC in writing upon learning of the occurrence of such event of
force majeure. Upon the cessation of the force majeure event, PRIMEDIA will use
reasonable efforts to resume its performance with the least possible delay.
ARTICLE VI
TERMINATION
SECTION 6.01. TERMINATION. This Services Agreement shall
terminate on the earliest to occur of (a) the date on which the provision of all
Services have terminated or been canceled pursuant to Section 3.01 and (b) the
date on which this Services Agreement is terminated pursuant to Section 6.02.
SECTION 6.02. BREACH OF SERVICES AGREEMENT. If either party
shall cause or suffer to exist any material breach of any of its obligations
under this Services Agreement, including any failure to make payments when due,
and said party does not cure such default within thirty (30) days after
receiving written notice thereof from the non-breaching party, the non-breaching
party may terminate this Services Agreement and the provision of Services
pursuant hereto immediately by providing written notice of termination.
SECTION 6.03. SUMS DUE. In the event of a termination of this
Services Agreement, PRIMEDIA shall be entitled to all outstanding amounts due
from Purchaser and the Companies up to the date of termination.
SECTION 6.04. EFFECT OF TERMINATION. Section 2.05, 2.06,
3.01(b), 4.01, 5.01 and 6.03, Article VII and this Section 6.04 shall survive
any termination of this Services Agreement.
ARTICLE VII
MISCELLANEOUS
SECTION 7.01. NOTICES. All the notices or other communications
made in connection with this Services Agreement shall be in writing. Any notice
or other
<PAGE>
communication in connection herewith shall be deemed duly given (a) two business
days after it is sent by express, registered or certified mail, return receipt
requested, postage prepaid or (b) one business day after it is sent by overnight
courier, in every case, addressed as follows:
(i) if to WRC, to it at:
Weekly Reader Corporation
c/o Ripplewood Holdings L.L.C.
One Rockefeller Plaza
32nd Floor
New York, NY 10020
Attention: Mr. Timothy C. Collins
Mr. Charles L. Laurey
Phone: (212) 218-2719
Fax: (212) 582-4110
with a copy to:
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, NY 10019
Attention: Peter S. Wilson, Esq.
Phone: (212) 474-1767
Fax: (212) 765-0978
(ii) if to PRIMEDIA, to it at:
PRIMEDIA Inc.
745 Fifth Avenue
New York, NY 10151
Attention: Mark Colodny
Phone: (212) 745-0100
Fax: (212) 745-0645
with a copy to:
PRIMEDIA Inc.
745 Fifth Avenue
New York, NY 10151
Attention: Ann M. Riposanu, Esq.
Phone: (212) 745-0100
Fax: (212) 745-0131
or, in each case, at such other address as may be specified by notice to the
other parties hereto. Any party may give any notice or other communication in
connection herewith using any other means (including personal delivery,
messenger service, telecopy, or ordinary mail), but no such
<PAGE>
notice or other communication shall be deemed to have been duly given unless and
until it is actually received by the individual for whom it is intended.
SECTION 7.02. HEADINGS. The headings contained in this
Services Agreement are for purposes of convenience only and shall not affect the
meaning or interpretation of this Services Agreement.
SECTION 7.03. ENTIRE AGREEMENT. This Services Agreement
constitutes the entire agreement and supersedes all prior agreements and
understandings, both written and oral, between the parties with respect to the
subject matter hereof.
SECTION 7.04. COUNTERPARTS. This Services Agreement may be
executed in several counterparts, each of which shall be deemed an original and
all of which shall together constitute one and the same instrument.
SECTION 7.05. GOVERNING LAW. This Services Agreement shall be
governed in all respects, including as to validity, interpretation and effect,
by the internal laws of the State of New York.
SECTION 7.06. BINDING EFFECT. This Services Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
heirs, successors and permitted assigns.
SECTION 7.07. ASSIGNMENT. This Services Agreement shall not be
assignable by any party without the prior written consent of the other parties;
PROVIDED that (a) WRC may assign this Services Agreement to any Company, (b)
Purchaser may assign its and WRC's rights hereunder by way of security and such
secured party may assign such rights by way of exercise of remedies and (c)
PRIMEDIA may delegate performance of all or any part of its obligations under
this Services Agreement to (i) any subsidiary of PRIMEDIA or (ii) third parties
to the extent such third parties are routinely used to provide such Services to
other PRIMEDIA businesses; PROVIDED FURTHER that, in each case, no such
delegation or assignment shall in any way affect any party's obligations under
this Services Agreement. Any purported assignment in violation of this Section
7.07 shall be void.
SECTION 7.08. THIRD PARTY BENEFICIARIES. Nothing in this
Services Agreement shall confer any rights upon any person or entity other that
the parties and each such party's respective successors and permitted assigns.
<PAGE>
SECTION 7.09. AMENDMENT; WAIVERS, ETC. No amendment,
modification or discharge of this Agreement, and no waiver hereunder, shall be
valid or binding unless set forth in writing and duly executed by the party
against whom enforcement of amendment, modification, discharge or waiver is
sought. Any such waiver shall constitute a waiver only with respect to the
specific matter described in such writing and shall in no way impair the rights
of the party granting such waiver in any other respect or at any other time.
SECTION 7.10 CONFIDENTIALITY; SECURITY; TITLE TO DATA. (a)
Each of the parties agrees that any confidential information of the other party
received in the course of performance under this Agreement shall be kept
strictly confidential by the parties, except that PRIMEDIA may disclose such
information for the purpose of providing Services pursuant to this Services
Agreement to any subsidiary of PRIMEDIA or to third parties that provide such
Services; PROVIDED that any such subsidiary or third party shall have agreed to
be bound by this Section 7.10. Upon the termination of this Services Agreement,
each party shall return to the other party all of such other party's
confidential information to the extent that such information has not been
previously returned pursuant to Section 3.01(b) of this Services Agreement.
(b) PRIMEDIA agrees that all records, data, files, input
materials and other information received or computed for the benefit of the
Companies and which relate to the conduct of the Companies' businesses are the
property of the Companies.
IN WITNESS WHEREOF, the parties have executed this Services
Agreement as of the date first written above.
PRIMEDIA INC.,
by ______________________________
Name:
Title:
<PAGE>
EAC II INC.,
by ______________________________
Name:
Title:
WEEKLY READER CORPORATION,
by ______________________________
Name:
Title:
<PAGE>
SERVICES AND TERMS
EMPLOYEE BENEFITS
During the period commencing as of the Closing and terminating
on the earlier of December 31, 1999 or such date as Purchaser shall designate in
writing to PRIMEDIA (provided that PRIMEDIA receives at least 10-days' notice of
such designation and that the date so designated is the end of a calendar
month), PRIMEDIA will continue to (i) make available to all employees (and their
eligible dependents) of the Companies who are participating in the relevant plan
on the Closing Date, participation in each of those employee benefit plans
listed in Schedule 3.15 of the Purchase Agreement which are designated as
sponsored by PRIMEDIA which Purchaser may request of PRIMEDIA in writing no
later than 10 days prior to the Closing and (ii) provide administrative services
in respect of those employee benefit plans listed in Schedule 3.15 which are
maintained exclusively by the Companies for their respective employees which
Purchaser may request of PRIMEDIA in writing no later than 10 days prior to the
Closing. Purchaser will promptly reimburse PRIMEDIA, upon receipt by Purchaser
of a written invoice from PRIMEDIA detailing the component costs and expenses,
for all reasonable administrative costs and expenses directly related to the
services provided by PRIMEDIA in respect of the Companies' employees including,
as applicable, for all contributions made by PRIMEDIA, including both the
employer and employee portions, all claims paid under self-insured welfare plans
and all employer and employee (to the extent not received by PRIMEDIA from
employee payroll withholding) premiums paid to insurance carriers. PRIMEDIA's
obligations to provide administrative services in respect of any particular plan
will be on substantially the same basis that it currently provides services in
respect of such plan. Administrative services will include, but not be limited
to, all administrative and management services provided by PRIMEDIA as of the
date hereof with respect to each applicable employee benefit plan, including all
administrative and management services (including recordkeeping, the provision
of informational documentation to employees and human resources personnel and
other services typically necessary for these types of benefit programs,
consistent with past practice). PRIMEDIA's obligation to continue to make
available any welfare plan under clause (i) of the first sentence of this
paragraph shall be subject to any required consent of the applicable insurance
carrier (if any) and the parties agree to cooperate to obtain such consent.
<PAGE>
OFFICE SPACE-GROUP STAFF
PRIMEDIA will continue to make available office space currently occupied by the
Companies' staff ([LeBrasseur,] Jackson, Schwartz, Slivken) and services related
thereto (including security, cleaning, access to telephones, fax and copy
machines, mail and delivery services, and other services consistent with those
provided prior to the Closing) at a monthly rental of $8,500 [12,000 if
LeBrasseur included] plus the incremental direct costs of telephone calls,
telecopies, and any postage, overnight delivery or other courier charges.
<PAGE>
COMPANY SERVICES AND TERMS
SERVICE REQUIREMENTS AND WRC ON BEHALF OF FILMS FOR THE HUMANITIES ("FFH")
WRC shall:
1. provide day to day maintenance of Computron Financial software and
hardware systems ("Computron") and related databases (including
emergency services, trouble shooting, upgrades, reports and uploads),
consistent with current practice;
2. provide continued T-1 access from WRC to FFH, consistent with current
practice;
3. perform uploads of data from Excel spreadsheets into Computron,
consistent with current practice; and
4. assist FFH/FFH consultants in extraction/conversion of FFH data from
Computron for purposes of transitioning to the FFH financial package
and provide required access to WRC personnel, premises & systems for
such extraction.
<PAGE>
EXHIBIT B
SHAREHOLDER AGREEMENT dated as of [insert
Closing Date], 1999 (this "AGREEMENT"), among EAC II
Inc., a Delaware corporation (the "RIPPLEWOOD
SHAREHOLDER"), PRIMEDIA Inc., a Delaware corporation
(the "PRIMEDIA SHAREHOLDER" and, together with the
Ripplewood Shareholder and their respective
Transferees, the "SHAREHOLDERS"), and Weekly Reader
Corporation, a Delaware corporation (the "COMPANY").
WHEREAS each Shareholder owns the number of shares of Common
Stock, par value $.01 per share ("COMPANY COMMON STOCK"), of the Company set
forth opposite such Shareholder's name on Schedule I attached hereto.
NOW, THEREFORE, in consideration of the mutual agreements
herein contained, and other good and valuable consideration the receipt and
adequacy of which are hereby acknowledged, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS AND USAGE
SECTION 1.01. DEFINED TERMS. The following terms
shall have the following meanings:
"AFFILIATE" means, with respect to any specified Person, any
other Person that directly or indirectly, through one or more intermediaries,
controls, is controlled by, or is under common control with, such specified
Person. For purposes of this definition, "control" (including, with correlative
meanings, the terms "controlled by" and "under common control with"), as used
with respect to any Person, means the direct or indirect possession of the power
to direct or cause the direction of the management or policies of such Person,
whether through the ownership of voting securities, by contract or otherwise.
"AGREEMENT" has the meaning set forth in the preamble to this
Agreement.
"BOARD OF DIRECTORS" means the Board of Directors of the
Company.
"COMPANY" has the meaning set forth in the preamble to this
Agreement.
<PAGE>
2
"COMPANY COMMON STOCK" has the meaning set forth
in the recitals to this Agreement.
"DGCL" means the Delaware General Corporation Law (Title 8 of
the Delaware Code Annotated), as amended from time to time and any successor
statute thereto.
"DIRECT TRANSFER" means a Transfer (without giving effect to
the second sentence of the definition of "Transfer").
"DRAG-ALONG NOTICE" has the meaning set forth in Section
2.01(f).
"EAC II SHARES" means shares of common stock, par value $.01
per share, of the Ripplewood Shareholder.
"EAC III" means EAC III L.L.C., a Delaware limited liability
company, and the holder of a majority of the EAC II Shares.
"INVOLUNTARY TRANSFER" means any Transfer by any Shareholder
of any Shares, or of any beneficial ownership thereof, upon death, appointment
of a guardian, default, foreclosure, forfeit, bankruptcy (voluntary or
involuntary), court order, levy of attachment, execution or otherwise than
voluntarily by the Transferor; PROVIDED that a Transfer required pursuant to
Section 2.01(f) or (h) shall not be deemed an Involuntary Transfer.
"FAIR MARKET VALUE" means the fair market value of a Share,
determined in accordance with Section 2.01(g).
"PERMITTED TRANSFEREE" means, (i) with respect to the
Ripplewood Shareholder or EAC III, (A) an Affiliate of Ripplewood, (B) a
shareholder, partner, member or employee of Ripplewood or any Affiliate of
Ripplewood or (C) an employee of the Company or any of its subsidiaries and (ii)
with respect to the PRIMEDIA Shareholder, any wholly owned subsidiary of the
PRIMEDIA Shareholder (it being understood that, in the event such subsidiary
ceases to be wholly owned by the PRIMEDIA Shareholder, any Shares held by such
subsidiary shall be deemed to have been Transferred).
"PERSON" means any individual, corporation, partnership,
trust, association, limited liability company, joint venture, joint-stock
company or any other entity or organization, including a government or
governmental agency.
"PLEDGE AGREEMENT" means the Pledge Agreement dated as of the
date hereof, as amended, waived or modified
<PAGE>
3
from time to time, among the Ripplewood Shareholder, the PRIMEDIA Shareholder
and [ ] (the "AGENT"). The Pledge Agreement shall provide that, if at any time
all or any portion of the Ripplewood Shareholder's Shares (including any
beneficial ownership thereof) which are pledged pursuant to the Pledge Agreement
shall be released from such pledge (other than in connection with a Transfer of
Shares Transferred to a Transferee following which such shares are immediately
pledged by such Transferee pursuant to the Pledge Agreement) then the same
proportion of the PRIMEDIA Shareholder's Shares shall be released from its
pledge pursuant to the Pledge Agreement. The Pledge Agreement shall also provide
for (i) the release of all the PRIMEDIA Shareholder's Shares on the third
anniversary of this Agreement and (ii) the release of all Shares upon the
termination of this Agreement pursuant to Section 4.10.
"REGISTRATION EXPENSES" means all (a) registration and filing
fees of the Securities and Exchange Commission, the National Association of
Securities Dealers, Inc. and any securities exchanges, (b) fees and expenses of
complying with state securities or blue sky laws (including fees and
disbursements of counsel for any underwriters in connection with blue sky
qualifications), (c) printing, messenger and delivery expenses, (d) fees and
expenses incurred in connection with the listing of Shares on any securities
exchange, (e) fees and disbursements of counsel for the Company and of its
independent public accountants and (f) fees and expenses of any special experts
retained in connection with a registration.
"RIPPLEWOOD" means Ripplewood Partners, L.P.
"RIPPLEWOOD SHAREHOLDER" has the meaning set forth in the
preamble to this Agreement.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SHARES" means the shares of Company Common Stock held by a
Shareholder.
"SHAREHOLDERS" has the meaning set forth in the preamble to
this Agreement.
"TAG-ALONG NOTICE" has the meaning set forth in Section
2.01(e).
"THIRD PARTY PURCHASER" means, with respect to any proposed
sale of Shares by a Shareholder, a Person, other than an Affiliate of such
Shareholder, who offers to
<PAGE>
4
purchase from such Shareholder such Shares pursuant to a bona fide written
offer.
"TRANSFER" means any transfer, sale, conveyance, assignment,
gift, hypothecation, pledge or other disposition, whether voluntary or by
operation of law, of a Share. Notwithstanding the foregoing, any transfer, sale,
conveyance, assignment, gift, hypothecation, pledge or other disposition,
whether voluntary or by operation of law, of any stock, partnership interest,
membership interest or any other ownership interest in any entity that is a
direct or indirect beneficial or record owner of any Share (including any
disposition by means of a merger, consolidation or similar transaction) or any
other transaction that has the economic effect of a Transfer of a Share
(including the designation of any beneficiary of any trust that is a direct or
indirect beneficial or record owner of any Share) shall be deemed to be a
Transfer of such Share by the Shareholder directly owning such Share.
"TRANSFEREE" means the transferee in a Transfer.
"TRANSFEROR" means the transferor in a Transfer.
SECTION 1.02. OTHER DEFINITION PROVISIONS. Capitalized terms
used but not defined herein shall have the meanings set forth in the Redemption,
Stock Purchase and Recapitalization Agreement, dated as of August 13, 1999,
between the Ripplewood Shareholder and the PRIMEDIA Shareholder (the "Purchase
Agreement"). Wherever required by the context of this Agreement, the singular
shall include the plural, and vice versa, and the masculine gender shall include
the feminine and neuter genders, and vice versa, and references to any
agreement, document or instrument shall be deemed to refer to such agreement,
document or instrument as amended, supplemented or modified from time to time.
When used herein, (i) the word "or" is not exclusive and (ii) the words
"including," "includes," "included" and "include" are deemed to be followed by
the words "without limitation."
ARTICLE II
TRANSFERS OF SHARES; TRANSACTIONS
BETWEEN RIPPLEWOOD SHAREHOLDER AND THE COMPANY
SECTION 2.01. TRANSFERS OF THE COMPANY SHARES. (a) GENERALLY.
(i) No Shareholder may Transfer all or any portion of its Shares (or any
beneficial ownership thereof) unless (A) such Transfer is in accordance with
this Section 2.01, (B) in the case of a Direct Transfer (other
<PAGE>
5
than pursuant to Section 2.01(e), (f) or (g)), the Transferee executes and
delivers a counterpart of the signature page of this Agreement (or other
appropriate assumption agreement) and (C) except for a Transfer in accordance
with Section 2.01(e), (f), (g) or (i), the Transferee executes and delivers any
other agreements, documents or instruments reasonably specified by the Board of
Directors. Any Transfer made in violation of this Section 2.01(a) shall be null
and void and shall be subject to Section 2.01(d).
(ii) Whenever a Transfer (other than pursuant to Section
2.01(g)) is to be consummated by any Person on a specified date under this
Section 2.01, such Transfer shall take place at 10:00 a.m., Eastern Time, on
such date (or, if such date is not a business day, the next following business
day) at the New York offices of Cravath, Swaine & Moore, or at such other time,
date and place as the Company and the parties to such Transfer may agree. Except
for a Transfer in accordance with Section 2.01(e), (f), (g) or (i), such
Transfer shall only be effective following due execution and delivery of the
agreements, documents and instruments specified in Section 2.01(a)(i)(B) and of
such other agreements, documents and instruments as the Board of Directors or
the parties to such Transfer may reasonably require.
(iii) Upon compliance with the requirements of Section
2.01(a), in the case of a Direct Transfer (other than pursuant to Section
2.01(e), (f), (g) or (i)), each Transferee shall have all of the economic
rights, and shall be subject to the restrictions and liabilities, of its
Transferor hereunder. Immediately following any Direct Transfer in which the
Transferor has Transferred all of its Shares pursuant to this Section 2.01, such
Transferor shall cease to be a Shareholder.
(b) TRANSFERS BY THE RIPPLEWOOD SHAREHOLDER. Subject to
Section 2.01(a) and, with respect to a Transfer to any Person other than a
Permitted Transferee of the Ripplewood Shareholder, Section 2.01(e), the
Ripplewood Shareholder (and its Permitted Transferees) shall have the right to
Transfer at any time all or any portion of its Shares (including any beneficial
ownership thereof) to any Person without the prior consent of any Person.
(c) TRANSFERS BY THE PRIMEDIA SHAREHOLDER. (i) Subject to
Section 2.01(a), the PRIMEDIA Shareholder (and its Permitted Transferees) shall
have the right to Transfer at any time all or any portion of its Shares
(including any
<PAGE>
6
beneficial ownership thereof) to any of its Permitted Transferees without the
prior consent of any Person.
(ii) The PRIMEDIA Shareholder (and its Permitted Transferees)
shall not have the right to Transfer all or any portion of its Shares (including
any beneficial ownership thereof) to any Person other than the Ripplewood
Shareholder or the Company except in accordance with Section 2.01(a) and (A)
pursuant to Section 2.01(c)(i), (e), (f), (g) or (i) or Section 2.03 or (B) with
the prior written consent of the Board of Directors (which consent shall not be
unreasonably withheld).
(d) INVOLUNTARY AND IMPERMISSIBLE TRANSFERS. If an Involuntary
Transfer or a Transfer in violation of this Agreement shall occur with respect
to the PRIMEDIA Shareholder and, in the case of a Transfer in violation of this
Agreement, such violation has not been cured within 30 days after notice to the
applicable Transferor or Transferee, the Company shall give notice to the
Ripplewood Shareholder offering the Ripplewood Shareholder the right,
exercisable by delivery of written notice to such Transferee within 90 days
following the day on which such notice is given, to purchase all of the Shares
acquired by such Transferee at a purchase price equal to, in the case of an
Involuntary Transfer, 100% or, in the case of a Transfer in violation of this
Agreement, 90% of the Fair Market Value thereof, determined in good faith by the
Board of Directors as of the date of such Transfer (or, if lower, as of the date
of such determination). The closing date of any purchase described in this
Section 2.01(d) shall be on the date specified by the Company that shall not be
later than the 30th day after a determination of the Fair Market Value of the
Shares to be purchased is made.
(e) TAG-ALONG RIGHTS. If the Ripplewood Shareholder desires to
Transfer all (or any portion in excess of 35%) of its Shares to a prospective
Transferee (or Transferees) other than to a Permitted Transferee of the
Ripplewood Shareholder, the Ripplewood Shareholder shall, as a condition to such
Transfer, (i) provide a notice to the PRIMEDIA Shareholder in writing (a
"TAG-ALONG NOTICE") of the material terms of the proposed Transfer at least 10
days prior to such Transfer and (ii) permit the PRIMEDIA Shareholder (or cause
the PRIMEDIA Shareholder to be permitted) to sell (either to the prospective
Transferee of the Ripplewood Shareholder's Shares or to another financially
reputable Transferee reasonably acceptable to the PRIMEDIA Shareholder) the same
proportion of its Shares on the same terms and conditions, subject to the same
agreements and at the same price as the sale by the Ripplewood Shareholder,
<PAGE>
7
which sale shall take place on the date the Ripplewood Shareholder's Shares (or
such portion) are Transferred to such Transferee (or Transferees). The PRIMEDIA
Shareholder shall have five days from the date of receipt of a Tag-Along Notice
to exercise its right to sell pursuant to clause (ii) above by delivering
written notice to the Ripplewood Shareholder of its intent to exercise such
right. The right of the PRIMEDIA Shareholder to sell pursuant to the above shall
terminate if not exercised within such five-day period; PROVIDED that if the
terms and conditions of the proposed transfer materially differ from those set
forth in the Tag- Along Notice then the Ripplewood Shareholder shall notify the
PRIMEDIA Shareholder of such change and such five-day period shall be extended
for a further five days from the date of such notification. If the PRIMEDIA
Shareholder elects to exercise its right to sell pursuant to this Section
2.01(e), it shall share, on a pro rata basis, the legal, investment banking and
other expenses of the Ripplewood Shareholder incurred in connection with such
Transfer.
(f) DRAG-ALONG RIGHTS. If at any time the Ripplewood
Shareholder desires to Transfer all (or any portion in excess of 35%) of its
Shares to any Third Party Purchaser (or Purchasers), the Ripplewood Shareholder
shall have the right to require that the PRIMEDIA Shareholder Transfer the same
proportion of its Shares to such Third Party Purchaser (or Purchasers) on the
same terms and conditions, subject to the same agreements and at the same price
as the sale by the Ripplewood Shareholder. The Ripplewood Shareholder shall
provide a notice to the PRIMEDIA Shareholder in writing (a "DRAG-ALONG NOTICE")
of such sale at least 10 days prior to such Transfer, and the Drag-Along Notice
shall identify such Third Party Purchaser (or Purchasers), all material terms of
the sale and the date of closing. Upon the closing of any sale by the Ripplewood
Shareholder of all (or such portion) of its Shares as described in a Drag-Along
Notice, such Third Party Purchaser (or Purchasers) shall pay to the PRIMEDIA
Shareholder the consideration payable to the PRIMEDIA Shareholder in connection
with such sale of all (or such portion) of its Shares to such Purchaser (or
Purchasers), net of the PRIMEDIA Shareholder's proportionate share of the legal,
investment banking and other expenses of the Ripplewood Shareholder incurred in
connection with such sale, and the Shares (or such portion) of the PRIMEDIA
Shareholder shall be deemed Transferred to such Third Party Purchaser (or
Purchasers).
(g) PIGGY-BACK REGISTRATION RIGHTS. If the Company proposes to
file a registration statement under the Securities Act with respect to an
initial public offering by the Company that includes all or any portion of the
<PAGE>
8
Ripplewood Shareholder's Shares, then the Company shall give written notice of
such proposed filing to the PRIMEDIA Shareholder at least 10 days before the
filing date, and such notice shall offer the PRIMEDIA Shareholder the
opportunity to register such number of Shares as the PRIMEDIA Shareholder may
request up to a proportionate amount of the PRIMEDIA Shareholder's Shares. If
such offer is accepted by written notice to the Company from the PRIMEDIA
Shareholder within 5 days of the giving of the written notice provided for in
the preceding sentence, the Company shall use its best efforts to cause the
managing underwriter or underwriters thereof to permit the Shares the PRIMEDIA
Shareholder requested to be included in such offering to be included in such
offering on the same terms and conditions as the corresponding Shares of the
Ripplewood Shareholder included therein; PROVIDED that (i) if, at any time after
giving written notice of its intention to register any Shares and prior to the
effective date of the registration statement filed in connection with such
registration, the Company shall determine for any reason not to proceed with the
proposed registration, the Company may, at its election, give written notice of
such determination to the PRIMEDIA Shareholder and thereupon shall be relieved
of its obligation to register any Shares in connection with such registration
and (ii) the PRIMEDIA Shareholder must sell its Shares to underwriters who shall
have been selected by the Company on the same terms and conditions as apply to
the Ripplewood Shareholder. The PRIMEDIA Shareholder may elect in writing, prior
to the effective date of the registration statement filed in connection with
such registration, to withdraw its request and not to have its Shares registered
in connection with such registration. If the managing underwriter or
underwriters advise the Company in writing that, in their opinion, (i) the
number of Shares which the PRIMEDIA Shareholder intends to include in such
registration exceeds the largest number of such Shares which can be sold in such
offering without having an adverse effect on such offering (including, but not
limited to, the price at which such Shares can be sold) or (ii) the inclusion of
the Shares in such registration would have an adverse effect on such offering,
then the Company will include in such registration (A) first, 100% of the Shares
proposed to be sold by the Company and any other shareholder whose shares the
Company is obligated to include in such registration in priority to the
Ripplewood Shareholder and the PRIMEDIA Shareholder and (B) second, to the
extent that the number of Shares requested to be included in such registration
can, in the opinion of such managing underwriter, be sold without having the
adverse effect referred to above, the number of Shares which the Ripplewood
Shareholder and the PRIMEDIA Shareholder have requested to be included in such
registration, such amount to be allocated
<PAGE>
9
pro rata among the Ripplewood Shareholder and the PRIMEDIA Shareholder on the
basis of the relative number of Shares the Ripplewood Shareholder and the
PRIMEDIA Shareholder have requested for registration. The Company may require
the PRIMEDIA Shareholder to furnish the Company with such information regarding
the PRIMEDIA Shareholder and pertinent to the disclosure requirements relating
to the registration and distribution of the PRIMEDIA Shareholder's Shares as the
Company may from time to time reasonably request in writing. The Company shall
pay all Registration Expenses in connection with registration of Shares subject
to this Section 2.01(g). The PRIMEDIA Shareholder shall pay all (x) underwriting
discounts and commissions and transfer taxes, if any, (y) internal
administrative and similar costs of the PRIMEDIA Shareholder and (z) fees and
disbursements of counsel for the PRIMEDIA Shareholder, in each case relating to
the registration, sale or disposition of the PRIMEDIA Shareholder's Shares
pursuant to a registration statement effected pursuant to this Section 2.01(g).
(h) FAIR MARKET VALUE. In determining the "FAIR MARKET VALUE"
of any Shares (or any portion thereof) pursuant to this Section 2.01 or Section
2.03(b), the Board of Directors shall give due consideration to such factors as
it deems appropriate, including the earnings and certain other financial and
operating information of the Company and its subsidiaries in recent periods, its
potential value and that of its subsidiaries as a whole, its future prospects
and that of its subsidiaries and the industries in which they compete, its
history and management and that of its subsidiaries, the general condition of
the securities markets and the fair market value of securities of privately
owned companies (with transfer restrictions) engaged in businesses similar to
the Company and its subsidiaries. The Fair Market Value, as determined by the
Board of Directors in good faith shall be binding and conclusive upon all
parties hereto.
(i) TRANSFERS TO THE AGENT. Subject to Section 2.01(a), each
Shareholder shall have the right to Transfer at any time all or any portion of
its Shares to the Agent in accordance with the terms of the Pledge Agreement
without the prior consent of any Person.
SECTION 2.02. AFFILIATE TRANSACTIONS. Except for the
transactions contemplated by the management consulting and financial advisory
services agreement to be dated as of the date hereof between the Company and
Ripplewood Holdings L.L.C. (the "MANAGEMENT AGREEMENT"), attached hereto as
Exhibit I, unless otherwise agreed by the PRIMEDIA Shareholder in writing, the
Ripplewood Shareholder will not enter into any agreement or engage in any
business
<PAGE>
10
transaction with the Company or its subsidiaries after the date hereof which is
not entered into on an arm's length commercially reasonable basis.
Notwithstanding the foregoing, the PRIMEDIA Shareholder explicitly agrees that
the Ripplewood Shareholder may at any time cause the Company to issue new shares
of Company Common Stock and/or WRC Preferred Stock to the Ripplewood Shareholder
in exchange for the contribution of assets (and the assumption of liabilities)
of the Ripplewood Shareholder, such new shares to have a fair market value as
determined in good faith by the Board of Directors equal to the net fair market
value of such assets less such liabilities as determined in good faith by the
Board of Directors, which assets and liabilities may include (a) any capital
stock of JLC Learning Corporation, a Delaware corporation ("JLC"), owned by the
Ripplewood Shareholder, (b) a promissory note of JLC dated the date hereof in
the principal amount of $36,000,000 and bearing interest at the rate of [ ]%,
(c) any Company Common Stock and any WRC Preferred Stock owned by the Ripplewood
Shareholder, (d) a promissory note of the Company dated the date hereof in the
principal amount of $138,400,000 and bearing interest at the rate of [ ]% and
(e) subordinated debt securities of the Ripplewood Shareholder.
SECTION 2.03 SALE OF EAC II SHARES. (a) If EAC III desires to
Transfer all (or any portion in excess of 35%) of its EAC II Shares to a
prospective Transferee (or Transferees) other than to a Permitted Transferee of
EAC III, the provisions of Section 2.01(e) and (f) shall apply to such Transfer
in accordance with their terms, except that the percentage of the PRIMEDIA
Shareholder's shares that it has the right or obligation, as the case may be, to
sell and the price to be paid therefor shall be determined in good faith by the
Board of Directors on a basis that shall, as nearly as reasonably practicable,
provide the PRIMEDIA Shareholder economic treatment comparable to that which it
would have been provided under Section 2.01(e) or (f), as the case may be, in
the event of Transfer of an economically equivalent portion of the Shares.
(b) If an initial public offering of EAC II Shares shall
occur, then the PRIMEDIA Shareholder shall have the right to, and the Ripplewood
Shareholder shall, exchange all or any portion of the PRIMEDIA Shareholder's
Shares for EAC II Shares having an aggregate fair market value equal to the
aggregate Fair Market Value of the exchanged Shares.
<PAGE>
11
ARTICLE III
STOCK REGISTRATION; LEGEND
SECTION 3.01. STOCK REGISTRATION. (a) Each Shareholder hereby
represents and warrants to the other Shareholder and the Company that such
Shareholder understands that the Company Common Stock has not been registered
under the Securities Act.
(b) Each Shareholder agrees that such Shareholder will not
offer, sell, transfer, pledge, hypothecate or otherwise dispose of any shares of
Company Common Stock except:
(i) pursuant to an exemption from registration under the
Securities Act and in accordance with any applicable laws of any state
of the United States governing the offer and sale of securities; or
(ii) pursuant to an effective registration statement under the
Securities Act (it being understood that the Company, the other
Shareholder and their Affiliates are under no obligation to effect such
registration except, in the case of the Company, pursuant to Section
2.01(g)) and in accordance with any applicable state laws; or
(iii) pursuant to the Pledge Agreement.
SECTION 3.02. LEGEND. Each Shareholder agrees that any and all
certificates representing such Shareholder's Shares will have inscribed
conspicuously on the front or back of such certificates the following legend:
"THE SHARES OF COMMON STOCK, PAR VALUE $.01 PER SHARE, OF WEEKLY READER
CORPORATION REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO ONE OR MORE
AGREEMENTS AMONG SHAREHOLDERS OR AGREEMENTS BETWEEN SHAREHOLDERS AND WEEKLY
READER CORPORATION, AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED EXCEPT IN
ACCORDANCE THEREWITH. COPIES OF ANY SUCH AGREEMENT MAY BE OBTAINED AT THE
PRINCIPAL EXECUTIVE OFFICES OF WEEKLY READER CORPORATION."
SECTION 3.03 OTHER REGISTRATION-RELATED MATTERS. In the event
of a registration of Shares of the PRIMEDIA Shareholder pursuant to Section
2.01(g):
(a) the Company will furnish to the PRIMEDIA Shareholder such
number of copies of the applicable registration statement and of each
amendment or supplement thereto (in each case including all
<PAGE>
12
exhibits), such number of copies of the prospectus included in such
registration statement (including each preliminary prospectus and
summary prospectus), in conformity with the requirements of the
Securities Act, and such other documents as may reasonably be requested
in order to facilitate the disposition of Shares by the PRIMEDIA
Shareholder;
(b) the Company will notify the PRIMEDIA Shareholder at any
time when a prospectus relating to its Shares is required to be
delivered under the Securities Act promptly after the Company becomes
aware that the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of
the circumstances then existing, and at the request of the PRIMEDIA
Shareholder, prepare and furnish to the PRIMEDIA Shareholder a
reasonable number of copies of an amended or supplemental prospectus as
may be necessary so that, as thereafter delivered to the purchasers of
such Shares, such prospectus will not include an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading in
the light of the circumstances then existing; and
(c) the Company will make available for inspection by the
PRIMEDIA Shareholder and by any attorney, accountant or other agent
retained by the PRIMEDIA Shareholder, all pertinent financial and other
records, pertinent corporate documents and properties of the Company,
and cause all of the Company's officers, directors and employees to
supply all information reasonably requested by the PRIMEDIA
Shareholder, or any such attorney, accountant or agent in connection
with such registration statement.
SECTION 3.04 INDEMNIFICATION. (a) INDEMNIFICATION BY THE
COMPANY. In the event of any registration of any Shares of the PRIMEDIA
Shareholder under the Securities Act pursuant to Section 2.01(g), the Company
hereby indemnifies and agrees to hold harmless, to the extent permitted by law,
the PRIMEDIA Shareholder, each Affiliate of the PRIMEDIA Shareholder and their
respective directors and officers or general and limited partners and members
(and the directors, officers, affiliates and controlling Persons thereof) and
each other Person, if any, who controls the PRIMEDIA Shareholder within the
meaning of the Securities Act
<PAGE>
13
(collectively, the "Indemnified Parties"), against any and all losses, claims,
damages or liabilities, joint or several, and expenses to which such Indemnified
Party may become subject under the Securities Act, common law or otherwise,
insofar as such losses, claims, damages or liabilities (or actions or
proceedings in respect thereof, whether or not such Indemnified Party is a party
thereto) arise out of or are based upon (i) any untrue statement or alleged
untrue statement of any material fact contained in any registration statement
under which such securities were registered under the Securities Act or any
preliminary, final or summary prospectus contained therein, or any amendment or
supplement thereto, or (ii) any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing, and the
Company will reimburse such Indemnified Party for any legal or other expenses
reasonably incurred by it in connection with investigating or defending any such
loss, claim, liability, action or proceeding; PROVIDED that the Company will not
be liable to any Indemnified Party in any such case to the extent that any such
loss, claim, damage, liability (or action or proceeding in respect thereof) or
expense arises out of or is based upon any untrue statement or alleged untrue
statement or omission or alleged omission made in such registration statement,
in any such preliminary, final or summary prospectus, or any amendment or
supplement thereto in reliance upon and in conformity with written information
with respect to such Indemnified Party furnished to the Company by such
Indemnified Party for use in the preparation thereof. Such indemnity will remain
in full force and effect regardless of any investigation made by or on behalf of
the PRIMEDIA Shareholder or any Indemnified Party and will survive the Transfer
of such securities by the PRIMEDIA Shareholder.
(b) INDEMNIFICATION BY THE HOLDERS AND UNDERWRITERS. The
Company may require, as a condition to including any Shares of the PRIMEDIA
Shareholder in any registration statement filed in accordance with Section
2.01(g), that the Company shall have received an undertaking reasonably
satisfactory to it from the PRIMEDIA Shareholder to indemnify and hold harmless
(in the same manner and to the same extent as set forth in Section 3.04(a)) the
Company, all other shareholders participating in such offering or any
prospective underwriter, as the case may be, and any of their respective
Affiliates, directors, officers, general and limited partners and members (and
the directors, officers, affiliates and controlling Persons thereof) and
controlling Persons, with respect to any statement or alleged statement in or
omission
<PAGE>
14
or alleged omission from such registration statement, any preliminary, final or
summary prospectus contained therein, or any amendment or supplement, if such
statement or alleged statement or omission or alleged omission was made in
reliance upon and in conformity with written information with respect to the
PRIMEDIA Shareholder furnished to the Company by the PRIMEDIA Shareholder
expressly for use in the preparation of such registration statement,
preliminary, final or summary prospectus or amendment or supplement, or a
document incorporated by reference into any of the foregoing. Such indemnity
will remain in full force and effect regardless of any investigation made by or
on behalf of the Company or any of the shareholders, or any of their respective
affiliates, directors, officers, general and limited partners (and the
directors, officers, affiliates and controlling Persons thereof) or controlling
Persons and will survive the Transfer of such securities by the PRIMEDIA
Shareholder.
(c) PROCEDURES. The procedures governing any indemnification
pursuant to this Section 3.04 shall be as set forth in Sections 7.04 and 7.05 of
the Purchase Agreement.
(d) CONTRIBUTION. If recovery is not available under the
foregoing indemnification provisions of this Section 3.04 for any reason other
than as expressly specified therein, the parties required to provide
indemnification by the terms thereof will contribute to liabilities and expenses
of the indemnified party except to the extent that contribution is not permitted
under Section 11(f) of the Securities Act. In determining the amount of
contribution to which the respective parties are entitled, consideration will be
given to the relative benefits received by each party from the offering of the
Shares (taking into account the portion of the proceeds realized by each), the
parties' relative knowledge and access to information concerning the matter with
respect to which the claim was asserted, the opportunity to correct and prevent
any misstatement or omission and any other equitable considerations appropriate
under the circumstances.
(e) NON-EXCLUSIVITY. The obligations of the parties under this
Section 3.04 will be in addition to any liability which any party may otherwise
have to any other party.
<PAGE>
15
ARTICLE IV
MISCELLANEOUS PROVISIONS
SECTION 4.01. ENTIRE AGREEMENT. This Agreement sets forth the
entire understanding among the parties relating to the subject matter contained
herein and merges all prior discussions among them. This Agreement is not
intended to confer upon any person other than the parties hereto any rights or
remedies hereunder.
SECTION 4.02. AMENDMENTS. This Agreement may not be amended
except by an instrument in writing signed by each of the parties hereto.
SECTION 4.03. NOTICES. All notices and other communications
required or permitted by this Agreement shall be made in writing and any such
notice or communication shall be deemed delivered when delivered in person,
transmitted by telecopier, confirmation of transmission received, or one
business day after it has been sent by a nationally recognized overnight
courier, at the address or addresses for notices to the recipient designated on
Schedule II. Each Shareholder may from time to time change its address for
notices under this Section 4.03 by giving at least five days' notice of such
changed address to the other Shareholder.
SECTION 4.04. INTERPRETATION. When a reference is made in this
Agreement to Sections, such reference shall be to a Section to this Agreement
unless otherwise indicated. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
SECTION 4.05. SEVERABILITY. If any one or more of the
provisions contained in this Agreement or in any document executed in connection
herewith shall be invalid, illegal or unenforceable in any respect under any
applicable law, the validity, legality and enforceability of the remaining
provisions contained herein shall not in any way be affected or impaired;
PROVIDED that in such case the parties hereto shall endeavor to amend or modify
this Agreement to achieve to the extent reasonably practicable the purpose of
the invalid provision.
SECTION 4.06. GOVERNING LAW. This Agreement and all actions
contemplated hereby shall be governed by, and construed and enforced in
accordance with, the internal laws of the State of New York, except to the
extent that the provisions of the DGCL may be mandatorily applicable.
<PAGE>
16
SECTION 4.07. COUNTERPARTS. This Agreement may be executed in
one or more counterparts, all of which shall be considered one and the same
agreement.
SECTION 4.08. ASSIGNMENT. Except pursuant to Section 2.01(a),
neither this Agreement nor any of the rights, interests or obligations under
this Agreement shall be assigned, in whole or in part by the Ripplewood
Shareholder without the prior written consent of the PRIMEDIA Shareholder or by
the PRIMEDIA Shareholder without the prior written consent of the Ripplewood
Shareholder, and any purported assignment without such consent shall be void.
Subject to the preceding sentences, this Agreement will be binding upon, inure
to the benefit of, and be enforceable by the parties and their respective
successors and assigns.
SECTION 4.09. SPECIFIC PERFORMANCE. The parties hereby declare
that irreparable damage would occur as a result of the failure of any party
hereto to perform any of its obligations under this Agreement in accordance with
the specific terms hereof. Therefore, all parties hereto shall have the right to
specific performance of the obligations of the other parties under this
Agreement and if any party hereto shall institute any action or proceeding to
enforce the provisions hereof, any Person against whom such action or proceeding
is brought hereby waives the claim or defense therein that such party has an
adequate remedy at law. The right to specific performance should be in addition
to any other remedy to which a party hereto may be entitled at law or in equity.
SECTION 4.10. TERMINATION. This Agreement shall
automatically terminate upon the closing of an initial public
offering of shares of Company Common Stock or EAC II Shares.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed as of the date first above written.
EAC II INC.,
by ______________________________
Name:
Title:
PRIMEDIA INC.,
<PAGE>
17
by ______________________________
Name:
Title:
WEEKLY READER CORPORATION,
by ______________________________
Name:
Title:
<PAGE>
SCHEDULE I
<TABLE>
<CAPTION>
Shares of Company
-----------------
Shareholder Common Stock
- ----------- ------------
<S> <C>
EAC II Inc. 2,685,670
PRIMEDIA Inc. 144,330
</TABLE>
<PAGE>
SCHEDULE II
<TABLE>
<CAPTION>
Shareholder Address
- ----------- -------
<S> <C>
EAC II Inc. c/o Ripplewood Holdings L.L.C.
One Rockefeller Plaza, 32nd Floor
New York, New York 10020
Attn: Mr. Timothy C. Collins
Mr. Charles L. Laurey
Phone: (212) 218-2719
Fax: (212) 582-4110
with a copy to:
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, New York 10019
Attn: Peter S. Wilson, Esq.
Phone: (212) 474-1767
Fax: (212) 765-0978
PRIMEDIA Inc. 745 Fifth Avenue
New York, NY 10151
Attn: Mr. Mark Colodny
Phone (212) 745-0100
Fax: (212) 745-0645
with a copy to:
745 Fifth Avenue
New York, NY 10151
Attn: Ann M. Riposanu, Esq.
Phone: (212) 745-0100
Fax: (212) 745-0131
</TABLE>
<PAGE>
EXHIBIT C
[Letterhead of]
Simpson Thacher & Bartlett
EAC II Inc.
c/o Ripplewood Partners, L.P.
One Rockefeller Plaza
32nd Floor
New York, NY 10020
[ ], 1999
REDEMPTION, STOCK PURCHASE AND
RECAPITALIZATION AGREEMENT
Dear Sirs:
We have acted as counsel to PRIMEDIA Inc., a Delaware
corporation ("Seller"), in connection with the Redemption, Stock Purchase and
Recapitalization Agreement dated as of August [ ], 1999 (the "Agreement"),
between Seller and EAC II Inc., a Delaware corporation ("Purchaser"), relating
to, among other things, the purchase by Purchaser from Seller of 2,685,670
shares (the "Shares") of Common Stock, par value $.01 per share, of Weekly
Reader Corporation, a Delaware corporation ("WRC"). Capitalized terms used but
not otherwise defined herein are used as defined in the Agreement.
We have examined an executed copy of the Agreement, the
Shareholder's Agreement and the Services Agreement (collectively, the
"Agreements"). In addition, we have examined, and have relied as to matters of
fact upon, the documents delivered to you at the Closing, and upon originals or
copies, certified or otherwise identified to our satisfaction, of such corporate
records, agreements, documents and other instruments and such certificates or
comparable documents of public officials and of officers and representatives of
the Seller and the Companies, and have made such other and further
investigations, as we have deemed relevant and necessary as a basis for the
opinions hereinafter set forth.
In such examination, we have assumed the genuineness of all
signatures, the legal capacity of natural persons, the authenticity of all
documents submitted to us
<PAGE>
2
as originals, the conformity to original documents of all documents submitted to
us as certified or photostatic copies, and the authenticity of the originals of
such latter documents.
Based upon the foregoing, and subject to the qualifications
and limitations stated herein, we are of the opinion that:
1. Seller is a corporation duly incorporated, and is validly
existing and in good standing as a corporation under the laws of the State of
Delaware, and has full corporate power and authority to enter into the
Agreements and to consummate, or cause the consummation of, the transactions
contemplated thereby (including the Reorganization, the Charter Amendment, the
Note Purchase, the Preferred Stock Purchase, the Redemption and the Purchase).
WRC is a corporation duly organized, validly existing and in good standing under
the laws of the State of Delaware, and has the full corporate power and
authority to enter into the Agreements and to consummate the transactions
contemplated thereby and by the Agreement (including the Reorganization, the
Charter Amendment, the Note Purchase, the Preferred Stock Purchase, the
Redemption and the Purchase).
2. Each of the Companies organized in the State of Delaware
(the "Delaware Companies") is a corporation duly incorporated and is validly
existing and in good standing as a corporation under the laws of the State of
Delaware, and has full corporate power and authority to carry on its business as
currently conducted.
3. The execution, delivery and performance by Seller of the
Agreements, the execution, delivery and performance by WRC of the Agreements and
the consummation by Seller and the Delaware Companies of the Transactions
contemplated thereby have been duly authorized by all necessary corporate and
stockholder action of Seller and the Delaware Companies. Seller has duly
executed and delivered the Agreements and each of the Agreements constitutes
valid and legally binding obligations of Seller, enforceable against Seller in
accordance with their respective terms. WRC has duly executed the WRC Note and
the Agreements.
4. Except as provided in the Schedules to the Agreement,
assuming compliance with HSR, (a) the execution, delivery and performance of the
Agreements by Seller and the consummation of the Transactions (other than the
Reorganization, the Charter Amendment, the Note Purchase, the Preferred Stock
Purchase and the Redemption) by Seller
<PAGE>
3
does not, the execution, delivery and performance of the WRC Note, and the
Agreements by WRC do not, (A) constitute a breach or default under (or with or
without notice or lapse of time, or both would not constitute a breach or
default under) or give rise to a right of termination, cancelation or
acceleration of any obligation or to loss of a material benefit under, or to
increased, additional, accelerated or guaranteed rights or entitlement of any
person under, or result in the creation of any lien, claim, encumbrance,
security interest, option, charge or restriction of any kind upon any of the
properties or assets of the Seller or the Companies under any provision of, to
our knowledge, any Material Contract* and (B) violate (i) the Certificate of
Incorporation or by-laws of Seller or any of the Delaware Companies (in the case
of WRC, as amended by the Charter Amendment), (ii) any judgment, order or decree
known to us issued by any court or government body* or (iii) any Federal or New
York statute or the Delaware General Corporation Law, applicable to any of the
foregoing.
5. Except as provided in the Schedules to the Agreement,
assuming compliance with HSR, no consent, approval, authorization, order,
registration, or qualification of, or filing with, or exemption by, any Federal
or New York governmental agency or body or any Delaware governmental agency or
body acting pursuant to the Delaware General Corporation Law is required to be
obtained or made by or with respect to Seller or any Delaware Company to
authorize, or in connection with the execution, delivery or performance by
Seller or any Delaware Company of, the Agreements or the consummation of the
Transactions (other than the Reorganization, the Charter Amendment, the Note
Purchase, the Preferred Stock Purchase and the Redemption), other than those
that have been duly obtained or made and filings required solely by reason of
Purchaser's (as opposed to any other third party's) participation in the
Transactions.
6. The equity capitalization of WRC is as set forth on
Schedule 3.02 to the Agreement.* The Retained Shares and the Purchased Common
Shares have been duly and validly authorized and issued by WRC and are fully
paid and nonassessable.* All of the Retained Shares are registered in the name
of Seller.* There are no agreements, arrangements or understandings, identified
to us, restricting the right of Seller to sell, assign, transfer and deliver the
Retained Shares, other than the Shareholder's Agreement and Pledge Agreement (as
defined in
- --------
* To be given by PRIMEDIA.
<PAGE>
4
the Shareholder Agreement).* Upon payment for and delivery of the Purchased
Common Shares in accordance with the Agreement, Purchaser will acquire its
interest in the Purchased Common Shares free and clear of any adverse claim (as
defined in Section 8-102(a) of the New York Uniform Commercial Code). The
Purchased Preferred Shares are duly authorized and upon payment for and delivery
of the Purchased Preferred Shares in accordance with the Agreement the Purchased
Preferred Shares shall be validly issued, fully paid and non-assessable.
In expressing our opinion in the penultimate sentence of
paragraph 6, we have assumed that Purchaser has no notice (as defined in Section
8-105 of the New York Uniform Commercial Code) of an adverse claim.
Our opinions in paragraph 3 above are subject to (i) the
effects of bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and other similar laws relating to or affecting creditors' rights
generally, (ii) general equitable principles (whether considered in a proceeding
in equity or at law) and (iii) an implied covenant of good faith and fair
dealing.
We express no opinion with respect to the effect of any
provision of the Agreements relating to indemnification or exculpation in
connection with violations of any securities laws or relating to
indemnification, contribution or exculpation in connection with willful,
reckless or criminal acts or gross negligence of the indemnified or exculpated
Person or the Person receiving contribution.
We are members of the Bar of the State of New York and we do
not express any opinion herein concerning any law other than the laws of the
State of New York, the Federal laws of the United States of America and the
General Corporation Law of the State of Delaware.
This opinion letter is rendered to you in connection with the
above described transactions. This opinion letter may not be relied upon by you
for any other purpose, or relied upon by, or furnished to, any other person,
firm or corporation without our prior written consent.
Very truly yours,
<PAGE>
EXHIBIT D
[Letterhead of]
CRAVATH, SWAINE & MOORE
[New York Office]
[ ], 1999
REDEMPTION, STOCK PURCHASE AND
RECAPITALIZATION AGREEMENT
Dear Sirs:
We have acted as counsel to EAC II Inc., a Delaware
corporation ("Purchaser"), in connection with the Redemption, Stock Purchase and
Recapitalization Agreement dated as of August [ ], 1999 (the "Agreement"),
between Purchaser and PRIMEDIA Inc., a Delaware corporation ("Seller"), relating
to, among other things, the purchase by Purchaser from Seller of 2,685,670
shares (the "Shares") of Common Stock, par value $.01 per share, of Weekly
Reader Corporation, a Delaware corporation ("WRC"). Capitalized terms used but
not otherwise defined herein are used as defined in the Agreement.
In that connection, we have examined originals, or copies
certified or otherwise identified to our satisfaction, of such documents,
corporate records and other instruments as we have deemed necessary or
appropriate for the purposes of this opinion.
Based upon the foregoing, we are of opinion as follows:
1. Based solely on a certificate from the Secretary of State
of the State of Delaware, Purchaser is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware, and has
the full corporate power and authority to enter into the Agreement and the
Purchaser's Additional Agreements and to consummate the transactions
contemplated thereby.
2. The execution, delivery and performance by Purchaser of the
Agreement and Purchaser's Additional
<PAGE>
2
Agreements and the consummation by Purchaser of the transactions contemplated
thereby have been duly authorized by all necessary corporate and stockholder
action of Purchaser. Purchaser has duly executed and delivered the Agreement and
each of Purchaser's Additional Agreements, and the Agreement and each of the
Purchaser's Additional Agreements constitute legal, valid and binding
obligations of Purchaser, enforceable against Purchaser in accordance with their
respective terms, subject to bankruptcy, insolvency, reorganization, moratorium,
fraudulent transfer and other similar laws relating to or affecting creditors
rights generally from time to time in effect and to general principles of equity
(including, without limitation, concepts of materiality, reasonableness, good
faith and fair dealing), regardless of whether considered in a proceeding in
equity of at law.
3. No authorization, approval or other action by, and no
notice to, consent of, order or filing with, any United States Federal or New
York or, to the extent required under the General Corporation Law of the State
of Delaware (the "DGCL"), Delaware governmental authority is required to be
obtained or made by or with respect to Purchaser to authorize, or in connection
with the execution, delivery or performance of, the Agreement or Purchaser's
Additional Agreements or the consummation of the transactions contemplated
thereby, other than those that have been duly obtained or made and filings
required solely by reason of Seller's or any Company's (as opposed to any other
third party's) participation in the transactions contemplated thereby.
4. Except as set forth on the Schedules to the Agreement,
assuming compliance with HSR, the execution, delivery and performance of the
Agreement do not, the execution, delivery and performance of each Purchaser
Additional Agreement will not, and the consummation by Purchaser of the
transactions contemplated thereby and compliance by Purchaser with the terms and
provisions thereof will not, conflict with, result in a breach of or constitute
a default under (a) the Certificate of Incorporation or By-laws of the
Purchaser, (b) the DGCL or any law, rule or regulation of the United States of
America or the State of New York, or (c) any material agreement of Purchaser
identified in the attached certificate of an officer of Purchaser.
We are admitted to practice only in the State of New York and
express no opinion as to matters governed by any laws other than the laws of the
State of New York, the
<PAGE>
3
Federal laws of the United States of America and the General Corporation Law of
the State of Delaware.
This opinion is rendered only to you and is solely for your
benefit in connection with the transactions contemplated by the Agreement. This
opinion may not be relied on by any other person or for any other purpose, or
used, circulated, quoted or otherwise referred to for any other purpose.
Very truly yours,
PRIMEDIA Inc.
745 Fifth Avenue
New York, NY 10151
<PAGE>
AMENDMENT NO. 1 TO REDEMPTION, STOCK PURCHASE AND
RECAPITALIZATION AGREEMENT
AMENDMENT NO. 1 dated as of October 26, 1999
(this "Amendment"), to the Redemption, Stock Purchase
and Recapitalization Agreement dated as of August 13,
1999 (the "Agreement"), between PRIMEDIA Inc., a
Delaware corporation ("Seller"), and WRC Media Inc.
(formerly known as EAC II Inc.), a Delaware
corporation ("Purchaser").
WHEREAS Seller and Purchaser recognize that the Closing will
not occur on or prior to October 31, 1999, as contemplated in the Agreement, and
wish to extend the date of termination of the Agreement; and
WHEREAS Seller and Purchaser wish to reduce the amount of
certain payments to be made by Purchaser to Seller on the Closing Date; and to
clarify certain other matters under the Agreement.
NOW, THEREFORE, the parties hereby agree as follows:
1. Unless otherwise defined herein, terms which are defined in
the Agreement and used herein are so used as so defined.
2. The third WHEREAS clause of the Agreement is hereby amended
by deleting the word "converted" and substituting in replacement thereof the
word "split".
3. The fourth WHEREAS clause of the Agreement is hereby
amended by deleting the amount "$138,400,000" and substituting in replacement
thereof the amount "$112,362,500".
4. The fifth WHEREAS clause of the Agreement is hereby amended
by deleting the amount "$94,000,000" and substituting in replacement thereof the
amount "$100,000,000".
5. The seventh WHEREAS clause of the Agreement is hereby
amended by inserting the word "Term" immediately before the word "Borrowing".
6. Section 1.01(a) of the Agreement is hereby amended by
deleting the amount "$138,400,000" and
<PAGE>
2
substituting in replacement thereof the amount "$112,362,500".
7. Section 1.01(c) of the Agreement is hereby amended by
deleting the amount "$65,000,000" and substituting in replacement thereof the
amount "$75,000,000".
8. The first sentence of Section 1.01(d) of the Agreement is
hereby amended by deleting the amount $297,400,000" and substituting in
replacement thereof the amount "$287,362,500".
9. Section 1.01(e) of the Agreement is hereby amended by
deleting the amount "$111,600,000 and substituting in replacement thereof the
amount "$107,637,500".
10. Section 3.05 of the Agreement is hereby amended by
inserting at the end thereof the sentence "Notwithstanding anything in this
Agreement to the contrary, "Material Adverse Effect" shall not include the
matters referred to on SCHEDULE 3.05 attached hereto.".
11. Section 3.16 of the Agreement is hereby amended by
inserting after the second sentence and before the third sentence thereof the
sentence "Notwithstanding anything in this Agreement to the contrary, "material
adverse change" shall not include the matters referred to on SCHEDULE 3.05
attached hereto.".
12. Section 4.09 of the Agreement is hereby amended by
deleting such section in its entirety and substituting in replacement thereof
"4.09 FINANCIAL ABILITY. Purchaser has the debt financing and equity commitments
contained in SCHEDULE 4.09 attached hereto. True and correct copies of such debt
financing and equity commitments have been provided to Seller. If the financing
described in such commitments is provided, such commitments are sufficient to
enable (a) Purchaser to consummate the acquisition of the WRC Note, the
Purchased Preferred Shares and the Purchased Common Shares as contemplated by
this Agreement and (b) WRC to consummate the Term Borrowing and enter into the
Revolving Facility. The financing required to consummate the transactions
contemplated by this Agreement is collectively referred to as the "Financing".".
13. Article IV of the Agreement is hereby amended by adding
thereto as Section 4.10 thereof "4.10 OWNERSHIP OF JLC LEARNING CORPORATION. As
of the date hereof, Purchaser is, and as of the Closing Date Purchaser will be,
the owner
<PAGE>
3
of all the shares of common stock of JLC Learning Corporation (it being
understood that all of such common stock is pledged to secure JLC Learning
Corporation's senior credit facilities under the Credit Agreement dated as of
July 13, 1999, by and among JLC Learning Corporation (formerly known as EAC I
Inc.), Bank of America, National Association, as Agent and as a lender, and the
lenders party thereto from time to time).".
14. Section 6.01(a) of the Agreement is hereby amended by
deleting clause (v) thereof in its entirety and substituting in replacement
thereof "(v) Purchaser and WRC shall have (A) obtained (1) $150 million in
proceeds from the sale of senior subordinated debt securities (the "Senior
Subordinated Debt Securities") or, in the absence of such sale, the funds
described in the commitment letter for the bridge facility (the "Bridge
Facility"), dated October 26, 1999, relating to the Senior Subordinated Debt
Securities, (2) the funds described in the commitment letter for the senior PIK
preferred stock, dated October 27, 1999, (3) the funds described in the
commitment letter for the senior secured credit facilities, dated October 26,
1999, (4) the funds described in the commitment letter from SG Capital Partners
LLC, dated October 26, 1999, and (5) the funds described in the commitment
letter from Co-Investment Partners, L.P., dated October 26, 1999, in each case
on the terms set forth in such letters (as the same are contained in SCHEDULE
4.09 attached hereto) or (B) if such funds are not available on such terms,
obtained financing upon such other terms as are reasonably satisfactory to
Purchaser; PROVIDED, HOWEVER, that assuming all other conditions to Purchaser's
obligations to purchase and pay for the WRC Note, the Purchased Preferred Shares
and the Purchased Common Shares have been satisfied or waived, the condition set
forth in this Section 6.01(a)(v) shall be deemed to have been waived if
Ripplewood Partners, L.P. and/or Purchaser shall fail to use their respective
reasonable best efforts to consummate the Financing or such other financing;".
15. Section 9.01 of the Agreement is hereby amended by
deleting clause (b) thereof in its entirety and substituting in replacement
thereof the phrase "(b) by either party by written notice to the other party if
the Closing Date shall not have occurred on or before November 19, 1999 (the
"Termination Date"); PROVIDED, HOWEVER, that if Purchaser shall have given
written notice to Seller on or prior to November 19, 1999, that Purchaser
intends to finance a portion of its obligations hereunder through the Bridge
Facility, then the Termination Date shall be deemed to be December 3, 1999,".
<PAGE>
4
16. Section 9.01 of the Agreement is hereby amended by
deleting the phrase "by Seller after sixty (60) days from the date hereof if
Purchaser shall have not delivered a reconfirmation of the commitments and
highly confident letter referred to in Section 4.09, which reconfirmation shall
be dated no earlier than fifty-five (55) days from the date hereof," contained
in clause (c) thereof and substituting in replacement thereof "by Seller by
written notice to Purchaser if Purchaser shall not have delivered to Seller at
or prior to 5:00 p.m., New York time, on Tuesday, November 2, 1999, the forms of
the Stockholders' Agreement and Subscription Agreement referred to in the equity
commitment letter dated October 26, 1999, from SG Capital Partners LLC to
Ripplewood Holdings L.L.C., the terms of which the parties thereto have agreed
in writing to Seller are satisfactory.".
17. The Agreement is hereby amended by adding thereto as
SCHEDULE 3.05 and SCHEDULE 4.09 the items contained in Annex 1 and Annex 2,
respectively, attached hereto, and the Agreement is hereby further amended by
deleting SCHEDULE 8.06 and Exhibit B in their entirety and substituting in
replacement thereof the items contained in Annex 3 and Annex 4, respectively,
attached hereto.
18. Except as amended hereby, the Agreement shall continue in
full force and effect in accordance with its terms.
19. This Amendment No. 1 to the Agreement shall be governed
by, and construed and enforced in accordance with, the internal laws of the
State of New York.
20. This Amendment No. 1 to the Agreement may be executed in
counterparts, each of which shall be an original and all of which, when taken
together, shall constitute one agreement.
<PAGE>
5
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment No. 1 to the Agreement to be executed as of the date first written
above.
PRIMEDIA INC.,
by /s/ Beverly C. Chell
---------------------------
Name: Beverly C. Chell
Title:
WRC MEDIA INC.,
by
---------------------------
Name:
Title:
<PAGE>
6
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment No. 1 to the Agreement to be executed as of the date first written
above.
PRIMEDIA INC.,
by
---------------------------
Name:
Title:
WRC MEDIA INC.,
by /s/ Charles Laurey
---------------------------
Name: Charles Laurey
Title:
<PAGE>
EXECUTION COPY
AMENDMENT NO. 2 TO REDEMPTION, STOCK PURCHASE AND
RECAPITALIZATION AGREEMENT
AMENDMENT NO. 2, dated as of November 10,
1999 (this "Amendment"), to the Redemption, Stock
Purchase and Recapitalization Agreement, dated as of
August 13, 1999, between PRIMEDIA Inc., a Delaware
corporation ("Seller"), and WRC Media Inc. (formerly
known as EAC II Inc.), a Delaware corporation
("Purchaser"), as amended by Amendment No. 1 thereto
dated as of October 26, 1999, between Seller and
Purchaser (as so amended, the "Agreement").
WHEREAS Seller and Purchaser wish to clarify certain matters
under the Agreement.
NOW, THEREFORE, the parties hereby agree as follows:
1. Unless otherwise defined herein, terms which are defined in
the Agreement and used herein are so used as so defined.
2. The third WHEREAS clause of the Agreement is hereby amended
by (a) deleting clause (a)(i) thereof in its entirety and substituting in
replacement thereof "(i) 21,000,000 shares of common stock, par value $.01 per
share, of which 20,000,000 shares shall be designated "Common Stock" (the "WRC
Common Stock") and 1,000,000 shares shall be designated "Non-Voting Common
Stock" (the "WRC Non-Voting Common Stock") and" and (b) deleting the number
"5,000,000" in clause (a)(ii) thereof and substituting in replacement thereof
"20,000,000".
3. The fourth WHEREAS clause of the Agreement is hereby
amended by deleting it in its entirety and substituting in replacement thereof:
"WHEREAS, Purchaser and Seller desire WRC (a) to
issue and sell, jointly and severally with Purchaser and JLC Learning
Corporation ("JLC"), senior subordinated debt securities in an
aggregate principal amount of $152,000,000 and having such terms as may
be designated by Purchaser (the "Senior Subordinated Debt Securities")
or (b) in the absence of such issuance and sale, to issue and sell,
together with Purchaser and JLC, senior subordinated increasing rate
notes in an aggregate principal amount of $150,000,000 (the "Bridge
<PAGE>
2
Notes") to the providers of financing and on the terms described in the
commitment letter for the Bridge Notes dated October 26, 1999;".
4. The sixth WHEREAS clause of the Agreement is hereby amended
by deleting the number "1,000,000" and substituting in replacement thereof
"3,000,000".
5. The seventh WHEREAS clause of the Agreement is hereby
amended by deleting the phrase "the proceeds from the issuance of the WRC Note
and the WRC Preferred Stock to Purchaser and the Term Borrowing" and
substituting in replacement thereof the phrase "$112,362,500 of the proceeds of
the sale of the Senior Subordinated Debt Securities (or, if applicable, the
Bridge Notes), the proceeds of the issuance of the WRC Preferred Stock to
Purchaser and the proceeds of the Term Borrowing".
6. Section 1.01 of the Agreement is hereby amended by deleting
clause (a) thereof in its entirety and substituting in replacement thereof:
"(a) WRC shall (i) issue and sell, jointly and
severally with Purchaser and JLC, the Senior Subordinated Debt
Securities (the "Senior Subordinated Debt Offering") and $112,362,500
of the proceeds of such sale shall be paid to WRC (the "Senior
Subordinated Debt Proceeds") and the balance of the proceeds of such
sale shall be paid to Purchaser, or (ii) in the absence of such
issuance and sale, issue and sell, together with Purchaser and JLC, the
Bridge Notes (the "Bridge Offering") and $112,362,500 of the proceeds
of such sale shall be paid to WRC (the "Bridge Proceeds") and the
balance of the proceeds of such sale shall be paid to Purchaser, in
each case on the terms and subject to the conditions set forth
herein;".
7. Section 2.01(a) of the Agreement is hereby amended by
deleting clauses (i) and (ii) thereof in their entirety and substituting in
replacement thereof "(i) Purchaser, WRC and JLC shall have consummated the
Senior Subordinated Debt Offering or the Bridge Offering, (ii) WRC shall have
received the Senior Subordinated Debt Proceeds or the Bridge Proceeds,".
8. Section 2.01(b) of the Agreement is hereby amended by
deleting clause (ii) thereof in its entirety and substituting in replacement
thereof "(ii) WRC, Purchaser and JLC shall consummate the Senior Subordinated
Debt Offering or the Bridge Offering (as part of which WRC shall receive
<PAGE>
3
the Senior Subordinated Debt Proceeds or the Bridge Proceeds),".
9. Section 3.01 of the Agreement is hereby amended by deleting
the phrase "the Note Purchase," in each place where it appears and substituting
in replacement thereof "the Senior Subordinated Debt Offering (with respect only
to WRC), the Bridge Offering (with respect only to WRC),".
10. Section 3.02(a) of the Agreement is hereby amended by (a)
deleting the phrase "and the Retained Shares" in the third sentence thereof and
substituting in replacement thereof ", the Retained Shares and any shares of WRC
Common Stock and WRC Non-Voting Common Stock reserved for issuance upon the
exercise of the Warrants to purchase shares of WRC Common Stock or WRC
Non-Voting Common Stock (the "Warrants") to be issued pursuant to the Preferred
Stock and Warrants Subscription Agreement dated as of the Closing Date among the
Purchaser, WRC, JLC and the Buyers party thereto" and (b) inserting "and the
Warrants" after the phrase "Except for this Agreement" in the seventh sentence
thereof.
11. Section 3.04 of the Agreement is hereby amended by (a)
deleting the phrase "the WRC Note," in each place where it appears, (b) deleting
the phrase "the Note Purchase," and (c) deleting the phrase "(the
"Transactions")"
12. Section 3.05 of the Agreement is hereby amended by (a)
deleting the phrase "the WRC Note," in clause (a) thereof and substituting in
replacement thereof "the Senior Subordinated Debt Securities (or, if applicable,
the Bridge Notes) and the other documents executed in connection therewith", (b)
deleting the first reference to the phrase "the Transactions" in clause (a)
thereof and substituting in replacement thereof "the Reorganization, the Charter
Amendment, the Senior Subordinated Debt Offering (or, if applicable, the Bridge
Offering), the Term Borrowing, the entering into of the Revolving Facility, the
Preferred Stock Purchase, the Redemption and the Purchase (the "Transactions")"
and (c) deleting the phrase "the Note Purchase," in clause (b) thereof and
substituting in replacement thereof "the Senior Subordinated Debt Offering (or,
if applicable, the Bridge Offering)".
13. Section 3.06 of the Agreement is hereby amended by
deleting the phrase "the Note Purchase," and substituting in replacement thereof
"the Senior Subordinated Debt Offering (or, if applicable, the Bridge
Offering)".
<PAGE>
4
14. Section 3.24 of the Agreement is hereby amended by
deleting the phrase "the WRC Note," and substituting in replacement thereof "the
Senior Subordinated Debt Securities (or, if applicable, the Bridge Notes) and
the other documents executed in connection therewith".
15. Section 4.09 of the Agreement is hereby amended by
deleting the third sentence thereof and substituting in replacement thereof "If
the financing described in such commitments is provided, such commitments are
sufficient to enable (a) Purchaser to consummate the acquisition of the
Purchased Preferred Shares and the Purchased Common Shares as contemplated by
this Agreement, (b) WRC, Purchaser and JLC to consummate the Senior Subordinated
Debt Offering (or, if applicable, the Bridge Offering) and (c) WRC to consummate
the Term Borrowing and enter into the Revolving Facility.".
16. Section 5.01 of the Agreement is hereby amended by (a)
deleting the phrase "the WRC Note," and (b) inserting at the end thereof
"Purchaser shall bear its own expenses and the expenses of WRC incurred in
connection with the Financing.".
17. Section 5.08 (a)(vi) of the Agreement is hereby amended by
(a) deleting the phrase "the Note Purchase," and substituting in replacement
thereof "the Senior Subordinated Debt Offering (or, if applicable, the Bridge
Offering), the Term Borrowing and the Revolving Facility".
18. Section 6.01(a) of the Agreement is hereby amended by
deleting the phrase "the WRC Note," in the first clause thereof.
19. Section 6.01(a) of the Agreement is hereby amended by
deleting clause (v) in its entirety and substituting in replacement thereof:
"(v)(A)(1) WRC shall have received the Senior
Subordinated Debt Proceeds and Purchaser shall have received the
balance of the proceeds of the Senior Subordinated Debt Offering or, in
the absence of the Senior Subordinated Debt Offering, WRC shall have
received the Bridge Proceeds and Purchaser shall have received the
balance of the proceeds of the Bridge Offering, (2) Purchaser and WRC
shall have obtained the funds described in the commitment letter for
the senior PIK preferred stock, dated October 27, 1999, (3) Purchaser
and WRC shall have obtained the funds described in the commitment
letter for the senior
<PAGE>
5
secured credit facilities, dated October 26, 1999, (4) Purchaser and
WRC shall have obtained the funds described in the commitment letter
from SG Capital Partners LLC, dated October 26, 1999, and (5) Purchaser
and WRC shall have obtained the funds described in the commitment
letter from Co-Investment Partners, L.P., dated October 26, 1999, in
each case on the terms set forth in such letters (as the same are
contained in SCHEDULE 4.09 attached hereto) or (B) if such funds are
not available on such terms, Purchaser and WRC shall have obtained
financing upon such other terms as are reasonably satisfactory to
Purchaser; PROVIDED that, assuming all other conditions to Purchaser's
obligations to purchase and pay for the Purchased Preferred Shares and
the Purchased Common Shares have been satisfied or waived, the
condition set forth in this Section 6.01(a)(v) shall be deemed to have
been waived if Ripplewood Partners, L.P. and/or Purchaser shall fail to
use their respective reasonable best efforts to consummate the
Financing or such other financing;".
20. Section 6.01(b) of the Agreement is hereby amended by
deleting the phrase "the WRC Note and" in the first clause thereof.
21. Section 6.03 of the Agreement is hereby amended by
deleting the phrase "the WRC Note and".
22. Section 10.01 of the Agreement is hereby amended by
deleting the phrase "the WRC Note,".
23. Section 10.02 of the Agreement is hereby amended by
deleting the phrase "the WRC Note,".
24. Section 10.06 of the Agreement is hereby amended by
deleting the phrase "the WRC Note,".
25. The Agreement is hereby amended by deleting Exhibit B to
the Agreement in its entirety and substituting in replacement thereof Exhibit B
attached hereto.
26. Exhibit C to the Agreement is hereby amended by (a)
inserting the phrase "(now known as WRC Media Inc.)" immediately after the
phrase "EAC II Inc." in the first sentence thereof, (b) deleting the phrase "the
Note Purchase," in each place where it appears in paragraph 1 thereof and
substituting in replacement thereof "the Senior Subordinated Debt Offering (with
respect only to WRC), the Bridge Offering (with respect only to WRC),", (c)
inserting "(other than the Senior Subordinated Debt Offering and the
<PAGE>
6
Bridge Offering)" immediately after the phrase "the Transactions" in paragraph 3
thereof, (d) deleting the phrase "the WRC Note and" in paragraph 3 thereof, (e)
deleting the phrase "the Note Purchase," in paragraph 4 thereof and substituting
in replacement thereof "the Senior Subordinated Debt Offering (or, if
applicable, the Bridge Offering)", (f) deleting the phrase "the WRC Note," in
paragraph 4 thereof and substituting in replacement thereof "the Senior
Subordinated Debt Securities (or, if applicable, the Bridge Notes) and the other
documents executed in connection therewith" and (g) deleting the phrase "the
Note Purchase," in paragraph 5 thereof and substituting in replacement thereof
"the Senior Subordinated Debt Offering (or, if applicable, the Bridge
Offering)".
27. Except as amended hereby, the Agreement shall continue in
full force and effect in accordance with its terms.
28. This Amendment No. 2 to the Agreement shall be governed
by, and construed and enforced in accordance with, the internal laws of the
State of New York.
29. This Amendment No. 2 to the Agreement may be executed in
counterparts, each of which shall be an original and all of which, when taken
together, shall constitute one agreement.
<PAGE>
7
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment No. 2 to the Agreement to be executed as of the date first written
above.
PRIMEDIA INC.,
by /s/ Beverly C. Chell
---------------------------
Name: Beverly C. Chell
Title:
WRC MEDIA INC.,
by
---------------------------
Name:
Title:
<PAGE>
7
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment No. 2 to the Agreement to be executed as of the date first written
above.
PRIMEDIA INC.,
by
---------------------------
Name:
Title:
WRC MEDIA INC.,
by /s/ Charles Laurey
---------------------------
Name: Charles Laurey
Title:Secretary
<PAGE>
Exhibit 3.1
CERTIFICATE OF INCORPORATION
OF
EAC II Inc.
ARTICLE I
The name of the corporation (which is hereinafter referred to
as the "Corporation") is:
EAC II Inc.
ARTICLE II
The address of the Corporation's registered office in the
State of Delaware is c/o of RL&F Service Corp., One Rodney Square, 10th Floor,
Tenth and King Streets, City of Wilmington, County of New Castle, Delaware
19801. The name and address of the registered agent for service of process on
the Corporation is RL&F Service Corp., One Rodney Square, County of New Castle,
Delaware 19801.
ARTICLE III
The purpose for which the Corporation is organized is to
engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of the State of Delaware.
ARTICLE IV
The total number of shares of stock that the Corporation shall
have authority to issue is 1000 shares of Common Stock, par value of $0.01 per
share.
ARTICLE V
The name and mailing address of the incorporator is Michael B.
Kaplan, 825 8th Avenue, 45th Floor, New York, New York, 10019.
<PAGE>
ARTICLE VI
In furtherance and not in limitation of the powers conferred
upon it by law, the Board of Directors of the Corporation is expressly
authorized to adopt, amend or repeal the By-laws of the Corporation.
ARTICLE VII
Unless and except to the extent that the By-laws of the
Corporation so require, the election of directors of the Corporation need not be
by written ballot.
ARTICLE VIII
To the fullest extent permitted from time to time by law, no
director shall be personally liable to the Corporation or any of its
stockholders for monetary damages for breach of fiduciary duty as a director.
ARTICLE IX
The Corporation reserves the right at any time, and from time
to time, to amend, alter, change or repeal any provision contained in this
Certificate of Incorporation, and other provisions authorized by the laws of the
State of Delaware at the time in force may be added or inserted, in the manner
now or hereafter prescribed by law, and all rights, preferences and privileges
of whatsoever nature conferred upon stockholders, directors or any other persons
whomsoever by and pursuant to this Certificate of Incorporation in its present
form or as hereafter amended are granted subject to the rights reserved in this
article.
IN WITNESS WHEREOF, I, Michael B. Kaplan, the Sole
Incorporator of EAC II Inc. have executed this Certificate of Incorporation this
14th day of May, 1999, and DO HEREBY CERTIFY under the penalties of perjury that
this instrument is my act and deed and that the facts stated herein are true.
---------------------------------
Michael B. Kaplan
Incorporator
<PAGE>
CERTIFICATE OF AMENDMENT
of
CERTIFICATE OF INCORPORATION
of
EAC II Inc.
PURSUANT TO SECTION 241 OF THE GENERAL
CORPORATION LAW OF THE STATE OF DELAWARE
EAC II Inc. (the "Corporation"), a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware (the "DGCL"),
DOES HEREBY CERTIFY AS FOLLOWS:
FIRST. That the Board of Directors of the Corporation by
unanimous written consent duly executed in accordance with Section 141(f) of the
General Corporation Law of the State of Delaware has duly adopted a resolution
amending the Certificate of Incorporation of the Corporation and has declared
such amendment to be advisable. Pursuant to said resolution, ARTICLE IV of the
Certificate of Incorporation of the Corporation shall be amended to read in its
entirety as follows:
"ARTICLE IV
SECTION I: The total number of shares of stock that the
Corporation shall have authority to issue is 3,000,000 shares of Common Stock,
par value $0.01 per share.
SECTION II: In the event the Corporation issues warrants or
other rights entitling the holder thereof to acquisitions of Common Stock, such
warrants or other rights may provide as one of the terms thereof that the
holders thereof shall be deemed to be stockholders, and that their warrants or
other rights shall be deemed to be shares of stock for any purpose which
requires the vote of the stockholders as a prerequisite to any corporate
action."
SECOND. That the Corporation has not received any payment for
any of its stock.
<PAGE>
THIRD. That said amendment was duly adopted in
accordance with the provisions of Section 241 of the DGCL.
IN WITNESS WHEREOF, this Certificate of Amendment has been
made under the seal of the Corporation and has been signed by the undersigned,
Timothy C. Collins, President of the Corporation, and attested to by Charles L.
Laurey, Secretary of the Corporation, this 30th day of June, 1999.
----------------------------
Name: Timothy C. Collins
Title: President
[Seal]
ATTEST:
- ----------------------------------
Name: Charles L. Laurey
Title: Secretary
<PAGE>
CERTIFICATE OF AMENDMENT
of
CERTIFICATE OF INCORPORATION
of
EAC II Inc.
Pursuant to Section 242 of the General
Corporation Law of the State of Delaware
EAC II Inc. (the "Corporation"), a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware (the"DGCL"),
DOES HEREBY CERTIFY AS FOLLOWS:
FIRST. That the Board of Directors of the Corporation by
unanimous written consent duly executed in accordance with Section 141(f) of the
General Corporation Law of the State of Delaware has duly adopted a resolution
setting forth a proposed amendment to the Certificate of Incorporation of the
Corporation, declaring such amendment to be advisable and declaring that it is
advisable that the stockholders of the Corporation adopt resolutions approving
such amendment. Pursuant to the proposed amendment, ARTICLE I of the Certificate
of Incorporation of the Corporation shall be amended to read in its entirety as
follows:
"ARTICLE I
The name of the corporation (the "Corporation") is WRC Media
Inc."
SECOND. That thereafter the foregoing amendment was approved
by a majority of the stockholders of the Corporation.
<PAGE>
THIRD. That said amendment was duly adopted in accordance with
the provisions of Sections 228 and 242 of the DGCL.
IN WITNESS WHEREOF, this Certificate of Amendment has been
made under the seal of the Corporation and has been signed by the undersigned,
Timothy C. Collins, President of the Corporation, and attested to by Charles L.
Laurey, Secretary of the Corporation, this 28th day of October, 1999.
-----------------------------
Name: Timothy C. Collins
Title: President
[Seal]
ATTEST:
- ----------------------------
Name: Charles L. Laurey
Title: Secretary
<PAGE>
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
WRC MEDIA INC.
WRC Media Inc. (the "Corporation"), a corporation organized
and existing under and by virtue of the General Corporation Law of the State of
Delaware (the "DGCL"),
DOES HEREBY CERTIFY AS FOLLOWS:
FIRST. That the Board of Directors of the Corporation by
unanimous written consent duly executed in accordance with Section 141(f) of the
General Corporation Law of the State of Delaware has duly adopted a resolution
setting forth a proposed amendment to the Certificate of Incorporation of the
Corporation and declaring such amendment to be advisable. Pursuant to the
proposed amendment, ARTICLE IV of the Certificate of Incorporation of the
Corporation shall be amended to read in its entirety as follows:
"ARTICLE IV
SECTION 1. Shares, Classes and Series Authorized.
(a) The aggregate number of shares which the Corporation shall
have authority to issue is 40,000,000 consisting of (1) 20,000,000
shares of Common Stock, par value $0.01 per share, and (2) 20,000,000
shares of Preferred Stock, par value $0.01 per share.
SECTION 2. Powers and Rights of the Common Stock.
(a) VOTING RIGHTS. Except as otherwise provided in this
Certificate of Incorporation or required by law, with respect to all
matters upon which stockholders are entitled to vote, the holders of
the outstanding shares of Common Stock shall vote together with the
holders of any other outstanding shares of capital stock of the
Corporation entitled to vote, without regard to class, and every holder
of outstanding shares of Common Stock shall be entitled to cast thereon
one vote in person or by proxy for each share of Common Stock standing
in his name.
<PAGE>
2
(b) DIVIDENDS. Subject to the rights and preferences of the
Preferred Stock set forth in this Article IV and in any resolution or
resolutions providing for the issuance of such stock as set forth in
Section 3 of this Article IV, the holders of outstanding shares of
Common Stock shall be entitled to receive ratably such dividends as may
from time to time be declared by the Board of Directors out of funds
legally available therefor.
(c) DISTRIBUTION OF ASSETS UPON LIQUIDATION. In the event the
Corporation shall be liquidated, dissolved or wound up, whether
voluntarily or involuntarily, after there shall have been paid or set
aside for the holders of all shares of the Preferred Stock then
outstanding the full preferential amounts to which they are entitled
under the resolutions authorizing the issuance of such Preferred Stock,
the net assets of the Corporation remaining thereafter shall be divided
ratably among the holders of the Common Stock.
SECTION 3. Powers and Rights of the Preferred Stock.
The Preferred Stock may be issued from time to time in one or
more series, with such distinctive serial designations as may be stated or
expressed in the resolution or resolutions providing for the issuance of such
stock adopted from time to time by the Board of Directors, and in such
resolution or resolutions providing for the issuance of shares of each
particular series, the Board of Directors is also expressly authorized to fix:
the right to vote, if any; the consideration for which the shares of such series
are to be issued; the liquidation preference of the shares of such series; the
number of shares constituting such series, which number may be increased (except
as otherwise fixed by the Board of Directors) or decreased (but not below the
number of shares thereof then outstanding) from time to time by action of the
Board of Directors; the rate of dividends upon which and the times at which
dividends on shares of such series shall be payable and the preference, if any,
which such dividends shall have relative to dividends on shares of any other
class or classes or any other series of stock of the Corporation; whether such
dividends shall be cumulative or noncumulative, and, if cumulative, the date or
dates from which dividends on shares of such series shall be cumulative; the
rights, if any, which the holders of shares of such series shall have with
respect to the issuance of parity or senior securities of the Corporation; the
rights, if any, which the holders of
<PAGE>
3
shares of such series shall have in the event of any change of control or
voluntary or involuntary liquidation, merger, consolidation, distribution or
sale of assets, dissolution or winding up of the affairs of the Corporation; the
rights, if any, which the holders of shares of such series shall have to covert
such shares into or exchange such shares for shares of any other class or
classes or any other series of stock of the Corporation or for any debt
securities of the Corporation and the terms and conditions, including price and
rate of exchange, of such conversion or exchange; whether the shares of such
series shall be subject to exchange by the Corporation and the terms and
conditions of such exchange; whether shares of such series shall be subject to
redemption, and the redemption price or prices and other terms of redemption, if
any, for shares of such series including, without limitation, a redemption price
or prices payable in shares of Common Stock; the terms and amounts of any
sinking fund for the purchase or redemption of shares of such series; and any
and all other powers, preferences and relative, participating, optional or other
special rights and qualifications, limitations or restrictions thereof
pertaining to shares of such series permitted by law.
SECTION 4. Issuance of Common Stock and Preferred Stock.
The Board of Directors of the Corporation may from time to
time authorize by resolution the issuance of any or all shares of Common Stock
and Preferred Stock herein authorized in accordance with the terms and
conditions set forth in this Certificate of Incorporation for such purposes, in
such amounts, to such natural persons or entities, for such consideration, and
in the case of the Preferred Stock, in one or more series, all as the Board of
Directors in its discretion may determine and without any vote or other action
by any of the stockholders of the Corporation, except as otherwise required by
law.
SECTION 5. In the event the Corporation issues warrants or
other rights entitling the holder thereof to acquisitions of Common Stock, such
warrants or other rights may provide as one of the terms thereof that the
holders thereof shall be deemed to be stockholders, and that their warrants or
other rights shall be deemed to be shares of stock for any purpose which
requires the vote of the stockholders as a prerequisite to any corporate
action."
SECOND. That thereafter the foregoing amendment was approved
by a majority of the stockholders of the Corporation.
<PAGE>
4
THIRD. That said amendment was duly adopted in accordance with
the provisions of Sections 228 and 242 of the DGCL.
IN WITNESS WHEREOF, the Corporation has caused this
Certificate of Amendment to the Certificate of Incorporation of the Corporation
to be signed by Charles L. Laurey, Secretary of the Corporation, this 16th day
of November, 1999.
By
------------------------------
Name: Charles L. Laurey
Title: Secretary
<PAGE>
Exhibit 3.2
BY-LAWS
of
EAC II Inc.
(hereinafter called the "Corporation")
ARTICLE I
MEETINGS OF STOCKHOLDERS
SECTION 1. PLACE OF MEETINGS. Meetings of the stockholders
shall be held at such place, either within or without the State of Delaware, as
shall be designated from time to time by the Board of Directors or the
Chairperson of the Board of Directors, if any, and stated in the notice of the
meeting or in a duly executed waiver of notice thereof.
SECTION 2. ANNUAL MEETINGS. The annual meetings of the
stockholders shall be held on such date and at such time as shall be designated
from time to time by the Board of Directors and stated in the notice of the
meeting, at which meetings the stockholders shall transact such business as may
be properly brought before the meeting. Written notice of each annual meeting
stating the place, date and hour of the meeting shall be given to each
stockholder entitled to vote at such meeting not less than 10 nor more than 60
days before the date of the meeting.
SECTION 3. SPECIAL MEETINGS. Unless otherwise prescribed by
law or by the Certificate of Incorporation, special meetings of stockholders,
for any purpose or purposes, may be called at any time by the Board of
Directors. Written notice of a special meeting stating the place, date and hour
of the meeting and the purpose or purposes for which the meeting is called shall
be given not less than 10 nor more than 60 days before the date of the meeting
to each stockholder entitled to vote at such meeting.
SECTION 4. QUORUM. Except as otherwise provided by law or by
the Certificate of Incorporation, the holders of a majority of the capital stock
issued and outstanding and entitled to vote thereat, present in person or
represented by proxy, shall constitute a quorum at all meetings of the
stockholders for the transaction of business. If, however, such quorum shall not
be present or represented at any meeting of the stockholders, the stockholders
entitled to vote thereat, present in person or represented by proxy, shall have
power to adjourn the
<PAGE>
2
meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present or represented. At such adjourned
meeting at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally
noticed. If the adjournment is for more than 30 days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder entitled to vote at the
meeting.
SECTION 5. VOTING. Unless otherwise required by law, the
Certificate of Incorporation or these By-Laws, any question brought before any
meeting of stockholders shall be decided by the vote of the holders of a
majority of the stock represented and entitled to vote thereat. Each stockholder
represented at a meeting of stockholders shall be entitled to cast one vote for
each share of the capital stock entitled to vote thereat held by such
stockholder. Such votes may be cast in person or by proxy but no proxy shall be
voted on or after three years from its date, unless such proxy provides for a
longer period. The Board of Directors, in its discretion, or the officer of the
Corporation presiding at a meeting of stockholders, in such officer's
discretion, may require that any votes cast at such meeting be cast by written
ballot.
SECTION 6. CONSENT OF STOCKHOLDERS IN LIEU OF MEETING. Unless
otherwise provided in the Certificate of Incorporation, any action required by
law to be taken at any annual or special meeting of stockholders of the
Corporation, or any action which may be taken at any annual or special meeting
of stockholders of the Corporation, may be taken without a meeting, without
prior notice and without a vote, if a consent or consents in writing, setting
forth the action so taken, shall be signed by the holders of outstanding stock
entitled to vote thereon having not less than the minimum number of votes that
would be necessary to authorize or take such action at a meeting at which all
shares entitled to vote thereon were present and voted and shall be delivered to
the Corporation by delivery to its registered office in the State of Delaware,
its principal place of business, or an officer or agent of the Corporation
having custody of the book in which proceedings of meetings of stockholders are
recorded. Delivery made to the Corporation's registered office shall be by hand
or by certified or registered mail, return receipt requested. Prompt notice of
the taking of the corporate action without a meeting by less than unanimous
written consent shall be given to those stockholders who have not consented in
writing and who, if the action had been taken at a meeting,
<PAGE>
3
would have been entitled to notice of the meeting if the record date for such
meeting had been the date that written consents signed by a sufficient number of
holders to take the action were delivered to the Corporation. In the event that
the action which is consented to is such as would have required the filing of a
certificate under the Delaware General Corporation Law (the "DGCL"), if such
action had been voted on by stockholders at a meeting thereof, the certificate
filed shall state, in lieu of any statement concerning any vote of stockholders,
that written consent has been given as provided in this Section 6.
SECTION 7. MEETING BY MEANS OF CONFERENCE TELEPHONE. Unless
otherwise provided by the Certificate of Incorporation or these By-Laws, any
stockholder may participate in a meeting of the stockholders by means of a
conference telephone or similar communications equipment that enables all
persons participating in the meeting to hear each other, and participation in a
meeting pursuant to this Section 7 shall constitute presence in person at such
meeting.
SECTION 8. LIST OF STOCKHOLDERS ENTITLED TO VOTE. The officer
who has charge of the stock ledger of the Corporation shall prepare and make, at
least ten days before every meeting of stockholders, a complete list of the
stockholders entitled to vote at the meeting, arranged in alphabetical order,
and showing the address of each stockholder and the number of shares registered
in the name of each stockholder. Such list shall be open to examination by any
stockholder, for any purpose germane to the meeting, during ordinary business
hours, for a period of at least ten days prior to the meeting, either at a place
within the city where the meeting is to be held, which place shall be specified
in the notice of the meeting, or, if not so specified, at the place where the
meeting is to be held. The list shall also be produced and kept at the time and
place of the meeting during the whole time thereof, and may be inspected by any
stockholder of the Corporation who is present. Upon the wilful neglect or
refusal of the directors to produce such a list at any meeting for the election
of directors, they shall be ineligible for election to any office at such
meeting.
SECTION 9. STOCK LEDGER. The stock ledger of the Corporation
shall be the only evidence as to who are the stockholders entitled to examine
the stock ledger, the list of stockholders or the books of the Corporation, or
to vote in person or by proxy at any meeting of stockholders.
<PAGE>
4
ARTICLE II
DIRECTORS
SECTION 1. NUMBER AND QUALIFICATIONS OF DIRECTORS. The number
of members constituting the Board of Directors shall be determined from time to
time by resolutions adopted by a majority of the entire Board. Directors need
not be stockholders or citizens or residents of the United States of America.
Each of the directors of the Corporation shall hold office until such director's
resignation or removal in the manner hereinafter provided.
SECTION 2. ELECTION; RESIGNATIONS. The Board of Directors
shall initially consist of the persons elected by the sole incorporator of the
Corporation, and each director shall hold office until the first annual meeting
of stockholders or until such director's successor is duly elected and
qualified. At the first annual meeting of stockholders and at each annual
meeting thereafter, the stockholders shall elect directors each of whom shall
hold office for a term of one year or until such director's successor is duly
elected and qualified, subject to such director's earlier death, resignation,
disqualification or removal. Any director may resign at any time. Such
resignation shall be made in writing, and shall take effect at the time
specified therein, and if no time be specified, at the time of its receipt by
the Chairperson of the Board, if any, the President or the Secretary. The
acceptance of a resignation shall not be necessary to make it effective.
SECTION 3. REMOVAL. Any director or directors may be removed
either for or without cause at any time by the affirmative vote of the holders
of a majority of all the shares of stock outstanding and entitled to vote for
the election of directors, at a regular meeting or a special meeting called for
that purpose, and the vacancy thus created may be filled, at such meeting, by
the affirmative vote of holders of a majority of all the shares of stock
outstanding and entitled to vote.
SECTION 4. VACANCIES. Any newly created directorship or any
vacancy occurring in the Board of Directors for any cause may be filled by a
majority of the directors then in office, though less than a quorum, or by a
sole remaining director, and the directors so chosen shall hold office until
their earlier resignation or removal.
SECTION 5. DUTIES AND POWERS. The business of the
Corporation shall be managed by or under the direction of the Board of
Directors which may exercise all such powers
<PAGE>
5
of the Corporation and do all such lawful acts and things as are not by law or
by the Certificate of Incorporation or by these By-Laws conferred upon or
reserved to the stockholders; PROVIDED, HOWEVER, that any action taken by the
Board of Directors shall be subject to reversal in the event of a contrary vote
by the Corporation's stockholders.
SECTION 6. MEETING. The Board of Directors of the Corporation
may hold meetings, both regular and special, either within or without the State
of Delaware. Regular meetings of the Board of Directors may be held without
notice at such time and at such place as may from time to time be determined by
the Board of Directors. Special meetings of the Board of Directors may be called
by the Chairperson of the Board if any, the President, or any two or more
directors. Notice thereof stating the place, date and hour of the meeting shall
be given to each director not less than 24 hours before the date of the meeting,
or on such shorter notice as the person or persons calling such meeting may deem
necessary or appropriate in the circumstances.
SECTION 7. QUORUM. Except as may be otherwise specifically
provided by law, the Certificate of incorporation or these By-Laws, at all
meetings of the Board of Directors, a majority of the entire Board of Directors
then in office shall constitute a quorum for the transaction of business and the
act of a majority of the directors present at any meeting at which there is a
quorum shall be the act of the Board of Directors. If a quorum shall not be
present at any meeting of the Board of Directors, the directors present thereat
may adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present.
SECTION 8. ACTIONS OF BOARD. Unless otherwise provided by the
Certificate of Incorporation or these By-Laws, any action required or permitted
to be taken at any meeting of the Board of Directors may be taken without a
meeting, if all the members of the Board of Directors consent thereto in
writing, and such writing is filed with the minutes of proceedings of the Board
of Directors.
SECTION 9. MEETING BY MEANS OF CONFERENCE TELEPHONE. Unless
otherwise provided by the Certificate of Incorporation or these By-Laws, members
of the Board of Directors of the Corporation may participate in a meeting of the
Board of Directors by means of a conference telephone or similar communications
equipment that enables all persons participating in the meeting to hear each
other, and
<PAGE>
6
participation in a meeting pursuant to this Section 9 shall constitute presence
in person at such meeting.
SECTION 10. COMMITTEES. The Board of Directors may designate
one or more committees, each committee to consist of one or more of the
directors of the corporation. The Board of Directors may designate one or more
directors as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee. In the absence or
disqualification of a member of the committee, the member or members present at
any meeting and not disqualified from voting, whether or not such member or
members constitute a quorum, may unanimously appoint another member of the Board
of Directors to act at the meeting in the place of any such absent or
disqualified member. Any such committee, to the extent permitted by law and to
the extent provided in the resolution of the Board of Directors, shall have and
may exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the Corporation, and may authorize the
seal of the Corporation to be affixed to all papers which may require it.
ARTICLE III
OFFICERS
SECTION 1. GENERAL. The officers of the Corporation shall be
chosen by the Board of Directors and shall be a President, a Secretary and a
Treasurer. The Board of Directors, in its discretion, may also choose a
Chairperson of the Board, one or more Vice Chairpersons of the Board (who must
be directors) and one or more Vice Presidents, one or more Assistant Secretaries
and one or more Assistant Treasurers as it may deem proper. Any number of
offices may be held by the same person, unless otherwise prohibited by law, the
Certificate of Incorporation or these By-Laws. The officers of the Corporation
need not be stockholders of the Corporation nor, except in the case of the
Chairperson of the Board and any Vice Chairperson of the Board, need such
officers be directors of the Corporation.
SECTION 2. ELECTION. The Board of Directors shall elect the
officers of the Corporation who shall hold their offices for such terms and
shall exercise such powers and perform such duties as shall be determined from
time to time by the Board of Directors; and all officers of the Corporation
shall hold office until their successors are chosen and qualified, or until
their earlier resignation or removal. Any officer elected by the Board of
Directors may
<PAGE>
7
be removed at any time by the affirmative vote of a majority of the Board of
Directors. Any vacancy occurring in any office of the Corporation shall be
filled by the Board of Directors.
SECTION 3. VOTING SECURITIES OWNED BY THE CORPORATION. Powers
of attorney, proxies, waivers of notice of meeting, consents and other
instruments relating to securities owned by the Corporation may be executed in
the name of and on behalf of the Corporation by any officer of the Corporation
and any such officer may, in the name of and on behalf of the Corporation, take
all such action as any such officer may deem advisable to vote in person or by
proxy at any meeting of security holders of any corporation in which the
Corporation may own securities and at any such meeting shall possess and may
exercise any and all rights and powers incident to the ownership of such
securities and which, as the owner thereof, the Corporation might have exercised
and possessed if present, in each case subject to having obtained the requisite
Board of Directors' and stockholders' approvals with respect to any such matter.
The Board of Directors may, by resolution, from time to time confer like powers
upon any other person or persons.
SECTION 4. POWERS AND DUTIES OF EXECUTIVE OFFICERS. The
officers of the Corporation shall have such powers and duties in the management
of the Corporation as may be prescribed in a resolution by the Board of
Directors and, to the extent not so provided, as generally pertain to their
respective offices, subject to the control of the Board of Directors. The Board
of Directors may require any officer, agent or employee to give security for the
faithful performance of his duties.
ARTICLE IV
STOCK
SECTION 1. FORM OF CERTIFICATES; SIGNATURES. Every holder of
stock in the Corporation shall be entitled to have a certificate signed in the
name of the Corporation (i) by the Chairperson or a Vice Chairperson of the
Board, or the President or a Vice President and (ii) by the Treasurer or an
Assistant Treasurer or the Secretary or an Assistant Secretary of the
Corporation, certifying the number of shares owned by such person in the
Corporation. Any of or all the signatures on the certificate may be a facsimile.
In case any officer, transfer agent or registrar who has signed or whose
facsimile signature has been placed upon a certificate shall have ceased to be
such officer,
<PAGE>
8
transfer agent or registrar before such certificate is issued, it may be issued
by the Corporation with the same effect as if such person were such officer,
transfer agent or registrar at the date of issue.
SECTION 2. LOST CERTIFICATES. The Board of Directors may
direct a new certificate to be issued in place of any certificate theretofore
issued by the Corporation alleged to have been lost, stolen or destroyed, and
the Board of Directors may, in its discretion and as a condition precedent to
the issuance thereof, require the owner of such lost, stolen or destroyed
certificate, or such owner's legal representative, to give the Corporation a
bond in such sum as it may direct as indemnity against any claim that may be
made against the Corporation with respect to the certificate alleged to have
been lost, stolen or destroyed.
ARTICLE V
NOTICES
SECTION 1. NOTICES. Whenever written notice is required by
law, the Certificate of Incorporation or these By-Laws to be given to any
director or stockholder, such notice may be given by mail, addressed to such
director or stockholder at such person's address as it appears on the records of
the Corporation, with postage thereon prepaid, and such notice shall be deemed
to be given at the time when the same shall be deposited in the United States
mail. Written notice may also be given personally or by facsimile, telegram,
telex or cable.
SECTION 2. WAIVERS OF NOTICE. Whenever any notice is required
by law, the Certificate of Incorporation or these By-Laws to be given to any
director or stockholder, a waiver thereof in writing, signed by the person or
persons entitled to said notice, whether before or after the time stated
therein, shall be deemed equivalent thereto. Attendance of a director or a
stockholder in person or by proxy at such a meeting shall constitute a waiver of
notice to such director or stockholder of such meeting, except when such
director or stockholder attends the meeting for the express purpose of objecting
at the beginning of the meeting to the transaction of any business because the
meeting is not lawfully called or convened.
<PAGE>
9
ARTICLE VI
GENERAL PROVISIONS
SECTION 1. DIVIDENDS. Subject to the provisions of the
Certificate of Incorporation, dividends upon the capital stock of the
Corporation may be declared by the Board of Directors at any regular or special
meeting, and may be paid in cash or in property. Before payment of any dividend,
there may be set aside out of any funds of the Corporation available for
dividends such sum or sums as the Board of Directors from time to time, in its
absolute discretion, deems proper as a reserve or reserves to meet
contingencies, or for equalizing dividends, or for repairing or maintaining any
property of the Corporation or for any proper purpose, and the Board of
Directors may modify or abolish any such reserve.
SECTION 2. DISBURSEMENTS. All checks or demands for money and
notes of the Corporation shall be signed by such officer or officers or such
other person or persons as the Board of Directors may from time to time
designate.
SECTION 3. FISCAL YEAR. The fiscal year of the
Corporation shall be the calendar year, or such other period
as may be adopted by resolution of the Board of Directors.
SECTION 4. CORPORATE SEAL. The corporate seal shall have
inscribed thereon the name of the Corporation, the year of its organization and
the words "Corporate Seal, Delaware". The seal may be used by causing it or a
facsimile thereof to be impressed or affixed or reproduced or otherwise.
ARTICLE VII
INDEMNIFICATION
SECTION 1. POWER TO INDEMNIFY IN ACTIONS, SUITS OR PROCEEDINGS
OTHER THAN THOSE BY OR IN THE RIGHT OF THE CORPORATION. Subject to Section 3 of
this Article VII, the Corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation) by
reason of the fact that such person is or was a director, officer, employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as a director, officer, employee or agent of another corporation, partnership,
joint
<PAGE>
10
venture, trust, employee benefit plan or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such action,
suit or proceeding if such person acted in good faith and in a manner such
person reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe such person's conduct was unlawful. The termination
of any action, suit or proceeding by judgment, order, settlement, conviction, or
upon a plea of NOLO CONTENDERE or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which such
person reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that such person's conduct was unlawful.
SECTION 2. POWER TO INDEMNIFY IN ACTIONS, SUITS OR PROCEEDINGS
BY OR IN THE RIGHT OF THE CORPORATION. Subject to Section 3 of this Article VII,
the Corporation shall have the power to indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the Corporation to procure a
judgment in its favor by reason of the fact that such person is or was a
director, officer, employee or agent of the Corporation, or is or was serving at
the request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
against expenses (including attorneys' fees) actually and reasonably incurred by
such person in connection with the defense or settlement of such action or suit
if such person acted in good faith and in a manner such person reasonably
believed to be in or not opposed to the best interests of the Corporation;
except that no indemnification shall be made in respect of any claim, issue or
matter as to which such person shall have been adjudged to be liable to the
Corporation unless and only to the extent that the Court of Chancery or the
court in which such action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all the circumstances
of the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Court of Chancery or such other court shall deem proper.
SECTION 3. AUTHORIZATION OF INDEMNIFICATION. Any
indemnification under this Article VII (unless ordered by a court) shall be made
by the Corporation only as authorized in the specific case upon a determination
that
<PAGE>
11
indemnification of the present or former director, officer, employee or agent is
proper in the circumstances because such person has met the applicable standard
of conduct set forth in Section 1 or Section 2 of this Article VII, as the case
may be. Such determination shall be made, with respect to a person who is a
director or officer at the time of such determination, (i) by a majority vote of
the directors who are not parties to such action, suit or proceeding, even
though less than a quorum, or (ii) by a committee of such directors designated
by majority vote of such directors, even though less than a quorum, or (iii) if
there are no such directors, or if such directors so direct, by independent
legal counsel in a written opinion, or (iv) by the stockholders. To the extent,
however, that a director, officer, employee or agent of the Corporation has been
successful on the merits or otherwise in defense of any action, suit or
proceeding described above, or in defense of any claim, issue or matter therein,
such person shall be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by such person in connection therewith, without
the necessity of authorization in the specific case.
SECTION 4. GOOD FAITH DEFINED. For purposes of any
determination under Section 3 of this Article VII, a person shall be deemed to
have acted in good faith and in a manner such person reasonably believed to be
in or not opposed to the best interests of the Corporation, or, with respect to
any criminal action or proceeding, to have had no reasonable cause to believe
such person's conduct was unlawful, if such person's action is based on the
records or books of account of the Corporation or another enterprise, or on
information supplied to such person by the officers of the Corporation or
another enterprise in the course of their duties, or on the advice of legal
counsel for the Corporation or another enterprise or on information or records
given or reports made to the Corporation or another enterprise by an independent
certified public accountant or by an appraiser or other expert selected with
reasonable care by the Corporation or another enterprise. The term "another
enterprise" as used in this Section 4 shall mean any other corporation or any
partnership, joint venture, trust, employee benefit plan or other enterprise of
which such person is or was serving at the request of the Corporation as a
director, officer, employee or agent. The provisions of this Section 4 shall not
be deemed to be exclusive or to limit in any way the circumstances in which a
person may be deemed to have met the applicable standard of conduct set forth in
Section 1 or 2 of this Article VII, as the case may be.
<PAGE>
12
SECTION 5. INDEMNIFICATION BY A COURT. Notwithstanding any
contrary determination in the specific case under Section 3 of this Article VII,
and notwithstanding the absence of any determination thereunder, any director,
officer, employee or agent may apply to any court of competent jurisdiction in
the State of Delaware for indemnification to the extent otherwise permissible
under Sections 1 and 2 of this Article VII. The basis of such indemnification by
a court shall be a determination by such court that indemnification of the
director, officer, employee or agent is proper in the circumstances because such
person has met the applicable standards of conduct set forth in Sections 1 or 2
of this Article VII, as the case may be. Neither a contrary determination in the
specific case under Section 3 of this Article VII nor the absence of any
determination thereunder shall be a defense to such application or create a
presumption that the director, officer, employee or agent seeking
indemnification has not met any applicable standard of conduct. Notice of any
application for indemnification pursuant to this Section 5 shall be given to the
Corporation promptly upon the filing of such application. If successful, in
whole or in part, the director, officer, employee or agent seeking
indemnification shall also be entitled to be paid the expense of prosecuting
such application.
SECTION 6. EXPENSES PAYABLE IN ADVANCE. Expenses incurred in
defending or investigating a threatened or pending action, suit or proceeding
shall be paid by the Corporation in advance of the final disposition of such
action, suit or proceeding upon receipt of an undertaking by or on behalf of
such director, officer, employee or agent to repay such amount if it shall
ultimately be determined that such person is not entitled to be indemnified by
the Corporation as authorized in this Article VII.
SECTION 7. NONEXCLUSIVITY OF INDEMNIFICATION AND ADVANCEMENT
OF EXPENSES. The indemnification and advancement of expenses provided by or
granted pursuant to this Article VII shall not be deemed exclusive of any other
rights to which those seeking indemnification or advancement of expenses may be
entitled under any By-law, agreement, contract, vote of stockholders or
disinterested directors or pursuant to the direction (howsoever embodied) of any
court of competent jurisdiction or otherwise, both as to action in such
director's official capacity and as to action in another capacity while holding
such office, it being the policy of the Corporation that indemnification of the
persons specified in Sections 1 and 2 of this Article VII shall be made to the
fullest extent permitted by law. The provisions of this Article VII shall not be
deemed to
<PAGE>
13
preclude the indemnification of any person who is not specified in Section 1 or
2 of this Article VII but whom the Corporation has the power or obligation to
indemnify under the provisions of the DGCL or otherwise.
SECTION 8. INSURANCE. The Corporation may purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise
against any liability asserted against such person and incurred by such person
in any such capacity, or arising out of such person's status as such, whether or
not the Corporation would have the power or the obligation to indemnify such
person against such liability under the provisions of this Article VII.
SECTION 9. CERTAIN DEFINITIONS. For purposes of this Article
VII, references to "the Corporation" shall include, in addition to the resulting
corporation, any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers, employees or agents, so that any person who is or was a
director, officer, employee or agent of such constituent corporation, or is or
was serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise, shall stand in the same
position under the provisions of this Article VII with respect to the resulting
or surviving corporation as such person would have with respect to such
constituent corporation if its separate existence had continued. For purposes of
this Article VII, references to "fines" shall include any excise taxes assessed
on a person with respect to an employee benefit plan; and references to "serving
at the request of the Corporation" shall include any service as a director,
officer, employee or agent of the Corporation which imposes duties on, or
involves services by, such director, officer, employee or agent with respect to
an employee benefit plan, its participants or beneficiaries; and a person who
acted in good faith and in a manner such person reasonably believed to be in the
interest of the participants and beneficiaries of an employee benefit plan shall
be deemed to have acted in a manner "not opposed to the best interests of the
Corporation" as referred to in this Article VII.
<PAGE>
14
SECTION 10. SURVIVAL OF INDEMNIFICATION AND ADVANCEMENT OF
EXPENSES. The indemnification and advancement of expenses provided by, or
granted pursuant to, this Article VII shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
SECTION 11. LIMITATION ON INDEMNIFICATION. Notwithstanding
anything contained in this Article VII to the contrary, except for proceedings
to enforce rights to indemnification (which shall be governed by Section 5
hereof), the Corporation shall not be obligated to indemnify any director,
officer, employee or agent in connection with a proceeding (or part thereof)
initiated by such person unless such proceeding (or part thereof) was authorized
or consented to by the Board of Directors of the Corporation.
ARTICLE VIII
AMENDMENTS
SECTION 1. AMENDMENT, ETC. The Board of Directors shall have
the power to adopt, amend or repeal ByLaws. By-Laws adopted by the Board of
Directors may be repealed or changed, and new By-Laws made, by the stockholders,
and the stockholders may prescribe that any By-Law made by them shall not be
altered, amended or repealed by the Board of Directors.
<PAGE>
Exhibit 3.3
CERTIFICATE OF INCORPORATION
OF
WEEKLY READER CORPORATION
The undersigned, in order to form a corporation for the
purpose hereinafter stated, under and pursuant to the provisions of the Delaware
General Corporation Law, hereby certifies that:
FIRST: The name of the Corporation is Weekly Reader
Corporation.
SECOND: The registered office and registered agent of the
corporation is The Corporation Trust Company, 1209 Orange Street, Wilmington,
New Castle County, Delaware 19801.
THIRD: The purpose of the Corporation is to engage in any
lawful act or activity for which corporations may be organized under the General
Corporation Law of Delaware.
FOURTH: The total number of shares of stock that the
Corporation is authorized to issue is 1,000 shares of Common Stock par value
$.01 each.
FIFTH: The name and address of the incorporator is Beverly C.
Chell, 717 Fifth Avenue, New York City, New York 10022.
SIXTH: The Board of Directors of the Corporation acting by
majority vote, may alter, amend or repeal the By-Laws of the Corporation.
SEVENTH: Except as otherwise provided by the Delaware General
Corporation Law as the same exists or may hereafter be amended, no director of
the Corporation shall be personally liable to the corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director.
Any repeal or modification of this Article SEVENTH by the stockholders of the
corporation shall not adversely affect any right or protection of a director of
<PAGE>
2
the Corporation existing at the time of such repeal or modification.
IN WITNESS WHEREOF, the undersigned has signed this
Certificate of Incorporation on November 28, 1990.
-----------------------
Beverly C. Chell
<PAGE>
3
CERTIFICATE OF OWNERSHIP AND MERGER
OF
WEEKLY READER CORPORATION
* * * * * *
Pursuant to Section 253 of the General Corporation
Law of the State of Delaware
WEEKLY READER CORPORATION, a corporation organized and
existing under and by virtue of the Delaware General Corporation Law
(hereinafter called the "Corporation"), DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of the Corporation, by
unanimous written consent of its members, filed with the minutes of the Board
duly adopted resolutions, authorizing the merger of Weekly Reader Book Corp.
("Book") and Weekly Reader Real Estate Corporation ("WRRE"), each a Delaware
corporation, into the Corporation, declaring said mergers to be advisable. The
resolution authorizing the mergers is as follows:
"WHEREAS, the Corporation now owns all the stock of each of
Weekly Reader Book Corp. ("Book") and Weekly Reader Real Estate
Corporation ("WRRE"), each a stock corporation organized under the laws
of the State of Delaware and engaged in business similar and incidental
to that of the Corporation; and
WHEREAS, it is deemed advisable that this Corporation merge
with Book and WRRE in order that all the estate, property, rights,
privileges, and franchises of Book and WRRE shall vest in and be
possessed by this Corporation;
NOW, THEREFORE, BE IT:
<PAGE>
4
RESOLVED, that Book and WRRE be merged into the Corporation,
and that the Corporation assume all of their obligations."
SECOND: That the above resolution was duly adopted by the
Board of Directors of the Corporation on May 13, 1992.
THIRD: That the Corporation, as of the date hereof, is the
holder of all of the outstanding shares of each class of the stock of each of
Book and WRRE.
IN WITNESS WHEREOF, said WEEKLY READER CORPORATION has caused
this certificate to be signed by Curtis A. Thompson, a Vice President, and
attested by D. Roger Glenn, an Assistant Secretary, this 13th day of May, 1992.
WEEKLY READER CORPORATION
By:
-----------------------
Curtis A. Thompson
Vice President
ATTEST:
By:
---------------------
D. Roger Glenn
Assistant Secretary
<PAGE>
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
WEEKLY READER CORPORATION
It is hereby certified that:
1. The name of the corporation (hereinafter called the "Corporation")
is the Weekly Reader Corporation.
2. The Certificate of Incorporation of the Corporation is hereby
amended by deleting the present Article FOURTH and submitting in lieu thereof a
new Article FOURTH which shall read in full as follows:
FOURTH: The total number of shares of stock that the
Corporation is authorized to issue is 20,000,000 shares of Common
Stock, par value $.01 each.
3. The amendment of the Certificate of Incorporation herein certified
has been duly adopted in accordance with the provisions of Sections 141, 228 and
242 of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, the undersigned does hereby execute and subscribe
this Certificate of Amendment this 5th day of October, 1999.
WEEKLY READER CORPORATION
By:
-----------------------
Name: Beverly C. Chell
Title: Vice Chairman
ATTEST:
- ---------------------------
Name: Ann M. Riposanu
Title: Assistant Secretary
<PAGE>
Exhibit 3.4
BY-LAWS
of
WEEKLY READER CORPORATION
(hereinafter called the "Corporation")
as last amended November 17, 1999
ARTICLE I
MEETINGS OF STOCKHOLDERS
SECTION 1. PLACE OF MEETINGS. Meetings of the stockholders
shall be held at such place, either within or without the State of Delaware, as
shall be designated from time to time by the Board of Directors or the
Chairperson of the Board of Directors, if any, and stated in the notice of the
meeting or in a duly executed waiver of notice thereof.
SECTION 2. ANNUAL MEETINGS. The annual meetings of the
stockholders shall be held on such date and at such time as shall be designated
from time to time by the Board of Directors and stated in the notice of the
meeting, at which meetings the stockholders shall transact such business as may
be properly brought before the meeting. Written notice of each annual meeting
stating the place, date and hour of the meeting shall be given to each
stockholder entitled to vote at such meeting not less than 10 nor more than 60
days before the date of the meeting.
SECTION 3. SPECIAL MEETINGS. Unless otherwise prescribed by
law or by the Certificate of Incorporation, special meetings of stockholders,
for any purpose or purposes, may be called at any time by the Board of
Directors. Written notice of a special meeting stating the place, date and hour
of the meeting and the purpose or purposes for which the meeting is called shall
be given not less than 10 nor more than 60 days before the date of the meeting
to each stockholder entitled to vote at such meeting.
SECTION 4. QUORUM. Except as otherwise provided by law or by
the Certificate of Incorporation, the holders of a majority of the capital stock
issued and outstanding and entitled to vote thereat, present in person or
represented by proxy, shall constitute a quorum at all meetings of the
stockholders for the transaction of business. If, however, such quorum shall not
be present or
<PAGE>
2
represented at any meeting of the stockholders, the stockholders entitled to
vote thereat, present in person or represented by proxy, shall have power to
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall be present or represented. At such adjourned
meeting at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally
noticed. If the adjournment is for more than 30 days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder entitled to vote at the
meeting.
SECTION 5. VOTING. Unless otherwise required by law, the
Certificate of Incorporation or these By-Laws, any question brought before any
meeting of stockholders shall be decided by the vote of the holders of a
majority of the stock represented and entitled to vote thereat. Each stockholder
represented at a meeting of stockholders shall be entitled to cast one vote for
each share of the capital stock entitled to vote thereat held by such
stockholder. Such votes may be cast in person or by proxy but no proxy shall be
voted on or after three years from its date, unless such proxy provides for a
longer period. The Board of Directors, in its discretion, or the officer of the
Corporation presiding at a meeting of stockholders, in such officer's
discretion, may require that any votes cast at such meeting be cast by written
ballot.
SECTION 6. CONSENT OF STOCKHOLDERS IN LIEU OF MEETING. Unless
otherwise provided in the Certificate of Incorporation, any action required by
law to be taken at any annual or special meeting of stockholders of the
Corporation, or any action which may be taken at any annual or special meeting
of stockholders of the Corporation, may be taken without a meeting, without
prior notice and without a vote, if a consent or consents in writing, setting
forth the action so taken, shall be signed by the holders of outstanding stock
entitled to vote thereon having not less than the minimum number of votes that
would be necessary to authorize or take such action at a meeting at which all
shares entitled to vote thereon were present and voted and shall be delivered to
the Corporation by delivery to its registered office in the State of Delaware,
its principal place of business, or an officer or agent of the Corporation
having custody of the book in which proceedings of meetings of stockholders are
recorded. Delivery made to the Corporation's registered office shall be by hand
or by certified or registered mail, return receipt requested.Prompt notice of
the taking of the corporate action without
<PAGE>
3
a meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing and who, if the action had been
taken at a meeting, would have been entitled to notice of the meeting if the
record date for such meeting had been the date that written consents signed by a
sufficient number of holders to take the action were delivered to the
Corporation. In the event that the action which is consented to is such as would
have required the filing of a certificate under the Delaware General Corporation
Law (the "DGCL"), if such action had been voted on by stockholders at a meeting
thereof, the certificate filed shall state, in lieu of any statement concerning
any vote of stockholders, that written consent has been given as provided in
this Section 6.
SECTION 7. MEETING BY MEANS OF CONFERENCE TELEPHONE. Unless
otherwise provided by the Certificate of Incorporation or these By-Laws, any
stockholder may participate in a meeting of the stockholders by means of a
conference telephone or similar communications equipment that enables all
persons participating in the meeting to hear each other, and participation in a
meeting pursuant to this Section 7 shall constitute presence in person at such
meeting.
SECTION 8. LIST OF STOCKHOLDERS ENTITLED TO VOTE. The officer
who has charge of the stock ledger of the Corporation shall prepare and make, at
least ten days before every meeting of stockholders, a complete list of the
stockholders entitled to vote at the meeting, arranged in alphabetical order,
and showing the address of each stockholder and the number of shares registered
in the name of each stockholder. Such list shall be open to examination by any
stockholder, for any purpose germane to the meeting, during ordinary business
hours, for a period of at least ten days prior to the meeting, either at a place
within the city where the meeting is to be held, which place shall be specified
in the notice of the meeting, or, if not so specified, at the place where the
meeting is to be held. The list shall also be produced and kept at the time and
place of the meeting during the whole time thereof, and may be inspected by any
stockholder of the Corporation who is present. Upon the wilful neglect or
refusal of the directors to produce such a list at any meeting for the election
of directors, they shall be ineligible for election to any office at such
meeting.
SECTION 9. STOCK LEDGER. The stock ledger of the
Corporation shall be the only evidence as to who are the
stockholders entitled to examine the stock ledger, the list
<PAGE>
4
of stockholders or the books of the Corporation, or to vote in person or by
proxy at any meeting of stockholders.
ARTICLE II
DIRECTORS
SECTION 1. NUMBER AND QUALIFICATIONS OF DIRECTORS. The number
of members constituting the Board of Directors shall be determined from time to
time by resolutions adopted by a majority of the entire Board. Directors need
not be stockholders or citizens or residents of the United States of America.
Each of the directors of the Corporation shall hold office until such director's
resignation or removal in the manner hereinafter provided.
SECTION 2. ELECTION; RESIGNATIONS. At each annual meeting of
stockholders, the stockholders shall elect directors, each of whom shall hold
office for a term of one year or until such director's successor is duly elected
and qualified, subject to such director's earlier death, resignation,
disqualification or removal. Any director may resign at any time. Such
resignation shall be made in writing, and shall take effect at the time
specified therein or, if no time be specified, at the time of its receipt by the
Chairperson of the Board, if any, the President or the Secretary. The acceptance
of a resignation shall not be necessary to make it effective.
SECTION 3. REMOVAL. Any director or directors may be removed
either for or without cause at any time by the affirmative vote of the holders
of a majority of all the shares of stock outstanding and entitled to vote for
the election of directors, at a regular meeting or a special meeting called for
that purpose, and the vacancy thus created may be filled, at such meeting, by
the affirmative vote of holders of a majority of all the shares of stock
outstanding and entitled to vote.
SECTION 4. VACANCIES. Any newly created directorship or any
vacancy occurring in the Board of Directors for any cause may be filled by a
majority of the directors then in office, though less than a quorum, or by a
sole remaining director, and the directors so chosen shall hold office until
their earlier resignation or removal.
SECTION 5. DUTIES AND POWERS. The business of the Corporation
shall be managed by or under the direction of the Board of Directors which may
exercise all such powers of the Corporation and do all such lawful acts and
things as
<PAGE>
5
are not by law or by the Certificate of Incorporation or by these By-Laws
conferred upon or reserved to the stockholders; PROVIDED that any action taken
by the Board of Directors shall be subject to reversal in the event of a
contrary vote by the Corporation's stockholders.
SECTION 6. MEETINGS. The Board of Directors of the Corporation
may hold meetings, both regular and special, either within or without the State
of Delaware. Regular meetings of the Board of Directors may be held without
notice at such time and at such place as may from time to time be determined by
the Board of Directors. Special meetings of the Board of Directors may be called
by the Chairperson of the Board if any, the President, or any two or more
directors. Notice thereof stating the place, date and hour of the meeting shall
be given to each director not less than 24 hours before the date of the meeting,
or on such shorter notice as the person or persons calling such meeting may deem
necessary or appropriate in the circumstances.
SECTION 7. QUORUM. Except as may be otherwise specifically
provided by law, the Certificate of Incorporation or these By-Laws, at all
meetings of the Board of Directors, a majority of the entire Board of Directors
then in office shall constitute a quorum for the transaction of business and the
act of a majority of the directors present at any meeting at which there is a
quorum shall be the act of the Board of Directors. If a quorum shall not be
present at any meeting of the Board of Directors, the directors present thereat
may adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present.
SECTION 8. ACTIONS OF BOARD. Unless otherwise provided by the
Certificate of Incorporation or these By-Laws, any action required or permitted
to be taken at any meeting of the Board of Directors may be taken without a
meeting, if all the members of the Board of Directors consent thereto in
writing, and such writing is filed with the minutes of proceedings of the Board
of Directors.
SECTION 9. MEETING BY MEANS OF CONFERENCE TELEPHONE. Unless
otherwise provided by the Certificate of Incorporation or these By-Laws, members
of the Board of Directors of the Corporation may participate in a meeting of the
Board of Directors by means of a conference telephone or similar communications
equipment that enables all persons participating in the meeting to hear each
other, and participation in a meeting pursuant to this Section 9 shall
constitute presence in person at such meeting.
<PAGE>
6
SECTION 10. COMMITTEES. The Board of Directors may designate
one or more committees, each committee to consist of one or more of the
directors of the corporation. The Board of Directors may designate one or more
directors as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee. In the absence or
disqualification of a member of the committee, the member or members present at
any meeting and not disqualified from voting, whether or not such member or
members constitute a quorum, may unanimously appoint another member of the Board
of Directors to act at the meeting in the place of any such absent or
disqualified member. Any such committee, to the extent permitted by law and to
the extent provided in the resolution of the Board of Directors, shall have and
may exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the Corporation, and may authorize the
seal of the Corporation to be affixed to all papers which may require it.
ARTICLE III
OFFICERS
SECTION 1. GENERAL. The officers of the Corporation shall be
chosen by the Board of Directors and shall be a President, a Secretary and a
Treasurer. The Board of Directors may also choose such other officers as the
Board of Directors, in its sole discretion, shall deem necessary or advisable.
Any number of offices may be held by the same person, unless otherwise
prohibited by law, the Certificate of Incorporation or these By-Laws. The
officers of the Corporation need not be stockholders of the Corporation nor,
except in the case of the Chairperson of the Board and any Vice Chairperson of
the Board, need such officers be directors of the Corporation.
SECTION 2. ELECTION. The Board of Directors shall elect the
officers of the Corporation who shall hold their offices for such terms and
shall exercise such powers and perform such duties as shall be determined from
time to time by the Board of Directors; and all officers of the Corporation
shall hold office until their successors are chosen and qualified, or until
their earlier resignation or removal. Any officer elected by the Board of
Directors may be removed at any time by the affirmative vote of a majority of
the Board of Directors. Any vacancy occurring in any office of the Corporation
shall be filled by the Board of Directors.
<PAGE>
7
SECTION 3. VOTING SECURITIES OWNED BY THE CORPORATION. Powers
of attorney, proxies, waivers of notice of meeting, consents and other
instruments relating to securities owned by the Corporation may be executed in
the name of and on behalf of the Corporation by any officer of the Corporation
and any such officer may, in the name of and on behalf of the Corporation, take
all such action as any such officer may deem advisable to vote in person or by
proxy at any meeting of security holders of any corporation in which the
Corporation may own securities and at any such meeting shall possess and may
exercise any and all rights and powers incident to the ownership of such
securities and which, as the owner thereof, the Corporation might have exercised
and possessed if present, in each case subject to having obtained the requisite
Board of Directors' and stockholders' approvals with respect to any such matter.
The Board of Directors may, by resolution, from time to time confer like powers
upon any other person or persons.
SECTION 4. POWERS AND DUTIES OF EXECUTIVE OFFICERS. The
officers of the Corporation shall have such powers and duties in the management
of the Corporation as may be prescribed in a resolution by the Board of
Directors and, to the extent not so provided, as generally pertain to their
respective offices, subject to the control of the Board of Directors. The Board
of Directors may require any officer, agent or employee to give security for the
faithful performance of his duties.
ARTICLE IV
STOCK
SECTION 1. FORM OF CERTIFICATES; SIGNATURES. Every holder of
stock in the Corporation shall be entitled to have a certificate signed in the
name of the Corporation by (i) the Chairperson or a Vice Chairperson of the
Board, the President or a Vice President and (ii) the Treasurer or an Assistant
Treasurer or the Secretary or an Assistant Secretary of the Corporation,
certifying the number of shares owned by such person in the Corporation. Any of
or all the signatures on the certificate may be a facsimile. In case any
officer, transfer agent or registrar who has signed or whose facsimile signature
has been placed upon a certificate shall have ceased to be such officer,
transfer agent or registrar before such certificate is issued, it may be issued
by the Corporation with the same effect as if such person were such officer,
transfer agent or registrar at the date of issue.
<PAGE>
8
SECTION 2. LOST CERTIFICATES. The Board of Directors may
direct a new certificate to be issued in place of any certificate theretofore
issued by the Corporation alleged to have been lost, stolen or destroyed, and
the Board of Directors may, in its discretion and as a condition precedent to
the issuance thereof, require the owner of such lost, stolen or destroyed
certificate, or such owner's legal representative, to give the Corporation a
bond in such sum as it may direct as indemnity against any claim that may be
made against the Corporation with respect to the certificate alleged to have
been lost, stolen or destroyed; PROVIDED that, in the case of an institutional
investor or nominee thereof, the unsecured agreement of indemnity of such
institutional investor (but not such nominee) shall be acceptable in lieu of any
such bond.
ARTICLE V
NOTICES
SECTION 1. NOTICES. Whenever written notice is required by
law, the Certificate of Incorporation or these By-Laws to be given to any
director or stockholder, such notice may be given by mail, addressed to such
director or stockholder at such person's address as it appears on the records of
the Corporation, with postage thereon prepaid, and such notice shall be deemed
to be given at the time when the same shall be deposited in the United States
mail. Written notice may also be given personally or by facsimile, telegram,
telex or cable.
SECTION 2. WAIVERS OF NOTICE. Whenever any notice is required
by law, the Certificate of Incorporation or these By-Laws to be given to any
director or stockholder, a waiver thereof in writing, signed by the person or
persons entitled to said notice, whether before or after the time stated
therein, shall be deemed equivalent thereto. Attendance of a director or a
stockholder in person or by proxy at such a meeting shall constitute a waiver of
notice to such director or stockholder of such meeting, except when such
director or stockholder attends the meeting for the express purpose of objecting
at the beginning of the meeting to the transaction of any business because the
meeting is not lawfully called or convened.
<PAGE>
9
ARTICLE VI
GENERAL PROVISIONS
SECTION 1. DIVIDENDS. Subject to the provisions of the
Certificate of Incorporation, dividends upon the capital stock of the
Corporation may be declared by the Board of Directors at any regular or special
meeting and may be paid in cash or in property. Before payment of any dividend,
there may be set aside out of any funds of the Corporation available for
dividends such sum or sums as the Board of Directors from time to time, in its
absolute discretion, deems proper as a reserve or reserves to meet
contingencies, for equalizing dividends, for repairing or maintaining any
property of the Corporation or for any proper purpose, and the Board of
Directors may modify or abolish any such reserve.
SECTION 2. DISBURSEMENTS. All checks or demands for money and
notes of the Corporation shall be signed by such officer or officers or such
other person or persons as the Board of Directors may from time to time
designate.
SECTION 3. FISCAL YEAR. The fiscal year of the Corporation
shall be the calendar year or such other period as may be adopted by resolution
of the Board of Directors.
SECTION 4. CORPORATE SEAL. The corporate seal shall have
inscribed thereon the name of the Corporation, the year of its organization and
the words "Corporate Seal, Delaware". The seal may be used by causing it or a
facsimile thereof to be impressed or affixed or reproduced or otherwise.
ARTICLE VII
INDEMNIFICATION
SECTION 1. POWER TO INDEMNIFY IN ACTIONS, SUITS OR PROCEEDINGS
OTHER THAN THOSE BY OR IN THE RIGHT OF THE CORPORATION. Subject to Section 3 of
this Article VII, the Corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation) by
reason of the fact that such person is or was a director, officer, employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as a director, officer, employee or agent of another corporation, partnership,
joint
<PAGE>
10
venture, trust, employee benefit plan or other enterprise, in each case at any
time after November 17, 1999, against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by such person in connection with such action, suit or proceeding if such person
acted in good faith and in a manner such person reasonably believed to be in or
not opposed to the best interests of the Corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe such person's
conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement or conviction or upon a plea of NOLO CONTENDERE or
its equivalent shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which such person reasonably believed to
be in or not opposed to the best interests of the Corporation or, with respect
to any criminal action or proceeding, had reasonable cause to believe that such
person's conduct was unlawful.
SECTION 2. POWER TO INDEMNIFY IN ACTIONS, SUITS OR PROCEEDINGS
BY OR IN THE RIGHT OF THE CORPORATION. Subject to Section 3 of this Article VII,
the Corporation shall have the power to indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the Corporation to procure a
judgment in its favor by reason of the fact that such person is or was a
director, officer, employee or agent of the Corporation, or is or was serving at
the request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
against expenses (including attorneys' fees) actually and reasonably incurred by
such person in connection with the defense or settlement of such action or suit
if such person acted in good faith and in a manner such person reasonably
believed to be in or not opposed to the best interests of the Corporation;
except that no indemnification shall be made in respect of any claim, issue or
matter as to which such person shall have been adjudged to be liable to the
Corporation unless and only to the extent that the Court of Chancery or the
court in which such action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all the circumstances
of the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Court of Chancery or such other court shall deem proper.
SECTION 3. AUTHORIZATION OF INDEMNIFICATION. Any
indemnification under this Article VII (unless ordered by a court) shall be made
by the Corporation only as authorized
<PAGE>
11
in the specific case upon a determination that indemnification of the present or
former director, officer, employee or agent is proper in the circumstances
because such person has met the applicable standard of conduct set forth in
Section 1 or Section 2 of this Article VII, as the case may be. Such
determination shall be made, with respect to a person who is a director or
officer at the time of such determination, (i) by a majority vote of the
directors who are not parties to such action, suit or proceeding, even though
less than a quorum, (ii) by a committee of such directors designated by majority
vote of such directors, even though less than a quorum, (iii) if there are no
such directors, or if such directors so direct, by independent legal counsel in
a written opinion or (iv) by the stockholders. To the extent, however, that a
director, officer, employee or agent of the Corporation has been successful on
the merits or otherwise in defense of any action, suit or proceeding described
above, or in defense of any claim, issue or matter therein, such person shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by such person in connection therewith, without the necessity of
authorization in the specific case.
SECTION 4. GOOD FAITH DEFINED. For purposes of any
determination under Section 3 of this Article VII, a person shall be deemed to
have acted in good faith and in a manner such person reasonably believed to be
in or not opposed to the best interests of the Corporation or, with respect to
any criminal action or proceeding, to have had no reasonable cause to believe
such person's conduct was unlawful, if such person's action is based on the
records or books of account of the Corporation or another enterprise, or on
information supplied to such person by the officers of the Corporation or
another enterprise in the course of their duties, or on the advice of legal
counsel for the Corporation or another enterprise or on information or records
given or reports made to the Corporation or another enterprise by an independent
certified public accountant or by an appraiser or other expert selected with
reasonable care by the Corporation or another enterprise. The term "another
enterprise" as used in this Section 4 shall mean any other corporation or any
partnership, joint venture, trust, employee benefit plan or other enterprise of
which such person is or was serving at the request of the Corporation as a
director, officer, employee or agent. The provisions of this Section 4 shall not
be deemed to be exclusive or to limit in any way the circumstances in which a
person may be deemed to have met the applicable standard of conduct set forth in
Section 1 or 2 of this Article VII, as the case may be.
<PAGE>
12
SECTION 5. INDEMNIFICATION BY A COURT. Notwithstanding any
contrary determination in the specific case under Section 3 of this Article VII,
and notwithstanding the absence of any determination thereunder, any director,
officer, employee or agent may apply to any court of competent jurisdiction in
the State of Delaware for indemnification to the extent otherwise permissible
under Sections 1 and 2 of this Article VII. The basis of such indemnification by
a court shall be a determination by such court that indemnification of the
director, officer, employee or agent is proper in the circumstances because such
person has met the applicable standards of conduct set forth in Sections 1 or 2
of this Article VII, as the case may be. Neither a contrary determination in the
specific case under Section 3 of this Article VII nor the absence of any
determination thereunder shall be a defense to such application or create a
presumption that the director, officer, employee or agent seeking
indemnification has not met any applicable standard of conduct. Notice of any
application for indemnification pursuant to this Section 5 shall be given to the
Corporation promptly upon the filing of such application. If successful, in
whole or in part, the director, officer, employee or agent seeking
indemnification shall also be entitled to be paid the expense of prosecuting
such application.
SECTION 6. EXPENSES PAYABLE IN ADVANCE. Expenses incurred in
defending or investigating a threatened or pending action, suit or proceeding
shall be paid by the Corporation in advance of the final disposition of such
action, suit or proceeding upon receipt of an undertaking by or on behalf of
such director, officer, employee or agent to repay such amount if it shall
ultimately be determined that such person is not entitled to be indemnified by
the Corporation as authorized in this Article VII.
SECTION 7. NONEXCLUSIVITY OF INDEMNIFICATION AND ADVANCEMENT
OF EXPENSES. The indemnification and advancement of expenses provided by or
granted pursuant to this Article VII shall not be deemed exclusive of any other
rights to which those seeking indemnification or advancement of expenses may be
entitled under any By-law, agreement, contract, vote of stockholders or
disinterested directors or pursuant to the direction (howsoever embodied) of any
court of competent jurisdiction or otherwise, both as to action in such
director's official capacity and as to action in another capacity while holding
such office, it being the policy of the Corporation that indemnification of the
persons specified in Sections 1 and 2 of this Article VII shall be made to the
fullest extent permitted by law. The provisions of this Article VII shall not be
deemed to
<PAGE>
13
preclude the indemnification of any person who is not specified in Section 1 or
2 of this Article VII but whom the Corporation has the power or obligation to
indemnify under the provisions of the DGCL or otherwise.
SECTION 8. INSURANCE. The Corporation may purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise
against any liability asserted against such person and incurred by such person
in any such capacity, or arising out of such person's status as such, whether or
not the Corporation would have the power or the obligation to indemnify such
person against such liability under the provisions of this Article VII.
SECTION 9. CERTAIN DEFINITIONS. For purposes of this Article
VII, references to "the Corporation" shall include, in addition to the resulting
corporation, any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers, employees or agents, so that any person who is or was a
director, officer, employee or agent of such constituent corporation, or is or
was serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise, shall stand in the same
position under the provisions of this Article VII with respect to the resulting
or surviving corporation as such person would have with respect to such
constituent corporation if its separate existence had continued. For purposes of
this Article VII, references to "fines" shall include any excise taxes assessed
on a person with respect to an employee benefit plan; and references to "serving
at the request of the Corporation" shall include any service as a director,
officer, employee or agent of the Corporation which imposes duties on, or
involves services by, such director, officer, employee or agent with respect to
an employee benefit plan, its participants or beneficiaries; and a person who
acted in good faith and in a manner such person reasonably believed to be in the
interest of the participants and beneficiaries of an employee benefit plan shall
be deemed to have acted in a manner "not opposed to the best interests of the
Corporation" as referred to in this Article VII.
<PAGE>
14
SECTION 10. SURVIVAL OF INDEMNIFICATION AND ADVANCEMENT OF
EXPENSES. The indemnification and advancement of expenses provided by, or
granted pursuant to, this Article VII shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
SECTION 11. LIMITATION ON INDEMNIFICATION. Notwithstanding
anything contained in this Article VII to the contrary, except for proceedings
to enforce rights to indemnification (which shall be governed by Section 5
hereof), the Corporation shall not be obligated to indemnify any director,
officer, employee or agent in connection with a proceeding (or part thereof)
initiated by such person unless such proceeding (or part thereof) was authorized
or consented to by the Board of Directors of the Corporation.
ARTICLE VIII
AMENDMENTS
SECTION 1. AMENDMENT, ETC. The Board of Directors shall have
the power to adopt, amend or repeal By-Laws. By-Laws adopted by the Board of
Directors may be repealed or changed, and new By-Laws made, by the stockholders,
and the stockholders may prescribe that any By-Law made by them shall not be
altered, amended or repealed by the Board of Directors.
<PAGE>
Exhibit 3.5
CERTIFICATE OF INCORPORATION
OF
EAC I INC.
ARTICLE I
The name of the corporation (which is hereinafter referred to
as the "Corporation") is:
EAC I Inc.
ARTICLE II
The name and address of the Corporation's registered office in
the State of Delaware is c/o RL&F Service Corp., One Rodney Square, 10th Floor,
Tenth and King Streets, City of Wilmington, County of New Castle, Delaware
19801. The name and address of the registered agent for service of process on
the Corporation in the State of Delaware is RL&F Service Corp., One Rodney
Square, l0th Floor, Tenth and King Streets, City of Wilmington, County of New
Castle, Delaware 19901.
ARTICLE III
The purpose for which the Corporation is organized is to
engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of the State of Delaware.
ARTICLE IV
The total number of shares of stock that the Corporation shall
have authority to issue in 1000 shares of Common Stock, par value of $0.01 per
share.
ARTICLE V
The name and mailing address of the incorporator is Michael B.
Kaplan, 825 8th Avenue, 45th Floor, New York, New York, 10019.
<PAGE>
ARTICLE VI
In furtherance and not in limitation of the powers conferred
upon it by law, the Board of Directors of the Corporation is expressly
authorized to adopt, amend or repeal the By-laws of the Corporation.
ARTICLE VII
Unless and except to the extent that the By-laws of the
Corporation so require, the election of directors of the Corporation need not be
by written ballot.
ARTICLE VIII
To the fullest extent permitted from time to time by law, no
director shall be personally liable to the Corporation or any of its
stockholders for monetary damages for breach of fiduciary duty as a director.
ARTICLE IX
The corporation reserves the right at any time, and from time
to time, to amend, alter, change or repeal any provision contained in this
Certificate of Incorporation, and other provisions authorized by the laws of the
State of Delaware at the time in force may be added or inserted, in the manner
now or hereafter prescribed by law, and all rights, preferences and privileges
of whatsoever nature conferred upon stockholders, directors or any other persons
whomsoever by and pursuant to this Certificate of Incorporation in its present
form or as hereafter amended are granted subject to the rights reserved in this
article.
IN WITNESS WHEREOF, I, Michael B. Kaplan, the Sole
Incorporator of EAC I Inc., have executed this Certificate of incorporation this
12 day of May, 1999, and DO HEREBY CERTIFY under the penalties of perjury that
this instrument is my act and deed and that the facts stated herein are true.
______________________
Michael B. Kaplan
Incorporator
<PAGE>
CERTIFICATE OF OWNERSHIP AND MERGER
OF
JLC LEARNING CORPORATION
WITH AND INTO
EAC I INC.
--------------------------------------------
Pursuant to Section 253
of the Delaware General
Corporation Law
--------------------------------------------
Pursuant to Section 253 of the Delaware General Corporation
Law, EAC I Inc., a Delaware corporation ("EAC I"), hereby certifies that the
resolutions of the Board of Directors of EAC I attached hereto as Exhibit A were
duly adopted by unanimous written consent as of July 14, 1999, in connection
with the merger of JLC Learning Corporation, an Illinois corporation ("JLC"),
with and into EAC I.
IN WITNESS WHEREOF, EAC I has caused this Certificate of
Ownership and Merger to be executed by its duly authorized officer as of
July 14, 1999.
EAC I INC.
by
____________________________
Name:
Title:
<PAGE>
TO CERTIFICATE
OF OWNERSHIP AND MERGER
WHEREAS EAC I Inc. ("EAC") owns all the outstanding shares of each class of
capital stock of JLC Learning Corporation, an Illinois corporation ("JLC"),
consisting of the Class A Common Stock, par value $.001 per share (the
"JLC Common Stock"), the Class A Preferred Stock, par value $0.01 per share
(the "Class A Preferred"), and the Class B Preferred Stock, par value $0.01 per
share (together with the Class A Preferred, the "JLC Preferred Stock"), and
desires to merge JLC with and into EAC I (the "Merger");
NOW, THEREFORE, BE IT RESOLVED, that JLC be merged into EAC I, pursuant to and
in accordance with Section 253 of the Delaware General Corporation Law and
Section 11.30 of the Illinois Business Corporation Act of 1983 and the proper
officers of EAC I be, and each of them hereby is, authorized in the name and on
behalf of EAC I to take any and all actions they deem necessary or advisable in
connection therewith;
RESOLVED that EAC I shall be the surviving corporation in the Merger (the
"Surviving Corporation") and the name of the Surviving Corporation shall be
"JLC Learning Corporation";
RESOLVED that the plan of merger, including the terms of the Merger, is as set
forth below:
(a) the Merger shall have the effects set forth in Section 259
of the Delaware General Corporation Law and Section 11.50 of the
Illinois Business Corporation Act of 1983 and shall become effective at
the later of such time as the Certificate of Merger (defined below) is
duly filed with the Secretary of State of the Commonwealth of Delaware
and such time as the Secretary of State of the State of Illinois may
issue a certificate of merger with respect to the Merger (the time the
Merger becomes effective being the "Effective Time");
(b) the Certificate of Incorporation of EAC I, as in effect
immediately prior to the Effective Time, shall be the Certificate of
Incorporation of the Surviving Corporation until thereafter changed or
amended as provided therein or by applicable law;
(c) the By-laws of EAC I, as in effect immediately prior to
the Effective Time, shall be the By-laws of the Surviving Corporation
until thereafter changed or amended as provided therein or by
applicable law;
<PAGE>
(d) the directors of EAC I immediately prior to the Effective
Time shall be the directors of the Surviving Corporation, until the
earlier of their resignation or removal or until their respective
successors are duly elected and qualified, as the case may be;
(e) the officers of JLC immediately prior to the Effective
Time shall be the officers of Surviving Corporation, until the earlier
of their resignation or removal or until their respective successors
are duly elected or appointed and qualified, as the case may be; and
(f) at the Effective Time, by virtue of the Merger and without
any action on the part of the holder of any shares of JLC Common Stock,
JLC Preferred Stock or any shares of capital stock of EAC I:
(i) each issued and outstanding share of capital
stock of EAC I shall be converted into and become one fully
paid and nonassessable share of common stock, par value
$0.01 per share, of the Surviving Corporation; and
(ii) each share of JLC Common Stock and JLC Preferred
Stock shall no longer be outstanding and shall automatically
be canceled and retired and shall cease to exist, and no
Common Stock or other consideration shall be delivered or
deliverable in exchange therefor.
RESOLVED that the form and terms of the Articles of Merger, dated as of
July 14, 1999 (the "Articles of Merger"), substantially in the form presented
to the Board of Directors are hereby approved;
RESOLVED that the form and terms of the Certificate of Merger, dated as of
July 14, 1999 (the "Certificate of Merger"), substantially in the form presented
to the Board of Directors are hereby approved;
RESOLVED that the 30 day period specified in Section 11.30(b) of the Illinois
Business Corporation Act of 1983 is hereby waived;
RESOLVED that the proper officers of EAC I be, and each of them hereby is,
authorized, in the name and on behalf of EAC I, to execute and file the
Certificate of Merger with the Secretary of State of the Commonwealth of
Delaware and to execute and file the Articles of Merger with the Secretary
-2-
<PAGE>
of State of the State of Illinois, in each case in such form as the officer or
officers executing the same shall approve, the signature of such officer or
officers thereon to be conclusive evidence of the approval thereof; and
RESOLVED that any and all actions heretofore or hereafter taken by the proper
officers of EAC I relating to and within the terms of this resolution are hereby
ratified and confirmed as the acts and deeds of EAC I.
-3-
<PAGE>
CERTIFICATE OF AMENDMENT
to the
CERTIFICATE OF INCORPORATION
of
JLC LEARNING CORPORATION
PURSUANT TO SECTION 242 OF THE GENERAL
CORPORATION LAW OF THE STATE OF DELAWARE
JLC Learning Corporation (the "Corporation"), a corporation
organized and existing under and by virtue of the General Corporation Law of the
State of Delaware (the "DGCL"),
DOES HEREBY CERTIFY AS FOLLOWS:
FIRST. That the Board of Directors of the Corporation by
unanimous written consent duly executed in accordance with Section 141(f) of the
General Corporation Law of the State of Delaware has duly adopted a resolution
setting forth a proposed amendment to the Certificate of Incorporation of the
Corporation, declaring such amendment to be advisable and declaring that it is
advisable that the stockholders of the Corporation adopt resolutions approving
such amendment. Pursuant to the proposed amendment, ARTICLE I of the Certificate
of Incorporation of the Corporation shall be amended to read in its entirety as
follows:
"ARTICLE I
The name of the corporation (the "Corporation") is
"Compass Learning Corporation."
SECOND. That thereafter the foregoing amendment was approved
by a majority of the stockholders of the Corporation.
THIRD. That said amendment was duly adopted in accordance with
the provisions of Sections 228 and 242 of the DGCL.
<PAGE>
2
IN WITNESS WHEREOF, this Certificate of Amendment has been
made under the seal of the Corporation and has been signed by the undersigned,
Charles L. Laurey, Secretary of the Corporation, this day of .
/s/ Charles L. Laurey
--------------------------
Name: Charles L. Laurey
Title: Secretary
<PAGE>
WRITTEN CONSENT OF THE SOLE STOCKHOLDER OF
JLC Learning Corporation
PURSUANT TO SECTION 228 OF THE
DELAWARE GENERAL CORPORATION LAW
The undersigned, being the holder of all of the issued and
outstanding shares of the Common Stock of the Corporation, hereby approves and
adopts the following resolution by written consent pursuant to Section 228 of
the Delaware General Corporation Law:
RESOLVED, that the corporate name of the Corporation be
changed from "JLC Learning Corporation" to "Compass Learning Corporation" and
that Article I of the Certificate of Incorporation of the Corporation be amended
to reflect such change in corporate name.
IN WITNESS WHEREOF, the undersigned has executed this Written
Consent as of
WRC Media Inc.,
by /s/
---------------------------
Name: Charles Laurey
Title: Secretary
<PAGE>
Exhibit 3.6
BY-LAWS
of
EAC I Inc.
(hereinafter called the "Corporation")
ARTICLE I
MEETINGS OF STOCKHOLDERS
SECTION 1. PLACE OF MEETINGS. Meetings of the stockholders
shall be held at such place, either within or without the State of Delaware, as
shall be designated from time to time by the Board of Directors or the
Chairperson of the Board of Directors, if any, and stated in the notice of the
meeting or in a duly executed waiver of notice thereof.
SECTION 2. ANNUAL MEETINGS. The annual meetings of the
stockholders shall be held on such date and at such time as shall be designated
from time to time by the Board of Directors and stated in the notice of the
meeting, at which meetings the stockholders shall transact such business as may
be properly brought before the meeting. Written notice of each annual meeting
stating the place, date and hour of the meeting shall be given to each
stockholder entitled to vote at such meeting not less than 10 nor more than 60
days before the date of the meeting.
SECTION 3. SPECIAL MEETINGS. Unless otherwise prescribed by
law or by the Certificate of Incorporation, special meetings of stockholders,
for any purpose or purposes, may be called at any time by the Board of
Directors. Written notice of a special meeting stating the place, date and hour
of the meeting and the purpose or purposes for which the meeting is called shall
be given not less than 10 nor more than 60 days before the date of the meeting
to each stockholder entitled to vote at such meeting.
SECTION 4. QUORUM. Except as otherwise provided by law or by
the Certificate of Incorporation, the holders of a majority of the capital stock
issued and outstanding and entitled to vote thereat, present in person or
represented by proxy, shall constitute a quorum at all meetings of the
stockholders for the transaction of business. If, however, such quorum shall not
be present or represented at any meeting of the stockholders, the stockholders
entitled to vote thereat, present in person or represented by proxy, shall have
power to adjourn the
<PAGE>
meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present or represented. At such adjourned
meeting at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally
noticed. If the adjournment is for more than 30 days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder entitled to vote at the
meeting.
SECTION 5. VOTING. Unless otherwise required by law, the
Certificate of Incorporation or these By-Laws, any question brought before any
meeting of stockholders shall be decided by the vote of the holders of a
majority of the stock represented and entitled to vote thereat. Each stockholder
represented at a meeting of stockholders shall be entitled to cast one vote for
each share of the capital stock entitled to vote thereat held by such
stockholder. Such votes may be cast in person or by proxy but no proxy shall be
voted on or after three years from its date, unless such proxy provides for a
longer period. The Board of Directors, in its discretion, or the officer of the
Corporation presiding at a meeting of stockholders, in such officer's
discretion, may require that any votes cast at such meeting be cast by written
ballot.
SECTION 6. CONSENT OF STOCKHOLDERS IN LIEU OF MEETING. Unless
otherwise provided in the Certificate of Incorporation, any action required by
law to be taken at any annual or special meeting of stockholders of the
Corporation, or any action which may be taken at any annual or special meeting
of stockholders of the Corporation, may be taken without a meeting, without
prior notice and without a vote, if a consent or consents in writing, setting
forth the action so taken, shall be signed by the holders of outstanding stock
entitled to vote thereon having not less than the minimum number of votes that
would be necessary to authorize or take such action at a meeting at which all
shares entitled to vote thereon were present and voted and shall be delivered to
the Corporation by delivery to its registered office in the State of Delaware,
its principal place of business, or an officer or agent of the Corporation
having custody of the book in which proceedings of meetings of stockholders are
recorded. Delivery made to the Corporation's registered office shall be by hand
or by certified or registered mail, return receipt requested. Prompt notice of
the taking of the corporate action without a meeting by less than unanimous
written consent shall be
2
<PAGE>
given to those stockholders who have not consented in writing and who, if the
action had been taken at a meeting, would have been entitled to notice of the
meeting if the record date for such meeting had been the date that written
consents signed by a sufficient number of holders to take the action were
delivered to the Corporation. In the event that the action which is consented to
is such as would have required the filing of a certificate under the Delaware
General Corporation Law (the "DGCL"), if such action had been voted on by
stockholders at a meeting thereof, the certificate filed shall state, in lieu of
any statement concerning any vote of stockholders, that written consent has been
given as provided in this Section 6.
SECTION 7. MEETING BY MEANS OF CONFERENCE TELEPHONE. Unless
otherwise provided by the Certificate of Incorporation or these By-Laws, any
stockholder may participate in a meeting of the stockholders by means of a
conference telephone or similar communications equipment that enables all
persons participating in the meeting to hear each other, and participation in a
meeting pursuant to this Section 7 shall constitute presence in person at such
meeting.
SECTION 8. LIST OF STOCKHOLDERS ENTITLED TO VOTE. The officer
who has charge of the stock ledger of the Corporation shall prepare and make, at
least ten days before every meeting of stockholders, a complete list of the
stockholders entitled to vote at the meeting, arranged in alphabetical order,
and showing the address of each stockholder and the number of shares registered
in the name of each stockholder. Such list shall be open to examination by any
stockholder, for any purpose germane to the meeting, during ordinary business
hours, for a period of at least ten days prior to the meeting, either at a place
within the city where the meeting is to be held, which place shall be specified
in the notice of the meeting, or, if not so specified, at the place where the
meeting is to be held. The list shall also be produced and kept at the time and
place of the meeting during the whole time thereof, and may be inspected by any
stockholder of the Corporation who is present. Upon the wilful neglect or
refusal of the directors to produce such a list at any meeting for the election
of directors, they shall be ineligible for election to any office at such
meeting.
SECTION 9. STOCK LEDGER. The stock ledger of the
Corporation shall be the only evidence as to who are the
stockholders entitled to examine the stock ledger, the list
3
<PAGE>
of stockholders or the books of the Corporation, or to vote in person or by
proxy at any meeting of stockholders.
ARTICLE II
DIRECTORS
SECTION 1. NUMBER AND QUALIFICATIONS OF DIRECTORS. The number
of members constituting the Board of Directors shall be determined from time to
time by resolutions adopted by a majority of the entire Board. Directors need
not be stockholders or citizens or residents of the United States of America.
Each of the directors of the Corporation shall hold office until such director's
resignation or removal in the manner hereinafter provided.
SECTION 2. ELECTION; RESIGNATIONS. The Board of Directors
shall initially consist of the persons elected by the sole incorporator of the
Corporation, and each director shall hold office until the first annual meeting
of stockholders or until such director's successor is duly elected and
qualified. At the first annual meeting of stockholders and at each annual
meeting thereafter, the stockholders shall elect directors each of whom shall
hold office for a term of one year or until such director's successor is duly
elected and qualified, subject to such director's earlier death, resignation,
disqualification or removal. Any director may resign at any time. Such
resignation shall be made in writing, and shall take effect at the time
specified therein, and if no time be specified, at the time of its receipt by
the Chairperson of the Board, if any, the President or the Secretary. The
acceptance of a resignation shall not be necessary to make it effective.
SECTION 3. REMOVAL. Any director or directors may be removed
either for or without cause at any time by the affirmative vote of the holders
of a majority of all the shares of stock outstanding and entitled to vote for
the election of directors, at a regular meeting or a special meeting called for
that purpose, and the vacancy thus created may be filled, at such meeting, by
the affirmative vote of holders of a majority of all the shares of stock
outstanding and entitled to vote.
SECTION 4. VACANCIES. Any newly created directorship or any
vacancy occurring in the Board of Directors for any cause may be filled by a
majority of the directors then in office, though less than a quorum, or by a
4
<PAGE>
sole remaining director, and the directors so chosen shall hold office until
their earlier resignation or removal.
SECTION 5. DUTIES AND POWERS. The business of the Corporation
shall be managed by or under the direction of the Board of Directors which may
exercise all such powers of the Corporation and do all such lawful acts and
things as are not by law or by the Certificate of Incorporation or by these
By-Laws conferred upon or reserved to the stockholders; PROVIDED, HOWEVER, that
any action taken by the Board of Directors shall be subject to reversal in the
event of a contrary vote by the Corporation's stockholders.
SECTION 6. MEETINGS. The Board of Directors of the Corporation
may hold meetings, both regular and special, either within or without the State
of Delaware. Regular meetings of the Board of Directors may be held without
notice at such time and at such place as may from time to time be determined by
the Board of Directors. Special meetings of the Board of Directors may be called
by the Chairperson of the Board, if any, the President, or any two or more
directors. Notice thereof stating the place, date and hour of the meeting shall
be given to each director not less than 24 hours before the date of the meeting,
or on such shorter notice as the person or persons calling such meeting may deem
necessary or appropriate in the circumstances.
SECTION 7. QUORUM. Except as may be otherwise specifically
provided by law, the Certificate of Incorporation or these By-Laws, at all
meetings of the Board of Directors, a majority of the entire Board of Directors
then in office shall constitute a quorum for the transaction of business and the
act of a majority of the directors present at any meeting at which there is a
quorum shall be the act of the Board of Directors. If a quorum shall not be
present at any meeting of the Board of Directors, the directors present thereat
may adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present.
SECTION 8. ACTIONS OF BOARD. Unless otherwise provided by the
Certificate of Incorporation or these By-Laws, any action required or permitted
to be taken at any meeting of the Board of Directors may be taken without a
meeting, if all the members of the Board of Directors consent thereto in
writing, and such writing is filed with the minutes of proceedings of the Board
of Directors.
5
<PAGE>
SECTION 9. MEETING BY MEANS OF CONFERENCE TELEPHONE. Unless
otherwise provided by the Certificate of Incorporation or these By-Laws, members
of the Board of Directors of the Corporation may participate in a meeting of the
Board of Directors by means of a conference telephone or similar communications
equipment that enables all persons participating in the meeting to hear each
other, and participation in a meeting pursuant to this Section 9 shall
constitute presence in person at such meeting.
SECTION 10. COMMITTEES. The Board of Directors may designate
one or more committees, each committee to consist of one or more of the
directors of the corporation. The Board of Directors may designate one or more
directors as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee. In the absence or
disqualification of a member of the committee, the member or members present at
any meeting and not disqualified from voting, whether or not such member or
members constitute a quorum, may unanimously appoint another member of the Board
of Directors to act at the meeting in the place of any such absent or
disqualified member. Any such committee, to the extent permitted by law and to
the extent provided in the resolution of the Board of Directors, shall have and
may exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the Corporation, and may authorize the
seal of the Corporation to be affixed to all papers which may require it.
ARTICLE III
OFFICERS
SECTION 1. GENERAL. The officers of the Corporation shall be
chosen by the Board of Directors and shall be a President, a Secretary and a
Treasurer. The Board of Directors may also choose such other officers as the
Board of Directors, in its sole discretion shall deem necessary or advisable.
Any number of offices may be held by the same person, unless otherwise
prohibited by law, the Certificate of Incorporation or these By-Laws. The
officers of the Corporation need not be stockholders of the Corporation nor,
except in the case of the Chairperson of the Board and any Vice Chairperson of
the Board, need such officers be directors of the Corporation.
6
<PAGE>
SECTION 2. ELECTION. The Board of Directors shall elect the
officers of the Corporation who shall hold their offices for such terms and
shall exercise such powers and perform such duties as shall be determined from
time to time by the Board of Directors; and all officers of the Corporation
shall hold office until their successors are chosen and qualified, or until
their earlier resignation or removal. Any officer elected by the Board of
Directors may be removed at any time by the affirmative vote of a majority of
the Board of Directors. Any vacancy occurring in any office of the Corporation
shall be filled by the Board of Directors.
SECTION 3. VOTING SECURITIES OWNED BY THE CORPORATION. Powers
of attorney, proxies, waivers of notice of meeting, consents and other
instruments relating to securities owned by the Corporation may be executed in
the name of and on behalf of the Corporation by any officer of the Corporation
and any such officer may, in the name of and on behalf of the Corporation, take
all such action as any such officer may deem advisable to vote in person or by
proxy at any meeting of security holders of any corporation in which the
Corporation may own securities and at any such meeting shall possess and may
exercise any and all rights and powers incident to the ownership of such
securities and which, as the owner thereof, the Corporation might have exercised
and possessed if present, in each case subject to having obtained the requisite
Board of Directors' and stockholders' approvals with respect to any such matter.
The Board of Directors may, by resolution, from time to time confer like powers
upon any other person or persons.
SECTION 4. POWERS AND DUTIES OF EXECUTIVE OFFICERS. The
officers of the Corporation shall have such powers and duties in the management
of the Corporation as may be prescribed in a resolution by the Board of
Directors and, to the extent not so provided, as generally pertain to their
respective offices, subject to the control of the Board of Directors. The Board
of Directors may require any officer, agent or employee to give security for the
faithful performance of his duties.
7
<PAGE>
ARTICLE IV
STOCK
SECTION 1. FORM OF CERTIFICATES; SIGNATURES. Every holder of
stock in the Corporation shall be entitled to have a certificate signed in the
name of the Corporation (i) by the Chairperson of the Board or a Vice
Chairperson of the Board or the President or a Vice President and (ii) by the
Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary
of the Corporation, certifying the number of shares owned by such person in the
Corporation. Any of or all the signatures on the certificate may be a facsimile.
In case any officer, transfer agent or registrar who has signed or whose
facsimile signature has been placed upon a certificate shall have ceased to be
such officer, transfer agent or registrar before such certificate is issued, it
may be issued by the Corporation with the same effect as if such person were
such officer, transfer agent or registrar at the date of issue.
SECTION 2. LOST CERTIFICATES. The Board of Directors may
direct a new certificate to be issued in place of any certificate theretofore
issued by the Corporation alleged to have been lost, stolen or destroyed, and
the Board of Directors may, in its discretion and as a condition precedent to
the issuance thereof, require the owner of such lost, stolen or destroyed
certificate, or such owner's legal representative, to give the Corporation a
bond in such sum as it may direct as indemnity against any claim that may be
made against the Corporation with respect to the certificate alleged to have
been lost, stolen or destroyed.
ARTICLE V
NOTICES
SECTION 1. NOTICES. Whenever written notice is required by
law, the Certificate of Incorporation or these By-Laws to be given to any
director or stockholder, such notice may be given by mail, addressed to such
director or stockholder at such person's address as it appears on the records of
the Corporation, with postage thereon prepaid, and such notice shall be deemed
to be given at the time when the same shall be deposited in the United States
mail. Written notice may also be given personally or by facsimile, telegram,
telex or cable.
8
<PAGE>
SECTION 2. WAIVERS OF NOTICE. Whenever any notice is required
by law, the Certificate of Incorporation or these By-Laws to be given to any
director or stockholder, a waiver thereof in writing, signed by the person or
persons entitled to said notice, whether before or after the time stated
therein, shall be deemed equivalent thereto. Attendance of a director or a
stockholder in person or by proxy at such a meeting shall constitute a waiver of
notice to such director or stockholder of such meeting, except when such
director or stockholder attends the meeting for the express purpose of objecting
at the beginning of the meeting to the transaction of any business because the
meeting is not lawfully called or convened.
ARTICLE VI
GENERAL PROVISIONS
SECTION 1. DIVIDENDS. Subject to the provisions of the
Certificate of Incorporation, dividends upon the capital stock of the
Corporation may be declared by the Board of Directors at any regular or special
meeting, and may be paid in cash or in property. Before payment of any dividend,
there may be set aside out of any funds of the Corporation available for
dividends such sum or sums as the Board of Directors from time to time, in its
absolute discretion, deems proper as a reserve or reserves to meet
contingencies, or for equalizing dividends, or for repairing or maintaining any
property of the Corporation or for any proper purpose, and the Board of
Directors may modify or abolish any such reserve.
SECTION 2. DISBURSEMENTS. All checks or demands for money and
notes of the Corporation shall be signed by such officer or officers or such
other person or persons as the Board of Directors may from time to time
designate.
SECTION 3. FISCAL YEAR. The fiscal year of the
Corporation shall be the calendar year, or such other period
as may be adopted by resolution of the Board of Directors.
SECTION 4. CORPORATE SEAL. The corporate seal shall have
inscribed thereon the name of the Corporation, the year of its organization and
the words "Corporate Seal, Delaware". The seal may be used by causing it or a
facsimile thereof to be impressed or affixed or reproduced or otherwise.
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<PAGE>
ARTICLE VII
INDEMNIFICATION
SECTION 1. POWER TO INDEMNIFY IN ACTIONS, SUITS OR PROCEEDINGS
OTHER THAN THOSE BY OR IN THE RIGHT OF THE CORPORATION. Subject to Section 3 of
this Article VII, the Corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation) by
reason of the fact that such person is or was a director, officer, employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by such person in connection with
such action, suit or proceeding if such person acted in good faith and in a
manner such person reasonably believed to be in or not opposed to the best
interests of the Corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe such person's conduct was
unlawful. The termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of NOLO CONTENDERE or its equivalent,
shall not, of itself, create a presumption that the person did not act in good
faith and in a manner which such person reasonably believed to be in or not
opposed to the best interests of the Corporation, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that such
person's conduct was unlawful.
SECTION 2. POWER TO INDEMNIFY IN ACTIONS, SUITS OR PROCEEDINGS
BY OR IN THE RIGHT OF THE CORPORATION. Subject to Section 3 of this Article VII,
the Corporation shall have the power to indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the Corporation to procure a
judgment in its favor by reason of the fact that such person is or was a
director, officer, employee or agent of the Corporation, or is or was serving at
the request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
against expenses (including attorneys' fees) actually and reasonably incurred
10
<PAGE>
by such person in connection with the defense or settlement of such action or
suit if such person acted in good faith and in a manner such person reasonably
believed to be in or not opposed to the best interests of the Corporation;
except that no indemnification shall be made in respect of any claim, issue or
matter as to which such person shall have been adjudged to be liable to the
Corporation unless and only to the extent that the Court of Chancery or the
court in which such action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all the circumstances
of the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Court of Chancery or such other court shall deem proper.
SECTION 3. AUTHORIZATION OF INDEMNIFICATION. Any
indemnification under this Article VII (unless ordered by a court) shall be made
by the Corporation only as authorized in the specific case upon a determination
that indemnification of the present or former director, officer, employee or
agent is proper in the circumstances because such person has met the applicable
standard of conduct set forth in Section 1 or Section 2 of this Article VII, as
the case may be. Such determination shall be made, with respect to a person who
is a director or officer at the time of such determination, (i) by a majority
vote of the directors who are not parties to such action, suit or proceeding,
even though less than a quorum, or (ii) by a committee of such directors
designated by majority vote of such directors, even though less than a quorum,
or (iii) if there are no such directors, or if such directors so direct, by
independent legal counsel in a written opinion, or (iv) by the stockholders. To
the extent, however, that a director, officer, employee or agent of the
Corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding described above, or in defense of any claim, issue or
matter therein, such person shall be indemnified against expenses (including
attorneys' fees) actually and reasonably incurred by such person in connection
therewith, without the necessity of authorization in the specific case.
SECTION 4. GOOD FAITH DEFINED. For purposes of any
determination under Section 3 of this Article VII, a person shall be deemed to
have acted in good faith and in a manner such person reasonably believed to be
in or not opposed to the best interests of the Corporation, or, with respect to
any criminal action or proceeding, to have had no reasonable cause to believe
such person's conduct was
11
<PAGE>
unlawful, if such person's action is based on the records or books of account of
the Corporation or another enterprise, or on information supplied to such person
by the officers of the Corporation or another enterprise in the course of their
duties, or on the advice of legal counsel for the Corporation or another
enterprise or on information or records given or reports made to the Corporation
or another enterprise by an independent certified public accountant or by an
appraiser or other expert selected with reasonable care by the Corporation or
another enterprise. The term "another enterprise" as used in this Section 4
shall mean any other corporation or any partnership, joint venture, trust,
employee benefit plan or other enterprise of which such person is or was serving
at the request of the Corporation as a director, officer, employee or agent. The
provisions of this Section 4 shall not be deemed to be exclusive or to limit in
any way the circumstances in which a person may be deemed to have met the
applicable standard of conduct set forth in Section 1 or 2 of this Article VII,
as the case may be.
SECTION 5. INDEMNIFICATION BY A COURT. Notwithstanding any
contrary determination in the specific case under Section 3 of this Article VII,
and notwithstanding the absence of any determination thereunder, any director,
officer, employee or agent may apply to any court of competent jurisdiction in
the State of Delaware for indemnification to the extent otherwise permissible
under Sections 1 and 2 of this Article VII. The basis of such indemnification by
a court shall be a determination by such court that indemnification of the
director, officer, employee or agent is proper in the circumstances because such
person has met the applicable standards of conduct set forth in Sections 1 or 2
of this Article VII, as the case may be. Neither a contrary determination in the
specific case under Section 3 of this Article VII nor the absence of any
determination thereunder shall be a defense to such application or create a
presumption that the director, officer, employee or agent seeking
indemnification has not met any applicable standard of conduct. Notice of any
application for indemnification pursuant to this Section 5 shall be given to the
Corporation promptly upon the filing of such application. If successful, in
whole or in part, the director, officer, employee or agent seeking
indemnification shall also be entitled to be paid the expense of prosecuting
such application.
SECTION 6. EXPENSES PAYABLE IN ADVANCE. Expenses
incurred in defending or investigating a threatened or
12
<PAGE>
pending action, suit or proceeding shall be paid by the Corporation in advance
of the final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director, officer, employee or agent to
repay such amount if it shall ultimately be determined that such person is not
entitled to be indemnified by the Corporation as authorized in this Article VII.
SECTION 7. NONEXCLUSIVITY OF INDEMNIFICATION AND ADVANCEMENT
OF EXPENSES. The indemnification and advancement of expenses provided by or
granted pursuant to this Article VII shall not be deemed exclusive of any other
rights to which those seeking indemnification or advancement of expenses may be
entitled under any By-law, agreement, contract, vote of stockholders or
disinterested directors or pursuant to the direction (howsoever embodied) of any
court of competent jurisdiction or otherwise, both as to action in such
director's official capacity and as to action in another capacity while holding
such office, it being the policy of the Corporation that indemnification of the
persons specified in Sections 1 and 2 of this Article VII shall be made to the
fullest extent permitted by law. The provisions of this Article VII shall not be
deemed to preclude the indemnification of any person who is not specified in
Section 1 or 2 of this Article VII but whom the Corporation has the power or
obligation to indemnify under the provisions of the DGCL or otherwise.
SECTION 8. INSURANCE. The Corporation may purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise
against any liability asserted against such person and incurred by such person
in any such capacity, or arising out of such person's status as such, whether or
not the Corporation would have the power or the obligation to indemnify such
person against such liability under the provisions of this Article VII.
SECTION 9. CERTAIN DEFINITIONS. For purposes of this Article
VII, references to "the Corporation" shall include, in addition to the resulting
corporation, any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers, employees or agents, so that any person who is or was a
13
<PAGE>
director, officer, employee or agent of such constituent corporation, or is or
was serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise, shall stand in the same
position under the provisions of this Article VII with respect to the resulting
or surviving corporation as such person would have with respect to such
constituent corporation if its separate existence had continued. For purposes of
this Article VII, references to "fines" shall include any excise taxes assessed
on a person with respect to an employee benefit plan; and references to "serving
at the request of the Corporation" shall include any service as a director,
officer, employee or agent of the Corporation which imposes duties on, or
involves services by, such director, officer, employee or agent with respect to
an employee benefit plan, its participants or beneficiaries; and a person who
acted in good faith and in a manner such person reasonably believed to be in the
interest of the participants and beneficiaries of an employee benefit plan shall
be deemed to have acted in a manner "not opposed to the best interests of the
Corporation" as referred to in this Article VII.
SECTION 10. SURVIVAL OF INDEMNIFICATION AND ADVANCEMENT OF
EXPENSES. The indemnification and advancement of expenses provided by, or
granted pursuant to, this Article VII shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
SECTION 11. LIMITATION ON INDEMNIFICATION. Notwithstanding
anything contained in this Article VII to the contrary, except for proceedings
to enforce rights to indemnification (which shall be governed by Section 5
hereof), the Corporation shall not be obligated to indemnify any director,
officer, employee or agent in connection with a proceeding (or part thereof)
initiated by such person unless such proceeding (or part thereof) was authorized
or consented to by the Board of Directors of the Corporation.
14
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ARTICLE VIII
AMENDMENTS
SECTION 1. AMENDMENT, ETC. The Board of Directors shall have
the power to adopt, amend or repeal By-Laws. By-Laws adopted by the Board of
Directors may be repealed or changed, and new By-Laws made, by the stockholders,
and the stockholders may prescribe that any By-Law made by them shall not be
altered, amended or repealed by the Board of Directors.
15
<PAGE>
Exhibit 3.7
CERTIFICATE OF INCORPORATION
OF
LLS ACQUISITION CORPORATION
The undersigned, in order to form a corporation for the
purpose hereinafter stated, under and pursuant to the provisions of the Delaware
General Corporation Law, hereby certifies that:
FIRST: The name of the Corporation is LLS Acquisition
Corporation.
SECOND: The registered office and registered agent of the
Corporation is The Corporation Trust Company, 1209 Orange Street, Wilmington,
New Castle County, Delaware, 19801.
THIRD: The purpose of the Corporation is to engage in any
lawful act or activity for which corporations may be organized under the General
Corporation Law of Delaware.
FOURTH: The total number of shares of stock that the
Corporation is authorized to issue is 1,000 shares of Common Stock, par value
$0.01 each.
FIFTH: The name and address of the incorporator is Beverly C.
Chell, 745 Fifth Avenue, New York, New York 10151.
SIXTH: The Board of Directors of the Corporation, acting by
majority vote, may alter, amend or repeal the By-Laws of the Corporation.
SEVENTH: Except as otherwise provided by the Delaware General
Corporation Law as the same exists or may hereafter be amended, no director of
the Corporation shall be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director.
Any repeal or modification of this Article SEVENTH by the stockholders of the
Corporation shall not adversely affect any right or protection of a director of
the Corporation existing at the time of such repeal or modification.
IN WITNESS WHEREOF, the undersigned has signed this
Certificate of Incorporation on August 23, 1994.
------------------
Beverly C. Chell
<PAGE>
2
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
LLS ACQUISITION CORPORATION
* * * * * * * * * *
PURSUANT TO SECTION 242 OF THE GENERAL CORPORATION
LAW OF THE STATE OF DELAWARE
LLS Acquisition Corporation, a corporation organized and existing under
and by virtue of the Delaware General Corporation Law (hereinafter called the
"Corporation"). DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of the Corporation, by unanimous
written consent of its members, filed with the minutes of the Board duly adopted
resolutions setting forth a proposed amendment to the Certificate of
Incorporation of said Corporation, declaring said amendment to be advisable and
proposing such amendment to the sole stockholder of the Corporation for such
stockholder's consideration. The resolution setting forth the proposed amendment
as follows:
"RESOLVED, that the Board of Directors hereby deems it
advisable and in the best interests of the Corporation and its
stockholders that the Certificate of Incorporation of the Corporation
(the "Charter") be amended by deleting Article FIRST thereof in its
entirety and by substituting, in lieu of said Article, the following
new Article:
FIRST: The name of the Corporation is Lifetime Learning
Systems, Inc.; and
RESOLVED, that the foregoing amendment to the Charter be, and
the same hereby is, approved and adopted, subject to the approval of
such amendment by the sole stockholder of the Corporation; and further
RESOLVED, that the submission of the foregoing amendment for
approval by the sole stockholder of the Corporation be, and the same
hereby is, approved.
SECOND: That thereafter, by written consent filed with the minutes of
the Corporation, the sole stockholder approved said amendment as adopted by the
Board of Directors.
THIRD: That the above amendment was duly adopted in accordance with the
provisions of Section 242 General Corporation Law of the State of Delaware.
<PAGE>
3
IN WITNESS WHEREOF, said LLS ACQUISITION CORPORATION has caused this
certificate to be signed by Michaelanne Discepolo, a Vice President, and
attested by Beverly C. Chell, Secretary, this 7th day of September, 1994.
LLS ACQUISITION CORPORATION
By:
------------------------
Michaelanne Discepolo
Vice President
ATTEST:
By:
-------------------------
Beverly C. Chell
Secretary
<PAGE>
EXHIBIT 3.8
LIFETIME LEARNING SYSTEMS, INC.
BY-LAWS
ARTICLE I
MEETINGS OF STOCKHOLDERS
Section 1. PLACE OF MEETING AND NOTICE. Meetings of the stockholders of
the Corporation shall be held at such place either within or without the State
of Delaware as the Board of Directors may determine.
Section 2. ANNUAL AND SPECIAL MEETINGS. Annual meetings of stockholders
shall be held, at a date, time and place fixed by the Board of Directors and
stated in the notice of meeting, to elect a Board of Directors and to transact
such other business as may properly come before the meeting. Special meetings of
the stockholders may be called by the President for any purpose and shall be
called by the President or Secretary if directed by the Board of Directors or
requested in writing by the holders of not less than 25% of the capital stock of
the Corporation. Each such stockholder request shall state the purpose of the
proposed meeting.
Section 3. NOTICE. Except as otherwise provided by law, at least 10 and
not more than 60 days before each meeting of stockholders, written notice of the
time, date and place of the meeting, and, in the case of a special meeting, the
purpose or purposes for which the meeting is called, shall be given to each
stockholder.
Section 4. QUORUM. At any meeting of stockholders, the holders of
record, present in person or by proxy, of a majority of the Corporation's issued
and outstanding capital stock shall constitute a quorum for the transaction of
business, except as otherwise provided by law. In the absence of a quorum, any
officer entitled to preside at or to act as secretary of the meeting shall have
power to adjourn the meeting from time to time until a quorum is present.
Section 5. VOTING. Except as otherwise provided by law, all matters
submitted to a meeting of stockholders shall be decided by vote of the holders
of record, present in person or by proxy, of a majority of the Corporation's
issued and outstanding capital stock.
<PAGE>
2
ARTICLE II
DIRECTORS
Section 1. NUMBER, ELECTION AND REMOVAL OF DIRECTORS. The number of
Directors that shall constitute the Board of Directors shall not be less than
one or more than fifteen. The first Board of Directors shall consist of three
Directors. Thereafter, within the limits specified above, the number of
Directors shall be determined by the Board of Directors or the stockholders. The
Directors shall be elected by stockholders at their annual meeting. Vacancies
and newly created directorships resulting from any increase in the number of
Directors may be filled by a majority of the Directors then in office, although
less than a quorum, or by the sole remaining Director or by the stockholders. A
Director may be removed with or without cause by the stockholders.
Section 2. MEETINGS. Regular meetings of the Board of Directors shall
be held at such times and places as may from time to time be fixed by the Board
of Directors or as may be specified in a notice of meeting.
Section 3. QUORUM. One-third of the total number of Director shall
constitute a quorum for the transaction of business. If a quorum is not present
at any meeting of the Board of Directors, the Directors present may adjourn the
meeting from time to time, without notice other than announcement at the
meeting, until such a quorum is present. Except as otherwise provided by law,
the Certificate of Incorporation of the Corporation, these By-Laws or any
contract or agreement to which the Corporation is a party, the act of a majority
of the Directors present at any meeting at which there is a quorum shall be the
act of the Board of Directors.
Section 4. COMMITTEES. The Board of Directors may, by resolution
adopted by a majority of the whole Board, designate one or more committees,
including, without limitation, an Executive Committee, to have and exercise such
power and authority as the Board of Directors shall specify. In the absence or
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another Director to act at the
meeting in place of any such absent or disqualified member.
ARTICLE III
OFFICERS
The officers of the Corporation shall consist of a President, a
Secretary, a Treasurer and such other additional officers with such titles as
the Board of Directors shall determine, all of which shall be chosen by and
shall serve at the pleasure of the Board of Directors. Such officers shall have
the usual powers and shall perform all the usual duties incident to their
respective offices. All officers shall be subject to the supervision and
direction of the Board of Directors. The authority, duties or responsibilities
of any officer of the Corporation may be suspended by the President with or
without cause. Any officer elected or appointed by the Board of Directors may be
removed by the Board of Directors with or without cause.
<PAGE>
3
ARTICLE IV
INDEMNIFICATION
To the fullest extent permitted by the Delaware General Corporation
Law, the Corporation shall indemnify any current or former Director or officer
of the Corporation and may, at the discretion of the Board of Directors,
indemnify any current or former employee or agent of the Corporation against all
expenses, judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with any threatened, pending or
completed action, suit or proceeding brought by or in the right of the
Corporation or otherwise, to which he was or is a party by reason of his current
or former position with the Corporation or by reason of the fact that he is or
was serving, at the request of the Corporation, as a director, officer, partner,
trustee, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise.
ARTICLE V
GENERAL PROVISIONS
Section 1. NOTICES. Whenever any statute, the Certificate of
Incorporation or these By-Laws require notice to be given to any Director or
stockholder, such notice may be given in writing by mail, addressed to such
Director or stockholder at his address as it appears in the records of the
Corporation, with postage thereon prepaid. Such notice shall be deemed to have
been given when it is deposited in the United States mail. Notice to Directors
may also be given by telegram.
Section 2. FISCAL YEAR. The fiscal year of the Corporation shall be
fixed by the Board of Directors.
<PAGE>
Exhibit 3.10
AMENDED
BY-LAWS
AMERICAN GUIDANCE SERVICE, INC.
ARTICLE I.
OFFICE & SEAL
SECTION 1. OFFICE. The registered office of the corporation
shall be Publisher's Building, Circle Pines, Minnesota, 55014, and the
corporation shall have other offices at such places as the Board of Directors
may from time to time determine.
SECTION 2. SEAL. The corporation seal shall have inscribed
thereon the name of the corporation and the words, "Corporate Seal, Minnesota".
Said seal may be used by causing it, or a facsimile thereof to be impressed,
affixed, reproduced or otherwise.
ARTICLE II.
SHAREHOLDERS MEETINGS
SECTION 1. PLACE. All meetings of the Shareholders shall be
held at the registered office of the corporation in the County of Anoka,
Minnesota, and such other places as the Board of Directors may determine except
as limited by law.
SECTION 2. TIME. A meeting of the Shareholders shall be held
at a time to be determined by the Corporation's Board of Directors, when they
shall elect by a majority vote a Board of Directors. Except as otherwise
provided in the articles, pursuant to provisions of Section 301.06 Subdivision 4
and 12 of Minnesota Statutes 1945, directors other than constituting the first
board shall be elected by the Shareholders in accordance with the relative
voting granted in the shares of each class by the articles.
SECTION 3. ANNUAL MEETINGS. Written notice of the annual
meeting shall be mailed at least ten (10) days prior to the meeting to each
Shareholder entitled to vote thereat to the last known address of such
Shareholder as same appears upon the books of the corporation.
SECTION 4. SPECIAL MEETINGS. Written notice of a special
meeting of Shareholders, stating the time, place and object thereof, shall be
mailed to the last known address of such Shareholder, postage prepaid, at least
ten (10) days before such meeting to each Shareholder entitled to vote thereat.
<PAGE>
AMENDED BY-LAWS
PAGE 2
SECTION 5. QUORUM. The presence at any meeting, in person or
by proxy, of the holders of a majority of the shares entitled to vote shall
constitute a quorum for the transaction of business. If, however, such majority
shall not be present in person or by proxy, at any meeting of the Shareholders,
entitled to vote thereat, those present shall have power to adjourn the meeting
from time to time, without notice other than announcement at the meeting, until
the requisite amount of voting shares shall be represented. At such adjourned
meeting at which the required amount of voting shares shall be represented, any
business may be transacted which might have been transacted at the meeting as
originally notified.
SECTION 6. VOTING. At each meeting of the Shareholders, every
Shareholder having the right to vote shall be entitled to vote in person, or by
proxy, duly appointed by an instrument in writing subscribed by such
shareholder. Upon demand of any Shareholder, the vote for directors, or the vote
upon any question before the meeting, shall be by ballot. All elections shall be
had and all questions decided by a majority vote, except as otherwise required
by statute.
SECTION 7. CALL FOR SPECIAL MEETINGS. Special meetings of the
Shareholders, for any purpose, or purposes, unless otherwise prescribed by
statute, shall be called by the President, or shall be called by the President
and Secretary at the request in writing of the Shareholders owning not less than
one-tenth of the voting power of the Shareholders of the corporation. Such call
shall state the purpose or purposes of the proposed meeting.
SECTION 8. ORDER FOR BUSINESS. Business transacted at all
special meetings shall be confined to purposes stated in the call.
ARTICLE III.
BOARD OF DIRECTORS
SECTION 1. ELECTION OF DIRECTORS. The management of this
corporation shall be vested in a Board of Directors to be chosen at each annual
meeting by the shareholders. The Board of Directors shall consist of not less
than three (3) nor more than seven (7) persons who need not be shareholders,
except that where all of the shares of the Corporation are owned beneficially
and of record by either one or two shareholders, the number of directors may be
less than three (3), but not less than the number of shareholders. They shall be
elected at the annual meeting
<PAGE>
AMENDED BY-LAWS
PAGE 3
of Shareholders, by majority vote and each Director shall be elected to serve
for one year or until their successor shall have been elected and qualified.
Except as otherwise provided in the articles pursuant to provisions of Section
301.26, Subdivision 4 and 12, of the MINNESOTA STATUTES 1945, directors, other
than those constituting the first board, shall be selected by the Shareholders
in accordance with the relative voting rights granted to the shares of each
class by the articles.
SECTION 2. ANNUAL MEETING. The regular annual meetings of the
board shall be held without notice at the time and immediately following the
adjournment of the annual Shareholders' meeting, for the purpose of election of
officers for the ensuing year and to transact such other business as may
properly come before it.
SECTION 3. REGULAR MEETINGS. Regular meetings of the board
shall be held without notice at the registered office or such other place within
and without the State of Minnesota and at such times as a majority of the
members of the board may from time to time determine.
SECTION 4. SPECIAL MEETINGS. Special meetings of the board may
be called by the President at any time and shall be called by him whenever
requested to do so in writing by any member of the Board. Notice of special
meetings may be given to each director personally or by mail or telegram at
least five (5) days prior to the meeting. A special meeting may be called
without notice to the directors if a full board convenes and all agree to the
holding of the meeting at such time and place and waive all rights to notice
thereof. Any action which might be taken at a meeting of the Board of Directors
may be taken without meeting if done in writing, signed by all the directors.
SECTION 5. QUORUM. At all meetings of the board, a majority of
the directors shall be necessary and sufficient to constitute a quorum for the
transaction of business, and the act of a majority of the directors present at
the meeting at which there is a quorum, shall be the act of the Board of
Directors.
SECTION 6. ORDER FOR BUSINESS. The Board of
Directors may from time to time determine the order of
business at their meeting.
<PAGE>
AMENDED BY-LAWS
PAGE 4
ARTICLE IV.
POWERS OF BOARD OF DIRECTORS
SECTION 1. MANAGEMENT. The Board of Directors
shall have full power and authority to manage and control
the affairs and business of this corporation.
SECTION 2. CHAIRMAN OF THE BOARD. At each annual meeting,
directors shall choose from among its members a Chairman of the board who shall
conduct the affairs of the Board of Directors and shall preside at all meetings
of the Shareholders and Board of Directors.
SECTION 3. ISSUANCE OF SHARES. The Board of Directors are
authorized and directed to issue shares of the corporation to the full amount
authorized by the Articles of Incorporation in such amounts and at such times as
may be determined by the board and as may be permitted by law.
SECTION 4. TRANSFER OF SHARES. Transfer of shares shall be
made on the books of the corporation only by the person named in the
certificate, or by attorney, lawfully constituted in writing, and upon surrender
of the certificate thereof properly endorsed.
SECTION 5. CLOSING OF BOOKS. The Board of Directors may fix a
time not exceeding (60) days preceding the date of any meeting of the
Shareholders, as a record date for the determination of the shareholders
entitled to notice of and to vote at such meeting, notwithstanding any transfer
of any shares on the books of the corporation after any record date so fixed.
The Board of Directors may close the books of the corporation after any record
date so fixed. The Board of Directors may close the books of the corporation
against transfer of shares during the whole or any part of such period.
SECTION 6. OTHER POWERS. In addition to the powers and
authorities conferred upon them by these By-Laws, the Board of Directors shall
have the power to do all lawful acts necessary and expedient to the conduct of
the business of this corporation, that are not conferred upon the shareholders,
by these By-Laws, or by the Articles of Incorporation, or by Statutes.
ARTICLE V.
OFFICERS
SECTION 1. BOARD OF DIRECTORS. The Board of
Directors at its first meeting after each annual meeting of
<PAGE>
AMENDED BY-LAWS
PAGE 5
Shareholders shall elect a President, one or more Vice- Presidents, a Secretary
and Treasurer, none of whom need be a member of the board. Any two offices,
except that of President and Vice-President, may be held by the same person.
SECTION 2. OTHER OFFICERS. The board may appoint such other
officers and agents as it shall deem necessary, from time to time, who shall
hold their offices for such terms and shall exercise such powers and perform
such duties as shall be determined from time to time by the board.
SECTION 3. TERMS OF OFFICE. The officers of the corporation
shall hold office for one year or until their successors are chosen and qualify
in their stead, notwithstanding an earlier termination of their office as
directors. Any officer elected or appointed by the Board of Directors may be
removed by the affirmative of a majority of the whole Board of Directors.
SECTION 4. PRESIDENT. (a) The President shall be the chief
executive officer of the corporation; he shall have general active management of
the business of the corporation, and shall see that all orders and resolutions
of the board are carried into effect. (b) He shall execute all bonds, mortgages,
and other contracts. (c) He shall be ex-officio a member of all standing
committees, and shall have the general powers and duties of supervision and
management usually vested in the office of the President of a corporation.
SECTION 5. VICE-PRESIDENTS. One of the officers shall be
designated First Vice-President, who in the absence or disability of the
President shall perform the duties and exercise the powers of the President and
shall perform such other duties as the Board of Directors shall prescribe. All
other Vice-Presidents shall perform such duties as the Board of Directors shall
prescribe.
SECTION 6. SECRETARY. The Secretary shall attend all sessions
of the Board of Directors and all meetings of the Shareholders and record all
votes and the minutes of all proceedings in a book kept for that purpose; and
shall perform like duties for the standing committee when required. He shall
give, or cause to be given, notice of all meetings of the Shareholders and of
the Board of Directors, and shall perform such other duties as may be prescribed
by the Board of Directors or President, under whose supervision he shall be. He
shall be sworn to the faithful discharge of his duty. He shall keep in safe
<PAGE>
AMENDED BY-LAWS
PAGE 6
custody the seal of the corporation and, when authorized by the board, affix the
same to any instrument requiring it.
SECTION 7. TREASURER. (a) The Treasurer shall have the custody
of the corporate funds and securities and shall keep full and accurate account
of receipts and disbursements in books belonging to the corporation and shall
deposit all monies and other valuable effects, in the name and to the credit of
the corporation, in such depositories as may be designated by the Board of
Directors. (b) He shall disburse the funds of the corporation as may be ordered
by the board, taking the proper vouchers for such disbursements, and shall
render to the President and Directors, at the regular meetings of the Board, or
whenever they may require it, an account of all his transactions as Treasurer
and of the financial condition of the corporation. (c) He shall give the
corporation a bond if required by a majority of the Board of Directors, in such
amount as they may determine, and with one or more sureties satisfactory to the
board, for the faithful performance of the duties of his office, and for the
restoration to the corporation, in case of his death, resignation, retirement or
removal from office, of all books, papers, vouchers, money and other property of
whatever kind in his possession or under his control, belonging to the
corporation.
SECTION 8. VACANCIES. If the office of any director or any
officer or agent becomes vacant by reason of death, resignation, retirement,
disqualification, removal from office or otherwise, the directors then in
office, although less than a quorum, by a majority vote, may choose a successor
or successors, who shall hold office for the unexpired term in respect of which
such vacancy occurred.
ARTICLE VI.
COMPENSATION OF DIRECTORS & OFFICERS
SECTION 1. COMPENSATION OF DIRECTORS. Directors may be paid
such compensation for their services rendered as directors, as may be fixed by
resolution of the Board of Directors itself, and it shall be lawful for the
Board to allow to each director his expense for attendance at meetings of the
Board. Nothing herein shall be construed to preclude any director from serving
the corporation in any other capacity and receiving compensation therefor.
SECTION 2. COMPENSATION OF OFFICERS. The salaries of all
officers and agents of the corporation shall be determined by the Board of
Directors.
<PAGE>
AMENDED BY-LAWS
PAGE 7
SECTION 3. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Each
director and officer of the corporation, whether or not then in office, shall be
indemnified by the corporation against reasonable costs and expenses (including
counsel fees) incurred by him in connection with any action, suit or proceedings
to which he may be a party by reason of his being or having been a director or
officer of the corporation, except in relation to matters as to which he shall
finally be adjudged in such action, suit or proceeding to have been derelict in
the performance of his duties as such director or officer; and the foregoing
right of indemnification shall not be exclusive of other rights to which he
shall be entitled as a matter of law.
ARTICLE VII.
CERTIFICATES OF SHARES
SECTION 1. CERTIFICATES OF SHARES. Certificates of shares of
the corporation shall be in a form approved by the directors to comply with the
statutes and shall be registered in the books of the corporation as they are
issued. They shall exhibit the holder's name, number of shares, and shall be
signed by the President and Secretary.
SECTION 2. LOST CERTIFICATES. Any shareholder claiming a
certificate of shares to be lost or destroyed shall make an affidavit or
affirmation of the fact in such form as the Board of Directors may require, and
shall, if the directors so require, give the corporation a bond of indemnity in
form and with one or more sureties satisfactory to the board, in at least double
the value of the shares represented by said certificate, whereupon a new
certificate may be issued of the same tenure and for the same number of share as
the one alleged to have been lost or destroyed.
ARTICLE VII.
DIVIDENDS
SECTION 1. DECLARATION. The Board of Directors
shall have authority to declare dividends upon the shares of
the corporation to the extent permitted by law.
SECTION 2. RECORD DATE. The Board of Directors may fix a time
not exceeding sixty (60) days preceding the date fixed for the payment of any
dividend as a record date for the determination of the shareholders entitled to
receive payment of any such dividend, and in such case, only shareholders of
record on that date so fixed shall be entitled to receive payment of such
dividend notwithstanding any transfer of any shares on the books of the
corporation
<PAGE>
AMENDED BY-LAWS
PAGE 8
after any record date so fixed. The Board of Directors may close the books of
the corporation after any record date so fixed. The Board of Directors may close
the books of the corporation against the transfer of shares during the whole or
any part of such period.
ARTICLE VIII.
FISCAL YEAR
SECTION 1. FISCAL YEAR. The fiscal year of this
corporation shall terminate on June 30th of each year.
ARTICLE IX.
AMENDMENTS
SECTION 1. AMENDMENTS TO BY-LAWS. These By-Laws may be amended
or altered by the vote of a majority of the whole Board of Directors at any
meeting provided that notice of such proposed amendments shall have been given
in the notice to the directors of such meeting. Such authority in the Board of
Directors is subject to the powers of the Shareholders to change or repeal such
By-Laws by a majority vote of the shareholders present and represented at any
annual meeting or at any special meeting called for that purpose, and the Board
of Directors shall not make or alter any By-Laws fixing their number,
qualifications, or terms of office.
This is to certify that the foregoing By-Laws are the duly
adopted By-Laws of this corporation.
American Guidance Service, Inc.
By
---------------------------------------
Mark J. Berman
its Secretary/Treasurer
---------------------------------------
Date JANUARY 30, 1995
---------------------------------------
<PAGE>
Exhibit 3.11
ARTICLES OF INCORPORATION
OF
AGS INTERNATIONAL SALES, INC.
We the undersigned incorporators of full age, for the purpose of forming
a corporation under and pursuant to the provisions of Chapter 301, Minnesota
Statuten, known as the Minnesota Business Corporation Act, and laws
amendatory thereof and supplementary thereto, do hereby associate ourselves as
a body corporate and do hereby adopt the following Articles of Incorporation:
I.
The name of this corporation shall be AGS INTERNATIONAL SALES, INC.
II.
The period of existence and the duration or life of this corporation
shall be perpetual.
III.
The principal office and registered place of business of this
corporation shall be Publishers Building, Circle Pines, Minnesota, 55014.
IV.
This corporation is organized for general business purposes and shall
have unlimited power to engage in, and to do any lawful act concerning any
and all lawful business and in particular, but without limitation on the
general business purpose hereinabove stated, to engage in the sale and
export in foreign
<PAGE>
markets of literary, educational, guidance and testing supplies, materials,
and services.
V.
The management of this corporation shall be vested in a Board of
Directors to be chosen at each annual meeting by the Shareholders. The Board
of Directors shall consist of not less than three (3) nor more than seven (7)
persons who need not be Shareholders, except that where all of the shares of
the corporation are owned beneficially and of record by either one or two
shareholders, the number of directors may be less than three (3), but not
less than the number of Shareholders. As each annual meeting of the
Shareholders, the first order of business shall be to determine the number of
members upon the Board of Directors for the ensuing year. The power of the
Board of Directors shall be specified in the By-Laws to be adopted. The
Directors shall choose a President, Vice-President, Secretary and Treasurer.
Any two offices, except President and Vice-President, may be held by the same
person.
VI.
The authorized stock of this corporation shall be $25,000.00 which
shall be divided into 2,500 shares, cash with a par value of $10.00 per
share. Said stock may be issued by the corporation from time to time, for
such consideration as may be fixed from time to time by the Board of
Directors without regard to pre-emptive rights of Shareholders and
<PAGE>
shall be fully paid and not subject to assessment upon the corporation's
receipt of such consideration. There shall be only one class of stock which
shall be common stock. Each share of common stock shall convey with it to
the owner of said share, one vote in the management of the corporation and
the election of Directors.
VII.
The Amount of stated capital with which the corporation shall commence
doing business shall not be less thant $2,500.00.
VIII.
The name and address of each person who has been selected as a director
of the corporation to manage the business and affairs thereof until the next
annual meeting is:
John P. Yackul, 20 P. Golden Lake Road, Circle Pines, Mn. 55014
A. P. Bertee, 26 Golden Lake Road, Circle Pines, Mn. 55014
Norman Dahl, 24 West Road, Circle Pines, Mn. 55014.
IX.
The name and address of each incorporator, who by this instrument, forms
the corporation named above is as follows:
Norman Dahl, 24 West Road, Circle Pines, MN. 55014.
The By-Laws of this corporation shall be adopted by the Board of
Directors to be effective until the first annual meeting of the Shareholders.
IN WITNESS THEREOF, Each incorporator has hereunto affixed his
signature this 29th day of February, 1972.
---- -------- --
IN PRESENCE OF:
/s/ Mary Louise Jabake /s/ Norman Dahl
- ---------------------- ---------------
Norman Dahl
/s/ Margaret Walle Eide
- -----------------------
<PAGE>
Exhibit 3.12
BY-LAWS
AGS INTERNATIONAL SALES, INC.
ARTICLE I.
OFFICE & SEAL
SECTION 1. OFFICE. The registered office of the corporation
shall be Publishers' Building, Circle Pines, Minnesota, 55014, and the
corporation shall have other offices at such places as the Board of Directors
may from time to time determine.
SECTION 2. SEAL. The corporation seal shall have inscribed
thereon the name of the corporation and the words, "Corporate Seal, Minnesota".
Said seal may be used by causing it, or a facsimile thereof to be impressed,
affixed, reproduced or otherwise.
ARTICLE II.
SHAREHOLDERS MEETINGS
SECTION 1. PLACE. All meetings of the Shareholders shall be
held at the registered office of the corporation in the County of Anoka,
Minnesota, and such other places as the Board of Directors may determine except
as limited by law.
SECTION 2. TIME. An annual meeting of the Shareholders after
the year 1972, shall be held on the 2nd Monday in May of each year, or if the
date shall fall upon a holiday, then on the next succeeding business day, when
they shall elect by a majority vote a Board of Directors. Except as otherwise
provided in the articles, pursuant to provisions of Section 301.06 Subdivision 4
and 12 of MINNESOTA STATUTES 1945, directors other than those constituting the
first board shall be elected by the
<PAGE>
2
Shareholders in accordance with the relative voting rights granted in the shares
of each class by the articles.
SECTION 3. ANNUAL MEETINGS. Written notice of the annual
meeting shall be mailed at least ten (10) days prior to the meeting to each
Shareholder entitled to vote thereat to the last known address of such
Shareholder as same appears upon the books of the corporation.
SECTION 4. SPECIAL MEETINGS. Written notice of a special
meeting of Shareholders, stating the time, place and object thereof, shall be
mailed to the last known address of such Shareholders, postage prepaid, at least
three (3) days before such meeting to each Shareholder entitled to vote thereat.
SECTION 5. QUORUM. The presence at any meeting, in person or
by proxy, of the holders of a majority of the shares entitled to vote shall
constitute a quorum for the transaction of business. If, however, such majority
shall not be present in person or by proxy, at any meeting of the Shareholders,
entitled to vote thereat, those present shall have power to adjourn the meeting
from time to time, without notice other than announcement at the meeting, until
the requisite amount of voting shares shall be represented. At such adjourned
meeting at which the required amount of voting shares shall be represented, any
business may be transaction which might have been transacted at the meeting as
originally notified.
SECTION 6. VOTING. At each meeting of the Shareholders, every
Shareholder having the right to vote shall be entitled to vote in person, or by
proxy, duly appointed by an instrument in writing subscribed by such
Shareholder. Upon demand of any Shareholder, the vote for directors, or the vote
upon any question before the meeting, shall be by ballot. All elections shall be
had and all questions decided by a majority vote, except as otherwise required
by statute.
SECTION 7. CALL FOR SPECIAL MEETINGS. Special meetings of
the Shareholders, for any purpose, or purposes,
<PAGE>
3
unless otherwise prescribed by statute, shall be called by the President, or
shall be called by the President and Secretary at the request in writing of the
Shareholders owning not less than one-tenth of the voting power of the
Shareholders of the corporation. Such call shall state the purpose or purposes
of the proposed meeting.
SECTION 8. ORDER FOR BUSINESS. Business transacted at all
special meetings shall be confined to purposes stated in the call.
ARTICLE III.
BOARD OF DIRECTORS
SECTION 1. ELECTION OF DIRECTORS. The property and business of
this corporation shall be managed by its Board of Directors, consisting of not
less than three (3) nor more than seven (7) persons who need not be
Shareholders, except that where all of the shares of the corporation are owned
beneficially and of record by either one or two shareholders, the number of
directors may be less than three (3), but not less than the number of
Shareholders. They shall be elected at the annual meeting of the Shareholders,
by majority vote and each director shall be elected to serve for one year or
until his successor shall have been elected and qualified. Except as otherwise
provided in the articles pursuant to provisions of Section 301.06, Subdivision 4
and 12 of MINNESOTA STATUTES 1945, directors, other than those constituting the
first board, shall be selected by the Shareholders in accordance with the
relative voting rights granted to the shares of each class by the articles.
SECTION 2. ANNUAL MEETINGS. The regular annual meetings of the
board shall be held without notice at the time and immediately following the
adjournment of the annual Shareholders' meeting, for the purpose of election of
officers for the ensuing year and to transact such other business as may
properly come before it.
<PAGE>
4
SECTION 3. REGULAR MEETINGS. Regular meetings of the board
shall be held without notice at the registered office or such other place within
and without the State of Minnesota and at such times as a majority of the
members of the board may from time to time determine.
SECTION 4. SPECIAL MEETINGS. Special meetings of the board may
be called by the President at any time and shall be called by him whenever
requested to do so in writing by any member of the Board. Notice of special
meetings may be given to each director personally or by mail or telegram at
least three (3) days prior to the meeting. A special meeting may be called
without notice to the directors if a full board convenes and all agree to the
holding of the meeting at such time and place and waive all rights to notice
thereof. Any action which might be taken at a meeting of the Board of Directors
may be taken without meeting if done in writing, signed by all the directors.
SECTION 5. QUORUM. At all the meetings of the board, a
majority of the directors shall be necessary and sufficient to constitute a
quorum for the transaction of business, and the act of a majority of the
directors present at the meeting at which there is a quorum, shall be the act of
the Board of Directors.
SECTION 6. ORDER FOR BUSINESS. The Board of Directors may
from time to time determine the order of business at their meeting.
ARTICLE IV.
POWERS OF BOARD OF DIRECTORS
SECTION 1. MANAGEMENT. The Board of Directors shall have
full power and authority to manage and control the affairs and business of
this corporation.
SECTION 2. ISSUANCE OF SHARES. The Board of Directors are
authorized and directed to issue shares of the corporation to the full amount
authorized by the Articles of
<PAGE>
5
Incorporation in such amounts and at such times as may be determined by the
board and as may be permitted by law.
SECTION 3. TRANSFER OF SHARES. Transfer of shares shall be
made on the books of the corporation only by the person named in the
certificate, or by attorney, lawfully constituted in writing, and upon surrender
of the certificate therefor, properly endorsed.
SECTION 4. CLOSING OF BOOKS. The Board of Directors may fix a
time not exceeding sixty (60) days preceding the date of any meeting of the
Shareholders, as a record date for the determination of the shareholders
entitled to notice of and to vote at such meeting, notwithstanding any transfer
of any shares on the books of the corporation after any record date so fixed.
The Board of Directors may close the books of the corporation after any record
date so fixed. The Board of Directors may close the books of the corporation
against transfer of shares during the whole or any part of such period. SECTION
5. OTHER POWERS. In addition to the powers and authorities conferred upon them
by these By-Laws, the Board of Directors shall have the power to do all lawful
acts necessary and expedient to the conduct of the business of this corporation,
that are not conferred upon the shareholders, by these By-Laws, or by the
Articles of Incorporation, or by Statutes.
ARTICLE V.
OFFICERS
SECTION 1. OFFICERS. The Board of Directors at its first
meeting after each annual meeting of Shareholders shall elect a President,
Vice-President, Secretary and Treasurer, none of whom need be a member of the
board. Any two officers, except that of President and Vice-President, may be
held by the same person.
SECTION 2. OTHER OFFICERS. The board may appoint such
other officers and agents as it shall deem necessary,
<PAGE>
6
from time to time, who shall hold their offices for such terms and shall
exercise such powers and perform such duties as shall be determined from time to
time by the board.
SECTION 3. TERMS OF OFFICE. The officers of the corporation
shall hold office for one year or until their successors are chosen and qualify
in their stead, notwithstanding an earlier termination of their office as
directors. Any officer elected or appointed by the Board of Directors may be
removed by the affirmative of a majority of the whole Board of Directors.
SECTION 4. PRESIDENT. (a) The President shall be the chief
executive officer of the corporation; he shall preside at all meetings of the
shareholders and directors; he shall have general active management of the
business of the corporation, and shall see that all orders and resolutions of
the board are carried into effect. (b) He shall execute all bonds, mortgages,
and other contracts. (c) He shall be ex-officio a member of all standing
committees, and shall have the general powers and duties of supervision and
management usually vested in the office of the President of a corporation.
SECTION 5. VICE-PRESIDENT. The Vice-President shall, in the
absence or disability of the President, perform the duties and exercise the
powers of the President, and shall perform such other duties as the Board of
Directors shall prescribe.
SECTION 6. SECRETARY. The Secretary shall attend all sessions
of the Board of Directors and all meetings of the Shareholders and record all
votes and the minutes of all proceedings in a book kept for that purpose; and
shall perform like duties for the standing committee when required. He shall
give, or cause to be given, notice of all meetings of the Shareholders and of
the Board of Directors, and shall perform such other duties as may be prescribed
by the Board of Directors or President, under whose supervision he shall be. He
shall be sworn to the faithful discharge of his duty. He shall keep in safe
<PAGE>
7
custody the seal of the corporation and, when authorized by the board, affix the
same to any instrument requiring it.
SECTION 7. TREASURER. (a) The Treasurer shall have the custody
of the corporate funds and securities and shall keep full and accurate account
of receipts and disbursements in books belonging to the corporation and shall
deposit all monies and other valuable effects, in the name and to the credit of
the corporation, in such depositories as may be designated by the Board of
Directors. (b) He shall disburse the funds of the corporation as may be ordered
by the board, taking the proper vouchers for such disbursements, and shall
render to the President and Directors, at the regular meetings of the Board, or
whenever they may require it, an account of all his transactions as Treasurer
and of the financial condition of the corporation. (c) He shall give the
corporation a bond if required by a majority of the Board of Directors, in such
amount as they may determine, and with one or more sureties satisfactory to the
board, for the faithful performance of the duties of his office, and for the
restoration to the corporation, in case of his death, resignation, retirement or
removal from office, of all books, papers, vouchers, money and other property of
whatever kind in his possession or under his control, belonging to the
corporation.
SECTION 8. VACANCIES. If the office of any director or any
officer or agent becomes vacant by reason of death, resignation, retirement,
disqualification, removal from office or otherwise, the directors then in
office, although less than a quorum, by a majority vote, may choose a successor
or successors, who shall hold office for the unexpired term in respect of which
such vacancy occurred.
ARTICLE VI.
COMPENSATION OF DIRECTORS & OFFICERS
SECTION 1. COMPENSATION OF DIRECTORS. Directors may be paid
such compensation for their services rendered as directors, as may be fixed by
resolution of the Board of
<PAGE>
8
Directors itself, and it shall be lawful for the Board to allow to each director
his expense for attendance at meetings of the Board. Nothing herein shall be
construed to preclude any director from serving the corporation in any other
capacity and receiving compensation therefor.
SECTION 2. COMPENSATION OF OFFICERS. The salaries of all
officers and agents of the corporation shall be determined by the Board of
Directors.
SECTION 3. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Each
director and officer of the corporation, whether or not then in office, shall be
indemnified by the corporation against reasonable costs and expenses (including
counsel fees) incurred by him in connection with any action, suit or proceedings
to which he may be a party by reason of his being or having been a director or
officer of the corporation, except in relation to matters as to which he shall
finally be adjudged in such action, suit or proceeding to have been derelict in
the performance of his duties as such director or officer; and the foregoing
right of indemnification shall not be exclusive of other rights to which he
shall be entitled as a matter of law.
ARTICLE VII.
CERTIFICATES OF SHARES
SECTION 1. CERTIFICATES OF SHARES. Certificates of shares of
the corporation shall be in a form approved by the directors to comply with the
statutes and shall be registered in the books of the corporation as they are
issued. They shall exhibit the holder's name, number of shares, and shall be
signed by the President and Secretary.
SECTION 2. LOST CERTIFICATES. Any shareholder claiming a
certificate of shares to be lost or destroyed shall make an affidavit or
affirmation of the fact in such form as the Board of Directors may require, and
shall, if the directors so require, give the corporation a bond of indemnity in
form and with one or more sureties satisfactory
<PAGE>
9
to the board, in at least double the value of the shares represented by said
certificate, whereupon a new certificate may be issued of the same tenure and
for the same number of shares as the one alleged to have been lost or destroyed.
ARTICLE VIII.
DIVIDENDS
SECTION 1. DECLARATION. The Board of Directors shall have
authority to declare dividends upon the shares of the corporation to the extent
permitted by law.
SECTION 2. RECORD DATE. The Board of Directors may fix a time
not exceeding sixty (60) days preceding the date fixed for the payment of any
dividend as a record date for the determination of the shareholders entitled to
receive payment of any such dividend, and in such case, only shareholders of
record on that date so fixed shall be entitled to receive payment of such
dividend notwithstanding any transfer of any shares on the books of the
corporation after any record date so fixed. The Board of Directors may close the
books of the corporation after any record date so fixed. The Board of Directors
may close the books of the corporation against the transfer of shares during the
whole or any part of such period.
ARTICLE IX.
FISCAL YEAR
SECTION 1. FISCAL YEAR. The fiscal year of this corporation
shall terminate on the last day of January of each year.
<PAGE>
10
ARTICLE X.
AMENDMENTS
SECTION 1. AMENDMENTS TO BY-LAWS. These By-Laws may be amended
or altered by the vote of a majority of the whole Board of Directors at any
meeting provided that notice of such proposed amendments shall have been given
in the notice to the directors of such meeting. Such authority in the Board of
Directors is subject to the powers of the Shareholders to change or repeal such
By-Laws by a majority vote of the shareholders present and represented at any
annual meeting or at any special meeting called for that purpose, and the Board
of Directors shall not make or alter any By-Laws fixing their number,
qualifications, or terms of office.
This is to certify that the foregoing By-Laws are the duly
adopted By-Laws of this corporation.
-----------------------
<PAGE>
Exhibit 3.13
CERTIFICATE OF INCORPORATION
OF
FUNK & WAGNALLS ACQUISITION CORPORATION
The undersigned, in order to form a corporation for the
purpose hereinafter stated, under and pursuant to the provisions of the Delaware
General Corporation Law, hereby certifies that:
FIRST: The name of the Corporation is Funk &
Wagnalls Acquisition Corporation.
SECOND: The registered office and registered agent of the
Corporation is The Corporation Trust Company, 1209 Orange Street, Wilmington,
New Castle County, Delaware 19801.
THIRD: The purpose of the Corporation is to
engage in any lawful act or activity for which corporations
may be organized under the General Corporation Law of
Delaware.
FOURTH: The total number of shares of stock that
the Corporation is authorized to issue is 1,000 shares of
Common Stock par value $.01 each.
FIFTH: The name and address of the incorporator
is Beverly C. Chell, 717 Fifth Avenue, New York City,
New York 10022.
SIXTH: The Board of Directors of the Corporation
acting by majority vote, may alter, amend or repeal the By-
laws of the Corporation.
SEVENTH: Except as otherwise provided by the Delaware General
Corporation Law as the same exists or may hereafter be amended, no director of
the Corporation shall be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director.
Any repeal or modification of this Article SEVENTH by the stockholders of the
Corporation shall not adversely affect any right or protection of a director of
<PAGE>
the Corporation existing at the time of such repeal or modification.
IN WITNESS WHEREOF, the undersigned has signed this
Certificate of Incorporation on November 28, 1990.
------------------------------
Beverly C. Chell
2
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
FUNK & WAGNALLS ACQUISITION CORPORATION
* * * * * * *
PURSUANT TO SECTION 242 OF THE GENERAL CORPORATION
LAW OF THE STATE OF DELAWARE
* * * * * * *
Funk & Wagnalls Acquisition Corporation a corporation
organized and existing under and by virtue of the General Corporation Law of the
State of Delaware (hereinafter called the "Corporation"), DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of the Corporation, by
unanimous written consent of its members, filed with the minutes of the Board,
duly adopted resolutions setting forth a proposed amendment to the Certificate
of Incorporation of said Corporation, declaring said amendment to be advisable
and proposing such amendment to the sole stockholder of said Corporation for
such stockholder's consideration. The resolution setting forth the proposed
amendment is as follows:
RESOLVED, that the Certificate of Incorporation of
the Corporation be amended by deleting Article FIRST thereof
in its entirety and substituting
<PAGE>
in lieu of said Article the following
new Article: FIRST: The name of the
Corporation is Funk & Wagnalls
Corporation".
SECOND: That thereafter, upon written waiver of notice any by
written consent, filed with the minutes of the Corporation, the sole stockholder
approved said amendment as proposed by the Board of Directors.
THIRD: The amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, said Funk & Wagnalls Acquisition
Corporation has caused this Certificate to be signed by Charles G. McCurdy, its
President, and attested by Beverly C. Chell, its Secretary, the 13th day of
June, 1991.
Funk & Wagnalls Acquisition
Corporation
--------------------------------------
Charles G. McCurdy
Vice President
ATTEST:
By: __________________
Beverly C. Chell
Secretary
2
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
FUNK & WAGNALLS CORPORATION
* * * * * * *
PURSUANT TO SECTION 242 OF THE GENERAL CORPORATION
LAW OF THE STATE OF DELAWARE
Funk & Wagnalls Corporation, a corporation organized and
existing under and by virtue of the Delaware General Corporation Law
(hereinafter called the "Corporation"). DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of the Corporation, by unanimous
written consent of its members, filed with the minutes of the Board duly adopted
resolutions setting forth a proposed amendment to the Certificate of
Incorporation of said Corporation, declaring said amendment to be advisable and
proposing such amendment to the sole stockholder of the Corporation for such
stockholder's consideration. The resolution setting forth the proposed amendment
as follows:
"RESOLVED, that the Board of Directors hereby deems it
advisable and in the best interests of the Corporation and its
stockholders that the Certificate of Incorporation of the Corporation
(the "Charter") be amended by deleting Article FIRST thereof in its
entirety and by substituting, in lieu of said Article, the following
new Article:
FIRST: The name of the Corporation is K-III Reference Corporation; and
RESOLVED, that the foregoing amendment to the Charter be, and
the same hereby is, approved and adopted, subject to the approval of
such amendment by the sole stockholder of the Corporation; and further
RESOLVED, that the submission of the
foregoing amendment for approval by the sole
<PAGE>
stockholder of the Corporation be, and the same
hereby is, approved."
SECOND: That thereafter, by written consent filed with the minutes of
the Corporation, the sole stockholder approved said amendment as adopted by the
Board of Directors.
THIRD: That the above amendment was duly adopted in accordance with the
provisions of Section 242 General
Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, said Funk & Wagnalls Corporation has caused this
certificate to be signed by Curtis A. Thompson, Vice President, and attested by
Beverly C. Chell, Secretary, this 19th day of December, 1995.
Funk & Wagnalls Corporation
By:
-------------------------
Curtis A. Thompson
Vice President
ATTEST:
By:
-----------------------------
Beverly C. Chell
Secretary
2
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
K-III REFERENCE CORPORATION, a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware (the "Corporation"),
DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of the Corporation duly
adopted resolutions setting forth and declaring advisable a proposed amendment
to the Certificate of Incorporation of said Corporation:
RESOLVED, that the Certificate of Incorporation of this
Corporation be amended by changing the First Article so that,
as amended, said Article shall be and read as follows: "The
name of the Corporation is PRIMEDIA Reference Inc."
SECOND: That by written consent, filed with the minutes of the
Corporation, the sole stockholder approved said amendment in accordance with the
provisions of Section 228 of the General Corporation Law of the State of
Delaware.
THIRD: That the aforesaid amendment to the Corporation's
Certificate of Incorporation was duly adopted in accordance with the applicable
provisions of Section 242 and Section 228 of the General Corporation Law of the
State of Delaware.
<PAGE>
IN WITNESS WHEREOF, said K-III Reference Corporation has caused this
certificate to be executed by BEVERLY CHELL, its authorized officer, on this
14th day of November, 1997
By__________________________
Name: Beverly C. Chell
Title: Vice Chairman & Secretary
2
<PAGE>
CERTIFICATE OF AMENDMENT
to the
CERTIFICATE OF INCORPORATION
of
PRIMEDIA REFERENCE INC.
PURSUANT TO SECTION 242 OF THE GENERAL
CORPORATION LAW OF THE STATE OF DELAWARE
PRIMEDIA Reference Inc. (the "Corporation"), a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware (the "DGCL"),
DOES HEREBY CERTIFY AS FOLLOWS:
FIRST. That the Board of Directors of the Corporation by unanimous
written consent duly executed in accordance with Section 141(f) of the General
Corporation Law of the State of Delaware has duly adopted a resolution setting
forth a proposed amendment to the Certificate of Incorporation of the
Corporation, declaring such amendment to be advisable and declaring that it is
advisable that the stockholders of the Corporation adopt resolutions approving
such amendment. Pursuant to the proposed amendment, ARTICLE I of the Certificate
of Incorporation of the Corporation shall be amended to read in its entirety as
follows:
"ARTICLE I
The name of the corporation (the "Corporation") is World Almanac
Education Group, Inc."
SECOND. That thereafter the foregoing amendment was approved by a
majority of the stockholders of the Corporation.
<PAGE>
THIRD. That said amendment was duly adopted in accordance with the
provisions of Sections 228 and 242 of the DGCL.
IN WITNESS WHEREOF, this Certificate of Amendment has been made under the
seal of the Corporation and has been signed by the undersigned, Charles L.
Laurey, Secretary of the Corporation, this 23rd day of December 1999.
---------------------------
Name: Charles L. Laurey
Title: Secretary
2
<PAGE>
EXHIBIT 3.14
K-III REFERENCE CORPORATION
BY-LAWS
ARTICLE I
MEETING OF STOCKHOLDERS
Section 1. PLACE OF MEETING AND NOTICE. Meetings of the
stockholders of the Corporation shall be held at such place either within or
without the State of Delaware as the Board of Directors may determine.
Section 2. ANNUAL AND SPECIAL MEETINGS. Annual meetings of
stockholders shall be held, at a date, time and place fixed by the Board of
Directors and stated in the notice of meeting, to elect a Board of Directors and
to transact such other business as may properly come before the meeting. Special
meetings of the stockholders may be called by the President for any purpose and
shall be called by the President or Secretary if directed by the Board of
Directors or requested in writing by the holders of not less than 25% of the
capital stock of the Corporation. Each such stockholder request shall state the
purpose of the proposed meeting.
Section 3. NOTICE. Except as otherwise provided by law, at
least 10 and not more than 60 days before each meeting of stockholders, written
notice of the time, date and place of the meeting, and, in the case of a special
meeting, the purpose or purposes for which the meeting is called, shall be given
to each stockholder.
Section 4. QUORUM. At any meeting of stockholders, the holders
of record, present in person or by proxy, of a majority of the Corporation's
issued and outstanding capital stock shall constitute a quorum for the
transaction of business, except as otherwise provided by law. In the absence of
a quorum, any officer entitled to preside at or to act as secretary of the
meeting shall have power to adjourn the meeting from time to time until a quorum
is present.
Section 5. VOTING. Except as otherwise provided by law, all
matters submitted to a meeting of stockholders shall be decided by vote of the
holders of record, present in person or by proxy, of a majority of the
Corporation's issued and outstanding capital stock.
<PAGE>
2
ARTICLE II
DIRECTORS
Section 1. NUMBER, ELECTION AND REMOVAL OF DIRECTORS. The
number of Directors that shall constitute the Board of Directors shall be not
less than one or more than fifteen. The first Board of Directors shall consist
of five Directors. Thereafter, within the limits specified above, the number of
Directors shall be determined by the Board of Directors or by the stockholders.
The Directors shall be elected by the stockholders at their annual meeting.
Vacancies and newly created directorships resulting from any increase in the
number of Directors may be filled by a majority of the Directors then in office,
although less than a quorum, or by the sole remaining Director or by the
stockholders. A Director may be removed with or without cause by the
stockholders.
Section 2. MEETINGS. Regular meetings of the Board of
Directors shall be held at such times and places as may from time to time be
fixed by the Board of Directors or as may be specified in a notice of meeting.
Special meetings of the Board of Directors may be held at any time upon the call
of the President and shall be called by the President or Secretary if directed
by at least two members of the Board of Directors. A meeting of the Board of
Directors may be held without notice immediately after the annual meeting of the
stockholders. Notice need not be given of regular or special meetings of the
Board of Directors.
Section 3. QUORUM. One-third of the total number of Directors
shall constitute a quorum for the transaction of business. If a quorum is not
present at any meeting of the Board of Directors, the Directors present may
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until such a quorum is present. Except as otherwise provided by
law, the Certificate of Incorporation of the Corporation, these By-Laws or any
contract or agreement to which the Corporation is a party, the act of a majority
of the Directors present at any meeting at which there is a quorum shall be the
act of the Board of Directors.
Section 4. COMMITTEES OF DIRECTORS. The Board of Directors
may, by resolution adopted by a majority of the whole Board, designate one or
more committees, including without limitation an Executive Committee, to have
and exercise such power and authority as the Board of Directors shall specify.
In the absence or disqualification of a
<PAGE>
3
member of a committee, the member or members thereof present at any meeting and
not disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another Director to act at the meeting in place of any such
absent or disqualified member.
ARTICLE III
OFFICERS
The officers of the Corporation shall consist of a chairman, a
President, a Secretary, a Treasurer and such other additional officers with such
titles as the Board of Directors shall determine, all of whom shall be chosen by
and shall serve at the pleasure of the Board of Directors. Such officers shall
have the usual powers and shall perform all the usual duties incident to their
respective offices. All officers shall be subject to the supervision and
direction of the Board of Directors. The authority, duties or responsibilities
of any officer of the Corporation may be suspended by the President with or
without cause. Any officer elected or appointed by the Board of Directors may be
removed by the Board of Directors with or without cause.
ARTICLE IV
INDEMNIFICATION
To the fullest extent permitted by the Delaware General
Corporation Law, the Corporation shall indemnify any current or former Director
or officer of the Corporation and may, at the discretion of the Board of
Directors, indemnify any current or former employee or agent of the Corporation
against all expenses, judgments, fines and amounts paid in settlement actually
and reasonably incurred by him in connection with any threatened, pending or
completed action, suit or proceeding brought by or in the right of the
Corporation or otherwise, to which he was or is a party or is threatened to be
made a party by reason of his current or former position with the Corporation or
by reason of the fact that he is or was serving, at the request of the
Corporation, as a director, officer, partner, trustee, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise.
<PAGE>
4
ARTICLE V
GENERAL PROVISIONS
Section 1. NOTICES. Whenever any statute, the Certificate of
Incorporation or these By-Laws require notice to be given to any Director or
stockholder, such notice may be given in writing by mail, addressed to such
Director or stockholder at his address as it appears on the records of the
Corporation, with postage thereon prepaid. Such notice shall be deemed to have
been given when it is deposited in the United States mail. Notice to Directors
may also be given by telegram.
Section 2. FISCAL YEAR. The fiscal year of the
Corporation shall be fixed by the Board of Directors.
<PAGE>
Exhibit 3.15
CERTIFICATE OF INCORPORATION
OF
FP REAL ESTATE CORPORATION
The undersigned, incorder to form a corporation for the purpose
hereinafter stated, under and pursuant to the provisions of the Delaware
General Corporation Law,
FIRST: The name of the Corporation is FP Real Estate Corporation.
SECOND: The registered office and registered agent of the corporation is
The Corporation Trust Company, 1209 Orange Street, Wilmington, New Castle
County, Delaware 19801.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General
Corporation Law of Delware.
FOURTH: The total number of shares of stock that the Corporation is
authorized to issue is 1,000 shares of Common Stock par value $ .01 each.
FIFTH: The name and address of the incorporator is Beverly C. Chell,
717 Fifth Avenue, New York City, New York 10022.
SIXTH: The Board of Directors of the Corporation acting by majority
vote, may alter, amend or repeal the By-Laws of the Corporation.
SEVENTH: Except as otherwise provided by the Delaware General
Corporation Law as the same exists or may hereafter be amended, no director
of the Corporation shall be personally liable to the Corporation or tis
stockholders for monetary damages for breach of fiduciary duty as a director.
Any repeal or modification of this Article SEVENTH by the stockholders of the
Corporation shall
<PAGE>
not adversely affect any right or protection of a director of the Corporation
exisiting at the time of such repeal or modification.
IN WITNESS WHEREOF, the undersigned has signed this Certificate of
Incorporation on November 28, 1990.
------------------------------
Beverly C. Chell
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
FP REAL ESTATE CORPORATION
* * * * * * *
Pursuant to Section 242 of the General Corporation
Law of the State of Delaware
* * * * * * *
FP Real Estate Corporation a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware (hereinafter called the "Corporation"), DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of the Corporation, by
unanimous written consent of its members, filed with the minutes of the Board,
duly adopted resolutions setting forth a proposed amendment to the Certificate
of Incorporation of said Corporation, declaring said amendment to be advisable
and proposing such amendment to the sole stockholder of said Corporation for
such stockholder's consideration. The resolution setting forth the proposed
amendment is as follows:
RESOLVED, that the Certificate of Incorporation of the
Corporation be amended by deleting Article FIRST thereof in its
entirety and substituting in lieu of said Article the following new
Article: "FIRST: The name of the Corporation is Funk & Wagnalls
Yearbook Corp."
<PAGE>
2
SECOND: That thereafter, upon written waiver of notice any by
written consent, filed with the minutes of the Corporation, the sole stockholder
approved said amendment as proposed by the Board of Directors.
THIRD: The amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, said FP Real Estate Corporation has caused
this certificate to be signed by Charles G. McCurdy, its President, and attested
by Beverly C. Chell, its Secretary, the 16th day of January, 1991.
K-III MANAGEMENT CORPORATION,
-----------------------------------
Charles G. McCurdy
Vice President
Attest:
By
-------------------------------
Beverly C. Chell
Secretary
<PAGE>
Exhibit 3.16
FUNK & WAGNALLS YEARBOOK CORPORATION
BY-LAWS
ARTICLE I
MEETING OF STOCKHOLDERS
Section 1. PLACE OF MEETING AND NOTICE. Meetings of the
stockholders of the Corporation shall be held at such place either within or
without the State of Delaware as the Board of Directors may determine.
Section 2. ANNUAL AND SPECIAL MEETINGS. Annual meetings of
stockholders shall be held, at a date, time and place fixed by the Board of
Directors and stated in the notice of meeting, to elect a Board of Directors and
to transact such other business as may properly come before the meeting. Special
meetings of the stockholders may be called by the President for any purpose and
shall be called by the President or Secretary if directed by the Board of
Directors or requested in writing by the holders of not less than 25% of the
capital stock of the Corporation. Each such stockholder request shall state the
purpose of the proposed meeting.
Section 3. NOTICE. Except as otherwise provided by law, at
least 10 and not more than 60 days before each meeting of stockholders, written
notice of the time, date and place of the meeting, and, in the case of a special
meeting, the purpose or purposes for which the meeting is called, shall be given
to each stockholder.
Section 4. OUORUM. At any meeting of stockholders, the holders
of record, present in person or by proxy, of a majority of the Corporation's
issued and outstanding capital stock shall constitute a quorum for the
transaction of business, except as otherwise provided by law. In the absence of
a quorum, any officer entitled to preside at or to act as secretary of the
meeting shall have
<PAGE>
2
power to adjourn the meeting from time to time until a quorum is present.
Section 5. VOTING. Except as otherwise provided by law, all
matters submitted to a meeting of stockholders shall be decided by vote of the
holders of record, present in person or by proxy, of a majority of the
Corporation's issued and outstanding capital stock.
ARTICLE II
DIRECTORS
Section 1. NUMBER, ELECTION AND REMOVAL OF DIRECTORS. The
number of Directors that shall constitute the Board of Directors shall be not
less than one or more than fifteen. The first Board of Directors shall consist
of five Directors. Thereafter, within the limits specified above, the number of
Directors shall be determined by the Board of Directors or by the stockholders.
The Directors shall be elected by the stockholders at their annual meeting.
Vacancies and newly created directorships resulting from any increase in the
number of Directors may be filled by a majority of the Directors then in office,
although less than a quorum, or by the sole remaining Director or by the
stockholders. A Director may be removed with or without cause by the
stockholders.
Section 2. MEETINGS. Regular meetings of the Board of
Directors shall be held at such times and places as may from time to time be
fixed by the Board of Directors or as may be specified in a notice of meeting.
Special meetings of the Board of Directors may be held at any time upon the call
of the President and shall be called by the President or Secretary if directed
by at least two members of the Board of Directors. A meeting of the Board of
Directors may be held without notice immediately after the annual meeting of the
stockholders. Notice need not be given of regular or special meetings of the
Board of Directors.
<PAGE>
3
Section 3. OUORUM. One-third of the total number of Directors
shall constitute a quorum for the transaction of business. If a quorum is not
present at any meeting of the Board of Directors, the Directors present may
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until such a quorum is present. Except as otherwise provided by
law, the Certificate of Incorporation of the Corporation, these By-Laws or any
contract or agreement to which the Corporation is a party, the act of a majority
of the Directors present at any meeting at which there is a quorum shall be the
act of the Board of Directors.
Section 4. COMMITTEES OF DIRECTORS. The Board of Directors
may, by resolution adopted by a majority of the whole Board, designate one or
more committees, including without limitation an Executive Committee, to have
and exercise such power and authority as the Board of Directors shall specify.
In the absence or disqualification of a member of a committee, the member or
members thereof present at any meeting and not disqualified from voting, whether
or not he or they constitute a quorum, may unanimously appoint another Director
to act at the meeting in place of any such absent or disqualified member.
ARTICLE III
OFFICERS
The officers of the Corporation shall consist of a Chairman, a
President, a Secretary, a Treasurer and such other additional officers with such
titles as the Board of Directors shall determine, all of whom shall be chosen by
and shall serve at the pleasure of the Board of Directors. Such officers shall
have the usual powers and shall perform all the usual duties incident to their
respective offices. All officers shall be subject to the supervision and
direction of the Board of Directors. The authority, duties or responsibilities
of any officer of the Corporation may be suspended by the President with or
without cause. Any
<PAGE>
4
officer elected or appointed by the Board of Directors may be removed by the
Board of Directors with or without cause.
ARTICLE IV
INDEMNIFICATION
To the fullest extent permitted by the Delaware General
Corporation Law, the Corporation shall indemnify any current or former Director
or officer of the Corporation and may, at the discretion of the Board of
Directors, indemnify any cur-rent or former employee or agent of the Corporation
against all expenses, judgments, fines and amounts paid in settlement actually
and reasonably incurred by him in connection with any threatened, pending or
completed action, suit or proceeding brought by or in the right of the
Corporation or otherwise, to which he was or is a party or is threatened to be
made a party by reason of his current or former position with the Corporation or
by reason of the fact that he is or was serving, at the request of the
Corporation, as a director, officer, partner, trustee, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise.
ARTICLE V
GENERAL PROVISIONS
Section 1. NOTICES. Whenever any statute, the Certificate of
Incorporation or these By-Laws require notice to be given to any Director or
stockholder, such notice may be given in writing by mail, addressed to such
Director or stockholder at his address as it appears on the records of the
Corporation, with postage thereon prepaid. Such notice shall be deemed to have
been given when it is deposited in the United States mail. Notice to Directors
may also be given by telegram.
Section 2. FISCAL YEAR. The fiscal year of the
Corporation shall be fixed by the Board of Directors.
<PAGE>
Exhibit 3.17
GARETH STEVENS, INC.
ARTICLES OF AMENDMENT TO AND RESTATEMENT OF
AMENDED AND RESTATED ARTICLES OF INCORPORATION
The undersigned officers of Gareth Stevens, Inc. hereby
execute these Articles of Amendment (the "Amendment") and certify
that:
1. The name of the corporation is GARETH STEVENS, INC., a
Wisconsin corporation, with its registered office in Milwaukee County,
Wisconsin.
2. The Amended and Restated Articles of Incorporation are
amended and restated in their entirety as follows, which shall supersede and
take the place of the existing articles of incorporation and any amendments
thereof:
ARTICLE I
NAME
The name of the corporation shall be GARETH STEVENS, INC.
ARTICLE II
PERIOD OF EXISTENCE
The period of existence will be perpetual.
ARTICLE III
PURPOSE
The purpose shall be to engage in any lawful activity
within the purposes for which a corporation may be organized under
Chapter 180 of the Wisconsin Statutes.
<PAGE>
ARTICLE IV
SHARES
4.1. NUMBER OF SHARES AND CLASSES. The aggregate number of
shares which the Corporation shall have authority to issue is 12,000,000 shares
divided into the following classes:
10,000,000 of the par value $.001 per share designated
as "Common Stock" and
2,000,000 of the par value $.10 per share designated as
"Cumulative Preferred Stock."
Any and all such shares of Common Stock and Cumulative
Preferred Stock may be issued for such consideration, not less than the par
value thereof, as shall be fixed from time to time by the Board of Directors.
Any and all such shares so issued, the full consideration for which has been
paid or delivered, shall be deemed fully paid stock and shall not be liable to
any further call or assessment and the holders of such shares shall not be
liable for any further payment except as otherwise provided by applicable
Wisconsin statutes. The preferences, limitations and relative rights of such
classes shall be as set forth herein.
4.2. DIRECTORS' AUTHORITY TO ESTABLISH SERIES OF CUMULATIVE
PREFERRED STOCK; ESTABLISHMENT OF SERIES A CUMULATIVE PREFERRED STOCK.
4.2.1. The Board of Directors is authorized to
divide the Cumulative Preferred Stock into series and fix and determine
the relative rights and preferences of each series. Each series shall
be so designated by the Board of Directors as to distinguish the shares
thereof from the shares of all other series. All shares of Cumulative
Preferred Stock shall be identical except as to the following relative
rights and preferences, as to which the Board of Directors may
establish variations between different series not inconsistent with the
provisions of these Articles:
(a) The rate of dividend;
(b) The price and the terms and conditions
on which shares may be redeemed;
(c) The amount payable upon shares in event
of voluntary or involuntary liquidation;
2
<PAGE>
(d) Sinking fund provisions for the
redemption or purchase of shares;
(e) The terms and conditions on which shares
may be converted into Common Stock, if the shares of any
series are issued with the privilege of conversion; and
(f) The voting rights.
4.2.2. The 400,000 shares of Cumulative Preferred
Stock issued and outstanding as of the date hereof are hereby
designated as Series A Cumulative Preferred Stock, which series shall
have the following relative rights and preferences:
(a) The dividend rate shall be three cents
($.03) per annum per share.
(b) (i) The Corporation has the option to
redeem such shares at any time after five (5) years
from the date of the filing of these Amended and
Restated Articles of Incorporation with the Secretary
of State of Wisconsin (the "Filing Date") and prior
to six (6) years from the Filing Date at a price per
share equal to the greater of (A) a percentage of the
appraised "going concern" value of the Corporation
equal to the percentage of all outstanding Common
Stock that would be represented by a share of such
Series A cumulative Preferred Stock being redeemed by
the Corporation as if it were converted to Common
Stock immediately prior to the redemption (the
"appraised value") or (B) the amount payable upon
liquidation with respect to such share as described
in subsection 4.2.2(c), below.
(ii) Any holder of shares of Series
A Cumulative Preferred Stock has the option to
require the Corporation to redeem such shares at any
time after five (5) years from the Filing Date and
prior to six (6) years from the Filing Date at a
price per share equal to the appraised value.
(iii) In the event any proposed
redemption would violate any applicable federal or
state law or any agreement to which the Company is a
party (A) such proposed redemption shall not be made
unless and until such redemption would no longer
violate applicable law or such agreement
3
<PAGE>
and (B) the twelve (12) month periods for redemptions
provided in clauses (i) and (ii), above, shall be
tolled until such proposed redemption can be made
pursuant to part (A), above.
(iv) The appraised value shall be
determined by an independent qualified appraiser
selected by the Corporation and agreed upon by the
shareholder(s) whose stock is being redeemed or, if
not agreed, then the average value of two separate
appraisals, one performed by an independent qualified
appraiser selected by the Corporation, and one
performed by an independent qualified appraiser
selected by such shareholder(s). The shareholder(s)
shall bear the cost of any second appraiser selected
pursuant hereto. Neither the determination of the
appraised value of the Corporation nor the
determination of the redemption price for the Series
A Cumulative Preferred Stock shall take into account
that the shares are a minority interest and may lack
marketability.
(v) No less than forty-five (45)
days before the date fixed for redemption (the
"Redemption Date") written notice (the "Redemption
Notice") shall be mailed, postage prepaid, to each
holder of record of the Series A Cumulative Preferred
Stock which is to be redeemed, at its address shown
on the records of the Corporation, if redemption is
being elected by the Corporation; and to the
Corporation at its registered office, if redemption
is being elected by such shareholders. The Redemption
Notice shall contain the following information:
(A) The number of shares of
Series A Cumulative Preferred Stock held by
such holder which shall be redeemed by the
Corporation, and the total number of shares
of Series A Cumulative Preferred Stock held
by all holders to be so redeemed; and
(B) The Redemption Date.
(vi) Within ten (10) days after
delivery of the Redemption Notice, the Corporation
shall notify the shareholder(s) of the selected
appraiser and the shareholder(s) shall respond
4
<PAGE>
within five (5) days thereafter whether it approves
the use of such appraiser or will select its own
appraiser. Written appraisal reports will be
delivered to all parties at least forty-eight
(48) hours prior to the Redemption Date.
(vii) On or before the Redemption
Date, each holder of shares of Series A Cumulative
Preferred Stock to be redeemed shall surrender the
certificate or certificates representing such shares
to the Corporation at the registered office of the
Corporation on the Redemption Date, and the
applicable Redemption Price for such shares shall be
paid to the order of the person whose name appears on
such certificate or certificates and each surrendered
certificate shall be cancelled and retired.
(viii) From and after the Redemption
Date, no shares of Series A Cumulative Preferred
Stock thereupon subject to redemption shall be
entitled to any further accrual of any dividends or
to the conversion privileges set forth herein.
(c) In the event of a voluntary or
involuntary liquidation of the Corporation, the holders of
shares of Series A Cumulative Preferred Stock shall be
entitled to receive out of the assets of the Corporation
available for distribution to the shareholders an amount equal
to One Dollar ($1.00) per share, plus all accrued and unpaid
dividends thereon.
(d) Subject to adjustment as hereafter
provided, the holders of shares of Series A Cumulative
Preferred Stock may convert each share into 1.7857625 shares
of Common Stock at any time.
(i) In the event the Corporation
shall make or issue, or fix a record date for the
determination of holders of Common Stock entitled to
receive a dividend or other distribution payable in
shares of stock or other securities of the
Corporation or in assets (excluding cash dividends or
distributions), then and in each such event provision
shall be made so that the holders of Series A
Cumulative Preferred Stock shall receive upon
conversion thereof in addition to the number of
shares of Common Stock receivable thereupon, the
number of shares of stock or other securities or such
other assets of the Corporation
5
<PAGE>
which such holders would have received had their
Series A Cumulative Preferred Stock been converted
into Common Stock on the date of such event and had
such holders thereafter, during the period from the
date of such event to and including the Conversion
Date (as that term is hereafter defined in subsection
4.2.2(d)(iv)), retained such shares of stock or other
securities or such other assets receivable by such
holders as aforesaid during such period, giving
application to all adjustments called for during such
period under this subsection 4.2.2(d) with respect to
the rights of the holders of the Series A Cumulative
Preferred Stock.
(ii) If the Common Stock outstanding
prior to the conversion of the Series A Cumulative
Preferred Stock shall be subdivided into a greater
number of shares of Common Stock or combined into a
smaller number of shares of Common Stock, then and in
each such event the holders of the Series A
Cumulative Preferred Stock shall have the right
thereafter to convert such shares into the number of
shares of Common Stock which would be held following
such subdivision or combination by a holder of the
number of shares of Common Stock into which such
shares of Series A Cumulative Preferred Stock might
have been converted immediately prior to such
subdivision or combination, all subject to further
adjustment as provided herein.
(iii) If the Common Stock issuable
upon the conversion of the Series A Cumulative
Preferred Stock shall be changed into the same or
different number of shares of any class or classes of
stock of the Corporation, whether by reclassification
or otherwise (other than a subdivision or combination
of shares, stock dividend, reorganization, merger,
consolidation or sale of assets provided for
elsewhere in this subsection 4.2.2(d)), then and in
such event the holders of the Series A Cumulative
Preferred Stock shall have the right thereafter to
convert such shares into the kind and amount of
shares of stock and other securities and property
receivable upon such reclassification or other change
by holders of the number of shares of Common Stock
into which such shares of Series A Cumulative
Preferred Stock might have been converted immediately
prior to
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such reclassification or change, all subject to
further adjustment as provided herein.
(iv) If at any time or from time to
time there shall be a capital reorganization
involving the Common Stock (other than a subdivision,
combination, reclassification or exchange of shares
provided for elsewhere in this subsection 4.2.2(d))
or a merger or consolidation of the Corporation with
or into another corporation, or the sale of all or
substantially all of the Corporation's properties and
assets to any other person, provision shall be made
so that the holders of the Series A Cumulative
Preferred Stock shall thereafter be entitled to
receive upon conversion of the Series A Cumulative
Preferred Stock, the number of shares of stock or
other securities or property of the Corporation, or
of the successor corporation resulting from such
merger, consolidation or sale, to which the holders
of Common Stock issuable upon conversion would have
been entitled on such capital reorganization, merger,
consolidation, or sale.
(v) To exercise its conversion
privilege, a holder of Series A Cumulative Preferred
Stock shall surrender the certificate or certificates
representing the shares being converted to the
Corporation at its principal office, and shall give
written notice to the Corporation at such office that
such holder elects to convert such shares. Such
notice shall also state the name or names (with
address or addresses) in which the certificate or
certificates for shares of Common Stock issuable upon
such conversion shall be issued. The certificate or
certificates for shares of Series A Cumulative
Preferred Stock surrendered for conversion shall be
accompanied by proper assignment thereof to the
Corporation or in blank. The date when such written
notice is received by the Corporation, together with
the certificate or certificates representing the
shares of Series A Cumulative Preferred Stock being
converted, shall be the "Conversion Date." As
promptly as practicable after the Conversion Date,
the Corporation shall issue and shall deliver to the
holder of the shares of Series A Cumulative Preferred
Stock being converted, or on its written order, such
certificate or certificates as it may
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request for the number of shares of Common Stock
issuable upon the conversion of such shares of
Series A Cumulative Preferred Stock in accordance
with the provisions of this subsection 4.2.2(d) and,
except as hereafter provided, cash in the amount of
all accrued and unpaid dividends on such shares of
Series A Cumulative Preferred Stock, whether or not
earned or declared, up to and including the
Conversion Date. Notwithstanding the above, in the
event any applicable federal or state law or any
agreement to which the Corporation is a party,
prohibits the payment of accrued and unpaid dividends
at the time of conversion, payment of such dividends
shall be deferred until payment is allowed in
accordance with such law or agreement.
(vi) In the event some but not all
of the shares of Series A Cumulative Preferred Stock
represented by a certificate or certificates
surrendered by a holder are converted, the
Corporation shall execute and deliver to or on the
order of the holder, at the expense of the
Corporation, a new certificate representing the
number of shares of Series A Cumulative Preferred
Stock which were not converted.
(vii) The Corporation shall at all
times reserve out of its authorized but unissued
shares of Common Stock, solely for the purpose of
effecting the conversion of the shares of the
Series A Cumulative Preferred Stock, such number of
its shares of Common Stock as shall from time to time
be sufficient to the effect the conversion of all
outstanding shares of the Series A Cumulative
Preferred Stock, and if at any time the number of
authorized but unissued shares of Common Stock shall
not be sufficient to effect the conversion of all
then outstanding shares of the Series A Cumulative
Preferred Stock, the Corporation shall amend these
Amended and Restated Articles of Incorporation to
increase its authorized but unissued shares of Common
Stock to such number of shares as shall be sufficient
for such purpose.
(e) The holders of shares of Series A
Cumulative Preferred Stock shall be entitled to such number of
votes that are equal to the largest number of
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<PAGE>
whole shares of Common Stock into which such holder's shares
could be converted.
4.3 DIVIDENDS AND DISTRIBUTIONS.
4.3.1. The Cumulative Preferred Stock shall entitle
the holder thereof to receive when and as declared at any time by the
Board of Directors annual dividends on or before the last day of June
of each year. Such dividends shall be payable out of net profits of the
Corporation or out of any surplus applicable to the payment of such
dividends. The dividends on the Cumulative Preferred Stock shall be
cumulative so that if at any time the full amount of dividends accrued
and in arrears on the Cumulative Preferred Stock shall not be paid, the
deficiency shall be payable without interest before any dividends
(other than dividends paid in Common Stock) or other distributions
shall be made or set apart on the Common Stock. Dividends on Cumulative
Preferred Stock shall accrue on each share from the date on which such
share is issued. Whenever all dividends accrued and in arrears on the
Cumulative Preferred Stock shall have been declared and shall have been
paid or set apart, the Board of Directors may declare dividends on
Common Stock out of the remaining net profits of the Corporation or out
of surplus applicable to the payment of such dividends. Any dividend
paid upon the Cumulative Preferred Stock at the time when any accrued
dividends for any prior period are delinquent shall be expressly
declared and designated as a dividend in whole or partial payment of
the accrued dividend for the earliest period for which dividends are
then delinquent, and each shareholder to whom such payment is made
shall be so advised.
4.3.2. The rate of the dividends to be paid to
holders of Cumulative Preferred Stock of all series shall be as
follows: With respect to Series A Cumulative Preferred Stock at the
rate provided for in subsection 4.2.2(a), above; or with respect to
series not yet established at a rate to be stated in the resolution or
resolutions of the Board of Directors providing for the issuance
thereof.
4.3.3. All dividends on Cumulative Preferred Stock
shall be without priority as between series, and shall be paid or set
apart before any dividends or other distributions shall be paid or set
apart for Common Stock; PROVIDED, HOWEVER, that dividends may be
declared and paid in Common Stock prior to dividends on the Cumulative
Preferred Stock being paid or set apart. Any dividends paid upon the
Cumulative Preferred Stock in any amount less than full cumulative
dividends accrued and in arrears upon all
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<PAGE>
Cumulative Preferred Stock outstanding shall, if more than one series
be outstanding, be distributed among the different series in proportion
to the aggregate amounts which would be distributable to the Cumulative
Preferred Stock of each series if full cumulative dividends were
declared and paid thereon.
4.3.4. In the event the proposed payment of any
dividend, whether on Cumulative Preferred Stock or Common Stock, would
violate any applicable federal or state law, such proposed dividend
payment shall not be made unless and until such payment would no longer
violate applicable law.
4.4. LIQUIDATION RIGHTS. In the event of any liquidation,
dissolution or winding-up of the Corporation, whether voluntary or involuntary,
the holders of all series of Cumulative Preferred Stock shall be entitled to
receive out of the assets of the Corporation in full the fixed voluntary
liquidation or involuntary liquidation amount thereof, whichever is applicable,
plus accrued dividends thereon, all as fixed or provided for in subsection
4.2.2(c), above, with respect to the Series A Cumulative Preferred Stock or,
with respect to series not yet established, in the resolution or resolutions
providing for the issuance thereof, all before any amount shall be paid to the
holders of Common Stock. If upon the voluntary or involuntary liquidation or
winding-up of the Corporation the assets of the Corporation shall be
insufficient to pay the holders of all series of the Cumulative Preferred Stock
the entire amounts to which they may be entitled, the assets of the Corporation
shall, if more than one series be outstanding, be distributed among the
different series in proportion to the aggregate amounts which would be
distributable to the Cumulative Preferred Stock of each series if sufficient
assets were available. The holders of Cumulative Preferred Stock shall not
otherwise be entitled to participate in any distribution of assets of the
Corporation, which shall be divided or distributed among the holders of Common
Stock, and shall have no further rights of conversion. Whenever the distribution
provided for herein shall be paid in property other than cash, the value of such
distribution shall be the fair market value of such property as determined in
good faith by the Board of Directors of the Corporation. No consolidation or
merger of the Corporation with or into another corporation or corporations and
no sale by the Corporation of all or substantially all of its assets shall be
deemed a liquidation or winding up of the Corporation.
4.5. VOTING RIGHTS.
4.5.1. Except as hereinafter in this Section 4.5
expressly provided and as provided by the Wisconsin Business
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Corporation Law, the holders of Cumulative Preferred Stock shall,
together with the holders of Common Stock (neither the Cumulative
Preferred Stock nor the Common Stock voting as a class) possess full
voting rights for the election of directors and for other purposes.
Holders of Common Stock shall be entitled to one (1) vote for each
share held. Holders of Cumulative Preferred Stock of all series shall
be entitled to such number of votes per share as are provided for in
Section 4.2.2(e), above, with respect to the Series A Cumulative
Preferred Stock or, with respect to series not yet established as shall
be stated in the resolution or resolutions of the Board of Directors
providing for the issuance thereof.
4.5.2. So long as any shares of Cumulative Preferred
Stock are outstanding, the Corporation shall not, without the
affirmative vote as provided by law of the holders of at least
two-thirds (2/3) of the outstanding shares of Cumulative Preferred
Stock, voting as a class,
(a) create or authorize any class of stock
ranking either as to the payment of dividends or distribution
of assets prior to or on parity with the Cumulative Preferred
Stock or increase the number of authorized shares of
Cumulative Preferred Stock;
(b) change the preferences, limitations or
relative rights with respect to any series of the outstanding
Cumulative Preferred Stock so as to materially and adversely
alter in any respect the rights of the holders thereof.
4.6. ACQUISITION OF SHARES. The Corporation shall have the
right to purchase, take, receive or otherwise acquire its own shares in
accordance with applicable law regardless of the availability of unreserved and
unrestricted earned surplus and without earned surplus being restricted thereby.
Except as hereinafter expressly provided with respect to the Series A Cumulative
Preferred Stock, shares of Cumulative Preferred Stock so acquired, as well as
the shares of Cumulative Preferred Stock acquired upon redemption or conversion
of Cumulative Preferred Stock, shall become authorized and unissued shares of
Cumulative Preferred Stock which may be designated as shares of any series. No
share or shares of Series A Cumulative Preferred Stock acquired by the
Corporation by reason of redemption, purchase, conversion or otherwise shall be
reissued, and all such shares shall be cancelled, retired and eliminated from
the shares which the Corporation shall be authorized to issue. The Corporation
shall from time to time amend these Articles to reduce the
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<PAGE>
authorized number of shares of the Cumulative Preferred Stock accordingly.
4.7. NO NONVOTING SECURITIES. The Corporation shall
not authorize the issuance of any nonvoting equity securities.
ARTICLE V
PREEMPTIVE RIGHTS
Each holder of any stock of the Corporation shall have
preemptive rights to acquire, upon the same terms and conditions as such shares
are proposed to be acquired by others, unissued shares of Common Stock or
securities convertible into such shares or carrying a right to subscribe to or
acquire such shares, including, but not limited to, the right to acquire such
shares or securities issued to directors, officers or employees, or to acquire
such shares or securities issued for other than cash consideration, or to
acquire treasury shares. Each holder of Cumulative Preferred Stock shall be
entitled to such preemptive rights to the same extent as a holder of the number
of shares of Common Stock into which such shares of Cumulative Preferred Stock
might have been converted immediately prior to the exercise of such preemptive
rights.
ARTICLE VI
REGISTERED OFFICE AND AGENT
The address of the registered office of the Corporation is
1555 North RiverCenter Drive, Suite 201, Milwaukee, Wisconsin 53212, and the
name of the registered agent of the Corporation at such address is Gareth M.
Stevens.
3. This Amendment and Restatement was approved by the
United States Bankruptcy Court, Eastern District of Wisconsin (the "Court")
on November 30, 1992, pursuant to the Court's Order Confirming Plan
(the "Order").
4. The Order was entered in the reorganization proceeding
captioned IN RE GARETH STEVENS, INC., Case No. 91-07849-CNC.
5. The Court has jurisdiction of the above-captioned
proceeding pursuant to 28 U.S.C. Section 1334.
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6. The effective date of this Amendment is the Confirmation
Date (as such term is defined in the Debtor's Plan of Reorganization confirmed
pursuant to the Court's Order) and this Amendment shall be filed as of such
date.
---------------------------------
Gareth M. Stevens, President
[Corporate Seal]
---------------------------------
David C. Miller, Secretary
STATE OF WISCONSIN )
) SS
COUNTY OF MILWAUKEE )
Personally appeared before me this ____ day of December, 1992,
the above-named Gareth M. Stevens and David C. Miller, to me known to be the
President and Secretary, respectively, of GARETH STEVENS, INC., who subscribed
their names to the foregoing instrument and acknowledged that they executed the
same for the purposes therein contained.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
---------------------------------
Notary Public, State of Wisconsin
My commission:
-------------------
This instrument was drafted by
and should be returned to:
Kristin A. Roeper, Esq.
Godfrey & Kahn, S.C.
780 North Water Street
Milwaukee, Wisconsin 53202
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Exhibit 3.18
BYLAWS
OF
GARETH STEVENS, INC.
(a Wisconsin corporation)
VARIABLE REFERENCES
0.01. Date of annual shareholders' meeting (See Section 2.01):
1:00 P.M. 1st Tuesday May 1984
(Hour) (Week) (Day) (Month) (First Year)
*
0.02. Required notice of shareholders' meeting (See Section 2.04): not
less than seven (7) days.
*
0.03. Authorized number of directors (See Section 3.01): Two (2).
*
0.04. Required notice of directors' meetings (See Section 3.05):
(a) not less than 72 hours if by mail, and
(b) not less than 24 hours if by telegram or personal delivery.
*
0.05. Authorized number of Vice Presidents (See Section 4.01): One (1).
*
0.06. The fiscal year of the corporation shall begin on: July I (See
Section 9.01).
* These spaces are reserved for official notation of future amendments to these
sections.
<PAGE>
ARTICLE I
OFFICES
1.01. PRINCIPAL AND BUSINESS OFFICES. The corporation may have such
principal and other business offices, either within or without the State of
Wisconsin, as the Board of Directors may designate or as the business of the
corporation may require from time to time.
1.02. REGISTERED OFFICE. The registered office of the corporation
required by the Wisconsin Business Corporation Law to be maintained in the State
of Wisconsin may be, but need not be, identical with the principal office in the
State of Wisconsin, and the address of the registered office may be changed from
time to time by the Board of Directors. The business office of the registered
agent of the corporation shall be identical to such registered office.
ARTICLE II
SHAREHOLDERS
2.01. ANNUAL MEETING. The annual meeting of the shareholders shall be
held at the date and hour in each year set forth in Section 0.01, or at such
other time and date within thirty days before or after said date as may be fixed
by or under the authority of the Board of Directors, for the purpose of electing
directors and for the transaction of such other business as may come before the
meeting. If the day fixed for the annual meting shall be a legal holiday in the
State of Wisconsin, such meeting shall be held on the next succeeding business
day. If the election of directors shall not be held on the day designated
herein, or fixed as herein provided, for any annual meeting of the shareholders,
or at any adjournment thereof, the Board of Directors shall cause the election
to be held at a special meeting of the shareholders as soon thereafter as
conveniently may be.
2.02. SPECIAL MEETING. Special meetings of the shareholders, for any
purpose or purposes, unless otherwise prescribed by statute, may be called by
the President or the Board of Directors or by the person designated in the
written request of the holders of not less than one-tenth of all shares of the
corporation entitled to vote at the meeting.
2.03. PLACE OF MEETING. The Board of Directors may designate any place,
either within or without the State of Wisconsin, as the place of meeting for any
annual meeting or for any special meting called by the Board of Directors. A
waiver of notice signed by all shareholders entitled to vote at a meeting my
designate any place, either within or without the State of Wisconsin, as the
place for the holding for the determination of shareholders entitled to notice
of or to vote at a meeting of shareholders, or shareholders
<PAGE>
entitled to receive payment of a dividend, the close of business on the date on
which notice of the meeting is mailed or on the date on which the resolution of
the Board of Directors declaring such dividend is adopted, as the case may be,
shall be the record date for such determination of shareholders. When a
determination of shareholders entitled to vote at any meeting of shareholders
has been made as provided in this section, such determination shall be applied
to any adjournment thereof except where the determination has been made through
the closing of the stock transfer books and the stated period of closing has
expired.
2.06 VOTING LISTS. The officer or agent having charge of the stock
transfer books for shares of the corporation shall, before each meeting of
shareholders, make a complete list of the shareholders entitled to vote at such
meeting, or any adjournment thereof, with the address of and the number of
shares held by each, which list shall be produced and kept open at the time and
place of the meeting and shall be subject to the inspection of any shareholder
during the whole time of the meeting for the purposes of the meeting. The
original stock transfer books shall be prima facie evidence as to who are the
shareholders entitled to examine such list or transfer books or to vote at any
meeting of shareholders. Failure to comply with the requirements of this section
shall not affect the validity of any action taken at such meeting.
2.07. QUORUM. Except as otherwise provided in the articles of
incorporation, a majority of the shares entitled to vote, represented in person
or by proxy, shall constitute a quorum at a meeting of shareholders. If a quorum
is present, the affirmative vote of the majority of the shares represented at
the meeting and entitled to vote on the subject matter shall be the act of the
shareholders unless the vote of a greater number or voting by classes is
required by law or the articles of incorporation. Though less than a quorum of
the outstanding shares are represented at a meeting, a majority of the shares so
represented may adjourn the meeting from time to time without further notice. At
such adjourned meeting at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at the meeting as
originally notified.
2.08. CONDUCT OF MEETINGS. The President, or in his absence, the
Executive Vice President, if there be one and he is present, or in their
absence, a Vice President in the order provided under Section 4.08, and in their
absence, any person chosen by the shareholders present shall call the meeting of
the shareholders to order and shall act as chairman of the meeting, and the
Secretary of the corporation shall act as secretary of all meetings of the
shareholders, but, in the absence of the Secretary, the presiding officer may
appoint any other person to act as secretary of the meeting.
2.09. PROXIES. At all meetings of shareholders, a shareholder entitled
to vote may vote in person or by proxy appointed in writing by the shareholder
or by his duly authorized attorney in fact. Such proxy shall be filed with the
Secretary of the
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<PAGE>
corporation before or at the time of the meeting. Unless otherwise provided in
the proxy, a proxy may be revoked at any time before it is voted, either by
written notice filed with the Secretary or the acting secretary of the meeting
or by oral notice given by the shareholder to the presiding officer during the
meeting. The presence of a shareholder who has filed his proxy shall not of
itself constitute a revocation. No proxy shall be valid after eleven months from
the date of its execution, unless otherwise provided in the proxy. The Board of
Directors shall have the power and authority to make rules establishing
presumptions as to the validity and sufficiency of proxies.
2.10. VOTING OF SHARES. Each outstanding share shall be entitled to one
vote upon each matter submitted to a vote at a meeting of shareholders, except
to the extent that the voting rights of the shares of any class or classes are
enlarged, limited or denied by the articles of incorporation.
2.11. VOTING OF SHARES BY CERTAIN HOLDERS.
(a) OTHER CORPORATIONS. Shares standing in the name of another
corporation may be voted either in person or by proxy, by the president
of such corporation or any other officer appointed by such president. A
proxy executed by any principal officer of such other corporation or
assistant thereto shall be conclusive evidence of the signer's
authority to act, in the absence of express notice to this corporation,
given in writing to the Secretary of this corporation, of the
designation of some other person by the board of directors or the
bylaws of such other corporation.
(b) LEGAL REPRESENTATIVES AND FIDUCIARIES. Shares held by an
administrator, executor, guardian, conservator, trustee in bankruptcy,
receiver, or assignee for creditors may be voted by him, either in
person or by proxy, without a transfer of such shares into his name,
provided that there is filed with the Secretary before or at the time
of meeting proper evidence of his incumbency and the number of shares
held. Shares standing in the name of a fiduciary may be voted by him,
either in person or by proxy. A proxy executed by a fiduciary, shall be
conclusive evidence of the signer's authority to act, in the absence of
express notice to this corporation, given in writing to the Secretary
of this corporation, that such manner of voting is expressly prohibited
or otherwise directed by the document creating the fiduciary
relationship.
(c) PLEDGEES. A shareholder whose shares are pledged shall be
entitled to vote such shares until the shares have been transferred
into the name of the pledgee, and thereafter the pledgee shall be
entitled to vote the shares so transferred.
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<PAGE>
(d) TREASURY STOCK AND SUBSIDIARIES. Neither treasury shares,
nor shares held by another corporation if a majority of the shares
entitled to vote for the election of directors of such other
corporation is held by this corporation, shall be voted at any meeting
or counted in determining the total number of outstanding shares
entitled to vote, but shares of its own issue held by this corporation
in a fiduciary capacity, or held by such other corporation in a
fiduciary capacity, may be voted and shall be counted in determining
the total number of outstanding shares entitled to vote.
(e) MINORS. Shares held by a minor may be voted by such minor
in person or by proxy and no such vote shall be subject to
disaffirmance or avoidance, unless prior to such vote the Secretary of
the corporation has received written notice or has actual knowledge
that such shareholder is a minor.
(f) INCOMPETENTS AND SPENDTHRIFTS. Shares held by an
incompetent or spendthrift may be voted by such incompetent or
spendthrift in person or by proxy and no such vote shall be subject to
disaffirmance or avoidance, unless prior to such vote the Secretary of
the corporation has actual knowledge that such shareholder has been
adjudicated an incompetent or spendthrift or actual knowledge of filing
of judicial proceedings for appointment of a guardian.
(g) JOINT TENANTS. Shares registered in the names (:7 two or
more individuals who are named in the registration as joint tenants may
be voted in person or by proxy signed by any one or more of such
individuals if either (i) no other such individual or his legal
representative is present and claims the right to participate in the
voting of such shares or prior to the vote filed with the Secretary of
the corporation a contrary written voting authorization or direction or
written denial of authority of the individual present or signing the
proxy proposed to be voted or (ii) all such other individuals are
deceased and the Secretary of the corporation has no actual knowledge
that the survivor has been adjudicated not to be the successor to the
interests of those deceased.
2.12. WAIVER OF NOTICE BY SHAREHOLDERS. Whenever any notice whatever is
required to be given to any shareholder of the corporation under the articles of
incorporation or bylaws or any provision of law, a waiver thereof in writing,
signed at any time, whether before or after the time of meeting, by the
shareholder entitled to such notice, shall be deemed equivalent to the giving of
such notice; provided that such waiver in respect to any matter of which notice
is required under any provision of the Wisconsin Business Corporation Law, shall
contain the same information as would have been required to be included in such
notice, except the time and place of meeting.
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2.13. UNANIMOUS CONSENT WITHOUT MEETING. Any action required or
permitted by the articles of incorporation or bylaws or any provision of law to
be taken at a meeting of the shareholders, may be taken without a meeting if a
consent in writing, setting forth the action so taken, shall be signed by all of
the shareholders entitled to vote with respect to the subject matter thereof.
ARTICLE III
BOARD OF DIRECTORS
3.01. GENERAL POWERS AND NUMBER. The business and affairs of the
corporation shall be managed by its Board of Directors. The number of directors
of the corporation shall be as set forth in Section 0.03.
3.02. TENURE AND QUALIFICATIONS. Each director shall hold office until
the next annual meeting of shareholders and until his successor shall have been
elected, or until his prior death, resignation or removal. A director may be
removed from office by affirmative vote of a majority of the outstanding shares
entitled to vote for the election of such director, taken at a meeting of
shareholders called for that purpose. A director my resign at any time by filing
his written resignation with the Secretary of the corporation. Directors need
not be residents of the State of Wisconsin or shareholders of the corporation.
3.03. REGULAR MEETINGS. A regular meeting of the Board of Directors
shall be held without other notice than this bylaw immediately after the annual
meeting of shareholders, and each adjourned session thereof. The place of such
regular meeting shall be the sane as the place of the meeting of shareholders
which precedes it, or such other suitable place as may be announced at such
meeting of shareholders. The Board of Directors may provide, by resolution, the
time and place, either within or without the State of Wisconsin, for the holding
of additional regular meetings without other notice than such resolution.
3.04. SPECIAL MEETINGS. Special meetings of the Board of Directors may
be called by or at the request of the President, Secretary or any two directors.
The President or Secretary calling any special meeting of the Board of Directors
may fix any place, either within or without the State of Wisconsin, as the place
for holding any special meeting of the Board of Directors called by them, and if
no other place is fixed the place of meeting shall be the principal business
office of the corporation in the State of Wisconsin.
5
<PAGE>
3.05. NOTICE; WAIVER. Notice of each meeting of the Board of Directors
(unless otherwise provided in or pursuant to Section 3.03) shall be given by
written notice delivered personally or mailed or given by telegram to each
director at his business address or at such other address as such director shall
have designated in writing filed with the Secretary, in each case not less than
the number of hours prior thereto as set forth in Section 0.04. If mailed, such
notice shall be deemed to be delivered when deposited in the United States mail
so addressed, with postage thereon prepaid. If notice be given by telegram, such
notice shall be deemed to be delivered when the telegram is delivered to the
telegraph company. Whenever any notice whatever is required to be given to any
director of the corporation under the articles of incorporation or bylaws or any
provision of law, a waiver thereof in writing, signed at any time, whether
before or after the time of meeting, by the director entitled to such notice,
shall be deemed equivalent to the giving of such notice. The attendance of a
director at a meeting shall constitute a waiver of notice of such meeting,
except where a director attends a meeting and objects thereat to the transaction
of any business because the meeting is not lawfully called or convened. Neither
the business to be transacted at, nor the purpose of, any regular or special
meeting of the Board of Directors need be specified in the notice or waiver of
notice of such meeting.
3.06. QUORUM. Except as otherwise provided by law or by the articles of
incorporation or these bylaws, a majority of the number of directors set forth
in Section 0.03 shall constitute a quorum for the transaction of business at any
meeting of the Board of Directors, but a majority o f the directors present
(though less than such quorum) may adjourn the meeting from time to time without
further notice.
3.07. MANNER OF ACTING. The act of the majority of the directors
present at a meeting at which a quorum is present shall be the act of the Board
of Directors, unless the act of a greater number is required by law or by the
articles of incorporation or these bylaws.
3.08. CONDUCT OF MEETINGS. The Chairman of the Board, if there be one
and he is present, or the President, and in his absence the Executive vice
President, or in his absence a vice President in the order provided under
Section 4.08, and in their absence, any director chosen by the directors
present, shall call meetings of the Board of Directors to order and shall act as
chairman of the meeting. The Secretary of the corporation shall act as secretary
of all meetings of the Board of Directors, but in the absence of the Secretary,
the presiding officer may appoint any Assistant Secretary or any director or
other person present to act as secretary of the meeting.
3.09. VACANCIES. Any vacancy occurring in the Board of Directors,
including a vacancy created by an increase in the number of directors, way be
filled until the next succeeding annual election by the affirmative vote of a
majority of the directors then in
6
<PAGE>
office, though less than a quorum of the Board of Directors; provided, that in
case of a vacancy created by the removal of a director by vote of the
shareholders, the shareholders shall have the right to fill such vacancy at the
same meeting or any adjournment thereof.
3.10. COMPENSATION. The Board of Directors, by affirmative vote of a
majority of the directors then in office, and irrespective of any personal
interest of any of its members, may establish reasonable compensation of all
directors for services to the corporation as directors, officers or otherwise,
or may delegate such authority to an appropriate committee. The Board of
Directors also shall have authority to provide for or to delegate authority to
an appropriate committee to provide for reasonable pensions, disability or death
benefits, and other benefits or payments, to directors, officers and Employees
and to their estates, families, dependents or beneficiaries on account of prior
services rendered by such directors, officers and employees to the corporation.
3.11. PRESUMPTION OF ASSENT. A director of the corporation who is
present at a meeting of the Board of Directors or a committee thereof of which
he is a member at which action on any corporate matter is taken shall be
presumed to have assented to the action taken unless his dissent shall be
entered in the minutes of the meeting or unless he shall file his written
dissent to such action with the person acting as the secretary of the meeting
before the adjournment thereof or shall forward such dissent by registered mail
to the Secretary of the corporation immediately after the adjournment of the
meeting. Such right to dissent shall not apply to a director who voted in favor
of such action.
3.12. COMMITTEES. The Board of Directors by resolution adopted by the
affirmative vote of a majority of the number of directors set forth in Section
0.03 may designate one or more committees, each committee to consist of three or
more directors elected by the Board of Directors, which to the extent provided
in said resolution as initially adopted, and as thereafter supplemented or
amended by further resolution adopted by a like vote, shall have and may
exercise, when the Board of Directors is not in session, the powers of the Board
of Directors in the management of the business and affairs of the corporation,
except action in respect to dividends to shareholders, election of the principal
officers or the filling of vacancies in the Board of Directors or Committees
created pursuant to this section. The Board of Directors may elect one or more
of its members as alternate members of any such committee who may take the place
of any absent member or members at any meeting of such committee, upon request
by the President or upon request by the chairman of such meeting. Each such
committee shall fix its own rules governing the conduct of its activities and
shall make such reports to the Board of Directors of its activities as the Board
of Directors may request.
3.13. UNANIMOUS CONSENT WITHOUT MEETING. Any action required or
permitted by the articles of incorporation or bylaws or any provision of law to
be taken by the
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Board of Directors or Committee thereof at a meeting or by resolution may be
taken without a meeting if a consent in writing, setting forth the action so
taken, shall be signed by all of the directors or members of the committee then
in office.
ARTICLE IV
OFFICERS
4.01. NUMBER. The principal officers of the corporation shall be a
President, the number of Vice Presidents as set forth in Section 0.05, a
Secretary, and a Treasurer, each of whom shall be elected by the Board of
Directors. The election of a larger number of Vice Presidents shall of itself
constitute an amendment of the number of Vice Presidents provided in the
foregoing sentence. The Board of Directors may designate one of the Vice
Presidents as the Executive Vice President. Such other officers and assistant
officers as may be deemed necessary may be elected or appointed by the Board of
Directors. Any two or more offices may be held by the sane person, except the
off ices of President and Secretary and the offices of President and vice
President.
4.02. ELECTION AND TERM OF OFFICE. The officers of the corporation to
be elected by the Board of Directors shall be elected annually by the Board of
Directors at the first meeting of the Board of Directors held after each annual
meeting of the shareholders. If the election of officers shall not be held at
such meeting, such election shall be held as soon thereafter as conveniently may
be. Each officer shall hold office until his successor shall have been duly
elected or until his prior death, resignation or removal.
4.03. REMOVAL. Any officer or agent may be removed by the Board of
Directors whenever in its judgment the best interests of the corporation will be
served thereby, but such removal shall be without prejudice to the contract
rights, if any, of the person so removed. Election or appointment shall not of
itself create contract rights.
4.04. VACANCIES. A vacancy in any principal office because of death,
resignation, removal, disqualification or otherwise, shall be filled by the
Board of Directors for the unexpired portion of the term.
4.05. CHAIRMAN OF THE BOARD. The Board of Directors may elect one of
its members the Chairman of the Board. The Chairman of the Board shall preside
at all meetings of the shareholders and directors at which he is present. lie
shall be ex officio a member of all standing committees and shall be Chairman of
such committees as is determined by the Board of Directors. He shall have such
other powers and duties as may from time to time be prescribed by the bylaws or
by resolution of the Board of Directors.
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4.06. PRESIDENT. The President shall be the principal executive officer
of the corporation and, subject to the control of the Board of Directors, shall
in general supervise and control all of the business and affairs of the
corporation. He shall have authority, subject to such rules as may be prescribed
by the Board of Directors, to appoint such agents and Employees of the
corporation as he shall deem necessary, to prescribe their powers, duties and
compensation, and to delegate authority to them. Such agents and Employees shall
hold office at the discretion of the President. He shall have authority to sign,
execute and acknowledge, on behalf of the corporation, all deeds, mortgages,
bonds, stock certificates, contracts, leases, reports and all other documents or
instruments necessary or proper to be executed in the course of the
corporation's regular business, or which shall be authorized by resolution of
the Board of Directors; and, except as otherwise provided by law or the Board of
Directors, he may authorize any vice President or other officer or agent of the
corporation to sign, execute and acknowledge such documents or instruments in
his place and stead. In general he shall perform all duties incident to the
office of President and such other duties as may be prescribed by the Board of
Directors from time to time.
4.07. THE EXECUTIVE VICE PRESIDENT. The Executive Vice President, if
one be designated, shall assist the President in the discharge of supervisory,
managerial and executive duties and functions. In the absence of the President
or in the event of his death, inability or refusal to act, the Executive Vice
President shall perform the duties of the President and when so acting shall
have all the powers and duties of the President. He shall perform such other
duties as from time to time may be assigned to him by the Board of Directors or
the President.
4.08. THE VICE PRESIDENTS. In the absence of the President and the
Executive Vice President or in the event of their death, inability or refusal to
act, or in the event for any reason it shall be impracticable for them to act
personally, the Vice President (or in the event there be more than one Vice
President, the Vice Presidents in the order designated by the Board of
Directors, or in the absence of any designation, then in the order of their
election) shall perform the duties of the President, and when so acting, shall
have all the powers of and be subject to all the restrictions upon the
President. Any Vice President may sign, with the Secretary or Assistant
Secretary, certificates for shares of the corporation; and shall perform such
other duties and have such authority as from time to time may be delegated or
assigned to him by the President or by the Board of Directors. The execution of
any instrument of the corporation by any Vice President shall be conclusive
evidence, as to third parties, of his authority to act in the stead of the
President. Vice Presidents may be designated as the Vice President of a
specified division, department or portion of the corporation's business.
4.09. THE SECRETARY. The Secretary shall: (a) keep the minutes of the
meetings of the shareholders and of the Board of Directors in one or more books
provided for that
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purpose; (b) see that all notices are duly given in accordance with the
provisions of these bylaws or as required by law; (c) be custodian of the
corporate records and of the seal of the corporation and see that the seal of
the corporation is affixed to all documents, the execution of which on behalf of
the corporation under its seal is duly authorized; (d) keep or arrange for the
keeping of a register of the post office address of each shareholder which shall
be furnished to the Secretary by such shareholder; (e) sign with the President,
or a vice President, certificates for shares of the corporation, the issuance of
which shall have been authorized by resolution of the Board of Directors; (f)
have general charge of the stock transfer books of the corporation; and (g) in
general perform all duties incident to the office of Secretary and have such
other duties and exercise such authority as from time to time may be delegated
or assigned to him by the President or by the Board of Directors.
4.10. The TREASURER. The Treasurer shall: (a) have charge and custody
of and be responsible for all funds and securities of the corporation; (b)
receive and give receipts for moneys due and payable to the corporation from any
source whatsoever, and deposit all such moneys in the name of the corporation in
such banks, trust companies or other depositaries as shall be selected in
accordance with the provisions of Section 5.04; and (c) in general perform all
of the duties incident to the office of Treasurer and have such other duties and
exercise such other authority as from time to time my be delegated or assigned
to him by the President or by the Board of Directors. If required by the Board
of Directors, the Treasurer shall give a bond for the faithful discharge of his
duties in such sun and with such surety or sureties as the Board of Directors
shall determine.
4.11. ASSISTANT SECRETARIES AND ASSISTANT TREASURERS. There shall be
such number of Assistant Secretaries and Assistant Treasurers as the Board of
Directors may from time to time authorize. The Assistant Secretaries may sign
with the President or a Vice President certificates for shares of the
corporation, the issuance of which shall have been authorized by a resolution of
the Board of Directors. The Assistant Treasurers shall respectively, if required
by the Board of Directors, give bonds for the faithful discharge of their duties
in such sums and with such sureties as the Board of Directors shall determine.
The Assistant Secretaries and Assistant Treasurers, in general, shall perform
such duties and have such authority as shall from time to time be delegated or
assigned to them by the Secretary or the Treasurer, respectively, or by the
President or the Board of Directors.
4.12. OTHER ASSISTANTS AND ACTING OFFICERS. The Board of Directors
shall have the power to appoint any person to act as assistant to any officer,
or as agent for the corporation in his stead, or to perform the duties of such
officer whenever for any reason it is impracticable for such officer to act
personally, and such assistant or action officer or other agent so appointed by
the Board of Directors shall have the power to perform all the duties of the
office to which he is so appointed to be assistant, or as to which he is so
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appointed to act, except as such power may be otherwise defined or restricted by
the Board of Directors.
4.13. SALARIES. The salaries of the principal officers shall be fixed
from time to time by the Board of Directors or by a duly authorized committee
thereof, and no officer shall be prevented from receiving such salary by reason
of the fact that he is also a director of the corporation.
ARTICLE V
CONTRACTS, LOANS, CHECKS AND DEPOSITS;
SPECIAL CORPORATE ACTS
5.01. CONTRACTS. The Board of Directors may authorize any officer or
officers, agent or agents, to enter into any contract or execute or deliver any
instrument in the name of and on behalf of the corporation, and such
authorization may be general or confined to specific instances. In the absence
of other designation, all deeds, mortgages and instruments of assignment or
pledge made by the corporation shall be executed in the name of the corporation
by the President or one of the Vice Presidents and by the Secretary, an
Assistant Secretary, the Treasurer or an Assistant Treasurer; the Secretary or
an Assistant Secretary, when necessary or required, shall affix the corporate
seal thereto; and when so executed no other party to such instrument or any
third party shall be required to make any inquiry into the authority of the
signing officer or officers.
5.02. LOANS. No indebtedness for borrowed money shall be contracted on
behalf of the corporation and no evidences of such indebtedness shall be issued
in its name unless authorized by or under the authority of a resolution of the
Board of Directors. Such authorization may be general or confined to specific
instances.
5.03. CHECKS, DRAFTS, ETC. All checks, drafts or other orders for the
payment of money, notes or other evidences of indebtedness issued in the name of
the corporation, shall be signed by such officer or officers, agent or agents of
the corporation and in such manner as shall from time to time be determined by
or under the authority of a resolution of the Board of Directors.
5.04. DEPOSITS. All funds of the corporation not otherwise employed
shall be deposited from time to time to the credit of the corporation in such
banks, trust companies or other depositaries as may be selected by or under the
authority of a resolution of the Board of Directors.
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5.05. VOTING OF SECURITIES OWNED BY THIS CORPORATION. Subject always to
the specific directions of the Board of Directors, (a) any shares or other
securities issued by any other corporation and owned or controlled by this
corporation may be voted at any meeting of security holders of such other
corporation by the President of this corporation if he be present, or in his
absence by the Executive Vice President if there be one and he is present, or in
his absence by and Vice President of this corporation who may be present, and
(b) whenever, in the judgment of the President, or in his absence, the Executive
Vice President if there be one, or in his absence any Vice President, it is
desirable for this corporation to execute a proxy or written consent in respect
to any shares or other securities issued by any other corporation and owned by
this corporation, such proxy or consent shall be executed in the name of this
corporation by the President, the Executive Vice President, or one of the Vice
Presidents of this corporation, without necessity of any authorization by the
Board of Directors, affixation of corporate seal or countersignature or
attestation by another officer. Any person or persons designated in the manner
above stated as the proxy or proxies of this corporation shall have full right,
power and authority to vote the shares or other securities issued by such other
corporation and owned by this corporation the sane as such shares or other
securities might be voted by this corporation.
5.06. CONTRACTS BETWEEN CORPORATION AND RELATED PERSONS. Any contract
or other transaction between the corporation and one or more of its directors,
or between the corporation and any firm of which one or more of its directors
are members or Employees, or in which he or they are interested, or between the
corporation and any corporation or association of which one or more of its
directors are shareholders, members, directors, officers or Employees, or in
which he or they are interested, shall be valid for all purposes,
notwithstanding the presence of such director or directors at the meeting of the
Board of Directors of the corporation which acts upon, or in reference to, such
contract or transaction, and notwithstanding his or their participation in such
action, if the fact of such interest shall be disclosed or known to the Board of
Directors and the Board of Directors shall, nevertheless, authorize, approve and
ratify such contract or transaction by a vote of a majority of the directors
present, such interested director or directors to be counted in determining
whether a quorum is present, but not to be counted as voting upon the matter or
in calculating the majority of such quorum necessary to carry such vote. This
section shall not be construed to invalidate any contract or other transaction
which would otherwise be valid under the common and statutory law applicable
thereto.
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ARTICLE VI
CERTIFICATE FOR SHARES AND THEIR TRANSFER
6.01. CERTIFICATES FOR SHARES. Certificates representing shares of the
corporation shall be in such form, consistent with law, as shall be determined
by the Board of Directors. Such certificates shall be signed by the President,
the Executive Vice President, or a Vice President and by the Secretary or an
Assistant Secretary. All certificates for shares shall be consecutively numbered
or otherwise identified. The name and address of the person to whom the shares
represented thereby are issued, with the number of shares and date of issue,
shall be entered on the stock transfer books of the corporation. All
certificates surrendered to the corporation for transfer shall be canceled and
no new certificate shall be issued until the former certificate for a like
number of shares shall have been surrendered and canceled, except as provided in
Section 6.06.
6.02. FACSIMILE SIGNATURES AND SEAL. The seal of the corporation on any
certificates for shares may be a facsimile. The signatures of the officers upon
a certificate may be facsimiles if the certificate is countersigned by a
transfer agent, or registered by a registrar, other than the corporation itself
or an Employee of the corporation.
6.03. SIGNATURE BY FORMER OFFICERS. In case any officer, who has signed
or whose facsimile signature has been placed upon any certificate for shares,
shall have ceased to be such officer before such certificate is issued, it may
be issued by the corporation with the sane effect as if he were such officer at
the date of its issue.
6.04. TRANSFER OF SHARES. Prior to due presentment of a certificate for
shares for registration of transfer the corporation my treat the registered
owner of such shares as the person exclusively entitled to vote, to receive
notifications and otherwise to exercise all the rights and powers of an owner.
Where a certificate for shares is presented to the corporation with a request to
register for transfer, the corporation shall not be liable to the owner or any
other person suffering loss as a result of such registration of transfer if (a)
there were on or with the certificate the necessary endorsements, and (b) the
corporation had o duty to inquire into adverse claims or has discharged any such
duty. The corporation may require reasonable assurance that said endorsements
are genuine and effective and in compliance with such other regulations as may
be prescribed under the authority of the Board of Directors.
6.05. RESTRICTIONS ON TRANSFER. The face or reverse side of each
certificate representing shares shall bear a conspicuous notation of any
restriction imposed by the corporation upon the transfer of such shares.
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6.06. LOST, DESTROYED OR STOLEN CERTIFICATES. Where the owner claims
that his certificates for shares has been lost, destroyed or wrongfully taken, a
new certificate shall be issued in place thereof if the owner (a) so requests
before the corporation has notice that such shares have been acquired by a bona
fide purchaser, and (b) files with the corporation a sufficient indemnity bond,
and (c) satisfies such other reasonable requirements as the Board of Directors
may prescribe.
6.07. CONSIDERATION FOR SHARES. The shares of the corporation may be
issued for such consideration as shall be fixed from time to time by the Board
of Directors, provided that any shares having a par value shall not be issued
for a consideration less than the par value thereof. The consideration to be
paid for shares may be paid in whole or in part, in money, in other property,
tangible or intangible, or in labor or services actually performed for the
corporation. when payment of the consideration for which shares are to be issued
shall have been received by the corporation, such shares shall be deemed to be
fully paid and nonassessable by the corporation. No certificate shall be issued
for any share until such share is fully paid.
6.03. SIGNATURE BY FORMER OFFICERS. In case any officer, who has signed
or whose facsimile signature has been placed upon any certificate for shares,
shall have ceased to be such officer before such certificate is issued, it may
be issued by the corporation with the same effect as if he were such officer at
the date of its issue.
6.04. TRANSFER OF SHARES. Prior to due presentment of a certificate for
shares for registration of transfer the corporation my treat the registered
owner of such shares as the person exclusively entitled to vote, to receive
notifications and otherwise to exercise all the rights and powers of an owner.
Where a certificate for shares is presented to the corporation with a request to
register for transfer, the corporation shall not be liable to the owner or any
other person suffering loss as a result of such registration of transfer if (a)
there were on or with the certificate the necessary endorsements, and (b) the
corporation had o duty to inquire into adverse claims or has discharged any such
duty. The corporation may require reasonable assurance that said endorsements
are genuine and effective and in compliance with such other regulations as may
be prescribed under the authority of the Board of Directors.
6.05. RESTRICTIONS ON TRANSFER. The face or reverse side of each
certificate representing shares shall bear a conspicuous notation of any
restriction imposed by the corporation upon the transfer of such shares.
6.06. LOST, DESTROYED OR STOLEN CERTIFICATES. Where the owner claims
that his certificates for shares has been lost, destroyed or wrongfully taken, a
new certificate shall be issued in place thereof if the owner (a) so requests
before the corporation has notice that such shares have been acquired by a bona
fide purchaser, and (b) files with the
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corporation a sufficient indemnity bond, and (c) satisfies such other reasonable
requirements as the Board of Directors may prescribe.
6.07. CONSIDERATION FOR SHARES. The shares of the corporation may be
issued for such consideration as shall be fixed from time to time by the Board
of Directors, provided that any shares having a par value shall not be issued
for a consideration less than the par value thereof. The consideration to be
paid for shares may be paid in whole or in part, in money, in other property,
tangible or intangible, or in labor or services actually performed for the
corporation. when payment of the consideration for which shares are to be issued
shall have been received by the corporation, such shares shall be deemed to be
fully paid and nonassessable by the corporation. No certificate shall be issued
for any share until such share is fully paid.
6.08. STOCK REGULATIONS. The Board of Directors shall have the power
and authority to make all such further rules and regulations not inconsistent
with the statutes of the State of Wisconsin as it may deem expedient concerning
the issue, transfer and registration of certificates representing shares of the
corporation.
6.09. INDEMNIFICATION.
The corporation shall indemnify any director or officer, or former
director or officer of the corporation, or any person who may have served at its
request as a director or officer of another corporation in which it owns shares
of capital stock, or of which it is a creditor, against reasonable expenses,
including attorneys' fees, actually and necessarily incurred by him in
connection with the defense of any civil, criminal or administrative action,
suit or proceeding in which he is made a party or with which he is threatened by
reason of being or having been or because of any act as such director or
officer, within the course of his duties or Employment, except in relation to
matters as to which he shall be adjudged in such action, suit or proceeding to
be liable for negligence or misconduct in the performance of his duties. The
corporation may also reimburse any director or officer for the reasonable costs
of settlement of any such action, suit or proceeding, if it shall be found by a
majority of a committee composed of the directors not involved in the matter in
controversy (whether or not a quorum) that it was to the interests of the
corporation that such settlement be made and that such director or officer was
not guilty of negligence or misconduct. The right of indemnification herein
provided shall extend to the estate, executor, administrator, guardian and
conservator of any deceased or former director of officer or person who himself
would have been entitled to indemnification. Such rights of indemnification and
reimbursement shall not be deemed exclusive of any other rights to which such
director of officer may be entitled under any statute, agreement, vote of
shareholders, or otherwise.
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ARTICLE VII
SEAL
7.01. The Board of Directors may, if it desires, provide a corporate
seal which shall be circular in form and shall have inscribed thereon the name
of the corporation and the state of incorporation and the words, "Corporate
Seal."
ARTICLE VIII
AMENDMENTS
8.01. BY SHAREHOLDERS. These bylaws may be altered, amended or repealed
and new bylaws may be adopted by the shareholders by affirmative vote of not
less than a majority of the shares present or represented at any annual or
special meeting of the shareholders at which a quorum is in attendance.
8.92. BY DIRECTORS. These bylaws may also be altered, amended or
repealed and new bylaws may be adopted by the Board of Directors by affirmative
vote of a majority of the number of directors present at any meeting at which a
quorum is in attendance; but no bylaw adopted by the shareholders shall be
amended or repealed by the Board of Directors if the bylaw so adopted so
provides.
8.03. IMPLIED AMENDMENTS. Any action taken or authorized by the
shareholders or by the Board of Directors, which would be inconsistent with the
bylaws then in effect but is taken or authorized by affirmative vote of not less
than the number of shares or the number of directors required to amend the
bylaws so that the bylaws would be consistent with such action, shall be given
the same effect as though the bylaws had been temporarily amended or suspended
so far, but only so far, as is necessary to permit the specific action so taken
or authorized.
ARTICLE IX
FISCAL YEAR
9.01. The fiscal year of the corporation shall begin on the date set
forth in Section 0.06.
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AMENDED AND RESTATED
BYLAWS
OF
GARETH STEVENS, INC.
(a Wisconsin corporation)
Adopted March 16, 1987
ARTICLE I
OFFICES
1.01. PRINCIPAL AND BUSINESS OFFICES. The corporation may have such
principal and other business offices, either within or without the State of
Wisconsin, as the Board of Directors may designate or as the business of the
corporation may require from time to time.
1.02. REGISTERED OFFICE. The registered office of the corporation
required by the Wisconsin Business Corporation Law to be maintained in the State
of Wisconsin may be, but need not be, identical with the principal office in the
State of Wisconsin, and the address of the registered office may be changed from
time to time by the Board of Directors. The business office of the registered
agent of the corporation shall be identical to such registered office.
ARTICLE II
SHAREHOLDERS
2.01. ANNUAL MEETING. The annual meeting of the shareholders shall be
held on the Monday of the first week in the month of September commencing in
1987, or at such other time and date within thirty days before or after said
date as may be fixed by or under the authority of the Board of Directors, for
the purpose of electing directors and for the transaction of such other business
as may come before the meeting. If the day fixed for the annual meeting shall be
a legal holiday in the State of Wisconsin, such meeting shall be held on the
next succeeding business day. If the election of directors shall not be held on
the day designated herein, or fixed as herein provided, for any annual meeting
of the shareholders, or at any adjournment thereof, the Board of Directors shall
<PAGE>
cause the election to be held at a special meeting of the shareholders as soon
thereafter as conveniently may be.
2.02. SPECIAL MEETING. Special meetings of the shareholders, for any
purpose or purposes, unless otherwise prescribed by statute, may be called by
the President or the Board of Directors or by the person designated in the
written request of the holders of not less than one-fourth of all shares of the
corporation entitled to vote at the meeting.
2.03. PLACE OF MEETING. The Board of Directors may designate any place,
either within or without the State of Wisconsin, as the place of meeting for any
annual meeting or for any special meeting called by the Board of Directors. A
waiver of notice signed by all shareholders entitled to vote at a meeting may
designate any place, either within or without the State of Wisconsin, as the
place for the holding of such meeting. If no designation is made, or if a
special meeting be otherwise called, the place of meeting shall be the principal
business office of the corporation in the State of Wisconsin or such other
suitable place in the county of such principal office as may be designated by
the person calling such meeting, but any meeting may be adjourned to reconvene
at any place designated by vote of a majority of the shares represented thereat.
2.04. NOTICE OF MEETING. Written notice stating the place, day and hour
of the meeting and, in case of a special meeting, the purpose or purposes for
which the meeting is called, shall be delivered not less than ten days (unless a
longer period is required by law or the articles of incorporation) nor more than
thirty days before the date of the meeting, either personally or by mail, by or
at the direction of the President, or the Secretary, or other officer or persons
calling the meeting, to each shareholder of record entitled to vote at such
meeting. If mailed, such notice shall be deemed to be delivered when deposited
in the United States mail, addressed to the shareholder at his address as it
appears on the stock record books of the corporation, with postage thereon
prepaid.
Whenever any notice is required to be given to any shareholder to whom
communication is made unlawful by any law of the United States, whenever
enacted, or by any rule, regulation, proclamation or executive order issued
under any such law, the giving of such notice to such shareholder shall not be
required and there shall be no duty to apply to any governmental authority or
agency for a license or permit to give such notice to such shareholder.
2.05. CLOSING OF TRANSFER BOOKS OR FIXING OF RECORD DATE. For the
purpose of determining shareholders entitled to notice of or to vote at any
meeting of shareholders or any adjournment thereof, or shareholders entitled to
receive payment of any dividend, or in order to make a determination of
shareholders for any other proper purpose, the Board of Directors may provide
that the stock transfer books shall be closed for a stated period but not to
exceed, in any case, fifty days. If the stock transfer books shall be
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closed for the purpose of determining shareholders entitled to notice of or to
vote at a meeting of shareholders, such books shall be closed for at least ten
days immediately preceding such meeting. In lieu of closing the stock transfer
books, the Board of Directors may fix in advance a date as the record date for
any such determination of shareholders, such date in any case to be not more
than seventy-five days and, in case of a meeting of shareholders, not less than
ten days prior to the date on which the particular action, requiring such
determination of shareholders, is to be taken. If the stock transfer books are
not closed and no record date is fixed for the determination of shareholders
entitled to notice of or to vote at a meeting of shareholders, or shareholders
entitled to receive payment of a dividend, the close of business on the date on
which notice of the meeting is mailed or on the date on which the resolution of
the Board of Directors declaring such dividend is adopted, as the case may be,
shall be the record date for such determination of shareholders. When a
determination of shareholders entitled to vote at any meeting of shareholders
has been made as provided in this section, such determination shall be applied
to any adjournment thereof except where the determination has been made through
the closing of the stock transfer books and the stated period of closing has
expired.
2.06. VOTING LISTS. The officer or agent having charge of the stock
transfer books for shares of the corporation shall, before each meeting of
shareholders, make a complete LIST of the shareholders entitled to vote at such
meeting, or any adjournment thereof, with the address of and the number of
shares held by each, which list shall be produced and kept open at the time and
place of the meeting and shall be subject to the inspection of any shareholder
during the whole time of the meeting for the purposes of the meeting. The
original stock transfer books shall be prima facie evidence as to who are the
shareholders entitled to examine such list or transfer books or to vote at any
meeting of shareholders. Failure to comply with the requirements of this section
shall not affect the validity of any action taken at such meeting.
2.07. QUORUM. Except as otherwise provided in the articles of
incorporation, a majority of the shares entitled to vote, represented in person
or by proxy, shall constitute a quorum at a meeting of shareholders. If a quorum
is present, the affirmative vote of the majority of the shares represented at
the meeting and entitled to vote on the subject matter shall be the act of the
shareholders unless the vote of a greater number or voting by classes is
required by law or the articles of incorporation. Though less than a quorum of
the outstanding shares are represented at a meeting, a majority of the shares so
represented may adjourn the meeting from time to time without further notice. At
such adjourned meeting at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at the meeting as
originally notified.
2.08. CONDUCT OF MEETINGS. The President, or in his absence, the
Executive Vice President, if there be one and he is present, or in their
absence, a Vice President in
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the order provided under Section 4.08, and in their absence, any person chosen
by the shareholders present shall call the meeting of the shareholders to order
and shall act as chairman of the meeting, and the Secretary of the corporation
shall act as secretary of all meetings of the shareholders, but, in the absence
of the Secretary, the presiding officer may appoint any other person to act as
secretary of the meeting.
2.09. PROXIES. At all meetings of shareholders, a shareholder entitled
to vote may vote in person or by proxy appointed in writing by the shareholder
or by his duly authorized attorney in fact. Such proxy shall be filed with the
Secretary of the corporation before or at the time of the meeting. Unless
otherwise provided in the proxy, a proxy may be revoked at any time before it is
voted, either by written notice filed with the Secretary or the acting secretary
of the meeting or by oral notice given by the shareholder to the presiding
officer during the meeting. The presence of a shareholder who has filed his
proxy shall not of itself constitute a revocation. No proxy shall be valid after
eleven months from the date of its execution, unless otherwise provided in the
proxy. The Board of Directors shall have the power and authority to make rules
establishing presumptions as to the validity and sufficiency of proxies.
2.10. VOTING OF SHARES. Each outstanding share shall be entitled to one
vote upon each matter submitted to a vote at a meeting of shareholders, except
to the extent that the voting rights of the shares of any class or classes are
enlarged, limited or denied by the articles of incorporation.
2.11. VOTING OF SHARES BY CERTAIN HOLDERS.
(a) OTHER CORPORATIONS. Shares standing in the name of another
corporation may be voted either in person or by proxy, by the president of such
corporation or any other officer appointed by such president. A proxy executed
by any principal officer of such other corporation or assistant thereto shall be
conclusive evidence of the signer's authority to act, in the absence of express
notice to this corporation, given in writing to the Secretary of this
corporation, of the designation of some other person by the board of directors
or the bylaws of such other corporation.
(b) LEGAL REPRESENTATIVES AND FIDUCIARIES. Shares held by an
administrator executor guardian, conservator, trustee in bankruptcy, receiver,
or assignee for creditors may be voted by him, either in person or by proxy,
without a transfer of such shares into his name, provided that there is filed
with the Secretary before or at the time of meeting proper evidence of his
incumbency and the number of shares held. Shares standing in the name of a
fiduciary may be voted by him, either in person or by proxy. A proxy executed by
a fiduciary, shall be conclusive evidence of the signer's authority to act, in
the absence of express notice to this corporation, given in writing to the
Secretary of this corporation,
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that such manner of voting is expressly prohibited or otherwise directed by the
document creating the fiduciary relationship.
(c) PLEDGEES. A shareholder whose shares are pledged shall be entitled
to vote such shares until the shares have been transferred into the name of the
pledgee, and thereafter the pledgee shall be entitled to vote the shares so
transferred.
(d) TREASURY STOCK AND SUBSIDIARIES. Neither treasury shares, nor
shares held by another corporation if a majority of the shares entitled to vote
for the election of directors of such other corporation is held by this
corporation, shall be voted at any meeting or counted in determining the total
number of outstanding shares entitled to vote, but shares of its own issue held
BY this corporation in a fiduciary capacity, or held BY such other corporation
in a fiduciary capacity, may be voted and shall be counted in determining the
total number of outstanding shares entitled to vote.
(e) MINORS. Shares held by a minor may be voted by such minor in person
or by proxy and no such vote shall be subject to disaffirmance or avoidance,
unless prior to such vote the Secretary of the corporation has received written
notice or has actual knowledge that such shareholder is a minor.
(f) INCOMPETENTS AND SPENDTHRIFTS. Shares held by an incompetent or
spendthrift may be voted by such incompetent or spendthrift in person or by
proxy and no such vote shall be subject to disaffirmance or avoidance, unless
prior to such vote the Secretary of the corporation has actual knowledge that
such shareholder has been adjudicated an incompetent or spendthrift or actual
knowledge of filing of judicial proceedings for appointment of a guardian.
(g) JOINT TENANTS. Shares registered in the names of two or more
individuals who are named in the registration as joint tenants may be voted in
person or by proxy signed by any one or more of such individuals if either (i)
no other such individual or his legal representative is present and claims the
right to participate in the voting of such shares or prior to the vote files
with the Secretary of the corporation a contrary written voting authorization or
direction or written denial of authority of the individual present or signing
the proxy proposed to be voted or (ii) all such other individuals are deceased
and the Secretary of the corporation has no actual knowledge that the survivor
has been adjudicated not to be the successor to the interests of those deceased.
2.12. WAIVER OF NOTICE BY SHAREHOLDERS. Whenever any notice whatever is
required to be given to any shareholder of the corporation under the articles of
incorporation or bylaws or any provision of law, a waiver thereof in writing,
signed at any time, whether before or after the time of meeting, by the
shareholder entitled to such notice, shall be deemed equivalent to the giving of
such notice; provided that such waiver
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in respect to any matter of which notice is required under any provision of the
Wisconsin Business Corporation Law, shall contain the same information as would
have been required to be included in such notice, except the time and place of
meeting.
2.13. UNANIMOUS CONSENT WITHOUT MEETING. Any action required or
permitted by the articles of incorporation or bylaws or any provision of law to
be taken at a meeting of the shareholders, may be taken without a meeting if a
consent in writing, setting forth the action so taken, shall be signed by all of
the shareholders entitled to vote with respect to the subject matter thereof.
ARTICLE III
BOARD OF DIRECTORS
3.01. GENERAL POWERS AND NUMBER. The business and affairs of the
corporation shall be managed by its Board of Directors. The number of directors
of the corporation shall be three.
3.02. TENURE AND QUALIFICATIONS. Each director shall hold office until
the next annual meeting of shareholders and until his successor shall have been
elected, or until his prior death, resignation or removal. A director may be
removed from office by affirmative vote of a majority of the outstanding shares
entitled to vote for the election of such director, taken at a meeting of
shareholders called for that purpose. A director may resign at any time by
filing his written resignation with the Secretary of the corporation. Directors
need not be residents of the State of Wisconsin or shareholders of the
corporation.
3.03. REGULAR MEETINGS. A regular meeting of the Board of Directors
shall be held without other notice than this bylaw immediately after the annual
meeting of shareholders, and each adjourned session thereof. The place of such
regular meeting shall be the same as the place of the meeting of shareholders
which precedes it, or such other suitable place as may be announced at such
meeting of shareholders. The Board of Directors may provide, by resolution, the
time and place, either within or without the State of Wisconsin, for the holding
of additional regular meetings without other notice than such resolution.
3.04. SPECIAL MEETINGS. Special meetings of the Board of Directors may
be called by or at the request of the President, Secretary or two-thirds of the
directors. The President or Secretary calling any special meeting of the Board
of Directors may fix any place, either within or without the State of Wisconsin,
as the place for holding any special meeting of the Board of Directors called by
them, and if no other place is fixed
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the place of meeting shall be the principal business office of the corporation
in the State of Wisconsin.
3.05. NOTICE; WAIVER. Notice of each meeting of the Board of Directors
(unless otherwise provided in or pursuant to Section 3.03) shall be given by
written notice delivered personally or mailed or given by telegram to each
director at his business address or at such other address as such director shall
have designated in writing filed with the Secretary, in each case not less than
five (5) days if by mail and not less than two (2) days if by telegram or
personal delivery. If mailed, such notice shall be deemed to be delivered when
deposited in the United States mail so addressed, with postage thereon prepaid.
If notice be given by telegram, such notice shall be deemed to be delivered when
the telegram is delivered to the telegraph company. Whenever any notice whatever
is required to be given to any director of the corporation under the articles of
incorporation or bylaws or any provision of law, a waiver thereof in writing,
signed at any time, whether before or after the time of meeting, by the director
entitled to such notice, shall be deemed equivalent to the giving of such
notice. The attendance of a director at a meeting shall constitute a waiver of
notice of such meeting, except where a director attends a meeting and objects
thereat to the transaction of any business because the meeting is not lawfully
called or convened. Neither the business to be transacted at, nor the purpose
of, any regular or special meeting of the Board of Directors need be specified
in the notice or waiver of notice of such meeting.
3.06. QUORUM. Except as otherwise provided by law or by the articles of
incorporation or these bylaws, two-thirds of the number of directors set forth
in Section 3.01 shall constitute a quorum for the transaction of business at any
meeting of the Board of Directors, but a majority of the directors present
(though less than such quorum) may adjourn the meeting from time to time without
further notice.
3.07. MANNER OF ACTING. The act of the majority of the directors
present at a meeting at which a quorum is present shall be the act of the Board
of Directors, unless the act of a greater number is required by law or by the
articles of incorporation or these bylaws.
3.08. CONDUCT OF MEETING. The Chairman of the Board, if there be one
and he is present, or the President, and in his absence the Executive Vice
President, or in his absence a Vice President in the order provided under
Section 4.08, and in their absence, any director chosen by the directors
present, shall call meetings of the Board of Directors to order and shall act as
chairman of the meeting. The Secretary of the corporation shall act as secretary
of al meetings of the Board of Directors, but in the absence of the Secretary,
the presiding officer may appoint any Assistant Secretary or any director or
other person present to act as secretary of the meeting.
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3.09. VACANCIES. Any vacancy occurring in the Board of Directors,
including a vacancy created by an increase in the number of directors, may be
filled until the next succeeding annual election by the affirmative vote of
two-thirds of the directors then in office, though less than a quorum of the
Board of Directors; provided, that in case of a vacancy created by the removal
of a director by vote of the shareholders, the shareholders shall have the right
to fill such vacancy at the same meeting or any adjournment thereof.
3.10. COMPENSATION. The Board of Directors, by affirmative vote of a
majority of the directors then in office, and irrespective of any personal
interest of any of its members, may establish reasonable compensation of all
directors for services to the corporation as directors, officers or otherwise,
or may delegate such authority to an appropriate committee. The Board of
Directors also shall have authority to provide for or to delegate authority to
an appropriate committee to provide for reasonable pensions, disability or death
benefits and other benefits or payments, to directors, officers and employees
and to their estates, families, dependents or beneficiaries on account of prior
services rendered by such directors, officers and employees to the corporation.
3.11. PRESUMPTION OF ASSENT. A director of the corporation who is
present at a meeting of the Board of Directors or a committee thereof of which
is a member at which action on any corporate matter is taken shall be presumed
to have assented to the action taken unless his dissent shall be entered in the
minutes of the meeting or unless he shall file his written dissent to such
action with the person acting as the secretary of the meeting before the
adjournment thereof or shall forward such dissent by registered mail to the
Secretary of the corporation immediately after the adjournment of the meeting.
Such right to dissent shall not apply to a director who voted in favor of such
action.
3.12. COMMITTEES. The Board of Directors by resolution adopted by the
affirmative vote of a majority of the number of directors set forth in Section
3.01 may designate one or more committees, each committee to consist of three or
more directors elected by the Board of Directors, which to the extent provided
in said resolution as initially adopted, and as thereafter supplemented or
amended by further resolution adopted by a like vote, shall have and may
exercise, when the Board of Directors is not in session, the powers of the Board
of Directors in the management of the business and affairs of the corporation,
except action in respect to dividends to shareholders, election of the principal
officers or the filling of vacancies in the Board of Directors or committees
created pursuant to this section. The Board of Directors may elect one or more
of its members as alternate members of any such committee who may take the place
of any absent member or members at any meeting of such committee, upon request
by the President or upon request by the chairman of such meeting. Each such
committee shall fix its own rules governing the conduct of its activities and
shall make such reports to the Board of Directors of its activities as the Board
of Directors may request.
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3.13. UNANIMOUS CONSENT WITHOUT MEETING. Any action required or
permitted by the articles of incorporation or bylaws or any provision of law to
be taken by the Board of Directors or Committee thereof at a meeting or by
resolution may be taken without a meeting if a consent in writing, setting forth
the action so taken, shall be signed by all of the directors or members of the
committee then in office.
ARTICLE IV
OFFICERS
4.01. NUMBER. The principal officers of the corporation shall be a
President, one Vice President, a Secretary, and a Treasurer, each of whom shall
be elected by the Board of Directors. The election of a larger number of Vice
Presidents shall of itself constitute an amendment of the number of Vice
Presidents provided in the foregoing sentence. The Board of Directors may
designate one of the Vice Presidents as the Executive Vice President. Such other
officers and assistant officers as may be deemed necessary may be elected or
appointed by the Board of Directors. Any two or more offices may be held by the
same person, except the offices of President and Secretary and the offices of
President and Vice President.
4.02. ELECTION AND TERM OF OFFICE. The officers of the corporation to
be elected by the Board of Directors shall be elected annually by the Board of
Directors at the first meeting of the Board of Directors held after each annual
meeting of the shareholders. If the election of officers shall not be held at
such meeting, such election shall be held as soon thereafter as conveniently may
be. Each officer shall hold office until his successor shall have been duly
elected or until his prior death, resignation or removal.
4.03. REMOVAL. Any officer or agent may be removed by the Board of
Directors whenever in its judgment the best interests of the corporation will be
served thereby, but such removal shall be without prejudice to the contract
rights, if any, of the person so removed. Election or appointment shall not of
itself create contract rights.
4.04. VACANCIES. A vacancy in any principal office because of death,
resignation, removal, disqualification or otherwise, shall be filled by the
Board of Directors for the unexpired portion of the term.
4.05. CHAIRMAN OF THE BOARD. The Board of Directors may elect one of
its members the Chairman of the Board. The Chairman of the Board shall preside
at all meetings of the shareholders and directors at which he is present. He
shall be ex officio a member of all standing committees and shall be Chairman of
such committees as is
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determined by the Board of Directors. He shall have such other powers and duties
as may from time to time be prescribed by the bylaws or by resolution of the
Board of Directors.
4.06. PRESIDENT. The President shall be the principal executive officer
of the corporation and, subject to the control of the Board of Directors, shall
in general supervise and control all of the business and affairs of the
corporation. He shall have authority, subject to such rules as may be prescribed
by the Board of Directors, to appoint such agents and employees of the
corporation as he shall deem necessary, to prescribe their powers, duties and
compensation and to delegate authority to them. Such agents and employees shall
hold office at the discretion of the President. He shall have authority to sign,
execute and acknowledge, on behalf of the corporation, all deeds, mortgages,
bonds, stock certificates, contracts, leases, reports and all other documents or
instruments necessary or proper to be executed in the course of the
corporation's regular business, or which shall be authorized by resolution of
the Board of Directors; and, except as otherwise provided by law or the Board of
Directors, he may authorize any Vice President or other officer or agent of the
corporation to sign, execute and acknowledge such documents or instruments in
his place and stead. In general he shall perform all duties incident to the
office of President and such other duties as may be prescribed by the Board of
Directors from time to time.
4.07. THE EXECUTIVE VICE PRESIDENT. The Executive Vice President, if
one be designated, shall assist the President in the discharge of supervisory,
managerial and executive duties and functions. In the absence of the President
or in the event of his death, inability or refusal to act, the Executive Vice
President shall perform the duties of the President and when so acting shall
have all the powers and duties of the President. He shall perform such other
duties as from time to time may be assigned to him by the Board of Directors or
the President.
4.08. THE VICE PRESIDENTS. In the absence of the President and the
Executive Vice President or in the event of their death, inability or refusal to
act, or in the event for any reason it shall be impracticable for them to act
personally, the Vice President (or in the event there be more than one Vice
President, the Vice Presidents in the order designated by the Board of
Directors, or in the absence of any designation, then in the order of their
election) shall perform the duties of the President, and when so acting, shall
have all the powers of and be subject to all the restrictions upon the
President. Any Vice President may sign, with the Secretary or Assistant
Secretary, certificates for shares of the corporation; and shall perform such
other duties and have such authority as from time to time may be delegated or
assigned to him by the President or by the Board of Directors. The execution of
any instrument of the corporation by any Vice President shall be conclusive
evidence, as to third parties, of his authority to act in the stead of the
President. Vice Presidents may be designated as the Vice President of a
specified division, department or portion of the corporation's business.
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4.09. THE SECRETARY. The Secretary shall: (a) keep the minutes of the
meetings of the shareholders and of the Board of Directors in one or more books
provided for that purpose; (b) see that all notices are duly given in accordance
with the provisions of these bylaws or as required by law; (c) be custodian of
the corporate records and of the seal of the corporation and see that the seal
of the corporation is affixed to all documents the execution of which on behalf
of the corporation under its seal is duly authorized; (d) keep or arrange for
the keeping of a register of the post office address of each shareholder which
shall be furnished to the Secretary by such shareholder; (e) sign with the
President, or a Vice President, certificates for shares of the corporation, the
issuance of which shall have been authorized by resolution of the Board of
Directors; (f) have general charge of the stock transfer books of the
corporation; and (g) in general perform all duties incident to the office of
Secretary and have such other duties and exercise such authority as from time to
time may be delegated or assigned to him by the President or by the Board of
Directors.
4.10. THE TREASURER. The Treasurer shall: (a) have charge and custody
of and be responsible for all funds and securities of the corporation; (b)
receive and give receipts for moneys due and payable to the corporation from any
source whatsoever, and deposit all such moneys in the name of the corporation in
such banks, trust companies or other depositaries as shall be selected in
accordance with the provisions of section 5.04; and (c) in general perform all
of the duties incident to the office of Treasurer and have such other duties and
exercise such other authority as from time to time may be delegated or assigned
to him by the President or by the Board of Directors. If required by the Board
of Directors, the Treasurer shall give a bond for the faithful discharge of his
duties in such sum and with such surety or sureties as the Board of Directors
shall determine.
4.11. ASSISTANT SECRETARIES AND ASSISTANT TREASURERS. There shall be
such number of Assistant Secretaries and Assistant Treasurers as the Board of
Directors may from time to time authorize. The Assistant Secretaries may sign
with the President or a Vice President certificates for shares of the
corporation the issuance of which shall have been authorized by a resolution of
the Board of Directors. The Assistant Treasurers shall respectively, if required
by the Board of Directors, give bonds for the faithful discharge of their duties
in such sums and with such sureties as the Board of Directors shall determine.
The Assistant Secretaries and Assistant Treasurers, in general, shall perform
such duties and have such authority as shall from time to time be delegated or
assigned to them by the Secretary or the Treasurer, respectively, or by the
President or the Board of Directors.
4.12. OTHER ASSISTANTS AND ACTING OFFICERS. The Board of Directors
shall have the power to appoint any person to act as assistant to any officer,
or as agent for the corporation in his stead, or to perform the duties of such
officer whenever for any reason
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it is impracticable for such officer to act personally, and such assistant or
acting officer or other agent so appointed by the Board of Directors shall have
the power to perform all the-duties of the office to which he is so appointed to
be assistant, or as to which he is so appointed to act, except as such power may
be otherwise defined or restricted by the Board of Directors.
4.13. SALARIES. The salaries of the principal officers shall be fixed
from time to time by the Board of Directors or by a duly authorized committee
thereof, and no officer shall be prevented from receiving such salary by reason
of the fact that he is also a director of the corporation.
ARTICLE V
CONTRACTS, LOANS, CHECKS AND DEPOSITS;
SPECIAL CORPORATE ACTS
5.01. CONTRACTS. The Board of Directors may authorize any officer or
officers, agent or agents, to enter into any contract or execute or deliver any
instrument in the name of and on behalf of the corporation, and such
authorization may be general or confined to specific instances. In the absence
of other designation, all deeds, mortgages and instruments of assignment or
pledge made by the corporation shall be executed in the name of the corporation
by the President or one of the Vice Presidents and by the Secretary, an
Assistant Secretary, the Treasurer or an Assistant Treasurer; the Secretary or
an Assistant Secretary, when necessary or required, shall affix the corporate
seal thereto; and when so executed no other party to such instrument or any
third party shall be required to make any inquiry into the authority of the
signing officer or officers.
5.02. LOANS. No indebtedness for borrowed money shall be contracted on
behalf of the corporation and no evidences of such indebtedness shall be issued
in its name unless authorized by or under the authority of a resolution of the
Board of Directors. Such authorization may be general or confined to specific
instances.
5.03. CHECKS, DRAFTS, ETC. All checks, drafts or other orders for the
payment of money, notes or other evidences of indebtedness issued in the name of
the corporation, shall be signed by such officer or officers, agent or agents of
the corporation and in such manner as shall from time to time be determined by
or under the authority of a resolution of the Board of Directors.
5.04. DEPOSITS. All funds of the corporation not otherwise employed
shall be deposited from time to time to the credit of the corporation in such
banks, trust
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companies or other depositaries as may be selected by or under the authority of
a resolution of the Board of Directors.
5.05. VOTING OF SECURITIES OWNED BY THIS CORPORATION. Subject always to
the specific directions of the Board of Directors, (a) any shares or other
securities issued by any other corporation and owned or controlled by this
corporation may be voted at any meeting of security holders of such other
corporation by the President of this corporation if he be present, or in his
absence by the Executive Vice President if there be one and he is present, or in
his absence by any Vice President of this corporation who may be present, and
(b) whenever, in the judgment of the President, or in his absence, the Executive
Vice President if there be one, or in his absence any Vice President, it is
desirable for this corporation to execute a proxy or written consent in respect
to any shares or other securities issued by any other corporation and owned by
this corporation, such proxy or consent shall be executed in the name of this
corporation by the President, the Executive Vice President, or one of the Vice
Presidents of this corporation, without necessity of any authorization by the
Board of Directors, affixation of corporate seal or countersignature or
attestation by another officer. Any person or persons designated in the manner
above stated as the proxy or proxies of this corporation shall have full right,
power and authority to vote the shares or other securities issued by such other
corporation and owned by this corporation the same as such shares or other
securities might be voted by this corporation.
5.06. CONTRACTS BETWEEN CORPORATION AND RELATED PERSONS. Any contract
or other transaction between the corporation and one or more of its directors,
or between the corporation and any firm of which one or more of its directors
are members or employees, or in which he or they are interested, or between the
corporation and any corporation or association of which one or more of its
directors are shareholders, members, directors, officers or employees, or in
which he or they are interested, shall be valid for all purposes,
notwithstanding the presence of such director or directors at the meeting of the
Board of Directors of the corporation which acts upon, or in reference to, such
contract or transaction, and notwithstanding his or their participation in such
action, if the fact of such interest shall be disclosed or known to the Board of
Directors and the Board of Directors shall, nevertheless, authorize, approve and
ratify such contract or transaction by a vote of a majority of the directors
present, such interested director or directors to be counted in determining
whether a quorum is present, but not to be counted as voting upon the matter or
in calculating the majority of such quorum necessary to carry such vote. This
section shall not be construed to invalidate any contract or other transaction
which would otherwise be valid under the -common and statutory law applicable
thereto.
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ARTICLE VI
CERTIFICATE FOR SHARES AND THEIR TRANSFER
6.01. CERTIFICATES FOR SHARES. Certificates representing shares of the
corporation shall be in such form, consistent with law, as shall be determined
by the Board of Directors. Such certificates shall be signed by the President,
the Executive Vice President, or a Vice President and by the Secretary or an
Assistant Secretary. All certificates for shares shall be consecutively numbered
or otherwise identified. The name and address of the person to whom the shares
represented thereby are issued, with the number of shares and date of issue,
shall be entered on the stock transfer books of the corporation. All
certificates surrendered to the corporation for transfer shall be canceled and
no new certificate shall be issued until the former certificate for a like
number of shares shall have been surrendered and canceled, except as provided in
Section 6.06.
6.02. FACSIMILE SIGNATURES AND SEAL. The seal of the corporation on any
certificates for shares may be a facsimile. The signatures of the officers upon
a certificate may be facsimiles if the certificate is countersigned by a
transfer agent, or registered by a registrar, other than the corporation itself
or an employee of the corporation.
6.03. SIGNATURE BY FORMER OFFICERS. In case any officer, who has signed
or whose facsimile signature has been placed upon any certificate for shares,
shall have ceased to be such officer before such certificate is issued, it may
be issued by the corporation with the same effect as if he were such officer at
the date of its issue.
6.04. TRANSFER OF SHARES. Prior to due presentment of a certificate for
shares for registration of transfer the corporation may treat the registered
owner of such shares as the person exclusively entitled to vote, to receive
notifications and otherwise to exercise all the rights and power of an owner.
Where a certificate for shares is presented to the corporation with a request to
register for transfer, the corporation shall not be liable to the owner or any
other person suffering loss as a result of such registration of transfer if (a)
there were on or with the certificate the necessary endorsements, and (b) the
corporation had no duty to inquire into adverse claims or has discharged any
such duty. The corporation may require reasonable assurance that said
endorsements are genuine and effective and in compliance with such other
regulations as may be prescribed under the authority of the Board of Directors.
6.05. RESTRICTIONS ON TRANSFER. The face or reverse side of each
certificate representing shares shall bear a conspicuous notation of any
restriction imposed by the corporation upon the transfer of such shares.
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6.06. LOST, DESTROYED OR STOLEN CERTIFICATES. Where the owner claims
that his certificate for shares has been lost, destroyed or wrongfully taken, a
new certificate shall be issued in place thereof if the owner (a) so requests
before the corporation has notice that such shares have been acquired by a bona
fide purchaser, and (b) files with the corporation a sufficient indemnity bond,
and (c) satisfies such other reasonable requirements as the Board of Directors
may prescribe.
6.07. CONSIDERATION FOR SHARES. The shares of the corporation may be
issued for such consideration as shall be fixed from time to time by the Board
of Directors, provided that any shares having a par value shall not be issued
for a consideration less than the par value thereof. The consideration to be
paid for shares may be paid in whole or in part, in money, in other property,
tangible or intangible, or in labor or services actually performed for the
corporation. When payment of the consideration for which shares are to be issued
shall have been received by the corporation, such shares shall be deemed to be
fully paid and nonassessable by the corporation. No certificate shall be issued
for any share until such share is fully paid.
6.08. STOCK REGULATIONS. The Board of Directors shall have the power
and authority to make all such further rules and regulations not inconsistent
with the statutes of the State of Wisconsin as it may deem expedient concerning
the issue, transfer and registration of certificates representing shares of the
corporation.
6.09. INDEMNIFICATION. The corporation shall indemnify any director or
officer, or former director or officer of the corporation, or any person who may
have served at its request as a director or officer of another corporation in
which it owns shares of capital stock, or of which it is a creditor, against
unreasonable expenses, including attorneys' fees, actually and necessarily
incurred by him in connection with the defense of any civil, criminal or
administrative action, suit or proceeding in which he is made a party or with
which he is threatened by reason of being or having been or because of any act
as such director or officer, within the course of his duties or employment,
except in relation to matters as to which he shall be adjudged in such action,
suit or proceeding to be liable for negligence or misconduct in the performance
of his duties. The corporation may also reimburse any director or officer for
the reasonable costs of settlement of any such action, suit or proceeding, if it
shall be found by a majority of a committee composed of the directors not
involved in the matter in controversy (whether or not a quorum) that it was to
the interests of the corporation that such settlement be made and that such
director or officer was not guilty of negligence or misconduct. The right of
indemnification herein provided shall extend to the estate, executor,
administrator, guardian and conservator of any deceased or former director or
officer or person who himself would have been entitled to indemnification. Such
rights of indemnification and reimbursement shall not be deemed exclusive of any
other rights to which such director or officer may be entitled under any
statute, agreement, vote of shareholders, or otherwise.
15
<PAGE>
ARTICLE VII
SEAL
7.01. The Board of Directors shall provide a corporate seal which shall
be circular in form and shall have inscribed thereon the name of the corporation
and the state of incorporation and the words, "Corporate Seal."
ARTICLE VIII
AMENDMENTS
8.01. BY SHAREHOLDERS. These bylaws may be altered, amended or repealed
and new bylaws may be adopted by the shareholders by affirmative vote of not
less than a majority of the shares present or represented at any annual or
special meeting of the shareholders at which a quorum is in attendance.
8.02. BY DIRECTORS. These bylaws may also be altered, amended or
repealed and new bylaws may be adopted by the Board of Directors by affirmative
vote of two-thirds of the number of directors present at any meeting at which a
quorum is in attendance; but no bylaw adopted by the shareholders shall be
amended or repealed by the Board of Directors if the bylaw so adopted so
provides.
8.03. IMPLIED AMENDMENTS. Any action taken or authorized by the
shareholders or by the Board of Directors, which would be inconsistent with the
bylaws then in effect but is taken or- authorized by affirmative vote of not
less than the number of shares or the number of directors required to amend the
bylaws so that the bylaws would be consistent with such action, shall be given
the same effect as though the bylaws had been temporarily amended or suspended
so far, but only so far, as is necessary to permit the specific action so taken
or authorized.
ARTICLE IX
FISCAL YEAR
9.01. The fiscal year of the corporation shall begin on July 1.
16
<PAGE>
CONSENT RESOLUTION
GARETH STEVENS, INC.
The undersigned, being the sole shareholder of Gareth Stevens, Inc., a
Wisconsin corporation, does, pursuant to the provisions of Section 180.91 of
Wisconsin Statutes, hereby consent to and adopt the following resolutions:
RESOLVED, that Article 3, Section 3.01 of the Amended and Restated
Bylaws, dated March 16, 1987 is hereby amended to read as follows:
Section 3.01. GENERAL POWERS AND NUMBER. The business and affairs of
the corporation shall be managed by its Board of Directors. The number
of directors of the corporation shall be at all times no less than one
and no more than five. The number of directors of the corporation shall
be as set forth at a shareholders' meeting or upon consent of the
shareholders.
RESOLVED, that the following person is hereby elected as the sole
director of the corporation:
Gareth Stevens
DATED at Milwaukee, Wisconsin, this 6th day of August, 1987.
---------------------------------------
Gareth Stevens, Sole Shareholder
<PAGE>
CONSENT RESOLUTION
GARETH STEVENS, INC.
The undersigned, being the shareholders of Gareth Stevens, Inc., a
Wisconsin corporation, do, pursuant to the provisions of Section 180.995, Wis.
Stats., hereby consent to and adopt the following resolution:
RESOLVED, that Article G, Section 6.09 of the Amended and Restated
Bylaws, dated March 16, 1987 is hereby amended to read as follows:
6.09. LIABILITY OF DIRECTORS AND OFFICERS. No person shall be liable to
the corporation for any loss or damage suffered by it on account of any action
taken or omitted to be taken by him as a director or officer of the corporation,
or of any other corporation which he serves as a director or officer at the
request of the corporation, in good faith, if such person (a) exercised and used
the same degree of care and skill as a prudent man would have exercised or used
under the circumstances in the conduct of his own affairs, or (b) took or
omitted to take such action in reliance upon advice of counsel for the
corporation or upon statements made or information furnished by officers or
employees of the corporation which he had reasonable grounds to believe to be
true. The foregoing shall not be exclusive of other rights and defenses to which
he may be entitled as a matter of law.
6.10. INDEMNITY OF OFFICERS AND DIRECTORS. Every person who is or was a
director or officer of the corporation, and any person who may have served at
its request as a director or officer of another corporation in which it owns
shares of capital stock or of which it is a creditor shall be indemnified by the
corporation against all damages, costs, fees, and attorney fees asserted against
or incurred by him in connection with any claim, action, suit, arbitration, or
other proceeding to which tie is made or threatened to be made a party by reason
of his being or having been director or officer. This shall not apply to matters
in which recovery shall be had against him by reason of his having been adjudged
to have been guilty of fraud, self-dealing, or willful misconduct in the
performance of his duty as officer or director. This indemnity shall include
<PAGE>
reimbursement of expenses incurred and paid in settling any such claim, action,
suit or proceeding. The termination of a proceeding by judgment, order,
settlement, conviction, or upon a plea of guilty or no contest or its equivalent
shall not create a presumption that such director or officer is guilty of fraud,
self-dealing or willful misconduct in the performance of his duties if such
director or officer was acting in good faith in what he considered to be the
best interests of the corporation and with no reasonable cause to believe that
the action was illegal.
The right of indemnification herein provided shall extend to the
estate, executor, administrator, guardian and conservator of any deceased or
former director or officer or person who himself would have been entitled to
indemnification.
Dated at Milwaukee, Wisconsin this ____ day of ___________, 1990.
---------------------------------------
Gareth Stevens
VENTURE INVESTORS OF WISCONSIN
By:
---------------------------------------
Roger H. Ganser
2
<PAGE>
Exhibit 4.1
EXECUTION COPY
- --------------------------------------------------------------------------------
WRC MEDIA INC.
WEEKLY READER CORPORATION
JLC LEARNING CORPORATION
and
the NOTE GUARANTORS
Signatories Hereto
12 3/4% SENIOR SUBORDINATED NOTES DUE 2009
------------------------------------
INDENTURE
Dated as of November 17, 1999
------------------------------------
Bankers Trust Company
Trustee
------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
CROSS-REFERENCE TABLE*
<TABLE>
<CAPTION>
TRUST INDENTURE
ACT SECTION INDENTURE SECTION
<S> <C>
310(a)(1).................................................................. 7.10
(a)(2).................................................................. 7.10
(a)(3).................................................................. N.A.
(a)(4).................................................................. N.A.
(a)(5).................................................................. 7.10
(b)..................................................................... 7.10
(c)..................................................................... N.A.
311(a)..................................................................... 7.11
(b)..................................................................... 7.11
(c)..................................................................... N.A.
312(a)..................................................................... 2.05
(b)..................................................................... 13.03
(c)..................................................................... 13.03
313(a)..................................................................... 7.06
(b)(1).................................................................. 10.03
(b)(2).................................................................. 7.07
(c)..................................................................... 7.06;13.02
(d)..................................................................... 7.06
314(a)..................................................................... 4.03;13.02
(b)..................................................................... 10.02
(c)(1).................................................................. 13.04
(c)(2).................................................................. 13.04
(c)(3).................................................................. N.A.
(e)..................................................................... 13.05
(f)..................................................................... N.A.
315(a)..................................................................... 7.01
(b)..................................................................... 7.05,13.02
(c)..................................................................... 7.01
(d)..................................................................... 7.01
(e)..................................................................... 6.11
316(a) (last sentence)..................................................... 2.09
(a)(1)(A)............................................................... 6.05
(a)(1)(B)............................................................... 6.04
(a)(2).................................................................. N.A.
(b)..................................................................... 6.07
(c)..................................................................... 2.12
317(a)(1).................................................................. 6.08
(a)(2).................................................................. 6.09
(b)..................................................................... 2.04
318(a)..................................................................... 13.01
(b)..................................................................... N.A.
(c)..................................................................... 13.01
</TABLE>
N.A. means not applicable.
* This Cross Reference Table is not part of the Indenture.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
ARTICLE 1.
DEFINITIONS AND INCORPORATION
BY REFERENCE
<S> <C> <C>
Section 1.01. Definitions.....................................................................................1
Section 1.02. Other Definitions..............................................................................21
Section 1.03. Incorporation by Reference of Trust Indenture Act..............................................21
Section 1.04. Rules of Construction..........................................................................22
ARTICLE 2.
THE NOTES
Section 2.01. Form and Dating................................................................................22
Section 2.02. Execution and Authentication...................................................................23
Section 2.03. Registrar and Paying Agent.....................................................................23
Section 2.04. Paying Agent to Hold Money in Trust............................................................23
Section 2.05. Holder Lists...................................................................................24
Section 2.06. Transfer and Exchange..........................................................................24
Section 2.07. Replacement Notes..............................................................................35
Section 2.08. Outstanding Notes..............................................................................35
Section 2.09. Treasury Notes.................................................................................36
Section 2.10. Temporary Notes................................................................................36
Section 2.11. Cancellation...................................................................................36
Section 2.12. Defaulted Interest.............................................................................36
ARTICLE 3.
REDEMPTION AND PREPAYMENT
Section 3.01. Notices to Trustee.............................................................................37
Section 3.02. Selection of Notes to Be Redeemed..............................................................37
Section 3.03. Notice of Redemption...........................................................................37
Section 3.04. Effect of Notice of Redemption.................................................................38
Section 3.05. Deposit of Redemption Price....................................................................38
Section 3.06. Notes Redeemed in Part.........................................................................38
Section 3.07. Optional Redemption............................................................................38
Section 3.08. Mandatory Redemption...........................................................................39
Section 3.09. Offer to Purchase by Application of Excess Proceeds............................................39
ARTICLE 4.
COVENANTS
Section 4.01. Payment of Notes...............................................................................41
Section 4.02. Maintenance of Office or Agency................................................................41
Section 4.03. Reports........................................................................................41
Section 4.04. Compliance Certificate.........................................................................42
Section 4.05. Taxes..........................................................................................42
Section 4.06. Stay, Extension and Usury Laws.................................................................43
Section 4.07. Restricted Payments............................................................................43
Section 4.08. Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries......................46
Section 4.09. Incurrence of Indebtedness and Issuance of Preferred Stock.....................................48
</TABLE>
i
<PAGE>
<TABLE>
<S> <C> <C>
Section 4.10. Asset Sales....................................................................................50
Section 4.11. Transactions with Affiliates...................................................................52
Section 4.12. Liens..........................................................................................53
Section 4.13. Business Activities............................................................................54
Section 4.14. Corporate Existence............................................................................54
Section 4.15. Offer to Repurchase Upon Change of Control.....................................................54
Section 4.16. No Senior Subordinated Debt....................................................................55
Section 4.17. Payments for Consent...........................................................................55
Section 4.18. Additional Note Guarantees.....................................................................56
ARTICLE 5.
SUCCESSORS
Section 5.01. Merger, Consolidation, or Sale of Assets.......................................................56
Section 5.02. Successor Corporation Substituted..............................................................57
ARTICLE 6.
DEFAULTS AND REMEDIES
Section 6.01. Events of Default..............................................................................57
Section 6.02. Acceleration...................................................................................59
Section 6.03. Other Remedies.................................................................................59
Section 6.04. Waiver of Past Defaults........................................................................59
Section 6.05. Control by Majority............................................................................59
Section 6.06. Limitation on Suits............................................................................60
Section 6.07. Rights of Holders of Notes to Receive Payment..................................................60
Section 6.08. Collection Suit by Trustee.....................................................................60
Section 6.09. Trustee May File Proofs of Claim...............................................................60
Section 6.10. Priorities.....................................................................................61
Section 6.11. Undertaking for Costs..........................................................................61
ARTICLE 7.
TRUSTEE
Section 7.01. Duties of Trustee..............................................................................62
Section 7.02. Rights of Trustee..............................................................................63
Section 7.03. Individual Rights of Trustee...................................................................63
Section 7.04. Trustee's Disclaimer...........................................................................63
Section 7.05. Notice of Defaults.............................................................................64
Section 7.06. Reports by Trustee to Holders of the Notes.....................................................64
Section 7.07. Compensation and Indemnity.....................................................................64
Section 7.08. Replacement of Trustee.........................................................................65
Section 7.09. Successor Trustee by Merger, etc...............................................................66
Section 7.10. Eligibility; Disqualification..................................................................66
Section 7.11. Preferential Collection of Claims Against Company..............................................66
ARTICLE 8.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
Section 8.01. Option to Effect Legal Defeasance or Covenant Defeasance.......................................66
Section 8.02. Legal Defeasance and Discharge.................................................................66
Section 8.03. Covenant Defeasance............................................................................67
Section 8.04. Conditions to Legal or Covenant Defeasance.....................................................67
Section 8.05. Deposited Money and Government Securities to be Held in Trust; Other
Miscellaneous Provisions....................................................................68
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C> <C>
Section 8.06. Repayment to Company...........................................................................69
Section 8.07. Reinstatement..................................................................................69
ARTICLE 9.
AMENDMENT, SUPPLEMENT AND WAIVER
Section 9.01. Without Consent of Holders of Notes............................................................69
Section 9.02. With Consent of Holders of Notes...............................................................70
Section 9.03. Compliance with Trust Indenture Act............................................................72
Section 9.04. Revocation and Effect of Consents..............................................................72
Section 9.05. Notation on or Exchange of Notes...............................................................72
Section 9.06. Trustee to Sign Amendments, etc................................................................72
ARTICLE 10.
SUBORDINATION
Section 10.01. Agreement to Subordinate.......................................................................73
Section 10.02. Certain Definitions............................................................................73
Section 10.03. Liquidation; Dissolution; Bankruptcy...........................................................73
Section 10.04. Default on Designated Senior Debt..............................................................73
Section 10.05. Acceleration of Securities.....................................................................74
Section 10.06. When Distribution Must Be Paid Over............................................................74
Section 10.07. Notice by Company..............................................................................75
Section 10.08. Subrogation....................................................................................75
Section 10.09. Relative Rights................................................................................75
Section 10.10. Subordination May Not Be Impaired by Issuers...................................................75
Section 10.11. Distribution or Notice to Representative.......................................................76
Section 10.12. Rights of Trustee and Paying Agent.............................................................76
Section 10.14. No Waiver of Subordination Provisions; Terms of Senior Debt....................................76
Section 10.15. Amendments.....................................................................................77
Section 10.16. Reliance by Holders of Senior Debt.............................................................77
ARTICLE 11.
NOTE GUARANTEES
Section 11.01. Guarantee......................................................................................77
Section 11.02. Subordination of Note Guarantee................................................................78
Section 11.03. Limitation on Note Guarantor Liability.........................................................78
Section 11.04. Execution and Delivery of Note Guarantee.......................................................78
Section 11.05. Note Guarantors May Consolidate, etc., on Certain Terms........................................79
Section 11.06. Releases Following Sale of Assets..............................................................79
ARTICLE 12.
SATISFACTION AND DISCHARGE
Section 12.01. Satisfaction and Discharge.....................................................................80
Section 12.02. Application of Trust Money.....................................................................81
ARTICLE 13.
MISCELLANEOUS
Section 13.01. Trust Indenture Act Controls...................................................................82
Section 13.02. Notices........................................................................................82
Section 13.03. Communication by Holders of Notes with Other Holders of Notes..................................83
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C> <C>
Section 13.04. Certificate and Opinion as to Conditions Precedent.............................................83
Section 13.05. Statements Required in Certificate or Opinion..................................................83
Section 13.06. Rules by Trustee and Agents....................................................................83
Section 13.07. No Personal Liability of Directors, Officers, Employees and Stockholders.......................84
Section 13.08. Governing Law..................................................................................84
Section 13.09. No Adverse Interpretation of Other Agreements..................................................84
Section 13.10. Successors.....................................................................................84
Section 13.11. Severability...................................................................................84
Section 13.12. Counterpart Originals..........................................................................84
Section 13.13. Table of Contents, Headings, etc...............................................................84
EXHIBITS
Exhibit A FORM OF NOTE
Exhibit B FORM OF CERTIFICATE OF TRANSFER
Exhibit C FORM OF CERTIFICATE OF EXCHANGE
Exhibit D FORM OF CERTIFICATE FROM ACQUIRING INSTITUTIONAL ACCREDITED
INVESTOR
Exhibit E FORM OF NOTE GUARANTEE
Exhibit F FORM OF SUPPLEMENTAL INDENTURE
</TABLE>
iv
<PAGE>
INDENTURE dated as of November 17, 1999 among WRC Media Inc., a
Delaware corporation (the "Company"), Weekly Reader Corporation, a Delaware
corporation ("Weekly Reader"), and JLC Learning Inc., a Delaware corporation
("JLC Learning," and together with the Company and Weekly Reader, the
"Issuers"), the Note Guarantors signatories hereto and Bankers Trust Company, a
New York banking corporation, as trustee (the "Trustee").
The Issuers, the Note Guarantors and the Trustee agree as follows for
the benefit of each other and for the equal and ratable benefit of the Holders
of the 12 3/4% Senior Subordinated Notes due 2009 (the "Senior Subordinated
Notes") and the 12 3/4% New Senior Subordinated Notes due 2009 (the "New Senior
Subordinated Notes" and, together with the Senior Subordinated Notes, the
"Notes"):
ARTICLE 1.
DEFINITIONS AND INCORPORATION
BY REFERENCE
SECTION 1.01. DEFINITIONS.
"144A GLOBAL NOTE" means a global note substantially in the form of
Exhibit A hereto bearing the Global Note Legend and the Private Placement Legend
and deposited with or on behalf of, and registered in the name of, the
Depositary or its nominee that will be issued in a denomination equal to the
outstanding principal amount of the Notes sold in reliance on Rule 144A.
"ACQUIRED DEBT" MEANS, WITH RESPECT TO ANY SPECIFIED PERSON:
(1) Indebtedness of any other Person existing at the time such other Person
is merged with or into or became a Restricted Subsidiary of such
specified Person, whether or not such Indebtedness is incurred in
connection with, or in contemplation of, such other Person merging with
or into, or becoming a Restricted Subsidiary of, such specified Person;
and
(2) Indebtedness secured by a Lien encumbering any asset acquired by such
specified Person.
"ADDITIONAL NOTES" means up to $100.0 million aggregate principal
amount of Notes (other than the Initial Notes) issued under this Indenture in
accordance with Sections 2.02 and 4.09 hereof, as part of the same series as the
Initial Notes.
"AFFILIATE" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control,"
as used with respect to any Person, shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of such Person, whether through the ownership of voting securities, by
agreement or otherwise; PROVIDED that beneficial ownership of 10% or more of the
Voting Stock of a Person shall be deemed to be control. For purposes of this
definition, the terms "controlling," "controlled by" and "under common control
with" shall have correlative meanings.
"AGENT" means any Registrar, Paying Agent or co-registrar.
"APPLICABLE PROCEDURES" means, with respect to any transfer or exchange
of, or for beneficial interests in, any Global Note, the rules and procedures of
the Depositary that apply to such transfer or exchange.
"ASSET SALE" means:
(1) the sale, lease, conveyance, transfer or other disposition of any
assets or rights, other than sales of inventory in the ordinary course
of business; PROVIDED that the sale, conveyance or other disposition of
all or substantially all of the assets of the Company and its
Subsidiaries taken as a whole will be governed by Sections 4.15 and/or
5.01 of this Indenture and not by Section 4.10; and
(2) the issuance of Equity Interests in any of the Company's Restricted
Subsidiaries (other than Weekly Reader or JLC Learning) or the sale of
Equity Interests in any of its Subsidiaries.
<PAGE>
Notwithstanding the preceding, the following items shall not be deemed
to be Asset Sales:
(1) any single transaction or series of related transactions that involve
assets having a fair market value of less than $1.0 million;
(2) a transfer of assets between or among the Issuers and their Restricted
Subsidiaries,
(3) an issuance of Equity Interests by a Restricted Subsidiary to an Issuer
or to another Restricted Subsidiary;
(4) the sale or lease of equipment, accounts receivable or other real or
personal property in the ordinary course of business;
(5) the sale or other disposition of cash or Cash Equivalents;
(6) a Restricted Payment or Permitted Investment that is permitted by
Section 4.07 hereof;
(7) any sale of Equity Interests in, or Indebtedness or other securities
of, an Unrestricted Subsidiary;
(8) the exchange of Senior Preferred Stock for preferred stock of any
Issuer issued in exchange for the Senior Preferred Stock in accordance
with the terms thereof and the terms of the stockholders agreement
related thereto, the exchange of Unit Common Stock for Exchange Common
Stock, including any reversals thereof, in accordance with the
stockholders agreement related thereto and the issuance of common stock
of an Issuer pursuant to the exercise of warrants to purchase such
common stock as such warrants are in effect on the date of this
Indenture or are contemplated to be issued pursuant to an agreement in
effect on the date of this Indenture; and
(9) foreclosures on assets.
"BANKRUPTCY LAW" means Title 11, U.S. Code or any similar federal or
state law for the relief of debtors.
"BENEFICIAL OWNER" has the meaning assigned to such term in Rule 13d-3
and Rule 13d-5 under the Exchange Act, except that in calculating the beneficial
ownership of any particular "person" (as that term is used in Section 13(d)(3)
of the Exchange Act), such "person" shall be deemed to have beneficial ownership
of all securities that such "person" has the right to acquire by conversion or
exercise of other securities, whether such right is currently exercisable or is
exercisable only upon the occurrence of a subsequent condition. The terms
"Beneficially Owns" and "Beneficially Owned" shall have a corresponding meaning.
"BOARD OF DIRECTORS" means:
(1) with respect to a corporation, the board of directors of the
corporation;
(2) with respect to a partnership, the Board of Directors of the general
partner of the partnership; and
(3) with respect to any other Person, the board or committee of such Person
serving a similar function.
"BROKER-DEALER" means any broker or dealer registered under the
Exchange Act.
"BUSINESS DAY" means any day other than a Legal Holiday.
"CAPITAL LEASE OBLIGATION" means, at the time any determination thereof
is to be made, the amount of the liability in respect of a capital lease that
would at such time be required to be capitalized on a balance sheet in
accordance with GAAP.
"CAPITAL STOCK" means:
(1) in the case of a corporation, corporate stock;
2
<PAGE>
(2) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however
designated) of corporate stock;
(3) in the case of a partnership or limited liability company, partnership
or membership interests (whether general or limited); and
(4) any other interest or participation that confers on a Person the right
to receive a share of the profits and losses of, or distributions of
assets of, the issuing Person.
"CASH EQUIVALENTS" means:
(1) United States dollars;
(2) securities issued or directly and fully guaranteed or insured by the
United States government or any agency or instrumentality thereof
(PROVIDED that the full faith and credit of the United States is
pledged in support thereof) having maturities of not more than one year
from the date of acquisition;
(3) certificates of deposit and eurodollar time deposits with maturities of
one year or less from the date of acquisition, bankers' acceptances
with maturities not exceeding one year, and overnight bank deposits, in
each case, with any lender party to the Credit Agreement or with any
domestic commercial bank having capital and surplus in excess of $500.0
million and a Thomson Bank Watch Rating of "B" or better;
(4) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clauses (2) and (3)
above entered into with any financial institution meeting the
qualifications specified in clause (3) above;
(5) commercial paper having the highest rating obtainable from Moody's
Investors Service, Inc. or Standard & Poor's Rating Services and in
each case maturing within one year after the date of acquisition; and
(6) money market funds at least 95% of the assets of which constitute Cash
Equivalents of the kinds described in clauses (1) through (5) of this
definition.
"CHANGE OF CONTROL" means the occurrence of any of the following:
(1) the direct or indirect sale, transfer, conveyance or other disposition
(other than by way of merger or consolidation), in one or a series of
related transactions, of all or substantially all of the properties or
assets of the Company and its Restricted Subsidiaries (other than JLC
Learning) taken as a whole to any "person" (as that term is used in
Section 13(d)(3) of the Exchange Act) other than a Principal or a
Related Party of a Principal;
(2) the adoption of a plan of liquidation or dissolution of the Company or
Weekly Reader;
(3) the consummation of any transaction (including, without limitation, any
merger or consolidation) the result of which is that any "person" (as
defined above), other than the Principals and their Related Parties,
becomes the Beneficial Owner, directly or indirectly, of more than 50%
of the Voting Stock of either of the Company or Weekly Reader, measured
by voting power rather than number of shares; or
(4) the first day on which a majority of the members of the Board of
Directors of the Company or Weekly Reader are not Continuing Directors.
"COMPANY" means the Company, and any and all successors thereto.
3
<PAGE>
"CONSOLIDATED INDEBTEDNESS" means, with respect to any specified Person
for any date of determination, the sum, without duplication, of:
(1) the total amount of Indebtedness of such Person and its Restricted
Subsidiaries, PLUS
(2) the total amount of Indebtedness of any other Person, to the extent
that such Indebtedness has been guaranteed by the specified Person or
one or more of its Restricted Subsidiaries, PLUS
(3) the aggregate liquidation value of all Disqualified Stock of such
Person and its Restricted Subsidiaries and all the preferred stock of
the Restricted Subsidiaries of such Person (other than the Issuers), in
each case, determined on a consolidated basis and in accordance with
GAAP.
