SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15 (d) of
The Securities Exchange Act of 1934
For Quarter Ended: Commission File Number
September 30, 1996 0-22852
_______________________________________________________________
AFFINITY GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-3377709
(State of incorporation (I.R.S. Employer o.)
or organization) Identification No.)
64 Inverness Drive East (303) 792-7284
Englewood, CO 80112 (Registrant's telephone
(Address of principal number, including area code)
executive offices)
_________________________________________________________________
SECURITIES REGISTERED PURSUANT TO SECTION 12 (b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12 (g) OF THE ACT:
11 1/2% Senior Subordinated Notes Due 2003
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES X NO
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Outstanding as of
Class November 1,1996
Common Stock, $.001 par value 2,000
DOCUMENTS INCORPORATED BY REFERENCE: None AFFINITY GROUP, INC. and
SUBSIDIARIES
INDEX
Page
Part I. Financial Information
Item 1: Financial Statements
Consolidated Balance Sheets 1
As of September 30, 1996 and December 31, 1995
Consolidated Statements of Operations 2
For the three months ended September 30, 1996 and 1995
Consolidated Statements of Operations 3
For the nine months ended September 30, 1996 and 1995
Consolidated Statements of Cash Flows 4
For the nine months ended September 30, 1996 and 1995
Notes to Consolidated Financial Statements 5
Item 2: Management's Discussion and Analysis of 6
Financial Condition and Results of Operations
Part II. Other Information 12
Signatures 13
Exhibit
ITEM: 1
AFFINITY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, 1996 and DECEMBER 31, 1995
(In Thousands)
(Unaudited)
9/30/96 12/31/95
ASSETS
CURRENT ASSETS:
Cash and cash equivalents 5,502 3,746
Investments 731 1,514
Accounts receivable, net of allowance
for doubtful accounts 13,960 15,624
Notes receivable from affiliate 0 3,113
Inventories 2,660 4,046
Prepaid expenses and other assets 10,224 5,794
Deferred tax asset- current 2,435 1,907
------ ------
Total current assets 35,512 35,744
PROPERTY AND EQUIPMENT 10,704 10,876
LOANS RECEIVABLE, net 7,277 8,474
INTANGIBLE ASSETS 118,391 122,579
DEFERRED TAX ASSET 14,040 16,503
RESTRICTED INVESTMENTS 2,076 2,015
OTHER ASSETS 4,656 4,556
------- -------
Total assets 192,656 200,747
======= =======
LIABILITIES AND STOCKHOLDER'S DEFICIT
CURRENT LIABILITIES:
Accounts payable 1,144 4,730
Accrued interest 6,419 3,058
Accrued liabilities 12,987 16,582
Customer deposits 12,533 10,974
Current portion of long-term debt 4,626 4,665
------ ------
Total current liabilities 37,709 40,009
DEFERRED REVENUES 76,766 71,133
LONG-TERM DEBT 147,416 159,831
OTHER LONG-TERM LIABILITIES 6,847 7,737
------- -------
Total liabilities 268,738 278,710
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S DEFICIT:
Preferred stock, .001 par value,
1,000 shares authorized, none issued or outstanding 0 0
Common stock .001 par value,
2,000 shares authorized, 2,000 shares issued
and outstanding 1 1
Additional paid-in capital, net 12,021 12,021
Accumulated deficit (88,104) (89,985)
-------- --------
Total stockholder's deficit (76,082) (77,963)
Total liabilities and stockholder's deficit 192,656 200,747
======= =======
See Notes to Consolidated Financial Statements
AFFINITY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands)
(Unaudited)
THREE MONTHS ENDED
9/30/96 9/30/95
REVENUES:
Membership services 26,440 27,095
Publications 6,988 6,642
------ ------
33,428 33,737
COSTS AND EXPENSES:
Membership services 16,466 14,350
Publications 4,552 5,654
General and administrative 4,737 4,353
Depreciation and amortization 2,153 2,370
------ ------
27,908 26,727
------ ------
INCOME FROM OPERATIONS 5,520 7,010
NON-OPERATING EXPENSES:
Interest expense, net (4,099) (4,206)
Other net non-operating - (14)
------- -------
(4,099) (4,220)
------- -------
NET INCOME BEFORE INCOME TAXES 1,421 2,790
INCOME TAX PROVISION (736) (1,500)
------- -------
NET INCOME 685 1,290
======= =======
See Notes to Consolidated Financial Statements.
AFFINITY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands)
(Unaudited)
NINE MONTHS ENDED
9/30/96 9/30/95
REVENUES:
Membership services 78,354 79,190
Publications 22,959 22,395
------- -------
101,313 101,585
COSTS AND EXPENSES:
Membership services 47,029 43,695
Publications 17,884 17,853
General and administrative 13,753 14,452
Depreciation and amortization 6,367 7,204
------ ------
85,033 83,204
INCOME FROM OPERATIONS 16,280 18,381
NON-OPERATING EXPENSES:
Interest expense, net (12,459) (12,268)
Other net non-operating (1) 58
-------- --------
(12,460) (12,210)
NET INCOME BEFORE INCOME TAXES 3,820 6,171
INCOME TAX PROVISION (1,945) (3,200)
------- -------
NET INCOME 1,875 2,971
======= =======
See Notes to Consolidated Financial Statements.
<PAGE>
AFFINITY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
NINE MONTHS ENDED
9/30/96 9/30/95
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income 1,875 2,971
Adjustments to reconcile net income to net cash
provided (used in) operating activities:
Depreciation and amortization 6,367 7,204
Deferred Income Taxes 1,945 3,200
Provision for losses on accounts receivable 518 459
Deferred phantom stock compensation - 640
Gain (Loss) on disposal of property and equipment 1 (54)
Changes in assets and liabilities:
Accounts receivable 1,146 851
Inventories 1,386 52
Prepaids and other assets (4,530) (4,026)
Loans receivable 1,197 -
Restricted investments (61) -
Accounts payable (3,586) (1,069)
Accrued and other liabilities (1,130) (1,540)
Customer deposits 1,559 -
Deferred revenues 5,633 5,333
------ ------
Net cash provided by operating activities 12,320 14,021
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (1,311) (2,250)
Change in intangible assets (697) (364)
Sale of investments 783 -
Prepaid lease - (1,600)
Note receivable from affiliate 3,113 -
Proceeds from sale of property and equipment 2 263
----- -------
Net cash provided by (used) in investing activities 1,890 (3,951)
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid - (9,000)
Borrowings on long-term debt 26,550 103,247
Principal payments of long-term debt (39,004) (104,663)
-------- ---------
Net cash used in financing activities (12,454) (10,416)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,754 (346)
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD 3,746 346
----- -----
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD 5,502 -
===== =====
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest 9,343 10,293
Income taxes 472 281
See Notes to Consolidated Financial Statements.
AFFINITY GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
(1) BASIS OF PRESENTATION
The financial statements included herein include the results of Affinity Group,
Inc. and subsidiaries (the Company) without audit, in accordance with
generally accepted accounting principles, and pursuant to the rules and
regulations of the Securities and Exchange Commission. These interim
consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes in the Company's 10-K report for
the year ended December 31, 1995 as filed with the Securities and Exchange
Commission. In the opinion of management of the Company, these consolidated
financial statements contain all adjustments of a normal recurring nature
necessary to present fairly the financial position, results of operations and
cash flows of the Company for the interim periods presented.
(2) PENDING ACQUISITION
On August 28, 1996, the Company entered into a Stock Purchase Agreement to
purchase all of the issued and outstanding voting securities of Ehlert
Publishing Group, Inc. and Expositions Group, Inc., a recreation and sports
publishing group, headquartered in Minnetonka, Minnesota. The purchase price
(subject to adjustment under certain circumstances) is $22.3 million.
Closing of the transactions contemplated under the Stock Purchase Agreement
is expected to occur in January 1997.
AFFINITY GROUP INC. AND SUBSIDIARIES
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following table is derived from the Company's Consolidated Statements of
Operations and expresses the results from operations as a percentage of
revenues and reflects the net increase/(decrease) between periods:
THREE MONTHS ENDED
9/30/96 9/30/95 INC/(DEC)
REVENUES:
Membership services 79.10 80.31 (2.42)
Publications 20.90 19.69 5.21
------ ------ ------
100.00 100.00 (0.92)
COSTS AND EXPENSES:
Membership services 49.26 42.54 14.75
Publications 13.62 16.76 (19.49)
General and administrative 14.17 12.90 8.82
Depreciation and amortization 6.44 7.02 (9.16)
----- ----- -------
83.49 79.22 4.42
INCOME FROM OPERATIONS 16.51 20.78 (21.26)
NON-OPERATING EXPENSES:
Interest expense, net 12.26 12.47 (2.54)
Other net non-operating 0.00 0.04 (100.00)
----- ----- --------
12.26 12.51 (2.87)
NET INCOME BEFORE INCOME TAXES 4.25 8.27 (49.07)
INCOME TAX PROVISION 2.20 4.45 (50.93)
----- ---- -------
NET INCOME 2.05 3.82 (46.90)
===== ==== =======
NINE MONTHS ENDED
9/30/96 9/30/95 INC/(DEC)
REVENUES:
Membership services 77.34 77.95 (1.06)
Publications 22.66 22.05 2.52
------ ------ ------
100.00 100.00 (0.27)
COSTS AND EXPENSES:
Membership services 46.42 43.01 7.63
Publications 17.65 17.57 0.17
General and administrative 13.57 14.23 (4.84)
Depreciation and amortization 6.28 7.09 (11.62)
----- ----- -------
83.93 81.91 2.20
INCOME FROM OPERATIONS 16.07 18.09 (11.43)
NON-OPERATING EXPENSES:
Interest expense, net 12.30 12.08 1.56
Other net non-operating 0.00 (0.06) (101.72)
----- ------ --------
12.30 12.02 2.05
NET INCOME BEFORE INCOME TAXES 3.77 6.07 (38.10)
INCOME TAX PROVISION 1.92 3.16 (39.22)
---- ---- -------
NET INCOME 1.85 2.90 (36.89)
==== ==== =======
<PAGE>
RESULTS OF OPERATIONS
Three Months Ended September 30, 1996
Compared With Three Months Ended September 30, 1995
Revenues of $33.4 million for the third quarter of 1996 decreased by
approximately $300,000 or 0.9% from the comparable period in 1995.
Membership services revenue of $26.4 million for the third quarter of 1996
decreased by $655,000 from the comparable period in 1995 due to an aggregate
decrease of $2,040,000 in club membership revenue which was offset by
increases of only $1,385,000 in other membership activities. The decrease in
membership revenue is primarily a result of a decline in the number of
members in the Coast to Coast and the National Association for Female
Executives ("NAFE") clubs. Due to a continuing decline in the private
campground industry, it is anticipated the membership of Coast to Coast will
also continue to decline. The decline in NAFE membership is the result of a
decision to reduce new member acquisition mailings. With improved member
benefits and new member acquisition methods, it is anticipated NAFE
membership will increase during 1997. The increases in other membership
revenue consisted of additional revenue of $263,000 from Affinity Thrift &
Loan (ATL) and Affinity Insurance Group (AINS), operations acquired in the
second half of 1995, an increase of $730,000 in revenues from Samboree
events, and an increase of $392,000 in marketing and commission fee income
primarily from a new mechanical breakdown program and VIP insurance.
Publication revenue of $7.0 million for the third quarter of 1996 increased
by $346,000 from the comparable period in 1995. Increases of $590,000 from
MotorHome, Woodall Publishing and other publication revenues were partially
offset by decreases of $244,000 in Campground Directory and RV Shopper
revenues. The increases in publication revenues are largely a result of
increased advertising income.
Costs and expenses totaled $27.9 million for the third quarter of 1996, an
increase of $1,181,000 or 4.4% over the comparable period in 1995. Costs and
expenses of ATL and AINS accounted for $734,000 of such increase.
Membership services costs and expenses, excluding ATL and AINS expenses,
increased by $1,382,000 to $15.7 million in the third quarter of 1996
compared to $14.3 million in 1995. Such increase was largely a result of
increased marketing and promotional expenses for existing membership services
as well as cost associated with the development of new services.
Publication costs and expenses of $4.6 million for the third quarter of 1996
decreased $1.1 million or 19.5% compared to the third quarter of 1995. Such
decrease was primarily due to a net decrease in Campground Directory expenses
resulting from reduced marketing cost.
General and administrative costs and expenses for the third quarter of 1996
increased $384,000 or 8.8% to 4.7 million, compared to $4.4 million in the
third quarter of 1995. Such increase was due to an increased number of
employees. Depreciation and amortization expense of $2.2 million decreased
$217,000 or 9.2% primarily due to customer list and other intangibles having
been fully amortized in prior periods.
Income from operations for the third quarter of 1996 decreased $1.5 million
or 21.3% to $5.5 million compared to $7.0 million for the third quarter of
1995. Such decrease was primarily due to the 1.0% decrease in total
revenues, coupled with increased marketing and member services associated
with the development of additional club benefits.
Non-operating expenses were $4.1 million for the third quarter of 1996,
compared to $4.2 million for the same period in 1995. Such decrease of
approximately $100,000, or 2.5%, was largely due to lower interest rates
during the third quarter of 1996 compared to the same period in 1995.
Net income before taxes in the third quarter of 1996 was $1.4 million
compared to $2.8 million for the third quarter of 1995. The increases in
expenses identified above accounted for such decrease.
