EXHIBIT 10.11
EXECUTION COPY
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FAMILY BOOKSTORES COMPANY, INC.
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SECURITIES PURCHASE AGREEMENT
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Senior Subordinated Notes due 2003
($5,000,000)
Warrants to Purchase
Shares of Common Stock
(Initially Equal on an Aggregate Basis to 18%
of the Outstanding Fully-Diluted Common Stock
Subject to Increase in Certain Events)
Dated as of November 14, 1994
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TABLE OF CONTENTS
1. AUTHORIZATION OF FINANCING. . . . . . . . . . . . . . . . . . . . . .1
2. PURCHASE AND SALE OF SECURITIES . . . . . . . . . . . . . . . . . . .2
3. CLOSING OF SALE OF SECURITIES . . . . . . . . . . . . . . . . . . . .2
4. CONDITIONS OF CLOSING . . . . . . . . . . . . . . . . . . . . . . . .3
4A. PURCHASERS' CONDITIONS. . . . . . . . . . . . . . . . . . . .3
(i) OPINIONS OF COUNSEL . . . . . . . . . . . . . . . . . . . . .3
(ii) REPRESENTATIONS AND WARRANTIES; NO DEFAULT. . . . . . . . . .3
(iii) REGISTRATION RIGHTS AGREEMENT . . . . . . . . . . . . . . . .3
(iv) PURCHASE PERMITTED BY APPLICABLE LAWS . . . . . . . . . . . .3
(v) NO ADVERSE U.S. LEGISLATION, ACTION OR DECISION . . . . . . .4
(vi) APPROVALS AND CONSENTS. . . . . . . . . . . . . . . . . . . .4
(vii) NO MATERIAL ADVERSE CHANGE. . . . . . . . . . . . . . . . . .4
(viii) PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . .4
(ix) CREDIT FACILITY . . . . . . . . . . . . . . . . . . . . . . .5
(x) FOREIGN INVESTMENT IN REAL PROPERTY TAX ACT . . . . . . . . .5
(xi) EMPLOYMENT AGREEMENT. . . . . . . . . . . . . . . . . . . . .5
(xii) SHAREHOLDERS' AGREEMENT . . . . . . . . . . . . . . . . . . .5
(xiii) TRANSACTION FEE AND COUNSEL FEES. . . . . . . . . . . . . . .5
(xiv) ASSET PURCHASE AGREEMENT. . . . . . . . . . . . . . . . . . .5
(xv) ADVISORY AGREEMENT. . . . . . . . . . . . . . . . . . . . . .5
(xvi) LETTER AGREEMENTS . . . . . . . . . . . . . . . . . . . . . .5
(xvii) EQUITY INVESTMENT . . . . . . . . . . . . . . . . . . . . . .5
(xviii) BOARD APPROVAL. . . . . . . . . . . . . . . . . . . . . . . .6
(xix) BUY AND SELL AGREEMENT. . . . . . . . . . . . . . . . . . . .6
4B. COMPANY'S CONDITIONS. . . . . . . . . . . . . . . . . . . . .6
(i) REPRESENTATIONS AND WARRANTIES; NO DEFAULT. . . . . . . . . .6
(ii) PURCHASE PERMITTED BY APPLICABLE LAWS . . . . . . . . . . . .6
(iii) APPROVALS AND CONSENTS. . . . . . . . . . . . . . . . . . . .6
(iv) PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . .6
(v) AGREEMENTS WITH PURCHASERS. . . . . . . . . . . . . . . . . .6
(vi) EQUITY INVESTMENT . . . . . . . . . . . . . . . . . . . . . .6
(vii) ASSET PURCHASE AGREEMENT. . . . . . . . . . . . . . . . . . .7
(viii) SENIOR DEBT . . . . . . . . . . . . . . . . . . . . . . . . .7
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5. PREPAYMENTS AND PURCHASE OF NOTES . . . . . . . . . . . . . . . . . .7
5A. REQUIRED PREPAYMENTS. . . . . . . . . . . . . . . . . . . . .7
5B. OPTIONAL PREPAYMENT . . . . . . . . . . . . . . . . . . . . .7
5C. NOTICE OF OPTIONAL PREPAYMENTS. . . . . . . . . . . . . . . .7
5D. PARTIAL PREPAYMENT PRO RATA . . . . . . . . . . . . . . . . .7
5E. RETIREMENT OF NOTES . . . . . . . . . . . . . . . . . . . . .8
6. AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . .8
6A. FINANCIAL STATEMENTS AND OTHER REPORTS. . . . . . . . . . . .8
6B. INSPECTION OF PROPERTY. . . . . . . . . . . . . . . . . . . 11
6C. COVENANT TO SECURE NOTES EQUALLY. . . . . . . . . . . . . . 11
6D. MAINTENANCE OF PROPERTIES; INSURANCE. . . . . . . . . . . . 11
6E. CORPORATE EXISTENCE, ETC. . . . . . . . . . . . . . . . . . 12
6F. PAYMENT OF TAXES, CLAIMS AND SENIOR DEBT. . . . . . . . . . 12
6G. COMPLIANCE WITH LAWS, ETC.. . . . . . . . . . . . . . . . . 12
6H. ATTENDANCE AT BOARD MEETINGS; BOARD MEMBERS . . . . . . . . 13
6I. SECURITIES FILINGS. . . . . . . . . . . . . . . . . . . . . 13
6J. PAYMENTS BY SUBSIDIARIES. . . . . . . . . . . . . . . . . . 13
6K. RESERVATION OF SHARES . . . . . . . . . . . . . . . . . . . 13
6L. HART-SCOTT FILINGS. . . . . . . . . . . . . . . . . . . . . 13
6M. USE OF PROCEEDS . . . . . . . . . . . . . . . . . . . . . . 14
6N. MANAGEMENT. . . . . . . . . . . . . . . . . . . . . . . . . 14
6O. CONSENT TO TRANSFER BY BANK OF SCOTLAND . . . . . . . . . . 14
7. NEGATIVE COVENANTS. . . . . . . . . . . . . . . . . . . . . . . . . 14
7A. FINANCIAL COVENANTS . . . . . . . . . . . . . . . . . . . . 14
7B. RESTRICTIONS ON DEBT. . . . . . . . . . . . . . . . . . . . 16
7C. RESTRICTIONS ON SALES, MERGERS AND CONSOLIDATIONS . . . . . 18
7D. RESTRICTIONS ON LIENS . . . . . . . . . . . . . . . . . . . 18
7E. RESTRICTIONS ON DIVIDENDS . . . . . . . . . . . . . . . . . 20
7F. RESTRICTIONS ON TRANSACTIONS WITH CERTAIN PARTIES . . . . . 20
7G. RESTRICTIONS ON INVESTMENTS AND CAPITAL EXPENDITURES. . . . 21
7G (b) ADJUSTED CAPITAL EXPENDITURES. . . . . . . . . . . . . . . 22
7H. RESTRICTIONS ON SALE AND LEASE-BACK TRANSACTIONS. . . . . . 23
7I. RESTRICTIONS ON SALES OF ASSETS . . . . . . . . . . . . . . 23
7J. RESTRICTIONS ON SUBSIDIARIES. . . . . . . . . . . . . . . . 23
7K. CHANGE IN BUSINESS. . . . . . . . . . . . . . . . . . . . . 24
7L. PAYMENT OF NOTES. . . . . . . . . . . . . . . . . . . . . . 24
7M. NO DEBT SENIOR TO OR PARI PASSU WITH NOTES. . . . . . . . . 24
7N. NO AMENDMENT OF CHARTER OR BY-LAWS. . . . . . . . . . . . . 24
7O. COMPLIANCE WITH ERISA . . . . . . . . . . . . . . . . . . . 24
7P. FOREIGN INVESTMENT IN REAL PROPERTY TAX ACT . . . . . . . . 25
7Q. ISSUANCE OF ADDITIONAL CAPITAL STOCK. . . . . . . . . . . . 25
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8. EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . 25
8A. DEFAULT; ACCELERATION . . . . . . . . . . . . . . . . . . . 25
8B. RESCISSION OF ACCELERATION. . . . . . . . . . . . . . . . . 28
8C. OTHER REMEDIES. . . . . . . . . . . . . . . . . . . . . . . 28
9. REPRESENTATIONS, COVENANTS AND WARRANTIES . . . . . . . . . . . . . 28
9A. ORGANIZATION; CORPORATE AUTHORITY . . . . . . . . . . . . . 28
9B. BUSINESS; FINANCIAL STATEMENTS. . . . . . . . . . . . . . . 29
9C. CAPITAL STOCK AND RELATED MATTERS . . . . . . . . . . . . . 29
9D. LITIGATION. . . . . . . . . . . . . . . . . . . . . . . . . 30
9E. OUTSTANDING DEBT. . . . . . . . . . . . . . . . . . . . . . 30
9F. TITLE TO PROPERTIES . . . . . . . . . . . . . . . . . . . . 30
9G. TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
9H. CONFLICTING AGREEMENTS AND OTHER MATTERS. . . . . . . . . . 31
9I. PATENTS, ETC. . . . . . . . . . . . . . . . . . . . . . . . 31
9J. OFFERING OF SECURITIES. . . . . . . . . . . . . . . . . . . 32
9K. BROKER'S OR FINDER'S COMMISSIONS. . . . . . . . . . . . . . 32
9L. COMPLIANCE WITH LAW . . . . . . . . . . . . . . . . . . . . 32
9M. INVESTMENT COMPANY ACT. . . . . . . . . . . . . . . . . . . 33
9N. PUBLIC UTILITY HOLDING COMPANY ACT. . . . . . . . . . . . . 33
9O. GOVERNMENTAL CONSENTS, ETC. . . . . . . . . . . . . . . . . 33
9P. COMPLIANCE WITH ERISA . . . . . . . . . . . . . . . . . . . 33
9Q. MATERIAL AGREEMENTS . . . . . . . . . . . . . . . . . . . . 34
9R. ENVIRONMENTAL MATTERS . . . . . . . . . . . . . . . . . . . 34
9S. FOREIGN INVESTMENT IN REAL PROPERTY TAX ACT . . . . . . . . 35
9T. LEASES. . . . . . . . . . . . . . . . . . . . . . . . . . . 35
9U. INVENTORY . . . . . . . . . . . . . . . . . . . . . . . . . 36
9V. EMPLOYEE MATTERS. . . . . . . . . . . . . . . . . . . . . . 36
9W. PRODUCTS LIABILITY. . . . . . . . . . . . . . . . . . . . . 36
10. REPRESENTATIONS OF THE PURCHASERS . . . . . . . . . . . . . . . . . 37
11. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
12. ADVISORY FEE. . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
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13. WARRANTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
13A. SERIES OF WARRANTS AND TRIGGERING EVENT . . . . . . . . . . 49
13B. PUT . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
13C. PENALTY WARRANTS. . . . . . . . . . . . . . . . . . . . . . 51
14. MISCELLANEOUS.. . . . . . . . . . . . . . . . . . . . . . . . . . . 51
14A. PAYMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . 51
14B. EXPENSES. . . . . . . . . . . . . . . . . . . . . . . . . . 51
14C. CONSENT TO AMENDMENTS; WAIVERS. . . . . . . . . . . . . . . 52
14D. FORM, REGISTRATION, TRANSFER AND EXCHANGE OF
NOTES; LOST NOTES . . . . . . . . . . . . . . . . . . . . . 53
14E. PERSONS DEEMED OWNERS; PARTICIPATIONS . . . . . . . . . . . 53
14F. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND
COVENANTS; ENTIRE AGREEMENT . . . . . . . . . . . . . . . . 53
14G. TRANSFERS: SUCCESSORS AND ASSIGNS . . . . . . . . . . . . . 54
14H. DISCLOSURE TO OTHER PERSONS . . . . . . . . . . . . . . . . 54
14I. NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . 54
14J. INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . 55
14K. DESCRIPTIVE HEADINGS, ETC . . . . . . . . . . . . . . . . . 55
14L. GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . 55
14M. COUNTERPARTS. . . . . . . . . . . . . . . . . . . . . . . . 55
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SECURITIES PURCHASE AGREEMENT ("AGREEMENT"), dated as of
November 14, 1994, by and among FAMILY BOOKSTORES COMPANY, INC., a
Michigan corporation (the "COMPANY"), ELECTRA INVESTMENT TRUST PLC, a
corporation organized under the laws of England ("EIT"), and ELECTRA
ASSOCIATES, INC., a Delaware corporation ("ASSOCIATES" and, together
with EIT, the "PURCHASERS"). Capitalized terms used in this Agreement
are defined in paragraph 12.
WHEREAS, the Purchasers desire, upon the terms and subject to the
conditions set forth herein, to purchase from the Company the Securities
(as hereinafter defined); and
WHEREAS, the Company desires, upon the terms and conditions
hereinafter provided, to sell the Securities to the Purchasers.
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. AUTHORIZATION OF FINANCING. In order to provide funds for
the purchase by the Company of the assets of the Family Bookstores division
("FBS") of The Zondervan Corporation, a Michigan corporation ("ZONDERVAN"),
a wholly owned subsidiary of HarperCollins Publishers, Inc., a Delaware
corporation ("HARPERCOLLINS"), pursuant to that certain Asset Purchase
Agreement, dated as of October 28, 1994 (the "ASSET PURCHASE AGREEMENT"),
among the Company, Zondervan and HarperCollins, the Company has authorized
the issuance and delivery pursuant to this Agreement of:
(a) its senior subordinated notes, substantially in the form of
EXHIBIT L(A) hereto (herein, together with any such notes which
may be issued pursuant to any provision of this Agreement and any
such notes which may be issued hereunder in substitution or
exchange therefor, collectively called the "NOTES" and
individually called a "NOTE"), in the aggregate principal amount
of $5,000,000 to be dated the date of issue thereof (the "ISSUE
DATE"), to mature May 17, 2003, or if such day is not a Business
Day, the next succeeding Business Day, to bear interest on the
unpaid balance thereof, from the Issue Date until the principal
thereof shall become due and payable, at the rate of 8.00% per
annum through the second anniversary of the Issue Date,
increasing to 11.00% through the fourth anniversary of the Issue
Date and to 14.00% thereafter, and on overdue principal, premium
and interest at the rate specified therein; and
(b) warrants, substantially in the form of EXHIBIT 1(B) hereto
(herein, together with any such warrants which may be issued
pursuant to any provision of this Agreement or any provision
contained in the warrants and any such warrants which may be
issued in addition to or in substitution or exchange therefor,
the "WARRANTS"), to purchase for a price of $.01 per share that
number of shares of common stock, par value $1.00 per share (the
"COMMON STOCK"), of the Company as shall be initially equal, on
an aggregate basis, to 18% of the issued and outstanding Common
Stock of the Company on a Fully Diluted basis (subject to
increase in the event of default in timely payment of the Notes
and if no Triggering Event has occurred as specified in Section
14A of this Agreement, and as specified in the Warrants).
The Notes and the Warrants, and any security of the Company issued to the
Purchasers in addition to or in substitution or exchange therefor, are
referred to herein as the "SECURITIES".
2. PURCHASE AND SALE OF SECURITIES. The Company hereby agrees
to sell to the Purchasers and, subject to the terms and conditions herein
set forth, the Purchasers agree to purchase from the Company, the following
Securities on the Closing Date:
(a) Notes, in the form of one or more Notes registered in the
Purchasers' name, and in such denominations as the Purchasers
shall request subject to paragraph 15D hereof, in the aggregate
principal amount of $5,000,000, at a purchase price of 100% of
the aggregate principal amount thereof; and
(b) Warrants, in the form of one or more Warrants registered in
the Purchasers' name, and in such denominations as the Purchasers
shall request, to purchase for a price of $0.01 per share that
number of shares of Common Stock as shall be initially equal to
18% of the issued and outstanding Common Stock of the Company on
a Fully Diluted basis, which percentage is subject to adjustment
as set forth in this Agreement and in the Warrants.
3. CLOSING OF SALE OF SECURITIES. The purchase and delivery of
the Securities shall take place at the offices of Willkie Farr & Gallagher,
One Citicorp Center, 153 East 53rd Street, New York, New York, at a closing
(the "CLOSING") two Business Days after the date on which all the
conditions specified in paragraph 4 shall have been satisfied, or at such
other place or on such other date as the Purchasers and the Company may
agree upon, but in no event later than November 17, 1994 (the "CLOSING
DATE"). The Company will give the Purchasers five days, notice of the
Closing Date and the time of Closing. At the Closing, the Company will
deliver to the Purchasers the Notes and the Warrants, against payment of
the purchase price therefor, in each case by transfer of immediately
available funds to such bank as the Company may direct in writing for
credit to the Company's account. At the Closing, the Company will pay to
Electra Inc., a Delaware corporation ("ELECTRA"), in lawful money of the
United States of America in immediately available funds to such bank and
account as Electra may direct, (i) a transaction fee in the amount of
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$150,000 (the "TRANSACTION FEE") and (ii) a pro rated amount of the
Advisory Fee for the quarter ending December 31, 1994. If at the Closing
the Company shall fail to (i) tender to the Purchasers any of the
Securities, (ii) pay to Electra the Transaction Fee or (iii) have satisfied
any of the closing conditions specified herein, or if such closing
conditions shall not have been waived by the Purchasers, the Purchasers
shall, at the Purchasers, election, be relieved of all further obligations
under this Agreement, without thereby waiving any other rights the
Purchasers may have by reason of such failure.