"CONSOLIDATED NET INCOME" means, with respect to any specified Person
for any period, the aggregate of the Net Income of such Person and its
Restricted Subsidiaries for such period, on a consolidated basis, determined in
accordance with GAAP; PROVIDED that:
(1) the Net Income of any Person that is not a Restricted Subsidiary or
that is accounted for by the equity method of accounting shall be
excluded except that:
(a) the Company's equity in the net income of any such Person for
such period shall be included in such Consolidated Net Income
up to the aggregate amount of cash actually distributed by
such Person during such period to the Company or a Restricted
Subsidiary as a dividend or other distribution (subject, in
the case of a dividend or other distribution made to a
Restricted Subsidiary, to the limitations contained in clause
(2) below) and
(b) the Company's equity in a net loss of any such Person for such
period shall be included in determining such Consolidated Net
Income;
(2) the Net Income of any Restricted Subsidiary shall be excluded to the
extent that the declaration or payment of dividends or similar
distributions by that Restricted Subsidiary of that Net Income is not
at the date of determination permitted without any prior governmental
approval (that has not been obtained) or, directly or indirectly, by
operation of the terms of its charter or any agreement, instrument,
judgment, decree, order, statute, rule or governmental regulation
applicable to that Restricted Subsidiary or its stockholders except
that:
(a) the Company's equity in the net income of any such Restricted
Subsidiary for such period shall be included in such
Consolidated Net Income up to the aggregate amount of cash
actually distributed by such Restricted Subsidiary during such
period to the Company or another Restricted Subsidiary as a
dividend or other distribution (subject, in the case of a
dividend or other distribution made to another Restricted
Subsidiary, to the limitation contained in this clause) and
(b) the Company's equity in a net loss of any such Restricted
Subsidiary for such period shall be included in determining
such Consolidated Net Income;
(3) unrealized gains or losses due solely to fluctuations in currency
values and the related tax effects according to GAAP shall be excluded;
(4) the Net Income of any Person acquired in a pooling of interests
transaction for any period prior to the date of such acquisition shall
be excluded;
(5) one-time noncash charges recorded in accordance with GAAP resulting
from any merger, recapitalization or acquisition transaction shall be
excluded; and
(6) the cumulative effect of a change in accounting principles shall be
excluded.
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"CONTINUING DIRECTORS" means, as of any date of determination, any
member of the Board of Directors of the Company who:
(1) was a member of such Board of Directors on the date of this Indenture;
or
(2) was nominated for election or elected to such Board of Directors with
the approval of a majority of the Continuing Directors who were members
of such Board at the time of such nomination or election.
"CORPORATE TRUST OFFICE OF THE TRUSTEE" shall be at the address of the
Trustee specified in Section 13.02 hereof or such other address as to which the
Trustee may give notice to the Issuers.
"CREDIT AGREEMENT" means that certain Credit Agreement, dated as of
November 17, 1999, by and among JLC Learning, Weekly Reader, the Company as
guarantor and the various financial institutions from time to time parties
thereto, DLJ Capital Funding, Inc., as syndication agent for such financial
institutions, lead arranger and sole book running manager, Bank of America,
N.A., as administrative agent for such financial institutions, including any
related notes, guarantees, collateral documents, instruments and agreements
executed in connection therewith. Without limiting the generality of the
foregoing, the term "Credit Agreement" shall include any amendment, amendment
and restatement, supplement or other modification to such Credit Agreement and
ancillary documents and all renewals, extensions, refundings, replacements and
refinancings thereof, including, without limitation, any agreement or agreements
(1) extending or shortening the maturity of any Indebtedness incurred thereunder
or contemplated thereby, (2) adding or deleting borrowers or guarantors
thereunder or (3) increasing the amount of Indebtedness incurred thereunder or
available to be borrowed thereunder to the extent permitted under this
Indenture.
"CREDIT FACILITIES" means, one or more debt facilities (including,
without limitation, the Credit Agreement) or commercial paper facilities, in
each case with banks or other institutional lenders or indentures providing for
revolving credit loans, term loans, receivables financing (including through the
sale of receivables to such lenders or to special purpose entities formed to
borrow from such lenders against such receivables), letters of credit or other
long-term Indebtedness, in each case, as amended, restated, modified, renewed,
refunded, replaced or refinanced in whole or in part from time to time.
"CUSTODIAN" means the Trustee, as custodian with respect to the Notes
in global form, or any successor entity thereto.
"DEBT TO EBITDA RATIO" means, with respect to any Person as of the date
of determination (the "Calculation Date"), the ratio of the Consolidated
Indebtedness of the Company as of such date to the EBITDA of the Company for the
most recent full Reference Period ending immediately prior to such date for
which internal financial statements are available, determined on a pro forma
basis after giving effect to all acquisitions or dispositions of assets made by
the Company and its Restricted Subsidiaries from the beginning of such Reference
Period through and including such date of determination (including any financing
transactions in connection with such acquisitions or dispositions) as if such
acquisitions and dispositions had occurred at the beginning of such quarter. In
addition, for the purposes of making the computation referred to above, the
following shall be excluded:
(1) acquisitions that have been made by the Company or any of its
Restricted Subsidiaries, including through mergers or consolidations
and including any related financing transactions, during the reference
period or subsequent to such reference period and on or prior to the
Calculation Date shall be deemed to have occurred on the first day of
the reference period, and EBITDA for such reference period shall be
calculated without giving effect to clause (4) of the proviso set forth
in the definition of Consolidated Net Income, and
(2) the EBITDA attributable to discontinued operations, as determined in
accordance with GAAP, and operations of businesses disposed of prior to
the Calculation Date.
For purposes of this definition, whenever pro forma effect is to be given to an
acquisition of assets, the amount of income or earnings relating thereto and the
amount of Consolidated Interest Expense associated with any Indebtedness
incurred in connection therewith, the pro forma calculations shall be determined
in good faith by a responsible financial or accounting officer of the Company.
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"DEFAULT" means any event that is, or with the passage of time or the
giving of notice or both would be, an Event of Default as defined in Section
6.01.
"DEFINITIVE NOTE" means a certificated Note registered in the name of
the Holder thereof and issued in accordance with Section 2.06 hereof,
substantially in the form of Exhibit A hereto except that such Note shall not
bear the Global Note Legend and shall not have the "Schedule of Exchanges of
Interests in the Global Note" attached thereto.
"DEPOSITARY" means, with respect to the Notes issuable or issued in
whole or in part in global form, the Person specified in Section 2.03 hereof as
the Depositary with respect to the Notes, and any and all successors thereto
appointed as depositary hereunder and having become such pursuant to the
applicable provision of this Indenture.
"DESIGNATED SENIOR DEBT" means:
(1) any Indebtedness outstanding under the Credit Agreement; and
(2) any other Senior Debt permitted under this Indenture the principal
amount of which is $25.0 million or more and that has been designated
by the Company in writing to the Trustee as "Designated Senior Debt."
"DISQUALIFIED STOCK" means, with respect to any Person, any Capital
Stock that, by its terms (or by the terms of any security into which it is
convertible, or for which it is exchangeable, in each case at the option of the
holder thereof), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at
the option of the holder thereof, in whole or in part, on or prior to the date
that is 91 days after the date on which the Notes mature. Notwithstanding the
preceding sentence, (a) any Capital Stock that would constitute Disqualified
Stock solely because the holders thereof have the right to require the Company
to repurchase such Capital Stock upon the occurrence of a change of control or
an asset sale shall not constitute Disqualified Stock if the terms of such
Capital Stock provide that the Company may not repurchase or redeem any such
Capital Stock pursuant to such provisions unless such repurchase or redemption
complies with Section 4.07 of this Indenture and (b) any Capital Stock that
would constitute Disqualified Stock solely because such Capital Stock is issued
pursuant to any plan for the benefit of employees of the Company or its
Restricted Subsidiaries or by any such plan to such employees and may be
required to be repurchased by the Company in order to satisfy applicable
statutory or regulatory obligations shall not constitute Disqualified Stock;
PROVIDED that any amount of Disqualified Stock shall be its mandatory maximum
redemption price or liquidation preference, as applicable, plus accrued
dividends.
"DOMESTIC SUBSIDIARY" means (a) any Restricted Subsidiary that was
formed under the laws of the United States or any state thereof or the District
of Columbia or (b) any Restricted Subsidiary (including any Restricted
Subsidiary whose Note Guarantee was previously released in accordance with this
Indenture) that guarantees or otherwise provides direct or indirect credit
support for any Indebtedness of any Issuer or Note Guarantor.
"EBITDA" means, with respect to any specified Person for any period,
the Consolidated Net Income of such Person for such period PLUS:
(1) an amount equal to any extraordinary loss plus any net loss realized by
such Person or any of its Restricted Subsidiaries in connection with an
Asset Sale, to the extent such losses were deducted in computing such
Consolidated Net Income; PLUS
(2) provision for taxes based on income or profits of such Person and its
Restricted Subsidiaries for such period, to the extent that such
provision for taxes was deducted in computing such Consolidated Net
Income; PLUS
(3) consolidated interest expense of such Person and its Restricted
Subsidiaries for such period, whether paid or accrued and whether or
not capitalized (including, without limitation, amortization of debt
issuance costs and original issue discount, noncash interest payments,
the interest component of any deferred payment obligations, the
interest component of all payments associated with Capital Lease
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Obligations, commissions, discounts and other fees and charges incurred
in respect of letter of credit or bankers' acceptance financings, and
net of the effect of all payments made or received pursuant to Hedging
Obligations), to the extent that any such expense was deducted in
computing such Consolidated Net Income; PLUS
(4) depreciation, amortization (including amortization of goodwill and
other intangibles but excluding amortization of prepaid cash expenses
that were paid in a prior period) and other noncash expenses (excluding
any such noncash expense to the extent that it represents an accrual of
or reserve for cash expenses in any future period or amortization of a
prepaid cash expense that was paid in a prior period) of such Person
and its Restricted Subsidiaries for such period to the extent that such
depreciation, amortization and other noncash expenses were deducted in
computing such Consolidated Net Income; PLUS
(5) any fees, expenses or charges related to any Equity Offering, Permitted
Investment, acquisition, disposition or recapitalization or
Indebtedness permitted to be incurred by this Indenture (whether or not
successful) and fees, expenses or charges related to the transactions
contemplated by the Recapitalization Agreement (including fees to the
Principals); PLUS
(6) the amount of any minority interest expense of an Issuer deducted in
calculating Consolidated Net Income, PLUS
(7) the amount of non-recurring charges deducted in such period in
computing Consolidated Net Income; MINUS
(8) noncash items or non-recurring items increasing such Consolidated Net
Income for such period, other than the accrual of revenue in the
ordinary course of business, in each case, on a consolidated basis and
determined in accordance with GAAP.
Notwithstanding the preceding, the provision for taxes based on the
income or profits of, and the depreciation and amortization and other noncash
expenses of, a Restricted Subsidiary of the Company that is not an Issuer shall
be added to Consolidated Net Income to compute EBITDA of the Company only to the
extent that a corresponding amount would be permitted at the date of
determination to be dividended to the Issuers by such Restricted Subsidiary
without prior governmental approval (that has not been obtained), and without
direct or indirect restriction pursuant to the terms of its charter and all
agreements, instruments, judgments, decrees, orders, statutes, rules and
governmental regulations applicable to that Restricted Subsidiary or its
stockholders.
"EQUITY INTERESTS" means Capital Stock and all warrants, options or
other rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"EQUITY OFFERING" means any public or private sale of any Equity
Interests (other than Disqualified Stock) of an Issuer, other than public
offerings with respect to Equity Interests registered on Form S-8 and any such
public or private sale that constitutes an Excluded Contribution.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"EXCHANGE COMMON STOCK" means shares of common stock of Weekly Reader
into which the Unit Common Stock is exchangeable pursuant to the stockholders
agreement related thereto, as in effect on the date of this Indenture.
"EXCHANGE NOTES" means the Notes issued in the Exchange Offer pursuant
to Section 2.06(f) hereof.
"EXCHANGE OFFER" has the meaning set forth in the Registration Rights
Agreement.
"EXCHANGE OFFER REGISTRATION STATEMENT" has the meaning set forth in
the Registration Rights Agreement.
"EXCLUDED CONTRIBUTION" means net cash proceeds, Cash Equivalents or
Qualified Proceeds, in each case, received by the Company from (a) contributions
to its common equity capital and (b) the sale (other
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than to a Subsidiary or to any Company or Subsidiary management equity plan or
stock option plan or any other management or employee benefit plan or agreement)
of Capital Stock (other than Disqualified Stock) of the Company (other than a
public Equity Offering), in each case designated as Excluded Contributions
pursuant to an Officers' Certificate executed by the principal executive officer
and the principal financial officer of the Company on the date such capital
contributions are made or the date such Equity Interests are sold, as the case
may be, which are excluded from the calculation set forth in clause (3) of the
first paragraph of Section 4.07 of this Indenture.
"EXISTING INDEBTEDNESS" means Indebtedness of the Company and its
Subsidiaries (other than Indebtedness under the Credit Agreement) in existence
on the date of this Indenture, until such amounts are repaid.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect on the date of this Indenture.
"GLOBAL NOTES" means, individually and collectively, each of the
Restricted Global Notes and the Unrestricted Global Notes, substantially in the
form of Exhibit A hereto issued in accordance with Section 2.01, 2.06(b)(iv),
2.06(d)(ii) or 2.06(f) hereof.
"GLOBAL NOTE LEGEND" means the legend set forth in Section 2.06(g)(ii),
which is required to be placed on all Global Notes issued under this Indenture.
"GOVERNMENT SECURITIES" means direct obligations of, or obligations
guaranteed by, the United States of America, and the payment for which the
United States pledges its full faith and credit.
"GUARANTEE" means a guarantee other than by endorsement of negotiable
instruments for collection in the ordinary course of business, direct or
indirect, in any manner including, without limitation, by way of a pledge of
assets or through letters of credit or reimbursement agreements in respect
thereof, of all or any part of any Indebtedness.
"HEDGING OBLIGATIONS" means, with respect to any specified Person, the
obligations of such Person under:
(1) interest rate swap agreements, interest rate cap agreements and
interest rate collar agreements; and
(2) other agreements or arrangements designed to protect such Person
against fluctuations in interest rates, the value of foreign currencies
or commodity prices.
"HOLDER" means a Person in whose name a Note is registered.
"IAI GLOBAL NOTE" means the global Note substantially in the form of
Exhibit A hereto bearing the Global Note Legend and the Private Placement Legend
and deposited with or on behalf of and registered in the name of the Depositary
or its nominee that will be issued in a denomination equal to the outstanding
principal amount of the Notes sold to Institutional Accredited Investors.
"INDEBTEDNESS" means, with respect to any specified Person, any
indebtedness of such Person, whether or not contingent, in respect of:
(1) borrowed money;
(2) evidenced by bonds, notes, debentures or similar instruments or letters
of credit (or reimbursement agreements in respect thereof);
(3) banker's acceptances;
(4) representing Capital Lease Obligations;
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(5) the balance deferred and unpaid of the purchase price of any property,
except any such balance that constitutes an accrued expense or trade
payable; or
(6) representing any Hedging Obligations,
if and to the extent any of the preceding items (other than letters of
credit and Hedging Obligations) would appear as a liability upon a balance sheet
(excluding the footnotes thereto) of the specified Person prepared in accordance
with GAAP. In addition, the term "Indebtedness" includes all Indebtedness of
others secured by a Lien on any asset of the specified Person (whether or not
such Indebtedness is assumed by the specified Person) and, to the extent not
otherwise included, the Guarantee by the specified Person of any indebtedness of
any other Person.
The amount of any Indebtedness outstanding as of any date shall be:
(1) the accreted value thereof, in the case of any Indebtedness issued with
original issue discount; and
(2) the principal amount thereof, together with any interest thereon that
is more than 30 days past due, in the case of any other Indebtedness.
"INDENTURE" means this Indenture, as amended or supplemented from time
to time.
"INDIRECT PARTICIPANT" means a Person who holds a beneficial interest
in a Global Note through a Participant.
"INITIAL NOTES" means the first $150.0 million aggregate principal
amount of Notes issued under this Indenture on the date hereof.
"INITIAL PURCHASERS" means Donaldson, Lufkin & Jenrette Securities
Corporation and Banc of America Securities LLC.
"INSTITUTIONAL ACCREDITED INVESTOR" means an institution that is an
"accredited investor" as defined in Rule 501(a)(1), (2), (3) or (7) under the
Securities Act, who are not also QIBs.
"INVESTMENTS" means, with respect to any Person, all direct or indirect
investments by such Person in other Persons (including Affiliates) in the forms
of loans (including Guarantees or other obligations), advances or capital
contributions (excluding accounts receivable, trade credit, advances to
customers, commission, travel and similar advances to officers and employees
made in the ordinary course of business), purchases or other acquisitions for
consideration of Indebtedness, Equity Interests or other securities, together
with all items that are or would be classified as investments on a balance sheet
prepared in accordance with GAAP. If the Company or any Subsidiary of the
Company sells or otherwise disposes of any Equity Interests (other than by way
of a public Equity Offering) of any direct or indirect Subsidiary of the Company
such that, after giving effect to any such sale or disposition, such Person is
no longer a Subsidiary of the Company, the Company shall be deemed to have made
an Investment on the date of any such sale or disposition equal to the fair
market value of the Equity Interests of such Subsidiary not sold or disposed of
in an amount determined as provided in the final paragraph of Section 4.07 of
this Indenture. The acquisition by the Company or any Subsidiary of the Company
of a Person that holds an Investment in a third Person shall be deemed to be an
Investment by the Company or such Subsidiary in such third Person in an amount
equal to the fair market value of the Investment held by the acquired Person in
such third Person in an amount determined as provided in the final paragraph of
Section 4.07 of this Indenture; PROVIDED that any such acquisition shall not be
deemed to be an Investment by the Company or such Subsidiary in such third
Person to the extent that all such Investments, taken as a whole, are not
material to such Person and all such Investments were not made in contemplation
of such acquisition.
"ISSUERS" means the Issuers, and any and all successors thereto.
"LEGAL HOLIDAY" means a Saturday, a Sunday or a day on which banking
institutions in the City of New York or at a place of payment are authorized by
law, regulation or executive order to remain closed. If a payment date is a
Legal Holiday at a place of payment, payment may be made at that place on the
next
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succeeding day that is not a Legal Holiday, and no interest shall accrue on such
payment for the intervening period.
"LETTER OF TRANSMITTAL" means the letter of transmittal to be prepared
by the Issuers and sent to all Holders of the Notes for use by such Holders in
connection with the Exchange Offer.
"LIEN" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law,
including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction;
PROVIDED that in no event shall an operating lease be deemed to constitute a
Lien.
"LIQUIDATED DAMAGES" means all liquidated damages then owing pursuant
to Section 5 of the Registration Rights Agreement.
"NET INCOME" means, with respect to any specified Person, the net
income (loss) of such Person, determined in accordance with GAAP and before any
reduction in respect of preferred stock dividends, excluding, however:
(1) any gain (or loss), together with any related provision for taxes on
such gain (or loss), realized in connection with: (a) any Asset Sale;
or (b) the disposition of any securities by such Person or any of its
Restricted Subsidiaries or the extinguishment of any Indebtedness of
such Person or any of its Restricted Subsidiaries; and
(2) any extraordinary gain (or loss), together with any related provision
for taxes on such extraordinary gain (or loss).
"NET PROCEEDS" means the aggregate cash proceeds received by the
Company or any of its Restricted Subsidiaries in respect of any Asset Sale
(including, without limitation, any cash received upon the sale or other
disposition of any noncash consideration received in any Asset Sale), net of the
direct costs relating to such Asset Sale, including, without limitation, legal,
accounting and investment banking fees, and sales commissions, and any
relocation expenses incurred as a result thereof, taxes paid or payable as a
result thereof, in each case, after taking into account any available tax
credits or deductions and any tax sharing arrangements, and amounts required to
be applied to the repayment of Indebtedness, other than Senior Debt under a
Credit Facility, secured by a Lien on the asset or assets that were the subject
of such Asset Sale and any deduction of appropriate amounts to be provided by
the Company as a reserve in accordance with GAAP against any liabilities
associated with the asset disposed of in such Asset Sale and retained by the
Company after such Asset Sale or other disposition thereof, including, without
limitation, pension and other post-employment benefit liabilities and
liabilities related to environmental matters or against any indemnification
obligations associated with such transaction.
"NON-RECOURSE DEBT" means Indebtedness:
(1) as to which neither the Company nor any of its Restricted Subsidiaries
(a) provides credit support of any kind (including any undertaking,
agreement or instrument that would constitute Indebtedness), (b) is
directly or indirectly liable as a guarantor or otherwise, or (c)
constitutes the lender;
(2) no default with respect to which (including any rights that the holders
thereof may have to take enforcement action against an Unrestricted
Subsidiary) would permit upon notice, lapse of time or both any holder
of any other Indebtedness (other than the Notes) of the Company or any
of its Restricted Subsidiaries to declare a default on such other
Indebtedness or cause the payment thereof to be accelerated or payable
prior to its stated maturity; and
(3) as to which the lenders have been notified in writing that they will
not have any recourse to the stock or assets of the Company or any of
its Restricted Subsidiaries.
"NON-U.S. PERSON" means a Person who is not a U.S. Person.
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"NOTE GUARANTEE" means any Guarantee of the obligations of the Issuers
under this Indenture and the Notes in accordance with the provisions of this
Indenture.
"NOTE GUARANTOR" means each of the Company's Domestic Subsidiaries that
executes a Note Guarantee in accordance with the provisions of this Indenture,
and its respective successors and assigns.
"NOTES" has the meaning assigned to it in the preamble to this
Indenture. The Initial Notes and the Additional Notes shall be treated as a
single class for all purposes under this Indenture.
"OBLIGATIONS" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"OFFERING" means the offering of the Notes by the Issuers.
"OFFICER" means, with respect to any Person, the Chairman of the Board,
the Chief Executive Officer, the President, the Chief Operating Officer, the
Chief Financial Officer, the Treasurer, any Assistant Treasurer, the Controller,
the Secretary or any Vice-President of such Person.
"OFFICERS' CERTIFICATE" means a certificate signed on behalf of an
Issuer (or, if the context requires, a Note Guarantor) by two Officers of such
Issuer (or such Note Guarantor, if applicable), one of whom must be the
principal executive officer, the principal financial officer, the treasurer or
the principal accounting officer of such Issuer (or such Note Guarantor), that
meets the requirements of Section 13.05 hereof.
"OPINION OF COUNSEL" means an opinion from legal counsel who is
reasonably acceptable to the Trustee, that meets the requirements of Section
13.05 hereof. The counsel may be an employee of or counsel to the Company, any
Subsidiary of the Company or the Trustee.
"PARTICIPANT" means, with respect to the Depositary, Euroclear or
Cedel, a Person who has an account with the Depositary, Euroclear or Cedel,
respectively (and, with respect to DTC, shall include Euroclear and Cedel).
"PERMITTED BUSINESS" means the business conducted by the Company and
its Subsidiaries on the date of this Indenture and reasonable extensions thereof
and such other business activities that are incidental or related thereto.
"PERMITTED INVESTMENTS" means:
(1) any Investment in an Issuer or in a Restricted Subsidiary of an Issuer;
(2) any Investment in Cash Equivalents;
(3) any Investment by the Company or any Subsidiary of the Company in a
Person, if as a result of such Investment:
(a) such Person becomes a Restricted Subsidiary of an Issuer; or
(b) such Person is merged, consolidated or amalgamated with or
into, or transfers or conveys substantially all of its assets
to, or is liquidated into, an Issuer or a Restricted
Subsidiary of an Issuer;
(4) any Investment made as a result of the receipt of noncash consideration
from an Asset Sale that was made pursuant to and in compliance with
Sections 3.09 and 4.10 of this Indenture;
(5) Hedging Obligations;
(6) any Investment existing on the date of this Indenture;
(7) any Investment acquired by the Company or any of its Restricted
Subsidiaries (a) in exchange for any other Investment or accounts
receivable held by the Company or any such Restricted Subsidiary
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in connection with or as a result of a bankruptcy, workout,
reorganization or recapitalization of the issuer of such other
Investment or accounts receivable or (b) as a result of a foreclosure
by the Company or any of its Restricted Subsidiaries with respect to
any secured Investment or other transfer of title with respect to any
secured Investment in default;
(8) Investments the payment for which consists solely of Equity Interests
of the Company (exclusive of Disqualified Stock); PROVIDED, HOWEVER,
that such Equity Interests shall not increase the amount available for
Restricted Payments under clause (3) of Section 4.07 of this Indenture;
(9) loans and advances to officers, directors and employees for
business-related travel, expenses, moving expenses and other similar
expenses, in each case incurred in the ordinary course of business;
(10) Guarantees (including Note Guarantees) of Indebtedness of the Company
or a Restricted Subsidiary which Indebtedness is permitted under
Section 4.09 of this Indenture;
(11) Investments consisting of the licensing or contribution of intellectual
property pursuant to joint marketing arrangements with other Persons
made in the ordinary course of business; and
(12) other Investments in any Person having an aggregate fair market value
(measured on the date each such Investment was made and without giving
effect to subsequent changes in value), when taken together with all
other Investments made pursuant to this clause (9) not to exceed $10.0
million.
"PERMITTED JUNIOR SECURITIES" means:
(1) Equity Interests in the Company, an Issuer or any Note Guarantor; or
(2) debt securities of the Company, an Issuer or the relevant Note
Guarantor that are subordinated to all Senior Debt and any debt
securities issued in exchange for Senior Debt to substantially the same
extent as, or to a greater extent than, the Notes and the Note
Guarantees are subordinated to Senior Debt under this Indenture.
"PERMITTED LIENS" means:
(1) Liens of the Issuers and any Note Guarantor securing Senior Debt that
was permitted by the terms of this Indenture to be incurred;
(2) Liens in favor of the Issuers or the Note Guarantors;
(3) Liens on property of a Person existing at the time such Person is
merged with or into or consolidated with the Company or any Restricted
Subsidiary of the Company; PROVIDED that such Liens were in existence
prior to the contemplation of such merger or consolidation and do not
extend to any assets other than those of the Person merged into or
consolidated with the Company or the Restricted Subsidiary;
(4) Liens on property existing at the time of acquisition thereof by the
Company or any Restricted Subsidiary of the Company, PROVIDED that such
Liens were in existence prior to the contemplation of such acquisition;
(5) Liens to secure the performance of statutory obligations, surety or
appeal bonds, performance bonds or other obligations of a like nature
incurred in the ordinary course of business;
(6) Liens to secure Indebtedness (including Capital Lease Obligations)
permitted by clause (4) of the second paragraph of Section 4.09 of this
Indenture covering only the assets acquired with such Indebtedness or
assets ancillary thereto;
(7) Liens existing on the date of this Indenture;
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(8) Liens for taxes, assessments or governmental charges or claims that are
not yet delinquent or that are being contested in good faith by
appropriate proceedings promptly instituted and diligently concluded,
PROVIDED that any reserve or other appropriate provision as shall be
required in conformity with GAAP shall have been made therefor;
(9) Liens securing (a) Indebtedness (including, without limitation, all
Obligations) under the Credit Agreement and (b) Hedging Obligations
payable to a lender under the Credit Agreement or an Affiliate thereof
or to a Person that was a lender or an Affiliate thereof at the time
the agreement relating to such Hedging Obligations was entered into to
the extent such Hedging Obligations are secured by Liens on assets also
securing Indebtedness (including, without limitation, all Obligations)
under the Credit Agreement;
(10) Liens securing Permitted Refinancing Indebtedness permitted to be
incurred under this Indenture to refinance Indebtedness secured by a
Lien permitted under this Indenture or amendments or renewals of Liens
that were permitted to be incurred, PROVIDED, in each case, that such
Liens do not extend to an additional property or asset of the Company
or any Restricted Subsidiary; and
(11) Liens incurred in the ordinary course of business of the Company or any
Subsidiary of the Company with respect to obligations that do not
exceed $5.0 million at any one time outstanding.
"PERMITTED REFINANCING INDEBTEDNESS" means any Indebtedness of the
Company or any of its Restricted Subsidiaries issued in exchange for, or the net
proceeds of which are used to extend, refinance, renew, replace, defease or
refund other Indebtedness of the Company or any of its Restricted Subsidiaries
(other than intercompany Indebtedness); PROVIDED that:
(1) the principal amount (or accreted value, if applicable) of such
Permitted Refinancing Indebtedness does not exceed the principal amount
(or accreted value, if applicable) of the Indebtedness so extended,
refinanced, renewed, replaced, defeased or refunded (plus all accrued
interest thereon and the amount of all expenses and premiums incurred
in connection therewith);
(2) such Permitted Refinancing Indebtedness has a final maturity date later
than the final maturity date of, and has a Weighted Average Life to
Maturity equal to or greater than the Weighted Average Life to Maturity
of, the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded;
(3) if the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded is subordinated in right of payment to the Notes,
such Permitted Refinancing Indebtedness has a final maturity date equal
to or later than the final maturity date of, and is subordinated in
right of payment to, the Notes on terms at least as favorable in all
material respects to the Holders of Notes as those contained in the
documentation governing the Indebtedness being extended, refinanced,
renewed, replaced, defeased or refunded; and
(4) such Indebtedness is incurred by (a) an Issuer or a Note Guarantor or
(b) the Restricted Subsidiary that is the obligor on the Indebtedness
being extended, refinanced, renewed, replaced, defeased or refunded.
"PERSON" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization, limited
liability company or government or other entity.
"PRINCIPALS" means Ripplewood Partners, L.P., DLJ Merchant Banking
Partners and any member of management of any of the Issuers as of the date of
this Indenture.
"PRIVATE PLACEMENT LEGEND" means the legend set forth in Section
2.06(g)(i) to be placed on all Notes issued under this Indenture except where
otherwise permitted by the provisions of this Indenture.
"QIB" means a "qualified institutional buyer" as defined in Rule 144A.
"QUALIFIED PROCEEDS" means assets that are used or useful in, or a
majority of the Voting Stock of any Person engaged in, a Permitted Business;
PROVIDED that the fair market value of any such assets or
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<PAGE>
Capital Stock shall be determined by the Board of Directors in good faith,
except that in the event the value of any such assets or Capital Stock may
exceed $5.0 million or more, the fair value shall be determined in writing by an
independent investment banking firm of nationally recognized standing.
"RECAPITALIZATION AGREEMENT" means the recapitalization agreement
described under the caption "Transactions."
"REFERENCE PERIOD" means the most recently ended four full fiscal
quarters for which internal financial statements are available.
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights
Agreement, dated as of November 17, 1999, by and among the Issuers and the other
parties named on the signature pages thereof, as such agreement may be amended,
modified or supplemented from time to time and, with respect to any Additional
Notes, one or more registration rights agreements between the Issuers and the
other parties thereto, as such agreement(s) may be amended, modified or
supplemented from time to time, relating to rights given by the Issuers to the
purchasers of Additional Notes to register such Additional Notes under the
Securities Act.
"RELATED PARTY" means:
(1) any controlling stockholder, majority (or more) owned Subsidiary, or
immediate family member (in the case of an individual) of any
Principal; or
(2) any trust, corporation, partnership or other entity, the beneficiaries,
stockholders, partners, owners or Persons beneficially holding a
majority or more controlling interest of which consist of any one or
more Principals and/or such other Persons referred to in the
immediately preceding clause (1).
"REPRESENTATIVE" means the indenture trustee or other trustee, agent or
representative for any Senior Debt.
"RESPONSIBLE OFFICER," when used with respect to the Trustee, means any
officer within the Corporate Trust Office of the Trustee (or any successor group
of the Trustee) including any Vice President, Managing Director, Assistant Vice
President, Secretary, Assistant Secretary, Treasurer, Assistant Treasurer or any
other officer of the Trustee customarily performing functions similar to those
performed by any of the above designated officers and also means, with respect
to a particular corporate trust matter, any other officer to whom such matter is
referred because of such officer's knowledge of and familiarity with the
particular subject.
"RESTRICTED DEFINITIVE NOTE" means a Definitive Note bearing the
Private Placement Legend.
"RESTRICTED GLOBAL NOTE" means a Global Note bearing the Private
Placement Legend.
"RESTRICTED INVESTMENT" means any Investment other than a Permitted
Investment.
"RESTRICTED SUBSIDIARY" of a Person means any Subsidiary of the
referent Person that is not an Unrestricted Subsidiary. In the case of the
Company, Restricted Subsidiary shall include Weekly Reader and JLC Learning.
"RULE 144" means Rule 144 promulgated under the Securities Act.
"RULE 144A" means Rule 144A promulgated under the Securities Act.
"RULE 903" means Rule 903 promulgated under the Securities Act.
"RULE 904" means Rule 904 promulgated the Securities Act.
"SEC" means the Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
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"SENIOR DEBT" means:
(1) all Obligations of an Issuer or any Note Guarantor outstanding under
Credit Facilities and all Hedging Obligations payable to a Person that
was a lender under the Credit Facilities (or an affiliate of a lender
under the Credit Facilities) at the time the agreement relating to such
Hedging Obligations pursuant to which such Obligations are payable was
entered into, including, in each case, interest accruing subsequent to
the filing of, or which would have accrued but for the filing of, a
petition for bankruptcy, reorganization or similar proceeding, whether
or not such interest is an allowable claim in such proceeding;
(2) any other Indebtedness of an Issuer or any Note Guarantor permitted to
be incurred under the terms of this Indenture, unless the instrument
under which such Indebtedness is incurred expressly provides that it is
on a parity with or subordinated in right of payment to the Notes or
any Note Guarantee; and
(3) all Obligations with respect to the items listed in the preceding
clauses (1) and (2).
Notwithstanding anything to the contrary in the preceding, Senior Debt
shall not include:
(1) any liability for Federal, state, local or other taxes owed or owing by
an Issuer or a Note Guarantor;
(2) any Obligations of an Issuer or a Note Guarantor to any of its
Subsidiaries or other Affiliates;
(3) any trade payables (including Guarantees thereof or instruments
evidencing such liabilities;
(4) the portion of any Indebtedness that is incurred in violation of this
Indenture; or
(5) Non-Recourse Debt;
(6) Any Indebtedness, Guarantee or Obligation of the Issuers or the Note
Guarantors which is subordinate or junior to any other Indebtedness,
Guarantee or Obligation of the Issuers or the Note Guarantors;
(7) Indebtedness evidenced by the Notes and the Note Guarantees; and
(8) Capital Stock of an Issuer or a Note Guarantor.
"SENIOR PREFERRED STOCK" means $75.0 million in initial liquidation
preference of senior accreting preferred stock of the Company issued on the date
of this Indenture and including any preferred stock of any Issuer issued in
exchange therefor in accordance with the terms thereof and the terms of the
stockholders agreement related thereto, in each case, as in effect on the date
of this Indenture.
"SEPARATION DATE" means the earliest of (i) the date that is 180 days
from the Issue Date, (ii) the date on which the Exchange Offer Registration
Statement is declared effective under the Securities Act, (iii) the occurrence
of an initial public offering or the sale of all or substantially all of the
assets of an Issuer, (iv) such date as the Initial Purchasers in their sole
discretion shall determine, and (v) if a Change of Control occurs, the date the
Issuers mail the notice required by Section 4.15 hereof to each Holder.
"SHELF REGISTRATION STATEMENT" means the Shelf Registration Statement
as defined in the Registration Rights Agreement.
"SIGNIFICANT SUBSIDIARY" means any Subsidiary that would be a
"significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X,
promulgated pursuant to the Securities Act, as such Regulation is in effect on
the date of this Indenture.
"STATED MATURITY" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations to
repay,
15
<PAGE>
redeem or repurchase any such interest or principal prior to the date originally
scheduled for the payment thereof.
"SUBORDINATED NOTE OBLIGATIONS" means all Obligations with respect to
the Notes, including, without limitation, principal, premium, if any, interest
and liquidated damages, if any, payable pursuant to the terms of the Notes
(including, without limitation, upon the acceleration or redemption thereof),
together with and including, without limitation, any amounts received or
receivable upon the exercise of rights of rescission or other rights of action,
including, without limitation, claims for damages, or otherwise.
"SUBSIDIARY" means, with respect to any specified Person:
(1) any corporation, association or other business entity of which more
than 50% of the total voting power of shares of Capital Stock entitled
(without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees thereof is at the time
owned or controlled, directly or indirectly, by such Person or one or
more of the other Subsidiaries of that Person (or a combination
thereof); and
(2) any partnership (a) the sole general partner or the managing general
partner of which is such Person or a Subsidiary of such Person or (b)
the only general partners of which are such Person or one or more
Subsidiaries of such Person (or any combination thereof).
"TAX SHARING AGREEMENT" means the Tax Sharing Agreement among the
Issuers and their Subsidiaries as in effect on the date of this Indenture.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. Sections
77aaa-77bbbb) as in effect on the date on which this Indenture is qualified
under the TIA.
"TOTAL TANGIBLE ASSETS" means the total consolidated assets, excluding
goodwill and other intangible assets, of the Company and its Restricted
Subsidiaries determined in accordance with GAAP, as set forth on the Company's
most recent consolidated balance sheet.
"TRUSTEE" means the party named as such above until a successor
replaces it in accordance with the applicable provisions of this Indenture and
thereafter means the successor serving hereunder.
"UNIT COMMON STOCK" means the 205,656 shares of common stock of the
Company initially offered with the Notes as a unit.
"UNRESTRICTED GLOBAL NOTE" means a permanent global Note substantially
in the form of Exhibit A1 attached hereto that bears the Global Note Legend and
that has the "Schedule of Exchanges of Interests in the Global Note" attached
thereto, and that is deposited with or on behalf of and registered in the name
of the Depositary, representing a series of Notes that do not bear the Private
Placement Legend.
"UNRESTRICTED DEFINITIVE NOTE" means one or more Definitive Notes that
do not bear and are not required to bear the Private Placement Legend.
"UNRESTRICTED SUBSIDIARY" means any Subsidiary of the Company (other
than Weekly Reader and JLC Learning) that is designated by the Board of
Directors as an Unrestricted Subsidiary pursuant to a Board Resolution, but only
to the extent that such Subsidiary:
(1) has no Indebtedness other than Non-Recourse Debt;
(2) is not party to any agreement, contract, arrangement or understanding
with the Company or any Restricted Subsidiary of the Company unless the
terms of any such agreement, contract, arrangement or understanding are
no less favorable to the Company or such Restricted Subsidiary than
those that might be obtained at the time from Persons who are not
Affiliates of the Company;
(3) is a Person with respect to which neither the Company nor any of its
Restricted Subsidiaries has any direct or indirect obligation (a) to
subscribe for additional Equity Interests or (b) to maintain or
16
<PAGE>
preserve such Person's financial condition or to cause such Person to
achieve any specified levels of operating results; and
(4) has not guaranteed or otherwise directly or indirectly provided credit
support for any Indebtedness of the Company or any of its Restricted
Subsidiaries.
Any designation of a Subsidiary of the Company as an Unrestricted
Subsidiary shall be evidenced to the Trustee by filing with the Trustee a
certified copy of the Board Resolution giving effect to such designation and an
Officers' Certificate of the Company certifying that such designation complied
with the preceding conditions and was permitted by Section 4.07 of this
Indenture. If, at any time, any Unrestricted Subsidiary would fail to meet the
preceding requirements as an Unrestricted Subsidiary, it shall thereafter cease
to be an Unrestricted Subsidiary for purposes of this Indenture and any
Indebtedness of such Subsidiary shall be deemed to be incurred by a Restricted
Subsidiary of the Company as of such date and, if such Indebtedness is not
permitted to be incurred as of such date under Section 4.09 of this Indenture,
the Company shall be in default of such covenant. The Board of Directors of the
Company may at any time designate any Unrestricted Subsidiary to be a Restricted
Subsidiary; PROVIDED that such designation shall be deemed to be an incurrence
of Indebtedness by a Restricted Subsidiary of the Company of any outstanding
Indebtedness of such Unrestricted Subsidiary and such designation shall only be
permitted if (1) such Indebtedness is permitted under the covenant described
under Section 4.09 of this Indenture, calculated on a pro forma basis as if such
designation had occurred at the beginning of the four-quarter reference period;
and (2) no Default or Event of Default would be in existence following such
designation.
"U.S. PERSON" means a U.S. person as defined in Rule 902(k) under the
Securities Act.
"VOTING STOCK" of any Person as of any date means the Capital Stock of
such Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
"WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing:
(1) the sum of the products obtained by multiplying (a) the amount of each
then remaining installment, sinking fund, serial maturity or other
required payments of principal, including payment at final maturity, in
respect thereof, by (b) the number of years (calculated to the nearest
one-twelfth) that will elapse between such date and the making of such
payment; by
(2) the then outstanding principal amount of such Indebtedness.
"WHOLLY OWNED RESTRICTED SUBSIDIARY" of any specified Person means a
Restricted Subsidiary of such Person all of the outstanding Capital Stock or
other ownership interests of which (other than directors' qualifying shares and
shares of its Capital Stock pursuant to the exercise of warrants outstanding on
the date of this Indenture) shall at the time be owned by such Person or by one
or more Wholly Owned Restricted Subsidiaries of such Person and one or more
Wholly Owned Restricted Subsidiaries of such Person.
SECTION 1.02. OTHER DEFINITIONS.
<TABLE>
<CAPTION>
DEFINED IN
TERM SECTION
- ---- ----------
<S> <C>
"AFFILIATE TRANSACTION".................................................... 4.11
"ASSET SALE"............................................................... 4.10
"ASSET SALE OFFER"......................................................... 3.09
"AUTHENTICATION ORDER"..................................................... 2.02
"BANKRUPTCY LAW"........................................................... 4.01
"CHANGE OF CONTROL OFFER".................................................. 4.15
"CHANGE OF CONTROL PAYMENT"................................................ 4.15
"CHANGE OF CONTROL PAYMENT DATE"........................................... 4.15
"COVENANT DEFEASANCE"...................................................... 8.03
"EVENT OF DEFAULT"......................................................... 6.01
"EXCESS PROCEEDS".......................................................... 4.10
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
"INCUR".................................................................... 4.09
"LEGAL DEFEASANCE"......................................................... 8.02
"OFFER AMOUNT"............................................................. 3.09
"OFFER PERIOD"............................................................. 3.09
"PAYING AGENT"............................................................. 2.03
"PERMITTED DEBT"........................................................... 4.09
"PURCHASE DATE"............................................................ 3.09
"REGISTRAR"................................................................ 2.03
"RESTRICTED PAYMENTS"...................................................... 4.07
</TABLE>
SECTION 1.03. INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT.
This Indenture is subject to the mandatory provisions of the TIA, which
are incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the following
meanings:
"INDENTURE SECURITIES" means the Notes;
"INDENTURE SECURITY HOLDER" means a Holder of a Note;
"INDENTURE TO BE QUALIFIED" means this Indenture;
"INDENTURE TRUSTEE" or "INSTITUTIONAL TRUSTEE" means the Trustee; and
"OBLIGOR" on the Notes and the Note Guarantees means the Issuers and
the Note Guarantors, respectively, and any successor obligor upon the Notes and
the Note Guarantees, respectively.
All other terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by SEC rule under the TIA
have the meanings so assigned to them.
SECTION 1.04. RULES OF CONSTRUCTION.
Unless the context otherwise requires:
(a) a term has the meaning assigned to it;
(b) an accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP;
(c) "or" is not exclusive;
(d) words in the singular include the plural, and in the plural
include the singular;
(e) provisions apply to successive events and transactions; and
(f) references to sections of or rules under the Securities Act shall
be deemed to include substitute, replacement of successor sections or rules
adopted by the SEC from time to time.
ARTICLE 2.
THE NOTES
SECTION 2.01. FORM AND DATING.
(a) GENERAL. The Notes and the Trustee's certificate of
authentication shall be substantially in the form of Exhibit A hereto. The Notes
may have notations, legends or endorsements required by law, stock exchange rule
or usage. Each Note shall be dated the date of its authentication. The Notes
shall be in denominations of $1,000 and integral multiples thereof.
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The terms and provisions contained in the Notes shall constitute, and
are hereby expressly made, a part of this Indenture and the Issuers, the Note
Guarantors and the Trustee, by their execution and delivery of this Indenture,
expressly agree to such terms and provisions and to be bound thereby. However,
to the extent any provision of any Note conflicts with the express provisions of
this Indenture, the provisions of this Indenture shall govern and be
controlling.
(b) GLOBAL NOTES. Notes issued in global form shall be
substantially in the form of Exhibit A attached hereto (including the Global
Note Legend thereon and the "Schedule of Exchanges of Interests in the Global
Note" attached thereto). Notes issued in definitive form shall be substantially
in the form of Exhibit A attached hereto (but without the Global Note Legend
thereon and without the "Schedule of Exchanges of Interests in the Global Note"
attached thereto). Each Global Note shall represent such of the outstanding
Notes as shall be specified therein and each shall provide that it shall
represent the aggregate principal amount of outstanding Notes from time to time
endorsed thereon and that the aggregate principal amount of outstanding Notes
represented thereby may from time to time be reduced or increased, as
appropriate, to reflect exchanges and redemptions. Any endorsement of a Global
Note to reflect the amount of any increase or decrease in the aggregate
principal amount of outstanding Notes represented thereby shall be made by the
Trustee or the Custodian, at the direction of the Trustee, in accordance with
instructions given by the Holder thereof as required by Section 2.06 hereof.
SECTION 2.02. EXECUTION AND AUTHENTICATION.
One Officer shall sign the Notes for each Issuer by manual or facsimile
signature.
If an Officer whose signature is on a Note no longer holds that office
at the time a Note is authenticated, the Note shall nevertheless be valid.
A Note shall not be valid until authenticated by the manual signature
of the Trustee. The signature shall be conclusive evidence that the Note has
been authenticated under this Indenture.
The Trustee shall, upon a written order of the Issuers signed by one
Officer of each Issuer (an "AUTHENTICATION ORDER"), authenticate Notes for
original issue up to the aggregate principal amount stated in paragraph 4 of the
Notes. The aggregate principal amount of Notes outstanding at any time may not
exceed such amount except as provided in Section 2.07 hereof.
The Trustee may appoint an authenticating agent acceptable to the
Issuers to authenticate Notes. An authenticating agent may authenticate Notes
whenever the Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authentication by such agent. An
authenticating agent has the same rights as an Agent to deal with Holders or an
Affiliate of the Company.
SECTION 2.03. REGISTRAR AND PAYING AGENT.
The Issuers shall maintain an office or agency where Notes may be
presented for registration of transfer or for exchange ("REGISTRAR") and an
office or agency where Notes may be presented for payment ("PAYING AGENT"). The
Registrar shall keep a register of the Notes and of their transfer and exchange.
The Issuers may appoint one or more co-registrars and one or more additional
paying agents. The term "Registrar" includes any co-registrar and the term
"Paying Agent" includes any additional paying agent. The Issuers may change any
Paying Agent or Registrar without notice to any Holder. The Issuers shall notify
the Trustee in writing of the name and address of any Agent not a party to this
Indenture. If the Issuers fail to appoint or maintain another entity as
Registrar or Paying Agent, the Trustee shall act as such. The Company or any of
its Restricted Subsidiaries may act as Paying Agent or Registrar.
The Issuers initially appoint The Depository Trust Company ("DTC") to
act as Depositary with respect to the Global Notes.
The Issuers initially appoint the Trustee to act as the Registrar and
Paying Agent and to act as Custodian with respect to the Global Notes.
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<PAGE>
SECTION 2.04. PAYING AGENT TO HOLD MONEY IN TRUST.
The Issuers shall require each Paying Agent other than the Trustee to
agree in writing that the Paying Agent will hold in trust for the benefit of
Holders or the Trustee all money held by the Paying Agent for the payment of
principal, premium or Liquidated Damages, if any, or interest on the Notes, and
will notify the Trustee in writing of any default by the Issuers in making any
such payment. While any such default continues, the Trustee may require a Paying
Agent to pay all money held by it to the Trustee. The Issuers at any time may
require a Paying Agent to pay all money held by it to the Trustee. Upon payment
over to the Trustee, the Paying Agent (if other than the Company or a Restricted
Subsidiary) shall have no further liability for the money. If the Company or a
Restricted Subsidiary acts as Paying Agent, it shall segregate and hold in a
separate trust fund for the benefit of the Holders all money held by it as
Paying Agent. Upon any bankruptcy or reorganization proceedings relating to the
Company, the Trustee shall serve as Paying Agent for the Notes.
SECTION 2.05. HOLDER LISTS.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
all Holders and shall otherwise comply with TIA Section 312(a). If the Trustee
is not the Registrar, the Issuers shall furnish to the Trustee at least seven
Business Days before each interest payment date and at such other times as the
Trustee may request in writing, a list in such form and as of such date as the
Trustee may reasonably require of the names and addresses of the Holders of
Notes and the Issuers shall otherwise comply with TIA Section 312(a).
SECTION 2.06. TRANSFER AND EXCHANGE.
(a) TRANSFER AND EXCHANGE OF GLOBAL NOTES. A Global Note may not
be transferred as a whole except by the Depositary to a nominee of the
Depositary, by a nominee of the Depositary to the Depositary or to another
nominee of the Depositary, or by the Depositary or any such nominee to a
successor Depositary or a nominee of such successor Depositary. All Global Notes
will be exchanged by the Issuers for Definitive Notes if (i) the Issuers deliver
to the Trustee notice from the Depositary that it is unwilling or unable to
continue to act as Depositary or that it is no longer a clearing agency
registered under the Exchange Act and, in either case, a successor Depositary is
not appointed by the Issuers within 120 days after the date of such notice from
the Depositary or (ii) the Issuers in their sole discretion determine that the
Global Notes (in whole but not in part) should be exchanged for Definitive Notes
and delivers a written notice to such effect to the Trustee. Upon the occurrence
of either of the preceding events in (i) or (ii) above, Definitive Notes shall
be issued in such names as the Depositary shall instruct the Trustee in writing.
Global Notes also may be exchanged or replaced, in whole or in part, as provided
in Sections 2.07 and 2.10 hereof. Every Note authenticated and delivered in
exchange for, or in lieu of, a Global Note or any portion thereof, pursuant to
this Section 2.06 or Section 2.07 or 2.10 hereof, shall be authenticated and
delivered in the form of, and shall be, a Global Note. A Global Note may not be
exchanged for another Note other than as provided in this Section 2.06(a),
however, beneficial interests in a Global Note may be transferred and exchanged
as provided in Section 2.06(b), (c) or (f) hereof.
(b) TRANSFER AND EXCHANGE OF BENEFICIAL INTERESTS IN THE GLOBAL
NOTES. The transfer and exchange of beneficial interests in the Global Notes
shall be effected through the Depositary, in accordance with the provisions of
this Indenture and the Applicable Procedures. Beneficial interests in the
Restricted Global Notes shall be subject to restrictions on transfer comparable
to those set forth herein to the extent required by the Securities Act.
Transfers of beneficial interests in the Global Notes also shall require
compliance with either subparagraph (i) or (ii) below, as applicable, as well as
one or more of the other following subparagraphs, as applicable:
(i) Transfer of Beneficial Interests in the Same Global
Note. Beneficial interests in any Restricted Global Note may be
transferred to Persons who take delivery thereof in the form of a
beneficial interest in the same Restricted Global Note in accordance
with the transfer restrictions set forth in the Private Placement
Legend. Beneficial interests in any Unrestricted Global Note may be
transferred to Persons who take delivery thereof in the form of a
beneficial interest in an Unrestricted Global Note. No written orders
or instructions shall be required to be delivered to the Registrar to
effect the transfers described in this Section 2.06(b)(i).
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<PAGE>
(ii) All Other Transfers and Exchanges of Beneficial
Interests in Global Notes. In connection with all transfers and
exchanges of beneficial interests that are not subject to Section
2.06(b)(i) above, the transferor of such beneficial interest must
deliver to the Registrar either (A) (1) a written order from a
Participant or an Indirect Participant given to the Depositary in
accordance with the Applicable Procedures directing the Depositary to
credit or cause to be credited a beneficial interest in another Global
Note in an amount equal to the beneficial interest to be transferred or
exchanged and (2) instructions given in accordance with the Applicable
Procedures containing information regarding the Participant account to
be credited with such increase or (B) (1) a written order from a
Participant or an Indirect Participant given to the Depositary in
accordance with the Applicable Procedures directing the Depositary to
cause to be issued a Definitive Note in an amount equal to the
beneficial interest to be transferred or exchanged and (2) instructions
given by the Depositary to the Registrar containing information
regarding the Person in whose name such Definitive Note shall be
registered to effect the transfer or exchange referred to in (1) above.
Upon consummation of an Exchange Offer by the Issuers in accordance
with Section 2.06(f) hereof, the requirements of this Section
2.06(b)(ii) shall be deemed to have been satisfied upon receipt by the
Registrar of the instructions contained in the Letter of Transmittal
delivered by the Holder of such beneficial interests in the Restricted
Global Notes. Upon satisfaction of all of the requirements for transfer
or exchange of beneficial interests in Global Notes contained in this
Indenture and the Notes or otherwise applicable under the Securities
Act, the Trustee shall adjust the principal amount of the relevant
Global Note(s) pursuant to Section 2.06(h) hereof.
(iii) Transfer of Beneficial Interests to Another
Restricted Global Note. A beneficial interest in any Restricted Global
Note may be transferred to a Person who takes delivery thereof in the
form of a beneficial interest in another Restricted Global Note if the
transfer complies with the requirements of Section 2.06(b)(ii) above
and the Registrar receives the following:
(A) if the transferee will take delivery in the form
of a beneficial interest in the 144A Global Note, then the
transferor must deliver a certificate in the form of Exhibit B
hereto, including the certifications in item (1) thereof; and
(B) if the transferee will take delivery in the form
of a beneficial interest in the IAI Global Note, then the
transferor must deliver a certificate in the form of Exhibit B
hereto, including the certifications and certificates and
Opinion of Counsel required by item (2) thereof, if
applicable.
(iv) TRANSFER AND EXCHANGE OF BENEFICIAL INTERESTS IN A
RESTRICTED GLOBAL NOTE FOR BENEFICIAL INTERESTS IN
THE UNRESTRICTED GLOBAL NOTE. A beneficial interest
in any Restricted Global Note may be exchanged by any
holder thereof for a beneficial interest in an
Unrestricted Global Note or transferred to a Person
who takes delivery thereof in the form of a
beneficial interest in an Unrestricted Global Note if
the exchange or transfer complies with the
requirements of Section 2.06(b)(ii) above and:
(A) such exchange or transfer is effected pursuant to
the Exchange Offer in accordance with the Registration Rights
Agreement and the holder of the beneficial interest to be
transferred, in the case of an exchange, or the transferee, in
the case of a transfer, certifies in the applicable Letter of
Transmittal that it is not (1) a broker-dealer, (2) a Person
participating in the distribution of the Exchange Notes or (3)
a Person who is an affiliate (as defined in Rule 144) of the
Company;
(B) such transfer is effected pursuant to the Shelf
Registration Statement in accordance with the Registration
Rights Agreement;
(C) such transfer is effected by a Broker-Dealer
pursuant to the Exchange Offer Registration Statement in
accordance with the Registration Rights Agreement; or
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(D) the Registrar receives the following:
(1) if the holder of such beneficial
interest in a Restricted Global Note proposes to
exchange such beneficial interest for a beneficial
interest in an Unrestricted Global Note, a
certificate from such holder in the form of Exhibit C
hereto, including the certifications in item (1)(a)
thereof; or
(2) if the holder of such beneficial
interest in a Restricted Global Note proposes to
transfer such beneficial interest to a Person who
shall take delivery thereof in the form of a
beneficial interest in an Unrestricted Global Note, a
certificate from such holder in the form of Exhibit B
hereto, including the certifications in item (3)
thereof;
and, in each such case set forth in this subparagraph (D), if
the Registrar so requests or if the Applicable Procedures so
require, an Opinion of Counsel in form reasonably acceptable
to the Registrar to the effect that such exchange or transfer
is in compliance with the Securities Act and that the
restrictions on transfer contained herein and in the Private
Placement Legend are no longer required in order to maintain
compliance with the Securities Act.
If any such transfer is effected pursuant to subparagraph (B) or (D)
above at a time when an Unrestricted Global Note has not yet been issued, the
Issuers shall issue and, upon receipt of an Authentication Order in accordance
with Section 2.02 hereof, the Trustee shall authenticate one or more
Unrestricted Global Notes in an aggregate principal amount equal to the
aggregate principal amount of beneficial interests transferred pursuant to
subparagraph (B) or (D) above.
Beneficial interests in an Unrestricted Global Note cannot be exchanged
for, or transferred to Persons who take delivery thereof in the form of, a
beneficial interest in a Restricted Global Note.
(c) Transfer or Exchange of Beneficial Interests for Definitive
Notes.
(i) BENEFICIAL INTERESTS IN RESTRICTED GLOBAL NOTES TO
RESTRICTED DEFINITIVE NOTES. If any holder of a beneficial interest in
a Restricted Global Note proposes to exchange such beneficial interest
for a Restricted Definitive Note or to transfer such beneficial
interest to a Person who takes delivery thereof in the form of a
Restricted Definitive Note, then, upon receipt by the Registrar of the
following documentation:
(A) if the holder of such beneficial interest in a
Restricted Global Note proposes to exchange such beneficial
interest for a Restricted Definitive Note, a certificate from
such holder in the form of Exhibit C hereto, including the
certifications in item (2)(a) thereof;
(B) if such beneficial interest is being transferred
to a QIB in accordance with Rule 144A under the Securities
Act, a certificate to the effect set forth in Exhibit B
hereto, including the certifications in item (1) thereof;
(C) if such beneficial interest is being transferred
pursuant to an exemption from the registration requirements of
the Securities Act in accordance with Rule 144 under the
Securities Act, a certificate to the effect set forth in
Exhibit B hereto, including the certifications in item (2)(a)
thereof;
(D) if such beneficial interest is being transferred
to an Institutional Accredited Investor in reliance on an
exemption from the registration requirements of the Securities
Act other than those listed in subparagraphs (B) through (C)
above and other than Rule 903 or 904, a certificate to the
effect set forth in Exhibit B hereto, including the
certifications, certificates and Opinion of Counsel required
by item (2) thereof, if applicable;
(E) if such beneficial interest is being transferred
to the Company or any of its Subsidiaries, a certificate to
the effect set forth in Exhibit B hereto, including the
certifications in item (2)(b) thereof; or
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(F) if such beneficial interest is being transferred
pursuant to an effective registration statement under the
Securities Act, a certificate to the effect set forth in
Exhibit B hereto, including the certifications in item (2)(c)
thereof,
the Trustee shall cause the aggregate principal amount of the
applicable Global Note to be reduced accordingly pursuant to Section
2.06(h) hereof, and the Issuers shall execute and the Trustee shall
authenticate and deliver to the Person designated in the instructions a
Definitive Note in the appropriate principal amount. Any Definitive
Note issued in exchange for a beneficial interest in a Restricted
Global Note pursuant to this Section 2.06(c) shall be registered in
such name or names and in such authorized denomination or denominations
as the holder of such beneficial interest shall instruct the Registrar
through instructions from the Depositary and the Participant or
Indirect Participant. The Trustee shall deliver such Definitive Notes
to the Persons in whose names such Notes are so registered. Any
Definitive Note issued in exchange for a beneficial interest in a
Restricted Global Note pursuant to this Section 2.06(c)(i) shall bear
the Private Placement Legend and shall be subject to all restrictions
on transfer contained therein.
(ii) BENEFICIAL INTERESTS IN RESTRICTED GLOBAL NOTES TO
UNRESTRICTED DEFINITIVE NOTES. A holder of a beneficial interest in a
Restricted Global Note may exchange such beneficial interest for an
Unrestricted Definitive Note or may transfer such beneficial interest
to a Person who takes delivery thereof in the form of an Unrestricted
Definitive Note only if:
(A) such exchange or transfer is effected pursuant to
the Exchange Offer in accordance with the Registration Rights
Agreement and the holder of such beneficial interest, in the
case of an exchange, or the transferee, in the case of a
transfer, certifies in the applicable Letter of Transmittal
that it is not (1) a broker-dealer, (2) a Person participating
in the distribution of the Exchange Notes or (3) a Person who
is an affiliate (as defined in Rule 144) of the Company;
(B) such transfer is effected pursuant to the Shelf
Registration Statement in accordance with the Registration
Rights Agreement;
(C) such transfer is effected by a Broker-Dealer
pursuant to the Exchange Offer Registration Statement in
accordance with the Registration Rights Agreement; or
(D) the Registrar receives the following:
(1) if the holder of such beneficial
interest in a Restricted Global Note proposes to
exchange such beneficial interest for a Definitive
Note that does not bear the Private Placement Legend,
a certificate from such holder in the form of Exhibit
C hereto, including the certifications in item (1)(b)
thereof; or
(2) if the holder of such beneficial
interest in a Restricted Global Note proposes to
transfer such beneficial interest to a Person who
shall take delivery thereof in the form of a
Definitive Note that does not bear the Private
Placement Legend, a certificate from such holder in
the form of Exhibit B hereto, including the
certifications in item (3) thereof;
and, in each such case set forth in this subparagraph (D), if
the Registrar so requests or if the Applicable Procedures so
require, an Opinion of Counsel in form reasonably acceptable
to the Registrar to the effect that such exchange or transfer
is in compliance with the Securities Act and that the
restrictions on transfer contained herein and in the Private
Placement Legend are no longer required in order to maintain
compliance with the Securities Act.
(iii) BENEFICIAL INTERESTS IN UNRESTRICTED GLOBAL NOTES TO
UNRESTRICTED DEFINITIVE NOTES. If any holder of a
beneficial interest in an Unrestricted Global Note
proposes to exchange such beneficial interest for a
Definitive Note or to transfer such beneficial
interest to a Person who takes delivery thereof in
the form of a Definitive Note, then, upon
satisfaction of the conditions set forth in Section
2.06(b)(ii) hereof, the
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Trustee shall cause the aggregate principal amount of
the applicable Global Note to be reduced accordingly
pursuant to Section 2.06(h) hereof, and the Issuers
shall execute and the Trustee shall authenticate and
deliver to the Person designated in the instructions
a Definitive Note in the appropriate principal
amount. Any Definitive Note issued in exchange for a
beneficial interest pursuant to this Section
2.06(c)(iii) shall be registered in such name or
names and in such authorized denomination or
denominations as the holder of such beneficial
interest shall instruct the Registrar through
instructions from the Depositary and the Participant
or Indirect Participant. The Trustee shall deliver
such Definitive Notes to the Persons in whose names
such Notes are so registered. Any Definitive Note
issued in exchange for a beneficial interest pursuant
to this Section 2.06(c)(iii) shall not bear the
Private Placement Legend.
(d) TRANSFER AND EXCHANGE OF DEFINITIVE NOTES FOR BENEFICIAL
INTERESTS.
(i) RESTRICTED DEFINITIVE NOTES TO BENEFICIAL INTERESTS
IN RESTRICTED GLOBAL NOTES. If any Holder of a Restricted Definitive
Note proposes to exchange such Note for a beneficial interest in a
Restricted Global Note or to transfer such Restricted Definitive Notes
to a Person who takes delivery thereof in the form of a beneficial
interest in a Restricted Global Note, then, upon receipt by the
Registrar of the following documentation:
(A) if the Holder of such Restricted Definitive Note
proposes to exchange such Note for a beneficial interest in a
Restricted Global Note, a certificate from such Holder in the
form of Exhibit C hereto, including the certifications in item
(2)(b) thereof;
(B) if such Restricted Definitive Note is being
transferred to a QIB in accordance with Rule 144A under the
Securities Act, a certificate to the effect set forth in
Exhibit B hereto, including the certifications in item (1)
thereof;
(C) if such Restricted Definitive Note is being
transferred pursuant to an exemption from the registration
requirements of the Securities Act in accordance with Rule 144
under the Securities Act, a certificate to the effect set
forth in Exhibit B hereto, including the certifications in
item (2)(a) thereof;
(D) if such Restricted Definitive Note is being
transferred to an Institutional Accredited Investor in
reliance on an exemption from the registration requirements of
the Securities Act other than those listed in subparagraphs
(B) through (C) above and other than Rule 903 or 904 under the
Securities Act, a certificate to the effect set forth in
Exhibit B hereto, including the certifications, certificates
and Opinion of Counsel required by item (2) thereof, if
applicable;
(E) if such Restricted Definitive Note is being
transferred to the Company or any of its Subsidiaries, a
certificate to the effect set forth in Exhibit B hereto,
including the certifications in item (2)(b) thereof; or
(F) if such Restricted Definitive Note is being
transferred pursuant to an effective registration statement
under the Securities Act, a certificate to the effect set
forth in Exhibit B hereto, including the certifications in
item (2)(c) thereof,
the Trustee shall cancel the Restricted Definitive Note, increase or
cause to be increased the aggregate principal amount of, in the case of
clause (A) above, the appropriate Restricted Global Note, in the case
of clause (B) above, the 144A Global Note, and in all other cases, the
IAI Global Note.
(ii) RESTRICTED DEFINITIVE NOTES TO BENEFICIAL INTERESTS IN
UNRESTRICTED GLOBAL NOTES. A Holder of a Restricted Definitive Note may
exchange such Note for a beneficial interest in an Unrestricted Global
Note or transfer such Restricted Definitive Note to a Person who takes
delivery thereof in the form of a beneficial interest in an
Unrestricted Global Note only if:
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(A) such exchange or transfer is effected pursuant to
the Exchange Offer in accordance with the Registration Rights
Agreement and the Holder, in the case of an exchange, or the
transferee, in the case of a transfer, certifies in the
applicable Letter of Transmittal that it is not (1) a
broker-dealer, (2) a Person participating in the distribution
of the Exchange Notes or (3) a Person who is an affiliate (as
defined in Rule 144) of the Company;
(B) such transfer is effected pursuant to the Shelf
Registration Statement in accordance with the Registration
Rights Agreement;
(C) such transfer is effected by a Broker-Dealer
pursuant to the Exchange Offer Registration Statement in
accordance with the Registration Rights Agreement; or
(D) the Registrar receives the following:
(1) if the Holder of such Definitive Notes
proposes to exchange such Notes for a beneficial
interest in the Unrestricted Global Note, a
certificate from such Holder in the form of Exhibit C
hereto, including the certifications in item (1)(c)
thereof; or
(2) if the Holder of such Definitive Notes
proposes to transfer such Notes to a Person who shall
take delivery thereof in the form of a beneficial
interest in the Unrestricted Global Note, a
certificate from such Holder in the form of Exhibit B
hereto, including the certifications in item (3)
thereof;
and, in each such case set forth in this subparagraph (D), if
the Registrar so requests or if the Applicable Procedures so
require, an Opinion of Counsel in form reasonably acceptable
to the Registrar to the effect that such exchange or transfer
is in compliance with the Securities Act and that the
restrictions on transfer contained herein and in the Private
Placement Legend are no longer required in order to maintain
compliance with the Securities Act.
Upon satisfaction of the conditions of any of the
subparagraphs in this Section 2.06(d)(ii), the Trustee shall cancel the
Definitive Notes and increase or cause to be increased the aggregate
principal amount of the Unrestricted Global Note.
(iii) UNRESTRICTED DEFINITIVE NOTES TO BENEFICIAL INTERESTS
IN UNRESTRICTED GLOBAL NOTES. A Holder of an
Unrestricted Definitive Note may exchange such Note
for a beneficial interest in an Unrestricted Global
Note or transfer such Definitive Notes to a Person
who takes delivery thereof in the form of a
beneficial interest in an Unrestricted Global Note at
any time. Upon receipt of a request for such an
exchange or transfer, the Trustee shall cancel the
applicable Unrestricted Definitive Note and increase
or cause to be increased the aggregate principal
amount of one of the Unrestricted Global Notes.
If any such exchange or transfer from a Definitive Note to a
beneficial interest is effected pursuant to subparagraphs (ii)(B),
(ii)(D) or (iii) above at a time when an Unrestricted Global Note has
not yet been issued, the Issuers shall issue and, upon receipt of an
Authentication Order in accordance with Section 2.02 hereof, the
Trustee shall authenticate one or more Unrestricted Global Notes in an
aggregate principal amount equal to the principal amount of Definitive
Notes so transferred.
(e) TRANSFER AND EXCHANGE OF DEFINITIVE NOTES FOR DEFINITIVE
NOTES. Upon request by a Holder of Definitive Notes and such Holder's compliance
with the provisions of this Section 2.06(e), the Registrar shall register the
transfer or exchange of Definitive Notes. Prior to such registration of transfer
or exchange, the requesting Holder shall present or surrender to the Registrar
the Definitive Notes duly endorsed or accompanied by a written instruction of
transfer in form satisfactory to the Registrar duly executed by such Holder or
by its attorney, duly authorized in writing. In addition, the requesting Holder
shall provide any
25
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additional certifications, documents and information, as applicable, required
pursuant to the following provisions of this Section 2.06(e).
(i) RESTRICTED DEFINITIVE NOTES TO RESTRICTED DEFINITIVE
NOTES. Any Restricted Definitive Note may be transferred to and
registered in the name of Persons who take delivery thereof in the form
of a Restricted Definitive Note if the Registrar receives the
following:
(A) if the transfer will be made pursuant to Rule
144A under the Securities Act, then the transferor must
deliver a certificate in the form of Exhibit B hereto,
including the certifications in item (1) thereof; and
(B) if the transfer will be made pursuant to any
other exemption from the registration requirements of the
Securities Act other than Rule 903 or Rule 904, then the
transferor must deliver a certificate in the form of Exhibit B
hereto, including the certifications, certificates and Opinion
of Counsel required by item (2) thereof, if applicable.
(ii) RESTRICTED DEFINITIVE NOTES TO UNRESTRICTED
DEFINITIVE NOTES. Any Restricted Definitive Note may be exchanged by
the Holder thereof for an Unrestricted Definitive Note or transferred
to a Person or Persons who take delivery thereof in the form of an
Unrestricted Definitive Note if:
(A) such exchange or transfer is effected pursuant to
the Exchange Offer in accordance with the Registration Rights
Agreement and the Holder, in the case of an exchange, or the
transferee, in the case of a transfer, certifies in the
applicable Letter of Transmittal that it is not (1) a
broker-dealer, (2) a Person participating in the distribution
of the Exchange Notes or (3) a Person who is an affiliate (as
defined in Rule 144) of the Company;
(B) any such transfer is effected pursuant to the
Shelf Registration Statement in accordance with the
Registration Rights Agreement;
(C) any such transfer is effected by a Broker-Dealer
pursuant to the Exchange Offer Registration Statement in
accordance with the Registration Rights Agreement; or
(D) the Registrar receives the following:
(1) if the Holder of such Restricted
Definitive Notes proposes to exchange such Notes for
an Unrestricted Definitive Note, a certificate from
such Holder in the form of Exhibit C hereto,
including the certifications in item (1)(d) thereof;
or
(2) if the Holder of such Restricted
Definitive Notes proposes to transfer such Notes to a
Person who shall take delivery thereof in the form of
an Unrestricted Definitive Note, a certificate from
such Holder in the form of Exhibit B hereto,
including the certifications in item (3) thereof;
and, in each such case set forth in this subparagraph (D), if
the Registrar so requests, an Opinion of Counsel in form
reasonably acceptable to the Issuers to the effect that such
exchange or transfer is in compliance with the Securities Act
and that the restrictions on transfer contained herein and in
the Private Placement Legend are no longer required in order
to maintain compliance with the Securities Act.
(iii) UNRESTRICTED DEFINITIVE NOTES TO UNRESTRICTED
DEFINITIVE NOTES. A Holder of Unrestricted Definitive Notes may
transfer such Notes to a Person who takes delivery thereof in the form
of an Unrestricted Definitive Note. Upon receipt of a request to
register such a transfer, the Registrar shall register the Unrestricted
Definitive Notes pursuant to the instructions from the Holder thereof.
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<PAGE>
(f) EXCHANGE OFFER. Upon the occurrence of the Exchange Offer in
accordance with the Registration Rights Agreement, the Issuers shall issue and,
upon receipt of an Authentication Order in accordance with Section 2.02, the
Trustee shall authenticate (i) one or more Unrestricted Global Notes in an
aggregate principal amount equal to the principal amount of the beneficial
interests in the Restricted Global Notes tendered for acceptance by Persons that
certify in the applicable Letters of Transmittal that (x) they are not
broker-dealers, (y) they are not participating in a distribution of the Exchange
Notes and (z) they are not affiliates (as defined in Rule 144) of the Company,
and accepted for exchange in the Exchange Offer and (ii) Definitive Notes in an
aggregate principal amount equal to the principal amount of the Restricted
Definitive Notes accepted for exchange in the Exchange Offer. Concurrently with
the issuance of such Notes, the Trustee shall cause the aggregate principal
amount of the applicable Restricted Global Notes to be reduced accordingly, and
the Issuers shall execute and the Trustee shall authenticate and deliver to the
Persons designated by the Holders of Definitive Notes so accepted Definitive
Notes in the appropriate principal amount.
(g) LEGENDS. The following legends shall appear on the face of all
Global Notes and Definitive Notes issued under this Indenture unless
specifically stated otherwise in the applicable provisions of this Indenture.
(i) PRIVATE PLACEMENT LEGEND.
(A) Except as permitted by subparagraph (B) below,
each Global Note and each Definitive Note (and all Notes
issued in exchange therefor or substitution thereof) shall
bear the legend in substantially the following form:
"THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT OF 1933"), OR THE SECURITIES LAWS OF ANY STATE OR OTHER
JURISDICTION. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY
BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE
DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS
EXEMPT FROM, OR NOT SUBJECT TO, SUCH REGISTRATION; PROVIDED, HOWEVER, THAT
NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED,
SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF
PURSUANT TO REGULATION S OF THE SECURITIES ACT OF 1933.
THE HOLDER OF THIS NOTE BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL
OR OTHERWISE TRANSFER SUCH NOTE, PRIOR TO THE DATE (THE "RESALE RESTRICTION
TERMINATION DATE") WHICH IS TWO YEARS AFTER THE LATER OF THE ORIGINAL ISSUE DATE
HEREOF AND THE LAST DATE ON WHICH THE ISSUERS OR ANY AFFILIATE OF THE ISSUERS
WAS THE OWNER OF THIS NOTE (OR ANY PREDECESSOR OF SUCH NOTE), ONLY (A) TO THE
COMPANY OR ANY OF ITS SUBSIDIARIES, (B) PURSUANT TO A REGISTRATION STATEMENT
THAT HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT OF 1933, (C) FOR SO
LONG AS THE NOTES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO A PERSON IT
REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A
UNDER THE SECURITIES ACT OF 1933 THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE
ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE
TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) TO AN "ACCREDITED INVESTOR"
WITHIN THE MEANING OF RULE 501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT
OF 1933 THAT IS AN INSTITUTIONAL INVESTOR ACQUIRING NOTES FOR ITS OWN ACCOUNT OR
FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL ACCREDITED INVESTOR, IN A MINIMUM
PRINCIPAL AMOUNT OF $250,000, FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO OR
FOR OFFER OR SALE IN CONNECTION WITH ANY DISTRIBUTION IN VIOLATION OF THE
SECURITIES ACT OF 1933 OR (E) PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OF 1933 PROVIDED FOR BY RULE 144
THEREUNDER (IF AVAILABLE), SUBJECT TO THE ISSUERS' AND THE TRUSTEE'S RIGHT PRIOR
TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO CLAUSES (D) OR (E) TO REQUIRE
THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION
SATISFACTORY TO EACH OF THEM. THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF
THE HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE.
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(B) Notwithstanding the foregoing, any Global Note or
Definitive Note issued pursuant to subparagraphs (b)(iv),
(c)(ii), (c)(iii), (d)(ii), (d)(iii), (e)(ii), (e)(iii) or (f)
to this Section 2.06 (and all Notes issued in exchange
therefor or substitution thereof) shall not bear the Private
Placement Legend.
(ii) GLOBAL NOTE LEGEND. Each Global Note shall bear a
legend in substantially the following form:
"THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE INDENTURE
GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE BENEFICIAL
OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY CIRCUMSTANCES
EXCEPT THAT (I) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY BE REQUIRED
PURSUANT TO SECTION 2.07 OF THE INDENTURE, (II) THIS GLOBAL NOTE MAY BE
EXCHANGED IN WHOLE BUT NOT IN PART PURSUANT TO SECTION 2.06(a) OF THE INDENTURE,
(III) THIS GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT
TO SECTION 2.11 OF THE INDENTURE AND (IV) THIS GLOBAL NOTE MAY BE TRANSFERRED TO
A SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN CONSENT OF THE ISSUERS."
(iii) UNIT LEGEND. Each Note issued prior to the Separation
Date shall bear the following legend (the "UNIT LEGEND") on the face
thereof:
"THE NOTES EVIDENCED BY THIS CERTIFICATE ARE INITIALLY ISSUED AS PART OF AN
ISSUANCE OF UNITS, EACH OF WHICH CONSIST OF $1,000 PRINCIPAL AMOUNT OF THE NOTES
AND 1.353 SHARES, PAR VALUE $0.01 PER SHARE, OF THE COMPANY'S COMMON STOCK (THE
"UNIT COMMON STOCK"). PRIOR TO THE CLOSE OF BUSINESS UPON THE EARLIEST TO OCCUR
OF (i) THE DATE THAT IS 180 DAYS FROM THE ISSUE DATE, (ii) THE DATE ON WHICH THE
EXCHANGE OFFER REGISTRATION STATEMENT IS DECLARED EFFECTIVE UNDER THE SECURITIES
ACT OF 1933, (iii) THE OCCURRENCE OF AN INITIAL PUBLIC OFFERING OR THE SALE OF
ALL OR SUBSTANTIALLY ALL OF THE ASSETS OF AN ISSUER, (iv) SUCH DATE AS THE
INITIAL PURCHASERS IN THEIR SOLE DISCRETION SHALL DETERMINE, AND (v) IF A CHANGE
OF CONTROL OCCURS, THE DATE THE ISSUERS MAIL THE NOTICE REQUIRED BY SECTION 4.15
OF THE INDENTURE TO EACH HOLDER. THE NOTES EVIDENCED BY THIS CERTIFICATE MAY NOT
BE TRANSFERRED OR EXCHANGED SEPARATELY FROM, BUT MAY BE TRANSFERRED OR EXCHANGED
ONLY TOGETHER WITH, THE UNIT COMMON STOCK."
(iv) ORIGINAL ISSUE DISCOUNT LEGEND. Each Note shall bear
a legend in substantially the following form:
"FOR THE PURPOSES OF SECTIONS 1272, 1273 AND 1275 OF THE INTERNAL REVENUE CODE
OF 1986, AS AMENDED, THIS SECURITY IS BEING ISSUED WITH ORIGINAL ISSUE DISCOUNT;
FOR EACH $1,000 PRINCIPAL AMOUNT OF THIS SECURITY, THE ISSUE PRICE ALLOCATED TO
THE NOTE IS $961.85, THE AMOUNT OF ORIGINAL ISSUE DISCOUNT IS $38.15, THE ISSUE
DATE IS NOVEMBER 17, 1999 AND THE YIELD TO MATURITY IS 13.46% PER ANNUM."
(h) CANCELLATION AND/OR ADJUSTMENT OF GLOBAL NOTES. At such time
as all beneficial interests in a particular Global Note have been exchanged for
Definitive Notes or a particular Global Note has been redeemed, repurchased or
canceled in whole and not in part, each such Global Note shall be returned to or
retained and canceled by the Trustee in accordance with Section 2.11 hereof. At
any time prior to such cancellation, if any beneficial interest in a Global Note
is exchanged for or transferred to a Person who will take delivery thereof in
the form of a beneficial interest in another Global Note or for Definitive
Notes, the principal amount of Notes represented by such Global Note shall be
reduced accordingly and an endorsement shall be made on such Global Note by the
Trustee or by the Depositary at the direction of the Trustee to reflect such
reduction; and if the beneficial interest is being exchanged for or transferred
to a Person who will take delivery thereof in the form of a beneficial interest
in another Global Note, such other Global Note
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shall be increased accordingly and an endorsement shall be made on such Global
Note by the Trustee or by the Depositary at the direction of the Trustee to
reflect such increase.
(i) GENERAL PROVISIONS RELATING TO TRANSFERS AND EXCHANGES.
(i) To permit registrations of transfers and exchanges,
the Issuers shall execute and the Trustee shall authenticate Global
Notes and Definitive Notes upon the Issuers' written order or at the
Registrar's written request.
(ii) No service charge shall be made to a holder of a
beneficial interest in a Global Note or to a Holder of a Definitive
Note for any registration of transfer or exchange, but the Issuers may
require payment of a sum sufficient to cover any transfer tax or
similar governmental charge payable in connection therewith (other than
any such transfer taxes or similar governmental charge payable upon
exchange or transfer pursuant to Sections 2.10, 3.06, 3.09, 4.10, 4.15
and 9.05 hereof).
(iii) The Registrar shall not be required to register the
transfer of or exchange any Note selected for redemption in whole or in
part, except the unredeemed portion of any Note being redeemed in part.
(iv) All Global Notes and Definitive Notes issued upon any
registration of transfer or exchange of Global Notes or Definitive
Notes shall be the valid obligations of the Issuers, evidencing the
same debt, and entitled to the same benefits under this Indenture, as
the Global Notes or Definitive Notes surrendered upon such registration
of transfer or exchange.
(v) The Issuers shall not be required (A) to issue, to
register the transfer of or to exchange any Notes during a period
beginning at the opening of business 15 days before the day of any
selection of Notes for redemption under Section 3.02 hereof and ending
at the close of business on the day of selection, (B) to register the
transfer of or to exchange any Note so selected for redemption in whole
or in part, except the unredeemed portion of any Note being redeemed in
part or (C) to register the transfer of or to exchange a Note between a
record date and the next succeeding Interest Payment Date.
(vi) Prior to due presentment for the registration of a
transfer of any Note, the Trustee, any Agent and the Issuers may deem
and treat the Person in whose name any Note is registered as the
absolute owner of such Note for the purpose of receiving payment of
principal of and interest on such Notes and for all other purposes, and
none of the Trustee, any Agent or the Issuers shall be affected by
notice to the contrary.
(vii) The Trustee shall authenticate Global Notes and
Definitive Notes in accordance with the provisions of Section 2.02
hereof.
(viii) All certifications, certificates and Opinions of
Counsel required to be submitted to the Registrar pursuant to this
Section 2.06 to effect a registration of transfer or exchange may be
submitted by facsimile.
SECTION 2.07. REPLACEMENT NOTES.
If any mutilated Note is surrendered to the Trustee or the Issuers and
the Trustee receives evidence to its satisfaction of the destruction, loss or
theft of any Note, the Issuers shall issue and the Trustee, upon receipt of an
Authentication Order, shall authenticate a replacement Note if the Trustee's
requirements are met. If required by the Trustee or the Issuers, an indemnity
bond must be supplied by the Holder that is sufficient in the judgment of the
Trustee and the Issuers to protect the Issuers, the Trustee, any Agent and any
authenticating agent from any loss that any of them may suffer if a Note is
replaced. The Issuers may charge the Holder for its expenses in replacing a
Note.
Every replacement Note is an additional obligation of the Issuers and
shall be entitled to all of the benefits of this Indenture equally and
proportionately with all other Notes duly issued hereunder.
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SECTION 2.08. OUTSTANDING NOTES.
The Notes outstanding at any time are all the Notes authenticated by
the Trustee except for those canceled by it, those delivered to it for
cancellation, those reductions in the interest in a Global Note effected by the
Trustee in accordance with the provisions hereof, and those described in this
Section as not outstanding. Except as set forth in Section 2.09 hereof, a Note
does not cease to be outstanding because the Company or an Affiliate of the
Company holds the Note; however, Notes held by the Company or a Subsidiary of
the Company shall not be deemed to be outstanding for purposes of Section
3.07(b) hereof.
If a Note is replaced pursuant to Section 2.07 hereof, it ceases to be
outstanding unless the Trustee receives proof satisfactory to it that the
replaced Note is held by a bona fide purchaser.
If the principal amount of any Note is considered paid under Section
4.01 hereof, it ceases to be outstanding and interest on it ceases to accrue.
If the Paying Agent (other than the Company, a Restricted Subsidiary or
an Affiliate of any thereof) holds, on a redemption date or maturity date, money
sufficient to pay Notes payable on that date, then on and after that date such
Notes shall be deemed to be no longer outstanding and shall cease to accrue
interest.
SECTION 2.09. TREASURY NOTES.
In determining whether the Holders of the required principal amount of
Notes have concurred in any direction, waiver or consent, Notes owned by the
Issuers, or by any Person directly or indirectly controlling or controlled by or
under direct or indirect common control with the Issuers, shall be considered as
though not outstanding, except that for the purposes of determining whether the
Trustee shall be protected in relying on any such direction, waiver or consent,
only Notes that the Trustee knows are so owned shall be so disregarded. For
purposes of this Section 2.09, the terms "controlling," "controlled" and
"control" shall have the meaning set forth in the definition of "Affiliate" in
Article 1, without giving effect to the proviso thereto.
SECTION 2.10. TEMPORARY NOTES.
Until certificates representing Notes are ready for delivery, the
Issuers may prepare and the Trustee, upon receipt of an Authentication Order,
shall authenticate temporary Notes. Temporary Notes shall be substantially in
the form of certificated Notes but may have variations that the Issuers consider
appropriate for temporary Notes and as shall be reasonably acceptable to the
Trustee. Without unreasonable delay, the Issuers shall prepare and the Trustee
shall authenticate definitive Notes in exchange for temporary Notes.
Holders of temporary Notes shall be entitled to all of the benefits of
this Indenture.
SECTION 2.11. CANCELLATION.
The Issuers at any time may deliver Notes to the Trustee for
cancellation. The Registrar and Paying Agent shall forward to the Trustee any
Notes surrendered to them for registration of transfer, exchange or payment. The
Trustee and no one else shall cancel all Notes surrendered for registration of
transfer, exchange, payment, replacement or cancellation and shall dispose of
such cancelled notes in accordance with its customary practices. Certification
of the destruction of all canceled Notes shall be delivered to the Issuers. The
Issuers may not issue new Notes to replace Notes that it has paid or that have
been delivered to the Trustee for cancellation.
SECTION 2.12. DEFAULTED INTEREST.
If the Issuers default in a payment of interest on the Notes, it shall
pay the defaulted interest in any lawful manner plus, to the extent lawful,
interest payable on the defaulted interest, to the Persons who are Holders on a
subsequent special record date, in each case at the rate provided in the Notes
and in Section 4.01 hereof. The Issuers shall notify the Trustee in writing of
the amount of defaulted interest proposed to be paid on each Note and the date
of the proposed payment. The Issuers shall fix or cause to be fixed each such
special record date and payment date, PROVIDED that no such special record date
shall be less than 10 days prior to the related payment date for such defaulted
interest. At least 15 days before the special record date, the Issuers (or, upon
the written request of the Issuers, the Trustee in the name and at the expense
of
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the Issuers) shall mail or cause to be mailed to Holders a notice that states
the special record date, the related payment date and the amount of such
interest to be paid.
ARTICLE 3.
REDEMPTION AND PREPAYMENT
SECTION 3.01. NOTICES TO TRUSTEE.
If the Issuers elect to redeem Notes pursuant to the optional
redemption provisions of Section 3.07 hereof, they shall furnish to the Trustee,
at least 45 days before a redemption date, an Officers' Certificate from each
Issuer setting forth (i) the clause of this Indenture pursuant to which the
redemption shall occur, (ii) the redemption date, (iii) the principal amount of
Notes to be redeemed and (iv) the redemption price.
SECTION 3.02. SELECTION OF NOTES TO BE REDEEMED.
If less than all of the Notes are to be redeemed or purchased in an
offer to purchase at any time, the Trustee shall select the Notes to be redeemed
or purchased among the Holders of the Notes in compliance with the requirements
of the principal national securities exchange, if any, on which the Notes are
listed or, if the Notes are not so listed, on a PRO RATA basis, by lot or in
accordance with any other method the Trustee considers fair and appropriate. In
the event of partial redemption by lot, the particular Notes to be redeemed
shall be selected, unless otherwise provided herein, not less than 30 nor more
than 60 days prior to the redemption date by the Trustee from the outstanding
Notes not previously called for redemption.
The Trustee shall promptly notify the Issuers in writing of the Notes
selected for redemption and, in the case of any Note selected for partial
redemption, the principal amount thereof to be redeemed. Notes and portions of
Notes selected shall be in amounts of $1,000 or whole multiples of $1,000;
except that if all of the Notes of a Holder are to be redeemed, the entire
outstanding amount of Notes held by such Holder shall be redeemed. Except as
provided in the preceding sentence, provisions of this Indenture that apply to
Notes called for redemption also apply to portions of Notes called for
redemption.
SECTION 3.03. NOTICE OF REDEMPTION.
Subject to the provisions of Section 3.09 hereof, at least 30 days but
not more than 60 days before a redemption date, the Issuers shall mail or cause
to be mailed, by first class mail, a notice of redemption to each Holder whose
Notes are to be redeemed at its registered address.
The notice shall identify the Notes to be redeemed and shall state:
(a) the redemption date;
(b) the redemption price, plus accrued interest, if any;
(c) if any Note is being redeemed in part, the portion of the
principal amount of such Note to be redeemed and that, after the redemption date
upon surrender of such Note, a new Note or Notes in principal amount equal to
the unredeemed portion shall be issued upon cancellation of the original Note;
(d) the name and address of the Paying Agent;
(e) that Notes called for redemption must be surrendered to the
Paying Agent to collect the redemption price;
(f) that, unless the Issuers default in making such redemption
payment, interest on Notes called for redemption ceases to accrue on and after
the redemption date;
(g) the paragraph of the Notes and/or Section of this Indenture
pursuant to which the Notes called for redemption are being redeemed; and
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(h) that no representation is made as to the correctness or
accuracy of the CUSIP number, if any, listed in such notice or printed on the
Notes.
At the Issuers' request, the Trustee shall give the notice of
redemption in the Issuers' name and at their expense; PROVIDED, HOWEVER, that
the Issuers shall have delivered to the Trustee, at least 45 days prior to the
redemption date, an Officers' Certificate from each Issuer requesting that the
Trustee give such notice and setting forth the information to be stated in such
notice as provided in the preceding paragraph.
SECTION 3.04. EFFECT OF NOTICE OF REDEMPTION.
Once notice of redemption is mailed in accordance with Section 3.03
hereof, Notes called for redemption become irrevocably due and payable on the
redemption date at the redemption price. A notice of redemption may not be
conditional.
SECTION 3.05. DEPOSIT OF REDEMPTION PRICE.
Prior to 11 a.m. on the redemption date, the Issuers shall deposit with
the Trustee or with the Paying Agent money sufficient to pay the redemption
price of and accrued interest on all Notes to be redeemed on that date. The
Trustee or the Paying Agent shall promptly return to the Issuers any money
deposited with the Trustee or the Paying Agent by the Issuers in excess of the
amounts necessary to pay the redemption price of, and accrued interest on, all
Notes to be redeemed.
If the Issuers comply with the provisions of the preceding paragraph,
on and after the redemption date, interest shall cease to accrue on the Notes or
the portions of Notes called for redemption. If a Note is redeemed on or after
an interest record date but on or prior to the related interest payment date,
then any accrued and unpaid interest shall be paid to the Person in whose name
such Note was registered at the close of business on such record date. If any
Note called for redemption shall not be so paid upon surrender for redemption
because of the failure of the Issuers to comply with the preceding paragraph,
interest shall be paid on the unpaid principal, from the redemption date until
such principal is paid, and to the extent lawful on any interest not paid on
such unpaid principal, in each case at the rate provided in the Notes and in
Section 4.01 hereof.
SECTION 3.06. NOTES REDEEMED IN PART.
Upon surrender of a Note that is redeemed in part, the Issuers shall
issue and, upon the Issuers' written request, the Trustee shall authenticate for
the Holder at the expense of the Issuers a new Note equal in principal amount to
the unredeemed portion of the Note surrendered.
SECTION 3.07. OPTIONAL REDEMPTION.
(a) Except as set forth in clause (b) of this Section 3.07, the
Issuers shall not have the option to redeem the Notes pursuant to this Section
3.07 prior to November 15, 2004. Thereafter, the Issuers shall have the option
to redeem the Notes, in whole or in part, at the redemption prices (expressed as
percentages of principal amount) set forth below plus accrued and unpaid
interest and Liquidated Damages thereon, if any, to the applicable redemption
date, if redeemed during the twelve-month period beginning on November 15 of the
years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
<S> <C>
2004................................................................................ 106.375%
2005................................................................................ 104.250%
2006................................................................................ 102.125%
2007 and thereafter................................................................. 100.000%
</TABLE>
(b) Notwithstanding the provisions of clause (a) of this Section
3.07, at any time prior to November 15, 2002, the Issuers may redeem Notes with
the net proceeds of one or more Equity Offerings at a redemption price equal to
112.750% of the aggregate principal amount thereof plus accrued and unpaid
Liquidated Damages thereon, if any; PROVIDED that at least 65% in aggregate
principal amount of the Notes (calculated giving effect to the issuance of
Additional Notes) issued under this Indenture remain outstanding
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immediately after the occurrence of such redemption and that such redemption
occurs within 45 days of the date of the closing of such Equity Offering.
(c) Any redemption pursuant to this Section 3.07 shall be made
pursuant to the provisions of Section 3.01 through 3.06 hereof.
SECTION 3.08. MANDATORY REDEMPTION.
The Company shall not be required to make mandatory redemption payments
with respect to the Notes, except as set forth in Section 4.10 and 4.15.
SECTION 3.09. OFFER TO PURCHASE BY APPLICATION OF EXCESS PROCEEDS.
In the event that, pursuant to Section 4.10 hereof, the Issuers shall
be required to commence an offer to all Holders to purchase Notes (an "ASSET
SALE OFFER"), they shall follow the procedures specified below.
The Asset Sale Offer shall remain open for a period of 20 Business Days
following its commencement and no longer, except to the extent that a longer
period is required by applicable law (the "OFFER PERIOD"). No later than five
Business Days after the termination of the Offer Period (the "PURCHASE DATE"),
the Issuers shall purchase the principal amount of Notes required to be
purchased pursuant to Section 4.10 hereof (the "OFFER AMOUNT") or, if less than
the Offer Amount has been tendered, all Notes tendered in response to the Asset
Sale Offer. Payment for any Notes so purchased shall be made in the same manner
as interest payments are made.
If the Purchase Date is on or after an interest record date and on or
before the related interest payment date, any accrued and unpaid interest shall
be paid to the Person in whose name a Note is registered at the close of
business on such record date, and no additional interest shall be payable to
Holders who tender Notes pursuant to the Asset Sale Offer.
Upon the commencement of an Asset Sale Offer, the Issuers shall send,
by first class mail, a notice to the Trustee and each of the Holders, with a
copy to the Trustee. The notice shall contain all instructions and materials
necessary to enable such Holders to tender Notes pursuant to the Asset Sale
Offer. The Asset Sale Offer shall be made to all Holders. The notice, which
shall govern the terms of the Asset Sale Offer, shall state:
(a) that the Asset Sale Offer is being made pursuant to this
Section 3.09 and Section 4.10 hereof and the length of time the Asset Sale Offer
shall remain open;
(b) the Offer Amount, the purchase price and the Purchase Date;
(c) that any Note not tendered or accepted for payment shall
continue to accrue interest;
(d) that, unless the Issuers default in making such payment, any
Note accepted for payment pursuant to the Asset Sale Offer shall cease to accrue
interest after the Purchase Date;
(e) that Holders electing to have a Note purchased pursuant to an
Asset Sale Offer may elect to have Notes purchased in integral multiples of
$1,000 only;
(f) that Holders electing to have a Note purchased pursuant to any
Asset Sale Offer shall be required to surrender the Note, with the form entitled
"Option of Holder to Elect Purchase" on the reverse of the Note completed, or
transfer by book-entry transfer, to the Issuers, a depositary, if appointed by
the Issuers, or a Paying Agent at the address specified in the notice at least
three days before the Purchase Date;
(g) that Holders shall be entitled to withdraw their election if
the Issuers, the depositary or the Paying Agent, as the case may be, receive,
not later than the expiration of the Offer Period, a telegram, telex, facsimile
transmission or letter setting forth the name of the Holder, the principal
amount of the Note the Holder delivered for purchase and a statement that such
Holder is withdrawing his election to have such Note purchased;
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(h) that, if the aggregate principal amount of Notes surrendered
by Holders exceeds the Offer Amount, the Issuers shall select the Notes to be
purchased on a PRO RATA basis (with such adjustments as may be deemed
appropriate by the Issuers so that only Notes in denominations of $1,000, or
integral multiples thereof, shall be purchased); and
(i) that Holders whose Notes were purchased only in part shall be
issued new Notes equal in principal amount to the unpurchased portion of the
Notes surrendered (or transferred by book-entry transfer).
On or before the Purchase Date, the Issuers shall, to the extent
lawful, accept for payment, on a PRO RATA basis to the extent necessary, the
Offer Amount of Notes or portions thereof tendered pursuant to the Asset Sale
Offer, or if less than the Offer Amount has been tendered, all Notes tendered,
and shall deliver to the Trustee an Officers' Certificate from each Issuer
stating that such Notes or portions thereof were accepted for payment by the
Issuers in accordance with the terms of this Section 3.09. The Issuers, the
Depositary or the Paying Agent, as the case may be, shall promptly (but in any
case not later than five days after the Purchase Date) mail or deliver to each
tendering Holder an amount equal to the purchase price of the Notes tendered by
such Holder and accepted by the Issuers for purchase, and the Issuers shall
promptly issue a new Note, and the Trustee, upon written request from the
Issuers shall authenticate and mail or deliver such new Note to such Holder, in
a principal amount equal to any unpurchased portion of the Note surrendered. Any
Note not so accepted shall be promptly mailed or delivered by the Issuers to the
Holder thereof. The Issuers shall publicly announce the results of the Asset
Sale Offer on the Purchase Date.
Other than as specifically provided in this Section 3.09, any purchase
pursuant to this Section 3.09 shall be made pursuant to the provisions of
Sections 3.01 through 3.06 hereof.
ARTICLE 4.
COVENANTS
SECTION 4.01. PAYMENT OF NOTES.
The Issuers or Note Guarantors shall pay or cause to be paid the
principal of, premium, if any, and interest on the Notes on the dates and in the
manner provided in the Notes. Principal, premium, if any, and interest shall be
considered paid on the date due if the Paying Agent, if other than the Company
or a Restricted Subsidiary thereof, holds as of 10:00 a.m. Eastern Time on the
due date money deposited by the Issuers in immediately available funds and
designated for and sufficient to pay all principal, premium, if any, and
interest then due. The Issuers shall pay all Liquidated Damages, if any, in the
same manner on the dates and in the amounts set forth in the Registration Rights
Agreement.
The Issuers or Note Guarantors shall pay interest (including
post-petition interest in any proceeding under any Bankruptcy Law) on overdue
principal at the rate equal to 1% per annum in excess of the then applicable
interest rate on the Notes to the extent lawful; it shall pay interest
(including post-petition interest in any proceeding under any Bankruptcy Law) on
overdue installments of interest and Liquidated Damages (without regard to any
applicable grace period) at the same rate to the extent lawful.
SECTION 4.02. MAINTENANCE OF OFFICE OR AGENCY.
The Issuers shall maintain in the Borough of Manhattan, the City of New
York, an office or agency (which may be an office of the Trustee or an affiliate
of the Trustee, Registrar or co-registrar) where Notes may be surrendered for
registration of transfer or for exchange and where notices and demands to or
upon the Issuers in respect of the Notes and this Indenture may be served. The
Issuers shall give prompt written notice to the Trustee of the location, and any
change in the location, of such office or agency. If at any time the Issuers
shall fail to maintain any such required office or agency or shall fail to
furnish the Trustee with the address thereof, such presentations, surrenders,
notices and demands may be made or served at the Corporate Trust Office of the
Trustee.
The Issuers may also from time to time designate one or more other
offices or agencies where the Notes may be presented or surrendered for any or
all such purposes and may from time to time rescind such designations; PROVIDED,
HOWEVER, that no such designation or rescission shall in any manner relieve the
Issuers of their obligation to maintain an office or agency in the Borough of
Manhattan, the City of New
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York for such purposes. The Issuers shall give prompt written notice to the
Trustee of any such designation or rescission and of any change in the location
of any such other office or agency.
The Issuers hereby designate the Corporate Trust Office of the Trustee
as one such office or agency of the Issuers in accordance with Section 2.03.
SECTION 4.03. REPORTS.
(a) Whether or not required by the rules and regulations of the
SEC, so long as any Notes are outstanding, the Issuers shall furnish to the
Holders of Notes (i) all quarterly and annual financial information that would
be required to be contained in a filing with the SEC on Forms 10-Q and 10-K if
the Company were required to file such forms, including a "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and,
with respect to the annual information only, a report thereon by the Company's
certified independent accountants and (ii) all current reports that would be
required to be filed with the SEC on Form 8-K if the Company were required to
file such reports, in each case, within the time periods specified in the SEC's
rules and regulations. In addition, following consummation of the Exchange
Offer, whether or not required by the rules and regulations of the SEC, the
Issuers shall file a copy of all such information and reports with the SEC for
public availability within the time periods specified in the SEC's rules and
regulations (unless the SEC will not accept such a filing) and make such
information available to securities analysts and prospective investors upon
request. The Issuers shall at all times comply with TIA Section 314(a).
(b) If the Company has designated any of its Subsidiaries as
Unrestricted Subsidiaries, then the quarterly and annual financial information
required by the preceding paragraph shall include a reasonably detailed
presentation, either on the face of the financial statements or in the footnotes
thereto, and in Management's Discussion and Analysis of Financial Condition and
Results of Operations, of the financial condition and results of operations of
the Company and its Restricted Subsidiaries separate from the financial
condition and results of operations of the Unrestricted Subsidiaries of the
Company.
(c) For so long as any Notes remain outstanding, the Issuers and
the Note Guarantors shall furnish to the Holders and to securities analysts and
prospective investors, upon their request, the information required to be
delivered pursuant to Rule 144A(d)(4) under the Securities Act.
SECTION 4.04. COMPLIANCE CERTIFICATE.
(a) Each of the Issuers and each Note Guarantor (to the extent
that such Note Guarantor is so required under the TIA) shall deliver to the
Trustee, within 120 days after the end of each fiscal year, an Officers'
Certificate stating that a review of the activities of the Company and its
Subsidiaries during the preceding fiscal year has been made under the
supervision of the signing Officers with a view to determining whether the
Issuers have kept, observed, performed and fulfilled its obligations under this
Indenture and further stating, as to each such Officer signing such certificate,
that to the best of his or her knowledge the Issuers have kept, observed,
performed and fulfilled each and every covenant contained in this Indenture and
are not in default in the performance or observance of any of the terms,
provisions and conditions of this Indenture (or, if a Default or Event of
Default shall have occurred, describing all such Defaults or Events of Default
of which he or she may have knowledge and what action the Issuers are taking or
propose to take with respect thereto) and that to the best of his or her
knowledge no event has occurred and remains in existence by reason of which
payments on account of the principal of or interest, if any, on the Notes is
prohibited or if such event has occurred, a description of the event and what
action the Issuers are taking or propose to take with respect thereto.
(b) The Issuers shall, so long as any of the Notes are
outstanding, deliver to the Trustee, forthwith upon any Officer becoming aware
of any Default or Event of Default, an Officers' Certificate from each Issuer
specifying such Default or Event of Default and what action the Issuers are
taking or propose to take with respect thereto.
SECTION 4.05. TAXES.
The Company shall pay, and shall cause each of its Subsidiaries to pay,
prior to delinquency, all material taxes, assessments, and governmental levies
except such as are contested in good faith and by
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appropriate proceedings or where the failure to effect such payment is not
adverse in any material respect to the Holders of the Notes.
SECTION 4.06. STAY, EXTENSION AND USURY LAWS.
The Issuers and each of the Note Guarantors covenant(s) (to the extent
that they or it may lawfully do so) that it shall not at any time insist upon,
plead, or in any manner whatsoever claim or take the benefit or advantage of,
any stay, extension or usury law wherever enacted, now or at any time hereafter
in force, that may affect the covenants or the performance of this Indenture;
and the Issuers and each of the Note Guarantors (to the extent that they or it
may lawfully do so) hereby expressly waive(s) all benefit or advantage of any
such law, and covenant(s) that they or it shall not, by resort to any such law,
hinder, delay or impede the execution of any power herein granted to the
Trustee, but shall suffer and permit the execution of every such power as though
no such law has been enacted.
SECTION 4.07. RESTRICTED PAYMENTS.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly:
(1) declare or pay any dividend or make any other payment or distribution
on account of the Company's or any of its Restricted Subsidiaries'
Equity Interests (including, without limitation, any payment in
connection with any merger or consolidation involving the Company or
any of its Restricted Subsidiaries) or to the direct or indirect
holders of the Company's or any of its Restricted Subsidiaries' Equity
Interests in their capacity as such (other than (a) dividends or
distributions payable in Equity Interests (other than Disqualified
Stock but including payments of dividends on the Senior Preferred Stock
paid in additional shares of Senior Preferred Stock) and dividends or
distributions payable through accretion to the liquidation preference
of such Senior Preferred Stock or in options, warrants or other rights
to purchase such Equity Interests of the Company, (b) to the Company or
a Restricted Subsidiary of the Company or (c) pursuant to the exercise
of warrants to purchase common stock of an Issuer);
(2) purchase, redeem or otherwise acquire or retire for value (including,
without limitation, in connection with any merger or consolidation
involving the Issuers) any Equity Interests of the Issuers or any
direct or indirect parent of the Issuers;
(3) make any payment on or with respect to, or purchase, redeem, defease or
otherwise acquire or retire for value any Indebtedness that is
subordinated to the Notes or the Note Guarantees, except a payment of
interest or principal at the Stated Maturity or any scheduled repayment
thereof other than (a) Indebtedness permitted under clause (6) of
Section 4.09 or (b) the purchase, repurchase or other acquisition of
subordinated Indebtedness purchased in anticipation of satisfying a
sinking fund obligation, principal installment or final maturity, in
each case due within one year of the date of purchase, repurchase or
acquisition); or
(4) make any Restricted Investment (all such payments and other actions set
forth in clauses (1) through (4) above being collectively referred to
as "RESTRICTED PAYMENTS"),
unless, at the time of and after giving effect to such Restricted
Payment:
(1) no Default or Event of Default shall have occurred and be continuing or
would occur as a consequence thereof; and
(2) the Company would, at the time of such Restricted Payment and after
giving pro forma effect thereto as if such Restricted Payment had been
made at the beginning of the applicable four-quarter period, have been
permitted to incur at least $1.00 of additional Indebtedness pursuant
to the Debt to EBITDA Ratio test set forth in the first paragraph of
Section 4.09; and
(3) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by the Company and its Restricted
Subsidiaries after the date of this Indenture (excluding Restricted
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Payments permitted by clauses (2) through (10) and clauses (12) and
(13) of the next succeeding paragraph), is less than the sum, without
duplication, of:
(a) 50% of the Consolidated Net Income of the Company for the
period (taken as one accounting period) from the beginning of
the first fiscal quarter commencing after the date of this
Indenture to the end of the Company's most recently ended
fiscal quarter for which internal financial statements are
available at the time of such Restricted Payment (or, if such
Consolidated Net Income for such period is a deficit, less
100% of such deficit), PLUS
(b) 100% of the aggregate net cash proceeds and the fair market
value of Cash Equivalents and Qualified Proceeds received by
the Issuers since the date of this Indenture as a contribution
to their common equity capital or from the issue or sale of
Equity Interests of the Issuers (other than Disqualified Stock
and Excluded Contributions) or from the issue or sale of
convertible or exchangeable Disqualified Stock or convertible
or exchangeable debt securities of the Issuers that have been
converted into or exchanged for such Equity Interests (other
than Equity Interests (or Disqualified Stock or debt
securities and Excluded Contributions) sold to a Subsidiary of
the Company or the Company), PLUS
(c) to the extent that any Restricted Investment that was made
after the date of this Indenture is sold for cash, Cash
Equivalents or Qualified Proceeds or is otherwise liquidated
or repaid for cash, Cash Equivalents or Qualified Proceeds,
the lesser of (i) the return of capital with respect to such
Restricted Investment (less the cost of disposition, if any)
and (ii) the initial amount of such Restricted Investment,
PLUS
(d) the aggregate amount equal to the net reduction in Investments
in Unrestricted Subsidiaries resulting from (i) dividends,
distributions, return of capital, repayments of investments or
other transfers of assets to the Company or any Restricted
Subsidiary from any Unrestricted Subsidiary, or the sale of
any interest in any Unrestricted Subsidiary, in each case in
the form of cash, Cash Equivalents or Qualified Proceeds, or
(ii) the redesignation of any Unrestricted Subsidiary as a
Restricted Subsidiary (valued in each case as provided in the
definition of "Investment"), not to exceed in the case of any
such Unrestricted Subsidiary the fair market value of such
Investment in such Unrestricted Subsidiary at the time of such
reduction in Investment, after deducting any Indebtedness
associated with the Unrestricted Subsidiary; PROVIDED that the
amount of such net reduction in Investment in such
Unrestricted Subsidiary shall be excluded from Consolidated
Net Income for purposes of calculating clause 3(a) above.
So long as no Default has occurred and is continuing or would be caused
thereby, the preceding provisions shall not prohibit:
(1) the payment of any dividend within 60 days after the date of
declaration thereof, if at said date of declaration such payment would
have complied with the provisions of this Indenture;
(2) (a) the redemption, repurchase, retirement, defeasance or other
acquisition of any subordinated Indebtedness of the Issuers or any
Restricted Subsidiary or of any Equity Interests of the Issuers
("RETIRED CAPITAL STOCK") in exchange for, or out of the net cash
proceeds of the substantially concurrent sale (other than to a
Restricted Subsidiary of the Company or to the Company) of, Equity
Interests of any of the Issuers (other than Disqualified Stock)
("REFUNDING CAPITAL STOCK"); PROVIDED that the amount of any such net
cash proceeds that are utilized for any such redemption, repurchase,
retirement, defeasance or other acquisition shall be excluded from
clause (3)(b) of the preceding paragraph and (b) the declaration and
payment of dividends on the Refunding Capital Stock in an aggregate
amount per year no greater than the aggregate amount of dividends per
annum that was declarable and payable on such Retired Capital Stock in
a manner not in violation of this Indenture immediately prior to such
retirement;
(3) the defeasance, redemption, repurchase or other acquisition or
retirement of subordinated Indebtedness of the Company or any
Restricted Subsidiary with the net cash proceeds from an incurrence of
Permitted Refinancing Indebtedness;
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(4) the payment of any dividend by a Restricted Subsidiary of the Company
(other than Weekly Reader or JLC Learning) to the holders of its common
Equity Interests on a pro rata basis; and
(5) the repurchase, redemption or other acquisition or retirement for value
of any Equity Interests of the Company or any Restricted Subsidiary of
the Company or any direct or indirect parent of the Company held by any
future, present or former member of the Company's (or any of its
Restricted Subsidiaries') management or any director, employee or
consultant of the Company or any of its Restricted Subsidiaries
pursuant to any management equity plan or stock option plan or any
other management or employee benefit plan or agreement; PROVIDED that
the aggregate price paid for all such repurchased, redeemed, acquired
or retired Equity Interests shall not exceed in any calendar year $1.0
million (with unused amounts in any calendar year being carried over to
succeeding calendar years subject to a maximum (without giving effect
to the following proviso) of $2.0 million in any calendar year);
PROVIDED FURTHER that such amount in any calendar year may be increased
by an amount not to exceed (A) the cash proceeds from the sale of
Equity Interests of the Company to members of management of the Company
and its Subsidiaries that occurs after the date of this Indenture (to
the extent the cash proceeds from the sale of such Equity Interests
have not otherwise been applied to the payment of Restricted Payments
by virtue of the preceding paragraph (3)(b)) plus (B) the cash proceeds
of key man life insurance policies received by the Company and its
Restricted Subsidiaries after the date of this Indenture less (C) the
amount of any Restricted Payments previously made pursuant to this
proviso;
(6) repurchases of Equity Interests deemed to occur upon exercise of stock
options if such Equity Interests represent a portion of the exercise
price of such options;
(7) the retirement of any shares of Disqualified Stock of the Company by
conversion into, or by exchange for, shares of Disqualified Stock of
the Company, or out of the Net Proceeds of the substantially concurrent
sale (other than to a Subsidiary of the Company) of other shares of
Disqualified Stock of the Company; PROVIDED that (i) the amount of such
Disqualified Stock does not exceed the amount of the Disqualified Stock
so converted or exchanged or concurrently retired (plus the amount of
all fees, commissions, discounts, costs and expenses incurred in
connection therewith) and (ii) either (a) such Disqualified Stock by
its terms, or upon the happening of any event, matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or
otherwise, or is redeemable at the option of the holder thereof, in
whole or in part, later than the final maturity date or date that the
Disqualified Stock being converted or exchanged is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or is
redeemable at the option of the holder thereof, in whole or in part, or
(b) all scheduled payments on or in respect of such Disqualified Stock
(other than dividends) shall be at least 91 days following the final
scheduled maturity of the Notes;
(8) Investments that are made with Excluded Contributions;
(9) other Restricted Payments in an aggregate amount not to exceed $10.0
million;
(10) cash dividends and other payments required to be made under the
Recapitalization Agreement;
(11) the payment of dividends on the common stock of an Issuer following the
first public offering of such Issuer's common stock after the date of
this Indenture, of up to an aggregate of 6% per annum of the net cash
proceeds received by such Issuer in all such public offerings of common
stock, other than public offerings with respect to common stock of an
Issuer registered on Form S-8; PROVIDED that the amount of any such net
cash proceeds that are utilized for any such payments shall be excluded
from clause 3(b) of the preceding paragraph;
(12) advances to employees (including guarantees of loans made to employees)
not in excess of $7.5 million outstanding at any one time in the
aggregate; and
(13) the payment to any direct or indirect parent of the Company of amounts
required for such parent to pay franchise taxes and other fees and
operating costs reasonably required to maintain its corporate
existence, together with any amounts permitted to be paid pursuant to
clause (8) of Section 4.11.
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In addition, this covenant shall not prohibit the exchange of Senior
Preferred Stock into preferred stock of Weekly Reader and/or JLC Learning
(including any reversals thereof, as applicable) and shall not prohibit the
exchange of Senior Preferred Stock into preferred stock of the applicable Issuer
that is identical to such Senior Preferred Stock, except that such preferred
stock is not subject to restrictions on transfer under the federal securities
laws, pursuant, in each case, to the terms of the certificate of designations or
the stockholders agreement relating thereto, as in effect on the date of this
Indenture or the exchange of Unit Common Stock for Exchange Common Stock
(including any reversals thereof, as applicable) pursuant to the stockholders
agreement related thereto, as in effect on the date of this Indenture.
The amount of all Restricted Payments (other than cash) shall be the
fair market value on the date of the Restricted Payment of the asset(s) or
securities proposed to be transferred or issued to or by the Company or such
Restricted Subsidiary, as the case may be, pursuant to the Restricted Payment.
The fair market value of any assets or securities that are required to be valued
by this covenant shall be determined by the Board of Directors. The Board of
Directors' determination shall be based upon an opinion or appraisal issued by
an accounting, appraisal or investment banking firm of national standing if the
fair market value exceeds $5.0 million.
SECTION 4.08. DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING
RESTRICTED SUBSIDIARIES.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, create or permit to exist or become
effective any consensual encumbrance or restriction on the ability of any
Restricted Subsidiary to:
(1) (a) pay dividends or make any other distributions on its Capital Stock
to the Company or any of its Restricted Subsidiaries, or with respect
to any other interest or participation in, or measured by, its profits,
or (b) pay any indebtedness owed to the Company or any of its
Restricted Subsidiaries;
(2) make loans or advances to the Company or any of its Restricted
Subsidiaries; or
(3) transfer any of its properties or assets to the Company or any of its
Restricted Subsidiaries.
However, the preceding restrictions shall not apply to encumbrances or
restrictions existing under or by reason of:
(1) contractual encumbrances or restrictions in effect on the date of this
Indenture, including, without limitation, pursuant to Existing
Indebtedness or the Credit Agreement as in effect on the date of this
Indenture and any amendments, modifications, restatements, renewals,
increases, supplements, refundings, replacements or refinancings
thereof, PROVIDED that such amendments, modifications, restatements,
renewals, increases, supplements, refundings, replacement or
refinancings are, in the good faith judgment of the Board of Directors
of the Company, no more restrictive in any material respect, taken as a
whole, with respect to such dividend and other payment restrictions
than those contained in such Existing Indebtedness, as in effect on the
date of this Indenture;
(2) contractual encumbrances or restrictions in any preferred stock of any
Issuer issued in exchange for the Senior Preferred Stock; PROVIDED that
such contractual encumbrances or restrictions are, in the good faith
judgment of the Board of Directors of the Company, no more restrictive
in any material respect, taken as a whole, with respect to such
dividend and other payment restrictions than those contained in the
Senior Preferred Stock, as in effect on the date of this Indenture;
(3) this Indenture, the Notes and the Note Guarantees;
(4) applicable law or any applicable rule, regulation or order;
(5) any instrument governing Indebtedness or Capital Stock of a Person
acquired by the Company or any of its Restricted Subsidiaries as in
effect at the time of such acquisition (except to the extent such
Indebtedness was incurred in connection with or in contemplation of
such acquisition), which encumbrance or restriction is not applicable
to any Person, or the properties or assets of any Person, other than
the Person, or the property or assets of the Person, so acquired,
PROVIDED that, in the case of Indebtedness, such Indebtedness was
permitted by the terms of this Indenture to be incurred;
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(6) customary non-assignment provisions in leases entered into in the
ordinary course of business;
(7) purchase money obligations for property acquired in the ordinary course
of business that impose restrictions on the property so acquired of the
nature described in clause (3) of the preceding paragraph;
(8) any agreement for the sale or other disposition of all or substantially
all of the Capital Stock or assets of a Subsidiary that restricts
distributions by that Subsidiary pending its sale or other disposition;
PROVIDED that with respect to a sale of less than all of the assets of
such Restricted Subsidiary such agreement only encumbers the assets
subject to such sale;
(9) Liens securing Indebtedness that limit the right of the debtor to
dispose of the assets subject to such Lien;
(10) provisions with respect to the disposition or distribution of assets or
property in joint venture agreements, assets sale agreements, stock
sale agreements and other similar agreements entered into in the
ordinary course of business;
(11) restrictions on cash or other deposits or net worth imposed by
customers under contracts entered into in the ordinary course of
business; and
(12) any encumbrances or restrictions imposed by any amendments,
modifications, restatements, renewals, increases, supplements,
refundings, replacements or refinancings of the contracts, instruments
or obligations referred to in clauses (1) through (11) or any Permitted
Refinancing Indebtedness, PROVIDED that such amendments, modifications,
restatements, renewals, increases, supplements, refundings,
replacements, refinancings or Permitted Refinancing Indebtedness are,
in the good faith judgment of the Board of Directors of the Company, no
more restrictive in any material respect, taken as a whole, with
respect to such dividend and other payment restrictions than those in
existence prior to such amendment, modification, restatement, renewal,
increase, supplement, refunding, replacement or refinancing.
SECTION 4.09. INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee
or otherwise become directly or indirectly liable, contingently or otherwise,
with respect to (collectively, "INCUR") any Indebtedness (including Acquired
Debt), and the Issuers and the Note Guarantors shall not issue any Disqualified
Stock and the Company shall not permit any Restricted Subsidiary that is not an
Issuer or a Note Guarantor to issue any shares of preferred stock; PROVIDED,
HOWEVER, that the Issuers and the Note Guarantors may incur Indebtedness
(including Acquired Debt) or issue Disqualified Stock if the Company's Debt to
EBITDA Ratio for its four full fiscal quarters ending immediately prior to the
date such additional Indebtedness is Incurred would have been no greater than
(x) 6.5 to 1.0 with respect to any such four-quarter period ending on or prior
to November 15, 2001 and (y) 6.0 to 1.0 with respect to any such four-quarter
period ending thereafter.
The first paragraph of this Section 4.09 shall not prohibit the
incurrence of any of the following items of Indebtedness (collectively,
"PERMITTED DEBT"):
(1) the incurrence by the Company and its Restricted Subsidiaries of
additional Indebtedness and letters of credit under Credit Facilities
in an aggregate principal amount at any one time outstanding under this
clause (1) (with letters of credit being deemed to have a principal
amount equal to the maximum potential liability of the Company and its
Restricted Subsidiaries thereunder) not to exceed $170.0 million
outstanding at any one time, LESS the aggregate amount of all Net
Proceeds of Asset Sales that have been applied by the Company or any of
its Restricted Subsidiaries since the date of this Indenture to repay
any Indebtedness under a Credit Facility pursuant to Section 4.10;
(2) Existing Indebtedness of the Company and its Restricted Subsidiaries;
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(3) the incurrence by the Issuers and the Note Guarantors of Indebtedness
represented by the Notes and the related Note Guarantees to be issued
on the date of this Indenture and the Exchange Notes and the related
Note Guarantees to be issued pursuant to the Registration Rights
Agreement;
(4) the incurrence by the Company or any of its Restricted Subsidiaries of
Indebtedness represented by Capital Lease Obligations, mortgage
financings or purchase money obligations, in each case, incurred for
the purpose of directly or indirectly financing all or any part of the
purchase price or cost of construction or improvement of property,
plant or equipment used in the business of the Company or such
Restricted Subsidiary (whether through the direct purchase of assets or
Capital Stock of any Person owning such assets), in an aggregate
principal amount, including all Permitted Refinancing Indebtedness
incurred to refund, refinance or replace any Indebtedness incurred
pursuant to this clause (4), not to exceed 6% of Total Tangible Assets
at any time outstanding;
(5) the incurrence by the Company or any of its Restricted Subsidiaries of
Permitted Refinancing Indebtedness in exchange for, or the net proceeds
of which are used to refund, refinance or replace Indebtedness (other
than intercompany Indebtedness) that was permitted by this Indenture to
be incurred under the first paragraph of this covenant or clauses (2),
(3), (4), (5) or (10) of this paragraph;
(6) the incurrence by the Company or any of its Restricted Subsidiaries of
intercompany Indebtedness between or among the Company and any of its
Restricted Subsidiaries; PROVIDED, HOWEVER, that:
(a) if the Issuers or any Note Guarantor is the obligor on such
Indebtedness and the obligee with respect to such Indebtedness
is not an Issuer or a Note Guarantor, such Indebtedness must
be expressly subordinated to all Obligations with respect to
the Notes, in the case of the Issuers, or the Note Guarantee,
in the case of a Note Guarantor; and
(b) (i) any subsequent issuance or transfer of Equity Interests
that results in any such Indebtedness being held by a Person
other than the Company or a Restricted Subsidiary of the
Company and (ii) any sale or other transfer of any such
Indebtedness to a Person that is not either the Company or a
Restricted Subsidiary of the Company; shall be deemed, in each
case, to constitute an incurrence of such Indebtedness by the
Company or such Restricted Subsidiary, as the case may be,
that was not permitted by this clause (6);
(7) the incurrence by the Company or any of its Restricted Subsidiaries of
Hedging Obligations that are incurred for the purpose of fixing or
hedging (a) interest rate risk with respect to any floating rate
Indebtedness that is permitted by the terms of this Indenture to be
outstanding, (b) the value of foreign currencies purchased or received
by the Company and its Restricted Subsidiaries in the ordinary course
of business or (c) commodity prices with respect to commodities used in
the ordinary course of business;
(8) the Guarantees by the Issuers or any of the Note Guarantors of
Indebtedness or any other obligations of the Company or a Restricted
Subsidiary of the Company that is permitted to be incurred by another
provision of this covenant;
(9) the accrual of interest, the accretion or amortization of original
issue discount, the payment of interest on any Indebtedness in the form
of additional Indebtedness with the same terms, and the payment of
dividends on Disqualified Stock in the form of additional shares of the
same class of Disqualified Stock shall not be deemed to be an
incurrence of Indebtedness or an issuance of Disqualified Stock for
purposes of this covenant; PROVIDED, in each such case, that the amount
thereof is included in Consolidated Indebtedness of the Company as
accrued;
(10) the incurrence by the Company or any of its Restricted Subsidiaries of
additional Indebtedness in an aggregate principal amount (or accreted
value, as applicable) at any time outstanding, including all Permitted
Refinancing Indebtedness incurred to refund, refinance or replace any
Indebtedness incurred pursuant to this clause (10), not to exceed $10.0
million;
(11) the incurrence by the Company or any of its Restricted Subsidiaries of
Indebtedness constituting reimbursement obligations with respect to
letters of credit issued in the ordinary course of business,
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including, without limitation, letters of credit in respect of workers'
compensation claims or self-insurance, or other Indebtedness with
respect to reimbursement type obligations regarding workers'
compensation claims or self-insurance;
(12) the incurrence by the Company or any of its Restricted Subsidiaries of
Indebtedness arising from agreements of the Company or such Restricted
Subsidiary providing for indemnification, adjustment of purchase price
or similar obligations incurred or assumed in connection with the
disposition of any business, assets or Capital Stock of a Subsidiary,
other than guarantees of Indebtedness incurred by any Person acquiring
all or any portion of such business, assets or a Subsidiary for the
purpose of financing such acquisition; PROVIDED that the maximum
assumable liability in respect of all such Indebtedness shall at no
time exceed the gross proceeds including noncash proceeds consisting of
Cash Equivalents or Qualified Proceeds (the fair market value of such
noncash proceeds being measured at the time received and without giving
effect to any subsequent changes in value) actually received by the
Company and its Restricted Subsidiaries in connection with such
disposition;
(13) the issuance of preferred stock by any of the Company's Restricted
Subsidiaries issued to the Company or another Restricted Subsidiary;
PROVIDED that any subsequent issuance or transfer of any Equity
Interests or any other event that results in any such Restricted
Subsidiary ceasing to be a Restricted Subsidiary or any other
subsequent transfer of any such shares of preferred stock (except to
the Company or another Restricted Subsidiary) shall be deemed, in each
case, to be an issuance of such shares of preferred stock; and
(14) the incurrence by the Company or any of its Restricted Subsidiaries of
obligations in respect of performance and surety bonds and completion
guarantees provided by the Company or such Restricted Subsidiary in the
ordinary course of business.
For purposes of determining compliance with this Section 4.09, in the
event that an item of proposed Indebtedness meets the criteria of more than one
of the categories of Permitted Debt described in clauses (1) through (14) above,
or is entitled to be incurred pursuant to the first paragraph of this covenant,
the Company shall be permitted to classify such item of Indebtedness on the date
of its incurrence, or later reclassify all or a portion of such item of
Indebtedness, in any manner that complies with this covenant. Indebtedness under
Credit Facilities outstanding on the date on which Notes are first issued and
authenticated under this Indenture shall be deemed to have been incurred on such
date in reliance on the exception provided by clause (1) of the definition of
Permitted Debt.
SECTION 4.10. ASSET SALES.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, consummate an Asset Sale unless:
(1) the Company or such Restricted Subsidiary, as the case may be, receives
consideration at the time of such Asset Sale at least equal to the fair
market value of the assets or Equity Interests issued or sold or
otherwise disposed of;
(2) such fair market value is determined by the Company's Board of
Directors and evidenced by a resolution of the Board of Directors set
forth in an Officers' Certificate delivered to the Trustee; and
(3) at least 75% of the consideration therefor received by the Company or
such Restricted Subsidiary, as the case may be, is in the form of (A)
Cash Equivalents or (B) Qualified Proceeds; PROVIDED that the aggregate
fair market value of Qualified Proceeds (other than Cash Equivalents),
which may be received in consideration for Asset Sales pursuant to this
clause (3)(B) shall not exceed $20.0 million since the date of this
Indenture. For purposes of this provision, each of the following shall
be deemed to be cash:
(a) any liabilities (as shown on the Company's or such Restricted
Subsidiary's most recent balance sheet), of the Company or any
Restricted Subsidiary (other than contingent liabilities and
liabilities that are by their terms subordinated to the Notes
or any Note Guarantee) that are assumed by the transferee of
any such assets pursuant to a customary
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novation agreement that releases the Company or such
Restricted Subsidiary from further liability; and
(b) any securities, notes or other obligations received by the
Company or any such Restricted Subsidiary from such transferee
that are contemporaneously (subject to ordinary settlement
periods) converted by the Company or such Restricted
Subsidiary into cash (to the extent of the cash received in
that conversion).
Within 365 days after the receipt of any Net Proceeds from an Asset
Sale, the Company may apply such Net Proceeds at its option:
(1) to repay Senior Debt and, if the Senior Debt repaid is revolving credit
Indebtedness, to correspondingly reduce commitments with respect
thereto;
(2) to acquire all or substantially all of the assets of, or a majority of
the Voting Stock of, another Permitted Business;
(3) to make a capital expenditure; or
(4) to acquire other long-term assets that are used or useful in a
Permitted Business.
Pending the final application of any such Net Proceeds, the Company may
temporarily reduce revolving credit borrowings or otherwise invest such Net
Proceeds in any manner that is not prohibited by this Indenture.
Any Net Proceeds from Asset Sales that are not applied or invested as
provided in the preceding paragraph shall constitute "EXCESS PROCEEDS." When the
aggregate amount of Excess Proceeds exceeds $10.0 million, the Issuers shall
make an Asset Sale Offer to all Holders of Notes and all holders of other
Indebtedness that is PARI PASSU with the Notes containing provisions similar to
those set forth in this Indenture with respect to offers to purchase or redeem
with the proceeds of sales of assets to purchase the maximum principal amount of
Notes (including Additional Notes) and such other PARI PASSU Indebtedness that
may be purchased out of the Excess Proceeds. The offer price in any Asset Sale
Offer shall be equal to 100% of principal amount plus accrued and unpaid
interest and Liquidated Damages, if any, to the date of purchase, and shall be
payable in cash. If any Excess Proceeds remain after consummation of an Asset
Sale Offer, the Issuers may use such Excess Proceeds for any purpose not
otherwise prohibited by this Indenture. If the aggregate principal amount of
Notes and such other PARI PASSU Indebtedness tendered into such Asset Sale Offer
exceeds the amount of Excess Proceeds, the Trustee shall select the Notes and
such other PARI PASSU Indebtedness to be purchased on a pro rata basis based on
the principal amount of Notes and such other PARI PASSU Indebtedness tendered.
Upon completion of each Asset Sale Offer, the amount of Excess Proceeds shall be
reset at zero.
The Issuers shall comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with each
repurchase of Notes pursuant to an Asset Sale Offer. To the extent that the
provisions of any securities laws or regulations conflict with the Asset Sales
provisions of this Indenture, the Issuers shall comply with the applicable
securities laws and regulations and shall not be deemed to have breached its
obligations under the Asset Sale provisions of this Indenture by virtue of such
conflict.
SECTION 4.11. TRANSACTIONS WITH AFFILIATES.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise
dispose of any of its properties or assets to, or purchase any property or
assets from, or enter into or make or amend any transaction, contract,
agreement, understanding, loan, advance or guarantee with, or for the benefit
of, any Affiliate (each, an "AFFILIATE TRANSACTION"), involving aggregate
payments or consideration in excess of $1.0 million unless:
(1) such Affiliate Transaction is on terms that are not materially less
favorable to the Company or the relevant Restricted Subsidiary than
those that would have been obtained in a comparable transaction by the
Company or such Restricted Subsidiary with an unrelated Person; and
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(2) the Company obtains:
(a) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in
excess of $2.0 million, a resolution of the Board of Directors
set forth in an Officers' Certificate certifying that such
Affiliate Transaction complies with this covenant and that
such Affiliate Transaction has been approved by the Board of
Directors in good faith; and
(b) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in
excess of $5.0 million, an opinion as to the fairness to the
Holders of such Affiliate Transaction from a financial point
of view issued by an accounting, appraisal or investment
banking firm of national standing.
The following items shall not be deemed to be Affiliate Transactions
and, therefore, shall not be subject to the provisions of the prior paragraph:
(1) any employment agreement or other compensation plan or arrangement
entered into by the Company or any of its Restricted Subsidiaries in
the ordinary course of business;
(2) transactions between or among the Company and/or its Restricted
Subsidiaries;
(3) payment of reasonable fees and the provision of reasonable indemnities
to directors, officers or employees of the Company or any of its
Restricted Subsidiaries as determined in good faith by the Board of
Directors of the Company;
(4) sales of Equity Interests (other than Disqualified Stock) to Affiliates
of the Company;
(5) the payment of customary management, consulting and advisory fees and
related expenses made pursuant to any financial advisory, financing,
underwriting or placement agreement or in respect of other investment
banking activities, including, without limitation, in connection with
acquisitions or divestitures and, including without limitation, any
such fees and expenses paid to DLJ Merchant Banking Partners II, L.P.
and its Affiliates; PROVIDED, HOWEVER, that the agreement or
arrangement governing any such fees is approved by the Board of
Directors of the Company or such Restricted Subsidiary;
(6) Restricted Payments that are permitted by Section 4.07;
(7) any agreement as in effect as of the date of this Indenture (including,
without limitation, each of the agreements entered into in connection
with the Transactions) or any amendment hereto (so long as any such
amendment is not disadvantageous to the Holders in any material
respect) and any transactions contemplated thereby;
(8) payments pursuant to the Tax Sharing Agreement as in effect on the date
of this Indenture and as amended thereafter so long as any such
amendment is not disadvantageous to the Holders of Notes in any
material respect;
(9) the existence of, or the performance by the Company or any of its
Restricted Subsidiaries of its obligations under the terms of, any
stockholders agreement (including any registration rights agreement or
purchase agreement related thereto) to which it is a party as of the
date of this Indenture and any similar agreements which it may enter
into thereafter; PROVIDED, HOWEVER, that the existence of, or the
performance by the Company or any of its Restricted Subsidiaries of
obligations under any future amendment to any such existing agreement
or under any similar agreement entered into after the date of this
Indenture shall only be permitted by this clause (9) to the extent that
the terms of any such amendment or new agreement are not otherwise
disadvantageous to the Holders in any material respect; and
(10) transactions with customers, clients, suppliers, or purchasers or
sellers of goods or services, in each case in the ordinary course of
business and otherwise in compliance with the terms of this Indenture
which are fair to the Company or its Restricted Subsidiaries, in the
reasonable determination of the
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Board of Directors of the Company or its Restricted Subsidiaries, in
the reasonable determination of the Board of Directors of the Company
or the senior management thereof, or are on terms at least as favorable
as might reasonably have been obtained at such time from an
unaffiliated party.
SECTION 4.12. LIENS.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, create, incur, assume or otherwise cause or suffer to exist or
become effective any Lien of any kind securing Indebtedness (other than
Permitted Liens) upon any of their property or assets, now owned or hereafter
acquired, unless all payments due under this Indenture and the Notes are secured
on an equal and ratable basis with the obligations so secured until such time as
such obligations are no longer secured by such Lien.
SECTION 4.13. BUSINESS ACTIVITIES.
The Company shall not, and shall not permit any Restricted Subsidiary
to, engage in any business other than Permitted Businesses, except to the extent
as would not be material to the Company and its Restricted Subsidiaries taken as
a whole.
SECTION 4.14. CORPORATE EXISTENCE.
Subject to Article 5 hereof, the Company shall do or cause to be done
all things reasonably necessary to preserve and keep in full force and effect
(i) its corporate existence, and the corporate, partnership or other existence
of each of its Restricted Subsidiaries, in accordance with the respective
organizational documents (as the same may be amended from time to time) of the
Company or any such Restricted Subsidiary and (ii) the rights (charter and
statutory), licenses and franchises of the Company and its Restricted
Subsidiaries; PROVIDED, HOWEVER, that the Company shall not be required to
preserve any such right, license or franchise, or the corporate, partnership or
other existence of any of its Restricted Subsidiaries, if the Board of Directors
shall determine that the preservation thereof is no longer desirable in the
conduct of the business of the Company and its Restricted Subsidiaries, taken as
a whole, and that the loss thereof is not adverse in any material respect to the
Holders of the Notes.
SECTION 4.15. OFFER TO REPURCHASE UPON CHANGE OF CONTROL.
If a Change of Control occurs, unless the Issuers have given notice of
redemption of the Notes pursuant to Section 3.07 each Holder of Notes shall have
the right to require the Issuers to repurchase all or any part (equal to $1,000
or an integral multiple thereof) of that Holder's Notes pursuant to an offer
(the "CHANGE OF CONTROL OFFER") on the terms set forth in this Indenture. In the
Change of Control Offer, the Issuers shall offer a payment in cash (the "CHANGE
OF CONTROL PAYMENT") equal to 101% of the aggregate principal amount of Notes
repurchased plus accrued and unpaid interest and Liquidated Damages, if any,
thereon, to the date of purchase (subject to the right of Holders of record on
the relevant record date to receive interest due on the relevant interest
payment date). Within thirty days following any Change of Control, the Issuers
shall mail a notice to each Holder describing the transaction or transactions
that constitute the Change of Control and offering to repurchase Notes on the
date specified in such notice (the "CHANGE OF CONTROL PAYMENT DATE"), which date
shall be no earlier than 30 days and no later than 60 days from the date such
notice is mailed, pursuant to the procedures required by this Indenture and
described in such notice. The Issuers shall comply with the requirements of Rule
14e-1 under the Exchange Act and any other securities laws and regulations
thereunder to the extent such laws and regulations are applicable in connection
with the repurchase of the Notes as a result of a Change of Control. To the
extent that the provisions of any securities laws or regulations conflict with
the Change of Control provisions of this Indenture, the Issuers shall comply
with the applicable securities laws and regulations and shall not be deemed to
have breached its obligations under the Change of Control provisions of this
Indenture by virtue of such conflict.
On the Change of Control Payment Date, the Issuers shall, to the extent
lawful:
(1) accept for payment all Notes or portions thereof properly tendered
pursuant to the Change of Control Offer;
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(2) deposit with the Paying Agent an amount equal to the Change of Control
Payment in respect of all Notes or portions thereof so tendered; and
(3) deliver or cause to be delivered to the Trustee for cancellation the
Notes so accepted together with an Officers' Certificate from each
Issuer stating the aggregate principal amount of Notes or portions
thereof being purchased by the Issuers.
The Paying Agent shall promptly mail to each Holder of Notes so
tendered the Change of Control Payment for such Notes, and the Trustee shall
promptly authenticate and mail (or cause to be transferred by book entry) to
each Holder a new Note equal in principal amount to any unpurchased portion of
the Notes surrendered, if any; PROVIDED that each such new note shall be in a
principal amount of $1,000 or an integral multiple thereof.
Prior to complying with any of the provisions of this "Change of
Control" covenant, but in any event within 90 days following a Change of
Control, the Issuers shall either repay all outstanding Senior Debt or obtain
the requisite consents, if any, under all agreements governing outstanding
Senior Debt to permit the repurchase of Notes required by this covenant. The
Issuers shall publicly announce the results of the Change of Control Offer on or
as soon as practicable after the Change of Control Payment Date.
The provisions described above that require the Issuers to make a
Change of Control Offer following a Change of Control shall be applicable
regardless of whether any other provisions of this Indenture are applicable.
Except as described above with respect to a Change of Control, this Indenture
does not contain provisions that permit the Holders of the Notes to require that
the Issuers repurchase or redeem the Notes in the event of a takeover,
recapitalization or similar transaction.
The Issuers shall not be required to make a Change of Control Offer
upon a Change of Control if a third party makes the Change of Control Offer in
the manner, at the times and otherwise in compliance with the requirements set
forth in this Section 4.15 hereof and all other provisions of this Indenture
applicable to a Change of Control offer made by the Issuers and purchases all
Notes validly tendered and not withdrawn under such Change of Control Offer.
SECTION 4.16. NO SENIOR SUBORDINATED DEBT.
Notwithstanding the provisions of Section 4.09 hereof, (i) the Issuers
shall not incur, create, issue, assume, guarantee or otherwise become liable for
any Indebtedness that is subordinate or junior in right of payment to any
Indebtedness of the Issuers and senior in any respect in right of payment to the
Notes, and (ii) no Note Guarantor shall incur, create, issue, assume, guarantee
or otherwise become liable for any Indebtedness that is subordinated or junior
in right of payment to any Indebtedness of such Note Guarantor and senior in any
respect in right of payment to such Note Guarantor's Note Guarantees.
SECTION 4.17. PAYMENTS FOR CONSENT.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, pay or cause to be paid any
consideration to or for the benefit of any Holder of Notes for or as an
inducement to any consent, waiver or amendment of any of the terms or provisions
of this Indenture or the Notes unless such consideration is offered to be paid
or is paid to all Holders of the Notes that consent, waive or agree to amend in
the time frame set forth in the solicitation documents relating to such consent,
waiver or agreement.
SECTION 4.18. ADDITIONAL NOTE GUARANTEES.
If the Company or any of its Restricted Subsidiaries shall acquire or
create another Domestic Subsidiary after the date of this Indenture, then that
newly acquired or created Domestic Subsidiary shall become a Note Guarantor and
execute a supplemental indenture and deliver an Opinion of Counsel to the
Trustee within ten Business Days of the date on which it was acquired or
created; PROVIDED that all Subsidiaries that have been properly designated as
Unrestricted Subsidiaries in accordance with this Indenture shall not become
Note Guarantors for so long as they continue to constitute Unrestricted
Subsidiaries. The form of such Note Guarantee is attached as Exhibit E hereto.
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ARTICLE 5.
SUCCESSORS
SECTION 5.01. MERGER, CONSOLIDATION, OR SALE OF ASSETS.
An Issuer shall not, directly or indirectly: (1) consolidate or merge
with or into another Person (whether or not such Issuer is the surviving
corporation); or (2) sell, assign, transfer, convey, lease or otherwise dispose
of all or substantially all of the properties or assets of any such Issuer and
its Restricted Subsidiaries taken as a whole, in one or more related
transactions, to another Person; unless:
(1) either: (a) an Issuer is the surviving corporation; or (b) the Person
formed by or surviving any such consolidation or merger (if other than
an Issuer) or to which such sale, assignment, transfer, conveyance,
lease or other disposition shall have been made is a corporation
organized or existing under the laws of the United States, any state
thereof or the District of Columbia (such Issuer or Person, as the case
may be, being herein referred to as the "SUCCESSOR COMPANY");
(2) the Successor Company (if other than any of the Issuers) expressly
assumes all the obligations of such Issuer under the Notes, this
Indenture and the Registration Rights Agreement pursuant to agreements
reasonably satisfactory to the Trustee;
(3) immediately after such transaction no Default or Event of Default
exists; and
(4) such Issuer or the Person formed by or surviving any such consolidation
or merger (if other than any of the Issuers), or to which such sale,
assignment, transfer, conveyance, lease or other disposition shall have
been made, and its Restricted Subsidiaries shall, on the date of such
transaction after giving pro forma effect thereto and any related
financing transactions as if the same had occurred at the beginning of
the applicable four-quarter period, have a Debt to EBITDA Ratio equal
to or greater than the Debt to EBITDA Ratio for the Company and its
Restricted Subsidiaries immediately prior to such transaction.
In addition, an Issuer may not, directly or indirectly, lease all or
substantially all of its properties or assets, in one or more related
transactions, to any other Person. The provisions of this Section 5.01 shall not
be applicable to a sale, assignment, transfer, conveyance or other disposition
of assets between or among the Issuers and any Note Guarantor.
Notwithstanding the foregoing, any Issuer may merge with an Affiliate
incorporated or organized solely for the purpose of reincorporating or
reorganizing such Issuer in another jurisdiction to realize tax or other
benefits and may, through merger or otherwise, become a limited liability
company; PROVIDED, HOWEVER, that at all times at least one Issuer shall be a
corporation duly formed under the laws of the United States or any state thereof
or the District of Columbia.
SECTION 5.02. SUCCESSOR CORPORATION SUBSTITUTED.
Upon any consolidation or merger, or any sale, assignment, transfer,
lease, conveyance or other disposition of all or substantially all of the assets
of an Issuer in accordance with Section 5.01 hereof, the successor corporation
formed by such consolidation or into or with which such Issuer is merged or to
which such sale, assignment, transfer, lease, conveyance or other disposition is
made shall succeed to, and be substituted for (so that from and after the date
of such consolidation, merger, sale, lease, conveyance or other disposition, the
provisions of this Indenture referring to an "Issuer" shall refer instead to the
successor corporation and not to such Issuer), and may exercise every right and
power of an Issuer under this Indenture with the same effect as if such
successor Person had been named as an Issuer herein; PROVIDED, HOWEVER, that a
predecessor Issuer shall not be relieved from the obligation to pay the
principal of and interest on the Notes except in the case of a sale, assignment,
transfer, conveyance or other disposition of all of such Issuer's assets that
meets the requirements of Section 5.01 hereof.
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ARTICLE 6.
DEFAULTS AND REMEDIES
SECTION 6.01. EVENTS OF DEFAULT.
An "Event of Default" occurs if:
(a) the Issuers default in the payment when due of interest on, or
Liquidated Damages with respect to, the Notes and such default continues for a
period of 30 days;
(b) the Issuers default in the payment when due of principal of,
or premium, if any, on the Notes when the same becomes due and payable at
maturity, upon redemption (including in connection with an offer to purchase) or
otherwise;
(c) the Company or any of its Subsidiaries fails to comply with
any of the provisions of Section 4.07, 4.09, 4.10 or 5.01 hereof for 30 days
after written notice to the Company by the Trustee or Holders of at least 25% in
aggregate principal amount of the Notes (including Additional Notes, if any)
then outstanding voting as a single class;
(d) the Company or any of its Subsidiaries fails to observe or
perform any other agreement in this Indenture, the Notes for 60 days after
written notice to the Company by the Trustee or the Holders of at least 25% in
aggregate principal amount of the Notes (including Additional Notes, if any)
then outstanding voting as a single class;
(e) a default occurs under any mortgage, indenture or instrument
under which there is issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by the Company or any of its Restricted
Subsidiaries or the payment of which is guaranteed by the Company or any of its
Restricted Subsidiaries (other than Indebtedness owed to the Company or one of
its Restricted Subsidiaries), whether such Indebtedness or guarantee now exists,
or is created after the date of this Indenture, which default either (a) is
caused by a failure to pay such Indebtedness at its stated final maturity (after
giving effect to any applicable grace period provided in such Indebtedness) (a
"PAYMENT DEFAULT") or (b) results in the acceleration of such Indebtedness prior
to its stated final maturity and, in each case, the principal amount of such
Indebtedness, together with the principal amount of any other such Indebtedness
under which there has been a Payment Default or the maturity of which has been
so accelerated, aggregates $5.5 million or more;
(f) a final non-appealable judgment or final non-appealable
judgments for the payment of money are entered by a court or courts of competent
jurisdiction against the Company or any of its Restricted Subsidiaries (net of
any amounts with respect to which a reputable and creditworthy insurance company
has acknowledged liability in writing) and such judgment or judgments remain
unpaid or undischarged for a period (during which execution shall not be
effectively stayed) of 60 days after having been rendered, PROVIDED that the
aggregate of all such judgments exceeds $5.5 million;
(g) the Issuers or any Restricted Subsidiaries that is a
Significant Subsidiary or any group of Restricted Subsidiaries that, taken as a
whole, would constitute a Significant Subsidiary pursuant to or within the
meaning of Bankruptcy Law:
(i) commences a voluntary case,
(ii) consents to the entry of an order for relief against
it in an involuntary case,
(iii) consents to the appointment of a custodian (as
defined under Bankruptcy Law) of it or for all or substantially all of
its property, or
(iv) makes a general assignment for the benefit of its
creditors,
(h) a court of competent jurisdiction enters an order or decree
under any Bankruptcy Law that:
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(i) is for relief against the Issuers or any Restricted
Subsidiary that is a Significant Subsidiary or any group of Restricted
Subsidiaries that, taken as a whole, would constitute a Significant
Subsidiary in an involuntary case;
(ii) appoints a custodian (as defined under Bankruptcy
Law) of the Issuers or any Restricted Subsidiary that is a Significant
Subsidiary or any group of Subsidiaries that, taken as a whole, would
constitute a Significant Subsidiary or for all or substantially all of
the property of the Issuer or any Restricted Subsidiary that is a
Significant Subsidiary or any group of Restricted Subsidiaries that,
taken as a whole, would constitute a Significant Subsidiary; or
(iii) orders the liquidation of the Issuers or any
Restricted Subsidiary that is a Significant Subsidiary or any group of
Restricted Subsidiaries that, taken as a whole, would constitute a
Significant Subsidiary;
and the order or decree remains unstayed and in effect for 60 consecutive days;
or
(i) except as permitted by this Indenture, any Note Guarantee is
held in any judicial proceeding to be unenforceable or invalid or shall cease
for any reason to be in full force and effect or any Note Guarantor, or any
Person acting on behalf of any Note Guarantor, shall deny or disaffirm its
obligations under such Note Guarantor's Note Guarantee.
SECTION 6.02. ACCELERATION.
If any Event of Default (other than an Event of Default specified in
clause (g) or (h) of Section 6.01 hereof with respect to the Company, any
Restricted Subsidiary that is a Significant Subsidiary or any group of
Restricted Subsidiaries that, taken as a whole, would constitute a Significant
Subsidiary) occurs and is continuing, the Trustee or the Holders of at least 25%
in principal amount of the then outstanding Notes may declare all the Notes to
be due and payable immediately; PROVIDED, that so long as any Indebtedness
permitted to be incurred pursuant to the Credit Agreement shall be outstanding,
such acceleration shall not be effective until the earlier of: (1) an
acceleration of any such Indebtedness under the Credit Agreement; or (2) five
Business Days after receipt by the Issuers and the administrative agent under
the Credit Agreement of written notice of that acceleration. Upon any such
declaration, the Notes shall become due and payable immediately. Notwithstanding
the foregoing, if an Event of Default specified in clause (g) or (h) of Section
6.01 hereof occurs with respect to the Company, any Restricted Subsidiary that
is a Significant Subsidiary or any group of Restricted Subsidiaries that, taken
as a whole, would constitute a Significant Subsidiary, all outstanding Notes
shall be due and payable immediately without further action or notice. The
Holders of a majority in aggregate principal amount of the then outstanding
Notes by written notice to the Trustee may on behalf of all of the Holders
rescind an acceleration and its consequences if the rescission would not
conflict with any judgment or decree and if all existing Events of Default
(except nonpayment of principal, interest or premium that has become due solely
because of the acceleration) have been cured or waived.
SECTION 6.03. OTHER REMEDIES.
If an Event of Default occurs and is continuing, the Trustee may pursue
any available remedy to collect the payment of principal, premium, if any, and
interest on the Notes or to enforce the performance of any provision of the
Notes or this Indenture.
The Trustee may maintain a proceeding even if it does not possess any
of the Notes or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Holder of a Note in exercising any right or
remedy accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. All remedies are
cumulative to the extent permitted by law.
SECTION 6.04. WAIVER OF PAST DEFAULTS.
Holders of not less than a majority in aggregate principal amount of
the then outstanding Notes by notice to the Trustee may on behalf of the Holders
of all of the Notes waive an existing Default or Event of Default and its
consequences hereunder, except a continuing Default or Event of Default in the
payment of
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the principal of, premium and Liquidated Damages, if any, or interest on, the
Notes (including in connection with an offer to purchase) (PROVIDED, HOWEVER,
that the Holders of a majority in aggregate principal amount of the then
outstanding Notes may rescind an acceleration and its consequences, including
any related payment default that resulted from such acceleration). Upon any such
waiver, such Default shall cease to exist, and any Event of Default arising
therefrom shall be deemed to have been cured for every purpose of this
Indenture; but no such waiver shall extend to any subsequent or other Default or
impair any right consequent thereon.
SECTION 6.05. CONTROL BY MAJORITY.
Holders of a majority in aggregate principal amount of the then
outstanding Notes may direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee or exercising any
trust or power conferred on it. However, the Trustee may refuse to follow any
direction that conflicts with law or this Indenture that the Trustee determines
may be unduly prejudicial to the rights of other Holders of Notes or that may
involve the Trustee in personal liability.
SECTION 6.06. LIMITATION ON SUITS.
A Holder of a Note may pursue a remedy with respect to this Indenture
or the Notes only if:
(a) the Holder of a Note gives to the Trustee written notice of a
continuing Event of Default;
(b) the Holders of at least 25% in principal amount of the then
outstanding Notes make a written request to the Trustee to pursue the remedy;
(c) such Holder of a Note or Holders of Notes offer and, if
requested, provide to the Trustee indemnity satisfactory to the Trustee against
any loss, liability or expense;
(d) the Trustee does not comply with the request within 60 days
after receipt of the request and the offer and, if requested, the provision of
indemnity; and
(e) during such 60-day period the Holders of a majority in
principal amount of the then outstanding Notes do not give the Trustee a
direction inconsistent with the request.
A Holder of a Note may not use this Indenture to prejudice the rights
of another Holder of a Note or to obtain a preference or priority over another
Holder of a Note.
SECTION 6.07. RIGHTS OF HOLDERS OF NOTES TO RECEIVE PAYMENT.
Notwithstanding any other provision of this Indenture, the right of any
Holder of a Note to receive payment of principal, premium and Liquidated
Damages, if any, and interest on the Note, on or after the respective due dates
expressed in the Note (including in connection with an offer to purchase), or to
bring suit for the enforcement of any such payment on or after such respective
dates, shall not be impaired or affected without the consent of such Holder.
SECTION 6.08. COLLECTION SUIT BY TRUSTEE.
If an Event of Default specified in Section 6.01(a) or (b) occurs and
is continuing, the Trustee is authorized to recover judgment in its own name and
as trustee of an express trust against the Issuers for the whole amount of
principal of, premium and Liquidated Damages, if any, and interest remaining
unpaid on the Notes and interest on overdue principal and, to the extent lawful,
interest and such further amount as shall be sufficient to cover the costs and
expenses of collection, including the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel.
SECTION 6.09. TRUSTEE MAY FILE PROOFS OF CLAIM.
The Trustee is authorized to file such proofs of claim and other papers
or documents as may be necessary or advisable in order to have the claims of the
Trustee (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel) and the
Holders
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of the Notes allowed in any judicial proceedings relative to the Issuers (or any
other obligor upon the Notes), its creditors or its property and shall be
entitled and empowered to collect, receive and distribute any money or other
property payable or deliverable on any such claims and any custodian in any such
judicial proceeding is hereby authorized by each Holder to make such payments to
the Trustee, and in the event that the Trustee shall consent to the making of
such payments directly to the Holders, to pay to the Trustee any amount due to
it for the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel, and any other amounts due the Trustee under
Section 7.07 hereof. To the extent that the payment of any such compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel, and
any other amounts due the Trustee under Section 7.07 hereof out of the estate in
any such proceeding, shall be denied for any reason, payment of the same shall
be secured by a Lien on, and shall be paid out of, any and all distributions,
dividends, money, securities and other properties that the Holders may be
entitled to receive in such proceeding whether in liquidation or under any plan
of reorganization or arrangement or otherwise. Nothing herein contained shall be
deemed to authorize the Trustee to authorize or consent to or accept or adopt on
behalf of any Holder any plan of reorganization, arrangement, adjustment or
composition affecting the Notes or the rights of any Holder, or to authorize the
Trustee to vote in respect of the claim of any Holder in any such proceeding.
SECTION 6.10. PRIORITIES.
If the Trustee collects any money pursuant to this Article, it shall
pay out the money in the following order:
FIRST: to the Trustee, its agents and attorneys for amounts
due under Section 7.07 hereof, including payment of all compensation,
expense and liabilities incurred, and all advances made, by the Trustee
and the costs and expenses of collection;
SECOND: to holders of Senior Debt of any Issuer to the extent
required by Article 10;
THIRD: to Holders of Notes for amounts due and unpaid on the
Notes for principal, premium and Liquidated Damages, if any, and
interest, ratably, without preference or priority of any kind,
according to the amounts due and payable on the Notes for principal,
premium and Liquidated Damages, if any and interest, respectively; and
FOURTH: to the Issuers or to such party as a court of
competent jurisdiction shall direct.
The Trustee may fix a record date and payment date for any payment to
Holders of Notes pursuant to this Section 6.10.
SECTION 6.11. UNDERTAKING FOR COSTS.
In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted by
it as a Trustee, a court in its discretion may require the filing by any party
litigant in the suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in the suit, having due regard to
the merits and good faith of the claims or defenses made by the party litigant.
This Section does not apply to a suit by the Trustee, a suit by a Holder of a
Note pursuant to Section 6.07 hereof, or a suit by Holders of more than 10% in
principal amount of the then outstanding Notes.
ARTICLE 7.
TRUSTEE
SECTION 7.01. DUTIES OF TRUSTEE.
(a) If an Event of Default has occurred and is continuing, the
Trustee shall exercise such of the rights and powers vested in it by this
Indenture, and use the same degree of care and skill in its exercise, as a
prudent person would exercise or use under the circumstances in the conduct of
his own affairs.
(b) Except during the continuance of an Event of Default:
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(i) the duties of the Trustee shall be determined solely
by the express provisions of this Indenture and the Trustee need
perform only those duties that are specifically set forth in this
Indenture and no others, and no implied covenants or obligations shall
be read into this Indenture against the Trustee; and
(ii) in the absence of bad faith on its part, the Trustee
may conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Trustee and conforming to the requirements of
this Indenture. However, the Trustee shall examine the certificates and
opinions to determine whether or not they conform to the requirements
of this Indenture.
(c) The Trustee may not be relieved from liabilities for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(i) this paragraph does not limit the effect of paragraph
(b) of this Section;
(ii) the Trustee shall not be liable for any error of
judgment made in good faith by a Responsible Officer, unless it is
proved that the Trustee was negligent in ascertaining the pertinent
facts; and
(iii) the Trustee shall not be liable with respect to any
action it takes or omits to take in good faith in accordance with a
direction received by it pursuant to Section 6.05 hereof.
(d) Whether or not therein expressly so provided, every provision
of this Indenture that in any way relates to the Trustee is subject to
paragraphs (a), (b), and (c) of this Section.
(e) No provision of this Indenture shall require the Trustee to
expend or risk its own funds or incur any liability. The Trustee shall be under
no obligation to exercise any of its rights and powers under this Indenture at
the request of any Holders, unless such Holder shall have offered to the Trustee
security and indemnity satisfactory to it against any loss, liability or
expense.
(f) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree in writing with the Issuers.
Money held in trust by the Trustee need not be segregated from other funds
except to the extent required by law.
SECTION 7.02. RIGHTS OF TRUSTEE.
(a) The Trustee may conclusively rely upon any document believed
by it to be genuine and to have been signed or presented by the proper Person.
The Trustee need not investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may
require an Officers' Certificate or an Opinion of Counsel or both. The Trustee
shall not be liable for any action it takes or omits to take in good faith in
reliance on such Officers' Certificate or Opinion of Counsel. The Trustee may
consult with counsel and the advice of such counsel or any Opinion of Counsel
shall be full and complete authorization and protection from liability in
respect of any action taken, suffered or omitted by it hereunder in good faith
and in reliance thereon.
(c) The Trustee may act through its attorneys, agents, custodians
or nominees and shall not be responsible for the misconduct or negligence of any
attorney, agent, custodian or nominee appointed with due care.
(d) The Trustee shall not be liable for any action it takes or
omits to take in good faith that it believes to be authorized or within the
rights or powers conferred upon it by this Indenture.
(e) Unless otherwise specifically provided in this Indenture, any
demand, request, direction or notice from the Issuers shall be sufficient if
signed by an Officer of the Issuers.
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(f) The Trustee shall be under no obligation to exercise any of
the rights or powers vested in it by this Indenture at the request or direction
of any of the Holders unless such Holders shall have offered to the Trustee
security or indemnity reasonably satisfactory to it against the costs, expenses
and liabilities that might be incurred by it in compliance with such request or
direction.
SECTION 7.03. INDIVIDUAL RIGHTS OF TRUSTEE.
The Trustee in its individual or any other capacity may become the
owner or pledgee of Notes and may otherwise deal with the Issuers or any
Affiliate of the Issuers with the same rights it would have if it were not
Trustee. However, in the event that the Trustee acquires any conflicting
interest it must eliminate such conflict within 90 days, apply to the SEC for
permission to continue as trustee or resign. Any Agent may do the same with like
rights and duties. The Trustee is also subject to Sections 7.10 and 7.11 hereof.
SECTION 7.04. TRUSTEE'S DISCLAIMER.
The Trustee shall not be responsible for and makes no representation as
to the validity or adequacy of this Indenture or the Notes, it shall not be
accountable for the Issuers' use of the proceeds from the Notes or any money
paid to the Issuers or upon the Issuers' direction under any provision of this
Indenture, it shall not be responsible for the use or application of any money
received by any Paying Agent other than the Trustee, and it shall not be
responsible for any statement or recital herein or any statement in the Notes or
any other document in connection with the sale of the Notes or pursuant to this
Indenture other than its certificate of authentication.
SECTION 7.05. NOTICE OF DEFAULTS.
If a Default or Event of Default occurs and is continuing and if it is
actually known to a Responsible Officer of the Trustee, the Trustee shall mail
to Holders of Notes a notice of the Default or Event of Default within 90 days
after it occurs. Except in the case of a Default or Event of Default in payment
of principal of, premium or Liquidated Damage, if any, or interest on any Note,
the Trustee may withhold the notice if and so long as a committee of its
Responsible Officers in good faith determines that withholding the notice is in
the interests of the Holders of the Notes.
SECTION 7.06. REPORTS BY TRUSTEE TO HOLDERS OF THE NOTES.
Within 60 days after each May 15 beginning with the May 15 following
the date of this Indenture, and for so long as Notes remain outstanding, the
Trustee shall mail to the Holders of the Notes a brief report dated as of such
reporting date that complies with TIA Section 313(a) (but if no event described
in TIA Section 313(a) has occurred within the twelve months preceding the
reporting date, no report need be transmitted). The Trustee also shall comply
with TIA Section 313(b)(2). The Trustee shall also transmit by mail all reports
as required by TIA Section 313(c).
A copy of each report at the time of its mailing to the Holders of
Notes shall be mailed to the Issuers and filed with the SEC and each stock
exchange (if any) on which the Notes are listed in accordance with TIA Section
313(d). The Issuers shall promptly notify the Trustee in writing when the Notes
are listed on any stock exchange.
SECTION 7.07. COMPENSATION AND INDEMNITY.
The Issuers and the Note Guarantors shall pay to the Trustee from time
to time reasonable compensation for its acceptance of this Indenture and
services hereunder. The Trustee's compensation shall not be limited by any law
on compensation of a trustee of an express trust. The Issuers and the Note
Guarantors shall reimburse the Trustee promptly upon request for all reasonable
disbursements, advances and expenses incurred or made by it in addition to the
compensation for its services. Such expenses shall include the reasonable
compensation, disbursements and expenses of the Trustee's agents and counsel.
The Issuers and the Note Guarantors shall indemnify the Trustee and its
officers, directors, employees and agents against any and all losses,
liabilities or expenses incurred by it arising out of or in connection with the
acceptance or administration of its duties under this Indenture, including the
costs and expenses of enforcing this Indenture against the Issuers and the Note
Guarantors (including this Section 7.07)
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and defending itself against any claim (whether asserted by the Issuers or any
Holder or any other person) or liability in connection with the exercise or
performance of any of its powers or duties hereunder, except to the extent any
such loss, liability or expense may be attributable to its negligence or bad
faith. The Trustee shall notify the Issuers and the Note Guarantors promptly of
any claim for which it may seek indemnity. Failure by the Trustee to so notify
the Issuers shall not relieve the Issuers of their respective obligations
hereunder. The Issuers shall defend the claim and the Trustee shall cooperate in
the defense. The Trustee may have separate counsel and the Issuers shall pay the
reasonable fees and expenses of such counsel. The Issuers and the Note
Guarantors need not pay for any settlement made without its consent, which
consent shall not be unreasonably withheld.
The obligations of the Issuers and the Note Guarantors under this
Section 7.07 shall survive the satisfaction and discharge of this Indenture or
the earlier resignation or removal of the Trustee.
To secure the Issuers' and the Note Guarantors' payment obligations in
this Section, the Trustee shall have a Lien prior to the Notes on all money or
property held or collected by the Trustee, except that held in trust to pay
principal and interest on particular Notes. Such Lien shall survive the
satisfaction and discharge of this Indenture.
When the Trustee incurs expenses or renders services after an Event of
Default specified in Section 6.01(g) or (h) hereof occurs, the expenses and the
compensation for the services (including the fees and expenses of its agents and
counsel) are intended to constitute expenses of administration under any
Bankruptcy Law.
The Trustee shall comply with the provisions of TIA Section 313(b)(2)
to the extent applicable.
SECTION 7.08. REPLACEMENT OF TRUSTEE.
A resignation or removal of the Trustee and appointment of a successor
Trustee shall become effective only upon the successor Trustee's acceptance of
appointment as provided in this Section.
The Trustee may resign in writing at any time and be discharged from
the trust hereby created by so notifying the Issuers. The Holders of a majority
in principal amount of the then outstanding Notes may remove the Trustee by so
notifying the Trustee and the Issuers in writing. The Issuers may remove the
Trustee if:
(a) the Trustee fails to comply with Section 7.10 hereof;
(b) the Trustee is adjudged a bankrupt or an insolvent or an order
for relief is entered with respect to the Trustee under any Bankruptcy Law;
(c) a custodian or public officer takes charge of the Trustee or
its property; or
(d) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Issuers shall promptly appoint a successor
Trustee. Within one year after the successor Trustee takes office, the Holders
of a majority in principal amount of the then outstanding Notes may appoint a
successor Trustee to replace the successor Trustee appointed by the Issuers.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Issuers, or
the Holders of at least 10% in principal amount of the then outstanding Notes
may petition any court of competent jurisdiction for the appointment of a
successor Trustee.
If the Trustee fails to comply with Section 7.10, unless the Trustee's
duty to resign is stayed as provided in TIA Section 310(b), after written
request by any Holder who has been a bona fide Holder for at least six months,
such Holder may petition any court of competent jurisdiction for the removal of
the Trustee and the appointment of a successor Trustee.
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A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Issuers. Thereupon, the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
succession to Holders. The retiring Trustee shall promptly transfer all property
held by it as Trustee to the successor Trustee, PROVIDED all sums owing to the
Trustee hereunder have been paid and subject to the Lien provided for in Section
7.07 hereof. Notwithstanding replacement of the Trustee pursuant to this Section
7.08, the Issuers' obligations under Section 7.07 hereof shall continue for the
benefit of the retiring Trustee.
SECTION 7.09. SUCCESSOR TRUSTEE BY MERGER, ETC.
If the Trustee consolidates, merges or converts into, or transfers all
or substantially all of its corporate trust business to, another corporation,
the successor corporation without any further act shall be the successor
Trustee.
SECTION 7.10. ELIGIBILITY; DISQUALIFICATION.
There shall at all times be a Trustee hereunder that is a corporation
organized and doing business under the laws of the United States of America or
of any state thereof that is authorized under such laws to exercise corporate
trust power, that is subject to supervision or examination by federal or state
authorities and that has a combined capital and surplus of at least $100,000,000
as set forth in its most recent published annual report of condition.
This Indenture shall always have a Trustee who satisfies the
requirements of TIA Section 310(a)(1), (2) and (5). The Trustee is subject to
TIA Section 310(b).
SECTION 7.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY.
The Trustee is subject to TIA Section 311(a), excluding any creditor
relationship listed in TIA Section 311(b). A Trustee who has resigned or been
removed shall be subject to TIA Section 311(a) to the extent indicated therein.
ARTICLE 8.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
SECTION 8.01. OPTION TO EFFECT LEGAL DEFEASANCE OR COVENANT DEFEASANCE.
The Issuers may, at the option of their Boards of Directors evidenced
by resolutions set forth in an Officers' Certificate from each Issuer, at any
time, elect to have either Section 8.02 or 8.03 hereof be applied to all
outstanding Notes upon compliance with the conditions set forth below in this
Article 8.
SECTION 8.02. LEGAL DEFEASANCE AND DISCHARGE.
Upon the Issuers' exercise under Section 8.01 hereof of the option
applicable to this Section 8.02, the Issuers shall, subject to the satisfaction
of the conditions set forth in Section 8.04 hereof, be deemed to have been
discharged from its obligations with respect to all outstanding Notes on the
date the conditions set forth below are satisfied (hereinafter, "LEGAL
DEFEASANCE"). For this purpose, Legal Defeasance means that the Issuers shall be
deemed to have paid and discharged the entire Indebtedness represented by the
outstanding Notes, which shall thereafter be deemed to be "outstanding" only for
the purposes of Section 8.05 hereof and the other Sections of this Indenture
referred to in (a) and (b) below, and to have satisfied all its other
obligations under such Notes and this Indenture (and the Trustee, on written
demand of and at the expense of the Issuers, shall execute proper instruments
acknowledging the same), except for the following provisions which shall survive
until otherwise terminated or discharged hereunder: (a) the rights of Holders of
outstanding Notes to receive solely from the trust fund described in Section
8.04 hereof, and as more fully set forth in such Section, payments in respect of
the principal of, premium, if any, and interest on such Notes when such payments
are due, (b) the Issuers' obligations with respect to such Notes under Article 2
and Section 4.02 hereof, (c) the rights, powers, trusts, duties and immunities
of the Trustee hereunder and the Issuers' obligations in connection therewith
and (d) this Article 8. Subject to compliance with this Article
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8, the Issuers may exercise its option under this Section 8.02 notwithstanding
the prior exercise of its option under Section 8.03 hereof.
SECTION 8.03. COVENANT DEFEASANCE.
Upon the Issuers' exercise under Section 8.01 hereof of the option
applicable to this Section 8.03, the Issuers shall, subject to the satisfaction
of the conditions set forth in Section 8.04 hereof, be released from its
obligations under the covenants contained in Sections 4.03, 4.07, 4.08, 4.09,
4.10, 4.11, 4.12, 4.13, 4.15, 4.16, 4.17 and 4.18 hereof and clause (4) of
Section 5.01 hereof with respect to the outstanding Notes on and after the date
the conditions set forth in Section 8.04 are satisfied (hereinafter, "COVENANT
DEFEASANCE"), and the Notes shall thereafter be deemed not "outstanding" for the
purposes of any direction, waiver, consent or declaration or act of Holders (and
the consequences of any thereof) in connection with such covenants, but shall
continue to be deemed "outstanding" for all other purposes hereunder (it being
understood that such Notes shall not be deemed outstanding for accounting
purposes). For this purpose, Covenant Defeasance means that, with respect to the
outstanding Notes, the Issuers may omit to comply with and shall have no
liability in respect of any term, condition or limitation set forth in any such
covenant, whether directly or indirectly, by reason of any reference elsewhere
herein to any such covenant or by reason of any reference in any such covenant
to any other provision herein or in any other document and such omission to
comply shall not constitute a Default or an Event of Default under Section 6.01
hereof, but, except as specified above, the remainder of this Indenture and such
Notes shall be unaffected thereby. In addition, upon the Issuers' exercise under
Section 8.01 hereof of the option applicable to this Section 8.03 hereof,
subject to the satisfaction of the conditions set forth in Section 8.04 hereof,
Sections 6.01(c) through 6.01(f), 6.01(g) (with respect to Significant
Subsidiaries of any of the Issuers only) and 6.01(h) (with respect to
Significant Subsidiaries of any of the Issuers only) hereof shall not constitute
Events of Default.
SECTION 8.04. CONDITIONS TO LEGAL OR COVENANT DEFEASANCE.
The following shall be the conditions to the application of either
Section 8.02 or 8.03 hereof to the outstanding Notes:
In order to exercise either Legal Defeasance or Covenant Defeasance:
(a) the Issuers must irrevocably deposit with the Trustee, in
trust, for the benefit of the Holders, cash in United States dollars,
non-callable Government Securities, or a combination thereof, in such amounts as
will be sufficient, in the opinion of a nationally recognized firm of
independent public accountants, to pay the principal of, premium and Liquidated
Damages, if any, and interest on the outstanding Notes on the stated date for
payment thereof or on the applicable redemption date, as the case may be;
(b) in the case of an election under Section 8.02 hereof, the
Issuers shall have delivered to the Trustee an Opinion of Counsel in the United
States reasonably acceptable to the Trustee confirming that, subject to
customary assumptions and exclusions, (A) the Issuers have received from, or
there has been published by, the Internal Revenue Service a ruling or (B) since
the date of this Indenture, there has been a change in the applicable federal
income tax law, in either case to the effect that, and based thereon such
Opinion of Counsel shall confirm that, subject to customary assumptions and
exclusions, the Holders of the outstanding Notes will not recognize income, gain
or loss for federal income tax purposes as a result of such Legal Defeasance and
will be subject to federal income tax on the same amounts, in the same manner
and at the same times as would have been the case if such Legal Defeasance had
not occurred;
(c) in the case of an election under Section 8.03 hereof, the
Issuers shall have delivered to the Trustee an Opinion of Counsel reasonably
acceptable to the Trustee confirming that the Holders of the outstanding Notes
will not recognize income, gain or loss for federal income tax purposes as a
result of such Covenant Defeasance and will be subject to federal income tax on
the same amounts, in the same manner and at the same times as would have been
the case if such Covenant Defeasance had not occurred;
(d) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit (other than a Default or Event of Default
resulting from the incurrence of Indebtedness all or a portion of the proceeds
of which will be used to defease the Notes pursuant to this Article 8
concurrently with such incurrence) or insofar as Sections 6.01(g) or 6.01(h)
hereof is concerned, at any time in the period ending on the 91st day after the
date of deposit;
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(e) such Legal Defeasance or Covenant Defeasance shall not result
in a breach or violation of, or constitute a default under, any material
agreement or instrument (other than this Indenture) to which any of the Issuers
or Note Guarantors is a party or by which the Company or any of its Subsidiaries
is bound;
(f) 91 days shall have passed between the date of deposit and no
intervening bankruptcy of the Issuers shall have occurred under applicable
bankruptcy law;
(g) the Issuers shall have delivered to the Trustee an Officers'
Certificate from each Issuer stating that the deposit was not made by such
Issuer with the intent of preferring the Holders over any other creditors of any
Issuer or with the intent of defeating, hindering, delaying or defrauding any
other creditors of any Issuer; and
(h) each of the Issuers shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel (which opinion of counsel may be
subject to customary assumptions and exclusions), each stating that all
conditions precedent relating to the Legal Defeasance or the Covenant
Defeasance, as the case may be, have been complied with.
SECTION 8.05. DEPOSITED MONEY AND GOVERNMENT SECURITIES TO BE HELD IN TRUST;
OTHER MISCELLANEOUS PROVISIONS.
Subject to Section 8.06 hereof, all money and non-callable Government
Securities (including the proceeds thereof) deposited with the Trustee (or other
qualifying trustee, collectively for purposes of this Section 8.05, the
"Trustee") pursuant to Section 8.04 hereof in respect of the outstanding Notes
shall be held in trust and applied by the Trustee, in accordance with the
provisions of such Notes and this Indenture, to the payment, either directly or
through any Paying Agent (including the Company or any of its Restricted
Subsidiaries acting as Paying Agent) as the Trustee may determine, to the
Holders of such Notes of all sums due and to become due thereon in respect of
principal, premium, if any, and interest, but such money need not be segregated
from other funds except to the extent required by law. Money and Government
Securities so held in trust are not subject to Article 10 hereof.
The Issuers shall pay and indemnify the Trustee against any tax, fee or
other charge imposed on or assessed against the non-callable Government
Securities deposited pursuant to Section 8.04 hereof or the principal and
interest received in respect thereof other than any such tax, fee or other
charge which by law is for the account of the Holders of the outstanding Notes.
Anything in this Article 8 to the contrary notwithstanding, the Trustee
shall deliver or pay to the Issuers from time to time upon the written request
of the Issuers any money or non-callable Government Securities held by it as
provided in Section 8.04 hereof which, in the opinion of a nationally recognized
firm of independent public accountants expressed in a written certification
thereof delivered to the Trustee (which may be the opinion delivered under
Section 8.04(a) hereof), are in excess of the amount thereof that would then be
required to be deposited to effect an equivalent Legal Defeasance or Covenant
Defeasance.
SECTION 8.06. REPAYMENT TO COMPANY.
Any money deposited with the Trustee or any Paying Agent, or then held
by the Issuers, in trust for the payment of the principal of, premium, if any,
or interest on any Note and remaining unclaimed for two years after such
principal, and premium, if any, or interest has become due and payable shall be
paid to the Issuers on their request or (if then held by the Issuers) shall be
discharged from such trust; and the Holder of such Note shall thereafter look
only to the Issuers for payment thereof, and all liability of the Trustee or
such Paying Agent with respect to such trust money, and all liability of the
Issuers as trustee thereof, shall thereupon cease.
SECTION 8.07. REINSTATEMENT.
If the Trustee or Paying Agent is unable to apply any United States
dollars or non-callable Government Securities in accordance with Section 8.02 or
8.03 hereof, as the case may be, by reason of any order or judgment of any court
or governmental authority enjoining, restraining or otherwise prohibiting such
application, then the Issuers' obligations under this Indenture and the Notes
shall be revived and reinstated as though no deposit had occurred pursuant to
Section 8.02 or 8.03 hereof until such time as the Trustee or
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Paying Agent is permitted to apply all such money in accordance with Section
8.02 or 8.03 hereof, as the case may be; PROVIDED, HOWEVER, that, if the Issuers
make any payment of principal of, premium, if any, or interest on any Note
following the reinstatement of its obligations, the Issuers shall be subrogated
to the rights of the Holders of such Notes to receive such payment from the
money held by the Trustee or Paying Agent.
ARTICLE 9.
AMENDMENT, SUPPLEMENT AND WAIVER
SECTION 9.01. WITHOUT CONSENT OF HOLDERS OF NOTES.
Notwithstanding Section 9.02 of this Indenture, the Issuers, the Note
Guarantors and the Trustee may amend or supplement this Indenture, the Note
Guarantees or the Notes without the consent of any Holder of a Note:
(a) to cure any ambiguity, defect or inconsistency;
(b) to provide for uncertificated Notes in addition to or in place
of certificated Notes or to alter the provisions of Article 2 hereof (including
the related definitions) in a manner that does not materially adversely affect
any Holder;
(c) to provide for the assumption of any Issuer's or any Note
Guarantor's obligations to the Holders of the Notes by a successor to such
Issuer or such Note Guarantor pursuant to Article 5 or Article 11 hereof;
(d) to make any change that would provide any additional rights or
benefits to the Holders of the Notes or that does not adversely affect the legal
rights hereunder of any Holder of the Notes;
(e) to comply with requirements of the SEC in order to effect or
maintain the qualification of this Indenture under the TIA;
(f) to provide for the issuance of Additional Notes in accordance
with the limitations set forth in this Indenture as of the date hereof;
(g) to allow any Note Guarantor to execute a supplemental
indenture and/or a Note Guarantee with respect to the Notes;
(h) to evidence and provide for the acceptance and appointment of
a successor Trustee pursuant to this Indenture;
(i) to add to the covenants of the Issuers and the Note Guarantors
for the benefit of the Holders or to surrender any right or power conferred upon
the Issuers;
(j) to secure the Notes; or
(k) to make any change in Article 10 hereof that would limit or
terminate the benefits available to any holder of Senior Debt of the Issuers (or
any representative thereof) under such Article.
In addition, any amendment to, or waiver of Article 10 of this
Indenture that adversely affects the rights of the Holders of the Notes shall
require the consent of the Holders of at least 75% in aggregate principal amount
of Notes then outstanding.
Upon the request of the Issuers accompanied by a resolution of their
respective Boards of Directors authorizing the execution of any such amended or
supplemental Indenture, and upon receipt by the Trustee of the documents
described in Section 7.02 hereof, the Trustee shall join with the Issuers and
the Note Guarantors in the execution of any amended or supplemental Indenture
authorized or permitted by the terms of this Indenture and to make any further
appropriate agreements and stipulations that may be therein
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contained, but the Trustee shall not be obligated to enter into such amended or
supplemental Indenture that affects its own rights, duties or immunities under
this Indenture or otherwise.
SECTION 9.02. WITH CONSENT OF HOLDERS OF NOTES.
Except as provided below in this Section 9.02, the Issuers and the
Trustee may amend or supplement this Indenture (including Section 3.09, 4.10 and
4.15 hereof), the Note Guarantees and the Notes with the consent of the Holders
of at least a majority in principal amount of the Notes (including Additional
Notes, if any) then outstanding voting as a single class (including consents
obtained in connection with a tender offer or exchange offer for, or purchase
of, the Notes), and, subject to Sections 6.04 and 6.07 hereof, any existing
Default or Event of Default (other than a Default or Event of Default in the
payment of the principal of, premium, if any, or interest on the Notes, except a
payment default resulting from an acceleration that has been rescinded) or
compliance with any provision of this Indenture, the Note Guarantees or the
Notes may be waived with the consent of the Holders of a majority in principal
amount of the then outstanding Notes (including Additional Notes, if any) voting
as a single class (including consents obtained in connection with a tender offer
or exchange offer for, or purchase of, the Notes).
Upon the request of the Issuers accompanied by a resolution of their
respective Boards of Directors authorizing the execution of any such amended or
supplemental Indenture, and upon the filing with the Trustee of evidence
satisfactory to the Trustee of the consent of the Holders of Notes as aforesaid,
and upon receipt by the Trustee of the documents described in Section 7.02
hereof, the Trustee shall join with the Issuers in the execution of such amended
or supplemental Indenture unless such amended or supplemental Indenture directly
affects the Trustee's own rights, duties or immunities under this Indenture or
otherwise, in which case the Trustee may in its discretion, but shall not be
obligated to, enter into such amended or supplemental Indenture.
It shall not be necessary for the consent of the Holders of Notes under
this Section 9.02 to approve the particular form of any proposed amendment or
waiver, but it shall be sufficient if such consent approves the substance
thereof.
After an amendment, supplement or waiver under this Section becomes
effective, the Issuers shall mail to the Holders of Notes affected thereby a
notice briefly describing the amendment, supplement or waiver. Any failure of
the Issuers to mail such notice, or any defect therein, shall not, however, in
any way impair or affect the validity of any such amended or supplemental
Indenture or waiver. Subject to Sections 6.04 and 6.07 hereof, the Holders of a
majority in aggregate principal amount of the Notes (including Additional Notes,
if any) then outstanding voting as a single class may waive compliance in a
particular instance by the Issuers with any provision of this Indenture or the
Notes. However, without the consent of each Holder affected, an amendment or
waiver under this Section 9.02 may not (with respect to any Notes held by a
non-consenting Holder):
(a) reduce the principal amount of Notes whose Holders must
consent to an amendment, supplement or waiver;
(b) reduce the principal of or change the fixed maturity of any
Note or alter or waive any of the provisions with respect to the redemption of
the Notes except as provided above with respect to Sections 3.09, 4.10 and 4.15
hereof;
(c) reduce the rate of or change the time for payment of interest
on any Note;
(d) waive a Default or Event of Default in the payment of
principal of or premium, if any, or interest on the Notes (except a rescission
of acceleration of the Notes by the Holders of at least a majority in aggregate
principal amount of the then outstanding Notes (including Additional Notes, if
any) and a waiver of the payment default that resulted from such acceleration);
(e) make any Note payable in money other than that stated in the
Notes;
(f) make any change in the provisions of this Indenture relating
to waivers of past Defaults or the rights of Holders of Notes to receive
payments of principal of, or interest or premium or Liquidated Damages, if any
on the Notes;
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(g) make any change in Section 6.04 or 6.07 hereof;
(h) waive a redemption payment with respect to any Note (other
than a payment required by Sections 4.10 or 4.15 hereof;
(i) impair the right of any Holder to institute suit for the
enforcement of any payment on or with respect to such Holder's Notes;
(j) make any change in the foregoing amendment and waiver
provisions; or
(k) release any Note Guarantor from any of its obligations under
its Note Guarantee or this Indenture, except in accordance with the terms of
this Indenture.
SECTION 9.03. COMPLIANCE WITH TRUST INDENTURE ACT.
Every amendment or supplement to this Indenture or the Notes shall be
set forth in an amended or supplemental Indenture that complies with the TIA as
then in effect.
SECTION 9.04. REVOCATION AND EFFECT OF CONSENTS.
Until an amendment, supplement or waiver becomes effective, a consent
to it by a Holder of a Note is a continuing consent by the Holder of a Note and
every subsequent Holder of a Note or portion of a Note that evidences the same
debt as the consenting Holder's Note, even if notation of the consent is not
made on any Note. However, any such Holder of a Note or subsequent Holder of a
Note may revoke the consent as to its Note if the Trustee receives written
notice of revocation before the date the waiver, supplement or amendment becomes
effective. An amendment, supplement or waiver becomes effective in accordance
with its terms and thereafter binds every Holder.
SECTION 9.05. NOTATION ON OR EXCHANGE OF NOTES.
The Trustee may place an appropriate notation about an amendment,
supplement or waiver on any Note thereafter authenticated. The Issuers in
exchange for all Notes may issue and the Trustee shall, upon receipt of an
Authentication Order, authenticate new Notes that reflect the amendment,
supplement or waiver.
Failure to make the appropriate notation or issue a new Note shall not
affect the validity and effect of such amendment, supplement or waiver.
SECTION 9.06. TRUSTEE TO SIGN AMENDMENTS, ETC.
The Trustee shall sign any amended or supplemental Indenture authorized
pursuant to this Article 9 if the amendment or supplement does not adversely
affect the rights, duties, liabilities or immunities of the Trustee. The Issuers
may not sign an amendment or supplemental Indenture until their respective
Boards of Directors approve it. In executing any amended or supplemental
indenture, the Trustee shall be entitled to receive and (subject to Section 7.01
hereof) shall be fully protected in relying upon, in addition to the documents
required by Section 13.04 hereof, an Officers' Certificate and an Opinion of
Counsel stating that the execution of such amended or supplemental indenture is
authorized or permitted by this Indenture.
ARTICLE 10.
SUBORDINATION
SECTION 10.01. AGREEMENT TO SUBORDINATE.
The Issuers agree, and each Holder by accepting a Note agrees, that the
payment of the Subordinated Note Obligations are subordinated in right of
payment, to the extent and in the manner provided in this Article 10, to the
prior payment in full in cash or cash equivalents of all Senior Debt (whether
outstanding on the date hereof or hereafter created, incurred, assumed or
guaranteed), and that the subordination is for the benefit of the holders of
Senior Debt. However, payment from the money or proceeds of U.S.
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government obligations held in any defeasance trust pursuant to Article 8 of
this Indenture shall not be subordinated to any Senior debt or subject to the
restrictions described therein.
SECTION 10.02. CERTAIN DEFINITIONS.
For the purposes of this Article 10, "CASH EQUIVALENTS" means Cash
Equivalents of the type described in clause (2) of the definition thereof
maturing not more than 90 days after the acquisition thereof.
A "DISTRIBUTION" or "PAYMENT" may consist of a distribution, payment or
other transfer of assets by or on behalf of any Issuer (including, without
limitation, a redemption, repurchase or other acquisition of the Notes) from any
source, of any kind or character, whether in cash, securities or other property,
by set-off or otherwise.
SECTION 10.03. LIQUIDATION; DISSOLUTION; BANKRUPTCY.
Upon any distribution to creditors of any Issuer in a liquidation or
dissolution of any Issuer or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to such Issuer or its property, in
an assignment for the benefit of creditors or any marshaling of such Issuer's
assets and liabilities:
(i) holders of Senior Debt shall be entitled to receive
payment in full in cash or cash equivalents of all Obligations due in
respect of such Senior Debt (including interest after the commencement
of any such proceeding at the rate specified in the applicable Senior
Debt) before Holders of the Notes shall be entitled to receive any
payment with respect to the Subordinated Note Obligations (except that
Holders may receive (A) Permitted Junior Securities and (B) payments
and other distributions made from any defeasance trust created pursuant
to Section 8.01 hereof); and
(ii) until all Obligations with respect to Senior Debt are
paid in full in cash or cash equivalents, any distribution to which
Holders would be entitled but for this Article 10 shall be made to
holders of Senior Debt (except that Holders of Notes may receive (A)
Permitted Junior Securities and (B) payments and other distributions
made from any defeasance trust described in Section 8.04 hereof), as
their interests may appear.
SECTION 10.04. DEFAULT ON DESIGNATED SENIOR DEBT.
(a) No Issuer may make any payment or distribution to the Trustee
or any Holder in respect of the Subordinated Note Obligations (other than with
(A) Permitted Junior Securities and (B) payments and other distributions made
from any defeasance trust described in Section 8.04 hereof) until all principal
and other Obligations with respect to the Senior Debt have been paid in full in
cash or cash equivalents if:
(i) a default in the payment of any principal (including
reimbursement obligations in respect of letters of credit) of, premium,
if any, or interest on or commitment, letters of credit or
administrative fees relating to Designated Senior Debt occurs and is
continuing beyond any applicable period of grace in the agreement,
indenture or other document governing such Designated Senior Debt; or
(ii) a default, other than a payment default, with respect
to Designated Senior Debt occurs and is continuing that then permits
holders of the Designated Senior Debt as to which that default relates
to accelerate its maturity and the Trustee receives a notice of the
default (a "Payment Blockage Notice") from any Issuer or the holders of
any Designated Senior Debt (or their Representative).
(b) The Issuers may and shall resume payments on and distributions
in respect of the Notes upon the earlier of:
(i) the date upon which the default is cured or waived,
or
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(ii) in the case of a default referred to in clause (ii)
of Section 10.04(a) hereof, 179 days after the date on which the
applicable Payment Blockage Notice is received if the maturity of such
Designated Senior Debt has not been accelerated,
if this Article 10 otherwise permits any such payment, or distribution at the
time of such payment or distribution.
If the Trustee receives any such Payment Blockage Notice, no subsequent
Payment Blockage Notice shall be effective for purposes of this Section unless
and until at least 360 days shall have elapsed since the effectiveness of the
immediately prior Payment Blockage Notice. No nonpayment default that existed or
was continuing on the date of delivery of any Payment Blockage Notice to the
Trustee shall be, or be made, the basis for a subsequent Payment Blockage Notice
unless such default shall have been waived for a period of not less than 90
days.
SECTION 10.05. ACCELERATION OF SECURITIES.
If payment of the Securities is accelerated because of an Event of
Default, the Issuers and the Trustee shall promptly notify holders of Senior
Debt of the acceleration.
SECTION 10.06. WHEN DISTRIBUTION MUST BE PAID OVER.
In the event that the Trustee or any Holder receives any payment of any
Obligations with respect to the Notes at a time when the Trustee or such Holder,
as applicable, has actual knowledge that such payment is prohibited by Section
10.03 or 10.04 hereof, the Trustee or Holder, as the case may be, shall promptly
pay over and deliver such payment to the holders of Senior Debt as their
interests may appear or their Representative under the indenture or other
agreement (if any) pursuant to which Senior Debt may have been issued, as their
respective interests may appear, for application to the payment of all
Obligations with respect to Senior Debt remaining unpaid to the extent necessary
to pay such Obligations in full in accordance with their terms, after giving
effect to any concurrent payment or distribution to or for the holders of Senior
Debt. Until the Trustee or the Holder, as the case may be, shall have so paid
over and delivered such payment, the Trustee or the Holder, as the case may be,
shall be deemed to have held such payment in trust for the benefit of the
holders of the Senior Debt.
With respect to the holders of Senior Debt, the Trustee undertakes to
perform only such obligations on the part of the Trustee as are specifically set
forth in this Article 10, and no implied covenants or obligations with respect
to the holders of Senior Debt shall be read into this Indenture against the
Trustee. The Trustee shall not be deemed to owe any fiduciary duty to the
holders of Senior Debt, and shall not be liable to any such holders if the
Trustee shall pay over or distribute to or on behalf of Holders or the Issuers
or any other Person money or assets to which any holders of Senior Debt shall be
entitled by virtue of this Article 10, except if such payment is made as a
result of the willful misconduct or gross negligence of the Trustee.
SECTION 10.07. NOTICE BY COMPANY.
The Issuers shall promptly notify the Trustee and the Paying Agent in
writing of any facts known to the Issuers that would cause a payment of any
Obligations with respect to the Notes to violate this Article 10, but failure to
give such notice shall not affect the subordination of the Notes to the Senior
Debt as provided in this Article 10.
SECTION 10.08. SUBROGATION.
After all Senior Debt is paid in full in cash or cash equivalents and
until the Notes are paid in full, Holders of Notes shall be subrogated (equally
and ratably with all other Indebtedness PARI PASSU with the Notes) to the rights
of holders of Senior Debt to receive distributions applicable to Senior Debt to
the extent that distributions otherwise payable to the Holders of Notes have
been applied to the payment of Senior Debt. A distribution made under this
Article 10 to holders of Senior Debt that otherwise would have been made to
Holders of Notes is not, as between the Issuers and Holders, a payment by the
Issuers on the Notes.
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SECTION 10.09. RELATIVE RIGHTS.
This Article 10 defines the relative rights of Holders of Notes and
holders of Senior Debt. Nothing in this Indenture shall:
(i) impair, as between the Issuers and Holders of Notes,
the obligation of the Issuers, which is absolute and unconditional, to
pay principal of and interest on the Notes in accordance with their
terms;
(ii) affect the relative rights of Holders of Notes and
creditors of the Issuers other than their rights in relation to holders
of Senior Debt; or
(iii) prevent the Trustee or any Holder of Notes from
exercising its available remedies upon a Default or Event of Default,
subject to the rights of holders and owners of Senior Debt to receive
distributions and payments otherwise payable to Holders of Notes.
If the Issuers fail because of this Article 10 to pay principal of or
interest on a Note on the due date, the failure is still a Default or Event of
Default.
SECTION 10.10. SUBORDINATION MAY NOT BE IMPAIRED BY ISSUERS.
No right of any holder of Senior Debt to enforce the subordination of
the Indebtedness evidenced by the Notes shall be impaired by any act or failure
to act by the Issuers or any Holder or by the failure of the Issuers or any
Holder to comply with this Indenture.
SECTION 10.11. DISTRIBUTION OR NOTICE TO REPRESENTATIVE.
Whenever a distribution is to be made or a notice given to holders of
Senior Debt, the distribution may be made and the notice given to their
Representative.
Upon any payment or distribution of assets of the Issuers referred to
in this Article 10, the Trustee and the Holders of Notes shall be entitled to
rely upon any order or decree made by any court of competent jurisdiction or
upon any certificate of such Representative or of the liquidating trustee or
agent or other Person making any distribution to the Trustee or to the Holders
of Notes for the purpose of ascertaining the Persons entitled to participate in
such distribution, the holders of the Senior Debt and other Indebtedness of the
Issuers, the amount thereof or payable thereon, the amount or amounts paid or
distributed thereon and all other facts pertinent thereto or to this Article 10.
SECTION 10.12. RIGHTS OF TRUSTEE AND PAYING AGENT.
Notwithstanding the provisions of this Article 10 or any other
provision of this Indenture, the Trustee shall not be charged with knowledge of
the existence of any facts that would prohibit the making of any payment or
distribution by the Trustee, and the Trustee and the Paying Agent may continue
to make payments on the Notes, unless a Responsible Officer of the Trustee shall
have received at its Corporate Trust Office at least five Business Days prior to
the date of such payment written notice of facts that would cause the payment of
any Obligations with respect to the Notes to violate this Article 10. Only the
Issuers or a Representative may give the notice. Nothing in this Article 10
shall impair the claims of, or payments to, the Trustee under or pursuant to
Section 7.07 hereof.
The Trustee in its individual or any other capacity may hold Senior
Debt with the same rights it would have if it were not Trustee. Any Agent may do
the same with like rights.
ECTION 10.13. AUTHORIZATION TO EFFECT SUBORDINATION.
Each Holder of Notes, by the Holder's acceptance thereof, authorizes
and directs the Trustee on such Holder's behalf to take such action as may be
necessary or appropriate to effectuate the subordination as provided in this
Article 10, and appoints the Trustee to act as such Holder's attorney-in-fact
for any and all such purposes. If the Trustee does not file a proper proof of
claim or proof of debt in the form required in any proceeding referred to in
Section 6.09 hereof at least 30 days before the expiration of the time to file
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such claim, the Representatives of Senior Designated Debt are hereby authorized
to file an appropriate claim for and on behalf of the Holders of the Notes.
SECTION 10.14. NO WAIVER OF SUBORDINATION PROVISIONS; TERMS OF SENIOR DEBT.
(a) No right of any present or future holder of any Senior Debt to
enforce subordination as herein provided shall at any time in any way be
prejudiced or impaired by any act or failure to act by any such holder.
(b) Without in any way limiting the generality of paragraph (a) of
this Section 10.14, the holders of Senior Debt may, at any time and from time to
time, without the consent of or notice to the Trustee or any Holder, without
incurring responsibility to any Holder and without impairing or releasing the
subordination provided in this Article 10 or the obligations hereunder of the
Holders to the holders of Senior Debt, do any one or more of the following: (i)
change the manner, place or terms of payment or extend the time of payment, or
renew or alter, any Senior Debt or any instrument evidencing the same or any
agreement under which Senior Debt is outstanding; (ii) sell, exchange, release
or otherwise deal with any property pledged, mortgaged or otherwise securing
securing Senior Debt; (iii) release any Person liable in any manner for the
collection of Senior Debt; and (iv) exercise or refrain from exercising any
rights against any Issuer or any other Person.
SECTION 10.15. AMENDMENTS.
The provisions of this Article 10 shall not be amended or modified
without the written consent of the holders of all Senior Debt.
SECTION 10.16. RELIANCE BY HOLDERS OF SENIOR DEBT.
Each Holder by accepting a Note acknowledges and agrees that the
foregoing subordination provisions are, and are intended to be, an inducement
and a consideration to each holder of any Senior Debt of the Issuers, whether
such Senior Debt was created or acquired before or after the issuance of the
Notes, to acquire and continue to hold, or to continue to hold, such Senior Debt
and such holder of such Senior Debt shall be deemed conclusively to have relied
on such subordination provisions in acquiring and continuing to hold, or in
continuing to hold, such Senior Debt.
ARTICLE 11.
NOTE GUARANTEES
SECTION 11.01. GUARANTEE.
Subject to this Article 11, each of the Note Guarantors hereby, jointly
and severally, unconditionally guarantees to each Holder of a Note authenticated
and delivered by the Trustee and to the Trustee and its successors and assigns,
irrespective of the validity and enforceability of this Indenture, the Notes or
the obligations of the Issuers hereunder or thereunder, that: (a) the principal
of and interest on the Notes will be promptly paid in full when due, whether at
maturity, by acceleration, redemption or otherwise, and interest on the overdue
principal of and interest on the Notes, if any, if lawful, and all other
obligations of the Issuers to the Holders or the Trustee hereunder or thereunder
will be promptly paid in full or performed, all in accordance with the terms
hereof and thereof; and (b) in case of any extension of time of payment or
renewal of any Notes or any of such other obligations, that same will be
promptly paid in full when due or performed in accordance with the terms of the
extension or renewal, whether at stated maturity, by acceleration or otherwise.
Failing payment when due of any amount so guaranteed or any performance so
guaranteed for whatever reason, the Note Guarantors shall be jointly and
severally obligated to pay the same immediately. Each Note Guarantor agrees that
this is a guarantee of payment and not a guarantee of collection.
The Note Guarantors hereby agree that their obligations hereunder shall
be unconditional, irrespective of the validity, regularity or enforceability of
the Notes or this Indenture, the absence of any action to enforce the same, any
waiver or consent by any Holder of the Notes with respect to any provisions
hereof or thereof, the recovery of any judgment against the Issuers, any action
to enforce the same or any
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other circumstance which might otherwise constitute a legal or equitable
discharge or defense of a guarantor. Each Note Guarantor hereby waives
diligence, presentment, demand of payment, filing of claims with a court in the
event of insolvency or bankruptcy of the Issuers, any right to require a
proceeding first against the Issuers, protest, notice and all demands whatsoever
and covenant that this Note Guarantee shall not be discharged except by complete
performance of the obligations contained in the Notes and this Indenture.
If any Holder or the Trustee is required by any court or otherwise to
return to the Issuers, the Note Guarantors or any custodian, trustee, liquidator
or other similar official acting in relation to either the Issuers or the Note
Guarantors, any amount paid by either to the Trustee or such Holder, this Note
Guarantee, to the extent theretofore discharged, shall be reinstated in full
force and effect.
Each Note Guarantor agrees that it shall not be entitled to any right
of subrogation in relation to the Holders in respect of any obligations
guaranteed hereby until payment in full of all obligations guaranteed hereby.
Each Note Guarantor further agrees that, as between the Note Guarantors, on the
one hand, and the Holders and the Trustee, on the other hand, (x) the maturity
of the obligations guaranteed hereby may be accelerated as provided in Article 6
hereof for the purposes of this Note Guarantee, notwithstanding any stay,
injunction or other prohibition preventing such acceleration in respect of the
obligations guaranteed hereby, and (y) in the event of any declaration of
acceleration of such obligations as provided in Article 6 hereof, such
obligations (whether or not due and payable) shall forthwith become due and
payable by the Note Guarantors for the purpose of this Note Guarantee. The Note
Guarantors shall have the right to seek contribution from any non-paying Note
Guarantor so long as the exercise of such right does not impair the rights of
the Holders under the Note Guarantee.
SECTION 11.02. SUBORDINATION OF NOTE GUARANTEE.
The Obligations of each Note Guarantor under its Note Guarantee
pursuant to this Article 11 shall be junior and subordinated to the senior
guarantee of such Note Guarantor, including that Note Guarantor's Guarantee of
the Credit Agreement, on the same basis as the Notes are junior and subordinated
to Senior Debt of the Issuers. For the purposes of the foregoing sentence, the
Trustee and the Holders shall have the right to receive and/or retain payments
by any of the Note Guarantors only at such times as they may receive and/or
retain payments in respect of the Notes pursuant to this Indenture, including
Article 10.
SECTION 11.03. LIMITATION ON NOTE GUARANTOR LIABILITY.
Each Note Guarantor, and by its acceptance of Notes, each Holder,
hereby confirms that it is the intention of all such parties that the Note
Guarantee of such Note Guarantor not constitute a fraudulent transfer or
conveyance for purposes of Bankruptcy Law, the Uniform Fraudulent Conveyance
Act, the Uniform Fraudulent Transfer Act or any similar federal or state law to
the extent applicable to any Note Guarantee. To effectuate the foregoing
intention, the Trustee, the Holders and the Note Guarantors hereby irrevocably
agree that the obligations of such Note Guarantor will, after giving effect to
such maximum amount and all other contingent and fixed liabilities of such Note
Guarantor that are relevant under such laws, and after giving effect to any
collections from, rights to receive contribution from or payments made by or on
behalf of any other Note Guarantor in respect of the obligations of such other
Note Guarantor under this Article 11, result in the obligations of such Note
Guarantor under its Note Guarantee not constituting a fraudulent transfer or
conveyance.
SECTION 11.04. EXECUTION AND DELIVERY OF NOTE GUARANTEE.
To evidence its Note Guarantee set forth in Section 11.01, each Note
Guarantor hereby agrees that a notation of such Note Guarantee substantially in
the form included in Exhibit E shall be endorsed by an Officer of such Note
Guarantor on each Note authenticated and delivered by the Trustee and that this
Indenture shall be executed on behalf of such Note Guarantor by its President or
one of its Vice Presidents.
Each Note Guarantor hereby agrees that its Note Guarantee set forth in
Section 11.01 shall remain in full force and effect notwithstanding any failure
to endorse on each Note a notation of such Note Guarantee.
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If an Officer whose signature is on this Indenture or on the Note
Guarantee no longer holds that office at the time the Trustee authenticates the
Note on which a Note Guarantee is endorsed, the Note Guarantee shall be valid
nevertheless.
The delivery of any Note by the Trustee, after the authentication
thereof hereunder, shall constitute due delivery of the Note Guarantee set forth
in this Indenture on behalf of the Note Guarantors.
In the event that the Issuers create or acquire any new Subsidiaries
subsequent to the date of this Indenture, if required by Section 4.18 hereof,
the Company shall cause such Subsidiaries to execute supplemental indentures to
this Indenture and Note Guarantees in accordance with Section 4.18 hereof and
this Article 11, to the extent applicable.
SECTION 11.05. NOTE GUARANTORS MAY CONSOLIDATE, ETC., ON CERTAIN TERMS.
Except as otherwise provided in Section 11.06, no Note Guarantor may
consolidate with or merge with or into (whether or not such Note Guarantor is
the surviving Person) another Person whether or not affiliated with such Note
Guarantor unless:
(a) subject to Section 11.06 hereof, the Person formed by or
surviving any such consolidation or merger (if other than a Note Guarantor or
an Issuer) (i) is a Domestic Subsidiary of the Company and unconditionally
assumes all the obligations of such Note Guarantor, pursuant to a
supplemental indenture in form and substance reasonably satisfactory to the
Trustee, under the Notes, this Indenture and the Note Guarantee on the terms
set forth herein or therein or (ii) is a Wholly Owned Restricted Subsidiary
that is not a Domestic Subsidiary; and
(b) immediately after giving effect to such transaction, no
Default or Event of Default exists.
In case of any such consolidation, merger, sale or conveyance and upon
the assumption by the successor Person, by supplemental indenture, executed and
delivered to the Trustee and satisfactory in form to the Trustee, of the Note
Guarantee endorsed upon the Notes and the due and punctual performance of all of
the covenants and conditions of this Indenture to be performed by the Note
Guarantor, such successor Person shall succeed to and be substituted for the
Note Guarantor with the same effect as if it had been named herein as a Note
Guarantor. Such successor Person thereupon may cause to be signed any or all of
the Note Guarantees to be endorsed upon all of the Notes issuable hereunder
which theretofore shall not have been signed by the Issuers and delivered to the
Trustee. All the Note Guarantees so issued shall in all respects have the same
legal rank and benefit under this Indenture as the Note Guarantees theretofore
and thereafter issued in accordance with the terms of this Indenture as though
all of such Note Guarantees had been issued at the date of the execution hereof.
Except as set forth in Articles 4 and 5 hereof, and notwithstanding
clauses (a) and (b) above, nothing contained in this Indenture or in any of the
Notes shall prevent any consolidation or merger of a Note Guarantor with or into
the Issuers or another Note Guarantor, or shall prevent any sale or conveyance
of the property of a Note Guarantor as an entirety or substantially as an
entirety to the Issuers or another Note Guarantor.
SECTION 11.06. RELEASES FOLLOWING SALE OF ASSETS.
The Note Guarantee of a Note Guarantor will be released:
(1) in connection with any sale or other disposition of all or
substantially all of the assets of that Note Guarantor (including by
way of merger or consolidation) to a Person that is not (either before
or after giving effect to such transaction) a Restricted Subsidiary of
the Company, if the Note Guarantor applies the Net Proceeds of that
sale or other disposition in accordance with Section 4.10 of this
Indenture;
(2) in connection with any sale of all of the Capital Stock of a Note
Guarantor to a Person that is not (either before or after giving effect
to such transaction) a Restricted Subsidiary of the Company, if no
Default or Event of Default has occurred and is continuing;
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(3) if the Company properly designates any Restricted Subsidiary that is a
Note Guarantor as an Unrestricted Subsidiary; or
(4) with respect to any Note Guarantor, upon the release or discharge of
all Note Guarantees, including all pledges of property or assets
securing and all direct and indirect credit support of, all other
Indebtedness of the Issuers and any such Note Guarantor; PROVIDED that
no Default or Event of Default shall have occurred and be continuing.
Upon delivery by the Company to the Trustee of an Officers' Certificate
and an Opinion of Counsel to the effect that such sale or other disposition was
made by the Issuers in accordance with the provisions of this Indenture,
including without limitation Section 4.10 hereof, the Trustee shall execute any
documents reasonably required in order to evidence the release of any Note
Guarantor from its obligations under its Note Guarantee.
Any Note Guarantor not released from its obligations under its Note
Guarantee shall remain liable for the full amount of principal of and interest
on the Notes and for the other obligations of any Note Guarantor under this
Indenture as provided in this Article 11.
ARTICLE 12.
SATISFACTION AND DISCHARGE
SECTION 12.01. SATISFACTION AND DISCHARGE.
This Indenture will be discharged and will cease to be of further
effect as to all Notes issued hereunder, when:
(1) either:
(a) all Notes that have been authenticated and delivered (except
lost, stolen or destroyed Notes that have been replaced or
paid and Notes for whose payment money has theretofore been
deposited in trust and thereafter repaid to the Issuers) have
been delivered to the Trustee for cancellation; or
(b) all Notes that have not been delivered to the Trustee for
cancellation have become due and payable by reason of the
making of a notice of redemption or otherwise or will become
due and payable within one year and the Issuers or any Note
Guarantor has irrevocably deposited or caused to be deposited
with the Trustee as trust funds in trust solely for the
benefit of the Holders, cash in U.S. dollars, non-callable
Government Securities, or a combination thereof, in such
amounts as will be sufficient without consideration of any
reinvestment of interest, to pay and discharge the entire
indebtedness on the Notes not delivered to the Trustee for
cancellation for principal, premium and Liquidated Damages, if
any, and accrued interest to the date of maturity or
redemption;
(2) no Default or Event of Default shall have occurred and be continuing on
the date of such deposit or shall occur as a result of such deposit and
such deposit will not result in a breach or violation of, or constitute
a default under, any other instrument to which the Issuers or any Note
Guarantor is a party or by which the Issuers or any Note Guarantor is
bound;
(3) the Issuers and the Note Guarantors have paid or caused to be paid all
sums payable by them under this Indenture; and
(4) the Issuers have delivered irrevocable written instructions to the
Trustee under this Indenture to apply the deposited money toward the
payment of the Notes at maturity or the redemption date, as the case
may be.
In addition, the Issuers must deliver an Officers' Certificate from each Issuer
and an Opinion of Counsel to the Trustee stating that all conditions precedent
to satisfaction and discharge have been satisfied.
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Notwithstanding the satisfaction and discharge of this Indenture, if
money shall have been deposited with the Trustee pursuant to subclause (b) of
clause (1) of this Section, the provisions of Section 12.02 and Section 8.06
shall survive.
SECTION 12.02. APPLICATION OF TRUST MONEY.
Subject to the provisions of Section 8.06, all money deposited with the
Trustee pursuant to Section 12.01 shall be held in trust and applied by it, in
accordance with the provisions of the Notes and this Indenture, to the payment,
either directly or through any Paying Agent (including the Company or any
Restricted Subsidiary acting as its own Paying Agent) as the Trustee may
determine, to the Persons entitled thereto, of the principal (and premium, if
any) and interest for whose payment such money has been deposited with the
Trustee; but such money need not be segregated from other funds except to the
extent required by law.
If the Trustee or Paying Agent is unable to apply any money or
Government Securities in accordance with Section 12.01 by reason of any legal
proceeding or by reason of any order or judgment of any court or governmental
authority enjoining, restraining or otherwise prohibiting such application, any
Issuer's and any Note Guarantor's obligations under this Indenture and the Notes
shall be revived and reinstated as though no deposit had occurred pursuant to
Section 12.01; PROVIDED that if the Issuers have made any payment of principal
of, premium, if any, or interest on any Notes because of the reinstatement of
its obligations, the Issuers shall be subrogated to the rights of the Holders of
such Notes to receive such payment from the money or Government Securities held
by the Trustee or Paying Agent.
ARTICLE 13.
MISCELLANEOUS
SECTION 13.01. TRUST INDENTURE ACT CONTROLS.
If any provision of this Indenture limits, qualifies or conflicts with
the duties imposed by TIA Section 318(c), the imposed duties shall control.
SECTION 13.02. NOTICES.
Any notice or communication by the Issuers, any Note Guarantor or the
Trustee to the others is duly given if in writing and delivered in Person or
mailed by first class mail (registered or certified, return receipt requested),
telex, telecopier or overnight air courier guaranteeing next day delivery, to
the others' address:
If to the Issuers and/or any Note Guarantor:
WRC Media Inc.
Weekly Reader Corporation
JLC Learning Corporation
1 Rockefeller Plaza, 32nd Floor
New York, New York 10020
Telecopier No.: (212) 218-2778
Attention: Chief Executive Officer
If to the Trustee:
Bankers Trust Company
Four Albany Street, 4th Floor
New York, New York 10006
Telecopier No.: (212) 250-6392/6961
Attention: Corporate Trust and Agency Services
The Issuers, any Note Guarantor or the Trustee, by notice to the others
may designate additional or different addresses for subsequent notices or
communications.
All notices and communications (other than those sent to Holders) shall
be deemed to have been duly given: at the time delivered by hand, if personally
delivered; five Business Days after being deposited in the
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mail, postage prepaid, if mailed; when answered back, if telexed; when receipt
acknowledged, if telecopied; and the next Business Day after timely delivery to
the courier, if sent by overnight air courier guaranteeing next day delivery.
Any notice or communication to a Holder shall be mailed by first class
mail, certified or registered, return receipt requested, or by overnight air
courier guaranteeing next day delivery to its address shown on the register kept
by the Registrar. Any notice or communication shall also be so mailed to any
Person described in TIA Section 313(c), to the extent required by the TIA.
Failure to mail a notice or communication to a Holder or any defect in it shall
not affect its sufficiency with respect to other Holders.
If a notice or communication is mailed in the manner provided above
within the time prescribed, it is duly given, whether or not the addressee
receives it.
If the Issuers mail a notice or communication to Holders, they shall
mail a copy to the Trustee and each Agent at the same time.
SECTION 13.03. COMMUNICATION BY HOLDERS OF NOTES WITH OTHER HOLDERS OF NOTES.
Holders may communicate pursuant to TIA Section 312(b) with other
Holders with respect to their rights under this Indenture or the Notes. The
Issuers, the Trustee, the Registrar and anyone else shall have the protection of
TIA Section 312(c).
SECTION 13.04. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT.
Upon any request or application by the Issuers to the Trustee to take
any action under this Indenture, the Issuers shall furnish to the Trustee:
(a) an Officers' Certificate from each Issuer in form and
substance reasonably satisfactory to the Trustee (which shall include the
statements set forth in Section 13.05 hereof) stating that, in the opinion of
the signers, all conditions precedent and covenants, if any, provided for in
this Indenture relating to the proposed action have been satisfied; and
(b) an Opinion of Counsel in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth in
Section 13.05 hereof) stating that, in the opinion of such counsel, all such
conditions precedent and covenants have been satisfied.
SECTION 13.05. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION.
Each certificate or opinion with respect to compliance with a condition
or covenant provided for in this Indenture (other than a certificate provided
pursuant to TIA Section 314(a)(4)) shall comply with the provisions of TIA
Section 314(e) and shall include:
(a) a statement that the Person making such certificate or opinion
has read such covenant or condition;
(b) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions contained in
such certificate or opinion are based;
(c) a statement that, in the opinion of such Person, he or she has
made such examination or investigation as is necessary to enable him to express
an informed opinion as to whether or not such covenant or condition has been
satisfied; and
(d) a statement as to whether or not, in the opinion of such
Person, such condition or covenant has been satisfied.
SECTION 13.06. RULES BY TRUSTEE AND AGENTS.
The Trustee may make reasonable rules for action by or at a meeting of
Holders. The Registrar or Paying Agent may make reasonable rules and set
reasonable requirements for its functions.
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SECTION 13.07. NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND
STOCKHOLDERS.
No past, present or future director, officer, employee, incorporator or
stockholder of any Issuer or any Note Guarantor, as such, shall have any
liability for any obligations of such Issuers or such Note Guarantor under the
Notes, the Note Guarantees or this Indenture or for any claim based on, in
respect of, or by reason of, such obligations or their creation. Each Holder by
accepting a Note waives and releases all such liability. The waiver and release
are part of the consideration for issuance of the Notes.
SECTION 13.08. GOVERNING LAW.
THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO
CONSTRUE THIS INDENTURE, THE NOTES AND THE NOTE GUARANTEES WITHOUT GIVING EFFECT
TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION
OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.
SECTION 13.09. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS.
This Indenture may not be used to interpret any other indenture, loan
or debt agreement of the Company or its Subsidiaries or of any other Person. Any
such indenture, loan or debt agreement may not be used to interpret this
Indenture.
SECTION 13.10. SUCCESSORS.
All agreements of the Issuers or the Company in this Indenture and the
Notes shall bind its successors. All agreements of the Trustee in this Indenture
shall bind its successors. All agreements of each Note Guarantor in this
Indenture shall bind its successors, except as otherwise provided in Section
11.06.
SECTION 13.11. SEVERABILITY.
In case any provision in this Indenture or in the Notes shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
SECTION 13.12. COUNTERPART ORIGINALS.
The parties may sign any number of copies of this Indenture. Each
signed copy shall be an original, but all of them together represent the same
agreement.
SECTION 13.13. TABLE OF CONTENTS, HEADINGS, ETC.
The Table of Contents, Cross-Reference Table and Headings of the
Articles and Sections of this Indenture have been inserted for convenience of
reference only, are not to be considered a part of this Indenture and shall in
no way modify or restrict any of the terms or provisions hereof.
[Signatures on following page]
70
<PAGE>
SIGNATURES
Dated as of November 17, 1999
WRC MEDIA INC.
By: /s/ Charles Laurey
-----------------------------------------
Name: Charles Laurey
Title: Secretary
WEEKLY READER CORPORATION
By: /s/ Charles Laurey
-----------------------------------------
Name: Charles Laurey
Title: Secretary
JLC LEARNING CORPORATION
By: /s/ Charles Laurey
-----------------------------------------
Name: Charles Laurey
Title: Secretary
BANKERS TRUST COMPANY, as Trustee
By: /s/ Susan Johnson
-----------------------------------------
Name: Susan Johnson
Title: Assistant Vice President
PRIMEDIA REFERENCE INC.
FUNK & WAGNALLS YEARBOOK
CORPORATION
LIFETIME LEARNING SYSTEMS, INC.
GARETH STEVENS, INC.
AMERICAN GUIDANCE SERVICE, INC.
AGS INTERNATIONAL SALES, INC.
By: /s/ Charles Laurey
-----------------------------------------
Name: Charles Laurey
Title: Secretary
71
<PAGE>
EXHIBIT A
[Face of Note]
- --------------------------------------------------------------------------------
FOR THE PURPOSES OF SECTIONS 1272, 1273 AND 1275 OF THE INTERNAL REVENUE CODE OF
1986, AS AMENDED, THIS SECURITY IS BEING ISSUED WITH ORIGINAL ISSUE DISCOUNT;
FOR EACH $1,000 PRINCIPAL AMOUNT OF THIS SECURITY, THE ISSUE PRICE ALLOCATED TO
THE NOTE IS $961.85, THE AMOUNT OF ORIGINAL ISSUE DISCOUNT IS $38.15, THE ISSUE
DATE IS NOVEMBER 17, 1999 AND THE YIELD TO MATURITY IS 13.46% PER ANNUM.
CUSIP/CINS ____________
12 3/4% Senior Subordinated Notes due 2009
No. 1 $152,000,000
WRC MEDIA INC.
WEEKLY READER CORPORATION
JLC LEARNING CORPORATION
promises to pay to Cede & Co. or registered assigns,
the principal sum of One Hundred Fifty Two Million Dollars on November 15, 2009.
Interest Payment Dates: May 15 and November 15
Record Dates: May 1 and November 1
Dated: November 17, 1999
WRC MEDIA INC.
By:
-----------------------------------------
Name:
Title:
WEEKLY READER CORPORATION
By:
-----------------------------------------
Name:
Title:
JLC LEARNING CORPORATION
By:
-----------------------------------------
Name:
Title:
This is one of the Notes referred to
in the within-mentioned Indenture:
BANKERS TRUST COMPANY
as Trustee
By:
------------------------------
Authorized Signatory
- --------------------------------------------------------------------------------
A-1
<PAGE>
[Back of Note]
12 3/4% Senior Subordinated Notes due 2009
[INSERT THE GLOBAL NOTE LEGEND, IF APPLICABLE PURSUANT TO THE PROVISIONS OF THE
INDENTURE]
[INSERT THE PRIVATE PLACEMENT LEGEND, IF APPLICABLE PURSUANT TO THE PROVISIONS
OF THE INDENTURE]
Capitalized terms used herein shall have the meanings assigned to them
in the Indenture referred to below unless otherwise indicated.
1. INTEREST. WRC Media Inc, a Delaware corporation (the
"Company"), Weekly Reader Corporation, a Delaware corporation, and JLC Learning
Corporation, a Delaware corporation (collectively, the "Issuers"), promise to
pay interest on the principal amount of this Note at 12 3/4% per annum from
November 17, 1999 until maturity and shall pay the Liquidated Damages payable
pursuant to Section 5 of the Registration Rights Agreement referred to below.
The Issuers will pay interest and Liquidated Damages semi-annually in arrears on
May 15 and November 15 of each year, or if any such day is not a Business Day,
on the next succeeding Business Day (each an "Interest Payment Date"). Interest
on the Notes will accrue from the most recent date to which interest has been
paid or, if no interest has been paid, from the date of issuance; PROVIDED that
if there is no existing Default in the payment of interest, and if this Note is
authenticated between a record date referred to on the face hereof and the next
succeeding Interest Payment Date, interest shall accrue from such next
succeeding Interest Payment Date; PROVIDED, FURTHER, that the first Interest
Payment Date shall be May 15, 2000. Interest will be computed on the basis of a
360 day year of twelve 30 day months.
2. METHOD OF PAYMENT. The Issuers will pay interest on the Notes
(except defaulted interest) and Liquidated Damages to the Persons who are
registered Holders of Notes at the close of business on the May 1 or November 1
next preceding the Interest Payment Date, even if such Notes are canceled after
such record date and on or before such Interest Payment Date, except as provided
in Section 2.12 of the Indenture with respect to defaulted interest. The Notes
will be payable as to principal, premium and Liquidated Damages, if any, and
interest at the office or agency of the Issuers maintained for such purpose
within or without the City and State of New York, or, at the option of the
Issuers, payment of interest and Liquidated Damages may be made by check mailed
to the Holders at their addresses set forth in the register of Holders, and
PROVIDED that payment by wire transfer of immediately available funds will be
required with respect to principal of and interest, premium and Liquidated
Damages on, all Global Notes and all other Notes the Holders of which shall have
provided wire transfer instructions to the Issuers or the Paying Agent. Such
payment shall be in such coin or currency of the United States of America as at
the time of payment is legal tender for payment of public and private debts.
3. PAYING AGENT AND REGISTRAR. Initially, Bankers Trust Company,
the Trustee under the Indenture, will act as Paying Agent and Registrar. The
Issuers may change any Paying Agent or Registrar without notice to any Holder.
The Company or any of its Restricted Subsidiaries may act in any such capacity.
4. INDENTURE. The Issuers issued the Notes under an Indenture
dated as of November 17, 1999 ("Indenture") among the Issuers, the Note
Guarantors and the Trustee. The terms of the Notes include those stated in the
Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939, as amended (15 U.S. Code Sections 77aaa-77bbbb). The
Notes are subject to all such terms, and Holders are referred to the Indenture
and such Act for a statement of such terms. To the extent any provision of this
Note conflicts with the express provisions of the Indenture, the provisions of
the Indenture shall govern and be controlling. The Notes are obligations of the
Issuers limited to $250.0 million in aggregate principal amount,
A-2
<PAGE>
plus amounts, if any, issued to pay Liquidated Damages on outstanding Notes as
set forth in Paragraph 2 hereof.
5. OPTIONAL REDEMPTION.
(a) Except as set forth in subparagraph (b) of this Paragraph 5,
the Issuers shall not have the option to redeem the Notes prior to November 15,
2004. Thereafter, the Issuers shall have the option to redeem the Notes, in
whole or in part, upon not less than 30 nor more than 60 days' notice, at the
redemption prices (expressed as percentages of principal amount) set forth below
plus accrued and unpaid interest and Liquidated Damages thereon to the
applicable redemption date, if redeemed during the twelve-month period beginning
on November 15 of the years indicated below:
<TABLE>
<CAPTION>
Year Percentage
- ---- ----------
<S> <C>
2004................................................................................ 106.375%
2005................................................................................ 104.250%
2006................................................................................ 102.125%
2007 and thereafter................................................................. 100.000%
</TABLE>
(b) Notwithstanding the provisions of subparagraph (a) of this
Paragraph 5, at any time prior to November 15, 2002, the Issuers may on one or
more occasions redeem Notes with the net proceeds of one or more Equity
Offerings at a redemption price equal to 112.75% of the aggregate principal
amount thereof; PROVIDED that at least 65% in aggregate principal amount of the
Notes (calculated giving effect to the issuance of Additional Notes) issued
under the Indenture remain outstanding immediately after the occurrence of such
redemption and that such redemption occurs within 45 days of the date of the
closing of such Equity Offering.
6. MANDATORY REDEMPTION.
Except as set forth in paragraph 7 below, the Issuers shall not be
required to make mandatory redemption payments with respect to the Notes.
7. REPURCHASE AT OPTION HOLDER.
(a) If there is a Change of Control, the Issuers shall be required
(unless the Issuers have given notice of redemption of the Notes pursuant to
Section 3.07 of the Indenture) to make an offer (a "Change of Control Offer") to
repurchase all or any part (equal to $1,000 or an integral multiple thereof) of
each Holder's Notes at a purchase price equal to 101% of the aggregate principal
amount thereof plus accrued and unpaid interest and Liquidated Damages thereon,
if any, to the date of purchase (the "Change of Control Payment"). Within 30
days following any Change of Control, the Issues shall mail a notice to each
Holder setting forth the procedures governing the Change of Control Offer as
required by the Indenture.
(b) If the Company or a Restricted Subsidiary consummates any
Asset Sales, within five days of each date on which the aggregate amount of
Excess Proceeds exceeds $10 million, the Issuers shall commence an offer to all
Holders of Notes (as "Asset Sale Offer") pursuant to Section 3.09 of the
Indenture to purchase the maximum principal amount of Notes (including any
Additional Notes) that may be purchased out of the Excess Proceeds at an offer
price in cash in an amount equal to 100% of the principal amount thereof plus
accrued and unpaid interest and Liquidated Damages thereon, if any, to the date
fixed for the closing of such offer, in accordance with the procedures set forth
in the Indenture. To the extent that the aggregate amount of Notes (including
any Additional Notes) tendered pursuant to an Asset Sale Offer is less than the
Excess Proceeds, the Issuers may use such deficiency for any purpose not
otherwise prohibited by the Indenture. If the aggregate principal amount of
Notes surrendered by Holders thereof exceeds the amount of Excess Proceeds, the
Trustee shall select the Notes to be purchased on a PRO RATA basis. Holders of
Notes that are the subject of an offer to purchase will receive an Asset Sale
Offer from the Issuers prior to any related purchase date and may elect to have
such Notes purchased by completing the form entitled "Option of Holder to Elect
Purchase" on the reverse of the Notes.
8. NOTICE OF REDEMPTION. Notice of redemption will be mailed at
least 30 days but not more than 60 days before the redemption date to each
Holder whose Notes are to be redeemed at its registered
A-3
<PAGE>
address. Notes in denominations larger than $1,000 may be redeemed in part but
only in whole multiples of $1,000, unless all of the Notes held by a Holder are
to be redeemed. On and after the redemption date interest ceases to accrue on
Notes or portions thereof called for redemption.
9. DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in registered
form without coupons in denominations of $1,000 and integral multiples of
$1,000. The transfer of Notes may be registered and Notes may be exchanged as
provided in the Indenture. The Registrar and the Trustee may require a Holder,
among other things, to furnish appropriate endorsements and transfer documents
and the Issuers may require a Holder to pay any taxes and fees required by law
or permitted by the Indenture. The Issuers need not exchange or register the
transfer of any Note or portion of a Note selected for redemption, except for
the unredeemed portion of any Note being redeemed in part. Also, the Issuers
need not exchange or register the transfer of any Notes for a period of 15 days
before a selection of Notes to be redeemed or during the period between a record
date and the corresponding Interest Payment Date.
10. PERSONS DEEMED OWNERS. The registered Holder of a Note may be
treated as its owner for all purposes.
11. AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain
exceptions, the Indenture, the Note Guarantees or the Notes may be amended or
supplemented with the consent of the Holders of at least a majority in principal
amount of the then outstanding Notes and Additional Notes, if any, voting as a
single class, and any existing default or compliance with any provision of the
Indenture, the Note Guarantees or the Notes may be waived with the consent of
the Holders of a majority in principal amount of the then outstanding Notes and
Additional Notes, if any, voting as a single class. Without the consent of any
Holder of a Note, the Indenture, the Note Guarantees or the Notes may be amended
or supplemented to cure any ambiguity, defect or inconsistency, to provide for
uncertificated Notes in addition to or in place of certificated Notes, to
provide for the assumption of the Issuers' or Note Guarantors' obligations to
Holders of the Notes in case of a merger or consolidation, to make any change
that would provide any additional rights or benefits to the Holders of the Notes
or that does not adversely affect the legal rights under the Indenture of any
such Holder, to comply with the requirements of the SEC in order to effect or
maintain the qualification of the Indenture under the Trust Indenture Act, to
provide for the Issuance of Additional Notes in accordance with the limitations
set forth in the Indenture, or to allow any Note Guarantor to execute a
supplemental indenture to the Indenture and/or a Note Guarantee with respect to
the Notes.
12. DEFAULTS AND REMEDIES. Events of Default include: (i) default
for 30 days in the payment when due of interest or Liquidated Damages on the
Notes; (ii) default in payment when due of principal of or premium, if any, on
the Notes when the same becomes due and payable at maturity, upon redemption
(including in connection with an offer to purchase) or otherwise, (iii) failure
by the Company or any of its Subsidiaries for 30 days after written notice to
the Company by the Trustee or Holders of at least 25% in aggregate principal
amount of the Notes (including Additional Notes, if any) then outstanding voting
as a single class; to comply with Section 4.07, 4.09, 4.10 or 5.01 of the
Indenture; (iv) failure by the Company for 60 days after written notice to the
Company by the Trustee or the Holders of at least 25% in principal amount of the
Notes (including Additional Notes, if any) then outstanding voting as a single
class to comply with certain other agreements in the Indenture or the Notes; (v)
default under certain other agreements relating to Indebtedness of the Company
or any of its Restricted Subsidiaries which default is caused by a failure to
pay any such Indebtedness at its stated, final maturity (giving effect to any
grace periods) or results in the acceleration of such Indebtedness prior to its
stated, final maturity; (vi) certain final judgments for the payment of money
that remain undischarged for a period of 60 days; (vii) certain events of
bankruptcy or insolvency with respect to the Issuers or any of their Significant
Subsidiaries; and (viii) except as permitted by the Indenture, any Note
Guarantee shall be held in any judicial proceeding to be unenforceable or
invalid or shall cease for any reason to be in full force and effect or any Note
Guarantor or any Person acting on its behalf shall deny or disaffirm its
obligations under such Note Guarantor's Note Guarantee. If any Event of Default
occurs and is continuing, the Trustee or the Holders of at least 25% in
principal amount of the then outstanding Notes may declare all the Notes to be
due and payable. PROVIDED, that so long as any Indebtedness permitted to be
incurred pursuant to the Credit Agreement shall be outstanding, such
acceleration shall not be effective until the earlier of: (1) an acceleration of
any such Indebtedness under the Credit Agreement; or (2) five Business Days
after receipt by the Issuers and the administrative agent under the Credit
Agreement of written notice of that acceleration. Notwithstanding the foregoing,
in the case of an Event of Default arising from certain events of bankruptcy or
insolvency, all outstanding Notes will become due and payable without further
action or notice. Holders may not enforce the Indenture or the
A-4
<PAGE>
Notes except as provided in the Indenture. Subject to certain limitations,
Holders of a majority in principal amount of the then outstanding Notes may
direct the Trustee in its exercise of any trust or power. The Trustee may
withhold from Holders of the Notes notice of any continuing Default or Event of
Default (except a Default or Event of Default relating to the payment of
principal or interest of Liquidated Damages) if it determines that withholding
notice is in their interest. The Holders of a majority in aggregate principal
amount of the Notes then outstanding by notice to the Trustee may on behalf of
the Holders of all of the Notes waive any existing Default or Event of Default
and its consequences under the Indenture except a continuing Default or Event of
Default in the payment of interest on, or the principal of, or Liquidated
Damages or premium, if any, on the Notes. The Issuers are required to deliver to
the Trustee annually a statement regarding compliance with the Indenture, and
the Issuers are required within five Business Days of becoming aware of any
Default or Event of Default, to deliver to the Trustee a statement specifying
such Default or Event of Default.
13. TRUSTEE DEALINGS WITH COMPANY. The Trustee, in its individual
or any other capacity, may make loans to, accept deposits from, and perform
services for the Issuers or any Note Guarantor, and may otherwise deal with the
Issuers or the Note Guarantors, as if it were not the Trustee.
14. NO RECOURSE AGAINST OTHERS. A director, officer, employee,
incorporator or stockholder, of the Issuer or any Note Guarantor, as such, shall
not have any liability for any obligations of the Issuers under the Notes, the
Note Guarantees or the Indenture or for any claim based on, in respect of, or by
reason of, such obligations or their creation. Each Holder by accepting a Note
waives and releases all such liability. The waiver and release are part of the
consideration for the issuance of the Notes.
15. AUTHENTICATION. This Note shall not be valid until
authenticated by the manual signature of the Trustee or an authenticating agent.
16. ABBREVIATIONS. Customary abbreviations may be used in the name
of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).
17. ADDITIONAL RIGHTS OF HOLDERS OF RESTRICTED GLOBAL NOTES AND
RESTRICTED DEFINITIVE NOTES. In addition to the rights provided to Holders of
Notes under the Indenture, Holders of Restricted Global Notes and Restricted
Definitive Notes shall have all the rights set forth in the A/B Exchange
Registration Rights Agreement dated as of November 17, 1999, between the Issuers
and the parties named on the signature pages thereof (the "Registration Rights
Agreement").
18. CUSIP NUMBERS. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Issuers have caused
CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP numbers
in notices of redemption as a convenience to Holders. No representation is made
as to the accuracy of such numbers either as printed on the Notes or as
contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.
The Issuers will furnish to any Holder upon written request and without
charge a copy of the Indenture and/or the Registration Rights Agreement.
Requests may be made to:
WRC Media Inc.
Weekly Reader Corporation
JLC Learning Corporation
1 Rockefeller Plaza, 32nd Floor
New York, New York 10020
Attention: Chief Executive Officer
A-5
<PAGE>
Assignment Form
To assign this Note, fill in the form below:
(I) or (we) assign and transfer this Note to:
-----------------------------------
(Insert assignee's legal name)
- --------------------------------------------------------------------------------
(Insert assignee's soc. sec. or tax I.D. no.)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint
---------------------------------------------------------
to transfer this Note on the books of the Issuers. The agent may substitute
another to act for him.
Date:
--------------------
Your Signature:
------------------------------
(Sign exactly as your name appears on the
face of this Note)
Signature Guarantee*:
----------------------------
* Participant in a recognized Signature Guarantee Medallion Program (or
other signature guarantor acceptable to the Trustee).
A-6
<PAGE>
Option of Holder to Elect Purchase
If you want to elect to have this Note purchased by the Issuers
pursuant to Section 4.10 or 4.15 of the Indenture, check the appropriate box
below:
/ / Section 4.10 / / Section 4.15
If you want to elect to have only part of the Note purchased by the
Issuers pursuant to Section 4.10 or Section 4.15 of the Indenture, state the
amount you elect to have purchased:
$
---------------
Date:
--------------------
Your Signature:
------------------------------
(Sign exactly as your name appears on the
face of this Note)
Tax Identification No.:
----------------------
Signature Guarantee*:
----------------------------
* Participant in a recognized Signature Guarantee Medallion Program (or
other signature guarantor acceptable to the Trustee).
A-7
<PAGE>
SCHEDULE OF EXCHANGES OF INTERESTS IN THE GLOBAL NOTE*
The following exchanges of a part of this Global Note for an interest
in another Global Note or for a Definitive Note, or exchanges of a part of
another Global Note or Definitive Note for an interest in this Global Note, have
been made:
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
AMOUNT OF DECREASE IN AMOUNT OF INCREASE IN OF THIS GLOBAL NOTE SIGNATURE OF
PRINCIPAL AMOUNT PRINCIPAL AMOUNT FOLLOWING SUCH AUTHORIZED OFFICER OF
OF AT MATURITY OF DECREASE TRUSTEE OR NOTE
DATE OF EXCHANGE THIS GLOBAL NOTE THIS GLOBAL NOTE (OR INCREASE) CUSTODIAN
---------------- ---------------- ---------------- ------------- ---------
<S> <C> <C> <C> <C>
</TABLE>
* THIS SCHEDULE SHOULD BE INCLUDED ONLY IF THE NOTE IS ISSUED IN GLOBAL
FORM.
A-8
<PAGE>
EXHIBIT B
FORM OF CERTIFICATE OF TRANSFER
WRC Media Inc.
Weekly Reader Corporation
JLC Learning Corporation
1 Rockefeller Plaza, 32nd Floor
New York, New York 10020
Bankers Trust Company
Four Albany Street, 4th Floor
New York, New York 10006
Attention: Corporate Trust and Agency Services
Re: 12 3/4% Senior Subordinated Notes due 2009
Reference is hereby made to the Indenture, dated as of November 17,
1999 (the "INDENTURE"), among WRC Media Inc., Weekly Reader Corporation and JLC
Learning Corporation, as issuers (the "ISSUERS"), the Note Guarantors and
Bankers Trust Company, as trustee. Capitalized terms used but not defined herein
shall have the meanings given to them in the Indenture.
___________________, (the "TRANSFEROR") owns and proposes to transfer
the Note[s] or interest in such Note[s] specified in Annex A hereto, in the
principal amount of $___________ in such Note[s] or interests (the "TRANSFER"),
to ___________________________ (the "TRANSFEREE"), as further specified in Annex
A hereto. In connection with the Transfer, the Transferor hereby certifies that:
[CHECK ALL THAT APPLY]
1. / / CHECK IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL INTEREST
IN THE 144A GLOBAL NOTE OR A DEFINITIVE NOTE PURSUANT TO RULE 144A. The Transfer
is being effected pursuant to and in accordance with Rule 144A under the United
States Securities Act of 1933, as amended (the "SECURITIES ACT"), and,
accordingly, the Transferor hereby further certifies that the beneficial
interest or Definitive Note is being transferred to a Person that the Transferor
reasonably believed and believes is purchasing the beneficial interest or
Definitive Note for its own account, or for one or more accounts with respect to
which such Person exercises sole investment discretion, and such Person and each
such account is a "qualified institutional buyer" within the meaning of Rule
144A in a transaction meeting the requirements of Rule 144A and such Transfer is
in compliance with any applicable blue sky securities laws of any state of the
United States. Upon consummation of the proposed Transfer in accordance with the
terms of the Indenture, the transferred beneficial interest or Definitive Note
will be subject to the restrictions on transfer enumerated in the Private
Placement Legend printed on the 144A Global Note and/or the Definitive Note and
in the Indenture and the Securities Act.
2. / / CHECK AND COMPLETE IF TRANSFEREE WILL TAKE DELIVERY OF A
BENEFICIAL INTEREST IN THE IAI GLOBAL NOTE OR A DEFINITIVE NOTE PURSUANT TO ANY
PROVISION OF THE SECURITIES ACT OTHER THAN RULE 144A, RULE 903 OR RULE 904. The
Transfer is being effected in compliance with the transfer restrictions
applicable to beneficial interests in Restricted Global Notes and Restricted
Definitive Notes and pursuant to and in accordance with the Securities Act and
any applicable blue sky securities laws of any state of the United States, and
accordingly the Transferor hereby further certifies that (check one):
(a) / / such Transfer is being effected pursuant to and in
accordance with Rule 144 under the Securities Act;
or
(b) / / such Transfer is being effected to the Company or a
subsidiary thereof;
or
(c) / / such Transfer is being effected pursuant to an
effective registration statement under the Securities Act and in
compliance with the prospectus delivery requirements of the Securities
Act;
B-1
<PAGE>
or
(d) / / such Transfer is being effected to an Institutional
Accredited Investor and pursuant to an exemption from the registration
requirements of the Securities Act other than Rule 144A, Rule 144 or
Rule 904, and the Transferor hereby further certifies that it has not
engaged in any general solicitation within the meaning of Regulation D
under the Securities Act and the Transfer complies with the transfer
restrictions applicable to beneficial interests in a Restricted Global
Note or Restricted Definitive Notes and the requirements of the
exemption claimed, which certification is supported by (1) a
certificate executed by the Transferee in the form of Exhibit D to the
Indenture and (2)
, an Opinion of Counsel provided by the Transferor or the
Transferee (a copy of which the Transferor has attached to this
certification), to the effect that such Transfer is in compliance with
the Securities Act. Upon consummation of the proposed transfer in
accordance with the terms of the Indenture, the transferred beneficial
interest or Definitive Note will be subject to the restrictions on
transfer enumerated in the Private Placement Legend printed on the IAI
Global Note and/or the Definitive Notes and in the Indenture and the
Securities Act.
3. / / CHECK IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL INTEREST
IN AN UNRESTRICTED GLOBAL NOTE OR OF AN UNRESTRICTED DEFINITIVE NOTE.
(a) / / CHECK IF TRANSFER IS PURSUANT TO RULE 144. (i) The Transfer is
being effected pursuant to and in accordance with Rule 144 under the Securities
Act and in compliance with the transfer restrictions contained in the Indenture
and any applicable blue sky securities laws of any state of the United States
and (ii) the restrictions on transfer contained in the Indenture and the Private
Placement Legend are not required in order to maintain compliance with the
Securities Act. Upon consummation of the proposed Transfer in accordance with
the terms of the Indenture, the transferred beneficial interest or Definitive
Note will no longer be subject to the restrictions on transfer enumerated in the
Private Placement Legend printed on the Restricted Global Notes, on Restricted
Definitive Notes and in the Indenture.
(b) / / CHECK IF TRANSFER IS PURSUANT TO OTHER EXEMPTION. (i) The
Transfer is being effected pursuant to and in compliance with an exemption from
the registration requirements of the Securities Act other than Rule 144, Rule
903 or Rule 904 and in compliance with the transfer restrictions contained in
the Indenture and any applicable blue sky securities laws of any State of the
United States and (ii) the restrictions on transfer contained in the Indenture
and the Private Placement Legend are not required in order to maintain
compliance with the Securities Act. Upon consummation of the proposed Transfer
in accordance with the terms of the Indenture, the transferred beneficial
interest or Definitive Note will not be subject to the restrictions on transfer
enumerated in the Private Placement Legend printed on the Restricted Global
Notes or Restricted Definitive Notes and in the Indenture.
This certificate and the statements contained herein are made for your
benefit and the benefit of the Issuers.
---------------------------------------------
[Insert Name of Transferor]
By:
------------------------------------------
Name:
Title:
Dated:
----------------
Signature Guarantee*:
------------------
* Participant in a recognized Signature Guarantee Medallion Program (or
other signature guarantor acceptable to the Trustee).
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<PAGE>
ANNEX A TO CERTIFICATE OF TRANSFER
1. The Transferor owns and proposes to transfer the following:
[CHECK ONE OF (a) OR (b)]
(a) / / a beneficial interest in the:
(i) / / 144A Global Note (CUSIP _________), or
(ii) / / IAI Global Note (CUSIP _________); or
(b) / / a Restricted Definitive Note.
2. After the Transfer the Transferee will hold:
[CHECK ONE]
(a) / / a beneficial interest in the:
(i) / / 144A Global Note (CUSIP _________), or
(ii) / / IAI Global Note (CUSIP _________); or
(iii) / / Unrestricted Global Note
(CUSIP _________); or
(b) / / a Restricted Definitive Note; or
(c) / / an Unrestricted Definitive Note,
in accordance with the terms of the Indenture.
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<PAGE>
EXHIBIT C
FORM OF CERTIFICATE OF EXCHANGE
WRC Media Inc.
Weekly Reader Corporation
JLC Learning Corporation
1 Rockefeller Plaza, 32nd Floor
New York, New York 10020
Bankers Trust Company
Four Albany Street, 4th Floor
New York, New York 10006
Attention: Corporate Trust and Agency Services
Re: 12 3/4% Senior Subordinated Notes due 2009
(CUSIP ___________)
Reference is hereby made to the Indenture, dated as of November 17,
1999 (the "INDENTURE"), among WRC Media Inc., Weekly Reader Corporation and JLC
Learning Corporation, as issuers (the "ISSUERS"), the Note Guarantors and
Bankers Trust Company, as trustee. Capitalized terms used but not defined herein
shall have the meanings given to them in the Indenture.
__________________________, (the "OWNER") owns and proposes to exchange
the Note[s] or interest in such Note[s] specified herein, in the principal
amount of $____________ in such Note[s] or interests (the "EXCHANGE"). In
connection with the Exchange, the Owner hereby certifies that:
1. EXCHANGE OF RESTRICTED DEFINITIVE NOTES OR BENEFICIAL
INTERESTS IN A RESTRICTED GLOBAL NOTE FOR UNRESTRICTED DEFINITIVE NOTES OR
BENEFICIAL INTERESTS IN AN UNRESTRICTED GLOBAL NOTE
(a) / / CHECK IF EXCHANGE IS FROM BENEFICIAL INTEREST IN A RESTRICTED
GLOBAL NOTE TO BENEFICIAL INTEREST IN AN UNRESTRICTED GLOBAL NOTE. In connection
with the Exchange of the Owner's beneficial interest in a Restricted Global Note
for a beneficial interest in an Unrestricted Global Note in an equal principal
amount, the Owner hereby certifies (i) the beneficial interest is being acquired
for the Owner's own account without transfer, (ii) such Exchange has been
effected in compliance with the transfer restrictions applicable to the Global
Notes and pursuant to and in accordance with the United States Securities Act of
1933, as amended (the "SECURITIES ACT"), (iii) the restrictions on transfer
contained in the Indenture and the Private Placement Legend are not required in
order to maintain compliance with the Securities Act and (iv) the beneficial
interest in an Unrestricted Global Note is being acquired in compliance with any
applicable blue sky securities laws of any state of the United States.
(b) / / CHECK IF EXCHANGE IS FROM BENEFICIAL INTEREST IN A RESTRICTED
GLOBAL NOTE TO UNRESTRICTED DEFINITIVE NOTE. In connection with the Exchange of
the Owner's beneficial interest in a Restricted Global Note for an Unrestricted
Definitive Note, the Owner hereby certifies (i) the Definitive Note is being
acquired for the Owner's own account without transfer, (ii) such Exchange has
been effected in compliance with the transfer restrictions applicable to the
Restricted Global Notes and pursuant to and in accordance with the Securities
Act, (iii) the restrictions on transfer contained in the Indenture and the
Private Placement Legend are not required in order to maintain compliance with
the Securities Act and (iv) the Definitive Note is being acquired in compliance
with any applicable blue sky securities laws of any state of the United States.
(c) / / CHECK IF EXCHANGE IS FROM RESTRICTED DEFINITIVE NOTE TO
BENEFICIAL INTEREST IN AN UNRESTRICTED GLOBAL NOTE. In connection with the
Owner's Exchange of a Restricted Definitive Note for a beneficial interest in an
Unrestricted Global Note, the Owner hereby certifies (i) the beneficial interest
is being acquired for the Owner's own account without transfer, (ii) such
Exchange has been effected in compliance with the transfer restrictions
applicable to Restricted Definitive Notes and pursuant to and in accordance with
the Securities Act, (iii) the restrictions on transfer contained in the
Indenture and the Private Placement Legend are not required in order to maintain
compliance with the Securities Act and (iv) the
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<PAGE>
beneficial interest is being acquired in compliance with any applicable blue sky
securities laws of any state of the United States.
(d) / / CHECK IF EXCHANGE IS FROM RESTRICTED DEFINITIVE NOTE TO
UNRESTRICTED DEFINITIVE NOTE. In connection with the Owner's Exchange of a
Restricted Definitive Note for an Unrestricted Definitive Note, the Owner hereby
certifies (i) the Unrestricted Definitive Note is being acquired for the Owner's
own account without transfer, (ii) such Exchange has been effected in compliance
with the transfer restrictions applicable to Restricted Definitive Notes and
pursuant to and in accordance with the Securities Act, (iii) the restrictions on
transfer contained in the Indenture and the Private Placement Legend are not
required in order to maintain compliance with the Securities Act and (iv) the
Unrestricted Definitive Note is being acquired in compliance with any applicable
blue sky securities laws of any state of the United States.
2. EXCHANGE OF RESTRICTED DEFINITIVE NOTES OR BENEFICIAL
INTERESTS IN RESTRICTED GLOBAL NOTES FOR RESTRICTED DEFINITIVE NOTES OR
BENEFICIAL INTERESTS IN RESTRICTED GLOBAL NOTES
(a) / / CHECK IF EXCHANGE IS FROM BENEFICIAL INTEREST IN A RESTRICTED
GLOBAL NOTE TO RESTRICTED DEFINITIVE NOTE. In connection with the Exchange of
the Owner's beneficial interest in a Restricted Global Note for a Restricted
Definitive Note with an equal principal amount, the Owner hereby certifies that
the Restricted Definitive Note is being acquired for the Owner's own account
without transfer. Upon consummation of the proposed Exchange in accordance with
the terms of the Indenture, the Restricted Definitive Note issued will continue
to be subject to the restrictions on transfer enumerated in the Private
Placement Legend printed on the Restricted Definitive Note and in the Indenture
and the Securities Act.
(b) / / CHECK IF EXCHANGE IS FROM RESTRICTED DEFINITIVE NOTE TO
BENEFICIAL INTEREST IN A RESTRICTED GLOBAL NOTE. In connection with the Exchange
of the Owner's Restricted Definitive Note for a beneficial interest in the
[CHECK ONE] 144A Global Note, IAI Global Note with an equal principal amount,
the Owner hereby certifies (i) the beneficial interest is being acquired for the
Owner's own account without transfer and (ii) such Exchange has been effected in
compliance with the transfer restrictions applicable to the Restricted Global
Notes and pursuant to and in accordance with the Securities Act, and in
compliance with any applicable blue sky securities laws of any state of the
United States. Upon consummation of the proposed Exchange in accordance with the
terms of the Indenture, the beneficial interest issued will be subject to the
restrictions on transfer enumerated in the Private Placement Legend printed on
the relevant Restricted Global Note and in the Indenture and the Securities Act.
This certificate and the statements contained herein are made for your
benefit and the benefit of the Issuers.
---------------------------------------------
[Insert Name of Transferor]
By:
------------------------------------------
Name:
Title:
Dated:
----------------
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<PAGE>
EXHIBIT D
FORM OF CERTIFICATE FROM
ACQUIRING INSTITUTIONAL ACCREDITED INVESTOR
WRC Media Inc.
Weekly Reader Corporation
JLC Learning Corporation
1 Rockefeller Plaza, 32nd Floor
New York, New York 10020
Bankers Trust Company
Four Albany Street, 4th Floor
New York, New York 10006
Attention: Corporate Trust and Agency Services
Re: 12 3/4% Senior Subordinated Notes due 2009
Reference is hereby made to the Indenture, dated as of November 17,
1999 (the "INDENTURE"), among WRC Media Inc., Weekly Reader Corporation and JLC
Learning Corporation, as issuers (the "ISSUERS"), the Note Guarantors and
Bankers Trust Company, as trustee. Capitalized terms used but not defined herein
shall have the meanings given to them in the Indenture.
In connection with our proposed purchase of $____________ aggregate
principal amount of:
(a) / / a beneficial interest in a Global Note, or
(b) / / a Definitive Note,
we confirm that:
1. We understand that any subsequent transfer of the Notes or any
interest therein is subject to certain restrictions and conditions set forth in
the Indenture and the undersigned agrees to be bound by, and not to resell,
pledge or otherwise transfer the Notes or any interest therein except in
compliance with, such restrictions and conditions and the United States
Securities Act of 1933, as amended (the "SECURITIES ACT").
2. We understand that the offer and sale of the Notes have not
been registered under the Securities Act, and that the Notes and any interest
therein may not be offered or sold except as permitted in the following
sentence. We agree, on our own behalf and on behalf of any accounts for which we
are acting as hereinafter stated, that if we should sell the Notes or any
interest therein, we will do so only (A) to the Company or any subsidiary
thereof, (B) in accordance with Rule 144A under the Securities Act to a
"qualified institutional buyer" (as defined therein), (C) to an institutional
"accredited investor" (as defined below) that, prior to such transfer, furnishes
(or has furnished on its behalf by a U.S. broker-dealer) to you and to the
Issuers a signed letter substantially in the form of this letter and, if such
transfer is in respect of a principal amount of Notes, at the time of transfer
of less than $250,000, an Opinion of Counsel in form reasonably acceptable to
the Issuers to the effect that such transfer is in compliance with the
Securities Act, (D) pursuant to the provisions of Rule 144(k) under the
Securities Act or (E) pursuant to an effective registration statement under the
Securities Act, and we further agree to provide to any person purchasing the
Definitive Note or beneficial interest in a Global Note from us in a transaction
meeting the requirements of clauses (A) through (D) of this paragraph a notice
advising such purchaser that resales thereof are restricted as stated herein.
3. We understand that, on any proposed resale of the Notes or
beneficial interest therein, we will be required to furnish to you and the
Issuers such certifications, legal opinions and other information as you and the
Issuers may reasonably require to confirm that the proposed sale complies with
the foregoing restrictions. We further understand that the Notes purchased by us
will bear a legend to the foregoing effect.
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<PAGE>
4. We are an institutional "accredited investor" (as defined in
Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) and
have such knowledge and experience in financial and business matters as to be
capable of evaluating the merits and risks of our investment in the Notes, and
we and any accounts for which we are acting are each able to bear the economic
risk of our or its investment.
5. We are acquiring the Notes or beneficial interest therein
purchased by us for our own account or for one or more accounts (each of which
is an institutional "accredited investor") as to each of which we exercise sole
investment discretion.
You and the Issuers are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceedings or official inquiry with
respect to the matters covered hereby.
---------------------------------------------
[Insert Name of Accredited Investor]
By:
------------------------------------------
Name:
Title:
Dated:
---------------------------
D-2
<PAGE>
EXHIBIT E
FORM OF NOTATION OF NOTE GUARANTEE
For value received, each Note Guarantor (which term includes any
successor Person under the Indenture) has, jointly and severally,
unconditionally guaranteed, to the extent set forth in the Indenture and subject
to the provisions in the Indenture dated as of November 17, 1999 (the
"INDENTURE") among WRC Media Inc., Weekly Reader Corporation, JLC Learning
Corporation (the "ISSUERS"), the Note Guarantors and Bankers Trust Company, as
trustee (the "TRUSTEE"), (a) the due and punctual payment of the principal of,
premium or Liquidated Damages, if any, and interest on the Notes (as defined in
the Indenture), whether at maturity, by acceleration, redemption or otherwise,
the due and punctual payment of interest on overdue principal and premium, and,
to the extent permitted by law, interest, and the due and punctual performance
of all other obligations of the Issuers to the Holders or the Trustee all in
accordance with the terms of the Indenture and (b) in case of any extension of
time of payment or renewal of any Notes or any of such other obligations, that
the same will be promptly paid in full when due or performed in accordance with
the terms of the extension or renewal, whether at stated maturity, by
acceleration or otherwise. The obligations of the Note Guarantors to the Holders
of Notes and to the Trustee pursuant to the Note Guarantee and the Indenture are
expressly set forth in Article 11 of the Indenture and reference is hereby made
to the Indenture for the precise terms of the Note Guarantee. Each Holder of a
Note, by accepting the same, (a) agrees to and shall be bound by such
provisions, (b) authorizes and directs the Trustee, on behalf of such Holder, to
take such action as may be necessary or appropriate to effectuate the
subordination as provided in the Indenture and (c) appoints the Trustee
attorney-in-fact of such Holder for such purpose; PROVIDED, HOWEVER, that the
Indebtedness evidenced by this Note Guarantee shall cease to be so subordinated
and subject in right of payment upon any defeasance of this Note in accordance
with the provisions of the Indenture.
[Name of Note Guarantor(s)]
By:
------------------------------------------
Name:
Title:
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<PAGE>
EXHIBIT F
FORM OF SUPPLEMENTAL INDENTURE
TO BE DELIVERED BY SUBSEQUENT NOTE GUARANTORS
Supplemental Indenture (this "SUPPLEMENTAL INDENTURE"), dated as of
________________, among __________________ (the "GUARANTEEING SUBSIDIARY"), a
subsidiary of WRC Media Inc., a Delaware corporation (or its permitted
successor) (the "COMPANY"); the Company, Weekly Reader Corporation and JLC
Learning Corporation (the "ISSUERS"); the other Note Guarantors (as defined in
the Indenture referred to herein); and Bankers Trust Company, as trustee under
the indenture referred to below (the "TRUSTEE").
W I T N E S S E T H
WHEREAS, the Issuers have heretofore executed and delivered to the
Trustee an indenture (the "INDENTURE"), dated as of November 17, 1999
providing for the issuance of an aggregate principal amount of up to
$250,000,000 of 12 3/4% Senior Subordinated Notes due 2009 (the "NOTES");
WHEREAS, the Indenture provides that under certain circumstances the
Guaranteeing Subsidiary shall execute and deliver to the Trustee a supplemental
indenture pursuant to which the Guaranteeing Subsidiary shall unconditionally
guarantee all of the Issuers' Obligations under the Notes and the Indenture on
the terms and conditions set forth herein (the "NOTE GUARANTEE"); and
WHEREAS, pursuant to Section 9.06 of the Indenture, the Trustee is
authorized to execute and deliver this Supplemental Indenture.
NOW THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt of which is hereby acknowledged, the
Guaranteeing Subsidiary and the Trustee mutually covenant and agree for the
equal and ratable benefit of the Holders of the Notes as follows:
1. Capitalized Terms. Capitalized terms used herein without
definition shall have the meanings assigned to them in the Indenture.
2. Agreement to Guarantee. The Guaranteeing Subsidiary hereby
agrees as follows:
(a) Along with all Note Guarantors named in the
Indenture, to jointly and severally Guarantee to each Holder of a Note
authenticated and delivered by the Trustee and to the Trustee and its
successors and assigns, the Notes or the obligations of the Issuers
hereunder or thereunder, that:
(i) the principal of and interest on the Notes will
be promptly paid in full when due, whether at maturity, by
acceleration, redemption or otherwise, and interest on the
overdue principal of and interest on the Notes, if any, if
lawful, and all other obligations of the Issuers to the
Holders or the Trustee hereunder or thereunder will be
promptly paid in full or performed, all in accordance with the
terms hereof and thereof; and
(ii) in case of any extension of time of payment or
renewal of any Notes or any of such other obligations, that
same will be promptly paid in full when due or performed in
accordance with the terms of the extension or renewal, whether
at stated maturity, by acceleration or otherwise. Failing
payment when due of any amount so guaranteed or any
performance so guaranteed for whatever reason, the Note
Guarantors shall be jointly and severally obligated to pay the
same immediately.
(b) The obligations hereunder shall be unconditional,
irrespective of the validity, regularity or enforceability of the Notes
or the Indenture, the absence of any action to enforce the same, any
waiver or consent by any Holder of the Notes with respect to any
provisions hereof or thereof, the recovery of any judgment against the
Issuers, any action to enforce the same or any other circumstance which
might otherwise constitute a legal or equitable discharge or defense of
a guarantor.
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<PAGE>
(c) The following is hereby waived: diligence
presentment, demand of payment, filing of claims with a court in the
event of insolvency or bankruptcy of the Issuers, any right to require
a proceeding first against the Issuers, protest, notice and all demands
whatsoever.
(d) This Note Guarantee shall not be discharged except by
complete performance of the obligations contained in the Notes and the
Indenture, and the Guaranteeing Subsidiary accepts all obligations of a
Note Guarantor under the Indenture.
(e) If any Holder or the Trustee is required by any court
or otherwise to return to the Issuers, the Note Guarantors, or any
Custodian, Trustee, liquidator or other similar official acting in
relation to either the Issuers or the Note Guarantors, any amount paid
by either to the Trustee or such Holder, this Note Guarantee, to the
extent theretofore discharged, shall be reinstated in full force and
effect.
(f) The Guaranteeing Subsidiary shall not be entitled to
any right of subrogation in relation to the Holders in respect of any
obligations guaranteed hereby until payment in full of all obligations
guaranteed hereby.
(g) As between the Note Guarantors, on the one hand, and
the Holders and the Trustee, on the other hand, (x) the maturity of the
obligations guaranteed hereby may be accelerated as provided in Article
6 of the Indenture for the purposes of this Note Guarantee,
notwithstanding any stay, injunction or other prohibition preventing
such acceleration in respect of the obligations guaranteed hereby, and
(y) in the event of any declaration of acceleration of such obligations
as provided in Article 6 of the Indenture, such obligations (whether or
not due and payable) shall forthwith become due and payable by the Note
Guarantors for the purpose of this Note Guarantee.
(h) The Note Guarantors shall have the right to seek
contribution from any non-paying Guarantor so long as the exercise of
such right does not impair the rights of the Holders under the Note
Guarantee.
(i) Pursuant to Section 11.02 of the Indenture, after
giving effect to any maximum amount and any other contingent and fixed
liabilities that are relevant under any applicable bankruptcy or
fraudulent conveyance laws, and after giving effect to any collections
from, rights to receive contribution from or payments made by or on
behalf of any other Note Guarantor in respect of the obligations of
such other Note Guarantor under Article 11 of the Indenture, this new
Note Guarantee shall be limited to the maximum amount permissible such
that the obligations of such Note Guarantor under this Note Guarantee
will not constitute a fraudulent transfer or conveyance.
3. Execution and Delivery. Each Guaranteeing Subsidiary agrees
that the Note Guarantees shall remain in full force and effect notwithstanding
any failure to endorse on each Note a notation of such Note Guarantee.
4. Guaranteeing Subsidiary May Consolidate, Etc. on Certain
Terms.
(a) The Guaranteeing Subsidiary may not consolidate with
or merge with or into (whether or not such Note Guarantor is the
surviving Person) another corporation, Person or entity whether or not
affiliated with such Note Guarantor unless:
(i) subject to Sections 11.05 and 11.06 of the
Indenture, the Person formed by or surviving any such
consolidation or merger (if other than a Note Guarantor or an
Issuer) unconditionally assumes all the obligations of such
Note Guarantor, pursuant to a supplemental indenture in form
and substance reasonably satisfactory to the Trustee, under
the Notes, the Indenture and the Note Guarantee on the terms
set forth herein or therein; and
(ii) immediately after giving effect to such
transaction, no Default or Event of Default exists.
(b) In case of any such consolidation, merger, sale or
conveyance and upon the assumption by the successor corporation, by
supplemental indenture, executed and delivered to the
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Trustee and satisfactory in form to the Trustee, of the Note Guarantee
endorsed upon the Notes and the due and punctual performance of all of
the covenants and conditions of the Indenture to be performed by the
Note Guarantor, such successor corporation shall succeed to and be
substituted for the Note Guarantor with the same effect as if it had
been named herein as a Note Guarantor. Such successor corporation
thereupon may cause to be signed any or all of the Note Guarantees to
be endorsed upon all of the Notes issuable hereunder which theretofore
shall not have been signed by the Issuers and delivered to the Trustee.
All the Note Guarantees so issued shall in all respects have the same
legal rank and benefit under the Indenture as the Note Guarantees
theretofore and thereafter issued in accordance with the terms of the
Indenture as though all of such Note Guarantees had been issued at the
date of the execution hereof.
(c) Except as set forth in Articles 4 and 5 and Section
11.06 of Article 11 of the Indenture, and notwithstanding clauses (a)
and (b) above, nothing contained in the Indenture or in any of the
Notes shall prevent any consolidation or merger of a Note Guarantor
with or into any of the Issuers or another Note Guarantor, or shall
prevent any sale or conveyance of the property of a Note Guarantor as
an entirety or substantially as an entirety to the Issuers or another
Note Guarantor.
5. Releases.
(a) In the event of a sale or other disposition of all of
the assets of any Note Guarantor, by way of merger, consolidation or
otherwise, or a sale or other disposition of all to the capital stock
of any Note Guarantor, in each case to a Person that is not (either
before or after giving effect to such transaction) a Restricted
Subsidiary of the Issuers, then such Note Guarantor (in the event of a
sale or other disposition, by way of merger, consolidation or
otherwise, of all of the capital stock of such Note Guarantor) or the
corporation acquiring the property (in the event of a sale or other
disposition of all or substantially all of the assets of such Note
Guarantor) will be released and relieved of any obligations under its
Note Guarantee; PROVIDED that the Net Proceeds of such sale or other
disposition are applied in accordance with the applicable provisions of
the Indenture, including without limitation Section 4.10 of the
Indenture. Upon delivery by the Issuers to the Trustee of an Officers'
Certificate from each Issuer and an Opinion of Counsel to the effect
that such sale or other disposition was made by the Issuers in
accordance with the provisions of the Indenture, including without
limitation Section 4.10 of the Indenture, the Trustee shall execute any
documents reasonably required in order to evidence the release of any
Note Guarantor from its obligations under its Note Guarantee.
(b) Any Note Guarantor not released from its obligations
under its Note Guarantee shall remain liable for the full amount of
principal of and interest on the Notes and for the other obligations of
any Note Guarantor under the Indenture as provided in Article 11 of the
Indenture.
6. No Recourse Against Others. No past, present or future
director, officer, employee, incorporator, stockholder or agent of the
Guaranteeing Subsidiary, as such, shall have any liability for any obligations
of the Issuers or any Guaranteeing Subsidiary under the Notes, any Note
Guarantees, the Indenture or this Supplemental Indenture or for any claim based
on, in respect of, or by reason of, such obligations or their creation. Each
Holder of the Notes by accepting a Note waives and releases all such liability.
The waiver and release are part of the consideration for issuance of the Notes.
Such waiver may not be effective to waive liabilities under the federal
securities laws and it is the view of the SEC that such a waiver is against
public policy.
7. NEW YORK LAW TO GOVERN. THE INTERNAL LAW OF THE STATE OF NEW
YORK SHALL GOVERN AND BE USED TO CONSTRUE THIS SUPPLEMENTAL INDENTURE BUT
WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT
THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED
THEREBY.
8. Counterparts. The parties may sign any number of copies of
this Supplemental Indenture. Each signed copy shall be an original, but all of
them together represent the same agreement.
9. Effect of Headings. The Section headings herein are for
convenience only and shall not affect the construction hereof.
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<PAGE>
10. The Trustee. The Trustee shall not be responsible in any
manner whatsoever for or in respect of the validity or sufficiency of this
Supplemental Indenture or for or in respect of the recitals contained herein,
all of which recitals are made solely by the Guaranteeing Subsidiary and the
Issuers.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental
Indenture to be duly executed and attested, all as of the date first above
written.
Dated: _______________, ____
[GUARANTEEING SUBSIDIARY]
By:
---------------------------------------
Name:
Title:
WRC MEDIA INC.
WEEKLY READER CORPORATION
JLC LEARNING CORPORATION
By:
---------------------------------------
Name:
Title:
[EXISTING NOTE GUARANTORS]
By:
---------------------------------------
Name:
Title:
BANKERS TRUST COMPANY,
as Trustee
By:
---------------------------------------
Authorized Signatory
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SCHEDULE I
SCHEDULE OF NOTE GUARANTORS
The following schedule lists each Note Guarantor under the Indenture as
of the Issue Date:
PRIMEDIA Reference Inc.
Funk & Wagnalls Yearbook Corporation
Lifetime Learning Systems, Inc.
Gareth Stevens, Inc.
American Guidance Service, Inc.
AGS International Sales, Inc.
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<PAGE>
EXECUTOIN COPY
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
WRC MEDIA INC.
WEEKLY READER CORPORATION
JLC LEARNING CORPORATION
THE NOTE GUARANTORS NAMED
HEREIN
----------------------------------------
$152,000,000
12 3/4% SENIOR SUBORDINATED NOTES DUE 2009
----------------------------------------
--------------------
REGISTRATION RIGHTS AGREEMENT
DATED AS OF NOVEMBER 17, 1999
--------------------
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
BANC OF AMERICA SECURITIES LLC
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
2
This Registration Rights Agreement (this "AGREEMENT") is made and
entered into as of November 17, 1999, by and among WRC Media Inc., a Delaware
corporation (the "COMPANY"), Weekly Reader Corporation, a Delaware corporation
("WEEKLY READER"), JLC Learning Corporation, a Delaware corporation ("JLC
LEARNING" and, together with the Company and Weekly Reader, each an "ISSUER"
and, collectively, the "ISSUERS"), the Note Guarantors listed on the signature
pages hereto (each a "NOTE GUARANTOR" and, collectively, the "NOTE GUARANTORS")
and Donaldson, Lufkin & Jenrette Securities Corporation and Banc of America
Securities LLC (each an "INITIAL PURCHASER" and, collectively, the "INITIAL
PURCHASERS"), each of whom has agreed to purchase the Company's 12 3/4% Senior
Subordinated Notes due 2009 (the "SENIOR SUBORDINATED NOTES"), pursuant to the
Purchase Agreement (as defined below).
This Agreement is made pursuant to the Purchase Agreement, dated
November 10, 1999, (the "PURCHASE AGREEMENT"), by and among the Issuers, the
Note Guarantors and the Initial Purchasers. In order to induce the Initial
Purchasers to purchase the Senior Subordinated Notes, the Issuers have agreed to
provide the registration rights relating to the Senior Subordinated Notes set
forth in this Agreement. The execution and delivery of this Agreement is a
condition to the obligations of the Initial Purchasers set forth in Section 3 of
the Purchase Agreement. Capitalized terms used herein and not otherwise defined
shall have the meaning assigned to them in the Indenture, dated the Closing
Date, among the Issuers, the Note Guarantors and The Bankers Trust Company, as
Trustee, relating to the Senior Subordinated Notes and the New Senior
Subordinated Notes, as such indenture is amended or supplemented from time to
time (the "INDENTURE").
The parties hereby agree as follows:
SECTION 1 DEFINITIONS
As used in this Agreement, the following capitalized terms shall have
the following meanings:
ACT: The Securities Act of 1933, as amended.
AFFILIATE: As defined in Rule 144 of the Act.
APPLICABLE PERIOD: As defined in Section 3(c) hereof.
BROKER-DEALER: Any broker or dealer registered under the Exchange Act.
BUSINESS DAY: Any day other than a Saturday, Sunday or day on which
commercial banks in the City of New York are authorized or required by law,
regulation or executive order to remain closed.
CERTIFICATED SECURITIES: Definitive Notes, as defined in the Indenture.
CLOSING DATE: The date hereof.
COMMISSION: The Securities and Exchange Commission.
CONSUMMATE: An Exchange Offer shall be deemed "Consummated" for
purposes of this Agreement upon the occurrence of (a) the filing and
effectiveness under the Act of the Exchange Offer Registration Statement
relating to the New Senior Subordinated Notes to be issued in the Exchange
Offer, (b) the maintenance of such Exchange Offer Registration Statement
continuously effective and the keeping of the Exchange Offer open for a period
not less than the period required pursuant to Section 3(b) hereof and (c) the
delivery by the Issuers to the Registrar under the Indenture of New Senior
Subordinated Notes in the same aggregate principal amount as the aggregate
principal amount of Senior Subordinated Notes tendered by Holders thereof
pursuant to the Exchange Offer.
<PAGE>
3
CONSUMMATION DEADLINE: As defined in Section 3(b) hereof.
EXCHANGE ACT: The Securities Exchange Act of 1934, as amended.
EXCHANGE OFFER: The exchange and issuance by the Issuers of a principal
amount of New Senior Subordinated Notes (which shall be registered pursuant to
the Exchange Offer Registration Statement) equal to the outstanding principal
amount of Senior Subordinated Notes that are tendered by such Holders in
connection with such exchange and issuance.
EXCHANGE OFFER EFFECTIVENESS TARGET DATE: As defined in Section 3(a)
hereof.
EXCHANGE OFFER FILING DEADLINE: As defined in Section 3(a) hereof.
EXCHANGE OFFER REGISTRATION PERIOD: As defined in Section 3(b) hereof.
EXCHANGE OFFER REGISTRATION STATEMENT: The Registration Statement
relating to the Exchange Offer, including the related Prospectus.
EXEMPT RESALES: The transactions in which the Initial Purchasers
propose to sell the Senior Subordinated Notes to certain "qualified
institutional buyers," as such term is defined in Rule 144A under the Act.
HOLDERS: As defined in Section 2 hereof.
NEW SENIOR SUBORDINATED NOTES: The Issuers; new 12 3/4% Senior
Subordinated Notes due 2009 to be issued pursuant to the Indenture: (i) in the
Exchange Offer or (ii) as contemplated by Section 4 hereof.
NOTES: The Senior Subordinated Notes and the New Senior Subordinated
Notes.
PERSON: An individual, partnership, limited liability company,
corporation, trust, unincorporated organization, or a government or agency or
political subdivision thereof.
PROSPECTUS: The prospectus included in a Registration Statement at the
time such Registration Statement is declared effective, as amended or
supplemented by any prospectus supplement and by all other amendments thereto,
including post-effective amendments, and all material incorporated by reference
into such Prospectus.
RECOMMENCEMENT DATE: As defined in Section 6(d) hereof.
REGISTRATION DEFAULT: As defined in Section 5 hereof.
REGISTRATION STATEMENT: Any registration statement of the Issuers and
the Note Guarantors relating to (a) an offering of New Senior Subordinated Notes
pursuant to an Exchange Offer or (b) the registration for resale of Transfer
Restricted Securities pursuant to the Shelf Registration Statement, in each
case, (i) that is filed pursuant to the provisions of this Agreement and (ii)
including the Prospectus included therein, all amendments and supplements
thereto (including post-effective amendments) and all exhibits and material
incorporated by reference therein.
RULE 144: Rule 144 promulgated under the Act.
SHELF REGISTRATION EFFECTIVENESS TARGET DATE: As defined in Section
4(a) hereof.
SHELF REGISTRATION FILING DEADLINE: As defined in Section 4(b) hereof.
SHELF REGISTRATION PERIOD: As defined in Section 4(a) hereof.
<PAGE>
4
SHELF REGISTRATION STATEMENT: As defined in Section 4 hereof.
SUSPENSION NOTICE: As defined in Section 6(d) hereof.
TIA: The Trust Indenture Act of 1939 (15 U.S.C. Section 77aaa-77bbbb)
as in effect on the date of the Indenture.
TRANSFER RESTRICTED SECURITIES: Each (A) Senior Subordinated Note,
until the earliest to occur of (i) the date on which such Senior Subordinated
Note is exchanged in the Exchange Offer for a New Senior Subordinated Note which
is entitled to be resold to the public by the Holder thereof (other than a
Broker-Dealer) without complying with the prospectus delivery requirements of
the Act, (ii) the date on which such Senior Subordinated Note has been disposed
of in accordance with a Shelf Registration Statement (and the purchasers thereof
have been issued New Senior Subordinated Notes), or (iii) the date on which such
Senior Subordinated Note is distributed to the public pursuant to Rule 144 under
the Act and each (B) New Senior Subordinated Note held by a Broker-Dealer until
the date on which such New Senior Subordinated Note is disposed of by a
Broker-Dealer pursuant to the "Plan of Distribution" contemplated by the
Exchange Offer Registration Statement (including the delivery of the Prospectus
contained therein).
SECTION 2 HOLDERS
A Person is deemed to be a holder of Transfer Restricted Securities
(each, a "HOLDER") whenever such Person owns Transfer Restricted Securities.
SECTION 3 REGISTERED EXCHANGE OFFER
(a) Unless the Exchange Offer shall not be permitted by applicable law
or rules, regulations or policies of the Commission, the Issuers and the Note
Guarantors shall (i) cause the Exchange Offer Registration Statement to be filed
with the Commission no later than 90 days after the Closing Date (such 90th day
being the "EXCHANGE OFFER FILING DEADLINE"), (ii) use their respective best
efforts to cause such Exchange Offer Registration Statement to become effective
as promptly as possible, but in no event later than 210 days after the Closing
Date such 210 day being the "EXCHANGE OFFER EFFECTIVENESS TARGET DATE"), (iii)
in connection with the foregoing, (A) file all pre-effective amendments to such
Exchange Offer Registration Statement as may be necessary in order to cause it
to become effective, (B) file, if applicable, a post-effective amendment to such
Exchange Offer Registration Statement pursuant to Rule 430A under the Act and
(C) cause all necessary filings, if any, in connection with the registration and
qualification of the New Senior Subordinated Notes to be made under the Blue Sky
laws of such jurisdictions as are necessary to permit Consummation of the
Exchange Offer; PROVIDED, HOWEVER, that neither any Issuer nor any Note
Guarantor shall be required to register or qualify as a foreign corporation
where it is not now so qualified or to take any action that would subject it to
the service of process in suits or to taxation in any jurisdiction where it is
not now so subject, and (iv) upon the effectiveness of such Exchange Offer
Registration Statement, use their respective best efforts to commence and
Consummate the Exchange Offer. The Exchange Offer Registration Statement shall
be on the appropriate form permitting (i) registration of the New Senior
Subordinated Notes to be offered in exchange for the Senior Subordinated Notes
that are Transfer Restricted Securities and (ii) resales of New Senior
Subordinated Notes by Broker-Dealers that tendered into the Exchange Offer
Senior Subordinated Notes that such Broker-Dealer acquired for its own account
as a result of market making activities or other trading activities (other than
Senior Subordinated Notes acquired directly from any Issuer or any Affiliate
thereof) as contemplated by Section 3(c) below.
(b) The Issuers and the Note Guarantors shall use their respective best
efforts to cause the Exchange Offer Registration Statement to be effective
continuously, and shall keep the Exchange Offer open for a period of not less
than the minimum period required under applicable federal and state securities
laws to Consummate the Exchange Offer (the "EXCHANGE OFFER
<PAGE>
5
REGISTRATION PERIOD"); PROVIDED, HOWEVER, that in no event shall such period be
less than 20 Business Days. The Issuers and the Note Guarantors shall cause the
Exchange Offer to comply with all applicable federal and state securities laws.
No securities other than the New Senior Subordinated Notes and the Preferred
Stock of the Company issued in connection with the Transactions (as defined in
the Offering Memorandum) or any preferred stock of Weekly Reader or JLC Learning
issued in exchange therefor, shall be included in the Exchange Offer
Registration Statement. The Issuers and the Note Guarantors shall use their
respective best efforts to cause the Exchange Offer to be Consummated on or
prior to 30 Business Days, or longer if required by the Federal securities laws,
after the Exchange Offer Registration Statement has become effective (such 30th
Business Day, or such later date if required by the Federal Securities laws,
being the "CONSUMMATION DEADLINE").
(c) The Issuers shall include a "Plan of Distribution" section in the
Prospectus contained in the Exchange Offer Registration Statement and indicate
therein that any Broker-Dealer who holds Transfer Restricted Securities that
were acquired for the account of such Broker-Dealer as a result of market-making
activities or other trading activities (other than Senior Subordinated Notes
acquired directly from any Issuer or any Affiliate of such Issuer), may exchange
such Transfer Restricted Securities pursuant to the Exchange Offer; however,
such Broker-Dealer may be deemed to be an "underwriter" within the meaning of
the Act and must, therefore, deliver a prospectus meeting the requirements of
the Act in connection with its initial sale of any New Senior Subordinated Notes
received by such Broker-Dealer in the Exchange Offer, and the Issuers and the
Note Guarantors shall permit the use of the Prospectus contained in the Exchange
Offer Registration Statement by such Broker-Dealer to satisfy such prospectus
delivery requirement. Such "Plan of Distribution" section shall also contain all
other information with respect to such sales by such Broker-Dealers that the
Commission may require in order to permit such sales pursuant thereto, but such
"Plan of Distribution" shall not name any such Broker-Dealer or disclose the
amount of Transfer Restricted Securities held by any such Broker-Dealer, except
to the extent required by the Commission as a result of a change in policy,
rules or regulations after the date of this Agreement. See the Sherman &
Sterling no-action letter (available July 2, 1993).
To the extent necessary to ensure that the prospectus contained in the
Exchange Offer Registration Statement is available for sales of New Senior
Subordinated Notes by Broker-Dealers, the Issuers and the Note Guarantors agree
to use their respective best efforts to keep the Exchange Offer Registration
Statement continuously effective, supplemented, amended and current as required
by and subject to the provisions of Section 6(a) and (c) hereof and in
conformity with the requirements of this Agreement, the Act and the policies,
rules and regulations of the Commission as announced from time to time, for a
period of one year from the Consummation Deadline or such shorter period as will
terminate when all Transfer Restricted Securities covered by such Registration
Statement have been sold pursuant thereto (the "Applicable Period"). The Issuers
and the Note Guarantors shall provide sufficient copies of the latest version of
such Prospectus to such Broker-Dealers, as promptly as practicable upon request
and in no event later than two Business Days after Such request, at any time
during such period.
SECTION 4 SHELF REGISTRATION
(a) SHELF REGISTRATION. If (i) the Exchange Offer is not permitted by
applicable law or rules, regulations or policies of the Commission or (ii) if
any Holder of Transfer Restricted Securities shall notify the Issuers within 20
Business Days following the Consummation of the Exchange Offer that (A) such
Holder was prohibited by law or Commission rules, regulations or policies from
participating, in the Exchange Offer or (B) such Holder may not resell the New
Senior Subordinated Notes acquired by it in the Exchange Offer to the public
without delivering a prospectus and the Prospectus contained in the Exchange
Offer Registration Statement is not appropriate or available for such resales by
such Holder or (C) such Holder is a Broker-Dealer and holds Senior Subordinated
Notes acquired directly from the Company or any of its Affiliates, then the
Issuers and the Note Guarantors shall:
<PAGE>
6
(x) use their respective best efforts to cause to be filed, on or prior
to 45 days after the earlier of (i) the date on which the Issuers determine that
the Exchange Offer Registration Statement cannot be filed as a result of clause
(a)(i) above and (ii) the date on which the Issuers receive the notice specified
in clause (a)(ii) above (such earlier date, the "SHELF REGISTRATION FILING
DEADLINE"), a shelf registration statement pursuant to Rule 415 under the Act
(which may be an amendment to the Exchange Offer Registration Statement (the
"SHELF REGISTRATION STATEMENT")), relating to all Transfer Restricted
Securities, and
(y) use their respective best efforts to cause such Shelf Registration
Statement to become effective on or prior to 90 days after the Filing Deadline
(such 90th day the "SHELF REGISTRATION EFFECTIVENESS TARGET DATE").
If, after the Issuers have filed an Exchange Offer Registration
Statement that satisfies the requirements of Section 3(a) above, the Issuers are
required to file and make effective a Shelf Registration Statement solely
because the Exchange Offer is not permitted under applicable federal law or
rules, regulations or policies of the Commission (i.e., clause (a)(i) above),
then the filing of the Exchange Offer Registration Statement shall be deemed to
satisfy the requirements of clause (x) above; PROVIDED that, in such event, the
Issuers shall be obligated to use their respective best efforts to cause such
Shelf Registration Statement to become effective by the later of (i) the Shelf
Registration Effectiveness Target Date and (ii) the 90th day after publication
of the change in the applicable Federal law or rules, regulations or policies of
the Commission.
To the extent necessary to ensure that the Shelf Registration Statement
is available for sales of Transfer Restricted Securities by the Holders thereof
entitled to the benefit of this Section 4(a) and the other securities required
to be registered therein pursuant to Section 6(b)(ii) hereof, the Issuers and
the Note Guarantors shall use their respective best efforts to keep any Shelf
Registration Statement required by this Section 4(a) continuously effective,
supplemented, amended and current as required by and subject to the provisions
of Sections 4(c) and 6(b) and (c) hereof and in conformity with the requirements
of this Agreement, the Act and the policies, rules and regulations of the
Commission as announced from time to time, for a period ending on the earlier
of: (i) two years (as extended pursuant to Section 6(c)(i)) following the
Closing Date, or such shorter period as will terminate when all Transfer
Restricted Securities covered by such Shelf Registration Statement have been
sold pursuant thereto and (ii) the date on which the Senior Subordinated Notes
become eligible for resale without volume restrictions pursuant to Rule 144
under the Act (the "Shelf Registration Period").
(b) PROVISION BY HOLDERS OF CERTAIN INFORMATION IN CONNECTION WITH THE
SHELF REGISTRATION STATEMENT. No Holder of Transfer Restricted Securities may
include any of its Transfer Restricted Securities in any Shelf Registration
Statement pursuant to this Agreement unless and until such Holder furnishes to
the Issuers in writing, within 20 days after receipt of a request therefor, the
information specified in Item 507 or 508 of Regulation S-K, as applicable, of
the Act for use in connection with any Shelf Registration Statement or
Prospectus or preliminary Prospectus included therein. Each selling Holder
agrees to promptly furnish additional information required to be disclosed in
order to make the information previously furnished to the Issuers by such Holder
not materially misleading.
(c) Notwithstanding the provisions of Section 4(a) (but subject to the
provisions of Section 5(b)), the Issuers may for valid business reasons,
including without limitation, a potential acquisition, divestiture of assets or
other material corporate transaction, issue a notice that the Shelf Registration
Statement is no longer effective or the Prospectus included therein is no longer
usable for offers and sales of Transfer Restricted Securities and may issue any
notice suspending use of the Shelf Registration Statement required under
applicable securities laws to be issued. The provisions of this Section 4(c)
shall also be applicable to the Exchange Offer Registration Statement during the
Applicable Period; PROVIDED that the Applicable Period shall be extended for the
number of days (which shall not exceed 90 in any twelve-month period) that the
use of the Exchange Offer Registration Statement is suspended.
<PAGE>
7
SECTION 5 LIQUIDATED DAMAGES
(a) If (i) any Registration Statement required by this Agreement is not
filed with the Commission on or prior to the Exchange Offer Filing Deadline or
the Shelf Registration Filing Deadline, as applicable, (ii) any such
Registration Statement has not been declared effective by the Commission on or
prior to the Exchange Offer Effectiveness Target Date or the Shelf Registration
Effectiveness Target Date, as applicable, (iii) the Exchange Offer has not been
Consummated on or prior to the Consummation Deadline or (iv) any Registration
Statement required by this Agreement is filed and declared effective but shall
thereafter cease to be effective or fail to be usable for its intended purpose
at any time the Issuers and the Note Guarantors are required to maintain the
effectiveness thereof without being succeeded by an effective post-effective
amendment to such Registration Statement that cures such failure within 45 days
(each such event referred to in clauses (i) through (iv), a "REGISTRATION
DEFAULT"), then the Issuers and the Note Guarantors hereby jointly and severally
agree to pay to each Holder of Transfer Restricted Securities (but not in
respect of any Transfer Restricted Securities for any period after such
securities cease to be Transfer Restricted Securities pursuant to clause A(iii)
of the definition thereof) affected thereby liquidated damages in an amount
equal to $.05 per week per $1,000 in principal amount of Transfer Restricted
Securities held by such Holder for each week or portion thereof that the
Registration Default continues for the first 90-day period immediately following
the occurrence of such Registration Default. The amount of the liquidated
damages shall increase by an additional $.05 per week per $1,000 in principal
amount of Transfer Restricted Securities with respect to each subsequent 90-day
period until all Registration Defaults have been cured, up to a maximum amount
of liquidated damages of $.50 per week per $1,000 in principal amount of
Transfer Restricted Securities; PROVIDED that the Issuers and the Note
Guarantors shall in no event be required to pay liquidated damages for more than
one Registration Default at any given time. Notwithstanding anything to the
contrary set forth herein, (1) upon filing of the Exchange Offer Registration
Statement (and/or, if applicable, the Shelf Registration Statement), in the case
of (i) above, (2) upon the effectiveness of the Exchange Offer Registration
Statement (and/or, if applicable, the Shelf Registration Statement), in the case
of (ii) above, (3) upon Consummation of the Exchange Offer, in the case of (iii)
above, or (4) upon the filing of a post-effective amendment to the Registration
Statement or an additional Registration Statement that causes the Exchange Offer
Registration Statement (and/or, if applicable, the Shelf Registration Statement)
to again be declared effective or made usable in the case of (iv) above, the
liquidated damages payable with respect to the Transfer Restricted Securities as
a result of such clause (i), (ii), (iii) or (iv), as applicable, shall cease.
(b) Notwithstanding the foregoing provisions of Section 5(a), the
Issuers may for valid business reasons, including without limitation, a
potential acquisition, divestiture of assets or other material corporate
transaction, issue a notice that the Registration Statement is no longer
effective or the Prospectus included therein is no longer usable for offers and
sales of Transfer Restricted Subsidiaries and may issue any notice suspending
use of the Registration Statement required under applicable securities laws to
be issued and, in the event that the aggregate number of days in any consecutive
twelve-month period for which all such notices are issued and effective exceeds
30 days in the aggregate, then the Issuers will be jointly and severally
obligated to pay liquidated damages to each Holder of Transfer Restricted
Securities covered by the Registration Statement in an amount equal to $0.05 per
week per $1,000 in principal amount of Transfer Restricted Securities covered by
the Registration Statement and held by such Holder. Upon the Issuers declaring
that the Registration Statement is useable after the period of time described in
the preceding sentence, accrual of liquidated damages shall cease; PROVIDED,
HOWEVER, that if after any such cessation of the accrual of liquidated damages
the Registration Statement again ceases to be useable beyond the period
permitted above, liquidated damages will again accrue pursuant to the foregoing
provisions.
(c) Notwithstanding anything to the contrary set forth herein, the
Issuers and the Note Guarantors shall not be required to pay liquidated damages
to a Holder of Transfer Restricted Securities if such Holder failed to comply
with its obligations to make the representations set forth
<PAGE>
8
in Section 6(a)(i) or failed to provide the information required to be provided
by it, if any, pursuant to Section 4(b).
All accrued liquidated damages shall be paid to the Holders entitled
thereto, in the manner provided for the payment of interest in the Indenture, on
each Interest Payment Date, as more fully set forth in the Indenture and the
Notes. Notwithstanding the fact that any securities for which liquidated damages
are due cease to be Transfer Restricted Securities, all obligations of the
Issuers and the Note Guarantors to pay liquidated damages with respect to such
securities shall survive until such time as such obligations with respect to
such securities shall have been satisfied in full.
SECTION 6 REGISTRATION PROCEDURES
(a) EXCHANGE OFFER REGISTRATION STATEMENT. In connection with the
Exchange Offer, (i) the Issuers and the Note Guarantors shall (x) comply with
all applicable provisions of Section 6(c) below and (y) use their respective
best efforts to effect such exchange and to permit the resale of New Senior
Subordinated Notes by Broker-Dealers that tendered in the Exchange Offer Senior
Subordinated Notes that such Broker-Dealer acquired for its own account as a
result of its market making activities or other trading activities (other than
Senior Subordinated Notes acquired directly from any Issuer or any Affiliate
thereof) being sold in accordance with the intended method or methods of
distribution thereof, and (ii) the Issuers, the Note Guarantors and the Holders,
as applicable, shall comply with all of the following provisions:
(i) As a condition to its participation in the Exchange Offer,
each Holder of Transfer Restricted Securities (including, without
limitation, any Holder who is a Broker Dealer, except as provided in
the next sentence) shall furnish, upon the request of the Issuers,
prior to the Consummation of the Exchange Offer, a written
representation to the Issuers and the Note Guarantors (which may be
contained in the letter of transmittal contemplated by the Exchange
Offer Registration Statement) to the effect that at the time of the
consummation of the Exchange Offer (A) it is not an Affiliate of any
Issuer, (B) it is not engaged in, and does not intend to engage in, and
has no arrangement or understanding with any person to participate in,
a distribution of the Senior Subordinated Notes or the New Senior
Subordinated Notes to be issued in the Exchange Offer, within the
meaning of the Act, (C) it is acquiring the New Senior Subordinated
Notes in its ordinary course of business and (D) if such Holder is a
Broker-Dealer, that it will deliver a Prospectus in connection with any
resale of any New Subordinated Notes. As a condition to its
participation in the Exchange Offer each Holder Using the Exchange
Offer to participate in a distribution of the New Senior Subordinated
Notes shall acknowledge and agree that, if the resales are of New
Senior Subordinated Notes obtained by such Holder in exchange for
Senior Subordinated Notes acquired directly from any Issuer or any
Affiliate thereof, it (1) could not, Under Commission policy as in
effect on the date of this Agreement, rely on the position of the
Commission enunciated in MORGAN STANLEY AND CO., INC. (available June
5, 1991) and EXXON CAPITAL HOLDINGS CORPORATION (available May 13,
1988), as interpreted in the Commission's letter to SHERMAN & STERLING
dated July 2, 1993, and similar no-action letters, and (2) must comply
with the registration and prospectus delivery requirements of the Act
in connection with a secondary resale transaction and that such a
secondary resale transaction must be covered by an effective
registration statement containing the selling security holder
information required by Item 507 or 508, as applicable, of Regulation
S-K.
(ii) Prior to effectiveness of the Exchange Offer Registration
Statement, the Issuers and the Note Guarantors shall provide a
supplemental letter to the Commission (A) stating that the Issuers and
the Note Guarantors are registering the Exchange Offer in reliance on
the position of the Commission enunciated in EXXON CAPITAL HOLDINGS
CORPORATION (available May 13, 1988), MORGAN STANLEY AND CO., INC.
(available June 5, 1991) as interpreted in the Commission's letter to
SHERMAN & STERLING dated July 2, 1993 and (B) including, a
representation that neither any Issuer nor any Note Guarantor has
entered into any arrangement or understanding with any Person to
distribute the New
<PAGE>
9
Senior Subordinated Notes to be received in the Exchange Offer and
that, to the best of each Issuer's and each Note Guarantor's
information and belief, each Holder participating in the Exchange Offer
is acquiring the New Senior Subordinated Notes in its ordinary course
of business and has no arrangement or understanding with any Person to
participate in the distribution of the New Senior Subordinated Notes
received in the Exchange Offer.
(b) Shelf Registration Statement.
In connection with the Shelf Registration Statement, the
Issuers and the Note Guarantors shall:
(i) comply with all the provisions of Section 6(c) below and
use their respective best efforts to effect Such registration to permit
the sale of the Transfer Restricted Securities being sold in accordance
with the intended method or methods of distribution thereof (as
indicated in the information furnished to the Issuers pursuant to
Section 4(b) hereof), and pursuant thereto the Issuers and the Note
Guarantors will prepare and file with the Commission a Registration
Statement relating to the registration on any appropriate form under
the Act, which form shall be available for the sale of the Transfer
Restricted Securities in accordance with the intended method or methods
of distribution thereof within the time periods and otherwise in
accordance with the provisions hereof, and
(ii) issue, upon the request of any Holder or purchaser of
Senior Subordinated Notes covered by any Shelf Registration Statement
contemplated by this Agreement, New Senior Subordinated Notes having,
an aggregate principal amount equal to the aggregate principal amount
of Senior Subordinated Notes sold pursuant to the Shelf Registration
Statement and surrendered to the Issuers for cancelation; the Issuers
shall register New Senior Subordinated Notes on the Shelf Registration
Statement for this purpose and issue the New Senior Subordinated Notes
to the purchaser(s) of securities subject to the Shelf Registration
Statement in the names as such purchaser(s) shall designate.
(c) GENERAL PROVISIONS. In connection with any Registration Statement
and any related Prospectus required by this Agreement, the Issuers and the Note
Guarantors shall:
(i) use their respective best efforts to keep such
Registration Statement continuously effective and provide all requisite
financial statements for the period specified in Section 3 or 4 of this
Agreement, as applicable. Upon the occurrence of any event that would
cause any such Registration Statement or the Prospectus contained
therein (A) to contain an untrue statement of material fact or omit to
state any material fact necessary to make the statements therein (in
the case of the Prospectus only, in light of the circumstances under
which they were made), not misleading or (B) not to be effective and
usable for resale of Transfer Restricted Securities during the period
required by this Agreement, the Issuers and the Note Guarantors, to the
extent required after the end of the applicable periods referred to in
Section 5(b), shall file promptly an appropriate amendment to such
Registration Statement curing such defect, and, if Commission review is
required, use their respective best efforts to cause such amendment to
be declared effective as soon as practicable;
(ii) prepare and file with the Commission such amendments and
post- effective amendments to the applicable Registration Statement as
may be necessary to keep such Registration Statement effective for the
applicable period set forth in Section 3 or 4 hereof, as the case may
be; cause the Prospectus to be supplemented by any required Prospectus
supplement, and as so supplemented to be filed pursuant to Rule 424
under the Act, and to comply fully with Rules 424, 430A and 462, as
applicable, under the Act in a timely manner; and comply with the
provisions of the Act with respect to the disposition of all securities
covered by such Registration Statement during the applicable period in
<PAGE>
10
accordance with the intended method or methods of distribution by the
sellers thereof set forth in such Registration Statement or supplement
to the Prospectus;
(iii) advise each selling Holder promptly (if requested by
such Holder, in the case of clause (A) and (B)) (A) when the Prospectus
or any Prospectus supplement or post-effective amendment has been
filed, and, with respect to any applicable Registration Statement or
any post-effective amendment thereto, when the same has become
effective, (B) of any request by the Commission for amendments to the
Registration Statement or amendments or supplements to the Prospectus
or for additional information relating thereto, (C) of the issuance by
the Commission of any stop order suspending the effectiveness of the
Registration Statement under the Act or of the suspension by any state
securities commission of the qualification of the Transfer Restricted
Securities for offering or sale in any jurisdiction, or the initiation
of any proceeding for any of the preceding purposes, (D) of the
existence of any fact or the happening of any event that makes any
statement of a material fact made in the Registration Statement, the
Prospectus, any amendment or supplement thereto or any document
incorporated by reference therein untrue, or that requires the making
of any additions to or changes in the Registration Statement in order
to make the statements therein not misleading, or that requires the
making of any additions to or changes in the Prospectus in order to
make the statements therein, in the light of the circumstances under
which they were made, not misleading. If at any time the Commission
shall issue any stop order suspending the effectiveness of the
Registration Statement, or any state securities commission or other
regulatory authority shall issue an order suspending the qualification
or exemption from qualification of the Transfer Restricted Securities
under state securities or Blue Sky laws, the Issuers and the Note
Guarantors shall use their respective best efforts to obtain the
withdrawal or lifting of such order at the earliest possible time;
(iv) subject to Section 6(c)(i), if any fact or event
contemplated by Section 6(c)(iii)(D) above shall exist or have
occurred, prepare a supplement or post-effective amendment to the
Registration Statement or related Prospectus or any document
incorporated therein by reference or file any other required document
so that, as thereafter delivered to the purchasers of Transfer
Restricted Securities, the Prospectus will not contain an untrue
statement of a material fact or omit to state any material fact
necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading;
(v) furnish to each Initial Purchaser in connection with such
exchange or sale, if any, before filing with the Commission, copies of
any Registration Statement or any Prospectus included therein or any
amendments or supplements to any such Registration Statement or
Prospectus (including all documents incorporated by reference after the
initial filing of such Registration Statement), and use their
respective best efforts to reflect in each such document, when so filed
with the Commission, such comments as any Initial Purchaser may
reasonably propose;
(vi) promptly prior to the filing of any document that is to
be incorporated by reference into a Registration Statement or
Prospectus, provide copies of such document to each Initial Purchaser
in connection with such exchange or sale, if any;
(vii) in the case of a Shelf Registration Statement, make
available, at reasonable times, for inspection by a representative of,
and counsel for, Holders of at least 25% in aggregate principal amount
of Notes being sold and any Underwriter participating in any such
disposition of Notes pursuant to such Shelf Registration Statement, all
relevant financial and other records and pertinent corporate documents
of the Issuers and the Note Guarantors and use its best efforts to
cause the Issuers' and the Note Guarantors' officers, directors and
employees to supply all relevant information reasonably requested by
any such representatives in connection with such Registration Statement
or any post-effective amendment thereto subsequent to the filing
thereof and prior to its effectiveness;
<PAGE>
11
(viii) if requested by any selling, Holders in connection with
such exchange or sale, if any, promptly include in any Registration
Statement or Prospectus, pursuant to a supplement or post-effective
amendment if necessary, such information as such selling Holders may
reasonably request to have included therein, including, without
limitation, information relating to the "Plan of Distribution" of the
Transfer Restricted Securities, and make all required filings of such
Prospectus supplement or post-effective amendment as soon as
practicable after the Issuers are notified of the matters to be
included in such Prospectus supplement or post-effective amendment;
(ix) furnish to each Holder of Transfer Restricted Securities
included within the coverage of any Shelf Registration Statement,
without charge, at least one conformed copy of such Shelf Registration
Statement and any post-effective amendment thereto, including financial
statements and, if any such Holder so requests in writing, all exhibits
thereto (including those, if any, incorporated by reference);
(x) during the Shelf Registration Period, promptly deliver to
each Holder of Transfer Restricted Securities included within the
coverage of any Shelf Registration Statement, without charge, as many
copies of the Prospectus (including each preliminary Prospectus)
included in such Shelf Registration Statement and any amendment or
supplement thereof as such Holder may reasonably request; and the
Issuers consent to the use of such Prospectus or any amendment or
supplement thereto by each of the selling Holders of Transfer
Restricted Securities in connection with the offer and sale of the
Transfer Restricted Securities covered by such Prospectus or any
amendment or supplement thereto;
(xi) furnish to each Initial Purchaser and each Holder that is
a Broker-Dealer electing to exchange Senior Subordinated Notes,
acquired for its own account as a result of market-making activities or
other trading activities, for New Senior Subordinated Notes (an
"EXCHANGING DEALER"), and to any other Holder who so requests, without
charge, at least one conformed copy of the Exchange Offer Registration
Statement and any post-effective amendment thereto, including financial
statements and schedules and, if any Initial Purchaser or Exchanging
Dealer or any such Holder so requests in writing, all exhibits thereto
(including those, if any, incorporated by reference);
(xii) during the Exchange Offer Registration Period or the
Shelf Registration Period, as applicable, promptly deliver to each
Initial Purchaser, each Exchanging Dealer and such other persons that
are required to deliver a Prospectus following the Exchange Offer,
without charge, as many copies of the final Prospectus included in the
Exchange Offer Registration Statement or the Shelf Registration
Statement and any amendment or Supplement thereto as such Initial
Purchaser, Exchanging Dealer or other persons may reasonably request;
and the Issuers and the Note Guarantors consent to the use of Such
Prospectus or any amendment or supplement thereto by any such Initial
Purchaser, Exchanging Dealer or other persons, as applicable, as
aforesaid;
(xiii) upon the request by Holders of a majority in aggregate
principal amount of the Notes (the "Majority Holders"), make such
customary representations and warranties and take all such other
actions in connection therewith in order to expedite or facilitate the
disposition of the Transfer Restricted Securities pursuant to any
applicable Registration Statement contemplated by this Agreement as may
be reasonably requested by such Holders in connection with any sale or
resale pursuant to any applicable Registration Statement. In such
connection, the Issuers and the Note Guarantors shall, upon request of
the Majority Holders, furnish to each selling Holder, upon Consummation
of the Exchange Offer or upon the effectiveness of the Shelf
Registration Statement, as the case may be, a certificate, dated such
date, signed on behalf of each Issuer and each Note Guarantor by (x)
the President or any Vice President and (y) a principal financial or
accounting officer of such Issuer and such Note Guarantor, confirming,
as of the date thereof, the matters set forth in Sections 6(kk) (as to
the Registration Statement) and 9(a)
<PAGE>
12
(as to the representations and warranties contained herein) of the
Purchase Agreement and such other similar matters as such Holders may
reasonably request;
(xiv) prior to any public offering of Transfer Restricted
Securities, cooperate with the selling Holders and their counsel in
connection with the registration and qualification of the Transfer
Restricted Securities under the securities or Blue Sky laws of such
jurisdictions as the Majority Holders may request and do any and all
other acts or things necessary or advisable to enable the disposition
in such jurisdictions of the Transfer Restricted Securities covered by
the applicable Registration Statement; PROVIDED, HOWEVER, that neither
any Issuer nor any Note Guarantor shall be required to register or
qualify as a foreign corporation where it is not now so qualified or to
take any action that would subject it to the service of process in
suits or to taxation in any jurisdiction where it is not now so
subject;
(xv) in connection with any sale of Transfer Restricted
Securities that will result in such securities no longer being Transfer
Restricted Sectilities, cooperate with the selling Holders to
facilitate the timely preparation and delivery of certificates
representing Transfer Restricted Securities to be sold and not bearing
any restrictive legends; and to register such Transfer Restricted
Securities in such denominations and such names as the selling Holders
may request in writing at least three Business Days prior to such sale
of Transfer Restricted Securities;
(xvi) use their respective best efforts to cause the
disposition of the Transfer Restricted Securities covered by the
Registration Statement to be registered with or approved by such other
governmental agencies or authorities as may be necessary to enable the
seller or sellers thereof to consummate the disposition of such
Transfer Restricted Securities, subject to the proviso contained in
clause (xiv) above;
(xvii) provide a CUSIP number for all Transfer Restricted
Securities not later than the effective date of a Registration
Statement covering such Transfer Restricted Securities and provide the
Trustee under the Indenture with printed certificates for the Transfer
Restricted Securities which are in a form eligible for deposit with The
Depository Trust Company;
(xviii) otherwise use their respective best efforts to comply
with all applicable rules and regulations of the Commission, and make
generally available to their security holders with regard to any
applicable Registration Statement, as soon as practicable after the
effective date of such Registration Statement, a consolidated earnings
statement meeting the requirements of Rule 158 (which need not be
audited) covering a twelve-month period beginning after the effective
date of the Registration Statement (as such term is defined in
paragraph (c) of Rule 158 under the Act);
(xix) cause the Indenture to be qualified under the TIA not
later than the effective date of the first Registration Statement
required by this Agreement and, in connection therewith, cooperate with
the Trustee and the Holders to effect such changes to the Indenture as
may be required for such Indenture to be so qualified in accordance
with the terms of the TIA; and execute and use their respective best
efforts to cause the Trustee to execute all documents that may be
required to effect such changes and all other forms and documents
required to be filed with the Commission to enable such Indenture to be
so qualified in a timely manner; and
(xx) provide promptly to each Holder, upon written request,
each document filed by an Issuer with the Commission pursuant to the
requirements of Section 13 or Section 15(d) of the Exchange Act during
any period of time when the Issuers are required to maintain the
effectiveness of a Registration Statement.
<PAGE>
13
(d) RESTRICTIONS ON HOLDERS. Each Holder agrees by acquisition of a
Transfer Restricted Security that, upon receipt of the notice referred to in
Section 6(c)(iii)(B) and Section 6(c)(iii)(C) or any notice from the Issuers of
the existence of any fact of the kind described in Section 4(c) or 5(b) or
Section 6(c)(iii)(D) hereof (in each case, a "SUSPENSION NOTICE"), such Holder
will forthwith discontinue disposition of Transfer Restricted Securities
pursuant to the applicable Registration Statement until (i) such Holder has
received copies of the supplemented or amended Prospectus contemplated by
Section 6(c)(iv) hereof, or (ii) such Holder is advised in writing by the
Issuers that the use of the Prospectus may be resumed, and has received copies
of any additional or supplemental filings that are incorporated by reference in
the Prospectus and that are required to be delivered hereunder (in each case,
the "RECOMMENCEMENT DATE"). Each Holder receiving a Suspension Notice hereby
agrees that it will either (i) destroy any Prospectuses, other than permanent
file copies, then in such Holder's possession which have been replaced by the
Issuers with more recently dated Prospectuses or (ii) deliver to the Issuers (at
the Issuers' expense) all copies, other than permanent file copies, then in such
Holder's possession of the Prospectus covering such Transfer Restricted
Securities that was current at the time of receipt of the Suspension Notice. The
time period regarding the effectiveness of such Registration Statement set forth
in Section 3 or 4 hereof, as applicable, shall be extended by a number of days
equal to the number of days in the period from and including the date of
delivery of the Suspension Notice to the date of delivery of the Recommencement
Date.
SECTION 7 REGISTRATION EXPENSES
(a) All expenses incident to the Issuers' and the Note Guarantors'
performance of or compliance with this Agreement will be borne by the Issuers,
regardless of whether a Registration Statement becomes effective, including
without limitation: (i) all registration and filing fees and expenses; (ii) all
fees and expenses of compliance with federal securities and state Blue Sky or
securities laws; (iii) all expenses of printing (including printing certificates
for the New Senior Subordinated Notes to be issued in the Exchange Offer and
printing of Prospectuses), messenger and delivery services and telephone; (iv)
all fees and disbursements of counsel for the Issuers, the Note Guarantors and,
subject to the limitations set forth in Section 7(b), the Holders of Transfer
Restricted Securities; (v) all application and filing fees in connection with
listing the New Senior Subordinated Notes on a national securities exchange or
automated quotation system pursuant to the requirements hereof, and (vi) all
fees and disbursements of independent certified public accountants of the
Issuers and the Note Guarantors (including the expenses of any special audit and
comfort letters required by or incident to such performance).
The Issuers will, in any event, bear their and the Note Guarantors'
internal expenses (including, without limitation, all salaries and expenses of
its officers and employees performing legal or accounting duties), the expenses
of any annual audit and the fees and expenses of any Person, including special
experts, retained by the Issuers or the Note Guarantors.
(b) In connection with any Registration Statement required by this
Agreement (including, without limitation, the Exchange Offer Registration
Statement and the Shelf Registration Statement), the Issuers and the Note
Guarantors will reimburse the Initial Purchasers and the Holders of Transfer
Restricted Securities who are tendering Senior Subordinated Notes in the
Exchange Offer and/or selling or reselling Senior Subordinated Notes or New
Senior Subordinated Notes pursuant to the "Plan of Distribution" contained in
the Exchange Offer Registration Statement or the Shelf Registration Statement,
as applicable, for the reasonable fees and disbursements of not more than one
counsel, who shall be Latham & Watkins, unless another firm shall be chosen by
the Holders of a majority in principal amount of the Transfer Restricted
Securities for whose benefit such Registration Statement is being prepared. Such
Holders shall be responsible for any and all other out-of-pocket expenses of the
Holders incurred in connection with the registration of the Notes.
SECTION 8 INDEMNIFICATION
<PAGE>
14
(a) The Issuers and the Note Guarantors agree, jointly and severally,
to indemnify and hold harmless each Holder, its directors, officers, employees,
representatives and agents and each Person, if any, who controls such Holder
(within the meaning of Section 15 of the Act or Section 20 of the Exchange Act),
from and against any and all losses, claims, damages, liabilities, judgments
(including without limitation, any legal or other expenses incurred in
connection with investigating, or defending any matter, including any action
that could give rise to any such losses, claims, damages, liabilities or
judgments) caused by any untrue statement or alleged untrue statement of a
material fact contained in any Registration Statement, preliminary prospectus or
Prospectus (or any amendment or supplement thereto) provided by the Issuers to
any Holder or any prospective purchaser of New Senior Subordinated Notes, or
caused by any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein in
light of the circumstances under which they were made, not misleading, except
insofar as such losses, claims, damages, liabilities or judgments are caused by
an untrue statement or omission or alleged untrue statement or omission that is
based upon information relating to any of the Holders furnished in writing to
the Issuers by any of the Holders; provided that, the indemnity agreement
contained in this Section 8(a) shall not inure to the benefit of any Holder from
whom the person asserting any such loss, claim, damage, liability or action
received Notes if the final Prospectus (as then amended or supplemented) was not
sent or given to such person, if required by law so to have been delivered, at
or prior to the written confirmation of the sale of such Notes to such person
and if the final Prospectus (as amended or Supplemented) would have corrected
any such untrue statement of a material fact contained in and each omission or
alleged omission of a material fact from the related preliminary Prospectus
giving rise to such losses, claims, damages, liabilities or actions unless such
failure is the result of noncompliance by the Issuers with Sections 6(c)(ix),
(x), (xi) or (xii).
(b) Each Holder of Transfer Restricted Securities agrees, severally and
not jointly, to indemnify and hold harmless the Issuers and the Note Guarantors
and their respective directors, officers, employees, representatives and agents
and each person, if any, who controls (within the meaning of Section 15 of the
Act or Section 20 of the Exchange Act) any Issuer or any Note Guarantor, to the
same extent as the foregoing indemnity from the Issuers and the Note Guarantors
set forth in section (a) above, but only with reference to information relating
to such Holder furnished in writing to the Company by such Holder expressly for
use in any Registration Statement. In no event shall any Holder, its directors,
officers or any Person who controls such Holder be liable or responsible for any
amount in excess of the amount by which the total amount received by such Holder
with respect to its sale of Transfer Restricted Securities pursuant to a
Registration Statement exceeds (i) the amount paid by such Holder for such
Transfer Restricted Securities and (ii) the amount of any damages that such
Holder, its directors, officers or any Person who controls such Holder has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission.
(c) In case any action shall be commenced involving any person in
respect of which indemnity may be sought pursuant to Section 8(a) or 8(b) (the
"INDEMNIFIED PARTY"), the indemnified party shall promptly notify the person
against whom such indemnity may be sought (the "INDEMNIFYING PERSON") in writing
and the indemnifying party shall assume the defense of such action, including
the employment of counsel reasonably satisfactory to the indemnified party and
the payment of all fees and expenses of such counsel, as incurred (except that
in the case of any action in respect of which indemnity may be sought pursuant
to both Sections 8(a) and 8(b), a Holder shall not be required to assume the
defense of such action pursuant to this Section 8(c), but may employ separate
counsel and participate in the defense thereof, but the fees and expenses of
such counsel, except as provided below, shall be at the expense of the Holder).
Any indemnified party shall have the right to employ separate counsel in any
such action and participate in the defense thereof, but the fees and expenses of
such counsel shall be at the expense of the indemnified party unless (i) the
employment of such counsel shall have been specifically authorized in writing by
the indemnifying party, (ii) the indemnifying party shall have failed to assume
the defense of such action or employ counsel reasonably satisfactory to the
indemnified party or (iii) the named parties to any such action (including any
impleaded parties) include both the indemnified party and the indemnifying
party, and the indemnified party shall have been
<PAGE>
15
advised by such counsel that there may be one or more legal defenses available
to it which are different from or additional to those available to the
indemnifying party (in which case the indemnifying party shall not have the
right to assume the defense of such action on behalf of the indemnified party).
In any such case, the indemnifying party shall not, in connection with any one
action or separate but substantially similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the fees and expenses of more than one separate firm of attorneys (in
addition to any local counsel) for all indemnified parties and all such fees and
expenses shall be reimbursed as they are incurred. Such firm shall be designated
in writing by a majority of the Holders, in the case of the parties indemnified
pursuant to Section 8(a), and by the Issuers and the Note Guarantors, in the
case of parties indemnified pursuant to Section 8(b). No indemnifying party
shall be liable for any settlement of any such action effected without its
written consent, but if settled with its written consent, which consent will not
unreasonably be withheld, the indemnifying party shall indemnify and hold
harmless the indemnified party from and against any and all losses, claims,
damages, liabilities and judgments by reason of any settlement of any action
effected with its written consent. No indemnifying party shall, without the
prior written consent of the indemnified party, effect any settlement or
compromise of, or consent to the entry of judgment with respect to, any pending
or threatened action in respect of which the indemnified party is or could have
been a party and indemnity or contribution may be or could have been sought
hereunder by the indemnified party, unless such settlement, compromise or
judgment (i) includes an unconditional release of the indemnified party from all
liability on claims that are or could have been the subject matter of such
action and (ii) does not include a statement as to or an admission of fault,
culpability or a failure to act, by or on behalf of the indemnified party.
(d) To the extent that the indemnification provided for in this Section
8 is unavailable to an indemnified party in respect of any losses, claims,
damages, liabilities or judgments referred to therein, then each indemnifying
party, in lieu of indemnifying such indemnified party, shall contribute to the
amount paid or payable by such indemnified party as a result of such losses,
claims, damages, liabilities or judgments (i) in such proportion as is
appropriate to reflect the relative benefits received by the Issuers and the
Note Guarantors, on the one hand, and the Holders, on the other hand, from their
sale of Transfer Restricted Securities or (ii) if the allocation provided by
clause 8(d)(i) is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause
8(d)(i) above but also the relative fault of the Issuers and the Note
Guarantors, on the one hand, and of the Holder, on the other hand, in connection
with the statements or omissions which resulted in such losses, claims, damages,
liabilities or judgments, as well as any other relevant equitable
considerations. The relative fault of the Issuers and the Note Guarantors, on
the one hand, and of the Holder, on the other hand, shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by such Issuer or such Note Guarantor, on the
one hand, or by the Holder, on the other hand, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The amount paid or payable by a party as a result of the
losses, claims, damages, liabilities and judgments referred to above shall be
deemed to include, subject to the limitations set forth in the second paragraph
of Section 8(a), any legal or other fees or expenses reasonably incurred by such
party in connection with investigating or defending any action or claim.
The Issuers, the Note Guarantors and each Holder agree that it would
not be just and equitable if contribution pursuant to this Section 8(d) were
determined by pro rata allocation (even if the Holders were treated as one
entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to in the immediately
preceding paragraph. The amount paid or payable by an indemnified party as a
result of the losses, claims, damages, liabilities or judgments referred to in
the immediately preceding paragraph shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating or defending any matter,
including any action that could have given rise to such losses, claims, damages,
liabilities or judgments. Notwithstanding the provisions of this Section 8, no
Holder, its
<PAGE>
16
directors, its officers or any Person, if any, who controls such Holder shall be
required to contribute, in the aggregate, any amount in excess of the amount by
which the total received by such Holder with respect to the sale of Transfer
Restricted Securities pursuant to a Registration Statement exceeds (i) the
amount paid by such Holder for such Transfer Restricted Securities plus (ii) the
amount of any damages which such Holder has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. The Holders'
obligations to contribute pursuant to this Section 8(c) are several in
proportion to the respective principal amount of Transfer Restricted Securities
held by each Holder hereunder and not joint.
SECTION 9 RULE 144A AND RULE 144
Each Issuer and each Note Guarantor agrees with each Holder, for so
long as any Transfer Restricted Securities remain outstanding and during any
period in which such Issuer or such Note Guarantor (i) is not subject to Section
13 or 15(d) of the Exchange Act, to make available, upon request of any Holder,
to such Holder or beneficial owner of Transfer Restricted Securities in
connection with any sale thereof and any prospective purchaser of such Transfer
Restricted Securities designated by such Holder or beneficial owner, the
information required by Rule 144A(d)(4) Under the Act in order to permit resales
of such Transfer Restricted Securities pursuant to Rule 144A, and (ii) is
subject to Section 13 or 15 (d) of the Exchange Act, to make all filings
required thereby in a timely manner in order to permit resales of such Transfer
Restricted Securities pursuant to Rule 144.
SECTION 10 UNDERWRITTEN REGISTRATIONS
If any of the Transfer Restricted Securities covered by any Shelf
Registration Statement are to be sold in an Underwritten offering, the
investment banker or investment bankers and manager or managers that will
administer the offering will be selected by the Holders of a majority in
aggregate principal amount of such Transfer Restricted Securities included in
such offering, subject to the consent of the Issuers (which shall not be
unreasonably withheld or delayed), and such Holders shall be responsible for all
underwriting commissions, discounts, fees and expenses in connection therewith.
No person may participate in any underwritten registration hereunder
unless such person (i) agrees to sell such person's Transfer Restricted
Securities on the basis reasonably provided in any underwriting arrangements
approved by the persons entitled hereunder to approve Such arrangements and (ii)
completes and executes all questionnaires, powers of attorney, indemnities,
underwriting agreements and other documents reasonably required under the terms
of such underwriting arrangements.
SECTION 11 MISCELLANEOUS
(a) REMEDIES. The Issuers and the Note Guarantors acknowledge and agree
that any failure by the Issuers and/or the Note Guarantors to comply with their
respective obligations under Sections 3 and 4 hereof may result in material
irreparable injury to the Initial Purchasers or the Holders for which there is
no adequate remedy at law, that it will not be possible to measure damages for
such injuries precisely and that, in the event of any such failure, other than
with respect to Sections 3 and 4 hereof for which liquidated damages have been
paid pursuant to Section 5 hereof, the Initial Purchasers or any Holder may
obtain such relief as may be required to specifically enforce the Issuers' and
the Note Guarantors' obligations under Sections 3 and 4 hereof. The Issuers and
the Note Guarantors further agree to waive the defense in any action for
specific performance as contemplated by this Section 11(a) that a remedy at law
would be adequate.
<PAGE>
17
(b) NO INCONSISTENT AGREEMENTS. Neither any Issuer nor any Note
Guarantor will, on or after the date of this Agreement, enter into any agreement
with respect to its securities that is inconsistent with the rights granted to
the Holders in this Agreement or otherwise conflicts with the provisions hereof.
Neither any Issuer nor any Note Guarantor has previously entered into any
agreement which remains in effect granting any registration rights with respect
to its debt securities to any Person. The rights granted to the Holders
hereunder do not in any way conflict with and are not inconsistent with the
rights granted to the holders of the Issuers' and the Note Guarantors'
securities under any agreement in effect on the date hereof.
(c) AMENDMENTS AND WAIVERS. The provisions of this Agreement may not be
amended, modified or supplemented, and waivers or consents to or departures from
the provisions hereof may not be given unless (1) in the case of Section 5
hereof and this Section 11 (c)(i), the Issuers have obtained the written consent
of Holders of all outstanding Transfer Restricted Securities and (ii) in the
case of all other provisions hereof, the Issuers have obtained the written
consent of Holders of a majority of the outstanding principal amount of Transfer
Restricted Securities (excluding Transfer Restricted Securities held by the
Issuers or their respective Affiliates). Notwithstanding the foregoing, a waiver
or consent to departure from the provisions hereof that relates exclusively to
the rights of Holders whose Transfer Restricted Securities are being tendered or
sold pursuant to a Registration Statement, and that does not affect directly or
indirectly the rights of other Holders whose Transfer Restricted Sectilities are
not being tendered or sold pursuant to such Registration Statement, may be given
by the Holders of a majority of the outstanding principal amount of Transfer
Restricted Securities subject to such Registration Statement.
(d) THIRD PARTY BENEFICIARY. The Holders shall be third party
beneficiaries to the agreements made hereunder between the Issuers and the Note
Guarantors, on the one hand, and the Initial Purchasers, on the other hand, and
shall have the right to enforce such agreements directly to the extent they may
deem such enforcement necessary or advisable to protect its nights or the rights
of Holders hereunder.
(e) NOTICES. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, first-class mail
(registered or certified, return receipt requested), telex, telecopier, or air
courier guaranteeing overnight delivery:
(i) if to a Holder, at the address set forth on the records
of the Registrar under the Indenture, with a copy to the Registrar
under the Indenture; and
(ii) if to the Issuers or the Note Guarantors:
WRC Media Inc.
Weekly Reader Corporation
JLC Learning Corporation
1 Rockefeller Plaza, 32nd Floor
New York, NY 10020
Attention: Chief Executive Officer
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five Business
Days after being deposited in the mail, postage prepaid, if mailed; when receipt
acknowledged, if telecopied; and on the next Business Day, if timely delivered
to an air courier guaranteeing overnight delivery.
Copies of all such notices, demands or other communications shall be
concurrently delivered by the Person giving the same to the Trustee at the
address specified in the Indenture.
(f) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit
of and be binding upon the successors and assigns of each of the parties,
including without limitation and without the need for an express assignment,
subsequent Holders; PROVIDED, that nothing herein
<PAGE>
18
shall be deemed to permit any assignment, transfer or other disposition of
Transfer Restricted Securities in violation of the terms hereof or of the
Purchase Agreement or the Indenture. If any transferee of any Holder shall
acquire Transfer Restricted Securities in any manner, whether by operation of
law or otherwise, such Transfer Restricted Securities shall be held subject to
all of the terms of this Agreement, and by taking and holding such Transfer
Restricted Securities such Person shall be conclusively deemed to have agreed to
be bound by and to perform all of the terms and provisions of this Agreement,
including the restrictions on resale set forth in this Agreement and, if
applicable, the Purchase Agreement, and such Person shall be entitled to receive
the benefits hereof .
(g) COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(h) HEADINGS. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(i) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE
CONFLICT OF LAW RULES THEREOF.
(j) SEVERABILITY. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable, the validity, legality and enforceability of
any such provision in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.
(k) ENTIRE AGREEMENT. This Agreement is intended by the parties as a
final expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein
with respect to the registration rights granted with respect to the Transfer
Restricted Securities. This Agreement supersedes all prior agreements and
understandings between the parties with respect to such subject matter.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
WRC MEDIA INC.
By: /s/ Charles Laurey
--------------------
Name: Charles Laurey
Title: Secretary
WEEKLY READER CORPORATION
By: /s/ Charles Laurey
--------------------
Name: Charles Laurey
Title: Secretary
JLC LEARNING CORPORATION
By: /s/ Charles Laurey
--------------------
Name: Charles Laurey
Title: Secretary
<PAGE>
19
PRIMEDIA REFERENCE INC.
By: /s/ Charles Laurey
--------------------
Name: Charles Laurey
Title: Secretary
FUNK & WAGNALLS YEARBOOK
CORPORATION
By: /s/ Charles Laurey
--------------------
Name: Charles Laurey
Title: Secretary
LIFETIME LEARNING SYSTEMS, INC.
By: /s/ Charles Laurey
--------------------
Name: Charles Laurey
Title: Secretary
REGISTRATION RIGHTS AGREEMENT SIGNATURE PAGE 1
<PAGE>
20
GARETH STEVENS, INC.
By: /s/ Charles Laurey
--------------------
Name: Charles Laurey
Title: Secretary
AMERICAN GUIDANCE SERVICE, INC.
By: /s/ Charles Laurey
--------------------
Name: Charles Laurey
Title: Secretary
AGS INTERNATIONAL SALES, INC.
By: /s/ Charles Laurey
--------------------
Name: Charles Laurey
Title: Secretary
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
BANC OF AMERICA SECURITIES LLC
By: Donaldson, Lufkin & Jenrette
Securities Corporation
By: /s/ D. Kete Cockrell
----------------------
Name: D. Kete Cockrell
Title: Vice President
REGISTRATION RIGHTS AGREEMENT SIGNATURE PAGE 2
<PAGE>
EXECUTION COPY
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Exhibit 4.4
WRC MEDIA INC.
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PREFERRED STOCKHOLDERS AGREEMENT
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DATED AS OF NOVEMBER 17, 1999
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TABLE OF CONTENTS
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ARTICLE I
INFORMATION, VOTING AND OBSERVATION RIGHTS
SECTION 1.01. Financial and Business Information..............................2
SECTION 1.02. Amendments to Charters; Other Actions...........................4
SECTION 1.03. Board Designees.................................................5
SECTION 1.04. Approval Right..................................................7
SECTION 1.05. Remedies........................................................8
ARTICLE II
REGISTRATION AND EXCHANGE RIGHTS
SECTION 2.01. Required Registration...........................................9
SECTION 2.02. Incidental Registration........................................13
SECTION 2.03. Registration Procedures........................................15
SECTION 2.04. Reasonable Investigation.......................................21
SECTION 2.05. Registration Expenses..........................................23
SECTION 2.06. Indemnification; Contribution..................................23
SECTION 2.07. Holdback Agreements; Registration
Rights to Others.............................................28
SECTION 2.08. Other Registration of Capital Stock............................29
SECTION 2.09. Availability of Information....................................29
SECTION 2.10. Parent Preferred Stock Exchange Rights.........................30
SECTION 2.11. Warrant Registration Rights....................................32
ARTICLE III
RESTRICTIONS ON TRANSFER,
TERMINATION AND OTHER AGREEMENTS
SECTION 3.01. Restrictions on Transfer to Transferees........................33
SECTION 3.02. Cooperation by the Parent and the
Companies....................................................34
SECTION 3.03. Legending of Certificates......................................34
SECTION 3.04. Securities Act Restrictions; Legend............................34
SECTION 3.05. Termination of Restrictions....................................35
ARTICLE IV
DEFINED TERMS
SECTION 4.01. Terms Defined..................................................36
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SECTION 4.02. "Best Efforts".................................................46
SECTION 4.03. Section Headings and Table of Contents
and Construction.............................................46
SECTION 4.04. GOVERNING LAW..................................................46
ARTICLE V
SECTION 5.01. Registered Exchange Offer......................................57
SECTION 5.02. Shelf Registration.............................................59
SECTION 5.03. Certain Matters................................................60
ARTICLE VI
MISCELLANEOUS
SECTION 6.01. Parent and Company Activities..................................61
SECTION 6.02. Communications.................................................62
SECTION 6.03. Reproduction of Documents......................................63
SECTION 6.04. Survival.......................................................64
SECTION 6.05. Successors and Assigns.........................................64
SECTION 6.06. Amendments and Waivers.........................................65
SECTION 6.07. Expenses.......................................................65
SECTION 6.08. Waiver of Jury Trial; Consent to
Jurisdiction; etc............................................66
SECTION 6.09. Indemnification................................................69
SECTION 6.10. Entire Agreement...............................................69
SECTION 6.11. Execution in Counterpart.......................................70
Annex 1 - Names and Addresses of Purchasers
Annex 2 - Address of Initial Stockholder
Exhibit A - Form of Transferee Undertaking
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PREFERRED STOCKHOLDERS AGREEMENT
PREFERRED STOCKHOLDERS AGREEMENT (as the same may hereafter be
amended, supplemented or modified, this "Agreement"), dated as of
November 17, 1999, among WRC MEDIA INC., a Delaware corporation
(together with its successors and permitted assigns, the
"Parent"); JLC Learning Corporation, a Delaware corporation
(together with its successors and permitted assigns, "JLC");
Weekly Reader Corporation, a Delaware corporation (together with
its successor and permitted assigns, "WRC" and, together with JLC,
the "Companies"); SGC PARTNERS II LLC (together with its
successors and permitted assigns, "SGC"); EAC III L.L.C., a
Delaware limited liability company (together with its successors
and permitted assigns, the "Initial Stockholder"); Ripplewood
Partners L.P., a Delaware limited partnership (together with is
successors and permitted assigns, "Ripplewood Partners"), for
purposes of Section 2.13(g) only; THE NORTHWESTERN MUTUAL LIFE
INSURANCE COMPANY, a Wisconsin corporation (together with its
successors and permitted assigns, "NML"); ARES LEVERAGED
INVESTMENT FUND, L.P., a Delaware limited partnership, ARES
LEVERAGED INVESTMENT FUND II, L.P., a Delaware limited partnership
(together, with their respective successors and permitted assigns,
the "Ares Funds"); TCW/CRESCENT MEZZANINE PARTNERS II, L.P., a
Delaware limited partnership, TCW/CRESCENT MEZZANINE TRUST II, a
Delaware business trust, SHARED OPPORTUNITY FUND IIB, LLC, a
Delaware limited liability company, TCW SHARED OPPORTUNITY FUND
III, L.P., a Delaware limited liability company, TCW LEVERAGED
INCOME TRUST II, L.P., a Delaware limited partnership, TCW
LEVERAGED INCOME TRUST, L.P., a Delaware limited partnership;
(collectively, with their respective successors and permitted
assigns, the "TCW Funds" and, collectively with NML, the Ares
Funds and the TCW Funds, the "Other Purchasers") and the other
persons party
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hereto (each other person, together with their successors and
permitted assigns, a "DLJMB Entity", collectively, the "DLJMB
Entities" and, together with the Other Purchasers, the
"Purchasers").
RECITALS
WHEREAS pursuant to a Preferred Stock and Warrants
Subscription Agreement (the "Subscription Agreement") dated as of November 17,
1999, among the Parent, the Companies and the Purchasers, the Purchasers agreed,
among other things, to purchase an aggregate of 3,000,000 shares of 15% Senior
Exchangeable Preferred Stock due 2011, par value $0.01 per share, of the Parent
(the "Parent Preferred Stock"), an aggregate of 1,495 warrants to purchase
shares of the common stock of JLC (the "JLC Warrants") and an aggregate of
422,874 warrants to purchase shares of the common stock of WRC (the "WRC
Warrants" and, together with the JLC Warrants, the "Warrants");
WHEREAS the Parent, the Companies, the Purchasers and the
Initial Stockholder wish to define certain of their respective rights and
obligations with regard to the Parent Preferred Stock and the Warrants; and
WHEREAS the execution and delivery of this Agreement by the
Parent, the Companies and the Initial Stockholder is a condition to the
performance by the Purchasers of their obligations under the Subscription
Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing and the
mutual promises herein contained, the Parent, the Companies, SGC (with respect
to Section 1.02(i), 1.03(a)(i) 1.05, 3.01, 6.02, 6.05, 6.08, 6.10 and 6.11
only), the Initial Stockholder and the Purchasers mutually agree as follows:
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ARTICLE I
INFORMATION, VOTING AND OBSERVATION RIGHTS
SECTION 1.01. FINANCIAL AND BUSINESS INFORMATION.
The Parent shall deliver to each holder of any Purchaser
Shares or Parent Preferred Stock:
(a) QUARTERLY FINANCIAL STATEMENTS. As soon as practicable
after the end of each quarterly fiscal period in each fiscal year of
the Parent or the relevant Company, as applicable (other than the last
quarterly fiscal period of each such fiscal year), and in any event
within 50 days thereafter:
(i) a balance sheet as at the end of such
quarter; and
(ii) an income statement and statement of cash flow
for such quarter, and, in the case of the second and third
fiscal quarters of the Parent, the comparable information for
the portion of the fiscal year ending with such quarter and a
comparison to relevant budget amounts for such quarter;
for the Parent and the Subsidiaries (on a consolidated basis) and for
each Company, setting forth in each case, in comparative form, the
financial statement for the corresponding periods in the previous
fiscal year, all in reasonable detail, prepared in accordance with GAAP
applicable to quarterly financial statements generally, and certified
as complete and correct by a Senior Financial Officer; PROVIDED that,
should the Parent become subject to or agree with any Person to comply
with the provisions of Section 13 of the Exchange Act, delivery of
copies of the Parent's Quarterly Report on Form 10-Q filed with the SEC
within 45 days after the end of such quarterly fiscal period shall be
deemed to satisfy the requirements of this Section 1.01(a) with respect
to the consolidated financial statements of the Parent and its
Subsidiaries, but the Parent shall continue to deliver the financial
statements required by this Section 1.01(a) with respect to a Company
for so long as the DLJMB Entities shall hold any Purchaser Shares or
any shares of Exchange Preferred Stock of such Company.
(b) ANNUAL FINANCIAL STATEMENTS. As soon as practicable after
the end of each fiscal year of the Parent, and in any event within 95
days thereafter:
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(i) a consolidated balance sheet as at the
end of such year; and
(ii) a consolidated income statement and statement of
cash flows for such year;
for the Parent and the Subsidiaries, together with the notes thereto,
setting forth in each case, in comparative form, the financial
statement for the previous fiscal year, all in reasonable detail,
prepared in accordance with GAAP, and accompanied by:
(A) an audit report thereon of independent certified
public accountants of recognized national standing, which
report shall state that such financial statements fairly
present in all material respects the consolidated financial
condition of the Parent as at such date and the consolidated
results of its operations and cash flows for such period in
conformity with GAAP; and
(B) a certification by a Senior Financial Officer
that such financial statements are complete and correct;
PROVIDED that, should the Parent become subject to or agree with any
Person to comply with the provisions of section 13 of the Exchange Act,
the delivery of the Parent's Annual Report on Form 10-K for such fiscal
year filed with the SEC within 90 days after the end of such fiscal
year shall be deemed to satisfy the requirements of this Section
1.01(b).
(c) SEC AND OTHER REPORTS. Promptly upon their becoming
available:
(i) each financial statement, report, notice or proxy
statement sent by the Parent or any Subsidiary to stockholders
generally;
(ii) each regular or periodic report (including,
without limitation, each Form 10-K, Form 10-Q and Form 8-K),
any registration statement which shall have become effective,
(other than any registration statement on Form S-4 or S-8 or
any successor forms thereto) and each final prospectus and all
amendments thereto (other than any prospectus or amendment
relating to a registration statement on Form S-4 or S-8 or any
successor forms thereto) filed by the Parent or any Subsidiary
with the SEC or on a publicly
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available basis with any securities exchange
(including, without limitation, any electronic
stock quotation system); and
(iii) all press releases and other statements made
available by the Parent or any Subsidiary to the public
concerning material developments in the business of the Parent
or the Subsidiaries.
(d) RULE 144A. After the Public Market Date, promptly upon the
reasonable request of any holder of Parent Preferred Stock or Purchaser
Shares, information required to permit the holder to comply with 17
C.F.R. ss.230.144A, as amended from time to time, in connection with a
transfer of any Parent Preferred Stock or Purchaser Shares, as the case
may be.
(e) REQUESTED INFORMATION. Prior to the Public Market Date,
with reasonable promptness, such other data and information as from
time to time may be reasonably requested by any holder of Parent
Preferred Stock or Purchaser Shares.
SECTION 1.02. AMENDMENTS TO CHARTERS; OTHER
ACTIONS. The Initial Stockholder and Parent shall not cause
or permit, and SGC, with respect to clause (i), shall not
approve:
(i) any amendment to any Charter as in effect on
the Closing Date;
(ii) any reorganization, transfer of substantial assets,
consolidation, merger, dissolution, liquidation, issuance or sale of
Securities of the Parent, either Company or any other Subsidiary; or
(iii) any other voluntary action;
in each case that is intended to avoid, or would have the effect of avoiding,
the observance or performance of any of the terms to be observed or performed
hereunder by the Parent, the Companies or the Initial Stockholder, but shall at
all times in good faith assist in the carrying out of all the provisions of this
Agreement and in the taking of all such actions as may be necessary or
appropriate in order to protect the rights of the holders of Parent Preferred
Stock and Purchaser Shares against impairment. The previous sentence shall not
be construed to prohibit any Reorganization Transaction consummated in
compliance with the terms of this Agreement.
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SECTION 1.03. BOARD DESIGNEES. (a) (i) For so long as any of
the DLJMB Entities shall hold any Parent Preferred Stock or Purchaser Shares,
the Initial Stockholder and SGC shall vote all of their shares of common stock
of the Parent, at each regular or special meeting of the shareholders of the
Parent called for the purpose of filling positions on the Board of Directors, or
in any written consent executed in lieu of such a meeting of shareholders, and
shall take all actions necessary, to ensure the election to the Board of
Directors of one individual designated by DLJMB (the "DLJMB Designee").
(ii) For so long as any DLJMB Entity shall hold any Parent
Preferred Stock or Purchaser Shares, the Parent shall take all actions necessary
to ensure the election to the board of directors of JLC of one individual
designated by DLJMB (the "DLJMB JLC Subsidiary Designee"). For so long as any
DLJMB Entity shall hold any Parent Preferred Stock or Purchaser Shares, the
Parent shall take all actions necessary to ensure the election to the board of
directors of WRC of one individual designated by DLJMB (the "DLJMB WRC
Subsidiary Designee" and, together with the DLJMB JLC Subsidiary Designee, the
"DLJMB Subsidiary Designees").
(b) (i) The Parent will take all actions necessary to cause
the DLJMB Designee to be appointed to the compensation committee, the audit
committee and the executive committee of the Board of Directors, to each of the
boards of directors or other similar managing bodies of each Subsidiary (this
right not being in addition to any right under Section 1.03(a)(ii)) and to the
compensation committee, the audit committee and the executive committee of each
such board of directors (this right not being in addition to any right under
Section 1.03(b)(ii)). For so long as DLJMB has the right to appoint a DLJMB
Designee, neither the Board of Directors nor the board of directors of any
Subsidiary shall generally delegate its authority to conduct the business of the
Parent, either Company or any other Subsidiary, as applicable, to a committee of
such Board of Directors or board of directors; PROVIDED, that the foregoing
shall not prohibit delegation of authority to a committee for a specific purpose
(other than in connection with a Reorganization Transaction).
(ii) The Parent will take all actions necessary to cause the
DLJMB JLC Subsidiary Designee to be appointed to the compensation committee, the
audit committee and the executive committee of the board of directors of JLC.
The Parent will take all actions necessary to cause the DLJMB WRC Subsidiary
Designee to be appointed to the compensation committee, the audit committee and
the executive committee
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of the board of directors of WRC. For so long as DLJMB has the right to appoint
a DLJMB JLC Subsidiary Designee, the board of directors of JLC shall not
generally delegate its authority to conduct the business of JLC to a committee
of such board of directors and for so long as DLJMB has the right to appoint a
DLJMB WRC Subsidiary Designee the board of directors of WRC shall not generally
delegate its authority to conduct the business of WRC to a committee of such
board of directors; PROVIDED, that the foregoing shall not prohibit delegation
of authority to a committee for a specific purpose (other than in connection
with a Reorganization Transaction).
(c) If a DLJMB Designee or DLJMB Subsidiary Designee shall
cease to serve as a director of the Parent or one of the Companies, as
applicable, for any reason, the vacancy resulting thereby shall be filled by
another person designated by DLJMB. Once serving on the Board of Directors or
the board of directors of JLC or WRC, as applicable, a DLJMB Designee or DLJMB
Subsidiary Designee shall not be removed from office without the consent of
DLJMB. In the event that a DLJMB Designee or DLJMB Subsidiary Designee is unable
to attend a meeting of the Board of Directors or the board of directors of JLC
or WRC, as applicable, DLJMB may designate a representative to attend such
meeting as a non-voting observer only.
(d) The Parent shall obtain and cause to be maintained in
effect so long as a DLJMB Designee or DLJMB Subsidiary Designee is serving on
the Board of Directors or board of directors of JLC or WRC, as applicable, with
financially sound insurers, a policy of directors' and officers' liability
insurance covering each of the members of the Board of Directors or board of
directors of JLC or WRC, as applicable (including, without limitation, each
DLJMB Designee and DLJMB Subsidiary Designee) in an amount of at least
$5,000,000 per occurrence.
(e) The Charter and the by-laws of the Parent and other
organizational documents of the Parent and each Subsidiary shall at all times,
to the fullest extent permitted by law, provide for indemnification of,
advancement of expenses to, and limitation of the personal liability of, the
members of the Board of Directors and the members of the boards of directors or
other similar managing bodies of each of the Subsidiaries and such other
persons, if any, who, pursuant to a provision of such Charter, by-laws or other
organizational documents, exercise or perform any of the powers or duties
otherwise conferred or imposed upon members of the Board of Directors or the
boards of directors or other similar managing bodies of each
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Subsidiary. Such provisions may not be amended, repealed or otherwise modified
in any manner adverse to any member of the Board of Directors or any member of
the boards of directors or other similar managing bodies of any of the
Subsidiaries, until at least six years following the date on which DLJMB is
entitled to nominate a DLJMB Designee or DLJMB Subsidiary Designee.
(f) The Board of Directors shall meet in person at least
quarterly, and shall meet at such other times as called by any two directors.
SECTION 1.04. APPROVAL RIGHT. Without the
written approval of the DLJMB Entities, the Parent shall
not, and shall not cause or permit any Subsidiary to,
undertake any of the following:
(a) the expansion of the Board of Directors, or of the board
of directors of either of the Companies, to consist of greater than 14
directors;
(b) prior to the issuance of the Exchange Preferred Stock, the
creation or authorization of any class of stock by either Company, or
the issuance of any shares, that would rank prior to, or on a parity
with, the Exchange Preferred Stock, when issued, with respect to
dividends or upon liquidation, dissolution, winding up or otherwise, or
the increase of the authorized number of shares of any such class, or
the reclassification of any authorized stock of either Company into any
such prior or parity shares or the creation, authorization or issuance
of any obligation or security convertible into or evidencing the right
to purchase any such prior or parity shares;
(c) the entry into or amendment of any transaction or
arrangement (excluding compensation and benefit arrangements of
employees in the ordinary course of business) between the Parent or any
Subsidiary, on the one hand, and any Affiliate (other than a
Subsidiary) of the Parent, or any partner, shareholder, director or
officer of the Parent or any such Affiliate, including any entity
affiliated with Ripplewood, on the other hand, such approval not to be
unreasonably withheld or delayed; or
(d) the amendment, modification or replacement, in any
material respect, of:
(i) the Management Agreement, dated as of
November 17, 1999, between JLC and Ripplewood; or
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(ii) the Management Agreement, dated as of November
17, 1999 between WRC and Ripplewood.
SECTION 1.05. REMEDIES. The Parent, the Initial Stockholder,
SGC and the Purchasers agree that the remedies of the Purchasers at law in
respect of any breach by the Initial Stockholder, SGC, or the Parent, as
applicable, of their obligations pursuant to Article I would be inadequate and
that, upon any finding by any court of competent jurisdiction that the Initial
Stockholder, SGC or the Parent, as applicable, has breached any such obligation,
the Purchasers which are holders of Preferred Stock or Purchaser Shares shall be
entitled to, and the Parent, SGC and the Initial Stockholder agree that they
will not contest, upon any such finding of any such breach, the award of
specific performance and injunctive relief in favor of such Purchasers and
compelling the Parent, SGC and the Initial Stockholder, as applicable, to comply
with such obligations.
ARTICLE II
REGISTRATION AND EXCHANGE RIGHTS
SECTION 2.01. REQUIRED REGISTRATION. (a) FILING OF
REGISTRATION STATEMENT. Subject to Section 2.01(f), the Parent will, upon
the written request of the DLJMB Entities or the Initial Stockholder (the
Person so requesting, the "Initiating Holder") given at any time after (x) in
the case of Registrable Securities that are Parent Preferred Stock, 210 days
after the date of the closing of the sale by the Parent of its Senior
Subordinated Notes due 2009; PROVIDED, that the DLJMB Entities shall not be
entitled to give such request at any time that the Parent is required to
maintain an effective shelf registration statement for the Parent Preferred
Stock pursuant to the terms of this Agreement or (y) in the case of
Registrable Securities other than Parent Preferred Stock, the earlier to
occur of (A) six months after the Initial Public Offering Date or (B) four
years after the date of this Agreement, requesting that the Parent effect the
registration (which, with respect to Registrable Securities that are Warrants
shall, at the option of the DLJMB Entities as Initiating Holder, include a
shelf registration statement covering the common stock for which such
Warrants are exercisable) under the Securities Act of all or part of such
Initiating Holder's Registrable Securities and specifying the Registrable
Securities to be sold and the intended method of disposition thereof,
promptly give written notice of such requested registration to all holders of
Registrable Securities, and thereupon will
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use its best efforts to effect the registration (the "Required Registration")
under the Securities Act of:
(i) the Registrable Securities that the Parent has
been so requested to register by the Initiating Holder;
and
(ii) subject to Section 2.01(d), all other Registrable
Securities that the Parent has been requested to register by the
holders thereof by written request given to the Parent by holders which
have the right to request such registration within 30 days after the
giving of such written notice by the Parent (which request shall
specify the Registrable Securities to be sold and the intended method
of disposition of such Registrable Securities);
all to the extent required to permit the disposition (in accordance with the
intended method thereof as aforesaid) of the Registrable Securities of the
Initiating Holder so to be registered.
(b) TIME FOR FILING AND EFFECTIVENESS. On or before the date
which is 90 days after the request for such registration, the Parent shall file,
or cause to be filed, with the SEC all documents and materials necessary to
effect the Required Registration with respect to all Registrable Securities to
be so registered, and shall use its best efforts to cause such Required
Registration to become effective as promptly as practicable after the filing
thereof, but in no event later than the day which is 180 days after the request
for such registration; PROVIDED, that the Parent may delay filing or effecting
any Required Registration or suspend any effective registration statement for
not more than an aggregate of 60 days in any 12 month period if in the good
faith judgment of the Board of Directors such Required Registration or
registration statement being filed, effected or effective, as applicable, at
such time would impair or interfere with in any material respect any
contemplated financing, acquisition, disposition, corporate reorganization or
other similar, material, corporate transaction or development involving the
Parent or any Subsidiary or any of its or their Affiliates or would require
premature disclosure thereof.
(c) SELECTION OF UNDERWRITERS. If Registrable Securities that
the Parent has been requested to register pursuant to a Required Registration
are to be disposed of in an underwritten public offering, the underwriters
(including, without limitation, the lead and managing underwriters) of such
offering shall be one or more
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underwriting firms of recognized standing selected by the Initiating Holder and
reasonably acceptable to the Parent (it being agreed by the parties that
Donaldson, Lufkin & Jenrette Securities Corporation shall be acceptable to the
Parent). For the avoidance of doubt, the holders of Registrable Securities other
than the Initiating Holder shall have no right to select the underwriters of any
Required Registration.
(d) PRIORITY ON REQUIRED REGISTRATIONS. If the managing
underwriter shall advise the Parent in writing (with a copy to each holder of
Registrable Securities requesting sale) that, in such underwriter's opinion, the
number of Registrable Securities requested to be included in such Required
Registration exceeds the number that can be sold in such offering within the
price range acceptable to the Initiating Holder that the Initiating Holder shall
furnish to such underwriter upon request (such writing to state the basis of
such opinion and the approximate number of Registrable Securities that may be
included in such offering without such effect), the Parent will include in such
Required Registration, to the extent of the number of Registrable Securities
that the Parent is so advised by the managing underwriter can be sold in such
offering:
(i) FIRST, Registrable Securities requested to be sold by the
Initiating Holder; PROVIDED, HOWEVER, that if the Initial Stockholder
is the Initiating Holder then Registrable Securities requested to be
sold by the Purchasers shall be included with the Registrable
Securities requested to be sold by the Initial Stockholder (PRO RATA
based on the number of Registrable Securities requested to be sold by
the Initial Stockholder and the DLJMB Entities; and PROVIDED, HOWEVER,
that with respect to any such registration, to the extent that SGC
holds Securities of the same class as the Registrable Securities being
sold by the Initial Stockholder and SGC has requested pursuant to the
Amended and Restated Stockholders Agreement, dated as of November 17,
1999, among the Initial Stockholder, SGC and the Parent, any of such
Securities to be included in such registration, the Registrable
Securities requested to be sold by the Purchasers shall be included pro
rata based on the number of Registrable Securities requested be sold by
the Initial Stockholder, the DLJMB Entities and SGC);
(ii) SECOND, subject to the first proviso in Section
2.01(d)(i), Registrable Securities requested to be sold by the holders
thereof other than the Initiating Holder (pro rata based on the number
of
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Registrable Securities so requested to be sold by such
holders); and
(iii) THIRD, all other Securities proposed to be registered by
the Parent and any Other Stockholders, in such proportions as the
Parent and such Other Stockholders shall agree.