Net income for the third quarter of 1996 was $685,000, compared to $1,290,000
for the same period in 1995. The decrease of $605,000 was composed of a
decrease of $2,300,000 in net revenue from club membership services, $471,000
in net operating losses for ATL and AINS, and an increase of $46,000 in all
other costs and expenses, which were only partially offset by an increase of
$1,448,000 in net publications revenue, and a $764,000 corresponding decrease
in income taxes.
Nine Months Ended September 30, 1996
Compared With Nine MonthsEnded September 30, 1995.
Revenues of $101.3 million for the nine months ended September 30, 1996
decreased by $272,000 from $101.6 million for the same period in 1995 due to
an $836,000 decrease in membership services revenue which was partially
offset by a $564,000 increase in publication revenue.
The $836,000 decrease in membership services revenue resulted from a net
decrease of $2,809,000 in club membership revenue which was partially offset
by $752,000 in additional revenue from the ATL and AINS operations acquired
in the second half of 1995, a $906,000 net increase in marketing and
commission fee income largely from RV financing, various insurance programs,
mechanical breakdown and emergency road service programs and a $315,000
increase in Samborees revenue.
Publication revenue of $23.0 million for the first nine months of 1996
increased by $564,000 or 2.5% over the comparable period in 1995, due to an
aggregate increase of $1,358,000 in revenues from Trailer Life, Motorhome,
Roads To Adventure (established in 1996), and Woodall Publishing. This
increase was offset by an aggregate decrease of $794,000 in revenues from
RV Shopper, Rider, other publications and sale of books. These increases and
decreases in publication revenues are largely a result of changes in
advertising income.
Costs and expenses totaled $85.0 million for the nine months ended
September 30, 1996, an increase of $1,829,000 or 2.2% over the comparable
period in 1995. Costs and expenses of ATL and AINS were $1,964,000 during
the first nine months of 1996. Excluding the expenses of ATL and AINS
operations, costs and expenses in the first nine months of 1996 decreased by
$135,000.
Membership services costs and expenses, excluding ATL and AINS expenses, were
$45.1 million for the first nine months of 1996, a $1.4 million or 3.1%
increase over such costs and expenses for the comparable period in 1995.
Increased expenses of $836,000 associated with the development of an Internet
Web site, introduction of a mechanical breakdown program, and club development
costs, increased marketing, promotional and overhead expenses of $830,000 for
other membership services and increased club expenses of $634,000 were only
partially offset by reduction of expenses due to discontinuance of a direct mail
catalog in 1996 and a $423,000 reduction of expenses for member benefit
insurance and financial services programs.
Publication costs and expenses totaled $17.9 million in the first nine months
of 1996, the same as such expenses in the first nine months of 1995.
Increases of approximately $1.0 million in publication costs and expenses for
four publications were offset by decreases in such expenses for other
publications. The increase in publication expenses are largely a result of
increased per item production costs, primarily mailing costs. The decreases
result largely from an approximately $540,000 reduction in publication
expenses for RV Shopper which was substantially scaled back in size and
number of issues, as well as an approximately $440,0000 reduction in
marketing cost for Campground Directory.
General and administrative costs and expenses of $13.8 million in the first
nine months of 1996 decreased by $700,000 or 4.8% compared to the same period
in 1996. This decrease was attributed to recording no phantom stock expenses
in the first nine months of 1996 compared to $500,000 in such expenses in the
comparable 1995 period, and a net decrease of $200,000 in other
administrative costs in the first nine months of 1996. Depreciation and
amortization costs of $6.4 million decreased $837,000 or 11.6% in 1996 due to
the full amortization of certain customer lists and other intangibles prior to
the current period.
Income from operations of $16.3 million for the first nine months ended
September 30, 1995, decreased $2.1 million or 11.4% compared to the same
period in 1995. This decrease is a result of a slight decrease in revenues
while cost and expenses increased 2.2% as discussed above.
Non-operating expenses of $12.5 million in the first nine months of 1996
increased by $250,000 or 2.0% compared to the comparable period in 1995.
Such increase resulted from an increase in interest expense largely due to
higher average borrowings partially offset by lower interest rates during
the first nine months of 1996 compared to the same period in 1995.
Net income before taxes was $3.8 million for the first nine months of 1996,
compared to $6.2 million for the first nine months of 1995. The increases in
costs and expenses identified above account for this decrease.
For the nine months ended September 30, 1996, the Company recognized a $1.9
million income tax provision compared to $3.2 million in the comparable
period in 1995. The effective income tax rate in both periods is
approximately 51% which reflects the amortization of non-deductible goodwill.
Net income for the nine months ended September 30, 1996 was to $1.9 million
compared to $3.0 million in the comparable period in 1995. This decrease of
$1.1 million or 36.9% was composed of a decrease of $5,382,000 in net revenue
from club membership services, an increase of $533,000 in net publications
revenue, $1,212,000 in net operating losses for ATL and AINS, a decrease of
$1,286,000 in all other costs and expenses, and by a $1,255,000 corresponding
decrease in income taxes.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1996, the Company had $12.5 million available under its
revolving credit facility, compared to $3.5 million at December 31, 1995.
The decline in the outstanding revolver borrowings in the nine months of 1996
is primarily attributable to receipt in the first quarter of 1996 of the
annual VIP Insurance bonus for 1995 and the repayment of an affiliate note
receivable, which in the aggregate, totaled $5.8 million.
Cash, cash equivalents and investments totaling $6.2 million at September 30,
1996 are primarily restricted for use by the ATL and AINS subsidiaries and
are subject to regulatory restrictions on dividends or other distributions to
the Company and are unavailable to reduce the revolving credit facility.
The operations of Affinity Thrift and Loan, although required to be
consolidated with the Company, are recognized as an "unrestricted" or
non-guarantying subsidiary as defined in the senior credit facility and the
Indenture under which the Company's 11 1/2 % senior subordinated notes were
issued. All assets, liabilities and operations of ATL are excluded from the
calculation of covenants under the terms of the respective debt agreements.
During the nine months ended September 30, 1996, payments under the terms of
several phantom stock agreements totaled $2.2 million. Additional phantom
stock payments of $1.4 million are scheduled to be made over the next twelve
months.
Capital expenditures in the nine months ended September 30, 1996 totaled $1.3
million compared to capital expenditures of $2.3 million during the same
period in 1995. It is anticipated the Company will incur an additional
$500,000 to $1,500,000 in capital expenditures during the remainder of
calendar year 1996 to further develop its membership management database
systems.
Management believes that funds generated by operations together with
available borrowings under its revolving credit facility will be sufficient
to satisfy the Company's operating cash needs, debt obligations and capital
requirements of its existing operations during the next twelve months.
On August 28, 1996, the Company entered into a Stock Purchase Agreement to
purchase all of the issued and outstanding voting securities of Ehlert
Publishing Group, Inc. and Expositions Group, Inc., a recreation and sports
publishing group, headquartered in Minnetonka, Minnesota. The purchase price
(subject to adjustment under certain circumstances) is $22.3 million.
Closing of the transactions contemplated under the Stock Purchase Agreement
is expected to occur in January 1997. It is currently anticipated this
acquistion will be funded through new senior debt or a combination of senior
debt and capital provided by Affinity Group Holding, Inc. the Company's
parent.
PART II: OTHER INFORMATION
Items 1-4: Not Applicable
Item 5: Other Events
On August 28, 1996, Andris A. Baltins, a director of the registrant,
tendered his resignation as a director, which resignation was accepted by the
registrant and its sole shareholder. There was no disagreement between the
registrant and the director in respect of any matters relating to the
registrant's operations, policies or practices.
Item 6: Exhibits and Reports on Form 8-K:
(a) Exhibits:
Exhibit 10.1 Purchase Agreement - Ehlert Publishing
Group, Inc.
(b) Report on Form 8-K: None
SIGNATURES:
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrants have duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AFFINITY GROUP, INC.
Date: November 14, 1996 Mark J. Bogggess
Senior Vice President
Chief Financial Officer
THIS DOCUMENT IS A COPY OF THE STOCK PURCHASE AGREEMENT EXHIBIT 10.1 FILED ON
NOVEMBER 14, 1996 PURSUANT TO A RULE 201 TEMPORARY HARDSHIP EXEMPTION
Exhibit 10.1
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT (the "Agreement") dated as of August 28, 1996 by
and among Affinity Group, Inc., a Delaware corporation (the "Buyer"), John A.
Ehlert, Richard A. Hassel as trustee of the trusts listed on the signature
page to this Agreement (individually a "Seller" and jointly the "Sellers"),
Ehlert Publishing Group, Inc., a Minnesota corporation ("EPG") and
Expositions Group, Inc., a Minnesota corporation ("EGI", EPG and EGI being
herein individually referred to as a "Company" and jointly as the
"Companies");
W I T N E S E T H:
WHEREAS, the Sellers are the owners of all of the issued and outstanding
Common Stock (hereinafter defined) of the Companies;
WHEREAS, the Companies own and operate the publications listed on Schedule I
hereto (individually a "Publication" and jointly the "Publications");
WHEREAS, the Companies own, sell or operate the products and expositions
listed on Schedule II hereto (the "Ancillary Products", the ownership and
operation of the Publications and the ownership and operation of the
Ancillary Products, together with the properties and assets used or useable
in the operation thereof, being herein referred to as the "Business");
WHEREAS, the Buyer is desirous of acquiring the Business and the Sellers are
willing to sell the Common Stock to the Buyer on the terms and conditions
hereinafter contained;
NOW, THEREFORE, in consideration of the mutual covenants contained herein,
the Buyer, the Sellers and the Companies hereby agree as follows:
Section 1. Purchase and Sale of Stock and Payment Therefor. On the basis of
the representations, warranties and agreements herein set forth and subject to
the terms and conditions stated herein, the Buyer agrees to purchase from the
Sellers and the Sellers agree to sell to the Buyer all 107,640 shares of the
Common Stock of EPG and all 1,000 shares of the Common Stock of EGI, all of
which are owned by the Sellers. The purchase price for the shares of Common
Stock to be sold by the Sellers pursuant to this Section s
hall be paid by wire transfer of immediately available funds at the Closing.
Section 2. Covenant Not To Compete Agreement and Employment Agreement. At the
Closing,the Companies shall enter into (i) a covenant not to compete
agreement with John A. Ehlert (the "Principal") and Adam C. Ehlert, Zachary
J. Ehlert and Nathaniel X. Ehlert (the "Trust Beneficiaries") substantially
in the form attached as Exhibit A hereto (the "Covenant Not To Compete
Agreement") and (ii) an employment agreement with the Principal in such form,
if any, as may be agreed to between the Principal and the Buyer (the
"Employment Agreement"). The Sellers agree to use their reasonable best
efforts to cause the Companies and Richard J. Hendricks and Stephen L.
Hedlund (the "Key Employees") to enter into covenant not to compete
agreements containing terms substantially similar to the Covenant Not to
Compete Agreement, provided, however, that the Sellers shall not be required
to provide financial incentives to either of the Key Employees in connection
therewith. In addition to the payments required by Section 1 hereof, at the
Closing Date, the Sellers shall cause the Companies to pay $100,000 in the
aggregate to the Trust Beneficiaries and the Principal in consideration of
the making of the Convenant Not to Compete Agreement. Whether or not the
Principal and the Buyer enter into the Employment Agreement at the Closing,
for a period of thirty days following the Closing, the Principal will consult
with the Buyer in the operation of the Business at no cost to the Buyer.
Section 3. Closing.
(a) Closing Date. The date and time of the purchase and sale of the Common
Stock and the consummation of the other transactions contemplated hereby
(the "Closing Date") shall be January 3, 1997, unless the Sellers and the
Buyer shall mutually agree otherwise. The Closing shall be held at the
offices of counsel to the Buyer in Minneapolis, Minnesota, or at such other
place as the parties may mutually agree in writing.
(b) Expenses. Each party hereto shall each bear his or its own legal fees
and any and all costs and expenses not specified herein with respect to the
matters contemplated by this Agreement.
(c) Control of Business. Until the Closing hereunder, the board of directors
of each Company shall have complete control of the Business. The Buyer shall be
entitled, however, to inspection of the Business, the assets thereof and to
notice of any developments which are not in the ordinary course of business,
all as hereinafter more specifically provided.
Section 4. Adjustment to Purchase Price, Closing Balance Sheet and
Prorations.
(a) Purchase Price Adjustment. In the event that EBITDA (capitalized terms
used herein and not defined when first used shall have the meanings given to
them in Section 19(h) hereof) of the Companies for the Accounting Period
shall be less than $2.8 million, the Purchase Price shall be reduced by eight
times the difference between $2.8 million and EBITDA for the Accounting
Period. EBITDA for the Accounting Period shall be based on the audited
financial statements of the Companies for the Accounting Period
factory to the Buyer and the Sellers, to deliver audited financial statements
for the Companies for the Accounting Period by no later than March 31, 1997.
Such audited financial statements shall be prepared at the expense of the
Sellers. Such financial statements shall be accompanied by a certificate
prepared and executed by the Sellers setting forth the amount of EBITDA for
the Accounting Period and a calculation of the Purchase Price to be made
pursuant to this Section 4(a) hereof. The firm of independent accountants
shall supply to the Buyer such working papers and other documents as the Buyer
may reasonably request to review the audited financial statements for the
Accounting Period.
Unless the Buyer shall object to such certificate within twenty business
days after the delivery thereof, the amount of EBITDA and the Purchase Price
as set forth therein shall be conclusive and binding upon the parties hereto.