4. CONDITIONS OF CLOSING.
4A. PURCHASERS' CONDITIONS. The Purchasers, obligation to
purchase and pay for the Securities is subject to the satisfaction prior to
or at the Closing of the following conditions:
(i) OPINIONS OF COUNSEL. The Purchasers shall have received a
favorable opinion from each of (a) Warner, Norcross & Judd, counsel for the
Company, substantially in the form set forth in EXHIBIT 4A(I)(A),
(b) Squadron, Ellenoff, Plesent, Sheinfeld & Sorkin, counsel to Zondervan,
substantially in the form set forth in EXHIBIT 4A (I) (B), and (c) internal
counsel to HarperCollins, substantially in the form set forth in Exhibit
4A(i) (c), each addressed to the Purchasers and dated the date of the
Closing. To the extent that the opinions referred to above in this
paragraph 4A are rendered in reliance upon the opinion of any other
counsel, the Purchasers shall have received a copy of such opinion of such
other counsel, dated the date of the Closing and addressed to the
Purchasers, or a letter from such other counsel, dated the date of the
Closing and addressed to the Purchasers, authorizing the Purchasers to rely
on such other counsel's opinion.
(ii) REPRESENTATIONS AND WARRANTIES; NO DEFAULT. The
representations and warranties of the Company contained in this Agreement
and those otherwise made in writing by or on behalf of the Company in
connection with the transactions contemplated by this Agreement shall be
true in all material respects when made and at the time of the Closing
except to the extent of changes caused by the transactions contemplated
herein; PROVIDED, HOWEVER, that there shall exist at the time of the
Closing and after giving effect to such transactions no Event of Default or
Default; and the Company shall have delivered to the Purchasers an
Officers, Certificate, dated the date of the Closing, to all such effects.
(iii) REGISTRATION RIGHTS AGREEMENT. The Purchasers shall have
received a fully executed counterpart of the Registration Rights Agreement
substantially in the form of EXHIBIT 4(A) (III) (the "REGISTRATION RIGHTS
AGREEMENT") and, at the time of the Closing, the Registration Rights
Agreement shall be in full force and effect and no term or condition
thereof shall have been amended, modified or waived.
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(iv) PURCHASE PERMITTED BY APPLICABLE LAWS. The purchase of and
payment for the Securities shall not violate any applicable domestic law or
governmental regulation (including, without limitation, section 5 of the
Securities Act) and shall not subject the Purchasers to any tax, penalty,
liability or other onerous condition under or pursuant to any applicable
law or governmental regulation or order. The Purchasers shall have
received such certificates or other evidence as the Purchasers may request
to establish compliance with the conditions set forth in this paragraph
4A(iv).
(v) NO ADVERSE U.S. LEGISLATION, ACTION OR DECISION. After the
date hereof no legislation, order, rule, ruling or regulation shall have
been enacted or made by or on behalf of any governmental body, department
or agency of the United States, nor shall have any legislation with an
effective date on or prior to the date hereof, been introduced and
favorably reported for passage to either House of Congress by any committee
of either such House to which such legislation has been referred for
consideration, nor shall any decision of any court of competent
jurisdiction within the United States have been rendered which, in the
Purchasers, reasonable judgment, would materially and adversely affect any
of the Securities as an investment or the business, condition (financial or
other), assets, properties, operations or prospects of the Company or FBS.
There shall be no action, suit, investigation or proceeding pending or, to
the best of the Purchasers, or the Company's knowledge, threatened, against
or affecting the Purchasers, the Company, FBS, any of the Purchasers', the
Company's or FBS' properties or rights, or any of the Purchasers', the
Company's or FBS' Affiliates, officers or directors, before any court,
arbitrator or administrative or governmental body which (i) seeks to
restrain, enjoin, prevent the consummation of or otherwise affect the
transactions contemplated by this Agreement or the Asset Purchase Agreement
or (ii) questions the validity or legality of any such transactions or
seeks to recover damages or to obtain other relief in connection with any
such transactions, and, to the best of the Purchasers' and the Company's
knowledge, there shall be no valid basis for any such action, proceeding or
investigation.
(vi) APPROVALS AND CONSENTS. The Company shall have duly
received all authorizations, waivers, consents, approvals, licenses,
franchises, permits and certificates (collectively, "CONSENTS") by or of
all federal, state and local governmental authorities and all material
consents by or of all other Persons necessary or advisable for the issuance
of the Securities and as may be required (except as may be waived, with the
consent of EIT) under the terms of the Asset Purchase Agreement and all
thereof shall be in full force and effect at the time of Closing. The
Company shall have delivered to the Purchasers an Officers' Certificate,
dated the date of Closing, to such effect.
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(vii) NO MATERIAL ADVERSE CHANGE. There shall not have occurred
or been threatened, nor to the best of the Company's knowledge will there
be threatened, any material adverse change in the business, condition
(financial or other), assets, properties, operations or prospects of the
Company, any of its Subsidiaries or FBS, or any condition, event or act
which is likely to lead to a material adverse change in the business,
condition (financial or otherwise), assets, properties, operations or
prospects of the Company, any of its Subsidiaries or FBS or which would
materially and adversely affect the Company's ability to repay the Notes or
consummate the transactions contemplated by the Asset Purchase Agreement,
as determined in the sole discretion of the Purchasers.
(viii) PROCEEDINGS. All corporate and other proceedings taken or
to be taken in connection, with the transactions contemplated hereby and by
the Asset Purchase Agreement, and all documents incident thereto shall be
reasonably satisfactory in form and substance to the Purchasers and their
counsel, and the Purchasers and their counsel shall have received all such
counterpart originals or certified or other copies of such documents as the
Purchasers or their counsel may reasonably request.
(ix) CREDIT FACILITY. The Company shall have entered into the
Loan Agreement, which shall be in form and substance reasonably
satisfactory to the Purchasers. The Loan Agreement shall expressly
acknowledge and permit the Debt represented by the Securities and the
transactions contemplated hereby.
(x) FOREIGN INVESTMENT IN REAL PROPERTY TAX ACT. The Purchasers
shall have received a certificate relating to the Foreign Investment in
Real Property Tax Act substantially in the form of EXHIBIT 4A(X).
(xi) EMPLOYMENT AGREEMENT. The Purchasers shall have received a
fully executed counterpart of the Employment Agreement between the Company
and Leslie E. Dietzman, substantially in the form of EXHIBIT 4A(XI).
(xii) SHAREHOLDERS' AGREEMENT. The Purchasers shall have
received a fully executed counterpart of the Shareholders, Agreement
substantially in the form of EXHIBIT 4A(XII).
(xiii) TRANSACTION FEE AND COUNSEL FEES. Electra shall have
received payment of the Transaction Fee in accordance with paragraph 3 and
the Purchasers' counsel shall have received payment in full for its fees
and expenses incurred in connection with this transaction, simultaneously
with the Closing.
(xiv) ASSET PURCHASE AGREEMENT. The Closing (as defined therein)
shall have been consummated (or shall be consummating concurrently with the
Closing hereunder) under the Asset Purchase Agreement in the form of
EXHIBIT 4A (XIV), without any waivers thereunder.
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(xv) ADVISORY AGREEMENT. The Purchasers shall have received a
fully executed counterpart of the Advisory Agreement, substantially in the
form of EXHIBIT 4A (XV), and the first payment shall have been made to
Electra thereunder.
(xvi) LETTER AGREEMENTS. The Company shall have entered into the
Letter Agreements, substantially in the form of EXHIBIT 4A(XVI), with
George Craig and Neil Topham.
(xvii) EQUITY INVESTMENT. The Investors shall have purchased a
minimum of $5,000,000 of the Common Stock on terms reasonably satisfactory
to the Purchasers.
(xviii) BOARD APPROVAL. The Boards of Directors of the
Purchasers shall have approved the transactions contemplated hereby and by
the Asset Purchase Agreement.
(xix) BUY AND SELL AGREEMENT. The Purchasers shall have received
a fully executed counterpart of the Buy and Sell Agreement substantially in
the form of EXHIBIT 4A(XIX).
4B. COMPANY'S CONDITIONS. The Company's obligation to sell the
Securities to the Purchasers is subject to the satisfaction prior to or at
the Closing of the following conditions:
(i) REPRESENTATIONS AND WARRANTIES; NO DEFAULT. The
representations and warranties of the Purchasers contained in this
Agreement and those otherwise made in writing by or on behalf of the
Purchasers in connection with the transactions contemplated by this
Agreement shall be true in all material respects when made and at the time
of the Closing except to the extent of changes caused by the transactions
contemplated herein.
(ii) PURCHASE PERMITTED BY APPLICABLE LAWS. The purchase of and
payment for the Securities shall not violate any applicable domestic law or
governmental regulation (including, without limitation, section 5 of the
Securities Act).
(iii) APPROVALS AND CONSENTS. The Company shall have duly
received all authorizations, waivers, consents, approvals, licenses,
franchises, permits and certificates (collectively, "CONSENTS") by or of
all federal, state and local governmental authorities and all material
consents by or of all other Persons it deems necessary or advisable for the
issuance of the Securities and the consummation of the transactions
contemplated by the Asset Purchase Agreement and all thereof shall be in
full force and effect at the time of Closing.
-6-
(iv) PROCEEDINGS. All corporate and other proceedings taken or
to be taken in connection with the transactions contemplated hereby and by
the Asset Purchase Agreement, and all documents incident thereto shall be
reasonably satisfactory in form and substance to the Company and its
counsel, and the Company and its counsel shall have received all such
counterpart originals or certified or other copies of such documents as the
Company or its counsel may reasonably request.
(v) AGREEMENTS WITH PURCHASERS. The Company shall have entered
into the Shareholders' Agreement, in form and substance satisfactory to the
Company.
(vi) EQUITY INVESTMENT. The Company shall have completed its
sale of not less than $5,000,000 of the Common Stock to the Investors on
terms satisfactory to the Company.
(vii) ASSET PURCHASE AGREEMENT. The Closing (as defined therein)
shall have been consummated under the Asset Purchase Agreement, or be
consummating concurrently with the Closing under this Agreement.
(viii) SENIOR DEBT. The Company shall have consummated or be
consummating simultaneously with the Closing the senior debt facility as
set forth in the Loan Agreement, which shall be in form and substance
reasonably satisfactory to the Company.
5. PREPAYMENTS AND PURCHASE OF NOTES. The Notes shall be
subject to prepayment with respect to the required prepayments specified in
paragraph 5A and also under the circumstances set forth in paragraph 5B.
Any such prepayment shall be at a price equal to 100% of the principal
amount of the Notes being prepaid, together with all accrued and unpaid
interest thereon to the date of such prepayment (the "PURCHASE PRICE").
5A. REQUIRED PREPAYMENTS. The Notes shall, at the option of the
holders thereof and upon written notice by such holders, become immediately
due and payable upon the occurrence of (i) a Change of Control or (ii) an
Initial Public Offering. Upon the occurrence of a Change of Control or an
Initial Public Offering and receipt of written notice, the Company will pay
to each such holder an amount in cash equal to the Purchase Price by
transferring immediately available funds to such bank and account therein
as shall be designated by such holders, against delivery of the Notes being
prepaid.
5B. OPTIONAL PREPAYMENT. Subject to the provisions of the Loan
Agreement, the Notes shall be subject to prepayment, without penalty in
whole at any time or from time to time in part (and, if in part, only in
integral multiples of $500,000), at the option of the Company, by paying to
each holder an amount in cash equal to the Purchase Price for the amount of
-7-
the Notes being prepaid by transferring immediately available funds to such
bank and account therein as shall be designated by such holders, against
delivery of the Notes being prepaid.
5C. NOTICE OF OPTIONAL PREPAYMENTS. The Company shall give each
holder of the Notes written notice of any prepayment pursuant to paragraph
5B (the "PREPAYMENT NOTICE") not less than 30 Business Days prior to the
prepayment date, specifying such prepayment date and the principal amount
of the Notes to be prepaid on such date. Notice of prepayment having been
given as aforesaid, the Purchase Price for the Notes specified in such
notice shall become due and payable on such prepayment date.
5D. PARTIAL PREPAYMENT PRO RATA. Upon any partial prepayment of
Notes, the principal amount so prepaid shall be allocated to all Notes at
the time outstanding in proportion to the respective outstanding principal
amounts thereof.
5E. RETIREMENT OF NOTES. Without the prior written consent of
the Purchasers, the Company will not, and will not permit any of its
Subsidiaries or Affiliates to, purchase, redeem or otherwise acquire any
Note except upon the payment or prepayment thereof in accordance with the
terms of this Agreement and such Note.
6. AFFIRMATIVE COVENANTS. The Company covenants that from and
after the date of this Agreement through the Closing and thereafter so long
as any Notes or Warrants remain outstanding, except that, the covenant set
forth in paragraph 6C hereof shall be extinguished upon payment in full of
the Notes, (it being understood, that following the occurrence of an
Initial Public Offering and the payment in full of the Notes, the Company
may request that the holders of the Securities at that time permanently
waive (in compliance with paragraph 14C) compliance with some or all of the
Company's covenants set forth in this paragraph 6):
6A. FINANCIAL STATEMENTS AND OTHER REPORTS. The Company will
deliver, or cause to be delivered to the Purchasers or any Transferee:
(i) as soon as practicable prior to the beginning of each fiscal
year and in any event promptly after approval thereof by the Company's
Board of Directors, monthly budgets prepared on an annual basis, in
reasonable detail and reasonably satisfactory in form and scope to the
Purchasers;
(ii) as soon as practicable and in any event within 30 days after
the end of each fiscal month of the Company (other than the last month
of each fiscal quarter), unaudited consolidated statements of income
and cash flow of the Company and its Subsidiaries, in summary form
without footnotes, for such month and for the period from the
-8-
beginning of the current fiscal year to the end of such month and a
consolidated balance sheet of the Company and its Subsidiaries as at
the end of such month, setting forth, in each case, in comparative
form, figures for the corresponding month and period in the preceding
fiscal year and the budget for such month and for the period from the
beginning of the current fiscal year to the end of such month, all in
reasonable detail and reasonably satisfactory in form and scope to the
Purchasers;
(iii) From and after the date upon which the Company has
completed an initial public offering of its Common Stock or any other
Capital Stock, or if the Company prepares such statements in the
ordinary course, as soon as practicable and in any event within 45
days after the end of each fiscal quarter of the Company, unaudited
consolidated statements of income and cash flow of the Company and its
Subsidiaries for such quarter and for the period from the current
fiscal year to the end of such quarter and an unaudited consolidated
balance sheet of the Company and its Subsidiaries as at the end of
such quarter, setting forth, in each case, in comparative form,
figures for the corresponding quarters in the preceding fiscal year,
all in reasonable detail and satisfactory in form and scope to the
Purchasers, and certified by an authorized financial officer or member
of the Board of Directors of the Company as fairly presenting in all
material respects the financial condition and results of operations of
the Company and its Subsidiaries on a consolidated basis in accordance
with generally accepted accounting principles, subject to changes
resulting from year-end adjustments;
(iv) as soon as practicable and in any event within 90 days after
the end of each fiscal year, consolidating and consolidated statements
of income and cash flow of the Company and its Subsidiaries for such
year, and consolidating and consolidated balance sheets of the Company
and its Subsidiaries as at the end of such year, setting forth, in
each case, in comparative form, corresponding figures from the
preceding fiscal year, all in reasonable detail and reasonably
satisfactory in form and scope to the Purchasers, and, as to the
consolidated statements, reported upon by independent public
accountants of recognized standing whose report shall be in scope and
form reasonably satisfactory to the Purchasers and, as to the
consolidating statements, certified by an authorized financial officer
or member of the Board of Directors of the Company;
(v) promptly upon transmission thereof, copies of all such
financial statements, proxy statements, notices, reports and other
information as it shall send to all of its security holders and
holders of Senior Debt and copies of all reports and all registration
statements (without exhibits) which it files with the Commission, and,
promptly upon release thereof, copies of all press releases;
-9-
(vi) promptly upon receipt thereof, a copy of each other report
submitted to the Board of Directors of the Company or of any
Subsidiary of the Company and each management letter submitted to the
Company by independent accountants in connection with any annual,
interim or special audit of the books of the Company or any of its
Subsidiaries made by such accountants, or any other reports prepared
by such accountants.