(e) WHEN REQUIRED REGISTRATION IS DEEMED EFFECTED. A Required
Registration pursuant to this Section 2.01 shall not be deemed to have been
effected for purposes of Section 2.01(f) hereof if:
(i) in the case of registration statements other than shelf
registration statements under clause (B) of Section 2.01(a) (which
shall be kept continuously effective until all of the underlying
Warrants have been exercised for Capital Stock or expire), the
registration statement related thereto does not become effective and
remain effective for a period of at least 180 days (not counting any
days during which a stop order or a suspension pursuant to Section
2.01(b) was in effect with respect to such registration statement)
after the date such registration statement becomes effective; PROVIDED,
HOWEVER, that the Parent shall have no obligation to keep effective
such registration statement at any time after all Registrable
Securities included in such offering have been sold;
(ii) the Initiating Holder withdraws its request for
registration in its entirety at any time because the Initiating Holder
reasonably believes that the registration statement or any prospectus
related thereto contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or
necessary to make the statements made therein (in the case of any
prospectus, in light of the circumstances under which they were made)
not misleading, notified the Parent of such fact and requested that the
Parent correct such alleged misstatement or omission, and the Parent
has refused to correct such alleged misstatement or omission;
(iii) any customary conditions to closing specified in the
purchase agreement or underwriting agreement entered into in connection
with such Required Registration are not satisfied, other than by reason
of any breach by any holder of any Registrable Securities that were to
have been registered and sold of its obligations thereunder or
hereunder; or
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(iv) if, after it has become effective, such registration is
interfered with for any reason by any stop order, injunction or other
order or requirement of the SEC or any other governmental agency or any
court, and the result of such interference is to prevent the Initiating
Holder from disposing of at least 75% of the Registrable Securities
included in such registration pursuant to Section 2.01(a) in accordance
with the intended methods of distribution.
(f) LIMITATION ON NUMBER AND SIZE OF REQUIRED REGISTRATIONS.
The Parent shall be required to effect only two Required Registrations
requested by the DLJMB Entities, as Initiating Holder, with respect to
the Parent Preferred Stock and two Required Registrations requested by
the DLJMB Entities, as Initiating Holder, with respect to the Purchaser
Shares, pursuant to this Section 2.01 that are deemed to have been
effected under Section 2.01(e). The Parent shall be required to effect
any number of Required Registrations requested by the Initial
Stockholder pursuant to this Section 2.01. The Parent shall not be
required to effect any Required Registration pursuant to this Section
2.01 during the period starting with the date of the decision by the
Board of Directors to register shares of Common Stock on behalf of the
Parent (provided that a registration statement is filed within 30 days
of such decision and becomes effective within 120 days of such filing)
or the receipt by the Parent of a request for a Required Registration
and ending on a date 180 days following the effective date of a
registration statement related to a Required Registration or an
Incidental Registration. The Parent shall also not be required to
effect any Required Registration unless either:
(i) the gross aggregate offering price of all
Securities to be included in such Required Registration
(including, without limitation, Securities offered by the
holders of Registrable Securities, the Parent and any Other
Stockholders proposed to be registered under such Required
Registration) shall exceed $30,000,000; or
(ii) such Required Registration includes all
Registrable Securities held by the Initiating Holder of the
class and issuer of such Registrable Securities proposed to be
sold in such Required
Registration.
<PAGE>
14
SECTION 2.02. INCIDENTAL REGISTRATION. (a) FILING OF
REGISTRATION STATEMENT. If the Parent or either Company at any time proposes to
register any of its Capital Stock or Rights (an "Incidental Registration") under
the Securities Act (other than pursuant to Section 2.01 or pursuant to a
registration statement on Form S-4 or Form S-8 or any successor forms thereto),
for sale in a Public Offering, including, without limitation, in connection with
its initial Public Offering, it will each such time give prompt written notice
to all holders of Registrable Securities of its intention to do so, which notice
shall be given to all such holders at least 20 Business Days prior to the date
that a registration statement relating to such registration is proposed to be
filed with the SEC. Upon the written request of any such holder to include its
Registrable Securities issued by the Parent or such Company, as the case may be,
under such registration statement (which request shall be made within 10
Business Days after the receipt of any such notice and shall specify the
Registrable Securities intended to be disposed of by such holder), the Parent
will use its best efforts to effect the registration of all Registrable
Securities that the Parent has been so requested to register by such holder
(which, with respect to Registrable Securities requested to be included in such
Incidental Registration which are Warrants, shall, at the option of the DLJMB
Entities, include a shelf registration statement covering the common stock for
which such Warrants are exercisable); PROVIDED, HOWEVER, that if, at any time
after giving written notice of its intention to register any Capital Stock or
Rights and prior to the effective date of the registration statement filed in
connection with such registration, the Parent or the applicable Company shall
determine for any reason not to register such Capital Stock or Rights, the
Parent or the applicable Company may, at its election, give written notice of
such determination to each such holder and, thereupon, shall be relieved of its
obligation to register any Registrable Securities of such holders in connection
with such registration.
(b) SELECTION OF UNDERWRITERS. Notice of the Parent's or the
applicable Company's intention to register such Capital Stock or Rights shall
designate the proposed underwriters of such offering (which shall be one or more
underwriting firms of established reputation reasonably acceptable to the
Requisite Holders) and shall contain the Parent's or the applicable Company's
agreement to use its best efforts, if requested to do so, to arrange for such
underwriters to include in such underwriting the Registrable Securities that the
Parent or the applicable Company has been so requested to register pursuant to
this Section 2.02, it being understood that such holders of Registrable
<PAGE>
15
Securities shall have no right to select different underwriters for the
disposition of their Registrable Securities.
(c) PRIORITY ON INCIDENTAL REGISTRATIONS. If the managing
underwriter shall advise the Parent or the applicable Company in writing
(with a copy to each holder of Registrable Securities requesting sale) that,
in such underwriter's opinion, the number of Registrable Securities requested
to be included in such Incidental Registration by such holders of Registrable
Securities exceeds the number that can be sold in such offering within a
price range acceptable to the Parent or the applicable Company (such writing
to state the basis of such opinion and the approximate number of Registrable
Securities that may be included in such offering without such effect), the
Parent or the applicable Company will include in such Incidental
Registration, to the extent of the number of Registrable Securities that the
Parent or the applicable Company is so advised by the managing underwriter
can be sold in such offering:
(i) in the case of any registration initiated by the Parent or
any Company for the purpose of selling Capital Stock or Rights for its
own account:
(A) FIRST, Securities that the Parent or the
applicable Company proposes to issue and sell for its own
account; and
(B) SECOND, Registrable Securities requested to be
sold by the holders of Registrable Securities pursuant to this
Section 2.02 and all Securities proposed to be registered by
the Other Stockholders which have the right to request such
registration, pro rata among such holders on the basis of the
number of Securities requested to be so registered by such
holders; and
(ii) in the case of a registration initiated by any Other
Stockholder pursuant to demand or required registration rights in favor
of such Other Stockholder and provided to such Other Stockholder in
compliance with Section 2.07(b):
(A) FIRST, Securities requested to be sold by the
Other Stockholders requesting such Incidental
Registration;
(B) SECOND, Registrable Securities requested to be
sold by the holders of Registrable
<PAGE>
16
Securities pursuant to this Section 2.02 and all Securities
proposed to be registered by Other Stockholders which have the
right to request such registration other than those requesting
such Incidental Registration, PRO RATA among such holders on
the basis of the number of Securities requested to be so
registered by such holders; and
(C) THIRD, Securities that the Parent or either
Company proposes to issue and sell for its own account.
SECTION 2.03. REGISTRATION PROCEDURES. The Parent will use its
best efforts to effect each Registration, and to cooperate with the sale of such
Registrable Securities in accordance with the intended method of disposition
thereof as quickly as practicable, and the Parent will, or will cause the
applicable Company to, as expeditiously as reasonably possible:
(a) subject, in the case of an Incidental Registration, to the
proviso to Section 2.02(a), prepare and file with the SEC the
registration statement and use its best efforts to cause the
Registration to become effective; PROVIDED, HOWEVER, that:
(i) before filing any original registration
statement, the Parent will furnish to the holders of the
Registrable Securities covered by such registration statement,
their counsel, and the underwriters, if any, and their
counsel, copies of reasonably complete drafts of all such
documents proposed to be filed at least 15 days prior thereto,
which drafts will be subject to the reasonable review, within
such 15 day period, of such holders, their counsel and the
underwriters; and
(ii) within a reasonable time (giving effect to the
nature of such document and, in the case of any amendment or
supplement, the extent of the changes thereto) before filing
any amendment to any registration statement or any prospectus
or supplement thereto, the Parent will furnish to the holders
of the Registrable Securities covered by such registration
statement or prospectus, their counsel, and the underwriters,
if any, and their counsel, copies of all such documents
proposed to be filed, which documents will be subject to the
<PAGE>
17
reasonable review, within such period, of such
holders, their counsel and the underwriters;
and the Parent will not file any registration statement or amendment
thereto or any prospectus or any supplement thereto (including, without
limitation, such documents incorporated by reference) to which the
Requisite Holders shall reasonably object within the applicable review
period (the reasonableness of any such objection by any holder or its
counsel to be viewed, in the case of an Incidental Registration, in
light of the potential liability of such holder in respect of
misstatements in and omissions from the registration statement or
prospectus and the holder's potential obligations under Section 2.06);
(b) subject, in the case of an Incidental Registration, to the
proviso to Section 2.02(a), prepare and file with the SEC such
amendments and post-effective amendments to any registration statement
and any prospectus used in connection therewith as may be necessary to
keep such registration statement continuously effective until, with
respect to any registration statement other than a shelf registration
statement under clause (B) of ss.2.01(a) (which shall be kept
continuously effective until all of the underlying Warrants have been
exercised for Capital Stock or expire) the earlier of:
(i) such time as all Registrable Securities
registered thereby have been disposed of in accordance with
the intended method of distribution; and
(ii) the date 180 days after the date such
registration statement become effective;
(but in any event not before the expiration of any longer period
required under any amendment to the Securities Act, including the rules
and regulations promulgated thereunder) and to comply with the
provisions of the Securities Act with respect to the disposition of all
Registrable Securities covered by such registration statement; and
cause the prospectus to be supplemented by any required prospectus
supplement, and as so supplemented to be filed pursuant to Rule 424
under the Securities Act;
(c) furnish to each holder of Registrable Securities included
in such Registration and the underwriter or underwriters, if any,
without charge, at
<PAGE>
18
least one signed copy of the registration statement and any
post-effective amendment thereto, upon request, and such number of
conformed copies thereof and such number of copies of the prospectus
(including, without limitation, each preliminary prospectus and each
prospectus filed under Rule 424 under the Securities Act), any
amendments or supplements thereto and any documents incorporated by
reference therein, as such holder or underwriter may reasonably request
in order to facilitate the disposition of the Registrable Securities
being sold by such holder (it being understood that the Parent consents
to the use of the prospectus and any amendment or supplement thereto by
each holder of Registrable Securities covered by such registration
statement and the underwriter or underwriters, if any, in connection
with the offering and sale of the Registrable Securities covered by the
prospectus or any amendment or supplement thereto);
(d) notify each holder of the Registrable Securities of any
stop order or other order suspending the effectiveness of any
registration statement, issued or threatened by the SEC in connection
therewith, and use all reasonable efforts to attempt to prevent the
entry of such stop order or to remove it or obtain withdrawal of it at
the earliest possible moment if entered;
(e) if requested by the managing underwriter or underwriters,
if any, or any holder of Registrable Securities in connection with any
sale pursuant to a registration statement, promptly incorporate in a
prospectus supplement or post-effective amendment such information
relating to such underwriting as the managing underwriter or
underwriters, if any, or such holder reasonably requests to be included
therein; and make all required filings of such prospectus supplement or
post-effective amendment as soon as practicable after being notified of
the matters incorporated in such prospectus supplement or
post-effective amendment;
(f) on or prior to the date on which a Registration is
declared effective, use its best efforts to register or qualify, and
cooperate with the holders of Registrable Securities included in such
Registration, the underwriter or underwriters, if any, and their
counsel, in connection with the registration or qualification of the
Registrable Securities covered by such Registration for offer and sale
under the securities or "blue sky" laws of each state and other
jurisdiction of the United States as any such holder or
<PAGE>
19
the managing underwriter, if any, reasonably requests in writing; use
its best efforts to keep each such registration or qualification
effective, including, without limitation, through new filings, or
amendments or renewals, during the period such registration statement
is effective (in the case of an Incidental Registration) or required to
be kept effective (in the case of a Required Registration); and to do
all other acts or things necessary or advisable to enable the
disposition in all such jurisdictions reasonably requested of the
Registrable Securities covered by such Registration; PROVIDED, HOWEVER,
that the Parent will not be required to qualify generally to do
business in any jurisdiction where it is not then so qualified or to
take any action which would subject it to taxation or general service
of process in any such jurisdiction where it is not then so subject;
(g) in connection with any sale pursuant to a Registration,
cooperate with the holders of Registrable Securities and the managing
underwriter or underwriters, if any, to facilitate the timely
preparation and delivery of certificates (not bearing any restrictive
legends) representing Securities to be sold under such Registration,
and enable such Securities to be in such denominations and registered
in such names as the managing underwriter or underwriters, if any, or
such holders may request;
(h) use its best efforts to cause the Registrable Securities
to be registered with or approved by such other governmental agencies
or authorities within the United States and having jurisdiction over
the Parent or any Subsidiary as may reasonably be necessary to enable
each holder thereof or the underwriter or underwriters, if any, to
consummate the disposition of such Registrable Securities;
(i) enter into underwriting agreements in customary form and
take such other customary actions as are reasonably necessary in order
to expedite or facilitate the disposition of such Registrable
Securities;
(j) use its best efforts to obtain:
(i) at the time of effectiveness of each
Registration, a "comfort letter" from the Parent's independent
certified public accountants covering such matters of the type
customarily covered by "cold comfort letters" as the
underwriters (in an
<PAGE>
20
underwritten offering) or the Requisite Holders
(in a nonunderwritten offering) reasonably
request; and
(ii) at the time of any underwritten sale pursuant to
the registration statement, a "bring-down comfort letter",
dated as of the date of such sale, from the Parent's
independent certified public accountants covering such matters
of the type customarily covered by comfort letters as the
underwriters (in an underwritten offering) or the Requisite
Holders (in a nonunderwritten offering) reasonably request;
(k) use its best efforts to obtain, at the time of
effectiveness of each Registration and at the time of any sale pursuant
to each Registration, an opinion or opinions, favorable to the
underwriters (in an underwritten offering) or the Requisite Holders (in
a nonunderwritten offering) as they may reasonably request, from
counsel for the Parent in customary form;
(l) promptly notify each seller of Registrable Securities
covered by such Registration, upon discovery that the prospectus
included in such Registration, as then in effect, includes an untrue
statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, and promptly prepare, file with the SEC and furnish to such
seller or holder a reasonable number of copies of a supplement to or an
amendment of such prospectus as may be necessary so that, as thereafter
delivered to the purchasers or prospective purchasers of such
Securities, such prospectus shall not include an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading;
(m) otherwise use its best efforts to comply with all
applicable rules and regulations of the SEC, and make generally
available to its security holders (as contemplated by Section 11(a)
under the Securities Act) an earnings statement satisfying the
provisions of Rule 158 under the Securities Act no later than 90 days
after the end of the 12-month period beginning with the first month of
the Parent's first fiscal quarter commencing after the effective date
of the registration
<PAGE>
21
statement, which statement shall cover said 12-month
period;
(n) provide and cause to be maintained a transfer agent and
registrar for all Registrable Securities covered by each Registration
from and after a date not later than the effective date of such
Registration; and
(o) use its best efforts to cause all Registrable Securities
that are common stock covered by each Registration to be listed subject
to notice of issuance, prior to the date of first sale of such
Registrable Securities pursuant to such Registration, on each
securities exchange on which the common stock of the issuer of the
Registrable Securities is then listed; and, if the common stock is not
so listed, to use its best efforts to cause all such Registrable
Securities covered by each Registration to be designated as National
Market System Securities, if the common stock of the issuer of the
Registrable Securities is so designated (and, if the common stock of
the issuer of the Registrable Securities is listed on the NASDAQ
National Market or the NASDAQ SmallCap Market, to cause all such
Registrable Securities covered by each Registration to be so listed);
and, if the common stock of the issuer of the Registrable Securities is
not so designated, to arrange for at least two market makers to
register with the NASD as such with respect to such Registrable
Securities.
The Parent may require each holder of Registrable Securities that will be
included in such Registration to furnish the Parent with such information in
respect of such holder of its Registrable Securities that will be included in
such Registration as the Parent may reasonably request in writing and as is
required by applicable laws or regulations. If a holder of Registrable
Securities fails to provide such information, the Parent shall be entitled to
exclude the Registrable Securities of such holder from any Registration
thereunder. If the offering of the Registrable Securities is to be underwritten,
the Parent may require that the holders of the Registrable Securities
participating in such Registration Statement enter into a reasonable
underwriting agreement in customary form; PROVIDED, HOWEVER, that the holders of
the Registrable Securities shall not be required to make any representation,
warranty or covenant other than customary representations and warranties
concerning the due authority of such holder of Registrable Securities to sell
such Registrable Securities and execute and deliver such underwriting agreement,
the holder's good title to the Registrable Securities and the warranties implied
in
<PAGE>
22
connection with such transfer under Section 8-108(a) of the Uniform Commercial
Code of the State of New York, and shall not be required to provide any
indemnity or contribution rights to any underwriter on terms any more favorable
than those provided for in Section 2.06.
SECTION 2.04. REASONABLE INVESTIGATION. The
Parent shall:
(a) give the holders of Registrable Securities, their
underwriters, if any, and their respective counsel and accountants the
opportunity to participate in the preparation of the registration
statement, each prospectus included therein or filed with the SEC and
each amendment thereof or supplement thereto;
(b) give each such holder and underwriter reasonable
opportunities to discuss the business of each of the Parent and its
Subsidiaries with its officers, counsel and the independent public
accountants who have certified its financial statements;
(c) make available for inspection by any holder of Registrable
Securities included in any Registration, any underwriter participating
in any disposition pursuant to any Registration, and any attorney,
accountant or other agent retained by any such holder or underwriter,
all financial and other records, pertinent corporate documents and
Properties of each of the Parent and its Subsidiaries; and
(d) cause each of the Parent's and its Subsidiaries' officers,
directors and employees to supply all information reasonably requested
by any such Person in connection with such Registration;
in each such case, as shall be reasonably necessary (in light of the potential
liability of such holder or underwriter in respect of misstatements in and
omissions from the registration statement or prospectus and any holder's
obligations under Section 2.06) to enable it to conduct a "reasonable
investigation" within the meaning of the Section 11(b)(3) of the Securities Act
and to satisfy the requirement of reasonable care imposed by Section 12(a)(2) of
the Securities Act.
The Parent agrees to include in the registration statement and
each amendment thereto, and in each preliminary prospectus, prospectus or
prospectus supplement, all material information requested to be included by any
<PAGE>
23
holder of Registrable Securities or underwriter, in each case, to the extent
required to be contained therein or necessary to correct any misstatement of
fact or necessary to make any statement contained therein, in light of the
circumstances under which it was made, not misleading. Each holder of
Registrable Securities agrees to keep confidential and not disclose (other than
in connection with disclosure by the Parent pursuant to the foregoing sentence)
to any Person (other than its officers, directors, employees and trustees who
need to know such information and other than any attorney, agent, adviser or
accountant who makes the agreement set forth in this paragraph) any information
the Company reasonably determines to be confidential and so notifies in writing
such holder, unless:
(i) the release of such information is necessary to avoid or
correct a misstatement of a fact or omission of a fact required to be
stated in any such registration statement or any amendment thereto, or
in any preliminary prospectus, prospectus or prospectus supplement, or
necessary to make the statements made therein, in light of the
circumstances under which they were made, not misleading;
(ii) the release of such records is ordered pursuant to a
subpoena or other order from a court of competent jurisdiction;
(iii) such disclosure is requested by any governmental
authority or self-regulatory organization having or alleging
jurisdiction over such holder of Registrable Securities, and either
such governmental authority or self-regulatory organization agrees to
maintain the confidentiality of such information or such holder gives
the Parent reasonable advance written notice of such intended
disclosure, so as to permit the Parent to seek a protective order or
similar relief;
(iv) the Parent otherwise consents; or
(v) such information becomes generally available to the public
other than through a breach of this Agreement by such holder.
SECTION 2.05. REGISTRATION EXPENSES. The Parent
will pay all Registration Expenses in connection with each
Registration of Registrable Securities, including, without
limitation, any such registration not effected by the Parent
or either Company.
<PAGE>
24
SECTION 2.06. INDEMNIFICATION; CONTRIBUTION. (a)
INDEMNIFICATION BY THE PARENT. In connection with any registration statement or
any offering of Securities pursuant thereto, the Parent shall indemnify, to the
fullest extent permitted by law, each holder of Registrable Securities, its
Affiliates, officers, directors, partners, employees, trustees and agents, if
any, and each Person, if any, who controls such holder within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act, against all
losses, claims, damages, liabilities (or proceedings in respect thereof) and
expenses (under the Securities Act or common law or otherwise), joint or
several, resulting from any violation by the Parent or either Company of the
provisions of the Securities Act or the Exchange Act or any untrue statement or
alleged untrue statement of a material fact contained in any registration
statement or prospectus (and as amended or supplemented if amended or
supplemented) or any preliminary prospectus or caused by any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein (in the case of any prospectus, in
light of the circumstances under which they were made) not misleading, except to
the extent that such losses, claims, damages, liabilities (or proceedings in
respect thereof) or expenses are caused by any such untrue statement or alleged
untrue statement contained in or by any omission or alleged omission from
information concerning any holder furnished in writing to the Parent or any
Company, as applicable, by such holder expressly for use therein. If the
offering pursuant to any registration statement provided for under this Article
IV is made through underwriters, no action or failure to act on the part of such
underwriters (whether or not such underwriter is an Affiliate of any holder of
Registrable Securities) shall affect the obligations of the Parent to indemnify
any holder of Registrable Securities or any other Person pursuant to the
preceding sentence. If the offering pursuant to any registration statement
provided for under this Section 4 is made through underwriters, the Parent
agrees, to the extent required by such underwriters, to enter into an
underwriting or other agreement providing for indemnity of such underwriters,
their officers, directors and agents, if any, and each Person, if any, who
controls such underwriters within the meaning of Section 15 of the Securities
Act or Section 20 of the Exchange Act to the same extent as hereinbefore
provided with respect to the indemnification of the holders of Registrable
Securities; PROVIDED, HOWEVER, that the Parent shall not be required to
indemnify any such underwriter, or any officer or director of such underwriter
or any Person who controls such underwriter within the meaning of Section 15 of
the Securities Act or Section 20 of
<PAGE>
25
the Exchange Act, to the extent that the loss, claim, damage, liability (or
proceedings in respect thereof) or expense for which indemnification is claimed
results from such underwriter's failure to send or give a copy of an amended or
supplemented final prospectus to the Person asserting an untrue statement or
alleged untrue statement or omission or alleged omission at or prior to the
written confirmation of the sale of Registrable Securities to such Person if
such statement or omission was corrected in such amended or supplemented final
prospectus prior to such written confirmation and the underwriter was provided
with such amended or supplemented final prospectus.
(b) INDEMNIFICATION FOR CONTROLLING PERSON LIABILITY. In
addition to the indemnification provided for in Section 2.06(a), the Parent
shall indemnify each holder of Registrable Securities, its Affiliates, officers,
directors, partners, employees, trustees and agents, if any, and each Person, if
any, who controls such holder within the meaning of Section 15 of the Securities
Act or Section 20 of the Exchange Act, against all losses, claims, damages,
liabilities (or proceedings in respect thereof) and expenses, joint or several,
in each case, under the Securities Act, the Exchange Act, common law or
otherwise, resulting from:
(i) any violation by the Parent or any Company of
the provisions of the Securities Act or the Exchange
Act;
(ii) any untrue statement or alleged untrue statement of a
material fact contained in any registration statement or amendment
thereto or prospectus (and as amended or supplemented if amended or
supplemented) or any preliminary prospectus or caused by any omission
or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein (in the case
of any prospectus, in light of the circumstances under which they were
made) not misleading, whether or not, in each such case, the
registration statement or amendment thereto or prospectus (or amendment
or supplement thereto) or preliminary prospectus related or relates to
any offering or sale of Registrable Securities by any holder; and
(iii) any other untrue statement or alleged untrue statement
of a material fact or omission or alleged omission to state a material
fact necessary to make the statements in any document issued or
delivered to any purchaser or potential purchaser or filed with the SEC
<PAGE>
26
pursuant to Section 13 or Section 15(d) of the Exchange Act (in light
of the circumstances under which they were made) not misleading, in
each case, in connection with any offering or sale of Securities of the
Parent by any Person, whether or not such Securities offered or sold
are or were registered or required to be registered under the
Securities Act;
in each such case, to the extent that such losses, claims, damages, liabilities
(or proceedings in respect thereof) and expenses, joint or several, are alleged
to result from or exist by virtue of the fact that any holder of Registrable
Securities controls or is alleged to control (within the meaning of Section 15
of the Securities Act or Section 20 of the Exchange Act) the Parent or any
Subsidiary, whether such claim or allegation arises under Section 15 of the
Securities Act or Section 20 of the Exchange Act or otherwise; PROVIDED,
HOWEVER, that such indemnification shall not extend to losses, claims, damages,
liabilities (or proceedings in respect thereof) or expenses caused by any untrue
statement or alleged untrue statement contained in or by any omission or alleged
omission from information furnished in writing to the Parent or any Company by
such holder expressly for use therein, or from any such information provided by
an underwriter selected by the holders or any of them.
(c) INDEMNIFICATION BY THE HOLDERS. In connection with any
registration statement in which a holder of Registrable Securities is
participating, each such holder, severally and not jointly, shall indemnify, to
the fullest extent permitted by law, the Parent, each underwriter (if the
underwriter so requires) and their respective officers, directors and agents, if
any, and each Person, if any, who controls the Parent or such underwriter within
the meaning of Section 15 of the Securities Act or Section 20 of the Exchange
Act, against any losses, claims, damages, liabilities (or proceedings in respect
thereof) and expenses resulting from any untrue statement or alleged untrue
statement of a material fact or any omission or alleged omission of a material
fact required to be stated in the registration statement or prospectus or
preliminary prospectus or any amendment thereof or supplement thereto or
necessary to make the statements therein (in the case of any prospectus, in
light of the circumstances under which they were made) not misleading, but only
to the extent that such untrue statement is contained in or such omission is
from information so concerning a holder furnished in writing by such holder
expressly for use therein; PROVIDED, HOWEVER, that such holder's obligations
hereunder shall be limited to an amount equal to the proceeds to such holder of
the
<PAGE>
27
Registrable Securities sold pursuant to such registration statement.
(d) CONTROL OF DEFENSE. Any Person entitled to indemnification
under the provisions of this Section 2.06 shall give prompt notice to the
indemnifying party of any claim with respect to which it seeks indemnification
(the failure of any indemnified party so to notify the indemnifying party shall
not relieve the indemnifying party of its obligations hereunder except to the
extent that the indemnifying party is materially prejudiced by such failure to
notify) and unless in such indemnified party's reasonable judgment a conflict of
interest between such indemnified and indemnifying parties may exist in respect
of such claim, permit such indemnifying party to assume the defense of such
claim, with counsel reasonably satisfactory to the indemnified party; and if
such defense is so assumed, such indemnifying party shall not enter into any
settlement without the consent of the indemnified party; and any underwriting
agreement entered into with respect to any registration statement provided for
under this Article II shall so provide. In the event an indemnifying party shall
not be entitled, or elects not, to assume the defense of a claim, such
indemnifying party shall be obligated to pay the fees and expenses of only one
counsel or firm of counsel for all parties indemnified by such indemnifying
party in respect of such claim, unless in the reasonable judgment of any such
indemnified party a conflict of interest may exist between such indemnified
party and any other of such indemnified parties in respect to such claim (in
which case the indemnifying party shall pay the fees and expenses of an
additional counsel for the indemnified party).
(e) CONTRIBUTION. If for any reason the foregoing indemnity is
unavailable, then the indemnifying party, in lieu of indemnifying the
indemnified party, shall contribute to the amount paid or payable by the
indemnified party as a result of such losses, claims, damages, liabilities or
expenses:
(i) in such proportion as is appropriate to reflect the
relative benefits received by the indemnifying party on the one hand
and the indemnified party on the other; or
(ii) if the allocation provided by clause (i) above is not
permitted by applicable law or provides a lesser sum to the indemnified
party than the amount hereinafter calculated, in such proportion as is
appropriate to reflect not only the relative benefits received by the
indemnifying party on the one hand and
<PAGE>
28
the indemnified party on the other but also the relative fault of the
indemnifying party and the indemnified party as well as any other
relevant equitable considerations.
Notwithstanding the foregoing, no holder of Registrable Securities shall be
required to contribute any amount in excess of the amount such holder would have
been required to pay to an indemnified party if the indemnity under Section
2.06(c) hereof was available. No Person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any Person who was not guilty of such fraudulent
misrepresentation. The obligation of any Person to contribute pursuant to this
Section 2.06 shall be several and not joint.
(f) TIMING OF PAYMENTS. An indemnifying party shall make
payments of all amounts required to be made pursuant to the foregoing provisions
of this Section 2.06 to or for the account of the indemnified party from time to
time promptly upon receipt of bills or invoices relating thereto or when
otherwise due or payable. Without limiting the generality of the foregoing, each
indemnifying party, as an interim measure during the pendency of any claim,
action, investigation, inquiry or proceeding arising our of or based upon any
matter or subject for which indemnity (or contribution in lieu thereof) may be
available to any indemnified party under this Section 2.06, will promptly
reimburse each indemnified party, as often as invoiced therefor (but in no event
more often than monthly) for all reasonable legal or other expenses incurred in
connection with the investigation or defense of any such claim, action,
investigation, inquiry or proceeding, notwithstanding the absence of any
judicial determination as to the propriety or enforceability of the indemnifying
party's obligation to reimburse the indemnified party for such expenses and
notwithstanding the possibility that the obligations to pay such expenses might
later have been held to be improper by a court of competent jurisdiction. To the
extent that any such interim reimbursement is held to be improper, the
indemnified party agrees to promptly return the amount so advanced to the
indemnifying party.
(g) SURVIVAL. The indemnity and contribution agreements
contained in this Section 2.06 shall remain in full force and effect regardless
of any investigation made by or on behalf of a participating holder of
Registrable Securities, its officers, directors, agents or any Person, if any,
who controls such holder as aforesaid, and shall survive the transfer of such
Securities by such holder.
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SECTION 2.07. HOLDBACK AGREEMENTS; REGISTRATION RIGHTS TO
OTHERS. (a) In connection with each underwritten sale of Registrable Securities,
the Parent agrees, and each holder of Registrable Securities by acquisition of
such Registrable Securities severally and not jointly agrees, to enter into
customary holdback agreements for a period not to exceed 180 days concerning the
sale or distribution of Registrable Securities, except, in the case of any
holder of Registrable Securities, such holder shall only be required to make
such agreement to the extent that the Parent, the Initial Stockholder and SGC
(so long as it owns more than 3% of the common stock of Parent) shall make
similar agreements.
(b) If the Parent or any Company shall at any time after the
date hereof provide to any holder of any of its Securities rights with respect
to the registration of such Securities under the Securities Act:
(i) such rights shall not be in conflict with or adversely
affect any of the rights provided in this Article II to the Purchasers;
and
(ii) if such rights are provided on terms or conditions more
favorable to such holder than the terms and conditions provided in this
Article II or if rights (including, without limitation, rights to
demand or request a registration of similar Securities of the Parent or
either Company) in addition to those granted pursuant to this Article
II are provided, the Parent or the applicable Company, as applicable,
will provide or cause to be provided (by way of amendment to this
Article II or otherwise) such additional more favorable terms or
conditions to the Purchasers, so long as at such time, the Purchasers
have not disposed of more than 66-2/3% of the aggregate number of
Securities of the Parent or the relevant Company, as the case may be,
originally acquired by the Purchasers.
SECTION 2.08. OTHER REGISTRATION OF CAPITAL STOCK. If any
shares of common stock or preferred stock of either of the Companies required to
be reserved for purposes of exercise of Warrants or conversion or exchange of
any class of preferred stock of the Parent or common stock of either of the
Companies into any other class of preferred stock or common stock of the Parent
or either of the Companies require registration with or approval of any
governmental authority under any Federal or state law (other than the Securities
Act) before such shares may be issued upon conversion or exchange, the Parent
will, at its expense and as expeditiously as possible, use its best efforts to
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30
cause such shares to be duly registered or approved, as the
case may be.
SECTION 2.09. AVAILABILITY OF INFORMATION. At any time that
any class of Capital Stock of the Parent or of either of the Companies is
registered under Section 12(b) or Section 12(g) of the Exchange Act, the
Parent or the relevant Company, as the case may be, will comply with the
reporting requirements of Sections 13 and 15(d) of the Exchange Act (whether
or not it shall be required to do so pursuant to such Sections) and will
comply with all other public information reporting requirements of the SEC
from time to time in effect. In addition, the Parent or the relevant
Company, as the case may be, if the Capital Stock of such Person is so
registered, shall:
(a) at all times after the Initial Public Offering Date, file
such reports and information, and shall make available to the public
and to the holders of Parent Preferred Stock and Purchaser Shares such
information, as shall be necessary to permit such holders to offer and
sell Registrable Securities pursuant to the provisions of Rule 144
promulgated under the Securities Act; and
(b) undertake to make available, and make available, the
information concerning the Parent and the relevant Company, as the case
may be, provided for by Rule 144A(d)(4).
The Parent and the relevant Company, as the case may be, if the Capital Stock of
such Person is so registered, will also cooperate with each such holder in
supplying such information as may be necessary for such holder to complete and
file any information reporting forms presently or hereafter required by the SEC
as a condition to the availability of an exemption from the registration
provisions of the Securities Act in connection with the sale of any Parent
Preferred Stock or Purchaser Shares. The Parent and the relevant Company, as the
case may be, if the Capital Stock of such Person is so registered, will furnish
to each such holder, promptly upon their becoming available, copies of all
financial statements, reports, notices and proxy statements sent or made
available generally by the Parent or the relevant Company, as the case may be,
to its stockholders, and copies of all regular and periodic reports and all
registration statements and prospectuses (other than any registration statement
on Form S-4 or S-8 or any successor forms thereto or any prospectus relating to
a registration statement on such forms) filed by the Parent or
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31
the relevant Company, as the case may be, with any
securities exchange or with the SEC.
SECTION 2.10. PARENT PREFERRED STOCK EXCHANGE RIGHTS. (a) (i)
Subject to the provisions of this Section 2.10, the DLJMB Entities, at their
option, may at any time on any Business Day cause the Companies to exchange all,
but not less than all, outstanding shares of Parent Preferred Stock held by all
of the Purchasers for an equal number of shares of preferred stock of the
Companies of identical type and liquidation preference and having identical
terms and conditions as the Parent Preferred Stock, but no further exchange
rights, except that the issuer of such preferred stock shall be the applicable
Company (the "Exchange Preferred Stock"). Dividends on Parent Preferred Stock
exchanged for Exchange Preferred Stock which have accrued but have not been paid
as of the date of exchange (including the date of exchange determined pursuant
to Section 2.10(a)(ii), the "Exchange Date") shall be deemed to have accrued on
the Exchange Preferred Stock in equivalent amounts. The DLJMB Entities shall
have the right, in their sole discretion, to elect the number of shares of
Exchange Preferred Stock to be issued by each Company (which shares shall be
issued in the same proportion to each Purchaser); PROVIDED, HOWEVER, that the
total number of shares of Exchange Preferred Stock issued to the Purchasers by
the Companies shall be equal to the total number of shares of the Parent
Preferred Stock so exchanged.
(ii) Subject to the provisions of this Section 2.10, the
Parent, at its option but only in connection with the Reorganization
Transaction, may distribute an equal number of shares of the WRC Preferred Stock
to the holders of Parent Preferred Stock in exchange for all, but not less than
all outstanding shares of Parent Preferred Stock. Dividends on Parent Preferred
Stock exchanged for WRC Preferred Stock which have accrued but have not been
paid as of the Exchange Date shall be deemed to have accrued on the WRC
Preferred Stock in equivalent amounts.
(b) (i) In the event of an exchange of the Parent Preferred
Stock pursuant to Section 2.10(a), notice of such exchange specifying the
Exchange Date therefor shall be given (x) if at the option of the DLJMB
Entities, to the Parent, the Other Purchasers and the applicable Company not
less than 30 days nor more than 60 days prior to the Exchange Date or (y) if at
the option of the Parent, to the holders of Parent Preferred Stock not less than
20 days nor more than 60 days prior to the Exchange Date.
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(ii) Notice having been given as aforesaid, from and after the
applicable Exchange Date (unless default shall be made by the applicable Company
in issuing Exchange Preferred Stock or by the Parent in distributing WRC
Preferred Stock, as applicable, in exchange for Parent Preferred Stock),
dividends on Parent Preferred Stock shall cease to accrue, and all rights of the
holders thereof as stockholders of the Parent (except the right to receive from
the applicable Company the Exchange Preferred Stock or from the Parent, the WRC
Preferred Stock, as applicable, and other than any rights, accrued or otherwise,
arising from non-compliance by the Parent with the terms of this Agreement)
shall cease. In the case of an exchange pursuant to the Section 2.10(a)(i), upon
surrender to the applicable Company in accordance with said notice of the
certificates for the Parent Preferred Stock (properly endorsed or assigned for
transfer) the applicable Company shall issue the Exchange Preferred Stock and
deliver to the applicable holder certificates therefor registered in the name of
such holder. In the case of an exchange pursuant to Section 2.10(a)(ii), upon
surrender to the Parent in accordance with said notice of the certificates for
the Parent Preferred Stock (properly endorsed or assigned for transfer) WRC
shall issue the WRC Preferred Stock and the Parent shall distribute to the
applicable holder certificates therefor registered in the name of such holder.
(iii) The exchange shall be deemed to have been effected
immediately after the close of business on the Exchange Date, and the holders in
whose names the Exchange Preferred Stock or the WRC Preferred Stock shall be
issuable upon such exchange shall be deemed to have become the holders of record
of the Exchange Preferred Stock or the WRC Preferred Stock represented thereby
at such time on the Exchange Date.
(iv) Prior to the issuance and delivery of the Exchange
Preferred Stock by the applicable Company, the applicable Company shall comply
with all applicable Federal and state laws and regulations which require action
to be taken by it with respect to such issuance and delivery (it being
understood that neither of the Companies nor the Parent shall be required by
reason of this Section 2.10(b)(iv) to file a registration statement covering
such shares with the SEC). Prior to the issuance of the WRC Preferred Stock by
WRC and delivery thereof by the Parent, WRC and the Parent shall comply with all
applicable Federal and state laws and regulations which require action to be
taken by them with respect to such issuance and delivery (it being understood
that neither WRC nor the Parent shall be required by reason of this
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33
Section 2.10(b)(iv) to file a registration statement covering such shares with
the SEC).
(v) From and after the Exchange Date, all references in this
Agreement to the Parent shall be construed as references to the applicable
Company, all references in this Agreement to Parent Preferred Stock shall be
construed as references to Exchange Preferred Stock or WRC Preferred Stock, as
applicable, and the applicable Company shall assume all of the obligations of
the Parent hereunder and the holders shall be subject to any transfer and other
restrictions applicable in the case of the Parent Preferred Stock.
(c) The Company issuing the Exchange Preferred Stock or the
WRC Preferred Stock will pay any and all documentary stamp or similar issue or
transfer taxes payable in respect of the issuance or delivery of certificates
evidencing the Exchange Preferred Stock or the WRC Preferred Stock other than
those resulting from transfers to third parties.
(d) For the avoidance of doubt, the Parent agrees that the
limitations on those events which may constitute a "Reorganization Transaction"
for purposes hereof are intended to be additional protections for the benefit of
the Purchasers (and any Affiliates thereof to whom shares of Parent Preferred
Stock are transferred) that are supplemental to the provisions of the
Certificate of Designations with respect to the Parent Preferred Stock (the
"Certificate of Designations").
SECTION 2.11. WARRANT REGISTRATION RIGHTS. The Purchasers
shall have registration rights with respect to the Warrants as provided in
Sections 2.01 (except that only the DLJMB Entities may be an "Initiating Holder"
thereunder), 2.02, 2.03, 2.04, 2.05, 2.06, 2.07, 2.08 and 2.09, provided that
such Sections shall be read in accordance with the following:
(i) "Parent" shall mean (I) with respect to Registrable Securities
consisting of or exercisable for common stock of WRC, WRC or (II) with respect
to Registrable Securities consisting of or exercisable for common stock of JLC,
JLC;
(ii) "Other Stockholders" shall mean all holders of securities of WRC
or JLC, as applicable, other than the Purchasers; and
(iii) any shelf registration statement filed with respect to the
Warrants pursuant to Section 2.01(a) or
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Section 2.02(a) shall be kept continuously effective until all such Warrants
have been exercised for Capital Stock in accordance with the terms thereof or
expire.
SECTION 2.12. INITIAL PUBLIC OFFERING OF PARENT. If an initial
public offering of shares of common stock of the Parent shall occur, then any
Purchaser shall have the right to, and the Parent shall, exchange all, but not
less than all, of such Purchasers' Warrants and shares of common stock, if any,
obtained upon exercise of the Warrants for shares of common stock of the Parent
having an aggregate fair market value equal to the Fair Market Value of the
exchanged shares.
SECTION 2.13. TAG-ALONG RIGHTS. (a) COMPANY TAG-ALONG RIGHTS.
If Parent proposes to transfer (other than transfers (i) in a Public Offering,
(ii) to Ripplewood Partners or any Affiliate of Ripplewood Partners, (iii) to
any shareholder, partner, member or employee of Ripplewood Partners or any
Affiliate of Ripplewood Partners, (iv) to any employee of Parent, the Companies
or any of their Subsidiaries or (v) in connection with the pledge of shares of
common stock of either Company in accordance with the terms of the Pledge
Agreement), a number of shares of common stock of either Company equal to or
exceeding, on the date of the proposed transfer, 25% of the outstanding shares
of common stock of such Company in a single transaction or in a series of
related transactions (a "Tag-Along Sale"), each Purchaser may, at its option,
elect to exercise its rights under this Section 2.13. In the event of a
Tag-Along Sale, Parent shall deliver to each Purchaser a written notice of the
terms and conditions of such Tag-Along Sale (a "Tag-Along Notice") and offer
each Purchaser the opportunity to participate in such Tag-Along Sale on the same
terms and conditions, subject to the same agreements and for the same per share
consideration as Parent. The Tag-Along Notice shall identify the number and type
of shares of common stock of the applicable Company held by such Purchaser
subject to the offer (a "Tag-Along Offer"), the per share consideration at which
the Tag-Along Sale is proposed to be made, all other material terms and
conditions of the Tag-Along Sale (and shall include the form of the proposed
agreement, if any) and the date on which the Tag-Along Sale is proposed to be
consummated. From the date of the Tag-Along Notice until the date that is ten
days thereafter (the "Tag-Along Notice Period"), each Purchaser shall have the
right (a "Tag-Along Right"), exercisable by written notice delivered to Parent,
to request that Parent include in the Tag-Along Sale the number of shares of
common stock of the applicable Company held by such Tagging Person as is
specified in such notice
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35
(each Purchaser so requesting, a "Tagging Person"); PROVIDED that, if the
aggregate number of shares of common stock of the applicable Company proposed to
be sold by Parent and all Tagging Persons in the Tag-Along Sale exceeds the
number of shares of common stock of the applicable Company which can be sold on
the terms and conditions set forth in the Tag-Along Notice, then (x) only the
Tag-Along Portion of common stock of the applicable Company of each Tagging
Person and Parent shall be sold pursuant to the Tag-Along Offer and (y) Parent
shall also be entitled to sell such additional shares of common stock of the
applicable Company as is permitted by Section 2.13(d).
(b) CLOSING OF TAG-ALONG SALE. If any Tagging Person exercises
its Tag-Along Right hereunder with respect to a Tag-Along Sale, on the closing
date for such Tag-Along Sale such Tagging Person shall deliver (i) to the
purchaser specified in the Tag-Along Notice for such Tag-Along Sale a
certificate or certificates representing the shares of common stock of the
applicable Company which it has elected to sell (net of any reduction pursuant
to Section 2.13(a)), together with appropriate instruments of transfer duly
endorsed in blank, against payment by such purchaser of the aggregate
consideration payable for such shares at the per share consideration specified
in such Tag-Along Notice, and (ii) to Parent or the applicable Company all
costs, expenses and other amounts to be paid by such Tagging Person in
connection with such Tag-Along Sale pursuant to Section 2.13(i).
(c) NON-PARTICIPANTS. If at the termination of the Tag-Along
Notice Period any Tagging Person shall not have delivered written notice to
Parent of its election to participate in the Tag-Along Sale, such Tagging Person
will have waived its Tag-Along Right with respect to such Tag-Along Sale.
(d) CERTAIN ALLOCATIONS. If any Tagging Person (i) declines to
exercise or waives its Tag-Along Right with respect to any Tag-Along Sale or
(ii) elects to exercise its Tag-Along Right with respect to less than its
Tag-Along Portion with respect to any Tag-Along Sale, Parent shall be entitled
to transfer in such Tag-Along Sale, in addition to its Tag-Along Portion with
respect to such Tag-Along Sale, a number of shares of common stock of the
applicable Company equal to the number of shares of common stock of the
applicable Company constituting the portion of such Tagging Person's Tag-Along
Portion with respect to which such Tagging Person's Tag-Along Right was not
exercised.
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36
(e) PERMITTED SALE. Parent and any Tagging Person who
exercises its Tag-Along Right with respect to a proposed Tag-Along Sale pursuant
to this Section 2.13 may sell the shares of common stock of the applicable
Company subject to the Tag-Along Offer with respect to such Tag-Along Sale on
the terms and conditions set forth in such Tag-Along Notice within 120 days of
the date on which the Tag-Along Rights with respect to such Tag-Along Sale shall
have been waived, exercised or expire.
(f) SALE OF COMMON STOCK OF PARENT. If the Initial Stockholder
proposes to transfer (other than transfers (i) in a Public Offering, (ii) to
Ripplewood Partners or any Affiliate of Ripplewood Partners, (iii) to any
shareholder, partner, member or employee of Ripplewood Partners or any Affiliate
of Ripplewood Partners, (iv) to any employee of the Initial Stockholder, Parent,
the Companies or any of their Subsidiaries or (v) to any member of the Initial
Stockholder or any Affiliate of any such member) a number of shares of common
stock of Parent equal to or exceeding, on the date of the proposed transfer, 25%
of the Aggregate Ownership of the Initial Stockholder in Parent in a single
transaction or in a series of related transactions, the provisions of this
Section 2.13 shall apply to such transfer (regardless of whether such Purchaser
owns any common stock of Parent) in accordance with its terms except that the
percentage of the Purchaser's shares of common stock of a Company that it has
the right to sell and the consideration to be paid therefor shall be determined
in good faith by the Board of Directors on a basis that shall, as nearly as
reasonably practicable, provide such Purchaser economic treatment comparable to
that which it would have been provided under Section 2.13(a) in the event of the
transfer of an economically equivalent portion of shares of common stock of such
Company.
(g) SALE OF COMMON STOCK OF THE INITIAL STOCKHOLDER. If
Ripplewood Partners proposes to directly or indirectly transfer (other than
transfers (i) in a Public Offering, (ii) to Ripplewood Partners or any Affiliate
of Ripplewood Partners, (iii) to any shareholder, partner, member or employee of
Ripplewood Partners or any Affiliate of Ripplewood Partners, (iv) to any
employee of Ripplewood Partners, EAC IV L.L.C., the Initial Stockholder, Parent,
the Companies or any of their Subsidiaries or (v) to any member of the Initial
Stockholder or any Affiliate of any such member) a membership interest in the
Initial Stockholder equal to or exceeding, on the date of the proposed transfer,
25% of Ripplewood Partners' Aggregate Ownership in the Initial Stockholder in a
single transaction or in a series of related transactions, the provisions of
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37
this Section 2.13 shall apply to such transfer (regardless of whether such
Purchaser owns any membership interests in the Initial Stockholder) in
accordance with its terms except that the percentage of the Purchaser's shares
of common stock of a Company that it has the right to sell and the consideration
to be paid therefor shall be determined in good faith by the Board of Directors
on a basis that shall, as nearly as reasonably practicable, provide such
Purchaser economic treatment comparable to that which it would have been
provided under Section 2.13(a) in the event of transfer of an economically
equivalent portion of shares of common stock of such Company.
(h) CERTAIN OTHER MATTERS. For purposes of this Section 2.13
and all definitions used in this Section 2.13, a Right to acquire one share of
common stock of either Company shall constitute one share of common stock of
such Company and a Person shall be deemed to own a share of common stock if such
Person has a Right to acquire such share whether or not such Right is
exercisable at such time; PROVIDED that any payments to be made to any Purchaser
in connection with the exercise of any Tag-Along Right with respect to any Right
shall be reduced by an amount equal to the then applicable exercise price of
such Right.
(i) EXPENSE OF SALE. All out-of-pocket costs and expenses
incurred by the Purchasers in connection with a Tag-Along Sale (including,
without limitation, fees and disbursement of any counsel retained by the
Purchasers) shall be paid by the Purchasers. All direct selling expenses,
discounts or commissions of brokers paid to any Person on a per share basis in
connection with such Tag-Along Sale shall be paid ratably by the Purchasers and
the Parent (in proportion to each Purchaser's and the Parent's Tag-Along
Portion). All other fees and expenses in connection with such Tag-Along Sale
shall be paid by the applicable Company.
SECTION 2.14. DRAG-ALONG RIGHTS. (a) If, at any time prior to
the Public Market Date, Parent (i) proposes to transfer in a Bona Fide Sale not
less than 90% of its aggregate ownership of the outstanding common stock of
either Company and (ii) holds or is otherwise entitled to vote a majority of the
Voting Stock of such Company before giving effect to such transfer (a
"Drag-Along Sale"), then Parent may at its option require all, but not less than
all, of the Purchasers to sell in such Drag-Along Sale their respective
Drag-Along Portions of the shares of common stock of such Company then held by
the respective Purchasers ("Drag-Along Rights"). Parent shall provide written
notice of such Drag-Along Sale to each Purchaser (a "Drag-Along
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38
Notice") not later than the 10th day prior to the proposed Drag-Along Sale. The
Drag-Along Notice shall identify, with respect to the Drag-Along Sale, the
transferee, the number of shares of common stock of the applicable Company to be
sold, the consideration for which a transfer is proposed to be made, which shall
also be stated on a per share basis (the "Drag-Along Sale Price"), the date on
which such Drag-Along Sale is proposed to be consummated and, in reasonable
detail, all other material terms and conditions of such Drag-Along Sale.
(b) Subject to this Section 2.14, each Purchaser shall be
required to participate in the Drag-Along Sale on the terms and conditions set
forth in the Drag-Along Notice, so long as such terms and conditions constitute
a Bona Fide Sale, and to transfer the Drag-Along Portion of its shares of common
stock of the applicable Company as set forth below. The price payable per share
in such Drag-Along Sale to each Purchaser shall be the Drag-Along Sale Price.
(c) Parent shall have a period of 90 days from the date of
receipt of the Drag-Along Notice to consummate the Drag-Along Sale on the terms
and conditions set forth in such Drag-Along Notice, so long as such terms and
conditions constitute a Bona Fide Sale.
(d) On the closing date for a Drag-Along Sale, each Purchaser
shall deliver to the purchaser specified in the Drag-Along Notice for such
Drag-Along Sale a certificate or certificates representing such Purchaser's
Drag-Along Portion of the common stock of the Company, together with appropriate
instruments of transfer duly endorsed in blank, against payment by such
purchaser of the total purchase price for such shares at the Drag-Along Sale
Price per share.
(e) All expenses and costs of any Drag-Along Sale, including
the fees of one counsel to the Purchasers related to such sale, shall be for the
account of and paid by the applicable Company; PROVIDED that, in the event of
any Drag-Along Sale required by the Agent pursuant to the Pledge Agreement,
Parent, each Purchaser and the Company shall bear and pay for its own respective
expenses and costs, including the fees of its respective counsel, in connection
with such Drag-Along Sale.
(f) For purposes of this Section 2.14 and all definitions used
in this Section 2.14, a Right to acquire one share of common stock of either
Company shall constitute one share of common stock of such Company and a Person
shall be deemed to own a share of common stock if such Person has
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a Right to acquire such share whether or not such Right is exercisable at such
time; PROVIDED that any payments to be made to any Purchaser in connection with
the exercise of any Drag-Along Sale with respect to any Right shall be reduced
by an amount equal to the then applicable exercise price of such Right.
(g) If, at any time prior to the Public Market Date, the
Initial Stockholder (i) proposes to transfer in a Bona Fide Sale not less than
90% of its aggregate ownership of the outstanding common stock of Parent and
(ii) holds or is otherwise entitled to vote a majority of the Voting Stock of
Parent before giving effect to such transfer, then the provisions of this
Section 2.14 shall apply to such transfer (regardless of whether such Purchaser
owns any common stock of Parent) in accordance with its terms except that the
percentage of the Purchaser's shares of common stock of a Company that it has
the obligation to sell and the consideration to be paid therefor shall be
determined in good faith by the Board of Directors on a basis that shall, as
nearly as reasonably practicable, provide such Purchaser economic treatment
comparable to that which it would have been provided under Section 2.14(a) in
the event of the transfer of an economically equivalent portion of shares of
common stock of such Company.
ARTICLE III
RESTRICTIONS ON TRANSFER,
TERMINATION AND OTHER AGREEMENTS
SECTION 3.01. RESTRICTIONS ON TRANSFER TO TRANSFEREES. (a)
GENERALLY. Subject to the restrictions of Section 1.04(b) and the terms of the
Parent Preferred Stock and other than issuances of Exchange Preferred Stock
pursuant to Section 2.10 and issuances of Capital Stock pursuant to an exercise
of the Warrants, the Parent and the Companies shall neither issue nor sell any
additional shares of Capital Stock or Rights (other than in a Public Offering)
to any purchaser unless such purchaser shall have acknowledged that such
purchaser has notice of the provisions of this Agreement and is an "Other
Stockholder" as defined herein and such purchaser shall have agreed, in writing,
to be bound by each of the terms and provisions of this Agreement applicable to
an "Other Stockholder" pursuant to an undertaking substantially in the form set
forth as Exhibit A hereto. No other party hereto shall sell, assign, transfer or
otherwise dispose of any Capital Stock of the Parent or any Company or any
Rights to any transferee unless such transferee shall have assumed in writing
all of the obligations of its transferor imposed by this Agreement with
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respect to such Capital Stock and Rights and shall have agreed to be bound by
each of the terms and provisions of this Agreement to which such transferor was
bound with respect to such Capital Stock and Rights pursuant to an undertaking
substantially in the form set forth as Exhibit A hereto.
(b) RESTRICTIONS ON TRANSFERS BY PURCHASERS. Each of the
Purchasers agrees that it will not transfer any Capital Stock or Rights of the
Parent or either Company it holds at any time prior to the Initial Public
Offering Date to any Person that is an Adverse Party; PROVIDED, HOWEVER, that
this Section 3.01(b) shall not prohibit or restrict transfers of Capital Stock
or Rights pursuant to Rule 144 or Rule 144A (or any successor provision) under
the Securities Act.
SECTION 3.02. COOPERATION BY THE PARENT AND THE COMPANIES. (a)
The Parent and the Companies shall refuse to register any transfer of any of its
Capital Stock or Rights to any transferee unless the Parent shall have received
from the prospective transferee a written agreement to be bound by the
provisions of this Agreement if required by Section 3.01 hereof, and such other
evidence as the Parent may reasonably require to establish compliance with such
Section 3.01. The Parent and the Companies shall be protected in, and shall have
no liability to any Other Stockholder for, and no such holder shall assert any
claim against the Parent or either Company for, failing to register any transfer
of any of its Capital Stock or Rights if such transfer is not in compliance with
the provisions of this Agreement.
(b) Each of the Parent and the Companies shall use its
reasonable best efforts to assist the DLJMB Entities in the sale by the DLJMB
Entities of the Parent Preferred Stock and the Purchaser Shares held by such
entities.
SECTION 3.03. LEGENDING OF CERTIFICATES. Each
certificate representing any Capital Stock or Rights shall
bear the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE
TERMS OF A STOCKHOLDERS AGREEMENT, DATED AS OF NOVEMBER 17, 1999, THE
PROVISIONS OF WHICH ARE INCORPORATED HEREIN BY REFERENCE. SUCH
STOCKHOLDERS AGREEMENT PROVIDES, AMONG OTHER THINGS, THAT THIS SECURITY
MAY NOT BE SOLD OR TRANSFERRED TO ANY PERSON WHO HAS NOT EXPRESSLY
ASSUMED THE OBLIGATIONS OF SUCH AGREEMENT AND CONTAINS, AMONG OTHER
PROVISIONS,
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PROVISIONS WHICH LIMIT THE TRANSFER OF THIS
SECURITY. A COPY OF SUCH STOCKHOLDERS AGREEMENT IS
AVAILABLE FROM THE SECRETARY OF [INSERT NAME OF
APPLICABLE COMPANY] UPON REQUEST."
SECTION 3.04. SECURITIES ACT RESTRICTIONS; LEGEND. The Parent
shall not register any transfer of Capital Stock or Rights if it has reason to
believe that such transfer is being requested in violation of the registration
requirements of Section 5 of the Securities Act. Except as otherwise permitted
by Section 3.05 hereof, each certificate representing a share of Capital Stock
or a Right shall be stamped or otherwise imprinted with a legend in
substantially the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE
OFFERED OR SOLD EXCEPT IN A TRANSACTION REGISTERED UNDER SUCH ACT OR
PURSUANT TO AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH
ACT."
SECTION 3.05. TERMINATION OF RESTRICTIONS. Each and all of the
provisions of this Agreement (other than Section 2.05, Section 2.06, Section
2.09 and Section 6.09) shall terminate immediately as to any Capital Stock or
Rights (but this Agreement shall remain in force with respect to any remaining
Capital Stock or Rights):
(a) when such Capital Stock or Rights have been effectively
registered under the Securities Act and disposed of in accordance with
the registration statement covering such Capital Stock or Rights; or
(b) when they shall have been distributed to the public
pursuant to Rule 144 or Rule 144A (or any successor provision) under
the Securities Act; or
(c) when they shall have been otherwise transferred (except
for transfers in connection with the Exchange Offer) and subsequent
disposition of them shall not require registration or qualification
under the Securities Act or any similar state law then in force.
Notwithstanding anything to the contrary contained in Section 3.05(b) or (c),
shares of Capital Stock or Rights distributed or transferred thereunder shall,
until the Public Market Date, remain subject to the provisions of Section 2.14.
Whenever such restrictions shall terminate as to any Capital Stock or Rights,
the holder thereof shall be
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42
entitled to receive from the Parent or the applicable Companies, without
expenses (other than transfer taxes, if any), new Capital Stock or Rights of
like tenor not bearing the applicable legends set forth in Section 3.03 or
Section 3.04 hereof.
ARTICLE IV
DEFINED TERMS
SECTION 4.01. TERMS DEFINED. As used herein, the
following terms have the respective meanings set forth below
or set forth in the Section hereof following such term:
"Adverse Party" means any Person whose ownership interest in
either of the Companies or the Parent would be reasonably expected to be
detrimental to the interest of either of the Companies or the Parent (including,
without limitation, any of their Subsidiaries), including, without limitation, a
competitor of either of the Companies or the Parent (including, without
limitation, any of their Subsidiaries); PROVIDED, HOWEVER, that:
(a) no Person described in Rule 501(a)(1) under
the Securities Act; and
(b) no dealer registered under Section 15 of the Exchange Act
or investment adviser registered under the Investment Advisers Act of
1940, as amended, which, in either case, owns or invests on a
discretionary basis at least $10,000,000 in securities of unaffiliated
issuers;
shall be an "Adverse Party" unless such Person is controlled by, controls or is
under common control with a competitor of either of the Companies or the Parent
(including, without limitation, any of their Subsidiaries). As used in this
definition, "control" means the possession, directly or indirectly, of the power
to direct or cause the direction of the management and policies of a person,
whether through the ownership of voting securities, by contract or otherwise.
"Affiliate" means, with respect to any Person, any other
Person that directly or indirectly through one or more intermediaries controls,
or is controlled by, or is under common control with, such Person; provided,
that with respect to the Parent and its Subsidiaries only:
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43
(a) no Subsidiary, Purchaser or any Affiliate of a
Purchaser shall be an Affiliate of the Parent or any
Subsidiary;
(b) neither the "Purchaser" pursuant to the Amended and
Restated Stockholders Agreement, dated as of November 17, 1999, among
the Parent, SGC and the Initial Stockholder, nor any Affiliate of such
"Purchaser" shall be an Affiliate of the Parent or any
Subsidiary;
(c) any Person other than those specified in clauses (a) and
(b) of this definition that beneficially owns or holds 10% or more of
any class of the Voting Stock of the Parent shall be an Affiliate of
the Parent or any Subsidiary; and
(d) any Person other than those specified in clauses (a) and
(b) of this definition, 10% or more of the Voting Stock (or in the case
of a Person that is not a corporation, 10% or more of the equity
interest) of which is beneficially owned or held by the Parent or a
Subsidiary shall be an Affiliate of the Parent or any Subsidiary.
As used in this definition, "control" means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of a Person, whether through the ownership of voting securities, by
contract or otherwise.
"Agreement" has the meaning set forth in the
introductory paragraph hereof.
"Aggregate Ownership" means, with respect to shares of common
stock or membership interests of any entity owned by any Person or group of
Persons, the total number of shares of common stock or membership interests, as
applicable, of such entity "beneficially owned" (as such term is defined in Rule
13d-3 under the Exchange Act, but without regard to the restrictions contained
in Rule 13d-3(d) thereunder) (without duplication) by such Person or group of
Persons as of the date of such calculation, calculated on a Fully Diluted basis
and taking into account any stock or membership interest dividend, split or
reverse split.
"Board of Directors" means the board of directors of the
Parent or any committee thereof that, in the instance, shall have the lawful
power to exercise the power and authority of such board of directors.
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44
"Bona Fide Sale" means a sale in which (i) the sale by each
Purchaser would be on the same terms and conditions and for the same type of
consideration as is to be received by Parent, (ii) the consideration to be paid
to each Purchaser in connection with such transaction consists solely of cash,
Freely Tradeable Securities or cash and Freely Tradeable Securities, (iii) no
Purchaser shall be required to make any representations or warranties (except as
to its title to and authority to convey the shares of common stock to be sold by
it and the warranties implied in connection with such transfer under Section
8-108(a) of the Uniform Commercial Code of the State of Delaware) and (iv) the
prospective purchaser is purchasing in an arm's-length transaction from Parent
and is not an Affiliate of Parent, either Company, the Initial Stockholder or
Ripplewood Partners.
"Broker-Dealer" means any broker or dealer
registered under the Exchange Act.
"Business Day" means a day other than a Saturday, a Sunday or
a day on which banks in the State of New York are required or permitted by law
to be closed.
"Capital Stock" means:
(a) with respect to any corporation, any class of
preferred, common or other capital stock;
(b) with respect to any partnership, any limited, general or
other partnership interests; and
(c) with respect to any limited liability company, membership
interests or units or any similar interests;
or, in each such case or in the case of any other Person, all share capital or
similar equity interest of a Person.
"Certificate of Designations" has the meaning set
forth in Section 2.10(d).
"Charter" means, with respect to the Parent, the Certificate
of Incorporation of the Parent, as filed with the Secretary of State of the
State of Delaware on May 12, 1999, as amended and filed with the Secretary of
State of the State of Delaware on October 28, 1999, as amended and filed with
the Secretary of State of the State of Delaware on November 16, 1999 and as
thereafter amended in compliance with the provisions thereof and hereof; with
respect to JLC, the Certificate of Incorporation of JLC, as filed with the
Secretary of State of the State of Delaware on May 12, 1999,
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45
and as amended and filed with the Secretary of State of the State of Delaware on
November 16, 1999 and as thereafter amended in compliance with the provisions
thereof and hereof; and with respect to WRC, the Certificate of Incorporation of
WRC, as filed with the Secretary of State of the State of Delaware on November
28, 1990, and as amended and filed with the Secretary of State of Delaware on
November 16, 1999 and as thereafter amended in compliance with the provisions
thereof and hereof.
"Closing Date" means the day upon which the Parent Preferred
Stock and Warrants are sold to the Purchasers under the Subscription Agreement.
"Companies" has the meaning set forth in the
introductory paragraph hereto.
"Consummate" means, with respect to an Exchange Offer, the
occurrence of (a) the filing and effectiveness under the Act of the Exchange
Offer Registration Statement relating to the New Preferred Stock to be issued in
the Exchange Offer, (b) the maintenance of such Exchange Offer Registration
Statement continuously effective and the keeping of the Exchange Offer open for
a period not less than the period required pursuant to Section 5.01(b) hereof
and (c) the delivery by the Parent to the holders of the Senior Preferred Stock
that number of shares of New Preferred Stock equal to the number of shares of
Senior Preferred Stock then outstanding, which shares of New Preferred Stock
shall have the same Liquidation Value as the shares of Senior Preferred Stock so
tendered by the holders thereof pursuant to the Exchange Offer.
"Consummation Deadline" shall have the meaning given such term
in Section 5.01(b).
"DLJMB" means DLJ Merchant Banking II, L.P., together with its
successors and permitted assigns.
"DLJMB Designee" has the meaning set forth in
Section 1.03(a)(i).
"DLJMB Subsidiary Designee" has the meaning set
forth in Section 1.03(a)(ii).
"DLJMB Entities" has the meaning set forth in the
introductory paragraph.
"DLJMB JLC Subsidiary Designee" has the meaning
set forth in Section 1.03(a)(ii).
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46
"DLJMB WRC Subsidiary Designee" has the meaning
set forth in Section 1.03(a)(ii).
"Drag-Along Portion" means, with respect to any Purchaser, the
number of shares of common stock of the applicable Company beneficially owned by
such Purchaser on a Fully-Diluted basis (but without duplication) multiplied by
a fraction, the numerator of which is the number of shares of common stock of
such Company proposed to be sold by Parent and the denominator of which is the
total number of shares of common stock of such Company owned by Parent.
"Effectiveness Target Date" means the Exchange
Offer Effectiveness Target Date or the Shelf Registration
Effectiveness Target Date, as applicable.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the SEC promulgated thereunder.
"Exchange Date" has the meaning set forth in
Section 2.10(a).
"Exchange Offer" means the issuance by the Parent of a number
of shares of New Preferred Stock equal to the number of shares of Senior
Preferred Stock then outstanding, which shares of New Preferred Stock shall have
the same Liquidation Value as the shares of Senior Preferred Stock so exchanged.
"Exchange Offer Effectiveness Target Date" shall have the
meaning given such term in Section 5.01(a).
"Exchange Offer Filing Deadline" shall have the meaning given
such term in Section 5.01(a).
"Exchange Offer Registration Period" shall have the meaning
given such term in Section 5.01(b).
"Exchange Offer Registration Statement" means the
Registration Statement relating to the Exchange Offer,
including the related Prospectus.
"Exchange Preferred Stock" has the meaning set
forth in Section 2.10.
"Fair Market Value" means the fair market value of a Security,
determined by the Board of Directors, giving due consideration to such factors
as it deems appropriate, including the earnings and certain other financial and
operating information of the Parent and its subsidiaries in
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47
recent periods, its potential value and that of its subsidiaries as a whole, its
future prospects and that of its subsidiaries and the industries in which they
compete, its history and management and that of its subsidiaries, the general
condition of the securities markets and the fair market value of securities of
privately owned companies (with transfer restrictions) engaged in businesses
similar to the Parent and its subsidiaries. The Fair Market Value, as determined
by the Board of Directors in good faith shall be binding and conclusive upon all
parties hereto.
"Filing Deadline" means the Exchange Offer Filing
Deadline or the Shelf Registration Filing Deadline, as
applicable.
"Freely Tradeable Securities" means Securities:
(a) which are of a class:
(i) of Securities issued or fully guaranteed by the
United States of America or any agency thereof and entitled to
the full faith and credit of the United States of America, for
which price quotations are routinely quoted and for which, in
the reasonable opinion of the Purchasers, there is a ready
liquid market; or
(ii) both registered pursuant to either Section 12(b)
or Section 12(g) of the Exchange Act and either listed on a
national securities exchange or on the NASDAQ National Market;
and
(b) which may be resold in the public markets by the
Purchasers without requirement of further registration under the
Securities Act (excluding the impact of Rule 145 under the Securities
Act, if applicable).
"Fully Diluted" means, with respect to common stock and
without duplication, all outstanding shares of common stock and all shares of
common stock issuable in respect of securities convertible into or exchangeable
for shares of common stock, stock appreciation rights, options, warrants
(including the Warrants) and other rights to purchase or subscribe for shares of
common stock or securities convertible into or exchangeable for shares of common
stock; PROVIDED that, to the extent that any of the foregoing stock appreciation
rights, options, warrants or other rights to purchase or subscribe for shares of
common stock are subject to vesting, such shares subject to vesting
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48
shall be included in the definition of "Fully Diluted" only upon and to the
extent of such vesting.
"GAAP" means accounting principles set forth in the opinions
and pronouncements of the Accounting Principles Board of the American Institute
of Certified Public Accountants and the statements and pronouncements of the
Financial Accounting Standards Board or in such other statements by such other
entity as have been approved by a significant segment of the accounting
profession, which are in effect on the date hereof.
"Incidental Registration" has the meaning set
forth in Section 2.02.
"Initial Public Offering Date" means the first date upon which
common stock of the Parent or any of its Subsidiaries shall have been issued or
sold pursuant to an underwritten public offering (whether on a firm commitment
basis or a best efforts basis if such best efforts are successful) thereof
pursuant to an effective registration statement filed with the SEC pursuant to
the Securities Act (an "Initial Public Offering").
"Initial Stockholder" has the meaning set forth in
the introductory paragraph.
"Issuable Share" means and includes at any time,
(a) a share of issued and outstanding common stock
of either Company; and
(b) a Right (including, without limitation, a Warrant), and
(without duplication) all shares of common stock of either Company
issuable upon exercise of such Right, in each case at such time.
For purposes of this definition of "Issuable Share", a Right to acquire one
share of common stock of either Company shall constitute one Issuable Share, and
a Person shall be deemed to own an Issuable Share if such Person has a Right to
acquire such share whether or not such Right is exercisable at such time.
"JLC" has the meaning set forth in the
introductory paragraph.
"JLC Warrants" has the meaning set forth in the
first whereas clause.
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"NASD" means the National Association of
Securities Dealers, Inc.
"NASDAQ" means the NASDAQ Stock Market, Inc., a
subsidiary of the NASD.
"NASDAQ National Market" has the meaning ascribed
thereto in Rule 4200(r) of the NASDAQ.
"NASDAQ SmallCap Market" has the meaning ascribed
thereto in Rule 4200(t) of the NASDAQ.
"New Preferred Stock" means the Parent's new Senior Preferred
Stock Due 2011, of identical type and having identical terms as the Senior
Preferred Stock, to be issued (i) in the Exchange Offer or (ii) as contemplated
by Section 5.02.
"NML" has the meaning set forth in the
introductory paragraph.
"Notes Registration Rights Agreement" means that certain
Registration Rights Agreement dated as of the date hereof between the Parent,
each of the Companies and those entities listed on the signature pages thereto
relating to the 12 3/4% Senior Subordinated Notes Due 2009.
"Other Stockholders" means and includes, at any time, all
holders of Issuable Shares or shares of common stock of the Parent at such time
(other than the holders of Purchaser Shares and SGC and including, without
limitation, the Initial Stockholder), other than holders of shares sold in any
Public Offering and other than holders of shares as to which the provisions of
this Agreement (other than those specified in Section 3.05) have terminated
pursuant to Section 3.05.
"Other Purchasers" has the meaning set forth in
the introductory paragraph.
"Parent" has the meaning set forth in the
introductory paragraph.
"Parent Preferred Stock" has the meaning set forth
in the second whereas clause.
"Person" means an individual, partnership, corporation,
limited liability company, trust, unincorporated organization, or a government
or agency or political subdivision thereof.
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50
"Pledge Agreement" means the Security and Pledge Agreement
dated as of November 17, 1999 among Parent, the Companies, certain other
Subsidiaries of Parent and Bank of America, N.A., as Administrative Agent (the
"Agent").
"Preferred Stock" means and includes all Capital Stock of the
Parent of any class which is preferred, as to payment of dividends, payment upon
a liquidation or dissolution of the Parent or both over the common stock of the
Parent, including, without limitation, the Parent Preferred Stock.
"Property" means any and all interests in any kind of property
or asset whatsoever, whether real, personal or mixed and whether tangible or
intangible.
"Prospectus" means the prospectus included in a Registration
Statement at the time such Registration Statement is declared effective, as
amended or supplemented by any prospectus supplement and by all other amendments
thereto, including post-effective amendments, and all material incorporated by
reference into such Prospectus.
"Public Market Date" means the first day upon which at least
35% (by number of shares) of the common stock of the Parent or any Subsidiary
then outstanding shall have been sold in one or more Public Offerings, resulting
in common stock of the Parent or any Subsidiary with an aggregate market value
of not less than $25,000,000 having been sold in all Public Offerings.
"Public Offering" shall mean, with respect to any shares of
Capital Stock of the Parent or either Company, as applicable, any sale in a
transaction registered under Section 5 of the Securities Act.
"Purchaser" has the meaning set forth in the
introductory paragraph.
"Purchaser Shares" means the following, without
duplication:
(a) shares of common stock of either Company that have been
issued upon the exercise of any Warrant; and
(b) shares of common stock of either Company that are issuable
upon the exercise of any outstanding Warrants.
For purposes of this definition of "Purchaser
Shares", a Right to acquire one share of common stock of
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51
either Company shall constitute one Purchaser Share, and a Person shall be
deemed to own a Purchaser Share if such Person has a Right to acquire such
Purchaser Share whether or not such Right is exercisable at such time.
"Registrable Securities" means, at any time, in the case of
the Initial Stockholder, all shares of Capital Stock of the Parent or either
Company and, in the case of the Purchasers, all Purchaser Shares, the Exchange
Preferred Stock and the Parent Preferred Stock; PROVIDED, HOWEVER, that, such
Purchaser Shares, the Exchange Preferred Stock and Parent Preferred Stock shall
cease to be Registrable Securities:
(a) when a registration statement with respect to the sale of
such Securities shall have become effective under the Securities Act
and such Securities shall have been disposed of in accordance with the
registration statement covering such Securities;
(b) when such Securities shall have been distributed to the
public pursuant to Rule 144 (or any successor provision) under the
Securities Act;
(c) when such Securities shall have been otherwise transferred
(except to Affiliates of the transferor) and subsequent disposition of
them shall not require registration or qualification under the
Securities Act or any similar state law then in force; or
(d) when such Securities shall have ceased to be outstanding
or issuable upon exercise of any Warrants or other Rights (it being
understood that the Securities for which such Warrants or Rights were
exercisable shall continue to be Registrable Securities, unless
otherwise provided in paragraphs (a)-(c) of this definition).
"Registration" means and includes each Required
Registration and each Incidental Registration.
"Registration Expenses" means all expenses incident to the
Parent's or any Company's performance of or compliance with Section 2.01 through
Section 2.04, inclusive, including, without limitation:
(a) all registration and filing fees;
(b) fees and expenses of compliance with securities or blue
sky laws (including, without limitation, reasonable fees and
disbursements of
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52
counsel in connection with blue sky qualifications of
the Registrable Securities);
(c) all printing expenses, including, without limitation,
expenses of printing certificates for the Registrable Securities in a
form eligible for deposit with The Depository Trust Company;
(d) messenger and delivery expenses;
(e) internal expenses of the Parent (including, without
limitation, all salaries and expenses of its officers and employees
performing legal or accounting duties);
(f) fees and disbursements of counsel for the Parent and the
Companies and its independent certified public accountants (including,
without limitation, the expenses of any management review, cold comfort
letters or any special audits required by or incident to such
performance and compliance);
(g) securities act liability insurance (if the Parent or any
Company elects to obtain such insurance);
(h) the reasonable fees and expenses of any special experts
retained by the Parent or any Company in connection with such
registration;
(i) fees and expenses of other Persons retained by the Parent
or any Company;
(j) fees and expenses of one counsel for holders
of Registrable Securities, selected by the Requisite
Holders;
(k) fees and expenses in connection with any review of
underwriting arrangements by the NASD including, without limitation,
fees and expenses of any "qualified independent underwriter"; and
(l) fees and disbursements of underwriters customarily paid by
issuers;
but not including any underwriting fees, discounts or commissions attributable
to the sale of Registrable Securities or any other selling expenses, discounts,
commissions or transfer taxes, if any, incurred in connection with the sale of
Registrable Securities, which shall be severally payable by the holders thereof.
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53
"Registration Statement" means any registration statement of
the Parent relating to (a) an offering of New Preferred Stock pursuant to an
Exchange Offer or (b) the registration for resale of Transfer Restricted
Securities pursuant to the Shelf Registration Statement, in each case, (i) that
is filed pursuant to the provisions of this Agreement and (ii) including the
Prospectus included therein, all amendments and supplements thereto (including
post-effective amendments) and all exhibits and material incorporated by
reference therein.
"Reorganization Transaction" means a reorganization completed
in connection with an Initial Public Offering pursuant to which the Parent shall
transfer, or cause to be transferred, all or substantially all its assets
(including, without limitation, all the capital stock and debt securities of WRC
held by the Parent) to WRC in exchange for the assumption by WRC of all or
substantially all the liabilities of the Parent, the issuance to the Parent by
WRC of new common stock and WRC Preferred Stock, and, at the option of Parent,
the distribution of (x) the WRC Preferred Stock to the holders of the Parent
Preferred Stock in exchange for the Parent Preferred Stock pursuant to Section
2.10(a) and/or (y) an equivalent number of shares of the new common stock of WRC
to certain holders of the Parent's common stock in exchange for the shares of
the Parent's common stock held by such holders; PROVIDED, HOWEVER, that (i) the
assets and liabilities of WRC immediately subsequent to such Reorganization
Transaction shall be substantially identical (including, without limitation, in
type, amount and contingency) to the assets and liabilities of the Parent
immediately prior to such Reorganization Transaction, in each case on a
consolidated basis, (ii) after giving effect to the Reorganization Transaction,
the overall economic position of a holder of WRC Preferred Stock with respect to
its investment in WRC (and relative to other creditors, lenders and equity
holders of WRC) shall not be worse than, immediately prior to such
Reorganization Transaction, the overall economic position of a holder of Parent
Preferred Stock with respect to the investment by that holder in the Parent (and
relative to other creditors, lenders and equity holders of Parent); and (iii)
WRC shall have delivered to the holders of the Parent Preferred Stock an opinion
of outside counsel to WRC from a firm that is reasonably acceptable to such
holders that (A) the Reorganization Transaction should qualify as a
reorganization under Section 368(a) of the Code and (B) there should be no
adverse tax consequences (other than insignificant tax consequences) to the
holders of Parent Preferred Stock or to WRC that result from, are caused by, or
are incurred by such holder or WRC that result from, are
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54
caused by, or are incurred by such holder or WRC in connection with, the
consummation of the Reorganization Transaction.
"Required Holders" means, at any time, the Purchasers holding
at least 90% of the aggregate Parent Preferred Stock and Purchaser Shares then
held by the Purchasers. For purposes of this definition, holders of Warrants at
any time shall be deemed to be holders of the common stock of the applicable
Company that is at such time issuable upon exercise in full of such Warrants,
whether or not such holders are then entitled so to exercise such Warrants
pursuant to the terms thereof.
"Required Registration" has the meaning set forth
in Section 2.01(a).
"Requisite Holders" means:
(a) with respect to any registration or proposed registration
of Registrable Securities pursuant to Section 2.01, the Initiating
Holder; and
(b) with respect to any registration or proposed registration
of Registrable Securities pursuant to Section 2.02, any holder or
holders (other than the Parent, any Subsidiary or any Affiliate of the
Parent) holding at least 90% of the shares of Registrable Securities
(excluding any shares of Registrable Securities directly or indirectly
held by the Parent, any Subsidiary or any Affiliate of the Parent) to
be so registered.
"Right" means and includes:
(a) any warrants (including, without limitation, the
Warrants), rights or other options exercisable into common stock of
either Company; and
(b) any conversion or exchange privilege or right pursuant to
any Security (including, without limitation, any share of Capital
Stock) which is convertible or exchangeable into common stock of either
Company.
"Ripplewood" means Ripplewood Holdings L.L.C., a Delaware
limited liability company, together with its successors and permitted assigns.
"Rule 144" means Rule 144 promulgated under the
Act.
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55
"SEC" means, at any time, the Securities and Exchange
Commission or any other Federal agency at such time administering the Securities
Act.
"Securities Act" means the Securities Act of 1933, as amended,
and the rules and regulations of the SEC promulgated thereunder.
"Security" means "security" as defined by
Section 2(1) of the Securities Act.
"Senior Financial Officer" means any one of the chief
financial officer, the treasurer, the controller and the principal accounting
officer of the Parent, or any officer of the Parent acting in such capacity.
"SGC" has the meaning set forth in the
introductory paragraph.
"Shelf Registration Effectiveness Target Date" shall have the
meaning given such term in Section 5.02(a).
"Shelf Registration Filing Deadline" shall have the meaning
given such term in Section 5.02(a).
"Shelf Registration Statement" shall have the meaning given
such term in Section 5.02.
"Subscription Agreement" has the meaning set forth
in the first whereas clause.
"Subsidiary" means, as to any Person, any other Person the
financial position and results of operations of which would be properly
consolidated with those of the first Person in accordance with GAAP. The term
"Subsidiary", as used herein without reference to any Person, shall mean a
Subsidiary of the Parent.
"Tag-Along Portion" means the number of shares of common stock
owned (or, without duplication, acquirable under the Rights) by the Tagging
Person or Parent, as the case may be, multiplied by a fraction, the numerator of
which is the number of shares of common stock proposed to be sold in the
Tag-Along Sale pursuant to Section 2.13, and the denominator of which is the
aggregate number of shares of common stock on a Fully Diluted basis owned by all
stockholders.
"Transfer Restricted Securities" means each (A) share of
Senior Preferred Stock, until the earliest to occur of (i) the date on which
such share of Senior Preferred
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Stock is exchanged in the Exchange Offer for a share of New Preferred Stock
which is entitled to be resold to the public by the holder thereof (other than a
Broker-Dealer) without complying with the prospectus delivery requirements of
the Act, (ii) the date on which such share of Senior Preferred Stock has been
disposed of in accordance with a Shelf Registration Statement (and the
purchasers thereof have been issued shares of New Preferred Stock), or (iii) the
date on which such share of Senior Preferred Stock is distributed to the public
pursuant to Rule 144 under the Act and each (B) share of New Preferred Stock
held by a Broker-Dealer until the date on which such share of New Preferred
Stock is disposed of by a Broker-Dealer pursuant to the "Plan of Distribution"
contemplated by the Exchange Offer Registration Statement (including the
delivery of the Prospectus contained therein).
"Voting Stock" means, with respect to any Person, any Capital
Stock of such Person whose holders are entitled under ordinary circumstances to
vote for the election of directors, managers, trustees, the managing partner or
other individuals fulfilling similar duties with respect to such Person
(irrespective of whether at the time Capital Stock of any other class or classes
shall have or might have voting power by reason of the happening of any
contingency); PROVIDED, HOWEVER, that Purchaser Shares shall be deemed not to be
Voting Stock.
"Warrants" has the meaning set forth in the first
whereas clause.
"Warrant Certificate" means any certificate
representing a Warrant.
"WRC" has the meaning set forth in the
introductory paragraph.
"WRC Preferred Stock" means the preferred stock of WRC that is
issued by WRC to the Parent in the Reorganization Transaction, which shall be of
identical type and liquidation preference and have identical terms and
conditions as the Parent Preferred Stock, except that the issuer of the WRC
Preferred Stock shall be WRC and such stock shall have no further exchange
rights, except as provided in the certificate of designation filed with respect
to the WRC Preferred Stock.
"WRC Warrants" has the meaning set forth in the
first whereas clause.
<PAGE>
57
SECTION 4.02. "BEST EFFORTS". Where any
provision contained in Section 2.02 through Section 2.09 of
this Agreement requires any Person to use its "best
efforts", such term shall be construed to mean the
reasonable best efforts of such Person.
SECTION 4.03. SECTION HEADINGS AND TABLE OF CONTENTS AND
CONSTRUCTION. (a) SECTION HEADINGS AND TABLE OF CONTENTS, ETC. The titles of the
Articles and Sections of this Agreement and the Table of Contents of this
Agreement appear as a matter of convenience only, do not constitute a part
hereof and shall not affect the construction hereof. The words "herein",
"hereof", "hereunder" and "hereto" refer to this Agreement as a whole and not to
any particular Article or Section or other subdivision. References to Articles
or Sections are, unless otherwise specified, references to Articles or Sections,
as the case may be, of this Agreement. References to Annexes and Exhibits are,
unless otherwise specified, references to Annexes and Exhibits, as the case may
be, attached to this Agreement.
(b) CONSTRUCTION. Each covenant contained herein shall be
construed (absent an express contrary provision herein) as being independent of
each other covenant contained herein, and compliance with any one covenant shall
not (absent such an express contrary provision) be deemed to excuse compliance
with one or more other covenants.
SECTION 4.04. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED
BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE
STATE OF NEW YORK, EXCEPT TO THE EXTENT THE DELAWARE GENERAL CORPORATION LAW IS
MANDATORILY APPLICABLE.
ARTICLE V
SECTION 5.01. REGISTERED EXCHANGE OFFER. (a) Unless the
Exchange Offer shall not be permitted by applicable law or rules, regulations or
policies of the SEC, the Parent shall (i) cause the Exchange Offer Registration
Statement to be filed with the SEC no later than 90 days after the date hereof
(such 90th day being the "Exchange Offer Filing Deadline"), (ii) use their
respective best efforts to cause such Exchange Offer Registration Statement to
become effective as promptly as possible, but in no event later than 210 days
after the date hereof (such 210th day being the "Exchange Offer Effectiveness
Target Date"), (iii) in connection with the foregoing, (A) file all
pre-effective amendments to such Exchange Offer Registration Statement as
<PAGE>
58
may be necessary in order to cause it to become effective, (B) file, if
applicable a post-effective amendment to such Exchange Offer Registration
Statement pursuant to Rule 430A under the Act and (C) cause all necessary
filings, if any, in connection with the registration and qualification of the
New Preferred Stock to be made under the Blue Sky laws of such jurisdictions as
are necessary to permit Consummation of the Exchange Offer; PROVIDED, THAT the
Parent shall not be required to register or qualify as a foreign corporation
where it is not now so qualified or to take any action that would subject it to
the service of process in suits or to taxation in any jurisdiction where it is
not now so subject, and (iv) upon the effectiveness of such Exchange Offer
Registration Statement, use its best efforts to commence and Consummate the
Exchange Offer. The Exchange Offer Registration Statement shall be on the
appropriate form permitting (i) registration of the New Preferred Stock to be
offered in exchange for the Senior Preferred Stock that are Transfer Restricted
Securities and (ii) resales of New Preferred Stock by Broker-Dealers that
tendered into the Exchange Offer Senior Preferred Stock that such Broker-Dealer
acquired for its own account as a result of market making activities or other
trading activities (other than Senior Preferred Stock acquired directly from
parent or any Affiliate thereof) as contemplated by Section 5.01(c) below.
(b) The Parent shall use its best efforts to cause the
Exchange Offer Registration Statement to be effective continuously, and shall
keep the Exchange Offer open for a period of not less than the minimum period
required under applicable federal and state securities laws to Consummate the
Exchange Offer (the "Exchange Offer Registration Period"); PROVIDED, THAT, in no
event shall such period be less than 20 Business Days. The Parent shall cause
the Exchange Offer to comply with all applicable federal and state securities
laws. No securities, other than the New Preferred Stock and the Senior
Subordinated Notes to be issued by Parent and the Companies in connection with
the Transactions (as defined in the Purchase Agreement), shall be included in
the Exchange Offer Registration Statement. The Parent shall use its best efforts
to cause the Exchange Offer to be Consummated on or prior to 30 Business Days,
or longer if required by the Federal securities laws, after the Exchange Offer
Registration Statement has become effective (such 30th Business Day, or such
later date if required by the Federal Securities laws, being the "Consummation
Deadline").
(c) The Parent shall include a "Plan of Distribution" section
in the Prospectus contained in the Exchange Offer Registration Statement and
indicate therein
<PAGE>
59
that any Broker-Dealer who holds Transfer Restricted Securities that were
acquired for the account of such Broker-Dealer as a result of market-making
activities or other trading activities (other than Senior Preferred Stock
acquired directly from the Parent or any Affiliate of the Parent) may exchange
such Transfer Restricted Securities pursuant to the Exchange Offer; PROVIDED,
THAT, such Broker-Dealer may be deemed to be an "underwriter" within the meaning
of the Act and must, therefore, deliver a prospectus meeting the requirements of
the Act in connection with its initial sale of any shares of New Preferred Stock
received by such Broker-Dealer in the Exchange Offer and the Parent shall permit
the use of the Prospectus contained in the Exchange Offer Registration Statement
by such Broker-Dealer to satisfy such prospectus delivery requirement. Such
"Plan of Distribution" section shall also contain all other information with
respect to such sales by such Broker-Dealers that the SEC may require in order
to permit such sales pursuant thereto, but such "Plan of Distribution" shall not
name any such Broker-Dealer or disclose the amount of Transfer Restricted
Securities held by any such Broker-Dealer, except to the extent required by the
SEC as a result of a change in policy, rules or regulation after the date of
this Agreement. See the Shearman & Sterling no-action letter (available July 2,
1993).
To the extent necessary to ensure that the prospectus
contained in the Exchange Offer Registration Statement is available for sales of
New Preferred Stock by Broker-Dealers, the Parent agrees to use its best efforts
to keep the Exchange Offer Registration Statement continuously effective,
supplemented, amended and current as required by and subject to the provisions
of and in conformity with the requirements of this Agreement, the Act and the
policies, rules and regulations of the SEC as announced from time to time, for a
period of one year from the Consummation Deadline or such shorter period as will
terminate when all Transfer Restricted Securities covered by such Registration
Statement have been sold pursuant thereto (the "Applicable Period"). The Parent
shall provide sufficient copies of the latest version of such Prospectus to such
Broker-Dealers, as promptly as practicable upon request, and in no event later
than two Business Days after such request, at any time during such period.
SECTION 5.02 SHELF REGISTRATION (a) SHELF REGISTRATION. If the Exchange
Offer is not permitted by applicable law or rules, regulations or policies of
the SEC, then the Parent shall (x) use its best efforts to cause to be filed, on
or prior to 45 days after the date on which the Parent determines that the
Exchange Offer Registration
<PAGE>
60
Statement cannot be filed (such date, the "Shelf Registration Filing Deadline"),
a shelf registration statement pursuant to Rule 415 under the Act (which may be
an amendment to the Exchange Offer Registration Statement (the "Shelf
Registration Statement")), relating to all Transfer Restricted Securities, and
(y) use its best efforts to cause such Shelf Registration Statement to become
effective on or prior to 90 days after the Shelf Registration Filing Deadline
(such 90th day the "Shelf Registration Effectiveness Target Date").
If, after the Parent has filed an Exchange Offer Registration
Statement that satisfies the requirements of Section 5.01(a), the Parent is
required to file and make effective a Shelf Registration Statement solely
because the Exchange Offer is not permitted under applicable federal law or
rules, regulations or policies of the SEC, then the filing of the Exchange Offer
Registration Statement shall be deemed to satisfy the requirements of Section
5.02(a)(x); PROVIDED, THAT, in such event, the Parent shall be obligated to use
its best efforts to cause such Shelf Registration Statement to become effective
by the later of (i) the Shelf Registration Effectiveness Target Date and (ii)
the 90th day after publication of the change in the applicable Federal law or
rules, regulations or policies of the SEC.
To the extent necessary to ensure that the Shelf Registration
Statement is available for sales of Transfer Restricted Securities by the
holders thereof entitled to the benefit of this Section 5.02(a), the Parent
shall use its best efforts to keep any Shelf Registration Statement required by
this Section 5.02(a) continuously effective, supplemented amended and current
and in conformity with the requirements of this Agreement, the act and the
policies, rules and regulations of the SEC as announced from time to time, for a
period ending on the earlier of: (i) two years following the date hereof, or
such shorter period as will terminate when all Transfer Restricted Securities
covered by such Shelf Registration Statement have been sold pursuant thereto and
(ii) the date on which the Senior Preferred Stock become eligible for resale
without volume restrictions pursuant to Rule 144 under the act (the "Shelf
Registration Period").
SECTION 5.03 CERTAIN MATTERS. (a) GENERAL PROVISIONS. The provisions of
this Agreement relating to registration shall apply, as nearly as may be, to any
such Exchange Offer and Shelf Registration Statement. In addition, to the extent
relevant, the provisions, limitations and procedures set forth in the Notes
Registration Rights Agreement with respect to an Exchange
<PAGE>
61
Offer and a Shelf Registration Statement shall apply to any such Exchange Offer
or Shelf Registration Statement hereunder, MUTATIS MUTANDIS; PROVIDED, THAT, to
the extent that analogous procedures that would be appropriate for any
Registration Statement are set forth in this agreement, such provisions shall
apply to such Registration Statement in lieu of the comparable provisions of the
Notes Registration Rights Agreement (e.g. Section 2.01(b) hereof with respect to
"blackout periods" shall apply in lieu of Section 4(c) of the Notes Registration
Rights Agreement).
(b) In the event an exchange, pursuant to Section 2.10(a) or
Section 2.10(b) has occurred, all references in this Article V to Parent shall
be deemed a reference to the applicable Company and all references to Senior
Preferred Stock shall be deemed a reference to the Exchange Preferred Stock or
the WRC Preferred Stock, as applicable.
ARTICLE VI
MISCELLANEOUS
SECTION 6.01. PARENT AND COMPANY ACTIVITIES. In the event that
the Parent shall propose to effect the Reorganization Transaction in accordance
with the terms hereof, each Purchaser hereby:
(i) agrees to cooperate with the Parent in connection
therewith and with any transactions incidental and reasonably necessary
thereto;
(ii) agrees to vote all shares of common stock of the Parent
and the Companies or Preferred Stock and Rights and any other
Securities held by such Purchaser (including, without limitation,
shares or Rights or other securities acquired after the date hereof) in
the same manner as the shares of common stock of the Parent and the
Companies held by the Initial Stockholder are voted on (a) all matters
relating to the Reorganization Transaction (so long as the actions that
would be taken as a result of such vote are consistent with the
requirements of a Reorganization Transaction) at any annual or special
meeting of shareholders or by written consent in lieu of a meeting and
(b) any resolution proposed by the Board of Directors of the Parent to,
in connection with the Reorganization Transaction, convert the Parent
into a Delaware limited liability company pursuant
<PAGE>
62
to Section 266 of Title 8 of the Delaware Code (or any successor
provision) and thereafter to be taxed as a partnership for federal
income tax purposes that is presented for approval at any annual or
special meeting of shareholders or by written consent in lieu of a
meeting (so long as such Purchaser will not have, or be required to
receive, any Securities or ownership interest in any such limited
liability company, other than any transitory ownership of any such
Securities or any such interest that does not result in the recognition
of unrelated business taxable income from Parent or cause the Purchaser
to be engaged in a United States trade or business);
(iii) irrevocably constitutes and appoints the Initial
Stockholder its proxy to vote all of the shares of common stock of the
Parent and the Companies or Preferred Stock and Rights and any other
Securities held by such Purchaser in the same manner as the shares of
common stock of the Parent and the Companies held by the Initial
Stockholder are voted on (a) all matters relating to the Reorganization
Transaction (so long as the actions taken as a result of such vote are
consistent with the requirements of a Reorganization Transaction) at
any annual or special meeting of shareholders or by written consent in
lieu of a meeting and (b) any resolution proposed by the Board of
Directors of the Parent to, in connection with the Reorganization
Transaction, convert the Parent into a Delaware limited liability
company pursuant to Section 266 of Title 8 of the Delaware Code (or any
successor provision) and thereafter to be taxed as a partnership for
federal income tax purposes that is presented for approval at any
annual or special meeting of shareholders or by written consent in lieu
of a meeting (so long as such Purchaser will not have, or be required
to receive, any Securities or ownership interest in any such limited
liability company, other than any transitory ownership of any such
Securities or any such interest that does not result in the recognition
of unrelated business taxable income from Parent or cause the Purchaser
to be engaged in a United States trade or business).
SECTION 6.02. COMMUNICATIONS. (a) METHOD; ADDRESS. All communications
hereunder shall be in writing and shall be delivered either by nationwide
overnight
<PAGE>
63
courier or by facsimile transmission (confirmed by delivery by nationwide
overnight courier sent on the day of the sending of such facsimile
transmission). Communications to the Parent or the Companies shall be addressed
to:
WRC Media Inc.
In care of Ripplewood Holdings L.L.C.
One Rockefeller Plaza, 32nd Floor
New York, NY 10020
or at such other address of which the Parent shall have notified the parties
hereto. Communications to the holders of the Parent Preferred Stock and the
Purchaser Shares shall be addressed as set forth on Annex 1, or at such other
address of which such holder shall have notified the Parent. Communications to
the Initial Stockholder shall be addressed as set forth on Annex 2, or at such
other address of which the Initial Stockholder shall have notified the Parent
and each holder of Parent Preferred Stock or Purchaser Shares. Communications to
any Other Stockholders shall be delivered to such Other Stockholders at the
address of the Parent as provided herein, and the Parent shall promptly deliver
such communications to the Other Stockholders at the addresses set forth in the
register of the holders of the Common Stock in the manner set forth in this
Section 6.02.
(b) WHEN GIVEN. Any communication addressed and delivered as
herein provided shall be deemed to be received when actually delivered to the
address of the addressee (whether or not delivery is accepted) or received by
the telecopy machine of the recipient. Any communication not so addressed and
delivered shall be ineffective.
(c) SERVICE OF PROCESS. Notwithstanding the foregoing
provisions of this Section 6.02, service of process in any suit, action or
proceeding arising out of or relating to this Agreement or any document,
agreement or transaction contemplated hereby, or any action or proceeding to
execute or otherwise enforce any judgment in respect of any breach hereunder or
under any document or agreement contemplated hereby, shall be delivered in the
manner provided in Section 6.08(c).
SECTION 6.03. REPRODUCTION OF DOCUMENTS. This Agreement and
all documents relating hereto, including, without limitation, consents, waivers
and modifications that may hereafter be executed, documents received by
Purchasers at the closing of the purchase of Parent Preferred Stock and Warrants
(except the Warrant Certificates and the certificates representing the shares of
the Parent Preferred Stock), and financial statements, certificates and other
<PAGE>
64
information previously or hereafter furnished to any party may be reproduced by
the any party by any photographic, photostatic, microfilm, micro-card, miniature
photographic, digital or other similar process, and the Purchasers may destroy
any original document so reproduced. Any such reproduction shall be as
admissible into evidence as the original itself in any judicial or
administrative proceeding (whether or not the original is in existence and
whether or not such reproduction was made by the Parent, the Initial Stockholder
or the Purchasers in the regular course of business) and any enlargement,
facsimile or further reproduction of such reproduction shall likewise be as
admissible into evidence as the original itself. Nothing in this Section 6.03
shall prohibit any party hereto from contesting the accuracy or validity of any
such reproduction.
SECTION 6.04. SURVIVAL. All warranties, representations,
certifications and covenants made by the Parent and the Companies herein, in the
Subscription Agreement or in any certificate or other instrument delivered by
the Parent or either Company or on behalf of the Parent or the Companies
hereunder shall be considered to have been relied upon by the applicable
Purchasers to whom such representations or certificates were made or covenants
given and shall survive the delivery to the Purchasers of the Parent Preferred
Stock and Warrants, regardless of any investigation made by the Purchasers or on
their behalf. All statements in any certificate or other instrument delivered by
or on behalf of the Parent or either Company pursuant to the terms hereof shall
constitute warranties and representations by the Parent or such Company, as
applicable, hereunder. All payment and indemnity obligations of the Parent and
either Company hereunder (including, without limitation, reimbursement
obligations in respect of costs, expenses and fees of or incurred by the
Purchasers) shall survive the termination hereof.
SECTION 6.05. SUCCESSORS AND ASSIGNS. Subject to Section 3.05,
this Agreement shall inure to the benefit of and be binding upon the successors
and permitted assigns of each of the parties hereto. The provisions hereof are
intended to be for the benefit of the Purchasers and their successors and
permitted assigns, and shall be enforceable by them whether or not an express
assignment of rights hereunder shall have been made by a Purchaser or its
successor or permitted assign.
SECTION 6.06. AMENDMENTS AND WAIVERS. (a) The
provisions of Article I and Article VI hereof, and of any
term defined in Article IV hereof as used in any such
<PAGE>
65
Section, may be amended, modified or supplemented, and compliance with any such
Section hereof waived, only by a writing duly executed by or on behalf of the
Required Holders and the Parent;
(b) the provisions of Article II hereof, and of any term
defined in Article IV hereof as used in Article II hereof, may be amended,
modified or supplemented only by a writing duly executed by or on behalf of the
Required Holders and the Parent; PROVIDED HOWEVER, that compliance by the Parent
with the provisions of Article II hereof, with respect to any particular
registration, may be waived by the Requisite Holders; and PROVIDED FURTHER that
no amendment, modification or supplement of the provisions of Section 2.01(d) or
Section 2.02(c) hereof which adversely affect the rights of the Initial
Stockholder shall be made without the consent of the Initial Stockholder;
(c) the provisions of Article III hereof, and of any term
defined in Article IV hereof as used in any such Article, may be amended,
modified or supplemented, and compliance with such Section hereof waived, only
by a writing duly executed by or on behalf of the Required Holders, the Initial
Stockholder and the Parent; and
(d) notwithstanding the foregoing, no provision of this
Agreement may be amended in such manner as to adversely and differently affect
any Other Purchaser's rights hereunder without the consent of such Other
Purchaser.
SECTION 6.06. EXPENSES. (a) AMENDMENTS AND WAIVERS. The Parent
shall pay when billed the reasonable costs and expenses (including, without
limitation, reasonable attorneys' fees) incurred by the holders of the Purchaser
Shares and the Parent Preferred Stock in connection with the consideration,
negotiation, preparation or execution of any amendments, waivers, consents and
other similar agreements with respect to this Agreement (whether or not any such
amendments, waivers, consents or other similar agreements are executed).
(b) RESTRUCTURING AND WORKOUT, INSPECTIONS. At any time
when the Parent and the holders of the Parent Preferred Stock or Purchaser
Shares are conducting restructuring or workout negotiations in respect
hereof, or if the Parent or any Company shall be in violation in any material
respect of any of its agreements hereunder, the Parent shall pay when billed
the reasonable costs and expenses (including, without limitation, reasonable
attorneys' fees and the fees of professional advisors)
<PAGE>
66
incurred by the holders of the Parent Preferred Stock and Purchaser Shares in
connection with the assessment, analysis or enforcement of any rights or
remedies that are or may be available to the holders of the Parent Preferred
Stock and Purchaser Shares.
SECTION 6.07. WAIVER OF JURY TRIAL; CONSENT TO JURISDICTION;
ETC. (a) WAIVER OF JURY TRIAL. THE PARTIES HERETO VOLUNTARILY AND INTENTIONALLY
WAIVE ANY RIGHT ANY OF THEM MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY
LITIGATION ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OF
THE DOCUMENTS, AGREEMENTS OR TRANSAC TIONS CONTEMPLATED HEREBY.
(b) CONSENT TO JURISDICTION. ANY SUIT, ACTION OR PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT, OR ANY OF THE DOCUMENTS,
AGREEMENTS OR TRANSACTIONS CONTEMPLATED HEREBY OR ANY ACTION OR PROCEEDING TO
EXECUTE OR OTHERWISE ENFORCE ANY JUDGMENT IN RESPECT OF ANY BREACH UNDER THIS
AGREEMENT OR ANY DOCUMENT OR AGREEMENT CONTEMPLATED HEREBY MAY BE BROUGHT BY
SUCH PARTY IN ANY FEDERAL DISTRICT COURT LOCATED IN NEW YORK CITY, NEW YORK, OR
ANY NEW YORK STATE COURT LOCATED IN NEW YORK CITY, NEW YORK AS SUCH PARTY MAY IN
ITS SOLE DISCRETION ELECT, AND BY THE EXECUTION AND DELIVERY OF THIS AGREEMENT,
THE PARTIES HERETO IRREVOCABLY AND UNCONDITIONALLY SUBMIT TO THE NON-EX CLUSIVE
IN PERSONAM JURISDICTION OF EACH SUCH COURT, AND EACH OF THE PARTIES HERETO
IRREVOCABLY WAIVES AND AGREES NOT TO ASSERT IN ANY PROCEEDING BEFORE ANY
TRIBUNAL, BY WAY OF MOTION, AS A DEFENSE OR OTHERWISE, ANY CLAIM THAT IT IS NOT
SUBJECT TO THE IN PERSONAM JURISDICTION OF ANY SUCH COURT. IN ADDITION, EACH OF
THE PARTIES HERETO IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW,
ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE IN ANY
SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY
DOCUMENT, AGREEMENT OR TRANSACTION CONTEMPLATED HEREBY BROUGHT IN ANY SUCH
COURT, AND HEREBY IRREVOCABLY WAIVES ANY CLAIM THAT ANY SUCH SUIT, ACTION OR
PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
(c) SERVICE OF PROCESS. EACH PARTY HERETO IRREVOCABLY AGREES
THAT PROCESS PERSONALLY SERVED OR SERVED BY U.S. REGISTERED MAIL AT THE
ADDRESSES PROVIDED HEREIN FOR NOTICES SHALL CONSTITUTE, TO THE EXTENT PERMITTED
BY LAW, ADEQUATE SERVICE OF PROCESS IN ANY SUIT, ACTION OR PROCEEDING ARISING
OUT OF OR RELATING TO THIS AGREEMENT OR ANY DOCUMENT, AGREEMENT OR TRANSACTION
CONTEMPLATED HEREBY, OR ANY ACTION OR PROCEEDING TO EXECUTE OR OTHERWISE ENFORCE
ANY JUDGMENT IN RESPECT OF ANY BREACH HEREUNDER OR UNDER ANY DOCUMENT OR
AGREEMENT CONTEMPLATED HEREBY. RECEIPT OF
<PAGE>
67
PROCESS SO SERVED SHALL BE CONCLUSIVELY PRESUMED AS EVIDENCED BY A DELIVERY
RECEIPT FURNISHED BY THE UNITED STATES POSTAL SERVICE OR ANY COMMERCIAL DELIVERY
SERVICE.
(d) OTHER FORUMS. NOTHING HEREIN SHALL IN ANY WAY BE DEEMED TO
LIMIT THE ABILITY OF ANY HOLDER OF PURCHASER SHARES OR PARENT PREFERRED STOCK TO
SERVE ANY WRITS, PROCESS OR SUMMONSES IN ANY MANNER PERMITTED BY APPLICABLE LAW
OR TO OBTAIN JURISDICTION OVER THE COMPANY OR THE INITIAL STOCKHOLDER IN SUCH
OTHER JURISDICTION, AND IN SUCH OTHER MANNER, AS MAY BE PERMITTED BY APPLICABLE
LAW.
SECTION 6.09. INDEMNIFICATION. From and at all times after the
date of this Agreement, and in addition to all of the other rights and remedies
of any holder of the Parent Preferred Stock and the Purchaser Shares against the
Parent, the Parent agrees to indemnify and hold harmless each such holder and
each of its directors, trustees, officers, employees, agents, investment
advisors and Affiliates against any and all claims, losses, damages,
liabilities, costs and expenses of any kind or nature whatsoever (including,
without limitation, reasonable attorneys' fees, costs and expenses), incurred by
or asserted against such holder or any such director, trustee, officer,
employee, agent, investment advisor or Affiliate, from and after the date
hereof, whether direct or indirect, as a result of or arising from or in any way
relating to any suit, action or proceeding (including, without limitation, any
inquiry or investigation) by any Person, whether threatened or initiated,
asserting a claim for any legal or equitable remedy against any Person under any
statute or regulation, including, without limitation, any Federal or state
securities laws, or under any common law or equitable cause or otherwise,
arising from or in connection with the negotiation, preparation, execution,
performance or enforcement of this Agreement or any transactions contemplated
herein or hereunder, whether or not such holder or any such director, trustee,
officer, employee, agent, investment advisor or Affiliate is a party to any such
action, proceeding, suit or the target of any such inquiry or investigation;
PROVIDED, HOWEVER, that no indemnified party shall have the right to be
indemnified hereunder for any liability to the extent such liability results
from the willful misconduct or gross negligence of such indemnified party or
breach by such indemnified party of its own obligations under this Agreement or
any other agreement with the Parent or the Companies. All of the foregoing
losses, damages, liabilities, costs and expenses shall be payable as and when
incurred upon demand by each such holder. Without limiting the generality of the
foregoing, each holder of Parent Preferred Stock and the Purchaser Shares shall
be
<PAGE>
68
entitled to collect, and the Parent shall be obligated to advance to each holder
of Parent Preferred Stock and the Purchaser Shares and such directors, trustees,
officers, employees, agents, investment advisors and Affiliates, to the fullest
extent permitted by applicable law, all expenses (including, without limitation,
reasonable fees and disbursements of counsel) attendant to defending against any
such claims, losses, damages, liabilities, costs and expenses when and as
incurred, regardless of whether any judicial determination of entitlement to
such indemnity has been made, until or unless a final judicial determination
that such indemnified party is not entitled to such indemnity as a result of the
willful misconduct or gross negligence of such indemnified party or breach by
such indemnified party, in which case, such indemnified party shall promptly
repay to the Parent, with interest at the applicable statutory rate applicable
to judgments in the relevant jurisdiction, all amounts so advanced by the
Parent. The obligations of the Parent and the rights of the holders of Parent
Preferred Stock and the Purchaser Shares under this Section 6.09 shall survive
the termination of this Agreement.
SECTION 6.10. ENTIRE AGREEMENT. This Agreement, the
Subscription Agreement, together with all exhibits and schedules thereto and
hereto, and the Certificate of Designations constitute the final written
expression of all of the terms hereof and is a complete and exclusive statement
of those terms.
SECTION 6.11. EXECUTION IN COUNTERPART. This Agreement may be
executed in one or more counterparts and shall be effective when at least one
counterpart shall have been executed by each party hereto, and each set of
counterparts that, collectively, show execution by each party hereto shall
constitute one duplicate original.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and delivered, all as of the date and year first
above written.
WRC MEDIA INC.,
by /s/ CHARLES LAUREY
----------------------
Name: Charles Laurey
Title: Secretary
JLC LEARNING CORPORATION,
by /s/ CHARLES LAUREY
----------------------
Name: Charles Laurey
Title: Secretary
WEEKLY READER CORPORATION,
by /s/ CHARLES LAUREY
----------------------
Name: Charles Laurey
Title: Secretary
THE NORTHWESTERN MUTUAL LIFE
INSURANCE COMPANY,
by /s/ RICHARD A.STRAIT
----------------------
Name: Richard A. Strait
Title: Its Authorized
Representative
<PAGE>
EAC III L.L.C.,
by EAC IV L.L.C., its
Managing Member,
by Ripplewood Partners,
L.P., its sole member
by Ripplewood Holdings
L.L.C., its general partner
by /s/ ROBERT S. LYNCH
--------------------------
Name: Rober S. Lynch
Title:
DLJ MERCHANT BANKING PARTNERS
II, L.P., a Delaware Limited
Partnership,
by DLJ Merchant Banking
II, Inc., as managing
general partner,
by /s/ WILLIAM F. DAWSON
---------------------------
Name: William F. Dawson
Title:
DLJ MERCHANT BANKING PARTNERS
II-A, L.P., a Delaware Limited
Partnership,
by DLJ Merchant Banking
II, Inc. as managing
general partner,
by /s/ WILLIAM F. DAWSON
---------------------------
Name: William F. Dawson
Title:
<PAGE>
DLJ OFFSHORE PARTNERS II,
C.V., a Netherlands Antilles
Limited Partnership,
by DLJ Merchant Banking
II, Inc., as managing
general partner,
by /s/ WILLAM F. DAWSON
--------------------------
Name: William F. Dawson
Title:
DLJ DIVERSIFIED PARTNERS,
L.P., a Delaware Limited
Partnership,
by DLJ Diversified
Partners, Inc., as
managing general
partner,
by /s/ DAVID BURGSTAHLER
--------------------------
Name: David Burgstahler
Title: Attorney-in-Fact
DLJ DIVERSIFIED PARTNERS-A,
L.P., a Delaware Limited
Partnership,
by DLJ Diversified
Partners, Inc., as
managing general
partner,
by /s/ DAVID BURGSTAHLER
--------------------------
Name: David Burgstahler
Title: Attorney-in-Fact
<PAGE>
DLJ MILLENNIUM PARTNERS, L.P.,
a Delaware Limited
Partnership,
by DLJ Merchant Banking
II, Inc., as managing
general partner,
by /s/ WILLAIM F. DAWSON
----------------------------
Name: William F. Dawson
Title:
DLJ MILLENNIUM PARTNERS-A, L.P., a
Delaware Limited Partnership,
by DLJ Merchant Banking II,
Inc., as managing general
partner,
by /s/ WILLIAM F. DAWSON
--------------------------
Name: Willam F. Dawson
Title:
DLJMB FUNDING II, INC., a Delaware
corporation,
by /s/ DAVID BURGSTAHLER
--------------------------
Name: David Burgstahler
Title: Attorney-in-Fact
DLJ FIRST ESC, L.P., a Delaware
Limited Partnership,
by DLJ LBO Plans Management
Corporation, as general
partner,
by /s/ DAVID BURGSTAHLER
----------------------------
Name: David Burgstahler
Title: Attorney-in-Fact
<PAGE>
DLJ EAB PARTNERS, L.P., a Delaware
Limited Partnership,
By DLJ LBO Plans Management
Corporation, as general
partner,
by /s/ DAVID BURGSTAHLER
---------------------------
Name: David Burgstahler
Title: Attorney-in-Fact
DLJ ESC II L.P., a Delaware Limited
Partnership,
by DLJ LBO Plans Management
Corporation, as general
partner,
by /s/ DAVID BURGSTAHLER
---------------------------
Name: David Burgstahler
Title: Attorney-in-Fact
SGC PARTNERS II L.L.C., with
respect to Section 1.02(i), Section
1.03(a)(i), 1.05, 3.01, 6.02, 6.05,
6.08, 6.10 and 6.11 only,
by /s/ V. FRANK POTTOW
-------------------------
Name: V. Frank Pottow
Title: Managing Director
<PAGE>
ARES LEVERAGED INVESTMENT FUND,
L.P., a Delaware Limited
Partnership,
by ARES Management L.P., as
general partner,
by /s/ ERIC BECKMAN
---------------------------
Name: Eric Beckman
Title: Vice President
ARES LEVERAGED INVESTMENT FUND II,
L.P., a Delaware Limited
Partnership,
by ARES Management II, L.P., as
general partner,
by /s/ ERIC BECKMAN
---------------------------
Name: Eric Beckman
Title: Vice President
TCW/CRESCENT MEZZANINE PARTNERS II,
L.P., a Delaware Limited
Partnership,
TCW/CRESCENT MEZZANINE TRUST II,
by TCW/Crescent Mezzanine II,
L.P., its general partner or
managing owner,
by TCW/Crescent Mezzanine,
L.L.C., its general partner,
by
-----------------------------
Name:
Title:
<PAGE>
SHARED OPPORTUNITY FUND IIB,
L.L.C., a Delaware Limited
Liability Company,
by TCW Asset Management
Company, as investor
advisor,
by
----------------------------
Name:
Title:
by
----------------------------
Name:
Title:
TCW SHARED OPPORTUNITY FUND III,
L.P., a Delaware Limited
Partnership,
by TCW Asset Management Company,
as investor advisor,
by
---------------------------
Name:
Title:
by
----------------------------
Name:
Title:
<PAGE>
TCW LEVERAGED INCOME TRUST II,
L.P., a Delaware Limited
Partnership,
by TCW (LINCII), L.P., as
general partner,
by TCW Advisors (Bermuda), Ltd.,
as general partner,
by
----------------------------
Name:
Title:
by TCW Investment Management
Company, as investment
advisor,
by
----------------------------
Name:
Title:
TCW LEVERAGED INCOME TRUST, L.P., a
Delaware Limited Partnership,
by TCW Investment
Management Company, as
investment advisor,
by
-----------------------------
Name:
Title:
by TCW Advisors (Bermuda), Ltd.,
as general partner,
by
-----------------------------
Name:
Title:
<PAGE>
RIPPLEWOOD PARTNERS, L.P.,
by Ripplewood Holdings L.L.C.,
its general partner
by /s/ ROBERT LYNCH
-----------------------------
Name: Robert Lynch
Title: Treasurer
<PAGE>
ANNEX 1
Name and Address of Purchasers
Northwestern Mutual Life Insurance Company
720 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
Attention of: Colleen Gunther
Fax: 414-299-7124
with a copy of all notices to:
Bingham Dana LLP
One State Street
Hartford, Connecticut 06103
Attention of: Gary S. Hammersmith, Esq.
Fax: 860-240-2800
DLJ Merchant Banking Partners II, L.P.,
In care of DLJ Merchant Banking II, Inc.
277 Park Avenue
New York, NY 10172
Fax: 212-892-7272
DLJ Merchant Banking Partners II-A, L.P.
In care of DLJ Merchant Banking II, Inc.
277 Park Avenue
New York, NY 10172
Fax: 212-892-7272
DLJ Offshore Partners II, C.V.,
In care of DLJ Merchant Banking, II, Inc.
277 Park Avenue
New York, NY 10172
Fax: 212-892-7272
DLJ Diversified Partners, L.P.,
In care of DLJ Merchant Banking, II, Inc.
277 Park Avenue
New York, NY 10172
Fax: 212-892-7272
DLJ Diversified Partners-A, L.P.,
In care of DLJ Merchant Banking, II, Inc.
277 Park Avenue
New York, NY 10172
Fax: 212-892-7272
DLJ Millennium Partners, L.P.,
In care of DLJ Merchant Banking, II, Inc.
277 Park Avenue
New York, NY 10172
<PAGE>
Fax: 212-892-7272
DLJ Millennium Partners-A, L.P.
In care of DLJ Merchant Banking, II, Inc.
277 Park Avenue
New York, NY 10172
Fax: 212-892-7272
DLJMB Funding II, Inc.,
In care of DLJ Merchant Banking, II, Inc.
277 Park Avenue
New York, NY 10172
Fax: 212-892-7272
DLJ First Esc L.P.,
In care of DLJ Merchant Banking, II, Inc.
277 Park Avenue
New York, NY 10172
Fax: 212-892-7272
DLJ EAB Partners, L.P.
In care of DLJ Merchant Banking, II, Inc.
277 Park Avenue
New York, NY 10172
Fax: 212-892-7272
DLJ ESC II L.P.
In care of DLJ Merchant Banking, II, Inc.
277 Park Avenue
New York, NY 10172
Fax: 212-892-7272
ARES LEVERAGED INVESTMENT FUND, L.P.
In care of Ares Leveraged Investment Fund, L.P.
1999 Avenue of the Stars, Suite 1900
Los Angeles, CA 90067
Attention: Eric Beckman
Fax: 310-201-4170
ARES LEVERAGED INVESTMENT FUND II, L.P.
In care of Ares Leveraged Investment Fund II, L.P.
1999 Avenue of the Stars, Suite 1900
Los Angeles, CA 90067
Attention: Eric Beckman
Fax: 310-201-4170
TCW/CRESCENT MEZZANINE PARTNERS II, L.P.
In care of TCW/Crescent Mezzanine, L.L.C.
11100 Santa Monica Blvd., Suite 2000
Los Angeles, CA 90025
Attention: Jean-Marc Chapus
<PAGE>
Fax: 310-235-5967
SHARED OPPORTUNITY FUND 11B, L.L.C.
In care of TCW/Crescent Mezzanine, L.L.C.
11100 Santa Monica Blvd., Suite 2000
Los Angeles, CA 90025
Attention: Jean-Marc Chapus
Fax: 310-235-5967
TCW SHARED OPPORTUNITY FUND III, L.P.
In care of TCW/Crescent Mezzanine, L.L.C.
11100 Santa Monica Blvd., Suite 2000
Los Angeles, CA 90025
Attention: Jean-Marc Chapus
Fax: 310-235-5967
TCW LEVERAGED INCOME TRUST II, L.P.
In care of TCW/Crescent Mezzanine, L.L.C.
11100 Santa Monica Blvd., Suite 2000
Los Angeles, CA 90025
Attention: Jean-Marc Chapus
Fax: 310-235-5967
TCW LEVERAGED INCOME TRUST, L.P.
In care of TCW/Crescent Mezzanine, L.L.C.
11100 Santa Monica Blvd., Suite 2000
Los Angeles, CA 90025
Attention: Jean-Marc Chapus
Fax: 310-235-5967
with a copy of all notices (other than notices to NML)
to:
Davis Polk & Wardwell
450 Lexington Avenue
New York, NY 10017
Attention: George R. Bason, Jr.
Fax: 212-450-4800
<PAGE>
ANNEX 2
Address of Initial Stockholder
EAC III L.L.C.
In care of Ripplewood Partners, L.P.
One Rockefeller Plaza, 32nd Floor
New York, NY 10020
<PAGE>
EXHIBIT A
FORM OF TRANSFEREE UNDERTAKING
[Letterhead of Transferee]
[Dated ________]
WRC Media Inc.
c/o Ripplewood Partners, L.P.
One Rockefeller Plaza, 32nd Floor
New York, NY 10020
Re: WRC Media Inc. (the "Parent") Issuable Shares
Ladies and Gentlemen:
Pursuant to Section 3.01 of that certain Preferred
Stockholders Agreement, dated as of November 17, 1999 (as amended, the
"Stockholders Agreement") among the Parent, JLC (as defined therein), WRC (as
defined therein), the Purchasers (as defined therein), SGC (as defined therein)
and the Initial Stockholder (as defined therein), ________ [name of transferee]
(the "Transferee"), as owner and holder of ________ shares of ________ [type of
Issuable Shares], hereby confirms and agrees that it has assumed and is subject
to the obligations of a [Purchaser] [Initial Stockholder] [Other Stockholder],
as provided in the Stockholders Agreement.
The address where notices and communications pursuant to
Section 5.02 of the Stockholders Agreement can be delivered to the Transferee is
as follows:
[Transferee]
IN WITNESS WHEREOF, the Transferee executes and
delivers this agreement, as of the date and year first above
written.
[TRANSFEREE],
by
-------------------------
Name:
Title:
<PAGE>
<PAGE>
EXHIBIT A
[Face of Note]
- --------------------------------------------------------------------------------
FOR THE PURPOSES OF SECTIONS 1272, 1273 AND 1275 OF THE INTERNAL REVENUE CODE OF
1986, AS AMENDED, THIS SECURITY IS BEING ISSUED WITH ORIGINAL ISSUE DISCOUNT;
FOR EACH $1,000 PRINCIPAL AMOUNT OF THIS SECURITY, THE ISSUE PRICE ALLOCATED TO
THE NOTE IS $961.85, THE AMOUNT OF ORIGINAL ISSUE DISCOUNT IS $38.15, THE ISSUE
DATE IS NOVEMBER 17, 1999 AND THE YIELD TO MATURITY IS 13.46% PER ANNUM.
CUSIP/CINS ____________
12 3/4% Senior Subordinated Notes due 2009
No. 1 $152,000,000
WRC MEDIA INC.
WEEKLY READER CORPORATION
JLC LEARNING CORPORATION
promises to pay to Cede & Co. or registered assigns,
the principal sum of One Hundred Fifty Two Million Dollars on November 15, 2009.
Interest Payment Dates: May 15 and November 15
Record Dates: May 1 and November 1
Dated: November 17, 1999
WRC MEDIA INC.
By:
--------------------------------------
Name:
Title:
WEEKLY READER CORPORATION
By:
--------------------------------------
Name:
Title:
JLC LEARNING CORPORATION
By:
--------------------------------------
Name:
Title:
This is one of the Notes referred to
in the within-mentioned Indenture:
BANKERS TRUST COMPANY
as Trustee
By:
--------------------------
Authorized Signatory
- --------------------------------------------------------------------------------
A-1
<PAGE>
[Back of Note]
12 3/4% Senior Subordinated Notes due 2009
[INSERT THE GLOBAL NOTE LEGEND, IF APPLICABLE PURSUANT TO THE PROVISIONS OF
THE INDENTURE]
[INSERT THE PRIVATE PLACEMENT LEGEND, IF APPLICABLE PURSUANT TO THE PROVISIONS
OF THE INDENTURE]
Capitalized terms used herein shall have the meanings assigned to them
in the Indenture referred to below unless otherwise indicated.
1. INTEREST. WRC Media Inc, a Delaware corporation (the "Company"),
Weekly Reader Corporation, a Delaware corporation, and JLC Learning Corporation,
a Delaware corporation (collectively, the "Issuers"), promise to pay interest on
the principal amount of this Note at 12 3/4% per annum from November 17, 1999
until maturity and shall pay the Liquidated Damages payable pursuant to Section
5 of the Registration Rights Agreement referred to below. The Issuers will pay
interest and Liquidated Damages semi-annually in arrears on May 15 and November
15 of each year, or if any such day is not a Business Day, on the next
succeeding Business Day (each an "Interest Payment Date"). Interest on the Notes
will accrue from the most recent date to which interest has been paid or, if no
interest has been paid, from the date of issuance; PROVIDED that if there is no
existing Default in the payment of interest, and if this Note is authenticated
between a record date referred to on the face hereof and the next succeeding
Interest Payment Date, interest shall accrue from such next succeeding Interest
Payment Date; PROVIDED, FURTHER, that the first Interest Payment Date shall be
May 15, 2000. Interest will be computed on the basis of a 360 day year of twelve
30 day months.
2. METHOD OF PAYMENT. The Issuers will pay interest on the Notes
(except defaulted interest) and Liquidated Damages to the Persons who are
registered Holders of Notes at the close of business on the May 1 or November 1
next preceding the Interest Payment Date, even if such Notes are canceled after
such record date and on or before such Interest Payment Date, except as provided
in Section 2.12 of the Indenture with respect to defaulted interest. The Notes
will be payable as to principal, premium and Liquidated Damages, if any, and
interest at the office or agency of the Issuers maintained for such purpose
within or without the City and State of New York, or, at the option of the
Issuers, payment of interest and Liquidated Damages may be made by check mailed
to the Holders at their addresses set forth in the register of Holders, and
PROVIDED that payment by wire transfer of immediately available funds will be
required with respect to principal of and interest, premium and Liquidated
Damages on, all Global Notes and all other Notes the Holders of which shall have
provided wire transfer instructions to the Issuers or the Paying Agent. Such
payment shall be in such coin or currency of the United States of America as at
the time of payment is legal tender for payment of public and private debts.
3. PAYING AGENT AND REGISTRAR. Initially, Bankers Trust Company, the
Trustee under the Indenture, will act as Paying Agent and Registrar. The Issuers
may change any Paying Agent or Registrar without notice to any Holder. The
Company or any of its Restricted Subsidiaries may act in any such capacity.
4. INDENTURE. The Issuers issued the Notes under an Indenture dated
as of November 17, 1999 ("Indenture") among the Issuers, the Note Guarantors and
the Trustee. The terms of the Notes include those stated in the Indenture and
those made part of the Indenture by reference to the Trust Indenture Act of
1939, as amended (15 U.S. Code Sections 77aaa-77bbbb). The Notes are subject to
all such terms, and Holders are referred to the Indenture and such Act for a
statement of such terms. To the extent any provision of this Note conflicts with
the express provisions of the Indenture, the provisions of the Indenture shall
govern and be controlling. The Notes are obligations of the Issuers limited to
$250.0 million in aggregate principal amount,
A-2
<PAGE>
plus amounts, if any, issued to pay Liquidated Damages on outstanding Notes as
set forth in Paragraph 2 hereof.
5. OPTIONAL REDEMPTION.
(a) Except as set forth in subparagraph (b) of this Paragraph 5, the
Issuers shall not have the option to redeem the Notes prior to November 15,
2004. Thereafter, the Issuers shall have the option to redeem the Notes, in
whole or in part, upon not less than 30 nor more than 60 days' notice, at the
redemption prices (expressed as percentages of principal amount) set forth below
plus accrued and unpaid interest and Liquidated Damages thereon to the
applicable redemption date, if redeemed during the twelve-month period beginning
on November 15 of the years indicated below:
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
2004............................................ 106.375%
2005............................................ 104.250%
2006............................................ 102.125%
2007 and thereafter............................. 100.000%
</TABLE>
(b) Notwithstanding the provisions of subparagraph (a) of this
Paragraph 5, at any time prior to November 15, 2002, the Issuers may on one or
more occasions redeem Notes with the net proceeds of one or more Equity
Offerings at a redemption price equal to 112.75% of the aggregate principal
amount thereof; PROVIDED that at least 65% in aggregate principal amount of the
Notes (calculated giving effect to the issuance of Additional Notes) issued
under the Indenture remain outstanding immediately after the occurrence of such
redemption and that such redemption occurs within 45 days of the date of the
closing of such Equity Offering.
6. MANDATORY REDEMPTION.
Except as set forth in paragraph 7 below, the Issuers shall not be
required to make mandatory redemption payments with respect to the Notes.
7. REPURCHASE AT OPTION HOLDER.
(a) If there is a Change of Control, the Issuers shall be required
(unless the Issuers have given notice of redemption of the Notes pursuant to
Section 3.07 of the Indenture) to make an offer (a "Change of Control Offer") to
repurchase all or any part (equal to $1,000 or an integral multiple thereof) of
each Holder's Notes at a purchase price equal to 101% of the aggregate principal
amount thereof plus accrued and unpaid interest and Liquidated Damages thereon,
if any, to the date of purchase (the "Change of Control Payment"). Within 30
days following any Change of Control, the Issues shall mail a notice to each
Holder setting forth the procedures governing the Change of Control Offer as
required by the Indenture.
(b) If the Company or a Restricted Subsidiary consummates any Asset
Sales, within five days of each date on which the aggregate amount of Excess
Proceeds exceeds $10 million, the Issuers shall commence an offer to all Holders
of Notes (as "Asset Sale Offer") pursuant to Section 3.09 of the Indenture to
purchase the maximum principal amount of Notes (including any Additional Notes)
that may be purchased out of the Excess Proceeds at an offer price in cash in an
amount equal to 100% of the principal amount thereof plus accrued and unpaid
interest and Liquidated Damages thereon, if any, to the date fixed for the
closing of such offer, in accordance with the procedures set forth in the
Indenture. To the extent that the aggregate amount of Notes (including any
Additional Notes) tendered pursuant to an Asset Sale Offer is less than the
Excess Proceeds, the Issuers may use such deficiency for any purpose not
otherwise prohibited by the Indenture. If the aggregate principal amount of
Notes surrendered by Holders thereof exceeds the amount of Excess Proceeds, the
Trustee shall select the Notes to be purchased on a PRO RATA basis. Holders of
Notes that are the subject of an offer to purchase will receive an Asset Sale
Offer from the Issuers prior to any related purchase date and may elect to have
such Notes purchased by completing the form entitled "Option of Holder to Elect
Purchase" on the reverse of the Notes.
8. NOTICE OF REDEMPTION. Notice of redemption will be mailed at least
30 days but not more than 60 days before the redemption date to each Holder
whose Notes are to be redeemed at its registered
A-3
<PAGE>
address. Notes in denominations larger than $1,000 may be redeemed in part but
only in whole multiples of $1,000, unless all of the Notes held by a Holder are
to be redeemed. On and after the redemption date interest ceases to accrue on
Notes or portions thereof called for redemption.
9. DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in registered
form without coupons in denominations of $1,000 and integral multiples of
$1,000. The transfer of Notes may be registered and Notes may be exchanged as
provided in the Indenture. The Registrar and the Trustee may require a Holder,
among other things, to furnish appropriate endorsements and transfer documents
and the Issuers may require a Holder to pay any taxes and fees required by law
or permitted by the Indenture. The Issuers need not exchange or register the
transfer of any Note or portion of a Note selected for redemption, except for
the unredeemed portion of any Note being redeemed in part. Also, the Issuers
need not exchange or register the transfer of any Notes for a period of 15 days
before a selection of Notes to be redeemed or during the period between a record
date and the corresponding Interest Payment Date.
10. PERSONS DEEMED OWNERS. The registered Holder of a Note may be
treated as its owner for all purposes.
11. AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain exceptions,
the Indenture, the Note Guarantees or the Notes may be amended or supplemented
with the consent of the Holders of at least a majority in principal amount of
the then outstanding Notes and Additional Notes, if any, voting as a single
class, and any existing default or compliance with any provision of the
Indenture, the Note Guarantees or the Notes may be waived with the consent of
the Holders of a majority in principal amount of the then outstanding Notes and
Additional Notes, if any, voting as a single class. Without the consent of any
Holder of a Note, the Indenture, the Note Guarantees or the Notes may be amended
or supplemented to cure any ambiguity, defect or inconsistency, to provide for
uncertificated Notes in addition to or in place of certificated Notes, to
provide for the assumption of the Issuers' or Note Guarantors' obligations to
Holders of the Notes in case of a merger or consolidation, to make any change
that would provide any additional rights or benefits to the Holders of the Notes
or that does not adversely affect the legal rights under the Indenture of any
such Holder, to comply with the requirements of the SEC in order to effect or
maintain the qualification of the Indenture under the Trust Indenture Act, to
provide for the Issuance of Additional Notes in accordance with the limitations
set forth in the Indenture, or to allow any Note Guarantor to execute a
supplemental indenture to the Indenture and/or a Note Guarantee with respect to
the Notes.
12. DEFAULTS AND REMEDIES. Events of Default include: (i) default for
30 days in the payment when due of interest or Liquidated Damages on the Notes;
(ii) default in payment when due of principal of or premium, if any, on the
Notes when the same becomes due and payable at maturity, upon redemption
(including in connection with an offer to purchase) or otherwise, (iii) failure
by the Company or any of its Subsidiaries for 30 days after written notice to
the Company by the Trustee or Holders of at least 25% in aggregate principal
amount of the Notes (including Additional Notes, if any) then outstanding voting
as a single class; to comply with Section 4.07, 4.09, 4.10 or 5.01 of the
Indenture; (iv) failure by the Company for 60 days after written notice to the
Company by the Trustee or the Holders of at least 25% in principal amount of the
Notes (including Additional Notes, if any) then outstanding voting as a single
class to comply with certain other agreements in the Indenture or the Notes; (v)
default under certain other agreements relating to Indebtedness of the Company
or any of its Restricted Subsidiaries which default is caused by a failure to
pay any such Indebtedness at its stated, final maturity (giving effect to any
grace periods) or results in the acceleration of such Indebtedness prior to its
stated, final maturity; (vi) certain final judgments for the payment of money
that remain undischarged for a period of 60 days; (vii) certain events of
bankruptcy or insolvency with respect to the Issuers or any of their Significant
Subsidiaries; and (viii) except as permitted by the Indenture, any Note
Guarantee shall be held in any judicial proceeding to be unenforceable or
invalid or shall cease for any reason to be in full force and effect or any Note
Guarantor or any Person acting on its behalf shall deny or disaffirm its
obligations under such Note Guarantor's Note Guarantee. If any Event of Default
occurs and is continuing, the Trustee or the Holders of at least 25% in
principal amount of the then outstanding Notes may declare all the Notes to be
due and payable. PROVIDED, that so long as any Indebtedness permitted to be
incurred pursuant to the Credit Agreement shall be outstanding, such
acceleration shall not be effective until the earlier of: (1) an acceleration of
any such Indebtedness under the Credit Agreement; or (2) five Business Days
after receipt by the Issuers and the administrative agent under the Credit
Agreement of written notice of that acceleration. Notwithstanding the foregoing,
in the case of an Event of Default arising from certain events of bankruptcy or
insolvency, all outstanding Notes will become due and payable without further
action or notice. Holders may not enforce the Indenture or the
A-4
<PAGE>
Notes except as provided in the Indenture. Subject to certain limitations,
Holders of a majority in principal amount of the then outstanding Notes may
direct the Trustee in its exercise of any trust or power. The Trustee may
withhold from Holders of the Notes notice of any continuing Default or Event of
Default (except a Default or Event of Default relating to the payment of
principal or interest of Liquidated Damages) if it determines that withholding
notice is in their interest. The Holders of a majority in aggregate principal
amount of the Notes then outstanding by notice to the Trustee may on behalf of
the Holders of all of the Notes waive any existing Default or Event of Default
and its consequences under the Indenture except a continuing Default or Event of
Default in the payment of interest on, or the principal of, or Liquidated
Damages or premium, if any, on the Notes. The Issuers are required to deliver to
the Trustee annually a statement regarding compliance with the Indenture, and
the Issuers are required within five Business Days of becoming aware of any
Default or Event of Default, to deliver to the Trustee a statement specifying
such Default or Event of Default.
13. TRUSTEE DEALINGS WITH COMPANY. The Trustee, in its individual or
any other capacity, may make loans to, accept deposits from, and perform
services for the Issuers or any Note Guarantor, and may otherwise deal with the
Issuers or the Note Guarantors, as if it were not the Trustee.
14. NO RECOURSE AGAINST OTHERS. A director, officer, employee,
incorporator or stockholder, of the Issuer or any Note Guarantor, as such, shall
not have any liability for any obligations of the Issuers under the Notes, the
Note Guarantees or the Indenture or for any claim based on, in respect of, or by
reason of, such obligations or their creation. Each Holder by accepting a Note
waives and releases all such liability. The waiver and release are part of the
consideration for the issuance of the Notes.
15. AUTHENTICATION. This Note shall not be valid until authenticated
by the manual signature of the Trustee or an authenticating agent.
16. ABBREVIATIONS. Customary abbreviations may be used in the name of
a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT
(= tenants by the entireties), JT TEN (= joint tenants with right of
survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A
(= Uniform Gifts to Minors Act).
17. ADDITIONAL RIGHTS OF HOLDERS OF RESTRICTED GLOBAL NOTES AND
RESTRICTED DEFINITIVE NOTES. In addition to the rights provided to Holders of
Notes under the Indenture, Holders of Restricted Global Notes and Restricted
Definitive Notes shall have all the rights set forth in the A/B Exchange
Registration Rights Agreement dated as of November 17, 1999, between the Issuers
and the parties named on the signature pages thereof (the "Registration Rights
Agreement").
18. CUSIP NUMBERS. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Issuers have caused
CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP numbers
in notices of redemption as a convenience to Holders. No representation is made
as to the accuracy of such numbers either as printed on the Notes or as
contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.
The Issuers will furnish to any Holder upon written request and without
charge a copy of the Indenture and/or the Registration Rights Agreement.
Requests may be made to:
WRC Media Inc.
Weekly Reader Corporation
JLC Learning Corporation
1 Rockefeller Plaza, 32nd Floor
New York, New York 10020
Attention: Chief Executive Officer
A-5
<PAGE>
Assignment Form
To assign this Note, fill in the form below:
(I) or (we) assign and transfer this Note to:
----------------------------------
(Insert assignee's legal name)
- --------------------------------------------------------------------------------
(Insert assignee's soc. sec. or tax I.D. no.)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint_________________________________________________________
to transfer this Note on the books of the Issuers. The agent may substitute
another to act for him.
Date:
------------------------
Your Signature:
----------------------------------------------------------
(Sign exactly as your name appears on the face of this Note)
Signature Guarantee*:
-------------------------------
* Participant in a recognized Signature Guarantee Medallion Program (or other
signature guarantor acceptable to the Trustee).
A-6
<PAGE>
Option of Holder to Elect Purchase
If you want to elect to have this Note purchased by the Issuers
pursuant to Section 4.10 or 4.15 of the Indenture, check the appropriate box
below:
/_/ Section 4.10 /_/ Section 4.15
If you want to elect to have only part of the Note purchased by the
Issuers pursuant to Section 4.10 or Section 4.15 of the Indenture, state the
amount you elect to have purchased:
$
---------------
Date:
-----------------------
Your Signature:
----------------------------------------------------------
(Sign exactly as your name appears on the face of this Note)
Tax Identification No.:
------------------------------------
Signature Guarantee*:
--------------------------
* Participant in a recognized Signature Guarantee Medallion Program (or other
signature guarantor acceptable to the Trustee).
A-7
<PAGE>
SCHEDULE OF EXCHANGES OF INTERESTS IN THE GLOBAL NOTE*
The following exchanges of a part of this Global Note for an interest
in another Global Note or for a Definitive Note, or exchanges of a part of
another Global Note or Definitive Note for an interest in this Global Note, have
been made:
<TABLE>
<CAPTION>
Principal Amount
Amount of decrease in Amount of increase in of this Global Note Signature of
Principal Amount Principal Amount following such authorized officer of
of at maturity of decrease Trustee or Note
Date of Exchange this Global Note this Global Note (or increase) Custodian
---------------- ---------------- ---------------- ------------- ---------
<S> <C> <C> <C> <C>
</TABLE>
* THIS SCHEDULE SHOULD BE INCLUDED ONLY IF THE NOTE IS ISSUED IN GLOBAL FORM.
A-8
<PAGE>
Exhibit 4.6
NUMBER SHARES
P-0 ______
INCORPORATED WITHIN THE LAWS OF THE STATE OF DELAWARE
WRC MEDIA INC.
PAR VALUE $0.01 PREFERRED STOCK
THIS IS TO CERTIFY THAT ______________________________________ IS THE OWNER OF
_______________________________________________________________________________
Fully Paid and Non-Assessable Shares of Par Value $0.01 Preferred Stock of
WRC Media Inc.
TRANSFERABLE ONLY ON THE BOOKS OF THE CORPORATION BY THE HOLDER THEREOF IN
PERSON OR BY A DULY AUTHORIZED ATTORNEY UPON SURRENDER OF THIS CERTIFICATE
PROPERLY ENDORSED.
WITNESS, THE SEAL OF THE CORPORATION AND THE SIGNATURES OF ITS DULY
AUTHORIZED OFFICERS.
DATED
_____________________________ ________________________________
<PAGE>
Exhibit 10.1
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
EAC I INC.
(TO BE RENAMED JLC LEARNING CORPORATION)
-----------------------------------------------------
NOTE AGREEMENT
-----------------------------------------------------
DATED AS OF JULY 13, 1999
$19,000,000 13.375% SENIOR SUBORDINATED NOTES DUE JULY 13, 2007
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
(Not Part of Agreement)
<TABLE>
<CAPTION>
Page
----
<S> <C> <C> <C>
1. PAYMENTS........................................................... 1
1.1 Interest Payments......................................... 1
1.2 Required Principal Payments............................... 1
1.3 OPTIONAL PRINCIPAL PAYMENTS............................... 1
1.4 DELIVERY OF NOTES IN PAYMENT OF WARRANT PURCHASE PRICE.... 3
1.5 PAYMENTS AMONG NOTEHOLDERS................................ 3
1.6 OFFER TO PAY UPON CHANGE IN CONTROL....................... 3
1.7 No Other Payments of Principal; Acquisition of Notes...... 5
1.8 Notation of Notes on Payment.............................. 6
1.9 MANNER OF PAYMENTS........................................ 6
2. REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES...................... 7
2.1 Registration of Notes..................................... 7
2.2 Exchange of Notes......................................... 7
2.3 REPLACEMENT OF NOTES...................................... 7
2.4 ISSUANCE TAXES............................................ 8
3. GENERAL COVENANTS.................................................. 8
3.1 PAYMENT OF TAXES AND CLAIMS............................... 8
3.2 MAINTENANCE OF PROPERTIES; CORPORATE EXISTENCE; ETC....... 8
3.3 PAYMENT OF NOTES AND MAINTENANCE OF OFFICE................ 9
3.4 Pension Plans............................................. 9
3.5 Private Offering.......................................... 10
3.6 Affiliate Guaranty........................................ 10
3.7 Year 2000 Compliance...................................... 11
3.8 Consummation of Merger.................................... 11
4. FINANCIAL COVENANTS................................................ 11
4.1 Incurrence of Debt........................................ 11
4.2 INTEREST COVERAGE RATIO................................... 12
4.3 Consolidated Total Debt................................... 12
4.4 RESTRICTED PAYMENTS....................................... 13
4.5 LIENS..................................................... 14
4.6 Mergers and Consolidations................................ 16
4.7 Disposition of Assets; Subsidiary Stock................... 17
4.8 Transactions with Affiliates.............................. 19
4.9 AMENDMENTS TO ACCEPTABLE CREDIT FACILITIES................ 19
4.10 LINES OF BUSINESS......................................... 19
4.11 Limitation on Dividend and Other Payment Restrictions
Affecting Subsidiaries.................................. 19
5. REPORTING COVENANTS................................................ 20
5.1 Financial and Business Information........................ 20
5.2 OFFICER'S CERTIFICATES.................................... 23
5.3 Accountants' Certificates................................. 24
5.4 INSPECTION................................................ 24
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C> <C> <C>
6. EVENTS OF DEFAULT.................................................. 24
6.1 EVENTS OF DEFAULT......................................... 26
6.2 Default Remedies.......................................... 27
6.3 ANNULMENT OF ACCELERATION OF NOTES........................ 29
7. SUBORDINATION OF SUBORDINATED DEBT................................. 29
7.1 General................................................... 29
7.2 Insolvency................................................ 29
7.3 Proofs of Claim........................................... 30
7.4 PAYMENT DEFAULT IN RESPECT OF SENIOR DEBT................. 30
7.5 Nonpayment Default in Respect of Senior Debt.............. 30
7.6 EXERCISE OF REMEDIES...................................... 31
7.7 Turnover of Payments...................................... 32
7.8 SUBORDINATION UNAFFECTED BY CERTAIN EVENTS................ 32
7.9 Reinstatement of Subordination............................ 33
7.10 Obligations Not Impaired.................................. 33
7.11 Payment of Senior Debt; Subrogation....................... 33
7.12 RELIANCE OF HOLDERS OF SENIOR DEBT; ACKNOWLEDGMENT........ 34
7.13 Identity of Holders of Senior Debt........................ 34
7.14 AMENDMENTS TO THIS AGREEMENT.............................. 34
7.15 AMENDMENTS TO SENIOR CREDIT FACILITY...................... 34
7.16 CERTIFICATION OF SUBORDINATION............................ 35
8. INTERPRETATION OF THIS AGREEMENT................................... 35
8.1 TERMS DEFINED............................................. 35
8.2 Accounting Principles..................................... 53
8.3 Directly or Indirectly.................................... 53
8.4 Section Headings and Table of Contents and Construction... 54
8.5 GOVERNING LAW............................................. 54
8.6 General Interest Provisions............................... 54
9. MISCELLANEOUS...................................................... 55
9.1 COMMUNICATIONS............................................ 55
9.2 REPRODUCTION OF DOCUMENTS................................. 56
9.3 SURVIVAL.................................................. 56
9.4 SUCCESSORS AND ASSIGNS.................................... 56
9.5 AMENDMENT AND WAIVER...................................... 57
9.6 Expenses.................................................. 58
9.7 WAIVER OF JURY TRIAL; CONSENT TO JURISDICTION; ETC........ 59
9.8 Indemnification of Each Holder............................ 60
9.9 Entire Agreement.......................................... 60
9.10 Execution in Counterpart.................................. 61
</TABLE>
<PAGE>
NOTE AGREEMENT
NOTE AGREEMENT, dated as of July 13, 1999, among EAC I INC., a Delaware
corporation (together with its successors and assigns, the "COMPANY"; to be
renamed "JLC LEARNING CORPORATION"). THE NORTHWESTERN MUTUAL LIFE INSURANCE
COMPANY, a Wisconsin corporation, and SGC PARTNERS II, LLC, a Delaware limited
liability company (together with their respective successors and assigns, the
"PURCHASERS").
RECITALS
WHEREAS, pursuant to the Securities Purchase Agreement, the Purchasers have
agreed to purchase from the Company, and the Company has agreed to sell to the
Purchasers, Nineteen Million Dollars ($19,000,000) in aggregate principal amount
of the Notes; and
WHEREAS, the Company and the Purchasers wish to enter into this Agreement
to govern the terms of the Notes.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and the mutual agreements
set forth herein. the parties to this Agreement hereby agree as follows:
1. PAYMENTS
1.1 INTEREST PAYMENTS.
Interest on the Notes shall be computed and paid in the manner and on the
dates provided in the Notes.
1.2 REQUIRED PRINCIPAL PAYMENTS.
The Company shall pay, or cause to be paid, and there shall become due and
payable, Six Million Three Hundred Thirty-Three Thousand Three Hundred
Thirty-Three Dollars ($6,333,333) in principal amount of the Notes on each of
July 13, 2005 and July 13, 2006, and Six Million Three Hundred Thirty-Three
Thousand Three Hundred Thirty-Four Dollars ($6,333,334) in principal amount of
the Notes on July 13, 2007 (each, a "REQUIRED PRINCIPAL PAYMENT"). Each Required
Principal Payment shall be at one hundred percent (100%) of the principal amount
paid, together with interest accrued thereon to the date of payment. The entire
principal of the Notes remaining outstanding on July 13, 2007, together with
interest accrued thereon, shall become due and payable on such date.
1.3 OPTIONAL PRINCIPAL PAYMENTS.
(a) OPTIONAL PRINCIPAL PAYMENTS. The Company may pay a principal
amount of the Notes at any time, in part, in an amount not less than One
Million Dollars ($1,000,000) and integral multiples of One Hundred Thousand
Dollars ($100,000), or in whole, in each case together with interest on
such principal amount then being paid accrued to the payment date, and,
subject to Section 1.3 (d), the Prepayment Compensation Amount determined
with respect to the principal being so paid.
<PAGE>
(b) NOTICE OF OPTIONAL PAYMENT. The Company will give notice of any
optional payment of the Notes pursuant to this Section 1.3 to each holder
of Notes not less than twenty (20) days nor more than sixty (60) days
before the specified payment date, stating:
(i) the specified payment date;
(ii) that such payment is to be made pursuant to this Section
1.3;
(iii) the principal amount of each Note to be paid on such date;
(iv) the interest to be paid on each such Note, accrued to the
specified payment date; and
(v) the Prepayment Compensation Amount due in connection with
such payment or, if the Company claims that no Prepayment Compensation
Amount is then due in respect of such payment by virtue of the
provisions of Section 1.3(d). a statement to such effect, together
with a detailed calculation of the Realizable IRR by the Company,
calculated with respect to the specified payment date.
(c) PREPAYMENT OF NOTES. Notice of payment having been so given, the
aggregate principal amount of the Notes to be paid stated in such notice,
together with interest thereon accrued to the specified payment date and,
subject to Section 1.3(d), with the Prepayment Compensation Amount
determined as of the specified payment date, if any, shall become due and
payable on the specified payment date.
(d) WAIVER OF PREPAYMENT COMPENSATION AMOUNT. Notwithstanding the
foregoing provisions of this Section 1.3, no Prepayment Compensation Amount
shall be payable in connection with any payment of the Notes pursuant to
this Section 1.3 if, and only if, both:
(i) the payment of Notes pursuant to this Section 1.3 is made in
conjunction with a Liquidity Event; and
(ii) the Realizable IRR as of the payment date is equal to or
greater than the Target IRR as of such date.
(e) DETERMINATION OF REALIZABLE IRR. In the event that any holder of
Notes shall disagree with the calculation of the Realizable IRR set forth
by the Company in the notice given pursuant to Section 1.3(b), such holder,
by notice to the Company in writing given at least ten (10) days prior to
the payment date specified in the notice given pursuant to Section 1.3(b),
may demand that the Company obtain a calculation of the Realizable IRR by a
Valuation Agent. In the event that any holder makes such a demand, the
calculation of the Realizable IRR by the Valuation Agent shall be
conclusive in the absence of manifest error.
(f) EFFECT OF PARTIAL PAYMENTS ON REQUIRED PAYMENTS. Each partial
payment of the principal of the Notes made pursuant to this Section 1.3
shall be applied against and reduce ratably each of the then-remaining
Required Principal Payments.
2
<PAGE>
1.4 DELIVERY OF NOTES IN PAYMENT OF WARRANT PURCHASE PRICE.
The Warrant Agreement provides that a holder of Warrants may tender Notes
in partial or complete payment of the purchase price for the Common Stock issued
upon exercise of the Warrants. Promptly following the receipt of any Note so
tendered, the Company shall promptly cancel and retire such surrendered Note
(and no such Note shall be reissued), and shall issue to the holder thereof a
new Note in the principal amount of such tendered Note remaining after deduction
of the principal amount thereof applied to payment of the purchase price for the
Common Stock. For purposes of Rule 144 under the Securities Act, 17 C.F.R.
Section 230.144. the Company and you agree that a tender of Notes in payment of
the exercise price in respect of the Warrants shall not be deemed a prepayment
of the Notes, but rather a conversion of such Notes. pursuant to the terms of
the Warrant Agreement and the Warrants, into Common Stock.
1.5 PAYMENTS AMONG NOTEHOLDERS.
If at the time any payment of the principal of the Notes made pursuant to
Section 1.2 or Section 1.3 is due there is more than one Note outstanding, the
aggregate principal amount of each such required or optional partial payment of
the Notes shall be allocated among the Notes at the time outstanding pro rata in
proportion to the respective unpaid principal amounts of all such outstanding
Notes.
1.6 OFFER TO PAY UPON CHANGE IN CONTROL.
(a) NOTICE OF CHANGE IN CONTROL NOTICE EVENT. In the event of the
obtaining of knowledge of a Change in Control Notice Event by any Senior
Officer (including, without limitation, via the receipt of notice of a
Change in Control Notice Event from any holder of Notes), the Company will,
within three (3) Business Days after the occurrence of such event, give
notice of such Change in Control Notice Event to each holder of 'Notes.
Each such notice shall:
(i) be dated the date of the sending of such notice;
(ii) be executed by a Senior Officer:
(iii) refer to this Section 1.6; and
(iv) specify, in reasonable detail, the nature and date of the
Change in Control Notice Event.
(b) OFFER IN RESPECT OF A CHANGE IN CONTROL. In the event of a Change
in Control, the Company will, within three (3) Business Days after the
occurrence of such event (or, in the case of any Change in Control the
consummation or finalization of which would involve any action of the
Company, at least thirty (30) days prior to such Change in Control), give
notice of such Change in Control to each holder of Notes. Such notice shall
contain an irrevocable separate offer to each holder of Notes to pay all,
but not less than all, of the principal of, and interest on the Notes held
by such holder on a date (the "CHANGE IN CONTROL PAYMENT DATE") specified
in such notice that is not less than twenty (20) days and not more than
thirty (30) days after the date of such notice. Each such notice shall:
(i) be dated the date of the sending of such notice;
(ii) be executed by a Senior Officer;
3
<PAGE>
(iii) specify, in reasonable detail, the nature and date of the
Change in Control;
(iv) specify the Change in Control Payment Date;
(v) specify the principal amount of each Note outstanding;
(vi) specify the interest that would be due on each Note offered
to be paid, accrued to the Change in Control Payment Date;
(vii) specify the calculation of the Prepayment Compensation
Amount, if any, due in connection with such payment or, if the Company
claims that no Prepayment Compensation Amount is then due in respect
of such payment by virtue of the provisions of Section 1.6(e), a
statement to such effect, together with a detailed calculation of the
Realized IRR by the Company, calculated with respect to the Change in
Control Payment Date; and
(viii) certify that the conditions of this Section 1.6 have been
fulfilled.
If the Company shall not have received a written response to such notice from
any holder of Notes within ten days after the date of posting of such notice to
such holder of Notes, then the Company shall immediately send a second notice to
each such holder of Notes.
(c) ACCEPTANCE, REJECTION. To accept such offered prepayment, a holder
of Notes shall cause a notice of such acceptance to be delivered to the
Company not later than thirty (30) days after the date of receipt by such
holder of the written offer of such prepayment (it being understood that
the failure by a holder to respond to such written offer of prepayment
within such period of thirty (30) days or the delivery of a written notice
of rejection of such offer within such period shall be deemed to constitute
a rejection of such offer). If so accepted, such offered prepayment shall
be due and payable on the Change in Control Payment Date. Such offered
prepayment shall be made at 100% of the principal amount of such Notes as
of the Change in Control Payment Date, together with interest thereon
accrued to the Change in Control Payment Date and, subject to Section
1.6(e), the Prepayment Compensation Amount, if any.
(d) DEFERRAL OF OBLIGATION TO PURCHASE. The obligation of the Company
to purchase Notes pursuant to the offers required by Section 1.6(b) and
accepted in accordance with Section 1.6(c) is subject to the occurrence of
the Change in Control in respect of which such offers and acceptances shall
have been made. In the event that such Change in Control does not occur
prior to the Change in Control Payment Date in respect thereof, such
purchase shall be deferred until and shall be made on the date on which
such Change in Control occurs or, if the Company determines that efforts to
effect such Change in Control have ceased or have been abandoned, then such
offer, acceptances and obligation to purchase shall be deemed to have been
rescinded. The Company shall keep each holder of Notes reasonably and
timely informed of:
(i) any such deferral of the date of purchase;
(ii) the date on which such Change in Control and the purchase
are expected to occur; and
(iii) any determination by the Company that efforts to effect
such Change in Control have ceased or been abandoned.
4
<PAGE>
(e) CIRCUMSTANCES PERMITTING REPURCHASE OF NOTES AT PAR UPON A CHANGE
IN CONTROL. In the event that:
(i) the Change in Control giving rise to the rights of the
holders of the Notes under this Section 1.6 shall offer the holders of
Notes the right to sell (entirely for cash), contemporaneously with
such Change in Control, both:
(A) all Purchaser Shares outstanding; and
(B) all Purchaser Shares issuable upon the exercise of the
Warrants at such time; and
(ii) the Realized IRR in connection with such Change in Control
is equal to or greater than the Target IRR in effect on the Change in
Control Prepayment Date;
the Company shall offer to repurchase the Notes as otherwise provided in this
Section 1.6, except that the Company shall not be required to pay the Prepayment
Compensation Amount, if any, that would otherwise be payable in respect of such
repurchase of Notes pursuant to this Section 1.6.
(f) DETERMINATION OF REALIZED IRR. In the event that any holder of
Notes shall disagree with the calculation of the Realized IRR set forth by
the Company in the notice given pursuant to Section 1.6(b), such holder, by
notice to the Company in writing given at least ten (10) days prior to the
payment date specified in the notice given pursuant to Section 1.6(b), may
demand that the Company obtain a calculation of the Realized IRR by a
Valuation Agent. In the event that any holder makes such a demand, the
calculation of the Realized IRR by the Valuation Agent shall be conclusive
in the absence of manifest error.
(g) EFFECT OF PARTIAL REPURCHASES ON REQUIRED PAYMENT. At the time of
the making of any partial repurchase of Notes pursuant to this Section 1.6,
an amount equal to the principal amount of the Notes so repurchased shall
be applied against and reduce each of the then remaining Required Principal
Payments by a percentage equal to the quotient of:
(i) the aggregate principal amount of the Notes so paid; divided
by
(ii) the aggregate principal amount of the Notes outstanding
immediately prior to such payment.
1.7 NO OTHER PAYMENTS OF PRINCIPAL; ACQUISITION OF NOTES.
Except for payments of principal made in accordance with this Section 1,
the Company may not make any payment of principal in respect of the Notes. The
Company will not, and will not permit any Subsidiary or any Affiliate to,
directly or indirectly, acquire or make any offer to acquire any Notes.
5
<PAGE>
1.8 NOTATION OF NOTES ON PAYMENT.
Upon any partial payment of a Note, the holder of such Note may (but shall
not be required to), at its option:
(a) surrender such Note to the Company pursuant to Section 2.2 in
exchange for a new Note in a principal amount equal to the principal amount
remaining unpaid on the surrendered Note;
(b) make such Note available to the Company for notation thereon of
the portion of the principal so paid; or
(c) mark such Note with a notation thereon of the portion of the
principal so paid.
In case the entire principal amount of any Note is paid, then promptly following
the written request of the Company, such Note shall be surrendered to the
Company for cancelation and shall not be reissued, and no Note shall be issued
in lieu of the paid principal amount of any Note.
1.9 MANNER OF PAYMENTS.
(a) MANNER OF PAYMENT. The Company shall pay or cause to be paid all
amounts payable with respect to each Note (without any presentment of such
Notes and without any notation of such payment being made thereon) by
crediting, by federal funds bank wire transfer, the account of the holder
thereof in any bank in the United States of America as may be designated in
writing by such holder, or in such other manner as may be reasonably
directed or to such other address in the United States of America as may be
reasonably designated in writing by such holder. Annex I shall be deemed to
constitute notice, direction or designation (as appropriate) by each
Purchaser to the Company with respect to payments to be made to such
Purchaser as aforesaid. In the absence of such written direction, all
amounts payable with respect to each Note shall be paid by check mailed and
addressed to the registered holder of such Note at the address shown in the
register maintained by the Company pursuant to Section 2. 1.
(b) PAYMENTS DUE ON HOLIDAYS. If any payment due on, or with respect
to, any Note shall fall due on a day other than a Business Day, then such
payment shall be made on the first Business Day following the day on which
such payment shall have so fallen due; PROVIDED that if all or any portion
of such payment shall consist of a payment of interest, for purposes of
calculating such interest, such payment shall be deemed to have been
originally due on such first following Business Day, such interest shall
accrue and be payable to (but not including) the actual date of payment,
and the amount of the next succeeding interest payment shall be adjusted
accordingly.
(c) PAYMENTS, WHEN RECEIVED. Any payment to be made to the holders of
Notes hereunder or under the Notes shall be deemed to have been made on the
Business Day such payment actually becomes available at such holder's bank
prior to the close of business of such bank, PROVIDED that interest for one
day at the non-default interest rate of the Notes shall be due on the
amount of any such payment that actually becomes available to such holder
at such holder's bank after 12:00 noon (local time of such bank).
6
<PAGE>
2. REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES
2.1 REGISTRATION OF NOTES.
The Company will keep at its office, maintained pursuant to Section 3.3, a
register for the registration and transfer of Notes. The name and address of
each holder of one or more Notes, each transfer thereof made in accordance with
Section 2.2 and the name and address of each transferee of one or more Notes
shall be registered in such register. The Person in whose name any Note shall be
registered shall be deemed and treated as the owner and holder thereof for all
purposes hereof, and the Company shall not be affected by any notice or
knowledge to the contrary, other than in accordance with Section 2.2.
2.2 EXCHANGE OF NOTES.
(a) EXCHANGE OF NOTES. Upon surrender of any Note at the office of the
Company maintained pursuant to Section 3.3, duly endorsed or accompanied by
a written instrument of transfer duly executed by the registered holder of
such Note or such holder's attorney duly authorized in writing, the Company
will execute and deliver, at the Company's expense (except as provided in
Section 2.2(b)), a new Note or Notes in exchange therefor, in an aggregate
principal amount equal to the unpaid principal amount of the surrendered
Note. Each such new Note shall be registered in the name of such Person as
such holder may request and shall be substantially in the form of
Attachment A. Each such new Note shall be dated and bear interest from the
date to which interest shall have been paid on the surrendered Note or
dated the date of the surrendered Note if no interest shall have been paid
thereon. Each such new Note shall carry the same rights to unpaid interest
and interest to accrue that were carried by the Note so exchanged or
transferred. Notes shall not be transferred in denominations of less than
One Million Dollars ($1,000,000), provided that a holder of Notes may
transfer its entire holding of Notes regardless of the principal amount of
such holder's Notes.
(b) COSTS. The Company will pay the cost of delivering to or from such
holder's home office or custodian bank from or to the Company, insured to
the reasonable satisfaction of such holder, the surrendered Note and any
Note issued in substitution or replacement for the surrendered Note. The
Company may require payment of a sum sufficient to cover any stamp tax or
governmental charge imposed in respect of any such transfer or Note.
2.3 REPLACEMENT OF NOTES.
Upon receipt of the Company from the registered holder of a Note of
evidence reasonably satisfactory to the Company of the loss, theft, destruction
or mutilation of any Note (which evidence shall be, in the case of an
institutional investor, notice from such institutional investor of such loss,
theft, destruction or mutilation), and:
(a) in the case of loss, theft or destruction, of indemnity reasonably
satisfactory to the Company; PROVIDED, HOWEVER, that if the holder of such
Note is a Purchaser, an institutional investor or a nominee of either, the
unsecured agreement of indemnity of such Purchaser or such institutional
investor (but not of any nominee therefor) shall be deemed to be
satisfactory; or
(b) in the case of mutilation, upon surrender and cancelation thereof;
7
<PAGE>
the Company at its own expense will execute and, within ten (10) Business Days
after such receipt, deliver, in lieu thereof, a replacement Note, dated and
bearing interest from the date to which interest shall have been paid on such
lost, stolen, destroyed or mutilated Note or dated the date of such lost,
stolen, destroyed or mutilated Note if no interest shall have been paid thereon.
2.4 ISSUANCE TAXES.
The Company will pay all taxes, if any, due (including, without limitation,
any stamp, documentary or similar taxes, but not, in any event, income,
corporate, franchise or branch profits taxes) in connection with and as the
result of the initial issuance and sale of the Notes or the execution and
delivery of any other Financing Document and in connection with any
modification, waiver or amendment of any Financing Document and shall save each
holder of Notes harmless without limitation as to time against any and all
liabilities with respect to all such taxes. The obligations of the Company under
this Section 2.4 shall survive the payment or prepayment of the Notes and the
termination hereof.
3. GENERAL COVENANTS
The Company covenants that on and after the Closing Date and so long as any
of the Notes shall be outstanding:
3.1 PAYMENT OF TAXES AND CLAIMS.
The Company will, and will cause each Subsidiary to, pay before they become
delinquent:
(a) all taxes, assessments and governmental charges or levies imposed
upon it or its Property; and
(b) all claims or demands of materialmen, mechanics, carriers,
warehousemen, vendors, landlords and other like Persons that, if unpaid,
might result in the creation of a statutory, regulatory or common law Lien
upon its Property;
PROVIDED, that items of the foregoing description need not be paid so long as
such items are being actively contested in good faith and by appropriate
proceedings, reasonable book reserves in accordance with GAAP have been
established and maintained with respect thereto, or such items, in the
aggregate, could not reasonably be expected to have a Material Adverse Effect.
3.2 MAINTENANCE OF PROPERTIES; CORPORATE EXISTENCE; ETC.
The Company will, and will cause each Subsidiary to:
(a) PROPERTY - maintain its Property in good condition, ordinary wear
and tear and obsolescence excepted, and make all necessary renewals,
replacements, additions, betterments and improvements thereto; PROVIDED,
HOWEVER, that this Section 3.2 shall not prevent the Company or any
Subsidiary from discontinuing the operation and the maintenance of any of
its Properties if such discontinuance is desirable in the conduct of its
business and such discontinuance could not reasonably be expected to have a
Material Adverse Effect:
(b) INSURANCE - maintain, with financially sound and reputable
insurers, insurance with respect to its Property and business against such
casualties and contingencies, of such types and in
8
<PAGE>
such amounts as is customary in the case of corporations of established
reputations engaged in the same or a similar business and similarly
situated;
(c) FINANCIAL RECORDS - keep proper books of record and account, in
which entries shall be made which fairly present all dealings and
transactions of or in relation to the Properties and business thereof, and
which will permit the production of financial statements in accordance with
GAAP;
(d) CORPORATE EXISTENCE AND RIGHTS - do or cause to be done all things
necessary to preserve and keep in full force and effect its corporate
existence, corporate rights (charter and statutory) and corporate
franchises except as permitted by Section 4.6;
(e) ENVIRONMENTAL PROTECTION LAWS - at all times comply in all
material respects with all applicable Environmental Protection Laws and
promptly take any and all necessary remedial actions in response to the
presence, storage, use, disposal, transportation or Release of any
Hazardous Materials on, under or about any real Property owned, or, to the
extent permitted by the Property owner, leased or operated by the Company
or any of its Subsidiaries, and, in the event that the Company or any
Subsidiary undertakes any remedial action with respect to any Hazardous
Material on, under or about any real Property, the Company or such
Subsidiary shall conduct and complete such remedial action in compliance in
all material respects with all applicable Environmental Protection Laws and
in accordance with the policies, orders and directives of all federal,
state and local Governmental Authorities, except when the Company's or such
Subsidiary's liability for such presence, storage, use, disposal,
transportation or Release of any Hazardous Material is being contested in
good faith by the Company or such Subsidiary and appropriate reserves
therefor have been established; and
(f) COMPLIANCE WITH LAW - comply with all other laws, ordinances and
governmental rules and regulations to which it is subject and obtain all
licenses, certificates, permits, franchises and other governmental
authorizations necessary to the ownership of its Properties and the conduct
of its business except for such violations and failures to obtain that, in
the aggregate, could not reasonably be expected to have a Material Adverse
Effect.
3.3 PAYMENT OF NOTES AND MAINTENANCE OF OFFICE.
The Company will punctually pay, or cause to be paid, the principal of and
interest (and Prepayment Compensation Amount, if any) on, the Notes, as and when
the same shall become due according to the terms hereof and of the Notes, and
will maintain an office at the address of the Company as provided in Section 9.1
where notices, presentations and demands in respect hereof or the Notes may be
made upon it. Such office will be maintained at such address until such time as
the Company notifies the holders of the Notes of any change of location of such
office, which will in any event be located within the United States of America.
3.4 PENSION PLANS.
(a) COMPLIANCE. The Company will, and will cause each ERISA Affiliate
to, at all times with respect to each Plan, comply with all applicable
provisions of ERISA and the IRC, except for such failures to comply that,
in the aggregate, could not reasonably be expected to have a Material
Adverse Effect.
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(b) PROHIBITED ACTIONS. The Company will not, and will not permit any
ERISA Affiliate to:
(i) engage in any "prohibited transaction" (as such term is
defined in section 406 of ERISA or section 4975 of the IRC) or permit
to occur or exist any "reportable event" (as such term is defined in
section 4043 of ERISA) that could result in the imposition of a tax or
penalty;
(ii) incur with respect to any Plan any "accumulated funding
deficiency" (as such term is defined in section 302 of ERISA), whether
or not waived;
(iii) terminate any Plan in a manner that could result in the
imposition of a Lien on the Property of the Company or any Subsidiary
pursuant to section 4068 of ERISA or the creation of any liability
under section 4062 of ERISA;
(iv) fail to make any payment required by section 515 of ERISA;
(v) incur any withdrawal liability under Title IV of ERISA with
respect to any Multiemployer Plan or any liability as a result of the
termination of any Multiemployer Plan; or
(vi) incur any liability or permit the existence of any Lien on
the Property of the Company or any ERISA Affiliate, in either case
pursuant to Title I or Title IV of ERISA or pursuant to the penalty or
excise tax or security provisions of the IRC;
if the aggregate amount of the taxes, penalties, funding deficiencies,
interest, amounts secured by Liens, and other liabilities in respect of any
of the foregoing at any time could reasonably be expected to have a
Material Adverse Effect.
(c) FOREIGN PENSION PLANS. The Company will, and will cause each
Subsidiary to, at all times, comply in all material respects with all laws,
regulations and orders applicable to the establishment, operation,
administration and maintenance of any Foreign Pension Plans, and pay when
due all premiums, contributions and any other amounts required by
applicable Foreign Pension Plan documents or applicable laws, except where
the failure to comply with such laws, regulations and orders, and to make
such payments, in the aggregate for all such failures, could not reasonably
be expected to have a Material Adverse Effect.
3.5 PRIVATE OFFERING.
The Company will not, and will not permit any Person acting on its behalf
to, offer the Notes or any part thereof or any similar securities for issue or
sale to, or solicit any offer to acquire any of the same from, any Person so as
to bring the issuance and sale of the Notes within the provisions of section 5
of the Securities Act.
3.6 AFFILIATE GUARANTY.
The Company will cause each Subsidiary (other than an Excluded Foreign
Subsidiary) which at any time Incurs any Debt (including, without limitation,
any Guaranty of any Senior Debt) to become a Guarantor in respect of the
Affiliate Guaranty by executing and delivering to each holder of Notes a Joinder
Agreement
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in the form attached to the Affiliate Guaranty. Each such Joinder Agreement
shall be accompanied by copies of the constitutive documents of such Subsidiary
and corporate resolutions (or equivalent) authorizing such transaction, in each
case certified as true and correct by an appropriate officer of such Subsidiary.
3.7 YEAR 2000 COMPLIANCE.
The Company and the Subsidiaries' internal computing systems, and, to the
extent the Company and the Subsidiaries would be materially and adversely
affected thereby, those of its customers and suppliers, will be Year 2000
Compliant in a timely manner, and the advent of the year 2000 and its impact on
such computer systems shall not have a Material Adverse Effect.
3.8 CONSUMMATION OF MERGER.
Within one (1) Business Day following the Closing Date, the Company will
(a) consummate the merger transaction as contemplated by the Merger Documents
and (b) deliver or cause to be delivered to the Purchasers copies of the Merger
Documents.
4. FINANCIAL COVENANTS
4.1 INCURRENCE OF DEBT.
The Company will not, and will not permit any Subsidiary to, at any time
directly or indirectly Incur any Debt, except:
(a) THE NOTES - Debt evidenced by the Notes and the Affiliate
Guaranty;
(b) SENIOR DEBT - Senior Debt of the Company; and, subject to
compliance with Section 3.6, Guarantees thereof by Subsidiaries;
(c) PURCHASE MONEY DEBT AND ASSUMED DEBT - any Debt, secured by any
Lien permitted to be created and incurred pursuant to the provisions of
Section 4.5(a)(iv) or Section 4.5(a)(v); and any Debt renewing, extending
or refunding any such Debt permitted by this Section 4.1(c), so long as:
(i) the principal amount of such Debt immediately prior to such
extension, renewal or refunding is not increased or the maturity
thereof reduced;
(ii) such Debt is not incurred in connection with the purchase or
acquisition of any other Property;
(iii) no Lien securing any such Debt would extend to any other
Property of the Company or any Subsidiary; and
(iv) immediately prior to the incurrence of, and after giving
effect to the incurrence of, all such Debt, no Default or Event of
Default exists or would exist;
(d) PARI PASSU DEBT - other Debt of the Company ranking PARI PASSU
with the Notes; PROVIDED, HOWEVER, that the aggregate amount of such Debt
outstanding at any time shall not exceed One Million Dollars ($1,000,000);
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(e) INTER-COMPANY DEBT - Debt of the Company to any other Obligor and
of any Obligor to the Company or any other Obligor; and
(f) INTER-COMPANY GUARANTIES - guaranties by any Obligor of the Debt
of any other Obligor;
(g) ADDITIONAL DEBT - other Debt of the Company not otherwise
permitted by any of Section 4. 1 (a) through Section 4. 19(f) above,
inclusive; PROVIDED, HOWEVER, that immediately after giving effect thereto:
(i) the ratio of Consolidated EBITDA for the period of four (4)
full consecutive fiscal quarters most recently ended as of the date of
the Incurrence of such Debt to Pro Forma Interest Expense for such
period shall not be less than 2.0 to 1.0;
(ii) before and immediately after giving effect to the Incurrence
of such Debt, no Default or Event of Default does or would exist; and
(iii) the aggregate principal amount of Debt (other than
Subordinated Debt) permitted by virtue of this Section 4. 1 (g) shall
not at any time exceed Seven Million Dollars ($7,000,000).
4.2 INTEREST COVERAGE RATIO.
The Company will not, at any time, permit the Interest Coverage Ratio for
the period of four (4) full consecutive fiscal quarters of the Company most
recently ended at such time to be less than 1.5 to 1.0.
4.3 CONSOLIDATED TOTAL DEBT.
The Company will not permit the ratio, expressed as a percentage, of:
(a) Consolidated Total Debt, as of the last day of the fiscal quarter
then most recently ended; to
(b) Consolidated EBITDA for the period of four (4) full consecutive
fiscal quarters then most recently ended;
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to exceed at any time the percentage set forth in the chart below for such time:
<TABLE>
<CAPTION>
====================================== +===================================
IF THE DATE OF DETERMINATION FALLS MAXIMUM RATIO OF CONSOLIDATED TOTAL
DURING THE PERIOD SET FORTH BELOW: DEBT TO CONSOLIDATED EBITDA:
---------------------------------- ----------------------------
<S> <C>
Closing Date to 600%
March 31, 2000, inclusive
April 1, 2000 to 525%
March 31, 2000, inclusive
April 1, 2001 to 475%
March 31, 2002, inclusive
April 1, 2002 and 400%
thereafter
====================================== ====================================
</TABLE>
4.4 RESTRICTED PAYMENTS.
(a) BEFORE THE INITIAL PUBLIC OFFERING DATE. Prior to the Initial
Public Offering Date, the Company will not, and will not permit any
Subsidiary to, declare or make, or incur any liability to declare or make,
any Restricted Payments except:
(i) payments made to officers, employees and consultants of the
Company who, in each case, are not Affiliates of the Company, to
repurchase Capital Stock of the Company and Equity Equivalents of the
Company held by such Persons in the cessation of the employment or
consultation of such Person (by death, disability or otherwise),
PROVIDED, HOWEVER, that the aggregate amount of any such payments in
respect of such redemptions shall not in the aggregate exceed One
Million Dollars ($1,000,000);
(ii) payments made to any Person (including, without limitation,
payments exceeding One Million Dollars ($1,000,000) in the aggregate
which would otherwise be permitted pursuant to Section 4.4(a)(1)) to
repurchase Capital Stock of the Company and Equity Equivalents of the
Company held by such Person, but solely to the extent that such
payment is made from the net proceeds from the substantially
contemporaneous sale of additional Capital Stock or Equity Equivalents
of the Company to other Persons; and
(iii) Permitted Management Fee Payments;
in each case, so long as, at the time of the making of such Restricted
Payment, no Default or Event of Default shall be continuing.
(b) ON OR AFTER THE INITIAL PUBLIC OFFERING DATE - on or after the
Initial Public Offering Date, the Company will not, and will not permit any
Subsidiary to, declare or make, or incur any liability to declare or make,
any Restricted Pavments if:
(i) at the time of the making of such Restricted Payment, or
immediately after giving effect thereto, any Default or Event of
Default shall be continuing; or
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(ii) immediately after giving effect to the making of such
Restricted Payment, the aggregate amount of all Restricted Payments
made during the period from, and including, the Initial Public
Offering Date and to, and including, the date of making such
Restricted Payment shall exceed fifty percent (50%) of Consolidated
Net Income for the period commencing on the Initial Public Offering
Date and ending on the last day of the full fiscal quarter ended
immediately prior to the date of the making of such Restricted
Payment.
(c) TIME OF PAYMENT. The Company will not, and will not permit any
Subsidiary to, authorize or declare any Restricted Payment which is not
payable within sixty (60) days of its authorization or declaration.
4.5 LIENS.
(a) NEGATIVE PLEDGE. The Company will not, and will not permit any
Subsidiary to, cause or permit, or agree or consent to cause or permit in
the future (upon the happening of a contingency or otherwise), any of their
Property, whether now owned or hereafter acquired, at any time to be
subject to a Lien except:
(i) ORDINARY COURSE BUSINESS LIENS -
(A) PERFORMANCE BONDS - Liens incurred or deposits made in
the ordinary course of business:
(I) in connection with workers' compensation,
unemployment insurance, social security and other like laws;
and
(II) to secure the performance of letters of credit,
bids, tenders, sales contracts, leases, statutory
obligations, surety and performance bonds (of a type other
than set forth in Section 4.5(a)(ii)) and other similar
obligations not incurred in connection with the borrowing of
money, the obtaining of advances or the payment of the
deferred purchase price of Property;
(B) REAL ESTATE - Liens in the nature of reservations,
exceptions, encroachments, casements, rights-of-way, covenants,
conditions, restrictions, leases and other similar title
exceptions or encumbrances affecting real property, PROVIDED,
HOWEVER, that such exceptions and encumbrances do not in the
aggregate materially detract from the value of said Properties or
materially interfere with the use of such Properties in the
ordinary conduct of the business of the Company and the
Subsidiaries; and
(C) TAXES, ETC. -- Liens securing taxes, assessments or
governmental charges or levies or the claims or demands of
materialmen, mechanics, carriers, warehousemen, vendors,
landlords and other like Persons; PROVIDED, HOWEVER, that the
payment thereof is not required by Section 3.1;
(ii) JUDICIAL LIENS -- Liens arising from Judicial attachments
and judgments, securing appeal bonds or supersedeas bonds, and arising
in connection with court proceedings (including, without limitation,
surety bonds and letters of credit or any other
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<PAGE>
instrument serving a similar purpose); PROVIDED, HOWEVER, that the
execution or other enforcement of such Liens is effectively stayed,
that the claims secured thereby are being contested in good faith and
by appropriate proceedings, that adequate reserves have been made
against such claims and that the aggregate amount so secured will not
at any time exceed One Million Dollars ($1,000,000);
(iii) INTERGROUP LIENS -- Liens on Property of a Subsidiary;
PROVIDED, HOWEVER, that such Liens secure only obligations owing to
the Company or a Wholly-Owned Subsidiary;
(iv) PURCHASE MONEY LIENS -- any Lien on Property acquired or
owned by the Company or any Subsidiary, or leased by the Company or
any Subsidiary, as lessee under any Capital Lease, which secures Debt
(including Debt in respect of a Capital Lease) incurred to pay all or
a portion of the related purchase price or costs of construction,
extension or improvement of such Property, so long as:
(A) such purchase price or costs of construction, extension
or improvement shall not exceed the Fair Market Value of such
Property, extension or improvement, as the case may be,
determined at the time of the creation of such Lien;
(B) such Lien is created contemporaneously with, or within
one hundred eighty (180) days of, such acquisition, construction,
extension or improvement;
(C) such Lien encumbers only Property so purchased,
acquired, constructed, extended or improved after the Closing
Date;
(D) such Lien is not, after the creation thereof, extended
to any other Property; and
(E) immediately prior to the incurrence of, and after giving
effect to the incurrence of, all Debt secured by the Liens
referred to in this Section 4.5(a)(iv), no Default or Event of
Default exists or would exist;
(v) ACQUISITION LIENS -- any Lien (including, without limitation,
any Lien arising out of a Capital Lease) existing on Property at the
time of acquisition thereof by the Company or any Subsidiary (whether
or not the Debt secured thereby is assumed by the Company or any
Subsidiary), or existing on the Property of, the Debt of or the
Capital Stock of any Person at the time such Person became a
Subsidiary (whether by means of the acquisition of all or
substantially all of the Property of such Person, or the Capital Stock
thereof or otherwise) or merges or consolidates with the Company or
any Subsidiary, so long as:
(A) the aggregate principal amount of Debt secured thereby
does not exceed the acquisition cost of such Property, the
consideration paid for the acquisition of such Person or the
consideration paid in connection with such merger or
consolidation, as the case may be, as determined at the date of
the acquisition, merger or consolidation;
(B) such Lien shall not extend to or cover any Property
other than the Property subject to such Lien at the time of any
such acquisition; and
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(C) immediately after, and after giving effect to, such
acquisition, merger or consolidation, and the assumption of all
such Liens, no Default or Event of Default exists or would exist;
(vi) SENIOR DEBT LIENS -- Liens securing Senior Debt; and
(vii) OTHER LIENS -- Liens not otherwise permitted under clauses
(i) through (vi) above, inclusive, not exceeding, as to the Company
and its Subsidiaries taken together, Five Hundred Thousand Dollars
($500,000) in aggregate amount at any time outstanding.
(b) EQUAL AND RATABLE LIEN; EQUITABLE LIEN. In case any Property shall
be subjected to a Lien in violation of Section 4.5(a), the Company will
forthwith make or cause to be made, to the fullest extent permitted by
applicable law, provision whereby the Notes will be secured equally and
ratably as to such Property with all other obligations secured thereby
pursuant to such agreements and instruments as shall be approved by the
Required Holders, and the Company will promptly cause to be delivered to
each holder of a Note an opinion of independent counsel satisfactory to the
Required Holders to the effect that such agreements and instruments are
enforceable in accordance with their term, and in any event the Notes shall
have the benefit, to the full extent that, and with such priority as, the
holders of Notes may be entitled under applicable law, of an equitable Lien
on such Property (and any proceeds thereof) securing the Notes. Such
violation of Section 4.5(a) will constitute an Event of Default hereunder,
whether or not any such provision is made or any equitable Lien is created
pursuant to this Section 4.5(b).
(c) CONSTRUCTION. Nothing in this Section 4.5 shall be construed to
permit the incurrence or existence of any Debt not othenvise permitted by
this Agreement. Nothing in this Agreement that permits the incurrence or
existence of any Debt shall be construed to permit the incurrence or
existence of a Lien securing such Debt unless such Lien is permitted by
Section 4.5(a).
4.6 MERGERS AND CONSOLIDATIONS.
The Company will not merge into, consolidate with, or Transfer all or
substantially all of its Property to, any other Person or permit any other
Person to consolidate with or merge into it; PROVIDED, HOWEVER, that the
foregoing restriction does not apply to the merger or consolidation of the
Company with, or the Transfer by the Company of all or substantially all of its
Property to, another corporation, so long as:
(a) the Person (the "SUCCESSOR CORPORATION") that results from such
merger or consolidation or that purchases, leases, or acquires all or
substantially all of such Property is a corporation duly incorporated under
the laws of the United States of America or a jurisdiction thereof;
(b) if the Company is not the Successor Corporation;
(i) the Successor Corporation shall expressly assume in writing,
pursuant to such agreements and instruments as shall be reasonably
satisfactory to the Required Holders, the due and punctual payment of
the principal of and Prepayment Compensation Amount, if any, and
interest on all of the Notes, according to their tenor, and the due
and punctual performance and observance of all the covenants in the
Notes, this Agreement and the other Financing Documents to be
performed or observed by the Company; and
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<PAGE>
(ii) the Successor Corporation shall cause to be delivered to
each holder of Notes an opinion of independent counsel reasonably
satisfactory to the Required Holders to the effect that such
agreements and instruments are enforceable in accordance with their
terms and the terms hereof; and
(c) immediately before and immediately after and after giving effect
to such transaction, no Default or Event of Default exists or would exist.
4.7 DISPOSITION OF ASSETS; SUBSIDIARY STOCK.
(a) DISPOSITION OF ASSETS. The Company will not, and will not permit
any Subsidiary to Transfer any Property except:
(i) Transfers of inventory and of current assets in the ordinary
course of business of the Company or such Subsidiary;
(ii) Transfers of other Property no longer necessary for the
operation of, and that individually and in the aggregate are not
material to, the business of the Company and the Subsidiaries, in the
ordinary course of business of the Company or such Subsidiary;
(iii) Transfers from the Company to a Wholly-Owned Subsidiary or
any other Subsidiary that is an Obligor;
(iv) Transfers from a Subsidiary to the Company or a Wholly-Owned
Subsidiary or any other Subsidiary that is an Obligor;
(v) Transfers of Property necessary to give effect to merger or
consolidation transactions permitted by Section 4.6;
(vi) the sale or discount without recourse of accounts receivable
or notes receivable arising in the ordinary course of business, or the
conversion or exchange of accounts receivable into or for notes
receivable in connection with the compromise or collection thereof;
(vii) the license of intellectual property in the ordinary course
of business;
(viii) leases or subleases not materially interfering with the
ordinany course of conduct of the business of the Company and its
Subsidiaries;
(ix) Transfers of Property during any fiscal year, so long as the
aggregate Fair Market Value or book value, whichever is greater, of
all such Property is less than $500,000.
(x) any other Transfer of Property; PROVIDED (l) that any such
Transfer for more than $200,000 shall be for consideration at least
50% of which consists of Acceptable Consideration and (2) the proceeds
of such transfer which are in the form of Acceptable Consideration,
net of reasonable and ordinary transaction costs (including, without
limitation, attorneys' fees, accountants' fees, investment banking
fees, survey costs, title insurance premiums, and related search and
recording charges, transfer taxes, deed or mortgage recording taxes,
amounts required to be applied to the repayment of Debt secured by a
Lien
17
<PAGE>
on any asset which is the subject of such Transfer), taxes paid or
reasonably estimated by the Company to be payable as a result thereof
(including withholding taxes) and appropriate amounts to be provided
by the Company or any Subsidiary, as the case may be, as a reserve
required in accordance with GAAP against any liabilities associated
with such Transfer and retained by the Company or any Subsidiary as
the case may be, after such Transfer, are, within three hundred and
sixty (360) days after such transfer, applied by the Company or any
such Subsidiary either:
(A) to purchase productive tangible Property, similar in
nature to that of the Property so Transferred, for use in the
conduct of the business of the Company and the Subsidiaries;
(B) to the repayment or prepayment of a principal amount of
Senior Debt (including, without limitation, payments in respect
of a Revolving Credit Facility, resulting in a permanent
reduction of the availability or commitments thereunder), but not
including payments in respect of a Revolving Credit Facility
which do not result in a permanent reduction of the availability
or commitments thereunder; or
(C) to a prepayment of the principal amount of the Notes in
accordance with Section 1.3;
and, in each such case, immediately before and after the consummation
of the Transfer, and after giving effect thereto, no Default or Event
of Default would exist.
(b) DISPOSITION OF SUBSIDIARY STOCK. The Company will not, and will
not permit any Subsidiary to, sell or otherwise dispose of any shares of
the Capital Stock or Equity Equivalents of a Subsidiary (such stock and
Equity Equivalents herein called "SUBSIDIARY STOCK"), nor will any
Subsidiary issue, sell or otherw ise dispose of any shares of, or Equity
Equivalents to purchase shares of its own Subsidiary Stock; PROVIDED,
HOWEVER, that the foregoing restrictions do not apply to:
(i) Transfers by the Company or a Subsidiary of shares of
Subsidiary Stock to the Company or a Wholly-Owned Subsidiary or any
Subsidiary that is an Obligor;
(ii) the issuance by a Subsidiary of shares of its own Subsidiary
Stock to the Company or a Wholly-Owned Subsidiary or any Subsidiary,
that is an Obligor;
(iii) the issuance by a Subsidiary of director's qualifying
shares of its own Subsidiary Stock, PROVIDED, HOWEVER, that at no time
shall the total number of shares of such Subsidiary Stock issued to or
held by such directors as a group (including shares underlying Equity
Equivalents) exceed five percent (5%) of the total number of shares of
such Subsidiary Stock outstanding following any such issuance; and
(iv) the Transfer of all (but not less than all) of the
Subsidiary Stock of a Subsidiary owned by the Company and its other
Subsidiaries if:
(A) such Transfer satisfies the requirements of Section
4.7(a)(v);
(B) in connection with such Transfer, the entire Investment
(whether represented by stock, Debt, claims or otherwise) of the
Company and its other
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Subsidiaries in such Subsidiary is Transferred to a Person other
than the Company or a Subsidiary not being simultaneously
disposed of; and
(C) the Subsidiary being disposed of has no continuing
Investment in any other Subsidiary not being simultaneously
disposed of or in the Company.
For purposes of determining the book value of assets constituting
Subsidiary Stock being Transferred as provided in this Section 4.7(b)(iv),
such book value shall be deemed to be the aggregate book value of the net
assets of the Subsidiary that shall have issued such Subsidiary Stock.
(c) SUBSIDIARY MERGERS AND CONSOLIDATIONS. A merger or consolidation
of a Subsidiary in which a Person other than the Company, a Wholly-Owned
Subsidiary or any other Subsidiary, that is an Obligor shall be the
Surviving Corporation shall be deemed to be a disposition of the Subsidiary
Stock of such Subsidiary and shall be permitted only in compliance with
Section 4.7(b).
4.8 TRANSACTIONS WITH AFFILIATES.
The Company will not, and will not permit any Subsidiary to, enter into
directly or indirectly any transaction or group of related transactions
(including, without limitation, the purchase, lease, sale or exchange of
properties of any kind or the rendering of any service) with any Affiliate
(other than the Company, a Wholly-Owned Subsidiary or any Subsidiary that is an
Obligor) or with any other portfolio investment company held by any Ripplewood
Affiliate, except in the ordinary course and pursuant to the reasonable
requirements of the Company's or such Subsidiary's business and upon fair and
reasonable terms no less favorable to the Company of such Subsidiary than would
be obtainable in a comparable arm's-length transaction with a Person not an
Affiliate.
4.9 AMENDMENTS TO ACCEPTABLE CREDIT FACILITIES.
The Company will not agree to any amendment or modification of the Senior
Credit Agreement or any successive loan or credit agreement replacing,
refinancing or refunding, in whole or in part, the Debt incurred under the
Senior Credit Agreement, if such amendment or modification would result in such
loan or credit agreement not being an Acceptable Credit Facility. The Company
will promptly del iver to each holder of Notes a copy of each amendment or other
modification to or waiver of any provision of each Acceptable Credit Facility
and each agreement or instrument evidencing any other Debt of the Company
entered into after the Closing Date.
4.10 LINES OF BUSINESS.
The Company will not, and will not permit any of its Subsidiaries to,
engage to any substantial extent in any business not substantially the same as
the businesses in which the Company and its Subsidiaries are engaged on the date
of this Agreement as described in the Memorandum.
4.11 LIMITATION ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING
SUBSIDIARIES.
The Company will not, and will not permit any Subsidiary to, directly or
indirectly, create or otherwise cause or permit to exist or become effective any
encumbrance or restriction on the ability of such Subsidiary to:
(a) pay Dividends to, or pay any debt owed to, the Company;
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(b) make loans or advances to the Company;
(c) transfer any of its Property to the Company (except such
restrictions that are permitted to exist pursuant to Section 4.5); or
(d) create, make or issue any Guaranty of any Debt of the Company
(including, without limitation, the Affiliate Guaranty);
except, in each case, for such encumbrances or restrictions existing under or by
reason of applicable law.
5. REPORTING COVENANTS
5.1 FINANCIAL AND BUSINESS INFORMATION.
The Company shall deliver to each holder of Notes:
(a) QUARTERLY FINANCIAL STATEMENTS - as soon as practicable after the
end of each quarterly fiscal period in each fiscal year of the Company
(other than the last quarterly fiscal period of each such fiscal year), and
in any event within sixty (60) days thereafter:
(i) consolidated and consolidating balance sheets as at the end
of such quarter;
and
(ii) consolidated and consolidating statements of operations and
statements of cash flow for such quarter, and, in the case of the
second and third fiscal quarters of the Company, the comparable
information for the portion of the fiscal year ending with such
quarter and a comparison to relevant budget amounts for such quarter;
for the Company and the Subsidiaries, setting forth in each case, in comparative
form, the financial statements for the corresponding periods in the previous
fiscal year, all in reasonable detail, prepared in accordance with GAAP
applicable to quarterly financial statements generally, and certified as
complete and correct in all material respects by a Senior Financial Officer, and
accompanied by the certificate required by Section 5.2; PROVIDED, that, should
the Company become subject to or agree with any Person to comply with the
provisions of section 13 of the Exchange Act, delivery of copies of the
Company's Quarterly Report on Form 10-Q filed with the SEC within the time
period specified above shall be deemed to satisfy the requirements of this
Section 5.1(a) so long as such Quarterly Report contains or is accompanied by
the information specified in this Section 5.1(a);
(b) ANNUAL FINANCIAL STATEMENTS - as soon as practicable after the end
of each fiscal year of the Company, and in any event within one hundred
five (105) days thereafter:
(i) consolidated and consolidating balance sheets as at the end
of such year; and
(ii) consolidated and consolidating statements of operations and
statements of cash flows for such year;
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for the Company and the Subsidiaries, setting forth in the case of each
consolidated financial statement, in comparative form, the financial statement
for the previous fiscal year, all in reasonable detail, prepared in accordance
with GAAP, and accompanied by:
(A) in the case of such consolidated financial statements,
an audit report thereon of independent certified public
accountants of recognized national standing, which report shall
state (without qualification related to the scope of the audit or
the compliance of the audit with generally accepted auditing
standards), that such financial statements have been prepared and
are in conformity with GAAP;
(B) a certification by a Senior Financial Officer that such
consolidated and consolidating statements are complete and
correct in all material respects; and
(C) the certificates required by Section 5.2 and Section
5.3;
PROVIDED, that, should the Company become subject to or agree with any Person to
comply with the provisions of section 13 of the Exchange Act, the delivery of
the Company's Annual Report on Form 10-K for such fiscal year filed with the SEC
within the time period specified above shall be deemed to satisfy the
requirements of this Section 5.1(b) so long as such Annual Report contains or is
accompanied by the reports and other information otherwise specified in this
Section 5.1(b);
(c) SEC AND OTHER REPORTS - promptly upon their becoming available:
(i) each financial statement, report, notice or proxy statement
sent by the Company or any Subsidiary to stockholders generally;
(ii) each regular or periodic report (including, without
limitation, each Form 10-K, Form 1O-Q and Form 8-K), any registration
statement which shall have become effective, and each final prospectus
and all amendments thereto filed by the Company or any Subsidiary with
the SEC or any securities exchange (including, without limitation, any
electronic stock quotation system); and
(iii) all press releases and other statements made available by
the Company or any Subsidiary to the public concerning material
developments in the business of the Company or the Subsidiaries;
(d) NOTICE OF DEFAULT OR EVENT OF DEFAULT - within five (5) Business
Days of becoming aware:
(i) of the existence of any condition or event which constitutes
a Default or an Event of Default; or
(ii) that the holder of any Note, the Senior Agent or any holder
of any Senior Debt or any holder of any other Debt, shall have given
notice or taken any other action with respect to a claimed Default,
Event of Default or default or event of default;
a notice specifying the nature of the claimed Default, Event of Default or
default or event of default and the notice given or action taken (if any) by
such holder and what action the Company is taking or proposes to take with
respect thereto;
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(e) ERISA -
(i) within ten (10) Business Days of knowledge of the occurrence
of any "reportable event" (as such term is defined in section 4043 of
ERISA) for which notice thereof has not been waived pursuant to
regulations of the DOL or "prohibited transaction" (as such term is
defined in section 406 of ERISA or section 4975 of the IRC) in
connection with any Plan or any trust created thereunder, a notice
specifying the nature thereof, what action the Company is taking or
proposes to take with respect thereto, and, when known, any action
taken by the Internal Revenue Service, the DOL or the PBGC with
respect thereto; and
(ii) prompt notice of and, where applicable, a description of:
(A) any notice from the PBGC in respect of the commencement
of any proceedings pursuant to section 4042 of ERISA to terminate
any Plan or for the appointment of a trustee to administer any
Plan, and any distress termination notice delivered to the PBGC
under section 4041 of ERISA in respect of any Plan, and any
determination of the PBGC in respect thereof;
(B) the placement of any Multiemployer Plan in
reorganization status under Title IV of ERISA, any Multiemployer
Plan becoming "insolvent" (as such term is defined in section
4245 of ERISA) under Title IV of ERISA, or the whole or partial
withdrawal of the Company or any ERISA Affiliate from any
Multiemployer Plan and the withdrawal liability incurred in
connection therewith; or
(C) the occurrence of any event, transaction or condition
that could result in the incurrence of any liability of the
Company or any ERISA Affiliate or the imposition of a Lien on the
Property of the Company or any ERISA Affiliate, in either case
pursuant to Title I or Title IV of ERISA or pursuant to the
penalty or excise tax or security provisions of the IRC;
PROVIDED, HOWEVER, that the Company shall not be required to deliver
any such notice at any time when the aggregate amount of the actual or
potential liability of the Company and the Subsidiaries in respect of
all such events at such time could not reasonably be expected to have
a Material Adverse Effect;
(f) ENVIRONMENTAL NOTICES - upon the request of such holder made at
any time during which there may be a material violation of any
Environmental Protection Law by the Company or any of its Subsidiaries, or
any material liability of the Company or any of its Subsidiaries arising
thereunder or related to a Release of Hazardous Materials on any real
property owned, leased or operated by the Company or any of its
Subsidiaries, all such material reports, certificates, engineering studies
and other written material or data relative to such alleged violation or
Release as any holder of Notes may reasonably require;
(g) AUDITOR'S REPORTS - each report or management letter submitted to
the Company or any Subsidiary by independent accountants in connection with
any annual, interim or special audit made of the books of the Company or
any Subsidiary;
(h) ACTIONS, PROCEEDINGS - promptly after any Senior Officer of the
Company becomes aware of any action or proceeding relating to the Company
or any Subsidiary in any court or before
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any governmental authority or arbitration board or tribunal as to which
there is a reasonable possibility of an adverse determination and that, if
adversely determined, is reasonably likely to have a Material Adverse
Effect, a notice specifying the nature and period of existence thereof and
what action the Company is taking or proposes to take with respect thereto;
(i) MATERIAL ADVERSE EFFECT - promptly upon becoming aware of the
occurrence of any event or circumstance that could reasonably be expected
to have a Material Adverse Effect, a written notice specifying the nature
thereof and what action the Company is taking or proposes to take with
respect thereto;
(j) ACCEPTABLE CREDIT FACILITIES - promptly after execution thereof a
copy of each Acceptable Credit Facility entered into by the Company, any
Subsidiary and the Senior Lenders or any other holder of Senior Debt and
each amendment, modification or waiver entered into by the Company, any
Subsidiary and the Senior Lenders or any other holder of Senior Debt with
respect to any Acceptable Credit Facility;
(k) OTHER CREDITORS - promptly upon the reasonable request of any
holder of Notes, copies of any statement, report or certificate furnished
to any holder of Debt to the extent that the information contained in such
statement, report or certificate has not already been delivered to each
holder of Notes;
(1) RULE 144A - promptly upon the reasonable request of any holder of
Notes, information required to permit the holder to comply with 17 C.F.R.
Section 230.144A, as amended from time to time, in connection with a
transfer of any Note; and
(m) REQUESTED INFORMATION - with reasonable promptness, such
other data and information as from time to time may be reasonably
requested by any holder of Notes, including, without limitation, any
information required to determine whether the Company and the
Subsidiaries are or will be Year 2000 Compliant.
5.2 OFFICER'S CERTIFICATES.
Each set of financial statements delivered to each holder of Notes pursuant
to Section 5.1(a) or Section 5.1(b) shall be accompanied by a certificate of a
Senior Financial Officer, setting forth:
(a) COVENANT COMPLIANCE - the financial information (including
detailed calculations) required in order to establish whether the Company
was in compliance with the requirements of Section 4 (in each case where
such Section imposes numerical financial requirements) as of the end of the
period covered by the financial statements then being furnished (including
with respect to such Section, where applicable, the calculations of the
maximum or minimum amount, ratio or percentage, as the case may be,
permissible under the terms of such Section, and the calculation of the
amount, ratio or percentage then in existence);
(b) EVENT OF DEFAULT - a statement that the signer has reviewed the
relevant terms hereof and has made, or caused to be made, under his or her
supervision or authority, a review of the transactions and conditions of
the Company and the Subsidiaries from the beginning of the accounting
period covered by the statements of operations being delivered therewith to
the date of the certificate and that such review shall not have disclosed
the existence during such period of any condition or event that constitutes
a Default or an Event of Default or, if any such condition or event
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existed or exists, specifying the nature and period of existence thereof
and what action the Company shall have taken or proposes to take with
respect thereto; and
(c) MANAGEMENT DISCUSSION - a written discussion and analysis by
management of the financial condition of, and results of operations for,
the Company and the Subsidiaries for the accounting period covered by the
income statements being delivered therewith, all in reasonable detail.
5.3 ACCOUNTANTS' CERTIFICATES.
Each set of annual financial statements delivered pursuant to Section
5.1(b) shall be accompanied by a certificate of the accountants who were engaged
to audit such financial statements, stating that they have reviewed this
Agreement and stating further whether, in making their audit, such accountants
have become aware of any condition or event that then constitutes a Default or
an Event of Default arising from a breach of Sections 4.1, 4.2, 4.3, or
4.7(a)(x), and, if such accountants are aware that any such condition or event
then exists, specifying the nature and period of existence thereof.
5.4 INSPECTION.
The Company will permit the representatives of each holder of Notes to
visit and inspect any of the Properties of the Company or any of the
Subsidiaries, to examine all their respective books of account, records, reports
and other papers, to make copies and extracts therefrom, and to discuss their
respective affairs, finances and accounts with their respective officers,
employees and independent public accountants (and by this provision the Company
authorizes said accountants to discuss the finances and affairs of the Company
and the Subsidiaries) all at such reasonable times and as often as may be
reasonably requested. Expenses incurred by the holders of the Notes in
connection with this Section 5.4 shall be paid in accordance with Section 9.6.
6. EVENTS OF DEFAULT
6.1 EVENTS OF DEFAULT.
An "EVENT OF DEFAULT" exists at any time if any of the following both
occurs and is continuing thereafter (and has not been waived as provided in
Section 7.14) for any reason whatsoever (and whether such occurrence shall be
voluntary or involuntary or come about or be effected by operation of law or
otherwise):
(a) PAYMENTS ON NOTES -
(i) PRINCIPAL OR PREPAYMENT COMPENSATION AMOUNT PAYMENTS - the
Company fails to make any payment of principal or Prepayment
Compensation Amount on any Note on or before the date such payment is
due (whether at maturity or at a date fixed for payment or by
acceleration or otherwise); or
(ii) INTEREST PAYMENTS - the Company fails to make any payment of
interest on any Note on or before five (5) Business Days after the
date such payment is due;
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(b) OTHER DEFAULTS -
(i) PARTICULAR COVENANT DEFAULTS - the Company shall fail to
perform or observe any covenant contained in Section 4; or
(ii) OTHER DEFAULTS - any Obligor or any Subsidiary, fails to
comply with any other provision hereof or of any other Financing
Document, and such failure continues for more than thirty (30) days
after the earlier of receipt of notice of such failure by a Senior
Officer or a Senior Officer becoming aware of such failure;
(c) WARRANTIES OR REPRESENTATIONS -
(i) any warranty, representation or other statement by or on
behalf of any Obligor contained in the Securities Purchase Agreement
or any other Financing Document, in any written amendment, supplement,
modification or waiver with respect to any Financing Document or in
any instrument furnished in compliance herewith or in reference
hereto, shall have been false or misleading in any material respect
when made; or
(ii) any warranty, representation or other statement by or on
behalf of any Obligor or any other Person contained in any Acquisition
Document shall have been false or misleading in any material respect
when made;
(d) DEFAULT ON OR ACCELERATION OF MATERIAL OBLIGATIONS -
(i) any Obligor falls to make, when due, at maturity, upon demand
or otherwise, any payment or payments in respect of any Material
Obligation beyond any applicable grace period therefor; or
(ii) any event or condition occurs that results (beyond any
applicable grace period therefor) in any Material Obligation becoming
due prior to its scheduled maturity or that enables or permits the
holder or holders of any Material Obligation, or any trustee or agent
on its or their behalf, immediately to cause any Material Obligation
to become due, or to require the prepayment, repurchase, redemption,
or defeasance thereof, prior to its scheduled maturity; PROVIDED that
this clause (ii) shall not apply to secured Debt that becomes due as a
result of the voluntary sale or transfer of the property or assets
securing such Debt;
(e) INSOLVENCY -
(i) INVOLUNTARY BANKRUPTCY PROCEEDINGS -
(A) a receiver, liquidator, custodian, trustee, conservator,
sequestrator or similar official for any Obligor or Subsidiary,
or of all or any substantial part of the Property of any of them,
is appointed by court order and such appointment continues
unstayed and in effect for a period of sixty (60) days, or an
order for relief is entered with respect to any Obligor or
Subsidiary, or any Obligor or Subsidiary is adjudicated a
bankrupt or insolvent and such order or adjudication continues
unstayed and in effect for a period of sixty (60) days;
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(B) all or any substantial part of the Property of any
Obligor or Subsidiary is sequestered by court order and such
order continues unstayed and in effect for a period of sixty (60)
days;
(C) an involuntary proceeding is commenced or a petition is
filed against any Obligor or Subsidiary under any bankruptcy,
reorganization, arrangement, insolvency, readjustment of debt,
dissolution, receivership or liquidation law of any jurisdiction,
whether now or hereafter in effect, and is not dismissed within
sixty (60) days after such filing; or
(D) any Obligor or Subsidiary is wound-up or liquidated.
(II) VOLUNTARY PETITIONS - any Obligor or Subsidiary (A) files a
petition in voluntary bankruptcy or seeks relief under any provision
of any bankruptcy, reorganization, arrangement, insolvency,
readjustment of debt, dissolution, receivership or liquidation law of
any jurisdiction, whether now or hereafter in effect. or consents to
the filing of any petition against it under any such law, (B) consents
to the institution of or the entry of an order for relief against it,
or fails to contest in a timely and appropriate manner, any proceeding
or the filing of any petition described in paragraph (vi) of this
Section 6.l(e), (C) applies for or consents to the appointment of a
receiver, trustee, custodian, sequestrator, conservator or similar
official for any Obligor or any of their respective Subsidiaries, or
for a substantial part of their Property or assets, (D) files an
answer admitting the material allegations of a petition filed against
it in any such proceeding, or (E) takes any action for the purpose of
effecting any of the foregoing;
(f) ASSIGNMENTS FOR BENEFIT OF CREDITORS, ETC. - any Obligor or
Subsidiary makes an assignment for the benefit of its creditors, or admits
in writing its inability, or fails, to pay its debts generally as they
become due. or consents to the appointment of a receiver, liquidator or
trustee of any Obligor or Subsidiary or of all or a substantial part of its
Property;
(g) UNDISCHARGED FINAL JUDGMENTS - a final, non-appealable judgment or
final, non-appealable judgments for the payment of money aggregating in
excess of One Million Dollars ($1,000,000) is or are outstanding against an
Obligor or Subsidiary and any one of such judgments shall have been
outstanding for more than thirty (30) days from the date of its entry and
shall not have been discharged in full or stayed or any action shall be
legally taken by a judgment creditor to levy upon assets or properties of
the Obligors or any of their respective Subsidiaries to enforce any such
judgment;
(h) ERISA - (A) a "Reportable Event" as defined in section 4043(c) of
ERISA shall occur with respect to any Plan, but excluding any such event as
to which the provision for 30 days' notice to the Pension Benefit Guaranty
Corporation (or any successor agency, "PBGC") is waived under applicable
regulations, (B) a notice of intent to terminate a Plan subject to Title IV
of ERISA under a distress termination under section 4041C(c) of ERISA shall
be filed or an amendment to such a Plan shall be treated as a termination
under section 4041(c) of ERISA, (C) proceedings by the PBGC shall be
instituted to terminate a Plan subject to Title IV of ERISA or a trustee
shall be appointed to administer any such Plan or an event or condition
that might reasonably be expected to constitute grounds under Section 4042
of ERISA for the termination of, or the appointment of a trustee to
administer, any Plan subject to section 4042 shall occur, (D) and liability
under Title IV of ERISA, other than for PBGC premiums due but not yet
payable, shall be imposed, (E) an application for a
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minimum funding waiver under section 412 of the IRC shall be filed with
respect to any Plan. (F) the Company or any ERISA Affiliate shall withdraw
from a Plan subject to section 4062 of ERISA during a plan year which was a
"substantial employer" as (as defined section 4001(a)(2) of ERISA), (G)
such Plan intending to qualify under section 401(a) of the IRC shall lose
such qualified status (other than a because of a Remediable Defect), (H) a
material required contribution to a Plan shall not be made. (I) the Company
or any ERISA Affiliate shall be in "default" (as defined in section
4219(c)(5) of ERISA) with respect to payments to a Multiemployer Plan
because of its complete or partial withdrawal (as described in Section 4203
or 4205 of ERISA) from such Multlemployer Plan, or (J) a material
non-exempt prohibited transaction within the meaning of section 4975 of the
IRC or section 406 of ERISA shall occur with respect to any Plan that is
not cured within 60 days after the Company has knowledge thereof;
(i) FINANCING DOCUMENTS - any Financing Document shall cease to be in
full force and effect or shall be declared by a court or other Governmental
Authority of competent jurisdiction to be void, voidable or unenforceable
against any Obligor; the validity or enforceability of any Financing
Document against any Obligor shall be contested by any Obligor, Subsidiary
or Affiliate; or any Obligor, Subsidiary or Affiliate shall deny that any
Obligor has any further liability or obligation under any Financing
Document to which it is a party; or
(j) CERTAIN ACTIVITIES OF THE PARENT -- the Parent:
(i) owns, holds or acquires any material Property other than the
Capital Stock of the Company (and, for a period not exceeding sixty
(60) days prior to the payment thereof in respect of permitted
obligations of the Parent or as dividends or distributions in respect
of the Common Stock, dividends and distributions made in respect of
the Capital Stock of the Company);
(ii) conducts any business other than as incidental to being a
stockholder of the Company;
(iii) creates, incurs, assumes or permits to exist any
indebtedness, or guaranty, endorse, become surety for or otherwise be
responsible, directly or indirectly, for the indebtedness of any other
Person other than pursuant to and in respect of any Right or any
guaranty or other similar contingent obligation to pay any
indebtedness of the Company; or
(iv) fails to own at any time all of the issued and outstanding
Capital Stock and Rights of the Company.
If any action, condition, event or other matter would, at any time, constitute
an Event of Default under any provision of this Section 6.1, then an Event of
Default shall exist, regardless of whether the same or a similar action,
condition, event or other matter is addressed in a different provision of this
Section 6.1 and would not constitute an Event of Default at such time under such
different provision.
6.2 DEFAULT REMEDIES.
(a) ACCELERATION OF MATURITY OF NOTES.
(i) ACCELERATION ON EVENT OF DEFAULT.
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(A) AUTOMATIC. If any Event of Default specified in Section
6.1(e) or Section 6.1(f) shall exist, then all of the Notes at
the time outstanding shall automatically become immediately due
and payable together with interest accrued thereon and, to the
extent permitted by applicable law, the Prepayment Compensation
Amount with respect thereto, without presentment, demand, protest
or notice of any kind, all of which are hereby expressly waived.
(B) BY ACTION OF HOLDERS. If any Event of Default (other
than an Event of Default specified in Section 6.1(e) or Section
6.1(f) shall exist, the Required Holders may exercise any right,
power or remedy permitted to such holder or holders by law, and
shall have, in particular, without limiting the generality of the
foregoing, the right to declare the entire principal of, and all
interest accrued on, all the Notes then outstanding to be, and
such Notes shall thereupon become, immediately due and payable,
without any presentment, demand, protest or other notice of any
kind, all of which are hereby expressly waived, and the Company
shall forthwith pay to the holder or holders of all the Notes
then outstanding the entire principal of, and interest accrued
on, the Notes and, to the extent permitted by law, the Prepayment
Compensation Amount at such time with respect to such principal
amount of such Notes.
(ii) ACCELERATION ON PAYMENT DEFAULT. During the existence of an
Event of Default described in Section 6.1(a), and irrespective of
whether the Notes then outstanding shall have become due and payable
pursuant to Section 6.2(a)(i)(B), any holder of Notes who or which
shall have not consented to any waiver with respect to such Event of
Default may, at his or its option, by notice in writing to the
Company, declare the Notes then held by such holder to be, and such
Notes shall thereupon become, immediately due and payable together
with all interest accrued thereon, without any presentment, demand,
protest or other notice of any kind, all of which are hereby expressly
waived, and the Company shall forthwith pay to such holder the entire
principal of and interest accrued on such Notes and, to the extent
permitted by law, the Prepayment Compensation Amount at such time with
respect to such principal amount of such Notes.
(b) VALUABLE RIGHTS. The Company acknowledges, and the parties hereto
agree, that the right of each holder to maintain its investment in the
Notes free from repayment by the Company (except as herein specifically
provided for) is a valuable right and that the provision for payment of a
Prepayment Compensation Amount by the Company in the event that any Notes
are prepaid or are accelerated as a result of an Event of Default is
intended to provide compensation for the deprivation of such right under
such circumstances.
(c) OTHER REMEDIES. During the existence of an Event of Default and
irrespective of whether the Notes then outstanding shall become due and
payable pursuant to Section 6.2(a), and irrespective of whether any holder
of Notes then outstanding shall otherwise have pursued or be pursuing and
other rights or remedies, any holder of Notes may proceed to protect and
enforce its rights hereunder and under such Notes by exercising such
remedies as are available to such holder in respect thereof under
applicable law, either by suit in equity or by action at law, or both,
whether for specific performance of any agreement contained herein or in
aid of the exercise of any power granted herein; PROVIDED, HOWEVER, that
the maturity of such holder's Notes may be accelerated only in accordance
with Section 6.2(a).
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(d) NONWAIVER; REMEDIES CUMULATIVE. No course of dealing on the part
of any holder of Notes nor any delay or failure on the part of any holder
of Notes to exercise any right shall operate as a waiver of such right or
otherwise prejudice such holder's rights, powers and remedies. All rights
and remedies of each holder of Notes hereunder and under applicable law are
cumulative to, and not exclusive of, any other rights or remedies any such
holder of Notes would otherwise have.
6.3 ANNULMENT OF ACCELERATION OF NOTES.
If a declaration is made pursuant to Section 6.2(a)(i)(B) or Section
6.2(a)(ii), then and in every such case, the Required Holders may, by written
instrument filed with the Company, rescind and annul such declaration, and the
consequences thereof; PROVIDED, HOWEVER, that at the time such declaration is
annulled and rescinded:
(a) no judgment or decree shall have been entered for the payment of
any moneys due on or pursuant hereto or the Notes;
(b) all arrears of interest upon all of the Notes and all of the other
sums payable hereunder and under the Notes (except any principal of, or
interest or Prepayment Compensation Amount on, the Notes which shall have
become due and payable by reason of such declaration under Section
6.2(a)(i)(B) or Section 6.2(a)(ii) shall have been duly paid; and
(c) each and every other Default and Event of Default shall have been
waived pursuant to Section 9.5 or otherwise made good or cured;
and PROVIDED, FURTHER, that no such rescission and annulment shall extend to or
affect any subsequent Default or Event of Default or impair any right consequent
thereon.
7. SUBORDINATION OF SUBORDINATED DEBT
7.1 GENERAL.
The Subordinated Debt is subordinate and junior in right of payment to the
prior payment in full of all Senior Debt to the extent provided in this Section
7. Notwithstanding the foregoing, but subject to the provisions of this Section
7, the holders of the Notes may receive and retain payments with respect to the
Notes provided for in this Agreement.
7.2 INSOLVENCY.
In the event of:
(a) any insolvency, bankruptcy, receivership, liquidation,
reorganization, readjustment, composition or other similar proceeding
relating to the Company, its creditors or its Property;
(b) any proceeding for the liquidation, dissolution or other
winding-up of the Company, voluntary or involuntary, whether or not
involving insolvency or bankruptcy proceedings;
(c) any assignment by the Company for the benefit of creditors; or
(d) any other marshalling of the assets of the Company;
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all Senior Debt shall first be paid in full before any payment or distribution,
whether in cash, Securities or other Property (other than Permitted Securities),
shall be made to and holder of any Subordinated Debt on account of any
Subordinated Debt. Any payment or distribution, whether in cash, Securities or
other Property (other than Permitted Securities), which would otherwise (but for
this Section 7) be payable or deliverable in respect of Subordinated Debt shall
be paid or delivered directly to the holders of Senior Debt in accordance with
the priorities then existing among such holders until all Senior Debt shall have
been paid in full; PROVIDED, HOWEVER, that the holders of the Subordinated Debt
may retain Permitted Securities.
7.3 PROOFS OF CLAIM.
If any holder of Subordinated Debt does not file a proper claim or proof of
debt therefor prior to ten (10) days before the expiration of the time to file
such claim or proof, then the holders of the Senior Debt are hereby authorized
and permitted (but not obligated) for the specific and limited purpose set forth
in this paragraph, to file such claim or proof for or on behalf of such holder;
PROVIDED, HOWEVER, that the Senior Agent shall have notified such holder in
writing not less than ten (10) days in advance of its intention to file such
claim or proof. No provision of this Agreement shall be deemed to authorize the
holders of Senior Debt to authorize or consent to or accept or adopt on behalf
of any holder of Subordinated Debt any plan of reorganization, arrangement,
adjustment or composition affecting the Subordinated Debt, to exercise the right
of any holder of Subordinated Debt in respect of any plan of reorganization,
arrangement, adjustment or composition affecting the Subordinated Debt, or to
vote in respect of the claim of any holder of Subordinated Debt in any such
proceeding.
7.4 PAYMENT DEFAULT IN RESPECT OF SENIOR DEBT.
In the event the Company shall default in the payment of the principal of,
interest on or premium, if any, in respect of any Senior Debt (a "PAYMENT
DEFAULT") when the same becomes due and payable, whether at maturity or at a
date fixed for prepayment or by declaration of acceleration or otherwise, then,
unless and until such default shall have been cured or waived in accordance with
the terms of the Senior Credit Agreement or shall have ceased to exist, no
direct or indirect payment (in cash, Property or Securities (other than
Permitted Securities) or by set-off or otherwise) shall be made or agreed to be
made on account of any Subordinated Debt, or as a sinking fund for any
Subordinated Debt, or in respect of any redemption, retirement, purchase,
prepayment or other acquisition or payment of any Subordinated Debt.
The Company shall give prompt written notice to each holder of Subordinated
Debt of its knowledge of facts which would give rise to any Payment Default.
7.5 NONPAYMENT DEFAULT IN RESPECT OF SENIOR DEBT.
Upon receipt by the Company from the Senior Agent, following the actual
occurrence of any Nonpayment Default, of written notice (a "NONPAYMENT DEFAULT
NOTICE") of the happening of such Nonpayment Default, stating that such notice
is a payment blockage notice pursuant to Section 7.5 of this Agreement, no
direct or indirect payment (in cash, Property or Securities (other than
Permitted Securities) or by set-off or otherwise) shall be made or agreed to be
made for or on account of any Subordinated Debt, or as a sinking fund for any
Subordinated Debt, or in respect of any redemption, retirement, repurchase,
prepayment, purchase or other acquisition or payment of any Subordinated Debt,
for a period (each, a "PAYMENT BLOCKAGE PERIOD") commencing on the date of
receipt by the Company of such notice from the Senior Agent and ending on the
Payment Blockage Termination Date relating to such Payment Blockage Period;
PROVIDED, HOWEVER, that:
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(a) only one such Payment Blockage Period may arise in any period of
three hundred sixty-five (365) consecutive days;
(b) no more than three (3) such Payment Blockage Periods, in the
aggregate, may arise while the Subordinated Debt is outstanding; and
(c) no Payment Blockage Period may be imposed as a result of any
Nonpayment Default which served as the basis for, or was continuing during,
a previous Payment Blockage Period unless such Nonpayment Default shall
have been cured for a period of not less than one hundred eighty (180)
consecutive days.
All payments in respect of Subordinated Debt postponed under Section 7.4 or
during any Payment Blockage Period shall be immediately due and payable upon the
termination thereof (together with such additional interest as is provided for
herein and in the Notes for late payment of principal, Prepayment Compensation
Amount or interest, as applicable).
The Company shall give prompt written notice to each holder of Subordinated
Debt of its receipt of any Nonpayment Default Notice under this Section 7.5.
7.6 EXERCISE OF REMEDIES.
Notwithstanding anything contained in this Agreement or any other Financing
Document to the contrary, for so long as any Senior Debt is outstanding, if any
Payment Default or Nonpayment Default in respect thereof shall have occurred and
is continuing, then no holder of any Subordinated Debt may take any action to
accelerate all or any portion of the Subordinated Debt (and no acceleration or
purported acceleration pursuant to Section 6.2(a)(i)(B) or Section 6.2(a)(ii)
shall become effective) or exercise any other Remedies in respect thereof during
any period (a "STANDSTILL PERIOD"):
(a) commencing:
(i) in the event of a Payment Default, on the date of such
Payment Default;
(ii) in the event of a Nonpayment Default, on the date that the
Nonpayment Blockage Period begins;
(b) and ending upon the earliest of:
(i) the date forty-five (45) days after the commencement of such
Standstill Period;
(ii) the date upon which any holder or holders of any Material
Obligations, or any holder or holders of any Senior Debt, accelerate
or declare such Debt to be due and payable prior to its stated
maturity or prior to the regularly scheduled date or dates of payment
or otherwise commence the exercise of and Remedies against the
Company;
(iii) the first date upon which any of the Events of Default
described in Section 6.1(e) shall have occurred and be continuing
beyond any period of grace specified therein; and, in such event, the
automatic acceleration of the Notes contemplated in respect
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of such Event of Default pursuant to Section 6.2(a)(i)(B) shall occur
immediately upon the termination of the Standstill Period; and
(iv) the date of termination of the Payment Blockage Period or
Nonpayment Blockage Period, as the case may be.
Other than during a Standstill Period. in the event that any Event of
Default shall have occurred and shall be continuing, the holders of the
Subordinated Debt may take action any action permitted pursuant to Section 6.2
and any other action permitted by applicable law to protect its rights and seek
any Remedy in respect of an Event of Default; PROVIDED, HOWEVER, that the rights
of the holders to receive payment in respect of the exercise of any such rights
or remedies shall at all times be subject to the provisions of Section 7.2,
Section 7.4, Section 7.5, Section 7.6(b)(iv) and the other provisions of this
Section 7.
7.7 TURNOVER OF PAYMENTS.
If:
(a) any payment or distribution shall be paid to or collected or
received by any holders of Subordinated Debt
(i) in contravention of any of the terms of this Section 7 or
(ii) pursuant to the provisions of Section 1.3 or Section 1.6 at
a time when such payment would be prohibited by an Acceptable Credit
Facility; and
(b) any holder of Senior Debt or the Company shall have notified the
holders of Subordinated Debt, within ninety (90) days of any such payment
or distribution, of the facts by reason of which such payment or collection
or receipt so contravenes this Section 7 or, in the case of any payment
made pursuant to the provisions of Section 1.3 or Section 1.6, of the facts
by reason of which such payment was prohibited by the Acceptable Credit
Facility;
then such holders of Subordinated Debt will deliver such payment or
distribution, to the extent necessary to pay all such Senior Debt in full to the
holders of such Senior Debt and, until so delivered, the same shall be held in
trust by such holders of Subordinated Debt as the property of the holders of
such Senior Debt. If any amount is delivered to the holders of Senior Debt
pursuant to this Section 7.6(b)(iv), whether or not such amounts has been
applied to the payment of Senior Debt, and the outstanding Senior Debt shall
thereafter be paid in full by the Company or otherwise other than pursuant to
this Section 7.6(b)(iv), the holders of Senior Debt shall return to such holders
of Subordinated Debt an amount equal to the amount delivered to such holders of
Senior Debt pursuant to this Section 7.6(b)(iv), so long as after the return of
such amounts the Senior Debt shall remain paid in full.
7.8 SUBORDINATION UNAFFECTED BY CERTAIN EVENTS.
The rights set forth in this Section 7 of the holders of the Senior Debt as
against each holder of Subordinated Debt shall remain in full force and effect
without regard to, and shall not be impaired by:
(a) any act or failure to act on the part of the Company;
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(b) any act or failure to act on the part of the Senior Agent or any
holder of Senior Debt (other than any action prohibited by this Section 7
or any failure to take any action required by this Section 7);
(c) any extension or indulgence in respect of any payment or
prepayment of the Senior Debt or any part therefor in respect of any other
amount payable to any holder of Senior Debt;
(d) any amendment, modification, restatement, refinancing or waiver
of, or addition or supplement to, or deletion from, or compromise, release,
consent or other action in respect of, any of the terms of any Senior Debt
or any other agreement which may be relating to any Senior Debt or any
security or collateral therefor which does not result in the Senior Debt
failing to satisfy the definition of Senior Debt;
(e) any exercise or non-exercise by any holder of Senior Debt of any
right, power, privilege or remedy under or in respect of any Senior Debt or
any waiver of any such right, power, privilege or remedy or any default in
respect of any Senior Debt or any security or collateral therefor, or any
receipt by any holder of Senior Debt of any security or collateral, or any
failure by any holder of Senior Debt to perfect a security interest in, or
any release or other action or inaction by any such holder of Senior Debt
of, any security or collateral for the payment of any Senior Debt;
(f) any merger or consolidation of the Company or any of the
Subsidiaries into or with any of the Subsidiaries or into or with any
Person, or any transfer of any or all of the assets of the Company or any
of the Subsidiaries to any other Person; or
(g) the absence of any notice to, or knowledge by, any holder of
Subordinated Debt of the existence or occurrence of any of the matters or
events set forth in the foregoing clauses (a) through (f).
7.9 REINSTATEMENT OF SUBORDINATION.
The obligations of each holder of Subordinated Debt under the provisions
set forth in this Section 7 shall continue to be effective, or be reinstated, as
the case may be, as to any payment in respect of any Senior Debt that is
rescinded, avoided, set aside or must otherwise be returned by the holder of
such Senior Debt upon the occurrence of or as a result of or pursuant to any
bankruptcy or judicial proceeding, all as though such payment had not been made,
a Payment Default then existed and this Agreement had at all times remained in
effect.
7.10 OBLIGATIONS NOT IMPAIRED.
Nothing contained in this Section 7 shall impair, as between the Company
and any holder of Subordinated Debt, the obligation of the Company to pay to
such holder the principal thereof and Prepayment Compensation Amount, if any,
and interest thereon as and when the same shall become due and payable in
accordance with the terms thereof or prevent any holder of any Subordinated Debt
from exercising all rights, powers and remedies otherwise permitted by
applicable law and under this Agreement, all subject to the rights of the
holders of the Senior Debt to receive cash, Securities or other Property
otherwise payable or deliverable to the holders of Subordinated Debt.
7.11 PAYMENT OF SENIOR DEBT; SUBROGATION.
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Upon the payment in full of the Senior Debt and the termination of all
obligations to lend in respect of such Senior Debt,. the holders of Subordinated
Debt shall be subrogated to all rights of any holder of Senior Debt to receive
any further payments or distributions applicable to the Senior Debt until the
Subordinated Debt shall have been paid in full, and such payments or
distributions received by the holders of Subordinated Debt by reason of such
subrogation, of cash, Securities or other Property which otherwise would be paid
or distributed to the holders of Senior Debt, shall, as between the Company and
its creditors other than the holders of Senior Debt, on the one hand, and the
holders of Subordinated Debt, on the other hand, be deemed to be a payment by
the Company on account of Senior Debt and not on account of Subordinated Debt.
7.12 RELIANCE OF HOLDERS OF SENIOR DEBT; ACKNOWLEDGMENT.
Each holder of Subordinated Debt by its acceptance thereof shall be deemed
to acknowledge and agree that the foregoing subordination provisions are, and
are intended to be, an inducement to and a consideration of each holder of any
Senior Debt, whether such Senior Debt was created or acquired before or after
the creation of Subordinated Debt, to acquire and hold, or to continue to hold,
such Senior Debt, and such holder of Senior Debt shall be deemed conclusively to
have relied on such subordination provisions in acquiring and holding, or in
continuing to hold, such Senior Debt.
7.13 IDENTITY OF HOLDERS OF SENIOR DEBT.
The Company shall deliver to each holder written notice of any change of
the Senior Agent hereunder, together with evidence of the consent of the former
Senior Agent to such change, which notice shall provide the name and address of
such new Senior Agent. Upon the request of any holder of Subordinated Debt, the
Company shall deliver to such holder a list of all holders, of Senior Debt
outstanding at such time, providing the name and address of each such holder of
Senior Debt and the principal amount of Senior Debt held by each such holder.
7.14 AMENDMENTS TO THIS AGREEMENT.
Notwithstanding the provisions of Section 9.5, the holders of the Notes and
the Company will not, without the prior written consent of the Senior Agent,
amend or modify:
(a) any provision of this Section 7 or any defined term to the extent
used herein;
(b) any provision of Section 1, the Notes or the other Financing
Documents that would move forward the date of any payment or increase the
amount of any payment under the Subordinated Debt, or any defined term to
the extend related thereto; or
(c) any provision of Section 3, Section 4 or Section 6 or any defined
term to the extent used therein if such amendment or modification would
result in any such provision being more restrictive on the Company.
7.15 AMENDMENTS TO SENIOR CREDIT FACILITY.
Notwithstanding the other provisions of this Section 7, no amendment to or
refinancing, replacement or refunding of the Senior Credit Agreement or another
Acceptable Credit Facility or any other agreement or instrument related thereto
shall be effective as to the holders of the Subordinated Debt or be entitled to
the benefits of this Section 7 without the consent of each holder of Notes to
the extent that such amendment would restrict required payments on the
Subordinated Debt so as to create any default or event of default in respect
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of such facility by virtue of no other fact except the making by the Company of
a payment required to be made in respect of the Notes; and no amendment to or
refinancing, replacing or refunding of the Senior Credit Agreement or another
Acceptable Credit Facility or any other agreement or instrument related thereto
shall restrict the payment of dividends or distributions from the Subsidiaries
to the Company in any manner which would have such effect.
7.16 CERTIFICATION OF SUBORDINATION.
Promptly following the written request of the Company to acknowledge to any
Person (including, without limitation, any lender proposing to enter into an
Acceptable Credit Facility) that the Debt in respect of any credit facility or
loan agreement comprises or will comprise Senior Debt, which written request is
accompanied by a certificate of a Senior Officer of the Company to the effect
that such credit facility or loan agreement meets the definition herein of an
Acceptable Credit Facility and that the Debt thereunder comprises or will
comprise Senior Debt, the holders of the Subordinated Debt (unless the same
shall have reason to believe that the facts contained in such certificate of the
Company are not true) shall acknowledge in writing to such Person that such that
such credit facility or loan agreement meets the definition herein of an
Acceptable Credit Facility and that the Debt thereunder comprises or will
comprise Senior Debt.
8. INTERPRETATION OF THIS AGREEMENT
8.1 TERMS DEFINED.
As used herein, the following terms have the respective meanings set forth
below or set forth in the Section hereof following such term:
ACCEPTABLE CONSIDERATION - means, with respect to any Transfer of any
Property of the Company or any Subsidiary, consideration consisting of cash or
marketable securities (or any combination of the foregoing) as is, in each case,
determined by the board of directors of the Company, in its good faith opinion,
to be in the best interests of the Company and to reflect the Fair Market Value
of such Property.
ACCEPTABLE CREDIT FACILITY - means and includes:
(a) the Senior Credit Agreement, as in effect on the date hereof;
(b) the Senior Credit Agreement, as hereafter amended, modified or
supplemented, and each successive loan or credit agreement replacing,
refinancing or refunding, in whole or in part, the Debt incurred under the
Senior Credit Agreement or any such successor Acceptable Credit Facility,
but, in each case, only so long as:
(i) the principal amount of Debt outstanding under the Senior
Credit Agreement, as so amended, modified or supplemented, and all
such outstanding loan or credit agreements, together with any
additional amounts permitted to be incurred pursuant to the Senior
Credit Agreement, as so amended, modified or supplemented, and all
such outstanding loan or credit agreements (including, without
limitation, the aggregate of all unused revolving credit commitments
in respect of the Senior Credit Agreement, as so amended, modified or
supplemented, and all such successive loan or credit agreements) does
not exceed, at the time of Incurrence or creation of any Debt in
respect of any thereof, the Maximum Senior Debt Amount;
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(ii) such amendment, modification or supplement, or such other
loan or credit agreement, as the case may be, does not provide for
either an overall final maturity or an average life to maturity of the
Debt incurred thereunder which is greater than such maturities in
respect of the Debt at the time outstanding pursuant to the Note
Agreement and the Notes;
(iii) the interest rate applicable to such amendment,
modification or supplement, or such other loan or credit agreement, as
the case may be, does not at any time exceed by more than two hundred
(200) basis points the maximum interest rate which would have been
applicable at such time to any Debt in respect of the Senior Credit
Agreement, as in effect on the date hereof;
(iv) such amendment, modification or supplement, or such other
loan or credit agreement, as the case may be, does not restrict
required payments on the Subordinated Debt so as to create any default
or event of default in respect of such facility by virtue of no other
fact except the making by the Company of a payment required to be made
in respect of the Notes; and shall not restrict the payment of
dividends or distributions from the Subsidiaries to the Company in any
manner which would have such effect; and
(v) such amendment, modification or supplement, or such other
loan or credit agreement, as the case may be, does not:
(A) provide for financial covenants. or events of default
arising out of the breach or violation of financial covenants
which, taken as a whole, are materially more restrictive to the
Company than those contained in the Senior Credit Agreement as in
effect on the Closing Date;
(B) provide for available revolving credit commitments at
any date in an amount less than fifty percent (50%) of the amount
of Gross Receivables (as such term is defined in the Senior
Credit Agreement, as in effect on the date hereof), as calculated
at the date of determination.
ACQUISITION DOCUMENT - has the meaning specified in the Securities
Purchase Agreement.
AFFILIATE - means, at and time, a Person (other than a Subsidiary or a
Purchaser):
(a) that directly or indirectly through one or more intermediaries
controls, or is controlled by, or is under common control with, the
Company;
(b) that beneficially owns or holds ten percent (10%) or more of any
class of the Voting Stock of the Company; or
(c) ten percent (10%) or more of the Voting Stock (or in the case of a
Person that is not a corporation, ten percent (10%) or more of the equity
interest) of which is beneficially owned or held by the Company or a
Subsidiary;
at such time.
As used in this definition,
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CONTROL - means the possession. directly or indirectly, of the
power to direct or cause the direction of the management and policies
of a Person, whether through the ownership of voting securities, by
contract or otherwise.
AFFILIATE GUARANTOR - means and includes the Parent, Jostens and each
Subsidiary becoming a party, or required to become a party, to the
Affiliate Guaranty on or after the date hereof.
AFFILIATE GUARANTY - means the Affiliate Guaranty, of even date
herewith, of the Parent and Jostens, in the form of Exhibit 4.6(e) to the
Securities Purchase Agreement, as amended, supplemented or modified in
accordance with its terms, and together with each Joinder Agreement
executed by any Subsidiary becoming a party thereto after the date hereof.
AGREEMENT, THIS - means this Note Agreement, as it may be amended,
restated or otherwise modified from time to time.
APPLICABLE INTEREST LAW - means any present or future law (including,
without limitation, the laws of the State of New York and the United States
of America) which has application to the interest and other charges
pursuant to this Agreement and the Notes.
BOARD OF DIRECTORS - means, at any time, the board of directors of the
Company or and committee thereof which, in the instance, shall have the
lawful power to exercise the power and authority of such board of
directors.
BUSINESS DAY - means a day other than a Saturday, a Sunday or a day on
which banks in the State of New York are required or permitted by law
(other than a general banking moratorium or holiday for a period exceeding
four (4) consecutive days to be closed.
CAPITAL LEASE - means, at any time, a lease with respect to which the
lessee is required to recognize the acquisition of an asset and the
incurrence of a liability in accordance with GAAP.
CAPITAL LEASE OBLIGATION - means, with respect to any Person and a
Capital Lease, the amount of the obligation of such Person as the lessee
under such Capital Lease which would, in accordance with GAAP, appear as a
liability on a balance sheet of such Person.
CAPITAL STOCK - means:
(a) with respect to any corporation, shares of any class of
preferred, common or other capital stock;
(b) with respect to any partnership, any limited, general or
other partnership interests; and
(c) with respect to any limited liability company, membership
interests or units or any similar interests;
or, in each such case or in the case of any other Person, all share capital or
similar equity interest of a Person.
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CHANGE IN CONTROL - means the failure, at any time and for any reason,
whether voluntary or involuntary, of Ripplewood Holdings L.L.C., together with
its management, affiliates and subsidiaries, to have the right to vote, directly
or indirectly, 51% of the shares of Voting Stock the Company.
CHANGE IN CONTROL NOTICE EVENT - means:
(a) the execution of any written agreement which, when fully performed
by the parties thereto, would result in a Change in Control; or
(b) the making of any written offer by any person (as such term is
used in section 13(d) and section 14(d)(2) of the Exchange Act as in effect
on the Closing Date) or related persons constituting a group (as such term
is used in Rule 13d-5 under the Exchange Act as in effect on the Closing
Date) to the holders of the Common Stock, or of the Common Stock and the
Warrants, which offer, if accepted by the requisite number of such holders,
would result in a Change in Control.
CHANGE IN CONTROL PAYMENT DATE - Section 1.6(b).
CLOSING DATE - means the first day upon which any Securities are sold to
any Purchaser under the Securities Purchase Agreement.
COMMON STOCK - means the Common Stock, par value $0.01 per share, of the
Company, and each other Security into which the Common Stock may be
recapitalized or reclassified, or for which such Common Stock shall be exchanged
or into which such Common Stock shall be converted.
COMPANY - the introductory paragraph.
CONSOLIDATED EBITDA - means, for any period, the sum of:
(a) Consolidated Net Income for such period; PLUS
(b) to the extent, and only to the extent, in each case, that such
amount was deducted in the computation of Consolidated Net Income for such
period, the aggregate amount of:
(i) Consolidated Interest Expense for such period; PLUS
(ii) income tax expense and deferred tax expense of the Company
and the Subsidiaries, determined on a consolidated basis for such
Persons; PLUS
(iii) depreciation and amortization expense of the Company and
the Subsidiaries, determined on a consolidated basis for such Persons.
CONSOLIDATED INTEREST EXPENSE - means, as of any date of determination, the
Interest Expense of the Company and its Subsidiaries on a consolidated basis for
such period.
CONSOLIDATED NET INCOME - means, with reference to any period, the net
income (or loss) of the Company and its Subsidiaries on a consolidated basis for
such period, excluding therefrom (to the extent otherwise included):
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(a) the income (or loss) of any Person accrued prior to the date it
becomes a Subsidiary or is merged into or consolidated with the Company or
a Subsidiary, and the income (or loss) of any Person, substantially all of
the assets of which have been acquired in any manner, realized by such
other Person prior to the date of acquisition;
(b) the income (or loss) of any Person (other than a Subsidiary) in
which the Company or any Subsidiary has an ownership interest, except to
the extent that any such income has been actually received by the Company
or such Subsidiary in the form of cash dividends or similar cash
distributions;
(c) the undistributed earnings of any Subsidiary to the extent that
the declaration or payment of dividends or similar distributions by such
Subsidiary is not at the time permitted by the terms of its charter or any
agreement, instrument, judgment, decree, order, statute, rule or
governmental regulation applicable to such Subsidiary;
(d) any restoration to income of any contingency reserve, except to
the extent that provision for such reserve was made out of income accrued
during such period;
(e) any aggregate net gain or net loss during such period arising from
the sale, conversion, exchange or other disposition of capital assets;
(f) any gains or losses resulting from any write-up or write-down of
any assets;
(g) any net gain from the collection of the proceeds of life insurance
policies;
(h) any gain arising from the acquisition of any Security, or the
extinguishment, under GAAP, of any Debt, of the Company or any Subsidiary;
(i) any net income, gain or loss during such period from:
(i) any change in accounting principles in accordance with GAAP;
(ii) any prior period adjustments resulting from any change in
accounting principles;
(iii) any extraordinary or non-recurring items; or
(iv) any discontinued operations or the disposition thereof;
(j) any deferred credit representing the excess of equity in any
Subsidiary at the date of acquisition over the cost of the investment in
such Subsidiary;
(k) in the case of a successor to the Company by consolidation or
merger or as a transferee of its assets, any earnings of the successor
corporation prior to such consolidation, merger or transfer of assets; and
(l) any portion of such net income that cannot be freely converted
into United States Dollars.
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CONSOLIDATED TOTAL DEBT - means, as of any date of determination, the total
Debt of the Company and its Subsidiaries on a consolidated basis at such time.
CONTROL - means, with respect to any Person, the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of such Person, whether through the ownership of Capital Stock, by
contract or otherwise.
DEBT - with respect to any Person, means, without duplication, the
liabilities of such Person with respect to:
(a) BORROWED MONEY - all liabilities evidenced by a note, bond,
debenture or similar instrumen; and all obligations in respect of borrowed
money, whether or not such liabilities are evidenced by a note, bond
debenture or other instrument;
(b) DEFERRED PURCHASE PRICE OF PROPERTY - the deferred purchase price
of Property acquired by such Person (excluding accounts payable arising in
the ordinary course of business consistent with past practice but including
all liabilities created or arising under any conditional sale or other
title retention agreement with respect to any such Property);
(c) SECURED LIABILITIES - borrowed money secured by any Lien existing
on Property owned by such Person (whether or not such liabilities have been
assumed);
(d) CAPITAL LEASES - Capital Leases of such Person;
(e) LETTERS OF CREDIT - letters of credit, bankers'
acceptances or instruments serving a similar function issued or
accepted by banks and other financial institutions for the account of
such Person, other than undrawn trade letters of credit in the ordinary
course of business;
(f) TAKE-OR-PAY OBLIGATIONS - obligations of such Person to pay a
stipulated amount or stipulated minimum amount for a product or service,
whether or not such product or service is delivered, whether by way of
Guaranty or otherwise; and
(g) GUARANTEES - any Guaranty of such Person of any obligation or
liability of another Person of obligations of the type listed in clause (a)
through clause (g) of this definition of Debt.
Unless the context otherwise requires, "Debt" means Debt of the Company or of a
Subsidiary.
DEBT OBLIGATIONS - means, with respect to any Debt, all obligations,
liabilities and indebtedness, whether now or hereafter existing and whether
fixed or contingent, for principal, premium (including, without limitation,
Prepayment Compensation Amounts), interest (including, without limitation,
interest accruing after the commencement of bankruptcy or other insolvency
proceedings by or against the Company or any assets of the Company, but only to
the extent such interest is allowed in such bankruptcy or other proceedings),
expenses (including, without limitation, reimbursement obligations in respect of
taxes) and fees (other than attorneys' fees) incurred by the Company in respect
of such Debt.
DEFAULT - means any event which, with the giving of notice or the passage
of time, or both, would become an Event of Default.
DISTRIBUTION - means and includes:
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(a) the declaration or making of, or the Incurrence of any liability
to make or declare, and dividends or other distributions in respect of the
Capital Stock or Equity Equivalents of the Company or any Subsidiary (other
than such dividends or distributions to the extent made solely in Common
Stock); and
(b) any optional or mandatory redemption, retirement, repurchase or
other acquisition, direct or indirect, of any Capital Stock or Equity
Equivalents of the Company or any Subsidiary.
DOL - means the United States Department of Labor and any successor agency.
EAC III - means EAC III L.L.C., a Delaware limited liability company.
ENVIRONMENTAL PROTECTION LAW - eans any law, statute or regulation enacted
by any Governmental Authority in connection with or relating to the protection
or regulation of the environment, including, without limitation, those laws,
statutes and regulations regulating the disposal, removal, production, storing,
refining, handling, transferring, processing or transporting of Hazardous
Materials and any applicable orders, decrees or judgments issued by any court of
competent jurisdiction in connection with any of the foregoing.
EQUITY EQUIVALENT - means and includes, with respect to any Capital Stock
of any Person:
(a) any warrants, rights or options exercisable into such Capital
Stock;
(b) any conversion or exchange privilege or right pursuant to any
Security which is convertible or exchangeable into such Capital Stock; and
(c) any equity appreciation. phantom stock or similar rights relating
to such Capital Stock or the value thereof.
ERISA - means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
ERISA AFFILIATE - means trade or business (whether or not incorporated)
that is treated as a single employer together with the Company under section 414
of the IRC.
EVENT OF DEFAULT - Section 6.1.
EXCHANGE ACT - means the Securities Exchange Act of 1934, as amended,
together with the rules and regulations of the SEC thereunder.
EXCLUDED FOREIGN SUBSIDIARY - means any Subsidiary organized under the laws
of any jurisdiction outside of the United States of America, PROVIDED that such
term shall not include any Subsidiary giving a Guaranty in favor of the lenders
under the Senior Credit Agreement.
FAIR MARKET VALUE - means, with respect to any Property, the sale value of
such Property that would be realized in an arm's-length sale at such time
between an informed and willing buyer, and an informed and willing seller, under
no compulsion to buy or sell, respectively.
FINANCING DOCUMENTS - means and includes this Agreement, the Securities
Purchase Agreement, the Notes, the Affiliate Guaranty, the Warrant Agreement,
the Warrants and the certificates representing the Warrants, the certificates
representing the shares of Common Stock sold pursuant to the Securities Purchase
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Agreement, the Stockholders Agreement and the other agreements, certificates and
instruments to be executed pursuant to the terms of each of the foregoing, as
each may be amended, restated or otherwise modified from time to time.
FOREIGN PENSION PLAN - means any plan, fund or other similar program:
(a) established or maintained outside of the United States of America
by the Company primarily for the benefit of the employees (substantially
all of whom are aliens not residing in the United States of America) of the
Company, which plan, fund or other similar program provides for retirement
income for such employees or results in a deferral of income for such
employees in contemplation of retirement; or
(b) not otherwise subject to ERISA.
GAAP - means accounting principles as promulgated from time to time in
statements, opinions and pronouncements by the American Institute of Certified
Public Accountants and the Financial Accounting Standards Board and in such
statements, opinions and pronouncements of such other entities with respect to
financial accounting of for-profit entities as shall be accepted by a
substantial segment of the accounting profession in the United States of
America.
GOVERNMENTAL AUTHORITY - means:
(a) the government of:
(i) the United States of America and any state or other political
subdivision thereof; or
(ii) any other jurisdiction in which the Company or any
Subsidiary conducts all or any part of its business, or that asserts
any jurisdiction over the conduct of the affairs of, or the Property
of, the Company or any Subsidiary; and
(b) any entity exercising executive, legislative, judicial, regulatory
or administrative functions of, or pertaining to, any such government.
GUARANTY - means with respect to any Person (for the purposes of this
definition, the "GUARANTOR") any obligation (except the endorsement in the
ordinary course of business of negotiable instruments for deposit or collection)
of such Person guaranteeing or in effect guaranteeing any indebtedness, dividend
or other obligation of any other Person (the "PRIMARY OBLIGOR") in any manner,
whether directly or indirectly, including, without limitation, obligations
incurred through an agreement, contingent or otherwise, by the Guarantor:
(a) to purchase such indebtedness or obligation or any Property
constituting security therefor;
(b) to advance or supply funds;
(i) for the purchase or payment of such indebtedness, dividend or
obligation;
or
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<PAGE>
(ii) to maintain working capital or other balance sheet condition
or any income statement condition of the Primary Obligor or otherwise
to advance or make available funds for the purchase or payment of such
indebtedness, dividend or obligation;
(c) to lease Property or to purchase Securities or other Property or
services primarily for the purpose of assuring the owner of such
indebtedness or obligation of the ability of the Primary Obligor to make
payment of the indebtedness or obligation; or
(d) otherwise to assure the owner of the indebtedness or obligation of
the Primary Obligor against loss in respect thereof.
For purposes of computing the amount of any Guaranty, in connection with any
computation of indebtedness or other liability:
(i) in each case where the obligation that is the subject of such
Guaranty is in the nature of indebtedness for money borrowed it shall
be assumed that the amount of the Guaranty is the amount of the direct
obligation then outstanding; and
(ii) in each case where the obligation that is the subject of
such Guaranty is not in the nature of indebtedness for money borrowed
it shall be assumed that the amount of the Guaranty is the amount (if
any) of the direct obligation that is then due.
HAZARDOUS MATERIAL - means all or any of the following:
(a) substances that are defined or listed in, or otherwise classified
pursuant to, any applicable Environmental Protection Laws as "hazardous
substances", "hazardous materials", "hazardous wastes", "toxic substances"
or any other formulation intended to define, list or classify substances by
reason of deleterious properties such as ignitability, corrosivity,
reactivity, carcinogenicity, reproductive toxicity, "TLCP toxicity" or "EP
toxicity";
(b) oil, petroleum or petroleum derived substances, natural gas,
natural gas liquids or synthetic gas and drilling fluids, produced waters
and other wastes associated with the exploration, development or production
of crude oil, natural gas or geothermal resources;
(c) any flammable substances or explosives or any radioactive
materials;
(d) asbestos or urea formaldehyde in any form; and
(e) dielectric fluid containing levels of polychlorinated biphenyls in
excess of fifty parts per million.
INCUR - means, with respect to any Debt, to create, incur, issue, assume,
guarantee or otherwise become liable with respect to such Debt; and the term
"INCURRENCE" shall have a correlative meaning.
INITIAL PUBLIC OFFERING DATE - means the first date upon which Common Stock
shall have been issued or sold pursuant to an underwritten public offering
(whether on a firm commitment basis or a best efforts basis if such best efforts
are successful) thereof pursuant to an effective registration statement filed
with the SEC pursuant to the Securities Act resulting in not less than
thirty-five percent (35%) of the outstanding Common
43
<PAGE>
Stock, having an aggregate fair market value of not less than Twenty-Five
Million Dollars ($25,000,000), being publicly traded.
INTEREST EXPENSE - means, with respect to any Person for any period, the
sum (without duplication) of the following:
(a) all interest in respect of Debt of such Person (including, without
limitation, imputed interest on Capital Lease Obligations) deducted in
determining Consolidated Net Income for such period; PLUS
(b) all interest capitalized or deferred during such period and not
deducted in determining Consolidated Net Income for such period; and
(c) all debt discount and expense amortized or required to be
amortized in the determination of Consolidated Net Income for such period.
INTEREST COVERAGE RATIO - means, for any period, the ratio of:
(a) Consolidated EBITDA for such period; to
(b) Consolidated Interest Expense for such period.
IRC - means the Internal Revenue Code of 1986, together with all rules and
regulations promulgated pursuant thereto,. as amended from time to time.
JOSTENS - means JLC Learning Corporation- an Illinois corporation and a
Wholly-Owned Subsidiary.
LIEN - means any interest in Property securing an obligation owed to, or a
claim by, a Person other than the owner of the Property (for purposes of this
definition. the "OWNER"), whether such interest is based on the common law,
statute or contract, and includes but is not limited to:
(a) the lien arising from a security interest, mortgage, encumbrance,
pledge, conditional sale or trust receipt or a lease, consignment or
bailment for security purposes, and the filing of any financing statement
under the Uniform Commercial Code of any jurisdiction, or an agreement to
give any of the foregoing:
(b) reservations, exceptions, encroachments, easements, rights-of-way,
covenants, conditions, restrictions, leases and other title exceptions and
encumbrances affecting real Property;
(c) stockholder agreements, voting trust agreements, buy-back
agreements and all similar arrangements affecting the Owner's rights in
Capital Stock owned by the Owner; and
(d) any interest in any Property held by the Owner evidenced by a
conditional sale agreement, Capital Lease or other arrangement pursuant to
which title to such Property has been retained by or vested in some other
Person for security purposes.
The term "Lien" does not include negative pledge clauses in loan agreements and
equal and ratable security clauses in loan agreements.
44
<PAGE>
LIQUIDITY EVENT - means. in connection with any payment of all the Notes
pursuant to Section 1.3. an event which permits all the holders of Purchaser
Shares to sell all such Purchaser Shares in the same or a contemporaneous and
related transaction (whether or not the holders of the Purchaser Shares actually
sell all such Purchaser Shares) on, or substantially contemporaneously with, the
date of such payment of all the Notes pursuant to Section 1.3.
MATERIAL ADVERSE EFFECT - means, with respect to any event or circumstance
(either individually or in the aggregate with all other events and
circumstances), an effect caused thereby or resulting therefrom that would be
materially adverse as to, or in respect of:
(a) the business, operations, profits, financial condition, Properties
or business prospects of the Company and the Subsidiaries, taken as a
whole;
(b) the ability of any Obligor to perform its respective obligations
under any Financing Document to which it is a party: or
(c) the validity or enforceability of any of the Financing Documents.
MATERIAL OBLIGATION - means Debt (other than evidenced by the Notes and the
Affiliate Guaranty), or Swaps, of any one or more of the Company and its
Subsidiaries in an aggregate principal amount exceeding One Million Dollars
($1,000.000).
MAXIMUM LEGAL RATE OF INTEREST - means the maximum rate of interest that a
holder of Notes may from time to time legally charge the Company by agreement
and in regard to which the Company would be prevented successfully from raising
the claim or defense of usury under the Applicable Interest Law as now or
hereafter construed by courts having appropriate jurisdiction.
MAXIMUM SENIOR DEBT AMOUNT - means, at any time, the product of:
(a) one hundred thirty percent (130%); MULTIPLIED BY
(b) the DIFFERENCE of:
(i) Nineteen Million Dollars ($19,.000,000); MINUS
(ii) the aggregate amount of all prepayments or repayments of
principal made by the Company in respect of the Senior Debt after the
Closing Date (including, without limitation, payments in respect of a
Revolving Credit Facility resulting in a permanent reduction of the
availability or commitments thereunder), other than:
(A) payments made in respect of one Acceptable Credit
Facility which are made with the proceeds of a contemporaneous
loan or advance under another Acceptable Credit Facility; and
(B) payments in respect of a Revolving Credit Facility which
do not result in a permanent reduction of the commitments or
availability thereunder.
MEMORANDUM - means that Confidential Summary Financing Memorandum dated
January 1999 prepared by Ripplewood Holdings L.L.C.
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<PAGE>
MERGER DOCUMENTS - means the Articles of Merger for Jostens to be filed
with the Secretary of State of the State of Illinois and the Certificate of
Ownership and Merger of the Company to be filed with the Secretary of State of
the State of Delaware.
MULTIEMPLOYER PLAN -means any "multiemployer plan" (as defined in section
4001(a)(3) of ERISA).
NET PURCHASER SHARE PRICE - means, with respect to any sale of Purchaser
Shares, the net price (after deduction of any out-of-pocket expenses in
connection with such sale but before deduction for payment of any income taxes
in respect thereof) received by the holders of Purchaser Shares from such sale.
NONPAYMENT DEFAULT - means any event of default (other than a Payment
Default) with respect to the Senior Debt.
NONPAYMENT DEFAULT NOTICE - Section 7.5.
NOTE - means and includes each 13.375% Senior Subordinated Note due July
13, 2007 issued pursuant to this Agreement.
OBLIGOR - means and includes the Company and each Affiliate Guarantor.
PARENT - means EAC II Inc., a Delaware corporation.
PAYMENT BLOCKAGE PERIOD -Section 7.5.
PAYMENT BLOCKAGE TERMINATION DATE - means, with respect to any Payment
Blockage Period, the earliest of:
(a) the date which is one hundred seventy-nine (179) days after the
date of receipt by the Company of the Nonpayment Default Notice commencing
such Payment Blockage Period;
(b) the date on which all Nonpayment Defaults giving rise to such
Payment Blockage Period shall have been cured or waived in accordance with
the Senior Credit Agreement;
(c) the date such Payment Blockage Period shall have been terminated
by written notice to the Company from the Senior Agent; and
(d) the date of the repayment in full in cash of the Senior Debt and
termination of all commitments thereunder.
PAYMENT DEFAULT - Section 7.4.
PBGC - means the Pension Benefit Guaranty Corporation, or any other Person
succeeding to the duties thereof.
PERMITTED MANAGEMENT FEE PAYMENTS - means payments to Ripplewood Holdings
L.L.C. pursuant to the Management Agreement between Ripplewood Holdings L.L.C.
and the Company not exceeding Five Hundred Thousand Dollars ($500,000) in any
one calendar year.
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<PAGE>
PERMITTED SECURITIES - means Securities of the Company or any other Person
provided for by a plan of recapitalization, restructuring, reorganization or
readjustment:
(a) which either:
(i) comprise Common Stock or other Capital Stock; or
(ii) to the extent they comprise Capital Stock (other than Common
Stock) of the Company, or comprise Debt, the payment thereof is
subordinated, at least to the extent provided in Section 7 with
respect to Subordinated Debt, to the payment of all Senior Debt at the
time outstanding and to any Debt Securities issued in respect of the
Senior Debt under any such plan of recapitalization, restructuring,
reorganization or readjustment: or
(b) in connection with which the holders of Senior Debt have
acknowledged that the Senior Debt has been paid in full.
PERSON - means an individual, partnership, corporation, limited liability
company, joint venture, trust, unincorporated organization, or a government or
agency or political subdivision thereof.
PLAN - means an "employee benefit plan" (as defined in section 3(3) of
ERISA) that is or, within the preceding five years, has been established or
maintained, or to which contributions are or, within the preceding five years,
have been made or required to be made, by the Company or any ERISA Affiliate or
with respect to which the Company or any ERISA Affiliate may have any liability.
PREPAYMENT COMPENSATION AMOUNT - means, with respect to a principal amount
of the Notes to which a Prepayment Compensation Amount is required to be paid,
an amount equal to the applicable percentage set out below of such principal
amount of Notes:
<TABLE>
<CAPTION>
======================================= ======================================
IF THE PREPAYMENT COMPENSATION PERCENTAGE OF THE PREPAID PRINCIPAL
AMOUNT IS DUE DURING THE PERIOD SET AMOUNT TO BE PAID AS PREPAYMENT
FORTH BELOW: COMPENSATION AMOUNT SHALL BE:
======================================= ======================================
<S> <C>
Closing Date to 4.00%
June 30, 2000, inclusive
July 1, 2000 to 3.00%
June 30, 2001, inclusive
July 1, 2001 to 1.00%
June 30, 2002, inclusive
July 1, 2002 and 0.00%
thereafter
======================================= ======================================
</TABLE>
PRO FORMA INTEREST EXPENSE - means, for any period, in connection with the
Incurrence of any Debt during such period, the amount of Consolidated Interest
Expense which would have resulted during and for such period, had such Debt been
incurred on the first day of such period and had any other Debt repaid with the
proceeds of such Debt been repaid on the first day of such period; and further
assuming:
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(a) that the rate of interest in effect for floating rate Debt shall
at all times be the rate of interest in effect on the date of
determination; and
(b) that the entire principal amount of such newly incurred Debt shall
be outstanding for each day during such period.
PROPERTY - means any interest in any kind of property or asset, whether
real, personal or mixed, and whether tangible or intangible.
PURCHASERS - the introductory paragraph.
PURCHASER AFFILIATE - means a Purchaser, the Purchaser Representative and
any Person controlled by, controlling or under common control with, or advised
with respect to its investments by, the Purchaser Representative, or which
advises the Purchaser Representative with respect to its investments.
PURCHASER REPRESENTATIVE - means The Northwestern Mutual Life Insurance
Company.
PURCHASER SHARES - means, without duplication, shares of Common Stock
issued to a Purchaser pursuant to the terms of the Securities Purchase
Agreement, shares of Common Stock that have been issued upon the exercise of any
exercised Warrant and any shares of Common Stock that are issuable upon the
exercise of outstanding Warrants.
REALIZABLE IRR - means, at any time in connection with a Liquidity Event,
that pretax internal rate of return in respect of the Notes and the Purchaser
Shares at such time, calculated in accordance with generally accepted financial
practice, such calculation to be made based on the following assumptions:
(a) the entire principal of all the Notes is paid in full at par,
together with accrued interest thereon, on the payment date fixed therefor
pursuant to Section 1.3;
(b) the holders of the Notes and Purchaser Shares at such time
purchased their Notes or Purchaser Shares, or both, at the Closing;
(c) all Warrants (whether or not previously exercised) are exercised
immediately prior to the occurrence of the Liquidity Event, and that the
holders thereof paid the purchase price therefor;
(d) all Purchaser Shares (whether or not actually previously sold) are
sold immediately upon the occurrence of such Liquidity Event for cash at
the Net Purchaser Share Price which would have been actually received by
the holders of Purchaser Shares in connection with such Liquidity Event,
and the proceeds of such sale are received by the holders of the Notes and
included in the determination of such internal rate of return.
REALIZED IRR - means, at any time in connection with a Change in
Control, that actual internal rate of return in respect of the Notes and the
Purchaser Shares, calculated in accordance with generally accepted financial
practice, such calculation to be made based on the following assumptions:
(a) the actual payment of all the Notes (whether or not the holders of
all such Notes actually accept the offered prepayment in respect of such
Change in Control) at par, together with accrued interest thereon, on the
Change in Control Payment Date pursuant to Section 1.5(g);
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<PAGE>
(b) the holders of the Notes and Purchaser Shares at such time
purchased their Notes or Purchaser Shares, or both, at the Closing;
(c) the Warrants actually exercised prior to the Change in Control
Prepayment Date were exercised, and payment of the purchase price therefor
made, on the actual date(s) of exercise thereof.
(d) any Purchaser Shares actually sold prior to the Change in Control
Prepayment Date were sold on the actual date of sale thereof, that the
return in respect of such Purchaser Shares was equal to the Net Purchaser
Share Price actually received by the holders of Purchaser Shares in
connection with such sales, and that the return was received on the date(s)
actually received by the holders of the Purchaser Shares; and
(e) all Purchaser Shares not actually previously sold are sold on the
Change in Control Prepayment Date at the actual Net Purchaser Share Price
in connection with such sale, and the Net Purchaser Share Price is received
by the holders of the Purchaser Shares on such date;
PROVIDED, HOWEVER, that if:
(i) a Liquidity Event occurs in connection with such Change of
Control;
(ii) a holder of Notes and Purchaser Shares has elected to have
such holder's Notes prepaid in accordance with Section 1.6 as a result
of such Change in Control, but shall have declined to sell such
holder's Purchaser Shares in connection , with such Liquidity Event
(despite having the right and ability to do so);
then, with respect to such holder of Notes, "Realized IRR" shall mean the
Realizable IRR with respect to such Liquidity Event.
RELEASE - has the meaning set forth in the Comprehensive Environmental
Response, Compensation and Liability Act, as amended, 42 U.S.C. 39601 ET SEQ.
REMEDIES - means and includes, with respect to any Debt:
(a) the acceleration of the maturity such Debt; the exercise of any
option by the holder of such Debt to require any Obligor to repurchase such
Debt; or the demand for payment in respect of any Debt due on demand;
(b) the collection of or commencement of proceedings to enforce or
collect, such Debt against any Obligor or any of their respective Property;
(c) the holder of such Debt taking possession of or foreclosing
(whether by judicial proceedings or otherwise) upon any security for, or
exercising any other such nights and remedies with respect to, such Debt or
any claim with respect thereto;
(d) the filing by any Obligor or any holders of such Debt of a
petition under any insolvency, bankruptcy, receivership, liquidation,
reorganization, readjustment, composition or other similar proceeding
relating to such Obligor, its creditors or its Property, any proceeding for
the liquidation, dissolution or other winding-up of any Obligor, voluntary
or involuntary, whether or not
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<PAGE>
involving insolvency or bankruptcy proceedings or any assignment by the
Company for the benefit of creditors or marshaling of the assets of any
Obligor; or
(e) the taking by the holder of such Debt of any other similar action
against any Obligor.
As used in this definition, the term "holder" of Debt shall include an agent or
trustee therefor, whether or not such agent or trustee holds any Debt.
REQUIRED HOLDERS - means, at any time, the holders of a majority in
principal amount of the Notes, or either of the Purchasers so long as such
Person continues to hold at least 50% in principal amount of the Notes
originally purchased by such Person pursuant to this Agreement, at the time
outstanding (exclusive of Notes then owned by any one or more of the Company,
any Subsidiary or any Affiliate); PROVIDED that in connection with any proposed
amendment or waiver in respect of Sections 1, 2.2, 4.3, 4.6, 4.8, 9.6 or 9.8,
"Required Holders" shall be deemed to include SGC so long as any such proposed
amendment or waiver would adversely affect SGC interests hereunder and under the
Notes if implemented in such proposed form.
RESTRICTED PAYMENT -- means
(a) any Distribution in respect of the Company or any Subsidiary
(other than on account of Capital Stock or other Equity Equivalents of a
Subsidiary owned legally and beneficially by the Company or a Wholly-Owned
Subsidiary), including, without limitation, any Distribution resulting in
the acquisition by the Company of Securities which would constitute
treasury stock; and
(b) any payment, repayment, redemption, retirement, repurchase or
other acquisition, direct or indirect, by the Company or any Subsidiary of,
on account of, or in respect of, the principal of, or any other payment (of
interest, premium, fees or otherwise) in respect of any Debt of the Company
which is either:
(i) owned by the Company to any Affiliate or Subsidiary; or
(ii) subordinated in right of payment to the Notes.
For purposes of this Agreement, the amount of any Restricted Payment made
in Property shall be the greater of the Fair Market Value of such Property (as
determined in good faith by the board of directors or equivalent governing body
of the Person making such Restricted Payment or, to the extent that the Required
Holders dispute such determination, by the Valuation Agent) and the net book
value thereof on the books of such Person, in each case determined as of the
date on which such Restricted Payment is made.
REVOLVING CREDIT FACILITY - means any facility under an Acceptable Credit
Facility providing commitments by the lenders thereunder to make loans or issue
letters of credit, bankers' acceptances or similar trade credits to the Company,
under a revolving credit, letter of credit or similar facility permitting the
Company to obtain loans or credits from time to time and repay such loans or
credits from time to time.
RIGHT - means and includes:
(a) any warrants (including, without limitation, the Warrants), rights
or other options exercisable into Common Stock; and
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<PAGE>
(b) any conversion or exchange privilege or right pursuant to any
Security (including, without limitation, any share of capital stock) which
is convertible or exchangeable into Common Stock.
RIPPLEWOOD - means Ripplewood Partners, L.P., a Delaware limited
partnership.
RIPPLEWOOD AFFILIATES - means Ripplewood, Ripplewood Holdings L.L.C. and
any affiliate of Ripplewood that is controlled by either of the foregoing.
SEC - means, at any time, the Securities and Exchange Commission or any
other federal agency at such time administering the Securities Act.
SECURITIES ACT - means the Securities Act of 1933, as amended, and the
rules and regulations of the SEC promulgated thereunder.
SECURITIES PURCHASE AGREEMENT - means, collectively, the several separate
Securities Purchase Agreements, each of even date herewith, between the Company
and each Purchaser, as such agreement may be amended, restated or otherwise
modified from time to time.
SECURITY - means "security" as defined by section 2(l) of the Securities
Act.
SENIOR AGENT - means, on the date hereof and for so long as the Senior
Credit Agreement shall remain in effect, Bank of America, as agent under the
Senior Credit Agreement; and thereafter, any one (1) contractual representative
or agent under an Acceptable Credit Facility which the Company and the
predecessor Senior Agent shall have identified in writing to each holder of
Notes as the "Senior Agent".
SENIOR CREDIT AGREEMENT - means the Credit Agreement, dated as of July 13,
1999, among the Company, the Senior Agent and the lenders thereunder as in
effect on the Closing Date.
SENIOR DEBT - means all Debt Obligations arising under an Acceptable Credit
Facility; PROVIDED, HOWEVER, that if the aggregate amount of all such Debt
Obligations shall exceed the Maximum Senior Debt Amount, such excess shall not
constitute Senior Debt for purposes of this Agreement.
SENIOR FINANCIAL OFFICER -- means any one of the chief financial officer,
the treasurer, the controller and the principal accounting officer of the
Company.
SENIOR OFFICER -- means any one of the chairman of the board of directors,
the chief executive officer, the chief operating officer, and the president, of
the Company.
SGC -- means SGC Partners II LLC., a Delaware limited liability company.
STOCKHOLDERS AGREEMENT - means the Stockholders Agreement, of even date
herewith, among the Company, the Purchasers and EAC III, as such agreement may
be amended, restated or otherwise modified from time to time.
SUBORDINATED DEBT - means all Debt Obligations arising under this Agreement
or the Notes.
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<PAGE>
SUBSIDIARY - means,. at any time, each corporation,. association, limited
liability company or other business entity which qualifies as a subsidiary of
the Company that is properly included in a consolidated financial statement of
the Company and its subsidiaries in accordance with GAAP at such time, and shall
include, without limitation, Jostens.
SUBSIDIARY STOCK - Section 4.7(b).
SWAPS -- means, with respect to any Person, obligations with respect to
interest rate swaps, currency swaps and similar obligations obligating such
Person to make payments, whether periodically or upon the happening of a
contingency, except that if any agreement relating to such obligation provides
for the netting of amounts payable by and to such Person thereunder or if any
such agreement provides for the simultaneous payment of amounts by and to such
Person, then in each such case, the amount of such obligations shall be the net
amount thereof. The aggregate net obligation of Swaps at any time shall be the
aggregate amount of the obligations of such Person under all Swaps assuming all
such Swaps had been terminated by such Person as of the end of the then most
recently ended fiscal quarter of such Person. If such net aggregate obligation
shall be an amount owing to such Person, then the amount shall be deemed to be
Zero Dollars ($0).
TARGET IRR - means, as of any date set forth in the chart below, the
internal rate of return, calculated in accordance with generally accepted
financial practice, set forth in the chart below for such date:
<TABLE>
<CAPTION>
IF DURING THE PERIOD SET FORTH BELOW: TARGET IRR:
======================================== =============================
<S> <C>
Closing Date to
June 30, 2000, inclusive 25.00%
July 1, 2000 to
June 30, 2001, inclusive 22.00%
July 1, 2001 to 20.00%
June 30, 2003
======================================== =============================
</TABLE>
TRANSFERS - means and includes, with respect to any Property, any sales,
leases, transfers or other dispositions of such Property, the term "TRANSFER",
when used as a verb with respect to any Property, means to sell, lease as
lessor, transfer or otherwise dispose of such Property: and the term
"TRANSFERRED" has a correlative meaning.
VALUATION AGENT - means a firm of independent certified public accountants,
an investment banking firm or appraisal firm (which firm shall own no Securities
of, and shall not be an Affiliate, Subsidiary or a related Person of, the
Company) of recognized national standing retained by the Company and reasonably
acceptable to the Required Holders, and whose fees and disbursements shall be
borne by the Company.
VOTING STOCK - means, with respect to any Person, any Capital Stock of such
Person whose holders are entitled under ordinary circumstances to vote for the
election of directors, managers. trustees, the managing partner or other
individuals fulfilling similar duties with respect to such Person (irrespective
of whether at the time Capital Stock of any other class or classes shall have or
might have voting power by reason of the happening of any contingency);
PROVIDED, HOWEVER, that Purchaser Shares shall be deemed not to be Voting Stock.
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<PAGE>
WARRANT - means each warrant to purchase Common Stock issued pursuant to
the Warrant Agreement.
WARRANT AGREEMENT - means the Warrant Agreement, of even date herewith,
between the Company and The Northwestern Mutual Life Insurance Company, as such
agreement may be amended, restated or otherwise modified from time to time,
pursuant to which the Warrants were issued.
WHOLLY-OWNED SUBSIDIARY - means, at any time, any Subsidiary one hundred
percent (100%) of all of the Capital Stock of which is owned by any one or more
of the Company and the Company's other Wholly-Owned Subsidiaries at such time,
and shall include, without limitation, Jostens.
YEAR 2000 COMPLIANT - means all computer applications (including those
affected by information received from its suppliers and vendors) that are
material to the Company's and the Subsidiaries' business and operations will on
a timely basis be able to perform properly date-sensitive functions involving
dates on or after January 1. 2000,
8.2 ACCOUNTING PRINCIPLES.
(a) GENERALLY. Unless otherwise provided herein, all financial
statements delivered in connection herewith will be prepared in accordance
with GAAP. Where the character or amount of any asset or liability or item
of income or expense, or any consolidation or other accounting computation
is required to be made for any purpose hereunder, it shall be done in
accordance with GAAP, PROVIDED, HOWEVER, that if any term defined herein
includes or excludes amounts, items or concepts that would not be included
in or excluded from such term if such term were defined with reference
solely to GAAP, such term will be deemed to include or exclude such
amounts, items or concepts as set forth herein.
(b) CONSOLIDATION. Whenever accounting amounts of a group of Persons
are to be determined "on a consolidated basis" it shall mean that, as to
balance sheet amounts to be determined as of a specific time, the amount
that would appear on a consolidated balance sheet of such Persons prepared
as of such time, and as to income statement amounts to be determined for a
specific period, the amount that would appear on a consolidated income
statement of such Persons prepared in respect of such period, in each case
with all transactions among such Persons eliminated, and prepared in
accordance with GAAP except as otherwise required hereby.
(c) CURRENCY. With respect to any determination, consolidation or
accounting computation required hereby, any amounts not denominated in the
currency in which this Agreement specifics shall be converted to such
currency in accordance with the requirements of GAAP (as such requirements
relate to such determination, consolidation or computation) and, if no such
requirements shall exist, converted to such currency in accordance with
normal banking procedures, at the closing rate as reported in THE WALL
STREET JOURNAL published most recently as of the date of such
determination, consolidation or computation or, if no such quotation shall
then be available, as quoted on such date by any bank or trust company
reasonably acceptable to the Required Holders.
8.3 DIRECTLY OR INDIRECTLY.
Where any provision herein refers to action to be taken by any Person, or
which such Person is prohibited from taking, such provision shall be applicable
whether such action is taken directly or indirectly by such Person, including
actions taken by or on behalf of any partnership in which such Person is a
general partner.
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8.4 SECTION HEADINGS AND TABLE OF CONTENTS AND CONSTRUCTION.
(a) SECTION HEADINGS AND TABLE OF CONTENTS, ETC. The titles of the
Sections of this Agreement and the Table of Contents of this Agreement
appear as a matter of convenience only, do not constitute a part hereof and
shall not affect the construction hereof. The words "herein", "hereof",
"hereunder" and "hereto" refer to this Agreement as a whole and not to any
particular Section or other subdivision. References to Sections are, unless
otherwise specified, references to Sections of this Agreement. References
to Annexes and Exhibits are, unless otherwise specified, references to
Annexes and Exhibits attached to this Agreement.
(b) CONSTRUCTION. Each covenant contained herein shall be construed
(absent an express contrary provision herein) as being independent of each
other covenant contained herein, and compliance with any one covenant shall
not (absent such an express contrary provision) be deemed to excuse
compliance with one or more other covenants.
8.5 GOVERNING LAW.
THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED BY, AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK. IN
ADDITION, THE PARTIES HERETO SELECT, TO THE EXTENT THEY MAY LAWFULLY DO SO, THE
INTERNAL LAWS OF THE STATE OF NEW YORK AS THE APPLICABLE INTEREST LAW.
8.6 GENERAL INTEREST PROVISIONS.
(a) INTEREST IN RESPECT OF THE NOTES. The Purchasers and the Company
agree that the provisions of section 5-501(6) and 5-521 of the New York
General Obligations Law apply to the transaction contemplated by the
Financing Documents. Notwithstanding the foregoing, is the intention of the
Company and the Purchasers to conform strictly to the Applicable Interest
Law, and the parties agree that the aggregate of all interest, and any
other charges or consideration constituting interest under the Applicable
Interest Law that is taken, reserved, contracted for, charged or received
pursuant to this Agreement or the Notes shall under no circumstances exceed
the maximum amount of interest allowed by the Applicable Interest Law. If
any such excess interest is ever charged, received or collected on account
of or relating to this Agreement and the Notes (including any charge or
amount which is not denominated as "interest" but is legally deemed to be
interest under Applicable Interest Law), then in such event:
(i) the provisions of this Section 8.6 shall govern and control;
(ii) the Company shall not be obligated to pay the amount of such
interest to the extent that it is in excess of the maximum amount of
interest allowed by the Applicable Interest Law;
(iii) any excess shall be deemed a mistake and cancelled
automatically and, if theretofore paid, shall be credited to the
principal amount of the Notes by the holders thereof, and if the
principal balance of the Notes is paid in full, any remaining excess
shall be forthwith paid to the Company; and
54
<PAGE>
(iv) the effective rate of interest shall be automatically
subject to reduction to the Maximum Legal Rate of Interest.
If at any time thereafter, the Maximum Legal Rate of Interest is increased,
then, to the extent that it shall be permissible under the Applicable Interest
Law, the Company shall forthwith pay to the holders of the Notes, on a pro rata
basis, all amounts of such excess interest that the holders of the Notes would
have been entitled to receive pursuant to the terms of this Agreement and the
Notes had such increased Maximum Legal Rate of Interest been in effect at all
times when such excess interest accrued. To the extent permitted by the
Applicable Interest Law, all sums paid or agreed to be paid to the holders of
the Notes for the use, forbearance or detention of the indebtedness evidenced
thereby shall be amortized, prorated, allocated and spread throughout the full
term of the Notes.
(b) EFFECT OF ISSUANCE OF NOTES TOGETHER WITH WARRANTS. The Company
and the Purchasers agree, to the extent permitted by the Applicable
Interest Law, that, for purposes of computing the interest in respect of
the those Notes issued together with Warrants under the Applicable Interest
Law:
(i) the aggregate purchase price of such Notes shall equal the
difference of
(A) the initial aggregate principal amount of such Notes;
and
(B) the amount of original issue discount attributable to
the Notes in respect of the issuance of the Warrants together
with such Notes;
(ii) the amount of original issue discount attributable to such
Notes in respect of the issuance of the Warrants shall be deemed to be
One Hundred Thousand Dollars ($100.000);
(iii) the Warrants and such Notes shall be deemed to have been
separately issued for the respective purchase prices set forth above;
and
(iv) no portion of the return, if any, to the holders of the
Warrants in respect of their investment therein shall be deemed to be
interest in respect of the Notes;
and, with respect to the Notes issued without Warrants, the aggregate
purchase price of such Notes shall be one hundred percent (100%) of the
principal amount thereof, and no original issue discount shall result.
9. MISCELLANEOUS
9.1 COMMUNICATIONS.
(a) METHOD; ADDRESS. All communications hereunder or under the Notes
shall be in writing and shall be delivered either by nationwide overnight
courier or by facsimile transmission (confirmed by delivery by nationwide
overnight courier sent on the day of the sending of such facsimile
transmission). Communications to the Company shall be addressed as set
forth on Annex 2, or at such other address of which the Company shall have
notified each holder of Notes. Communications to the holders of the Notes
shall be addressed as set forth on Annex 1 by such holder, or at such other
address of which such holder shall have notified the Company (and the
55
<PAGE>
Company shall record such address in the register for the registration and
transfer of Notes maintained pursuant to Section 2.1).
(b) WHEN GIVEN. Any communication addressed and delivered as herein
provided shall be deemed to be received when actually delivered to the
address of the addressee whether or not delivery is accepted) or received
by the telecopy machine of the recipient. Any communication not so
addressed and delivered shall be ineffective.
(c) SERVICE OF PROCESS. Notwithstanding the foregoing provisions of
this Section 9.1, service of process in any suit, action or proceeding
arising out of or relating to this agreement or any document, agreement or
transaction contemplated hereby, or any action or proceeding to execute or
otherwise enforce any judgment in respect of any breach hereunder or under
any document or agreement contemplated hereby, shall be delivered in the
manner provided in Section 9.7(c).
9.2 REPRODUCTION OF DOCUMENTS.
This Agreement and all documents relating hereto, including, without
limitation, consents, waivers and modifications that may hereafter be executed,
documents received by any holder of Notes on the Closing Date (except the Notes
themselves), and financial statements, certificates and other information
previously or hereafter furnished to any holder of Notes, may be reproduced by
the Company or any holder of Notes by any photographic, photostatic, microfilm,
micro-card, miniature photographic, digital or other similar process and each
holder of Notes may destroy any original document so reproduced. Any such
reproduction shall be admissible in evidence as the original itself in any
judicial or administrative proceeding (whether or not the original is in
existence and whether or not such reproduction was made by the Company or such
holder of Notes in the regular course of business) and any enlargement,
facsimile or further reproduction of such reproduction shall likewise be
admissible in evidence. Nothing in this Section 9.2 shall prohibit the Company
or any holder of Notes from contesting the accuracy or validity of any such
reproduction.
9.3 SURVIVAL.
All warranties, representations, certifications and covenants made by the
Company herein, in the Securities Purchase Agreement or in any certificate or
other instrument delivered hereunder shall be considered to have been relied
upon by each holder of Notes and shall survive the delivery to you of the
Purchased Securities (including, without limitation, the Notes) regardless of
any investigation made by or on behalf of any party hereto. All statements in
any certificate or other instrument delivered pursuant to the terms hereof or of
the Securities Purchase Agreement shall constitute warranties and
representations of the Company hereunder. All obligations hereunder (other than
payment of the Notes, but including, without limitation, reimbursement
obligations in respect of costs, expenses and fees) shall survive the payment of
the Notes and the termination hereof.
9.4 SUCCESSORS AND ASSIGNS.
This Agreement shall inure to the benefit of and be binding upon the
successors and assigns of each of the parties hereto. The provisions hereof are
intended to be for the benefit of all holders, from time to time, of Notes, and
shall be enforceable by any such holder whether or not an express assignment to
such holder of rights hereunder shall have been made by any such holder or its
successor or assign. Anything contained in this Section 9.4 notwithstanding, the
Company may not assign any of its respective rights, duties or obligations
hereunder or under any of the other Financing Documents without the prior
written consent of all holders of Notes. For purposes of the avoidance of doubt,
any holder of a Note shall be permitted to pledge
56
<PAGE>
or otherwise grant a Lien in and to such Note (including, without limitation,
pledging such Note to a trustee for the benefit of certain secured noteholders
pursuant to documents relating to the financing of such holder or to one or more
banks or other institutions providing financing in connection with the purchase
by such holder of such Note), PROVIDED, HOWEVER, that any such pledgee or holder
of a Lien shall not be considered a holder hereunder until it shall have
foreclosed upon such Note in accordance with applicable law and informed the
Company, in writing, of the same.
9.5 AMENDMENT AND WAIVER.
(a) REQUIREMENTS. This Agreement may be amended, and the observance of
any term hereof may be waived, with (and only with) the written consent of
the Company and the Required Holders; PROVIDED, HOWEVER, that no such
amendment or waiver shall, without the written consent of the holders of
all Notes (exclusive of Notes held by the Company, any Subsidiary or any
Affiliate) at the time outstanding;
(i) change the amount or time of any prepayment or payment of
principal or Prepayment Compensation Amount or the rate or time of
payment of interest;
(ii) amend or waive the provisions of Section 6.1., Section 6.2.,
Section 6.3 or Section 7, or amend or waive any defined term to the
extent used therein;
(iii) amend or waive the definition of "Required Holders"; or
(iv) amend or waive this Section 9.5 or amend or waive any
defined term to the extent used herein.
The holder of any Note may specify that any such written consent executed
by it shall be effective only with respect to a portion of the Notes held
by it (in which case it shall specify by dollar amount, the aggregate
principal amount of Notes with respect to which such consent shall be
effective) and in the event of any such specification such holder shall be
deemed to have executed such written consent only with respect to the
portion of the Notes so specified.
No amendment, supplement or modification of the provisions of Section
7, or any defined term to the extent used therein, shall be effective as to
any holder of Senior Debt who has not consented to such amendment,
supplement or modification.
(b) SOLICITATION OF NOTEHOLDERS.
(i) SOLICITATION. Each holder of the Notes (irrespective of the
amount of Notes then owned by it) shall be provided by the Company
with all material information provided by the Company to any other
holder of Notes with respect to any proposed waiver or amendment of
any of the provisions hereof or the Notes. Executed or true and
correct copies of any amendment or waiver effected pursuant to the
provisions of this Section 9.5 shall be delivered by the Company to
each holder of outstanding Notes forthwith following the date on which
such amendment or waiver becomes effective.
(ii) PAYMENT. The Company shall not, nor shall any Subsidiary or
Affiliate, directly or indirectly, pay or cause to be paid any
remuneration, whether by way of supplemental or additional interest,
fee or otherwise, or grant any security, to any holder of
57
<PAGE>
Notes as consideration for or as an inducement to the entering into by
any holder of Notes of any waiver or amendment of any of the
provisions hereof or of the Notes unless such remuneration is
concurrently paid, or security is concurrently granted, on the same
terms, ratably to the holders of all Notes then outstanding.
(iii) SCOPE OF CONSENT. Any amendment or waiver made pursuant to
this Section 9.5 by a holder of Notes that has transferred or has
agreed to transfer its Notes to the Company, any Subsidiary or any
Affiliate and has provided or has agreed to provide such amendment or
waiver as a condition to such transfer shall be void and of no force
and effect except solely as to such holder. and any amendments
effected or waivers granted that would not have been or would not be
so effected or granted but for such amendment or waiver (and the
amendments or waivers of all other holders of Notes that were acquired
under the same or similar conditions) shall be void and of no force
and effect, retroactive to the date such amendment or waiver initially
took or takes effect, except solely as to such holder.
(c) BINDING EFFECT. Except as provided in Section 9.5(b)(iii), any
amendment or waiver consented to as provided in this Section 9.5 shall
apply equally to all holders of Notes and shall be binding upon them and
upon each future holder of any Note and upon the Company whether or not
such Note shall have been marked to indicate such amendment or waiver. No
such amendment or waiver shall extend to or affect any obligation,
covenant, agreement, Default or Event of Default not expressly amended or
waived or impair any right consequent thereon. Solely for the purpose of
determining whether the holders of the requisite percentage of the
aggregate principal amount of Notes then outstanding approved or consented
to any amendment waiver or consent to be given under this Agreement or the
Notes, or have directed the taking of any action provided herein or in the
Notes to be taken upon the direction of the holders of a specified
percentage of the aggregate principal amount of Notes then outstanding,
Notes directly or indirectly owned by the Company, any Subsidiary or any
Affiliate shall be deemed not to be outstanding.
9.6 EXPENSES.
(a) AMENDMENTS AND WAIVERS. The Company shall pay or cause to be paid
when billed the reasonable costs and expenses (including reasonable
attorneys' fees) incurred by the holders of the Notes in connection with
the consideration, negotiation, preparation or execution of any amendments,
waivers, consents, standstill agreements and other similar agreements with
respect to this Agreement or any other Financing Document (whether or not
any such amendments, waivers, consents, standstill agreements or other
similar agreements are executed).
(b) RESTRUCTURING AND WORKOUT, INSPECTIONS. At any time when the
Company and the holders of Notes are conducting restructuring or workout
negotiations in respect hereof, or a Default or Event of Default exists,
the Company shall pay when billed the reasonable costs and expenses
(including reasonable attorneys' fees of a single firm and the reasonable
fees of professional advisors) incurred by the holders of the Notes in
connection with the reasonable assessment, analysis or enforcement of any
rights or remedies that are or may be available to the holders of Notes,
including, without limitation, in connection with inspections made pursuant
to Section 5.4; PROVIDED, HOWEVER, that at all other times inspections will
be at the expense of the inspecting holder of Notes.
(c) COLLECTION. If the Company shall fail to pay when due any
principal of or Prepayment Compensation Amount or interest on, any Note,
the Company shall pay to each holder of Notes, to the extent permitted by
law, such amounts as shall be sufficient to cover the reasonable
58
<PAGE>
costs and expenses, including but not limited to reasonable attorneys'
fees, incurred by such holder in collecting any sums due on such Note.
9.7 WAIVER OF JURY TRIAL; CONSENT TO JURISDICTION; ETC.
(a) WAIVER OF JURY TRIAL. THE PARTIES HERETO VOLUNTARILY AND
INTENTIONALLY WAIVE ANY RIGHT ANY OF THEM MAY HAVE TO A TRIAL BY JURY IN
RESPECT OF ANY LITIGATION ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS
AGREEMENT OR ANY OF THE DOCUMENTS, AGREEMENTS OR TRANSACTIONS CONTEMPLATED
HEREBY.
(b) CONSENT TO JURISDICTION. ANY SUIT, ACTION OR PROCEEDING ARISING
OUT OF OR RELATING TO THIS AGREEMENT, OR ANY OF THE DOCUMENTS, AGREEMENTS
OR TRANSACTIONS CONTEMPLATED HEREBY OR ANY ACTION OR PROCEEDING TO EXECUTE
OR OTHERWISE ENFORCE ANY JUDGMENT IN RESPECT OF ANY BREACH UNDER THIS
AGREEMENT OR ANY DOCUMENT OR AGREEMENT CONTEMPLATED HEREBY MAY BE BROUGHT
BY SUCH PARTY IN ANY FEDERAL DISTRICT COURT LOCATED IN NEW YORK CITY, NEW
YORK, OR ANY NEW YORK STATE COURT LOCATED IN NEW YORK CITY, NEW YORK AS
SUCH PARTY MAY IN ITS SOLE DISCRETION ELECT, AND BY THE EXECUTION AND
DELIVERY OF THIS AGREEMENT, THE PARTIES HERETO IRREVOCABLY AND
UNCONDITIONALLY SUBMIT TO THE NON-EXCLUSIVE IN PERSONAM JURISDICTION OF
EACH SUCH COURT, AND EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES AND
AGREES NOT TO ASSERT IN ANY PROCEEDING BEFORE ANY TRIBUNAL, BY WAY OF
MOTION, AS A DEFENSE OR OTHERWISE, ANY CLAIM THAT IT IS NOT SUBJECT TO THE
IN PERSONAM JURISDICTION OF ANY SUCH COURT. IN ADDITION, EACH OF THE
PARTIES HERETO IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW,
ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE IN
ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT
OR ANY DOCUMENT, AGREEMENT OR TRANSACTION CONTEMPLATED HEREBY BROUGHT IN
ANY SUCH COURT, AND HEREBY IRREVOCABLY WAIVES ANY CLAIM THAT ANY SUCH SUIT,
ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN
INCONVENIENT FORUM.
(c) SERVICE OF PROCESS. EACH PARTY HERETO IRREVOCABLY AGREES THAT
PROCESS PERSONALLY SERVED OR SERVED BY U.S. REGISTERED MAIL AT THE
ADDRESSES PROVIDED HEREIN FOR NOTICES SHALL CONSTITUTE, TO THE EXTENT
PERMITTED BY LAW, ADEQUATE SERVICE OF PROCESS IN ANY SUIT, ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY DOCUMENT,
AGREEMENT OR TRANSACTION CONTEMPLATED HEREBY, OR ANY ACTION OR PROCEEDING
TO EXECUTE OR OTHERWISE ENFORCE ANY JUDGMENT IN RESPECT OF ANY BREACH
HEREUNDER OR UNDER ANY DOCUMENT OR AGREEMENT CONTEMPLATED HEREBY. RECEIPT
OF PROCESS SO SERVED SHALL BE CONCLUSIVELY PRESUMED AS EVIDENCED BY A
DELIVERY RECEIPT FURNISHED BY THE UNITED STATES POSTAL SERVICE OR ANY
COMMERCIAL DELIVERY SERVICE.
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<PAGE>
(d) OTHER FORUMS. NOTHING HEREIN SHALL IN ANY WAY BE DEEMED TO LIMIT
THE ABILITY OF ANY HOLDER OF NOTES TO SERVE ANY WRITS, PROCESS OR SUMMONSES
IN ANY MANNER PERMITTED BY APPLICABLE LAW OR TO OBTAIN JURISDICTION OVER
THE COMPANY OR THE PARENT IN SUCH OTHER JURISDICTION, AND IN SUCH OTHER
MANNER, AS MAY BE PERMITTED BY APPLICABLE LAW.
9.8 INDEMNIFICATION OF EACH HOLDER.
From and at all times after the date of this Agreement, and in
addition to all of the holders' of Notes other rights and remedies against
the Company, the Company agrees to indemnify and hold harmless each holder
of the Notes and each director, officer, employee, agent, investment
advisor and affiliate of each such holder against any and all claims
(whether valid or not), losses, damages, liabilities, costs and expenses of
any kind or nature whatsoever (including, without limitation, reasonable
attorneys' fees, costs and expenses of one firm), incurred by or asserted
against such holder or any such director, officer, employee, agent or
affiliate, from and after the date hereof, whether direct, indirect or
consequential,. as a result of or arising from or in any way relating to
any suit, action or proceeding (including any inquiry or investigation) by
any Person, whether threatened or initiated, asserting a claim for any
legal or equitable remedy against any Person under any statute or
regulation, including, but not limited to, any federal or state securities
laws, or under any common law or equitable cause or otherwise, arising from
or in connection with the negotiation, preparation, execution, performance
or enforcement of this Agreement or the other Financing Documents or any
transactions contemplated herein or therein, or any of the transactions
contemplated hereunder, or arising out of any breach of any representation
or warranty, covenant or agreement of the Company or any of the
Subsidiaries under any Financing Document, including, without limitation,
the failure to make payment when due of amounts arising under the Notes on
the respective due dates thereof (whether at the scheduled maturity of any
such payment, upon acceleration or otherwise, whether or not such holder or
any such director, officer, employee, agent or affiliate is a party to any
such action, proceeding, suit or the target of any such inquiry or
investigation; PROVIDED, HOWEVER, that no indemnified party shall have the
night to be indemnified hereunder for any liability resulting from the
willful misconduct or gross negligence of such indemnified party). All of
the foregoing losses, damages, costs and expenses of any holder of Notes
shall be payable as and when incurred upon demand by such holder and shall
be additional obligations hereunder. Without limiting the generality of the
foregoing, each holder of Notes shall be entitled to collect and the
Company shall be obligated to advance to each holder of Note sand its
directors, trustees, officers, employees, agents, investment advisors and
affiliates, to the fullest extent permitted by applicable law, all
reasonable expenses (including, without limitation, reasonable fees and
disbursements of one counsel) attendant to defending against any such
claims (whether valid or not), losses, damages, liabilities, costs and
expenses when and as incurred, regardless of whether any judicial
determination of the indemnified party's entitlement to such indemnity has
been made, until or unless a final judicial determination that such
indemnified party is not entitled to such indemnity as a result of the
willful misconduct or gross negligence of such indemnified party, in which
case, such indemnified party shall promptly repay to the Company, with
interest at the applicable statutory rate applicable to judgments in the
relevant jurisdiction, all amounts so advanced by the Company. The
obligations of the Company, and the rights of the holders of Notes under
this Section 9.8 shall survive payment of the Notes and the termination of
this Agreement.
9.9 ENTIRE AGREEMENT.
This Agreement constitutes the final written expression of all of the
terms hereof and is a complete and exclusive statement of those terms.
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9.10 EXECUTION IN COUNTERPART.
This Agreement may be executed in one or more counterparts and shall
be effective when at least one counterpart shall have been executed by each
party hereto, and each set of counterparts that, collectively, show
execution by each party hereto shall constitute one duplicate original.
[Remainder of page intentionally blank. Next page is signature page.]
61
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be duly executed and delivered by one of its duly authorized officers or
representatives.
EAC I INC.,
by
/s/Charles Laurey
-----------------------------
Name: Charles Laurey
Title:
62
<PAGE>
SGC PARTNERS II, LLC
By: /s/ Frank Poltow
------------------------
Name: Frank Poltow
Title: Managing Director
63
<PAGE>
Agreed to and Accepted By:
THE NORTHWESTERN MUTUAL
LIFE INSURANCE COMPANY
By: /s/ Richard A. Strait
------------------------
Name: Richard A. Strait
Title: Its Authorized Representative
64
<PAGE>
ANNEX 1
ADDRESSES OF PURCHASER; PAYMENT INSTRUCTIONS
<TABLE>
<CAPTION>
PURCHASER NAME THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
- -------------------------------------- ------------------------------------------------------------------
<S> <C>
Name in which Note is Registered THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
- -------------------------------------- ------------------------------------------------------------------
Note Registration Number, R-1; $14,000,000
Principal Amount of Note
- -------------------------------------- ------------------------------------------------------------------
Payment on Account of Note
Method Federal Funds Wire Transfer
Account Information Bankers Trust Company
16 Wall Street
Insurance Unit - 4th Floor
New York, NY 10005
ABA No.: 021-001-003
For the account of The Northwestern Mutual Life Insurance Company
Account No. 00-000-27
(See "Accompanying Information" below)
- -------------------------------------- ------------------------------------------------------------------
Accompanying Information Name of Company: EAC I INC.
Description of
Security 13.375% Senior Subordinated Notes due
July 13, 2007
PPN: 26823@AA 6
Due Date and Application (as among principal, Prepayment
Compensation Amount and interest) of the payment being made:
- -------------------------------------- ------------------------------------------------------------------
Address for Notices Related The Northwestern Mutual Life Insurance Company
to Payments 720 East Wisconsin Avenue
Milwaukee, WI 53202
Attention: Investment Operations
Fax #: 414-299-5714
- -------------------------------------- ------------------------------------------------------------------
Address for All Other Notices The Northwestern Mutual Life Insurance Company
720 East Wisconsin Avenue
Milwaukee, WI 53202
Attention: Securities Department
Fax #: 414-299-7124
- -------------------------------------- ------------------------------------------------------------------
Other Instructions THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
By
---------------------------------
Name:
Title:
- -------------------------------------- ------------------------------------------------------------------
Tax Identification Number 39-0509570
====================================== ==================================================================
</TABLE>
Annex 1-1
<PAGE>
<TABLE>
<CAPTION>
PURCHASER NAME SGC PARTNERS II LLC
- -------------------------------------- ------------------------------------------------------------------
<S> <C>
Name in which Note is Registered SGC PARTNERS II LLC
- -------------------------------------- ------------------------------------------------------------------
Note Registration Number, R-2; $5,000,000
Principal Amount of Note
- -------------------------------------- ------------------------------------------------------------------
Payment on Account of Note
Method Federal Funds Wire Transfer
Account Information Bank Name: Societe Generale
Account Name: SGC Partners II LLC
Account Number: 183024
ABA #: 0260-042-26
Contact: Jackie Ramos (212) 278-6720
(See "Accompanying Information" below)
- -------------------------------------- ------------------------------------------------------------------
Accompanying Information Name of Company: EAC I INC.
Description of
Security 13.375% Senior Subordinated Notes due
July 13, 2007
PPN: 26823@AA 6
Due Date and Application (as among principal, Prepayment
Compensation Amount and interest) of the payment being made:
- -------------------------------------- ------------------------------------------------------------------
Address for Notices Related SGC Partners II LLC
to Payments 1221 Avenue of the Americas
New York, NY 10020
Attention: V. Frank Pottow and Brian Lloyd
Fax #: (2 12) 278-5454
- -------------------------------------- ------------------------------------------------------------------
Address for All Other Notices SGC Partners II LLC
1221 Avenue of the Americas
New York, NY 10020
Attention: V. Frank Pottow and Brian Lloyd
Fax #: (212) 278-5454
with a copy to:
SG Cowen Securities Corporation
1221 Avenue of the Americas
New York, NY 10020
Attention: Elisabeth Duncan
Fax #: (212) 278-7995
and
Howard, Smith & Levin LLP
1330 Avenue of the Americas
New York, NY 10019
Attention: Scott F. Smith
Fax #: (212) 841-1010
====================================== ==================================================================
</TABLE>
Annex 1-2
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------- ==================================================================
PURCHASER NAME SGC PARTNERS II LLC
- -------------------------------------- ------------------------------------------------------------------
<S> <C>
Other Instructions SGC PARTNERS II LLC
By
----------------------------------
Name:
Title:
- -------------------------------------- ------------------------------------------------------------------
Tax Identification Number [13-4052814]
====================================== ==================================================================
</TABLE>
Annex 1-3
<PAGE>
ANNEX 2
ADDRESS OF COMPANY
EAC I Inc.
c/o Ripplewood Holdings L.L.C.
One Rockefeller Plaza, 32nd Floor
New York, New York 10020
Attn: Mr. Timothy C. Collins
Mr. Charles L. Laurey
Facsimile: (212) 582-4110
with a copy of all notices to:
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, New York 10019
Attn: Peter S. Wilson, Esq.
Facsimile: (212) 765-0978
Annex 2-1
<PAGE>
ATTACHMENT A
[FORM OF NOTE]
EAC I INC.
(TO BE RENAMED "JLC LEARNING CORPORATION")
13.375% SENIOR SUBORDINATED NOTE DUE JULY 13, 2007
No. R-___ PPN: [ ]
$_______ ______________ , ____
EAC I INC. (together with its successors, the "Company"; to be renamed
"JLC Learning Corporation"), a Delaware corporation, for value received, hereby
promises to pay to ____________________or registered assigns the principal sum
of _______________DOLLARS ($__________ ) on July 13, 2007, and to pay interest
(computed on the basis of a 360 day year of twelve 30-day months) on the unpaid
principal balance hereof from the date of this Note at the rate of thirteen and
three hundred seventy-five one-thousandths (13.375%) PER ANNUM, in arrears,
quarterly on each January 13, April 13, July 13, and October 13 in each year,
commencing on the later of October 13, 1999 and the payment date next succeeding
the date hereof, until the principal amount hereof shall become due and payable;
and to pay on demand interest on any overdue principal (including any overdue
partial payment of principal and principal payable at the maturity hereof) and
Prepayment Compensation Amount if any, and (to the extent permitted by
applicable law) on any overdue installment of interest (the due date of such
payments to be determined without giving effect to any grace period), at a rate
PER ANNUM equal to the lesser of (a) the highest rate allowed by applicable law
and (b) the greater of (i) fifteen and three hundred seventy-five
one-thousandths (15.375%). and (ii) two percent (2%) over the rate of interest
publicly announced from time to time by Morgan Guaranty Trust Company of New
York in New York, New York as its "base" or "prime" rate.
Payments of principal, Prepayment Compensation Amount, if any, and interest
shall be made in such coin or currency of the United States of America as at the
time of payment is legal tender for the payment of public and private debts to
the registered holder hereof at the address shown in the register maintained by
the Company for such purpose, in the manner provided in the Note Agreement
(defined below).
This Note is one of an issue of Notes of the Company issued in an aggregate
principal amount limited to Nineteen Million Dollars ($19,000,000) pursuant to
the Note Agreement (as may be amended, restated or otherwise modified from time
to time, the "Note Agreement"), dated as of July 13, 1999, between the Company
and the purchasers listed on Annex 1 thereto. The holder of this Note is
entitled to the benefits of the Note Agreement. This Note is subject to the
terms of the Note Agreement, and such terms are incorporated herein by
reference. Capitalized terms used herein and not defined herein have the
meanings specified in the Note Agreement.
As provided in the Note Agreement, this Note is subject to prepayment, in
whole or in part, in certain cases without a Prepayment Compensation Amount and
in other cases with a Prepayment Compensation Amount, on the terms and subject
to the conditions set forth in the Note Agreement. The holder of this Note, on
the terms and subject to the conditions set forth in the Note Agreement, may
elect to have the Company prepay the entire principal amount of this Note
(together with any applicable Prepayment Compensation Amount) in connection with
a Change in Control. All of the
Attachment A-1
<PAGE>
principal of this Note (together with any applicable Prepayment Compensation
Amount) may, under certain circumstances, be declared due and payable in the
manner and with the effect provided in the Note Agreement.
This Note is a registered Note and is transferable only by surrender at the
principal office of the Company as specified in the Note Agreement, duly
endorsed or accompanied by a written instrument of transfer duly executed by the
registered holder of this Note or its attorney duly authorized in writing.
The obligations evidenced by this Note are subordinated to the Senior Debt
on the terms provided in the Note Agreement.
THIS NOTE AND THE NOTE AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK.
EAC I INC.,
By:__________________________________
Name:
Title:
Attachment A-2
<PAGE>
EXHIBIT 10.2
STOCK PURCHASE AGREEMENT
Among
SOFTWARE SYSTEMS CORP.
SYLVAN LEARNING SYSTEMS, INC.
PYRAMID VENTURES, INC.
GE CAPITAL EQUITY INVESTMENTS, INC.
JLC LEARNING CORPORATION
and
EAC I INC.
Dated as of June 7, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
<S> <C> <C>
ARTICLE I
PURCHASE AND SALE OF SHARES; CLOSING
1.01. PURCHASE AND SALE OF THE SHARES.................. 1
1.02. CLOSING DATE..................................... 3
1.03. TRANSACTIONS TO BE EFFECTED AT THE CLOSING....... 3
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE PREFERRED SELLERS
2.01. ORGANIZATION, STANDING AND POWER................. 4
2.02. AUTHORITY; EXECUTION AND DELIVERY;
ENFORSEABILITY................................... 5
2.03. NO CONFLICTS; SHARES............................. 5
2.04. THE PREFERRED SHARES............................. 6
2.05. PRIVATE OFFERING................................. 6
2.06. NO CLAIMS........................................ 7
2.07. TAXES............................................ 7
ARTICLE III
REPRESENTATION AND WARRANTIES OF SSC
3.01. ORGANIZATION, STANDING AND POWER................. 7
3.02. AUTHORITY; EXECUTION AND DELIVERY;
ENFORCEABILITY................................... 7
3.03. NO CONFLICTS; CONSENTS........................... 8
3.04. THE COMMON SHARES................................ 8
3.05. BUSINESS OF SSC.................................. 8
3.06. FINANCIAL STATEMENTS............................. 8
3.07. NO CLAIMS........................................ 9
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
SSC AND THE COMPANY RELATING TO THE COMPANY
4.01. ORGANIZATION AND STANDING; BOOKS;
AND RECORDS..................................... 9
4.02. CAPITAL STOCK OF THE COMPANY.................... 10
4.03. AUTHORITY; EXECUTION AND DELIVERY;
ENFORCEABILITY.................................. 11
4.04. NO CONFLICTS; CONSENTS.......................... 11
4.05. FINANCIAL STATEMENTS............................ 12
4.06. ASSETS OTHER THAN REAL PROPERTY INTERESTS....... 13
4.07. REAL PROPERTY................................... 13
4.08. INTELLECTUAL PROPERTY........................... 14
4.09. CONTRACTS....................................... 18
4.10. INVENTORY....................................... 21
4.11. PERSONAL PROPERTY............................... 21
4.12. RECEIVABLES..................................... 21
</TABLE>
<PAGE>
ii
<TABLE>
<CAPTION>
SECTION PAGE
<S> <C> <C>
4.13. PERMITS......................................... 21
4.14. INSURANCE....................................... 22
4.15. TAXES........................................... 22
4.16. PROCEEDINGS..................................... 27
4.17. EMPLOYEE BENEFIT PLANS.......................... 27
4.18. ABSENCE OF CHANGES OR EVENTS.................... 29
4.19. COMPLIANCE WITH APPLICABLE LAWS................. 29
4.20. EMPLOYEE AND LABOR MATTERS...................... 31
4.21. TRANSACTIONS WITH AFFILIATES.................... 31
4.22. EFFECT OF TRANSACTION........................... 32
4.23. DISCLOSURE...................................... 32
4.24. SUPPLIERS....................................... 32
4.25. CUSTOMERS....................................... 32
4.26. PRIVATE OFFERING................................ 33
4.27. SUBSIDIARIES.................................... 33
4.28. YEAR 2000....................................... 33
ARTICLE V
REPRESENTATION AND WARRANTIES OF PURCHASER
5.01. ORGANIZATION, STANDING AND POWER................ 34
5.02. AUTHORITY; EXECUTION AND DELIVERY;
ENFORCEABILITY.................................. 34
5.03. NO CONFLICTS; CONSENTS.......................... 34
5.04. FINANCING....................................... 35
5.05. SECURITIES ACT.................................. 35
ARTICLE VI
COVENANTS
6.01. COVENANTS RELATING TO CONDUCT OF BUSINESS....... 35
6.02. NO SOLICITATION................................. 38
6.03. ACCESS TO INFORMATION........................... 39
6.04. CONFIDENTIALITY................................. 39
6.05. REASONABLE EFORTS............................... 40
6.06. EXPENSES; TRANSFER TAXES........................ 40
6.07. BROKERS OR FINDERS.............................. 41
6.08. RESIGNATIONS.................................... 41
6.09. TAX MATTERS..................................... 41
6.10. SUPPLEMENTAL DISCLOSURES........................ 49
6.11. POST-CLOSING COOPERATION........................ 50
6.12. PUBLICITY....................................... 51
6.13. RECORDS......................................... 51
6.14. AGGREEMENT NOT TO SOLICIT EMPLOYEES............. 51
6.15. CERTAIN LICENSES AND PERMITS.................... 52
6.16. FURTHER ASSURANCES.............................. 52
6.17. ASSIGNMENT OF CONFIDENTIALITY AGREEMENTS........ 52
6.18. FINANCIAL STATEMENTS............................ 52
</TABLE>
<PAGE>
iii
<TABLE>
<CAPTION>
SECTION PAGE
<S> <C> <C>
6.19. BENEFIT PLAN MATTERS........................... 53
6.20. STRATEGIC ALLIANCE AGREEMENT................... 53
ARTICLE VII
CONDITIONS PRECEDENT
7.01. CONDITIONS TO EACH PARTY'S OBLIGATION........... 53
7.02. CONDITIONS TO OBLIGATION OF PURCHASER........... 54
7.03. CONDITIONS TO OBLIGATIONS OF SELLERS............ 56
7.04. FRUSTRATION OF CLOSING CONDITIONS............... 57
ARTICLE VIII
INDEMNIFICATION
8.01. INDEMNIFICATION................................. 57
8.02. CALCULATION OF LOSSES........................... 61
8.03. TERMINATION OF INDEMNIFICATION.................. 62
8.04. PROCEDURES...................................... 62
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
9.01. TERMINATION..................................... 65
9.02. EFFECT OF TERMINATION........................... 66
9.03. AMENDMENTS AND WAIVERS.......................... 66
ARTICLE X
GENERAL PROVISIONS
10.01. SURVIVAL........................................ 67
10.02. ASSIGNMENT...................................... 67
10.03. NO THIRD-PARTY BENEFICIARIES.................... 67
10.04. NOTICES......................................... 68
10.05. INTERPRETAION; EXHIBITS AND SCHEDULES;
CERTAIN DEFINITIONS............................. 70
10.06. COUNTERPARTS.................................... 71
10.07. ENTIRE AGREEMENT................................ 71
10.08. SEVERABILITY.................................... 71
10.09. CONSENT TO JURISDICITON......................... 71
10.10. GOVERNING LAW................................... 72
10.11. WAIVER OF JURY TRIAL............................ 72
</TABLE>
EXHIBITS
Exhibit A Term sheet for Escrow Agreement
<PAGE>
iv
INDEX OF DEFINED TERMS
DEFINED TERM LOCATION OF DEFINITION
Acquisition Section 1.01
affiliate Section 10.05(b)
Applicable Law Section 2.03
Applicable Percentages Section 8.01(d)
Balance Sheet Section 4.05(a)
CERCLA Section 4.19(b)
Class A Preferred Shares Recitals
Class B Preferred Shares Recitals
Closing Section 1.02
Closing Date Section 1.02
Code Section 4.15(a)
Common Shares Recitals
Common Purchase Price Section 1.01
Commonly Controlled Entity Section 4.17(a)
Company Preamble
Company Contracts Section 4.09(b)
Company Indebtedness Section 1.01
Company Material Adverse Effect Section 4.01(a)
Company Plans Section 4.17(a)
Confidentiality Agreement Section 6.04(a)
Consent Section 2.03
Contract Section 2.03
Copyrights Section 4.08(a)
Customer Agreements Section 4.08(a)
DOJ Section 6.05(b)
EBITDA Section 7.02(h)
Environmental Law Section 4.19(b)
ERISA Section 4.17(a)
Escrow Section 1.03(e)
Escrow Agent Section 1.03(e)
Escrow Agreement Section 1.03(e)
Financial Statements Section 4.05(a)
Fixed Sales Bonuses Section 4.02
Foothill Facility Section 1.01
Form 8023 Section 6.09(e)
FTC Section 6.05(b)
GAAP Section 3.06(a)
GE Cap-Eq Preamble
GE Purchase Price Section 1.01
Governmental Entity Section 2.03
Hazardous Substance Section 4.19(b)
HSR Act Section 2.03
including Section 10.05(b)
indemnified party Section 8.04(a)
Intellectual Property Section 4.08(a)
Jostens Agreement Section 8.02(b)
Judgment Section 2.03
Leased Property Section 4.07
Liens Section 4.06(a)
Limited Covenants Section 8.01(b)
Losses Section 8.01(a)
<PAGE>
March Balance Sheet Section 6.18
Material Inbound License Agreements Section 4.08(a)
Material Outbound License Agreements Section 4.08(a)
Original Purchase Date Section 4.08(b)
other bid Section 6.02
Patents Section 4.08(a)
Pension Plan Section 4.17(a)
Per Share Price Section 1.01
Permits Section 4.13
Permitted Liens Section 4.06(a)
person Section 10.05(b)
Post-Closing Tax Period Section 4.15(a)
Pre-Closing Tax Period Section 4.15(a)
Preferred Shares Recitals
Preferred Sellers Preamble
Preferred Seller Indemnitees Section 8.01(e)
Proceeding Section 4.13
Projected Disclosure Section 4.23
Purchaser Preamble
Purchaser Indemnitees Section 8.01(a)
Pyramid Preamble
Pyramid Purchase Price Section 1.01
RCRA Section 4.19(b)
Records Section 6.13
Rights Plan Section 1.01
Section 338(h)(10) Election Section 6.09(e)
Securities Act Section 2.05
Sellers Preamble
Shares Recitals
Software Section 4.08(a)
Specific Preferred Seller Obligation Section 8.01(d)
SSC Preamble
SSC Balance Sheet Section 3.06(a)
Statement of Operations Section 6.18
Straddle Period Section 6.09(a)
Strategic Alliance Agreemnt Section 6.20
subsidiary Section 10.05(b)
Sylvan Preamble
Sylvan Purchase Price Section 1.01
Systems Section 4.28
Tax/Taxes Section 4.15(a)
Tax Return/Tax Returns Section 4.15(a)
Taxing Authority Section 4.15(a)
Third Party Claim Section 8.04(a)
Trade Secrets Section 4.08(a)
Trademarks Section 4.08(a)
Transfer Tax Section 4.15(a)
Triggering Event Section 6.09(e)
TSCA Section 4.19(b)
Voting Company Debt Section 4.02
Welfare Plan Section 4.17(a)
Year 2000 Problems Section 4.28
<PAGE>
1
STOCK PURCHASE AGREEMENT dated as of June 7,
1999, among SOFTWARE SYSTEMS CORP., a Delaware
corporation ("SSC"), SYLVAN LEARNING SYSTEMS, INC., a
Maryland corporation ("Sylvan"), PYRAMID VENTURES,
INC., a Delaware corporation ("Pyramid"), GE CAPITAL
EQUITY INVESTMENTS, INC., a Delaware corporation ("GE
Cap-Eq" and, together with Sylvan and Pyramid, the
"Preferred Sellers"; the Preferred Sellers and SSC,
collectively the "Sellers"), JLC LEARNING
CORPORATION, an Illinois corporation (the "Company"),
and EAC I Inc., a Delaware corporation ("Purchaser").
WHEREAS Purchaser desires to purchase from Sylvan and Pyramid,
and Sylvan and Pyramid desire to sell to Purchaser, all the issued and
outstanding shares of Class A Preferred Stock, par value $0.01 per share (the
"Class A Preferred Shares"), of the Company;
WHEREAS Purchaser desires to purchase from GE Cap-Eq and
Pyramid, and GE Cap-Eq and Pyramid desire to sell to Purchaser, all the issued
and outstanding shares of Class B Preferred Stock, par value $0.01 per share
(the "Class B Preferred Shares" and, together with the Class A Preferred Shares,
the "Preferred Shares");
WHEREAS Purchaser desires to purchase from SSC, and SSC
desires to sell to Purchaser, all the issued and outstanding shares of Class A
Common Stock, par value $0.001 per share (the "Common Shares" and, together with
the Preferred Shares, the "Shares"), of the Company; and
WHEREAS, as a result of such purchases and sales, Purchaser
will own all the issued and outstanding capital stock of the Company.
NOW, THEREFORE, the parties hereby agree as follows:
ARTICLE I
PURCHASE AND SALE OF SHARES; CLOSING
SECTION 1.01. PURCHASE AND SALE OF THE SHARES. On the terms
and subject to the conditions of this Agreement, at the Closing (as defined in
Section 1.02), Sylvan shall sell, transfer and deliver to Purchaser, and
Purchaser shall purchase from Sylvan, the Class A Preferred
<PAGE>
2
Shares owned by Sylvan, including any and all rights to the payment of any
accrued and unpaid dividends thereon, for an aggregate purchase price (the
"Sylvan Purchase Price") equal to the product of 15,000 and the Per Share Price
(as defined below), payable as set forth below in Section 1.02. On the terms and
subject to the conditions of this Agreement, at the Closing, Pyramid shall sell,
transfer and deliver to Purchaser, and Purchaser shall purchase from Pyramid the
Class A Preferred Shares and the Class B Preferred Shares owned by Pyramid,
including any and all rights to the payment of any accrued and unpaid dividends
thereon, for an aggregate purchase price (the "Pyramid Purchase Price") equal to
the product of 7,500 and the Per Share Price, payable as set forth below in
Section 1.02. On the terms and subject to the conditions of this Agreement, at
the Closing, GE Cap-Eq shall sell, transfer and deliver to Purchaser, and
Purchaser shall purchase from GE Cap-Eq, the Class B Preferred Shares owned by
GE Cap-Eq, including any and all rights to the payment of any accrued and unpaid
dividends thereon, for an aggregate purchase price (the "GE Purchase Price")
equal to the product of 7,500 and the Per Share Price, payable as set forth
below in Section 1.02. On the terms and subject to the conditions of this
Agreement, at the Closing, SSC shall sell, transfer and deliver to Purchaser,
and Purchaser shall purchase from SSC, the Common Shares for an aggregate
purchase price of $1,500,000 (the "Common Purchase Price"). The purchase and
sale of the Common Shares, the Class A Preferred Shares and the Class B
Preferred Shares is referred to in this Agreement as the "Acquisition". The term
"Per Share Price" means the result of (x) the excess of (1) $53,700,000 over (2)
the sum of (i) the aggregate principal amount of the Company Indebtedness (as
defined below) as of the Closing Date (as defined in Section 1.02), plus (ii)
the amount of all accrued and unpaid interest thereon as of the Closing Date and
all prepayment penalties and other amounts payable in connection with, or as a
result of, a payment of the Company Indebtedness as of the Closing Date plus
(iii) the aggregate amount payable under the JLC Learning Corporation 1998 Stock
Appreciation Rights Plan (the "Rights Plan") as a result of the Acquisition
(which includes the $400,000 to be deposited with the Escrow Agent (as defined
in Section 1.03(e)) pursuant to Section 1.03(e)) and the maximum aggregate
amount payable under the Fixed Sales Bonuses (as defined in Section 4.02)
divided by (y) 30,000. Schedule 1.01 sets forth a sample calculation of the Per
Share Price, assuming (x) that the Closing Date is June 30, 1999, (y) other than
the aggregate principal amount of the Company Indebtedness as of the Closing
Date, all accrued and unpaid interest thereon as of the Closing Date and all
prepayment penalties, there are no other amounts payable in connection with, or
as
<PAGE>
3
a result of, a payment of the Company Indebtedness as of the Closing Date and
(z) there are no changes with respect to the components of the Per Share Price.
The term "Company Indebtedness" means the indebtedness of the Company under (i)
the Loan and Security Agreement by and between the Company and Foothill Capital
Corporation dated as of March 30, 1998 (the "Foothill Facility"); PROVIDED that,
if the aggregate principal amount of the indebtedness outstanding thereunder as
of the Closing Date (other than the Special Advance as defined therein) is
greater than $7,250,000, then the principal amount of such indebtedness as of
the Closing Date shall be deemed to be $7,250,000; (ii) the series of Senior
Subordinated 12.25% Notes of the Company issued to The Chase Manhattan Bank,
N.A., Pyramid, GE Cap-Eq and Sylvan dated June 29, 1995, October 1, 1997,
October 1, 1997 and October 1, 1997, respectively, in an aggregate principal
amount as of the date of this Agreement equal to $17,000,000; and (iii) the
Subordinated Promissory Note of the Company issued to Sylvan dated June 30,
1998.
SECTION 1.02. CLOSING DATE. The closing of the Acquisition
(the "Closing") shall take place at the offices of Cravath, Swaine & Moore, 825
Eighth Avenue, New York, New York 10019, at 10:00 a.m. on the second business
day following the satisfaction (or, to the extent permitted, the waiver) of the
conditions set forth in Section 7.01, or, if on such day any condition set forth
in Section 7.02 or 7.03 has not been satisfied (or, to the extent permitted,
waived by the parties entitled to the benefit thereof), as soon as practicable
after all the conditions set forth in Article VII have been satisfied (or, to
the extent permitted, waived by the parties entitled to the benefits thereof),
or at such other place, time or date as shall be agreed between SSC and
Purchaser. The date on which the Closing occurs is referred to in this Agreement
as the "Closing Date".
SECTION 1.03. TRANSACTIONS TO BE EFFECTED AT THE
CLOSING. At the Closing:
(a) each Seller shall deliver to Purchaser (i) certificates
representing the Shares owned by such Seller, duly endorsed in blank or
accompanied by stock powers duly endorsed in blank in proper form for
transfer, with appropriate transfer tax stamps, if any, affixed and
(ii) such other documents as Purchaser or its counsel may reasonably
request to demonstrate satisfaction of the conditions and compliance
with the covenants set forth in this Agreement;
<PAGE>
4
(b) Purchaser shall deliver to each Seller, (i) payment, by
wire transfer to a bank account designated in writing by such Seller
(such designation to be made at least two business days prior to the
Closing Date), of immediately available funds in an amount equal to, in
the case of Sylvan, the Sylvan Purchase Price, in the case of Pyramid,
the Pyramid Purchase Price, in the case of GE Cap-Eq, the GE Purchase
Price and, in the case of SSC, the Common Purchase Price and (ii) such
other documents as any of the Sellers or their respective counsel may
reasonably request to demonstrate satisfaction of the conditions and
compliance with the covenants set forth in this Agreement;
(c) Purchaser shall cause the Company to prepay the Company
Indebtedness so long as the applicable Lenders deliver appropriate
documents releasing all Liens on the Shares or on assets of the Company
that collateralize the Company Indebtedness;
(d) Purchaser shall cause the Company to release JLC Holdings,
Inc. and SSC from their payment obligations in respect of any accounts
receivable of the Company from JLC Holdings, Inc. or SSC; and
(e) Purchaser shall cause the Company to deposit the amount of
$400,000 (the "Escrow") with Bankers Trust Company, as escrow agent
(the "Escrow Agent"), pursuant to Section 8.01(g) and to be held in
accordance with the terms of an escrow agreement having the terms set
forth in Exhibit A hereto (the "Escrow Agreement").
The Company hereby waives any obligation of any Preferred Seller to deliver an
opinion of counsel in connection with the transfer of Preferred Shares held by
it pursuant to this Agreement.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE PREFERRED SELLERS
Each Preferred Seller hereby severally (and not jointly)
represents and warrants as to itself to Purchaser, as of the date of this
Agreement and as of the Closing Date, as follows:
SECTION 2.01. ORGANIZATION, STANDING AND POWER.
Such Preferred Seller is duly organized, validly existing
<PAGE>
5
and in good standing under the laws of the jurisdiction in which it is organized
and has full corporate power and authority to own and sell the Preferred Shares
owned by it.
SECTION 2.02. AUTHORITY; EXECUTION AND DELIVERY;
ENFORCEABILITY. Such Preferred Seller has full power and authority to execute
this Agreement and to consummate the sale of the Preferred Shares owned by it
and the other transactions contemplated to be consummated by it hereby. The
execution and delivery by such Preferred Seller of this Agreement and the
consummation by such Preferred Seller of the Acquisition and the other
transactions contemplated to be consummated by it hereby have been duly
authorized by all necessary corporate action. Such Preferred Seller has duly
executed and delivered this Agreement and this Agreement constitutes its legal,
valid and binding obligation, enforceable against it in accordance with its
terms.
SECTION 2.03. NO CONFLICTS; CONSENTS. The execution and
delivery by such Preferred Seller of this Agreement do not, and the consummation
of the Acquisition and the other transactions contemplated to be consummated by
it hereby and compliance by such Preferred Seller with the terms hereof will
not, conflict with, or result in any violation of or default (with or without
notice or lapse of time, or both) under, or give rise to a right of termination,
cancellation or acceleration of any obligation or to loss of a material benefit
under, or to increased, additional, accelerated or guaranteed rights or
entitlements of any person under, or result in the creation of any Lien (as
defined in Section 4.06) upon any of the properties or assets of such Preferred
Seller under, any provision of (i) the certificate of incorporation or by-laws
or other organizational documents of such Preferred Seller, (ii) any contract,
lease, license, indenture, agreement, commitment or other legally binding
arrangement (a "Contract") to which such Preferred Seller is a party or by which
it or any of its properties or assets is bound or (iii) any judgment, order or
decree ("Judgment") or statute, law (including common law), ordinance, rule or
regulation ("Applicable Law") applicable to such Preferred Seller or any of its
properties or assets. No consent, approval, license, permit, order or
authorization ("Consent") of, or registration, declaration or filing with, any
Federal, state, local or foreign government or any court of competent
jurisdiction, administrative agency or commission or other governmental
authority or instrumentality, domestic or foreign (a "Governmental Entity"), is
required to be obtained or made by or with respect to such Preferred Seller or
any of its affiliates in connection with the execution, delivery and performance
of this Agreement or the
<PAGE>
6
consummation of the Acquisition or the other transactions contemplated to be
consummated by it hereby other than compliance with and filings under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), if required.
SECTION 2.04. THE PREFERRED SHARES. Such Preferred Seller is
the record and beneficial owner of, and has good and valid title to, in the case
of Sylvan, 15,000 shares of the Class A Preferred Shares, in the case of
Pyramid, 5,000 shares of the Class A Preferred Shares and 2,500 shares of the
Class B Preferred Shares and, in the case of GE Cap-Eq, 7,500 shares of the
Class B Preferred Shares, in each case, free and clear of all Liens. Assuming
Purchaser has the requisite power and authority to be the lawful owner of the
Preferred Shares, upon delivery to Purchaser at the Closing of certificates
representing, in the case of Sylvan, the Class A Preferred Shares owned by it,
in the case of Pyramid, the Class A Preferred Shares and the Class B Preferred
Shares owned by it and, in the case of GE Cap-Eq, the Class B Preferred Shares
owned by it, duly endorsed by such Preferred Seller for transfer to Purchaser,
and upon receipt of, in the case of Sylvan, the Sylvan Purchase Price, in the
case of Pyramid, the Pyramid Purchase Price, and in the case of GE Cap-Eq, the
GE Purchase Price, good and valid title to the Preferred Shares will pass to
Purchaser, free and clear of any Liens, other than those arising from acts of
Purchaser or its affiliates. Other than this Agreement and the agreements set
forth in Schedule 2.04, the Preferred Shares owned by such Preferred Seller are
not subject to any voting trust agreement or other Contract, including any
Contract restricting or otherwise relating to the voting, dividend rights or
disposition of such Preferred Shares. Other than the Preferred Shares owned by
such Preferred Seller, such Preferred Seller does not own of record or
beneficially any shares of capital stock of the Company.
SECTION 2.05. PRIVATE OFFERING. None of such Preferred Seller,
its affiliates and its representatives has sold or offered any of the Preferred
Shares or any other security of the Company to any person under circumstances
that would cause the sales of the Shares, as contemplated by this Agreement, to
be subject to the registration requirements of the Securities Act of 1933, as
amended (the "Securities Act"). Assuming the representations of SSC and the
Company contained in Section 4.26 and those of Purchaser contained in Section
5.05 are true and correct, the sale and delivery of the Preferred Shares owned
by such Preferred Seller hereunder are exempt from the registration and
prospectus delivery requirements of the Securities Act.
<PAGE>
7
SECTION 2.06. NO CLAIMS. None of such Preferred Seller or any
of its affiliates is a party to any Contract with the Company, except as
disclosed in Schedule 2.06. Other than its rights as the owner of the Preferred
Shares owned by it, all of which rights will be sold and transferred to
Purchaser at the Closing, none of such Preferred Seller or any of its affiliates
has, and from and after the Closing none of them will have, any rights or claims
against or in respect of the Company, except as disclosed in Schedule 2.06.
SECTION 2.07. TAXES. Such Preferred Seller is
not a "foreign person" within the meaning of Section 1445 of
the Code (as defined in Section 4.15).
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SSC
SSC hereby represents and warrants to Purchaser, as of the
date of this Agreement and as of the Closing Date, as follows:
SECTION 3.01. ORGANIZATION, STANDING AND POWER. SSC is duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has full corporate power and authority and possesses all
governmental franchises, licenses, permits, authorizations and approvals
necessary to enable it to own, lease or otherwise hold its properties and assets
and to conduct its business as presently conducted. SSC has delivered to
Purchaser true and complete copies of its certificate of incorporation and
by-laws, in each case as amended through the date of this Agreement.
SECTION 3.02. AUTHORITY; EXECUTION AND DELIVERY;
ENFORCEABILITY. SSC has full power and authority to execute this Agreement and
to consummate the sale of the Common Shares and the other transactions
contemplated to be consummated by it hereby. The execution and delivery by SSC
of this Agreement and the consummation by SSC of the Acquisition and the other
transactions contemplated to be consummated by it hereby have been duly
authorized by all necessary corporate action on the part of SSC and its sole
stockholder. SSC has duly executed and delivered this Agreement, and this
Agreement constitutes, its legal, valid and binding obligation, enforceable
against it in accordance with its terms.
<PAGE>
8
SECTION 3.03. NO CONFLICTS; CONSENTS. The execution and
delivery by SSC of this Agreement do not, and the consummation of the
Acquisition and the other transactions contemplated hereby and compliance by SSC
with the terms hereof will not conflict with, or result in any violation of or
default (with or without notice or lapse of time, or both) under, or give rise
to a right of termination, cancellation or acceleration of any obligation or to
loss of a material benefit under, or to increased, additional, accelerated or
guaranteed rights or entitlements of any person under, or result in the creation
of any Lien upon any of the properties or assets of SSC under, any provision of
(i) the certificate of incorporation or by-laws of SSC, (ii) except as disclosed
in Schedule 3.03, any Contract to which SSC is a party or by which it or any of
its properties or assets is bound or (iii) any Judgment or Applicable Law
applicable to SSC or any of its properties or assets. No Consent of, or
registration, declaration or filing with, any Governmental Entity is required to
be obtained or made by or with respect to SSC or any of its affiliates in
connection with the execution, delivery and performance of this Agreement or the
consummation of the Acquisition or the other transactions contemplated hereby,
other than compliance with and filings under the HSR Act, if required.
SECTION 3.04. THE COMMON SHARES. SSC is the record and
beneficial owner of, and has good and valid title to, the Common Shares, free
and clear of all Liens. Assuming Purchaser has the requisite power and authority
to be the lawful owner of the Common Shares, upon delivery to Purchaser at the
Closing of certificates representing the Common Shares, duly endorsed by SSC for
transfer to Purchaser, and upon SSC's receipt of the Common Purchase Price, good
and valid title to the Common Shares will pass to Purchaser, free and clear of
any Liens, other than those arising from acts of Purchaser or its affiliates.
Other than this Agreement and the agreements set forth in Schedule 2.04, the
Common Shares are not subject to any voting trust agreement or other Contract,
including any Contract restricting or otherwise relating to the voting, dividend
rights or disposition of the Common Shares.
SECTION 3.05. BUSINESS OF SSC. SSC is a holding company, the
sole asset of which consists of the Common Shares. SSC is not engaged in any
business other than holding the Common Shares.
SECTION 3.06. FINANCIAL STATEMENTS.
(a) Schedule 3.06 sets forth SSC's unconsolidated balance sheet as of December
31, 1998 (the "SSC Balance Sheet").
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9
The SSC Balance Sheet has been prepared in conformity with generally accepted
accounting principles ("GAAP"), subject to the absence of footnotes, and on that
basis fairly presents the financial condition of SSC as of December 31, 1998.
(b) Except as set forth in Schedule 3.06, SSC does not have
any liabilities or obligations of any nature (whether accrued, absolute,
contingent or otherwise), except (i) as disclosed, reflected or reserved against
in the SSC Balance Sheet, (ii) for liabilities incurred in the ordinary course
of business consistent with past practice since the date of the SSC Balance
Sheet and (iii) for Taxes (as defined in Section 4.15).
SECTION 3.07. NO CLAIMS. None of SSC or any of its affiliates
is a party to any Contract with the Company, except as disclosed in Schedule
2.06 or 3.07. Other than its rights as the owner of the Common Shares, all of
which rights will be sold and transferred to Purchaser at the Closing, none of
SSC or any of its affiliates has, and from and after the Closing none of them
will have, any rights or claims against or in respect of the Company, except as
disclosed in Schedule 2.06 or Schedule 3.07.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
SSC AND THE COMPANY RELATING TO THE COMPANY
SSC and the Company hereby jointly and severally represent and
warrant to Purchaser, as of the date hereof and as of the Closing Date, as
follows:
SECTION 4.01. ORGANIZATION AND STANDING; BOOKS AND RECORDS.
(a) The Company is a corporation duly organized, validly existing and in good
standing under the laws of the State of Illinois. The Company has full corporate
power and authority and possesses all governmental franchises, licenses,
permits, authorizations and approvals necessary to enable it to own, lease or
otherwise hold its properties and assets and to carry on its business as
presently conducted, other than such franchises, licenses, permits,
authorizations and approvals, the lack of which, individually or in the
aggregate, would not have a material adverse effect (i) on the business, assets,
condition (financial or otherwise), results of operations or prospects of the
Company, (ii) on the ability of the Company to perform its obligations under
this Agreement or (iii) on the ability of the parties to consummate the
Acquisition and the
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10
other transactions contemplated hereby (a "Company Material Adverse Effect").
The Company is duly qualified and in good standing to do business as a foreign
corporation in each jurisdiction in which the conduct or nature of its business
or the ownership, leasing or holding of its properties makes such qualification
necessary, except such jurisdictions where the failure to be so qualified or in
good standing, individually or in the aggregate, would not have a Company
Material Adverse Effect. A list of the jurisdictions in which the Company is so
qualified is set forth in Schedule 4.01. Except as set forth in Schedule 4.01
and except for non-compete agreements set forth in Schedule 4.09, the Company is
not subject to, bound by or a party to any Contract, or subject to any charter
or other corporate restriction which is reasonably likely to have, individually
or in the aggregate, a Company Material Adverse Effect.
(b) The Company has delivered to Purchaser prior to the
execution of this Agreement true and complete copies of (i) the articles of
incorporation and by-laws, each as amended to date, of the Company. Except as
and to the extent disclosed in Schedule 4.01, the stock certificate and transfer
books and the minute books of the Company (which have been made available for
inspection by Purchaser prior to the date hereof) are true and complete.
SECTION 4.02. CAPITAL STOCK OF THE COMPANY. The authorized
capital stock of the Company consists of 120,565,000 shares of Class A Common
Stock, par value $0.001 per share, of which 1,000 shares, constituting the
Common Shares, are issued and outstanding, 20,000 shares of Class A Preferred
Stock, par value $0.01 per share, of which 20,000 shares, constituting the Class
A Preferred Shares, are issued and outstanding, and 10,000 shares of Class B
Preferred Stock, par value $0.01 per share, of which 10,000 shares, constituting
the Class B Preferred Shares, are issued and outstanding. Except for the
Shares, there are no shares of capital stock or other equity securities of the
Company issued, reserved for issuance or outstanding. The Shares are duly
authorized, validly issued, fully paid and nonassessable and not subject to or
issued in violation of any purchase option, call option, right of first refusal,
preemptive right, subscription right or any similar right under any provision of
the Illinois Business Corporation Act of 1983, the articles of incorporation or
by-laws of the Company or any Contract to which the Company is a party or by
which the Company is otherwise bound. There are not any bonds, debentures,
notes or other indebtedness of the Company having the right to vote (or
convertible into, or exchangeable for, securities having the right to vote) on
<PAGE>
11
any matters on which holders of Shares may vote ("Voting Company Debt"). Except
as set forth above and under the Rights Plan and the arrangements for payment of
certain fixed sales bonuses ("Fixed Sales Bonuses") pursuant to letter
agreements dated January 11, 1999 which provide for a maximum aggregate amount
payable by the Company of $912,500, there are not any options, warrants, rights,
convertible or exchangeable securities, "phantom" stock rights or other
commitments to which the Company is a party or by which it is bound (i)
obligating the Company to issue, deliver or sell, or cause to be issued,
delivered or sold, additional shares of capital stock or other equity interests
in, or any security convertible or exercisable for or exchangeable into any
capital stock of or other equity interest in, the Company or any Voting Company
Debt, (ii) obligating the Company to issue, grant, extend or enter into any such
option, warrant, right, security or other commitment, or (iii) that give any
person the right to receive any economic benefit or right similar to or derived
from the economic benefits and rights accruing to holders of Shares. Except as
provided in the Articles of Incorporation of the Company, as amended, there are
not any outstanding contractual obligations of the Company to repurchase, redeem
or otherwise acquire any shares of capital stock of the Company.
SECTION 4.03. AUTHORITY; EXECUTION AND DELIVERY;
ENFORCEABILITY. The Company has full power and authority to execute this
Agreement and to consummate the transactions contemplated to be consummated by
it hereby. The execution and delivery by the Company of this Agreement and the
consummation by the Company of the transactions contemplated to be consummated
by it hereby have been duly authorized by all necessary corporate action. The
Company has duly executed and delivered this Agreement and this Agreement
constitutes its legal, valid and binding obligation, enforceable against it in
accordance with its terms.
SECTION 4.04. NO CONFLICTS; CONSENTS. The execution and
delivery by the Sellers and the Company of this Agreement do not, and the
consummation of the Acquisition and the other transactions contemplated hereby
and compliance by the Sellers and the Company with the terms hereof will not,
conflict with, or result in any violation of or default (with or without notice
or lapse of time, or both) under, or give rise to a right of termination,
cancellation or acceleration of any obligation or to loss of a material benefit
under, or to material increased, additional, accelerated or guaranteed rights or
entitlements of any person under, or result in the creation of any Lien upon any
of the properties or assets of the Company under,
<PAGE>
12
any provision of (i) the articles of incorporation or by-laws of the Company,
(ii) except as disclosed in Schedule 4.04, any Contract to which the Company is
a party or by which it or any of its properties or assets is bound or (iii) any
Judgment or Applicable Law applicable to the Company or any of its affiliates or
any of its properties or assets. No Consent of, or registration, declaration or
filing with, any Governmental Entity is required to be obtained or made by or
with respect to the Company or any of its affiliates in connection with the
execution, delivery and performance of this Agreement or the consummation of the
Acquisition or the other transactions contemplated hereby, other than compliance
with and filings under the HSR Act. Except as set forth in Schedule 4.04, no
additional Consents from third parties are necessary or appropriate in
connection with the execution, delivery and performance of this Agreement or the
consummation of the Acquisition or the other transactions contemplated hereby.
SECTION 4.05. FINANCIAL STATEMENTS. (a) Schedule 4.05 sets
forth the Company's audited balance sheet as of December 31, 1996, and its draft
audited balance sheets as of December 31, 1997, and December 31, 1998 (the
"Balance Sheet"), and the related statements of operations, stockholders'
deficit and cash flows of the Company for the fiscal years then ended, together
with the notes to such financial statements and, in the case of the audited
financial statements, the report thereon of PricewaterhouseCoopers LLP and, in
the case of the draft audited financial statements as of and for the fiscal
years ended December 31, 1997 and December 31, 1998, a draft of the report
thereon of PricewaterhouseCoopers LLP (collectively and including the financial
statements delivered pursuant to Section 6.18, the "Financial Statements"), and
drafts of the Company's financial statements as of and for the three months
ended March 31, 1999 compared with the three months ended March 31, 1998. The
Financial Statements have been prepared in conformity with GAAP consistently
applied (except in each case as described in the notes thereto) and on that
basis fairly present the financial condition and results of operations and cash
flows of the Company as of the respective dates thereof and for the respective
periods indicated.
(b) The Company does not have any material liabilities or
obligations of any nature (whether accrued, absolute, contingent or otherwise),
except (i) as disclosed, reflected or reserved against in the Balance Sheet and
the notes thereto, (ii) for liabilities and obligations incurred in the ordinary
course of business consistent with past practice since the date of the Balance
Sheet (or disclosed
<PAGE>
13
in the Schedules hereto) and not in violation of this Agreement, (iii) for
matters disclosed on Schedule 4.16 or matters that would be required to be
disclosed on Schedule 4.16 if such matters related to or involved more than
$100,000, (iv) liabilities and obligations under any Contract disclosed in the
Schedules hereto or that is not required to be disclosed in the Schedules hereto
and (v) for Taxes.
SECTION 4.06. ASSETS OTHER THAN REAL PROPERTY INTERESTS. (a)
The Company has good and marketable title to all the assets reflected on the
Balance Sheet or thereafter acquired, other than those disposed of since the
date of the Balance Sheet in the ordinary course of business consistent with
past practice, in each case free and clear of all mortgages, liens, security
interests, charges, easements, leases, subleases, covenants, rights of way,
options, claims, restrictions or encumbrances of any kind (collectively,
"Liens"), except (i) such Liens as are set forth in Schedule 4.06 (all of which
shall be discharged at or prior to the Closing), (ii) mechanics', carriers',
workmen's, repairmen's or other like Liens arising or incurred in the ordinary
course of business, Liens arising under original purchase price conditional
sales contracts and equipment leases with third parties entered into in the
ordinary course of business and liens for Taxes that are not due and payable or
that may thereafter be paid without penalty, (iii) Liens that secure Company
Indebtedness that are reflected as liabilities on the Balance Sheet or Liens the
existence of which is referred to in the notes to the Balance Sheet and (iv)
other imperfections of title or encumbrances, if any, that, individually or in
the aggregate, do not materially impair, and could not reasonably be expected
materially to impair, the continued use and operation of the assets to which
they relate in the conduct of the business of the Company as presently conducted
(the Liens described in clauses (ii) and (iv) above, together with the Liens
referred to in clauses (iii) and (iv) of Section 4.07, are referred to
collectively as "Permitted Liens").
(b) This Section 4.06 does not relate to real property or
interests in real property, such items being the subject of Section 4.07, or to
Intellectual Property, such items being the subject of Section 4.08.
SECTION 4.07. REAL PROPERTY. The Company does not own any real
property. Schedule 4.07 sets forth a complete list of all real property and
interests in real property leased by the Company (individually, a "Leased
Property"). Except as set forth in Schedule 4.07, the
<PAGE>
14
Company has good and valid title to the leasehold estates in all Leased
Property, in each case free and clear of all Liens, except (i) Liens described
in clause (ii), (iii) or (iv) of Section 4.06(a), (ii) such Liens as are set
forth in Schedule 4.08, (iii) subleases and similar agreements set forth in
Schedule 4.09 and (iv) Liens that have been placed by any landlord or other
third party on any Leased Property. None of the items set forth in clause (iv)
above, individually or in the aggregate, materially impairs, or could reasonably
be expected materially to impair, the continued use and operation of the Leased
Property to which they relate in the conduct of the business of the Company as
presently conducted.
SECTION 4.08. INTELLECTUAL PROPERTY.
(a) DEFINITIONS. For purposes of this Agreement:
(i) "Intellectual Property" means trademarks and service marks
(whether registered or unregistered) and trade names (collectively,
"Trademarks"); patents (including any continuations, continuations in
part, renewals and applications for any of the foregoing)
(collectively, "Patents"); copyrights (including any registrations and
applications therefor and whether registered or unregistered)
(collectively, "Copyrights"); Software (as defined below); works of
authorship; mask works; technology; trade secrets, know-how,
proprietary processes, formulae, algorithms, models, user interfaces,
inventions, discoveries, concepts, ideas, techniques, methods, source
codes, object codes, methodologies and, with respect to all of the
foregoing, related confidential data or information (collectively,
"Trade Secrets"); but excluding any limited copyright license or
permission from authors, publishers or other parties to use material in
the Company's products that have no future payment obligations.
(ii) "Material Inbound License Agreements" means all license
agreements granting to the Company any material right to use
Intellectual Property, but does not include (w) development tools
software under pre-paid license agreements, (x) office automation
software used generally in the Company's operations and (y) other
software not used in the design, development, maintenance and support,
testing, assembly and manufacture of the Company's products, that, in
the case of clause (w), (x) or (y), is commercially available for a
license fee of less than $100,000 per annum.
<PAGE>
15
(iii) "Material Outbound License Agreements" means all license
agreements under which the Company grants material rights to others to
use Intellectual Property owned by the Company, but does not include
agreements with customers for the use of Company products on customary
terms granted by the Company to its customers generally ("Customer
Agreements").
(iv) "Software" means any and all (i) computer programs,
including any and all software implementations of algorithms, models
and methodologies, whether in source code or object code, (ii)
databases and compilations, including any and all data and collections
of data, whether machine readable or otherwise, (iii) descriptions,
flowcharts and other work product used to design, plan, organize and
develop any of the foregoing, and (iv) all documentation, including
user manuals and training materials, relating to any of the foregoing.
(b) TRADEMARKS, PATENTS AND COPYRIGHTS. (i) Schedule 4.08 sets
forth a true and complete list of all United States and foreign (x)
Trademark registrations and applications by the Company and material
unregistered Trademarks of the Company and (y) copyright registrations
and applications by the Company, indicating for each, the applicable
jurisdiction, registration number (or application number), and date
issued (or date filed). The Company does not own any Patents.
(ii) All Trademark registrations in the United States are
currently in compliance in all material respects with all legal
requirements (including the timely post registration filing of
affidavits of use and incontestability and renewal applications) other
than any requirement that, if not satisfied, would not result in a
cancellation of any such registration or otherwise materially affect
the priority and enforceability of the Trademark in question.
(iii) Except as set forth in Schedule 4.08, no registered
Trademark has been since June 29, 1995 (the "Original Purchase Date"),
or is now involved in any material opposition or cancellation
proceeding in the United States Patent and Trademark Office. To the
knowledge of SSC and the Company, no such action has been threatened in
writing since the Original Purchase Date.
<PAGE>
16
(iv) Except as set forth in Schedule 4.08, to the knowledge of
SSC and the Company, there has been no prior use of any material
Trademark by any third party which would confer upon such third party
superior rights in any such Trademark.
(v) All material Trademarks registered in the United States
have been in continuous use by the Company.
(c) LICENSE AGREEMENTS. (i) Schedule 4.08 sets forth a true
and complete list of Material Inbound License Agreements and Material Outbound
License Agreements, indicating for each the title and the parties thereto and
the amount of any future royalty or license fee payable thereunder. The Company
has made available to the Purchaser true and complete copies of all Material
Inbound License Agreements and Material Outbound License Agreements. There is no
material outstanding or, to the knowledge of either SSC or the Company,
threatened dispute or disagreement with respect to any Material Inbound License
Agreement or any Material Outbound License Agreement. Except as set forth in
Schedule 4.08, no Material Outbound License Agreement contains noncompete or
other material restrictions on the sale or distribution of the Company's
products or services.