If the Buyer contests the amount of EBITDA or the determination of the
Purchase Price set forth in such certificate, the Buyer shall give written
notice thereof to the Sellers. If the Buyer so notifies the Sellers and the
Buyer and the Sellers cannot agree on the amount of EBITDA or the
determination of the Purchase Price within ten business days after the giving
of such notice of contest, a "big 6" independent accounting firm selected by
the Buyer and the Sellers shall determine the EBITDA for the Accounting
Period and shall notify the Buyer and the Sellers thereof. If the Buyer and
the Sellers cannot agree on a "big 6" independent accounting firm, the Buyer
and the Sellers shall select at random a "big 6" independent accounting firm,
provided that such firm shall have had no prior commercial relationship with
either the Buyer, the Sellers or any of their respective Affiliates. The
amount so determined shall be conclusive on the Buyer and the Sellers in
determining the Purchase Price. The Buyer and the Sellers shall share
equally in the cost of having such a determination prepared by the "big 6"
independent accounting firm.
(b) Closing Cut-Off. The following assets of the Companies at the Effective
Time of Closing shall be distributed to the Sellers and shall not constitute
an Asset on the Closing Date: (i) cash and bank deposits, (ii) marketable
securities, (iii) Sellers' Accounts Receivable and (iv) prepaid expenses.
Accounts receivable pertaining to Buyer's Issues including, without
limitation, distribution of "back issues" or "reprints" distributed after the
Closing Date even though the issue was originally distributed prior to the
Effective Time of Closing, shall not be distributed to the Sellers and shall,
instead, be retained by the Companies and constitute part of the Assets.
Subscription receivables constitute an Asset, shall not be distributed to the
Sellers and shall not be collected by the Buyer for the account of the Sellers
pursuant to the terms of Section 4(c) hereof. Payables of the Companies at
the Effective Time of Closing other than accounts payable pertaining to Buyer's
Issues ("Sellers' Accounts Payable"), shall be paid by the Sellers and shall
not constitute a liability of the Companies on the Closing Date, it being
understood, that for purposes hereof, deferred subscription liability of the
Companies at the Effective Time of Closing shall not constitute a "payable"
of the Companies.
Payables to be prorated hereunder shall include, but not be limited to,
items such as power and utility charges; lease rents; property taxes assessed
during the year in which the Closing Date occurs; wages and commissions
(including earned portions of any deferred compensation arrangements),
vacation pay or allowances, sick pay, and all related payroll costs, or
accrual therefor, for employees of the Companies who continue in the
employment of the Companies after the Effective Time of Closing (even though
of Closing. The Sellers shall pay all payroll taxes for employees of the
Companies for periods of employment through the Effective Time of Closing,
including severance liabilities in respect of employees of the Companies
whose employment is terminated prior to or contemporaneously with the
Effective Time of Closing. Wages and commissions (including commissions
based on sales reflected in Sellers' Accounts Receivable), vacation pay or
allowances, sick pay, severance pay and all related payroll costs or acc
with the Effective Time of Closing, shall be discharged by the Sellers on or
before the Closing Date. All Direct Costs relating to the Sellers' Issues
shall be borne by the Sellers, whether or not such costs have been accrued as
a liability at the Effective Time of Closing.
Income from sources other than sale of advertising and newsstand revenue
shall be prorated to the Effective Time of Closing. Such income for periods
to the Effective Time of Closing shall be for the account of Sellers and,
thereafter, for the account of Buyer.
Prorations shall be determined, insofar as feasible, on and as of the
Effective Time of Closing, and shall be finally determined and paid on the
120th day after the Closing Date. The Sellers shall prepare for the Closing
a list, certified by the Sellers to be true and correct, delineating the
allocations specified in this Section. Such list shall be supplemented and
revised by the Buyer within 120 days after the Closing Date. If the Sellers
and the Buyer cannot agree on the final prorations within 120 days after the
Closing Date, an independent accounting firm selected by the Sellers and the
Buyer (by the same methodology as set forth in Section 4(a) hereof) shall
determine the final prorations. The amount of final prorations as determined
by such accounting firm shall be binding on the Sellers and the Buyer. The
Sellers and the Buyer shall share equally in the cost of having such
determination prepared.
(c) Accounts Receivable and Payable. For the period from the Closing Date
to the 120th day following the Closing Date or such later date, not to exceed
the first anniversary of the Closing Date, as Sellers shall request (the
"Collection Period"), the Companies shall, as Sellers' agent, (i) collect
Sellers' Accounts Receivable and (ii) pay, from collections on Sellers'
Accounts Receivable, Sellers' Accounts Payable to the extent not discharged
in full by the Sellers prior to the Effective Time of Closing. On the Closing
Date, the Sellers shall deliver to the Buyer a report listing the accounts
payable approved for payment by the Buyer as Sellers' agent pursuant to this
Section 4(c) and the Buyer shall contact the Sellers prior to paying any of
Sellers' Accounts Payable not listed on such report. On the 31st day
following the Closing Date, and at the end of each 30 day period thereafter
during the Collection Period, the Companies shall deliver to the Sellers a
statement or report showing all collections of Sellers' Accounts Receivable
effected since the Effective Time of Closing and payments of accounts payable
made on Sellers behalf. Together with such statement or report, the
Companies shall remit to the Sellers all of such collections, less accounts
payable or other liabilities of the Business in existence on the Closing Date
paid by the Companies after the Closing as Sellers' agent it being understood
that, by agreeing to act as Sellers' agent in the collection of Sellers'
Accounts Receivable and payment of the accounts payable as at the Effective
Time of Closing, neither the Companies nor the Buyer assume any liability in
respect thereof. During the Collection Period, the Companies agree to use such
efforts in collection of Sellers' Accounts Receivable as for their own
undisputed routine accounts receivable generated after the Closing Date, it
being understood that the Companies' collection obligation shall not extend
to the institution of litigation, employment of counsel or a collection
agency, offering of "comp" advertising space or other "make good" concession
or any other extraordinary means of collection. For purposes of determining
amounts collected by the Companies with respect to the Sellers' Accounts
Receivable, except for (i) accounts which are disputed by the account debtor
(unless Buyer believes there to be no reasonable basis for such dispute) and
(ii) is specifically directed by an account debtor not to be applied to a
Sellers' Account Receivable (it being agreed that neither the Buyer nor the
Companies shall affirmatively solicit an account debtor to identify a
specified undisputed account receivable to an account generated after the
Closing Date), payments received from an account debtor shall be applied to
the oldest account receivable of such account debtor. At any time after the
120th day following the Closing Date, the Sellers may terminate the agency of
the Companies before the collection of on to the Sellers all records, files
and data relating to such Accounts Receivable, whereupon the Sellers may
institute such collection efforts as the Sellers, in their sole judgment, may
deem appropriate. Within 15 days after termination of the Collection Period,
the Companies shall render a final report of all such uncollected accounts
receivable to the Sellers and, except to the extent previously transferred
pursuant to the prior sentence of this section, shall transfer, without
recourse, to the Sellers a collection efforts as the Sellers, in their sole
judgment, may deem appropriate. To the extent not paid by the Companies after
the Closing Date from collections on Sellers' Accounts Receivable, the Sellers
shall promptly pay, before any delinquency, all accounts payable of the
Companies as of the Effective Time of Closing.
Section 5. Representations and Warranties of the Sellers.
The Sellers represent and warrant to the Buyer as follows:
(a) Organization and Standing. Each of EPG and EGI is a corporation duly
organized, validly existing and in good standing under the laws of the State
of Minnesota, and has the full and unrestricted power and authority,
corporate and otherwise, to own, operate and lease its properties, and to
carry on its business as currently conducted. Each of EPG and EGI is
qualified to conduct business in the state of Minnesota and neither the
nature of the business conducted by the Companies nor the character of the
ate, country or territory wherein the absence of licensing or qualification
as a foreign corporation has had an adverse effect upon the business of the
Companies as currently conducted.
(b) Subsidiaries. Neither EPG or EGI has any subsidiaries except as set
forth on Schedule 5b. Except as set forth on Schedule 5b, neither Company
has any equity investment or other interest in and has not made advances to
any corporation, association, partnership, joint venture or other entity.
(c) Authorization of Agreement; No Breach. The execution, delivery and
performance of this Agreement by each Company have been duly and validly
authorized and approved by such Company's board of directors and stockholders,
and each Company has the corporate power and authority to execute, deliver
and perform this Agreement and such other instruments as are contemplated
hereby to consummate the transactions herein contemplated. Neither (x) such
execution, delivery and performance nor (y) compliance by a Company or the
Sellers with the terms and provisions hereof, will conflict with or result in
a breach of any of the terms, conditions or provisions of the articles of
incorporation or bylaws of either Company or any judgment, order, injunction,
decree or ruling of any court or other governmental authority to which a Company
or any Seller is subject or, of any agreement or contract listed on any
schedule delivered pursuant hereto or any other material agreement or contract
to which a Company or any Seller is a party or to which it or he is subject or
constitute a default thereunder or give to others any rights of termination or
cancellation in or with respect to the Assets. This Agreement constitutes a
valid and binding obligation of each Company and each Seller, enforceable
against the Companies and the Sellers in accordance with its terms, and each
document and instrument to be executed by the Companies or the Sellers pursuant
hereto, when executed and delivered in accordance with the provisions hereof,
shall be a valid and binding obligation of such Company and the Sellers,
enforceable against each Company and Seller in accordance with its terms.
(d) Financial Statements. There have been furnished to the Buyer and included
on Schedule 5d hereto, balance sheets and profit and loss statements for the
Companies' fiscal years ending June 30, 1992, June 30, 1993, June 30, 1994,
December 31, 1994, December 31, 1995 and June 30, 1996 and balance sheets and
profit and loss statements for each calendar month from December 31, 1995
through June 30, 1996 (the "Financial Statements"). The Financial Statements
(i) are true and correct, (ii) are in accordance with
their respective dates and the result of operations and changes in financial
position for the respective periods indicated, and (iv) other than (x) the
omission of footnotes, (y) normal recurring year end adjustments and (z)
presentation of "marketing in process" in interim financial statements for
both Companies and all financial statements for EGI, have been prepared in
accordance with generally accepted accounting principles consistently applied
("GAAP"). Except as otherwise noted in the Financial Statements, all prepaid
expenses, if any, included as assets of the Companies represent payments
theretofore made by the Companies, the benefit and advantage of which may be
obtained and enjoyed by the Companies. Neither Company has, nor will have on
the Closing Date, any liabilities required to be reflected in financial
statements prepared in accordance with GAAP which are not so fully reflected on
or reserved against in the Financial Statements other than (i) such liabilities
as are disclosed herein or in any Schedule hereto or (ii) liabilities
incurred by the Companies between the date of the last Financial Statement and
the Closing Date in the ordinary course of business and consistent with the
limitations and restrictions contained in this Agreement. Promptly upon their
being available, and, in any event, by the 20th day of each calendar month, each
Company will provide to the Buyer monthly balance sheets, statements of income
and expense and a weekly "ad report" for such Company for the previous month
(or, in the case of the "ad reports", the last week of such month) and, with
respect to each such balance sheet, statement of income and expense and "ad"
report (all of which shall constitute "Financial Statements" as defined
herein), the representations heretofore set forth in this Section will be
applicable and true and correct.
(e) Taxes. Each Company has filed all federal, state, county and local income,
excise, property and other tax returns which are required to be filed by it
and such returns are true, correct and complete in all respects. Each
Company has paid all Taxes, estimated Taxes, interest, penalties assessments
and deficiencies which have become due pursuant to such returns and no
additional Taxes, interest, penalties, assessments or deficiencies will be
payable with respect thereto. The federal income tax returns of each Company
have been examined by the Internal Revenue Service for the past years and
periods specified in Schedule 5e and all deficiencies proposed as a result of
such examinations have been paid or settled. No unresolved claim for
assessment or collection of Taxes has been asserted against either Company.
Neither company is a party to any pending actionor proceeding and there is no
action or proceeding threatened by any government or authority against either
Company which subjects or might subject the Company to any claim or lien
relating to the payment of Taxes. There are no outstanding agreements or
waivers extending the statutory period of limitation applicable to any tax
return of the Companies for any period. Except as specified on Schedule 5e
hereto, there are no outstanding consents or elections made under the Code
which are binding upon either Company. There are no liens outstanding for any
Taxes upon any assets of either Company except with respect to Taxes not yet
due and payable. True and complete copies of all returns of Taxes and all
schedules thereto filed by, on behalf of, or with respect to each Company with
the Internal Revenue Service or any other taxing authority for any of the last
seven taxable years and all written communications relating to all such
returns have been made available to the Buyer provided, however, that nothing
in this Section 5(e) shall require the Sellers to make available their
individual returns or any written communications relating thereto which do not
pertain to the Companies. To the extent such written communications pertaining
to the individual returns of the Sellers do pertain to the Companies, the
the Sellers shall excerpt such portions of such communications relating to
the Companies in such detail as may be reasonably requested by the Buyer to
make such communications intelligible.
(f) Real Property. Neither Company owns any real property. Neither Company
has any liability of any kind whatsoever with respect to any real property
including, without limitation, liability for any environmental condition
affecting such real property, taxes pertaining to such real property or
injuries incurring on or about such real property. There is no environmental
condition on or affecting any real property leased by either Company that
will (x) impair the use of such property for the operation of the operation of
the Business after the Closing or (y) subject either Company to any liability
for fines, penalties, remediation or clean-up costs.