(vii) together with each delivery of financial statements
required by clauses (iii) and (iv) above, an Officers' Certificate of
the Company stating that the signers have reviewed the terms of this
Agreement and the Securities and have made, or caused to be made under
their supervision, a review in reasonable detail of the transactions
and condition of the Company and its Subsidiaries during the fiscal
period covered by such financial statements and that such review has
not disclosed the existence during or at the end of such fiscal
period, and that the signers do not have knowledge of the existence,
as at the date of the Officers' Certificate, of any condition or event
which constitutes a Default or Event of Default or, if any such
condition or event existed or exists, specifying the nature and period
of existence thereof and what action the Company has taken or is
taking or proposes to take with respect thereto, excluding, however,
(y) matters which have been rectified within permitted cure periods
and (x) matters not having, in the reasonable, good faith opinion of
management of the Company, a material adverse effect on the business,
condition (financial or otherwise), assets, properties, or operations
or prospects of the Company and its Subsidiaries, taken as a whole;
(viii) together with each delivery of consolidated financial
statements required by clause (iv) above, a report of the independent
public accountants giving the opinion thereon, but only if, in making
the audit of such financial statements, such accountants have obtained
knowledge of any Event of Default or Default, specifying in such
report the nature and period of existence thereof; PROVIDED, that such
accountants shall not be liable to anyone by reason of their failure
to obtain knowledge of any Event of Default or Default which would not
be disclosed in the course of an audit conducted in accordance with
generally accepted auditing standards;
(ix) promptly upon any Responsible Officer of the Company
obtaining knowledge (a) of any condition or event which constitutes a
Default or Event of Default, (b) of any condition or event which, in
the opinion of management of the Company would have a material adverse
effect on the business, condition (financial or other), assets,
properties or operations or prospects of the Company and its
Subsidiaries, taken as a whole, other than conditions or events
applicable to the economy as a whole or to any industry in which the
-10-
Company and its Subsidiaries are engaged, (c) that any Person has
given any notice to the Company or any Subsidiary of the Company or
taken any other adverse action against the Company with respect to a
claimed Default or event or condition of the type referred to in
clause (ii) of paragraph 9A or (d) of the institution of any
litigation involving claims against the Company or any of its
Subsidiaries, unless such litigation is defended by the insurance
carrier without any reservation of rights and is reasonably expected
to be fully covered by a creditworthy insurer, in an amount equal to
or greater than $500,000 with respect to any single cause of action or
of any adverse determination in any litigation involving a potential
liability to the Company or any of its Subsidiaries equal to or
greater than $500,000 with respect to any single cause of action, an
Officers' Certificate specifying the nature and period of existence of
any such condition or event, or specifying the notice given or action
taken by such holder or Person and the nature of such claimed Default,
Event of Default, event or condition, and what action the Company has
taken, is taking or proposes to take with respect thereto;
(x) promptly upon any Responsible Officer of the Company or any
of its ERISA Affiliates becoming aware of the occurrence of (i) any
"reportable event," as such term is defined in section 4043 of ERISA,
in connection with any Plan subject to Title IV of ERISA or section
412 of the Code or trust, insurance contract or other funding
arrangement maintained or created thereunder or an event requiring the
Company or any ERISA Affiliate to provide security to a Plan under
section 401(a)(29) of the Code or (ii) any "prohibited transaction,"
as such term is defined in section 4975 of the Code or in section 406
of ERISA in connection with any Plan or any trust, insurance contract
or other funding arrangement maintained or created thereunder, or in
connection with any Welfare Plan or Multiemployer Plan or (iii) the
institution of proceedings or the taking or expected taking of action
by the PBGC or the Company or any of its ERISA Affiliates to terminate
or withdraw or partially withdraw, in connection with any Plan subject
to Title IV of ERISA or section 412 of the Code or any Multiemployer
Plan or any trust, insurance contract or other funding arrangement
maintained or created thereunder, a written notice specifying the
nature thereof, what action the Company or any such Subsidiary has
taken, is taking or proposes to take with respect thereto, and, when
known, any action taken or threatened by the Internal Revenue Service
or the PBGC with respect thereto;
(xi) promptly upon any material revision to the budgets referred
to in clause (i) above, such monthly budgets, as revised; and
(xii) with reasonable promptness, such other information and data
with respect to the Company or any of its Subsidiaries as the
Purchasers may reasonably request.
-11-
6B. INSPECTION OF PROPERTY. The Company will permit any Person
designated by the Purchasers to visit and inspect any of the properties of
the Company and its Subsidiaries, to examine the books and financial
records of the Company and its Subsidiaries and make copies thereof or
extracts therefrom and to discuss its affairs, finances and accounts with
its officers and its independent public accountants, all at reasonable
times and upon reasonable prior notice to the Company. Any such inspection
shall be in the presence of an officer of the Company, unless an officer is
unavailable for such purpose. The Company may exclude matters with respect
to Persons other than the Purchasers subject to attorney-client privilege,
and access to matters with respect to Persons other than the Purchasers
involving trade secrets or other confidential information will be subject
to execution of an appropriate confidentiality agreement.
6C. COVENANT TO SECURE NOTES EQUALLY. The Company will, if it
or any Subsidiary of the Company shall create or assume any Lien upon any
of its property or assets, whether now owned or hereafter acquired, other
than Liens permitted by the provisions of paragraph 7D (unless prior
written consent to the creation or assumption thereof shall have been
obtained pursuant to paragraph 14C), make or cause to be made effective
provision whereby the Notes will be secured by such Lien equally and
ratably with any and all other Debt thereby secured as long as any such
other Debt shall be so secured; PROVIDED that such security shall not in
any way alter the rights under paragraph 8 of the holders of Senior Debt.
6D. MAINTENANCE OF PROPERTIES; INSURANCE. The Company and its
Subsidiaries will maintain or cause to be maintained in good repair,
working order and condition all properties used or useful in the business
of the Company and its Subsidiaries and from time to time will make or
cause to be made all appropriate repairs, renewals and replacements thereof
necessary for the business to be properly and advantageously conducted at
all times in accordance with prudent business management. The Company and
its Subsidiaries will maintain or cause to be maintained, with financially
sound and reputable insurers (or, as to workers, compensation or similar
insurance, in an insurance fund or by self-insurance authorized by the laws
of the jurisdiction in question), insurance with respect to their
respective properties and businesses against loss or damage of the kinds
customarily insured against by corporations of established reputation
engaged in the same or similar businesses and similarly situated, of such
type and in such amounts as are customarily carried under similar
circumstances by such other corporations and as are in good faith believed
by the Company to be sufficient to prevent the Company or a Subsidiary from
becoming a co-insurer within the terms of the policies in question.
6E. CORPORATE EXISTENCE, ETC. The Company and each of its
Subsidiaries will at all times preserve and keep in full force and effect
its corporate existence, and rights, licenses and franchises material to
-12-
its business, and will qualify to do business in any jurisdiction where the
failure to do so would have a material adverse effect on the business,
condition (financial or other), assets, properties or operations of the
Company and its Subsidiaries, taken as a whole. Notwithstanding the
foregoing, a Subsidiary may be merged or consolidated into the Company,
PROVIDED, HOWEVER, that the Company is the surviving entity, and a
Subsidiary may sell or otherwise dispose of its assets to the Company, and
may dissolve if its assets will be transferred to the Company.
6F. PAYMENT OF TAXES, CLAIMS AND SENIOR DEBT. The Company and
each of its Subsidiaries will pay all taxes, assessments and other
governmental charges imposed upon them or any of their respective
properties or assets or in respect of any of their respective franchises,
business income or properties before any penalty or significant interest
accrues thereon, and all claims (including, without limitation, claims for
labor, services, materials and supplies) for sums which have become due and
payable and which by law have or may become a Lien upon any of its
properties or assets, PROVIDED that no such charge or claim need be paid if
being contested in good faith by appropriate proceedings promptly
instituted and diligently conducted and if such accrual or other
appropriate provision, if any, as shall be required by generally accepted
accounting principles shall have been made therefor. The Company will duly
and punctually pay when due all payments required to be made under and
pursuant to the Senior Debt.
6G. COMPLIANCE WITH LAWS, ETC. The Company will, and will cause
each of its Subsidiaries to, comply with the requirements of all applicable
laws, rules, regulations, and orders of any court or other governmental
authority (including, without limitation, those related to environmental or
ERISA compliance), noncompliance with which would be reasonably likely to
materially adversely affect the business, condition (financial or other),
assets, property, operations or prospects of the Company and its
Subsidiaries taken as a whole.
6H. ATTENDANCE AT BOARD MEETINGS; BOARD MEMBERS. The Purchasers
shall have such rights and the Company shall have such obligations with
respect to members nominated and elected to the Company's Board of
Directors and attendance at meetings of the Company's Board of Directors as
are set forth in section 2 of the Shareholders' Agreement.
6I. SECURITIES FILINGS. To the extent required, the Company
will, and will cause each of its Subsidiaries to, (i) comply, in all
material respects, with the reporting requirements of the Exchange Act and
(ii) comply, in all material respects, with all other public information
reporting requirements of the Commission that are a condition to the
availability of an exemption from the Securities Act (under Rule 144 and
Rule 144A thereof, as amended from time to time, or successor rules thereto
-13-
or otherwise) for the sale of Common Stock by the Purchasers. The Company
will cooperate with the Purchasers in supplying such information as may be
necessary for the Purchasers to complete and file any information reporting
forms presently or hereafter required by the Commission as a condition to
the availability of an exemption from the Securities Act (under Rule 144
and Rule 144A thereof or otherwise) for the sale of Common Stock by the
Purchasers.
6J. PAYMENTS BY SUBSIDIARIES. To the extent any Subsidiaries
are created or established, the Company will cause each Subsidiary to
declare and pay cash dividends and other cash distributions or make loans
to the Company as needed to enable the Company to make payments required to
be made under and pursuant to any outstanding Notes, including payments of
principal, premium, if any, and interest, in a timely manner, subject,
however, to restrictions of corporate law and restrictions imposed by the
Senior Debt.
6K. RESERVATION OF SHARES. The Company will reserve and keep
reserved at all times sufficient shares of its Common Stock for issuance
upon exercise of the Warrants (other than Penalty Warrants) and, upon such
exercise, the Company will promptly issue and deliver the shares required
to be delivered and an opinion of counsel, reasonably acceptable to the
Purchasers, to the effect that such shares, when issued and delivered, will
be validly issued, fully paid and nonassessable. At such time as the
Purchasers may reasonably request, the Company shall take all action
necessary to enable it to issue the Penalty Warrants.
6L. HART-SCOTT FILINGS. From time to time, at the request of
the Purchasers, the Company or its "ultimate parent" (as defined in the
Hart-Scott Act) will promptly prepare and file, or cause to be prepared and
filed, any notification or response to any request for additional
information required to be filed under the Hart-Scott Act and the rules and
regulations promulgated thereunder with respect to the acquisition, from
time to time, of shares of Common Stock by the Purchasers, including,
without limitation, upon exercise of any of the Warrants, preemptive
rights, rights of first offer or otherwise.
6M. USE OF PROCEEDS. The Company will use the proceeds from the
sale and issuance of the Notes solely to fund the acquisition of the assets
of FBS pursuant to the Asset Purchase Agreement and transaction costs
incurred by the Company in connection therewith.
6N. MANAGEMENT. The Company will continue the employment of
Leslie E. Dietzman upon terms satisfactory to the Purchasers, or if such
employment is not continued, his replacement shall be reasonably acceptable
to the Purchasers.
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6O. CONSENT TO TRANSFER BY BANK OF SCOTLAND. During the period
that the Notes are outstanding, the Company agrees that, before giving
approval to a transfer by the Bank of Scotland under Section 12.4(d) of the
Loan Agreement, the Company will (i) give the Purchasers written notice of
its intent to approve such a transfer and (ii) discuss the matter with the
Purchasers for a period of up to 30 days following receipt by the
Purchasers of such notice. After the expiration of such period, the
Company may act or not act on such matter as the Company may determine in
its sole and absolute discretion.
7. NEGATIVE COVENANTS. The provisions of this paragraph 7
shall remain in effect (x) so long as any Notes shall remain outstanding
and (y) in the case of paragraphs 7A(i), 7A (ii), 7B, 7C, 7D, 7E, 7F,
7G(b), 7H, 7I, 7K, 7N and 7P, so long as any Warrants shall remain
outstanding.
7A. FINANCIAL COVENANTS. The Company shall comply, and shall
cause each of its Subsidiaries to comply, in all respects with each of the
following covenants:
(i) TANGIBLE NET WORTH. The Company will not permit the
sum of (x) the consolidated Tangible Net Worth of the Consolidated
Group on the last day of any calendar quarter, plus (y) the aggregate
principal amount of the Debt to the Purchasers incurred pursuant to
this Agreement outstanding on the last day of such calendar quarter,
to be less than $1,425,000 on the last day of any calendar quarter in
Fiscal Year 1995 or Fiscal Year 1996 or less than $3,800,000 on the
last day of any calendar quarter in Fiscal Year 1997 or thereafter.
(ii) DEBT: NET WORTH RATIO. The Company will not permit
the ratio of (x) Long-Term Debt of the Consolidated Group (including,
without limitation, all Indebtedness for Borrowed Money of the
Consolidated Group) on the last day of any calendar quarter to (y) the
sum of (i) its Tangible Net Worth on the last day of such calendar
quarter and (ii) the aggregate principal amount of the Debt to the
Purchasers incurred pursuant to this Agreement outstanding on the last
day of such calendar quarter, to exceed 3.68:1 on the last day of any
calendar quarter in Fiscal Year 1995 or Fiscal Year 1996 or 2.10:1 on
the last day of any calendar quarter in Fiscal Year 1997 or
thereafter. For purposes of this paragraph 7A(ii), "Long-Term Debt of
the Consolidated Group" shall not include the principal amount of
outstanding Debt to the Purchasers incurred pursuant to this
Agreement.
(iii) INTEREST COVERAGE RATIO. (a) Borrower will not
permit the Interest Coverage Ratio of the Consolidated Group for the
8-month period ending on June 30, 1995 or the 11-month period ending
on September 30, 1995 to be less than 2.61:1.
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(b) Borrower will not permit the Interest Coverage Ratio of
the Consolidated Group for any Four-Quarter Period ending on any date
during the Fiscal Year specified in the first column below to be less
than the ratio set forth alongside such Fiscal Year in the second
column below:
FISCAL YEAR RATIO
----------- -----
1996 2.61:1
1997 2.61:1
1998 3.33:1
1999 and each Fiscal Year thereafter 4.75:1
(c) For purposes of computations under paragraphs 7A(iii)(a),
7A(iv) (a), 7A(v) (a), the required ratios shall be computed as if the
financial statements of FBS for the period from the Acquisition
Effectiveness Date through the Closing Date were the financial
statements of the Company for such relevant period (except that, in
connection with any relevant computation of liabilities for the period
from the Acquisition Effectiveness Date through the Closing Date, any
liabilities not assumed by the Company pursuant to the acquisition of
assets of FBS pursuant to the Asset Purchase Agreement shall be
excluded).
(iv) FUNDED DEBT: CASH FLOW. (a) The Company will not permit
the ratio of (x) Long-Term Debt of the Consolidated Group to (y)
EBITDA of the Consolidated Group for the 8-month period ending on June
30, 1995 or the 11-month period ending on September 30, 1995 to exceed
2.36:1. For purposes of this paragraph 7A(iv)(a) and 7A(iv)(b), "Long-
Term Debt of the Consolidated Group" shall not include the principal
amount of outstanding Debt to the Purchasers incurred pursuant to this
Agreement.
(b) Borrower will not permit the ratio of (x) Long Term Debt of
the Consolidated Group to (y) EBITDA of the Consolidated Group for any
Four-Quarter Period ending on any date during the Fiscal Year
specified in the first column below to exceed the ratio set forth
alongside such Fiscal Year in the second Column below:
-16-
FISCAL YEAR RATIO
----------- -----
1995 2.36:1
1996 2.36:1
1997 2.36:1
1998 2.10:1
1999 and each Fiscal Year thereafter 1.58:1
(v) FIXED CHARGE COVERAGE RATIO. (a) The Company will not
permit the Fixed Charge Coverage Ratio of the Consolidated Group for
the 8-month period ending on June 30, 1995 or the 11-month period
ending on September 30, 1995 to be less than 1.66:1.
(b) The Company will not permit the Fixed Charge Coverage Ratio
of the Consolidated Group for any Four-Quarter Period ending on any
date during the Fiscal Year specified in the first column below to be
less than the ratio set forth alongside such Fiscal Year in the second
column below:
FISCAL YEAR RATIO
----------- -----
1995 1.66:1
1996 1.66:1
1997 1.66:1
1998 1.43:1
1999 and each Fiscal Year thereafter 1.90:1
(vi) ASSETS: FUNDED DEBT. The Company will not permit the ratio
of (x) the Tangible Assets of the Consolidated Group to (y) the Long-
Term Debt of the Consolidated Group to be less than 1.66:1 on the last
day of any calendar quarter. For purposes of this Section 7A(vi),
"Long-Term Debt of the Consolidated Group" shall not include the
principal amount of outstanding Debt to the Purchasers incurred
pursuant to this Agreement.
7B. RESTRICTIONS ON DEBT. The Company will not, and will not
permit any Subsidiary to, create, assume or incur, or become or at any time
be liable in respect of, any Debt, except:
-17-
(i) Senior Debt and Debt to the Purchasers incurred pursuant to
this Agreement;
(ii) Current Liabilities for accounts payable which constitute
Debt, which accounts payable were incurred or assumed in the ordinary
course of business, the amount or validity of which are currently
being contested by the Company in good faith by appropriate
proceedings diligently prosecuted and as to which an adequate reserve
is maintained on the books of the Company in accordance with generally
accepted accounting principles; and other Current Liabilities for
accounts payable which constitute Debt, which accounts payable were
incurred or assumed in the ordinary course of business and are not
considered more then 60 days past due under customary trade practices,
in an aggregate amount outstanding at any time not to exceed $500,000;
(iii) Liabilities for taxes, assessments or governmental charges
or claims the payment of which is not at the time required by
paragraph 6F;
(iv) Debt secured by Liens permitted pursuant to paragraph 7D;
(v) Indebtedness existing on the Closing Date and obligations
under Contracts (as defined in paragraph 10Q) existing on the Closing
Date, in each case as listed on SCHEDULE 7B to this Agreement;
(vi) The Company's obligations under the IFA Lease, PROVIDED that
such obligations do not exceed $2.6 million on a capitalized basis
(net of interest expenses) over the term of the IFA Lease, and that
there shall be no increase in the annual financial amount of the
Company's obligations thereunder from those in effect on the Closing
Date, except as may be permitted by the Purchasers;
(vii) The Company's obligations under the Andersen Agreement,
provided that there shall be no increase in the annual financial
amount of the Company's obligations thereunder from those in effect on
the Closing Date, except as may be permitted by the Purchasers;
(viii) The unpaid purchase price for one or more retail outlets
similar to the Stores (a "SIMILAR STORE"); PROVIDED that such
acquisition was permitted by the terms of this Agreement and the
aggregate amount of such purchase prices at any time remaining unpaid
does not exceed $1,000,000;
(ix) obligations not in excess of $100,000 incurred in connection
with the lease of miscellaneous office furniture and equipment and
secured by the Liens specified in paragraph 7D(x) hereof;
-18-
(x) Debt at any one time outstanding not in excess of
$1,000,000, reduced by the amount of Debt permitted by clause (viii)
above, PROVIDED that no portion thereof is secured;
(xi) Debt associated with the purchase of Warrants or Capital
Stock from the Purchasers or their transferees; and
(xii) Obligations under the Asset Purchase Agreement in existence
on the Closing Date.