(ii) Except pursuant to the Material Outbound License
Agreements and as set forth in Schedule 4.08, (x) the Company has not
granted any third party the right to sublicense, distribute, sell or
acquire title to any Intellectual Property of the Company, including
the Software comprising the Company's products, and (y) the Company has
not granted any third party a license (contingent or otherwise) with
respect to the source code for such Software.
(d) SOFTWARE. The Software owned by the Company was either:
(i) developed by employees of Company within the
scope of their employment;
(ii) developed by independent contractors who have
assigned their rights to the Company pursuant to
written agreements; or
(iii) otherwise acquired by the Company from a third
party on an arm's-length commercially reasonable basis;
<PAGE>
17
in each case, except to the extent that it would not materially impair the
Company's right to use or sublicense the Software.
The Company's currently marketed and material Software
products listed in Schedule 4.08 operate substantially in accordance with the
written specifications and end-user documentation approved by the Company,
provided such Software is utilized in accordance with the Company's recommended
hardware configurations.
(e) OWNERSHIP; SUFFICIENCY OF INTELLECTUAL PROPERTY ASSETS.
The Intellectual Property owned by the Company is free and clear of all Liens
other than Permitted Liens. The Intellectual Property owned by the Company,
together with the Company's rights to Intellectual Property under licenses
granted to the Company, are all the Intellectual Property rights necessary to
operate the Company's business after the Closing in substantially the same
manner as such business has been operated by the Company prior thereto. The
consummation of the transactions contemplated by this Agreement will not impair
the Company's rights to use or sublicense Intellectual Property rights used in
the Company's business.
(f)PROTECTION OF INTELLECTUAL PROPERTY. The Company enforces a
policy of requiring each relevant employee, consultant and contractor to execute
confidentiality and work-for-hire agreements substantially in the forms made
available to Purchaser that reserve to the Company all rights to any
Intellectual Property rights relating to the Company's business and that
otherwise appropriately protect the Intellectual Property of the Company, and,
to the knowledge of SSC and the Company, except under confidentiality
agreements, there has been no disclosure by the Company of material confidential
information. Except as set forth in Schedule 4.08, the Company has not provided
any third party access to, or the right to modify, any source code of the
Software comprising the Company's products.
(g) NO INFRINGEMENT BY THE COMPANY. To the knowledge of SSC
and the Company, the products used, marketed, sold or licensed by the Company,
and the Company's use of the Intellectual Property used in the conduct of the
Company's business as currently conducted, do not infringe upon, violate or
constitute the unauthorized use of any rights owned or controlled by any third
party, including any Intellectual Property of any third party. Except as set
forth in Schedule 4.08, (i) no claims are pending or, to the knowledge of SSC
and the Company, threatened against the
<PAGE>
18
Company by any person with respect to the ownership, validity, enforceability,
effectiveness or use in the business of the Company of any Intellectual Property
that would materially impair the Company's right to use or sublicense such
Intellectual Property and (ii) since the Original Purchase Date, neither SSC nor
the Company has received any written communication alleging that the Company
violated any rights relating to Intellectual Property of any person.
(h) NO INFRINGEMENT BY THIRD PARTIES. Except as set forth in
Schedule 4.08, to the knowledge of SSC and the Company, no third party is
currently misappropriating, infringing, diluting, or violating any Intellectual
Property owned or exclusively licensed to the Company, and since May 1, 1996, no
such claims have been brought against any third party by the Company.
SECTION 4.09. CONTRACTS. (a) Except as set forth in Schedule
4.09, the Company is not a party to or bound by any:
(i) employment agreement with any current employee or officer
of the Company whose salary is in excess of $100,000, Contract with any
current or former director, consultant or independent contractor of the
Company that has an aggregate future liability in excess of $75,000 or
employment agreement or Contract providing for severance obligation in
excess of $50,000;
(ii) covenant not to compete or other covenant restricting the
development, manufacture, marketing or distribution of the products and
services of the Company (it being understood that this does not relate
to the scope of licenses granted to the Company);
(iii) Contract (other than this Agreement and those agreements
set forth in Schedule 2.06) with (A) any Seller or any affiliate of any
Seller or (B) any current or former officer or employee of the Company,
SSC or any affiliate of SSC (other than employment agreements covered
by clause (i) above and other than, in the case of clause (B), any
employment agreement or Contract the only obligations under which are
severance obligations fully accrued on the Company's balance sheet as
of March 31, 1999) that has an aggregate future liability in excess of
$75,000;
(iv) sublease or similar Contract with any person under which
the Company is a sublessor of, or makes available for use to any
person, any Leased Property;
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19
(v) lease, sublease or similar Contract with any person under
which (A) the Company is lessee of, or holds or uses, any machinery,
equipment, vehicle or other tangible personal property owned by any
person or (B) the Company is a lessor or sublessor of, or makes
available for use by any person, any tangible personal property owned
or leased by the Company, in any such case which has an aggregate
future liability or receivable, as the case may be, in excess of
$100,000;
(vi) (A) continuing Contract for the future purchase of
materials, supplies or equipment (other than hardware pass-through
contracts in the ordinary course of business consistent with past
practice), (B) management, service, consulting or other similar
Contract or (C) advertising agreement or arrangement; in any such case
which has an aggregate future liability to any person in excess of
$150,000;
(vii) Contract under which the Company has borrowed any money
from, or issued any note, bond, debenture or other evidence of
indebtedness to, any person or any other note, bond, debenture or other
evidence of indebtedness of the Company;
(viii) Contract (including any so-called take-or-pay or
keepwell agreements) under which (A) any person has directly or
indirectly guaranteed indebtedness, liabilities or obligations of the
Company or (B) the Company has directly or indirectly guaranteed
indebtedness, liabilities or obligations of any person, (in each case
other than endorsements for the purpose of collection in the ordinary
course of business);
(ix) Contract under which the Company has, directly or
indirectly, made any advance or loan to, or other investment in, any
person, other than employee travel and relocation loans and allowances
that individually are not in excess of $10,000;
(x) Contract granting a Lien upon any asset of the
Company;
(xi) Contract providing for indemnification of any person with
respect to liabilities relating to any former business of the Company
or any predecessor person;
(xii) a power of attorney (other than a power of attorney
given in the ordinary course of business with respect to routine tax
matters);
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20
(xiii) a Contract (including a sales order) involving the (x)
future obligation of the Company to deliver products or services for
payment of more than $150,000 or (y) obligation of the Company
extending for a term more than 365 days from the date of this Agreement
and involving a future obligation of more than $100,000 (in the case of
either clause (x) or clause (y), unless terminable without payment or
penalty upon no more than 60 days' notice);
(xiv) a Contract for the sale of any asset of the Company
(other than inventory sales in the ordinary course of business) or the
grant of any preferential rights to purchase any such asset or
requiring the consent of any party to the transfer thereof;
(xv) a Contract with any Governmental Entity (other than any
school or school district);
(xvi) a currency exchange, interest rate exchange, commodity
exchange or similar Contract;
(xvii) a Contract for any joint venture, partnership or
similar arrangement;
(xviii) a Contract providing for the services of any dealer,
distributor, sales representative, franchisee or similar representative
involving the payment or receipt over the past year in excess of
$100,000 by the Company;
(xix) other Contract that has an aggregate future liability to
any person in excess of $150,000 and is not terminable by the Company
by notice of not more than 60 days for a cost of less than $25,000
(other than purchase orders and sales orders); or
(xx) a Contract other than as set forth above to which the
Company is a party or by which it or any of its assets or properties is
bound or subject that is material to the business of the Company or the
use or operation of its assets, properties or businesses.
(b) Except as set forth in Schedule 4.09, all Contracts listed
in the Schedules (the "Company Contracts") are valid, binding and in full force
and effect and are enforceable by the Company in accordance with their terms
except as to the availability of equitable remedies. Except as set forth in
Schedule 4.09, the Company has performed all material obligations required to be
performed by it to date under the Company Contracts, and it is not (with or
without
<PAGE>
21
the lapse of time or the giving of notice, or both), and it is not alleged in
writing to be, in breach or default in any material respect thereunder and, to
the knowledge of SSC and the Company, no other party to any Company Contract is
(with or without the lapse of time or the giving of notice, or both) in breach
or default in any material respect thereunder. Neither SSC nor the Company has,
except as disclosed in the applicable Schedule, received any notice of the
intention of any party to terminate any Company Contract. Complete and correct
copies of all Company Contracts, together with all modifications and amendments
thereto, have been made available to Purchaser.
SECTION 4.10. INVENTORY. Each item of inventory of the
Company, whether reflected on the Balance Sheet or subsequently acquired, (a)
net of any applicable reserves, is free of any material defect or deficiency,
(b) net of any applicable reserves, is in good, usable and currently marketable
condition in the ordinary course of the business of the Company and (c) is
properly reflected in the books and records of the Company at the lesser of cost
and fair market value, with adequate obsolescence reserves, all as determined in
accordance with GAAP.
SECTION 4.11. PERSONAL PROPERTY. Each material item of
personal property of the Company is in good working order (ordinary wear and
tear excepted), is free from any material defect and has been maintained in all
material respects in accordance with the past practice of the Company, and no
repair, replacement or regularly scheduled maintenance relating to any such item
has been deferred. All leased personal property of the Company is in all
material respects in the condition required of such property by the terms of the
lease applicable thereto.
SECTION 4.12. RECEIVABLES. All the accounts receivable of the
Company (a) represent actual indebtedness incurred by the applicable account
debtors, (b) have arisen from bona fide transactions and (c) are good and
collectible at the aggregate recorded amounts thereof, net of any applicable
reserves for doubtful accounts reflected on the Balance Sheet. Since the date of
the Balance Sheet, there have not been any write-offs as uncollectible of any
customer accounts receivable of the Company, except for write-offs in the
ordinary course of the business of the Company and consistent with past
practice.
SECTION 4.13. PERMITS. Schedule 4.13 sets forth
all material certificates, licenses, permits, authorizations
and approvals ("Permits") issued or granted to the Company.
Except as set forth in Schedule 4.13, (i) all such Permits
<PAGE>
22
are validly held by the Company, and the Company has complied in all material
respects with all terms and conditions thereof, (ii) since May 1, 1996, neither
SSC nor the Company has received written notice of any suit, action or
proceeding (a "Proceeding") relating to the revocation or modification of any
such Permits, the loss of which, individually or in the aggregate, has had or
could reasonably be expected to have a Company Material Adverse Effect, and
(iii) none of such Permits will be subject to suspension, modification,
revocation or nonrenewal as a result of the execution and delivery of this
Agreement or the consummation of the transactions contemplated hereby. All
Permits that are held in the name of any employee, officer, director,
stockholder, agent or otherwise on behalf of the Company shall be deemed
included under this warranty.
SECTION 4.14. INSURANCE. The Company maintains policies of
fire and casualty, liability and other forms of insurance in such amounts, with
such deductibles and against such risks and losses as are, in SSC's and the
Company's judgment, reasonable for the business and assets of the Company. The
insurance policies maintained with respect to the Company and its assets and
properties are set forth on Schedule 4.14. All such policies are in full force
and effect, all premiums due and payable thereon have been paid (other than
retroactive or retrospective premium adjustments that are not yet, but may be,
required to be paid with respect to any period ending prior to the Closing
Date), and no notice of cancellation or termination has been received with
respect to any such policy which has not been replaced on substantially similar
terms prior to the date of such cancellation. Except as set forth in Schedule
4.14, to the knowledge of SSC and the Company, the activities and operations of
the Company have been conducted in a manner so as to conform in all material
respects to all applicable provisions of such insurance policies.
SECTION 4.15. TAXES. (a) For purposes of this
Agreement:
"Code" shall mean the Internal Revenue Code of
1986, as amended.
"Post-Closing Tax Period" shall mean any taxable period (or
portion thereof) that begins after the Closing Date.
"Pre-Closing Tax Period" shall mean all taxable periods (or
portions thereof) ending on or before the Closing Date.
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23
"Tax" or "Taxes" shall mean all Federal, state, county, local,
municipal, foreign and other taxes, assessments, duties or similar charges of
any kind whatsoever, including all corporate franchise, income, sales, use, ad
valorem, receipts, value added, profits, license, withholding, payroll,
employment, excise, premium, property, customs, net worth, capital gains,
transfer, stamp, documentary, social security, environmental, alternative
minimum, occupation, recapture and other taxes, and including all interest,
penalties and additions imposed with respect to such amounts, and all amounts
payable pursuant to any agreement or arrangement with respect to Taxes.
"Taxing Authority" shall mean any domestic, foreign, Federal,
national, state, county or municipal or other local government, any subdivision,
agency, commission or authority thereof, or any quasi-governmental body
exercising tax regulatory authority.
"Tax Return" or "Tax Returns" shall mean all returns,
declarations of estimated tax payments, reports, estimates, information returns
and statements, including any related or supporting information with respect to
any of the foregoing, filed or to be filed with any Taxing Authority in
connection with the determination, assessment, collection or administration of
any Taxes.
"Transfer Tax" means any transfer, documentary, recording,
stamp, sales, intangibles, ad valorem or other similar transactional tax.
(b) Except as set forth in Schedule 4.15, (i) the Company and
any affiliated group, within the meaning of Section 1504 of the Code, of which
the Company is or has been a member, has filed or caused to be filed in a timely
manner (within any applicable extension periods) all material Tax Returns
required to be filed by the Code or by applicable state, local or foreign tax
laws, (ii) all material Taxes with respect to taxable periods covered by such
Tax Returns, and all other material Taxes for which the Company or any such
group is or might otherwise be liable have been timely paid in full or will be
timely paid in full by the due date thereof and the most recent Financial
Statements reflect an adequate reserve (in accordance with GAAP) for all Taxes
payable by the Company for all taxable periods and portions thereof through the
date of such Financial Statements, and (iii) no Liens exist for Taxes (other
than Liens for Taxes not yet due and payable) with respect to any of the assets
or properties of the Company or any such group.
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24
(c) No Tax Returns of the Company or any affiliated group of
which the Company is or has ever been a member have ever been examined by the
Internal Revenue Service. No Tax Returns of the Company or any such group are
under audit or examination by any Taxing Authority, and no written notice of any
such audit or examination has been received by the Company or any such group.
(d) Any deficiency resulting from any audit or examination
relating to Taxes by any Taxing Authority has been timely paid. No issues
relating to Taxes were raised in writing by the relevant Taxing Authority in any
completed audit or examination that can reasonably be expected to recur in a
later taxable period. The Tax Returns of the Company, SSC and JLC Holdings, Inc.
with respect to Federal income Taxes have been examined by the Internal Revenue
Service, or the statute of limitations with respect to the assessment or
collection of the relevant Tax liability has expired, for all taxable periods
through and including the year ended December 31, 1994. The Company has made
available to Purchaser documents setting forth the dates of the most recent
audits or examinations of the Company or any affiliated group of which the
Company is or has ever been a member by any Taxing Authority in respect of
Federal, foreign and state and local Taxes for all taxable periods for which the
statute of limitations has not yet expired.
(e) Except as set forth in Schedule 4.15, neither the Company
nor the affiliated group that includes the Company, SSC and JLC Holdings, Inc.
is party to or bound by any tax-sharing agreement, tax indemnity obligation or
similar agreement, arrangement or practice with respect to Taxes (including any
advance pricing agreement, closing agreement or other agreement relating to
Taxes with any Taxing Authority).
(f) Other than deferred revenue of $22,976,000 as of December
31, 1998, neither the Company nor the affiliated group that includes the
Company, SSC and JLC Holdings, Inc. shall be required to include in a taxable
period ending after the Closing Date taxable income attributable to income that
accrued in a prior taxable period but was not recognized in any prior taxable
period as a result of the installment method of accounting, the long-term
contract method of accounting, the cash method of accounting or Section 481 of
the Code or any comparable provision of state, local, or foreign Tax law, or for
any other reason.
(g) None of SSC, JLC Holdings, Inc. or any of its affiliates
has made with respect to the Company or the affiliated group that includes the
Company, SSC and JLC
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25
Holdings, Inc., or any property held by the Company or such group, any consent
under Section 341 of the Code, no property of the Company or such group is "tax
exempt use property" within the meaning of Section 168(h) of the Code, neither
the Company nor such group is a party to any lease made pursuant to Section
168(f)(8) of the Internal Revenue Code of 1954, and none of the assets of the
Company or such group is subject to a lease under Section 7701(h) of the Code or
under any predecessor section thereof.
(h) Except as set forth in Schedule 4.15, (i) neither the
Company nor any affiliated group of which the Company is or has ever been a
member has outstanding any agreements or waivers extending, or having the effect
of extending, the statute of limitations with respect to the assessment or
collection of any Tax, (ii) other than extensions to file for the year ended
December 31, 1998, neither the Company nor any affiliated group, within the
meaning of Section 1504 of the Code, of which the Company is or has been a
member, has requested any extension of time within which to file any Tax Return,
which return has not yet been filed, and (iii) no power of attorney with respect
to any Taxes has been executed or filed with any Taxing Authority by or on
behalf of the Company or any affiliated group of which the Company is or has
ever been a member.
(i) The Company and any affiliated group of which the Company
is or has ever been a member have complied in all material respects with all
Applicable Laws relating to the payment and withholding of Taxes (including
withholding of Taxes pursuant to Sections 1441, 1442, 3121 and 3402 of the Code
or any comparable provision of any state, local or foreign laws) and have,
within the time and in the manner prescribed by Applicable Law, withheld from
and paid over to the proper Taxing Authorities all amounts required to be so
withheld and paid over under Applicable Laws.
(j) The Company has delivered to Purchaser for inspection (i)
complete and correct copies of all Federal and other material Tax Returns of the
Company and any affiliated groups of which the Company is or has ever been a
member relating to Taxes for all taxable periods beginning on or after June 29,
1995 and (ii) complete and correct copies of all private letter rulings, revenue
agent reports, information document requests, notices of proposed deficiencies,
deficiency notices, protests, petitions, closing agreements, settlement
agreements, pending ruling requests, and any similar documents, submitted by,
received by or agreed to by or on behalf of the Company or any such group, or,
to the extent related to the income, business, assets, operations, activities or
status of the Company or
<PAGE>
26
any such group, submitted by, received by or agreed to by or on behalf of any
affiliated group of which the Company is or has ever been a member, and relating
to Taxes for all taxable periods for which the statute of limitations has not
yet expired.
(k) Schedule 4.15 sets forth (i) each jurisdiction in which
the Company or the affiliated group that includes the Company, SSC and JLC
Holdings, Inc. joins or has joined for any taxable period ending after 1995 in
the filing of any consolidated, combined or unitary Tax Return, and (ii) the
common parent corporation and the other individual members of the consolidated,
combined or unitary group filing such Tax Return.
(l) Schedule 4.15 sets forth each state, county, local,
municipal or foreign jurisdiction in which the Company or any affiliated group
of which the Company is or has ever been a member files, is required to file or
has been required to file a Tax Return relating to state and local income,
franchise, license, excise, net worth, property or sales and use taxes or is or
has been liable for any Taxes on a "nexus" basis at any time for taxable periods
ending after 1995.
(m) There is no accrual for deferred Taxes (whether on a gross
or net basis) reflected on the Company's most recent balance sheet included in
the Financial Statements.
(n) The Company is not a "United States real property holding
corporation" within the meaning of Section 897 of the Code.
(o) SSC is not a "foreign person" within the meaning of
Section 1445 of the Code.
(p) On the Closing Date and immediately prior to the Closing,
the Company will be a member of the consolidated group, within the meaning of
Treasury Regulation Section 1.1502-1(h), of which JLC Holdings, Inc. is the
common parent and which includes SSC, and such consolidated group will actually
file a consolidated Federal income Tax Return for the taxable year including the
Closing Date.
(q) Schedule 4.15 sets forth the following information with
respect to the Company as of December 31, 1997: (i) the amount of any net
operating loss carryforwards of the Company, (ii) the amount of any deferred
gain or loss allocable to the Company or such group arising out of any deferred
intercompany transaction, and
<PAGE>
27
(iii) the aggregate Tax basis in the Company's assets, in each case determined
after giving effect to the amended Tax Returns described in Section 6.09(g) but
without regard to any Tax attribute reduction after the date hereof pursuant to
Section 108(b) of the Code.
SECTION 4.16. PROCEEDINGS. Schedule 4.16 sets forth a list of
each pending or, since May 1, 1996, threatened Proceeding or claim with respect
to which SSC or the Company has been contacted in writing by counsel for the
plaintiff or claimant, against or affecting the Company or its properties,
assets, operations or business and that (a) relates to or involves more than
$100,000 or (b) may give rise to any legal restraint on or prohibition against
the transactions contemplated by this Agreement. Except as set forth in Schedule
4.16, none of the Proceedings or claims listed in Schedule 4.16 as to which
there is at least a reasonable possibility of adverse determination would have,
if so determined, individually or in the aggregate, a Company Material Adverse
Effect. Except as set forth in Schedule 4.16, to the knowledge of SSC and the
Company, there are no unasserted claims of the type that would be required to be
disclosed in Schedule 4.16 if counsel for the claimant had contacted the Company
that are considered probable of assertion and that if asserted would have at
least a reasonable possibility of an adverse determination. To the knowledge of
SSC and the Company, except as set forth in Schedule 4.16, the Company is not a
party or subject to or in default under any Judgment. Except as set forth in
Schedule 4.16, as of the date of this Agreement there is not any Proceeding or
claim by the Company pending, or which the Company intends to initiate, against
any other person. Except as set forth in Schedule 4.16, to the knowledge of SSC
and the Company, there is no pending or threatened investigation of the Company.
SECTION 4.17. EMPLOYEE BENEFIT PLANS. (a) Schedule 4.17
contains a list of each "employee pension benefit plan" (as defined in Section
3(2) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")) (a "Pension Plan"), "employee welfare benefit plan" (as defined in
Section 3(1) of ERISA) (a "Welfare Plan"), and each other written plan,
arrangement or policy relating to stock options, stock purchases, compensation,
deferred compensation, severance, fringe benefits or other employee benefits, in
each case maintained or contributed to, or required to be maintained or
contributed to, by the Company or any other person or entity that, together with
the Company, is or was treated as a single employer under Section 414(b), (c),
(m) or (o) of the Code (each, together
<PAGE>
28
with the Company, a "Commonly Controlled Entity") for the benefit of any present
or former officers, employees, agents, directors or independent contractors of
the Company (all the foregoing being herein called "Company Plans"). The Company
has made available to Purchaser true, complete and correct copies of (i) each
Company Plan, (ii) the most recent annual reports on Form 5500 (including all
schedules and attachments thereto) filed with the Internal Revenue Service with
respect to each Company Plan (if any such report was required by Applicable
Law), (iii) the most recent summary plan description (or similar document) for
each Company Plan for which such a summary plan description is required by
Applicable Law or was otherwise provided to plan participants or beneficiaries
and (iv) each trust agreement and insurance or annuity contract or other funding
or financing arrangement relating to any Company Plan.
(b) Each Company Plan has been administered in all material
respects in accordance with its terms. The Company and all the Company Plans are
in compliance in all material respects with the applicable provisions of ERISA,
the Code, all other Applicable Laws and the terms of any applicable collective
bargaining agreements. There are no investigations by any Governmental Entity,
termination proceedings or other claims (except routine claims for benefits
payable under the Company Plans) or proceedings against or involving any Company
Plan or asserting any rights to or claims for benefits under any Company Plan
that could give rise to any liability that could reasonably be expected to have
a Company Material Adverse Effect.
(c) Each Company Pension Plan that is intended to be a
tax-qualified plan has been the subject of a determination letter from the
Internal Revenue Service to the effect that such Company Pension Plan and
related trust is qualified and exempt from Federal income taxes under Sections
401(a) and 501(a), respectively, of the Code and no such determination letter
has been revoked, and, to the knowledge of SSC and the Company, the Internal
Revenue Service has not threatened to revoke any such determination letter. The
Company has made available to Purchaser a copy of the most recent determination
letter received with respect to each Company Pension Plan for which such a
letter has been issued.
(d) Neither the Company, nor any of the Company Plans or any
trusts created thereunder, nor any trustee or administrator thereof, has engaged
in a "prohibited transaction" (as defined in Section 4975 of the Code or Section
406 of ERISA) which would cause the Company or the Company Plans (or related
trusts) to become subject to any
<PAGE>
29
penalty under such applicable ERISA or Code provisions that could reasonably be
expected to have a Company Material Adverse Effect.
(e) No Company Plan is subject to Part 3 of Subtitle B of
Title I of ERISA or Title IV of ERISA or Section 412 of the Code and neither the
Company nor any Commonly Controlled Entity contributes to any "multiemployer
plan" (as defined in Section 4001(a)(3) of ERISA) or has withdrawn from any such
multiemployer plan where such withdrawal has resulted or would result in any
"withdrawal liability" (within the meaning of Section 4201 of ERISA) that has
not been fully paid.
(f) Schedule 4.17 discloses each Welfare Plan which is funded
through a "welfare benefit fund", as such term is defined in Section 419(e) of
the Code, or other funding mechanism. Except as disclosed on Schedule 4.17, the
Company does not have any obligations for retiree welfare benefits (other than
COBRA payments) under any Company Plan. Each Welfare Plan may be amended or
terminated prospectively, within a period of 90 days without the imposition of
any material liability to the Company for additional benefits not accrued as of
such amendment or termination.
(g) Except as set forth in Schedule 4.17, as a result of the
transactions contemplated by this Agreement, no employee of the Company will be
entitled to any additional benefits or any acceleration of the time of payment
or vesting of any benefits under any Company Plan or Contract and no amount
payable to any employee would be characterized as an "excess parachute payment"
(as such term is defined in Section 280G of the Code).
SECTION 4.18. ABSENCE OF CHANGES OR EVENTS. Except as set
forth in Schedule 4.18, since December 31, 1998, there has not been any material
adverse change in the business, assets, condition (financial or otherwise),
results of operations or prospects of the Company. Except as set forth in
Schedule 4.18, since December 31, 1998, the business of the Company has been
conducted in the ordinary course and in substantially the same manner as
previously conducted. Except as set forth in Schedule 4.18, since December 31,
1998, to the date of this Agreement, neither the SSC nor the Company has taken
any action that, if taken after the date of this Agreement, would constitute a
breach of any of the covenants set forth in Section 6.01.
SECTION 4.19. COMPLIANCE WITH APPLICABLE LAWS.
(a) Except as set forth in Schedule 4.19, the Company is in
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30
compliance with all Applicable Laws, except for instances of noncompliance that,
individually or in the aggregate, have not had and could not reasonably be
expected to have a Company Material Adverse Effect. Except as set forth in
Schedule 4.19, neither SSC nor the Company has received any written
communication since May 1, 1996, from any Governmental Entity that alleges that
the Company is not in compliance with any Applicable Law. This Section 4.19(a)
does not relate to matters with respect to Taxes, which are the subject of
Section 4.15, or to environmental matters, which are the subject of Section
4.19(b).
(b) (i) The Company is in compliance in all material respects
with all Environmental Laws (as defined below), and the Company holds all
material permits, licenses, orders, approvals and other authorizations required
under Environmental Laws for the Company to conduct its business as currently
conducted; (ii) neither SSC nor the Company has received any written notice of a
pending or threatened action, demand, investigation or inquiry by any
Governmental Entity or other person relating to any actual or alleged violations
of Environmental Law or any actual or potential obligation to investigate or
take any other action relative to the release or threatened release of any
Hazardous Substances (as defined below); (iii) to the knowledge of SSC and the
Company, the Company has not released or disposed of, or otherwise handled or
permitted the release or disposal of, any Hazardous Substances that could
reasonably be expected to result in any liability under any Environmental Law;
(iv) there are no underground storage tanks on or under any property operated or
leased by SSC or the Company; and (v) all information, data, studies,
assessments, audits or other evaluations related to compliance and or liability
of SSC or the Company under Environmental Laws of which SSC or the Company is
aware have been made available to the Purchaser.
The term "Environmental Law" means the common law and all
Federal, state or local statutes, regulations, ordinances, permits and permit
conditions, administrative and judicial orders, consent decrees, notice letters,
demands or any other governmental requirement relating to health, safety, the
environment (including without limitation ambient air, indoor air, surface and
groundwater, surface and subsurface soils and other natural resources), or to
the manufacture, generation, processing, distribution, use, treatment, storage,
handling, transportation or disposal of Hazardous Substances. Such laws
specifically include but are not limited to the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended ("CERCLA"), the
Resource Conservation and
<PAGE>
31
Recovery Act ("RCRA"), 42 U.S.C. 6901 ET SEQ., as amended; the Toxic Substances
Control Act ("TSCA"), 15 U.S.C. 2601 ET SEQ., as amended; and the Clean Water
Act, 33 U.S.C. 1251 ET SEQ., as amended; the Clean Air Act, 42 U.S.C. 7401 ET
SEQ., as amended.
The term "Hazardous Substances" means hazardous substances,
pollutants, hazardous constituents, contaminants, toxic substances or any other
chemicals, waste or materials of any kind whatsoever including, without
limitation, crude oil, petroleum, or any fraction thereof.
SECTION 4.20. EMPLOYEE AND LABOR MATTERS. (a) None of the
Company's employees are covered by a collective bargaining agreement, no union
organizational efforts with respect to any employees of the Company are pending
or, to the knowledge of SSC and the Company, are threatened and, to the
knowledge of SSC and the Company, there is no labor dispute, strike, work
stoppage or slowdown pending or threatened that may in any material respect
interfere with the business of the Company or any material liability relating to
any unfair labor or employment practices or any charge or complaint by the
National Labor Relations Board or by any other comparable agency pending or
threatened against the Company.
(b) No employee of the Company is, to the knowledge of SSC and
the Company, a party to or bound by any Contract, or subject to any Judgment
that may interfere with the use of such person's best efforts to promote the
interests of the Company, may conflict with the transactions contemplated hereby
or that has had or could reasonably be expected to have a Company Material
Adverse Effect. To the knowledge of SSC and the Company, no activity of any
employee of the Company as or while an employee of the Company caused a material
violation of any employment contract, confidentiality agreement, or other
Contract to which such employee was a party. To the knowledge of SSC and the
Company, neither the execution and delivery of this Agreement nor the
consummation of the Acquisition will conflict with or result in a breach of the
terms, conditions or provisions of, or constitute a default under, any Contract
under which any such employee is now obligated.
SECTION 4.21. TRANSACTIONS WITH AFFILIATES. Except as set
forth in Schedule 4.21, none of the Contracts set forth in Schedule 2.06 or 4.09
between the Company, on the one hand, and any Seller or any of its affiliates,
on the other hand, will continue in effect subsequent to the Closing.
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32
SECTION 4.22. EFFECT OF TRANSACTION. To the knowledge of SSC
and the Company, no creditor, employee, client, customer or other person having
a material business relationship with the Company has materially changed, or
informed SSC or the Company that such person intends to materially change, such
relationship because of the purchase and sale of the Company or the consummation
of any other transaction contemplated hereby.
SECTION 4.23. DISCLOSURE. No representation or warranty of SSC
or the Company contained in this Agreement, and no written statement directly or
indirectly made to or for the benefit of Purchaser contained in any document,
certificate or Schedule furnished or to be furnished by or on behalf of SSC or
the Company to Purchaser pursuant to this Agreement, contains or will contain on
the Closing Date any untrue statement of a material fact, or omits or will omit
on the Closing Date to state any material fact necessary, in light of the
circumstances under which it was or will on the Closing Date be made, in order
to make the statements herein or therein not misleading; PROVIDED, HOWEVER, that
no such representation or warranty is made as to any Projected Disclosures (as
defined in the next sentence). To the extent that any document, certificate or
Schedule referenced above relates to projections or predictions as to future
performance (in any case, a "Projected Disclosure"), such Projected Disclosure,
when made, was based upon assumptions reasonably believed in good faith to be
reasonable by the person making such Projected Disclosure.
SECTION 4.24. SUPPLIERS. Except as set forth in Schedule 4.24,
between December 31, 1998 and the date of this Agreement, the Company has not
entered into or made any Contract or commitment for the purchase of merchandise
other than in the ordinary course of business consistent with past practice.
Except for the suppliers named in Schedule 4.24, the Company does not have any
supplier from whom it purchased more than 5% of the total amount of goods and
services which it purchased during its most recent full fiscal year. Except as
set forth in Schedule 4.24, since December 31, 1998, there has not been (i) any
material adverse change in the business relationship of the Company with any
supplier of merchandise named in Schedule 4.24 or (ii) any change in any
material term (including credit terms) of the supply agreements or related
arrangements with any such supplier.
SECTION 4.25. CUSTOMERS. Schedule 4.25 sets
forth the top 10 customers of the Company on the basis of
total sales during its most recent full fiscal year. Except
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33
as set forth in Schedule 4.25, since December 31, 1998, there has not been (i)
any material adverse change in the business relationship of the Company with any
significant customer of the Company or (ii) any change in any material term
(including credit terms) of the sales agreements or related agreements with any
such customer. During the past year, the Company has not received any customer
complaint concerning its products and services, nor has it had any of its
products returned by a purchaser thereof, other than (x) complaints and (y)
returns in the ordinary course of business, in the case of either clause (x) or
clause (y), that, individually or in the aggregate, have not had and could not
reasonably be expected to have a Company Material Adverse Effect.
SECTION 4.26. PRIVATE OFFERING. None of SSC, the Company,
their affiliates and their representatives has issued, sold or offered any
security of the Company to any person under circumstances that would cause the
sales of the Shares, as contemplated by this Agreement to be subject to the
registration requirements of the Securities Act. Assuming the representations of
Purchaser contained in Section 5.05 are true and correct, the sale and delivery
of the Shares hereunder are exempt from the registration and prospectus delivery
requirements of the Securities Act.
SECTION 4.27. SUBSIDIARIES. The Company does not have any
subsidiaries and, except as set forth in Schedule 4.27, does not own, directly
or indirectly, any capital stock or other ownership interest in any person.
SECTION 4.28. YEAR 2000. The Company has engaged in a
reasonably appropriate process of assessment of the existence of limitations in
the capacity of its hardware and software systems associated with information
processing and delivery, billing, payables, management, operations or services
operated by or otherwise reasonably necessary to the business operations of the
Company (collectively, the "Systems") to handle date information and avoid date
processing errors arising from the advent of the year 2000 ("Year 2000
Problems"). Additionally, the Software currently and previously licensed and
sold by the Company to its customers has been analyzed for Year 2000 Problems.
Except with respect to the Systems and the Software identified on Schedule 4.28,
the Company has adopted or is implementing a plan of correction that the Company
reasonably believes will result in a substantial elimination of Year 2000
Problems. SSC and the Company believe that the assessment and correction of Year
2000 Problems, which if not corrected, individually or in the aggregate would
have a
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34
Company Material Adverse Effect, will be completed on or prior to October 31,
1999.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby represents and warrants to Sellers and the
Company, as of the date of this Agreement and as of the Closing Date, as
follows:
SECTION 5.01. ORGANIZATION, STANDING AND POWER. Purchaser is
duly organized, validly existing and in good standing under the laws of the
State of Delaware and has full corporate power and authority to acquire and own
the Shares.
SECTION 5.02. AUTHORITY; EXECUTION AND DELIVERY;
ENFORCEABILITY. Purchaser has full power and authority to execute this Agreement
and to consummate the Acquisition and the other transactions contemplated to be
consummated by it hereby. The execution and delivery by Purchaser of this
Agreement and the other transactions contemplated to be consummated by it hereby
have been duly authorized by all necessary corporate action. Purchaser has duly
executed and delivered this Agreement and this Agreement constitutes its legal,
valid and binding obligation, enforceable against it in accordance with its
terms.
SECTION 5.03. NO CONFLICTS; CONSENTS. The execution and
delivery by Purchaser of this Agreement do not, and the consummation of the
Acquisition and the other transactions contemplated hereby and compliance by
Purchaser with the terms hereof will not conflict with, or result in any
violation of or default (with or without notice or lapse of time, or both)
under, or give rise to a right of termination, cancellation or acceleration of
any obligation or to loss of a material benefit under, or to increased,
additional, accelerated or guaranteed rights or entitlements of any person
under, or result in the creation of any Lien upon any of the properties or
assets of Purchaser under, any provision of (i) the certificate of incorporation
or by-laws of Purchaser, (ii) any Contract to which Purchaser is a party or by
which it or any of its properties or assets is bound or (iii) any Judgment or
Applicable Law applicable to Purchaser or any of its properties or assets. No
Consent of, or registration, declaration or filing with, any Governmental Entity
is required to be obtained or made by or with respect to Purchaser or its
affiliates in connection with the execution, delivery and performance of this
<PAGE>
35
Agreement or the consummation of the Acquisition or the other transactions
contemplated hereby, other than compliance with and filings under the HSR Act.
SECTION 5.04. FINANCING. Purchaser has received commitment
letters dated May 6, 1999, May 12, 1999 and May 3, 1999, respectively, from The
Northwestern Mutual Life Insurance Company, NationsBanc Montgomery Securities
LLC and SG Capital Partners LLC and has delivered copies of same to the Company
and each of the Sellers. If all applicable conditions of such commitment letters
are satisfied, the funds to be provided to Purchaser thereunder will provide
Purchaser with sufficient financial resources, together with the equity
investment contemplated by Purchaser, to consummate the Acquisition. To the
knowledge of Purchaser, as of the date of this Agreement none of such commitment
letters has been modified or terminated.
SECTION 5.05. SECURITIES ACT. The Shares to be purchased by
Purchaser pursuant to this Agreement are being acquired for investment only and
not with a view to any public distribution thereof, and Purchaser will not offer
to sell or otherwise dispose of the Shares so acquired by it in violation of any
of the registration requirements of the Securities Act.
ARTICLE VI
COVENANTS
SECTION 6.01. COVENANTS RELATING TO CONDUCT OF BUSINESS. (a)
Except for matters set forth in Schedule 6.01 or otherwise expressly permitted
by the terms of this Agreement, from the date of this Agreement to the Closing,
SSC shall cause the business of the Company to be conducted, and the Company
shall conduct its business, in the usual, regular and ordinary course in
substantially the same manner as previously conducted and SSC shall cause the
Company to, and the Company shall, use all reasonable efforts to keep intact its
business, keep available the services of its current employees and preserve its
relationships with customers, suppliers, licensors, licensees, distributors and
others with whom it deals. SSC shall not, and shall not permit the Company to,
and the Company shall not, take any action that would, or that could reasonably
be expected to, result in any of the conditions to the purchase and sale of the
Shares set forth in Article VII not being satisfied. In addition (and without
limiting the generality of the foregoing), except as set forth in Schedule 6.01
or otherwise expressly permitted or
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36
required by the terms of this Agreement, from the date of this Agreement to the
Closing, SSC shall not permit the Company to, and the Company shall not, do any
of the following without the prior written consent of Purchaser:
(i) amend its articles of incorporation or
by-laws;
(ii) declare or pay any dividend or make any other
distribution to SSC, Sylvan, Pyramid or GE Cap-Eq or any of their
affiliates;
(iii) redeem or otherwise acquire any shares of its capital
stock or issue any capital stock or any option, warrant or right
relating thereto or any securities convertible into or exchangeable for
any shares of capital stock;
(iv) adopt or amend any Company Plan (or any plan
that would be a Company Plan if adopted);
(v) grant to any officer or employee any increase in
compensation or benefits, except to nonmanagement employees in the
ordinary course of business and consistent with past practice or as may
be required under existing agreements and except for any increases for
which SSC shall be solely obligated;
(vi) incur or assume any liabilities, obligations or
indebtedness for borrowed money or guarantee any such liabilities,
obligations or indebtedness, other than in the ordinary course of
business and consistent with past practice; PROVIDED, HOWEVER, that in
no event shall the Company incur or assume any long-term indebtedness
for borrowed money other than additional borrowings under the Foothill
Facility in the ordinary course of business;
(vii) permit, allow or suffer any of its assets to become
subjected to any Lien of any nature whatsoever that would have been
required to be set forth in Schedule 4.05 or 4.06 if existing on the
date of this Agreement;
(viii) cancel any material indebtedness (individually or in
the aggregate) or waive any claims or rights of substantial value;
(ix) pay, loan or advance any amount to, or sell, transfer or
lease any of its assets to, or enter into any agreement or arrangement
with, SSC, Sylvan, Pyramid
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37
or GE Cap-Eq or any of their affiliates, except, in the
case of Sylvan, as set forth in Schedule 6.01;
(x) make any change in any method of accounting or accounting
practice or policy other than those required by GAAP;
(xi) acquire by merging or consolidating with, or by
purchasing a substantial portion of the assets of, or by any other
manner, any business or any corporation, partnership, association or
other business organization or division thereof or otherwise acquire
any assets (other than inventory) that are material;
(xii) make or incur any capital expenditure that is not
currently approved in writing or budgeted and that, individually, is in
excess of $25,000 or make or incur any such expenditures which, in the
aggregate, are in excess of $100,000;
(xiii) sell, lease, license or otherwise dispose of any of its
assets, except inventory sold in the ordinary course of business and
consistent with past practice;
(xiv) enter into any lease of real property, except any
renewals of existing leases in the ordinary course of business and
consistent with past practice, with respect to which Purchaser shall
have the right to participate;
(xv) modify, amend, terminate or permit the lapse of any lease
of, or reciprocal easement agreement, operating agreement or other
material agreement relating to, real property (except modifications or
amendments associated with renewals of existing leases in the ordinary
course of business and consistent with past practice, with respect to
which Purchaser shall have the right to participate); or
(xvi) authorize any of, or commit or agree to take, whether in
writing or otherwise, to do any of, the foregoing actions.
(b) ADVISE OF CHANGES. From the date of this Agreement to the
Closing, SSC and the Company shall promptly advise Purchaser in writing of the
occurrence of any matter or event that is material to the business, assets,
condition (financial or otherwise) or results of operations of the Company.
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38
(c) AFFIRMATIVE COVENANTS. Until the Closing, SSC shall cause
the Company to, and the Company shall:
(i) maintain its assets in the ordinary course of
business in good operating order and condition,
reasonable wear and tear excepted;
(ii) upon any damage, destruction or loss to any asset, apply
any and all insurance proceeds received with respect thereto to the
prompt repair, replacement and restoration thereof to the condition of
such asset before such event or, if required, to such other (better)
condition as may be required by Applicable Law; and
(iii) maintain its level and quality of inventory and supplies
in the ordinary course of business in a manner consistent with its
practices in place as of December 31, 1998.
(d) CONSULTATION. In connection with the continuing operation
of the business of the Company between the date of this Agreement and the
Closing, SSC and the Company shall use reasonable efforts to consult in good
faith on a regular and frequent basis with the representatives of Purchaser to
report material operational developments and the general status of ongoing
operations pursuant to procedures reasonably requested by Purchaser or such
representatives. SSC and the Company acknowledge that any such consultation in
and of itself shall not constitute a waiver by Purchaser of any rights it may
have under this Agreement, and that Purchaser shall not have any liability or
responsibility for any actions of SSC or the Company or any of its officers or
directors with respect to matters that are the subject of such consultations;
PROVIDED, HOWEVER, that any written consents or approvals given pursuant to
Section 9.03 in connection with the consultation contemplated by this Section
6.01(d) shall be binding in accordance with their terms.
(e) INSURANCE. SSC shall use all commercially reasonable
efforts to cause the Company to, and the Company shall use all commercially
reasonable efforts to, keep all insurance policies set forth in Schedule 4.14 or
suitable replacements therefor in full force and effect through the close of
business on the Closing Date.
SECTION 6.02. NO SOLICITATION. From the date of
this Agreement to the earlier to occur of the Closing or
termination hereof in accordance with Article IX, none of
Sellers, any of their affiliates and the Company shall, nor
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39
shall they permit any of their respective officers, directors or stockholders or
other representatives to, directly or indirectly, (i) solicit, initiate or
encourage any "other bid", (ii) enter into any agreement with respect to any
other bid or (iii) participate in any discussions or negotiations regarding, or
furnish to any person any information with respect to, or take any other action
to facilitate any inquiries or the making of any proposal that constitutes, or
may reasonably be expected to lead to, any other bid. Without limiting the
foregoing, it is understood that any violation of the restrictions set forth in
the preceding sentence by any officer, director, stockholder or other
representative of any Seller, the Company or any affiliate of any Seller,
whether or not such person is purporting to act on behalf of any Seller, the
Company or any other affiliate of any Seller or otherwise, shall be deemed to be
a breach of this Section 6.02. In the event that any Seller, the Company or any
affiliate of any Seller receives a proposal relating to any such transaction,
such Seller or the Company shall promptly advise Purchaser of such proposal. As
used in this Section 6.02, "other bid" shall mean any proposal for a merger,
consolidation, sale of securities, sale of substantial assets or similar
transaction involving the Company, other than (A) the transactions contemplated
by this Agreement and (B) the sale of inventory in the ordinary course of
business.
SECTION 6.03. ACCESS TO INFORMATION. SSC shall, and shall
cause the Company to, and the Company shall, afford to Purchaser and its lenders
and their accountants, counsel and other representatives reasonable access, upon
reasonable notice during normal business hours during the period prior to the
Closing, to all the personnel, properties, books, Contracts, commitments, Tax
Returns and records of SSC and the Company, and, during such period shall
furnish promptly to Purchaser any information concerning SSC or the Company as
Purchaser may reasonably request.
SECTION 6.04. CONFIDENTIALITY. (a) Purchaser acknowledges that
the information being provided to it in connection with the Acquisition and the
consummation of the other transactions contemplated hereby is subject to the
terms of a confidentiality agreement between Purchaser and the Company (the
"Confidentiality Agreement"), the terms of which are incorporated herein by
reference. Effective upon, and only upon, the Closing, the Confidentiality
Agreement shall terminate.
(b) Each Seller shall keep confidential, and
cause its affiliates and its and their officers, directors,
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40
employees and advisors to keep confidential, all information relating to the
Company, except as required by law or administrative process and except for
information that is not confidential or proprietary to the Company or that is
available to the public on the Closing Date, or thereafter becomes available to
the public other than as a result of a breach of this Section 6.04(b). The
covenant set forth in this Section 6.04(b) shall terminate two years after the
Closing Date.
SECTION 6.05. REASONABLE EFFORTS. (a) On the terms and subject
to the conditions of this Agreement, each of Purchaser, SSC and the Company
shall use commercially reasonable efforts to cause the Closing to occur,
including taking all reasonable actions necessary to comply promptly with all
legal requirements that may be imposed on it or any of its affiliates with
respect to the Closing. Without limiting the foregoing or the provisions set
forth in Section 6.05(b), each of Purchaser, SSC and the Company shall use its
commercially reasonable efforts to cause the Closing to occur on or prior to
June 29, 1999 or as soon as practicable thereafter.
(b) Each of SSC and Purchaser shall as promptly as
practicable, but in no event later than five business days following the
execution and delivery of this Agreement, file or cause to be filed with the
United States Federal Trade Commission (the "FTC") and the United States
Department of Justice (the "DOJ") the notification and report form, if any,
required for the transactions contemplated hereby and any supplemental
information requested in connection therewith pursuant to the HSR Act. Any such
notification and report form and supplemental information shall be in
substantial compliance with the requirements of the HSR Act. Each of SSC and
Purchaser shall furnish to the other such necessary information and reasonable
assistance as the other may request in connection with its preparation of any
filing or submission that is necessary under the HSR Act. SSC and Purchaser
shall keep each other apprised of the status of any communications with, and any
inquiries or requests for additional information from, the FTC and the DOJ and
shall comply promptly with any such inquiry or request. Any such supplemental
information shall be in substantial compliance with the requirements of the HSR
Act.
SECTION 6.06. EXPENSES; TRANSFER TAXES. (a) Whether or not the
Closing takes place, all fees, costs and expenses incurred in connection with,
or in anticipation of, this Agreement and to consummate the transactions
contemplated hereby shall be paid by the party incurring
<PAGE>
41
such expense, including all such fees, costs and expenses incurred pursuant to
Section 6.05, except as provided in Article VIII and Section 6.09 and except
that all such fees, costs and expenses of third party professionals, including
BT Alex.Brown Incorporated and Hennigan, Mercer & Bennett incurred by the
Company, shall be paid by SSC, except that after the Closing Purchaser shall
cause the Company to pay any remaining unpaid fees, costs and expenses incurred
by the Company pursuant to the written retainer agreement with John C. Bender
dated November 14, 1996, and any fees, costs and expenses of
PricewaterhouseCoopers LLP incurred by the Company.
(b) All Transfer Taxes applicable to the transfer of the
Shares shall be paid by SSC. Each party shall use reasonable efforts to avail
itself of any available exemptions from any such Taxes or fees, and to cooperate
with the other parties in providing any information and documentation that may
be necessary to obtain such exemptions.
SECTION 6.07. BROKERS OR FINDERS. Each of Purchaser, the
Company and each Seller represents and warrants, as to itself and its
affiliates, that no agent, broker, investment banker or other firm or person is
or will be entitled to any broker's or finder's fee or any other commission or
similar fee in connection with any of the transactions contemplated by this
Agreement, except, as to the Company, BT Alex.Brown Incorporated, whose fees and
expenses will be paid by SSC.
SECTION 6.08. RESIGNATIONS. On the Closing Date, the Company
shall cause to be delivered to Purchaser duly signed resignations from the board
of directors of the Company, effective immediately after the Closing, of all the
directors and shall take such other action as is necessary to accomplish the
foregoing.
SECTION 6.09. TAX MATTERS. (a) For any taxable period of the
Company as a separate taxpayer that includes (but does not end on) the Closing
Date (a "Straddle Period"), Purchaser shall timely prepare and file with the
appropriate authorities all Tax Returns required to be filed and shall pay all
Taxes due with respect to such Tax Returns.
For any taxable period that ends on or before the Closing Date, Purchaser shall
timely prepare and timely file with the appropriate authorities, all Tax Returns
required to be filed for such period other than the consolidated Federal income
Tax Return for the affiliated group that includes the
<PAGE>
42
Company, SSC and JLC Holdings, Inc., and any other Tax Return for which the
Company is part of any consolidated, combined, unitary, affiliated or aggregate
group that includes SSC or JLC Holdings, Inc.; PROVIDED, HOWEVER, that (i) the
Preferred Sellers shall pay all Taxes due with respect to such Tax Returns and
reimburse Purchaser for all out-of-pocket costs and expenses incurred to prepare
such Tax Returns (except to the extent, if any, that such Taxes have been
expressly accrued as a separate liability on the 1998 Financial Statements of
the Company or that such fees and expenses are to be borne by the Company
pursuant to the last sentence of Section 6.09(g)(i)), and (ii) no such Tax
Return shall be filed without the written consent of JLC Holdings, Inc. (which
consent may not be unreasonably delayed or withheld).
For any taxable period that ends on or before the Closing Date or includes but
does not end on the Closing Date, Sellers and JLC Holdings, Inc. shall cause
PricewaterhouseCoopers LLP to timely prepare and timely file with the
appropriate authorities the consolidated Federal income Tax Return for the
affiliated group that includes the Company, SSC and JLC Holdings, Inc., and any
other Tax Return for which the Company is part of any consolidated, combined,
unitary, affiliated or aggregate group that includes SSC or JLC Holdings, Inc.,
and shall pay all Taxes due with respect to the Company pursuant to such Tax
Returns; PROVIDED, HOWEVER, that (i) each such Return shall be filed on a basis
consistent with the amended Tax Returns filed in accordance with Section
6.09(g)(i), (ii) at least 30 days prior to the due date for filing any such Tax
Return (taking into account any applicable extensions), JLC Holdings, Inc. shall
furnish Purchaser with a completed copy of each such Tax Return for Purchaser's
review and comment, (iii) no such Tax Return shall be filed with any Taxing
Authority without Purchaser's prior written consent (which consent shall not be
unreasonably delayed or withheld), and (iv) Purchaser shall reimburse Sellers
for the reasonable fees and expenses of PricewaterhouseCoopers LLP for the
preparation of such Tax Returns. Except as contemplated by clause (i) of the
proviso in the preceding sentence, any Tax Return described in this Section
6.09(a) shall be prepared on a basis consistent with the past practices of the
Company and the affiliated group that includes the Company, SSC and JLC
Holdings, Inc. and in a manner that does not distort taxable income (E.G., by
deferring income or accelerating deductions), except to the extent that any
inconsistency or distortion would not adversely affect the Company after the
Closing Date. All Tax Returns for any period including the Closing Date shall be
filed on the basis that the relevant taxable period ended as of the close of
business on the
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43
Closing Date, unless the relevant Taxing Authority will not accept a Tax Return
filed on that basis.
(b) SSC, JLC Holdings, Inc., the Company and Purchaser shall
reasonably cooperate, and shall cause their respective affiliates, officers,
employees, agents, auditors and representatives reasonably to cooperate, in
preparing and filing all Tax Returns and any election referred to in Section
6.09(e) and with respect to the other Tax matters referred to in this Section
6.09, including without limitation providing copies of all correspondence to or
from any Taxing Authority promptly after sending or receiving such
correspondence and maintaining and making available to each other all records
necessary in connection with Taxes and in resolving all disputes and audits with
respect to all taxable periods relating to Taxes; PROVIDED, HOWEVER, that in no
event shall Purchaser be required to provide any Tax Return to SSC or JLC
Holdings, Inc. (except as contemplated by the second sentence of Section
6.09(a)).
(c) With respect to any Company Tax Return relating to any
taxable period (other than the consolidated Federal income Tax Return for the
affiliated group that includes the Company, SSC and JLC Holdings, Inc., and any
other Tax Return for which the Company is part of any consolidated, combined,
unitary, affiliated or aggregate group that includes SSC or JLC Holdings, Inc.),
Purchaser shall have the right, at its sole cost and expense, to supervise,
control and coordinate any examination or audit process by any Taxing Authority,
and to negotiate, resolve, settle or contest any asserted Tax deficiencies or
assert and prosecute any claims for refunds; PROVIDED, HOWEVER, that without the
prior written consent of each of the Preferred Sellers (which consent may not be
unreasonably delayed or withheld), Purchaser shall not take any such action, or
amend any Tax Return, if such action could result in (i) any claim for
indemnification by any Purchaser Indemnitee (as defined in Section 8.01(a))
against any of the Preferred Sellers, or (ii) any liability or obligation of JLC
Holdings, Inc., SSC or any of the Preferred Sellers for Taxes; and PROVIDED
FURTHER, that in the case of any refund claim for any Tax paid by the Preferred
Sellers with respect to a Tax Return referred to in the second sentence of
Section 6.09(a), Purchaser shall prosecute any claim for refund that is
reasonably requested by the Preferred Sellers if the Preferred Sellers agree to
reimburse Purchaser for all out-of-pocket costs and expenses incurred to
prosecute such refund claim. Any such Tax refund (and the interest received
thereon) with respect to a Tax Return referred to in the second sentence of
Section 6.09(a) shall belong to (and shall be paid to) the Preferred Sellers.
With respect
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44
to the consolidated Federal income Tax Return for the affiliated group that
includes the Company, SSC and JLC Holdings, Inc. or any other Tax Return for
which the Company is part of any consolidated, combined, unitary, affiliated or
aggregate group that includes SSC or JLC Holdings, Inc. for any taxable period,
the Preferred Sellers shall have the right, at their sole cost and expense, to
supervise, control and coordinate any examination or audit process by any Taxing
Authority, and to negotiate, resolve, settle or contest any asserted Tax
deficiencies or assert and prosecute any claims for refunds; PROVIDED, HOWEVER,
that (I) any such action by the Preferred Sellers shall be consistent with
Sections 6.09(e), (f) and (g), (II) no such Preferred Seller shall take any such
action which may have a material adverse effect on the Company or Purchaser
without Purchaser's written consent (which consent may not be unreasonably
delayed or withheld) and (III) Purchaser shall have the right, at its sole cost
and expense, to take any of the actions described in this sentence with respect
to any examination, audit or proceeding that primarily involves Tax liabilities
and/or Tax attributes of the Company for which the Preferred Sellers would not
be responsible pursuant to Section 8.01 (taking into account the limitations in
Section 8.01(b)); PROVIDED, FURTHER, HOWEVER, that Purchaser may not enter into
any proposed settlement agreement pursuant to clause (III) above without the
consent of the Preferred Sellers (which consent may not be unreasonably delayed
or withheld) if such settlement agreement would result in a final determination
of Tax liabilities and/or Tax attributes as to which the Preferred Sellers would
bear more than half the cost pursuant to Section 8.01. The control rights set
forth in this Section 6.09(c) shall supersede those set forth in Section 8.04(b)
as applied to Tax proceedings.
(d) JLC Holdings, Inc. shall cause the provisions
of any Tax sharing agreement between JLC Holdings, Inc. or
any of its affiliates (other than the Company), and the
Company to be terminated on or before the Closing Date.
After the Closing Date, no party shall have any rights or
obligations under any such Tax sharing agreement.
(e) (i) In the event that all the Tax Returns described in the
first two sentences of Section 6.09(g)(i) have not been prepared and filed with
the applicable Taxing Authority in accordance with Section 6.09(g)(i) on or
before the Closing Date or the amended Tax Returns described therein for each
applicable Tax jurisdiction do not result in an aggregate net Tax basis increase
of at least $16,000,000 as of December 31, 1998, so as to result in an aggregate
Tax basis of at least $75,000,000 as of
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45
December 31, 1998 in each such jurisdiction (the failure to satisfy such
condition being referred to herein as the "Triggering Event"), then, at
Purchaser's election in its sole discretion (the "Section 338(h)(10) Election"),
Sellers shall cause JLC Holdings, Inc. to (and JLC Holdings, Inc. shall) (x)
join Purchaser in timely making an election under Section 338(h)(10) of the Code
(and any comparable election available under applicable state or local Tax law)
with respect thereto and (y) cooperate with Purchaser in the completion and
timely filing of such elections in accordance with the provisions of Treasury
Regulation Section 1.338(h)(10)-1 (or any comparable provisions of state or
local Tax law). In the event Purchaser makes the Section 338(h)(10) Election,
Purchaser and JLC Holdings, Inc. shall endeavor in good faith to agree upon the
fair market value of the assets of the Company for purposes of Section
338(h)(10) of the Code (and any comparable provisions of state or local Tax law)
within 45 days after the date on which Purchaser notifies the Preferred Sellers
of its final decision to make the Section 338(h)(10) Election. To facilitate
such agreement, Purchaser shall initially prepare a completed set of Internal
Revenue Service Forms 8023 and all attachments required to be filed therewith
pursuant to applicable Treasury Regulations ("Form 8023") (and any comparable
forms required to be filed under state or local Tax law) and, no later than 15
days after making the Section 338(h)(10) Election, deliver said forms to JLC
Holdings, Inc. for approval and execution, which approval and execution shall
not be unreasonably delayed or withheld; PROVIDED, HOWEVER, that if Purchaser
and JLC Holdings, Inc. cannot agree upon the fair market value of the assets of
the Company within the 45 day period described in the preceding sentence, then
Purchaser may finalize and file said forms (and JLC Holdings, Inc. must execute
said forms) after good faith consideration of the views of JLC Holdings, Inc. as
to the fair market value of the assets of the Company. None of the parties (nor
any of their respective affiliates) shall take any position on any Tax Return or
with any Taxing Authority that is inconsistent with the fair market values set
forth in such Form 8023 (and any such comparable forms). In the event that the
Section 338(h)(10) Election is made, the Preferred Sellers shall be responsible
for paying the first $200,000 of any Taxes incurred by the Company as a result
of any election made under Section 338(h)(10) of the Code (and any comparable
elections available under applicable state or local law) pursuant to this
Section 6.09(e) and the first $200,000 of reasonable fees and expenses of
PricewaterhouseCoopers LLP with respect to the preparation of the amended Tax
Returns described in Section 6.09(g)(including without limitation the fees and
expenses of PricewaterhouseCoopers LLP incurred by the Company before
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46
the Closing Date for work on matters relating to such amended Tax Returns); any
such Taxes in excess of $200,000 in the aggregate and/or any such fees and
expenses in excess of $200,000 in the aggregate shall be paid by Purchaser.
(ii) In the event that the Triggering Event does not occur, then
Purchaser may in its sole discretion nevertheless make the Section 338(h)(10)
Election and the parties hereto will be subject to the provisions of Section
6.09(e)(i); PROVIDED, HOWEVER, that the $200,000 limitations in the last
sentence of Section 6.09(e)(i) shall each be reduced to $100,000.
(iii) In the event that it is reasonably likely that the Taxes
described in the last sentence of Section 6.09(e)(i) will exceed $200,000 (or,
if Section 6.09(e)(ii) applies, $100,000), then, notwithstanding any provision
herein to the contrary, Purchaser may direct and control the filing of all
amended Tax Returns described in Section 6.09(g) (and any other similar amended
Tax Returns), including without limitation requiring that any such amended Tax
Returns that have not previously been prepared and filed be prepared and filed
at its direction and requiring that any such amended Tax Return that has
previously been prepared and filed be modified or superseded by a further
amended Tax Return in order to reduce such Taxes. Any expenses incurred in
connection with any such amended Tax Returns shall be borne by the Preferred
Sellers to the extent contemplated by Section 6.09(e)(i) (and, if applicable,
Section 6.09(e)(ii)) and otherwise by Purchaser.
(iv) Notwithstanding Section 6.09(g), in the event that Purchaser makes
a Section 338(h)(10) Election, and, based upon the amended Tax Returns described
in Section 6.09(g) that have been filed by the Closing Date, the Taxes and fees
and expenses described in the last sentence of Section 6.09(e)(i) would not
exceed the applicable thresholds, Sellers may elect to not file any other
amended Tax Returns described in Section 6.09(g); PROVIDED, HOWEVER, that, if
Sellers make such election, any such Taxes or fees and expenses in excess of
such threshold shall be the sole responsibility of Sellers.
(f) JLC Holdings, Inc. shall be responsible for filing any
amended consolidated, combined or unitary Tax Returns for taxable years ending
on or prior to the Closing Date which are required as a result of examination
adjustments made by the Internal Revenue Service or by the applicable state,
local or foreign Taxing Authority for such taxable years as finally determined;
PROVIDED, HOWEVER, that (i) any such Tax Return shall be consistent with the
amended
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Tax Returns filed in accordance with Section 6.09(g) and (ii) no such Tax Return
shall be filed without the prior written consent of Purchaser (which consent may
not be unreasonably delayed or withheld). For those jurisdictions in which
separate Tax Returns are filed by the Company, any required amended returns
resulting from such examination adjustments, as finally determined, shall be
prepared by JLC Holdings, Inc. in a manner consistent with the amended Tax
Returns filed in accordance with Section 6.09(g) and furnished to the Company
for approval (which approval may not be unreasonably delayed or withheld),
signature and filing at least 30 days prior to the due date for filing such Tax
Returns.
(g) (i) As soon as practicable after June 3, 1999 and in all
events before the Closing Date, the Sellers shall cause the Federal income Tax
consolidated group of which JLC Holdings, Inc. is the common parent to (and JLC
Holdings, Inc. shall) (x) prepare and file amended Federal income Tax Returns
for 1995 and thereafter as necessary so as to increase, on a net basis, the Tax
basis of the Company's assets for Federal income Tax purposes as of December 31,
1998 by at least $16,000,000 (or such lower amount which is the maximum amount
of basis increase for which there is a reasonable basis in law and fact) from
what such Tax basis would have been if no such amended Tax Returns had been
filed so as to result in an aggregate Tax basis for the Company's assets as of
December 31, 1998 of at least $75,000,000 (or an amount corresponding to any
such lower basis increase amount) by correcting the prior Federal income Tax
Returns of such group in accordance with the principles set forth in Schedule
6.09(g) and (y) prepare and file the 1998 Federal income Tax Return for such
group on a basis consistent with such amended Tax Returns. Before the Closing
Date, the Sellers and JLC Holdings, Inc. also shall cause corresponding amended
Tax Returns to be prepared and filed by the Company or the consolidated,
combined, unitary, affiliated or aggregate group, as applicable, in each of the
ten state and local Tax jurisdictions listed in Schedule 6.09(g) and cause the
1998 Tax Return for the Company or such group, as applicable, to be filed in
each such jurisdiction. By June 21, 1999, Sellers and JLC Holdings, Inc. shall
cause to be prepared and filed all other state and local income, franchise or
similar Tax Returns that must be filed for 1998 by the Company or the
consolidated, combined, unitary, affiliated or aggregate group of which the
Company is a member, as applicable, on a basis that is consistent with the Tax
Returns described in the first two sentences of this Section 6.09(g)(i). Subject
to Section 6.09(e), (I) each amended Tax Return described in the first two
sentences of this Section 6.09(g)(i) shall be prepared
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48
by PricewaterhouseCoopers LLP at the sole cost and expense of the Preferred
Sellers and each 1998 Tax Return shall be reviewed and signed as preparer (but
not actually prepared) by PricewaterhouseCoopers LLP at the sole cost and
expense of the Company and (II) each such amended Tax Return and each such 1998
Tax Return shall be submitted to Purchaser for review and comment at least ten
days prior to the Closing Date (or three days prior to the Closing Date in the
case of non-Federal Tax Returns) and shall not be filed without the prior
written consent of Purchaser (which consent may not be unreasonably delayed or
withheld, it being understood that, absent manifest error, Purchaser may not
withhold its consent to any such amended Tax Return that is based solely on the
principles set forth in Schedule 6.09(g)).
(ii) Other than as may be required by Sec tion 6.09(g)(i), after the
date this Agreement is signed, neither SSC, JLC Holdings, Inc. or the Company or
any consolidated, combined, unitary, affiliated or aggregate group of which the
Company is a member shall make or change any Tax election, change an annual Tax
Accounting period, adopt or change any Tax accounting method, file any amended
Tax Return, enter into any closing agreement, settle any Tax Claim or
assessment, surrender any right to claim a refund of Taxes, consent to any
extension or waiver of the statute of limitations period applicable to any Tax
Claim or assessment, take any other action or omit to take any action relating
to Taxes, if any such election, adoption, change, amendment, agreement,
settlement, surrender, consent or other action or omission would have the effect
of increasing the Tax liability or reducing any net operating loss, net capital
loss, investment tax credit, foreign tax credit, charitable deduction or tax
basis or any other credit or tax attribute of the Company which could reduce
Taxes (including, without limitation, deductions and credits related to
alternative minimum Taxes) without the prior written consent of Purchaser (which
consent may not be withheld if such action or omission is not expected to cause
a material adverse effect on the Company after the Closing Date).
(h) Purchaser agrees to cause the Company (i) to use its
reasonable best efforts to properly retain and maintain all Records (as defined
in Section 6.13) relating to Taxes of the Company for the Pre-Closing Tax Period
for the full period of the applicable statutes of limitations, including
extensions, for the period to which such Taxes relate, and (ii) to allow the
Preferred Sellers and their agents and representatives, at times and dates
mutually acceptable to the parties, to inspect, review and make
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49
copies of such Records as the Preferred Sellers may reasonably deem necessary or
appropriate from time to time, such activities to be conducted during normal
business hours and at the Preferred Sellers' expense.
(i) In the event any audit, amended Tax Return or other action
results in a refund of Taxes (i) relating to the consolidated Federal income Tax
Return for the affiliated group that includes the Company, SSC and JLC Holdings,
Inc. for any Pre-Closing Tax Period, or any other Tax Return for which the
Company is part of any consolidated, combined, unitary, affiliated or aggregate
group that includes SSC or JLC Holdings, Inc., the Preferred Sellers shall be
entitled to such refund (including any interest thereon) provided that Purchaser
shall be entitled to any such refund (including any interest thereon) that is
attributable to any Tax for which it is responsible pursuant to Section 6.09(e);
or (ii) relating to any other Tax Return, Purchaser shall be entitled to such
refund including any interest thereon (except to the extent, if any, that the
Preferred Sellers are expressly entitled to such refund pursuant to Section
6.09(c)). The recipient of any refund described in this Section 6.09(i) shall
promptly forward to the applicable party(ies) or reimburse such party(ies) for
all refunds due to such party(ies) pursuant to the preceding sentence.
(j) JLC Holdings, Inc. agrees that it shall not elect to
reattribute to itself pursuant to Treasury Regulation Section 1.1502-20(g) any
net operating loss carryovers or net capital loss carryovers of the Company.
(k) Sellers shall cause JLC Holdings, Inc. to (and JLC
Holdings, Inc. shall) (i) give Purchaser thirty days advance written notice of
the adoption by JLC Holdings, Inc. of any plan to liquidate and/or dissolve,
(ii) designate the Company to be the common agent of the Federal income tax
consolidated group of which JLC Holdings, Inc. was the common parent for all
periods during which the Company was a member thereof by providing notice to the
Internal Revenue Service in the manner prescribed by Treasury Regulation Section
1.1502-77 (or any successor provision) and (iii) take such actions as may be
necessary to cause the Company to be treated as the common agent of (or to have
any similar status with respect to) each consolidated, combined, unitary,
affiliated or aggregate group that included the Company for state and local Tax
purposes.
SECTION 6.10. SUPPLEMENTAL DISCLOSURE. (a) SSC and the Company
shall have the continuing obligation until the Closing promptly to supplement or
amend the Schedules
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50
with respect to any matter hereafter arising or discovered that, if existing or
known at the date of this Agreement, would have been required to be set forth or
described in the Schedules; PROVIDED, HOWEVER, that for the purpose of the
rights and obligations of the parties under this Agreement, any such
supplemental or amended Schedule shall not be deemed to have been disclosed as
of the date of this Agreement. It is understood that a breach of this covenant
will not result in any obligation for indemnification pursuant to Section
8.01(a)(ii).
(b) SSC and the Company shall promptly notify Purchaser of,
and furnish Purchaser any information it may reasonably request with respect to,
the occurrence to the knowledge of SSC and the Company of any event or condition
or the existence to the knowledge of SSC and the Company of any fact that would
cause any of the conditions to Purchaser's obligations to consummate the
Acquisition not to be fulfilled.
(c) Purchaser shall promptly notify SSC and the Company of,
and furnish SSC and the Company any information they may reasonably request with
respect to, the occurrence to Purchaser's knowledge of any event or condition or
the existence to Purchaser's knowledge of any fact that would cause any of the
conditions to Sellers' obligations to consummate the Acquisition not to be
fulfilled.
SECTION 6.11. POST-CLOSING COOPERATION. (a) SSC and Purchaser
shall cooperate with each other, and shall cause their officers, agents,
auditors and representatives to cooperate with each other, for a period of 180
days after the Closing to ensure the orderly transition of the Company from
Sellers to Purchaser and to minimize any disruption to the Company that might
result from the transactions contemplated hereby (it being understood that a
breach of this covenant will not result in any obligation for indemnification
pursuant to Section 8.01(a)(ii)). After the Closing, upon reasonable written
notice, SSC and Purchaser shall furnish or cause to be furnished to each other
and their respective employees, counsel, auditors and representatives access,
during normal business hours, to such information and assistance relating to the
Company (to the extent within the control of such party) as is reasonably
necessary for financial reporting and accounting matters.
(b) Each party shall reimburse the other for reasonable
out-of-pocket costs and expenses incurred in assisting the other pursuant to
this Section 6.11. Neither party shall be required by this Section 6.11 to take
any
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51
action that would unreasonably interfere with the conduct of its business or
unreasonably disrupt its normal operations (or, in the case of Purchaser, those
of the Company).
SECTION 6.12. PUBLICITY. From the date hereof through the
earlier to occur of the Closing or termination hereof in accordance with Article
IX, no public release or announcement concerning the transactions contemplated
hereby shall be issued by any party without the prior consent of SSC and
Purchaser (which consent shall not be unreasonably withheld), except as such
release or announcement may be required by law or the rules or regulations of
any United States or foreign securities exchange, in which case the party
required to make the release or announcement shall allow the other party
reasonable time to comment on such release or announcement in advance of such
issuance.
SECTION 6.13. RECORDS. On the Closing Date, SSC shall deliver
or cause to be delivered to Purchaser all agreements, documents, books, records
and files, including records and files stored on computer disks or tapes or any
other storage medium (collectively, "Records"), if any, in the possession of SSC
or JLC Holdings, Inc. relating to the business and operations of the Company, to
the extent not then in the possession of the Company, subject to the following
exceptions:
(i) Purchaser recognizes that certain Records may contain
incidental information relating to the Company or may relate primarily
to SSC or JLC Holdings, Inc., and that SSC may retain such Records and
shall provide copies of the relevant portions thereof to Purchaser;
(ii) SSC may retain all Records prepared in connection with
the sale of the Shares, including bids received from other parties and
analyses relating to the Company; and
(iii) SSC may retain any personal tax returns, reports or
forms, and Purchaser shall be provided with copies of such returns,
reports or forms to the extent they relate to the Company's returns or
tax liability.
SECTION 6.14. AGREEMENT NOT TO SOLICIT EMPLOYEES. For a period
of three years from the Closing, SSC, JLC Holdings, Inc. and Sylvan shall not,
and shall cause each of their affiliates (in no event including GE Cap-Eq and
Pyramid) not to, directly or indirectly solicit, recruit or hire any employee of
the Company or person who has worked for the Company or solicit or encourage any
employee of the Company to leave the employment of the Company.
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52
SECTION 6.15. CERTAIN LICENSES AND PERMITS. SSC agrees that all
permits, licenses and authorizations which are held in the name of any employee,
officer, director, stockholder, agent or otherwise on behalf of the Company
shall be duly and validly transferred to the Company without consideration prior
to the Closing and that the representations, warranties, covenants and
conditions contained in this Agreement shall apply to the same as if held by the
Company as of the date hereof.
SECTION 6.16. FURTHER ASSURANCES. From time to time, as and
when requested by any party, each party shall execute and deliver, or cause to
be executed and delivered, all such documents and instruments and shall take, or
cause to be taken, all such further or other actions (subject to Section 6.05),
as such other party may reasonably deem necessary or desirable to consummate the
transactions contemplated by this Agreement, including, in the case of Sellers,
executing and delivering to Purchaser such assignments, deeds, bills of sale,
consents and other instruments as Purchaser or its counsel may reasonably
request as necessary or desirable for such purpose.
SECTION 6.17. ASSIGNMENT OF CONFIDENTIALITY AGREEMENTS. On the
Closing Date, SSC shall, and shall cause JLC Holdings, Inc. to, assign to
Purchaser its rights under all confidentiality agreements, if any, entered into
by it in connection with the proposed sale of the Company to the extent such
rights relate to the Company. Copies of such confidentiality agreements shall be
provided to Purchaser on the Closing Date.
SECTION 6.18. FINANCIAL STATEMENTS. Prior to or at the
Closing, SSC shall cause to be delivered to Purchaser (i) the Company's audited
balance sheets as of December 31, 1997 and December 31, 1998, and the related
audited statements of operations, stockholders' deficit and cash flows of the
Company for the fiscal years then ended, together with the notes to such
financial statements and the unqualified report thereon of
PricewaterhouseCoopers LLP which balance sheets and statements and notes shall
be identical (except that they will not include any going-concern qualifications
and related disclosure and except for changes directly relating to the
Acquisition and the other transactions contemplated hereby) to the financial
statements for the fiscal years ended December 31, 1997 and December 31, 1998,
and the related notes set forth in Schedule 4.05, and (ii) the Company's audited
balance sheet as of March 31, 1999 (the "March Balance Sheet") and the related
audited statements of operations (the "Statement of Operations"), stockholders'
deficit and cash flows of the
<PAGE>
53
Company for the three months then ended, together with the notes thereto
prepared in accordance with GAAP applied on a basis consistent with the
practices and procedures followed in the preparation of the Company's Financial
Statements and the unqualified report thereon of Arthur Andersen.
SECTION 6.19. BENEFIT PLAN MATTERS. For a period of 12 months
after the Closing, Purchaser shall maintain, or cause to be maintained, benefits
for employees of the Company that, in the aggregate, are substantially similar
to those provided to such employees as of the date of this Agreement. Until
December 31, 1999, Purchaser shall maintain, or cause to be maintained, the same
severance plans and policies for employees of the Company as those provided to
such employees as of the date of this Agreement. Until December 31, 1999,
Purchaser shall maintain, or cause to be maintained, the Key Management Bonus
Program and Sales Force Compensation Plan.
SECTION 6.20. STRATEGIC ALLIANCE AGREEMENT. Each of Sylvan and
the Company agrees that it will not, and each Seller agrees that it will not
authorize or take any other action to permit the Company to, amend, terminate or
repudiate the Strategic Alliance Agreement dated as of the date hereof between
Sylvan and the Company (the "Strategic Alliance Agreement") or any of the terms
thereof between the date of this Agreement and the Closing.
ARTICLE VII
CONDITIONS PRECEDENT
SECTION 7.01. CONDITIONS TO EACH PARTY'S OBLIGATION. The
obligation of Purchaser to purchase and pay for the Shares and the obligation of
Sellers to sell the Shares to Purchaser is subject to the satisfaction or waiver
by SSC and Purchaser on or prior to the Closing of the following conditions:
(a) GOVERNMENTAL APPROVALS. The waiting period under the HSR
Act, if applicable to the consummation of the Acquisition, shall have expired or
been terminated. All other authorizations, consents, orders or approvals of, or
declarations or filings with, or expirations of waiting periods imposed by, any
Governmental Entity necessary for the consummation of the Acquisition shall have
been obtained or filed or shall have occurred.
(b) NO INJUNCTIONS OR RESTRAINTS. No Applicable
Law or Injunction enacted, entered, promulgated, enforced or
<PAGE>
54
issued by any Governmental Entity or other legal restraint or prohibition
preventing the consummation of the Acquisition shall be in effect.
SECTION 7.02. CONDITIONS TO OBLIGATION OF PURCHASER. The
obligation of Purchaser to purchase and pay for the Shares is subject to the
satisfaction (or waiver by Purchaser) on or prior to the Closing Date of the
following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of each Seller and the Company in this Agreement shall be true and
correct as of the date hereof and as of the Closing Date as though made on the
Closing Date, except to the extent such representations and warranties expressly
relate to an earlier date (in which case such representations and warranties
shall be true and correct on and as of such earlier date), and Purchaser shall
have received a certificate signed by an authorized officer of each Seller and
the Company to such effect.
(b) PERFORMANCE OF OBLIGATIONS OF SELLERS. Each Seller and the
Company shall have performed or complied in all material respects with all
obligations and covenants required by this Agreement to be performed or complied
with by such Seller or the Company by the time of the Closing, and Purchaser
shall have received a certificate signed by an authorized officer of each Seller
and the Company to such effect.
(c) ESCROW AGREEMENT. The Company, the Preferred Sellers and
the Escrow Agent shall have executed and delivered the Escrow Agreement to
Purchaser.
(d) ABSENCE OF PROCEEDINGS. There shall not be pending or
threatened by any Governmental Entity (other than any school or school district)
any Proceeding (or by any other person, including any school or school district,
any Proceeding that has a reasonable likelihood of success) (i) challenging or
seeking to restrain or prohibit the Acquisition or any other transaction
contemplated by this Agreement or seeking to obtain from Purchaser in connection
with the Acquisition any damages that are material in relation to Purchaser,
(ii) seeking to prohibit or limit the ownership or operation by Purchaser of any
material portion of the business or assets of Purchaser or the Company, or to
compel Purchaser or the Company to dispose of or hold separate any material
portion of the business or assets of Purchaser or the Company, in each case as a
result of the Acquisition or any of the other transactions contemplated by this
Agreement, (iii) seeking to impose limitations on the
<PAGE>
55
ability of Purchaser to acquire or hold, or exercise full rights of ownership
of, the Shares, including the right to vote the Shares on all matters properly
presented to the stockholders of the Company or (iv) seeking to prohibit
Purchaser from effectively controlling in any material respect the business or
operations of the Company.
(e) NAME. The Trademark License Agreement between Purchaser,
Jostens, Inc. and the Company dated as of the date hereof regarding use of the
marks and name and proprietary designations comprising the Jostens name shall be
in full force and effect and Jostens, Inc. shall not have repudiated such
Agreement or any of its terms.
(f) FINANCING. Purchaser shall have received the funds
described in, and on the terms and conditions set forth in, the commitment
letters previously delivered to Sellers or upon terms and conditions that are
substantially equivalent thereto, and to the extent that any of the terms and
conditions are more onerous or more costly than the terms and conditions set
forth in such commitment letters, on terms and conditions reasonably
satisfactory to Purchaser.
(g) OTHER DOCUMENTS. Sellers and the Company shall have
furnished to Purchaser such other documents (including legal opinions) relating
to corporate existence and authority, enforceability of this Agreement, title to
the Shares, absence of Liens, and such other matters as Purchaser or its counsel
may reasonably request.
(h) FINANCIAL PERFORMANCE. Earnings before interest, taxes,
depreciation, amortization and restruc turing charges of the Company ("EBITDA")
as derived from the Statement of Operations shall be no less than $(1,350,000)
and EBITDA for the 12 months ended March 31, 1999 shall be at least $6,900,000.
Stockholders' Equity as set forth in the March Balance Sheet shall be not less
than $(46,840,000).
(i) CERTAIN EMPLOYMENT AGREEMENTS. Purchaser shall have
negotiated employment agreements between the Company and Therese K. Crane, Joyce
F. Russell, Nancy Lockwood and Susan R. Collins, on terms satisfactory to
Purchaser, which shall be in full force and effect as of the Closing and none of
the employees who have entered into such agreements shall have repudiated such
agreements or any of the terms therein. In connection with such negotiations,
Purchaser shall have caused any prior employment agreement between any such
individual and the Company to terminate and be without further force or effect
as of the Closing.
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56
Except for claims or rights under the agreements as and to the extent set forth
in Schedule 7.02, Purchaser shall have obtained releases from such individuals
discharging any claims or rights under any prior employment agreements with the
Company, and taken any other action required to effect the foregoing as of the
Closing, without any liability or other adverse consequences to the Company or
Purchaser.
(j) AFFILIATE AGREEMENTS. The Strategic Alliance Agreement
shall not have been amended or terminated and shall be in full force and effect
as of the Closing and none of the parties thereto shall have repudiated such
agreement or any of the terms thereof. The Management and Advisory Agreement by
and between JLC Holdings, Inc., SSC, JLC Acquisition Corp. and Bain Capital
Partners IV, L.P. dated as of June 29, 1995, shall have been terminated without
any payments of amounts due thereunder, whether or not overdue, and otherwise
without any liability or adverse consequence to the Company.
(k) FIRPTA CERTIFICATE. Each Seller shall have delivered to
Purchaser at the Closing a certificate, in form and substance satisfactory to
Purchaser, certifying that the Acquisition is exempt from withholding pursuant
to the Foreign Investment in Real Property Tax Act.
(l) AMENDED TAX RETURNS. All the amended Tax Returns described
in the first two sentences of Section 6.09(g)(i) shall have been prepared and
filed with the applicable Taxing Authority in accordance with Section 6.09(g)(i)
unless Purchaser in its sole discretion chooses to exercise its option to make
the Section 338(h)(10) Election (in which event, subject to Sections
6.09(e)(iii) and (iv), Sellers shall be required to file any remaining amended
Tax Returns described in Section 6.09(g) as promptly as practicable after the
Closing Date).
SECTION 7.03. CONDITIONS TO OBLIGATIONS OF SELLERS. The
obligations of Sellers to sell the Shares is subject to the satisfaction (or
waiver by SSC) on or prior to the Closing Date of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Purchaser made in this Agreement shall be true and correct as of
the date hereof and as of the Closing Date as though made on the Closing Date,
except to the extent such representations and warranties expressly relate to an
earlier date (in which case such representations and warranties shall be true
and correct on and as of such earlier date), and Sellers shall
<PAGE>
57
have received a certificate signed by an authorized
representative of Purchaser to such effect.
(b) PERFORMANCE OF OBLIGATIONS OF PURCHASER. Purchaser shall
have performed or complied in all material respects with all obligations and
covenants required by this Agreement to be performed or complied with by
Purchaser by the time of the Closing, and Sellers and the Company shall have
received a certificate signed by an authorized representative of Purchaser to
such effect.
(c) ESCROW AGREEMENT. Purchaser and the Escrow Agent shall
have executed and delivered the Escrow Agreement to the Company and the
Preferred Sellers.
(d) STRATEGIC ALLIANCE AGREEMENT. The Strategic Alliance
Agreement shall be in full force and effect as of the Closing and the Company
shall not have repudiated such agreement or any of the terms thereof; PROVIDED,
HOWEVER, that the obligations of Sellers to sell the Shares shall not be subject
to satisfaction of this condition if any of the Preferred Sellers have breached
their covenants contained in Section 6.20.
SECTION 7.04. FRUSTRATION OF CLOSING CONDITIONS. Neither
Purchaser nor any Seller may rely on the failure of any condition set forth in
this Article VII to be satisfied if such failure was caused by such party's
failure to act in good faith or to use its commercially reasonable efforts to
cause the Closing to occur, as required by Section 6.05.
ARTICLE VIII
INDEMNIFICATION
SECTION 8.01. INDEMNIFICATION. (a) From and after the Closing,
the Preferred Sellers shall be liable for, and shall indemnify Purchaser, its
affiliates (including the Company), and each of their respective officers,
directors, employees, stockholders, agents and representatives (the "Purchaser
Indemnitees"), against and hold each Purchaser Indemnitee harmless from, any
loss, liability, claim, damage or expense including reasonable legal fees and
expenses (collectively, "Losses"), as incurred by such Purchaser Indemnitee to
the extent arising from, in connection with or otherwise with respect to:
(i) any breach of any representation or warranty
of any Seller (in the case of a Specific Preferred
Seller Obligation (as defined in Section 8.01(d)),
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58
subject to the limitation set forth in the first
sentence of Section 8.01(d)) or the Company that
survives the Closing pursuant to this Agreement; or
(ii) any breach of any covenant of any Seller (in the case of
a Specific Preferred Seller Obligation, subject to the limitation set
forth in the first sentence of Section 8.01(d)) or the Company
contained in this Agreement.
Prior to pursuing any claim for indemnification for any Loss incurred by a
Purchaser Indemnitee arising from, in connection with or otherwise with respect
to any breach of the Limited Covenants (as defined below), Purchaser shall give
the Preferred Sellers written notice of such breach and an opportunity to cure
such breach within 15 days of receipt of such written notice.
(b) The Preferred Sellers shall not be required to indemnify
any Purchaser Indemnitee, and shall not have any liability:
(i) under clause (i) of Section 8.01(a) or, with respect to
the covenants contained in Article VI (other than the covenants
contained in Sections 6.04(b), 6.09(b), 6.09(c), 6.09(e), 6.09(g),
6.09(h), 6.09(i), 6.09(j), 6.14 and 6.16 to be performed by the
Preferred Sellers and other than the covenants contained in Sections
6.06, 6.07, 6.11(b) and 6.20 (collectively, the "Limited Covenants")),
under clause (ii) of Section 8.01(a) unless the aggregate of all Losses
for which the Preferred Sellers would, but for this clause (i), be
liable thereunder exceeds on a cumulative basis an amount equal to an
aggregate of $1,000,000 (and taking into account both such clauses for
purposes of calculating the aggregate of $1,000,000), and then only to
the extent of any such excess, subject to clause (iii) of this Section
8.01(b);
(ii) under clause (i) of Section 8.01(a) or, with respect to
the covenants contained in Article VI (other than the Limited
Covenants), under clause (ii) of Section 8.01(a) for any individual
items where the Loss relating thereto is less than $125,000 (only for
purposes of computing such amount, excluding any portion of such Loss
that consists of incidental, consequential, prospective or special
damages of any kind), and such items (including any portion of such
Loss that consists of incidental, consequential, prospective or special
damages of any kind) shall not
<PAGE>
59
be aggregated for purposes of clause (i) of this Section 8.01(b); and
(iii) under clause (i) of Section 8.01(a) or, with respect to
the covenants contained in Article VI (other than the Limited
Covenants), under clause (ii) of Section 8.01(a) in excess of an
aggregate of $4,000,000 (and taking into account both such clauses for
purposes of calculating the aggregate of $4,000,000).
(c) Except as otherwise specifically provided in this
Agreement, Purchaser acknowledges that its sole and exclusive monetary remedy
after the Closing with respect to any and all claims against any Seller relating
to this Agreement, the Acquisition and the other transactions contemplated
hereby (other than claims of, or causes of action arising from, fraud or
intentional breach) shall be pursuant to the indemnification provisions set
forth in this Article VIII.
(d) Subject to the limitations set forth in Section 8.01(b),
each Preferred Seller shall be fully and solely responsible for any obligations
under Section 8.01(a) for any breach of any representation, warranty or covenant
of such Preferred Seller (a "Specific Preferred Seller Obligation"), and no
other Preferred Sellers shall be liable therefor. All other obligations of the
Preferred Sellers under Section 8.01(a) shall be several, but shall be borne in
part by the Escrow described in Section 8.01(g), in accordance with the
following percentages (the "Applicable Percentages") except as otherwise
provided in the immediately succeeding sentence:
Escrow = 10%
Sylvan = 45%
Pyramid = 22.50%
GE Cap-Eq = 22.50%
As to claims made either prior to July 1, 2000 (to the extent relating to Losses
arising out of a breach of the covenants contained in Section 6.09(e)(i)
regarding payment of the amount of $200,000 for Taxes and the amount of $200,000
for fees and expenses of PricewaterhouseCoopers LLP, Section 6.09(e)(ii)
regarding payment of the amount of $100,000 for Taxes and the amount of $100,000
for fees and expenses of PricewaterhouseCoopers LLP, and Section 6.09(g)(i)
regarding (subject to Section 6.09(e)) payments of fees and expenses of
PricewaterhouseCoopers LLP for preparation of the amended Tax Returns described
therein or to the extent the Escrow has been reduced to zero) or
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60
after June 30, 2000, the Applicable Percentages shall be as follows:
Sylvan = 50%
Pyramid = 25%
GE Cap-Eq = 25%
(e) From and after the Closing, Purchaser shall be liable for,
and shall indemnify each Preferred Seller and its affiliates and each of their
respective officers, directors, employees, stockholders, agents and
representatives (the "Preferred Seller Indemnitees") against, and hold it
harmless from any Loss as incurred by such Preferred Seller Indemnitee to the
extent arising from, in connection with or otherwise with respect to:
(i) any breach of any representation or warranty of Purchaser
that survives the Closing pursuant to this Agreement; or
(ii) any breach of any covenant of Purchaser contained in this
Agreement;
(f) Purchaser shall not be required to indemnify any Preferred
Seller Indemnitee, and shall not have any liability:
(i) under clause (i) of Section 8.01(e) unless the aggregate
of all Losses for which the Purchaser would, but for this clause (i),
be liable thereunder exceeds on a cumulative basis an amount equal to
$1,000,000, and then only to the extent of any such excess, subject to
clause (iii) of this Section 8.01(f);
(ii) under clause (i) of Section 8.01(e) for any individual
items where the Loss relating thereto is less than $125,000 (only for
purposes of computing such amount, excluding any portion of such Loss
that consists of incidental, consequential, prospective or special
damages of any kind) and such items (including any portion of such Loss
that consists of incidental, consequential, prospective or special
damages of any kind) shall not be aggregated for purposes of clause (i)
of this Section 8.01(f); and
(iii) under clause (i) of Section 8.01(e) in excess of
$4,000,000.
(g) Purchaser and the Company have agreed to, and at the
Closing shall (as set out in Section 1.03(e)), cause to be deposited the amount
of $400,000 into an Escrow to be
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61
held and administered in accordance with the terms of the Escrow Agreement. The
purpose of the Escrow is to pay obligations under Section 8.01(a), as set out in
Section 8.01(d).
SECTION 8.02. CALCULATION OF LOSSES. (a) The amount of any Loss
for which indemnification is provided under this Article VIII shall be (i)
increased to take account of the present value (determined by using a discount
rate equal to the "applicable Federal rate" (as defined in Section 1274 of the
Code), compounded semi-annually, for short-term debt instruments) of any net Tax
cost incurred (or expected to be incurred in other Tax periods) by the Purchaser
Indemnitees or the Preferred Seller Indemnitees arising from the receipt of
indemnity payments hereunder (grossed up for such increase) and (ii) reduced to
take account of any net Tax benefit realized (or expected to be realized in
other Tax periods) by the Purchaser Indemnitees or the Preferred Seller
Indemnitees arising from the incurrence or payment of any such Loss. Any such
increase (or any such decrease) in Loss shall be treated as a Loss (or reduction
in Loss) under Section 8.01(a) or 8.01(e), as the case may be, for all purposes
of this Agreement (including, without limitation, the $4,000,000 limitation set
forth in Section 8.01(b)(iii) or 8.01(f)(iii), as the case may be, if
applicable). In computing the amount of any such Tax cost or Tax benefit, the
Purchaser Indemnitees or the Preferred Seller Indemnitees shall be deemed to
recognize all other items of income, gain, loss, deduction or credit before
recognizing any item arising from the receipt of any indemnity payment hereunder
or the incurrence or payment of any indemnified Loss. Any indemnity payment
under this Agreement shall be treated as an adjustment to the purchase price for
Tax purposes, unless otherwise required by law.
(b) Any Loss for which indemnification is provided shall be
net of all amounts recovered under the Company's insurance policies, it being
understood that the Company shall use commercially reasonable efforts to pursue
claims under such insurance policies except to the extent that the Company
determines that it will be materially adversely affected by pursuing any such
claim. Any out-of-pocket expenses (in no event including charges for time
expended by Company personnel) incurred in pursuing such claim shall be
considered part of the Loss for which indemnification is provided.
Any Loss relating to Taxes for which indemnifi cation is
available to the Company under the Stock Purchase Agreement dated June 29, 1995,
by and between JLC Holdings,
<PAGE>
62
Inc., SSC, and JLC Acquisitions, Inc., as purchasers, and Jostens, Inc., as
seller (the "Jostens Agreement"), shall be net of any actual recovery by the
Company under the Jostens Agreement (as reduced by any out-of-pocket expenses
(in no event including charges for time expended by Company personnel) incurred
in pursuing such claim), it being understood and agreed that the Company shall
use commercially reasonable efforts to pursue any applicable claims under the
Jostens Agreement (except to the extent that the Company determines that it
would be materially adversely affected by pursuing any such claim), that the
Company shall pursue such claims prior to pursuing a claim for indemnification
under this Agreement and that any otherwise applicable survival period for
indemnification by the Preferred Sellers pursuant to Section 10.01 shall be
extended for so long as any such claim is being pursued by the Company. The
Company shall give written notice to the Preferred Sellers of its pursuit of any
such claim.
SECTION 8.03. TERMINATION OF INDEMNIFICATION. The obligations
to indemnify and hold harmless any party, pursuant to Section 8.01(a) or
8.01(e), shall terminate when the applicable representation or warranty or
covenant terminates pursuant to Section 10.01; PROVIDED, HOWEVER, that such
obligations to indemnify and hold harmless shall not terminate with respect to
any item as to which the person to be indemnified shall have, before the
expiration of the applicable period, previously made a claim by delivering a
notice of such claim pursuant to Section 8.04 to the party to be providing the
indemnification.
SECTION 8.04. PROCEDURES. (a) In order for a person (the
"indemnified party") to be entitled to any indemnification provided for under
this Agreement in respect of, arising out of or involving a claim made by any
person against the indemnified party (a "Third Party Claim"), such indemnified
party must notify the indemnifying party in writing (and in reasonable detail)
of the Third Party Claim promptly following receipt by such indemnified party of
written notice of the Third Party Claim; PROVIDED, HOWEVER, that failure to give
such notification shall not affect the indemnification provided hereunder except
to the extent the indemnifying party shall have been actually prejudiced as a
result of such failure. Thereafter, the indemnified party shall deliver to the
indemnifying party, promptly following the indemnified party's receipt thereof,
copies of all notices and documents (including court papers) received by the
indemnified party relating to the Third Party Claim other than those notices and
documents separately addressed to the indemnifying party.
<PAGE>
63
(b) If a Third Party Claim is made against an indemnified
party, the indemnifying party shall be entitled to participate in the defense
thereof and, if it so chooses, to assume the defense thereof with counsel
selected by the indemnifying party and reasonably satisfactory to the
indemnified party. Should the indemnifying party so elect to assume the defense
of a Third Party Claim, the indemnifying party shall not be liable to the
indemnified party for any legal expenses subsequently incurred by the
indemnified party in connection with the defense and the resolution thereof. If
the indemnifying party assumes such defense, the indemnified party shall have
the right to participate in the defense thereof and to employ counsel, at its
own expense, separate from the counsel employed by the indemnifying party, it
being understood that the indemnifying party shall control such defense and the
resolution thereof. The indemnifying party shall be liable for the reasonable
fees and expenses of counsel employed by the indemnified party for any period
during which the indemnifying party has not assumed the defense thereof (other
than during any period in which the indemnified party shall have failed to give
notice of the Third Party Claim as provided above) and during any such period
(not to exceed four weeks), the indemnified party shall not admit any liability
with respect to, or settle, compromise or discharge a Third Party Claim without
the indemnifying party's prior written consent (which consent shall not be
unreasonably withheld).
If the indemnifying party chooses to defend or prosecute a
Third Party Claim, all the indemnified parties shall cooperate in the defense or
prosecution thereof. Such cooperation shall include the retention and (upon the
indemnifying party's reasonable request) the timely provision to the
indemnifying party of records and information that are reasonably relevant to
such Third Party Claim, and making employees available on a mutually convenient
basis to provide additional information and explanation of any material provided
hereunder. If the indemnifying party assumes the defense of a Third Party Claim,
no settlement or compromise thereof may be effected by the indemnifying party
without the indemnified party's prior written consent (which consent shall not
be unreasonably withheld). If the indemnifying party assumes the defense of a
Third Party Claim, the indemnified party shall agree to any settlement,
compromise or discharge of a Third Party Claim that the indemnifying party may
recommend and that by its terms obligates the indemnifying party to pay the full
amount of the liability in connection with such Third Party Claim, that releases
the indemnified party completely in connection with such Third Party Claim and
<PAGE>
64
that would not otherwise adversely affect the indemnified party.
Notwithstanding the foregoing two paragraphs, the indemnifying
party shall not be entitled to assume the defense of any Third Party Claim (and
shall be liable for the reasonable fees and expenses of counsel incurred by the
indemnified party in defending such Third Party Claim) if the Third Party Claim
seeks (i) monetary damages in excess of the maximum amount set forth in Section
8.01(b)(iii) or 8.01(e)(iii), as the case may be, or (ii) an order, injunction
or other equitable relief or relief for other than money damages against the
indemnified party that the indemnified party reasonably determines, after
conferring with its outside counsel, cannot be separated from any related claim
for money damages; PROVIDED, HOWEVER, that, in such case, the indemnified party
shall not admit any liability with respect to, or settle, compromise or
discharge such Third Party Claim without the indemnifying party's prior written
consent (which consent shall not be unreasonably withheld). If such equitable
relief or other relief portion of the Third Party Claim can be so separated from
that for money damages, the indemnifying party shall be entitled to assume the
defense of the portion relating to money damages.
(c) In the event any indemnified party should have a claim
against any indemnifying party under Section 8.01 that does not involve a Third
Party Claim being asserted against or sought to be collected from such
indemnified party, the indemnified party shall deliver notice of such claim with
reasonable promptness to the indemnifying party. The failure by any indemnified
party so to notify the indemnifying party shall not relieve the indemnifying
party from any liability that it may have to such indemnified party under
Section 8.01, except to the extent that the indemnifying party demonstrates that
it has been actually prejudiced by such failure. If the indemnifying party does
not notify the indemnified party within 30 calendar days following its receipt
of such notice that the indemnifying party disputes its liability to the
indemnified party under Section 8.01, such claim specified by the indemnified
party in such notice shall be conclusively deemed a liability of the
indemnifying party under Section 8.01 and the indemnifying party shall pay the
amount of such liability to the indemnified party on demand or, in the case of
any notice in which the amount of the claim (or any portion thereof) is
estimated, on such later date when the amount of such claim (or such portion
thereof) becomes finally determined. If the indemnifying party has timely
disputed its liability with respect to such claim, as
<PAGE>
65
provided above, the indemnifying party and the indemnified party shall proceed
in good faith to negotiate a resolution of such dispute and, if not resolved
through negotiations, such dispute shall be resolved by litigation in an
appropriate court of competent jurisdiction.
(d) For purposes of this Section 8.04 (except with respect to
Section 8.01(e)) and except with respect to the payment obligations of the
Preferred Sellers, Sylvan shall be considered the indemnifying party; PROVIDED,
HOWEVER, that in the event Sylvan fails to notify Purchaser (within 15 days
after Sylvan's receipt of notice of a Third Party Claim pursuant to Section
8.04(a) above) that either (i) Sylvan is assuming the defense of such Third
Party Claim or (ii) Sylvan disputes the indemnified party's right to indemnity
hereunder, GE Cap-Eq and Pyramid, collectively, shall be considered the
indemnifying party and the exercise of any rights of the indemnifying party
shall require the mutual agreement of GE Cap-Eq and Pyramid; PROVIDED FURTHER
that in all events the notice and delivery required to be made by the
indemnified party to the indemnifying party pursuant to Section 8.04(a) shall be
provided by the indemnified party to each of the Preferred Sellers; PROVIDED
FURTHER that in the event of a Specific Preferred Seller Obligation, the
applicable Preferred Seller shall be considered the indemnifying party
hereunder.
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
SECTION 9.01. TERMINATION. (a) Notwithstanding anything to the
contrary in this Agreement, this Agreement may be terminated and the Acquisition
and the other transactions contemplated by this Agreement abandoned at any time
prior to the Closing:
(i) by mutual written consent of SSC and Purchaser;
(ii) by SSC if any of the conditions set forth in Section 7.01
or 7.03 shall have become incapable of fulfillment, and shall not have
been waived by SSC;
(iii) by Purchaser if any of the conditions set forth in
Section 7.01 or 7.02 shall have become incapable of fulfillment, and
shall not have been waived by Purchaser; or
<PAGE>
66
(iv) by SSC or Purchaser, if the Closing does not occur on or
prior to June 30, 1999;
PROVIDED, HOWEVER, that the party seeking termination pursuant to clause (ii),
(iii) or (iv) is not then in breach in any material respect (unless such breach
did not directly or indirectly result in or contribute to the state of facts
giving rise to the right of termination under clause (ii), (iii) or (iv)) of any
of its representations, warranties, covenants or agreements contained in this
Agreement.
(b) In the event of termination by SSC or Purchaser pursuant
to this Section 9.01, written notice thereof shall forthwith be given to the
other parties and the transactions contemplated by this Agreement shall be
terminated, without further action by any party. If the transactions
contemplated by this Agreement are terminated as provided herein:
(i) Purchaser shall return all documents and other material
received from the Company or SSC relating to the transactions
contemplated hereby, whether so obtained before or after the execution
hereof, to the Company; and
(ii) all confidential information received by Purchaser with
respect to the business of the Company shall be treated in accordance
with the Confidentiality Agreement, which shall remain in full force
and effect notwithstanding the termination of this Agreement.
SECTION 9.02. EFFECT OF TERMINATION. If this Agreement is
terminated and the transactions contemplated hereby are abandoned as described
in Section 9.01, this Agreement shall become null and void and of no further
force and effect, except for the provisions of (i) Section 6.04 relating to the
obligation of Purchaser to keep confidential certain information and data
obtained by it, (ii) Section 6.06 relating to certain expenses, (iii) Section
6.07 relating to finder's fees and broker's fees, (iv) Section 9.01 and this
Section 9.02 and (v) Section 6.12 relating to publicity. Nothing in this Section
9.02 shall be deemed to release any party from any liability for any breach by
such party of the terms and provisions of this Agreement or to impair the right
of any party to compel specific performance by any other party of its
obligations under this Agreement.
SECTION 9.03. AMENDMENTS AND WAIVERS. This Agreement may not be
amended except by an instrument in writing signed on behalf of each of the
parties hereto. By
<PAGE>
67
an instrument in writing, Purchaser may waive compliance by any Seller or the
Company, or SSC may waive compliance by Purchaser, with any term or provision of
this Agreement that such other party was or is obligated to comply with or
perform; PROVIDED, HOWEVER, that none of such waivers by Purchaser or SSC shall
be effective without the prior written consent of the Preferred Sellers.
ARTICLE X
GENERAL PROVISIONS
SECTION 10.01. SURVIVAL. The representations and warranties
contained in this Agreement shall survive the Closing solely for purposes of
Article VIII and shall terminate at the close of business on June 30, 2000,
except for the representations and warranties contained in Sections 2.04, 3.04
and 4.02. Subject to Section 8.02(b), the other covenants contained in Article
VI shall terminate at the close of business on June 30, 2000, except for the
covenants contained in Sections 6.04(b) and 6.14, which shall terminate on the
dates set forth therein, and the covenants contained in Section 6.09, which
shall not terminate (except for the covenants in Section 6.09 to pay Taxes,
which covenants shall expire with respect to any particular Tax upon the
expiration of the applicable statute of limitations for the assessment of such
Tax).
SECTION 10.02. ASSIGNMENT. This Agreement and the rights and
obligations hereunder shall not be assignable or transferable by any party
without the prior written consent of the other parties hereto. Notwithstanding
the foregoing, (a) Purchaser may assign its right to purchase the Shares to an
affiliate of Purchaser without the prior written consent of any other party (but
Purchaser shall give written notice of same to each other party), and (b)
Purchaser may assign its rights hereunder by way of security and such secured
party may assign such rights by way of exercise of remedies (but Purchaser shall
give written notice of same to each other party); PROVIDED, HOWEVER, that no
assignment shall limit or affect the assignor's obligations hereunder. Any
attempted assignment in violation of this Section 10.02 shall be void.
SECTION 10.03. NO THIRD-PARTY BENEFICIARIES.
Except as provided in Article IX, this Agreement is for the
sole benefit of the parties hereto and their permitted
assigns and nothing herein expressed or implied shall give
or be construed to give to any person, other than the
<PAGE>
68
parties hereto and such assigns, any legal or equitable rights hereunder.
SECTION 10.04. NOTICES. All notices or other communications
required or permitted to be given hereunder shall be in writing and shall be
delivered by hand or sent by facsimile or sent, postage prepaid, by registered,
certified or express mail or reputable overnight courier service and shall be
deemed given when so delivered by hand or facsimile, or if mailed, five days
after mailing (one business day in the case of overnight courier service), as
follows:
(i) if to Purchaser or, after the Closing, the
Company,
EAC I Inc.
c/o Ripplewood Holdings L.L.C.
One Rockefeller Plaza, 32nd Floor
New York, New York 10020
Attention: Mr. Timothy C. Collins
Mr. Charles L. Laurey
Facsimile: (212) 582-4110
with a copy to:
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, New York 10019
Attention: Peter S. Wilson, Esq.
Facsimile: (212) 765-0978
(ii) if to SSC or, prior to the Closing, the
Company,
Software Systems Corp.
9920 Pacific Heights Blvd., Suite 500
San Diego, California 92121
Attention: Mr. David Veit
Facsimile: (619) 646-6444
with a copy to:
John C. Bender, Esq.
150 East 58th Street, Suite 3401
New York, New York 10155
Facsimile: (212) 755-8894
and
<PAGE>
69
Hennigan, Mercer & Bennett
601 South Figueroa Street, Suite 3300
Los Angeles, California 90017
Attention: Bruce Bennett, Esq.
Facsimile: (213) 694-1234
(iii) if to Sylvan,
Sylvan Learning Systems, Inc.
1000 Lancaster Street
Baltimore, Maryland 21202
Attention: Robert W. Zentz, Esq.
Facsimile: (410) 843-8060
with a copy to:
Venable, Baetjer and Howard, LLP
1800 Mercantile Bank & Trust Building
Two Hopkins Plaza
Baltimore, Maryland 21201
Attention: Newton B. Fowler, III, Esq.
Facsimile: (410) 244-7742
(iv) if to Pyramid,
Pyramid Ventures, Inc.
1 BT Plaza, 29th Floor
M/S 2291
New York, New York 10006
Attention: Melanie Hackney
Facsimile: (212) 669-1502
with a copy to:
Emmet Marvin Martin LLP
120 Broadway
New York, New York 10271
Attention: Martha Coultrap, Esq.
Facsimile: (212) 238-3100
(v) if to GE Cap-Eq,
GE Capital Equity Investments, Inc.
120 Long Ridge Road
Stamford, Connecticut 06927
Attention: Mr. Jerome Marcus
Facsimile: (203) 357-6527
<PAGE>
70
with a copy to:
Kaye, Scholer, Fierman, Hays & Handler, LLP
425 Park Avenue
New York, NY 10022-3598
Attention: Joseph D. Hansen, Esq.
Facsimile: (212) 836-7149
SECTION 10.05. INTERPRETATION; EXHIBITS AND SCHEDULES; CERTAIN
DEFINITIONS. (a) The headings contained in this Agreement, in any Exhibit or
Schedule hereto and in the table of contents to this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement. All Exhibits and Schedules annexed hereto or referred to herein
are hereby incorporated in and made a part of this Agreement as if set forth in
full herein. Any capitalized terms used in any Schedule or Exhibit, but not
otherwise defined therein, shall have the meaning as defined in this Agreement.
When a reference is made in this Agreement to a Section, Exhibit or Schedule,
such reference shall be to a Section of, or an Exhibit or Schedule to, this
Agreement unless otherwise indicated.
(b) For all purposes hereof:
"affiliate" of any person means another person that directly
or indirectly, through one or more intermediaries, controls, is controlled by,
or is under common control with, such first person.
"including" means including, without limitation.
"person" means any individual, firm, corporation, partnership,
limited liability company, trust, joint venture, Governmental Entity or other
entity.
"subsidiary" of any person means another person, an amount of
the voting securities, other voting ownership or voting partnership interests of
which is sufficient to elect at least a majority of its Board of Directors or
other governing body (or, if there are no such voting interests, 50% or more of
the equity interests of which) is owned directly or indirectly by such first
person or by another subsidiary of such first person.
"to Purchaser's knowledge" means to the actual
knowledge after reasonable inquiry of Timothy C. Collins or
Charles L. Laurey.
<PAGE>
71
"to the knowledge of SSC and the Company" means to the actual
knowledge of David M. Veit, Therese K. Crane, Joyce F. Russell, Curtis Hedges,
Nancy Lockwood, Susan R. Collins, Gary Columb, Michael Hayes and Michael
DePasquale.
SECTION 10.06. COUNTERPARTS. This Agreement may be executed in
one or more counterparts, all of which shall be considered one and the same
agreement, and shall become effective when one or more such counterparts have
been signed by each of the parties and delivered to the other party.
SECTION 10.07. ENTIRE AGREEMENT. This Agreement, and the
Confidentiality Agreement, along with the Schedules and Exhibits hereto, contain
the entire agreement and understanding between the parties hereto with respect
to the subject matter hereof and supersede all prior agreements and
understandings relating to such subject matter. None of the parties shall be
liable or bound to any other party in any manner by any representations,
warranties or covenants relating to such subject matter except as specifically
set forth herein or in the Confidentiality Agreement.
SECTION 10.08. SEVERABILITY. If any provision of this
Agreement (or any portion thereof) or the application of any such provision (or
any portion thereof) to any person or circumstance shall be held invalid,
illegal or unenforceable in any respect by a court of competent jurisdiction,
such invalidity, illegality or unenforceability shall not affect any other
provision hereof (or the remaining portion thereof) or the application of such
provision to any other persons or circumstances.
SECTION 10.09. CONSENT TO JURISDICTION. Each party irrevocably
submits to the exclusive jurisdiction of (a) the Supreme Court of the State of
New York, New York County, and (b) the United States District Court for the
Southern District of New York, for the purposes of any suit, action or other
proceeding arising out of this Agreement or any transaction contemplated hereby.
Each party further agrees that service of any process, summons, notice or
document by U.S. registered mail to such party's respective address set forth
above shall be effective service of process for any action, suit or proceeding
in New York with respect to any matters to which it has submitted to
jurisdiction in this Section 10.09. Each party irrevocably and unconditionally
waives any objection to the laying of venue of any action, suit or proceeding
arising out of this Agreement or the transactions contemplated hereby in (i) the
Supreme Court of the State of New York, New York County, or (ii) the United
States District Court for the Southern
<PAGE>
72
District of New York, and hereby and thereby further irrevocably and
unconditionally waives and agrees not to plead or claim in any such court that
any such action, suit or proceeding brought in any such court has been brought
in an inconvenient forum.
SECTION 10.10. GOVERNING LAW. This Agreement shall be governed
by and construed in accordance with the internal laws of the State of New York
applicable to agreements made and to be performed entirely within such State,
without regard to the conflicts of law principles of such State.
SECTION 10.11. WAIVER OF JURY TRIAL. Each party hereby waives,
to the fullest extent permitted by Applicable Law, any right it may have to a
trial by jury in respect to any litigation directly or indirectly arising out
of, under or in connection with this Agreement or any transaction contemplated
hereby. Each party (a) certifies that no representative, agent or attorney of
any other party has represented, expressly or otherwise, that such other party
would not, in the event of litigation, seek to enforce that foregoing waiver and
(b) acknowledges that it and the other parties hereto have been induced to enter
into this Agreement and, as applicable, by, among other things, the mutual
waivers and certifications in this Section 10.11.
IN WITNESS WHEREOF, SSC, the Preferred Sellers, Purchaser and
the Company have duly executed this Agreement as of the date first written
above.
SOFTWARE SYSTEMS CORP.,
by /s/ JOYCE F. RUSSELL
--------------------------
Name: Joyce F. Russell
Title: CEO & Secretary
SYLVAN LEARNING SYSTEMS, INC.,
by /s/ B. LEE MCGEE
---------------------------
Name: B. Lee McGee
Title: Exec VP & CFO
<PAGE>
73
PYRAMID VENTURES, INC.,
by /s/ BRIAN TOLBET
----------------------------
Name: Brian Tolbet
Title: Managing Director
GE CAPITAL EQUITY INVESTMENTS, INC.,
by /s/ JEROME MARCUS
-----------------------------
Name: Jerome Marcus
Title: Senior Vice President
JLC LEARNING CORPORATION,
by /s/ DAVID M. VEIT
------------------------------
Name: David M. Veit
Title: CEO
EAC I Inc.,
by /s/ CHARLES L. LAUREY
-------------------------------
Name: Charles L. Laurey
Title: Secretary
JLC Holdings, Inc. hereby agrees to
comply with all its obligations
under Section 6.09.
JLC HOLDINGS, INC.,
by /s/ JOYCE F. RUSSELL
-------------------------------
Name: Joyce F. Russell
Title: CFO & Secretary
<PAGE>
EXHIBIT A
1. AMOUNT: $400,000
2. ESCROW TO BE ESTABLISHED BY: Company
3. ESCROW AGENT: Bankers Trust Company
4. INVESTMENT: Only in highly liquid short-term
investments
5. DISBURSEMENT:
WHEN: Whenever payment on account of Loss to
be indemnified pursuant to Section 8.01
is required to be made by the three
Preferred Sellers (in no case in respect
of a Specific Preferred Seller
Obligation)
AMOUNT: 10% of the total amount to be paid on
account of Loss to be indemnified except
as provided in Section 8.01(d)
(PROVIDED, that escrow not to cover
attorney's fees/expenses incurred by the
Preferred Sellers in handling the
defense of any indemnified claim)
6. FEES: All expenses of Escrow (including preparation
of agreement, escrow agent fees and expenses, etc.)
paid out of escrow amount (and interest thereon).
7. DURATION: June 30, 2000, except as to claims made
(and unresolved) before July 1, 2000.
Funds that are subject of a disputed
claim are held until resolution of such
claim.
8. TERMINATION: Upon termination, Escrow Agent pays all
remaining funds (and interest earned thereon) to
Company, which in turn pays (via payroll) all
recipients in accordance with pre-arranged
percentages.
<PAGE>
SCHEDULE 1.01
SAMPLE CALCULATION OF PER SHARE PRICE
Per Share Price:
Per share price = x/y x/y = $421.06
=======
Where:
x = (1) - (2) x = $12,631,941
y = 30,000 y = 30,000
and:
(1) = $53,700,000 (1) = $53,700,000
(2) = (i) + (ii) + (iii) (2) = 41,068,059
-----------
x = $12,631,941
-----------
where:
(i) = Aggregate Principal of Company Indebtedness $33,892,901
(See pg. 2 of 4)
(ii) = Accrued and Unpaid Interest thereon 4,382,408 (As of: 6/30/99)
(See pg. 2 of 4)
Prepayment Penalties (Foothill Capital) 360,000 (As of: 6/30/99)
(iii) = Aggregate amount payable under JLC 1998 1,520,250
Stock Appreciation Rights Plan and
the maximum aggregate amount payable under 912,500
the Fixed Sales Bonuses
-----------
(2) = $41,068,059
-----------
Note: Amounts are estimated based upon assumptions of remaining obligations as
of 6/30/99 and will change based upon actual obligations outstanding and actual
closing date.
<PAGE>
SCHEDULE 1.01
SCHEDULE OF OUTSTANDING DEBT
AND ACCRUED INTEREST
<TABLE>
<CAPTION>
Payee Date Principal Interest Description
------ ---- --------- -------- -----------
<S> <C> <C> <C> <C>
1a Foothill Capital Corp.-(Revolver) 3/30/98 $7,250,000 9.25% Prime plus 1.5%; 18% on overadvance;
Interest paid monthly though 5/31/99;
Plus $7,500/mo. servicing fee; $600/mo.
other handling fees.
1b Foothill Capital Corp.-(Special Advance) 3/30/98 7,500,000 15.00% Interest paid monthly through 5/30/99
2 Chase Manhattan Bank 6/29/95 8,500,000 12.25% Senior Subordinated Note (No interest
paid since 10/1/97)
3 Pyramid Ventures, Inc. 3/31/99 1,000,000 12.25% Senior Subordinated Note (No interest
paid since 10/1/97)
4 GE Capital Equity Investments 3/31/99 2,500,000 12.25% Senior Subordinated Note (No interest
paid since 10/1/97)
5 Sylvan Learning Systems, Inc 3/31/99 5,000,000 12.25% Senior Subordinated Note (No interest
paid since 10/1/97)
6 Sylvan Learning Systems, Inc 6/30/98 2,142,901 10.00% Subordinated Promissory Note
-----------
$33,892,901
===========
</TABLE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------
ACCRUED INTEREST
-----------------------------------------------------------------------------------------
FCC-Revolver FCC-S.A. Chase Pyramid GE Cap Eq Sylvan Sylvan
------------------------------------------------------------------------------ Total
Debt Holder 7,250,000 7.500,000 8,500,000 1,000,000 2,500,000 5,000,000 2,142,901
Principal Amount -----------------------------------------------------------------------------------------
Interest Amount:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
As of 6/30/98 - Regular Interest - - $780,938 $91,875 $229,688 $459,375 - $1,561,875
- Penalty Interest - - 27,821 3,273 8,183 16,365 - 55,642
9/30/98 - Regular Interest - - 260,313 30,625 76,563 153,125 53,573 574,198
- Penalty Interest - - 27,821 3,273 8,183 16,365 - 55,642
12/31/98 - Regular Interest - - 260,313 30,625 76,563 153,125 53,573 574,198
- Penalty Interest - - 37,095 4,364 10,910 21,820 - 74,189
3/31/99 - Regular Interest - - 260,313 30,625 76,563 153,125 53,573 574,198
- Penalty Interest - - 46,368 5,455 13,638 27,275 - 92,736
4/30/99 - Regular Interest - - 86,771 10,208 25,521 51,042 17,858 191,399
- Penalty Interest - - 18,547 2,182 5,455 10,910 - 37,095
6/30/99 - Regular Interest 90,500 93,750 173,542 20,417 51,042 102,083 35,715 567,048
- Penalty Interest - - 37,095 4,364 10,910 21,820 - 74,189
-----------------------------------------------------------------------------------------
Total Interest 90,500 93,750 2,016,934 237,286 593,216 1,186,432 214,290 4,432,408
-----------------------------------------------------------------------------------------
Reduction of Penalty Interest (50,000) (50,000)
-----------------------------------------------------------------------------------------
Net Interest 90,500 93,750 1,966,934 237,286 593,216 1,186,432 214,290 4,382,408
-----------------------------------------------------------------------------------------
Total Obligation $7,340,500 $7,593,750 $10,466,934 $1,237,286 $3,093,216 $6,186,432 $2,357,191 $38,275,309
=========================================================================================
</TABLE>
Note: Amounts are estimated based upon a 6/30/99 closing date and will change
based upon actual closing date.
<PAGE>
SCHEDULE 1.01
CALCULATION OF PENALTY INTEREST ON $17 MILLION
12.25% SENIOR SUBORDINATED NOTES
Interest Rate: 14.25%
Interest Due Total Penalty Total Penalty
and Payable Interest Due Interest Interest
------------ ------------ -------- -------------
12/31/97 520,625 520,625 - -
1/31/98 520,625 6,182 6,182
2/28/98 520,625 6,182 12,365
3/31/98 520,625 1,041,250 6,182 18,547
4/30/98 1,041,250 12,365 30,912
5/31/98 1,041,250 12,365 43,277
6/30/98 520,625 1,561,875 12,365 55,642
7/31/98 1,561,875 18,547 74,189
8/31/98 1,561,875 18,547 92,736
9/30/98 520,625 2,082,500 18,547 111,284
10/31/98 2,082,500 24,730 136,013
11/30/98 2,082,500 24,730 160,743
12/31/98 520,625 2,603,125 24,730 185,473
1/31/99 2,603,125 30,912 216,385
2/28/99 2,603,125 30,912 247,297
3/31/99 520,625 3,123,750 30,912 278,209
4/30/99 3,123,750 37,095 315,304
5/31/99 3,123,750 37,095 352,398
6/30/99 520,625 3,644,375 37,095 389,493
========== ==========
Penalty Interest begins to accrue on the first day after interest becomes due
and payable.
Note: Amounts are estimated based upon a 6/30/99 closing date and will change
based upon actual closing date.
<PAGE>
SCHEDULE 1.01
CALCULATION/ALLOCATION OF SHARE PROCEEDS
Assumed Closing Date: 6/30/99
<TABLE>
<CAPTION>
--------------------------------------------------------------------
Per Total Share
Asset Sold # Shares Share Price Proceeds
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sylvan Learning Systems, Inc. - "Sylvan" Class A Preferred; par $0.01 15,000 $421.06 $ 6,315,970
Pyramid Ventures Inc. - "Pyramid" Class A Preferred; par $0.01
Class B Preferred; par $0.01 7,500 421.06 3,157,985
GE Capital Equity Inv. - "GE Cap-Eq" Class B Preferred; par $0.01 7,500 421.06 3,157,985
------- ------------
30,000 $12,631,941
======= ============
</TABLE>
Note: Amounts are estimated based upon assumptions of remaining obligations as
of 6/30/99 and will change based upon actual obligations outstanding and actual
closing date.
<PAGE>
SCHEDULE 2.04
1. Sylvan:
a. Securities Purchase Agreement dated as of November 1, 1996 by and
among JLC Holdings, Inc., Software Systems Corp., JLC Learning
Corporation and Sylvan Learning Systems, Inc., amended as
follows:(1)
First Amendment to Securities Purchase Agreement dated as of
December 5, 1996 by and among JLC Holdings, Inc., Software
Systems Corp., JLC Learning Corporation and Sylvan Learning
Systems, Inc.
Consent and Termination Agreement, dated as of June 30, 1998,
among JLC Holdings, Inc., Software Systems Corp., JLC Learning
Corporation and Sylvan Learning Systems, Inc.
b. Assignment and Exchange Agreement by and among Pyramid Ventures,
Inc., Sylvan Learning Systems, Inc., JLC Learning Corporation and
JLC Holdings, Inc., dated as of March 31, 1999, and the notes issued
pursuant thereto.
c. Restatement Agreement dated as of December 19, 1996, amending the
Second Restated Stockholders Agreement dated November 1, 1996, by
and among JLC Holdings, Inc., Software Systems Corp., JLC Learning
Corporation, Bain Capital Funds IV, L.P., Bain Capital Fund IV-B,
L.P., BCIP Associates, BCIP Trust Associates, L.P., Information
Partners Capital Fund, L.P., Jostens, Inc., Indosuez JLC Partners,
Chase Manhattan Investment Holdings, Inc., HAL International
Investments N.V., Lifetouch Learning, Inc., Sylvan Learning Systems,
Inc. and General Electric Capital Corporation.
d. Third Restated Stockholders Agreement, dated as of December 19,
1996, by and among JLC Holdings, Inc., Software Systems Corp., JLC
Learning Corporation, Bain Capital Funds IV, L.P., Bain Capital Fund
IV-B, L.P., BCIP Associates, BCIP Trust Associates, L.P.,
Information Partners Capital Fund, L.P., Jostens, Inc., Indosuez JLC
Partners, Chase Manhattan Investment Holdings, Inc., HAL
International Investments N.V., Lifetouch Learning, Inc., Sylvan
Learning Systems, Inc. and General Electric Capital Corporation.
- ----------
(1) All references to this document throughout the Schedules shall include
both the First Amendment and Consent and Termination Agreement set forth
below.
JLC - CONFIDENTIAL
<PAGE>
SCHEDULE 2.04 (CONT'D)
e. Indemnification Agreement dated as of November 1, 1996, by and
between JLC Learning Corporation and Sylvan Learning Systems, Inc.
f. Consent and Termination Agreement, dated as of June 30, 1998, among
JLC Holdings, Inc., Software Systems Corp., JLC Learning Corporation
and Sylvan Learning Systems, Inc.
2. GE Capital Equity Investments:
a. Assignment and Exchange Agreement by and among Pyramid Ventures,
Inc., General Electric Capital Corporation, G.E. Capital Equity
Investments, Inc., JLC Learning Corporation, and JLC Holdings, Inc.,
dated as of March 31, 1999, and the notes issued pursuant thereto.
b. Restatement Agreement dated as of December 19, 1996, amending the
Second Restated Stockholders Agreement dated November 1, 1996, by
and among JLC Holdings, Inc., Software Systems Corp., JLC Learning
Corporation, Bain Capital Funds IV, L.P., Bain Capital Fund IV-B,
L.P., BCIP Associates, BCIP Trust Associates, L.P., Information
Partners Capital Fund, L.P., Jostens, Inc., Indosuez JLC Partners,
Chase Manhattan Investment Holdings, Inc., HAL International
Investments N.V., Lifetouch Learning, Inc., Sylvan Learning Systems,
Inc. and General Electric Capital Corporation.
c. Third Restated Stockholders Agreement, dated as of December 19,
1996, by and among JLC Holdings, Inc., Software Systems Corp., JLC
Learning Corporation, Bain Capital Funds IV, L.P., Bain Capital Fund
IV-B, L.P., BCIP Associates, BCIP Trust Associates, L.P.,
Information Partners Capital Fund, L.P., Jostens, Inc., Indosuez JLC
Partners, Chase Manhattan Investment Holdings, Inc., HAL
International Investments N.V., Lifetouch Learning, Inc., Sylvan
Learning Systems, Inc. and General Electric Capital Corporation.
d. Securities Purchase Agreement dated as of December 19, 1996 by and
among Software Systems Corp., JLC Learning Corporation and General
Electric Capital Corporation.
JLC - CONFIDENTIAL
<PAGE>
SCHEDULE 2.04 (CONT'D)
3. Pyramid Ventures:
a. Securities Purchase Agreement dated as of November 1, 1996 by and
among JLC Holdings, Inc., Software Systems Corp., JLC Learning
Corporation and Sylvan Learning Systems, Inc.
b. Assignment and Exchange Agreement by and among Pyramid Ventures,
Inc., Sylvan Learning Systems, Inc., JLC Learning Corporation and
JLC Holdings, Inc., dated as of March 31, 1999, and the notes issued
pursuant thereto.
c. Assignment and Exchange Agreement by and among Pyramid Ventures,
Inc., General Electric Capital Corporation, G.E. Capital Equity
Investments, Inc., JLC Learning Corporation, and JLC Holdings, Inc.,
dated as of March 31, 1999, and the notes issued pursuant thereto.
d. Restatement Agreement dated as of December 19, 1996, amending the
Second Restated Stockholders Agreement dated November 1, 1996, by
and among JLC Holdings, Inc., Software Systems Corp., JLC Learning
Corporation, Bain Capital Funds IV, L.P., Bain Capital Fund IV-B,
L.P., BCIP Associates, BCIP Trust Associates, L.P., Information
Partners Capital Fund, L.P., Jostens, Inc., Indosuez JLC Partners,
Chase Manhattan Investment Holdings, Inc., HAL International
Investments N.V., Lifetouch Learning, Inc., Sylvan Learning Systems,
Inc. and General Electric Capital Corporation.
e. Third Restated Stockholders Agreement, dated as of December 19,
1996, by and among JLC Holdings, Inc., Software Systems Corp., JLC
Learning Corporation, Bain Capital Funds IV, L.P., Bain Capital Fund
IV-B, L.P., BCIP Associates, BCIP Trust Associates, L.P.,
Information Partners Capital Fund, L.P., Jostens, Inc., Indosuez JLC
Partners, Chase Manhattan Investment Holdings, Inc., HAL
International Investments N.V., Lifetouch Learning, Inc., Sylvan
Learning Systems, Inc. and General Electric Capital Corporation.
f. Securities Purchase Agreement dated as of December 19, 1996 by and
among Software Systems Corp., JLC Learning Corporation and General
Electric Capital Corporation.
JLC - CONFIDENTIAL
<PAGE>
SCHEDULE 2.06
1. Product Supply and License Agreement entered into by and between JLC
Learning Corporation and Sylvan Learning Systems, Inc. dated as of
November 1, 1996.
2. Securities Purchase Agreement dated as of November 1, 1996 by and among
JLC Holdings, Inc., Software Systems Corp., JLC Learning Corporation and
Sylvan Learning Systems, Inc.
3. Texas Caretaker Project Pilot entered into by and between JLC Learning
Corporation and Sylvan Learning Systems, Inc. on July 23, 1997.
4. Publication and Distribution Agreement entered into by and between JLC
Learning Corporation and Addison Wesley Longman Limited on December 8,
1997. Amendment One to this Agreement was entered into on December 18,
1998. Amendment Two to this Agreement was entered into on March 12, 1999.
The Agreement contains a provision providing for limited distribution
rights to Sylvan Learning Systems, Inc. Amendments Three and Four were
entered into on May 28, 1999.
5. International Development and Distribution Agreement entered into by and
between JLC Learning Corporation and Educational Trend Sdn. Bhd. on March
20, 1998. Amendment One to this Agreement was entered into on February 28,
1998. A Letter of Amendment and Subdistribution Agreement are currently
under negotiation. The Agreement contains a clause for the provision of
localized products to Sylvan Learning Systems, Inc.
6. Engagement Letter entered into by and between BT Alex. Brown and JLC
Learning Corporation on January 5, 1998.
7. Subordinated Promissory Note between Sylvan Learning Systems, Inc. and JLC
Learning Corporation issued on June 30, 1998 in the principal amount of
$2,142,901.36.
8. Assignment and Exchange Agreement by and among Pyramid Ventures, Inc.,
Sylvan Learning Systems, Inc., JLC Learning Corporation and JLC Holdings,
Inc., dated as of March 31, 1999, and the notes issued pursuant thereto.
9. Assignment and Exchange Agreement by and among Pyramid Ventures, Inc.,
General Electric Capital Corporation, G.E. Capital Equity Investments,
Inc., JLC Learning Corporation, and JLC Holdings, Inc., dated as of March
31, 1999, and the notes issued pursuant thereto.
JLC - CONFIDENTIAL
<PAGE>
SCHEDULE 2.06 (CONT'D)
10. In March of 1999, JLC Learning Corporation's receivable under the Product
Supply and License Agreement of November 1, 1996, was applied against JLC
Learning Corporation's obligations to Sylvan under the Securities Purchase
Agreement dated as of November 1, 1996.
11. Senior Subordinated 12.25% Note Purchase Agreement by and among JLC
Acquisition, Inc., JLC Holdings, Inc., Software Systems Corp., Chase
Manhattan Bank, N.A. and Maximum Investments, N.V., dated as of June 29,
1995, amended as follows: (1)
(a) Amendment No. 1 and Waiver dated as of December 15, 1995.
(b) Amendment No. 2 and Waiver dated as of July 17, 1996.
(c) Waiver and Ratification dated as of September 30, 1996.
(d) Amendment No. 3 and Waiver dated as of November 1, 1996.
(e) Amendment No. 4 and Waiver dated as of December 6, 1996.
(f) Amendment No. 5 and Waiver dated as of December 19, 1996.
(g) Assignment and Exchange Agreement by and among Pyramid Ventures,
Inc., Sylvan Learning Systems, Inc., JLC Learning Corporation and
JLC Holdings, Inc., dated as of March 31, 1999, and the notes issued
pursuant thereto.
(h) Assignment and Exchange Agreement by and among Pyramid Ventures,
Inc., General Electric Capital Corporation, G.E. Capital Equity
Investments, Inc., JLC Learning Corporation, and JLC Holdings, Inc.,
dated as of March 31, 1999, and the notes issued pursuant thereto.
(i) Assignment and Agreement of September 15, 1998 by and among HAL
International Investments N.V., formerly known as Maximum
Investments N.V., Pyramid Ventures, Inc., JLC Learning Corp. and JLC
Holdings, Inc.
12. Stock Purchase Agreement by and between JLC Holdings, Inc., Software
Systems Corp., JLC Acquisition and Jostens, Inc. dated as of June 29,
1995.
- ----------
(1) All references to this document throughout the Schedules shall include
nine (9) documents set forth below.
JLC - CONFIDENTIAL
<PAGE>
SCHEDULE 2.06 (CONT'D)
13. Restatement Agreement dated as of December 19, 1996, amending the Second
Restated Stockholders Agreement dated November 1, 1996, by and among JLC
Holdings, Inc., Software Systems Corp., JLC Learning Corporation, Bain
Capital Funds IV, L.P., Bain Capital Fund IV-B, L.P., BCIP Associates,
BCIP Trust Associates, L.P., Information Partners Capital Fund, L.P.,
Jostens, Inc., Indosuez JLC Partners, Chase Manhattan Investment Holdings,
Inc., HAL International Investments N.V., Lifetouch Learning, Inc., Sylvan
Learning Systems, Inc. and General Electric Capital Corporation.
14. Third Restated Stockholders Agreement, dated as of December 19, 1996, by
and among JLC Holdings, Inc., Software Systems Corp., JLC Learning
Corporation, Bain Capital Funds IV, L.P., Bain Capital Fund IV-B, L.P.,
BCIP Associates, BCIP Trust Associates, L.P., Information Partners Capital
Fund, L.P., Jostens, Inc., Indosuez JLC Partners, Chase Manhattan
Investment Holdings, Inc., HAL International Investments N.V., Lifetouch
Learning, Inc., Sylvan Learning Systems, Inc. and General Electric Capital
Corporation.
15. Indemnification Agreement dated as of November 1, 1996, by and between JLC
Learning Corporation and Sylvan Learning Systems, Inc.
16. Securities Purchase Agreement dated as of December 19, 1996 by and among
Software Systems Corp., JLC Learning Corporation and General Electric
Capital Corporation.
17. Letter Agreement modifying and terminating certain licensing rights
granted by Academic Systems to JLC Learning Corporation, dated as of June
17, 1998.
18. Subordination Agreement, dated June 30, 1998 among Foothill Capital
Corporation, JLC Learning Corporation and Sylvan Learning Systems, Inc.
19. Management and Advisory Agreement by and between JLC Holdings, Inc.,
Software Systems Corp., JLC Acquisition Corp. and Bain Capital Partners
IV, L.P. dated as of June 29, 1995.
20. Consent and Termination Agreement, dated as of June 30, 1998, among JLC
Holdings, Inc., Software Systems Corp., JLC Learning Corporation and
Sylvan Learning Systems, Inc.
21. Strategic Alliance Agreement dated the date hereof between Sylvan Learning
Systems, Inc. and JLC Learning Corporation.
JLC - CONFIDENTIAL
<PAGE>
SCHEDULE 3.03
1. Senior Subordinated 12.25% Note Purchase Agreement by and among JLC
Acquisition, Inc., JLC Holdings, Inc., Software Systems Corp., Chase
Manhattan Bank, N.A. and Maximum Investments, N.V., dated as of June 29,
1995.
2. Software Systems Corp.'s $57,150,000 Subordinated Note due 2003, dated
November 8, 1996 between Software Systems Corp. and Jostens, Inc.
3. Software Systems Corp.'s $4,000,115 Exchangeable Subordinated Note due
2003, between Software Systems Corp. and Jostens, Inc. dated June 29,
1995.
JLC - CONFIDENTIAL
<PAGE>
SCHEDULE 3.06
SOFTWARE SYSTEMS CORP. UNCONSOLIDATED BALANCE SHEET,
DECEMBER 31, 1998
Assets
Investments in JLC Learning Corporation $40,000,000
-------------------------
Total Assets: $40,000,000
=========================
Liabilities $48,628,000(1)
Paid in kind notes - Jostens, Inc. 9,058,000
-------------------------
Total Liabilities $57,686,000
=========================
Shareholder's equity
Retained earnings ($11,953,000)
Current year profit (loss) ($ 5,733,000)
-------------------------
Shareholder's equity ($17,686,000)
=========================
Total liabilities and equity $40,000,000
-------------------------
(1) This figure represents the present value of Software Systems Corp.'s
$57,150,000 Subordinated Note due 2003, dated November 8, 1996 between
Software Systems Corp. and Jostens, Inc.
JLC - CONFIDENTIAL
<PAGE>
SCHEDULE 3.06 (CONT'D)
SOFTWARE SYSTEMS CORP. LIABILITIES
1. Securities Purchase Agreement dated as of November 1, 1996 by and among
JLC Holdings, Inc., Software Systems Corp., JLC Learning Corporation and
Sylvan Learning Systems, Inc.
2. Senior Subordinated 12.25% Note Purchase Agreement by and among JLC
Acquisition, Inc., JLC Holdings, Inc., Software Systems Corp., Chase
Manhattan Bank, N.A. and Maximum Investments, N.V.
3. Stock Purchase Agreement by and between JLC Holdings, Inc., Software
Systems Corp., JLC Acquisition, Inc. and Jostens, Inc. dated as of June
29, 1995.
4. Restatement Agreement dated as of December 19, 1996, amending the Second
Restated Stockholders Agreement dated November 1, 1996, by and among JLC
Holdings, Inc., Software Systems Corp., JLC Learning Corporation, Bain
Capital Funds IV, L.P., Bain Capital Fund IV-B, L.P., BCIP Associates,
BCIP Trust Associates, L.P., Information Partners Capital Fund, L.P.,
Jostens, Inc., Indosuez JLC Partners, Chase Manhattan Investment Holdings,
Inc., HAL International Investments N.V., Lifetouch Learning, Inc., Sylvan
Learning Systems, Inc. and General Electric Capital Corporation.
5. Third Restated Stockholders Agreement, dated as of December 19, 1996, by
and among JLC Holdings, Inc., Software Systems Corp., JLC Learning
Corporation, Bain Capital Funds IV, L.P., Bain Capital Fund IV-B, L.P.,
BCIP Associates, BCIP Trust Associates, L.P., Information Partners Capital
Fund, L.P., Jostens, Inc., Indosuez JLC Partners, Chase Manhattan
Investment Holdings, Inc., HAL International Investments N.V., Lifetouch
Learning, Inc., Sylvan Learning Systems, Inc. and General Electric Capital
Corporation.
6. Securities Purchase Agreement dated as of December 19, 1996 by and among
Software Systems Corp., JLC Learning Corporation and General Electric
Capital Corporation.
7. Management and Advisory Agreement by and between JLC Holdings, Inc.,
Software Systems Corp., JLC Acquisition Corp. and Bain Capital Partners
IV, L.P. dated as of June 29, 1995.
8. Consent and Termination Agreement, dated as of June 30, 1998, among JLC
Holdings, Inc., Software Systems Corp., JLC Learning Corporation and
Sylvan Learning Systems, Inc.
JLC - CONFIDENTIAL
<PAGE>
SCHEDULE 3.07
1. See Schedule 2.06.
JLC - CONFIDENTIAL
<PAGE>
SCHEDULE 4.01
JURISDICTIONS IN WHICH THE COMPANY IS QUALIFIED TO DO
BUSINESS
<TABLE>
<CAPTION>
STATE FINE/FEE STATE FINE/FEE
- ----- -------- ----- --------
<S> <C> <C> <C>
Alabama(1) To be determined/$10.00 Montana(2) $120.00/To be determined
Alaska(2) $350.00/To be determined Nebraska(2) $145.00/To be determined
Arizona Nevada(2) $325.00/To be determined
Arkansas New Hampshire(2) To be determined
California New Jersey
Colorado(1) To be determined New Mexico(2) $200.00/To be determined
Connecticut(2) $20.00/$20.00 New York(2) $225.00/To be determined
Delaware(2) $150.00/To be determined North Carolina
District of(2) To be determined North Dakota(1) To be determined/$20.00
Columbia
Florida Ohio(2) $100.00/$5.00
Georgia Oklahoma(2) To be determined/$20.00
Guam Oregon
Hawaii(1) To be determined/$25.00 Pennsylvania
Idaho(2) $100.00/To be determined Puerto Rico(1) To be determined
Illinois Rhode Island(2) To be determined
Indiana South Carolina
Iowa(2) $100.00/To be determined South Dakota(2) $130.00/To be determined
Kansas(1) $170.00/$7.50 Tennessee(1) To be determined/$20.00
Kentucky(1) To be determined/$10.00 Texas(1) To be determined
Louisiana Utah
Maine(2) $180.00/To be determined Vermont(2) $100.00/To be determined
Maryland Virginia(1) $3755.00/To be determined
Massachusetts(2) $300.00/$12.00 Washington(2) $175.00/To be determined
Michigan(2) $60.00/To be determined West Virginia
Minnesota(1) To be determined/$5.00 Wisconsin(2) $250.00/To be determined
Mississippi(1) To be determined/$25.00 Wyoming(2) $100.00/To be determined
Missouri(1) To be determined/$10.00
</TABLE>
- ----------
(1) The company is required to either pay a fine or file an annual report or
both as a condition to receiving a current Certificate of Good Standing.
The Company is currently in the process of either paying a fine or filing
a report or both.
(2) The Company is in the process of applying for a Certificate of Authority
and will pay any fees that may he required.
JLC - CONFIDENTIAL
<PAGE>
SCHEDULE 4.01 (CONT'D)
CORPORATE RECORDS
1. Some certificates representing shares of Class A Common Stock of JLC
Learning Corp. are not presently held in books and records of JLC Learning
Corporation. However, at the time JLC Learning was purchased from Jostens,
Inc., JLC Holdings Inc., Software Systems Corp. and JLC Acquisition, Inc.
purchased all issued and outstanding shares of Class A Common Stock.
JLC - CONFIDENTIAL
<PAGE>
SCHEDULE 4.01 (CONT'D)
COMPANY CONTRACTS
1. Discontinued the marketing of Vital Tools. A settlement agreement has been
reached with APTEX/HNC.
JLC - CONFIDENTIAL
<PAGE>
SCHEDULE 4.04
1. Senior Subordinated 12.25% Note Purchase Agreement by and among JLC
Acquisition, Inc., JLC Holdings, Inc., Software Systems Corp., Chase
Manhattan Bank, N.A. and Maximum Investments, N.V., dated as of June 29,
1995.
2. Loan and Security Agreement entered into by and between JLC Learning
Corporation, the Financial Institutions named therein as the Lenders and
Foothill Capital Corporation on March 30, 1998.(1)
(a) Amendment No. One to the Loan and Security and Agreement dated as of
July 28, 1998.
(b) Amendment No. Two to the Loan and Security and Agreement dated as of
May 1, 1999.
3. Software Systems Corp.'s $57,150,000 Subordinated Note due 2003, dated
November 8, 1996 between Software Systems Corp. and Jostens, Inc.
4. Software Systems Corporation's $4,000,115 Exchangeable Subordinated Note
due 2003, between Software Systems Corp. and Jostens, Inc. dated as of
June 29, 1995.
5. License Agreement between Lernout and Hauspie Speech Products N.V.
assignee of INSO Corp., assignee of Houghton Mifflin Co. and JLC Learning
Corp., Assignee of Ideal Learning Inc., September 30, 1993, amendment I
dated September 30, 1998.
6. Lease with Spieker Properties for 9920 Pacific Heights Blvd., with
termination date of March 21, 2001.
7. Compaq Authorized Reseller Sales Agreement dated as of January 7, 1998.
8. Trademark License Agreement among Jostens, Inc., JLC Holdings, Inc.,
Software Systems Corp. and Jostens Learning Corp., dated June 29, 1995.
9. Directors and Officers insurance coverage.
- ----------
(1) All references to this document throughout the Schedules shall include
both Amendment No. One and Amendment No. Two to the Loan and Security
Agreement as set forth below.
JLC - CONFIDENTIAL
<PAGE>
SCHEDULE 4.05
1. Audited Balance Sheet as of December 31, 1996.
2. Draft of Audited Balance Sheets as of December 31, 1997 and December 31,
1998 (form of opinion letter and footnotes to financial statements subject
to change as described in section 6.18).
3. Draft Financial Statements as of March 31, 1999.
JLC - CONFIDENTIAL
<PAGE>
[GRAPHIC OMITTED]
JLC LEARNING
CORPORATION
FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
<PAGE>
[LETTERHEAD OF PRICE WATERHOUSE LLP]
Report of Independent Accountants
March 21, 1997
To the Board of Directors of
JLC Learning Corporation
In our opinion, the accompanying balance sheet and the related statements of
operations, of stockholders' equity and of cash flows present fairly, in all
material respects, the financial position of JLC Learning Corporation, formerly
Jostens Learning Corporation, at December 31, 1996 and 1995, and the results of
its operations and its cash flows for the year ended December 31, 1996 and the
six-month period ended December 31, 1995 in conformity with generally accepted
accounting principles. These financial statements are the responsibility of JLC
Learning Corporation's management; our responsibility is to express an opinion
on these financial statements based on our audits. We conducted our audits of
these statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
/s/ PRICE WATERHOUSE LLP
<PAGE>
JLC LEARNING CORPORATION
- --------------------------------------------------------------------------------
BALANCE SHEET
(In thousands)
Assets
December 31,
---------------------
1996 1995
-------- ----------
Current assets:
Cash and cash equivalents $ 11,453 $ 1,372
Accounts receivable, less allowance of
$2,896 and $2,367, respectively 33,441 53,678
Inventories 2,533 3,092
Prepaid expenses 4,110 3,795
Current portion of amounts due from related parties 1,347 7,000
-------- ---------
Total current assets 52,884 68,937
Amounts due from related parties, less current portion 350
Other assets:
Software development costs, net 26,505 30,865
Intangible assets, net 6,654 9,899
Deferred financing fees, net 1,322 1,687
Investments in equity securities 2,157 2,157
Fixed assets, net 5,541 9,777
-------- ---------
Total assets $ 95,063 $ 123,672
======== =========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 3,937 $ 8,087
Due to related parties 370 7,930
Salaries, wages and commissions payable 5,376 6,418
Deferred revenue 24,543 27,990
Other accrued liabilities 12,904 16,193
-------- ---------
Total current liabilities 47,135 66,618
-------- ---------
Noncurrent portion of deferred revenue 7,306 7,640
-------- ---------
Noncurrent other accrued liabilities 1,464 4,888
-------- ---------
Revolving line of credit - 10,700
-------- ---------
Long-term debt 16,020 15,750
-------- ---------
Stockholders' equity:
Mandatorily redeemable preferred stock 9,076 -
Redeemable preferred stock - -
Common stock - -
Paid-in capital 75,803 57,538
Accumulated deficit (43,760) (21,481)
Unallocated purchase consideration (17,981) (17,981)
-------- ---------
Total stockholders' equity 23,138 18,076
-------- ---------
Total liabilities and stockholders' equity $ 95,063 $ 123,672
======== =========
The accompanying notes are an integral part of these financial statements.
-2-
<PAGE>
JLC LEARNING CORPORATION
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
(In thousands)
For the six-
For the year month period
ended ended
December 31, December 31,
1996 1995
------------ ------------
Net revenue:
Software $ 40,423 $ 15,812
Service 35,385 19,331
Hardware 10,924 13,295
-------- --------
86,732 48,438
-------- --------
Cost of products sold:
Software 12,937 4,754
Service 28,973 15,551
Hardware 8,251 11,744
-------- --------
50,161 32,049
-------- --------
Selling and administrative expenses:
Sales and marketing 28,019 14,204
Research and development 11,715 4,977
General and administrative 11,281 4,618
Amortization of intangible assets 3,245 1,853
-------- --------
54,260 25,652
-------- --------
Loss from operations (17,689) (9,263)
Interest expense (4,590) (1,819)
-------- --------
Loss before income taxes (22,279) (11,082)
Income tax expense - -
-------- --------
Net loss $(22,279) $(11,082)
======== ========
The accompanying notes are an integral part of these financial statements.
-3-
<PAGE>
JLC LEARNING CORPORATION
- --------------------------------------------------------------------------------
STATEMENT OF STOCKHOLDERS' EQUITY
(Dollars in thousands)
<TABLE>
<CAPTION>
Mandatorily
Redeemable Redeemable
Common Stock Preferred Stock Preferred Stock Additional Unallocated
-------------- ---------------- ----------------- Paid-in Accumulated Purchase
Shares $ Shares $ Shares $ Capital Deficit Consideration Total
------ ----- ------- ------- ------- ------- ---------- ----------- ------------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at July 3, 1995 1,000 $ - - $ - - $ - $57,538 $(10,399) $(17,981) $29,158
Net loss for the six-
month period ended
December 31, 1995 (11,082) (11,082)
------ ----- ------ ------ ------ ----- ------- -------- -------- --------
Balance at
December 31, 1995 1,000 - - - - - 57,538 (21,481) (17,981) 18,076
Issuance of
redeemable
preferred stock 20,000 18,165 18,165
Contribution from Holdings 100 100
Issuance of
mandatorily
redeemable
preferred stock 10,000 9,076 9,076
Net loss for the year ended
December 31, l996 (22,279) (22,279)
------ ----- ------ ------ ------ ----- ------- -------- -------- --------
1,000 $ - 10,000 $9,076 20,000 $ - $75,803 $(43,760) $(17,961) $ 23,130
====== ===== ====== ====== ====== ===== ======= ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-4-
<PAGE>
JLC LEARNING CORPORATION
- --------------------------------------------------------------------------------
STATEMENT OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
(In thousands)
<TABLE>
<CAPTION>
For the six-month
For the year period
ended ended
December 31, December 31,
1996 1995
------------ -----------------
<S> <C> <C>
Operating activities:
Net loss $ (22,279) $ (11,082)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Depreciation and amortization 15,746 8,246
Amortization of deferred financing fees 365 180
Amortization of debt discount 270
Changes in assets and liabilities, net of effects
of purchase of Ideal:
Decrease in accounts and notes receivable 26,240 28,085
Decrease in inventories 396 1,553
Increase in prepaid expenses (315) (1,319)
Increase (decease) in accounts payable (4,150) 528
Increase (decease) in due to related parties (7,560) 6,810
Decrease in salaries, wages and commissions payable (1,042) (6,845)
Decrease is deferred revenue (3,776) (12,803)
Increase (decrease) in current and noncurrent
other accrued liabilities (6,494) 777
--------- ---------
Net cash provided by (used in) operating activities (2,599) 14,130
--------- ---------
Investing activities:
Payment in connection with purchase of
Ideal, net of cash acquired (4,089)
Capital expenditures, net (901) (1,323)
Software development costs (2,841) (3,547)
--------- ---------
Net cash used in investing activities (3,742) (8,959)
--------- ---------
Financing activities:
Decrease in due to former parent (219) (150)
Repayments of borrowings on revolving line of credit (34,700) (28,000)
Borrowings on revolving line of credit 24,000 19,200
Proceeds from sale of preferred stock, net 27,241
Contribution from Holdings 100
--------- ---------
Net cash provided by (used in) financing activities 16,422 (8,950)
--------- ---------
Increase (decrease) in cash and cash equivalents 10,081 (3,779)
Cash and cash equivalents, beginning of period 1,372 5,151
--------- ---------
Cash and cash equivalents, end of period $ 11,453 $ 1,372
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-5-
<PAGE>
JLC LEARNING CORPORATION
Notes to Financial Statements
(Dollars in thousands, except per share data)
- --------------------------------------------------------------------------------
NOTE 1- NATURE OF THE BUSINESS:
JLC Learning Corporation (JLC or the Company), formerly Jostens Learning
Corporation, is a leading provider of technology-based educational programs to
school districts for kindergarten through twelfth grade. JLC is a wholly-owned
subsidiary of Software Systems Corporation (SSC), a wholly-owned subsidiary of
JLC Holdings, Inc. (Holdings).
JLC operates in the educational software industry and has maintained a
leadership position among a multitude of providers. JLC's products and services
include fully integrated software systems, standalone CD ROM delivery,
connection to the Internet and a full service offering including installation,
teacher training, onsite and remote diagnostics and maintenance.
JLC focuses its market efforts in the educational channel, with sales and
service coverage in the United States and several U.S. territories and is
exploring opportunities in international markets. The Company's selling and
distribution efforts include a direct sales force, telemarketing and catalog
sales, The Company also has a small presence in the retail market.
On June 29, 1995, Holdings acquired all of the outstanding stock of JLC from
Jostens, Inc. (Jostens). The acquisition was accounted for under the purchase
method (see Note 16).
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Fiscal Year
The Company changed its fiscal year to a calendar year effective December 31,
1995. Through July 3, 1995, the Company operated on a fifty-two or fifty-three
week fiscal year for financial reporting purposes. Unless otherwise noted,
reference to the six-month period ended December 31, 1995 relates to the period
from July 4, 1995 to December 31, 1995.
Cash and Cash Equivalents
The Company considers all highly liquid financial instruments with maturities at
date of purchase of three months or less to be cash equivalents.
Inventories
Inventories are stated at the lower of cost (first-in, first-out method) or
market.
-6-
<PAGE>
JLC LEARNING CORPORATION
Notes to Financial Statements
(Dollars in thousands, except per share data)
- --------------------------------------------------------------------------------
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (Continued)
Capitalized Computer Software Development Costs
The Company, in accordance with Statement of Financial Accounting Standards
(SFAS) No. 86, "Accounting for the Costs of Computer Software to Be Sold,
Leased, or Otherwise Marketed," capitalizes software development costs by
project commencing when technological feasibility is established and concluding
when the product is ready for release. Software development costs are amortized
on a straight-line basis over five years or the expected life of the product,
whichever is less. Research and development costs are charged to expense as
incurred.
Goodwill and Other Intangible Assets
Goodwill represents the excess of the purchase price over the fair value of the
assets acquired. Goodwill resulting from the acquisition of JLC by Holdings on
June 29, 1995 and the acquisition of Ideal Learning, Inc. (Ideal) discussed in
Note 3 is being amortized on a straight-line basis over 7 years.
In addition to goodwill, intangible assets include the Company's tradename and
workforce in place. The tradename and workforce in place, valued at June 29,
1995 at $5,804 and $3,835, respectively, are being amortized on a straight-line
basis over 3 and 4 years, respectively.
Investments in Equity Securities
The Company has investments in certain equity securities. At December 31, 1996
and 1995, the Company holds investments with a value totaling $2,157. The
Company's investments in equity securities are classified as available-for-sale
and recorded at fair value with unrealized gains or losses reported on a net
basis as a separate component of stockholders' equity until realized. No
unrealized gains or losses are included in stockholders' equity at December 31,
1996 or 1995 as there was no change in the fair market value of these
investments. During 1996, the Company sold one of its investments with a book
value of $0 for $500. In conjunction with the sale, the Company entered into a
royalty agreement with the former investee. The gain on sale of this investment
was deferred and will be recognized over the life of the royalty agreement on a
units-of-production basis.
Deferred Financing Fees
Deferred financing fees relate to the revolving credit agreement (see Note 8)
and the senior subordinated notes (see Note 9) and are being amortized over the
term of the related debt. Amortization for the year ended December 31, 1996 and
the six-month period ended December 31, 1995 approximated $365 and $180,
respectively.
-7-
<PAGE>
JLC LEARNING CORPORATION
Notes to Financial Statements
(Dollars in thousands, except per share data)
- --------------------------------------------------------------------------------
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (Continued)
Fixed Assets
Fixed assets are recorded at cost and depreciated over the estimated useful
lives of the related assets. Depreciation is provided principally on the
straight-line method for financial reporting purposes and on accelerated methods
for income tax purposes. Leasehold improvements are depreciated over the shorter
of their useful life or the lease term.
Revenue Recognition
Revenue is recognized for hardware and software upon shipment of the product,
provided that no significant vendor or post contract support obligations remain
outstanding and collection of the resulting receivable is deemed probable.
Revenue from service contracts, instruction and user training and post-contract
customer support is recognized ratably over the period of the related contract.
The Company accrues all vendor and post-contract obligations remaining at the
time of shipment. Deferred revenue represents the Company's obligation to
perform under signed contracts.
Advertising
Advertising costs are expensed as incurred. Advertising expense totaled $2,279
and $1,865 for the year ended December 31, 1996 and the six-month period ended
December 31, 1995, respectively.
Income Taxes
The Company accounts for income taxes in accordance with SFAS 109, "Accounting
for Income Taxes," which requires the recognition of deferred tax liabilities
and assets for the expected future tax consequences of temporary differences
between the carrying amounts and the tax basis of assets and liabilities.
Use of Estimates
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from these estimates.
-8-
<PAGE>
JLC LEARNING CORPORATION
Notes to Financial Statements
(Dollars in thousands, except per share data)
- --------------------------------------------------------------------------------
NOTE 3 - BUSINESS ACQUISITION:
Effective December 19, 1995, Holdings acquired all of the outstanding stock of
Ideal for $4,100 in cash, a $900 note payable and a warrant to purchase a
specified number of shares of Holdings Common Stock. The acquisition was
accounted for under the purchase method. Goodwill in the amount of $1,713 was
recorded in conjunction with the acquisition of Ideal. Effective July 1, 1996,
the assets and liabilities of Ideal were transferred to JLC. Because the
transfer of assets occurred among entities under common control, the Company has
accounted for the transfer in a manner similar to a pooling of interests and,
accordingly, the Company's financial statements include the historical results
of Ideal from the date of acquisition by Holdings.
NOTE 4 - INVENTORIES:
Inventories are as follows:
December 31,
---------------------
1996 1995
------- -------
Finished products $ 2,380 $ 2,889
Materials and supplies 153 203
------- -------
$ 2,533 $ 3,092
======= =======
NOTE 5 - CAPITALIZED COMPUTER SOFTWARE DEVELOPMENT COSTS:
Capitalized computer software development costs are as follows:
December 31,
--------------------
1996 1995
------- -------
Capitalized software costs $ 36,588 $33,747
Less accumulated amortization (10,083) (2,882)
-------- -------
$ 26,505 $30,865
======== =======
Amortization of capitalized computer software development costs aggregated
$7,201 and $2,839 for the year ended December 31, 1996 and for the six-month
period ended December 31, 1995, respectively. No charges were recorded during
the year ended December 31, 1996 or the six-month period ended December 31, 1995
due to impairment of net realizable value.
-9-
<PAGE>
JLC LEARNING CORPORATION
Notes to Financial Statements
(Dollars in thousands, except per share data)
- --------------------------------------------------------------------------------
NOTE 6 - GOODWILL AND OTHER INTANGIBLE ASSETS:
Goodwill and other intangible assets are as follows:
December 31,
--------------------
1996 1995
------- -------
Tradename $ 5,804 $ 5,804
Workforce in place 3,835 3,835
Goodwill 2,138 2,138
------- -------
11,777 11,777
Less accumulated amortization (5,123) (1,878)
------- -------
$ 6,654 $ 9,899
======= =======
Amortization of goodwill and other intangible assets aggregated $3,245 and
$1,853 for the year ended December 31, 1996 and for the six-month period ended
December 31, 1995, respectively. Amortization charges of approximately $47 and
$356 were recorded for the year ended December 31, 1996 and for the six-month
period ended December 31, 1995, respectively, due to accelerated amortization of
the workforce in place as a result of higher than estimated employee turnover.
NOTE 7 - FIXED ASSETS:
Fixed assets are comprised of the following:
December 31,
Depreciable --------------------
Life 1996 1995
------------ ------- --------
Computer equipment 1 to 3 years $ 8,609 $ 7,963
Warehouse 2 years 261 397
Leasehold improvements 3 to 5 years 559 231
Other furniture and fixtures 2 to 7 years 3,607 3,552
------- -------
13,036 12,143
Less accumulated depreciation (7,495) (2,366)
------- -------
$ 5,541 $ 9,777
======= =======
Depreciation expense aggregated $5,129 and $2,320 for the year ended December
31, 1996 and for the six-month period ended December 31, 1995, respectively.
-10-
<PAGE>
JLC LEARNING CORPORATION
Notes to Financial Statements
(Dollars in thousands, except per share data)
- --------------------------------------------------------------------------------
NOTE 8 - REVOLVING CREDIT AGREEMENT:
On June 29, 1995, the Company entered into a revolving credit agreement with a
maximum loan availability of $40,000 including up to $3,000 of letters of credit
(the Loan Facility). Loans under this agreement are secured by 100% of all
capital or other equity interests of SSC and JLC, as well as accounts
receivable, inventory, fixed assets, intangibles and contract rights of JLC. The
revolving credit agreement is also guaranteed by Holdings and SSC. Interest on
borrowings under the agreement during fiscal 1996 was computed at 1.5% plus the
prime lending rate of the bank acting as agent for the revolving credit
agreement or LIBOR plus 3.0%. The Company is subject to a commitment fee
computed at a rate equal to 1/2% of the daily average unutilized commitment
under the Loan Facility. Interest and the commitment fee are due quarterly. The
Company may prepay the Loan Facility at any time, subject to prepayment fees as
defined in the agreement. The termination date for the revolving line of credit
is the last business day of June 2000. At December 31, 1996, no amounts were
outstanding under this agreement. At December 31, 1995, $10,700 was outstanding
under this agreement.
The revolving credit agreement requires JLC to meet certain operating ratios and
limits, among other things, the Company's indebtedness, dividend payments and
capital expenditures. The Company failed to meet certain covenants during the
year ended December 31, 1996, but obtained waivers from the lenders. As of
December 31, 1996, the Company believes it is in compliance with all applicable
covenants.
NOTE 9 - LONG-TERM DEBT:
Senior Subordinated Notes
On June 29, 1995, the Company entered into a senior subordinated note purchase
agreement whereby the Company borrowed a total of $17,000 from two lending
institutions under note agreements which bear interest at 12.25% and mature on
the last business day of June 2002. Interest is payable quarterly. The notes are
secured by the same collateral as the $40,000 revolving credit agreement (see
Note 8) and are guaranteed by Holdings.
The agreement requires the Company to meet certain operating ratios and limits,
among other things, the Company's indebtedness and dividend payments. The
Company failed to meet certain covenants during the year ended December 31,
1996, but obtained waivers from the lenders. As of December 31, 1996, the
Company believes it is in compliance with all applicable covenants.
In connection with the issuance of the note agreements, the lending institutions
each received warrants to acquire a specified number of shares of Holdings
Common Stock. The value ascribed to the warrants of $1,260 was recorded as a
discount from the face value of the debt and is being amortized over the term of
the Senior Subordinated Notes. The unamortized discount on the Senior
Subordinated Notes totaled $980 and $1,250 at December 31, 1996 and 1995,
respectively.
-11-
<PAGE>
JLC LEARNING CORPORATION
Notes to Financial Statements
(Dollars in thousands, except per share data)
- --------------------------------------------------------------------------------
NOTE 10 - LEASE OBLIGATIONS, COMMITMENTS AND CONTINGENCIES:
The Company has operating leases for office and warehouse space that include
remaining noncancelable minimum rental commitments as follows:
Year ending December 31: Amount
----------
1997 $ 3,926
1998 3,273
1999 2,226
2000 2,271
2001 1,267
Thereafter 453
-------
Total minimum lease payments 13,416
Total minimum noncancelable sublease rentals (1,004)
-------
$12,412
=======
Rent expense for all operating leases aggregated $3,843, net of sublease rentals
of $611, for the year ended December 31, 1996 and $1,924, net of sublease
rentals of $201, for the six-month period ended December 31, 1995, respectively.
The Company is a party to litigation arising in the normal course of business.
Management regularly analyzes current information and, as necessary, provides
accruals for probable liabilities on the eventual disposition of these matters.
Management believes that the effect on the Company's results of operations and
financial position, if any, for the disposition of these matters, will not be
material.
NOTE 11 - ROYALTY AGREEMENTS:
The Company has commitments for minimum guaranteed royalties under various
software license agreements which are payable over periods ranging from three to
five years. The software under license has been or will be integrated with the
Company's existing software. Minimum future obligations under these royalty
agreements are as follows:
Year ending December 31: Amount
-----------
1997 $ 400
1998 3,030
1999 1,050
2000 450
---------
Total minimum royalty payments $ 4,930
=========
-12-
<PAGE>
JLC LEARNING CORPORATION
Notes to Financial Statements
(Dollars in thousands, except per share data)
- --------------------------------------------------------------------------------
NOTE 11 - ROYALTY AGREEMENTS: (Continued)
The Company has prepaid royalties associated with these license agreements
totaling $1,150 at December 31, 1996. The prepaid royalties will be amortized on
a units-of-products basis.
NOTE 12 - INCOME TAXES:
Due to losses incurred from operations, the Company has no provision for income
tax for the year ended December 31, 1996 or for the six-month period ended
December 31, 1995.
Significant components of the deferred tax balances are:
December 31, 1996 December 31, 1995
---------------------- ---------------------
Current Non-Current Current Non-Current
Assets Assets Assets Assets
--------- ------------ ------- -----------
Depreciation and amortization $ -- $ 6,153 $ -- $ 2,670
Net operating loss carryovers 9,074 3,274
Accrued expenses 1,416 200 1,383 400
Other 325 6 114 6
Valuation allowance (1,741) (15,433) (1,497) (6,350)
------- -------- ------- --------
$ -- $ -- $ -- $ --
======= ======== ======= ========
Management has determined, based on the Company's history of prior operating
losses and its expectations for the future, that a full valuation allowance for
deferred tax assets should be provided at December 31, 1996 and 1995.
NOTE 13 - RELATED PARTY TRANSACTIONS:
Bain Capital Partners IV, L.P. (Bain), an affiliate of certain shareholders,
provides management and advisory services to the Company and Holdings.
Approximately $427 of fees paid to Bain for the year ended December 31, 1996
were included as issuance costs of the Class A and Class B Preferred Stock (see
Notes 14 and 15). Additionally, $46 of fees for out-of-pocket expenses were paid
to Bain during the year ended December 31, 1996.
-13-
<PAGE>
JLC LEARNING CORPORATION
Notes to Financial Statements
(Dollars in thousand,, except per share data)
- --------------------------------------------------------------------------------
NOTE 13 - RELATED PARTY TRANSACTIONS: (Continued)
At December 31, 1996 and 1995, the Company had outstanding a note receivable
from Jostens in the amount of $350 and $7,350, respectively, related to certain
liabilities which existed at the date of acquisition. Also included in amounts
due from related parties at December 31, 1996 is $120 due from an investor in
conjunction with the issuance of the Class A Preferred Stock and $877 of
intercompany amounts due from Holdings.
In conjunction with the issuance of the Class A Preferred Stock, the Company
entered into a consulting arrangement with an investor. The arrangement provides
for $500 per year to be paid to the investor for consulting services through
November 1, 1999. At December 31, 1996, $416 was included in prepaid expenses
and the statement of operations reflects $84 in consulting expenses for the year
ended December 31, 1996 related to this arrangement. In addition to the
consulting arrangement, the Company entered into a sales and marketing agreement
whereby the Company would sell product to the investor at a discount.
Approximately $192 in sales were made to this investor during the year ended
December 31, 1996.
Included in other noncurrent accrued liabilities at December 31, 1996 and 1995
is $341 and $560, respectively, representing the noncurrent portion of a note
payable to Jostens related to settlement of intercompany transactions. Also
included in other noncurrent accrued liabilities at December 31, 1996 is $350
related to the consulting arrangement described above.
Included in due to related parties at December 31, 1996 is the current portion
of the note payable to Jostens of $220 as well as $150 related to the consulting
arrangement described above. Included in due to related parties at December 31,
1995 are payroll amounts paid on behalf of JLC by Jostens, totaling
approximately $7,430, the current portion of the note payable to Jostens of $220
and $280 of intercompany amounts due to Holdings.
NOTE 14 - MANDATORILY REDEEMABLE PREFERRED STOCK:
On December 19, 1996, the Company issued 10,000 shares of $.01 par value Class B
Preferred Stock and recorded the stock at $10,000 less issuance costs of
approximately $900, its fair value on date of issuance. These shares represent
all of the authorized shares of Class B Preferred Stock. JLC is required to
redeem all outstanding shares of Class B Preferred Stock, at a redemption price
of $1,000 per share plus any accrued and unpaid dividends, by December 19, 2008.
Holders of Class B Preferred Stock have no voting rights, are entitled to a
preferential distribution of $1,000 per share plus accrued and unpaid dividends
in the event of a liquidation, and are entitled to annual dividends of $100 per
share until the Company redeems the stock. The stock will be accreted to its
redemption value through charges to paid-in-capital.
-14-
<PAGE>
JLC LEARNING CORPORATION
Notes to Financial Statements
(Dollars in thousands, except per share data)
- --------------------------------------------------------------------------------
NOTE 15 - STOCKHOLDERS' EQUITY:
On November 1, 1996, the Company issued 20,000 shares of $.01 par value Class A
Preferred Stock for $20,000 less issuance costs of $1,835. In conjunction with
the issuance of the Class A Preferred Stock, $100 was paid to Holdings for a
warrant to purchase a specified number of shares of Holdings Common Stock.
Concurrent with the sale of the warrant, Holdings contributed the proceeds
received to JLC.
The authorized redeemable preferred stock and common stock of the Company
consists of 20,000 shares of $.01 par value Class A Preferred Stock and 120,565
shares of $.001 par value Class A Common Stock. At December 31, 1996 and 1995,
1,000 shares of the Class A Common Stock were issued and outstanding. All
outstanding shares of Class A Common Stock are held by SSC. At December 31,
1996, all 20,000 shares of the Class A Preferred Stock were issued and
outstanding. No preferred shares were authorized, issued or outstanding at
December 31, 1995. Holders of Class A Common stock are entitled to one vote per
share. Holders of Class A Preferred Stock have no voting rights. In the event of
a liquidation of the Company, holders of Class A Preferred Stock are entitled to
a preferential distribution of $1,000 per share plus accrued and unpaid
dividends. Distribution amounts in excess of the Class A and Class B preferred
stock distribution preference are to be distributed ratably to all of the Class
A common shareholders. The Company, at its option, may redeem all the shares of
Class A Preferred Stock at a redemption price of $1,000 per share plus any
accrued and unpaid dividends. Holders of Class A Preferred Stock are entitled to
annual dividends of $100 per share.
Included in paid-in capital of JLC is $40,000 in debt payable by SSC to the
Company's former parent, Jostens, as part of the purchase consideration. Such
debt is not payable by JLC, guaranteed by JLC nor subject to repayment from the
proceeds of any future equity transactions of JLC.
NOTE 16 - UNALLOCATED PURCHASE CONSIDERATION:
In conjunction with the acquisition of JLC by Holdings on June 29, 1995,
warrants and an exchangeable note issued to Jostens allowed the former parent to
acquire up to a 30.7% interest in Holdings. Accordingly, 69.3% of the purchase
consideration was allocated to the assets acquired and liabilities assumed at
their respective fair values, with the remainder allocated at Jostens' book
value as of the date of acquisition. The application of the purchase method
resulted in an allocation of the excess purchase consideration over historical
carryover basis of Jostens ("unallocated purchase consideration") of
approximately $17,981.
-15-
<PAGE>
JLC LEARNING CORPORATION
Notes to Financial Statements
(Dollars in thousands, except per share data)
- --------------------------------------------------------------------------------
NOTE 17 - EMPLOYEE BENEFIT PLANS:
Stock Option Plan
Certain JLC employees, consultants or advisors are eligible to participate in
the Stock Option Plan (the Plan) adopted by the Board of Directors of Holdings
in August 1996. The Board of Directors of Holdings determines the award date,
the number of shares subject to each award and the exercise price of each
option. Awards are categorized as either basic options or performance options,
as defined in the Plan. Options issued in 1996 vest over a five-year period.
Basic options and performance options expire 10 years and 7 years, respectively,
from the date of grant.
Holdings has adopted the disclosure-only provisions of Statement of Financial
Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation"
at December 31, 1996. Accordingly, no compensation cost has been recognized for
the stock option plans. Had compensation cost for the Holdings' Stock Option
Plan been determined based on the fair value at the grant date for awards
consistent with the provisions of SFAS No. 123, the financial impact to JLC
would have been immaterial.
401(k) Retirement Plan
The Company has a retirement savings plan covering substantially all eligible
employees. The plan provides for discretionary matching contributions by the
Company, limited to eligible contributions by employees. The Company's
contribution to the plan for the period ended December 31, 1996 was $350.
-16-
<PAGE>
JLC LEARNING CORPORATION
Notes to Financial Statements
(Dollars in thousands, except per share data)
- --------------------------------------------------------------------------------
NOTE 18 - SUPPLEMENTAL CASH FLOW INFORMATION:
Supplemental disclosures of cash flow information:
For the six-
For the year month period
ended ended
December 31, December 31,
1996 1995
------------ -------------
Cash paid during the period for interest $ 4,686 $ 1,113
======= =======
Cash paid during the period for income taxes $ 127 $ --
======= =======
Supplemental schedule of noncash investing and remaining activities:
Holdings purchased certain assets of Ideal for a total purchase price of $5,000.
In conjunction with the acquisition, liabilities were assumed as follows (in
thousands):
Fair value of assets acquired $ 5,746
Less cash paid for stock of Ideal (4,100)
-------
Liabilities assumed $ 1,646
=======
-17-
<PAGE>
DRAFT
JLC LEARNING
CORPORATION
Financial Statements
December 31, 1998 and 1997
<PAGE>
DRAFT
Report of Independent Accountants
February __, 1999
To the Board of Directors and Shareholders of
JLC Learning Corporation
In our opinion, the accompanying balance sheet and the related statements of
operations, stockholders' deficit and cash flows present fairly, in all material
respects, the financial position of JLC Learning Corporation at December 31,
1998 and 1997, and the results of its operations and its cash flows for the
years then ended in conformity with generally accepted accounting principles.
These financial statements are the responsibility of JLC Learning Corporation's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern As discussed in Note 1 to the financial
statements, the Company is not in compliance with certain covenants required by
the subordinated notes. In the event that the holders demand payment of the
notes and the Company is not able to obtain suitable alternative financing,
there is substantial doubt about the Company's ability to continue as a going
concern Management's plans in regard to this matter are also described in Note
1. The financial statements do not include any adjustments that might result
from the outcome of this uncertainty.
<PAGE>
JLC LEARNING CORPORATION DRAFT
Balance Sheet - (in thousands except share and per share data)
December 31, 1998 and 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $ -- $ 860
Accounts receivable, less allowance of $1,327 and $2,393, respectively 21,877 29,440
Inventories 1,011 1,050
Prepaid expenses 2,629 1,238
Investment in equity securities 314 --
--------- ---------
Total current assets 25,831 32,588
Other assets
Software development costs, net 2,690 4,879
Intangible assets, net 959 1,204
Deferred financing fees, net 859 --
Fixed assets, net 2,090 3,145
--------- ---------
Total assets $ 32,429 $ 41,816
========= =========
Liabilities and Stockholders' Deficit
Current liabilities
Accounts payable $ 2,678 $ 2,817
Due to related parties 955 1,070
Salaries and related items 6,005 5,388
Other accrued liabilities 10,112 8,976
--------- ---------
19,750 18,251
Deferred revenue 21,253 25,648
Revolving line of credit 2,238 8,500
Senior subordinated debt 17,000 17,000
--------- ---------
Total current liabilities 60,241 69,399
Non-current portion of deferred revenue 1,723 3,873
Non-current portion of due to related parties 2,901 712
Non-current other accrued liabilities 293 898
Term note payable to bank 7,500 --
--------- ---------
Total liabilities 72,658 74,882
--------- ---------
Stockholder's' deficit
Mandatorily redeemable preferred stock, $0.01 par value, 10,000 shares
authorized, issued and outstanding ($11,230 and
$10,153 liquidation preference, respectively) 11,230 10,153
Redeemable preferred stock, $.01 par value, 20,000 shares authorized,
issued and outstanding -- --
Common stock, $.001 par value, 120,565,000 shares authorized,
1,000 shares issued and outstanding -- --
Additional paid-in capital 75,803 75,803
Accumulated deficit (109,595) (101,041)
Unallocated purchase consideration (17,981) (17,981)
Accumulated other comprehensive income 314 --
--------- ---------
Total stockholders' deficit (40,229) (33,066)
--------- ---------
Total liabilities and stockholders' deficit $ 32,429 $ 41,816
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
- 2 -
<PAGE>
JLC LEARNING CORPORATION DRAFT
Statement of Operations - (in thousands)
Years Ended December 31, 1998 and 1997
- --------------------------------------------------------------------------------
1998 1997
Net revenue
Software $ 31,422 $ 29,159
Service 33,935 36,029
Hardware 4,014 6,624
-------- --------
69,371 71,812
-------- --------
Cost of products sold
Software 7,050 30,435
Service 19,235 23,399
Hardware 3,229 5,550
-------- --------
29,514 59,384
-------- --------
Gross profit 39,857 12,428
-------- --------
Selling and administrative expenses
Sales and marketing 24,097 31,357
Research and development 8,022 11,177
General and administrative 7,705 13,508
Amortization of intangibles 245 5,449
Restructuring 2,012 --
-------- --------
43,081 61,491
-------- --------
Loss from operations (3,224) (49,063)
Interest expense (4,286) (5,013)
Other income (expense) 33 (2,128)
-------- --------
Loss before income taxes (7,477) (56,204)
Income tax expense -- --
-------- --------
Net loss $ (7,477) $(56,204)
======== ========
The accompanying notes are an integral part of these financial statements.
- 3 -
<PAGE>
JLC LEARNING CORPORATION DRAFT
Statement of Stockholders' Deficit - (in thousands except share data)
Years Ended December 31, 1998 and 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Mandatorily Redeemable
Preferred Stock Preferred Stock Common Stock Additional
--------------- ---------------- ----------------- Paid-in Accumulated
Shares $ Shares $ Shares $ Capital Deficit
------ ------- ------ -------- ------- -------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 10,000 $ 9,076 20,000 $ -- $ 1,000 $ -- $75,803 $ (43,760)
Accrued dividends on
mandatorily redeemable
preferred stock 1,000 (1,000)
Accretion of stock issuance
costs and related
discount 77 (77)
Net loss for the year ended
December 31, 1997 (56,204)
------ ------- ------ -------- ------- -------- ------- ---------
Balance at December 31, 1997 10,000 10,153 20,000 -- 1,000 -- $75,803 (101,041)
Accrued dividends on
mandatorily redeemable
preferred stock 1,000 (1,000)
Accretion of stock issuance
costs and related
discount 77 (77)
Comprehensive income (loss)
Net loss for the year ended
December 31, 1998 (7,477)
Unrealized gain on
available for sale
securities
Total Comprehensive
income (loss)
------ ------- ------ -------- ------- -------- ------- ---------
Balance at December 31, 1998 10,000 $11,230 20,000 $ -- $ 1,000 $ -- $75,803 $(109,595)
====== ======= ====== ======== ======= ======== ======= =========
<CAPTION>
Accumulated
Unallocated Other
Purchase Comprehensive
Consideration Income Total
------------- ------------- -----
<S> <C> <C> <C>
Balance at December 31, 1996 $(17,981) $ -- $ 23,138
Accrued dividends on
mandatorily redeemable
preferred stock
Accretion of stock issuance
costs and related
discount
Net loss for the year ended
December 31, 1997 (56,204)
-------- --------- --------
Balance at December 31, 1997 (17,981) (33,066)
Accrued dividends on
mandatorily redeemable
preferred stock
Accretion of stock issuance
costs and related
discount
Comprehensive income (loss)
Net loss for the year ended
December 31, 1998 (7,477)
Unrealized gain on
available for sale
securities 314 314
--------- --------
Total Comprehensive
income (loss) 314 (7,163)
-------- --------- --------
Balance at December 31, 1998 $(17,981) $ 314 $(40,229)
======== ========= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
- 4 -
<PAGE>
JLC LEARNING CORPORATION DRAFT
Statement of Cash Flows - (in thousands)
Years Ended December 31, 1998 and 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Cash flows used in operating activities
Net loss $ (7,477) $(56,204)
Adjustments to reconcile net loss to net cash used in
operating activities
Depreciation and amortization 4,025 33,733
Impairment of investments in equity securities -- 2,157
Amortization of deferred financing fees 286 1,322
Amortization of debt discount -- 980
Changes in assets and liabilities
Decrease in accounts receivable 7,563 5,348
Decrease in inventories 39 1,483
Decrease in prepaid expenses 220 2,872
Decrease in accounts payable (139) (1,120)
Increase (decrease) in due to related parties (15) 700
Increase in salaries and related items 617 12
Decrease in current and noncurrent deferred revenue (6,545) (2,333)
Increase (decrease) in current and noncurrent
accrued liabilities 1,171 (3,603)
-------- --------
Net cash used in operating activities (255) (14,653)
-------- --------
Cash flows used in investing activities:
Capital expenditures (536) (1,136)
Software development costs capitalized -- (3,125)
-------- --------
Net cash used in investing activities (536) (4,261)
-------- --------
Cash flows provided by (used in) financing activities:
Decrease in due to former parent (162) (179)
Repayments of borrowings on revolving line of credit (65,552) (14,300)
Proceeds from revolving line of credit, net of
financing fees of $1,145 in 1998 66,645 22,800
Retirement of previous line of credit, net (8,500) --
Borrowings on long-term note payable to bank 7,500 --
-------- --------
Net cash provided by (used in)
financing activities (69) 8,321
-------- --------
Decreases in cash and cash equivalents (860) (10,593)
Cash and cash equivalents, beginning of period 860 11,453
-------- --------
Cash and cash equivalents, end of period $ -- $ 860
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
- 5 -
<PAGE>
JLC LEARNING CORPORATION DRAFT
Notes to Financial Statements
(Dollars in thousands, except share and per share data)
- --------------------------------------------------------------------------------
1. Nature of the Business
JLC Learning Corporation (JLC or the Company), doing business as Jostens
Learning, is a leading provider of technology-based educational programs
to school districts for kindergarten through twelfth grade JLC is a
wholly-owned subsidiary of Software Systems Corporation (SSC), a
wholly-owned subsidiary of JLC Holdings, Inc. (Holdings).
JLC operates in the education software industry and has maintained a
leadership position among a multitude of providers. JLC's products and
services include full integrated software systems, standalone CD ROM
delivery, connection to the Internet and a full service offering,
including installation, teacher training, onsite and remote diagnostics
and maintenance.
JLC focuses its market efforts in the educational channel, with sales and
service coverage in the United Stares and several U.S. territories and is
exploring opportunities in international markets. The Company's selling
and distribution efforts include a direct sales force, telemarketing and
catalog sales.
For the years ended December 31, 1998 and 1997, the Company reported a
$7,477 and a $56,204 net loss, respectively. In addition, the Company is
in violation of certain financial covenants in connection with its Senior
Subordinated Debt, and has failed to make quarterly interest payments due
on December 31, 1997 and for each of the four quarters in 1998 on this
debt. Accordingly, the entire amount outstanding under the Senior
Subordinated Debt has been classified as a current liability. The Company
has retained outside consultants to render advice regarding various
alternatives available to the Company. These efforts have resulted in the
Company restructuring its operations in July 1998 (see Note 19) and the
development by the Company of a strategy to address the Company's current
financial situation. This strategy involves restructuring current debt,
evaluating raising funds through new investors and improving operating
performance. There can be no assurance that the Company will obtain the
financing, or achieve the cost reductions required for the Company to
continue its operations. These financial statements do not include any
adjustments that might result form the outcome of this uncertainty.
2. Summary of Significant Accounting Policies
Cash and Cash Equivalents
The Company considers all highly liquid financial instruments with
maturities of three months or less at date of purchase to be cash
equivalents.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined
on the first-in, first-out (FIFO) basis.
- 6 -
<PAGE>
JLC LEARNING CORPORATION DRAFT
Notes to Financial Statements
(Dollars in thousands, except share and per share data)
- --------------------------------------------------------------------------------
2. Summary of Significant Accounting Policies (Continued)
Software Development Costs
The Company, in accordance with Statement of Financial Accounting
Standards (SFAS) No. 86, "Accounting for the Costs of Computer Software to
Be Sold, Leased, or Otherwise Marketed," capitalizes software development
costs by project commencing when technological feasibility is established
and concluding when the product is ready for release. Software development
costs are amortized on a straight-line basis over five years or the
expected life of the product, whichever is less. The Company periodically
evaluates the net realizable value of capitalized software development
costs based on factors such as budgeted sales, product development cycles
and management's market emphasis. Research and development costs are
charged to expense when incurred.
Intangible Assets
Intangible assets include goodwill. Goodwill represents the excess of the
purchase price over the fair value of assets acquired and is being
amortized over seven years. Impairment of intangible assets, if any, is
measured periodically on the basis of whether anticipated undiscounted
operating cash flows generated by the acquired businesses will recover the
recorded net goodwill balances over the remaining amortization period.
Investments in Equity Securities
The Company classifies its investments in marketable securities as
available-for-sale. Accordingly, investments are recorded at fair value
with unrealized gains or losses, net of the related tax effect, excluded
form income and reported as a separate component of stockholders' equity
(deficit) until realized. A loss included in other expense of $2,157 was
realized on investments in 1997 due to what was considered a nontemporary
decline in fair value. During 1998, pursuant to a business combination
involving the Company's investee, the investment which was written down to
zero in 1997 was exchanged for shares of a publicly traded company. The
unrealized gain of $314 at December 31, 1998 and 1997 unrealized gain of
$314 at December 31, 1998 reflects the market value of this investment.
There were no realized gains or losses in 1998.
Deferred Financing Fees
Deferred financing fees are direct costs paid by the Company in connection
with their revolving credit agreement (see Note 7). These costs are being
amortized over the term of the related debt Amortization for the years
ended December 31, 1998 and 1997 approximated $286 and $1,322,
respectively. Included in amortization for the year ended December 31,
1997 were accelerated amortization charges of $1,047.
Fixed Assets
Fixed assets are recorded at cost and depreciated over the estimated
useful lives of the related assets. Depreciation is provided principally
on the straight-line method for financial reporting purposes and on
accelerated methods for income tax purposes. Leasehold improvements are
depreciated over the shorter of their useful life or the lease term.
- 7 -
<PAGE>
JLC LEARNING CORPORATION DRAFT
Notes to Financial Statements
(Dollars in thousands, except share and per share data)
- --------------------------------------------------------------------------------
2. Summary of Significant Accounting Policies (Continued)
Revenue Recognition
The Company adopted the provisions of Statement of Position 97-2 (SOP
97-2) "Software Revenue Recognition," as amended by Statement of Position
98-4. Deferral of the Effective Date of Certain Provisions of SOP 97-2,"
effective January 1, 1998 SOP 97-2 supersedes Statement of Position 91-1,
"Software Revenue Recognition," and delineates the accounting for software
product and maintenance revenue. Under SOP 97-2, the Company recognizes
revenue for hardware and software sales upon shipment of the product
provided collection of the resulting receivable is deemed probable.
Revenue from service contracts, instruction and user training and
post-contract customer support is recognized ratably over the period of
the related contract. Deferred revenue represents the Company's
obligation to perform under signed contracts.
For contracts with multiple obligations (e.g. deliverable and
undeliverable products, maintenance and other services,) the Company
allocates revenue to each component of the contract based on objective
evidence of its fair value, which is specific to the Company, or for
products not being sold separately, the price established by management.
The Company recognizes revenue allocated to undelivered products when the
criteria for product revenue set forth above are met.
Advertising
Advertising costs are expensed as incurred. Advertising expense totaled
$705 and 1,832 for the years ended December 31, 1998 and 1997,
respectively.
Income Taxes
The Company accounts for income taxes in accordance with SFAS 109,
"Accounting for Income Taxes," which requires the recognition of deferred
tax liabilities and assets for the expected future tax consequences of
temporary differences between the carrying amounts and the tax basis of
assets and liabilities. A valuation allowance is required to offset any
net deferred tax assets if, based upon the available evidence, it is more
likely than not that some or all of the deferred tax asset will not be
realized.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from these
estimates.
Comprehensive Income
The Company adopted SFAS No 130, "Reporting Comprehensive Income" for the
year ended December 31, 1998. SFAS 130 requires the Company to measure and
disclose all elements of comprehensive income that result from recognized
transactions and other events in the financial statements. Accordingly,
the Company has reported unrealized gains on marketable securities as a
separate component of stockholders' deficit.
- 8 -
<PAGE>
JLC LEARNING CORPORATION DRAFT
Notes to Financial Statements
(Dollars in thousands, except share and per share data)
- --------------------------------------------------------------------------------
3. Inventories
Inventories are as follows
----------------------
December 31,
----------------------
1998 1997
------ -------
Finished products $ 836 $ 862
Materials and supplies 175 188
------ -------
$1,011 1,050
------ -------
4. Software Development Costs
Software development costs are as follows
----------------------
December 31,
----------------------
1998 1997
-------- --------
Capitalized software costs $ 39,713 $ 39,713
Less accumulated amortization (37,023) (34,834)
-------- --------
$ 2,690 $ 4,879
-------- --------
Amortization of capitalized computer software development costs are
included in cost of products sold and aggregated $2,189 and $24,751 for
the years ended December 31, 1993 and 1997, respectively. Included in
amortization of capitalized computer software development costs for the
year ended December 31, 1997 were accelerated amortization charges of
$17,269 for the reduction of certain capitalized costs to their net
realizable value due to a change in the Company" product focus.
Accelerated amortization charges in 1998 were not material.
5. Intangible Assets
Intangible assets are as follows:
----------------------
December 31,
----------------------
1998 1997
------ ------
Goodwill, Ideal $1,178 $1,178
Less accumulated amortization (759) (514)
------ ------
$ 959 $1,204
------ ------
Goodwill amounts at December 31, 1998 and 1997 are a result of the
Company's acquisition of Ideal Learning, Inc. (Ideal) which took place in
1995.
Amortization expense related to intangible assets was $245 and $3,035 for
the years ended December 31, 1998 and 1997, respectively. Included in
amortization for the year ended December 31, 1997 were accelerated
amortization charges of approximately $2,415. These charges were a result
of an impairment of the trade name, workforce in place, and goodwill
assets, which had been established as a result of the original acquisition
of the Company by Holdings, due to a change in the Company's product
focus.
- 9 -
<PAGE>
JLC LEARNING CORPORATION DRAFT
Notes to Financial Statements
(Dollars in thousands, except share and per share data)
- --------------------------------------------------------------------------------
6. Fixed Assets
Fixed assets are comprised of the following
December 31,
Depreciable --------------------
Life 1998 1997
----------- ------- -------
Computer equipment 1 to 3 years $ 2,914 $ 8,644
Warehouse equipment 1 to 3 years 60 181
Leasehold improvements 3 to 5 years 252 349
Other furniture and fixtures 2 to 7 years 2,012 3,298
------- -------
5,238 12,472
Less accumulated depreciation (3,148) (9,327)
------- -------
$ 2,090 $ 3,145
------- -------
Depreciation expense aggregated $1,591 and $3,532 for the years ended
December 31, 1998 and 1997, respectively. In 1998 the Company wrote off
$7,852 of fully depreciated fixed assets which are no longer in use.
7. Revolving Credit Agreement
On June 29, 1995, the Company entered into a revolving credit agreement
with a maximum loan availability of $40,000, including up to $3,000 of
letters of credit (the Loan Facility). Borrowings outstanding under this
agreement at December 31, 1997 were $8,500. The original termination date
for the revolving line of credit was the last business day of June 2000,
however in March 1998, the Company paid all outstanding amounts under this
agreement and terminated the Loan Facility.
In March 1998, the Company entered into a new loan facility which includes
a new revolving line of credit agreement with a maximum loan availability
of $20,000, including up to $2,000 of letters of credit and a term loan of
$7,500 (see Note 9). Advances on the line of credit are limited to the
lesser of 75% of eligible billed accounts plus 40% of eligible unbilled
accounts or $2,000, whichever is less, and the amount collected on
accounts by the Company for a defined period immediately preceding the
advance. Loans under this agreement are secured by 100% of all capital or
other equity interests, as well as accounts receivable, inventory, fixed
assets, intangibles and contract rights. Interest is computed at 0.0875%
to 2.75%, depending on the amount outstanding, plus the prime lending rate
as most recently announced by Norwest Bank Minnesota, NA and at a minimum,
a rate of 9%. At December 31, 1998 the minimum rate was being used. The
agreement described above contains certain restrictive covenants, which
includes requiring the Company to meet certain profitability levels and to
maintain a certain tangible net worth. The new line of credit agreement
matures in March 2001. Borrowings outstanding under this line of credit
agreement at December 31, 1998 were $2,238. The fair value of the line of
credit obligation at December 31, 1998 approximates book value.
- 10 -
<PAGE>
JLC LEARNING CORPORATION DRAFT
Notes to Financial Statements
(Dollars in thousands, except share and per share data)
- --------------------------------------------------------------------------------
8. Senior Subordinated Notes
On June 29, 1995, the Company entered into a senior subordinated note
purchase agreement whereby the Company borrowed a total of $17,000 from
two lending institutions under note agreements which bear interest at
12.25% and mature on the last business day of June 2002 Interest is
payable quarterly. The notes are secured by the same collateral as the
$20,000 revolving credit agreement (see Note 7) and are guaranteed by
Holdings.
The agreements require the Company to meet certain operating ratios and
limits. The Company failed to meet certain covenants during the years
ended December 31, 1998 and 1997. In addition, the Company failed to make
quarterly interest payments due on December 31, 1997 and for each of the
four quarters in 1998. Accordingly, amounts outstanding under the senior
subordinated notes have been classified as current liabilities at December
31, 1998 and 1997. The fair value of the Senior Subordinated notes at
December 31, 1998 is not estimable.
In connection with the issuance of the note agreements, the lending
institutions each received warrants to acquire a specified number of
shares of Holdings Common Stock. The value ascribed to the warrants of
approximately $1,260 was recorded as a discount from the face value of the
debt and was being amortized over the term of the Senior Subordinated
Notes. During 1997, the Company accelerated the amortization on the
warrants due to an impairment in the value.
During 1998, a holder of a portion of the Company's Senior Subordinated
notes transferred all of its interest in the notes to a third party. All
terms and conditions of the original note agreement remained the same. The
new note holder is an affiliate of the outside consultant that is
assisting in exploring and obtaining additional funding for the Company
(see Note 13).
9. Term Note Payable to Bank
In March 1998, in connection with a new loan facility (see Note 7) the
Company obtained a term loan in the amount of $7,500, which matures in
March 2000. The term loan is secured by 100% of all capital or other
equity interests, as well as accounts receivable, inventory, fixed assets,
intangibles and contract rights. The term loan bears interest at 13.0% up
to February 1, 1999 and at 15% thereafter. The loan agreement contains
certain restrictive covenants which are consistent with those described in
Note 7. The fair value of the term loan at December 31, 1998 approximates
book value.
10. Lease Obligations, Commitments and Contingencies
The Company has operating leases for office and warehouse space that
include remaining noncancelable minimum rental commitments as follows:
- 11 -
<PAGE>
JLC LEARNING CORPORATION
Notes to Financial Statements
(Dollars in thousands, except share and per share data)
- --------------------------------------------------------------------------------
10. Lease Obligations, Commitments and Contingencies (Continued)
Year ending December 31 Amount
--------
1999 $ 3,485
2000 3,159
2001 2,098
2002 1,370
2003 600
--------
Total minimum lease payments 10,712
Total minimum noncancelable sublease rentals (330)
--------
$ 10,382
========
Of the $10,382 minimum rental commitments net of sublease rentals, $1,005
has been accrued in the accompanying balance sheet at December 31, 1998 as
they represent excess space liabilities a portion of which are a result of
the Company's restructuring activities (see Note 19).
Rent expense for all operating leases aggregated $2,136 and $3,506, net
of sublease rentals of $447 and $647, for the years ended December 31,
1998 and 1997, respectively.
The Company is a party to litigation arising in the normal course of
business. Management regularly analyzes current information and, as
necessary, provides accruals for probable liabilities on the eventual
disposition of these matters. Management believes that the effect on the
Company's results of operations and financial position, if any, for the
disposition of these matters, will not be material.
11. Royalty Agreements
At December 31, 1998 the Company had a minimum guaranteed royalty
commitment under a software license agreement of $900 and $450 for the
years ended December 31, 1999 and 2000, respectively, which have been
accrued in the accompanying balance sheet at December 31, 1998
In June 1998, JLC restructured a significant software license agreement
with a third party JLC returned investment securities valued at $2,285 by
the third party and also accepted reduced rights under the license
agreement in order to settle $5,500 in minimum future royalty obligations
which JLC owed. JLC retained the right to sell product from this third
party through 2001. JLC has remaining prepaid royalties with respect to
this license agreement of $2,700 with a net carrying value of $1,420 as of
December 31, 1998 to be amortized on a units-of-production basis.
12. Income Taxes
Due to losses incurred from operations, the Company has no provision for
income tax for the years ended December 31, 1998 and 1997
- 12 -
<PAGE>
JLC LEARNING CORPORATION
Notes to Financial Statements
(Dollars in thousands, except share and per share data)
- --------------------------------------------------------------------------------
12. Income Taxes (Continued)
Significant components of the deferred tax balances are
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
-------------------- --------------------
Non- Non-
Current current Current current
Assets Assets Assets Assets
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Depreciation and amortization $ -- $ 14,478 $ -- $ 15,080
Net operating loss carryovers -- 21,730 -- 18,940
Accrued expenses 689 -- 273 102
Other 53 16 130 16
Valuation allowance (741) (36,223) (403) (34,138)
-------- -------- -------- --------
$ -- $ -- $ -- $ --
======== ======== ======== ========
</TABLE>
In assessing the realizability of its deferred tax assets, the Company
considers whether it is more likely than not that some or all of such
assets will be realized. As a result of historical operating losses, the
Company has fully reserved its net deferred tax assets as of December 31,
1998 and 1997. The Company will consider release of the valuation
allowance once profitable operations have been sustained.
As of December 31, 1998, the Company had net operating loss carryforwards
of approximately $63,900, which will begin to expire in 2010. Past and
future transactions in the Company's stock could result in restrictions on
the Company's ability to utilize its net operating loss carryforwards
pursuant to Section 382 (g) of the Internal Revenue Code.
13. Related Party Transactions
The Company benefited from a management and advisory services agreement
between Holdings and an affiliate of Holdings' shareholders. Out-of-pocket
expenses were paid to this affiliate of $25 and $50 during the years ended
December 31, 1998 and 1997, respectively.
In conjunction with the issuance of the Class A Preferred Stock, the
Company entered into a consulting arrangement with an investor. The
arrangement provided for $500 per year to be paid to the investor for
consulting services through November 1999. At December 31, 1998 and 1997,
prepaid consulting fees of $417 and $458, respectively, were included in
prepaid expenses and the Company incurred consulting expenses of $499 and
$459 for the years ended December 31, 1998 and 1997, respectively,
relating to this arrangement. Amounts due to this investor for consulting
fees at December 31, 1998 and 1997 are $1,400. The current portion of
these amounts at December 31, 1998 and 1997 are $750 and $850,
respectively, and are included in due to related parties.
- 13 -
<PAGE>
JLC LEARNING CORPORATION
Notes to Financial Statements
(Dollars in thousands, except share and per share data)
- --------------------------------------------------------------------------------
13. Related Party Transactions (Continued)
In addition to the consulting arrangement, the Company entered into a
sales and marketing agreement with this investor whereby the Company would
sell product to the investor at a discount. Approximately $354 and $736 in
sales were made to the investor during the years ended December 31, 1998
and 1997, respectively. Included in accounts receivable at December 31,
1998 and 1997, was $314 and $349, respectively, from sales to this
investor.
In June 1998, the Company delivered a promissory note to this investor to
repurchase securities sold to the investor in December 1996. The note
accrues interest at 10% with principal and accrued interest payable on
April 15, 2001. The balance as of December 31, 1998 was $2,251 which is
included in the non current portion of due to related party on the
accompanying balance sheet. As of December 31, 1997, $500 was accrued and
included in due to related parties relating to this same agreement.
At December 31, 1998 and 1997 the Company had amounts due to its former
parent relating to the settlement of intercompany transactions of $205 and
$382, respectively. Of the amounts due to Jostens at December 31, 1998 and
1997, $205 and $220, respectively, were included in due to related
parties.
During 1998, the Company re-engaged a third party consultant to explore
additional investment alternatives. Later during 1998, an affiliate of
this consultant replaced a Senior Subordinated Note holder. Fees paid to
this affiliate for the year ended December 31,1998 were $647 (see Note 8).
14. Mandatorily Redeemable Preferred Stock
On December 19, 1996, the Company issued 10,000 shares of $.01 par value
Class B Preferred Stock and recorded the stock at $10,000 less issuance
costs of approximately $900, its fair value on date of issuance. These
shares represent all of the authorized shares of the Class B Preferred
Stock. The Company is required to redeem all outstanding shares of the
Class B Preferred Stock, at a redemption price of $1,000 per share plus
any accrued and unpaid dividends, by December 19, 2008. Holders of Class B
Preferred Stock have no voting rights, are entitled to a preferential
distribution of $1000 per share plus accrued and unpaid dividends in the
event of a liquidation, and are entitled to annual dividends of $100 per
share until the Company redeems the stock. At December 31, 1998 and 1997
accrued dividends of $2,000 and $1,000 are included in stockholders'
equity, respectively. The stock will be accreted to its redemption value
through charges to accumulated deficit.
15. Stockholders' Deficit
On November 1, 1996, the Company issued 20,000 shares of $.01 par value
Class A Preferred Stock for $20,000 less issuance costs of $1,835. In
conjunction with the Class A Preferred Stock, $100 was paid to Holdings
for a warrant to purchase a specified number of shares of Holdings Common
Stock. Concurrent with the sale of the warrant, Holdings contributed the
proceeds received to the Company.
15. Stockholders' Equity (Continued)
- 14 -
<PAGE>
JLC LEARNING CORPORATION
Notes to Financial Statements
(Dollars in thousands, except share and per share data)
- --------------------------------------------------------------------------------
The authorized redeemable preferred stock and common stock of the Company
consists of 20,000 shares of $.01 par value Class A Preferred Stock and
120,565,000 shares of $.001 par value Class A Common Stock. At December
31, 1998 and 1997, 1,000 shares of the Class A Common Stock were issued
and outstanding. All outstanding shares of Class A Common Stock are held
by SSC. At December 31, 1998 and 1997, all 20,000 shares of the Class A
Preferred Stock were issued and outstanding. Holders of Class A Common
stock are entitled to one vote per share. Holders of Class A Preferred
Stock have no voting rights. In the event of a liquidation of the Company,
holders of Class A Preferred Stock are entitled to a preferential
distribution of $1,000 per shares plus accrued and unpaid dividends.
Distribution amounts in excess of the Class A and Class B preferred stock
distribution preference are to be distributed ratably to all of the Class
A common stockholders. The Company, at its option, may redeem all the
shares of Class A Preferred Stock at a redemption price of $1,000 per
share plus any accrued and unpaid dividends. Holders of Class A Preferred
Stock are entitled to annual dividends of $100 per share.
Included in the paid-in capital of the Company is $40,000 in debt payable
by SSC to the Company's former parent, as part of the purchase
consideration. Such debt is not payable by the Company, guaranteed by the
Company, nor subject to repayment from the proceeds of any future equity
transactions of the Company.
16. Unallocated Purchase Consideration
In conjunction with the acquisition of the Company by Holdings on June
29,1995, warrants and an exchangeable note issued to the Company's former
parent allowed the former parent to acquire up to a 30.7% interest in
Holdings. Accordingly, 69.3% of the purchase consideration was allocated
to the assets acquired and liabilities assumed at their respective fair
values, with the remainder allocated at Jostens' book value as of the date
of acquisition. The application of the purchase method resulted in an
allocation of the excess purchase consideration over historical carryover
basis of Jostens ("unallocated purchase consideration) of approximately
$17,981).
17. Employee Benefit Plans
Stock Appreciation Rights Plan
In February 1999, the Board of Directors adopted the 1998 Stock
Appreciation Rights Plan (the Plan). Stock Appreciation Rights (SARs) in
the aggregate of 1,500,000 were created and approximately 1,000,000 SARs,
at a base value, as determined by the Board of Directors, of $4.00, were
initially granted to select employees in 1999. These SARs shall vest
according to the following schedule: 50% on the second anniversary of
October 1, 1998 and an additional 25% shall vest on each of the third and
fourth anniversaries of October 1, 1998. The SAR represents the right to
receive additional compensation equal to the redemption price of the SAR
based on an enterprise value determined at the sole discretion of the
Board of Directors. SARs shall be redeemed out of available funds upon
certain liquidity events, as defined, or at the discretion of the Board of
Directors.
- 15 -
<PAGE>
JLC LEARNING CORPORATION
Notes to Financial Statements
(Dollars in thousands, except share and per share data)
- --------------------------------------------------------------------------------
17. Employee Benefit Plans (Continued)
Additionally. in connection with signing the Stock Appreciation Rights
Agreement, employees waive and surrender any rights and interest in
options previously granted to them under the JLC Holdings, Inc Stock
Option Plan.
401(k) Retirement Plan (401(k) Plan)
The Company has a retirement savings plan covering substantially all
eligible employees. The 401(k) Plan provides for a 33% matching
contribution by the Company, limited to eligible contributions by
employees. The Company's matching contribution to the 401(k) Plan for the
years ended December 31, 1998 and 1997 were $360 and $442, respectively.
18. Supplemental Cash Flow Information
Supplemental disclosures of cash flow information
<TABLE>
<CAPTION>
For the year ended
December 31,
----------------
1998 1997
------ -------
<S> <C> <C>
Cash paid during the year for interest $1,561 $ 2,208
Cash paid during the year for income taxes -- --
Non-cash financing activity:
Note payable issued for equity securities
(see Note 13) 2,251 --
Equity Securities exchanged for Prepaid Royalty
(see Note 11) 2,285 --
</TABLE>
19. Restructuring
During July 1998 the Company recorded a restructuring charge of $3,012
related to the adoption by the Company of a formal action plan for
restructuring its operations. This restructuring was adopted in an effort
to establish a more competitive cost structure in response to current
sales levels.
In connection with the plan in 1998 the Company paid employee severance
and benefit costs of approximately $1,400 when it decreased its workforce
by approximately 90 employees.
As of December 31, 1998, the remaining accrual associated with this
restructuring was approximately $1,400. This accrual consists of estimated
future severance and related obligations of $600, estimated future rent
obligations associated with excess lease space of $600, and an accrual for
other related costs of $200.
- 16 -
<PAGE>
[LOGO]
JLC LEARNING
CORPORATION
FINANCIAL STATEMENTS
MARCH 31, 1999
<PAGE>
LEARNING CORPORATION
STATEMENT OF OPERATIONS
(In thousands)
Three months ended Three mths ended
March 31, 1999 Mar. 31, 1998
-------------------- ----------------
Actual Plan Actual
Contract:
New Sales 6,980 5,550 4,768
Renew Sales 1,274 1,600 1,342
Net Revenue:
Software $ 4,729 $ 4,947 $ 4,167
Professional Development 2,162 2,416 2,998
S/W-H/W Support 5,171 5,268 5,564
Hardware 1,238 1,346 1,297
-------- -------- --------
13,300 13,977 14,026
-------- -------- --------
Cost of products sold:
Software 1,134 1,345 1,290
Professional Development 1,717 1,952 2,284
S/W-H/W Support 2,504 2,499 3,433
Hardware 871 1,241 1,125
-------- -------- --------
6,286 7,037 8,132
-------- -------- --------
Gross profit: 7,014 6,940 5,894
-------- -------- --------
Operating expenses:
Sales and marketing 4,895 4,906 7,013
Research & development 1,739 2,229 2,291
General & administrative 1,935 1,875 2,207
Restructuring -- -- --
8,569 9,010 11,511
-------- -------- --------
Profit(loss) from operations (1,555) (2,070) (5,617)
Other income (expense) 404 -- --
Amortization of intangibles (61) (60) (61)
Interest expense (1,309) (1,058) (843)
Profit(loss) before inc tax (2,521) (3,188) (6,521)
Income tax expense -- -- --
Net proflt(loss) (2,521) (3,188) (6,521)
Less:
Depreciation and net amortization 826 887 996
Gain/Loss on investment (392) --
Interest 1,309 1,058 843
Restructuring -- -- --
Income tax expense -- -- --
EBITDA $ (778) $ (1,243) $ (4,682)
======== ======== ========
JLC Learning Confidential
<PAGE>
JLC LEARNING CORPORATION
BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
March 31, 1999 March 31, 1998
---------------------- ----------------
Actual Plan Actual
------ ---- ------
Assets
<S> <C> <C> <C>
Currents Assets:
Cash & cash equivalents $ -- $ 500 $ --
Account receivable, less allowance ($1,293 and $2,407) 18,195 15,559 2,2,876
Inventories 672 480 491
Prepaid expenses 2,189 3,210 1,634
Due from related party -- -- --
Total current assets 21,056 19,749 25,002
Other Assets:
Software development costs 39,713 39,713 39,713
Less accumulated amortization (37,456) (37,445) (35,341)
Software development, net 2,257 2,268 4,372
Intangible assets 1,718 1,718 1,718
Less accumulated amortization (820) (819) (575)
--------- --------- ---------
Intangible assets, net 898 899 1,143
Deferred financing fees 763 763 784
Fixed assets 5,290 12,892 12,678
Less accumulated depreciation (3,480) (11,106) (9,755)
--------- --------- ---------
Fixed assets, net 1,810 1,786 2,923
--------- --------- ---------
$ 26,784 $ 25,465 $ 34,224
========= ========= =========
Liabilities and Stockholders Equity
Current Liabilities:
Accounts payab4e $ 2,829 $ 2,053 $ 5,445
Due to related party 1,137 1,405 1,070
Salaries and related items 4,182 4,174 5,251
Deferred revenue 16,629 17,144 19,060
Purchase and restructuring liabilities 915 1,137 323
Other accrued liabilities 8,569 9,452 8,449
--------- --------- ---------
Total current liabilities 34,261 35,395 39,610
Noncurrent portions of deferred revenue 1314 1,724 3,328
Noncurrent other accrued liabilities 2,747 2,748 1,629
Revolving line of credit 7,026 4,830 4,740
Term note 7,500 7,500 7,503
Senior subordinated note 17,000 17,000 17,000
--------- --------- ---------
Total liabilities 69,848 69,197 73,810
Stockholders' equity:
Paid-in capital 87,302 87,302 86,225
Unallocated purchase consideration (17,981) (17,981) (17,981)
Accumulated deficit (112,385) (113,053) (107,830)
--------- --------- ---------
Total stockholders equity (43,064) (43,732) (39,586)
--------- --------- ---------
Total liabilities & stockholders' equity $ 26,784 $ 25,465 $ 34,224
========= ========= =========
</TABLE>
JLC Learning Confidential
<PAGE>
JLC LEARNING CORPORATION
STATEMENT OF CASH FLOWS
Increase (Decrease) In Cash and Cash Equivalents
(In thousands)
<TABLE>
<CAPTION>
Three months ended Three mths ended
March 31, 1999 Mar. 31, 1998
------------------ ----------------
Actual Plan Actual
------ ---- ------
<S> <C> <C> <C>
Operating activities:
Net profit (loss) $(2,521) $(3,188) $(6,521)
Depreciation and amortization 826 887 995
Amortization of deferred financing fees 96 96 --
Change in assets & liabilities:
(Increase) decrease in accounts and notes receivable 3,682 6,318 6,563
(Increase) decrease in due from related party -- -- (1)
(Increase) decrease in inventories 339 531 559
(Increase) decrease in prepaid expense 440 61 (395)
Increase (decrease) in accounts payable 151 (625) 2,628
Increase (decrease) in due to related party (318) (50) --
Increase (decrease) in salaries and related items (1,8Z3) (1,831) (136)
Increase (decrease) in deferred revenue (5,034) (4,109) (7,133)
Increase (decrease) in purchase/restructuring liabilities (582) (330) (113)
Increase (decrease) in other assets/accrued liabilities (45) 194 (78)
------- ------- -------
(4,789) (2,046) (3,632)
------- ------- -------
Investment activities:
Capital expenditures, net (52) (100) (206)
Software development costs -- -- --
(52) (100) (206)
------- ------- -------
Financing activities:
Increase (decrease) in due to former parent -- -- 19
Increase (decrease) in notes payable to related party 53 54 --
Increase (decrease) in notes payable -- -- 7,503
Increase (decrease) in revolving line of credit 4,788 2,592 (3,760)
(Increase) decrease in financing fees -- -- (784)
4,841 2,646 2,978
------- ------- -------
Change in cash and cash equivalents 500 (860)
Cash and cash equivalents, beginning of period -- -- 860
Cash and cash equivalents, end of period $ -- $ 500 $ --
======= ======= =======
</TABLE>
<PAGE>
JLC LEARNING CORPORATION
STATEMENT OF STOCKHOLDERS' EQUITY
(In thousands)
<TABLE>
<CAPTION>
Paid-in Additional Unallocated
Common Capital Paid-in Accumulated Purchase
Stock Class B Capital Deficit Consideration Total
--------- --------- --------- --------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1998 $ -- $ 11,230 $ 75,803 $(109,595) $ (17,981) $ (40,543)
Adjustment to carrying value -- 19 -- (19) -- --
of preferred stock
Net loss for the three months -- -- -- (2,521) -- (2,521)
ended March 31, 1999
Dividends on preferred stock -- 250 -- (250) -- --
--------- --------- --------- --------- --------- ---------
Balance at March 31, 1999 $ -- $ 11,499 $ 75,803 $(112,385) $ (17,981) $ (43,064)
========= ========= ========= ========= ========= =========
</TABLE>
JLC Learning Confidential
<PAGE>
SCHEDULE 4.06
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Active Debtor Lienholder Status
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
JLC Learning Corp. Foothill Capital Corp., as Active
9920 Pacific Heights Blvd. Representative
San Diego, CA 92121 11111 Santa Monica Blvd., Suite
1500
Los Angeles, CA 90025
</TABLE>
JLC - CONFIDENTIAL
<PAGE>
SCHEDULE 4.07
<TABLE>
<CAPTION>
=================================================================================================================
Facility Address Lease Termination Landlord
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
1. 7878 N. 16th Street December 31, 2002 CarrAmerica Realty Corp.
Suite 100 2720 East Camelback Road
Phoenix, AZ 85020 Suite 280
Phoenix, AX 85016
- -----------------------------------------------------------------------------------------------------------------
2. 9920 Pacific Heights Blvd. March 21, 2001 Spieker Properties
Suite 500 9255 Towne Centre Drive
San Diego, CA 92121 Suite 100
San Diego, CA 92121
- -----------------------------------------------------------------------------------------------------------------
3. 600 Brickell Avenue November 30, 1999 Foram Group, Inc.
Suite 300U 600 Brickell Avenue
Miami, FL 33131 Suite 600
Miami, FL 33131
- -----------------------------------------------------------------------------------------------------------------
4. 3922 Coconut Palm Drive September 30, 2003 AP SE Portfolio Partners L.P c/o
Suite 110 Crocker Realty Mgmt. 433 Plaza
Tampa, FL 33619 Real, Suite 335 Boca Raton, FL
33432
- -----------------------------------------------------------------------------------------------------------------
5. 100 Hartsfield Center Parkway October 31, 2002 SPP Real Estate, Inc.
Suite 320 10 Glenville Street
Atlanta, GA 30354 Greenwich, CT 06831
- -----------------------------------------------------------------------------------------------------------------
6. 2860 Old Rochester Road July 31, 2000 Donald E. Curtis
Springfield, IL 62703 715 East Vine Street
Springfield, IL 62703
- -----------------------------------------------------------------------------------------------------------------
7. 125 Half Mile Road November 30, 1999 HQ Red Bank
Suite 14 125 Half Mile Road
Red Bank, NJ 07701 Suite 200
Red Bank, NJ 07701
- -----------------------------------------------------------------------------------------------------------------
8. 102 Dee Drive December 31, 1999 Hillcrest Office Park
Charleston, WV 25311 One Players Club Drive
Charleston, WV 25311
=================================================================================================================
</TABLE>
JLC - CONFIDENTIAL
<PAGE>
SCHEDULE 4.08
TRADEMARKS
<TABLE>
<CAPTION>
==================================================================================================
AUSTRALIA
- --------------------------------------------------------------------------------------------------
MARK APPLICATION REGISTRATION OTHER STATUS
- ----------------------------------------------------------------------------------------------------=============
SERIAL DATE (R) DATE RENEW CURRENT OWNER
NO. NUMBER
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Compass(TM) 710447 6/12/96 Opposed JLC
--objected
- -----------------------------------------------------------------------------------------------------------------
Compass 761158 5/4/98 Opposed JLC
Worldware(TM) --objected
- -----------------------------------------------------------------------------------------------------------------
Design of 761668 5/8/98 761668 1/25/99 5/8/08 Registered JLC
Tree(R)
- -----------------------------------------------------------------------------------------------------------------
JCAT(R) 761159 5/4/98 761159 12/18/98 5/4/08 Registered JLC
- -----------------------------------------------------------------------------------------------------------------
Tomorrow's 752687 1/14/98 752687 8/31/98 1/14/08 Registered JLC
Promise
- -----------------------------------------------------------------------------------------------------------------
Worldware 775431 10/13/98 Published JLC
11/26/98
- -----------------------------------------------------------------------------------------------------------------
<CAPTION>
==================================================================================================
BRUNEI
- --------------------------------------------------------------------------------------------------
MARK APPLICATION REGISTRATION OTHER STATUS
- ----------------------------------------------------------------------------------------------------=============
SERIAL DATE (R) DATE RENEW CURRENT OWNER
NO. NUMBER
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Compass(TM) 24,314 2/24/98 24,314 JLC
Registered
- -----------------------------------------------------------------------------------------------------------------
Compass(TM) 29,032 2/24/98 Pending JLC
- -----------------------------------------------------------------------------------------------------------------
Compass 29,203 4/2/98 Pending JLC
Worldware(TM)
- -----------------------------------------------------------------------------------------------------------------
Design of 29,201 4/21/98 Pending JLC
Tree(TM)
- -----------------------------------------------------------------------------------------------------------------
Design of 29,202 4/21/98 Pending JLC
Tree(TM)
- -----------------------------------------------------------------------------------------------------------------
JCAT(TM) 29,206 4/21/98 Pending JLC
- -----------------------------------------------------------------------------------------------------------------
Tomorrow's 29,031 2/24/98 Published JLC
Promise 1/15/99
- -----------------------------------------------------------------------------------------------------------------
Worldware(TM) 29,894 11/24/98 Pending JLC
- -----------------------------------------------------------------------------------------------------------------
Writing 29,203 4/21/98 Pending JLC
Expedition(TM)
- -----------------------------------------------------------------------------------------------------------------
Writing 29,204 4/21/98 Pending JLC
Expedition(TM)
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
JLC - CONFIDENTIAL
<PAGE>
<TABLE>
<CAPTION>
==================================================================================================
CANADA
- --------------------------------------------------------------------------------------------------
MARK APPLICATION REGISTRATION OTHER STATUS
- ----------------------------------------------------------------------------------------------------=============
SERIAL DATE (R) DATE RENEW CURRENT OWNER
NO. NUMBER
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Compass(TM) 877,358 5/6/98 Pending JLC
- -----------------------------------------------------------------------------------------------------------------
Compass 877,187 5/6/98 Pending JLC
Worldware(TM)
- -----------------------------------------------------------------------------------------------------------------
Design of 877,186 5/6/98 Published JLC
Tree(TM) 12/16/98
- -----------------------------------------------------------------------------------------------------------------
JCAT(TM) 877,359 5/6/98 Pending JLC
- -----------------------------------------------------------------------------------------------------------------
Microsystem 462,173 11/26/80 291,816 6/8/84 6/8/99 Registered JLC
80(R)
- -----------------------------------------------------------------------------------------------------------------
System 80(R) 379,418 10/1/74 209,956 10/10/75 10/10/05 Registered JLC
- -----------------------------------------------------------------------------------------------------------------
Tomorrow's 877,185 5/6/98 Pending JLC
Promise(TM)
- -----------------------------------------------------------------------------------------------------------------
Worldware 894,386 10/23/98 Pending JLC
- -----------------------------------------------------------------------------------------------------------------
Writing 877,357 5/6/98 Pending JLC
Expedition(TM)
- -----------------------------------------------------------------------------------------------------------------
<CAPTION>
==================================================================================================
FRANCE
- --------------------------------------------------------------------------------------------------
MARK APPLICATION REGISTRATION OTHER STATUS
- ----------------------------------------------------------------------------------------------------=============
SERIAL DATE (R) DATE RENEW CURRENT OWNER
NO. NUMBER
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Conter 94- 6/7/94 94-523,527 6/7/94 6/7/99 Registered Jostens
Software(R) 532,527 Learning
Corporation
- -----------------------------------------------------------------------------------------------------------------
<CAPTION>
==================================================================================================
HONG
KONG
- --------------------------------------------------------------------------------------------------
MARK APPLICATION REGISTRATION OTHER STATUS
- ----------------------------------------------------------------------------------------------------=============
SERIAL DATE (R) DATE RENEW CURRENT OWNER
NO. NUMBER
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
A+dvantage 9510668 8/23/95 B6072/1998 3/2/95 3/2/02 Pending Jostens
Worldware(TM) Learning
Corporation
- -----------------------------------------------------------------------------------------------------------------
Design of 9510667 8/23/95 01298/1997 8/23/95 8/23/02 Registered Jostens
Tree(R) 12/16/98 Learning
Corporation
- -----------------------------------------------------------------------------------------------------------------
Learning 9311502 9/13/95 Pending Jostens
First(TM) Learning
Corporation
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
SCHEDULE 4.08 (CONT'D)
TRADEMARKS (CONT'D)
<TABLE>
<CAPTION>
==================================================================================================
INDONESIA
- --------------------------------------------------------------------------------------------------
MARK APPLICATION REGISTRATION OTHER STATUS
- --------------------------------------------------------------------------------------------------===============
SERIAL DATE (R) DATE RENEW CURRENT OWNER
NO. NUMBER
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
A+dvanage D95 9/4/95 364704 9/4/95 9/4/05 Registered JLC
Worldware(R) 15772
- -----------------------------------------------------------------------------------------------------------------
Compass(TM) D98 2479 2/17/98 Pending JLC
- -----------------------------------------------------------------------------------------------------------------
Compass D98 4/29/98 Opposed JLC
Worldware(TM) 07733
- -----------------------------------------------------------------------------------------------------------------
Design of J95 16035 9/7/95 361336 6/5/96 9/7/05 Registered JLC
Tree(R)
- -----------------------------------------------------------------------------------------------------------------
JCAT(TM) D98 4/29/98 Pending JLC
07734
- -----------------------------------------------------------------------------------------------------------------
Learning D95 9/4/95 360510 9/4/95 3/4/05 Registered JLC
First(R) 15771
- -----------------------------------------------------------------------------------------------------------------
Tomorrow's D98 2478 2/17/98 Pending JLC
Promise(TM)
- -----------------------------------------------------------------------------------------------------------------
Worldware(TM) D98 11/6/98 Pending JLC
18917
- -----------------------------------------------------------------------------------------------------------------
Writing D98 4/29/98 Pending JLC
Expedition(TM) 07732
=================================================================================================================
<CAPTION>
==================================================================================================
IRELAND
- --------------------------------------------------------------------------------------------------
MARK APPLICATION REGISTRATION OTHER STATUS
- --------------------------------------------------------------------------------------------------===============
SERIAL DATE (R) DATE RENEW CURRENT OWNER
NO. NUMBER
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Compass(R) 96/3861 6/12/96 173124 6/12/96 6/12/03 Registered JLC
- -----------------------------------------------------------------------------------------------------------------
Compass 96/2924 7/16/98 Pending JLC
Worldware(TM)
- -----------------------------------------------------------------------------------------------------------------
Design of 98/2925 7/16/98 Pending JLC
Tree(TM)
- -----------------------------------------------------------------------------------------------------------------
Learning 7/12/96 202178 JLC
Expedition(TM)
- -----------------------------------------------------------------------------------------------------------------
Learning 96/4375 7/12/96 Published JLC
Expedition(TM) 4/8/98
- -----------------------------------------------------------------------------------------------------------------
NCAT(TM) 98/1437 4/15/98 Pending JLC
- -----------------------------------------------------------------------------------------------------------------
Tomorrow's 97/4604 12/19/97 Published JLC
Promise(TM)
- -----------------------------------------------------------------------------------------------------------------
Worldware(TM) Requested JLC
filing
10/7/98
- -----------------------------------------------------------------------------------------------------------------
Writing 96/4376 7/12/96 202179 7/12/96 7/12/06 Registered JLC
Expedition(R)
=================================================================================================================
</TABLE>
JLC - CONFIDENTIAL
<PAGE>
SCHEDULE 4.08 (CONT'D)
TRADEMARKS (CONT'D)
<TABLE>
<CAPTION>
==================================================================================================
MALAYSIA
- --------------------------------------------------------------------------------------------------
MARK APPLICATION REGISTRATION OTHER STATUS
- --------------------------------------------------------------------------------------------------===============
SERIAL DATE (R) DATE RENEW CURRENT OWNER
NO. NUMBER
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
A+dvantage 9175/95 9/5/95 Pending JLC
Worldware(TM)
- -----------------------------------------------------------------------------------------------------------------
Compass(TM) 96/08076 7/18/96 Pending JLC
- -----------------------------------------------------------------------------------------------------------------
Compass(TM) 98/05613 5/8/98 Pending JLC
Worldware(TM)
- -----------------------------------------------------------------------------------------------------------------
Design of 95/09668 9/14/95 95/09668 9/14/95 9/14/02 Registered JLC
Tree(R)
- -----------------------------------------------------------------------------------------------------------------
JCAT(TM) 98/05611 5/8/98 Pending JLC
- -----------------------------------------------------------------------------------------------------------------
Learning N97/16819 11/21/97 Pending JLC
Expedition(TM)
- -----------------------------------------------------------------------------------------------------------------
Tomorrow's 98/00802 1/20/98 Pending JLC
Promise(TM)
- -----------------------------------------------------------------------------------------------------------------
Worldware(TM) 98/13772 11/28/98 Pending JLC
- -----------------------------------------------------------------------------------------------------------------
Writing 97/16816 11/21/97 Pending JLC
Expedition(TM)
- -----------------------------------------------------------------------------------------------------------------
Writing 98/05612 5/8/98 Pending JLC
Expedition(TM)
=================================================================================================================
<CAPTION>
==================================================================================================
SINGAPORE
- --------------------------------------------------------------------------------------------------
MARK APPLICATION REGISTRATION OTHER STATUS
- --------------------------------------------------------------------------------------------------===============
SERIAL DATE (R) DATE RENEW CURRENT OWNER
NO. NUMBER
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
A+dvantage 8443/95 9/4/95 Pending JLC
Worldware(TM)
- -----------------------------------------------------------------------------------------------------------------
Compass(TM) 7454/96 7/19/96 Pending; JLC
responded
to office
action
- -----------------------------------------------------------------------------------------------------------------
Compass 3302/98 4/9/98 Pending JLC
Worldware(TM)
=================================================================================================================
</TABLE>
JLC - CONFIDENTIAL
<PAGE>
SCHEDULE 4.08 (CONT'D)
TRADEMARKS (CONT'D)
SINGAPORE (Cont'd)
<TABLE>
<CAPTION>
==================================================================================================
SINGAPORE
- --------------------------------------------------------------------------------------------------
MARK APPLICATION REGISTRATION OTHER STATUS
- --------------------------------------------------------------------------------------------------===============
SERIAL DATE (R) DATE RENEW CURRENT OWNER
NO. NUMBER
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Design of 8407/95 9/2/95 8407/95 9/2/95 9/2/08 Registered JLC
Tree(R)
- -----------------------------------------------------------------------------------------------------------------
JCAT(TM) 3305/98 4/9/98 Pending JLC
- -----------------------------------------------------------------------------------------------------------------
Tomorrow's 15161/97 12/13/97 Pending JLC
Promise(TM)
- -----------------------------------------------------------------------------------------------------------------
Worldware(TM) 12024/98 12/1/98 Pending JLC
- -----------------------------------------------------------------------------------------------------------------
Writing 3303/98 4/9/98 Pending JLC
Expedition(TM)
- -----------------------------------------------------------------------------------------------------------------
Writing 3304/98 4/9/98 Pending JLC
Expedition(TM)
=================================================================================================================
<CAPTION>
==================================================================================================
TAIWAN
- --------------------------------------------------------------------------------------------------
MARK APPLICATION REGISTRATION OTHER STATUS
- --------------------------------------------------------------------------------------------------===============
SERIAL DATE (R) DATE RENEW CURRENT OWNER
NO. NUMBER
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Learning 84-44009 8/30/95 739835 12/16/96 12/16/06 Registered Jostens
First(R) Learning
Corporation
=================================================================================================================
<CAPTION>
==================================================================================================
UNITED
KINGDOM
- --------------------------------------------------------------------------------------------------
MARK APPLICATION REGISTRATION OTHER STATUS
- --------------------------------------------------------------------------------------------------===============
SERIAL DATE (R) DATE RENEW CURRENT OWNER
NO. NUMBER
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
A+dvantage 2032388 9/1/95 2032388 9/1/95 9/1/05 Registered JLC
Worldware(R)
- -----------------------------------------------------------------------------------------------------------------
Compass(R) 2103167 6/12/96 2103167 6/12/96 6/12/06 Registered JLC
- -----------------------------------------------------------------------------------------------------------------
Compass 2117672 12/5/96 2117672 12/5/96 12/4/06 Registered JLC
Management
System(R)
- -----------------------------------------------------------------------------------------------------------------
Compass 2172297 7/16/98 Pending JLC
Wor1dware(TM)
- -----------------------------------------------------------------------------------------------------------------
Compass(R) 2103167 6/12/96 2103167 6/12/96 6/12/06 Registered JLC
=================================================================================================================
</TABLE>
JLC -CONFIDENTIAL
<PAGE>
SCHEDULE 4.08 (CONT'D)
TRADEMARKS (CONT'D)
UNITED KINGDOM (Cont'd)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
MARK APPLICATION REGISTRATION OTHER STATUS
- --------------------------------------------------------------------------------------------------===============
SERIAL DATE (R) DATE RENEW CURRENT OWNER
NO. NUMBER
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Design of 2031173 8/21/95 2031173 8/21/95 8/21/05 Registered JLC
Tree(R)
- -----------------------------------------------------------------------------------------------------------------
Learning 2106235 7/26/96 2106235 7/26/96 7/26/06 Registered JLC
Expedition(R)
- -----------------------------------------------------------------------------------------------------------------
Learning First 2033468 9/14/95 Abandoned
- -----------------------------------------------------------------------------------------------------------------
NCAT(R) 63913 4/9/98 2163913 4/9/98 4/9/98 Registered JLC
- -----------------------------------------------------------------------------------------------------------------
Tomorrow's 2152272 11/28/97 2152272 11/28/97 11/28/07 Registered JLC
Promise(R)
- -----------------------------------------------------------------------------------------------------------------
Worldware(TM) 2179233 10/9/98 Pending JLC
- -----------------------------------------------------------------------------------------------------------------
Writing 2106237 7/26/96 2106237 7/26/96 9/26/01 Registered JLC
Expedition(R)
=================================================================================================================
<CAPTION>
==================================================================================================
UNITED
STATES
- --------------------------------------------------------------------------------------------------
MARK APPLICATION REGISTRATION OTHER STATUS
- --------------------------------------------------------------------------------------------------===============
SERIAL DATE (R) DATE RENEW CURRENT OWNER
NO. NUMBER
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
A Renaissance 74/255,759 3/16/92 1,743,676 12/29/92 12/29/98 Registered JLC
in Learning(R)
- -----------------------------------------------------------------------------------------------------------------
A+dvantage 74/641,327 3/2/95 2,084,423 7/29/97 7/29/03 Registered JLC
Worldware(R)
- -----------------------------------------------------------------------------------------------------------------
ActionMATH 74/641,332 3/2/95 2,014,451 11/5/96 11/5/02 Registered JLC
(R)
- -----------------------------------------------------------------------------------------------------------------
Brick by Brick 73/567,330 11/7/85 1,411,116 9/30/86 9/30/06 Registered JLC
(R)
- -----------------------------------------------------------------------------------------------------------------
Classroom 75/459,879 3/31/98 Published JLC
Essentials
- -----------------------------------------------------------------------------------------------------------------
Compass(R) 74/439,993 9/24/93 2,053,034 4/15/97 4/15/03 Registered JLC
- -----------------------------------------------------------------------------------------------------------------
Compass Filing JLC
Virtual Pending
Classroom
- -----------------------------------------------------------------------------------------------------------------
Compass 75/173,299 9/27/96 Soon Pending JLC
Worldware(TM)
- -----------------------------------------------------------------------------------------------------------------
Cuentos de 74/592,365 10/31/94 1,923,500 10/3/95 10/3/01 Registered JLC
Coqui(R)
- -----------------------------------------------------------------------------------------------------------------
Design of Boy, 73/563,285 10/15/85 1,396,585 6/10/86 6/10/06 Registered JLC
Dog, Wagon(R)
- -----------------------------------------------------------------------------------------------------------------
Design of 73/819,707 8/17/98 1,712,302 9/1/92 9/1/02 Registered JLC
Tree(R)
- -----------------------------------------------------------------------------------------------------------------
Dragon Tales(R) 74/709,330 7/31/95 2,054,029 4/22/97 4/22/03 Registered JLC
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
JLC - CONFIDENTIAL
<PAGE>
SCHEDULE 4.08 (CONT'D)
TRADEMARKS (CONT'D)
UNITED STATES (Cont'd)
<TABLE>
<CAPTION>
==================================================================================================
MARK APPLICATION REGISTRATION OTHER STATUS
- --------------------------------------------------------------------------------------------------===============
SERIAL DATE (R) DATE RENEW CURRENT OWNER
NO. NUMBER
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
First 74/396,268 6/1/93 1,860,732 11/1/94 11/1/00 Registered JLC
Connections(R)
- -----------------------------------------------------------------------------------------------------------------
Hartley & 74/257,129 3/19/92 1,765,662 4/20/93 4/20/99 Registered JLC
Design(R) renewal
pending
- -----------------------------------------------------------------------------------------------------------------
Idea Shaper(R) 74/707,944 7/31/95 2,106,204 10/21/97 10/21/03 Registered JLC
- -----------------------------------------------------------------------------------------------------------------
IL Design(R) 73/528,796 3/25/85 1,368,933 11/5/85 11/5/05 Registered JLC
- -----------------------------------------------------------------------------------------------------------------
Interpretools(R) 75/180,100 10/11/96 2,198,904 10/20/98 10/20/04 Registered JLC
- -----------------------------------------------------------------------------------------------------------------
JCAT(R) 74/708,041 7/31/95 2,050,313 4/8/97 4/8/03 Registered JLC
- -----------------------------------------------------------------------------------------------------------------
JLC 74/042,225 3/26/90 1,636,458 2/26/91 2/26/01 Registered JLC
Financial(R)
- -----------------------------------------------------------------------------------------------------------------
Jostens 73/819,706 8/17/89 1,627,668 12/11/90 12/11/00 Registered JLC
Learning
Corporation(R)
- -----------------------------------------------------------------------------------------------------------------
Jostens 74/592,366 10/31/94 2,029,506 1/14/97 1/14/03 Registered JLC
Learning
Litenet(R)
- -----------------------------------------------------------------------------------------------------------------
Number 74/709,293 9/1/95 2,029,755 1/14/97 1/14/03 Registered JLC
Workshop(R)
- -----------------------------------------------------------------------------------------------------------------
Onenet(R) 74/653,702 3/30/95 1,956,376 2/13/96 2/13/02 Registered JLC
- -----------------------------------------------------------------------------------------------------------------
Shape 74/709,276 8/1/95 1,987,165 7/16/96 7/16/02 Registered JLC
Studio(R)
- -----------------------------------------------------------------------------------------------------------------
Storybook 74/709,283 8/1/95 2,108,138 10/28/97 10/28/03 Registered JLC
Maker(R)
- -----------------------------------------------------------------------------------------------------------------
System 80(R) 72/350,212 2/2/70 918,463 8/17/71 8/17/01 Registered JLC
- -----------------------------------------------------------------------------------------------------------------
Take Home Filing JLC
Connection Pending
- -----------------------------------------------------------------------------------------------------------------
T.E.A.C.H. Pending Florida
Dept. of
Educ.
- -----------------------------------------------------------------------------------------------------------------
T.E.A.C.H. Pending Florida
logo Dept. of
Educ.
- -----------------------------------------------------------------------------------------------------------------
Teacher to 74/644,326 3/10/95 1,990,919 8/6/96 8/6/02 Registered JLC
Teacher
Connection(R)
- -----------------------------------------------------------------------------------------------------------------
TeachNet 75/169,818 9/23/96 Opposed JLC
- -----------------------------------------------------------------------------------------------------------------
THC(R) 74/028,845 2/14/90 1,633,030 1/29/91 1/29/97 Registered JLC
- -----------------------------------------------------------------------------------------------------------------
Tomorrow's 75/236,856 2/5/97 2,219,515 1/19/99 1/19/09 Registered JLC
Promise(R)
- -----------------------------------------------------------------------------------------------------------------
Ufonic(R) 73/463,455 1/31/84 1,332,979 4/30/85 4/30/05 Registered JLC
- -----------------------------------------------------------------------------------------------------------------
Words on 74/709,329 7/31/95 2,042,802 3/11/97 3/11/03 Registered JLC
Wings(R)
- -----------------------------------------------------------------------------------------------------------------
Worldware 75/526,634 7/28/98 Pending JLC
- -----------------------------------------------------------------------------------------------------------------
Write Time(R) 74/709,331 7/31/95 2,042,803 3/11/97 3/11/03 Registered JLC
=================================================================================================================
</TABLE>
JLC - CONFIDENTIAL
<PAGE>
SCHEDULE 4.08 (CONT'D)
COPYRIGHTS
All copyrights for JLC Learning Corporation are filed in the United States.
- -------------------------------------------------------------------------------
Product Name Date Filed/Issued Copyright Number
- ------------ ----------------- ----------------
- -------------------------------------------------------------------------------
Advantage Mgmt Sys. 1.1 March 23, 1998 TX-4-620-089
- -------------------------------------------------------------------------------
Advantage Mgmt. Sys. 1.2 March 23, 1998 TX-4-620-087
- -------------------------------------------------------------------------------
Advantage Mgmt. Sys. 2.0 March 20, 1998 TX-4-613-682
- -------------------------------------------------------------------------------
Advantage Mgmt. Sys. 2.1 March 20, 1998 TX-4-613-679
- -------------------------------------------------------------------------------
AIMS 2.2.4 Adv. Instruc. Mgmt. Sys. March 20, 1998 TX-4-613-680
- -------------------------------------------------------------------------------
Compass 2.2 for March 23, 1998 TX-4-620-090
Windows/MacIntosh
- -------------------------------------------------------------------------------
Compass 2.2 for ILA April 7, 1998 TX-4-634-221
- -------------------------------------------------------------------------------
Compass 2.3 for March 23, 1998 TX-620-094
Windows / MacIntosh
- -------------------------------------------------------------------------------
Compass 3.0 for March 20, 1998 TX-4-613-681
Windows / MacIntosh
- -------------------------------------------------------------------------------
LMS 3.15 April 7, 1998 TX-4-634-220
- -------------------------------------------------------------------------------
Peer to Peer Install September 30, 1998 TX-4-626-266
Compass/Tomorrow's Promise 3.1
- -------------------------------------------------------------------------------
Personal Compass 1.0 for Windows/ March 23, 1998 TX-4-620-099
MacIntosh
- -------------------------------------------------------------------------------
Worldware 2.0 March 27, 1998 TX-4-623-250
- -------------------------------------------------------------------------------
Worldware 2.01 March 20, 1998 TX 4-620-084
- -------------------------------------------------------------------------------
RIMS I April 7, 1998 TX-4-634-224
- -------------------------------------------------------------------------------
RIMS II 1.72 for MAC March 27, 1998 TX-4-623-266
- -------------------------------------------------------------------------------
Jostens Comprehensive Assessment March 23, 1998 TX-4-620-091
Tests/Compass
- -------------------------------------------------------------------------------
Jostens Comprehensive Assessment March 23, 1998 TX-4-620-088
Tests/Advantage
- -------------------------------------------------------------------------------
Learning Expedition Language Arts March 27, 1998 TX-4-623-253
- -------------------------------------------------------------------------------
Learning Expedition Mathematics March 27, 1998 TX-4-623-256
Level 1-3
- -------------------------------------------------------------------------------
Learning Expedition Mathematics March 27, 1998 TX-4-623-248
Leval 4-8
- -------------------------------------------------------------------------------
Learning Expedition Math Higher March 27, 1998 TX-4-623-252
Level Activities
- -------------------------------------------------------------------------------
Learning Expedition Reading Levels March 27, 1998 TX-4-623-255
1-3
- -------------------------------------------------------------------------------
JLC - CONFIDENTIAL
<PAGE>
SCHEDULE 4.08 (CONT'D)
COPYRIGHTS
- -------------------------------------------------------------------------------
Product Name Date Filed/Issued Copyright Number
- ------------ ----------------- ----------------
- -------------------------------------------------------------------------------
Learning Expedition Reading Levels March 27, 1998 TX-4-623-247
4-8
- -------------------------------------------------------------------------------
Learning Expedition Written March 27, 1998 TX-4-623-251
Expression
- -------------------------------------------------------------------------------
Learning First Elementary March 23, 1998 TX-4-620-095
Mathematics
- -------------------------------------------------------------------------------
Learning First Skills and March 23, 1998 TX-4-620-102
Employability Skills
- -------------------------------------------------------------------------------
Learning First Foundations in March 27, 1998 TX-4-623-259
Mathematics
- -------------------------------------------------------------------------------
Learning First Middle School March 27, 1998 TX-4-623-258
Mathematics
- -------------------------------------------------------------------------------
Learning First Foundations in Reading March 27, 1998 TX-4-623-260
- -------------------------------------------------------------------------------
Learning First New Edition: March 23, 1998 TX-4-620-103
Elementary Mathematics
- -------------------------------------------------------------------------------
Learning First New Edition: March 23, 1998 TX-4-623-106
Elementary Reading
- -------------------------------------------------------------------------------
Integrated Language Arts - Primary March 25, 1998 TX-4-623-208
Level
- -------------------------------------------------------------------------------
Tomorrow's Promise Biology March 23, 1998 TX-4-620-092
- -------------------------------------------------------------------------------
Tomorrow's Promise Chemistry March 23, 1998 TX-4-620-096
- -------------------------------------------------------------------------------
Tomorrow's Promise Earth Science March 23, 1998 TX-4-620-097
- -------------------------------------------------------------------------------
Tomorrow's Promise Language Arts March 20, 1998 TX-4-613-670
Level 3
- -------------------------------------------------------------------------------
Tomorrow's Promise Language Arts March 20, 1998 TX-4-613-672
Level 4
- -------------------------------------------------------------------------------
Tomorrow's Promise Language Arts March 20, 1998 TX-4-613-676
Level 5
- -------------------------------------------------------------------------------
Tomorrow's Promise Language Arts March 20, 1998 TX-4-613-674
Level 6
- -------------------------------------------------------------------------------
Tomorrow's Promise Language Arts March 20, 1998 TX-4-613-671
Level 7
- -------------------------------------------------------------------------------
Tomorrow's Promise Language Arts March 20, 1998 TX-4-613-677
Level 8
- -------------------------------------------------------------------------------
JLC -CONFIDENTIAL
<PAGE>
SCHEDULE 4.08 (CONT'D)
COPYRIGHTS
- -------------------------------------------------------------------------------
Product Name Date Filed/Issued Copyright Number
- ------------ ----------------- ----------------
- -------------------------------------------------------------------------------
Tomorrow's Promise Language Arts March 27, 1998 TX-4-623-246
Essay Levels 6-8
- -------------------------------------------------------------------------------
Tomorrow's Promise Mathematics March 20, 1998 TX-4-613-675
Level K
- -------------------------------------------------------------------------------
Tomorrow's Promise Mathematics March 20, 1998 TX-4-613-687
Level 1
- -------------------------------------------------------------------------------
Tomorrow's Promise Mathematics March 20, 1998 TX-4-613-690
Level 2
- -------------------------------------------------------------------------------
Tomorrow's Promise Mathematics March 20, 1998 TX-4-613-685
Level 3
- -------------------------------------------------------------------------------
Tomorrow's Promise Mathematics March 20, 1998 TX-4-613-688
Level 4
- -------------------------------------------------------------------------------
Tomorrow's Promise Mathematics March 20, 1998 TX-4-613-686
Level 5
- -------------------------------------------------------------------------------
Tomorrow's Promise Mathematics March 20, 1998 TX-4-613-683
Level 6
- -------------------------------------------------------------------------------
Tomorrow's Promise Mathematics March 20, 1998 TX-4-613-693
Level 7
- -------------------------------------------------------------------------------
Tomorrow's Promise Mathematics March 20, 1998 TX-4-613-689
Level 8
- -------------------------------------------------------------------------------
Tomorrow's Promise Physical Science March 23, 1998 TX-4-620-093
- -------------------------------------------------------------------------------
Tomorrow's Promise Problem Solving March 27, 1998 TX-4-623-245
Strategies 6-8
- -------------------------------------------------------------------------------
Tomorrow's Promise Reading Level K March 20, 1998 TX-4-613-697
- -------------------------------------------------------------------------------
Tomorrow's Promise Reading Level 1 March 20, 1998 TX-4-613-684
- -------------------------------------------------------------------------------
Tomorrow's Promise Reading Level 2 March 20, 1998 TX-4-613-673
- -------------------------------------------------------------------------------
Tomorrow's Promise Reading Level 3 March 20, 1998 TX-4-613-696
- -------------------------------------------------------------------------------
Tomorrow's Promise Reading Level 4 March 20, 1998 TX-4-613-691
- -------------------------------------------------------------------------------
Tomorrow's Promise Reading Level 5 March 20, 1998 TX-4-613-695
- -------------------------------------------------------------------------------
Tomorrow's Promise Reading Level 6 March 20, 1998 TX-4-613-692
- -------------------------------------------------------------------------------
Tomorrow's Promise Reading Level 7 March 20, 1998 TX-4-613-698
- -------------------------------------------------------------------------------
Tomorrow's Promise Reading Level 8 March 20, 1998 TX-4-613-694
- -------------------------------------------------------------------------------
Tomorrow's Promise Spelling Level 1 March 23, 1998 TX-4-620-098
- -------------------------------------------------------------------------------
Tomorrow's Promise Spelling Level 2 March 20, 1998 TX-4-613-678
- -------------------------------------------------------------------------------
Action Math March 27, 1998 TX-4-623-265
- -------------------------------------------------------------------------------
Community Exploration April 7, 1998 TX-4-634-223
- -------------------------------------------------------------------------------
English Language Development - March 25, 1998 TX-4-623-213
Primary
- -------------------------------------------------------------------------------
JLC - CONFIDENTIAL
<PAGE>
SCHEDULE 4.08 (CONT'D)
COPYRIGHTS
- -------------------------------------------------------------------------------
Product Name Date Filed/Issued Copyright Number
- ------------ ----------------- ----------------
- -------------------------------------------------------------------------------
Steps to English Language March 25, 1998 TX-4-623-215
Development - Beginner Level
- -------------------------------------------------------------------------------
Steps to English Language March 25, 1998 TX-4-623-214
Development -
Intermediate/Advanced
- -------------------------------------------------------------------------------
Explorations in Science, Earth, March 27, 1998 TX-4-623-267
Physical, Biology
- -------------------------------------------------------------------------------
Friday Afternoon April 7, 1998 TX-4-634-222
- -------------------------------------------------------------------------------
Learning With Literature March 23, 1998 TX-4-620-101
- -------------------------------------------------------------------------------
Literature Based Mathematics March 27, 1998 TX-4-623-257
- -------------------------------------------------------------------------------
Middle School Mathematics March 23, 1998 TX-4-620-100
- -------------------------------------------------------------------------------
Reading Skills Collection Reading All April 7, 1998 TX-4-634-226
Around You
- -------------------------------------------------------------------------------
Reading Skills Collection Read to April 7, 1998 TX-4-634-227
Imagine
- -------------------------------------------------------------------------------
Reading Skills Collection Reading for April 7, 1998 TX-4-634-228
Meaning
- -------------------------------------------------------------------------------
Reading Skills Collection Read to April 7, 1998 TX-4-634-229
Think
- -------------------------------------------------------------------------------
Spanish Language Arts March 27, 1998 TX-4-623-264
- -------------------------------------------------------------------------------
Stems April 7, 1998 TX-4-634-225
- -------------------------------------------------------------------------------
Tapestry March 27, 1998 TX-4-623-244
- -------------------------------------------------------------------------------
Writing Expedition 1.1 for March 20, 1998 TX-4-613-669
Mac / Windows
- -------------------------------------------------------------------------------
8th Grade Math Course Outline March 27, 1998 TX-1-912-790
- -------------------------------------------------------------------------------
Grade 8 Math Support Materials March 27, 1998 TX-1-920-115
- -------------------------------------------------------------------------------
8th Grade Math Teaching Aide March 27, 1998 TX-1-920-450
- -------------------------------------------------------------------------------
Integrated Classroom Learning
System
- -------------------------------------------------------------------------------
Mathematics Documentation March 27, 1998 TX-1-922-225
- -------------------------------------------------------------------------------
Spanish I Teachers' Guide March 27, 1998 TX-2-680-774
- -------------------------------------------------------------------------------
Spanish I: Course Outline, Answer March 27, 1998 TX-2-686-570
Keys, Worksheets, Tests
- -------------------------------------------------------------------------------
ICLS: Spanish Courseware Sample March 27, 1998 TX-2-723-547
- -------------------------------------------------------------------------------
Language Arts 3: Teachers' Guide March 27, 1998 TX-2-671-312
- -------------------------------------------------------------------------------
JLC -CONFIDENTIAL
<PAGE>
SCHEDULE 4.08 (CONT'D)
COPYRIGHTS
- -------------------------------------------------------------------------------
Product Name Date Filed/Issued Copyright Number
- ------------ ----------------- ----------------
- -------------------------------------------------------------------------------
Language Arts 3 Course Outline, March 27, 1998 TX-2-671-313
Answer Keys, Worksheets, Tests
- -------------------------------------------------------------------------------
Calculus: Teachers' Guide March 27, 1998 TX-2-125-878
- -------------------------------------------------------------------------------
Calculus: Course Outline, Answers March 27, 1998 TX-2-125-879
Keys, Worksheets, Tests
- -------------------------------------------------------------------------------
Calculus: I C L S courseware sample March 27, 1998 TX-2-172-445
- -------------------------------------------------------------------------------
Algebra I: Teachers' Guide March 27, 1998 TX-2-178-697
- -------------------------------------------------------------------------------
Algebra I: Support materials sample March 27, 1998 TX-2-178-698
- -------------------------------------------------------------------------------
Algebra I: Integrated classroom March 27, 1998 TX-2-179-056
learning system: course outline,
answer keys, worksheets, tests
- -------------------------------------------------------------------------------
Integrated Classroom Learning March 27, 1998 TX-2-289-047
System: Mathematics: Grade 7:
Support materials sample
- -------------------------------------------------------------------------------
Integrated Classroom Learning March 27, 1998 TX-2-289-047
System: Trig/Analysis: Teachers'
Guide
- -------------------------------------------------------------------------------
Integrated Classroom Learning March 27, 1998 TX-2-289-049
System: Trig/Analysis: Course
outline, answer keys, worksheets, tests
- -------------------------------------------------------------------------------
Integrated Classroom Learning March 27, 1998 TX-2-289-050
System: Mathematics: Grade 7: course
outline, answers keys, worksheets,
tests
- -------------------------------------------------------------------------------
Integrated Classroom Learning March 27, 1998 TX-2-289-051
System: Mathematics: Grade 7:
Teachers' Guide
- -------------------------------------------------------------------------------
Geometry: course outline, answer keys March 27, 1998 TX-2-311-453
worksheets, tests
- -------------------------------------------------------------------------------
Geometry: Teachers' Guide March 27, 1998 TX-2-311-454
- -------------------------------------------------------------------------------
Integrated Classroom Learning March 27, 1998 TX-2-326-534
System: Algebra II, Teachers' Guide
- -------------------------------------------------------------------------------
Trigonometry/math analysis: support March 27, 1998 TX-2-326-535
material's sample
- -------------------------------------------------------------------------------
Algebra II: support material sample March 27, 1998 TX-2-345-457
- -------------------------------------------------------------------------------
Algebra II: course outline, answer March 27, 1998 TX-2-351-931
keys, worksheets, tests
- -------------------------------------------------------------------------------
Geometry: support material sample March 27, 1998 TX-2-400-824
- -------------------------------------------------------------------------------
JLC -CONFIDENTIAL
<PAGE>
SCHEDULE 4.08 (CONT'D)
COPYRIGHTS
- -------------------------------------------------------------------------------
Product Name Date Filed/Issued Copyright Number
- ------------ ----------------- ----------------
- -------------------------------------------------------------------------------
ICLS courseware sample: Language March 27, 1998 TX-2-582-332
Arts 6
- -------------------------------------------------------------------------------
Integrated Classroom Learning March 27, 1998 TX-2-582-333
System, Language Arts 6: course
outline, answer keys, worksheets, tests
- -------------------------------------------------------------------------------
ICLS courseware sample: Language March 27, 1998 TX-2-582-334
Arts
- -------------------------------------------------------------------------------
Integrated Classroom Learning March 27, 1998 TX-2-582-335
Systemk Language Arts 5: course
outline, answer keys, worksheets, test
- -------------------------------------------------------------------------------
Integrated Classroom Learning March 27, 1998 TX-2-582-336
System: Language Arts 5: Teachers'
Guide
- -------------------------------------------------------------------------------
Integrated Classroom Learning March 27, 1998 TX-2-582-337
System: Language Arts 6: Teachers'
Guide
- -------------------------------------------------------------------------------
Language Arts 4: Teachers' Guide March 27, 1998 TX-2-582-936
- -------------------------------------------------------------------------------
Language Arts 4: course outline, March 27, 1998 TX-2-582-937
answer keys, worksheets tests
- -------------------------------------------------------------------------------
ICLS courseware sample March 27, 1998 TX-2-584-925
- -------------------------------------------------------------------------------
ICLS courseware sample March 27, 1998 TX-2-584-928
- -------------------------------------------------------------------------------
Secondary Language Arts: course March 27, 1998 TX-2-593-770
outline, answer keys, worksheets, tests
- -------------------------------------------------------------------------------
Math - Level 5: Teachers' Guide March 27, 1998 TX-2-671-309
- -------------------------------------------------------------------------------
German 1: Teachers' Guide March 27, 1998 TX-2-671-310
- -------------------------------------------------------------------------------
Physics: course outline, answer keys, March 27, 1998 TX 2-671-315
worksheets, tests
- -------------------------------------------------------------------------------
ICLS courseware sample: 6th Grade March 27, 1998 TX-2-672-548
Math
- -------------------------------------------------------------------------------
Physics: Teachers' Guide March 27, 1998 TX-2-672-549
- -------------------------------------------------------------------------------
German March 27, 1998 TX-2-672-555
- -------------------------------------------------------------------------------
Physics March 27, 1998 TX-2-672-556
- -------------------------------------------------------------------------------
Math, Level 5 March 27, 1998 TX-2-672-557
- -------------------------------------------------------------------------------
ICLS courseware sample: 4th Grade March 27, 1998 TX-2-678-479
Math
- -------------------------------------------------------------------------------
Math - Level 6: Teachers' Guide March 27, 1998 TX-2-680-775
- -------------------------------------------------------------------------------
JLC - CONFIDENTIAL
<PAGE>
SCHEDULE 4.08 (CONT'D)
COPYRIGHTS
- -------------------------------------------------------------------------------
Product Name Date Filed/Issued Copyright Number
- ------------ ----------------- ----------------
- -------------------------------------------------------------------------------
German 1: course outline, answer March 27, 1998 TX-2-686-566
keys, worksheets, tests
- -------------------------------------------------------------------------------
ICLS courseware sample: 5th Grade March 27, 1998 TX-2-686-567
Math
- -------------------------------------------------------------------------------
Math - Level 6: course outline, answer March 27, 1998 TX-2-686-568
keys, worksheets, tests
- -------------------------------------------------------------------------------
Math - Level 4: course outline, answer March 27, 1998 TX-2-686-569
keys, worksheets, tests
- -------------------------------------------------------------------------------
Mathematics: Grade 4: Teachers' March 27, 1998 TX-2-686-571
Guide
- -------------------------------------------------------------------------------
ICLS Spanish 1: courseware sample March 27, 1998 TX-2-723-547
- -------------------------------------------------------------------------------
ICLS courseware sample: Language March 27, 1998 TX-2-455-456
Arts 3 Ideal Learning: a preschool
curriculum for home use/created by
Brett W. Rogers
- -------------------------------------------------------------------------------
TRANSFER FROM HARTLEY
- -------------------------------------------------------------------------------
Product Name Date Filed/Issued Copyright Number
- ------------ ----------------- ----------------
- -------------------------------------------------------------------------------
Homonyms September 14, 1998 TX-1-919-673
- -------------------------------------------------------------------------------
Antonyms/Synonyms September 14, 1998 TX-1-923-273
- -------------------------------------------------------------------------------
Consonants September 14, 1998 TX-1-923-274
- -------------------------------------------------------------------------------
Vowels Tutorial September 14, 1998 TX-1-923-582
- -------------------------------------------------------------------------------
Number Words Level 2 September 14, 1998 TX-1-925-907
- -------------------------------------------------------------------------------
Create Your Own - Vocabulary September 14, 1998 TX-1-926-180
French
- -------------------------------------------------------------------------------
Adjectives September 14, 1998 TX-1-926-189
- -------------------------------------------------------------------------------
Student Word Study September 14, 1998 TX-1-926-372
- -------------------------------------------------------------------------------
Super Wordfind September 14, 1998 TX-1-926-444
- -------------------------------------------------------------------------------
Create Intermediate September 14, 1998 TX-1-926-933
- -------------------------------------------------------------------------------
Create Vocabulary September 14, 1998 TX-1-926-934
- -------------------------------------------------------------------------------
JLC -CONFIDENTIAL
<PAGE>
SCHEDULE 4.08 (CONT'D)
TRANSFER FROM HARTLEY (CONT'D)
- -------------------------------------------------------------------------------
Product Name Date Filed/Issued Copyright Number
- ------------ ----------------- ----------------
- -------------------------------------------------------------------------------
Create Your Own - Vocabulary September 14, 1998 TX-1-927-484
Spanish
- -------------------------------------------------------------------------------
Print Your Own - Bingo September 14, 1998 TX-1-928-566
- -------------------------------------------------------------------------------
Vocabulary Controlled September 14, 1998 TX-1-928-661
- -------------------------------------------------------------------------------
Presidents Physical Fitness September 14, 1998 TX-1-928-664
- -------------------------------------------------------------------------------
Letter Recognition September 14, 1998 TX-1-928-811
- -------------------------------------------------------------------------------
Create Your Own - Elementary September 14, 1998 TX-1-929-475
- -------------------------------------------------------------------------------
Parent Reporting September 14, 1998 TX-1-929-605
- -------------------------------------------------------------------------------
Fact Sheets September 14, 1998 TX-1-931-540
- -------------------------------------------------------------------------------
Word - a - Tech September 14, 1998 TX-1-940-789
- -------------------------------------------------------------------------------
Create Your Own - CCD Lessons September 14, 1998 TX-1-956-151
- -------------------------------------------------------------------------------
Metric Skills I & II September 14, 1998 TX-1-951-715
- -------------------------------------------------------------------------------
Adverbs September 14, 1998 TX-1-965-834
- -------------------------------------------------------------------------------
Wordsearch September 14, 1998 TX-1-965-935
- -------------------------------------------------------------------------------
The Medalist Series: Continents September 14, 1998 TX-2-012-225
- -------------------------------------------------------------------------------
Vowels September 14, 1998 TX-2-013-525
- -------------------------------------------------------------------------------
Prescriptive Math Drill September 14, 1998 TX-2-023-375
- -------------------------------------------------------------------------------
Analogies Tutorial I and II September 14, 1998 TX-2-025-231
- -------------------------------------------------------------------------------
Chariots, Cougars, and Kings September 14, 1998 TX-2-025-232
- -------------------------------------------------------------------------------
Kittens, Kids and a Frog September 14, 1998 TX-2-025-233
- -------------------------------------------------------------------------------
Scuffy and Friends September 14, 1998 TX-2-025-234
- -------------------------------------------------------------------------------
The Medalist Series: Presidents September 14, 1998 TX-2-025-245
- -------------------------------------------------------------------------------
Analogies Advanced I and II September 14, 1998 TX-2-026-237
- -------------------------------------------------------------------------------
The Medalist Series: Women in September 14, 1998 TX-2-026-763
History
- -------------------------------------------------------------------------------
Famous Scientists September 14, 1998 TX-2-026-764
- -------------------------------------------------------------------------------
Number Words Level 1 September 14, 1998 TX-2-026-823
- -------------------------------------------------------------------------------
Create You Own - Spell It September 14, 1998 TX-2-027-287
- -------------------------------------------------------------------------------
Perplexing Puzzles September 14, 1998 TX-2-027-420
- -------------------------------------------------------------------------------
Temperature Experiments September 14, 1998 TX-2-029-315
- -------------------------------------------------------------------------------
Create Your Own - Medalists September 14, 1998 TX-2-029-641
- -------------------------------------------------------------------------------
Chemical Elements September 14, 1998 TX-2-029-797
- -------------------------------------------------------------------------------
The Medalist Series: States September 14, 1998 TX-2-029-798
- -------------------------------------------------------------------------------
Integers/Equations I & II September 14, 1998 TX-2-030-245
- -------------------------------------------------------------------------------
Match Espanol September 14, 1998 TX-2-030-375
- -------------------------------------------------------------------------------
Reading For Meaning Level 1 Fairy September 14, 1998 TX-2-030-397
Tales and Rhymes
- -------------------------------------------------------------------------------
JLC - CONFIDENTIAL
<PAGE>
SCHEDULE 4.08 (CONT'D)
TRANSFER FROM HARTLEY (CONT'D)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Product Name Date Filed/Issued Copyright Number
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Compound Words and Contractions September 14, 1998 TX-2-030-398
- ----------------------------------------------------------------------------------------------------
Early Skills September 14, 1998 TX-2-030-399
- ----------------------------------------------------------------------------------------------------
Expanded Notation September 14, 1998 TX-2-031-150
- ----------------------------------------------------------------------------------------------------
Expanded Notation September 14, 1998 TX-2-031-151
- ----------------------------------------------------------------------------------------------------
Fact or Opinion September 14, 1998 TX-2-031-425
- ----------------------------------------------------------------------------------------------------
Cause and Effect September 14, 1998 TX-2-031-444
- ----------------------------------------------------------------------------------------------------
Match Francais September 14, 1998 TX-2-031-613
- ----------------------------------------------------------------------------------------------------
Figurative Language I and II September 14, 1998 TX-2-031-654
- ----------------------------------------------------------------------------------------------------
The Medalist Series: Black Americans September 14, 1998 TX-2-033-164
- ----------------------------------------------------------------------------------------------------
Binary Math September 14, 1998 TX-2-038-700
- ----------------------------------------------------------------------------------------------------
Create Your Own -- Lessons September 14, 1998 TX-2-038-794
- ----------------------------------------------------------------------------------------------------
What's First? What's Next? September 14, 1998 TX-2-057-107
- ----------------------------------------------------------------------------------------------------
Sense or Nonsense September 14, 1998 TX-2-057-108
- ----------------------------------------------------------------------------------------------------
Little Riddles September 14, 1998 TX-2-057-109
- ----------------------------------------------------------------------------------------------------
Word Families II September 14, 1998 TX-2-057-11O
- ----------------------------------------------------------------------------------------------------
U.S. History September 14, 1998 TX-2-057-111
- ----------------------------------------------------------------------------------------------------
Harper and Sellers -- A Guide to the September 14, 1998 TX-2-080-883
Classics: Macbeth
- ----------------------------------------------------------------------------------------------------
Harper and Sellers -- A Guide to the September 14, 1998 TX-2-081-007
Classics: The Adventures of Huckleberry Finn
- ----------------------------------------------------------------------------------------------------
Reading For Meaning Level 2: Fairy September 14, 1998 TX-2-159-771
Tales and Rhymes
- ----------------------------------------------------------------------------------------------------
Double 'N' Trouble September 14, 1998 TX-2-180-698
- ----------------------------------------------------------------------------------------------------
Word Ladders September 14, 1998 TX-2-212-911
- ----------------------------------------------------------------------------------------------------
Capitalization Practice and Test September 14, 1998 TX-2-219-871
- ----------------------------------------------------------------------------------------------------
Print Your Own Bingo Plus September 14, 1998 TX-2-240-339
- ----------------------------------------------------------------------------------------------------
Create Your Own Lessons Advanced September 14, 1998 TX-2-242-832
- ----------------------------------------------------------------------------------------------------
Shakespeare September 14, 1998 TX-2-243-374
- ----------------------------------------------------------------------------------------------------
Opposites September 14, 1998 TX-2-247-992
- ----------------------------------------------------------------------------------------------------
Milt's Math Drills September 14, 1998 TX-2-249-310
- ----------------------------------------------------------------------------------------------------
Drawing Conclusions and Problem September 14, 1998 TX-2-258-394
Solving
- ----------------------------------------------------------------------------------------------------
Verb Usage III September 14, 1998 TX-2-279-559
- ----------------------------------------------------------------------------------------------------
Verb Usage I September 14, 1998 TX-2-315-676
- ----------------------------------------------------------------------------------------------------
Brick by Brick Level I Building Usage September 14, 1998 TX-2-369-842
Skills
- ----------------------------------------------------------------------------------------------------
</TABLE>
JLC - CONFIDENTIAL
<PAGE>
SCHEDULE 4.08 (CONT'D)
TRANSFER FROM HARTLEY (CONT'D)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Product Name Date Filed/Issued Copyright Number
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Brick by Brick Level 2 Building Usage September 14, 1998 TX-2-370-451
Skills
- ----------------------------------------------------------------------------------------------------
Brick by Brick Level I Building September 14, 1998 TX-2-373-860
Comprehension
- ----------------------------------------------------------------------------------------------------
Brick by Brick Level 4 Building Usage September 14, 1998 TX-2-375-505
Skills
- ----------------------------------------------------------------------------------------------------
Brick by Brick Level 2 Building September 14, 1998 TX-2-378-720
Vocabulary
- ----------------------------------------------------------------------------------------------------
Brick by Brick Level 4 Building September 14, 1998 TX-2-384-016
Comprehension
- ----------------------------------------------------------------------------------------------------
Vocabulary Dolch September 14, 1998 TX-2-398-411
- ----------------------------------------------------------------------------------------------------
Brick by Brick Level 5 Building September 14, 1998 TX-2-400-368
Comprehension
- ----------------------------------------------------------------------------------------------------
</TABLE>
TRANSFER FROM IDEAL
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Product Name Date Filed/Issued Copyright Number
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Calculus: Teacher's Guide Transfer Application TX-2-125-878
Pending as of June 18, 1998
- ----------------------------------------------------------------------------------------------------
Calculus: Outline, Answer Keys, Transfer Application TX-2-125-879
Worksheets, Tests Pending as of June 18, 1998
- ----------------------------------------------------------------------------------------------------
Calculus: Support Materials Sample Transfer Application TX-2-172-445
Pending as of June 18, 1998
- ----------------------------------------------------------------------------------------------------
Algebra I: Teacher's Guide Transfer Application TX-2-178-697
Pending as of June 18, 1998
- ----------------------------------------------------------------------------------------------------
Algebra I: Support Materials Sample Transfer Application TX-2-178-698
Pending as of June 18, 1998
- ----------------------------------------------------------------------------------------------------
Algebra I: Outline, Answer Keys, Transfer Application TX-2-179-056
Worksheets, Tests Pending as of June 18, 1998
- ----------------------------------------------------------------------------------------------------
</TABLE>
JLC - CONFIDENTIAL
<PAGE>
SCHEDULE 4.08 (CONT'D)
TRANSFER FROM IDEAL (CONT'D)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Product Name Date Filed/Issued Copyright Number
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Mathematics Grade 7: Support Transfer Application TX-2-289-047
Materials Sample Pending as of June 18, 1998
- ----------------------------------------------------------------------------------------------------
Trigonometry/Math Analysis: Transfer Application TX-2-289-048
Teacher's Guide Pending as of June 18, 1998
- ----------------------------------------------------------------------------------------------------
Trigonometry/Math Analysis: Transfer Application Pending TX-2-289-049
Outline, Answer Keys, Worksheets, Tests as of June 18, 1998
- ----------------------------------------------------------------------------------------------------
Mathematics Grade 7: Outline, Transfer Application TX-2-289-05O
Answer Keys, Worksheets, Tests Pending as of June 18, 1998
- ----------------------------------------------------------------------------------------------------
Mathematics Grade 7: Teacher's Transfer Application TX-2-289-051
Guide Pending as of June 18, 1998
- ----------------------------------------------------------------------------------------------------
Geometry: Course Outline, Answer Transfer Application TX-2-311-453
Keys, Worksheets, Tests Pending as of June 18, 1998
- ----------------------------------------------------------------------------------------------------
Geometry: Teacher's Guide Transfer Application TX-2-311-454
Pending as of June 18, 1998
- ----------------------------------------------------------------------------------------------------
Algebra II: Teacher's Guide Transfer Application TX-2-326-534
Pending as of June 18, 1998
- ----------------------------------------------------------------------------------------------------
Trigonometry / Math Analysis: Transfer Application TX-2-326-535
Support Materials Sample Pending as of June 18, 1998
- ----------------------------------------------------------------------------------------------------
Algebra II: Support Materials Sample Transfer Application TX-2-345-457
Pending as of June 18, 1998
- ----------------------------------------------------------------------------------------------------
Algebra II: Outline, Answer Keys, Transfer Application TX-2-351-931
Worksheets, Tests Pending as of June 18, 1998
- ----------------------------------------------------------------------------------------------------
Geometry: Support Materials Sample Transfer Application TX-2-400-824
Pending as of June 18, 1998
- ----------------------------------------------------------------------------------------------------
</TABLE>
JLC - CONFIDENTIAL
<PAGE>
SCHEDULE 4.08 (CONT'D)
TRANSFER FROM IDEAL (CONT'D)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Product Name Date Filed/Issued Copyright Number
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
ICLS Courseware Sample Language Arts 6 Transfer Application TX-2-582-332
Pending as of June 18, 1998
- ----------------------------------------------------------------------------------------------------
Language Arts 6 Course Outline, Answer Keys, Transfer Application TX-2-582-333
Worksheets, Tests Pending as of June 18, 1998
- ----------------------------------------------------------------------------------------------------
ICLS Courseware Sample: Language Arts 5 Transfer Application TX-2-582-334
Pending as of June 18, 1998
- ----------------------------------------------------------------------------------------------------
ICLS Courseware Sample: Language Arts 5 Transfer Application TX-2-582-334
Pending as of June 18, 1998
- ----------------------------------------------------------------------------------------------------
Language Arts 5: Course Outline, Answer Keys, Transfer Application TX-2-582-335
Worksheets, Tests Pending as of June 18, 1998
- ----------------------------------------------------------------------------------------------------
Language Arts 5: Teacher's Guide Transfer Application TX-2-582-336
Pending as of June 18, 1998
- ----------------------------------------------------------------------------------------------------
Language Arts 6: Teacher's Guide Transfer Application TX-2-582-337
Pending as of June 18, 1998
- ----------------------------------------------------------------------------------------------------
Language Arts 4: Teacher's Guide Transfer Application TX-2-582-936
Pending as of June 18, 1998
- ----------------------------------------------------------------------------------------------------
Language Arts 4: Course Outline, Answer Keys, Transfer Application TX-2-582-937
Worksheets, Tests Pending as of June 18, 1998
- ----------------------------------------------------------------------------------------------------
ICLS Courseware Sample: Secondary Language Arts Transfer Application TX-2-584-925
Pending as of June 18, 1998
- ----------------------------------------------------------------------------------------------------
ICLS Courseware Sample: Language Arts 4 Transfer Application TX-2-593-770
Pending as of June 18, 1998
- ----------------------------------------------------------------------------------------------------
Secondary Language Arts: Course Outline, Answer Transfer Application TX-2-686-566
Keys, Worksheets, Tests Pending as of June 18, 1998
- ----------------------------------------------------------------------------------------------------
Math -- Level 5: Teacher's Guide Transfer Application TX-2-671-309
Pending as of June 18, 1998
- ----------------------------------------------------------------------------------------------------
</TABLE>
JLC - CONFIDENTIAL
<PAGE>
SCHEDULE 4.08 (CONT'D)
TRANSFER FROM IDEAL (CONT'D)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Product Name Date Filed/Issued Copyright Number
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
German I: Teacher's Guide Transfer Application TX-2-671-310
Pending as of June 18, 1998
- ----------------------------------------------------------------------------------------------------
Physics: Course Outlines, Answer Keys, Transfer Application TX-2-671-315
Worksheets, Tests Pending as of June 18, 1998
- ----------------------------------------------------------------------------------------------------
ICLS Courseware Sample: 6th Grade Math Transfer Application TX-2-672-548
Pending as of June 18, 1998
- ----------------------------------------------------------------------------------------------------
Physics: Teacher's Guide Transfer Application TX-2-672-549
Pending as of June 18, 1998
- ----------------------------------------------------------------------------------------------------
ICLS Courseware Sample: German Transfer Application TX-2-672-555
Pending as of June 18, 1998
- ----------------------------------------------------------------------------------------------------
ICLS Courseware Sample: Physics Transfer Application TX-2-672-556
Pending as of June 18, 1998
- ----------------------------------------------------------------------------------------------------
Math -- Level 5: Course Outline, Answer Keys, Transfer Application TX-2-672-557
Worksheets, Tests Pending as of June 18, 1998
- ----------------------------------------------------------------------------------------------------
ICLS Courseware Sample: 4th Grade Math Transfer Application TX-2-678-479
Pending as of June 18, 1998
- ----------------------------------------------------------------------------------------------------
Math -- Level 6: Teacher's Guide Transfer Application TX-2-680-775
Pending as of June 18, 1998
- ----------------------------------------------------------------------------------------------------
German 1: Course Outline, Answer Keys, Transfer Application TX-2-686-566
Worksheets, Tests Pending as of June 18, 1998
- ----------------------------------------------------------------------------------------------------
ICLS Courseware Sample: 5th Grade Math Transfer Application TX-2-686-567
Pending as of June 18, 1998
- ----------------------------------------------------------------------------------------------------
Math -- Level 6: Course Outline, Answer Keys, Transfer Application TX-2-686-568
Worksheets, Tests Pending as of June 18, 1998
- ----------------------------------------------------------------------------------------------------
Math -- Level 4: Course Outline, Answer Keys, Transfer Application TX-2-686-569
Worksheets, Tests Pending as of June 18, 1998
- ----------------------------------------------------------------------------------------------------
</TABLE>
JLC - CONFIDENTIAL
<PAGE>
SCHEDULE 4.08 (CONT'D)
TRANSFER FROM IDEAL (CONT'D)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Product Name Date Filed/Issued Copyright Number
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Mathematics Grade 4: Teacher's Guide Transfer Application
Pending as of June 18, 1998 TX-2-686-571
- ----------------------------------------------------------------------------------------------------
ICLS Courseware Sample: Language Arts 3 Transfer Application
Pending as of June 18, 1998 TX-2-739-191
- ----------------------------------------------------------------------------------------------------
</TABLE>
JLC - CONFIDENTIAL
<PAGE>
SCHEDULE 4.08 (CONT'D)
MATERIAL OPPOSITION TO COMPANY TRADEMARKS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Mark Reg. Date Sections
Serial No. App. Pub. and 8 & 15 Decl. Reg.
Country Class Filed Date Number Due Renewal Remarks
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1. CLASSROOM United 16-catalogs 3/31/98 1/26/99
ESSENTIALS States featuring JLC: Opposer
75/459,879 educational
products, Cease and Desist letter sent to It's
namely, Academic of Illinois, Inc. on
software, 6/29/98 for its mark SCHOOL
instruction ESSENTIALS
manuals,
activity Request for Extension of Time to
guides; file a Notice of Opposition filed
educational on 6/18/99 (granted until 7/25/98).
hooks,
booklets and It's Academic demonstrates prior
workbooks rights in its mark on 7/16/98, and
opposition matter is concluded.
Matter Closed
- ------------------------------------------------------------------------------------------------------------------------------------
2. COMPASS Australia 9-computer 06/12/96 Pending
software;
710447 management Cited Marks
system
software JLC's application under
which deferment since 1/5/98 pending
delivers the disposition of two cited
curriculum applications owned by
and Streamline Pty Ltd. for the marks
instructions CORPORATE COMPASS for use
to students in connection with computer
and teachers software.
Matter Pending
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
JLC - CONFIDENTIAL
<PAGE>
SCHEDULE 4.08 (CONT'D)
MATERIAL OPPOSITION TO COMPANY TRADEMARKS (CONT'D)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Mark Reg. Date Sections
Serial No. App. Pub. and 8 & 15 Decl. Reg.
Country Class Filed Date Number Due Renewal Remarks
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
3. COMPASS Indonesia 9-computer 2/17/98 Pending
D98 2479 software for
managing JLC: Opposed
instruction
programs for Opposition filed by Kompass
educational International Neuenschwander S.A.
courseware (a French Corporation) on 8/28/98
and curriculum for its mark KOMPASS in several
classes, including International
Class 9.
Kompass International
Neuenschwander denies consent to
register mark on 9/16/98.
Rebuttal to Kompass International
Neuenschwander's Opposition filed
on 11/3/98.
Per foreign associate, application
is now under substantive review;
foreign associate confirms on
4/7/99 that the rebuttal to Kompass
International Neuenschwander's
opposition will be considered
during the substantive review
process. If the rebuttal is
successful and the application is
approved after examination, the
application will proceed to
registration.
Matter Pending
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
JLC - CONFIDENTIAL
<PAGE>
SCHEDULE 4.08 (CONT'D)
MATERIAL OPPOSITION TO COMPANY TRADEMARKS (CONT'D)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Mark Reg. Date Sections
Serial No. App. Pub. and 8 & 15 Decl. Reg.
Country Class Filed Date Number Due Renewal Remarks
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
4. COMPASS Singapore 9-computer 07/19/96 Pending
7454/96 software;
management Cited Marks
system
software Kompass International
which Neuenschwander S.A.'s marks
delivers cited against JLC's application.
curriculum Arguments to overcome citations
and filed on 1/12/99.
instructions
to students Matter Pending
and teacher
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
JLC - CONFIDENTIAL
<PAGE>
SCHEDULE 4.08 (CONT'D)
MATERIAL OPPOSITION TO COMPANY TRADEMARKS (CONT'D)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Mark Reg. Date Sections
Serial No. App. Pub. and 8 & 15 Decl. Reg.
Country Class Filed Date Number Due Renewal Remarks
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
5. COMPASS United 9-computer 12/05/96 10/01/97 12/5/96 12/4/03 12/5/06 Registered
MANAGEMENT Kingdom software; 2117672 (compulsory)
SYSTEM computer JLC: Opposer
software for
2117672 program Opposition filed by Reed
management Business Information Systems on
12/24/97 for its marks KOMPASS
in Classes 9, 16 and 35; and
REEDBASE COMPASS in Class 42.
Reed Business Information Systems
withdraws opposition on 11/98 per
successfully completed coexistence
agreement (condition: restriction of
identification of goods).
Matter Closed
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
JLC - CONFIDENTIAL
<PAGE>
SCHEDULE 4.08 (CONT'D)
MATERIAL OPPOSITION TO COMPANY TRADEMARKS (CONT'D)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Mark Reg. Date Sections
Serial No. App. Pub. and 8 & 15 Decl. Reg.
Country Class Filed Date Number Due Renewal Remarks
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
6. COMPASS Australia 9-computer Pending
WORLDWARE software
directed to Cited Marks
761158 teachers and
students for JLC's application under deferment
accessing a since 9/98 pending the
global disposition of two cited applications
computer owned by Streamline Pty Ltd. For the
network marks CORPORATE COMPASS for use in
connection with computer software.
Matter Pending
- -----------------------------------------------------------------------------------------------------------------------------------
7. IDEA SHAPER United 9-computer 07/31/95 10/21/97 Registered
74/707,944 States software that 2,106,204
teaches and JLC: Opposer
facilitates
the Cease and Desist letter sent to
processing of Don Johnson Incorporated on
learning 9/22/97 for its mark IDEA
BUILDER.
Opposition filed 10/22/97 - no answer
to opposition filed by Don Johnson
Incorporated.
Judgment by Default entered, and
registration of IDEA BUILDER refused.
Matter Closed
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
JLC - CONFIDENTIAL
<PAGE>
SCHEDULE 4.08 (CONT'D)
MATERIAL OPPOSITION TO COMPANY TRADEMARKS (CONT'D)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Mark Reg. Date Sections
Serial No. App. Pub. and 8 & 15 Decl. Reg.
Country Class Filed Date Number Due Renewal Remarks
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
8. JCAT United 9-computer 07/31/95 1/14/97 04/08/97 4/8/03 4/8/07 Registered
74/708,041 States programs 2,050,313
that Cease and Desist Matter
administer (initiated by JLC).
diagnostic
and Cease and Desist letter sent to
prescriptive Sensenet, Inc. on 9/14/98.
tests,
primarily in Sensenet, Inc. responds by
language asserting dissimilarity of goods,
arts and and reports that Digital
mathematics Equipment Corp. is using the
for exact mark JCAT for Java-based
educational Collaborative Active Textbooks.
purposes Provide JLC with a referral
attorney because GCW[ILLEGIBLE]
represents Digital Equipment
Corp. No recent report from
client.
Matter Pending
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
JLC - CONFIDENTIAL
<PAGE>
SCHEDULE 4.08 (CONT'D)
MATERIAL OPPOSITION TO COMPANY TRADEMARKS (CONT'D)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Mark Reg. Date Sections
Serial No. App. Pub. and 8 & 15 Decl. Reg.
Country Class Filed Date Number Due Renewal Remarks
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
9. TEACHNET United 9-computer 09/23/96 Due Pending
(stylized) States software for 07/22/98
use in Cited Marks
75/169,818 connection
with JLC's application suspended on
curriculum 1/29/98 pending disposition of
management cited application TEACHERNET
for teaching owned by Highlights for
English and Children, Inc. for magazines,
Spanish pamphlets and newsletters
Language concerning the field of education.
Arts to
students and Matter Pending
user
manuals
sold as a unit
therewith.
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
JLC - CONFIDENTIAL
<PAGE>
SCHEDULE 4.08 (CONT'D)
MATERIAL OPPOSITION TO COMPANY TRADEMARKS (CONT'D)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Mark Reg. Date Sections
Serial No. App. Pub. and 8 & 15 Decl. Reg.
Country Class Filed Date Number Due Renewal Remarks
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
10. WRITE TIME United 9-computer 07/31/95 12/17/96 03/11/97 03/11/03 3/11/07 Registered
States software for 2,042,803
74/709,331 use in JLC: Opposer
improving
the writing Request for Extension of Time to
skills of file a Notice of Opposition filed
primary on 9/20/96 for the mark
school WRITING TIME owned by
students Harriet Jean Azemove.
Cease and Desist letter sent to
Harriet Jean Azemove on 10/18/96.
Coexistence agreement proposed
11/21/96.
No further record of outcome in
file, but JLC's mark WRITE TIME was
registered on 3/11/97.
Matter Closed
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
JLC - CONFIDENTIAL
<PAGE>
SCHEDULE 4.08 (CONT'D)
MATERIAL INBOUND LICENSE AGREEMENTS
<TABLE>
<CAPTION>
=================================================================================================================================
Company Contract Type Product Licensed JLC Product IP owned Royalty
by
Company
=================================================================================================================================
<S> <C> <C> <C> <C> <C>
Academic Systems Distribution Algebra - intro, intermed, Interactive Yes 40% of gross sales
coll Interactive Math Mathematics
PreAlgebra 1&2
Algebra 1&2
- ---------------------------------------------------------------------------------------------------------------------------------
Academic Systems Distribution RIMS, JLC notebook in Notebook Yes N/A
ASC Mediated Learning
System
- ---------------------------------------------------------------------------------------------------------------------------------
Aptex Distribution Vital Tools Vital Tools Yes 65% of net $178.75
minimum
- ---------------------------------------------------------------------------------------------------------------------------------
Bank Street College of License Wordbench Wordbench
Ed. Secondary Learner Yes .05% per product
- ---------------------------------------------------------------------------------------------------------------------------------
BBN Development Algebra product Algebra Wordbench JLC 15% of net
- ---------------------------------------------------------------------------------------------------------------------------------
CA DOE License Phys.Sci Mid Scl Sci JLC 10% per product
- ---------------------------------------------------------------------------------------------------------------------------------
Comptons Development Multi-media encyclopedia Tom.'s Promise Yes Version 1-3 20%
Elementary Learner Version 4.25%
- ---------------------------------------------------------------------------------------------------------------------------------
Dade County Development ELD JLC 8% to state of FL 2%
Dade
- ---------------------------------------------------------------------------------------------------------------------------------
Edunetics License Rediscover Science Mid Sch Sci Yes 40% of gross
- ---------------------------------------------------------------------------------------------------------------------------------
First Byte License Voice or speech property Assorted Project Yes $60/network
$25/la[ILLEGIBLE]
- ---------------------------------------------------------------------------------------------------------------------------------
FL DOE ESOL curriculum for teacher T.E.A.C.H. Yes 15% of net
training
- ---------------------------------------------------------------------------------------------------------------------------------
Learning Company License CWP Center, Writing Tomorrow's Standalone $45/copy
Center, Student Writing Promise Yes networked $899/copy
Center
- ---------------------------------------------------------------------------------------------------------------------------------
Lernout & Haupsie License Spell checker grammar Writing Expedition Yes Writing Exped. 3.5%
Checker Steps to ELD copy ($3.35/copy
Thesaurus Elem/Mid Learner min.) 2.5%/copy
Grammar checker Elem/Mid Learner ($10/copy min.)
thesaurus
- ---------------------------------------------------------------------------------------------------------------------------------
Proximity Tool license Linguistic technology Elem Lrnr Steps Yes Qty/Spell/Dictionary
1-8: $25/$30.00
9-12: $33/$39.60
13-16: $41/$49.20
17-20: $49/$58.80
21-24: $57/$68.40
25-32: $73/$87.60
33-40: $81/$97.00
41+: $89/106.80
=================================================================================================================================
</TABLE>
JLC - CONFIDENTIAL
<PAGE>
MATERIAL INBOUND LICENSE AGREEMENTS (CONT'D)
<TABLE>
<CAPTION>
==================================================================================================================================
Company Contract Type Product Licensed JLC Product IP owned Royalty
by
Company
==================================================================================================================================
<S> <C> <C> <C> <C> <C>
Sensei License Algebra, intro to Algebra Secondary Learner Yes 15% of sales receipts
Software
- ----------------------------------------------------------------------------------------------------------------------------------
Sensei License Geometry, intro to Geometry Secondary Learner Yes 15% of sales receipts
Software
- ----------------------------------------------------------------------------------------------------------------------------------
Western/GBFE License GBE, stories, dictionary GBE, ILA Story Yes greater of 12.25% of
Books, Story Book net billings or 70%
Maker, Story Book of JLC price for GBE
Maker Deluxe- (SBD) 4% of net for SBD
==================================================================================================================================
</TABLE>
JLC - CONFIDENTIAL
<PAGE>
SCHEDULE 4.08 (CONT'D)
MATERIAL OUTBOUND LICENSE AGREEMENTS
Distribution Agreements:
1. Publication and Distribution Agreement entered into by and between JLC
Learning Corporation and Addison Wesley Longman Limited on December 8,
1997. Amendment One to this Agreement was entered into on December 18,
1998. Amendment Two to this Agreement was entered into on March 12, 1999.
In connection with the work contemplated under Amendment Two, JLC and AWL
entered into a confidentiality Agreement with Biobras, an independent
contractor. Amendments Three and Four were entered into on May 28, 1999.
The Publication and Distribution Agreement grants rights to the products
listed below.
Current Release Past Releases
--------------- -------------
Compass Advantage
Worldware Algebra 1
JCAT Children's Writing and
Tomorrow's Promise Math Publishing
Tomorrow's Promise Reading Comptons Encyclopedia
Tomorrow's Promise Language Arts Early Learning Program
Tomorrow's Promise Science ELD
Earth Science Elementary New Edition Math
Biology Elementary New Edition
Chemistry Reading
Physics Elementary School Program
Writing Expedition Geometry
Spelling Idea Shaper (included w/ELD)
ILA
JCAT
Learning Expedition
Learning First
Middle School Expansion
Middle School Program
New Edition Math
Secondary Expansion Program
Secondary School Program
Spanish Language Arts
Spanish Language Expansion
The Writing Center
JLC - CONFIDENTIAL
<PAGE>
SCHEDULE 4.08 (CONT'D)
MATERIAL OUTBOUND LICENSE AGREEMENTS
2. International Development and Distribution Agreement entered into by and
between JLC Learning Corporation and Educational Trend Sdn. Bhd. on March
20, 1998. Amendment One to this Agreement was entered into on February 28,
1998. A Letter of Amendment and Subdistribution Agreement are currently
under negotiation. The International Development and Distribution
Agreement grants rights to the products listed below.
Current Release Past Releases
--------------- -------------
Compass Action Math
Worldware Algebra I
JCAT Comptons Encyclopedia
Tomorrow's Promise Math Early Learning Program
Tomorrow's Promise Reading ELD
Tomorrow's Promise Language Arts Elementary New Edition Math
Tomorrow's Promise Science Elementary New Edition
Earth Science Reading
Biology Elementary School Program
Chemistry Geometry
Physics Idea Shaper (included w/ELD)
Writing Expedition ILA
Spelling JCAT
Learning Expedition
Learning First
Life and Employability Skills
Middle School Expansion
Middle School Program
New Edition Math One Net
Secondary Expansion Program
Secondary School Program
The Writing Center
JLC - CONFIDENTIAL
<PAGE>
SCHEDULE 4.08 (CONT'D)
MATERIAL OUTBOUND LICENSE AGREEMENTS
Customer Agreements:
Note: Not listed in this Schedule are Customer Agreements, which use the
form of agreement customary at the time those agreements were executed;
however, those agreements may differ in regard to price discounts, service
commitments and other miscellaneous terms. The agreements with customers
that are listed below do not use the standard form of agreement and
contain terms which may be deemed material or unusual.
1. West Virginia Department of Education
2. The School Board of Dade County, Florida
3. Center Grove Community School Corporation, Indiana
4. Duneland School Corporation, Indiana
5. School City of East Chicago, Indiana
6. Grand Rapids Public Schools, Michigan
7. Godwin Heights Public Schools, Michigan
8. Goshen Community School District, Indiana
9. Lockhardt Independent School District, Texas
10. La Porte Community School District, Indiana
11. Loogootee Community School District, Indiana
12. Michigan City Area Schools, Indiana
13. New Albany-Floyd Consolidated School Corporation, Indiana
14. West Allegheny School District, Pennsylvania
15. Zion Elementary School District #6, Illinois
JLC - CONFIDENTIAL
<PAGE>
SCHEDULE 4.08 (CONT'D)
JLC SOFTWARE LICENSE
Catalog Resellers of Standalone Products
The attached lists provide the names and addressees of catalog resellers and
preview centers of JLC Learning Corporation standalone products.
- ------------------------------------------------------------------------
Dan Homer Patsy Gettens
Augmentative Communication Basic Computer Learning
2808 Moon Clinton Road 20130 Center Ridge Road
Moon Township, PA 15108 Rocky River, OH 44116
- ------------------------------------------------------------------------
Ann Marie Winchester Jan Smith
Basic Computer Learning Bound To Stay Bound Books, Inc.
20130 Center Ridge Road 1880 West Morton
Rocky River, OH 44118 Jacksonville, IL 62650
- ------------------------------------------------------------------------
Robert Blackwood Rose Stairs
Cerberus Association Inc. Computer Centerline (CCL)
33 Comstock Hill Road 1500 Broad Street
Norwalk, CT 08850-1506 Greensburg, PA 15601
- ------------------------------------------------------------------------
Mike Fitzpatrick Denise Nason
Computer Inventory Control/School Cox Subscriptions
World Soft 411 Marcia Drive
3109 Forbes Avenue Goldsboro, NC 27530
Pittsburgh, PA 15213
- ------------------------------------------------------------------------
Michelle Nuzzo Don Latta C.P.R. Software
Custom Computer Specialist 84 Colbome Street
48 Mall Drive P.O. Box 431
Commack, NY 11725 Brantford, Ontario N3T5N3
- ------------------------------------------------------------------------
Tina Bailey Marilyn Morgan
Daly Computers Inc. DISC Educational Technology
1245 Mountain Church Road 2501-B Ten-Ten Road
Middleton, MD 21789 Apex, NC 27502
- ------------------------------------------------------------------------
JLC - CONFIDENTIAL
<PAGE>
SCHEDULE 4.08 (CONT'D)
Catalog Resellers of Standalone Products (CONT'D)
- --------------------------------------------------------------------------------
James Long Alan Shafer
Educational Record Center Elcom Services Group
3233 Burnt Mill Drive, Suite 100 111 Sinclair Street
Wilmington, NC 28403 Bristol, PA 19007
- --------------------------------------------------------------------------------
Perri Kersh
Hach & Associates, Computers for Kids Peggy Eaker
P.O. Box 11754 Hart, Inc.
4994 B Indiana 320 New Stock Road
Winston Salem, NC 27116-1754 Asheville, NC 28804
- --------------------------------------------------------------------------------
Marie Hervey Lori North
Interactive Educational Software & Video Holcomb's Education Resource
16 Ada Lane 5 Boston Harbor Court
Cortland Manor, NY 10566-6339 O'Fallon, MO 63366
- --------------------------------------------------------------------------------
Connie Martin Jason Sellback
Kidsource Ismart
2645 N. Main Street 6679-H Santa Barbara Road
High Point, NC 27265-9517 P.O. Box 1037
Elkridge, MD 21075
- --------------------------------------------------------------------------------
Suzanne Dempster Ed Kosack
Learning Center Kunz Inc.
2750 S. State Street 1630 Sulphur Spring road
Ann Arbor, MI 48104 Baltimore, MD 21227-2539
- --------------------------------------------------------------------------------
Tom Homer Jean Blakely
Learning Technology Group Inc. Learning Edge
320 N. Washington Street 111 Route 303
Rochester, NY 14625 Tappan, NY 10983
- --------------------------------------------------------------------------------
Robert E. Lamy Julie Shaw
Logisoft Computer Products Library Video Company
6605 Pittsford-Palmyra Road W-2 7 East Wynnewood Road
Fairport, NY 14450 Wynnewood, PA 19098
- --------------------------------------------------------------------------------
Elaine Vazzana Anthony Hazel
New Media Schoolhouse, Inc. New Media Schoolhouse, Inc.
P.O. Box 505, 69 Westchester Avenue P.O. Box 505
Pound Ridge, NY 10578 69 Westchester Avenue
Pound Ridge, NY 10576
- --------------------------------------------------------------------------------
<PAGE>
SCHEDULE 4.08 (CONT'D)
Catalog Resellers of Standalone Products (CONT'D)
- --------------------------------------------------------------------------------
Jay Johnston Bob McAllster
PC Micro Dealers Co-op, Inc. Omega Films Limited
3042 Remington Avenue 3501 McNicoll Avenue, Unit #7
Baltimore, MD 21211 Scarborough, Ontario, Canada M1V2N3
- --------------------------------------------------------------------------------
Julie Schwaller Jack Balkind
School Specialty Supply Plymouth Rock Associates
1000 Bluemound Drive 28 Kristin Road
Appleton, WI 54914 Plymouth, MA 02360
- --------------------------------------------------------------------------------
Jose Naranjo Paul Carter
Softchoice Softchoice
1273 Dufferin Street, Suite 110 173 Dufferin Street
Toronto, ON CANADA M6K 1Y9 Suite 110
Toronto, ON CANADA M6K 1Y9
- --------------------------------------------------------------------------------
Pamel Ring Rod Galtin
Software In a Week Software Express
13-15 E. Deer Park Drive, #101 4128-A South Boulevard
Gaithersburg, MD 20877 Charlotte, NC 28209
- --------------------------------------------------------------------------------
Rebecca Holden Alan Wyand
Teacher's Pet Spectrum Educational Supplies
233 Mount Pisgah Road SW 125 Mary Street
Supply, NC 28482 Aurora, ONT L4G 1G3
- --------------------------------------------------------------------------------
Jerome Pelstrom Susan Rodgers
Acorn Media Tiger Corp. Direct
25132 Adelanto Drive 1100 Perimeter Park, Suite 118
Laguna Niguel, CA 92677 Morrisville, NC 27560
- --------------------------------------------------------------------------------
Moses Gonzalez Shawn Walsh
Binet International Amarillo Computers
122 Escondido Avenue, #101 201 J Westgate Parkway
Vista, CA 92084 Amarillo, TX 79121
- --------------------------------------------------------------------------------
Glen Blomgren Gary Temoin
Christa McAuliffe Academy CES Inc.
3601 W. Washington Avenue 1160 Yew Avenue
Yakima, WA 98903 Blaine, WA 98230
- --------------------------------------------------------------------------------
JLC - CONFIDENTIAL
<PAGE>
SCHEDULE 4.08 (CONT'D)
Catalog Resellers of Standalone Products (CONT'D)
- --------------------------------------------------------------------------------
David Hoffman Leslie Bahn
CompUSA CompUSA
300 W. 3rd Street, Suite 1509 3617 W. Hillsboro Avenue
Fort Worth, TX 76102 Tampa, FL 33614
- --------------------------------------------------------------------------------
Teresa Mew Bill Young
Core Curriculum Technologies Compuware
101-3738 North Fraser Way 47-098 Halemanu Place
Burnaby, B.C., CANADA V5J 5K8 Kaneohe, HI 96744
- --------------------------------------------------------------------------------
Susan Tigo Sharl Henson
Edmark Corporation Dynamic Computer Solutions
6287 185th Avenue NE 5648 SW 29th
Redmond, WA 98073-3218 Topeka, KS 66614
- --------------------------------------------------------------------------------
Bob Fowler Dennis Hilsgen
Educational Techniques & Technologies EdTech
1416 50th Street, Suite 9 2872 7th Street North
Lubbock, TX 79414 St. Cloud, MN 56303
- --------------------------------------------------------------------------------
Beverly Alford Linda Caruso
ETC Educational Technology Group
4620 50th Street, Suite 9 12200 Northwest Freeway, Suite 340
Lubbock, TX 79414 Houston, TX 77092
- --------------------------------------------------------------------------------
Jean Fowler Allison Veal
ET&T ETI
1214 C Stonehollow 5003 Tacoma Mall Boulevard, Suite 103
Kingwood, TX 77339-2029 Tacoma, WA 98409-7139
- --------------------------------------------------------------------------------
Sheron Long Caroline Penner
Hampton Brown For The Love of Learning
26385 Carmel Rancho Boulevard 9090-51 Avenue
Carmel, CA 93923 Edmonton, AB T8E 5X4
- --------------------------------------------------------------------------------
Wayne Clark Tom Neuman
Image Media Inc. ICP Educational Resources
Unit 3, 8755 Ash Street 2011 E. Renee Drive
Vancouver, BC V6P 6T3 Phoenix, AZ 85024
- --------------------------------------------------------------------------------
JLC - CONFIDENTIAL
<PAGE>
SCHEDULE 4.08 (CONT'D)
Catalog Resellers of Standalone Products (CONT'D)
- --------------------------------------------------------------------------------
Byron Killen Jack Sheppard
Killen Management Systems Jack E. Sheppard & Associates
615 N. O'Connor, Suite 9 901 Fairway Road
Irving, TX 75061 Waco, TX 74712
- --------------------------------------------------------------------------------
Julie Hill Trakash Joshi
Multiple Zones International Microsync
707 South Grady Way 848 SW Maplecrest Court, Suite B7
Renton, WA 98055-3233 Portland, OR 97219
- --------------------------------------------------------------------------------
Susan Heimann Eldon Williams
Page One Nasco West
11018 Montgomery NE 4825 Stoddard Road
Albuquerque, NM 87111 Modesto, CA 95358
- --------------------------------------------------------------------------------
Maxwell Simpson Happy Vondohlen
Projected Learning Programs Inc. PCI Educational Publishing
7508 N. Broadway Extension, Suite 505 P.O. Box 34270
Oklahoma City,OK 73116 San Antonio, TX 78265-4270
- --------------------------------------------------------------------------------
Domingo Castameda Colleen K. Hess
Software Spectrum SchoolVision, Inc.
2140 Merritt Drive P.O. Box 90
Garland, TX 75041 1102 Petroleum Drive
Abilene, TX 79604-0090
- --------------------------------------------------------------------------------
James Rogers Terri Cook
Technology For Education, Inc. Teachware
2300 Lexington Avenue South, #125 P.O. Box 890238
St. Paul, MN 55120 Oklahoma City, CA 73189-0238
- --------------------------------------------------------------------------------
Joyce Cutler Mike Quigley
The Reading and Computer Place Texas Courseware
14752 Beach Boulevard, #200 26730 1-45 N
La Mirada, CA 90638 Spring, TX 77388
- --------------------------------------------------------------------------------
Weniee Huang Bobbie Gibel
US Tech Tierra Del Oro
1236 San Jacinto Mall 5931 North Oracle, Suite 221
Baytown, TX 77521 Tucson, AZ 85704
- --------------------------------------------------------------------------------
JLC - CONFIDENTIAL
<PAGE>
SCHEDULE 4.08 (CONT'D)
Catalog Resellers of Standalone Products (CONT'D)
- --------------------------------------------------------------------------------
Fred Ventura Greg Parks
Ventura Educational Systems Ventura Educational Systems
910 Ramona Avenue, Suite E 9810 Ramona Avenue, Suite E
Grover Beach, CA 93433 Grover Beach, CA 93433
- --------------------------------------------------------------------------------
Craig Baron Amber Powell
Academic Advantage Virtual Softnet Canada Inc.
241 Willow Avenue 201-1290 Broad Street
Deerfield, IL 60015 Victoria, B.C. Canada V8W 2A5
- --------------------------------------------------------------------------------
Mike Bozeman Al Rosen
Alasoft, Inc. Academic Software
2168 Pelham Parkway, Suite 4 595 Colonial Park Drive
Pelham, AL 35124 Roswell, GA 30075
- --------------------------------------------------------------------------------
Debi Badgley Joyce Bassett
Bell Industries, Graham Division Alboes Computers And Supplies
5604 Fortune Cr. South, Suites G-N 6298 Veterans Parkway, Suite 3F
K - 12 Sales Columbus, GA 31909
Indianapolis, IN 48241
- --------------------------------------------------------------------------------
Tom Haight Jana Harrell
Classroom Technology Bell Industries, Graham Division
118 Barrington Commons, Ste. 218 5604 Fortune Circle South, Ste. G-N
Barrington, IL 60010 Indianapolis, IN 46241
- --------------------------------------------------------------------------------
Horacio Sanchez Andrew Gordon
Computer Services & Consulting Clearvue
1603 S. Michigan Avenue, Suite 110 6465 North Avondale Avenue
Chicago, IL 60616 Chicago, IL 60631
- --------------------------------------------------------------------------------
Richard Patchin Elaine Joggerst
Delta Systems Co., Inc. Crimson Multimedia Distribution, Inc.
1400 Miller Parkway 1118 33rd Street NE
McHenry, IL 60050 Ceder Rapids, IA 52402
- --------------------------------------------------------------------------------
Rebecca Herchman Dan Wechsler
DP Solutions Discovery
617 North Timberland Drive 1880 Old Okeechobee Road, Suite 106
Lufkin, TX 75901 West Palm Beach, FL 33409
- --------------------------------------------------------------------------------
JLC - CONFIDENTIAL
<PAGE>
SCHEDULE 4.08 (CONT'D)
Catalog Resellers of Standalone Products (CONT'D)
- --------------------------------------------------------------------------------
Aubrey Corley Mimi Gavagan
Educational Materials Specialists, Inc. Educational Computer Workshop
577 Hwy 51 North, Suite C 9507 Pamlico Lane
P.O. Box 1198 Great Falls, VA 22066
Ridgeland, MS 39158
- --------------------------------------------------------------------------------
Linda Andersen Lori McCaughey
Lab Resources K-12 Micromedia Publishing
W275 N2755 Oak Street 16 McKee Drive
Pewaukee, WI 53072 Mahwah, NJ 07430
- --------------------------------------------------------------------------------
Jay Forman Rick Amill
Logical Choice, Inc. Learning Supplements
3100 Breckinridge Boulevard, #130 25 Hidden Meadow Road
Duluth, GA 30136 Weston, CT 06883
- --------------------------------------------------------------------------------
Steve Gibus Delores Lennox
Magg Software Mac Center
2593 Yellow Star Street 3343 W. Commercial Boulevard, Suite 100
Woodridge, IL 60517 Ft. Lauderdale, FL 33309
- --------------------------------------------------------------------------------
Becky Wright Dave Myers
NASCO Micro Age
901 Janesville Avenue 2020 N. Central Avenue
Fort Atkinson, WI 53538 Phoenix, AZ 85004
- --------------------------------------------------------------------------------
Nancy Tran David Tarver
Net One Consulting National School Products
680 N. Lakeshore Drive, Suite 114 101 E. Broadway
Chicago, IL 60611 Maryville, TN 37804
- --------------------------------------------------------------------------------
Parry Cavanna Steve Dickinson
S&P Enterprises New SVE Inc.
2 Christopher Road 6465 North Avondale Avenue
Branford, CT 06405 Chicago, IL 60631
- --------------------------------------------------------------------------------
Jan Binney Norma Rewis
Speech Bin, The School Media Associates
1985 25th Avenue 2700 N.E. Expressway, C-800
Vero Beach, FL 32960 Atlanta, GA 30345
- --------------------------------------------------------------------------------
JLC - CONFIDENTIAL
<PAGE>
SCHEDULE 4.08 (CONT'D)
Catalog Resellers of Standalone Products (CONT'D)
- --------------------------------------------------------------------------------
Bruce Brown Debbie Seeley
World Class Learning Materials, Inc. Valpar International Corp.
111 Kane Street 2450 West Ruthrauff Road, Suite 180
Baltimore, MD 21224 Tucson, AZ 85705
- --------------------------------------------------------------------------------
Dianne Wright Mike Short
Yesl Learning Center Wyse Connecting Point
4132 Elida Road 1409 S. Defiance Street
Lima, OH 45807 P.O. Box 157
Archbold, OH 43502
- --------------------------------------------------------------------------------
Ann Fitspatrick Dominika Spetsmann
Cambridge Development Lab Cambridge Development Lab
86 West Street 88 West Street
Waltham, MA 02154 Waltham, MA 02154
- --------------------------------------------------------------------------------
Cheryl Narum Susan Lopez
CCV-Soft Warehouse Educational Resources
5602 36th Street South 1550 Executive Drive
Advertising Elgin, IL 60121-1900
Fargo, ND 58104
- --------------------------------------------------------------------------------
Kim Connoly Amy Sunderlaage
ESI (Educational Software Institute) Forest Technologies
4213 South 94th Street 765 Industrial Drive
Omaha, NE 68127 Cary, IL 60013
- --------------------------------------------------------------------------------
Lily Toback Donna Villena
Melzner Inc. Learning Services
4771 Boston Post Road 3895 E. 19th Avenue
Pelham, NY 10803 P.O. Box 10636
Eugene, Oregon 97440-2636
- --------------------------------------------------------------------------------
Dave Maurer Jeff Tompkins
Scantron Quality Computers Scantron Quality Computers
20200 Nine Mile Road 20200 Nine Mile Road
St. Claire Shores, MI 48080 St. Clair Shores, MI 48080
- --------------------------------------------------------------------------------
Ira Feigelman Annat Rouben
SmartSource LLC Westwood Computers & Networking
12 B West Main Street 1821 Pontius Avenue
Elmsford, NY 10523 Los Angeles, CA 90025
- --------------------------------------------------------------------------------
JLC - CONFIDENTIAL
<PAGE>
SCHEDULE 4.08 (CONT'D)
Catalog Resellers of Standalone Products (CONT'D)
- --------------------------------------------------------------------------------
Madalaine Pugliese Ms. Shirley Crehn
Assistive Technology Project Bucks County Intermediate, Unite 22
28 Lord Road, Suite 125 705 Shady Retreat Road
Marlborough, MA 01752 Doylestown, PA 18901
- --------------------------------------------------------------------------------
Ms. Judy Timms Jackie Nunn
Carolina Computer Access Center Center for Technology In Education
Metro School - 700 E. 2nd Street 2500 E. Northern Parkway
Charlotte, NC 28202-2826 Baltimore, MD 21214
- --------------------------------------------------------------------------------
Ms. Marge Joslin Karen Spurrier
Clinton County ISD Eastern Panhandle Tech Access Ct., Inc.
4179 South U.S. 27 P.O. Box 987
St. Johns, MI 48879 Charles town, WV 25414
- --------------------------------------------------------------------------------
Dr. Judith Brenneke Ms. Gerry Soloman
Educational Computer Consortium of Information Technology Evaluation
Ohio Services
4300 Bayard Road 301 N. Wilmington Street
South Euclid, OH 44121 Raleigh, NC 27601-2825
- --------------------------------------------------------------------------------
Mr. James Cassin Ms.Denise Simard
IU9IMS Technology Education Center Learning Ind. Through Computers, Inc.
119 Mechanic Street 28 E. Ostend Street, Suite 140
Smethport, PA 16749 Baltimore, MD 21230
- --------------------------------------------------------------------------------
Ms. Elleen Barnett Alan Field
Lesley College Instructional Computing Mass. Special Tech Access Center
30 Mellen Street 71 Arsenal Street
Cambridge, MA 02138-2790 Watertown, MA 92172-2638
- --------------------------------------------------------------------------------
Ms. Kathleen Murphy David Benson
Montgomery County Intermediate Unit Northeast Educational Television of Ohio
1605 E. West Main Street 1750 Campus Center Drive
Norristown, PA 19403-3290 Kent, OH 44240
- --------------------------------------------------------------------------------
Mr. Harry Gretcher Ms. Lana Gossin
Physically Impaired Assoc. of Michigan Resource Center for Independent Living
1023 South U.S. 27, Suite B31 401 - 409 Columbia Street
St. Johns, MI 48879 P.O. Box 210
Utica, NY 13501-0210
- --------------------------------------------------------------------------------
JLC - CONFIDENTIAL
<PAGE>
SCHEDULE 4.08 (CONT'D)
Catalog Resellers of Standalone Products (CONT'D)
- --------------------------------------------------------------------------------
Larry Pogue Mr. Steve Snyder
Solta Learning Center Summit Co. School Instr. Tech. Center
150 East Sixth Street 420 Washington Avenue, Ste. 200
Franklin, OH 45004 Cuyahoga Falls, OH 44221
- --------------------------------------------------------------------------------
Mr. Norman Sterchele Ms. Debra McGarvey
SYSU College of Education Technology Resources for Education
226 Brown Hall - SVSU 1979 Central Avenue
University Center, MI 48710 Albany, NY 12205
- --------------------------------------------------------------------------------
Ms. Gail Ross McBride Board of Jewish Education
The Education Cooperative 426 West 58 Street
160 Grove Street New York, NY 10019
Wellesley, MA 02181
- --------------------------------------------------------------------------------
BOCES Regional Information Center Carbon Lehigh Intermediate Unit #21
32 Warren Avenue 4750 Orchard Road
Tarrytown, NY 10591 Schnecksville, PA 18078-2597
- --------------------------------------------------------------------------------
Educational Resource Center Info Tech. Educ. for the Commonwealth
Norwich Univ. - Vermont College Penn State - 210 Rider Bldg. II
Montpelier, VT 05602 227 W. Beaver Avenue
University Park, PA 16801
- --------------------------------------------------------------------------------
Oswego County Teacher Center Mary Travillian
Oswego Co. BOCES - Rt. 64 AEA 6, Div. of Media Services
Mexico, NY 13114 212 West Ingeldue
Marshaltown, IA 50158
- --------------------------------------------------------------------------------
Dr. Joseph Bellucci Velma Bazan
Regional Computer Resource Center Alaska Services for Enabling Tech.
Wilkes Univ - 187 S. Franklin Street P.O. Box 6485
Wildes-Barre, PA 18766 Sltka, AK 99835
- --------------------------------------------------------------------------------
Syracuse Teacher Center Jan Hecht
501 Park Street Adaptive Tech Lab/Southern CT State
Syracuse, NY 13203 501 Crescent Street
New Haven, CT 06515
- --------------------------------------------------------------------------------
JLC - CONFIDENTIAL
<PAGE>
SCHEDULE 4.08 (CONT'D)
Catalog Resellers of Standalone Products (CONT'D)
- --------------------------------------------------------------------------------
Dennis Hullinger Ms. Judy Roy
Alpine School Dist - Peterson School Bimingham ATA Center
169 N. 1100 East 206 13th Street South
American Fork, UT 84003 Birmingham, AL 35233-1317
- --------------------------------------------------------------------------------
Joyce Kenrs Lisa Wahl
Assistive Tech. Training & Info Center Center for Accessible Technology
3354 Pine Hill Drive - P0 2441 2547 8th Street, 12-A
Vincennes, IN 47591 Ship Address: 2525 8th Street
Berkley, CA 94710-2572
- --------------------------------------------------------------------------------
Ms. Beth McKinney-Whitlock Melody Ram
Blue Grass Tech. Ctr. for People Computer Access Center
w/Disabilities 5901 Green Valley Circle #320
169 North Limestone Street Culver City, CA 90230
Lexington, KY 40507
- --------------------------------------------------------------------------------
Ms. Barbara Lindar Carol Adams
Center for Enabling Technology Computer CITE
622 Rt. 10 West, Suite 22B 215 E. New Hampshire Street
Whippany, NJ 07981 Orlando, FL 32804
- --------------------------------------------------------------------------------
Craig Boogaard Star Heger
Computer Center for Citizens Computing & Telecomputing Services
w/Disabilities 400 E. 8th Avenue
2056 South 1100 East Ellensbeng, WA 98926-7581
Salt Lake City, UT 84108
- --------------------------------------------------------------------------------
Mary Fisher Elizabeth Keller
Alameda Co. Office of Ed. - Preview Aloha Special Technology Access Center
Center 710 Green Street
313 West Winton Avenue - Room 120 Honolulu, HI 96813-2119
Hayward, CA 94544-1198
- --------------------------------------------------------------------------------
Fred Fiedler Ann Fuller
Alliance for Technology Access Armstrong Atlantic State University
2175 E. Francisco Blvd., Suite L 11935 Abercorn Street
San Rafael, CA 94901 Savannah, GA 31419-1997
- --------------------------------------------------------------------------------
JLC - CONFIDENTIAL
<PAGE>
SCHEDLLE 4.08 (CONT'D)
Catalog Resellers of Standalone Products (CONT'D)
- ------------------------------------------------------------------------------
Bev Appel Mr. Ray Mitchell
Computer Learning & Information Centre Education Resource Center
4646 Sarcee Road SW 2832 E. Flamingo Road
Calgary, AB, CN T3E7B8 Las Vegas, NV 89121
- ------------------------------------------------------------------------------
Denise Peters Mark Finstrom
Cooperating School Districts/Ed. Tech Education Technology Alliance
1460 Craig Road 1300 Mendola Heights Road
St. Louis, MO 63146 Mendota Heights, MN 55120
- ------------------------------------------------------------------------------
Raylen Fenfrow Jan Quinlan
Educational Service Center, Region VI Educational Service Center #13
3332 Montgomery Road 200 S. Frederick
Huntsville, TX 77340 Rontou, IL 61866
- ------------------------------------------------------------------------------
Chris Franklin Louis Simington
Education Technology Center E. Tennessee Special Tech. Access Center
620 Union Drive - Union Bldg. 123 3525 Emory Road NW
Indianapolis, IN 46202-5167 Powell, TN 37849
- --------------------------------------------------------------------------------
Susan Jones Jim Geary
Ed. Tech Ctr & Ctr for Excellence in FDLRS
Special Ed. 5555 SW 93rd Avenue
University of SC - Wardlaw Bldg Rm 274 Miami, FL 33165
Columbia, SC 29208
- --------------------------------------------------------------------------------
Judy Kitz Bill Jackson
FCIT Univ. S. FL/College of Education FDLRS - Collier Co. Public Schools
4202 E. Fowler, EDU 208B 3708 Estey Avenue
Tampa, FL 33620 Naples, FL 33942
- --------------------------------------------------------------------------------
Randy Graff Sally Wood
FDLRS Great River Preview Center
1825 Dunn Avenue 1200 University, P.O. Box 1085
Daytona Beach, FL 32114 Burlington, IA 52601
- --------------------------------------------------------------------------------
Diane Johnson Mr. Cecil McDermont
FL Diagnostic & Learning Resources IMPAC Learning Systems
Center 501 Woodlane Drive, Suite 122
3955 West Pensacola Street Little Rock, AR 72201
Tallahassee, FL 32304
- --------------------------------------------------------------------------------
JLC - CONFIDENTIAL
<PAGE>
SCHEDULE 4.08 (CONT'D)
Catalog Resellers of Standalone Products (CONT'D)
- --------------------------------------------------------------------------------
John Hilliard Toni Strickland
Illinois Resource Center JDSB/PAEC Preview Center
1855 Mt. Prospect Road 2701 Technology Circle
Des Plaines, IL 60018 Marianna, FL 32448
- --------------------------------------------------------------------------------
Marty Karlin Andrea Reid
Jackson ESD Center for Ed. Technology Kingwood Speech Pathology
101 N. Grape Street 1110 Kingwood Drive, Suite 200
Medford, OR 97501 Kingwood, TX 77339
- --------------------------------------------------------------------------------
Donna Ross Barb Besch
Key Largo School Lakeland AEA 3 Media Center
104801 Overseas Highway Hwy 18 and 2nd Street
Key Largo, FL 33037 Cylinder, IA 50528
- --------------------------------------------------------------------------------
Wendy Goldstein Parul Sharrai
Lake Co. Educational Service Center Living Independence Network Corp.
19525 West Washington Street 1002 Shoshone Street East
Grayslake, IL 60030 Twin Falls, ID 83301
- --------------------------------------------------------------------------------
Lynn Lary Ms. Janice LaChance
Lane Education Service District Maine Parent Federation
1200 Hwy. 99 North P.O. Box 2067
Eugene, OR 97402 Augusta, ME 04338-2067
- --------------------------------------------------------------------------------
Mr. Dennis Kunces John Russell
Maine DOE Preview Center Natrona Co. School Dist. Software
23 State House Station Preview Lab
Augusta, ME 04333-0023 970 N. Glen Road, Casper, WY 82601
- --------------------------------------------------------------------------------
Jon Harding Ms. LaVone Rodrigue
Missouri Tech. Center for Special Ed. Nicholis State University
UMKC School of Education, Room 24 P.O. Box 2035
5100 Rockhill Road Thibodaux, LA 70310
Kansas City, MO 64110
- --------------------------------------------------------------------------------
JLC - CONFIDENTIAL
<PAGE>
SCHEDULE 4.08 (CONT'D)
Catalog Resellers of Standalone Products (CONT'D)
- --------------------------------------------------------------------------------
Mr. Joe LeDuc Stacy Avery
Neb. Dept. of Education Tech. Center Northwide ISD (Northside Instructional
301 Centinnial Mall South - P0 94987 Technology)
Lincoln, NE 68509-4987 6632 Bandera Road, Building D
San Antonio, TX 78238
- --------------------------------------------------------------------------------
Jerry Schnabel Mary Brillante
Northern Trails Area Education Agency Orange Co. Public Schools - Educators
Northern Trails AEA Box M Resource Ctr.
Clear Lake, IA 50428 445 W. Amelia Street
Orlando, FL 32801
- --------------------------------------------------------------------------------
Ron Toma Mr. Roger Holt
OASIS, School Group Parents, Let's Unite for Kids
189 Lunalilo Road - 2nd Floor 1500 North 30th Street
Honolulu, HI 96285 MSU-B/SPED Bldg. Room 267
Billings, MT 59101-0298
- --------------------------------------------------------------------------------
Janet Peters Joe Reed
PACER Center, Inc. Reion 18 ESC Preview Center
4826 Chicago Avenue South 2811 LAFROCE P.O. Box 60580
Minneapolis, MN 55417-1098 Midland, TX 79701
- --------------------------------------------------------------------------------
Lorraine Durrell Don Melody
Radford Univ. Teaching Resources Ctr. Region VII ESC
P.O. Box 6999 - Tyler Avenue 2230 North Edwards - P0 1894
Walter Hall - 2nd Floor Mt Pleasant, TX 75456
Radford, VA 24142
- --------------------------------------------------------------------------------
Marcia Rogers Ms. Judy Headley
Region VII Education Service Center Santa Barbara Co. Ed. Office
818 E. Main 4400 Cathedral Oak Road
Kilgone, TX 75662 Santa Barbara, CA 93160
- --------------------------------------------------------------------------------
Steve Simoneau Mr. Mike Anderson
Region XIV Education Center SOUZA Center
1850 Highway 351 708 S. Miller Street
Abilene, TX 79601 Santa Maria, CA 93454
- --------------------------------------------------------------------------------
JLC - CONFIDENTIAL
<PAGE>
SCHEDULE 4.08 (CONT'D)
Catalog Resellers of Standalone Products (CONT'D)
- -------------------------------------------------------------------------------
Jane Fahey Mary Ann Ambrase
South Cook Educational Service Center SW Cooperative Foundation Asst.
800 Governor's Highway Technology
Flossmoor, IL 60422 6020 West 151st Street
Oak Forest, IL 60452
- -------------------------------------------------------------------------------
Ann Black Roxanne Cortright
Special Education Technology Center Team of Advocates for Special Kids
508 North Sprague 100 W. Cerritos
Ellensburg, WA 98926 Anaheim, CA 92805-6546
- -------------------------------------------------------------------------------
Nancy Mashberg Carolyn McGonegill
Tampa General Rehab Center R-214 Tech - Able
P.O. Box 1289 1112 - A Bret Drive
Tampa, FL 33601 Conyers, GA 30207-4323
- -------------------------------------------------------------------------------
Ms. JoAnne Castellano Bob Kibler
Tech Connection Assistive Tech. Technology Access Center of Middle
Solutions Tennessee
35 Haddon Avenue 2222 Metro Center Blvd., Fountain Sq.,
Shrewsbury, NJ 07702-4007 Suite 126
Nashville, TN 37228
- -------------------------------------------------------------------------------
Andres Hernandez Jamie Judd-Wall
Technical Aids & Assistance for the Technology and Inclusion
Disabled Ctr. P.O. Box 150878
1950 W Roosevelt Road Austin, TX 78715-11878
Chicago, IL 60608
- -------------------------------------------------------------------------------
Mr. Michael Baruch Dr. Gary G. Bitler
Technology Access Center Technology Learning & Research Lab
12110 Clayton Road ASU Box 870111
St. Louis, MO 63131-2599 Temple, AZ 85287-0111
- -------------------------------------------------------------------------------
Glenda Anderson Kathy Reed
Technology Assistance for Special Technology Resource Solutions
Consumers for People
P.O. Box 443 1710 West Schilling Road
Huntsville, AL 35804 Salina, KS 67401
- -------------------------------------------------------------------------------
JLC - CONFIDENTIAL
<PAGE>
SCHEDULE 4.08 (CONT'D)
Catalog Resellers of Standalone Products (CONT'D)
- --------------------------------------------------------------------------------
Charlotte Nelson Kellie Bell
Technology Resources for Special People Technology Resource Center
3023 Canterbury 3920 Woodland Heights Road
Salina, KS 67401 Little Rock, AR 72212
- --------------------------------------------------------------------------------
Lisa Fultz Mary Uhlir
The Star Center Tech. Access Ctr. of Tuscon, Inc.
60 Lynoak Cove 4710 E. 29th Street, P.O. 13178
Jackson, TN 38305 Tucson, AZ 85732-3178
- --------------------------------------------------------------------------------
Connie Fell Jane Quemeville
TIES Training Center Tidewater Center for Technology Access
2665 Long Lake Road, Suite 250 Special Education Annex
St. Paul, MN 55113 960 Windsor Oaks Boulevard
Virginia Beach, VA 23462
- --------------------------------------------------------------------------------
Kathy Katz Jan Daughtery
UCF/DOE Institutional Tech. Resource T.E.A.C.H. Center
Univ. of Central FL - College of Ed. 10201 Horton
ED 106 Shawnee Mission, KS 66207
Orlando, FL 32816-1250
- --------------------------------------------------------------------------------
Mary Tucker Mr. Joe Capitanio
United Cerebral Palsy of Idaho, Inc. UNF College of Ed. Learning Lab.
5530 West Emerald 4587 St. Johns Bluff Road
Boise, ID 83706 Jacksonville, FL 32224
- --------------------------------------------------------------------------------
Kris Held Ms. Jeanne Gallimore
Wisconsin Instructional Tech Resource Western KY. Center for
1008 Winther Hall Accessible Living
Whitewater, WI 53190 1304-U Chestnut Street, P.0. Box 266
Murray, KY 42701
- --------------------------------------------------------------------------------
CESA #10 Chris Castille
725 W. Park Avenue Arizona Dept. of Education
Chippewa Falls, WI 54729 1900 West Thomas
Phoenix, AZ 85015
- --------------------------------------------------------------------------------
Computer Learning Resource Center CESA #3 SWICC Program
405 Third Avenue South 1300 Industrial Drive
Saskatoon, Sask, CN S7K 1M7 Fennimore, WI 53809
- -------------------------------------------------------------------------------
JLC - CONFIDENTIAL
<PAGE>
SCHEDULE 4.08 (CONT'D)
Catalog Resellers of Standalone Products (CONT'D)
- --------------------------------------------------------------------------------
Educational Service Center #11 Ctr. for Adaptive Tech. & Education
210 South Lafayette, P.O. Box 488 731 Park Avenue
Macomb, IL 61455 Mandeville, LA 70448-4918
- --------------------------------------------------------------------------------
Instructional Comp. Data Proc. Center EnTech
432 West Third 301 York Street
Witchita, KS 67203 Louisville, KY 40203
- --------------------------------------------------------------------------------
Lincoln Schools Technology Center Language, Speech & Hearing Center
59041 "O" Street 1356 Plummer Street
Lincoln, NE 68510 Northridge, CA 91330
- --------------------------------------------------------------------------------
Northwest ESD 189 Manzanilla Assistive Technology Center
205 Stewart Road Univ. of Mexico RIATT
Mt. Vernon, WA 98273 2080 Central Avenue, Suite 107
Albuquerque, NM 87131
- --------------------------------------------------------------------------------
Oklahoma Assistive Technology Center Panhandle Assistive Technology Center
1122 N.E. 13th Street, WB400 212 North Fourth Avenue, #137
Oklahoma City, OK 73117 San Point, ID 83864
- --------------------------------------------------------------------------------
SACC Assistive Technology SHIP Resource Center
2975 N. Sycamore Drive 329 West Craig Place
P.O. Box 1325 San Antonio, TX 78212
Simi Valley, CA 93065
- --------------------------------------------------------------------------------
San Diego Co. Tech. Consortium Technology Preview Center
6401 Linda Vista Road, #215 1080 LaBaron Drive, Room 8
San Diego, CA 92111-7399 Miami Springs, FL 33166
- --------------------------------------------------------------------------------
JLC - CONFIDENTIAL
<PAGE>
SCHEDULE 4.08 (CONT'D)
THIRD PARTY RIGHTS TO JLC SOURCE CODE
1. Settlement Agreement and Release entered into by and between Golden Books
Family Entertainment, Inc., formerly known as Western Publishing, Inc.,
and JLC Learning Corporation on October 28, 1998, modifying the Agreement
between Western Publishing Company, Inc. and JLC Learning Corporation
entered into on February 22, 1991.
2. Product Supply and License Agreement entered into by and between JLC
Learning Corporation and Sylvan Learning Systems Inc., on November 1,
1996.
3. West Virginia Basic Skills Computer Education Contract #01-A entered into
by and between JLC Learning Corporation and the West Virginia Department
of Education on June 14, 1990.
4. Publication and Distribution Agreement entered into by and between JLC
Learning Corporation and Addison Wesley Longman Limited on December 8,
1997. Amendment One to this Agreement was entered into on December 18,
1998. Amendment Two to this Agreement was entered into on March 12, 1999.
Amendments Three and Four were entered into on May 28, 1999. The Agreement
contains a provision providing for limited distribution rights to Sylvan
Learning Systems Inc.
5. International Development and Distribution Agreement between JLC Learning
Corporation and Educational Trend Sdn. Bhd. on March 20, 1998. Amendment
One to this Agreement was entered into on February 28, 1998. A Letter of
Amendment and Subdistribution Agreement are currently under negotiation.
JLC - CONFIDENTIAL
<PAGE>
SCHEDULE 4.08 (CONT'D)
CURRENTLY MARKETED AND MATERIAL SOFTWARE
PRODUCTS
Management Systems
Advantage Management System 1.2, 2.1, 2.2
Compass 3.1, 4.0
LMS*
Personal Compass 1.0, 1.1
Assessment Product
Jostens Comprehensive Assessment Tests/Advantage
Jostens Comprehensive Assessment Tests 1.0, 2.0/Compass
Assessment Designer (Compass Tomorrow's Promise 4.0)
Curriculum
Basic Learning System*
Life Skills and Employability Skills
Foundations in Mathematics
Foundations in Reading
Learning First New Edition: Elementary Mathematics*
Learning First New Edition: Elementary Reading*
Tomorrow's Promise Reading with Spanish 1 and 2
Tomorrow's Promise: Biology
Tomorrow's Promise: Chemistry
Tomorrow's Promise: Earth Science
Tomorrow's Promise: Physics
Tomorrow's Promise: Lang. Arts Level 3-8
Tomorrow's Promise: Mathematics Level K-8
Tomorrow's Promise: Reading Level K-8
Tomorrow's Promise: Spelling Level 1
Tomorrow's Promise: Spelling Level 2
English Language Development
GED Expansions (social studies/science)
Integrated Language Arts
Secondary Literacy Expansions
Steps to English Lang. Development-Beginning Level
Steps to English Lang. Development-Intermediate/Advanced
Idea Shaper
Tomorrow's Promise Learning with Literature
JLC - CONFIDENTIAL
<PAGE>
Curriculum (Cont'd)
Middle School Science
Spanish Language Arts
Writing Expedition
Project T.E.A.C.H.
Other
JLC Worldware Web site
Worldware Software
Standalone Catalog Reseller Product
Clock
Community Exploration
Friday Afternoon
Learning English Series: Primary
Learning English: Home and Family
Learning English: Neighborhood Life
Math Skills Collection: Complete Set
Math Skills Collection: Decimals and Percents
Math Skills Collection: Measurement
Math Skills Collection: Shapes and Figures
Math Skills Collection: Whole Numbers and Fractions
Reading Skills Collection: Complete Set
Reading Skills Collection: Reading All Around You
Reading Skills Collection: Read to Imagine
Reading Skills Collection: Reading for Meaning
Reading Skills Collection: Read to Think
Write This Way
Third Party Product
Compton's Interactive Encyclopedia
Golden Book Encyclopedia
Interactive Mathematics: Algebra 1 & 2, Pre algebra 1
Storybook Maker
Microsoft Works
Microsoft Encarta
Sunburst Type to Learn
The Student Writing Center
Wordbench
JLC - CONFIDENTIAL
<PAGE>
Third Party Standalone Catalog Reseller Product
Casualty Kid
DesignExpress
First Connections: The Golden Book Encyclopedia
Learning English Series
Lyric Language: French
Lyric Language: German
Lyric Language: Japanese
Lyric Language: Spanish
Rhyme Time
Storybook Maker Deluxe
WebExpress
* Sold, not actively marketed.
JLC - CONFIDENTIAL
<PAGE>
SCHEDULE 4.08 (CONT'D)
THIRD PARTY ACCESS OR MODIFICATION RIGHTS TO SOURCE
CODE AND RIGHTS TO MODIFY
1. Publication and Distribution Agreement entered into by and between JLC
Learning Corporation and Addison Wesley Longman Limited on December 8,
1997. Amendment One to this Agreement was entered into on December 18,
1998. Amendment Two to this Agreement was entered into on March 12, 1999.
In connection with the work contemplated under Amendment Two, JLC and AWL
entered into a confidentiality agreement with Biobras, an independent
contractor. Amendments Three and Four were entered into on May 28, 1999.
2. International Development and Distribution Agreement entered into by and
between JLC Learning Corporation and Educational Trend Sdn. Bhd. on March
20, 1998. Amendment One to this Agreement was entered into on February 28,
1998. A Letter of Amendment and Subdistribution Agreement are currently
under negotiation.
JLC - CONFIDENTIAL
<PAGE>
SCHEDULE 4.08 (CONT'D)
CLAIMS AGAINST COMPANY'S INTELLECTUAL PROPERTY
1. See "Material Opposition to Company Trademarks" in this schedule.
JLC - CONFIDENTIAL
<PAGE>
SCHEDULE 4.08 (CONT'D)
INFRINGEMENT CLAIMS
1. American Education Corporation v. JLC Learning Corporation, Case No. CIV
97-1127R USDC (Western District of Oklahoma). Settled.
2. Golden Books Publishing Co., Inc. v. Jostens Learning Corp., et al., USDC
Case No. 96-C-0491 (Eastern District of Wisconsin). Settled.
3. See also matters disclosed under "Material Opposition to Company
Trademarks" in this schedule.
JLC-CONFIDENTIAL
<PAGE>
SCHEDULE 4.08 (CONT'D)
CURRENT INFRINGEMENT OF COMPANY'S INTELLECTUAL
PROPERTY
1. See "Material Opposition to Company Trademarks" in this schedule.
JLC - CONFIDENTIAL
<PAGE>
SCHEDULE 4.09
Salaries In Excess of $100,000
- --------------------------------------------------------------------------------
Employee Name Job Title
- --------------------------------------------------------------------------------
David F. Gildar Vice President MIS
- --------------------------------------------------------------------------------
Curtis A. Hedges Vice President/Corporate Controller
- --------------------------------------------------------------------------------
Susan E. Rago Director Product Marketing.
- --------------------------------------------------------------------------------
Elaine C. Murphy Director Product Marketing.
- --------------------------------------------------------------------------------
Roger D. Phillips Director Product Marketing.
- --------------------------------------------------------------------------------
Gary M. Columb Director Customer Support Services
- --------------------------------------------------------------------------------
Therese K. Crane President
- --------------------------------------------------------------------------------
Joyce F. Russell Vice President Senior Finance & Administration
- --------------------------------------------------------------------------------
Nancy G. Lockwood Vice President Senior Product Development
- --------------------------------------------------------------------------------
Susan R. Collins Vice President Senior Professional Development
- --------------------------------------------------------------------------------
Michael W. DePasquale Vice President Senior Sales -- Northern Division
- --------------------------------------------------------------------------------
Christopher M. Hayes Vice President Senior Sales -- Southern Division
- --------------------------------------------------------------------------------
Consultant Contract In Excess of $75,000
- --------------------------------------------------------------------------------
Employee Name Job Title
- --------------------------------------------------------------------------------
John Bender Attorney
150 E. 58th Street,
Suite 3401
New York, NY 10155
- --------------------------------------------------------------------------------
JLC - CONFIDENTIAL
<PAGE>
SCHEDULE 4.09 (CONT'D)
Severance Obligations in Excess of $50,000
- --------------------------------------------------------------------------------
Employee Name Severance Period
- --------------------------------------------------------------------------------
David F. Gildar 8 Months
- --------------------------------------------------------------------------------
Curtis A. Hedges 10 Months
- --------------------------------------------------------------------------------
Susan E. Rago 6 Months
- --------------------------------------------------------------------------------
Elaine C. Murphy 6 Months
- --------------------------------------------------------------------------------
R. Alfred Knechel 8 Months
- --------------------------------------------------------------------------------
Barbara Epps 8 Months
- --------------------------------------------------------------------------------
Marilyn B. Comet 8 Months
- --------------------------------------------------------------------------------
Roger D. Phillips 6 Months
- --------------------------------------------------------------------------------
Gary M. Columb 9 Months
- --------------------------------------------------------------------------------
Therese K. Crane 1 Year
- --------------------------------------------------------------------------------
Joyce F. Russell 1 Year
- --------------------------------------------------------------------------------
Nancy G. Lockwood 1 Year
- --------------------------------------------------------------------------------
Susan R. Collins 1 Year
- --------------------------------------------------------------------------------
Michael W. DePasquale 1 Year
- --------------------------------------------------------------------------------
Christopher M. Hayes 1 Year
- --------------------------------------------------------------------------------
JLC - CONFIDENTIAL
<PAGE>
SCHEDULE 4.09 (CONT'D)
SUB LEASES
- --------------------------------------------------------------------------------
Sublease Location Term Sublessee
- ----------------- ---- ---------
- --------------------------------------------------------------------------------
9920 Pacific Heights Blvd., September 1, 1994 - Pearson Education (formerly
Suite 100 May 31, 2000 Invest Learning, formerly
San Diego, CA 92121 Centec)
- --------------------------------------------------------------------------------
9920 Pacific Heights Blvd., November 1, 1994 - Law Office of Stuart Manroel
Suite 250 May 20, 2001
San Diego, CA 92121
- --------------------------------------------------------------------------------
2860 Old Rochester Road October 15, 1998 - Standard Mutual Insurance
Springfield, IL 62794 July 31, 1999
(month-to-month)
- --------------------------------------------------------------------------------
2860 Old Rochester Road March 1, 1999 - Combo-Carts
Springfield, IL 62794 month-to-month
- --------------------------------------------------------------------------------
JLC - CONFIDENTIAL
<PAGE>
SCHEDULE 4.09 (CONT'D)
LEASE CONTRACTS
1. Dell Financial Services Lease No. 004029124-001 by and between JLC
Learning Corporation and Dell Financial Services on September 28, 1998.
2. Dell Financial Services Lease No. 007061432-001 by and between JLC
Learning Corporation and Dell Financial Services LP on March 16, 1999.
3. Xerox Business Services Document Services Agreement Renewal C, entered
into by and between JLC Learning Corporation and Xerox Corporation acting
through Xerox Business Service executed on December 16, 1998 terminating
on December 31, 2003.
4. Standard Lease Agreement for Business Customers entered into by JLC
Learning Corporation and Lucent Technologies, Inc. on December 19, 1998.
JLC - CONFIDENTIAL
<PAGE>
SCHEDULE 4.09 (CONT'D)
CONTRACT FOR SERVICES
1. Service Agreement entered into by and between Jostens Learning Corporation
and General Electric Capital Technology Management Services on December
15, 1994.
2. Securities Purchase Agreement dated as of November 1, 1996 by and among
JLC Holdings, Inc., Software Systems Corp., JLC Learning Corporation and
Sylvan Learning Systems, Inc.
3. Management and Advisory Agreement by and between JLC Holdings, Inc.,
Software Systems Corp., JLC Acquisition Corp. and Bain Capital Partners
IV, L.P. dated as of June 29, 1995.
JLC - CONFIDENTIAL
<PAGE>
SCHEDULE 4.09 (CONT'D)
EVIDENCES OF INDEBTEDNESS
1. Senior Subordinated 12.25% Note Purchase Agreement among JLC Acquisition,
Inc., JLC Holdings, Inc., Software Systems Corporation, Chase Manhattan
Bank, N.A. and Maximum Investments, N.V., dated as of June 29, 1995.
2. Subordinated Promissory Note between Sylvan Learning Systems, Inc. and JLC
Learning Corporation issued on June 30, 1998 in the principal amount of
$2,142,901.36.
3. Loan and Security Agreement entered into by and between JLC Learning
Corporation, the Financial Institutions named therein as the Lenders and
Foothill Capital Corporation on March 30, 1998.
JLC - CONFIDENTIAL
<PAGE>
SCHEDULE 4.09 (CONT'D)
THIRD PARTY GUARANTEES OF COMPANY INDEBTEDNESS
1. Senior Subordinated 12.25% Note Purchase Agreement by and among JLC
Acquisition, Inc., JLC Holdings, Inc., Software Systems Corporation, Chase
Manhattan Bank, N.A. and Maximum Investments, N.V., dated as of June 29,
1995.
2. Assignment and Exchange Agreement by and among Pyramid Ventures, Inc.,
Sylvan Learning Systems, Inc., JLC Learning Corporation and JLC Holdings,
Inc., dated as of March 31, 1999, and the notes issued pursuant thereto.
3. Assignment and Exchange Agreement by and among Pyramid Ventures, Inc.,
General Electric Capital Corporation, G.E. Capital Equity Investments,
Inc., JLC Learning Corporation, and JLC Holdings, Inc., dated as of March
31, 1999, and the notes issued pursuant thereto.
JLC - CONFIDENTIAL
<PAGE>
SCHEDULE 4.09 (CONT'D)
INVESTMENTS
1. Jostens Learning Corporation is a shareholder of 640 preferred shares of
ESI Inc., d/b/a Elemental Software, a California corporation, with offices
at 5927 Priestly Drive, Suite 100, Carlsbad, CA, 92008.
2. Jostens Learning Corporation is a shareholder of 5619 shares of common
stock in PictureTel Corporation, a Delaware corporation with offices at
100 Minuteman Road, Andover, MA, 01810. The shares are held in escrow as
a result of the sale of Starlight Network.
3. Basics Partnership, a Utah limited partnership formed November 30, 1982.
JLC - CONFIDENTIAL
<PAGE>
SCHEDULE 4.09 (CONT'D)
CONTRACTUAL LIENS
1. Senior Subordinated 12.25% Note Purchase Agreement among JLC Acquisition,
Inc., JLC Holdings, Inc., Software Systems Corporation, Chase Manhattan
Bank, N.A. and Maximum Investments, N.V., dated as of June 29, 1995.
2. Subordinated Promissory Note between Sylvan Learning Systems, Inc. and JLC
Learning Corporation issued on June 30, 1998 in the principal amount of
$2,142,901.36.
3. Loan and Security Agreement entered into by and between JLC Learning
Corporation, the Financial Institutions named therein and Foothill Capital
Corporation on March 30, 1998.
JLC - CONFIDENTIAL
<PAGE>
SCHEDULE 4.09 (CONT'D)
POWER OF ATTORNEY
1. Loan and Security Agreement entered into by and between JLC Learning
Corporation, the Financial Institutions named therein as the Lenders and
Foothill Capital Corporation on March 30, 1998.
2. Each United States trademark registration application filed by or on
behalf of the Company includes a limited power of attorney granting
counsel to the Company authority to prosecute such trademark application,
including necessary related transactions with the United States Patent &
Trademark Office and to receive the certificate of registration.
Additionally, Brunei, Hong Kong, Indonesia, Ireland, Malaysia, Singapore,
and Taiwan require and the Company has granted limited powers of attorney
for prosecution of trademark applications.
JLC - CONFIDENTIAL
<PAGE>
SCHEDULE 4.09 (CONT'D)
CONTRACTS WITH REMAINING FUTURE OBLIGATIONS
OF MORE THAN $150,000 AS OF MAY 31, 1999
- --------------------------------------------------------------------------------
Customer State Remaining Obligation
- --------------------------------------------------------------------------------
Dade County School District FL $351,056.08
- --------------------------------------------------------------------------------
Polk County Schools FL $241,057.27
- --------------------------------------------------------------------------------
Oklahoma City School District OK $299,845.43
- --------------------------------------------------------------------------------
Chicago Public Schools IL $239,351.46
- --------------------------------------------------------------------------------
Orange Township Board of Education NJ $248,221.28
- --------------------------------------------------------------------------------
Halifax County School District VA $233,868.92
- --------------------------------------------------------------------------------
Brighton School District 27J CO $494,723.46
- --------------------------------------------------------------------------------
Anderson School District #5 SC $149,787.30
- --------------------------------------------------------------------------------
Erie City School District PA $212,270.07
- --------------------------------------------------------------------------------
Robstown Independent School District TX $384,216.25
- --------------------------------------------------------------------------------
JLC - CONFIDENTIAL
<PAGE>
SCHEDULE 4.09 (CONT'D)
CONTRACTS EXTENDING MORE THAN 365 DAYS AND INVOLVING A
FUTURE OBLIGATION OVER $100,000 AS OF MAY 31,1999
1.
- --------------------------------------------------------------------------------
Customer State Remaining
Obligation
- --------------------------------------------------------------------------------
Anderson School District #5 SC $ 149,787.30
- --------------------------------------------------------------------------------
Brighton School District 27J DO $ 199,670.46
- --------------------------------------------------------------------------------
Canon McMillan School District PA $ 118,603.92
- --------------------------------------------------------------------------------
Chicago Public Schools IL $ 321,536.01
- --------------------------------------------------------------------------------
Erie City School District PA $ 212,270.07
- --------------------------------------------------------------------------------
Halifax County School District VA $ 233,858.92
- --------------------------------------------------------------------------------
Orange Township Board of Education NJ $ 248,221.28
- --------------------------------------------------------------------------------
Polk County Schools FL $ 241,057.27
- --------------------------------------------------------------------------------
Rahway Public Schools NJ $ 105,995.22
- --------------------------------------------------------------------------------
Robstown Independent School TX $ 384,216.26
District
- --------------------------------------------------------------------------------
School Board of Broward County FL $ 129,283.32
- --------------------------------------------------------------------------------
School City of East Chicago IN $ 107,200.60
- --------------------------------------------------------------------------------
2. See also "Evidence of Indebtedness", "Lease Contracts" and "Employment
Agreements" as disclosed in this schedule.
JLC - CONFIDENTIAL
<PAGE>
SCHEDULE 4.09 (CONT'D)
CONTRACT WITH ANY GOVERNMENT ENTITY
1. Educational Technology Agreement between JLC Learning Corporation and
California State Department of Education on February 10, 1989.
2. Contractual Agreement between School Board of Dade County, Florida and JLC
Learning Corporation of San Diego entered into on December 20, 1990,
amended on April 1, 1992, June 29, 1993 and March 11, 1994.
3. ESOL Curriculum Development Contract between JLC Learning Corporation and
the Florida Department of Education dated June 22, 1993.
4. West Virginia Basic Skills Computer Education Contract #01-A between JLC
Learning Corporation and the West Virginia Department of Education on June
14, 1990.
JLC - CONFIDENTIAL
<PAGE>
SCHEDULE 4.09 (CONT'D)
CONTRACTS FOR JOINT VENTURE, PARTNERSHIP OR
INVESTMENT
1. Basics Partnership, a Utah limited partnership formed November 30, 1982.
2. Securities Purchase Agreement dated as of November 1, 1996, among JLC
Holdings, Inc., Software Systems Corp. and Sylvan Learning Systems, Inc.,
referencing potential participation in At Home Learning Software project.
JLC - CONFIDENTIAL
<PAGE>
SCHEDULE 4.09 (CONT'D)
DISTRIBUTORS OR SALES REPRESENTATIVES CONTRACTS
INVOLVING PAYMENT OR RECEIPT OVER $100,000 BY JLC LEARNING
CORPORATION IN THE PAST YEAR
1. Jostens Learning Corporation's Independent Sales Representative Agreement
dated as of January 1, 1999 with Alternate Solutions, Inc.
2. Publication and Distribution Agreement entered into by and between JLC
Learning Corporation and Addison Wesley Longman Limited on December 8,
1997. Amendment One to this Agreement was entered into on December 18,
1998. Amendment Two to this Agreement was entered into on March 12, 1999.
The Agreement contains a provision providing for limited distribution
rights to Sylvan Learning Systems, Inc. Amendments Three and Four were
entered into on May 28, 1999.
3. International Development and Distribution Agreement entered into by and
between JLC Learning Corporation and Educational Trend Sdn. Bhd. on March
20, 1998. Amendment One to this Agreement was entered into on February 28,
1998. A Letter of Amendment and Subdistribution Agreement are currently
under negotiation. The Agreement contains a clause for the provision of
localized products to Sylvan Learning Systems, Inc.
JLC - CONFIDENTIAL
<PAGE>
SCHEDULE 4.09 (CONT'D)
CONTRACTS WITH AGGREGATE FUTURE LIABILITY OVER
$150,000 NOT TERMINABLE BY JLC LEARNING CORPORATION
WITH NOTICE OF 60 DAYS OR LESS
1. Dell Financial Services Lease No. 004029124-001 by and between JLC
Learning Corporation and Dell Financial Services LP dated September 28,
1998.
2. Dell Financial Services Lease No. 007061432-001 by and between JLC
Learning Corporation and Dell Financial Services LP dated March 16, 1999.
3. Xerox Business Services Document Services Agreement, Renewal C, entered
into by and between JLC Learning Corporation and Xerox Corporation acting
through Xerox Business Service dated December 28, 1998, terminating on
December 31, 2003.
4. See also Schedule 4.07, items 1, 2, 5 and 6.
5. Settlement Agreement between APTEX/HNC and JLC dated May 24, 1999.
JLC - CONFIDENTIAL
<PAGE>
SCHEDULE 4.09 (CONT'D)
CONTRACTS CONCERNING MATERIAL ASSETS OR
OPERATIONS
1. See Schedule 4.08 "Material Inbound License Agreements".
JLC - CONFIDENTIAL
<PAGE>
SCHEDULE 4.09 (CONT'D)
Breach or Default
1. Senior Subordinated 12.25% Note Purchase Agreement among JLC Acquisition,
Inc., JLC Holdings, Inc., Software Systems Corp., Chase Manhattan Bank,
N.A. and Maximum Investments, N.V., dated as of June 29, 1995.