(g) Accounts Receivable. The accounts receivable created from and after
January 1, 1996 through the Effective Time of Closing reflected in the
Financial Statements are accounts which were generated by the Companies with
genuine expectation by such Company of collection thereof and will be
collected in full within one year following the date of Closing except to the
exent reserved for in the balance sheet as at the end of the Accounting
Period as an "allowance for bad debts".
(h) Franchises, Trademarks, Patents, Etc. Set forth in Schedule 5h hereto is
a list of all franchises, licenses, trademarks, trade names, service marks,
service names, copyrights, patents and applications therefor owned or
licensed by or registered in the name of the Companies used or useful in the
operation of the Business. Each Company owns all of the franchises,
licenses, trademarks, trade names, service marks, service names, copyrights,
patents and applications therefor listed in Schedule 5h purported to be owned
by such Company, pays no royalty to anyone under any of them and has the
right to bring action for the infringement of all of them. Each Company owns
or possesses adequate rights to use all franchises, licenses, trademarks,
trade names, service marks, service names, copyrights, patents and applications
therefor necessary to the conduct of the Business. Neither Company has any
knowledge or has received any notice to the effect that any service rendered
by the Companies may infringe any trademark, trade name, copyright or patent,
trade secret or legally protectable right of another.
(i) Debt Instruments. Set forth in Schedule 5i hereto is a list of all
mortgages, indentures, notes, guarantees and other obligations for or
relating to borrowed money (including conditional sales contracts and capital
leases) to which either Company is a party or which have been assumed by a
Company or to which the Business or any other properties or assets of either
Company are subject. Except for the obligations listed on Schedule 5i, no
Company is obligated in respect of any mortgages, indentures, notes,
guarantees, or other obligations for or relating to borrowed money (including
conditional sales contracts and capital leases).
(j) Leases. Set forth in Schedule 5j is a list of all leases or agreements
under which either Company is the lessee of property, real or personal, or
holds, manages operates any property, real or personal, owned by any third
party (the "Leases"). None of the Leases of personal property is a
"capitalized" lease or a "financing" lease (as those terms are used in GAAP).
Each Company is the owner and holder of all the leasehold estates purported to
be granted to it by any Lease of real property and is the owner of all
equipment, machinery and other personal property thereon or in buildings and
structures thereon, in each case free and clear of all liens, mortgages,
pledges, charges, claims, encumbrances, security interests, agreements,
equities or restrictions of any kind, except as described in Schedule 5j.
Except as described in Schedule 5j, each Lease is in full force and effect and
constitutes a legal, valid and binding obligation of, and is legally
enforceable against, the respective parties thereto and grants the leasehold
estate it purports to grant free and clear of all mortgages, liens or other
encumbrances. Except as set forth in Schedule 5j, no lessor under any Lease
is an Affiliate of the Companies or any of the Sellers. All necessary
governmental approvals with respect to each Lease have been obtained, all
necessary filings or registrations therefor have been made, and there have
been no threatened cancellations thereof nor outstanding material disputes
thereunder. Each Company has performed all the obligations required to be
performed by it to date under each Lease. No Company is in default under any
Lease, and there has not occurred any event which (whether with or without
notice, lapse of time or the happening or occurrence of any other event)
would constitute such a default. All of the property subject to the Leases
is in good operating condition and repair, ordinary wear and tear excepted.
All buildings, structures and other improvements on the real property leased
by each Company are (A) in good repair and free of defects, latent or patent
(ordinary wear and tear excepted), and fit for the uses to which they are
currently devoted and for which they were originally constructed, (B) except
as described in Schedule 5j, do not contain any materials that are more than
1% asbestos, on a dry weight basis, (C) except as described in Schedule 5j,
neither the Company nor, to the knowledge of either Company, the lessor of
such real property or any third parties, have installed, used, generated,
stored, or disposed of any ("Hazardous Materials") on any such real properties
and (D) all underground storage tanks located upon such real property have
been removed in accordance with applicable laws, rules or regulations and
neither Company has any further obligation or liability with respect thereto.
To the knowledge of the Companies and the Sellers, no one is required to make
any filing or report under the Comprehensive Environmental Response
Compensation and Liability of 1980, as amended, 424 U.S.C. Section 9061, et.
Hazardous Materials Transportation Act, 49 U.S.C. Section 1802, et., and the
Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, et. or any
comparable state statute in respect of any such real property. For the
purposes of this Section, Hazardous Materials shall include, but shall not be
limited to, substances defined as "hazardous substances" or "toxic substances"
in the Comprehensive Environmental Response Compensation and Liablity Act
of 1980, as amended, 424 U.S.C. 9061, et. Hazardous Materials Transportation
Act, 49 U.S.C. 1802, et. and the Resource Conservation and Recovery Act,
42 U.S.C. 7901, et. or as "hazardous substance," "hazardous waste" or
"pollutant or contaminant" in any other applicable federal, state or local
environmental law or regulation.
(k) Other Material Contracts and Commitments. Set forth in Schedule 5k is a
list of all material contracts, agreements, commitments and other instruments
to which either Company is a party or by which either Company is bound at
the date hereof, other than those described in other Schedules hereto.
Except as shown in Schedule 5k, no Company is a party to any oral or written
(i) contract for the employment of any officer, employee, consultant or
independent contractor; (ii) license agreement or distributor, dealer,
manufacturer's representative, sales agency, advertising, property management
or brokerage contract; (iii) contract with any labor organization or other
collective bargaining unit; (iv) contract for the future purchase of materials,
supplies, services, merchandise or equipment involving payments of more than
$5,000 over its remaining term (including periods covered by any option to
renew by either party); (v) contract for the purchase, sale or lease of any real
estate or other properties; (vi) profit-sharing, bonus, incentive compensation,
deferred compensation, stock option, severance pay, stock purchase, employee
benefit, insurance, hospitalization, pension, retirement or other similar plan
or agreement; (vii) agreement or arrangement for the sale of any of its assets
or properties or the grant of any preferential rights to purchase any of its
assets, properties or rights, other than in the ordinary course of business;
(viii) contract which contains any provisions requiring the Companies to
indemnify any other party thereto; (ix) joint venture agreement or
arrangement or other agreement involving the sharing of profits; (x)
outstanding loan to any person or entity or receivable due from any
shareholder of either Company or persons or entities controlling, controlled
by or under common control with either Company; (xi) other contract,
commitment or agreement which by its terms does not terminate or is not
terminable by either Company within 30 days or upon 30 days' (or less)
notice; or (xii) contract, commitment or agreement with or to any entity in
which the Company has a material interest. Except as described in Schedule
5k, each of such contracts, agreements, commitments or other instruments is
in full force and effect and constitutes a legal, valid and binding
obligation of, and is legally enforceable against the respective parties
thereto. All necessary governmental approvals with respect thereto have been
obtained, all necessary filings or registrations therefor have been made, and
there have been no threatened cancellations thereof nor outstanding material
disputes thereunder. Each Company has in all material respects performed all
the obligations required to be performed by it to date thereunder. No
Company is in default under any of the contracts, agreements, commitments or
other instruments described in Schedule 5k and, to the knowledge of the
Companies, there has not occurred any event which (whether with or without
notice, lapse of time or the happening or occurrence of any other event)
would constitute such a default.
(l) Title to Assets. Other than for Permitted Encumbrances, the Companies have
(A) good and marketable title to all of the tangible personal property
included in the Assets and (B) valid, subsisting and unimpaired interest in
all of the intangible personal property included in the Assets, in either
case free and clear of all liens, mortgages, pledges, and encumbrances except
as disclosed on Schedule 5l, all of which liens, mortgages, pledges and
encumbrances disclosed on Schedule 5l will be released at or prior to Closing
by action of the Sellers in contributing to the Companies such amounts as are
necessary for such release. None of the Assets constituting tangible
personal property is in need of imminent repair or replacement and no Company
has received a notice from any third party, including any insurance carrier or
any governmental agency, that any such asset is dangerous, hazardous, or in
need of repair or replacement.
(m) Insurance. Set forth in Schedule 5m is a list and brief description of all
policies of title, property, fire, casualty, liability, life, workmen's
compensation and other forms of insurance of any kind owned or held by either
Company. All such insurance policies are in full force and effect, binding
upon such Companies and the insurer in accordance with their respective terms
and will be retained by the Companies in full force and effect through the
Closing Date. All such policies are with insurance companies believed by the
Companies to be financially sound and reputable, are sufficient for compliance
by the Companies with all requirements of law and of all agreements to which the
Companies are a party and provide that they will remain in full force and
effect through the respective dates set forth in Schedule 5m.
(n) Litigation and Claims. Except as set forth in Schedule 5n, there are no
actions, suits, claims, arbitrations, proceedings or investigations pending,
threatened or reasonably anticipated against or affecting the Business,
either Company, the Assets or this Agreement, at law or in equity, before or
by any arbitrator or governmental authority and there are no facts or
circumstances which could give rise to such actions, suits, claims,
arbitrations, proceedings or investigations. No Publication is operating
under, subject to or in default with respect to, any order, writ, injunction,
decree or judgment of any court or governmental authority.
(o) Labor Relations. Except as set forth in Schedule 5o, there are no (and
during the past three fiscal years of the Companies there have been no)
strikes, work stoppages or grievance proceedings pending or threatened
between either Company and any employees engaged in the business of such
Company or any union or other collective bargaining unit representing such
employees. Other than disclosed on Schedule 5o hereto, neither Company knows
of any activities of any labor union or represenative thereof to organize any
employees of a Company, and neither Company knows of any threats of strikes
or work stoppages of any employees of a Company. Each Company has complied
and is in compliance with all laws and regulations relating to the employment
of labor, including (without limitation) provisions relating to wages, hours,
collective bargaining, occupational safety and health, equal employment
opportunity, and the withholding of income taxes and social security
contributions.
(p) Employees. Set forth in Schedule 5p is a description of the 401(k) plan
and all other existing employee benefit plans and personnel policies,
together with a listing of all employee benefit brochures or handbooks and
personnel brochures or handbooks delivered to employees of either Company or
in effect during the past twelve months. Schedule 5p contains a complete and
accurate list as of the date hereof of all contracts (written or oral) with
employees, deferred compensation agreements, pension, profit sharing and
retirement plans, and other agreements with employees of the Companies
(collectively, the "Employee Agreements"). Schedule 5p also contains a
complete and accurate list of all employees of the Companies, including the
name and position of each employee, the date on which each employee was employed
by the Company, the date and amount of last increments of compensation of each
employee, the present compensation, including base compensation and incentive
payments and perquisites (described generically), payable to each employee, the
timing of payment of compensation to each employee, and the 1995 W-2
compensation of each employee.
There are no "employee benefit plans" ("Plans") as such term is defined in
Section 3(3) of the Employee Retirement Income Security Act of 1974 ("ERISA")
maintained by either Company or under which either Company has any liability,
other than those described in Schedule 5p. No Plan or trust forming a part
thereof has been partly or completely terminated.
All Plans and any trusts forming a part thereof which are subject to ERISA
are and have been administered in compliance with ERISA; no "reportable
event," as such term is used in ERISA, has heretofore occurred with respect
to any Plan; and there does not exist any fact or circumstance that might
cause the Pension Benefit Guaranty Corporation to seek to terminate any Plan
pursuant to Section 4042 of ERISA. No person has participated in any
"prohibited transaction" (as defined in Section 406 of ERISA or Section 4975
of the Code) that could subject the Companies or any trustee, administrator
or other fiduciary to any tax, penalty or liability. No liability to the
Pension Benefit Guaranty Corporation has been or is expected to be incurred
with respect to any Plan. All Plans which are "employee pension benefit
plans" as such term is defined in Section 3(2) of ERISA, since their adoption,
have qualified and do qualify under Section 401 of the Code, and there exists
no fact or circumstance which could adversely affect the qualified status of
any such plan. All trusts created under any Plans are exempt from taxation
pursuant to Section 501(a) of the Code. All Plans and the trusts forming a part
thereof have been administered and enforced in accordance with their terms and
the applicable provisions of the Code and ERISA, and no disputes are pending or
threatened with respect thereto. The present value of all vested accrued
benefits under any Plan that is an "employee pension benefit plan" subject to
Title IV of ERISA did not, as of the latest valuation date, exceed the value of
the assets of any such Plan allocable to such vested accrued benefits, based
upon the actuarial assumptions which are set forth in Schedule 5p. The present
value of all accrued benefits, whether vested or not, under any Plan that is
an "employee pension benefit plan" subject to Title IV of ERISA did not, as
of the latest valuation date, exceed the value of the assets of such Plan
allocable to such vested and non-vested accrued benefits. None of the Plans is
a "multi-employer plan," as defined in ERISA. Neither Company has suffered or
otherwise caused a "complete withdrawal" or "partial withdrawal," as such
terms are respectively defined in Section 4203 and 4205 of ERISA. None of
the Plans subject to Section 412 of the Code or any trust established in
connection therewith has incurred any "accumulated funding deficiency," as
such term is defined in Section 412 of the Code, whether or not waived, since
the effective date of Section 412. None of the assets of any Plan includes any
stock or securities issued by a Company.
Without limiting the generality of the foregoing, the Employee Stock Ownership
Plan of EPG dated, as amended, effective July 1, 1989 (the "Terminated ESOP")
was terminated on June 30, 1993, in accordance with ERISA and in accordance with
other applicable laws. No beneficiary under the Terminated ESOP has any claim
against the Company or against any officer or director of a Company in
connection with the termination of the Terminated ESOP, the valuation of the
shares repurchased by the Terminated ESOP or otherewise in connection
therewith. No third party, including the Pension Benefit Guaranty
Corporation, any trustee of the Terminated ESOP or other party has any claim
against a Company or any officer or director of a Company for which a Company
or the Buyer will have any liability of any kind after the Closing.