Notwithstanding the foregoing provisions of this paragraph 7E,
the Company will not create, assume or incur, or become or at any time be
liable in respect of, any Debt (other than Senior Debt) for money borrowed,
advances made or goods purchased, if the lender of such money or the Person
making such advances or the vendor of such goods (or any Person who
guarantees or becomes surety for all or any part of such Debt or acquires
any right or incurs any obligation to become, either immediately or upon
the occurrence of some future contingency, the owner of all or any part
thereof) shall have any right, by reason of any statute or otherwise, to
have any claim in respect of such Debt first satisfied out of the general
assets of the Company in priority to the claims of its general creditors,
except as permitted in paragraph 7D.
7C. RESTRICTIONS ON SALES, MERGERS AND CONSOLIDATIONS. The
Company will not, and will not permit any Subsidiary to: (i) lease its
properties (or any of its divisions or businesses) substantially as an
entirety to any Person; (ii) consolidate or merge with any other Person;
(iii) liquidate, wind up or dissolve (or suffer any liquidation or
dissolution); nor (iv) convey, sell, transfer, or otherwise dispose of, in
any one transaction or series of transactions over a period of twelve
months or less, any Substantial Part of the assets of the Company;
PROVIDED, HOWEVER, that the Company may consolidate or merge with another
Person so long as (A) the Company is the surviving entity in any merger or
consolidation, (B) the Company is in compliance with all of its covenants
and agreements in this Agreement after giving effect to such merger or
consolidation, and (C) such merger or consolidation is for cash or cash
equivalents which do not exceed $500,000 for any such merger or
consolidation. Notwithstanding anything in subsection (C) hereof, the
aggregate expenditures under such subsection will not exceed $2,000,000 in
any one year.
7D. RESTRICTIONS ON LIENS. Except as hereinafter in this
paragraph 7D expressly provided, the Company will not, and will not permit
any Subsidiary to create, assume, incur or suffer to be created, assumed or
incurred or to exist any Lien in respect of any property of any character
of the Company, whether owned on the date hereof or hereafter acquired;
excluding, however, from the operation of this paragraph:
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(i) Liens for taxes, assessments or governmental charges or
claims the payment of which is not at the time required by paragraph
6F;
(ii) Statutory Liens of landlords and Liens of carriers,
warehousemen, mechanics, materialmen and other Liens imposed by law
incurred in the ordinary course of business for sums not yet
delinquent or for sums being contested in good faith, if such reserve
or other appropriate provision, if any, as shall be required by
generally accepted accounting principles shall have been made
therefor;
(iii) Liens (other than any Lien imposed by ERISA) incurred or
deposits made in the ordinary course of business in connection with
workers' compensation, unemployment insurance and other types of
social security, or to secure the performance of tenders, statutory
obligations, surety and appeal bonds, bids, leases, government
contracts, performance and return-of-money bonds (including
performance bonds relating to equipment purchase contracts) and other
similar obligations;
(iv) Any attachment or judgment Lien, unless the judgment it
secures shall not, within 75 days after the entry thereof, have been
discharged or execution thereof stayed pending appeal, or shall not
have been discharged within 75 days after the expiration of any such
stay;
(v) Easements, rights-of-way, restrictions and other similar
charges or encumbrances not interfering with the ordinary conduct of
the business of the Company;
(vi) Liens arising from (i) the giving simultaneously with or
within one hundred eighty (180) days after the latest to occur of the
acquisition, completion of construction or placement in service of
tangible personal property, of any purchase money Lien (including
vendor's rights under an agreement whereby title is retained for the
purpose of securing the purchase price thereof including Capitalized
Lease Obligations) on tangible personal property hereafter acquired or
constructed and not heretofore owned by the Company or any Subsidiary,
(ii) the acquiring hereafter of tangible personal property not
heretofore owned by the Company subject to any then existing Lien
(whether or not assumed); PROVIDED, HOWEVER, that in each case (x)
such Lien is limited to such acquired or constructed tangible personal
property, and (y) the principal amount of the Debt secured by each
such Lien, together (without duplication) with the principal amount of
all other Debt secured by Liens on such property, shall not exceed the
cost (which shall be deemed to include the amount of Debt secured by
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Liens, including existing Liens, on such property) of such property to
the Company or such Subsidiary; and PROVIDED, FURTHER, that the
aggregate amount of Debt incurred in any fiscal year that is secured
by all such Liens shall not exceed $1,000,000 in the aggregate;
(vii) Liens securing Senior Debt;
(viii) Liens existing on the Closing Date and described on
SCHEDULE 7D to this Agreement, and replacements and substitutions of
such items arising in the ordinary course of business of the Company;
(ix) Liens on equipment furnished pursuant to the IFA Lease as
security for the obligations of the Company under such lease;
(x) Liens on miscellaneous office furniture and equipment
incurred in connection with the lease thereof; PROVIDED that the
aggregate amount of obligations secured by such Liens does not exceed
$100,000 at any one time; and
(xi) Liens, if any, which may arise as a result of the
noncompliance by the Company and FBS, in accordance with the Asset
Purchase Agreement, with state laws relating to the transfer in bulk
of assets, such as bulk sales act laws and similar statutory and
common law provisions ("BULK SALES LAWS").
The Company will not sign or file in any state or other
jurisdiction a financing statement under the Uniform Commercial Code which
names the Company as debtor, or sign any security agreement authorizing any
secured party thereunder to file, any such financing statement, if the
financing statement would perfect or protect a security interest which the
Company is not entitled to create, assume or incur or permit to exist under
the foregoing provisions of this paragraph.
7E. RESTRICTIONS ON DIVIDENDS. The Company will not pay any
dividends, in cash or otherwise, or make any distributions, to its
shareholders, or purchase, redeem or otherwise acquire any of its
outstanding Capital Stock, or set apart assets for a sinking or other
analogous fund for the purchase, redemption, retirement or other
acquisition of, any shares of its Capital Stock; PROVIDED, HOWEVER, that
the Company may, so long as at the time of and after giving effect thereof
no Default or Event of Default has occurred and is continuing:
(i) repurchase shares of its Common Stock issued or to be issued by the
Company upon exercise of stock options granted to employees and directors
of the Company pursuant to the terms of plans adopted by the Board of
Directors of the Company; (ii) repurchase shares of its Common Stock
pursuant to the Buy and Sell Agreement; and (iii) pay cash in lieu of
fractional shares of its Common Stock on exercise of outstanding warrants
to purchase its Common Stock, pursuant to the terms of such warrants.
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7F. RESTRICTIONS ON TRANSACTIONS WITH CERTAIN PARTIES. The
Company will not, and will not permit any Subsidiary to, make any loans or
advances to any of its officers, directors, shareholders or Affiliates,
other than: (i) expense advances made by the Company or such Subsidiary to
its officers and employees in the ordinary course of business; (ii) long-
term loans to its officers and directors in an aggregate principal amount
outstanding at any time not to exceed $600,000, for the purchase of the
Company's Common Stock upon Closing; and (iii) other loans and advances to
officers of the Company or such Subsidiary in an aggregate principal amount
outstanding at any time not to exceed $10,000 and with terms not to exceed
90 days. The Company will not, and will not permit any Subsidiary to,
engage in any transactions with Affiliates other than in the ordinary
course of business and on terms no less favorable to the Company or such
Subsidiary than those obtainable from unaffiliated third parties. The
Purchasers acknowledge and consent to the arrangements expressly
contemplated hereunder, including the agreements described in paragraph
4A(xvi), and the arrangements among the Company, Zondervan and
HarperCollins described in the Asset Purchase Agreement.
7G. RESTRICTIONS ON INVESTMENTS AND CAPITAL EXPENDITURES.
7G (a) RESTRICTIONS ON INVESTMENTS. Other than as permitted
pursuant to paragraphs 6M, 7C and 7G(b) hereof, the Company will not
purchase, acquire or agree to purchase or acquire or invest in (by capital
contribution or otherwise) the business, or any debt or equity securities
of, any other Person, PROVIDED, HOWEVER, that the Company may invest its
excess cash in:
(i) securities issued or directly and fully guaranteed or
insured by the United States government or any agency thereof having
maturities of not more than one year from the date of acquisition;
(ii) certificates of deposit or eurodollar certificates of
deposit, having maturities of not more than one hundred eighty days
from the date of acquisition, or one year from the date of acquisition
in the case of certificates of deposit or eurodollar certificates of
deposit being used to secure the Company's reimbursement obligations
under letters of credit (provided that nothing contained herein shall
be construed to permit letters of credit not otherwise permitted under
this Agreement);
(iii) commercial paper of any Person that is not a subsidiary or
an Affiliate of the Company, maturing within one hundred eighty days
after the date of acquisition;
(iv) bank loan participations; and
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(v) money market instruments having maturities of not more than
one hundred eighty days from the date of acquisition or one year from
the date of acquisition in the case of money market instruments being
used to secure the Company's reimbursement obligations under letters
of credit (provided that nothing contained herein shall be construed
to permit letters of credit not otherwise permitted under this
Agreement);
in all cases of such credit quality as a prudent business person would
invest in. Notwithstanding anything else in this Agreement, the Company
will not make an investment in or otherwise acquire an ownership interest
in real property.
7G (b) ADJUSTED CAPITAL EXPENDITURES. The Company will not
make capital expenditures (by Capitalized Lease Obligations or otherwise)
for acquisitions, construction or improvement of fixed assets, or purchase,
lease, open or otherwise acquire or establish any new Store or Similar
store, or permit any of its Subsidiaries so to do, unless, after giving
effect thereto, the aggregate amount of all such capital expenditures made
by the Company and its Subsidiaries during such Fiscal Year (when combined
with the aggregate acquisition price for Stores and Similar Stores
purchased, leased, opened or otherwise acquired during such Fiscal Year as
permitted by this paragraph 7G(b)) would not exceed (x) during the period
from the Acquisition Effectiveness Date through the end of Fiscal Year
1995, $4,500,000 and (y) during any Fiscal Year listed in the first column
below, an amount equal to the sum of (1) the amount set forth opposite such
Fiscal Year in the second column below, plus (2) the Unused Amount:
FISCAL YEAR AMOUNT
----------- ------
1996 $6,000,000
1997 $7,500,000
1998 $8,000,000
1999 $9,000,000
2000 $9,000,000
2001 $9,000,000
2002 $9,000,000
2003 $9,000,000;
PROVIDED THAT for purposes of this paragraph 7G(b):
(i) an amount equal to the present value of any Operating Lease
Obligations (other than Store Leases) entered into by Borrower or a
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Subsidiary on or after the Acquisition Effectiveness Date shall be
deemed to be an Adjusted Capital Expenditure during the Fiscal Year in
which said Operating Lease Obligations were entered into;
(ii) with respect to any Store Lease entered into by the Company
or a Subsidiary on or after the Acquisition Effectiveness Date (other
than renewal leases and Substitute Leases), an amount equal to (x) the
monthly rent payable under such lease multiplied by (y) 12, shall be
deemed to be an Adjusted Capital Expenditure during the Fiscal Year in
which said Store Lease was signed by any such member of the
Consolidated Group;
(iii) expenditures of the Net Proceeds from any sale, transfer or
disposition of Stores permitted by paragraph 7I(e) hereof, which are
used within six months following such sale, transfer or disposition to
purchase Similar Stores, shall not, to the extent of any such proceeds
so used, be considered an Adjusted Capital Expenditure; and
(iv) in computing the Adjusted Capital Expenditure with respect
to any acquisition of a Similar Store, the cost of such Similar Store,
including, without limitation the inventory and receivables (if any)
purchased, shall be included.
As used in this paragraph 7G(b), "UNUSED AMOUNT" shall mean, as to each
Fiscal Year, the amount (but not any amount in excess of $1,000,000), if
any, by which the aggregate amount of Adjusted Capital Expenditures
permitted to be made during the immediately preceding Fiscal Year exceeded
the aggregate amount of Adjusted Capital Expenditures made during such
immediately preceding Fiscal Year.
7H. RESTRICTIONS ON SALE AND LEASE-BACK TRANSACTIONS. The
Company will not sell or transfer any of its properties to anyone with the
intention of taking back a lease of the same property or leasing other
property for substantially the same use as the property being sold or
transferred, except where the aggregate outstanding unpaid amounts with
respect to all such arrangements does not exceed $500,000 at any one time,
and PROVIDED, FURTHER, that subject to paragraph 7A hereof, the Company may
continue and extend its existing leasing arrangements and may lease, under
operating leases, fixtures, equipment and real estate in the ordinary
course of business of the Company.
7I. RESTRICTIONS ON SALES OF ASSETS. The Company will not sell,
transfer or dispose of any property except as permitted under paragraph 7C
and except for (a) Inventory sold in the ordinary course of business, (b)
sales of obsolete Inventory, (c) sales permitted pursuant to paragraph 7H
above, (d) sales of obsolete equipment having a book value at the time of
sale of not more than $50,000 in the aggregate in any fiscal year, and
-24-
(e) the sale of up to five Stores in a single transaction, and up to 10
Stores during a twelve month period, together with the associated
inventory, fixtures, and leases; PROVIDED, that in each such case, such
assets are sold for a price in cash at least equal to their fair market
value (as determined in good faith by the Company's Board of Directors).
7J. RESTRICTIONS ON SUBSIDIARIES. The Company will not, without
the written consent of the Purchasers, organize, or transfer any assets to,
any Subsidiaries, PROVIDED that, if any Subsidiaries are organized, or
assets transferred, in compliance with this paragraph 7J, the Company will
not permit such Subsidiaries to enter into any transaction or agreement
which would violate any of the provisions of this paragraph 7 if such
provisions were applicable to such Subsidiary.
7K. CHANGE IN BUSINESS. The Company will not cause or effect a
Change in Business.
7L. PAYMENT OF NOTES. The Company will not enter into, become a
party to or otherwise become subject to any instrument evidencing or
governing the terms of any Debt or other contract or agreement or any
amendments or modifications of the foregoing, the provisions of which
restrict or limit the Company's ability or obligation to make payments on
the Notes and under this Agreement, except for the Loan Agreement.
7M. NO DEBT SENIOR TO OR PARI PASSU WITH NOTES. Except as
permitted by paragraphs 7B and 7D hereof, the Company will not create,
assume or incur, or become at any time liable in respect of, any Debt,
other than the Bank Debt, which is or purports to be senior in any respect
to, or pari passu with, the Debt represented by the Notes.
7N. NO AMENDMENT OF CHARTER OR BY-LAWS. The Company will not
permit any amendment of or modification to its Articles of Incorporation or
By-Laws which amendment or modification would alter or impair the rights of
any holder of the Notes or the Warrants.
7O. COMPLIANCE WITH ERISA. The Company will not, and will not
permit any of its ERISA Affiliates to:
(i) engage in any transaction that will subject the Company or
any of its Subsidiaries to either a material civil penalty assessed
pursuant to section 502 (i) or (1) of ERISA or a material tax imposed
by section 4975 of the Code;
(ii) terminate or partially terminate any Plan, or withdraw or
partially withdraw from a Multiemployer Plan, in a manner, or take any
other action, which in any case may reasonably be expected to result
in any material liability of the Company or any of its ERISA
Affiliates to the PBGC;
-25-
(iii) fail to make full payment when due of all amounts which,
under the provisions of any Plan, the Company or any of its ERISA
Affiliates is required to pay as contributions thereto under section
302 of ERISA and section 412 of the Code, or permit to exist any
accumulated funding deficiency, whether or not waived, with respect to
any such Plan;
(iv) fail to make full payment when due of all amounts which,
under the provisions of any Multiemployer Plan or collective
bargaining agreement, the Company or any of its ERISA Affiliates is
required to pay as contributions thereto. The Company agrees (x) upon
the request of any Purchaser to obtain a current statement of
withdrawal liability from each Multiemployer Plan to which the Company
or any of its ERISA Affiliates contributes or to which the Company or
any of ERISA Affiliates has an obligation to contribute and (y)
transmit a copy of such statement to each Purchaser, so long as such
Purchaser or such Purchaser's nominee shall be the holder of any
Notes, within 15 days after the Company receives the same;
(v) amend or permit an ERISA Affiliate to amend a Plan resulting
in an increase in current liability for the plan year such that either
the Company or an ERISA Affiliate is required to provide security to
such Plan under section 401(a)(29) of the Code; or
(vi) amend or permit an ERISA Affiliate to amend a Welfare Plan
resulting in an increase in current liability in an amount that is
material to the Company or such ERISA Affiliate for the plan year.
7P. FOREIGN INVESTMENT IN REAL PROPERTY TAX ACT. The Company
will not become a "United States real property holding corporation," as
defined in section 897 of the Code and in applicable regulations
thereunder.
7Q. ISSUANCE OF ADDITIONAL CAPITAL STOCK. The Company covenants
that, without the prior written consent of the Purchasers, except as
contemplated by this Agreement, neither it nor any of its Subsidiaries will
issue any shares of its capital stock or securities convertible into or
exchangeable for, or warrants, options or other rights to acquire, shares
of its or their capital stock, including, without limitation, any
preemptive rights or similar rights to subscribe for shares of capital
stock of the Company, other than the Common Stock to be issued upon the
exercise of the Warrants, and such rights described in Schedule 9C hereto.