2. Management and Advisory Agreement by and between JLC Holdings, Inc.,
Software Systems Corp., JLC Acquisition Corp. and Bain Capital Partners
IV, L.P. dated as of June 29, 1995.
3. Securities Purchase Agreement dated as of November 1, 1996 by and among
JLC Holdings, Inc., Software Systems Corp., JLC Learning Corporation and
Sylvan Learning Systems, Inc., amendments are set forth in schedule 2.04.
Notice of Intent to Terminate or Renegotiate
1. Service Agreement entered into by and between Jostens Learning Corporation
and General Electric Capital Technology Management Services on December
15, 1994. Service Agreement entered into by and between JLC Learning and
Technology Services Solutions on December 15, 1994.
JLC - CONFIDENTIAL
<PAGE>
SCHEDULE 4.13
1. See Schedule 4.01.
JLC - CONFIDENTIAL
<PAGE>
SCHEDULE 4.14
- --------------------------------------------------------------------------------
Type of Coverage Insurance Company Limits
- --------------------------------------------------------------------------------
General Liability Pkg. Chubb; Federal Insurance Aggregate $2,000,000
Co. Personal Property
$1,000,000
Business Income $2,500,000
Property $12,170,000
- --------------------------------------------------------------------------------
Automobile Chubb; Federal Insurance $1,000,000
Co.
- --------------------------------------------------------------------------------
Umbrella/Excess Chubb; Federal Insurance $20,000,000
Co.
- --------------------------------------------------------------------------------
Crime Kemper; American $1,000,000
Motorists
- --------------------------------------------------------------------------------
Workers' Compensation CIGNA $1,000,000
- --------------------------------------------------------------------------------
Fiduciary Liability Chubb; Federal Insurance $2,000,000
Co.
- --------------------------------------------------------------------------------
Professional Liability Media Professional's Gulf $3,000,000
Underwriters
- --------------------------------------------------------------------------------
Directors & Officers National Union Fire Aggregate $10,000,000
("D&O") Insurance Co. EPLI Limit $2,000,000
- --------------------------------------------------------------------------------
All policies expire on September 1, 1999 except D&O which expires December 31,
2001.
Note: In connection with The Rio Grande City Consolidated School District v.
Jostens Learning Corporation case referred to in Schedule 4.16, the insurer has,
by letter dated June 4, 1997, advised the Company that it will provide a defense
of the matter, subject to a reservation of rights based on, inter alia, the fact
that claimant alleges that some of the wrongful acts occurred prior to the
inception date of the policy and the fact that the Company allegedly failed to
follow certain procedures set forth in the policy.
JLC - CONFIDENTIAL
<PAGE>
SCHEDULE 4.15
1. JLC Holdings, Inc. has not paid Delaware franchise taxes for the years
subsequent to 1996.
JLC - CONFIDENTIAL
<PAGE>
SCHEDULE 4.15 (CONT'D)
TAX INDEMNIFICATION
1. Stock Purchase Agreement by and between JLC Holdings, Inc., Software
Systems Corp., JLC Acquisition, Inc. and Jostens, Inc., dated as of June
29, 1995.
JLC - CONFIDENTIAL
<PAGE>
SCHEDULE 4.15 (CONT'D)
TAX EXTENSIONS OR WAIVERS AND POWERS OF ATTORNEY
1. Since the Company's separation from Jostens, Inc., there have been no
extensions granted for periods after June 29, 1995 other than normal
filing extension from April 15th to September 15th of each year.
2. A Power of Attorney has been executed between the Company and its payroll
service provider (Systems Tax Service/CES) to file payroll tax returns.
JLC - CONFIDENTIAL
<PAGE>
SCHEDULE 4.15 (CONT'D)
COMPANY AND AFFILIATED GROUP
TAX FILING JURISDICTIONS
1. The jurisdiction where the Company or the affiliated group that includes
the Company, Software Systems Corp. and JLC Holdings, Inc. joins or has
joined for any taxable period ending after 1995 in the filing of any
consolidated, combined or unitary Tax Return are:
Federal
Alaska
Arizona
California
Colorado
Florida
Guam
Hawaii
Idaho
Illinois
Iowa
Kansas
Maine
Massachusetts
Minnesota
Montana
Nebraska
New Hampshire
New Mexico
North Dakota
Oregon
Utah
Virginia
JLC - CONFIDENTIAL
<PAGE>
SCHEDULE 4.15 (CONT'D)
COMMON PARENT CORPORATION AND OTHER MEMBERS OF
THE CONSOLIDATED, COMBINED OR UNITARY TAX GROUP
1. The affiliate group taxes have been filed under consolidated JLC Holdings,
Inc. and included JLC Holdings, Inc., Software Systems Corp. and JLC
Learning Corporation.
JLC - CONFIDENTIAL
<PAGE>
SCHEDULE 4.15 (CONT'D)
COMPANY AND AFFILIATED GROUP TAX FILING
JURISDICTIONS
The jurisdictions where the Company or any affiliated group of which the Company
is or has ever been a member files, is required to file or has been required to
file a Tax Return relating to state and local income, franchise, license,
excise, net worth, property or sales and use taxes or is or has been liable for
any taxes on a "nexus" basis at any time for taxable periods ending after 1995:
All 50 states
District of Columbia
Puerto Rico
Guam
Local Taxes in:
Alabama
City of Birmingham
City of Jasper
Jefferson County
Walker County
Arizona
Chandler
Flagstaff
Glendale
Mesa
Nogales
Peoria
Phoenix
Scottsdale
Tempe
Tucson
Maricopa County
California
Orange County
San Diego County
Colorado
City of Denver
Florida
Miami Dade County
Tampa
JLC - CONFIDENTIAL
<PAGE>
SCHEDULE 4.15 (CONT'D)
COMPANY AND AFFILIATED GROUP TAX FILING JURISDICTIONS (CONT'D)
Indiana
Johnson
Marion
St. Joseph
Kentucky
Louisville
Louisiana
Acadia Parish
Calcasieu Parish
East Baton Rouge Parish
Iberia Parish
Jefferson Parish
Orleans Parish
City of New Orleans
Ouachita Parish
City of Monroe
Red River Parish
Sabine Parish
Tangipahoa Parish
Terrebone Parish
Maryland
Allegany County
Anne Arundel County
Baltimore County
City of Baltimore
City of Salisbury
Prince George's County
St. Mary's County
Upper Marlboro
Wicomico County
Michigan
Detroit
New York
New York City
Ohio
Columbus
Fairfield City
Independence
Strongsville City
Waterville Village
JLC - CONFIDENTIAL
<PAGE>
SCHEDULE 4.15 (CONT'D)
COMPANY AND AFFILIATED GROUP TAX FILING JURISDICTIONS (CONT'D)
Oklahoma
Oklahoma City
Pennsylvania
Boyertown Boro
Smethport Boro
Bellevue Boro
Hummelstown
Baldwin Boro
Newberry Township
Dunmore Boro
Churchill Boro
South Carolina
Richland County
Texas
Carrollton-Farmers
Branch ISD
City of Irving
Coppell ISD
Dallas
West Virginia
Charleston
Wyoming
Newberry Township
JLC - CONFIDENTIAL
<PAGE>
SCHEDULE 4.15 (CONT'D)
MINIMUM BALANCES AS OF DECEMBER 31, 1997 AFTER GIVING
EFFECT TO THE AMENDED TAX RETURNS
1. Net Operating Loss carryforward of the Company: $48,000,000.00
(any adjustment under Code Section 108 based on an entity approach).
2. Deferred gain or loss allocable to the Company or such group arising out
of any deferred intercompany transaction: $0.00
3. Aggregate Tax Basis in Company's assets: $98,000,000.00
JLC - CONFIDENTIAL
<PAGE>
SCHEDULE 4.16
There is a reasonable possibility that any of the following matters could
be adversely determined. If adversely determined, then individually or in the
aggregate, they could materially adversely effect the Company.
1. Mayor and City of Baltimore v. Jostens Learning Corporation
Circuit Court for Baltimore City, Maryland
Case No. 98-288128
2. The Rio Grande City Consolidated Independent School District v. Jostens
Learning Corporation
US Bankruptcy Court for the Southern District of Texas(1)
Adversary No. 97-2226-B
3. Savant Inc. v. Jostens Learning Corporation
State of Washington Superior Court of King County
Case No. 98-2030160-KNT
4. Covenant Violations
JLC continues to be in breach of certain covenants under its Senior
Subordinated 12.25% Note Purchase Agreement.
5. See Schedule 4.08 "Material Opposition to Company Trademarks".
- ----------
(1) On May 25, 1999, the bankruptcy court remanded the case to the Texas state
court. The Company is assessing whether it will appeal the bankruptcy court's
ruling to the federal district court or, alternatively, ask the bankruptcy court
to reconsider its decision to remand.
JLC - CONFIDENTIAL
<PAGE>
SCHEDULE 4.17
EMPLOYEE BENEFIT PLANS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
PLAN PROVIDER
---- --------
- --------------------------------------------------------------------------------------------
<S> <C>
1. 401(k) Retirement Savings Plan Fidelity Management Trust Co.
- --------------------------------------------------------------------------------------------
2. Preferred Provider Organization - Medical(1) Self Funded (administered by United
Health Care)
- --------------------------------------------------------------------------------------------
3. Exclusive Provider Organization - Medical(1) Self Funded (administered by United
Health Care)
- --------------------------------------------------------------------------------------------
4. Managed Indemnity Plan A & B Self Funded (administered by United
Health Care)
- --------------------------------------------------------------------------------------------
5. BlueAdvantage PPO(1) Blue Cross/Blue Shield Illinois
- --------------------------------------------------------------------------------------------
6. Preferred Dental Plan(1) MetLife
- --------------------------------------------------------------------------------------------
7. Vision Plan(1) Vision Service Plan of Arizona
- --------------------------------------------------------------------------------------------
8. Health Care Reimbursement Account(1) Work/Life Benefits
- --------------------------------------------------------------------------------------------
9. Business Travel Accident Insurance AIG
- --------------------------------------------------------------------------------------------
10. Basic & Supplemental Life Insurance(1) Reliastar Employee Benefits
- --------------------------------------------------------------------------------------------
11. Short Term Disability CNA
- --------------------------------------------------------------------------------------------
12. Long Term Disability CNA
- --------------------------------------------------------------------------------------------
13. Group Home/Auto Insurance MetLife
- --------------------------------------------------------------------------------------------
14. Employee Assistance Program CNA
- --------------------------------------------------------------------------------------------
15. Tuition Reimbursement Plan Jostens Learning Corporation
- --------------------------------------------------------------------------------------------
16. Stock Appreciation Rights Plan Jostens Learning Corporation
- --------------------------------------------------------------------------------------------
17. Key Management Severance Plan Jostens Learning Corporation
- --------------------------------------------------------------------------------------------
18. Jostens Learning Severance Policy Jostens Learning Corporation
- --------------------------------------------------------------------------------------------
19. Key Management Bonus Program (EBITDA) Jostens Learning Corporation
- --------------------------------------------------------------------------------------------
20. Sales Compensation Plans: Jostens Learning Corporation
o Regional Marketing Manager (5 versions)
o Regional Marketing Executive (6 versions)
o Senior Regional Marketing Executive (4 versions)
- --------------------------------------------------------------------------------------------
</TABLE>
- ----------
(1) Extended benefits are offered to disabled employees for the twelve (12)
months prior to the effective date of COBRA benefits. Employee
contributions are waived during this twelve month period.
JLC CONFIDENTIAL
<PAGE>
- --------------------------------------------------------------------------------
PLAN PROVIDER
---- --------
- --------------------------------------------------------------------------------
o V.P. Regional Marketing Executive (1 version)
o Area Vice President (2 versions)
o Senior Vice President (2 versions)
o Sales Associate (2 versions)
o Catalog Group
o Inside Sales
o Inside Telemarketers
o Field Marketing
- --------------------------------------------------------------------------------
JLC-CONFIDENTIAL
<PAGE>
SCHEDULE 4.17 (CONT'D)
FIXED SALES BONUS
Therese K. Crane
Joyce F. Russell
Nancy G. Lockwood
Susan R. Collins
Gary M. Columb
Michael W. DePasquale
C. Michael Hayes
Sherwin Kimble
Marilyn B. Comet
Jim Buckner
Barbara Epps
R. Alfred Knechel
Glenn Chapin
Joyce Whitby
Claude Bove
Gary Crary
Curtis A. Hedges
Roger D. Phillips
Elaine C. Murphy
Jeanne Soper
TOTAL: $912,500
JLC - CONFIDENTIAL
<PAGE>
SCHEDULE 4.17 (CONT'D)
STOCK APPRECIATION RIGHTS
================================================================================
NAME TITLE
- --------------------------------------------------------------------------------
Crane, Therese President
- --------------------------------------------------------------------------------
Russell, Joyce Senior Vice President Finance & Admin
- --------------------------------------------------------------------------------
Lockwood, Nancy Senior Vice President Product Development
- --------------------------------------------------------------------------------
Collins, Sue Senior Vice President Professional Development
- --------------------------------------------------------------------------------
Columb, Gary Director, Customer Support Services
- --------------------------------------------------------------------------------
DePasquale, Mike Senior Vice President Sales-- Northern Division
- --------------------------------------------------------------------------------
Hayes, C. Michael Senior Vice President Sales-- Southern Division
- --------------------------------------------------------------------------------
Kimble, Sherwin Director, Human Resources
- --------------------------------------------------------------------------------
Hedges, Curtis Vice President Corporate Controller
- --------------------------------------------------------------------------------
Gildar, David Vice President MIS
- --------------------------------------------------------------------------------
Phillips, Roger Vice President Software Engineering
- --------------------------------------------------------------------------------
Bove, Claude Area Vice President
- --------------------------------------------------------------------------------
Buckner, Jim Area Vice President
- --------------------------------------------------------------------------------
Chapin, Glenn Area Vice President
- --------------------------------------------------------------------------------
Comet, Marilyn Area Vice President
- --------------------------------------------------------------------------------
Epps, Barbara Area Vice President
- --------------------------------------------------------------------------------
Knechel, R. Alfred Area Vice President
- --------------------------------------------------------------------------------
Whitby, Joyce Area Vice President
- --------------------------------------------------------------------------------
Murphy, Elaine Director, Product Marketing
- --------------------------------------------------------------------------------
Cooley, Nick Director, Field Systems Support
- --------------------------------------------------------------------------------
Combs, Pam Dirictor, Professional Development
- --------------------------------------------------------------------------------
Rago, Sue Director, Product Marketing
- --------------------------------------------------------------------------------
Allison, Kim Director, Quality Assurance
- --------------------------------------------------------------------------------
Knerr, Lynn Director, Marketing Programs/Promotions
- --------------------------------------------------------------------------------
Henson, Ann Vice President Strategic Sales Support
- --------------------------------------------------------------------------------
Youssi, Dan Director, Sales Training
- --------------------------------------------------------------------------------
Huck, Dave Director, Pricing/Business Admin.
- --------------------------------------------------------------------------------
Walker, Jim Director, Hardware Services
- --------------------------------------------------------------------------------
Rokke, Eric Director, Software Engineering
- --------------------------------------------------------------------------------
Good, Jim Director, Production & Distribution
- --------------------------------------------------------------------------------
Rawlings, Mike Controller
- --------------------------------------------------------------------------------
Roberts, Barbara Director, Professional Development Alliances
================================================================================
JLC - CONFIDENTIAL
<PAGE>
SCHEDULE 4.17 (CONT'D)
STOCK APPRECIATION RIGHTS (CONT'D)
================================================================================
NAME TITLE
- --------------------------------------------------------------------------------
Buie, Gail Director, Professional Development Sales
- --------------------------------------------------------------------------------
Siefert, Linda Director, Assessment Services
- --------------------------------------------------------------------------------
Harvey, Howard Director, Software Engineering II
- --------------------------------------------------------------------------------
Vandeveer, Robin Manager, Product Support
- --------------------------------------------------------------------------------
Major, Steve Manager, Technical Support
- --------------------------------------------------------------------------------
Bienvenu, Sandy Regional Marketing Vice President
- --------------------------------------------------------------------------------
Hardwick, Jim Regional Marketing Executive
- --------------------------------------------------------------------------------
Williams, Beth Senior Regional Marketing Executive
- --------------------------------------------------------------------------------
Altwater, Earl Senior Regional Marketing Executive
- --------------------------------------------------------------------------------
Geary, Marilyn Regional Marketing Executive
- --------------------------------------------------------------------------------
Felkins, Maria Manager, Product Development Project
- --------------------------------------------------------------------------------
Pedone, Tim Senior Software Engineer
- --------------------------------------------------------------------------------
Canning, Cary Director, Product Operations
- --------------------------------------------------------------------------------
Marecki, Cheryl Director, Documentation/Multimedia Development
- --------------------------------------------------------------------------------
Iannuzo, Maria Assistant Treasurer
- --------------------------------------------------------------------------------
Smith, Dick Director, Education & Marketing Research
- --------------------------------------------------------------------------------
Ponikvar, Edward Regional Marketing Executive
- --------------------------------------------------------------------------------
Gladwell, Jim Director, West Virginia
- --------------------------------------------------------------------------------
Total estimated payments of
$1,120,250.00 - $1,520,250.00
================================================================================
JLC - CONFIDENTIAL
<PAGE>
SCHEDULE 4.18
1. In March of 1999, JLC Learning Corporation's receivable under the Product
Supply and License Agreement of November 1, 1996, was applied against JLC
Learning Corporation's obligations to Sylvan under the Securities Purchase
Agreement dated as of November 1, 1996.
2. Discontinued the marketing of Vital Tools. A settlement agreement has been
reached with APTEX/HNC.
3. Purchase of Cisco catalyst 5509 Router for $52,000.00 (budgeted capital
item in excess of $25,000 and with a possible total over $100,000).
4. Introduction of Stock Appreciation Rights Plan.
5. Approval of Fixed Sales Bonus.
6. Increases in Compensation for personnel at Director level and above:
- --------------------------------------------------------------------------------
EMPLOYEE NAME JOB TITLE EFFECTIVE
DATE
- --------------------------------------------------------------------------------
David F. Gildar Vice President MIS 1/1/99
- --------------------------------------------------------------------------------
Curtis A. Hedges Vice President Corporate 1/1/99
Controller
- --------------------------------------------------------------------------------
David Huck Director Pricing/Business 1/1/99
Analysis
- --------------------------------------------------------------------------------
James L. Walker Director Hardware Services 1/1/99
- --------------------------------------------------------------------------------
James C. Good Director Prod & Distribution 1/1/99
- --------------------------------------------------------------------------------
Norman E. Cooley Director Field System 1/1/99
Support
- --------------------------------------------------------------------------------
Pamela A. Combs Director Professional 1/1/99
Development
- --------------------------------------------------------------------------------
Barbara Roberts Director Professional 1/1/99
Development Alliances
- --------------------------------------------------------------------------------
Gail Buie Director Professional 1/1/99
Development Sales
- --------------------------------------------------------------------------------
C. Richard Smith Director Education & Market 1/1/99
Research
- --------------------------------------------------------------------------------
JLC - CONFIDENTIAL
<PAGE>
SCHEDULE 4.18 (CONT'D)
- --------------------------------------------------------------------------------
EMPLOYEE NAME JOB TITLE EFFECTIVE
DATE
- --------------------------------------------------------------------------------
Lynn C. Knerr Director Marketing, 1/1/99
Programs/Promotions
- --------------------------------------------------------------------------------
Susan E. Rago Director Product Marketing 1/1/99
- --------------------------------------------------------------------------------
Elaine C. Murphy Director Product Marketing 1/1/99
- --------------------------------------------------------------------------------
Cheryl Marecki Director Documentation/Media 1/1/99
Development
- --------------------------------------------------------------------------------
J. Michael Birch Director Product Development 1/1/99
Project
- --------------------------------------------------------------------------------
Cary A. Canning Director Product Operation 1/1/99
- --------------------------------------------------------------------------------
Kim Allison Director Quality Assurance 1/1/99
- --------------------------------------------------------------------------------
Eric Rokke Director Software Engineering 1/1/99
- --------------------------------------------------------------------------------
Howard J. Harvey Director Software Engineering II 1/1/99
- --------------------------------------------------------------------------------
Daniel J. Youssi Director Sales Training 1/1/99
- --------------------------------------------------------------------------------
Glenn G. Chapin Vice President Area 1/1/99
- --------------------------------------------------------------------------------
Joyce M. Whitby Vice President Area 1/1/99
- --------------------------------------------------------------------------------
Claude J. Bove Vice President Area 1/1/99
- --------------------------------------------------------------------------------
Marilyn B. Comet Vice President Area 1/1/99
- --------------------------------------------------------------------------------
R. Alfred Knechel Vice President Area 1/1/99
- --------------------------------------------------------------------------------
Gary L. Crary Vice President Area 1/1/99
- --------------------------------------------------------------------------------
James R. Buckner Vice President Area 1/1/99
- --------------------------------------------------------------------------------
Barbara Epps Vice President Area 1/1/99
- --------------------------------------------------------------------------------
Ann E. Henson Vice President Strategic Sales 1/1/99
Support
- --------------------------------------------------------------------------------
Gary M. Columb Director Customer Support 1/1/99
Services
- --------------------------------------------------------------------------------
Sherwin E. Kimble Director Human Resources 4/15/99
- --------------------------------------------------------------------------------
JLC - CONFIDENTIAL
<PAGE>
SCHEDULE 4.18 (CONT'D)
- --------------------------------------------------------------------------------
EMPLOYEE NAME JOB TITLE EFFECTIVE
DATE
- --------------------------------------------------------------------------------
Therese K. Crane President 1/1/99
- --------------------------------------------------------------------------------
Joyce F. Russell Vice President Senior Finance & 1/1/99
Administration
- --------------------------------------------------------------------------------
Nancy C. Lockwood Vice President Senior Product 1/1/99
Development
- --------------------------------------------------------------------------------
Susan R. Collins Vice President Senior 1/1/99
Professional Development
- --------------------------------------------------------------------------------
7. Increases in 1999 EBITDA Opportunity for Personnel at Director level and
above:
- --------------------------------------------------------------------------------
NAME TITLE
- --------------------------------------------------------------------------------
Dave Huck Director, Pricing/Business Analysis
- --------------------------------------------------------------------------------
Linda Siefert Director, Assessment Services
- --------------------------------------------------------------------------------
Jim Walker Director, Technical Services & Training
- --------------------------------------------------------------------------------
Dan Youssi Director, Sales Training
- --------------------------------------------------------------------------------
Gail Buie Director, Customer Service
- --------------------------------------------------------------------------------
Pam Combs Director, Customer Service
- --------------------------------------------------------------------------------
Barbara Roberts Director, Customer Service
- --------------------------------------------------------------------------------
Sherwin Kimble Director, Human Resources
- --------------------------------------------------------------------------------
8. An agreement modifying the Foothill Agreement to include an over-advance
facility of $1.5 million was entered into on May 1, 1999.
JLC - CONFIDENTIAL
<PAGE>
SCHEDULE 4.19
NON-COMPLIANCE WITH APPLICABLE LAWS
1. See Schedule 4.01.
JLC - CONFIDENTIAL
<PAGE>
SCHEDULE 4.21
1. Texas Caretaker Project Pilot dated July 23, 1997, entered into by JLC
Learning Corporation and Sylvan Learning Systems, Inc.
2. Publication and Distribution Agreement entered into by and between JLC
Learning Corporation and Addison Wesley Longman Limited on December 8,
1997. Amendment One to this Agreement was entered into on December 18,
1998. Amendment Two to this Agreement was entered into on March 12, 1999.
The Agreement contains a provision providing for limited distribution
rights to Sylvan Learning Systems, Inc. Amendments Three and Four were
entered into on May 28, 1999.
3. International Development and Distribution Agreement entered into by and
between JLC Learning Corporation and Educational Trend Sdn. Bhd. on March
20, 1998. Amendment One to this Agreement was entered into on February 28,
1998. A Letter of Amendment and Subdistribution Agreement are currently
under negotiation. The Agreement contains a clause for the provision of
localized products to Sylvan Learning Systems, Inc.
4. Stock Purchase Agreement by and between JLC Holdings, Inc., Software
Systems Corp., JLC Acquisition and Jostens, Inc. dated as of June 29,
1995.
5. Strategic Alliance Agreement dated the date hereof between Sylvan Learning
Systems, Inc. and JLC Learning Corporation.
6. See also schedule 2.06, items numbered 8, 9, 13, 14 and 17.
JLC - CONFIDENTIAL
<PAGE>
SCHEDULE 4.24
1. Dell Marketing L.P.
2. General Electric Capital Corp. (Formerly Ameridata, Inc.)
3. Tech Data Corp.
4. Apple Computer, Inc.
5. Telex Communications, Inc.
6. Academic Systems Corporation (prepayment of licenses).
7. Discontinued the marketing of Vital Tools. A settlement agreement has been
reached with APTEX/HNC.
JLC - CONFIDENTIAL
<PAGE>
SCHEDULE 4.25
1. Terrebonne Parish School District
2. Tangipahoa Parish School District
3. Chicago Public Schools
4. West Allegheny School District
5. Dade County School District
6. East Cleveland City School District
7. Halifax County School District
8. Galena Park I.S.C.
9. Polk County Schools
10. Wilkes County School District
JLC - CONFIDENTIAL
<PAGE>
SCHEDULE 4.25 (CONT'D)
1. Dade County complained to JLC Learning Corporation during the summer of
1998 regarding performance issues. As a result, the guarantee under the
Operation Safety Net contract was renegotiated and upgraded software was
provided to the customer.
JLC -CONFIDENTIAL
<PAGE>
SCHEDULE 4.27
1. Jostens Learning Corporation is a shareholder of 640 preferred shares of
ESI Inc., d/b/a Elemental Software, a California corporation, with offices
at 5927 Priestly Drive, Suite 100, Carlsbad, CA, 92008.
2. Jostens Learning Corporation is a shareholder of 5619 shares of common
stock in PictureTel Corporation a Delaware corporation with offices at 100
Minuteman Road, Andover, MA , 01810. The shares are held in escrow as a
result of the sale of Starlight Network.
3. Basics Partnership, a Utah limited partnership formed November 30, 1982.
JLC - CONFIDENTIAL
<PAGE>
SCHEDULE 4.28
JLC's Year 2000 compliance review is ongoing. The following information is
accurate as of April 1, 1999, and may be amended as a result of ongoing review.
- --------------------------------------------------------------------------------
Software Product Certification Status
- ---------------- --------------------
- --------------------------------------------------------------------------------
JLMS/LMS Non-compliant*
- --------------------------------------------------------------------------------
AIMS 2 Y2K Ready**
- --------------------------------------------------------------------------------
RIMS 1 Unknown***
- --------------------------------------------------------------------------------
RIMS 2 Y2K Ready with issues****
- --------------------------------------------------------------------------------
* Recommendation to users to set clocks back to 1972 during the summer of 1999
to avoid mid-year loss of data. Novell 2.2 which runs this software is
non-compliant. No further plan of correction has been adopted.
** No significant issues found, full test not performed due to age of product
and decrease in sales. No further plan of correction has been adopted.
*** Post release issues being addressed by Product Development. Version 3.4
introduces an error in the program. No further plan of correction has been
adopted except in the case of version 3.4.1
**** Cannot handle cross millennium data. Data must be closed out at the end of
1999. No further plan of correction has been adopted.
Products Not Year 2000 Tested - No plan of correction adopted
Teach Net
Learning Expedition Stand Alone CD
Standalone Software Products (will be tested)
One Net
Lab Net
Apple Hard Disk
JLC - CONFIDENTIAL
<PAGE>
SCHEDULE 6.01
1. In March of 1999, JLC Learning Corporation's receivable under the Product
Supply and License Agreement of November 1, 1996, was applied against JLC
Learning Corporation's obligations to Sylvan under the Securities Purchase
Agreement dated as of November 1, 1996.
2. Product Supply and License Agreement entered into by and between JLC
Learning Corporation and Sylvan Learning Systems, Inc. dated as of
November 1, 1996.
JLC - CONFIDENTIAL
<PAGE>
SCHEDULE 6.09
Principles used in amending Tax Returns:
1. Subsequent payment of contingent liabilities, existing at the Original
Purchase Date, increase the purchase price and corresponding assets of the
Company.
2. Inventory reserves expensed for book purposes are being reversed for tax
purposes since they were incorrectly expensed on the tax returns.
3. Asset purchases, incorrectly omitted on tax depreciation schedule, are
being included in the tax returns.
4. Software Systems Corp. reduced certain of its Net Operating Losses as a
result of 1996 prepayment discount related to its obligations under the
Jostens, Inc. Subordinated Note.
States where Amended Tax Returns for 1995, 1996 and 1997 will be filed:
California
Arizona
Illinois
Georgia
Pennsylvania
Texas
South Carolina
New Jersey
North Carolina
Indiana
JLC - CONFIDENTIAL
<PAGE>
SCHEDULE 7.02
1. See "Fixed Sales Bonuses" and "Stock Appreciation Rights" as set forth in
Schedule 4.17.
JLC - CONFIDENTIAL
<PAGE>
[EXECUTION COPY]
CREDIT AGREEMENT,
dated as of November 17, 1999,
among
WEEKLY READER CORPORATION
and
JLC LEARNING CORPORATION,
as the Borrowers,
WRC MEDIA INC. (formerly known as EAC II, INC.),
as a Guarantor,
VARIOUS FINANCIAL INSTITUTIONS FROM TIME TO TIME
PARTIES HERETO,
as the Lenders,
DLJ CAPITAL FUNDING, INC.,
as the Syndication Agent, the Lead Arranger and
the Sole Book Running Manager,
BANK OF AMERICA, N.A.,
as the Administrative Agent for the Lenders,
and
GENERAL ELECTRIC CAPITAL CORPORATION, as the Documentation
Agent for the Lenders.
<PAGE>
<TABLE>
<CAPTION>
SECTION PAGE
TABLE OF CONTENTS
SECTION PAGE
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
<S> <C> <C>
1.1. Defined Terms......................................................................................4
1.2. Use of Defined Terms..............................................................................41
1.3. Cross-References..................................................................................41
1.4. Accounting and Financial Determinations...........................................................41
ARTICLE II
COMMITMENTS, BORROWING AND ISSUANCE
PROCEDURES, NOTES AND LETTERS OF CREDIT
2.1. Commitments.......................................................................................41
2.1.1. Revolving Loan Commitment and Swing Line
Loan Commitment..............................................................................41
2.1.2. Letter of Credit Commitment.....................................................................42
2.1.3. Term Loan Commitment............................................................................43
2.2. Reduction of the Commitment Amounts...............................................................43
2.2.1. Optional........................................................................................43
2.2.2. Mandatory.......................................................................................43
2.3. Borrowing Procedures..............................................................................44
2.3.1. Borrowing Procedure.............................................................................44
2.3.2. Swing Line Loans................................................................................44
2.4. Continuation and Conversion Elections.............................................................45
2.5. Funding...........................................................................................46
2.6. Issuance Procedures...............................................................................46
2.6.1. Other Lenders' Participation....................................................................47
2.6.2. Disbursements; Conversion to Revolving
Loans........................................................................................47
2.6.3. Reimbursement...................................................................................48
2.6.4. Deemed Disbursements............................................................................48
2.6.5. Nature of Reimbursement Obligations.............................................................48
2.7. Register; Notes...................................................................................49
</TABLE>
-ii-
<PAGE>
<TABLE>
<CAPTION>
SECTION PAGE
ARTICLE III
REPAYMENTS, PREPAYMENTS, INTEREST AND FEES
<S> <C> <C>
3.1. Repayments and Prepayments; Application...........................................................51
3.1.1. Repayments and Prepayments......................................................................51
3.1.2. Application.....................................................................................56
3.1.3. Prepayment of Term B Loans......................................................................56
3.2. Interest Provisions...............................................................................57
3.2.1. Rates...........................................................................................57
3.2.2. Post-Default Rates..............................................................................57
3.2.3. Payment Dates...................................................................................57
3.3. Fees .............................................................................................58
3.3.1. Commitment Fee..................................................................................58
3.3.2. Agents' Fees....................................................................................59
3.3.3. Letter of Credit Fee............................................................................59
ARTICLE IV
CERTAIN LIBO RATE AND OTHER PROVISIONS
4.1. LIBO Rate Lending Unlawful........................................................................59
4.2. Deposits Unavailable..............................................................................59
4.3. Increased LIBO Rate Loan Costs, etc...............................................................60
4.4. Funding Losses....................................................................................60
4.5. Increased Capital Costs...........................................................................61
4.6. Taxes.............................................................................................61
4.7. Payments, Computations, etc.......................................................................65
4.8. Sharing of Payments...............................................................................65
4.9. Setoff............................................................................................66
4.10. Replacement of Lenders...........................................................................66
ARTICLE V
CONDITIONS TO CREDIT EXTENSIONS
5.1. Initial Credit Extension..........................................................................67
5.1.1. Resolutions, etc................................................................................67
5.1.2. Transaction Consummated.........................................................................68
5.1.3. Transaction Documents...........................................................................69
5.1.4. Closing Date Certificate........................................................................69
5.1.5. Delivery of Notes...............................................................................69
</TABLE>
-iii-
<PAGE>
<TABLE>
<CAPTION>
SECTION PAGE
<S> <C> <C>
5.1.6. Payment of Outstanding Indebtedness, etc........................................................69
5.1.7. Closing Fees, Expenses, etc.....................................................................70
5.1.8. Financial Information, Material Adverse
Change.......................................................................................70
5.1.9. Opinions of Counsel; Reliance Letters...........................................................71
5.1.10. Filing Agent, etc..............................................................................71
5.1.11. Subsidiary Guaranty............................................................................71
5.1.12. Solvency, etc..................................................................................71
5.1.13. Security and Pledge Agreement; Seller
Pledge Agreement.............................................................................72
5.1.14. Patent Security Agreement, Trademark
Security Agreement, and Copyright Security
Agreement....................................................................................73
5.1.15. Perfection Certificate.........................................................................73
5.1.16. Mortgage.......................................................................................73
5.1.17. Insurance......................................................................................74
5.1.18. Litigation.....................................................................................74
5.1.19. Minimum EBITDA.................................................................................74
5.1.20. Corporate, Tax and Capital Structure...........................................................74
5.1.21. Approvals......................................................................................74
5.1.22. Satisfactory Legal Form........................................................................75
5.2. All Credit Extensions..........................................................................75
5.2.1. Compliance with Warranties, No Default,
etc..........................................................................................75
5.2.2. Credit Extension Request, etc...................................................................75
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
6.1. Organization, etc.................................................................................76
6.2. Due Authorization, Non-Contravention, etc.........................................................76
6.3. Government Approval, Regulation, etc..............................................................76
6.4. Validity, etc.....................................................................................77
6.5. Financial Information.............................................................................77
6.6. No Material Adverse Change........................................................................77
6.7. Litigation, Labor Controversies, etc..............................................................78
6.8. Subsidiaries......................................................................................78
6.9. Ownership of Properties...........................................................................78
6.10. Taxes............................................................................................78
6.11. Pension and Welfare Plans........................................................................78
</TABLE>
-iv-
<PAGE>
<TABLE>
<CAPTION>
SECTION PAGE
<S> <C> <C>
6.12. Environmental Warranties.........................................................................79
6.13. Accuracy of Information..........................................................................80
6.14. Regulations U and X..............................................................................80
6.15. Year 2000........................................................................................80
6.16. Issuance of Subordinated Debt; Status of
Obligations as Senior Debt, etc..............................................................80
6.17. Solvency.........................................................................................81
6.18. Capitalization...................................................................................81
ARTICLE VII
COVENANTS
7.1. Affirmative Covenants...........................................................................82
7.1.1. Financial Information, Reports, Notices,
etc..........................................................................................82
7.1.2. Maintenance of Existence; Compliance with
Laws, etc....................................................................................84
7.1.3. Maintenance of Properties.......................................................................85
7.1.4. Insurance.......................................................................................85
7.1.5. Books and Records...............................................................................85
7.1.6. Environmental Law Covenant......................................................................86
7.1.7. Use of Proceeds.................................................................................86
7.1.8. Future Subsidiary Guarantors, Security,
etc..........................................................................................87
7.1.9. Rate Protection Agreements......................................................................87
7.1.10. Undertaking.....................................................................................87
7.1.11. Leased Property................................................................................88
7.1.12. Year 2000......................................................................................88
7.1.13. Additional Opinions............................................................................88
7.2. Negative Covenants..............................................................................88
7.2.1. Business Activities.............................................................................88
7.2.2. Indebtedness....................................................................................89
7.2.3. Liens...........................................................................................91
7.2.4. Financial Condition and Operations..............................................................93
7.2.5. Investments.....................................................................................94
7.2.6. Restricted Payments, etc........................................................................95
7.2.7. Capital Expenditures, etc.......................................................................97
7.2.8. No Prepayment of Subordinated Debt..............................................................98
7.2.9. Capital Securities..............................................................................99
7.2.10. Consolidation, Merger, etc.....................................................................99
7.2.11. Permitted Dispositions........................................................................100
</TABLE>
-v-
<PAGE>
<TABLE>
<CAPTION>
SECTION PAGE
<S> <C> <C>
7.2.12. Modification of Certain Agreements............................................................100
7.2.13. Transactions with Affiliates..................................................................101
7.2.14. Restrictive Agreements, etc...................................................................101
7.2.15. Sale and Leaseback............................................................................102
7.2.16. Designation of Senior Debt....................................................................102
ARTICLE VIII
EVENTS OF DEFAULT
8.1. Listing of Events of Default....................................................................102
8.1.1. Non-Payment of Obligations....................................................................102
8.1.2. Breach of Warranty............................................................................102
8.1.3. Non-Performance of Certain Covenants and
Obligations................................................................................102
8.1.4. Non-Performance of Other Covenants and
Obligations................................................................................102
8.1.5. Default on Other Indebtedness.................................................................103
8.1.6. Judgments.....................................................................................103
8.1.7. Pension Plans.................................................................................103
8.1.8. Change in Control.............................................................................103
8.1.9. Bankruptcy, Insolvency, etc...................................................................103
8.1.10. Impairment of Security, etc..................................................................104
8.1.11. Failure of Subordination.....................................................................104
8.2. Action if Bankruptcy............................................................................105
8.3. Action if Other Event of Default................................................................105
ARTICLE IX
THE ADMINISTRATIVE AGENT
9.1. Actions.........................................................................................105
9.2. Funding Reliance, etc...........................................................................106
9.3. Exculpation.....................................................................................106
9.4. Successor.......................................................................................107
9.5. Credit Extensions by each Agent.................................................................107
9.6. Credit Decisions................................................................................107
9.7. Copies, etc.....................................................................................108
9.8. Reliance by Agents..............................................................................108
9.9. Defaults........................................................................................108
9.10. Documentation Agent............................................................................109
</TABLE>
-vi-
<PAGE>
<TABLE>
<CAPTION>
ARTICLE X
HOLDINGS GUARANTY
<S> <C> <C>
10.1. Guaranty........................................................................................109
10.2. Acceleration of Holdings Guaranty...............................................................110
10.3. Guaranty Absolute, etc..........................................................................110
10.4. Reinstatement, etc..............................................................................111
10.5. Waiver, etc.....................................................................................111
10.6. Postponement of Subrogation, etc................................................................111
10.7. Successors, Transferees and Assigns;
Transfers of Notes, etc.....................................................................112
ARTICLE XI
MISCELLANEOUS PROVISIONS
11.1. Waivers, Amendments, etc.......................................................................113
11.2. Notices; Time..................................................................................114
11.3. Payment of Costs and Expenses..................................................................115
11.4. Indemnification................................................................................115
11.5. Survival.......................................................................................117
11.6. Severability...................................................................................117
11.7. Headings.......................................................................................117
11.8. Execution in Counterparts, Effectiveness,
etc........................................................................................117
11.9. Governing Law; Entire Agreement................................................................118
11.10. Successors and Assigns........................................................................118
11.11. Sale and Transfer of Credit Extensions;
Participations in Credit Extensions Notes..................................................118
11.11.1. Assignments.................................................................................118
11.11.2. Participations..............................................................................121
11.12. Reorganization Transaction....................................................................122
11.13. Confidentiality...............................................................................123
11.14. Other Transactions............................................................................124
11.15. Independence of Covenants.....................................................................124
11.16. Forum Selection and Consent to Jurisdiction...................................................124
11.17. Waiver of Jury Trial..........................................................................125
</TABLE>
SCHEDULE I - Disclosure Schedule
SCHEDULE II - Percentages and Administrative
Information
EXHIBIT A-1 - Form of Revolving Note
-vii-
<PAGE>
EXHIBIT A-2 - Form of Term A Note
EXHIBIT A-3 - Form of Term B Note
EXHIBIT A-4 - Form of Swing Line Note
EXHIBIT B-1 - Form of Borrowing Request
EXHIBIT B-2 - Form of Issuance Request
EXHIBIT C - Form of Continuation/Conversion Notice
EXHIBIT D - Form of Closing Date Certificate
EXHIBIT E - Form of Compliance Certificate
EXHIBIT F - Form of Officer's Solvency Certificate
EXHIBIT G-1 - Form of Security and Pledge Agreement
EXHIBIT G-2 - Form of Seller Pledge Agreement
EXHIBIT H - Form of Perfection Certificate
EXHIBIT I-1 - Form of Mortgage
EXHIBIT I-2 - Form of Deed of Trust
EXHIBIT J - Form of Subsidiary Guaranty
EXHIBIT K - Form of Interco Subordination
Agreement
EXHIBIT L - Form of Lender Assignment Agreement
EXHIBIT M - Form of Opinion of New York Counsel
to the Obligors
-viii-
<PAGE>
CREDIT AGREEMENT
THIS CREDIT AGREEMENT, dated as of November 17, 1999, is made by and among
WEEKLY READER CORPORATION, a Delaware corporation ("WRC"), and JLC LEARNING
CORPORATION, a Delaware corporation ("JLC" and, together with WRC, the
"BORROWERS"), WRC MEDIA INC. (formerly known as EAC II, Inc.), a Delaware
corporation and the parent of JLC ("HOLDINGS"), as a guarantor, the various
financial institutions and other Persons from time to time parties hereto (the
"LENDERS"), DLJ CAPITAL FUNDING, INC. ("DLJ"), as the Syndication Agent (in such
capacity, the "SYNDICATION AGENT"), the Lead Arranger and the Sole Book Running
Manager, BANK OF AMERICA, N.A. ("BOFA"), as administrative agent (in such
capacity, the "ADMINISTRATIVE AGENT") for the Lenders, and GENERAL ELECTRIC
CAPITAL CORPORATION, as the documentation agent (in such capacity, the
"DOCUMENTATION AGENT") for the Lenders.
W I T N E S S E T H:
WHEREAS, Holdings intends on acquiring (the "FINANCED ACQUISITION") 94.9%
of the outstanding common stock of WRC pursuant to a Redemption, Stock Purchase
and Recapitalization Agreement, dated as of August 13, 1999, as amended by
Amendment No. 1 thereto, dated as of October 26, 1999 and Amendment No. 2
thereto, dated as of November 10, 1999 (the "PURCHASE AGREEMENT"), between
Holdings and Primedia Inc., a Delaware corporation (the "SELLER"), for an
aggregate purchase price of $396,054,500;
WHEREAS, in connection with the Financed Acquisition,
(a) Holdings will obtain the ownership (either directly or indirectly)
of WRC, Primedia Reference Inc., a Delaware corporation ("PRI"), American
Guidance Service Inc., a Delaware corporation ("AGS"), and Lifetime
Learning Systems, Inc., a Delaware corporation ("LIFETIME") and their
respective direct and indirect Subsidiaries;
(b) shares of common stock of WRC equal to 5.1% of the outstanding
shares of such common stock (the "ROLLOVER EQUITY") will be retained by the
Seller; and
(c) the Borrowers will (i) refinance approximately $27,000,000 of
existing Indebtedness of JLC (the "REFINANCING"), (ii) pay estimated fees
and
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expenses in connection with the Financed Acquisition, the Refinancing and
related transactions (the Financed Acquisition, the Refinancing and such
transactions related thereto, including those described in the recitals
hereto, being herein collectively referred to as the "TRANSACTION") of
approximately $22,800,000, and (iii) obtain $7,000,000 in excess cash for
general corporate purposes;
WHEREAS, in order to finance the consummation of Financed Acquisition and
the Refinancing,
(a) Ripplewood Partners, L.P., a Delaware limited partnership
("RIPPLEWOOD"), its Affiliates and co-investors (including SG Capital
Partners and Lexington Partners or such co-investors satisfactory in all
respects to the Syndication Agent) (collectively, the "COMMON EQUITY
SECURITIES INVESTORS") will purchase membership interests of EAC III L.L.C.
("EAC III"), the parent of Holdings, for not less than $65,000,000 in cash
(the "EAC III PURCHASE");
(b) Holdings, JLC and WRC will issue jointly (the "SUBORDINATED NOTE
ISSUANCE") $152,000,000 face amount of their 12-3/4% Senior Subordinated
Notes due 2009 (its "SUBORDINATED NOTES") and in connection therewith
Holdings will issue 205,656 shares of its common stock (the "HOLDINGS
(UNIT) COMMON STOCK") representing 3% of its common stock on a
fully-diluted basis (but without giving effect to management options) for
aggregate gross cash proceeds of at least $149,900,000;
(c) Holdings will issue (the "PIK PREFERRED EQUITY ISSUANCE")
3,000,000 shares of its 15% Senior Preferred Stock redeemable in 2011, par
value $0.01 per share (the "PIK PREFERRED EQUITY") for not less than
$75,000,000 in net cash proceeds to DLJ Merchant Banking Partners II, L.P.
("DLJMB"), certain of the DLJMB Related Parties and other third parties
that are satisfactory in all respects to the Syndication Agent (the "PIK
PREFERRED EQUITY HOLDERS"), which PIK Preferred Equity will be exchangeable
(i) at the option of the holders thereof, for an equal amount of
pay-in-kind preferred stock of WRC (the "WRC PIK I PREFERRED EQUITY")
and/or pay-in-kind preferred stock of JLC (the "JLC PIK PREFERRED EQUITY")
and (ii) at the election of Holdings under certain circumstances, into
pay-in-kind preferred stock of WRC (the "WRC PIK II PREFERRED EQUITY") as
permitted under SECTION 11.12(d) herein, in
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each case having terms substantially the same as the PIK Preferred Equity,
and in connection therewith the PIK Preferred Equity Holders will also
receive warrants (the "WRC WARRANTS") to acquire not more than 13.1% of the
common stock of WRC on a fully-diluted basis, and warrants (the "JLC
WARRANTS") to acquire not more than 13.1% of the common stock of JLC on a
fully-diluted basis pursuant to a preferred stockholders agreement, dated
as of the date hereof (the "PREFERRED STOCKHOLDERS AGREEMENT"), among
Holdings, WRC, JLC and the PIK Preferred Equity Holders, which includes,
among other things, the irrevocable agreement by the PIK Preferred Equity
Holders for the benefit of the holders of the common stock of JLC and WRC
(and for the benefit of the Administrative Agent, as pledgee (for the
benefit of the Secured Parties), upon any exercise of its rights under the
Security and Pledge Agreement to sell such common stock) that such holders
will have drag-along rights in form and substance satisfactory to the
Agents with respect to the Capital Securities of each Borrower (other than
the WRC PIK Preferred Equity and the JLC PIK Preferred Equity, if any) that
are held by the PIK Preferred Equity Holders (and their transferees);
(d) Holdings will issue (the "COMMON EQUITY ISSUANCE", and together
with the PIK Preferred Equity Issuance, the "EQUITY ISSUANCES") 6,855,853
shares of its common stock ("COMMON EQUITY SECURITIES", and together with
PIK Preferred Equity Securities, the "EQUITY SECURITIES") and EAC III will
purchase the Common Equity Securities using all of the cash proceeds
received by EAC III from the EAC III Purchase (and additional amounts to be
provided by various co-investors) for an aggregate amount of not less than
$95,000,000; and
(e) WRC will issue to Holdings pay-in- kind preferred stock (the "WRC
MIRROR PIK PREFERRED EQUITY") for not less than $75,000,000, which WRC Mirror
PIK Preferred Equity will have terms substantially the same as the PIK Preferred
Equity, except that the issuer of such stock will be WRC and such stock will
have no exchange rights;
(f) the Seller will maintain the Rollover Equity in WRC;
WHEREAS, in connection with the Transaction and the post-closing ongoing
working capital and general corporate
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needs of the Borrowers and their respective Subsidiaries, the Borrowers desire
to obtain the following financing facilities from the Lenders:
(a) a Term A Loan Commitment and a Term B Loan Commitment pursuant to
which Borrowings of Term Loans will be made to the Borrowers on the Closing
Date in a maximum, original principal amount of $31,000,000 (in the case of
Term A Loans) and $100,000,000 (in the case of Term B Loans);
(b) a Revolving Loan Commitment (to include availability for Revolving
Loans, Swing Line Loans and Letters of Credit) pursuant to which Borrowings
of Revolving Loans, in a maximum aggregate principal amount (together with
all Swing Line Loans and Letter of Credit Outstandings) not to exceed
$30,000,000 will be made to the Borrowers from time to time on and
subsequent to the Closing Date but prior to the Revolving Loan Commitment
Termination Date;
(c) a Letter of Credit Commitment pursuant to which each Issuer will
issue Letters of Credit for the account of the Borrowers and the Subsidiary
Guarantors from time to time on and subsequent to the Closing Date but
prior to the Revolving Loan Commitment Termination Date in a maximum
aggregate Stated Amount at any one time outstanding not to exceed
$5,000,000 (PROVIDED, that the aggregate outstanding principal amount of
Revolving Loans, Swing Line Loans and Letter of Credit Outstandings at any
time shall not exceed the then existing Revolving Loan Commitment Amount);
and
(d) a Swing Line Loan Commitment pursuant to which Borrowings of Swing
Line Loans in an aggregate outstanding principal amount not to exceed
$5,000,000 will be made on and subsequent to the Closing Date but prior to
the Revolving Loan Commitment Termination Date (PROVIDED, that the
aggregate outstanding principal amount of such Swing Line Loans, together
with Revolving Loans and Letter of Credit Outstandings, at any time shall
not exceed the then existing Revolving Loan Commitment Amount); and
WHEREAS, the Lenders and the Issuers are willing, on the terms and subject
to the conditions hereinafter set forth, to extend the Commitments and make
Loans to the Borrowers and issue (or participate in) Letters of Credit;
NOW, THEREFORE, the parties hereto agree as follows:
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ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.1. DEFINED TERMS. The following terms (whether or not
underscored) when used in this Agreement, including its preamble and recitals,
shall, except where the context otherwise requires, have the following meanings
(such meanings to be equally applicable to the singular and plural forms
thereof):
"ACQUISITION" means any transaction or series of related transactions for
the purpose of or resulting, directly or indirectly, in (a) the acquisition of
all or substantially all of the assets of a Person, or of any business or
division of a Person, (b) the acquisition of in excess of 50% of the Capital
Securities of any Person, or otherwise causing any Person to become a
Subsidiary, or (c) a merger or consolidation or any other combination with
another Person (PROVIDED that a Borrower or one of its Subsidiaries is the
surviving entity).
"ADMINISTRATIVE AGENT" is defined in the PREAMBLE and includes each other
Person appointed as the successor Administrative Agent pursuant to SECTION 9.4.
"AFFECTED LENDER" is defined in SECTION 4.10.
"AFFILIATE" of any Person means any other Person which, directly or
indirectly, controls, is controlled by or is under common control with such
Person. "Control" of a Person means the power, directly or indirectly,
(a) to vote 10% or more of the Capital Securities (on a fully diluted
basis) of such Person, having ordinary voting power for the election of
directors, managing members or general partners (as applicable); or
(b) to direct or cause the direction of the management and policies of
such Person (whether by contract or otherwise).
"AGREEMENT" means, on any date, this Credit Agreement as originally in
effect on the Effective Date and as thereafter from time to time amended,
supplemented, amended and restated or otherwise modified from time to time and
in effect on such date.
"AGS" is defined in CLAUSE (a) of the SECOND RECITAL.
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"ALTERNATE BASE RATE" means, on any date and with respect to all Base Rate
Loans, a fluctuating rate of interest per annum (rounded upward, if necessary,
to the next highest 1/16 of 1%) equal to the higher of
(a) the Base Rate in effect on such day; and
(b) the Federal Funds Rate in effect on such day plus 1/2 of 1%.
Changes in the rate of interest on that portion of any Loans maintained as Base
Rate Loans will take effect simultaneously with each change in the Alternate
Base Rate. The Administrative Agent will give notice promptly to the Borrowers
and the Lenders of changes in the Alternate Base Rate; PROVIDED, that the
failure to give such notice shall not affect the Alternate Base Rate in effect
after such change.
"APPLICABLE COMMITMENT FEE" means, (a) for each day from the Effective Date
to (but excluding) the date five (5) Business Days after the date upon which the
Compliance Certificate for the second full Fiscal Quarter ending after the
Effective Date is required to be delivered by Holdings to the Agents pursuant to
CLAUSE (c) of SECTION 7.1.1, a fee which shall accrue at a rate of 1/2 of 1% per
annum, and (b) at all times from the date five (5) Business Days after the date
the Compliance Certificate described in CLAUSE (a) above is required to be
delivered, a fee which shall accrue at the applicable rate per annum set forth
below under the column entitled "APPLICABLE COMMITMENT FEE", determined by
reference to the applicable Leverage Ratio referred to below:
<TABLE>
<CAPTION>
Leverage Applicable Commitment
Ratio ---------------------
----------- Fee
----
<S> <C>
greater .500%
than
5.00:1.0
greater .375%
than
4.00:1.0
and less
than or
equal to
5.00:1.0
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Leverage Applicable Commitment
Ratio ---------------------
----------- Fee
----
<S> <C>
less than .250%
or equal
to
4.00:1.0
</TABLE>
The Leverage Ratio used to compute the Applicable Commitment Fee shall be that
set forth in the Compliance Certificate most recently delivered by Holdings to
the Agents; changes in the Applicable Commitment Fee resulting from a change in
the Leverage Ratio shall become effective upon delivery by Holdings to the
Agents of a new Compliance Certificate pursuant to CLAUSE (c) of SECTION 7.1.1.
If Holdings shall fail to deliver a Compliance Certificate by the delivery due
date specified in such clause, the Applicable Commitment Fee from and including
the day immediately following such delivery due date to (but excluding) the date
five (5) Business Days after the date Holdings delivers to the Agents a
Compliance Certificate shall conclusively be equal to the highest Applicable
Commitment Fee set forth above.
"APPLICABLE MARGIN" means, at all times during the applicable periods set
forth below,
(a) on any date, with respect to the unpaid principal amount of each
Term B Loan maintained as a (i) Base Rate Loan, 3.00% per annum and (ii)
LIBO Rate Loan, 4.00% per annum;
(b) from the Effective Date to (but excluding) the date five (5)
Business Days after the date upon which the Compliance Certificate for the
second full Fiscal Quarter ending after the Effective Date is required to
be delivered by Holdings to the Agents pursuant to CLAUSE (c) of SECTION
7.1.1, with respect to the unpaid principal amount of each (i) Swing Line
Loan (which shall be borrowed and maintained only as a Base Rate Loan),
Revolving Loan and Term A Loan maintained as a Base Rate Loan, 2.25% per
annum, and (ii) Revolving Loan and Term A Loan maintained as a LIBO Rate
Loan, 3.25% per annum; and
(c) at all times from the date five (5) Business Days after the date
the Compliance Certificate described in CLAUSE (b) above is required to be
delivered, with respect to the unpaid principal amount of each Swing Line
Loan (which shall be borrowed and maintained only as a Base Rate Loan),
Revolving Loan and Term A Loan, the rate determined by reference to
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the applicable Leverage Ratio and at the applicable percentage per annum
set forth below under the column entitled "APPLICABLE MARGIN FOR BASE RATE
LOANS", in the case of such Loans made or maintained as Base Rate Loans, or
by reference to the applicable Leverage Ratio and at the applicable
percentage per annum set forth below under the column entitled "APPLICABLE
MARGIN FOR LIBO RATE LOANS", in the case of such Loans made or maintained
as LIBO Rate Loans:
<TABLE>
<CAPTION>
Applicable
Margin For
Applicable LIBO Rate
Leverage Margin For ---------
Ratio Base Rate Loans Loans
----- --------------- -----
<S> <C> <C>
greater than
5.50:1.0 2.25% 3.25%
greater than
5.00:1.0 and less
than or equal to
5.50:1.0 2.00% 3.00%
greater than
4.50:1.0 and less
than or equal to
5.00:1.0 1.75% 2.75%
greater than
4.00:1.0 and less
than or equal to
4.50:1.0 1.50% 2.50%
greater than
3.50:1.0 and less
than or equal to
4.00:1.0 1.25% 2.25%
less than or
equal to 3.50:1.0 1.00% 2.00%
</TABLE>
The Leverage Ratio used to compute the Applicable Margin shall be the Leverage
Ratio set forth in the Compliance Certificate most recently delivered by
Holdings to the Agents; changes in the Applicable Margin resulting from a change
in the Leverage Ratio shall become effective upon the date five (5) Business
Days after the date by which delivery by the Borrowers to the Agents of a new
Compliance Certificate is required pursuant to CLAUSE (c) of SECTION 7.1.1. If
Holdings shall fail to deliver a Compliance Certificate by the delivery due date
specified in such clause, the Applicable Margin from and including the day
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immediately following such delivery due date to (but excluding) the date five
(5) Business Days after the date Holdings delivers to the Agents a Compliance
Certificate shall conclusively be equal to the highest Applicable Margin set
forth above.
"ASSIGNEE LENDER" is defined in SECTION 11.11.1.
"ASSIGNOR LENDER" is defined in SECTION 11.11.1.
"AUTHORIZED OFFICER" means, relative to any Obligor or the Seller, those of
its officers, general parties or managing members (as applicable) whose
signatures and incumbency shall have been certified to the Agents, the Lenders
and the Issuers pursuant to SECTION 5.1.1.
"BASE RATE" means, at any time, the rate of interest then most recently
established by the Administrative Agent in Charlotte, North Carolina as its base
rate for U.S. dollars loaned in the United States. The Base Rate is not
necessarily intended to be the lowest rate of interest determined by the
Administrative Agent in connection with extensions of credit.
"BASE RATE LOAN" means a Loan bearing interest at a fluctuating rate
determined by reference to the Alternate Base Rate.
"BOFA" is defined in the PREAMBLE.
"BORROWERS" is defined in the PREAMBLE.
"BORROWING" means the Loans of the same type and, in the case of LIBO Rate
Loans, having the same Interest Period made by all Lenders required to make such
Loans on the same Business Day and pursuant to the same Borrowing Request in
accordance with SECTION 2.1.
"BORROWING REQUEST" means a Loan request and certificate duly executed by
an Authorized Officer of the applicable Borrower, substantially in the form of
EXHIBIT B-1 hereto.
"BUSINESS DAY" means
(a) any day which is neither a Saturday or Sunday nor a legal holiday
on which banks are authorized or required to be closed in Charlotte, North
Carolina or New York, New York; and
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(b) relative to the making, continuing, prepaying or repaying of any
LIBO Rate Loans, any day which is a Business Day described in CLAUSE (a)
above and which is also a day on which dealings in Dollars are carried on
in the London interbank eurodollar market.
"CAPITAL EXPENDITURES" means, for any period, the aggregate amount of all
expenditures of Holdings, the Borrowers and their respective Subsidiaries for
fixed or capital assets made during such period which, in accordance with GAAP,
would be classified as capital expenditures. It is further agreed and understood
by the parties hereto that capital expenditures made by acquisition of all the
Capital Securities of an entity that owns fixed or capital assets will also be
considered to constitute "Capital Expenditures".
"CAPITAL SECURITIES" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated, whether
voting or non-voting) of such Person's capital, whether now outstanding or
issued after the Effective Date.
"CAPITALIZED LEASE LIABILITIES" means all monetary obligations of Holdings,
either Borrower or any of their respective Subsidiaries under any leasing or
similar arrangement which have been (or, in accordance with GAAP, should be)
classified as capitalized leases, and for purposes of each Loan Document the
amount of such obligations shall be the capitalized amount thereof, determined
in accordance with GAAP, and the stated maturity thereof shall be the date of
the last payment of rent or any other amount due under such lease prior to the
first date upon which such lease may be terminated by the lessee without payment
of a premium or a penalty.
"CASH COLLATERALIZE" means, with respect to a Letter of Credit, the deposit
of immediately available funds into a cash collateral account maintained with
(or on behalf of) the Administrative Agent on terms satisfactory to the
Administrative Agent in an amount equal to the Stated Amount of such Letter of
Credit.
"CASH EQUIVALENT INVESTMENT" means, at any time:
(a) any direct obligation of (or unconditionally guaranteed by) the
United States of America or a State thereof (or any agency or political
subdivision thereof, to the extent such obligations are supported by the
full faith and credit of the United States of
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America or a State thereof) maturing not more than six months after such time;
(b) commercial paper maturing not more than 180 days from the date of
issue, which is issued by
(i) a corporation (other than an Affiliate of any Obligor)
organized under the laws of any State of the United States or of the
District of Columbia and rated A-1 or higher by S&P or P-1 or higher
by Moody's, or
(ii) any Lender (or its holding company);
(c) any certificate of deposit, time deposit or bankers acceptance,
maturing not more than six months after its date of issuance, which is
issued by either
(i) any domestic office of any bank organized under the laws of
(A) the United States (or any State thereof) or (B) any other member
of the OECD, and, in each case, which has (x) a credit rating of A2 or
higher from Moody's or A or higher from S&P and (y) a combined capital
and surplus greater than $500,000,000, or
(ii) any Lender;
(d) any repurchase agreement having a term of 7 days or less entered
into with any Lender or any commercial banking institution satisfying the
criteria set forth in CLAUSE (c)(i) which
(i) is secured by a fully perfected security interest in any
obligation of the type described in CLAUSE (a), and
(ii) has a market value at the time such repurchase agreement is
entered into of not less than 100% of the repurchase obligation of
such commercial banking institution thereunder; or
(e) shares of investment companies that are registered under the
Investment Company Act of 1940, as amended, and that invest solely in one
or more of the types of securities described in CLAUSES (a) through (c)
above.
"CASUALTY EVENT" means the damage, destruction or condemnation, as the case
may be, of any property of
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Holdings, either Borrower or any of their respective Subsidiaries.
"CASUALTY PROCEEDS" means, with respect to any Casualty Event, the amount
of any insurance proceeds or condemnation awards received by Holdings, either
Borrower or any of their respective Subsidiaries in connection therewith, but
excluding any proceeds or awards required to be paid to a creditor (other than
any Secured Party) which holds a first-priority Lien permitted by SECTION 7.2.3
on the property which is the subject of such Casualty Event.
"CERCLA" means the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended.
"CERCLIS" means the Comprehensive Environmental Response Compensation
Liability Information System List.
"CERTIFICATES OF DESIGNATION" means, collectively, the Holdings Certificate
of Designation, the WRC Certificate of Designation and the JLC Certificate of
Designation.
"CHANGE IN CONTROL" means
(a) the failure of Ripplewood to directly or indirectly own
beneficially and of record on a fully diluted basis 51% of the outstanding
Capital Securities of EAC III, such Capital Securities to be held free and
clear of all Liens; or
(b) at any time prior to the creation of a Public Market, the failure
of EAC III to directly or indirectly own beneficially and of record on a
fully diluted basis prior to a Permitted Common Stock Exchange, at least
51% of the outstanding Capital Securities of Holdings (other than the PIK
Preferred Equity, if any (and any preferred stock having identical terms
thereto that is issued by Holdings to the holders thereof)) such Capital
Securities to be held free and clear of all Liens; or
(c) at any time after the creation of a Public Market relating to
Holdings or WRC, any person or group (within the meaning of Sections 13(d)
and 14(d) under the Exchange Act), other than Ripplewood or any other
Common Equity Investor, shall become the ultimate "beneficial owner" (as
defined in Rules 13d-3 and 13d-5 under the Exchange Act), directly or
indirectly, of Capital Securities representing more than 20% of the
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Capital Securities of Holdings (other than the PIK Preferred Equity, if any
(and any preferred stock having identical terms thereto that is issued by
Holdings to the holders thereof)) or WRC (other than the WRC Mirror PIK
Preferred Equity, if any, and the WRC PIK Preferred Equity, if any (and any
preferred stock having identical terms thereto that is issued by WRC to the
holders thereof)), as the case may be; or
(d) the first day on which a majority of the members of the Board of
Directors of Holdings or either Borrower are not Continuing Directors; or
(e) at any time prior to the creation of a Public Market, (i) prior to
the Permitted Common Stock Exchange, the failure of Holdings at any time to
directly own beneficially and of record on a fully diluted basis at least
78.80% and (ii) following the Permitted Common Stock Exchange, the failure
of Holdings at any time to directly own beneficially and of record on a
fully diluted basis at least 74.78%, in each case, of the outstanding
Capital Securities of WRC (other than the WRC Mirror PIK Preferred Equity,
if any, and the WRC PIK Preferred Equity, if any (and any preferred stock
having identical terms thereto that is issued by WRC to the holders thereof
in exchange therefor)), such Capital Securities to be held free and clear
of all Liens (other than Liens granted under a Loan Document); or
(f) the failure of Holdings and WRC, individually or collectively, at
any time to directly own beneficially and of record on a fully diluted
basis 83.90% of the outstanding Capital Securities of JLC (other than the
JLC PIK Preferred Equity, if any (and any preferred stock having identical
terms thereto that is issued by JLC to the holders thereof in exchange
therefor)), such Capital Securities to be held free and clear of all Liens
(other than Liens granted under a Loan Document); or
(g) (i) prior to the Permitted Common Stock Exchange, the failure of
(A) prior to the third anniversary of the Closing Date, at least 83.90% and
(B) on and subsequent to the third anniversary of the Closing Date, at
least 78.80%, and (ii) following the Permitted Common Stock Exchange, the
failure of (A) prior to the third anniversary of the Closing Date, at least
79.62% and (B) on and subsequent to the third anniversary of the Closing
Date, at least 74.78%, in
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each case, of the outstanding Capital Securities of WRC (other than the WRC
Mirror PIK Preferred Equity, if any, and the WRC PIK Preferred Equity, if
any (and any preferred stock having identical terms thereto that is issued
by WRC to the holders thereof in exchange therefor)) to be pledged by the
holder(s) thereof to the Administrative Agent under the Security and Pledge
Agreement, provided, however, that after the creation of a Public Market of
WRC, each such percentage of WRC's Capital Securities shall be equitably
adjusted based upon the amount of Capital Securities issued in connection
with a Public Offering of WRC; or
(h) the failure of the holders thereof to pledge at least 83.90% of
the outstanding Capital Securities of JLC (other than the JLC PIK Preferred
Equity, if any (and any preferred stock having identical terms thereto that
is issued by JLC to the holders thereof in exchange therefor)) to the
Administrative Agent under the Security and Pledge Agreement; or
(i) the occurrence of any "Change of Control" (or similar term) under
(and as defined in) any Sub Debt Document.
"CLOSING DATE" means the date of the initial Credit Extension, which shall
be a Business Day.
"CLOSING DATE CERTIFICATE" means, collectively, the officer's certificate
executed and delivered by an authorized officer of each of Holdings, each
Borrower and each Subsidiary Guarantor pursuant to the terms of this Agreement,
substantially in the form of EXHIBIT D hereto.
"CODE" means the Internal Revenue Code of 1986, and the regulations
thereunder, in each case as amended, reformed or otherwise modified from time to
time.
"COMMITMENT" means, as the context may require, a Lender's Term A Loan
Commitment, Term B Loan Commitment, Revolving Loan Commitment or Letter of
Credit Commitment, or the Swing Line Lender's Swing Line Loan Commitment.
"COMMITMENT AMOUNT" means, as the context may require, the Term A Loan
Commitment Amount, the Term B Loan Commitment Amount, the Revolving Loan
Commitment Amount, the Letter of Credit Commitment Amount or the Swing Line Loan
Commitment Amount.
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"COMMITMENT TERMINATION DATE" means, as the context may require, the Term A
Loan Commitment Termination Date, the Term B Loan Commitment Termination Date or
the Revolving Loan Commitment Termination Date.
"COMMITMENT TERMINATION EVENT" means
(a) the occurrence of any Event of Default described in CLAUSES
(a) through (d) of SECTION 8.1.9; or
(b) the occurrence and continuance of any other Event of Default
and either
(i) the declaration of all or any portion of the Loans
to be due and payable pursuant to SECTION 8.3, or
(ii) the giving of notice by the Administrative Agent,
acting at the direction of the Required Lenders, to the
Borrowers that the Commitments have been terminated.
"COMMON EQUITY ISSUANCE" is defined in CLAUSE (d) of the THIRD RECITAL.
"COMMON EQUITY SECURITIES" is defined in CLAUSE (d) of the THIRD RECITAL.
"COMMON EQUITY SECURITIES INVESTORS" is defined in CLAUSE (a) of the THIRD
RECITAL.
"COMPLIANCE CERTIFICATE" means a certificate duly completed and executed by
the chief financial or accounting Authorized Officer of Holdings, substantially
in the form of EXHIBIT E hereto, together with such changes thereto as the
Agents may from time to time request for the purpose of monitoring Holdings' and
the Borrowers' compliance with the financial covenants contained herein.
"CONTINGENT LIABILITY" means any agreement, undertaking or arrangement by
which any Person guarantees, endorses or otherwise becomes or is contingently
liable upon (by direct or indirect agreement, contingent or otherwise, to
provide funds for payment, to supply funds to, or otherwise to invest in, a
debtor, or otherwise to assure a creditor against loss) the Indebtedness of any
other Person (other than by endorsements of instruments in the course of
collection), or guarantees the payment of dividends or other distributions upon
the Capital Securities of any other
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Person. The amount of any Person's obligation under any Contingent Liability
shall (subject to any limitation set forth therein) be deemed to be the
outstanding principal amount of the debt, obligation or other liability
guaranteed thereby.
"CONTINUATION/CONVERSION NOTICE" means a notice of continuation or
conversion and certificate duly executed by an Authorized Officer of the
applicable Borrower, substantially in the form of EXHIBIT C hereto.
"CONTINUING DIRECTOR" means, as of any date of determination, any member of
the Board of Directors of Holdings or either Borrower who (i) was a member of
the Board of Directors of such Obligor on the Closing Date or (ii) was nominated
for election or elected to the Board of Directors of such Obligor with the
approval of a majority of the Continuing Directors who were members of the Board
of Directors of such Obligor at the time of such nomination or election.
"CONTROLLED GROUP" means all members of a controlled group of corporations
and all members of a controlled group of trades or businesses (whether or not
incorporated) under common control which, together with Holdings or either
Borrower, are treated as a single employer under Section 414(b) or 414(c) of the
Code or Section 4001 of ERISA.
"COPYRIGHT SECURITY AGREEMENT" means any Copyright Security Agreement
executed and delivered by any Obligor in substantially the form of Exhibit D to
the Security and Pledge Agreement, as amended, supplemented, amended and
restated or otherwise modified from time to time.
"CREDIT EXTENSION" means, as the context may require,
(a) the making of a Loan by a Lender; or
(b) the issuance of any Letter of Credit, or the extension of any
Stated Expiry Date of any existing Letter of Credit, by an Issuer.
"CREDIT EXTENSION REQUEST" means, as the context may require, any Borrowing
Request or Issuance Request.
"CURRENT ASSETS" means, on any date, without duplication, all assets which,
in accordance with GAAP, would be included as current assets on a consolidated
balance sheet of Holdings and its Subsidiaries at such date as current assets
(excluding, however, amounts due and to
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become due from Affiliates of the Borrowers which have arisen from transactions
which are other than arm's-length and in the ordinary course of its business).
"CURRENT LIABILITIES" means, on any date, without duplication, all amounts
which, in accordance with GAAP, would be included as current liabilities on a
consolidated balance sheet of Holdings and its Subsidiaries at such date,
excluding current maturities of Indebtedness.
"DEFAULT" means any Event of Default or any condition, occurrence or event
which, after notice or lapse of time or both, would constitute an Event of
Default.
"DEFAULTING LENDER" means any Lender which defaults in its obligation to
make any Credit Extension hereunder in accordance with SECTION 2.1.1 or 2.1.2 as
a result of the appointment of a receiver or conservator with respect to such
Lender at the direction or request of any regulatory agency or authority.
"DISBURSEMENT" is defined in SECTION 2.6.2.
"DISBURSEMENT DATE" is defined in SECTION 2.6.2.
"DISBURSEMENT DUE DATE" is defined in SECTION 2.6.2.
"DISCLOSURE SCHEDULE" means the Disclosure Schedule attached hereto as
SCHEDULE I, as it may be amended, supplemented, amended and restated or
otherwise modified from time to time by the Borrowers with the written consent
of the Required Lenders.
"DISPOSITION" (or similar words such as "DISPOSE") means any sale,
transfer, lease, contribution or other conveyance (including by way of merger)
of, or the granting of options, warrants or other rights to, either of the
Borrower's or their respective Subsidiaries' assets (including accounts
receivables and Capital Securities of Subsidiaries) to any other Person in a
single transaction or series of transactions; PROVIDED that the term
"Disposition" shall not include any Permitted Equity Exchange.
"DLJ" is defined in the PREAMBLE.
"DLJMB" is defined in CLAUSE (c) of the THIRD RECITAL.
"DLJMB RELATED PARTY" means (i) any controlling stockholder, majority (or
more) owned Subsidiary, or immediate family member (in the case of an
individual) of
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DLJMB; or (ii) any trust, corporation, partnership or other entity, the
beneficiaries, stockholders, partners, owners or Persons beneficially holding a
majority or more controlling interest of which consist of DLJMB and/or such
other Persons referred to in the immediately preceding CLAUSE (i).
"DOCUMENTATION AGENT" is defined in the PREAMBLE.
"DOLLAR" and the sign "$" mean lawful money of the United States.
"DOMESTIC OFFICE" means the office of a Lender designated as its "Domestic
Office" on its signature page hereto or in a Lender Assignment Agreement, or
such other office within the United States as may be designated from time to
time by notice from such Lender to the Agents and the Borrowers.
"DOMESTIC SUBSIDIARY" means any Subsidiary that is not a Foreign
Subsidiary.
"EAC III" is defined in CLAUSE (a) of the THIRD RECITAL.
"EBITDA" means, for any applicable period, the sum of
(a) the excess of (i) Net Income (excluding any non-cash revenues
included in the computation of Net Income) OVER (ii) Restricted Payments
permitted under CLAUSES (c) and (d) of SECTION 7.2.6,
PLUS
(b) to the extent deducted in determining Net Income, the sum of (i)
amounts attributable to amortization, (ii) income tax expense, (iii)
Interest Expense, (iv) depreciation of assets and (v) other non-cash,
non-recurring charges.
"EFFECTIVE DATE" means the date this Agreement becomes effective
pursuant to SECTION 11.8.
"ENVIRONMENTAL LAWS" means all applicable federal, state or local
statutes, laws, ordinances, codes, rules and regulations (including consent
decrees and administrative orders) relating to the protection of the
environment.
"EQUITY ISSUANCES" is defined in CLAUSE (d) of the THIRD RECITAL.
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"EQUITY SECURITIES" is defined in CLAUSE (d) of the THIRD RECITAL.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and any successor statute thereto of similar import, together with
the regulations thereunder, in each case as in effect from time to time.
References to Sections of ERISA also refer to any successor Sections
thereto.
"EVENT OF DEFAULT" is defined in SECTION 8.1.
"EXCESS CASH FLOW" means, for any Fiscal Year, the excess (if any), of
(a) EBITDA for such Fiscal Year OVER
(b) the sum (for such Fiscal Year), without duplication, of (i)
Interest Expense actually paid in cash by Holdings, the Borrowers and
their respective Subsidiaries, (ii) scheduled principal repayments, to
the extent actually made, of Term Loans pursuant to CLAUSES (c) and
(d) of SECTION 3.1.1, and other voluntary or mandatory prepayments of
Term Loans or repayments of Revolving Loans (accompanied by a
permanent commitment reduction), (iii) all income taxes actually paid
in cash by Holdings, the Borrowers and their respective Subsidiaries,
(iv) Capital Expenditures actually made by the Borrowers and their
respective Subsidiaries in such Fiscal Year, (v) Investments permitted
to be made and actually made in cash pursuant to CLAUSE (d), (g) or
(i) of SECTION 7.2.5, by the Borrowers and their respective
Subsidiaries in such Fiscal Year, (vi) Restricted Payments of the
types described in CLAUSES (b), (c), (d), and (f) (other than
Restricted Payments made by WRC in respect of the WRC Mirror PIK
Preferred Equity that are used by Holdings to make scheduled payments
of dividends on the PIK Preferred Equity to WRC) of SECTION 7.2.6 that
are permitted to be made and actually made in cash during such Fiscal
Year and (vii) payments of interest described in SECTION 7.2.8(a)(i)
that are permitted to be made and actually made in cash during such
Fiscal Year;
PLUS (MINUS)
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(c) the amount of the net increase (decrease) of Current Assets,
other than cash and Cash Equivalent Investments, over Current
Liabilities of Holdings, the Borrowers and their respective
Subsidiaries for such applicable period.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"EXEMPTION CERTIFICATE" is defined in CLAUSE (e) of SECTION 4.6.
"FEDERAL FUNDS RATE" means, for any period, a fluctuating interest rate per
annum equal for each day during such period to
(a) the weighted average of the rates on overnight federal funds
transactions with members of the Federal Reserve System arranged by
federal funds brokers, as published for such day (or, if such day is
not a Business Day, for the next preceding Business Day) by the
Federal Reserve Bank of New York; or
(b) if such rate is not so published for any day which is a
Business Day, the average of the quotations for such day on such
transactions received by the Administrative Agent from three federal
funds brokers of recognized standing selected by it.
"FEE LETTER" means the confidential letter, dated October 26, 1999, among
DLJ, BofA and Ripplewood.
"FILING AGENT" is defined in SECTION 5.1.10.
"FILING STATEMENTS" is defined in SECTION 5.1.10.
"FINANCED ACQUISITION" is defined in the FIRST RECITAL.
"FISCAL QUARTER" means a quarter ending on the last day of March, June,
September or December.
"FISCAL YEAR" means any period of twelve consecutive calendar months ending
on December 31; references to a Fiscal Year with a number corresponding to any
calendar year (E.G., the "2000 Fiscal Year") refer to the Fiscal Year ending on
December 31 of such calendar year.
"FIXED CHARGE COVERAGE RATIO" means, as of the close of any Fiscal Quarter,
the ratio computed for the period
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consisting of such Fiscal Quarter and each of the three immediately preceding
Fiscal Quarters of:
(a) EBITDA (for all such Fiscal Quarters);
TO
(b) the sum (for all such Fiscal Quarters), without duplication, of
(i) Interest Expense, (ii) Capital Expenditures of the Borrowers and their
respective Subsidiaries made during such Fiscal Quarters, (iii) scheduled
principal repayments of Indebtedness made during such period (including
repayments of the Term Loans pursuant to CLAUSES (c) and (d) of SECTION
3.1.1, after giving effect to any reductions in such scheduled principal
repayments attributable to any optional or mandatory prepayments of the
Term Loans), (iv) all income taxes actually paid in cash by Holdings, the
Borrowers and their respective Subsidiaries, (v) Restricted Payments of the
types described in CLAUSES (b) and (f) (other than Restricted Payments made
by WRC in respect of the WRC Mirror PIK Preferred Equity that are used by
Holdings to make scheduled payments of dividends on the PIK Preferred
Equity to WRC) of SECTION 7.2.6 actually made during such applicable period
and (vi) payments of interest described in SECTION 7.2.8(a)(i) that are
actually made during such applicable period.
"FOREIGN PLEDGE AGREEMENT" means any supplemental pledge agreement governed
by the laws of a jurisdiction other than the United States or a State thereof
executed and delivered by either Borrower or any of its Subsidiaries pursuant to
the terms of this Agreement, in form and substance satisfactory to the Agents,
as may be necessary or desirable under the laws of organization or incorporation
of a Subsidiary to further protect or perfect the Lien on and security interest
in any Collateral (as defined in the Security and Pledge Agreement).
"FOREIGN SUBSIDIARY" means any Subsidiary of Holdings (a) which is
organized under the laws of any jurisdiction outside of the United States of
America, (b) which conducts the major portion of its business outside of the
United States of America and (c) all or substantially all of the property and
assets of which are located outside of the United States of America.
"F.R.S. BOARD" means the Board of Governors of the Federal Reserve System
or any successor thereto.
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"GAAP" is defined in SECTION 1.4.
"GOVERNMENTAL AUTHORITY" means the government of the United States of
America, any other nation or any political subdivision thereof, whether state or
local, and any agency, authority, instrumentality, regulatory body, court,
central bank or other entity exercising executive, legislative, judicial,
taxing, regulatory or administrative powers or functions of or pertaining to
government.
"GUARANTOR" means, as the context may require, Holdings and/or each
Subsidiary Guarantor.
"HAZARDOUS MATERIAL" means
(a) any "hazardous substance", as defined by CERCLA;
(b) any "hazardous waste", as defined by the Resource
Conservation and Recovery Act, as amended; or
(c) any pollutant or contaminant or hazardous, dangerous or toxic
chemical, material or substance (including any petroleum product)
within the meaning of any other applicable Environmental Law.
"HEDGING OBLIGATIONS" means, with respect to any Person, all liabilities of
such Person under currency exchange agreements, interest rate swap agreements,
interest rate cap agreements and interest rate collar agreements, and all other
agreements or arrangements designed to protect such Person against fluctuations
in interest rates or currency exchange rates.
"HEREIN", "HEREOF", "HERETO", "HEREUNDER" and similar terms contained in
any Loan Document refer to such Loan Document as a whole and not to any
particular Section, paragraph or provision of such Loan Document.
"HOLDINGS" is defined in the PREAMBLE.
"HOLDINGS CERTIFICATE OF DESIGNATION" means that certain Certificate of
Designation, Performance and Rights of 15% Senior Preferred Stock due 2011 of
Holdings, dated November 16, 1999 and made pursuant to Section 151 of the
General Corporation Law of the State of Delaware.
"HOLDINGS (UNIT) COMMON STOCK" is defined in CLAUSE (b) of the THIRD
RECITAL.
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"IMPERMISSIBLE QUALIFICATION" means any qualification or exception to the
opinion or certification of any independent public accountant as to any
financial statement of Holdings or either Borrower
(a) which is of a "going concern" or similar nature;
(b) which relates to the limited scope of examination of matters
relevant to such financial statement; or
(c) which relates to the treatment or classification of any item in
such financial statement and which, as a condition to its removal, would
require an adjustment to such item the effect of which would be to cause
Holdings or such Borrower to be in Default.
"INCLUDING" and "INCLUDE" means including without limiting the generality
of any description preceding such term, and, for purposes of each Loan Document,
the parties hereto agree that the rule of ejusdem generis shall not be
applicable to limit a general statement, which is followed by or referable to an
enumeration of specific matters, to matters similar to the matters specifically
mentioned.
"INDEBTEDNESS" of any Person means, without duplication:
(a) all obligations of such Person for borrowed money or advances and
all obligations of such Person evidenced by bonds, debentures, notes or
similar instruments;
(b) all obligations, contingent or otherwise, relative to the face
amount of all letters of credit, whether or not drawn, and banker's
acceptances issued for the account of such Person;
(c) all Capitalized Lease Liabilities of such Person;
(d) net termination value of such Person under all of its Hedging
Obligations as if such Hedging Obligations were terminated on the date of
the determination of the amount of Indebtedness;
(e) whether or not so included as liabilities in accordance with GAAP,
all obligations of such Person to pay the deferred purchase price of
property or services
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excluding trade accounts payable in the ordinary course of business which
are not overdue for a period of more than 90 days or, if overdue for more
than 90 days, as to which a dispute exists and adequate reserves in
conformity with GAAP have been established on the books of such Person, and
indebtedness secured by (or for which the holder of such indebtedness has
an existing right, contingent or otherwise, to be secured by) a Lien on
property owned or being acquired by such Person (including indebtedness
arising under conditional sales or other title retention agreements),
whether or not such indebtedness shall have been assumed by such Person or
is limited in recourse;
(f) obligations of such Person arising under Synthetic Leases;
(g) Redeemable Capital Stock of such Person; and
(h) all Contingent Liabilities of such Person in respect of any of the
foregoing.
The Indebtedness of any Person shall include the Indebtedness of any other
entity (including any partnership in which such Person is a general partner) to
the extent such Person is liable therefor as a result of such Person's ownership
interest in or other relationship with such entity, except to the extent the
terms of such Indebtedness provide that such Person is not liable therefor.
"INDEMNIFIED LIABILITIES" is defined in SECTION 11.4.
"INDEMNIFIED PARTIES" is defined in SECTION 11.4.
"INTERCO SUBORDINATION AGREEMENT" means the Intercompany Subordination
Agreement, substantially in the form of EXHIBIT K hereto, executed and delivered
by two or more Obligors pursuant to the terms of this Agreement, as amended,
supplemented, amended and restated or otherwise modified from time to time.
"INTERCOMPANY NOTE" means, with respect to Holdings, either Borrower or any
of their respective Subsidiaries, as the maker thereof, a promissory note
substantially in the form of Exhibit A to the Security and Pledge Agreement
(with such modifications as the Administrative Agent may consent to, such
consent not to be unreasonably withheld), which promissory note shall evidence
all intercompany loans which may be made from time to time by the payee
thereunder to
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such maker and shall be duly endorsed and pledged by the payee in favor of the
Administrative Agent.
"INTEREST EXPENSE" means, for any Fiscal Quarter, the aggregate interest
expense (both accrued and paid) of Holdings, the Borrowers and their respective
Subsidiaries for such Fiscal Quarter, including the portion of any payments made
in respect of Capitalized Lease Liabilities allocable to interest expense (net
of interest income and net payments under Hedging Obligations relating to
interest rate swaps, caps or collars paid during such period to the Borrowers
and their respective Subsidiaries) or made in respect of Hedging Obligations
relating to interest rates swaps, caps or collars.
"INTEREST PERIOD" means, relative to any LIBO Rate Loan, the period
beginning on (and including) the date on which such LIBO Rate Loan is made or
continued as, or converted into, a LIBO Rate Loan pursuant to SECTIONS 2.3 or
2.4 and shall end on (but exclude) the day which numerically corresponds to such
date one, two, three, six months or, if then generally available to each
applicable Lender, nine or twelve months thereafter (or, if such month has no
numerically corresponding day, on the last Business Day of such month), as the
applicable Borrower may select in its relevant notice pursuant to SECTIONS 2.3
or 2.4; PROVIDED, HOWEVER, that
(a) such Borrower shall not be permitted to select Interest Periods to
be in effect at any one time which have expiration dates occurring on more
than ten different dates;
(b) if such Interest Period would otherwise end on a day which is not
a Business Day, such Interest Period shall end on the next following
Business Day (unless such next following Business Day is the first Business
Day of a calendar month, in which case such Interest Period shall end on
the Business Day next preceding such numerically corresponding day); and
(c) no Interest Period for any Loan may end later than the Stated
Maturity Date for such Loan.
"INVESTMENT" means, relative to any Person,
(a) any loan, advance or extension of credit made by such Person to
any other Person, including the purchase by such Person of any bonds,
notes, debentures or other debt securities of any other Person; and
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(b) any Capital Securities held by such Person in any other Person.
The amount of any Investment shall be the original principal or capital amount
thereof less all returns of principal or equity thereon and shall, if made by
the transfer or exchange of property other than cash, be deemed to have been
made in an original principal or capital amount equal to the fair market value
of such property at the time of such Investment.
"ISP RULES" is defined in SECTION 11.9.
"ISSUANCE REQUEST" means a Letter of Credit request and certificate duly
executed by an Authorized Officer of the applicable Borrower, substantially in
the form of EXHIBIT B-2 hereto.
"ISSUER" means the Administrative Agent in its capacity as Issuer of the
Letters of Credit. At the request of the Administrative Agent and with the
Borrowers' consent (not to be unreasonably withheld), another Lender or an
Affiliate of the Administrative Agent may issue one or more Letters of Credit
hereunder.
"JLC" is defined in the PREAMBLE.
"JLC CERTIFICATE OF DESIGNATION" means a certificate of designation
substantially in the form of the certificate of designation described in clause
(i) of the definition of the term "WRC Certificate of Designation" and relating
to the JLC PIK Preferred Equity.
"JLC PIK PREFERRED EQUITY" is defined in CLAUSE (c) of the THIRD RECITAL.
"JLC WARRANTS" is defined in CLAUSE (c) of the THIRD RECITAL.
"LANDLORD WAIVER" means an agreement in favor of the Administrative Agent,
for the benefit of the Secured Parties, in form and substance reasonably
satisfactory to the Agents.
"LENDER ASSIGNMENT AGREEMENT" means an assignment agreement substantially
in the form of EXHIBIT L hereto.
"LENDERS" is defined in the PREAMBLE and includes each Person that becomes
a Lender pursuant to SECTION 11.11.1.
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"LENDER'S ENVIRONMENTAL LIABILITY" means any and all losses, liabilities,
obligations, penalties, claims, litigation, demands, defenses, costs, judgments,
suits, proceedings, damages (including consequential damages), disbursements or
expenses of any kind or nature whatsoever (including reasonable attorneys' fees
at trial and appellate levels and experts' fees and disbursements and expenses
incurred in investigating, defending against or prosecuting any litigation,
claim or proceeding) which may at any time be imposed upon, incurred by or
asserted or awarded against either Agent, any Lender or any Issuer or any of
such Person's Affiliates, shareholders, directors, officers, employees, and
agents in connection with or arising from:
(a) any Hazardous Material on, in, under or affecting all or any
portion of any property of Holdings, either Borrower or any of their
respective Subsidiaries, the groundwater thereunder, or any surrounding
areas thereof to the extent caused by Releases from Holdings', either
Borrower's or any of their respective Subsidiaries' or any of their
respective predecessors' properties;
(b) any misrepresentation, inaccuracy or breach of any warranty,
contained or referred to in SECTION 6.12;
(c) any violation or claim of violation by Holdings, either Borrower
or any of their respective Subsidiaries of any Environmental Laws; or
(d) the imposition of any lien for damages caused by or the recovery
of any costs for the cleanup, release or threatened release of Hazardous
Material by Holdings, either Borrower or any of their respective
Subsidiaries, or in connection with any property owned or formerly owned by
Holdings, either Borrower or any of their respective Subsidiaries.
"LETTER OF CREDIT" is defined in SECTION 2.1.2.
"LETTER OF CREDIT COMMITMENT" means, with respect to an Issuer, such
Issuer's obligation to issue Letters of Credit pursuant to SECTION 2.1.2 and,
with respect to each Revolving Loan Lender, the obligations of each such Lender
to participate in such Letters of Credit pursuant to SECTION 2.6.1.
"LETTER OF CREDIT COMMITMENT AMOUNT" means, on any date, a maximum amount
of $5,000,000, as such amount may be
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permanently reduced from time to time pursuant to SECTION 2.2.
"LETTER OF CREDIT OUTSTANDINGS" means, on any date, an amount equal to the
sum of (i) the then aggregate amount which is undrawn and available under all
issued and outstanding Letters of Credit, and (ii) the then aggregate amount of
all unpaid and outstanding Reimbursement Obligations.
"LEVERAGE RATIO" means, as of the last day of any Fiscal Quarter, the ratio
of
(a) Total Debt outstanding on the last day of such Fiscal Quarter
TO
(b) EBITDA computed for the period consisting of such Fiscal Quarter
and each of the three immediately preceding Fiscal Quarters.
"LIBO RATE" means, relative to any Interest Period for LIBO Rate Loans, the
interest rate per annum for deposits in Dollars, if any, for a period equal to
the relevant Interest Period which appears on Telerate Page 3750 at
approximately 11:00 a.m., London time, prior to the commencement of such
Interest Period. If such a rate does not appear on Telerate Page 3750, the LIBO
Rate shall be the rate of interest equal to the average (rounded, if necessary,
to the nearest 1/100 of 1%) of the rates per annum at which Dollar deposits in
immediately available funds are offered to the Administrative Agent's LIBOR
Office in the London interbank market as at or about 11:00 a.m. London, England
time two Business Days prior to the beginning of such Interest Period for
delivery on the first day of such Interest Period, and in an amount
approximately equal to the amount of the Administrative Agent's LIBO Rate Loan
and for a period approximately equal to such Interest Period.
"LIBO RATE LOAN" means a Loan bearing interest, at all times during an
Interest Period applicable to such Loan, at a rate of interest determined by
reference to the LIBO Rate (Reserve Adjusted).
"LIBO RATE (RESERVE ADJUSTED)" means, relative to any Loan to be made,
continued or maintained as, or converted into, a LIBO Rate Loan for any Interest
Period, a rate per annum (rounded, if necessary, to the nearest 1/100 of 1%)
determined pursuant to the following formula:
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LIBO Rate = LIBO
RATE
(Reserve Adjusted) 1.00 - LIBOR Reserve Percentage
The LIBO Rate (Reserve Adjusted) for any Interest Period for LIBO Rate Loans
will be determined by the Administrative Agent on the basis of the LIBOR Reserve
Percentage in effect two Business Days before the first day of such Interest
Period.
"LIBOR OFFICE" means the office of a Lender designated as its "LIBOR
Office" on SCHEDULE II hereto or in a Lender Assignment Agreement, or such other
office designated from time to time by notice from such Lender to the Borrowers
and the Agents, whether or not outside the United States, which shall be making
or maintaining the LIBO Rate Loans of such Lender.
"LIBOR RESERVE PERCENTAGE" means, relative to any Interest Period for LIBO
Rate Loans, the reserve percentage (expressed as a decimal) equal to the maximum
aggregate reserve requirements (including all basic, emergency, supplemental,
marginal and other reserves and taking into account any transitional adjustments
or other scheduled changes in reserve requirements) specified under regulations
issued from time to time by the F.R.S. Board and then applicable to assets or
liabilities consisting of or including "Eurocurrency Liabilities", as currently
defined in Regulation D of the F.R.S. Board, having a term approximately equal
or comparable to such Interest Period.
"LIEN" means any security interest, mortgage, pledge, hypothecation,
assignment, deposit arrangement, encumbrance, lien (statutory or otherwise),
charge against or interest in property, or other priority or preferential
arrangement of any kind or nature whatsoever, to secure payment of a debt or
performance of an obligation.
"LIFETIME" is defined in CLAUSE (a) of the SECOND RECITAL.
"LOAN" means, as the context may require, a Revolving Loan, a Term Loan or
a Swing Line Loan of any type.
"LOAN DOCUMENTS" collectively means this Agreement, the Letters of Credit,
each Secured Hedging Agreement, the Interco Subordination Agreement, the Fee
Letter, each agreement pursuant to which the Administrative Agent is granted a
Lien to secure the Obligations, each Credit Extension Request and each other
agreement which specifies
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that it is a Loan Document and to which Holdings, either Borrower or any
Subsidiary Guarantor is a signatory.
"MANAGEMENT FEES" means all management and similar fees payable to any
Person (including Ripplewood) by Holdings, either Borrower or any Subsidiary.
"MATERIAL ADVERSE EFFECT" means a material adverse effect on (i) the
business, assets, condition (financial or otherwise), operations, performance,
properties or Projections of Holdings, the Borrowers and their respective
Subsidiaries, taken as a whole, (ii) the rights and remedies of any Secured
Party under any Loan Document or (iii) the ability of any Obligor to perform its
material Obligations under any Loan Document.
"MOODY'S" means Moody's Investors Service, Inc.
"MORTGAGE" means each mortgage, deed of trust or agreement executed and
delivered by any Obligor in favor of the Administrative Agent for the benefit of
the Secured Parties pursuant to the requirements of this Agreement in
substantially the form of EXHIBIT I-1 or EXHIBIT I-2 hereto, as applicable,
under which a Lien is granted on the real property and fixtures described
therein, in each case as amended, supplemented, amended and restated or
otherwise modified from time to time.
"NET DEBT PROCEEDS" means, with respect to the incurrence, sale or issuance
by Holdings, either Borrower or any of their respective Subsidiaries of any
Indebtedness (other than Indebtedness permitted by SECTION 7.2.2), the EXCESS
of:
(a) the gross cash proceeds received by Holdings, such Borrower or
such Subsidiaries from such incurrence, sale or issuance,
OVER
(b) all reasonable and customary underwriting commissions and legal,
investment banking, brokerage and accounting and other professional fees,
sales commissions and disbursements actually incurred in connection with
such incurrence, sale or issuance which have not been paid to Affiliates of
Holdings or either Borrower in connection therewith.
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"NET DISPOSITION PROCEEDS" means, with respect to any Disposition of any
assets of Holdings, either Borrower or any of their respective Subsidiaries
(other than pursuant to a Permitted Asset Disposition of the type not described
in clause (f) of the definition thereof), the EXCESS of
(a) the gross cash proceeds received by Holdings, such Borrower or
such Subsidiaries from any such Disposition and any cash payments received
in respect of promissory notes or other non-cash consideration delivered to
such Person in respect thereof,
OVER
(b) the sum (without duplication) of (i) all reasonable and customary
legal, investment banking, brokerage and accounting and other professional
fees and disbursements actually incurred in connection with such
Disposition which have not been paid to Affiliates of Holdings or either
Borrower in connection therewith, (ii) all taxes and other governmental
costs and expenses actually paid or estimated by such Person (in good
faith) to be payable in cash in connection with such Disposition, (iii)
payments made by such Person to retire Indebtedness (other than the Credit
Extensions) of such Person where payment of such Indebtedness is required
in connection with such Disposition and (iv) reserves for purchase price
adjustments and retained fixed liabilities that are payable by such
Borrower or such Subsidiary in cash to the extent required under GAAP in
connection with such Disposition;
PROVIDED, HOWEVER, that if, after the payment of all taxes, purchase price
adjustments and retained fixed liabilities with respect to such Disposition, the
amount of estimated taxes, if any, pursuant to CLAUSE (b)(ii) above exceeded the
amount of taxes, purchase price adjustments and retained fixed liabilities
actually paid in cash in respect of such Disposition, the aggregate amount of
such excess shall, at such time, constitute Net Disposition Proceeds.
"NET EQUITY PROCEEDS" means with respect to the sale or issuance by
Holdings, either Borrower or any of their respective Subsidiaries to any Person
(other than Holdings, either Borrower or any of their respective Subsidiaries)
of any Capital Securities, warrants or options or the exercise of any such
warrants or options (other than pursuant to a Permitted Equity Exchange), the
EXCESS of:
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(a) the gross cash proceeds received by Holdings, such Borrower or
such Subsidiaries from such sale, exercise or issuance,
OVER
(b) all reasonable and customary underwriting commissions and legal,
investment banking, brokerage and accounting and other professional fees,
sales commissions and disbursements actually incurred in connection with
such sale or issuance which have not been paid to Affiliates of Holdings or
either Borrower in connection therewith.
"NET INCOME" means, for any period, the aggregate of all amounts (exclusive
of all amounts in respect of any extraordinary gains but including extraordinary
losses) which would be included as net income on the consolidated financial
statements of Holdings for such period.
"NON-DEFAULTING LENDER" means a Lender that is not a Defaulting Lender.
"NON-DOMESTIC LENDER" means any Lender that is not a "United States
person", as defined under Section 7701(a)(30) of the Code.
"NON-EXCLUDED TAXES" means any Taxes other than income, franchise or
similar Taxes imposed on, or measured by, the net income of a Secured Party by a
Governmental Authority in the country or political subdivision therein in which
such Secured Party is organized or in which it maintains its applicable lending
office or in any other jurisdiction to which a Secured Party has any contact
constituting a basis for the imposition of such Taxes, other than a contact
arising solely from the Secured Party having executed, delivered, or performed
its obligations under, or received a payment under, or enforced this Agreement
or any other Loan Document.
"NOTE" means, as the context may require, a Revolving Note, a Term A Note,
a Term B Note or a Swing Line Note.
"OBLIGATIONS" means all obligations (monetary or otherwise, whether
absolute or contingent, matured or unmatured) of Holdings, each Borrower and
each other Obligor arising under or in connection with a Loan Document,
including the principal of and premium, if any, and interest (including interest
accruing during the pendency of any proceeding of the type described in SECTION
8.1.9, whether
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or not allowed in such proceeding) on the Loans and all Reimbursement
Obligations.
"OBLIGOR" means, as the context may require, Holdings, each Borrower and
each other Person (other than a Secured Party and the Seller) obligated under
any Loan Document and their permitted successors and assigns.
"OECD" means the Organization for Economic Cooperation and Development.
"OFFERING MEMORANDUM" means the Offering Memorandum, dated November 10,
1999, captioned "$152,000,000, WRC Media Inc., 152,000 Units Consisting of
12 3/4% Senior Subordinated Notes due 2009 of WRC Media Inc., Weekly Reader
Corporation and JLC Learning Corporation, and 205,656 Shares of common Stock of
WRC Media Inc."
"ORGANIC DOCUMENT" means, relative to any Obligor or the Seller, as
applicable, its certificate of incorporation, by-laws, certificate of
partnership, partnership agreement, certificate of formation, limited liability
agreement and all certificates of designation, shareholder agreements, voting
trusts and similar arrangements applicable to any of such Obligor's or the
Seller's partnership interests, limited liability company interests or
authorized shares of Capital Securities.
"OTHER TAXES" means any and all stamp, documentary or similar taxes, or any
other excise or property taxes or similar levies that arise on account of the
execution, delivery, registration, recording or enforcement of any Loan
Document.
"PARTICIPANT" is defined in SECTION 11.11.2.
"PATENT SECURITY AGREEMENT" means any Patent Security Agreement executed
and delivered by any Obligor in substantially the form of Exhibit B to the
Security and Pledge Agreement, as amended, supplemented, amended and restated or
otherwise modified from time to time.
"PBGC" means the Pension Benefit Guaranty Corporation and any entity
succeeding to any or all of its functions under ERISA.
"PENSION PLAN" means a "pension plan", as such term is defined in Section
3(2) of ERISA, which is subject to Title IV of ERISA (other than a multiemployer
plan as defined in Section 4001(a)(3) of ERISA), and to which
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Holdings, either Borrower or any corporation, trade or business that is, along
with Holdings or such Borrower, a member of a Controlled Group, may have
liability, including any liability by reason of having been a substantial
employer within the meaning of Section 4063 of ERISA at any time during the
preceding five years, or by reason of being deemed to be a contributing sponsor
under Section 4069 of ERISA.
"PERCENTAGE" means, as the context may require, any Lender's RL Percentage,
Term A Percentage or Term B Percentage.
"PERFECTION CERTIFICATE" means the Perfection Certificate executed and
delivered by an Authorized Officer of each Obligor that is a party to the
Security and Pledge Agreement pursuant to SECTION 5.1.15 or 7.1.8, substantially
in the form of EXHIBIT H hereto, as amended, supplemented, amended and restated
or otherwise modified from time to time.
"PERMITTED ACQUISITION" means an Acquisition by either Borrower or any of
its Subsidiaries in which the following conditions are satisfied:
(a) immediately before and after giving effect to such Acquisition no
Specified Default shall have occurred and be continuing or would result
therefrom (including under SECTION 7.2.1); and
(b) Holdings shall have delivered to the Agents a Compliance
Certificate for the period of four full Fiscal Quarters immediately
preceding such Acquisition (prepared in good faith and in a manner and
using such methodology which is consistent with the most recent financial
statements delivered pursuant to SECTION 7.1.1) giving PRO FORMA effect to
the consummation of such Acquisition and evidencing compliance with the
covenants set forth in SECTION 7.2.4.
"PERMITTED ASSET DISPOSITION" means any Disposition consisting of (a)
Dispositions of inventory in the ordinary course of business, (b) Dispositions
of equipment which, in the aggregate during any Fiscal Year, have a fair market
value or book value, whichever is greater, of not more than $1,500,000, (c)
Dispositions of property that is substantially worn, damaged, obsolete or, in
the judgment of either Borrower, no longer best used or useful in its respective
business or that of any of its respective Subsidiaries, (d) leases or subleases
of real property and
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the licensing of intellectual property in the ordinary course of business, (e)
Dispositions of property to either of the Borrowers or any of their respective
Subsidiaries or (f) Restricted Asset Dispositions in a single transaction or
series of transactions.
"PERMITTED COMMON STOCK EXCHANGE" means a Permitted Equity Exchange of the
type set forth in (i) CLAUSE (iv) of the definition thereof or (ii) CLAUSE (v)
of the definition thereof.
"PERMITTED EQUITY EXCHANGE" means (i) the issuance by JLC or WRC of common
stock upon the exercise of the JLC Warrants or the WRC Warrants, respectively,
(ii) the issuance by JLC and/or WRC of JLC PIK Preferred Equity and/or WRC PIK I
Preferred Equity in exchange for all of the PIK Preferred Equity, (iii) the
issuance by JLC and/or WRC of preferred stock to the holders of the JLC PIK
Preferred Equity and/or the WRC PIK Preferred Equity that is identical to such
JLC PIK Preferred Equity and/or such WRC PIK Preferred Equity, except that such
preferred stock is not subject to restrictions upon transfer under the federal
securities laws, (iv) the issuance of common stock of WRC and WRC PIK II
Preferred Equity to Holdings pursuant to a transaction permitted under SECTION
11.12, (v) the issuance of common stock of WRC in exchange for the Holdings
(Unit) Common Stock (A) in connection with (1) a Public Offering relating to WRC
or (2) to the extent permitted hereunder, the sale of all or substantially all
of the assets of WRC or (B) in connection with a transaction permitted under
SECTION 11.12 or (vi) in connection with a Public Offering relating to Holdings,
the issuance of common stock of Holdings in exchange for JLC Warrants (or
warrant shares issued by JLC in connection with the exchange of such JLC
Warrants) and/or WRC Warrants (or warrant shares issued by WRC in connection
with the exchange of such WRC Warrants), in each case to the holders of such
Capital Securities so being exchanged.
"PERSON" means any natural person, corporation, limited liability company,
partnership, joint venture, association, trust or unincorporated organization,
Governmental Authority or any other legal entity, whether acting in an
individual, fiduciary or other capacity.
"PIK PREFERRED EQUITY" is defined in CLAUSE (c) of the THIRD RECITAL.
"PIK PREFERRED EQUITY HOLDERS" is defined in CLAUSE (c) of the THIRD
RECITAL.
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"PIK PREFERRED EQUITY ISSUANCE" is defined in CLAUSE (c) of the THIRD
RECITAL.
"PLEDGED SUBSIDIARY" means each Subsidiary in respect of which the
Administrative Agent has been granted a security interest in or a pledge of (i)
any of the Capital Securities of such Subsidiary or (ii) any intercompany notes
of such Subsidiary owing to either Borrower or another Subsidiary.
"PREFERRED STOCKHOLDERS AGREEMENT" is defined in CLAUSE (c) of the THIRD
RECITAL.
"PRI" is defined in CLAUSE (a) of the SECOND RECITAL.
"PROJECTIONS" is defined in CLAUSE (a)(iii) of SECTION 5.1.8.
"PUBLIC MARKET" shall exist if (i) a Public Offering has been consummated
and (ii) any Capital Securities of Holdings has been distributed by means of an
effective registration statement under the Securities Act of 1933, as amended.
"PUBLIC OFFERING" means a public offering of the outstanding Capital
Securities of Holdings or WRC pursuant to an effective registration statement
under the Securities Act of 1933, as amended, resulting in Net Equity Proceeds
of at least $60,000,000..
"PURCHASE AGREEMENT" is defined in the FIRST RECITAL.
"QUARTERLY PAYMENT DATE" means the last Business Day of March, June,
September and December.
"REDEEMABLE CAPITAL STOCK" means, with respect to any Person, any class of
Capital Securities of such Person or any of its Subsidiaries which, either by
its terms, by the terms of any security into which it is convertible or
exchangeable or otherwise, (a) is or upon the happening of an event or passage
of time would be required to be redeemed on or prior to the first anniversary of
the Stated Maturity Date for the Term Loans, (b) is redeemable at the option of
the holder thereof at any time prior to such anniversary or (c) is convertible
into or exchangeable for debt securities of such Person or any of its
Subsidiaries at any time prior to such anniversary.
"REFINANCING" is defined in CLAUSE (c) of the SECOND RECITAL.
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"REFUNDED SWING LINE LOANS" is defined in CLAUSE (b) of SECTION 2.3.2.
"REGISTER" is defined in SECTION 2.7(b).
"REIMBURSEMENT OBLIGATION" is defined in SECTION 2.6.3.
"RELATED FUND" means, with respect to any Lender that is a fund that
invests in commercial loans, any other fund that invests in commercial loans and
is managed or advised by the same investment advisor as such Lender or by an
Affiliate of such investment advisor.
"RELEASE" means a "RELEASE", as such term is defined in CERCLA.
"REPLACEMENT LENDER" is defined in SECTION 4.9.
"REPLACEMENT NOTICE" is defined in SECTION 4.9.
"REQUIRED LENDERS" means, at any time,
(a) prior to the Closing Date, Lenders having at least 51% of the Term
Loan Commitments and the Revolving Loan Commitments; and
(b) on and after the Closing Date, Non-Defaulting Lenders holding at
least 51% of (i) the Total Exposure Amount of Non- Defaulting Lenders or
(ii) if the Revolving Loan Commitments shall have been terminated or
expired or for purposes of acceleration pursuant to SECTION 8.3, the
aggregate principal amount of the then outstanding Loans and Letter of
Credit Outstandings of Non-Defaulting Lenders.
"RESOURCE CONSERVATION AND RECOVERY ACT" means the Resource Conservation
and Recovery Act, 42 U.S.C. Section 6901, ET SEQ., as amended.
"RESPONSIBLE OFFICER" means, with respect to any Person, its chief
executive officer, president or any vice president, managing director, chief
operating officer, chief financial or accounting officer, treasurer, controller
or other officer thereof having substantially the same authority and
responsibility; or, with respect to compliance with financial covenants, the
chief financial or accounting officer, treasurer or controller of such Person,
or any other officer having substantially the same authority and responsibility.
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"RESTRICTED ASSET DISPOSITION" means any Disposition other than a
Disposition referred to in CLAUSES (a) through (e) of the definition of
Permitted Asset Disposition having an aggregate fair market value or book value,
whichever is greater, of not more than $2,500,000; PROVIDED that the proceeds
therefrom shall be applied as provided in SECTION 3.1.1(e).
"RESTRICTED PAYMENT" means (a) the declaration or payment of any dividend
(other than dividends payable solely in Capital Securities of either Borrower)
on, or the making of any payment or distribution on account of, or setting apart
assets for a sinking or other analogous fund for, the purchase, redemption,
defeasance, retirement or other acquisition of any class of Capital Securities
of either Borrower or any Subsidiary or any warrants or options to purchase any
such Capital Securities, whether now or hereafter outstanding, or the making of
any other distribution in respect thereof, either directly or indirectly,
whether in cash or property, obligations of either Borrower or any Subsidiary or
otherwise, (b) the exchange of the Capital Securities of either Borrower for the
Capital Securities of Holdings other than in connection with a Permitted Equity
Exchange, (c) the making of any Investment in Holdings by any of its
Subsidiaries, or (d) the payment of any Management Fee.
"REVOLVING LOAN" is defined in SECTION 2.1.1.
"REVOLVING LOAN COMMITMENT" means, relative to any Lender, such Lender's
obligation (if any) to make Revolving Loans pursuant to CLAUSE (a) of SECTION
2.1.1. A Lender shall not have a Revolving Loan Commitment if its RL Percentage
is zero.
"REVOLVING LOAN COMMITMENT AMOUNT" means, on any date, $30,000,000, as such
amount may be reduced from time to time pursuant to SECTION 2.2.
"REVOLVING LOAN COMMITMENT TERMINATION DATE" means the earliest of
(a) December 31, 1999 (if the initial Credit Extension has not
occurred on or prior to such date);
(b) November 17, 2005;
(c) the date on which the Revolving Loan Commitment Amount is
terminated in full or reduced to zero pursuant to the terms of this
Agreement; and
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(d) the date on which any Commitment Termination Event occurs.
Upon the occurrence of any event described in the preceding CLAUSE (c) or (d),
the Revolving Loan Commitments shall terminate automatically and without any
further action.
"REVOLVING LOAN LENDER" is defined in CLAUSE (a) of SECTION 2.1.1.
"REVOLVING NOTE" means a joint and several promissory note of the Borrowers
payable to any Revolving Loan Lender, in the form of EXHIBIT A-1 hereto (as such
promissory note may be amended, endorsed or otherwise modified from time to
time), evidencing the aggregate Indebtedness of the Borrowers to such Revolving
Loan Lender resulting from outstanding Revolving Loans, and also means all other
promissory notes accepted from time to time in substitution therefor or renewal
thereof.
"RIPPLEWOOD" is defined in CLAUSE (a) of the THIRD RECITAL.
"RL PERCENTAGE" means, relative to any Lender, the applicable percentage
relating to Revolving Loans set forth on SCHEDULE II hereto under the Revolving
Loan Commitment column or set forth in a Lender Assignment Agreement under the
Revolving Loan Commitment column, as such percentage may be adjusted from time
to time pursuant to Lender Assignment Agreements executed by such Lender and its
Assignee Lender and delivered pursuant to SECTION 11.11.1.
"ROLLOVER EQUITY" is defined in CLAUSE (b) of the SECOND RECITAL.
"S&P" means Standard & Poor's Rating Services, a division of McGraw-Hill,
Inc.
"SEC" means the Securities and Exchange Commission.
"SECURED HEDGING AGREEMENTS" means, collectively, all currency exchange
agreements, interest rate swap agreements, interest rate cap agreements and
interest rate collar agreements, and all other agreements or arrangements
designed to protect either Borrower or any of its Subsidiaries against
fluctuations in interest rates or currency exchange rates that are entered into
in the ordinary course of business to limit risks of currency or interest rate
fluctuations and not for speculative purposes by such Borrower or any such
Subsidiary and under which the
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counterparty of such agreement is (or at the time such agreement was entered
into, was) a Lender or an Affiliate of a Lender.
"SECURED PARTIES" means, collectively, the Lenders, the Issuers, the
Agents, each counterparty to a Secured Hedging Agreement that is (or at the time
such Secured Hedging Agreement was entered into, was) a Lender or an Affiliate
thereof and (in each case), each of their respective successors, transferees and
assigns.
"SECURITY AND PLEDGE AGREEMENT" means the Security and Pledge Agreement
executed and delivered by an Authorized Officer of Holdings, each Borrower and
each Subsidiary Guarantor pursuant to SECTION 5.1.13 or 7.1.8, substantially in
the form of EXHIBIT G-1 hereto, as amended, supplemented, amended and restated
or otherwise modified from time to time.
"SELLER PLEDGE AGREEMENT" means the Pledge Agreement executed and delivered
by an Authorized Officer of Seller pursuant to SECTION 5.1.13, substantially in
the form of EXHIBIT G-2 hereto, as amended, supplemented, amended and restated
or otherwise modified from time to time
"SELLER" is defined in the FIRST RECITAL.
"SOLVENT" means, with respect to any Person and its Subsidiaries on a
particular date, that on such date (a) the fair value of the property of such
Person and its Subsidiaries on a consolidated basis is greater than the total
amount of liabilities, including contingent liabilities, of such Person and its
Subsidiaries on a consolidated basis, (b) the present fair salable value of the
assets of such Person and its Subsidiaries on a consolidated basis is not less
than the amount that will be required to pay the probable liability of such
Person and its Subsidiaries on a consolidated basis on its debts as they become
absolute and matured, (c) such Person does not intend to, and does not believe
that it or its Subsidiaries will, incur debts or liabilities beyond the ability
of such Person and its Subsidiaries to pay as such debts and liabilities mature,
and (d) such Person and its Subsidiaries on a consolidated basis is not engaged
in business or a transaction, and such Person and its Subsidiaries on a
consolidated basis is not about to engage in business or a transaction, for
which the property of such Person and its Subsidiaries on a consolidated basis
would constitute an unreasonably small capital. The amount of Contingent
Liabilities at any time shall be computed as the amount
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that, in light of all the facts and circumstances existing at such time, can
reasonably be expected to become an actual or matured liability.
"SPECIFIED DEFAULT" means the occurrence and continuance of (a) a Default
under SECTION 8.1.1 or SECTION 8.1.9 or (b) any Event of Default.
"STATED AMOUNT" means, on any date and with respect to a particular Letter
of Credit, the total amount then available to be drawn under such Letter of
Credit.
"STATED EXPIRY DATE" is defined in SECTION 2.6.
"STATED MATURITY DATE" means
(a) with respect to all Term A Loans, November 17, 2005;
(b) with respect to all Term B Loans, November 17, 2006; and
(c) with respect to all Revolving Loans and Swing Line Loans, November
17, 2005.
"SUB DEBT DOCUMENTS" means, collectively, the loan agreements, indentures,
note purchase agreements, promissory notes, guarantees, and other instruments
(including the Subordinated Notes) and agreements evidencing the terms of
Subordinated Debt, as amended, supplemented, amended and restated or otherwise
modified in accordance with SECTION 7.2.12.
"SUBORDINATED DEBT" means unsecured Indebtedness of each Obligor (including
the Indebtedness evidenced by the Subordinated Notes) subordinated in right of
payment to the monetary Obligations pursuant to documentation containing
redemption and other prepayment events, maturities, amortization schedules,
covenants, events of default, remedies, acceleration rights, subordination
provisions and other material terms satisfactory to the Required Lenders.
"SUBORDINATED NOTE ISSUANCE" is defined in CLAUSE (b) of the THIRD RECITAL.
"SUBORDINATED NOTES" is defined in CLAUSE (b) of the THIRD RECITAL.
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"SUBSCRIPTION AGREEMENT" means that certain Preferred Stock and Warrants
Subscription Agreement, dated as of November 17, 1999, among Holdings, WRC, JLC
and the buyers named therein.
"SUBSIDIARY" means, with respect to any Person, any corporation, limited
liability company, partnership or other entity of which more than 50% of the
outstanding Voting Securities (irrespective of whether at the time Capital
Securities of any other class or classes of such corporation, limited liability
company, partnership or other entity shall or might have voting power upon the
occurrence of any contingency) is at the time directly or indirectly owned or
controlled by such Person, by such Person and one or more other Subsidiaries of
such Person, or by one or more other Subsidiaries of such Person. Unless the
context otherwise specifically requires, the term "Subsidiary" shall be a
reference to a Subsidiary of the applicable Borrower.
"SUBSIDIARY GUARANTOR" means each Domestic Subsidiary that has executed and
delivered to the Administrative Agent the Subsidiary Guaranty (or a supplement
thereto).
"SUBSIDIARY GUARANTY" means the subsidiary guaranty executed and delivered
by each Subsidiary Guarantor pursuant to the terms of this Agreement,
substantially in the form of EXHIBIT J hereto, as amended, supplemented, amended
and restated or otherwise modified from time to time.
"SWING LINE LENDER" means, subject to the terms of this Agreement, the
Administrative Agent.
"SWING LINE LOAN" is defined in CLAUSE (b) of SECTION 2.1.1.
"SWING LINE LOAN COMMITMENT" is defined in CLAUSE (b) of SECTION 2.1.1.
"SWING LINE LOAN COMMITMENT AMOUNT" means, on any date, $5,000,000, as such
amount may be reduced from time to time pursuant to SECTION 2.2.
"SWING LINE NOTE" means a joint and several promissory note of the
Borrowers payable to the Swing Line Lender, in the form of EXHIBIT A-4 hereto
(as such promissory note may be amended, endorsed or otherwise modified from
time to time), evidencing the aggregate Indebtedness of the Borrowers to the
Swing Line Lender resulting from outstanding Swing Line Loans, and also means
all other
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promissory notes accepted from time to time in substitution therefor or renewal
thereof.
"SYNDICATION AGENT" is defined in the PREAMBLE.
"SYNTHETIC LEASE" means, as applied to any Person, any lease (including
leases that may be terminated by the lessee at any time) of any property
(whether real, personal or mixed) (i) that is not a capital lease in accordance
with GAAP and (ii) in respect of which the lessee retains or obtains ownership
of the property so leased for federal income tax purposes, other than any such
lease under which that Person is the lessor.
"TAX SHARING AGREEMENT" means the Tax Sharing Agreement, dated November 17,
1999, among Holdings and each of its Subsidiaries, as the same may be amended,
supplemented, amended and restated or otherwise modified from time to time in
accordance with the terms thereof.
"TAXES" means any and all income, stamp or other taxes, duties, levies,
imposts, charges, fees, deductions or withholdings, now or hereafter imposed,
levied, collected, withheld or assessed by any Governmental Authority, and all
interest, penalties or similar liabilities with respect thereto.
"TELERATE PAGE 3750" means the display designated as "Page 3750" on the
Telerate Service (or such other page as may replace Page 3750 on the service or
such other service as may be nominated by the British Bankers' Association as
the information vendor for the purpose of displaying British Bankers'
Association interest settlement rates for Dollar deposits).
"TERM A LOAN" is defined in CLAUSE (a) of SECTION 2.1.3.
"TERM A LOAN COMMITMENT" means, relative to any Lender, such Lender's
obligation (if any) to make Term A Loans pursuant to CLAUSE (a) of SECTION
2.1.3.
"TERM A LOAN COMMITMENT AMOUNT" means, on any date, $31,000,000.
"TERM A LOAN COMMITMENT TERMINATION DATE" means the earliest of
(a) December 31, 1999 (if the Term A Loans have not been made on or
prior to such date);
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(b) the Closing Date (immediately after the making of the Term A Loans
on such date); and
(c) the date on which any Commitment Termination Event occurs.
Upon the occurrence of any event described in CLAUSE (b) or (c), the Term A Loan
Commitments shall terminate automatically and without any further action.
"TERM A NOTE" means a joint and several promissory note of the Borrowers
payable to any Lender, in the form of EXHIBIT A-2 hereto (as such promissory
note may be amended, endorsed or otherwise modified from time to time),
evidencing the aggregate Indebtedness of the Borrowers to such Lender resulting
from outstanding Term A Loans, and also means all other promissory notes
accepted from time to time in substitution therefor or renewal thereof.
"TERM A PERCENTAGE" means, relative to any Lender, the applicable
percentage relating to Term A Loans set forth on SCHEDULE II hereto under the
Term A Loan Commitment column or set forth in a Lender Assignment Agreement
under the Term A Loan Commitment column, as such percentage may be adjusted from
time to time pursuant to Lender Assignment Agreements executed by such Lender
and its Assignee Lender and delivered pursuant to SECTION 11.11.1. A Lender
shall not have any Term A Loan Commitment if its percentage under the Term A
Loan Commitment column is zero.
"TERM B LOAN" is defined in CLAUSE (b) of SECTION 2.1.3.
"TERM B LOAN COMMITMENT" means, relative to any Lender, such Lender's
obligation (if any) to make Term B Loans pursuant to CLAUSE (b) of SECTION
2.1.3.
"TERM B LOAN COMMITMENT AMOUNT" means, on any date, $100,000,000.
"TERM B LOAN COMMITMENT TERMINATION DATE" means the earliest of
(a) December 31, 1999 (if the Term B Loans have not been made on or
prior to such date);
(b) the Closing Date (immediately after the making of the Term B Loans
on such date); and
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(c) the date on which any Commitment Termination Event occurs.
Upon the occurrence of any event described in CLAUSE (b) or (c), the Term B Loan
Commitments shall terminate automatically and without any further action.
"TERM B NOTE" means a joint and several promissory note of the Borrowers
payable to any Lender, in the form of EXHIBIT A-3 hereto (as such promissory
note may be amended, endorsed or otherwise modified from time to time),
evidencing the aggregate Indebtedness of the Borrowers to such Lender resulting
from outstanding Term B Loans, and also means all other promissory notes
accepted from time to time in substitution therefor or renewal thereof.
"TERM B PERCENTAGE" means, relative to any Lender, the applicable
percentage relating to Term B Loans set forth on SCHEDULE II hereto under the
Term B Loan Commitment column or set forth in a Lender Assignment Agreement
under the Term B Loan Commitment column, as such percentage may be adjusted from
time to time pursuant to Lender Assignment Agreements executed by such Lender
and its Assignee Lender and delivered pursuant to SECTION 11.11.1. A Lender
shall not have any Term B Loan Commitment if its percentage under the Term B
Loan Commitment column is zero.
"TERM LOANS" means, collectively, the Term A Loans and the Term B Loans.
"TERMINATION DATE" means the date on which all monetary Obligations have
been paid in full in cash, all Letters of Credit have been terminated or expired
(or the Administrative Agent shall have received immediately available funds in
an amount equal to all Letter of Credit Outstandings, deposited in a cash
collateral account with the Administrative Agent or its designee on terms
satisfactory to the Administrative Agent), all Secured Hedging Agreements have
been terminated and all Commitments shall have terminated.
"TOTAL DEBT" means, on any date, the outstanding principal amount of all
Indebtedness of Holdings, the Borrowers and their respective Subsidiaries of the
type referred to in CLAUSE (a), CLAUSE (b), CLAUSE (c), CLAUSE (f) and CLAUSE
(g), in each case of the definition of "Indebtedness" and any Contingent
Liability in respect of any of the foregoing.
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"TOTAL EXPOSURE AMOUNT" means, on any date of determination (and without
duplication), the outstanding principal amount of all Loans, the aggregate
amount of all Letter of Credit Outstandings and the unfunded amount of the
Commitments.
"TRADEMARK SECURITY AGREEMENT" means any Trademark Security Agreement
executed and delivered by any Obligor substantially in the form of Exhibit C to
the Security and Pledge Agreement, as amended, supplemented, amended and
restated or otherwise modified from time to time.
"TRANCHE" means, as the context may require, the Loans constituting Term A
Loans, Term B Loans, Revolving Loans or Swing Line Loans.
"TRANSACTION" is defined in CLAUSE (c) of the SECOND RECITAL.
"TRANSACTION DOCUMENTS" means the Purchase Agreement, the Organic Documents
of each Borrower and Holdings, the Sub Debt Documents, the Preferred
Stockholders Agreement, the Subscription Agreement, the Certificates of
Designation, the Units Shareholders Agreement and the Tax Sharing Agreement, in
each case as amended, supplemented, amended and restated or otherwise modified
from time to time in accordance with SECTION 7.2.12.
"TYPE" means, relative to any Loan, the portion thereof, if any, being
maintained as a Base Rate Loan or a LIBO Rate Loan.
"U.C.C." means the Uniform Commercial Code as in effect from time to time
in the State of New York; PROVIDED, that if, with respect to any Filing
Statement or by reason of any provisions of law, the perfection or the effect of
perfection or non-perfection of the security interests granted to the
Administrative Agent pursuant to the applicable Loan Document is governed by the
Uniform Commercial Code as in effect in a jurisdiction of the United States
other than New York, U.C.C. means the Uniform Commercial Code as in effect from
time to time in such other jurisdiction for purposes of the provisions of this
Agreement, each Loan Document and any Filing Statement relating to such
perfection or effect of perfection or non-perfection.
"UNIFORM CUSTOMS" is defined in SECTION 11.9.
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"UNITED STATES" or "U.S." means the United States of America, its fifty
states and the District of Columbia.
"UNITS SHAREHOLDERS AGREEMENT" means the Stockholders Agreement, dated as
of November 17, 1999, among Holdings, the Borrowers, EAC III, Donaldson, Lufkin
& Jenrette Securities Corporation and Bank of America Securities LLC, as the
same may be amended, supplemented, amended and restated or otherwise in
accordance with the terms hereof.
"VOTING SECURITIES" means, with respect to any Person, Capital Securities
of any class or kind ordinarily having the power to vote for the election of
directors, managers or other voting members of the governing body of such
Person.
"WELFARE PLAN" means a "WELFARE PLAN", as such term is defined in Section
3(1) of ERISA.
"WHOLLY OWNED" means any Subsidiary all of the outstanding common stock (or
similar equity interest) of which (other than any director's qualifying shares
or investments by foreign nationals mandated by applicable laws) is owned
directly or indirectly by either Borrower.
"WRC" is defined in the PREAMBLE.
"WRC CERTIFICATE DESIGNATION" means (i) that certain Certificate of
Designation of 15% Senior Preferred Stock due 2011 of WRC, dated November 16,
1999 and made pursuant to Section 151 of the General Corporation Law of the
State of Delaware and (ii) each other certificate of designation in
substantially the same form as the certificate of designation described in
CLAUSE (i) above and relating to the WRC PIK Preferred Equity.
"WRC MIRROR PIK PREFERRED EQUITY" is defined in CLAUSE (e) of the THIRD
RECITAL.
"WRC PIK PREFERRED EQUITY" means, as the context may require, the WRC PIK I
Preferred Equity and/or the WRC PIK II Preferred Equity, which shall not have an
aggregate liquidation preference exceeding an amount equal to the sum of (x)
$75,000,000, (y) any accrued but unpaid dividends on the PIK Preferred Equity
and (z) the aggregate liquidation preference of additional PIK Preferred Equity
issued in lieu of cash dividends on the PIK Preferred Equity.
"WRC PIK I PREFERRED EQUITY" is defined in CLAUSE (c) of the THIRD RECITAL.
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"WRC PIK II PREFERRED EQUITY" is defined in CLAUSE (c) of the THIRD
RECITAL.
"WRC WARRANTS" is defined in CLAUSE (c) of the THIRD RECITAL.
SECTION 1.2. USE OF DEFINED TERMS. Unless otherwise defined or the context
otherwise requires, terms for which meanings are provided in this Agreement
shall have such meanings when used in each other Loan Document and the
Disclosure Schedule.
SECTION 1.3. CROSS-REFERENCES. Unless otherwise specified, references in a
Loan Document to any Article or Section are references to such Article or
Section of such Loan Document, and references in any Article, Section or
definition to any clause are references to such clause of such Article, Section
or definition.
SECTION 1.4. ACCOUNTING AND FINANCIAL DETERMINATIONS. Unless otherwise
specified, all accounting terms used in each Loan Document shall be interpreted,
and all accounting determinations and computations thereunder (including under
SECTION 7.2.4 and the definitions used in such calculations) shall be made, in
accordance with those generally accepted accounting principles ("GAAP") applied
in the preparation of the financial statements referred to in CLAUSE (a) of
SECTION 5.1.8. Unless otherwise expressly provided, all financial covenants and
defined financial terms shall be computed on a consolidated basis for Holdings,
the Borrowers and their respective Subsidiaries, in each case without
duplication.
ARTICLE II
COMMITMENTS, BORROWING AND ISSUANCE
PROCEDURES, NOTES AND LETTERS OF CREDIT
SECTION 2.1. COMMITMENTS. On the terms and subject to the conditions of
this Agreement, the Lenders and the Issuers severally agree to make Credit
Extensions as set forth below.
SECTION 2.1.1. REVOLVING LOAN COMMITMENT AND SWING LINE LOAN COMMITMENT.
From time to time on any Business Day occurring from and after the Effective
Date but prior to the Revolving Loan Commitment Termination Date,
(a) each Lender that has a Revolving Loan Commitment (referred to as a
"REVOLVING LOAN LENDER")
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agrees that it will make loans (relative to such Lender, its "REVOLVING
LOANS") to the applicable Borrower equal to such Lender's RL Percentage of
the aggregate amount of each Borrowing of the Revolving Loans requested by
such Borrower to be made on such day; and
(b) the Swing Line Lender agrees that it will make loans (its "SWING
LINE LOANS") to the applicable Borrower equal to the principal amount of
the Swing Line Loan requested by such Borrower to be made on such day. The
Commitment of the Swing Line Lender described in this clause is herein
referred to as its "SWING LINE LOAN COMMITMENT".
On the terms and subject to the conditions hereof, each Borrower may from time
to time borrow, prepay and reborrow Revolving Loans and Swing Line Loans. No
Revolving Loan Lender shall be permitted or required to make any Revolving Loan
if, after giving effect thereto, the aggregate outstanding principal amount of
all Revolving Loans of such Revolving Loan Lender, together with such Lender's
RL Percentage of the aggregate amount of all Swing Line Loans and Letter of
Credit Outstandings, would exceed such Lender's RL Percentage of the then
existing Revolving Loan Commitment Amount. Furthermore, the Swing Line Lender
shall not be permitted or required to make Swing Line Loans if, after giving
effect thereto, (i) the aggregate outstanding principal amount of all Swing Line
Loans would exceed the then existing Swing Line Loan Commitment Amount (ii) the
sum of the aggregate amount of all outstanding Swing Line Loans PLUS the
aggregate amount of all Revolving Loans and Letter of Credit Outstandings would
exceed the Revolving Loan Commitment Amount or (iii) unless otherwise agreed to
by the Swing Line Lender, in its sole discretion, the sum of all Swing Line
Loans and Revolving Loans made by the Swing Line Lender PLUS the Swing Line
Lender's RL Percentage of the aggregate amount of Letter of Credit Outstandings
would exceed the Swing Line Lender's RL Percentage of the then existing
Revolving Loan Commitment Amount.
SECTION 2.1.2. LETTER OF CREDIT COMMITMENT. From time to time on any
Business Day occurring from and after the Effective Date but prior to the
Revolving Loan Commitment Termination Date, the relevant Issuer agrees that it
will
(a) issue one or more letters of credit (relative to such Issuer, its
"LETTER OF CREDIT") for the account of the applicable Borrower or any of
its Subsidiaries
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in the Stated Amount requested by such Borrower on such day; or
(b) extend the Stated Expiry Date of an existing standby Letter of
Credit previously issued hereunder.
No Stated Expiry Date shall be scheduled to occur beyond the earlier of (i) the
Revolving Loan Commitment Termination Date and (ii) unless otherwise agreed to
by the Issuer in its sole discretion, one year from the date of such issuance or
extension. No Issuer shall be permitted or required to issue any Letter of
Credit if, after giving effect thereto, (i) the aggregate amount of all Letter
of Credit Outstandings would exceed the Letter of Credit Commitment Amount or
(ii) the sum of the aggregate amount of all Letter of Credit Outstandings plus
the aggregate principal amount of all Revolving Loans and Swing Line Loans then
outstanding would exceed the Revolving Loan Commitment Amount.
SECTION 2.1.3. TERM LOAN COMMITMENT. On the same day (which shall be a
Business Day) on or prior to the applicable Commitment Termination Date, each
Lender that has a Term A Loan Commitment or a Term B Loan Commitment, as
applicable, agrees that it will
(a) make loans (relative to such Lender, its "TERM A LOANS") to the
applicable Borrower equal to such Lender's Term A Percentage of the
aggregate amount of the Borrowing of Term A Loans requested by such
Borrower to be made on such day; and
(b) make loans (relative to such Lender, its "TERM B LOANS") to the
applicable Borrower equal to such Lender's Term B Percentage of the
aggregate amount of the Borrowing of Term B Loans requested by such
Borrower to be made on such day.
No amounts paid or prepaid with respect to Term Loans may be reborrowed.
SECTION 2.2. REDUCTION OF THE COMMITMENT AMOUNTS. The Commitment Amounts
are subject to reduction from time to time pursuant to this SECTION 2.2.
SECTION 2.2.1. OPTIONAL. The Borrowers may, from time to time on any
Business Day, voluntarily reduce the amount of the Revolving Loan Commitment
Amount, the Swing Line Loan Commitment Amount or the Letter of Credit Commitment
Amount on the Business Day so specified by the Borrowers; PROVIDED, HOWEVER,
that all such reductions shall require at least one
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Business Day's prior notice to the Administrative Agent and be permanent, and
any partial reduction of any Commitment Amount shall be in a minimum amount of
$1,000,000 and in an integral multiple of $500,000. Any optional or mandatory
reduction of the Revolving Loan Commitment Amount pursuant to the terms of this
Agreement which reduces the Revolving Loan Commitment Amount below the sum of
(i) the Swing Line Loan Commitment Amount and (ii) the Letter of Credit
Commitment Amount shall result in an automatic and corresponding reduction of
the Swing Line Loan Commitment Amount and/or Letter of Credit Commitment Amount
(as directed by the Borrowers in a notice to the Administrative Agent delivered
together with the notice of such voluntary reduction in the Revolving Loan
Commitment Amount) to an aggregate amount not in excess of the Revolving Loan
Commitment Amount, as so reduced, without any further action on the part of the
Swing Line Lender or any Issuer.
SECTION 2.2.2. MANDATORY. Following the prepayment in full of the Term
Loans, the Revolving Loan Commitment Amount shall, without any further action,
automatically and permanently be reduced on the date the Term Loans would
otherwise have been required to be prepaid on account of CLAUSE (e), (f), (g) or
(h) of SECTION 3.1.1, in an amount equal to the amount by which the Term Loans
would otherwise be required to be prepaid if Term Loans had been outstanding.
SECTION 2.3. BORROWING PROCEDURES. Loans (other than Swing Line Loans)
shall be made by the Lenders in accordance with SECTION 2.3.1, and Swing Line
Loans shall be made by the Swing Line Lender in accordance with SECTION 2.3.2.
SECTION 2.3.1. BORROWING PROCEDURE. In the case of Loans other than Swing
Line Loans, by delivering a Borrowing Request to the Administrative Agent on or
before 12:00 noon on a Business Day, each Borrower may from time to time
irrevocably request, on not less than one Business Day's notice in the case of
Base Rate Loans, or three Business Days' notice in the case of LIBO Rate Loans,
and in either case not more than five Business Days' notice, that a Borrowing be
made, in the case of LIBO Rate Loans, in a minimum amount of $2,000,000 and an
integral multiple of $1,000,000, in the case of Base Rate Loans, in a minimum
amount of $1,000,000 and an integral multiple of $500,000 or, in either case, in
the unused amount of the applicable Commitment; provided, however, that all of
the initial Loans shall be made as Base Rate Loans. On the terms and subject to
the conditions of this Agreement, each Borrowing shall be comprised of the type
of Loans, and shall be made on the
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Business Day, specified in such Borrowing Request. In the case of Loans other
than Swing Line Loans, on or before 1:00 p.m. on such Business Day each Lender
that has a Commitment to make the Loans being requested shall deposit with the
Administrative Agent same day funds in an amount equal to such Lender's
Percentage of the requested Borrowing. Such deposit will be made to an account
which the Administrative Agent shall specify from time to time by notice to the
Lenders. To the extent funds are received from the Lenders, the Administrative
Agent shall make such funds available to the applicable Borrower by wire
transfer to the accounts such Borrower shall have specified in its Borrowing
Request. No Lender's obligation to make any Loan shall be affected by any other
Lender's failure to make any Loan.
SECTION 2.3.2. SWING LINE LOANS. (a) By telephonic notice to the Swing Line
Lender on or before 2:00 p.m. on a Business Day (followed (within one Business
Day) by the delivery of a confirming Borrowing Request), each Borrower may from
time to time prior to the Revolving Loan Commitment Termination Date irrevocably
request that Swing Line Loans be made by the Swing Line Lender in an aggregate
minimum principal amount of $100,000 and an integral multiple of $50,000. All
Swing Line Loans shall be made as Base Rate Loans and shall not be entitled to
be converted into LIBO Rate Loans. The proceeds of each Swing Line Loan shall be
made available by the Swing Line Lender to the applicable Borrower by wire
transfer to the account such Borrower shall have specified in its notice
therefor by the close of business on the Business Day telephonic notice is
received by the Swing Line Lender.
(b) If (i) any Swing Line Loan shall be outstanding for more than four
Business Days, (ii) any Swing Line Loan is or will be outstanding on a date when
either Borrower requests that a Revolving Loan be made, or (iii) any Default
shall occur and be continuing, then each Revolving Loan Lender (other than the
Swing Line Lender) irrevocably agrees that it will, at the request of the Swing
Line Lender, make a Revolving Loan (which shall initially be funded as a Base
Rate Loan) in an amount equal to such Lender's Revolving Loan Percentage of the
aggregate principal amount of all such Swing Line Loans then outstanding (such
outstanding Swing Line Loans hereinafter referred to as the "REFUNDED SWING LINE
LOANS"). On or before 11:00 a.m. on the first Business Day following receipt by
each Revolving Loan Lender of a request to make Revolving Loans as provided in
the preceding sentence, each Revolving Loan Lender shall deposit in an account
specified by the Swing Line Lender the amount
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so requested in same day funds and such funds shall be applied by the Swing Line
Lender to repay the Refunded Swing Line Loans. At the time the Revolving Loan
Lenders make the above referenced Revolving Loans the Swing Line Lender shall be
deemed to have made, in consideration of the making of the Refunded Swing Line
Loans, Revolving Loans in an amount equal to the Swing Line Lender's RL
Percentage of the aggregate principal amount of the Refunded Swing Line Loans.
Upon the making (or deemed making, in the case of the Swing Line Lender) of any
Revolving Loans pursuant to this clause, the amount so funded shall become
outstanding under such Revolving Loan Lender's Revolving Note, if any, and shall
be recorded as an outstanding Revolving Loan of such Lender in the Register and
shall no longer be owed under the Swing Line Note, if any, and the Register
shall be revised to reflect that such Swing Line Loan was repaid. All interest
payable with respect to any Revolving Loans made (or deemed made, in the case of
the Swing Line Lender) pursuant to this clause shall be appropriately adjusted
to reflect the period of time during which the Swing Line Lender had outstanding
Swing Line Loans in respect of which such Revolving Loans were made. Each
Revolving Loan Lender's obligation to make the Revolving Loans referred to in
this clause shall be absolute and unconditional and shall not be affected by any
circumstance, including (i) any set-off, counterclaim, recoupment, defense or
other right which such Lender may have against the Swing Line Lender, any
Obligor or any Person for any reason whatsoever; (ii) the occurrence or
continuance of any Default; (iii) any adverse change in the condition (financial
or otherwise) of any Obligor; (iv) the acceleration or maturity of any monetary
Obligations or the termination of any Commitment after the making of any Swing
Line Loan; (v) any breach of any Loan Document by any Person; or (vi) any other
circumstance, happening or event whatsoever, whether or not similar to any of
the foregoing.
SECTION 2.4. CONTINUATION AND CONVERSION ELECTIONS. By delivering a
Continuation/Conversion Notice to the Administrative Agent on or before 10:00
a.m. on a Business Day, each Borrower may from time to time irrevocably elect,
on not less than one Business Day's notice in the case of Base Rate Loans, or
three Business Days' notice in the case of LIBO Rate Loans, and in either case
not more than five Business Days' notice, that all, or any portion in an
aggregate minimum amount of $2,000,000 and an integral multiple of $1,000,000
be, in the case of Base Rate Loans, converted into LIBO Rate Loans or be, in the
case of LIBO Rate Loans, converted into Base Rate Loans or continued as LIBO
Rate Loans (in the absence of delivery of a Continuation/Conversion Notice with
respect to any LIBO Rate
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Loan at least three Business Days (but not more than five Business Days) before
the last day of the then current Interest Period with respect thereto, such LIBO
Rate Loan shall, on such last day, automatically convert to a Base Rate Loan);
PROVIDED, HOWEVER, that (x) each such conversion or continuation shall be pro
rated among the applicable outstanding Loans of all Lenders that have made such
Loans, and (y) no portion of the outstanding principal amount of any Loans may
be continued as, or be converted into, LIBO Rate Loans when any Default has
occurred and is continuing.
SECTION 2.5. FUNDING. Each Lender may, if it so elects, fulfill its
obligation to make, continue or convert LIBO Rate Loans hereunder by causing one
of its foreign branches or Affiliates (or an international banking facility
created by such Lender) to make or maintain such LIBO Rate Loan; PROVIDED,
HOWEVER, that such LIBO Rate Loan shall nonetheless be deemed to have been made
and to be held by such Lender, and the obligation of the applicable Borrower to
repay such LIBO Rate Loan shall nevertheless be to such Lender for the account
of such foreign branch, Affiliate or international banking facility. In
addition, each Borrower hereby consents and agrees that, for purposes of any
determination to be made for purposes of SECTIONS 4.1, 4.2, 4.3 or 4.4, it shall
be conclusively assumed that each Lender elected to fund all LIBO Rate Loans by
purchasing Dollar deposits in its LIBOR Office's interbank eurodollar market.
SECTION 2.6. ISSUANCE PROCEDURES. By delivering to the Administrative Agent
an Issuance Request on or before 10:00 a.m. on a Business Day, each Borrower may
from time to time irrevocably request on not less than three nor more than ten
Business Days' notice, in the case of an initial issuance of a Letter of Credit
and not less than three Business Days' prior notice, in the case of a request
for the extension of the Stated Expiry Date of a standby Letter of Credit (in
each case, unless a shorter notice period is agreed to by the applicable Issuer,
in its sole discretion), that such Issuer issue, or extend (in the case of a
standby Letter of Credit) the Stated Expiry Date of, a Letter of Credit on
behalf of such Borrower (whether issued for the account of or on behalf of such
Borrower or any Subsidiary Guarantor) in such form as may be requested by such
Borrower and approved by such Issuer, solely for the purposes described in
SECTION 7.1.7. Notwithstanding anything to the contrary contained herein or in
any separate application for any Letter of Credit, such Borrower hereby
acknowledges and agrees that it shall be jointly and severally obligated to
reimburse the applicable Issuer upon each Disbursement paid
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under a Letter of Credit, and it shall be deemed to be the obligor for purposes
of each such Letter of Credit issued hereunder (whether the account party on
such Letter of Credit is such Borrower, the other Borrower or a Subsidiary
Guarantor). Each Letter of Credit shall by its terms be stated to expire on a
date (its "STATED EXPIRY DATE") no later than the earlier to occur of (i) the
Revolving Loan Commitment Termination Date or (ii) (unless otherwise agreed to
by an Issuer, in its sole discretion) one year from the date of its issuance or
extension. Each Issuer will make available to the beneficiary thereof the
original of the Letter of Credit which it issues. It is understood and agreed
that Letters of Credit issued hereunder need not be issued in any minimum
amount.
SECTION 2.6.1. OTHER LENDERS' PARTICIPATION. Upon the issuance of each
Letter of Credit, and without further action, each Revolving Loan Lender (other
than such Issuer) shall be deemed to have irrevocably purchased, to the extent
of its Percentage to make Revolving Loans, a participation interest in such
Letter of Credit (including the Contingent Liability and any Reimbursement
Obligation with respect thereto), and such Revolving Loan Lender shall, to the
extent of its Percentage to make Revolving Loans, be responsible for reimbursing
within one Business Day the Issuer for Reimbursement Obligations which have not
been reimbursed by the applicable Borrower in accordance with SECTION 2.6.3. In
addition, such Revolving Loan Lender shall, to the extent of its Percentage to
make Revolving Loans, be entitled to receive a ratable portion of the Letter of
Credit fees payable pursuant to SECTION 3.3.3 with respect to each Letter of
Credit (other than the issuance fees payable to an Issuer of such Letter of
Credit pursuant to the last sentence of SECTION 3.3.3) and of interest payable
pursuant to SECTION 3.2 with respect to any Reimbursement Obligation. To the
extent that any Revolving Loan Lender has reimbursed any Issuer for a
Disbursement, such Lender shall be entitled to receive its ratable portion of
any amounts subsequently received (from such Borrower or otherwise) in respect
of such Disbursement.
SECTION 2.6.2. DISBURSEMENTS; CONVERSION TO REVOLVING LOANS. An Issuer will
notify the applicable Borrower and the Administrative Agent promptly of the
presentment for payment of any Letter of Credit issued by such Issuer, together
with notice of the date (the "DISBURSEMENT DATE") such payment shall be made
(each such payment, a "DISBURSEMENT"). Subject to the terms and provisions of
such Letter of Credit, the applicable Issuer shall make such payment to the
beneficiary (or its designee) of such Letter
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of Credit. Prior to 11:00 a.m. on the first Business Day following the later of
the receipt of such notice by such Borrower and the Administrative Agent and the
Disbursement Date (the "DISBURSEMENT DUE DATE"), the applicable Borrower will
reimburse the Administrative Agent, for the account of the applicable Issuer,
for all amounts which such Issuer has disbursed under such Letter of Credit,
together with interest thereon at a rate per annum equal to the rate per annum
then in effect for Base Rate Loans (with the then Applicable Margin for
Revolving Loans accruing on such amount) pursuant to SECTION 3.2 for the period
from the Disbursement Date through the date of such reimbursement; PROVIDED,
HOWEVER, that, if no Specified Default shall have then occurred and be
continuing, unless the applicable Borrower has notified the Administrative Agent
no later than one Business Day prior to the Disbursement Due Date that it will
reimburse such Issuer for the applicable Disbursement, then the making of such
Disbursement shall be deemed to be a Borrowing of Revolving Loans constituting
Base Rate Loans and following the giving of notice thereof by the Administrative
Agent to the Lenders, each Lender with a Revolving Loan Commitment (other than
the Issuer) will deliver to the Issuer on the Disbursement Due Date immediately
available funds in an amount equal to such Lender's Percentage of such
Borrowing. Without limiting in any way the foregoing and notwithstanding
anything to the contrary contained herein or in any separate application for any
Letter of Credit, each Borrower hereby acknowledges and agrees that it shall be
obligated to reimburse the applicable Issuer upon each Disbursement of a Letter
of Credit, and it shall be deemed to be the obligor for purposes of each such
Letter of Credit issued hereunder (whether the account party on such Letter of
Credit is such Borrower, the other Borrower or a Subsidiary of either such
Borrower).
SECTION 2.6.3. REIMBURSEMENT. The obligation (a "REIMBURSEMENT OBLIGATION")
of each Borrower under SECTION 2.6.2 to reimburse an Issuer with respect to each
Disbursement (including interest thereon), and, upon the failure of such
Borrower to reimburse an Issuer, each Revolving Loan Lender's obligation under
SECTION 2.6.1 to reimburse an Issuer, shall be absolute and unconditional under
any and all circumstances and irrespective of any setoff, counterclaim or
defense to payment which such Borrower or such Revolving Loan Lender, as the
case may be, may have or have had against such Issuer or any Lender, including
any defense based upon the failure of any Disbursement to conform to the terms
of the applicable Letter of Credit (if, in such Issuer's good faith opinion,
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such Disbursement is determined to be appropriate) or any nonapplication or
misapplication by the beneficiary of the proceeds of such Letter of Credit;
PROVIDED, HOWEVER, that after paying in full its Reimbursement Obligation
hereunder, nothing herein shall adversely affect the right of such Borrower or
such Lender, as the case may be, to commence any proceeding against an Issuer
for any wrongful Disbursement made by such Issuer under a Letter of Credit as a
result of acts or omissions constituting gross negligence or wilful misconduct
on the part of such Issuer.
SECTION 2.6.4. DEEMED DISBURSEMENTS. Upon the occurrence and during the
continuation of any Default under SECTION 8.1.9 or upon notification by the
Administrative Agent (acting at the direction of the Required Lenders) to each
Borrower of its obligations under this Section, following the occurrence and
during the continuation of any other Event of Default,
(a) the aggregate Stated Amount of all Letters of Credit shall,
without demand upon or notice to such Borrower or any other Person, be
deemed to have been paid or disbursed by the Issuers of such Letters of
Credit (notwithstanding that such amount may not in fact have been paid or
disbursed); and
(b) such Borrower shall be immediately obligated to reimburse the
Issuers for the amount deemed to have been so paid or disbursed by such
Issuers.
Amounts payable by each Borrower pursuant to this Section shall be deposited in
immediately available funds with the Administrative Agent and held as collateral
security for the Reimbursement Obligations. When all Defaults giving rise to the
deemed disbursements under this Section have been cured or waived the
Administrative Agent shall return to such Borrower all amounts then on deposit
with the Administrative Agent pursuant to this Section which have not been
applied to the satisfaction of the Reimbursement Obligations.
SECTION 2.6.5. NATURE OF REIMBURSEMENT OBLIGATIONS. Each Borrower, each
other Obligor, the Seller and, to the extent set forth in SECTION 2.6.1, each
Revolving Loan Lender shall assume all risks of the acts, omissions or misuse of
any Letter of Credit by the beneficiary thereof. No Issuer (except to the extent
of its own gross negligence or wilful misconduct) shall be responsible for:
(a) the form, validity, sufficiency, accuracy, genuineness or legal
effect of any Letter of Credit or
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any document submitted by any party in connection with the application for
and issuance of a Letter of Credit, even if it should in fact prove to be
in any or all respects invalid, insufficient, inaccurate, fraudulent or
forged;
(b) the form, validity, sufficiency, accuracy, genuineness or legal
effect of any instrument transferring or assigning or purporting to
transfer or assign a Letter of Credit or the rights or benefits thereunder
or the proceeds thereof in whole or in part, which may prove to be invalid
or ineffective for any reason;
(c) failure of the beneficiary to comply fully with conditions
required in order to demand payment under a Letter of Credit;
(d) errors, omissions, interruptions or delays in transmission or
delivery of any messages, by mail, telecopier, cable, telegraph, telex or
otherwise; or
(e) any loss or delay in the transmission or otherwise of any document
or draft required in order to make a Disbursement under a Letter of Credit.
None of the foregoing shall affect, impair or prevent the vesting of any of the
rights or powers granted to any Issuer or any Revolving Loan Lender hereunder.
In furtherance and not in limitation or derogation of any of the foregoing, any
action taken or omitted to be taken by an Issuer in good faith (and not
constituting gross negligence or willful misconduct) shall be binding upon each
Obligor, the Seller and each such Secured Party, and shall not put such Issuer
under any resulting liability to any Obligor, the Seller or any Secured Party,
as the case may be. Notwithstanding the foregoing, the Lenders (other than the
applicable Issuer in its capacity as such) shall not be liable for any
obligation resulting from the gross negligence or willful misconduct (as
determined by a court of competent jurisdiction) of the applicable Issuer with
respect to any Letter of Credit.
SECTION 2.7. REGISTER; NOTES. (a) Each Lender may maintain in accordance
with its usual practice an account or accounts evidencing the Indebtedness of
each Borrower to such Lender resulting from each Loan made by such Lender,
including the amounts of principal and interest payable and paid to such Lender
from time to time hereunder. In the case of a Lender that does not request,
pursuant to CLAUSE (c) below, execution and delivery of a Note
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evidencing the Loans made by such Lender to the Borrowers, such account or
accounts shall, to the extent not inconsistent with the notations made by the
Administrative Agent in the Register, be conclusive and binding on each Borrower
absent manifest error; PROVIDED, HOWEVER, that the failure of any Lender to
maintain such account or accounts shall not limit or otherwise affect any
Obligations of either Borrower, any other Obligor or the Seller.
(b) Each Borrower hereby designates the Administrative Agent to serve as
such Borrower's agent, solely for the purpose of this CLAUSE (b), to maintain a
register (the "REGISTER") in which the Administrative Agent will record each
Lender's Commitments, the Loans made by each Lender and each repayment in
respect of the principal amount of the Loans of each Lender and annexed to which
the Administrative Agent shall retain a copy of each Lender Assignment Agreement
delivered to the Administrative Agent pursuant to SECTION 11.11.1. Failure to
make any recordation, or any error in such recordation, shall not affect either
Borrower's obligation in respect of such Loans. The entries in the Register
shall be conclusive, in the absence of manifest error, and each Borrower, each
Agent and each Lender shall treat each Person in whose name a Loan (and as
provided in CLAUSE (c) below the Note evidencing such Loan, if any) is
registered as the owner thereof for all purposes of this Agreement,
notwithstanding notice or any provision herein to the contrary. A Lender's
Commitment and the Loans made pursuant thereto may be assigned or otherwise
transferred in whole or in part only by registration of such assignment or
transfer in the Register. Any assignment or transfer of a Lender's Commitment
and/or the Loans made pursuant thereto shall be registered in the Register only
upon delivery to the Administrative Agent of a Lender Assignment Agreement duly
executed by the assignor and assignee thereof. No assignment or transfer of a
Lender's Commitment or the Loans made pursuant thereto shall be effective unless
such assignment or transfer shall have been recorded in the Register by the
Administrative Agent as provided in this Section. The Administrative Agent
agrees to record in the Register any such assignment or transfer of a Lender's
Commitment or the Loans made pursuant thereto promptly upon its receipt of a
Lender Assignment Agreement duly executed by the assignor and assignee thereof
in accordance with SECTION 11.11.1.
(c) Each Borrower agrees that, upon the request to the Administrative Agent
by any Lender, such Borrower will execute and deliver to such Lender, as
applicable, a Revolving Note, a Term A Note, a Term B Note and/or a Swing
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Line Note evidencing the Loans made by such Lender. Each Borrower hereby
irrevocably authorizes each Lender to make (or cause to be made) appropriate
notations on the grid attached to such Lender's Notes (or on any continuation of
such grid), which notations, if made, shall evidence, INTER ALIA, the date of,
the outstanding principal amount of, and the interest rate and Interest Period
applicable to the Loans evidenced thereby. Such notations shall, to the extent
not inconsistent with the notations made by the Administrative Agent in the
Register, be conclusive and binding on each Borrower absent manifest error;
PROVIDED, HOWEVER, that the failure of any Lender to make any such notations or
any error in any such notations shall not limit or otherwise affect any
Obligations of either Borrower, any other Obligor or the Seller. The Loans
evidenced by any such Note and interest thereon shall at all times (including
after assignment pursuant to SECTION 11.11.1) be represented by one or more
Notes payable to the order of the payee named therein and its registered
assigns. A Note and the obligation evidenced thereby may be assigned or
otherwise transferred in whole or in part only by registration of such
assignment or transfer of such Note and the obligation evidenced thereby in the
Register (and each Note shall expressly so provide). Any assignment or transfer
of all or part of an obligation evidenced by a Note shall be registered in the
Register only upon surrender for registration of assignment or transfer of the
Note evidencing such obligation, accompanied by a Lender Assignment Agreement
duly executed by the assignor thereof, and thereupon, if requested by the
assignee, one or more new Notes shall be issued to the designated assignee and
the old Note shall be returned by the Administrative Agent to the Borrowers
marked "exchanged". No assignment of a Note and the obligation evidenced thereby
shall be effective unless it shall have been recorded in the Register by the
Administrative Agent as provided in this Section.
ARTICLE III
REPAYMENTS, PREPAYMENTS, INTEREST AND FEES
SECTION 3.1. REPAYMENTS AND PREPAYMENTS; APPLICATION. Each Borrower jointly
and severally agrees that the Loans shall be repaid and prepaid pursuant to the
following terms.
SECTION 3.1.1. REPAYMENTS AND PREPAYMENTS. The Borrowers shall jointly and
severally repay in full the unpaid principal amount of each Loan upon the
applicable Stated Maturity Date therefor. Prior thereto, payments and
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prepayments of Loans shall or may be made jointly and severally by the
Borrowers as set forth below.
(a) From time to time on any Business Day, each Borrower may make
a voluntary prepayment, in whole or in part, of the outstanding
principal amount of any
(i) Loans (other than Swing Line Loans); PROVIDED, HOWEVER,
that (A) any such prepayment of the Term Loans shall be made PRO
RATA among Term A Loans and Term B Loans, and PRO RATA among Term
A Loans and Term B Loans of the same type and, if applicable,
having the same Interest Period of all Lenders that have made
such Term A Loans or Term B Loans (to be applied as set forth in
Section 3.1.2) and any such prepayment of Revolving Loans shall
be made PRO RATA among the Revolving Loans of the same type and,
if applicable, having the same Interest Period of all Lenders
that have made such Revolving Loans; (B) all such voluntary
prepayments shall require at least one but no more than five
Business Days' prior written notice to the Administrative Agent;
and (C) all such voluntary partial prepayments shall be, in the
case of LIBO Rate Loans, in an aggregate minimum amount of
$1,000,000 and an integral multiple of $1,000,000 and, in the
case of Base Rate Loans, in an aggregate minimum amount of
$500,000 and an integral multiple of $100,000; and
(ii) Swing Line Loans; PROVIDED, that (A) all such voluntary
prepayments shall require prior telephonic notice to the Swing
Line Lender on or before 1:00 p.m. on the day of such prepayment
(such notice to be confirmed in writing within 24 hours
thereafter); and (B) all such voluntary partial prepayments shall
be in an aggregate minimum amount of $100,000 and an integral
multiple of $50,000.
(b) On each date when the sum of (i) the aggregate outstanding
principal amount of all Revolving Loans and Swing Line Loans and (ii)
the aggregate amount of all Letter of Credit Outstandings exceeds the
Revolving Loan Commitment Amount (as it may be reduced from time to
time pursuant to this Agreement), the Borrowers shall jointly and
severally make a mandatory prepayment of Revolving Loans or Swing Line
Loans (or both) and, if necessary, deposit cash collateral with
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the Administrative Agent or its designee pursuant to an agreement
satisfactory to the Administrative Agent to collateralize Letter of
Credit Outstandings, in an aggregate amount equal to such excess.
(c) On the Stated Maturity Date for Term A Loans and on each
Quarterly Payment Date occurring during any period set forth below,
the Borrowers shall jointly and severally make a scheduled repayment
of the aggregate outstanding principal amount, if any, of all Term A
Loans in an amount equal to the amount set forth below opposite such
Stated Maturity Date or such Quarterly Payment Date, as applicable:
<TABLE>
<CAPTION>
Amount of Required
Period Principal Repayment
------ -------------------
<S> <C>
Effective Date through (and
including) 09/30/00 $387,500.00
10/01/00 through (and
including) 09/30/01 $775,000.00
10/01/01 through (and
including) 09/30/02 $1,162,500.00
10/01/02 through (and
including) 09/30/03 $1,550,000.00
10/01/03 through (and
including) 09/30/04 $1,937,500.00
10/01/04 through (and
including) 09/30/05 $1,550,000.00
Stated Maturity Date for $1,550,000.00 or the
Term A Loans then outstanding
principal amount of all
Term A Loans, if
different.
</TABLE>
(d) On the Stated Maturity Date for Term B Loans and on each
Quarterly Payment Date occurring during any period set forth below,
the Borrowers shall jointly and severally make a scheduled repayment
of the aggregate outstanding principal amount, if any, of all Term B
Loans in an amount equal to the amount set forth below opposite such
Stated Maturity Date or such Quarterly Payment Date, as applicable:
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<TABLE>
<CAPTION>
Amount of Required
Period Principal Repayment
------ -------------------
<S> <C>
Effective Date through (and
including) 09/30/00 $250,000.00
10/01/00 through (and
including) 09/30/01 $250,000.00
10/01/01 through (and
including) 09/30/02 $250,000.00
10/01/02 through (and
including) 09/30/03 $250,000.00
10/01/03 through (and
including) 09/30/04 $250,000.00
10/01/04 through (and
including) 09/30/05 $250,000.00
10/01/05 through (and
including) 09/30/06 $18,800.000.00
Stated Maturity Date for $18,800,000.00 or the
Term B Loans then outstanding
principal amount of
all Term B Loans, if
different.
</TABLE>
(e) The Borrowers shall, following the receipt by Holdings,
either Borrower or any of their respective Subsidiaries of any
Casualty Proceeds in excess of $250,000 (individually or in the
aggregate (when taken together with all other Casualty Proceeds and
all Net Disposition Proceeds)) over the course of a Fiscal Year,
deliver to the Agents a calculation of the amount of such Casualty
Proceeds and jointly and severally make a mandatory prepayment of the
Term Loans in an amount equal to 100% of such Casualty Proceeds within
30 days of the receipt thereof to be applied as set forth in SECTION
3.1.2; PROVIDED, HOWEVER, that no mandatory prepayment on account of
Casualty Proceeds shall be required under this clause if the Borrowers
inform the Agents in writing no later than 30 days following the
occurrence of the Casualty Event resulting in such Casualty Proceeds
of their or such Subsidiary's good faith intention to apply such
Casualty Proceeds to (x) the rebuilding or replacement of the damaged,
destroyed or condemned assets or property or (y) the acquisition of
long-term assets that are necessary or useful in the operation of the
Borrowers' and their respective Subsidiaries' business
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activities in accordance with SECTION 7.2.1, and the Borrowers or such
Subsidiary in fact uses such Casualty Proceeds to rebuild or replace
such assets or property or acquire such long-term assets within 360
days following the receipt of such Casualty Proceeds, with the amount
of such Casualty Proceeds unused after such 360-day period being
applied to the Term Loans pursuant to SECTION 3.1.2; PROVIDED,
FURTHER, HOWEVER, that (i) at any time when any Specified Default
shall have occurred and be continuing, all Casualty Proceeds (together
with Net Disposition Proceeds not applied as provided in CLAUSE (f)
below) shall be deposited in an account maintained with the
Administrative Agent to pay for such rebuilding, replacement or
acquisition whenever no Specified Default is then continuing or except
as otherwise agreed to by the Agents for disbursement at the request
of the Borrowers or such Subsidiary, as the case may be, or (ii) if
all such Casualty Proceeds (together with Net Disposition Proceeds not
applied as provided in CLAUSE (f) below) aggregating in excess of
$250,000 have not yet been applied as described in the notice required
above (or in accordance with CLAUSE (f) below), all such Casualty
Proceeds and Net Disposition Proceeds shall be deposited in an account
maintained with the Administrative Agent for disbursement at the
request of the Borrowers or such Subsidiary, as the case may be, to be
used for the purpose(s) set forth in such written notice(s).
(f) The Borrowers shall, following the receipt by Holdings,
either Borrower or any of their respective Subsidiaries of any Net
Disposition Proceeds in excess of $250,000 (individually or in the
aggregate (when taken together with all other Net Disposition Proceeds
and all Casualty Proceeds)) over the course of a Fiscal Year, deliver
to the Agents a calculation of the amount of such Net Disposition
Proceeds and jointly and severally make a mandatory prepayment of the
Term Loans in an amount equal to 100% of such Net Disposition Proceeds
within one Business Day of the receipt thereof to be applied as set
forth in SECTION 3.1.2; PROVIDED, HOWEVER, that no mandatory
prepayment on account of Net Disposition Proceeds shall be required
under this clause if the Borrowers inform the Agents in writing no
later than one Business Day following the receipt of such Net
Disposition Proceeds of their or such Subsidiary's good faith
intention to apply such Net Disposition Proceeds to (x) the
replacement of the assets or property that was the subject of the
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Disposition that resulted in such Net Disposition Proceeds or (y) the
acquisition of long-term assets that are necessary or useful in the
operation of the Borrowers' and their respective Subsidiaries'
business activities in accordance with SECTION 7.2.1, and the
Borrowers or such Subsidiary in fact uses such Net Disposition
Proceeds to replace such assets or property or acquire such long-term
assets within 360 days following the receipt of such Net Disposition
Proceeds, with the amount of such Net Disposition Proceeds unused
after such 360-day period being applied to the Term Loans pursuant to
SECTION 3.1.2; PROVIDED, FURTHER, HOWEVER, that (i) at any time when
any Specified Default shall have occurred and be continuing, all Net
Disposition Proceeds (together with Casualty Proceeds not applied as
provided in CLAUSE (e) above) shall be deposited in an account
maintained with the Administrative Agent to pay for such replacement
or acquisition whenever no Specified Default is then continuing or
except as otherwise agreed to by the Agents for disbursement at the
request of the Borrowers or such Subsidiary, as the case may be, or
(ii) if all such Net Disposition Proceeds (together with Casualty
Proceeds not applied as provided in CLAUSE (e) above) aggregating in
excess of $250,000 have not been applied as described in the notice
required above (or in accordance with CLAUSE (e) above), all such Net
Disposition Proceeds and Casualty Proceeds shall be deposited in an
account maintained with the Administrative Agent for disbursement at
the request of the Borrowers or such Subsidiary, as the case may be,
to be used for the purpose(s) set forth in such written notice(s).
(g) The Borrowers shall, no later than five Business Days
following the delivery by Holdings of its annual audited financial
reports required pursuant to CLAUSE (c) of SECTION 7.1.1 (beginning
with the financial reports delivered in respect of the 2000 Fiscal
Year), deliver to the Agents a calculation of the Excess Cash Flow for
the Fiscal Year last ended and jointly and severally make a mandatory
prepayment of the Term Loans in an amount equal to 50% of the Excess
Cash Flow (if any) for such Fiscal Year, to be applied as set forth in
SECTION 3.1.2.
(h) Concurrently with the receipt by Holdings, either Borrower or
any of their respective Subsidiaries of any Net Debt Proceeds or Net
Equity Proceeds, the Borrowers shall deliver to the Agents a
calculation of
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the amount of such Net Debt Proceeds or Net Equity Proceeds, as the
case may be, and jointly and severally make a mandatory prepayment of
the Term Loans in an amount equal to 100% of such Net Debt Proceeds or
50% of such Net Equity Proceeds, as the case may be, to be applied as
set forth in SECTION 3.1.2.
(i) Immediately upon any acceleration of the Stated Maturity Date
of any Loans pursuant to SECTION 8.2 or SECTION 8.3, the Borrowers
shall jointly and severally repay all the Loans, unless, pursuant to
SECTION 8.3, only a portion of all the Loans is so accelerated (in
which case the portion so accelerated shall be so repaid).
Each prepayment of any Loans made pursuant to this Section shall be without
premium or penalty, except as may be required by SECTION 3.1.3 and SECTION 4.4.
SECTION 3.1.2. APPLICATION. Amounts prepaid pursuant to SECTION 3.1.1 shall
be applied as set forth in this Section.
(a) Subject to CLAUSE (b), each prepayment or repayment of the
principal of the Loans shall be applied, to the extent of such
prepayment or repayment, FIRST, to the principal amount thereof being
maintained as Base Rate Loans, and SECOND, subject to the terms of
SECTION 4.4, to the principal amount thereof being maintained as LIBO
Rate Loans.
(b) Each prepayment of Term Loans made pursuant to CLAUSES (a),
(e), (f), (g) and (h) of SECTION 3.1.1 shall be applied PRO RATA to a
mandatory prepayment of the outstanding principal amount of all Term A
Loans and Term B Loans (with the amount of such prepayment of the Term
A Loans and the Term B Loans being applied to the remaining Term A
Loan or Term B Loan, as the case may be, amortization payments, PRO
RATA in accordance with the amount of each such remaining Term Loan
amortization payment); PROVIDED, HOWEVER, that in the case of any such
prepayment of Term B Loans made pursuant to CLAUSE (e), (f), (g) and
(h) of SECTION 3.1.1, any Lender that has Term B Loans may elect not
to have such Loans prepaid by delivering a notice to the Agents at
least one Business Day prior to the date that such prepayment is to be
made in which notice such Lender shall decline to have such Loans
prepaid with the amounts set forth above, in which case the amounts
that would have been applied to a
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prepayment of such Lender's Term B Loans shall instead be applied to a
prepayment of the principal amount (if any) of all outstanding Term A
Loans until all outstanding Term A Loans have been prepaid in full,
then applied to a prepayment of such Lender's Term B Loans.
SECTION 3.1.3. PREPAYMENT OF TERM B LOANS. In the event that either
Borrower makes a voluntary prepayment pursuant to CLAUSE (a) of SECTION 3.1.1 or
is required to make a mandatory prepayment of the Term B Loans pursuant to
CLAUSES (f) or (h) of SECTION 3.1.1 during any period set forth below, such
Borrower shall pay the amount of such prepayment plus an amount (the "PREPAYMENT
PREMIUM") equal to the percentage of the principal amount so voluntarily prepaid
or required to be prepaid during such period as follows:
Closing Date through 2.00%
and including 11/17/2000
11/18/2000 through 1.00%
and including 11/17/2001
11/18/2001 0%
and thereafter
PROVIDED, that if any Lender declines to have its Term B Loans prepaid pursuant
to the proviso to CLAUSE (b) of SECTION 3.1.2, the amount of the prepayment to
be applied to the Term A Loans and/or Revolving Loans shall not include the
Prepayment Premium.
SECTION 3.2. INTEREST PROVISIONS. Interest on the outstanding principal
amount of Loans shall accrue and be payable by the Borrowers jointly and
severally in accordance with the terms set forth below.
SECTION 3.2.1. RATES. Subject to SECTION 2.3.2, pursuant to an
appropriately delivered Borrowing Request or Continuation/Conversion Notice,
each Borrower may elect that Loans comprising a Borrowing accrue interest at a
rate per annum:
(a) on that portion maintained from time to time as a Base Rate Loan,
equal to the sum of the Alternate Base Rate from time to time in effect
plus the Applicable Margin; PROVIDED that all Swing Line Loans shall always
accrue interest at the then effective
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Applicable Margin for Revolving Loans maintained as Base Rate Loans; and
(b) on that portion maintained as a LIBO Rate Loan, during each
Interest Period applicable thereto, equal to the sum of the LIBO Rate
(Reserve Adjusted) for such Interest Period plus the Applicable Margin.
All LIBO Rate Loans shall bear interest from and including the first day of the
applicable Interest Period to (but not including) the last day of such Interest
Period at the interest rate determined as applicable to such LIBO Rate Loan.
SECTION 3.2.2. POST-DEFAULT RATES. Upon the occurrence and during the
continuance of an Event of Default, the Borrowers shall jointly and severally
pay, but only to the extent permitted by law, interest (after as well as before
judgment) in an amount equal to (a) in the case of any principal of LIBO Rate
Loans or accrued interest thereon, the rate that would otherwise be applicable
to such LIBO Rate Loans pursuant to SECTION 3.2.1 plus 2%, (b) in the case of
any principal of Base Rate Loans or accrued interest thereon, the rate that
would otherwise be applicable to such Base Rate Loans pursuant to SECTION 3.2.1
plus 2% and (c) in the case of any accrued commitment fees, letter of credit
fees or other monetary Obligations, the rate that would otherwise be applicable
to Revolving Loans that are maintained as Base Rate Loans pursuant to SECTION
3.2.1 plus 2%.
SECTION 3.2.3. PAYMENT DATES. Interest accrued on each Loan shall be
payable, without duplication:
(a) on the Stated Maturity Date therefor;
(b) on the date of any payment or prepayment, in whole or in
part, of principal outstanding on such Loan on the principal amount so
paid or prepaid;
(c) with respect to Base Rate Loans, on each Quarterly Payment
Date occurring after the Closing Date;
(d) with respect to LIBO Rate Loans, on the last day of each
applicable Interest Period (and, if such Interest Period shall exceed
three months, on the date occurring on each three-month interval
occurring after the first day of such Interest Period);
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(e) with respect to any Base Rate Loans converted into LIBO Rate
Loans on a day when interest would not otherwise have been payable
pursuant to CLAUSE (c), on the date of such conversion; and
(f) on that portion of any Loans the Stated Maturity Date of
which is accelerated pursuant to SECTION 8.2 or SECTION 8.3,
immediately upon such acceleration.
Interest accrued on Loans or other monetary Obligations after the date such
amount is due and payable (whether on the Stated Maturity Date, upon
acceleration or otherwise) shall be payable upon demand.
SECTION 3.3. FEES. The Borrowers agree to jointly and severally pay the
fees set forth below. All such fees shall be non-refundable.
SECTION 3.3.1. COMMITMENT FEE. The Borrowers agree to jointly and severally
pay to the Administrative Agent for the account of each Lender, for the period
(including any portion thereof when any of its Commitments are suspended by
reason of either Borrower's inability to satisfy any condition of ARTICLE V)
commencing on the Effective Date and continuing through the applicable
Commitment Termination Date, a commitment fee in an amount equal to the
Applicable Commitment Fee, in each case on such Lender's Percentage of the sum
of the average daily unused portion of the applicable Commitment Amount (net of
Letter of Credit Outstandings, in the case of the Revolving Loan Commitment
Amount). All commitment fees payable pursuant to this Section shall be
calculated on a year comprised of 360 days and payable by the Borrowers jointly
and severally in arrears on the Effective Date and thereafter on each Quarterly
Payment Date, commencing with the first Quarterly Payment Date following the
Effective Date, and on the Revolving Loan Commitment Termination Date. The
making of Swing Line Loans shall not constitute usage of the Revolving Loan
Commitment with respect to the calculation of commitment fees to be paid by the
Borrowers to the Lenders. Any term or provision hereof to the contrary
notwithstanding, commitment fees payable for any period prior to the Closing
Date shall be payable in accordance with the Fee Letter.
SECTION 3.3.2. AGENTS' FEES. (a) The Borrowers agree to jointly and
severally pay to the Administrative Agent, for its own account, the fees in the
amounts and on the dates set forth in the Fee Letter.
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(b) The Borrowers agree to jointly and severally pay to the Syndication
Agent, for its own account, the fees in the amounts and on the dates set forth
in the Fee Letter.
SECTION 3.3.3. LETTER OF CREDIT FEE. The Borrowers agree to jointly and
severally pay to the Administrative Agent, for the PRO RATA account of the
applicable Issuer and each Revolving Loan Lender, a Letter of Credit fee in an
amount equal to the then effective Applicable Margin for Revolving Loans
maintained as LIBO Rate Loans, multiplied by the Stated Amount of each such
Letter of Credit, such fees being payable quarterly in arrears on each Quarterly
Payment Date following the date of issuance of each Letter of Credit and on the
Revolving Loan Commitment Termination Date. The Borrowers further agree to
jointly and severally pay in advance to the applicable Issuer on the date of
each issuance and extension of each Letter of Credit issued or extended by such
Issuer and quarterly thereafter on each Quarterly Payment Date following the
date of such issuance or extension and on the Revolving Loan Commitment
Termination Date an issuance fee in an amount equal to 1/4 of 1% per annum on
the Stated Amount of such Letter of Credit. The Borrowers further agree to
jointly and severally pay to the applicable Issuer such administrative fee and
other fees, if any, in connection with Letters of Credit in such amounts and at
such times as the applicable Issuer and the Borrowers shall agree from time to
time.
ARTICLE IV
CERTAIN LIBO RATE AND OTHER PROVISIONS
SECTION 4.1. LIBO RATE LENDING UNLAWFUL. If any Lender shall determine
(which determination shall, upon notice thereof to the Borrowers and the
Administrative Agent, be conclusive and binding on the Borrowers) that the
introduction of or any change in or in the interpretation of any law makes it
unlawful, or any Governmental Authority asserts that it is unlawful, for such
Lender to make or continue any Loan as, or to convert any Loan into, a LIBO Rate
Loan, the obligations of such Lender to make, continue or convert any such LIBO
Rate Loan shall, upon such determination, forthwith be suspended until such
Lender shall notify the Administrative Agent that the circumstances causing such
suspension no longer exist, and all outstanding LIBO Rate Loans payable to such
Lender shall automatically convert into Base Rate Loans at the end of the then
current Interest Periods with respect thereto or sooner, if required by such law
or assertion.
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SECTION 4.2. DEPOSITS UNAVAILABLE. If the Administrative Agent shall have
determined that
(a) Dollar deposits in the relevant amount and for the relevant
Interest Period are not available to it in its relevant market; or
(b) by reason of circumstances affecting its relevant market, adequate
means do not exist for ascertaining the interest rate applicable hereunder
to LIBO Rate Loans;
then, upon notice from the Administrative Agent to the Borrowers and the
Lenders, the obligations of all Lenders under SECTION 2.3 and SECTION 2.4 to
make or continue any Loans as, or to convert any Loans into, LIBO Rate Loans
shall forthwith be suspended until the Administrative Agent shall notify the
Borrowers and the Lenders that the circumstances causing such suspension no
longer exist.
SECTION 4.3. INCREASED LIBO RATE LOAN COSTS, ETC. The Borrowers agree to
jointly and severally reimburse each Lender and Issuer for any increase in the
cost to such Lender or Issuer of, or any reduction in the amount of any sum
receivable by such Secured Party in respect of, such Secured Party's Commitments
and the making of Credit Extensions hereunder (including the making, continuing
or maintaining (or of its obligation to make or continue) any Loans as, or of
converting (or of its obligation to convert) any Loans into, LIBO Rate Loans)
that arise in connection with any change in, or the introduction, adoption,
effectiveness, interpretation, reinterpretation or phase-in after the date
hereof of, any law or regulation, directive, guideline, decision or request
(whether or not having the force of law) of any Governmental Authority, except
for any such changes with respect to increased capital costs and Taxes (which
are governed by SECTIONS 4.5 and 4.6, respectively). Each affected Secured Party
shall promptly notify the Administrative Agent and the Borrowers in writing of
the occurrence of any such event, stating the reasons therefor and the
additional amount required fully to compensate such Secured Party for such
increased cost or reduced amount. Such additional amounts shall be payable by
the Borrowers jointly and severally directly to such Secured Party within five
days of its receipt of such notice, and such notice shall, in the absence of
manifest error, be conclusive and binding on the Borrowers.
SECTION 4.4. FUNDING LOSSES. In the event any Lender shall incur any loss
or expense (including any loss or
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expense incurred by reason of the liquidation or reemployment of deposits or
other funds acquired by such Lender to make or continue any portion of the
principal amount of any Loan as, or to convert any portion of the principal
amount of any Loan into, a LIBO Rate Loan) as a result of
(a) any conversion or repayment or prepayment of the principal
amount of any LIBO Rate Loan on a date other than the scheduled last
day of the Interest Period applicable thereto, whether pursuant to
ARTICLE III or otherwise;
(b) any Loans not being made as LIBO Rate Loans in accordance
with the Borrowing Request therefor; or
(c) any Loans not being continued as, or converted into, LIBO
Rate Loans in accordance with the Continuation/Conversion Notice
therefor;
then, upon the written notice of such Lender to the Borrowers (with a copy to
the Administrative Agent), the Borrowers shall, within five days of its receipt
thereof, jointly and severally pay directly to such Lender such amount as will
(in the reasonable determination of such Lender) reimburse such Lender for such
loss or expense. Such written notice shall, in the absence of manifest error, be
conclusive and binding on the Borrowers.
SECTION 4.5. INCREASED CAPITAL COSTS. If any change in, or the
introduction, adoption, effectiveness, interpretation, reinterpretation or
phase-in of, any law or regulation, directive, guideline, decision or request
(whether or not having the force of law) of any Governmental Authority affects
or would affect the amount of capital required or expected to be maintained by
any Secured Party or any Person controlling such Secured Party, and such Secured
Party determines (in good faith but in its sole and absolute discretion) that
the rate of return on its or such controlling Person's capital as a consequence
of the Commitments or the Credit Extensions made, or the Letters of Credit
participated in, by such Secured Party is reduced to a level below that which
such Secured Party or such controlling Person could have achieved but for the
occurrence of any such circumstance, then upon notice from time to time by such
Secured Party to the Borrowers, the Borrowers shall within five days following
receipt of such notice jointly and severally pay directly to such Secured Party
additional amounts sufficient to compensate such Secured Party or such
controlling Person for such reduction
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in rate of return; PROVIDED that such Secured Party shall if requested by the
Borrowers use reasonable efforts (subject to overall policy considerations of
such Lender) to designate another lending office for any Loans affected by such
event or take other action so long as such Lender and its lending office suffer
no economic, legal or regulatory disadvantage, with the object of avoiding the
consequence of the event giving rise to the operation of this Section; PROVIDED,
HOWEVER, that no Borrower shall have any obligation to pay any such additional
amount under this SECTION 4.5 with respect to any such change unless such Lender
shall have notified the applicable Borrower of its demand within 120 days after
the date upon which such Lender or such controlling Person has obtained audited
financial statements with respect to the fiscal year of such Lender or such
controlling Person in which such change occurred. Nothing in the first proviso
to the immediately preceding sentence shall affect or postpone any of the
Obligations of such Borrower or the right of any Lender provided in this
Section. A statement of such Secured Party as to any such additional amount or
amounts shall, in the absence of manifest error, be conclusive and binding on
the Borrowers. In determining such amount, such Secured Party may use any method
of averaging and attribution that it (in its sole and absolute discretion) shall
deem applicable.
SECTION 4.6. TAXES. Each of Holdings and each Borrower covenants and agrees
as follows with respect to Taxes.
(a) Any and all payments by Holdings and such Borrower under each Loan
Document shall be made without setoff, counterclaim or other defense, and
(subject to CLAUSE (f) below and SECTION 11.11) free and clear of, and
without deduction or withholding for or on account of, any Taxes. In the
event that any Taxes are required by law to be deducted or withheld from
any payment required to be made by Holdings or such Borrower, as the case
may be, to or on behalf of any Secured Party under any Loan Document, then:
(i) subject to CLAUSE (f) below and SECTION 11.11, if such Taxes
are NonExcluded Taxes, the amount of such payment shall be increased
as may be necessary such that such payment is made, after withholding
or deduction for or on account of such Taxes, in an amount that is not
less than the amount provided for in such Loan Document; and
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(ii) Holdings or such Borrower, as the case may be, shall
withhold the full amount of such Taxes from such payment (as increased
pursuant to CLAUSE (a) (i)) and shall pay such amount to the
Governmental Authority imposing such Taxes in accordance with
applicable law.
(b) In addition, Holdings shall, and the Borrowers shall jointly and
severally, pay any and all Other Taxes imposed to the relevant Governmental
Authority imposing such Other Taxes in accordance with applicable law.
(c) As promptly as practicable after the payment of any Taxes or Other
Taxes, and in any event within 45 days of any such payment being due,
Holdings or the Borrowers, as the case may be, shall furnish to the
Administrative Agent a copy of an official receipt (or a certified copy
thereof) evidencing the payment of such Taxes or Other Taxes. The
Administrative Agent shall make copies thereof available to any Lender upon
request therefor.
(d) Subject to CLAUSE (f) below and SECTION 11.11, Holdings shall, and
the Borrowers shall jointly and severally, indemnify each Secured Party for
any NonExcluded Taxes and Other Taxes levied, imposed or assessed on (and
whether or not paid directly by) such Secured Party (whether or not such
Non-Excluded Taxes or Other Taxes are correctly asserted by the relevant
Governmental Authority). Promptly upon having knowledge that any such
NonExcluded Taxes or Other Taxes have been levied, imposed or assessed, and
promptly upon notice thereof by any Secured Party, Holdings shall, and the
Borrowers shall jointly and severally, pay such NonExcluded Taxes or Other
Taxes directly to the relevant Governmental Authority (PROVIDED, HOWEVER,
that no Secured Party shall be under any obligation to provide any such
notice to Holdings or the Borrowers, as the case may be). In addition,
Holdings shall, and the Borrowers shall jointly and severally, indemnify
each Secured Party for any incremental Taxes that may become payable by
such Secured Party as a result of any failure of Holdings or the Borrowers,
as the case may be, to pay any Taxes when due to the appropriate
Governmental Authority or to deliver to the Administrative Agent, pursuant
to CLAUSE (c), documentation evidencing the payment of Taxes or Other
Taxes. With respect to indemnification for Non-Excluded Taxes and Other
Taxes actually paid by
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any Secured Party or the indemnification provided in the immediately
preceding sentence, such indemnification shall be made within 30 days after
the date such Secured Party makes written demand therefor. Holdings and
each Borrower acknowledges that any payment made to any Secured Party or to
any Governmental Authority in respect of the indemnification obligations of
Holdings or such Borrower, as the case may be, provided in this clause
shall constitute a payment in respect of which the provisions of CLAUSE (a)
and this clause shall apply.
(e) Each Non-Domestic Lender, on or prior to the date on which such
NonDomestic Lender becomes a Lender hereunder (and from time to time
thereafter upon the request of Holdings, the Borrowers or the
Administrative Agent, but only for so long as such Non-Domestic Lender is
legally entitled to do so), shall deliver to Holdings, the Borrowers and
the Administrative Agent either
(i) two duly completed copies of either (a) Internal Revenue
Service Form W-8BEN or (b) Internal Revenue Service Form W-8ECI, or in
either case an applicable successor form, certifying that such Lender
is entitled to an exemption from U.S. federal withholding tax on
payments of interest pursuant to an income tax treaty to which the
United States is a party or certifying that the income receivable
pursuant to this Agreement is effectively connected with the conduct
of a trade or business in the United States; or
(ii) in the case of a Non-Domestic Lender that is not legally
entitled to deliver either form listed in CLAUSE (e)(i) (with respect
to a complete exemption under an income tax treaty or that the income
is effectively connected with the conduct of a trade or business in
the United States), (x) a certificate of a duly authorized officer of
such Non-Domestic Lender to the effect that such Non-Domestic Lender
is not (a) a "bank" within the meaning of Section 881(c)(3)(a) of the
Code, (b) a "10 percent shareholder" of Holdings or either Borrower
within the meaning of Section 881(c)(3)(b) of the Code, or (c) a
controlled foreign corporation receiving interest from a related
person within the meaning of Section 881(c)(3)(c) of the Code (such
certificate, an
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"Exemption Certificate") and (y) two duly completed copies of Internal
Revenue Service Form W-8BEN (with respect to the portfolio interest
exemption) or applicable successor form, certifying that such Lender
is entitled to an exemption from U.S. federal withholding tax on
payments of interest.
(f) Notwithstanding any provision herein to the contrary, neither
Holdings nor either Borrower shall be obligated to gross up any payments to
any Lender pursuant to CLAUSE (a)(i), or to indemnify any Lender pursuant
to CLAUSE (d), in respect of United States federal withholding taxes to the
extent imposed as a result of (i) the failure of such Lender to deliver to
Holdings or the Borrowers, as the case may be, the form or forms and/or an
Exemption Certificate, as applicable to such Lender, pursuant to CLAUSE
(e), (ii) such form or forms and/or Exemption Certificate not establishing
a complete exemption from U.S. federal withholding tax or the information
or certifications made therein by the Lender being untrue or inaccurate on
the date delivered in any material respect, or (iii) the Lender designating
a successor lending office at which it maintains its Loans which has the
effect of causing such Lender to become obligated for tax payments in
excess of those in effect immediately prior to such designation; PROVIDED,
HOWEVER, that Holdings shall, and the Borrowers shall jointly and
severally, be obligated to gross up any payments to any such Lender
pursuant to CLAUSE (a)(i), and to indemnify any such Lender pursuant to
CLAUSE (d), in respect of United States federal withholding taxes if (i)
any such failure to deliver a form or forms or an Exemption Certificate or
the failure of such form or forms or Exemption Certificate to establish a
complete exemption from U.S. federal withholding tax or inaccuracy or
untruth contained therein resulted from a change in any applicable statute,
treaty, regulation or other applicable law or any official interpretation
of any of the foregoing occurring after the date hereof such Lender
acquired its interest in the Loan Documents, which change rendered such
Lender no longer legally entitled to deliver such form or forms or
Exemption Certificate or otherwise ineligible for a complete exemption from
U.S. federal withholding tax, or rendered the information or certifications
made in such form or forms or Exemption Certificate untrue or inaccurate in
a material respect or (ii) the obligation to gross up payments to any such
Lender pursuant to
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CLAUSE (a)(i) or to indemnify any such Lender pursuant to CLAUSE (d) is
with respect to an Assignee Lender that becomes an Assignee Lender as a
result of an assignment made at the request of the Borrowers.
(g) If Holdings or either Borrower, as the case may be, is required to
pay additional amounts to or for the account of a Lender pursuant to this
SECTION 4.6, then such Lender will agree to use reasonable efforts to
change the jurisdiction of its applicable lending office or take any other
action reasonably requested by Holdings or either Borrower, as the case may
be, so as to eliminate or reduce any such additional payment which may
thereafter accrue if such change would not, in the sole good faith
determination of such Lender, be otherwise disadvantageous to such Lender
(taking into account any reimbursement of costs that Holdings or either
Borrower, as the case may be, may elect to offer).
(h) If a Secured Party receives a refund of any Taxes or Other Taxes
as to which it has been indemnified by Holdings and the Borrowers or with
respect to which Holdings or either Borrower, as the case may be, has paid
additional amounts pursuant to this SECTION 4.6, which refund in the good
faith judgment of such Secured Party is attributable to such payment made
by Holdings or either Borrower, as the case may be, shall reimburse
Holdings or either Borrower, as the case may be, for such amount as the
Secured Party determines to be the proportion of the refund as will leave
it, after such reimbursement, in no better or worse position than it would
have been in if the payment had not been required. A Secured Party shall
not be obliged to disclose information regarding its tax affairs or
computations to Holdings and the Borrowers in connection with this CLAUSE
(h) or any other provision of this SECTION 4.6.
SECTION 4.7. PAYMENTS, COMPUTATIONS, ETC. Unless otherwise expressly
provided in a Loan Document, all payments by each Borrower pursuant to each Loan
Document shall be made by such Borrower to the Administrative Agent for the PRO
RATA account of the Secured Parties entitled to receive such payment. All
payments shall be made without setoff, deduction (except as permitted under
Section 4.6(f)) or counterclaim not later than 11:00 a.m. on the date due in
same day or immediately available funds to such account as the Administrative
Agent shall specify from time to time by notice to the Borrowers. Funds received
after that time
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shall be deemed to have been received by the Administrative Agent on the next
succeeding Business Day. The Administrative Agent shall promptly remit in same
day funds to each Secured Party its share, if any, of such payments received by
the Administrative Agent for the account of such Secured Party. All interest
(including interest on LIBO Rate Loans) and fees shall be computed on the basis
of the actual number of days (including the first day but excluding the last
day) occurring during the period for which such interest or fee is payable over
a year comprised of 360 days (or, in the case of interest on a Base Rate Loan
(calculated at other than the Federal Funds Rate), 365 days or, if appropriate,
366 days). Payments due on other than a Business Day shall (except as otherwise
required by CLAUSE (c) of the definition of the term "Interest Period") be made
on the next succeeding Business Day and such extension of time shall be included
in computing interest and fees in connection with that payment.
SECTION 4.8. SHARING OF PAYMENTS. If any Secured Party shall obtain any
payment or other recovery (whether voluntary, involuntary, by application of
setoff or otherwise) on account of any Credit Extension or Reimbursement
Obligation (other than pursuant to the terms of SECTIONS 4.3, 4.4, 4.5 or 4.6)
in excess of its PRO RATA share of payments obtained by all Secured Parties,
such Secured Party shall purchase from the other Secured Parties such
participations in Credit Extensions made by them as shall be necessary to cause
such purchasing Secured Party to share the excess payment or other recovery
ratably (to the extent such other Secured Parties were entitled to receive a
portion of such payment or recovery) with each of them; PROVIDED, HOWEVER, that
if all or any portion of the excess payment or other recovery is thereafter
recovered from such purchasing Secured Party, the purchase shall be rescinded
and each Secured Party which has sold a participation to the purchasing Secured
Party shall repay to the purchasing Secured Party the purchase price to the
ratable extent of such recovery together with an amount equal to such selling
Secured Party's ratable share (according to the proportion of (a) the amount of
such selling Secured Party's required repayment to the purchasing Secured Party
TO (b) total amount so recovered from the purchasing Secured Party) of any
interest or other amount paid or payable by the purchasing Secured Party in
respect of the total amount so recovered. Each Borrower agrees that any Secured
Party purchasing a participation from another Secured Party pursuant to this
Section may, to the fullest extent permitted by law, exercise all its rights of
payment (including pursuant to SECTION 4.9) with respect to such
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participation as fully as if such Secured Party were the direct creditor of such
Borrower in the amount of such participation. If under any applicable
bankruptcy, insolvency or other similar law any Secured Party receives a secured
claim in lieu of a setoff to which this Section applies, such Secured Party
shall, to the extent practicable, exercise its rights in respect of such secured
claim in a manner consistent with the rights of the Secured Parties entitled
under this Section to share in the benefits of any recovery on such secured
claim.
SECTION 4.9. SETOFF. Each Secured Party shall, upon the occurrence and
during the continuance of any Default described in CLAUSES (a) through (d) of
SECTION 8.1.9 or, with the consent of the Required Lenders, upon the occurrence
and during the continuance of any other Event of Default, have the right to
appropriate and apply to the payment of the monetary Obligations owing to it
(whether or not then due), and (as security for such Obligations) each Borrower
hereby grants to each Secured Party a continuing security interest in, any and
all balances, credits, deposits, accounts or moneys of such Borrower then or
thereafter maintained with such Secured Party; PROVIDED, HOWEVER, that any such
appropriation and application shall be subject to the provisions of SECTION 4.8.
Each Secured Party agrees promptly to notify the applicable Borrower and the
Administrative Agent after any such setoff and application made by such Secured
Party; PROVIDED, HOWEVER, that the failure to give such notice shall not affect
the validity of such setoff and application. The rights of each Secured Party
under this Section are in addition to other rights and remedies (including other
rights of setoff under applicable law or otherwise) which such Secured Party may
have.
SECTION 4.10. REPLACEMENT OF LENDERS. If any Lender (an "AFFECTED LENDER")
(a) is a Defaulting Lender or (b) makes demand upon the Borrowers for (or if the
Borrowers are otherwise required to pay) amounts pursuant to SECTION 4.3, 4.5 or
4.6 and the payment of such additional amounts is, and is likely to continue to
be, more onerous in the reasonable judgment of the Borrowers than with respect
to the other Lenders, the Borrowers may, within 30 days of receipt by the
Borrowers of such demand, give notice (a "REPLACEMENT NOTICE") in writing to the
Agents and such Affected Lender of their intention to replace such Affected
Lender with a financial institution (a "REPLACEMENT LENDER") designated in such
Replacement Notice; PROVIDED, HOWEVER, that no Replacement Notice may be given
by the Borrowers if (i) such replacement conflicts with any applicable law or
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regulation, (ii) any Event of Default shall have occurred and be continuing at
the time of such replacement or (iii) prior to any such replacement, such Lender
shall have taken any necessary action under SECTION 4.5 or 4.6 (if applicable)
so as to eliminate the continued need for payment of amounts owing pursuant to
SECTION 4.5 or 4.6. If the Agents shall, in the exercise of their reasonable
discretion and within 10 days of their receipt of such Replacement Notice,
notify the Borrowers and such Affected Lender in writing that the designated
financial institution is satisfactory to the Agents (such consent not being
required where the Replacement Lender is already a Lender), then such Affected
Lender shall, subject to the payment of any amounts due pursuant to SECTION 4.4,
assign, in accordance with SECTION 11.11.1, all of its Commitments, Loans, Notes
(if any) and other rights and obligations under this Agreement and all other
Loan Documents (including Reimbursement Obligations, if applicable) to such
designated financial institution; PROVIDED, HOWEVER, that (i) such assignment
shall be without recourse, representation or warranty and shall be on terms and
conditions reasonably satisfactory to such Affected Lender and such designated
financial institution, (ii) the purchase price paid by such designated financial
institution shall be in the amount of such Affected Lender's Loans and its
Percentage of outstanding Reimbursement Obligations, together with all accrued
and unpaid interest and fees in respect thereof, plus all other amounts
(including the amounts demanded and unreimbursed under SECTIONS 4.3, 4.5 and
4.6), owing to such Affected Lender hereunder and (iii) the Borrowers shall pay
to the Affected Lender and the Agents all reasonable out-of-pocket expenses
incurred by the Affected Lender and the Agents in connection with such
assignment and assumption (including the processing fees described in SECTION
11.11.1). Upon the effective date of an assignment described above, the
Replacement Lender shall become a "Lender" for all purposes under this Agreement
and the other Loan Documents.
ARTICLE V
CONDITIONS TO CREDIT EXTENSIONS
SECTION 5.1. INITIAL CREDIT EXTENSION. The obligations of the Lenders and,
if applicable, the Issuer to fund the initial Credit Extension shall be subject
to the prior or concurrent satisfaction of each of the conditions precedent set
forth in this SECTION 5.1.
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SECTION 5.1.1. RESOLUTIONS, ETC. The Agents shall have received from each
Obligor and the Seller, as applicable, (i) a copy of a good standing certificate
from the jurisdiction of its organization and each other jurisdiction where the
nature of its business requires such Obligor and the Seller to be qualified to
do business and in good standing as a foreign entity (except where the failure
to be so qualified or in good standing as a foreign entity could not reasonably
be expected to have a Material Adverse Effect), dated a date reasonably close to
the Closing Date, for each such Person and (ii) a certificate, dated the Closing
Date, duly executed and delivered by such Person's Secretary or Assistant
Secretary, managing member or general partner, as applicable, as to
(a) the fact that a complete and correct copy of the resolutions of
each such Person's Board of Directors (or other managing body, in the case
of other than a corporation) then in full force and effect authorizing, to
the extent relevant, all aspects of the Transaction applicable to such
Person and the execution, delivery and performance of each Loan Document to
be executed by such Person and the transactions contemplated hereby and
thereby is attached to such certificate and that those resolutions have not
been amended, modified or rescinded by subsequent action;
(b) the incumbency and signatures of those of its officers, managing
member or general partner, as applicable, authorized to act with respect to
each Loan Document to be executed by such Person; and
(c) the fact that a complete, correct and current copy of each Organic
Document of such Person is attached to such certificate;
upon which certificates each Secured Party may conclusively rely until it shall
have received a further certificate of the Secretary, Assistant Secretary,
managing member or general partner, as applicable, of any such Person canceling
or amending the prior certificate of such Person.
SECTION 5.1.2. TRANSACTION CONSUMMATED. (a) The Financed Acquisition
shall have been consummated (or shall be concurrently consummated) and in
connection therewith, Holdings shall have acquired 94.9% of WRC pursuant to
the Purchase Agreement for an aggregate purchase price of $396,054,500.
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(b) In connection with the Financed Acquisition,
(i) Holdings shall acquire (either directly or indirectly) WRC,
PRI, AGS and Lifetime;
(ii) the Seller shall have retained the Rollover Equity;
(iii) Holdings shall continue to own all of the Capital
Securities of JLC; and
(iv) the Borrowers shall have consummated the Refinancing of
approximately $27,000,000 of existing Indebtedness of JLC.
(c) The Subordinated Note Issuance shall have been consummated on
terms (including documentation in respect thereof in form and substance)
satisfactory in all respects to the Syndication Agent and resulted in gross
cash proceeds of at least $149,900,000.
(d) The PIK Preferred Equity Issuance shall have been consummated on
terms (including documentation in respect thereof in form and substance)
satisfactory in all respects to the Syndication Agent, and shall have
resulted in net cash proceeds of at least $75,000,000 to Holdings and all
such cash proceeds shall have been used by Holdings to purchase the WRC
Mirror PIK Preferred Equity from WRC.
(e) The Common Equity Issuance shall have been consummated on terms
(including documentation in respect thereof in form and substance)
satisfactory in all respects to the Syndication Agent and shall have
resulted in cash proceeds to Holdings of at least net $95,000,000.
(f) The Borrowers shall have paid estimated fees and expenses in
connection with the Transaction in an amount not exceeding $22,800,000.
SECTION 5.1.3. TRANSACTION DOCUMENTS. The Agents shall have received (with
copies for each Lender that shall have requested in writing copies thereof)
copies of fully executed versions of the Transaction Documents, each certified
to be true and complete copies thereof by an Authorized Officer of each of
Holdings and the Borrowers. Each Transaction Document (including the Purchase
Agreement) shall be in full force and effect and shall not have been modified or
waived in any material respect, nor shall there have been any forbearance to
exercise any rights with respect to any of the material terms or provisions
relating
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to the conditions to the consummation of the Financed Acquisition set forth in
the Purchase Agreement unless otherwise agreed to by the Required Lenders.
SECTION 5.1.4. CLOSING DATE CERTIFICATE. The Agents shall have received,
with counterparts for each Lender, the Closing Date Certificate, dated the
Closing Date and duly executed and delivered by an Authorized Officer of each of
Holdings and each of the Borrowers, in which certificate each of Holdings and
each Borrower shall agree and acknowledge that the statements made therein shall
be deemed to be true and correct representations and warranties of Holdings and
each such Borrower as of such date, and, at the time each such certificate is
delivered, such statements shall in fact be true and correct. All documents and
agreements required to be appended to the Closing Date Certificate shall be in
form and substance satisfactory to the Syndication Agent.
SECTION 5.1.5. DELIVERY OF NOTES. The Agents shall have received, for the
account of each Lender that has requested a Note in writing two Business Days
prior to the Closing Date, such Lender's Notes duly executed and delivered by an
Authorized Officer of each of the Borrowers.
SECTION 5.1.6. PAYMENT OF OUTSTANDING INDEBTEDNESS, ETC. All Indebtedness
identified in ITEM 7.2.2(b) of the Disclosure Schedule, together with all
interest, all prepayment premiums and other amounts due and payable with respect
thereto, shall have been paid in full from the proceeds of the initial Credit
Extension and the commitments in respect of such Indebtedness shall have been
terminated, and all Liens securing payment of any such Indebtedness have been
released and the Administrative Agent shall have received all Uniform Commercial
Code Form UCC-3 termination statements or other instruments as may be suitable
or appropriate in connection therewith.
SECTION 5.1.7. CLOSING FEES, EXPENSES, ETC. The Agents shall have received
for their respective accounts, or for the account of each Lender, as the case
may be, all fees, costs and expenses due and payable pursuant to SECTIONS 3.3
and 11.3, to the extent then invoiced.
SECTION 5.1.8. FINANCIAL INFORMATION, MATERIAL ADVERSE CHANGE. (a) The
Agents shall have received
(i)(A) consolidated financial statements of each Borrower and AGS
including balance sheets as of the end of each of the two Fiscal Years
ended December 31, 1998
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and December 31, 1997, and income and cash flow statements for each of the
three Fiscal Years ended December 31, 1998, December 31, 1997 and December
31, 1996, prepared in conformity with GAAP and together with reports
thereon (1) in the case of JLC, audited by PricewaterhouseCoopers LLP, and
(2) in the case of WRC and AGS, audited by Deloitte & Touche LLP, and (B)
selected financial information of each Borrower and AGS for the periods and
as of the dates set forth under the captions "Selected Historical
Consolidated Financial Information -Weekly Reader Corporation", "Selected
Historical Consolidated Financial Information -- American Guidance Service,
Inc.", and "Selected Historical Consolidated Financial Information -- JLC
Learning Corporation" in the Offering Memorandum;
(ii) (A) unaudited pro forma consolidated statements of operations of
Holdings for the year ended December 31, 1998, for the six months ended
June 30, 1998, for the six months ended June 30, 1999, and for the twelve
months ended June 30, 1999, in each case giving effect to the Transactions
as if they had occurred on January 1, 1998, and (B) the unaudited pro forma
consolidated balance sheet of Holdings as of June 30, 1999, giving effect
to the Transactions as if they had occurred on June 30, 1999 (in each case
in the form in which they are included in the Offering Memorandum, subject
to the statements under the captions "Unaudited Pro Forma Consolidated
Financial Information", "Notes to Unaudited Pro Forma Consolidated
Statements of Operations", and "Notes to Unaudited Pro Forma Consolidated
Balance Sheet Data" in the Offering Memorandum), prepared in each case in
accordance with Regulation S-X; and
(iii) projected consolidated financial statements (including balance
sheets and statements of operations, stockholders' equity and cash flows)
of each of Holdings and each Borrower for the four-year period following
the Closing Date (the "PROJECTIONS").
(b) Since December 31, 1998, there has not been any material adverse change
in the business, assets, condition (financial or otherwise), operations,
performance, properties, or Projections of Holdings, the Borrowers and their
respective Subsidiaries, taken as a whole, or WRC, JRC and their respective
Subsidiaries, taken as a whole.
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SECTION 5.1.9. OPINIONS OF COUNSEL; RELIANCE LETTERS. The Agents shall have
received
(a) opinions, dated the Closing Date and addressed to the Agents and
all of the Lenders, from
(i) Cravath, Swaine & Moore, New York counsel to the Obligors, in
form and substance satisfactory to the Agents; and
(ii) local counsel to the Obligors in the following
jurisdictions, in form and substance, and from counsel, satisfactory
to the Agents:
(A) Latham & Watkins, California counsel to the Obligors;
and
(B) Briggs and Morgan, Minnesota counsel to the Obligors.
(b)such reliance letters as the Agents may reasonably request, which
reliance letters shall be dated the Closing Date, addressed to the Agents
and all of the Lenders and relate to each of the legal opinions (other than
"disclosure" and other similar opinions) delivered in connection with the
Transaction.
SECTION 5.1.10. FILING AGENT, ETC. All Uniform Commercial Code financing
statements or other similar financing statements and Uniform Commercial Code
(Form UCC-3) termination statements required pursuant to the Loan Documents
(collectively, the "FILING STATEMENTS") shall have been delivered to CT
Corporation System or another similar filing service company acceptable to the
Agents (the "FILING AGENT"). The Filing Agent shall have acknowledged in a
writing satisfactory to the Agents and their counsel (i) the Filing Agent's
receipt of all Filing Statements, (ii) that the Filing Statements have either
been submitted for filing in the appropriate filing offices or will be submitted
for filing in the appropriate offices within ten days following the Closing Date
and (iii) that the Filing Agent will notify the Agents and their counsel of the
results of such submissions within 30 days following the Closing Date.
SECTION 5.1.11. SUBSIDIARY GUARANTY. The Agents shall have received the
Subsidiary Guaranty, dated as of the date hereof, duly executed and delivered by
each Subsidiary Guarantor.
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SECTION 5.1.12. SOLVENCY, ETC. The Agents shall have received,
(a) a written solvency opinion of Valuation Research Corporation
addressed to the Agents and the Lenders, and their respective successors
and assigns, which opinion shall be in form and substance satisfactory to
the Agents; and
(b) a certificate duly executed and delivered by the chief financial
or accounting Authorized Officer of each of Holdings and each of the
Borrowers, dated the date of the Closing Date, in the form of EXHIBIT F
attached hereto.
SECTION 5.1.13. SECURITY AND PLEDGE AGREEMENT; SELLER PLEDGE AGREEMENT. The
Agents shall have received the Security and Pledge Agreement, dated as of the
Closing Date and duly executed and delivered by an Authorized Officer of each of
Holdings, each Borrower and each Subsidiary Guarantor and the Seller Pledge
Agreement, dated as of the Closing Date and duly executed and delivered by an
Authorized Officer of Seller, together with
(a) certificates evidencing all of the issued and outstanding Capital
Securities pledged pursuant to both the Security and Pledge Agreement and
the Seller Pledge Agreement, which certificates in each case shall be
accompanied by undated instruments of transfer executed in blank by
effective endorsement, or, if any such shares of Capital Stock pledged
pursuant to either the Security and Pledge Agreement or the Seller Pledge
Agreement are uncertificated securities, the Administrative Agent shall
have obtained "control" (as defined in the U.C.C.) over such shares of
Capital Stock) and such other instruments and documents as the
Administrative Agent shall deem necessary or in the reasonable opinion of
applicable law to perfect the security interest of the Administrative Agent
in such shares of Capital Stock so that the Administrative Agent will be a
"protected purchaser" (as defined in Section 8-303(a) of the U.C.C.).
(b) all Intercompany Notes, if any, pledged pursuant to the Security
and Pledge Agreement;
(c) executed copies of Filing Statements naming each such Obligor as a
debtor and the Administrative Agent as the secured party, or other similar
instruments or documents to be filed under the Uniform
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Commercial Code of all jurisdictions as may be necessary or, in the opinion
of the Administrative Agent, desirable to perfect the security interests of
the Administrative Agent pursuant to both the Security and Pledge Agreement
and the Seller Pledge Agreement;
(d) executed copies of proper Uniform Commercial Code Form UCC-3
termination statements, if any, necessary to release all Liens and other
rights of any Person (other than any Liens permitted under SECTION 7.2.3)
(i) in any collateral described in either the Security and Pledge Agreement
or the Seller Pledge Agreement previously granted by any Person, and (ii)
securing any of the Indebtedness identified in ITEM 7.2.2(b) of the
Disclosure Schedule, together with such other Uniform Commercial Code Form
UCC-3 termination statements as the Administrative Agent may reasonably
request from such Obligor; and
(e) certified copies of Uniform Commercial Code Requests for
Information or Copies (Form UCC-11), or a similar search report certified
by a party acceptable to the Administrative Agent, dated a date reasonably
near to the Closing Date, listing all effective financing statements which
name such Obligor (under its present name and any previous names of such
Obligor within the four month period preceding the date hereof) as the
debtor and which are filed in the jurisdictions in which filings are to be
made pursuant to CLAUSE (c) above, together with copies of such financing
statements.
The Agents and their counsel shall be satisfied that (i) the Lien granted to the
Administrative Agent, for the benefit of the Secured Parties in the collateral
described above is a first priority (or local equivalent thereof) security
interest subject to the Liens permitted under SECTION 7.2.3; and (ii) no Lien
exists on any of the Collateral (as defined in the Security and Pledge Agreement
and the Seller Pledge Agreement) other than the Lien created in favor of the
Administrative Agent, for the benefit of the Secured Parties, pursuant to a Loan
Document and Liens permitted by SECTION 7.2.3.
SECTION 5.1.14. PATENT SECURITY AGREEMENT, TRADEMARK SECURITY AGREEMENT,
AND COPYRIGHT SECURITY AGREEMENT. The Agents shall have received the Patent
Security Agreement, the Trademark Security Agreement, and the Copyright Security
Agreement (other than the instruments or documents to be delivered pursuant to
SECTION 7.1.10) as applicable, each
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dated as of the Closing Date, duly executed and delivered by an Authorized
Officer of each Obligor that has delivered the Security and Pledge Agreement.
SECTION 5.1.15. PERFECTION CERTIFICATE. The Agents shall have received
Perfection Certificates, dated as of the Closing Date, duly executed and
delivered by an Authorized Officer of each of Holdings, each Borrower and each
other Obligor that is a party to the Security and Pledge Agreement.
SECTION 5.1.16. MORTGAGE. The Agents shall have received counterparts of
each Mortgage, dated as of the Closing Date, duly executed by an Authorized
Officer of each applicable Borrower, together with
(a) mortgagee's title insurance policies in favor of the
Administrative Agent for the benefit of the Secured Parties in amounts and
in form and substance and issued by insurers, reasonably satisfactory to
the Administrative Agent, with respect to the property purported to be
covered by each Mortgage, insuring that title to such property is
marketable and that the interests created by each Mortgage constitute valid
first Liens thereon free and clear of all defects and encumbrances other
than as approved by the Administrative Agent, and such policies shall also
include a survey reading, and, if required by the Administrative Agent and
if available, revolving credit endorsement, comprehensive endorsement,
variable rate endorsement, access and utilities endorsements, mechanic's
lien endorsement and such other endorsements as the Administrative Agent
shall reasonably request and shall be accompanied by evidence of the
payment in full of all premiums thereon; and
(b) such other approvals, opinions, or documents as the Administrative
Agent may request including consents and estoppel agreements from
landlords, a current survey of each property purported to be covered by a
Mortgage in form and substance satisfactory to the Administrative Agent and
the title insurer, and a real estate appraisal for each such property
prepared in accordance with the requirements of the Financial Institutions
Reform Recovery and Enforcement Act of 1989 and the regulations promulgated
thereunder, and otherwise in form and substance satisfactory to the
Administrative Agent.
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SECTION 5.1.17. INSURANCE. The Agents shall have received certified copies
of the insurance policies (or binders in respect thereof), from one or more
insurance companies satisfactory to the Agents, evidencing coverage required to
be maintained pursuant to each Loan Document.
SECTION 5.1.18. LITIGATION. There shall exist no pending or threatened
action, suit, investigation, litigation or proceeding pending or threatened in
any court or before any arbitrator or governmental instrumentality which (x)
contests the consummation of the Transaction or the legality or validity of the
Credit Agreement, any other Loan Document or any Transaction Document or (y)
could reasonably be expected to have a Material Adverse Effect.
SECTION 5.1.19. MINIMUM EBITDA. Holdings' PRO FORMA EBITDA for the
consecutive twelve month period ended June 30, 1999 (including estimated
transaction related accounting adjustments, prepared and reviewed by Arthur
Andersen & Co. in accordance with Regulation S-X for Form S-1 Registration
Statements and satisfactory in form and substance to DLJ) shall have been at
least $47,300,000.
SECTION 5.1.20. CORPORATE, TAX AND CAPITAL STRUCTURE. The corporate,
capital and tax structure (including Organic Documents), the shareholders
agreements and the management of Holdings and each Borrower both immediately
before and after the Transaction shall be reasonably satisfactory to the
Syndication Agent in all respects. The corporate and capital structure of
Holdings and its Subsidiaries on the Closing Date shall be as set forth in ANNEX
I hereto.
SECTION 5.1.21. APPROVALS. All governmental, shareholder and third party
consents (including Hart-Scott-Rodino clearance) and approvals necessary or
desirable in connection with the consummation of the Transaction, and the
related financings and other transactions contemplated hereby shall have been
duly obtained (except for any such consents and approvals the failure of which
to obtain could not reasonably be expected to have a Material Adverse Effect)
and all applicable waiting periods shall have expired without any action being
taken by any competent authority that could restrain, prevent or impose any
materially adverse conditions on the Transaction, and no such law or regulation
shall be applicable which in the judgment of the Syndication Agent could have
any such effect.
SECTION 5.1.22. SATISFACTORY LEGAL FORM. All documents executed or
submitted pursuant hereto by or on
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behalf of either Borrower or any of its Subsidiaries or any other Obligors shall
be reasonably satisfactory in form and substance to the Agents and their
counsel; the Agents and their counsel shall have received all information,
approvals, documents or instruments as the Agents or their counsel may
reasonably request.
SECTION 5.2. ALL CREDIT EXTENSIONS. The obligation of each Lender and each
Issuer to make any Credit Extension (including the initial Credit Extension)
shall be subject to and the satisfaction of each of the conditions precedent set
forth below.
SECTION 5.2.1. COMPLIANCE WITH WARRANTIES, NO DEFAULT, ETC. Concurrently
with and immediately after giving effect to any Credit Extension, the following
statements shall be true and correct:
(a) the representations and warranties set forth in each Loan Document
shall, in each case, be true and correct with the same effect as if then
made (unless stated to relate solely to an earlier date, in which case such
representations and warranties shall be true and correct in all material
respects as of such earlier date); and
(b) no Default shall have then occurred and be continuing.
SECTION 5.2.2. CREDIT EXTENSION REQUEST, ETC. Subject to SECTION 2.3.2, the
Administrative Agent shall have received a Borrowing Request if Loans are being
requested, or an Issuance Request if a Letter of Credit is being requested or
extended. Each of the delivery of a Borrowing Request or Issuance Request and
the acceptance by the applicable Borrower of the proceeds of such Credit
Extension shall constitute a representation and warranty by such Borrower that
on the date of such Credit Extension (concurrently with and immediately after
giving effect to such Credit Extension and the application of the proceeds
thereof) the statements made in SECTION 5.2.1 are true and correct in all
material respects.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
In order to induce the Secured Parties to enter into this Agreement and to
make Credit Extensions hereunder,
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Holdings and each Borrower represents and warrants to each Secured Party as set
forth in this Article.
SECTION 6.1. ORGANIZATION, ETC. Holdings, each Borrower and each of their
respective Subsidiaries is validly organized and existing and in good standing
under the laws of the state or jurisdiction of its incorporation or
organization, is duly qualified to do business and is in good standing as a
foreign entity in each jurisdiction where the nature of its business requires
such qualification (except where the failure to be so qualified or in good
standing as a foreign entity could not reasonably be expected to have a Material
Adverse Effect), and has full power and authority and holds all requisite
governmental licenses, permits and other approvals to enter into and perform its
Obligations under each Loan Document to which it is a party and to own and hold
under lease its property and to conduct its business substantially as currently
conducted by it (except where the failure to hold any such license, permit or
other approval could not reasonably be expected to have a Material Adverse
Effect).
SECTION 6.2. DUE AUTHORIZATION, NON-CONTRAVENTION, ETC. The execution,
delivery and performance by each Borrower of each Loan Document executed or to
be executed by it, the execution, delivery and performance by each other Obligor
of each Loan Document executed or to be executed by it, such Borrower's and each
such other Obligor's participation in the consummation of all aspects of the
Transaction, and the execution, delivery and performance by such Borrower or (if
applicable) any Obligor of the agreements executed and delivered in connection
with the Transaction are in each case within each such Person's powers, have
been duly authorized by all necessary action, and do not
(a) contravene any (i) Obligor's Organic Documents, (ii) material
contractual restriction binding on any Obligor, (iii) court decree or order
binding on any Obligor or (iv) law or governmental regulation applicable to
any Obligor; or
(b) result in, or require the creation or imposition of, any Lien on
any Obligor's properties (except as permitted by this Agreement).
SECTION 6.3. GOVERNMENT APPROVAL, REGULATION, ETC. No authorization or
approval or other action by, and no notice to or filing with, any governmental
authority or regulatory body or other Person (other than those that have been,
or on
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the Closing Date will be, duly obtained or made and which are, or on the Closing
Date will be, in full force and effect) is required for the consummation of the
Transaction or the due execution, delivery or performance by Holdings, either
Borrower or any other Obligor of any Loan Document to which it is a party, or
for the due execution, delivery and/or performance of Transaction Documents, in
each case by the parties thereto or the consummation of the Transaction (except
where the failure to obtain or make any such authorization, approval, action,
notice or filing could not reasonably be expected to have a Material Adverse
Effect). None of Holdings, either Borrower or any of their respective
Subsidiaries is an "investment company" within the meaning of the Investment
Company Act of 1940, as amended, or a "holding company", or a "subsidiary
company" of a "holding company", or an "affiliate" of a "holding company" or of
a "subsidiary company" of a "holding company", within the meaning of the Public
Utility Holding Company Act of 1935, as amended.
SECTION 6.4. VALIDITY, ETC. (a) This Agreement and the Transaction
Documents to which it is a party constitute, and each other Loan Document
executed by each of Holdings and each Borrower will, on the due execution and
delivery thereof, constitute, the legal, valid and binding obligations of
Holdings and such Borrower, enforceable against Holdings and such Borrower in
accordance with their respective terms and (b) each Loan Document executed by
each other Obligor will, on the due execution and delivery thereof by such
Obligor, constitute the legal, valid and binding obligation of such Obligor
enforceable against such Obligor in accordance with its terms (except, in any
case under CLAUSE (a) or (b) above, as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally and by principles of equity).
SECTION 6.5. FINANCIAL INFORMATION.
(a) The consolidated financial statements of Holdings and each
Borrower furnished to the Agents and each Lender pursuant to SECTION
5.1.8(a)(i) have been prepared in accordance with GAAP consistently
applied, and present fairly the consolidated financial condition of the
Persons covered thereby as at the dates thereof and the results of their
operations for the periods then ended.
(b) The consolidated pro forma balance sheets furnished to the Agents
and each Lender pursuant to
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SECTION 5.1.8(a)(ii) fairly present in all material respects the pro forma
estimated financial condition of each of Holdings and each Borrower as of
such date.
(c) The Projections were prepared by Holdings in good faith on the
basis of information and assumptions that Holdings and its senior
management believed to be reasonable as of the date of the Projections and
such assumptions are reasonable as of the Closing Date.
(d) All balance sheets, all statements of operations, shareholders'
equity and cash flow and all other financial information of each of
Holdings and each Borrower and their respective Subsidiaries furnished
pursuant to SECTION 7.1.1 have been and will for periods following the
Effective Date be prepared in accordance with GAAP consistently applied,
and do or will present fairly the consolidated financial condition of the
Persons covered thereby as at the dates thereof and the results of their
operations for the periods then ended.
SECTION 6.6. NO MATERIAL ADVERSE CHANGE. There has been no material adverse
change in the business, assets, condition (financial or otherwise), operations,
performance, properties, or Projections of Holdings, the Borrowers and their
respective Subsidiaries, taken as a whole, since December 31, 1998.
SECTION 6.7. LITIGATION, LABOR CONTROVERSIES, ETC. There is no pending or,
to the knowledge of any Responsible Officer of Holdings, either Borrower or any
of their respective Subsidiaries, threatened litigation, action, proceeding or
labor controversy
(a) except as disclosed in ITEM 6.7 of the Disclosure Schedule,
affecting Holdings, such Borrower, any such Subsidiaries or any other
Obligor, or any of their respective properties, businesses, assets or
revenues, which could reasonably be expected to have a Material Adverse
Effect, and no adverse development has occurred in any labor controversy,
litigation, arbitration or governmental investigation or proceeding
disclosed in ITEM 6.7 which could reasonably be expected to have a Material
Adverse Effect; or
(b) which purports to affect the legality, validity or enforceability
of any Loan Document, the Transaction Documents or the Transaction.
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SECTION 6.8. SUBSIDIARIES. Holdings has no direct Subsidiaries other than
the Borrowers. Each Borrower has no Subsidiaries, except those Subsidiaries
(a) which are identified in ITEM 6.8 of the Disclosure Schedule; or
(b) which are permitted to have been organized or acquired in
accordance with SECTION 7.2.5 or 7.2.10.
SECTION 6.9. OWNERSHIP OF PROPERTIES. Each Borrower and each of its
Subsidiaries owns (i) in the case of owned real property, good and marketable
fee title to, and (ii) in the case of owned personal property, good and valid
title to, or, in the case of leased real or personal property, valid and
enforceable leasehold interests (as the case may be) in, all of its properties
and assets, real and personal, tangible and intangible, of any nature
whatsoever, free and clear in each case of all Liens or claims, except for Liens
permitted pursuant to SECTION 7.2.3.
SECTION 6.10. TAXES. Holdings, each Borrower and each of their respective
Subsidiaries has filed all material tax returns and reports required by law to
have been filed by it and has paid or caused to be paid all taxes and
governmental charges thereby shown to be due and owing, except (i) any such
taxes or charges which are being contested in good faith by appropriate
proceedings and for which adequate reserves in accordance with GAAP shall have
been set aside on its books or (ii) to the extent that a failure to do so could
not reasonably be expected to have a Material Adverse Effect.
SECTION 6.11. PENSION AND WELFARE PLANS. During the
twelve-consecutive-month period prior to the date of the execution and delivery
of this Agreement and prior to the date of any Credit Extension hereunder, no
steps have been taken to terminate any Pension Plan, and no contribution failure
has occurred with respect to any Pension Plan sufficient to give rise to a Lien
under Section 302(f) of ERISA. No condition exists or event or transaction has
occurred with respect to any Pension Plan which might result in the incurrence
by Holdings, either Borrower or any member of the Controlled Group of any
material liability, fine or penalty. Except as disclosed in ITEM 6.11 of the
Disclosure Schedule, none of Holdings, either Borrower or any member of the
Controlled Group has any contingent liability with respect to any
post-retirement benefit under a Welfare Plan, other than liability for
continuation coverage described in Part 6 of Title I of ERISA.
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SECTION 6.12. ENVIRONMENTAL WARRANTIES. Except as set forth in ITEM 6.12 of
the Disclosure Schedule, and except as could not be reasonably expected to have
a Material Adverse Effect:
(a) the operations of Holdings, the Borrowers and their respective
Subsidiaries are in material compliance with all Environmental Laws;
(b) there is no pending or threatened litigation, action or proceeding
against Holdings, either Borrower or any of their respective Subsidiaries
arising out of an alleged violation of any Environmental Law;
(c) there have been no Releases of Hazardous Materials at, on or under
any property now owned or leased by Holdings, either Borrower or any of
their respective Subsidiaries;
(d) Holdings, each Borrower and each of their respective Subsidiaries
have been issued and are in material compliance with all permits,
certificates, approvals, licenses and other authorizations required under
Environmental Laws for the conduct of their operations;
(e) no property now owned or leased by Holdings, either Borrower or
any of their respective Subsidiaries is listed or, to the knowledge of any
Responsible Officer of Holdings or either Borrower, proposed for listing
(with respect to owned property only), on the National Priorities List
pursuant to CERCLA, on the CERCLIS or on any similar state list of sites,
requiring investigation or clean-up;
(f) to the knowledge of any Responsible Officer of Holdings or either
Borrower, there are no underground storage tanks, active or abandoned,
including petroleum storage tanks, on or under any property now owned or
leased by Holdings, either Borrower or any of their respective Subsidiaries
that, singly or in the aggregate, have, or could reasonably be expected to
have, a Material Adverse Effect;
(g) none of Holdings, either Borrower nor any of their respective
Subsidiaries has directly transported or directly arranged for the
transportation of any Hazardous Material to any location which is listed or
proposed for listing on the National Priorities List pursuant to CERCLA, on
the CERCLIS or on any similar
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state list or which is the subject of federal, state or local enforcement
actions or other investigations which may lead to material claims against
Holdings, either Borrower or any of their respective Subsidiaries for any
remedial work, damage to natural resources or personal injury, including
claims under CERCLA; and
(h) there are no polychlorinated biphenyls, and there is no friable
asbestos present at any property now or previously owned or leased by
Holdings, either Borrower or any of their respective Subsidiaries that,
singly or in the aggregate, have, or could reasonably be expected to have,
a Material Adverse Effect.
SECTION 6.13. ACCURACY OF INFORMATION. None of the factual information
heretofore or contemporaneously furnished in writing to any Secured Party by or
on behalf of any Obligor in connection with any Loan Document or any transaction
contemplated hereby (including the Transaction) contains any untrue statement of
a material fact, or omits to state any material fact necessary to make any
information not misleading, and no other factual information hereafter furnished
in connection with any Loan Document by or on behalf of any Obligor to any
Secured Party will contain any untrue statement of a material fact or will omit
to state any material fact necessary to make any information not misleading on
the date as of which such information is dated or certified.
SECTION 6.14. REGULATIONS U AND X. No Obligor is engaged in the business of
extending credit for the purpose of purchasing or carrying margin stock, and no
proceeds of any Credit Extensions will be used to purchase or carry margin stock
or otherwise for a purpose which violates, or would be inconsistent with, F.R.S.
Board Regulation U or Regulation X. Terms for which meanings are provided in
F.R.S. Board Regulation U or Regulation X or any regulations substituted
therefor, as from time to time in effect, are used in this Section with such
meanings.
SECTION 6.15. YEAR 2000. Each Obligor has reviewed the areas within its
business and operations which could be adversely affected by, and has developed
or is developing a program to address on a timely basis, the "Year 2000 Problem"
(that is, the risk that computer applications used by such Obligor may be unable
to recognize and properly perform date-sensitive functions involving certain
dates prior to and any date after December 31, 1999). Based on such review and
program, the Year 2000 Problem could not reasonably be expected to have a
Material Adverse Effect.
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SECTION 6.16. ISSUANCE OF SUBORDINATED DEBT; STATUS OF OBLIGATIONS AS
SENIOR DEBT, ETC. Each of the Borrowers and Holdings has the power and authority
to incur the Subordinated Debt evidenced by the Subordinated Notes as provided
for under the Sub Debt Documents applicable thereto and has duly authorized,
executed and delivered the Sub Debt Documents applicable to such Subordinated
Debt. Each of the Borrowers and Holdings has issued, pursuant to due
authorization, the Subordinated Debt evidenced by the Subordinated Notes under
the applicable Sub Debt Documents, and such Sub Debt Documents constitute the
legal, valid and binding obligations of each of the Borrowers and Holdings
enforceable against it in accordance with its terms (except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally and by
principles of equity). The subordination provisions of the Subordinated Debt
contained in the Sub Debt Documents are enforceable against the holders of the
Subordinated Debt by the holder of any "Senior Debt" or similar term referring
to the Obligations (as defined in the Sub Debt Documents). All monetary
Obligations, including those to pay principal of and interest (including
post-petition interest, whether or not allowed as a claim under bankruptcy or
similar laws) on the Loans and Reimbursement Obligations, and fees and expenses
in connection therewith, constitute "Senior Debt" or similar term relating to
the monetary Obligations (as defined in the Sub Debt Documents) and all such
monetary Obligations are entitled to the benefits of the subordination created
by the Sub Debt Documents. Each of the Borrowers and Holdings acknowledges that
each Agent, each Lender and each Issuer is entering into this Agreement and is
extending its Commitments in reliance upon the subordination provisions of the
Sub Debt Documents.
SECTION 6.17. SOLVENCY. The Transaction (including, among other things,
the incurrence of the initial Credit Extension hereunder, the undertaking by
Holdings of its Obligations under ARTICLE X and the execution and delivery by
the Subsidiary Guarantors of the Subsidiary Guaranty) will not involve or
result in any fraudulent transfer or fraudulent conveyance under the
provisions of Section 548 of the Bankruptcy Code (11 U.S.C. Section 101 ET
SEQ.) or any applicable state law respecting fraudulent transfers or
fraudulent conveyances. On the Closing Date, after giving effect to the
Transaction (including, among other things, the incurrence of the initial
Credit Extension hereunder, the undertaking by Holdings of its Obligations
under ARTICLE X and the execution and delivery by the Subsidiary Guarantors
of the Subsidiary Guaranty), Holdings, each
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Borrower and each Subsidiary Guarantor is Solvent (taking into account rights of
indemnity, subrogation and contribution).
SECTION 6.18. CAPITALIZATION. On the Closing Date, after giving effect to
the Transaction,
(a) the authorized Capital Securities of Holdings consists of (i)
20,000,000 shares of common stock, $0.01 par value per share, of which
6,855,853 shares are issued outstanding, and (ii) 20,000,000 shares of
preferred stock, $0.01 par value per share, of which 3,000,000 shares
consist of Holdings Exchangeable Preferred Stock of which 3,000,000 shares
are issued and outstanding;
(b) the authorized Capital Securities of WRC consist of (i) 22,000,000
shares of common stock, $0.01 par value per share, of which 20,000,000
shares are classified as WRC Voting Common Stock of which 2,830,000 shares
are issued outstanding, and of which 1,000,000 shares are classified as WRC
Non-Voting Class A Common Stock and of which 1,000,000 shares are
classified as WRC Non-Voting Class B Common Stock, none of which are issued
and outstanding, (ii) 422,874 warrants to purchase shares of such WRC
Common Stock, and (iii) 20,000,000 shares of preferred stock, $0.01 par
value per share, of which no such shares are issued and outstanding.
(c) the authorized Capital Securities of JLC consist of (i) 20,000
shares of common stock, $0.01 par value per share, of which 10,000 shares
are issued outstanding, (ii) 1,495 warrants to purchase shares of such JLC
Common Stock and (iii) 10,000,000 shares of preferred stock, $0.01 par
value per share, of which no such shares are issued and outstanding.
(d) All outstanding shares of Capital Securities of Holdings, WRC and
JLC are owned by the persons and in the amounts set forth on ITEMS 6.18(a),
6.18(b) and 6.18(c) of the Disclosure Schedule, respectively.
(e) All of such outstanding Capital Securities of Holdings, WRC and
JLC have been duly and validly issued, are fully paid and nonassessable and
are free of preemptive rights, and all of the Capital Securities of WRC and
JLC (other than the WRC PIK Preferred Equity and the JLC PIK Preferred
Equity, if any) are and will be subject to drag-along rights available to
certain
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other holders of the common stock of WRC or JLC, as the case may be.
ARTICLE VII
COVENANTS
SECTION 7.1. AFFIRMATIVE COVENANTS. Holdings and each Borrower agrees with
each Lender, each Issuer and each Agent that until the Termination Date has
occurred, Holdings and such Borrower will, and will cause their respective
Subsidiaries to, perform or cause to be performed the obligations set forth in
this SECTION 7.1.
SECTION 7.1.1. FINANCIAL INFORMATION, REPORTS, NOTICES, ETC. Holdings and
each Borrower will furnish or cause to be furnished to the Agents (with
sufficient copies for each Lender) copies of the following financial statements,
reports, notices and information:
(a) as soon as available and in any event within 50 days after the end
of each of the first three Fiscal Quarters of each Fiscal Year, unaudited
consolidated balance sheets of each of Holdings and each Borrower as of the
end of such Fiscal Quarter and consolidated statements of income and cash
flow of each of Holdings and each Borrower for such Fiscal Quarter and for
the period commencing at the end of the previous Fiscal Year and ending
with the end of such Fiscal Quarter, and including (in each case), in
comparative form the figures for the corresponding Fiscal Quarter in, and
year to date portion of, the immediately preceding Fiscal Year and as
compared to the budget for the current Fiscal Year, certified by the chief
financial or accounting Authorized Officer of Holdings as fairly presenting
the consolidated financial condition of each of Holdings and each Borrower
and as having been prepared in accordance with GAAP consistently applied;
(b) as soon as available and in any event within 95 days after the end
of each Fiscal Year, a copy of the audited consolidated balance sheets of
Holdings and the unaudited consolidated balance sheets of each Borrower,
and the related audited consolidated statements of income and cash flow of
Holdings and the related unaudited statements of income and cash flow of
each Borrower for such Fiscal Year, setting forth, in each case, in
comparative form the figures for the immediately preceding Fiscal Year and,
in the case of such consolidated balance sheets and statements of
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income and cash flow of Holdings, audited (without any Impermissible
Qualification) by Deloitte & Touche LLP or such other independent public
accountants acceptable to the Agents, which shall state that, in performing
the examination necessary to deliver the audited financial statements of
Holdings, no knowledge was obtained of any Event of Default relating to
SECTION 7.2.4 and, in the case of such unaudited consolidated balance
sheets and statements of income and cash flow of each Borrower, certified
as complete and correct by the chief financial or accounting Authorized
Officer of Holdings;
(c) concurrently with the delivery of the financial information
pursuant to CLAUSES (a) and (b), a Compliance Certificate, executed by the
chief financial or accounting Authorized Officer of Holdings, showing
compliance with the financial covenants set forth in SECTION 7.2.4 and
stating that no Default has occurred and is continuing (or, if a Default
has occurred, specifying the details of such Default and the action that
Holdings, the Borrowers or an Obligor has taken or proposes to take with
respect thereto);
(d) as soon as available and in any event no later than the earlier to
occur of (i) 30 days after the approval thereof by the Board of Directors
of Holdings and (ii) 90 days after the first day of the Fiscal Year of
Holdings, an annual budget, prepared on a monthly basis for such Fiscal
Year containing consolidated projected financial statements (including
balance sheets and statements of operations, stockholders' equity and cash
flows) of Holdings, each of the Borrowers and their respective Subsidiaries
for such succeeding Fiscal Year and each subsequent Fiscal Year, prepared
in a manner consistent with the Projections.
(e) as soon as possible and in any event within five Business Days
after any Responsible Officer of Holdings, either Borrower or any
Subsidiary Guarantor obtains knowledge of the occurrence of a Default, a
statement of an Authorized Officer of the Borrowers setting forth details
of such Default and the action which Holdings, the Borrowers or such
Obligor has taken and proposes to take with respect thereto;
(f) as soon as possible and in any event within five Business Days
after any Responsible Officer of Holdings, either Borrower or any
Subsidiary Guarantor
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obtains knowledge of (i) the occurrence of any material adverse development
with respect to any litigation, action, proceeding or labor controversy
described in ITEM 6.7 of the Disclosure Schedule or (ii) the commencement
of any litigation, action, proceeding or labor controversy of the type and
materiality described in SECTION 6.7, notice thereof and, to the extent
either Agent reasonably requests, copies of all documentation relating
thereto;
(g) promptly after the sending or filing thereof, copies of all
reports, notices, prospectuses and registration statements which any
Obligor files with the SEC or any national securities exchange;
(h) immediately upon becoming aware of (i) the institution of any
steps by any Person to terminate any Pension Plan, (ii) the failure to make
a required contribution to any Pension Plan if such failure is sufficient
to give rise to a Lien under Section 302(f) of ERISA, (iii) the taking of
any action with respect to a Pension Plan which could result in the
requirement that any Obligor furnish a bond or other security to the PBGC
or such Pension Plan, or (iv) the occurrence of any event with respect to
any Pension Plan which could result in the incurrence by any Obligor of any
material liability, fine or penalty, notice thereof and copies of all
documentation relating thereto;
(i) promptly upon receipt thereof, copies of all "management letters"
submitted to Holdings, either Borrower or any other Obligor by the
independent public accountants referred to in CLAUSE (b) in connection with
each audit made by such accountants;
(j) promptly following the mailing or receipt of any notice or report
delivered under the terms of any Subordinated Debt, copies of such notice
or report; and
(k) such other financial and other information as any Lender or Issuer
through the Administrative Agent or either Agent may from time to time
reasonably request (including information and reports in such detail as
either Agent may request with respect to the terms of and information
provided pursuant to the Compliance Certificate).
SECTION 7.1.2. MAINTENANCE OF EXISTENCE; COMPLIANCE WITH LAWS, ETC.
Holdings and each Borrower will, and will cause each of their respective
Subsidiaries to,
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(a) except as otherwise permitted by SECTION 7.2.10, preserve and
maintain its legal existence; and
(b) comply in all material respects with all applicable laws, rules,
regulations and orders (except those the failure of which to comply with
individually or in the aggregate could not reasonably be expected to have a
Material Adverse Effect), including the payment (before the same become
delinquent), of all taxes, assessments and governmental charges imposed
upon Holdings, either Borrower or any of their respective Subsidiaries or
upon their property except to the extent being diligently contested in good
faith by appropriate proceedings and for which adequate reserves in
accordance with GAAP have been set aside on the books of Holdings, such
Borrower or any such Subsidiary, as applicable.
SECTION 7.1.3. MAINTENANCE OF PROPERTIES. Holdings and each Borrower will,
and will cause each of their respective Subsidiaries to, maintain, preserve,
protect and keep its and their respective properties in good repair, working
order and condition (ordinary wear and tear excepted), and make necessary
repairs, renewals and replacements so that the business carried on by each
Borrower and its Subsidiaries may be properly conducted at all times, unless
such Borrower or such Subsidiary determines in good faith that the continued
maintenance of such property is no longer economically desirable.
SECTION 7.1.4. INSURANCE. Holdings and each Borrower will, and will cause
each of their respective Subsidiaries to:
(a) maintain insurance on its property with financially sound and
reputable insurance companies against loss and damage in at least the
amounts (and with only those deductibles) customarily maintained, and
against such risks as are typically insured against in the same general
area, by Persons of comparable size engaged in the same or similar business
as the Borrowers and their Subsidiaries; and
(b) all worker's compensation, employer's liability insurance or
similar insurance as may be required under the laws of any state or
jurisdiction in which it may be engaged in business.
Without limiting the foregoing, all insurance policies required pursuant to this
Section shall name the
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Administrative Agent on behalf of Secured Parties as mortgagee (in the case of
property insurance) or additional insured (in the case of liability insurance),
as applicable, and provide that no cancellation or modification of the policies
will be made without thirty days' prior written notice to the Administrative
Agent.
SECTION 7.1.5. BOOKS AND RECORDS. Holdings and each Borrower will, and will
cause each of their respective Subsidiaries to, keep books and records in
accordance with GAAP which accurately reflect all of its business affairs and
transactions and permit each Agent (or any other Secured Party if a Specified
Default has occurred and is then continuing) or any of their respective
representatives, at reasonable times and intervals upon reasonable notice to the
Borrowers, to visit Holdings, either Borrowers or any other Obligor's offices,
to discuss Holdings', such Borrower's or such other Obligor's financial matters
with its officers and employees, and its independent public accountants (and
Holdings and the Borrowers hereby authorizes such independent public accountant
to discuss Holdings', the Borrowers' and each Obligor's financial matters with
each Secured Party or their representatives whether or not any representative of
Holdings, either Borrower or such Obligor is present so long as Holdings, such
Borrower or such Obligor has been afforded a reasonable opportunity to be
present) and to examine (and photocopy extracts from) any of its books and
records; PROVIDED that, in the case of a visit by a Secured Party (other than an
Agent), such visit shall be coordinated by the Administrative Agent). Unless a
Specified Event shall have occurred and be continuing at the time of any such
visit or discussion with such independent public accountants, (a) costs of
visits by each Secured Party (other than each Agent) shall be for the account of
such Secured Party and (b) costs associated with any such discussions with such
independent public accountants shall be for the account of the applicable Agent
or such other applicable Secured Party.
SECTION 7.1.6. ENVIRONMENTAL LAW COVENANT. Holdings and each Borrower will,
and will cause each of their respective Subsidiaries to,
(a) use and operate all of its and their facilities and properties in
material compliance with all Environmental Laws, keep all necessary
permits, approvals, certificates, licenses and other authorizations
required by applicable Environmental Laws in effect and remain in material
compliance therewith; and
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(b) (i) notify the Agents within ten Business Days after any
Responsible Officer of such Obligor receives any material written claim,
complaint or notice relating to the condition of its facilities and
properties relating to compliance with Environmental Laws, and (ii) take
reasonable steps to resolve any material non-compliance with Environmental
Laws and keep its property free of any Lien imposed by any Environmental
Law.
SECTION 7.1.7. USE OF PROCEEDS. The Borrowers shall
(a) apply the proceeds of the Loans
(i) in the case of the Term Loans, (A) to finance the
consummation of the Transaction, and (B) to pay the transaction fees
and expenses associated with the Transaction; PROVIDED, that the
aggregate amount of such transaction fees and expenses shall not
exceed $22,000,000; and
(ii) in the case of Revolving Loans and Swing Line Loans, for
post-closing working capital and general corporate purposes of the
Borrowers and their respective Subsidiaries; and
(b) use Letters of Credit (whether standby or direct pay) only for
purposes of supporting working capital and general corporate purposes of
the Borrowers and their Subsidiary Guarantors.
SECTION 7.1.8. FUTURE SUBSIDIARY GUARANTORS, SECURITY, ETC. Holdings and
each Borrower will, and will cause each of their respective Domestic
Subsidiaries and, subject to the qualifications provided herein, Foreign
Subsidiaries to, execute any documents, Perfection Certificates, Filing
Statements, agreements and instruments, and take all further action (including
filing Mortgages not relating to leaseholds of either Borrower or any
Subsidiary) that may be required under applicable law, or that either Agent may
reasonably request, in order to effectuate the transactions contemplated by the
Loan Documents and in order to grant, preserve, protect and perfect the
perfection and priority of the security interests created or intended to be
created by the Loan Documents. Holdings and each Borrower will cause any
subsequently acquired or organized Domestic Subsidiary of such Borrower to
promptly, but in no event later than 45 days following such acquisition or
organization, execute a Subsidiary Guaranty (or a supplement thereto) and each
applicable Loan Document (including a supplement to the
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Security and Pledge Agreement) in favor of the Secured Parties. In addition,
from time to time, Holdings and each Borrower will, at its cost and expense,
promptly secure the Obligations by pledging or creating, or causing to be
pledged or created, perfected security interests with respect to such of its
assets and properties as either Agent or the Required Lenders shall designate
(it being understood that it is the intent of the parties that the Obligations
shall be secured by, among other things, substantially all the assets of
Holdings, the Borrowers and their respective Domestic Subsidiaries) (including
real and other properties acquired subsequent to the Effective Date (PROVIDED
that it is the intent of the parties that neither of the Borrowers nor any of
their Subsidiaries shall be required to deliver any leasehold mortgages);
PROVIDED, HOWEVER, that neither Borrower nor any Subsidiary shall be required to
pledge more than 65% of the total voting power of all classes of Securities of a
first tier Foreign Subsidiary or any shares of any other Foreign Subsidiary
required to be pledged hereunder. Such security interests and Liens will be
created under the Loan Documents in form and substance satisfactory to the
Agents, and Holdings and the Borrowers shall deliver or cause to be delivered to
the Lenders all such instruments and documents (including legal opinions, title
insurance policies and lien searches) as the Agents shall reasonably request to
evidence compliance with this Section.
SECTION 7.1.9. RATE PROTECTION AGREEMENTS. Within 170 days following the
Closing Date, Holdings and the Borrowers will enter into interest rate swaps,
caps, collars or similar agreements in a notional amount equal to at least 50%
of the aggregate principal amount of the Term Loans and on such other terms as
the Agents, Holdings and the Borrowers shall mutually agree.
SECTION 7.1.10. UNDERTAKING. The applicable Borrowers and Domestic
Subsidiaries of such Borrowers will deliver to the Agents no later than 45 days
after the Closing Date instruments or documents, in appropriate form for filing
with the United States Copyright Office, sufficient to create and perfect a
security interest in the Copyright Collateral (as defined in the Security and
Pledge Agreement) owned as of the Closing Date by the Borrowers and their
Domestic Subsidiaries and identified in ITEM 7.1.10 ("COPYRIGHTS") of the
Disclosure Schedule.
SECTION 7.1.11. LEASED PROPERTY. (a) Each of Holdings and each Borrower
shall, and shall cause each of its Subsidiaries to, use its commercially
reasonable best
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efforts (which shall not require the payment of any fee to obtain any Landlord
Waiver) to deliver to the Administrative Agent no later than 30 days after the
Closing Date a Landlord Waiver executed by the lessor of any real property that
is currently leased by Holdings, such Borrower or any such Subsidiary for a term
ending subsequent to the first anniversary of the Closing Date in any state
which by statute grants such lessor a "landlord's" (or similar) Lien which is
superior to that of the Administrative Agent and to the extent any such Landlord
Waiver is not so executed and delivered, a written explanation of Holdings as to
why Holdings, such Borrower or such Subsidiary, as the case may be, was unable
to obtain such Landlord Waiver.
(b) Prior to entering into any new lease of real property or renewing any
existing lease of real property following the Closing Date, each of Holdings and
each Borrower shall, and shall cause each of its Subsidiaries to, use its
commercially reasonable best efforts to deliver to the Administrative Agent a
Landlord Waiver executed by the lessor of any real property that is to be leased
by Holdings, such Borrower or such Subsidiary for a term in excess of one year
in any state which by statute grants such lessor a "landlord's" (or similar)
Lien which is superior to that of the Administrative Agent and to the extent any
such Landlord Waiver is not so executed and delivered, a written explanation of
Holdings as to why Holdings, such Borrower or such Subsidiary, as the case may
be, was unable to obtain such Landlord Waiver.
SECTION 7.1.12. YEAR 2000. The Borrower shall continue actions reasonably
necessary to address on a timely basis the Year 2000 Problem as contemplated by
SECTION 6.15.
SECTION 7.1.13. ADDITIONAL OPINIONS. Within 45 days following the Closing
Date, the Borrowers shall have caused to be delivered to the Agents, in form and
substance satisfactory to the Agents, letters of opinion relating to the
protection of Collateral (as defined in the Security and Pledge Agreement)
located in the states set forth in ITEM 7.1.13 of the Disclosure Schedule from
local counsel reasonably satisfactory to the Agents.
SECTION 7.2. NEGATIVE COVENANTS. Holdings and each Borrower covenants and
agrees with each Lender, each Issuer and each Agent that until the Termination
Date has occurred, Holdings and such Borrower will, and will cause each of its
respective Subsidiaries to, perform or cause to be performed the obligations set
forth in this SECTION 7.2.
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SECTION 7.2.1. BUSINESS ACTIVITIES. Holdings and each Borrower will not,
and will not permit any of their respective Subsidiaries to, engage in any
business activity except those business activities engaged in on the date of
this Agreement and activities reasonably incidental or related thereto. Holdings
will not engage in any business activity other than (a) its direct ownership of
the Capital Securities of WRC and the Capital Securities of JLC and its indirect
ownership of the Capital Securities of each Subsidiary of each Borrower and (b)
its compliance with the obligations applicable to it under the Loan Documents
and the Transaction Documents. Without limiting the generality of the
immediately preceding sentence, Holdings will not (i) create, incur, assume or
suffer to exist any Indebtedness (other than Indebtedness under this Agreement
or any other Loan Document, Indebtedness permitted to be incurred by it pursuant
to SECTION 7.2.2(d) or any Subordinated Debt pursuant to CLAUSE (h) (or (m) (but
only to the extent that it refinances any Subordinated Debt incurred under
CLAUSE (h))) of SECTION 7.2.2), (ii) create, assume, or suffer to exist any Lien
upon, or grant any options or other rights with respect to, any of its revenues,
property or other assets, whether now owned or hereafter acquired (other than
pursuant to the Loan Documents), (other than any Liens permitted by SECTION
7.2.3) (iii) wind-up, liquidate or dissolve itself (or suffer to exist any of
the foregoing), or consolidate or amalgamate with or merge into or with any
other Person, or convey, sell, transfer, lease or otherwise dispose of all or
any part of its assets, in one transaction or a series of transactions, to any
Person or Persons, (iv) create, incur, assume or suffer to exist any Investment
in any Person or (v) permit to be taken any action that would result in a Change
in Control.
SECTION 7.2.2. INDEBTEDNESS. Holdings and each Borrower will not, and will
not permit any of their respective Subsidiaries to, create, incur, assume or
permit to exist any Indebtedness, other than:
(a) Indebtedness in respect of the monetary Obligations;
(b) until the Closing Date, Indebtedness that is to be repaid in full
as further identified in ITEM 7.2.2(b) of the Disclosure Schedule;
(c) Indebtedness existing as of the Effective Date which is identified
in ITEM 7.2.2(c) of the Disclosure Schedule;
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(d) unsecured Indebtedness of Holdings, the Borrowers and their
respective Subsidiaries (i) incurred in the ordinary course of business of
Holdings, such Borrower and its Subsidiaries (including open accounts
extended by suppliers on normal trade terms in connection with purchases of
goods and services which are not overdue for a period of more than 120 days
or, if overdue for more than 120 days, as to which a dispute exists and
adequate reserves in conformity with GAAP have been established on the
books of Holdings, such Borrower or such Subsidiary) and (ii) in respect of
performance, surety or appeal bonds provided in the ordinary course of
business, but excluding (in each case), Indebtedness incurred through the
borrowing of money or Contingent Liabilities in respect thereof (PROVIDED,
HOWEVER, that the amount of outstanding unsecured Indebtedness incurred by
Holdings under this CLAUSE (d) shall not at any time exceed $50,000);
(e) Indebtedness of the Borrowers and their respective Subsidiaries
(i) in respect of industrial revenue bonds or other similar governmental or
municipal bonds, (ii) evidencing the deferred purchase price of newly
acquired property or incurred to finance the acquisition, construction or
improvement of any fixed or capital assets of such Borrower and its
Subsidiaries (pursuant to purchase money mortgages or otherwise, whether
owed to the seller or a third party) used in the ordinary course of
business of such Borrower and its Subsidiaries (PROVIDED, that such
Indebtedness is incurred within 60 days of the acquisition or the
completion of such construction or improvement of such property) and (iii)
Capitalized Lease Liabilities; PROVIDED, that the aggregate amount of all
Indebtedness outstanding pursuant to this clause shall not at any time
exceed $2,000,000;
(f) Indebtedness of any Subsidiary owing to either Borrower or any
other Subsidiary, which Indebtedness
(i) shall, if payable to either Borrower or a Domestic
Subsidiary and evidenced by one or more Intercompany Notes, be
delivered in pledge to the Administrative Agent pursuant to the
Security and Pledge Agreement, and whether or not evidenced by a
note, shall not be forgiven or otherwise discharged for any
consideration other than payment in full or in part in cash
(PROVIDED, that
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only the amount repaid in part shall be discharged); and
(ii) if incurred by a Subsidiary owing to either Borrower or
a Subsidiary Guarantor, shall not (when aggregated with the
amount of Investments made by the Borrowers and the Subsidiary
Guarantors in Foreign Subsidiaries under CLAUSE (e)(i) of SECTION
7.2.5), exceed $1,000,000;
(g) unsecured Indebtedness (not evidenced by a note or other
instrument) of either Borrower owing to a Subsidiary that has previously
executed and delivered to the Agents the Interco Subordination Agreement
(or a supplement thereto);
(h) unsecured Subordinated Debt of Holdings and the Borrowers
evidenced by the Subordinated Notes incurred pursuant to the terms of
the Sub Debt Documents in a principal amount not to exceed $150,000,000,
and unsecured Contingent Liabilities of the Subsidiary Guarantors in
respect of such Subordinated Debt, but only if such Contingent
Liabilities are subordinated to the Obligations on substantially the
same terms as such Subordinated Debt of Holdings and the Borrowers is
subordinated to the Obligations;
(i) Indebtedness of a Person existing at the time such Person became a
Subsidiary of either Borrower in an aggregate amount of all such Persons
not to exceed $5,000,000, but only to the extent that such Indebtedness was
not created or incurred in contemplation of such Person becoming a
Subsidiary;
(j) Indebtedness under Hedging Obligations entered into in the
ordinary course of business to limit risks of currency or interest rate
fluctuations and not for speculative purposes;
(k) the endorsement of negotiable instruments for deposit or
collection or similar transactions in the ordinary course of business;
(l) Indebtedness consisting of guaranties of loans made to officers,
directors or employees of Holdings or any of its Subsidiaries in an
aggregate outstanding amount, when taken together with the loans
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referred to in CLAUSE (f)(iv)(B) of SECTION 7.2.5, not to exceed
$7,500,000;
(m) Indebtedness which refinances Indebtedness permitted by CLAUSES
(c), (h) and (i) above; PROVIDED, HOWEVER, that after giving effect to such
refinancing, (i) the principal amount of outstanding Indebtedness is not
increased, (ii) neither the tenor nor the average life thereof is reduced,
(iii) the respective obligor or obligors shall be the same on the
refinancing Indebtedness as on the Indebtedness being refinanced, (iv) the
security, if any, for the refinancing Indebtedness shall be the same as
that for the Indebtedness being refinanced (except to the extent that less
security is granted to holders of refinancing Indebtedness), (v) the
holders of refinancing Indebtedness are not afforded covenants, defaults,
rights or remedies more burdensome to the obligor or obligors than those
contained in the Indebtedness being refinanced and (vi) the refinancing
Indebtedness is subordinated to the same degree, if any, as the
Indebtedness being refinanced;
(n) Contingent Liabilities of Holdings and the Borrowers in respect of
Indebtedness consisting of guaranties made by Holdings and the Borrowers in
respect of Indebtedness of the Subsidiary Guarantors of the type permitted
and described in CLAUSE (d)(i) above, in an aggregate amount not to exceed
at any time outstanding $1,500,000; and
(o) other Indebtedness of the Borrowers and their respective
Subsidiaries (other than Indebtedness of Foreign Subsidiaries owing to
either Borrower or any of its Domestic Subsidiaries) in an aggregate amount
at any time outstanding not to exceed $1,000,000.
PROVIDED, HOWEVER, that no Indebtedness otherwise permitted by CLAUSES (f)(ii),
(h), (i) or (m) shall be assumed or otherwise incurred if a Specified Default
has occurred and is then continuing or would result therefrom.
SECTION 7.2.3. LIENS. Holdings and each Borrower will not, and will not
permit any of their respective Subsidiaries to, create, incur, assume or permit
to exist any Lien upon any of its property (including Capital Securities of any
Person), revenues or assets, whether now owned or hereafter acquired, except:
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(a) Liens securing payment of the monetary Obligations;
(b) until the Closing Date, Liens securing payment of Indebtedness of
the type described in CLAUSE (b) of SECTION 7.2.2;
(c) Liens existing as of the Effective Date and disclosed in ITEM
7.2.3(c) of the Disclosure Schedule securing Indebtedness described in
CLAUSE (c) of SECTION 7.2.2, and any refinancing, refunding, renewal or
extension of such Indebtedness; PROVIDED, that no such Lien shall encumber
any additional property and the amount of Indebtedness secured by such Lien
is not increased from that existing on the Effective Date (as such
Indebtedness may have been permanently reduced subsequent to the Effective
Date);
(d) Liens securing Indebtedness of the type permitted under CLAUSE (e)
of SECTION 7.2.2; PROVIDED, that (i) such Lien is granted within 90 days
after such Indebtedness is incurred, (ii) the Indebtedness secured thereby
does not exceed 80% of the cost of the applicable property, improvements or
equipment at the time of such acquisition (or construction) and (iii) such
Lien secures only the assets that are the subject of the Indebtedness
referred to in such clause;
(e) Liens securing Indebtedness permitted by CLAUSE (i) of SECTION
7.2.2; PROVIDED, that such Liens existed prior to such Person becoming a
Subsidiary, were not created in anticipation thereof and attach only to
specific tangible assets of such Person (and not assets of such Person
generally);
(f) Liens in favor of carriers, warehousemen, mechanics, materialmen
and landlords granted in the ordinary course of business for amounts not
overdue or being diligently contested in good faith by appropriate
proceedings and for which adequate reserves in accordance with GAAP shall
have been set aside on its books;
(g) Liens incurred or deposits made in the ordinary course of business
in connection with worker's compensation, unemployment insurance or other
forms of governmental insurance or benefits, or to secure performance of
tenders, statutory obligations, bids, leases or other similar obligations
(other than for borrowed money) entered into in the ordinary course of
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business or to secure obligations on surety and appeal bonds or performance
bonds;
(h) judgment Liens in existence for less than 45 days after the entry
thereof or with respect to which execution has been stayed or the payment
of which is covered in full (subject to a customary deductible) by
insurance maintained with responsible insurance companies and which do not
otherwise result in an Event of Default under SECTION 8.1.6;
(i) easements, rights-of-way, zoning restrictions, minor defects or
irregularities in title and other similar encumbrances not interfering in
any material respect with the value or use of the property to which such
Lien is attached;
(j) Liens for taxes, assessments or other governmental charges or
levies not at the time delinquent or thereafter payable without penalty or
being contested in good faith by appropriate proceedings and for which
adequate reserves in accordance with GAAP shall have been set aside on its
books;
(k) Liens (including financing statements that are filed as a
precautionary measure and undertakings to file such financing statements)
provided for in equipment leases under which either Borrower or any of
their respective Subsidiaries is the lessee; provided that any such Lien in
respect of any equipment lease is limited to the equipment being leased
under such lease and the proceeds thereof;
(l) leases, subleases, licenses and sublicenses granted to third
parties in the ordinary course of business, in each case not interfering in
any respect with the operations or business of any Borrower or any of its
Subsidiaries or the Liens of the Administrative Agent or the Lenders
granted by the Loan Documents;
(m) banker's liens and rights of offset of the holders of Indebtedness
of the Borrowers or their respective Subsidiaries on monies deposited by
either Borrower or any such Subsidiary with such holders of Indebtedness in
the ordinary course of business of either Borrower or any such Subsidiary;
and
(n) other Liens that do not, individually or in the aggregate, attach
to a material portion of the
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assets of the Borrowers or any Subsidiary or the Capital Securities of
either Borrower or any of their respective Subsidiaries and do not secure
obligations in an aggregate amount in excess of $2,000,000.
SECTION 7.2.4. FINANCIAL CONDITION AND OPERATIONS. Holdings and each
Borrower will not permit to occur any of the events set forth below.
(a) Holdings and each Borrower will not permit the Leverage Ratio
as of the last day of any Fiscal Quarter occurring during any period set
forth below to be greater than the ratio set forth opposite such period:
<TABLE>
<CAPTION>
Period Leverage Ratio
------ --------------
<S> <C>
Effective Date to 6.35:1.0
09/30/00
10/01/00 to 09/30/01 5.85:1.0
10/01/01 to 09/30/02 5.35:1.0
10/01/02 to 09/30/03 4.75:1.0
10/01/03 and 4.00:1.0.
thereafter
</TABLE>
(b) Holdings and each Borrower will not permit the Fixed Charge
Coverage Ratio as of the last day of any Fiscal Quarter occurring during
any period set forth below to be less than the ratio set forth opposite
such period:
<TABLE>
<CAPTION>
Fixed Charge
Period Coverage Ratio
------ --------------
<S> <C>
Effective Date to 1.05:1.0
06/30/01
07/01/01 to 06/30/02 1.10:1.0
07/01/02 to 12/31/03 1.25:1.0
01/01/04 and 1.50:1.0.
thereafter
</TABLE>
SECTION 7.2.5. INVESTMENTS. Holdings and each Borrower will not, and will
not permit any of their respective Subsidiaries to, purchase, make, incur,
assume or permit to exist any Investment in any other Person, except:
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(a) Investments existing on the Effective Date and identified in ITEM
7.2.5(a) of the Disclosure Schedule;
(b) Cash Equivalent Investments;
(c) Investments received in connection with the bankruptcy or
reorganization of, or settlement of delinquent accounts and disputes with,
customers and suppliers, in each case in the ordinary course of business;
(d) Investments made by the Borrowers and their respective
Subsidiaries that are permitted as Capital Expenditures pursuant to SECTION
7.2.7;
(e) Investments by way of contributions to capital or purchases of
Capital Securities (i) by either Borrower in any Subsidiaries or by any
Subsidiary in other Subsidiaries; PROVIDED, that the aggregate amount of
intercompany loans made pursuant to CLAUSE (f)(ii) of SECTION 7.2.2 and
Investments under this clause made by the Borrowers and Subsidiary
Guarantors in Subsidiaries that are not Subsidiary Guarantors shall not
exceed $1,000,000 at any time, or (ii) by any Subsidiary in either
Borrower;
(f) Investments made by the Borrowers and their respective
Subsidiaries that constitute (i) accounts receivable arising, (ii) trade
debt granted, or (iii) deposits made in connection with the purchase price
of goods or services, in each case in the ordinary course of business or
(iv) loans to officers, directors or employees of Holdings or any of its
Subsidiaries (a) to finance the acquisition of Capital Securities (or
securities linked to such securities) of Holdings so long as Holdings makes
a capital contribution of such proceeds to the Borrowers, or (b) in the
ordinary course of business for items such as travel, entertainment and
relocation expenses in an aggregate outstanding principal amount, when
taken together with the amount of guaranties referred to in CLAUSE (l) of
SECTION 7.2.2, not exceeding $7,500,000;
(g) Investments made by the Borrowers and their respective
Subsidiaries constituting Permitted Acquisitions in an aggregate amount not
to exceed $5,000,000 over the term of this Agreement; PROVIDED, that (i) if
any such Investment shall result in the acquisition of a wholly owned
Subsidiary, and (ii) upon
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making such Investment, the provisions of SECTION 7.1.8 are complied with;
(h) Investments consisting of any deferred portion of the sales price
received by either Borrower or any Subsidiary in connection with any
Disposition permitted under SECTION 7.2.11; and
(i) other Investments made by the Borrowers and their respective
Subsidiaries in an amount not to exceed $1,000,000 over the term of this
Agreement;
PROVIDED, HOWEVER, that
(j) any Investment which when made complies with the requirements of
CLAUSES (a), (b) or (c) of the definition of the term "Cash Equivalent
Investment" may continue to be held notwithstanding that such Investment if
made thereafter would not comply with such requirements; and
(k) no Investment otherwise permitted by CLAUSE (g) shall be permitted
to be made if any Specified Default has occurred and is continuing or would
result therefrom.
SECTION 7.2.6. RESTRICTED PAYMENTS, ETC. Holdings and each Borrower will
not, and will not permit any of their respective Subsidiaries to, declare or
make a Restricted Payment, or make any deposit for any Restricted Payment, other
than
(a) Restricted Payments made by Subsidiaries to the Borrowers or
wholly owned Subsidiaries of either Borrower;
(b) Restricted Payments made by the Borrowers and the Subsidiaries, as
applicable, to Holdings in accordance with the Tax Sharing Agreement, but
in aggregate amounts no greater than, and limited to the amount necessary
to enable Holdings to make payments in cash in respect of the aggregate
federal income tax liability then due of the "affiliated group" (within the
meaning of Section 1504(a)(1) of the Code) of which Holdings is the common
parent corporation; PROVIDED, HOWEVER, that any payment required to be made
by any Borrower or Subsidiary to Holdings in accordance with the Tax
Sharing Agreement that otherwise would be prohibited pursuant to the
preceding limitation may be paid directly to another Borrower or
Subsidiary, as
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applicable, to the extent that Holdings would have been required to make a
payment to such other Borrower or Subsidiary in accordance with the Tax
Sharing Agreement.
(c) Restricted Payments made by the Borrowers to Holdings solely to
the extent necessary to enable Holdings to pay Management Fees in an
aggregate amount of up to $1,000,000 in any Fiscal Year thereafter;
(d) Restricted Payments made by the Borrowers to Holdings solely to
the extent necessary to enable Holdings to pay for general administrative
and operating expenses of Holdings;
(e) Restricted Payments made by the Borrowers to Holdings solely to
the extent necessary to enable Holdings to repurchase, redeem or otherwise
acquire or retire for value any Capital Securities of Holdings, or any
warrant, option or other right to acquire Capital Securities of Holdings,
held by any member of management or employee of Holdings or any of its
Subsidiaries pursuant to any management equity subscription agreement or
stock option agreement as a result of the cessation of the employment such
Person (by death, disability or otherwise) in an aggregate amount of up to
$1,000,000 in the 1999 Fiscal Year and $5,000,000 in each Fiscal Year
thereafter;
(f) (i) Restricted Payments made by the Borrowers to Holdings
(including Restricted Payments made by WRC on the WRC Mirror PIK Preferred
Equity) on or subsequent to the fifth anniversary of the Closing Date
solely to the extent necessary to enable Holdings to make scheduled
payments of dividends on the PIK Preferred Equity and Holdings does in fact
make such scheduled payments thereon and (ii) Restricted Payments made by
JLC and WRC on or subsequent to the fifth anniversary of the Closing Date
to make scheduled payments of dividends on the JLC PIK Preferred Equity and
the WRC PIK Preferred Equity (other than any such Capital Securities held
by Holdings), respectively; PROVIDED, that such Restricted Payments may
only occur so long as, in each case, the conditions set forth in the
proviso to this Section are satisfied and at the time of such payments and
after giving effect to the making of each such Restricted Payment, the
Leverage Ratio for the most recently ended Fiscal Quarter for which a
Compliance Certificate was delivered by Holdings to the Agents pursuant to
CLAUSE (c) of
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SECTION 7.1.1 as calculated on a PRO FORMA basis shall be less than
3.00:1.0; and
(g) following the making of any mandatory prepayment required under
CLAUSE (h) of SECTION 3.1.1 in respect of Net Equity Proceeds, (i)
Restricted Payments made by the Borrowers to Holdings solely to the extent
necessary to enable Holdings to redeem shares of the PIK Preferred Equity
(other than any such Capital Securities held by Holdings or WRC) or (ii)
Restricted Payments made by JLC and WRC to redeem shares of the JLC PIK
Preferred Equity and the WRC PIK Preferred Equity (other than any such
Capital Securities held by Holdings), respectively, in each case, using
such Net Equity Proceeds remaining following such mandatory prepayment in
an amount not to exceed the excess of (x) the amount of Net Equity Proceeds
remaining from such mandatory prepayment over (y) the amount of any such
Net Equity Proceeds used to redeem any Subordinated Notes pursuant to
SECTION 7.2.8; PROVIDED, that such Restricted Payments may only occur so
long as the conditions set forth in the proviso to this Section are
satisfied and at the time of such payments and after giving effect to the
making of each such Restricted Payment, the Leverage Ratio for the most
recently ended Fiscal Quarter for which a Compliance Certificate was
delivered by Holdings to the Agents pursuant to CLAUSE (c) of SECTION 7.1.1
as calculated on a PRO FORMA basis shall be less than 4.25:1.0;
PROVIDED, HOWEVER, that no Restricted Payments under CLAUSE (c), (e), (f) or (g)
may be made if (a) any Specified Default shall have occurred and be continuing
on the date such Restricted Payment is declared or made, or a Specified Default
would result from the making of any such Restricted Payment and (b) after giving
effect to the making of each such Restricted Payment, the Borrower would not be
in PRO FORMA compliance with the covenants set forth in SECTION 7.2.4 for the
most recently ended Fiscal Quarter for which a Compliance Certificate was
delivered by Holdings to the Agents pursuant to CLAUSE (c) of SECTION 7.2.2;
SECTION 7.2.7. CAPITAL EXPENDITURES, ETC. Subject (in the case of
Capitalized Lease Liabilities), to CLAUSE (e) of SECTION 7.2.2, Holdings and
each Borrower will not, and will not permit any of their respective Subsidiaries
to, make or commit to make Capital Expenditures other than Capital Expenditures
made or committed to be made by the Borrowers and their respective Subsidiaries
in any Fiscal Year (or, in
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the case of the 1999 Fiscal Year, during the period from and including the
Closing Date through the end of such Fiscal Year) which in the aggregate do not
exceed the amount set forth below opposite such Fiscal Year:
<TABLE>
<CAPTION>
Capital
Fiscal Year Expenditure Amount
----------- ------------------
<S> <C>
1999 $2,000,000
2000 $13,000,000
2001 $15,000,000
2002 $17,000,000
2003 $18,000,000;
2004 and each $20,000,000
Fiscal Year
thereafter
</TABLE>
PROVIDED, HOWEVER, that (i) to the extent the amount of Capital Expenditures
permitted to be made in any Fiscal Year pursuant to this Section without giving
effect to this proviso (the "BASE AMOUNT") exceeds the aggregate amount of
Capital Expenditures actually made during such Fiscal Year, such excess amount
may be carried forward to (but only to) the next succeeding Fiscal Year (any
such amount to be certified by Holdings to the Administrative Agent in the
Compliance Certificate delivered for the last Fiscal Quarter of such Fiscal
Year, and any such amount carried forward to a succeeding Fiscal Year shall be
deemed to be used prior to Holdings and its Subsidiaries using the Base Amount
for such succeeding Fiscal Year, without giving effect to such carryforward).
SECTION 7.2.8. NO PREPAYMENT OF SUBORDINATED DEBT. Holdings and each
Borrower will not, and will not permit any of their respective Subsidiaries to,
(a)make any payment or prepayment of principal of, or premium or
interest on, any Subordinated Debt (i) other than payments of interest on
the stated, scheduled date for payment of interest set forth in the
applicable Sub Debt Documents or (ii) which would violate the terms of this
Agreement or the applicable Sub Debt Documents;
(b) redeem, retire, purchase, defease or otherwise acquire any
Subordinated Debt (including, in
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the case of each Borrower and each of their respective Subsidiaries, by way
of issuing notes evidencing Subordinated Debt in exchange for Subordinated
Notes of Holdings); PROVIDED, HOWEVER, that following the making of any
mandatory prepayment required under CLAUSE (h) of SECTION 3.1.1 in respect
of Net Equity Proceeds and so long as no Specified Default shall have
occurred and be continuing on the date such redemption, retirement,
purchase, defeasance or other acquisition is declared or made, or a
Specified Default would result from the consummation thereof, Holdings and
the Borrowers may redeem, retire, purchase, defease or otherwise acquire up
to 35% of the Subordinated Notes using such Net Equity Proceeds remaining
following such mandatory prepayment in an amount not to exceed the excess
of (x) the amount Net Equity Proceeds remaining from such mandatory
prepayment over (y) the amount of any such Net Equity Proceeds used to
redeem any PIK Preferred Equity and cancel the warrants issued in
connection therewith pursuant to CLAUSE (g) of SECTION 7.2.6; or
(c) make any deposit (including the payment of amounts into a sinking
fund or other similar fund) for any of the foregoing purposes;
SECTION 7.2.9. CAPITAL SECURITIES. Holdings will not permit either
Borrower, and each Borrower will not, and will not permit any of their
respective Subsidiaries to,
(i) issue any Capital Securities (whether for value or otherwise) to
any Person other than (in the case of Subsidiaries) either Borrower or
another wholly owned Subsidiary thereof or
(ii) become liable in respect of any obligation (contingent or
otherwise) to purchase, redeem, retire, acquire or make any other payment
in respect of any Capital Securities of Holdings, either Borrower or any
Subsidiary or any option, warrant or other right to acquire any such
Capital Securities,
in each case, other than (A) in connection with any Permitted Equity Exchange of
the types described in clauses (i), (ii), (iii), (v)(A) or (vi) of the
definition thereof (PROVIDED, HOWEVER, (1) in the case of such clauses (ii) and
(v)(A), Holdings makes capital contributions of all of the Capital Securities
received by it in connection with each such exchange to WRC and WRC
contemporaneously with the receipt thereof pledges and delivers such Capital
Securities to the Administrative Agent, together with stocks powers
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duly executed in blank, all in accordance with the terms of the Security and
Pledge Agreement and (2) in the case of such clause (vi), Holdings
contemporaneously with the receipt of Capital Securities of WRC and/or JLC in
connection with such Permitted Equity Exchange pledges and delivers such Capital
Securities to the Administrative Agent, together with stocks powers duly
executed in blank, all in accordance with the terms of the Security and Pledge
Agreement) and (B) the issuance by Holdings or WRC of common stock in connection
with a Public Offering. Notwithstanding anything to the contrary herein, the
aggregate liquidation preference of all shares of Capital Securities (excluding
any common equity and the WRC Mirror PIK Preferred but including the PIK
Preferred Equity, the WRC PIK Preferred Equity, if any, and the JLC PIK
Preferred Equity, if any) held by persons other than Holdings or any of its
Subsidiaries shall not exceed the sum of (x) $75,000,000, (y) any accrued but
unpaid dividends on the PIK Preferred Equity and (z) the aggregate liquidation
preference of additional PIK Preferred Equity issued in lieu of cash dividends
on the PIK Preferred Equity.
SECTION 7.2.10. CONSOLIDATION, MERGER, ETC. Holdings and each Borrower will
not, and will not permit any of their respective Subsidiaries to, liquidate or
dissolve, consolidate with, or merge into or with, any other Person, or purchase
or otherwise acquire all or substantially all of the assets of any Person (or
any division thereof), except
(a) any Subsidiary may liquidate or dissolve voluntarily into, and may
merge with and into, either Borrower or any other Subsidiary (PROVIDED,
HOWEVER, that a Subsidiary Guarantor may only liquidate or dissolve into,
or merge with and into, either Borrower or another Subsidiary Guarantor),
and the assets or Capital Securities of any Subsidiary may be purchased or
otherwise acquired by either Borrower or any other Subsidiary (PROVIDED,
HOWEVER, that the assets or Capital Securities of any Subsidiary Guarantor
may only be purchased or otherwise acquired by either Borrower or another
Subsidiary Guarantor); PROVIDED, FURTHER, that in no event shall any
Pledged Subsidiary consolidate with or merge with and into any Subsidiary
other than another Pledged Subsidiary unless after giving effect thereto,
the Administrative Agent shall have a perfected pledge of, and security
interest in and to, at least the same percentage of the issued and
outstanding interests of Capital Securities (on a fully diluted basis) of
the surviving Person as the Administrative Agent had immediately prior to
such merger or consolidation in form and substance
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satisfactory to the Administrative Agent and its counsel, pursuant to such
documentation and opinions as shall be necessary in the opinion of the
Administrative Agent to create, perfect or maintain the collateral position
of the Secured Parties therein;
(b) a Borrower may merge with or into the other Borrower;
(c) so long as no Specified Default has occurred and is continuing or
would occur after giving effect thereto, either Borrower or any of its
Subsidiaries may (to the extent permitted by CLAUSE (g) of SECTION 7.2.5)
purchase all or substantially all of the assets or Capital Securities of
any Person (or any division thereof), or acquire such Person by merger (it
being understood that the foregoing shall not prohibit consummation of any
transaction committed to in a definitive agreement that was entered into
prior to the occurrence of any such Specified Default); and
(d) any transaction permitted under SECTION 11.12.
SECTION 7.2.11. PERMITTED DISPOSITIONS. Holdings and each Borrower will
not, and will not permit any of their respective Subsidiaries to, Dispose of
Holdings', any of such Borrower's or such Subsidiaries' assets (including
accounts receivable and Capital Securities of Subsidiaries) to any Person in one
transaction or series of transactions unless such Disposition is a Permitted
Asset Disposition or is permitted under SECTION 11.12.
SECTION 7.2.12. MODIFICATION OF CERTAIN AGREEMENTS. Holdings and each
Borrower will not, and will not permit any of their respective Subsidiaries to,
consent to any amendment, supplement, waiver or other modification of, or enter
into any forbearance from exercising any rights with respect to the terms or
provisions contained in,
(a) the Sub Debt Documents, other than any amendment, supplement,
waiver or modification for which no (or only a nominal) fee is payable to
the holders of the Subordinated Debt and which (i) extends the date or
reduces the amount of any required repayment, prepayment or redemption of
the principal of such Subordinated Debt, (ii) reduces the rate or extends
the date for payment of the interest, premium (if any) or fees payable on
such Subordinated Debt or (iii) makes the covenants, events of default or
remedies in such Sub Debt Documents less restrictive on such Borrower; or
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(b)any of the Transaction Documents.
SECTION 7.2.13. TRANSACTIONS WITH AFFILIATES. Except (a) as permitted under
CLAUSE (d), (e) or (f)(iv) of SECTION 7.2.5, SECTION 7.2.6, or CLAUSE (a) or (b)
of SECTION 7.2.10, (b) payments made by Holdings, the Borrowers and their
respective Subsidiaries in accordance with the Tax Sharing Agreement and (c) for
Permitted Asset Dispositions of the type described in clause (g) of the
definition thereof, Holdings and each Borrower will not, and will not permit any
of their respective Subsidiaries to, enter into or cause or permit to exist any
arrangement, transaction or contract (including for the purchase, lease or
exchange of property or the rendering of services) with any of its other
Affiliates, unless such arrangement, transaction or contract (i) is on fair and
reasonable terms no less favorable to such Borrower or such Subsidiary than it
could obtain in an arm's-length transaction with a Person that is not an
Affiliate and (ii) is of the kind which would be entered into by a prudent
Person in the position of such Borrower or such Subsidiary with a Person that is
not one of its Affiliates.
SECTION 7.2.14. RESTRICTIVE AGREEMENTS, ETC. Holdings and each Borrower
will not, and will not permit any of their respective Subsidiaries to, enter
into any agreement prohibiting
(a) the creation or assumption of any Lien upon its properties,
revenues or assets, whether now owned or hereafter acquired;
(b) the ability of any Obligor to amend or otherwise modify any Loan
Document; or
(c) the ability of any Subsidiary to make any payments, directly or
indirectly, to either Borrower, including by way of dividends, advances,
repayments of loans, reimbursements of management and other intercompany
charges, expenses and accruals or other returns on investments.
The foregoing prohibitions shall not apply to restrictions contained (i) in any
Loan Document, (ii) in the case of CLAUSE (a), any agreement governing any
Indebtedness permitted by CLAUSE (e) of SECTION 7.2.2 as to the assets financed
with the proceeds of such Indebtedness, or (iii) in the case of CLAUSES (a) and
(c), any agreement of a Foreign Subsidiary governing the Indebtedness permitted
by CLAUSE (f)(ii) of SECTION 7.2.2.
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SECTION 7.2.15. SALE AND LEASEBACK. Holdings and each Borrower will not,
and will not permit any of their respective Subsidiaries to, directly or
indirectly enter into any agreement or arrangement providing for the sale or
transfer by it of any property (now owned or hereafter acquired) to a Person and
the subsequent lease or rental of such property or other similar property from
such Person.
SECTION 7.2.16. DESIGNATION OF SENIOR DEBT. None of Holdings or either
Borrower will permit any Indebtedness (other than the Indebtedness incurred
hereunder or under any other Loan Document) to constitute "Designated Senior
Debt" (or any other similar term) under the Subordinated Debt Documents, without
the consent of the Required Lenders.
ARTICLE VIII
EVENTS OF DEFAULT
SECTION 8.1. LISTING OF EVENTS OF DEFAULT. Each of the following events or
occurrences described in this Article shall constitute an "EVENT OF DEFAULT".
SECTION 8.1.1. NON-PAYMENT OF OBLIGATIONS. Either Borrower shall default in
the payment or prepayment when due of
(a) any principal of any Loan, or any Reimbursement Obligation or any
deposit of cash for collateral purposes pursuant to SECTION 2.6.4; or
(b) interest on any Loan or Reimbursement Obligation, any fee
described in ARTICLE III or any other monetary Obligation, and such default
shall continue unremedied for a period of five Business Days after such
amount was due.
SECTION 8.1.2. BREACH OF WARRANTY. Any representation or warranty of any
Obligor made or deemed to be made in any Loan Document (including any
certificates delivered pursuant to ARTICLE V) is or shall be incorrect when made
or deemed to have been made in any material respect.
SECTION 8.1.3. NON-PERFORMANCE OF CERTAIN COVENANTS AND OBLIGATIONS.
Holdings or either Borrower shall default in the due performance or observance
of any of its obligations under SECTION 7.1.1, 7.1.7, 7.1.10 or 7.2.
SECTION 8.1.4. NON-PERFORMANCE OF OTHER COVENANTS AND OBLIGATIONS. Any
Obligor shall default in the due
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performance and observance of any other agreement contained in any Loan Document
executed by it, and such default shall continue unremedied for a period of 30
days after notice thereof shall have been given to the Borrowers by either
Agent.
SECTION 8.1.5. DEFAULT ON OTHER INDEBTEDNESS. A default shall occur in the
payment of any amount when due (subject to any applicable grace period), whether
by acceleration or otherwise, of any principal or stated amount of, or interest
or fees on, any Indebtedness (other than Indebtedness described in SECTION
8.1.1) of Holdings, either Borrower or any of their respective Subsidiaries or
any other Obligor having a principal or stated amount, individually or in the
aggregate, in excess of $5,000,000, or a default shall occur in the performance
or observance of any obligation or condition with respect to such Indebtedness
if the effect of such default is to accelerate the maturity of any such
Indebtedness or such default shall continue unremedied for any applicable period
of time sufficient to permit the holder or holders of such Indebtedness, or any
trustee or agent for such holders, to cause or declare such Indebtedness to
become due and payable or to require such Indebtedness to be prepaid, redeemed,
purchased or defeased, or require an offer to purchase or defease such
Indebtedness to be made, prior to its expressed maturity.
SECTION 8.1.6. JUDGMENTS. Any judgment or order for the payment of money
individually or in the aggregate in excess of $5,000,000 (exclusive of any
amounts fully covered by insurance (less any applicable deductible) and as to
which the insurer has acknowledged its responsibility to cover such judgment or
order) shall be rendered against Holdings, either Borrower or any of their
respective Subsidiaries or any other Obligor and such judgment shall not have
been vacated or discharged or stayed or bonded pending appeal within 30 days
after the entry thereof or enforcement proceedings shall have been commenced by
any creditor upon such judgment or order.
SECTION 8.1.7. PENSION PLANS. Any of the following events shall occur with
respect to any Pension Plan
(a) the institution of any steps by either Borrower, any member of its
Controlled Group or any other Person to terminate a Pension Plan if, as a
result of such termination, such Borrower or any such member could be
required to make a contribution to such Pension Plan, or could reasonably
expect to incur a
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liability or obligation to such Pension Plan, in excess of $1,000,000; or
(b) a contribution failure occurs with respect to any Pension Plan
sufficient to give rise to a Lien under section 302(f) of ERISA.
SECTION 8.1.8. CHANGE IN CONTROL. Any Change in Control shall occur.
SECTION 8.1.9. BANKRUPTCY, INSOLVENCY, ETC. Holdings, either Borrower, any
of their respective Subsidiaries or any other Obligor shall
(a) become insolvent or generally fail to pay, or admit in writing its
inability or unwillingness generally to pay, debts as they become due;
(b) apply for, consent to, or acquiesce in the appointment of a
trustee, receiver, sequestrator or other custodian for any substantial part
of the property of any thereof, or make a general assignment for the
benefit of creditors;
(c) in the absence of such application, consent or acquiescence,
permit or suffer to exist the appointment of a trustee, receiver,
sequestrator or other custodian for a substantial part of the property of
any thereof, and such trustee, receiver, sequestrator or other custodian
shall not be discharged within 60 days; PROVIDED, that Holdings, each
Borrower, each Subsidiary and each other Obligor hereby expressly
authorizes each Secured Party to appear in any court conducting any
relevant proceeding during such 60-day period to preserve, protect and
defend their rights under the Loan Documents;
(d) permit or suffer to exist the commencement of any bankruptcy,
reorganization, debt arrangement or other case or proceeding under any
bankruptcy or insolvency law or any dissolution, winding up or liquidation
proceeding, in respect thereof, and, if any such case or proceeding is not
commenced by Holdings, either Borrower, any Subsidiary or any Obligor, such
case or proceeding shall be consented to or acquiesced in by Holdings, such
Borrower, such Subsidiary or such Obligor, as the case may be, or shall
result in the entry of an order for relief or shall remain for 60 days
undismissed; PROVIDED, that Holdings, each Borrower, each Subsidiary and
each Obligor hereby
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expressly authorizes each Secured Party to appear in any court conducting
any such case or proceeding during such 60-day period to preserve, protect
and defend their rights under the Loan Documents; or
(e) take any action authorizing, or in furtherance of, any of the
foregoing.
SECTION 8.1.10. IMPAIRMENT OF SECURITY, ETC. Any Loan Document or any Lien
granted thereunder shall (except in accordance with its terms), in whole or in
part, terminate, cease to be effective or cease to be the legally valid, binding
and enforceable obligation of any Obligor party thereto; any Obligor shall,
directly or indirectly, contest in any manner such effectiveness, validity,
binding nature or enforceability; or, except as permitted under any Loan
Document, any Lien securing any Obligation shall, in whole or in part, cease to
be a perfected first priority Lien (subject only to Liens permitted by SECTION
7.2.3).
SECTION 8.1.11. FAILURE OF SUBORDINATION. Unless otherwise waived or
consented to by the Agents, each Lender and the Issuers in writing, the
subordination provisions relating to any Subordinated Debt (the "SUBORDINATION
PROVISIONS") shall fail to be enforceable by the Agents, the Lenders and the
Issuers in accordance with the terms thereof, or the monetary Obligations shall
fail to constitute "Senior Debt" (or similar term) referring to the Obligations;
or Holdings, either Borrower or any of their respective Subsidiaries shall,
directly or indirectly, disavow or contest in any manner (i) the effectiveness,
validity or enforceability of any of the Subordination Provisions, (ii) that the
Subordination Provisions exist for the benefit of the Agents, the Lenders and
the Issuers or (iii) that all payments of principal of or premium and interest
on the Subordinated Debt, or realized from the liquidation of any property of
any Obligor, shall be subject to any of such Subordination Provisions.
SECTION 8.2. ACTION IF BANKRUPTCY. If any Event of Default described in
CLAUSES (a) through (d) of SECTION 8.1.9 shall occur, the Commitments (if not
theretofore terminated) shall automatically terminate and the outstanding
principal amount of all outstanding Loans and all other monetary Obligations
(including Reimbursement Obligations) shall automatically be and become
immediately due and payable jointly and
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severally by the Borrowers, without notice or demand to any Person and each
Borrower shall automatically and immediately be obligated jointly and severally
to Cash Collateralize all Letter of Credit Outstandings.
SECTION 8.3. ACTION IF OTHER EVENT OF DEFAULT. If any Event of Default
(other than any Event of Default described in CLAUSES (a) through (d) of SECTION
8.1.9) shall occur for any reason, whether voluntary or involuntary, and be
continuing, the Administrative Agent, upon the direction of the Required
Lenders, shall by notice to the Borrowers declare all or any portion of the
outstanding principal amount of the Loans and other monetary Obligations
(including Reimbursement Obligations) to be due and payable jointly and
severally by the Borrowers and/or the Commitments (if not theretofore
terminated) to be terminated, whereupon the full unpaid amount of such Loans and
other monetary Obligations which shall be so declared due and payable shall be
and become immediately due and payable, without further notice, demand or
presentment, and/or, as the case may be, the Commitments shall terminate and the
Borrowers shall automatically and immediately be obligated jointly and severally
to Cash Collateralize all Letter of Credit Outstandings.
ARTICLE IX
THE ADMINISTRATIVE AGENT
SECTION 9.1. ACTIONS. Each Lender hereby appoints DLJ as its Syndication
Agent and BofA as its Administrative Agent under and for purposes of each Loan
Document. Each Lender authorizes each Agent to act on behalf of such Lender
under each Loan Document and, in the absence of other written instructions from
the Required Lenders received from time to time by the Agents (with respect to
which each Agent agrees that it will comply, except as otherwise provided in
this Section or as otherwise advised by counsel in order to avoid contravention
of applicable law), to exercise such powers hereunder and thereunder as are
specifically delegated to or required of such Agent by the terms hereof and
thereof, together with such powers as may be reasonably incidental thereto. Each
Lender hereby indemnifies (which indemnity shall survive any termination of this
Agreement) each Agent, PRO RATA according to such Lender's proportionate Total
Exposure Amount, from and against any and all liabilities, obligations, losses,
damages, claims, costs or expenses of any kind or nature whatsoever which may at
any time be imposed on, incurred by, or asserted against, such Agent in any way
relating to or arising out of any Loan Document, including reasonable attorneys'
fees, to the extent the same shall not have been reimbursed by the
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Borrowers; PROVIDED, HOWEVER, that no Lender shall be liable for the payment of
any portion of such liabilities, obligations, losses, damages, claims, costs or
expenses which are determined by a court of competent jurisdiction in a final
proceeding to have resulted from such Agent's gross negligence or wilful
misconduct. Neither Agent shall be required to take any action under any Loan
Document, or to prosecute or defend any suit in respect of any Loan Document,
unless it is indemnified hereunder to its satisfaction. If any indemnity in
favor of either Agent shall be or become, in such Agent's determination,
inadequate, such Agent may call for additional indemnification from the Lenders
and cease to do the acts indemnified against hereunder until such additional
indemnity is given.
SECTION 9.2. FUNDING RELIANCE, ETC. Unless the Administrative Agent shall
have been notified in writing by any Lender by 3:00 p.m. on the Business Day
prior to a Borrowing that such Lender will not make available the amount which
would constitute its Percentage of such Borrowing on the date specified
therefor, the Administrative Agent may assume that such Lender has made such
amount available to the Administrative Agent and, in reliance upon such
assumption, make available to the applicable Borrower a corresponding amount. If
and to the extent that such Lender shall not have made such amount available to
the Administrative Agent, such Lender and the Borrowers severally agree (and the
Borrowers as among themselves jointly and severally agree) to repay the
Administrative Agent forthwith on demand such corresponding amount together with
interest thereon, for each day from the date the Administrative Agent made such
amount available to the applicable Borrower to the date such amount is repaid to
the Administrative Agent, at the interest rate applicable at the time to Loans
comprising such Borrowing (in the case of either Borrower) and (in the case of a
Lender), at the Federal Funds Rate (for the first two Business Days after which
such amount has not been repaid, and thereafter at the interest rate applicable
to Loans comprising such Borrowing).
SECTION 9.3. EXCULPATION. Neither Agent nor any of its respective
directors, officers, employees or agents shall be liable to any Lender for any
action taken or omitted to be taken by it under any Loan Document, or in
connection herewith or therewith, except for its own wilful misconduct or gross
negligence, nor responsible for any recitals or warranties herein or therein,
nor for the effectiveness, enforceability, validity or due execution
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of any Loan Document, nor for the creation, perfection or priority of any Liens
purported to be created by any of the Loan Documents, or the validity,
genuineness, enforceability, existence, value or sufficiency of any collateral
security, nor to make any inquiry respecting the performance by any Obligor or
the Seller of its Obligations. Any such inquiry which may be made by either
Agent shall not obligate it to make any further inquiry or to take any action.
The Administrative Agent shall be entitled to rely upon advice of counsel
concerning legal matters and upon any notice, consent, certificate, statement or
writing which the Administrative Agent believes to be genuine and to have been
presented by a proper Person.
SECTION 9.4. SUCCESSOR. The Syndication Agent may resign as such upon one
Business Day's notice to the Borrowers and the Administrative Agent. The
Administrative Agent may resign as such at any time upon at least 30 days' prior
notice to the Borrowers and all Lenders. If the Administrative Agent at any time
shall resign, the Required Lenders, with the prior consent of Holdings (which
consent of Holdings shall not be required upon the occurrence and during the
continuation of a Specified Default) may appoint another Lender as a successor
Administrative Agent which shall thereupon become the Administrative Agent
hereunder. If no successor Administrative Agent shall have been so appointed by
the Required Lenders, and shall have accepted such appointment, within 30 days
after the retiring Administrative Agent's giving notice of resignation, then the
retiring Administrative Agent may, on behalf of the Lenders, appoint a successor
Administrative Agent, which shall be one of the Lenders or a commercial banking
institution organized under the laws of the U.S. (or any State thereof) or a
U.S. branch or agency of a commercial banking institution, and having a combined
capital and surplus of at least $250,000,000; PROVIDED, HOWEVER, that if, such
retiring Administrative Agent is unable to find a commercial banking institution
which is willing to accept such appointment and which meets the qualifications
set forth in above, the retiring Administrative Agent's resignation shall
nevertheless thereupon become effective and the Lenders shall assume and perform
all of the duties of the Administrative Agent hereunder until such time, if any,
as the Required Lenders appoint a successor as provided for above. Upon the
acceptance of any appointment as Administrative Agent hereunder by a successor
Administrative Agent, such successor Administrative Agent shall be entitled to
receive from the retiring Administrative Agent such documents of transfer and
assignment as such successor Administrative Agent may reasonably request, and
shall
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thereupon succeed to and become vested with all rights, powers, privileges
and duties of the retiring Administrative Agent, and the retiring Administrative
Agent shall be discharged from its duties and obligations under the Loan
Documents. After any retiring Administrative Agent's resignation hereunder as
the Administrative Agent, the provisions of this ARTICLE shall inure to its
benefit as to any actions taken or omitted to be taken by it while it was the
Administrative Agent under the Loan Documents, and SECTIONS 11.3 and 11.4 shall
continue to inure to its benefit.
SECTION 9.5. CREDIT EXTENSIONS BY EACH AGENT. Each Agent and each Issuer
shall have the same rights and powers with respect to (x)(i) in the case of an
Agent, the Credit Extensions made by it or any of its Affiliates and (ii) in the
case of an Issuer, the Loans made by it or any of its Affiliates, and (y) the
Notes held by it or any of its Affiliates as any other Lender and may exercise
the same as if it were not an Agent or Issuer. Each Agent, each Issuer and each
Lender and each of their respective Affiliates may accept deposits from, lend
money to, and generally engage in any kind of business with Holdings, either
Borrower or any Subsidiary or Affiliate of Holdings or either Borrower as if
such Agent, Issuer or Lender were not an Agent, Issuer or Lender hereunder.
SECTION 9.6. CREDIT DECISIONS. Each Lender acknowledges that it has,
independently of each Agent and each other Lender, and based on such Lender's
review of the financial information of Holdings, the Borrowers and their
respective Subsidiaries, the Loan Documents (the terms and provisions of which
being satisfactory to such Lender) and such other documents, information and
investigations as such Lender has deemed appropriate, made its own credit
decision to extend its Commitments. Each Lender also acknowledges that it will,
independently of each Agent and each other Lender, and based on such other
documents, information and investigations as it shall deem appropriate at any
time, continue to make its own credit decisions as to exercising or not
exercising from time to time any rights and privileges available to it under the
Loan Documents.
SECTION 9.7. COPIES, ETC. The Administrative Agent shall give prompt notice
to each Lender of each notice or request required or permitted to be given to
the Administrative Agent by Holdings or either Borrower pursuant to the terms of
the Loan Documents (unless concurrently delivered to the Lenders by the
Borrowers). The Administrative Agent will distribute to each Lender each
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document or instrument received for its account and copies of all other
communications received by the Administrative Agent from Holdings or either
Borrower for distribution to the Lenders by the Administrative Agent in
accordance with the terms of the Loan Documents.
SECTION 9.8. RELIANCE BY AGENTS. Each Agent shall be entitled to rely upon
any certification, notice or other communication (including any thereof by
telephone, telecopy, telegram or cable) believed by it to be genuine and correct
and to have been signed or sent by or on behalf of the proper Person, and upon
advice and statements of legal counsel, independent accountants and other
experts selected by such Agent. As to any matters not expressly provided for by
the Loan Documents, each Agent shall in all cases be fully protected in acting,
or in refraining from acting, hereunder or thereunder in accordance with
instructions given by the Required Lenders or all of the Lenders as is required
in such circumstance, and such instructions of such Lenders and any action taken
or failure to act pursuant thereto shall be binding on all Secured Parties. For
purposes of applying amounts in accordance with this Section, each Agent shall
be entitled to rely upon any Secured Party that has entered into a Secured
Hedging Agreement with any Obligor or the Seller for a determination (which such
Secured Party agrees to provide or cause to be provided upon request of the
Administrative Agent) of the outstanding monetary Obligations owed to such
Secured Party under any Secured Hedging Agreement. Unless it has actual
knowledge evidenced by way of written notice from any such Secured Party and
either Borrower to the contrary, each Agent, in acting in such capacity under
the Loan Documents, shall be entitled to assume that no Secured Hedging
Agreements or Obligations in respect thereof are in existence or outstanding
between any Secured Party and any Obligor or the Seller.
SECTION 9.9. DEFAULTS. Neither Agent shall be deemed to have knowledge or
notice of the occurrence of a Default unless such Agent has received a written
notice from a Lender or either Borrower specifying such Default and stating that
such notice is a "Notice of Default". In the event that either Agent receives
such a notice of the occurrence of a Default, such Agent shall give prompt
notice thereof to the Lenders. Each Agent shall (subject to SECTION 11.1) take
such action with respect to such Default as shall be directed by the Required
Lenders; PROVIDED, that unless and until such Agent shall have received such
directions, such Agent may (but shall not be obligated to) take such action, or
refrain from taking such action, with
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respect to such Default as it shall deem advisable in the best interest of the
Lenders except to the extent that this Agreement expressly requires that such
action be taken, or not be taken, only with the consent or upon the
authorization of the Required Lenders or all Lenders, as applicable.
SECTION 9.10. DOCUMENTATION AGENT. The Person identified on the signature
pages of this Agreement as the "Documentation Agent" shall not have any right,
power, obligation, liability, responsibility or duty under this Agreement (or
any other Loan Document) other than those applicable to it in its capacity as a
Lender to the extent it is a Lender hereunder. Without limiting the foregoing,
the Lender so identified as the "Documentation Agent" shall not have or be
deemed to have any fiduciary relationship with any Lender. Each Person
acknowledges that it has not relied, and will not rely, on the Person so
identified as the "Documentation Agent" in deciding to enter into this Agreement
and each other Loan Document to which it is a party or in taking or not taking
action hereunder or thereunder.
ARTICLE X
HOLDINGS GUARANTY
SECTION 10.1. GUARANTY. Holdings hereby absolutely, unconditionally and
irrevocably
(a) guarantees the full and punctual payment when due, whether at
stated maturity, by required prepayment, declaration, acceleration, demand
or otherwise, of all monetary Obligations of each Borrower and each other
Obligor now or hereafter existing, whether for principal, interest, fees,
expenses or otherwise (including all such amounts which would become due
but for the operation of the automatic stay under Section 362(a) of the
United States Bankruptcy Code, 11 U.S.C. Section 362(a), and the operation
of Sections 502(b) and 506(b) of the United States Bankruptcy Code, 11
U.S.C. Section 502(b) and Section 506(b)), and
(b) indemnifies and holds harmless each Secured Party and each holder
of a Note for any and all costs and expenses (including reasonable
attorney's fees and expenses) incurred by such Secured Party or such
holder, as the case may be, in enforcing any rights under the guaranty set
forth in this ARTICLE X.
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The guaranty set forth in this ARTICLE X constitutes a guaranty of payment when
due and not of collection, and Holdings specifically agrees that it shall not be
necessary or required that any Secured Party or any holder of any Note exercise
any right, assert any claim or demand or enforce any remedy whatsoever against
either Borrower or any other Obligor (or any other Person) before or as a
condition to the obligations of Holdings under the guaranty set forth in this
ARTICLE X.
SECTION 10.2. ACCELERATION OF HOLDINGS GUARANTY. Holdings agrees that, in
the event of the dissolution or insolvency of either Borrower, any other Obligor
or Holdings, or the inability or failure of either Borrower, any other Obligor
or Holdings to pay debts as they become due, or an assignment by either
Borrower, any other Obligor or Holdings for the benefit of creditors, or the
commencement of any case or proceeding in respect of either Borrower, any other
Obligor or Holdings under any bankruptcy, insolvency or similar laws, and if
such event shall occur at a time when any of the monetary Obligations of each
Borrower and each other Obligor may not then be due and payable, Holdings agrees
that it will pay to the Administrative Agent for the account of the Secured
Parties forthwith the full amount which would be payable under the guaranty set
forth in this ARTICLE X by Holdings if all such monetary Obligations were then
due and payable.
SECTION 10.3. GUARANTY ABSOLUTE, ETC. The guaranty set forth in this
ARTICLE X shall in all respects be a continuing, absolute, unconditional and
irrevocable guaranty of payment, and shall remain in full force and effect until
all monetary Obligations of each Borrower and each other Obligor have been paid
in full in cash, all obligations of Holdings under the guaranty set forth in
this ARTICLE X shall have been paid in full in cash, all Letters of Credit have
been terminated or expired and all Commitments shall have terminated. Holdings
guarantees that the monetary Obligations of each Borrower and each other Obligor
will be paid strictly in accordance with the terms of this Agreement and each
other Loan Document under which they arise, regardless of any law, regulation or
order now or hereafter in effect in any jurisdiction affecting any of such terms
or the rights of any Secured Party or any holder of any Note with respect
thereto. The liability of Holdings under the guaranty set forth in this ARTICLE
X shall be absolute, unconditional and irrevocable irrespective of:
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(a) any lack of validity, legality or enforceability of this
Agreement, any Note or any other Loan Document;
(b) the failure of any Secured Party or any holder of any Note
(i) to assert any claim or demand or to enforce any right or
remedy against either Borrower, any other Obligor, the Seller or any
other Person (including any other guarantor (including Holdings))
under the provisions of this Agreement, any Note, any other Loan
Document or otherwise, or
(ii) to exercise any right or remedy against any other guarantor
(including Holdings) of, or collateral securing, any Obligations of
either Borrower, any other Obligor or the Seller;
(c) any change in the time, manner or place of payment of, or in any
other term of, all or any of the Obligations of either Borrower or any
other Obligor (other than Holdings), or any other extension, compromise or
renewal of any Obligation of either Borrower or any other Obligor (other
than Holdings);
(d) any reduction, limitation, impairment or termination of any
Obligations of either Borrower for any reason, including any claim of
waiver, release, surrender, alteration or compromise, and shall not be
subject to (and Holdings hereby waives any right to or claim of) any
defense or setoff, counterclaim, recoupment or termination whatsoever by
reason of the invalidity, illegality, nongenuineness, irregularity,
compromise, unenforceability of, or any other event or occurrence
affecting, any Obligations of either Borrower or otherwise;
(e) any amendment to, rescission, waiver, or other modification of, or
any consent to departure from, any of the terms of this Agreement, any Note
or any other Loan Document;
(f) any addition, exchange, release, surrender or non-perfection of
any collateral, or any amendment to or waiver or release or addition of, or
consent to departure from, any other guaranty, held by any Secured Party or
any holder of any Note securing any of the Obligations of either Borrower;
or
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(g) any other circumstance which might otherwise constitute a defense
available to, or a legal or equitable discharge of, either Borrower, any
surety or any guarantor.
SECTION 10.4. REINSTATEMENT, ETC. Holdings agrees that the guaranty set
forth in this ARTICLE X shall continue to be effective or be reinstated, as the
case may be, if at any time any payment (in whole or in part) of any of the
Obligations is rescinded or must otherwise be restored by any Secured Party or
any holder of any Note, upon the insolvency, bankruptcy or reorganization of
either Borrower or otherwise, all as though such payment had not been made.
SECTION 10.5. WAIVER, ETC. Holdings hereby waives promptness, diligence,
notice of acceptance and any other notice with respect to any of the Obligations
of either Borrower and the guaranty set forth in this ARTICLE X and any
requirement that the Administrative Agent, any other Secured Party or any holder
of any Note protect, secure, perfect or insure any security interest or Lien, or
any property subject thereto, or exhaust any right or take any action against
either Borrower, any other Obligor or any other Person (including the Seller or
any other guarantor (including Holdings)) or entity or any collateral securing
the Obligations of either Borrower.
SECTION 10.6. POSTPONEMENT OF SUBROGATION, ETC. Holdings agrees that it
will not exercise any rights which it may acquire by way of rights of
subrogation under the guaranty set forth in this ARTICLE X, by any payment made
under the guaranty set forth in this ARTICLE X or otherwise, until the prior
payment in full in cash of all monetary Obligations of each Borrower and each
other Obligor, the termination or expiration of all Letters of Credit and the
termination of all Commitments. Any amount paid to Holdings on account of any
such subrogation rights prior to the payment in full in cash of all monetary
Obligations of each Borrower and each other Obligor shall be held in trust for
the benefit of the Secured Parties and each holder of a Note and shall
immediately be paid to the Administrative Agent for the benefit of the Secured
Parties and each holder of a Note and credited and applied against the monetary
Obligations of each Borrower and each other Obligor, whether matured or
unmatured, in accordance with the terms of this Agreement; PROVIDED, HOWEVER,
that if
(a) Holdings has made payment to the Secured Parties and each holder
of a Note of all or any part of the monetary Obligations of either
Borrower, and
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(b) all monetary Obligations of each Borrower and each other Obligor
have been paid in full in cash, all Letters of Credit have been terminated
or expired and all Commitments have been permanently terminated,
each Secured Party and each holder of a Note agrees that, at Holdings' request,
the Administrative Agent, on behalf of the Secured Parties and the holders of
the Notes, will execute and deliver to Holdings appropriate documents (without
recourse and without representation or warranty) necessary to evidence the
transfer by subrogation to Holdings of an interest in the monetary Obligations
of the applicable Borrower resulting from such payment by Holdings. In
furtherance of the foregoing, for so long as any Obligations or Commitments
remain outstanding, Holdings shall refrain from taking any action or commencing
any proceeding against either Borrower (or its successors or assigns, whether in
connection with a bankruptcy proceeding or otherwise) to recover any amounts in
the respect of payments made under the guaranty set forth in this ARTICLE X to
any Secured Party or any holder of a Note.
SECTION 10.7. SUCCESSORS, TRANSFEREES AND ASSIGNS; TRANSFERS OF NOTES, ETC.
The guaranty set forth in this ARTICLE X shall:
(a) be binding upon Holdings, and its successors, transferees and
assigns;
(b) inure to the benefit of and be enforceable by each Agent and each
other Secured Party; and
(c) shall not constitute a novation.
Without limiting the generality of the foregoing CLAUSE (b), any Lender may
assign or otherwise transfer (in whole or in part) any Note or Credit Extension
held by it to any other Person or entity, and such other Person or entity shall
thereupon become vested with all rights and benefits in respect thereof granted
to such Lender under any Loan Document (including the guaranty set forth in this
ARTICLE X) or otherwise, subject, however, to any contrary provisions in such
assignment or transfer, and to the provisions of SECTION 11.11 and ARTICLE IX.
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ARTICLE XI
MISCELLANEOUS PROVISIONS
SECTION 11.1. WAIVERS, AMENDMENTS, ETC. The provisions of each Loan
Document may from time to time be amended, modified or waived, if such
amendment, modification or waiver is in writing and consented to by Holdings,
the Borrowers and the Required Lenders; PROVIDED, HOWEVER, that no such
amendment, modification or waiver shall:
(a) modify this Section without the consent of all Lenders;
(b) increase the aggregate amount of any Credit Extensions required to
be made by a Lender pursuant to its Commitments, extend the final
Commitment Termination Date of Credit Extensions made (or participated in)
by a Lender or reduce any fees described in ARTICLE III payable to any
Lender without the consent of such Lender;
(c) extend any date of payment of principal for any Lender's Loan, or
reduce the principal amount of, rate of interest or fees on any Loan or
Reimbursement Obligations (which shall in each case include the conversion
of all or any part of the Obligations into equity of any Obligor), or
extend the date on which interest or fees are payable in respect of such
Loan or Reimbursement Obligation, in each case, without the consent of the
Lender which has made such Loan or, in the case of a Reimbursement
Obligation, the Issuer owed, and those Lenders participating in, such
Reimbursement Obligation (it being understood and agreed, however, that any
vote to rescind any acceleration made pursuant to SECTION 8.2 and SECTION
8.3 of amounts owing with respect to the Loans and other Obligations shall
only require the vote of the Required Lenders);
(d) reduce the percentage set forth in the definition of "Required
Lenders" or modify any requirement hereunder that any particular action be
taken by all Lenders without the consent of all Lenders;
(e) except as otherwise expressly provided in a Loan Document, release
(i) either Borrower from its Obligations under the Loan Documents, Holdings
from its Obligations under ARTICLE X or any Subsidiary Guarantor from its
Obligations under the Subsidiary Guaranty or
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(ii) all or substantially all of the collateral under the Loan Documents,
in each case without the consent of all Lenders;
(f)(i) amend, modify or waive CLAUSE (b) of SECTION 3.1.1 or (ii) have
the effect (either immediately or at some later time) of enabling the
Borrowers to satisfy a condition precedent to the making of a Revolving
Loan or the issuance of a Letter of Credit unless such amendment,
modification or waiver shall have been consented to by the holders of at
least 51% of the Revolving Loan Commitments.
(g) amend, modify or waive the provisions of CLAUSE (a)(i) of SECTION
3.1.1 or CLAUSE (b) of SECTION 3.1.2 or effect any amendment, modification
or waiver that by its terms adversely affects the rights of Lenders
participating in any Tranche differently from those of Lenders
participating in other Tranches, unless such amendment, modification or
waiver shall have been consented to by the holders of at least 51% of the
aggregate amount of Loans outstanding under the Tranche or Tranches
affected by such modification, or, in the case of a modification affecting
the Revolving Loan Commitments, the Lenders holding at least 51% of the
Revolving Loan Commitments;
(h) change any of the terms of CLAUSE (b) of SECTION 2.3.2 or SECTION
2.3.2 without the consent of the Swing Line Lender; or
(i) affect adversely the interests, rights or obligations of either
Agent (in its capacity as an Agent) or any Issuer (in its capacity as an
Issuer), unless consented to by such Agent or such Issuer, as the case may
be.
No failure or delay on the part of either Agent, any Issuer or any Lender in
exercising any power or right under any Loan Document shall operate as a waiver
thereof, nor shall any single or partial exercise of any such power or right
preclude any other or further exercise thereof or the exercise of any other
power or right. No notice to or demand on any Obligor or the Seller in any case
shall entitle it to any notice or demand in similar or other circumstances. No
waiver or approval by either Agent, any Issuer or any Lender under any Loan
Document shall, except as may be otherwise stated in such waiver or approval, be
applicable to subsequent transactions. No waiver or
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approval hereunder shall require any similar or dissimilar waiver or approval
thereafter to be granted hereunder.
For purposes of this SECTION 11.1, the Syndication Agent, if any, in
coordination with the Administrative Agent, shall have primary responsibility,
together with the Borrowers, in the negotiation, preparation and documentation
relating to any amendment, modification or waiver under this Agreement, any
other Loan Document or any other agreement or document related hereto or thereto
contemplated pursuant to this Section.
SECTION 11.2. NOTICES; TIME. All notices and other communications provided
under each Loan Document shall be in writing or by facsimile and addressed,
delivered or transmitted, if to either Agent or either Borrower, at its address
or facsimile number set forth below its signature in this Agreement, and if to a
Lender or Issuer to the applicable Person at its address or facsimile number set
forth below its signature in this Agreement or set forth in the Lender
Assignment Agreement pursuant to which it became a Lender hereunder, or at such
other address or facsimile number as may be designated by any such party in a
notice to the other parties. Any notice, if mailed and properly addressed with
postage prepaid or if properly addressed and sent by pre-paid courier service,
shall be deemed given when received; any notice, if transmitted by facsimile,
shall be deemed given when the confirmation of transmission thereof is received
by the transmitter. Unless otherwise indicated, all references to the time of a
day in a Loan Document shall refer to New York City time.
SECTION 11.3. PAYMENT OF COSTS AND EXPENSES. The Borrowers jointly and
severally agree to pay on demand all expenses of each Agent (including the fees
and out-of-pocket expenses of Mayer, Brown & Platt, counsel to the Agents and of
local counsel, if any, who may be retained by or on behalf of the Agents) in
connection with
(a) the negotiation, preparation, execution and delivery of each Loan
Document, including schedules and exhibits, and any amendments, waivers,
consents, supplements or other modifications to any Loan Document as may
from time to time hereafter be required, whether or not the transactions
contemplated hereby are consummated; and
(b) the filing or recording of any Loan Document (including the Filing
Statements) and all amendments, supplements, amendment and restatements and
other
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modifications to any thereof, searches made following the Closing Date in
jurisdictions where Filing Statements (or other documents evidencing Liens
in favor of the Secured Parties) have been recorded and any and all other
documents or instruments of further assurance required to be filed or
recorded by the terms of any Loan Document; and
(c) the preparation and review of the form of any document or
instrument relevant to any Loan Document.
The Borrowers further agree to jointly and severally pay, and to save each
Secured Party harmless from all liability for, any stamp or other taxes which
may be payable in connection with the execution or delivery of each Loan
Document, the Credit Extensions or the issuance of the Notes. The Borrowers also
agree to jointly and severally reimburse each Secured Party upon demand for all
reasonable out-of-pocket expenses (including reasonable attorneys' fees and
legal expenses of counsel to each Secured Party) incurred by such Secured Party
in connection with (x) the negotiation of any restructuring or "work-out" with
either Borrower, whether or not consummated, of any Obligations and (y) the
enforcement of any Obligations.
SECTION 11.4. INDEMNIFICATION. In consideration of the execution and
delivery of this Agreement by each Secured Party, the Borrowers hereby jointly
and severally indemnify, exonerate and hold each Secured Party and each of their
respective officers, directors, employees and agents (collectively, the
"INDEMNIFIED PARTIES") free and harmless from and against any and all actions,
causes of action, suits, losses, costs, liabilities and damages, and expenses
incurred in connection therewith (irrespective of whether any such Indemnified
Party is a party to the action for which indemnification hereunder is sought),
including reasonable attorneys' fees and disbursements, whether incurred in
connection with actions between or among the parties hereto or the parties
hereto and third parties (collectively, the "INDEMNIFIED LIABILITIES"), incurred
by the Indemnified Parties or any of them as a result of, or arising out of, or
relating to
(a) any transaction financed or to be financed in whole or in part,
directly or indirectly, with the proceeds of any Credit Extension,
including all Indemnified Liabilities arising in connection with the
Transaction;
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(b) the entering into and performance of any Loan Document by any of
the Indemnified Parties (including any action brought by or on behalf of
either Borrower as the result of any determination by the Required Lenders
pursuant to ARTICLE V not to fund any Credit Extension, provided that any
such action is resolved in favor of such Indemnified Party);
(c) any investigation, litigation or proceeding related to any
acquisition or proposed acquisition by any Obligor or any Subsidiary
thereof of all or any portion of the Capital Securities or assets of any
Person, whether or not an Indemnified Party is party thereto;
(d) any investigation, litigation or proceeding related to any
environmental cleanup, audit, compliance or other matter relating to the
protection of the environment or the Release by any Obligor or any
Subsidiary thereof of any Hazardous Material;
(e) the presence on or under, or the escape, seepage, leakage,
spillage, discharge, emission, discharging or releases from, any real
property owned or operated by any Obligor or any Subsidiary thereof of any
Hazardous Material (including any losses, liabilities, damages, injuries,
costs, expenses or claims asserted or arising under any Environmental Law),
regardless of whether caused by, or within the control of, such Obligor or
Subsidiary; or
(f) each Lender's Environmental Liability (the indemnification herein
shall survive repayment of the monetary Obligations and any transfer of the
property of any Obligor or its Subsidiaries by foreclosure or by a deed in
lieu of foreclosure for any Lender's Environmental Liability, regardless of
whether caused by, or within the control of, such Obligor or such
Subsidiary);
except for Indemnified Liabilities arising for the account of a particular
Indemnified Party by reason of the relevant Indemnified Party's gross negligence
or wilful misconduct (as determined by a court having jurisdiction in a final
proceeding) or disputes between Indemnified Parties. Each Obligor and its
successors and assigns hereby waive, release and agree not to make any claim or
bring any cost recovery action against, any Indemnified Party under CERCLA or
any state equivalent, or any similar law now existing or hereafter enacted. It
is expressly understood and agreed
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that to the extent that any Indemnified Party is strictly liable under any
Environmental Laws, each Obligor's obligation to such Indemnified Party under
this indemnity shall likewise be without regard to fault on the part of any
Obligor with respect to the violation or condition which results in liability of
an Indemnified Party. If and to the extent that the foregoing undertaking may be
unenforceable for any reason, each Obligor agrees to make the maximum
contribution to the payment and satisfaction of each of the Indemnified
Liabilities which is permissible under applicable law.
It is understood and agreed that, to the extent not precluded by a conflict
of interest, each Indemnified Party shall endeavor to make reasonable efforts to
minimize the legal and other expenses associated with any defense and any
potential settlement or judgment (including the use of single counsel selected
by such Indemnified Parties). Settlement of any such claim or litigation
involving any material indemnified amount will require the approval of the
relevant Obligor (such approval not to be unreasonably withheld or delayed).
SECTION 11.5. SURVIVAL. The obligations of each Borrower under SECTIONS
4.3, 4.4, 4.5, 4.6, 11.3 and 11.4, the obligations of Holdings under Article X
in respect of such obligations of each such Borrower and the obligations of the
Lenders under SECTION 9.1, shall in each case survive any assignment from one
Lender to another (in the case of SECTIONS 11.3 and 11.4) and the occurrence of
the Termination Date. The representations and warranties made by each Obligor
and the Seller in each Loan Document shall survive the execution and delivery of
such Loan Document.
SECTION 11.6. SEVERABILITY. Any provision of any Loan Document which is
prohibited or unenforceable in any jurisdiction shall, as to such provision and
such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions of such Loan
Document or affecting the validity or enforceability of such provision in any
other jurisdiction.
SECTION 11.7. HEADINGS. The various headings of each Loan Document are
inserted for convenience only and shall not affect the meaning or interpretation
of such Loan Document or any provisions thereof.
SECTION 11.8. EXECUTION IN COUNTERPARTS, EFFECTIVENESS, ETC. This Agreement
may be executed by the
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parties hereto in several counterparts, each of which shall be an original and
all of which shall constitute together but one and the same agreement. This
Agreement shall become effective when counterparts hereof executed on behalf of
each Borrower, each Agent and each Lender (or notice thereof satisfactory to the
Agents), shall have been received by the Agents.
SECTION 11.9. GOVERNING LAW; ENTIRE AGREEMENT. EACH LOAN DOCUMENT (OTHER
THAN THE LETTERS OF CREDIT, TO THE EXTENT SPECIFIED BELOW AND EXCEPT AS
OTHERWISE EXPRESSLY SET FORTH IN A LOAN DOCUMENT) WILL EACH BE DEEMED TO BE A
CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK
(INCLUDING FOR SUCH PURPOSE SECTIONS 5-1401 AND 5-1402 OF THE GENERAL
OBLIGATIONS LAW OF THE STATE OF NEW YORK). EACH STANDBY LETTER OF CREDIT SHALL
BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OR RULES DESIGNATED
IN SUCH LETTER OF CREDIT, OR IF NO LAWS OR RULES ARE DESIGNATED, THE
INTERNATIONAL STANDBY PRACTICES (ISP98--INTERNATIONAL CHAMBER OF COMMERCE
PUBLICATION NUMBER 590 (THE "ISP RULES")) AND, AS TO MATTERS NOT GOVERNED BY THE
ISP RULES, THE INTERNAL LAWS OF THE STATE OF NEW YORK. EACH OTHER LETTER OF
CREDIT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OR RULES
DESIGNATED IN SUCH LETTER OF CREDIT, OR IF NO LAWS OR RULES ARE DESIGNATED, THE
UNIFORM CUSTOMS AND PRACTICE FOR DOCUMENTARY CREDITS, 1993 REVISION, ICC
PUBLICATION NO. 500 (THE "UNIFORM CUSTOMS") AND, AS TO MATTERS NOT GOVERNED BY
THE UNIFORM CUSTOMS, THE INTERNAL LAWS OF THE STATE OF NEW YORK. The Loan
Documents constitute the entire understanding among the parties hereto with
respect to the subject matter thereof and supersede any prior agreements,
written or oral, with respect thereto.
SECTION 11.10. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
and shall inure to the benefit of the parties hereto and their respective
successors and assigns; PROVIDED, HOWEVER, that neither Borrower may assign or
transfer its rights or obligations hereunder without the consent of all of the
Lenders.
SECTION 11.11. SALE AND TRANSFER OF CREDIT EXTENSIONS; PARTICIPATIONS IN
CREDIT EXTENSIONS NOTES. Each Lender may assign, or sell participations in, its
Loans, Letters of Credit and Commitments to one or more other Persons in
accordance with this the terms set forth below.
SECTION 11.11.1. ASSIGNMENTS. Any Lender (an "ASSIGNOR LENDER"),
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(a) with the written consent of Holdings, the Agents and (in the case
of any assignment of Revolving Loan Commitments and related participations
in Letters of Credit, Letter of Credit Outstandings and Swing Line Loans)
the Issuers (which consents (i) shall not be unreasonably delayed or
withheld, (ii) of Holdings shall not be required upon the occurrence and
during the continuance of any Event of Default and (iii) of the Agents and
the Issuers shall not be required in the case of any assignment made by DLJ
or any of its Affiliates), may at any time assign and delegate to one or
more commercial banks, funds that are regularly engaged in making,
purchasing or investing in loans or securities, or other financial
institutions, and
(b) with notice to Holdings, the Agents, and (in the case of any
assignment of Revolving Loan Commitments and related participations in
Letters of Credit, Letter of Credit Outstandings and Swing Line Loans) the
Issuers, but without the consent of Holdings, the Agents or the Issuers,
may assign and delegate to any of its Affiliates or Related Funds or to any
other Lender or any Affiliate or Related Fund of any other Lender
(each Person described in either of the foregoing clauses as being the Person to
whom such assignment and delegation is to be made, being hereinafter referred to
as an "ASSIGNEE LENDER"), all or any fraction of such Assignor Lender's Loans
and Commitments (and in the case of any assignment of Revolving Loan
Commitments, related participations in Letters of Credit, Letter of Credit
Outstandings and Swing Line Loans) (which assignment and delegation shall be, as
among Revolving Loan Commitments, Revolving Loans and participations in Letters
of Credit, Letter of Credit Outstandings and Swing Line Loans of a constant, and
not a varying, percentage) is in a minimum aggregate amount of (i) $1,000,000
(PROVIDED that (1) assignments that are made on the same day to funds that (x)
invest in commercial loans and (y) are managed or advised by the same investment
advisor or any Affiliate of such investment advisor may be treated as a single
assignment for purposes of the minimum amount and (2) no minimum amount shall be
required in the case of any assignment between two Lenders so long as the
Assignor Lender has an aggregate amount of Loans and Commitments of at least
$1,000,000 following such assignment) unless Holdings and the Agents otherwise
consent or (ii) the then remaining amount of such Assignor Lender's Loans and
Commitments; PROVIDED, HOWEVER, that any such Assignee Lender will comply, if
applicable, with the
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provisions contained in SECTION 4.6 and the Borrowers, each other Obligor, the
Seller and the Agents shall be entitled to continue to deal solely and directly
with such Assignor Lender in connection with the interests so assigned and
delegated to an Assignee Lender until
(A) written notice of such assignment and delegation, together with
payment instructions, addresses and related information with respect to
such Assignee Lender, shall have been given to Holdings and the Agents by
such Assignor Lender and such Assignee Lender;
(B) such Assignee Lender shall have executed and delivered to Holdings
and the Agents a Lender Assignment Agreement, accepted by the Agents;
(C) the processing fees described below shall have been paid; and
(D) the Administrative Agent shall have registered such assignment and
delegation in the Register pursuant to CLAUSE (b) of SECTION 2.7.
From and after the date that the Agents accept such Lender Assignment Agreement
and such assignment and delegation is registered pursuant to CLAUSE (b) of
SECTION 2.7, (x) the Assignee Lender thereunder shall be deemed automatically to
have become a party hereto and to the extent that rights and obligations
hereunder have been assigned and delegated to such Assignee Lender in connection
with such Lender Assignment Agreement, shall have the rights and obligations of
a Lender hereunder and under the other Loan Documents, and (y) the Assignor
Lender, to the extent that rights and obligations hereunder have been assigned
and delegated by it in connection with such Lender Assignment Agreement, shall
be released from its obligations hereunder and under the other Loan Documents.
Any Assignor Lender that shall have previously requested and received any Note
or Notes in respect of any Tranche to which any such assignment applies shall,
upon the acceptance by the Administrative Agent of the applicable Lender
Assignment Agreement, mark such Note or Notes "exchanged" and deliver them to
the Borrowers (against, if the Assignor Lender has retained Loans or Commitments
with respect to the applicable Tranche and has requested replacement Notes
pursuant to CLAUSE (b)(ii) of SECTION 2.7, its receipt from the Borrowers of
replacement Notes in the principal amount of the Loans and Commitments of the
applicable Tranche retained by it). Such Assignor Lender or such Assignee Lender
(unless the Assignor Lender
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or the Assignee Lender is DLJ or one of its Affiliates) must also pay a
processing fee to the Administrative Agent upon delivery of any Lender
Assignment Agreement in the amount of $3,500, unless such assignment and
delegation is by a Lender to its Affiliate or Related Fund or if such assignment
and delegation is by a Lender to a Federal Reserve Bank, as provided below or is
otherwise consented to by the Administrative Agent. Any attempted assignment and
delegation not made in accordance with this SECTION 11.11.1 shall be null and
void. Nothing contained in this SECTION 11.11.1 shall prevent or prohibit any
Lender from pledging its rights (but not its obligations to make Loans or
participate in Letters of Credit, Letter of Credit Outstandings or Swing Line
Loans) under this Agreement and/or its Loans hereunder to a Federal Reserve Bank
in support of borrowings made by such Lender from such Federal Reserve Bank and
any Lender that is a fund that invests in bank loans may pledge all or any
portion of its rights (but not its obligations to make Loans or participate in
Letters of Credit or Letter of Credit Outstandings) hereunder to any trustee or
holders of obligations owed, or securities issued by, such fund as security for
such obligations or securities or to any other representative of such holders.
In the event that S&P, Moody's or Thompson's BankWatch (or InsuranceWatch
Ratings Service, in the case of Lenders that are insurance companies (or Best's
Insurance Reports, if such insurance company is not rated by Insurance Watch
Ratings Service)) shall, after the date that any Lender with a Commitment to
make Revolving Loans or participate in Letters of Credit, Letter of Credit
Outstandings or Swing Line Loans becomes a Lender, downgrade the long-term
certificate of deposit rating or long-term senior unsecured debt rating of such
Lender, and the resulting rating shall be below BBB-, Baa3 or C (or BB, in the
case of Lender that is an insurance company (or B, in the case of an insurance
company not rated by InsuranceWatch Ratings Service)) respectively, then the
applicable Issuer or Holdings shall have the right, but not the obligation, upon
notice to such Lender and the Agents, to replace such Lender with an Assignee
Lender in accordance with and subject to the restrictions contained in this
Section, and such Lender hereby agrees to transfer and assign without recourse
(in accordance with and subject to the restrictions contained in this Section)
all its interests, rights and obligations in respect of its Revolving Loan
Commitment under this Agreement to such Assignee Lender; PROVIDED, HOWEVER, that
(i) no such assignment shall conflict with any law, regulation or order of any
governmental authority and (ii) such Assignee Lender shall pay to such Lender in
immediately available funds on the date of such assignment
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the principal of and interest and fees (if any) accrued to the date of payment
on the Loans made, and Letters of Credit participated in, by such Lender
hereunder and all other amounts accrued for such Lender's account or owed to it
hereunder.
SECTION 11.11.2. PARTICIPATIONS. Any Lender may sell to one or more
commercial banks or other Persons (each of such commercial banks and other
Persons being herein called a "PARTICIPANT") participating interests in any
of the Loans, Commitments, or other interests of such Lender hereunder;
PROVIDED, HOWEVER, that
(a) no participation contemplated in this Section shall relieve
such Lender from its Commitments or its other obligations under any
Loan Document;
(b) such Lender shall remain solely responsible for the
performance of its Commitments and such other obligations;
(c) each Obligor, the Seller and the Agents shall continue to
deal solely and directly with such Lender in connection with such
Lender's rights and obligations under each Loan Document;
(d) no Participant, unless such Participant is an Affiliate of
such Lender or is itself a Lender, shall be entitled to require such
Lender to take or refrain from taking any action under any Loan
Document, except that such Lender may agree with any Participant that
such Lender will not, without such Participant's consent, take any
actions of the type described in CLAUSES (a), (b), (c) or (f) of
SECTION 11.1 with respect to Obligations participated in by such
Participant; and
(e) neither Holdings nor either Borrower shall be required to pay
any amount under this Agreement that is greater than the amount which
it would have been required to pay had no participating interest been
sold.
Each Borrower and Holdings acknowledges and agrees that each Participant, for
purposes of SECTIONS 4.3, 4.4, 4.5, 4.6, 4.8, 4.9, 7.1.1, 11.3 and 11.4, shall
be considered a Lender. Each Participant shall only be indemnified for increased
costs pursuant to SECTION 4.3, 4.5 or 4.6 if and to the extent that the Lender
which sold such participating interest to such Participant concurrently is
entitled to
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make, and does make, a claim on such Borrower or (with respect to any claim
under SECTION 4.6) Holdings for such increased costs and, in the case of SECTION
4.6, such Participant complies therewith as if it were a Lender. Any Lender that
sells a participating interest in any Loan, Commitment or other interest to a
Participant under this Section shall indemnify and hold harmless Holdings, each
Borrower and the Administrative Agent from and against any taxes, penalties,
interest or other costs or losses (including reasonable attorneys' fees and
expenses) incurred or payable by Holdings, such Borrower or the Administrative
Agent as a result of the failure of such Borrower or the Administrative Agent to
comply with its obligations to deduct or withhold any Taxes from any payments
made pursuant to this Agreement to such Lender or the Administrative Agent, as
the case may be, which Taxes would not have been incurred or payable if such
Participant had been a Non-Domestic Lender that was entitled to deliver to the
Borrowers, the Administrative Agent or such Lender, and did in fact so deliver,
a duly completed and valid Form W-8BEN or W-8ECI (or applicable successor form)
entitling such Participant to receive payments under this Agreement without
deduction or withholding of any United States federal Taxes.
Each Lender shall, as agent of Holdings and the Borrowers solely for the
purpose of this Section, record in book entries maintained by such Lender the
name and the amount of the participating interest of each Participant entitled
to receive payments in respect of any participating interests sold pursuant to
this Section.
SECTION 11.12. REORGANIZATION TRANSACTION. Notwithstanding any provision in
this Agreement or any other Loan Document to the contrary, so long as there
shall not exist any pending or threatened action, suit, investigation,
litigation or proceeding pending or threatened in any court or before any
arbitrator or governmental instrumentality which contests the consummation of
any of the following transactions, upon an election by Holdings,
(a) Holdings, at any time, in its sole discretion may,
contemporaneously with the assumption and issuances referred to in CLAUSES
(b) and (c) below, contribute all of its assets (including the Capital
Securities of WRC) to WRC; PROVIDED that the Administrative Agent shall
have a perfected pledge of, and security interest in and to all such assets
so contributed as it had immediately prior to such contribution pursuant to
such documentation and opinions in form and substance reasonably
satisfactory
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to the Administrative Agent and its counsel as shall be necessary in the
opinion of the Administrative Agent to create, perfect or maintain the
collateral position of the Secured Parties therein;
(b) WRC may, contemporaneously with the contribution referred to in
CLAUSE (a) above and the issuances referred to in CLAUSE (c) below, assume
substantially all of the liabilities of Holdings so long as (i) no
Specified Default shall have occurred and be continuing on the date any
such liabilities are to be assumed, nor would a Specified Default result
from any such assumption and (ii) after giving effect to any such
assumption, Holdings and the Borrowers shall be in PRO FORMA compliance
with the covenants set forth in SECTION 7.2.4 for the most recent fully
ended Fiscal Quarter preceding the date of such assumption;
(c) WRC may, contemporaneously with the contribution and assumption
referred to in CLAUSES (a) and (b) above, issue its common stock and its
WRC PIK II Preferred Equity to Holdings so long as
(A) no Specified Default shall have occurred and be continuing on
the date of such issuance, nor would a Specified Default result from
any such issuance;
(B) after giving effect to such issuance, the Borrowers shall be
in PRO FORMA compliance with the covenants set forth in SECTION 7.2.4
for the most recent fully ended Fiscal Quarter preceding the date of
such issuance; and
(C) after giving effect to such issuance, the Administrative
Agent shall have a perfected pledge of, and security interest in and
to all of the issued and outstanding interests of Capital Securities
of each Borrower (including the WRC PIK II Preferred Equity) as the
Administrative Agent had immediately prior to such issuance in form
and substance reasonably satisfactory to the Administrative Agent and
its counsel, pursuant to such documentation and opinions as shall be
necessary in the opinion of the Administrative Agent to create,
perfect or maintain the collateral position of the Secured Parties
therein; and
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(d) Holdings may distribute all of the WRC PIK II Preferred
Equity to the PIK Preferred Equity Holders in exchange for all of the
PIK Preferred Equity and distribute up to 3% of the outstanding WRC
common stock held by Holdings in exchange for all or the remainder of
the Holdings (Unit) Common Stock.
The parties hereto agree to cooperate with each other in connection with
any such contribution or assumption or related transaction described in this
SECTION 11.12 to amend the Loan Documents to the extent reasonably necessary to
adjust for the effect of any such contribution, assumption or related
transaction described in this SECTION 11.12; PROVIDED that such amendments could
not reasonably be expected to have a material adverse effect on the rights or
remedies of any Secured Party under any Loan Document as in effect immediately
prior to any such amendment.
SECTION 11.13. CONFIDENTIALITY. Each of the Agents and the Lenders agrees
to maintain the confidentiality of the Confidential Information (as defined
below), except that Confidential Information may be disclosed (a) to its and its
Affiliates' directors, officers, employees and agents, including accountants,
legal counsel and other advisors on a need-to-know basis (it being understood
that the Persons to whom such disclosure is made will be informed of the
confidential nature of such Confidential Information and instructed to keep such
Confidential Information confidential), (b) to the extent requested by any
regulatory authority, (c) to the extent required by applicable laws or
regulations or by any subpoena or similar legal process, (d) to any other party
to this Agreement, (e) in connection with the exercise of any remedies hereunder
or any suit, action or proceeding relating to this Agreement or the enforcement
of rights hereunder, (f) subject to an agreement containing provisions
substantially the same as those of this Section, to any assignee or participant
of, or any successor to, any of its rights or obligations under this Agreement,
or to any direct or indirect contractual counterparties in agreements relating
to Hedging Obligations or such contractual counterparties' professional
advisors, (g) with the consent of Holdings or (h) to the extent such
Confidential Information (i) becomes publicly available other than as a result
of a breach of this Section or (ii) becomes available to any Agent or any Lender
on a nonconfidential basis from a source other than Holdings or any of its
Subsidiaries. For the purposes of this Section, "Confidential Information" means
all information received from Holdings or any of its Subsidiaries relating to
its business, other than any such information that is available to the
Administrative Agent or
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any Lender on a nonconfidential basis prior to disclosure by Holdings or any of
its Subsidiaries; PROVIDED that, in the case of information received from
Holdings or any of its Subsidiaries after the date hereof, such information is
clearly identified at the time of delivery as confidential. Any Person required
to maintain the confidentiality of Confidential Information as provided in this
Section shall be considered to have complied with its obligation to do so if
such Person has exercised the same degree of care to maintain the
confidentiality of such Confidential Information as such Person would accord to
its own confidential information.
SECTION 11.14. OTHER TRANSACTIONS. Nothing contained herein shall preclude
the Administrative Agent, any Issuer or any other Lender from engaging in any
transaction, in addition to those contemplated by the Loan Documents, with
Holdings, either Borrower or any of their respective Affiliates in which
Holdings, such Borrower or such Affiliate is not restricted hereby from engaging
with any other Person.
SECTION 11.15. INDEPENDENCE OF COVENANTS. All covenants contained in this
Agreement and each other Loan Document shall be given independent effect such
that, in the event a particular action or condition is not permitted by any of
such covenants, the fact that it would be permitted by an exception to, or be
otherwise within the limitations of, another covenant shall not, unless
expressly so provided in such first covenant, avoid the occurrence of a Default
or an Event of Default if such action is taken or such condition exists.
SECTION 11.16. FORUM SELECTION AND CONSENT TO JURISDICTION. ANY LITIGATION
BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, ANY LOAN
DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL
OR WRITTEN) OR ACTIONS OF THE AGENTS, THE LENDERS, ANY ISSUER, HOLDINGS OR
EITHER BORROWER IN CONNECTION HEREWITH OR THEREWITH MAY BE BROUGHT AND
MAINTAINED IN THE COURTS OF THE STATE OF NEW YORK OR IN THE UNITED STATES
DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK; PROVIDED, HOWEVER, THAT
ANY SUIT SEEKING ENFORCEMENT AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY BE
BROUGHT, AT THE AGENTS' OPTION, IN THE COURTS OF ANY JURISDICTION WHERE SUCH
COLLATERAL OR OTHER PROPERTY MAY BE FOUND. HOLDINGS AND EACH BORROWER
IRREVOCABLY CONSENT TO THE SERVICE OF PROCESS BY REGISTERED MAIL, POSTAGE
PREPAID, OR BY PERSONAL SERVICE WITHIN OR
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WITHOUT THE STATE OF NEW YORK AT THE ADDRESS FOR NOTICES SPECIFIED IN SECTION
11.2. HOLDINGS AND EACH BORROWER HEREBY EXPRESSLY AND IRREVOCABLY WAIVE, TO THE
FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY HAVE OR HEREAFTER
MAY HAVE TO THE LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT
REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN
INCONVENIENT FORUM. TO THE EXTENT THAT HOLDINGS OR EITHER BORROWER HAS OR
HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM JURISDICTION OF ANY COURT OR FROM ANY
LEGAL PROCESS (WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT,
ATTACHMENT IN AID OF EXECUTION OR OTHERWISE) WITH RESPECT TO ITSELF OR ITS
PROPERTY, HOLDINGS AND SUCH BORROWER HEREBY IRREVOCABLY WAIVE TO THE FULLEST
EXTENT PERMITTED BY LAW SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONS UNDER THE
LOAN DOCUMENTS.
SECTION 11.17. WAIVER OF JURY TRIAL. EACH AGENT, EACH LENDER, EACH ISSUER,
HOLDINGS AND EACH BORROWER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE
TO THE FULLEST EXTENT PERMITTED BY LAW ANY RIGHTS THEY MAY HAVE TO A TRIAL BY
JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN
CONNECTION WITH, EACH LOAN DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF
DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF SUCH AGENT, SUCH
LENDER, SUCH ISSUER, HOLDINGS OR SUCH BORROWER IN CONNECTION THEREWITH. HOLDINGS
AND EACH BORROWER ACKNOWLEDGE AND AGREE THAT THEY HAVE RECEIVED FULL AND
SUFFICIENT CONSIDERATION FOR THIS PROVISION (AND EACH OTHER PROVISION OF EACH
OTHER LOAN DOCUMENT TO WHICH IT IS A PARTY) AND THAT THIS PROVISION IS A
MATERIAL INDUCEMENT FOR EACH AGENT, EACH LENDER AND EACH ISSUER ENTERING INTO
THE LOAN DOCUMENTS.
-152-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the day
and year first above written.
WEEKLY READER CORPORATION,
as a Borrower
By: /s/ Charles Laurey
-------------------------
Title:
Address: c/o Ripplewood Holdings, LLC
One Rockefeller Plaza
New York, NY 10020
Facsimile No.: (212) 218-4699
Attention: Charles Laurey
JLC LEARNING CORPORATION,
as a Borrower
By: /s/ Charles Laurey
-------------------------
Title:
Address: c/o Ripplewood Holdings, LLC
One Rockefeller Plaza
New York, NY 10020
Facsimile No.: (212) 218-4699
Attention: Charles Laurey
<PAGE>
WRC MEDIA INC., as a Guarantor
By: /s/ Charles Laurey
-------------------------
Title:
Address: c/o Ripplewood Holdings, LLC
One Rockefeller Plaza
New York, NY 10020
Facsimile No.: (212) 218-4699
Attention: Charles Laurey
DLJ CAPITAL FUNDING, INC.,
as the Syndication Agent
By: /s/ Eugene Martin
-------------------------
Title:
Address: 277 Park Avenue
New York, NY 10172
Facsimile No.: (212) 892-7542
Attention: Eugene Martin
-155-
<PAGE>
BANK OF AMERICA, N.A.,
as the Administrative Agent
By: /s/ Peter Hall
-------------------------
Title:
Address: 100 North Tryon St.
NC1-007-07-01
Charlotte, NC 28255
Facsimile No.: (704) 386-3270
Attention: Peter Hall
GENERAL ELECTRIC CAPITAL CORPORATION,
as the Documentation Agent
By: /s/ Woodrow Broaders
-------------------------
Title: Authorized Signatory
Address: 10 LaSalle Street
Suite 2700
Chicago, IL 60603
Facsimile No.: (312) 419-5715
Attention: Penny Friedman
-156-
<PAGE>
LENDERS:
DLJ CAPITAL FUNDING, INC.
By: /s/ Eugene Martin
-------------------------
Title: Senior Vice President
-158-
<PAGE>
Bank of America, N.A.
By: /s/ Peter Hall
-------------------------
Title:
-159-
<PAGE>
SCHEDULE I
DISCLOSURE SCHEDULE TO CREDIT AGREEMENT
ITEM 6.7. Litigation.
ITEM 6.8. Existing Subsidiaries.
ITEM 6.11. Employee Benefit Plans.
ITEM 6.12. Environmental Matters.
ITEM 6.18(a) WRC Media Share Ownership.
ITEM 6.18(b) Weekly Reader Share Ownership.
ITEM 6.18(c) JLC Learning Corporation Share Ownership.
ITEM 7.1.10. Copyrights
ITEM 7.1.13. States with more than $1,000,000 Collateral
ITEM 7.2.2(b) Indebtedness to be Paid.
CREDITOR OUTSTANDING PRINCIPAL AMOUNT
-------- ----------------------------
ITEM 7.2.2(c) Existing Indebtedness
ITEM 7.2.3(c) Ongoing Liens.
ITEM 7.2.5(a) Ongoing Investments.
<PAGE>
SCHEDULE II
PERCENTAGES
Revolving Loan Commitment Term A
------------------------- ------
Loans Term B Loans
----- ------------
-ii-
<PAGE>
Section Page
- ------- ----
SCHEDULE II
ADMINISTRATIVE INFORMATION
-iii-
<PAGE>
2
SCHEDULE 6.7
Litigation
----------
None.
<PAGE>
3
SCHEDULE 6.8
Existing Subsidiaries
---------------------
WRC MEDIA INC.
- JLC Learning Corporation (a Delaware corporation)
- Weekly Reader Corporation (a Delaware corporation)
- Lifetime Learning Systems, Inc. (a Delaware corporation)
- American Guidance Service, Inc. (a Minnesota corporation)
- AGS International Sales, Inc. (a Minnesota corporation)
- Primedia Reference Inc. (a Delaware corporation)
- Funk & Wagnalls Yearbook Corporation (a Delaware
corporation)
- Gareth Stevens, Inc. (a Wisconsin corporation)
<PAGE>
4
SCHEDULE 6.11
Employee Benefit Plans
----------------------
American Guidance Service, Inc. is obligated to provide disability and life
insurance benefits until December 31, 2000 to Larry Rutkowski, Gerald Adams,
Sharon Herpers and Michael Nabicht pursuant to their employment agreements.
<PAGE>
5
SCHEDULE 6.12
Environmental Matters
---------------------
None.
<PAGE>
6
SCHEDULE 6.18(a)
WRC Media Share Ownership
-------------------------
WRC MEDIA COMMON STOCK
- EAC III L.L.C. (4,848,635 shares)
- SGC Partners II LLC (1,694,039 shares)
- Certain executives of WRC Media, Weekly Reader and JLC Learning
Corporation (107,523 shares)
- Holders of Unit Common Stock (205,656 shares)
WRC MEDIA PREFERRED STOCK (3,000,000 SHARES)
- DLJ Merchant Banking Partners and affiliated entities as set
forth in the Offering Memorandum
- The Northwestern Mutual Life Insurance Company
- Certain other investors
<PAGE>
7
SCHEDULE 6.18(b)
Weekly Reader Share Ownership
-----------------------------
WEEKLY READER VOTING COMMON STOCK
- WRC Media Inc. (2,685,670 shares)
- PRIMEDIA, Inc. (144,330 shares)
WEEKLY READER PREFERRED STOCK
- WRC Media Inc. (3,000,000 shares)
<PAGE>
8
SCHEDULE 6.18(c)
JLC Learning Corporation Share Ownership
----------------------------------------
JLC LEARNING CORPORATION COMMON STOCK
- WRC Media Inc. (10,000 shares)
<PAGE>
9
SCHEDULE 7.1.10
JLC LEARNING CORPORATION
------------------------
COPYRIGHTS
----------
All copyrights for JLC Learning Corporation are filed in the United States.