(q) Compliance with Applicable Laws. Except as set forth in Schedule 5q, each
Company has complied and is in full compliance in all material respects with
all statutes, laws, ordinances, regulations, rules, orders, determinations,
writs, injunctions, awards, judgments and decrees applicable to such Company,
the Business or to the Assets. To the Companies' knowledge, each Company and
all employees, agents, distributors, representatives or other persons acting
on the express, implied or apparent authority of such Company have not paid or
or received any bribe or other unlawful payment of money or other thing of
value, granted or accepted any unlawful discount, or furnished or been given
any other unlawful inducement to or from any person, business association or
governmental entity in the United States or elsewhere in connection with or
in furtherance of the Business. The Business is not in any manner dependent
upon the making or receipt of such payment, discounts or other inducements.
(r) Transactions with Related Parties. Except as set forth in Schedule 5r, no
present or former officer or director or shareholder of either Company, and
no Affiliate of such an officer or director or shareholder, is currently a
party to any transaction with the Company, including, without limitation, any
contract, agreement or other arrangement providing for the employment of,
furnishing of services by, rental of real or personal property from or
otherwise requiring payments to any such officer, director, shareholder or
Affiliate. Except as set forth in Schedule 5r, there are no commitments to
and no income reflected in the Financial Statements has been derived from any
Affiliate of a Company and, following the Closing, neither Company shall have
any obligation of any kind or description to any such Affiliate other than
any such obligation assumed pursuant to the terms of this Agreement. Except as
disclosed on Schedule 5r, no expense relating to the operation of the
Business has been borne by an Affiliate of either Company that is not
reflected in the Financial Statements. Except as disclosed on Schedule 5r,
neither Company has any reason to believe that any income reflected in the
Financial Statements is dependent upon or conditioned on the Business'
affiliation with any Affiliate and has no reason to believe that any income
source will not be available after Closing due to lack of such affiliation.
Except as disclosed on Schedule 5r, neither Company has any reason to believe
that any expense reflected on the Financial Statements will be affected by
loss of the Business' affiliation with any Affiliate and has no reason to
believe that any expense will increase after the Closing due to the lack of such
affiliation
(s) Consents. Except as set forth in Schedule 5s, neither Company is subject to
any statute, law, ordinance, regulation, rule, determination, order,
judgment, writ, injunction, decree, charter, bylaw, mortgage, deed of trust,
indenture, note, agreement, commitment, lease, contract, instrument or other
restriction of any kind or character whatsoever which would prevent the
execution or delivery or performance of this Agreement or the consummation of
the transactions contemplated hereby, or would result in any penalty,
forfeiture or contract termination as a result thereof. Except as set forth
in Schedule 5s, all consents which are necessary to permit the consummation of
the transactions contemplated hereby have been obtained.
(t) Copies of Documents. True copies of all insurance policies, mortgages,
indentures, notes, leases, agreements, contracts and other instruments and
documents listed in the Schedules hereto have been heretofore delivered to
the Buyer and specifically identified in writing as constituting such delivery.
(u) Broker's or Finder's Fees. All agents, brokers, investment bankers, or
other persons or firms acting on behalf of a Company or the Sellers or under
the authority of any of them including, without limitation, Veronis, Suhler &
Associates, Inc., have been, or will be, paid in full by the Sellers in
accordance with the terms of any agreements with such parties.
(v) Postal Permit. The Companies are the owners of periodicals and standard
class (formerly known as second and third class, respectively) postal permits
which are in full force and effect as of the date hereof and no notices have
been received from the United States Postal Service as to any violation
thereof. The Companies have filed all requisite annual ownership statements
with the Postmaster General of the United States pursuant to the requirements
of 39 U.S.C., Section 3685, and true and complete copies of such reports have
been furnished to the Buyer for the current and preceding year.
(w) Advertisers. Schedule 5w lists the ten largest advertising customers of EPG
and the ten largest EGI customers during the 12-month period ended June 30,
1996 stating for each the dollar volume of sales, the term of the contract
and the rates paid to the Companies by such customer. Neither Company has
any information or any reason to believe that any of such advertising
customers intend to cease purchasing from the Companies.
(x) Trade Outs. At the Closing Date the net reciprocal trade or barter account
balance (advertising exchanged for goods and services with third parties)
will be a positive balance. Schedule 5x constitutes a true, correct and
complete listing of all trade and barter balances as at June 30, 1996.
(y) Circulation. Schedule 5y contains true, correct and complete copies of (a)
the circulation statements or initial audit reports furnished to the
Business Publications Audit ("BPA") for the Publications for the six-month
periods ending June 1994, December 1995, and June 1996, respectively, and the
work papers furnished to BPA in connection with such circulation statements
and initial audit reports for said periods, and (b) the BPA Audit Reports for
the Publications for the six-month periods ending June 1995, December 1995 and
June 1996. The aforementioned circulation statements and initial audit reports
were prepared by the Companies in accordance with BPA's rules and regulations,
are true, accurate and complete in all material respects, and fairly presents
circulation data and information for the respective periods. Except as set
forth on Schedule 5y, the total number of bona fide recipients, as such term
is defined by BPA, for the Publications as of the date of mailing of the
last of Sellers' Issues is not less than the number of recipients set forth
in the BPA audit for the comparable period in the prior year. The final,
average bona fide paid circulation for each publication for Calendar Year
1995, as audited by BPA, is not less than the number set forth on the
December 31, 1995 audit. Upon their preparation, the circulation statements,
initial audit reports and the "BPA" Audit Reports for the Publications for
the six-month period ended December 1996 will promptly be delivered to the
Buyer, shall be deemed to have become a part of Schedule 5y and all of the
representations and warranties contained in this Section 5y shall apply
thereto.
(z) Advertising Rates. Schedule 5z contains true, correct and complete copies
of the published rate cards in effect for the Publications in 1996. Except with
respect to position or color changes, not more than 2.5% of sales in 1995 or
1996 were made at rates that deviated from the then applicable rate card rates.
(aa) Articles of Incorporation and Bylaws. True, correct and complete copies
of the articles of incorporation and the bylaws of each Company are included in
Schedule 5(aa). On the Closing Date, no amendment or modification to such
articles of incorporation or bylaws will have been made.
(ab) Capitalization. The authorized capital stock of EPG consists (and on the
Closing Date will consist) of 1,500,000 shares of capital stock, of which
1,000,000 shares are Common Stock and 500,000 shares are Preferred Stock. Of
the Preferred Stock, 150,000 shares have been designated as Series A
Convertible Preferred Stock. There are no shares of Preferred Stock
currently outstanding. Of the Common Stock, 107,640 shares are duly
authorized and validly issued and outstanding, fully paid and non-assessable.
The authorized capital stock of EGI consists (and on the Closing Date will
consist) of 10,000 shares of Common Stock of which 1,000 shares are duly
authorized and validly issued and outstanding, fully paid and
nonassessable. No shares of capital stock of either Company have been
reserved for any purpose. There are no outstanding securities convertible
into or exchangeable for the Common Stock of either Company and no
outstanding options, rights (preemptive or otherwise), or warrants to
purchase or subscribe for any shares of such stock or other securities of
either Company. There are no outstanding agreements, arrangements,
commitments or understandings of any kind affecting or relating to the voting,
issuance, purchase, redemption, repurchase or transfer of the Common Stock.
(ac) Projections. Schedule 5ac sets forth the projections for the financial
performance of the Business for its 1996 and 1997 fiscal years (the
"Projections"). The Projections have been prepared in accordance with
Sellers' realistic best estimate of the financial performance achievable by
the Business for the period presented and the Sellers have no reason to
believe that the Business will be unable to achieve the financial performance
reflected therein, it being understood, however, that the Sellers make no
warranty to the Buyer that the Business will achieve the finanical
performance presented in the Projections.
(ad) Books and Records. The books of account, stock records, minute books
and other records of each Company are in all material respects complete and
accurate, and the matters contained therein are appropriately and accurately
reflected in the Financial Statements.
(ae) Title to Common Stock. The Sellers have, and, on the Closing Date,
will have, good, valid and marketable title, free and clear of all mortgages,
liens, pledges, charges, claims, security interests, agreements,
encumbrances and equities whatsoever, to the 107,640 shares of Common Stock
of EPG and 1,000 shares of Common Stock of EGI registered in the name of the
Sellers, with full right and lawful authority to sell and transfer such
shares in accordance with Section 1 of this Agreement. Upon payment of the
Purchase Price, the Buyer will acquire good and marketable title to such
107,640 shares of Common Stock of EPG and 1,000 shares of Common Stock of
EGI, free and clear of all mortgages, liens, pledges, charges, claims,
security interests, agreements, encumbrances and equities whatsoever, it
being understood that the Common Stock has not been registered under the
Securities Act of 1933 and is being transferred by the Sellers to the Buyer
in reliance on an exemption from registration under such Act.
(af) Disclosure. The representations and warranties by the Sellers in this
Agreement do not contain any untrue or misleading statement of material fact
or omit any material fact known to the Sellers and necessary to make the
statements contained therein not materially misleading, including, without
limitation, matters set forth in that certain Confidential Memorandum and
Executive Summary dated January, 1996, prepared by Veronis, Suhler &
Associates, Inc. on behalf of the Sellers.
Section 6, Representations and Warranties of the Buyer. The Buyer represents,
warrants to the Sellers as follows:
(a) Organization and Standing. The Buyer is a corporation duly organized,
validly existing and in good standing under the laws of the state of Delaware
and has the full and unrestricted power and authority, corporate and
otherwise, to own, operate and lease its properties and to carry on its
business as currently conducted. The Buyer is duly qualified to conduct
business in the state of Minnesota.
(b) Authorization of Agreement; No Breach. The execution, delivery and
performance of this Agreement have been duly and validly authorized and
approved by all necessary corporate action on behalf of the Buyer, including,
without limitation, its board of directors and shareholders. The Buyer has
the corporate power and authority to execute, deliver and perform this
Agreement and such other instruments necessary to consummate the transactions
hereby contemplated. Neither (x) such execution, delivery and performance nor
(y) compliance by the Buyer with the terms and provisions hereof will conflict
with or result in a breach of any of the terms, conditions or provisions of the
articles of incorporation or by-laws of the Buyer or any judgment, order,
injunction, decree, or ruling of any court or other governmental authority to
which the Buyer is subject or any material agreement or contract to which the
Buyer is a party or to which it is subject.
(c) Binding Obligation. This Agreement constitutes a valid and binding
obligation of the Buyer, enforceable in accordance with its terms and each
document and instrument to be executed by Buyer pursuant hereto, when
executed and delivered in accordance with the provisions hereof, shall be a
valid and binding obligation of the Buyer, enforceable against the Buyer in
accordance with its terms.
(d) Broker's or Finder's Fees. No agent, broker, investment banker, or other
person or firm acting on behalf of the Buyer or under its authority is or
will be entitled to any broker's or finder's fee or any other commission or
similar fee, directly or indirectly, in connection with the transactions
contemplated by this Agreement.
(e) Publisher Designation. After the Closing, the Buyer agrees to cause EPG
to list the Principal as a publisher emeritus or founder (or a comparable
designation) in each publication of the Publications published after the
Closing Date until at least the third anniversary of the Closing Date, it
being understood that no transferee of the Buyer shall be so obligated and
it being understood that the Principal hereby consents to the use of his name
for such purpose and related purposes.
(f) Disclosure. The representations and warranties by the Buyer in this
Agreement do not contain any untrue or misleading statement of material fact
or omit any material fact known to the Buyer and necessary to make the
statements contained therein not materially misleading.
Section 7. Affirmative Covenants of the Companies.
Each Company covenants and agrees with the Buyer that between the date of
this Agreement and the Closing Date, the Companies will (and the Sellers
agree to cause the Companies to):
(a) Continue to operate the Business in the usual and ordinary course of
business, in conformity with all applicable laws, ordinances, regulations,
rules and orders, and consistent with past practice.
(b) Use their best efforts to preserve their business intact and to preserve
the goodwill of the customers, suppliers and others having business relations
with the Companies, and continue to conduct the financial operations of the
Business, including its credit and collection policies, with the same effort,
to the same extent and in the same manner as in the prior conduct of the
business of each Company. The Companies will use their best efforts to
consummate the transaction contemplated hereby and will not voluntarily take
any course of action inconsistent with the consummation of such transactions.
(c) Provide the Buyer and representatives of the Buyer with reasonable access
during normal business hours and upon reasonable notice to the properties,
titles, contracts, books, files, logs, records and affairs of the Companies,
and furnish such additional information concerning the Business as the Buyer
may from time to time reasonably request it being understood, however, that
no such investigation shall affect the representations and warranties
contained in Section 5 hereof or the conditions contained Section 9 hereof.
(d) Maintain all the assets of the Business in their present condition,
repair and order, reasonable wear and tear in ordinary usage excepted, and
maintain the inventories of the Business at levels adequate for the operation of
the Business.
(e) Maintain the books, accounts and records of the Business in the usual and
ordinary manner and deliver to the Buyer copies of quarterly operating
statements and balance sheets for the Business and any other information
concerning the financial condition of the Business as the Buyer may from time
to time reasonably request and which is prepared by the Companies or caused
by the Companies to be prepared in the ordinary course of business.
(f) Pay or cause to be paid or provided for all property, sales, use,
franchise, excise, social security, withholding, worker's compensation and
unemployment insurance taxes and all other taxes of or relating to the
Business, and employees, required to be paid to city, county, state, federal
and other governmental units prior to the Closing Date.