8. EVENTS OF DEFAULT.
8A. DEFAULT; ACCELERATION. If any of the following events shall
occur and be continuing for any reason whatsoever (and whether such
-26-
occurrence shall be voluntary or involuntary or come about or be effected
by operation of law or otherwise):
(i) the Company defaults in the payment of any principal or
premium on any Note at its maturity or when otherwise due or in the
payment of any purchase or redemption obligation or in the payment of
interest on any Note when the same shall become due, either by the
terms thereof or otherwise as herein provided and, in the case of
interest, such default shall continue for five days after the same
shall have become due; or
(ii) the Company or any of its Subsidiaries fails to perform or
observe any of its obligations under paragraph ___ hereof; or
(iii) the Company or any of its Subsidiaries defaults in any
payment of principal of or interest on any Debt (excluding trade
payables) in excess of $500,000 for more than 60 days beyond any
period of grace provided with respect thereto and the effect of such
failure is to cause such Debt to become due prior to any stated
maturity; or
(iv) any representation or warranty made in writing by or on
behalf of the Company in this Agreement or in any writing furnished in
connection with or pursuant to this Agreement or in connection with
the transactions contemplated by this Agreement shall be false in any
material respect on the date as of which made; or
(v) the Company fails to perform or observe any agreement
contained in clause (ix) of paragraph 6A, in paragraphs 6C, 6G, 6H,
6J, 6K or 6L, which failure continues for 30 days following notice of
the failure from the Purchasers to the Company; or
(vi) the Company fails to perform or observe any material
agreement contained in the Registration Rights Agreement, the
Warrants, the Advisory Agreement or the Shareholders" Agreement, which
failure continues for 30 days following notice of the failure from the
Purchasers to the Company; or
(vii) the Company fails to perform or observe any other
agreement, term or condition contained in this Agreement, and such
failure shall not have been remedied within 30 days after such failure
shall first have become known to any Responsible Officer of the
Company or written notice thereof shall have been received by the
Company; or
(viii) the Company or any Subsidiary (except for a Subsidiary
which is not material) makes an assignment for the benefit of
-27-
creditors or is generally not paying its debts as such debts become
due; or
(ix) any order or decree for relief in respect of the Company or
any Subsidiary (except for a Subsidiary which is not material) is
entered under any bankruptcy, reorganization, compromise, arrangement,
insolvency, readjustment of debt, dissolution or liquidation or
similar law, whether now or hereafter in effect (herein called the
"BANKRUPTCY LAW"), of any jurisdiction; or
(x) the Company or any of its Subsidiaries (except for a
Subsidiary which is not material) petitions or applies to any tribunal
for, or consents to, the appointment of, or taking possession by, a
trustee, receiver, custodian, liquidator or similar official of the
Company or any of such Subsidiaries, or of any Substantial Part of the
assets of the Company or any of such Subsidiaries, or commences a
voluntary case under the Bankruptcy Law of the United States or any
proceedings (other than proceedings for the voluntary liquidation and
dissolution of a Subsidiary) relating to the Company or any of such
Subsidiaries under the Bankruptcy Law of any other jurisdiction; or
(xi) any petition or application described in clause (x) above is
filed, or any such proceedings are commenced, against the Company or
any of its Subsidiaries (except for a Subsidiary which is not
material) and the Company or such Subsidiary by any act indicates its
approval thereof, consent thereto or acquiescence therein, or an
order, judgment or decree is entered appointing any such trustee,
receiver, custodian, liquidator or similar official, or approving the
petition in any such proceedings, and such order, judgment or decree
remains unstayed and in effect for more than 60 days; or
(xii) any order, judgment or decree is entered in any proceedings
against the Company or any of its Subsidiaries (except for a
Subsidiary which is not material) decreeing the dissolution of the
Company or such Subsidiary and such order, judgment or decree remains
unstayed and in effect for more than 60 days; or
(xiii) any order, judgment or decree is entered in any
proceedings against the Company or any of its Subsidiaries (except for
a Subsidiary which is not material) decreeing a split-up of the
Company or such Subsidiary which requires the divestiture of a
Substantial Part, or the divestiture of the stock of such Subsidiary
of the Company the assets of which constitute a Substantial Part, of
the assets of the Company and its Subsidiaries and such order,
judgment or decree remains unstayed and in effect for more than 60
days; or
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(xiv) a final judgment (not fully covered by insurance and
reasonable deductibles thereunder) in an amount in excess of $500,000
is rendered against the Company or any of its Subsidiaries and, within
10 Business Days after entry thereof, such judgment is not discharged
or execution thereof stayed pending appeal, or within 10 days after
the expiration of any such stay, such judgment is not discharged;
then (a) if such event is an Event of Default specified in clause (ix), (x)
or (xi) of this paragraph 8A, all of the Notes at the time outstanding
shall automatically become due and payable at par, together with interest
accrued thereon; (b) if such event is any other Event of Default, the
Purchasers may, at their option, by notice in writing to the Company,
declare all of the Notes to be, and all of the Notes shall thereupon be and
become, immediately due and payable together with interest accrued thereon,
in each of the cases referred to in clauses (a) and (b) above, without
presentment, demand, protest or other notice of any kind, all of which are
hereby waived by the Company; and (c) in addition to the remedies of the
Purchasers in clause (b) above, if such event is an Event of Default
specified in clause (i) of this paragraph 8A, and, in the case of a default
in the payment of any principal or premium on any Note, such default shall
continue for more than five days after such payment shall have become due,
the Company shall promptly deliver to the Purchasers Penalty Warrants in
accordance with the provisions of paragraph 13C hereof.
8B. RESCISSION OF ACCELERATION. At any time after any or all of
the Notes shall have been declared immediately due and payable pursuant to
paragraph 8A, the holders of a majority of the Notes may, by notice in
writing to the Company, rescind and annul such declaration and its
consequences if (i) the Company shall have paid all overdue interest on the
Notes, the principal of and premium, if any, payable with respect to any
Notes which have become due otherwise than by reason of such declaration,
and interest on such overdue interest and overdue principal and premium at
the rate specified in the Notes, (ii) the Company shall not have paid any
amounts which have become due solely by reason of such declaration, (iii)
all Events of Default and Defaults, other than non-payment of amounts which
have become due solely by reason of such declaration, shall have been cured
or waived pursuant to paragraph 14C, and (iv) no judgment or decree shall
have been entered for the payment of any amounts due pursuant to the Notes
or this Agreement. No such rescission or annulment shall extend to or
affect any subsequent Event of Default or Default or impair any right
arising therefrom.
8C. OTHER REMEDIES. If any Event of Default or Default shall
occur and be continuing, the holder of any Note may proceed to protect and
enforce its rights under this Agreement and such Note by exercising such
remedies as are available to such holder in respect thereof under
applicable law, either by suit in equity or by action at law, or both,
-29-
whether for specific performance of any covenant or other agreement
contained in this Agreement or in aid of the exercise of any power granted
in this Agreement. No remedy conferred in this Agreement upon the holder
of any Note is intended to be exclusive of any other remedy, and each and
every such remedy shall be cumulative and shall be in addition to every
other remedy conferred herein or now or hereafter existing at law or in
equity or by statute or otherwise.
9. REPRESENTATIONS, COVENANTS AND WARRANTIES. The Company
represents, covenants and warrants to the Purchasers as follows:
9A. ORGANIZATION; CORPORATE AUTHORITY. The Company is a
corporation duly organized, validly existing and in good standing under the
laws of its jurisdiction of incorporation and has all requisite corporate
power and authority to own and operate its properties and to carry on its
business. The Company has all requisite corporate power and authority to
enter into and perform all of its obligations under this Agreement and to
issue and sell the Securities (and to issue shares of Common Stock upon the
exercise of the Warrants) as contemplated hereby. The Company is duly
qualified and in good standing as a foreign corporation duly authorized to
do business in each jurisdiction where it is or will be on the Closing Date
required so to qualify, except where the failure so to qualify would not
have a material adverse effect on the business, condition (financial or
other), prospects, assets or properties of the Company. The Company has no
Subsidiaries or any other equity investments in any other entity.
9B. BUSINESS; FINANCIAL STATEMENTS. The Company has furnished
the Purchasers with the following unaudited financial statements: (i) the
divisional income statements and balance sheets of FBS for each of the
fiscal years ended June 30, 1994 and June 30, 1993 and (ii) the interim
income and cash flow statements and balance sheet for FBS for the period
ended September 30, 1993 and September 30, 1994 (the "FINANCIAL
STATEMENTS") . The Financial Statements (i) have been prepared in
conformity with generally accepted accounting principles applied on a
consistent basis (except as described in EXHIBIT F to the Asset Purchase
Agreement) and disclose all liabilities, direct and contingent, required to
be shown in accordance with such principles and (ii) given that they are
divisional statements, present fairly the financial position of FBS at the
dates indicated and results of operations for the periods indicated. The
Financial Statements did not, as of their respective dates, and this
Agreement does not, contain an untrue statement of a material fact or omit
to state a material fact necessary in order to make the statements therein
and herein, in light of the circumstances under which they were made, not
misleading. There is no fact (other than facts related to general economic
conditions) peculiar to the Company or FBS which materially adversely
affects or in the future would reasonably be expected to (so far as the
Company can now foresee) materially adversely affect the business,
-30-
prospects, condition (financial or otherwise) or operations of the Company
or FBS which has not been set forth or reflected in this Agreement.
Neither the Company nor FBS has sustained since June 30, 1993 any loss or
interference with its business from fire, explosion, flood or other
calamity, whether or not covered by insurance, or from any labor dispute or
court or governmental action, order or decree which is material to the
Company or FBS, as the case may be; and, since June 30, 1993, there has not
been any material adverse change, or any development which the Company has
reasonable cause to believe (so far as the Company can now foresee) will
involve a prospective material adverse change, in or effecting the
business, condition (financial or other), assets, properties, operations or
prospects of the Company or FBS.
9C. CAPITAL STOCK AND RELATED MATTERS. As of the Closing (or
other indicated date) and after giving effect to the transactions
contemplated hereby (i) the authorized Capital Stock of the Company will
consist of (a) 60,000 shares of Common Stock, par value $1.00 per share, of
which 30,000 shares will be issued and outstanding at November 14, 1994, no
shares will be held by the Company as treasury stock, no shares will be
reserved for issuance upon the exercise of currently outstanding stock
options, no shares will be reserved for issuance upon the exercise of
authorized stock options that have not been granted, and 11,667 shares will
be reserved for issuance upon the exercise of outstanding Warrants to
purchase Common Stock, (ii) no shares of Common Stock will be owned or held
by or for the account of the Company, (iii) the Company will not have
outstanding any stock or securities convertible into or exchangeable for
any shares of Capital Stock, any rights to subscribe for or to purchase, or
any options for the purchase of, or any agreements providing for the
issuance (contingent or other) of, or any calls, commitments or claims of
any other character relating to the issuance of, any Capital Stock or any
stock or securities convertible into or exchangeable for any Capital Stock
(other than (x) stock options or stock appreciation rights issued pursuant
to the Performance Plan described in SCHEDULE 9C hereto, (y) the Warrants
and (z) subscription rights with respect to any shares not purchased on the
Closing Date as a part of the Company's initial equity offering of up to a
maximum of $6,300,000, including the Common Stock sold on the Closing Date
as described in paragraph 4A(xviii)) and (iv) the Company will not be
subject to any obligation (contingent or other) to repurchase, otherwise
acquire or retire any shares of Capital Stock. The Company has not granted
or agreed to grant any rights relating to the registration of its
securities under applicable federal and state securities laws, including
piggyback rights, except as provided in the Registration Rights Agreement.
9D. LITIGATION. Except as set forth in SCHEDULE 9D, there are
no claims, actions, suits, proceedings, labor disputes or investigations in
process by or against the Company or, to the best knowledge of the Company,
threatened either by a written communication directed to the Company or by
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an oral communication directed to the Company by a stockholder of the
Company, before any federal or state court, arbitrator or governmental
authority by or against the Company which, if adversely determined, may
reasonably be expected to result in any material adverse change in the
business, condition (financial or otherwise), assets, properties,
operations or prospects of the Company or in any liability on the part of
the Company which would be material to the Company or which, to the best
knowledge of the Company, includes a claim against or involving the Company
in excess of $500,000 or which questions the validity or legality of or
seeks damages in connection with this Agreement or any of the transactions
contemplated hereby or any action taken or to be taken pursuant to this
Agreement or any of the transactions contemplated hereby. There are no
outstanding judgments, decrees or orders of any court or governmental
authority against the Company which may reasonably be expected to result in
any material adverse change in the business, condition (financial or
other), assets, properties, operations or prospects of the Company or in
any liability on the part of the Company which would be material to the
Company.
9E. OUTSTANDING DEBT. The Company does not have any outstanding
secured or unsecured Debt or commitments for any Debt except the Bank Debt
and Debt permitted pursuant to paragraph 7B, and there exists no default by
the Company under the provisions of any instrument evidencing such Debt or
of any agreement relating thereto.
9F. TITLE TO PROPERTIES. The Company has good and marketable
title to all of its respective properties and assets, free and clear of all
Liens except Liens permitted by paragraph 7D. The Company enjoys peaceful
and undisturbed possession under all leases necessary in any material
respect for the operation of its properties and businesses, and none of
such leases contain any unusual or burdensome provisions which can be
reasonably expected to materially affect or impair the operation of such
properties and businesses. Except to perfect and protect security
interests of the character permitted by paragraph 7D, at the time of the
Closing (i) no effective financing statement under the Uniform Commercial
Code which names the Company as debtor or lessee will be on file in any
jurisdiction and (ii) the Company will not have signed any effective
financing statement or any effective security agreement authorizing any
secured party thereunder to file any such financing statement.
9G. TAXES. The Company has filed all tax returns required by
law to be filed by it (or obtained valid extensions thereof), and all
taxes, assessments and other governmental charges levied upon the Company
or any of its properties, assets, income or franchises which are due and
payable, other than those presently payable without penalty or interest,
have been paid. There are no tax liens upon any assets of the Company.
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9H. CONFLICTING AGREEMENTS AND OTHER MATTERS. The Company is
not a party to any contract or agreement or subject to any restriction
which materially and adversely affects its business, condition (financial
or otherwise), prospects, assets or properties. Neither the execution or
delivery of this Agreement or the Securities or any of the related
documents nor the offering, issuance and sale of the Securities, nor
fulfillment of or any compliance with the terms and provisions hereof and
thereof, will conflict with, or result in a breach of the terms, conditions
or provisions of, or constitute a default under, or result in any violation
of, or result in the creation of any Lien upon any of the properties or
assets of the Company pursuant to, the charter or By-Laws of the Company,
any award of any arbitrator or any material agreement, instrument, order,
judgment, decree, statute, law, rule or regulation to which the Company, or
any of its respective property or assets is subject, except (i) the Company
will not be obtaining comments to the assignment of all leases and
agreements associated with FBS, as is described in Sections 4.11, 4.14 and
5.1(f) of the Asset Purchase Agreement and (ii) the Company and Zondervan
will be waiving compliance with Bulk Sales Laws. The Company is not a
party to or otherwise subject to any contract or agreement which limits the
amounts of, or otherwise imposes restrictions on the incurring of, Debt of
the type to be evidenced by the Notes or which contains dividend or
redemption limitations on any Capital Stock of the Company, except for this
Agreement and the Loan Agreement.
9I. PATENTS, ETC. All patents, trademarks, service-marks, trade
names, permits, licenses, franchises or other rights (collectively,
"INTANGIBLE RIGHTS") owned or held by the Company that are material to the
business of the Company are described on SCHEDULE 9I hereto. Except as
described on Schedule 9I hereto, all such Intangible Rights are free and
clear of any Lien. Nothing has come to the attention of the Company to the
effect that (i) any activity in operating the business of the Company as
presently conducted by the Company or as proposed to be conducted by the
Company may infringe any patent, trademark, service-mark, trade name,
copyright, permit, license, franchise or other right owned by any other
Person, (ii) there is pending or threatened any claim or litigation against
or affecting the Company contesting its right to carry on such activities
or (iii) there is, or there is pending or proposed, any statute, law, rule,
regulation, standard or code which would prevent or inhibit, or
substantially reduce the projected revenues of, or otherwise adversely
affect the business, condition (financial or otherwise) or operations of,
the Company.
9J. OFFERING OF SECURITIES. The Company, has not, directly or
indirectly, offered any of the Securities or any similar security of the
Company, including, without limitation, Common Stock, for sale to, or
solicited any offers to buy any of the Securities or any such security of
the Company from, or otherwise approached or negotiated with respect
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thereto with, any Person or Persons other than the Purchasers and such
number and type of other investors as is permitted under the Securities
Act. Neither the Company nor any agent acting on its behalf has taken or
will take any action which would subject the issuance or sale of any of the
Securities to the provisions of section 5 of the Securities Act or to the
provisions of any securities or Blue Sky law of any applicable
jurisdiction.
9K. BROKER'S OR FINDER'S COMMISSIONS. No broker's or finder's
fee or commission will be payable by the Company with respect to the
issuance and sale of the Securities or the transactions contemplated
hereby.
9L. COMPLIANCE WITH LAW. (a) The Company has not received
notice of, or citation or summons for, and no complaint has been filed, no
penalty has been assessed and no investigation or review is in process or,
to the best knowledge of the Company, threatened by any governmental
authority with respect to, any violation or alleged violation of any law,
regulation, order or other legal requirement, or failure by the Company to
have any permit, certificate, license, approval, registration or
authorization required in connection with the operation of its business,
other than where such violation or failure would not reasonably be expected
to have a material adverse effect on the business, condition (financial or
otherwise), assets, properties, operations or prospects of the Company.