<TABLE>
<CAPTION>
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PRODUCT NAME DATE FILED/ISSUED COPYRIGHT NUMBER
- ------------ ----------------- ----------------
<S> <C> <C>
Advantage Mgmt Sys. 1.1 March 23, 1998 TX-4-620-089
Advantage Mgmt. Sys. 1.2 March 23, 1998 TX-4-620-087
Advantage Mgmt. Sys. 2.0 March 20, 1998 TX-4-613-682
Advantage Mgmt. Sys. 2.1 March 20, 1998 TX-4-613-679
AIMS 2.2.4 Adv. Instruc. Mgmt. Sys. March 20, 1998 TX-4-613-680
Compass 2.2 for Windows/MacIntosh March 23, 1998 TX-4-620-090
Compass 2.2 for ILA April 7, 1998 TX-4-634-221
Compass 2.3 for Windows/MacIntosh March 23, 1998 TX-620-094
Compass 3.0 for Windows/MacIntosh March 20, 1998 TX-4-613-681
LMS 3.15 April 7, 1998 TX-4-634-220
Peer to Peer Install Compass/Tomorrow's Promise 3.1 September 30, 1998 TX-4-626-266
Personal Compass 1.0 for Windows/ MacIntosh March 23, 1998 TX-4-620-099
Worldware 2.0 March 27, 1998 TX-4-623-250
Worldware 2.01 March 20, 1998 TX-4-620-084
RIMS I April 7, 1998 TX-4-634-224
RIMS II 1.72 for MAC March 27, 1998 TX-4-623-266
Jostens Comprehensive Assessment Tests/Compass March 23, 1998 TX-4-620-091
Jostens Comprehensive Assessment Tests/Advantage March 23, 1998 TX-4-620-088
Learning Expedition Language Arts March 27, 1998 TX-4-623-253
Learning Expedition Mathematics Level 1-3 March 27, 1998 TX-4-623-256
Learning Expedition Mathematics Level 4-8 March 27, 1998 TX-4-623-248
Learning Expedition Math Higher Level Activities March 27, 1998 TX-4-623-252
Learning Expedition Reading Levels 1-3 March 27, 1998 TX-4-623-255
Learning Expedition Reading Levels 4-8 March 27, 1998 TX-4-623-247
Learning Expedition Written Expression March 27, 1998 TX-4-623-251
Learning First Elementary Mathematics March 23, 1998 TX-4-620-095
Learning First Skills and Employability Skills March 23, 1998 TX-4-620-102
Learning First Foundations in Mathematics March 27, 1998 TX-4-623-259
Learning First Middle School Mathematics March 27, 1998 TX-4-623-258
Learning First Foundations in Reading March 27, 1998 TX-4-623-260
Learning First New Edition: Elementary Mathematics March 23, 1998 TX-4-620-103
Learning First New Edition: Elementary Reading March 23, 1998 TX-4-623-106
Integrated Language Arts - Primary Level March 25, 1998 TX-4-623-208
Tomorrow's Promise Biology March 23, 1998 TX-4-620-092
Tomorrow's Promise Chemistry March 23, 1998 TX-4-620-096
Tomorrow's Promise Earth Science March 23, 1998 TX-4-620-097
Tomorrow's Promise Language Arts Level 3 March 20, 1998 TX-4-613-670
Tomorrow's Promise Language Arts Level 4 March 20, 1998 TX-4-613-672
Tomorrow's Promise Language Arts Level 5 March 20, 1998 TX-4-613-676
Tomorrow's Promise Language Arts Level 6 March 20, 1998 TX-4-613-674
Tomorrow's Promise Language Arts Level 7 March 20, 1998 TX-4-613-671
- -----------------------------------------------------------------------------------------------------------------------
<PAGE>
10
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
PRODUCT NAME DATE FILED/ISSUED COPYRIGHT NUMBER
- ------------ ----------------- ----------------
<S> <C> <C>
Tomorrow's Promise Language Arts Level 8 March 20, 1998 TX-4-613-677
Tomorrow's Promise Language Arts Essay Levels 6-8 March 27, 1998 TX-4-623-246
Tomorrow's Promise Mathematics Level K March 20, 1998 TX-4-613-675
Tomorrow's Promise Mathematics Level 1 March 20, 1998 TX-4-613-687
Tomorrow's Promise Mathematics Level 2 March 20, 1998 TX-4-613-690
Tomorrow's Promise Mathematics Level 3 March 20, 1998 TX-4-613-685
Tomorrow's Promise Mathematics Level 4 March 20, 1998 TX-4-613-688
Tomorrow's Promise Mathematics Level 5 March 20, 1998 TX-4-613-686
Tomorrow's Promise Mathematics Level 6 March 20, 1998 TX-4-613-683
Tomorrow's Promise Mathematics Level 7 March 20, 1998 TX-4-613-693
Tomorrow's Promise Mathematics Level 8 March 20, 1998 TX-4-613-689
Tomorrow's Promise Physical Science March 23, 1998 TX-4-620-093
Tomorrow's Promise Problem Solving Strategies 6-8 March 27, 1998 TX-4-623-245
Tomorrow's Promise Reading Level K March 20, 1998 TX-4-613-697
Tomorrow's Promise Reading Level 1 March 20, 1998 TX-4-613-684
Tomorrow's Promise Reading Level 2 March 20, 1998 TX-4-613-673
Tomorrow's Promise Reading Level 3 March 20, 1998 TX-4-613-696
Tomorrow's Promise Reading Level 4 March 20, 1998 TX-4-613-691
Tomorrow's Promise Reading Level 5 March 20, 1998 TX-4-613-695
Tomorrow's Promise Reading Level 6 March 20, 1998 TX-4-613-692
Tomorrow's Promise Reading Level 7 March 20, 1998 TX-4-613-698
Tomorrow's Promise Reading Level 8 March 20, 1998 TX-4-613-694
Tomorrow's Promise Spelling Level 1 March 23, 1998 TX-4-620-098
Tomorrow's Promise Spelling Level 2 March 20, 1998 TX-4-613-678
Action Math March 27, 1998 TX-4-623-265
Community Exploration April 7, 1998 TX-4-634-223
English Language Development - Primary March 25, 1998 TX-4-623-213
Steps to English Language Development - Beginner Level March 25, 1998 TX-4-623-215
Steps to English Language Development - March 25, 1998 TX-4-623-214
Intermediate/Advanced
Explorations in Science, Earth, Physical, Biology March 27, 1998 TX-4-623-267
Friday Afternoon April 7, 1998 TX-4-634-222
Learning With Literature March 23, 1998 TX-4-620-101
Literature Based Mathematics March 27, 1998 TX-4-623-257
Middle School Mathematics March 23, 1998 TX-4-620-100
Reading Skills Collection Reading All Around You April 7, 1998 TX-4-634-226
Reading Skills Collection Read to Imagine April 7, 1998 TX-4-634-227
Reading Skills Collection Reading for Meaning April 7, 1998 TX-4-634-228
Reading Skills Collection Read to Think April 7, 1998 TX-4-634-229
Spanish Language Arts March 27, 1998 TX-4-623-264
Stems April 7, 1998 TX-4-634-225
Tapestry March 27, 1998 TX-4-623-244
Writing Expedition 1.1 for Mac/Windows March 20, 1998 TX-4-613-669
8th Grade Math Course Outline March 27, 1998 TX-1-912-790
Grade 8 Math Support Materials March 27, 1998 TX-1-920-115
8th Grade Math Teaching Aide March 27, 1998 TX-1-920-450
Integrated Classroom Learning System
Mathematics Documentation March 27, 1998 TX-1-922-225
Spanish I Teachers' Guide March 27, 1998 TX-2-680-774
Spanish I: Course Outline, Answer Keys, Worksheets, Tests March 27, 1998 TX-2-686-570
ICLS: Spanish Courseware Sample March 27, 1998 TX-2-723-547
- -----------------------------------------------------------------------------------------------------------------------
<PAGE>
11
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
PRODUCT NAME DATE FILED/ISSUED COPYRIGHT NUMBER
- ------------ ----------------- ----------------
<S> <C> <C>
Language Arts 3: Teachers' Guide March 27, 1998 TX-2-671-312
Language Arts 3 Course Outline, Answer Keys, Worksheets, March 27, 1998 TX-2-671-313
Tests
Calculus: Teachers' Guide March 27, 1998 TX-2-125-878
Calculus: Course Outline, Answers Keys, Worksheets, Tests March 27, 1998 TX-2-125-879
Calculus: I C L S courseware sample March 27, 1998 TX-2-172-445
Algebra I: Teachers' Guide March 27, 1998 TX-2-178-697
Algebra I: Support materials sample March 27, 1998 TX-2-178-698
Algebra I: Integrated classroom learning system: course March 27, 1998 TX-2-179-056
outline, answer keys, worksheets, tests
Integrated Classroom Learning System: Mathematics: Grade 7: March 27, 1998 TX-2-289-047
Support materials sample
Integrated Classroom Learning System: Trig/Analysis: March 27, 1998 TX-2-289-047
Teachers' Guide
Integrated Classroom Learning System: Trig/Analysis: Course March 27, 1998 TX-2-289-049
outline, answer keys, worksheets, tests
Integrated Classroom Learning System: Mathematics: Grade 7: March 27, 1998 TX-2-289-050
course outline, answers keys, worksheets, tests
Integrated Classroom Learning System: Mathematics: Grade 7: March 27, 1998 TX-2-289-051
Teachers' Guide
Geometry: course outline, answer keys worksheets, tests March 27, 1998 TX-2-311-453
Geometry: Teachers' Guide March 27, 1998 TX-2-311-454
Integrated Classroom Learning System: Algebra II, Teachers' March 27, 1998 TX-2-326-534
Guide
Trigonometry/math analysis: support material's sample March 27, 1998 TX-2-326-535
Algebra II: support material sample March 27, 1998 TX-2-345-457
Algebra II: course outline, answer keys, worksheets, tests March 27, 1998 TX-2-351-931
Geometry: support material sample March 27, 1998 TX-2-400-824
ICLS courseware sample: Language Arts 6 March 27, 1998 TX-2-582-332
Integrated Classroom Learning System, Language Arts 6: March 27, 1998 TX-2-582-333
course outline, answer keys, worksheets, tests
ICLS courseware sample: Language Arts March 27, 1998 TX-2-582-334
Integrated Classroom Learning System Language Arts 5: March 27, 1998 TX-2-582-335
course outline, answer keys, worksheets, test
Integrated Classroom Learning System: Language Arts 5: March 27, 1998 TX-2-582-336
Teachers' Guide
Integrated Classroom Learning System: Language Arts 6: March 27, 1998 TX-2-582-337
Teachers' Guide
Language Arts 4: Teachers' Guide March 27, 1998 TX-2-582-936
Language Arts 4: course outline, answer keys, worksheets tests March 27, 1998 TX-2-582-937
ICLS courseware sample March 27, 1998 TX-2-584-925
ICLS courseware sample March 27, 1998 TX-2-584-928
Secondary Language Arts: course outline, answer keys, March 27, 1998 TX-2-593-770
worksheets, tests
Math - Level 5: Teachers' Guide March 27, 1998 TX-2-671-309
German 1: Teachers' Guide March 27, 1998 TX-2-671-310
Physics: course outline, answer keys, worksheets, tests March 27, 1998 TX 2-671-315
ICLS courseware sample: 6th Grade Math March 27, 1998 TX-2-672-548
Physics: Teachers' Guide March 27, 1998 TX-2-672-549
German March 27, 1998 TX-2-672-555
Physics March 27, 1998 TX-2-672-556
Math, Level 5 March 27, 1998 TX-2-672-557
- -----------------------------------------------------------------------------------------------------------------------
<PAGE>
12
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
PRODUCT NAME DATE FILED/ISSUED COPYRIGHT NUMBER
- ------------ ----------------- ----------------
<S> <C> <C>
ICLS courseware sample: 4th Grade Math March 27, 1998 TX-2-678-479
Math - Level 6: Teachers' Guide March 27, 1998 TX-2-680-775
German 1: course outline, answer keys, worksheets, tests March 27, 1998 TX-2-686-566
ICLS courseware sample: 5th Grade Math March 27, 1998 TX-2-686-567
Math - Level 6: course outline, answer keys, worksheets, tests March 27, 1998 TX-2-686-568
Math - Level 4: course outline, answer keys, worksheets, tests March 27, 1998 TX-2-686-569
Mathematics: Grade 4: Teachers' Guide March 27, 1998 TX-2-686-571
ICLS Spanish 1: courseware sample March 27, 1998 TX-2-723-547
ICLS courseware sample: Language Arts 3 Ideal Learning: a March 27, 1998 TX-2-455-456
preschool curriculum for home use/created by Brett W. Rogers
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
Copyrights transferred from Hartley
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
PRODUCT NAME DATE FILED/ISSUED COPYRIGHT NUMBER
- ------------ ----------------- ----------------
<S> <C> <C>
Homonyms September 14, 1998 TX-1-919-673
Antonyms/Synonyms September 14, 1998 TX-1-923-273
Consonants September 14, 1998 TX-1-923-274
Vowels Tutorial September 14, 1998 TX-1-923-582
Number Words Level 2 September 14, 1998 TX-1-925-907
Create Your Own - Vocabulary French September 14, 1998 TX-1-926-180
Adjectives September 14, 1998 TX-1-926-189
Student Word Study September 14, 1998 TX-1-926-372
Super Wordfind September 14, 1998 TX-1-926-444
Create Intermediate September 14, 1998 TX-1-926-933
Create Vocabulary September 14, 1998 TX-1-926-934
Create Your Own - Vocabulary Spanish September 14, 1998 TX-1-927-484
Print Your Own - Bingo September 14, 1998 TX-1-928-566
Vocabulary Controlled September 14, 1998 TX-1-928-661
Presidents Physical Fitness September 14, 1998 TX-1-928-664
Letter Recognition September 14, 1998 TX-1-928-811
Create Your Own - Elementary September 14, 1998 TX-1-929-475
Parent Reporting September 14, 1998 TX-1-929-605
Fact Sheets September 14, 1998 TX-1-931-540
Word - a - Tech September 14, 1998 TX-1-940-789
Create Your Own - CCD Lessons September 14, 1998 TX-1-956-151
Metric Skills I & II September 14, 1998 TX-1-951-715
Adverbs September 14, 1998 TX-1-965-834
Wordsearch September 14, 1998 TX-1-965-935
The Medalist Series: Continents September 14, 1998 TX-2-012-225
Vowels September 14, 1998 TX-2-013-525
Prescriptive Math Drill September 14, 1998 TX-2-023-375
Analogies Tutorial I and II September 14, 1998 TX-2-025-231
Chariots, Cougars, and Kings September 14, 1998 TX-2-025-232
Kittens, Kids and a Frog September 14, 1998 TX-2-025-233
Scuffy and Friends September 14, 1998 TX-2-025-234
The Medalist Series: Presidents September 14, 1998 TX-2-025-245
Analogies Advanced I and II September 14, 1998 TX-2-026-237
The Medalist Series: Women in History September 14, 1998 TX-2-026-763
Famous Scientists September 14, 1998 TX-2-026-764
Number Words Level 1 September 14, 1998 TX-2-026-823
Create You Own - Spell It September 14, 1998 TX-2-027-287
Perplexing Puzzles September 14, 1998 TX-2-027-420
- -----------------------------------------------------------------------------------------------------------------------
<PAGE>
13
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
PRODUCT NAME DATE FILED/ISSUED COPYRIGHT NUMBER
- ------------ ----------------- ----------------
<S> <C> <C>
Temperature Experiments September 14, 1998 TX-2-029-315
Create Your Own - Medalists September 14, 1998 TX-2-029-641
Chemical Elements September 14, 1998 TX-2-029-797
The Medalist Series: States September 14, 1998 TX-2-029-798
Integers/Equations I & II September 14, 1998 TX-2-030-245
Match Espanol September 14, 1998 TX-2-030-375
Reading For Meaning Level 1 Fairy Tales and Rhymes September 14, 1998 TX-2-030-397
Compound Words and Contractions September 14, 1998 TX-2-030-398
Early Skills September 14, 1998 TX-2-030-399
Expanded Notation September 14, 1998 TX-2-031-150
Expanded Notation September 14, 1998 TX-2-031-151
Fact or Opinion September 14, 1998 TX-2-031-425
Cause and Effect September 14, 1998 TX-2-031-444
Match Francais September 14, 1998 TX-2-031-613
Figurative Language I and II September 14, 1998 TX-2-031-654
The Medalist Series: Black Americans September 14, 1998 TX-2-033-164
Binary Math September 14, 1998 TX-2-038-700
Create Your Own - Lessons September 14, 1998 TX-2-038-794
What's First? What's Next? September 14, 1998 TX-2-057-107
Sense or Nonsense September 14, 1998 TX-2-057-108
Little Riddles September 14, 1998 TX-2-057-109
Word Families II September 14, 1998 TX-2-057-110
U.S. History September 14, 1998 TX-2-057-111
Harper and Sellers - A Guide to the Classics: Macbeth September 14, 1998 TX-2-080-883
Harper and Sellers - A Guide to the Classics: The Adventures September 14, 1998 TX-2-081-007
of Huckleberry Finn
Reading For Meaning Level 2: Fairy Tales and Rhymes September 14, 1998 TX-2-159-771
Double 'N' Trouble September 14, 1998 TX-2-180-698
Word Ladders September 14, 1998 TX-2-212-911
Capitalization Practice and Test September 14, 1998 TX-2-219-871
Print Your Own Bingo Plus September 14, 1998 TX-2-240-339
Create Your Own Lessons Advanced September 14, 1998 TX-2-242-832
Shakespeare September 14, 1998 TX-2-243-374
Opposites September 14, 1998 TX-2-247-992
Milt's Math Drills September 14, 1998 TX-2-249-310
Drawing Conclusions and Problem Solving September 14, 1998 TX-2-258-394
Verb Usage III September 14, 1998 TX-2-279-559
Verb Usage I September 14, 1998 TX-2-315-676
Brick by Brick Level 1 Building Usage Skills September 14, 1998 TX-2-369-842
Brick by Brick Level 2 Building Usage Skills September 14, 1998 TX-2-370-451
Brick by Brick Level 1 Building Comprehension September 14, 1998 TX-2-373-860
Brick by Brick Level 4 Building Usage Skills September 14, 1998 TX-2-375-505
Brick by Brick Level 2 Building Vocabulary September 14, 1998 TX-2-378-720
Brick by Brick Level 4 Building Comprehension September 14, 1998 TX-2-384-016
Vocabulary Dolch September 14, 1998 TX-2-398-411
Brick by Brick Level 5 Building Comprehension September 14, 1998 TX-2-400-368
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
Copyrights being transferred from Ideal
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
PRODUCT NAME DATE FILED/ISSUED COPYRIGHT NUMBER
- ------------ ----------------- ----------------
<S> <C> <C>
Calculus: Teacher's Guide Transfer Application Pending TX-2-125-878
as of June 18, 1998
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
14
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
PRODUCT NAME DATE FILED/ISSUED COPYRIGHT NUMBER
- ------------ ----------------- ----------------
<S> <C> <C>
Calculus: Outline, Answer Keys, Worksheets, Tests Transfer Application Pending TX-2-125-879
as of June 18, 1998
Calculus: Support Materials Sample Transfer Application Pending TX-2-172-445
as of June 18, 1998
Algebra I: Teacher's Guide Transfer Application Pending TX-2-178-697
as of June 18, 1998
Algebra I: Support Materials Sample Transfer Application Pending TX-2-178-698
as of June 18, 1998
Algebra I: Outline, Answer Keys, Worksheets, Tests Transfer Application Pending TX-2-179-056
as of June 18, 1998
Mathematics Grade 7: Support Materials Sample Transfer Application Pending TX-2-289-047
as of June 18, 1998
Trigonometry/Math Analysis: Teacher's Guide Transfer Application Pending TX-2-289-048
as of June 18, 1998
Trigonometry/Math Analysis: Outline, Answer Keys, Transfer Application Pending TX-2-289-049
Worksheets, Tests as of June 18, 1998
Mathematics Grade 7: Outline, Answer Keys, Transfer Application Pending TX-2-289-050
Worksheets, Tests as of June 18, 1998
Mathematics Grade 7: Teacher's Guide Transfer Application Pending TX-2-289-051
as of June 18, 1998
Geometry: Course Outline, Answer Keys, Transfer Application Pending TX-2-311-453
Worksheets, Tests as of June 18, 1998
Geometry: Teacher's Guide Transfer Application Pending TX-2-311-454
as of June 18, 1998
Algebra II: Teacher's Guide Transfer Application Pending TX-2-326-534
as of June 18, 1998
Trigonometry/Math Analysis: Support Materials Transfer Application Pending TX-2-326-535
Sample as of June 18, 1998
Algebra II: Support Materials Sample Transfer Application Pending TX-2-345-457
as of June 18, 1998
Algebra II: Outline, Answer Keys, Worksheets, Tests Transfer Application Pending TX-2-351-931
as of June 18, 1998
Geometry: Support Materials Sample Transfer Application Pending TX-2-400-824
as of June 18, 1998
ICLS Courseware Sample Language Arts 6 Transfer Application Pending TX-2-582-332
as of June 18, 1998
Language Arts 6 Course Outline, Answer Keys, Transfer Application Pending TX-2-582-333
Worksheets, Tests as of June 18, 1998
ICLS Courseware Sample: Language Arts 5 Transfer Application Pending TX-2-582-334
as of June 18, 1998
ICLS Courseware Sample: Language Arts 5 Transfer Application Pending TX-2-582-334
as of June 18, 1998
Language Arts 5: Course Outline, Answer Keys, Transfer Application Pending TX-2-582-335
Worksheets, Tests as of June 18, 1998
Language Arts 5: Teacher's Guide Transfer Application Pending TX-2-582-336
as of June 18, 1998
Language Arts 6: Teacher's Guide Transfer Application Pending TX-2-582-337
as of June 18, 1998
Language Arts 4: Teacher's Guide Transfer Application Pending TX-2-582-936
as of June 18, 1998
Language Arts 4: Course Outline, Answer Keys, Transfer Application Pending TX-2-582-937
Worksheets, Tests as of June 18, 1998
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
15
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
PRODUCT NAME DATE FILED/ISSUED COPYRIGHT NUMBER
- ------------ ----------------- ----------------
<S> <C> <C>
ICLS Courseware Sample: Secondary Language Arts Transfer Application Pending TX-2-584-925
as of June 18, 1998
ICLS Courseware Sample: Language Arts 4 Transfer Application Pending TX-2-593-770
as of June 18, 1998
Secondary Language Arts: Course Outline, Answer Transfer Application Pending TX-2-686-566
Keys, Worksheets, Tests as of June 18, 1998
Math - Level 5: Teacher's Guide Transfer Application Pending TX-2-671-309
as of June 18, 1998
German I: Teacher's Guide Transfer Application Pending TX-2-671-310
as of June 18, 1998
Physics: Course Outlines, Answer Keys, Worksheets, Transfer Application Pending TX-2-671-315
Tests as of June 18, 1998
ICLS Courseware Sample: 6th Grade Math Transfer Application Pending TX-2-672-548
as of June 18, 1998
Physics: Teacher's Guide Transfer Application Pending TX-2-672-549
as of June 18, 1998
ICLS Courseware Sample: German Transfer Application Pending TX-2-672-555
as of June 18, 1998
ICLS Courseware Sample: Physics Transfer Application Pending TX-2-672-556
as of June 18, 1998
Math - Level 5: Course Outline, Answer Keys, Transfer Application Pending TX-2-672-557
Worksheets, Tests as of June 18, 1998
ICLS Courseware Sample: 4th Grade Math Transfer Application Pending TX-2-678-479
as of June 18, 1998
Math - Level 6: Teacher's Guide Transfer Application Pending TX-2-680-775
as of June 18, 1998
German I: Course Outline, Answer Keys, Worksheets, Transfer Application Pending TX-2-686-566
Tests as of June 18, 1998
ICLS Courseware Sample: 5th Grade Math Transfer Application Pending TX-2-686-567
as of June 18, 1998
Math - Level 6: Course Outline, Answer Keys, Transfer Application Pending TX-2-686-568
Worksheets, Tests as of June 18, 1998
Math - Level 4: Course Outline, Answer Keys, Transfer Application Pending TX-2-686-569
Worksheets, Tests as of June 18, 1998
Mathematics Grade 4: Teacher's Guide Transfer Application Pending TX-2-686-571
as of June 18, 1998
ICLS Courseware Sample: Language Arts 3 Transfer Application Pending TX-2-739-191
as of June 18, 1998
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
16
PRIMEDIA REFERENCE INC.
-----------------------
COPYRIGHTS
----------
All copyrights for Primedia Reference Inc. are filed in the United States.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
PRODUCT NAME COPYRIGHT NUMBER
- ------------ ----------------
<S> <C>
The 1999 World Almanac TX-4-898-925
- --------------------------------------------------------------------------------
</TABLE>
* Copyright registration submitted every November, upon publication, for
each new edition of The World Almanac. Copyright registration will be
submitted shortly for the 2000 World Almanac (publication date:
11/30/99)
FUNK & WAGNALLS YEARBOOK CORPORATION
-------------------------------------
COPYRIGHTS
----------
All copyrights for Funk & Wagnalls Yearbook Corporation are filed in the
United States.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
PRODUCT NAME COPYRIGHT NUMBER
- ------------ ----------------
<S> <C>
Funk & Wagnalls New Encyclopedia TX-4-860-036
(full text as of 12/31/98)
- --------------------------------------------------------------------------------
</TABLE>
* Copyright registration submitted every 3 months for the updated and
expanded Funk & Wagnalls New Encyclopedia full text database. Because
of the slowness of the copyright office, Funk & Wagnalls has not yet
received any of the copyright registration certificates for any of the
first three quarters of 1999.
AMERICAN GUIDANCE SERVICE, INC.
-------------------------------
COPYRIGHTS
----------
All copyrights for American Guidance Service Inc. are filed in the United
States.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
PRODUCT NAME COPYRIGHT NUMBER
- ------------ ----------------
<S> <C>
PPVT TX4-531-097
K-TEA TX4-737-590
DIAL TX2-907-985
BASC TX4-172-450
Vineland TX3-431-949
WRMT TX2-276-301
KeyMath Test TX2-380-291
OWLS (LC/OE Version) TX3-803-842
- --------------------------------------------------------------------------------
<PAGE>
17
<CAPTION>
- --------------------------------------------------------------------------------
<S> <C>
OWLS (WE Version) TX4-198-026
PIAT TX2-624-349
GFTA TX1-856-134
K-BIT TX3-003-231
K-ABC (Easel 1) TX1-563-401
K-ABC (Easel 2) TX1-499-140
K-ABC (Easel 3) TX1-452-750
K-ABC (Test Record Form) TX1-499-139
K-ABC (Manual) TX1-458-788
K-ABC (Photo Cards) TX-176-650
K-ABC (ASSIST) TX1-412-461
K-ABC (Scoring Manual) TX1-458-787
K-ABC (Supplemental Forms) TX2-268-847
- --------------------------------------------------------------------------------
</TABLE>
* Copyrights are for educational tests. Information provided above is
for the 10 most valuable tests of an approximate total of 40.
Information for the remaining tests will be provided as it is
received.
Other Copyrights
- ----------------
WRC and its subsidiaries (including those listed above) generate numerous
copyrights each week in connection with numerous ongoing publishing activities.
None of these copyrights are individually material and they are not listed
above.
<PAGE>
18
SCHEDULE 7.1.13
States with more than $1,000,000 Collateral
-------------------------------------------
- Connecticut
- Minnesota
- New Jersey
- Ohio
- Wisconsin
<PAGE>
19
SCHEDULE 7.2.2(b)
Indebtedness to be Paid
-----------------------
JLC LEARNING CORPORATION
- Existing Bank of America, N.A. credit facility
- SGC Partners II LLC Senior Subordinated 13.375% Note
- The Northwestern Mutual Life Insurance Company Senior Subordinated
13.375% Note
<PAGE>
20
SCHEDULE 7.2.2(c)
Existing Indebtedness
---------------------
Weekly Reader Corporation, Gareth Stevens, Inc. and American Guidance Service,
Inc. have indebtedness secured by the liens set forth on Schedule 7.2.3 (c).
<PAGE>
21
SCHEDULE 7.2.3(c)
<TABLE>
<CAPTION>
ONGOING LIENS
- ----------------------------------------------------------------------------------------------------------------
UCC-1
-----
DEBTOR SECURED PARTY FILING OFFICE/FILE NUMBER DESCRIPTION SUMMARY
------ ------------- ------------------------- -------------------
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------
Weekly WAM!NET, Inc. Connecticut State A WAM!NET Network
Reader 6100 West 110th Street 0001895389 Access Device, comprising
Corporation Minneapolis, MN 12/15/98 a case containing a Silicone
55438 Graphics central processing
unit, router, a Channel
Service Unit and Data Service
Unit modem and uninterrupted
power source.
- ----------------------------------------------------------------------------------------------------------------
Weekly Oce' Printing Systems New Jersey SoS 2090 LED Printer
Reader USA, Inc. 1804287 (refurbished)
Corporation 5600 Broken Sound 11/25/97
Blvd.
Boca Raton, FL 33487
- ----------------------------------------------------------------------------------------------------------------
Gareth The Brewery Works, Wisconsin SoS All equipment, fixtures,
Stevens, Inc. Inc. 1095127 inventory, documents
219 West Galena Street 11/20/89 relating to inventory,
Milwaukee, WI 53212 general intangibles,
1095128 accounts, contract rights,
11/20/89 chattel paper and
instruments, all additions
and accessions to, all spare
1460562 and repair parts, special
10/10/94 tools, equipment and
replacements for, all
returned or repossessed
1460561 goods, and all proceeds and
10/10/94 products.
- ----------------------------------------------------------------------------------------------------------------
American Screen Actors Guild, Minnesota SoS Debtor(s) grant a continuing
Guidance Inc. 1996213 security interest in all right,
Service, Inc. 5757 Wilshire Blvd. 12/15/97 title and interest of
Los Angeles, CA Debtor(s) in the television
AGS Media 90036-3600 project currently entitled,
"Duso Animation" and all
properties and things of
value pertaining thereto.
- ----------------------------------------------------------------------------------------------------------------
American Screen Actors Guild, Kentucky, Jefferson County Debtor(s) grant a continuing
Guidance Inc. 97-10362 security interest in all right,
Service, Inc. 5757 Wilshire Blvd. 12/16/97 title and interest of
Los Angeles, CA Debtor(s) in the television
AGS Media 90036-3600 project currently entitled,
"Duso Animation" and all
properties and things of
value pertaining thereto.
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
22
SCHEDULE 7.2.5(a)
Ongoing Investments
-------------------
- JLC Learning Corporation is a shareholder of 640 preferred shares
of ESI Inc., d/b/a Elemental Software, a California corporation,
with offices at 5927 Priestly Drive, Suite 100, Carlsbad, CA,
92008
- JLC Learning Corporation is a shareholder of 5619 shares of
common stock in PictureTel Corporation, a Delaware corporation
with offices at 100 Minuteman Road, Andover, MA, 01810. The
shares are held in escrow as a result of the sale of Starlight
Network.
- JLC Learning Corporation is a limited partner in Basics
Partnership, a Utah limited partnership formed November 30, 1982.
<PAGE>
EXECUTION COPY
SECURITY AND PLEDGE AGREEMENT
This SECURITY AND PLEDGE AGREEMENT (as amended, supplemented, amended
and restated or otherwise modified from time to time, this "SECURITY AND PLEDGE
AGREEMENT"), dated as of November 17, 1999, is made by WEEKLY READER
CORPORATION, a Delaware corporation ("WRC"), and JLC LEARNING CORPORATION, a
Delaware corporation ("JLC" and, together with WRC, the "BORROWERS"), WRC MEDIA
INC. (formerly known as EAC II INC.), a Delaware corporation and parent of JLC
("HOLDINGS"), PRIMEDIA REFERENCE INC., a Delaware corporation ("PRI"), AMERICAN
GUIDANCE SERVICE INC., a Minnesota corporation ("AGS"), LIFETIME LEARNING
SYSTEMS, INC., a Delaware corporation ("LLS"), AGS INTERNATIONAL SALES, INC., a
Minnesota corporation ("AIS"), FUNK & WAGNALLS YEARBOOK CORPORATION, a Delaware
corporation ("FW"), and GARETH STEVENS, INC., a Wisconsin corporation ("GS"),
each other Subsidiary (as defined below) of each of the Borrowers a signatory
hereto, and each other Person which may from time to time hereafter become a
party hereto pursuant to SECTION 7.5 (each, individually, an "ADDITIONAL
GRANTOR", and collectively, the "ADDITIONAL GRANTORS", and together with each
Borrower, Holdings, each such Subsidiary, each, individually, a "GRANTOR", and
collectively, the "GRANTORS"), in favor of BANK OF AMERICA, N.A., as
administrative agent (together with its successor(s) thereto, in such capacity
the "ADMINISTRATIVE AGENT") for each of the Secured Parties.
W I T N E S S E T H :
WHEREAS, pursuant to a Credit Agreement, dated as of November 17, 1999
(as amended, supplemented, amended and restated or otherwise modified from time
to time, the "CREDIT AGREEMENT"), among the Borrowers, Holdings, the various
financial institutions as are or may become parties thereto (collectively, the
"LENDERS"), DLJ Capital Funding, Inc., as the Syndication Agent (in such
capacity, the "SYNDICATION AGENT"), the Lead Arranger and the Sole Book Running
Manager, the Administrative Agent and General Electric Capital Corporation, as
the documentation agent (in such capacity, the "DOCUMENTATION AGENT") for the
Lenders, the Lenders and the Issuers have extended Commitments to make Credit
Extensions to the Borrowers;
WHEREAS, as a condition precedent to the making of the Credit
Extensions (including the initial Credit Extension)
<PAGE>
under the Credit Agreement, each Grantor is required to execute and deliver this
Security and Pledge Agreement;
WHEREAS, each Grantor has duly authorized the execution, delivery and
performance of this Security and Pledge Agreement; and
WHEREAS, it is in the best interests of each Grantor to execute this
Security and Pledge Agreement inasmuch as such Grantor will derive substantial
direct and indirect benefits from the Credit Extensions made from time to time
to the Borrowers by the Lenders and the Issuers pursuant to the Credit
Agreement;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and in order to induce the Lenders
and the Issuers to make Credit Extensions (including the initial Credit
Extension) to the Borrowers pursuant to the Credit Agreement, and to induce the
Secured Parties to enter into Rate Protection Agreement(s), each Grantor agrees,
for the benefit of each Secured Party, as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1. CERTAIN TERMS. The following terms (whether or not
underscored) when used in this Security and Pledge Agreement, including its
preamble and recitals, shall have the following meanings (such definitions to be
equally applicable to the singular and plural forms thereof):
"ADDITIONAL GRANTOR" and "ADDITIONAL GRANTORS" are defined in the
PREAMBLE.
"ADMINISTRATIVE AGENT" is defined in the PREAMBLE.
"BORROWERS" is defined in the PREAMBLE.
"COLLATERAL" is defined in SECTION 2.1.
"COMMODITY ACCOUNT" means an account maintained by a Commodity
Intermediary in which a Commodity Contract is carried out for a Commodity
Customer.
"COMMODITY CONTRACT" means a commodity futures contract, an option on a
commodity futures contract, a commodity option or any other contract that, in
each case,
2
<PAGE>
is (a) traded on or subject to the rules of a board of trade that has been
designated as a contract market for such a contract pursuant to the federal
commodities laws or (b) traded on a foreign commodity board of trade, exchange
or market, and is carried on the books of a Commodity Intermediary for a
Commodity Customer.
"COMMODITY CUSTOMER" means a Person for whom a Commodity Intermediary
carries a Commodity Contract on its books.
"COMMODITY INTERMEDIARY" means (a) a Person who is registered as a
futures commission merchant under the federal commodities laws or (b) a Person
who in the ordinary course of business provides clearance or settlement services
for a board of trade that has been designated as a contract market pursuant to
federal commodities laws.
"COMPUTER HARDWARE AND SOFTWARE COLLATERAL" means:
(a) all computer and other electronic data processing
hardware, integrated computer systems, central processing units, memory
units, display terminals, printers, features, computer elements, card
readers, tape drives, hard and soft disk drives, cables, electrical
supply hardware, generators, power equalizers, accessories and all
peripheral devices and other related computer hardware;
(b) all software programs (including both source code, object
code and all related applications and data files), whether now owned,
licensed or leased or hereafter acquired by any Grantor, designed for
use on the computers and electronic data processing hardware described
in CLAUSE (a) above;
(c) all firmware associated therewith;
(d) all documentation (including flow charts, logic diagrams,
manuals, guides and specifications) with respect to such hardware,
software and firmware described in the preceding CLAUSES (a) through
(c); and
(e) all rights with respect to all of the foregoing, including
any and all copyrights, licenses, options, warranties, service
contracts, program services, test rights, maintenance rights, support
rights, improvement rights, renewal rights and indemnifications and any
substitutions, replacements, additions or model conversions of any of
the foregoing.
3
<PAGE>
"CONTROL AGREEMENT" means an agreement in form and substance
satisfactory to the Administrative Agent which provides for the Administrative
Agent to have "control" (as defined in Section 8-106 of the U.C.C., as such term
relates to Investment Property (other than certificated Securities or Commodity
Contracts), or as used in Section 9-115(e) of the U.C.C., as such term relates
to Commodity Contracts).
"COPYRIGHT COLLATERAL" means all copyrights of each Grantor, whether
registered or unregistered, now or hereafter in force throughout the world
including all of such Grantor's right, title and interest in and to all
copyrights registered in the United States Copyright Office or anywhere else in
the world and also including the copyrights referred to in ITEM A of SCHEDULE V
attached hereto, and all applications for registration thereof, whether pending
or in preparation, all copyright licenses, including each copyright license
referred to in ITEM B of SCHEDULE V attached hereto, the right to sue for past,
present and future infringements of any thereof, all rights corresponding
thereto throughout the world, all extensions and renewals of any thereof and all
proceeds of the foregoing, including licenses, royalties, income, payments,
claims, damages and proceeds of suit.
"CREDIT AGREEMENT" is defined in the FIRST RECITAL.
"DEPOSIT ACCOUNT" means a demand, time, savings, passbook or other
account maintained with a bank, savings and loan association, credit union or
other financial institution.
"DISTRIBUTIONS" means all stock dividends, liquidating dividends,
shares of stock resulting from (or in connection with the exercise of) stock
splits, reclassifications, warrants, options, non-cash dividends, mergers,
consolidations, and all other distributions (whether similar or dissimilar to
the foregoing) on or with respect to any Securities constituting Collateral, but
shall not include Dividends.
"DIVIDENDS" means cash dividends and cash distributions with respect to
any Securities constituting Collateral made in the ordinary course of business
and not a liquidating dividend.
"ENTITLEMENT HOLDER" means a Person identified in the records of a
Securities Intermediary as the Person having a Security Entitlement against the
Securities Intermediary. If a Person acquires a Security Entitlement by virtue
of
4
<PAGE>
Section 8-501(b)(2) or (3) of the U.C.C., such Person is the Entitlement Holder.
"EQUIPMENT" is defined in CLAUSE (d) of SECTION 2.1.
"FINANCIAL ASSET" means (a) a Security, (b) an obligation of a Person
or a share, participation or other interest in a Person or in property or an
enterprise of a Person, which is, or is of a type, dealt with in or traded on
financial markets, or which is recognized in any area in which it is issued or
dealt in as a medium for investment or (c) any property that is held by a
Securities Intermediary for another Person in a Securities Account if the
Securities Intermediary has expressly agreed with the other Person that the
property is to be treated as a Financial Asset under Article 8 of the U.C.C. As
the context requires, the term Financial Asset shall mean either the interest
itself or the means by which a Person's claims to it is evidenced, including a
certificated or an uncertificated Security, a certificate representing a
Security or a Security Entitlement.
"GRANTOR" and "GRANTORS" are defined in the PREAMBLE.
"HOLDINGS" is defined in the PREAMBLE.
"INTELLECTUAL PROPERTY COLLATERAL" means, collectively,
the Computer Hardware and Software Collateral, the Copyright
Collateral, the Patent Collateral, the Trademark Collateral
and the Trade Secrets Collateral.
"INTERCOMPANY NOTE" means, with respect to any Grantor, as the payee
thereunder, a promissory note substantially in the form of EXHIBIT A hereto
(with such modifications as the Administrative Agent may consent to, such
consent not to be unreasonably withheld), which promissory note shall to the
extent required under clause (f)(i) of Section 7.2.2 of the Credit Agreement
evidence all intercompany loans which may be made from time to time by such
Grantor to either Borrower or any of their respective Subsidiaries as the maker
of such promissory note, as such promissory note, in accordance with SECTION
4.2.4, is amended, modified or supplemented from time to time, together with any
promissory note of such maker taken in extension or renewal thereof or
substitution therefor.
"INVESTMENT PROPERTY" means all Securities (whether certificated or
uncertificated), Security Entitlements, Securities Accounts, Commodity Contracts
and Commodity
5
<PAGE>
Accounts of any Grantor, whether now owned or hereafter acquired by any Grantor.
"INVENTORY" is defined in CLAUSE (e) of SECTION 2.1
"JLC" is defined in the PREAMBLE.
"LENDER" and "LENDERS" are defined in the FIRST
RECITAL.
"MASTER DEPOSIT ACCOUNT" means (a) in the case of WRC and its
Subsidiaries, the Deposit Account of WRC established and maintained with the
Administrative Agent and designated by WRC as its Master Deposit Account, (b) in
the case of JLC and its Subsidiaries, the Deposit Account of JLC established and
maintained with the Administrative Agent and designated by JLC as its Master
Deposit Account, and (c) in the case of Holdings, either such Deposit Account.
"MOTOR VEHICLES" shall mean motor vehicles, tractors, trailers and
other like property, whether or not the title thereto is governed by a
certificate of title or ownership.
"PATENT COLLATERAL" means:
(a) all letters patent and applications for letters patent
throughout the world, including all patent applications in preparation
for filing anywhere in the world and including each patent and patent
application referred to in ITEM A of SCHEDULE III attached hereto;
(b) all reissues, divisions, continuations,
continuations-in-part, extensions, renewals and reexaminations of any
of the items described in CLAUSE (a);
(c) all patent licenses, including each patent license
referred to in ITEM B of SCHEDULE III attached hereto; and
(d) all proceeds of, and rights associated with, the foregoing
(including license royalties and proceeds of infringement suits), the
right to sue third parties for past, present or future infringements of
any patent or patent application, including any patent or patent
application referred to in ITEM A of SCHEDULE III attached hereto, and
for breach or enforcement of any patent license, including any patent
license referred
6
<PAGE>
to in ITEM B of SCHEDULE III attached hereto, and all rights
corresponding thereto throughout the world.
"RECEIVABLES" is defined in CLAUSE (f) of SECTION 2.1.
"RELATED CONTRACTS" is defined in CLAUSE (f) of SECTION 2.1.
"SECURED OBLIGATIONS" is defined in SECTION 2.2.
"SECURITIES" means any obligations of an issuer or any shares,
participations, or other interests in an issuer or in property or an enterprise
of an issuer which (a) are represented by a certificate representing a security
in bearer or registered form, or the transfer of which may be registered upon
books maintained for that purpose by or on behalf of such issuer, (b) are one of
a class or series or by its terms is divisible into a class or series of shares,
participations, interests or obligations and (c) (i) are, or are of a type,
dealt with or traded on securities exchanges or securities markets or (ii) are a
medium for investment and by their terms expressly provide that they are a
security governed by Article 8 of the U.C.C.
"SECURITIES ACCOUNT" means an account to which a Financial Asset is or
may be credited in accordance with an agreement under which the Person
maintaining the account undertakes to treat the Person for whom the account is
maintained as entitled to exercise rights that comprise the Financial Asset.
"SECURITIES ACT" is defined in SECTION 6.2.
"SECURITY ENTITLEMENTS" means the rights and property interests of an
Entitlement Holder with respect to a Financial Asset.
"SECURITY AND PLEDGE AGREEMENT" is defined in the PREAMBLE.
"SECURITY INTERMEDIARY" means (a) a clearing corporation or (b) a
Person, including a bank or broker, that in the ordinary course of its business
maintains securities accounts for others and is acting in that capacity.
"TRADEMARK COLLATERAL" means:
(a) all trademarks, trade names, corporate names, company
names, business names, fictitious business
7
<PAGE>
names, trade styles, service marks, certification marks, collective
marks, logos, designs and other source of business identifiers (all of
the foregoing items in this CLAUSE (a) being collectively called a
"TRADEMARK"), now existing anywhere in the world or hereafter adopted
or acquired, whether currently in use or not, all registrations and
recordings thereof and all applications in connection therewith,
whether pending or in preparation for filing, including registrations,
recordings and applications in the United States Patent and Trademark
Office or in any other office or agency of the United States of America
or any State thereof or any foreign country, including those referred
to in ITEM A of SCHEDULE IV attached hereto;
(b) all Trademark licenses, including each Trademark license
referred to in ITEM B of SCHEDULE IV attached hereto;
(c) all reissues, extensions or renewals of any of the items
described in CLAUSE (a) and (b);
(d) all of the goodwill of the business connected with the use
of, and symbolized by the items described in, CLAUSES (a) and (b); and
(e) all proceeds of, and rights associated with, the
foregoing, including any claim by any Grantor against third parties for
past, present or future infringement or dilution of any Trademark,
Trademark registration or Trademark license, including any Trademark,
Trademark registration or Trademark license referred to in ITEM A and
ITEM B of SCHEDULE IV attached hereto, or for any injury to the
goodwill associated with the use of any such Trademark or for breach or
enforcement of any Trademark license.
"TRADE SECRETS COLLATERAL" means all common law and statutory trade
secrets and all other confidential or proprietary or useful information and all
know-how obtained by or used in or contemplated at any time for use in the
business of any Grantor (all of the foregoing being collectively called a "TRADE
SECRET"), whether or not such Trade Secret has been reduced to a writing or
other tangible form, including all documents and things embodying, incorporating
or referring in any way to such Trade Secret, all Trade Secret licenses,
including each Trade Secret license referred to in SCHEDULE VI attached hereto,
and including the right to sue for and to enjoin and to collect
8
<PAGE>
damages for the actual or threatened misappropriation of any Trade Secret and
for the breach or enforcement of any such Trade Secret license.
"U.C.C." means the Uniform Commercial Code, as in effect from time to
time in the State of New York.
"WRC" is defined in the PREAMBLE.
SECTION 1.2. CREDIT AGREEMENT DEFINITIONS. Unless otherwise defined
herein or the context otherwise requires, terms used in this Security and Pledge
Agreement, including its preamble and recitals, have the meanings provided in
the Credit Agreement.
SECTION 1.3. U.C.C. DEFINITIONS. Unless otherwise defined herein or in
the Credit Agreement or the context otherwise requires, terms for which meanings
are provided in the U.C.C. are used in this Security and Pledge Agreement,
including its preamble and recitals, with such meanings.
ARTICLE II
SECURITY INTEREST
SECTION 2.1. GRANT OF SECURITY. Each Grantor hereby assigns, pledges,
hypothecates, charges, mortgages, delivers, and transfers to the Administrative
Agent for its benefit and the ratable benefit of each of the Secured Parties,
and hereby grants to the Administrative Agent for its benefit and the ratable
benefit of each of the Secured Parties, a security interest in all of the
following, to the extent now or hereafter owned or acquired by such Grantor (the
"COLLATERAL"):
(a) all Intercompany Notes in which such Grantor has an
interest (including each Intercompany Note described in ITEM A of
SCHEDULE I hereto);
(b) all interest and other payments and rights with respect to
each Intercompany Note in which such Grantor has an interest;
(c) all Investment Property in which such Grantor has an
interest (including the Securities of each issuer described in ITEM B
of SCHEDULE I hereto); PROVIDED, that, in the case of Investment
Property consisting of (i) Securities of an issuer that is a Foreign
Subsidiary of such Grantor, the pledge of such
9
<PAGE>
Securities of such issuer shall be limited to the extent such pledge
would not exceed 65% of the total combined voting power of all classes
of Securities of such Foreign Subsidiary entitled to vote and (ii)
Securities of JLC or WRC that contemporaneously with the issuance
thereof to Holdings by JLC or WRC, as the case may be, are being
transferred or exchanged by Holdings to a holder of substantially
identical Securities of Holdings as a direct result of a Permitted
Equity Exchange in accordance with the Credit Agreement, such
Securities shall not constitute "Collateral";
(d) all equipment in all of its forms (including all Motor
Vehicles) of such Grantor, wherever located, including all parts
thereof and all accessions, additions, attachments, improvements,
substitutions and replacements thereto and therefor and all accessories
related thereto (any and all of the foregoing being the "EQUIPMENT");
(e) all inventory in all of its forms of such Grantor,
wherever located, including
(i) all raw materials and work in process therefor,
finished goods thereof, and materials used or consumed in the
manufacture or production thereof,
(ii) all goods in which such Grantor has an interest
in mass or a joint or other interest or right of any kind
(including goods in which such Grantor has an interest or
right as consignee), and
(iii) all goods which are returned to or repossessed
by such Grantor,
and all accessions thereto, products thereof and documents therefor
(any and all such inventory, materials, goods, accessions, products and
documents being the "INVENTORY");
(f) all accounts, contracts, contract rights, chattel paper,
documents, instruments, and general intangibles (including tax refunds)
of such Grantor, whether or not arising out of or in connection with
the sale or lease of goods or the rendering of services, and all rights
of such Grantor now or hereafter existing in and to all security
agreements, guaranties,
10
<PAGE>
leases and other contracts securing or otherwise relating to any such
accounts, contracts, contract rights, chattel paper, documents,
instruments, and general intangibles (any and all such accounts,
contracts, contract rights, chattel paper, documents, instruments, and
general intangibles being the "RECEIVABLES", and any and all such
security agreements, guaranties, leases and other contracts being the
"RELATED CONTRACTS");
(g) all Deposit Accounts of such Grantor (including its Master
Deposit Account in the case where such Grantor is a Borrower) and all
cash, checks, drafts, notes, bills of exchange, money orders and other
like instruments, if any, now owned or hereafter acquired, held therein
(or in sub-accounts thereof) and all certificates and instruments, if
any, from time to time representing or evidencing such investments, and
all interest, earnings and proceeds in respect thereof;
(h) all Intellectual Property Collateral of such
Grantor;
(i) all books, records, writings, data bases, information and
other property relating to, used or useful in connection with,
evidencing, embodying, incorporating or referring to, any of the
foregoing in this SECTION 2.1;
(j) all of such Grantor's other property and rights of every
kind and description and interests therein; and
(k) all products, offspring, rents, issues, profits, returns,
income and proceeds of and from any and all of the foregoing Collateral
(including proceeds which constitute property of the types described in
CLAUSES (a) through (j), proceeds deposited from time to time in any
lock box or Deposit Account of such Grantor (including its Master
Deposit Account in the case where such Grantor is a Borrower), and, to
the extent not otherwise included, all payments under insurance
(whether or not the Administrative Agent is the loss payee thereof), or
any indemnity, warranty or guaranty, payable by reason of loss or
damage to or otherwise with respect to any of the foregoing
Collateral).
Notwithstanding the foregoing, "Collateral" shall not include any general
intangibles or other rights described in
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CLAUSE (f) or (h) above arising under any contracts, instruments, licenses or
other documents described in such clause as to which the grant of a security
interest would constitute a violation of a valid and enforceable restriction in
favor of a third party on such grant, unless and until any required consents
shall have been obtained. Each Grantor agrees to use its best efforts to obtain
any such required consent.
SECTION 2.2. SECURITY FOR OBLIGATIONS. This Security and Pledge
Agreement secures the payment of all Obligations of each Grantor now or
hereafter existing under this Security and Pledge Agreement and each other Loan
Document to which such Grantor is or may become a party (collectively, the
"SECURED OBLIGATIONS").
SECTION 2.3. DELIVERY OF CERTIFICATED SECURITIES AND INTERCOMPANY
NOTES. All Collateral comprised of Intercompany Notes and certificated
Securities shall be delivered to and held by or on behalf of (and, in the case
of the Intercompany Notes, endorsed to the order of) the Administrative Agent
pursuant hereto, shall be in suitable form for transfer by delivery, and shall
be accompanied by all necessary instruments of transfer or assignment, duly
executed in blank.
SECTION 2.4. DIVIDENDS ON SECURITIES AND PAYMENTS ON INTERCOMPANY
NOTES. In the event that any Dividend is to be paid on any Security that
constitutes Collateral or any payment of principal or interest is to be made on
any Intercompany Note at a time when no Specified Default has occurred and is
continuing or would result therefrom, such Dividend or payment may be paid
directly to the applicable Grantor. If any such Specified Default has occurred
and is continuing, then any such Dividend or payment shall be paid directly to
the Administrative Agent.
SECTION 2.5. CONTINUING SECURITY INTEREST; TRANSFER OF NOTES. This
Security and Pledge Agreement shall create a continuing security interest in the
Collateral and shall
(a) remain in full force and effect until payment in full in
cash of all Secured Obligations, the termination or expiration of all
Letters of Credit, the termination of all Rate Protection Agreements
and the termination of all Commitments,
(b) be binding upon each Grantor, its successors, transferees
and assigns, and
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(c) inure, together with the rights and remedies of the
Administrative Agent hereunder, to the benefit of the Administrative
Agent and each other Secured Party.
Without limiting the generality of the foregoing CLAUSE (a)(iii), any Lender may
assign or otherwise transfer (in whole or in part) any Note or Credit Extension
held by it to any other Person, and such other Person shall thereupon become
vested with all the rights and benefits in respect thereof granted to such
Lender under any Loan Document (including this Security and Pledge Agreement) or
otherwise, subject, however, to any contrary provisions in such assignment or
transfer, and to the provisions of Section 11.11 and Article X of the Credit
Agreement. Upon (i) the sale, transfer or other disposition of Collateral in
accordance with Section 7.2.11 of the Credit Agreement or (ii) the payment in
full in cash of all Obligations, the termination or expiration of all Letters of
Credit, the termination of all Rate Protection Agreements and the termination of
all Commitments, the security interests granted herein shall automatically
terminate with respect to (x) such Collateral (in the case of CLAUSE (A)) or (B)
all Collateral (in the case of CLAUSE (B)). Upon any such sale, transfer,
disposition or termination, the Administrative Agent will, at such Grantor's
sole expense, deliver to such Grantor, without any representations, warranties
or recourse of any kind whatsoever, all applicable certificated Securities and
all applicable Intercompany Notes, together with all other applicable Collateral
held by the Administrative Agent hereunder, and execute and deliver to such
Grantor such documents as such Grantor shall reasonably request to evidence such
termination (including such documents as such Grantor shall reasonably request
to remove the notation of the Administrative Agent as lienholder on any
certificate of title for any applicable Motor Vehicle).
SECTION 2.6. GRANTOR REMAINS LIABLE. Anything herein to the contrary
notwithstanding
(a) each Grantor shall remain liable under the contracts and
agreements included in the Collateral to the extent set forth therein,
and shall perform all of its duties and obligations under such
contracts and agreements to the same extent as if this Security and
Pledge Agreement had not been executed,
(b) the exercise by the Administrative Agent of any of its
rights hereunder shall not release any Grantor from any of its duties
or obligations under any
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such contracts or agreements included in the Collateral, and
(c) neither the Administrative Agent nor any other Secured
Party shall have any obligation or liability under any such contracts
or agreements included in the Collateral by reason of this Security and
Pledge Agreement, nor shall the Administrative Agent or any other
Secured Party be obligated to perform any of the obligations or duties
of any Grantor thereunder or to take any action to collect or enforce
any claim for payment assigned hereunder.
SECTION 2.7. SECURITY INTEREST ABSOLUTE. All rights of the
Administrative Agent and the security interests granted to the Administrative
Agent hereunder, and all obligations of each Grantor hereunder, shall be
absolute and unconditional, irrespective of
(a) any lack of validity or enforceability of the
Credit Agreement, any Note or any other Loan Document;
(b) the failure of any Secured Party or any
holder of any Note
(i) to assert any claim or demand or to enforce any
right or remedy against any Borrower, any other Obligor or any
other Person under the provisions of the Credit Agreement, any
Note, any other Loan Document or otherwise, or
(ii) to exercise any right or remedy against any
other guarantor of, or collateral securing, any Secured
Obligations;
(c) any change in the time, manner or place of payment of, or
in any other term of, all or any of the Secured Obligations or any
other extension, compromise or renewal of any Secured Obligations;
(d) any reduction, limitation, impairment or termination of
any Secured Obligations for any reason, including any claim of waiver,
release, surrender, alteration or compromise, and shall not be subject
to (and each Grantor hereby waives any right to or claim of) any
defense or setoff, counterclaim, recoupment or termination whatsoever
by reason of the invalidity, illegality, nongenuineness, irregularity,
compromise, unenforceability of, or any other event or occurrence
affecting, any Secured Obligations or otherwise;
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(e) any amendment to, rescission, waiver, or other
modification of, or any consent to departure from, any of the terms of
the Credit Agreement, any Note or any other Loan Document;
(f) any addition, exchange, release, surrender or
non-perfection of any collateral (including the Collateral), or any
amendment to or waiver or release of or addition to or consent to
departure from any guaranty, for any of the Secured Obligations; or
(g) any other circumstances which might otherwise constitute a
defense available to, or a legal or equitable discharge of, any
Borrower, any other Obligor, any surety or any guarantor.
SECTION 2.8. POSTPONEMENT OF SUBROGATION, ETC. Each Grantor hereby
agrees that it will not exercise any rights which it may acquire by reason of
any payment made hereunder, whether by way of subrogation, reimbursement or
otherwise, until the prior payment in full in cash of all Secured Obligations,
the termination or expiration of all Letters of Credit, the termination of all
Rate Protection Agreements and the termination of all Commitments. Any amount
paid to any Grantor on account of any payment made hereunder prior to the
payment in full in cash of all Secured Obligations shall be held in trust for
the benefit of the Secured Parties and each holder of a Note and shall
immediately be paid to the Secured Parties and each holder of a Note and
credited and applied against the Secured Obligations, whether matured or
unmatured, in accordance with the terms of the Credit Agreement; PROVIDED,
HOWEVER, that if
(a) such Grantor has made payment to the Secured Parties and
each holder of a Note of all or any part of the Secured Obligations,
and
(b) all Secured Obligations have been paid in full in cash,
all Letters of Credit have been terminated or expired, all Rate
Protection Agreements have been terminated and all Commitments have
been permanently terminated,
each Secured Party and each holder of a Note agrees that, at the requesting
Grantor's request, the Secured Parties and the holders of the Notes will execute
and deliver to such Grantor appropriate documents (without recourse and without
representation or warranty) necessary to evidence the transfer by subrogation to
such Grantor of an interest in
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the Secured Obligations resulting from such payment by such Grantor. In
furtherance of the foregoing, for so long as any Secured Obligations,
Commitments or Letters of Credit remain outstanding or any Rate Protection
Agreement remains in full force and effect, each Grantor shall refrain from
taking any action or commencing any proceeding against any Borrower or any other
Obligor (or its successors or assigns, whether in connection with a bankruptcy
proceeding or otherwise) to recover any amounts in respect of payments made
under this Security and Pledge Agreement to any Secured Party or any holder of a
Note.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.1. REPRESENTATIONS AND WARRANTIES. Each Grantor represents
and warrants to each Secured Party insofar as the representations and warranties
contained herein are applicable to such Grantor and its properties, as set forth
in this ARTICLE III, and except as set forth or may be otherwise provided in the
applicable Foreign Pledge Agreement with respect to an issuer of any Security
constituting Collateral that is a Foreign Subsidiary of such Grantor.
SECTION 3.2. AS TO SECURITIES. All Securities constituting Collateral
that are issued by each Subsidiary of such Grantor (a) are duly authorized and
validly issued, fully paid, and non-assessable and (b) constitute all of the
issued and outstanding Securities of such Subsidiary (except, with respect to
CLAUSE (b), (i) in the case of each such Subsidiary that is a Foreign Subsidiary
of such Grantor, in which case, such Securities constitute 65% of the total
combined voting power of all classes of Securities of such Foreign Subsidiary
entitled to vote, (ii) in the case of JLC, the JLC PIK Preferred Equity, if any
(and to the extent issued to the holders thereof in exchange therefor by JLC,
preferred stock of JLC that is identical to the JLC PIK Preferred Equity), the
JLC Warrants and the common stock of JLC issued upon the exercise of the JLC
Warrants (but solely to the extent such common stock does not constitute more
than 13.1%, at the time of such exercise, of the common stock of JLC on a fully
diluted basis) and (iii) in the case of WRC, the WRC PIK Preferred Equity, if
any (and to the extent issued to the holders thereof in exchange therefor by
WRC, preferred stock of WRC that is identical to the WRC PIK Preferred Equity),
the WRC Warrants, the common stock of WRC issued upon the exercise
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of the WRC Warrants (but solely to the extent such common stock does not
constitute more than 13.1%, at the time of such exercise, of the common stock of
WRC on a fully diluted basis), the common stock of WRC that is issued in
exchange for Holdings (Unit) Common Stock (but solely to the extent such common
stock does not constitute more than 2.85%, at the time of such exercise, of the
common stock of WRC on a fully diluted basis) pursuant to a Permitted Common
Stock Exchange described in clause (ii) of the definition thereof). Except as
otherwise specified in the immediately preceding sentence, all of the Securities
of each Subsidiary of such Grantor are in certificated form and have been
pledged to the Administrative Agent by such Grantor.
SECTION 3.3. AS TO INTERCOMPANY NOTES. In the case of each Intercompany
Note, all of such Intercompany Notes have been duly authorized, executed,
endorsed, issued and delivered, and are the legal, valid and binding obligation
of the issuers thereof, and are not in default.
SECTION 3.4. LOCATION OF COLLATERAL, ETC. All of the Equipment,
Inventory and lock boxes of such Grantor are respectively located at the places
specified in Sections 3(e), (g) and (c) of the Perfection Certificate delivered
by such Grantor. None of the Equipment and Inventory has, within the four months
preceding the date of this Security and Pledge Agreement (if then owned by such
Grantor), been located at any place other than the places specified in Sections
3(e) and (g), respectively, of the Perfection Certificate delivered by such
Grantor. The place(s) of business and chief executive office of such Grantor and
the office(s) where such Grantor keeps its records concerning the Receivables,
and all originals of all chattel paper which evidence Receivables, are
respectively located at the addresses set forth in Sections 3(d), (a) and (b) of
the Perfection Certificate delivered by such Grantor. Such Grantor has no trade
names other than those set forth in Section 1(d) of the Perfection Certificate
delivered by such Grantor. During the four months preceding the date hereof,
such Grantor has not been known by any legal name nor has it had a federal
taxpayer identification number different from the ones set forth in Section 1(a)
(except that Holdings was formerly known as EAC II Inc.) and 2(a), respectively,
of the Perfection Certificate delivered by such Grantor, nor has such Grantor
been the subject of any merger or other corporate reorganization, except as
disclosed pursuant to Section 1(c) of the Perfection Certificate delivered by
such Grantor. If the Collateral includes any Inventory located in the State of
California, such Grantor is not a "retail merchant" within the meaning
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of Section 9102 of the Uniform Commercial Code - Secured Transactions of the
State of California. All Receivables evidenced by a promissory note or other
instrument, negotiable document or chattel paper have been duly endorsed and
accompanied by duly executed instruments of transfer or assignment, all in form
and substance satisfactory to the Administrative Agent and delivered and pledged
to the Administrative Agent pursuant to SECTION 4.10. Such Grantor is not a
party to any Federal, state or local government contract except as set forth in
SCHEDULE II hereto.
SECTION 3.5. OWNERSHIP, NO LIENS, ETC. Such Grantor owns its Collateral
free and clear of any Lien, security interest, charge or encumbrance except for
the security interest created by this Security and Pledge Agreement and except
in the case of Collateral not consisting of Securities and Intercompany Notes as
permitted by the Credit Agreement. No effective financing statement or other
instrument similar in effect covering all or any part of the Collateral is on
file in any recording office, except such as may have been filed in favor of the
Administrative Agent relating to this Security and Pledge Agreement or as have
been filed in connection with Liens permitted pursuant to Section 7.2.3 of the
Credit Agreement or as to which a duly executed termination statement relating
to such financing statement or other instrument has been delivered to the
Administrative Agent on the Closing Date.
SECTION 3.6. POSSESSION AND CONTROL. Such Grantor has exclusive
possession and control of its Equipment and Inventory.
SECTION 3.7. NEGOTIABLE DOCUMENTS, INSTRUMENTS AND CHATTEL PAPER. If
requested by the Administrative Agent, such Grantor has, contemporaneously
herewith, delivered to the Administrative Agent possession of all originals of
all negotiable documents, instruments and chattel paper currently owned or held
by such Grantor duly endorsed in blank.
SECTION 3.8. INTELLECTUAL PROPERTY COLLATERAL. With
respect to any Intellectual Property Collateral the loss,
impairment or infringement of which might have a Material
Adverse Effect:
(a) to the best knowledge of the Grantor, such Intellectual
Property Collateral is subsisting and has not been adjudged invalid or
unenforceable, in whole or in part;
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(b) to the best knowledge of the Grantor, such Intellectual
Property Collateral is valid and enforceable;
(c) such Grantor has made all necessary filings and
recordations to protect its interest in such Intellectual Property
Collateral, including recordations of all of its interests in the
Patent Collateral and Trademark Collateral in the United States Patent
and Trademark Office and in corresponding offices in countries in which
the failure to so file and/or record could reasonably have a Material
Adverse Effect and its claims to the Copyright Collateral in the United
States Copyright Office and in corresponding offices in countries in
which the failure to so file and/or record could reasonably have a
Material Adverse Effect;
(d) to the best knowledge of the Grantor, no claim has been
made that the use of such Intellectual Property Collateral does or may
violate the asserted rights of any third party and such Grantor is the
exclusive owner of the entire and unencumbered right, title and
interest in and to such Intellectual Property Collateral;
(e) to the best knowledge of the Grantor, such Grantor has
performed all acts and has paid all required fees and taxes to maintain
each and every such item of Intellectual Property Collateral in full
force and effect throughout the world, as applicable; and
(f) to the best knowledge of the Grantor, such Grantor owns
directly or is entitled to use by license or otherwise, all patents,
Trademarks, Trade Secrets, copyrights, licenses, technology, know-how,
processes and rights with respect to any of the foregoing used in or
necessary for the conduct of such Grantor's business.
SECTION 3.9. VALIDITY, ETC. This Security and Pledge Agreement creates
a valid security interest in the Collateral securing the payment of the Secured
Obligations, and
(a) in the case of Collateral comprised of certificated
Securities or instruments, upon the delivery of such Collateral to the
Administrative Agent, such security interest will be a valid first
priority perfected security interest;
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(b) in the case of Collateral comprised of uncertificated
Securities and other Investment Property (other than certificated
Securities), upon the Administrative Agent obtaining "control" (as
defined in Section 8-106 of the U.C.C., as such term relates to
Investment Property (other than certificated Securities or Commodity
Contracts), or as used in Section 9-115(e) of the U.C.C., as such term
relates to Commodity Contracts) of such Collateral and the filing of
the Uniform Commercial Code financing statements delivered by the
Grantor having an interest in such Collateral to the Administrative
Agent with respect to such Collateral, such security interest will be a
valid first priority perfected security interest;
(c) in the case of Collateral comprised of Motor Vehicles,
upon the recordation or notation of the Administrative Agent's Lien on
the certificates of title or ownership in respect of such Motor
Vehicles and the filing of the Uniform Commercial Code financing
statements delivered by the Grantor having an interest in such Motor
Vehicles to the Administrative Agent with respect to such Collateral,
such security interest will be a valid first priority perfected
security interest;
(d) in the case of Collateral comprised of the Master Deposit
Accounts, (i) such security interest is a valid first priority
perfected security interest or (ii) if applicable law would not
characterize such security interest as "perfected" or "first priority",
the Administrative Agent has rights with respect to such Collateral
that are senior to any other Person that obtains a judicial lien on or
execution against such Collateral or obtains a lien thereon granted by
the holder of such Collateral; and
(e) in the case of all other Collateral in which a security
interest may be perfected by the filing of Uniform Commercial Code
financing statements, upon the filing of the Uniform Commercial Code
financing statements delivered by the Grantor to the Administrative
Agent with respect to such Collateral, such security interest will be a
valid first priority perfected security interest.
Each Grantor has filed all Uniform Commercial Code financing statements referred
to above in the appropriate offices therefor (or has provided the Administrative
Agent with copies thereof suitable for filing in such offices) and has taken all
of the other actions referred to above necessary
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to create perfected, first-priority security interests in the applicable
Collateral.
SECTION 3.10. AUTHORIZATION, APPROVAL, ETC. Except as have been
obtained or made and are in full force and effect (or otherwise provided for to
the satisfaction of the Agents), no authorization, approval or other action by,
and no notice to or filing with, any governmental authority or regulatory body
is required either
(a) for the grant by such Grantor of the security interest
granted hereby, the pledge by such Grantor of any Collateral pursuant
hereto or for the execution, delivery and performance of this Security
and Pledge Agreement by such Grantor,
(b) for the perfection of or the exercise by the
Administrative Agent of its rights and remedies hereunder, or
(c) for the exercise by the Administrative Agent of the voting
or other rights provided for in this Security and Pledge Agreement, or,
except with respect to any Securities issued by a Subsidiary of such
Grantor, as may be required in connection with a disposition of such
Securities by laws affecting the offering and sale of securities
generally, the remedies in respect of the Collateral pursuant to this
Security and Pledge Agreement.
SECTION 3.11. COMPLIANCE WITH LAWS. Such Grantor is in compliance with
the requirements of all applicable laws (including the provisions of the Fair
Labor Standards Act), rules, regulations and orders of every governmental
authority, the non-compliance with which could reasonably be expected to have a
Material Adverse Effect or which could reasonably be expected to materially
adversely affect the value of the Collateral or the worth of the Collateral as
collateral security.
ARTICLE IV
COVENANTS
SECTION 4.1. CERTAIN COVENANTS. Each Grantor covenants and agrees that,
so long as any portion of the Secured Obligations shall remain unpaid, any Rate
Protection Agreements shall remain in full force and effect, any Letters of
Credit shall be outstanding or any Lender shall
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have any outstanding Commitment, such Grantor will, unless the Required Lenders
shall otherwise consent in writing, perform, comply with and be bound by the
obligations set forth in this ARTICLE IV.
SECTION 4.2. AS TO INVESTMENT PROPERTY AND INTERCOMPANY NOTES; ETC.
SECTION 4.2.1. CERTIFICATED SECURITIES. Such Grantor shall cause each
of its Subsidiaries (a) to provide in its Organic Documents that all equity
interests in such Subsidiaries shall be Securities governed by Article 8 of the
Uniform Commercial Code and (b) to ensure that all such interests are evidenced
by certificated Securities.
SECTION 4.2.2. INVESTMENT PROPERTY (OTHER THAN CERTIFICATED
SECURITIES). With respect to any Investment Property (other than certificated
Securities) of such Grantor, such Grantor shall (a) cause a Control Agreement
relating to such Investment Property to be executed and delivered in favor of
the Administrative Agent and (b) deliver Uniform Commercial Code financing
statements which when filed will result in the Administrative Agent having a
first priority perfected security interest in such Investment Property.
SECTION 4.2.3. STOCK POWERS, ETC. Such Grantor agrees that all
certificated Securities constituting Collateral delivered by such Grantor
pursuant to this Security and Pledge Agreement will be accompanied by duly
executed undated blank stock powers, or other equivalent instruments of transfer
acceptable to the Administrative Agent. Such Grantor will, from time to time
upon the request of the Administrative Agent, promptly deliver to the
Administrative Agent such stock powers, instruments, and similar documents,
satisfactory in form and substance to the Administrative Agent, with respect to
such Collateral as the Administrative Agent may reasonably request and will,
from time to time upon the request of the Administrative Agent after the
occurrence of any Specified Default, promptly transfer any Securities
constituting Collateral into the name of any nominee designated by the
Administrative Agent.
SECTION 4.2.4. CONTINUOUS PLEDGE. Such Grantor will, at all times, keep
pledged to the Administrative Agent pursuant hereto on a first priority
perfected basis all Investment Property constituting Collateral, all Dividends
and Distributions with respect thereto, all Intercompany Notes, all interest,
principal and other proceeds received by the Administrative Agent with respect
to the Intercompany
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Notes, and all other Collateral and other securities, instruments, proceeds, and
rights from time to time received by or distributable to such Grantor in respect
of any of the foregoing Collateral and will not permit any Subsidiary of such
Grantor to issue any Securities which shall not have been immediately duly
pledged hereunder on a first priority perfected basis.
SECTION 4.2.5. VOTING RIGHTS; DIVIDENDS, ETC. Such Grantor agrees:
(a) after any Specified Default shall have occurred and be
continuing, promptly upon receipt of notice thereof by such Grantor and
without any request therefor by the Administrative Agent, to deliver
(properly endorsed where required hereby or requested by the
Administrative Agent) to the Administrative Agent all Dividends,
Distributions, all interest, all principal, all other cash payments,
and all proceeds of the Collateral, all of which shall be held by the
Administrative Agent as additional Collateral for use in accordance
with CLAUSE (b) of SECTION 6.1; and
(b) after any Specified Default shall have occurred and be
continuing and the Administrative Agent has notified such Grantor of
the Administrative Agent's intention to exercise its voting power under
this SECTION 4.2.5(b)
(i) the Administrative Agent may exercise (to the
exclusion of such Grantor) the voting power and all other
incidental rights of ownership with respect to any Securities
or other Investment Property constituting Collateral and such
Grantor hereby grants the Administrative Agent an irrevocable
proxy, exercisable under such circumstances, to vote such
Securities and such other Collateral; and
(ii) promptly to deliver to the Administrative Agent
such additional proxies and other documents as may be
necessary to allow the Administrative Agent to exercise such
voting power.
All Dividends, Distributions, interest, principal, cash payments, and proceeds
which may at any time and from time to time be held by such Grantor but which
such Grantor is then obligated to deliver to the Administrative Agent, shall,
until delivery to the Administrative Agent, be held
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by such Grantor separate and apart from its other property in trust for the
Administrative Agent. The Administrative Agent agrees that unless a Specified
Default shall have occurred and be continuing and the Administrative Agent shall
have given the notice referred to in SECTION 4.2.5(b), such Grantor shall have
the exclusive voting power with respect to any Securities constituting
Collateral and the Administrative Agent shall, upon the written request of such
Grantor, promptly deliver such proxies and other documents, if any, as shall be
reasonably requested by such Grantor which are necessary to allow such Grantor
to exercise voting power with respect to any such Securities; PROVIDED, HOWEVER,
that no vote shall be cast, or consent, waiver, or ratification given, or action
taken by such Grantor that would impair any such Collateral or be inconsistent
with or violate any provision of the Credit Agreement or any other Loan Document
(including this Security and Pledge Agreement).
SECTION 4.2.6. AMENDMENT OF ORGANIC DOCUMENTS. Such Grantor will not
amend, supplement or otherwise modify, or permit, consent or suffer to occur any
amendment, supplement or modification of any terms or provisions contained in,
or applicable to, any Organic Document of any issuer of any Security comprising
the Collateral in which it has an equity interest if the effect thereof is to
impair, or is in any manner adverse to, the rights or interests of the
Administrative Agent or any other Secured Party hereunder or under the Credit
Agreement or any other Loan Document, without the prior written consent of the
Administrative Agent and the Required Lenders; PROVIDED, HOWEVER, that in
connection with a Permitted Equity Exchange of the type described in clause (i)
or (iii) of the definition thereof, a certificate of designation, having
substantially the same terms as the Holdings Certificate of Designation, may be
filed by JLC and/or WRC, as the case may be.
SECTION 4.3. AS TO EQUIPMENT AND INVENTORY. Such Grantor hereby agrees
that it shall
(a) keep all the Equipment and Inventory (other than Inventory
sold in the ordinary course of business) at the places therefor
specified in SECTION 3.4 or, upon 30 days' prior written notice to the
Administrative Agent, at such other places in a jurisdiction where all
representations and warranties set forth in ARTICLE III (including
SECTION 3.9) shall be true and correct, and all action required
pursuant to the FIRST SENTENCE of SECTION 4.10 shall have been taken
with respect to the Equipment and Inventory;
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(b) cause the Equipment to be maintained and preserved as
required by Section 7.1.3 of the Credit Agreement; and promptly furnish
to the Administrative Agent a statement respecting any loss or damage
to any of such material Equipment; and
(c) pay promptly when due all property and other material
taxes, assessments and governmental charges or levies imposed upon, and
all claims (including claims for labor, materials and supplies)
against, the Equipment and Inventory, except to the extent the validity
thereof is being contested in good faith by appropriate proceedings and
for which adequate reserves in accordance with GAAP have been set
aside.
SECTION 4.4. AS TO RECEIVABLES. (a) Such Grantor shall keep its
place(s) of business and chief executive office and the office(s) where it keeps
its records concerning the Receivables, and all originals of all chattel paper
which evidences Receivables, located at the address(es) set forth in Section
3(b) of the Perfection Certificate delivered by such Grantor, or, upon 30 days'
prior written notice to the Administrative Agent, at such other locations in a
jurisdiction where all actions required by the FIRST SENTENCE of SECTION 4.10
shall have been taken with respect to the Receivables; not change its name or
federal taxpayer identification number except upon 30 days' prior written notice
to the Administrative Agent; hold and preserve such records and chattel paper;
and permit representatives of the Administrative Agent at any time during normal
business hours to inspect and make abstracts from such records and chattel
paper. In addition, the Grantor shall give the Administrative Agent a supplement
to such Perfection Certificate on each date a Compliance Certificate is required
to be delivered to the Administrative Agent under the Credit Agreement, which
shall set forth any changes to the information set forth in SECTION 3.4.
(b) Such Grantor shall have the right to collect all Receivables so
long as no Specified Default shall have occurred and be continuing; PROVIDED,
HOWEVER, that such Grantor agrees to promptly deposit all payments received by
such Grantor on account of the Receivables, whether in the form of cash, checks,
drafts, notes, bills of exchange, money orders or other like instruments or
otherwise, in a Deposit Account in precisely the form in which received (but
with any endorsements of such Grantor necessary for deposit or collection).
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(c) All proceeds of Collateral received by such Grantor shall be
deposited into a Deposit Account of such Grantor, unless, during the occurrence
and continuance of a Specified Default, such Grantor is otherwise notified in
writing by the Administrative Agent. Following any such notice by the
Administrative Agent to such Grantor pursuant to this SECTION 4.4(c), all
proceeds of Collateral received by such Grantor shall be delivered in kind to a
Master Deposit Account or any other account or accounts specified by the
Administrative Agent. Proceeds of Collateral received by such Grantor shall,
prior to deposit in such Master Deposit Account or such other account or
accounts specified by the Administrative Agent, be held separate and apart from,
and not commingled with, all other property and in express trust for the benefit
of the Administrative Agent until delivery thereof is made to such Master
Deposit Account or such other account or accounts.
(d) Such Grantor shall transfer all funds out of each of its Deposit
Accounts that is not a Master Deposit Account (other than, in the aggregate,
cash or Cash Equivalent Investments in all Deposit Accounts (other than the
Master Deposit Accounts) that do not exceed at any time $10,000) for deposit
into a Master Deposit Account at the close of business each day or, if not
commercially reasonable to do so, no less frequently than once every five
Business Days.
(e) The Administrative Agent shall have the right to apply any amount
in each Deposit Account (including either Master Deposit Account) to the payment
of any Secured Obligations which are due and payable or payable upon demand or
to the payment of any Secured Obligations at any time that a Specified Default
shall have occurred and be continuing.
(f) With respect to each Deposit Account maintained with the
Administrative Agent (including each Master Deposit Account), it is hereby
agreed that (i) deposits in each such Deposit Account are subject to a security
interest as contemplated hereby, (ii) each such Deposit Account shall be under
the sole dominion and control of the Administrative Agent and (iii) the
Administrative Agent shall have the sole right of withdrawal over each such
Deposit Account; PROVIDED, HOWEVER, that, unless and until the Administrative
Agent shall notify the applicable Grantors that a Specified Default shall have
occurred and be continuing and that during the continuance thereof no such
Grantor shall withdraw any of the funds contained in any such Deposit Account
(which notice may be given by telephone if promptly confirmed in writing or by
facsimile), any such Grantor may
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at any time withdraw any of the funds contained in its Deposit Account for use
in any lawful manner not inconsistent with the provisions of this Security and
Pledge Agreement, the Credit Agreement or any other Loan Document.
SECTION 4.5. MOTOR VEHICLES. (a) Such Grantor shall deliver to the
Administrative Agent the original of the certificate of title or ownership
listing the Administrative Agent as lienholder for (i) any Motor Vehicle owned
by such Grantor that has a fair market value of at least $50,000 or (ii) at the
request of the Administrative Agent, any other Motor Vehicle owned by such
Grantor.
(b) Upon the acquisition after the date hereof by such Grantor of (i)
any Motor Vehicle having a fair market value of at least $50,000 or (ii) any
other Motor Vehicle for which the Administrative Agent has requested the
original of the certificate of title or ownership thereof, such Grantor shall
deliver to the Administrative Agent originals of the certificates of title or
ownership for such Motor Vehicles, together with the manufacturer's statement of
origin with the Administrative Agent listed as lienholder.
(c) Without limiting SECTION 5.1, such Grantor hereby appoints the
Administrative Agent as its attorney-in-fact, effective the date hereof and
terminating upon the termination of this Security and Pledge Agreement, for the
purpose of (i) executing on behalf of such Grantor title or ownership
applications for filing with appropriate state agencies to enable Motor Vehicles
now owned or hereafter acquired by such Grantor to be retitled and the
Administrative Agent listed as lienholder thereon, (ii) filing such applications
with such state agencies and (iii) executing such other documents and
instruments on behalf of, and taking such other action in the name of, such
Grantor as the Administrative Agent may deem necessary or advisable to
accomplish the purposes hereof (including, without limitation, the purpose of
creating in favor of the Administrative Agent a perfected lien on the Motor
Vehicles and exercising the rights and remedies of the Administrative Agent
under SECTION 6.1 hereof). This appointment as attorney-in-fact is irrevocable
and coupled with an interest.
(d) Any certificates of title or ownership delivered pursuant to the
terms hereof shall be accompanied by odometer statements for each Motor Vehicle
covered thereby.
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SECTION 4.6. AS TO COLLATERAL. (a) Until the occurrence and continuance
of a Specified Default, and such time as the Administrative Agent shall notify
such Grantor of the revocation of such power and authority such Grantor (i) may
in the ordinary course of its business (except as otherwise permitted under the
Credit Agreement), at its own expense, sell, lease or furnish under the
contracts of service any of the Inventory normally held by such Grantor for such
purpose, and use and consume, in the ordinary course of its business (except as
otherwise permitted under the Credit Agreement), any raw materials, work in
process or materials normally held by such Grantor for such purpose, (ii) will,
at its own expense, endeavor to collect, as and when due, all amounts due with
respect to any of the Collateral, including the taking of such action with
respect to such collection as the Administrative Agent may reasonably request
following the occurrence of a Specified Default or, in the absence of such
request, as such Grantor may deem advisable, and (iii) may grant, in the
ordinary course of business (except as otherwise permitted under the Credit
Agreement), to any party obligated on any of the Collateral, any rebate, refund
or allowance to which such party may be lawfully entitled, and may accept, in
connection therewith, the return of goods, the sale or lease of which shall have
given rise to such Collateral. The Administrative Agent, however, may, at any
time following a Specified Default, whether before or after any revocation of
such power and authority or the maturity of any of the Secured Obligations,
notify any parties obligated on any of the Collateral to make payment to the
Administrative Agent of any amounts due or to become due thereunder and enforce
collection of any of the Collateral by suit or otherwise and surrender, release,
or exchange all or any part thereof, or compromise or extend or renew for any
period (whether or not longer than the original period) any indebtedness
thereunder or evidenced thereby. Upon request of the Administrative Agent
following a Specified Default, such Grantor will, at its own expense, notify any
parties obligated on any of the Collateral to make payment to the Administrative
Agent of any amounts due or to become due thereunder.
(b) Following a Specified Default, the Administrative Agent is
authorized to endorse, in the name of such Grantor, any item, howsoever received
by the Administrative Agent, representing any payment on or other proceeds of
any of the Collateral.
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SECTION 4.7. AS TO INTELLECTUAL PROPERTY COLLATERAL. Each Grantor
covenants and agrees to comply with the following provisions as such provisions
relate to any Intellectual Property Collateral of such Grantor:
(a) such Grantor shall not, unless such Grantor shall either
(i) reasonably and in good faith determine (and make commercially
reasonable efforts to provide notice of such determination to the
Administrative Agent) that any of the Patent Collateral is of
negligible economic value to such Grantor, or (ii) have a valid
business purpose to do otherwise, do any act, or omit to do any act,
whereby any of the Patent Collateral may lapse or become abandoned or
dedicated to the public or unenforceable except upon expiration of the
end of an unrenewable term of a registration thereof;
(b) such Grantor shall not, and such Grantor shall not permit
any of its licensees to, unless such Grantor shall either (i)
reasonably and in good faith determine (and all commercially reasonable
efforts to provide notice of such determination shall have been
delivered to the Administrative Agent) that any of the Trademark
Collateral is of negligible economic value to such Grantor, or (ii)
have a valid business purpose to do otherwise,
(i) fail to continue to use any of the Trademark
Collateral in order to maintain all of the Trademark
Collateral in full force free from any claim of abandonment
for non-use,
(ii) fail to maintain as in the past the quality of
products and services offered under all of the Trademark
Collateral,
(iii) fail to use all commercially reasonable efforts
to employ all of the Trademark Collateral registered with any
Federal or state or foreign authority with an appropriate
notice of such registration except where the failure to do so
would not have a Material Adverse Effect, and
(iv) do or permit any act or knowingly omit to do any
act whereby any of the Trademark Collateral may lapse or
become invalid or unenforceable;
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(c) such Grantor shall not, unless such Grantor shall either
(i) reasonably and in good faith determine (and make commercially
reasonable efforts to provide notice of such determination to the
Administrative Agent) that any of the Copyright Collateral or any of
the Trade Secrets Collateral is of negligible economic value to such
Grantor, or (ii) have a valid business purpose to do otherwise, do or
permit any act or knowingly omit to do any act whereby any of the
Copyright Collateral or any of the Trade Secrets Collateral may lapse
or become invalid or unenforceable or placed in the public domain
except upon expiration of the end of an unrenewable term of a
registration thereof;
(d) such Grantor shall notify the Administrative Agent
immediately if it knows, or has reason to know, that any application or
registration relating to any material item of the Intellectual Property
Collateral may become abandoned or dedicated to the public or placed in
the public domain or invalid or unenforceable except upon expiration of
the end of an unrenewable term of a registration thereof, or of any
adverse determination or development, which alone or in the aggregate
might have a Material Adverse Effect (including the institution of, or
any such determination or development in, any proceeding in the United
States Patent and Trademark Office, the United States Copyright Office
or any foreign counterpart thereof or any court) regarding such
Grantor's ownership of any of the Intellectual Property Collateral, its
right to register the same or to keep and maintain and enforce the
same;
(e) in no event shall such Grantor or any of its agents,
employees, designees or licensees file an application for the
registration of any Intellectual Property Collateral with the United
States Patent and Trademark Office, the United States Copyright Office
or any similar office or agency in any other country or any political
subdivision thereof, unless it promptly informs the Administrative
Agent, and upon request of the Administrative Agent, executes and
delivers any and all agreements, instruments, documents and papers as
the Administrative Agent may reasonably request to evidence the
Administrative Agent's security interest in such Intellectual Property
Collateral and the goodwill and general intangibles of such Grantor
relating thereto or represented thereby;
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(f) such Grantor shall take all necessary steps, including in
any proceeding before the United States Patent and Trademark Office,
the United States Copyright Office or any similar office or agency in
any other country or any political subdivision thereof, to maintain and
pursue any application (and to obtain the relevant registration) filed
with respect to, and to maintain any registration of, the Intellectual
Property Collateral, including the filing of applications for renewal,
affidavits of use, affidavits of incontestability and opposition,
interference and cancellation proceedings and the payment of fees and
taxes (except to the extent that dedication, abandonment or
invalidation is permitted under the foregoing CLAUSES (a), (b) and
(c));
(g) such Grantor shall, contemporaneously herewith, execute
and deliver to the Administrative Agent a Patent Security Agreement,
Trademark Security Agreement and Copyright Security Agreement in the
forms of EXHIBIT B, EXHIBIT C and EXHIBIT D hereto, and shall execute
and deliver to the Administrative Agent any other document reasonably
required to acknowledge or register or perfect the Administrative
Agent's interest in any part of the Intellectual Property Collateral;
and
(h) such Grantor shall continue to perform (subject to the
compliance standards in this Section 4.3) all acts and will continue to
pay (subject to the compliance standards in this Section 4.3) all
required fees and taxes to maintain each and every such item of
Intellectual Property Collateral in full force and effect throughout
the world, as applicable.
SECTION 4.8. INSURANCE. Such Grantor will maintain or cause to be
maintained with responsible insurance companies insurance with respect to its
business and properties (including the Equipment and Inventory) against such
casualties and contingencies and of such types and in such amounts as is
required pursuant to the Credit Agreement and will, upon the request of the
Administrative Agent, furnish a certificate of a reputable insurance broker
setting forth the nature and extent of all insurance maintained by such Grantor
in accordance with this Section.
SECTION 4.9. TRANSFERS AND OTHER LIENS. Such Grantor
shall not:
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(a) sell, assign (by operation of law or otherwise) or
otherwise dispose of any of the Collateral, except Inventory in the
ordinary course of business or as permitted by the Credit Agreement; or
(b) create or suffer to exist any Lien or other charge or
encumbrance upon or with respect to any of the Collateral to secure
Indebtedness of any Person or entity, except for the security interest
created by this Security and Pledge Agreement and except as permitted
by the Credit Agreement.
SECTION 4.10. FURTHER ASSURANCES, ETC. Such Grantor agrees that, from
time to time at its own expense, it will promptly execute and deliver all
further instruments and documents, and take all further action, that may be
necessary or desirable, or that the Administrative Agent may request, in order
to perfect, preserve and protect any security interest granted or purported to
be granted hereby or to enable the Administrative Agent to exercise and enforce
its rights and remedies hereunder with respect to any Collateral. Without
limiting the generality of the foregoing, such Grantor will
(a) mark conspicuously each document included in the
Inventory, each chattel paper included in the Receivables and each
Related Contract and, at the request of the Administrative Agent, each
of its records pertaining to the Collateral with a legend, in form and
substance satisfactory to the Administrative Agent, indicating that
such document, chattel paper, Related Contract or Collateral is subject
to the security interest granted hereby;
(b) if any Receivable shall be evidenced by a promissory note
or other instrument, negotiable document or chattel paper, deliver and
pledge to the Administrative Agent (if requested by the Administrative
Agent following the occurrence and during the continuance of a
Specified Default) hereunder such promissory note, instrument,
negotiable document or chattel paper duly endorsed and accompanied by
duly executed instruments of transfer or assignment, all in form and
substance satisfactory to the Administrative Agent;
(c) execute and file such financing or continuation
statements, or amendments thereto, and such other instruments or
notices (including any assignment of claim form under or pursuant to
the
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federal assignment of claims statute, 31 U.S.C. Section 3726, any
successor or amended version thereof or any regulation promulgated
under or pursuant to any version thereof), as may be necessary or
desirable, or as the Administrative Agent may request, in order to
perfect and preserve the security interests and other rights granted
or purported to be granted to the Administrative Agent hereby;
(d) not enter into any agreement amending, supplementing, or
waiving any provision of any Intercompany Note (including any
underlying instrument pursuant to which such Intercompany Note is
issued) or compromising or releasing or extending the time for payment
of any obligation of the maker thereof;
(e) promptly execute and deliver all further instruments
(including in the event that the issuer of any Security comprising
Collateral of such Grantor is a Foreign Subsidiary of such Grantor, by
entering into a Foreign Pledge Agreement), and take all further action,
that may be necessary or desirable, or that the Administrative Agent
may reasonably request, in order to perfect and protect any security
interest granted or purported to be granted hereby or to enable the
Administrative Agent to exercise and enforce its rights and remedies
hereunder with respect to any Collateral;
(f) cause the Administrative Agent to be listed as the
lienholder on the certificate of title or ownership relating to (i) any
Motor Vehicle owned by such Grantor that has a fair market value of at
least $50,000 or (ii) at the request of the Administrative Agent, any
other Motor Vehicle owned by such Grantor;
(g) not take or omit to take any action the taking or the
omission of which would result in any impairment or alteration of any
obligation of the maker of any Intercompany Note or other instrument
constituting Collateral; and
(h) furnish to the Administrative Agent, from time to time at
the Administrative Agent's request, statements and schedules further
identifying and describing the Collateral and such other reports in
connection with the Collateral as the Administrative Agent may
reasonably request, all in reasonable detail.
With respect to the foregoing and the grant of the security
interest hereunder, such Grantor hereby authorizes the
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Administrative Agent to file one or more financing or continuation statements,
and amendments thereto, relative to all or any part of the Collateral without
the signature of such Grantor where permitted by law. A carbon, photographic or
other reproduction of this Security and Pledge Agreement or any financing
statement covering the Collateral or any part thereof shall be sufficient as a
financing statement where permitted by law.
ARTICLE V
THE ADMINISTRATIVE AGENT
SECTION 5.1. ADMINISTRATIVE AGENT APPOINTED ATTORNEY-IN-FACT. Each
Grantor hereby irrevocably appoints the Administrative Agent such Grantor's
attorney-in-fact, with full authority in the place and stead of such Grantor and
in the name of such Grantor or otherwise, from time to time in the
Administrative Agent's discretion, following the occurrence and continuation of
a Specified Default, to take any action and to execute any instrument which the
Administrative Agent may deem necessary or advisable to accomplish the purposes
of this Security and Pledge Agreement, including:
(a) to ask, demand, collect, sue for, recover, compromise,
receive and give acquittance and receipts for moneys due and to become
due under or in respect of any of the Collateral;
(b) to receive, endorse, and collect any drafts or other
instruments, documents and chattel paper, in connection with CLAUSE (a)
above;
(c) to file any claims or take any action or institute any
proceedings which the Administrative Agent may deem necessary or
desirable for the collection of any of the Collateral or otherwise to
enforce the rights of the Administrative Agent with respect to any of
the Collateral; and
(d) to perform the affirmative obligations of such Grantor
hereunder (including all obligations of such Grantor pursuant to
SECTION 4.10).
Such Grantor hereby acknowledges, consents and agrees that the power of attorney
granted pursuant to this Section is irrevocable and coupled with an interest.
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SECTION 5.2. ADMINISTRATIVE AGENT MAY PERFORM. If any Grantor fails to
perform any agreement contained herein, the Administrative Agent may itself
perform, or cause performance of, such agreement, and the expenses of the
Administrative Agent incurred in connection therewith shall be payable by such
Grantor pursuant to SECTION 6.4.
SECTION 5.3. ADMINISTRATIVE AGENT HAS NO DUTY. In addition to, and not
in limitation of, SECTION 2.6, the powers conferred on the Administrative Agent
hereunder are solely to protect its interest (on behalf of the Secured Parties)
in the Collateral and shall not impose any duty on it to exercise any such
powers. Except for reasonable care of any Collateral in its possession and the
accounting for moneys actually received by it hereunder, the Administrative
Agent shall have no duty as to any Collateral or responsibility for
(a) ascertaining or taking action with respect to calls,
conversions, exchanges, maturities, tenders or other matters relative
to any Investment Property, whether or not the Administrative Agent has
or is deemed to have knowledge of such matters, or
(b) taking any necessary steps to preserve rights against
prior parties or any other rights pertaining to any Collateral.
SECTION 5.4. REASONABLE CARE. The Administrative Agent is required to
exercise reasonable care in the custody and preservation of any of the
Collateral in its possession; PROVIDED, HOWEVER, the Administrative Agent shall
be deemed to have exercised reasonable care in the custody and preservation of
any of the Collateral, if it takes such action for that purpose as any Grantor
reasonably requests in writing at times other than upon the occurrence and
during the continuance of any Specified Default, but failure of the
Administrative Agent to comply with any such request at any time shall not in
itself be deemed a failure to exercise reasonable care.
ARTICLE VI
REMEDIES
SECTION 6.1. CERTAIN REMEDIES. If any Specified Default shall have
occurred and be continuing:
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(a) The Administrative Agent may exercise in respect of the
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 on default under the U.C.C. (whether or not the U.C.C.
applies to the affected Collateral) and also may
(i) require each Grantor to, and such Grantor hereby
agrees that it will, at its expense and upon request of the
Administrative Agent forthwith, assemble all or part of the
Collateral as directed by the Administrative Agent and make it
available to the Administrative Agent at a place to be
designated by the Administrative Agent which is reasonably
convenient to both parties, and
(ii) without notice except as specified below, sell
the Collateral or any part thereof in one or more parcels at
public or private sale, at any of the Administrative Agent's
offices or elsewhere, for cash, on credit or for future
delivery, and upon such other terms as the Administrative
Agent may deem commercially reasonable. Each Grantor agrees
that, to the extent notice of sale shall be required by law,
at least ten days' prior notice to such Grantor of the time
and place of any public sale or the time after which any
private sale is to be made shall constitute reasonable
notification. The Administrative Agent shall not be obligated
to make any sale of Collateral regardless of notice of sale
having been given. The Administrative Agent 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.
(b) All cash proceeds received by the Administrative Agent in
respect of any sale of, collection from, or other realization upon, all
or any part of the Collateral shall be applied by the Administrative
Agent against, all or any part of the Obligations as follows:
(i) first, to the payment of any amounts payable to
the Administrative Agent pursuant to Section 11.3 of the
Credit Agreement and SECTION 6.4;
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(ii) second, to the equal and ratable payment of
Obligations, in accordance with each Secured Party's
Obligations owing to it under or pursuant to the Credit
Agreement or any other Loan Document, or under or pursuant to
any Hedging Obligation included in the Obligations as to each
Secured Party, applied
(A) first to fees and expense reimbursements
then due to such Secured Party,
(B) then to interest due to such Secured
Party,
(C) then to pay or prepay principal of the
Loans owing to, or to reduce the "credit exposure"
of, such Secured Party under such Hedging Obligation,
as the case may be, and
(D) then to pay the remaining outstanding
Obligations and cash collateralize all Letter of
Credit Outstandings;
(iii) third, without duplication of any amounts paid
pursuant to CLAUSE (b)(ii) above, to the Indemnified Parties
to the extent of any amounts owing pursuant to Section 11.4 of
the Credit Agreement; and
(iv) fourth, to be held as additional collateral
security until the payment in full in cash of all of the
Obligations, the termination or expiration of all Letters of
Credit, the termination of all Rate Protection Agreements and
the termination of all Commitments, after which such remaining
cash proceeds shall be paid over to the applicable Grantor or
to whomsoever may be lawfully entitled to receive such
surplus.
For purposes of this Security and Pledge Agreement, the "credit
exposure" at any time of any Secured Party with respect to a Hedging
Obligation to which such Secured Party is a party shall be determined
at such time in accordance with the customary methods of calculating
credit exposure under similar arrangements by the counterparty to such
arrangements, taking into account potential interest rate movements and
the respective
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termination provisions and notional principal amount and term of such
Hedging Obligation.
(c) The Administrative Agent may
(i) transfer all or any part of the Collateral into
the name of the Administrative Agent or its nominee, with or
without disclosing that such Collateral is subject to the lien
and security interest hereunder,
(ii) notify the parties obligated on any of the
Collateral to make payment to the Administrative Agent of any
amount due or to become due thereunder,
(iii) enforce collection of any of the Collateral by
suit or otherwise, and surrender, release or exchange all or
any part thereof, or compromise or extend or renew for any
period (whether or not longer than the original period) any
obligations of any nature of any party with respect thereto,
(iv) endorse any checks, drafts, or other writings in
such Grantor's name to allow collection of the Collateral,
(v) take control of any proceeds of the
Collateral, and
(vi) execute (in the name, place and stead of such
Grantor) endorsements, assignments, stock powers and other
instruments of conveyance or transfer with respect to all or
any of the Collateral.
SECTION 6.2. SECURITIES LAWS. If the Administrative Agent shall
determine to exercise its right to sell all or any of the Collateral pursuant to
SECTION 6.1, each Grantor agrees that, upon request of the Administrative Agent,
such Grantor will, at its own expense:
(a) execute and deliver, and cause each issuer of the
Collateral contemplated to be sold and the directors and officers
thereof to execute and deliver, all such instruments and documents, and
do or cause to be done all such other acts and things, as may be
necessary or, in the opinion of the Administrative Agent, advisable to
register such Collateral under the
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provisions of the Securities Act of 1933, as from time to time amended
(the "SECURITIES ACT"), and to cause the registration statement
relating thereto to become effective and to remain effective for such
period as prospectuses are required by law to be furnished, and to make
all amendments and supplements thereto and to the related prospectus
which, in the opinion of the Administrative Agent, are necessary or
advisable, all in conformity with the requirements of the Securities
Act and the rules and regulations of the Securities and Exchange
Commission applicable thereto;
(b) use its best efforts to qualify the Collateral under the
state securities or "Blue Sky" laws and to obtain all necessary
governmental approvals for the sale of the Collateral, as requested by
the Administrative Agent;
(c) cause each such issuer to make available to its security
holders, as soon as practicable, an earnings statement that will
satisfy the provisions of Section 11(a) of the Securities Act; and
(d) do or cause to be done all such other acts and things as
may be necessary to make such sale of the Collateral or any part
thereof valid and binding and in compliance with applicable law.
Each Grantor further acknowledges the impossibility of ascertaining the amount
of damages that would be suffered by the Administrative Agent or the Secured
Parties by reason of the failure by any Grantor to perform any of the covenants
contained in this Section and, consequently, agrees that, if such Grantor shall
fail to perform any of such covenants, it shall pay, as liquidated damages and
not as a penalty, an amount equal to the value (as determined by the
Administrative Agent) of the Collateral on the date the Administrative Agent
shall demand compliance with this Section.
SECTION 6.3. COMPLIANCE WITH RESTRICTIONS. Each Grantor agrees that in
any sale of any of the Collateral whenever a Specified Default shall have
occurred and be continuing, the Administrative Agent is hereby authorized to
comply with any limitation or restriction in connection with such sale as it may
be advised by counsel is necessary in order to avoid any violation of applicable
law (including compliance with such procedures as may restrict the number of
prospective bidders and purchasers, require that such prospective bidders and
purchasers have certain
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qualifications, and restrict such prospective bidders and purchasers to Persons
who will represent and agree that they are purchasing for their own account for
investment and not with a view to the distribution or resale of such
Collateral), or in order to obtain any required approval of the sale or of the
purchaser by any governmental regulatory authority or official, and such Grantor
further agrees that such compliance shall not result in such sale being
considered or deemed not to have been made in a commercially reasonable manner,
nor shall the Administrative Agent be liable nor accountable to such Grantor for
any discount allowed by the reason of the fact that such Collateral is sold in
compliance with any such limitation or restriction.
SECTION 6.4. INDEMNITY AND EXPENSES.
(a) Each Grantor jointly and severally agrees to indemnify the
Administrative Agent from and against any and all claims, losses and
liabilities arising out of or resulting from this Security and Pledge
Agreement (including enforcement of this Security and Pledge
Agreement), except claims, losses or liabilities resulting from the
Administrative Agent's gross negligence or wilful misconduct.
(b) Each Grantor will upon demand pay to the Administrative
Agent the amount of any and all reasonable expenses, including the
reasonable fees and disbursements of its counsel and of any experts and
agents, which the Administrative Agent may incur in connection with
(i) the administration of this Security and
Pledge Agreement,
(ii) the custody, preservation, use or operation of,
or the sale of, collection from, or other realization upon,
any of the Collateral,
(iii) the exercise or enforcement of any of the
rights of the Administrative Agent or the Secured Parties
hereunder, and
(iv) the failure by any Grantor to perform or observe
any of the provisions hereof.
40
<PAGE>
ARTICLE VII
MISCELLANEOUS PROVISIONS
SECTION 7.1. LOAN DOCUMENT. This Security and Pledge Agreement is a
Loan Document executed pursuant to the Credit Agreement and shall (unless
otherwise expressly indicated herein) be construed, administered and applied in
accordance with the terms and provisions thereof.
SECTION 7.2. AMENDMENTS; ETC. No amendment to or waiver of any
provision of this Security and Pledge Agreement nor consent to any departure by
any Grantor herefrom, shall in any event be effective unless the same shall be
in writing and signed by the Administrative Agent (on behalf of the Lenders or
the Required Lenders, as the case may be), and then such waiver or consent shall
be effective only in the specific instance and for the specific purpose for
which given.
SECTION 7.3. PROTECTION OF COLLATERAL. The Administrative Agent may
from time to time, at its option, perform any act which each Grantor agrees
hereunder to perform and which such Grantor shall fail to perform after being
requested in writing so to perform (it being understood that no such request
need be given after the occurrence and during the continuance of a Specified
Default) and the Administrative Agent may from time to time take any other
action which the Administrative Agent reasonably deems necessary for the
maintenance, preservation or protection of any of the Collateral or of its
security interest therein.
SECTION 7.4. ADDRESSES FOR NOTICES. All notices and other
communications provided for hereunder shall be in writing (including telegraphic
communication) and, if to any Grantor, mailed or telecopied or delivered to it,
addressed to it in care of Holdings at the address of Holdings specified in the
Credit Agreement, if to the Administrative Agent, mailed or telecopied or
delivered to it, addressed to it at the address of the Administrative Agent
specified in the Credit Agreement. All such notices and other communications,
when mailed and properly addressed with postage prepaid or if properly addressed
and sent by pre-paid courier service, shall be deemed given when received; any
such notice or communication, if transmitted by telecopier, shall be deemed
given when transmitted and electronically confirmed.
41
<PAGE>
SECTION 7.5. ADDITIONAL GRANTORS. Upon the execution and delivery by
any other Person of an instrument in the form of ANNEX I hereto, together with a
Perfection Certificate, such Person shall become a "Grantor" hereunder with the
same force and effect as if originally named as a Grantor herein. The execution
and delivery of any such instrument shall not require the consent of any other
Grantor hereunder. The rights and obligations of each Grantor hereunder shall
remain in full force and effect notwithstanding the addition of any new Grantor
as a party to this Security and Pledge Agreement.
SECTION 7.6. SECTION CAPTIONS. Section captions used in this Security
and Pledge Agreement are for convenience of reference only, and shall not affect
the construction of this Security and Pledge Agreement.
SECTION 7.7. SEVERABILITY. Wherever possible each provision of this
Security and Pledge Agreement shall be interpreted in such manner as to be
effective and valid under applicable law, but if any provision of this Security
and Pledge Agreement shall be prohibited by or invalid under such law, such
provision shall be ineffective to the extent of such prohibition or invalidity,
without invalidating the remainder of such provision or the remaining provisions
of this Security and Pledge Agreement.
SECTION 7.8. COUNTERPARTS. This Security and Pledge Agreement may be
executed by the parties hereto in several counterparts, each of which shall be
deemed an original and all of which shall constitute together but one and the
same agreement.
SECTION 7.9. GOVERNING LAW, ENTIRE AGREEMENT, ETC. THIS SECURITY AND
PLEDGE AGREEMENT SHALL BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE
INTERNAL LAWS OF THE STATE OF NEW YORK, EXCEPT TO THE EXTENT THAT THE VALIDITY
OR PERFECTION OF THE SECURITY INTEREST HEREUNDER, OR REMEDIES HEREUNDER, IN
RESPECT OF ANY PARTICULAR COLLATERAL ARE GOVERNED BY THE INTERNAL LAWS OF A
JURISDICTION OTHER THAN THE STATE OF NEW YORK. THIS SECURITY AND PLEDGE
AGREEMENT AND THE OTHER LOAN DOCUMENTS CONSTITUTE THE ENTIRE UNDERSTANDING AMONG
THE PARTIES HERETO WITH RESPECT TO THE SUBJECT MATTER HEREOF AND THEREOF AND
SUPERSEDE ANY PRIOR AGREEMENTS, WRITTEN OR ORAL, WITH RESPECT THERETO.
SECTION 7.10. FOREIGN PLEDGE AGREEMENTS. Without limiting any of the
rights, remedies, privileges or benefits provided hereunder to the
Administrative Agent for its benefit and the ratable benefit of the other
Secured
42
<PAGE>
Parties, each Grantor and the Administrative Agent hereby agree that the terms
and provisions of this Security and Pledge Agreement in respect of any
Collateral subject to the pledge or other lien of a Foreign Pledge Agreement
are, and shall be deemed to be, supplemental and in addition to the rights,
remedies, privileges and benefits provided to the Administrative Agent and the
other Secured Parties under such Foreign Pledge Agreement and under applicable
law to the extent consistent with applicable law; PROVIDED, that, in the event
that the terms of this Security and Pledge Agreement conflict or are
inconsistent with the applicable Foreign Pledge Agreement or applicable law
governing such Foreign Pledge Agreement, the terms of such Foreign Pledge
Agreement or such applicable law shall be controlling.
SECTION 7.11. FORUM SELECTION AND CONSENT TO JURISDICTION. ANY
LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS
SECURITY AND PLEDGE AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY COURSE OF
CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF
ANY SECURED PARTY OR ANY GRANTOR RELATING THERETO SHALL BE BROUGHT AND
MAINTAINED EXCLUSIVELY (TO THE EXTENT PERMITTED UNDER APPLICABLE LAW) IN THE
COURTS OF THE STATE OF NEW YORK, OR IN THE UNITED STATES DISTRICT COURT FOR THE
SOUTHERN DISTRICT OF NEW YORK, IN EACH CASE LOCATED IN NEW YORK COUNTY OF THE
STATE OF NEW YORK; PROVIDED, HOWEVER, THAT ANY SUIT SEEKING ENFORCEMENT AGAINST
ANY COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT THE ADMINISTRATIVE AGENT'S
OPTION, IN THE COURTS OF ANY JURISDICTION WHERE SUCH COLLATERAL OR OTHER
PROPERTY MAY BE FOUND. EACH GRANTOR HEREBY EXPRESSLY AND IRREVOCABLY SUBMITS TO
THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK, AND OF THE UNITED
STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK, IN EACH CASE
LOCATED IN NEW YORK COUNTY OF THE STATE OF NEW YORK, FOR THE PURPOSE OF ANY SUCH
LITIGATION AS SET FORTH ABOVE AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT
RENDERED THEREBY IN CONNECTION WITH SUCH LITIGATION. EACH GRANTOR IRREVOCABLY
CONSENTS TO THE SERVICE OF PROCESS BY REGISTERED MAIL, POSTAGE PREPAID, OR BY
PERSONAL SERVICE WITHIN OR WITHOUT THE STATE OF NEW YORK. EACH GRANTOR HEREBY
EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY
OBJECTION WHICH ANY OF THEM MAY HAVE OR HEREAFTER MAY HAVE TO THE LAYING OF
VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND ANY
CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. TO THE
EXTENT THAT ANY GRANTOR HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM
JURISDICTION OF ANY COURT OR FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OR
NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION OR
OTHERWISE) WITH RESPECT TO
43
<PAGE>
ITSELF OR ITS PROPERTY, EACH GRANTOR HEREBY IRREVOCABLY WAIVES (TO THE EXTENT
PERMITTED UNDER APPLICABLE LAW) SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONS
UNDER THIS SECURITY AND PLEDGE AGREEMENT AND THE OTHER LOAN DOCUMENTS.
SECTION 7.12. WAIVER OF JURY TRIAL. THE SECURED PARTIES AND THE
GRANTORS HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS THEY
MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR
ARISING OUT OF, UNDER OR IN CONNECTION WITH, THIS SECURITY AND PLEDGE AGREEMENT
OR ANY OTHER LOAN DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING,
STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF THE SECURED PARTIES OR THE
GRANTORS RELATING THERETO. THE GRANTORS ACKNOWLEDGE AND AGREE THAT EACH SUCH
PERSON HAS RECEIVED FULL AND SUFFICIENT CONSIDERATION FOR THIS PROVISION (AND
EACH OTHER PROVISION OF EACH OTHER LOAN DOCUMENT TO WHICH SUCH PERSON IS A
PARTY) AND THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE SECURED PARTIES
ENTERING INTO THE CREDIT AGREEMENT, THIS SECURITY AND PLEDGE AGREEMENT AND EACH
SUCH OTHER LOAN DOCUMENT.
44
<PAGE>
IN WITNESS WHEREOF, each Grantor has caused this Security and Pledge
Agreement to be duly executed and delivered by its officer thereunto duly
authorized as of the date first above written.
WEEKLY READER CORPORATION
By /s/ Charles Lavrey
----------------------------------------
Name: Charles Lavrey
Title:
JLC LEARNING CORPORATION
By /s/ Charles Lavrey
----------------------------------------
Name: Charles Lavrey
Title:
WRC MEDIA INC.
By /s/ Charles Lavrey
----------------------------------------
Name: Charles Lavrey
Title:
PRIMEDIA REFERENCE INC.
By /s/ Charles Lavrey
----------------------------------------
Name: Charles Lavrey
Title:
AMERICAN GUIDANCE SERVICE INC.
By /s/ Charles Lavrey
----------------------------------------
Name: Charles Lavrey
Title:
<PAGE>
LIFETIME LEARNING SYSTEMS, INC.
By /s/ Charles Lavrey
----------------------------------------
Name: Charles Lavrey
Title:
AGS INTERNATIONAL SALES, INC.
By /s/ Charles Lavrey
----------------------------------------
Name: Charles Lavrey
Title:
FUNK & WAGNALLS YEARBOOK CORPORATION
By /s/ Charles Lavrey
----------------------------------------
Name: Charles Lavrey
Title:
GARETH STEVENS, INC.
By /s/ Charles Lavrey
----------------------------------------
Name: Charles Lavrey
Title:
BANK OF AMERICA, N.A., as Administrative Agent
By /s/ Peter Hall
----------------------------------------
Name: Peter Hall
Title:
<PAGE>
SCHEDULE I
to Security and Pledge Agreement
(WRC Media Inc.)
Item A. INTERCOMPANY NOTES
None.
Item B. SECURITIES
<TABLE>
<CAPTION>
Authorized Outstanding % of Shares
Issuer (corporate) Shares Shares Pledged
- ------------------ ------ ------ -------
<S> <C> <C> <C>
Weekly Reader Corporation 20,000,000 2,830,000 94.9%*
(Voting Common)
Weekly Reader Corporation 20,000,000 3,000,000 100%
(15% Senior Preferred Stock)
JLC Learning Corporation 20,000 10,000 100%
(Common Stock)
</TABLE>
- ---------------------
* WRC Media Inc. owns 94.9% of the Voting Common Stock of Weekly Reader
Corporation. PRIMEDIA, Inc. owns the remaining 5.1%.
<PAGE>
SCHEDULE II
to Security and Pledge Agreement
(WRC Media Inc.)
GOVERNMENT CONTRACTS
None.
<PAGE>
SCHEDULE III
to Security and Pledge Agreement
(WRC Media Inc.)
Item A. PATENTS
None.
Item B. PATENT LICENSES
None.
<PAGE>
SCHEDULE IV
to Security and Pledge Agreement
(WRC Media Inc.)
Item A. TRADEMARKS
None.
Item B. TRADEMARK LICENSES
None.
<PAGE>
SCHEDULE V
to Security and Pledge Agreement
(WRC Media Inc.)
Item A. COPYRIGHTS
None.
Item B. COPYRIGHT LICENSES
None.
<PAGE>
SCHEDULE VI
to Security and Pledge Agreement
(WRC Media Inc.)
TRADE SECRET OR KNOW-HOW LICENSES
None.
<PAGE>
SCHEDULE I
to Security and Pledge Agreement
(Lifetime Learning Systems, Inc.)
Item A. INTERCOMPANY NOTES
None.
Item B. SECURITIES
None.
<PAGE>
SCHEDULE II
to Security and Pledge Agreement
(Lifetime Learning Systems, Inc.)
GOVERNMENT CONTRACTS
None.
<PAGE>
SCHEDULE III
to Security and Pledge Agreement
(Lifetime Learning Systems, Inc.)
Item A. PATENTS
None.
Item B. PATENT LICENSES
None.
<PAGE>
SCHEDULE IV
to Security and Pledge Agreement
(Lifetime Learning Systems, Inc.)
Item A. TRADEMARKS
<TABLE>
<CAPTION>
COUNTRY MARK CLASSES APP. # APP. DT REG. # REG. DT STATUS
------- ---- ------- ------ ------- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
United States LIFETIME LEARNING 16 75/168449 9/9/96 2147187 3/31/98 Registered
SYSTEMS & DESIGN
</TABLE>
Item B. TRADEMARK LICENSES
None.
<PAGE>
SCHEDULE V
to Security and Pledge Agreement
(Lifetime Learning Systems, Inc.)
Item A. COPYRIGHTS
Copyrights which are ordinary course copyrights and which have no individual
material value are not listed.
Item B. COPYRIGHT LICENSES
None.
<PAGE>
SCHEDULE VI
to Security and Pledge Agreement
(Lifetime Learning Systems, Inc.)
TRADE SECRET OR KNOW-HOW LICENSES
None.
<PAGE>
SCHEDULE I
to Security and Pledge Agreement
(Gareth Stevens, Inc.)
Item A. INTERCOMPANY NOTES
None.
Item B. SECURITIES
None.
<PAGE>
SCHEDULE II
to Security and Pledge Agreement
(Gareth Stevens, Inc.)
GOVERNMENT CONTRACTS
None.
<PAGE>
SCHEDULE III
to Security and Pledge Agreement
(Gareth Stevens, Inc.)
Item A. PATENTS
None.
Item B. PATENT LICENSES
None.
<PAGE>
SCHEDULE IV
to Security and Pledge Agreement
(Gareth Stevens, Inc.)
Item A. TRADEMARKS
None.
Item B. TRADEMARK LICENSES
None.
<PAGE>
SCHEDULE V
to Security and Pledge Agreement
(Gareth Stevens, Inc.)
Item A. COPYRIGHTS
Copyrights which are ordinary course copyrights and which have no individual
material value are not listed.
Item B. COPYRIGHT LICENSES
None.
<PAGE>
SCHEDULE VI
to Security and Pledge Agreement
(Gareth Stevens, Inc.)
TRADE SECRET OR KNOW-HOW LICENSES
None.
<PAGE>
SCHEDULE I
to Security and Pledge Agreement
(AGS International Sales, Inc.)
Item A. INTERCOMPANY NOTES
None.
Item B. SECURITIES
None.
<PAGE>
SCHEDULE II
to Security and Pledge Agreement
(AGS International Sales, Inc.)
GOVERNMENT CONTRACTS
None.
<PAGE>
SCHEDULE III
to Security and Pledge Agreement
(AGS International Sales, Inc.)
Item A. PATENTS
None.
Item B. PATENT LICENSES
None.
<PAGE>
SCHEDULE IV
to Security and Pledge Agreement
(AGS International Sales, Inc.)
Item A. TRADEMARKS
None.
Item B. TRADEMARK LICENSES
None.
<PAGE>
SCHEDULE V
to Security and Pledge Agreement
(AGS International Sales, Inc.)
Item A. COPYRIGHTS
Copyrights which are ordinary course copyrights and which have no individual
material value are not listed.
Item B. COPYRIGHT LICENSES
None.
<PAGE>
SCHEDULE VI
to Security and Pledge Agreement
(AGS International Sales, Inc.)
TRADE SECRET OR KNOW-HOW LICENSES
None.
<PAGE>
SCHEDULE I
to Security and Pledge Agreement
(JLC Learning Corporation)
Item A. INTERCOMPANY NOTES
None.
Item B. SECURITIES
None.
<PAGE>
SCHEDULE II
to Security and Pledge Agreement
(JLC Learning Corporation)
GOVERNMENT CONTRACTS
Educational Technology Agreement between JLC Learning Corporation and California
State Department of Education on February 10, 1989.
Contractual Agreement between School Board of Dade County, Florida and JLC
Learning Corporation of San Diego entered into on December 20, 1990, amended on
April 1, 1992, June 29, 1993 and March 11, 1994.
ESOL Curriculum Development Contract between JLC Learning Corporation and the
Florida Department of Education dated June 22, 1993.
West Virginia Basic Skills Computer Education Contract #01-A between JLC
Learning Corporation and the West Virginia Department of Education on June 14,
1990.
2
<PAGE>
SCHEDULE III
to Security and Pledge Agreement
(JLC Learning Corporation)
Item A. PATENTS
None.
Item B. PATENT LICENSES
None.
3
<PAGE>
SCHEDULE IV
to Security and Pledge Agreement
(JLC Learning Corporation)
Item A. TRADEMARKS
<TABLE>
<CAPTION>
Australia
Mark Serial No. Date (R) Number Date Other Status
---- ---------- ---- ---------- ---- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Assessment Designer 796210 6/4/99 RN 06/04/09 Abandoned
Compass 710447 6/12/96 RN 06/12/06 Pending
Compass Worldware 761158 5/4/96 RN 05/04/06 Pending
Design of Tree 761668 5/8/99 761668 1/25/99 RN 05/08/09 Registered
JCAT 761159 5/4/98 761159 12/18/98 RN 05/04/08 Registered
Tomorrow's Promise 752687 1/14/98 752687 8/31/98 RN 01/14/08 Registered
Worldware 775431 10/13/98 775431 2/12/98 RN 10/13/08 Registered
<CAPTION>
Brunei
Mark Serial No. Date (R) Number Date Other Status
---- ---------- ---- ---------- ---- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Assessment Designer 30,031 6/3/99 Pending
Compass 29,032 2/24/99 Pending
Compass Worldware 29,205 4/21/98 Pending
Design of Tree 28,201 4/21/98 Pending
Design of Tree 29,202 4/21/98 Pending
JCAT 29,206 4/21/98 24,991 4/21/99 RN 04/21/05 Registered
Tomorrow's Promise 29,031 2/24/98 24,314 2/24/99 RN 02/24/05 Registered
Worldware 29,894 11/24/98 Pending
Writing Expedition 29,204 4/21/98 Pending
Writing Expedition 29,202 4/21/98 Pending
<CAPTION>
Canada
Mark Serial No. Date (R) Number Date Other Status
---- ---------- ---- ---------- ---- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Assessment Designer 1,017,274 5/31/99 Pending
Compass 977,358 5/6/99 Pending
Compass Worldware 977,187 5/6/98 Pending
Center Software 567,467 5/6/94 Abandoned
Design of Tree 877,196 5/6/99 Pending
4
<PAGE>
<CAPTION>
Mark Serial No. Date (R) Number Date Other Status
---- ---------- ---- ---------- ---- ----- ------
<S> <C> <C> <C> <C> <C> <C>
JCAT 877,239 5/6/99 Pending
Microsystem80 452,173 11/26/80 291,816 6/8/84 RN 06/09/99 Abandoned
System80 379,418 10/1/74 209,350 10/10/75 5N 10/10/05 Abandoned
Tomorrow's Promise 877,185 6/5/99 Pending
Worldware 894,306 10/22/95 Pending
Writing Expedition 977,357 5/6/99 Pending
<CAPTION>
China
Mark Serial No. Date (R) Number Date Other Status
---- ---------- ---- ---------- ---- ----- ------
<S> <C> <C> <C> <C> <C> <C>
A+dvantage 950112050 9/1/95 Abandoned
Worldware
Design of Tree 950110123 9/1/95 Abandoned
Learning First 950118235 9/1/95 Abandoned
<CAPTION>
France
Mark Serial No. Date (R) Number Date Other Status
---- ---------- ---- ---------- ---- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Center Software 34-523,327 6/7/94 94529527 6/7/84 RN 06/07/94 Registered
Hong Kong
Mark Serial No. Date (R) Number Date Other Status
---- ---------- ---- ---------- ---- ----- ------
<S> <C> <C> <C> <C> <C> <C>
A+dvantage 95 10658 9/23/95 86072/1998 2/2/95 RN 02/01/02 Registered
Worldware
Design of Tree 95 10667 9/23/95 1296/1997 9/22/95 RN 08/23/02 Registered
Learning First 92 11502 9/12/99 RN 09/13/02 Pending
<CAPTION>
Indonesia
Mark Serial No. Date (R) Number Date Other Status
---- ---------- ---- ---------- ---- ----- ------
<S> <C> <C> <C> <C> <C> <C>
A+dvantage D96 18772 9/4/96 354704 9/4/95 RN 09/04/05 Registered
Worldware
Assessment Designer D99-12347 7/13/99 Pending
Compass D99-2472 2/17/99 Pending
Compass Worldware D96 07733 4/27/98 Pending
Design of Tree J98 16035 9/7/95 30136 5/5/96 RN 09/07/05 Registered
JCAT D99 07734 4/27/98 Pending
Learning First D95 15771 9/4/95 260510 9/4/95 RN 02/04/05 Registered
Tomorrow's Promise D98 2478 2/17/98 Pending
5
<PAGE>
<CAPTION>
Mark Serial No. Date (R) Number Date Other Status
---- ---------- ---- ---------- ---- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Worldware D98 15917 11/6/99 Pending
Writing Expedition D98 07732 4/27/98 Pending
Writing Expedition 2304/98 4/8/95 Pending
<CAPTION>
Ireland
Mark Serial No. Date (R) Number Date Other Status
---- ---------- ---- ---------- ---- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Compass 96/3961 6/12/96 173124 6/12/96 RN 06/12/03 Registered
Compass Worldware 96/2924 7/15/98 RN 07/15/05 Pending
Design of Tree 98/3925 7/15/98 RN 07/15/05 Pending
Learning Expedition 96/4375 0712/96 202178 7/12/96 RN 07/12/05 Registered
NCAT 98/1437 4/15/98 RN 04/15/05 Pending
Tomorrow's Promise 97/4604 12/19/97 RN 12/19/04 Pending
Worldware 2179233 10/9/98 RN10/03/05 Pending
Writing Expedition 96/4376 7/12/96 202179 7/12/96 RN 07/12/06 Registered
<CAPTION>
Japan
Mark Serial No. Date (R) Number Date Other Status
---- ---------- ---- ---------- ---- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Compass Proposed
<CAPTION>
Malaysia
Mark Serial No. Date (R) Number Date Other Status
---- ---------- ---- ---------- ---- ----- ------
<S> <C> <C> <C> <C> <C> <C>
A+dvantage 9175/95 9/5/95 RN 09/05/05 Pending
Worldware
Assessment Designer 99/05346 6/15/99 RN 05/19/05 Pending
Compass 95/06076 7/18/96 Pending
Compass Worldware 99/05613 5/8/99 RN 03/00/05 Pending
Design of Tree 93/09669 5/14/95 05/05668 7/18/96 RN 09/14/03 Registered
JCAT 95/05611 6/8/98 RN 06/08/05 Pending
Learning Expedition 97/16819 11/21/97 RN 11/21/04 Pending
Learning First 95/09638 9/12/96 RN 09/13/02 Pending
Tomorrow's Promise 99/00802 1/20/98 RN 01/20/06 Pending
Worldware 98/13772 11/28/98 RN11/28/03 Pending
Writing Expedition 98/05612 5/8/98 RN 05/08/05 Pending
Writing Expedition 87/16816 11/21/97 RN 11/21/04 Pending
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
Singapore
Mark Serial No. Date (R) Number Date Other Status
---- ---------- ---- ---------- ---- ----- ------
<S> <C> <C> <C> <C> <C> <C>
A+dvantage 9443/95 9/4/95 RN 09/04/05 Pending
Worldware
Assessment Designer T99/066379 5/25/99 RN 06/25/03 Pending
Compass 7454/96 7/19/96 RN 07/19/06 Pending
Compass Worldware 3302/96 4/5/98 RN 04/06/08 Pending
Design of Tree 8407/96 9/2/98 8407/95 9/2/95 RN 09/02/08 Registered
JCAT 3305/96 4/2/98 RN 04/09/05 Pending
Learning First 9934/95 9/12/96 RN 09/16/05 Abandoned
Tomorrow's Promise 15161/97 12/12/97 RN 12/12/07 Pending
Worldware 12024/98 12/1/99 RN 12/01/09 Pending
Writing Expedition 3303/95 4/9/98 RN 04/09/02 Pending
<CAPTION>
Taiwan
Mark Serial No. Date (R) Number Date Other Status
---- ---------- ---- ---------- ---- ----- ------
<S> <C> <C> <C> <C> <C> <C>
A+dvantage 94-44705 8/30/95 Abandoned
Worldware
Design of Tree 94-47275 9/19/95 Abandoned
Learning First 94-44009 9/30/95 739935 12/16/96 RN 12/15/05 Registered
<CAPTION>
United Kingdom
Mark Serial No. Date (R) Number Date Other Status
---- ---------- ---- ---------- ---- ----- ------
<S> <C> <C> <C> <C> <C> <C>
A+dvantage 2032589 9/1/95 2032399 9/1/95 RN 09/01/05 Registered
Worldware
Assessment Designer 2199674 6/10/99 Abandoned
Compass 2103147 6/12/96 2101167 6/12/96 RN 06/12/06 Registered
Compass 2117672 12/5/96 2117672 12/5/96 RN 12/04/05 Registered
Management System
Compass-Worldware 2172279 7/16/95 RN 07/16/09 Pending
Center Software 1674184 6/6/94 RN 06/06/01 Abandoned
Design of Tree 2031172 5/21/95 2031172 9/21/95 RN 05/21/05 Registered
Learning Expedition 2106235 7/26/96 2106235 7/26/96 RN 07/26/05 Registered
Learning First 2033465 9/14/95 RN 09/14/05 Abandoned
MCAT 2163913 4/9/96 2163913 4/9/96 RN 04/09/08 Registered
Tomorrow's Promise 2192372 11/26/97 2152272 11/28/97 RN 11/28/07 Registered
7
<PAGE>
<CAPTION>
Mark Serial No. Date (R) Number Date Other Status
---- ---------- ---- ---------- ---- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Worldware 2179333 10/9/95 2179333 10/9/95 RN 10/09/06 Registered
Writing Expedition 2106237 7/26/96 2106237 7/26/96 RN 07/26/06 Registered
<CAPTION>
United States
Mark Serial No. Date (R) Number Date Other Status
---- ---------- ---- ---------- ---- ----- ------
<S> <C> <C> <C> <C> <C> <C>
A Renaissance in 74/255,759 3/16/92 1,743,676 12/29/92 AU 12/29/92 Transfer
Learning
A World of Habitats 74/231,724 12/18/81 Abandoned
A+dvantage 74/541,327 3/2/95 1,084,423 7/19/97 AU 07/29/03 Registered
Worldware
Actionmate (Stylized) 74/641,332 3/2/95 2,014,451 11/5/96 AU11/5/02 Registered
Assessment Designer 76/633,157 2/2/99 Pending
Assessment Examiner 75/723,609 6/7/99 Pending
Brick by Brick 72/567,330 11/7/95 1,411,115 9/30/95 RN 09/30/05 Registered
Classroom Essentials 79/452,678 3/31/98 2,240,746 4/20/99 AU4/20/05 Registered
Compass 74/429,993 9/24/93 2,053,034 4/15/97 AU 4/15/02 Registered
Compass Virtual 75/668,976 3/26/99 Pending
Classroom
Compass Worldware 78/173,299 9/27/96 2,229,394 3/2/99 AU 3/2/05 Registered
Conter 74/467,978 12/10/93 Abandoned
Conter 74/465,452 12/7/93 Abandoned
Conter Software 74/467,014 12/9/93 Abandoned
Conter Software 74/456,453 12/7/93 Abandoned
Cuentos de Coqui 74/592,363 10/31/94 1,925,500 10/3/95 AU 10/03/01 Registered
(stylized)
Design of Toy with 73/563,225 10/15/85 1,396,585 5/10/96 RN 6/10/95 Registered
Wagon
Design of Children 72/749,425 8/26/89 1,536,875 4/25/89 RN 04/25/05 Abandoned
Holding Hands
Design of Reading 74/581,992 5/30/95 Abandoned
Frog
Design of Tree 73/819,707 5/17/99 1,712,302 3/1/92 RN 9/1/02 Registered
DiscoverySearch 74/171,456 3/31/91 Abandoned
Dragon Tales 74/709,330 7/31/95 2,054,029 4/22/97 AU 4/22/03 Registered
First Connections 74/395,268 6/1/93 1,860,722 11/1/94 AU 11/1/00 Registered
First Connections 74/203,218 10/3/91 Abandoned
8
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<CAPTION>
Mark Serial No. Date (R) Number Date Other Status
---- ---------- ---- ---------- ---- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Frequent Learner 75/295,449 5/31/97 Abandoned
Miles
Hartley and Design 74/257,129 3/12/92 1,755,662 4/20/93 RN 4/20/03 Registered
Idea Shaper 74/707,944 7/31/95 2,106,204 10/21/97 AU 10/21/03 Registered
IL Design 73/526,796 3/25/95 1,355,833 11/5/95 RN 11/5/05 Registered
Interpretools 75/180,100 10/11/96 2,202,904 10/20/96 AU 10/20/04 Registered
JCAT 74/709,041 7/31/95 2,050,312 4/6/97 AU 04/03/02 Registered
JLC Financial 74/042,225 3/26/90 1,026,458 2/26/91 RN 2/26/01 Transfer
Job Task Link 74/266,366 Abandoned
Jostene learning 73/519,706 8/17/89 1,627,650 12/11/95 RN 12/11/00 Transfer
Corporation
Jostene Learning 74/552,366 10/31/94 3,029,506 1/14/97 AU 1/14/03 Registered
Litenet
Learning First 74/706,275 7/31/95 Abandoned
Meta4 74/378,430 4/13/93 Abandoned
Next Level 75/291,081 5/12/97 Abandoned
Number Workshop 74/769,293 5/1/95 2,025,755 1/14/97 AU 1/14/03 Registered
OneNet 74/653,702 3/30/95 1,956,175 2/13/96 AU 2/13/02 Registered
Out-Of-The-Box 75/179,213 5/27/96 Abandoned
Partnerships, 74/252,257 3/5/92 1,729,965 11/3/93 AU 11/03/05 Abandoned
Resources, Results
Play and Say 74/264,189 4/3/92 Abandoned
Prescription Learning 73/742,432 8/26/98 1,536,877 4/25/99 RN 4/25/09 Abandoned
Quest 74/362,001 2/25/93 Abandoned
Shape Studio 74/709,276 8/1/95 1,987,165 7/16/96 AU 7/15/03 Registered
Storybook Maker 74/705,283 9/1/95 2,108,135 10/28/97 AU 10/28/02 Registered
System90 73/350,213 3/3/70 918,463 8/17/71 RN 8/17/01 Registered
Take Home 76/568,977 3/16/99 Pending
Connection
Teacher to teacher 74/644,326 3/10/95 1,930,919 8/5/95 AU 8/5/02 Registered
Connection
Teacher to Teacher 74/266,267 4/16/92 Abandoned
Connection
Teachnet (stylized) 75/159,918 9/23/94 Pending
THC 74/025,545 2/14/90 1,633,030 1/29/91 RN 1/19/01 Registered
The Hub 74/311,945 9/4/92 Abandoned
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<CAPTION>
Mark Serial No. Date (R) Number Date Other Status
---- ---------- ---- ---------- ---- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Time for Rhyme 74/264,160 4/5/92 Abandoned
Tomorrow's Promise 75/236,256 2/5/97 2,219,515 1/19/97 AU 1/19/05 Registered
Ufonic 73/453,455 1/21/94 1,332,979 4/30/95 RN 4/30/05 Registered
Word Time 74/364,138 4/9/93 Abandoned
Words on Wings 74/709,329 7/31/95 3,042,902 3/11/97 AU 3/11/03 Registered
WorldWare 75/526,634 7/30/99 Pending
WorldWare 75/526,634 7/28/99 Pending
Zevite Time 74/709,331 7/31/95 2,042,802 3/11/97 AU 03/11/03 Registered
</TABLE>
10
<PAGE>
SCHEDULE V
to Security and Pledge Agreement
(JLC Learning Corporation)
COPYRIGHTS
All copyrights for JLC Learning Corporation are filed in the United States.
<TABLE>
<CAPTION>
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PRODUCT NAME DATE FILED/ISSUED COPYRIGHT NUMBER
- ------------ ----------------- ----------------
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Advantage Mgmt Sys. 1.1 March 23, 1998 TX-4-620-089
Advantage Mgmt. Sys. 1.2 March 23, 1998 TX-4-620-087
Advantage Mgmt. Sys. 2.0 March 20, 1998 TX-4-613-682
Advantage Mgmt. Sys. 2.1 March 20, 1998 TX-4-613-679
AIMS 2.2.4 Adv. Instruc. Mgmt. Sys. March 20, 1998 TX-4-613-680
Compass 2.2 for Windows/MacIntosh March 23, 1998 TX-4-620-090
Compass 2.2 for ILA April 7, 1998 TX-4-634-221
Compass 2.3 for Windows/MacIntosh March 23, 1998 TX-620-094
Compass 3.0 for Windows/MacIntosh March 20, 1998 TX-4-613-681
LMS 3.15 April 7, 1998 TX-4-634-220
Peer to Peer Install Compass/Tomorrow's Promise 3.1 September 30, 1998 TX-4-626-266
Personal Compass 1.0 for Windows/ MacIntosh March 23, 1998 TX-4-620-099
Worldware 2.0 March 27, 1998 TX-4-623-250
Worldware 2.01 March 20, 1998 TX-4-620-084
RIMS I April 7, 1998 TX-4-634-224
RIMS II 1.72 for MAC March 27, 1998 TX-4-623-266
Jostens Comprehensive Assessment Tests/Compass March 23, 1998 TX-4-620-091
Jostens Comprehensive Assessment Tests/Advantage March 23, 1998 TX-4-620-088
Learning Expedition Language Arts March 27, 1998 TX-4-623-253
Learning Expedition Mathematics Level 1-3 March 27, 1998 TX-4-623-256
Learning Expedition Mathematics Leval 4-8 March 27, 1998 TX-4-623-248
Learning Expedition Math Higher Level Activities March 27, 1998 TX-4-623-252
Learning Expedition Reading Levels 1-3 March 27, 1998 TX-4-623-255
Learning Expedition Reading Levels 4-8 March 27, 1998 TX-4-623-247
Learning Expedition Written Expression March 27, 1998 TX-4-623-251
Learning First Elementary Mathematics March 23, 1998 TX-4-620-095
Learning First Skills and Employability Skills March 23, 1998 TX-4-620-102
Learning First Foundations in Mathematics March 27, 1998 TX-4-623-259
Learning First Middle School Mathematics March 27, 1998 TX-4-623-258
Learning First Foundations in Reading March 27, 1998 TX-4-623-260
Learning First New Edition: Elementary Mathematics March 23, 1998 TX-4-620-103
Learning First New Edition: Elementary Reading March 23, 1998 TX-4-623-106
Integrated Language Arts - Primary Level March 25, 1998 TX-4-623-208
Tomorrow's Promise Biology March 23, 1998 TX-4-620-092
Tomorrow's Promise Chemistry March 23, 1998 TX-4-620-096
Tomorrow's Promise Earth Science March 23, 1998 TX-4-620-097
Tomorrow's Promise Language Arts Level 3 March 20, 1998 TX-4-613-670
Tomorrow's Promise Language Arts Level 4 March 20, 1998 TX-4-613-672
Tomorrow's Promise Language Arts Level 5 March 20, 1998 TX-4-613-676
Tomorrow's Promise Language Arts Level 6 March 20, 1998 TX-4-613-674
Tomorrow's Promise Language Arts Level 7 March 20, 1998 TX-4-613-671
Tomorrow's Promise Language Arts Level 8 March 20, 1998 TX-4-613-677
Tomorrow's Promise Language Arts Essay Levels 6-8 March 27, 1998 TX-4-623-246
Tomorrow's Promise Mathematics Level K March 20, 1998 TX-4-613-675
Tomorrow's Promise Mathematics Level 1 March 20, 1998 TX-4-613-687
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11
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<CAPTION>
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PRODUCT NAME DATE FILED/ISSUED COPYRIGHT NUMBER
- ------------ ----------------- ----------------
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Tomorrow's Promise Mathematics Level 2 March 20, 1998 TX-4-613-690
Tomorrow's Promise Mathematics Level 3 March 20, 1998 TX-4-613-685
Tomorrow's Promise Mathematics Level 4 March 20, 1998 TX-4-613-688
Tomorrow's Promise Mathematics Level 5 March 20, 1998 TX-4-613-686
Tomorrow's Promise Mathematics Level 6 March 20, 1998 TX-4-613-683
Tomorrow's Promise Mathematics Level 7 March 20, 1998 TX-4-613-693
Tomorrow's Promise Mathematics Level 8 March 20, 1998 TX-4-613-689
Tomorrow's Promise Physical Science March 23, 1998 TX-4-620-093
Tomorrow's Promise Problem Solving Strategies 6-8 March 27, 1998 TX-4-623-245
Tomorrow's Promise Reading Level K March 20, 1998 TX-4-613-697
Tomorrow's Promise Reading Level 1 March 20, 1998 TX-4-613-684
Tomorrow's Promise Reading Level 2 March 20, 1998 TX-4-613-673
Tomorrow's Promise Reading Level 3 March 20, 1998 TX-4-613-696
Tomorrow's Promise Reading Level 4 March 20, 1998 TX-4-613-691
Tomorrow's Promise Reading Level 5 March 20, 1998 TX-4-613-695
Tomorrow's Promise Reading Level 6 March 20, 1998 TX-4-613-692
Tomorrow's Promise Reading Level 7 March 20, 1998 TX-4-613-698
Tomorrow's Promise Reading Level 8 March 20, 1998 TX-4-613-694
Tomorrow's Promise Spelling Level 1 March 23, 1998 TX-4-620-098
Tomorrow's Promise Spelling Level 2 March 20, 1998 TX-4-613-678
Action Math March 27, 1998 TX-4-623-265
Community Exploration April 7, 1998 TX-4-634-223
English Language Development - Primary March 25, 1998 TX-4-623-213
Steps to English Language Development - Beginner Level March 25, 1998 TX-4-623-215
Steps to English Language Development - March 25, 1998 TX-4-623-214
Intermediate/Advanced
Explorations in Science, Earth, Physical, Biology March 27, 1998 TX-4-623-267
Friday Afternoon April 7, 1998 TX-4-634-222
Learning With Literature March 23, 1998 TX-4-620-101
Literature Based Mathematics March 27, 1998 TX-4-623-257
Middle School Mathematics March 23, 1998 TX-4-620-100
Reading Skills Collection Reading All Around You April 7, 1998 TX-4-634-226
Reading Skills Collection Read to Imagine April 7, 1998 TX-4-634-227
Reading Skills Collection Reading for Meaning April 7, 1998 TX-4-634-228
Reading Skills Collection Read to Think April 7, 1998 TX-4-634-229
Spanish Language Arts March 27, 1998 TX-4-623-264
Stems April 7, 1998 TX-4-634-225
Tapestry March 27, 1998 TX-4-623-244
Writing Expedition 1.1 for Mac/Windows March 20, 1998 TX-4-613-669
8th Grade Math Course Outline March 27, 1998 TX-1-912-790
Grade 8 Math Support Materials March 27, 1998 TX-1-920-115
8th Grade Math Teaching Aide March 27, 1998 TX-1-920-450
Integrated Classroom Learning System
Mathematics Documentation March 27, 1998 TX-1-922-225
Spanish I Teachers' Guide March 27, 1998 TX-2-680-774
Spanish I: Course Outline, Answer Keys, Worksheets, Tests March 27, 1998 TX-2-686-570
ICLS: Spanish Courseware Sample March 27, 1998 TX-2-723-547
Language Arts 3: Teachers' Guide March 27, 1998 TX-2-671-312
Language Arts 3 Course Outline, Answer Keys, Worksheets, March 27, 1998 TX-2-671-313
Tests
Calculus: Teachers' Guide March 27, 1998 TX-2-125-878
Calculus: Course Outline, Answers Keys, Worksheets, Tests March 27, 1998 TX-2-125-879
Calculus: I C L S courseware sample March 27, 1998 TX-2-172-445
Algebra I: Teachers' Guide March 27, 1998 TX-2-178-697
Algebra I: Support materials sample March 27, 1998 TX-2-178-698
Algebra I: Integrated classroom learning system: course March 27, 1998 TX-2-179-056
outline, answer keys, worksheets, tests
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12
<PAGE>
<CAPTION>
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PRODUCT NAME DATE FILED/ISSUED COPYRIGHT NUMBER
- ------------ ----------------- ----------------
<S> <C> <C>
Integrated Classroom Learning System: Mathematics: Grade 7: March 27, 1998 TX-2-289-047
Support materials sample
Integrated Classroom Learning System: Trig/Analysis: March 27, 1998 TX-2-289-047
Teachers' Guide
Integrated Classroom Learning System: Trig/Analysis: Course March 27, 1998 TX-2-289-049
outline, answer keys, worksheets, tests
Integrated Classroom Learning System: Mathematics: Grade 7: March 27, 1998 TX-2-289-050
course outline, answers keys, worksheets, tests
Integrated Classroom Learning System: Mathematics: Grade 7: March 27, 1998 TX-2-289-051
Teachers' Guide
Geometry: course outline, answer keys worksheets, tests March 27, 1998 TX-2-311-453
Geometry: Teachers' Guide March 27, 1998 TX-2-311-454
Integrated Classroom Learning System: Algebra II, Teachers' March 27, 1998 TX-2-326-534
Guide
Trigonometry/math analysis: support material's sample March 27, 1998 TX-2-326-535
Algebra II: support material sample March 27, 1998 TX-2-345-457
Algebra II: course outline, answer keys, worksheets, tests March 27, 1998 TX-2-351-931
Geometry: support material sample March 27, 1998 TX-2-400-824
ICLS courseware sample: Language Arts 6 March 27, 1998 TX-2-582-332
Integrated Classroom Learning System, Language Arts 6: March 27, 1998 TX-2-582-333
course outline, answer keys, worksheets, tests
ICLS courseware sample: Language Arts March 27, 1998 TX-2-582-334
Integrated Classroom Learning Systemk Language Arts 5: March 27, 1998 TX-2-582-335
course outline, answer keys, worksheets, test
Integrated Classroom Learning System: Language Arts 5: March 27, 1998 TX-2-582-336
Teachers' Guide
Integrated Classroom Learning System: Language Arts 6: March 27, 1998 TX-2-582-337
Teachers' Guide
Language Arts 4: Teachers' Guide March 27, 1998 TX-2-582-936
Language Arts 4: course outline, answer keys, worksheets tests March 27, 1998 TX-2-582-937
ICLS courseware sample March 27, 1998 TX-2-584-925
ICLS courseware sample March 27, 1998 TX-2-584-928
Secondary Language Arts: course outline, answer keys, March 27, 1998 TX-2-593-770
worksheets, tests
Math - Level 5: Teachers' Guide March 27, 1998 TX-2-671-309
German 1: Teachers' Guide March 27, 1998 TX-2-671-310
Physics: course outline, answer keys, worksheets, tests March 27, 1998 TX 2-671-315
ICLS courseware sample: 6th Grade Math March 27, 1998 TX-2-672-548
Physics: Teachers' Guide March 27, 1998 TX-2-672-549
German March 27, 1998 TX-2-672-555
Physics March 27, 1998 TX-2-672-556
Math, Level 5 March 27, 1998 TX-2-672-557
ICLS courseware sample: 4th Grade Math March 27, 1998 TX-2-678-479
Math - Level 6: Teachers' Guide March 27, 1998 TX-2-680-775
German 1: course outline, answer keys, worksheets, tests March 27, 1998 TX-2-686-566
ICLS courseware sample: 5th Grade Math March 27, 1998 TX-2-686-567
Math - Level 6: course outline, answer keys, worksheets, tests March 27, 1998 TX-2-686-568
Math - Level 4: course outline, answer keys, worksheets, tests March 27, 1998 TX-2-686-569
Mathematics: Grade 4: Teachers' Guide March 27, 1998 TX-2-686-571
ICLS Spanish 1: courseware sample March 27, 1998 TX-2-723-547
ICLS courseware sample: Language Arts 3 Ideal Learning: a March 27, 1998 TX-2-455-456
preschool curriculum for home use/created by Brett W. Rogers
- --------------------------------------------------------------------------------------------------------------------------------
Copyrights transferred from Hartley
<CAPTION>
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PRODUCT NAME DATE FILED/ISSUED COPYRIGHT NUMBER
- ------------ ----------------- ----------------
<S> <C> <C>
Homonyms September 14, 1998 TX-1-919-673
Antonyms/Synonyms September 14, 1998 TX-1-923-273
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13
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<CAPTION>
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PRODUCT NAME DATE FILED/ISSUED COPYRIGHT NUMBER
- ------------ ----------------- ----------------
<S> <C> <C>
Consonants September 14, 1998 TX-1-923-274
Vowels Tutorial September 14, 1998 TX-1-923-582
Number Words Level 2 September 14, 1998 TX-1-925-907
Create Your Own - Vocabulary French September 14, 1998 TX-1-926-180
Adjectives September 14, 1998 TX-1-926-189
Student Word Study September 14, 1998 TX-1-926-372
Super Wordfind September 14, 1998 TX-1-926-444
Create Intermediate September 14, 1998 TX-1-926-933
Create Vocabulary September 14, 1998 TX-1-926-934
Create Your Own - Vocabulary Spanish September 14, 1998 TX-1-927-484
Print Your Own - Bingo September 14, 1998 TX-1-928-566
Vocabulary Controlled September 14, 1998 TX-1-928-661
Presidents Physical Fitness September 14, 1998 TX-1-928-664
Letter Recognition September 14, 1998 TX-1-928-811
Create Your Own - Elementary September 14, 1998 TX-1-929-475
Parent Reporting September 14, 1998 TX-1-929-605
Fact Sheets September 14, 1998 TX-1-931-540
Word - a - Tech September 14, 1998 TX-1-940-789
Create Your Own - CCD Lessons September 14, 1998 TX-1-956-151
Metric Skills I & II September 14, 1998 TX-1-951-715
Adverbs September 14, 1998 TX-1-965-834
Wordsearch September 14, 1998 TX-1-965-935
The Medalist Series: Continents September 14, 1998 TX-2-012-225
Vowels September 14, 1998 TX-2-013-525
Prescriptive Math Drill September 14, 1998 TX-2-023-375
Analogies Tutorial I and II September 14, 1998 TX-2-025-231
Chariots, Cougars, and Kings September 14, 1998 TX-2-025-232
Kittens, Kids and a Frog September 14, 1998 TX-2-025-233
Scuffy and Friends September 14, 1998 TX-2-025-234
The Medalist Series: Presidents September 14, 1998 TX-2-025-245
Analogies Advanced I and II September 14, 1998 TX-2-026-237
The Medalist Series: Women in History September 14, 1998 TX-2-026-763
Famous Scientists September 14, 1998 TX-2-026-764
Number Words Level 1 September 14, 1998 TX-2-026-823
Create You Own - Spell It September 14, 1998 TX-2-027-287
Perplexing Puzzles September 14, 1998 TX-2-027-420
Temperature Experiments September 14, 1998 TX-2-029-315
Create Your Own - Medalists September 14, 1998 TX-2-029-641
Chemical Elements September 14, 1998 TX-2-029-797
The Medalist Series: States September 14, 1998 TX-2-029-798
Integers/Equations I & II September 14, 1998 TX-2-030-245
Match Espanol September 14, 1998 TX-2-030-375
Reading For Meaning Level 1 Fairy Tales and Rhymes September 14, 1998 TX-2-030-397
Compound Words and Contractions September 14, 1998 TX-2-030-398
Early Skills September 14, 1998 TX-2-030-399
Expanded Notation September 14, 1998 TX-2-031-150
Expanded Notation September 14, 1998 TX-2-031-151
Fact or Opinion September 14, 1998 TX-2-031-425
Cause and Effect September 14, 1998 TX-2-031-444
Match Francais September 14, 1998 TX-2-031-613
Figurative Language I and II September 14, 1998 TX-2-031-654
The Medalist Series: Black Americans September 14, 1998 TX-2-033-164
Binary Math September 14, 1998 TX-2-038-700
Create Your Own - Lessons September 14, 1998 TX-2-038-794
What's First? What's Next? September 14, 1998 TX-2-057-107
Sense or Nonsense September 14, 1998 TX-2-057-108
Little Riddles September 14, 1998 TX-2-057-109
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14
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<CAPTION>
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PRODUCT NAME DATE FILED/ISSUED COPYRIGHT NUMBER
- ------------ ----------------- ----------------
<S> <C> <C>
Word Families II September 14, 1998 TX-2-057-110
U.S. History September 14, 1998 TX-2-057-111
Harper and Sellers - A Guide to the Classics: Macbeth September 14, 1998 TX-2-080-883
Harper and Sellers - A Guide to the Classics: The Adventures September 14, 1998 TX-2-081-007
of Huckleberry Finn
Reading For Meaning Level 2: Fairy Tales and Rhymes September 14, 1998 TX-2-159-771
Double 'N' Trouble September 14, 1998 TX-2-180-698
Word Ladders September 14, 1998 TX-2-212-911
Capitalization Practice and Test September 14, 1998 TX-2-219-871
Print Your Own Bingo Plus September 14, 1998 TX-2-240-339
Create Your Own Lessons Advanced September 14, 1998 TX-2-242-832
Shakespeare September 14, 1998 TX-2-243-374
Opposites September 14, 1998 TX-2-247-992
Milt's Math Drills September 14, 1998 TX-2-249-310
Drawing Conclusions and Problem Solving September 14, 1998 TX-2-258-394
Verb Usage III September 14, 1998 TX-2-279-559
Verb Usage I September 14, 1998 TX-2-315-676
Brick by Brick Level 1 Building Usage Skills September 14, 1998 TX-2-369-842
Brick by Brick Level 2 Building Usage Skills September 14, 1998 TX-2-370-451
Brick by Brick Level 1 Building Comprehension September 14, 1998 TX-2-373-860
Brick by Brick Level 4 Building Usage Skills September 14, 1998 TX-2-375-505
Brick by Brick Level 2 Building Vocabulary September 14, 1998 TX-2-378-720
Brick by Brick Level 4 Building Comprehension September 14, 1998 TX-2-384-016
Vocabulary Dolch September 14, 1998 TX-2-398-411
Brick by Brick Level 5 Building Comprehension September 14, 1998 TX-2-400-368
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Copyrights being transferred from Ideal
<CAPTION>
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PRODUCT NAME DATE FILED/ISSUED COPYRIGHT NUMBER
- ------------ ----------------- ----------------
<S> <C> <C>
Calculus: Teacher's Guide Transfer Application Pending TX-2-125-878
as of June 18, 1998
Calculus: Outline, Answer Keys, Worksheets, Tests Transfer Application Pending TX-2-125-879
as of June 18, 1998
Calculus: Support Materials Sample Transfer Application Pending TX-2-172-445
as of June 18, 1998
Algebra I: Teacher's Guide Transfer Application Pending TX-2-178-697
as of June 18, 1998
Algebra I: Support Materials Sample Transfer Application Pending TX-2-178-698
as of June 18, 1998
Algebra I: Outline, Answer Keys, Worksheets, Tests Transfer Application Pending TX-2-179-056
as of June 18, 1998
Mathematics Grade 7: Support Materials Sample Transfer Application Pending TX-2-289-047
as of June 18, 1998
Trigonometry/Math Analysis: Teacher's Guide Transfer Application Pending TX-2-289-048
as of June 18, 1998
Trigonometry/Math Analysis: Outline, Answer Keys, Transfer Application Pending TX-2-289-049
Worksheets, Tests as of June 18, 1998
Mathematics Grade 7: Outline, Answer Keys, Transfer Application Pending TX-2-289-050
Worksheets, Tests as of June 18, 1998
Mathematics Grade 7: Teacher's Guide Transfer Application Pending TX-2-289-051
as of June 18, 1998
Geometry: Course Outline, Answer Keys,, Transfer Application Pending TX-2-311-453
Worksheets, Tests as of June 18, 1998
Geometry: Teacher's Guide Transfer Application Pending TX-2-311-454
as of June 18, 1998
Algebra II: Teacher's Guide Transfer Application Pending TX-2-326-534
as of June 18, 1998
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<CAPTION>
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PRODUCT NAME DATE FILED/ISSUED COPYRIGHT NUMBER
- ------------ ----------------- ----------------
<S> <C> <C>
Trigonometry/Math Analysis: Support Materials Transfer Application Pending TX-2-326-535
Sample as of June 18, 1998
Algebra II: Support Materials Sample Transfer Application Pending TX-2-345-457
as of June 18, 1998
Algebra II: Outline, Answer Keys, Worksheets, Tests Transfer Application Pending TX-2-351-931
as of June 18, 1998
Geometry: Support Materials Sample Transfer Application Pending TX-2-400-824
as of June 18, 1998
ICLS Courseware Sample Language Arts 6 Transfer Application Pending TX-2-582-332
as of June 18, 1998
Language Arts 6 Course Outline, Answer Keys, Transfer Application Pending TX-2-582-333
Worksheets, Tests as of June 18, 1998
ICLS Courseware Sample: Language Arts 5 Transfer Application Pending TX-2-582-334
as of June 18, 1998
ICLS Courseware Sample: Language Arts 5 Transfer Application Pending TX-2-582-334
as of June 18, 1998
Language Arts 5: Course Outline, Answer Keys, Transfer Application Pending TX-2-582-335
Worksheets, Tests as of June 18, 1998
Language Arts 5: Teacher's Guide Transfer Application Pending TX-2-582-336
as of June 18, 1998
Language Arts 6: Teacher's Guide Transfer Application Pending TX-2-582-337
as of June 18, 1998
Language Arts 4: Teacher's Guide Transfer Application Pending TX-2-582-936
as of June 18, 1998
Language Arts 4: Course Outline, Answer Keys, Transfer Application Pending TX-2-582-937
Worksheets, Tests as of June 18, 1998
ICLS Courseware Sample: Secondary Language Arts Transfer Application Pending TX-2-584-925
as of June 18, 1998
ICLS Courseware Sample: Language Arts 4 Transfer Application Pending TX-2-593-770
as of June 18, 1998
Secondary Language Arts: Course Outline, Answer Transfer Application Pending TX-2-686-566
Keys, Worksheets, Tests as of June 18, 1998
Math - Level 5: Teacher's Guide Transfer Application Pending TX-2-671-309
as of June 18, 1998
German I: Teacher's Guide Transfer Application Pending TX-2-671-310
as of June 18, 1998
Physics: Course Outlines, Answer Keys, Worksheets, Transfer Application Pending TX-2-671-315
Tests as of June 18, 1998
ICLS Courseware Sample: 6th Grade Math Transfer Application Pending TX-2-672-548
as of June 18, 1998
Physics: Teacher's Guide Transfer Application Pending TX-2-672-549
as of June 18, 1998
ICLS Courseware Sample: German Transfer Application Pending TX-2-672-555
as of June 18, 1998
ICLS Courseware Sample: Physics Transfer Application Pending TX-2-672-556
as of June 18, 1998
Math - Level 5: Course Outline, Answer Keys, Transfer Application Pending TX-2-672-557
Worksheets, Tests as of June 18, 1998
ICLS Courseware Sample: 4th Grade Math Transfer Application Pending TX-2-678-479
as of June 18, 1998
Math - Level 6: Teacher's Guide Transfer Application Pending TX-2-680-775
as of June 18, 1998
German I: Course Outline, Answer Keys, Worksheets, Transfer Application Pending TX-2-686-566
Tests as of June 18, 1998
ICLS Courseware Sample: 5th Grade Math Transfer Application Pending TX-2-686-567
as of June 18, 1998
Math - Level 6: Course Outline, Answer Keys, Transfer Application Pending TX-2-686-568
Worksheets, Tests as of June 18, 1998
- ---------------------------------------------------------------------------------------------------------------------
16
<PAGE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
PRODUCT NAME DATE FILED/ISSUED COPYRIGHT NUMBER
- ------------ ----------------- ----------------
<S> <C> <C>
Math - Level 4: Course Outline, Answer Keys, Transfer Application Pending TX-2-686-569
Worksheets, Tests as of June 18, 1998
Mathematics Grade 4: Teacher's Guide Transfer Application Pending TX-2-686-571
as of June 18, 1998
ICLS Courseware Sample: Language Arts 3 Transfer Application Pending TX-2-739-191
as of June 18, 1998
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
17
<PAGE>
LICENSE AGREEMENTS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
IP OWNED
BY
COMPANY CONTRACT TYPE PRODUCT LICENSED JLC PRODUCT COMPANY ROYALTY
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Academic Distribution Algebra - intro, Interactive Yes 40% of gross sales
Systems intermed, coll Mathematics
Interactive Math PreAlgebra 1&2
Algebra 1&2
Academic Distribution RIMS, JLC notebook in Notebook Yes N/A
Systems ASC Mediated Learning
System
Bank Street License Wordbench Wordbench Yes .05% per product
College of Ed. Secondary Learner
BBN Development Algebra product Algebra Wordbench JLC 15% of net
CA DOE License Phys.Sci Mid Scl Sci JLC 10% per product
Comptons Development Multi-media Tom.'s Promise Yes Version 1-3 20% Version
encyclopedia Elementary Learner 4.25%
Dade County Development ELD JLC 8% to state of FL 2% to
Dade
Edunetics License Rediscover Science Mid Sch Sci Yes 40% of gross
First Byte License Voice or speech Assorted Project Yes $60/network $25/lad
property
FL DOE ESOL curriculum for T.E.A.C.H. Yes 15% of net
teacher training
Learning License CWP Center, Writing Tomorrow's Yes Standalone $45/copy
Company Center, Student Writing Promise networked $899/copy
Center
Lernout & License Spell checker grammar Writing Expedition Yes Writing Exped.
Haupsie Checker Steps to ELD 3.5%/ copy ($3.35/copy
Thesaurus Elem/Mid Learner min.) 2.5%/copy
Grammar checker Elem/Mid Learner ($10/copy min.)
thesaurus
Proximity Tool license Linguistic technology Elem Lrnr Steps Yes Qty/Spell/Dictionary
1-8: $25/$30.00
9-12: $33/$39.60
13-16: $41/$49.20
17-20: $49/$58.80
21-24: $57/$68.40
25-32: $73/$87.60
33-40: $81/$97.00
41+: $89/106.80
Sensei License Algebra, intro to Secondary Learner Yes 15% of sales receipts
Software Algebra
Sensei License Geometry, intro to Secondary Learner Yes 15% of sales receipts
Software Geometry
Western/ License GBE, stories, dictionary GBE, ILA Story Yes greater of 12.25% of net
GBFE Books, Story Book billings of 70% of JLC
Maker, Story Book price for GBE 4% of net
Maker Deluxe- for SBD
(SBD)
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
This chart includes all license agreements granting to JLC any
material right to use intellectual property, but does not include (w)
development tools software under pre-paid license agreements, (x)
office automation software used generally in the operations of JLC and
(y) other software not used in the design, development, maintenance
and support, testing, assembly and manufacture of the products of JLC,
that, in the case of clause (w), (x) or (y), is commercially available
for a license fee of less than $100,000 per annum.
18
<PAGE>
SCHEDULE VI
to Security and Pledge Agreement
(JLC Learning Corporation)
TRADE SECRET OR KNOW-HOW LICENSES
None.
19
<PAGE>
SCHEDULE I
to Security and Pledge Agreement
(Funk & Wagnalls Yearbook Corporation)
Item A. INTERCOMPANY NOTES
None.
Item B. SECURITIES
None.
<PAGE>
SCHEDULE II
to Security and Pledge Agreement
(Funk & Wagnalls Yearbook Corporation)
GOVERNMENT CONTRACTS
None.
<PAGE>
SCHEDULE III
to Security and Pledge Agreement
(Funk & Wagnalls Yearbook Corporation)
Item A. PATENTS
None.
Item B. PATENT LICENSES
None.
<PAGE>
SCHEDULE IV
to Security and Pledge Agreement
(Funk & Wagnalls Yearbook Corporation)
Item A. TRADEMARKS
None.
Item B. TRADEMARK LICENSES
None.
<PAGE>
SCHEDULE V
to Security and Pledge Agreement
(Funk & Wagnalls Yearbook Corporation)
Item A. COPYRIGHTS
All copyrights for Funk & Wagnalls Yearbook Corporation are filed in the United
States.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
PRODUCT NAME COPYRIGHT NUMBER
- ------------ ----------------
<S> <C>
Funk & Wagnalls New Encyclopedia TX-4-860-036
(full text as of 12/31/98)
- -------------------------------------------------------------------------------
</TABLE>
* Copyright registration submitted every 3 months for the updated and
expanded Funk & Wagnalls New Encyclopedia full text database. Because
of the slowness of the copyright office, Funk & Wagnalls has not yet
received any of the copyright registration certificates for any of the
first three quarters of 1999.
Item B. COPYRIGHT LICENSES
None.
<PAGE>
SCHEDULE VI
to Security and Pledge Agreement
(Funk & Wagnalls Yearbook Corporation)
TRADE SECRET OR KNOW-HOW LICENSES
None.
<PAGE>
SCHEDULE I
to Security and Pledge Agreement
(Primedia Reference Inc.)
Item A. INTERCOMPANY NOTES
None.
Item B. SECURITIES
<TABLE>
<CAPTION>
Common Stock
------------
Authorized Outstanding % of Shares
Issuer (corporate) Shares Shares Pledged
- ------------------ ------ ------ -------
<S> <C> <C> <C>
Funk & Wagnalls Yearbook 1,000 1,000 100%
Corporation
Gareth Stevens, Inc. 10,000,000 2,314,305 100%
</TABLE>
<PAGE>
SCHEDULE II
to Security and Pledge Agreement
(Primedia Reference Inc.)
GOVERNMENT CONTRACTS
Contract dated 7/10/96, between City of Chicago and K-III Reference Corporation
(Facts on File News Services).
Amendment, dated 12/29/98, between City of Chicago, and K-II Reference
Corporation.
<PAGE>
SCHEDULE III
to Security and Pledge Agreement
(Primedia Reference Inc.)
Item A. PATENTS
None.
Item B. PATENT LICENSES
None.
<PAGE>
SCHEDULE IV
to Security and Pledge Agreement
(Primedia Reference Inc.)
Item A. TRADEMARKS
<TABLE>
<CAPTION>
COUNTRY MARK CLASSES APP. # APP. DT REG. # REG. DT STATUS
------- ---- ------- ------ ------- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Australia F & W LOGO 16 431781 8/16/85 B431781 8/16/85 Registered
Australia FUNK & WAGNALLS 16 431782 8/16/85 B431782 8/16/85 Registered
Benelux THE WORLD ALMANAC 16 843960 3/9/95 567339 3/9/95 Registered
AND BOOK OF FACTS
Brazil FUNK & WAGNALLS 16 819783625 1/9/97 FILED
Brazil THE WORLD ALMANAC 11.10 819436526 8/28/96 819436526 3/30/99 Registered
AND BOOK OF FACTS
Canada F & W DESIGN TMA319654 10/17/86 Registered
Canada THE WORLD ALMANAC TMA362019 11/3/89 Registered
Canada THE WORLD ALMANAC 821883 8/28/96 487,866 1/20/98 Registered
FOR KIDS
China (People's THE WORLD ALMANAC 16 98003500 5/7/98 1150491 2/14/98 Registered
Republic Of)
China (People's THE WORLD ALMANAC 16 98003499 5/7/97 1150492 2/14/98 Registered
Republic Of) AND BOOK OF FACTS
China (People's THE WORLD ALMANAC FOR 16 98003499 5/7/98 1150490 2/14/98 Registered
Republic Of) KIDS
European Union THE WORLD ALMANAC 16 100173 11/24/98 FILED
AND BOOK OF FACTS
France THE WORLD ALMANAC 16 95/557515 2/9/95 95/557515 2/9/95 Registered
AND BOOK OF FACTS
Italy IL LIBRO DEI FATTI 9 16 RM94C00290 6/28/94 FILED
4
Italy THE WORLD ALMANAC 16 RM94C00290 6/28/94 FILED
AND BOOK OF FACTS 3
Japan THE WORLD ALMANAC 16 66240/94 7/5/96 3318120 6/6/97 Registered
AND BOOK OF FACTS
Japan WORLD ALMANAC 16 66241/94 7/5/94 3308916 5/23/97 Registered
(KATAKANA)
Portugal THE WORLD ALMANAC 16 307518 2/21/95 307518 2/16/96 Registered
AND BOOK OF FACTS
Spain THE WORLD ALMANAC 16 1948018 2/16/95 1948018 2/16/95 Registered
AND BOOK OF FACTS
United THE WORLD ALMANAC 16 1574650 6/8/94 1574650 6/8/94 Registered
Kingdom AND BOOK OF FACTS
United States CUT YOUR OWN TAXES 16 1269846 3/13/84 Registered
AND SAVE
United States DESIGN ONLY 16 75/409515 12/22/97 FILED
(FACTOSAURUS)
United States F & W 16 1469770 12/22/87 Registered
United States FACTS.COM 41 75/683176 4/15/99 FILED
United States FUNK & WAGNALLS 16 72/246608 5/25/66 835506 9/19/67 Registered
(STYLIZED)
United States FW (STYLIZED) 16 952041 1/30/73 Registered
United States STANDARD 16 672509 1/13/59 Registered
<PAGE>
<CAPTION>
COUNTRY MARK CLASSES APP. # APP. DT REG. # REG. DT STATUS
------- ---- ------- ------ ------- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
United States THE WORLD ALMANAC 16 74/638910 2/27/95 1963108 3/19/96 Registered
AND BOOK OF FACTS
United States THE WORLD ALMANAC AND 16 73/787317 3/17/89 1587742 3/20/90 Registered
BOOK OF FACTS &
LETTER W/GLOBE DESIGN
United States THE WORLD ALMANAC 16 72/063595 12/3/58 683710 8/18/59 Registered
AND BOOK OF FACTS &
GLOBE DESIGN
United States THE WORLD ALMANAC FOR 16 75/144976 8/5/96 2126810 1/6/98 Registered
KIDS
United States THE WORLD ALMANAC 16 71/333770 1/9/33 303192 5/16/33 Registered
(STYLIZED LETTERS)
United States WONDERSTORMS 42 1538636 5/9/89 Registered
United States WORLD ALMANAC & 16 73/629363 11/10/86 1445125 6/30/87 Registered
BOOK/GLOBE DESIGN
United States WORLD ALMANAC 42 74/007825 12/4/89 1617205 10/9/90 Registered
EDUCATION
United States THE WORLD ALMANAC 16 71/336450 4/5/33 305467 8/15/33 INACTIVE
AND BOOK OF FACTS &
CAPITOL DESIGN
United States WORLD ALMANAC INFO 16 74/188163 7/24/91 174186 1/5/93 INACTIVE
POWER
</TABLE>
Item B. TRADEMARK LICENSES
None.
<PAGE>
SCHEDULE V
to Security and Pledge Agreement
(Primedia Reference Inc.)
Item A. COPYRIGHTS
All copyrights for Primedia Reference Inc. are filed in the United States.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
PRODUCT NAME COPYRIGHT NUMBER
- ------------ ----------------
<S> <C>
The 1999 World Almanac TX-4-898-925
- --------------------------------------------------------------------------------
</TABLE>
* Copyright registration submitted every November, upon publication, for each
new edition of The World Almanac. Copyright registration will be submitted
shortly for the 2000 World Almanac (publication date: 11/30/99)
Item B. COPYRIGHT LICENSES
None.
<PAGE>
SCHEDULE VI
to Security and Pledge Agreement
(Primedia Reference Inc.)
TRADE SECRET OR KNOW-HOW LICENSES
None.
<PAGE>
SCHEDULE I
to Security and Pledge Agreement
(Weekly Reader Corporation)
Item A. INTERCOMPANY NOTES
None.
Item B. SECURITIES
<TABLE>
<CAPTION>
Common Stock
------------
Authorized Outstanding % of Shares
Issuer (corporate) Shares Shares Pledged
- ------------------ ------ ------ -------
<S> <C> <C> <C>
Lifetime Learning Systems, Inc. 1,000 1,000 100%
Primedia Reference Inc. 1,000 1,000 100%
</TABLE>
<PAGE>
SCHEDULE II
to Security and Pledge Agreement
(Weekly Reader Corporation)
GOVERNMENT CONTRACTS
None.
<PAGE>
SCHEDULE III
to Security and Pledge Agreement
(Weekly Reader Corporation)
Item A. PATENTS
None.
Item B. PATENT LICENSES
None.
<PAGE>
SCHEDULE IV
to Security and Pledge Agreement
(Weekly Reader Corporation)
Item A. TRADEMARKS
REGISTERED TRADEMARKS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
APP. REG.
COUNTRY MARK CLASSES APP. # DATE REG. # DATE STATUS
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Canada Career World TMA 4/18/80 Registered
243218
Canada Current Lifestudies TMA 2/8/85 Registered
299691
Canada Curriculum TMA 5/22/87 Registered
Innovations, Inc. 327726
Canada My Weekly Reader TMA 1/10/75 Registered
204370
Canada Weekly Reader TMA 11/2/73 Registered
195222
Canada World Newsmap of TMA 6/27/80 Registered
the Week 247128
Canada Writing! (Stylized) TMA 6/3/83 Registered
279939
United States Banana Monkey's 16 75/611855 12/24/98 Filed
United States Buddy Bear's 42 75/618671 1/11/99 Filed
United States Career World 16 955803 3/20/73 Registered
United States Current Events 16 241416 4/24/28 Registered
United States Current Health 16 1193623 4/13/82 Registered
United States Current Science 16 258834 7/16/29 Registered
(Stylized)
United States Curriculum 16 74/147346 3/13/91 1729247 11/3/92 Registered
Innovations Group
United States Funnybunny 16 1219949 12/14/82 Registered
United States Galaxy Weekly 41 75/189303 10/29/96 2236381 4/6/99 Registered
Reader & Design
United States Hear America! 16 75/180039 10/10/96 2087843 8/12/97 Registered
United States Imagine and Write 16 885075 1/27/70 Registered
United States Infographics 16 75/158987 8/30/96 2101274 9/30/97 Registered
United States Kidkit & Design 16 1582492 2/13/90 Registered
United States Kids TV & Design 41 74/046859 4/6/90 1652023 7/23/91 Registered
United States Know Your World 16 851484 6/25/68 Registered
United States Map Skills for 16 879296 10/21/69 Registered
Today
United States Map Skills for 16 1606402 7/17/90 Registered
Today
United States My Weekly Reader 16 254284 3/19/29 Registered
United States My Weekly Reader 16 75/719301 6/2/99 Filed
Summer Magazine
United States Nip 28 75/322190 7/19/97 2152626 4/21/98 Registered
United States Peanut and Jocko 16 1549117 7/25/89 Registered
United States Pulse for Today's 16 74/505517 3/28/94 1945000 1/2/96 Registered
Middleschools &
Design
- ----------------------------------------------------------------------------------------------------------
<PAGE>
2
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
APP. REG.
COUNTRY MARK CLASSES APP. # DATE REG. # DATE STATUS
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
United States Read (Stylized) 16 574960 5/26/53 Registered
United States Read-Study-Think 16 880929 11/18/69 Registered
United States Science Matters 16 74/442122 9/30/93 1967619 4/16/96 Registered
United States Science Spin 16 75/313516 6/23/97 Filed
United States The Largest 16 75/611854 12/24/98 Filed
Newspaper for Kids
in the World!
United States The Weekly Reader 16 75/611852 12/24/98 Filed
Teacher
United States Weekly Reader 16 1503004 9/6/88 Registered
United States Weekly Reader 42 1519333 1/3/89 Registered
United States Weekly Reader 42 75/584518 11/6/98 Filed
United States Weekly Reader Big 16 75/158992 8/30/96 2077656 7/8/97 Registered
Issue!
United States Weekly Reader 16 75/611853 12/24/98 Filed
News for Kids
United States Weekly Reader 16 75/719300 6/2/99 Filed
Summer Magazine
United States World Newsmap of 16 75/572449 10/19/98 Filed
the Month
United States World Newsmap of 16 1421904 12/23/86 Registered
the Week
United States World Newsmap of 16 1132464 4/1/80 Registered
the Week
United States Writing Pals & 42 74/464121 11/30/93 1913914 8/22/95 Registered
Design
United States Writing! 16 74/087100 8/13/90 1655545 9/3/91 Registered
United States Writing! (Stylized) 16 1238958 5/17/83 Registered
United States Young America 16 75/179427 10/10/96 2087840 8/12/97 Registered
Votes
Canada Current Consumer TMA 4/11/80 Inactive
242690
United States A Heart Song 16 1495789 7/12/88 Inactive
Novel & Design
United States A Weekly Reader 16 1500483 8/16/88 Inactive
Fairy Tale &
Design
United States A Whiskers Book 16 1495787 7/12/88 Inactive
& Design
United States B.J. 28 75/322189 7/10/97 Inactive
United States Challenges 16 74/208565 9/30/91 Inactive
United States Current Health 16 1018333 8/12/75 Inactive
United States Curriculum 16 1333189 4/30/85 Inactive
Innovations, Inc.
United States Eye (Stylized) 16 995713 10/15/74 Inactive
United States Fun Facts & Design 16 1479584 3/8/88 Inactive
United States Jelly Bean 16 1042268 6/29/76 Inactive
Jamboree
United States Little Sprout & 16 1515344 12/6/88 Inactive
Design
- ----------------------------------------------------------------------------------------------------------
<PAGE>
3
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
APP. REG.
COUNTRY MARK CLASSES APP. # DATE REG. # DATE STATUS
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
United States Make It Happen the 16 1477639 2/23/88 Inactive
Choice Is Yours
United States Newsprobe 16 1595351 5/8/90 Inactive
United States Smart Start & 16 1485252 4/19/88 Inactive
Design
United States Tomorrow Star & 16 1479585 3/8/88 Inactive
Design
United States U.S. Kids & Design 16 1507100 10/4/88 Inactive
United States Values and 16 1019377 9/2/75 Inactive
Decisions
United States Weekly Reader & 16 74/089880 8/20/90 1681978 4/7/92 Inactive
Design
United States Zip 28 75/322146 7/10/97 2152625 4/21/98 Registered
United States Zips 16 890134 4/28/70 Registered
- ----------------------------------------------------------------------------------------------------------
</TABLE>
Item B. TRADMARK LICENSES
None.
<PAGE>
SCHEDULE V
to Security and Pledge Agreement
(Weekly Reader Corporation)
Item A. COPYRIGHTS
Weekly Reader and its subsidiaries generate numerous copyrights each week in
connection with numerous ongoing publishing activities. None of these copyrights
are individually material and they are not listed here.
Item B. COPYRIGHT LICENSES
None.
<PAGE>
SCHEDULE VI
to Security and Pledge Agreement
(Weekly Reader Corporation)
TRADE SECRET OR KNOW-HOW LICENSES
None.
<PAGE>
SCHEDULE I
to Security and Pledge Agreement
(American Guidance Service Inc.)
Item A. INTERCOMPANY NOTES
None.
Item B. SECURITIES
<TABLE>
<CAPTION>
Common Stock
Authorized Outstanding % of Shares
Issuer (corporate) Shares Shares Pledged
- ------------------ ------ ------ -------
<S> <C> <C> <C>
AGS International Sales, Inc. 2,500 250 100%
</TABLE>
<PAGE>
SCHEDULE II
to Security and Pledge Agreement
(American Guidance Service Inc.)
GOVERNMENT CONTRACTS
Assessment Agreement and Assessor's Certification, dated 5/25/93, between City
of Circle Pines and AGS.
Professional/Consultant Services Contract, dated 10/01/97, between Fairfax
County Board of Supervisors and AGS.
Agreement, dated 10/27/97, between Montgomery County Public Schools and AGS.
Agreement, dated 10/09/90, between Fairfax County Public Schools and AGS.
Requirements Contract, dated 07/06/94, between Board of Education of the City of
New York and AGS.
Agreement, dated 8/31/89, between Albany City School District and Delmar
Publishers Inc.
<PAGE>
SCHEDULE III
to Security and Pledge Agreement
(American Guidance Service Inc.)
Item A. PATENTS
None.
Item B. PATENT LICENSES
None.
<PAGE>
SCHEDULE IV
to Security and Pledge Agreement
(American Guidance Service Inc.)
Item A. TRADEMARKS
<TABLE>
<CAPTION>
Country Mark Classes App. # App. Dt Reg. # Reg. Dt Status
------- ---- ------- ------ ------- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
USA COOPERATIVE 16 74/155,635 04/09/91 1,674,693 02/04/92 Registered
DISCIPLINE
USA STEP SYSTEMATIC 9 74/060,441 05/18/90 1,666,489 12/03/91 Registered
TRAINING FOR
EFFECTIVE PARENTING
USA STEP AND DESIGN 9, 16 74/059,930 05/17/90 1,666,672 12/03/91 Registered
USA AGS 9 73/489,334 07/11/84 1,337,644 05/28/85 Registered
USA DATA SCAN 16 73/341,618 12/14/81 1,229,687 03/08/83 Registered
USA AGS 9,16, 28, 73/245,478 01/09/80 1,164,458 08/11/81 Registered
41
USA WOODCOCK READING 9, 16 74/601,874 11/22/94 Inactive
MASTERY TESTS
USA I AM AMAZING 16 73/720,848 04/04/88 1,522,601 01/31/89 Inactive
USA I AM AMAZING 41 73/720,318 04/04/88 1,514,909 11/29/88 Inactive
USA EASEL-KIT 16 72/337,876 08/15/69 918,523 08/17/71 Inactive
</TABLE>
Item B. TRADEMARK LICENSES
None.
<PAGE>
SCHEDULE V
to Security and Pledge Agreement
(American Guidance Service Inc.)
Item A. COPYRIGHTS
All copyrights for American Guidance Service Inc. are filed in the United
States.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Product Name Copyright Number
- ------------ ----------------
<S> <C>
PPVT TX4-531-097
K-TEA TX4-737-590
DIAL TX2-907-985
BASC TX4-172-450
Vineland TX3-431-949
WRMT TX2-276-301
KeyMath Test TX2-380-291
OWLS (LC/OE Version) TX3-803-842
OWLS (WE Version) TX4-198-026
PIAT TX2-624-349
GFTA TX1-856-134
K-BIT TX3-003-231
K-ABC (Easel 1) TX1-563-401
K-ABC (Easel 2) TX1-499-140
K-ABC (Easel 3) TX1-452-750
K-ABC (Test Record Form) TX1-499-139
K-ABC (Manual) TX1-458-788
K-ABC (Photo Cards) TX-176-650
K-ABC (ASSIST) TX1-412-461
K-ABC (Scoring Manual) TX1-458-787
K-ABC (Supplemental Forms) TX2-268-847
- --------------------------------------------------------------------------------
</TABLE>
* Copyrights are for educational tests. Information provided above is for the
10 most valuable tests of an approximate total of 40. Information for the
remaining tests will be provided as it is received.
Item B. COPYRIGHT LICENSES
None.
<PAGE>
SCHEDULE VI
to Security and Pledge Agreement
(American Guidance Service Inc.)
TRADE SECRET OR KNOW-HOW LICENSES
None.
<PAGE>
EXHIBIT A
to Security and Pledge Agreement
PROMISSORY NOTE
$--------------- -------- --, ----
FOR VALUE RECEIVED, the undersigned, ______________, a
_______________ corporation (the "MAKER"), promises to pay to the order of
________________, a ___________ _________ (the "PAYEE"), in equal ________
installments, commencing __________ __, ____ to and including __________ __,
____, the principal sum of ________________________ DOLLARS ($___________),
representing the aggregate principal amount of an intercompany loan made by
the Payee to the Maker.
The unpaid principal amount of this promissory note (this "NOTE") from
time to time outstanding shall bear interest at a rate of interest equal to
____________, which the Maker represents to be a lawful and commercially
reasonable rate, payable __________, and all payments of principal of and
interest on this Note shall be payable in lawful currency of the United States
of America. All such payments shall be made by the Maker to an account
established by the Payee at _______________ and shall be recorded on the grid
attached hereto by the holder hereof (including the Administrative Agent
(hereinafter defined) as pledgee). Upon notice from the Administrative Agent
that a Specified Default (as defined in the Credit Agreement) has occurred and
is continuing under the Credit Agreement, the Maker shall make such payments, in
same day funds, to such other account as the Administrative Agent shall direct
in such notice.
This Note is one of the Intercompany Notes referred to in, and
evidences Indebtedness incurred pursuant to Section 7.2.2 of the Credit
Agreement, dated as of November 17, 1999 (as amended, supplemented, amended and
restated or otherwise modified from time to time, the "CREDIT AGREEMENT"), among
Weekly Reader Corporation, a Delaware corporation ("WRC"), and JLC Learning
Corporation, a Delaware corporation ("JLC" and, together with WRC, the
"BORROWERS"), WRC Media Inc.(formerly known as EAC II Inc.), a Delaware
corporation and parent of JLC ("HOLDINGS"), as a guarantor, the various
financial institutions as are or may become parties thereto (collectively, the
"LENDERS"), DLJ Capital Funding, Inc., as the Syndication Agent (in such
capacity, the "SYNDICATION AGENT"), the Lead Arranger and the Sole Book Running
Manager, Bank of America, N.A., as administrative agent (in such capacity, the
"ADMINISTRATIVE AGENT") for the Lenders, and General Electric Capital
Corporation, as the documentation agent (in such capacity, the "DOCUMENTATION
AGENT") for the Lenders. Upon the occurrence and continuance of a Specified
Default under the Credit Agreement, and notice thereof by the Administrative
Agent to the Maker, the Administrative Agent shall have all rights of the Payee
to collect and accelerate, and enforce all
<PAGE>
rights with respect to, the Indebtedness evidenced by this Note. Unless
otherwise defined herein or the context otherwise requires, terms used herein
have the meanings provided in the Credit Agreement.
Reference is made to the Credit Agreement for a description of the
Security and Pledge Agreement pursuant to which this Note has been pledged to
the Administrative Agent as security for the Secured Obligations outstanding
from time to time under the Credit Agreement and each other Loan Document.
In addition to, but not in limitation of, the foregoing, the Maker
further agrees to pay all expenses, including reasonable attorneys' fees and
legal expenses, incurred by the holder (including the Administrative Agent as
pledgee) of this Note endeavoring to collect any amounts payable hereunder which
are not paid when due, whether by acceleration or otherwise.
THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
INTERNAL LAWS OF THE STATE OF NEW YORK.
THE MAKER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY
RIGHTS IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED ON THIS
NOTE. THE MAKER ACKNOWLEDGES AND AGREES THAT IT HAS RECEIVED FULL AND SUFFICIENT
CONSIDERATION FOR THIS PROVISION AND THAT THIS PROVISION IS A MATERIAL
INDUCEMENT FOR THE PAYEE TO ACCEPT THIS NOTE.
[NAME OF MAKER]
By ___________________________________________
Name:
Title:
Pay to the order of BANK OF AMERICA, N.A., as
Administrative Agent
[NAME OF PAYEE]
By ___________________________________________
Name:
Title:
-2-
<PAGE>
GRID
Intercompany Loans made by [Name of Payee] to [Name of Maker] and payments
of principal of such Loans.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
Amount of Amount of
Intercompany Principal Outstanding Principal
Date Loan Payment Balance Notation Made By
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- --------------------- ------------------------- ------------------------- ----------------------- ------------------
- --------------------- ------------------------- ------------------------- ----------------------- ------------------
- --------------------- ------------------------- ------------------------- ----------------------- ------------------
- --------------------- ------------------------- ------------------------- ----------------------- ------------------
- --------------------- ------------------------- ------------------------- ----------------------- ------------------
- --------------------- ------------------------- ------------------------- ----------------------- ------------------
- --------------------- ------------------------- ------------------------- ----------------------- ------------------
- --------------------- ------------------------- ------------------------- ----------------------- ------------------
- --------------------- ------------------------- ------------------------- ----------------------- ------------------
- --------------------- ------------------------- ------------------------- ----------------------- ------------------
- --------------------- ------------------------- ------------------------- ----------------------- ------------------
- --------------------- ------------------------- ------------------------- ----------------------- ------------------
- --------------------- ------------------------- ------------------------- ----------------------- ------------------
- --------------------- ------------------------- ------------------------- ----------------------- ------------------
- --------------------- ------------------------- ------------------------- ----------------------- ------------------
- --------------------- ------------------------- ------------------------- ----------------------- ------------------
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT B
to Security and Pledge Agreement
PATENT SECURITY AGREEMENT
This PATENT SECURITY AGREEMENT (this "AGREEMENT"), dated as of
__________ __, ____, is made between _______________, a ____________ corporation
(the "GRANTOR"), and BANK OF AMERICA, N.A., as administrative agent (together
with its successor(s) thereto in such capacity, the "ADMINISTRATIVE AGENT") for
each of the Secured Parties;
W I T N E S S E T H :
WHEREAS, pursuant to a Credit Agreement, dated as of November 17, 1999
(as amended, supplemented, amended and restated or otherwise modified from time
to time, the "CREDIT AGREEMENT"), among Weekly Reader Corporation, a Delaware
corporation ("WRC"), and JLC Learning Corporation, a Delaware corporation
("JLC" and, together with WRC, the "Borrowers"), WRC Media Inc. (formerly known
as EAC II Inc.), a Delaware corporation and parent of JLC ("HOLDINGS"), as a
guarantor, the various financial institutions as are or may become parties
thereto (collectively, the "LENDERS"), DLJ Capital Funding, Inc., as the
Syndication Agent (in such capacity, the "SYNDICATION AGENT"), the Lead Arranger
and the Sole Book Running Manager, the Administrative Agent and General Electric
Capital Corporation, as the documentation agent (in such capacity, the
"DOCUMENTATION AGENT") for the Lenders, the Lenders and the Issuers have
extended Commitments to make Credit Extensions to the Borrowers;
WHEREAS, in connection with the Credit Agreement, the Grantor has
executed and delivered a Security and Pledge Agreement, dated as of November 17,
1999 (as amended, supplemented, amended and restated or otherwise modified from
time to time, the "SECURITY AND PLEDGE AGREEMENT");
WHEREAS, as a condition precedent to the making of the Credit
Extensions (including the initial Credit Extension) under the Credit Agreement,
the Grantor is required to execute and deliver this Agreement and to grant to
the Administrative Agent a continuing security interest in all of the Patent
Collateral (as defined below) to secure all Secured Obligations;
WHEREAS, the Grantor has duly authorized the execution, delivery and
performance of this Agreement; and
WHEREAS, it is in the best interests of the Grantor to execute this
Security and Pledge Agreement inasmuch as the Grantor will derive substantial
direct and indirect benefits from the Credit Extensions made from time to time
to the Borrowers by the Lenders and the Issuers pursuant to the Credit
Agreement;
<PAGE>
NOW, THEREFORE, for good and valuable consideration, the receipt of
which is hereby acknowledged, and in order to induce the Lenders and the Issuers
to make Credit Extensions (including the initial Credit Extension) to the
Borrowers pursuant to the Credit Agreement, and to induce the Secured Parties to
enter into Rate Protection Agreements, the Grantor agrees, for the benefit of
each Secured Party, as follows:
SECTION 1. DEFINITIONS. Unless otherwise defined herein or the context
otherwise requires, terms used in this Agreement, including its preamble and
recitals, have the meanings provided (or incorporated by reference) in the
Security and Pledge Agreement.
SECTION 2. GRANT OF SECURITY INTEREST. For good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, to
secure all of the Secured Obligations, the Grantor does hereby grant to the
Administrative Agent a security interest in, for its benefit and the benefit of
each Secured Party, all of the following property, to the extent now or
hereafter owned or acquired or existing by the Grantor (the "PATENT
COLLATERAL"):
(a) all letters patent and applications for letters patent
throughout the world, including all patent applications in preparation
for filing anywhere in the world and including each patent and patent
application referred to in ITEM A of SCHEDULE III attached hereto;
(b) all reissues, divisions, continuations,
continuations-in-part, extensions, renewals and reexaminations of any
of the items described in CLAUSE (a);
(c) all patent licenses, including each patent license
referred to in ITEM B of SCHEDULE III attached hereto; and
(d) all proceeds of, and rights associated with, the foregoing
(including license royalties and proceeds of infringement suits), the
right to sue third parties for past, present or future infringements of
any patent or patent application, including any patent or patent
application referred to in ITEM A of SCHEDULE III attached hereto, and
for breach or enforcement of any patent license, including any patent
license referred to in ITEM B of SCHEDULE III attached hereto, and all
rights corresponding thereto throughout the world.
The "Patent Collateral" shall not include any general intangibles or other
rights arising under any contracts, instruments, licenses or other documents as
to which the grant of a security
-2-
<PAGE>
interest would constitute a violation of a valid and enforceable restriction in
favor of a third party on such grant, unless and until any required consents
shall have been obtained. The undersigned agrees to use its best efforts to
obtain any such required consent.
SECTION 3. SECURITY AND PLEDGE AGREEMENT. This Agreement has been
prepared by the Administrative Agent for the purpose of registering the security
interest of the Administrative Agent in the Patent Collateral with the United
States Patent and Trademark Office (the "PTO") and corresponding offices in
other countries of the world. The security interest granted hereby has been
granted as a supplement to, and not in limitation of, the security interest
granted to the Administrative Agent for its benefit and the benefit of each
Secured Party under the Security and Pledge Agreement. The Security and Pledge
Agreement (and all rights and remedies of the Administrative Agent and each
Secured Party thereunder) shall remain in full force and effect in accordance
with its terms.
SECTION 4. RELEASE OF SECURITY INTEREST. Upon payment in full in cash
of all Secured Obligations, the termination or expiry of all Letters of Credit,
the termination of all Rate Protection Agreements and the termination of all
Commitments, the Administrative Agent shall, at the Grantor's commercially
reasonable expense, execute and deliver to the Grantor all instruments and other
documents, and perform all other acts, as may be necessary or proper to fully
release the lien on and security interest in the Patent Collateral which has
been granted hereunder. The Grantor shall be free to file and record such
instruments and documents in the PTO or other office anywhere in the world.
SECTION 5. ACKNOWLEDGMENT. The Grantor does hereby further acknowledge
and affirm that the rights and remedies of the Administrative Agent with respect
to the security interest in the Patent Collateral granted hereby are more fully
set forth in the Security and Pledge Agreement, the terms and provisions of
which (including the remedies provided for therein) are incorporated by
reference herein as if fully set forth herein.
SECTION 6. LOAN DOCUMENT, ETC. This Agreement is a Loan Document
executed pursuant to the Credit Agreement and shall (unless otherwise expressly
indicated herein) be construed, administered and applied in accordance with the
terms and provisions of the Credit Agreement.
SECTION 7. COUNTERPARTS. This Agreement may be executed by the parties
hereto in several counterparts, each of which shall
-3-
<PAGE>
be deemed to be an original and all of which shall constitute together but one
and the same agreement.
-4-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their respective officers thereunto duly
authorized as of the day and year first above written.
[NAME OF GRANTOR]
By__________________________________________
Name:
Title:
BANK OF AMERICA, N.A.,
as Administrative Agent
By__________________________________________
Name:
Title:
-5-
<PAGE>
SCHEDULE III
to Patent Security Agreement
Item A. PATENTS
ISSUED PATENTS
<TABLE>
<CAPTION>
**COUNTRY PATENT NO. ISSUE DATE INVENTOR(S)
TITLE
<S> <C> <C> <C>
</TABLE>
PENDING PATENT APPLICATIONS
<TABLE>
<CAPTION>
*COUNTRY SERIAL NO. FILING DATE INVENTOR(S)
TITLE
<S> <C> <C> <C>
</TABLE>
PATENT APPLICATIONS IN PREPARATION
<TABLE>
<CAPTION>
EXPECTED
*COUNTRY DOCKET NO. FILING DATE INVENTOR(S)
TITLE
<S> <C> <C> <C>
</TABLE>
Item B. PATENT LICENSES
<TABLE>
<CAPTION>
*Country or Effective Expiration Subject
Territory Licensor Licensee Date Date Matter
--------- -------- -------- --------- ---------- -------
<S> <C> <C> <C> <C> <C>
</TABLE>
- --------
* List items related to the United States first for ease of recordation.
List items related to other countries next, grouped by country and in
alphabetical order by country name.
<PAGE>
EXHIBIT C
to Security and Pledge Agreement
TRADEMARK SECURITY AGREEMENT
This TRADEMARK SECURITY AGREEMENT (this "AGREEMENT"), dated as of
__________ __, ____, is made between _______________, a ____________ corporation
(the "GRANTOR"), and BANK OF AMERICA, N.A., as administrative agent (together
with its successor(s) thereto in such capacity, the "ADMINISTRATIVE AGENT") for
each of the Secured Parties;
W I T N E S S E T H :
WHEREAS, pursuant to a Credit Agreement, dated as of November 17, 1999
(as amended, supplemented, amended and restated or otherwise modified from time
to time, the "CREDIT AGREEMENT"), among Weekly Reader Corporation, a Delaware
corporation ("WRC"), and JLC Learning Corporation, a Delaware corporation
("JLC" and, together with WRC, the "Borrowers"), WRC Media Inc. (formerly known
as EAC II Inc.), a Delaware corporation and parent of JLC ("HOLDINGS"), as a
guarantor, the various financial institutions as are or may become parties
thereto (collectively, the "LENDERS"), DLJ Capital Funding, Inc., as the
Syndication Agent (in such capacity, the "SYNDICATION AGENT"), the Lead Arranger
and the Sole Book Running Manager, the Administrative Agent and General Electric
Capital Corporation, as the documentation agent (in such capacity, the
"DOCUMENTATION AGENT") for the Lenders, the Lenders and the Issuers have
extended Commitments to make Credit Extensions to the Borrowers;
WHEREAS, in connection with the Credit Agreement, the Grantor has
executed and delivered a Security and Pledge Agreement, dated as of November 17,
1999 (as amended, supplemented, amended and restated or otherwise modified from
time to time, the "SECURITY AND PLEDGE AGREEMENT");
WHEREAS, as a condition precedent to the making of the Credit
Extensions (including the initial Credit Extension) under the Credit Agreement,
the Grantor is required to execute and deliver this Agreement and to grant to
the Administrative Agent a continuing security interest in all of the Trademark
Collateral (as defined below) to secure all Secured Obligations;
WHEREAS, the Grantor has duly authorized the execution,
delivery and performance of this Agreement; and
WHEREAS, it is in the best interests of the Grantor to execute this
Security and Pledge Agreement inasmuch as the Grantor will derive substantial
direct and indirect benefits from the Credit Extensions made from time to time
to the Borrowers by the Lenders and the Issuers pursuant to the Credit
Agreement;
<PAGE>
NOW, THEREFORE, for good and valuable consideration, the receipt of
which is hereby acknowledged, and in order to induce the Lenders and the Issuers
to make Credit Extensions (including the initial Credit Extension) to the
Borrowers pursuant to the Credit Agreement, and to induce the Secured Parties to
enter into Rate Protection Agreements, the Grantor agrees, for the benefit of
each Secured Party, as follows:
SECTION 1. DEFINITIONS. Unless otherwise defined herein or the context
otherwise requires, terms used in this Agreement, including its preamble and
recitals, have the meanings provided (or incorporated by reference) in the
Security and Pledge Agreement.
SECTION 2. GRANT OF SECURITY INTEREST. For good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, to
secure all of the Secured Obligations, the Grantor does hereby grant to the
Administrative Agent a security interest in, for its benefit and the benefit of
each Secured Party, all of the following property, to the extent now or
hereafter owned or acquired or existing by the Grantor (the "TRADEMARK
COLLATERAL"):
(a) all trademarks, trade names, corporate names, company
names, business names, fictitious business names, trade styles, service
marks, certification marks, collective marks, logos, designs and other
source of business identifiers (all of the foregoing items in this
CLAUSE (a) being collectively called a "TRADEMARK"), now existing
anywhere in the world or hereafter adopted or acquired, whether
currently in use or not, all registrations and recordings thereof and
all applications in connection therewith, whether pending or in
preparation for filing, including registrations, recordings and
applications in the United States Patent and Trademark Office (the
"PTO") or in any other office or agency of the United States of America
or any State thereof or any foreign country, including those referred
to in ITEM A of SCHEDULE IV attached hereto;
(b) all Trademark licenses, including each Trademark license
referred to in ITEM B of SCHEDULE IV attached hereto;
(c) all reissues, extensions or renewals of any of the items
described in CLAUSE (a) and (b);
(d) all of the goodwill of the business connected with the use
of, and symbolized by the items described in, CLAUSE (a); and
-2-
<PAGE>
(e) all proceeds of, and rights associated with, the
foregoing, including any claim by the Grantor against third parties for
past, present or future infringement or dilution of any Trademark,
Trademark registration or Trademark license, including any Trademark,
Trademark registration or Trademark license referred to in ITEM A and
ITEM B of SCHEDULE IV attached hereto, or for any injury to the
goodwill associated with the use of any such Trademark or for breach or
enforcement of any Trademark license.
The "Trademark Collateral" shall not include any general intangibles or other
rights arising under any contracts, instruments, licenses or other documents as
to which the grant of a security interest would constitute a violation of a
valid and enforceable restriction in favor of a third party on such grant,
unless and until any required consents shall have been obtained. The undersigned
agrees to use its best efforts to obtain any such required consent.
SECTION 3. SECURITY AND PLEDGE AGREEMENT. This Agreement has been
prepared by the Administrative Agent for the purpose of registering the security
interest of the Administrative Agent in the Trademark Collateral with the PTO
and corresponding offices in other countries of the world. The security interest
granted hereby has been granted as a supplement to, and not in limitation of,
the security interest granted to the Administrative Agent for its benefit and
the benefit of each Secured Party under the Security and Pledge Agreement. The
Security and Pledge Agreement (and all rights and remedies of the Administrative
Agent and each Secured Party thereunder) shall remain in full force and effect
in accordance with its terms.
SECTION 4. RELEASE OF SECURITY INTEREST. Upon payment in full in cash
of all Secured Obligations, the termination or expiry of all Letters of Credit,
the termination of all Rate Protection Agreements and the termination of all
Commitments, the Administrative Agent shall, at the Grantor's commercially
reasonable expense, execute and deliver to the Grantor all instruments and other
documents, and perform all other acts, as may be necessary or proper to fully
release the lien on and security interest in the Trademark Collateral which has
been granted hereunder. The Grantor shall be free to file and record such
instruments and documents in the PTO or other office anywhere in the world.
SECTION 5. ACKNOWLEDGMENT. The Grantor does hereby further acknowledge
and affirm that the rights and remedies of the Administrative Agent with respect
to the security interest in the Trademark Collateral granted hereby are more
fully set forth in the Security and Pledge Agreement, the terms and provisions
of
-3-
<PAGE>
which (including the remedies provided for therein) are incorporated by
reference herein as if fully set forth herein.
SECTION 6. LOAN DOCUMENT, ETC. This Agreement is a Loan Document
executed pursuant to the Credit Agreement and shall (unless otherwise expressly
indicated herein) be construed, administered and applied in accordance with the
terms and provisions of the Credit Agreement.
SECTION 7. COUNTERPARTS. This Agreement may be executed by the parties
hereto in several counterparts, each of which shall be deemed to be an original
and all of which shall constitute together but one and the same agreement.
-4-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their respective officers thereunto duly
authorized as of the day and year first above written.
[NAME OF GRANTOR]
By___________________________________________
Name:
Title:
BANK OF AMERICA, N.A.,
as Administrative Agent
By___________________________________________
Name:
Title:
-5-
<PAGE>
SCHEDULE IV
to Trademark Security Agreement
Item A. TRADEMARKS
REGISTERED TRADEMARKS
<TABLE>
<CAPTION>
*Country Trademark Registration No. Registration Date
------- --------- ---------------- -----------------
<S> <C> <C> <C>
</TABLE>
PENDING TRADEMARK APPLICATIONS
<TABLE>
<CAPTION>
*Country Trademark Serial No. Filing Date
------- --------- ----------- -----------
<S> <C> <C> <C>
</TABLE>
TRADEMARK APPLICATIONS IN PREPARATION
<TABLE>
<CAPTION>
Expected
Products/
*Country Trademark Docket No. Filing Date Services
------- --------- ---------- ----------- --------
<S> <C> <C> <C> <C>
</TABLE>
Item B. TRADEMARK LICENSES
<TABLE>
<CAPTION>
*Country or Effective Expiration
Territory Trademark Licensor Licensee Date Date
--------- --------- -------- -------- --------- ----------
<S> <C> <C> <C> <C> <C>
</TABLE>
- --------------------
* List items related to the United States first for ease of recordation.
List items related to other countries next, grouped by country and in
alphabetical order by country name.
<PAGE>
EXHIBIT D
to Security and Pledge Agreement
COPYRIGHT SECURITY AGREEMENT
This COPYRIGHT SECURITY AGREEMENT (this "AGREEMENT"), dated as of
__________ __, ____, is made between _______________, a ____________ corporation
(the "GRANTOR"), and BANK OF AMERICA, N.A., as administrative agent (together
with its successor(s) thereto in such capacity, the "ADMINISTRATIVE AGENT") for
each of the Secured Parties;
W I T N E S S E T H :
WHEREAS, pursuant to a Credit Agreement, dated as of November 17, 1999
(as amended, supplemented, amended and restated or otherwise modified from time
to time, the "CREDIT AGREEMENT"), among Weekly Reader Corporation, a Delaware
corporation ("WRC"), and JLC Learning Corporation, a Delaware corporation (
"JLC" and, together with WRC, the "Borrowers"), WRC Media Inc. (formerly known
as EAC II Inc.), a Delaware corporation and parent of WRC ("HOLDINGS"), as a
guarantor, the various financial institutions as are or may become parties
thereto (collectively, the "LENDERS"), DLJ Capital Funding, Inc., as the
Syndication Agent (in such capacity, the "SYNDICATION AGENT"), the Lead Arranger
and the Sole Book Running Manager, the Administrative Agent and General Electric
Capital Corporation, as the documentation agent (in such capacity, the
"DOCUMENTATION AGENT") for the Lenders, the Lenders and the Issuers have
extended Commitments to make Credit Extensions to the Borrowers;
WHEREAS, in connection with the Credit Agreement, the Grantor has
executed and delivered a Security and Pledge Agreement, dated as of November 17,
1999 (as amended, supplemented, amended and restated or otherwise modified from
time to time, the "SECURITY AND PLEDGE AGREEMENT");
WHEREAS, as a condition precedent to the making of the Credit
Extensions (including the initial Credit Extension) under the Credit Agreement,
the Grantor is required to execute and deliver this Agreement and to grant to
the Administrative Agent a continuing security interest in all of the Copyright
Collateral (as defined below) to secure all Secured Obligations;
WHEREAS, the Grantor has duly authorized the execution,
delivery and performance of this Agreement; and
WHEREAS, it is in the best interests of the Grantor to execute this
Security and Pledge Agreement inasmuch as the Grantor will derive substantial
direct and indirect benefits from the Credit Extensions made from time to time
to the Borrowers by the Lenders and the Issuers pursuant to the Credit
Agreement;
<PAGE>
NOW, THEREFORE, for good and valuable consideration, the receipt of
which is hereby acknowledged, and in order to induce the Lenders and the Issuers
to make Credit Extensions (including the initial Credit Extension) to the
Borrowers pursuant to the Credit Agreement, and to induce the Secured Parties to
enter into Rate Protection Agreements, the Grantor agrees, for the benefit of
each Secured Party, as follows:
SECTION 1. DEFINITIONS. Unless otherwise defined herein or the context
otherwise requires, terms used in this Agreement, including its preamble and
recitals, have the meanings provided (or incorporated by reference) in the
Security and Pledge Agreement.
SECTION 2. GRANT OF SECURITY INTEREST. For good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, to
secure all of the Secured Obligations, the Grantor does hereby grant to the
Administrative Agent a security interest in, for its benefit and the benefit of
each Secured Party, all of the following property (the "COPYRIGHT COLLATERAL"),
to the extent now or hereafter owned or acquired or existing by it, being all
copyrights of the Grantor, registered or unregistered, now or hereafter in force
throughout the world, including all of the Grantor's right, title and interest
in and to all copyrights registered in the United States Copyright Office or
anywhere else in the world and also including the copyrights referred to in ITEM
A of SCHEDULE V attached hereto, and all applications for registration thereof,
whether pending or in preparation, all copyright licenses, including each
copyright license referred to in ITEM B of SCHEDULE V attached hereto, the right
to sue for past, present and future infringements of any thereof, all rights
corresponding thereto throughout the world, all extensions and renewals of any
thereof and all proceeds of the foregoing, including licenses, royalties,
income, payments, claims, damages and proceeds of suit.
The "Copyright Collateral" shall not include any general intangibles or other
rights arising under any contracts, instruments, licenses or other documents as
to which the grant of a security interest would constitute a violation of a
valid and enforceable restriction in favor of a third party on such grant,
unless and until any required consents shall have been obtained. The undersigned
agrees to use its best efforts to obtain any such required consent.
SECTION 3. SECURITY AND PLEDGE AGREEMENT. This Agreement has been
prepared by the Administrative Agent for the purpose of registering the security
interest of the Administrative Agent in the Copyright Collateral with the United
States Copyright Office. The security interest granted hereby has been granted
as a
-2-
<PAGE>
supplement to, and not in limitation of, the security interest granted to the
Administrative Agent for its benefit and the benefit of each Secured Party under
the Security and Pledge Agreement. The Security and Pledge Agreement (and all
rights and remedies of the Administrative Agent and each Secured Party
thereunder) shall remain in full force and effect in accordance with its terms.
SECTION 4. RELEASE OF SECURITY INTEREST. Upon payment in full in cash
of all Secured Obligations, the termination or expiry of all Letters of Credit,
the termination of all Rate Protection Agreements and the termination of all
Commitments, the Administrative Agent shall, at the Grantor's commercially
reasonable expense, execute and deliver to the Grantor all instruments and other
documents, and perform all other acts, as may be necessary or proper to fully
release the lien on and security interest in the Copyright Collateral which has
been granted hereunder. The Grantor shall be free to file and record such
instruments and documents in the United States Copyright Office or other office
anywhere in the world.
SECTION 5. ACKNOWLEDGMENT. The Grantor does hereby further acknowledge
and affirm that the rights and remedies of the Administrative Agent with respect
to the security interest in the Copyright Collateral granted hereby are more
fully set forth in the Security and Pledge Agreement, the terms and provisions
of which (including the remedies provided for therein) are incorporated by
reference herein as if fully set forth herein.
SECTION 6. LOAN DOCUMENT, ETC. This Agreement is a Loan Document
executed pursuant to the Credit Agreement and shall (unless otherwise expressly
indicated herein) be construed, administered and applied in accordance with the
terms and provisions of the Credit Agreement.
SECTION 7. COUNTERPARTS. This Agreement may be executed by the parties
hereto in several counterparts, each of which shall be deemed to be an original
and all of which shall constitute together but one and the same agreement.
-3-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their respective officers thereunto duly
authorized as of the day and year first above written.
[NAME OF GRANTOR]
By____________________________________________
Name:
Title:
BANK OF AMERICA, N.A.
as Administrative Agent
By____________________________________________
Name:
Title:
-4-
<PAGE>
SCHEDULE V
to Copyright
Security Agreement
Item A. COPYRIGHTS
<TABLE>
<CAPTION>
*Country Registration No. Registration Date Author(s) Title
------- ---------------- ----------------- --------- -----
<S> <C> <C> <C> <C>
</TABLE>
COPYRIGHT PENDING REGISTRATION APPLICATIONS
<TABLE>
<CAPTION>
*Country Serial No. Filing Date Author(s) Title
------- ---------- ----------- --------- -----
<S> <C> <C> <C> <C>
</TABLE>
COPYRIGHT REGISTRATION APPLICATIONS IN PREPARATION
<TABLE>
<CAPTION>
Expected
*Country Docket No. Filing Date Author(s) Title
- -------- ---------- ----------- --------- -----
<S> <C> <C> <C> <C>
</TABLE>
- -----------------
* List items related to the United States first for ease of recordation.
List items related to other countries next, grouped by country and in
alphabetical order by country name.
<PAGE>
Item B. COPYRIGHT LICENSES
<TABLE>
<CAPTION>
*Country or Effective Expiration Subject
Territory Licensor Licensee Date Date Matter
--------- -------- -------- --------- ---------- -------
<S> <C> <C> <C> <C> <C>
</TABLE>
<PAGE>
ANNEX I
to Security and Pledge Agreement
SUPPLEMENT TO SECURITY AND PLEDGE AGREEMENT
This SUPPLEMENT NO. ___, dated as of ________ __, ____ (this
"SUPPLEMENT"), to the Security and Pledge Agreement, dated as of November 17,
1999 (as amended, supplemented, amended and restated or otherwise modified from
time to time, the "SECURITY AND PLEDGE AGREEMENT"), among the initial
signatories thereto and each other Person which from time to time thereafter
became a party thereto pursuant to Section 7.5 thereof (each, individually, a
"GRANTOR", and, collectively, the "GRANTORS"), in favor of BANK OF AMERICA,
N.A., as administrative agent (together with any successor(s) thereto in such
capacity, the "ADMINISTRATIVE AGENT") for each of the Secured Parties (such and
other capitalized terms being used herein with the meanings provided, or
incorporated by reference, in the Security and Pledge Agreement), is made by the
undersigned.
W I T N E S S E T H:
WHEREAS, pursuant to that certain Credit Agreement, dated as of
November 17, 1999 (as amended, supplemented, amended and restated or otherwise
modified from time to time, the "CREDIT AGREEMENT"), among Weekly Reader
Corporation, a Delaware corporation ("WRC"), and JLC Learning Corporation, a
Delaware corporation ("JLC" and, together with WRC, the "BORROWERS"), WRC Media
Inc. (formerly known as EAC II Inc.), a Delaware corporation and parent of JLC
("HOLDINGS"), as a guarantor, the various financial institutions as are or may
become parties thereto (collectively, the "LENDERS"), DLJ Capital Funding, Inc.,
as the Syndication Agent (in such capacity, the "SYNDICATION AGENT"), the Lead
Arranger and the Sole Book Running Manager, the Administrative Agent and General
Electric Capital Corporation, as the documentation agent (in such capacity, the
"DOCUMENTATION AGENT") for the Lenders, the Lenders and the Issuers have
extended Commitments to make Credit Extensions to the Borrowers;
WHEREAS, as a condition precedent to the making and maintenance of the
Credit Extensions under the Credit Agreement, the undersigned is required to
execute and deliver this Supplement;
WHEREAS, the undersigned has duly authorized the execution, delivery
and performance of this Supplement and the Security and Pledge Agreement;
WHEREAS, the Security and Pledge Agreement provides that additional
parties may become Grantors under the Security and Pledge Agreement by execution
and delivery of an instrument in the form of this Supplement;
<PAGE>
WHEREAS, pursuant to the provisions of Section 7.5 of the Security and
Pledge Agreement, the undersigned is becoming an Additional Grantor under the
Security and Pledge Agreement; and
WHEREAS, the undersigned desires to become a Grantor under the Security
and Pledge Agreement in order to induce the Secured Parties to continue to make
and maintain Credit Extensions under the Credit Agreement as consideration
therefor;
NOW, THEREFORE, the undersigned agrees, for the benefit of each Secured
Party, as follows:
SECTION 1. In accordance with the Security and Pledge Agreement, the
undersigned by its signature below becomes a Grantor under the Security and
Pledge Agreement with the same force and effect as if it were an original
signatory thereto as a Grantor and the undersigned hereby
(a) agrees to all the terms and provisions of the
Security and Pledge Agreement applicable to it as a Grantor
thereunder;
(b) assigns and pledges to the Administrative Agent for its
benefit and the ratable benefit of each of the Secured Parties, and
grants to the Administrative Agent for its benefit and the ratable
benefit of each of the Secured Parties, a security interest in all of
the following, whether now or hereafter existing or acquired by the
undersigned (its "COLLATERAL"):
(i) all Intercompany Notes in which the undersigned
has an interest (including each Intercompany Note described in
ITEM A of SCHEDULE I hereto);
(ii) all interest and other payments and rights with
respect to each Intercompany Note in which the undersigned has
an interest;
(iii) all Investment Property in which the
undersigned has an interest (including the Securities of each
issuer described in ITEM B of SCHEDULE I hereto); PROVIDED,
that, in the case of Investment Property consisting of
Securities of an issuer that is a Foreign Subsidiary of the
undersigned, the pledge of such Securities of such issuer
shall be limited to the extent such pledge would not exceed
65% of the total combined voting power of all classes of
Securities of such Foreign Subsidiary entitled to vote;
-2-
<PAGE>
(iv) all equipment in all of its forms (including all
Motor Vehicles) of the undersigned, wherever located,
including all parts thereof and all accessions, additions,
attachments, improvements, substitutions and replacements
thereto and therefor and all accessories related thereto (any
and all of the foregoing being the "EQUIPMENT");
(v) all inventory in all of its forms of the
undersigned, wherever located, including
(A) all raw materials and work in process
therefor, finished goods thereof, and materials used
or consumed in the manufacture or production thereof,
(B) all goods in which the undersigned has
an interest in mass or a joint or other interest or
right of any kind (including goods in which the
undersigned has an interest or right as consignee),
and
(C) all goods which are returned to or
repossessed by the undersigned,
and all accessions thereto, products thereof and documents
therefor (any and all such inventory, materials, goods,
accessions, products and documents being the "INVENTORY");
(vi) all accounts, contracts, contract rights,
chattel paper, documents, instruments, and general intangibles
(including tax refunds) of the undersigned, whether or not
arising out of or in connection with the sale or lease of
goods or the rendering of services, and all rights of the
undersigned now or hereafter existing in and to all security
agreements, guaranties, leases and other contracts securing or
otherwise relating to any such accounts, contracts, contract
rights, chattel paper, documents, instruments, and general
intangibles (any and all such accounts, contracts, contract
rights, chattel paper, documents, instruments, and general
intangibles being the "RECEIVABLES", and any and all such
security agreements, guaranties, leases and other contracts
being the "RELATED CONTRACTS");
(vii) all Deposit Accounts of the undersigned and all
cash, checks, drafts, notes, bills of exchange, money orders
and other like instruments, if any, now
-3-
<PAGE>
owned or hereafter acquired, held therein (or in sub- accounts
thereof) and all certificates and instruments, if any, from
time to time representing or evidencing such investments, and
all interest, earnings and proceeds in respect thereof;
(viii) all Intellectual Property Collateral of
the undersigned;
(ix) all books, records, writings, data bases,
information and other property relating to, used or useful in
connection with, evidencing, embodying, incorporating or
referring to, any of the foregoing in this SECTION 2.1;
(x) all of the undersigned's other property and
rights of every kind and description and interests therein;
and
(xi) all products, offspring, rents, issues, profits,
returns, income and proceeds of and from any and all of the
foregoing Collateral (including proceeds which constitute
property of the types described in SUBCLAUSES (b)(i) through
(b)(x), proceeds deposited from time to time in any lock box
or Deposit Account of the undersigned, and, to the extent not
otherwise included, all payments under insurance (whether or
not the Administrative Agent is the loss payee thereof), or
any indemnity, warranty or guaranty, payable by reason of loss
or damage to or otherwise with respect to any of the foregoing
Collateral);
PROVIDED, HOWEVER, that "Collateral" shall not include any general
intangibles or other rights arising under any contracts, instruments,
licenses or other documents as to which the grant of a security
interest would constitute a violation of a valid and enforceable
restriction in favor of a third party on such grant, unless and until
any required consents shall have been obtained and the undersigned
agrees to use its best efforts to obtain any such required consent;
(c) agrees that each of the Schedules attached hereto
shall be deemed to be a Schedule thereto; and
(d) represents and warrants that the representations and
warranties made by it as a Grantor thereunder are true and correct on
and as of the date hereof.
-4-
<PAGE>
In furtherance of the foregoing, each reference to a "Grantor" or "Additional
Grantor" in the Security and Pledge Agreement shall be deemed to include the
undersigned.
SECTION 2. The undersigned hereby represents and warrants that this
Supplement has been duly authorized, executed and delivered by the undersigned
and constitutes a legal, valid and binding obligation of the undersigned,
enforceable against it in accordance with its terms.
SECTION 3. Except as expressly supplemented hereby, the Security and
Pledge Agreement shall remain in full force and effect in accordance with its
terms.
SECTION 4. In the event any one or more of the provisions contained in
this Supplement should be held invalid, illegal or unenforceable in any respect,
the validity, legality and enforceability of the remaining provisions contained
herein and in the Security and Pledge Agreement shall not in any way be affected
or impaired.
SECTION 5. Without limiting the provisions of the Credit Agreement (or
any other Loan Document, including the Security and Pledge Agreement), the
undersigned agrees to reimburse the Administrative Agent for its reasonable
out-of-pocket expenses in connection with this Supplement, including reasonable
attorneys' fees and expenses of the Administrative Agent.
SECTION 6. THIS SUPPLEMENT SHALL BE DEEMED TO BE A CONTRACT MADE UNDER
AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK. THIS SUPPLEMENT, THE
SECURITY AND PLEDGE AGREEMENT AND THE OTHER LOAN DOCUMENTS CONSTITUTE THE ENTIRE
UNDERSTANDING AMONG THE PARTIES HERETO WITH RESPECT TO THE SUBJECT MATTER HEREOF
AND THEREOF AND SUPERSEDE ANY PRIOR AGREEMENTS, WRITTEN OR ORAL, WITH RESPECT
THERETO.
SECTION 7. This Supplement hereby incorporates by reference the
provisions of the Security and Pledge Agreement, which provisions are deemed to
be a part hereof, and this Supplement shall be deemed to be a part of the
Security and Pledge Agreement.
SECTION 8. This Supplement may be executed by the parties hereto in
several counterparts, each of which shall be deemed to be an original and all of
which shall constitute together but one and the same agreement.
SECTION 9. WITHOUT LIMITING THE EFFECT OF SECTION 7.11 OF
THE SECURITY AND PLEDGE AGREEMENT, THE SECURED PARTIES AND THE
UNDERSIGNED HEREBY EXPRESSLY AND IRREVOCABLY SUBMIT TO THE
-5-
<PAGE>
JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK, AND OF THE UNITED STATES
DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK, IN EACH CASE LOCATED IN
NEW YORK COUNTY OF THE STATE OF NEW YORK, FOR THE PURPOSE OF ANY SUCH LITIGATION
AS SET FORTH ABOVE AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED
THEREBY IN CONNECTION WITH SUCH LITIGATION. THE UNDERSIGNED IRREVOCABLY CONSENTS
TO THE SERVICE OF PROCESS BY REGISTERED MAIL, POSTAGE PREPAID, OR BY PERSONAL
SERVICE WITHIN OR WITHOUT THE STATE OF NEW YORK. THE UNDERSIGNED HEREBY
EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY
OBJECTION WHICH IT MAY HAVE OR HEREAFTER MAY HAVE TO THE LAYING OF VENUE OF ANY
SUCH LITIGATION BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THAT
ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. TO THE EXTENT
THAT THE UNDERSIGNED HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM JURISDICTION
OF ANY COURT OF FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OR NOTICE,
ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION OR OTHERWISE) WITH
RESPECT TO ITSELF OR ITS PROPERTY, THE UNDERSIGNED HEREBY IRREVOCABLY WAIVES (TO
THE EXTENT PERMITTED UNDER APPLICABLE LAW) SUCH IMMUNITY IN RESPECT OF ITS
OBLIGATIONS UNDER THIS SUPPLEMENT, THE SECURITY AND PLEDGE AGREEMENT AND THE
OTHER LOAN DOCUMENTS.
SECTION 10. WITHOUT LIMITING THE EFFECT OF SECTION 7.12 OF THE SECURITY
AND PLEDGE AGREEMENT, THE SECURED PARTIES AND THE UNDERSIGNED HEREBY KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY
IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER OR IN
CONNECTION WITH, THIS SUPPLEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY COURSE OF
CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF
THE SECURED PARTIES OR THE UNDERSIGNED RELATING THERETO. THE UNDERSIGNED
ACKNOWLEDGES AND AGREES THAT IT HAS RECEIVED FULL AND SUFFICIENT CONSIDERATION
FOR THIS PROVISION (AND EACH OTHER PROVISION OF EACH OTHER LOAN DOCUMENT TO
WHICH IT IS A PARTY) AND THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE
SECURED PARTIES ENTERING INTO THE CREDIT AGREEMENT, THIS SUPPLEMENT, THE
SECURITY AND PLEDGE AGREEMENT AND EACH SUCH OTHER LOAN DOCUMENT.
-6-
<PAGE>
IN WITNESS WHEREOF, the undersigned has caused this Supplement to be
duly executed and delivered by its officer thereunto duly authorized as of the
date first above written.
[NAME OF ADDITIONAL GRANTOR]
By:__________________________________________
Name:
Title:
ACKNOWLEDGED AND ACCEPTED BY:
BANK OF AMERICA, N.A., as
Administrative Agent
By:___________________________
Name:
Title:
-7-
<PAGE>
SCHEDULE I
to Supplement No. __
to Security and Pledge Agreement
([NAME OF ADDITIONAL GRANTOR])
Item A. INTERCOMPANY NOTES
Maximum Amount of
Intercompany Loans
<TABLE>
<CAPTION>
Maker Evidenced Thereby Date
- ----- ----------------- ----
<S> <C> <C>
</TABLE>
Item B. SECURITIES
<TABLE>
<CAPTION>
Common Stock
------------
% of
Authorized Outstanding Shares
Issuer (corporate) Shares Shares Pledged
- ------------------ ------ ------ -------
<S> <C> <C> <C>
</TABLE>
<TABLE>
<CAPTION>
Limited Liability Company Interests
-----------------------------------
% of Limited Type of Limited
Liability Liability
Issuer (limited Company Interests Company Interests
liability company) Pledged Pledged
- ------------------ ------- -------
<S> <C> <C>
</TABLE>
<TABLE>
<CAPTION>
Partnership Interests
---------------------
% of Partnership Type of Partnership
Issuer (partnership) Interests Pledged Interests Pledged
- -------------------- ----------------- -----------------
<S> <C> <C>
</TABLE>
<PAGE>
SCHEDULE II
to Supplement No. __
to Security and Pledge Agreement
([NAME OF ADDITIONAL GRANTOR])
GOVERNMENT CONTRACTS
<PAGE>
SCHEDULE III
to Supplement No. __
to Security and Pledge Agreement
([NAME OF ADDITIONAL GRANTOR])
Item A. PATENTS
ISSUED PATENTS
<TABLE>
<CAPTION>
*Country Patent No. Issue Date Inventor(s)
Title
<S> <C> <C> <C>
</TABLE>
PENDING PATENT APPLICATIONS
<TABLE>
<CAPTION>
*Country Serial No. Filing Date Inventor(s)
Title
<S> <C> <C> <C>
</TABLE>
PATENT APPLICATIONS IN PREPARATION
<TABLE>
<CAPTION>
Expected
*Country Docket No. Filing Date Inventor(s)
Title
<S> <C> <C> <C>
</TABLE>
Item B. PATENT LICENSES
<TABLE>
<CAPTION>
*Country or Effective Expiration Subject
Territory Licensor Licensee Date Date Matter
- ----------- -------- -------- --------- ---------- -------
<S> <C> <C> <C> <C> <C>
</TABLE>
- --------
* List items related to the United States first for ease of recordation.
List items related to other countries next, grouped by country and in
alphabetical order by country name.
<PAGE>
SCHEDULE IV
to Supplement No. __
to Security and Pledge Agreement
([NAME OF ADDITIONAL GRANTOR])
Item A. TRADEMARKS
REGISTERED TRADEMARKS
<TABLE>
<CAPTION>
*Country Trademark Registration No. Registration Date
- -------- --------- ---------------- -----------------
<S> <C> <C> <C>
</TABLE>
PENDING TRADEMARK APPLICATIONS
<TABLE>
<CAPTION>
*Country Trademark Serial No. Filing Date
- -------- --------- ---------- -----------
<S> <C> <C> <C>
</TABLE>
TRADEMARK APPLICATIONS IN PREPARATION
<TABLE>
<CAPTION>
Products/ Expected
*Country Trademark Docket No. Filing Date Services
- -------- --------- ---------- ----------- --------
<S> <C> <C> <C> <C>
</TABLE>
Item B. TRADEMARK LICENSES
<TABLE>
<CAPTION>
*Country or Effective Expiration
Territory Trademark Licensor Licensee Date Date
- ---------- --------- -------- -------- --------- ----------
<S> <C> <C> <C> <C> <C>
</TABLE>
- --------
* List items related to the United States first for ease of recordation.
List items related to other countries next, grouped by country and in
alphabetical order by country name.
<PAGE>
SCHEDULE V
to Supplement No. __
to Security and Pledge Agreement
([NAME OF ADDITIONAL GRANTOR])
Item A. COPYRIGHTS
REGISTERED COPYRIGHTS
<TABLE>
<CAPTION>
*Country Registration No. Registration Date Author(s) Title
- -------- ---------------- ----------------- --------- -----
<S> <C> <C> <C> <C>
</TABLE>
COPYRIGHT PENDING REGISTRATION APPLICATIONS
<TABLE>
<CAPTION>
*Country Serial No. Filing Date Author(s) Title
- -------- ---------- ----------- --------- -----
<S> <C> <C> <C> <C>
</TABLE>
COPYRIGHT REGISTRATION APPLICATIONS IN PREPARATION
Expected
<TABLE>
<CAPTION>
*Country Docket No. Filing Date Author(s) Title
- -------- ---------- ----------- --------- -----
<S> <C> <C> <C> <C>
</TABLE>
- --------
* List items related to the United States first for ease of recordation.
List items related to other countries next, grouped by country and in
alphabetical order by country name.
<PAGE>
Item B. COPYRIGHT LICENSES
<TABLE>
<CAPTION>
*Country or Effective Expiration Subject
Territory Licensor Licensee Date Date Matter
- ----------- -------- -------- --------- ---------- -------
<S> <C> <C> <C> <C> <C>
</TABLE>
<PAGE>
SCHEDULE VI
to Supplement No. __
to Security and Pledge Agreement
([NAME OF ADDITIONAL GRANTOR])
TRADE SECRET OR KNOW-HOW LICENSES
<TABLE>
<CAPTION>
*Country or Effective Expiration Subject
Territory Licensor Licensee Date Date Matter
- ----------- -------- -------- --------- ---------- -------
<S> <C> <C> <C> <C> <C>
</TABLE>
- --------
* List items related to the United States first for ease of recordation.
List items related to other countries next, grouped by country and in
alphabetical order by country name.
<PAGE>
EXECUTION COPY
SUBSIDIARY GUARANTY
This SUBSIDIARY GUARANTY (as amended, supplemented, amended and
restated or otherwise modified from time to time, this "GUARANTY"), dated as of
November 17, 1999, is made by PRIMEDIA REFERENCE INC., a Delaware corporation
("PRI"), AMERICAN GUIDANCE SERVICE INC., a Minnesota corporation ("AGS"),
LIFETIME LEARNING SYSTEMS, INC., a Delaware corporation ("LLS"), AGS
INTERNATIONAL SALES, INC., a Minnesota corporation ("AIS"), FUNK & WAGNALLS
YEARBOOK CORPORATION, a Delaware corporation ("FW"), and GARETH STEVENS, INC., a
Wisconsin corporation ("GS"), each other Subsidiary (as defined below) of each
of the Borrowers (as defined below) a signatory hereto, and each other Person
which may from time to time hereafter become a party hereto pursuant to SECTION
5.5 (each, individually, an "ADDITIONAL GUARANTOR", and, collectively, the
"ADDITIONAL GUARANTORS", and, together with each of the signatories hereto,
each, individually, a "GUARANTOR", and, collectively, the "GUARANTORS"), in
favor of BANK OF AMERICA, N.A., as administrative agent (together with its
successor(s) thereto, in such capacity the "ADMINISTRATIVE AGENT") for each of
the Secured Parties.
W I T N E S S E T H:
WHEREAS, pursuant to a Credit Agreement, dated as of November 17, 1999
(as amended, supplemented, amended and restated or otherwise modified from time
to time, the "CREDIT AGREEMENT"), among Weekly Reader Corporation, a Delaware
corporation ("WRC"), and JLC Learning Corporation, a Delaware corporation ("JLC"
and, together with WRC, the "BORROWERS"), WRC Media Inc. (formerly known as EAC
II Inc.), a Delaware corporation and parent of JLC ("HOLDINGS"), as a guarantor,
the various financial institutions as are or may become parties thereto
(collectively, the "LENDERS"), DLJ Capital Funding, Inc., as the Syndication
Agent (in such capacity, the "SYNDICATION AGENT"), the Lead Arranger and the
Sole Book Running Manager, the Administrative Agent, and General Electric
Capital Corporation, as the documentation agent (in such capacity, the
"DOCUMENTATION AGENT") for the Lenders, the Lenders and the Issuers have
extended Commitments to make Credit Extensions to the Borrowers;
WHEREAS, as a condition precedent to the making of the Credit
Extensions (including the initial Credit Extension) under the Credit Agreement,
each Guarantor is required to execute and deliver this Guaranty;
WHEREAS, each Guarantor has duly authorized the execution, delivery and
performance of this Guaranty; and
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<PAGE>
WHEREAS, it is in the best interests of each Guarantor to execute this
Guaranty inasmuch as each Guarantor will derive substantial direct and indirect
benefits from the Credit Extensions made from time to time to the Borrowers by
the Lenders and the Issuers pursuant to the Credit Agreement;
NOW THEREFORE, for good and valuable consideration the receipt of which
is hereby acknowledged, and in order to induce the Lenders and the Issuers to
make Credit Extensions (including the initial Credit Extension) to the Borrowers
pursuant to the Credit Agreement, and to induce Secured Parties to enter into
Rate Protection Agreements, each Guarantor agrees, for the benefit of each
Secured Party, as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1. CERTAIN TERMS. The following terms (whether or not
underscored) when used in this Guaranty, including its preamble and recitals,
shall have the following meanings (such definitions to be equally applicable to
the singular and plural forms thereof):
"ADDITIONAL GUARANTOR" and "ADDITIONAL GUARANTORS" are defined in the
PREAMBLE.
"ADMINISTRATIVE AGENT" is defined in the PREAMBLE.
"BORROWERS" is defined in the FIRST RECITAL.
"CREDIT AGREEMENT" is defined in the FIRST RECITAL.
"GUARANTOR" and "GUARANTORS" are defined in the PREAMBLE.
"GUARANTY" is defined in the PREAMBLE.
"HOLDINGS" is defined in the FIRST RECITAL.
"LENDERS" is defined in the FIRST RECITAL.
SECTION 1.2. CREDIT AGREEMENT DEFINITIONS. Unless otherwise defined
herein or the context otherwise requires, terms used in this Guaranty, including
its preamble and recitals, have the meanings provided in the Credit Agreement.
-2-
<PAGE>
ARTICLE II
GUARANTY PROVISIONS
SECTION 2.1. GUARANTY. Each Guarantor hereby absolutely,
unconditionally and irrevocably
(a) guarantees the full and punctual payment when due, whether at
stated maturity, by required prepayment, declaration, acceleration,
demand or otherwise, of all Obligations of each Borrower and each
other Obligor, now or hereafter existing, whether for principal,
interest, Reimbursement Obligations, fees, expenses or otherwise
(including all such amounts which would become due but for the
operation of the automatic stay under Section 362(a) of the United
States Bankruptcy Code, 11 U.S.C. Section 362(a), and the operation of
Sections 502(b) and 506(b) of the United States Bankruptcy Code, 11
U.S.C. Section 502(b) and Section 506(b)), and
(b) indemnifies and holds harmless each Secured Party and each
holder of a Note for any and all costs and expenses (including
reasonable attorneys' fees and expenses) incurred by such Secured
Party or such holder, as the case may be, in enforcing any rights
under this Guaranty;
PROVIDED, HOWEVER, that each Guarantor shall be liable under this Guaranty for
the maximum amount of such liability that can be hereby incurred without
rendering this Guaranty, as it relates to such Guarantor, voidable under
applicable law relating to fraudulent conveyance or fraudulent transfer, and not
for any greater amount. This Guaranty constitutes a guaranty of payment when due
and not of collection, and each Guarantor specifically agrees that it shall not
be necessary or required that any Secured Party or any holder of any Note
exercise any right, assert any claim or demand or enforce any remedy whatsoever
against any Borrower or any other Obligor (or any other Person) before or as a
condition to the obligations of such Guarantor hereunder.
SECTION 2.2. ACCELERATION OF GUARANTY. Each Guarantor agrees that, in
the event of any Default described in any of clauses (a) through (d) of Section
8.1.9 of the Credit Agreement, and if such Default shall occur at a time when
any of the Obligations of any Borrower or any other Obligor may not then be due
and payable, such Guarantor will pay to the Lenders forthwith the full amount
which would be payable hereunder by such Guarantor if all such Obligations were
then due and payable.
SECTION 2.3. GUARANTY ABSOLUTE, ETC. This Guaranty shall in all
respects be a continuing, absolute, unconditional and irrevocable guaranty of
payment, and shall remain in full force and effect until all Obligations of each
Borrower and each other
-3-
<PAGE>
Obligor have been paid in full in cash, all obligations of each Guarantor
hereunder shall have been paid in full in cash, all Letters of Credit have been
terminated or expired, all Rate Protection Agreements have been terminated and
all Commitments shall have terminated. Each Guarantor guarantees that the
Obligations of each Borrower and each other Obligor will be paid strictly in
accordance with the terms of the Credit Agreement and each other Loan Document
under which they arise, regardless of any law, regulation or order now or
hereafter in effect in any jurisdiction affecting any of such terms or the
rights of any Secured Party or any holder of any Note with respect thereto. The
liability of each Guarantor under this Guaranty shall be absolute, unconditional
and irrevocable irrespective of:
(a) any lack of validity, legality or enforceability of the
Credit Agreement or any other Loan Document;
(b) the failure of any Secured Party or any holder of any Note
(i) to assert any claim or demand or to enforce any
right or remedy against any Borrower, any other Obligor or any
other Person (including any other guarantor) under the
provisions of the Credit Agreement, any Note, any other Loan
Document or otherwise, or
(ii) to exercise any right or remedy against any
other guarantor (including any Guarantor) of, or collateral
securing, any Obligations of any Borrower or any other
Obligor;
(c) any change in the time, manner or place of payment of, or
in any other term of, all or any of the Obligations of any Borrower or
any other Obligor, or any other extension, compromise or renewal of any
Obligation of any Borrower or any other Obligor;
(d) any reduction, limitation, impairment or termination of
any Obligations of any Borrower or any other Obligor for any reason,
including any claim of waiver, release, surrender, alteration or
compromise, and shall not be subject to (and each Guarantor hereby
waives any right to or claim of) any defense or setoff, counterclaim,
recoupment or termination whatsoever by reason of the invalidity,
illegality, nongenuineness, irregularity, compromise, unenforceability
of, or any other event or occurrence affecting, any Obligations of any
Borrower or any other Obligor or otherwise;
(e) any amendment to, rescission, waiver, or other
modification of, or any consent to departure from, any of the terms of
the Credit Agreement or any other Loan Document;
-4-
<PAGE>
(f) any addition, exchange, release, surrender or
non-perfection of any collateral, or any amendment to or waiver or
release or addition of, or consent to departure from, any other
guaranty, held by any Secured Party or any holder of any Note securing
any of the Obligations of any Borrower or any other Obligor; or
(g) any other circumstance which might otherwise constitute a
defense available to, or a legal or equitable discharge of, any
Borrower, any other Obligor, any surety or any guarantor.
SECTION 2.4. REINSTATEMENT, ETC. Each Guarantor agrees that this
Guaranty shall continue to be effective or be reinstated, as the case may be, if
at any time any payment (in whole or in part) of any of the Obligations is
invalidated, declared to be fraudulent or preferential, set aside, rescinded or
must otherwise be restored by any Secured Party or any holder of any Note, upon
the insolvency, bankruptcy or reorganization of any Borrower or any other
Obligor or otherwise, all as though such payment had not been made.
SECTION 2.5. WAIVER, ETC. Each Guarantor hereby waives promptness,
diligence, notice of acceptance and any other notice with respect to any of the
Obligations of any Borrower or any other Obligor and of this Guaranty and any
requirement that the Administrative Agent, any other Secured Party or any holder
of any Note protect, secure, perfect or insure any security interest or Lien, or
any property subject thereto, or exhaust any right or take any action against
any Borrower, any other Obligor or any other Person (including any other
guarantor) or entity or any collateral securing the Obligations of such Borrower
or such other Obligor, as the case may be.
SECTION 2.6. POSTPONEMENT OF SUBROGATION, ETC. Each Guarantor hereby
agrees that it will not exercise any rights which it may acquire by way of
rights of subrogation under this Guaranty, by any payment made hereunder or
otherwise, until the prior payment in full in cash of all Obligations of each
Borrower and each other Obligor, the termination or expiration of all Letters of
Credit, the termination of all Rate Protection Agreements and the termination of
all Commitments. Any amount paid to any Guarantor on account of any such
subrogation rights prior to the payment in full in cash of all Obligations of
each Borrower and each other Obligor shall be held in trust for the benefit of
the Secured Parties and each holder of a Note and shall immediately be paid to
the Administrative Agent for the benefit of the Secured Parties and each holder
of a Note and credited and applied against the Obligations of each Borrower and
each other Obligor, whether matured or unmatured, in accordance with the terms
of the Credit Agreement; PROVIDED, HOWEVER, that if
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<PAGE>
(a) such Guarantor has made payment to the Secured Parties and
each holder of a Note of all or any part of the Obligations of any
Borrower or any other Obligor, and
(b) all Obligations have been paid in full in cash, all
Letters of Credit have been terminated or expired, all Rate Protection
Agreements have been terminated and all Commitments have been
permanently terminated,
each Secured Party and each holder of a Note agrees that, at such Guarantor's
request, the Administrative Agent, on behalf of the Secured Parties and the
holders of the Notes, will execute and deliver to such Guarantor appropriate
documents (without recourse and without representation or warranty) necessary to
evidence the transfer by subrogation to such Guarantor of an interest in the
Obligations of such applicable Borrower or such applicable Obligor resulting
from such payment by such Guarantor. In furtherance of the foregoing, for so
long as any Obligations, Letters of Credit, Rate Protection Agreements or
Commitments remain outstanding, each Guarantor shall refrain from taking any
action or commencing any proceeding against any Borrower or any other Obligor
(or any of their respective successors or assigns, whether in connection with a
bankruptcy proceeding or otherwise) to recover any amount in respect of any
payment made under this Guaranty to any Secured Party or any holder of a Note.
SECTION 2.7. RIGHT OF CONTRIBUTION. Each Guarantor hereby agrees that
to the extent that a Guarantor shall have paid more than its proportionate share
of any payment made hereunder, such Guarantor shall be entitled to seek and
receive contribution from and against any other Guarantor hereunder who has not
paid its proportionate share of such payment. Each Guarantor's right of
contribution shall be subject to the terms and conditions of SECTION 2.6. The
provisions of this SECTION 2.7 shall in no respect limit the obligations and
liabilities of any Guarantor to the Administrative Agent and each other Secured
Party, and each Guarantor shall remain liable to the Administrative Agent and
each other Secured Party for the full amount by such Guarantor hereunder.
SECTION 2.8. SUCCESSORS, TRANSFEREES AND ASSIGNS; TRANSFERS OF NOTES,
ETC. This Guaranty shall:
(a) be binding upon each Guarantor, and its successors,
transferees and assigns; and
(b) inure to the benefit of and be enforceable by the
Administrative Agent and each other Secured Party.
Without limiting the generality of CLAUSE (b), any Lender may assign or
otherwise transfer (in whole or in part) any Note or Credit Extension held by it
to any other Person
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or entity, and such other Person or entity shall thereupon become vested with
all rights and benefits in respect thereof granted to such Lender under any Loan
Document (including this Guaranty) or otherwise, subject, however, to any
contrary provisions in such assignment or transfer, and to the provisions of
Section 11.11 and Article IX of the Credit Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.1. REPRESENTATIONS AND WARRANTIES. Each Guarantor hereby
represents and warrants for itself unto each Secured Party as to all matters
contained in Article VI of the Credit Agreement and this ARTICLE III, in each
case insofar as applicable to such Guarantor or such Guarantor's properties,
together with all related definitions and ancillary provisions, all of which are
hereby incorporated into this ARTICLE III as though specifically set forth
herein.
SECTION 3.2. ORGANIZATION, ETC. Each Guarantor and each of its
Subsidiaries is validly organized and existing and in good standing under the
laws of the state or jurisdiction of its incorporation or organization, is duly
qualified to do business and is in good standing as a foreign entity in each
jurisdiction where the nature of its business requires such qualification
(except where the failure to be so qualified or in good standing as a foreign
entity could not reasonably be expected to have a Material Adverse Effect), and
has full power and authority and holds all requisite governmental licenses,
permits and other approvals to enter into and perform its Obligations under this
Guaranty and each Loan Document to which it is a party and to own and hold under
lease its property and to conduct its business substantially as currently
conducted by it (except where the failure to hold any such license, permit or
other approval could not reasonably be expected to have a Material Adverse
Effect).
SECTION 3.3. DUE AUTHORIZATION, NON-CONTRAVENTION, ETC. The execution,
delivery and performance by each Guarantor of this Guaranty and each other Loan
Document executed or to be executed by it, such Guarantor's participation in the
consummation of all aspects of the Transaction, and the execution, delivery and
performance by such Guarantor (if applicable) of the agreements executed and
delivered in connection with the Transaction are in each case within such
Guarantor's powers, have been duly authorized by all necessary action, and do
not
(a) contravene any (i) Organic Documents of such Guarantor,
(ii) contractual restriction binding on or affecting such Guarantor,
(iii) court
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<PAGE>
decree or order binding on or affecting such Guarantor or (iv) law or
governmental regulation binding on or affecting such Guarantor; or
(b) result in, or require the creation or imposition of, any
Lien on any such Guarantor's properties (except as permitted by this
Agreement).
SECTION 3.4. GOVERNMENT APPROVAL, REGULATION, ETC. No authorization or
approval or other action by, and no notice to or filing with, any governmental
authority or regulatory body or other Person (other than those that have been,
or on the Closing Date will be, duly obtained or made and which are, or on the
Closing Date will be, in full force and effect) is required for the consummation
of the Transaction or the due execution, delivery or performance by any
Guarantor of this Guaranty or any other Loan Document to which it is a party, or
for the due execution, delivery and/or performance of Transaction Documents by
such Guarantor (if applicable), or the consummation of the Transaction by such
Guarantor (if applicable). None of the Guarantors or any of its respective
Subsidiaries is an "investment company" within the meaning of the Investment
Company Act of 1940, as amended, or a "holding company", or a "subsidiary
company" of a "holding company", or an "affiliate" of a "holding company" or of
a "subsidiary company" of a "holding company", within the meaning of the Public
Utility Holding Company Act of 1935, as amended.
SECTION 3.5. VALIDITY, ETC. This Guaranty and the Transaction Documents
to which it is a party constitute, and each other Loan Document executed by each
Guarantor will, on the due execution and delivery thereof, constitute, the
Guarantor in accordance with their respective terms (except, in any case, as
such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally and by
principles of equity).
ARTICLE IV
COVENANTS, ETC.
SECTION 4.1. AFFIRMATIVE COVENANTS. Each Guarantor covenants and agrees
that, until all Letters of Credit have terminated or expired, all Rate
Protection Agreements have terminated, all Commitments have terminated, all
Obligations have been paid in full in cash and all obligations of such Guarantor
hereunder shall have been paid in full in cash, such Guarantor will, and will
cause each of its Subsidiaries to, perform, comply with and be bound by all the
agreements, covenants and obligations contained in the Credit Agreement
applicable to such Guarantor, such Subsidiary or their respective properties.
Each such agreement, covenant and obligation contained in the
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Credit Agreement and all related definitions and ancillary provisions are hereby
incorporated into this Guaranty as though specifically set forth herein.
ARTICLE V
MISCELLANEOUS PROVISIONS
SECTION 5.1. LOAN DOCUMENT. This Guaranty is a Loan Document executed
pursuant to the Credit Agreement and shall (unless otherwise expressly indicated
herein) be construed, administered and applied in accordance with the terms and
provisions thereof.
SECTION 5.2. BINDING ON SUCCESSORS, TRANSFEREES AND ASSIGNS;
ASSIGNMENT. In addition to, and not in limitation of, SECTION 2.8, this Guaranty
shall be binding upon each Guarantor and its successors, transferees and assigns
and shall inure to the benefit of and be enforceable by each Secured Party and
each holder of a Note and their respective successors, transferees and assigns
(to the fullest extent provided pursuant to SECTION 2.8); PROVIDED, HOWEVER,
that no Guarantor may assign any of its obligations hereunder without the prior
written consent of all Lenders.
SECTION 5.3. AMENDMENTS, ETC. No amendment to or waiver of any
provision of this Guaranty, nor consent to any departure by any Guarantor
herefrom, shall in any event be effective unless the same shall be in writing
and signed by the Administrative Agent (on behalf of the Lenders or the Required
Lenders, as the case may be) and then such waiver or consent shall be effective
only in the specific instance and for the specific purpose for which given.
SECTION 5.4. NOTICES. All notices and other communications provided for
hereunder shall be in writing and mailed or telecopied or delivered, if to a
Guarantor, to such Guarantor in care of Holdings at the address of Holdings
specified in the Credit Agreement, and, if to the Administrative Agent, to the
Administrative Agent at the address of the Administrative Agent specified in the
Credit Agreement, or as to any party, at such other address as shall be
designated by such party in a written notice to the Agent or the Guarantors (in
care of Holdings), as the case may be, complying as to delivery with the terms
of this Section. All such notices and other communications, if mailed and
properly addressed with postage prepaid or if properly addressed and sent by
pre-paid courier service, shall be deemed given when received; any such notice
or communication, if transmitted by facsimile, shall be deemed given when the
confirmation thereof is received by the transmitter.
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<PAGE>
SECTION 5.5. ADDITIONAL GUARANTORS. Upon the execution and delivery by
any other Person of an instrument in the form of ANNEX I hereto, such Person
shall become a "Guarantor" hereunder with the same force and effect as if
originally named as a Guarantor herein. The execution and delivery of any such
instrument shall not require the consent of any other Guarantor hereunder. The
rights and obligations of each Guarantor hereunder shall remain in full force
and effect notwithstanding the addition of any new Guarantor as a party to this
Guaranty.
SECTION 5.6. NO WAIVER; REMEDIES. In addition to, and not in limitation
of, SECTION 2.3 and SECTION 2.5, no failure on the part of any Secured Party or
any holder of a Note to exercise, and no delay in exercising, any right
hereunder shall operate as a waiver thereof; nor shall any single or partial
exercise of any right hereunder preclude any other or further exercise thereof
or the exercise of any other right. The remedies herein provided are cumulative
and not exclusive of any remedies provided by law.
SECTION 5.7. CAPTIONS. Section captions used in this Guaranty are for
convenience of reference only, and shall not affect the construction of this
Guaranty.
SECTION 5.8. SETOFF. In addition to, and not in limitation of, any
rights of any Secured Party or any holder of a Note under applicable law, each
Secured Party and each such holder shall, upon the occurrence of any Default
described in any of clauses (a) through (d) of Section 8.1.9 of the Credit
Agreement or, with the consent of the Required Lenders, upon the occurrence of
any Event of Default, have the right to appropriate and apply to the payment of
the obligations of any Guarantor owing to it hereunder, whether or not then due,
and such Guarantor hereby grants to each Secured Party and each such holder a
continuing security interest in, any and all balances, credits, deposits,
accounts or moneys of such Guarantor then or thereafter maintained with such
Secured Party, or such holder or any agent or bailee for such Secured Party or
such holder; PROVIDED, HOWEVER, that any such appropriation and application
shall be subject to the provisions of Section 4.8 of the Credit Agreement.
SECTION 5.9. SEVERABILITY. Wherever possible each provision of this
Guaranty shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Guaranty shall be prohibited by or
invalid under such law, such provision shall be ineffective to the extent of
such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Guaranty.
SECTION 5.10. GOVERNING LAW, ENTIRE AGREEMENT, ETC. THIS GUARANTY
SHALL BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS
OF THE STATE OF NEW YORK. THIS GUARANTY AND THE OTHER LOAN DOCUMENTS
CONSTITUTE THE
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ENTIRE UNDERSTANDING AMONG THE PARTIES HERETO WITH RESPECT TO THE SUBJECT MATTER
HEREOF AND SUPERSEDE ANY PRIOR AGREEMENTS, WRITTEN OR ORAL, WITH RESPECT
THERETO.
SECTION 5.11. FORUM SELECTION AND CONSENT TO JURISDICTION. ANY
LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS
GUARANTY OR ANY OTHER LOAN DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF
DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY SECURED PARTY
OR ANY GUARANTOR RELATING THERETO SHALL BE BROUGHT AND MAINTAINED EXCLUSIVELY
(TO THE EXTENT PERMITTED UNDER APPLICABLE LAW) IN THE COURTS OF THE STATE OF NEW
YORK, OR IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW
YORK, IN EACH CASE LOCATED IN NEW YORK COUNTY OF THE STATE OF NEW YORK;
PROVIDED, HOWEVER, THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY COLLATERAL OR
OTHER PROPERTY MAY BE BROUGHT, AT THE ADMINISTRATIVE AGENT'S OPTION, IN THE
COURTS OF ANY JURISDICTION WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY BE FOUND.
EACH GUARANTOR HEREBY EXPRESSLY AND IRREVOCABLY SUBMIT TO THE JURISDICTION OF
THE COURTS OF THE STATE OF NEW YORK, AND OF THE UNITED STATES DISTRICT COURT FOR
THE SOUTHERN DISTRICT OF NEW YORK, IN EACH CASE LOCATED IN NEW YORK COUNTY OF
THE STATE OF NEW YORK, FOR THE PURPOSE OF ANY SUCH LITIGATION AS SET FORTH ABOVE
AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN
CONNECTION WITH SUCH LITIGATION. EACH GUARANTOR IRREVOCABLY CONSENTS TO THE
SERVICE OF PROCESS BY REGISTERED MAIL, POSTAGE PREPAID, OR BY PERSONAL SERVICE
WITHIN OR WITHOUT THE STATE OF NEW YORK. EACH GUARANTOR HEREBY EXPRESSLY AND
IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH
ANY OF THEM MAY HAVE OR HEREAFTER MAY HAVE TO THE LAYING OF VENUE OF ANY SUCH
LITIGATION BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THAT ANY
SUCH LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. TO THE EXTENT THAT
ANY GUARANTOR HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM JURISDICTION OF ANY
COURT OF FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT
PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION OR OTHERWISE) WITH RESPECT TO
ITSELF OR ITS PROPERTY, EACH GUARANTOR HEREBY IRREVOCABLY WAIVES (TO THE EXTENT
PERMITTED UNDER
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APPLICABLE LAW) SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONS UNDER THIS GUARANTY
AND THE OTHER LOAN DOCUMENTS.
SECTION 5.12. WAIVER OF JURY TRIAL. THE SECURED PARTIES AND THE
GUARANTORS HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS THEY
MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR
ARISING OUT OF, UNDER OR IN CONNECTION WITH, THIS GUARANTY OR ANY OTHER LOAN
DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL
OR WRITTEN) OR ACTIONS OF THE SECURED PARTIES OR THE GUARANTORS RELATING
THERETO. THE GUARANTORS ACKNOWLEDGE AND AGREE THAT EACH SUCH PERSON HAS RECEIVED
FULL AND SUFFICIENT CONSIDERATION FOR THIS PROVISION (AND EACH OTHER PROVISION
OF EACH OTHER LOAN DOCUMENT TO WHICH SUCH PERSON IS A PARTY) AND THAT THIS
PROVISION IS A MATERIAL INDUCEMENT FOR THE SECURED PARTIES ENTERING INTO THE
CREDIT AGREEMENT, THIS GUARANTY AND EACH SUCH OTHER LOAN DOCUMENT.
SECTION 5.13. COUNTERPARTS. This Guaranty may be executed by the
parties hereto in several counterparts, each of which shall be deemed to be an
original and all of which shall constitute together but one and the same
agreement.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Guaranty to be
duly executed and delivered by their respective officers thereunto duly
authorized as of the date first above written.
RIMEDIA REFERENCE INC.
By /s/Charles Laurey
--------------------
Name:Charles Laurey
Title:
AMERICAN GUIDANCE
SERVICE INC.
By /s/Charles Laurey
--------------------
Name:Charles Laurey
Title:
LIFETIME LEARNING
SYSTEMS, INC.
By /s/Charles Laurey
--------------------
Name:Charles Laurey
Title:
AGS INTERNATIONAL SALES,
INC.
By /s/Charles Laurey
--------------------
Name:Charles Laurey
Title:
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<PAGE>
FUNK & WAGNALLS
YEARBOOK
CORPORATION
By /s/Charles Laurey
--------------------
Name:Charles Laurey
Title:
GARETH STEVENS, INC.
By /s/Charles Laurey
--------------------
Name:Charles Laurey
Title:
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<PAGE>
ACCEPTED BY:
BANK OF AMERICA, N.A.
as Administrative Agent
By /s/Peter Hall
--------------
Name:Peter Hall
Title:
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<PAGE>
ANNEX I to
Subsidiary Guaranty
SUPPLEMENT NO. ___ dated as of ________ __, ____ (this "SUPPLEMENT"),
to the Subsidiary Guaranty, dated as of November 17, 1999 (as amended,
supplemented, amended and restated or otherwise modified from time to time, the
"GUARANTY"), among the initial signatories thereto and each other Person which
from time to time thereafter became a party thereto pursuant to Section 5.5
thereof (each, individually, a "GUARANTOR", and, collectively, the
"GUARANTORS"), in favor of the Secured Parties (as defined in the Guaranty).
W I T N E S S E T H:
WHEREAS, capitalized terms used herein and not otherwise defined herein
shall have the meanings assigned to such terms in the Guaranty; and
WHEREAS, the Guaranty provides that additional parties may become
Guarantors under the Guaranty by execution and delivery of an instrument in the
form of this Supplement; and
WHEREAS, pursuant to the provisions of Section 5.5 of the Guaranty, the
undersigned is becoming an Additional Guarantor under the Guaranty; and
WHEREAS, the undersigned desires to become a Guarantor under the
Guaranty in order to induce the Secured Parties to continue to make Credit
Extensions under the Credit Agreement as consideration therefor;
NOW, THEREFORE, the undersigned agrees, for the benefit of each Secured
Party, as follows:
SECTION 1. In accordance with the Guaranty, the undersigned by its
signature below becomes a Guarantor under the Guaranty with the same force and
effect as if it were an original signatory thereto as a Guarantor and the
undersigned hereby (a) agrees to all the terms and provisions of the Guaranty
applicable to it as a Guarantor thereunder and (b) represents and warrants that
the representations and warranties made by it as a Guarantor thereunder are true
and correct on and as of the date hereof. In furtherance of the foregoing, each
reference to a "Guarantor" or an "Additional Guarantor" in the Guaranty shall be
deemed to include the undersigned.
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<PAGE>
SECTION 2. The undersigned hereby represents and warrants that this
Supplement has been duly authorized, executed and delivered by the undersigned
and constitutes a legal, valid and binding obligation of the undersigned,
enforceable against it in accordance with its terms.
SECTION 3. Except as expressly supplemented hereby, the Guaranty shall
remain in full force and effect in accordance with its terms.
SECTION 4. In the event any one or more of the provisions contained in
this Supplement should be held invalid, illegal or unenforceable in any respect,
the validity, legality and enforceability of the remaining provisions contained
herein and in the Guaranty shall not in any way be affected or impaired.
SECTION 5. Without limiting the provisions of the Credit Agreement (or
any other Loan Document, including the Guaranty), the undersigned agrees to
reimburse the Administrative Agent for its reasonable out-of-pocket expenses in
connection with this Supplement, including reasonable attorneys' fees and
expenses of the Administrative Agent.
SECTION 6. THIS SUPPLEMENT SHALL BE DEEMED TO BE A CONTRACT MADE
UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK.
SECTION 7. WITHOUT LIMITING THE EFFECT OF SECTION 5.11 OF THE
GUARANTY, THE SECURED PARTIES AND THE UNDERSIGNED HEREBY EXPRESSLY AND
IRREVOCABLY SUBMIT TO THE JURISDICTION OF THE COURTS OF THE STATE OF NEW
YORK, AND OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF
NEW YORK, IN EACH CASE LOCATED IN NEW YORK COUNTY OF THE STATE OF NEW YORK,
FOR THE PURPOSE OF ANY SUCH LITIGATION AS SET FORTH ABOVE AND IRREVOCABLY
AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH SUCH
LITIGATION. THE UNDERSIGNED IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS BY
REGISTERED MAIL, POSTAGE PREPAID, OR BY PERSONAL SERVICE WITHIN OR WITHOUT
THE STATE OF NEW YORK. THE UNDERSIGNED HEREBY EXPRESSLY AND IRREVOCABLY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY
HAVE OR HEREAFTER MAY HAVE TO THE LAYING OF VENUE OF ANY SUCH LITIGATION
BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH
LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. TO THE EXTENT THAT THE
UNDERSIGNED HAS OR HEREAFTER MAY
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<PAGE>
ACQUIRE ANY IMMUNITY FROM JURISDICTION OF ANY COURT OF FROM ANY LEGAL PROCESS
(WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN
AID OF EXECUTION OR OTHERWISE) WITH RESPECT TO ITSELF OR ITS PROPERTY, THE
UNDERSIGNED HEREBY IRREVOCABLY WAIVES (TO THE EXTENT PERMITTED UNDER APPLICABLE
LAW) SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONS UNDER THIS SUPPLEMENT, THE
GUARANTY AND THE OTHER LOAN DOCUMENTS.
SECTION 8. WITHOUT LIMITING THE EFFECT OF SECTION 5.12 OF THE GUARANTY,
THE SECURED PARTIES AND THE UNDERSIGNED HEREBY KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF
ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH,
THIS SUPPLEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF
DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF THE SECURED PARTIES
OR THE UNDERSIGNED RELATING THERETO. THE UNDERSIGNED ACKNOWLEDGES AND AGREES
THAT IT HAS RECEIVED FULL AND SUFFICIENT CONSIDERATION FOR THIS PROVISION (AND
EACH OTHER PROVISION OF EACH OTHER LOAN DOCUMENT TO WHICH IT IS A PARTY) AND
THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE SECURED PARTIES ENTERING
INTO THE CREDIT AGREEMENT, THIS SUPPLEMENT, THE GUARANTY AND EACH SUCH OTHER
LOAN DOCUMENT.
SECTION 9. This Supplement hereby incorporates by reference the
provisions of the Guaranty, which provisions are deemed to be a part hereof, and
this Supplement shall be deemed to be a part of the Guaranty.
SECTION 10. This Supplement may be executed by the parties hereto in
several counterparts, each of which shall be deemed to be an original and all of
which shall constitute together but one and the same agreement.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Supplement to
the Guaranty to be duly executed and delivered by their respective officers
thereunto duly authorized as of the day and year first above written.
[ADDITIONAL GUARANTOR], a
-------- --------
By
----------------------
Name:
Title:
ACCEPTED BY:
BANK OF AMERICA, N.A.
as Administrative Agent
By
---------------------------
Name:
Title:
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<PAGE>
<PAGE>
1
L&W DRAFT OF 11/16/99
STOCKHOLDERS AGREEMENT
STOCKHOLDERS AGREEMENT (this "AGREEMENT"), dated as of
November 17, 1999, among WRC Media Inc., a Delaware corporation (the "COMPANY"),
Weekly Reader Corporation, a Delaware corporation ("WEEKLY READER"), and JLC
Learning Corporation, a Delaware corporation ("JLC LEARNING" and, together with
the Company and Weekly Reader, the "ISSUERS"), EAC III L.L.C. (collectively, and
together with any Affiliate thereof, the "PRINCIPALS" (as further defined
herein)) and Donaldson, Lufkin & Jenrette Securities Corporation and Banc of
America Securities LLC (collectively, the "INITIAL PURCHASERS").
This Agreement is made pursuant to the Purchase Agreement (the
"PURCHASE AGREEMENT"), dated as of November 10, 1999, by and among the Issuers,
the Note Guarantors set forth therein and the Initial Purchasers. In order to
induce the Initial Purchasers to purchase the Units, the Principals and the
Issuers have agreed to provide the registration rights set forth in this
Agreement and have agreed to the tag-along and drag-along provisions set forth
in this Agreement. The execution and delivery of this Agreement is a condition
to the obligations of the Initial Purchasers set forth in Section 3 of the
Purchase Agreement. Capitalized terms used herein and not otherwise defined
shall have the meanings ascribed to them in the Purchase Agreement.
Pursuant to the Purchase Agreement, the Company has issued
205,656 shares of its common stock, par value $0.01 per share (the "COMMON
STOCK") issued as part of the Units (the "UNIT COMMON STOCK").
The parties hereby agree as follows:
SECTION 1. DEFINITIONS.
As used in this Agreement, the following capitalized terms
shall have the following meanings:
ACT: The Securities Act of 1933, as amended.
AFFILIATE: As defined in Rule 144 of the Act.
BUSINESS DAY: Any day other than a Saturday, Sunday or day on
which commercial banks in the City of New York are authorized or required by
law, regulation or executive order to remain closed.
CLOSING DATE: The date hereof.
DEMAND EVENT: The earlier to occur of (a) 180 days after the
date on which an initial Public Equity Offering is consummated and (b) the date
on which any class of common stock of either the Company or Weekly Reader is
listed on a national securities exchange or authorized for quotation on the
Nasdaq National Market System, other than in connection with the Public Equity
Offering referred to in clause (a) of this definition.
DEMAND REGISTRATION: As defined in Section 6 of this Agreement.
DEMAND REQUEST: As defined in Section 6 of this Agreement.
EXCHANGE ACT: The Securities Exchange Act of 1934, as amended.
<PAGE>
2
EXCHANGE COMMON STOCK: Shares of Weekly Reader Class
A Non-Voting Common Stock issuable upon exchange of shares of Unit Common Stock.
EXCHANGE RATIO: On any Exchange Date, the Exchange Ratio is
equal to the product of (1) the total number of shares of Weekly Reader Common
Stock owned by WRC Media on any Exchange Date on a fully diluted basis times (2)
a fraction, the numerator of which is one (1) and the denominator of which is
the total number of shares of Common Stock outstanding on a fully diluted basis
on such Exchange Date.
HOLDER: A person who owns Registrable Securities or has the
right to acquire Registrable Securities, whether or not such acquisition has
actually been effected.
INITIAL PUBLIC OFFERING: An issuance or sale of common stock
pursuant to an underwritten public offering (whether on a firm commitment basis
or a best efforts basis if such best efforts are successful) thereof pursuant to
an effective registration statement filed with the SEC pursuant to the
Securities Act.
INITIATING HOLDERS: One or more Holders owning individually or
in the aggregate not less than the Requisite Securities.
PERSON: Any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization,
government or any agency or political subdivision thereof or any other entity.
PIGGY-BACK REGISTRATION. As defined in Section 7 of this
Agreement.
PRINCIPALS: EAC III L.L.C., a Delaware limited liability
corporation, or such other person as Ripplewood Partners, L.P. maintains its
equity investment in the Company through; provided that if Ripplewood Partners,
L.P. has a direct equity investment in the Company or any of its subsidiaries,
Principals shall include Ripplewood Partners, L.P.
PRO RATA PORTION. Pro Rata Portion means with reference to any
Holder at any time, a fraction, the numerator of which is the total number of
shares of common stock held by such Holder and the denominator of which is the
total number of shares of common stock held by all stockholders participating as
sellers in such transaction, adjusted, in the case of the Exchange Common Stock
for the applicable Exchange Ratio.
PROSPECTUS: The prospectus included in a Registration
Statement at the time such Registration Statement is declared effective, as
amended or supplemented by any prospectus supplement and by all other amendments
thereto, including post-effective amendments, and all material incorporated by
reference into such prospectus.
PUBLIC EQUITY OFFERING: means an underwritten offering of
common stock of either the Company or Weekly Reader pursuant to a registration
statement that has been declared effective by the SEC pursuant to the Act (other
than a registration statement on Form S-8 or otherwise relating to equity
securities issuable under any employee benefit plan of the Company or Weekly
Reader, as applicable, and other than any offering registered on Form S-4 or its
equivalent).
REGISTRABLE SECURITIES: means (1) any shares of Unit Common
Stock and Exchange Common Stock and (2) any other securities issued or issuable
with respect to the exchange of Unit Common Stock or Exchange Common Stock by
way of stock dividend or stock split or in connection with a combination of
shares, recapitalization, merger, consolidation or other reorganization or
otherwise. As to any particular Registrable Securities, securities shall cease
to be Registrable Securities when (1) a registration statement with respect to
the offering of such securities by the Holder thereof shall have been declared
effective under the Act and such securities shall have been disposed of by such
Holder pursuant to such registration statement, (2)
<PAGE>
3
such securities have been sold to the public pursuant to Rule 144(k) (or any
similar provision then in force, but not Rule 144A) promulgated under the Act,
(3) such securities shall have been otherwise transferred by the Holder thereof
and new certificates for such securities not bearing a legend restricting
further transfer shall have been delivered by the Company or Weekly Reader, as
applicable, or its transfer agent and subsequent disposition of such securities
shall not require registration or qualification under the Act or any similar
state law then in force or (4) such securities shall have ceased to be
outstanding.
REGISTRATION EXPENSES: All expenses incident to the Company's
and Weekly Reader's performance of or compliance with this Agreement, including,
without limitation, all SEC and stock exchange or National Association of
Securities Dealers, Inc. registration and filing fees and expenses, fees and
expenses of compliance with securities or blue sky laws (including, without
limitation, reasonable fees and disbursements of counsel for the underwriters in
connection with blue sky qualifications of the Registrable Securities),
preparing, printing, filing, duplicating and distributing the Registration
Statement and the related prospectus, the cost of printing stock certificates,
the cost and charges of any transfer agent, rating agency fees, printing
expenses, messenger, telephone and delivery expenses, reasonable fees and
disbursements of counsel for the Company and Weekly Reader and all independent
certified public accountants, the fees and disbursements of underwriters
customarily paid by issuers or sellers of securities (but not including any
underwriting discounts or commissions or transfer taxes, if any, attributable to
the sale of Registrable Securities by Selling Holders), and reasonable fees and
expenses of one counsel for the Holders.
REGISTRATION STATEMENT: Any registration statement of the
Company or Weekly reader, as applicable, relating to the registration for resale
of Registrable Securities that is filed pursuant to the provisions of this
Agreement and including the Prospectus included therein, all amendments and
supplements thereto (including post-effective amendments) and all exhibits and
all material incorporated by reference therein.
REORGANIZATION TRANSACTION: A reorganization at the sole
discretion of the Company completed in connection with the Initial Public
Offering of Weekly Reader pursuant to which the Company shall transfer, or cause
to be transferred, all or substantially all its assets (including all the
capital stock and debt securities of the subsidiaries of the Company (including
Weekly Reader)) to Weekly Reader in exchange for the assumption by Weekly Reader
of all or substantially all the liabilities of the Company, and the issuance to
the Company by Weekly Reader of new securities (including common and preferred
stock) of Weekly Reader.
REQUISITE SECURITIES: A number of Registrable Securities
equal to not less than 25% of the then Registrable Securities held in aggregate
by all Holders.
SEC: The Securities and Exchange Commission.
SELLING HOLDER: A Holder who is selling Registrable Securities
in accordance with the provisions of this Agreement.
SHELF REGISTRATION: As defined in Section 8.
WEEKLY READER CLASS A NON-VOTING COMMON STOCK: The class A
non-voting common stock, par value $0.01 per share, of Weekly Reader. Upon the
occurrence of an Initial Public Offering of Weekly Reader, the Weekly Reader
Class A Non-Voting Common Stock will automatically convert into Weekly Reader
Voting Common Stock.
WEEKLY READER COMMON STOCK: The common stock of Weekly Reader
of all classes.
WEEKLY READER VOTING COMMON STOCK: The voting common stock, par
value $0.01 per share, of Weekly Reader.
<PAGE>
4
SECTION 2. EXCHANGE RIGHTS
(a) (i) Subject to the provisions of this Section 2, each
Holder of the Unit Common Stock, at its option, may at any time on any Business
Day in connection with the Initial Public Offering of Weekly Reader cause Weekly
Reader to exchange all, but not less than all, outstanding shares of Unit Common
Stock owned by such Holder for a number of shares of Weekly Reader Class A
Non-Voting Common Stock determined by multiplying the number of such Holder's
shares of Unit Common Stock by the Exchange Ratio. Dividends on Unit Common
Stock exchanged for Weekly Reader Class A Non-Voting Common Stock which have
been declared but have not been paid as of the date of exchange (the "EXCHANGE
DATE") shall be deemed to have accrued on the Exchange Common Stock in
equivalent adjusted amounts.
(ii) Subject to the provisions of this Section 2, the
Company, at its option, in anticipation of the Reorganization Transaction may
distribute to the Holders of Unit Common Stock in exchange for such stock a
number of shares of Weekly Reader Class A Non-Voting Common Stock determined by
multiplying the number of such shares of Unit Common Stock by the Exchange
Ratio; PROVIDED that if the Initial Public Offering of Weekly Reader or the
Reorganization Transaction is not consummated within ten business days after
such exchange then the Exchange Common Stock will be converted back to Unit
Common Stock using the inverse of the Exchange Ratio used for the initial
exchange and the Company and the Holders shall then have the same rights to
cause the Unit of Common Stock to be exchanged for Exchange Common Stock as
prior to such exchange, and such shares of Unit Common Stock shall have been
deemed to have been outstanding as if such shares had never been exchanged for
such Exchange Common Stock for all purposes, including with respect to dividends
and other distributions payable with respect to the Company's Common Stock.
Dividends on Unit Common Stock exchanged for Weekly Reader Class A Non-Voting
Common Stock which have been declared but have not been paid as of the Exchange
Date shall be deemed to have accrued on the Exchange Common Stock in equivalent
adjusted amounts.
(b) (i) In the event of an exchange pursuant to Section 2(a)
of the Unit Common Stock for Exchange Common Stock, notice of such exchange
specifying the Exchange Date therefor shall be given (x) if at the option of a
Holder of Unit Common Stock, to the Company and Weekly Reader, not less than 30
days nor more than 60 days prior to the Exchange Date or (y) if at the option of
the Company, to the Holders of Unit Common Stock not less than 10 nor more than
60 days prior to the Exchange Date.
(ii) Notice having been given as aforesaid, from and after
the Exchange Date (unless default shall be made by Weekly Reader issuing
Exchange Common Stock or by the Company in distributing Exchange Common Stock,
as applicable, in exchange for Unit Common Stock), all rights of the Holders as
stockholders of the Company (except the right to receive the Exchange Common
Stock) shall cease. In the case of an exchange pursuant to Section 2(a)(i), upon
surrender to Weekly Reader in accordance with said notice of the certificates
for the Unit Common Stock (properly endorsed or assigned for transfer), Weekly
Reader shall issue the Exchange Common Stock and deliver to the applicable
Holder(s) certificates therefor registered in the name of such Holder(s). In the
case of an exchange pursuant to Section 2(a)(ii), the exchange shall be deemed
to have been effected immediately after the close of business on the Exchange
Date, and the Holder(s) in whose names the Exchange Common Stock shall be
issuable upon such exchange shall be deemed to have become the Holders of record
of the Exchange Common Stock represented thereby at such time on the Exchange
Date. In connection with an exchange pursuant to Section 2(a)(ii), if the
Company causes new shares of Weekly Reader Class A Non-Voting Common Stock to be
issued to Holders of Unit Common Stock in connection with such exchange in lieu
of exchanging such shares for existing shares of Exchange Common Stock, then the
Exchange Ratio shall be adjusted so that after giving effect to such new
issuance of shares of Exchange Common Stock, the Holders of Exchange Common
Stock are in the same economic position as they would have been had no new
shares of Exchange Common Stock been issued.
<PAGE>
5
(iii) Prior to the issuance of the Exchange Common Stock by
Weekly Reader and the delivery thereof by Weekly Reader or the Company, as the
case may be, Weekly Reader and the Company shall comply with all applicable
Federal and state laws and regulations which require action to be taken by them
with respect to such issuance and delivery (it being understood that neither
Weekly Reader nor the Company shall be required to file a registration statement
covering such shares with the SEC). Holders of Unit Common Stock will be able to
exchange their Weekly Reader Class A Non-Voting Common Stock for Exchange Common
Stock only if the exchange of such securities is exempt from the registration
requirements of the Act, and such securities are qualified for sale or exempt
from qualification under the applicable securities laws of the states in which
the various Holders of securities reside.
(c) Weekly Reader will pay any and all documentary stamp or
similar issue or transfer taxes payable in respect of the issuance or
delivery of certificates evidencing the Exchange Common Stock other than
those resulting from transfers to third parties.
(d) Weekly Reader will at all times reserve and keep
available, free from preemptive rights, out of the aggregate of its
authorized but unissued Weekly Reader Common Stock or its authorized and
issued Weekly Reader Common Stock held in its treasury, for the purpose of
enabling it to satisfy any obligation to issue Exchange Common Stock upon
exchange of Unit Common Stock, the maximum number of shares of Weekly Reader
Common Stock which may then be deliverable upon the exchange of all shares of
Unit Common Stock.
SECTION 3. TAG ALONG RIGHTS.
(a) Notwithstanding anything in this Agreement to the
contrary, except in the case of (i) transactions where Drag-Along Rights are
exercised pursuant to Section 4 hereof, (ii) sales in which the Holders of
Registrable Securities have piggy-back registration rights pursuant to Section 7
hereof (which have not been limited in accordance with the terms hereof or
otherwise), (iii) transfers to Affiliates of the Principals and (iv) sales by
Principals to persons other than Affiliates of the Principals on a cumulative
basis that do not exceed 20% of the shares of common stock of the Company and
Weekly Reader held by the Principals, the Principals shall refrain from
effecting any transfer or sale of common stock of the Company and Weekly Reader
unless, prior to the consummation thereof, the Holders shall have been afforded
the opportunity to join in such sale on the basis provided for in this Section
3.
(b) Prior to consummation of the proposed transfer by the
Principals referred to in Section 2(a) above, the Principals shall give each
Holder of Registrable Securities notice (a "TAGALONG NOTICE") stating the number
of shares of common stock of the Company and Weekly Reader to be transferred and
the price and other terms on which the shares to be transferred. Any Holder of
Unit Common Stock and Exchange Common Stock may elect to participate in such
transfer (a "TAGALONG RIGHT") by giving notice to the Principals within 15 days
of receipt of the Tag-Along Notice.
(c) The number of shares of Unit Common Stock and Exchange
Common Stock that any Holder electing to participant in a transfer shall be
eligible to sell pursuant thereto shall be equal to the product obtained by
multiplying the aggregate number of shares of common stock proposed to be
purchased by the Proposed Purchaser, whether from the Principals, the Holders or
otherwise, by such Holder's Pro Rata Portion, and the number of shares of common
stock to be sold by the Principals shall be reduced by the aggregate number of
shares of common stock of the Company and Weekly Reader to be purchased from
such Holders pursuant thereto. Such purchase shall be made on the same terms and
conditions as the proposed purchaser of the common stock of the Company and
Weekly Reader (the "PROPOSED PURCHASER") shall have offered to purchase shares
of common stock of the Company and Weekly Reader to be sold by Principals (net,
in the case of any options, warrants or rights, of any amounts required to be
paid by the Holder upon exercise thereof).
<PAGE>
6
Any shares of Unit Common Stock or Exchange Common Stock purchased from the
Holders pursuant to such provisions shall be paid for at the same price per
share of common stock of the Company and Weekly Reader and upon the same terms
and conditions as such proposed transfer of common stock of the Company and
Weekly Reader by the Principals, adjusted, in the case of the Exchange Common
Stock, for the applicable Exchange Ratio. If the Securities to be purchased in
the Company Sale includes securities other than common stock, the price to be
paid for such securities shall be the same price per share or other denomination
paid received by the Principals for like securities purchased from the
Principals.
SECTION 4. DRAG-ALONG RIGHTS.
(a) If any Principal or Principals approve or authorize a sale
or exchange (the "COMPANY SALE") of more than 80% of the then outstanding
capital stock of Weekly Reader or the Company in a bona fide arm's-length
transaction to a third party that is not an Affiliate of any Principal or of the
Company or Weekly Reader (an "INDEPENDENT THIRD PARTY"), then the Principal or
Principals shall have the right, subject to all the provisions of this Section 4
(the "DRAG-ALONG RIGHT"), to require each of the Holders of Unit Common Stock
and Exchange Common Stock to sell, transfer and deliver or cause to be sold,
transferred and delivered to such Independent Third Party all Unit Common Stock
and Exchange Common Stock owned by them; PROVIDED, HOWEVER, that if the
Principals agree to sell less than all of their shares to such Independent Third
Party, each of the other Holders shall only be required to sell, transfer and
deliver to such Independent Third Party an amount of Unit Common Stock and
Exchange Common Stock equal to the product obtained by multiplying the amount by
such Holder's Pro Rata Portion.
(b) If the Principals desire to exercise Drag-Along Rights, it
shall give written notice to the Holders (the "DRAG-ALONG NOTICE") of the
Company Sale, setting forth the name and address of the transferee, the date on
which such transaction is proposed to be consummated (which shall be not less
than 30 days after the date such Drag-Along Notice is given), and the proposed
amount and form of consideration and terms and conditions of payment offered by
such transferee, including, without limitation, the material terms of any debt
or equity securities proposed to be included as part of such consideration,
identifying the issuer or issuers thereof. If such consideration includes any
non-cash consideration, such notice shall also state the fair market value of
such non-cash consideration and shall describe in reasonable detail the method
by which such value shall have been determined.
(c) The consideration to be received by the Holders of Unit
Common Stock and Exchange Common Stock shall be at the same price per share of
common stock (net, in the case of any options, warrants or rights, of any
amounts required to be paid by the Holder upon exercise thereof) and upon the
same terms and conditions as such proposed transfer of common stock of the
Company and Weekly Reader by the Principals, adjusted in the case of Exchange
Common Stock, for the applicable Exchange Ratio. Such consideration shall be of
the same type of consideration received by the Principals. If the securities to
be purchased in the Company Sale includes securities other than common stock,
the price to be paid for such securities shall be the same price per share or
other denomination paid received by the Principals for like securities purchased
from the Principals.
SECTION 5. REGISTRATION PROCEDURES.
In connection with any Demand Registration, Piggy-Back
Registration or Shelf Registration, the Company or Weekly Reader, as applicable,
shall (provided that it will not be required to take any action pursuant to this
Section 5 that would, in the written opinion of counsel for the Company or
Weekly Reader, as applicable, violate applicable law):
(a) Use commercially reasonable best efforts to effect such
registration to permit the sale of the Registrable Securities being sold in
accordance with the intended method or methods
<PAGE>
7
of distribution thereof, and pursuant thereto the Company or Weekly Reader, as
applicable, will prepare and file with the SEC a Registration Statement relating
to the registration on any appropriate form under the Act, which form shall be
available for the sale of the Registrable Securities in accordance with the
intended method or methods of distribution thereof within the time periods and
otherwise in accordance with the provisions hereof;
(b) Promptly prior to the filing of any document that is to
be incorporated by reference into a Registration Statement or related
Prospectus, provide copies of such document to each Selling Holder in connection
with such sale, if any, and make the Company's or Weekly Reader's, as
applicable, representatives reasonably available during normal business hours
for discussion of such document and other customary due diligence matters, and
include such information in such document prior to the filing thereof as such
Selling Holders may reasonably request;
(c) Make available, at reasonable times, for inspection by a
representative of, and counsel for, Holders of at least 25% in aggregate
principal amount of Registrable securities being sold, all relevant financial
and other records and pertinent corporate documents of the Company or Weekly
Reader, as applicable, as shall be reasonably necessary to enable them to
exercise any applicable due diligence responsibilities and use its best efforts
to cause the Company's or Weekly Reader's, as applicable, officers, directors
and employees to supply all relevant information reasonably requested by any
such representatives in connection with such Registration Statement or any
post-effective amendment thereto subsequent to the filing thereof and prior to
its effectiveness;
(d) If requested by any Holders in connection with such
exchange or sale, promptly include in any Registration Statement or Prospectus,
pursuant to a supplement or post-effective amendment if necessary, such
information as such Holders may reasonably request to have included therein,
including, without limitation, information relating to the "Plan of
Distribution" of the Registrable Securities, and make all required filings of
such Prospectus supplement or post-effective amendment as soon as practicable
after the Company or Weekly Reader, as applicable, is notified of the matters to
be included in such Prospectus supplement or post-effective amendment;
(e) In connection with any Demand Registration and, to the
extent the participants other than Holders of Registrable Securities in a
Piggy-Back Registration receive any items set forth in this Section 5(e), in
connection with a Piggy-Back Registration, upon the request of the Holders of
not less than a majority of the then Registrable Securities held in aggregate by
all Holders (the "Majority Holders"), enter into such agreements (including
underwriting agreements) and make such customary representations and warranties
and take all such other actions in connection therewith in order to expedite or
facilitate the disposition of the Registrable Securities pursuant to any
applicable Registration Statement contemplated by this Agreement as may be
reasonably requested by any Holder in connection with any sale or resale
pursuant to any applicable Registration Statement. In such connection, the
Company or Weekly Reader, as applicable, shall:
(i) upon request of the Majority Holders furnish (or
in the case of paragraphs (B) and (C), use its best efforts to cause to
be furnished) to each Holder, upon the effectiveness of the
Registration Statement:
(A) a certificate, dated such date, signed on behalf of the
Company or Weekly Reader, as applicable, by (x) the President or any
Vice President and (y) a principal financial or accounting officer of
the Company or Weekly Reader, as applicable, confirming, as of the date
thereof, the matters set forth in Sections 6(kk) (as to the
Registration Statement) and 9(a) (as to the representations and
warranties contained herein) of the Purchase Agreement and such other
similar matters as such Holders may reasonably request;
(B) an opinion, dated the date of effectiveness of the
Registration Statement, as the case may be, of counsel for the Company
or Weekly Reader, as applicable, covering matters similar to those set
forth in Exhibit A to the of the Purchase Agreement; and
<PAGE>
8
(C) a customary comfort letter, dated the date of
effectiveness of the Registration Statement, as the case may be, from
the Company's or Weekly Reader's, as applicable, independent
accountants, in the customary form and covering matters of the type
customarily covered in comfort letters to underwriters in connection
with underwritten offerings, and affirming the matters set forth in the
comfort letters delivered pursuant to Section 9(g) of the Purchase
Agreement; and
(ii) deliver such other documents and certificates as
may be reasonably requested by the Selling Holders to evidence
compliance with the matters covered in clause (i) above and with any
customary conditions contained in any agreement entered into by the
Company or Weekly Reader, as applicable, pursuant to this clause (e);
(f) Use its best efforts to keep such Registration Statement
continuously effective and provide all requisite financial statements for the
period specified in Section 6 or 7 of this Agreement, as applicable. Upon the
occurrence of any event that would cause any such Registration Statement or the
Prospectus contained therein (i) to contain an untrue statement of material fact
or omit to state any material fact necessary to make the statements therein (in
the case of the Prospectus only, in the light of the circumstances under which
they were made) not misleading or (ii) not to be effective and usable for resale
of Registrable Securities during the period required by this Agreement, the
Company or Weekly Reader, as applicable, to the extent required after the
Recommencement Date, shall file promptly an appropriate amendment to such
Registration Statement curing such defect, and, if SEC review is required, use
their respective best efforts to cause such amendment to be declared effective
as soon as practicable;
(g) Prepare and file with the SEC such amendments and
post-effective amendments to the applicable Registration Statement as may be
necessary to keep such Registration Statement effective for the applicable
period set forth in Section 6 or 7 hereof, as the case may be; cause the
Prospectus to be supplemented by any required Prospectus supplement, and as so
supplemented to be filed pursuant to Rule 424 under the Act, and to comply fully
with Rules 424, 430A and 462, as applicable, under the Act in a timely manner;
and comply with the provisions of the Act with respect to the disposition of all
securities covered by such Registration Statement during the applicable period
in accordance with the intended method or methods of distribution by the sellers
thereof set forth in such Registration Statement or supplement to the
Prospectus;
(h) Advise each Holder promptly (if requested by such
Holder, in the case of clause (i) and (ii)) (i) when the Prospectus or any
Prospectus supplement or post-effective amendment has been filed, and, with
respect to any applicable Registration Statement or any post-effective amendment
thereto, when the same has become effective, (ii) of any request by the SEC for
amendments to the Registration Statement or amendments or supplements to the
Prospectus or for additional information relating thereto, (iii) of the issuance
by the SEC of any stop order suspending the effectiveness of the Registration
Statement under the Act or of the suspension by any state securities commission
of the qualification of the Registrable Securities for offering or sale in any
jurisdiction, or the initiation of any proceeding for any of the preceding
purposes, (iv) of the existence of any fact or the happening of any event that
makes any statement of a material fact made in the Registration Statement, the
Prospectus, any amendment or supplement thereto or any document incorporated by
reference therein untrue, or that requires the making of any additions to or
changes in the Registration Statement in order to make the statements therein
not misleading, or that requires the making of any additions to or changes in
the Prospectus in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. If at any time the SEC
shall issue any stop order suspending the effectiveness of the Registration
Statement, or any state securities commission or other regulatory authority
shall issue an order suspending the qualification or exemption from
qualification of the Registrable Securities under state securities or Blue Sky
laws, the shall use its best efforts to obtain the withdrawal or lifting of such
order at the earliest possible time;
(i) Subject to Section 5(f), if any fact or event
contemplated by Section 5(h)(iv) above shall exist or have occurred, prepare a
supplement or post-effective amendment to the
<PAGE>
9
Registration Statement or related Prospectus or any document incorporated
therein by reference or file any other required document so that, as thereafter
delivered to the purchasers of Registrable Securities, the Prospectus will not
contain an untrue statement of a material fact or omit to state any material
fact necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading;
(j) Furnish to each Selling Holder in connection with such
exchange or sale, if any, before filing with the SEC, copies of any Registration
Statement or any related Prospectus included therein or any amendments or
supplements to any such Registration Statement or Prospectus (including all
documents incorporated by reference after the initial filing of such
Registration Statement), which documents will be subject to the review and
comment of such Holders in connection with such sale, if any, for a period of at
least five business days, and, in connection with any Demand Registration, the
Company or Weekly Reader, as applicable, will not file any such Registration
Statement or related Prospectus or any amendment or supplement to any such
Registration Statement or Prospectus (including all such documents incorporated
by reference) to which such Selling Holders shall reasonably object within five
business days after the receipt thereof. A Selling Holder shall be deemed to
have reasonably objected to such filing if such Registration Statement,
amendment, related Prospectus or supplement, as applicable, as proposed to be
filed, contains an untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein not misleading or fails
to comply with the applicable requirements of the Act;
(k) furnish to each Holder of Registrable Securities
included within the coverage of any Registration Statement, without charge, at
least one conformed copy of such Registration Statement and any post-effective
amendment thereto, including financial statements and, if any such Holder so
requests in writing, all exhibits thereto (including those, if any, incorporated
by reference);
(l) [during the Shelf Registration Period,] promptly deliver
to each Holder of Registrable Securities included within the coverage of any
Registration Statement, without charge, as many copies of the Prospectus
(including each preliminary Prospectus) included in such Registration Statement
and any amendment or supplement thereof as such Holder may reasonably request;
and the Company and Weekly Reader, as applicable, consent to the use of such
Prospectus or any amendment or supplement thereto by each of the selling Holders
of Registrable Securities in connection with the offer and sale of the
Registrable Securities covered by such Prospectus or any amendment or supplement
thereto;
(m) furnish to any other Holder who so requests, without
charge, at least one conformed copy of the Registration Statement and any
post-effective amendment thereto, including financial statements and schedules
and, if any Exchanging Dealer or any such Holder so requests in writing, all
exhibits thereto (including those, if any, incorporated by reference);
(n) Prior to any public offering of Registrable Securities,
cooperate with the Selling Holders and their counsel in connection with the
registration and qualification of the Registrable Securities under the
securities or Blue Sky laws of such jurisdictions as the Majority Holders may
request and do any and all other acts or things reasonably necessary or
advisable to enable the disposition in such jurisdictions of the Registrable
Securities covered by the applicable Registration Statement; PROVIDED, HOWEVER,
that the Company or Weekly Reader, as applicable, shall not be required to
register or qualify as a foreign corporation where it is not now so qualified or
to take any action that would subject it to the service of process in suits or
to taxation in any jurisdiction where it is not now so subject;
(o) In connection with any sale of Registrable Securities
that will result in such securities no longer being Registrable Securities,
cooperate with the Selling Holders to facilitate the timely preparation and
delivery of certificates representing Registrable Securities to be sold and not
bearing any restrictive legends; and to register such Registrable Securities in
such denominations and such names as the Selling Holders may request in writing
at least three Business Days prior to such sale of Registrable Securities;
<PAGE>
10
(p) Use its best efforts to cause the disposition of the
Registrable Securities covered by the Registration Statement to be registered
with or approved by such other governmental agencies or authorities as may be
necessary to enable the seller or sellers thereof to consummate the disposition
of such Registrable Securities, subject to the proviso contained in clause (n)
above;
(q) Provide a CUSIP number for all Registrable Securities
not later than the effective date of a Registration Statement covering such
Registrable Securities and provide the transfer agent with printed certificates
for the Registrable Securities that are in a form eligible for deposit with The
Depository Trust Company;
(r) Otherwise use its best efforts to comply with all
applicable rules and regulations of the SEC, and make generally available to its
security holders with regard to any applicable Registration Statement, as soon
as practicable after the effective date of such Registration Statement, a
consolidated earnings statement meeting the requirements of Rule 158 (which need
not be audited) covering a twelve-month period beginning after the effective
date of the Registration Statement (as such term is defined in paragraph (c) of
Rule 158 under the Act);
(s) Provide promptly to each Holder, upon written request,
each document filed by the Company or Weekly reader as applicable, with the SEC
pursuant to the requirements of Section 13 or Section 15(d) of the Exchange Act
during any period of time when the Company or Weekly Reader as applicable is
required to maintain the effectiveness of a Registration Statement;
(t) Use its best efforts to cause the common stock being
registered to be quoted or listed on any exchange upon which the Company's or
Weekly Reader's, as applicable, common stock is then quoted or listed; and
(u) Use its best efforts to take all other steps reasonably
necessary to effect the registration, offering and sale of the Registrable
Securities covered by the Registration Statement.
The Company or Weekly Reader, as applicable, may require each
Selling Holder as to which any registration is being effected to furnish to the
Company or Weekly Reader, as applicable, such information regarding the
distribution of such Registrable Securities as is required by law to be
disclosed in the applicable Registration Statement, and the Company or Weekly
Reader, as applicable, may exclude from such registration the Registrable
Securities of any Selling Holder who unreasonably fails to furnish such
information promptly after receiving such request.
If any such Registration Statement refers to any Holder by
name or otherwise as the holder or any securities of the Company or Weekly
Reader, as applicable, then such Holder shall have the right to require (i) the
insertion therein of language, in form and substance reasonably satisfactory to
such Holder, to the effect that the holding by such Holder of such securities is
not to be construed as a recommendation by such Holder of the investment quality
of the Company's or Weekly Reader's, as applicable, securities covered thereby
and that such holding does not imply that such Holder will assist in meeting any
future financial requirements of the Company or Weekly Reader, as applicable, or
(ii) in the event that such reference to such Holder by name or otherwise is not
required by the Act or any similar Federal statute then in force, the deletion
of the reference to such Holder in any amendment or supplement to the
Registration Statement filed or prepared subsequent to the time that such
reference ceases to be required.
Each Holder agrees by acquisition of a Registrable Security
that, upon receipt of the notice referred to in Section 5(h)(iii) or any notice
from the Company or Weekly Reader, as applicable, of the existence of any fact
of the kind described in Section 5(h)(iv) hereof (in each case, a "SUSPENSION
NOTICE"), such Holder will forthwith discontinue disposition of Registrable
Securities pursuant to the applicable Registration Statement until (i) such
Holder has received copies of the supplemented or amended Prospectus
contemplated by Section 5(i) hereof, or (ii) such Holder is advised in writing
by the Company or Weekly Reader, as applicable, that the use of the Prospectus
may be resumed, and has received copies of any additional or supplemental
filings that are incorporated by reference in the Prospectus (in each case, the
"RECOMMENCEMENT DATE"). Each
<PAGE>
11
Holder receiving a Suspension Notice hereby agrees that it will either (i)
destroy any Prospectuses, other than permanent file copies, then in such
Holder's possession which have been replaced by the Company or Weekly Reader, as
applicable, with more recently dated Prospectuses or (ii) deliver to the Company
or Weekly Reader, as applicable, (at the Company's or Weekly Reader's, as
applicable, expense) all copies, other than permanent file copies, then in such
Holder's possession of the Prospectus covering such Registrable Securities that
was current at the time of receipt of the Suspension Notice. The time period
regarding the effectiveness of such Registration Statement set forth in Section
6 or 7 hereof, as applicable, shall be extended by a number of days equal to the
number of days in the period from and including the date of delivery of the
Suspension Notice to the date of delivery of the Recommencement Date.
Notwithstanding any of the foregoing provisions of this
Section 5 and subject to Section 7 hereof, in the case of any Piggy-Back
Registration, the Company or Weekly Reader, as applicable, shall be deemed to
have complied with the requirements of this Section 5 in respect of the Holders
of Registrable Securities if (i) the Company or Weekly Reader, as applicable,
follows the same registration procedures with respect to the Registrable
Securities subject to such Piggy-Back Registration as the Company or Weekly
Reader, as applicable, follows with respect to the other securities included in
such registration (including any securities offered by the Company or Weekly
Reader, as applicable) and (ii) only if there are participants in the Piggy-Back
Registration other than the Company or the Holders of the Registrable
Securities, the Company or Weekly Reader, as applicable, provides the Holders of
such Registrable Securities with the same rights with respect such registration
procedures as are provided to the other participants in such Piggy-Back
Registration.
SECTION 6. DEMAND REGISTRATION.
(a) After the occurrence of a Demand Event, one or more
Initiating Holders owning individually or in the aggregate not less than the
Requisite Securities may request in writing that the Company, if the Demand
Event is in connection with its Initial Public Offering or listing, or Weekly
Reader, if the Demand Event is in connection with its Initial Public Offering or
listing, effect the registration under the Act of all or part of the Registrable
Securities of the Company or Weekly Reader, as the case may be, held by such
Initiating Holders and shall specify the number of Registrable Securities
proposed to be sold and the intended method of disposition thereof (the "DEMAND
REQUEST"). Only the first Demand Event will give rise to any obligation for
either Weekly Reader or the Company to effect a Demand Registration and such
obligation shall solely be the obligation of the entity for which the Initial
Public Offering or listing has occurred. The Company or Weekly Reader, as
applicable, shall give prompt written notice of the Demand Request to all other
Holders of Registrable Securities. Within 120 days of receipt of the Demand
Request the Company or Weekly Reader, as applicable, will, subject to the terms
of this Agreement, file a Registration Statement and use its best efforts to
effect the registration under the Act:
(i) the Registrable Securities which the Company or
Weekly Reader, as applicable, has been so requested to register by such
Initiating Holders for disposition in accordance with the intended
method of disposition stated in such request;
(ii) all other Registrable Securities, the Holders of
which shall have made a written request to the Company or Weekly
Reader, as applicable, for registration thereof within 20 days after
the giving of such written notice by the Company or Weekly Reader, as
applicable, (which request shall specify the number of Registrable
Securities proposed to be sold and the intended method of disposition
of such Registrable Securities); and
(iii) all shares of securities that the Company or
Weekly Reader, as applicable, or any other stockholder may elect to
register in connection with the offering of Registrable Securities
pursuant to this Section 6,
all to the extent requisite to permit the disposition (in accordance with the
intended methods thereof as aforesaid) of the Registrable Securities and the
additional securities so to be registered.
<PAGE>
12
(b) Registration under this Section 6 (the "DEMAND
REGISTRATION") shall be on such appropriate registration form of the SEC (i) as
shall be selected by the Company or Weekly Reader, as applicable, and (ii) as
shall permit the disposition of such Registrable Securities in accordance with
the intended method or methods of disposition specified in their request for
such registration.
(c) The Company or Weekly Reader, as applicable, will pay
all Registration Expenses in connection with any registration requested pursuant
to this Section 6. The Selling Holders shall pay the underwriting discounts,
commissions, and transfer taxes, if any, in connection with the Registration
Statement requested under this Section 6, which costs shall be allocated PRO
RATA among all Selling Holders on whose behalf Registrable Securities of the
Company or Weekly Reader, as applicable, are included in such registration on
the basis of the respective amounts of the Registrable Securities then being
registered on their behalf.
(d) The Holders shall be entitled to request one (1)
registration pursuant to this Section 6. A Registration Statement requested
pursuant to this Section 6 shall not be deemed to have been effected (i) unless
a Registration Statement with respect thereto has been declared effective by the
SEC and (ii) the Company or Weekly Reader, as applicable, has complied in a
timely manner and in all material respects with all of its obligations under
this Agreement; PROVIDED, (i) if, after such Registration Statement has become
effective, such Registration Statement is or becomes subject to any stop order,
injunction or other order or requirement of the SEC or other governmental or
administrative agency or court that prevents, restrains or otherwise limits the
sale of Registrable Securities under such Registration Statement for any reason,
other than by reason of some act or omission by any Holder participating in such
registration, and does not become effective within a reasonable period of time
thereafter, such period not to exceed 60 days from the date of such stop order,
injunction, or other governmental order or requirement or (ii) the Registration
Statement does not remain effective under the Act until at least the earlier of
(A) an aggregate of 180 days after the effective date thereof or (B) the
consummation of the distribution by the Selling Holders of all of the
Registrable Securities covered thereby. For purposes of calculation the 180-day
period referred to in the preceding sentence, any period of time during which
such Registration Statement was not in effect shall be excluded. The Holders
shall be permitted to withdraw all or any part of the Registrable Securities
from a Demand Registration at any time prior to the effective date of such
Demand Registration.
(e) If a requested registration pursuant to this Section 6
involves an underwritten offering, and the managing underwriter or underwriters
shall advise the Company or Weekly Reader, as applicable, in writing (with a
copy to each Holder requesting registration) that, in such managing
underwriter's or underwriters' opinion, the number of securities requested to be
included in such registration (including securities of the Company or Weekly
Reader, as applicable, which are not Registrable Securities) is such as to
adversely affect the success of such offering, including the price at which such
securities can be sold, then the Company or Weekly Reader, as applicable, will
include in such registration, to the extent of the number which the Company or
Weekly Reader, as applicable, is so advised can be sold in such offering, (i)
first, Registrable Securities requested to be included in such registration by
the Holders, PRO RATA among such holders requesting such registration on the
basis of the number of such securities requested to be included by such Holders
and (ii) second, securities held by other Persons, including the Company or
Weekly Reader, as applicable. If more than 10% of the securities of the Holders
have been excluded from a Registration Statement pursuant to the provisions of
this Section 6(e), then such registration shall not count toward determining
whether the Company has satisfied its obligation to effect one Demand
Registration pursuant to this Section 6 with respect to such securities.
(f) If the Company or Weekly Reader, as applicable,
receives a Demand Request during a "lock-up" or "black out" period (the "LOCK UP
PERIOD") imposed on the Company or Weekly Reader, as applicable, pursuant to or
in connection with any underwriting or purchase agreement relating to a Rule
144A offering or a registered public offering of common stock of the Company or
Weekly Reader, as applicable, or securities convertible into or exchangeable for
common stock of the Company or Weekly Reader, as applicable, the Company or
Weekly Reader, as
<PAGE>
13
applicable, shall not be required to notify holders of Registrable Securities
pursuant to Section 6(a) hereof or file a Registration Statement prior to the
end of the Lock Up Period.; PROVIDED, that such Lock Up Period shall not exceed
90 days or, in the case of an Initial Public Offering, 180 days. The Company or
Weekly Reader, as applicable, shall use all commercially reasonable best efforts
to cause the Registration Statement to become effective no later than the later
of (i) 180 days after receipt of the Demand Request or (ii) 60 days after the
end of the Lock Up Period The Company or Weekly Reader, as applicable, shall
notify the Holders of Registrable Securities within 10 days of the imposition of
any Lock Up Period on the Company or Weekly Reader.
SECTION 7. PIGGY-BACK REGISTRATION.
(a) If the Company or Weekly Reader, as applicable,
proposes to file a Registration Statement under the Act with respect to an
offering by the Company or Weekly Reader, as applicable, for its own account or
for the account of any of the holders of any class of common stock of the
Company or Weekly Reader, as applicable, (other than (i) a Registration
Statement on Form S-4 or S-8 (or any substitute form that may be adopted by the
SEC), (ii) a Registration Statement filed in connection with an exchange offer
or offering of securities solely to the Company's or Weekly Reader's, as
applicable, existing security holders or (iii) a Registration Statement
concerning common stock offered to employees of the Company or Weekly Reader, as
applicable, or its subsidiaries), then the Company or Weekly Reader, as
applicable, shall give written notice of such proposed filing to the Holders as
soon as practicable (but in no event fewer than 10 days before the anticipated
filing date), and such notice shall offer such Holders the opportunity to
register such number of Registrable Securities as each such Holder may request
in writing within 20 days after receipt of such written notice from the Company
or Weekly Reader, as applicable, (which request shall specify the shares of
common stock of the Company or Weekly Reader, as applicable, intended to be
disposed of by such Selling Holder) (a "PIGGY-BACK REGISTRATION"). Upon the
written request of any such Holder made within 20 days after the receipt of any
such notice (which request shall specify the number of Registrable Securities
intended to be disposed of by such Holder and the intended method of disposition
thereof), the Company or Weekly Reader, as applicable, will, subject to the
terms of this Agreement, effect the registration under the Act of all
Registrable Securities which the Company or Weekly Reader, as applicable, has
been so requested to register by the Holders thereof, to the extent requisite to
permit the disposition (in accordance with the intended methods thereof as
aforesaid) of the Registrable Securities so to be registered, by inclusion of
such Registrable Securities in the registration statement that covers the
securities which the Company or Weekly Reader, as applicable, proposes to
register, PROVIDED that, if at any time after giving written notice of its
intention to register any securities and prior to the effective date of the
registration statement filed in connection with such registration, the Company
or Weekly Reader, as applicable, shall determine for any reason either not to
register or to delay registration of such securities, the Company or Weekly
Reader, as applicable, may, at its election, give written notice of such
determination to each Holder and, thereupon, (i) in the case of a determination
not to register shall be relieved of its obligation to register any Registrable
Securities in connection with such registration (but not from its obligation to
pay the Registration Expenses in connection therewith), without prejudice,
however, to the rights of any holder or holders of Registrable Securities
entitled to do so to request that such registration be effected as a
registration under Section 6, and (ii) in the case of a determination to delay
registering, shall be permitted to delay registering any Registrable Securities,
for the same period as the delay in registering such other securities. No
registration effected under this Section 7 shall relieve the Company or Weekly
Reader, as applicable, of its obligation to effect any registration upon request
under Section 6, nor shall any such registration hereunder be deemed to have
been effected pursuant to Section 6. The Company or Weekly Reader, as
applicable, shall use its best efforts to keep such Piggy-Back Registration
continuously effective under the Act until the earlier of (A) an aggregate of
90 days after the effective date thereof or (B) the consummation of the
distribution by the Holders of all of the Registrable Securities covered
thereby.
(b) The Company or Weekly Reader, as applicable, shall use
its reasonable efforts to cause the managing underwriter or underwriters of such
proposed offering to permit the Registrable Securities requested to be included
in a Piggy-Back Registration to be included in the same terms and conditions as
any similar securities of the Company or Weekly Reader, as applicable,
<PAGE>
14
or any other security holder included therein and to permit the sale or other
disposition of such Registrable Securities in accordance with the intended
method of distribution thereof. The Selling Holders shall enter into reasonable
and customary underwriting agreements in connection with any such underwritten
registration. Any Selling Holder shall have the right to withdraw its request
for inclusion of its Registrable Securities in any Registration Statement
pursuant to these provisions by giving written notice to the Company or Weekly
Reader, as applicable, of its request to withdraw prior to the effective date of
such registration statement. The Company or Weekly Reader, as applicable, may
withdraw a Piggy-Back Registration at any time prior to the time it becomes
effective or the Company or Weekly Reader, as applicable, may elect to delay the
registration; PROVIDED, HOWEVER, that the Company or Weekly Reader, as
applicable, shall give prompt written notice thereof to participating Holders.
(c) The Company or Weekly Reader, as applicable, will pay
all Registration Expenses in connection with registration of Registrable
Securities requested pursuant to this Section 7 and the Selling Holders shall
pay the underwriting discounts, commissions, and transfer taxes, if any,
relating to the sale of such Selling Holders' Registrable Securities pursuant to
this Section 7, such costs being allocated PRO RATA among all Selling Holders on
whose behalf Registrable Securities of the Company or Weekly Reader, as
applicable, are included in such registration on the basis of the respective
amounts of Registrable Securities then being registered on their behalf.
(d) PRIORITY IN PIGGY-BACK REGISTRATIONS. If a
registration pursuant to this Section 6 involves an underwritten offering of the
securities so being registered, whether or not for sale for the account of the
Company, the Company will, if requested by any Holder and subject to the
provisions of this Section 6, use its reasonable efforts to arrange for such
underwriters to include all the Registrable Securities to be offered and sold by
such Holder among the securities to be distributed by such underwriters.
Notwithstanding anything to the contrary, if the managing underwriter of such
underwritten offering shall, in writing, inform the Holders requesting such
registration and the holders of any of the Company's other securities which
shall have exercised registration rights in respect of such underwritten
offering of its belief that the number of securities requested to be included in
such registration (including securities of the Company that are not Registrable
Securities) is such as to adversely affect the success of such offering,
including the price at which such securities can be sold in (or during the time
of) such offering, then the Company will be required to include in such
registration statement only the amount of securities that it is so advised
should be included in such registration. In such event, (x) in cases initially
involving the registration for sale of securities for the Company's own account,
securities shall be registered in such offering in the following order of
priority: (i) first, the securities that the Company proposes to register, and
(ii) second, the securities that have been requested to be included in such
registration by Holders and by Persons entitled to exercise "piggy-back"
registration rights pursuant to contractual commitments of the Company (PRO RATA
on the amount of securities sought to be registered by such Holders and Persons)
and (y) in cases not initially involving the registration for sale of securities
for the Company's own account, securities shall be registered in such offering
as follows: (i) first, the securities of any person whose exercise of a "demand"
registration right pursuant to a contractual commitment of the Company is the
basis for the registration (provided that if such person is a Holder, there
shall be no priority as among Holders and Registrable Securities sought to be
included by Holders shall be included PRO RATA based on the amount of securities
sought to be registered by such persons), (ii) second, the securities that have
been requested to be included in such registration by Holders and other persons
entitled to exercise "piggy-back" registration rights pursuant to contractual
commitments (PRO RATA based on the amount of securities sought to be registered
by such Holders and persons) and (iii) third, the securities which the Company
proposes to register.
SECTION 8. SHELF REGISTRATION
(a) SHELF REGISTRATION. If a Demand Event occurs with
respect to an Initial Public Offering of Weekly Reader that does not include or
occur after a Reorganization Transaction, then the Company shall:
<PAGE>
15
(x) use its reasonable best efforts to cause to be filed, on
or prior to 45 days after the earlier of the date of such Initial Public
Offering (the "SHELF REGISTRATION FILING DEADLINE"), a shelf registration
statement pursuant to Rule 415 under the Act (the "SHELF REGISTRATION"),
relating to all Registrable Securities issued by the Company, and
(y) use its reasonable best efforts to cause such Shelf
Registration Statement to become effective on or prior to 90 days after the
Filing Deadline (such 90th day the "SHELF REGISTRATION EFFECTIVENESS TARGET
DATE").
To the extent necessary to ensure that the Shelf Registration
is available for sale of Registrable Securities by the Holders thereof entitled
to the benefit of this Section 8, the Company shall use its reasonable best
efforts to keep any Shelf Registration required by this Section 8 continuously
effective, supplemented, amended and current as required by and subject to the
provisions of and in conformity with the requirements of this Agreement, the Act
and the policies, rules and regulations of the Commission as announced from time
to time, for a period ending on the earlier of: (i) two years from the date of
such Initial Public Offering or such shorter period as will terminate when all
Transfer Restricted Securities covered by such Shelf Registration Statement have
been sold pursuant thereto and (ii) the date on which the Senior Subordinated
Notes become eligible for resale without volume restrictions pursuant to Rule
144 under the Act.
SECTION 9. ADJUSTMENT OF NUMBER OF SHARES OF EXCHANGE COMMON
STOCK ISSUABLE AND EXCHANGE RATIO.
The number of shares of Exchange Common Stock issuable upon
exchange of Unit Common Stock and the Exchange Ratio are subject to adjustment
from time to time upon the occurrence of the events enumerated in this Section
9. For purposes of this Section 9, "COMMON STOCK" means shares now or hereafter
authorized of any class of common stock of the Company or Weekly Reader, as
applicable, and any other stock of the Company or Weekly Reader, as applicable,
however designated, that has the right (subject to any prior rights of any class
or series of preferred stock) to participate in any distribution of the assets
or earnings of the Company or Weekly Reader, as applicable, without limit as to
per share amount.
(a) Adjustment for Change in Capital Stock.
If Weekly Reader, as applicable, (i) pays a dividend or makes
a distribution on its common stock in shares of its Common Stock, (ii)
subdivides or splits its outstanding shares of common stock into a greater
number of shares, (iii) combines its outstanding shares of common stock into a
smaller number of shares, (iv) makes a distribution on its common stock in
shares of its capital stock other than common stock or (v) issues by
reclassification of its common stock any shares of its capital stock, then the
number of shares of Exchange Common Stock issuable upon exchange of Unit Common
Stock, and the Exchange Ratio in effect, immediately prior to such action shall
be proportionately adjusted so that the holder of any Unit Common Stock
thereafter shall be entitled to the aggregate number and kind of shares of
capital stock of Weekly Reader which he would have been entitled to immediately
following such action as he would have been entitled to immediately prior to
such action, PROVIDED, HOWEVER, that no adjustment shall be made for the
issuance, on the date of this Agreement, of management options in effect on the
date of this Agreement.
The adjustment shall become effective immediately after the
record date in the case of a dividend or distribution and immediately after the
effective date in the case of a subdivision, combination or reclassification.
If, after an adjustment, a Holder of Unit Common Stock may receive shares of two
or more classes of capital stock of Weekly Reader, Weekly Reader, as applicable,
shall determine, in good faith, the allocation between the classes of capital
stock. After such allocation, the Exchange Ratio and the number of shares
Exchange Common Stock, as applicable, shall thereafter be subject to adjustment
on terms comparable to those applicable to common stock in this Section 9. Such
adjustment shall be made successively whenever any event listed above shall
occur.
(b) Adjustment for Rights Issue.
<PAGE>
16
If Weekly Reader distributes any rights, options (other than
pursuant to any common stock related employee benefit plan or agreement of
Weekly Reader approved by its Board of Directors) or warrants to all holders of
its common stock entitling them for a period expiring within 45 days after the
record date mentioned below to purchase shares of common stock at a price per
share less than the Fair Value per share on that record date (other than
pursuant to any common stockrelated employee compensation plan or agreement of
Weekly Reader approved by its Board of Directors), the Exchange Ratio shall be
adjusted in accordance with the formula:
O + N
-------------------------
E' = E x M
O + N x P
-----------
M
where:
E' = the adjusted Exchange Ratio.
E = the current Exchange Ratio.
O = the number of shares of common stock of Weekly
Reader outstanding on the record date.
N = the number of additional shares of common stock of
Weekly Reader issued pursuant to such rights, options
or warrants.
P = the aggregate price per share of the additional
shares.
M = the Fair Value per share of common stock of Weekly
Reader on the record date.
The adjustment shall be made successively whenever any such
rights, options or warrants are issued and shall become effective immediately
after the record date for the determination of stockholders entitled to receive
the rights, options or warrants. If at the end of the period during which such
rights, options or warrants are exercisable, not all rights, options or warrants
shall have been exercised, the Exchange Ratio shall be immediately readjusted to
what it would have been if "N" in the above formula had been the number of
shares actually issued.
(c) Adjustment for Other Distributions.
If the Weekly Reader distributes to all holders of its common
stock any of its assets (excluding ordinary cash dividends) or debt securities,
preferred stock or any rights or warrants to purchase any such securities or
other securities of Weekly Reader (excluding securities issued in transactions
referred to in Section 9(a)(i) above) of Weekly Reader], the Exchange Ratio
shall be adjusted in accordance with the formula:
M
E' = E x ----------------
M - F
where:
E' = the adjusted Exchange Ratio.
E = the current Exchange Ratio.
<PAGE>
17
M = the Fair Value per share of common stock of Weekly
Reader on the record date mentioned below.
F = the fair market value on the record date of the
debt securities, preferred stock, assets, securities,
rights or warrants to be distributed in respect of
one share of common stock of Weekly Reader as
determined in good faith by the Board of Directors of
Weekly Reader.
The adjustment shall be made successively whenever any such
distribution is made and shall become effective immediately after the record
date for the determination of stockholders entitled to receive the distribution.
This Section 9(c) does not apply to cash dividends or cash
distributions paid out of consolidated current or retained earnings as shown on
the books of Weekly Reader prepared in accordance with generally accepted
accounting principles. Also, this Section 9(c) does not apply to rights, options
or warrants referred to in Section 9(b) hereof.
(d) Adjustment for Common Stock Issue.
If Weekly Reader issues shares of common stock (other than
pursuant to any common stock-related employee benefit plan or agreement of
Weekly Reader approved by its Board of Directors) for a consideration per share
less than the Fair Value per share on the date Weekly Reader fixes the offering
price of such additional shares, the Exchange Ratio shall be adjusted in
accordance with the formula:
A
-------------------
E' = E x P
-----
+ M
where:
E' = the adjusted Exchange Ratio.
E = the then current Exchange Ratio.
O = the number of shares of Common Stock of
Weekly Reader outstanding immediately prior
to the issuance of such additional shares.
P = the aggregate consideration received for
the issuance of such additional shares.
M = the Fair Value per share on the date of
issuance of such additional shares.
A = the number of shares of common stock of
Weekly Reader outstanding immediately after
the issuance of such additional shares.
The adjustment shall be made successively whenever any such
issuance is made, and shall become effective immediately after such issuance.
This subsection (d) does not apply to:
<PAGE>
18
(1) any of the transactions described in
subsections (a), (b) and (c) of this Section 9,
(2) the exercise of warrants, or the
conversion or exchange of other securities
convertible or exchangeable for common stock the
issuance of which caused an adjustment to be made
under Section 9(e),
(3) common stock issued to Weekly Reader's
employees (or employees of its subsidiaries) under
bona fide employee benefit plans adopted by its Board
of Directors and approved by the holders of common
stock of Weekly Reader when required by law, if such
common stock would otherwise be covered by this
subsection (d) (but only to the extent that the
aggregate number of shares excluded hereby and issued
after the date of this Agreement shall not exceed 5%
of the common stock outstanding at the time of the
adoption of each such plan, exclusive of
anti-dilution adjustments thereunder),
(4) common stock of Weekly Reader issued to
shareholders of any person which merges into Weekly
Reader, as applicable, or with a subsidiary of the
Company or Weekly Reader in proportion to their stock
holdings of such person immediately prior to such
merger, upon such merger, provided that if such
person is an Affiliate of Weekly Reader the Board of
Directors of Weekly Reader shall have obtained a
fairness opinion from a nationally recognized
investment banking, appraisal or valuation firm,
which is not an Affiliate of Weekly Reader stating
that the consideration received in such merger is
fair to Weekly Reader from a financial point of view,
or
(5) the issuance of shares of common stock
of Weekly Reader pursuant to rights, options or
warrants which were originally issued in a
Non-Affiliate Sale (as defined below) together with
one or more other securities as part of a unit at a
price per unit.
(e) Adjustment for Convertible Securities Issue.
If Weekly Reader issues any securities convertible into or
exchangeable for common stock (other than pursuant to any common stock-related
employee benefit plan or agreement of Weekly Reader approved by the Board of
Directors of Weekly Reader) and other than securities issued in transactions
described in subsections (a), (b) and (c) of this Section 8) for a consideration
per share of common stock initially deliverable upon conversion or exchange of
such securities less than the Fair Value per share on the date of issuance of
such securities, the Exchange Ratio shall be adjusted in accordance with this
formula:
O + D
----------------
E' = E x P
-----
O + M
where:
E' = the adjusted Exchange Ratio.
E = the then current Exchange Ratio.
O = the number of shares of common stock of Weekly
Reader outstanding immediately prior to the issuance
of such securities.
<PAGE>
19
P = the aggregate consideration received for the issuance
of such securities.
M = the Fair Value per share of common stock of Weekly
Reader on the date of issuance of such securities.
D = the maximum number of shares of common stock of
Weekly Reader deliverable upon conversion or in
exchange for such securities at the initial
conversion or exchange rate.
The adjustment shall be made successively whenever any such
issuance is made, and shall become effective immediately after
such issuance.
If all of the common stock deliverable upon conversion or
exchange of such securities have not been issued when such securities are no
longer outstanding, then the Exchange Ratio shall promptly be readjusted to the
Exchange Ratio which would then be in effect had the adjustment upon the
issuance of such securities been made on the basis of the actual number of
shares of common stock issued upon conversion or exchange of such securities.
This subsection (e) does not apply to convertible securities
issued to shareholders of any person which merges into Weekly Reader with a
subsidiary of Weekly Reader in proportion to their stock holdings of such person
immediately prior to such merger, upon such merger, provided that if such person
is an Affiliate Weekly Reader the Board of Directors of Weekly Reader shall have
obtained a fairness opinion from a nationally recognized investment banking,
appraisal or valuation firm, which is not an Affiliate of Weekly Reader stating
that the consideration received in such merger is fair to the Company from a
financial point of view.
(f) Consideration Received.
For purposes of any computation respecting consideration
received pursuant to subsections (d), and (e) of this Section 9, the following
shall apply:
(1) in the case of the issuance of shares of
common stock for cash, the consideration shall be
the amount of such cash, provided that in no case
shall any deduction be made for any commissions,
discounts or other expenses incurred by Weekly
Reader for any underwriting of the issue or
otherwise in connection therewith;
(2) in the case of the issuance of shares of
common stock for a consideration in whole or in part
other than cash, the consideration other than cash
shall be deemed to be the fair market value thereof
as determined in good faith by the Board of Directors
of Weekly Reader (irrespective of the accounting
treatment thereof), whose determination shall be
conclusive, and described in a Board resolution which
shall be delivered to the Holders;
(3) in the case of the issuance of securities
convertible into or exchangeable for shares, the
aggregate consideration received therefor shall be
deemed to be the consideration received by Weekly
Reader for the issuance of such securities plus the
additional minimum consideration, if any, to be
received by Weekly Reader upon the conversion or
exchange thereof (the consideration in each case to
be determined in the same manner as provided in
clauses (1) and (2) of this subsection); and
(4) in the case of the issuance of shares of
common stock pursuant to rights, options or warrants
which rights, options or warrants were originally
issued together with one or more other securities as
part
<PAGE>
20
of a unit at a price per unit, the consideration
shall be deemed to be the fair value of such rights,
options or warrants at the time of issuance thereof
as determined in good faith by the Board of Directors
of Weekly Reader whose determination shall be
conclusive and described in a Board resolution which
shall be delivered to the Holders plus the additional
minimum consideration, if any, to be received by
Weekly upon the exercise, conversion or exchange
thereof (as determined in the same manner as provided
in clauses (1) and (2) of this subsection).
(g) Fair Value.
In Sections 9 (b), (c), (d) and (e) hereof, the "FAIR VALUE"
per security at any date of determination shall be (1) in connection with a sale
by Weekly Reader to a party that is not an Affiliate of Weekly Reader in an
arm's-length transaction (a "NON-AFFILIATE SALE"), the price per security at
which such security is sold and (2) in connection with any sale by Weekly Reader
to an Affiliate of Weekly Reader (a) the last price per security at which such
security was sold in a Non-Affiliate Sale within the three-month period
preceding such date of determination or (b) if clause (a) is not applicable, the
fair market value of such security determined in good faith by (i) a majority of
the Board of Directors of Weekly Readers, including a majority of the
Disinterested Directors, and approved in a Board resolution delivered to the
Holders or (ii) a nationally recognized investment banking, appraisal or
valuation firm, which is not an Affiliate of Weekly Reader taking into account,
among all other factors deemed relevant by the Board of Directors of Weekly
Reader or such investment banking, appraisal or valuation firm, the trading
price and volume of such security on any national securities exchange or
automated quotation system on which such security is traded. Notwithstanding the
foregoing, any sale to Donaldson, Lufkin & Jenrette Securities Corporation or
Banc of America Securities LLC (or any successors thereto) pursuant to an
underwritten public offering registered under the Act shall be deemed to be and
treated as a Non-Affiliate Sale.
For purposes of this Section 9(g), "DISINTERESTED DIRECTOR"
means, in connection with any issuance of securities that gives rise to a
determination of the Fair Value thereof, each member of the Board of Directors
of Weekly Reader who is not an officer, employee, director or other Affiliate of
the party to whom the Company or Weekly Reader is proposing to issue the
securities giving rise to such determination.
(h) When De Minimis Adjustment May Be Deferred.
All calculations under this Section 8 shall be made to the
nearest 1/100th of a share, as the case may be, it being understood that no such
rounding shall be made under subsection (n). Any adjustments that are not made
shall be carried forward and taken into account in any subsequent adjustment.
(i) When No Adjustment Required.
No adjustment need be made for a transaction referred to
Section 9(a), (b), (c), (d), (e) or (f) hereof, if Holders are to participate
(without being required to exercise their shares) in the transaction on a basis
and with notice that the Board of Directors of Weekly Reader determines to be
fair and appropriate in light of the basis and notice on which holders of common
stock participate in the transaction. No adjustment need be made for (i) rights
to purchase common stock pursuant to a plan of Weekly Reader for reinvestment of
dividends or interest or (ii) a change in the par value or no par value of the
common stock.
(j) Notice of Adjustment.
Whenever the Exchange Ratio is adjusted, the Company shall
provide the notices required by Section 11 hereof.
<PAGE>
21
(k) Notice of Certain Transactions.
If (i) Weekly Reader takes any action that would require an
adjustment in the Exchange Ratio pursuant to Section 8(a), (b), (c), (d), (e) or
(f) hereof and if Weekly Reader does not arrange for Holders to participate
pursuant to Section 9(i) hereof, (ii) Weekly Reader takes any action that would
require issuance of new shares of Exchange Common Stock pursuant to Section 9(l)
hereof or (iii) there is a liquidation or dissolution of Weekly Reader then
Weekly Reader shall mail to Holders a notice stating the proposed record date
for a dividend or distribution or the proposed effective date of a subdivision,
combination, reclassification, consolidation, merger, transfer, lease,
liquidation or dissolution. Weekly Reader shall mail the notice at least 15 days
before such date. Failure to mail the notice or any defect in it shall not
affect the validity of the transaction.
(l) Reorganization of Weekly Reader.
Immediately after the date hereof, if Weekly Reader
consolidates or merges with or into, or transfers or leases all or substantially
all its assets to, any person, upon consummation of such transaction shares of
Unit Common Stock shall automatically become exchangeable for the kind and
amount of securities, cash or other assets which the Holder would have owned
immediately after the consolidation, merger, transfer or lease. Concurrently
with the consummation of such transaction, the corporation formed by or
surviving any such consolidation or merger if other than Weekly or the person to
which such sale or conveyance shall have been made, which shall be subject to
adjustments that are nearly equivalent as may be practical to the adjustments
provided for in this Section 9(l). The successor company shall mail to Holders a
notice describing the provisions governing the new shares. If this Section 9(l)
applies, Sections 9(a), (b), (c), (d), (e) and (f) hereof do not apply.
(m) Determination of Weekly Reader Final.
Any determination that Weekly Reader or its Board of Directors
must make pursuant to Section 9(a), (c), (d), (e), (f), (g), (h) or (i) hereof
is conclusive.
SECTION 10. LIMITATIONS, CONDITIONS AND QUALIFICATIONS TO
OBLIGATIONS UNDER REGISTRATION COVENANTS.
The obligations of the Company or Weekly Reader, as
applicable, described in Sections 6, 7 and 8 of this Agreement are subject to
each of the following limitations, conditions and qualifications:
(a) Subject to the next sentence of this paragraph, the
Company or Weekly Reader, as applicable, shall be entitled to postpone, for a
reasonable period of time, the filing of effectiveness of, or suspend the rights
of any Holder to make sales pursuant to, any Registration Statement otherwise
required to be prepared, filed and made and kept effective by it under the
registration covenants described in Section 6 or Section 8 hereof; PROVIDED,
HOWEVER, that the duration of such postponement or suspension may not exceed 60
days in any twelve-month period. Such postponement or suspension may only be
effected if (i) an event or circumstance occurs and is continuing as a result of
which such Registration Statement, any related Prospectus or any document
incorporated therein by reference as then amended or supplemented or proposed to
be filed would, in the good faith judgment of the Company or Weekly Reader, as
applicable, contain an untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading and (ii)(A) the Company
or Weekly Reader, as applicable, determines in its good faith judgment that the
disclosure of the event at that time would have a material adverse effect on the
business, operations or prospects of the Company or Weekly Reader, as
applicable, or (B) the disclosure otherwise relates to a material business
transaction or development that has not yet been publicly disclosed. If the
Company or Weekly Reader, as applicable, shall so postpone the filing or
effectiveness of, or suspend the rights of any Holders to make sales pursuant
to, a
<PAGE>
22
Registration Statement it shall, as promptly as possible, notify any Selling
Holders of such determination, and the Selling Holders shall (x) have the right,
in the case of a postponement of the filing or effectiveness of a Registration
Statement, upon the affirmation vote of the Selling Holders of not less than a
majority of the Registrable Securities to be included in such Registration
Statement, to withdraw the request for registration by giving written notice to
the Company or Weekly Reader, as applicable, within 10 days after receipt of
such notice, or (y) in the case of a suspension of the right to make sales,
receive an extension of the registration period equal to the number of days of
the suspension. Any Demand Registration as to which the withdrawal election
referred to in the preceding sentence has been effected shall not be counted for
purposes of the Demand Registraion referred to in Section 6 hereof. The time
period regarding the effectiveness of any Registration Statement pursuant to
Section 6, 7 or 8 hereof, as applicable, shall be extended by a number of days
equal to the number of days in the suspension period described in this Section
10(a).
(b) The Company or Weekly Reader, as applicable, shall no
be required by this Agreement to include securities in a Registration Statement
relating to a Piggy-back Registration above if (i) in the written opinion of
outside counsel to the Company or Weekly Reader, as applicable, addressed to the
Holders seeking registration and delivered to them, the Holders of such
securities seeking registration would be free to sell all such securities within
the succeeding three-month period, without registration, under Rule 144 under
the Act, which opinion may be based in part upon the representation by the
Holders of such securities seeking registration, which registration shall not be
unreasonably withheld, that each such Holder is not an affiliate of the Company
or Weekly Reader, as applicable, within the meaning of the Act, and (ii) all
requirements under the Act for effecting such sales are satisfied at such time.
(c) The Company's or Weekly Reader's, as applicable,
obligations shall be subject to the obligations of the Selling Holders to
furnish all information and materials and not to take any and all actions as may
be required under Federal and state securities laws and regulations to permit
the Company or Weekly Reader, as applicable, to comply with all applicable
requirements of the SEC and to obtain any acceleration of the effective date of
such Registration Statement.
(d) The Company or Weekly Reader, as applicable, shall not
be obligated to cause any special audit to be undertaken in connection with any
registration pursuant to this Agreement unless such audit is requested by the
underwriters with respect to such registration.
(e) Each Holder of Registrable Securities agrees, if an to
the extent reasonably requested by the managing underwriter or underwriters in a
Public Equity Offering, not to effect any public sale or distribution of
Registrable Securities, including a sale pursuant to Rule 144 (except as part of
such Public Equity Offering), during the 90-day period beginning on the closing
date of any such Public Equity Offering (which period shall be 180 days in the
case of the Company's or Weekly Reader's, as applicable, Initial Public
Offering), to the extent timely notified in writing by the Company or Weekly
Reader, as applicable, or such managing underwriter or underwriters. In the
event that the Company or Weekly Reader, as applicable, is not otherwise in
compliance with the provisions of this Agreement at the time the Holders receive
any notice pursuant to this Section 10(e), the Holders shall not be required to
comply with this Section 10(e). In addition, the provisions of this Section
10(e) shall not apply to any Holder of Registrable Securities if such Holder is
prevented by applicable statute or regulation from entering into any such
agreement; PROVIDED, that any such Holder shall undertake not to effect any
public sale or distribution of any Registrable Securities commencing on the
closing date of any such Public Equity Offering unless it has provided 45 days'
prior written notice of such sale or distribution to the managing underwriter or
underwriters.
SECTION 11. REGISTRATION EXPENSES.
The Company or Weekly Reader, as applicable, shall pay all
Registration Expenses.
<PAGE>
23
SECTION 12. INDEMNIFICATION.
(a) The Company and Weekly Reader agree, jointly and
severally, to indemnify and hold harmless each Holder, its directors, officers,
employees, representatives and agents and each Person, if any, who controls such
Holder (within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act), from and against any and all losses, claims, damages,
liabilities, judgments, (including without limitation, any legal or other
expenses incurred in connection with investigating or defending any matter,
including any action that could give rise to any such losses, claims, damages,
liabilities or judgments) caused by any untrue statement or alleged untrue
statement of a material fact contained in any Registration Statement,
preliminary prospectus or Prospectus (or any amendment or supplement thereto)
provided by the Company or Weekly Reader to any Holder or any prospective
purchaser of Registrable Securities, or caused by any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, except insofar as such losses, claims,
damages, liabilities or judgments are caused by an untrue statement or omission
or alleged untrue statement or omission that is based upon information relating
to any of the Holders furnished in writing to the Company or Weekly Reader by
any of the Holders; provided that, the indemnity agreement contained in this
Section 8(a) shall not inure to the benefit of any Holder from whom the person
asserting any such loss, claim, damage, liability or action received Registrable
Securities if the final Prospectus (as then amended or supplemented) was not
sent or given to such person, if required by law so to have been delivered, at
or prior to the written confirmation of the sale of such Registrable Securities
to such person and if the final Prospectus (as amended or supplemented) would
have corrected any such untrue statement of a material fact contained in and
each omission or alleged omission of a material fact from the related
preliminary Prospectus giving rise to such losses, claims, damages, liabilities
or actions unless such failure is the result of non-compliance by the Company or
Weekly Reader, as applicable, with 5(k), (l) or (m).
(b) Each Holder of Registrable Securities agrees,
severally and not jointly, to indemnify and hold harmless the Company and Weekly
Reader, and its directors, officers, employees, representatives and agents and
each person, if any, who controls (within the meaning of Section 15 of the Act
or Section 20 of the Exchange Act) the Company or Weekly Reader to the same
extent as the foregoing indemnity from the Company and Weekly Reader set forth
in section (a) above, but only with reference to information relating to such
Holder furnished in writing to the Company by such Holder expressly for use in
any Registration Statement. In no event shall any Holder, its directors,
officers or any Person who controls such Holder be liable or responsible for any
amount in excess of the amount by which the total amount received by such Holder
with respect to its sale of Registrable Securities pursuant to a Registration
Statement exceeds (i) the amount paid by such Holder for such Registrable
Securities and (ii) the amount of any damages that such Holder, its directors,
officers or any Person who controls such Holder has otherwise been required to
pay by reason of such untrue or alleged untrue statement or omission or alleged
omission.
(c) In case any action shall be commenced involving any
person in respect of which indemnity may be sought pursuant to Section 12(a) or
12(b) (the "INDEMNIFIED PARTY"), the indemnified party shall promptly notify the
person against whom such indemnity may be sought (the "INDEMNIFYING PERSON") in
writing and the indemnifying party shall assume the defense of such action,
including the employment of counsel reasonably satisfactory to the indemnified
party and the payment of all fees and expenses of such counsel, as incurred
(except that in the case of any action in respect of which indemnity may be
sought pursuant to both Sections 12(a) and 12(b), a Holder shall not be required
to assume the defense of such action pursuant to this Section 12(c), but may
employ separate counsel and participate in the defense thereof, but the fees and
expenses of such counsel, except as provided below, shall be at the expense of
the Holder). Any indemnified party shall have the right to employ separate
counsel in any such action and participate in the defense thereof, but the fees
and expenses of such counsel shall be at the expense of the indemnified party
unless (i) the employment of such counsel shall have been specifically
authorized in writing by the indemnifying party, (ii) the indemnifying party
shall have failed to
<PAGE>
24
assume the defense of such action or employ counsel reasonably satisfactory to
the indemnified party or (iii) the named parties to any such action (including
any impleaded parties) include both the indemnified party and the indemnifying
party, and the indemnified party shall have been advised by such counsel that
there may be one or more legal defenses available to it which are different from
or additional to those available to the indemnifying party (in which case the
indemnifying party shall not have the right to assume the defense of such action
on behalf of the indemnified party). In any such case, the indemnifying party
shall not, in connection with any one action or separate but substantially
similar or related actions in the same jurisdiction arising out of the same
general allegations or circumstances, be liable for the fees and expenses of
more than one separate firm of attorneys (in addition to any local counsel) for
all indemnified parties and all such fees and expenses shall be reimburse as
they are incurred. Such firm shall be designated in writing by a majority of the
Holders, in the case of the parties indemnified pursuant to Section 12(a), and
by the Company, in the case of parties indemnified pursuant to Section 12(b). No
indemnifying party shall be liable for any settlement of any such action
effected without its written consent, but if settled with its written consent,
which consent will not unreasonably be withheld, the indemnifying party shall
indemnify and hold harmless the indemnified party from and against any and all
losses, claims, damages, liabilities and judgments by reason of any settlement
of any action effected with its written consent. No indemnifying party shall,
without the prior written consent of the indemnified party, effect any
settlement or compromise of, or consent to the entry of judgment with respect
to, any pending or threatened action in respect of which the indemnified party
is or could have been a party and indemnity or contribution may be or could have
been sought hereunder by the indemnified party, unless such settlement,
compromise or judgment (i) includes an unconditional release of the indemnified
party from all liability on claims that are or could have been the subject
matter of such action and (ii) does not include a statement as to or an
admission of fault, culpability or a failure to act, by or on behalf of the
indemnified party.
(d) To the extent that the indemnification provided for in
this Section 11 is unavailable to an indemnified party in respect of any losses,
claims, damages, liabilities or judgments referred to therein, then each
indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages, liabilities or judgments (i) in such proportion
as is appropriate to reflect the relative benefits received by the Company and
Weekly Reader, on the one hand, and the Holders, on the other hand, from their
sale of Registrable Securities or (ii) if the allocation provided by clause
12(d)(i) is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause
12(d)(i) above but also the relative fault of the Company and Weekly Reader, on
the one hand, and of the Holder, on the other hand, in connection with the
statements or omissions which resulted in such losses, claims, damages,
liabilities or judgments, as well as any other relevant equitable
considerations. The relative fault of the Company and Weekly Reader, on the one
hand, and of the Holder, on the other hand, shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact relates to
information supplied by the Company and Weekly Reader, on the one hand, or by
the Holder, on the other hand, and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission. The amount paid or payable by a party as a result of the losses,
claims, damages, liabilities and judgments referred to above shall be deemed to
include, subject to the limitations set forth in the second paragraph of Section
12(a), any legal or other fees or expenses reasonably incurred by such party in
connection with investigating or defending any action or claim.
The Company and Weekly Reader and each Holder agree that it
would not be just and equitable if contribution pursuant to this Section 12(d)
were determined by pro rata allocation (even if the Holders were treated as one
entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to in the immediately
preceding paragraph. The amount paid or payable by an indemnified party as a
result of the losses, claims, damages, liabilities or judgments referred to in
the immediately preceding paragraph shall be deemed to include, subject to the
limitations set forth above, any legal or other
<PAGE>
25
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any matter, including any action that could have
given rise to such losses, claims, damages, liabilities or judgments.
Notwithstanding the provisions of this Section 8, no Holder, its directors, its
officers or any Person, if any, who controls such Holder shall be required to
contribute, in the aggregate, any amount in excess of the amount by which the
total received by such Holder with respect to the sale of Registrable Securities
pursuant to a Registration Statement exceeds (i) the amount paid by such Holder
for such Registrable Securities plus (ii) the amount of any damages which such
Holder has otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Holders' obligations to contribute pursuant to this
Section 12(c) are several in proportion to the respective principal amount of
Registrable Securities held by each Holder hereunder and not joint.
SECTION 13. RULE 144A AND RULE 144.
The Company and Weekly Reader agree with each Holder, for so
long as any Registrable Securities remain outstanding and during any period in
which the Company or Weekly Reader, as applicable, (i) is not subject to Section
13 or 15(d) of the Exchange Act, to make available, upon request of any Holder,
to such Holder or beneficial owner of Registrable Securities in connection with
any sale thereof and any prospective purchaser of such Registrable Securities
designated by such Holder or beneficial owner, the information required by Rule
144A(d)(4) under the Act in order to permit resales of such Registrable
Securities pursuant to Rule 144A, and (ii) is subject to Section 13 or 15(d) of
the Exchange Act, to make all filings required thereby in a timely manner in
order to permit resales of such Registrable Securities pursuant to Rule 144.
SECTION 14. MISCELLANEOUS.
(a) REMEDIES. The Company and Weekly Reader acknowledge
and agree that any failure by either the Company or Weekly Reader to comply with
its obligations under Sections 6, 7 and 8 hereof may result in material
irreparable injury to the Holders for which there is no adequate remedy at law,
that it will not be possible to measure damages for such injuries precisely and
that, in the event of any such failure, the any Holder may obtain such relief as
may be required to specifically enforce the Company's obligations under Sections
6, 7 and 8 hereof. The Company further agrees to waive the defense in any action
for specific performance as contemplated by the Section 14(a) that a remedy at
law would be adequate.
(b) NO INCONSISTENT AGREEMENTS. Neither the Company nor
Weekly Reader will on or after the date of this Agreement enter into or amend
any agreement with respect to its securities that conflicts with the rights
granted to the Holders of Registrable Securities in this Agreement or otherwise
conflicts with the provisions hereof. Except as disclosed in the Offering
Memorandum, neither the Company, Weekly Reader have previously entered into any
agreement granting any registration rights of its securities to any Person, and
the rights granted to the Holders hereunder do not in any way conflict with and
are not inconsistent with the rights granted to the holders of the Company's or
Weekly Reader's securities under any other agreement in effect on the date
hereof.
(c) AMENDMENTS AND WAIVERS. The provisions of this
Agreement may not be amended, modified or supplemented, and waivers or consents
to departures from the provisions hereof may not be given unless the Company and
Weekly Reader have obtained the written consent of Holders of a majority of the
outstanding Registrable Securities (excluding Registrable Securities held by the
Company, Weekly Reader or any of their Affiliates). Notwithstanding the
foregoing, a waiver or consent to departure from the provisions hereof that
relates exclusively to the rights of Holders of Registrable Securities whose
securities are being sold pursuant to a Registration Statement and that does not
affect directly or indirectly the rights of other Holders whose Registrable
Securities are not being sold pursuant to a Registration Statement may be given
by the Holders of at least a majority of the Registrable Securities being sold.
<PAGE>
26
(d) THIRD PARTY BENEFICIARY. The Holders shall be third
party beneficiaries to the agreements made hereunder between the Company and
Weekly Reader, on the one hand, and the Initial Purchasers, on the other hand,
and shall have the right to enforce such agreements directly to the extent they
may deem such enforcement necessary or advisable to protect its rights or the
rights of Holders hereunder.
(e) NOTICES. All notices and other communications provided
for or permitted hereunder shall be made in writing by hand-delivery,
first-class mail (registered or certified, return receipt requested), telex,
telecopier, or air courier guaranteeing overnight delivery:
(i) if to a Holder, at the address set forth on
the records of the Registrar under the Indenture, with a copy to the
Registrar under the Indenture; and
(ii) if to the Company or Weekly Reader:
WRC Media Inc.
Weekly Reader Corporation
1 Rockefeller Plaza, 32nd floor
New York, New York 10020
Attention: Chief Executive Officer
With a copy to:
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, New York 10019
Attention: D. Collier Kirkham, Esq.
All such notices and communications shall be deemed to have
been duly given: at the time delivered by hand, if personally delivered; five
Business Days after being deposited in the mail, postage prepaid, if mailed;
when answered back, if telexed; when receipt acknowledged, if telecopied; and on
the next Business Day, if timely delivered to an air courier guaranteeing
overnight delivery.
Copies of all such notices, demands or other communications
shall be concurrently delivered by the Person giving the same to the Warrant
Agent at the address specified in the Warrant Agreement.
(f) SUCCESSORS AND ASSIGNS. This Agreement shall inure to
the benefit of and be binding upon the successors and assigns of each of the
parties, including without limitation and without the need for an express
assignment, subsequent Holders; PROVIDED, that nothing herein shall be deemed to
permit any assignment, transfer or other disposition of Registrable Securities
in violation of the terms hereof or of the Purchase Agreement. If any transferee
of any Holder shall acquire Registrable Securities in any manner, whether by
operation of law or otherwise, such Registrable Securities shall be held subject
to all of the terms of this Agreement, and by taking and holding such
Registrable Securities such Person shall be conclusively deemed to have agreed
to be bound by and to perform all of the terms and provisions of this Agreement,
including the restrictions on resale set forth in this Agreement and, if
applicable, the Purchase Agreement, and such Person shall be entitled to receive
the benefits hereof.
(g) COUNTERPARTS. This Agreement may be executed in any
number of counterparts and by the parties hereto in separate counterparts, each
of which when so executed shall be deemed to be an original and all of which
taken together shall constitute one and the same agreement.
<PAGE>
27
(h) HEADINGS. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(i) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK,
WITHOUT REGARD TO THE CONFLICT OF LAW RULES THEREOF.
(j) SEVERABILITY. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstance, is
held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions contained herein shall not be affected or impaired thereby.
(k) ENTIRE AGREEMENT. This Agreement is intended by the
parties as a final expression of their agreement and intended to be a complete
and exclusive statement of the agreement and understanding of the parties hereto
in respect of the subject matter contained herein. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein with respect to the registration rights granted with respect to the
Registrable Securities. This Agreement supersedes all prior agreements and
understandings between the parties with respect to such subject matter.
[Signature Page Follows]
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first written above.
WRC MEDIA, INC.
By:
---------------------------------
Name:
Title:
WEEKLY READER CORPORATION.
By:
---------------------------------
Name:
Title:
JLC LEARNING CORPORATION
By:
---------------------------------
Name:
Title:
EAC III L.L.C.
By:
---------------------------------
Name:
Title:
<PAGE>
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
BANC OF AMERICA SECURITIES LLC
By: Donaldson, Lufkin & Jenrette
Securities Corporation
By:
-----------------------------------
Name: D. Kete Cockrell, II
Title: Vice President
<PAGE>
1
EXECUTION COPY
SHAREHOLDER AGREEMENT dated as of November
17, 1999 (this "AGREEMENT"), among WRC Media Inc., a
Delaware corporation (the "RIPPLEWOOD SHAREHOLDER"),
PRIMEDIA Inc., a Delaware corporation (the "PRIMEDIA
SHAREHOLDER" and, together with the Ripplewood
Shareholder and their respective Transferees, the
"SHAREHOLDERS"), and Weekly Reader Corporation, a
Delaware corporation (the "COMPANY").
WHEREAS each Shareholder owns the number of shares of
Common Stock, par value $.01 per share ("COMPANY COMMON STOCK"), of the
Company set forth opposite such Shareholder's name on Schedule I attached
hereto.
NOW, THEREFORE, in consideration of the mutual agreements
herein contained, and other good and valuable consideration the receipt and
adequacy of which are hereby acknowledged, the parties hereto agree as
follows:
ARTICLE I
DEFINITIONS AND USAGE
SECTION 1.01. DEFINED TERMS. The following terms shall
have the following meanings:
"AFFILIATE" means, with respect to any specified Person,
any other Person that directly or indirectly, through one or more
intermediaries, controls, is controlled by, or is under common control with,
such specified Person. For purposes of this definition, "control" (including,
with correlative meanings, the terms "controlled by" and "under common
control with"), as used with respect to any Person, means the direct or
indirect possession of the power to direct or cause the direction of the
management or policies of such Person, whether through the ownership of
voting securities, by contract or otherwise.
"AGREEMENT" has the meaning set forth in the preamble to
this Agreement.
"BOARD OF DIRECTORS" means the Board of Directors of the
Company.
"COMPANY" has the meaning set forth in the
preamble to this Agreement.
<PAGE>
2
"COMPANY COMMON STOCK" has the meaning set forth
in the recitals to this Agreement.
"DGCL" means the Delaware General Corporation Law (Title 8
of the Delaware Code Annotated), as amended from time to time and any
successor statute thereto.
"DIRECT TRANSFER" means a Transfer (without giving effect
to the second sentence of the definition of "Transfer").
"DRAG-ALONG NOTICE" has the meaning set forth in Section
2.01(f).
"EAC III" means EAC III L.L.C., a Delaware limited
liability company, and the holder of a majority of the WRC Media Shares.
"INVOLUNTARY TRANSFER" means any Transfer by any
Shareholder of any Shares, or of any beneficial ownership thereof, upon
death, appointment of a guardian, default, foreclosure, forfeit, bankruptcy
(voluntary or involuntary), court order, levy of attachment, execution or
otherwise than voluntarily by the Transferor; PROVIDED that a Transfer
required pursuant to Section 2.01(f) or (h) shall not be deemed an
Involuntary Transfer.
"FAIR MARKET VALUE" means the fair market value of a Share,
determined in accordance with Section 2.01(g).
"PERMITTED TRANSFEREE" means, (i) with respect to the
Ripplewood Shareholder or EAC III, (A) an Affiliate of Ripplewood, (B) a
shareholder, partner, member or employee of Ripplewood or any Affiliate of
Ripplewood or (C) an employee of the Company or any of its subsidiaries and
(ii) with respect to the PRIMEDIA Shareholder, any wholly owned subsidiary of
the PRIMEDIA Shareholder (it being understood that, in the event such
subsidiary ceases to be wholly owned by the PRIMEDIA Shareholder, any Shares
held by such subsidiary shall be deemed to have been Transferred).
"PERSON" means any individual, corporation, partnership,
trust, association, limited liability company, joint venture, joint-stock
company or any other entity or organization, including a government or
governmental agency.
"PRIMEDIA PLEDGE AGREEMENT" means the Security and Pledge
Agreement dated as of the date hereof, as amended, waived or modified from time
to time, between the PRIMEDIA Shareholder and Bank of America, N.A., as
Administrative Agent (the "AGENT"). The PRIMEDIA Pledge Agreement shall
<PAGE>
3
provide that, if at any time all or any portion of the Ripplewood
Shareholder's Shares (including any beneficial ownership thereof) which are
pledged pursuant to the Ripplewood Pledge Agreement shall be released from
such pledge (other than in connection with a Transfer of Shares Transferred
to a Transferee following which such shares are immediately pledged by such
Transferee pursuant to the Ripplewood Pledge Agreement) then the same
proportion of the PRIMEDIA Shareholder's Shares shall be released from its
pledge pursuant to the PRIMEDIA Pledge Agreement. The PRIMEDIA Pledge
Agreement shall also provide for (i) the release of all the PRIMEDIA
Shareholder's Shares on the third anniversary of this Agreement and (ii) the
release of all Shares upon the termination of this Agreement pursuant to
Section 4.10.