(g) Maintain in full force and effect all of its existing casualty,
liability, and other insurance in amounts not less than those in effect on
the date hereof.
(h) Notify the Buyer in writing of any material adverse change in the assets,
liabilities, business, operations, prospects, properties or condition
(financial or otherwise) of the Business including, but not limited to,
information (including copies of all documents and records relating thereto)
concerning all material claims asserted against or affecting the Business or
its assets, properties or business and concerning all (regardless of
materiality thereof) actions, suits or proceedings instituted or threatened
against or affecting the Business or its assets, properties or business, at
law or in equity or admiralty, before or by any court or governmental
authority.
(i) Keep the Buyer informed on a regular basis concerning the management of the
assets, properties and business of the Companies generally, any material new
contracts, agreements, commitments or transactions proposed to be entered
into or employees proposed to be engaged in by either Company, and any other
material developments relating to the assets, properties or business of the
Companies; provided, however, that notwithstanding the foregoing or any other
provision of this Agreement,between the date hereof and the Closing, neither
the Buyer nor its employees and agents shall directly or indirectly control,
supervise or direct or attempt to control, supervise or direct the operation of
the Publications, but such operation shall be the sole responsibility of and
in the complete discretion of the Companies.
(j) Cause to have amended the R&D Testing Facility Lease Agreement set forth on
Schedule 5(j) in form and substance reasonably acceptable to Buyer (i) to
identify the legal description of the approximately 60 acre parcel of real
property and improvements constituting the premises identified therein as the
"Leased Premises", (ii) to clarify the exclusive rights of EPG, as tenant,
to use of such Leased Premises (iii) to provide the tenant with the right to
extend the lease term for two additional terms of five years each beyond the
"extended term" currently defined therein with a cost of living increase from
the then expired term an (iv) to clearly provide for the allocation of
expenses, including, without limitation, insurance, real estate taxes and
maintenance expenses between such Leased Premises and premises used by the
lessor for recreational purposes.
Section 8. Negative Covenants of the Companies.
Between the date hereof and the Closing Date, except as contemplated by this
Agreement, the Companies warrant to the Buyer that neither Company will,
without the prior written consent of the Buyer (and the Sellers will not
permit the Company to):
(a) With respect to employees of the Business, enter into any agreements with
employees, increase the compensation or bonuses payable to or to become
payable by the Company to any of the employees or effect any changes in the
management, personnel policies or employee benefits, except in accordance with
existing employment policies and practices;
(b) Create, assume, or permit to exist any new mortgage, deed of trust or
pledge, or further subject ot any lien or encumbrance any, of the Assets,
whether now owned or hereafter acquired, except as disclosed on Schedule 5i;
(c) Enter into any contracts, leases, commitments, understandings, licenses,
or other agreements or incur any obligation or liability (contingent or
absolute), except current liabilities incurred in the ordinary course of
business and obligations under the contracts listed in the Schedules;
provided, however, that the Companies may enter into such other contracts,
leases, commitments, understandings, licenses or other agreements in the
ordinary course of business which are consistent with such Company's past
business practices, so long as such contract, leases, commitments,
understandings, licenses or other agreements do not involve payments or
obligations in excess of $5,000 for each such agreement in any month, or
$100,000 for all such agreements in the aggregate, and each such agreement is
terminable on not more than thirty days' prior written notice provided, the
Buyer agrees to review and respond to any request required by this Section
8(c) within five business days of the receipt of such request and Buyer
acknowledges that its failure to respond to such request shall be deemed a
consent to any such new contract, lease, commitment, understanding, license or
other agreement;
(d) Do or omit to do any act (or permit such action or omission) which will
cause a material breach of any contract, understanding, commitment,
obligation, lease, license or other agreement to which a Company is a party or
by which a Company is bound; or enter into or become subject to any
employment, labor or union contract, any professional service contract not
terminable at will, or any bonus, pension, insurance, profit sharing, deferred
compensation, retirement, hospitalization, employee benefit, or other
similar plan; or increase the salary, wages or benefits payable or to become
payable to any employee, or pay or arrange to pay any bonus payment to any
employee except in accordance with past practices;
(e) Directly or indirecly pay any dividents on any shares of any class of a
Companys capital stock, make any payment on account of the purchae,
acquistion, redemption or other retirement of any shares of any class of a
Company's capital stock, make any other distributions with respect thereto or
merge, consolidate, combine, split, or reclassify any shares of its capital
stock, provided, however, that notwithstanding the foregoing, nothing in this
Agreement shall prohibit the Company from (i) making distributions to the
Sellers in connection with taxes payable by the Sellers as a result of the
status of Companies as "Subchapter S" corporations, or (ii) paying dividends
or other making any other distributions contemplated by this Agreement;
(f) Sell, exchange, transfer or otherwise dispose of any of the assets or
properties of a Company, or cancel any debts or claims, except in each case in
the ordinary course of business, or establish any subsidiary, acquire any
business, invest in any venture or divert any funds or other resources from
the Business;
(g) Make or permit any amendment or termination of any material contract,
agreement or license to which a Company is a party or which it owns,
otherwise than in the ordinary course of business or in accordance with the
terms and conditions of such contract, agreement or license;
(h) Make any material change in any method of accounting or accounting
practice; or
(i) Agree, whether in writing or not, to do any of the foregoing.
Section 9. Performance by the Buyer.
The obligations of the Buyer hereunder are subject to the conditions that on
the Closing Date hereunder:
(a) All conditions required by this Agreement to be performed or complied
with by parties other than the Buyer prior to or at the Closing Date
hereunder shall have been so performed or complied with in all material
respects.
(b) The representations and warranties of the Sellers and the Companies
contained in this Agreement shall be true and correct in all material
respects on and as of the Closing Date as if made anew on the Closing Date
and each and all of the agreements of the Sellers and the Companies to be
performed on or prior to the Closing Date pursuant to the terms of this
Agreement shall have been duly performed in all material respects, and the
Sellers shall have delivered to the Buyer a certificate, dated as of the
Closing Date, to such effect.
(c) No litigation, investigation or proceeding of any kind shall have been
instituted or threatened which would materially adversely affect the business
and/or operations of either Company or the Assets.
(d) There shall have been no change subsequent to the date of the Financial
Statements for the Company's fiscal quarter ended June 30, 1996 in the
condition, financial or otherwise, of the Business as a going concern or of
the Assets, except changes in the ordinary course of business, none of which
individually or in the aggregate shall have been materially adverse.
(e) The Companies, the Principal, the Trust Beneficiaries and the Sellers
shall have entered into the Covenant Not To Compete Agreement and, if the
Sellers shall have been able to arrange for the execution of such agreements
by the Key Employees as contemplated by Section 2, the Key Employees shall
have executed agreements not to compete with the Companies substantially in
the form of the Covenant Not to Compete Agreement, all as contemplated by
Section 2.
(f) All agreements between the Companies and the Principal shall have been
fully terminated and the Companies shall have been released from all
obligations with respect thereto in an instrument duly executed by the
Principal and delivered to the Buyer.
(g) The Buyer shall have received a written opinion of Faegre & Benson LLP,
special counsel for the Companies and the Sellers, dated the Closing Date, to
the effect and substantially in the form attached as Exhibit B hereto.
(h) The Buyer, the Companies and the Sellers shall have received the
following: (i) all federal, state and local governmental consents, if any,
necessary to execute and deliver this Agreement and to consummate the
transactions contemplated hereby, and all waiting periods specified by law
shall have passed (including, but not limited to, any applicable waiting
period, or any extension thereof, under the Hart Scott Rodino Anti-Trust
Improvements Act of 1976, as amended, and (ii) all consents of any private
persons necesssary to execute and deliver this Agreement and to consummate
the transactions contemplated hereby, except as to any such other consents of
private persons where the failure to obtain such consents would not, in the
aggregate, have a material adverse effect on the Business, Assets or
condition, financial or otherwise, of the Companies.
(i) EBITDA for the Accounting Period shall be no less than $2.5 million based
on the unaudited books and records of the Companies as at the Closing Date.
Each of the foregoing conditions shall, in all respects, be for the benefit
of the Buyer who may, if the Buyer shall so elect, waive the application
thereof.
Section 10. Performance by the Sellers. The obligations and performance
hereunder by the Sellers are subject to the conditions that:
(a) The payment of the Purchase Price and the payment of the amounts to be
paid at the Closing in respect of the Covenant Not To Compete Agreement shall
have been made.
(b) The representations and warranties of the Buyer contained in this
Agreement shall be true and correct in all material respects on and as of the
Closing Date as if made anew on the Closing Date and each and all of the
agreements of the Buyer to be performed on or prior to the Closing Date
pursuant to the terms of this Agreement shall have been duly performed in all
material respects, and the Buyer shall have delivered to the Sellers a
certificate, dated as of the Closing Date, to such effect.
(c) The Buyer shall have performed and complied in all material respects with
all agreements, obligations and conditions required by this Agreement to be
performed or complied with by it prior to or at the Closing Date.
(d) No litigation, investigation or proceeding of any kind shall have been
instituted or threatened which would materially adversely affect the ability
of the Buyer to comply with the provisions of this Agreement.
(e) The Sellers shall have received an opinion of Kaplan, Strangis and
Kaplan, P.A., counsel for the Buyer, dated the Closing Date, to the effect
and substantially in the form attached as Exhibit C hereto.
(f) The Companies shall have executed and delivered the Covenant Not To
Compete Agreement.
(g) The Sellers, the Companies and the Buyer shall have received the
following: (i) all federal, state and local governmental consents, if any,
necessary to execute and deliver this Agreement and to consummate the
transactions contemplated hereby, and all waiting periods specified by law
shall have passed (including, but not limited to, any applicable waiting
period, or any extension thereof, under the Hart Scott Rodino Anti-Trust
Improvements Act of 1976, as amended), and (ii) all consents of any private
persons necessary to execute and deliver this Agreement and to consummate the
transactions contemplated hereby, except as to any such other consents of
private persons where the failure to obtain such consents would not, in the
aggregate have a material adverse effect on the Business, Assets or condition,
financial or otherwise, of the Companies.
of the Companies.
(h) EBITDA for the Accounting Period shall be no less than $2.5 million based
on the unaudited books and records of the Companies as at the Closing Date.
Each of the foregoing conditions shall, in all respects, be for the benefit
of the Sellers alone who may, if the Sellers shall so elect, waive the
application thereof.
Section 11. Liabilities. The Companies shall be subject only to the
following obligations on the Closing Date:
(i) The contracts with employees of the Companies set forth on Schedule 11i;
(ii) The leases and other agreements set forth on Schedules 5j and 5k (other
than agreements with employees included on such Schedules); and
(iii) Deferred subscription liabilities.
Prior to the Closing Date, if necessary, the Sellers will make a capital
contribution to the Companies equal to the amount of (i) all indebtedness of
either Company on the Closing Date to any Seller or to any Affiliate of any
of the Sellers, (ii) all indebtedness of the Company on the Closing Date to
any broker or other person for commissions or fees due in connection with the
transactions contemplated hereby or any other proposed transaction for the
sale of the Assets, the Common Stock or the Business, (iii) the fees of any
attorney of the Sellers in connection with the transactions contemplated by
this Agreement or any other proposal or other transaction pertaining to the sale
of the Assets, the Common Stock or the Business, (iv) any liability as of the
Effective Time of Closing for pension plan contributions, accruals therefor or
amounts payable in connection with the termination of such plan (and costs
and expenses thereof), and (v) the amount necessary to discharge any Sellers'
Accounts Payable (except to the extent the Companies have agreed to pay
Sellers' Accounts Payable as Sellers' agent pursuant to the terms of
Section 4(c) hereof). The Purchase Price shall be subject to setoff for the
amount of any contribution to the capital of the Companies to be made as herein
provided.
Section 12. Rights of Indemnification.
(a) The Sellers agree to indemnify and hold the Buyer and the Companies and
their respective successors and assigns, harmless from and against:
(i) Any and all claims, liabilities and obligations of every kind and
description, contingent or otherwise, arising from or related to the Assets
or operation of the Business prior to the Closing Date except all such
claims, liabilities and obligations which have been assumed pursuant to this
Agreement or are fully recovered by the Company under such Company's
insurance policies in effect on the Closing Date;
(ii) All liabilities of the Company not permitted to be outstanding on the
Closing Date as provided in Section 11 hereof;
(iii) Any and all liabilities of or claims of a third party against a Company
arising out of litigation arising out of the conduct of the business of such
Company prior to the close of business on the Closing Date, whether or not
disclosed on Schedule 5n except liabilities fully recovered by a Company
under such Company's insurance policies in effect on the Closing Date;
(iv) Any and all damage or deficiency resulting from any misrepresentations,
breach of warranty, or nonfulfillment of any agreement on the part of a
Company or a Seller under this Agreement, or from any misrepresentation in
or omission from any certificate or other instrument furnished to the Buyer
pursuant to this Agreement or in connection with any of the transactions
contemplated hereby;
(v) Any Taxes in respect of the operation of the Business through the
Effective Time of Closing;
(vi) Any liability, including any liability for Taxes pertaining to a
reduction in the basis of the Assets as a result of the distributions to be
made to the Sellers as contemplated by Section 4(b) hereof; and
(vii) Any and all actions, suits, proceedings, damages, assessments,
judgments, costs and expense, including reasonable attorneys' fees, incurred
by the Buyer or the Company as a result of the Sellers' failure or refusal
to compromise or defend any claim incident to, or otherwise comply with,
any of the foregoing provisions.