The Company is not in default with respect to any order, writ, judgment,
award, injunction or decree of any federal, state or local court or
governmental or regulatory authority or arbitrator, domestic or foreign,
applicable to or in connection with its business or any of its assets,
properties or operations, other than defaults the consequences of which
would not reasonably be expected to have a material adverse effect on the
business, condition (financial or otherwise), assets, properties,
operations or prospects of the Company.
(b) With respect to the operation of its business, the Company
possesses and is in compliance with all permits, certificates, licenses,
approvals, registrations and authorizations required under all applicable
laws, rules and regulations, all of which are in full force and effect, and
the business has been conducted and is now being conducted in compliance
with all applicable laws, rules, regulations, judgments and orders of the
United States and states, counties, municipalities and agencies thereof,
including, without limitation, laws, rules and regulations relating to
pollution and environmental control, equal employment opportunity, health
and safety and zoning, except with respect to Bulk Sales Laws, and except
for such noncompliance which, individually or in the aggregate, would not
reasonably be expected to have a material adverse effect on the business,
condition (financial or other), assets, properties, operations or prospects
of the Company.
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9M. INVESTMENT COMPANY ACT. The Company is not an "investment
company," or a company "controlled" by an "investment company," within the
meaning of the Investment Company Act of 1940, as amended.
9N. PUBLIC UTILITY HOLDING COMPANY ACT. The Company is not a
"holding company," or a "subsidiary company" of a "holding company," or an
"affiliate" of a "holding company" or of a "subsidiary company" of a
"holding company," as such terms are defined in the Public Utility Holding
Company Act of 1935, as amended.
9O. GOVERNMENTAL CONSENTS, ETC. No consent, approval,
authorization, exemption or other action by, or notice to or filing with,
any court or administrative or governmental body which has not been
obtained, taken or made is required in connection with the execution and
delivery of this Agreement or the consummation of the transactions
contemplated hereby or thereby or fulfillment of or compliance with the
terms and provisions hereof.
9P. COMPLIANCE WITH ERISA. (a) PROHIBITED TRANSACTIONS.
Neither the Company nor any ERISA Affiliate has engaged in a transaction in
connection with which the Company could be subject to a material liability
for either a civil penalty assessed pursuant to section 502 (i) or (1) of
ERISA or a tax imposed by section 4975 of the Code.
(b) PLAN TERMINATION; MATERIAL LIABILITIES. There has been no
termination or partial termination of a Plan or trust, insurance contract
or other funding arrangement maintained or created under any Plan that
would give rise to a material liability to the PBGC on the part of the
Company or an ERISA Affiliate. No material liability to the PBGC has been
or is expected to be incurred with respect to any Plan by the Company or an
ERISA Affiliate. The PBGC has not instituted proceedings to terminate any
Plan with respect to which the Company or an ERISA Affiliate has
liabilities. There exists no condition or set of circumstances which
presents a material risk of termination or partial termination of any Plan
by the PBGC. The Company and each ERISA Affiliate have paid all premiums
to the PBGC when due.
(c) ACCUMULATED FUNDING DEFICIENCY. Full payment has been made
of all amounts which are required under the terms of each Plan to have been
paid or accrued as contributions to such Plan as of the last day of the
most recent fiscal year of such Plan ended on or before the date of this
Agreement (except such contributions as have not been made but that can be
timely made at a later date without penalty in accordance with sections 412
and 4971 of the Code), and no accumulated funding deficiency (as defined in
section 302 of ERISA and section 412 of the Code), whether or not waived,
exists with respect to any Plan. Neither the Company nor an ERISA
Affiliate has failed to make a required installment under section 412(m) of
the Code.
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(d) RELATIONSHIP OF BENEFITS TO PENSION PLAN ASSETS. The
current value of the "benefit liabilities" (as defined in section
4001(a)(16) of ERISA) of each Plan subject to Title IV of ERISA and section
412 of the Code does not exceed the fair market value of the assets of such
Plan, except, in the case of Plans established after the date hereof, as
permitted by the applicable funding requirements of Section 412 of the
Code. Neither the Company nor any ERISA Affiliate is required to provide
security to any Plan. No Lien under section 412(n) of the Code or
sections 312(f) or 4068 of ERISA has been or is reasonably expected by the
Company to be imposed on the assets of the Company or any ERISA Affiliate.
(e) COMPLIANCE WITH ERISA. All Plans which are intended to be
"qualified" are "qualified" under section 401(a) of the Code. All Plans
and Welfare Plans contributed to or maintained by the Company or an ERISA
Affiliate have been administered substantially in compliance with ERISA and
the applicable provisions of the Code. There are no pending issues before
the Internal Revenue Service or any court of competent jurisdiction related
to the qualification, or payment of benefits under, any Plan or Welfare
Plan.
(f) EXECUTION OF AGREEMENTS; PURCHASE AND SALE OF SECURITIES,
ETC. The execution and delivery of this Agreement the issue and sale of
the Securities and the consummation of transactions contemplated by this
Agreement will not involve any transaction which is subject to the
prohibitions of section 406 of ERISA or in connection with which a tax
could be imposed pursuant to section 4975 of the Code. The representation
by the Company in the preceding sentence is made in reliance upon and
subject to the accuracy of the Purchaser's representations in paragraph 11
as to the source of funds used to pay the purchase price of the Securities.
9Q. MATERIAL AGREEMENTS. The agreements, contracts and other
documents listed in SCHEDULE 9O hereto (collectively, "CONTRACTS") comprise
all of the material agreements, contracts and other arrangements to which
the Company is a party (including, without limitation, contracts or other
agreements for the employment or compensation of any officer, director,
stockholder, consultant or key employee of the Company, joint venture
agreements, shareholder agreements or similar arrangements).
9R. ENVIRONMENTAL MATTERS. (a) To the best knowledge of the
senior executives of the Company, none of the real property owned or leased
by the Company (the "REAL PROPERTY") contains or, to the best knowledge of
the Company, has previously contained any hazardous or toxic wastes or
substances or underground storage tanks, where the consequences of the same
would reasonably be expected to have a material adverse effect on the
business, condition (financial or otherwise), assets, properties,
operations, or prospects of the Company.
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(b) To the best knowledge of the senior executives of the
Company, after having made due inquiry, the Real Property is in compliance
with all applicable federal, state and local environmental standards and
requirements affecting such Real Property except to the extent that
noncompliance would not reasonably be expected to have a material adverse
effect on the business, condition (financial or otherwise), assets,
properties, operations, or prospects of the Company and, to the best of
such senior executives' knowledge after having made due inquiry, there are
no environmental conditions which are reasonably likely to interfere with
the continued use of the Real Property.
(c) The Company has not received any notice of violation or
advisory action against the Company by any regulatory agency regarding
environmental laws or regulations or permit regulations.
(d) The Company has not transferred hazardous waste from any of
the Real Property to any other location which is not in compliance with all
applicable environmental laws and regulations and permit regulations.
(e) With respect to the Real Property, there are no proceedings,
governmental administrative actions or judicial proceedings pending or, to
the best knowledge of the Company, threatened under any federal, state, or
local law regulating the discharge of hazardous or toxic materials or
substances into the environment, to which the Company is named as a party.
9S. FOREIGN INVESTMENT IN REAL PROPERTY TAX ACT. The Company is
not a "United States real property holding corporation," as defined in
section 897 of the Code and in applicable regulations thereunder.
9T. LEASES. SCHEDULE 9T sets forth a list of all real and
personal properties in which the Company has a leasehold interest and which
are used in connection with its business (each, a "LEASE," and
collectively, the "LEASES"), including, without limitation, all leases of
equipment, machinery, furniture, vehicles and tangible personal property
and all leases under which the Company is a lessee of private and public
warehouses. No party to any Lease has given the Company written notice of
or made a claim with respect to any breach or default under any such Lease
the consequences of which, individually or in the aggregate, would
reasonably be expected to have a material adverse effect on the business,
condition (financial or other), assets, properties, operations or prospects
of the Company. Except as described in paragraph 9H, each of the Leases is
valid, binding and enforceable against the Company, and, to the best of the
Company's knowledge, the other parties thereto, in accordance with its
terms and is in full force and effect. Except as described in paragraph
9H, the Company, and, to the best of the Company's knowledge, each of the
other parties thereto, has performed all material obligations required to
be performed by it to date under, and is not in default in respect of, any
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of the Leases and, to the best of the Company's knowledge, no event exists
which, with notice or lapse of time, or both, would constitute such a
default, other than where failure to perform such obligations or such
default would not reasonably be expected to have a material adverse effect
on the business, condition (financial or other), assets, properties,
operations or prospects of the Company.
9U. INVENTORY. The Inventory is merchantable and is saleable in
the ordinary course of business and is carried on the Company's books and
records at values, after giving effect to normal reserves consistent with
the Company's past practice, which conform to generally accepted accounting
principles. The Company has good title, free and clear of all Liens,
except for Liens permitted under paragraph 7D, to the Inventory owned by it
on the Closing Date.
9V. EMPLOYEE MATTERS. Except as set forth in SCHEDULE 9V, (a)
there are no open National Labor Relations Board claims, petitions,
proceedings, charges, complaints or notices with respect to the Company,
(b) the Company has no labor negotiations in process with any labor union
or other labor organization, (c) no labor disputes, including, but not
limited to, strikes, slowdowns, picketing or work stoppages or other labor
difficulty exist or to the best of the Company's knowledge are threatened,
with respect to any employees of the Company, (d) no grievance or
arbitration proceeding arising out of or under any collective bargaining
agreement relating to the employees of the Company is in process, and to
the best knowledge of the Company, no claim thereunder exists, (e) the
Company is not experiencing any labor disputes, including but not limited
to strikes, slowdowns, picketing or work stoppages with respect to the
employees of the Company and (f) no "plant closing" or "mass layoff" has
been effectuated by the Company (in each case as defined in the Worker
Adjustment and Retraining Notification Act (29 U.S.C. (Section) 2101, ET
SEQ.), as amended). To the best knowledge of the Company, there are no
efforts in process by unions to organize any employees of the Company who
are not now represented by recognized collective bargaining agents.
9W. PRODUCTS LIABILITY. Except for lawsuits, claims (asserted
or unasserted), damages and expenses adequately covered by the Company's
insurance, there are no (i) liabilities of the Company, fixed or
contingent, asserted or, to the best knowledge of the Company, unasserted,
with respect to any product liability or any similar claim that relates to
any product sold by the Company to others prior to the Closing Date, or
(ii) liabilities of the Company, fixed or contingent, asserted or, to the
best knowledge of the Company, unasserted, with respect to any claim for
the breach of any express or implied product warranty or any other similar
claim with respect to any product sold by the Company to others prior to
the Closing Date, other than standard warranty obligations (to replace,
repair or refund) made by the Company in the ordinary course of the conduct
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of its business to purchasers of its products, and except, in each case,
where such liabilities do not or would not reasonably be expected to have a
material adverse effect on the business, condition (financial or other),
assets, properties, operations or prospects of the Company.
10. REPRESENTATIONS OF THE PURCHASERS. Each of the Purchasers
represents, and in making this sale to the Purchasers it is specifically
understood and agreed, that (i) it is purchasing the Securities for its own
account, for investment purposes and not with a view to or for sale in
connection with any distribution thereof in violation of applicable federal
and state securities laws; and (ii) it has received, or has had access to,
all information which it considers necessary or advisable to enable it to
make a decision concerning its purchase of the Securities, and possesses
such knowledge and experience in financial and business matters that it is
capable of evaluating the merits and risks of its investment hereunder.
Each of the Purchasers represents that it is an "Accredited Investor" as
such term is defined in Regulation D promulgated under the Securities Act.
Each of the Purchasers agrees that it will not, directly or indirectly,
offer, transfer, sell, assign, pledge, hypothecate or otherwise dispose of
any of the Securities (or solicit any offers to buy, purchase, or otherwise
acquire or take a pledge of any of the Securities), except in compliance
with the Securities Act and any applicable state securities or blue sky
laws.
11. DEFINITIONS. For purposes of this Agreement, the terms
defined in paragraphs 1, 2 and 3 shall have the respective meanings
specified therein, and the following terms shall have the meanings
specified below with respect thereto:
"ACQUISITION EFFECTIVENESS DATE" shall mean November 1, 1994.
"ADJUSTED CAPITAL EXPENDITURES" shall mean the sum of (x) capital
expenditures (by Capitalized Lease Obligations or otherwise) for
acquisitions, construction or improvement of fixed assets, and (y) the
aggregate acquisition price for Stores and Similar Stores purchased,
leased, opened or otherwise acquired; PROVIDED, that any amount not
considered an Adjusted Capital Expenditure pursuant to clause (iii) or (iv)
of paragraph 7G(b) shall not be considered an Adjusted Capital Expenditure
and amounts deemed to be Adjusted Capital Expenditures by clauses (i) and
(ii) of paragraph 7G(b) shall be considered Adjusted Capital Expenditures.
"ADVISORY AGREEMENT" shall have the meaning specified in
paragraph 4A(v).
"ADVISORY FEEL" shall have the meaning specified in paragraph 12.
"AFFILIATE" shall mean, with respect to any Person, any other
Person directly or indirectly controlling, controlled by, or under direct
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or indirect common control with, such Person, but shall exclude the
Purchasers and any Transferee that might be deemed to be an Affiliate of
the Company solely by reason of its ownership of Securities purchased by
the Purchasers under this Agreement or securities issued in exchange for
any such Securities, or by reason of its benefitting from any agreements or
covenants of the Company contained in this Agreement. A Person shall be
deemed to control another Person if such Person possesses, directly or
indirectly, the power to direct or cause the direction of the management
and policies of such corporation, whether through the ownership of voting
securities, by contract or otherwise.
"ANDERSEN AGREEMENT" shall mean the Base Software License
Agreement dated May 9, 1994 between Zondervan and Andersen Consulting, as
assumed by the Company pursuant to the Asset Purchase Agreement.
"ASSET PURCHASE AGREEMENT" shall have the meaning specified in
paragraph 1.
"ASSOCIATES" shall have the meaning in the first paragraph
hereof.
"BANKS" shall mean the Banks from time to time party to the Loan
Agreement.
"BANK DEBT" shall mean the Debt of the Company to the Banks (and
to the Agent for the Banks) outstanding from time to time under the Loan
Agreement.
"BANKRUPTCY LAW" shall have the meaning specified in clause (ix)
of paragraph 8A.
"BULK SALES LAWS" shall have the meaning specified in clause (x)
of paragraph 7D hereof.
"BUSINESS DAY" shall mean any day other than a Saturday, a Sunday
or a day on which commercial banks in New York City are required or
authorized to be closed.
"BUY AND SELL AGREEMENT" shall have the meaning specified in
paragraph 4A(xix).
"CAPITALIZED LEASE" shall mean any lease if the obligation to
make rental payments thereunder constitutes a Capitalized Lease Obligation.
"CAPITALIZED LEASE OBLIGATIONS" shall mean any rental obligations
which, under GAAP, are or will be required to be capitalized on the books
of the Company or any Subsidiary, taken at the amount thereof accounted for
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as indebtedness (net of interest expense) in accordance with such
principles.
"CAPITAL STOCK" shall mean any and all shares, interests, rights
to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) corporate stock.
"CASH INTEREST EXPENSE" shall mean, in respect of any Person for
any period, as of any date of calculation, the total interest expense of
such Person and its Subsidiaries for such period determined in accordance
with GAAP, LESS the amount of such interest expense paid or payable other
than in cash.
"CHANGE IN BUSINESS" with respect to the Company shall mean any
change in or addition to the primary business of the Company that has not
been approved by the Purchasers such that more than 10% of the Consolidated
Net Earnings of the Company are derived from a business other than the
retail and direct mail distribution and sale of bibles, books, gifts,
music, video, church materials and novelty items of a Christian nature.
"CHANGE IN CONTROL" with respect to the Company shall mean the
occurrence of any of the following events: (a) the sale, lease or other
disposition of all or substantially all of the assets of the Company and
its Subsidiaries or of a majority of the Common Stock (other than in an
Initial Public Offering) or a merger or consolidation of the Company with
or into another entity in a transaction in which the shareholders of the
Company on the Closing Date (together with the Purchasers and their
successors and assigns, and other present or future shareholders of the
categories described in paragraph 9C) own less than 50% of the voting
securities of the surviving or resulting corporation immediately after such
merger or consolidation; or (b) any liquidation, dissolution or winding up
of the Company.
"CLOSING" shall have the meaning specified in paragraph 3.
"CLOSING DATE" shall have the meaning specified in paragraph 3.
"CODE" shall mean the Internal Revenue Code of 1986, as amended
from time to time.
"COMMISSION" shall mean the United States Securities and Exchange
Commission or any governmental body or agency succeeding to the functions
thereof.
"COMMON STOCK" shall have the meaning specified in paragraph
1(b).
"CONSENTS" shall have the meaning specified in paragraph 4F.
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"CONSOLIDATED GROUP" shall mean the Company and its consolidated
Subsidiaries (if any). If at the relevant date or for the relevant period
of computation the Company has no such Subsidiaries, the term "Consolidated
Group" shall refer solely to the Company.