"REGISTRATION EXPENSES" means all (a) registration and
filing fees of the Securities and Exchange Commission, the National
Association of Securities Dealers, Inc. and any securities exchanges, (b)
fees and expenses of complying with state securities or blue sky laws
(including fees and disbursements of counsel for any underwriters in
connection with blue sky qualifications), (c) printing, messenger and
delivery expenses, (d) fees and expenses incurred in connection with the
listing of Shares on any securities exchange, (e) fees and disbursements of
counsel for the Company and of its independent public accountants and (f)
fees and expenses of any special experts retained in connection with a
registration.
"RIPPLEWOOD" means Ripplewood Partners, L.P.
"RIPPLEWOOD PLEDGE AGREEMENT" means the Security and Pledge
Agreement dated as of the date hereof, as amended, waived or modified from
time to time, among the Ripplewood Shareholder, certain other subsidiaries of
the Ripplewood Shareholder and the Agent.
"RIPPLEWOOD SHAREHOLDER" has the meaning set forth in the
preamble to this Agreement.
"SECURITIES ACT" means the Securities Act of 1933, as
amended.
"SHARES" means the shares of Company Common
Stock held by a Shareholder.
"SHAREHOLDERS" has the meaning set forth in the
preamble to this Agreement.
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4
"TAG-ALONG NOTICE" has the meaning set forth in Section
2.01(e).
"THIRD PARTY PURCHASER" means, with respect to any proposed
sale of Shares by a Shareholder, a Person, other than an Affiliate of such
Shareholder, who offers to purchase from such Shareholder such Shares
pursuant to a bona fide written offer.
"TRANSFER" means any transfer, sale, conveyance,
assignment, gift, hypothecation, pledge or other disposition, whether
voluntary or by operation of law, of a Share. Notwithstanding the foregoing,
any transfer, sale, conveyance, assignment, gift, hypothecation, pledge or
other disposition, whether voluntary or by operation of law, of any stock,
partnership interest, membership interest or any other ownership interest in
any entity that is a direct or indirect beneficial or record owner of any
Share (including any disposition by means of a merger, consolidation or
similar transaction) or any other transaction that has the economic effect of
a Transfer of a Share (including the designation of any beneficiary of any
trust that is a direct or indirect beneficial or record owner of any Share)
shall be deemed to be a Transfer of such Share by the Shareholder directly
owning such Share.
"TRANSFEREE" means the transferee in a Transfer.
"TRANSFEROR" means the transferor in a Transfer.
"WRC MEDIA SHARES" means shares of common stock, par value
$.01 per share, of the Ripplewood Shareholder.
SECTION 1.02. OTHER DEFINITION PROVISIONS. Capitalized
terms used but not defined herein shall have the meanings set forth in the
Redemption, Stock Purchase and Recapitalization Agreement, dated as of August
13, 1999, between the Ripplewood Shareholder and the PRIMEDIA Shareholder
(the "Purchase Agreement"). Wherever required by the context of this
Agreement, the singular shall include the plural, and vice versa, and the
masculine gender shall include the feminine and neuter genders, and vice
versa, and references to any agreement, document or instrument shall be
deemed to refer to such agreement, document or instrument as amended,
supplemented or modified from time to time. When used herein, (i) the word
"or" is not exclusive and (ii) the words "including," "includes," "included"
and "include" are deemed to be followed by the words "without limitation."
<PAGE>
5
ARTICLE II
TRANSFERS OF SHARES; TRANSACTIONS
BETWEEN RIPPLEWOOD SHAREHOLDER AND THE COMPANY
SECTION 2.01. TRANSFERS OF THE COMPANY SHARES. (a)
GENERALLY. (i) No Shareholder may Transfer all or any portion of its Shares
(or any beneficial ownership thereof) unless (A) such Transfer is in
accordance with this Section 2.01, (B) in the case of a Direct Transfer
(other than pursuant to Section 2.01(e), (f), (g) or (j)), the Transferee
executes and delivers a counterpart of the signature page of this Agreement
(or other appropriate assumption agreement) and (C) except for a Transfer in
accordance with Section 2.01(e), (f), (g), (i) or (j), the Transferee
executes and delivers any other agreements, documents or instruments
reasonably specified by the Board of Directors. Any Transfer made in
violation of this Section 2.01(a) shall be null and void and shall be subject
to Section 2.01(d).
(ii) Whenever a Transfer (other than pursuant to Section
2.01(g)) is to be consummated by any Person on a specified date under this
Section 2.01, such Transfer shall take place at 10:00 a.m., Eastern Time, on
such date (or, if such date is not a business day, the next following
business day) at the New York offices of Cravath, Swaine & Moore, or at such
other time, date and place as the Company and the parties to such Transfer
may agree. Except for a Transfer in accordance with Section 2.01(e), (f),
(g), (i) or (j), such Transfer shall only be effective following due
execution and delivery of the agreements, documents and instruments specified
in Section 2.01(a)(i)(B) and of such other agreements, documents and
instruments as the Board of Directors or the parties to such Transfer may
reasonably require.
(iii) Upon compliance with the requirements of Section
2.01(a), in the case of a Direct Transfer (other than pursuant to Section
2.01(e), (f), (g), (i) or (j)), each Transferee shall have all of the
economic rights, and shall be subject to the restrictions and liabilities, of
its Transferor hereunder. Immediately following any Direct Transfer in which
the Transferor has Transferred all of its Shares pursuant to this Section
2.01, such Transferor shall cease to be a Shareholder.
(b) TRANSFERS BY THE RIPPLEWOOD SHAREHOLDER. Subject to
Section 2.01(a) and, with respect to a Transfer to any Person other than a
Permitted Transferee of the Ripplewood Shareholder, Section 2.01(e), the
Ripplewood
<PAGE>
6
Shareholder (and its Permitted Transferees) shall have the right to Transfer
at any time all or any portion of its Shares (including any beneficial
ownership thereof) to any Person without the prior consent of any Person.
(c) TRANSFERS BY THE PRIMEDIA SHAREHOLDER. (i) Subject to
Section 2.01(a), the PRIMEDIA Shareholder (and its Permitted Transferees)
shall have the right to Transfer at any time all or any portion of its Shares
(including any beneficial ownership thereof) to any of its Permitted
Transferees without the prior consent of any Person.
(ii) The PRIMEDIA Shareholder (and its Permitted
Transferees) shall not have the right to Transfer all or any portion of its
Shares (including any beneficial ownership thereof) to any Person other than
the Ripplewood Shareholder or the Company except in accordance with Section
2.01(a) and (A) pursuant to Section 2.01(c)(i), (e), (f), (g), (i) or (j) or
Section 2.03 or (B) with the prior written consent of the Board of Directors
(which consent shall not be unreasonably withheld).
(d) INVOLUNTARY AND IMPERMISSIBLE TRANSFERS. If an
Involuntary Transfer or a Transfer in violation of this Agreement shall occur
with respect to the PRIMEDIA Shareholder and, in the case of a Transfer in
violation of this Agreement, such violation has not been cured within 30 days
after notice to the applicable Transferor or Transferee, the Company shall
give notice to the Ripplewood Shareholder offering the Ripplewood Shareholder
the right, exercisable by delivery of written notice to such Transferee
within 90 days following the day on which such notice is given, to purchase
all of the Shares acquired by such Transferee at a purchase price equal to,
in the case of an Involuntary Transfer, 100% or, in the case of a Transfer in
violation of this Agreement, 90% of the Fair Market Value thereof, determined
in good faith by the Board of Directors as of the date of such Transfer (or,
if lower, as of the date of such determination). The closing date of any
purchase described in this Section 2.01(d) shall be on the date specified by
the Company that shall not be later than the 30th day after a determination
of the Fair Market Value of the Shares to be purchased is made.
(e) TAG-ALONG RIGHTS. If the Ripplewood Shareholder desires
to Transfer all (or any portion in excess of 35%) of its Shares to a
prospective Transferee (or Transferees) other than (x) to the Agent in a
Transfer in accordance with the terms of the Ripplewood Pledge Agreement or
(y) to a Permitted Transferee of the Ripplewood Shareholder, the Ripplewood
Shareholder shall, as a condition
<PAGE>
7
to such Transfer, (i) provide a notice to the PRIMEDIA Shareholder in writing
(a "TAG-ALONG NOTICE") of the material terms of the proposed Transfer at
least 10 days prior to such Transfer and (ii) permit the PRIMEDIA Shareholder
(or cause the PRIMEDIA Shareholder to be permitted) to sell (either to the
prospective Transferee of the Ripplewood Shareholder's Shares or to another
financially reputable Transferee reasonably acceptable to the PRIMEDIA
Shareholder) the same proportion of its Shares on the same terms and
conditions, subject to the same agreements and at the same price as the sale
by the Ripplewood Shareholder, which sale shall take place on the date the
Ripplewood Shareholder's Shares (or such portion) are Transferred to such
Transferee (or Transferees). The PRIMEDIA Shareholder shall have five days
from the date of receipt of a Tag-Along Notice to exercise its right to sell
pursuant to clause (ii) above by delivering written notice to the Ripplewood
Shareholder of its intent to exercise such right. The right of the PRIMEDIA
Shareholder to sell pursuant to the above shall terminate if not exercised
within such five-day period; PROVIDED that if the terms and conditions of the
proposed transfer materially differ from those set forth in the Tag-Along
Notice then the Ripplewood Shareholder shall notify the PRIMEDIA Shareholder
of such change and such five-day period shall be extended for a further five
days from the date of such notification. If the PRIMEDIA Shareholder elects
to exercise its right to sell pursuant to this Section 2.01(e), it shall
share, on a pro rata basis, the legal, investment banking and other expenses
of the Ripplewood Shareholder incurred in connection with such Transfer.
(f) DRAG-ALONG RIGHTS. If at any time the Ripplewood
Shareholder desires to Transfer all (or any portion in excess of 35%) of its
Shares to any Third Party Purchaser (or Purchasers), the Ripplewood
Shareholder shall have the right to require that the PRIMEDIA Shareholder
Transfer the same proportion of its Shares to such Third Party Purchaser (or
Purchasers) on the same terms and conditions, subject to the same agreements
and at the same price as the sale by the Ripplewood Shareholder. The
Ripplewood Shareholder shall provide a notice to the PRIMEDIA Shareholder in
writing (a "DRAG-ALONG NOTICE") of such sale at least 10 days prior to such
Transfer, and the Drag-Along Notice shall identify such Third Party Purchaser
(or Purchasers), all material terms of the sale and the date of closing. Upon
the closing of any sale by the Ripplewood Shareholder of all (or such
portion) of its Shares as described in a Drag-Along Notice, such Third Party
Purchaser (or Purchasers) shall pay to the PRIMEDIA Shareholder the
consideration payable to the PRIMEDIA Shareholder in connection with such
sale of all (or such portion) of its
<PAGE>
8
Shares to such Purchaser (or Purchasers), net of the PRIMEDIA Shareholder's
proportionate share of the legal, investment banking and other expenses of
the Ripplewood Shareholder incurred in connection with such sale, and the
Shares (or such portion) of the PRIMEDIA Shareholder shall be deemed
Transferred to such Third Party Purchaser (or Purchasers).
(g) PIGGY-BACK REGISTRATION RIGHTS. If the Company proposes
to file a registration statement under the Securities Act with respect to an
initial public offering by the Company that includes all or any portion of
the Ripplewood Shareholder's Shares, then the Company shall give written
notice of such proposed filing to the PRIMEDIA Shareholder at least 10 days
before the filing date, and such notice shall offer the PRIMEDIA Shareholder
the opportunity to register such number of Shares as the PRIMEDIA Shareholder
may request up to a proportionate amount of the PRIMEDIA Shareholder's
Shares. If such offer is accepted by written notice to the Company from the
PRIMEDIA Shareholder within 5 days of the giving of the written notice
provided for in the preceding sentence, the Company shall use its best
efforts to cause the managing underwriter or underwriters thereof to permit
the Shares the PRIMEDIA Shareholder requested to be included in such offering
to be included in such offering on the same terms and conditions as the
corresponding Shares of the Ripplewood Shareholder included therein; PROVIDED
that (i) if, at any time after giving written notice of its intention to
register any Shares and prior to the effective date of the registration
statement filed in connection with such registration, the Company shall
determine for any reason not to proceed with the proposed registration, the
Company may, at its election, give written notice of such determination to
the PRIMEDIA Shareholder and thereupon shall be relieved of its obligation to
register any Shares in connection with such registration and (ii) the
PRIMEDIA Shareholder must sell its Shares to underwriters who shall have been
selected by the Company on the same terms and conditions as apply to the
Ripplewood Shareholder. The PRIMEDIA Shareholder may elect in writing, prior
to the effective date of the registration statement filed in connection with
such registration, to withdraw its request and not to have its Shares
registered in connection with such registration. If the managing underwriter
or underwriters advise the Company in writing that, in their opinion, (i) the
number of Shares which the PRIMEDIA Shareholder intends to include in such
registration exceeds the largest number of such Shares which can be sold in
such offering without having an adverse effect on such offering (including,
but not limited to, the price at which such Shares can be sold) or (ii) the
inclusion of the Shares in such registration would have an adverse effect on
such offering, then the Company
<PAGE>
9
will include in such registration (A) first, 100% of the Shares proposed to
be sold by the Company and any other shareholder whose shares the Company is
obligated to include in such registration in priority to the Ripplewood
Shareholder and the PRIMEDIA Shareholder and (B) second, to the extent that
the number of Shares requested to be included in such registration can, in
the opinion of such managing underwriter, be sold without having the adverse
effect referred to above, the number of Shares which the Ripplewood
Shareholder and the PRIMEDIA Shareholder have requested to be included in
such registration, such amount to be allocated pro rata among the Ripplewood
Shareholder and the PRIMEDIA Shareholder on the basis of the relative number
of Shares the Ripplewood Shareholder and the PRIMEDIA Shareholder have
requested for registration. The Company may require the PRIMEDIA Shareholder
to furnish the Company with such information regarding the PRIMEDIA
Shareholder and pertinent to the disclosure requirements relating to the
registration and distribution of the PRIMEDIA Shareholder's Shares as the
Company may from time to time reasonably request in writing. The Company
shall pay all Registration Expenses in connection with registration of Shares
subject to this Section 2.01(g). The PRIMEDIA Shareholder shall pay all (x)
underwriting discounts and commissions and transfer taxes, if any, (y)
internal administrative and similar costs of the PRIMEDIA Shareholder and (z)
fees and disbursements of counsel for the PRIMEDIA Shareholder, in each case
relating to the registration, sale or disposition of the PRIMEDIA
Shareholder's Shares pursuant to a registration statement effected pursuant
to this Section 2.01(g).
(h) FAIR MARKET VALUE. In determining the "FAIR MARKET VALUE"
of any Shares (or any portion thereof) pursuant to this Section 2.01 or Section
2.03(b), the Board of Directors shall give due consideration to such factors as
it deems appropriate, including the earnings and certain other financial and
operating information of the Company and its subsidiaries in recent periods, its
potential value and that of its subsidiaries as a whole, its future prospects
and that of its subsidiaries and the industries in which they compete, its
history and management and that of its subsidiaries, the general condition of
the securities markets and the fair market value of securities of privately
owned companies (with transfer restrictions) engaged in businesses similar to
the Company and its subsidiaries. The Fair Market Value, as determined by the
Board of Directors in good faith shall be binding and conclusive upon all
parties hereto.
(i) TRANSFERS TO THE AGENT. Subject to Section 2.01(a), each
Shareholder shall have the right to Transfer at any time all or any portion of
its Shares to the
<PAGE>
10
Agent in accordance with the terms of the Ripplewood Pledge Agreement or the
PRIMEDIA Pledge Agreement, as applicable, without the prior consent of any
Person.
(j) REGISTRATION ON REQUEST. (1) REQUEST BY THE PRIMEDIA
SHAREHOLDER. At any time after 180 days following an initial public offering
by the Company, upon the written request of the PRIMEDIA Shareholder
requesting that the Company effect the registration under the Securities Act
of all or part of the PRIMEDIA Shareholder's Shares and specifying the amount
and intended method of disposition thereof, the Company will, as
expeditiously as possible, use its reasonable best efforts to effect the
registration under the Securities Act of such Shares which the Company has
been so requested to register by the PRIMEDIA Shareholder to the extent
necessary to permit the disposition (in accordance with the intended method
thereof as aforesaid) of the Shares so to be registered; PROVIDED that the
Company shall not be obligated to effect more than one registration of Shares
under this subsection (j); PROVIDED, FURTHER, that the Company shall not be
obligated to effect any registration under this subsection (j) unless the
PRIMEDIA Shareholder requests that the Company register all of the Shares
then held by it; and PROVIDED, FURTHER, that the Company shall not be
obligated to file a registration statement relating to any registration
request under this subsection (j) if, with respect thereto, the managing
underwriter, the Securities Act or the rules and regulations thereunder, or
the form on which the registration statement is to be filed would require the
conduct of an audit other than the regular audit conducted by the Company at
the end of its fiscal year, in which case the filing may be delayed until the
completion of such regular audit.
(2) EXPENSES. The Company will pay all Registration
Expenses in connection with the registration of Shares pursuant to this
subsection (j).
(3) EFFECTIVE REGISTRATION STATEMENT. A registration
requested pursuant to this subsection (j) will not be deemed to have been
effected unless it has become effective; PROVIDED that if, within 180 days
after it has become effective, the offering of Shares pursuant to such
registration is interfered with by any stop order, injunction or other order
or requirement of any governmental agency or court, such registration will be
deemed not to have been effected.
(4) SELECTION OF UNDERWRITERS. If a requested registration
pursuant to this subsection (j) involves an underwritten offering, the
Company shall have the right to
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11
select the investment banker or bankers and managers to administer the
offering; PROVIDED, HOWEVER, that such investment banker or bankers and
managers shall be reasonably satisfactory to the PRIMEDIA Shareholder.
(5) PRIORITY IN REQUESTED REGISTRATIONS. If a requested
registration pursuant to this subsection (j) involves an underwritten
offering and the managing underwriter or underwriters advises the Company in
writing that, in its opinion, the number of Shares requested to be included
in such registration (including Shares to be issued by the Company and Shares
held by the Ripplewood Shareholder) exceeds the number which can be sold in
such offering without having an adverse effect on the offering, the Company
will include in such registration (A) first, 100% of the Shares proposed to
be sold by the PRIMEDIA Shareholder and (B) second, Shares of other Persons
in accordance with their registration rights to the extent, in the opinion of
such managing underwriter or underwriters, such Shares can be sold without
having the adverse effect referred to above.
SECTION 2.02. AFFILIATE TRANSACTIONS. Except for the
transactions contemplated by the management consulting and financial advisory
services agreement to be dated as of the date hereof between the Company and
Ripplewood Holdings L.L.C. (the "MANAGEMENT AGREEMENT"), attached hereto as
Exhibit I, unless otherwise agreed by the PRIMEDIA Shareholder in writing,
the Ripplewood Shareholder will not enter into any agreement or engage in any
business transaction with the Company or its subsidiaries after the date
hereof which is not entered into on an arm's length commercially reasonable
basis. Notwithstanding the foregoing, the PRIMEDIA Shareholder explicitly
agrees that the Ripplewood Shareholder may at any time, in its sole
discretion, undertake a reorganization completed in connection with an
initial public offering pursuant to which the Ripplewood Shareholder shall
transfer, or cause to be transferred, all or substantially all its assets
(including all the capital stock and debt securities of the Company held by
the Ripplewood Shareholder) to the Company in exchange for the assumption by
the Company of all or substantially all the liabilities of the Ripplewood
Shareholder, the issuance to the Ripplewood Shareholder by the Company of new
securities (including common and preferred stock of the Company), and, at the
option of the Ripplewood Shareholder, the distribution of (x) the Company's
preferred stock to the holders of the Ripplewood Shareholder's preferred
stock in exchange for the Ripplewood Shareholder's preferred stock and/or (y)
an equivalent number of shares of the new common stock of the Company to
certain holders of the Ripplewood Shareholder's
<PAGE>
12
common stock in exchange for the shares of the Ripplewood Shareholder's
common stock held by such holders.
SECTION 2.03 SALE OF WRC MEDIA SHARES. (a) If EAC III
desires to Transfer all (or any portion in excess of 35%) of its WRC Media
Shares to a prospective Transferee (or Transferees) other than to a Permitted
Transferee of EAC III, the provisions of Section 2.01(e) and (f) shall apply
to such Transfer in accordance with their terms, except that the percentage
of the PRIMEDIA Shareholder's shares that it has the right or obligation, as
the case may be, to sell and the price to be paid therefor shall be
determined in good faith by the Board of Directors on a basis that shall, as
nearly as reasonably practicable, provide the PRIMEDIA Shareholder economic
treatment comparable to that which it would have been provided under Section
2.01(e) or (f), as the case may be, in the event of Transfer of an
economically equivalent portion of the Shares.
(b) If an initial public offering of WRC Media Shares shall
occur, then the PRIMEDIA Shareholder shall have the right to, and the
Ripplewood Shareholder shall, exchange all or any portion of the PRIMEDIA
Shareholder's Shares for WRC Media Shares having an aggregate fair market
value equal to the aggregate Fair Market Value of the exchanged Shares.
ARTICLE III
STOCK REGISTRATION; LEGEND
SECTION 3.01. STOCK REGISTRATION. (a) Each Shareholder
hereby represents and warrants to the other Shareholder and the Company that
such Shareholder understands that the Company Common Stock has not been
registered under the Securities Act.
(b) Each Shareholder agrees that such Shareholder will not
offer, sell, transfer, pledge, hypothecate or otherwise dispose of any shares
of Company Common Stock except:
(i) pursuant to an exemption from registration under the
Securities Act and in accordance with any applicable laws of any state
of the United States governing the offer and sale of securities; or
(ii) pursuant to an effective registration statement under the
Securities Act (it being understood that the Company, the other
Shareholder and their Affiliates are under no obligation to effect such
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13
registration except, in the case of the Company, pursuant to Section
2.01(g)) and in accordance with any applicable state laws; or
(iii) pursuant to the Ripplewood Pledge Agreement
or the PRIMEDIA Pledge Agreement, as applicable.
SECTION 3.02. LEGEND. Each Shareholder agrees that any
and all certificates representing such Shareholder's Shares will have
inscribed conspicuously on the front or back of such certificates the
following legend: "THE SHARES OF COMMON STOCK, PAR VALUE $.01 PER SHARE, OF
WEEKLY READER CORPORATION REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO ONE
OR MORE AGREEMENTS AMONG SHAREHOLDERS OR AGREEMENTS BETWEEN SHAREHOLDERS AND
WEEKLY READER CORPORATION, AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED
EXCEPT IN ACCORDANCE THEREWITH. COPIES OF ANY SUCH AGREEMENT MAY BE OBTAINED
AT THE PRINCIPAL EXECUTIVE OFFICES OF WEEKLY READER CORPORATION."
SECTION 3.03 OTHER REGISTRATION-RELATED MATTERS. In the
event of a registration of Shares of the PRIMEDIA Shareholder pursuant to
Section 2.01(g):
(a) the Company will furnish to the PRIMEDIA Shareholder such
number of copies of the applicable registration statement and of each
amendment or supplement thereto (in each case including all exhibits),
such number of copies of the prospectus included in such registration
statement (including each preliminary prospectus and summary
prospectus), in conformity with the requirements of the Securities Act,
and such other documents as may reasonably be requested in order to
facilitate the disposition of Shares by the PRIMEDIA Shareholder;
(b) the Company will notify the PRIMEDIA Shareholder at any
time when a prospectus relating to its Shares is required to be
delivered under the Securities Act promptly after the Company becomes
aware that the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of
the circumstances then existing, and at the request of the PRIMEDIA
Shareholder, prepare and furnish to the PRIMEDIA Shareholder a
reasonable number of copies of an amended or supplemental prospectus as
may be necessary so that, as thereafter delivered to the purchasers of
such Shares, such prospectus will not
<PAGE>
14
include an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances
then existing; and
(c) the Company will make available for inspection by the
PRIMEDIA Shareholder and by any attorney, accountant or other agent
retained by the PRIMEDIA Shareholder, all pertinent financial and other
records, pertinent corporate documents and properties of the Company,
and cause all of the Company's officers, directors and employees to
supply all information reasonably requested by the PRIMEDIA
Shareholder, or any such attorney, accountant or agent in connection
with such registration statement.
In the event of a registration of Shares of the PRIMEDIA
Shareholder pursuant to subsection 2.01(j):
(V) the Company will comply with clauses (a) through
(c) above;
(W) the Company will prepare and, in any event within
120 days after the date on which the PRIMEDIA Shareholder gives a
request for registration to the Company, file with the Securities and
Exchange Commission (the "SEC") a registration statement with respect
to such Shares and use its reasonable best efforts to cause such
registration statement to become effective;
(X) the Company will prepare and file with the SEC
such amendments and supplements to such registration statement and the
prospectus used in connection therewith as may be necessary to keep
such registration statement effective until the earlier of (i) such
time as all of the Shares registered thereby have been disposed of in
accordance with the intended method of distribution and (ii) 180 days
after the date such registration statement became effective and to
comply with the provisions of the Securities Act, the Exchange Act and
the rules and regulations of the SEC thereunder with respect to the
disposition of all Shares covered by such registration statement during
such period in accordance with the intended methods of disposition by
the seller or sellers thereof set forth in such registration statement;
PROVIDED that before filing a registration statement or prospectus, or
any amendments or supplements thereto, the Company will
<PAGE>
15
furnish to counsel for the PRIMEDIA Shareholder copies of all
documents proposed to be filed;
(Y) use its reasonable best efforts to register or
qualify the Shares covered by such registration in such jurisdictions
as the PRIMEDIA Shareholder shall reasonably request, and do any and
all other acts and things which may be reasonably necessary or
advisable to enable the PRIMEDIA Shareholder to consummate the
disposition in such jurisdictions of its Shares, except that the
Company shall not for any such purpose be required to qualify generally
to do business as a foreign corporation in any jurisdiction where, but
for the requirements of this clause (Y), it would not be obligated to
be so qualified, to subject itself to taxation in any such jurisdiction
or to consent to general service of process in any such jurisdiction;
and
(Z) use its reasonable best efforts to cause the
Shares covered by such registration statement to be registered with or
approved by such other governmental agencies or authorities as may be
necessary to enable the PRIMEDIA Shareholder to consummate the
disposition of its Shares;
SECTION 3.04 INDEMNIFICATION. (a) INDEMNIFICATION BY THE
COMPANY. In the event of any registration of any Shares of the PRIMEDIA
Shareholder under the Securities Act pursuant to Section 2.01(g), the Company
hereby indemnifies and agrees to hold harmless, to the extent permitted by
law, the PRIMEDIA Shareholder, each Affiliate of the PRIMEDIA Shareholder and
their respective directors and officers or general and limited partners and
members (and the directors, officers, affiliates and controlling Persons
thereof) and each other Person, if any, who controls the PRIMEDIA Shareholder
within the meaning of the Securities Act (collectively, the "Indemnified
Parties"), against any and all losses, claims, damages or liabilities, joint
or several, and expenses to which such Indemnified Party may become subject
under the Securities Act, common law or otherwise, insofar as such losses,
claims, damages or liabilities (or actions or proceedings in respect thereof,
whether or not such Indemnified Party is a party thereto) arise out of or are
based upon (i) any untrue statement or alleged untrue statement of any
material fact contained in any registration statement under which such
securities were registered under the Securities Act or any preliminary, final
or summary prospectus contained therein, or any amendment or supplement
thereto, or (ii) any omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements
therein not misleading in
<PAGE>
16
the light of the circumstances then existing, and the Company will reimburse
such Indemnified Party for any legal or other expenses reasonably incurred by
it in connection with investigating or defending any such loss, claim,
liability, action or proceeding; PROVIDED that the Company will not be liable
to any Indemnified Party in any such case to the extent that any such loss,
claim, damage, liability (or action or proceeding in respect thereof) or
expense arises out of or is based upon any untrue statement or alleged untrue
statement or omission or alleged omission made in such registration
statement, in any such preliminary, final or summary prospectus, or any
amendment or supplement thereto in reliance upon and in conformity with
written information with respect to such Indemnified Party furnished to the
Company by such Indemnified Party for use in the preparation thereof. Such
indemnity will remain in full force and effect regardless of any
investigation made by or on behalf of the PRIMEDIA Shareholder or any
Indemnified Party and will survive the Transfer of such securities by the
PRIMEDIA Shareholder.
(b) INDEMNIFICATION BY THE HOLDERS AND UNDERWRITERS. The
Company may require, as a condition to including any Shares of the PRIMEDIA
Shareholder in any registration statement filed in accordance with Section
2.01(g), that the Company shall have received an undertaking reasonably
satisfactory to it from the PRIMEDIA Shareholder to indemnify and hold
harmless (in the same manner and to the same extent as set forth in Section
3.04(a)) the Company, all other shareholders participating in such offering
or any prospective underwriter, as the case may be, and any of their
respective Affiliates, directors, officers, general and limited partners and
members (and the directors, officers, affiliates and controlling Persons
thereof) and controlling Persons, with respect to any statement or alleged
statement in or omission or alleged omission from such registration
statement, any preliminary, final or summary prospectus contained therein, or
any amendment or supplement, if such statement or alleged statement or
omission or alleged omission was made in reliance upon and in conformity with
written information with respect to the PRIMEDIA Shareholder furnished to the
Company by the PRIMEDIA Shareholder expressly for use in the preparation of
such registration statement, preliminary, final or summary prospectus or
amendment or supplement, or a document incorporated by reference into any of
the foregoing. Such indemnity will remain in full force and effect regardless
of any investigation made by or on behalf of the Company or any of the
shareholders, or any of their respective affiliates, directors, officers,
general and limited partners (and the directors, officers, affiliates and
<PAGE>
17
controlling Persons thereof) or controlling Persons and will survive the
Transfer of such securities by the PRIMEDIA Shareholder.
(c) PROCEDURES. The procedures governing any
indemnification pursuant to this Section 3.04 shall be as set forth in
Sections 7.04 and 7.05 of the Purchase Agreement.
(d) CONTRIBUTION. If recovery is not available under the
foregoing indemnification provisions of this Section 3.04 for any reason
other than as expressly specified therein, the parties required to provide
indemnification by the terms thereof will contribute to liabilities and
expenses of the indemnified party except to the extent that contribution is
not permitted under Section 11(f) of the Securities Act. In determining the
amount of contribution to which the respective parties are entitled,
consideration will be given to the relative benefits received by each party
from the offering of the Shares (taking into account the portion of the
proceeds realized by each), the parties' relative knowledge and access to
information concerning the matter with respect to which the claim was
asserted, the opportunity to correct and prevent any misstatement or omission
and any other equitable considerations appropriate under the circumstances.
(e) NON-EXCLUSIVITY. The obligations of the parties under this
Section 3.04 will be in addition to any liability which any party may otherwise
have to any other party.
ARTICLE IV
MISCELLANEOUS PROVISIONS
SECTION 4.01. ENTIRE AGREEMENT. This Agreement sets forth
the entire understanding among the parties relating to the subject matter
contained herein and merges all prior discussions among them. This Agreement
is not intended to confer upon any person other than the parties hereto any
rights or remedies hereunder.
SECTION 4.02. AMENDMENTS. This Agreement may not be amended
except by an instrument in writing signed by each of the parties hereto.
SECTION 4.03. NOTICES. All notices and other communications
required or permitted by this Agreement shall be made in writing and any such
notice or communication shall be deemed delivered when delivered in person,
transmitted by telecopier, confirmation of transmission received, or one
<PAGE>
18
business day after it has been sent by a nationally recognized overnight
courier, at the address or addresses for notices to the recipient designated
on Schedule II. Each Shareholder may from time to time change its address for
notices under this Section 4.03 by giving at least five days' notice of such
changed address to the other Shareholder.
SECTION 4.04. INTERPRETATION. When a reference is made in
this Agreement to Sections, such reference shall be to a Section to this
Agreement unless otherwise indicated. The headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
SECTION 4.05. SEVERABILITY. If any one or more of the
provisions contained in this Agreement or in any document executed in
connection herewith shall be invalid, illegal or unenforceable in any respect
under any applicable law, the validity, legality and enforceability of the
remaining provisions contained herein shall not in any way be affected or
impaired; PROVIDED that in such case the parties hereto shall endeavor to
amend or modify this Agreement to achieve to the extent reasonably
practicable the purpose of the invalid provision.
SECTION 4.06. GOVERNING LAW. This Agreement and all actions
contemplated hereby shall be governed by, and construed and enforced in
accordance with, the internal laws of the State of New York, except to the
extent that the provisions of the DGCL may be mandatorily applicable.
SECTION 4.07. COUNTERPARTS. This Agreement may be
executed in one or more counterparts, all of which shall be considered one
and the same agreement.
SECTION 4.08. ASSIGNMENT. Except pursuant to Section
2.01(a), neither this Agreement nor any of the rights, interests or
obligations under this Agreement shall be assigned, in whole or in part by
the Ripplewood Shareholder without the prior written consent of the PRIMEDIA
Shareholder or by the PRIMEDIA Shareholder without the prior written consent
of the Ripplewood Shareholder, and any purported assignment without such
consent shall be void. Subject to the preceding sentences, this Agreement
will be binding upon, inure to the benefit of, and be enforceable by the
parties and their respective successors and assigns.
SECTION 4.09. SPECIFIC PERFORMANCE. The parties hereby
declare that irreparable damage would occur as a result of the failure of any
party hereto to perform any of its obligations under this Agreement in
accordance with the
<PAGE>
19
specific terms hereof. Therefore, all parties hereto shall have the right to
specific performance of the obligations of the other parties under this
Agreement and if any party hereto shall institute any action or proceeding to
enforce the provisions hereof, any Person against whom such action or
proceeding is brought hereby waives the claim or defense therein that such
party has an adequate remedy at law. The right to specific performance should
be in addition to any other remedy to which a party hereto may be entitled at
law or in equity.
SECTION 4.10. TERMINATION. This Agreement shall
automatically terminate upon the closing of an initial public offering of
shares of Company Common Stock or WRC Media Shares, except for the provisions
of Section 2.01(j), which shall terminate 180 days after a registration
deemed to have been effected pursuant to Section 2.01(j)(3) has become
effective.
<PAGE>
20
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed as of the date first above written.
WRC MEDIA INC.,
by /s/ Charles Laurey
-------------------------
Name: /s/Charles Laurey
Title: Secretary
PRIMEDIA INC.,
by
-------------------------
Name:
Title:
WEEKLY READER CORPORATION,
by
-------------------------
Name:
Title:
<PAGE>
21
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed as of the date first above written.
WRC MEDIA INC.,
by
------------------------
Name:
Title:
PRIMEDIA INC.,
by /s/Beverly C. Chell
------------------------
Name: Beverly C Chell
Title: Vice Chairman
WEEKLY READER CORPORATION,
by /s/ Beverly C. Chell
------------------------
Name: Beverly C Chell
Title: Vice Chairman
<PAGE>
SCHEDULE I
<TABLE>
<CAPTION>
SHARES OF COMPANY
SHAREHOLDER COMMON STOCK
<S> <C>
WRC Media Inc. 2,685,670
PRIMEDIA Inc. 144,330
</TABLE>
<PAGE>
SCHEDULE II
<TABLE>
<CAPTION>
SHAREHOLDER ADDRESS
<C> <S>
WRC Media Inc. c/o Ripplewood Holdings L.L.C.
One Rockefeller Plaza, 32nd Floor
New York, New York 10020
Attn: Mr. Timothy C. Collins
Mr. Charles L. Laurey
Phone: (212) 218-2719
Fax: (212) 582-4110
with a copy to:
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, New York 10019
Attn: Peter S. Wilson, Esq.
Phone: (212) 474-1767
Fax: (212) 765-0978
PRIMEDIA Inc. 745 Fifth Avenue
New York, NY 10151
Attn: Mr. Mark Colodny
Phone (212) 745-0100
Fax: (212) 745-0645
with a copy to:
745 Fifth Avenue
New York, NY 10151
Attn: Ann M. Riposanu, Esq.
Phone: (212) 745-0100
Fax: (212) 745-0131
</TABLE>
<PAGE>
1
This EMPLOYMENT AGREEMENT ("Agreement") is
made and entered into as of the 17th day of November,
1999, among WRC MEDIA INC. (formerly named EAC II
INC.), a Delaware corporation (the "Company"), EAC
III L.L.C., a Delaware limited liability company
("EAC III"), JLC LEARNING CORPORATION, a Delaware
corporation ("JLC") and MARTIN E. KENNEY, JR., an
individual resident of the State of Pennsylvania (the
"Executive").
WHEREAS the Company wishes to employ Executive, and
Executive wishes to accept such employment, on the following terms and
conditions, effective as of the Closing Date (as defined in the Redemption,
Stock Purchase and Recapitalization Agreement dated as of August 13, 1999, as
amended, among PRIMEDIA Inc. a Delaware corporation and the Company (the
"Recapitalization Agreement"));
WHEREAS immediately after the Closing (as defined in the
Recapitalization Agreement), the Company will have four primary operating
subsidiaries: JLC Learning Corporation, The Weekly Reader Corporation,
American Guidance Services and World Almanac Reference.
NOW, THEREFORE, in consideration of the mutual covenants
contained herein and intending to be legally bound hereby, the parties hereby
agree as follows:
SECTION 1. EMPLOYMENT. The Company hereby employs
Executive and Executive accepts employment by the Company, on the terms and
conditions contained in this Agreement.
SECTION 2. TERM. The employment of Executive pursuant
hereto shall commence on the Closing Date and shall remain in effect until
December 31, 2002, unless terminated by Executive upon 90 days prior written
notice to the Company or by the Company upon 90 days prior written notice to
Executive. The period of time between the Closing and the termination of this
Agreement pursuant to its terms is herein referred to as the "Term".
SECTION 3. DUTIES AND EXTENT OF SERVICE. Executive shall
serve the Company as Chief Executive Officer or in such other position as may
be mutually agreed upon by Executive and the Company and shall perform such
services and duties for the Company as are customarily performed by an
executive in Executive's position at a business such as the Company's
business and as the Board of Directors of the Company (the "Board of
Directors") may assign or delegate to him from time to time as provided in
the By-laws of the Company. Executive shall devote his full business
knowledge, skill, time and effort exclusively to the performance of his
duties for the Company and the promotion of its interests. Executive's duties
hereunder shall be performed at such place or places as the interests, needs,
businesses or opportunities of the Company shall require. Executive shall
report to the Board of Directors of the Company.
SECTION 4. BASE SALARY. Executive shall be paid a base
salary (the "Base Salary") at a rate of $480,000 per annum (the "Initial
Salary") subject to annual review; PROVIDED, HOWEVER, that the Executive's
Base Salary shall not be reduced below the Initial Salary.
SECTION 5. ANNUAL BONUS. Executive shall receive an
annual bonus ("Bonus") of up to 156% of Base Salary, based on the achievement
of specific objectives to be established
<PAGE>
2
by the Board of Directors on an annual basis in connection with the
development of the Company's annual operating budget for earnings before
interest, depreciation, taxes and amortization and after deductions for any
annual bonus payments payable by the Company. The Bonus in respect of 1999
only will be tied to the 1999 Business Plan of JLC as previously adopted.
Executive shall receive a guaranteed bonus of $200,000 (the "Guaranteed
Bonus"). For achievement of 100%, 110%, 120%, 130%, 140% and 150% of budget,
an additional Bonus of $150,000, $175,000, $250,000, $375,000, $500,000 and
$650,000, respectively, will be paid to Executive. For subsequent years, it
is expected that the Bonus will be tied to the Company's annual operating
budget. All bonuses, except the Guaranteed Bonus, will be pro-rated for
partial year employment, if applicable. In addition, a transaction fee in the
amount of $375,000 will be paid to Executive by the Company upon Closing.
SECTION 6. FRINGE BENEFITS. Executive shall be entitled to
participate, to the extent eligible, in such medical, dental, disability, life
insurance, deferred compensation and other benefit plans (such as pension and
profit sharing plans) as the Company shall maintain for the benefit of employees
generally, on the terms and subject to the conditions set forth in such plans.
SECTION 7. EXPENSES. The Company shall reimburse Executive
promptly for all reasonable expenses incurred by Executive in accordance with
the Company's budget and policy in connection with his duties and
responsibilities hereunder, including, without limitation, expenses associated
with any relocation.
SECTION 8. EQUITY INVESTMENT. On the Closing Date Executive
will purchase a minimum of 16,128 shares of Common Stock, par value $0.01 per
share ("Common Stock") of the Company at a price of $18.60065 per share in cash
(the "Per Share Purchase Price"). Executive will enter into a shareholder
agreement containing customary terms and granting an irrevocable proxy to EAC
III to vote Executive's shares of Common Stock.
SECTION 9. STOCK OPTIONS. (a) BASE STOCK OPTIONS. Upon
the Closing, the Company shall grant Executive a nonqualified option to
purchase shares of Common Stock equal to the quotient obtained by dividing
$3.6 million by $18.60065, rounded downward to the next lowest whole number
of shares, at an exercise price of $18.60065 per share. Such option shall
vest 33% on the Closing Date, 33% on December 31, 2000 and the final 34% on
December 31, 2001; provided that such option shall terminate in its entirety
in the event that Executive's employment hereunder is terminated by the
Company for "Good Cause" (as defined in Section 13) and Executive shall have
no rights with respect to any portion thereof, whether or not vested. If
Executive's employment hereunder is terminated by the Company for any reason
other than "Good Cause" or by Executive for any reason then the foregoing
vesting schedule shall apply.
If a Change of Control (as defined below) occurs, the
option shall be deemed to have fully vested as of the date of such Change of
Control. "CHANGE OF CONTROL" shall mean the acquisition of direct or indirect
Control (as defined below) of the Company by any Person (other than EAC III,
SGC Partners II LLC ("SGC") or any of their Affiliates (as defined below)) or
group other than any group including EAC III or SGC or any of their
Affiliates. "Affiliate" means, with respect to any specified Person, any
other Person that directly or indirectly, through one or more intermediaries,
Controls, is Controlled by, or is under common Control with, such specified
Person. For purposes of this Section 9(a), "Control" (including, with
correlative meanings, the terms "Controlled by" and "under common Control
with"), as used with respect to any Person, means the direct or indirect
possession of the power to direct or cause the direction
<PAGE>
3
of the management or policies of such Person, whether through the ownership
of voting securities, by contract or otherwise. "Person" means any
individual, corporation, partnership, trust, association, limited liability
company, joint venture, joint-stock company or any other entity or
organization, including a government or governmental agency.
(b) BONUS STOCK OPTIONS. For achievement of 95%, 100%, 105%
and 110%, respectively, of the Company's EBITDA budget for 2000, the Company
shall grant Executive an additional nonqualified option to purchase shares of
Common Stock equal to the quotient obtained by dividing $100,000, $200,000,
$300,000 or $400,000, respectively, by $18.60065, rounded downward to the
next lowest whole number of shares, at an exercise price of $18.60065 per
share. Such option shall be fully vested at the time granted.
(c) IPO STOCK OPTIONS. In the event of an initial public
offering of the Common Stock, Executive shall participate in a public company
stock option plan commensurate with industry standards and the nature of the
Company's ownership and capital structure as of the closing of such offering.
(d) EXERCISE OF STOCK OPTIONS. The Executive may exercise
the vested portion of options granted pursuant to Sections 9(a) and (b) by
notifying the Company of the number of shares of Common Stock to be purchased
under such option and delivering with such notice an amount equal to the
aggregate exercise price for such number of shares in cash. Notwithstanding
the foregoing, Executive may notify the Company that Executive desires to
make a cashless exercise of such option with respect to a specified number of
shares of Common Stock, in which case such option shall be deemed exercised
with respect to such specified number of shares but Executive shall only be
entitled to receive a number of shares of Common Stock equal to the product
of (A) such specified number multiplied by (B) the quotient of (1) the
aggregate Fair Market Value of such specified number of shares of Common
Stock (determined as of the date the Company receives such notice in
accordance with Section 14(b)) minus the aggregate exercise price for such
specified number of shares divided by (2) such aggregate Fair Market Value.
(e) TRANSFER, ADJUSTMENT OF STOCK OPTIONS. The options
granted hereby shall not be transferable or assignable by Executive,
otherwise than by will or the laws of descent and distribution, and no such
option shall be subject to execution, attachment or other similar process. In
no event shall any such option be exercisable on or after the tenth
anniversary of the Closing. In the event of changes in the outstanding Common
Stock by reason of stock dividends, stock splits, reverse stock splits,
recapitalizations, reorganizations, mergers, consolidations, combinations or
other changes in capitalization occurring after the Closing, the number of
shares and exercise price under such option shall be equitably adjusted by
the Board of Directors of the Company. Any amount payable under such option
shall be subject to applicable withholding taxes.
SECTION 10. Deliberately Omitted
SECTION 11. NONCOMPETE AND NONSOLICITATION
During the Term and for two years thereafter, Executive
shall not directly or indirectly (other than as an employee of or consultant
to the Company):
(a) engage in activities or businesses within the United
States which are substantially in competition with the Company ("COMPETITIVE
ACTIVITIES"), including (i) selling
<PAGE>
4
goods or services of the type sold by the Company or any of its subsidiaries;
(ii) soliciting or attempting to solicit any customer or client or
prospective customer or client of the Company (or any of its subsidiaries)
including, without limitation, actively sought prospective customers or
clients, to purchase any goods or services of the type sold by the Company or
any of its subsidiaries from anyone other than the Company or any of its
subsidiaries; and (iii) assisting any person in any way to do, or attempt to
do, anything prohibited by (i) or (ii) above;
(b) perform any action, activity or course of conduct which
is substantially detrimental to the business or business reputation of the
Company or any of its subsidiaries ("DETRIMENTAL ACTIVITIES"), including (i)
soliciting, recruiting or hiring any employees of the Company or persons who
have worked for Ripplewood Partners, L.P. ("Ripplewood"), the Company or any
of their respective affiliates; (ii) soliciting or encouraging any employee
of Ripplewood, the Company or any of their respective affiliates to leave the
employment of Ripplewood, the Company or any of their respective affiliates;
(iii) intentionally interfering with the relationship of Ripplewood, the
Company or any of their affiliates with any person or entity who or which is
employed by or otherwise engaged to perform services for Ripplewood, the
Company or any such affiliate; and (iv) disclosing or furnishing to anyone
any confidential information relating to Ripplewood, the Company or any of
their respective affiliates or otherwise using such confidential information
for its own benefit or the benefit of any other person; or
(c) establish in the United States any new business which
engages in Competitive Activities.
Notwithstanding anything to the contrary contained in this
Agreement, the foregoing covenant shall not be deemed breached as a result of
the ownership by Executive of: (i) less than an aggregate of 5% of any class
of stock of a person engaged, directly or indirectly, in Competitive
Activities; PROVIDED, HOWEVER, that such stock is listed on a national
securities exchange or is quoted on the National Market System of NASDAQ;
(ii) less than an aggregate of 10% in value of any instrument of indebtedness
of a person engaged, directly or indirectly, in Competitive Activities; or
(iii) stock or other debt or equity interests in the Company, or the
participation by Executive in the activities and business conducted by the
Company or any of its subsidiaries; PROVIDED, HOWEVER, that, for the lesser
of a period of two years from the Closing or so long as Executive owns stock
or other debt or equity interests in the Company or participates in the
activities or business conducted by the Company or any of its subsidiaries,
Executive shall not engage in any Competitive Activities except to the extent
Executive engages in such Competitive Activities as of the date hereof.
If a judicial determination is made that any of the
provisions of this Section 11 constitutes an unreasonable or otherwise
unenforceable restriction against Executive, the provisions of this Section
II shall be rendered void only to the extent that such judicial determination
finds such provisions to be unreasonable or otherwise unenforceable.
Moreover, notwithstanding the fact that any provisions of this Section 11 is
determined not to be specifically enforceable, the Company shall nevertheless
be entitled to recover monetary damages as a result of Executive's breach of
such provision.
Executive agrees that the provisions of this Section 11 are
reasonable and properly required for the adequate protection of the business
and the goodwill of the Company.
SECTION 12. NONDISCLOSURE. The parties hereto agree that
during the course of his employment by the Company, Executive will have
access to, and will gain knowledge with
<PAGE>
5
respect to, the Company's Confidential Information (as defined below). The
parties acknowledge that unauthorized disclosure or misuse of such
Confidential Information would cause irreparable damage to the Company and
its subsidiaries. Accordingly, Executive agrees to the nondisclosure
covenants in this Section 12. Executive represents that his experience and
capabilities are such that the provisions of Section 11 and this Section 12
will not prevent him from earning his livelihood. Executive agrees that he
shall not (except as may be required by law), without the prior written
consent of the Company during his employment with the Company under this
Agreement, and any extension or renewal hereof, and thereafter for so long as
it remains Confidential Information, use or disclose, or knowingly permit any
unauthorized person to use, disclose or gain access to, any Confidential
Information; PROVIDED, HOWEVER, that Executive may disclose Confidential
Information to a person to whom disclosure is reasonably necessary or
appropriate in connection with the performance by Executive of his duties
under this Agreement. Upon termination of this Agreement for any reason,
Executive shall return to the Company the original and all copies of all
documents and correspondence in his possession relating to the business of
the Company or any of its affiliates, including but not limited to all
Confidential Information, and shall not be entitled to any lien or right of
retention in respect thereof.
For purposes of this Agreement, "Confidential Information"
shall mean all business information (whether or not in written form) which
relates to the Company, any of its affiliates or their respective businesses
or products and which is not known to the public generally, including but not
limited to technical information or reports; trade secrets; unwritten
knowledge and "know-how"; operating instructions; training manuals; customer
lists; customer buying records and habits; product sales records and
documents, and product development, marketing and sales strategies; market
surveys; marketing plans; profitability analyses; product cost; long-range
plans; information relating to pricing, competitive strategies and new
product development; information relating to any forms of compensation and
other personnel-related information; contracts; and supplier lists.
Confidential Information shall not include such information known to
Executive prior to his involvement with Ripplewood.
SECTION 13. SEVERANCE. If Executive's employment hereunder
is terminated (1) upon a breach by the Company of this Agreement; (2) by the
Company for any reason other than for "Good Cause" (as defined below), or (3)
by the Company as a result of the occurrence of the death or total disability
of Executive (total disability meaning the failure of Executive to perform
his normal required services hereunder for a period of three consecutive
months during the term hereof by reason of Executive's mental or physical
disability, as determined by an independent physician reasonably satisfactory
to Executive and the Company) the Company shall pay to Executive as severance
pay a lump sum cash payment in the amount of his Base Salary and Guaranteed
Bonus (in each case prorated for any portion of a year less than a full year)
for the longer of (i) the balance of the Term of this agreement and (ii)
eighteen months. Payment of such severance pay will be made within thirty
(30) days of such termination. Executive shall have the option of receiving
the severance pay specified in the preceding sentence in the form of salary
continuation payments for 18 months (the "Severance Period"). In the event
that Executive elects to receive severance pay in the form of salary
continuation payments, Executive shall continue to receive medical, dental,
and vision coverage for the Severance Period subject to employee's payment of
the costs of such benefits to the extent such benefits are paid for by active
employees. For purposes of this Agreement, termination for "GOOD CAUSE" shall
exist upon the occurrence of any of the following: (i) Executive is convicted
of, pleads guilty to, confesses to, or enters a plea of nolo contendere to,
any felony or any crime that involves moral turpitude or any act of fraud,
misappropriation or embezzlement; (ii) Executive has wilfully engaged in a
fraudulent act to the damage or prejudice of the Company or any affiliate of
the Company; (iii) any act or omission by Executive involving
<PAGE>
6
malfeasance or gross negligence in the performance of Executive's duties to
the Company; or (iv) Executive otherwise wilfully fails to comply in any
material respect with the terms of this Agreement or deviates in any material
respect from any reasonable written policies or reasonable directives of the
Board of Directors and, within 30 days after written notice from the Company
of such failure or deviation, Executive has not corrected such failure.
SECTION 14. OPTIONS TO PURCHASE AND SELL COMMON STOCK.
(a)(i) If Executive's employment is terminated for any reason, the Company
shall have an option to purchase all or any portion of Executive's shares of
Common Stock (including any shares obtained or obtainable through the
exercise of any option) at a purchase price equal to the Fair Market Value
(as defined below), determined in accordance with Section 14(b) as of the
date of such termination. The Company shall within 90 days of such date of
termination give notice in writing to Executive of its election to exercise
or not to exercise such option, which notice shall set forth the portion, if
any, of Executive's shares of Common Stock that the Company elects to
purchase. The purchase of Executive's shares of Common Stock shall take place
at the principal office of Ripplewood, currently located at One Rockefeller
Plaza, New York, New York, on the date specified by the Company (not later
than the later of the twentieth business day following the receipt by
Executive of the required notice from the Company and the satisfaction of any
legal requirements to the purchase of Executive's shares of Common Stock).
The consideration for the purchase of Executive's shares of Common Stock
shall be paid by delivery to Executive of a certified or bank check made
payable to Executive or by wire transfer of immediately available funds to a
bank account designated by Executive, against delivery of certificates or
other instruments representing Executive's shares of Common Stock so
purchased, appropriately endorsed by Executive, free and clear of all
security interests, liens, claims, encumbrances, charges, options,
restrictions on transfer, proxies and voting and other agreements of whatever
nature. The Company may assign its rights under this Section 14 to any person.
(ii) If Executive's employment is terminated by the Company
for other than Good Cause, Executive shall have an option to sell to the
Company all or any portion of Executive's shares of Common Stock purchased on
the Closing Date pursuant to Section 8 (but not shares acquired at a later
date through the exercise of options or otherwise) then held by Executive at
a purchase price equal to the Fair Market Value of such shares, determined in
accordance with Section 14(b) as of the date of such termination; PROVIDED,
that to the extent that the Board of Directors of the Company reasonably
determines that such purchase, if made, would (x) cause the Company to be or
remain in default under any agreements with lenders or financing sources,
despite commercially reasonable efforts by the Company to obtain consents or
amendments necessary to permit such purchase, or (y) conflict with the terms
(including with respect to priority of payment) of the 15% Senior
Exchangeable Preferred Stock Due 2011, par value $0.01 per share, of the
Company, the Company shall be relieved of its obligations to make such
purchase under this Section 14(a)(ii) while and to the extent such conditions
continue to exist. Executive shall within 90 days of such date of termination
give notice in writing to the Company of his election to exercise or not to
exercise such option, which notice shall set forth the portion, if any, of
Executive's shares of Common Stock that Executive elects to sell. The sale of
Executive's shares of Common Stock shall take place at the principal office
of Ripplewood, currently located at One Rockefeller Plaza, New York, New
York, on the date specified by Executive (not later than the later of the
twentieth business day following the receipt by the Company of the required
notice from Executive and the satisfaction of any legal requirements to the
sale of Executive's shares of Common Stock). The consideration for the sale
of Executive's shares of Common Stock shall be paid by delivery to Executive
of a certified or bank check made payable to Executive or by wire transfer of
immediately available funds to a bank account designated by Executive,
against delivery of certificates or other instruments representing
<PAGE>
7
Executive's shares of Common Stock so purchased, appropriately endorsed by
Executive, free and clear of all security interests, liens, claims,
encumbrances, charges, options, restrictions on transfer, proxies and voting
and other agreements of whatever nature.
(b)(i) If a determination of the Fair Market Value of any
shares of Common Stock is required by this Agreement when there is no public
trading market for shares of Common Stock, such "Fair Market Value" shall be
such amount as is determined in good faith by the Company's Board of
Directors as of the date such Fair Market Value is required to be determined
hereunder. In making a determination of such Fair Market Value, the Company's
Board of Directors shall give due consideration to such factors as it deems
appropriate, including, without limitation, the earnings and certain other
financial and operating information of the Company and its subsidiaries in
recent periods, its potential value and that of its subsidiaries as a whole,
its future prospects and that of its subsidiaries and the industries in which
they compete, its history and management and that of its subsidiaries, the
general condition of the securities markets and the fair market value of
securities of privately owned companies (with transfer restrictions) engaged
in businesses similar to those of the Company's, if any. The Fair Market
Value as determined in good faith by the Company's Board of Directors shall
be binding and conclusive upon Executive.
(ii) If a determination of the Fair Market Value of any
shares of Common Stock is required by this Agreement when there is a public
trading market for shares of Common Stock, such "Fair Market Value" shall
mean the average daily closing sales price of shares of Common Stock for the
ten consecutive trading days preceding the date the Fair Market Value is
required to be determined hereunder. The closing price for each day shall be
the last reported sales price regular way or, in case no such reported sale
takes place on such day, the average of the reported closing bid and asked
prices regular way, in either case on the principal national securities
exchange on which shares of Common Stock are listed and admitted to trading,
or, if not listed and admitted to trading on any such exchange, on the NASDAQ
National Market System, or, if not quoted on the National Market System, the
average of the closing bid and asked prices in the over-the-counter market as
furnished by any New York Stock Exchange member firm selected from time to
time by the Company's Board of Directors for that purpose.
SECTION 15. TERMINATION; SURVIVAL. This Agreement shall
terminate upon the earlier of (x) the termination of the Recapitalization
Agreement pursuant to its terms; or (y) the termination of Executive's
employment by the Company. Notwithstanding the foregoing, Sections 11, 12, 14
and 16 and, if Executive's employment terminates in a manner giving rise to a
payment under Section 13, Section 13 shall survive the termination of this
Agreement.
SECTION 16. MISCELLANEOUS. (a) This Agreement shall inure
to the benefit of and shall be binding upon Executive and his executor,
administrator, heirs, personal representative and permitted assigns, and the
Company and its successors and permitted assigns; PROVIDED, HOWEVER, that
Executive shall not be entitled to assign or delegate any of his rights or
obligations hereunder without the prior written consent of the Company.
(b) This Agreement shall be deemed to be made in, and in
all respects shall be interpreted, construed and governed by and in
accordance with, the laws of the State of Delaware, without regard to the
conflicts of law principles of such State. No provision of this Agreement or
any related document shall be construed against or interpreted to the
disadvantage of any party hereto by any court or other governmental or
judicial authority by reason of such party having or being deemed to have
structured or drafted such provision.
<PAGE>
8
(c) This Agreement constitutes the entire agreement between
the Company and Executive with respect to Executive's employment by the
Company after the Closing Date, and, effective as of the Closing Date,
supersedes all prior agreements, if any, whether written or oral, between
them, relating to Executive's employment by the Company or any of its
subsidiaries, including, without limitation, the Employment Agreement between
Executive and JLC dated as of July 14, 1999 the ("JLC Employment Agreement").
All prior agreements between the Company or any of its subsidiaries and
Executive with respect to Executive's employment by the Company or any of its
subsidiaries, including those agreements set forth on Schedule II attached
hereto, shall terminate and be without further force or effect as of the
Closing. Executive hereby releases the Company its subsidiaries and its
affiliates from any claims or rights under such agreements, without any
liability or other adverse consequence to the Company, its affiliates or its
subsidiaries. The JLC hereby releases Executive from any claims or rights
under such agreements, without any liability or other adverse consequence to
Executive.
(d) All notices or other communications required or
permitted by this Agreement shall be made in writing and any such notice or
communication shall be deemed delivered when delivered in person, transmitted
by telecopier, or one business day after it has been sent by a nationally
recognized overnight courier, at the address for notices as follows:
(i) if to the Company,
WRC Media Inc.
c/o Ripplewood Holdings L.L.C.
One Rockefeller Plaza
32nd Floor
New York, New York 10020
Attention: Mr. Timothy C. Collins
Mr. Charles L. Laurey
Facsimile: (212) 582-4110
(ii) if to Executive,
Mr. Martin E. Kenney, Jr.
West Greenlawn Road
Paoli, PA 19301
Facsimile: (610) 993-8798
Communications by telecopier also shall be sent concurrently by overnight
courier, but shall in any event be effective as stated above. Each party may
from time to time change its address for notices under this Section 16(d) by
giving at least five days' notice of such changed address to the other
parties hereto.
(e) This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement,
and shall become effective when one or more of the counterparts have been
signed by each of the parties and delivered to the other parties, it being
understood that all parties need not sign the same counterpart.
(f) The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
<PAGE>
9
(g) No failure or delay by Executive or the Company in
exercising any right or power hereunder shall operate as a waiver thereof,
nor shall any single or partial exercise of any such right or power, or any
abandonment of any steps to enforce such a right or power, preclude any other
or further exercise thereof or the exercise of any other right or power.
Neither this Agreement nor any provision hereof may be waived, amended or
modified except pursuant to an agreement in writing entered into by Executive
and the Company.
(h) Any controversy, dispute or claim arising out of, in
connection with, or in relation to the interpretation, performance,
non-performance, validity or breach of this Agreement or otherwise arising
out of, or in any way related to, this Agreement shall be determined, at the
request of any party, by arbitration conducted in New York City, before and
in accordance with the then-existing Rules for Commercial Arbitration of the
American Arbitration Association, and any judgment or award rendered by the
arbitrator shall be final, binding and unappealable, and any judgment may be
entered by any state or Federal court having jurisdiction thereof. In its
award the arbitrator shall allocate, in its discretion, among the parties to
the arbitration all costs of the arbitration, including the fees and expenses
of the arbitrator and reasonable attorneys' fees, costs and expert witness
expenses of the parties.
(i) All amounts paid hereunder will be net of any
applicable withholdings required by existing or future tax laws.
<PAGE>
10
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the day and year first above written.
WRC MEDIA INC.,
by /s/ Charles Laurey
------------------------
Name: Charles Laurey
Title: Secretary
------------------------
Martin E. Kenney
EAC III L.L.C. hereby agrees to the
provisions of Section 8 and Section 9
EAC III L.L.C.,
by RIPPLEWOOD PARTNERS, L.P.,
its Sole Member,
by RIPPLEWOOD HOLDINGS L.L.C.,
its General Partner,
by /s/ Robert Lynch
---------------------------
Name: Robert Lynch
Title: Treasurer
JLC Learning Corporation
hereby agrees to the provisions of
Section 16(c)
JLC LEARNING CORPORATION
by /s/ Charles Laurey
---------------------------
Name: Charles Laurey
Title: Secretary
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the day and year first above written.
WRC MEDIA INC.,
by
------------------------
Name:
Title:
/s/ Martin E. Kenney Jr.
------------------------
Martin E. Kenney
EAC III L.L.C. hereby agrees to the
provisions of Section 8 and Section 9
EAC III L.L.C.,
by RIPPLEWOOD PARTNERS, L.P.,
its Sole Member,
by RIPPLEWOOD HOLDINGS L.L.C.,
its General Partner,
by
--------------------------
Name:
Title:
JLC Learning Corporation
hereby agrees to the provisions of
Section 16(c)
JLC LEARNING CORPORATION
by
-------------------------
Name:
Title:
<PAGE>
This Agreement is made as of November ,
1999, between WRC Media Inc., a Delaware
corporation ("the Company"), and Martin E.
Kenney, Jr., an individual resident of the
State of Pennsylvania (the "Executive").
Pursuant to the terms of the Employment Agreement, dated as ofthe date
hereof, among the Company, EAC III L.L.C., a Delaware limited liability
company, JLC Learning Corporation, a Delaware corporation, and Executive,
(i) Executive is purchasing 16,128 shares of Common Stock, par $18.60065 per
share in cash for an aggregate purchase price of $300,000 (the "Purchase
Price") and (ii) the Company is paying to Executive a transaction fee (the
"Transaction Fee") of $375,000.
Executive and the Company hereby agree that the Purchase Price shall be
deducted from the Transaction Fee so that, upon the transfer of $75,000 from
the Company to Executive, the Executive shall have paid the Purchase Price in
full and the Company shall have paid the Transaction Fee in full.
WRC MEDIA INC.,
by
---------------------------------
Name:
Title:
/s/ Martin E. Kenney, Jr.
--------------------------------
Martin E. Kenney, Jr.
<PAGE>
This EMPLOYMENT AGREEMENT ("AGREEMENT") is made and entered
into as of the 17 day of November, 1999, by and between Weekly
Reader Corporation, a Delaware corporation (the "COMPANY"), and
Terry Bromberg, an individual resident of the State of New Jersey
(the "EXECUTIVE").
WHEREAS the Company wishes to employ Executive, and Executive wishes
to accept such employment, on the following terms and conditions, effective as
of the Closing Date (as defined in the Redemption, Stock Purchase and
Recapitalization Agreement dated as of August 13, 1999, as amended (the
"PURCHASE AGREEMENT"), between PRIMEDIA Inc. and WRC Media Inc. (formerly named
EAC II Inc.), a Delaware corporation ("WRC Media");
NOW, THEREFORE, in consideration of the mutual covenants contained
herein and intending to be legally bound hereby, the parties hereby agree as
follows:
SECTION 1. EMPLOYMENT. The Company hereby employs Executive and
Executive accepts employment by the Company, on the terms and conditions
contained in this Agreement.
SECTION 2. TERM. The employment of Executive pursuant hereto shall
commence on the Closing Date and shall remain in effect until December 31, 2001
unless terminated by Executive upon 30 days prior written notice to the Company
or by the Company upon 30 days prior written notice to Executive. The period of
time between the Closing Date and the termination of this Agreement pursuant to
its terms is herein referred to as the "TERM". The Term shall be automatically
renewed for successive one-year periods unless, at least 90 days prior to any
applicable expiration date, either party gives written notice to the other party
that such party does not wish to renew.
SECTION 3. DUTIES AND EXTENT OF SERVICE; PLACE OF PERFORMANCE. During
the Term, Executive shall serve the Company as President of Lifetime Learning
Systems, Inc. and shall perform duties and exercise authority commensurate with
such role. Executive shall initially report to Peter E. Bergen. Executive shall
devote Executive's full business time and best efforts to the performance of
Executive's duties hereunder and to the business of the Company and its direct
and indirect subsidiaries. Except as mutually agreed upon by Executive and the
Company, the Company shall not materially diminish Executive's position at the
Company without Good Cause (as defined in Section 11). During the Term,
Executive shall continue to be employed at the location at which he is employed
as of the Closing Date or at another
<PAGE>
2
location within 30 miles thereof as the Company, in its sole discretion, shall
determine.
SECTION 4. BASE SALARY. During the Term, Executive shall be paid a
base salary (the "BASE SALARY"), payable in bi-weekly installments at the end of
every two weeks, at a rate of $120,000 per annum until January 1, 2000, and
thereafter, at a rate of $150,000 (the "INITIAL SALARY") subject to annual
review; PROVIDED that Executive's Base Salary shall not be reduced below the
Initial Salary.
SECTION 5. BONUS. Executive shall continue to be eligible to receive
any annual bonus for the 1999 calendar year which may be payable to Executive
under the short-term executive incentive compensation plan currently applicable
to Executive in accordance with the terms of Executive's bonus letter from the
Company (the "BONUS LETTER"), a copy of which is attached hereto. Bonuses for
future years during the Term shall be set by the Company annually based on
reasonable criteria communicated to Executive. Such criteria shall be comparable
to the criteria currently set forth in the Bonus Letter. Target bonuses shall
not be less than the target bonus set forth in the Bonus Letter.
SECTION 6. FRINGE BENEFITS. Executive shall be entitled to
participate, to the extent eligible, in such medical, dental, disability, life
insurance, deferred compensation, retirement and other benefit plans as the
Company shall maintain for the benefit of employees generally, on the terms and
subject to the conditions set forth in such plans, which plans shall be
comparable in the aggregate to those plans in effect for Executive as of the
date hereof. Executive shall also be entitled to vacation time and sick leave in
accordance with the Company's policies in existence immediately prior to the
Closing and as applied to Executive immediately prior to the Closing.
SECTION 7. EXPENSES. Upon receipt from Executive of expense vouchers
and other documentation reasonably requested by the Company, the Company shall
reimburse Executive promptly for all reasonable expenses incurred by Executive
in accordance with the Company's policies and procedures in connection with
Executive's duties and responsibilities hereunder.
SECTION 8. EQUITY INVESTMENT. From the date of the Closing to December
15, 1999, Executive may elect to purchase up to $20,000 of Common Stock, par
value $0.01 per share ("WRC MEDIA COMMON STOCK"), of WRC Media from EAC IV
L.L.C. at a purchase price of $18.60065 per share in cash. If Executive
purchases any such shares, Executive will enter into a shareholder agreement
among WRC Media, EAC III L.L.C. and certain other executives of the Company and
its affiliates in the form previously agreed to by such parties. If Executive so
elects, up to one half of
<PAGE>
3
Executive's purchase of WRC Media Common Stock may be financed with a personal
loan guaranteed by the Company on commercially reasonable terms. The Company
shall make reasonable efforts to arrange and guarantee such loan.
SECTION 9. NONSOLICITATION. (a) In the event that Executive's
employment with the Company is terminated by the Company for any reason, then
during the period beginning on the Closing Date and ending on the date that is
12 months after the date of termination of Executive's employment and to the
fullest extent permitted under applicable law, Executive agrees that Executive
shall not, directly or indirectly, solicit or attempt to solicit any business
from any customers or clients of the Company, including actively sought
prospective customers or clients, in connection with any Competing Publication
or Product Line (as defined on Schedule I). During the period beginning on the
Closing Date and ending on the date that is 24 months after the date of
termination of Executive's employment with the Company and to the fullest extent
permitted under applicable law, Executive agrees that Executive shall not,
directly or indirectly, other than as an employee of the Company, solicit,
recruit or hire any employees of or persons who have worked for the Company,
other than secretaries, during the twelve-month period prior to termination of
Executive's employment or solicit or encourage any such employee of the Company
to leave the employment of the Company.
(b) If a judicial determination is made that any of the provisions of
this Section 9 constitutes an unreasonable or otherwise unenforceable
restriction against Executive, the provisions of such Section shall be rendered
void only to the extent that such judicial determination finds such provisions
to be unreasonable or otherwise unenforceable.
SECTION 10. NONDISCLOSURE. The parties hereto agree that during the
course of Executive's employment by the Company, Executive will have access to,
and will gain knowledge with respect to, the Companies' Confidential Information
(as defined below). The parties acknowledge that unauthorized disclosure or
misuse of such Confidential Information would cause irreparable damage to the
Companies. Accordingly, Executive agrees that Executive shall not (except as may
be required by law), without the prior written consent of the Company during
Executive's employment with the Company under this Agreement, and any extension
or renewal hereof, and thereafter for a period ending on the fifth anniversary
of the date of termination of Executive's employment with the Company, use or
disclose, or knowingly permit any unauthorized person to use, disclose or gain
access to, any Confidential Information; PROVIDED that Executive may disclose
Confidential Information to a person to whom disclosure is reasonably necessary
or appropriate in connection
<PAGE>
4
with the performance by Executive of Executive's duties under this Agreement.
Upon termination of this Agreement for any reason, Executive shall return to the
Company the original and all copies of all documents and correspondence in
Executive's possession relating to the business of any of the Companies or any
of their affiliates, including but not limited to all Confidential Information,
and shall not be entitled to any lien or right of retention in respect thereof.
Upon termination of this Agreement for any reason, Executive shall be entitled
to remove all documents and correspondence of a purely personal nature. For
purposes of this Agreement, "CONFIDENTIAL INFORMATION" shall mean all business
information (whether or not in written form) which relates to any of the
Companies, any of their affiliates or their respective businesses or products
and which is not known to the public generally, including but not limited to
technical information or reports; trade secrets; unwritten knowledge and
"know-how"; operating instructions; training manuals; customer lists; customer
buying records and habits; product sales records and documents, and product
development, marketing and sales strategies; market surveys; marketing plans;
profitability analyses; product cost; long-range plans; information relating to
pricing, competitive strategies and new product development; information
relating to any forms of compensation and other personnel-related information;
contracts; and supplier lists; PROVIDED that "Confidential Information" shall
not include general business know-how.
SECTION 11. SEVERANCE. If Executive's employment hereunder is
terminated upon a breach by the Company of this Agreement, by the Company for
any reason other than for Good Cause or by reason of a notice of nonrenewal
given by the Company, the Company shall pay to Executive as severance pay a lump
sum cash payment in an amount equal to Executive's Base Salary for the year in
which termination occurs. The Company shall also pay to Executive any accrued
and unpaid Base Salary owed to Executive for the period prior to such
termination, a prorated portion of Executive's Base Salary for any accrued
unused vacation time of Executive for the period prior to such termination and
any incurred but unpaid reimbursable expenses as contemplated by Section 7.
Additionally, in the event that any such termination occurs more than six months
after the beginning of any calendar year, the Company shall pay to Executive a
prorated portion of the Bonus that Executive would have been entitled to for
such calendar year puruant to Section 5. Payment of such severance pay and other
amounts will be made within 30 days of such termination. For purposes of this
Agreement, "GOOD CAUSE" shall exist upon the occurrence of any of the following:
(i) Executive is convicted of, pleads guilty to, confesses to, or enters a plea
of nolo contendere to, any felony or any crime that involves moral turpitude or
any act of fraud, misappropriation or embezzlement; (ii) Executive has engaged
in a fraudulent act to
<PAGE>
5
the damage or prejudice of any of the Companies or any affiliate of any of the
Companies; (iii) any act or omission by Executive involving malfeasance or gross
negligence in the performance of Executive's duties to the Company; (iv)
Executive otherwise fails to comply in any material respect with the terms of
this Agreement or deviates in any material respect from any reasonable written
policies or reasonable directives of the Board of Directors of the Company and,
within 60 days after written notice from the Company of such failure or
deviation, Executive has not corrected such failure; or (v) the occurrence of
the death or total disability of Executive (total disability meaning the failure
of Executive to perform Executive's normal required services hereunder for a
period of six consecutive months during the term hereof by reason of Executive's
mental or physical disability, as determined by an independent physician
reasonably satisfactory to Executive and the Company).
SECTION 12. TERMINATION; SURVIVAL. This Agreement shall terminate upon
the earlier of (a) the termination of the Purchase Agreement pursuant to its
terms and (b) the termination of Executive's employment by the Company.
Notwithstanding the foregoing, Sections 9, 10 and 13 and, if Executive's
employment terminates in a manner giving rise to a payment under Section 11,
Section 11 shall survive the termination of this Agreement.
SECTION 13. MISCELLANEOUS. (a) This Agreement shall inure to the
benefit of and shall be binding upon Executive and Executive's executor,
administrator, heirs, personal representative and permitted assigns and the
Company and its successors and permitted assigns; PROVIDED that Executive shall
not be entitled to assign or delegate any of Executive's rights or obligations
hereunder without the prior written consent of the Company.
(b) This Agreement shall be deemed to be made in, and in all respects
shall be interpreted, construed and governed by and in accordance with, the laws
of the State of New York, without regard to the conflicts of law principles of
such State. No provision of this Agreement or any related document shall be
construed against or interpreted to the disadvantage of any party hereto by any
court or other governmental or judicial authority by reason of such party having
or being deemed to have structured or drafted such provision.
(c) This Agreement constitutes the entire agreement between the
Company and Executive with respect to Executive's employment by the Company
after the Closing Date and, effective as of the Closing Date, supersedes all
prior agreements, whether written or oral, between them relating to Executive's
employment by the Company, including those agreements set forth on Schedule II
attached hereto, if any; PROVIDED that this Agreement does not
<PAGE>
6
supersede the Bonus Letter. Effective as of the Closing Date, Executive hereby
releases the Company and its affiliates from any claims or rights under such
agreements, without any liability or other adverse consequence to the Company,
its affiliates or WRC Media and the Company hereby releases Executive from any
claims or rights under such agreements, without any liability or other adverse
consequence to Executive.
(d) All notices or other communications required or permitted by this
Agreement shall be made in writing and any such notice or communication shall be
deemed delivered when delivered in person, transmitted by telecopier, or one
business day after it has been sent by a nationally recognized overnight
courier, at the address for notices as follows:
(i) if to the Company,
Weekly Reader Corporation
c/o Ripplewood Holdings L.L.C.
One Rockefeller Plaza
32nd Floor
New York, New York 10020
Attention: Mr. Timothy C. Collins
Mr. Charles L. Laurey
Mr. Martin Kenney
Facsimile: (212) 582-4110
(ii) if to Executive,
Terry Bromberg
11 Rudd Court
Glen Ridge, NJ 07028
with a copy to:
Rubin Baum Levin Constant & Friedman
30 Rockefeller Plaza
New York, NY 10112
Attention: Robert J. Benowitz, Esq.
Facsimile: 212-698-7825
Communications by telecopier also shall be sent concurrently by overnight
courier, but shall in any event be effective as stated above. Each party may
from time to time change its address for notices under this Section 13(d) by
giving at least five days' notice of such changed address to the other parties
hereto.
(e) This Agreement may be executed in one or more counterparts, all of
which shall be considered one and the same agreement, and shall become effective
when one or more of the
<PAGE>
7
counterparts have been signed by each of the parties and delivered to the other
parties, it being understood that all parties need not sign the same
counterpart.
(f) The headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
(g) No failure or delay by Executive or the Company in exercising any
right or power hereunder shall operate as a waiver thereof, nor shall any single
or partial exercise of any such right or power, or any abandonment of any steps
to enforce such a right or power, preclude any other or further exercise thereof
or the exercise of any other right or power. Neither this Agreement nor any
provision hereof may be waived, amended or modified except pursuant to an
agreement in writing entered into by Executive and the Company.
(h) Any controversy, dispute or claim arising out of, in connection
with, or in relation to the interpretation, performance, non-performance,
validity or breach of this Agreement or otherwise arising out of, or in any way
related to, this Agreement shall be determined, at the request of any party, by
arbitration conducted in New York City, before and in accordance with the
then-existing Rules for Commercial Arbitration of the American Arbitration
Association, and any judgment or award rendered by the arbitrator shall be
final, binding and unappealable, and any judgment may be entered by any state or
Federal court having jurisdiction thereof. In its award the arbitrator shall
allocate, in its discretion, among the parties to the arbitration all costs of
the arbitration, including the fees and expenses of the arbitrator and
reasonable attorneys' fees, costs and expert witness expenses of the parties.
The Company shall pay for all reasonable travel expenses (including
transportation, lodging and meals) incurred by Executive in connection with any
arbitration session.
(i) All amounts paid hereunder will be net of any applicable
withholdings required by existing or future tax laws.
<PAGE>
8
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the day and year first above written.
Weekly Reader Corporation,
By /s/ Charles Laurey
--------------------------
Name: Charles Laurey
Title: Secretary
/s/ Terry Bromberg
--------------------------
Terry Bromberg
<PAGE>
This EMPLOYMENT AGREEMENT ("AGREEMENT") is
made and entered into as of the 17 day of November,
1999, by and between Weekly Reader Corporation, a
Delaware corporation (the "COMPANY"), and Peter
Bergen, an individual resident of the State of
Connecticut (the "EXECUTIVE").
WHEREAS the Company wishes to employ Executive, and Executive
wishes to accept such employment, on the following terms and conditions,
effective as of the Closing Date (as defined in the Redemption, Stock Purchase
and Recapitalization Agreement dated as of August 13, 1999, as amended, (the
"PURCHASE AGREEMENT"), between PRIMEDIA Inc. and WRC Media Inc. (formerly named
EAC II Inc.), a Delaware corporation ("WRC Media");
NOW, THEREFORE, in consideration of the mutual covenants
contained herein and intending to be legally bound hereby, the parties hereby
agree as follows:
SECTION 1. EMPLOYMENT. The Company hereby employs Executive
and Executive accepts employment by the Company, on the terms and conditions
contained in this Agreement.
SECTION 2. TERM. The employment of Executive pursuant hereto
shall commence on the Closing Date and shall remain in effect until December 31,
2001 unless terminated by Executive upon 30 days prior written notice to the
Company or by the Company upon 30 days prior written notice to Executive. The
period of time between the Closing Date and the termination of this Agreement
pursuant to its terms is herein referred to as the "TERM". The Term shall be
automatically renewed for successive one-year periods unless, at least 90 days
prior to any applicable expiration date, either party gives written notice to
the other party that such party does not wish to renew.
SECTION 3. DUTIES AND EXTENT OF SERVICE; PLACE OF PERFORMANCE.
During the Term, Executive shall serve the Company as President of the Company
and shall perform duties and exercise authority commensurate with such role.
Executive shall initially report to the Chief Executive Officer of WRC Media.
Executive shall devote Executive's full business time and best efforts to the
performance of Executive's duties hereunder and to the business of the Company
and its direct and indirect subsidiaries (the "COMPANIES"). Except as mutually
agreed upon by Executive and the Company, the Company shall not materially
diminish Executive's position at the Company without Good Cause (as defined in
Section 11). During the Term, Executive shall continue to be employed at the
location at which he is employed as of the Closing Date or at another location
within 30 miles thereof as the Company, in its sole discretion, shall determine.
SECTION 4. BASE SALARY. Executive shall be paid a base salary
(the "BASE SALARY"), payable in bi-weekly installments at the end of every two
weeks, at a rate of $250,000 per annum until January 1, 2000 and thereafter, at
a rate of not less than $275,000 (the "INITIAL SALARY") subject to annual
review; PROVIDED that Executive's Base Salary shall not be reduced below the
Initial Salary.
SECTION 5. BONUS. Executive shall continue to be eligible to
receive any annual bonus for the 1999 calendar year which may be payable to
Executive under the short-term executive incentive compensation plan currently
applicable to Executive in accordance with the terms of Executive's bonus
letter from PRIMEDIA Inc. (the "BONUS LETTER"), a copy of which is
<PAGE>
2
attached hereto. Bonuses for future years during the Term shall be set by the
Company annually based on reasonable criteria communicated to Executive. Such
criteria shall be comparable to the criteria currently set forth in the Bonus
Letter. Target bonuses for future years shall not be less than the target bonus
set forth in the Bonus Letter. The Bonus for any year shall be paid no later
than March 15 of the following year.
SECTION 6. FRINGE BENEFITS. Executive shall be entitled to
participate, to the extent eligible, in such medical, dental, disability, life
insurance, deferred compensation, retirement and other benefit plans as the
Company shall maintain for the benefit of employees generally, on the terms and
subject to the conditions set forth in such plans, which plans shall be
comparable in the aggregate to those plans in effect for Executive as of the
date hereof. Executive shall also be entitled to vacation time and sick leave
in accordance with the Company's policies in existence immediately prior to the
Closing and as applied to Executive immediately prior to the Closing.
SECTION 7. EXPENSES. Upon receipt from Executive of expense
vouchers and other documentation reasonably requested by the Company, the
Company shall reimburse Executive promptly for all reasonable expenses incurred
by Executive in accordance with the Company's policies and procedures in
connection with Executive's duties and responsibilities hereunder.
SECTION 8. EQUITY INVESTMENT. Simultaneously with the
Closing, Executive will purchase 8,064 shares of Common Stock, par value $0.01
per share ("WRC MEDIA COMMON STOCK"), of WRC Media, at a purchase price of
$18.60065 per share in cash for an aggregate purchase price of $150,000 and
will enter into a shareholder agreement among WRC Media, EAC III LLC and
certain other executives of the Companies in the form previously agreed to by
such parties. If Executive so elects, up to one half of Executive's purchase of
WRC Media Common Stock may be financed with a personal loan guaranteed by the
Company on commercially reasonable terms. The Company shall make reasonable
efforts to arrange and guarantee such loan.
SECTION 9. NONSOLICITATION. (a) During the period beginning
on the Closing Date and ending on the later of (i) the date that is 12 months
after the date of termination of Executive's employment with the Company and
(ii) December 31, 2001 and to the fullest extent permitted under applicable
law, Executive agrees that Executive shall not, directly or indirectly, solicit
or attempt to solicit any business from any customers or clients of any of the
Companies, including actively sought prospective customers or clients, in
connection with any Competing Publication or Product Line (as defined on
Schedule I). During the period beginning on the Closing Date and ending on the
date that is 24 months after the date of termination of Executive's employment
with the Company and to the fullest extent permitted under applicable law,
Executive agrees that Executive shall not, except as an employee of the
Company, directly or indirectly, solicit, recruit or hire any employees of or
persons who have worked for any of the Companies during the twelve-month period
prior to termination of Executive's employment or solicit or encourage any such
employee of any of the Companies to leave the employment of any of the
Companies.
(b) If a judicial determination is made that any of the
provisions of this Section 9 constitutes an unreasonable or otherwise
unenforceable restriction against Executive, the provisions of such Section
shall be rendered void only to the extent that such judicial determination
finds such provisions to be unreasonable or otherwise unenforceable.
<PAGE>
3
SECTION 10. NONDISCLOSURE. The parties hereto agree that
during the course of Executive's employment by the Company, Executive will have
access to, and will gain knowledge with respect to, the Companies' Confidential
Information (as defined below). The parties acknowledge that unauthorized
disclosure or misuse of such Confidential Information would cause irreparable
damage to the Companies. Accordingly, Executive agrees to the nondisclosure
covenants in this Section 10. Executive agrees that Executive shall not (except
as may be required by law), without the prior written consent of the Company
during Executive's employment with the Company under this Agreement, and any
extension or renewal hereof, and thereafter for a period ending on the fifth
anniversary of the date of termination of Executive's employment with the
Company, use or disclose, or knowingly permit any unauthorized person to use,
disclose or gain access to, any Confidential Information; PROVIDED that
Executive may disclose Confidential Information to a person to whom disclosure
is reasonably necessary or appropriate in connection with the performance by
Executive of Executive's duties under this Agreement. Upon termination of this
Agreement for any reason, Executive shall return to the Company the original
and all copies of all documents and correspondence in Executive's possession
relating to the business of any of the Companies or any of their affiliates,
including but not limited to all Confidential Information, and shall not be
entitled to any lien or right of retention in respect thereof. Upon termination
of this Agreement for any reason, Executive shall be entitled to remove all
documents and correspondence of a purely personal nature. For purposes of this
Agreement, "CONFIDENTIAL INFORMATION" shall mean all business information
(whether or not in written form) which relates to any of the Companies, any of
their affiliates or their respective businesses or products and which is not
known to the public generally, including but not limited to technical
information or reports; trade secrets; unwritten knowledge and "know-how";
operating instructions; training manuals; customer lists; customer buying
records and habits; product sales records and documents, and product
development, marketing and sales strategies; market surveys; marketing plans;
profitability analyses; product cost; long-range plans; information relating to
pricing, competitive strategies and new product development; information
relating to any forms of compensation and other personnel-related information;
contracts; and supplier lists; PROVIDED that "Confidential Information" shall
not include general business know-how.
SECTION 11. SEVERANCE. If Executive's employment hereunder is
terminated upon a breach by the Company of this Agreement, by the Company for
any reason other than for Good Cause or by reason of a notice of nonrenewal
given by the Company, the Company shall pay to Executive as severance pay a
lump sum cash payment in an amount equal to the product of Executive's entire
Base Salary for the year in which termination occurs multiplied by the greater
of (a) one and (b) the quotient of (x) the number of months from and including
the month in which such termination occurs to and including the month ending
December 31, 2001 divided by (y) 12. The Company shall also pay to Executive
any accrued and unpaid Base Salary owed to Executive for the period prior to
such termination, a prorated portion of Executive's Base Salary for any accrued
unused vacation time of Executive for the period prior to such termination and
any incurred but unpaid reimbursable expenses as contemplated by Section 7.
Payment of such severance pay and other amounts will be made within 30 days of
such termination. If the applicable bonus criteria have been achieved, no later
than March 31 of the year following the year in which any such termination
occurred, the
<PAGE>
4
Company shall also pay to Executive a prorated portion of Executive's bonus for
the portion of the year in which termination occurred from the beginning of the
calendar year to the date of termination. For purposes of this Agreement, "GOOD
CAUSE" shall exist upon the occurrence of any of the following: (i) Executive
is convicted of, pleads guilty to, confesses to, or enters a plea of nolo
contendere to, any felony or any crime that involves moral turpitude or any act
of fraud, misappropriation or embezzlement; (ii) Executive has engaged in a
fraudulent act to the damage or prejudice of any of the Companies or any
affiliate of any of the Companies; (iii) any act or omission by Executive
involving malfeasance or gross negligence in the performance of Executive's
duties to the Company; (iv) Executive otherwise fails to comply in any material
respect with the terms of this Agreement or deviates in any material respect
from any reasonable written policies or reasonable directives of the Board of
Directors of the Company and, within 60 days after written notice from the
Company of such failure or deviation, Executive has not corrected such failure;
or (v) the occurrence of the death or total disability of Executive (total
disability meaning the failure of Executive to perform Executive's normal
required services hereunder for a period of six consecutive months during the
term hereof by reason of Executive's mental or physical disability, as
determined by an independent physician reasonably satisfactory to Executive and
the Company).
SECTION 12. TERMINATION; SURVIVAL. This Agreement shall
terminate upon the earlier of (a) the termination of the Purchase Agreement
pursuant to its terms and (b) the termination of Executive's employment by the
Company. Notwithstanding the foregoing, Sections 9, 10 and 13 and, if
Executive's employment terminates in a manner giving rise to a payment under
Section 11, Section 11 shall survive the termination of this Agreement.
SECTION 13. MISCELLANEOUS. (a) This Agreement shall inure to
the benefit of and shall be binding upon Executive and Executive's executor,
administrator, heirs, personal representative and permitted assigns and the
Company and its successors and permitted assigns; PROVIDED that Executive shall
not be entitled to assign or delegate any of Executive's rights or obligations
hereunder without the prior written consent of the Company.
(b) This Agreement shall be deemed to be made in, and in all
respects shall be interpreted, construed and governed by and in accordance
with, the laws of the State of New York, without regard to the conflicts of law
principles of such State. No provision of this Agreement or any related
document shall be construed against or interpreted to the disadvantage of any
party hereto by any court or other governmental or judicial authority by reason
of such party having or being deemed to have structured or drafted such
provision.
(c) This Agreement constitutes the entire agreement between
the Company and Executive with respect to Executive's employment by the Company
after the Closing Date and, effective as of the Closing Date, supersedes all
prior agreements, whether written or oral, between them relating to Executive's
employment by the Company, including those agreements set forth on Schedule II
attached hereto; PROVIDED that this Agreement does not supersede the Bonus
Letter. Effective as of the Closing Date, Executive hereby releases the Company
and its affiliates from any claims or rights under such agreements, without any
liability or other adverse consequence to the Company, the Companies or WRC
Media and the Company hereby releases Executive from any claims or rights under
such agreements, without any liability or other adverse consequence to
Executive.
(d) All notices or other communications required or permitted
by this Agreement shall be made in writing and any such notice or communication
shall be deemed delivered when delivered in person, transmitted by telecopier,
or one business day after it has been sent by a nationally recognized overnight
courier, at the address for notices as follows:
<PAGE>
5
(i) if to the Company,
Weekly Reader Corporation
c/o Ripplewood Holdings L.L.C.
One Rockefeller Plaza
32nd Floor
New York, New York 10020
Attention: Mr. Timothy C. Collins
Mr. Charles L. Laurey
Mr. Martin Kenney
Facsimile: (212) 582-4110
(ii) if to Executive,
Mr. Peter Bergen
210 Indian Waters Drive
New Cannon, CT 06840
Facsimile: 203-705-1667
with a copy to:
Rubin Baum Levin Constant & Friedman
30 Rockefeller Plaza
New York, New York 10312
Attention: Mr. Robert J. Benowitz
Facsimile: (212) 698-7825
Communications by telecopier also shall be sent concurrently by overnight
courier, but shall in any event be effective as stated above. Each party may
from time to time change its address for notices under this Section 13(d) by
giving at least five days' notice of such changed address to the other parties
hereto.
(e) This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement, and
shall become effective when one or more of the counterparts have been signed by
each of the parties and delivered to the other parties, it being understood
that all parties need not sign the same counterpart.
(f) The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
(g) No failure or delay by Executive or the Company in
exercising any right or power hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of any such right or power, or any
abandonment of any steps to enforce such a right or power, preclude any other
or further exercise thereof or the exercise of any other right or power.
Neither this Agreement nor any provision hereof may be waived, amended or
modified except pursuant to an agreement in writing entered into by Executive
and the Company.
(h) Any controversy, dispute or claim arising out of, in
connection with, or in relation to the interpretation, performance,
non-performance, validity or breach of this Agreement or otherwise arising out
of, or in any way related to, this Agreement shall be
<PAGE>
6
determined, at the request of any party, by arbitration conducted in New York
City, before and in accordance with the then-existing Rules for Commercial
Arbitration of the American Arbitration Association, and any judgment or award
rendered by the arbitrator shall be final, binding and unappealable, and any
judgment may be entered by any state or Federal court having jurisdiction
thereof. In its award the arbitrator shall allocate, in its discretion, among
the parties to the arbitration all costs of the arbitration, including the fees
and expenses of the arbitrator and reasonable attorneys' fees, costs and expert
witness expenses of the parties.
(i) All amounts paid hereunder will be net of any applicable
withholdings required by existing or future tax laws.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the day and year first above written.
WEEKLY READER CORPORATION,
by /s/ Charles Laurey
---------------------------------
Name: Charles Laurey
Title: Secretary
/s/ Peter Bergen President,
Weekly Reader Corp.
---------------------------------
Peter Bergen
<PAGE>
Schedule I
COMPETING PUBLICATIONS AND PRODUCT LINES
"COMPETING PUBLICATION OR PRODUCT LINE" means (a)
distributing books and reference materials in print that compete with those
currently distributed by PRIMEDIA Reference Inc. for distribution to libraries
and schools, (b) publishing books in print that compete with those currently
published by Gareth Stevens, Inc. for distribution to school libraries, (c)
publishing an annual general interest almanac for consumers, (d) publishing
assessment test materials in print which are targeted to elementary and
secondary school students who are in the lower fiftieth percentile of
achievement, and which compete with the assessment test materials published by
American Guidance Service Inc. and its direct and indirect subsidiaries, or (e)
publishing print periodicals and supplemental educational materials in print,
in each case, sold on an annual subscription basis to teachers, schools, or
school districts for in-school distribution to grades Kindergarten through 12,
and which compete with those published by Weekly Reader Corporation and its
direct and indirect subsidiaries, in each case in the United States.
<PAGE>
Schedule II
1. First letter agreement dated March 16, 1998 from Primedia Supplemental
Education Group to Peter Bergen.
2. Second letter agreement dated March 16, 1998 from Primedia Supplemental
Education Group to Peter Bergen.
<PAGE>
This EMPLOYMENT AGREEMENT ("AGREEMENT") is made and entered
into as of the 17 day of November, 1999, by and between Weekly
Reader Corporation, a Delaware corporation (the "COMPANY"), and
Robert Jackson, an individual resident of the State of New York
(the "EXECUTIVE").
WHEREAS the Company wishes to employ Executive, and Executive wishes
to accept such employment, on the following terms and conditions, effective as
of the Closing Date (as defined in the Redemption, Stock Purchase and
Recapitalization Agreement dated as of August 13, 1999, as amended (the
"PURCHASE AGREEMENT"), between PRIMEDIA Inc. and WRC Media Inc. (formerly named
EAC II Inc.), a Delaware corporation ("WRC Media");
NOW, THEREFORE, in consideration of the mutual covenants contained
herein and intending to be legally bound hereby, the parties hereby agree as
follows:
SECTION 1. EMPLOYMENT. The Company hereby employs Executive and
Executive accepts employment by the Company, on the terms and conditions
contained in this Agreement.
SECTION 2. TERM. The employment of Executive pursuant hereto shall
commence on the Closing Date and shall remain in effect until December 31, 2001
unless terminated by Executive upon 30 days prior written notice to the Company
or by the Company upon 30 days prior written notice to Executive. The period of
time between the Closing Date and the termination of this Agreement pursuant to
its terms is herein referred to as the "TERM". The Term shall be automatically
renewed for successive one-year periods unless, at least 90 days prior to any
applicable expiration date, either party gives written notice to the other party
that such party does not wish to renew.
SECTION 3. DUTIES AND EXTENT OF SERVICE; PLACE OF PERFORMANCE. During
the Term, Executive shall serve the Company as Executive Vice President of Group
Finance of the Company and its direct and indirect subsidiaries (the
"COMPANIES") and shall perform duties and exercise authority commensurate with
such role. Executive shall initially report to the Chief Executive Officer of
WRC Media. Executive shall devote Executive's full business time and best
efforts to the performance of Executive's duties hereunder and to the business
of the Companies. Except as mutually agreed upon by Executive and the Company,
the Company shall not materially diminish Executive's position at the Company
without Good Cause (as defined in Section 11). During the Term, Executive shall
continue to be employed at the location at which he is employed as of the
Closing Date or at another location within 30 miles thereof as the Company, in
its sole discretion, shall determine.
SECTION 4. BASE SALARY. During the Term, Executive shall be paid a
base salary (the "BASE SALARY"), payable in bi-weekly installments at the end of
every two weeks, at a rate of $250,000 per annum (the "INITIAL SALARY") subject
to annual review; PROVIDED that Executive's Base Salary shall not be reduced
below the Initial Salary.
SECTION 5. BONUS. Executive shall continue to be eligible to receive
any annual bonus for the 1999 calendar year which may be payable to Executive
under the short-term executive incentive compensation plan currently applicable
to Executive in accordance with the terms of Executive's bonus letter from
PRIMEDIA Inc. (the "BONUS LETTER"), a copy of which is attached hereto PROVIDED,
however, that notwithstanding any provision in the Bonus Letter to the
<PAGE>
2
contrary, Executive will be eligible to receive any such bonus regardless of the
fact that Executive will not be an employee of PRIMEDIA Supplemental Education
Group either on December 31, 1999 or on the date such bonus is paid. Bonuses for
future years during the Term shall be set by the Company annually based on
reasonable criteria communicated to Executive. Such criteria shall be comparable
to the criteria currently set forth in the Bonus Letter. Target bonuses for
future years shall not be less than the target bonus set forth in the Bonus
Letter. The Bonus for any year shall be paid no later than March 15 of the
following year.
SECTION 6. FRINGE BENEFITS. Executive shall be entitled to
participate, to the extent eligible, in such medical, dental, disability, life
insurance, deferred compensation, retirement and other benefit plans as the
Company shall maintain for the benefit of employees generally, on the terms and
subject to the conditions set forth in such plans, which plans shall be
comparable in the aggregate to those plans in effect for Executive as of the
date hereof. Executive shall also be entitled to vacation time and sick leave in
accordance with the Company's policies in existence immediately prior to the
Closing and as applied to Executive immediately prior to the Closing.
SECTION 7. EXPENSES. Upon receipt from Executive of expense vouchers
and other documentation reasonably requested by the Company, the Company shall
reimburse Executive promptly for all reasonable expenses incurred by Executive
in accordance with the Company's policies and procedures in connection with
Executive's duties and responsibilities hereunder.
SECTION 8. EQUITY INVESTMENT. Simultaneously with the Closing,
Executive will purchase 10,752 shares of Common Stock, par value $0.01 per share
("WRC MEDIA COMMON STOCK"), of WRC Media, at a purchase price of $18.60065 per
share in cash for an aggregate purchase price of $200,000 and will enter into a
shareholder agreement among WRC Media, EAC III LLC and certain other executives
of the Companies in the form previously agreed to by such parties. If Executive
so elects, up to one half of Executive's purchase of WRC Media Common Stock may
be financed with a personal loan guaranteed by the Company on commercially
reasonable terms. The Company shall make reasonable efforts to arrange and
guarantee such loan.
SECTION 9. NONSOLICITATION. (a) During the period beginning on the
Closing Date and ending on the later of (i) the date that is 12 months after the
date of termination of Executive's employment with the Company and (ii) December
31, 2001 and to the fullest extent permitted under applicable law, Executive
agrees that Executive shall not, directly or indirectly, solicit or attempt to
solicit any business from any customers or clients of any of the Companies,
including actively sought prospective customers or clients, in connection with
any Competing Publication or Product Line (as defined on Schedule I). During the
period beginning on the Closing Date and ending on the date that is 24 months
after the date of termination of Executive's employment with the Company and to
the fullest extent permitted under applicable law, Executive agrees that
Executive shall not, except as an employee of the Company, directly or
indirectly, solicit, recruit or hire any employees of or persons who have worked
for any of the Companies during the twelve-month period prior to termination of
Executive's employment or solicit or encourage any such employee of any of the
Companies to leave the employment of any of the Companies.
(b) If a judicial determination is made that any of the provisions of
this Section 9 constitutes an unreasonable or otherwise unenforceable
restriction against Executive, the
<PAGE>
3
provisions of such Section shall be rendered void only to the extent that such
judicial determination finds such provisions to be unreasonable or otherwise
unenforceable.
SECTION 10. NONDISCLOSURE. The parties hereto agree that during the
course of Executive's employment by the Company, Executive will have access to,
and will gain knowledge with respect to, the Companies' Confidential Information
(as defined below). The parties acknowledge that unauthorized disclosure or
misuse of such Confidential Information would cause irreparable damage to the
Companies. Accordingly, Executive agrees to the nondisclosure covenants in this
Section 10. Executive agrees that Executive shall not (except as may be required
by law), without the prior written consent of the Company during Executive's
employment with the Company under this Agreement, and any extension or renewal
hereof, and thereafter for a period ending on the fifth anniversary of the date
of termination of Executive's employment with the Company, use or disclose, or
knowingly permit any unauthorized person to use, disclose or gain access to, any
Confidential Information; PROVIDED that Executive may disclose Confidential
Information to a person to whom disclosure is reasonably necessary or
appropriate in connection with the performance by Executive of Executive's
duties under this Agreement. Upon termination of this Agreement for any reason,
Executive shall return to the Company the original and all copies of all
documents and correspondence in Executive's possession relating to the business
of any of the Companies or any of their affiliates, including but not limited to
all Confidential Information, and shall not be entitled to any lien or right of
retention in respect thereof. Upon termination of this Agreement for any reason,
Executive shall be entitled to remove all documents and correspondence of a
purely personal nature. For purposes of this Agreement, "CONFIDENTIAL
INFORMATION" shall mean all business information (whether or not in written
form) which relates to any of the Companies, any of their affiliates or their
respective businesses or products and which is not known to the public
generally, including but not limited to technical information or reports; trade
secrets; unwritten knowledge and "know-how"; operating instructions; training
manuals; customer lists; customer buying records and habits; product sales
records and documents, and product development, marketing and sales strategies;
market surveys; marketing plans; profitability analyses; product cost;
long-range plans; information relating to pricing, competitive strategies and
new product development; information relating to any forms of compensation and
other personnel-related information; contracts; and supplier lists; PROVIDED
that "Confidential Information" shall not include general business know-how.
SECTION 11. SEVERANCE. If Executive's employment hereunder is
terminated upon a breach by the Company of this Agreement, by the Company for
any reason other than for Good Cause or by reason of a notice of nonrenewal
given by the Company, the Company shall pay to Executive as severance pay a lump
sum cash payment in an amount equal to the product of Executive's entire Base
Salary for the year in which termination occurs multiplied by the greater of (a)
one and (b) the quotient of (x) the number of months from and including the
month in which such termination occurs to and including the month ending
December 31, 2001 divided by (y) 12. The Company shall also pay to Executive any
accrued and unpaid Base Salary owed to Executive for the period prior to such
termination, a prorated portion of Executive's Base Salary for any accrued
unused vacation time of Executive for the period prior to such termination and
any incurred but unpaid reimbursable expenses as contemplated by Section 7.
Payment of such severance pay and other amounts will be made within 30 days of
such termination. If the applicable bonus criteria have been achieved, no later
than March 31 of the year following the year in which any such termination
occurred, the Company shall also pay to Executive a prorated portion of
Executive's bonus for the portion of the year in which termination occurred from
the beginning of the calendar year to the date of termination. For purposes of
this Agreement, "GOOD CAUSE" shall exist upon the occurrence of
<PAGE>
4
any of the following: (i) Executive is convicted of, pleads guilty to, confesses
to, or enters a plea of nolo contendere to, any felony or any crime that
involves moral turpitude or any act of fraud, misappropriation or embezzlement;
(ii) Executive has engaged in a fraudulent act to the damage or prejudice of any
of the Companies or any affiliate of any of the Companies; (iii) any act or
omission by Executive involving malfeasance or gross negligence in the
performance of Executive's duties to the Company; (iv) Executive otherwise fails
to comply in any material respect with the terms of this Agreement or deviates
in any material respect from any reasonable written policies or reasonable
directives of the Board of Directors of the Company and, within 60 days after
written notice from the Company of such failure or deviation, Executive has not
corrected such failure; or (v) the occurrence of the death or total disability
of Executive (total disability meaning the failure of Executive to perform
Executive's normal required services hereunder for a period of six consecutive
months during the term hereof by reason of Executive's mental or physical
disability, as determined by an independent physician reasonably satisfactory to
Executive and the Company).
SECTION 12. TERMINATION; SURVIVAL. This Agreement shall terminate upon
the earlier of (a) the termination of the Purchase Agreement pursuant to its
terms and (b) the termination of Executive's employment by the Company.
Notwithstanding the foregoing, Sections 9, 10 and 13 and, if Executive's
employment terminates in a manner giving rise to a payment under Section 11,
Section 11 shall survive the termination of this Agreement.
SECTION 13. MISCELLANEOUS. (a) This Agreement shall inure to the
benefit of and shall be binding upon Executive and Executive's executor,
administrator, heirs, personal representative and permitted assigns and the
Company and its successors and permitted assigns; PROVIDED that Executive shall
not be entitled to assign or delegate any of Executive's rights or obligations
hereunder without the prior written consent of the Company.
(b) This Agreement shall be deemed to be made in, and in all respects
shall be interpreted, construed and governed by and in accordance with, the laws
of the State of New York, without regard to the conflicts of law principles of
such State. No provision of this Agreement or any related document shall be
construed against or interpreted to the disadvantage of any party hereto by any
court or other governmental or judicial authority by reason of such party having
or being deemed to have structured or drafted such provision.
(c) This Agreement constitutes the entire agreement between the
Company and Executive with respect to Executive's employment by the Company
after the Closing Date and, effective as of the Closing Date, supersedes all
prior agreements, whether written or oral, between them relating to Executive's
employment by the Company, including those agreements set forth on Schedule II
attached hereto; PROVIDED that this Agreement does not supersede the Bonus
Letter. Effective as of the Closing Date, Executive hereby releases the Company
and its affiliates from any claims or rights under such agreements, without any
liability or other adverse consequence to the Company, the Companies or WRC
Media and the Company hereby releases Executive from any claims or rights under
such agreements, without any liability or other adverse consequence to
Executive.
<PAGE>
5
(d) All notices or other communications required or permitted by this
Agreement shall be made in writing and any such notice or communication shall be
deemed delivered when delivered in person, transmitted by telecopier, or one
business day after it has been sent by a nationally recognized overnight
courier, at the address for notices as follows:
(i) if to the Company,
Weekly Reader Corporation
c/o Ripplewood Holdings L.L.C.
One Rockefeller Plaza
32nd Floor
New York, New York 10020
Attention: Mr. Timothy C. Collins
Mr. Charles L. Laurey
Facsimile: (212) 582-4110
(ii) if to Executive,
Mr. Robert Jackson
20 Churchill Road
Rye Brook, NY 10573
Facsimile: 212-745-1214
with a copy to:
Rubin Baum Levin Constant & Friedman
30 Rockefeller Plaza
New York, New York 10312
Attention: Mr. Robert J. Benowitz
Facsimile: (212) 698-7825
Communications by telecopier also shall be sent concurrently by overnight
courier, but shall in any event be effective as stated above. Each party may
from time to time change its address for notices under this Section 13(d) by
giving at least five days' notice of such changed address to the other parties
hereto.
(e) This Agreement may be executed in one or more counterparts, all of
which shall be considered one and the same agreement, and shall become effective
when one or more of the counterparts have been signed by each of the parties and
delivered to the other parties, it being understood that all parties need not
sign the same counterpart.
(f) The headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
(g) No failure or delay by Executive or the Company in exercising any
right or power hereunder shall operate as a waiver thereof, nor shall any single
or partial exercise of any such right or power, or any abandonment of any steps
to enforce such a right or power, preclude any other or further exercise thereof
or the exercise of any other right or power. Neither this Agreement nor any
provision hereof may be waived, amended or modified except pursuant to an
agreement in writing entered into by Executive and the Company.
<PAGE>
6
(h) Any controversy, dispute or claim arising out of, in connection
with, or in relation to the interpretation, performance, non-performance,
validity or breach of this Agreement or otherwise arising out of, or in any way
related to, this Agreement shall be determined, at the request of any party, by
arbitration conducted in New York City, before and in accordance with the
then-existing Rules for Commercial Arbitration of the American Arbitration
Association, and any judgment or award rendered by the arbitrator shall be
final, binding and unappealable, and any judgment may be entered by any state or
Federal court having jurisdiction thereof. In its award the arbitrator shall
allocate, in its discretion, among the parties to the arbitration all costs of
the arbitration, including the fees and expenses of the arbitrator and
reasonable attorneys' fees, costs and expert witness expenses of the parties.
(i) All amounts paid hereunder will be net of any applicable
withholdings required by existing or future tax laws.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the day and year first above written.
WEEKLY READER CORPORATION,
by /s/ Charles Laurey
----------------------------
Name: Charles Laurey
Title: Secretary
/s/ Robert Jackson
----------------------------
Robert Jackson
<PAGE>
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COMPETING PUBLICATIONS AND PRODUCT LINES
"COMPETING PUBLICATION OR PRODUCT LINE" means (a) distributing books
and reference materials in print that compete with those currently distributed
by PRIMEDIA Reference Inc. for distribution to libraries and schools, (b)
publishing books in print that compete with those currently published by Gareth
Stevens, Inc. for distribution to school libraries, (c) publishing an annual
general interest almanac for consumers, (d) publishing assessment test materials
in print which are targeted to elementary and secondary school students who are
in the lower fiftieth percentile of achievement, and which compete with the
assessment test materials published by American Guidance Service Inc. and its
direct and indirect subsidiaries, or (e) publishing print periodicals and
supplemental educational materials in print, in each case, sold on an annual
subscription basis to teachers, schools, or school districts for in-school
distribution to grades Kindergarten through 12, and which compete with those
published by Weekly Reader Corporation and its direct and indirect subsidiaries,
in each case in the United States.
<PAGE>
1. Letter agreement dated January 15, 1998 from PRIMEDIA, Inc. to Robert
Jackson.
<PAGE>
This EMPLOYMENT AGREEMENT ("AGREEMENT") is
made and entered into as of the day of November,
1999, by and between Weekly Reader Corporation, a
Delaware corporation (the "COMPANY"), and Kenneth
Slivken, an individual resident of the State of New
York (the "EXECUTIVE").
WHEREAS the Company wishes to employ Executive, and
Executive wishes to accept such employment, on the following terms and
conditions, effective as of the Closing Date (as defined in the Redemption,
Stock Purchase and Recapitalization Agreement dated as of August 13, 1999, as
amended, (the "PURCHASE AGREEMENT"), between PRIMEDIA Inc. and WRC Media Inc.
(formerly named EAC II Inc.), a Delaware corporation (WRC Media");
NOW, THEREFORE, in consideration of the mutual covenants
contained herein and intending to be legally bound hereby, the parties hereby
agree as follows:
SECTION 1. EMPLOYMENT. The Company hereby employs Executive
and Executive accepts employment by the Company, on the terms and conditions
contained in this Agreement.
SECTION 2. TERM. The employment of Executive pursuant
hereto shall commence on the Closing Date and shall remain in effect until
December 31, 2001 unless terminated by Executive upon 30 days prior written
notice to the Company or by the Company upon 30 days prior written notice to
Executive. The period of time between the Closing Date and the termination of
this Agreement pursuant to its terms is herein referred to as the "TERM". The
Term shall be automatically renewed for successive one-year periods unless,
at least 90 days prior to any applicable expiration date, either party gives
written notice to the other party that such party does not wish to renew.
SECTION 3. DUTIES AND EXTENT OF SERVICE; PLACE OF
PERFORMANCE. During the Term, Executive shall serve the Company as Senior
Vice President of Group Human Resources of the Company and its direct and
indirect subsidiaries (the "COMPANIES") and shall perform duties and exercise
authority commensurate with such role. Executive shall initially report to
the Chief Executive Officer of WRC Media. Executive shall devote Executive's
full business time and best efforts to the performance of Executive's duties
hereunder and to the business of the Companies. Except as mutually agreed
upon by Executive and the Company, the Company shall not materially diminish
Executive's position at the Company without Good Cause (as defined in Section
11). During the Term, Executive shall continue to be employed at the location
at which he is employed as of the Closing Date or at another location within
30 miles thereof as the Company, in its sole discretion, shall determine.
SECTION 4. BASE SALARY. During the Term, Executive shall be
paid a base salary (the "BASE SALARY"), payable in bi-weekly installments at
the end of every two weeks, at a rate of $150,000 per annum (the "INITIAL
SALARY"). The initial salary shall be reviewed by the Company no later than
February 28, 2000 and annually thereafter. Executive's Base Salary shall not
be reduced below the Initial Salary.
SECTION 5. BONUS. Executive shall continue to be eligible
to receive any annual bonus for the 1999 calendar year which may be payable
to Executive under the short-term executive incentive compensation plan
currently applicable to Executive in accordance with the terms of Executive's
bonus letter from PRIMEDIA Inc. (the "BONUS LETTER"), a copy of which is
<PAGE>
2
attached hereto provided, however, that notwithstanding any provision in the
Bonus Letter to the contrary, Executive will be eligible to receive any such
bonus regardless of the fact that Executive will not be an employee of
PRIMEDIA Supplemental Education Group either on December 31, 1999 or on the
date such bonus is paid. Bonuses for future years during the Term shall be
set by the Company annually, based on reasonable criteria communicated to
Executive. Such criteria shall be comparable to the criteria currently set
forth in the Bonus Letter. Target bonuses for future years shall not be less
than the target bonus set forth in the Bonus Letter. The Bonus for any year
shall be paid no later than March 15 of that year.
SECTION 6. FRINGE BENEFITS. Executive shall be entitled to
participate, to the extent eligible, in such medical, dental, disability,
life insurance, deferred compensation, retirement and other benefit plans as
the Company shall maintain for the benefit of employees generally, on the
terms and subject to the conditions set forth in such plans, which plans
shall be comparable in the aggregate to those plans in effect for Executive
as of the date hereof. Executive shall also be entitled to vacation time and
sick leave in accordance with the Company's policies in existence immediately
prior to the Closing and as applied to Executive immediately prior to the
Closing.
SECTION 7. EXPENSES. Upon receipt from Executive of expense
vouchers and other documentation reasonably requested by the Company, the
Company shall reimburse Executive promptly for all reasonable expenses
incurred by Executive in accordance with the Company's policies and
procedures in connection with Executive's duties and responsibilities
hereunder.
SECTION 8. EQUITY INVESTMENT. Simultaneously with the
Closing, Executive will purchase 2,688 shares of Common Stock, par value
$0.01 per share ("WRC MEDIA COMMON STOCK"), of WRC Media, at a purchase price
of $18.60065 per share in cash for an aggregate purchase price of $50,000 and
will enter into a shareholder agreement among WRC Media, EAC III LLC and
certain other executives of the Companies in the form previously agreed to by
such parties. On or before December 15, 1999, Executive shall purchase an
additional 2,688 shares of WRC Media Common Stock, at a purchase price of
$18.60065 per share in cash for an aggregate purchase price of $50,000 unless
Executive is unable to secure a personal loan guaranteed by the Company for
the purpose of purchasing such shares. The Executive and the Company shall
make reasonable efforts to arrange such loan.
SECTION 9. NONSOLICITATION. (a) During the period beginning
on the Closing Date and ending on the later of (i) the date that is 12 months
after the date of termination of Executive's employment with the Company and
(ii) December 31, 2001 and to the fullest extent permitted under applicable
law, Executive agrees that Executive shall not, directly or indirectly,
solicit or attempt to solicit any business from any customers or clients of
any of the Companies, including actively sought prospective customers or
clients, in connection with any Competing Publication or Product Line (as
defined on Schedule I). During the period beginning on the Closing Date and
ending on the date that is 24 months after the date of termination of
Executive's employment with the Company and to the fullest extent permitted
under applicable law, Executive agrees that Executive shall not, except as an
employee of the Company, directly or indirectly, solicit, recruit or hire any
employees of or persons who have worked for any of the Companies during the
twelve-month period prior to termination of Executive's employment or solicit
or encourage any such employee of any of the Companies to leave the
employment of any of the Companies.
<PAGE>
3
(b) If a judicial determination is made that any of the
provisions of this Section 9 constitutes an unreasonable or otherwise
unenforceable restriction against Executive, the provisions of such Section
shall be rendered void only to the extent that such judicial determination
finds such provisions to be unreasonable or otherwise unenforceable.
SECTION 10. NONDISCLOSURE. The parties hereto agree that
during the course of Executive's employment by the Company, Executive will
have access to, and will gain knowledge with respect to, the Companies'
Confidential Information (as defined below). The parties acknowledge that
unauthorized disclosure or misuse of such Confidential Information would
cause irreparable damage to the Companies. Accordingly, Executive agrees to
the nondisclosure covenants in this Section 10. Executive agrees that
Executive shall not (except as may be required by law), without the prior
written consent of the Company during Executive's employment with the Company
under this Agreement, and any extension or renewal hereof, and thereafter for
a period ending on the fifth anniversary of the date of termination of
Executive's employment with the Company, use or disclose, or knowingly permit
any unauthorized person to use, disclose or gain access to, any Confidential
Information; PROVIDED that Executive may disclose Confidential Information to
a person to whom disclosure is reasonably necessary or appropriate in
connection with the performance by Executive of Executive's duties under this
Agreement. Upon termination of this Agreement for any reason, Executive shall
return to the Company the original and all copies of all documents and
correspondence in Executive's possession relating to the business of any of
the Companies or any of their affiliates, including but not limited to all
Confidential Information, and shall not be entitled to any lien or right of
retention in respect thereof. Upon termination of this Agreement for any
reason, Executive shall be entitled to remove all documents and
correspondence of a purely personal nature. For purposes of this Agreement,
"CONFIDENTIAL INFORMATION" shall mean all business information (whether or
not in written form) which relates to any of the Companies, any of their
affiliates or their respective businesses or products and which is not known
to the public generally, including but not limited to technical information
or reports; trade secrets; unwritten knowledge and "know-how"; operating
instructions; training manuals; customer lists; customer buying records and
habits; product sales records and documents, and product development,
marketing and sales strategies; market surveys; marketing plans;
profitability analyses; product cost; long-range plans; information relating
to pricing, competitive strategies and new product development; information
relating to any forms of compensation and other personnel-related
information; contracts; and supplier lists; PROVIDED that "Confidential
Information" shall not include general business know-how.
SECTION 11. SEVERANCE. If Executive's employment hereunder
is terminated upon a breach by the Company of this Agreement, by the Company
for any reason other than for Good Cause or by reason of a notice of
nonrenewal given by the Company, the Company shall pay to Executive as
severance pay a lump sum cash payment in an amount equal to the product of
Executive's entire Base Salary for the year in which termination occurs
multiplied by the greater of (a) one and (b) the quotient of (x) the number
of months from and including the month in which such termination occurs to
and including the month ending December 31, 2001 divided by (y) 12. The
Company shall also pay to Executive any accrued and unpaid Base Salary owed
to Executive for the period prior to such termination, a prorated portion of
Executive's Base Salary for any accrued unused vacation time of Executive for
the period prior to such termination and any incurred but unpaid reimbursable
expenses as contemplated by Section 7. Payment of such severance pay and
other amounts will be made within 30 days of such termination. If the
applicable bonus criteria have been achieved, no later than March 31 of the
year following the year in which any such termination occurred, the Company
shall also pay to Executive a prorated portion of Executive's bonus for the
portion of
<PAGE>
4
the year in which termination occurred from the beginning of the calendar
year to the date of termination. For purposes of this Agreement, "GOOD CAUSE"
shall exist upon the occurrence of any of the following: (i) Executive is
convicted of, pleads guilty to, confesses to, or enters a plea of nolo
contendere to, any felony or any crime that involves moral turpitude or any
act of fraud, misappropriation or embezzlement; (ii) Executive has engaged in
a fraudulent act to the damage or prejudice of any of the Companies or any
affiliate of any of the Companies; (iii) any act or omission by Executive
involving malfeasance or gross negligence in the performance of Executive's
duties to the Company; (iv) Executive otherwise fails to comply in any
material respect with the terms of this Agreement or deviates in any material
respect from any reasonable written policies or reasonable directives of the
Board of Directors of the Company and, within 60 days after written notice
from the Company of such failure or deviation, Executive has not corrected
such failure; or (v) the occurrence of the death or total disability of
Executive (total disability meaning the failure of Executive to perform
Executive's normal required services hereunder for a period of six
consecutive months during the term hereof by reason of Executive's mental or
physical disability, as determined by an independent physician reasonably
satisfactory to Executive and the Company).
SECTION 12. TERMINATION; SURVIVAL. This Agreement shall
terminate upon the earlier of (a) the termination of the Purchase Agreement
pursuant to its terms and (b) the termination of Executive's employment by
the Company. Notwithstanding the foregoing, Sections 9, 10 and 13 and, if
Executive's employment terminates in a manner giving rise to a payment under
Section 11, Section 11 shall survive the termination of this Agreement.
SECTION 13. MISCELLANEOUS. (a) This Agreement shall inure
to the benefit of and shall be binding upon Executive and Executive's
executor, administrator, heirs, personal representative and permitted assigns
and the Company and its successors and permitted assigns; PROVIDED that
Executive shall not be entitled to assign or delegate any of Executive's
rights or obligations hereunder without the prior written consent of the
Company.
(b) This Agreement shall be deemed to be made in, and in
all respects shall be interpreted, construed and governed by and in
accordance with, the laws of the State of New York, without regard to the
conflicts of law principles of such State. No provision of this Agreement or
any related document shall be construed against or interpreted to the
disadvantage of any party hereto by any court or other governmental or
judicial authority by reason of such party having or being deemed to have
structured or drafted such provision.
(c) This Agreement constitutes the entire agreement between
the Company and Executive with respect to Executive's employment by the
Company after the Closing Date and, effective as of the Closing Date,
supersedes all prior agreements, whether written or oral, between them
relating to Executive's employment by the Company, including those agreements
set forth on Schedule II attached hereto; PROVIDED that this Agreement does
not supersede the Bonus Letter. Effective as of the Closing Date, Executive
hereby releases the Company and its affiliates from any claims or rights
under such agreements, without any liability or other adverse consequence to
the Companies or the Company, the Companies or WRC Media and the Company
hereby releases Executive from any claims or rights under such agreements,
without any liability or other adverse consequence to Executive.
(d) All notices or other communications required or
permitted by this Agreement shall be made in writing and any such notice or
communication shall be deemed delivered when delivered in person, transmitted
by telecopier, or one business day after it has been sent by a nationally
recognized overnight courier, at the address for notices as follows:
<PAGE>
5
(i) if to the Company,
Weekly Reader Corporation
c/o Ripplewood Holdings L.L.C.
One Rockefeller Plaza
32nd Floor
New York, New York 10020
Attention: Mr. Timothy C. Collins
Mr.. Charles L. Laurey
Mr. Martin Kenney
Facsimile: (212) 582-4110
(ii) if to Executive,
Mr. Kenneth Slivken
334 West 86th Street, #6C
New York, NY 10024
Facsimile: 212-745-1214
with a copy to:
Rubin Baum Levin Constant & Friedman
30 Rockefeller Plaza
New York, New York 10312
Attention: Mr. Robert J. Benowitz
Facsimile: (212) 698-7825
Communications by telecopier also shall be sent concurrently by overnight
courier, but shall in any event be effective as stated above. Each party may
from time to time change its address for notices under this Section 13(d) by
giving at least five days' notice of such changed address to the other
parties hereto.
(e) This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement,
and shall become effective when one or more of the counterparts have been
signed by each of the parties and delivered to the other parties, it being
understood that all parties need not sign the same counterpart.
(f) The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
(g) No failure or delay by Executive or the Company in
exercising any right or power hereunder shall operate as a waiver thereof,
nor shall any single or partial exercise of any such right or power, or any
abandonment of any steps to enforce such a right or power, preclude any other
or further exercise thereof or the exercise of any other right or power.
Neither this Agreement nor any provision hereof may be waived, amended or
modified except pursuant to an agreement in writing entered into by Executive
and the Company.
<PAGE>
6
(h) Any controversy, dispute or claim arising out of, in
connection with, or in relation to the interpretation, performance,
non-performance, validity or breach of this Agreement or otherwise arising
out of, or in any way related to, this Agreement shall be determined, at the
request of any party, by arbitration conducted in New York City, before and
in accordance with the then-existing Rules for Commercial Arbitration of the
American Arbitration Association, and any judgment or award rendered by the
arbitrator shall be final, binding and unappealable, and any judgment may be
entered by any state or Federal court having jurisdiction thereof. In its
award the arbitrator shall allocate, in its discretion, among the parties to
the arbitration all costs of the arbitration, including the fees and expenses
of the arbitrator and reasonable attorneys' fees, costs and expert witness
expenses of the parties.
(i) All amounts paid hereunder will be net of any
applicable withholdings required by existing or future tax laws.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the day and year first above written.
WEEKLY READER CORPORATION,
by /s/ Charles Laurey
------------------------------
Name: /s/ Charles Laurey
Title: Secretary
/s/ Kenneth Slivken
------------------------------
Kenneth Slivken
<PAGE>
This EMPLOYMENT AGREEMENT ("AGREEMENT") is
made and entered into as of the 17 day of November,
1999, by and between Weekly Reader Corporation, a
Delaware corporation (the "COMPANY"), and Sandy
Maccarone, an individual resident of the State of
Connecticut (the "EXECUTIVE").
WHEREAS the Company wishes to employ Executive, and Executive
wishes to accept such employment, on the following terms and conditions,
effective as of the Closing Date (as defined in the Redemption, Stock Purchase
and Recapitalization Agreement dated as of August 13, 1999, as amended (the
"PURCHASE AGREEMENT"), between PRIMEDIA Inc. and WRC Media Inc. (formerly named
EAC II Inc.), a Delaware corporation ("WRC Media");
NOW, THEREFORE, in consideration of the mutual covenants
contained herein and intending to be legally bound hereby, the parties hereby
agree as follows:
SECTION 1. EMPLOYMENT. The Company hereby employs Executive
and Executive accepts employment by the Company, on the terms and conditions
contained in this Agreement.
SECTION 2. TERM. The employment of Executive pursuant hereto
shall commence on the Closing Date and shall remain in effect until December
31, 2001 unless terminated by Executive upon 30 days prior written notice to
the Company or by the Company upon 30 days prior written notice to Executive.
The period of time between the Closing Date and the termination of this
Agreement pursuant to its terms is herein referred to as the "TERM". The Term
shall be automatically renewed for successive one-year periods unless, at least
90 days prior to any applicable expiration date, either party gives written
notice to the other party that such party does not wish to renew.
SECTION 3. DUTIES AND EXTENT OF SERVICE; PLACE OF
PERFORMANCE. During the Term, Executive shall serve the Company as Senior Vice
President and Editor in Chief of the Company and shall perform duties and
exercise authority commensurate with such role. Executive shall initially
report to Peter E. Bergen.
<PAGE>
2
Executive shall devote Executive's full business time and best efforts to the
performance of Executive's duties hereunder and to the business of the Company
and its direct and indirect subsidiaries. Except as mutually agreed upon by
Executive and the Company, the Company shall not materially diminish
Executive's position at the Company without Good Cause (as defined in Section
11). During the Term, Executive shall continue to be employed at the location
at which he is employed as of the Closing Date or at another location within 30
miles thereof as the Company, in its sole discretion, shall determine.
SECTION 4. BASE SALARY. During the Term, Executive shall be
paid a base salary (the "BASE SALARY"), payable in bi-weekly installments at
the end of every two weeks, at a rate of $190,000 per annum (the "INITIAL
SALARY") subject to annual review; PROVIDED that Executive's Base Salary shall
not be reduced below the Initial Salary.
SECTION 5. BONUS. Executive shall continue to be eligible to
receive any annual bonus for the 1999 calendar year which may be payable to
Executive under the short-term executive incentive compensation plan currently
applicable to Executive in accordance with the terms of Executive's bonus
letter from the Company (the "BONUS LETTER"), a copy of which is attached
hereto. Bonuses for future years during the Term shall be set by the Company
annually based on reasonable criteria communicated to Executive. Such criteria
shall be comparable to the criteria currently set forth in the Bonus Letter.
Target bonuses shall not be less than the target bonus set forth in the Bonus
Letter.
SECTION 6. FRINGE BENEFITS. Executive shall be entitled to
participate, to the extent eligible, in such medical, dental, disability, life
insurance, deferred compensation, retirement and other benefit plans as the
Company shall maintain for the benefit of employees generally, on the terms and
subject to the conditions set forth in such plans, which plans shall be
comparable in the aggregate to those plans in effect for Executive as of the
date hereof. Executive shall also be entitled to vacation time and sick leave
in accordance with the Company's policies in existence immediately prior to the
Closing and as applied to Executive immediately prior to the Closing.
<PAGE>
3
SECTION 7. EXPENSES. Upon receipt from Executive of expense
vouchers and other documentation reasonably requested by the Company, the
Company shall reimburse Executive promptly for all reasonable expenses incurred
by Executive in accordance with the Company's policies and procedures in
connection with Executive's duties and responsibilities hereunder.
SECTION 8. EQUITY INVESTMENT. From the date of the Closing to
December 15, 1999, Executive may elect to purchase up to $10,000 of Common
Stock, par value $0.01 per share ("WRC MEDIA COMMON STOCK"), of WRC Media from
EAC IV L.L.C. at a purchase price of $18.60065 per share in cash. If Executive
purchases any such shares, Executive will enter into a shareholder agreement
among WRC Media, EAC III L.L.C. and certain other executives of the Company and
its affiliates in the form previously agreed to by such parties. If Executive
so elects, up to one half of Executive's purchase of WRC Media Common Stock may
be financed with a personal loan guaranteed by the Company on commercially
reasonable terms. The Company shall make reasonable efforts to arrange and
guarantee such loan.
SECTION 9. NONSOLICITATION. (a) In the event that Executive's
employment with the Company is terminated by the Company for any reason, then
during the period beginning on the Closing Date and ending on the date that is
12 months after the date of termination of Executive's employment and to the
fullest extent permitted under applicable law, Executive agrees that Executive
shall not, directly or indirectly, solicit or attempt to solicit any business
from any customers or clients of the Company, including actively sought
prospective customers or clients, in connection with any Competing Publication
or Product Line (as defined on Schedule I). During the period beginning on the
Closing Date and ending on the date that is 24 months after the date of
termination of Executive's employment with the Company and to the fullest
extent permitted under applicable law, Executive agrees that Executive shall
not, directly or indirectly, other than as an employee of the Company, solicit,
recruit or hire any employees of or persons who have worked for the Company,
other than secretaries, during the twelve-month period prior to termination of
Executive's employment or solicit or encourage any such employee of the Company
to leave the employment of the Company.
<PAGE>
4
(b) If a judicial determination is made that any of the
provisions of this Section 9 constitutes an unreasonable or otherwise
unenforceable restriction against Executive, the provisions of such Section
shall be rendered void only to the extent that such judicial determination
finds such provisions to be unreasonable or otherwise unenforceable.
SECTION 10. NONDISCLOSURE. The parties hereto agree that
during the course of Executive's employment by the Company, Executive will have
access to, and will gain knowledge with respect to, the Companies' Confidential
Information (as defined below). The parties acknowledge that unauthorized
disclosure or misuse of such Confidential Information would cause irreparable
damage to the Companies. Accordingly, Executive agrees that Executive shall not
(except as may be required by law), without the prior written consent of the
Company during Executive's employment with the Company under this Agreement,
and any extension or renewal hereof, and thereafter for a period ending on the
fifth anniversary of the date of termination of Executive's employment with the
Company, use or disclose, or knowingly permit any unauthorized person to use,
disclose or gain access to, any Confidential Information; PROVIDED that
Executive may disclose Confidential Information to a person to whom disclosure
is reasonably necessary or appropriate in connection with the performance by
Executive of Executive's duties under this Agreement. Upon termination of this
Agreement for any reason, Executive shall return to the Company the original
and all copies of all documents and correspondence in Executive's possession
relating to the business of any of the Companies or any of their affiliates,
including but not limited to all Confidential Information, and shall not be
entitled to any lien or right of retention in respect thereof. Upon termination
of this Agreement for any reason, Executive shall be entitled to remove all
documents and correspondence of a purely personal nature. For purposes of this
Agreement, "CONFIDENTIAL INFORMATION" shall mean all business information
(whether or not in written form) which relates to any of the Companies, any of
their affiliates or their respective businesses or products and which is not
known to the public generally, including but not limited to technical
information or reports; trade secrets; unwritten knowledge and "know-how";
operating instructions; training manuals; customer lists; customer buying
records and
<PAGE>
5
habits; product sales records and documents, and product development, marketing
and sales strategies; market surveys; marketing plans; profitability analyses;
product cost; long-range plans; information relating to pricing, competitive
strategies and new product development; information relating to any forms of
compensation and other personnel-related information; contracts; and supplier
lists; PROVIDED that "Confidential Information" shall not include general
business know-how.
SECTION 11. SEVERANCE. If Executive's employment hereunder is
terminated upon a breach by the Company of this Agreement, by the Company for
any reason other than for Good Cause or by reason of a notice of nonrenewal
given by the Company, the Company shall pay to Executive as severance pay a
lump sum cash payment in an amount equal to Executive's Base Salary for the
year in which termination occurs. The Company shall also pay to Executive any
accrued and unpaid Base Salary owed to Executive for the period prior to such
termination, a prorated portion of Executive's Base Salary for any accrued
unused vacation time of Executive for the period prior to such termination and
any incurred but unpaid reimbursable expenses as contemplated by Section 7.
Additionally, in the event that any such termination occurs more than six
months after the beginning of any calendar year, the Company shall pay to
Executive a prorated portion of the Bonus that Executive would have been
entitled to for such calendar year puruant to Section 5. Payment of such
severance pay and other amounts will be made within 30 days of such
termination. For purposes of this Agreement, "GOOD CAUSE" shall exist upon the
occurrence of any of the following: (i) Executive is convicted of, pleads
guilty to, confesses to, or enters a plea of nolo contendere to, any felony or
any crime that involves moral turpitude or any act of fraud, misappropriation
or embezzlement; (ii) Executive has engaged in a fraudulent act to the damage
or prejudice of any of the Companies or any affiliate of any of the Companies;
(iii) any act or omission by Executive involving malfeasance or gross
negligence in the performance of Executive's duties to the Company; (iv)
Executive otherwise fails to comply in any material respect with the terms of
this Agreement or deviates in any material respect from any reasonable written
policies or reasonable directives of the Board of Directors of the Company and,
within 60 days after written notice from the Company of such failure or
deviation, Executive has not
<PAGE>
6
corrected such failure; or (v) the occurrence of the death or total disability
of Executive (total disability meaning the failure of Executive to perform
Executive's normal required services hereunder for a period of six consecutive
months during the term hereof by reason of Executive's mental or physical
disability, as determined by an independent physician reasonably satisfactory
to Executive and the Company).
SECTION 12. TERMINATION; SURVIVAL. This Agreement shall
terminate upon the earlier of (a) the termination of the Purchase Agreement
pursuant to its terms and (b) the termination of Executive's employment by the
Company. Notwithstanding the foregoing, Sections 9, 10 and 13 and, if
Executive's employment terminates in a manner giving rise to a payment under
Section 11, Section 11 shall survive the termination of this Agreement.
SECTION 13. MISCELLANEOUS. (a) This Agreement shall inure to
the benefit of and shall be binding upon Executive and Executive's executor,
administrator, heirs, personal representative and permitted assigns and the
Company and its successors and permitted assigns; PROVIDED that Executive shall
not be entitled to assign or delegate any of Executive's rights or obligations
hereunder without the prior written consent of the Company.
(b) This Agreement shall be deemed to be made in, and in all
respects shall be interpreted, construed and governed by and in accordance
with, the laws of the State of New York, without regard to the conflicts of law
principles of such State. No provision of this Agreement or any related
document shall be construed against or interpreted to the disadvantage of any
party hereto by any court or other governmental or judicial authority by reason
of such party having or being deemed to have structured or drafted such
provision.
(c) This Agreement constitutes the entire agreement between
the Company and Executive with respect to Executive's employment by the Company
after the Closing Date and, effective as of the Closing Date, supersedes all
prior agreements, whether written or oral, between them relating to Executive's
employment by the Company, including those agreements set forth on Schedule II
attached hereto, if any; PROVIDED that this Agreement does not
<PAGE>
7
supersede the Bonus Letter. Effective as of the Closing Date, Executive hereby
releases the Company and its affiliates from any claims or rights under such
agreements, without any liability or other adverse consequence to the Company,
its affiliates or WRC Media and the Company hereby releases Executive from any
claims or rights under such agreements, without any liability or other adverse
consequence to Executive.
(d) All notices or other communications required or permitted
by this Agreement shall be made in writing and any such notice or communication
shall be deemed delivered when delivered in person, transmitted by telecopier,
or one business day after it has been sent by a nationally recognized overnight
courier, at the address for notices as follows:
(i) if to the Company,
Weekly Reader Corporation
c/o Ripplewood Holdings L.L.C.
One Rockefeller Plaza
32nd Floor
New York, New York 10020
Attention: Mr. Timothy C. Collins
Mr. Charles L. Laurey
Mr. Martin Kenney
Facsimile: (212) 582-4110
(ii) if to Executive,
Sandy Maccarone
7 Longview Terrace
Madison, CT 06443
with a copy to:
Rubin Baum Levin Constant & Friedman
30 Rockefeller Plaza
New York, NY 10112
Attention: Robert J. Benowitz, Esq.
Facsimile: 212-698-7825
<PAGE>
8
Communications by telecopier also shall be sent concurrently by overnight
courier, but shall in any event be effective as stated above. Each party may
from time to time change its address for notices under this Section 13(d) by
giving at least five days' notice of such changed address to the other parties
hereto.
(e) This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement, and
shall become effective when one or more of the counterparts have been signed by
each of the parties and delivered to the other parties, it being understood
that all parties need not sign the same counterpart.
(f) The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
(g) No failure or delay by Executive or the Company in
exercising any right or power hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of any such right or power, or any
abandonment of any steps to enforce such a right or power, preclude any other
or further exercise thereof or the exercise of any other right or power.
Neither this Agreement nor any provision hereof may be waived, amended or
modified except pursuant to an agreement in writing entered into by Executive
and the Company.
(h) Any controversy, dispute or claim arising out of, in
connection with, or in relation to the interpretation, performance,
non-performance, validity or breach of this Agreement or otherwise arising out
of, or in any way related to, this Agreement shall be determined, at the
request of any party, by arbitration conducted in New York City, before and in
accordance with the then-existing Rules for Commercial Arbitration of the
American Arbitration Association, and any judgment or award rendered by the
arbitrator shall be final, binding and unappealable, and any judgment may be
entered by any state or Federal court having jurisdiction thereof. In its award
the arbitrator shall allocate, in its discretion, among the parties to the
arbitration all costs of the arbitration, including the fees and expenses of
the arbitrator and reasonable attorneys' fees, costs and expert witness
expenses of the
<PAGE>
9
parties. The Company shall pay for all reasonable travel expenses (including
transportation, lodging and meals) incurred by Executive in connection with any
arbitration session.
(i) All amounts paid hereunder will be net of any applicable
withholdings required by existing or future tax laws.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the day and year first above written.
Weekly Reader Corporation,
by /s/ Charles Laurey
------------------------------
Name: Charles Laurey
Title: Secretary
/s/ Sandy Maccarone
------------------------------
Sandy Maccarone
<PAGE>
This EMPLOYMENT AGREEMENT ("AGREEMENT") is
made and entered into as of the 17 day of November,
1999, by and between Weekly Reader Corporation, a
Delaware corporation (the "COMPANY"), and Thaddeus
Kozlowski, an individual resident of the State of
Connecticut (the "EXECUTIVE").
WHEREAS the Company wishes to employ Executive, and
Executive wishes to accept such employment, on the following terms and
conditions, effective as of the Closing Date (as defined in the Redemption,
Stock Purchase and Recapitalization Agreement dated as of August 13, 1999, as
amended (the "PURCHASE AGREEMENT"), between PRIMEDIA Inc. and WRC Media Inc.
(formerly named EAC II Inc.), a Delaware corporation ("WRC Media");
NOW, THEREFORE, in consideration of the mutual covenants
contained herein and intending to be legally bound hereby, the parties hereby
agree as follows:
SECTION 1. EMPLOYMENT. The Company hereby employs Executive
and Executive accepts employment by the Company, on the terms and conditions
contained in this Agreement.
SECTION 2. TERM. The employment of Executive pursuant
hereto shall commence on the Closing Date and shall remain in effect until
December 31, 2001 unless terminated by Executive upon 30 days prior written
notice to the Company or by the Company upon 30 days prior written notice to
Executive. The period of time between the Closing Date and the termination of
this Agreement pursuant to its terms is herein referred to as the "TERM". The
Term shall be automatically renewed for successive one-year periods unless,
at least 90 days prior to any applicable expiration date, either party gives
written notice to the other party that such party does not wish to renew.
SECTION 3. DUTIES AND EXTENT OF SERVICE; PLACE OF
PERFORMANCE. During the Term, Executive shall serve the Company as Senior
Vice President and group product Director, Elementary, and shall perform
duties and exercise authority commensurate with such role. Executive shall
initially report to Peter E. Bergen.
<PAGE>
2
Executive shall devote Executive's full business time and best efforts to the
performance of Executive's duties hereunder and to the business of the
Company and its direct and indirect subsidiaries. Except as mutually agreed
upon by Executive and the Company, the Company shall not materially diminish
Executive's position at the Company without Good Cause (as defined in Section
11). During the Term, Executive shall continue to be employed at the location
at which he is employed as of the Closing Date or at another location within
30 miles thereof as the Company, in its sole discretion, shall determine.
SECTION 4. BASE SALARY. During the Term, Executive shall be
paid a base salary (the "BASE SALARY"), payable in bi-weekly installments at
the end of every two weeks, at a rate of $125,000 per annum (the "INITIAL
SALARY") subject to annual review; PROVIDED that Executive's Base Salary
shall not be reduced below the Initial Salary.
SECTION 5. BONUS. Executive shall continue to be eligible
to receive any annual bonus for the 1999 calendar year which may be payable
to Executive under the short-term executive incentive compensation plan
currently applicable to Executive in accordance with the terms of Executive's
bonus letter from the Company (the "BONUS LETTER"), a copy of which is
attached hereto. Bonuses for future years during the Term shall be set by the
Company annually based on reasonable criteria communicated to Executive. Such
criteria shall be comparable to the criteria currently set forth in the Bonus
Letter. Target bonuses shall not be less than the target bonus set forth in
the Bonus Letter.
SECTION 6. FRINGE BENEFITS. Executive shall be entitled to
participate, to the extent eligible, in such medical, dental, disability,
life insurance, deferred compensation, retirement and other benefit plans as
the Company shall maintain for the benefit of employees generally, on the
terms and subject to the conditions set forth in such plans, which plans
shall be comparable in the aggregate to those plans in effect for Executive
as of the date hereof. Executive shall also be entitled to vacation time and
sick leave in accordance with the Company's policies in existence immediately
prior to the Closing and as applied to Executive immediately prior to the
Closing.
<PAGE>
3
SECTION 7. EXPENSES. Upon receipt from Executive of expense
vouchers and other documentation reasonably requested by the Company, the
Company shall reimburse Executive promptly for all reasonable expenses
incurred by Executive in accordance with the Company's policies and
procedures in connection with Executive's duties and responsibilities
hereunder.
SECTION 8. EQUITY INVESTMENT. From the date of the Closing
to December 15, 1999, Executive may elect to purchase up to $10,000 of Common
Stock, par value $0.01 per share ("WRC MEDIA COMMON STOCK"), of WRC Media
from EAC IV L.L.C. at a purchase price of $18.60065 per share in cash. If
Executive purchases any such shares, Executive will enter into a shareholder
agreement among WRC Media, EAC III L.L.C. and certain other executives of the
Company and its affiliates in the form previously agreed to by such parties.
If Executive so elects, up to one half of Executive's purchase of WRC Media
Common Stock may be financed with a personal loan guaranteed by the Company
on commercially reasonable terms. The Company shall make reasonable efforts
to arrange and guarantee such loan.
SECTION 9. NONSOLICITATION. (a) In the event that
Executive's employment with the Company is terminated by the Company for any
reason, then during the period beginning on the Closing Date and ending on
the date that is 12 months after the date of termination of Executive's
employment and to the fullest extent permitted under applicable law,
Executive agrees that Executive shall not, directly or indirectly, solicit or
attempt to solicit any business from any customers or clients of the Company,
including actively sought prospective customers or clients, in connection
with any Competing Publication or Product Line (as defined on Schedule I).
During the period beginning on the Closing Date and ending on the date that
is 24 months after the date of termination of Executive's employment with the
Company and to the fullest extent permitted under applicable law, Executive
agrees that Executive shall not, directly or indirectly, other than as an
employee of the Company, solicit, recruit or hire any employees of or persons
who have worked for the Company, other than secretaries, during the
twelve-month period prior to termination of Executive's employment or solicit
or encourage any such employee of the Company to leave the employment of the
Company.
<PAGE>
4
(b) If a judicial determination is made that any of the
provisions of this Section 9 constitutes an unreasonable or otherwise
unenforceable restriction against Executive, the provisions of such Section
shall be rendered void only to the extent that such judicial determination finds
such provisions to be unreasonable or otherwise unenforceable.
SECTION 10. NONDISCLOSURE. The parties hereto agree that
during the course of Executive's employment by the Company, Executive will
have access to, and will gain knowledge with respect to, the Companies'
Confidential Information (as defined below). The parties acknowledge that
unauthorized disclosure or misuse of such Confidential Information would
cause irreparable damage to the Companies. Accordingly, Executive agrees that
Executive shall not (except as may be required by law), without the prior
written consent of the Company during Executive's employment with the Company
under this Agreement, and any extension or renewal hereof, and thereafter for
a period ending on the fifth anniversary of the date of termination of
Executive's employment with the Company, use or disclose, or knowingly permit
any unauthorized person to use, disclose or gain access to, any Confidential
Information; PROVIDED that Executive may disclose Confidential Information to
a person to whom disclosure is reasonably necessary or appropriate in
connection with the performance by Executive of Executive's duties under this
Agreement. Upon termination of this Agreement for any reason, Executive shall
return to the Company the original and all copies of all documents and
correspondence in Executive's possession relating to the business of any of
the Companies or any of their affiliates, including but not limited to all
Confidential Information, and shall not be entitled to any lien or right of
retention in respect thereof. Upon termination of this Agreement for any
reason, Executive shall be entitled to remove all documents and
correspondence of a purely personal nature. For purposes of this Agreement,
"CONFIDENTIAL INFORMATION" shall mean all business information (whether or
not in written form) which relates to any of the Companies, any of their
affiliates or their respective businesses or products and which is not known
to the public generally, including but not limited to technical information
or reports; trade secrets; unwritten knowledge and "know-how"; operating
instructions; training manuals; customer lists; customer buying records and
<PAGE>
5
habits; product sales records and documents, and product development,
marketing and sales strategies; market surveys; marketing plans;
profitability analyses; product cost; long-range plans; information relating
to pricing, competitive strategies and new product development; information
relating to any forms of compensation and other personnel-related
information; contracts; and supplier lists; PROVIDED that "Confidential
Information" shall not include general business know-how.
SECTION 11. SEVERANCE. If Executive's employment hereunder
is terminated upon a breach by the Company of this Agreement, by the Company
for any reason other than for Good Cause or by reason of a notice of
nonrenewal given by the Company, the Company shall pay to Executive as
severance pay a lump sum cash payment in an amount equal to Executive's Base
Salary for the year in which termination occurs. The Company shall also pay
to Executive any accrued and unpaid Base Salary owed to Executive for the
period prior to such termination, a prorated portion of Executive's Base
Salary for any accrued unused vacation time of Executive for the period prior
to such termination and any incurred but unpaid reimbursable expenses as
contemplated by Section 7. Additionally, in the event that any such
termination occurs more than six months after the beginning of any calendar
year, the Company shall pay to Executive a prorated portion of the Bonus that
Executive would have been entitled to for such calendar year puruant to
Section 5. Payment of such severance pay and other amounts will be made
within 30 days of such termination. For purposes of this Agreement, "GOOD
CAUSE" shall exist upon the occurrence of any of the following: (i) Executive
is convicted of, pleads guilty to, confesses to, or enters a plea of nolo
contendere to, any felony or any crime that involves moral turpitude or any
act of fraud, misappropriation or embezzlement; (ii) Executive has engaged in
a fraudulent act to the damage or prejudice of any of the Companies or any
affiliate of any of the Companies; (iii) any act or omission by Executive
involving malfeasance or gross negligence in the performance of Executive's
duties to the Company; (iv) Executive otherwise fails to comply in any
material respect with the terms of this Agreement or deviates in any material
respect from any reasonable written policies or reasonable directives of the
Board of Directors of the Company and, within 60 days after written notice
from the Company of such failure or deviation, Executive has not
<PAGE>
6
corrected such failure; or (v) the occurrence of the death or total
disability of Executive (total disability meaning the failure of Executive to
perform Executive's normal required services hereunder for a period of six
consecutive months during the term hereof by reason of Executive's mental or
physical disability, as determined by an independent physician reasonably
satisfactory to Executive and the Company).
SECTION 12. TERMINATION; SURVIVAL. This Agreement shall
terminate upon the earlier of (a) the termination of the Purchase Agreement
pursuant to its terms and (b) the termination of Executive's employment by
the Company. Notwithstanding the foregoing, Sections 9, 10 and 13 and, if
Executive's employment terminates in a manner giving rise to a payment under
Section 11, Section 11 shall survive the termination of this Agreement.
SECTION 13. MISCELLANEOUS. (a) This Agreement shall inure
to the benefit of and shall be binding upon Executive and Executive's
executor, administrator, heirs, personal representative and permitted assigns
and the Company and its successors and permitted assigns; PROVIDED that
Executive shall not be entitled to assign or delegate any of Executive's
rights or obligations hereunder without the prior written consent of the
Company.
(b) This Agreement shall be deemed to be made in, and in
all respects shall be interpreted, construed and governed by and in
accordance with, the laws of the State of New York, without regard to the
conflicts of law principles of such State. No provision of this Agreement or
any related document shall be construed against or interpreted to the
disadvantage of any party hereto by any court or other governmental or
judicial authority by reason of such party having or being deemed to have
structured or drafted such provision.
(c) This Agreement constitutes the entire agreement between
the Company and Executive with respect to Executive's employment by the
Company after the Closing Date and, effective as of the Closing Date,
supersedes all prior agreements, whether written or oral, between them
relating to Executive's employment by the Company, including those agreements
set forth on Schedule II attached hereto, if any; PROVIDED that this
Agreement does not
<PAGE>
7
supersede the Bonus Letter. Effective as of the Closing Date, Executive
hereby releases the Company and its affiliates from any claims or rights
under such agreements, without any liability or other adverse consequence to
the Company, its affiliates or WRC Media and the Company hereby releases
Executive from any claims or rights under such agreements, without any
liability or other adverse consequence to Executive.
(d) All notices or other communications required or
permitted by this Agreement shall be made in writing and any such notice or
communication shall be deemed delivered when delivered in person, transmitted
by telecopier, or one business day after it has been sent by a nationally
recognized overnight courier, at the address for notices as follows:
(i) if to the Company,
Weekly Reader Corporation
c/o Ripplewood Holdings L.L.C.
One Rockefeller Plaza
32nd Floor
New York, New York 10020
Attention: Mr. Timothy C. Collins
Mr. Charles L. Laurey
Mr. Martin Kenney
Facsimile: (212) 582-4110
(ii) if to Executive,
Thaddeus Kozlowski
191 Steele Street
New Britian, CT 06052
with a copy to:
Rubin Baum Levin Constant & Friedman
30 Rockefeller Plaza
New York, NY 10112
Attention: Robert J. Benowitz, Esq.
Facsimile: 212-698-7825
<PAGE>
8
Communications by telecopier also shall be sent concurrently by overnight
courier, but shall in any event be effective as stated above. Each party may
from time to time change its address for notices under this Section 13(d) by
giving at least five days' notice of such changed address to the other
parties hereto.
(e) This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement,
and shall become effective when one or more of the counterparts have been
signed by each of the parties and delivered to the other parties, it being
understood that all parties need not sign the same counterpart.
(f) The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
(g) No failure or delay by Executive or the Company in
exercising any right or power hereunder shall operate as a waiver thereof,
nor shall any single or partial exercise of any such right or power, or any
abandonment of any steps to enforce such a right or power, preclude any other
or further exercise thereof or the exercise of any other right or power.
Neither this Agreement nor any provision hereof may be waived, amended or
modified except pursuant to an agreement in writing entered into by Executive
and the Company.
(h) Any controversy, dispute or claim arising out of, in
connection with, or in relation to the interpretation, performance,
non-performance, validity or breach of this Agreement or otherwise arising
out of, or in any way related to, this Agreement shall be determined, at the
request of any party, by arbitration conducted in New York City, before and
in accordance with the then-existing Rules for Commercial Arbitration of the
American Arbitration Association, and any judgment or award rendered by the
arbitrator shall be final, binding and unappealable, and any judgment may be
entered by any state or Federal court having jurisdiction thereof. In its
award the arbitrator shall allocate, in its discretion, among the parties to
the arbitration all costs of the arbitration, including the fees and expenses
of the arbitrator and reasonable attorneys' fees, costs and expert witness
expenses of the
<PAGE>
[This Page Left Intentionally Blank]
<PAGE>
9
parties. The Company shall pay for all reasonable travel expenses (including
transportation, lodging and meals) incurred by Executive in connection with
any arbitration session.
(i) All amounts paid hereunder will be net of any
applicable withholdings required by existing or future tax laws.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the day and year first above written.
Weekly Reader Corporation,
by /s/ Charles Laurey
-------------------------------
Name: Charles Laurey
Title: Secretary
/s/ Thaddeus Kozlowski
-------------------------------
Thaddeus Kozlowski
<PAGE>
This EMPLOYMENT AGREEMENT ("AGREEMENT") is
made and entered into as of the 17 day of November,
1999, by and between Weekly Reader Corporation, a
Delaware corporation (the "COMPANY"), and Eric Ecker,
an individual resident of the State of Connecticut
(the "EXECUTIVE").
WHEREAS the Company wishes to employ Executive, and
Executive wishes to accept such employment, on the following terms and
conditions, effective as of the Closing Date (as defined in the Redemption,
Stock Purchase and Recapitalization Agreement dated as of August 13, 1999, as
amended (the "PURCHASE AGREEMENT"), between PRIMEDIA Inc. and WRC Media Inc.
(formerly named EAC II Inc.), a Delaware corporation ("WRC Media");
NOW, THEREFORE, in consideration of the mutual covenants
contained herein and intending to be legally bound hereby, the parties hereby
agree as follows:
SECTION 1. EMPLOYMENT. The Company hereby employs Executive
and Executive accepts employment by the Company, on the terms and conditions
contained in this Agreement.
SECTION 2. TERM. The employment of Executive pursuant
hereto shall commence on the Closing Date and shall remain in effect until
December 31, 2001 unless terminated by Executive upon 30 days prior written
notice to the Company or by the Company upon 30 days prior written notice to
Executive. The period of time between the Closing Date and the termination of
this Agreement pursuant to its terms is herein referred to as the "TERM". The
Term shall be automatically renewed for successive one-year periods unless,
at least 90 days prior to any applicable expiration date, either party gives
written notice to the other party that such party does not wish to renew.
SECTION 3. DUTIES AND EXTENT OF SERVICE; PLACE OF
PERFORMANCE. During the Term, Executive shall serve the Company as Vice
President and Group Product Director, Secondary, and shall perform duties and
exercise authority commensurate with such role. Executive shall initially
report to Peter E. Bergen. Executive shall devote Executive's full business
time and best
<PAGE>
2
efforts to the performance of Executive's duties hereunder and to the
business of the Company and its direct and indirect subsidiaries. Except as
mutually agreed upon by Executive and the Company, the Company shall not
materially diminish Executive's position at the Company without Good Cause
(as defined in Section 11). During the Term, Executive shall continue to be
employed at the location at which he is employed as of the Closing Date or at
another location within 30 miles thereof as the Company, in its sole
discretion, shall determine.
SECTION 4. BASE SALARY. During the Term, Executive shall be
paid a base salary (the "BASE SALARY"), payable in bi-weekly installments at
the end of every two weeks, at a rate of $114,800 per annum (the "INITIAL
SALARY") subject to annual review; PROVIDED that Executive's Base Salary
shall not be reduced below the Initial Salary.
SECTION 5. BONUS. Executive shall continue to be eligible
to receive any annual bonus for the 1999 calendar year which may be payable
to Executive under the short-term executive incentive compensation plan
currently applicable to Executive in accordance with the terms of Executive's
bonus letter from the Company (the "BONUS LETTER"), a copy of which is
attached hereto. Bonuses for future years during the Term shall be set by the
Company annually based on reasonable criteria communicated to Executive. Such
criteria shall be comparable to the criteria currently set forth in the Bonus
Letter. Target bonuses shall not be less than the target bonus set forth in
the Bonus Letter.
SECTION 6. FRINGE BENEFITS. Executive shall be entitled to
participate, to the extent eligible, in such medical, dental, disability,
life insurance, deferred compensation, retirement and other benefit plans as
the Company shall maintain for the benefit of employees generally, on the
terms and subject to the conditions set forth in such plans, which plans
shall be comparable in the aggregate to those plans in effect for Executive
as of the date hereof. Executive shall also be entitled to vacation time and
sick leave in accordance with the Company's policies in existence immediately
prior to the Closing and as applied to Executive immediately prior to the
Closing.
<PAGE>
3
SECTION 7. EXPENSES. Upon receipt from Executive of expense
vouchers and other documentation reasonably requested by the Company, the
Company shall reimburse Executive promptly for all reasonable expenses
incurred by Executive in accordance with the Company's policies and
procedures in connection with Executive's duties and responsibilities
hereunder.
SECTION 8. EQUITY INVESTMENT. From the date of the Closing
to December 15, 1999, Executive may elect to purchase up to $10,000 of Common
Stock, par value $0.01 per share ("WRC MEDIA COMMON STOCK"), of WRC Media
from EAC IV L.L.C. at a purchase price of $18.60065 per share in cash. If
Executive purchases any such shares, Executive will enter into a shareholder
agreement among WRC Media, EAC III L.L.C. and certain other executives of the
Company and its affiliates in the form previously agreed to by such parties.
If Executive so elects, up to one half of Executive's purchase of WRC Media
Common Stock may be financed with a personal loan guaranteed by the Company
on commercially reasonable terms. The Company shall make reasonable efforts
to arrange and guarantee such loan.
SECTION 9. NONSOLICITATION. (a) In the event that
Executive's employment with the Company is terminated by the Company for any
reason, then during the period beginning on the Closing Date and ending on
the date that is 12 months after the date of termination of Executive's
employment and to the fullest extent permitted under applicable law,
Executive agrees that Executive shall not, directly or indirectly, solicit or
attempt to solicit any business from any customers or clients of the Company,
including actively sought prospective customers or clients, in connection
with any Competing Publication or Product Line (as defined on Schedule I).
During the period beginning on the Closing Date and ending on the date that
is 24 months after the date of termination of Executive's employment with the
Company and to the fullest extent permitted under applicable law, Executive
agrees that Executive shall not, directly or indirectly, other than as an
employee of the Company, solicit, recruit or hire any employees of or persons
who have worked for the Company, other than secretaries, during the
twelve-month period prior to termination of Executive's employment or solicit
or encourage any such employee of the Company to leave the employment of the
Company.
<PAGE>
4
(b) If a judicial determination is made that any of the
provisions of this Section 9 constitutes an unreasonable or otherwise
unenforceable restriction against Executive, the provisions of such Section
shall be rendered void only to the extent that such judicial determination
finds such provisions to be unreasonable or otherwise unenforceable.
SECTION 10. NONDISCLOSURE. The parties hereto agree that
during the course of Executive's employment by the Company, Executive will
have access to, and will gain knowledge with respect to, the Companies'
Confidential Information (as defined below). The parties acknowledge that
unauthorized disclosure or misuse of such Confidential Information would
cause irreparable damage to the Companies. Accordingly, Executive agrees that
Executive shall not (except as may be required by law), without the prior
written consent of the Company during Executive's employment with the Company
under this Agreement, and any extension or renewal hereof, and thereafter for
a period ending on the fifth anniversary of the date of termination of
Executive's employment with the Company, use or disclose, or knowingly permit
any unauthorized person to use, disclose or gain access to, any Confidential
Information; PROVIDED that Executive may disclose Confidential Information to
a person to whom disclosure is reasonably necessary or appropriate in
connection with the performance by Executive of Executive's duties under this
Agreement. Upon termination of this Agreement for any reason, Executive shall
return to the Company the original and all copies of all documents and
correspondence in Executive's possession relating to the business of any of
the Companies or any of their affiliates, including but not limited to all
Confidential Information, and shall not be entitled to any lien or right of
retention in respect thereof. Upon termination of this Agreement for any
reason, Executive shall be entitled to remove all documents and
correspondence of a purely personal nature. For purposes of this Agreement,
"CONFIDENTIAL INFORMATION" shall mean all business information (whether or
not in written form) which relates to any of the Companies, any of their
affiliates or their respective businesses or products and which is not known
to the public generally, including but not limited to technical information
or reports; trade secrets; unwritten knowledge and "know-how"; operating
instructions; training manuals; customer lists; customer buying records and
<PAGE>
5
habits; product sales records and documents, and product development,
marketing and sales strategies; market surveys; marketing plans;
profitability analyses; product cost; long-range plans; information relating
to pricing, competitive strategies and new product development; information
relating to any forms of compensation and other personnel-related
information; contracts; and supplier lists; PROVIDED that "Confidential
Information" shall not include general business know-how.
SECTION 11. SEVERANCE. If Executive's employment hereunder
is terminated upon a breach by the Company of this Agreement, by the Company
for any reason other than for Good Cause or by reason of a notice of
nonrenewal given by the Company, the Company shall pay to Executive as
severance pay a lump sum cash payment in an amount equal to Executive's Base
Salary for the year in which termination occurs. The Company shall also pay
to Executive any accrued and unpaid Base Salary owed to Executive for the
period prior to such termination, a prorated portion of Executive's Base
Salary for any accrued unused vacation time of Executive for the period prior
to such termination and any incurred but unpaid reimbursable expenses as
contemplated by Section 7. Additionally, in the event that any such
termination occurs more than six months after the beginning of any calendar
year, the Company shall pay to Executive a prorated portion of the Bonus that
Executive would have been entitled to for such calendar year puruant to
Section 5. Payment of such severance pay and other amounts will be made
within 30 days of such termination. For purposes of this Agreement, "GOOD
CAUSE" shall exist upon the occurrence of any of the following: (i) Executive
is convicted of, pleads guilty to, confesses to, or enters a plea of nolo
contendere to, any felony or any crime that involves moral turpitude or any
act of fraud, misappropriation or embezzlement; (ii) Executive has engaged in
a fraudulent act to the damage or prejudice of any of the Companies or any
affiliate of any of the Companies; (iii) any act or omission by Executive
involving malfeasance or gross negligence in the performance of Executive's
duties to the Company; (iv) Executive otherwise fails to comply in any
material respect with the terms of this Agreement or deviates in any material
respect from any reasonable written policies or reasonable directives of the
Board of Directors of the Company and, within 60 days after written notice
from the Company of such failure or deviation, Executive has not
<PAGE>
6
corrected such failure; or (v) the occurrence of the death or total
disability of Executive (total disability meaning the failure of Executive to
perform Executive's normal required services hereunder for a period of six
consecutive months during the term hereof by reason of Executive's mental or
physical disability, as determined by an independent physician reasonably
satisfactory to Executive and the Company).
SECTION 12. TERMINATION; SURVIVAL. This Agreement shall
terminate upon the earlier of (a) the termination of the Purchase Agreement
pursuant to its terms and (b) the termination of Executive's employment by
the Company. Notwithstanding the foregoing, Sections 9, 10 and 13 and, if
Executive's employment terminates in a manner giving rise to a payment under
Section 11, Section 11 shall survive the termination of this Agreement.
SECTION 13. MISCELLANEOUS. (a) This Agreement shall inure
to the benefit of and shall be binding upon Executive and Executive's
executor, administrator, heirs, personal representative and permitted assigns
and the Company and its successors and permitted assigns; PROVIDED that
Executive shall not be entitled to assign or delegate any of Executive's
rights or obligations hereunder without the prior written consent of the
Company.
(b) This Agreement shall be deemed to be made in, and in
all respects shall be interpreted, construed and governed by and in
accordance with, the laws of the State of New York, without regard to the
conflicts of law principles of such State. No provision of this Agreement or
any related document shall be construed against or interpreted to the
disadvantage of any party hereto by any court or other governmental or
judicial authority by reason of such party having or being deemed to have
structured or drafted such provision.
(c) This Agreement constitutes the entire agreement between
the Company and Executive with respect to Executive's employment by the
Company after the Closing Date and, effective as of the Closing Date,
supersedes all prior agreements, whether written or oral, between them
relating to Executive's employment by the Company, including those agreements
set forth on Schedule II attached hereto, if any; PROVIDED that this
Agreement does not
<PAGE>
7
supersede the Bonus Letter. Effective as of the Closing Date, Executive
hereby releases the Company and its affiliates from any claims or rights
under such agreements, without any liability or other adverse consequence to
the Company, its affiliates or WRC Media and the Company hereby releases
Executive from any claims or rights under such agreements, without any
liability or other adverse consequence to Executive.
(d) All notices or other communications required or
permitted by this Agreement shall be made in writing and any such notice or
communication shall be deemed delivered when delivered in person, transmitted
by telecopier, or one business day after it has been sent by a nationally
recognized overnight courier, at the address for notices as follows:
(i) if to the Company,
Weekly Reader Corporation
c/o Ripplewood Holdings L.L.C.
One Rockefeller Plaza
32nd Floor
New York, New York 10020
Attention: Mr. Timothy C. Collins
Mr. Charles L. Laurey
Mr. Martin Kenney
Facsimile: (212) 582-4110
(ii) if to Executive,
Eric Ecker
109 Edward Place
Stamford, CT 06905
with a copy to:
Rubin Baum Levin Constant & Friedman
30 Rockefeller Plaza
New York, NY 10112
Attention: Robert J. Benowitz, Esq.
Facsimile: 212-698-7825
<PAGE>
8
Communications by telecopier also shall be sent concurrently by overnight
courier, but shall in any event be effective as stated above. Each party may
from time to time change its address for notices under this Section 13(d) by
giving at least five days' notice of such changed address to the other
parties hereto.
(e) This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement,
and shall become effective when one or more of the counterparts have been
signed by each of the parties and delivered to the other parties, it being
understood that all parties need not sign the same counterpart.
(f) The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
(g) No failure or delay by Executive or the Company in
exercising any right or power hereunder shall operate as a waiver thereof,
nor shall any single or partial exercise of any such right or power, or any
abandonment of any steps to enforce such a right or power, preclude any other
or further exercise thereof or the exercise of any other right or power.
Neither this Agreement nor any provision hereof may be waived, amended or
modified except pursuant to an agreement in writing entered into by Executive
and the Company.
(h) Any controversy, dispute or claim arising out of, in
connection with, or in relation to the interpretation, performance,
non-performance, validity or breach of this Agreement or otherwise arising
out of, or in any way related to, this Agreement shall be determined, at the
request of any party, by arbitration conducted in New York City, before and
in accordance with the then-existing Rules for Commercial Arbitration of the
American Arbitration Association, and any judgment or award rendered by the
arbitrator shall be final, binding and unappealable, and any judgment may be
entered by any state or Federal court having jurisdiction thereof. In its
award the arbitrator shall allocate, in its discretion, among the parties to
the arbitration all costs of the arbitration, including the fees and expenses
of the arbitrator and reasonable attorneys' fees, costs and expert witness
expenses of the
<PAGE>
9
parties. The Company shall pay for all reasonable travel expenses (including
transportation, lodging and meals) incurred by Executive in connection with
any arbitration session.
(i) All amounts paid hereunder will be net of any
applicable withholdings required by existing or future tax laws.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the day and year first above written.
Weekly Reader Corporation,
by /s/ Charles Laurey
--------------------------------
Name: Charles Laurey
Title: Secretary
/s/ Eric Ecker
--------------------------------
Eric Ecker
<PAGE>
This EMPLOYMENT AGREEMENT ("AGREEMENT") is
made and entered into as of the 17 day of November,
1999, by and between Weekly Reader Corporation, a
Delaware corporation (the "COMPANY"), and Lester
Rackoff, an individual resident of the State of New
York (the "EXECUTIVE").
WHEREAS the Company wishes to employ Executive, and Executive
wishes to accept such employment, on the following terms and conditions,
effective as of the Closing Date (as defined in the Redemption, Stock Purchase
and Recapitalization Agreement dated as of August 13, 1999, as amended (the
"PURCHASE AGREEMENT"), between PRIMEDIA Inc. and WRC Media Inc. (formerly named
EAC II Inc.), a Delaware corporation ("WRC Media");
NOW, THEREFORE, in consideration of the mutual covenants
contained herein and intending to be legally bound hereby, the parties hereby
agree as follows:
SECTION 1. EMPLOYMENT. The Company hereby employs Executive
and Executive accepts employment by the Company, on the terms and conditions
contained in this Agreement.
SECTION 2. TERM. The employment of Executive pursuant hereto
shall commence on the Closing Date and shall remain in effect until December
31, 2001 unless terminated by Executive upon 30 days prior written notice to
the Company or by the Company upon 30 days prior written notice to Executive.
The period of time between the Closing Date and the termination of this
Agreement pursuant to its terms is herein referred to as the "TERM". The Term
shall be automatically renewed for successive one-year periods unless, at least
90 days prior to any applicable expiration date, either party gives written
notice to the other party that such party does not wish to renew.
SECTION 3. DUTIES AND EXTENT OF SERVICE; PLACE OF
PERFORMANCE. During the Term, Executive shall serve the Company as Executive
Vice President and Chief Financial Officer of the Company and shall perform
duties and exercise authority commensurate with such role. Executive shall
initially report to
<PAGE>
2
Peter E. Bergen. Executive shall devote Executive's full business time and best
efforts to the performance of Executive's duties hereunder and to the business
of the Company and its direct and indirect subsidiaries. Except as mutually
agreed upon by Executive and the Company, the Company shall not materially
diminish Executive's position at the Company without Good Cause (as defined in
Section 11). During the Term, Executive shall continue to be employed at the
location at which he is employed as of the Closing Date or at another location
within 30 miles thereof as the Company, in its sole discretion, shall determine.
SECTION 4. BASE SALARY. During the Term, Executive shall be
paid a base salary (the "BASE SALARY"), payable in bi-weekly installments at
the end of every two weeks, at a rate of $175,000 per annum until January 1,
2000, and thereafter, at a rate of $210,000 (the "INITIAL SALARY") subject to
annual review; PROVIDED that Executive's Base Salary shall not be reduced below
the Initial Salary.
SECTION 5. BONUS. Executive shall continue to be eligible to
receive any annual bonus for the 1999 calendar year which may be payable to
Executive under the short-term executive incentive compensation plan currently
applicable to Executive in accordance with the terms of Executive's bonus
letter from the Company (the "BONUS LETTER"), a copy of which is attached
hereto. Bonuses for future years during the Term shall be set by the Company
annually based on reasonable criteria communicated to Executive. Such criteria
shall be comparable to the criteria currently set forth in the Bonus Letter.
Target bonuses shall not be less than the target bonus set forth in the Bonus
Letter.
SECTION 6. FRINGE BENEFITS. Executive shall be entitled to
participate, to the extent eligible, in such medical, dental, disability, life
insurance, deferred compensation, retirement and other benefit plans as the
Company shall maintain for the benefit of employees generally, on the terms and
subject to the conditions set forth in such plans, which plans shall be
comparable in the aggregate to those plans in effect for Executive as of the
date hereof. Executive shall also be entitled to vacation time and sick leave
in accordance with the Company's policies in existence immediately prior to the
Closing and as applied to Executive immediately prior to the Closing.
<PAGE>
3
SECTION 7. EXPENSES. Upon receipt from Executive of expense
vouchers and other documentation reasonably requested by the Company, the
Company shall reimburse Executive promptly for all reasonable expenses incurred
by Executive in accordance with the Company's policies and procedures in
connection with Executive's duties and responsibilities hereunder.
SECTION 8. EQUITY INVESTMENT. From the date of the Closing to
December 15, 1999, Executive may elect to purchase up to $150,000 of Common
Stock, par value $0.01 per share ("WRC MEDIA COMMON STOCK"), of WRC Media from
EAC IV L.L.C. at a purchase price of $18.60065 per share in cash. If Executive
purchases any such shares, Executive will enter into a shareholder agreement
among WRC Media, EAC III L.L.C. and certain other executives of the Company and
its affiliates in the form previously agreed to by such parties. If Executive
so elects, up to one half of Executive's purchase of WRC Media Common Stock may
be financed with a personal loan guaranteed by the Company on commercially
reasonable terms. The Company shall make reasonable efforts to arrange and
guarantee such loan.
SECTION 9. NONSOLICITATION. (a) In the event that Executive's
employment with the Company is terminated by the Company for any reason, then
during the period beginning on the Closing Date and ending on the date that is
12 months after the date of termination of Executive's employment and to the
fullest extent permitted under applicable law, Executive agrees that Executive
shall not, directly or indirectly, solicit or attempt to solicit any business
from any customers or clients of the Company, including actively sought
prospective customers or clients, in connection with any Competing Publication
or Product Line (as defined on Schedule I). During the period beginning on the
Closing Date and ending on the date that is 24 months after the date of
termination of Executive's employment with the Company and to the fullest
extent permitted under applicable law, Executive agrees that Executive shall
not, directly or indirectly, other than as an employee of the Company, solicit,
recruit or hire any employees of or persons who have worked for the Company,
other than secretaries, during the twelve-month period prior to termination of
Executive's employment or solicit or encourage any such employee of the Company
to leave the employment of the Company.
<PAGE>
4
(b) If a judicial determination is made that any of the
provisions of this Section 9 constitutes an unreasonable or otherwise
unenforceable restriction against Executive, the provisions of such Section
shall be rendered void only to the extent that such judicial determination
finds such provisions to be unreasonable or otherwise unenforceable.
SECTION 10. NONDISCLOSURE. The parties hereto agree that
during the course of Executive's employment by the Company, Executive will have
access to, and will gain knowledge with respect to, the Companies' Confidential
Information (as defined below). The parties acknowledge that unauthorized
disclosure or misuse of such Confidential Information would cause irreparable
damage to the Companies. Accordingly, Executive agrees that Executive shall not
(except as may be required by law), without the prior written consent of the
Company during Executive's employment with the Company under this Agreement,
and any extension or renewal hereof, and thereafter for a period ending on the
fifth anniversary of the date of termination of Executive's employment with the
Company, use or disclose, or knowingly permit any unauthorized person to use,
disclose or gain access to, any Confidential Information; PROVIDED that
Executive may disclose Confidential Information to a person to whom disclosure
is reasonably necessary or appropriate in connection with the performance by
Executive of Executive's duties under this Agreement. Upon termination of this
Agreement for any reason, Executive shall return to the Company the original
and all copies of all documents and correspondence in Executive's possession
relating to the business of any of the Companies or any of their affiliates,
including but not limited to all Confidential Information, and shall not be
entitled to any lien or right of retention in respect thereof. Upon termination
of this Agreement for any reason, Executive shall be entitled to remove all
documents and correspondence of a purely personal nature. For purposes of this
Agreement, "CONFIDENTIAL INFORMATION" shall mean all business information
(whether or not in written form) which relates to any of the Companies, any of
their affiliates or their respective businesses or products and which is not
known to the public generally, including but not limited to technical
information or reports; trade secrets; unwritten knowledge and "know-how";
operating instructions; training manuals; customer lists; customer buying
records and
<PAGE>
5
habits; product sales records and documents, and product development, marketing
and sales strategies; market surveys; marketing plans; profitability analyses;
product cost; long-range plans; information relating to pricing, competitive
strategies and new product development; information relating to any forms of
compensation and other personnel-related information; contracts; and supplier
lists; PROVIDED that "Confidential Information" shall not include general
business know-how.
SECTION 11. SEVERANCE. If Executive's employment hereunder is
terminated upon a breach by the Company of this Agreement, by the Company for
any reason other than for Good Cause or by reason of a notice of nonrenewal
given by the Company, the Company shall pay to Executive as severance pay a
lump sum cash payment in an amount equal to Executive's Base Salary for the
year in which termination occurs. The Company shall also pay to Executive any
accrued and unpaid Base Salary owed to Executive for the period prior to such
termination, a prorated portion of Executive's Base Salary for any accrued
unused vacation time of Executive for the period prior to such termination and
any incurred but unpaid reimbursable expenses as contemplated by Section 7.
Additionally, in the event that any such termination occurs more than six
months after the beginning of any calendar year, the Company shall pay to
Executive a prorated portion of the Bonus that Executive would have been
entitled to for such calendar year puruant to Section 5. Payment of such
severance pay and other amounts will be made within 30 days of such
termination. For purposes of this Agreement, "GOOD CAUSE" shall exist upon the
occurrence of any of the following: (i) Executive is convicted of, pleads
guilty to, confesses to, or enters a plea of nolo contendere to, any felony or
any crime that involves moral turpitude or any act of fraud, misappropriation
or embezzlement; (ii) Executive has engaged in a fraudulent act to the damage
or prejudice of any of the Companies or any affiliate of any of the Companies;
(iii) any act or omission by Executive involving malfeasance or gross
negligence in the performance of Executive's duties to the Company; (iv)
Executive otherwise fails to comply in any material respect with the terms of
this Agreement or deviates in any material respect from any reasonable written
policies or reasonable directives of the Board of Directors of the Company and,
within 60 days after written notice from the Company of such failure or
deviation, Executive has not
<PAGE>
6
corrected such failure; or (v) the occurrence of the death or total disability
of Executive (total disability meaning the failure of Executive to perform
Executive's normal required services hereunder for a period of six consecutive
months during the term hereof by reason of Executive's mental or physical
disability, as determined by an independent physician reasonably satisfactory
to Executive and the Company).
SECTION 12. TERMINATION; SURVIVAL. This Agreement shall
terminate upon the earlier of (a) the termination of the Purchase Agreement
pursuant to its terms and (b) the termination of Executive's employment by the
Company. Notwithstanding the foregoing, Sections 9, 10 and 13 and, if
Executive's employment terminates in a manner giving rise to a payment under
Section 11, Section 11 shall survive the termination of this Agreement.
SECTION 13. MISCELLANEOUS. (a) This Agreement shall inure to
the benefit of and shall be binding upon Executive and Executive's executor,
administrator, heirs, personal representative and permitted assigns and the
Company and its successors and permitted assigns; PROVIDED that Executive shall
not be entitled to assign or delegate any of Executive's rights or obligations
hereunder without the prior written consent of the Company.
(b) This Agreement shall be deemed to be made in, and in all
respects shall be interpreted, construed and governed by and in accordance
with, the laws of the State of New York, without regard to the conflicts of law
principles of such State. No provision of this Agreement or any related
document shall be construed against or interpreted to the disadvantage of any
party hereto by any court or other governmental or judicial authority by reason
of such party having or being deemed to have structured or drafted such
provision.
(c) This Agreement constitutes the entire agreement between
the Company and Executive with respect to Executive's employment by the Company
after the Closing Date and, effective as of the Closing Date, supersedes all
prior agreements, whether written or oral, between them relating to Executive's
employment by the Company, including those agreements set forth on Schedule II
attached hereto, if any; PROVIDED that this Agreement does not
<PAGE>
7
supersede the Bonus Letter. Effective as of the Closing Date, Executive hereby
releases the Company and its affiliates from any claims or rights under such
agreements, without any liability or other adverse consequence to the Company,
its affiliates or WRC Media and the Company hereby releases Executive from any
claims or rights under such agreements, without any liability or other adverse
consequence to Executive.
(d) All notices or other communications required or permitted
by this Agreement shall be made in writing and any such notice or communication
shall be deemed delivered when delivered in person, transmitted by telecopier,
or one business day after it has been sent by a nationally recognized overnight
courier, at the address for notices as follows:
(i) if to the Company,
Weekly Reader Corporation
c/o Ripplewood Holdings L.L.C.
One Rockefeller Plaza
32nd Floor
New York, New York 10020
Attention: Mr. Timothy C. Collins
Mr. Charles L. Laurey
Mr. Martin Kenney
Facsimile: (212) 582-4110
(ii) if to Executive,
Lester Rackoff
4 Supple Way
Yorktown Heights, NY 10598
with a copy to:
Rubin Baum Levin Constant & Friedman
30 Rockefeller Plaza
New York, NY 10112
Attention: Robert J. Benowitz, Esq.
Facsimile: 212-698-7825
<PAGE>
8
Communications by telecopier also shall be sent concurrently by overnight
courier, but shall in any event be effective as stated above. Each party may
from time to time change its address for notices under this Section 13(d) by
giving at least five days' notice of such changed address to the other parties
hereto.
(e) This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement, and
shall become effective when one or more of the counterparts have been signed by
each of the parties and delivered to the other parties, it being understood
that all parties need not sign the same counterpart.
(f) The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
(g) No failure or delay by Executive or the Company in
exercising any right or power hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of any such right or power, or any
abandonment of any steps to enforce such a right or power, preclude any other
or further exercise thereof or the exercise of any other right or power.
Neither this Agreement nor any provision hereof may be waived, amended or
modified except pursuant to an agreement in writing entered into by Executive
and the Company.
(h) Any controversy, dispute or claim arising out of, in
connection with, or in relation to the interpretation, performance,
non-performance, validity or breach of this Agreement or otherwise arising out
of, or in any way related to, this Agreement shall be determined, at the
request of any party, by arbitration conducted in New York City, before and in
accordance with the then-existing Rules for Commercial Arbitration of the
American Arbitration Association, and any judgment or award rendered by the
arbitrator shall be final, binding and unappealable, and any judgment may be
entered by any state or Federal court having jurisdiction thereof. In its award
the arbitrator shall allocate, in its discretion, among the parties to the
arbitration all costs of the arbitration, including the fees and expenses of
the arbitrator and reasonable attorneys' fees, costs and expert witness
expenses of the
<PAGE>
9
parties. The Company shall pay for all reasonable travel expenses (including
transportation, lodging and meals) incurred by Executive in connection with any
arbitration session.
(i) All amounts paid hereunder will be net of any applicable
withholdings required by existing or future tax laws.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the day and year first above written.
Weekly Reader Corporation,
by /s/ Charles Laurey
-------------------------------------
Name: Charles Laurey
Title: Secretary
/s/ Lester Rackoff
-------------------------------------
Lester Rackoff
<PAGE>
This EMPLOYMENT AGREEMENT ("Agreement") is
made and entered into as of the 14th day of July,
1999, by and between JLC LEARNING CORPORATION, an
Illinois corporation (the "Company"), and THERESE K.
CRANE, an individual resident of the State of Texas
(the "Executive").
WHEREAS the Company wishes to employ Executive, and Executive wishes
to accept such employment, on the following terms and conditions, effective as
of the Closing Date (as defined in the Stock Purchase Agreement dated as of June
7, 1999, among Software Systems Corp., Sylvan Learning Systems, Inc., Pyramid
Ventures, Inc., GE Capital Equity Investments, Inc., JLC Learning Corporation
and EAC I Inc. (the "Stock Purchase Agreement"));
WHEREAS immediately after the Closing (as defined in the Stock
Purchase Agreement), the Company will be merged with and into EAC I Inc., a
Delaware corporation, and the name of EAC I Inc. will be changed to "JLC
Learning Corporation";
NOW, THEREFORE, in consideration of the mutual covenants contained
herein and intending to be legally bound hereby, the parties hereby agree as
follows:
SECTION 1. EMPLOYMENT. The Company hereby employs Executive and
Executive accepts employment by the Company, on the terms and conditions
contained in this Agreement.
SECTION 2. TERM. The employment of Executive pursuant hereto shall
commence on the Closing Date and shall remain in effect unless terminated by
Executive upon 30 days prior written notice to the Company or by the Company
upon 30 days prior written notice to Executive. The period of time between the
Closing and the termination of this Agreement pursuant to its terms is herein
referred to as the "Term".
SECTION 3. DUTIES AND EXTENT OF SERVICE. Executive shall serve the
Company as President or in such other position as may be mutually agreed upon by
Executive and the Company and, as outlined in the letter dated June 10, 1999
from Charles L. Laurey to Executive, shall perform such services and duties for
the Company as are customarily performed by an executive in Executive's position
at a business such as the Company's business and as the Board of Directors of
the Company (the "Board of Directors") may assign or delegate to her from time
to time as provided in the By-laws of the Company. Executive shall devote her
full business knowledge, skill, time and effort exclusively to the performance
of her duties for the Company and the promotion of its interests. Executive's
duties hereunder shall be performed at such place or places as the interests,
needs, businesses or opportunities of the Company shall require. Notwithstanding
the foregoing, Executive shall not be required to change her residence from
Texas to any other location and shall continue to perform her responsibilities
as President of the Company, while residing in Texas and traveling to San Diego,
California, as necessary. Executive shall report to the Chief Executive Officer
of the Company.
SECTION 4. BASE SALARY. Executive shall be paid a base salary (the
"Base Salary") at a rate of $330,000 per annum (the "Initial Salary") subject to
annual review; PROVIDED, HOWEVER, that the Executive's Base Salary shall not be
reduced below the Initial Salary.
<PAGE>
2
SECTION 5. BONUS. Executive shall receive an annual bonus ("Bonus") of
up to 121% of Base Salary, based on the achievement of specific objectives to be
established by the Board of Directors on an annual basis in connection with the
development of the Company's annual operating budget for earnings before
interest, depreciation, taxes and amortization and after deductions for any
annual bonus payments payable by the Company. The Bonus in respect of 1999 will
be tied to the 1999 Business Plan as previously adopted by the Board of
Directors with a guaranteed bonus of $40,000 (the "Guaranteed Bonus"). For
achievement of 100%, 110%, 120% and 125% of budget, a Bonus of $200,000,
$268,000, $332,000 and $400,000, respectively, will be paid to Executive. For
subsequent years, it is expected that the Bonus will be tied to the Company's
annual operating budget.
SECTION 6. FRINGE BENEFITS. Executive shall be entitled to
participate, to the extent eligible, in such medical, dental, disability, life
insurance, deferred compensation and other benefit plans (such as pension and
profit sharing plans) as the Company shall maintain for the benefit of employees
generally, on the terms and subject to the conditions set forth in such plans.
Executive shall also be entitled to vacation time and sick leave in accordance
with the Company's policies in existence and as applied to Executive immediately
prior to the Closing.
SECTION 7. EXPENSES. The Company shall reimburse Executive promptly
for all reasonable expenses incurred by Executive in accordance with the
Company's budget and policy in connection with her duties and responsibilities
hereunder.
SECTION 8. EQUITY INVESTMENT. Executive, subject to the preparation of
a shareholder agreement reasonably acceptable to Executive, will be required to
purchase promptly after the Closing Date a minimum of _____ shares of Common
Stock, par value $0.01 per share ("EAC II Common Stock") of EAC II Inc. at a
price of $_____ per share in cash (the "Per Share Purchase Price") from EAC III
L.L.C.1 Employee will enter into such shareholder agreement which shall contain
customary terms and shall grant an irrevocable proxy to EAC III L.L.C. to vote
her shares of EAC II Common Stock. If Executive so elects (and to the extent
eligible), her purchase of Company Common Stock may be financed with a personal
loan guaranteed by the Company on commercially reasonable terms. The Company
shall make reasonable efforts to arrange and guarantee such loan.
SECTION 9. STOCK OPTIONS. In the event of an initial public offering
of the EAC I Common Stock, Executive shall participate in a stock option plan
commensurate with industry standards and the nature of EAC I Inc.'s ownership
and capital structure as of the closing of such offering.
SECTION 10. NONSOLICITATION. (a) During the period beginning on the
Closing Date and ending on the second anniversary of the date of termination of
Executive's employment with the Company (the "Nonsolicitation Period") and to
the fullest extent permitted under applicable law, Executive agrees that she
shall not, directly or indirectly: solicit, recruit or hire any employees of or
persons who have worked for the Company during the twelve-month period prior to
termination of Executive's employment, or solicit or encourage any such employee
of the Company to leave the employment of the Company.
(b) If a judicial determination is made that any of the provisions of
this Section 10 constitutes an unreasonable or otherwise unenforceable
restriction against Executive,
- --------
1 This minimum investment would equate to $75,000.
<PAGE>
3
the provisions of such Section shall be rendered void only to the extent that
such judicial determination finds such provisions to be unreasonable or
otherwise unenforceable. Moreover, notwithstanding the fact that any provisions
of this Section 10 is determined not to be specifically enforceable, the Company
shall nevertheless be entitled to recover monetary damages as a result of
Executive's breach of such provision.
(c) Executive agrees that the provisions of this Section 10 are
reasonable and properly required for the adequate protection of the business and
the goodwill of the Company.
SECTION 11. NONDISCLOSURE. The parties hereto agree that during the
course of her employment by the Company, Executive will have access to, and will
gain knowledge with respect to, the Company's Confidential Information (as
defined below). The parties acknowledge that unauthorized disclosure or misuse
of such Confidential Information would cause irreparable damage to the Company.
Accordingly, Executive agrees to the nondisclosure covenants in this Section 11.
Executive represents that her experience and capabilities are such that the
provisions of Section 10 and this Section 11 will not prevent her from earning
her livelihood. Executive agrees that she shall not (except as may be required
by law), without the prior written consent of the Company during her employment
with the Company under this Agreement, and any extension or renewal hereof, and
thereafter for so long as it remains Confidential Information, use or disclose,
or knowingly permit any unauthorized person to use, disclose or gain access to,
any Confidential Information; PROVIDED that Executive may disclose Confidential
Information to a person to whom disclosure is reasonably necessary or
appropriate in connection with the performance by Executive of her duties under
this Agreement. Upon termination of this Agreement for any reason, Executive
shall return to the Company the original and all copies of all documents and
correspondence in her possession relating to the business of the Company or any
of its affiliates, including but not limited to all Confidential Information,
and shall not be entitled to any lien or right of retention in respect thereof.
For purposes of this Agreement, "Confidential Information" shall mean
all business information (whether or not in written form) which relates to the
Company, any of its affiliates or their respective businesses or products and
which is not known to the public generally, including but not limited to
technical information or reports; trade secrets; unwritten knowledge and
"know-how"; operating instructions; training manuals; customer lists; customer
buying records and habits; product sales records and documents, and product
development, marketing and sales strategies; market surveys; marketing plans;
profitability analyses; product cost; long-range plans; information relating to
pricing, competitive strategies and new product development; information
relating to any forms of compensation and other personnel-related information;
contracts; and supplier lists.
SECTION 12. SEVERANCE. If Executive's employment hereunder is
terminated (1) upon a breach by the Company of this Agreement; (2) by the
Company for any reason other than for "Good Cause" (as defined below), or (3) by
the Company as a result of the occurrence of the death or total disability of
Executive (total disability meaning the failure of Executive to perform her
normal required services hereunder for a period of three consecutive months
during the term hereof by reason of Executive's mental or physical disability,
as determined by an independent physician reasonably satisfactory to Executive
and the Company) the Company shall (i) pay to Executive as severance pay a lump
sum cash payment in the amount of her Base Salary for the period equal to the
greater of (x) 12 months or (y) 18 months minus the length of Executive's
employment with the Company following the date of this Agreement (the "Severance
Period"); and (ii) provide Executive with an executive outplacement program in
accordance with the policy of the Company at the time of such termination.
Payment of such
<PAGE>
4
severance pay will be made within thirty (30) days of such termination.
Executive shall have the option of receiving the severance pay specified in the
preceding sentence in the form of salary continuation payments for the Severance
Period. In the event that Executive elects to receive severance pay in the form
of salary continuation payments, Executive shall continue to receive medical,
dental, and vision coverage for the Severance Period subject to employee's
payment of the costs of such benefits to the extent such benefits are paid for
by active employees. For purposes of this Agreement, termination for a "Good
Cause" shall exist upon the occurrence of any of the following: (i) Executive is
convicted of, pleads guilty to, confesses to, or enters a plea of nolo
contendere to, any felony or any crime that involves moral turpitude or any act
of fraud, misappropriation or embezzlement;(ii) Executive has engaged in a
fraudulent act to the damage or prejudice of the Company or any affiliate of the
Company; (iii) any act or omission by Executive involving malfeasance or gross
negligence in the performance of Executive's duties to the Company; or (iv)
Executive otherwise fails to comply in any material respect with the terms of
this Agreement or deviates in any material respect from any reasonable written
policies or reasonable directives of the Board of Directors and, within 30 days
after written notice from the Company of such failure or deviation, Executive
has not corrected such failure.
SECTION 13. TERMINATION; SURVIVAL. This Agreement shall terminate upon
the earlier of (x) the termination of the Stock Purchase Agreement pursuant to
its terms; or (y) the termination of Executive's employment by the Company.
Notwithstanding the foregoing, Sections 10, 11 and 14 and, if Executive's
employment terminates in a manner giving rise to a payment under Section 12,
Section 12 shall survive the termination of this Agreement.
SECTION 14. MISCELLANEOUS. (a) This Agreement shall inure to the
benefit of and shall be binding upon Executive and her executor, administrator,
heirs, personal representative and permitted assigns, and the Company and its
successors and permitted assigns; PROVIDED, HOWEVER, that Executive shall not be
entitled to assign or delegate any of her rights or obligations hereunder
without the prior written consent of the Company.
(b) This Agreement shall be deemed to be made in, and in all respects
shall be interpreted, construed and governed by and in accordance with, the laws
of the State of California, without regard to the conflicts of law principles of
such State. No provision of this Agreement or any related document shall be
construed against or interpreted to the disadvantage of any party hereto by any
court or other governmental or judicial authority by reason of such party having
or being deemed to have structured or drafted such provision.
(c) This Agreement constitutes the entire agreement between the
Company and Executive with respect to Executive's employment by the Company
after the Closing Date, and, effective as of the Closing Date, supersedes all
prior agreements, if any, whether written or oral, between them, relating to
Executive's employment by the Company. All prior agreements between the Company
and Executive with respect to Executive's employment by the Company shall
terminate and be without further force or effect as of the Closing. Except for
claims or rights under such agreements with respect to Fixed Sales Bonus as
described in the letter dated January 11, 1999, from Mr. David Veit to Executive
or the JLC Learning Corporation Stock Appreciation Rights Plan (each as defined
in the Stock Purchase Agreement), Executive hereby releases the Company from any
claims or rights under such agreements, without any liability or other adverse
consequence to the Company or Purchaser (as defined in the Stock Purchase
Agreement).
<PAGE>
5
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the day and year first above written.
JLC LEARNING CORPORATION,
by /s/ David M. Veit
-------------------------
Name: David M. Veit
Title: Chief Executive Officer
/s/ Therese K. Crane
--------------------------
Therese K. Crane
EAC III L.L.C. hereby agrees to the
provisions of Section 8
EAC III L.L.C.,
by RIPPLEWOOD PARTNERS, L.P.,
its Sole Member,
by RIPPLEWOOD HOLDINGS L.L.C.,
its General Partner,
By: /s/ Charles L. Laurey
-----------------------------
Title: Attorney-in-Fact
--------------------------
<PAGE>
1
This EMPLOYMENT AGREEMENT ("Agreement") is
made and entered into as of the 14th day of July,
1999, by and between JLC LEARNING CORPORATION, an
Illinois corporation (the "Company"), and JOYCE F.
RUSSELL, an individual resident of the State of
California (the "Executive").
WHEREAS the Company wishes to employ Executive, and Executive wishes
to accept such employment, on the following terms and conditions, effective as
of the Closing Date (as defined in the Stock Purchase Agreement dated as of June
7, 1999, among Software Systems Corp., Sylvan Learning Systems, Inc., Pyramid
Ventures, Inc., GE Capital Equity Investments, Inc., JLC Learning Corporation
and EAC I Inc. (the "Stock Purchase Agreement"));
WHEREAS immediately after the Closing (as defined in the Stock
Purchase Agreement), the Company will be merged with and into EAC I Inc., a
Delaware corporation, and the name of EAC I Inc. will be changed to "JLC
Learning Corporation";
NOW, THEREFORE, in consideration of the mutual covenants contained
herein and intending to be legally bound hereby, the parties hereby agree as
follows:
SECTION 1. EMPLOYMENT. The Company hereby employs Executive and
Executive accepts employment by the Company, on the terms and conditions
contained in this Agreement.
SECTION 2. TERM. The employment of Executive pursuant hereto shall
commence on the Closing Date and shall remain in effect unless terminated by
Executive upon 30 days prior written notice to the Company or by the Company
upon 30 days prior written notice to Executive. The period of time between the
Closing and the termination of this Agreement pursuant to its terms is herein
referred to as the "Term".
SECTION 3. DUTIES AND EXTENT OF SERVICE. Executive shall serve the
Company as Senior Vice President, Finance and Administration and Chief Financial
Officer, or in such other position as may be mutually agreed upon by Executive
and the Company and shall perform such services and duties for the Company as
are customarily performed by an executive in Executive's position at a business
such as the Company's business and as the Board of Directors of the Company (the
"Board of Directors") may assign or delegate to her from time to time as
provided in the By-laws of the Company. Executive shall devote her full business
knowledge, skill, time and effort exclusively to the performance of her duties
for the Company and the promotion of its interests. Executive's duties hereunder
shall be performed within 30 miles of the Company's current principal place of
business. Executive shall report to the Chief Executive Officer of the Company.
SECTION 4. BASE SALARY. Executive shall be paid a base salary (the
"Base Salary") at a rate of $200,000 per annum (the "Initial Salary") subject to
annual review; PROVIDED, HOWEVER, that the Executive's Base Salary shall not be
reduced below the Initial Salary.
SECTION 5. BONUS. Executive shall receive an annual bonus ("Bonus") of
up to 100% of Base Salary, based on the achievement of specific objectives to be
established by the Board of Directors on an annual basis in connection with the
development of the Company's annual operating budget for earnings before
interest, depreciation, taxes and amortization and
<PAGE>
2
after deductions for any annual bonus payments payable by the Company. The Bonus
in respect of 1999 will be tied to the 1999 Business Plan as previously adopted
by the Board of Directors with a guaranteed bonus of $20,000 (the "Guaranteed
Bonus"). For achievement of 100%, 110%, 120% and 125% of budget, a Bonus of
$100,000, $134,000, $166,000 and $200,000, respectively, will be paid to
Executive. For subsequent years, it is expected that the Bonus will be tied to
the Company's annual operating budget.
SECTION 6. FRINGE BENEFITS. Executive shall be entitled to
participate, to the extent eligible, in such medical, dental, disability, life
insurance, deferred compensation and other benefit plans (such as pension and
profit sharing plans) as the Company shall maintain for the benefit of employees
generally, on the terms and subject to the conditions set forth in such plans.
Executive shall also be entitled to vacation time and sick leave in accordance
with the Company's policies in existence and as applied to Executive immediately
prior to the Closing.
SECTION 7. EXPENSES. The Company shall reimburse Executive promptly
for all reasonable expenses incurred by Executive in accordance with the
Company's budget and policy in connection with her duties and responsibilities
hereunder.
SECTION 8. EQUITY INVESTMENT. If Executive purchases Common Stock, par
value $0.01 per share ("EAC II Common Stock") of EAC II Inc. from EAC III
L.L.C., Executive will enter into a shareholder agreement containing customary
terms and granting an irrevocable proxy to EAC III L.L.C. to vote her shares of
EAC II Common Stock. If Executive so elects (and to the extent eligible), her
purchase of Company Common Stock may be financed with a personal loan guaranteed
by the Company on commercially reasonable terms. The Company shall make
reasonable efforts to arrange and guarantee such loan.
SECTION 9. STOCK OPTIONS. In the event of an initial public offering
of the EAC I Common Stock, Executive shall participate in a stock option plan
commensurate with industry standards and the nature of EAC I Inc.'s ownership
and capital structure as of the closing of such offering.
SECTION 10. NONSOLICITATION. (a) During the period beginning on the
Closing Date and ending on the second anniversary of the date of termination of
Executive's employment with the Company (the "Nonsolicitation Period") and to
the fullest extent permitted under applicable law, Executive agrees that she
shall not, directly or indirectly: solicit, recruit or hire any employees of or
persons who have worked for the Company during the twelve-month period prior to
termination of Executive's employment, or solicit or encourage any such employee
of the Company to leave the employment of the Company.
(b) If a judicial determination is made that any of the provisions of
this Section 10 constitutes an unreasonable or otherwise unenforceable
restriction against Executive, the provisions of such Section shall be rendered
void only to the extent that such judicial determination finds such provisions
to be unreasonable or otherwise unenforceable. Moreover, notwithstanding the
fact that any provisions of this Section 10 is determined not to be specifically
enforceable, the Company shall nevertheless be entitled to recover monetary
damages as a result of Executive's breach of such provision.
(c) Executive agrees that the provisions of this Section 10 are
reasonable and properly required for the adequate protection of the business and
the goodwill of the Company.
<PAGE>
3
SECTION 11. NONDISCLOSURE. The parties hereto agree that during the
course of her employment by the Company, Executive will have access to, and will
gain knowledge with respect to, the Company's Confidential Information (as
defined below). The parties acknowledge that unauthorized disclosure or misuse
of such Confidential Information would cause irreparable damage to the Company.
Accordingly, Executive agrees to the nondisclosure covenants in this Section 11.
Executive represents that her experience and capabilities are such that the
provisions of Section 10 and this Section 11 will not prevent her from earning
her livelihood. Executive agrees that she shall not (except as may be required
by law), without the prior written consent of the Company during her employment
with the Company under this Agreement, and any extension or renewal hereof, and
thereafter for so long as it remains Confidential Information, use or disclose,
or knowingly permit any unauthorized person to use, disclose or gain access to,
any Confidential Information; PROVIDED, HOWEVER, that Executive may disclose
Confidential Information to a person to whom disclosure is reasonably necessary
or appropriate in connection with the performance by Executive of her duties
under this Agreement. Upon termination of this Agreement for any reason,
Executive shall return to the Company the original and all copies of all
documents and correspondence in her possession relating to the business of the
Company or any of its affiliates, including but not limited to all Confidential
Information, and shall not be entitled to any lien or right of retention in
respect thereof.
For purposes of this Agreement, "Confidential Information" shall mean
all business information (whether or not in written form) which relates to the
Company, any of its affiliates or their respective businesses or products and
which is not known to the public generally, including but not limited to
technical information or reports; trade secrets; unwritten knowledge and
"know-how"; operating instructions; training manuals; customer lists; customer
buying records and habits; product sales records and documents, and product
development, marketing and sales strategies; market surveys; marketing plans;
profitability analyses; product cost; long-range plans; information relating to
pricing, competitive strategies and new product development; information
relating to any forms of compensation and other personnel-related information;
contracts; and supplier lists.
SECTION 12. SEVERANCE. If Executive's employment hereunder is
terminated (1) upon a breach by the Company of this Agreement; (2) by the
Company for any reason other than for "Good Cause" (as defined below), or (3) by
the Company as a result of the occurrence of the death or total disability of
Executive (total disability meaning the failure of Executive to perform her
normal required services hereunder for a period of three consecutive months
during the term hereof by reason of Executive's mental or physical disability,
as determined by an independent physician reasonably satisfactory to Executive
and the Company) the Company shall (i) pay to Executive as severance pay a lump
sum cash payment in the amount of her Base Salary and (ii) provide Executive
with an executive outplacement program in accordance with the policy of the
Company at the time of such termination. Payment of such severance pay will be
made within thirty (30) days of such termination. Executive shall have the
option of receiving the severance pay specified in the preceding sentence in the
form of salary continuation payments for a period of 12 months (the "Severance
Period"). In the event that Executive elects to receive severance pay in the
form of salary continuation payments, for a period of 12 months Executive shall
continue to receive medical, dental, and vision coverage for the Severance
Period subject to employee's payment of the costs of such benefits to the extent
such benefits are paid for by active employees. For purposes of this Agreement,
termination for a "Good Cause" shall exist upon the occurrence of any of the
following: (i) Executive is convicted of, pleads guilty to, confesses to, or
enters a plea of nolo contendere to, any felony or any crime that involves moral
turpitude or any act of fraud, misappropriation or embezzlement;
<PAGE>
4
(ii) Executive has engaged in a fraudulent act to the damage or prejudice of the
Company or any affiliate of the Company; (iii) any act or omission by Executive
involving malfeasance or gross negligence in the performance of Executive's
duties to the Company; or (iv) Executive otherwise fails to comply in any
material respect with the terms of this Agreement or deviates in any material
respect from any reasonable written policies or reasonable directives of the
Board of Directors and, within 30 days after written notice from the Company of
such failure or deviation, Executive has not corrected such failure.
SECTION 13. TERMINATION; SURVIVAL. This Agreement shall terminate upon
the earlier of (x) the termination of the Stock Purchase Agreement pursuant to
its terms; or (y) the termination of Executive's employment by the Company.
Notwithstanding the foregoing, Sections 10, 11 and 14 and, if Executive's
employment terminates in a manner giving rise to a payment under Section 12,
Section 12 shall survive the termination of this Agreement.
SECTION 14. MISCELLANEOUS. (a) This Agreement shall inure to the
benefit of and shall be binding upon Executive and her executor, administrator,
heirs, personal representative and permitted assigns, and the Company and its
successors and permitted assigns; PROVIDED, HOWEVER, that Executive shall not be
entitled to assign or delegate any of her rights or obligations hereunder
without the prior written consent of the Company.
(b) This Agreement shall be deemed to be made in, and in all respects
shall be interpreted, construed and governed by and in accordance with, the laws
of the State of California, without regard to the conflicts of law principles of
such State. No provision of this Agreement or any related document shall be
construed against or interpreted to the disadvantage of any party hereto by any
court or other governmental or judicial authority by reason of such party having
or being deemed to have structured or drafted such provision.
(c) This Agreement constitutes the entire agreement between the
Company and Executive with respect to Executive's employment by the Company
after the Closing Date, and, effective as of the Closing Date, supersedes all
prior agreements, if any, whether written or oral, between them, relating to
Executive's employment by the Company. All prior agreements between the Company
and Executive with respect to Executive's employment by the Company shall
terminate and be without further force or effect as of the Closing. Except for
claims or rights under such agreements with respect to Fixed Sales Bonus as
described in the letter dated January 11, 1999, from Mr. David Veit to Executive
or the JLC Learning Corporation Stock Appreciation Rights Plan (each as defined
in the Stock Purchase Agreement), Executive hereby releases the Company from any
claims or rights under such agreements, without any liability or other adverse
consequence to the Company or Purchaser (as defined in the Stock Purchase
Agreement).
<PAGE>
5
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the day and year first above written.
JLC LEARNING CORPORATION,
by /s/ David M. Veit
---------------------------
Name: David M. Veit
Title: Chief Executive Officer
/s/ Joyce F. Russell
--------------------------
Joyce F. Russell
EAC III L.L.C. hereby agrees to the
provisions of Section 8
EAC III L.L.C.,
by RIPPLEWOOD PARTNERS, L.P.,
its Sole Member,
by RIPPLEWOOD HOLDINGS L.L.C.,
its General Partner,
By:/s/ Charles L. Laurey
---------------------------
Title: Attorney-in-Fact
---------------------------
<PAGE>
This EMPLOYMENT AGREEMENT ("AGREEMENT") is
made and entered into as of the 17 day of November,
1999, by and between American Guidance Service Inc.,
a Minnesota corporation (the "COMPANY"), and Larry
Rutkowski, an individual resident of the State of
Minnesota (the "EXECUTIVE").
WHEREAS the Company wishes to employ Executive, and Executive
wishes to accept such employment, on the following terms and conditions,
effective as of the Closing Date (as defined in the Redemption, Stock Purchase
and Recapitalization Agreement dated as of August 13, 1999, as amended, (the
"PURCHASE AGREEMENT"), between PRIMEDIA Inc. and WRC Media Inc. (formerly named
EAC II Inc.), a Delaware corporation (WRC Media);
NOW, THEREFORE, in consideration of the mutual covenants
contained herein and intending to be legally bound hereby, the parties hereby
agree as follows:
SECTION 1. EMPLOYMENT. The Company hereby employs Executive
and Executive accepts employment by the Company, on the terms and conditions
contained in this Agreement.
SECTION 2. TERM. The employment of Executive pursuant hereto
shall commence on the Closing Date and shall remain in effect until December 31,
2001 unless terminated by Executive upon 30 days prior written notice to the
Company or by the Company upon 30 days prior written notice to Executive. The
period of time between the Closing Date and the termination of this Agreement
pursuant to its terms is herein referred to as the "TERM". The Term shall be
automatically renewed for successive one-year periods unless, at least 90 days
prior to any applicable expiration date, either party gives written notice to
the other party that such party does not wish to renew.
SECTION 3. DUTIES AND EXTENT OF SERVICE; PLACE OF PERFORMANCE.
During the Term, Executive shall serve the Company as President and Chief
Executive Officer of the Company and shall perform duties and exercise authority
commensurate with such role. Executive shall initially report to the Chief
Executive Officer of WRC Media. Executive shall devote Executive's full business
time and best efforts to the performance of Executive's duties hereunder and to
the business of the Company and its direct and indirect subsidiaries. Except as
mutually agreed upon by Executive and the Company, the Company shall not
materially diminish Executive's position at the Company without Good Cause (as
defined in Section 11). During the Term, Executive shall continue to be employed
at the location at which he is employed as of the Closing Date or at another
location within 30 miles thereof as the Company, in its sole discretion, shall
determine.
SECTION 4. BASE SALARY. During the Term, Executive shall be
paid a base salary (the "BASE SALARY"), payable in bi-weekly installments at the
end of every two weeks, at a rate of $260,000 per annum (the "INITIAL SALARY").
The initial salary shall be reviewed by the Company no later than February 28,
2000 and annually thereafter. Executive's Base Salary shall not be reduced below
the Initial Salary.
SECTION 5. BONUS. Executive shall continue to be eligible to
receive any annual bonus for the 1999 calendar year which may be payable to
Executive under the short-term executive incentive compensation plan currently
applicable to Executive in accordance with the terms of Executive's bonus letter
from PRIMEDIA Inc. (the "BONUS LETTER"), a copy of
<PAGE>
2
which is attached hereto. Bonuses for future years during the Term shall be set
by the Company annually based on reasonable criteria communicated to Executive.
Such criteria shall be comparable to the criteria currently set forth in the
Bonus Letter. Target bonuses for future years shall not be less than the target
bonus set forth in the Bonus Letter. The Bonus for any year shall be paid no
later than March 15 of the following year.
SECTION 6. FRINGE BENEFITS. Executive shall be entitled to
participate, to the extent eligible, in such medical, dental, disability, life
insurance, deferred compensation, retirement and other benefit plans as the
Company shall maintain for the benefit of employees generally, on the terms and
subject to the conditions set forth in such plans, which plans shall be
comparable in the aggregate to those plans in effect for Executive as of the
date hereof. Executive shall also be entitled to vacation time and sick leave in
accordance with the Company's policies in existence immediately prior to the
Closing and as applied to Executive immediately prior to the Closing.
SECTION 7. EXPENSES. Upon receipt from Executive of expense
vouchers and other documentation reasonably requested by the Company, the
Company shall reimburse Executive promptly for all reasonable expenses incurred
by Executive in accordance with the Company's policies and procedures in
connection with Executive's duties and responsibilities hereunder.
SECTION 8. EQUITY INVESTMENT. Simultaneously with the Closing,
Executive will purchase 12,096 shares of Common Stock, par value $0.01 per share
("WRC MEDIA COMMON STOCK"), of WRC Media, at a purchase price of $18.60065 per
share in cash for an aggregate purchase price of $225,000 and will enter into a
shareholder agreement among WRC Media, EAC III LLC and certain other executives
of the Companies (as defined below) in the form previously agreed to by such
parties. If Executive so elects, up to one half of Executive's purchase of WRC
Media Common Stock may be financed with a personal loan guaranteed by the
Company on commercially reasonable terms. The Company shall make reasonable
efforts to arrange and guarantee such loan.
SECTION 9. NONSOLICITATION. (a) During the period beginning on
the Closing Date and ending on the later of (i) the date that is 12 months after
the date of termination of Executive's employment with the Company and (ii)
December 31, 2001 and to the fullest extent permitted under applicable law,
Executive agrees that Executive shall not, directly or indirectly, solicit or
attempt to solicit any business from any customers or clients of Weekly Reader
Corporation or any of its direct or indirect subsidiaries (the "COMPANIES"),
including actively sought prospective customers or clients, in connection with
any Competing Publication or Product Line (as defined on Schedule I). During the
period beginning on the Closing Date and ending on the date that is 24 months
after the date of termination of Executive's employment with the Company and to
the fullest extent permitted under applicable law, Executive agrees that
Executive shall not, except as an employee of the Company, directly or
indirectly, solicit, recruit or hire any employees of or persons who have worked
for any of the Companies during the twelve-month period prior to termination of
Executive's employment or solicit or encourage any such employee of any of the
Companies to leave the employment of any of the Companies.
(b) If a judicial determination is made that any of the
provisions of this Section 9 constitutes an unreasonable or otherwise
unenforceable restriction against Executive, the provisions of such Section
shall be rendered void only to the extent that such judicial determination finds
such provisions to be unreasonable or otherwise unenforceable.
<PAGE>
3
SECTION 10. NONDISCLOSURE. The parties hereto agree that
during the course of Executive's employment by the Company, Executive will have
access to, and will gain knowledge with respect to, the Companies' Confidential
Information (as defined below). The parties acknowledge that unauthorized
disclosure or misuse of such Confidential Information would cause irreparable
damage to the Companies. Accordingly, Executive agrees to the nondisclosure
covenants in this Section 10. Executive agrees that Executive shall not (except
as may be required by law), without the prior written consent of the Company
during Executive's employment with the Company under this Agreement, and any
extension or renewal hereof, and thereafter for a period ending on the fifth
anniversary of the date of termination of Executive's employment with the
Company, use or disclose, or knowingly permit any unauthorized person to use,
disclose or gain access to, any Confidential Information; PROVIDED that
Executive may disclose Confidential Information to a person to whom disclosure
is reasonably necessary or appropriate in connection with the performance by
Executive of Executive's duties under this Agreement. Upon termination of this
Agreement for any reason, Executive shall return to the Company the original
and all copies of all documents and correspondence in Executive's possession
relating to the business of any of the Companies or any of their affiliates,
including but not limited to all Confidential Information, and shall not be
entitled to any lien or right of retention in respect thereof. Upon termination
of this Agreement for any reason, Executive shall be entitled to remove all
documents and correspondence of a purely personal nature. For purposes of this
Agreement, "CONFIDENTIAL INFORMATION" shall mean all business information
(whether or not in written form) which relates to any of the Companies, any of
their affiliates or their respective businesses or products and which is not
known to the public generally, including but not limited to technical
information or reports; trade secrets; unwritten knowledge and "know-how";
operating instructions; training manuals; customer lists; customer buying
records and habits; product sales records and documents, and product
development, marketing and sales strategies; market surveys; marketing plans;
profitability analyses; product cost; long-range plans; information relating to
pricing, competitive strategies and new product development; information
relating to any forms of compensation and other personnel-related information;
contracts; and supplier lists; PROVIDED that "Confidential Information" shall
not include general business know-how.
SECTION 11. SEVERANCE. If Executive's employment hereunder is
terminated upon a breach by the Company of this Agreement, by the Company for
any reason other than for Good Cause or by reason of a notice of nonrenewal
given by the Company, the Company shall pay to Executive as severance pay a lump
sum cash payment in an amount equal to the product of Executive's entire Base
Salary for the year in which termination occurs multiplied by the greater of (a)
one and (b) the quotient of (x) the number of months from and including the
month in which such termination occurs to and including the month ending
December 31, 2001 divided by (y) 12. The Company shall also pay to Executive any
accrued and unpaid Base Salary owed to Executive for the period prior to such
termination, a prorated portion of Executive's Base Salary for any accrued
unused vacation time of Executive for the period prior to such termination and
any incurred but unpaid reimbursable expenses as contemplated by Section 7.
Payment of such severance pay and other amounts will be made within 30 days of
such termination. If the applicable bonus criteria have been achieved, no later
than March 31 of the year following the year in which any such termination
occurred, the Company shall also pay to Executive a prorated portion of
Executive's bonus for the portion of the year in which termination occurred from
the beginning of the calendar year to the date of termination. For purposes of
this Agreement, "GOOD CAUSE" shall exist upon the occurrence of any of the
following: (i) Executive is convicted of, pleads guilty to, confesses to, or
enters a plea of nolo contendere to, any felony or any crime that involves moral
turpitude or any act of fraud, misappropriation or embezzlement; (ii) Executive
has engaged in a fraudulent act to the
<PAGE>
4
damage or prejudice of any of the Companies or any affiliate of any of the
Companies; (iii) any act or omission by Executive involving malfeasance or
gross negligence in the performance of Executive's duties to the Company; (iv)
Executive otherwise fails to comply in any material respect with the terms of
this Agreement or deviates in any material respect from any reasonable written
policies or reasonable directives of the Board of Directors of the Company and,
within 60 days after written notice from the Company of such failure or
deviation, Executive has not corrected such failure; or (v) the occurrence of
the death or total disability of Executive (total disability meaning the
failure of Executive to perform Executive's normal required services hereunder
for a period of six consecutive months during the term hereof by reason of
Executive's mental or physical disability, as determined by an independent
physician reasonably satisfactory to Executive and the Company).
SECTION 12. TERMINATION; SURVIVAL. This Agreement shall
terminate upon the earlier of (a) the termination of the Purchase Agreement
pursuant to its terms and (b) the termination of Executive's employment by the
Company. Notwithstanding the foregoing, Sections 9, 10 and 13 and, if
Executive's employment terminates in a manner giving rise to a payment under
Section 11, Section 11 shall survive the termination of this Agreement.
SECTION 13. MISCELLANEOUS. (a) This Agreement shall inure to
the benefit of and shall be binding upon Executive and Executive's executor,
administrator, heirs, personal representative and permitted assigns and the
Company and its successors and permitted assigns; PROVIDED that Executive shall
not be entitled to assign or delegate any of Executive's rights or obligations
hereunder without the prior written consent of the Company.
(b) This Agreement shall be deemed to be made in, and in all
respects shall be interpreted, construed and governed by and in accordance with,
the laws of the State of New York, without regard to the conflicts of law
principles of such State. No provision of this Agreement or any related document
shall be construed against or interpreted to the disadvantage of any party
hereto by any court or other governmental or judicial authority by reason of
such party having or being deemed to have structured or drafted such provision.
(c) This Agreement constitutes the entire agreement between
the Company and Executive with respect to Executive's employment by the Company
after the Closing Date and, effective as of the Closing Date, supersedes all
prior agreements, whether written or oral, between them relating to Executive's
employment by the Company, including those agreements set forth on Schedule II
attached hereto; PROVIDED that this Agreement does not supersede (i) the Bonus
Letter and (ii) the terms in the employment agreement dated September 12, 1998
between the Company and Executive (the "OLD AGREEMENT") that are set forth on
Schedule III attached hereto to the extent that such terms are more beneficial
to Executive than the comparable terms of this Agreement. Effective as of the
Closing Date, Executive hereby releases the Company and its affiliates from any
claims or rights under such agreements, without any liability or other adverse
consequence to the Company, the Companies or WRC Media and the Company hereby
releases Executive from any claims or rights under such agreements, without any
liability or other adverse consequence to Executive.
(d) All notices or other communications required or permitted
by this Agreement shall be made in writing and any such notice or communication
shall be deemed delivered when delivered in person, transmitted by telecopier,
or one business day after it has been sent by a nationally recognized overnight
courier, at the address for notices as follows:
(i) if to the Company,
<PAGE>
5
American Guidance Service Inc.
c/o Ripplewood Holdings L.L.C.
One Rockefeller Plaza
32nd Floor
New York, New York 10020
Attention: Mr. Timothy C. Collins
Mr. Charles L. Laurey
Mr. Martin Kenney
Facsimile: (212) 582-4110
(ii) if to Executive,
Mr. Larry Rutkowski
5664 Erik Lane
Shoreview, MN 55126
Facsimile: 612-783-5505
with a copy to:
Rubin Baum Levin Constant & Friedman
30 Rockefeller Plaza
New York, New York 10312
Attention: Mr. Robert J. Benowitz
Facsimile: (212) 698-7825
Communications by telecopier also shall be sent concurrently by overnight
courier, but shall in any event be effective as stated above. Each party may
from time to time change its address for notices under this Section 13(d) by
giving at least five days' notice of such changed address to the other parties
hereto.
(e) This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement, and
shall become effective when one or more of the counterparts have been signed by
each of the parties and delivered to the other parties, it being understood that
all parties need not sign the same counterpart.
(f) The headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
(g) No failure or delay by Executive or the Company in
exercising any right or power hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of any such right or power, or any
abandonment of any steps to enforce such a right or power, preclude any other or
further exercise thereof or the exercise of any other right or power. Neither
this Agreement nor any provision hereof may be waived, amended or modified
except pursuant to an agreement in writing entered into by Executive and the
Company.
(h) Any controversy, dispute or claim arising out of, in
connection with, or in relation to the interpretation, performance,
non-performance, validity or breach of this Agreement or otherwise arising out
of, or in any way related to, this Agreement shall be determined, at the request
of any party, by arbitration conducted in New York City, before and in
accordance with the then-existing Rules for Commercial Arbitration of the
American Arbitration Association, and any judgment or award rendered by the
arbitrator shall be final, binding and
<PAGE>
6
unappealable, and any judgment may be entered by any state or Federal court
having jurisdiction thereof. In its award the arbitrator shall allocate, in its
discretion, among the parties to the arbitration all costs of the arbitration,
including the fees and expenses of the arbitrator and reasonable attorneys'
fees, costs and expert witness expenses of the parties.
(i) All amounts paid hereunder will be net of any applicable
withholdings required by existing or future tax laws.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the day and year first above written.
AMERICAN GUIDANCE SERVICE INC.,
by /s/ Charles Laurey
-------------------------------
Name: Charles Laurey
Title: Secretary
/s/ Larry Rutkowski
----------------------------------
Larry Rutkowski
<PAGE>
LARRY RUTKOWSKI
AMERICAN GUIDANCE SERVICE
4201 WOODLAND ROAD
CIRCLE PINES, MN 55014-1796
November 15, 1999
PRIMEDIA, INC.
745 Fifth Avenue
New York, New York 10151
Lidies and Gentlement:
Reference is made to the letter agreement (the "Letter
Agreement"), dated September 22, 1999 among PRIMEDIA, Inc. ("PRIMEDIA") and
the undersigned relating, among other things, to the "Commission" (as defined
in the Letter Agreement) which PRIMEDIA is obligated to pay the undersigned.
The undersigned hereby directs PRIMEDIA to (i) pay $187,775 of said
Commission to me on the date of the consummation of the sale of the Company
(as defined in the Letter Agreement) by wire transfer to the account of EAC
IV LLC at Bankers Trust Company. ABA No. 021001033 Account No. 00-38-076
(contact: Alida Lado) so that WRC Media, Inc. can apply these funds in
payment of my purchase price of shares of WRC Media, Inc. Common Stock or
(ii) if agreed upon with WRC Media, Inc. to deduct $187,775 from the purchase
price owed by EAC II to PRIMEDIA Inc. which will represent my investment as
funded by PRIMEDIA INC. The balance, if any, of the Commission shall be paid
to me in accordance with the Letter Agreement.
Very truly yours,
/s/ Larry Rutkowaki
---------------------------
Larry Rutkowaki
Agreed to:
PRIMEDIA, INC.
By: Beverly C. Chell
-----------------------------------
Beverly C. Chell, Vice Chairman
Date: 11/16/99
---------------------------------
cc: WRC Media Inc.
Ripplewood Partners, L.P.
EAC IV LLC Bankers Trust Company
<PAGE>
Schedule I
COMPETING PUBLICATIONS AND PRODUCT LINES
"COMPETING PUBLICATION OR PRODUCT LINE" means
(a) distributing books and reference materials in print that compete with
those currently distributed by PRIMEDIA Reference Inc. for distribution to
libraries and schools, (b) publishing books in print that compete with those
currently published by Gareth Stevens, Inc. for distribution to school
libraries, (c) publishing an annual general interest almanac for consumers,
(d) publishing assessment test materials in print which are targeted to
elementary and secondary school students who are in the lower fiftieth
percentile of achievement, and which compete with the assessment test
materials published by American Guidance Service Inc. and its direct and
indirect subsidiaries, or (e) publishing print periodicals and supplemental
educational materials in print, in each case, sold on an annual subscription
basis to teachers, schools, or school districts for in-school distribution to
grades Kindergarten through 12, and which compete with those published by
Weekly Reader Corporation and its direct and indirect subsidiaries, in each
case in the United States.
<PAGE>
Schedule II
1. Amended and Restated Employment Agreement, dated September 12, 1998
between American Guidance Service Inc. and Larry Rutkowski.
<PAGE>
9
Schedule III
SURVIVING TERMS OF THE OLD AGREEMENT
(For the purpose of this Schedule, this Agreement is referred to
as the "New Agreement").
Section III(C)(4): For the remaining term of the Old Agreement, the Company will
pay for the Executive's membership in trade or professional associations,
subscriptions for trade or professional associations, subscriptions for trade or
professional journals, and all other similar recurring business expenses, to the
extent such items are generally available to similarly situated executives in
companies comparable to the Company.
Section III(E): The Company will continue to provide the Executive with a '97
Ford Explorer for the period ending on the date that the lease term expires for
the above-referenced vehicle. The Company will also pay for all maintenance and
insurance on said vehicle. The Executive agrees to return said vehicle to the
Company upon the expiration of such lease. Thereafter, for the remaining term of
the Old Agreement, the Company will provide the Executive with a car allowance
of $743.00 per month which amount shall be used for vehicle payments,
maintenance, insurance and related expenses.
Section V(A): If the Executive's employment is terminated pursuant to clause (v)
of the definition of Good Cause in the New Agreement any time before the
expiration of the term of the Old Agreement, the Executive or his beneficiary
will, within a reasonable time thereafter, be entitled to receive any unpaid
salary and vacation pay earned through the date of termination. In addition, the
Executive will be reimbursed pursuant to Section 7 of the New Agreement for
business expenses incurred through the date of termination. Further more, the
Executive or his beneficiary will continue to receive his salary then in effect
for a period of one hundred and twenty (120) days after such termination. In
addition, the Executive will be eligible to receive a pro-rata portion,
determined by the number of months of actual employment during the relevant
period, of any Variable Compensation (as defined in the Old Agreement) he would
have been entitled to based on calculations conducted after the end of the
relevant period pursuant to Section III(B) of the Old Agreement.
Section V(D): To the extent the following provisions provide for greater
severance to be paid to Executive as of the date such provisions become
applicable then, in the case Executive is terminated by the Company without Good
Cause (as defined in the New Agreement) any time before the expiration of the
term of the Old Agreement, then Executive shall be entitled to receive (i) 18
months salary and 18 months participation in the Company's health plans, with
salary payments to be made within 60 days of termination, (ii) payment of any
forfeitable portions of the Executive's ESOP account and supplemental executive
retirement plan within 120 days after termination, provided however, that if, by
operation of those two plans such unvested amount subsequently vests, entitling
Executive to payment of such amounts under the plans, the Executive will return
to the Company any amounts paid to him pursuant to this provision and (iii)
payment to the Executive of a pro-rata portion, determined by the number of
months of actual employment during the relevant period, of any Variable
Compensation he would have been entitled to based on calculations conducted
after the end of the relevant period pursuant to Section III(B).
<PAGE>
[LETTERHEAD]
March 31, 1999
Mr. Larry Rutkowski
President & Chief Executive Officer
American Guidance Service, Inc.
4201 Woodland Road
Circle Pines, MN 55014-1796
Dear Larry:
I am pleased to inform you that you have been named a participant in the 1999
American Guidance Service, Inc. Short-Term Executive Incentive Compensation
Plan. Your target award for 1999 is 50% of your earned base salary with an
opportunity to earn an award of up to 75.0% of your earned base salary.
Your award for 1999 will be based on three measures of performance: achieving
Target EBITDA. Net Free Cash Flow, and discretionary personal performance.
Thirty percent (30%) of your award will be determined by the consolidated
EBITDA of American Guidance Service, Inc., thirty percent (30%) by the
consolidated Net Free Cash Flow of American Guidance Service, Inc., and forty
percent (40%) by personal performance.
The amount you may earn for non-discretionary performance under this year's
Plan will range from 50% to 150% of your targeted award. The preliminary
threshold or lowest performance level at which you will earn 50% of the
targeted award for EBITDA is 80% of $12,500,000. The preliminary performance
level required to earn 150% of your targeted award is 120% of $12,500,000.
The preliminary threshold or lowest performance level at which you will earn
50% of the targeted award for Net Free Cash Flow is 80% of $9,476,000. The
preliminary performance level required to earn 150% of your targeted award is
120% of $9,476,000. If the percentage of the performance goals attained is
between the percentages set forth, the award amounts will be prorated.
Beginning this year, EBITDA and Free Cash Flow targets will be adjusted
during the year for unplanned accounting changes, unplanned acquisitions and
the partial year results from divested businesses. Adjustments for unplanned
acquisitions will be based on the current year projections, after overhead
and transition costs, as presented in the final acquisition presentation. If
there is a delay in closing, the budget will be adjusted accordingly.
Adjustments for divestitures will be made based upon the monthly budgets as
set during the corporate planning process.
Note: EBITDA is defined as earnings before interest, taxes, and depreciation,
and amortization of goodwill, acquired intangible assets and other assets
reported as Investing Activities on the Statement of Cash Flows. Net Free
Cash Flow is defined per PRIMEDIA Financial Policy 6.31 effective December
31, 1994.
<PAGE>
The discretionary award can range from 0% to 150% of the targeted amount. In
determining your discretionary award, the areas of performance that will be
considered are attached.
Assuming you earn a base salary of $260,000* in 1999, the following table is
an illustration of the awards that can be earned. In reality, your bonus is
dependent upon the three performance measures described, your "earned" base
salary during the year (pro-rated for mid-year changes to base salary) and
your year-end bonus targets (no pro-ration, simply the year-end%).
BASED ON PRELIMINARY TARGETS
<TABLE>
<CAPTION>
Threshold Target Maximum
Performance Performance Performance
(80%) (100%) (120%)
------------- ------------- -------------
<S> <C> <C> <C>
EBITDA (30%)
Performance Against Plan $10,000,000 $12,500,000 $15,000,000
============= ============= =============
Award $19,500 $39,000 $58,500
NET FREE CASH FLOW (30%)
Performance Against Plan $7,580,800 $9,476,000 $11,371,200
============= ============= =============
$19,500 $39,000 $58,500
DISCRETIONARY (40%)
Award $0 $52,000 $78,000
------------- ------------- -------------
Total Award $39,000 $130,000 $195,000
============= ============= =============
</TABLE>
* 1/1/99 salary used for illustrative purposes only.
You must be an employee of American Guidance Service, Inc. on December 31,
1999, to be considered for any non-discretionary award. Further, you must be
an employee on the date the award is paid in order to qualify for the
discretionary component of your award. Award payments will be paid shortly
after the date of the opinion of the Company's auditors certifying American
Guidance Service, Inc.'s combined financial results for the year 1999.
Please let me know if you have any questions about this year's Plan or your
potential award.
Sincerely,
/s/ Richard J. LeBrasseur
-----------------------------
Richard J. LeBrasseur
cc: M.C. Discepolo
<PAGE>
1999 EICP GOALS
LARRY RUTKOWSKI
1. Achieve 1999 Plan EBITDA and Net Free Cash Flow objectives.
2. Lead the search and hiring of the VP of Development.
3. Develop internal and acquisition growth strategies for inclusion in
the upcoming strategy memo. Particular emphasis will be placed on new
products, electronic opportunities in assessment, and line extensions
for textbooks and test preparation.
4. Continue to enhance processes to capture and report sales and marketing
information. This deeper analysis will allow us to better define who are
the customers and what is our market share. This analysis will also allow
us to more effectively measure and evaluate the effectiveness of our sales
and marketing efforts.
5. Work with other units within the Supplemental Education Group to
identify areas of synergy for cross-selling. This synergy should lead to
more effective marketing and sales efforts resulting in additional sales.
<PAGE>
This EMPLOYMENT AGREEMENT ("AGREEMENT") is
made and entered into as of the 17 day of November,
1999, by and between American Guidance Service, Inc.,
a Minnesota corporation (the "COMPANY"), and Gerald
Adams, an individual resident of the State of
Minnesota (the "EXECUTIVE").
WHEREAS the Company wishes to employ Executive, and Executive
wishes to accept such employment, on the following terms and conditions,
effective as of the Closing Date (as defined in the Redemption, Stock Purchase
and Recapitalization Agreement dated as of August 13, 1999, as amended (the
"PURCHASE AGREEMENT"), between PRIMEDIA Inc. and WRC Media Inc. (formerly named
EAC II Inc.), a Delaware corporation ("WRC Media");
NOW, THEREFORE, in consideration of the mutual covenants
contained herein and intending to be legally bound hereby, the parties hereby
agree as follows:
SECTION 1. EMPLOYMENT. The Company hereby employs Executive
and Executive accepts employment by the Company, on the terms and conditions
contained in this Agreement.
SECTION 2. TERM. The employment of Executive pursuant hereto
shall commence on the Closing Date and shall remain in effect until December
31, 2001 unless terminated by Executive upon 30 days prior written notice to
the Company or by the Company upon 30 days prior written notice to Executive.
The period of time between the Closing Date and the termination of this
Agreement pursuant to its terms is herein referred to as the "TERM". The Term
shall be automatically renewed for successive one-year periods unless, at least
90 days prior to any applicable expiration date, either party gives written
notice to the other party that such party does not wish to renew.
SECTION 3. DUTIES AND EXTENT OF SERVICE; PLACE OF
PERFORMANCE. During the Term, Executive shall serve the Company as Executive
Vice President and Chief Financial Officer of the Company and shall perform
duties and exercise authority commensurate with such role. Executive shall
initially report to
<PAGE>
2
Larry Rutkowski. Executive shall devote Executive's full business time and best
efforts to the performance of Executive's duties hereunder and to the business
of the Company and its direct and indirect subsidiaries. Except as mutually
agreed upon by Executive and the Company, the Company shall not materially
diminish Executive's position at the Company without Good Cause (as defined in
Section 11). During the Term, Executive shall continue to be employed at the
location at which he is employed as of the Closing Date or at another location
within 30 miles thereof as the Company, in its sole discretion, shall determine.
SECTION 4. BASE SALARY. During the Term, Executive shall be
paid a base salary (the "BASE SALARY"), payable in bi-weekly installments at
the end of every two weeks, at a rate of $180,000 per annum until January 1,
2000, and thereafter, at a rate of $195,000 (the "INITIAL SALARY") subject to
annual review; PROVIDED that Executive's Base Salary shall not be reduced below
the Initial Salary.
SECTION 5. BONUS. Executive shall continue to be eligible to
receive any annual bonus for the 1999 calendar year which may be payable to
Executive under the short-term executive incentive compensation plan currently
applicable to Executive in accordance with the terms of Executive's bonus
letter from the Company (the "BONUS LETTER"), a copy of which is attached
hereto. Bonuses for future years during the Term shall be set by the Company
annually based on reasonable criteria communicated to Executive. Such criteria
shall be comparable to the criteria currently set forth in the Bonus Letter.
Target bonuses shall not be less than the target bonus set forth in the Bonus
Letter.
SECTION 6. FRINGE BENEFITS. Executive shall be entitled to
participate, to the extent eligible, in such medical, dental, disability, life
insurance, deferred compensation, retirement and other benefit plans as the
Company shall maintain for the benefit of employees generally, on the terms and
subject to the conditions set forth in such plans, which plans shall be
comparable in the aggregate to those plans in effect for Executive as of the
date hereof. Executive shall also be entitled to vacation time and sick leave
in accordance with the Company's policies in existence immediately prior to the
Closing and as applied to Executive immediately prior to the Closing.
<PAGE>
3
SECTION 7. EXPENSES. Upon receipt from Executive of expense
vouchers and other documentation reasonably requested by the Company, the
Company shall reimburse Executive promptly for all reasonable expenses incurred
by Executive in accordance with the Company's policies and procedures in
connection with Executive's duties and responsibilities hereunder.
SECTION 8. EQUITY INVESTMENT. From the date of the Closing to
December 15, 1999, Executive may elect to purchase up to $20,000 of Common
Stock, par value $0.01 per share ("WRC MEDIA COMMON STOCK"), of WRC Media from
EAC IV L.L.C. at a purchase price of $18.60065 per share in cash. If Executive
purchases any such shares, Executive will enter into a shareholder agreement
among WRC Media, EAC III L.L.C. and certain other executives of the Company and
its affiliates in the form previously agreed to by such parties. If Executive
so elects, up to one half of Executive's purchase of WRC Media Common Stock may
be financed with a personal loan guaranteed by the Company on commercially
reasonable terms. The Company shall make reasonable efforts to arrange and
guarantee such loan.
SECTION 9. NONSOLICITATION. (a) In the event that Executive's
employment with the Company is terminated by the Company for any reason, then
during the period beginning on the Closing Date and ending on the date that is
12 months after the date of termination of Executive's employment and to the
fullest extent permitted under applicable law, Executive agrees that Executive
shall not, directly or indirectly, solicit or attempt to solicit any business
from any customers or clients of the Company, including actively sought
prospective customers or clients, in connection with any Competing Publication
or Product Line (as defined on Schedule I). During the period beginning on the
Closing Date and ending on the date that is 24 months after the date of
termination of Executive's employment with the Company and to the fullest
extent permitted under applicable law, Executive agrees that Executive shall
not, directly or indirectly, other than as an employee of the Company, solicit,
recruit or hire any employees of or persons who have worked for the Company,
other than secretaries, during the twelve-month period prior to termination of
Executive's employment or solicit or encourage any such employee of the Company
to leave the employment of the Company.
<PAGE>
4
(b) If a judicial determination is made that any of the
provisions of this Section 9 constitutes an unreasonable or otherwise
unenforceable restriction against Executive, the provisions of such Section
shall be rendered void only to the extent that such judicial determination
finds such provisions to be unreasonable or otherwise unenforceable.
SECTION 10. NONDISCLOSURE. The parties hereto agree that
during the course of Executive's employment by the Company, Executive will have
access to, and will gain knowledge with respect to, the Companies' Confidential
Information (as defined below). The parties acknowledge that unauthorized
disclosure or misuse of such Confidential Information would cause irreparable
damage to the Companies. Accordingly, Executive agrees that Executive shall not
(except as may be required by law), without the prior written consent of the
Company during Executive's employment with the Company under this Agreement,
and any extension or renewal hereof, and thereafter for a period ending on the
fifth anniversary of the date of termination of Executive's employment with the
Company, use or disclose, or knowingly permit any unauthorized person to use,
disclose or gain access to, any Confidential Information; PROVIDED that
Executive may disclose Confidential Information to a person to whom disclosure
is reasonably necessary or appropriate in connection with the performance by
Executive of Executive's duties under this Agreement. Upon termination of this
Agreement for any reason, Executive shall return to the Company the original
and all copies of all documents and correspondence in Executive's possession
relating to the business of any of the Companies or any of their affiliates,
including but not limited to all Confidential Information, and shall not be
entitled to any lien or right of retention in respect thereof. Upon termination
of this Agreement for any reason, Executive shall be entitled to remove all
documents and correspondence of a purely personal nature. For purposes of this
Agreement, "CONFIDENTIAL INFORMATION" shall mean all business information
(whether or not in written form) which relates to any of the Companies, any of
their affiliates or their respective businesses or products and which is not
known to the public generally, including but not limited to technical
information or reports; trade secrets; unwritten knowledge and "know-how";
operating instructions; training manuals; customer lists; customer buying
records and
<PAGE>
5
habits; product sales records and documents, and product development, marketing
and sales strategies; market surveys; marketing plans; profitability analyses;
product cost; long-range plans; information relating to pricing, competitive
strategies and new product development; information relating to any forms of
compensation and other personnel-related information; contracts; and supplier
lists; PROVIDED that "Confidential Information" shall not include general
business know-how.
SECTION 11. SEVERANCE. If Executive's employment hereunder is
terminated upon a breach by the Company of this Agreement, by the Company for
any reason other than for Good Cause or by reason of a notice of nonrenewal
given by the Company, the Company shall pay to Executive as severance pay a
lump sum cash payment in an amount equal to Executive's Base Salary for the
year in which termination occurs. The Company shall also pay to Executive any
accrued and unpaid Base Salary owed to Executive for the period prior to such
termination, a prorated portion of Executive's Base Salary for any accrued
unused vacation time of Executive for the period prior to such termination and
any incurred but unpaid reimbursable expenses as contemplated by Section 7.
Additionally, in the event that any such termination occurs more than six
months after the beginning of any calendar year, the Company shall pay to
Executive a prorated portion of the Bonus that Executive would have been
entitled to for such calendar year pursuant to Section 5. Payment of such
severance pay and other amounts will be made within 30 days of such
termination. For purposes of this Agreement, "GOOD CAUSE" shall exist upon the
occurrence of any of the following: (i) Executive is convicted of, pleads
guilty to, confesses to, or enters a plea of nolo contendere to, any felony or
any crime that involves moral turpitude or any act of fraud, misappropriation
or embezzlement; (ii) Executive has engaged in a fraudulent act to the damage
or prejudice of any of the Companies or any affiliate of any of the Companies;
(iii) any act or omission by Executive involving malfeasance or gross
negligence in the performance of Executive's duties to the Company; (iv)
Executive otherwise fails to comply in any material respect with the terms of
this Agreement or deviates in any material respect from any reasonable written
policies or reasonable directives of the Board of Directors of the Company and,
within 60 days after written notice from the Company of such failure or
deviation, Executive has not
<PAGE>
6
corrected such failure; or (v) the occurrence of the death or total disability
of Executive (total disability meaning the failure of Executive to perform
Executive's normal required services hereunder for a period of six consecutive
months during the term hereof by reason of Executive's mental or physical
disability, as determined by an independent physician reasonably satisfactory
to Executive and the Company).
SECTION 12. TERMINATION; SURVIVAL. This Agreement shall
terminate upon the earlier of (a) the termination of the Purchase Agreement
pursuant to its terms and (b) the termination of Executive's employment by the
Company. Notwithstanding the foregoing, Sections 9, 10 and 13 and, if
Executive's employment terminates in a manner giving rise to a payment under
Section 11, Section 11 shall survive the termination of this Agreement.
SECTION 13. MISCELLANEOUS. (a) This Agreement shall inure to
the benefit of and shall be binding upon Executive and Executive's executor,
administrator, heirs, personal representative and permitted assigns and the
Company and its successors and permitted assigns; PROVIDED that Executive shall
not be entitled to assign or delegate any of Executive's rights or obligations
hereunder without the prior written consent of the Company.
(b) This Agreement shall be deemed to be made in, and in all
respects shall be interpreted, construed and governed by and in accordance
with, the laws of the State of New York, without regard to the conflicts of law
principles of such State. No provision of this Agreement or any related
document shall be construed against or interpreted to the disadvantage of any
party hereto by any court or other governmental or judicial authority by reason
of such party having or being deemed to have structured or drafted such
provision.
(c) This Agreement constitutes the entire agreement between
the Company and Executive with respect to Executive's employment by the Company
after the Closing Date and, effective as of the Closing Date, supersedes all
prior agreements, whether written or oral, between them relating to Executive's
employment by the Company, including those agreements set forth on Schedule II
attached hereto, if any; PROVIDED that this Agreement does not
<PAGE>
7
supersede the Bonus Letter or the terms in the employment agreement dated
September 12, 1998, between the Company and the Executive (the "Old Agreement")
that are specified on Schedule III to the extent such terms are more beneficial
to Executive than the comparable terms of this Agreement. Effective as of the
Closing Date, Executive hereby releases the Company and its affiliates from any
claims or rights under such agreements, without any liability or other adverse
consequence to the Company, its affiliates or WRC Media and the Company hereby
releases Executive from any claims or rights under such agreements, without any
liability or other adverse consequence to Executive.
(d) All notices or other communications required or permitted
by this Agreement shall be made in writing and any such notice or communication
shall be deemed delivered when delivered in person, transmitted by telecopier,
or one business day after it has been sent by a nationally recognized overnight
courier, at the address for notices as follows:
(i) if to the Company,
American Guidance Service, Inc.
c/o Ripplewood Holdings L.L.C.
One Rockefeller Plaza
32nd Floor
New York, New York 10020
Attention: Mr. Timothy C. Collins
Mr. Charles L. Laurey
Mr. Martin Kenney
Facsimile: (212) 582-4110
(ii) if to Executive,
Gerald Adams
2509 Snelling Curve
Roseville, MN 55085
with a copy to:
Rubin Baum Levin Constant & Friedman
30 Rockefeller Plaza
<PAGE>
8
New York, NY 10112
Attention: Robert J. Benowitz, Esq.
Facsimile: 212-698-7825
Communications by telecopier also shall be sent concurrently by overnight
courier, but shall in any event be effective as stated above. Each party may
from time to time change its address for notices under this Section 13(d) by
giving at least five days' notice of such changed address to the other parties
hereto.
(e) This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement, and
shall become effective when one or more of the counterparts have been signed by
each of the parties and delivered to the other parties, it being understood
that all parties need not sign the same counterpart.
(f) The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
(g) No failure or delay by Executive or the Company in
exercising any right or power hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of any such right or power, or any
abandonment of any steps to enforce such a right or power, preclude any other
or further exercise thereof or the exercise of any other right or power.
Neither this Agreement nor any provision hereof may be waived, amended or
modified except pursuant to an agreement in writing entered into by Executive
and the Company.
(h) Any controversy, dispute or claim arising out of, in
connection with, or in relation to the interpretation, performance,
non-performance, validity or breach of this Agreement or otherwise arising out
of, or in any way related to, this Agreement shall be determined, at the
request of any party, by arbitration conducted in New York City, before and in
accordance with the then-existing Rules for Commercial Arbitration of the
American Arbitration Association, and any judgment or award rendered by the
arbitrator shall be final, binding and unappealable, and any judgment may be
entered by any state or Federal court having jurisdiction thereof. In its award
<PAGE>
9
[Page left intentionally blank]
<PAGE>
10
the arbitrator shall allocate, in its discretion, among the parties to the
arbitration all costs of the arbitration, including the fees and expenses of
the arbitrator and reasonable attorneys' fees, costs and expert witness
expenses of the parties. The Company shall pay for all reasonable travel
expenses (including transportation, lodging and meals) incurred by Executive in
connection with any arbitration session.
(i) All amounts paid hereunder will be net of any applicable
withholdings required by existing or future tax laws.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the day and year first above written.
American Guidance Service,
Inc.,
by /s/ Charles Laurey
---------------------------------
Name: Charles Laurey
Title: Secretary
/s/ Gerald Adams
---------------------------------
Gerald Adams
<PAGE>
This EMPLOYMENT AGREEMENT ("AGREEMENT") is
made and entered into as of the 17 day of November,
1999, by and between PRIMEDIA Reference Inc., a
Delaware corporation (the "COMPANY"), and Al De Seta,
an individual resident of the State of New Jersey
(the "EXECUTIVE").
WHEREAS the Company wishes to employ Executive, and
Executive wishes to accept such employment, on the following terms and
conditions, effective as of the Closing Date (as defined in the Redemption,
Stock Purchase and Recapitalization Agreement dated as of August 13, 1999, as
amended, (the "PURCHASE AGREEMENT"), between PRIMEDIA Inc. and WRC Media Inc.
(formerly named EAC II Inc.), a Delaware corporation ("WRC Media");
NOW, THEREFORE, in consideration of the mutual covenants
contained herein and intending to be legally bound hereby, the parties hereby
agree as follows:
SECTION 1. EMPLOYMENT. The Company hereby employs Executive
and Executive accepts employment by the Company, on the terms and conditions
contained in this Agreement.
SECTION 2. TERM. The employment of Executive pursuant
hereto shall commence on the Closing Date and shall remain in effect until
December 31, 2001 unless terminated by Executive upon 30 days prior written
notice to the Company or by the Company upon 30 days prior written notice to
Executive. The period of time between the Closing Date and the termination of
this Agreement pursuant to its terms is herein referred to as the "TERM". The
Term shall be automatically renewed for successive one-year periods unless,
at least 90 days prior to any applicable expiration date, either party gives
written notice to the other party that such party does not wish to renew.
SECTION 3. DUTIES AND EXTENT OF SERVICE; PLACE OF
PERFORMANCE. During the Term, Executive shall serve the Company as President
of the Company and shall perform duties and exercise authority commensurate
with such role. Executive shall initially report to the Chief Executive
Officer of WRC Media. Executive shall devote Executive's full business time
and best efforts to the performance of Executive's duties hereunder and to
the business of the Company and its direct and indirect subsidiaries. Except
as mutually agreed upon by Executive and the Company, the Company shall not
materially diminish Executive's position at the Company without Good Cause
(as defined in Section 11). During the Term, Executive shall continue to be
employed at the location at which he is employed as of the Closing Date or at
another location within 30 miles thereof as the Company, in its sole
discretion, shall determine.
SECTION 4. BASE SALARY. During the Term, Executive shall be
paid a base salary (the "BASE SALARY"), payable in bi-weekly installments at
the end of every two weeks, at a rate of $230,000 per annum until January 1,
2000 and thereafter, at a rate of not less than $255,000 (the "INITIAL
SALARY") subject to annual review; PROVIDED that Executive's Base Salary
shall not be reduced below the Initial Salary.
SECTION 5. BONUS. Executive shall continue to be eligible
to receive any annual bonus for the 1999 calendar year which may be payable
to Executive under the short-term executive incentive compensation plan
currently applicable to Executive in accordance with the terms of Executive's
bonus letter from the Company (the "BONUS LETTER"), a copy of which is
attached hereto, except that, for the 1999 calendar year, the applicable
percentage will be applied
<PAGE>
2
to the salary level effective as of the Closing Date ($230,000). Bonuses for
future years during the Term shall be set by the Company annually based on
reasonable criteria communicated to Executive. Such criteria shall be
comparable to the criteria currently set forth in the Bonus Letter. Target
bonuses for future years shall not be less than the target bonus set forth in
the Bonus Letter. The Bonus for any year shall be paid no later than March 15
of the following year.
SECTION 6. FRINGE BENEFITS. Executive shall be entitled to
participate, to the extent eligible, in such medical, dental, disability,
life insurance, deferred compensation, retirement and other benefit plans as
the Company shall maintain for the benefit of employees generally, on the
terms and subject to the conditions set forth in such plans, which plans
shall be comparable in the aggregate to those plans in effect for Executive
as of the date hereof. Executive shall also be entitled to vacation time and
sick leave in accordance with the Company's policies in existence immediately
prior to the Closing and as applied to Executive immediately prior to the
Closing.
SECTION 7. EXPENSES. Upon receipt from Executive of expense
vouchers and other documentation reasonably requested by the Company, the
Company shall reimburse Executive promptly for all reasonable expenses
incurred by Executive in accordance with the Company's policies and
procedures in connection with Executive's duties and responsibilities
hereunder.
SECTION 8. EQUITY INVESTMENT. Simultaneously with the
Closing, Executive will purchase 11,559 shares of Common Stock, par value
$0.01 per share ("WRC MEDIA COMMON STOCK"), of WRC Media, at a purchase price
of $18.60065 per share in cash for an aggregate purchase price of $215,000
and will enter into a shareholder agreement among WRC Media, EAC III LLC and
certain other executives of the Companies (as defined below) in the form
previously agreed to by such parties. If Executive so elects, up to one half
of Executive's purchase of WRC Media Common Stock may be financed with a
personal loan guaranteed by the Company on commercially reasonable terms. The
Company shall make reasonable efforts to arrange and guarantee such loan.
SECTION 9. NONSOLICITATION. (a) During the period beginning
on the Closing Date and ending on the later of (i) the date that is 12 months
after the date of termination of Executive's employment with the Company and
(ii) December 31, 2001 and to the fullest extent permitted under applicable
law, Executive agrees that Executive shall not, directly or indirectly,
solicit or attempt to solicit any business from any customers or clients of
Weekly Reader Corporation or any of its direct or indirect subsidiaries (the
"COMPANIES"), including actively sought prospective customers or clients, in
connection with any Competing Publication or Product Line (as defined on
Schedule I). During the period beginning on the Closing Date and ending on
the date that is 24 months after the date of termination of Executive's
employment with the Company and to the fullest extent permitted under
applicable law, Executive agrees that Executive shall not, except as an
employee of the Company, directly or indirectly, solicit, recruit or hire any
employees of or persons who have worked for any of the Companies during the
twelve-month period prior to termination of Executive's employment or solicit
or encourage any such employee of any of the Companies to leave the
employment of any of the Companies.
(b) If a judicial determination is made that any of the
provisions of this Section 9 constitutes an unreasonable or otherwise
unenforceable restriction against Executive, the provisions of such Section
shall be rendered void only to the extent that such judicial determination
finds such provisions to be unreasonable or otherwise unenforceable.
<PAGE>
3
SECTION 10. NONDISCLOSURE. The parties hereto agree that
during the course of Executive's employment by the Company, Executive will
have access to, and will gain knowledge with respect to, the Companies'
Confidential Information (as defined below). The parties acknowledge that
unauthorized disclosure or misuse of such Confidential Information would
cause irreparable damage to the Companies. Accordingly, Executive agrees to
the nondisclosure covenants in this Section 10. Executive agrees that
Executive shall not (except as may be required by law), without the prior
written consent of the Company during Executive's employment with the Company
under this Agreement, and any extension or renewal hereof, and thereafter for
a period ending on the fifth anniversary of the date of termination of
Executive's employment with the Company, use or disclose, or knowingly permit
any unauthorized person to use, disclose or gain access to, any Confidential
Information; PROVIDED that Executive may disclose Confidential Information to
a person to whom disclosure is reasonably necessary or appropriate in
connection with the performance by Executive of Executive's duties under this
Agreement. Upon termination of this Agreement for any reason, Executive shall
return to the Company the original and all copies of all documents and
correspondence in Executive's possession relating to the business of any of
the Companies or any of their affiliates, including but not limited to all
Confidential Information, and shall not be entitled to any lien or right of
retention in respect thereof. Upon termination of this Agreement for any
reason, Executive shall be entitled to remove all documents and
correspondence of a purely personal nature. For purposes of this Agreement,
"CONFIDENTIAL INFORMATION" shall mean all business information (whether or
not in written form) which relates to any of the Companies, any of their
affiliates or their respective businesses or products and which is not known
to the public generally, including but not limited to technical information
or reports; trade secrets; unwritten knowledge and "know-how"; operating
instructions; training manuals; customer lists; customer buying records and
habits; product sales records and documents, and product development,
marketing and sales strategies; market surveys; marketing plans;
profitability analyses; product cost; long-range plans; information relating
to pricing, competitive strategies and new product development; information
relating to any forms of compensation and other personnel-related
information; contracts; and supplier lists; PROVIDED that "Confidential
Information" shall not include general business know-how.
SECTION 11. SEVERANCE. If Executive's employment hereunder
is terminated upon a breach by the Company of this Agreement, by the Company
for any reason other than for Good Cause or by reason of a notice of
nonrenewal given by the Company, the Company shall pay to Executive as
severance pay a lump sum cash payment in an amount equal to the product of
Executive's entire Base Salary for the year in which termination occurs
multiplied by the greater of (a) one and (b) the quotient of (x) the number
of months from and including the month in which such termination occurs to
and including the month ending December 31, 2001 divided by (y) 12. The
Company shall also pay to Executive any accrued and unpaid Base Salary owed
to Executive for the period prior to such termination, a prorated portion of
Executive's Base Salary for any accrued unused vacation time of Executive for
the period prior to such termination and any incurred but unpaid reimbursable
expenses as contemplated by Section 7. Payment of such severance pay and
other amounts will be made within 30 days of such termination. If the
applicable bonus criteria have been achieved, no later than March 31 of the
year following the year in which any such termination occurred, the Company
shall also pay to Executive a prorated portion of Executive's bonus for the
portion of
<PAGE>
4
the year in which termination occurred from the beginning of the calendar
year to the date of termination. For purposes of this Agreement, "GOOD CAUSE"
shall exist upon the occurrence of any of the following: (i) Executive is
convicted of, pleads guilty to, confesses to, or enters a plea of nolo
contendere to, any felony or any crime that involves moral turpitude or any
act of fraud, misappropriation or embezzlement; (ii) Executive has engaged in
a fraudulent act to the damage or prejudice of any of the Companies or any
affiliate of any of the Companies; (iii) any act or omission by Executive
involving malfeasance or gross negligence in the performance of Executive's
duties to the Company; (iv) Executive otherwise fails to comply in any
material respect with the terms of this Agreement or deviates in any material
respect from any reasonable written policies or reasonable directives of the
Board of Directors of the Company and, within 60 days after written notice
from the Company of such failure or deviation, Executive has not corrected
such failure; or (v) the occurrence of the death or total disability of
Executive (total disability meaning the failure of Executive to perform
Executive's normal required services hereunder for a period of six
consecutive months during the term hereof by reason of Executive's mental or
physical disability, as determined by an independent physician reasonably
satisfactory to Executive and the Company).
SECTION 12. TERMINATION; SURVIVAL. This Agreement shall
terminate upon the earlier of (a) the termination of the Purchase Agreement
pursuant to its terms and (b) the termination of Executive's employment by
the Company. Notwithstanding the foregoing, Sections 9, 10 and 13 and, if
Executive's employment terminates in a manner giving rise to a payment under
Section 11, Section 11 shall survive the termination of this Agreement.
SECTION 13. MISCELLANEOUS. (a) This Agreement shall inure
to the benefit of and shall be binding upon Executive and Executive's
executor, administrator, heirs, personal representative and permitted assigns
and the Company and its successors and permitted assigns; PROVIDED that
Executive shall not be entitled to assign or delegate any of Executive's
rights or obligations hereunder without the prior written consent of the
Company.
(b) This Agreement shall be deemed to be made in, and in
all respects shall be interpreted, construed and governed by and in
accordance with, the laws of the State of New York, without regard to the
conflicts of law principles of such State. No provision of this Agreement or
any related document shall be construed against or interpreted to the
disadvantage of any party hereto by any court or other governmental or
judicial authority by reason of such party having or being deemed to have
structured or drafted such provision.
(c) This Agreement constitutes the entire agreement between
the Company or any of its affiliates and Executive with respect to
Executive's employment by the Company after the Closing Date and, effective
as of the Closing Date, supersedes all prior agreements, whether written or
oral, between them relating to Executive's employment by the Company,
including those agreements set forth on Schedule II attached hereto; PROVIDED
that this Agreement does not supersede the Bonus Letter. Effective as of the
Closing Date, Executive hereby releases the Company and its affiliates from
any claims or rights under such agreements, without any liability or other
adverse consequence to the Company, the Companies or WRC Media and the
Company hereby releases Executive from any claims or rights under such
agreements, without any liability or other adverse consequence to Executive.
(d) All notices or other communications required or
permitted by this Agreement shall be made in writing and any such notice or
communication shall be deemed delivered when delivered in person, transmitted
by telecopier, or one business day after it has been sent by a nationally
recognized overnight courier, at the address for notices as follows:
<PAGE>
5
(i) if to the Company,
PRIMEDIA Reference Inc.
c/o Ripplewood Holdings L.L.C.
One Rockefeller Plaza
32nd Floor
New York, New York 10020
Attention: Mr. Timothy C. Collins
Mr. Charles L. Laurey
Mr. Martin Kenney
Facsimile: (212) 582-4110
(ii) if to Executive,
Mr. Al De Seta
25 Rutherford Road
Berkley Heights, NJ 07922
Facsimile: 201-529-6909
with a copy to:
Rubin Baum Levin Constant & Friedman
30 Rockefeller Plaza
New York, New York 10312
Attention: Mr. Robert J. Benowitz
Facsimile: (212) 698-7825
Communications by telecopier also shall be sent concurrently by overnight
courier, but shall in any event be effective as stated above. Each party may
from time to time change its address for notices under this Section 13(d) by
giving at least five days' notice of such changed address to the other
parties hereto.
(e) This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement,
and shall become effective when one or more of the counterparts have been
signed by each of the parties and delivered to the other parties, it being
understood that all parties need not sign the same counterpart.
(f) The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
(g) No failure or delay by Executive or the Company in
exercising any right or power hereunder shall operate as a waiver thereof,
nor shall any single or partial exercise of any such right or power, or any
abandonment of any steps to enforce such a right or power, preclude any other
or further exercise thereof or the exercise of any other right or power.
Neither this Agreement nor any provision hereof may be waived, amended or
modified except pursuant to an agreement in writing entered into by Executive
and the Company.
(h) Any controversy, dispute or claim arising out of, in
connection with, or in relation to the interpretation, performance,
non-performance, validity or breach of this Agreement or otherwise arising
out of, or in any way related to, this Agreement shall be determined, at the
request of any party, by arbitration conducted in New York City, before and in
<PAGE>
6
accordance with the then-existing Rules for Commercial Arbitration of the
American Arbitration Association, and any judgment or award rendered by the
arbitrator shall be final, binding and unappealable, and any judgment may be
entered by any state or Federal court having jurisdiction thereof. In its
award the arbitrator shall allocate, in its discretion, among the parties to
the arbitration all costs of the arbitration, including the fees and expenses
of the arbitrator and reasonable attorneys' fees, costs and expert witness
expenses of the parties.
(i) All amounts paid hereunder will be net of any
applicable withholdings required by existing or future tax laws.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the day and year first above written.
PRIMEDIA REFERENCE INC.,
by /s/ Charles Laurey
------------------------------------
Name: Charles Laurey
Title: Secretary
/s/ Al De Seta
------------------------------------
Al De Seta
<PAGE>
This EMPLOYMENT AGREEMENT ("AGREEMENT") is
made and entered into as of the 17 day of November,
1999, by and between Primedia Reference Inc., a
Delaware corporation (the "COMPANY"), and Janice P.
Bailey, an individual resident of the State of New
York (the "EXECUTIVE").
WHEREAS the Company wishes to employ Executive, and Executive
wishes to accept such employment, on the following terms and conditions,
effective as of the Closing Date (as defined in the Redemption, Stock Purchase
and Recapitalization Agreement dated as of August 13, 1999, as amended (the
"PURCHASE AGREEMENT"), between PRIMEDIA Inc. and WRC Media Inc. (formerly named
EAC II Inc.), a Delaware corporation ("WRC Media");
NOW, THEREFORE, in consideration of the mutual covenants
contained herein and intending to be legally bound hereby, the parties hereby
agree as follows:
SECTION 1. EMPLOYMENT. The Company hereby employs Executive
and Executive accepts employment by the Company, on the terms and conditions
contained in this Agreement.
SECTION 2. TERM. The employment of Executive pursuant hereto
shall commence on the Closing Date and shall remain in effect until December
31, 2001 unless terminated by Executive upon 30 days prior written notice to
the Company or by the Company upon 30 days prior written notice to Executive.
The period of time between the Closing Date and the termination of this
Agreement pursuant to its terms is herein referred to as the "TERM". The Term
shall be automatically renewed for successive one-year periods unless, at least
90 days prior to any applicable expiration date, either party gives written
notice to the other party that such party does not wish to renew.
SECTION 3. DUTIES AND EXTENT OF SERVICE; PLACE OF
PERFORMANCE. During the Term, Executive shall serve the Company as Executive
Vice President and Chief Financial Officer of the Company and shall perform
duties and exercise authority commensurate with such role. Executive shall
initially report to Al De Seta. Executive shall devote Executive's full
business
<PAGE>
2
time and best efforts to the performance of Executive's duties hereunder and to
the business of the Company and its direct and indirect subsidiaries. Except as
mutually agreed upon by Executive and the Company, the Company shall not
materially diminish Executive's position at the Company without Good Cause (as
defined in Section 11). During the Term, Executive shall continue to be
employed at the location at which he is employed as of the Closing Date or at
another location within 30 miles thereof as the Company, in its sole
discretion, shall determine.
SECTION 4. BASE SALARY. During the Term, Executive shall be
paid a base salary (the "BASE SALARY"), payable in bi-weekly installments at
the end of every two weeks, at a rate of $138,500 per annum (the "INITIAL
SALARY") subject to annual review; PROVIDED that Executive's Base Salary shall
not be reduced below the Initial Salary.
SECTION 5. BONUS. Executive shall continue to be eligible to
receive any annual bonus for the 1999 calendar year which may be payable to
Executive under the short-term executive incentive compensation plan currently
applicable to Executive in accordance with the terms of Executive's bonus
letter from the Company (the "BONUS LETTER"), a copy of which is attached
hereto. Bonuses for future years during the Term shall be set by the Company
annually based on reasonable criteria communicated to Executive. Such criteria
shall be comparable to the criteria currently set forth in the Bonus Letter.
Target bonuses shall not be less than the target bonus set forth in the Bonus
Letter.
SECTION 6. FRINGE BENEFITS. Executive shall be entitled to
participate, to the extent eligible, in such medical, dental, disability, life
insurance, deferred compensation, retirement and other benefit plans as the
Company shall maintain for the benefit of employees generally, on the terms and
subject to the conditions set forth in such plans, which plans shall be
comparable in the aggregate to those plans in effect for Executive as of the
date hereof. Executive shall also be entitled to vacation time and sick leave
in accordance with the Company's policies in existence immediately prior to the
Closing and as applied to Executive immediately prior to the Closing.
<PAGE>
3
SECTION 7. EXPENSES. Upon receipt from Executive of expense
vouchers and other documentation reasonably requested by the Company, the
Company shall reimburse Executive promptly for all reasonable expenses incurred
by Executive in accordance with the Company's policies and procedures in
connection with Executive's duties and responsibilities hereunder.
SECTION 8. EQUITY INVESTMENT. From the date of the Closing to
December 15, 1999, Executive may elect to purchase up to $40,000 of Common
Stock, par value $0.01 per share ("WRC MEDIA COMMON STOCK"), of WRC Media from
EAC IV L.L.C. at a purchase price of $18.60065 per share in cash. If Executive
purchases any such shares, Executive will enter into a shareholder agreement
among WRC Media, EAC III L.L.C. and certain other executives of the Company and
its affiliates in the form previously agreed to by such parties. If Executive
so elects, up to one half of Executive's purchase of WRC Media Common Stock may
be financed with a personal loan guaranteed by the Company on commercially
reasonable terms. The Company shall make reasonable efforts to arrange and
guarantee such loan.
SECTION 9. NONSOLICITATION. (a) In the event that Executive's
employment with the Company is terminated by the Company for any reason, then
during the period beginning on the Closing Date and ending on the date that is
12 months after the date of termination of Executive's employment and to the
fullest extent permitted under applicable law, Executive agrees that Executive
shall not, directly or indirectly, solicit or attempt to solicit any business
from any customers or clients of the Company, including actively sought
prospective customers or clients, in connection with any Competing Publication
or Product Line (as defined on Schedule I). During the period beginning on the
Closing Date and ending on the date that is 24 months after the date of
termination of Executive's employment with the Company and to the fullest
extent permitted under applicable law, Executive agrees that Executive shall
not, directly or indirectly, other than as an employee of the Company, solicit,
recruit or hire any employees of or persons who have worked for the Company,
other than secretaries, during the twelve-month period prior to termination of
Executive's employment or solicit or encourage any such employee of the Company
to leave the employment of the Company.
<PAGE>
4
(b) If a judicial determination is made that any of the
provisions of this Section 9 constitutes an unreasonable or otherwise
unenforceable restriction against Executive, the provisions of such Section
shall be rendered void only to the extent that such judicial determination
finds such provisions to be unreasonable or otherwise unenforceable.
SECTION 10. NONDISCLOSURE. The parties hereto agree that
during the course of Executive's employment by the Company, Executive will have
access to, and will gain knowledge with respect to, the Companies' Confidential
Information (as defined below). The parties acknowledge that unauthorized
disclosure or misuse of such Confidential Information would cause irreparable
damage to the Companies. Accordingly, Executive agrees that Executive shall not
(except as may be required by law), without the prior written consent of the
Company during Executive's employment with the Company under this Agreement,
and any extension or renewal hereof, and thereafter for a period ending on the
fifth anniversary of the date of termination of Executive's employment with the
Company, use or disclose, or knowingly permit any unauthorized person to use,
disclose or gain access to, any Confidential Information; PROVIDED that
Executive may disclose Confidential Information to a person to whom disclosure
is reasonably necessary or appropriate in connection with the performance by
Executive of Executive's duties under this Agreement. Upon termination of this
Agreement for any reason, Executive shall return to the Company the original
and all copies of all documents and correspondence in Executive's possession
relating to the business of any of the Companies or any of their affiliates,
including but not limited to all Confidential Information, and shall not be
entitled to any lien or right of retention in respect thereof. Upon termination
of this Agreement for any reason, Executive shall be entitled to remove all
documents and correspondence of a purely personal nature. For purposes of this
Agreement, "CONFIDENTIAL INFORMATION" shall mean all business information
(whether or not in written form) which relates to any of the Companies, any of
their affiliates or their respective businesses or products and which is not
known to the public generally, including but not limited to technical
information or reports; trade secrets; unwritten knowledge and "know-how";
operating instructions; training manuals; customer lists; customer buying
records and
<PAGE>
5
habits; product sales records and documents, and product development, marketing
and sales strategies; market surveys; marketing plans; profitability analyses;
product cost; long-range plans; information relating to pricing, competitive
strategies and new product development; information relating to any forms of
compensation and other personnel-related information; contracts; and supplier
lists; PROVIDED that "Confidential Information" shall not include general
business know-how.
SECTION 11. SEVERANCE. If Executive's employment hereunder is
terminated upon a breach by the Company of this Agreement, by the Company for
any reason other than for Good Cause or by reason of a notice of nonrenewal
given by the Company, the Company shall pay to Executive as severance pay a
lump sum cash payment in an amount equal to Executive's Base Salary for the
year in which termination occurs. The Company shall also pay to Executive any
accrued and unpaid Base Salary owed to Executive for the period prior to such
termination, a prorated portion of Executive's Base Salary for any accrued
unused vacation time of Executive for the period prior to such termination and
any incurred but unpaid reimbursable expenses as contemplated by Section 7.
Additionally, in the event that any such termination occurs more than six
months after the beginning of any calendar year, the Company shall pay to
Executive a prorated portion of the Bonus that Executive would have been
entitled to for such calendar year puruant to Section 5. Payment of such
severance pay and other amounts will be made within 30 days of such
termination. For purposes of this Agreement, "GOOD CAUSE" shall exist upon the
occurrence of any of the following: (i) Executive is convicted of, pleads
guilty to, confesses to, or enters a plea of nolo contendere to, any felony or
any crime that involves moral turpitude or any act of fraud, misappropriation
or embezzlement; (ii) Executive has engaged in a fraudulent act to the damage
or prejudice of any of the Companies or any affiliate of any of the Companies;
(iii) any act or omission by Executive involving malfeasance or gross
negligence in the performance of Executive's duties to the Company; (iv)
Executive otherwise fails to comply in any material respect with the terms of
this Agreement or deviates in any material respect from any reasonable written
policies or reasonable directives of the Board of Directors of the Company and,
within 60 days after written notice from the Company of such failure or
deviation, Executive has not
<PAGE>
6
corrected such failure; or (v) the occurrence of the death or total disability
of Executive (total disability meaning the failure of Executive to perform
Executive's normal required services hereunder for a period of six consecutive
months during the term hereof by reason of Executive's mental or physical
disability, as determined by an independent physician reasonably satisfactory
to Executive and the Company).
SECTION 12. TERMINATION; SURVIVAL. This Agreement shall
terminate upon the earlier of (a) the termination of the Purchase Agreement
pursuant to its terms and (b) the termination of Executive's employment by the
Company. Notwithstanding the foregoing, Sections 9, 10 and 13 and, if
Executive's employment terminates in a manner giving rise to a payment under
Section 11, Section 11 shall survive the termination of this Agreement.
SECTION 13. MISCELLANEOUS. (a) This Agreement shall inure to
the benefit of and shall be binding upon Executive and Executive's executor,
administrator, heirs, personal representative and permitted assigns and the
Company and its successors and permitted assigns; PROVIDED that Executive shall
not be entitled to assign or delegate any of Executive's rights or obligations
hereunder without the prior written consent of the Company.
(b) This Agreement shall be deemed to be made in, and in all
respects shall be interpreted, construed and governed by and in accordance
with, the laws of the State of New York, without regard to the conflicts of law
principles of such State. No provision of this Agreement or any related
document shall be construed against or interpreted to the disadvantage of any
party hereto by any court or other governmental or judicial authority by reason
of such party having or being deemed to have structured or drafted such
provision.
(c) This Agreement constitutes the entire agreement between
the Company and Executive with respect to Executive's employment by the Company
after the Closing Date and, effective as of the Closing Date, supersedes all
prior agreements, whether written or oral, between them relating to Executive's
employment by the Company, including those agreements set forth on Schedule II
attached hereto, if any; PROVIDED that this Agreement does not
<PAGE>
7
supersede the Bonus Letter. Effective as of the Closing Date, Executive hereby
releases the Company and its affiliates from any claims or rights under such
agreements, without any liability or other adverse consequence to the Company,
its affiliates or WRC Media and the Company hereby releases Executive from any
claims or rights under such agreements, without any liability or other adverse
consequence to Executive.
(d) All notices or other communications required or permitted
by this Agreement shall be made in writing and any such notice or communication
shall be deemed delivered when delivered in person, transmitted by telecopier,
or one business day after it has been sent by a nationally recognized overnight
courier, at the address for notices as follows:
(i) if to the Company,
Primedia Reference Inc.
c/o Ripplewood Holdings L.L.C.
One Rockefeller Plaza
32nd Floor
New York, New York 10020
Attention: Mr. Timothy C. Collins
Mr. Charles L. Laurey
Mr. Martin Kenney
Facsimile: (212) 582-4110
(ii) if to Executive,
Janice P. Bailey
1155 Warburton Avenue
Yonkers, NY 10701
with a copy to:
Rubin Baum Levin Constant & Friedman
30 Rockefeller Plaza
New York, NY 10112
Attention: Robert J. Benowitz, Esq.
Facsimile: 212-698-7825
<PAGE>
8
Communications by telecopier also shall be sent concurrently by overnight
courier, but shall in any event be effective as stated above. Each party may
from time to time change its address for notices under this Section 13(d) by
giving at least five days' notice of such changed address to the other parties
hereto.
(e) This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement, and
shall become effective when one or more of the counterparts have been signed by
each of the parties and delivered to the other parties, it being understood
that all parties need not sign the same counterpart.
(f) The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
(g) No failure or delay by Executive or the Company in
exercising any right or power hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of any such right or power, or any
abandonment of any steps to enforce such a right or power, preclude any other
or further exercise thereof or the exercise of any other right or power.
Neither this Agreement nor any provision hereof may be waived, amended or
modified except pursuant to an agreement in writing entered into by Executive
and the Company.
(h) Any controversy, dispute or claim arising out of, in
connection with, or in relation to the interpretation, performance,
non-performance, validity or breach of this Agreement or otherwise arising out
of, or in any way related to, this Agreement shall be determined, at the
request of any party, by arbitration conducted in New York City, before and in
accordance with the then-existing Rules for Commercial Arbitration of the
American Arbitration Association, and any judgment or award rendered by the
arbitrator shall be final, binding and unappealable, and any judgment may be
entered by any state or Federal court having jurisdiction thereof. In its award
the arbitrator shall allocate, in its discretion, among the parties to the
arbitration all costs of the arbitration, including the fees and expenses of
the arbitrator and reasonable attorneys' fees, costs and expert witness
expenses of the
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9
parties. The Company shall pay for all reasonable travel expenses (including
transportation, lodging and meals) incurred by Executive in connection with any
arbitration session.
(i) All amounts paid hereunder will be net of any applicable
withholdings required by existing or future tax laws.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the day and year first above written.
Primedia Reference Inc.,
by /s/ Charles Laurey
---------------------------------
Name: Charles Laurey
Title: Secretary
/s/ Janice P. Bailey
---------------------------------
Janice P. Bailey
<PAGE>
Exhibit 10.23
This EMPLOYMENT AGREEMENT ("Agreement") is
made and entered into as of the 14th day of July,
1999, by and between JLC LEARNING CORPORATION, an
Illinois corporation (the "Company"), and NANCY
LOCKWOOD, an individual resident of the State of
California (the "Executive").
WHEREAS the Company wishes to employ Executive, and Executive wishes
to accept such employment, on the following terms and conditions, effective as
of the Closing Date (as defined in the Stock Purchase Agreement dated as of June
7, 1999, among Software Systems Corp., Sylvan Learning Systems, Inc., Pyramid
Ventures, Inc., GE Capital Equity Investments, Inc., JLC Learning Corporation
and EAC I Inc. (the "Stock Purchase Agreement"));
WHEREAS immediately after the Closing (as defined in the Stock
Purchase Agreement), the Company will be merged with and into EAC I Inc., a
Delaware corporation, and the name of EAC I Inc. will be changed to "JLC
Learning Corporation";
NOW, THEREFORE, in consideration of the mutual covenants contained
herein and intending to be legally bound hereby, the parties hereby agree as
follows:
SECTION 1. EMPLOYMENT. The Company hereby employs Executive and
Executive accepts employment by the Company, on the terms and conditions
contained in this Agreement.
SECTION 2. TERM. The employment of Executive pursuant hereto shall
commence on the Closing Date and shall remain in effect unless terminated by
Executive upon 30 days prior written notice to the Company or by the Company
upon 30 days prior written notice to Executive. The period of time between the
Closing and the termination of this Agreement pursuant to its terms is herein
referred to as the "Term".
SECTION 3. DUTIES AND EXTENT OF SERVICE. Executive shall serve the
Company as Senior Vice President, Product Development, or in such other position
as may be mutually agreed upon by Executive and the Company and shall perform
such services and duties for the Company as are customarily performed by an
executive in Executive's position at a business such as the Company's business
and as the Board of Directors of the Company (the "Board of Directors") may
assign or delegate to her from time to time as provided in the By-laws of the
Company. Executive shall devote her full business knowledge, skill, time and
effort exclusively to the performance of her duties for the Company and the
promotion of its interests. Executive's duties hereunder shall be performed
within 30 miles of the Company's current principal place of business. Executive
shall report to the Chief Executive Officer of the Company.
SECTION 4. BASE SALARY. Executive shall be paid a base salary (the
"Base Salary") at a rate of $190,000 per annum (the "Initial Salary") subject to
annual review; PROVIDED, HOWEVER, that the Executive's Base Salary shall not be
reduced below the Initial Salary.
SECTION 5. BONUS. Executive shall receive an annual bonus ("Bonus") of
up to 95% of Base Salary, based on the achievement of specific objectives to be
established by the
<PAGE>
2
Board of Directors on an annual basis in connection with the development of the
Company's annual operating budget for earnings before interest, depreciation,
taxes and amortization and after deductions for any annual bonus payments
payable by the Company. The Bonus in respect of 1999 will be tied to the 1999
Business Plan as previously adopted by the Board of Directors with a guaranteed
bonus of $18,000 (the "Guaranteed Bonus"). For achievement of 100%, 110%, 120%
and 125% of budget, a Bonus of $90,000, $120,600, $149,400 and $180,000,
respectively, will be paid to Executive. For subsequent years, it is expected
that the Bonus will be tied to the Company's annual operating budget.
SECTION 6. FRINGE BENEFITS. Executive shall be entitled to
participate, to the extent eligible, in such medical, dental, disability, life
insurance, deferred compensation and other benefit plans (such as pension and
profit sharing plans) as the Company shall maintain for the benefit of employees
generally, on the terms and subject to the conditions set forth in such plans.
Executive shall also be entitled to vacation time and sick leave in accordance
with the Company's policies in existence and as applied to Executive immediately
prior to the Closing.
SECTION 7. EXPENSES. The Company shall reimburse Executive promptly
for all reasonable expenses incurred by Executive in accordance with the
Company's budget and policy in connection with her duties and responsibilities
hereunder.
SECTION 8. EQUITY INVESTMENT. If Executive purchases shares of Common
Stock, par value $0.01 per share ("EAC II Common Stock") of EAC II Inc. from EAC
III L.L.C., Executive will enter into a shareholder agreement containing
customary terms and granting an irrevocable proxy to EAC III L.L.C. to vote her
shares of EAC II Common Stock. If Executive so elects (and to the extent
eligible), her purchase of Company Common Stock may be financed with a personal
loan guaranteed by the Company on commercially reasonable terms. The Company
shall make reasonable efforts to arrange and guarantee such loan.
SECTION 9. STOCK OPTIONS. In the event of an initial public offering
of the EAC I Common Stock, Executive shall participate in a stock option plan
commensurate with industry standards and the nature of EAC I Inc.'s ownership
and capital structure as of the closing of such offering.
SECTION 10. NONSOLICITATION. (a) During the period beginning on the
Closing Date and ending on the second anniversary of the date of termination of
Executive's employment with the Company (the "Nonsolicitation Period") and to
the fullest extent permitted under applicable law, Executive agrees that she
shall not, directly or indirectly: solicit, recruit or hire any employees of or
persons who have worked for the Company during the twelve-month period prior to
termination of Executive's employment, or solicit or encourage any such employee
of the Company to leave the employment of the Company.
(b) If a judicial determination is made that any of the provisions of
this Section 10 constitutes an unreasonable or otherwise unenforceable
restriction against Executive, the provisions of such Section shall be rendered
void only to the extent that such judicial determination finds such provisions
to be unreasonable or otherwise unenforceable. Moreover, notwithstanding the
fact that any provisions of this Section 10 is determined not to be
<PAGE>
3
specifically enforceable, the Company shall nevertheless be entitled to recover
monetary damages as a result of Executive's breach of such provision.
(c) Executive agrees that the provisions of this Section 10 are
reasonable and properly required for the adequate protection of the business and
the goodwill of the Company.
SECTION 11. NONDISCLOSURE. The parties hereto agree that during the
course of her employment by the Company, Executive will have access to, and will
gain knowledge with respect to, the Company's Confidential Information (as
defined below). The parties acknowledge that unauthorized disclosure or misuse
of such Confidential Information would cause irreparable damage to the Company.
Accordingly, Executive agrees to the nondisclosure covenants in this Section 11.
Executive represents that her experience and capabilities are such that the
provisions of Section 10 and this Section 11 will not prevent her from earning
her livelihood. Executive agrees that she shall not (except as may be required
by law), without the prior written consent of the Company during her employment
with the Company under this Agreement, and any extension or renewal hereof, and
thereafter for so long as it remains Confidential Information, use or disclose,
or knowingly permit any unauthorized person to use, disclose or gain access to,
any Confidential Information; PROVIDED, HOWEVER, that Executive may disclose
Confidential Information to a person to whom disclosure is reasonably necessary
or appropriate in connection with the performance by Executive of her duties
under this Agreement. Upon termination of this Agreement for any reason,
Executive shall return to the Company the original and all copies of all
documents and correspondence in her possession relating to the business of the
Company or any of its affiliates, including but not limited to all Confidential
Information, and shall not be entitled to any lien or right of retention in
respect thereof.
For purposes of this Agreement, "Confidential Information" shall mean
all business information (whether or not in written form) which relates to the
Company, any of its affiliates or their respective businesses or products and
which is not known to the public generally, including but not limited to
technical information or reports; trade secrets; unwritten knowledge and
"know-how"; operating instructions; training manuals; customer lists; customer
buying records and habits; product sales records and documents, and product
development, marketing and sales strategies; market surveys; marketing plans;
profitability analyses; product cost; long-range plans; information relating to
pricing, competitive strategies and new product development; information
relating to any forms of compensation and other personnel-related information;
contracts; and supplier lists.
SECTION 12. SEVERANCE. If Executive's employment hereunder is
terminated (1) upon a breach by the Company of this Agreement; (2) by the
Company for any reason other than for "Good Cause" (as defined below), or (3) by
the Company as a result of the occurrence of the death or total disability of
Executive (total disability meaning the failure of Executive to perform her
normal required services hereunder for a period of three consecutive months
during the term hereof by reason of Executive's mental or physical disability,
as determined by an independent physician reasonably satisfactory to Executive
and the Company) the Company shall (i) pay to Executive as severance pay a lump
sum cash payment in the amount of her Base Salary and (ii) provide Executive
with an executive outplacement program in accordance with the policy of the
Company at the time of such termination. Payment of such severance pay will
<PAGE>
4
be made within thirty (30) days of such termination. Executive shall have the
option of receiving the severance pay specified in the preceding sentence in the
form of salary continuation payments for a period of 12 months (the "Severance
Period"). In the event that Executive elects to receive severance pay in the
form of salary continuation payments, for a period of 12 months Executive shall
continue to receive medical, dental, and vision coverage for the Severance
Period subject to employee's payment of the costs of such benefits to the extent
such benefits are paid for by active employees. For purposes of this Agreement,
termination for a "Good Cause" shall exist upon the occurrence of any of the
following: (i) Executive is convicted of, pleads guilty to, confesses to, or
enters a plea of nolo contendere to, any felony or any crime that involves moral
turpitude or any act of fraud, misappropriation or embezzlement; (ii) Executive
has engaged in a fraudulent act to the damage or prejudice of the Company or any
affiliate of the Company; (iii) any act or omission by Executive involving
malfeasance or gross negligence in the performance of Executive's duties to the
Company; or (iv) Executive otherwise fails to comply in any material respect
with the terms of this Agreement or deviates in any material respect from any
reasonable written policies or reasonable directives of the Board of Directors
and, within 30 days after written notice from the Company of such failure or
deviation, Executive has not corrected such failure.
SECTION 13. TERMINATION; SURVIVAL. This Agreement shall terminate upon
the earlier of (x) the termination of the Stock Purchase Agreement pursuant to
its terms; or (y) the termination of Executive's employment by the Company.
Notwithstanding the foregoing, Sections 10, 11 and 14 and, if Executive's
employment terminates in a manner giving rise to a payment under Section 12,
Section 12 shall survive the termination of this Agreement.
SECTION 14. MISCELLANEOUS. (a) This Agreement shall inure to the
benefit of and shall be binding upon Executive and her executor, administrator,
heirs, personal representative and permitted assigns, and the Company and its
successors and permitted assigns; PROVIDED, HOWEVER, that Executive shall not be
entitled to assign or delegate any of her rights or obligations hereunder
without the prior written consent of the Company.
(b) This Agreement shall be deemed to be made in, and in all respects
shall be interpreted, construed and governed by and in accordance with, the laws
of the State of California, without regard to the conflicts of law principles of
such State. No provision of this Agreement or any related document shall be
construed against or interpreted to the disadvantage of any party hereto by any
court or other governmental or judicial authority by reason of such party having
or being deemed to have structured or drafted such provision.
(c) This Agreement constitutes the entire agreement between the
Company and Executive with respect to Executive's employment by the Company
after the Closing Date, and, effective as of the Closing Date, supersedes all
prior agreements, if any, whether written or oral, between them, relating to
Executive's employment by the Company. All prior agreements between the Company
and Executive with respect to Executive's employment by the Company shall
terminate and be without further force or effect as of the Closing. Except for
claims or rights under such agreements with respect to Fixed Sales Bonus as
described in the letter dated January 11, 1999, from Mr. David Veit to Executive
or the JLC Learning Corporation Stock Appreciation Rights Plan (each as defined
in the Stock Purchase Agreement), Executive hereby releases the Company from any
claims or rights under such agreements, without any liability or
<PAGE>
5
other adverse consequence to the Company or Purchaser (as defined in the Stock
Purchase Agreement).
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the day and year first above written.
JLC LEARNING CORPORATION,
by /s/David M. Veit
-----------------------------
Name: David M. Veit
Title: Chief Executive Officer
/s/Nancy Lockwood
-----------------------------
Nancy Lockwood
EAC III L.L.C. hereby agrees to the
provisions of Section 8
EAC III L.L.C.,
by RIPPLEWOOD PARTNERS, L.P.,
its Sole Member,
by RIPPLEWOOD HOLDINGS L.L.C.,
its General Partner,
By: /s/Charles L. Laurey
-----------------------------------
Title: Attorney-in-Fact
----------------------------
<PAGE>
Exhibit 10.24
TRANSITIONAL SERVICES AGREEMENT ("SERVICES
AGREEMENT") dated as of November 17, 1999, between
PRIMEDIA INC., a Delaware corporation ("PRIMEDIA"),
WRC MEDIA INC. (formerly named EAC II INC.), a
Delaware corporation ("PURCHASER"), and WEEKLY READER
CORPORATION, a Delaware corporation ("WRC").
WHEREAS PRIMEDIA and Purchaser have entered into a Redemption,
Stock Purchase and Recapitalization Agreement (the "PURCHASE AGREEMENT") dated
as of August 13, 1999, relating to the purchase by Purchaser of 2,685,670 shares
of Common Stock, par value $.01, of WRC from PRIMEDIA and certain other
transactions; and
WHEREAS WRC is interested in purchasing certain services from
PRIMEDIA during a transition period commencing on the date hereof.
NOW, THEREFORE, the parties, intending to become legally bound,
hereby agree as follows:
ARTICLE I
AGREEMENT TO BUY AND SELL SERVICES
SECTION 1.01. DEFINITIONS. Capitalized terms used herein but
not defined herein are used as defined in the Purchase Agreement. The words
"include", "includes" and "including" shall be deemed to be followed by the
phrase "without limitation".
SECTION 1.02. PROVISION OF SERVICES. (a) PRIMEDIA shall provide
to the Companies the Services listed and described on Schedule A (the
"SERVICES"). The Companies shall pay to PRIMEDIA the incremental costs
reasonably incurred by PRIMEDIA in providing such Services. In every case, all
the Services shall be provided in accordance with the terms, limitations and
conditions set forth herein and on Schedule A.
(b) The Companies shall provide to PRIMEDIA the Company
Services listed and described on Schedule B (the "Company Services"). PRIMEDIA
shall pay to the applicable Companies the incremental costs reasonably incurred
in providing such Company Services. In every case, all the Company Services
shall be provided in accordance with the
<PAGE>
2
terms, limitations and conditions set forth on Schedule B and herein, PROVIDED
that with respect to the Company Services, all provisions of this Services
Agreement other than this Section 1.02(b), Section 7.01 and Article IV shall be
read and apply as if (i) "PRIMEDIA" is substituted for "WRC" and "the
Companies", (ii) "WRC" or "the Companies", as applicable, is substituted for
"PRIMEDIA" and (iii) "Company Services" is substituted for "Services".
SECTION 1.03. ACCESS. WRC shall, and shall cause the Companies
to, make available on a timely basis to PRIMEDIA all information reasonably
requested by PRIMEDIA to enable it to provide the Services. WRC shall, and shall
cause the Companies to, give PRIMEDIA reasonable access, during regular business
hours and at such other times as are reasonably required, to the Companies'
premises for the purposes of providing Services.
SECTION 1.04. BOOKS AND RECORDS. PRIMEDIA shall keep books and
records of the Services provided and reasonable supporting documentation of all
charges incurred in connection with providing such Services and shall produce
records that verify the Services were performed and when such Services were
performed, and shall make such books and records available to Purchaser and the
Companies, upon reasonable notice, during regular business hours.
ARTICLE II
SERVICES; PAYMENT; INDEPENDENT CONTRACTOR
SECTION 2.01. SERVICES TO BE PROVIDED. (a) Unless otherwise
agreed by the parties, the Services shall be performed by PRIMEDIA for the
Companies in a manner that is substantially the same as the manner in which such
Services were generally performed by PRIMEDIA for the Companies prior to the
date of this Services Agreement and the Companies shall use such Services for
substantially the same purposes and in substantially the same manner as the
Companies had used such Services prior to the date hereof. PRIMEDIA shall act
under this Services Agreement solely as an independent contractor and not as an
agent of the Companies.
(b) PRIMEDIA shall not be obligated to pay any amounts to the
Companies or any of their employees in respect of payroll, benefits or similar
obligations unless PRIMEDIA has received such amounts from the Companies or any
third party.
<PAGE>
3
SECTION 2.02. PAYMENT. Statements will be rendered each month
by PRIMEDIA to WRC for Services delivered during the preceding month, and each
such statement shall set forth in reasonable detail a description of such
Services and the amounts charged therefor and shall be payable net thirty (30)
days after the date thereof.
SECTION 2.03. PRIORITIES. In providing Services, PRIMEDIA shall
accord the Companies the same priority it accords it own operations.
SECTION 2.04. USE OF SERVICES. PRIMEDIA shall be required to
provide Services only to the Companies in connection with the conduct by them of
their businesses. The Companies shall not resell any Services to any person
whatsoever or permit the use of the Services by any person other than in
connection with the conduct of business in the ordinary course by the Companies.
SECTION 2.05. OBLIGATION TO REPERFORM. In the event of any
breach of this Services Agreement by PRIMEDIA with respect to any error or
defect in the provision of any Service, PRIMEDIA shall, at WRC's request,
correct such error or defect or reperform such Services at the expense of
PRIMEDIA.
SECTION 2.06. RELEASE AND INDEMNITY. Except as specifically set
forth in this Services Agreement, WRC hereby releases PRIMEDIA, its
subsidiaries, affiliates and their employees, agents, officers, directors,
stockholders, members and partners ("PRIMEDIA INDEMNITEES") and agrees to
indemnify and hold harmless the PRIMEDIA Indemnitees, from any and all claims,
demands, complaints, liabilities, losses, damages (other than special, indirect,
incidental or consequential damages of the PRIMEDIA Indemnitees) and all
incremental costs arising from or relating to the use of any Service provided
hereunder by WRC to the extent not arising from the gross negligence or willful
misconduct of PRIMEDIA. PRIMEDIA represents and warrants that it has all
necessary right and authority to provide the Services to the Companies
hereunder.
ARTICLE III
TERM OF PARTICULAR SERVICES
SECTION 3.01. TERM OF PARTICULAR SERVICES. (a) The provision of
Services shall commence on the date hereof and shall terminate at the close of
business on March 31, 2000; PROVIDED that WRC may cancel any Service
<PAGE>
4
upon thirty (30) days' written notice subject to the requirement that WRC pays
to PRIMEDIA the out of pocket costs reasonably incurred by PRIMEDIA as a result
of such cancellation, which costs shall be set forth in reasonable detail in a
written statement provided to WRC.
(b) Upon the termination of a Service or Services with respect
to which PRIMEDIA holds books, records or files, including current and archived
copies of computer files, owned by a Company and used by PRIMEDIA in connection
with the provision of a Service to the Companies, PRIMEDIA will return all of
such books, records or files as soon as reasonably practicable. At its expense,
PRIMEDIA may make a copy of such books, records or files for its legal files.
ARTICLE IV
POST CLOSING COOPERATION
SECTION 4.01. POST CLOSING COOPERATION. (a) PRIMEDIA and
Purchaser shall cooperate with each other, and shall cause their affiliates and
their officers, employees, agents, auditors and representatives to cooperate
with each other, for a period of six months after the Closing with a view to
minimizing any disruption to the Companies and the other respective businesses
of PRIMEDIA and Purchaser that might result from the change of control of the
Companies contemplated by the Purchase Agreement.
(b) Each of PRIMEDIA and Purchaser shall reimburse the other
for incremental costs reasonably incurred in assisting the other pursuant to
this Section 4.01. Neither PRIMEDIA nor Purchaser shall be required by this
Section 4.01 to take any action that would unreasonably interfere with the
conduct of its business or unreasonably disrupt its normal operations (or, in
the case of Purchaser, those of the Companies).
ARTICLE V
FORCE MAJEURE
SECTION 5.01. FORCE MAJEURE. PRIMEDIA shall not be liable for
any interruption of Service, delay or failure to perform under this Services
Agreement when such interruption, delay or failure results from causes beyond
its reasonable control, including any strikes, lock-outs or other labor
difficulties, acts of any government, riot, insurrection or other hostilities,
embargo, fuel or energy shortage, fire, flood, acts of God, wrecks or
transportation
<PAGE>
5
delays, or inability to obtain necessary labor, materials or utilities. In any
such event, PRIMEDIA's obligations hereunder shall be postponed for such time as
its performance is suspended or delayed on account thereof. PRIMEDIA will
promptly notify WRC in writing upon learning of the occurrence of such event of
force majeure. Upon the cessation of the force majeure event, PRIMEDIA will use
reasonable efforts to resume its performance with the least possible delay.
ARTICLE VI
TERMINATION
SECTION 6.01. TERMINATION. This Services Agreement shall
terminate on the earliest to occur of (a) the date on which the provision of all
Services have terminated or been canceled pursuant to Section 3.01 and (b) the
date on which this Services Agreement is terminated pursuant to Section 6.02.
SECTION 6.02. BREACH OF SERVICES AGREEMENT. If either party
shall cause or suffer to exist any material breach of any of its obligations
under this Services Agreement, including any failure to make payments when due,
and said party does not cure such default within thirty (30) days after
receiving written notice thereof from the non-breaching party, the non-breaching
party may terminate this Services Agreement and the provision of Services
pursuant hereto immediately by providing written notice of termination.
SECTION 6.03. SUMS DUE. In the event of a termination of this
Services Agreement, PRIMEDIA shall be entitled to all outstanding amounts due
from Purchaser and the Companies up to the date of termination.
SECTION 6.04. EFFECT OF TERMINATION. Section 2.05, 2.06,
3.01(b), 4.01, 5.01 and 6.03, Article VII and this Section 6.04 shall survive
any termination of this Services Agreement.
ARTICLE VII
MISCELLANEOUS
SECTION 7.01. NOTICES. All the notices or other communications
made in connection with this Services Agreement shall be in writing. Any notice
or other
<PAGE>
6
communication in connection herewith shall be deemed duly given (a) two business
days after it is sent by express, registered or certified mail, return receipt
requested, postage prepaid or (b) one business day after it is sent by overnight
courier, in every case, addressed as follows:
(i) if to WRC, to it at:
Weekly Reader Corporation
c/o Ripplewood Holdings L.L.C.
One Rockefeller Plaza
32nd Floor
New York, NY 10020
Attention: Mr. Timothy C. Collins
Mr. Charles L. Laurey
Phone: (212) 218-2719
Fax: (212) 582-4110
with a copy to:
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, NY 10019
Attention: Peter S. Wilson, Esq.
Phone: (212) 474-1767
Fax: (212) 765-0978
(ii) if to PRIMEDIA, to it at:
PRIMEDIA Inc.
745 Fifth Avenue
New York, NY 10151
Attention: Mark Colodny
Phone: (212) 745-0100
Fax: (212) 745-0645
with a copy to:
PRIMEDIA Inc.
745 Fifth Avenue
New York, NY 10151
Attention: Ann M. Riposanu, Esq.
Phone: (212) 745-0100
Fax: (212) 745-0131
or, in each case, at such other address as may be specified by notice to the
other parties hereto. Any party may give any notice or other communication in
connection herewith using any other means (including personal delivery,
messenger service, telecopy, or ordinary mail), but no such
<PAGE>
7
notice or other communication shall be deemed to have been duly given unless and
until it is actually received by the individual for whom it is intended.
SECTION 7.02. HEADINGS. The headings contained in this Services
Agreement are for purposes of convenience only and shall not affect the meaning
or interpretation of this Services Agreement.
SECTION 7.03. ENTIRE AGREEMENT. This Services Agreement
constitutes the entire agreement and supersedes all prior agreements and
understandings, both written and oral, between the parties with respect to the
subject matter hereof.
SECTION 7.04. COUNTERPARTS. This Services Agreement may be
executed in several counterparts, each of which shall be deemed an original and
all of which shall together constitute one and the same instrument.
SECTION 7.05. GOVERNING LAW. This Services Agreement shall be
governed in all respects, including as to validity, interpretation and effect,
by the internal laws of the State of New York.
SECTION 7.06. BINDING EFFECT. This Services Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
heirs, successors and permitted assigns.
SECTION 7.07. ASSIGNMENT. This Services Agreement shall not be
assignable by any party without the prior written consent of the other parties;
PROVIDED that (a) WRC may assign this Services Agreement to any Company, (b)
Purchaser may assign its and WRC's rights hereunder by way of security and such
secured party may assign such rights by way of exercise of remedies and (c)
PRIMEDIA may delegate performance of all or any part of its obligations under
this Services Agreement to (i) any subsidiary of PRIMEDIA or (ii) third parties
to the extent such third parties are routinely used to provide such Services to
other PRIMEDIA businesses; PROVIDED FURTHER that, in each case, no such
delegation or assignment shall in any way affect any party's obligations under
this Services Agreement. Any purported assignment in violation of this Section
7.07 shall be void.
SECTION 7.08. THIRD PARTY BENEFICIARIES. Nothing in this
Services Agreement shall confer any rights upon any person or entity other that
the parties and each such party's respective successors and permitted assigns.
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8
SECTION 7.09. AMENDMENT; WAIVERS, ETC. No amendment,
modification or discharge of this Agreement, and no waiver hereunder, shall be
valid or binding unless set forth in writing and duly executed by the party
against whom enforcement of amendment, modification, discharge or waiver is
sought. Any such waiver shall constitute a waiver only with respect to the
specific matter described in such writing and shall in no way impair the rights
of the party granting such waiver in any other respect or at any other time.
SECTION 7.10 CONFIDENTIALITY; SECURITY; TITLE TO DATA. (a) Each
of the parties agrees that any confidential information of the other party
received in the course of performance under this Agreement shall be kept
strictly confidential by the parties, except that PRIMEDIA may disclose such
information for the purpose of providing Services pursuant to this Services
Agreement to any subsidiary of PRIMEDIA or to third parties that provide such
Services; PROVIDED that any such subsidiary or third party shall have agreed to
be bound by this Section 7.10. Upon the termination of this Services Agreement,
each party shall return to the other party all of such other party's
confidential information to the extent that such information has not been
previously returned pursuant to Section 3.01(b) of this Services Agreement.
(b) PRIMEDIA agrees that all records, data, files, input
materials and other information received or computed for the benefit of the
Companies and which relate to the conduct of the Companies' businesses are the
property of the Companies.
IN WITNESS WHEREOF, the parties have executed this Services
Agreement as of the date first written above.
PRIMEDIA INC.,
by /s/ Beverly C Chell
------------------------------
Name: Beverly C Chell
Title: Vice Chairman
<PAGE>
9
WRC MEDIA INC.,
by
------------------------------
Name: Charles Laurey
Title: Secretary
WEEKLY READER CORPORATION,
by /s/ Beverly C Chell
------------------------------
Name: Beverly C Chell
Title: Vice Chairman
<PAGE>
Schedule A
SERVICES AND TERMS
EMPLOYEE BENEFITS
During the period commencing as of the Closing and terminating
on the earlier of December 31, 1999 or such date as Purchaser shall designate in
writing to PRIMEDIA (provided that PRIMEDIA receives at least 10-days' notice of
such designation and that the date so designated is the end of a calendar
month), PRIMEDIA will continue to (i) make available to all employees (and their
eligible dependents) of the Companies who are participating in the relevant plan
on the Closing Date, participation in each of those employee benefit plans
listed in Schedule 3.15 of the Purchase Agreement which are designated as
sponsored by PRIMEDIA which Purchaser may request of PRIMEDIA in writing no
later than 10 days prior to the Closing and (ii) provide administrative services
in respect of those employee benefit plans listed in Schedule 3.15 which are
maintained exclusively by the Companies for their respective employees which
Purchaser may request of PRIMEDIA in writing no later than 10 days prior to the
Closing. Purchaser will promptly reimburse PRIMEDIA, upon receipt by Purchaser
of a written invoice from PRIMEDIA detailing the component costs and expenses,
for all reasonable administrative costs and expenses directly related to the
services provided by PRIMEDIA in respect of the Companies' employees including,
as applicable, for all contributions made by PRIMEDIA, including both the
employer and employee portions, all claims paid under self-insured welfare plans
and all employer and employee (to the extent not received by PRIMEDIA from
employee payroll withholding) premiums paid to insurance carriers. PRIMEDIA's
obligations to provide administrative services in respect of any particular plan
will be on substantially the same basis that it currently provides services in
respect of such plan. Administrative services will include, but not be limited
to, all administrative and management services provided by PRIMEDIA as of the
date hereof with respect to each applicable employee benefit plan, including all
administrative and management services (including recordkeeping, the provision
of informational documentation to employees and human resources personnel and
other services typically necessary for these types of benefit programs,
consistent with past practice). PRIMEDIA's obligation to continue to make
available any welfare plan under clause (i) of the first sentence of this
paragraph shall be subject to any required consent of the applicable insurance
carrier (if any) and the parties agree to cooperate to obtain such consent.
<PAGE>
2
OFFICE SPACE-GROUP STAFF
PRIMEDIA will continue to make available office space currently occupied by the
Companies' staff ([LeBrasseur,] Jackson, Schwartz, Slivken) and services related
thereto (including security, cleaning, access to telephones, fax and copy
machines, mail and delivery services, and other services consistent with those
provided prior to the Closing) at a monthly rental of $8,500 [12,000 if
LeBrasseur included] plus the incremental direct costs of telephone calls,
telecopies, and any postage, overnight delivery or other courier charges.
<PAGE>
Schedule B
COMPANY SERVICES AND TERMS
SERVICE REQUIREMENTS AND WRC ON BEHALF OF FILMS FOR THE HUMANITIES ("FFH")
WRC shall:
1. provide day to day maintenance of Computron Financial software and hardware
systems ("Computron") and related databases (including emergency services,
trouble shooting, upgrades, reports and uploads), consistent with current
practice;
2. provide continued T-1 access from WRC to FFH, consistent with current
practice;
3. perform uploads of data from Excel spreadsheets into Computron, consistent
with current practice; and
4. assist FFH/FFH consultants in extraction/conversion of FFH data from
Computron for purposes of transitioning to the FFH financial package and
provide required access to WRC personnel, premises & systems for such
extraction.
<PAGE>
SHAREHOLDER AGREEMENT dated as of November 17,
1999(this "Agreement"), among EAC III L.L.C., a
Delaware limited liability company (the "Ripplewood
Shareholder"), Therese K. Crane (the "Executive") and
WRC Media Inc. (formerly named "EAC II Inc."), a
Delaware corporation (the "Company").
In consideration of the mutual agreements herein contained, and other
good and valuable consideration the receipt and adequacy of which are hereby
acknowledged, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS, USAGE AND EQUITY INVESTMENT
SECTION 1.01. DEFINED TERMS. The following terms shall have the
following meanings:
"Affiliate" means, with respect to any specified Person, any other
Person that directly or indirectly, through one or more intermediaries,
controls, is controlled by, or is under common control with, such specified
Person. For purposes of this definition, "control" (including, with correlative
meanings, the terms "controlled by" and "under common control with"), as used
with respect to any Person, means the direct or indirect possession of the power
to direct or cause the direction of the management or policies of such Person,
whether through the ownership of voting securities, by contract or otherwise.
"Agreement" has the meaning set forth in the preamble to this
Agreement.
"Board of Directors" means the Board of Directors of the Company.
"Company" has the meaning set forth in the preamble to this Agreement.
"Company Common Stock" has the meaning set forth in Section 1.03.
"Direct Transfer" means a Transfer (without giving effect to the
second sentence of the definition of "Transfer").
"Drag-Along Notice" has the meaning set forth in Section 2.01(f).
<PAGE>
2
"Employment Agreement" means the Employment Agreement dated as of July
14, 1999 among the Company, the Ripplewood Shareholder, JLC Learning Corporation
and the Executive.
"Executive" has the meaning set forth in the preamble to this
agreement.
"Fair Market Value" means the fair market value of a Share, determined
in accordance with Section 2.01(g).
"GCL" means the General Corporation Law of the State of Delaware (8
Del. C. Section 101, ET SEQ.), as amended from time to time and any successor
statute thereto.
"Involuntary Transfer" means any Transfer by the Executive or the
Ripplewood Shareholder of any Shares, or of any beneficial ownership thereof,
upon death, appointment of a guardian, default, foreclosure, forfeit, bankruptcy
(voluntary or involuntary), court order, levy of attachment, execution or
otherwise than voluntarily by the Transferor; PROVIDED that a Transfer required
pursuant to Section 2.01(f) shall not be deemed an Involuntary Transfer.
"Management Shareholder Agreement" means the Shareholder Agreement
dated as of November ,1999 among EAC III L.L.C., the Management Shareholders and
the Company.
"Management Shareholders" has the meaning set forth in the Management
Shareholder Agreement.
"Permitted Transferee" means, (i) with respect to the Ripplewood
Shareholder, (A) Ripplewood or an Affiliate of Ripplewood, (B) a shareholder,
partner, member or employee of Ripplewood or any Affiliate of Ripplewood or (C)
an employee of the Company or a Subsidiary of the Company and (ii) with respect
to the Executive, (A) the Management Shareholders (B) the Company or (c) the
Executive's spouse or lineal descendants or any trust the beneficiaries of which
include only the Executive's spouse or lineal descendants.
"Person" means any individual, corporation, partnership, trust,
association, limited liability company, joint venture, joint-stock company or
any other entity or organization, including a government or governmental agency.
"Preferred Stock" means the 15% Senior Exchangeable Preferred Stock
Due 2011, par value $0.01 per share, of the Company.
<PAGE>
3
"Purchase Agreement" means the Redemption, Stock Purchase and
Recapitalization Agreement dated as of August 13, 1999 between PRIMEDIA Inc., a
Delaware corporation, and the Company, as amended.
"Ripplewood" means Ripplewood Partners, L.P.
"Ripplewood Shareholder" has the meaning set forth in the preamble to
this Agreement.
"Shareholders" means the Ripplewood Shareholder and the Executive.
"Shares" means the shares of Company Common Stock held by the
Shareholders or the Permitted Transferees.
"Subsidiary" means, with respect to any specified Person, another
Person, an amount of the voting securities, other voting ownership or voting
partnership interests of which is sufficient to elect at least a majority of
its board of directors or other governing body (or, if there are no such
voting interests, 50% or more of the equity interests of which) is owned
directly or indirectly by such first Person or by another Subsidiary of such
first Person.
"Tag-Along Notice" has the meaning set forth in Section 2.01(e).
"Third Party Purchaser" means, with respect to any proposed sale of
Shares by the Ripplewood Shareholder or the Executive, a Person, other than an
Affiliate of the Ripplewood Shareholder or the Executive, who offers to purchase
from the Ripplewood Shareholder or the Executive such Shares pursuant to a bona
fide written offer.
"Transfer" means any transfer, sale, conveyance, assignment, gift,
hypothecation, pledge or other disposition, whether voluntary or by operation of
law, of a Share. Notwithstanding the foregoing, any transfer, sale, conveyance,
assignment, gift, hypothecation, pledge or other disposition, whether voluntary
or by operation of law, of any stock, partnership interest, membership interest
or any other ownership interest in any entity that is a direct or indirect
beneficial or record owner of any Share (including any disposition by means of a
merger, consolidation or similar transaction) or any other transaction that has
the economic effect of a Transfer of a Share (including the designation of any
beneficiary of any trust that is a direct or indirect beneficial or record owner
of any Share) shall be deemed to be a Transfer of such Share by the Shareholder
directly owning such Share.
<PAGE>
4
"Transferee" means the transferee in a Transfer.
"Transferor" means the transferor in a Transfer.
SECTION 1.02. OTHER DEFINITION PROVISIONS. Wherever required by the
context of this Agreement, the singular shall include the plural, and vice
versa, and the masculine gender shall include the feminine and neuter genders,
and vice versa, and references to any agreement, document or instrument shall be
deemed to refer to such agreement, document or instrument as amended,
supplemented or modified from time to time. When used herein, (i) the word "or"
is not exclusive and (ii) the words "including," "includes," "included" and
"include" are deemed to be followed by the words "without limitation."
SECTION 1.03. (a) EQUITY INVESTMENT. On the Closing Date, pursuant to
the Employment Agreement, the Executive will purchase from the Company at a
price of $18.60065 per share in cash 4,032 shares of common stock, par value
$0.01 per share ("Company Common Stock"), of the Company.
(b) VOTING AGREEMENTS. The Executive hereby agrees with the
Ripplewood Shareholder that from and after the date hereof: (a) the Executive
shall vote all of the Shares held by the Executive (including shares acquired
after the date hereof) in the same manner as the Shares held by the
Ripplewood Shareholder are voted on all matters acted upon at any annual or
special meeting of shareholders of the Company or by written consent in lieu
of a meeting and (b) the Executive irrevocably constitutes and appoints the
Ripplewood Shareholder the Executive's proxy to vote all of the Shares held
by the Executive in the same manner as the Shares held by the Ripplewood
Shareholder are voted on all matters acted upon at any annual or special
meeting of shareholders of the Company or by written consent in lieu of a
meeting; PROVIDED that this Section 1.03(b) shall be inapplicable with
respect to any matters which would both adversely affect the rights of the
Shares held by the Executive and treat the Executive differently from other
holders of shares of Company Common Stock. The voting agreements and proxies
granted pursuant to this Section 1.03(b) are coupled with an interest and
shall be valid for the term of this Agreement. The Executive represents that
the Executive has not granted and is not a party to any proxy, voting trust
or other agreement which in each case is inconsistent with or conflicts with
the provisions of this Agreement, and the Executive shall not grant any proxy
or become a party to any voting trust or
<PAGE>
5
other agreement which in each case is inconsistent with or conflicts with
the provisions of this Agreement.
ARTICLE II
TRANSFERS OF SHARES; TRANSACTIONS
BETWEEN RIPPLEWOOD SHAREHOLDER AND THE COMPANY
SECTION 2.01. TRANSFERS OF THE COMPANY SHARES.
(a) GENERALLY. (i) Neither the Ripplewood Shareholder nor the
Executive may Transfer all or any portion of its Shares (or any beneficial
ownership thereof) unless (A) such Transfer is in accordance with this Section
2.01, (B) in the case of a Direct Transfer, the Transferee executes and delivers
a counterpart of the signature page of this Agreement (or other appropriate
assumption agreement) in which the Transferee agrees to be bound by the
provisions of this Agreement to the same extent as the Transferor and providing
the address for notices of such Transferee and (C) the Transferee executes and
delivers any other agreements, documents or instruments reasonably specified by
the Board of Directors. Any Transfer made in violation of this Section 2.01(a)
shall be null and void and shall be subject to Section 2.01(d).
(ii) Whenever a Transfer is to be consummated by any Person on a
specified date under this Section 2.01, such Transfer shall take place at 10:00
a.m. Eastern Time on such date (or, if such date is not a business day, the next
following business day) at the principal office of Ripplewood, presently located
at One Rockefeller Plaza, New York, New York, or at such other time, date and
place as the Company and the parties to such Transfer may agree. The
consideration for such Transfer shall be paid by delivery to the applicable
Transferor of a certified or bank check made payable to such Transferor or by
wire transfer of immediately available funds to a bank account designated by
such Transferor, against due execution and delivery of the agreements, documents
and instruments specified in Section 2.01(a)(i), such other agreements,
documents and instruments as the parties to such Transfer may reasonably require
including certificates or other instruments representing the Shares so
purchased, appropriately endorsed by such shareholder of the Company, free and
clear of all security interests, liens, claims, encumbrances, charges, options,
restrictions on transfer, proxies and voting and other agreements of whatever
nature other than those created hereunder.
<PAGE>
6
(iii) The provisions of this Section 2.01, other than Section
2.01(d), (e), (f), (g), (h) and (i), shall terminate upon the completion of an
initial public offering of shares of Company Common Stock by the Company and the
termination of any lockup period agreed to with underwriters in connection
therewith.
(b) TRANSFERS BY THE RIPPLEWOOD SHAREHOLDER. Subject to Section
2.01(a) and, with respect to a Transfer to any Person other than a Permitted
Transferee of the Ripplewood Shareholder, Section 2.01(e), the Ripplewood
Shareholder (and its Permitted Transferees) shall have the right to Transfer at
any time all or any portion of its Shares (including any beneficial ownership
thereof) to any Person without the prior consent of any Person.
(c) TRANSFERS BY THE EXECUTIVE. (i) Subject to Section 2.01(a), the
Executive (and his Permitted Transferees) shall have the right to Transfer at
any time all or any portion of his Shares (including any beneficial ownership
thereof) to any of his Permitted Transferees without the prior consent of any
Person.
(ii) The Executive may not Transfer all or any portion of his Shares
(including any beneficial ownership thereof) to any Person other than the
Management Shareholders or the Company except in accordance with Section 2.01(a)
and (A) pursuant to Section 2.01(c)(i), (e) or (f) or (B) with the prior written
consent of the Ripplewood Shareholder.
(d) INVOLUNTARY AND IMPERMISSIBLE TRANSFERS. If an Involuntary
Transfer or a Transfer in violation of this Agreement shall occur with respect
to the Executive and, in the case of a Transfer in violation of this Agreement,
such violation has not been cured within 30 days after notice to the applicable
Transferor or Transferee, the Company shall give notice to the Ripplewood
Shareholder, offering the Ripplewood Shareholder (or its designee) the right,
exercisable by delivery of written notice to the Transferee with respect to such
Involuntary Transfer or Transfer in violation of this Agreement, within 90 days
following the day on which such notice is given, to purchase all of the Shares
acquired by such Transferee at a purchase price equal to, in the case of an
Involuntary Transfer, 100% or, in the case of a Transfer in violation of this
Agreement, 90% of the Fair Market Value thereof, determined in accordance with
Section 2.01(g) as of the date of such Transfer (or, if lower, as of the date of
such determination). The closing date of any purchase described in this Section
2.01 shall be on the date specified by the Company that shall not be later than
the 30th day after a determination of the Fair Market
<PAGE>
7
Value of the Shares to be purchased is made. The Ripplewood Shareholder may
assign its rights under this Section 2.01(d) to any person.
(e) TAG-ALONG RIGHTS. If the Ripplewood Shareholder desires to
Transfer in excess of 5% of its Shares to a prospective Transferee (or
Transferees) other than to a Permitted Transferee of the Ripplewood Shareholder
and, after giving effect to such Transfer, the Ripplewood Shareholder shall have
Transferred in excess of 35% in the aggregate of its Shares to a Transferee (or
Transferees) other than Permitted Transferees of the Ripplewood Shareholder, the
Ripplewood Shareholder shall, as a condition to such Transfer, (i) provide a
notice to the Executive in writing (a "Tag-Along Notice") of the material terms
of the proposed Transfer at least 15 days prior to such Transfer and (ii) permit
the Executive (or cause the Executive to be permitted) to sell (either to the
prospective Transferee of the Ripplewood Shareholder's Shares or to another
financially reputable Transferee reasonably acceptable to the Executive) the
same portion of his respective Shares as that Transferred by the Ripplewood
Shareholder in the aggregate to Transferees other than Permitted Transferees of
the Ripplewood Shareholder (after giving effect to such proposed Transfer) on
the same terms and conditions, subject to the same agreements and at the same
price as the proposed sale by the Ripplewood Shareholder, which sale shall take
place on the date the Ripplewood Shareholder's Shares (or such portion) are
Transferred to such Transferee (or Transferees). The Executive shall have five
days from the date of receipt of a Tag-Along Notice to exercise his right to
sell pursuant to clause (ii) above by delivering written notice to the
Ripplewood Shareholder of his intent to exercise such right. The right of the
Executive to sell pursuant to clause (ii) above shall terminate if not exercised
within such five-day period. If the Executive elects to exercise his right to
sell pursuant to clause (ii) he shall share, on a pro rata basis, the legal,
investment banking and other expenses of the Ripplewood Shareholder incurred in
connection with such Transfer.
(f) DRAG-ALONG RIGHTS. If at any time the Ripplewood Shareholder
desires to Transfer all (or any portion in excess of 35%) of its Shares to any
Third Party Purchaser (or Purchasers), the Ripplewood Shareholder shall have the
right to require that the Executive Transfer the same portion of his respective
Shares to such Third Party Purchaser (or Purchasers) on the same terms and
conditions, subject to the same agreements and at the same price as the sale by
the Ripplewood Shareholder. The Ripplewood Shareholder shall provide a notice to
the Executive in
<PAGE>
8
writing (a "Drag-Along Notice") of such sale at least 10 days prior to such
Transfer, and the Drag- Along Notice shall identify such Third Party Purchaser
(or Purchasers), all material terms of the sale and the date of closing. Upon
the closing of any sale by the Ripplewood Shareholder of all (or such portion)
of its Shares as described in a Drag-Along Notice, such Third Party Purchaser
(or Purchasers) shall pay to the Executive the consideration payable to the
Executive in connection with such sale of all (or such portion) of his Shares to
such Purchaser (or Purchasers), net of the Executive's proportionate share of
the legal, investment banking and other expenses of the Ripplewood Shareholder
incurred in connection with such sale, and the Shares (or such portion) of the
Executive shall be deemed Transferred to such Third Party Purchaser (or
Purchasers).
(g) FAIR MARKET VALUE. (i) If a determination of the Fair Market Value
of any shares of Company Common Stock is required by this Agreement when there
is no public trading market for the shares of Company Common Stock, such "Fair
Market Value" shall be such amount as is determined in good faith by the Board
of Directors as of the date such Fair Market Value is required to be determined
hereunder. In making a determination of such Fair Market Value, the Board of
Directors shall give due consideration to such factors as it deems appropriate,
including, without limitation, the earnings and certain other financial and
operating information of the Company and its subsidiaries in recent periods, its
potential value and that of its subsidiaries as a whole, its future prospects
and that of its subsidiaries and the industries in which they compete, its
history and management and that of its subsidiaries, the general condition of
the securities markets and the fair market value of securities of privately
owned companies (with transfer restrictions) engaged in businesses similar to
those of the Company and its subsidiaries, if any. The Fair Market Value, as
determined by the Board of Directors in good faith, shall be binding and
conclusive upon all parties hereto.
(ii) If a determination of the Fair Market Value of any shares of
Company Common Stock is required by this Agreement when there is a public
trading market for shares of Company Common Stock, such "Fair Market Value"
shall mean the average daily closing sales price of the shares of Company Common
Stock for the ten consecutive trading days preceding the date the Fair Market
Value of the shares of Company Common Stock is required to be determined
hereunder. The closing price for each day shall be the last reported sales price
regular way or, in case no such reported sale takes place on such day, the
average of the reported closing bid and asked prices regular way, in either case
on the principal
<PAGE>
9
national securities exchange on which the shares of Company Common Stock are
listed and admitted to trading, or, if not listed and admitted to trading on any
such exchange, on the NASDAQ National Market System, or, if not quoted on the
National Market System, the average of the closing bid and asked prices in the
over-the-counter market as furnished by any New York Stock Exchange member firm
selected from time to time by the Board of Directors for that purpose.
(h) RIPPLEWOOD OPTION UPON TERMINATION. In the event that the
Executive's employment by the Company is terminated for any reason, the
Ripplewood Shareholder shall have an option to purchase all or any portion of
the Shares then held by the Executive at a purchase price equal to the Fair
Market Value of such Shares, determined in accordance with Section 2.01(g) as of
the date of such termination. The Ripplewood Shareholder shall within 90 days of
such date of termination give notice in writing to the Executive of its election
to exercise or not to exercise such option, which notice shall set forth the
portion, if any, of the Shares that the Ripplewood Shareholder elects to
purchase. The purchase of the Shares shall take place at the principal office of
Ripplewood, presently located at One Rockefeller Plaza, New York, New York, on
the date specified by the Ripplewood Shareholder (not later than the later of
the twentieth business day following the receipt by the Executive of the
required notice from the Ripplewood Shareholder and the satisfaction of any
legal requirements to the purchase of the Shares). The consideration for the
purchase of the Shares shall be paid by delivery to the Executive of a certified
or bank check made payable to the Executive or by wire transfer of immediately
available funds to a bank account designated by the Executive, against delivery
of certificates or other instruments representing the Shares so purchased,
appropriately endorsed by the Executive, free and clear of all security
interests, liens, claims, encumbrances, charges, options, restrictions on
transfer, proxies and voting and other agreements of whatever nature. The
Ripplewood Shareholder may assign its rights under this Section 2.01(h) to any
Person.
(i) EXECUTIVE OPTION UPON TERMINATION. In the event that the
Executive's employment by the Company is terminated for any reason other than
(i) for "Good Cause" (as defined in the Employment Agreement, or (ii) by the
Company as a result of the death or total disability of the Executive (total
disability meaning the failure of the Executive to perform her normal required
services under the Employment Agreement for a period of three consecutive months
during the term of the Employment Agreement by reason of the Executive's mental
or physical disability as determined by an independent
<PAGE>
10
physician reasonably satisfactory to the Executive and the Company) the
Executive shall have an option to sell to the Ripplewood Shareholder all or
any portion of the Shares then held by the Executive at a purchase price
equal to the Fair Market Value of such Shares, determined in accordance with
Section 2.01(g) as of the date of such termination; PROVIDED, that to the
extent that the Board of Directors of the Company reasonably determines that
such purchase, if made, would (x) cause the Company to be or remain in
default under any agreements with lenders or financing sources, despite
commercially reasonable efforts by the Company to obtain consents or
amendments necessary to permit such purchase, or (y) conflict with the terms
(including with respect to priority of payment) of the 15% Senior
Exchangeable Preferred Stock due 2011, par value $0.01 per share, of the
Company, the Company shall be relieved of its obligations to make such
purchase under this Section 2.01(i) while and to the extent such conditions
continue to exist. The Executive shall within 90 days of such date of
termination give notice in writing to the Ripplewood Shareholder of its
election to exercise or not to exercise such option, which notice shall set
forth the portion, if any, of the Shares that the Executive elects to sell.
The sale of the Shares shall take place at the principal office of
Ripplewood, presently located at One Rockefeller Plaza, New York, New York,
on the date specified by the Executive (not later than the later of the
twentieth business day following the receipt by the Ripplewood Shareholder of
the required notice from the Executive and the satisfaction of any legal
requirements to the sale of the Shares). The consideration for the sale of
the Shares shall be paid by delivery to the Executive of a certified or bank
check made payable to the Executive or by wire transfer of immediately
available funds to a bank account designated by the Executive, against
delivery of certificates or other instruments representing the Shares so
purchased, appropriately endorsed by the Executive, free and clear of all
security interests, liens, claims, encumbrances, charges, options,
restrictions on transfer, proxies and voting and other agreements of whatever
nature.
ARTICLE III
STOCK REGISTRATION; LEGEND; CAPITAL STOCK
SECTION 3.01. STOCK REGISTRATION. (a) The Executive hereby represents
and warrants to the Ripplewood Shareholder and the Company that:
(i) The Executive has had access to all information that the Executive
deemed necessary to adequately
<PAGE>
11
evaluate whether to purchase any shares of Company Common Stock;
(ii) The Executive understands that the Company Common Stock has not
been registered under the Securities Act of 1933, as amended (the
"Securities Act") and shares of Company Common Stock will be sold to the
Executive in reliance upon an exemption from the registration
requirements of the Securities Act afforded by Rule 701; and
(iii) any shares of Company Common Stock acquired by the Executive
shall be acquired only for the Executive's own account, for investment
purposes only and not with a view to its resale, distribution or other
disposition.
(b) The Executive agrees that the Executive will not offer, sell,
transfer, pledge, hypothecate or otherwise dispose of any Shares except:
(i) pursuant to an exemption from registration under the Securities
Act, as confirmed in a satisfactory opinion of legal counsel delivered
to the Company, and in accordance with any applicable laws of any state
of the United States governing the offer and sale of securities; or
(ii) pursuant to an effective registration statement under the
Securities Act (it being understood that the Company, the Ripplewood
Shareholder and their Affiliates are under no obligation to effect such
registration) and in accordance with any applicable state laws.
(c) In the event that the Company files a registration statement on
Form S-8 of the Securities and Exchange Commission, the Company shall, to the
extent permitted by applicable law, include in such registration statement the
shares of Company Common Stock issuable upon exercise of the then unexercised
options that were granted to the Executive pursuant to Section 9 of the
Employment Agreement.
SECTION 3.02. LEGEND. The Executive agrees that any and all
certificates representing the Executive's Shares will have inscribed
conspicuously on the front or back of such certificates the following legend:
"THE SHARES OF COMMON STOCK, PAR VALUE $0.01 PER SHARE, OF WRC MEDIA INC.
REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO ONE OR MORE AGREEMENTS AMONG
SHAREHOLDERS OR AGREEMENTS BETWEEN
<PAGE>
12
SHAREHOLDERS AND WRC MEDIA INC. AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED
EXCEPT IN ACCORDANCE THEREWITH. COPIES OF SUCH AGREEMENT OR AGREEMENTS MAY BE
OBTAINED FROM THE SECRETARY OF WRC MEDIA INC. AT THE PRINCIPAL EXECUTIVE OFFICES
OF RIPPLEWOOD HOLDINGS L.L.C. THESE SHARES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND MAY NOT BE
REOFFERED OR RESOLD, DIRECTLY OR INDIRECTLY, EXCEPT IN ACCORDANCE WITH THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OR PURSUANT TO AN EXEMPTION
THEREFROM AND IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF
THE UNITED STATES."
SECTION 3.03. CAPITAL STOCK; PRICE. The Company hereby represents and
warrants to the Executive that: the authorized capital stock of the Company will
consist of 20,000,000 shares of Company Common Stock, of which 6,855,853 shares
will be issued and outstanding, and 20,000,000 shares of Preferred Stock, of
which 3,000,000 shares will be issued and outstanding. Immediately after giving
effect to the transactions referenced in Section 1.03(a) and except for the
shares reserved for issuance pursuant to options granted to Martin Kenney and to
the Management Shareholders, there will be no shares of capital stock or other
equity securities of the Company issued, reserved for issuance or outstanding.
The purchase price per share for the shares of Company Common Stock being
acquired by the Executive pursuant to the Employment Agreement is the same as
the purchase price per share being paid by the Ripplewood Shareholder and other
Persons who are acquiring shares of Company Common Stock simultaneously with the
Executive.
ARTICLE IV
MISCELLANEOUS PROVISIONS
SECTION 4.01. ENTIRE AGREEMENT. This Agreement sets forth the entire
understanding among the parties relating to the subject matter contained herein
and merges all prior discussions among them. This Agreement is not intended to
confer upon any Person other than the parties hereto any rights or remedies
hereunder.
SECTION 4.02. AMENDMENTS. This Agreement may not be amended except by
an instrument in writing signed by the Ripplewood Shareholder and the Executive.
SECTION 4.03. NOTICES. All notices and other communications required
or permitted by this Agreement shall
<PAGE>
13
be made in writing and any such notice or communication shall be deemed
delivered when delivered in person, transmitted by telex or telecopier,
confirmation of transmission received, or one business day after it has been
sent by a nationally recognized overnight courier, at the address or addresses
for notices to the recipient designated on Schedule I attached hereto.
Communications by telex or telecopier also shall be sent concurrently by first
class mail or overnight courier, but shall in any event be effective as stated
above. The Ripplewood Shareholder, the Executive or the Company may from time to
time change its address for notices under this Section 4.03 by giving at least
five days' notice of such changed address to the other parties hereto.
SECTION 4.04. INTERPRETATION. When a reference is made in this
Agreement to a Section, such reference shall be to a Section of this Agreement
unless otherwise indicated. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
SECTION 4.05. SEVERABILITY. If any one or more of the provisions
contained in this Agreement or in any document executed in connection herewith
shall be invalid, illegal or unenforceable in any respect under any applicable
law, the validity, legality and enforceability of the remaining provisions
contained herein shall not in any way be affected or impaired; PROVIDED,
HOWEVER, that in such case the parties hereto shall endeavor to amend or modify
this Agreement to achieve to the extent reasonably practicable the purpose of
the invalid provision.
SECTION 4.06. GOVERNING LAW. This Agreement and all actions
contemplated hereby shall be governed by, and construed and enforced in
accordance with, the laws of the State of New York (without regard to conflict
of laws principles), except to the extent that the provisions of the GCL may be
mandatorily applicable.
SECTION 4.07. COUNTERPARTS. This Agreement may be executed in one or
more counterparts, all of which shall be considered one and the same agreement.
This Agreement shall become effective against the Ripplewood Shareholder when
one or more counterparts have been signed by the Ripplewood Shareholder and
delivered to the Executive. This Agreement shall become effective against the
Executive when one or more counterparts have been executed by the Executive and
delivered to the Ripplewood Shareholder. Each party need not sign the same
counterpart.
<PAGE>
14
SECTION 4.08. ASSIGNMENT. Except pursuant to Section 2.01(a) and (d),
neither this Agreement nor any of the rights, interests or obligations under
this Agreement shall be assigned, in whole or in part, by the Ripplewood
Shareholder without the prior written consent of the Executive or by the
Executive without the prior written consent of the Ripplewood Shareholder, and
any purported assignment without such consent shall be void. Subject to the
preceding sentences, this Agreement will be binding upon, inure to the benefit
of, and be enforceable by, the parties and their respective successors and
assigns.
SECTION 4.09. SPECIFIC PERFORMANCE. The parties hereby declare that
irreparable damage would occur as a result of the failure of any party hereto to
perform any of its obligations under this Agreement in accordance with the
specific terms hereof. Therefore, all parties hereto shall have the right to
specific performance of the obligations of the other parties under this
Agreement and if any party hereto shall institute any action or proceeding to
enforce the provisions hereof, any Person against whom such action or proceeding
is brought hereby waives the claim or defense therein that such party has or
have an adequate remedy at law exists. The right to specific performance shall
be in addition to any other remedy to which a party hereto may be entitled at
law or in equity.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the date first above written.
EAC III L.L.C.,
by RIPPLEWOOD PARTNERS, L.P.,
its Member,
by RIPPLEWOOD HOLDINGS L.L.C.,
its General Partner,
by /s/ Robert Lynch
--------------------------
Name: Robert Lynch
Title: Treasurer
by
--------------------------
Therese K. Crane
<PAGE>
14
Executive or by the Executive without the prior written consent of the
Ripplewood Shareholder, and any purported assignment without such consent shall
be void. Subject to the preceding sentences, this Agreement will be binding
upon, inure to the benefit of, and be enforceable by, the parties and their
respective successors and assigns.
SECTION 4.09. SPECIFIC PERFORMANCE. The parties hereby declare that
irreparable damage would occur as a result of the failure of any party hereto to
perform any of its obligations under this Agreement in accordance with the
specific terms hereof. Therefore, all parties hereto shall have the right to
specific performance of the obligations of the other parties under this
Agreement and if any party hereto shall institute any action or proceeding to
enforce the provisions hereof, any Person against whom such action or proceeding
is brought hereby waives the claim or defense therein that such party has or
have an adequate remedy at law exists. The right to specific performance shall
be in addition to any other remedy to which a party hereto may be entitled at
law or in equity.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the date first above written.
EAC III L.L.C.,
by RIPPLEWOOD PARTNERS, L.P.,
its Member,
by RIPPLEWOOD HOLDINGS L.L.C.,
its General Partner,
by /s/ President, JLC Learning
--------------------------
Name:
Title:
by /s/ Therese K. Crane
--------------------------
Therese K. Crane
<PAGE>
15
WRC MEDIA INC.,
by /s/ Charles Laurey
--------------------------
Name: Charles Laurey
Title: Secretary
<PAGE>
SCHEDULE I
SHAREHOLDER ADDRESS
EAC III L.L.C. c/o Ripplewood Holdings L.L.C.
One Rockefeller Plaza, 32nd Floor
New York, New York 10020
Attn: Mr. Timothy C. Collins
Mr. Charles L. Laurey
Fax: (212) 582-4110
with a copy to:
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, New York 10019
Attn: Peter S. Wilson, Esq.
Fax: (212) 765-0978
WRC Media Inc. c/o Ripplewood Holdings L.L.C.
One Rockefeller Plaza, 32nd Floor
New York, New York 10020
Attn: Mr. Timothy C. Collins
Mr. Charles L. Laurey
Fax: (212) 582-4110
with a copy to:
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, New York 10019
Attn: Peter S. Wilson, Esq.
Fax: (212) 765-0978
Therese K. Crane 634 Woodstream Court
Dallas, Tx 25740
Fax: 972-774-9370
<PAGE>
SHAREHOLDER AGREEMENT dated as of November 17,
1999 this "Agreement"), among EAC III L.L.C., a
Delaware limited liability company (the "Ripplewood
Shareholder"), each individual (each a "Management
Shareholder" and, collectively with the Ripplewood
Shareholder, the "Shareholders") listed on Schedule I
attached hereto ("Schedule I") and WRC Media Inc.
(formerly named EAC II Inc.), a Delaware corporation
(the "Company").
In consideration of the mutual agreements herein contained, and other
good and valuable consideration the receipt and adequacy of which are hereby
acknowledged, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS, USAGE AND EQUITY INVESTMENT
SECTION 1.01. DEFINED TERMS. The following terms shall have the
following meanings:
"Affiliate" means, with respect to any specified Person, any other
Person that directly or indirectly, through one or more intermediaries,
Controls, is Controlled by, or is under Common Control with, such specified
Person. For purposes of this definition, "Control (including, with correlative
meanings, the terms "Controlled by" and "under Common Control with"), as used
with respect to any Person, means the direct or indirect possession of the power
to direct or cause the direction of the management or policies of such Person,
whether through the ownership of voting securities, by contract or otherwise.
"Agreement" has the meaning set forth in the preamble to this
Agreement.
"Board of Directors" means the Board of Directors of the Company.
"Change in Control" has the meaning set forth in Section 1.03.
"Company Common Stock" has the meaning set forth in Section 1.03.
"Control" has the meaning set forth in Section 1.03.
<PAGE>
2
"Direct Transfer" means a Transfer (without giving effect to the
second sentence of the definition of "Transfer").
"Drag-Along Notice" has the meaning set forth in Section 2.01(f).
"Employment Agreement" means, with respect to each Management
Shareholder, the Employment Agreement between such Management Shareholder and
the Company or that subsidiary of the Company employing such Management
Shareholder.
"Executive" has the meaning set forth in the Executive Shareholder
Agreement.
"Executive Shareholder Agreement" means the Shareholder Agreement
dated as of November [ ], 1999, among the Ripplewood Shareholder, Martin Kenney
and the Company.
"Fair Market Value" means the fair market value of a Share, determined
in accordance with Section 2.01(g).
"GCL" means the General Corporation Law of the State of Delaware (8
Del. C. Section 101, ET SEQ.), as amended from time to time and any successor
statute thereto.
"Involuntary Transfer" means any Transfer by any Shareholder of any
Shares, or of any beneficial ownership thereof, upon death, appointment of a
guardian, default, foreclosure, forfeit, bankruptcy (voluntary or involuntary),
court order, levy of attachment, execution or otherwise than voluntarily by the
Transferor; PROVIDED that a Transfer required pursuant to Section 2.01(f) shall
not be deemed an Involuntary Transfer.
"Management Shareholder" has the meaning set forth in the preamble to
this Agreement.
"Permitted Transferee" means, (i) with respect to the Ripplewood
Shareholder, (A) Ripplewood or an Affiliate of Ripplewood, (B) a shareholder,
partner, member or employee of Ripplewood or any Affiliate of Ripplewood or (C)
an employee of the Company or a Subsidiary of the Company and (ii) with respect
to each Management Shareholder, (A) another Shareholder, (B) the Executive, (C)
the Company or (D) such Management Shareholder's spouse or lineal descendants or
any trust the beneficiaries of which include only such Management Shareholder's
spouse or lineal descendants.
<PAGE>
3
"Person" means any individual, corporation, partnership, trust,
association, limited liability company, joint venture, joint-stock company or
any other entity or organization, including a government or governmental agency.
"Preferred Stock" means the 15% Senior Exchangeable Preferred Stock
Due 2011, par value $0.01 per share, of the Company.
"Purchase Agreement" means the Redemption, Stock Purchase and
Recapitalization Agreement dated as of August 13, 1999, between PRIMEDIA Inc., a
Delaware corporation, and the Company, as amended.
"Ripplewood" means Ripplewood Partners, L.P.
"Ripplewood Shareholder" has the meaning set forth in the preamble to
this Agreement.
"Shares" means the shares of Company Common Stock held by a
Shareholder or the Executive.
"Shareholders" has the meaning set forth in the preamble to this
Agreement.
"Subsidiary" means, with respect to any specified Person, another
Person, an amount of the voting securities, other voting ownership or voting
partnership interests of which is sufficient to elect at least a majority of its
board of directors or other governing body (or, if there are no such voting
interests, 50% or more of the equity interests of which) is owned directly or
indirectly by such first Person or by another Subsidiary of such first Person.
"Tag-Along Notice" has the meaning set forth in Section 2.01(e).
"Third Party Purchaser" means, with respect to any proposed sale of
Shares by a Shareholder, a Person, other than an Affiliate of such Shareholder,
who offers to purchase from such Shareholder such Shares pursuant to a bona fide
written offer.
"Transfer" means any transfer, sale, conveyance, assignment, gift,
hypothecation, pledge or other disposition, whether voluntary or by operation of
law, of a Share. Notwithstanding the foregoing, any transfer, sale, conveyance,
assignment, gift, hypothecation, pledge or other disposition, whether voluntary
or by operation of law, of any stock, partnership interest, membership interest
or any other ownership interest in any entity that is a direct or
<PAGE>
4
indirect beneficial or record owner of any Share (including any
disposition by means of a merger, consolidation or similar transaction) or any
other transaction that has the economic effect of a Transfer of a Share
(including the designation of any beneficiary of any trust that is a direct or
indirect beneficial or record owner of any Share) shall be deemed to be a
Transfer of such Share by the Shareholder directly owning such Share.
"Transferee" means the transferee in a Transfer.
"Transferor" means the transferor in a Transfer.
SECTION 1.02. OTHER DEFINITION PROVISIONS. Wherever required by the
context of this Agreement, the singular shall include the plural, and vice
versa, and the masculine gender shall include the feminine and neuter genders,
and vice versa, and references to any agreement, document or instrument shall be
deemed to refer to such agreement, document or instrument as amended,
supplemented or modified from time to time. When used herein, (i) the word "or"
is not exclusive and (ii) the words "including," "includes," "included" and
"include" are deemed to be followed by the words "without limitation."
SECTION 1.03. (a) EQUITY INVESTMENT. On the Closing Date, pursuant
to each Management Shareholder's Employment Agreement, each Management
Shareholder will purchase from the Company at a price of $18.60065 per share
in cash the number of shares of common stock, par value $0.01 per share
("Company Common Stock"), of the Company set forth opposite such Management
Shareholder's name under the column entitled "Shares of Company Common Stock"
on Schedule I.
(b) VOTING AGREEMENTS. Each Management Shareholder hereby agrees with
the Ripplewood Shareholder that from and after the date hereof: (a) such
Management Shareholder shall vote all of the Shares held by such Management
Shareholder (including shares acquired after the date hereof) in the same manner
as the Shares held by the Ripplewood Shareholder are voted on all matters acted
upon at any annual or special meeting of shareholders or by written consent in
lieu of a meeting and (b) such Management Shareholder irrevocably constitutes
and appoints the Ripplewood Shareholder such Management Shareholder's proxy to
vote all of the Shares held by such Management Shareholder in the same manner as
the Shares held by the Ripplewood Shareholder are voted on all matters acted
upon at any annual or special meeting of shareholders or by written consent in
lieu of a meeting; PROVIDED that this
<PAGE>
5
Section 1.03(b) shall be inapplicable with respect to any matters which would
both adversely affect the rights of the Shares held by such Management
Shareholder and treat such Management Shareholder differently from other holders
of shares of Company Common Stock. The voting agreements and proxies granted
pursuant to this Section 1.03(b) are coupled with an interest and shall be valid
for the term of this Agreement. Each Management Shareholder represents that such
Management Shareholder has not granted and is not a party to any proxy, voting
trust or other agreement which in each case is inconsistent with or conflicts
with the provisions of this Agreement, and such Management Shareholder shall not
grant any proxy or become a party to any voting trust or other agreement which
in each case is inconsistent with or conflicts with the provisions of this
Agreement. The provisions of this Section 1.03(b) shall terminate as to any
Shares held by a Management Shareholder upon any Transfer of such Shares after,
or upon, completion of an initial public offering of shares of Company Common
Stock and the termination of any lock up period agreed to by such Management
Shareholder with the underwriters in connection therewith.
(c) OPTIONS. Each Management Shareholder is hereby granted a
nonqualified option to purchase that number of shares of Company Common Stock
set forth opposite such Management Shareholder's name under the column entitled
"Options" on Schedule I, at an exercise price per share of $18.60065 per share.
To the extent such Management Shareholder continues employment under the
Employment Agreement of such Management Shareholder, such option shall vest 33%
on December 31, 1999, 33% on December 31, 2000 and, if the Company renews such
Management Shareholder's Employment Agreement as set forth in Section 2 of such
Employment Agreement for an additional one-year period ending on December 31,
2002, 34% on December 31, 2001; PROVIDED that such option shall terminate in its
entirety in the event that such Management Shareholder's employment by the
Company or the applicable subsidiary of the Company is terminated by the
Company or such subsidiary with Good Cause (as defined in such Management
Shareholder's Employment Agreement) (other than pursuant to clause (v) thereof).
Such option shall vest immediately in the event that such Management
Shareholder's employment under such Employment Agreement is terminated (x)
pursuant to clause (v) of the definition of Good Cause in such Employment
Agreement or (y) prior to December 31, 2001 by the Company for any reason other
than Good Cause following a Change in Control (as defined below). Such
Management Shareholder may exercise the vested portion of such option either (i)
by notifying the Company of the number of shares of Company Common Stock
<PAGE>
6
to be purchased under such option and delivering with such notice an amount
equal to the aggregate exercise price for such number of shares in cash or (ii)
by notifying the Company that such Management Shareholder desires to make a
cashless exercise of such option with respect to a specified number of shares of
Company Common Stock, in which case such option shall be deemed exercised with
respect to such specified number of shares but such Management Shareholder shall
only be entitled to receive a number of shares of Company Common Stock equal to
the product of (A) such specified number multiplied by (B) the quotient of (1)
the aggregate Fair Market Value of such specified number of shares of Company
Common Stock (determined as of the date the Company receives such notice in
accordance with Section 2.01(g)) minus the aggregate exercise price for such
specified number of shares divided by (2) such aggregate Fair Market Value. Such
option shall not be transferable or assignable by such Management Shareholder,
otherwise than by will or the laws of descent and distribution, and no such
option shall be subject to execution, attachment or other similar process. In no
event shall any such option be exercisable on or after the tenth anniversary of
the Closing Date. In the event of changes in outstanding Company Common Stock by
reason of stock dividends, stock splits, reverse stock splits,
recapitalizations, reorganizations, mergers, consolidations, combinations or
other changes in capitalization occurring after the Closing Date, the number of
shares and exercise price under such option shall be equitably adjusted by the
Board of Directors of the Company. Any amount payable under such option shall be
subject to applicable withholding taxes. "CHANGE OF CONTROL" shall mean the
acquisition of direct or indirect Control of the Company by any Person (other
than the Ripplewood Shareholder, SGC Partners II LLC ("SGC") or any of their
Affiliates or any group (other than any group including the Ripplewood
Shareholder or SGC or any of their Affiliates).
(d) RULE 701. To the extent permitted by applicable law, the shares of
Company Common Stock to be issued to each Management Shareholder upon exercise
of the options granted to such Management Shareholder pursuant to Section
1.03(c) shall be offered and sold to such Management Shareholder pursuant to the
exemption from the registration requirements of the Securities Act of 1933, as
amended (the "Securities Act") provided for by Rule 701 ("Rule 701") of the
Securities Act.
<PAGE>
7
ARTICLE II
TRANSFERS OF SHARES; TRANSACTIONS
BETWEEN RIPPLEWOOD SHAREHOLDER AND THE COMPANY
SECTION 2.01. TRANSFERS OF THE COMPANY SHARES.
(a) GENERALLY. (i) No Shareholder may Transfer all or any portion of
its Shares (or any beneficial ownership thereof) unless (A) such Transfer is in
accordance with this Section 2.01, (B) in the case of a Direct Transfer, the
Transferee executes and delivers a counterpart of the signature page of this
Agreement (or other appropriate assumption agreement) in which the Transferee
agrees to be bound by the provisions of this Agreement to the same extent as the
Transferor and providing the address for notices of such Transferee and (C) the
Transferee executes and delivers any other agreements, documents or instruments
reasonably specified by the Board of Directors. Any Transfer made in violation
of this Section 2.01(a) shall be null and void and shall be subject to Section
2.01(d).
(ii) Whenever a Transfer is to be consummated by any Person on a
specified date under this Section 2.01, such Transfer shall take place at 10:00
a.m. Eastern Time on such date (or, if such date is not a business day, the next
following business day) at the principal office of Ripplewood, presently located
at One Rockefeller Plaza, New York, New York, or at such other time, date and
place as the Company and the parties to such Transfer may agree. The
consideration for such Transfer shall be paid by delivery to the applicable
Transferor of a certified or bank check made payable to such Transferor or by
wire transfer of immediately available funds to a bank account designated by
such Transferor, against due execution and delivery of the agreements, documents
and instruments specified in Section 2.01(a)(i), such other agreements,
documents and instruments as the parties to such Transfer may reasonably require
including certificates or other instruments representing the Shares so
purchased, appropriately endorsed by such Shareholder, free and clear of all
security interests, liens, claims, encumbrances, charges, options, restrictions
on transfer, proxies and voting and other agreements of whatever nature other
than those created hereunder.
(iii) The provisions of this Section 2.01, other than Section 2.01
(e), (f), (g), (h) and (i), shall terminate upon the completion of an initial
public offering of shares of Company Common Stock by the Company and the
<PAGE>
8
termination of any lockup period agreed to by the Management Shareholders with
the underwriters in connection therewith.
(b) TRANSFERS BY THE RIPPLEWOOD SHAREHOLDER. Subject to Section
2.01(a) and, with respect to a Transfer to any Person other than a Permitted
Transferee of the Ripplewood Shareholder, Section 2.01(e), the Ripplewood
Shareholder (and its Permitted Transferees) shall have the right to Transfer at
any time all or any portion of its Shares (including any beneficial ownership
thereof) to any Person without the prior consent of any Person.