(b) The Buyer shall agree at Closing to indemnify and hold the Sellers
harmless from and against:
(i) Any and all claims, liabilities, and obligations of every kind and
description, contingent or otherwise arising from or related to Assets or the
operation of the Business subsequent to the Closing Date;
(ii) Any and all damage or deficiency resulting from any misrepresentations,
breach of warranty, non-fulfillment of any agreement on the part of the Buyer
under this Agreement, or from any misrepresentation in or omission from any
certificate or other instrument furnihird party with respect to any claim which
Indemnitee was paid.
(iii) Any liability for Taxes of the Sellers arising as a result of changes in
tax elections made by the Buyer after the Closing Date; and
(iv) Any and all actions, suits, proceedings, damages, assessments, judgments,
costs and expenses, including reasonable attorneys' fees, incurred by the
Sellers as the result of the failure or refusal of the Buyer to defend or
compromise any claim, incident to, or otherwise comply with any of the
foregoing provisions.
(c) In order for the party from whom indemnity may be sought (the
"Indemnitor") to be fully informed at all times concerning its possible
obligations to give indemnity to the claimant thereof under the provisions of
this Section 12 (the "Indemnitee") and to permit the amounts thereof to be
minimized, if the Indemnitee suffers or is threatened with or incurs any
loss, damage or expense for which it would be entitled to be indemnified, the
Indemnitee shall promptly give notice to Indemnitor after obtaining knowledge of
any claim and, is such indemnity shall arise from the claim of a third party,
shall permit Indemnitor to assume the defense of any third party claim which
if not firt paid, discharged or otherwise complied with would result in an
interruption or cessation of the conduct of the Business or any material part
thereof or otherwise materially adversely affect the Publications.
Notwithstanding the foregoing notice requirement, the right to
indemnification hereunder shall not be affected by any failure of Indemnitee
to give such notice or any delay by Indemnitee in giving such notice unless, and
then only to the extent that, the rights and remedies of Indemnitor shall
have been prejudiced as a result of the failure to give, or delay in giving,
such notice. Failure by Indemnitor to notify the Indemnitee of its election
to defend any such claim or action by a third pary within fourteen days after
notice thereof (accompanied by the information required by this Section) shall
have been given to Indemnitor, shall be deemed a waiver by Indemnitor of its
right to defend such claim or action.
(d) If Indemnitor assumes the defense of such claim by a third party or
litigation resulting therefrom, the obligations of Indemnitor hereunder as to
such claim shall include taking all steps necessary in the defense or
settlement of such claim or litigation resulting therefrom including the
retention of counsel reasonably satisfactory to the Indemnitee, and holding
the Indemnitee harmless from and against any and all claims caused by or
arising out of any settlement approved by Indemnitor or any judgment in
connection with such claim or litigation resulting therefrom. Without the
prior written consent of Indemnitee, Indemnitor shall not, in the defense of
such claim or any litigation, consent to the entry of any judgement or enter
into any settlement which does not include as an unconditional term thereof
the giving by the claimant or the plaintiff to the Indemnitee of a release, in
form reasonably satisfactory to the Indemnitee, from all liability in respect
of such claim or litigation. Notwithstanding the foregoing, the Indemnitee
will be entitled to participate in the defense of such claim or litigation at
its own expense. If the defendants in any such action include both the
Indemnitee and Indemnitor and the Indemnitee shall have reasonably concluded
that there may be legal defenses available to it and/or other indemnified
parties which are different from or additional to those available to the
Indemnitee, the Imdemnitee shall have the right to select separate counsel to
assume such legal defenses and to otherwise participate in the defense of
such action on behalf of Indemnitee.
(e) If Indemnitor does not assume the defense of any such claim by a third
party or litigation resulting therefrom, the Indemnitee may defend against
such claim or litigation in such manner as it deems appropriate and, unless
Indemnitor shall deposit with Indemnitee a sum equivalent to the total amount
demanded in such claim or litigation plus the Indemnitee's estimate of the
cost of defending the same, the Indemnitee may settle such claim or litigation
on such terms as it deem appropriate and Indemnitor shall, in accordance with
the provisions hereof, promply reimburse the Indemnitee for the amount of
such settlement and for all losses and expenses incurred by Indemnitee in
connection with the defense against or settlement of such claim or
litigation. At the Closing, the Sellers, the Buyer and an independent
financial institution designated by the Sellers and approved by the Buyer,
which approval shall not be unreasonably withheld (the "Indemnification
Escrow Agent") shall enter into an escrow agreement in substantially the
form attached as Exhibit D hereto (the "Indemnification Escrow Agreement")
and the Buyer shall, on behalf of the Sellers, deliver to the Indemnification
Escrow Agent the sum of $5 million (the "Indemnification Escrow Fund") to be
held as provided in the Indemnification Escrow Agreement, it being understood,
however, that the Sellers' aggregate liability for the breach of any
representation, covenant, agreement or warranty in this agreement shall not
be limited to the amount of the Indemnification Escrow Fund.
(f) Each party will cooperate with the other in resolving or attempting to
resolve any claim and will permit the other party access to all books and
records which might be usefule for such purpose, during normal business hours
and at the place where the same are normally kept, with full right to make
copies thereof and extracts therefrom at the cost of the copying party.
(g) Failure to give notice notice or otherwise comply with the terms of this
Section 12 shall not invalidate any claim for indemnity except to the extent
that the failure to give such notice or otherwise comply with the provisions
of this section shall have resulted in actual damage to the other party.
Indemnitor shall be subrogated to all rights of Indemnitee against any third
party with respect to any claim which Indemnitee was paid.
(h) Notwithstanding the foregoing, except for claims of the Buyer against the
Sellers for breaches of representations and warranties in Sections 5(a),
5(c), 5(e), 5(l), 5(ab), 5(ae) and the last sentence of Section 5(p), which
claims shall not be subject to any limitations, (i) no Indemnitor shall be
liable for indemnification claims pursuant to this Section 12 in respect of
any isolated breach of a representation or warranty involving less than
$1,000 and until the aggregate amount of such claims for breaches of
representations or warranties in excess of $1,000 exceeds $50,000, from and
after which time the Indemnitor shall be liable for all claims hereunder
(including the first $50,000 in such claims); (ii) any claim for indemnity
shall be asserted, if at all, on or before the second anniversary of the
Closing Date; (iii) a breach by the Buyer or the Companies of the undertaking
contained in Section 6(e) shall be enforceable solely by writ of mandamus
and neither the Companies nor the Buyer shall have any liability for monetary
or consequential damages on account of a breach thereof; and (iv) no
Indemnitor shall be liable for indemnification claims under this Section 12 in
excess of $5 million.
Section 13. Risk of Loss. The risk of any loss, damage or destruction to any
of the assets of the Business from fire or other casualty or loss shall be
borne by the Sellers at all times prior to the Closing. Upon the occurrence
of any material loss or damage to any of the Assets or the Business as a
result of fire, casualty, or other causes prior to the Closing Date, the
cause of damage, if known, and the extent to which restoration, replacement
and repair
Section 13. Risk of Loss. The risk of any loss, damage or destruction to any
of the assets of the Business from fire or other casualty or loss shall be
borne by the Sellers at all times prior to the Closing. Upon the occurrence
of any material loss or damage to any of the Assets or the Business as a
result of fire, casualty, or other causes prior to the Closing Date, the
Companies shall notify the Buyer thereof in writing as soon as practicable
stating with particularity the extent of the loss or damage incurred, the
cause of damage, if known, and the extent to which restoration, replacement
and repair of such assets lost or destroyed will be reimbursed under any
insurance policy with respect thereto. Provided a Company has not repaired,
restored or replaced the damaged assets by the Closing Date from the proceeds
of insurance paid to such Company or from contributions made to the capital of
such Company by the Sellers, the Buyer shall have the option (but not the
obligation) exercisable on the Closing Date to:
(i) terminate this Agreement; or
(ii) elect to consummate the Closing and accept the property in its "then"
condition, in which event, the Purchase Price shall be reduced by the cost of
repairing, restoring or replacing such damaged Assets not to exceed, however,
$1 million.
Section 14. Performance at Closing by the Sellers. At the Closing hereunder,
the Sellers will:
(a) Deliver to the Buyer certificates for the shares of Common Stock, stock
powers therefor and such other documents and instruments as may be necessary
to effect the transfer thereof to the Buyer free and clear of liens or
encumbrances;
(b) Deliver to the Buyer the certificate contemplated by Section 9(b) hereof;
(c) Deliver to the Buyer an opinion of counsel for the Companies and the
Sellers, dated as of the Closing Date, to the effect and substantially in the
form attached as Exhibit B hereto;
(d) Execute and deliver, and cause the Trust Beneficiaries and Key Employees
to execute and deliver, to the Companies the Covenant Not To Compete Agreement;
(e) Deliver good standing certificates for the Companies as of a date not
more than ten days prior to the Closing Date issued by the Secretary of State
of Minnesota, and each state (if any) in which the Company is qualified to do
business as a foreign corporation;
(f) Deliver the written resignations of all of the current officers and
members of the board of directors of each Company (effective at the Closing
Date);
(g) Deliver the articles of incorporation, bylaws, minute books, stock books
and all other books and records of each Company; and
(h) Execute and deliver the Indemnification Escrow Agreement.
Section 15. Performance at Closing by the Buyer. At Closing, the Buyer will:
(a) Pay or cause to be paid to the Sellers the moneys payable at the Closing
as set forth in Sections 1 and 2 hereof;
(b) Deliver to the Sellers the written opinion of counsel for the Buyer,
dated as of the Closing Date, to the effect and substantially in the form
attached as Exhibit C hereto; and
(c) Execute and deliver the Indemnification Escrow Agreement.
Section 16. Default. In the event of a material breach by a Company or the
Sellers of his or its respective representations or obligations hereunder,
not cured within ten business days after written notice to that effect from
the Buyer, in addition to any other right or remedy available to the Buyer,
the Buyer shall have the right to enforce the terms of this Agreement by
decree of specific performance, it being agreed that the property to be
transferred hereunder is unique and not readily available in the open market.
In the event of a material breach by the Buyer of its representations or
obligations hereunder, not cured within ten business days after written
notice to that effect from the Sellers, the Sellers shall be entitled to
terminate this Agreement by giving written notice thereof to the Buyer.
Section 17. Termination of Agreement. Anything herein to the contrary
notwithstanding, unless a party hereto shall be in default and this Agreement
is terminated or specifically enforced pursuant to Section 16 hereof, this
Agreement and the transactions contemplated by this Agreement shall terminate
if the Closing does not occur on or before January 15, 1997, unless extended
by mutual consent in writing of the Buyer and the Sellers and may otherwise
be terminated at any time before the Closing as follows
(a) Mutual Consent. By mutual consent in writing of the Buyer and the Sellers.
(b) Conditions to the Buyer's Performance are not met. By the Buyer by
written notice to the Sellers if (i) the Sellers or Companies materially
breach this Agreement, or (ii) any event occurs which would render impossible
the satisfaction of one or more conditions to the obligations of the Buyer to
consummate the transactions contemplated by this Agreement as set forth in
Section 9 hereof.
(c) Conditions to the Sellers' Performance are not met. By the Sellers by
written notice to the Buyer if (i) the Buyer materially breaches this
Agreement, or (ii) any event occurs which would render impossible the
satisfaction of one or more conditions to the obligations of the Sellers to
consummate the transactions contemplated by this Agreement as set forth in
Section 10 hereof.
Section 18. Effect of Termination. In the event that this Agreement shall be
terminated pursuant to Section 17 hereof, all further obligations of the
parties under this Agreement shall terminate without further liability of any
to another; provided that the obligations of the parties contained in Section
16 and 19(d) hereof shall survive any such termination.
Section 19. Miscellaneous.
(a) Schedules and Exhibits. All schedules and exhibits to this Agreement shall
be deemed part of this Agreement and incorporated herein, where applicable, as
if fully set forth herein.
(b) Successors, Assigns. Etc. This Agreement shall be binding and shall
inure to the benefit of the parties hereto and their respective heirs,
administrators, successors and assigns. The expression the "Sellers" as used
herein includes each of the Sellers and their respective heirs,
administrators, successors and assigns and the liability of each such party,
heir, administrator, successor and assign shall be joint, not several.
(c) Construction. This Agreement shall be construed and enforced in
accordance with the laws of the State of Minnesota.
(d) Confidentiality. The Buyer agrees that any information delivered to the
Buyer by Sellers or the Companies in connection with the transactions
contemplated by this Agreement, shall be maintained as confidential by the
Buyer and the Buyer agrees not to disclose any such information to any person
whatsoever other than is necessary to disclose such information to its own
employees and other representatives (including prospective lenders) for the
purpose of effecting the transaction contemplated by this Agreement (including
the financing thereof) unless such information becomes otherwise publicly
available or the Buyer is required to make such disclosure by order of a
court or governmental agency. The Buyer agrees that, in the event this
Agreement is not closed for any reason whatsoever, all documents and copies
embodying such information shall be, at the request of the Sellers, delivered
to the Sellers or destroyed. Buyer and Sellers agree that, except to the
extent otherwise required by law, none of them shall issue a press release in
respect of the transactions contemplated hereby without the consent of the
other.
(e) Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
shall constitute one and the same instrument.