"CONSOLIDATED NET EARNINGS" means consolidated gross revenues of
the Company and its Subsidiaries less all operating and nonoperating
expenses of the Company and its Subsidiaries, including all charges of a
proper character (including current and deferred taxes on income, provision
for taxes on income, provision for taxes on unremitted foreign earnings
which are included in gross revenues, and current additions to reserves),
all determined in accordance with GAAP applied on a basis consistent with
prior years, but not including in gross revenues any gains (net of expenses
and taxes applicable thereto) in excess of losses resulting from the sale,
conversion or other disposition of capital assets (i.e., assets other than
current assets), any gains resulting from the write-up of assets, any gains
resulting from an acquisition by the Company or any of its Subsidiaries at
a discount of any Debt of the Company or any of its Subsidiaries, any
equity of the Company or any of its Subsidiaries in the unremitted earnings
of any corporation which is not a Subsidiary of the Company, any earnings
of any Person acquired by the Company or any of its Subsidiaries through
purchase, merger or consolidation or otherwise for any time prior to the
date of acquisition, or any deferred credit representing the excess of
equity in any Subsidiary of the Company at the date of acquisition over the
cost of the investment in such Subsidiary.
"CONSULTING AGREEMENT" shall have the meaning specified in
paragraph 4P.
"CONTRACTS" shall have the meaning specified in paragraph 9Q.
"CURRENT LIABILITIES" shall mean, at any date of determination,
the total liabilities of the Company (including tax and other proper
accruals) which may properly be classified as current liabilities in
accordance with GAAP.
"DEBT" of any Person shall mean:
(1) all indebtedness of such Person for borrowed money,
including without limitation obligations evidenced by bonds,
debentures, notes, or other similar instruments;
(2) all indebtedness guaranteed in any manner by such Person, or
in effect guaranteed by such Person through an agreement to purchase,
contingent or otherwise;
(3) all accounts payable which, to the knowledge of such Person,
have remained unpaid for a period of 60 days after the same become due
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and payable in accordance with their respective terms taking into
account (i) any grace period relating to the due date expressly set
forth in the applicable invoice will respect to the payment of such
accounts payable or (ii) customary industry payment practices in
respect of due dates;
(4) all indebtedness secured by any mortgage, lien, pledge,
charge, security interest or other encumbrance upon or in property
owned by such Person, even though such Person has not assumed or
become liable for the payment of such indebtedness;
(5) all indebtedness created or arising under any conditional
sale agreement or lease in the nature thereof (including obligations
as lessee under leases which shall have been or should be, in
accordance with GAAP, recorded as Capitalized Leases) (but excluding
operating leases) or other title retention agreement with respect to
property acquired by such Person, even though the rights and remedies
of the seller or lender under such agreement in the event of default
are limited to repossession of such property;
(6) all bankers' acceptances and letters of credit; and
(7) liabilities in respect of unfunded vested benefits under
Plans covered by Title IV of ERISA.
"DEFAULT": see "Event of Default".
"EBIT" for any Person for any period shall mean the consolidated
Net Income of such Person for such period, before interest expense and
provision for taxes and without giving effect to any extraordinary gains or
losses (or gains or losses from sales of assets, other than sales of
inventory in the ordinary course of business), for such period (taken as
one accounting period).
"EBITDA" for any Person for any period shall mean the EBIT of
such Person for such period PLUS (to the extent deducted in computing EBIT
for such Person for such period) depreciation, amortization and other non-
cash items.
"EIT" shall have the meaning specified in the first paragraph
hereof.
"ELECTRA" shall have the meaning specified in paragraph 3 hereof.
"EMPLOYMENT AGREEMENT" shall have the meaning specified in
paragraph 4A(xi).
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"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time.
"ERISA AFFILIATE" shall mean each trade or business (whether or
not incorporated) which together with the Company is treated as a "single
employer" under sections (b), (c), (m), (n) or (o) of section 414 of the
Code; PROVIDED that in no event shall the Purchasers or any of their
Affiliates be deemed to be an ERISA Affiliate for purposes of this
Agreement.
"EVENT OF DEFAULT" shall mean any of the events specified in
paragraph 8A, provided that there has been satisfied any requirement in
connection with such event for the giving of notice, or the lapse of time,
or the happening of any further condition, event or act, and "DEFAULT"
shall mean any of such-events, whether or not any such requirement has been
satisfied.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended.
"FBS" shall have the meaning specified in paragraph 1.
"FISCAL YEAR" shall mean each July 1-June 30 period. "Fiscal
Year" followed by a year means the Fiscal Year with its Fiscal Year-End in
such calendar year.
"FISCAL YEAR-END" shall mean, with respect to any Person, the
last day of such Person's Fiscal Year.
"FIXED CHARGE COVERAGE RATIO" shall mean, for the period in
question, in respect of any Person, the ratio for such Person and its
Subsidiaries, of (A) an amount equal to the sum (without duplication) of
(i) the consolidated Net Income of such Person and its
Subsidiaries for such period, exclusive of extraordinary gains and
losses for such period, PLUS
(ii) consolidated interest expense for such Person and its
Subsidiaries for such period, including the portion of any Capitalized
Lease Obligations allocable to such interest expense, PLUS
(iii) all taxes imposed by any government authority on the income
of such Person and its Subsidiaries that have accrued or are otherwise
due or payable in respect of such period, PLUS
(iv) all depreciation and amortization of such Person and its
Subsidiaries with respect to such period,
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to (b) their Fixed Charges for such period.
"FIXED CHARGES" shall mean, in respect of any Person for any
period, as of any date of calculation, an amount equal to the sum (without
duplication) of
(i) all Cash Interest Expenses for such Person and its
Subsidiaries during such period (less amounts received by such Person
and its Subsidiaries) as interest during such period, PLUS
(ii) the principal due on the Term Loan portion of the Bank Debt,
PLUS
(iii) the principal due on all other Indebtedness for Borrowed
Money of such Person and its Subsidiaries during such period, PLUS
(iv) all rents and other amounts allocable to principal that
accrue or have accrued during such period with respect to Capitalized
Lease Obligations of such Person and its Subsidiaries.
"FOUR-QUARTER PERIOD" shall mean a period of four consecutive
calendar quarters, commencing with the four consecutive calendar quarters
ending on December 31, 1995.
"FULLY DILUTED" shall mean, at any point in time, the number of
common shares outstanding, increased by all common equivalent shares (stock
options, warrants, convertible securities and any other security or
instrument having the right to require additional common shares to be
issued at any time in the future) at the time outstanding.
"GAAP" shall mean generally accepted accounting principles (as
promulgated by the Financial Accounting Standards Board or any successor
entity).
"GE" shall mean (x) with respect to the GE Credit Facility,
General Electric Capital Computer Leasing Group, and (y) with respect to
the GE Store Fixtures Lease, General Electric Capital Corporation.
"GE AGREEMENTS" shall mean, individually and collectively, the GE
Credit Facility and the GE Store Fixtures Lease.
"GE CREDIT FACILITY" shall mean that certain Base Software
License Agreement date May 9, 1994 between Zondervan and Andersen
Consulting, as assigned to GE.
"GE STORE FIXTURES LEASE" shall mean Equipment Schedule 5 to that
certain Equipment Lease Agreement dated as of June 3, 1991 between
Zondervan and GE.
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"GOODWILL" shall mean, with respect to the balance sheet of a
Person as at the date at which the amount thereof shall be determined, the
aggregate of all amounts appearing on the asset side of such balance sheet
for goodwill, patents, patent rights, trademarks, trade names, copyrights,
franchises, treasury stock, organizational expenses, and other similar
items, if any, all determined in accordance with GAAP.
"GUARANTEE" shall mean by any Person, any obligation, contingent
or otherwise, of such Person directly or indirectly guaranteeing any
Indebtedness for Borrowed Money or other obligation of any other Person
and, without limiting the generality of the foregoing, any obligation,
direct or indirect, contingent or otherwise, of such Person (i) to purchase
or pay (or advance or supply funds for the purchase or payment of) such
Indebtedness for Borrowed Money or other obligation (whether arising by
virtue of partnership arrangements, by agreement to keep-well, to purchase
assets, goods, securities or services, to take-or-pay, or to maintain
financial statement conditions or otherwise) or (ii) entered into for the
purpose of assuring in any other manner the obligee of such Indebtedness
for Borrowed Money or other obligation of the payment thereof or to protect
such obligee against loss in respect thereof (in whole or in part),
provided that the term "Guarantee" shall not include endorsements for
collection or deposits in the ordinary course of business. The term
"Guarantee" used as a verb has a corresponding meaning.
"HARPERCOLLINS" shall have the meaning specified in paragraph 1
hereof.
"HART-SCOTT ACT" shall mean the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended.
"IFA LEASE" shall mean that certain lease agreement between
Zondervan and IFA Incorporated dated June 20, 1994 (as supplemented by
supplements 1, 2 and 3 dated September 9, 1994, September 30, 1994 and
September 30, 1994, respectively), as assumed by the Company pursuant to
the Asset Purchase Agreement, as such lease agreement may from time to time
be amended, restated, supplemented or otherwise modified with the consent
of the Agent under (and as defined in) the Loan Agreement.
"INDEBTEDNESS FOR BORROWED MONEY" shall mean (without
duplication) (i) all indebtedness of (including, without limitation, all
indebtedness assumed by) a Person in respect of money borrowed (including,
without limitation, the unpaid amount of the purchase price of any
property, incurred for such purpose in lieu of borrowing money or using
available funds to pay said amount, and not constituting an account payable
or expense accrual incurred or assumed in the ordinary course of business),
or evidenced by a promissory note, bond, debenture or other like obligation
to pay money, and including indebtedness under banker's acceptances and
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with respect to letters of credit, and (ii) all obligations of (including,
without limitation, all obligations assumed by) a Person (x) constituting a
Capitalized Lease Obligation of such Person, or (y) constituting a
Guarantee by such Person. Notwithstanding the foregoing, the Zondervan
Indemnification shall not be considered Indebtedness for Borrowed Money
until such time as a claim is made for monies to be paid under it (and, in
such event, the amount of such indebtedness shall equal the aggregate
amount of all such claims).
"INITIAL PUBLIC OFFERING" shall mean the closing of an
underwritten public offering for the shares of Common Stock of the Company
pursuant to a registration statement under the Securities Act, with
proceeds to the Company of $25,000,000 or more, and valuing the total
common equity of the Company as follows:
Prior to December 31, 1996: $50,000,000;
From December 31, 1996
to but not including
December 31, 1998: $70,000,000; and
From and including
December 31, 1998: $90,000,000.
"INTANGIBLE RIGHTS" shall have the meaning specified in paragraph
9I.
"INTEREST COVERAGE RATIO" as to any Person for any period, shall
mean (A) the EBITDA of such Person for such period, divided by (B) the
amount by which (i) interest on Debt payable during such period, exceeds
(ii) amounts received by such Person as interest during such period.
"INVENTORY" shall mean goods, merchandise and other personal
property, now owned or hereafter acquired by the Company (including
returns), which are held for sale or resale to customers.
"INVESTORS" shall mean the Investors parties to the Shareholders'
Agreement.
"LEASE" shall have the meaning specified in paragraph 9T.
"LIEN" shall mean any mortgage, pledge, security interest,
encumbrance, lien or charge of any kind (including any agreement to give
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any of the foregoing, any conditional sale or other title retention
agreement, any lease in the nature thereof to the extent it constitutes a
Capitalized Lease Obligation, and the filing of or agreement to give any
financing statement under the Uniform Commercial Code of any jurisdiction).
"LOAN AGREEMENT" shall mean the Loan Agreement, dated as of
October 31, 1994, among the Company, the Banks parties thereto, and the
Bank of Scotland as Agent for the Banks, in the form attached hereto as
EXHIBIT 4A(IX), as amended from time to time, but excluding any such
amendment which is the substantial equivalent of a refinancing without the
consent of the Purchasers.
"LONG-TERM DEBT" shall mean all Indebtedness for Borrowed Money,
regardless of stated maturity.
"MULTIEMPLOYER PLAN" shall mean "multiemployer plan" (as such
term is defined in section 3(37) of ERISA and section 414(f) of the Code)
to which contributions are or have been made by the Company or any of its
Subsidiaries.
"NET INCOME" as to any Person for any period shall mean the
consolidated net income of such Person and its Subsidiaries for such period
determined in accordance with GAAP.
"NET PROCEEDS," as applied to the sale, transfer or disposition
of assets referred to in paragraph 7I, shall mean all proceeds received by
the Company or any Subsidiary in connection with such sale, transfer or
disposition after deduction of all fees and expenses paid, or to be paid
within the three months following such sale, transfer or disposition, in
connection with the transaction (other than to Affiliates).
"NOTES" shall have the meaning specified in paragraph 1(a).
"OFFICERS' CERTIFICATE" shall mean a certificate signed in the
name of the Company by (i) its Chief Executive Officer, President, one of
its Vice Presidents, or such other authorized agent of the Company as shall
be designated by the Company's Board of Directors and as shall be
reasonably acceptable to the Purchasers and (ii) by its Chief Financial
Officer, Treasurer, Controller, or such other authorized agent of the
Company as shall be designated by the Company's Board of Directors and as
shall be reasonably acceptable to the Purchasers (other than the person
signing under clause (i)).
"OPERATING LEASE OBLIGATIONS" shall mean and include all rental
obligations other than Capitalized Lease Obligations.
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"PBGC" shall mean the Pension Benefit Guaranty Corporation or any
corporation or governmental body or agency succeeding to the functions
thereof.
"PENALTY WARRANTS" shall have the meaning specified in paragraph
13C.
"PERFORMANCE PLAN" shall mean such plan described on Schedule 9C
hereto, which plan (and any amendments thereto) shall be subject to the
approval of the Purchasers, which approval shall not be unreasonably
withheld.
"PERSON" shall mean and include an individual, a partnership, a
joint venture, a corporation, an estate, a trust, an unincorporated
organization and a government or any department or agency thereof.
"PLAN" shall mean an employee pension benefit plan within the
meaning of section 3(2) of ERISA, maintained or contributed to by the
Company or an ERISA Affiliate.
"PREPAYMENT NOTICE" shall have the meaning specified in paragraph
5C.
"PURCHASE PRICE" shall have the meaning specified in paragraph 5
hereof.
"PURCHASERS" shall have the meaning specified in the first
paragraph hereof.
"PUT" shall have the meaning specified in paragraph 13B hereof.
"REAL PROPERTY" shall have the meaning specified in paragraph 9R.
"REGISTRATION RIGHTS AGREEMENT" shall have the meaning specified
in paragraph 4A(iii).
"RESPONSIBLE OFFICER" shall mean, with respect to the Company,
its Chairman of the Board, Chief Executive Officer, President, Chief
Operating Officer, Chief Financial Officer, Treasurer, Secretary, and any
Executive Vice President.
"SECURITIES" shall have the meaning specified in paragraph 1.
"SECURITIES ACT" shall mean the Securities Act of 1933, as
amended.
"SENIOR DEBT" shall mean the Bank Debt.
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"SHAREHOLDERS' AGREEMENT" shall have the meaning specified in
paragraph 4A(xii).
"SIMILAR STORE" shall have the meaning specified in clause (viii)
of paragraph 7B hereof.
"STORE LEASE" shall mean a lease by the Company or a Subsidiary
for occupancy of a Store.
"STORES" shall mean the approximately 148 retail stores owned by
FBS and being purchased by the Company pursuant to the Asset Purchase
Agreement, and any additional stores opened, purchased or otherwise
established from time to time by the Company and any of its Subsidiaries.
"SUBSIDIARY" shall mean, with respect to any Person, any
corporation or similar entity, a majority of the Capital Stock or other
equity of which, except directors' qualifying shares, shall, at the time as
of which any determination is being made, be owned by such Person either
directly or through Subsidiaries.
"SUBSTANTIAL PART" shall mean, as of any date, assets (i) having
a net book value equal to or in excess of 20% of the consolidated assets of
the Company and its Subsidiaries (determined in accordance with generally
accepted accounting principles) or (ii) which have provided 20% or more of
Consolidated Net Earnings in any of the three most recent fiscal years of
the Company
"SUBSTITUTE LEASE" shall mean any Store Lease with respect to a
Store which is a new location for a Store which has closed if (x) such new
location is in the same or an adjacent neighborhood as the closed Store,
(y) such new location caters to essentially the same people who patronized
the closed Store, and (z) the Store opened at such new location no later
than 30 days after the closed Store closed.
"TANGIBLE ASSETS" of a Person shall mean, as at any date at which
the amount thereof shall be determined, all the assets of such Person LESS
the amount of any write-up in the book value of any assets resulting from
the revaluation thereof after the Acquisition Effectiveness Date, or any
write-up in excess of the cost of assets acquired (other than a write-up
made on the date of such acquisition), LESS Goodwill.
"TANGIBLE NET WORTH" of a Person shall mean, as at any date at
which the amount thereof shall be determined, the amount by which the total
shareholders' or partners equity of such Person exceeds the sum of (x) the
amount of any write-up in the book value of any assets resulting from the
revaluation thereof after the Acquisition Effectiveness Date, or any write-
up in excess of the cost of assets acquired (other than a write-up made on
the date of such acquisition), and (y) Goodwill.
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"TRANSACTION FEE" shall have the meaning specified in paragraph
3.
"TRANSFEREE" shall mean any direct or indirect transferee of all
or any part of any Security purchased by the Purchasers under this
Agreement.
"TRIGGERING EVENT" shall mean the occurrence of the event
described in clause (i) below together with either of the events described
in clause (ii) (a) or (ii) (b) below: (i) the payment in full (including
payment of all principal and all accrued and unpaid interest) of all of the
Notes and (ii) either (a) an Initial Public Offering or (b) a sale of all
or substantially all of the Capital Stock or assets of the Company for cash
in an amount equivalent to a common equity valuation for the Company as
follows:
Prior to December 31, 1996: $50,000,000;
From December 31, 1996
to but not including
December 31, 1998: $70,000,000; and
From and including
December 31, 1998: $90,000,000.