(c) TRANSFERS BY OTHER SHAREHOLDERS. (i) Subject to Section 2.01(a),
any other Shareholder (and its Permitted Transferees) shall have the right to
Transfer at any time all or any portion of its Shares (including any beneficial
ownership thereof) to any of its Permitted Transferees without the prior consent
of any Person.
(ii) No Shareholder other than the Ripplewood Shareholder (or the
Ripplewood Shareholder's Permitted Transferees) shall have the right to Transfer
all or any portion of its Shares (including any beneficial ownership thereof) to
any Person other than another Shareholder or the Company except in accordance
with Section 2.01(a) and (A) pursuant to Section 2.01(c)(i), (e) or (f) or (B)
with the prior written consent of the Ripplewood Shareholder.
(d) INVOLUNTARY AND IMPERMISSIBLE TRANSFERS. If an Involuntary
Transfer or a Transfer in violation of this Agreement shall occur with respect
to any Shareholder other than the Ripplewood Shareholder and, in the case of a
Transfer in violation of this Agreement, such violation has not been cured
within 30 days after notice to the applicable Transferor or Transferee, the
Company shall give notice to the Ripplewood Shareholder, offering the Ripplewood
Shareholder (or its designee) the right, exercisable by delivery of written
notice to the Transferee with respect to such Involuntary Transfer or Transfer
in violation of this Agreement, within 90 days following the day on which such
notice is given, to purchase all of the Shares acquired by such Transferee at a
purchase price equal to, in the case of an Involuntary Transfer, 100% or, in the
case of a Transfer in violation of this Agreement, 90% of the Fair Market Value
thereof, determined in accordance with Section 2.01(g) as of the date of such
Transfer (or, if lower, as of the date of such determination). The closing date
of any purchase described in this Section 2.01 shall be on the date specified by
the Company that shall not be later than the 30th day after a determination of
the Fair Market Value of the Shares
<PAGE>
9
to be purchased is made. The Ripplewood Shareholder may assign its rights
under this Section 2.01(d) to any person.
(e) TAG-ALONG RIGHTS. If the Ripplewood Shareholder desires to
Transfer in excess of 5% of its Shares to a prospective Transferee (or
Transferees) other than to a Permitted Transferee of the Ripplewood Shareholder
and, after giving effect to such Transfer, the Ripplewood Shareholder shall have
Transferred in excess of 35% in the aggregate of its Shares to a Transferee (or
Transferees) other than Permitted Transferees of the Ripplewood Shareholder, the
Ripplewood Shareholder shall, as a condition to such Transfer, (i) provide a
notice to all other Shareholders in writing (a "Tag-Along Notice") of the
material terms of the proposed Transfer at least 15 days prior to such Transfer
and (ii) permit all other Shareholders (or cause all other Shareholders to be
permitted) to sell (either to the prospective Transferee of the Ripplewood
Shareholder's Shares or to another financially reputable Transferee reasonably
acceptable to such other Shareholders) the same portion of their respective
Shares as that Transferred by the Ripplewood Shareholder in the aggregate to
Transferees other than Permitted Transferees of the Ripplewood Shareholder
(after giving effect to such proposed Transfer) on the same terms and
conditions, subject to the same agreements and at the same price as the proposed
sale by the Ripplewood Shareholder, which sale shall take place on the date the
Ripplewood Shareholder's Shares (or such portion) are Transferred to such
Transferee (or Transferees). Each other Shareholder shall have five days from
the date of receipt of a Tag-Along Notice to exercise its right to sell pursuant
to clause (ii) above by delivering written notice to the Ripplewood Shareholder
of its intent to exercise such right. The right of the other Shareholders
to sell pursuant to clause (ii) above shall terminate if not exercised within
such five-day period. Each other Shareholder electing to exercise its right to
sell pursuant to clause (ii) shall share, on a pro rata basis, the legal,
investment banking and other expenses of the Ripplewood Shareholder incurred in
connection with such Transfer.
(f) DRAG-ALONG RIGHTS. If at any time the Ripplewood Shareholder
desires to Transfer all (or any portion in excess of 35%) of its Shares to any
Third Party Purchaser (or Purchasers), the Ripplewood Shareholder shall have the
right to require that all other Shareholders Transfer the same portion of their
respective Shares to such Third Party Purchaser (or Purchasers) on the same
terms and conditions, subject to the same agreements and at the same price as
the sale by the Ripplewood Shareholder. The Ripplewood Shareholder shall provide
a notice to all other
<PAGE>
10
Shareholders in writing (a "Drag-Along Notice") of such sale at least 10 days
prior to such Transfer, and the Drag-Along Notice shall identify such Third
Party Purchaser (or Purchasers), all material terms of the sale and the date of
closing. Upon the closing of any sale by the Ripplewood Shareholder of all (or
such portion) of its Shares as described in a Drag- Along Notice, such Third
Party Purchaser (or Purchasers) shall pay to each other Shareholder the
consideration payable to such Shareholder in connection with such sale of all
(or such portion) of its Shares to such Purchaser (or Purchasers), net of such
Shareholders' proportionate share of the legal, investment banking and other
expenses of the Ripplewood Shareholder incurred in connection with such sale,
and the Shares (or such portion) of all such other Shareholders shall be deemed
Transferred to such Third Party Purchaser (or Purchasers).
(g) FAIR MARKET VALUE. (i) If a determination of the Fair Market Value
of any shares of Company Common Stock is required by this Agreement when there
is no public trading market for the shares of Company Common Stock, such "Fair
Market Value" shall be such amount as is determined in good faith by the Board
of Directors as of the date such Fair Market Value is required to be determined
hereunder. In making a determination of such Fair Market Value, the Board of
Directors shall give due consideration to such factors as it deems appropriate,
including, without limitation, the earnings and certain other financial and
operating information of the Company and its subsidiaries in recent periods, its
potential value and that of its subsidiaries as a whole, its future prospects
and that of its subsidiaries and the industries in which they compete, its
history and management and that of its subsidiaries, the general condition of
the securities markets and the fair market value of securities of privately
owned companies (with transfer restrictions) engaged in businesses similar to
those of the Company and its subsidiaries, if any. The Fair Market Value, as
determined by the Board of Directors in good faith, shall be binding and
conclusive upon all parties hereto.
(ii) If a determination of the Fair Market Value of any shares of
Company Common Stock is required by this Agreement when there is a public
trading market for shares of Company Common Stock, such "Fair Market Value"
shall mean the average daily closing sales price of the shares of Company Common
Stock for the ten consecutive trading days preceding the date the Fair Market
Value of the shares of Company Common Stock is required to be determined
hereunder. The closing price for each day shall be the last reported sales price
regular way or, in case no such reported sale takes place on such day, the
average of the reported closing bid
<PAGE>
11
and asked prices regular way, in either case on the principal national
securities exchange on which the shares of Company Common Stock are listed and
admitted to trading, or, if not listed and admitted to trading on any such
exchange, on the NASDAQ National Market System, or, if not quoted on the
National Market System, the average of the closing bid and asked prices in the
over-the-counter market as furnished by any New York Stock Exchange member firm
selected from time to time by the Board of Directors for that purpose.
(h) COMPANY OPTION UPON TERMINATION. In the event that any Management
Shareholder's employment by the Company or the applicable subsidiary of the
Company is terminated for any reason, including the nonrenewal of such
Management Shareholder's Employment Agreement, the Company or its designees
shall have an option to purchase (the "Company Option") all or any portion of
(i) the Shares then held by such Management Shareholder (including any of such
Shares acquired upon exercise of the nonqualified option granted to such
Management Shareholder pursuant to Section 1.03(c)) at a purchase price equal to
the Fair Market Value of such Shares, as determined in accordance with Section
2.01(g) as of the date of such termination, and (ii) the nonqualified option
granted to such Management Shareholder pursuant to Section 1.03(c) at a purchase
price equal to the product of (A) the number of shares of Company Common Stock
with respect to which such option has vested and the Company has elected to
exercise the Company Option and (B) the greater of (1) the difference between
the Fair Market Value of a share of Company Common Stock (determined in
accordance with Section 2.01(g) as of the date of such termination) and
$18.60065 and (2) $0. The Company must exercise its rights arising under the
Company Option, if at all, within 90 days of such date of termination; PROVIDED
that, if such rights arise as a result of the death of a Management Shareholder,
such rights must be exercised by the Company, if at all, within 9 months of such
termination. If the Company elects to exercise the Company Option, the Company
shall within 90 days (9 months in the case of the death of a Management
Shareholder) of such date of termination give notice in writing to such
Management Shareholder of its election to exercise the Company Option, which
notice shall set forth the portion, if any, of the Shares and such nonqualified
option that the Company elects to purchase. The purchase of the Shares and such
nonqualified option shall take place on the date specified by the Company (not
later than the later of the twentieth business day following the receipt by such
Management Shareholder of the required notice from the Company and the
satisfaction of any legal requirements to the purchase of the Shares and such
nonqualified option).
<PAGE>
12
(i) MANAGEMENT SHAREHOLDER OPTION UPON TERMINATION. In the event that
(i) any Management Shareholder suffers from financial hardship, determined in
good faith by the Board of Directors or (ii) any Management Shareholder's
employment by the Company or the applicable subsidiary of the Company is
terminated (A) by the Company or such subsidiary other than with Good Cause (as
defined in such Management Shareholder's Employment Agreement) (other than
pursuant to clause (v) thereof) or (B) because of a notice of nonrenewal given
by the Company or such subsidiary, such Management Shareholder or, in the case
of termination of employment by death, such Management Shareholder's estate
shall have the right to require the Company to purchase all or any portion of
such Management Shareholder's Shares (other than, in the case of the foregoing
clause (i), any of such Shares acquired upon exercise of the nonqualified-option
granted to such Management Shareholder pursuant to Section 1.03(c) the exercise
date of which was within six months of the date that such Management Shareholder
makes a claim of financial hardship to the Company) at a purchase price equal to
the Fair Market Value of such Shares, determined as of the date of such
determination of financial hardship or termination in accordance with Section
2.01(g); PROVIDED that, if the Board of Directors determines in good faith that
the Company has insufficient cash flow, and cannot obtain third party financing
on terms reasonably acceptable to the Board of Directors, to purchase such
Management Shareholder's Shares for cash, the Company may purchase such
Management Shareholder's Shares in exchange for junior subordinated notes of the
Company which (1) bear interest at a variable rate per annum equal to The Chase
Manhattan Bank's prime lending rate per annum, payable quarterly in arrears, (2)
provide for the repayment in full of principal on the earlier of the fifth
anniversary of the issuance of such notes and the date on which the Board of
Directors determines in good faith that the Company has sufficient cash flow, or
can obtain third party financing on terms reasonably acceptable to the Board of
Directors, to repay in full such principal and (3) are otherwise on terms
reasonably acceptable to such Management Shareholder; PROVIDED FURTHER that, to
the extent that the Board of Directors reasonably determines that such purchase,
if made, would (x) cause the Company to be or remain in default under any
agreements with lenders, despite commercially reasonable efforts by the Company
to obtain consents or amendments necessary to permit such purchase, or (y)
conflict with the terms (including with respect to priority of payment) of the
Preferred Stock, the Company shall be relieved of its obligations to make such
purchase under this Section 2.01(i) while and to the extent such conditions
continue to exist. Such Management Shareholder or, if applicable, such
Management Shareholder's
<PAGE>
13
estate shall have 90 days from the date of such termination during which to give
notice in writing to the Company of its election to exercise or not to exercise
such right (unless such right arises as a result of the death of such Management
Shareholder, in which case such right must be exercised, if at all, within 9
months of such termination), which notice must set forth the portion, if any, of
the Shares that such Management Shareholder or, if applicable, such Management
Shareholder's estate elects to sell. If no such notice has been given within
such 90 days (or, if applicable, nine months), such Management Shareholder or,
if applicable, such Management Shareholder's estate shall be deemed to not have
exercised such option. Such Management Shareholder may withdraw his election to
exercise such right for any reason up until the time that such Management
Shareholder tenders to the Company, pursuant to this Section, any Shares held by
such Management Shareholder. The purchase of such Shares shall take place on or
prior to the 90th day, as determined by the Board of Directors, following the
receipt by the Company of such notice. Subject to any restriction in this
Agreement or any other agreement to which the Company or any of its Affiliates
are party, the Company may designate any other Person to fulfill its obligation
under this Section 2.01(i).
ARTICLE III
STOCK REGISTRATION; LEGEND; CAPITAL STOCK
SECTION 3.01. STOCK REGISTRATION. (a) Each Management Shareholder
hereby represents and warrants to the Ripplewood Shareholder and the Company
that:
(i) Such Management Shareholder has had access to all information that
such Management Shareholder deemed necessary to adequately evaluate whether
to purchase any shares of Company Common Stock;
(ii) Such Management Shareholder understands that the Company Common
Stock has not been registered under the Securities Act of 1933, as amended
(the "Securities Act"), and shares of Company Common Stock will be offered
and sold to such Management Shareholder (including upon exercise of stock
options) in reliance upon an exemption from the registration requirements
of the Securities Act afforded by Rule 701; and
(iii) any shares of Company Common Stock acquired by such Management
Shareholder shall be acquired only for such Management Shareholder's own
account, for
<PAGE>
14
investment purposes only and not with a view to its resale, distribution or
other disposition.
(b) Each Management Shareholder agrees that such Management
Shareholder will not offer, sell, transfer, pledge, hypothecate or otherwise
dispose of any Shares except:
(i) pursuant to an exemption from registration under the Securities
Act, as confirmed in a satisfactory opinion of legal counsel delivered to
the Company, and in accordance with any applicable laws of any state of the
United States governing the offer and sale of securities; or
(ii) pursuant to an effective registration statement under the
Securities Act (it being understood that the Company, the Ripplewood
Shareholder and their Affiliates are under no obligation to effect such
registration) and in accordance with any applicable state laws.
(c) In the event that the Company files a registration statement on
Form S-8 of the Securities and Exchange Commission, the Company shall, to the
extent permitted by applicable law, include in such registration statement
shares of Company Common Stock issuable upon exercise of the then unexercised
options that were granted to each Management Shareholder pursuant to Section
1.03(c) of this Agreement.
SECTION 3.02. LEGEND. Each Shareholder agrees that any and all
certificates representing such Shareholder's Shares will have inscribed
conspicuously on the front or back of such certificates the following legend:
"THE SHARES OF COMMON STOCK, PAR VALUE $.01 PER SHARE, OF WRC MEDIA INC.
REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO ONE OR MORE AGREEMENTS AMONG
SHAREHOLDERS OR AGREEMENTS BETWEEN SHAREHOLDERS AND WRC MEDIA INC. AND MAY NOT
BE SOLD OR OTHERWISE TRANSFERRED EXCEPT IN ACCORDANCE THEREWITH. COPIES OF SUCH
AGREEMENT OR AGREEMENTS MAY BE OBTAINED FROM THE SECRETARY OF WRC MEDIA INC. AT
THE PRINCIPAL EXECUTIVE OFFICES OF RIPPLEWOOD HOLDINGS L.L.C. THESE SHARES HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), AND MAY NOT BE REOFFERED OR RESOLD, DIRECTLY OR INDIRECTLY,
EXCEPT IN ACCORDANCE WITH THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OR
PURSUANT TO AN EXEMPTION THEREFROM AND IN ACCORDANCE WITH ANY APPLICABLE
SECURITIES LAWS OF ANY STATE OF THE UNITED STATES."
<PAGE>
15
SECTION 3.03. CAPITAL STOCK; PRICE. The Company hereby represents and
warrants to each Management Shareholder that: Immediately after giving effect to
the transactions specified in Section 1.03(a), the authorized capital stock of
the Company will consist of 20,000,000 shares of Company Common Stock, of which
6,855,853 shares will be issued and outstanding (including 4,848,635 shares
owned by the Ripplewood Shareholder) and 20,000,000 shares of Preferred Stock,
of which 3,000,000 shares will be issued and outstanding. Immediately after
giving effect to the transactions specified in Section 1.03(a), except for the
shares specified in the preceding sentence and shares reserved for issuance
pursuant to options granted to the Management Shareholders and to the Executive,
there will be no shares of capital stock or other equity securities of the
Company issued, reserved for issuance or outstanding. The purchase price per
share for the shares of Company Common Stock being acquired by the Management
Shareholders pursuant to Section 1.03(a) is the same as the purchase price per
share being paid by the Ripplewood Shareholder and other Persons who are
acquiring shares of Company Common Stock simultaneously with the Management
Shareholders.
ARTICLE IV
MISCELLANEOUS PROVISIONS
SECTION 4.01. ENTIRE AGREEMENT. This Agreement sets forth the entire
understanding among the parties relating to the subject matter contained herein
and merges all prior discussions among them. This Agreement is not intended to
confer upon any Person other than the parties hereto any rights or remedies
hereunder.
SECTION 4.02. AMENDMENTS. This Agreement may not be amended except by
an instrument in writing signed by the Ripplewood Shareholder and Management
Shareholders holding a majority of the Shares held by all Management
Shareholders.
SECTION 4.03. NOTICES. All notices and other communications required
or permitted by this Agreement shall be made in writing and any such notice or
communication shall be deemed delivered when delivered in person, transmitted by
telex or telecopier, confirmation of transmission received, or one business day
after it has been sent by a nationally recognized overnight courier, at the
address or addresses for notices to the recipient designated on Schedule II
attached hereto. Communications by telex or telecopier also shall be sent
concurrently by first class mail or overnight courier, but shall in any event be
effective as stated above. Any Shareholder or the Company may from time to time
change its
<PAGE>
16
address for notices under this Section 4.03 by giving at least five days' notice
of such changed address to the other Shareholders.
SECTION 4.04. INTERPRETATION. When a reference is made in this
Agreement to a Section, such reference shall be to a Section of this Agreement
unless otherwise indicated. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
SECTION 4.05. SEVERABILITY. If any one or more of the provisions
contained in this Agreement or in any document executed in connection herewith
shall be invalid, illegal or unenforceable in any respect under any applicable
law, the validity, legality and enforceability of the remaining provisions
contained herein shall not in any way be affected or impaired; PROVIDED,
HOWEVER, that in such case the parties hereto shall endeavor to amend or modify
this Agreement to achieve to the extent reasonably practicable the purpose of
the invalid provision.
SECTION 4.06. GOVERNING LAW. This Agreement and all actions
contemplated hereby shall be governed by, and construed and enforced in
accordance with, the laws of the State of New York (without regard to conflict
of laws principles), except to the extent that the provisions of the GCL may be
mandatorily applicable.
SECTION 4.07. COUNTERPARTS. This Agreement may be executed in one or
more counterparts, all of which shall be considered one and the same agreement.
This Agreement shall become effective against the Ripplewood Shareholder when
one or more counterparts have been signed by the Ripplewood Shareholder and
delivered to each other Shareholder. This Agreement shall become effective
against any other Shareholder when one or more counterparts have been executed
by such Shareholder and delivered to the Ripplewood Shareholder. Each party need
not sign the same counterpart.
SECTION 4.08. ASSIGNMENT. Except pursuant to Section 2.01(a),(d),(h)
and (i) neither this Agreement nor any of the rights, interests or obligations
under this Agreement shall be assigned, in whole or in part, by the Ripplewood
Shareholder without the prior written consent of the Ripplewood Shareholder and
Management Shareholders holding a majority of the Shares held by all Management
Shareholders or by any other Shareholder without the prior written consent of
the Ripplewood Shareholder, and any purported assignment without such consent
shall be void. Subject to the preceding sentences, this Agreement will be
<PAGE>
17
binding upon, inure to the benefit of, and be enforceable by, the parties and
their respective successors and assigns.
SECTION 4.09. SPECIFIC PERFORMANCE. The parties hereby declare that
irreparable damage would occur as a result of the failure of any party hereto
to perform any of its obligations under this Agreement in accordance with the
specific terms hereof. Therefore, all parties hereto shall have the right to
specific performance of the obligations of the other parties under this
Agreement and if any party hereto shall institute any action or proceeding to
enforce the provisions hereof, any Person against whom such action or
proceeding is brought hereby waives the claim or defense therein that such
party has or have an adequate remedy at law exists. The right to specific
performance shall be in addition to any other remedy to which a party hereto
may be entitled at law or in equity.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed as of the date first above written.
EAC III L.L.C.,
by RIPPLEWOOD PARTNERS, L.P.,
its Member,
by RIPPLEWOOD HOLDINGS L.L.C.,
its General Partner,
by /s/ Robert Lynch
------------------------
Name: Robert Lynch
Title: Treasurer
------------------------
Al DeSeta
------------------------
Robert Jackson
------------------------
Lawrence Rutkowski
------------------------
Peter Bergen
<PAGE>
17
binding upon, inure to the benefit of, and be enforceable by, the parties and
their respective successors and assigns.
SECTION 4.09. SPECIFIC PERFORMANCE. The parties hereby declare that
irreparable damage would occur as a result of the failure of any party hereto to
perform any of its obligations under this Agreement in accordance with the
specific terms hereof. Therefore, all parties hereto shall have the right to
specific performance of the obligations of the other parties under this
Agreement and if any party hereto shall institute any action or proceeding to
enforce the provisions hereof, any Person against whom such action or proceeding
is brought hereby waives the claim or defense therein that such party has or
have an adequate remedy at law exists. The right to specific performance shall
be in addition to any other remedy to which a party hereto may be entitled at
law or in equity.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the date first above written.
EAC III L.L.C.,
by RIPPLEWOOD PARTNERS, L.P.,
its Member,
by RIPPLEWOOD HOLDINGS L.L.C.,
its General Partner,
by
------------------------
Name:
Title:
/s/ Al DeSeta
------------------------
Al DeSeta
------------------------
Robert Jackson
------------------------
Lawrence Rutkowski
------------------------
Peter Bergen
<PAGE>
17
binding upon, inure to the benefit of, and be enforceable by, the parties and
their respective successors and assigns.
SECTION 4.09. SPECIFIC PERFORMANCE. The parties hereby declare that
irreparable damage would occur as a result of the failure of any party hereto to
perform any of its obligations under this Agreement in accordance with the
specific terms hereof. Therefore, all parties hereto shall have the right to
specific performance of the obligations of the other parties under this
Agreement and if any party hereto shall institute any action or proceeding to
enforce the provisions hereof, any Person against whom such action or proceeding
is brought hereby waives the claim or defense therein that such party has or
have an adequate remedy at law exists. The right to specific performance shall
be in addition to any other remedy to which a party hereto may be entitled at
law or in equity.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the date first above written.
EAC III L.L.C.,
by RIPPLEWOOD PARTNERS, L.P.,
its Member,
by RIPPLEWOOD HOLDINGS L.L.C.,
its General Partner,
by
------------------------
Name:
Title:
------------------------
Al DeSeta
/s/ Robert Jackson
------------------------
Robert Jackson
------------------------
Lawrence Rutkowski
------------------------
Peter Bergen
<PAGE>
17
binding upon, inure to the benefit of, and be enforceable by, the parties and
their respective successors and assigns.
SECTION 4.09. SPECIFIC PERFORMANCE. The parties hereby declare that
irreparable damage would occur as a result of the failure of any party hereto to
perform any of its obligations under this Agreement in accordance with the
specific terms hereof. Therefore, all parties hereto shall have the right to
specific performance of the obligations of the other parties under this
Agreement and if any party hereto shall institute any action or proceeding to
enforce the provisions hereof, any Person against whom such action or proceeding
is brought hereby waives the claim or defense therein that such party has or
have an adequate remedy at law exists. The right to specific performance shall
be in addition to any other remedy to which a party hereto may be entitled at
law or in equity.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the date first above written.
EAC III L.L.C.,
by RIPPLEWOOD PARTNERS, L.P.,
its Member,
by RIPPLEWOOD HOLDINGS L.L.C.,
its General Partner,
by
------------------------
Name:
Title:
------------------------
Al DeSeta
------------------------
Robert Jackson
/s/ Larry Rutkowski
------------------------
Larry Rutkowski
------------------------
Peter Bergen
<PAGE>
17
binding upon, inure to the benefit of, and be enforceable by, the parties and
their respective successors and assigns.
SECTION 4.09. SPECIFIC PERFORMANCE. The parties hereby declare that
irreparable damage would occur as a result of the failure of any party hereto to
perform any of its obligations under this Agreement in accordance with the
specific terms hereof. Therefore, all parties hereto shall have the right to
specific performance of the obligations of the other parties under this
Agreement and if any party hereto shall institute any action or proceeding to
enforce the provisions hereof, any Person against whom such action or proceeding
is brought hereby waives the claim or defense therein that such party has or
have an adequate remedy at law exists. The right to specific performance shall
be in addition to any other remedy to which a party hereto may be entitled at
law or in equity.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the date first above written.
EAC III L.L.C.,
by RIPPLEWOOD PARTNERS, L.P.,
its Member,
by RIPPLEWOOD HOLDINGS L.L.C.,
its General Partner,
by
------------------------
Name:
Title:
------------------------
Al DeSeta
------------------------
Robert Jackson
------------------------
Larry Rutkowski
/s/ Peter Bergen
------------------------
Peter Bergen
<PAGE>
18
/s/ Kenneth Slivken
------------------------
Kenneth Slivken
WRC MEDIA INC.,
by
-----------------------
Name:
Title:
<PAGE>
18
------------------------
Kenneth Slivken
WRC MEDIA INC.,
by /s/ Charles Laurey
-----------------------
Name: Charles Laurey
Title: Secretary
<PAGE>
SCHEDULE I
<TABLE>
<CAPTION>
Shareholder Shares Options
- --------------- ------ -------
<S> <C> <C>
Peter Bergen 8,064 5,376
Larry Rutkowski 12,096 8,064
Al DeSeta 11,559 7,706
Robert Jackson 10,752 7,168
Kenneth Slivken(1) 2,688 1,792
</TABLE>
- ----------------
(1) In the event that Slivken completes the purchase of Shares pursuant
to the terms of his Employment Agreement, the number of Shares listed opposite
his name on this Schedule I shall be increased to 5,376 and the number of
Options listed opposite his name on this Schedule I shall be increased to 3,584.
<PAGE>
SCHEDULE II
<TABLE>
<CAPTION>
Shareholder Address
- ------------- -------
<S> <C>
EAC III L.L.C. c/o Ripplewood Holdings L.L.C.
One Rockefeller Plaza, 32nd Floor
New York, New York 10020
Attn: Mr. Timothy C. Collins
Mr. Charles L. Laurey
Fax: (212) 582-4110
with a copy to:
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, New York 10019
Attn: Peter S. Wilson, Esq.
Fax: (212) 765-0978
WRC Media Inc. c/o Ripplewood Holdings L.L.C.
One Rockefeller Plaza, 32nd Floor
New York, New York 10020
Attn: Mr. Timothy C. Collins
Mr. Charles L. Laurey
Fax: (212) 582-4110
with a copy to:
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, New York 10019
Attn: Peter S. Wilson, Esq.
Fax: (212) 765-0978
Mr. Al DeSeta 25 Rutherford Road
Berkeley Heights, NJ 07922
Fax: (201) 529-6909
with a copy to:
Rubin, Baum, Levin, Constant &
Friedman
30 Rockefeller Plaza
New York, NY 10312
Attn: Mr. Robert J. Berowitz
Fax: (212) 698-7825
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Mr. Robert Jackson 20 Churchill Road
Rye Brook, NY 10573
Fax: (212) 745-1214
with a copy to:
Rubin, Baum, Levin, Constant &
Friedman
30 Rockefeller Plaza
New York, NY 10312
Attn: Mr. Robert J. Berowitz
Fax: (212) 698-7825
Mr. Larry Rutkowski 5664 Erik Lane
Shoreville, MN 55126
Fax: (612) 783-5505
with a copy to:
Rubin, Baum, Levin, Constant &
Friedman
30 Rockefeller Plaza
New York, NY 10312
Attn: Mr. Robert J. Berowitz
Fax: (212) 698-7825
Mr. Peter Bergen 210 Indian Waters Drive
New Canaan, CT 06840
Fax: (203) 705-1667
with a copy to:
Rubin, Baum, Levin, Constant &
Friedman
30 Rockefeller Plaza
New York, NY 10312
Attn: Mr. Robert J. Berowitz
Fax: (212) 698-7825
Mr. Kenneth Slivken 334 West 86th Street #6C
New York, NY 10024
Fax: (212) 745-1214
with a copy to:
Rubin, Baum, Levin, Constant &
Friedman
30 Rockefeller Plaza
New York, NY 10312
Attn: Mr. Robert J. Berowitz
Fax: (212) 698-7825
</TABLE>
<PAGE>
SHAREHOLDER AGREEMENT dated as of November 17,
1999 (this "Agreement"), among EAC III L.L.C., a
Delaware limited liability company (the "Ripplewood
Shareholder"), Martin Kenney (the "Executive") and
WRC Media Inc. (formerly named "EAC II Inc."), a
Delaware corporation (the "Company").
In consideration of the mutual agreements herein contained, and other
good and valuable consideration the receipt and adequacy of which are hereby
acknowledged, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS, USAGE AND EQUITY INVESTMENT
SECTION 1.01. DEFINED TERMS. The following terms shall have the
following meanings:
"Affiliate" means, with respect to any specified Person, any other
Person that directly or indirectly, through one or more intermediaries,
controls, is controlled by, or is under common control with, such specified
Person. For purposes of this definition, "control" (including, with correlative
meanings, the terms "controlled by" and "under common control with"), as used
with respect to any Person, means the direct or indirect possession of the power
to direct or cause the direction of the management or policies of such Person,
whether through the ownership of voting securities, by contract or otherwise.
"Agreement" has the meaning set forth in the preamble to this
Agreement.
"Board of Directors" means the Board of Directors of the Company.
"Company" has the meaning set forth in the preamble to this Agreement.
"Company Common Stock" has the meaning set forth in Section 1.03.
"Direct Transfer" means a Transfer (without giving effect to the
second sentence of the definition of "Transfer").
<PAGE>
2
"Drag-Along Notice" has the meaning set forth in Section 2.01(f).
"Employment Agreement" means the Employment Agreement dated as of the
date hereof among the Company, the Ripplewood Shareholder, JLC Learning
Corporation and the Executive.
"Executive" has the meaning set forth in the preamble to this
agreement.
"Fair Market Value" means the fair market value of a Share, determined
in accordance with Section 2.01(g).
"GCL" means the General Corporation Law of the State of Delaware (8
Del. C. Section 101, ET SEQ.), as amended from time to time and any successor
statute thereto.
"Involuntary Transfer" means any Transfer by the Executive or the
Ripplewood Shareholder of any Shares, or of any beneficial ownership thereof,
upon death, appointment of a guardian, default, foreclosure, forfeit, bankruptcy
(voluntary or involuntary), court order, levy of attachment, execution or
otherwise than voluntarily by the Transferor; PROVIDED that a Transfer required
pursuant to Section 2.01(f) shall not be deemed an Involuntary Transfer.
"Management Shareholder Agreement" means the Shareholder Agreement
dated as of November , 1999, among EAC III L.L.C., the Management Shareholders
and the Company.
"Management Shareholders" has the meaning set forth in the Management
Shareholder Agreement.
"Permitted Transferee" means, (i) with respect to the Ripplewood
Shareholder, (A) Ripplewood or an Affiliate of Ripplewood, (B) a shareholder,
partner, member or employee of Ripplewood or any Affiliate of Ripplewood or (C)
an employee of the Company or a Subsidiary of the Company and (ii) with respect
to the Executive, (A) the Management Shareholders (B) the Company or (c) the
Executive's spouse or lineal descendants or any trust the beneficiaries of which
include only the Executive's spouse or lineal descendants.
"Person" means any individual, corporation, partnership, trust,
association, limited liability company, joint venture, joint-stock company or
any other entity or organization, including a government or governmental agency.
"Preferred Stock" means the 15% Senior Exchangeable Preferred Stock
Due 2011, par value $0.01 per share, of the Company.
<PAGE>
3
"Purchase Agreement" means the Redemption, Stock Purchase and
Recapitalization Agreement dated as of August 13, 1999 between PRIMEDIA Inc., a
Delaware corporation, and the Company, as amended.
"Ripplewood" means Ripplewood Partners, L.P.
"Ripplewood Shareholder" has the meaning set forth in the preamble to
this Agreement.
"Shareholders" means the Ripplewood Shareholder and the Executive.
"Shares" means the shares of Company Common Stock held by the
Shareholders or the Permitted Transferees.
"Subsidiary" means, with respect to any specified Person, another
Person, an amount of the voting securities, other voting ownership or voting
partnership interests of which is sufficient to elect at least a majority of its
board of directors or other governing body (or, if there are no such voting
interests, 50% or more of the equity interests of which) is owned directly or
indirectly by such first Person or by another Subsidiary of such first Person.
"Tag-Along Notice" has the meaning set forth in Section 2.01(e).
"Third Party Purchaser" means, with respect to any proposed sale of
Shares by the Ripplewood Shareholder or the Executive, a Person, other than an
Affiliate of the Ripplewood Shareholder or the Executive, who offers to purchase
from the Ripplewood Shareholder or the Executive such Shares pursuant to a bona
fide written offer.
"Transfer" means any transfer, sale, conveyance, assignment, gift,
hypothecation, pledge or other disposition, whether voluntary or by operation of
law, of a Share. Notwithstanding the foregoing, any transfer, sale, conveyance,
assignment, gift, hypothecation, pledge or other disposition, whether voluntary
or by operation of law, of any stock, partnership interest, membership interest
or any other ownership interest in any entity that is a direct or indirect
beneficial or record owner of any Share (including any disposition by means of a
merger, consolidation or similar transaction) or any other transaction that has
the economic effect of a Transfer of a Share (including the designation of any
beneficiary of any trust that is a direct or indirect beneficial or record owner
of any Share) shall be deemed to be a Transfer of such Share by the Shareholder
directly owning such Share.
<PAGE>
4
"Transferee" means the transferee in a Transfer.
"Transferor" means the transferor in a Transfer.
SECTION 1.02. OTHER DEFINITION PROVISIONS. Wherever required by the
context of this Agreement, the singular shall include the plural, and vice
versa, and the masculine gender shall include the feminine and neuter genders,
and vice versa, and references to any agreement, document or instrument shall be
deemed to refer to such agreement, document or instrument as amended,
supplemented or modified from time to time. When used herein, (i) the word "or"
is not exclusive and (ii) the words "including," "includes," "included" and
"include" are deemed to be followed by the words "without limitation."
SECTION 1.03. (a) EQUITY INVESTMENT. On the Closing Date, pursuant to
the Employment Agreement, the Executive will purchase from the Company at a
price of $18.60065 per share in cash 16,128 shares of common stock, par value
$0.01 per share ("Company Common Stock"), of the Company.
(b) VOTING AGREEMENTS. The Executive hereby agrees with the Ripplewood
Shareholder that from and after the date hereof: (a) the Executive shall vote
all of the Shares held by the Executive (including shares acquired after the
date hereof) in the same manner as the Shares held by the Ripplewood Shareholder
are voted on all matters acted upon at any annual or special meeting of
shareholders of the Company or by written consent in lieu of a meeting and (b)
the Executive irrevocably constitutes and appoints the Ripplewood Shareholder
the Executive's proxy to vote all of the Shares held by the Executive in the
same manner as the Shares held by the Ripplewood Shareholder are voted on all
matters acted upon at any annual or special meeting of shareholders of the
Company or by written consent in lieu of a meeting; PROVIDED that this Section
1.03(b) shall be inapplicable with respect to any matters which would both
adversely affect the rights of the Shares held by the Executive and treat the
Executive differently from other holders of shares of Company Common Stock. The
voting agreements and proxies granted pursuant to this Section 1.03(b) are
coupled with an interest and shall be valid for the term of this Agreement. The
Executive represents that the Executive has not granted and is not a party to
any proxy, voting trust or other agreement which in each case is inconsistent
with or conflicts with the provisions of this Agreement, and the Executive shall
not grant any proxy or become a party to any voting trust or
<PAGE>
5
other agreement which in each case is inconsistent with or conflicts with the
provisions of this Agreement.
(c) OPTIONS. To the extent permitted by applicable law, the shares of
Company Common Stock to be issued to the Executive upon exercise of the options
granted to the Executive pursuant to the Employment Agreement shall be offered
and sold to the Executive pursuant to the exemption from the registration
requirements of the Securities Act of 1933, as amended (the "Securities Act")
provided for by Rule 701 of the Securities Act ("Rule 701").
ARTICLE II
TRANSFERS OF SHARES; TRANSACTIONS
BETWEEN RIPPLEWOOD SHAREHOLDER AND THE COMPANY
SECTION 2.01. TRANSFERS OF THE COMPANY SHARES.
(a) GENERALLY. (i) Neither the Ripplewood Shareholder nor the
Executive may Transfer all or any portion of its Shares (or any beneficial
ownership thereof) unless (A) such Transfer is in accordance with this Section
2.01, (B) in the case of a Direct Transfer, the Transferee executes and delivers
a counterpart of the signature page of this Agreement (or other appropriate
assumption agreement) in which the Transferee agrees to be bound by the
provisions of this Agreement to the same extent as the Transferor and providing
the address for notices of such Transferee and (C) the Transferee executes and
delivers any other agreements, documents or instruments reasonably specified by
the Board of Directors. Any Transfer made in violation of this Section 2.01(a)
shall be null and void and shall be subject to Section 2.01(d).
(ii) Whenever a Transfer is to be consummated by any Person on a
specified date under this Section 2.01, such Transfer shall take place at 10:00
a.m. Eastern Time on such date (or, if such date is not a business day, the next
following business day) at the principal office of Ripplewood, presently located
at One Rockefeller Plaza, New York, New York, or at such other time, date and
place as the Company and the parties to such Transfer may agree. The
consideration for such Transfer shall be paid by delivery to the applicable
Transferor of a certified or bank check made payable to such Transferor or by
wire transfer of immediately available funds to a bank account designated by
such Transferor, against due execution and delivery of the agreements, documents
and instruments specified in Section 2.01(a)(i), such other agreements,
documents and
<PAGE>
6
instruments as the parties to such Transfer may reasonably require including
certificates or other instruments representing the Shares so purchased,
appropriately endorsed by such shareholder of the Company, free and clear of all
security interests, liens, claims, encumbrances, charges, options, restrictions
on transfer, proxies and voting and other agreements of whatever nature other
than those created hereunder.
(iii) The provisions of this Section 2.01, other than Section 2.01(d),
(e), (f), (g), (h) and (i), shall terminate upon the completion of an initial
public offering of shares of Company Common Stock by the Company and the
termination of any lockup period agreed to with underwriters in connection
therewith.
(b) TRANSFERS BY THE RIPPLEWOOD SHAREHOLDER. Subject to Section
2.01(a) and, with respect to a Transfer to any Person other than a Permitted
Transferee of the Ripplewood Shareholder, Section 2.01(e), the Ripplewood
Shareholder (and its Permitted Transferees) shall have the right to Transfer at
any time all or any portion of its Shares (including any beneficial ownership
thereof) to any Person without the prior consent of any Person.
(c) TRANSFERS BY THE EXECUTIVE. (i) Subject to Section 2.01(a), the
Executive (and his Permitted Transferees) shall have the right to Transfer at
any time all or any portion of his Shares (including any beneficial ownership
thereof) to any of his Permitted Transferees without the prior consent of any
Person.
(ii) The Executive may not Transfer all or any portion of his Shares
(including any beneficial ownership thereof) to any Person other than the
Management Shareholders or the Company except in accordance with Section 2.01(a)
and (A) pursuant to Section 2.01(c)(i), (e) or (f) or (B) with the prior written
consent of the Ripplewood Shareholder.
(d) INVOLUNTARY AND IMPERMISSIBLE TRANSFERS. If an Involuntary
Transfer or a Transfer in violation of this Agreement shall occur with respect
to the Executive and, in the case of a Transfer in violation of this Agreement,
such violation has not been cured within 30 days after notice to the applicable
Transferor or Transferee, the Company shall give notice to the Ripplewood
Shareholder, offering the Ripplewood Shareholder (or its designee) the right,
exercisable by delivery of written notice to the Transferee with respect to such
Involuntary Transfer or Transfer in violation of this Agreement, within 90 days
following the day on which such notice is given, to purchase all of the Shares
<PAGE>
7
acquired by such Transferee at a purchase price equal to, in the case of an
Involuntary Transfer, 100% or, in the case of a Transfer in violation of this
Agreement, 90% of the Fair Market Value thereof, determined in accordance with
Section 2.01(g) as of the date of such Transfer (or, if lower, as of the date of
such determination). The closing date of any purchase described in this Section
2.01 shall be on the date specified by the Company that shall not be later than
the 30th day after a determination of the Fair Market Value of the Shares to be
purchased is made. The Ripplewood Shareholder may assign its rights under this
Section 2.01(d) to any person.
(e) TAG-ALONG RIGHTS. If the Ripplewood Shareholder desires to
Transfer in excess of 5% of its Shares to a prospective Transferee (or
Transferees) other than to a Permitted Transferee of the Ripplewood Shareholder
and, after giving effect to such Transfer, the Ripplewood Shareholder shall have
Transferred in excess of 35% in the aggregate of its Shares to a Transferee (or
Transferees) other than Permitted Transferees of the Ripplewood Shareholder, the
Ripplewood Shareholder shall, as a condition to such Transfer, (i) provide a
notice to the Executive in writing (a "Tag-Along Notice") of the material terms
of the proposed Transfer at least 15 days prior to such Transfer and (ii) permit
the Executive (or cause the Executive to be permitted) to sell (either to the
prospective Transferee of the Ripplewood Shareholder's Shares or to another
financially reputable Transferee reasonably acceptable to the Executive) the
same portion of his respective Shares as that Transferred by the Ripplewood
Shareholder in the aggregate to Transferees other than Permitted Transferees of
the Ripplewood Shareholder (after giving effect to such proposed Transfer) on
the same terms and conditions, subject to the same agreements and at the same
price as the proposed sale by the Ripplewood Shareholder, which sale shall take
place on the date the Ripplewood Shareholder's Shares (or such portion) are
Transferred to such Transferee (or Transferees). The Executive shall have five
days from the date of receipt of a Tag-Along Notice to exercise his right to
sell pursuant to clause (ii) above by delivering written notice to the
Ripplewood Shareholder of his intent to exercise such right. The right of the
Executive to sell pursuant to clause (ii) above shall terminate if not exercised
within such five-day period. If the Executive elects to exercise his right to
sell pursuant to clause (ii) he shall share, on a pro rata basis, the legal,
investment banking and other expenses of the Ripplewood Shareholder incurred in
connection with such Transfer.
<PAGE>
8
(f) DRAG-ALONG RIGHTS. If at any time the Ripplewood Shareholder
desires to Transfer all (or any portion in excess of 35%) of its Shares to any
Third Party Purchaser (or Purchasers), the Ripplewood Shareholder shall have the
right to require that the Executive Transfer the same portion of his respective
Shares to such Third Party Purchaser (or Purchasers) on the same terms and
conditions, subject to the same agreements and at the same price as the sale by
the Ripplewood Shareholder. The Ripplewood Shareholder shall provide a notice to
the Executive in writing (a "Drag-Along Notice") of such sale at least 10 days
prior to such Transfer, and the Drag- Along Notice shall identify such Third
Party Purchaser (or Purchasers), all material terms of the sale and the date of
closing. Upon the closing of any sale by the Ripplewood Shareholder of all (or
such portion) of its Shares as described in a Drag-Along Notice, such Third
Party Purchaser (or Purchasers) shall pay to the Executive the consideration
payable to the Executive in connection with such sale of all (or such portion)
of his Shares to such Purchaser (or Purchasers), net of the Executive's
proportionate share of the legal, investment banking and other expenses of the
Ripplewood Shareholder incurred in connection with such sale, and the Shares (or
such portion) of the Executive shall be deemed Transferred to such Third Party
Purchaser (or Purchasers).
(g) FAIR MARKET VALUE. (i) If a determination of the Fair Market Value
of any shares of Company Common Stock is required by this Agreement when there
is no public trading market for the shares of Company Common Stock, such "Fair
Market Value" shall be such amount as is determined in good faith by the Board
of Directors as of the date such Fair Market Value is required to be determined
hereunder. In making a determination of such Fair Market Value, the Board of
Directors shall give due consideration to such factors as it deems appropriate,
including, without limitation, the earnings and certain other financial and
operating information of the Company and its subsidiaries in recent periods, its
potential value and that of its subsidiaries as a whole, its future prospects
and that of its subsidiaries and the industries in which they compete, its
history and management and that of its subsidiaries, the general condition of
the securities markets and the fair market value of securities of privately
owned companies (with transfer restrictions) engaged in businesses similar to
those of the Company and its subsidiaries, if any. The Fair Market Value, as
determined by the Board of Directors in good faith, shall be binding and
conclusive upon all parties hereto.
<PAGE>
9
(ii) If a determination of the Fair Market Value of any shares of
Company Common Stock is required by this Agreement when there is a public
trading market for shares of Company Common Stock, such "Fair Market Value"
shall mean the average daily closing sales price of the shares of Company Common
Stock for the ten consecutive trading days preceding the date the Fair Market
Value of the shares of Company Common Stock is required to be determined
hereunder. The closing price for each day shall be the last reported sales price
regular way or, in case no such reported sale takes place on such day, the
average of the reported closing bid and asked prices regular way, in either case
on the principal national securities exchange on which the shares of Company
Common Stock are listed and admitted to trading, or, if not listed and admitted
to trading on any such exchange, on the NASDAQ National Market System, or, if
not quoted on the National Market System, the average of the closing bid and
asked prices in the over-the-counter market as furnished by any New York Stock
Exchange member firm selected from time to time by the Board of Directors for
that purpose.
ARTICLE III
STOCK REGISTRATION; LEGEND; CAPITAL STOCK
SECTION 3.01. STOCK REGISTRATION. (a) The Executive hereby represents
and warrants to the Ripplewood Shareholder and the Company that:
(i) The Executive has had access to all information that the
Executive deemed necessary to adequately evaluate whether to purchase any
shares of Company Common Stock;
(ii) The Executive understands that the Company Common Stock has not
been registered under the Securities Act and shares of Company Common Stock
will be sold to the Executive in reliance upon an exemption from the
registration requirements of the Securities Act afforded by Rule 701; and
(iii) any shares of Company Common Stock acquired by the Executive
shall be acquired only for the Executive's own account, for investment
purposes only and not with a view to its resale, distribution or other
disposition.
<PAGE>
10
(b) The Executive agrees that the Executive will not offer, sell,
transfer, pledge, hypothecate or otherwise dispose of any Shares except:
(i) pursuant to an exemption from registration under the Securities
Act, as confirmed in a satisfactory opinion of legal counsel delivered to
the Company, and in accordance with any applicable laws of any state of the
United States governing the offer and sale of securities; or
(ii) pursuant to an effective registration statement under the
Securities Act (it being understood that the Company, the Ripplewood
Shareholder and their Affiliates are under no obligation to effect such
registration) and in accordance with any applicable state laws.
(c) In the event that the Company files a registration statement on
Form S-8 of the Securities and Exchange Commission, the Company shall, to the
extent permitted by applicable law, include in such registration statement the
shares of Company Common Stock issuable upon exercise of the then unexercised
options that were granted to the Executive pursuant to Section 9 of the
Employment Agreement.
SECTION 3.02. LEGEND. The Executive agrees that any and all
certificates representing the Executive's Shares will have inscribed
conspicuously on the front or back of such certificates the following legend:
"THE SHARES OF COMMON STOCK, PAR VALUE $0.01 PER SHARE, OF WRC MEDIA INC.
REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO ONE OR MORE AGREEMENTS AMONG
SHAREHOLDERS OR AGREEMENTS BETWEEN SHAREHOLDERS AND WRC MEDIA INC. AND MAY NOT
BE SOLD OR OTHERWISE TRANSFERRED EXCEPT IN ACCORDANCE THEREWITH. COPIES OF SUCH
AGREEMENT OR AGREEMENTS MAY BE OBTAINED FROM THE SECRETARY OF WRC MEDIA INC. AT
THE PRINCIPAL EXECUTIVE OFFICES OF RIPPLEWOOD HOLDINGS L.L.C. THESE SHARES HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), AND MAY NOT BE REOFFERED OR RESOLD, DIRECTLY OR INDIRECTLY,
EXCEPT IN ACCORDANCE WITH THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OR
PURSUANT TO AN EXEMPTION THEREFROM AND IN ACCORDANCE WITH ANY APPLICABLE
SECURITIES LAWS OF ANY STATE OF THE UNITED STATES."
SECTION 3.03. CAPITAL STOCK; PRICE. The Company hereby represents and
warrants to the Executive that: the authorized capital stock of the Company will
consist of 20,000,000 shares of Company Common Stock, of which
<PAGE>
11
6,855,853 shares will be issued and outstanding and 20,000,000 shares of
Preferred Stock, of which 3,000,000 shares will be issued and outstanding.
Immediately after giving effect to the transactions referenced in Section
1.03(a), except for the shares specified in the preceding sentence and shares
reserved for issuance pursuant to options granted to the Executive and to the
Management Shareholders, there will be no shares of capital stock or other
equity securities of the Company issued, reserved for issuance or outstanding.
The purchase price per share for the shares of Company Common Stock being
acquired by the Executive pursuant to the Employment Agreement is the same as
the purchase price per share being paid by the Ripplewood Shareholder and other
Persons who are acquiring shares of Company Common Stock simultaneously with the
Executive.
ARTICLE IV
MISCELLANEOUS PROVISIONS
SECTION 4.01. ENTIRE AGREEMENT. This Agreement sets forth the entire
understanding among the parties relating to the subject matter contained herein
and merges all prior discussions among them. This Agreement is not intended to
confer upon any Person other than the parties hereto any rights or remedies
hereunder.
SECTION 4.02. AMENDMENTS. This Agreement may not be amended except by
an instrument in writing signed by the Ripplewood Shareholder and the Executive.
SECTION 4.03. NOTICES. All notices and other communications required
or permitted by this Agreement shall be made in writing and any such notice or
communication shall be deemed delivered when delivered in person, transmitted by
telex or telecopier, confirmation of transmission received, or one business day
after it has been sent by a nationally recognized overnight courier, at the
address or addresses for notices to the recipient designated on Schedule I
attached hereto. Communications by telex or telecopier also shall be sent
concurrently by first class mail or overnight courier, but shall in any event be
effective as stated above. The Ripplewood Shareholder, the Executive or the
Company may from time to time change its address for notices under this Section
4.03 by giving at least five days' notice of such changed address to the other
parties hereto.
SECTION 4.04. INTERPRETATION. When a reference is made in this
Agreement to a Section, such reference shall be to a Section of this Agreement
unless otherwise indicated.
<PAGE>
12
The headings contained in this Agreement are for reference purposes only and
shall not affect in any way the meaning or interpretation of this Agreement.
SECTION 4.05. SEVERABILITY. If any one or more of the provisions
contained in this Agreement or in any document executed in connection herewith
shall be invalid, illegal or unenforceable in any respect under any applicable
law, the validity, legality and enforceability of the remaining provisions
contained herein shall not in any way be affected or impaired; PROVIDED,
HOWEVER, that in such case the parties hereto shall endeavor to amend or modify
this Agreement to achieve to the extent reasonably practicable the purpose of
the invalid provision.
SECTION 4.06. GOVERNING LAW. This Agreement and all actions
contemplated hereby shall be governed by, and construed and enforced in
accordance with, the laws of the State of New York (without regard to conflict
of laws principles), except to the extent that the provisions of the GCL may be
mandatorily applicable.
SECTION 4.07. COUNTERPARTS. This Agreement may be executed in one or
more counterparts, all of which shall be considered one and the same agreement.
This Agreement shall become effective against the Ripplewood Shareholder when
one or more counterparts have been signed by the Ripplewood Shareholder and
delivered to the Executive. This Agreement shall become effective against the
Executive when one or more counterparts have been executed by the Executive and
delivered to the Ripplewood Shareholder. Each party need not sign the same
counterpart.
SECTION 4.08. ASSIGNMENT. Except pursuant to Section 2.01(a) and (d),
neither this Agreement nor any of the rights, interests or obligations under
this Agreement shall be assigned, in whole or in part, by the Ripplewood
Shareholder without the prior written consent of the Executive or by the
Executive without the prior written consent of the Ripplewood Shareholder, and
any purported assignment without such consent shall be void. Subject to the
preceding sentences, this Agreement will be binding upon, inure to the benefit
of, and be enforceable by, the parties and their respective successors and
assigns.
SECTION 4.09. SPECIFIC PERFORMANCE. The parties hereby declare that
irreparable damage would occur as a result of the failure of any party hereto to
perform any of its obligations under this Agreement in accordance with the
specific terms hereof. Therefore, all parties hereto shall have the right to
specific performance of the obligations of
<PAGE>
13
the other parties under this Agreement and if any party hereto shall institute
any action or proceeding to enforce the provisions hereof, any Person against
whom such action or proceeding is brought hereby waives the claim or defense
therein that such party has or have an adequate remedy at law exists. The right
to specific performance shall be in addition to any other remedy to which a
party hereto may be entitled at law or in equity.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the date first above written.
EAC III L.L.C.,
by RIPPLEWOOD PARTNERS, L.P.,
its Member,
by RIPPLEWOOD HOLDINGS L.L.C.,
its General Partner,
by /s/ Robert Lynch
---------------------------
Name: Robert Lynch
Title:
by /s/ Martin E. Kenney
---------------------------
Martin E. Kenney
WRC MEDIA INC.,
by
---------------------------
Name:
Title:
<PAGE>
13
the other parties under this Agreement and if any party hereto shall institute
any action or proceeding to enforce the provisions hereof, any Person against
whom such action or proceeding is brought hereby waives the claim or defense
therein that such party has or have an adequate remedy at law exists. The right
to specific performance shall be in addition to any other remedy to which a
party hereto may be entitled at law or in equity.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the date first above written.
EAC III L.L.C.,
by RIPPLEWOOD PARTNERS, L.P.,
its Member,
by RIPPLEWOOD HOLDINGS L.L.C.,
its General Partner,
by /s/ Robert Lynch
---------------------------
Name: Robert Lynch
Title: Treasurer
by
---------------------------
Martin E. Kenney
WRC MEDIA INC.,
by /s/ Charles Laurey
---------------------------
Name: Charles Laury
Title: Secretary
<PAGE>
SCHEDULE I
SHAREHOLDER ADDRESS
EAC III L.L.C. c/o Ripplewood Holdings L.L.C.
One Rockefeller Plaza, 32nd Floor
New York, New York 10020
Attn: Mr. Timothy C. Collins
Mr. Charles L. Laurey
Fax: (212) 582-4110
with a copy to:
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, New York 10019
Attn: Peter S. Wilson, Esq.
Fax: (212) 765-0978
WRC Media Inc. c/o Ripplewood Holdings L.L.C.
One Rockefeller Plaza, 32nd Floor
New York, New York 10020
Attn: Mr. Timothy C. Collins
Mr. Charles L. Laurey
Fax: (212) 582-4110
with a copy to:
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, New York 10019
Attn: Peter S. Wilson, Esq.
Fax: (212) 765-0978
Martin Kenney West Greenlawn Road
Paoli, PA 19301
Fax: (610) 993-8798
<PAGE>
Exhibit 10.28
PREFERRED STOCK AND WARRANTS
SUBSCRIPTION AGREEMENT
dated as of
November 17, 1999
among
WRC MEDIA INC.
WEEKLY READER CORPORATION,
JLC LEARNING CORPORATION
and
THE BUYERS NAMED HEREIN
relating to the purchase and sale
of
Preferred Stock
of
WRC Media Inc.,
Warrants
of
Weekly Reader Corporation
and
Warrants
of
JLC Learning Corporation
<PAGE>
TABLE OF CONTENTS
---------
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE 1
---------
DEFINITIONS
-----------
SECTION 1.01. DEFINITIONS..............................................................2
ARTICLE 2
---------
PURCHASE AND SALE
-----------------
SECTION 2.01. PURCHASE AND SALE........................................................4
SECTION 2.02. CLOSING..................................................................4
ARTICLE 3
---------
REPRESENTATIONS AND WARRANTIES OF WRC
-------------------------------------
SECTION 3.01. CORPORATE EXISTENCE AND POWER............................................5
SECTION 3.02. CORPORATE AUTHORIZATION..................................................5
SECTION 3.03. GOVERNMENTAL AUTHORIZATION...............................................5
SECTION 3.04. NONCONTRAVENTION.........................................................6
SECTION 3.05. CAPITALIZATION AND VOTING RIGHTS OF WRC..................................6
SECTION 3.06. CAPITALIZATION AND VOTING RIGHTS OF WEEKLY READER........................7
SECTION 3.07. CAPITALIZATION AND VOTING RIGHTS OF JLC..................................8
SECTION 3.08. VALID ISSUANCE OF SECURITIES.............................................9
SECTION 3.09. LITIGATION...............................................................9
SECTION 3.10. NEWLY FORMED CORPORATION.................................................9
SECTION 3.11. SHAREHOLDER ARRANGEMENTS.................................................9
ARTICLE 4
---------
REPRESENTATIONS AND WARRANTIES OF BUYERS
----------------------------------------
SECTION 4.01. EXISTENCE AND POWER.....................................................10
SECTION 4.02. AUTHORIZATION...........................................................10
SECTION 4.03. GOVERNMENTAL AUTHORIZATION..............................................10
SECTION 4.04. PURCHASE FOR INVESTMENT.................................................10
SECTION 4.05. PRIVATE PLACEMENT.......................................................11
SECTION 4.06. LITIGATION..............................................................11
SECTION 4.07. BROKERS OR FINDERS' FEES................................................11
ARTICLE 5
---------
CONDITIONS TO CLOSING
---------------------
SECTION 5.01. CONDITIONS TO OBLIGATIONS OF THE DLJ BUYERS, EACH OF THE OTHER
BUYERS AND THE SELLERS........................................................11
SECTION 5.02. CONDITIONS TO OBLIGATION OF THE DLJ BUYERS AND EACH OF THE OTHER
BUYERS........................................................................12
SECTION 5.03. CONDITIONS TO OBLIGATION OF THE SELLERS.................................13
i
<PAGE>
ARTICLE 6
---------
SURVIVAL; INDEMNIFICATION
-------------------------
SECTION 6.01. SURVIVAL................................................................14
SECTION 6.02. INDEMNIFICATION.........................................................14
SECTION 6.03. EXCLUSIVITY.............................................................15
ARTICLE 7
---------
TERMINATION
-----------
SECTION 7.01. GROUNDS FOR TERMINATION.................................................15
SECTION 7.02. EFFECT OF TERMINATION...................................................15
ARTICLE 8
---------
MISCELLANEOUS
-------------
SECTION 8.01. NOTICES.................................................................16
SECTION 8.02. CERTAIN WRC COVENANTS...................................................17
SECTION 8.03. AMENDMENTS AND WAIVERS..................................................17
SECTION 8.04. EXPENSES; OTHER PAYMENTS................................................18
SECTION 8.05. SUCCESSORS AND ASSIGNS..................................................18
SECTION 8.06. GOVERNING LAW...........................................................18
SECTION 8.07. JURISDICTION............................................................18
SECTION 8.08. WAIVER OF JURY TRIAL....................................................19
SECTION 8.09. COUNTERPARTS; THIRD PARTY BENEFICIARIES.................................19
SECTION 8.10. ENTIRE AGREEMENT........................................................19
SECTION 8.11. CAPTIONS................................................................19
SECTION 8.12. SEVERABILITY............................................................19
</TABLE>
ii
<PAGE>
Schedule A Schedule of Investors
Exhibit A Certificate of Incorporation of WRC Media Inc.
Exhibit B Preferred Stock
Exhibit C Form of Weekly Reader Corporation Warrant
Exhibit D Form of JLC Learning Corporation Warrant
Exhibit E Form of Stockholders Agreement
iii
<PAGE>
PREFERRED STOCK AND WARRANTS
SUBSCRIPTION AGREEMENT
AGREEMENT dated as of November 17, 1999 among WRC Media Inc., a
Delaware corporation ("WRC"), Weekly Reader Corporation, a Delaware corporation
("WEEKLY READER"), JLC Learning Corporation, a Delaware corporation ("JLC" and,
collectively with WRC and Weekly Reader, the "SELLERS"), and the Persons named
on Schedule A hereto (each a "BUYER" and collectively, the "BUYERS").
W I T N E S S E T H :
WHEREAS, WRC has agreed to acquire (the "PURCHASE") from Primedia Inc., a
Delaware corporation ("PRIMEDIA"), 2,685,670 shares of Common Stock, par value
$.01 per share (the "WR COMMON STOCK"), of Weekly Reader, on the terms and
conditions set forth in the Redemption, Stock Purchase and Recapitalization
Agreement, dated as of August 13, 1999, as amended pursuant to Amendment No. 1
thereto dated as of October 26, 1999 and Amendment No. 2 thereto dated as of
November 10, 1999, between WRC and Primedia (as amended, the "RECAPITALIZATION
AGREEMENT"); WHEREAS, to finance, in part, the payment of the consideration
payable in the Purchase, WRC intends (i) to issue shares of preferred stock, par
value $.01 per share (the "PREFERRED STOCK"), (ii) to cause Weekly Reader to
issue warrants (the "WR WARRANTS") to purchase WR Common Stock and (iii) to
cause JLC to issue warrants (the "JLC WARRANTS" and, together with the WR
Warrants, the "WARRANTS" and, collectively with the Preferred Stock and the WR
Warrants, the "SECURITIES") to purchase common stock, par value $.01 per share
(the "JLC COMMON STOCK"), of JLC.
WHEREAS, the Sellers desire to issue and sell the relevant
Securities to each of the Buyers, and each of the Buyers desires to purchase the
relevant Securities from the applicable Seller, upon the terms and subject to
the conditions hereinafter set forth;
The parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
SECTION 1.01. DEFINITIONS. (a) The following terms, as used
herein, have the following meanings:
"AFFILIATE" means, with respect to any Person, any other Person
directly or indirectly controlling, controlled by, or under common control with
such Person.
"CLOSING DATE" means the date of the Closing.
"COMMON STOCK SUBSCRIPTION AGREEMENTS" mean (i) the Common
Stock Purchase Agreement dated as of the Closing Date between WRC and SGC
Partners II LLC and (ii) the Subscription Agreement dated as of the Closing Date
between WRC and EAC III LLC.
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"CREDIT AGREEMENT" means the Credit Agreement dated as of the
Closing Date among WRC, Weekly Reader and JLC as borrowers and those certain
lenders listed on the signature pages thereto, together with all schedules,
exhibits and annexes thereto.
"DEBT SECURITIES PURCHASE AGREEMENT" means the Purchase
Agreement dated as of the Closing Date among WRC, Weekly Reader, JLC, Donald,
Lufkin & Jenrette Securities Corporation and Banc of America Securities LLC,
together with all schedules, exhibits and annexes thereto and all agreements
contemplated to be executed pursuant thereto.
"DLJ BUYERS" means DLJ Merchant Banking Partners II, L.P., DLJ
Merchant Banking Partners II-A, L.P., DLJ Offshore Partners II, C.V., DLJ
Diversified Partners, L.P., DLJ Diversified Partners-A, L.P., DLJ Millennium
Partners, L.P., DLJ Millennium Partners-A, L.P., DLJMB Funding II, Inc., DLJ EAB
Partners, L.P., DLJ First ESC, L.P. and DLJ ESC II, L.P.
"LIEN" means, with respect to any property or asset, any
mortgage, lien, pledge, charge, security interest or encumbrance in respect of
such property or asset.
"1934 ACT" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
"1933 ACT" means the Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder.
"OTHER BUYERS" means those Buyers, other than the DLJ Buyers,
listed on the signature pages hereto.
"OTHER STOCKHOLDERS AGREEMENTS" means (i) the Shareholder
Agreement dated as of the Closing Date among Primedia Inc., WRC and Weekly
Reader and the (ii) the Amended and Restated Stockholders Agreement dated as of
the Closing Date among SGC Partners II LLC, EAC III L.L.C. and WRC.
"PERSON" means an individual, corporation, partnership, limited
liability company, association, trust or other entity or organization, including
a government or political subdivision or an agency or instrumentality thereof.
"STOCKHOLDERS AGREEMENT" means the Preferred Stockholders
Agreement dated as of the Closing Date among the Sellers, EAC III L.L.C.,
Ripplewood Partners, L.P., SGC Partners II LLC, DLJ Merchant Banking Partners
II, L.P., DLJ Merchant Banking Partners II-A, L.P., DLJ Offshore Partners II,
C.V., DLJ Diversified Partners, L.P., DLJ Diversified Partners-A, L.P., DLJ
Millennium Partners, L.P., DLJ Millennium Partners-A, L.P., DLJMB Funding II,
Inc., DLJ EAB Partners, L.P., DLJ First ESC, L.P., DLJ ESC II, L.P. and each of
the Other Buyers.
"SUBSIDIARY" means any entity of which securities or other
ownership interests having ordinary voting power to elect a majority of the
board of directors or other persons performing similar functions are, after
giving effect to the transactions contemplated by the Recapitalization
Agreement, directly or indirectly owned by WRC.
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"TRANSACTION DOCUMENTS" means this Agreement, the
Recapitalization Agreement, the Credit Agreements, the Debt Securities Purchase
Agreement, the Common Stock Subscription Agreements, the Stockholders Agreement,
the Other Stockholders Agreements and the Warrants.
(b) Each of the following terms is defined in the Section set
forth opposite such term:
<TABLE>
<CAPTION>
TERM SECTION
<S> <C>
Certificate of Incorporation 3.05
Closing 2.02
Damages 6.02
JLC Recitals
JLC Common Stock Recitals
JLC Preferred Stock 3.07
JLC Warrants Recitals
Preferred Stock Recitals
Primedia Recitals
Purchase Recitals
Purchase Price 2.01
Recapitalization Agreement Recitals
Securities Recitals
Sellers Recitals
Subsidiary Preferred Shares 3.08
Warrants Recitals
Weekly Reader Recitals
WRC Recitals
WRC Common Stock 3.05
WR Common Stock 3.06(a)
WR Preferred Stock 3.06
WR Warrants Recitals
</TABLE>
ARTICLE 2
Purchase and Sale
SECTION 2.01. PURCHASE AND SALE. Upon the terms and subject to
the conditions of this Agreement, the applicable Seller agrees to issue and sell
to each Buyer and each Buyer agrees, severally and not jointly, to purchase from
the applicable Seller the Securities set forth opposite such Buyer's name on
Schedule A hereto at the Closing; PROVIDED that the Securities to be purchased
by the Other Buyers shall, in the event any Other Buyer does not purchase such
Securities, be purchased PRO RATA by the DLJ Buyers. The purchase price for the
Securities (the "PURCHASE PRICE") is the amount in cash
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specified on Schedule A hereto. The Purchase Price shall be paid as provided in
Section 2.02.
SECTION 2.02. CLOSING. The closing (the "CLOSING") of the
purchase and sale of the Securities hereunder shall take place at the offices of
Cravath, Swaine & Moore, Worldwide Plaza, 825 Eighth Avenue, New York, New York,
concurrently with the execution of this Agreement, or at such other time or
place as Buyers and the Sellers may agree. At the Closing:
(a) Each Buyer shall deliver to WRC, in immediately available
funds, the aggregate Purchase Price set forth opposite such Buyer's name on
Schedule A hereto, by wire transfer (or other means acceptable to WRC) to an
account of WRC with a bank in New York City designated by WRC, by notice to such
Buyer; PROVIDED that, in the event the DLJ Buyers are obligated pursuant to
Section 2.01 to purchase the Securities designated on Schedule A hereto to be
purchased by any Other Buyer, such DLJ Buyers shall deliver to WRC their PRO
RATA portion of the aggregate Purchase Price payable with respect to such
Securities.
(b) Each Seller shall deliver, or cause to be delivered, to
each Buyer certificates, or other appropriate documentation, for the relevant
Securities duly registered in the name of such Buyer and bearing appropriate
legends.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF WRC
WRC represents and warrants to each Buyer as of the date hereof
and as of the Closing Date that:
SECTION 3.01. CORPORATE EXISTENCE AND POWER. Each Seller is a
corporation duly incorporated, validly existing and in good standing under the
laws of its jurisdiction of incorporation and has all corporate powers and all
material governmental licenses, authorizations, permits, consents and approvals
required to carry on its business as now conducted and as proposed to be
conducted.
SECTION 3.02. CORPORATE AUTHORIZATION. The execution, delivery
and performance by each Seller, as applicable, of each of the relevant
Transaction Documents and the consummation by each Seller, as applicable, of the
transactions contemplated hereby and thereby (including the issuance and sale of
the Securities) are within the corporate powers of such Seller and have been
duly authorized by all necessary corporate action on the part of such Seller.
Each of the Transaction Documents constitutes, or when executed will constitute,
a valid and binding agreement of each Seller, as applicable, enforceable against
such entity in accordance with its respective terms, except (i) as limited by
the applicable bankruptcy, insolvency, reorganization, moratorium and other laws
of general application affecting enforcement or creditors' rights generally or
(ii) as limited by laws relating to the availability of specific performance,
injunctive relief, or other equitable remedies.
section 3.03. GOVERNMENTAL AUTHORIZATION. The execution,
delivery and performance by each Seller, as applicable, of each of the
Transaction Documents and the
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consummation of the transactions contemplated hereby and thereby require no
order, license, consent, authorization or approval of, or exemption by, or
action by or in respect of, or notice to, or filing or registration with, any
governmental body, agency or official to be obtained or made by, or with respect
to, the Seller, except as have been obtained or made (or are not required to be
obtained or made until after the Closing) and except for the filing of the
Certificate of Designation by WRC for the Preferred Stock with the office of the
Secretary of State for the State of Delaware.
SECTOPM 3.04. NONCONTRAVENTION. Except as set forth on Schedule
3.04 hereto, the execution, delivery and performance by each Seller, as
applicable, of each of the Transaction Documents and the consummation of the
transactions contemplated hereby and thereby do not and will not (i) violate its
certificate of incorporation or bylaws, (ii) assuming compliance with the
matters referred to in Section 3.03, violate any applicable law, rule,
regulation, judgment, injunction, order or decree, (iii) require any consent or
other action by any Person under, constitute a default under (with due notice or
lapse of time or both), or give rise to any right of termination, cancellation
or acceleration of any right or obligation of such entity or to a loss of any
benefit to which it is entitled under any provision of any agreement or other
instrument binding upon it or any of its assets or properties (except, with
respect to the Transaction Documents other than this Agreement, the Stockholders
Agreement and the Warrants, as would not have a material adverse effect on WRC
and its Subsidiaries taken as a whole) or (iv) result in the creation or
imposition of any material Lien on any of its properties or assets.
SECTION 3.05. CAPITALIZATION AND VOTING RIGHTS OF WRC. The
authorized capital stock of WRC consists of 20,000,000 shares of common stock,
par value $.01 per share (the "WRC COMMON STOCK"), and 20,000,000 shares of
Preferred Stock, and the outstanding capital stock of WRC immediately prior to
the Closing will be 1,434,900 shares of WRC Common Stock and no shares of
Preferred Stock. The rights, privileges, preferences, voting powers,
designations and qualifications, limitations and restrictions of the WRC Common
Stock are set forth in the Amended and Restated Certificate of Incorporation
attached hereto as Exhibit A (the "CERTIFICATE OF INCORPORATION") and the
rights, privileges, preferences, voting powers, designations and qualifications,
limitations and restrictions of the Preferred Stock are set forth in the
Certificate of Designation attached hereto as Exhibit B.
(b) Immediately following the Closing and after giving effect
to the transactions contemplated by the Recapitalization Agreement, the
outstanding capital stock of WRC will be 6,855,853 shares of WRC Common Stock
and 3,000,000 shares of Preferred Stock.
(c) As of the date hereof, EAC III L.L.C. owns 1,034,900
shares of WRC Common Stock representing 67.07% of the outstanding common
stock of WRC and SGC Partners II LLC owns 350,000 shares of WRC representing
22.68% of the outstanding common stock of WRC. Immediately following the
Closing and after giving effect to the transactions contemplated by the
Recapitalization Agreement, (i) EAC III L.L.C. will own 4,848,635 shares of
WRC Common Stock representing 70.7% of the outstanding common stock of WRC,
(ii) SGC Partners II LLC will own 1,694,039 shares of WRC Common Stock
representing 24.7% of the outstanding common stock of WRC, (iii) each
individual listed on Schedule 3.05 (c) hereto will own that number of shares
of WRC Common Stock set forth opposite its name on Schedule 3.05(c) hereto,
representing in the aggregate 107,523 shares of WRC Common Stock and
representing
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1.6% of the outstanding common stock of WRC and (iv) 205,656 shares of WRC
Common Stock, representing 3.0% of the outstanding common stock of WRC, will be
held by certain entities purchasing such shares in connection with the
transactions contemplated by the Debt Securities Purchase Agreement.
(d) All of the outstanding shares of capital stock of WRC have
been duly authorized and validly issued and are fully paid and non-assessable
and free of any preemptive rights. Except as set forth in this Section 3.05 or
in Schedule 3.05(d) hereto, there are, and immediately after the Closing and
after giving effect to the transactions contemplated by the Recapitalization
Agreement there will be, no outstanding shares of capital stock or voting
securities of WRC, securities of WRC convertible into or exchangeable for shares
of capital stock or voting securities of WRC, options or other rights to acquire
from WRC, or other obligation of WRC to issue, any capital stock, voting
securities or securities convertible into or exchangeable for capital stock or
voting securities of WRC or (iv) other than as expressly permitted in the
Transaction Documents or employment plans, obligations of WRC to repurchase or
otherwise acquire or retire any shares of capital stock or any convertible
securities, rights or options of the type described in (i), (ii), or (iii).
SECTION 3.06. CAPITALIZATION AND VOTING RIGHTS OF WEEKLY
READER. After giving effect to the transactions contemplated by the
Recapitalization Agreement, the authorized capital stock of Weekly Reader will
consist of 22,000,000 shares of common stock, of which 20,000,000 shares are
designated "Common Stock", 1,000,000 shares are designated "Class A Non-Voting
Common Stock" and 1,000,000 shares are designated "Class B Non-Voting
(collectively, the "WR COMMON STOCK") and 20,000,000 shares of preferred stock,
par value $.01 per share (the "WR PREFERRED STOCK"), and the outstanding capital
stock of Weekly Reader will be 2,830,000 shares of WR Common Stock and 3,000,000
shares of WR Preferred Stock and there will be outstanding WR Warrants to
purchase 422,874 shares of WR Common Stock. The form of WR Warrant is attached
hereto as Exhibit C.
(b) All of the outstanding shares of capital stock of Weekly
Reader have been duly authorized and validly issued and are fully paid and
non-assessable and free of any preemptive rights. Except as set forth in this
Section 3.06 or in Schedule 3.06(b) hereto and after giving effect to the
transactions contemplated by the Recapitalization Agreement, all of the
outstanding capital stock or other voting securities of Weekly Reader will be
owned by WRC, free and clear of any Lien and free of any other limitation or
restriction (including any restriction on the right to vote, sell or otherwise
dispose of such capital stock or other voting securities) and there will be no
outstanding shares of capital stock or voting securities of Weekly Reader,
securities of Weekly Reader convertible into or exchangeable for shares of
capital stock or voting securities of Weekly Reader, options or other rights to
acquire from Weekly Reader, or other obligation of Weekly Reader to issue, any
capital stock, voting securities or securities convertible into or exchangeable
for capital stock or voting securities of Weekly Reader or other than as
expressly permitted in the Transaction Documents, obligation of Weekly Reader to
repurchase or otherwise acquire or retire any shares of capital stock or any
convertible securities, rights or positions of the type described in (i), (ii),
or (iii).
SECTION 3.07. CAPITALIZATION AND VOTING RIGHTS OF JLC. (a)
After giving effect to the transactions contemplated by the Recapitalization
Agreement, the authorized capital stock of JLC will consist of 20,000 shares of
JLC Common Stock and
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10,000,000 shares of preferred stock, par value $.01 per share (the "JLC
PREFERRED STOCK"), and the outstanding capital stock of JLC will be 10,000
shares of JLC Common Stock and no shares of JLC Preferred Stock and there will
be outstanding JLC Warrants to purchase 1,495 shares of JLC Common Stock. The
form of JLC Warrant is attached hereto as Exhibit D.
(b) All of the outstanding shares of capital stock of JLC have
been duly authorized and validly issued and are fully paid and non-assessable.
Except as set forth in this Section 3.07 or in Schedule 3.07(b) and after giving
effect to the transactions contemplated by the Recapitalization Agreement, all
of the outstanding capital stock or other voting securities of JLC will be owned
by WRC, free and clear of any Lien and free of any other limitation or
restriction (including any restriction on the right to vote, sell or otherwise
dispose of such capital stock or other voting securities) and there will be no
outstanding shares of capital stock or voting securities of JLC, securities of
JLC convertible into or exchangeable for shares of capital stock or voting
securities of JLC, options or other rights to acquire from JLC, or other
obligation of JLC to issue, any capital stock, voting securities or securities
convertible into or exchangeable for capital stock or voting securities of JLC
or other than as expressly permitted in the Transaction Documents, obligation of
JLC to repurchase or otherwise acquire or retire any shares of capital stock or
any convertible securities, rights or positions of the type described in (i),
(ii), or (iii).
SECTION 3.08. VALID ISSUANCE OF SECURITIES. The shares of
Preferred Stock which are being issued to the Buyers hereunder have been duly
and validly authorized and, when issued, sold and delivered in accordance with
the terms hereof for the consideration expressed herein, will be fully paid and
non-assessable and free of any preemptive rights. The WR Warrants and the JLC
Warrants, when executed and delivered in accordance with the terms hereof for
the consideration set forth herein, will constitute valid and binding
obligations of Weekly Reader and JLC, respectively, enforceable in accordance
with their terms, except (i) as limited by the applicable bankruptcy,
insolvency, reorganization, moratorium, and other laws of general application
affecting enforcement or creditor's rights generally or (ii) as limited by laws
relating to the availability of specific performance, injunctive relief, or
other equitable remedies. The issuance of the Warrant Shares has been duly and
validly authorized and, when issued and sold in accordance with the WR Warrants
or the JLC Warrants, as the case may be, the Warrant Shares will be duly and
validly issued, fully paid and non-assessable and free of preemptive rights. The
issuance of the Subsidiary Preferred Shares has been duly and validly authorized
and, when issued and delivered in accordance with the Stockholders Agreement,
the Subsidiary Preferred Shares will be duly and validly issued, fully paid and
non-assessable and free of any preemptive rights.
SECTION 3.09. LITIGATION. There is no action, suit,
investigation or proceeding pending against, or to the knowledge of WRC,
threatened against or affecting any Seller or any of their respective properties
before any court or arbitrator or any governmental body, agency or official
which in any manner challenges or seeks to prevent, enjoin, alter or materially
delay the transactions contemplated by any Transaction Document or which could
reasonably be expected to have a material adverse effect on the business,
financial condition, properties or operations of WRC and its Subsidiaries, taken
as a whole.
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SECTION 3.10. NEWLY FORMED CORPORATION. WRC was incorporated on
May 14, 1999 in the State of Delaware for the purpose of effectuating the
acquisition of JLC and has not conducted any business or entered into any
agreements or commitments, except with respect to the foregoing and except with
respect to the transactions contemplated by the Transaction Documents.
SECTION 3.11. Shareholder Arrangements. Other than the
Stockholders Agreement and the Other Stockholders Agreements, none of WRC,
Weekly Reader or JLC is a party to or bound by any agreement with any of its
stockholders.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF BUYERS
Each Buyer represents and warrants to WRC, severally as to
itself only and not jointly or as to any other Buyer, as of the date hereof and
as of the Closing Date that:
SECTION 4.01. EXISTENCE AND POWER. Such Buyer is duly
organized, validly existing and in good standing under the laws of its
jurisdiction of organization and has all powers (corporate, partnership or
otherwise) and all material governmental licenses, authorizations, permits,
consents and approvals required to carry on its business as now conducted.
SECTION 4.02. AUTHORIZATION. The execution, delivery and
performance by such Buyer of each of this Agreement and, when executed, the
Stockholders Agreement and the consummation of the transactions contemplated
hereby and thereby are or, when executed, will be within the powers (corporate,
partnership or otherwise) of such Buyer and have been or will have been duly
authorized by all necessary action on the part of such Buyer. This Agreement
constitutes, and the Stockholders Agreement when executed will constitute, a
valid and binding agreement of such Buyer, each enforceable in accordance with
their respective terms, except (i) as limited by the applicable bankruptcy,
insolvency, reorganization, moratorium, and other laws of general application
affecting enforcement or creditors' rights generally or (ii) as limited by laws
relating to the availability of specific performance, injunctive relief, or
other equitable remedies.
SECTION 4.03. GOVERNMENTAL AUTHORIZATION. The execution,
delivery and performance by such Buyer of this Agreement and the Stockholders
Agreement and the consummation of the transactions contemplated hereby and
thereby require no order, license, consent, authorization or approval of, or
exemption by, or action by or in respect of, or notice to, or filing or
registration with, any governmental body, agency or official to be obtained or
made by, or with respect to, such Buyer.
SECTION 4.04. PURCHASE FOR INVESTMENT. Such Buyer is purchasing
the relevant Securities for investment for its own account and not with a view
to, or for sale in connection with, any distribution thereof.
SECTION 4.05. PRIVATE PLACEMENT. (a) Such Buyer understands
that (i) the offering and sale of the Securities hereby is intended to be exempt
from
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registration under the 1933 Act and (ii) there is no market or only a limited
market for the relevant Securities, and there can be no assurance that any Buyer
will be able to sell or dispose of the relevant Securities to be purchased by
such Buyer.
(b) Such Buyer's financial situation is such that such Buyer
can afford to bear the economic risk of holding the relevant Securities acquired
hereunder for an indefinite period of time, and such Buyer can afford to suffer
the complete loss of the investment in the relevant Securities.
SECTION 4.06. LITIGATION. There is no action, suit,
investigation or proceeding pending against, or to the knowledge of such Buyer
threatened against or affecting, such Buyer before any court or arbitrator or
any governmental body, agency or official which in any manner challenges or
seeks to prevent, enjoin, alter or materially delay the transactions
contemplated by this Agreement or the Stockholders Agreement.
SECTION 4.07. BROKERS OR FINDERS' FEES. There is no investment
banker, broker, finder or other intermediary which has been retained by, will be
retained by or is authorized to act on behalf of such Buyer who might be
entitled to any fee or commission from any Seller or such Buyer upon
consummation of the transactions contemplated by this Agreement.
ARTICLE 5
CONDITIONS TO CLOSING
SECTION 5.01. CONDITIONS TO OBLIGATIONS OF THE DLJ BUYERS, EACH
OF THE OTHER BUYERS AND THE SELLERS. The obligations of the DLJ Buyers, each of
the Other Buyers and the Sellers to consummate the Closing are subject to the
satisfaction of the following conditions:
(a) No provision of any applicable law, rule or regulation and no
judgment, injunction, order or decree by any governmental entity of
competent jurisdiction shall prohibit the consummation of the Closing
or the Purchase.
(b) All material actions by or in respect of, or filings with,
any governmental body, agency, official or authority required to
permit the consummation of the Closing and the Purchase shall have
been taken, made or obtained.
(c) The conditions to the consummation of the Recapitalization
Agreement shall have been satisfied or waived and the Purchase shall
have been consummated as contemplated by the Recapitalization
Agreement, with any waiver of material conditions and any other
material changes having been consented to by DLJ Merchant Banking II,
Inc., on behalf of the Buyers (such consent not to have been
unreasonably withheld).
(d) The conditions to the consummation of the Credit Agreements
shall have been satisfied or waived and the transactions contemplated
therein shall have been consummated as contemplated by the Credit
Agreements, with any waiver of material conditions and any other
material changes having been consented to by
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DLJ Merchant Banking II, Inc., on behalf of the Buyers (such consent
not to have been unreasonably withheld).
(e) The conditions to the consummation of the Debt Securities
Purchase Agreement shall have been satisfied or waived and the
transactions contemplated therein shall have been consummated as
contemplated by the Debt Securities Purchase Agreement, with any
waiver of material conditions and any other material changes having
been consented to by DLJ Merchant Banking II, Inc., on behalf of the
Buyers (such consent not to have been unreasonably withheld).
(f) The conditions to the consummation of the Common Stock
Subscription Agreements shall have been satisfied or waived and the
transactions contemplated therein shall have been consummated as
contemplated by the Common Stock Subscription Agreements, with any
waiver of material conditions and any other material changes having
been consented to by DLJ Merchant Banking II, Inc., on behalf of the
Buyers (such consent not to have been unreasonably withheld).
(g) The Certificate of Designation for the Preferred Stock shall
have been duly filed at the office of the Secretary of State of the
State of Delaware.
SECTION 5.02. CONDITIONS TO OBLIGATION OF THE DLJ BUYERS AND
EACH OF THE OTHER BUYERS. The obligation of the DLJ Buyers and each of the Other
Buyers to consummate the Closing is subject to the satisfaction of the following
further conditions:
(a) (i) Each Seller shall have performed in all material respects
all of its obligations hereunder required to be performed by it on or
prior to the Closing Date and the representations and warranties of
WRC contained in this Agreement and the representations and warranties
of each Seller contained in any certificate or other writing delivered
by such Seller pursuant hereto shall be true in all material respects
when made and at and as of the Closing Date, as if made at and as of
such date (it being understood that where any such representation and
warranty already includes a materiality exception, no further
materiality exception is to be permitted by this Section 5.02(a)(ii)).
(b) Such Buyer shall have received all documents it may
reasonably request relating to the existence of each Seller and the
authority of each Seller, as applicable, to enter into this Agreement,
the Credit Agreements, the Debt Securities Purchase Agreement, the
Common Stock Subscription Agreements, the Warrants, the Stockholders
Agreement and the Other Stockholders Agreements (including without
limitation an opinion of counsel to the Sellers), all in form and
substance reasonably satisfactory to such Buyer.
(c) Each Seller shall have entered into the Stockholders
Agreement in the form attached hereto as Exhibit E.
(d) The Sellers shall have paid in full all costs and expenses,
including any out-of-pocket expenses, of the DLJ Buyers then due and
required to be paid by the Sellers pursuant to Section 8.04(a) hereof.
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(e) The board of directors of WRC, Weekly Reader and JLC shall
each have appointed one designee of the DLJ Buyers as a director
pursuant to the Stockholders Agreement.
(f) Since December 31, 1998 there shall have been no material
adverse change in the business, financial condition or results of
operation of the Sellers or their respective subsidiaries, taken as a
whole; PROVIDED that the matters set forth in Schedule 3.05 to the
Recapitalization Agreement shall not be deemed to constitute a
material adverse change for purposes of this Agreement.
(g) Any material changes to the Other Stockholders Agreements
shall have been consented to by DLJ Merchant Banking II, Inc., on
behalf of the Buyers (such consent not to have been unreasonably
withheld).
SECTION 5.03. CONDITIONS TO OBLIGATION OF THE SELLERS. The
obligation of the Sellers to consummate the Closing is subject to the
satisfaction of the following further conditions:
(a) Each Buyer shall have performed in all material respects all
of its obligations hereunder required to be performed by it at or
prior to the Closing Date and the representations and warranties of
each Buyer contained in this Agreement and in any certificate or other
writing delivered by such Buyer pursuant hereto shall be true in all
material respects when made and at and as of the Closing Date, as if
made at and as of such date (it being understood that where any such
representation and warranty already includes a materiality exception,
no further materiality exception is to be permitted by this Section
5.03(a)(II)).
(b) The Sellers shall have received all documents they may
reasonably request relating to the existence of each Buyer and the
authority of such Buyer to enter into this Agreement and the
Stockholders Agreement, all in form and substance reasonably
satisfactory to the Sellers.
(c) Each Buyer shall have entered into the Stockholders Agreement
in the form attached hereto as Exhibit E.
Notwithstanding anything to the contrary contained herein, in
the event that (i) any of the foregoing conditions shall not have been satisfied
solely as result of a breach of such condition by any Other Buyer and (ii) the
DLJ Buyers shall have elected to purchase the Securities that otherwise would
have been purchased by such Other Buyer, such closing condition shall be deemed
to have been satisfied with respect to such Other Buyer in all respects.
ARTICLE 6
SURVIVAL; INDEMNIFICATION
SECTION 6.01. SURVIVAL. The representations and warranties of
the parties hereto contained in this Agreement or in any certificate delivered
pursuant hereto or in connection herewith shall survive the Closing (for the
purpose of Section 6.02 only.) A breach of any representation or warranty made
in this Agreement shall not affect in any
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manner whatsoever the relative rights and obligations of the parties to and
under the Stockholders Agreement.
SECTION 6.02. INDEMNIFICATION. WRC hereby indemnifies,
severally and not jointly, each Buyer and its Affiliates, limited partners,
general partners, members, directors, officers and employees against and agrees
to hold each of them harmless from any and all damage, loss, liability and
expense (including, without limitation, reasonable expenses of investigation and
reasonable attorneys' fees and expenses in connection with any action, suit or
proceeding) ("DAMAGES") incurred or suffered by any such party arising out of
any misrepresentation or breach of warranty, covenant or agreement made or to be
performed by any Seller pursuant to this Agreement.
(b) Each Buyer hereby indemnifies, severally and not jointly,
each Seller and its Affiliates, limited partners, general partners, members,
directors, officers and employees against and agrees to hold each of them
harmless from any and all Damages incurred or suffered by any such party arising
out of any misrepresentation or breach of warranty, covenant or agreement made
or to be performed by such Buyer pursuant to this Agreement.
SECTION 6.03. EXCLUSIVITY. After the Closing, Section 6.02 will
provide the exclusive remedy for any misrepresentation, breach of warranty,
covenant or other agreement or other claim arising out of this Agreement or the
transactions contemplated hereby.
ARTICLE 7
TERMINATION
SECTION 7.01. GROUNDS FOR TERMINATION. This Agreement may be
terminated at any time prior to the Closing:
(a) by mutual written agreement of the Sellers and the DLJ
Buyers;
(b) by the Sellers or the DLJ Buyers if the Closing shall not
have been consummated as of the close of business on the date hereof;
or
(c) by the Sellers or any DLJ Buyer if consummation of the
transactions contemplated hereby would violate any non-appealable
final order, decree or judgment of any court or governmental body
having competent jurisdiction.
The party desiring to terminate this Agreement pursuant to Section 7.01(b) or
7.01(c) shall give notice of such termination to the other parties hereto.
SECTION 7.02. EFFECT OF TERMINATION. If this Agreement is
terminated as permitted by Section 7.01, such termination shall be without
liability of any party (or any Affiliate, stockholder, general partner, limited
partner, member, director, officer, employee, agent, consultant or
representative of such party) to the other parties to this Agreement; PROVIDED
that if such termination shall result from the willful (i) failure of any party
to fulfill a condition to the performance of the obligations of another party,
12
<PAGE>
(ii) failure to perform a covenant of this Agreement or (iii) breach by any
party hereto of any representation or warranty or agreement contained herein,
such party shall be fully liable for any and all Damages incurred or suffered by
each other party as a result of such failure or breach. The provisions of
Sections 8.04, 8.06, 8.07 and 8.08 shall survive any termination hereof pursuant
to Section 7.01.
ARTICLE 8
MISCELLANEOUS
SECTION 8.01. NOTICES. All notices, requests and other
communications to any party hereunder shall be in writing (including facsimile
transmission) and shall be given,
if to any Buyer, to such Buyer at the address specified by such
Buyer on the signature pages of this Agreement or in a notice given by such
Buyer to the Sellers for such purpose, with a copy to:
Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
Attention: George R. Bason, Jr.
Fax: (212) 450-4800
if to any Seller, to:
WRC Media Inc.
c/o Ripplewood Holdings L.L.C.
One Rockefeller Plaza, 32nd Floor
New York, New York 10020
Attention: Timothy C. Collins
Charles L. Laurey
Fax: (212) 218-2719
(212) 581-4110
with a copy to:
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, New York 10019
Attention: Peter S. Wilson
Fax: (212) 765-0978
or to such other address or telecopy number and with such other copies as such
party may hereafter specify for the purpose of notice.
All such notices, requests and other communications shall be deemed received on
the date of receipt by the recipient thereof if received prior to 5 p.m. in the
place of receipt and such day is a business day in the place of receipt.
Otherwise, any such notice, request or
13
<PAGE>
communication shall be deemed not to have been received until the next
succeeding business day in the place of receipt.
SECTION 8.02. CERTAIN WRC COVENANTS. WRC will cause Weekly
Reader and JLC to reserve and keep available for issuance (i) upon exercise of
the WR Warrants or the JLC Warrants, as the case may be, the total number of
Warrant Shares (as defined in the applicable Warrant) deliverable upon exercise
of the WR Warrants or the JLC Warrants, as the case may be (including, with
respect to the WRC Warrants, that number of Warrant Shares sufficient to satisfy
the obligation to deliver shares of non-voting WR Common Stock upon an exercise
of the WRC Warrants by the DLJ Buyers and to deliver shares of voting WR Common
Stock upon an exercise of the WRC Warrants by any transferee of any DLJ Buyer
(other than a transferee that is an Affiliate of any DLJ Buyer)), and upon
exercise of the exchange rights set forth in Section 2.10 of the Stockholders
Agreement, the total number of shares of preferred stock of Weekly Reader or
JLC, as the case may be, (collectively, the "SUBSIDIARY PREFERRED SHARES")
deliverable upon exercise of such exchange right.
SECTION 8.03. AMENDMENTS AND WAIVERS. Any provision of this
Agreement may be amended or waived if, but only if, such amendment or waiver is
in writing and is signed, in the case of an amendment, by each party to this
Agreement, or in the case of a waiver, by the party against whom the waiver is
to be effective.
(b) No failure or delay by any party in exercising any right,
power or privilege hereunder shall operate as a waiver thereof nor shall any
single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. The rights and
remedies herein provided shall be cumulative and not exclusive of any rights or
remedies provided by law.
SECTION 8.04. EXPENSES; OTHER PAYMENTS. (a) All costs and
expenses incurred in connection with this Agreement shall be paid by the party
incurring such cost or expense; PROVIDED that the Sellers shall pay up to
$350,000 of all reasonable out-of-pocket costs, expenses and other payments,
including without limitation legal payments and disbursements, incurred or made
by the DLJ Buyers in connection with the transactions contemplated by this
Agreement, whether or not consummated.
(b) The Sellers shall pay to the DLJ Buyers a fee of $2,770,000
no later than two business days following the consummation of the Purchase if
the Purchase is consummated on or prior to October 26, 2000 and the Securities,
at such aggregate price as in each case is set forth opposite the name of each
Buyer on Schedule A hereto, are not sold to the DLJ Buyers, other than by reason
of any breach by the DLJ Buyers of their obligations hereunder.
SECTION 8.0.5 SUCCESSORS AND ASSIGNS. The provisions of this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns; PROVIDED that no party may assign,
delegate or otherwise transfer any of its rights or obligations under this
Agreement without the consent of each other party hereto.
SECTION 8.06. GOVERNING LAW. This Agreement shall be governed
by and construed in accordance with the law of the State of New York, without
regard to the conflict of law rules of such state.
14
<PAGE>
SECTION 8.07. JURISDICTION. The parties hereto agree that any
suit, action or proceeding seeking to enforce any provision of, or based on any
matter arising out of or in connection with, this Agreement or the transactions
contemplated hereby may only be brought in the United States District Court for
the Southern District of New York or any New York State court sitting in New
York City, and each of the parties hereby consents to the jurisdiction of such
courts (and of the appropriate appellate courts therefrom) in any such suit,
action or proceeding and irrevocably waives, to the fullest extent permitted by
law, any objection which it may now or hereafter have to the laying of the venue
of any such suit, action or proceeding in any such court or that any such suit,
action or proceeding which is brought in any such court has been brought in an
inconvenient forum. Process in any such suit, action or proceeding may be served
on any party anywhere in the world, whether within or without the jurisdiction
of any such court. Without limiting the foregoing, each party agrees that
service of process on such party as provided in Section 8.01 shall be deemed
effective service of process on such party.
SECTION 8.08. WAIVER OF JURY TRIAL. EACH OF THE PARTIES
HERETO HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY
LEGAL PROCEEDING ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY.
SECTION 8.09. COUNTERPARTS; THIRD PARTY BENEFICIARIES. This
Agreement may be signed in any number of counterparts, each of which shall be an
original, with the same effect as if the signatures thereto and hereto were upon
the same instrument. This Agreement shall become effective when each party
hereto shall have received a counterpart hereof signed by the other party
hereto. No provision of this Agreement shall confer upon any Person other than
the parties hereto any rights or remedies hereunder.
SECTION 8.10. ENTIRE AGREEMENT. This Agreement along with the
Stockholders Agreement (including the documents, schedules and exhibits referred
to herein and therein) and, the sixth paragraph and Exhibit C to each of those
certain commitment letters dated July 7, 1999, August 2, 1999 and October 26,
1999, respectively, between DLJ Merchant Banking Partners and Ripplewood
Partners, L.P. constitute the entire agreement between the parties with respect
to the subject matter of this Agreement and supersede all prior agreements and
understandings, both oral and written, between the parties with respect to the
subject matter of this Agreement.
SECTION 8.11. CAPTIONS. The captions herein are included for
convenience of reference only and shall be ignored in the construction or
interpretation hereof.
SECTION 8.12. SEVERABILITY. If one or more provisions of this
Agreement are held to be unenforceable under applicable law, such provision
shall be excluded from this Agreement and the balance of this Agreement shall be
interpreted as if such provision were so excluded and shall be enforced in
accordance with its terms to the maximum extent permitted by law.
15
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed by their respective authorized officers or
partners as of the day and year first above written.
WRC MEDIA INC.
By: /s/ Charles Lavrey
----------------------------
Name: Charles Lavrey
Title: Secretary
WEEKLY READER CORPORATION
By: /s/ Charles Lavrey
----------------------------
Name: Charles Lavrey
Title: Secretary
JLC LEARNING CORPORATION
By: /s/ Charles Lavrey
----------------------------
Name: Charles Lavrey
Title: Secretary
DLJ MERCHANT BANKING PARTNERS
II, L.P., a Delaware Limited Partnership
By: DL Merchant Banking II, Inc.,
as Managing General Partner
By: /s/ William F. Dawson
----------------------------
Name: William F. Dawson
Title:
Address: c/o DLJ Merchant Banking II, Inc.
277 Park Avenue
New York, NY 10172
16
<PAGE>
DLJ MERCHANT BANKING PARTNERS
II-A, L.P., a Delaware Limited Partnership
By: DLJ Merchant Banking II, Inc.,
as Managing General Partner
By: /s/ William F. Dawson
----------------------------
Name: William F. Dawson
Title:
Address: c/o DLJ Merchant Banking II, Inc.
277 Park Avenue
New York, NY 10172
DLJ OFFSHORE PARTNERS II, C.V., a
Netherlands Antilles Limited Partnership
By: DLJ Merchant Banking II, Inc.,
as Advisory General Partner
By: /s/ David Burgstahler
----------------------------
Name: David Burgstahler
Title: Attorney-in-fact
Address: c/o DLJ Merchant Banking II, Inc.
277 Park Avenue
New York, NY 10172
DLJ DIVERSIFIED PARTNERS, L.P., a
Delaware Limited Partnership
By: DLJ Diversified Partners, Inc.,
as Managing General Partner
By: /s/ David Burgstahler
----------------------------
Name: David Burgstahler
Title: Attorney-in-fact
Address: c/o DLJ Merchant Banking II, Inc.
277 Park Avenue
New York, NY 10172
17
<PAGE>
DLJ DIVERSIFIED PARTNERS-A, L.P., a
Delaware Limited Partnership
By: DLJ Diversified Partners, Inc.,
as Managing General Partner
By: /s/ David Burgstahler
----------------------------
Name: David Burgstahler
Title: Attorney-in-fact
Address:c/o DLJ Merchant Banking II, Inc.
277 Park Avenue
New York, NY 10172
DLJ MILLENNIUM PARTNERS, L.P., a
Delaware Limited Partnership
By: DLJ Merchant Banking II, Inc.,
as Managing General Partner
By: /s/ William F. Dawson
----------------------------
Name: William F. Dawson
Title:
Address: c/o DLJ Merchant Banking II, Inc.
277 Park Avenue
New York, NY 10172
DLJ MILLENNIUM PARTNERS-A, L.P.,
a Delaware Limited Partnership
By: DLJ Merchant Banking II, Inc., as
Managing General Partner
By: /s/ William F. Dawson
----------------------------
Name: William F. Dawson
Title:
Address: c/o DLJ Merchant Banking II, Inc.
277 Park Avenue
New York, NY 10172
18
<PAGE>
DLJMB FUNDING II, INC.,
a Delaware corporation
By: /s/ David Burgstahler
----------------------------
Name: David Burgstahler
Title: Attorney-in-fact
Address: c/o DLJ Merchant Banking II, Inc.
277 Park Avenue
New York, NY 10172
DLJ FIRST ESC L.P.,
a Delaware Limited Partnership
By: DLJ LBO Plans Management Corporation,
as General Partner
By: /s/ David Burgstahler
----------------------------
Name: David Burgstahler
Title:
Address: c/o DLJ Merchant Banking II, Inc.
277 Park Avenue
New York, NY 10172
DLJ EAB PARTNERS, L.P.,
a Delaware Limited Partnership
By: DLJ LBO Plans Management Corporation,
as General Partner
By: /s/ David Burgstahler
----------------------------
Name: David Burgstahler
Title:
Address: c/o DLJ Merchant Banking II, Inc.
277 Park Avenue
New York, NY 10172
19
<PAGE>
DLJ ESC II L.P., a Delaware Limited
Partnership
By: DLJ LBO Plans Management Corporation, as
General Partner
By: /s/ David Burgstahler
----------------------------
Name: David Burgstahler
Title: Attorney-in-fact
Address: c/o DLJ Merchant Banking II, Inc.
277 Park Avenue
New York, NY 10172
ARES LEVERAGED INVESTMENT FUND, L.P., a
Delaware Limited Partnership
By: ARES MANAGEMENT L.P.,
its General Partner
By: /s/ Eric Beckman
----------------------------
Name: Eric Beckman
Title: Vice President
Address: c/o Eric Beckman
Ares Leveraged Investment Fund, L.P.
1999 Avenue of the Stars
Suite 1900
Los Angeles, CA 90067
ARES LEVERAGED INVESTMENT FUND II, L.P.,
a Delaware Limited PartnershipBy: ARES
MANAGEMENT II, L.P., its General Partner
By: /s/ Eric Beckman
----------------------------
Name: Eric Beckman
Title:
Address: c/o Eric Beckman
Ares Leveraged Investment Fund II, L.P.
1999 Avenue of the Stars
Suite 1900
Los Angeles, CA 90067
20
<PAGE>
TCW LEVERAGED INCOME TRUST, L.P., a
Delaware Limited Partnership
By: TCW INVESTMENT MANAGEMENT
COMPANY, as Investment Advisor
By:
----------------------------
Name:
Title:
By: TCW ADVISORS (Bermuda), LTD., as
General Partner
By:
----------------------------
Name:
Title:
Address: c/o TCW/Crescent Mezzanine, LLC
11100 Santa Monica Boulevard
Suite 2000
Los Angeles, CA 90025
TCW LEVERAGED INCOME TRUST II, L.P., a
Delaware Limited Partnership
By: TCW (LINCII), L.P., as General Partner
By: TCW ADVISORS (Bermuda), LTD., as
General Partner
By:
----------------------------
Name:
Title:
By: TCW INVESTMENT MANAGEMENT
COMPANY, as Investment Advisor
By:
----------------------------
Name:
Title:
Address: c/o TCW/Crescent Mezzanine, LLC
11100 Santa Monica Boulevard
Suite 2000
21
<PAGE>
Los Angeles, CA 90025
TCW SHARED OPPORTUNITY FUND III, L.P., a
Delaware Limited Partnership
By: TCW ASSET MANAGEMENT
COMPANY, as Investment Advisor
By:
----------------------------
Name:
Title:
By:
----------------------------
Name:
Title:
Address: c/o TCW/Crescent Mezzanine, LLC
11100 Santa Monica Boulevard
Suite 2000
Los Angeles, CA 90025
SHARED OPPORTUNITY FUND IIB, LLC,
a Delaware Limited Liability Company
By: TCW ASSET MANAGEMENT COMPANY,
as Investment Advisor
By:
----------------------------
Name:
Title:
By:
----------------------------
Name:
Title:
Address: c/o TCW/Crescent Mezzanine, LLC
11100 Santa Monica Boulevard
Suite 2000
Los Angeles, CA 9002
22
<PAGE>
TCW/CRESCENT MEZZANINE PARTNERS
II, L.P., a Delaware Limited Partnership
TCW/CRESCENT MEZZANINE TRUST II
By: TCW/CRESCENT MEZZANINE II, L.P,
its General Partner or managing owner
By: TCW/CRESCENT MEZZANINE L.L.C.,
its General Partner
By:
----------------------------
Name:
Title:
Address: c/o TCW/Crescent Mezzanine, LLC
11100 Santa Monica Boulevard
Suite 2000
Los Angeles, CA 90025
THE NORTHWESTERN MUTUAL LIFE
INSURANCE COMPANY
By: /s/ Richard A. Strait
----------------------------
Name: Richard A. Strait
Title:
Address:The Northwestern Mutual Life
Insurance
Company
720 East Wisconsin Avenue
Milwaukee, WI 53202
Attention: Securities Department
23
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
PURCHASE PRICE
NO. OF PURCHASE PRICE FOR NO. OF WR FOR WR
INVESTOR PREFERRED SHARES PREFERRED SHARES WARRANTS WARRANTS
<S> <C> <C> <C> <C>
DLJ Merchant Banking Partners II, L.P. 1,133,865 $23,903,490.11 159,828 $3,451,917.20
DLJ Merchant Banking Partners II-A, L.P. 45,156 951,151.48 6,365 137,469.36
DLJ Offshore Partners II, C.V. 55,758 1,175,156.58 7,860 169,757.92
DLJ Diversified Partners, L.P. 66,291 1,397,674.25 9,344 201,808.91
DLJ Diversified Partners-A, L.P. 24,618 519,490.76 3,470 74,944.02
DLJMB Funding II, Inc. 631,312 13,310,965.72 88,988 1,921,936.12
DLJ Millennium Partners, L.P. 18,333 386,755.13 2,584 55,808.46
DLJ Millennium Partners-A, L.P. 3,576 75,012.22 504 10,885.24
DLJ EAB Partners, L.P. 5,091 106,514.05 718 15,507.15
DLJ ESC II, L.P. 213,818 4,507,109.64 30,140 650,954.68
DLJ First ESC, L.P. 2,182 46,146.64 308 6,652.09
TCW/Crescent Mezzanine Partners II, L.P. 193,174 4,073,101.30 27,231 588,126.97
TCW/Crescent Mezzanine Trust II 46,826 987,826.02 6,600 142,544.82
TCW Leveraged Income Trust, L.P. 40,000 843,206.81 5,638 121,767.83
TCW Leveraged Income Trust II, L.P. 40,000 843,206.81 5,638 121,767.83
Shared Opportunity Fund IIB, L.L.C. 13,333 280,484.04 1,879 40,582.08
TCW Shared Opportunity Fund III, L.P. 66,667 1,405,929.57 9,397 202,953.59
Ares Leveraged Investment Fund, L.P. 100,000 2,109,768.29 14,095 304,419.58
Ares Leveraged Investment Fund II, L.P. 100,000 2,107,995.42 14,096 304,441.18
<CAPTION>
PURCHASE
PRICE
NO. OF JLC FOR JLC AGGREGATE
INVESTOR WARRANTS WARRANTS PURCHASE PRICE
<S> <C> <C> <C>
DLJ Merchant Banking Partners II, L.P. 566 $991,217.69 $28,346,625.00
DLJ Merchant Banking Partners II-A, L.P. 23 40,279.16 1,128,900.00
DLJ Offshore Partners II, C.V. 28 49,035.50 1,393,950.00
DLJ Diversified Partners, L.P. 33 57,791.84 1,657,275.00
DLJ Diversified Partners-A, L.P. 12 21,015.22 615,450.00
DLJMB Funding II, Inc. 314 549,898.16 15,782,800.00
DLJ Millennium Partners, L.P. 9 15,761.41 458,325.00
DLJ Millennium Partners-A, L.P. 2 3,502.54 89,400.00
DLJ EAB Partners, L.P. 3 5,253.80 127,275.00
DLJ ESC II, L.P. 107 187,385.68 5,345,450.00
DLJ First ESC, L.P. 1 1,751.27 54,550.00
TCW/Crescent Mezzanine Partners II, L.P. 96 168,121.73 4,829,350.00
TCW/Crescent Mezzanine Trust II 23 40,279.16 1,170,650.00
TCW Leveraged Income Trust, L.P. 20 35,025.36 1,000,000.00
TCW Leveraged Income Trust II, L.P. 20 35,025.36 1,000,000.00
Shared Opportunity Fund IIB, L.L.C. 7 12,258.88 333,325.00
TCW Shared Opportunity Fund III, L.P. 33 57,791.84 1,666,675.00
Ares Leveraged Investment Fund, L.P. 49 85,812.13 2,500,000.00
Ares Leveraged Investment Fund II, L.P. 50 87,563.40 2,500,000.00
24
<PAGE>
<CAPTION>
PURCHASE PRICE
NO. OF PURCHASE PRICE FOR NO. OF WR FOR WR
INVESTOR PREFERRED SHARES PREFERRED SHARES WARRANTS WARRANTS
<S> <C> <C> <C> <C>
Northwestern Mutual Life Insurance
Company 200,000 4,217,763.71 28,191 608,860.76
Total 3,000,000 63,248,748.55 422,874 9,133,105.79
<CAPTION>
PURCHASE
PRICE
NO. OF JLC FOR JLC AGGREGATE
INVESTOR WARRANTS WARRANTS PURCHASE PRICE
<S> <C> <C> <C>
Northwestern Mutual Life Insurance
Company 99 173,375.53 5,000,000.00
Total 1,495 2,618,145.66 75,000,000.00
</TABLE>
25
<PAGE>
EXHIBIT B
Preferred Stock
CERTIFICATE OF DESIGNATIONS, PREFERENCES
AND RIGHTS OF 15% SENIOR
PREFERRED STOCK DUE 2011
of
WRC MEDIA INC.
Pursuant to Section 151 of the General Corporation Law
of the State of Delaware
We, the undersigned, [ ], President, and
[ ], Secretary, of WRC Media Inc., a Delaware corporation (hereinafter
called the "CORPORATION"), pursuant to the provisions of Sections 103 and 151 of
the General Corporation Law of the State of Delaware, do hereby make this
Certificate of Designations and do hereby state and certify that pursuant to the
authority expressly vested in the Board of Directors of the Corporation by the
Certificate of Incorporation, the Board of Directors duly adopted the following
resolution:
RESOLVED, that, pursuant to Article IV of the Amended and
Restated Certificate of Incorporation (which authorizes 20,000,000 shares of
preferred stock, par value $0.01 per share ("PREFERRED STOCK"), of which no
shares of Preferred Stock are currently issued and outstanding), the Board of
Directors hereby fixes the powers, designations, preferences and relative,
participating, optional and other special rights, and the qualifications,
limitations and restrictions, of a series of Preferred Stock.
RESOLVED, that each share of such series of Preferred Stock
shall rank equally in all respects and shall be subject to the following
provisions: (1) NUMBER AND DESIGNATION. 6,400,000 shares of the Preferred Stock
of the Corporation shall be designated as 15% Senior Preferred Stock Due 2011
(the "SENIOR PREFERRED STOCK").
(2) RANK. The Senior Preferred Stock shall, with respect to
dividend rights and rights on liquidation, dissolution and winding up, rank
prior to all classes of or series of common stock of the Corporation, including
the Corporation's common stock, par value $.01 per share ("COMMON STOCK"), and
each other class of capital stock of the Corporation, the terms of which do not
expressly provide that such class shall rank senior to, or on a parity with, the
Senior Preferred Stock or the terms of which do not specify any rank relative to
the Senior Preferred Stock. All capital stock of the Corporation to which the
Senior Preferred Stock ranks prior (whether with respect to dividends or upon
liquidation, dissolution, winding up or otherwise), including the Common Stock,
1
<PAGE>
are collectively referred to herein as the "JUNIOR SECURITIES." All capital
stock of the Corporation with which the Senior Preferred Stock ranks on a parity
(whether with respect to dividends or upon liquidation, dissolution or winding
up) are collectively referred to herein as the "PARITY SECURITIES." The
respective definitions of Junior Securities and Parity Securities shall also
include any rights or options exercisable for or convertible into any of the
Junior Securities and Parity Securities, as the case may be.
(3) DIVIDENDS. (a) (i) The holders of shares of Senior
Preferred Stock shall be entitled to receive, when, as and if declared by the
Board of Directors, out of funds legally available for the payment of dividends,
dividends (subject to Sections 3(a)(ii) and (iii)) at a rate equal to (the
"DIVIDEND RATE") (1) 15% per annum (computed on the basis of a 360 day year) or
(2), if (A) any Registration Statement is not filed with the Securities and
Exchange Commission (the "COMMISSION") on or prior to the applicable Filing
Deadline, (B) any such Registration Statement has not been declared effective by
the Commission on or prior to the applicable Effectiveness Target Date, (C) the
Exchange Offer has not been Consummated on or prior to the Consummation Deadline
or (D) any Registration Statement is declared effective but shall thereafter
cease to be effective or fail to be usable for its intended purpose without
being succeeded within 2 days by a post-effective amendment to such Registration
Statement that cures such failure and that is itself declared effective within 5
days of filing such post-effective amendment to such Registration Statement
(each such event referred to in clauses (A) through (D), (a "REGISTRATION
DEFAULT"), 15.5% per annum (computed on the basis of a 360 day year) for each
week or portion thereof that the Registration Default continues. Notwithstanding
anything to the contrary set forth herein, (1) upon filing of the Exchange Offer
Registration Statement (and/or, if applicable, the Shelf Registration
Statement), in the case of (A) above, (2) upon the effectiveness of the Exchange
Offer Registration Statement (and/or, if applicable, the Shelf Registration
Statement), in the case of (B) above, (3) upon Consummation of the Exchange
Offer, in the case of (C) above, or (4) upon the filing of a post-effective
amendment to the Registration Statement or an additional Registration Statement
that causes the Exchange Offer Registration Statement (and/or, if applicable,
the Shelf Registration Statement) to again be declared effective or made usable
in the case of (D) above, the Dividend Rate shall return to 15% (before giving
effect to any applicable Default Dividend). In the event the Corporation is
unable or shall fail to discharge its obligation to redeem all outstanding
shares of Senior Preferred Stock pursuant to Section 5(b) or 5(c), the Dividend
Rate as provided above shall increase by .50% per quarter (each, a "DEFAULT
DIVIDEND") for each quarter or portion thereof following the date on which such
redemption was required to be made until cured, PROVIDED that the aggregate
increase shall not exceed 10%. Such dividends shall be payable in the manner set
forth below in Sections 3(a)(ii) and (iii) quarterly on March 31, June 30,
September 30, and December 31 of each year (unless such day is not a business
day, in which event on the next succeeding business day) (each of such dates
being a "DIVIDEND PAYMENT DATE" and each such quarterly period being a "DIVIDEND
PERIOD"). Such dividends shall be cumulative from the date of issue, whether or
not in any Dividend Period or Periods there shall be funds of the Corporation
legally available for the payment of such dividends.
2
<PAGE>
"CONSUMMATE" means, with respect to an Exchange Offer, the
occurrence of (a) the filing and effectiveness under the Act of the Exchange
Offer Registration Statement relating to the New Preferred Stock to be issued in
the Exchange Offer, (b) the maintenance of such Exchange Offer Registration
Statement continuously effective and the keeping of the Exchange Offer open for
a period not less than the period required pursuant to Article V of the
Shareholders Agreement and (c) the delivery by the Corporation of New Preferred
Stock with the same liquidation value as the Liquidation Value of the Senior
Preferred Stock tendered by holders thereof pursuant to the Exchange Offer.
"EFFECTIVENESS TARGET DATE" shall have the meaning ascribed
such term in the Shareholders Agreement.
"EXCHANGE OFFER" shall have the meaning ascribed such term in
the Shareholders Agreement.
"EXCHANGE OFFER REGISTRATION STATEMENT" shall have the meaning
ascribed such term in the Shareholders Agreement.
"FILING DEADLINE" shall have the meaning ascribed such term in
the Shareholders Agreement.
"NEW PREFERRED STOCK" means the Corporation's new Senior
Preferred Stock Due 2011, of identical type and having identical terms as the
Senior Preferred Stock, to be issued (i) in the Exchange Offer or (ii) as
contemplated by Article V of the Shareholders Agreement.
"REGISTRATION STATEMENT" means any registration statement of
the Corporation relating to (a) an offering of New Preferred Stock pursuant to
an Exchange Offer or (b) the registration for resale of Transfer Restricted
Securities pursuant to the Shelf Registration Statement, in each case, (i) that
is filed pursuant hereto and (ii) including the prospectus included therein, all
amendments and supplements thereto (including post-effective amendments) and all
exhibits and material incorporated by reference therein.
"SHELF REGISTRATION STATEMENT" shall have the meaning ascribed
such term in the Shareholders Agreement.
"SHAREHOLDERS AGREEMENT" means the Preferred Stockholders
Agreement dated as of November 17, 1999 among the Corporation, Weekly Reader
Corporation, JLC Learning Corporation, EAC III LLC, SGC Partners II LLC, DLJ
Merchant Banking Partners II, L.P., DLJ Merchant Banking Partners II-A, L.P.,
DLJ Offshore Partners II, C.V., DLJ Diversified Partners, L.P., DLJ Diversified
Partners-A, L.P., DLJ Millennium Partners, L.P., DLJ Millennium Partners-A,
L.P., DLJMB Funding II, Inc., DLJ EAB Partners, L.P., DLJ First ESC, L.P., DLJ
ESC II, L.P. and the other parties listed on the signature pages thereto.
"TRANSFER RESTRICTED SECURITIES" means each share of Senior
Preferred Stock, until the earliest to occur of (i) the date on which such
Senior Preferred Stock is exchanged in the Exchange Offer for a share of New
Preferred
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<PAGE>
Stock which is entitled to be resold to the public by the holder thereof without
complying with the prospectus delivery requirements of the Act, (ii) the date on
which such share of Senior Preferred Stock has been disposed of in accordance
with a Shelf Registration Statement (and the purchasers thereof have been issued
New Preferred Stock), or (iii) the date on which such Senior Preferred Stock is
distributed to the public pursuant to Rule 144 under the Securities Act of 1933,
as amended (the "ACT").
(ii) Prior to the first Dividend Payment Date after the fifth
anniversary of the issuance of the Senior Preferred Stock (or such earlier
Dividend Payment Date as the Corporation shall elect) (either such date
being referred to as the "CASH PAY DATE"), dividends shall not be payable
in cash to holders of shares of Senior Preferred Stock but shall, subject
to Section 3(b), accrete to the Liquidation Value in accordance with
Section 4(a).
(iii) Following the Cash Pay Date, each such dividend shall be payable
in cash on the Liquidation Value per share of the Senior Preferred Stock,
in equal quarterly amounts (to which the Default Dividend, if any, shall be
added), to the holders of record of shares of the Senior Preferred Stock,
as they appear on the stock records of the Corporation at the close of
business on such record dates, not more than 60 days or less than 10 days
preceding the payment dates thereof, as shall be fixed by the Board of
Directors. Following the Cash Pay Date, accrued and unpaid dividends for
any past Dividend Periods may be declared and paid at any time, without
reference to any Dividend Payment Date, to holders of record on such date,
not more than 45 days preceding the payment date thereof, as may be fixed
by the Board of Directors.
(b) At the written request of the holders of a majority of the
shares of Senior Preferred Stock, the Corporation shall, commencing on the first
Dividend Payment Date after such request and ending on the Cash Pay Date, be
required to pay all dividends on shares of Senior Preferred Stock by the
issuance of additional shares of Senior Preferred Stock ("ADDITIONAL SHARES").
The Additional Shares shall be identical to all other shares of Senior Preferred
Stock, except as set forth in Section 4. For the purposes of determining the
number of Additional Shares to be issued as dividends pursuant to this Section
3(b), such Additional Shares shall be valued at their Applicable Liquidation
Value as provided in Section 4(c).
(c) Holders of shares of Senior Preferred Stock shall not be
entitled to any dividends, whether payable in cash, property or stock, in excess
of the cumulative dividends, as herein provided, on the Senior Preferred Stock.
Except as provided in this Section 3, no interest, or sum of money in lieu of
interest, shall be payable in respect of any dividend payment or payments on the
Senior Preferred Stock that may be in arrears.
(d) So long as any shares of the Senior Preferred Stock are
outstanding, no dividends, except as described in the next succeeding sentence,
shall be declared or paid or set apart for payment or other distribution
declared or made upon Parity Securities, nor shall any Parity Securities be
redeemed,
4
<PAGE>
purchased or otherwise acquired for any consideration (or any moneys be paid to
or made available for a sinking fund for the redemption of any shares of any
such stock) by the Corporation, directly or indirectly, unless, in each case (to
the extent such dividends on the Senior Preferred Stock are payable in cash),
full cumulative dividends have been or contemporaneously are declared and paid
or declared and a sum sufficient for the payment thereof set apart for such
payment on the Senior Preferred Stock for all Dividend Periods terminating on or
prior to the date of payment of the dividend on, or the acquisition of, as
applicable, such class or series of Parity Securities. When (to the extent such
dividends are payable in cash) dividends on the Senior Preferred Stock are not
paid in full or a sum sufficient for such payment is not set apart, as
aforesaid, all dividends declared upon shares of the Senior Preferred Stock and
all dividends declared upon any other class or series of Parity Securities shall
(in each case, to the extent payable in cash) be declared ratably in proportion
to the respective amounts of dividends accumulated and unpaid on the Senior
Preferred Stock and accumulated and unpaid on such Parity Securities.
(e) So long as any shares of the Senior Preferred Stock are
outstanding, no dividends (other than dividends or distributions paid in shares
of, or options, warrants or rights to subscribe for or purchase shares of,
Junior Securities) shall be declared or paid or set apart for payment or other
distribution declared or made upon Junior Securities, nor shall any Junior
Securities be redeemed, purchased or otherwise acquired (other than a
redemption, purchase or other acquisition of shares of Common Stock made for
purposes of an employee incentive or benefit plan of the Corporation or any
subsidiary) (all such dividends, distributions, redemptions or purchases being
hereinafter referred to as a "JUNIOR SECURITIES DISTRIBUTION") for any
consideration (or any moneys be paid to or made available for a sinking fund for
the redemption of any shares of any such stock) by the Corporation, directly or
indirectly (except by conversion into or exchange for Junior Securities), unless
in each case (i) the full cumulative dividends on all outstanding shares of the
Senior Preferred Stock and any other Parity Securities shall (to the extent
payable in cash) have been paid or set apart for payment for all past Dividend
Periods with respect to the Senior Preferred Stock and all past dividend periods
with respect to such Parity Securities and (ii) (to the extent payable in cash)
sufficient funds shall have been paid or set apart for the payment of the
dividend for the current Dividend Period with respect to the Senior Preferred
Stock and the current dividend period with respect to such Parity Securities.
(4) LIQUIDATION PREFERENCE. (a) In the event of any
liquidation, dissolution or winding up of the Corporation, whether voluntary or
involuntary, before any payment or distribution of the assets of the Corporation
(whether capital or surplus) shall be made to or set apart for the holders of
Junior Securities, the holders of the shares of Senior Preferred Stock shall be
entitled to receive an amount equal to the Liquidation Value of such share plus
any accrued and unpaid cash dividends to the date of distribution. "LIQUIDATION
VALUE" on any date means, with respect to (x) any share of Senior Preferred
Stock other than any Additional Shares, the sum of (1) $25.00 per share and (2)
the aggregate of all dividends accreted on such share until the most recent
Dividend Payment Date upon which an accretion to Liquidation Value has
5
<PAGE>
occurred (or if such date is a Dividend Payment Date upon which an accretion to
Liquidation Value has occurred, such date), PROVIDED that in the event of an
actual liquidation, dissolution or winding up of the Corporation or the
redemption of any shares of Senior Preferred Stock pursuant to Section 5
hereunder, the amount referred to in (2) shall be calculated by including
dividends accreting to the actual date of such liquidation, dissolution or
winding up or the redemption date, as the case may be, rather than the Dividend
Payment Date referred to above and, PROVIDED FURTHER that in no event will
dividends accrete beyond the earlier of (i) the Cash Pay Date and (ii) the most
recent Dividend Payment Date prior to the Dividend Payment Date on which
dividends on the Senior Preferred Stock are payable in Additional Shares (except
that in the event of an actual liquidation, dissolution or winding up of the
Corporation or the redemption of any shares of Senior Preferred Stock pursuant
to Section 5 hereunder, the amount referred to in (ii) shall be calculated by
including dividends accreting to the actual date of such liquidation,
dissolution or winding up or the redemption date, as the case may be), and (y)
any Additional Share, the Applicable Liquidation Value. All accretions to
Liquidation Value will be calculated using compounding on a quarterly basis.
Except as provided in the preceding sentences, holders of shares of Senior
Preferred Stock shall not be entitled to any distribution in the event of
liquidation, dissolution or winding up of the affairs of the Corporation. If,
upon any liquidation, dissolution or winding up of the Corporation, the assets
of the Corporation, or proceeds thereof, distributable among the holders of the
shares of Senior Preferred Stock shall be insufficient to pay in full the
preferential amount aforesaid and liquidating payments on any Parity Securities,
then such assets, or the proceeds thereof, shall be distributed among the
holders of shares of Senior Preferred Stock and any such other Parity Securities
ratably in accordance with the respective amounts that would be payable on such
shares of Senior Preferred Stock and any such other stock if all amounts payable
thereon were paid in full. For the purposes of this Section (4), (i) a
consolidation or merger of the Corporation with one or more corporations or (ii)
a sale or transfer of all or substantially all of the Corporation's assets,
shall not be deemed to be a liquidation, dissolution or winding up, voluntary or
involuntary, of the Corporation.
(b) Subject to the rights of the holders of any Parity
Securities, after payment shall have been made in full to the holders of the
Senior Preferred Stock, as provided in this Section (4), any other series or
class or classes of Junior Securities shall, subject to the respective terms and
provisions (if any) applying thereto, be entitled to receive any and all assets
remaining to be paid or distributed, and the holders of the Senior Preferred
Stock shall not be entitled to share therein.
(c) The Applicable Liquidation Value of any Additional Shares
shall be the Liquidation Value of Senior Preferred Stock outstanding immediately
prior to the first Dividend Payment Date occurring after a request for payment
in Additional Shares has been made in accordance with Section 3(b).
(5) REDEMPTION. (a) REDEMPTION AT THE OPTION OF THE
CORPORATION. On and after November 17, 1999 (but not including from November 17,
2002 to November 17, 2004), to the extent the Corporation shall have funds
legally available for such payment, the Corporation may, at its option, redeem
shares of Senior Preferred Stock, in whole but not in part, at redemption prices
per share in
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<PAGE>
cash set forth in the table below, together with accrued and unpaid cash
dividends thereon to the date fixed for redemption, without interest:
<TABLE>
<CAPTION>
YEAR BEGINNING
NOVEMBER 17 PERCENTAGE OF LIQUIDATION VALUE
<S> <C>
1999 115.000%
2000 115.000
2001 115.000
2002 Not applicable
2003 Not applicable
2004 107.500
2005 105.625
2006 103.750
2007 101.875
2008 100.000
</TABLE>
(b) REDEMPTION IN THE EVENT OF A CHANGE OF CONTROL. In the
event of a Change of Control, the Corporation shall, to the extent it shall have
funds legally available for such payment and to the extent permitted pursuant to
the Indenture, offer to redeem all of the shares of Senior Preferred Stock then
outstanding, and shall redeem the shares of Senior Preferred Stock of any holder
of such shares that shall consent to such redemption, upon a date no later than
30 days (or, if a later date is required in order to comply with the federal
securities laws, the first date thereafter on which such redemption is permitted
under the federal securities laws) (such date being referred to as the "CHANGE
OF CONTROL REDEMPTION DATE") following the Change in Control, at a redemption
price per share in cash set forth in the table below, together with accrued and
unpaid cash dividends thereon to the date fixed for redemption, without
interest.
<TABLE>
<CAPTION>
YEAR BEGINNING
NOVEMBER 17 PERCENTAGE OF LIQUIDATION VALUE
<S> <C>
1999 107.5000%
2000 107.5000
2001 107.5000
2002 100.0000
2003 100.0000
2004 103.7500
2005 102.8125
2006 101.8750
2007 100.9375
2008 100.0000
</TABLE>
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<PAGE>
"CHANGE OF CONTROL" means the occurrence of any of the
following (i) the direct or indirect sale, transfer or other disposition (other
than by way of merger or consolidation), in one or a series of related
transactions, of all or substantially all of the properties or assets of the
Corporation and its Subsidiaries (other than JLC Learning Corporation) taken as
a whole to any "person" or "group" (within the meaning of Sections 13(d) and
14(d)(2) of the Securities Exchange Act of 1934, as amended (the "EXCHANGE
ACT")) other than a Principal or a Related Party; (ii) the adoption of a plan of
liquidation or dissolution of the Corporation or Weekly Reader Corporation;
(iii) the consummation of any transaction (including without limitation any
merger or consolidation) the result of which is that any "person" or "group" (as
defined above), other than a Principal or a Related Party, becomes the
Beneficial Owner, directly or indirectly of more than 50% of the Voting Stock of
either of the Corporation or Weekly Reader Corporation, measured by voting power
rather than number of shares; or (iv) the first day on which a majority of the
members of the board of directors of the Corporation or Weekly Reader are not
Continuing Directors.
"BENEFICIAL OWNER" has the meaning assigned to such term in
Rule 13d-3 and Rule 13d-5 under the Exchange Act, except that in calculating the
beneficial ownership of any particular "person" (as that term is used in Section
13(d)(3) of the Exchange Act), such "person" shall be deemed to have beneficial
ownership of all securities that such "person" has the right to acquire by
conversion or exercise of other securities, whether such right is currently
exercisable or is exercisable only upon the occurrence of a subsequent
condition. "CONTINUING DIRECTORS" means, as of the date of any determination,
any member of the board of directors of the relevant company who (i) was a
member of such board of directors on November 17, 1999 or (ii) was nominated for
election or elected to such board of directors with the approval of a majority
of the Continuing Directors who were members of such board at the time of such
nomination or election.
"PRINCIPAL" means Ripplewood Partners, L.P., DLJ Merchant
Banking Partners II, L.P. and any member of management of any of the
Corporation, Weekly Reader Corporation or JLC Learning Corporation as of
November 17, 1999.
"RELATED PARTY" means (i) any controlling stockholder,
Subsidiary, or immediate family member (in the case of an individual) of any
Principal, (ii) any trust, corporation, partnership or other entity, the
beneficiaries, stockholders, partners, owners or Persons beneficially holding a
majority or more controlling interest of which consist of any one or more
Principals and/or such other Persons referred to in the immediately preceding
clause (i) or (iii) any Affiliate (as such term is defined in the Shareholders
Agreement) of DLJ Merchant Banking Partners II, L.P.
"SUBSIDIARY" means, with respect to any specified person, (i)
any corporation, association or other business entity of which more than 50% of
the total voting power of shares of capital stock entitled (without regard to
the occurrence of any contingency) to vote in the election of directors,
managers or trustees thereof is at the time owned or controlled, directly or
indirectly, by such person or one or more of the other Subsidiaries of the
person and (ii) any
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<PAGE>
partnership the sole general partner or the managing general partner of which is
such person or a Subsidiary of such person or the only general partners of which
are such person or one or more Subsidiaries of such person.
"INDENTURE" means that certain Indenture dated November 17,
1999 by and between the Corporation and The Bankers Trust Company with respect
to the Corporation's 12 3/4% Senior Subordinated Notes due 2009.
(c) MANDATORY REDEMPTION. To the extent the Corporation shall
have funds legally available for such payment, on November 17, 2011, if any
shares of the Senior Preferred Stock shall be outstanding, the Corporation shall
redeem all outstanding shares of the Senior Preferred Stock, at a redemption
price equal to the aggregate Liquidation Value, in cash, together with any
accrued and unpaid cash dividends thereon to the date fixed for redemption,
without interest.
(d) REDEMPTION FOR WEEKLY READER CORPORATION PREFERRED STOCK.
The Corporation, at its option but only in connection with or in anticipation of
(and no more than 10 business days prior to) the Reorganization, may redeem all
of the shares of Senior Preferred Stock then outstanding in exchange for an
equivalent number of shares of preferred stock of Weekly Reader Corporation, of
identical type and liquidation preference, having identical terms and conditions
as the Senior Preferred Stock (except that the issuer of such preferred stock
shall be Weekly Reader Corporation) and with equal amounts of accrued and unpaid
cash dividends, if any (the "EXCHANGE PREFERRED STOCK").
"REORGANIZATION" means a reorganization completed in connection
with an initial public offering, pursuant to which the Corporation shall
transfer, or cause to be transferred, all or substantially all of its assets to
Weekly Reader Corporation in exchange for the assumption by Weekly Reader
Corporation of all or substantially all of the liabilities of the Corporation,
the issuance to the Corporation by Weekly Reader Corporation of new common stock
and a number of shares of Exchange Preferred Stock equal to the number of shares
of Senior Preferred Stock then outstanding, and, at the option of the
Corporation, the distribution by the Corporation of an equivalent number of
shares of the Exchange Preferred Stock to the holders of the Senior Preferred
Stock in exchange for the Senior Preferred Stock, PROVIDED that after giving
effect to such reorganization, the overall economic position of a holder of
Exchange Preferred Stock with respect to its investment in Weekly Reader
Corporation (and relative to other creditors, lenders and equity holders of
Weekly Reader Corporation) shall not be worse than, immediately prior to such
reorganization, the overall economic position of a holder of Senior Preferred
Stock with respect to the investment by that holder in the Corporation (and
relative to other creditors, lenders and equity holders of the Corporation).
(e) STATUS OF REDEEMED SHARES. Shares of Senior Preferred Stock
which have been issued and reacquired in any manner, including shares purchased
or redeemed, shall (upon compliance with any applicable provisions of the laws
of the State of Delaware) have the status of authorized and unissued shares of
the class of Preferred Stock undesignated as to series and may be redesignated
and reissued as part of any series of the Preferred Stock, PROVIDED that no such
issued
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<PAGE>
and reacquired shares of Senior Preferred Stock shall be reissued or sold as
Senior Preferred Stock.
(f) FAILURE TO REDEEM. If the Corporation is unable or shall
fail to discharge its obligation to redeem all outstanding shares of Senior
Preferred Stock pursuant to Section (5)(b) or 5(c) (each, a "MANDATORY
REDEMPTION OBLIGATION"), such Mandatory Redemption Obligation shall be
discharged as soon as the Corporation is able to discharge such Mandatory
Redemption Obligation. If and so long as any Mandatory Redemption Obligation
with respect to the Senior Preferred Stock shall not be fully discharged, the
Corporation shall not (i) directly or indirectly, redeem, purchase, or otherwise
acquire any Parity Security or discharge any mandatory or optional redemption,
sinking fund or other similar obligation in respect of any Parity Securities
(except in connection with a redemption, sinking fund or other similar
obligation to be satisfied pro rata with the Senior Preferred Stock) or (ii) in
accordance with Section 3(e), declare or make any Junior Securities
Distribution, or, directly or indirectly, discharge any mandatory or optional
redemption, sinking fund or other similar obligation in respect of the Junior
Securities.
(g) FAILURE TO PAY DIVIDENDS. Notwithstanding the foregoing
provisions of this Section (5), unless full cumulative cash dividends (whether
or not declared) on all outstanding shares of Senior Preferred Stock shall have
been paid or contemporaneously are declared and paid or set apart for payment
for all Dividend Periods terminating on or prior to the applicable redemption
date, none of the shares of Senior Preferred Stock shall be redeemed, and no sum
shall be set aside for such redemption, unless shares of Senior Preferred Stock
are redeemed pro rata.
(6) PROCEDURE FOR REDEMPTION. (a) In the event the Corporation
shall redeem shares of Senior Preferred Stock pursuant to Section 5(a) or (c),
notice of such redemption shall be given by first class mail, postage prepaid,
mailed not less than 30 days nor more than 60 days prior to the redemption date,
to each holder of record of the shares to be redeemed at such holder's address
as the same appears on the stock register of the Corporation, PROVIDED that
neither the failure to give such notice nor any defect therein shall affect the
validity of the giving of notice for the redemption of any share of Senior
Preferred Stock to be redeemed except as to the holder to whom the Corporation
has failed to give said notice or except as to the holder whose notice was
defective. Each such notice shall state: (i) the redemption date; (ii) that all
shares of Senior Preferred Stock are to be redeemed; (iii) the redemption price;
(iv) the place or places where certificates for such shares are to be
surrendered for payment of the redemption price; and (v) that dividends on the
shares to be redeemed will cease to accrue on such redemption date.
(b) In the case of any redemption pursuant to Sections 5(a) or
(c), notice having been mailed as provided in Section 6(a), from and after the
redemption date (unless default shall be made by the Corporation in providing
money for the payment of the redemption price of the shares), dividends on the
shares of Senior Preferred Stock shall cease to accrue, and all rights of the
holders thereof as stockholders of the Corporation (except the right to receive
from the Corporation the redemption price) shall cease. Upon surrender in
accordance with
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<PAGE>
said notice of the certificates for any shares so redeemed (properly endorsed or
assigned for transfer, if the Board of Directors of the Corporation shall so
require and the notice shall so state), such shares shall be redeemed by the
Corporation at the redemption price aforesaid.
(c) In the case of a redemption pursuant to Section 5(b),
notice of such redemption shall be given by first class mail, postage prepaid,
mailed not more than 10 days following the occurrence of the Change of Control
and not less than 20 days prior to the Change of Control Redemption Date, to
each holder of record of the shares to be redeemed at such holder's address as
the same appears on the stock register of the Corporation, PROVIDED that neither
the failure to give such notice nor any defect therein shall affect the validity
of the giving of notice for the redemption of any share of Senior Preferred
Stock to be redeemed except as to the holder to whom the Corporation has failed
to give said notice or except as to the holder whose notice was defective. Each
such notice shall state: (i) that a Change of Control has occurred; (ii) the
Change of Control Redemption Date; (iii) the redemption price; (iv) that such
holder may elect to cause the Corporation to redeem all or any of the shares of
Senior Preferred Stock held by such holder; (v) the place or places where
certificates for such shares are to be surrendered for payment of the redemption
price; and (vi) that dividends on the shares the holder elects to cause the
Corporation to redeem will cease to accrue on such redemption date.
Upon receipt of such notice, the holder shall, within the time
period specified therein, return such notice to the Corporation indicating the
number of shares of Senior Preferred Stock such holder shall elect to cause the
Corporation to redeem, if any. The failure of any holder to timely return such
notice shall be deemed an election by such holder not to cause the Corporation
to redeem any of such holder's shares of Senior Preferred Stock. (d) In the case
of a redemption pursuant to Section 5(b), notice having been mailed as provided
in Section 6(c), from and after the Change of Control Redemption Date (unless
default shall be made by the Corporation in providing money for the payment of
the redemption price of the shares called for redemption), dividends on such
shares of Senior Preferred Stock as the holder elects to cause the Corporation
to redeem shall cease to accrue, and all rights of the holders thereof as
stockholders of the Corporation (except the right to receive from the
Corporation the redemption price) shall cease. Upon surrender in accordance with
said notice of the certificates for any shares so redeemed (properly endorsed or
assigned for transfer, if the Board of Directors of the Corporation shall so
require and the notice shall so state), such share shall be redeemed by the
Corporation at the redemption price aforesaid. In case fewer than all the shares
represented by any such certificate are redeemed, a new certificate shall be
issued representing the unredeemed shares without cost to the holder thereof.
(e) In the case of a redemption pursuant to Section 5(d),
notice of such redemption shall be given by first class mail, postage prepaid,
mailed not less than 10 days nor more than 60 days prior to the redemption date,
to each holder of record of the shares to be redeemed at such holder's address
as the same appears on the stock register of the Corporation, PROVIDED that
neither the failure to give such notice nor any defect therein shall affect the
validity of the giving of
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<PAGE>
notice for the redemption of any share of Senior Preferred Stock to be redeemed
except as to the holder to whom the Corporation has failed to give said notice
or except as to the holder whose notice was defective. Each such notice shall
state: (i) the redemption date; (ii) that all shares of Senior Preferred Stock
are to be redeemed; (iii) the place or places where certificates for such shares
of Senior Preferred Stock are to be surrendered for certificates for shares of
Exchange Preferred Stock; (iv) that dividends on the shares to be redeemed will
cease to accrue on such redemption date and (v) the proposed terms of the
Reorganization. If the Reorganization Transaction shall not be consummated in
the manner disclosed in such notice of redemption, such redemption will be, and
will be deemed to be, rescinded in all respects and the Senior Preferred Stock
shall remain outstanding in accordance with its terms.
(f) In the case of a redemption pursuant to Section 5(d),
notice having been mailed as provided in Section 6(e), from and after the
redemption date (unless default shall be made by the Corporation in distributing
the required shares of Exchange Preferred Stock in exchange for the shares of
Senior Preferred Stock), dividends on the shares of Senior Preferred Stock shall
cease to accrue, and all rights of the holders thereof as stockholders of the
Corporation (except the right to receive from the Corporation the required
shares of Exchange Preferred Stock) shall cease. Upon surrender in accordance
with said notice of the certificates for any shares of Senior Preferred Stock
(properly endorsed or assigned for transfer, if the Board of Directors of the
Corporation shall so require and the notice shall so state), such shares shall
be exchanged by the Corporation for the required shares of Exchange Preferred
Stock.
(7) VOTING RIGHTS. (a) The holders of record of shares of
Senior Preferred Stock shall not be entitled to any voting rights except as
hereinafter provided in this Section (7) or as otherwise provided by law. (b) If
and whenever (i) four consecutive or six quarterly cash dividends payable on the
Senior Preferred Stock have not been paid in full, (ii) for any reason
(including the reason that funds are not legally available for a redemption),
the Corporation shall have failed to discharge any Mandatory Redemption
Obligation, (iii) the Corporation shall have failed to provide the notice
required by Section 6(c) within the time period specified in such section or
(iv) the Corporation shall have failed to comply with Sections 3(d), 3(e) or
7(c), (1) the number of directors then constituting the Board of Directors shall
be increased by one and the holders of a majority of the outstanding shares of
Senior Preferred Stock, together with the holders of shares of every other
series of preferred stock upon which like rights have been conferred and are
exercisable (resulting from either the failure to pay dividends or the failure
to redeem) (any such series is referred to as the "PREFERRED SHARES"), voting as
a single class regardless of series, shall be entitled to elect the one
additional director to serve on the Board of Directors at any annual meeting of
stockholders or special meeting held in place thereof, or at a special meeting
of the holders of the Senior Preferred Stock and the Preferred Shares called as
hereinafter provided.
(c) Whenever (i) all arrears in cash dividends on the Senior
Preferred Stock and the Preferred Shares then outstanding shall have been paid
and cash dividends thereon for the current quarterly dividend period shall have
been paid or declared and set apart for payment, (ii) the Corporation shall have
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<PAGE>
fulfilled its Mandatory Redemption Obligation, (iii) the Corporation shall have
fulfilled its obligation to provide notice as specified in subsection (b)(iii),
or (iv) the Corporation shall have complied with Sections 3(d), 3(e) and 7(c),
as the case may be, then the right of the holders of the Senior Preferred Stock
to elect such additional director shall cease (but subject always to the same
provisions for the vesting of such voting rights in the case of any similar
future (i) arrearage in four consecutive or six quarterly cash dividends, (ii)
failure to fulfill any Mandatory Redemption Obligation, (iii) failure to fulfill
the obligation to provide the notice required by Section 6(c) within the time
period specified in such section or (iv) failure to comply with Sections 3(d),
3(e) or 7(c)), the terms of office of the person elected as director by the
holders of the Senior Preferred Stock shall forthwith terminate and the number
of the Board of Directors shall be reduced accordingly. At any time after such
voting power shall have been so vested in the holders of shares of Senior
Preferred Stock and the Preferred Shares, the secretary of the Corporation may,
and upon the written request of any holder of Senior Preferred Stock (addressed
to the secretary at the principal office of the Corporation) shall, call a
special meeting of the holders of the Senior Preferred Stock and of the
Preferred Shares for the election of the director to be elected by them as
herein provided, such call to be made by notice similar to that provided in the
Bylaws of the Corporation for a special meeting of the stockholders or as
required by law. If any such special meeting required to be called as above
provided shall not be called by the secretary within 20 days after receipt of
any such request, then any holder of shares of Senior Preferred Stock may call
such meeting, upon the notice above provided, and for that purpose shall have
access to the stock books of the Corporation. The director elected at any such
special meeting shall hold office until the next annual meeting of the
stockholders or special meeting held in lieu thereof if such office shall not
have previously terminated as above provided. If any vacancy shall occur with
respect to the director elected by the holders of the Senior Preferred Stock and
the Preferred Shares, a successor shall be elected in accordance with the
procedures of Section 7(b) to serve until the next annual meeting of the
stockholders or special meeting held in place thereof, if such office shall not
have previously terminated as provided above.
(d) Without the written consent of a majority of the
outstanding shares of Senior Preferred Stock or the vote of holders of a
majority of the outstanding shares of Senior Preferred Stock at a meeting of the
holders of Senior Preferred Stock called for such purpose, the Corporation will
not (i) amend, alter or repeal any provision of the Certificate of Incorporation
(by merger or otherwise) so as to adversely affect the preferences, rights or
powers of the Senior Preferred Stock, PROVIDED that any such amendment that
decreases the dividend payable on or the Liquidation Value of the Senior
Preferred Stock shall require the affirmative vote of holders of each share of
Senior Preferred Stock at a meeting of holders of Senior Preferred Stock called
for such purpose or written consent of the holder of each share of Senior
Preferred Stock; (ii) create, authorize or issue any class of stock ranking
prior to, or on a parity with, the Senior Preferred Stock with respect to
dividends or upon liquidation, dissolution, winding up or otherwise, or increase
the authorized number of shares of any such class or series, or reclassify any
authorized stock of the Corporation into any such prior or parity shares or
create, authorize or issue any obligation or security convertible into or
evidencing the right to purchase any such prior or parity
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shares, except that the Corporation may, without such approval, create,
authorize and issue Parity Securities for the purpose of utilizing the proceeds
from the issuance of such Parity Securities for the redemption of all
outstanding shares of Senior Preferred Stock in accordance with the terms hereof
or (iii) merge or consolidate, or sell, exchange or convey all or substantially
all of the assets, property or business of the Corporation unless, in the case
of a merger or consolidation, (A) if the Corporation is not the surviving
corporation, the seniority, rights, powers and preferences of the Senior
Preferred Stock continue unimpaired and on identical terms after such
transaction or (B) the surviving corporation has a Consolidated Net Worth
(immediately following any such transaction) at least equal to that of the
Corporation immediately prior to such transaction. The previous sentence shall
not be construed to prohibit any Reorganization consummated in compliance with
the terms of this Senior Preferred Stock.
"CONSOLIDATED NET WORTH" means at any date and with respect to
any Person, the consolidated stockholders' equity of such Person and its
consolidated subsidiaries less their consolidated Intangible Assets, all
determined as of such date. For purposes of this definition, "Intangible Assets"
means the amount (to the extent reflected in determining such consolidated
stockholders' equity) of (i) all write-ups (other than write-ups of assets of a
going concern business made within twelve months after the acquisition of such
business) subsequent to November 17, 1999 in the book value of any asset owned
by such Person or a consolidated subsidiary, (ii) all investments in
unconsolidated subsidiaries and all equity investments in Persons which are not
subsidiaries and (iii) all unamortized debt discount and expense, unamortized
deferred charges, goodwill, patents, trademarks, service marks, trade names,
anticipated future benefit of tax loss carry-forwards, copyrights, organization
or developmental expenses and other intangible assets.
(e) In exercising the voting rights set forth in this Section
(7), each share of Senior Preferred Stock shall have one vote per share, except
that when any other series of Preferred Stock shall have the right to vote with
the Senior Preferred Stock as a single class on any matter, then the Senior
Preferred Stock and such other series shall have with respect to such matters
one vote per $25.00 of Liquidation Value or other liquidation preference. Except
as otherwise required by applicable law or as set forth herein, the shares of
Senior Preferred Stock shall not have any relative, participating, optional or
other special voting rights and powers and the consent of the holders thereof
shall not be required for the taking of any corporate action.
(8) REPORTS. So long as any of the Senior Preferred Stock is
outstanding, the Corporation will furnish the holders thereof with the quarterly
and annual financial reports that the Corporation is required to file with the
Securities and Exchange Commission pursuant to Section 13 or Section 15(d) of
the Securities Exchange Act of 1934 or, in the event the Corporation is not
required to file such reports, reports containing the same information as would
be required in such reports.
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(9) GENERAL PROVISIONS. (a) The term "PERSON" as used herein
means any corporation, limited liability company, partnership, trust,
organization, association, other entity or individual.
(b) The term "OUTSTANDING", when used with reference to shares
of stock, shall mean issued shares, excluding shares held by the Corporation or
a subsidiary.
(c) The headings of the sections, subsections, paragraphs,
subparagraphs, clauses and subclauses used herein are for convenience of
reference only and shall not define, limit or affect any of the provisions
hereof.
(d) Each holder of Senior Preferred Stock, by acceptance
thereof, acknowledges and agrees that payments of dividends, interest, premium
and principal on, and exchange, redemption and repurchase of, such securities by
the Corporation are subject to restrictions on the Corporation contained in
certain credit and financing agreements, including the Indenture.
IN WITNESS WHEREOF, WRC Media Inc. has caused this Certificate
of Designations to be signed and attested by the undersigned this ____ day of
November, 1999.
WRC MEDIA INC.
By:
------------------------
Name:
Title:
ATTEST:
- ------------------------
Name:
Title:
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EXHIBIT C
Form of Warrant
WEEKLY READER CORPORATION
WARRANT FOR THE PURCHASE OF SHARES OF
COMMON STOCK OF WEEKLY READER CORPORATION
NO. ____ WARRANT TO PURCHASE
____ SHARES
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY STATE SECURITIES LAWS AND MAY NOT BE OFFERED OR SOLD
EXCEPT IN COMPLIANCE THEREWITH. THIS SECURITY IS ALSO SUBJECT TO
ADDITIONAL RESTRICTIONS ON TRANSFER, VOTING AND OTHER MATTERS AS SET FORTH
IN THE STOCKHOLDERS AGREEMENT (AS HEREIN DEFINED), COPIES OF WHICH MAY BE
OBTAINED UPON REQUEST FROM THE COMPANY OR ANY SUCCESSOR THERETO.
FOR VALUE RECEIVED, WEEKLY READER CORPORATION, a Delaware corporation
(the "COMPANY"), hereby certifies that [HOLDER], its successor or permitted
assigns (the "HOLDER"), is entitled, subject to the provisions of this Warrant,
to purchase from the Company, at the times specified herein, _____ fully paid
and non-assessable shares of voting common stock of the Company, par value $0.01
per share (the "WARRANT SHARES"), at a purchase price per share equal to the
Exercise Price (as hereinafter defined). The number of Warrant Shares to be
received upon the exercise of this Warrant and the price to be paid for a
Warrant Share are subject to adjustment from time to time as hereinafter set
forth. Notwithstanding the foregoing, the term "Warrant Shares," in the case of
any exercise of this Warrant by any DLJ Holder (as hereinafter defined) and any
transferee of any DLJ Holder that is also an Affiliate (as hereinafter defined)
of any DLJ Holder, but only in such case, shall be deemed to refer to fully-paid
and non-assessable shares of non-voting common stock of the Company, par value
$0.01 per share.
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(a) DEFINITIONS.
(1) The following terms, as used herein, have the following
meanings:
"AFFILIATE" shall have the meaning given to such term in Rule
12b-2 promulgated under the Securities and Exchange Act of 1934, as amended.
"BUSINESS DAY" means any day except a Saturday, Sunday or other day on which
commercial banks in the City of New York are authorized by law to close.
"COMMON STOCK" means the Common Stock, par value $0.01 per
share, of the Company or other capital stock of the Company that is not
preferred as to liquidation or dividends.
"DLJ HOLDERS" means DLJ Merchant Banking Partners II, L.P.,
DLJ Merchant Banking Partners II-A, L.P., DLJ Offshore Partners II, C.V., DLJ
Diversified Partners, L.P., DLJ Diversified Partners-A, L.P., DLJ Millennium
Partners, L.P., DLJ Millennium Partners-A, L.P., DLJMB Funding II, Inc., DLJ EAB
Partners, L.P., DLJ ESC II, L.P. and DLJ First ESC, L.P.
"DULY ENDORSED" means duly endorsed in blank by the Person or
Persons in whose name a stock certificate is registered or accompanied by a duly
executed stock assignment separate from the certificate with the signature(s)
thereon guaranteed by a commercial bank or trust company or a member of a
national securities exchange or of the National Association of Securities
Dealers, Inc.
"EXERCISE PRICE" means $0.01 per Warrant Share, such Exercise
Price to be adjusted from time to time as provided herein.
"EXPIRATION DATE" means November 17, 2011 at 5:00 p.m. New
York City time.
"FAIR MARKET VALUE" means, with respect to one share of Common
Stock on any date, the Current Market Price Per Common Share determined pursuant
to paragraph (h)(6) hereof.
"PERSON" means an individual, partnership, corporation,
limited liability company, trust, joint stock company, association, joint
venture, or any other entity or organization, including a government or
political subdivision or an agency or instrumentality thereof.
"PRINCIPAL HOLDERS" means, on any date, the Holders of at
least 662/3% of the Warrants.
"STOCKHOLDERS AGREEMENT" means the Preferred Stockholders
Agreement dated as of the date hereof among WRC Media Inc., the Company, JLC
Learning Corporation, Ripplewood Partners, L.P., The Northwestern Mutual Life
Insurance Company, SGC Partners II LLC, DLJ Merchant Banking Partners II, L.P.,
DLJ Merchant Banking Partners II-A, L.P., DLJ Offshore Partners II, C.V., DLJ
Diversified Partners, L.P., DLJ Diversified Partners-A, L.P., DLJ Millennium
Partners, L.P., DLJ
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Millennium Partners-A, L.P., DLJMB Funding II, Inc., DLJ EAB
Partners, L.P., DLJ ESC II, L.P., DLJ First ESC, L.P., EAC III LLC and the other
Buyers listed on the signature pages thereto.
"TRANSFER" means to directly or indirectly sell transfer,
assign or otherwise dispose of.
"WARRANTS" means the Warrants issued to the subscribers under
the Preferred Stock and Warrants Subscription Agreement dated as of the date
hereof among the Company and the subscribers listed on the signature pages
thereof.
(2) Capitalized terms used but not defined herein shall have
the meanings assigned to such terms in the Stockholders Agreement.
(b) EXERCISE OF WARRANT.
(1) The Holder is entitled to exercise this Warrant in whole
or in part at any time, or from time to time, until the Expiration Date
or, if such day is not a Business Day, then on the next succeeding day
that shall be a Business Day. To exercise this Warrant, the Holder
shall execute and deliver to the Company a Warrant Exercise Notice
substantially in the form annexed hereto. No earlier than ten days
after delivery of the Warrant Exercise Notice, the Holder shall deliver
to the Company this Warrant Certificate, including the Warrant Exercise
Subscription Form forming a part hereof duly executed by the Holder,
together with payment of the applicable Exercise Price, PROVIDED
HOWEVER, that in connection with a public offering of the Common Stock,
a Holder may deliver the Warrant Exercise Notice, the Warrant Exercise
Subscription Form and this Warrant Certificate, together with payment
of the applicable Exercise Price, to the Company simultaneously. Upon
such delivery and payment, the Holder shall be deemed to be the holder
of record of the Warrant Shares subject to such exercise,
notwithstanding that the stock transfer books of the Company shall then
be closed or that certificates representing such Warrant Shares shall
not then be actually delivered to the Holder. Notwithstanding anything
herein to the contrary, in lieu of payment in cash of the applicable
Exercise Price, the Holder may elect (i) to receive upon exercise of
this Warrant, the number of Warrant Shares reduced by a number of
shares of Common Stock having the aggregate Fair Market Value equal to
the aggregate Exercise Price for the Warrant Shares, (ii) to deliver as
payment, in whole or in part of the aggregate Exercise Price, shares of
Common Stock having the aggregate Fair Market Value equal to or in
excess of the applicable portion of the aggregate Exercise Price for
the Warrant Shares or (iii) to deliver as payment, in whole or in part
of the aggregate Exercise Price, such number of Warrants which, if
exercised, would result in a number of shares of Common Stock having an
aggregate Fair Market Value equal to or in excess of the applicable
portion of the aggregate Exercise Price for the Warrant Shares.
Notwithstanding anything to the contrary in this paragraph (b)(1), if
the aggregate Fair Market Value of the Common Stock applied or
delivered pursuant to (i),
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<PAGE>
(ii) or (iii) above exceeds the aggregate Exercise Price, in no event
shall the Holder be entitled to receive any amounts from the Company.
(2) The Exercise Price may be paid in cash or by certified or
official bank check or bank cashier's check payable to the order of the
Company or by any combination of such cash or check. The Company shall
pay any and all documentary, stamp or similar issue or transfer taxes
payable in respect of the issue or delivery of the Warrant Shares;
PROVIDED HOWEVER, that the Company shall not be required to pay any
such documentary, stamp, issue or transfer taxes payable in respect
of the issue or delivery of the Warrant Shares or any Warrant
Certificate in a name other than that of the Holder.
(3) If the Holder exercises this Warrant in part, this Warrant
Certificate shall be surrendered by the Holder to the Company and a new
Warrant Certificate of the same tenor and for the unexercised number of
Warrant Shares shall be executed by the Company. The Company shall
register the new Warrant Certificate in the name of the Holder or in
such name or names of its transferee pursuant to paragraph (f) hereof
as may be directed in writing by the Holder and deliver the new Warrant
Certificate to the Person or Persons entitled to receive the same;
PROVIDED HOWEVER, that the Company shall not be required to deliver any
such new Warrant Certificate until any taxes referred to in the proviso
to the foregoing clause (2) shall have been paid.
(4) Upon surrender of this Warrant Certificate in conformity
with the foregoing provisions, the Company shall transfer to the Holder
of this Warrant Certificate appropriate evidence of ownership of the
shares of Common Stock or other securities or property (including any
money) to which the Holder is entitled, registered or payable to the
order of, the name or names of the Holder or such transferee as may be
directed in writing by the Holder, and shall deliver such evidence of
ownership and any other securities or property (including any money) to
the Person or Persons entitled to receive the same, together with an
amount in cash in lieu of any fraction of a share as provided in
paragraph (e) below; PROVIDED HOWEVER, that the Company shall not be
required to deliver any such evidence of ownership until any taxes
referred to in the proviso to the foregoing clause (2) shall have been
paid.
(c) RESTRICTIVE LEGEND. Certificates representing shares of
Common Stock issued pursuant to this Warrant shall bear a legend substantially
in the form of the legend set forth on the first page of this Warrant
Certificate to the extent that and for so long as such legend is required
pursuant to the Stockholders Agreement.
(d) RESERVATION OF SHARES. The Company hereby agrees that at
all times there shall be reserved for issuance and delivery upon exercise of
this Warrant such number of its authorized but unissued shares of Common Stock
or other securities of the Company from time to time issuable upon exercise of
this Warrant as will be sufficient to permit the exercise in full of this
Warrant. All such shares shall be duly authorized and, when issued upon such
exercise, shall be
4
<PAGE>
validly issued, fully paid and non-assessable, free and clear of all liens,
security interests, charges and other encumbrances or restrictions on sale and
free and clear of all preemptive rights, except to the extent set forth in the
Stockholders Agreement.
(e) FRACTIONAL SHARES. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this Warrant
and in lieu of delivery of any such fractional share upon any exercise hereof,
the Company shall pay to the Holder an amount in cash equal to such fraction
multiplied by the Current Market Price Per Common Share (as defined in paragraph
(h)(6)) at the date of such exercise.
The Company further agrees that it will not change the par
value of the Common Stock from par value $0.01 per share to any higher par value
which exceeds the Exercise Price then in effect, and will reduce the par value
of the Common Stock upon any event described in paragraph (h) that (i) provides
for an increase in the number of shares of Common Stock subject to purchase upon
exercise of this Warrant, in inverse proportion to and effective at the same
time as such number of shares is increased, but only to the extent that such
increase in the number of shares, together with all other such increases after
the date hereof, causes the aggregate Exercise Price of all Warrants (without
giving effect to any exercise thereof) to be greater than $4,228.74 or (ii)
would, but for this provision, reduce the Exercise Price below the par value of
the Common Stock.
(f) EXCHANGE, TRANSFER OR ASSIGNMENT OF WARRANT.
(1) This Warrant and the Warrant Shares are subject to the
provisions of the Stockholders Agreement, including the restrictions on
transfer. Each taker and holder of this Warrant Certificate, by taking
or holding the same, consents and agrees that the registered holder
hereof may be treated by the Company and all other persons dealing with
this Warrant Certificate as the absolute owner hereof for any purpose
and as the person entitled to exercise the rights represented hereby.
The Holder, by its acceptance of this Warrant, will be subject to the
provisions of, and will have the benefits of, the Stockholders
Agreement to the extent set forth therein, including the transfer
restrictions and the registration rights included therein.
(2) Subject to compliance with the transfer restrictions set
forth in the Stockholders Agreement, upon surrender of this Warrant to
the Company, together with the attached Warrant Assignment Form duly
executed, the Company shall, without charge, execute and deliver a new
Warrant in the name of the assignee or assignees named in such
instrument of assignment and, if the Holder's entire interest is not
being assigned, in the name of the Holder and this Warrant shall
promptly be canceled. The Company may require payment of a sum
sufficient to pay all documentary, stamp or similar issue or transfer
taxes payable in respect of any transfer, exchange or assignment
pursuant to this paragraph (f).
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<PAGE>
(g) LOSS OR DESTRUCTION OF WARRANT. Upon receipt by the
Company of evidence satisfactory to it (in the exercise of its reasonable
discretion) of the loss, theft, destruction or mutilation of this Warrant
Certificate, and (in the case of loss, theft or destruction) of reasonably
satisfactory indemnification, and upon surrender and cancellation of this
Warrant Certificate, if mutilated, the Company shall execute and deliver a new
Warrant Certificate of like tenor and date.
(h) ANTI-DILUTION PROVISIONS. The Exercise Price of this
Warrant and the number of shares of Common Stock for which this Warrant may be
exercised shall be subject to adjustment from time to time upon the occurrence
of certain events as provided in this paragraph (h); PROVIDED that,
notwithstanding anything to the contrary contained herein, the Exercise Price
shall not be less than the par value of the Common Stock, as such par value may
be reduced from time to time in accordance with paragraph (e).
(1) In case the Company shall at any time after the date
hereof (i) declare a dividend or make a distribution on Common Stock
payable in Common Stock, (ii) subdivide or split the outstanding Common
Stock, (iii) combine or reclassify the outstanding Common Stock into a
smaller number of shares, or (iv) issue any shares of its capital stock
in a reclassification of Common Stock (including any such
reclassification in connection with a consolidation or merger in which
the Company is the continuing corporation), the Exercise Price in
effect at the time of the record date for such dividend or distribution
or of the effective date of such subdivision, split, combination or
reclassification shall be proportionately adjusted so that, giving
effect to paragraph (h)(9), the exercise of this Warrant after such
time shall entitle the holder to receive the aggregate number of shares
of Common Stock or other securities of the Company (or shares of any
security into which such shares of Common Stock have been reclassified
pursuant to clause (iii) or (iv) above) which, if this Warrant had been
exercised immediately prior to such time, such holder would have owned
upon such exercise and been entitled to receive by virtue of such
dividend, distribution, subdivision, split, combination or
reclassification. Such adjustment shall be made successively whenever
any event listed above shall occur.
(2) In case the Company shall issue or sell any Common Stock
(other than Common Stock issued (I) upon exercise of the Warrants, (II)
pursuant to any Common Stock related employee compensation plan of the
Company approved by the Company's Board of Directors; PROVIDED that no
more than 283,000 shares of Common Stock may be issued pursuant to the
exception set forth in this clause (II) of paragraph (h)(2), (III) upon
exercise or conversion of any security the issuance of which caused an
adjustment under paragraphs (h)(3) or (h)(4) or (iv) to the public in a
bona fide public offering registered under the Securities Act of 1933,
as amended, and the rules and regulations of the Securities and
Exchange Commission promulgated thereunder), the Exercise Price to be
in effect after such issuance or sale shall be determined by
multiplying the Exercise Price in effect immediately prior to such
issuance or sale by a fraction, the numerator of which shall be the sum
of (x) the number of shares of
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Common Stock outstanding immediately prior to the time of such issuance
or sale multiplied by the Current Market Price Per Common Share
immediately prior to such issuance or sale and (y) the aggregate
consideration, if any, to be received by the Company upon such issuance
or sale, and the denominator of which shall be the product of the
aggregate number of shares of Common Stock outstanding immediately
after such issuance or sale and the Current Market Price Per Common
Share immediately prior to such issuance or sale but in no event will
such fraction exceed 1. In case any portion of the consideration to be
received by the Company shall be in a form other than cash, the fair
market value of such noncash consideration shall be utilized in the
foregoing computation. Such fair market value shall be determined by
the Board of Directors of the Company; PROVIDED that if the Principal
Holders shall object to any such determination, the Board of Directors
shall retain an independent appraiser reasonably satisfactory to the
Principal Holders to determine such fair market value, the fees and
expenses of such independent appraiser to be paid (i) by the Company if
the fair market value as determined by such appraiser is less than the
fair market value as determined by the Board of Directors of the
Company and (ii) by the Holders otherwise. The Holder shall be notified
promptly of any consideration other than cash to be received by the
Company and furnished with a description of the consideration and the
fair market value thereof, as determined by the Board of Directors.
(3) In case the Company shall fix a record date for the
issuance of rights, options or warrants to the holders of its Common
Stock or other securities entitling such holders to subscribe for or
purchase for a period expiring within 60 days of such record date
shares of Common Stock (or securities convertible into shares of Common
Stock) at a price per share of Common Stock (or having a conversion
price per share of Common Stock, if a security convertible into shares
of Common Stock) less than the Current Market Price Per Common Share on
such record date, the maximum number of shares of Common Stock issuable
upon exercise of such rights, options or warrants (or conversion of
such convertible securities) shall be deemed to have been issued and
outstanding as of such record date and the Exercise Price shall be
adjusted pursuant to paragraph (h)(2), as though such maximum number of
shares of Common Stock had been so issued for an aggregate
consideration payable by the holders of such rights, options, warrants
or convertible securities prior to their receipt of such shares of
Common Stock. In case any portion of such consideration shall be in a
form other than cash, the fair market value of such noncash
consideration shall be determined as set forth in paragraph (h)(2).
Such adjustment shall be made successively whenever such record date is
fixed; and in the event that such rights, options or warrants are not
so issued or expire unexercised, or in the event of a change in the
number of shares of Common Stock to which the holders of such rights,
options, warrants or convertible securities are entitled (other than
pursuant to adjustment provisions therein which are no more favorable
in their entirety than those contained in this paragraph (h)), the
Exercise Price shall again be adjusted to be the Exercise Price
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<PAGE>
which would then be in effect if such record date had not been fixed,
in the former event, or the Exercise Price which would then be in
effect if such holder had initially been entitled to such changed
number of shares of Common Stock, in the latter event.
(4) In case the Company shall sell or issue rights, options
(other than options issued pursuant to a plan described in clause (II)
of paragraph (h)(2)) or warrants or other securities entitling the
holders thereof to subscribe for or purchase Common Stock (or
securities convertible into shares of Common Stock) and the price per
share of Common Stock (or the conversion price per share of Common
Stock, if the security is convertible into shares of Common Stock) with
respect to such right, option or warrant is less than the Current
Market Price Per Common Share, the maximum number of shares of Common
Stock issuable upon exercise of such rights, options or warrants (or
upon conversion of such convertible securities) shall be deemed to have
been issued and outstanding as of the date of such sale or issuance,
and the Exercise Price shall be adjusted pursuant to paragraph (h)(2),
as though such maximum number of shares of Common Stock had been so
issued for an aggregate consideration equal to the aggregate
consideration paid for such rights, options, warrants or convertible
securities and the aggregate consideration payable by the holders of
such rights, options, warrants or convertible securities prior to their
receipt of such shares of Common Stock. In case any portion of such
consideration shall be in a form other than cash, the fair market value
of such noncash consideration shall be determined as set forth in
paragraph (h)(2). Such adjustment shall be made successively whenever
such rights, options, warrants or convertible securities are issued;
and in the event that such rights, options or warrants expire
unexercised, or in the event of a change in the number of shares of
Common Stock to which the holders of such rights, options, warrants or
convertible securities are entitled (other than pursuant to adjustment
provisions therein which are no more favorable in their entirety than
those contained in this paragraph (h)), the Exercise Price shall again
be adjusted to be the Exercise Price which would then be in effect if
such rights, options, warrants or convertible securities had not been
issued, in the former event, or the Exercise Price which would then be
in effect if such holders had initially been entitled to such changed
number of shares of Common Stock, in the latter event. No adjustment of
the Exercise Price shall be made pursuant to this paragraph (h)(4) to
the extent that the Exercise Price shall have been adjusted pursuant to
paragraph (h)(3) upon the setting of any record date relating to such
rights, options, warrants or convertible securities and such adjustment
fully reflects the number of shares of Common Stock to which the
holders of such rights, options, warrants or convertible securities are
entitled and the price payable therefor.
(5) In case the Company shall fix a record date for the making
of a distribution to holders of Common Stock (including any such
distribution made in connection with a consolidation or merger in which
the Company is the continuing corporation) of evidences of
indebtedness, cash, assets or other property (other than dividends
payable in Common Stock or rights, options or warrants referred to in,
and for which an adjustment is made pursuant to, paragraph (h)(3)), the
Exercise Price to be in effect after such
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<PAGE>
record date shall be determined by multiplying the Exercise Price in
effect immediately prior to such record date by a fraction, the
numerator of which shall be the Current Market Price Per Common Share
on such record date, less the fair market value (determined as set
forth in paragraph (h)(2)) of the portion of the assets, cash, other
property or evidence of indebtedness so to be distributed which is
applicable to one share of Common Stock, and the denominator of which
shall be such Current Market Price Per Common Share. Such adjustments
shall be made successively whenever such a record date is fixed; and in
the event that such distribution is not so made, the Exercise Price
shall again be adjusted to be the Exercise Price which would then be in
effect if such record date had not been fixed.
(6) For the purpose of any computation under paragraph (e) or
paragraph (h)(2), (3), (4) or (5), on any determination date, the
Current Market Price Per Common Share shall be deemed to be the average
(weighted by daily trading volume) of the Daily Prices (as defined
below) per share of the Common Stock for the 20 consecutive trading
days ending three days prior to such date. "DAILY PRICE" means (1) if
the shares of Common Stock then are listed and traded on the New York
Stock Exchange, Inc. ("NYSE"), the closing price on such day as
reported on the NYSE Composite Transactions Tape; (2) if the shares of
Common Stock then are not listed and traded on the NYSE, the closing
price on such day as reported by the principal national securities
exchange on which the shares are listed and traded; (3) if the shares
of Common Stock then are not listed and traded on any such securities
exchange, the last reported sale price on such day on the National
Market of the National Association of Securities Dealers, Inc.
Automated Quotation System ("NASDAQ"); (4) if the shares of Common
Stock then are not listed and traded on any such securities exchange
and not traded on the NASDAQ National Market, the average of the
highest reported bid and lowest reported asked price on such day as
reported by NASDAQ; or (5) if such shares are not listed and traded on
any such securities exchange, not traded on the NASDAQ National Market
and bid and asked prices are not reported by NASDAQ, then the average
of the closing bid and asked prices, as reported by The Wall Street
Journal for the over-the-counter market. If on any determination date
the shares of Common Stock are not quoted by any such organization, the
Current Market Price Per Common Share shall be the fair market value of
such shares on such determination date as determined by the Board of
Directors, without regard to considerations of the lack of liquidity,
applicable regulatory restrictions or any of the transfer restrictions
or other obligations imposed on such shares set forth in the
Stockholders Agreement. If the Principal Holders shall object to any
determination by the Board of Directors of the Current Market Price Per
Common Share, the Current Market Price Per Common Share shall be the
fair market value per share of the applicable class of Common Stock as
determined by an independent appraiser retained by the Company and
reasonably acceptable to the Principal Holders, the fees and expenses
of such independent appraiser to be paid (i) by the Company if the
Current Market Price Per Common Share as determined by such appraiser
is less than the Current Market Price Per Common Share as determined by
the
9
<PAGE>
Board of Directors of the Company and (ii) by the Holders otherwise.
For purposes of any computation under this paragraph (h), the number of
shares of Common Stock outstanding at any given time shall not include
shares owned or held by or for the account of the Company.
(7) No adjustment in the Exercise Price shall be required
unless such adjustment would require an increase or decrease of at
least one percent in such price; PROVIDED that any adjustments which by
reason of this paragraph (h)(7) are not required to be made shall be
carried forward and taken into account in any subsequent adjustment.
All calculations under this paragraph (h) shall be made to the nearest
one tenth of a cent or to the nearest hundredth of a share, as the case
may be.
(8) In the event that, at any time as a result of the
provisions of this paragraph (h), the holder of this Warrant upon
subsequent exercise shall become entitled to receive any shares of
capital stock or other securities of the Company other than Common
Stock, the number of such other shares so receivable upon exercise of
this Warrant shall thereafter be subject to adjustment from time to
time in a manner and on terms as nearly equivalent as practicable to
the provisions contained herein.
(9) Upon each adjustment of the Exercise Price as a result of
the calculations made in paragraph (h)(1), (2), (3), (4) or (5), the
number of shares for which this Warrant is exercisable immediately
prior to the making of such adjustment shall thereafter evidence the
right to purchase, at the adjusted Exercise Price, that number of
shares of Common Stock obtained by (i) multiplying the number of shares
covered by this Warrant immediately prior to this adjustment of the
number of shares by the Exercise Price in effect immediately prior to
such adjustment of the Exercise Price and (ii) dividing the product so
obtained by the Exercise Price in effect immediately after such
adjustment of the Exercise Price.
(10) The Company shall notify all Holders of the fixing of a
record date for the purpose of payment of a cash dividend to holders of
Common Stock as soon as reasonably practicable, but in no event less
than 20 days prior to any such record date.
(11) Not less than 10 nor more than 30 days prior to the
record date or effective date, as the case may be, of any action which
requires or might require an adjustment or readjustment pursuant to
this paragraph (h), the Company shall forthwith file in the custody of
the secretary or any assistant secretary of the Company at its
principal executive office and with its stock transfer agent or its
warrant agent, if any, an officers' certificate showing the adjusted
Exercise Price determined as herein provided, setting forth in
reasonable detail the facts requiring such adjustment and the manner of
computing such adjustment. Each such officers' certificate shall be
signed by the chairman, president or chief financial officer of the
Company and by the secretary or any assistant secretary of the Company.
Each such officers' certificate shall be made available at all
reasonable times for inspection by the Holder or any holder of a
Warrant executed and delivered pursuant to paragraph (f) and the
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<PAGE>
Company shall, forthwith after each such adjustment, mail a copy, by
first-class mail, of such certificate to the Holder.
(12) The Holder shall, at its option, be entitled to receive,
in lieu of the adjustment pursuant to paragraph (h)(5) otherwise
required, on the date of exercise of the Warrants, the evidences of
indebtedness, other securities, cash, property or other assets which
such Holder would have been entitled to receive if it had exercised its
Warrants for shares of Common Stock immediately prior to the record
date with respect to such distribution. The Holder may exercise its
option under this paragraph (h)(12) by delivering to the Company a
written notice of such exercise within seven days of its receipt of the
certificate of adjustment required pursuant to paragraph (h)(11) to be
delivered by the Company in connection with such distribution.
(i) CONSOLIDATION, MERGER, OR SALE OF ASSETS. In case of any
consolidation of the Company with, or merger of the Company into, any other
Person, any merger of another Person into the Company (other than a merger which
does not result in any reclassification, conversion, exchange or cancellation of
outstanding shares of Common Stock) or any sale or Transfer of all or
substantially all of the assets of the Company or of the Person formed by such
consolidation or resulting from such merger or which acquires such assets, as
the case may be, the Holder shall have the right thereafter to exercise this
Warrant for the kind and amount of securities, cash and other property
receivable upon such consolidation, merger, sale or Transfer by a holder of the
number of shares of Common Stock for which this Warrant may have been exercised
immediately prior to such consolidation, merger, sale or Transfer, assuming (i)
such holder of Common Stock is not a Person with which the Company consolidated
or into which the Company merged or which merged into the Company or to which
such sale or Transfer was made, as the case may be ("CONSTITUENT PERSON"), or an
Affiliate of a constituent Person and (ii) in the case of a consolidation,
merger, sale or Transfer which includes an election as to the consideration to
be received by the holders, such holder of Common Stock failed to exercise its
rights of election, as to the kind or amount of securities, cash and other
property receivable upon such consolidation, merger, sale or Transfer (provided
that if the kind or amount of securities, cash and other property receivable
upon such consolidation, merger, sale or Transfer is not the same for each share
of Common Stock held immediately prior to such consolidation, merger, sale or
Transfer by other than a constituent Person or an Affiliate thereof and in
respect of which such rights of election shall not have been exercised
("NON-ELECTING SHARE"), then for the purpose of this paragraph (i) the kind and
amount of securities, cash and other property receivable upon such
consolidation, merger, sale or Transfer by each non-electing share shall be
deemed to be the kind and amount so receivable per share by a plurality of the
non-electing shares). Adjustments for events subsequent to the effective date of
such a consolidation, merger and sale of assets shall be as nearly equivalent as
may be practicable to the adjustments provided for in this Warrant.
In any such event, effective provisions shall be made in the
certificate or articles of incorporation of the resulting or surviving
corporation, in any contract of sale, conveyance, lease or Transfer, or
otherwise so that the
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<PAGE>
provisions set forth herein for the protection of the rights of the Holder shall
thereafter continue to be applicable; and any such resulting or surviving
corporation shall expressly assume the obligation to deliver, upon exercise,
such shares of stock, other securities, cash and property. The provisions of
this paragraph (i) shall similarly apply to successive consolidations, mergers,
sales, leases or Transfers.
(j) NOTICES. Any notice, demand or delivery authorized by this
Warrant Certificate shall be in writing and shall be given to the Holder or the
Company, as the case may be, at its address (or telecopier number) set forth
below, or such other address (or telecopier number) as shall have been furnished
to the party giving or making such notice, demand or delivery:
If to the Company: Weekly Reader Corporation
c/o Ripplewood Holdings L.L.C.
32nd Floor
One Rockefeller Plaza
New York, NY 10020
Attention: Mr. Timothy C. Collins
Mr. Charles L. Laurey
Telephone: (212) 218-2719
Facsimile: (212) 582-4110
With a copy to: Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, NY 10019
Attention: Peter S. Wilson, Esq.
Telephone: (212) 474-1767
Facsimile: (212) 765-0978
If to the Holder: [Holder]
[Address]
[Address]
Attention:
Telephone:
Facsimile:
Each such notice, demand or delivery shall be effective (i) if
given by telecopy, when such telecopy is transmitted to the telecopy number
specified herein and the intended recipient confirms the receipt of such
telecopy or (ii) if given by any other means, when received at the address
specified herein.
(k) RIGHTS OF THE HOLDER. Prior to the exercise of any
Warrant, the Holder shall not, by virtue hereof, be entitled to any rights of a
shareholder of the Company, including, without limitation, the right to vote, to
receive dividends or other distributions or to receive any notice of meetings of
shareholders or any notice of any proceedings of the Company except as may be
specifically provided for herein.
12
<PAGE>
(l) GOVERNING LAW. THIS WARRANT CERTIFICATE AND ALL RIGHTS
ARISING HEREUNDER SHALL BE CONSTRUED AND DETERMINED IN ACCORDANCE WITH THE
INTERNAL LAWS OF THE STATE OF NEW YORK, AND THE PERFORMANCE THEREOF SHALL BE
GOVERNED AND ENFORCED IN ACCORDANCE WITH SUCH LAWS.
(m) AMENDMENTS; WAIVERS. Any provision of this Warrant
Certificate may be amended or waived if, and only if, such amendment or waiver
is in writing and signed, in the case of an amendment, by the Holder and the
Company, or in the case of a waiver, by the party against whom the waiver is to
be effective. No failure or delay by either party in exercising any right, power
or privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
provided shall be cumulative and not exclusive of any rights or remedies
provided by law.
IN WITNESS WHEREOF, the Company has duly caused this Warrant
Certificate to be signed by its duly authorized officer and to be dated as of
November 17, 1999.
WEEKLY READER CORPORATION
By __________________________
Name:
Title:
Acknowledged and Agreed:
[HOLDER]
By ---------------------
Title:
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<PAGE>
WARRANT EXERCISE NOTICE
(To be delivered prior to exercise of the Warrant by execution of
the Warrant Exercise Subscription Form)
To: Weekly Reader Corporation
The undersigned hereby notifies you of its intention to exercise the
Warrant to purchase shares of Common Stock, par value $0.01 per share, of Weekly
Reader Corporation.
The undersigned intends to exercise the Warrant to purchase __________
shares of Common Stock (the "SHARES") at $____ per Share (the Exercise Price
currently in effect pursuant to the Warrant). The undersigned intends to pay the
aggregate Exercise Price for the Shares in cash, certified or official bank or
bank cashier's check (or a combination of cash and check) as indicated below.
-OR-
The undersigned intends to exercise the Warrant to purchase __________
shares of Common Stock (the "SHARES") and wishes, in lieu of paying the Exercise
Price of $____ per share currently in effect pursuant to the Warrant, to receive
that number of shares reduced by a number of shares of Common Stock having an
aggregate Fair Market Value (as defined in the Warrant) equal to the aggregate
Exercise Price for the Shares.
-OR-
The undersigned intends to exercise the Warrant to purchase __________
shares of Common Stock (the "SHARES") at the Exercise Price of $____ per share
currently in effect pursuant to the Warrant, and intends to deliver as payment
that number of shares of Common Stock having an aggregate Fair Market Value (as
defined in the Warrant) equal to or in excess of the aggregate Exercise Price
for the Shares.
-OR-
The undersigned intends to exercise the Warrant to purchase __________
shares of Common Stock (the "SHARES") at the Exercise Price of $____ per share
currently in effect pursuant to the Warrant, and intends to deliver as payment
that number of Warrants which, if exercised, would result in a number of shares
of Common Stock having an aggregate Fair Market Value (as defined in the
Warrant) equal to or in excess of the aggregate Exercise Price for the Shares.
-OR-
The undersigned intends to exercise the Warrant to purchase __________
shares of Common Stock (the "SHARES") at the Exercise Price of $____ per share
currently in effect pursuant to the Warrant, and intends to pay $_____ of the
aggregate Exercise Price for the Shares in cash, certified or official bank or
bank cashier's check (or a combination of cash and check) as indicated below,
and to
<PAGE>
deliver as payment of $____ of the aggregate Exercise Price that number of
shares of Common Stock having an aggregate Fair Market Value (as defined in the
Warrant) equal to or in excess of such portion of the aggregate Exercise Price
for the Shares.
-OR-
The undersigned intends to exercise the Warrant to purchase __________
shares of Common Stock (the "SHARES") at the Exercise Price of $____ per share
currently in effect pursuant to the Warrant, and intends to pay $_____ of the
aggregate Exercise Price for the Shares in cash, certified or official bank or
bank cashier's check (or a combination of cash and check) as indicated below,
and to deliver as payment of $____ of the aggregate Exercise Price that number
of Warrants which, if exercised, would result in a number of shares of Common
Stock having an aggregate Fair Market Value (as defined in the Warrant) equal to
or in excess of such portion of the aggregate Exercise Price for the Shares.
Date: __________ __, ____.
--------------------------------
(Signature of Holder)
--------------------------------
(Street Address)
--------------------------------
(City) (State) (Zip Code)
Payment: $___________ cash
$___________ check
____________ shares of Common Stock having a Fair Market
Value of $___________
_____________ Warrants exercisable for shares of Common Stock
having a Fair Market Value of $__________
2
<PAGE>
WARRANT SUBSCRIPTION FORM
To: Weekly Reader Corporation
The undersigned irrevocably exercises the Warrant for the purchase of
___________ shares of Common Stock (the "SHARES"), par value $0.01 per share, of
Weekly Reader Corporation (the "COMPANY") at $_____ per Share (the Exercise
Price currently in effect pursuant to the Warrant) and herewith makes payment of
$___________ (such payment being made in cash or by certified or official bank
or bank cashier's check payable to the order of the Company or by any permitted
combination of such cash or check), all on the terms and conditions specified in
the Warrant Certificate, surrenders this Warrant Certificate and all right,
title and interest therein to the Company and directs that the Shares
deliverable upon the exercise of this Warrant be registered or placed in the
name and at the address specified below and delivered thereto.
-OR-
The undersigned irrevocably exercises the Warrant for the purchase of
___________ shares of Common Stock (the "SHARES"), par value $0.01 per share, of
Weekly Reader Corporation (the "COMPANY") at $_____ per Share (the Exercise
Price currently in effect pursuant to the Warrant) (provided that in lieu of
payment of $_________, the undersigned will receive a number of Shares reduced
by a number of shares of Common Stock having an aggregate Fair Market Value (as
defined in the Warrant) equal to the aggregate Exercise Price for the Shares),
all on the terms and conditions specified in the Warrant Certificate, surrenders
this Warrant Certificate and all right, title and interest therein to the
Company and directs that the Shares deliverable upon the exercise of this
Warrant be registered or placed in the name and at the address specified below
and delivered thereto.
-OR-
The undersigned irrevocably exercises the Warrant for the purchase of
_______ shares of Common Stock (the "SHARES"), par value $0.01 per share, of
Weekly Reader Corporation (the "COMPANY") at $____ per share (the Exercise Price
currently in effect pursuant to the Warrant) (such payment being made by
delivering that number of shares of Common Stock having an aggregate Fair Market
Value (as defined in the Warrant) equal to or in excess of the aggregate
Exercise Price for the Shares), all on the terms and conditions specified in the
Warrant Certificate, surrenders this Warrant Certificate and all right, title
and interest therein to the Company and directs that the Shares deliverable upon
the exercise of this Warrant be registered or placed in the name and at the
address specified below and delivered thereto.
-OR-
The undersigned irrevocably exercises the Warrant for the purchase of
_______ shares of Common Stock (the "SHARES"), par value $0.01 per share, of
Weekly Reader Corporation (the "COMPANY") at $____ per share (the Exercise Price
currently in effect pursuant to the Warrant) (such payment being made by
<PAGE>
delivering that number of Warrants which, if exercised, would result in a number
of shares of Common Stock having an aggregate Fair Market Value (as defined in
the Warrant) equal to or in excess of the aggregate Exercise Price for the
Shares), all on the terms and conditions specified in the Warrant Certificate,
surrenders this Warrant Certificate and all right, title and interest therein to
the Company and directs that the Shares deliverable upon the exercise of this
Warrant be registered or placed in the name and at the address specified below
and delivered thereto.
-OR-
The undersigned irrevocably exercises the Warrant for the purchase
__________ shares of Common Stock (the "SHARES"), par value $0.01 per share, of
Weekly Reader Corporation (the "COMPANY") at $_______ per Share (the Exercise
Price currently in effect pursuant to the Warrant), and herewith makes payment
of $_____ of the aggregate Exercise Price for the Shares in cash, certified or
official bank or bank cashier's check (or a combination of cash and check), and
herewith delivers as payment of $____ of the aggregate Exercise Price that
number of shares of Common Stock having an aggregate Fair Market Value (as
defined in the Warrant) equal to or in excess of such portion of the aggregate
Exercise Price for the Shares, all on the terms and conditions specified in the
Warrant Certificate, surrenders this Warrant Certificate and all right, title
and interest therein to the Company and directs that the Shares deliverable upon
the exercise of this Warrant be registered or placed in the name and at the
address specified below and delivered thereto.
-OR-
The undersigned irrevocably exercises the Warrant for the purchase of
__________ shares of Common Stock, par value $0.01 per share, of Weekly Reader
Corporation (the "COMPANY") at $____ per share (the Exercise Price currently in
effect pursuant to the Warrant), and herewith makes payment of $_____ of the
aggregate Exercise Price for the Shares in cash, certified or official bank or
bank cashier's check (or a combination of cash and check), and herewith delivers
as payment of $____ of the aggregate Exercise Price that number of Warrants
which, if exercised, would result in a number of shares of Common Stock having
an aggregate Fair Market Value (as defined in the Warrant) equal to or in excess
of such portion of the aggregate Exercise Price for the Shares, all on the terms
and conditions specified in the Warrant Certificate, surrenders this Warrant
Certificate and all right, title and interest therein to the Company and directs
that the Shares deliverable upon the exercise of this Warrant be registered or
placed in the name and at the address specified below and delivered thereto.
2
<PAGE>
Date:
---------- --, ----.
--------------------------------
(Signature of Owner)
--------------------------------
(Street Address)
--------------------------------
(City) (State) (Zip Code)
The signature to the foregoing Warrant Subscription Form must
correspond to the name as written upon the face of the accompanying Warrant or
any prior assignment thereof in every particular without alteration or
enlargement or any change whatsoever.
3
<PAGE>
Securities and/or check to be issued to:
Please insert social security or identifying number:
Name:
Street Address:
City, State and Zip Code:
Any unexercised portion of the Warrant evidenced by the within Warrant
Certificate to be issued to:
Please insert social security or identifying number:
Name:
Street Address:
City, State and Zip Code:
<PAGE>
WARRANT ASSIGNMENT FORM
Dated_______
FOR VALUE RECEIVED,
---------------------------------------------
hereby sells, assigns and transfers unto,
- ------------------------------------------------(the "ASSIGNEE"),
(please type or print in block letters)
- -----------------------------------------------------------------
(insert address)
its right to purchase shares of Common Stock represented by this
Warrant and does hereby irrevocably constitute and appoint
_______________________ Attorney, to transfer the same on the books of
the Company, with full power of substitution in the premises.
Signature
----------------------------
NOTICE:
The signature to the foregoing Warrant Assignment Form must correspond
to the name as written upon the face of the accompanying Warrant or any prior
assignment thereof in every particular, without alteration or enlargement or any
change whatsoever.
<PAGE>
EXHIBIT D
Form of Warrant
JLC LEARNING CORPORATION
WARRANT FOR THE PURCHASE OF SHARES OF
COMMON STOCK OF JLC LEARNING CORPORATION
NO. ____ WARRANT TO PURCHASE
____ SHARES
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY STATE SECURITIES LAWS AND MAY NOT BE OFFERED OR SOLD EXCEPT
IN COMPLIANCE THEREWITH. THIS SECURITY IS ALSO SUBJECT TO ADDITIONAL
RESTRICTIONS ON TRANSFER, VOTING AND OTHER MATTERS AS SET FORTH IN THE
STOCKHOLDERS AGREEMENT (AS HEREIN DEFINED), COPIES OF WHICH MAY BE OBTAINED
UPON REQUEST FROM THE COMPANY OR ANY SUCCESSOR THERETO.
FOR VALUE RECEIVED, JLC LEARNING CORPORATION, a Delaware corporation
(the "COMPANY"), hereby certifies that [HOLDER], its successor or permitted
assigns (the "HOLDER"), is entitled, subject to the provisions of this Warrant,
to purchase from the Company, at the times specified herein, _____ fully paid
and non-assessable shares of voting common stock of the Company, par value $0.01
per share (the "WARRANT SHARES"), at a purchase price per share equal to the
Exercise Price (as hereinafter defined). The number of Warrant Shares to be
received upon the exercise of this Warrant and the price to be paid for a
Warrant Share are subject to adjustment from time to time as hereinafter set
forth. Notwithstanding the foregoing, the term "Warrant Shares," in the case of
any exercise of this Warrant by any DLJ Holder (as hereinafter defined) and any
transferee of any DLJ Holder that is also an Affiliate (as hereinafter defined)
of any DLJ Holder, but only in such case, shall be deemed to refer to fully paid
and non-assessable shares of non-voting common stock of the Company, par value
$0.01 per share.
(a) DEFINITIONS.
(1) The following terms, as used herein, have the following meanings:
"AFFILIATE" shall have the meaning given to such term in Rule 12b-2 promulgated
under the Securities and Exchange Act of 1934, as amended.
"BUSINESS DAY" means any day except a Saturday, Sunday or other day on
which commercial banks in the City of New York are authorized by law to close.
<PAGE>
"COMMON STOCK" means the Common Stock, par value $0.01 per share, of
the Company or other capital stock of the Company that is not preferred as to
liquidation or dividends.
"DLJ HOLDERS" means DLJ Merchant Banking Partners II, L.P., DLJ
Merchant Banking Partners II-A, L.P., DLJ Offshore Partners II, C.V., DLJ
Diversified Partners, L.P., DLJ Diversified Partners-A, L.P., DLj Millennium
Partners, L.P., DLJ Millennium Partners-A, L.P., DLJMB Funding II, Inc., DLJ EAB
Partners, L.P., DLJ ESC II, L.P. and DLJ First ESC, L.P.
"DULY ENDORSED" means duly endorsed in blank by the Person or Persons
in whose name a stock certificate is registered or accompanied by a duly
executed stock assignment separate from the certificate with the signature(s)
thereon guaranteed by a commercial bank or trust company or a member of a
national securities exchange or of the National Association of Securities
Dealers, Inc.
"EXERCISE PRICE" means $0.01 per Warrant Share, such Exercise Price to
be adjusted from time to time as provided herein.
"EXPIRATION DATE" means November 17, 2011 at 5:00 p.m. New York City
time.
"FAIR MARKET VALUE" means, with respect to one share of Common Stock on
any date, the Current Market Price Per Common Share determined pursuant to
paragraph (h)(6) hereof.
"PERSON" means an individual, partnership, corporation, limited
liability company, trust, joint stock company, association, joint venture, or
any other entity or organization, including a government or political
subdivision or an agency or instrumentality thereof.
"PRINCIPAL HOLDERS" means, on any date, the Holders of at least 662/3%
of the Warrants.
"STOCKHOLDERS AGREEMENT" means the Amended and Restated Stockholders
Agreement dated as of the date hereof among WRC Media Inc., Weekly Reader
Corporation, the Company, Ripplewood Partners, L.P., the Northwestern Mutual
Life Insurance Company, SGC Partners II LLC, DLJ Merchant Banking Partners II,
L.P., DLJ Merchant Banking Partners II-A, L.P., DLJ Offshore Partners II, C.V.,
DLJ Diversified Partners, L.P., DLJ Diversified Partners-A, L.P., DLJ Millennium
Partners, L.P., DLJ Millennium Partners-A, L.P., DLJMB Funding II, Inc., DLJ EAB
Partners, L.P., DLJ ESC II, L.P., DLJ First ESC, L.P., EAC III LLC and the other
Buyers listed on the signature pages thereto.
"TRANSFER" means to directly or indirectly sell, transfer, assign or
otherwise dispose of.
"WARRANTS" means the Warrants issued to the subscribers under the
Preferred Stock and Warrants Subscription Agreement dated as of the date hereof
among the Company and the subscribers listed on the signature pages thereof.
2
<PAGE>
(2) Capitalized terms used but not defined herein shall have the
meanings assigned to such terms in the Stockholders Agreement.
(b) EXERCISE OF WARRANT.
(1) The Holder is entitled to exercise this Warrant in whole or in part
at any time, or from time to time, until the Expiration Date or, if such day is
not a Business Day, then on the next succeeding day that shall be a Business
Day. To exercise this Warrant, the Holder shall execute and deliver to the
Company a Warrant Exercise Notice substantially in the form annexed hereto. No
earlier than ten days after delivery of the Warrant Exercise Notice, the Holder
shall deliver to the Company this Warrant Certificate, including the Warrant
Exercise Subscription Form forming a part hereof duly executed by the Holder,
together with payment of the applicable Exercise Price, PROVIDED HOWEVER, that
in connection with a public offering of the Common Stock, a Holder may deliver
the Warrant Exercise Notice, the Warrant Exercise Subscription Form and this
Warrant Certificate, together with payment of the applicable Exercise Price, to
the Company simultaneously. Upon such delivery and payment, the Holder shall be
deemed to be the holder of record of the Warrant Shares subject to such
exercise, notwithstanding that the stock transfer books of the Company shall
then be closed or that certificates representing such Warrant Shares shall not
then be actually delivered to the Holder. Notwithstanding anything herein to the
contrary, in lieu of payment in cash of the applicable Exercise Price, the
Holder may elect (i) to receive upon exercise of this Warrant, the number of
Warrant Shares reduced by a number of shares of Common Stock having the
aggregate Fair Market Value equal to the aggregate Exercise Price for the
Warrant Shares, (ii) to deliver as payment, in whole or in part of the aggregate
Exercise Price, shares of Common Stock having the aggregate Fair Market Value
equal to or in excess of the applicable portion of the aggregate Exercise Price
for the Warrant Shares or (iii) to deliver as payment, in whole or in part of
the aggregate Exercise Price, such number of Warrants which, if exercised, would
result in a number of shares of Common Stock having an aggregate Fair Market
Value equal to or in excess of the applicable portion of the aggregate Exercise
Price for the Warrant Shares. Notwithstanding anything to the contrary in this
paragraph (b)(1), if the aggregate Fair Market Value of the Common Stock applied
or delivered pursuant to (i), (ii) or (iii) above exceeds the aggregate Exercise
Price, in no event shall the Holder be entitled to receive any amounts from the
Company.
(2) The Exercise Price may be paid in cash or by certified or official
bank check or bank cashier's check payable to the order of the Company or
by any combination of such cash or check. The Company shall pay any and all
documentary, stamp or similar issue or transfer taxes payable in respect of
the issue or delivery of the Warrant Shares; PROVIDED HOWEVER, that the
Company shall not be required to pay any such documentary, stamp, issue or
transfer taxes payable in respect of the issue or delivery of the Warrant
Shares or any Warrant Certificate in a name other than that of the Holder.
(3) If the Holder exercises this Warrant in part, this Warrant
Certificate shall be surrendered by the Holder to the Company and a new
Warrant Certificate of the same tenor and for the unexercised number of
Warrant Shares shall be executed by the Company. The Company shall register
the
3
<PAGE>
new Warrant Certificate in the name of the Holder or in such name or names
of its transferee pursuant to paragraph (f) hereof as may be directed in
writing by the Holder and deliver the new Warrant Certificate to the Person
or Persons entitled to receive the same; PROVIDED HOWEVER, that the Company
shall not be required to deliver any such new Warrant Certificate until any
taxes referred to in the proviso to the foregoing clause (2) shall have
been paid.
(4) Upon surrender of this Warrant Certificate in conformity with the
foregoing provisions, the Company shall transfer to the Holder of this
Warrant Certificate appropriate evidence of ownership of the shares of
Common Stock or other securities or property (including any money) to which
the Holder is entitled, registered or payable to the order of, the name or
names of the Holder or such transferee as may be directed in writing by the
Holder, and shall deliver such evidence of ownership and any other
securities or property (including any money) to the Person or Persons
entitled to receive the same, together with an amount in cash in lieu of
any fraction of a share as provided in paragraph (e) below; PROVIDED
HOWEVER, that the Company shall not be required to deliver any such
evidence of ownership until any taxes referred to in the proviso to the
foregoing clause (2) shall have been paid.
(c) RESTRICTIVE LEGEND. Certificates representing shares of Common
Stock issued pursuant to this Warrant shall bear a legend substantially in the
form of the legend set forth on the first page of this Warrant Certificate to
the extent that and for so long as such legend is required pursuant to the
Stockholders Agreement.
(d) RESERVATION OF SHARES. The Company hereby agrees that at all times
there shall be reserved for issuance and delivery upon exercise of this Warrant
such number of its authorized but unissued shares of Common Stock or other
securities of the Company from time to time issuable upon exercise of this
Warrant as will be sufficient to permit the exercise in full of this Warrant.
All such shares shall be duly authorized and, when issued upon such exercise,
shall be validly issued, fully paid and non-assessable, free and clear of all
liens, security interests, charges and other encumbrances or restrictions on
sale and free and clear of all preemptive rights, except to the extent set forth
in the Stockholders Agreement.
(e) FRACTIONAL SHARES. No fractional shares or scrip representing
fractional shares shall be issued upon the exercise of this Warrant and in lieu
of delivery of any such fractional share upon any exercise hereof, the Company
shall pay to the Holder an amount in cash equal to such fraction multiplied by
the Current Market Price Per Common Share (as defined in paragraph (h)(6)) at
the date of such exercise.
The Company further agrees that it will not change the par value of the
Common Stock from par value $0.01 per share to any higher par value which
exceeds the Exercise Price then in effect, and will reduce the par value of the
Common Stock upon any event described in paragraph (h) that (i) provides for an
increase in the number of shares of Common Stock subject to purchase upon
exercise of this Warrant, in inverse proportion to and effective at the same
time as such number of shares is increased, but only to the extent that such
increase in the
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<PAGE>
number of shares, together with all other such increases after the date hereof,
causes the aggregate Exercise Price of all Warrants (without giving effect to
any exercise thereof) to be greater than $14.95 or (ii) would, but for this
provision, reduce the Exercise Price below the par value of the Common Stock.
(f) EXCHANGE, TRANSFER OR ASSIGNMENT OF WARRANT.
(1) This Warrant and the Warrant Shares are subject to the
provisions of the Stockholders Agreement, including the restrictions on
transfer. Each taker and holder of this Warrant Certificate, by taking
or holding the same, consents and agrees that the registered holder
hereof may be treated by the Company and all other persons dealing with
this Warrant Certificate as the absolute owner hereof for any purpose
and as the person entitled to exercise the rights represented hereby.
The Holder, by its acceptance of this Warrant, will be subject to the
provisions of, and will have the benefits of, the Stockholders Agreement
to the extent set forth therein, including the transfer restrictions and
the registration rights included therein.
(2) Subject to compliance with the transfer restrictions set forth in
the Stockholders Agreement, upon surrender of this Warrant to the Company,
together with the attached Warrant Assignment Form duly executed, the
Company shall, without charge, execute and deliver a new Warrant in the
name of the assignee or assignees named in such instrument of assignment
and, if the Holder's entire interest is not being assigned, in the name of
the Holder and this Warrant shall promptly be canceled. The Company may
require payment of a sum sufficient to pay all documentary, stamp or
similar issue or transfer taxes payable 0in respect of any transfer,
exchange or assignment pursuant to this paragraph (f).
(g) LOSS OR DESTRUCTION OF WARRANT. Upon receipt by the
Company of evidence satisfactory to it (in the exercise of its reasonable
discretion) of the loss, theft, destruction or mutilation of this Warrant
Certificate, and (in the case of loss, theft or destruction) of reasonably
satisfactory indemnification, and upon surrender and cancellation of this
Warrant Certificate, if mutilated, the Company shall execute and deliver a new
Warrant Certificate of like tenor and date.
(h) ANTI-DILUTION PROVISIONS. The Exercise Price of this Warrant and
the number of shares of Common Stock for which this Warrant may be exercised
shall be subject to adjustment from time to time upon the occurrence of certain
events as provided in this paragraph (h); PROVIDED that, notwithstanding
anything to the contrary contained herein, the Exercise Price shall not be less
than the par value of the Common Stock, as such par value may be reduced from
time to time in accordance with paragraph (e).
(1) In case the Company shall at any time after the date hereof (i)
declare a dividend or make a distribution on Common Stock payable in Common
Stock, (ii) subdivide or split the outstanding Common Stock, (iii) combine
or reclassify the outstanding Common Stock into a smaller number of shares,
or (iv) issue any shares of its capital stock in a reclassification of
Common Stock (including any such reclassification in connection with a
consolidation or
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<PAGE>
merger in which the Company is the continuing corporation), the Exercise
Price in effect at the time of the record date for such dividend or
distribution or of the effective date of such subdivision, split,
combination or reclassification shall be proportionately adjusted so that,
giving effect to paragraph (h)(9), the exercise of this Warrant after such
time shall entitle the holder to receive the aggregate number of shares of
Common Stock or other securities of the Company (or shares of any security
into which such shares of Common Stock have been reclassified pursuant to
clause (iii) or (iv) above) which, if this Warrant had been exercised
immediately prior to such time, such holder would have owned upon such
exercise and been entitled to receive by virtue of such dividend,
distribution, subdivision, split, combination or reclassification. Such
adjustment shall be made successively whenever any event listed above shall
occur.
(2) In case the Company shall issue or sell any Common Stock (other
than Common Stock issued (I) upon exercise of the Warrants, (II) pursuant
to any Common Stock related employee compensation plan of the Company
approved by the Company's Board of Directors; PROVIDED that no more than
1,000 shares of Common Stock may be issued pursuant to the exception set
forth in this clause (II) of paragraph (h)(2), (III) upon exercise or
conversion of any security the issuance of which caused an adjustment under
paragraphs (h)(3) or (h)(4) or (iv) to the public in a bona fide public
offering registered under the Securities Act of 1933, as amended, and the
rules and regulations of the Securities and Exchange Commission promulgated
thereunder), the Exercise Price to be in effect after such issuance or sale
shall be determined by multiplying the Exercise Price in effect immediately
prior to such issuance or sale by a fraction, the numerator of which shall
be the sum of (x) the number of shares of Common Stock outstanding
immediately prior to the time of such issuance or sale multiplied by the
Current Market Price Per Common Share immediately prior to such issuance or
sale and (y) the aggregate consideration, if any, to be received by the
Company upon such issuance or sale, and the denominator of which shall be
the product of the aggregate number of shares of Common Stock outstanding
immediately after such issuance or sale and the Current Market Price Per
Common Share immediately prior to such issuance or sale but in no event
will such fraction exceed 1. In case any portion of the consideration to be
received by the Company shall be in a form other than cash, the fair market
value of such noncash consideration shall be utilized in the foregoing
computation. Such fair market value shall be determined by the Board of
Directors of the Company; PROVIDED that if the Principal Holders shall
object to any such determination, the Board of Directors shall retain an
independent appraiser reasonably satisfactory to the Principal Holders to
determine such fair market value, the fees and expenses of such independent
appraiser to be paid (i) by the Company if the fair market value as
determined by such appraiser is less than the fair market value as
determined by the Board of Directors of the Company and (ii) by the Holders
otherwise. The Holder shall be notified promptly of any consideration other
than cash to be received by the Company and furnished with a description of
the consideration and the fair market value thereof, as determined by the
Board of Directors.
(3) In case the Company shall fix a record date for the issuance of
rights, options or warrants to the holders of its Common Stock or other
securities
6
<PAGE>
entitling such holders to subscribe for or purchase for a period expiring
within 60 days of such record date shares of Common Stock (or securities
convertible into shares of Common Stock) at a price per share of Common
Stock (or having a conversion price per share of Common Stock, if a
security convertible into shares of Common Stock) less than the Current
Market Price Per Common Share on such record date, the maximum number of
shares of Common Stock issuable upon exercise of such rights, options or
warrants (or conversion of such convertible securities) shall be deemed to
have been issued and outstanding as of such record date and the Exercise
Price shall be adjusted pursuant to paragraph (h)(2), as though such
maximum number of shares of Common Stock had been so issued for an
aggregate consideration payable by the holders of such rights, options,
warrants or convertible securities prior to their receipt of such shares of
Common Stock. In case any portion of such consideration shall be in a form
other than cash, the fair market value of such noncash consideration shall
be determined as set forth in paragraph (h)(2). Such adjustment shall be
made successively whenever such record date is fixed; and in the event that
such rights, options or warrants are not so issued or expire unexercised,
or in the event of a change in the number of shares of Common Stock to
which the holders of such rights, options, warrants or convertible
securities are entitled (other than pursuant to adjustment provisions
therein which are no more favorable in their entirety than those contained
in this paragraph (h)), the Exercise Price shall again be adjusted to be
the Exercise Price which would then be in effect if such record date had
not been fixed, in the former event, or the Exercise Price which would then
be in effect if such holder had initially been entitled to such changed
number of shares of Common Stock, in the latter event.
(4) In case the Company shall sell or issue rights, options (other than
options issued pursuant to a plan described in clause (II) of paragraph
(h)(2)) warrants or other securities entitling the holders thereof to
subscribe for or purchase Common Stock (or securities convertible into
shares of Common Stock), and the price per share of Common Stock (or the
conversion price per share of Common Stock, if the security is convertible
into shares of Common Stock) with respect to such right, option or warrant
is less than the Current Market Price Per Common Share, the maximum number
of shares of Common Stock issuable upon exercise of such rights, options or
warrants (or upon conversion of such convertible securities) shall be
deemed to have been issued and outstanding as of the date of such sale or
issuance, and the Exercise Price shall be adjusted pursuant to paragraph
(h)(2), as though such maximum number of shares of Common Stock had been so
issued for an aggregate consideration equal to the aggregate consideration
paid for such rights, options, warrants or convertible securities and the
aggregate consideration payable by the holders of such rights, options,
warrants or convertible securities prior to their receipt of such shares of
Common Stock. In case any portion of such consideration shall be in a form
other than cash, the fair market value of such noncash consideration shall
be determined as set forth in paragraph (h)(2) hereof. Such adjustment
shall be made successively whenever such rights, options, warrants or
convertible securities are issued; and in the event that such rights,
options or warrants expire unexercised, or in the event of a change in the
number of shares of Common Stock to which the holders of such rights,
options, warrants or convertible securities are entitled
7
<PAGE>
(other than pursuant to adjustment provisions therein which are no more
favorable in their entirety than those contained in this paragraph (h)),
the Exercise Price shall again be adjusted to be the Exercise Price which
would then be in effect if such rights, options, warrants or convertible
securities had not been issued, in the former event, or the Exercise Price
which would then be in effect if such holders had initially been entitled
to such changed number of shares of Common Stock, in the latter event. No
adjustment of the Exercise Price shall be made pursuant to this paragraph
(h)(4) to the extent that the Exercise Price shall have been adjusted
pursuant to paragraph (h)(3) upon the setting of any record date relating
to such rights, options, warrants or convertible securities and such
adjustment fully reflects the number of shares of Common Stock to which the
holders of such rights, options, warrants or convertible securities are
entitled and the price payable therefor.
(5) In case the Company shall fix a record date for the making of a
distribution to holders of Common Stock (including any such distribution
made in connection with a consolidation or merger in which the Company is
the continuing corporation) of evidences of indebtedness, cash, assets or
other property (other than dividends payable in Common Stock or rights,
options or warrants referred to in, and for which an adjustment is made
pursuant to, paragraph (h)(3)), the Exercise Price to be in effect after
such record date shall be determined by multiplying the Exercise Price in
effect immediately prior to such record date by a fraction, the numerator
of which shall be the Current Market Price Per Common Share on such record
date, less the fair market value (determined as set forth in paragraph
(h)(2)) of the portion of the assets, cash, other property or evidence of
indebtedness so to be distributed which is applicable to one share of
Common Stock, and the denominator of which shall be such Current Market
Price Per Common Share. Such adjustments shall be made successively
whenever such a record date is fixed; and in the event that such
distribution is not so made, the Exercise Price shall again be adjusted to
be the Exercise Price which would then be in effect if such record date had
not been fixed.
(6) For the purpose of any computation under paragraph (e) or paragraph
(h)(2), (3), (4) or (5), on any determination date, the Current Market
Price Per Common Share shall be deemed to be the average (weighted by daily
trading volume) of the Daily Prices (as defined below) per share of the
Common Stock for the 20 consecutive trading days ending three days prior to
such date.
"DAILY PRICE" means (1) if the shares of Common Stock then are listed
and traded on the New York Stock Exchange, Inc. ("NYSE"), the closing price on
such day as reported on the NYSE Composite Transactions Tape; (2) if the shares
of Common Stock then are not listed and traded on the NYSE, the closing price on
such day as reported by the principal national securities exchange on which the
shares are listed and traded; (3) if the shares of Common Stock then are not
listed and traded on any such securities exchange, the last reported sale price
on such day on the National Market of the National Association of Securities
Dealers, Inc. Automated Quotation System ("NASDAQ"); (4) if the shares of Common
Stock then are not listed and traded on any such securities exchange and not
traded on the NASDAQ National Market, the average of the highest reported bid
and lowest reported asked price on such day as reported by NASDAQ; or (5) if
such shares
8
<PAGE>
are not listed and traded on any such securities exchange, not traded on the
NASDAQ National Market and bid and asked prices are not reported by NASDAQ, then
the average of the closing bid and asked prices, as reported by The Wall Street
Journal for the over-the-counter market. If on any determination date the shares
of Common Stock are not quoted by any such organization, the Current Market
Price Per Common Share shall be the fair market value of such shares on such
determination date as determined by the Board of Directors, without regard to
considerations of the lack of liquidity, applicable regulatory restrictions or
any of the transfer restrictions or other obligations imposed on such shares set
forth in the Stockholders Agreement. If the Principal Holders shall object to
any determination by the Board of Directors of the Current Market Price Per
Common Share, the Current Market Price Per Common Share shall be the fair market
value per share of the applicable class of Common Stock as determined by an
independent appraiser retained by the Company and reasonably acceptable to the
Principal Holders, the fees and expenses of such independent appraiser to be
paid (i) by the Company if the Current Market Price Per Common Share as
determined by such appraiser less than the Current Market Price Per Common Share
as determined by the Board of Directors of the Company and (ii) by the Holders
otherwise. For purposes of any computation under this paragraph (h), the number
of shares of Common Stock outstanding at any given time shall not include shares
owned or held by or for the account of the Company.
(7) No adjustment in the Exercise Price shall be required unless such
adjustment would require an increase or decrease of at least one percent in
such price; PROVIDED that any adjustments which by reason of this paragraph
(h)(7) are not required to be made shall be carried forward and taken into
account in any subsequent adjustment. All calculations under this paragraph
(h) shall be made to the nearest one tenth of a cent or to the nearest
hundredth of a share, as the case may be.
(8) In the event that, at any time as a result of the provisions of
this paragraph (h), the holder of this Warrant upon subsequent exercise
shall become entitled to receive any shares of capital stock or other
securities of the Company other than Common Stock, the number of such other
shares so receivable upon exercise of this Warrant shall thereafter be
subject to adjustment from time to time in a manner and on terms as nearly
equivalent as practicable to the provisions contained herein.
(9) Upon each adjustment of the Exercise Price as a result of the
calculations made in paragraph (h)(1), (2), (3), (4) or (5), the number of
shares for which this Warrant is exercisable immediately prior to the
making of such adjustment shall thereafter evidence the right to purchase,
at the adjusted Exercise Price, that number of shares of Common Stock
obtained by (i) multiplying the number of shares covered by this Warrant
immediately prior to this adjustment of the number of shares by the
Exercise Price in effect immediately prior to such adjustment of the
Exercise Price and (ii) dividing the product so obtained by the Exercise
Price in effect immediately after such adjustment of the Exercise Price.
(10) The Company shall notify all Holders of the fixing of a record
date for the purpose of payment of a cash dividend to holders of Common
Stock as
9
<PAGE>
soon as reasonably practicable, but in no event less than 20 days prior to
any such record date.
(11) Not less than 10 nor more than 30 days prior to the record date or
effective date, as the case may be, of any action which requires or might
require an adjustment or readjustment pursuant to this paragraph (h), the
Company shall forthwith file in the custody of the secretary or an
assistant secretary of the Company at its principal executive office and
with its stock transfer agent or its warrant agent, if any, an officers'
certificate showing the adjusted Exercise Price determined as herein
provided, setting forth in reasonable detail the facts requiring such
adjustment and the manner of computing such adjustment. Each such officers'
certificate shall be signed by the chairman, president or chief financial
officer of the Company and by the secretary or any assistant secretary of
the Company. Each such officers' certificate shall be made available at all
reasonable times for inspection by the Holder or any holder of a Warrant
executed and delivered pursuant to paragraph (f) and the Company shall,
forthwith after each such adjustment, mail a copy, by first-class mail, of
such certificate to the Holder.
(12) The Holder shall, at its option, be entitled to receive, in lieu
of the adjustment pursuant to paragraph (h)(5) otherwise required thereof,
on the date of exercise of the Warrants, the evidences of indebtedness,
other securities, cash, property or other assets which such Holder would
have been entitled to receive if it had exercised its Warrants for shares
of Common Stock immediately prior to the record date with respect to such
distribution. The Holder may exercise its option under this paragraph
(h)(12) by delivering to the Company a written notice of such exercise
within seven days of its receipt of the certificate of adjustment required
pursuant to paragraph (h)(11) to be delivered by the Company in connection
with such distribution.
(i) CONSOLIDATION, MERGER, OR SALE OF ASSETS. In case of any consolidation of
the Company with, or merger of the Company into, any other Person, any merger of
another Person into the Company (other than a merger which does not result in
any reclassification, conversion, exchange or cancellation of outstanding shares
of Common Stock) or any sale or Transfer of all or substantially all of the
assets of the Company or of the Person formed by such consolidation or resulting
from such merger or which acquires such assets, as the case may be, the Holder
shall have the right thereafter to exercise this Warrant for the kind and amount
of securities, cash and other property receivable upon such consolidation,
merger, sale or Transfer by a holder of the number of shares of Common Stock for
which this Warrant may have been exercised immediately prior to such
consolidation, merger, sale or Transfer, assuming (i) such holder of Common
Stock is not a Person with which the Company consolidated or into which the
Company merged or which merged into the Company or to which such sale or
Transfer was made, as the case may be ("CONSTITUENT PERSON"), or an Affiliate of
a constituent Person and (ii) in the case of a consolidation, merger, sale or
Transfer which includes an election as to the consideration to be received by
the holders, such holder of Common Stock failed to exercise its rights of
election, as to the kind or amount of securities, cash and other property
receivable upon such consolidation, merger, sale or Transfer (provided that if
the kind or amount of securities, cash and other property receivable upon such
consolidation, merger, sale or Transfer is not the same for each share of Common
Stock held immediately prior to such consolidation, merger, sale or Transfer by
other than a constituent Person or an Affiliate thereof and in respect of which
such rights of
10
<PAGE>
election shall not have been exercised ("NON-ELECTING SHARE"), then for the
purpose of this paragraph (i) the kind and amount of securities, cash and other
property receivable upon such consolidation, merger, sale or Transfer by each
non-electing share shall be deemed to be the kind and amount so receivable per
share by a plurality of the non-electing shares). Adjustments for events
subsequent to the effective date of such a consolidation, merger and sale of
assets shall be as nearly equivalent as may be practicable to the adjustments
provided for in this Warrant.
In any such event, effective provisions shall be made in the certificate or
articles of incorporation of the resulting or surviving corporation, in any
contract of sale, conveyance, lease or Transfer, or otherwise so that the
provisions set forth herein for the protection of the rights of the Holder shall
thereafter continue to be applicable; and any such resulting or surviving
corporation shall expressly assume the obligation to deliver, upon exercise,
such shares of stock, other securities, cash and property. The provisions of
this paragraph (i) shall similarly apply to successive consolidations, mergers,
sales, leases or Transfers.
(j) NOTICES. Any notice, demand or delivery authorized by this Warrant
Certificate shall be in writing and shall be given to the Holder or the Company,
as the case may be, at its address (or telecopier number) set forth below, or
such other address (or telecopier number) as shall have been furnished to the
party giving or making such notice, demand or delivery:
If to the Company: JLC Learning Corporation
c/o Ripplewood Holdings L.L.C.
32nd Floor
One Rockefeller Plaza
New York, NY 10020
Attention: Mr. Timothy C. Collins
Mr. Charles L. Laurey
Telephone: (212) 218-2719
Facsimile: (212) 582-4110
With a copy to: Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, NY 10019
Attention: Peter S. Wilson, Esq.
Telephone: (212) 474-1767
Facsimile: (212) 765-0978
If to the Holder: [Holder]
[Address]
[Address]
Attention:
Telephone:
Facsimile:
Each such notice, demand or delivery shall be effective (i) if given by
telecopy, when such telecopy is transmitted to the telecopy number specified
herein and the intended recipient confirms the receipt of such telecopy or (ii)
if given by any other means, when received at the address specified herein.
11
<PAGE>
(k) RIGHTS OF THE HOLDER. Prior to the exercise of any Warrant, the Holder shall
not, by virtue hereof, be entitled to any rights of a shareholder of the
Company, including, without limitation, the right to vote, to receive dividends
or other distributions or to receive any notice of meetings of shareholders or
any notice of any proceedings of the Company except as may be specifically
provided for herein.
(l) GOVERNING LAW. THIS WARRANT CERTIFICATE AND ALL RIGHTS ARISING HEREUNDER
SHALL BE CONSTRUED AND DETERMINED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE
STATE OF NEW YORK, AND THE PERFORMANCE THEREOF SHALL BE GOVERNED AND ENFORCED IN
ACCORDANCE WITH SUCH LAWS.
(m) AMENDMENTS; WAIVERS. Any provision of this Warrant Certificate may be
amended or waived if, and only if, such amendment or waiver is in writing and
signed, in the case of an amendment, by the Holder and the Company, or in the
case of a waiver, by the party against whom the waiver is to be effective. No
failure or delay by either party in exercising any right, power or privilege
hereunder shall operate as a waiver thereof nor shall any single or partial
exercise thereof preclude any other or further exercise thereof or the exercise
of any other right, power or privilege. The rights and remedies herein provided
shall be cumulative and not exclusive of any rights or remedies provided by law.
IN WITNESS WHEREOF, the Company has duly caused this Warrant
Certificate to be signed by its duly authorized officer and to be dated as of
November 17, 1999.
JLC LEARNING CORPORATION
By __________________________
Name:
Title:
Acknowledged and Agreed:
[HOLDER]
By ___________________________
Title:
12
<PAGE>
WARRANT EXERCISE NOTICE
(To be delivered prior to exercise of the Warrant by execution of
the Warrant Exercise Subscription Form)
To: JLC Learning Corporation
The undersigned hereby notifies you of its intention to exercise the
Warrant to purchase shares of Common Stock, par value $0.01 per share, of [JLC
Learning Corporation].
The undersigned intends to exercise the Warrant to purchase __________
shares of Common Stock (the "SHARES") at $____ per Share (the Exercise Price
currently in effect pursuant to the Warrant). The undersigned intends to pay the
aggregate Exercise Price for the Shares in cash, certified or official bank or
bank cashier's check (or a combination of cash and check) as indicated below.
-OR-
The undersigned intends to exercise the Warrant to purchase __________
shares of Common Stock (the "SHARES") and wishes, in lieu of paying the Exercise
Price of $____ per share currently in effect pursuant to the Warrant, to receive
that number of shares reduced by a number of shares of Common Stock having an
aggregate Fair Market Value (as defined in the Warrant) equal to the aggregate
Exercise Price for the Shares.
-OR-
The undersigned intends to exercise the Warrant to purchase __________
shares of Common Stock (the "SHARES") at the Exercise Price of $____ per share
currently in effect pursuant to the Warrant, and intends to deliver as payment
that number of shares of Common Stock having an aggregate Fair Market Value (as
defined in the Warrant) equal to or in excess of the aggregate Exercise Price
for the Shares.
-OR-
The undersigned intends to exercise the Warrant to purchase __________
shares of Common Stock (the "SHARES") at the Exercise Price of $____ per share
currently in effect pursuant to the Warrant, and intends to deliver as payment
that number of Warrants which, if exercised, would result in a number of shares
of Common Stock having an aggregate Fair Market Value (as defined in the
Warrant) equal to or in excess of the aggregate Exercise Price for the Shares.
-OR-
The undersigned intends to exercise the Warrant to purchase __________
shares of Common Stock (the "SHARES") at the Exercise Price of $____ per share
currently in effect pursuant to the Warrant, and intends to pay $_____ of the
aggregate Exercise Price for the Shares in cash, certified or official bank or
bank cashier's check (or a combination of cash and check) as indicated below,
and to
<PAGE>
deliver as payment of $____ of the aggregate Exercise Price that number of
shares of Common Stock having an aggregate Fair Market Value (as defined in the
Warrant) equal to or in excess of such portion of the aggregate Exercise Price
for the Shares.
-OR-
The undersigned intends to exercise the Warrant to purchase __________
shares of Common Stock (the "SHARES") at the Exercise Price of $____ per share
currently in effect pursuant to the Warrant, and intends to pay $_____ of the
aggregate Exercise Price for the Shares in cash, certified or official bank or
bank cashier's check (or a combination of cash and check) as indicated below,
and to deliver as payment of $____ of the aggregate Exercise Price that number
of Warrants which, if exercised, would result in a number of shares of Common
Stock having an aggregate Fair Market Value (as defined in the Warrant) equal to
or in excess of such portion of the aggregate Exercise Price for the Shares.
Date: __________ __, ____.
--------------------------------
(Signature of Holder)
--------------------------------
(Street Address)
--------------------------------
(City) (State) (Zip Code)
Payment: $___________ cash
$___________ check
____________ shares of Common Stock having a Fair Market
Value of $___________
_____________ Warrants exercisable for shares of Common Stock
having a Fair Market Value of $__________
2
<PAGE>
WARRANT SUBSCRIPTION FORM
To: JLC Learning Corporation
The undersigned irrevocably exercises the Warrant for the purchase of
___________ shares of Common Stock (the "SHARES"), par value $0.01 per share, of
JLC Learning Corporation (the "COMPANY") at $_____ per Share (the Exercise Price
currently in effect pursuant to the Warrant) and herewith makes payment of
$___________ (such payment being made in cash or by certified or official bank
or bank cashier's check payable to the order of the Company or by any permitted
combination of such cash or check), all on the terms and conditions specified in
the Warrant Certificate, surrenders this Warrant Certificate and all right,
title and interest therein to the Company and directs that the Shares
deliverable upon the exercise of this Warrant be registered or placed in the
name and at the address specified below and delivered thereto.
-OR-
The undersigned irrevocably exercises the Warrant for the purchase of
___________ shares of Common Stock (the "SHARES"), par value $0.01 per share, of
JLC Learning Corporation (the "COMPANY") at $_____ per Share (the Exercise Price
currently in effect pursuant to the Warrant) (provided that in lieu of payment
of $_________, the undersigned will receive a number of Shares reduced by a
number of shares of Common Stock having an aggregate Fair Market Value (as
defined in the Warrant) equal to the aggregate Exercise Price for the Shares),
all on the terms and conditions specified in the Warrant Certificate, surrenders
this Warrant Certificate and all right, title and interest therein to the
Company and directs that the Shares deliverable upon the exercise of this
Warrant be registered or placed in the name and at the address specified below
and delivered thereto.
-OR-
The undersigned irrevocably exercises the Warrant for the purchase of
_______ shares of Common Stock (the "SHARES"), par value $0.01 per share, of JLC
Learning Corporation (the "COMPANY") at $____ per share (the Exercise Price
currently in effect pursuant to the Warrant) (such payment being made by
delivering that number of shares of Common Stock having an aggregate Fair Market
Value (as defined in the Warrant) equal to or in excess of the aggregate
Exercise Price for the Shares), all on the terms and conditions specified in the
Warrant Certificate, surrenders this Warrant Certificate and all right, title
and interest therein to the Company and directs that the Shares deliverable upon
the exercise of this Warrant be registered or placed in the name and at the
address specified below and delivered thereto.
-OR-
The undersigned irrevocably exercises the Warrant for the purchase of
_______ shares of Common Stock (the "SHARES"), par value $0.01 per share, of JLC
Learning Corporation (the "COMPANY") at $____ per share (the Exercise
<PAGE>
Price currently in effect pursuant to the Warrant) (such payment being made by
delivering that number of Warrants which, if exercised, would result in a number
of shares of Common Stock having an aggregate Fair Market Value (as defined in
the Warrant) equal to or in excess of the aggregate Exercise Price for the
Shares), all on the terms and conditions specified in the Warrant Certificate,
surrenders this Warrant Certificate and all right, title and interest therein to
the Company and directs that the Shares deliverable upon the exercise of this
Warrant be registered or placed in the name and at the address specified below
and delivered thereto.
-OR-
The undersigned irrevocably exercises the Warrant for the purchase
__________ shares of Common Stock (the "SHARES"); par value $0.01 per share, of
JLC Learning Corporation (the "COMPANY") at $_______ per Share (the Exercise
Price currently in effect pursuant to the Warrant), and herewith makes payment
of $_____ of the aggregate Exercise Price for the Shares in cash, certified or
official bank or bank cashier's check (or a combination of cash and check), and
herewith delivers as payment of $____ of the aggregate Exercise Price that
number of shares of Common Stock having an aggregate Fair Market Value (as
defined in the Warrant) equal to or in excess of such portion of the aggregate
Exercise Price for the Shares, all on the terms and conditions specified in the
Warrant Certificate, surrenders this Warrant Certificate and all right, title
and interest therein to the Company and directs that the Shares deliverable upon
the exercise of this Warrant be registered or placed in the name and at the
address specified below and delivered thereto.
-OR-
The undersigned irrevocably exercises the Warrant for the purchase of
__________ shares of Common Stock, par value $0.01 per share, of JLC Learning
Corporation (the "COMPANY") at $____ per share (the Exercise Price currently in
effect pursuant to the Warrant), and herewith makes payment of $_____ of the
aggregate Exercise Price for the Shares in cash, certified or official bank or
bank cashier's check (or a combination of cash and check), and herewith delivers
as payment of $____ of the aggregate Exercise Price that number of Warrants
which, if exercised, would result in a number of shares of Common Stock having
an aggregate Fair Market Value (as defined in the Warrant) equal to or in excess
of such portion of the aggregate Exercise Price for the Shares, all on the terms
and conditions specified in the Warrant Certificate, surrenders this Warrant
Certificate and all right, title and interest therein to the Company and directs
that the Shares deliverable upon the exercise of this Warrant be registered or
placed in the name and at the address specified below and delivered thereto.
2
<PAGE>
Date: __________ __, ____.
--------------------------------
(Signature of Owner)
--------------------------------
(Street Address)
--------------------------------
(City) (State) (Zip Code)
The signature to the foregoing Warrant Subscription Form must correspond to
the name as written upon the face of the accompanying Warrant or any prior
assignment thereof in every particular without alteration or enlargement or any
change whatsoever.
3
<PAGE>
Securities and/or check to be issued to:
Please insert social security or identifying number:
Name:
Street Address:
City, State and Zip Code:
Any unexercised portion of the Warrant evidenced by the within Warrant
Certificate to be issued to:
Please insert social security or identifying number:
Name:
Street Address:
City, State and Zip Code:
<PAGE>
WARRANT ASSIGNMENT FORM
Dated ________
FOR VALUE RECEIVED,_________________________________________
hereby sells, assigns and transfers unto,
_______________________________________________(the "ASSIGNEE"),
(please type or print in block letters)
___________________________________________________________(insert address)
its right to purchase shares of Common Stock represented by this
Warrant and does hereby irrevocably constitute and appoint
_______________________ Attorney, to transfer the same on the books of
the Company, with full power of substitution in the premises.
Signature___________________
NOTICE:
The signature to the foregoing Warrant Assignment Form must correspond
to the name as written upon the face of the accompanying Warrant or any prior
assignment thereof in every particular, without alteration or enlargement or any
change whatsoever.
<PAGE>
CROSS-REFERENCE TARGET LIST
NOTE: DUE TO THE NUMBER OF TARGETS SOME TARGET NAMES MAY NOT APPEAR IN THE
TARGET PULL-DOWN LIST.
(This list is for the use of the wordprocessor only,
is not a part of this document and may be discarded.)
<TABLE>
<CAPTION>
ARTICLE/SECTION TARGET NAME ARTICLE/SECTION TARGET NAME ARTICLE/SECTION TARGET NAME ARTICLE/SECTION TARGET NAME
- ------------------------------ ------------------------------ ------------------------------ ------------------------------
- ------------------------------ ------------------------------ ------------------------------ ------------------------------
<S> <C> <C> <C> <C>
2.01...........purch/sale.sect
2.02...................closing
3.03..........govt auth seller
3.04..........noncontra.seller
3.05..............cap.and.v.r.
3.05(D).............exc.as.set
3.06.........captlzn.vtg.rghts
3.06(a)...cap.vr.giving.effect
3.06(B)........as.set.forth.in
3.07.....captlzn.vtg.rghts.JLC
3.07(B)..............except.as
3.08............valid.issuance
3.09................litigation
3.11.......shareholder.arrange
5............closing condition
5.03(A)(II)........rep.war.buy
6.02............indemnifcation
7.01..........terminate ground
8.01...................notices
8.02...........certain wrc cov
8.04..................expenses
8.04(A)..........sell.pay.250k
8.06.............governing law
8.07..............jurisdiction
8.08..........jury trial waive
</TABLE>
<PAGE>
EXHIBIT 21.1
EXISTING SUBSIDIARIES
WRC MEDIA INC.
I. CompassLearning, Inc. (a Delaware corporation)
II. Weekly Reader Corporation (a Delaware corporation)
A. Lifetime Learning Systems, Inc. (a Delaware corporation)
B. American Guidance Service, Inc. (a Minnesota corporation)
1. AGS International Sales, Inc. (a Minnesota corporation)
C. World Almanac Education Group, Inc. (a Delaware corporation)
1. Funk & Wagnalls Yearbook Corporation (a Delaware
corporation)
2. Gareth Stevens, Inc. (a Wisconsin corporation)
<PAGE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
covering WRC Media, Inc. and subsidiary with Predecessor, dated November 17,
1999, and to all references to our firm included in or made a part of this
registration statement.
/s/ Arthur Andersen LLP
Phoenix, Arizona
January 28, 2000.
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of WRC Media Inc., Weekly
Reader Corporation and CompassLearning, Inc. on Form S-4 of our report dated
August 30, 1999 (November 17, 1999 as to Note 1) relating to our audit of Weekly
Reader Corporation and subsidiaries and our report dated July 31, 1998
(August 5, 1998 as to Note 14) relating to our audit of American Guidance
Service, Inc., appearing in the Prospectus, which is part of this Registration
Statement.
We also consent to the reference to us under the heading "Independent Public
Accountants" in such Prospectus.
DELOITTE & TOUCHE LLP
New York, New York
February 3, 2000
<PAGE>
Exhibit 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-4 of
our report dated July 14, 1999 relating to the financial statements of
CompassLearning, Inc. as of December 31, 1997 and 1998 and for each of the
three years in the period ended December 31, 1998, which appears in such
Registration Statement. We also consent to the reference to our firm under
the caption "Independent Public Accountants" in such Registration Statement.
PricewaterhouseCoopers LLP
Phoenix, Arizona
January 28, 2000
<PAGE>
Exhibit 23.5
CONSENT OF SIMBA INFORMATION INC.
We consent to the use of our research in the sections entitled
"Summary," "Industry" and "Business" of the prospectus which forms a part of
this registration statement for the exchange offer for 12 3/4% Senior
Subordinated Notes due 2009 issued by WRC Media Inc., Weekly Reader
Corporation and JLC Learning Corporation and 15% Senior Preferred Stock due
2011 issued by WRC Media Inc.
/s/ Sandy Sutton
----------------
Sandy Sutton
Stamford, Connecticut
December 29, 1999
<PAGE>
LETTER OF TRANSMITTAL
WRC MEDIA INC., WEEKLY READER CORPORATION
AND COMPASSLEARNING, INC.
OFFER FOR ALL OUTSTANDING
12 3/4% SENIOR SUBORDINATED NOTES DUE 2009
IN EXCHANGE FOR
UP TO $152,000,000 PRINCIPAL AMOUNT OF
12 3/4% SENIOR SUBORDINATED NOTES DUE 2009
PURSUANT TO THE PROSPECTUS, DATED [ - ], 2000
- --------------------------------------------------------------------------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M. NEW YORK CITY TIME, ON [ - ],
2000, UNLESS EXTENDED (SUCH DATE AND TIME, AS IT MAY BE EXTENDED, THE
"EXPIRATION DATE"). TENDERS MAY BE WITHDRAWN PRIOR TO 5:00 P.M., NEW YORK CITY
TIME, ON THE EXPIRATION DATE.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
BY MAIL: BY OVERNIGHT MAIL OR COURIER: BY HAND: BY FACSIMILE:
BT Services Tennessee, Inc. BT Services Tennessee, Inc. Bankers Trust Company Fax No. (615) 835-3701
Reorganization Unit Services Reorganization Unit Corporate Trust & Agency Services
P.O. Box 292737 648 Grassmere Park Road Attn: Reorganization Department
Nashville, TN 37229-2737 Nashville, TN 37211 Receipt & Delivery Window
Confirm by Telephone 123 Washington Street, 1st Floor
(615) 835-3572 New York, NY 10006
</TABLE>
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE, OR
TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE, WILL
NOT CONSTITUTE A VALID DELIVERY.
The undersigned acknowledges that he or she has received the prospectus,
dated [ - ], 2000 (the "Prospectus"), of WRC Media Inc., a Delaware
corporation, Weekly Reader Corporation, a Delaware corporation, and
CompassLearning, Inc., a Delaware corporation, (collectively the "Company"), and
this letter of transmittal (the "Letter"), which together constitute the
Company's offer (the "Exchange Offer") to exchange an aggregate principal amount
of up to $152,000,000 of registered 12 3/4% senior subordinated notes due 2009
(the "New Notes") of the Company for an equal principal amount of the Company's
outstanding 12 3/4% senior subordinated notes due 2009 (the "Old Notes").
Capitalized terms used but not defined herein shall have the same meaning given
them in the Prospectus.
For each Old Note accepted for exchange, the holder of such Old Note will
receive a New Note having a principal amount equal to that of the surrendered
Old Note. Interest on the New Notes will accrue and be payable semiannually in
arrears on each November 15 and May 15, commencing May 15, 2000, at a rate of
12 3/4% per annum. The terms of the New Notes are substantially identical to the
terms of the Old Notes, except that the New Notes will not contain terms with
respect to transfer restrictions and will not require the Company to consummate
a registered Exchange Offer.
If (i) neither a registration statement relating to the Exchange Offer (the
"Exchange Offer Registration Statement") nor a shelf registration statement with
respect to the Old Notes (the "Shelf Registration Statement") and, together with
the Exchange Offer Registration Statement, the "Registration Statements") has
been filed on or prior to 90 days after the original issue date of the Old
Notes, (ii) any of such Registration Statements is not declared effective on or
prior to 210 days after the original issue date of the Old Notes (the
"Effectiveness Target Date"), (iii) the Company fails to consummate the Exchange
Offer within 30 days of the Effectiveness Target Date with respect to the
Exchange Offer Registration Statement or (iv) the Shelf Registration Statement
or the Exchange Offer Registration is declared effective but thereafter ceases
to be effective or usable in connection with resales of Transfer Restricted
Securities (as defined in the Prospectus) during the periods specified (each
such event referred to in clauses (i) to (iv) above, a "Registration Default"),
then commencing on the day after the occurrence of such Registration Default,
the Company shall pay additional interest on the Old Notes at a rate per annum
equal to $.05 per week per $1,000 principal amount of the Old Notes held, which
rate shall increase by an additional $.05 per week per $1,000 principal amount
of the Old Notes on the first day of any subsequent 90-day period that the
Registration Default remains uncured up to a maximum rate equal to $.50 per week
per $1,000 principal amount of Old Notes. Following the cure of all Registration
Defaults, the accrual of additional interest will cease.
<PAGE>
The Company reserves the right, at any time or from time to time, to extend
the Exchange Offer at its discretion, in which event the term "Expiration Date"
shall mean the latest time and date to which the Exchange Offer is extended. The
Company shall notify the holders of the Old Notes of any extension as promptly
as practicable by oral or written notice thereof.
This Letter is to be completed by a holder of Old Notes either if
certificates are to be forwarded herewith or if a tender of Old Notes, if
available, is to be made by book-entry transfer to the account maintained by the
Bankers Trust Company (the "Exchange Agent") at The Depository Trust Company
(the "Book-Entry Transfer Facility") pursuant to the procedures set forth in
"The Exchange Offer" section of the Prospectus. Holders of Old Notes whose
certificates are not immediately available, or who are unable to deliver their
certificates or confirmation of the book-entry tender of their Old Notes into
the Exchange Agent's account at the Book-Entry Transfer Facility (a "Book-Entry
Confirmation") and all other documents required by this Letter to the Exchange
Agent on or prior to the Expiration Date, must tender their Old Notes according
to the guaranteed delivery procedures set forth in "The Exchange
Offer--Guaranteed Delivery Procedures" section of the Prospectus. See
Instruction 1. Delivery of documents to the Book-Entry Transfer Facility does
not constitute delivery to the Exchange Agent.
The undersigned has completed the appropriate boxes below and signed this
Letter to indicate the action the undersigned desires to take with respect to
the Exchange Offer.
List below the Old Notes to which this Letter relates. If the space provided
below is inadequate, the numbers and principal amount at maturity of Old Notes
should be listed on a separate signed schedule affixed hereto.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
DESCRIPTION OF OLD NOTES
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
1 2 3
AGGREGATE
PRINCIPAL
AMOUNT OF OLD
NOTES PRINCIPAL AMOUNT
NAME(S) AND ADDRESS(ES) OF REGCERTIFICATEDER(S)REPRESENTED BY OF OLD NOTES
(PLEASE FILL IN, IF NUMBER(S)* CERTIFICATE TENDERED**
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
--------------------------------------------
--------------------------------------------
--------------------------------------------
--------------------------------------------
TOTAL
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
* Need not be completed if Old Notes are being tendered by book-entry
transfer.
** Unless otherwise indicated in this column, a holder will be deemed to have
tendered ALL of the Old Notes represented by the Old Notes indicated in
column 2. See Instruction 2. Old Notes tendered must be in denominations of
principal amount at maturity of $1,000 and any integral multiple thereof.
See Instruction 1.
- --------------------------------------------------------------------------------
/ / CHECK HERE IF TENDERED OLD NOTES ARE ENCLOSED HEREWITH.
/ / CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER
MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE BOOK-ENTRY
TRANSFER FACILITY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution ______________________________________________
Account Number __________________ Transaction Code Number _________________
/ / CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE
OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE
THE FOLLOWING:
Name(s) of Registered Holder(s) ____________________________________________
Window Ticket Number (if any) ______________________________________________
Date of Execution of Notice of Guaranteed Delivery _________________________
Name of Institution which guaranteed delivery ______________________________
IF DELIVERED BY BOOK-ENTRY TRANSFER, COMPLETE THE FOLLOWING:
Account Number __________________ Transaction Code Number _________________
/ / CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
Name: ______________________________________________________________________
Address: ___________________________________________________________________
___________________________________________________________________
<PAGE>
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to the Company the aggregate principal amount at
maturity of the Old Notes indicated above. Subject to, and effective upon, the
acceptance for exchange of the Old Notes tendered hereby, the undersigned hereby
sells, assigns and transfers to, or upon the order of, the Company all right,
title and interest in and to such Old Notes as are being tendered hereby.
The undersigned hereby represents and warrants that the undersigned has full
power and authority to tender, sell, assign and transfer the Old Notes tendered
hereby and that the Company will acquire good and unencumbered title thereto,
free and clear of all liens, restrictions, charges and encumbrances and not
subject to any adverse claim when the same are accepted by the Company. The
undersigned hereby further represents that any New Notes acquired in exchange
for Old Notes tendered hereby will have been acquired in the ordinary course of
business of the person receiving such New Notes, whether or not such person is
the undersigned, that neither the holder of such Old Notes nor any such other
person is engaged in, or intends to engage in a distribution of such New Notes,
or has an arrangement or understanding with any person to participate in the
distribution of such New Notes, and that neither the holder of such Old Notes
nor any such other person is an "affiliate," as defined in Rule 405 under the
Securities Act of 1933 (the "Securities Act"), of the Company.
The undersigned also acknowledges that this Exchange Offer is being made by
the Company based upon the Company's understanding of an interpretation by the
staff of the Securities and Exchange Commission (the "Commission") as set forth
in no-action letters issued to third parties, that the New Notes issued in
exchange for the Old Notes pursuant to the Exchange Offer may be offered for
resale, resold and otherwise transferred by holders thereof (other than any such
holder that is an "affiliate" of the Company within the meaning of Rule 405
under the Securities Act), without compliance with the registration and
Prospectus delivery provisions of the Securities Act, provided that: (1) such
holders are not affiliates of the Company within the meaning of Rule 405 under
the Securities Act; (2) such New Notes are acquired in the ordinary course of
such holders' business; and (3) such holders are not engaged in, and do not
intend to engage in, a distribution of such New Notes and have no arrangement or
understanding with any person to participate in the distribution of such New
Notes. However, the staff of the Commission has not considered the Exchange
Offer in the context of a no-action letter, and there can be no assurance that
the staff of the Commission would make a similar determination with respect to
the Exchange Offer as in other circumstances. If a holder of Old Notes is an
affiliate of the Company, and is engaged in or intends to engage in a
distribution of the New Notes or has any arrangement or understanding with
respect to the distribution of the New Notes to be acquired pursuant to the
Exchange Offer, such holder could not rely on the applicable interpretations of
the staff of the Commission and must comply with the registration and Prospectus
delivery requirements of the Securities Act in connection with any secondary
resale transaction. If the undersigned is a broker-dealer that will receive New
Notes for its own account in exchange for Old Notes, it represents that the Old
Notes to be exchanged for the New Notes were acquired by it as a result of
market-making activities or other trading activities and acknowledges that it
will deliver a Prospectus in connection with any resale of such New Notes;
however, by so acknowledging and by delivering a Prospectus, the undersigned
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act.
The undersigned will, upon request, execute and deliver any additional
documents deemed by the Company to be necessary or desirable to complete the
sale, assignment and transfer of the Old Notes tendered hereby. All authority
conferred or agreed to be conferred in this Letter and every obligation of the
undersigned hereunder shall be binding upon the successors, assigns, heirs,
executors, administrators, trustees in bankruptcy and legal representatives of
the undersigned and shall not be affected by, and shall survive, the death or
incapacity of the undersigned. This tender may be withdrawn only in accordance
with the procedures set forth in "The Exchange Offer--Withdrawal of Tenders"
section of the Prospectus.
<PAGE>
Unless otherwise indicated herein in the box entitled "Special Issuance
Instructions" below, please deliver the New Notes in the name of the undersigned
or, in the case of a book-entry delivery of Old Notes, please credit the account
indicated above maintained at the Book-Entry Transfer Facility. Similarly,
unless otherwise indicated under the box entitled "Special Delivery
Instructions" below, please send the New Notes to the undersigned at the address
shown above in the box entitled "Description of Old Notes."
THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED "DESCRIPTION OF OLD NOTES"
ABOVE AND SIGNING THIS LETTER, WILL BE DEEMED TO HAVE TENDERED THE OLD NOTES AS
SET FORTH IN SUCH BOX ABOVE.
- ------------------------------------------------
SPECIAL ISSUANCE INSTRUCTIONS
(SEE INSTRUCTIONS 3 AND 4)
To be completed ONLY if certificates of Old Notes not exchanged and/or
New Notes are to be issued in the name of and sent to someone other than the
person(s) whose signature(s) appear(s) on this Letter above, or if Old Notes
delivered by book-entry transfer which are not accepted for exchange are to
be returned by credit to an account maintained at the Book-Entry Transfer
Facility other than the account indicated above.
Issue New Notes and/or Old Notes to:
Name(s): ___________________________________________________________________
(PLEASE TYPE OR PRINT)
____________________________________________________________________________
(PLEASE TYPE OR PRINT)
Address: ___________________________________________________________________
____________________________________________________________________________
(INCLUDING ZIP CODE)
(COMPLETE ACCOMPANYING SUBSTITUTE FORM W-9)
/ / Credit unexchanged Old Notes delivered by book-entry transfer to the
Book-Entry Transfer Facility account set forth below.
____________________________________________________________________________
(BOOK-ENTRY TRANSFER FACILITY
ACCOUNT NUMBER, IF APPLICABLE)
- ------------------------------------------------------------
- ------------------------------------------------------------
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 3 AND 4)
To be completed ONLY if certificates of Old Notes not exchanged and/or
New Notes are to be sent to someone other than the person(s) whose
signature(s) appear(s) on this Letter above or to such person(s) at an
address other than shown in the box entitled "Description of Old Notes" on
this Letter above.
Mail New Notes and/or Old Notes to:
Name(s): ___________________________________________________________________
(PLEASE TYPE OR PRINT)
____________________________________________________________________________
(PLEASE TYPE OR PRINT)
Address: ___________________________________________________________________
____________________________________________________________________________
(INCLUDING ZIP CODE)
- -----------------------------------------------------
IMPORTANT: THIS LETTER OR A FACSIMILE HEREOF (TOGETHER WITH THE CERTIFICATES FOR
OLD NOTES OR A BOOK-ENTRY CONFIRMATION AND ALL OTHER REQUIRED
DOCUMENTS OR THE NOTICE OF GUARANTEED DELIVERY) MUST BE RECEIVED BY
THE EXCHANGE AGENT PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE
EXPIRATION DATE.
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL CAREFULLY BEFORE
COMPLETING ANY BOX ABOVE.
<PAGE>
- --------------------------------------------------------------------------------
PLEASE SIGN HERE
(TO BE COMPLETED BY ALL TENDERING HOLDERS)
(COMPLETE ACCOMPANYING SUBSTITUTE FORM W-9 ON REVERSE SIDE)
Dated: __________________________________________________________________ , 2000
x: __________________________________ __________________________________ , 2000
x: __________________________________ __________________________________ , 2000
(SIGNATURE(S) OF OWNER(S)) (DATE)
Area Code and Telephone Number: ________________________________________________
If a holder is tendering any Old Notes, this Letter must be signed by the
registered holder(s) as the name(s) appear(s) on the certificate(s) for the Old
Notes or by any person(s) authorized to become registered holder(s) by
endorsements and documents transmitted herewith. If signature is by a trustee,
executor, administrator, guardian, officer or other person acting in a fiduciary
or representative capacity, please set forth full title. See Instruction 3.
Name(s): _______________________________________________________________________
________________________________________________________________________________
(PLEASE TYPE OR PRINT)
Capacity: ______________________________________________________________________
Address: _______________________________________________________________________
________________________________________________________________________________
(INCLUDING ZIP CODE)
SIGNATURE GUARANTEE
(IF REQUIRED BY INSTRUCTION 3)
Signature Guaranteed by
an Eligible Institution: _______________________________________________________
(AUTHORIZED SIGNATURE)
________________________________________________________________________________
(TITLE)
________________________________________________________________________________
(NAME AND FIRM)
Dated: __________________________________________________________________ , 2000
- --------------------------------------------------------------------------------
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER TO EXCHANGE
REGISTERED 12 3/4% SENIOR SUBORDINATED NOTES DUE 2009 FOR
UP TO $152,000,000 PRINCIPAL AMOUNT OF OUTSTANDING 12 3/4% SENIOR SUBORDINATED
NOTES DUE 2009
OF WRC MEDIA INC., WEEKLY READER CORPORATION AND COMPASSLEARNING, INC.
1. DELIVERY OF THIS LETTER AND OLD NOTES; GUARANTEED DELIVERY PROCEDURES.
This Letter is to be completed by holders of Old Notes either if
certificates are to be forwarded herewith or if tenders are to be made pursuant
to the procedures for delivery by book-entry transfer set forth in "The Exchange
Offer--Procedures for Tendering" section of the Prospectus. Certificates for all
physically tendered Old Notes, or Book-Entry Confirmation, as the case may be,
as well as a properly completed and duly executed letter of transmittal (or
facsimile thereof) and any other documents required by this Letter, must be
received by the Exchange Agent at the address set forth herein on or prior to
the Expiration Date, or the tendering holder must comply with the guaranteed
delivery procedures set forth below. Old Notes tendered hereby must be in
denominations of $1,000 and any integral multiple thereof.
Holders of Old Notes whose certificates for Old Notes are not immediately
available or who cannot deliver their certificates and all other required
documents to the Exchange Agent on or prior to the Expiration Date, or who
cannot complete the procedure for book-entry transfer on a timely basis, may
tender their Old Notes pursuant to the guaranteed delivery procedures set forth
in "The Exchange Offer--Guaranteed Delivery Procedures" section of the
Prospectus. Pursuant to such procedures, (i) such tender must be made through an
Eligible Institution (as defined below), (ii) prior to the Expiration Date, the
Exchange Agent must receive from such Eligible Institution a properly completed
and duly executed letter of transmittal (or facsimile thereof) and notice of
guaranteed delivery, substantially in the form provided by the Company (by
facsimile transmission, mail or hand delivery), setting forth the name and
address of the holder of Old Notes, the certificate number or numbers of such
Old Notes and the principal amount of Old Notes tendered, stating that the
tender is being made thereby and guaranteeing that within five business days
after the Expiration Date, the letter of transmittal (or facsimile thereof),
together with the certificate or certificates representing the Old Notes to be
tendered in proper form for transfer, or a book-entry confirmation, as the case
may be, and any other documents required by this Letter will be deposited by the
Eligible Institution (as defined below) with the Exchange Agent, and (iii) such
properly completed and executed letter of transmittal (or facsimile thereof), as
well as the certificate or certificates representing all tendered Old Notes in
proper form for transfer, or a book-entry confirmation, as the case may be, and
all other documents required by this Letter are received by the Exchange Agent
within five business days after the Expiration Date.
The method of delivery of this Letter, the Old Notes and all other required
documents is at the election and risk of the tendering holders. Instead of
delivery by mail, it is recommended that holders use an overnight or hand
delivery service. In all cases, sufficient time should be allowed to assure
delivery to the Exchange Agent before the Expiration Date. No letter of
transmittal or Old Notes should be sent to the Company. Holders may request
their respective brokers, dealers, commercial banks, trust companies or nominees
to effect the tenders for such holders.
See "The Exchange Offer" section of the Prospectus.
2. PARTIAL TENDERS (NOT APPLICABLE TO HOLDERS OF OLD NOTES WHO TENDER BY
BOOK-ENTRY TRANSFER); WITHDRAWALS.
If less than all of the Old Notes evidenced by a submitted certificate are
to be tendered, the tendering holder(s) should fill in the aggregate principal
amount of Old Notes to be tendered in the box above entitled "Description of Old
Notes--Principal Amount of Old Notes Tendered." A newly reissued certificate for
the Old Notes submitted but not tendered will be sent to such holder as soon as
practicable after the Expiration Date. All of the Old Notes delivered to the
Exchange Agent will be deemed to have been tendered unless otherwise clearly
indicated.
<PAGE>
If not yet accepted, a tender pursuant to the Exchange Offer may be
withdrawn prior to the Expiration Date. To be effective with respect to the
tender of Old Notes, a notice of withdrawal must: (i) be received by the
Exchange Agent before the Company notifies the Exchange Agent that they have
accepted the tender of Old Notes pursuant to the Exchange Offer; (ii) specify
the name of the Old Notes; (iii) contain a description of the Old Notes to be
withdrawn, the certificate numbers shown on the particular certificates
evidencing such Old Notes and the principal amount of Old Notes represented by
such certificates; and (iv) be signed by the holder in the same manner as the
original signature on this Letter of Transmittal (including any required
signature guarantee). The Exchange Agent will return the properly withdrawn Old
Notes promptly following receipt of notice of withdrawal. If Old Notes have been
tendered pursuant to the procedure for book-entry transfer, any notice of
withdrawal must specify the name and number of the account at the book-entry
transfer facility to be credited with the withdrawn Old Notes or otherwise
comply with the book-entry transfer facility's procedures. All questions as to
the validity of notices of withdrawals, including time of receipt, will be
determined by the Company, and such determination will be final and binding on
all parties.
3. SIGNATURES ON THIS LETTER, BOND POWERS AND ENDORSEMENTS; GUARANTEE OF
SIGNATURES.
If this Letter is signed by the registered holder of the Old Notes tendered
hereby, the signature must correspond exactly with the name as written on the
face of the certificates without alteration, enlargement or any change
whatsoever.
If any tendered Old Notes are owned of record by two or more joint owners,
all such owners must sign this Letter.
If any tendered Old Notes are registered in different names on several
certificates, it will be necessary to complete, sign and submit as many separate
copies of this Letter as there are different registrations of certificates.
When this Letter is signed by the registered holder (which term, for the
purposes described herein, shall include the book-entry transfer facility whose
name appears on a security listing as the owner of the Old Notes) of the Old
Notes specified herein and tendered hereby, no endorsements of certificates or
separate bond powers are required. If, however, the New Notes are to be issued
to a person other than the registered holder, then endorsements of any
certificates transmitted hereby or separate bond powers are required. Signatures
on such certificates must be guaranteed by an Eligible Institution.
If this Letter is signed by a person other than the registered holder or
holders of any Old Notes specified therein, such certificate(s) must be endorsed
by such registered holder(s) or accompanied by separate written instruments of
transfer or endorsed in blank by such registered holder(s) exchange in form
satisfactory to the Company and duly executed by the registered holder, in
either case signed exactly as such registered holder(s) name or names appear(s)
on the Old Notes.
If the Letter or any certificates of Old Notes or separate written
instruments of transfer or exchange are signed or endorsed by trustees,
executors, administrators, guardians, attorney-in-fact, officers of corporations
or others acting in a fiduciary or representative capacity, such persons should
so indicate when signing, and unless waived by the Company, evidence
satisfactory to the Company of their authority to so act must be submitted with
the Letter.
Signature on a Letter or a notice of withdrawal, as the case may be, must be
guaranteed by an Eligible Institution unless the Old Notes tendered pursuant
thereto are tendered (i) by a registered holder who has not completed the box
entitled "Special Payment Instructions" or "Special Delivery Instructions" on
the Letter or (ii) for the account of an Eligible Institution. In the event that
signatures on a Letter or a notice of withdrawal, as the case may be, are
required to be guaranteed, such guarantee must be by a member firm of a
registered national securities exchange or of the National Association of
Securities Dealers, Inc., a commercial bank or trust company having an office or
correspondent in the United States or an "eligible guarantor institution" within
the meaning of Rule 17Ad-15 under the Securities Exchange Act of 1934, as
amended (an "Eligible Institution").
4. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS.
Tendering holders of Old Notes should indicate in the applicable box the
name and address to which New Notes issued pursuant to the Exchange Offer are to
be issued or sent, if different from the name or address of the person signing
this Letter. In the case of issuance in a different name, the employer
identification or social security number of the person named must also be
indicated. Holders tendering Old Notes by book-entry transfer may request that
Old Notes not exchanged be credited to such account maintained at the Book-Entry
Transfer Facility as such holder may designate hereon. If no such instructions
are given, such Old Notes not exchanged will be returned to the name or address
of the person signing this Letter.
<PAGE>
5. TAX IDENTIFICATION NUMBER.
Federal income tax law generally requires that a tendering holder whose Old
Notes are accepted for exchange must provide the Company (as payor) with such
holder's correct Taxpayer Identification Number ("TIN") on Substitute Form W-9
below or otherwise establish a basis for exemption from backup withholding. If
such holder is an individual, the TIN is his or her social security number. If
the Company is not provided with the current TIN or an adequate basis for an
exemption, such tendering holder may be subject to a $50 penalty imposed by the
Internal Revenue Service. In addition, delivery of New Notes to such tendering
holder may be subject to backup withholding in an amount equal to 31% of all
reportable payments made after the exchange.
Certain holders (including, among others, all corporations and certain
foreign individuals) are not subject to these backup withholding and reporting
requirements. See the enclosed Guidelines of Certification of Taxpayer
Identification Number on Substitute Form W-9 (the "W-9 Guidelines") for
additional instructions.
To prevent backup withholding, each tendering holder of Old Notes must
provide its correct TIN by completing the "Substitute Form W-9" set forth below,
certifying that the TIN provided is correct (or that such holder is awaiting a
TIN) and that (i) the holder is exempt from backup withholding, (ii) the holder
has not been notified by the Internal Revenue Service that such holder is
subject to a backup withholding as a result of a failure to report all interest
or dividends or (iii) the Internal Revenue Service has notified the holder that
such holder is no longer subject to backup withholding. If the tendering holder
of Old Notes is a nonresident alien or foreign entity not subject to backup
withholding, such holder must give the Company a completed Form W-8, Certificate
of Foreign Status. These forms may be obtained from the Exchange Agent. If the
Old Notes are in more than one name or are not in the name of the actual owner,
such holder should consult the W-9 Guidelines for information on which TIN to
report. If such holder does not have a TIN, such holder should consult the W-9
Guidelines for instructions on applying for a TIN, check the box in Part 2 of
the Substitute Form W-9 and write "applied for" in lieu of its TIN. Note:
checking this box and writing "applied for" on the form means that such holder
has already applied for a TIN or that such holder intends to apply for one in
the near future. If a holder checks the box in Part 2 of the Substitute
Form W-9 and writes "applied for" on that form, backup withholding at a 31% rate
will nevertheless apply to all reportable payments made to such holder. If such
a holder furnishes its TIN to the Company within 60 days, however, any amounts
so withheld shall be refunded to such holder.
Backup withholding is not an additional Federal income tax. Rather, the
Federal income tax liability of persons subject to backup withholding will be
reduced by the amount of tax withheld. If withholding results in overpayment of
taxes, a refund may be obtained from the Internal Revenue Service.
6. TRANSFER TAXES.
Holders who tender their Old Notes for exchange will not be obligated to pay
any transfer taxes in connection therewith. If, however, New Notes are to be
delivered to, or are to be issued in the name of, any person other than the
registered holder of the Old Notes tendered hereby, or if tendered Old Notes are
registered in the name of any person other than the person signing this Letter,
or if a transfer tax is imposed for any reason other than the exchange of Old
Notes in connection with the Exchange Offer, the amount of any such transfer
taxes (whether imposed on the registered holder or any other persons) will be
payable by the tendering holder. If satisfactory evidence of payment of such
taxes or exemption therefrom is not submitted herewith, the amount of such
transfer taxes will be billed directly to such tendering holder.
EXCEPT AS PROVIDED IN THIS INSTRUCTION 5, IT WILL NOT BE NECESSARY FOR
TRANSFER TAX STAMPS TO BE AFFIXED TO THE OLD NOTES SPECIFIED IN THIS LETTER.
7. WAIVER OF CONDITIONS.
The Company reserves the right to waive satisfaction of any or all
conditions enumerated in the Prospectus.
8. NO CONDITIONAL TENDERS.
No alternative, conditional, irregular or contingent tenders will be
accepted. All tendering holders of Old Notes, by execution of this Letter, shall
waive any right to receive notice of the acceptance of their Old Notes for
exchange.
Neither the Company, the Exchange Agent nor any other person is obligated to
give notice of any defect or irregularity with respect to any tender of Old
Notes nor shall any of them incur any liability for failure to give any such
notice.
<PAGE>
9. MUTILATED, LOST, STOLEN OR DESTROYED OLD NOTES.
Any holder whose Old Notes have been mutilated, lost, stolen or destroyed
should contact the Exchange Agent at the address indicated above for further
instructions.
10. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES.
Questions relating to the procedure for tendering, as well as requests for
additional copies of the Prospectus and this Letter, may be directed to the
Exchange Agent, at the address and telephone number indicated above.
<PAGE>
TO BE COMPLETED BY ALL TENDERING HOLDERS
(SEE INSTRUCTION 5)
PAYOR'S NAME: WRC MEDIA INC., WEEKLY READER CORPORATION
AND COMPASSLEARNING, INC.
<TABLE>
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------
SUBSTITUTE PART 1--PLEASE PROVIDE YOUR TIN: ------------------------
FORM W-9 TIN IN THE BOX AT RIGHT AND Social Security Number or
CERTIFY BY SIGNING AND DATING Employer Identification Number
BELOW.
---------------------------------------------------------------------------
Department of the Treasury PART 2--TIN Applied For / /
Internal Revenue Service
---------------------------------------------------------------------------
Payer's Request for Taxpayer CERTIFICATION--UNDER PENALTIES OF PERJURY, I CERTIFY THAT:
Identification Number ("TIN") (1) The number shown on this form is my correct Taxpayer Identification
and Certification Number (or I am waiting for a number to be issued to me),
(2) I am not subject to backup withholding because: (a) I am exempt from
backup withholding, or (b) I have not been notified by the Internal
Revenue Service (the "IRS") that I am subject to backup withholding as
a result of a failure to report all interest or dividends, or (c) the
IRS has notified me that I am no longer subject to backup withholding,
and
(3) any other information provided on this form is true and correct.
Signature ------------------------ Date -------------------
- ------------------------------------------------------------------------------------------------------------------------
You must cross out item (2) of the above certification if you have been notified by the IRS that you are subject to
backup withholding because of under reporting of interest or dividends on your tax returns and you have not been
notified by the IRS that you are no longer subject to backup withholding.
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED
THE BOX IN PART 2 OF SUBSTITUTE FORM W-9.
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number
has not been issued to me, and either (a) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office or
(b) I intend to mail or deliver an application in the near future. I
understand that if I do not provide a taxpayer identification number by the
time of payment, 31 percent of all reportable payments made to me thereafter
will be withheld until I provide a number.
Signature
------------------------------------------------------------------ Date
---------------------
<PAGE>
LETTER OF TRANSMITTAL
WRC MEDIA INC.
OFFER FOR ALL OUTSTANDING
15% SENIOR PREFERRED STOCK DUE 2011
IN EXCHANGE FOR
UP TO $75,000,000 PRINCIPAL AMOUNT OF
15% SENIOR PREFERRED STOCK DUE 2011
PURSUANT TO THE PROSPECTUS, DATED [ - ], 2000
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M. NEW YORK CITY TIME, ON [-], 2000,
UNLESS EXTENDED (SUCH DATE AND TIME, AS IT MAY BE EXTENDED, THE "EXPIRATION
DATE"). TENDERS MAY BE WITHDRAWN PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE
EXPIRATION DATE.
<TABLE>
<S> <C> <C> <C>
BY MAIL: BY OVERNIGHT MAIL OR COURIER: BY HAND: BY FACSIMILE:
BT Services Tennessee, Inc. BT Services Tennessee, Inc. Bankers Trust Company Fax No.
Reorganization Unit Corporate Trust & Agency Services Corporate Trust & Agency Services (615) 835-3701
P.O. Box 292737 Reorganization Unit Attn: Reorganization Department
Nashville, TN 37229-2737 648 Grassmere Park Road Receipt & Delivery Window
Nashville, TN 37211 123 Washington Street, 1st Floor
Confirm by Telephone New York, NY 10006
(615) 835-3572
</TABLE>
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE, OR
TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE, WILL
NOT CONSTITUTE A VALID DELIVERY.
The undersigned acknowledges that he or she has received the prospectus,
dated [ - ], 2000 (the "Prospectus"), of WRC Media Inc., a Delaware
corporation, (the "Company"), and this letter of transmittal (the "Letter"),
which together constitute the Company's offer (the "Exchange Offer") to exchange
shares of its 15% new senior preferred stock due 2011 ("New Senior Preferred
Stock") which have been registered under the Securities Act of 1933, as amended
(the "Securities Act"), pursuant to a registration statement of which the
Prospectus is a part, for an equal number of shares of the Company's outstanding
15% old senior preferred stock due 2011 ("Old Senior Preferred Stock").
Capitalized terms used but not defined herein shall have the same meaning given
them in the Prospectus.
For each share of Old Senior Preferred Stock accepted for exchange, the
holder of such share of Old Senior Preferred Stock will receive a New Senior
Preferred Stock having a liquidation preference equal to that of the surrendered
Old Senior Preferred Stock.
Holders of Old Senior Preferred Stock who tender their shares in exchange
for New Senior Preferred Stock shall be deemed to have tendered for exchange any
shares of Old Senior Preferred Stock received as dividends on such shares of Old
Senior Preferred Stock. The terms of the New Senior Preferred Stock are
substantially identical to the terms of the Old Senior Preferred Stock, except
that the New Senior Preferred Stock will not contain terms with respect to
transfer restrictions and will not require the Company to consummate a
registered Exchange Offer.
If (i) neither a registration statement relating to the Exchange Offer (the
"Exchange Offer Registration Statement") nor a shelf registration statement with
respect to the Old Senior Preferred Stock (the "Shelf Registration Statement")
and, together with the Exchange Offer Registration Statement, the "Registration
Statements") has been filed on or prior to 90 days after the original issue date
of the Old Senior Preferred Stock, (ii) any of such Registration Statements is
not declared effective on or prior to 210 days after the original issue date of
the Old Senior Preferred Stock (the "Effectiveness Target Date"), (iii) the
Company fails to consummate the Exchange Offer within 30 days of the
Effectiveness Target Date with respect to the Exchange Offer Registration
Statement or (iv) the Shelf Registration Statement or the Exchange Offer
Registration is declared effective but thereafter ceases to be effective or
usable in connection with resales of transfer restricted securities (as defined
in the Prospectus) during the periods specified (each such event referred to in
clauses (i) to (iv) above, a "Registration Default"), the holders of shares of
Old Senior Preferred Stock will be entitled to receive 15.5% per annum for each
week or portion thereof that the registration default continues. Following the
cure of all Registration Defaults, the dividend rate shall return to 15% (before
giving effect to any applicable default dividend).
<PAGE>
The Company reserves the right, at any time or from time to time, to extend
the Exchange Offer at its discretion, in which event the term "Expiration Date"
shall mean the latest time and date to which the Exchange Offer is extended. The
Company shall notify the holders of the Old Senior Preferred Stock of any
extension as promptly as practicable by oral or written notice thereof.
This Letter is to be completed by a holder of Old Senior Preferred Stock
either if certificates are to be forwarded herewith or if a tender of Old Senior
Preferred Stock, if available, is to be made by book-entry transfer to the
account maintained by the Bankers Trust Corporation (the "Exchange Agent") at
The Depository Trust Company (the "Book-Entry Transfer Facility") pursuant to
the procedures set forth in "The Exchange Offer" section of the Prospectus.
Holders of Old Senior Preferred Stock whose certificates are not immediately
available, or who are unable to deliver their certificates or confirmation of
the book-entry tender of their Old Senior Preferred Stock into the Exchange
Agent's account at the Book-Entry Transfer Facility (a "Book-Entry
Confirmation") and all other documents required by this Letter to the Exchange
Agent on or prior to the Expiration Date, must tender their Old Senior Preferred
Stock according to the guaranteed delivery procedures set forth in "The Exchange
Offer--Guaranteed Delivery Procedures" section of the Prospectus. See
Instruction 1. Delivery of documents to the Book-Entry Transfer Facility does
not constitute delivery to the Exchange Agent.
The undersigned has completed the appropriate boxes below and signed this
Letter to indicate the action the undersigned desires to take with respect to
the Exchange Offer.
List below the Old Senior Preferred Stock to which this Letter relates. If
the space provided below is inadequate, the numbers and principal amount at
maturity of Old Senior Preferred Stock should be listed on a separate signed
schedule affixed hereto.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
DESCRIPTION OF OLD SENIOR PREFERRED STOCK
- ---------------------------------------------------------------------------------------------------------------------------
1 2 3
- ---------------------------------------------------------------------------------------------------------------------------
AGGREGATE
LIQUIDATION
PREFERENCE OF
CERTIFICATE OLD SENIOR LIQUIDATION
NUMBER(S)* OF OLD PREFERRED PREFERENCE OF OLD
NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S) SENIOR PREFERRED STOCK REPRESENTED SENIOR PREFERRED
(PLEASE FILL IN, IF BLANK) STOCK TENDERED BY CERTIFICATE STOCK TENDERED**
<S> <C> <C> <C>
------------------------------------------------
------------------------------------------------
------------------------------------------------
------------------------------------------------
------------------------------------------------
TOTAL
- ---------------------------------------------------------------------------------------------------------------------------
* Need not be completed if Old Senior Preferred Stock are being tendered by book-entry transfer.
** Unless otherwise indicated in this column, a holder will be deemed to have tendered ALL of the Old Senior Preferred
Stock represented by aggregate liquidation preference of the Old Old Senior Preferred Stock indicated in column 2. See
Instruction 2.
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
/ / CHECK HERE IF TENDERED SHARES OF OLD SENIOR PREFERRED STOCK ARE ENCLOSED
HEREWITH.
/ / CHECK HERE IF TENDERED WRC OLD SENIOR PREFERRED STOCK ARE BEING DELIVERED
BY BOOK-ENTRY TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT
WITH THE BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution ______________________________________________
Account Number __________________ Transaction Code Number _________________
/ / CHECK HERE AND ENCLOSE A PHOTOCOPY OF THE NOTICE OF GUARANTEED DELIVERY IF
TENDERED OLD SENIOR PREFERRED STOCK ARE BEING DELIVERED PURSUANT TO A NOTICE
OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE
THE FOLLOWING:
Name(s) of Registered Holder(s) ____________________________________________
Window Ticket Number (if any) ______________________________________________
Date of Execution of Notice of Guaranteed Delivery _________________________
Name of Institution which guaranteed delivery ______________________________
IF DELIVERED BY BOOK-ENTRY TRANSFER, COMPLETE THE FOLLOWING:
Name of Tendering Institution ______________________________________________
Account Number __________________ Transaction Code Number _________________
<PAGE>
/ / CHECK HERE IF YOU ARE A BROKER-DEALER WHO ACQUIRED SHARES OF OLD PREFERRED
STOCK FOR ITS OWN ACCOUNT AS A RESULT OF MARKET MAKING ACTIVITIES AND WISH
TO RECEIVE 10 ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY
AMENDMENTS OR SUPPLEMENTS THERETO.
Name: ______________________________________________________________________
Address: ___________________________________________________________________
___________________________________________________________________
<PAGE>
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to the Company the aggregate principal amount at
maturity of the Old Senior Preferred Stock indicated above. Subject to, and
effective upon, the acceptance for exchange of the Old Senior Preferred Stock
tendered hereby, the undersigned hereby sells, assigns and transfers to, or upon
the order of, the Company all right, title and interest in and to such Old
Senior Preferred Stock as are being tendered hereby.
The undersigned hereby represents and warrants that the undersigned has full
power and authority to tender, sell, assign and transfer the Old Senior
Preferred Stock tendered hereby and that the Company will acquire good and
unencumbered title thereto, free and clear of all liens, restrictions, charges
and encumbrances and not subject to any adverse claim when the same are accepted
by the Company. The undersigned hereby further represents that any New Senior
Preferred Stock acquired in exchange for Old Senior Preferred Stock tendered
hereby will have been acquired in the ordinary course of business of the person
receiving such New Senior Preferred Stock, whether or not such person is the
undersigned, that neither the holder of such Old Senior Preferred Stock nor any
such other person is engaged in, or intends to engage in a distribution of such
New Senior Preferred Stock, or has an arrangement or understanding with any
person to participate in the distribution of such New Senior Preferred Stock,
and that neither the holder of such Old Senior Preferred Stock nor any such
other person is an "affiliate," as defined in Rule 405 under the Securities Act
of 1933 (the "Securities Act"), of the Company.
The undersigned also acknowledges that this Exchange Offer is being made by
the Company based upon the Company's understanding of an interpretation by the
staff of the Securities and Exchange Commission (the "Commission") as set forth
in no-action letters issued to third parties, that the New Senior Preferred
Stock issued in exchange for the Old Senior Preferred Stock pursuant to the
Exchange Offer may be offered for resale, resold and otherwise transferred by
holders thereof (other than any such holder that is an "affiliate" of the
Company within the meaning of Rule 405 under the Securities Act), without
compliance with the registration and Prospectus delivery provisions of the
Securities Act, provided that: (1) such holders are not affiliates of the
Company within the meaning of Rule 405 under the Securities Act; (2) such New
Senior Preferred Stock are acquired in the ordinary course of such holders'
business; and (3) such holders are not engaged in, and do not intend to engage
in, a distribution of such New Senior Preferred Stock and have no arrangement or
understanding with any person to participate in the distribution of such New
Senior Preferred Stock. However, the staff of the Commission has not considered
the Exchange Offer in the context of a no-action letter, and there can be no
assurance that the staff of the Commission would make a similar determination
with respect to the Exchange Offer as in other circumstances. If a holder of Old
Senior Preferred Stock is an affiliate of the Company, and is engaged in or
intends to engage in a distribution of the New Senior Preferred Stock or has any
arrangement or understanding with respect to the distribution of the New Senior
Preferred Stock to be acquired pursuant to the Exchange Offer, such holder could
not rely on the applicable interpretations of the staff of the Commission and
must comply with the registration and Prospectus delivery requirements of the
Securities Act in connection with any secondary resale transaction. If the
undersigned is a broker-dealer that will receive New Senior Preferred Stock for
its own account in exchange for Old Senior Preferred Stock, it represents that
the Old Senior Preferred Stock to be exchanged for the New Senior Preferred
Stock were acquired by it as a result of market-making activities or other
trading activities and acknowledges that it will deliver a Prospectus in
connection with any resale of such New Senior Preferred Stock; however, by so
acknowledging and by delivering a Prospectus, the undersigned will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
The undersigned will, upon request, execute and deliver any additional
documents deemed by the Company to be necessary or desirable to complete the
sale, assignment and transfer of the Old Senior Preferred Stock tendered hereby.
All authority conferred or agreed to be conferred in this Letter and every
obligation of the undersigned hereunder shall be binding upon the successors,
assigns, heirs, executors, administrators, trustees in bankruptcy and legal
representatives of the undersigned and shall not be affected by, and shall
survive, the death or incapacity of the undersigned. This tender may be
withdrawn only in accordance with the procedures set forth in "The Exchange
Offer--Withdrawal of Tenders" section of the Prospectus.
<PAGE>
Unless otherwise indicated herein in the box entitled "Special Issuance
Instructions" below, please deliver the New Senior Preferred Stock in the name
of the undersigned or, in the case of a book-entry delivery of Old Senior
Preferred Stock, please credit the account indicated above maintained at the
Book-Entry Transfer Facility. Similarly, unless otherwise indicated under the
box entitled "Special Delivery Instructions" below, please send the New Senior
Preferred Stock to the undersigned at the address shown above in the box
entitled "Description of Old Senior Preferred Stock."
THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED "DESCRIPTION OF OLD SENIOR
PREFERRED STOCK" ABOVE AND SIGNING THIS LETTER, WILL BE DEEMED TO HAVE TENDERED
THE OLD SENIOR PREFERRED STOCK AS SET FORTH IN SUCH BOX ABOVE.
- ------------------------------------------------
SPECIAL ISSUANCE INSTRUCTIONS
(SEE INSTRUCTIONS 3 AND 4)
To be completed ONLY if certificates of Old Senior Preferred Stock not
exchanged and/or New Senior Preferred Stock are to be issued in the name of
and sent to someone other than the person(s) whose signature(s) appear(s) on
this Letter above, or if Old Senior Preferred Stock delivered by book-entry
transfer which are not accepted for exchange are to be returned by credit to
an account maintained at the Book-Entry Transfer Facility other than the
account indicated above.
Issue New Senior Preferred Stock and/or Old Senior Preferred Stock to:
Name(s): ___________________________________________________________________
(PLEASE TYPE OR PRINT)
____________________________________________________________________________
(PLEASE TYPE OR PRINT)
Address: ___________________________________________________________________
____________________________________________________________________________
(INCLUDING ZIP CODE)
(COMPLETE ACCOMPANYING SUBSTITUTE FORM W-9)
/ / Credit unexchanged Old Senior Preferred Stock delivered by book-entry
transfer to the Book-Entry Transfer Facility account set forth below.
____________________________________________________________________________
(Book-Entry Transfer Facility
Account Number, if applicable)
- ------------------------------------------------
- ------------------------------------------------
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 3 AND 4)
To be completed ONLY if certificates of Old Senior Preferred Stock not
exchanged and/or New Senior Preferred Stock are to be sent to someone other
than the person(s) whose signature(s) appear(s) on this Letter above or to
such person(s) at an address other than shown in the box entitled
"Description of Old Senior Preferred Stock" on this Letter above.
Mail New Senior Preferred Stock and/or Old Senior Preferred Stock to:
Name(s): ___________________________________________________________________
(PLEASE TYPE OR PRINT)
__________________________________________________________________________
(PLEASE TYPE OR PRINT)
Address: ___________________________________________________________________
____________________________________________________________________________
(INCLUDING ZIP CODE)
- -----------------------------------------------------
IMPORTANT: THIS LETTER OR A FACSIMILE HEREOF (TOGETHER WITH THE CERTIFICATES
FOR OLD SENIOR PREFERRED STOCK OR A BOOK-ENTRY CONFIRMATION AND
ALL OTHER REQUIRED DOCUMENTS OR THE NOTICE OF GUARANTEED
DELIVERY) MUST BE RECEIVED BY THE EXCHANGE AGENT PRIOR TO
5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL CAREFULLY BEFORE
COMPLETING ANY BOX ABOVE.
<PAGE>
PLEASE SIGN HERE
(TO BE COMPLETED BY ALL TENDERING HOLDERS)
(COMPLETE ACCOMPANYING SUBSTITUTE FORM W-9 ON REVERSE SIDE)
Dated: ______________________________________________________________ , 2000
x: ________________________________ ________________________________ , 2000
x: ________________________________ ________________________________ , 2000
(SIGNATURE(S) OF OWNER(S)) (DATE)
Area Code and Telephone Number: ____________________________________________
If a holder is tendering any Old Senior Preferred Stock, this Letter
must be signed by the registered holder(s) as the name(s) appear(s) on the
certificate(s) for the Old Senior Preferred Stock or by any person(s)
authorized to become registered holder(s) by endorsements and documents
transmitted herewith. If signature is by a trustee, executor, administrator,
guardian, officer or other person acting in a fiduciary or representative
capacity, please set forth full title. See Instruction 3.
Name(s): ___________________________________________________________________
____________________________________________________________________________
(PLEASE TYPE OR PRINT)
Capacity: __________________________________________________________________
Address: ___________________________________________________________________
____________________________________________________________________________
(INCLUDING ZIP CODE)
SIGNATURE GUARANTEE
(IF REQUIRED BY INSTRUCTION 3)
Signature Guaranteed by
an Eligible Institution: ___________________________________________________
(AUTHORIZED SIGNATURE)
____________________________________________________________________________
(TITLE)
____________________________________________________________________________
(NAME AND FIRM)
Dated: ______________________________________________________________ , 2000
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER TO EXCHANGE
REGISTERED 15% SENIOR PREFERRED STOCK DUE 2011 FOR
UP TO $75,000,000 PRINCIPAL AMOUNT OF OUTSTANDING 15% SENIOR PREFERRED STOCK DUE
2011
OF WRC MEDIA INC.
1. DELIVERY OF THIS LETTER AND OLD SENIOR PREFERRED STOCK; GUARANTEED DELIVERY
PROCEDURES.
This Letter is to be completed by holders of Old Senior Preferred Stock
either if certificates are to be forwarded herewith or if tenders are to be made
pursuant to the procedures for delivery by book-entry transfer set forth in "The
Exchange Offer--Procedures for Tendering" section of the Prospectus.
Certificates for all physically tendered Old Senior Preferred Stock, or
Book-Entry Confirmation, as the case may be, as well as a properly completed and
duly executed letter of transmittal (or facsimile thereof) and any other
documents required by this Letter, must be received by the Exchange Agent at the
address set forth herein on or prior to the Expiration Date, or the tendering
holder must comply with the guaranteed delivery procedures set forth below.
Holders of Old Senior Preferred Stock whose certificates for Old Senior
Preferred Stock are not immediately available or who cannot deliver their
certificates and all other required documents to the Exchange Agent on or prior
to the Expiration Date, or who cannot complete the procedure for book-entry
transfer on a timely basis, may tender their Old Senior Preferred Stock pursuant
to the guaranteed delivery procedures set forth in "The Exchange Offer--
Guaranteed Delivery Procedures" section of the Prospectus. Pursuant to such
procedures, (i) such tender must be made through an Eligible Institution (as
defined below), (ii) prior to the Expiration Date, the Exchange Agent must
receive from such Eligible Institution a properly completed and duly executed
letter of transmittal (or facsimile thereof) and notice of guaranteed delivery,
substantially in the form provided by the Company (by facsimile transmission,
mail or hand delivery), setting forth the name and address of the holder of Old
Senior Preferred Stock, the certificate number or numbers of such Old Senior
Preferred Stock and the principal amount of Old Senior Preferred Stock tendered,
stating that the tender is being made thereby and guaranteeing that within five
business days after the Expiration Date, the letter of transmittal (or facsimile
thereof), together with the certificate or certificates representing the Old
Senior Preferred Stock to be tendered in proper form for transfer, or a
book-entry confirmation, as the case may be, and any other documents required by
this Letter will be deposited by the Eligible Institution (as defined below)
with the Exchange Agent, and (iii) such properly completed and executed letter
of transmittal (or facsimile thereof), as well as the certificate or
certificates representing all tendered Old Senior Preferred Stock in proper form
for transfer, or a book-entry confirmation, as the case may be, and all other
documents required by this Letter are received by the Exchange Agent within five
business days after the Expiration Date.
The method of delivery of this Letter, the Old Senior Preferred Stock and
all other required documents is at the election and risk of the tendering
holders. Instead of delivery by mail, it is recommended that holders use an
overnight or hand delivery service. In all cases, sufficient time should be
allowed to assure delivery to the Exchange Agent before the Expiration Date. No
letter of transmittal or Old Senior Preferred Stock should be sent to the
Company. Holders may request their respective brokers, dealers, commercial
banks, trust companies or nominees to effect the tenders for such holders.
See "The Exchange Offer" section of the Prospectus.
2. PARTIAL TENDERS (NOT APPLICABLE TO HOLDERS OF OLD SENIOR PREFERRED STOCK WHO
TENDER BY BOOK-ENTRY TRANSFER); WITHDRAWALS.
If less than all of the Old Senior Preferred Stock evidenced by a submitted
certificate are to be tendered, the tendering holder(s) should fill in the
aggregate liquidation preference of Old Senior Preferred Stock to be tendered in
the box above entitled "Description of Old Senior Preferred Stock--Principal
Amount of Old Senior Preferred Stock Tendered." A newly reissued certificate for
the Old Senior Preferred Stock submitted but not tendered will be sent to such
holder as soon as practicable after the Expiration Date. All of the Old Senior
Preferred Stock delivered to the Exchange Agent will be deemed to have been
tendered unless otherwise clearly indicated.
<PAGE>
If not yet accepted, a tender pursuant to the Exchange Offer may be
withdrawn prior to the Expiration Date. To be effective with respect to the
tender of Old Senior Preferred Stock, a notice of withdrawal must: (i) be
received by the Exchange Agent before the Company notifies the Exchange Agent
that they have accepted the tender of Old Senior Preferred Stock pursuant to the
Exchange Offer; (ii) specify the name of the Old Senior Preferred Stock;
(iii) contain a description of the Old Senior Preferred Stock to be withdrawn,
the certificate numbers shown on the particular certificates evidencing such Old
Senior Preferred Stock and the liquidation preference of Old Senior Preferred
Stock represented by such certificates; and (iv) be signed by the holder in the
same manner as the original signature on the letter of transmittal (including
any required signature guarantee). The Exchange Agent will return the properly
withdrawn Old Senior Preferred Stock promptly following receipt of notice of
withdrawal. If Old Senior Preferred Stock have been tendered pursuant to the
procedure for book-entry transfer, any notice of withdrawal must specify the
name and number of the account at the book-entry transfer facility to be
credited with the withdrawn Old Senior Preferred Stock or otherwise comply with
the book-entry transfer facility's procedures. All questions as to the validity
of notices of withdrawals, including time of receipt, will be determined by the
Company, and such determination will be final and binding on all parties.
3. SIGNATURES ON THIS LETTER, BOND POWERS AND ENDORSEMENTS; GUARANTEE OF
SIGNATURES.
If this Letter is signed by the registered holder of the Old Senior
Preferred Stock tendered hereby, the signature must correspond exactly with the
name as written on the face of the certificates without alteration, enlargement
or any change whatsoever.
If any shares of tendered Old Senior Preferred Stock are owned of record by
two or more joint owners, all such owners must sign this Letter.
If any shares of tendered Old Senior Preferred Stock are registered in
different names on several certificates, it will be necessary to complete, sign
and submit as many separate copies of this Letter as there are different
registrations of certificates.
When this Letter is signed by the registered holder (which term, for the
purposes described herein, shall include the book-entry transfer facility whose
name appears on a security listing as the owner of the Old Senior Preferred
Stock) of the shares of Old Senior Preferred Stock specified herein and tendered
hereby, no endorsements of certificates or separate bond powers are required.
If, however, the New Senior Preferred Stock are to be issued to a person other
than the registered holder, then endorsements of any certificates transmitted
hereby or separate bond powers are required. Signatures on such certificates
must be guaranteed by an Eligible Institution (as defined below).
If this Letter is signed by a person other than the registered holder or
holders of any Old Senior Preferred Stock specified therein, such certificate(s)
must be endorsed by such registered holder(s) or accompanied by separate written
instruments of transfer or endorsed in blank by such registered holder(s)
exchange in form satisfactory to the Company and duly executed by the registered
holder, in either case signed exactly as such registered holder(s) name or names
appear(s) on the Old Senior Preferred Stock.
If the Letter or any certificates of Old Senior Preferred Stock or separate
written instruments of transfer or exchange are signed or endorsed by trustees,
executors, administrators, guardians, attorney-in-fact, officers of corporations
or others acting in a fiduciary or representative capacity, such persons should
so indicate when signing, and unless waived by the Company, evidence
satisfactory to the Company of their authority to so act must be submitted with
the Letter.
Signature on a Letter or a notice of withdrawal, as the case may be, must be
guaranteed by an Eligible Institution unless the Old Senior Preferred Stock
tendered pursuant thereto are tendered (i) by a registered holder who has not
completed the box entitled "Special Payment Instructions" or "Special Delivery
Instructions" on the Letter or (ii) for the account of an Eligible Institution.
In the event that signatures on a Letter or a notice of withdrawal, as the case
may be, are required to be guaranteed, such guarantee must be by a member firm
of a registered national securities exchange or of the National Association of
Securities Dealers, Inc., a commercial bank or trust company having an office or
correspondent in the United States or an "eligible guarantor institution" within
the meaning of Rule 17Ad-15 under the Securities Exchange Act of 1934, as
amended (an "Eligible Institution").
<PAGE>
4. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS.
Tendering holders of Old Senior Preferred Stock should indicate in the
applicable box the name and address to which New Senior Preferred Stock issued
pursuant to the Exchange Offer are to be issued or sent, if different from the
name or address of the person signing this Letter. In the case of issuance in a
different name, the employer identification or social security number of the
person named must also be indicated. Holders tendering Old Senior Preferred
Stock by book-entry transfer may request that Old Senior Preferred Stock not
exchanged be credited to such account maintained at the Book-Entry Transfer
Facility as such holder may designate hereon. If no such instructions are given,
such Old Senior Preferred Stock not exchanged will be returned to the name or
address of the person signing this Letter.
5. TAX IDENTIFICATION NUMBER.
Federal income tax law generally requires that a tendering holder whose Old
Senior Preferred Stock are accepted for exchange must provide the Company (as
payor) with such holder's correct Taxpayer Identification Number ("TIN") on
Substitute Form W-9 below or otherwise establish a basis for exemption from
backup withholding. If such holder is an individual, the TIN is his or her
social security number. If the Company is not provided with the current TIN or
an adequate basis for an exemption, such tendering holder may be subject to a
$50 penalty imposed by the Internal Revenue Service. In addition, delivery of
New Senior Preferred Stock to such tendering holder may be subject to backup
withholding in an amount equal to 31% of all reportable payments made after the
exchange.
Certain holders (including, among others, all corporations and certain
foreign individuals) are not subject to these backup withholding and reporting
requirements. See the enclosed Guidelines of Certification of Taxpayer
Identification Number on Substitute Form W-9 (the "W-9 Guidelines") for
additional instructions.
To prevent backup withholding, each tendering holder of Old Senior Preferred
Stock must provide its correct TIN by completing the "Substitute Form W-9" set
forth below, certifying that the TIN provided is correct (or that such holder is
awaiting a TIN) and that (i) the holder is exempt from backup withholding,
(ii) the holder has not been notified by the Internal Revenue Service that such
holder is subject to a backup withholding as a result of a failure to report all
interest or dividends or (iii) the Internal Revenue Service has notified the
holder that such holder is no longer subject to backup withholding. If the
tendering holder of Old Senior Preferred Stock is a nonresident alien or foreign
entity not subject to backup withholding, such holder must give the Company a
completed Form W-8, Certificate of Foreign Status. These forms may be obtained
from the Exchange Agent. If the Old Senior Preferred Stock are in more than one
name or are not in the name of the actual owner, such holder should consult the
W-9 Guidelines for information on which TIN to report. If such holder does not
have a TIN, such holder should consult the W-9 Guidelines for instructions on
applying for a TIN, check the box in Part 2 of the Substitute Form W-9 and write
"applied for" in lieu of its TIN. Note: checking this box and writing "applied
for" on the form means that such holder has already applied for a TIN or that
such holder intends to apply for one in the near future. If a holder checks the
box in Part 2 of the Substitute Form W-9 and writes "applied for" on that form,
backup withholding at a 31% rate will nevertheless apply to all reportable
payments made to such holder. If such a holder furnishes its TIN to the Company
within 60 days, however, any amounts so withheld shall be refunded to such
holder.
Backup withholding is not an additional Federal income tax. Rather, the
Federal income tax liability of persons subject to backup withholding will be
reduced by the amount of tax withheld. If withholding results in overpayment of
taxes, a refund may be obtained from the Internal Revenue Service.
6. TRANSFER TAXES.
Holders who tender their Old Senior Preferred Stock for exchange will not be
obligated to pay any transfer taxes in connection therewith. If, however, New
Senior Preferred Stock are to be delivered to, or are to be issued in the name
of, any person other than the registered holder of the Old Senior Preferred
Stock tendered hereby, or if tendered Old Senior Preferred Stock are registered
in the name of any person other than the person signing this Letter, or if a
transfer tax is imposed for any reason other than the exchange of Old Senior
Preferred Stock in connection with the Exchange Offer, the amount of any such
transfer taxes (whether imposed on the registered holder or any other persons)
will be payable by the tendering holder. If satisfactory evidence of payment of
such taxes or exemption therefrom is not submitted herewith, the amount of such
transfer taxes will be billed directly to such tendering holder.
EXCEPT AS PROVIDED IN THIS INSTRUCTION 5, IT WILL NOT BE NECESSARY FOR
TRANSFER TAX STAMPS TO BE AFFIXED TO THE OLD SENIOR PREFERRED STOCK SPECIFIED IN
THIS LETTER.
7. WAIVER OF CONDITIONS.
The Company reserves the right to waive satisfaction of any or all
conditions enumerated in the Prospectus.
<PAGE>
8. NO CONDITIONAL TENDERS.
No alternative, conditional, irregular or contingent tenders will be
accepted. All tendering holders of Old Senior Preferred Stock, by execution of
this Letter, shall waive any right to receive notice of the acceptance of their
Old Senior Preferred Stock for exchange.
Neither the Company, the Exchange Agent nor any other person is obligated to
give notice of any defect or irregularity with respect to any tender of Old
Senior Preferred Stock nor shall any of them incur any liability for failure to
give any such notice.
9. MUTILATED, LOST, STOLEN OR DESTROYED OLD SENIOR PREFERRED STOCK.
Any holder whose Old Senior Preferred Stock have been mutilated, lost,
stolen or destroyed should contact the Exchange Agent at the address indicated
above for further instructions.
10. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES.
Questions relating to the procedure for tendering, as well as requests for
additional copies of the Prospectus and this Letter, may be directed to the
Exchange Agent, at the address and telephone number indicated above.
<PAGE>
TO BE COMPLETED BY ALL TENDERING HOLDERS
(SEE INSTRUCTION 5)
PAYOR'S NAME: WRC MEDIA INC.
<TABLE>
<S> <C> <C>
SUBSTITUTE PART 1--PLEASE PROVIDE YOUR TIN IN THE
FORM W-9 BOX AT RIGHT AND CERTIFY BY SIGNING TIN: ----------------------------
AND DATING BELOW. SOCIAL SECURITY NUMBER OR
EMPLOYER IDENTIFICATION NUMBER
Department of the Treasury PART 2--TIN Applied For / /
Internal Revenue Service
CERTIFICATION--UNDER PENALTIES OF PERJURY, I CERTIFY THAT:
Payor's Request for (1) The number shown on this form is my correct Taxpayer Identification Number (or I
Taxpayer Identification am waiting for a number to be issued to me),
Number ("TIN") (2) I am not subject to backup withholding because: (a) I am exempt from backup
and Certification withholding, or (b) I have not been notified by the Internal Revenue Service
(the "IRS") that I am subject to backup withholding as a result of a failure to
report all interest or dividends, or (c) the IRS has notified me that I am no
longer subject to backup withholding, and
(3) any other information provided on this form is true and correct.
Signature: ----------------------------- Date:----------------------
You must cross out item (2) of the above certification if you have been notified by the IRS that you are subject to
backup withholding because of under reporting of interest or dividends on your tax returns and you have not been
notified by the IRS that you are no longer subject to backup withholding.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED
THE BOX IN PART 2 OF SUBSTITUTE FORM W-9.
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number has not been issued to me, and either
(a) I have mailed or delivered an application to receive a taxpayer identification number to the appropriate Internal
Revenue Service Center or Social Security Administration Office or (b) I intend to mail or deliver an application in
the near future. I understand that if I do not provide a taxpayer identification number by the time of payment, 31
percent of all reportable payments made to me thereafter will be withheld until I provide a number.
Signature:
----------------------------------------------------------------------------------------------------------------------- Date:
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
NOTICE OF GUARANTEED DELIVERY
FOR TENDER OF
12 3/4% SENIOR SUBORDINATED NOTES DUE 2009
OF
WRC MEDIA INC.
WEEKLY READER CORPORATION
COMPASSLEARNING, INC.
PURSUANT TO THE PROSPECTUS DATED [ - ], 2000
This Notice of Guaranteed Delivery, or one substantially equivalent to this
form, must be used to tender Old Notes (as defined below) pursuant to the
Exchange Offer (as defined below) described in the prospectus dated [ - ],
2000 (as the same may be amended or supplemented from time to time, the
"Prospectus") of WRC Media Inc., a Delaware corporation, Weekly Reader
Corporation, a Delaware corporation, and CompassLearning,Inc., a Delaware
corporation (collectively the "Company"), if (i) certificates for the
outstanding 12 3/4% senior subordinated notes due 2009 (the "Old Notes") of the
Company are not immediately available, (ii) time will not permit the Old Notes,
the letter of transmittal and all other required documents to be delivered to
Bankers Trust Company (the "Exchange Agent") prior to 5:00 p.m., New York City
time, on [ - ], 2000 or such later date and time to which the Exchange Offer
may be extended (the "Expiration Date"), or (iii) the procedures for delivery by
book-entry transfer cannot be completed on a timely basis. This Notice of
Guaranteed Delivery, or one substantially equivalent to this form, must be
delivered by hand or sent by facsimile transmission or mail to the Exchange
Agent, and must be received by the Exchange Agent prior to the Expiration Date.
See "The Exchange Offer--Procedures for Tendering" in the Prospectus.
Capitalized terms used but not defined herein shall have the same meaning given
them in the Prospectus.
THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS:
BANKERS TRUST COMPANY
<TABLE>
<S> <C>
BY MAIL: BY HAND DELIVERY:
BT Services Tennessee, Inc. Bankers Trust Company
Reorganization Unit Corporate Trust & Agency Services
P.O. Box 292737 Attn: Reorganization Department
Nashville, TN 37229-2737 Receipt & Delivery Window
Fax: (615) 835-3701 123 Washington Street, 1st Floor
New York, NY 10006
</TABLE>
BY OVERNIGHT MAIL OR COURIER:
BT Services Tennessee, Inc.
Corporate Trust & Agency Services
Reorganization Unit
648 Grassmere Park Road
Nashville, TN 37211
Confirm by Telephone
(615) 835-3572
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE OR TRANSMISSION OF THIS NOTICE OF GUARANTEED DELIVERY VIA FACSIMILE
TO A NUMBER OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY.
THE METHOD OF DELIVERY OF ALL DOCUMENTS, INCLUDING CERTIFICATES, IS AT THE RISK
OF THE HOLDER. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT
REQUESTED, PROPERLY INSURED, IS RECOMMENDED. YOU SHOULD READ THE INSTRUCTIONS
ACCOMPANYING THE LETTER OF TRANSMITTAL CAREFULLY BEFORE YOU COMPLETE THIS NOTICE
OF GUARANTEED DELIVERY.
This Notice of Guaranteed Delivery is not to be used to guarantee signatures. If
a signature on a letter of transmittal is required to be guaranteed by an
"Eligible Institution" under the instructions thereto, such signature guarantee
must appear in the applicable space provided in the signature box on the letter
of transmittal.
<PAGE>
Ladies and Gentlemen:
The undersigned acknowledges receipt of the Prospectus and the related letter of
transmittal which describes the Company's offer (the "Exchange Offer") to
exchange $1,000 in principal amount of new 12 3/4% notes due 2009 (the "New
Notes") for each $1,000 in principal amount of Old Notes.
The undersigned hereby tenders to the Company, upon the terms and subject to the
conditions set forth in the Prospectus and the related letter of transmittal,
the aggregate principal amount of Old Notes indicated below pursuant to the
guaranteed delivery procedures set forth in the Prospectus under the caption
"The Exchange Offer--Guaranteed Delivery Procedures."
The undersigned understands that no withdrawal of a tender of Old Notes may be
made on or after the Expiration Date. The undersigned understands that for a
withdrawal of a tender of Old Notes to be effective, a written notice of
withdrawal that complies with the requirements of the Exchange Offer must be
timely received by the Exchange Agent at one of its addresses specified on the
cover of this Notice of Guaranteed Delivery prior to the Expiration Date.
The undersigned understands that the exchange of Old Notes for New Notes
pursuant to the Exchange Offer will be made only after timely receipt by the
Exchange Agent of (1) such Old Notes (or book-entry confirmation of the transfer
of such Old Notes) into the Exchange Agent's account at The Depository Trust
Company ("DTC")) and (2) a letter of transmittal (or facsimile thereof) with
respect to such Old Notes, properly completed and duly executed, with any
required signature guarantees, this Notice of Guaranteed Delivery and any other
documents required by the letter of transmittal or, in lieu thereof, a message
from DTC stating that the tendering holder has expressly acknowledged receipt
of, and agreement to be bound by ad held accountable under, the letter of
transmittal.
All authority conferred or agreed to be conferred by this Notice of Guaranteed
Delivery shall not be affected by, and shall survive, the death or incapacity of
the undersigned, and every obligation of the undersigned under this Notice of
Guaranteed Delivery shall be binding on the heirs, executors, administrators,
trustees in bankruptcy, personal and legal representatives, successors and
assigns of the undersigned.
Name(s) of Registered
Holder(s): (Please
Print or Type)
Signature(s):
Address(es):
Area Code(s) and Telephone
Number(s):
If Old Notes will be delivered
by book-entry transfer at DTC,
insert Depository Account
Number:
Date:
<TABLE>
<S> <C>
Certificate Number(s)* Principal Amount of Old Notes Tendered**
</TABLE>
* Need not be completed if the Old Notes being tendered are in book-entry
form.
** Must be in integral multiples of $1,000 principal amount.
<PAGE>
This Notice of Guaranteed Delivery must be signed by the registered holder(s) of
Old Notes exactly as its (their) name(s) appear on certificates for Old Notes or
on a security position listing as the owner of Old Notes, or by person(s)
authorized to become registered holder(s) by endorsements and documents
transmitted with this Notice of Guaranteed Delivery. If signature is by a
trustee, executor, administrator, guardian, attorney-in-fact, officer or other
person acting in a fiduciary or representative capacity, such person must
provide the following information.
Name(s):
Signature(s):
Address(es):
DO NOT SEND OLD NOTES WITH THIS FORM. OLD NOTES SHOULD BE SENT TO THE EXCHANGE
AGENT TOGETHER WITH A PROPERLY COMPLETED AND DULY EXECUTED LETTER OF
TRANSMITTAL.
<PAGE>
GUARANTEE OF DELIVERY
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a member firm of a registered national securities exchange or
of the National Association of Securities Dealers, Inc., a commercial bank or
trust company having an office or a correspondent in the United States or an
"eligible guarantor institution" within the meaning of Rule 17Ad-15 under the
Securities Exchange Act of 1934, as amended, hereby (1) represents that each
holder of Old Notes on whose behalf this tender is being made "own(s)" the Old
Notes covered hereby within the meaning of Rule 13d-3 under the Securities
Exchange Act of 1934, as amended ("the Exchange Act"), (2) represents that such
tender of Old Notes complies with Rule 14e-4 of the Exchange Act and
(3) guarantees that the undersigned will deliver to the Exchange Agent the
certificates representing the Old Notes being tendered hereby for exchange
pursuant to the Exchange Offer in proper form for transfer (or a confirmation of
book-entry transfer of such Old Notes into the Exchange Agent's account at the
book-entry transfer facility of DTC) with delivery of a properly completed and
duly executed letter of transmittal (or facsimile thereof), with any required
signature guarantees, or in lieu of a letter of transmittal a message from DTC
stating that the tendering holder has expressly acknowledged receipt of, and
agreement to be bound by and held accountable under, the letter of transmittal,
and any other required documents, all within five New York Stock Exchange
trading days after the date of execution of the Notice of Guaranteed Delivery.
<TABLE>
<S> <C>
Name of Firm: Authorized Signature
Address: Name:
Please Print or Type
Title:
Zip Code
Telephone No. Dated:
</TABLE>
The institution that completes the Notice of Guaranteed Delivery (a) must
deliver the same to the Exchange Agent at its address set forth above by hand,
or transmit the same by facsimile or mail, on or prior to the Expiration Date,
and (b) must deliver the certificates representing any Old Notes (or a
confirmation of book-entry transfer of such Old Notes into the Exchange Agent's
account at DTC), together with a properly completed and duly executed letter of
transmittal (or facsimile thereof) or a message from DTC stating that the
tendering holder has expressly acknowledged receipt of, and agreement to be
bound by and held accountable under, the letter of transmittal in lieu thereof),
with any required signature guarantees and any other documents required by the
letter of transmittal to the Exchange Agent within the time period shown herein.
Failure to do so could result in a financial loss to such institution.
<PAGE>
NOTICE OF GUARANTEED DELIVERY
FOR TENDER OF
15% SENIOR PREFERRED STOCK DUE 2011
OF
WRC MEDIA INC.
PURSUANT TO THE PROSPECTUS DATED [ - ], 2000
This Notice of Guaranteed Delivery, or one substantially equivalent to this
form, must be used to tender Old Senior Preferred Stock (as defined below)
pursuant to the Exchange Offer (as defined below) described in the prospectus
dated [ - ], 2000 (as the same may be amended or supplemented from time to
time, the "Prospectus") of WRC Media Inc., a Delaware corporation, (the
"Company"), if (i) certificates for the outstanding 15% senior preferred stock
due 2011 (the "Old Senior Preferred Stock") of the Company are not immediately
available, (ii) time will not permit the Old Senior Preferred Stock, the letter
of transmittal and all other required documents to be delivered to Bankers Trust
Company (the "Exchange Agent") prior to 5:00 p.m., New York City time, on
[ - ], 2000 or such later date and time to which the Exchange Offer may be
extended (the "Expiration Date"), or (iii) the procedures for delivery by
book-entry transfer cannot be completed on a timely basis. This Notice of
Guaranteed Delivery, or one substantially equivalent to this form, must be
delivered by hand or sent by facsimile transmission or mail to the Exchange
Agent, and must be received by the Exchange Agent prior to the Expiration Date.
See "The Exchange Offer--Procedures for Tendering" in the Prospectus.
Capitalized terms used but not defined herein shall have the same meaning given
them in the Prospectus.
THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS:
BANKERS TRUST COMPANY
<TABLE>
<S> <C>
BY MAIL: BY HAND DELIVERY:
BT Services Tennessee, Inc. Bankers Trust Company
Reorganization Unit Corporate Trust & Agency Services
P.O. Box 292737 Attn: Reorganization Department
Nashville, TN 37229-2737 Receipt & Delivery Window
Fax: (615) 835-3701 123 Washington Street, 1st Floor
New York, NY 10006
</TABLE>
BY OVERNIGHT MAIL OR COURIER:
BT Services Tennessee, Inc.
Corporate Trust & Agency Services
Reorganization Unit
648 Grassmere Park Road
Nashville, TN 37211
Confirm by Telephone
(615) 835-3572
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE OR TRANSMISSION OF THIS NOTICE OF GUARANTEED DELIVERY VIA FACSIMILE
TO A NUMBER OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY.
THE METHOD OF DELIVERY OF ALL DOCUMENTS, INCLUDING CERTIFICATES, IS AT THE RISK
OF THE HOLDER. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT
REQUESTED, PROPERLY INSURED, IS RECOMMENDED. YOU SHOULD READ THE INSTRUCTIONS
ACCOMPANYING THE LETTER OF TRANSMITTAL CAREFULLY BEFORE YOU COMPLETE THIS NOTICE
OF GUARANTEED DELIVERY.
This Notice of Guaranteed Delivery is not to be used to guarantee signatures. If
a signature on a letter of transmittal is required to be guaranteed by an
"Eligible Institution" under the instructions thereto, such signature guarantee
must appear in the applicable space provided in the signature box on the letter
of transmittal.
<PAGE>
Ladies and Gentlemen:
The undersigned acknowledges receipt of the Prospectus and the related letter of
transmittal which describes the Company's offer (the "Exchange Offer") to
exchange shares of its 15% new senior preferred stock due 2011 (the "New Senior
Preferred Stock") for an equal number of shares of the Company's outstanding Old
Senior Preferred Stock.
The undersigned hereby tenders to the Company, upon the terms and subject to the
conditions set forth in the Prospectus and the related letter of transmittal,
the aggregate liquidation preference of Old Senior Preferred Stock indicated
below pursuant to the guaranteed delivery procedures set forth in the Prospectus
under the caption "The Exchange Offer--Guaranteed Delivery Procedures."
The undersigned understands that no withdrawal of a tender of Old Senior
Preferred Stock may be made on or after the Expiration Date. The undersigned
understands that for a withdrawal of a tender of Old Senior Preferred Stock to
be effective, a written notice of withdrawal that complies with the requirements
of the Exchange Offer must be timely received by the Exchange Agent at one of
its addresses specified on the cover of this Notice of Guaranteed Delivery prior
to the Expiration Date.
The undersigned understands that the exchange of Old Senior Preferred Stock for
New Senior Preferred Stock pursuant to the Exchange Offer will be made only
after timely receipt by the Exchange Agent of (1) such Old Senior Preferred
Stock (or book-entry confirmation of the transfer of such Old Senior Preferred
Stock) into the Exchange Agent's account at The Depository Trust Company
("DTC")) and (2) a letter of transmittal (or facsimile thereof) with respect to
such Old Senior Preferred Stock, properly completed and duly executed, with any
required signature guarantees, this Notice of Guaranteed Delivery and any other
documents required by the letter of transmittal or, in lieu thereof, a message
from DTC stating that the tendering holder has expressly acknowledged receipt
of, and agreement to be bound by ad held accountable under, the letter of
transmittal.
All authority conferred or agreed to be conferred by this Notice of Guaranteed
Delivery shall not be affected by, and shall survive, the death or incapacity of
the undersigned, and every obligation of the undersigned under this Notice of
Guaranteed Delivery shall be binding on the heirs, executors, administrators,
trustees in bankruptcy, personal and legal representatives, successors and
assigns of the undersigned.
Name(s) of Registered
Holder(s): (Please
Print or Type)
Signature(s):
Address(es):
Area Code(s) and Telephone
Number(s):
If Old Senior Preferred Stock
will be delivered by
book-entry
transfer at DTC, insert
Depository Account Number:
Date:
Total Liquidation Preference
of the Old Senior Preferred
Stock Tendered:
<TABLE>
<S> <C>
Certificate Number(s)* Aggregate Liquidation Preference of
Old Senior Preferred Stock Tendered
</TABLE>
* Need not be completed if the Old Senior Preferred Stock being tendered are
in book-entry form.
<PAGE>
This Notice of Guaranteed Delivery must be signed by the registered holder(s) of
Old Senior Preferred Stock exactly as its (their) name(s) appear on certificates
for Old Senior Preferred Stock or on a security position listing as the owner of
Old Senior Preferred Stock, or by person(s) authorized to become registered
holder(s) by endorsements and documents transmitted with this Notice of
Guaranteed Delivery. If signature is by a trustee, executor, administrator,
guardian, attorney-in-fact, officer or other person acting in a fiduciary or
representative capacity, such person must provide the following information.
Name(s):
Signature(s):
Address(es):
DO NOT SEND CERTIFICATES FOR OLD SENIOR PREFERRED STOCK WITH THIS FORM.
CERTIFICATES FOR OLD SENIOR PREFERRED STOCK SHOULD BE SENT TO THE EXCHANGE AGENT
TOGETHER WITH A PROPERLY COMPLETED AND DULY EXECUTED LETTER OF TRANSMITTAL.
<PAGE>
GUARANTEE OF DELIVERY
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a member firm of a registered national securities exchange or
of the National Association of Securities Dealers, Inc., a commercial bank or
trust company having an office or a correspondent in the United States or an
"eligible guarantor institution" within the meaning of Rule 17Ad-15 under the
Securities Exchange Act of 1934, as amended, hereby (1) represents that each
holder of Old Senior Preferred Stock on whose behalf this tender is being made
"own(s)" the Old Senior Preferred Stock covered hereby within the meaning of
Rule 13d-3 under the Securities Exchange Act of 1934, as amended ("the Exchange
Act"), (2) represents that such tender of Old Senior Preferred Stock complies
with Rule 14e-4 of the Exchange Act and (3) guarantees that the undersigned will
deliver to the Exchange Agent the certificates representing the Old Senior
Preferred Stock being tendered hereby for exchange pursuant to the Exchange
Offer in proper form for transfer (or a confirmation of book-entry transfer of
such Old Senior Preferred Stock into the Exchange Agent's account at the
book-entry transfer facility of DTC) with delivery of a properly completed and
duly executed letter of transmittal (or facsimile thereof), with any required
signature guarantees, or in lieu of a letter of transmittal a message from DTC
stating that the tendering holder has expressly acknowledged receipt of, and
agreement to be bound by and held accountable under, the letter of transmittal,
and any other required documents, all within five New York Stock Exchange
trading days after the date of execution of the Notice of Guaranteed Delivery.
<TABLE>
<S> <C>
Name of Firm: Authorized Signature
Address: Name:
Please Print or Type
Title:
Zip Code
Telephone No. Dated:
</TABLE>
The institution that completes the Notice of Guaranteed Delivery (a) must
deliver the same to the Exchange Agent at its address set forth above by hand,
or transmit the same by facsimile or mail, on or prior to the Expiration Date,
and (b) must deliver the certificates representing any Old Senior Preferred
Stock (or a confirmation of book-entry transfer of such Old Senior Preferred
Stock into the Exchange Agent's account at DTC), together with a properly
completed and duly executed letter of transmittal (or facsimile thereof) or a
message from DTC stating that the tendering holder has expressly acknowledged
receipt of, and agreement to be bound by and held accountable under, the letter
of transmittal in lieu thereof), with any required signature guarantees and any
other documents required by the letter of transmittal to the Exchange Agent
within the time period shown herein. Failure to do so could result in a
financial loss to such institution.
<PAGE>
NOTICE OF WITHDRAWAL
OF TENDER OF
12 3/4% SENIOR SUBORDINATED NOTES DUE 2009
OF
WRC MEDIA INC.
WEEKLY READER CORPORATION
COMPASSLEARNING, INC.
PURSUANT TO THE PROSPECTUS DATED [ - ], 2000
This Notice of Withdrawal, or one substantially equivalent to this form, must be
used to withdraw tenders of Old Notes (as defined below) pursuant to the
Company's (as defined below) offer (the "Exchange Offer") to exchange $1,000
principal amount of new 12 3/4% notes due 2009 (the "New Notes") for each $1,000
in principal amount of the Company's outstanding 12 3/4% notes due 2009 (the
"Old Notes") described in the prospectus dated [ - ], 2000 (as the same may be
amended or supplemented from time to time, the "Prospectus") of WRC Media Inc.,
a Delaware corporation, Weekly Reader Corporation, a Delaware corporation, and
CompassLearning, Inc., a Delaware corporation (collectively, the "Company").
Except as otherwise provided in the Prospectus, holders of any shares of Old
Notes may withdraw their tenders of Old Notes at any time prior to 5:00 p.m.,
New York City time, on [ - ], 2000 or such later date and time to which the
Exchange Offer may be extended (the "Expiration Date"). To withdraw a tender, a
holder must deliver this Notice of Withdrawal, or one substantially equivalent
to this form, by hand or by facsimile transmission or mail to Bankers Trust
Company (the "Exchange Agent") prior to the Expiration Date. See "The Exchange
Offer--Withdrawal of Tenders" in the Prospectus. Capitalized terms used but not
defined herein shall have the same meaning given them in the Prospectus.
THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS:
BANKERS TRUST COMPANY
<TABLE>
<S> <C>
BY MAIL: BY HAND DELIVERY:
BT Services Tennessee, Inc. Bankers Trust Company
Reorganization Unit Corporate Trust & Agency Services
P.O. Box 292737 Attn: Reorganization Department
Nashville, TN 37229-2737 Receipt & Delivery Window
Fax: (615) 835-3701 123 Washington Street, 1st Floor
New York, NY 10006
</TABLE>
BY OVERNIGHT MAIL OR COURIER:
BT Services Tennessee, Inc.
Corporate Trust & Agency Services
Reorganization Unit
648 Grassmere Park Road
Nashville, TN 37211
Confirm by Telephone
(615) 835-3572
DELIVERY OF THIS NOTICE OF WITHDRAWAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION OF THIS NOTICE OF WITHDRAWAL VIA FACSIMILE TO A NUMBER
OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A VALID WITHDRAWAL. THE METHOD
OF DELIVERY OF ALL DOCUMENTS, INCLUDING CERTIFICATES, IS AT THE RISK OF THE
HOLDER. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED,
PROPERLY INSURED, IS RECOMMENDED. YOU SHOULD READ THE INSTRUCTIONS ACCOMPANYING
THE LETTER OF TRANSMITTAL CAREFULLY BEFORE YOU COMPLETE THIS NOTICE OF
WITHDRAWAL.
<PAGE>
Ladies and Gentlemen:
The undersigned hereby withdraws, upon the terms and subject to the conditions
set forth in the Prospectus and the related letter of transmittal, the aggregate
liquidation preference of Old Notes indicated below pursuant to the procedures
for withdrawal set forth in the Prospectus under the caption "The Exchange
Offer--Withdrawal of Tenders."
The undersigned understands that no withdrawal of a tender of Old Notes may be
made on or after the Expiration Date. The undersigned understands that for a
withdrawal of a tender of Old Notes to be effective, a written notice of
withdrawal that complies with the requirements of the Exchange Offer must be
timely received by the Exchange Agent at one of its addresses specified on the
cover of this Notice of Withdrawal prior to the Expiration Date.
Name of Person who Deposited
the Old Notes to be Withdrawn: (Please
Print or Type)
Name in which the Old Notes to
be Withdrawn
is to be Registered, if
Different from Depositor:
(Please
Print or Type)
Signature(s):
Address(es):
Area Code(s) and Telephone
Number(s):
If Old Notes were delivered by
book-entry
transfer at DTC, insert
Depository Account Number:
Date:
Total Liquidation Preference
of
the Old Notes to be Withdrawn:
<TABLE>
<S> <C>
Certificate Number(s)* Principal Amount of Old
Notes to be Withdrawn
</TABLE>
* Need not be completed if the Old Notes being withdrawn are in book-entry
form.
This Notice of Withdrawal must be signed by the depositor(s) of Old Notes in the
same manner as the original signature on the letter of transmittal by which such
Old Notes were tendered, with any required signature guarantees, or be
accompanied by documents of transfer sufficient to have the trustee register the
transfer of such Old Notes into the name of the person withdrawing the tender.
If signature is by a trustee, executor, administrator, guardian,
attorney-in-fact, officer or other person acting in a fiduciary or
representative capacity, such person must provide the following information.
Name(s):
Signature(s):
Address(es):
<PAGE>
NOTICE OF WITHDRAWAL
OF TENDER OF
15% SENIOR PREFERRED STOCK DUE 2011
OF
WRC MEDIA INC.
PURSUANT TO THE PROSPECTUS DATED [ - ], 2000
This Notice of Withdrawal, or one substantially equivalent to this form, must be
used to withdraw tenders of Old Senior Preferred Stock (as defined below)
pursuant to the Company's (as defined below) offer (the "Exchange Offer") to
exchange shares of its 15% new senior preferred stock due 2011 (the "New Senior
Preferred Stock") for an equal number of shares of the Company's outstanding 15%
senior preferred stock due 2011 (the "Old Senior Preferred Stock") described in
the prospectus dated [ - ], 2000 (as the same may be amended or supplemented
from time to time, the "Prospectus") of WRC Media Inc., a Delaware corporation,
(the "Company"). Except as otherwise provided in the Prospectus, holders of any
shares of Old Senior Preferred Stock may withdraw their tenders of Old Senior
Preferred Stock at any time prior to 5:00 p.m., New York City time, on [ - ],
2000 or such later date and time to which the Exchange Offer may be extended
(the "Expiration Date"). To withdraw a tender, a holder must deliver this Notice
of Withdrawal, or one substantially equivalent to this form, by hand or by
facsimile transmission or mail to Bankers Trust Company (the "Exchange Agent")
prior to the Expiration Date. See "The Exchange Offer--Withdrawal of Tenders" in
the Prospectus. Capitalized terms used but not defined herein shall have the
same meaning given them in the Prospectus.
THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS:
BANKERS TRUST COMPANY
<TABLE>
<S> <C>
BY MAIL: BY HAND DELIVERY:
BT Services Tennessee, Inc. Bankers Trust Company
Reorganization Unit Corporate Trust & Agency Services
P.O. Box 292737 Attn: Reorganization Department
Nashville, TN 37229-2737 Receipt & Delivery Window
Fax: (615) 835-3701 123 Washington Street, 1st Floor
New York, NY 10006
</TABLE>
BY OVERNIGHT MAIL OR COURIER:
BT Services Tennessee, Inc.
Corporate Trust & Agency Services
Reorganization Unit
648 Grassmere Park Road
Nashville, TN 37211
Confirm by Telephone
(615) 835-3572
DELIVERY OF THIS NOTICE OF WITHDRAWAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION OF THIS NOTICE OF WITHDRAWAL VIA FACSIMILE TO A NUMBER
OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A VALID WITHDRAWAL. THE METHOD
OF DELIVERY OF ALL DOCUMENTS, INCLUDING CERTIFICATES, IS AT THE RISK OF THE
HOLDER. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED,
PROPERLY INSURED, IS RECOMMENDED. YOU SHOULD READ THE INSTRUCTIONS ACCOMPANYING
THE LETTER OF TRANSMITTAL CAREFULLY BEFORE YOU COMPLETE THIS NOTICE OF
WITHDRAWAL.
<PAGE>
Ladies and Gentlemen:
The undersigned hereby withdraws, upon the terms and subject to the conditions
set forth in the Prospectus and the related letter of transmittal, the aggregate
liquidation preference of Old Senior Preferred Stock indicated below pursuant to
the procedures for withdrawal set forth in the Prospectus under the caption "The
Exchange Offer--Withdrawal of Tenders."
The undersigned understands that no withdrawal of a tender of Old Senior
Preferred Stock may be made on or after the Expiration Date. The undersigned
understands that for a withdrawal of a tender of Old Senior Preferred Stock to
be effective, a written notice of withdrawal that complies with the requirements
of the Exchange Offer must be timely received by the Exchange Agent at one of
its addresses specified on the cover of this Notice of Withdrawal prior to the
Expiration Date.
Name of Person who Deposited
the Old
Senior Preferred Stock to be
Withdrawn: (Please
Print or Type)
Name in which the Old Senior
Preferred Stock to be
Withdrawn is to be Registered,
if Different from Depositor:
(Please
Print or Type)
Signature(s):
Address(es):
Area Code(s) and Telephone
Number(s):
If Old Senior Preferred Stock
were delivered by book-entry
transfer at DTC, insert
Depository Account Name and
Number:
Date:
Total Liquidation Preference
of the Old
Senior Preferred Stock to be
Withdrawn:
<TABLE>
<S> <C>
Certificate Number(s)* Aggregate Liquidation Preference of Old
Senior Preferred Stock to be Withdrawn
</TABLE>
* Need not be completed if the Old Senior Preferred Stock being withdrawn are
in book-entry form.
This Notice of Withdrawal must be signed by the depositor(s) of Old Senior
Preferred Stock in the same manner as the original signature on the letter of
transmittal by which such Old Senior Preferred Stock were tendered, with any
required signature guarantees, or be accompanied by documents of transfer
sufficient to have the trustee register the transfer of such Old Senior
Preferred Stock into the name of the person withdrawing the tender. If signature
is by a trustee, executor, administrator, guardian, attorney-in-fact, officer or
other person acting in a fiduciary or representative capacity, such person must
provide the following information.
Name(s):
Signature(s):
Address(es):
<PAGE>
WRC MEDIA INC., WEEKLY READER CORPORATION
AND COMPASSLEARNING, INC.
OFFER FOR ALL OUTSTANDING
12 3/4% SENIOR SUBORDINATED NOTES DUE 2009
IN EXCHANGE FOR
UP TO $152,000,000 PRINCIPAL AMOUNT OF
12 3/4% SENIOR SUBORDINATED NOTES DUE 2009
PURSUANT TO THE PROSPECTUS, DATED [ - ], 2000
To: Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees:
WRC Media Inc., a Delaware corporation, Weekly Reader Corporation, a
Delaware corporation, and CompassLearning, Inc., a Delaware corporation,
(collectively, the "Company"), hereby offer to exchange (the "Exchange Offer"),
upon and subject to the terms and conditions set forth in the Prospectus dated
[ - ], 2000 (the "Prospectus") and the enclosed letter of transmittal (the
"Letter of Transmittal"), up to $152,000,000 aggregate principal amount of new
12 3/4% Senior Subordinated Notes due 2009, which will be freely transferable
(the "New Notes"), for any and all outstanding 12 3/4% Senior Subordinated Notes
due 2009, which have certain transfer restrictions (the "Old Notes"). The
Exchange Offer is intended to satisfy certain obligations of the Company
contained in the Registration Rights Agreement dated as of November 17, 1999,
between the Company and the Donaldson, Lufkin & Jenrette Securities Corporation
and Banc of America Securities LLC.
We are requesting that you contact your clients for whom you hold Old Notes
regarding the Exchange Offer. For your information and for forwarding to your
clients for whom you hold Old Notes registered in your name or in the name of
your nominee, or who hold Old Notes registered in their own names, we are
enclosing the following documents:
1. Prospectus dated [ - ], 2000;
2. The Letter of Transmittal for your use and for the information of your
clients;
3. A Notice of Guaranteed Delivery to be used to accept the Exchange Offer
if certificates for Old Notes are not immediately available or time will
not permit all required documents to reach the Exchange Agent prior to
the Expiration Date (as defined below) or if the procedure for book-entry
transfer cannot be completed on a timely basis;
4. A form of letter which may be sent to your clients for whose account you
hold Old Notes registered in your name or the name of your nominee, with
space provided for obtaining such clients' instructions with regard to
the Exchange Offer;
5. Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9; and
6. Return envelopes addressed to Bankers Trust Corporation, the Exchange
Agent for the Old Notes.
YOUR PROMPT ACTION IS REQUESTED. THE EXCHANGE OFFER WILL EXPIRE AT
5:00 P.M., NEW YORK CITY TIME, ON [ - ], 2000 (THE "EXPIRATION DATE"), UNLESS
EXTENDED BY THE COMPANY. ANY OLD NOTES TENDERED PURSUANT TO THE EXCHANGE OFFER
MAY BE WITHDRAWN AT ANY TIME BEFORE 5:00 PM., NEW YORK CITY TIME, ON THE
EXPIRATION DATE.
To participate in the Exchange Offer, a duly executed and properly completed
Letter of Transmittal (or facsimile thereof or a message from The Depository
Trust Company stating that the tendering holder has expressly acknowledged
receipt of, and agreement to be bound by and held accountable under, the Letter
of Transmittal), with any required signature guarantees and any other required
documents, must be sent to the Exchange Agent and certificates representing the
Old Notes must be delivered to the Exchange Agent, all in accordance with the
instructions set forth in the Letter of Transmittal and the Prospectus.
<PAGE>
If holders of Old Notes wish to tender, but it is impracticable for them to
forward their certificates for Old Notes prior to the expiration of the Exchange
Offer or to comply with the book-entry transfer procedures on a timely basis, a
tender may be effected by following the guaranteed delivery procedures described
in the Prospectus under "Exchange Offer--Guaranteed Delivery Procedures."
Any inquiries you may have with respect to the Exchange Offer or requests
for additional copies of the enclosed materials should be directed to the
Exchange Agent for the Old Notes, at its address and telephone number set forth
on the front of the Letter of Transmittal.
Very truly yours,
WRC Media Inc.
Weekly Reader Corporation
CompassLearning, Inc.
NOTHING HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR ANY OTHER
PERSON AS AN AGENT OF THE COMPANY OR THE EXCHANGE AGENT, OR AUTHORIZE YOU OR ANY
OTHER PERSON TO USE ANY DOCUMENT OR MAKE ANY STATEMENTS ON BEHALF OF EITHER OF
THEM WITH RESPECT TO THE EXCHANGE OFFER, EXCEPT FOR STATEMENTS EXPRESSLY MADE IN
THE PROSPECTUS OR THE LETTER OF TRANSMITTAL.
<PAGE>
WRC MEDIA INC.
OFFER FOR ALL OUTSTANDING
15% SENIOR PREFERRED STOCK DUE 2011
IN EXCHANGE FOR
UP TO $75,000,000 PRINCIPAL AMOUNT OF
15% SENIOR PREFERRED STOCK DUE 2011
PURSUANT TO THE PROSPECTUS, DATED [ - ], 2000
To: Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees:
WRC Media Inc. (the "Company") hereby offers to exchange (the "Exchange
Offer"), upon and subject to the terms and conditions set forth in the
prospectus dated [ - ], 2000 (the "Prospectus") and the enclosed letter of
transmittal (the "Letter of Transmittal"), up to $75,000,000 aggregate principal
amount of new 15% Senior Preferred Stock due 2011, which will be freely
transferable (the "New Senior Preferred Stock"), for any and all outstanding 15%
Senior Preferred Stock due 2011, which have certain transfer restrictions (the
"Old Senior Preferred Stock"). The Exchange Offer is intended to satisfy certain
obligations of the Company contained in the Preferred Stockholders Agreement
dated as of November 17, 1999, between the Company and the parties signatory
thereto.
We are requesting that you contact your clients for whom you hold Old Senior
Preferred Stock regarding the Exchange Offer. For your information and for
forwarding to your clients for whom you hold Old Senior Preferred Stock
registered in your name or in the name of your nominee, or who hold Old Senior
Preferred Stock registered in their own names, we are enclosing the following
documents:
1. Prospectus dated [ - ], 2000;
2. The Letter of Transmittal for your use and for the information of your
clients;
3. A Notice of Guaranteed Delivery to be used to accept the Exchange Offer
if certificates for Old Senior Preferred Stock are not immediately
available or time will not permit all required documents to reach the
Exchange Agent prior to the Expiration Date (as defined below) or if the
procedure for book-entry transfer cannot be completed on a timely basis;
4. A form of letter which may be sent to your clients for whose account you
hold Old Senior Preferred Stock registered in your name or the name of
your nominee, with space provided for obtaining such clients'
instructions with regard to the Exchange Offer;
5. Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9; and
6. Return envelopes addressed to Bankers Trust Corporation, the Exchange
Agent for the Old Senior Preferred Stock.
YOUR PROMPT ACTION IS REQUESTED. THE EXCHANGE OFFER WILL EXPIRE AT
5:00 P.M., NEW YORK CITY TIME, ON [ - ], 2000 (THE "EXPIRATION DATE"), UNLESS
EXTENDED BY THE COMPANY. ANY OLD SENIOR PREFERRED STOCK TENDERED PURSUANT TO THE
EXCHANGE OFFER MAY BE WITHDRAWN AT ANY TIME BEFORE 5:00 PM., NEW YORK CITY TIME,
ON THE EXPIRATION DATE.
To participate in the Exchange Offer, a duly executed and properly completed
Letter of Transmittal (or facsimile thereof), with any required signature
guarantees and any other required documents, must be sent to the Exchange Agent
and certificates representing the Old Senior Preferred Stock must be delivered
to the Exchange Agent, all in accordance with the instructions set forth in the
Letter of Transmittal and the Prospectus.
If holders of Old Senior Preferred Stock wish to tender, but it is
impracticable for them to forward their certificates for Old Senior Preferred
Stock prior to the expiration of the Exchange Offer or to comply with the
book-entry transfer procedures on a timely basis, a tender may be effected by
following the guaranteed delivery procedures described in the Prospectus under
"Exchange Offer--Guaranteed Delivery Procedures."
<PAGE>
Any inquiries you may have with respect to the Exchange Offer or requests
for additional copies of the enclosed materials should be directed to the
Exchange Agent for the Old Senior Preferred Stock, at its address and telephone
number set forth on the front of the Letter of Transmittal.
Very truly yours,
WRC Media Inc.
NOTHING HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR ANY OTHER
PERSON AS AN AGENT OF THE COMPANY OR THE EXCHANGE AGENT, OR AUTHORIZE YOU OR ANY
OTHER PERSON TO USE ANY DOCUMENT OR MAKE ANY STATEMENTS ON BEHALF OF EITHER OF
THEM WITH RESPECT TO THE EXCHANGE OFFER, EXCEPT FOR STATEMENTS EXPRESSLY MADE IN
THE PROSPECTUS OR THE LETTER OF TRANSMITTAL.
<PAGE>
WRC MEDIA INC., WEEKLY READER CORPORATION
AND COMPASSLEARNING, INC.
OFFER FOR ALL OUTSTANDING
12 3/4% SENIOR SUBORDINATED NOTES DUE 2009
IN EXCHANGE FOR
UP TO $152,000,000 PRINCIPAL AMOUNT OF
12 3/4% SENIOR SUBORDINATED NOTES DUE 2009
PURSUANT TO THE PROSPECTUS, DATED 2000
To Our Clients:
Enclosed for your consideration is a Prospectus dated [ - ], 2000 (the
"Prospectus") and the related letter of transmittal (the "Letter of
Transmittal"), relating to the offer (the "Exchange Offer") of WRC Media Inc., a
Delaware corporation, Weekly Reader Corporation, a Delaware corporation, and
CompassLearning, Inc., a Delaware corporation, (collectively, the "Company") to
exchange up to $152,000,000 aggregate principal amount of new 12 3/4% Senior
Subordinated Notes due 2009, which will be freely transferable (the "New
Notes"), for any and all outstanding 12 3/4 Senior Subordinated Notes due 2009,
which have certain transfer restrictions (the "Old Notes"), upon the terms and
subject to the conditions described in the Prospectus and the related Letter of
Transmittal. The Exchange Offer is intended to satisfy certain obligations of
the Company contained in the Registration Rights Agreement dated as of
November 17, 1999, between the Company and the Donaldson, Lufkin & Jenrette
Securities Corporation and Banc of America Securities LLC.
This material is being forwarded to you as the beneficial owner of the Old
Notes carried by us for your account but not registered in your name. A TENDER
OF SUCH OLD NOTES MAY ONLY BE MADE BY US AS THE HOLDER OF RECORD AND PURSUANT TO
YOUR INSTRUCTIONS.
Accordingly, we request instructions as to whether you wish us to tender on
your behalf the Old Notes held by us for your account, pursuant to the terms and
conditions set forth in the enclosed Prospectus and Letter of Transmittal.
Please forward your instructions to us a promptly as possible in order to
permit us to tender the Old Notes on your behalf in accordance with the
provisions of the Exchange Offer. The Exchange Offer will expire at 5:00 p.m.,
New York City time, on [ - ], 2000 (the "Expiration Date"), unless extended by
the Company. Any Old Notes tendered pursuant to the Exchange Offer may be
withdrawn any time before 5:00 p.m., New York City time, on the Expiration Date.
Your attention is directed to the following:
1. The Exchange Offer is for any and all Old Notes.
2. The Exchange Offer is subject to certain conditions set forth in the
Prospectus in the section captioned "Exchange Offer--Conditions to the
Exchange Offer."
3. The Exchange Offer expires at 5:00 p.m., New York City time, on the
Expiration Date, unless extended by the Company.
If you wish to have us tender your Old Notes, please so instruct us by
completing, executing and returning to us the instruction form on the back of
this letter.
THE LETTER OF TRANSMITTAL IS FURNISHED TO YOU FOR INFORMATION ONLY AND MAY
NOT BE USED DIRECTLY BY YOU TO TENDER OLD NOTES.
<PAGE>
INSTRUCTIONS WITH RESPECT TO
THE EXCHANGE OFFER
The undersigned acknowledge(s) receipt of this letter and the enclosed
materials referred to therein relating to the Exchange Offer made by the Company
with respect to the Old Notes.
This will instruct you to tender the Old Notes held by you for the account
of the undersigned, upon and subject to terms and conditions set forth in the
Prospectus and the related Letter of Transmittal.
Please tender the Old Notes held by you for the account of the undersigned
as indicated below:
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL AMOUNT OF OLD NOTES
<S> <C>
12 3/4% Senior subordinated Notes Due 2009...
/ / Please do not tender any Old Notes held
by you for the account of the
undersigned.
Dated: , 2000
Signature(s)
Please print name(s) here
Address(es)
Area Code(s) and Telephone Number(s)
Tax Identification or Social Security No(s).
</TABLE>
NONE OF THE OLD NOTES HELD BY US FOR YOUR ACCOUNT WILL BE TENDERED UNLESS WE
RECEIVE WRITTEN INSTRUCTIONS FROM YOU TO DO SO. UNLESS A SPECIFIC CONTRARY
INSTRUCTION IS GIVEN IN THE SPACE PROVIDED, YOUR SIGNATURE(S) HEREON SHALL
CONSTITUTE AN INSTRUCTION TO US TO TENDER ALL THE OLD NOTES HELD BY US FOR YOUR
ACCOUNT.
<PAGE>
WRC MEDIA INC.
OFFER FOR ALL OUTSTANDING
15% SENIOR PREFERRED STOCK DUE 2011
IN EXCHANGE FOR
UP TO $75,000,000 PRINCIPAL AMOUNT OF
15% SENIOR PREFERRED STOCK DUE 2011
PURSUANT TO THE PROSPECTUS, DATED [ - ] 2000
To Our Clients:
Enclosed for your consideration is a prospectus dated [ - ], 2000 (the
"Prospectus") and the related letter of transmittal (the "Letter of
Transmittal"), relating to the offer (the "Exchange Offer") of WRC Media Inc.
(the "Company") to exchange up to $75,000,000 aggregate principal amount of new
15% Senior Preferred Stock due 2011, which will be freely transferable (the "New
Senior Preferred Stock"), for any and all outstanding 15% Senior Preferred Stock
due 2011, which have certain transfer restrictions (the "Old Senior Preferred
Stock"), upon the terms and subject to the conditions described in the
Prospectus and the related Letter of Transmittal. The Exchange Offer is intended
to satisfy certain obligations of the Company contained in the Preferred
Stockholders Agreement dated as of November 17, 1999, between the Company and
the parties signatory thereto.
This material is being forwarded to you as the beneficial owner of the Old
Senior Preferred Stock carried by us for your account but not registered in your
name. A TENDER OF SUCH OLD SENIOR PREFERRED STOCK MAY ONLY BE MADE BY US AS THE
HOLDER OF RECORD AND PURSUANT TO YOUR INSTRUCTIONS.
Accordingly, we request instructions as to whether you wish us to tender on
your behalf the Old Senior Preferred Stock held by us for your account, pursuant
to the terms and conditions set forth in the enclosed Prospectus and Letter of
Transmittal.
Please forward your instructions to us as promptly as possible in order to
permit us to tender the Old Senior Preferred Stock on your behalf in accordance
with the provisions of the Exchange Offer. The Exchange Offer will expire at
5:00 p.m., New York City time, on [ - ], 2000 (the "Expiration Date"), unless
extended by the Company. Any Old Senior Preferred Stock tendered pursuant to the
Exchange Offer may be withdrawn any time before 5:00 p.m., New York City time,
on the Expiration Date.
Your attention is directed to the following:
1. The Exchange Offer is for any and all Old Senior Preferred Stock.
2. The Exchange Offer is subject to certain conditions set forth in the
Prospectus in the section captioned "Exchange Offer--Conditions to the
Exchange Offer."
3. The Exchange Offer expires at 5:00 p.m., New York City time, on the
Expiration Date, unless extended by the Company.
If you wish to have us tender your Old Senior Preferred Stock, please so
instruct us by completing, executing and returning to us the instruction form on
the back of this letter.
THE LETTER OF TRANSMITTAL IS FURNISHED TO YOU FOR INFORMATION ONLY AND MAY
NOT BE USED DIRECTLY BY YOU TO TENDER OLD SENIOR PREFERRED STOCK.
<PAGE>
INSTRUCTIONS WITH RESPECT TO
THE EXCHANGE OFFER
The undersigned acknowledge(s) receipt of this letter and the enclosed
materials referred to therein relating to the Exchange Offer made by the Company
with respect to the Old Senior Preferred Stock.
This will instruct you to tender the Old Senior Preferred Stock held by you
for the account of the undersigned, upon and subject to terms and conditions set
forth in the Prospectus and the related Letter of Transmittal.
Please tender the Old Senior Preferred Stock held by you for the account of
the undersigned as indicated below:
<TABLE>
<CAPTION>
AGGREGATE LIQUIDATION PREFERENCE OF
OLD SENIOR PREFERRED STOCK
<S> <C>
15% Senior Preferred Stock Due 2011..........
/ / Please do not tender any Old Senior
Preferred Stock held by you for the
account of the undersigned.
Dated: , 1999
Signature(s)
Please print name(s) here
Address(es)
Area Code(s) and Telephone Number(s)
Tax Identification or Social Security No(s).
</TABLE>
NONE OF THE OLD SENIOR PREFERRED STOCK HELD BY US FOR YOUR ACCOUNT WILL BE
TENDERED UNLESS WE RECEIVE WRITTEN INSTRUCTIONS FROM YOU TO DO SO. UNLESS A
SPECIFIC CONTRARY INSTRUCTION IS GIVEN IN THE SPACE PROVIDED, YOUR SIGNATURE(S)
HEREON SHALL CONSTITUTE AN INSTRUCTION TO US TO TENDER ALL THE OLD SENIOR
PREFERRED STOCK HELD BY US FOR YOUR ACCOUNT.
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE
PAYER. Social Security numbers have nine digits separated by two hyphens: i.e.
000-00-0000. Employer identification numbers have nine digits separated by only
one hyphen, i.e. 00-0000000. The table below will help determine the number to
give the payer.
<TABLE>
<CAPTION>
- ---------------------------------------------------
<S> <C> <C>
GIVE THE
SOCIAL SECURITY
FOR THIS TYPE OF ACCOUNT: NUMBER OF--
- ---------------------------------------------------
1. An individual's The individual
account
2. Two or more The actual owner of
individuals (joint the account or, if
account) combined funds, any
one of the
individuals(1)
3. Husband and wife The actual owner of
(joint account) the account or, if
joint funds, either
person(1)
4. Custodian account of a The minor(2)
minor (Uniform Gift to
Minors Act)
5. Adult and minor (joint The adult or, if the
account) minor is the only
contributor, the
minor(1)
6. Account in the name of The ward, minor, or
guardian or committee incompetent person(3)
for a designated ward,
minor, or incompetent
person
7. a. The usual revocable The grantor-trustee(1)
savings trust
account (grantor is
also trustee)
b. So-called trust The actual owner(1)
account that is not
a legal or valid
trust under State
law
- ---------------------------------------------------
<CAPTION>
GIVE THE
EMPLOYER
IDENTIFICATION
FOR THIS TYPE OF ACCOUNT: NUMBER OF--
- ---------------------------------------------------
<S> <C> <C>
8. Sole proprietorship The owner(4)
account
9. A valid trust, estate, The legal entity (do
or pension trust not furnish the
identifying number of
the personal
representative or
trustee unless the
legal entity itself is
not designated in the
account title)(5)
10. Corporate account The corporation
11. Religious, charitable, The organization
educational or
organization account
12. Partnership account The partnership
held in the name of
the partnership
13. Association, club, or The organization
other tax-exempt
organization
14. A broker or registered The broker or nominee
nominee
15. Account with the The public entity
Department of
Agriculture in the
name of a public
entity (such as a
State or local
government, school
district, or prison)
that receives
agricultural program
payments
</TABLE>
- ---------------------------------------------
- ---------------------------------------------
(1) List all names first and circle the name of the person whose number you
furnish. If only one person on a joint account has a Social Security number,
that person's number must be furnished.
(2) Circle the minor's name and furnish the minor's Social Security number.
(3) Circle the ward's, minor's or incompetent person's name and furnish such
person's Social Security number.
(4) You must show your individual name, but you may also enter your business or
"doing business as" name. You may use either your Social Security number or
Employer Identification number (if you have one).
(5) List first and circle the name of the legal trust, estate, or pension trust.
NOTE: If no name is circled when there is more than one name, the number will
be considered to be that of the first name listed.
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
PAGE 2
OBTAINING A NUMBER
If you don't have a taxpayer identification number or you don't know your
number, obtain Form SS-5, Application for a Social Security Card, or Form SS-4,
Application for Employer Identification Number (for business and all other
entities), at the local office of the Social Security Administration or the
Internal Revenue Service and apply for a number.
PAYEES EXEMPT FROM BACKUP WITHHOLDING
Payees specifically exempted from backup withholding on ALL payments include the
following:
- A corporation.
- A financial institution.
- An organization exempt from tax under section 501(a) of the Internal
Revenue Code of 1986, as amended (the "Code"), or an individual retirement
plan, or a custodial account under Section 403(b)(7), if the account
satisfies the requirements of Section 401(l)(7).
- The United States of any agency or instrumentalities.
- A State, the District of Columbia, a possession of the United States, or
any political subdivision of instrumentality thereof.
- A foreign government, a political subdivision of a foreign government, or
any agency or instrumentality thereof.
- An international organization or any agency, or instrumentality thereof.
- A registered dealer in securities or commodities registered in the U.S.,
the District of Columbia or a possession of the U.S.
- A real estate investment trust.
- A common trust fund operated by a bank under section 584(a) of the Code.
- An exempt charitable remainder trust, or a non-exempt trust described in
Section 4947(a)(l) of the Code.
- An entity registered at all times under the Investment Company Act of
1940.
- A foreign central bank of issue.
- A middleman known in the investment community as a nominee or who is
listed in the most recent publication of the American Society of Corporate
Securities, Inc. Nominee List.
Payments of dividends and patronage dividends not generally subject to backup
withholding include the following:
- Payments to nonresident aliens subject to withholding under Section 1441
of the Code.
- Payments to partnerships not engaged in a trade or business in the U.S.
and what have at least one nonresident partner.
- Payments of patronage dividends where the amount received is not paid in
money.
- Payments made by certain foreign organizations.
- Payments made to a nominee.
- Section 404(k) payments made by an ESOP.
Payments of interest not generally subject to backup withholding include the
following:
- Payments of interest on obligations issued by individuals. NOTE: You may
be subject to backup withholding if this interest is $600 or more and is
paid in the course of the payer's trade or business and you have not
provided your correct taxpayer identification number to the payer.
- Payments of tax-exempt interest (including exempt-interest dividends under
Section 852 of the Code).
- Payments described in Section 6049(b)(5) of the Code to nonresident
aliens.
- Payments on tax-free covenant bonds under Section 1451 of the Code.
- Payments made by certain foreign organizations.
- Payments made to a nominee.
- Mortgage interest paid to you.
Exempt payees described above should file a Form W-9 to avoid possible erroneous
backup withholding. FILE THIS FORM WITH THE PAYER, FURNISH YOUR TAXPAYER
IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM. SIGN AND DATE THE
FORM AND RETURN IT TO THE PAYER. IF YOU ARE A NONRESIDENT ALIEN OR A FOREIGN
ENTITY NOT SUBJECT TO BACKUP WITHHOLDING FILE WITH A PAYER A COMPLETED INTERNAL
REVENUE FORM W-8 (CERTIFICATE FOREIGN STATUS).
Certain payments other than interest, dividends, and patronage dividends, that
are not subject to information reporting are also not subject to backup
withholding. For details, see the regulations under Section 6041, 6041A(2), 6045
and 6050A of the Code and the regulations promulgated thereunder.
PRIVACY ACT NOTICE--Section 6109 requires most recipients of dividends,
interest, or other payments to give taxpayer identification numbers to payers
who must report the payments to the IRS. The IRS uses the numbers for
identification purposes. Payers must be given the numbers whether or not
recipients are required to file tax returns. Payers must generally withhold 31%
of taxable interest, dividends and certain other payments to a payee who does
not furnish a taxpayer identification number to a payer. Certain penalties may
also apply.
PENALTIES
(1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER.--If you fail
to furnish your taxpayer identification number to a payer, you are subject to a
penalty of $50 for each such failure unless your failure is due to reasonable
cause and not to wilful neglect.
(2) FAILURE TO REPORT CERTAIN DIVIDEND AND INTEREST INFORMATION.-- If you fail
to include any portion of an includible payment for interest, dividends or
patronage dividends in gross income, such failure will be treated as being due
to negligence and will be subject to a penalty of 5% on any portion of an
underpayment attributable to that failure unless there is clear and convincing
evidence to the contrary.
(3) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING--If you make
a false statement with no reasonable basis that results in no imposition of
backup withholding, you are subject to a penalty of $500.
(4) CRIMINAL PENALTY FOR FALSIFYING INFORMATION.-- Willfully falsifying
certifications or affirmations may subject you to criminal penalties including
fines and/or imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE
SERVICE.