(f) Notices. All notices, requests and other communications from any of the
parties hereto to the other shall be in writing and shall be considerd to have
been duly given or served when personally delivered (in the case of a corporate
entity, to an executive officer of such party), or on the first day after the
date of deposit with Federal Express or next day delivery, postage prepaid, or
on the third day after deposit in the United States mail, certified or
registered, return receipt requested, postage prepaid, or on the date of
telecopy, fax or similar telephonic transmission during normal business hours,
provided that the recipient has specifically acknowledged by telephone receipt
of such telecopy, fax or telephonic transmission; addressed, in all cases, to
the party at his or its address set forth below, or to such other address as
such party may hereafter designate by written notice to other parties.
If to either Company or any Seller, to:
Ehlert Publishing Group, Inc.
2408 Lafayette Road
Wayzata, Minnesota 55391
Attn: Mr. John A. Ehlert
With a copy (which copy shall not constitute notice) to:
Mr. Richard A. Hassel
7831 Glenroy Road
Suite 335
Minneapolis, Minnesota 55439
If to the Buyer, to:
Affinity Group, Inc.
2575 Vista Del Mar Drive
Ventura, California 93001
Attn: Mr. Stephen Adams
With a copy (which copy shall not constitute notice) to:
Mr. Andris A. Baltins
Kaplan, Strangis and Kaplan, P.A.
5500 Norwest Center
90 South Seventh Street
Minneapolis, MN 55402
Any notice given to EPG in the manner hereinabove provided shall be deemed
sufficient notice to both Companies and all the Sellers and any notice given
by either company or any of the Sellers pursuant to the provisions hereof
shall be deemed notice on behalf of both of the Companies and all the Sellers.
(g) Delivery of Documents and Schedules by Companies. After the delivery of
each Schedule and prior to the Closing Date the Companies shall, from time to
time, promptly update the Schedules so as to maintain the accuracy of the
information contained therein and shall promptly supply to the Buyer copies
of any new documents or instruments referenced in such Schedules.
(h) Definitions. For the purposes of this Agreement, the following
expressions shall have the meanings given to them below:
"Accounting Period" means the fiscal year of the Companies ending
December 31, 1996.
"Affiliate" means: (a) with respect to a person, any member of such person's
family; (b) with respect to an entity, any officer, director, shareholder,
partner or investor or in such entity or of or in any affiliate of such
entity; and (c) with respect to a person or entity, any person or entity
which directly or indirectly controls, is controlled by, or is under common
control with such person or entity; and "control" means possession, directly
or indirectly, of power to direct or cause the direction of ownership of
voting securities, by contract or otherwise).
"Ancillary Products" is defined in the preamble.
"Assets" means all of the properties, assets and business, of every kind and
description, wherever located, owned or leased by the Company and used or
useable in the Business (except properties and assets to be distributed to
the Sellers as contemplated by Section 4(b) hereof)including the following:
(i) Inventory and Library. All paper stock, raw materials, supplies,
work-in-process, books, periodicals and other items included in the inventory
and library of the Business;
(ii) Securities and Receivables. All accounts receivable, deposits, barter
services or rights, prepaid expenses and other prepaid items, including cash,
negotiable securities and loans receivable;
(iii) Personal Property. All printing plant and presses and other machinery,
equipment, furniture, fixtures and other tangible personal property used or
useable in the Business including, specifically, the property listed on
Schedule 19h hereto, together with such additions, modifications and
replacements thereto, and subject to deletions there from in connection with
any such replacements, as may be made by a Company in the ordinary course of
business between the date of such schedule and the Closing Date;
(iv) Leased Real Property. The interest of the Companies in all real
property, buildings and structures, including, specifically, the property,
buildings and structures listed on Schedule 5j and all leases and agreements,
rights and appurtenances relating thereto, including, specifically, the
leases and agreements listed on Schedule 5j hereto, any renewals, extensions,
amendments or modifications thereof, and any additional agreements and leases
made or entered into by a Company in the ordinary course
(v) Business Leases and Agreements. The agreements, leases, commitments and
orders used or useable in the Business, including specifically, the leases,
agreements and covenants not to compete in favor of the Companies from third
parties or predecessors of a Company listed individually or by category on
Schedule 5k, including any renewals, extensions, amendments or modifications
thereof, and any additional agreements, leases, commitments and orders made
or entered into by a Company in the ordinary course of business between the
date of such Schedule and Closing Date;
(vi) Intangibles. All copyrights and applications therefor, trademarks,
service marks, trade secret rights, patents, patent rights, trade names,
tradename rights or other similar rights used or useable in the Business,
including, specifically, the names Snowmobile, SnowGoer, Snow Week,
Snowmobile Business, PWC Magazine, Watercraft World, Watercraft Business, ATV
Magazine, Bowhunting World, 3D & Target Archery and Archery Business or any
similar name and any logo or mark used in connection with any of the forgoing
names and the other copyrights, trademarks, service marks or other similar
rights listed on Schedule 5h, the good will of the Business as a going
concern, including lists of customers and suppliers, correspondence, purchase
orders and the general intangibles of the Business including techniques,
processes and know-how that pertain to the Business;
(vii) Other Materials. All editorial materials, photographs and negatives,
artwork and films, including periodical and photo libraries, films and video
and audio tapes and all of the Companies' rights associated with the
foregoing, and all computer programs and software together with source code,
instruction manuals and other data for the effective use thereof;
(viii) Memberships. All memberships, agencies and permits;
(ix) Mailing Lists and Proprietary Information. All mailing lists,
subscriber and advertiser lists, subscriptions, telephone numbers, processes,
trade secrets, know-how and other proprietary or confidential information
used in or relating to the Business;
(x) Licenses and Authorizations. The licenses, permits and authorizations
used or useable in the operation of the Business, including, specifically,
the licenses, permits and authorizations listed on Schedule l9hx hereto,
together with any renewals, extensions or modifications thereof and additions
thereto made in the ordinary course of business between the date of this
Agreement and the Closing Date;
(xi) Records. All logs, books, business and financial records (or true copies
thereof) and advertising material used in connection with the Business as of
the Closing Date.
"Business" is defined in the preamble.
"BPA" is defined in Section 5(y).
"Buyer" is defined in the preamble.
"Buyer's Issues" means any issue of a Publication which does not constitute a
Sellers' Issue.
"Closing Date" is defined in Section 3(a).
"Code" means the Internal Revenue Code of 1986, as amended.
"Common Stock" means the authorized shares of the Common Stock of each Company,
$0.10 par value, per share, and any shares of stock or other interests issued in
exchange or substitution therefor, by reorganization, stock dividend or
otherwise.
"Companies" is defined in the preamble.
"Company" is defined in the preamble.
"Covenant Not To Compete Agreement" is defined in Section 2.
"Direct Costs" include the paper, printing, postage and mailing costs
associated with the Sellers' Issues and incurred by the Companies prior to
the Effective Time of Closing.
"EBITDA" means net income (loss) of the Business calculated in the manner set
forth on Exhibit F attached hereto provided that, to the extent included
therein, there shall be excluded from income any interest income, any other
item of income not derived from the ordinary ongoing business operations of
the Company, any gain on the sale or disposition of any properties, any prior
period adjustments, any extraordinary items, any income resulting from a change
in any accounting method becoming effective during such period, any Non-Cash
Income, Owner's Benefits and income pertaining to Buyer's Issues, whether or
not such income would be included as income of the Business calculated in
accordance with GAAP.
"Effective Time of Closing" means 11:59 p.m. on December 31, 1996.
"Employee Agreements" is defined in Section 5(p).
"Employment Agreement" is defined in Section 2.
"EGI" is defined in the preamble.
"EPG" is defined in the preamble.
"ERISA" is defined in Section 5(p).
"Escrow Agent" means the financial institution designated as the Escrow Agent
pursuant to the terms of the Earnest Money Escrow Agreement.
"Financial Statements" is defined in Section 5(d).
"GAAP" is defined in Section 5(d).
"Hazardous Materials" is defined in Section 5(j).
"Indemnification Escrow Agent" is defined in Section 12(e).
"Indemnification Escrow Agreement" is defined in Section 12(e).
"Indemnification Escrow Fund" is defined in Section 12(e).
"Indemnitee" is defined in Section 12(c).
"Indemnitor" is defined in Section 12(c).
"Key Employees" is defined in Section 2.
"Leases" is defined in Section 5(j).
"Non-Cash Income" means barter or trade income.
"Owner Benefits" means any and all compensation and other expenses paid to or
accruing to the benefit of the Principal by the Companies, including but not
limited to salary and incentive payments, travel and entertainment expenses,
insurance costs, automobile expenses and 401(k) expenses.
"Permitted Encumbrances" means (a) liens for taxes, assessments, or similar
charges incurred in the ordinary course of business that are not yet due and
payable; (b) inchoate liens of mechanics, materialmen, warehousemen,
carriers, or other like liens, securing obligations incurred in the ordinary
course of business that are not yet due and payable; and (c) easements,
rights-of-way, zoning and similar covenants and restrictions which, in the
aggregate, do not materially interfere with the ordinary conduct of the
Business.
"Plans" is defined in Section 5(p).
"Projections" is defined in Section 5(ac).
"Publications" is defined in the preamble.
"Purchase Price" is defined in Section 1.
"Sellers" is defined in Section 19(b).
"Sellers' Accounts Payable" is defined in Section 4(b).
"Sellers' Accounts Receivable" means accounts receivable of the Companies as of
the Effective Time of Closing pertaining to (a) advertising in, and newsstand
receivables in respect of, Sellers' Issues (but not other receivables including,
specifically, barter or trade credits relating to Sellers' Issues and
subscription receivables pertaining to Sellers' Issues) and (b) list rental
receivables and television programming receivables to the extent that such
receivables arose during and are properly allocable to periods prior to the
Effective Time of Closing.
"Sellers' Issues" means only such issues of the Publications which are (i)
actually distributed prior to the Effective Time of Closing and (ii)
currently scheduled to be accounted for in the 1996 fiscal year of the
Companies as set forth in Schedule 4b.
"Taxes" means all taxes, charges, fees, levies, penalties, or other assessments,
including without limitation, income, excise, property, sales, and franchise
taxes, imposed by the United States, or any state, county, local, or foreign
government or a subdivision or agency thereof, and including any interest,
penalties or additions attributable thereto.
"Terminated ESOP" is defined in Section 5(p).
(i) Best Efforts. Subject to the terms and conditions herein provided, each
of the parties hereto agrees to use all reasonable efforts to take, or cause
to be taken, all actions and to do, or cause to be done, all things
necessary, proper or advisable to consummate and make effective as promptly
as practicable the transactions contemplated by this Agreement and to
cooperate with each other in connection with the foregoing, including, but
not limited to using reasonable efforts to file any Notification and Report
and related materials that such party may be required to file with the
Federal Trade Commission and the Antitrust Division of the United States
Department of Justice under the Hart Scott Rodino Anti-Trust Improvements Act
of 1976, as amended, and to use such party's best efforts to obtain an early
termination of the applicable waiting period, and to make any further filings
pursuant thereto that may be necessary or advisable in connection therewith.
(j) Further Assurances. Each of the parties hereto agrees to execute and
deliver such other and further documents as the other may reasonably require
to effect the intent hereof, which obligations shall survive the Closing.
(k) No Third Party Beneficiaries. Nothing in this Agreement, express or
implied, is intended to confer upon any person, other than the parties hereto
and their respective successors and permitted assigns, any right, remedy or
claim under or by reason of this Agreement or of any term, condition or
covenant hereof.
(l) Attorney's Fees. In the event of any dispute hereunder between the
parties hereto, the prevailing party in any litigation instituted hereunder
shall be entitled to recover from the other its costs and expenses thereof,
including, specifically, its reasonable attorney's fees.
IN WITNESS WHEREOF, the parties hereto have caused these presents to be
executed as of the day and year first above written.
/s/ John H. Ehlert
John A. Ehlert
(a "Seller")
John A. Ehlert Irrevocable Trust
for Adam C. Ehlert
By:/s/ Richard A. Hassel
Its: Trustee
(a "Seller")
John A. Ehlert Irrevocable Trust
for Zachary J. Ehlert
By:/s/ Richard A. Hassel
Its: Trustee
(a "Seller")
John A. Ehlert Irrevocable Trust
for Nathaniel X. Ehlert
By:/s/ Richard A. Hassel
Its: Trustee
(a "Seller")
John A. Ehlert Irrevocable Trust 2
for Adam C. Ehlert
By:/s/ Richard A. Hassel
Its: Trustee
(a "Seller")
John A. Ehlert Irrevocable Trust 2
for Zachary J. Ehlert
By:/s/ Richard A. Hassel
Its: Trustee
(a "Seller")
John A. Ehlert Irrevocable Trust 2
for Nathaniel X. Ehlert
By:/s/ Richard A. Hassel
Its: Trustee
(a "Seller")
AFFINITY GROUP, INC.
By /s/ Stephen Adams
Its Chairman
(the "Buyer")
EHLERT PUBLISHING GROUP, INC.
By /s/ John A. Ehlert
Its President and
Chief Executive Officer
(a "Company")
EXPOSITIONS GROUP, INC.
By /s/ John A. Ehlert
Its President and
Chief Executive Officer
(a "Company")
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<NAME> AFFINITY GROUP, INC.
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 5502
<SECURITIES> 0
<RECEIVABLES> 15327
<ALLOWANCES> 1367
<INVENTORY> 2660
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<PP&E> 16957
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<TOTAL-ASSETS> 192656
<CURRENT-LIABILITIES> 37709
<BONDS> 120000
0
0
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<TOTAL-LIABILITY-AND-EQUITY> 192656
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1875
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</TABLE>