"UNUSED AMOUNT" shall have the meaning specified in paragraph
7G(b).
"WARRANTS" shall have the meaning specified in paragraph 1(b) .
"WELFARE PLAN" shall mean an employee welfare benefit plan within
the meaning of section 3 (1) of ERISA, maintained or contributed to by the
Company or an ERISA Affiliate.
"ZONDERVAN" shall have the meaning specified in paragraph 1.
"ZONDERVAN INDEMNIFICATION" shall mean the Company's obligations
(pursuant to Section 7.2 (c) of the Asset Purchase Agreement as in effect
on the Acquisition Effectiveness Date) to indemnify Zondervan and
HarperCollins for any payments made by Zondervan or HarperCollins under any
Assigned Contract (as defined in the Asset Purchase Agreement as in effect
on the Acquisition Effectiveness Date), including any Store Lease (or under
the Andersen Agreement or either GE Agreement) for any period after the
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Closing Date if, as a condition to the relevant lessor consenting to the
assignment of said lease to the Company (or, as to the GE Agreements, the
consent of GE) pursuant to the Asset Purchase Agreement, said lessor
required either or both of Zondervan and HarperCollins to remain obligated
with respect thereto.
12. ADVISORY FEE. Prior to a Triggering Event, and for so long
as the Purchasers hold any Note, any Warrant exchangeable into at least 5%
of the issued and outstanding Common Stock on a Fully Diluted basis, or at
least 5% of the issued and outstanding Common Stock on a Fully Diluted
basis, the Company will pay to Electra in cash an annual fee (the "ADVISORY
FEE") in the amount of $100,000, payable in advance in equal quarterly
installments, as more fully set forth in the Advisory Agreement. In
addition, at the Closing, the Company will pay to Electra a pro rated
amount of the Advisory Fee for the quarter ending December 31, 1994.
13. WARRANTS.
13A. SERIES OF WARRANTS AND TRIGGERING EVENT. The Warrants will
be issued in several series, which will be identical in all respects except
as to the date upon which the Warrants will be issued and the percentage of
shares of Common Stock for which such Warrants will be exercisable. At the
Closing, the Purchasers will receive Warrants, designated Series A (the
"SERIES A WARRANTS"), exercisable into an aggregate of 18% of the issued
and outstanding Common Stock on a Fully Diluted basis, excluding shares
issued or for which options are issued or to be issued under the
Performance Plan. The Series A Warrants will be immediately exercisable
and transferable, except as otherwise set forth herein or in the Warrants.
Additional Warrants, designated as the Series B, Series C and
Series D Warrants, and substantially in the form of the Series A Warrants,
will be issued promptly by the Company to the Purchasers if no Triggering
Event occurs prior to the following corresponding dates:
PERCENTAGE OF
IF NO TRIGGERING SERIES OF WARRANTS SHARES FOR WHICH
EVENT OCCURS PRIOR TO: ISSUED EXERCISABLE
- --------------------- ------------------ ----------------
December 31, 1996 Series B 2%
December 31, 1998 Series C 4%
December 31, 1999 Series D 4%
The percentage of shares described above for which the additional Warrants
shall be exercisable shall mean such percentage of shares on a Fully
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Diluted Basis, excluding shares issued or for which options are issued or
to be issued under the Performance Plan.
13B. PUT. (a) If no Triggering Event shall have occurred by
December 31, 1999, the Purchasers or other holder or holders of the
Warrants may, at any time thereafter, by giving 30 days written notice to
the Company (the "PUT NOTICE"), require the Company to repurchase (the
"PUT") all or any portion of the Warrants held by the Purchasers or other
holder of the Warrants for an amount (the "PUT AMOUNT") equal to the fair
saleable value of the shares of Common Stock into which such Warrants may
be exercised (determined without giving effect to a discount for (x) a
minority interest, or (y) any lack of liquidity of the Common Stock or to
the fact that the Company may have no class of equity registered under the
Exchange Act, including without limitation, any restriction with respect to
such shares of Common Stock under the Shareholders' Agreement or the Buy
and Sell Agreement), based upon the value of the Company as determined by
the Company and the Purchasers in reasonable good faith, and, if the
Company and Purchasers fail to so agree with 20 Business Days, as
determined by an independent appraiser satisfactory to both the Purchasers
or other holder of the Warrants and the Company, subject, in all cases to
restrictions under applicable corporate laws. The Company shall bear 80%,
and the Purchasers shall bear 20%, of the costs of such independent
appraiser. The Company shall pay to the Purchasers an amount in cash equal
to 60% of the Put Amount upon exercise of the Put and shall issue a note
evidencing its obligation to pay the remainder in cash within 366 days of
the date of the Put; any unpaid balance of the Put Amount shall bear
interest, which interest shall be paid together with any payment of the Put
Amount, at a rate of 14% per annum.
(b) Immediately upon receipt of (i) the Put Notice or (ii)
notice from any other holder of the Company's warrants containing put
rights (the Purchasers and all other such holders being referred to herein
as the "PUT HOLDERS") in connection with a put of warrants to the Company,
the Company shall, before repurchasing any such warrants specified in the
Put Notice or such other notice, give written notice thereof to each Put
Holder. For a period of ten (10) days following such notice, each Put
Holder shall be entitled, by written notice to the Company and each other
Put Holder, to elect to require the Company to repurchase its pro rata
share of the warrants containing put rights held by such Put Holder. If,
at the expiration of such ten day period any Put Holder has not elected to
have the Company repurchase such Put Holder's warrants, the Company shall
repurchase only those warrants for which notice has been received pursuant
to this paragraph 13B(b).
13C. PENALTY WARRANTS. For so long as the Purchasers hold any
Note as to which an event described in clause (i) of paragraph 8A hereof
has occurred, and, in the case of a default in the payment of any principal
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or premium on any Note when due, such default has remained uncured for a
period of 5 days after such payment shall have become due, the Company will
promptly issue to the Purchasers, for no additional consideration,
additional Warrants in the form of the Series A Warrant (the "PENALTY
WARRANTS") representing the right to purchase that number of shares of
Common Stock equal to 0.5% of the then issued and outstanding Common Stock
on a Fully Diluted basis for every calendar quarter or a portion thereof
that such event is not cured. No more than one such Penalty Warrant for
0.5% shall be issued with respect to any one calendar quarter.
14. MISCELLANEOUS.
14A. PAYMENTS. The Company agrees that (i) so long as the
Purchasers shall hold any Notes or any other Security, it will make
payments of principal of, and premium, if any, and interest on, the Notes
and payments in respect of any such other Security, in compliance with the
terms of this Agreement, to the Purchasers and (ii) so long as the Advisory
Agreement remains in effect, it shall pay the Advisory Fee thereunder to
Electra, by wire transfer of immediately available funds for credit to the
Purchasers' or Electra's account or accounts, as the case may be, as
specified on SCHEDULE 14A hereto, or to such other account or accounts as
the Purchasers or Electra, as the case may be, may designate in writing,
notwithstanding any contrary provision herein or in any Note or any other
Security with respect to the place of payment. The Purchasers agree that,
before disposing of any Note, the Purchasers will make a notation thereon
(or on a schedule attached thereto) of all principal payments previously
made thereon and of the date to which interest thereon has been paid. The
Company agrees to afford the benefits of this paragraph 15A to any
Transferee which shall have made the same agreement as the Purchasers have
made in this paragraph 14A.
14B. EXPENSES. The Company agrees, whether or not the
transactions hereby contemplated shall be consummated, to pay, and save the
Purchasers harmless against liability for the payment of, (i) the
reasonable fees and expenses (including document production and duplication
charges) of any counsel engaged by the Purchasers in connection with this
Agreement, the Asset Purchase Agreement, the Notes and the other Securities
and the transactions hereby and thereby contemplated and the reasonable
fees and expenses of any counsel engaged by the Purchasers or any
Transferee in connection with any subsequent proposed modification of, or
proposed consent under, such agreements or instruments, whether or not such
proposed modification shall be effected or proposed consent granted, and
(ii) the costs and expenses, including attorney's fees, incurred by the
Purchasers or any Transferee in enforcing any rights under any such
agreement or instrument or in responding to any subpoena or other legal
process issued in connection with any such agreement or instrument or the
transactions contemplated hereby or thereby or by reason of the Purchasers,
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or any Transferee's having acquired any Security, including without
limitation costs and expenses incurred in any bankruptcy case; PROVIDED,
HOWEVER, that the Company shall not be obligated to pay any costs, fees and
expenses incurred by the Purchasers solely by reason of the Purchasers'
gross negligence or willful misconduct; PROVIDED, FURTHER, that if the
transactions contemplated hereby and thereby are not consummated for any
reason other than those listed as (a), (b) and (c) below, the fees and
expenses of counsel referenced in this paragraph payable by the Company
(and/or George Craig) shall be limited to a maximum of $75,000; AND,
PROVIDED FURTHER, that if such transaction fails to be consummated: (a) due
to the failure of the Purchasers to reach an agreement on subordination or
other related intercreditor matters with the Bank of Scotland, as agent for
the holders of the Senior Debt, (b) solely due to a breach of this
Agreement by the Purchasers, or (c) solely due to the decision by the
Purchasers to terminate the transactions contemplated hereby or thereby for
reasons unrelated to the business of FBS or the terms of such transactions,
then the Purchasers shall not be entitled to any reimbursement under clause
(i) of this paragraph 14B. The obligations of the Company under this
paragraph 14B shall survive the transfer of any of the Securities or
portion thereof or interest therein by the Purchasers or any Transferee and
the payment of any Note.
14C. CONSENT TO AMENDMENTS; WAIVERS. This Agreement may be
amended and the Company may take any action herein prohibited, or omit to
perform any act or covenant herein required to be performed by it, only if
the Company shall have obtained the written consent to such amendment,
action or omission to act, of the holders of a majority of the Notes at the
time outstanding, and the holders of the Notes at the time or thereafter
outstanding shall be bound by any consent authorized by this paragraph 14C,
whether or not such Security shall have been marked to indicate such
consent, but any Security issued thereafter may bear a notation referring
to any such consent; PROVIDED that without the written consent of a
majority of the holders of the Notes at the time outstanding, no amendment
to this Agreement shall change the maturity of any Note, or reduce the rate
or time of payment of interest payable with respect to any Note, or affect
the time, amount or allocation of any prepayments, or reduce the proportion
of the principal amount of the Notes required with respect to any consent.
No course of dealing between the Company and the Purchasers nor any delay
in exercising any rights hereunder or under any Security shall operate as a
waiver of the Purchasers thereunder. As used herein and in the Securities,
the term "this Agreement" and references thereto shall mean this Agreement
as it may from time to time be amended or supplemented.
14D. FORM, REGISTRATION, TRANSFER AND EXCHANGE OF NOTES; LOST
NOTES. The Notes are issuable as registered notes without coupons in
denominations of at least $500,000 except as may be necessary to reflect
any principal amount not evenly divisible by $500,000. The Company shall
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keep at its principal office a register in which the Company shall provide
for the registration of Notes and of transfers of Notes. Upon surrender
for registration of transfer of any Note at the principal office of the
Company, the Company shall, at its expense, execute and deliver one or more
new Notes of like tenor and of a like aggregate principal amount,
registered in the name of such transferee or transferees. At the option of
the holder of any Note, such Note may be exchanged for other Notes of like
tenor and of any authorized denominations, of a like aggregate principal
amount, upon surrender of the Note to be exchanged at the principal office
of the Company. Whenever any Notes are so surrendered for exchange, the
Company shall, at its expense, execute and deliver the Notes which the
holder making the exchange is entitled to receive. Every Note surrendered
for registration of transfer or exchange shall be duly endorsed, or be
accompanied by a written instrument of transfer duly executed, by the
holder of such Note or such holder's attorney duly authorized in writing.
Any Note or Notes issued in exchange for any Note or upon transfer thereof
shall carry the rights to unpaid interest and interest to accrue which were
carried by the Note so exchanged or transferred, so that neither gain nor
loss of interest shall result from any such transfer or exchange. Upon
receipt of written notice from the holder of any Note of the loss, theft,
destruction or mutilation of such Note and, in the case of any such loss,
theft or destruction, upon receipt of the Purchasers' unsecured indemnity
or any other holder's indemnity agreement in such form as the Company may
reasonably require, or in the case of any such mutilation upon surrender
and cancellation of such Note, the Company will make and deliver a new
Note, of like tenor, in lieu of the lost, stolen, destroyed or mutilated
Note.
14E. PERSONS DEEMED OWNERS; PARTICIPATIONS. Prior to due
presentment for registration of transfer, the Company may treat the Person
in whose name any Note is registered as the owner and holder of such Note
for the purpose of receiving payment of principal of, and premium, if any,
and interest and on, such Note and for all other purposes whatsoever,
whether or not such Note shall be overdue, and the Company shall not be
affected by notice to the contrary. Subject to the preceding sentence, the
holder of any Note may from time to time grant participations in such Note
to any Person on such terms and conditions as may be determined by such
holder in its sole and absolute discretion, except that such participation
shall be subject to the approval described in paragraph 14G.
14F. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS;
ENTIRE AGREEMENT. All representations, warranties and covenants contained
herein or made in writing by or on behalf of the Company in connection
herewith shall survive the execution and delivery of this Agreement and the
Securities, the transfer by the Purchasers of any Security or portion
thereof or interest therein and the payment of any Security, and may be
relied upon by any Transferee regardless of any investigation made at any
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time by or on behalf of the Purchasers or any Transferee. Subject to the
preceding sentence, this Agreement and the Securities embody the entire
agreement and understanding among the Purchasers and the Company and
supersede all prior agreements and understandings relating to the subject
matter hereof. Any and all obligations of all parties under the proposal
letter dated September 29, 1994, are hereby terminated upon execution of
this Agreement (except for the George Craig guarantee of expenses).
14G. TRANSFERS: SUCCESSORS AND ASSIGNS. The Purchasers may, from
time to time upon notice to the Company, sell, transfer or otherwise assign
any or all of their interest in the Notes in minimum amounts of $500,000,
to purchasers acceptable to the Company, which acceptance shall not be
unreasonably withheld. Purchasers may also, from time to time, upon notice
to the Company sell, transfer, or otherwise assign any or all of their
interest in the Warrants, to up to ten purchasers, acceptable to the
Company, which acceptance will not be unreasonably withheld. The
Purchasers have no present intention, but reserve the right, to sell any of
the Notes or Warrants. All covenants and other agreements in this
Agreement contained by or on behalf of either of the parties hereto shall
bind and inure to the benefit of the respective permitted successors and
assigns of the parties hereto (including, without limitation, any permitted
Transferee) whether so expressed or not.
14H. DISCLOSURE TO OTHER PERSONS. The Company acknowledges that
the holder of any Security may deliver copies of any financial statements
and other documents delivered to such holder, and disclose any other
information disclosed to such holder, by or on behalf of the Company in
connection with or pursuant to this Agreement to (i) such holder's
directors, officers, employees, agents and professional consultants, (ii)
any other holder of any Security, (iii) any Person to which such holder
offers to sell such Security or any part thereof; PROVIDED, HOWEVER, that
no financial statements, other documents or other information that is not
publicly available shall be disclosed to any Person that owns and operates
a business that is directly competitive with the business of the Company
without the consent of the Company, or (iv) any other Person to which such
delivery or disclosure may be necessary or appropriate (a) in compliance
with any law, rule, regulation or order applicable to such holder, (b) in
response to any subpoena or other legal process, (c) in connection with any
litigation to which such holder is a party or (d) in order to protect such
holder' s investment in such Security.
14I. NOTICES. All written communications provided for hereunder
shall be sent by first class mail or nationwide overnight delivery service
(with charges prepaid) and (i) if to the Purchasers, addressed to EIT at 65
Kingsway, London, England WC2B 6QT, Attention: Company Secretary, and
addressed to Associates at 65 Kingsway, London, England WC2B6QT, Attention:
Philip J. Dyke, with copies to Electra Inc., 70 East 55th Street, New York,
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New York 10022, Attention: John L. Pouschine and Willkie Farr & Gallagher,
One Citicorp Center, 153 East 53rd Street, New York, New York 10022,
Attention: Peter J. Hanlon, or to such other address or addresses as the
Purchasers shall have specified to the Company in writing, (ii) if to any
other holder of any Security addressed to such holder at such address as
such other holder shall have specified to the Company in writing or, if any
such other holder shall not have so specified an address to the Company,
then addressed to such other holder in care of the last holder of such
Security which shall have so specified an address of the Company, and (iii)
if to the Company addressed to it at 5300 Patterson, S.E., Grand Rapids,
Michigan 49530, with copies to Warner, Norcross & Judd, 900 Old Kent
Building, 111 Lyon Street, N.W., Grand Rapids, Michigan 49503-2489,
Attention: John G. Cameron, Jr., or to such other address or addresses as
the Company may have designated in writing to each holder of the Securities
at the time outstanding.
14J. INDEMNIFICATION. The Company shall indemnify and hold
harmless the Purchasers and each of their directors, officers, employees,
affiliates and agents (each an "INDEMNIFIED PERSON"), on demand, from and
against any and all losses, claims, damages, liabilities, or actions or
other proceedings commenced or threatened in respect thereof, and expenses
that arise out of, result from, or in any way relate to, (x) any breach by
the Company of the representations, warranties or covenants contained
herein, or (y) the involvement of related parties and affiliates in the
transactions contemplated hereby or by the Asset Purchase Agreement, or in
connection with the business of FBS, and to reimburse each Indemnified
Person, upon demand, for any legal or other expenses incurred in connection
with investigating, defending or participating in the defense of any such
loss, claim, damage, liability, action or other proceeding, whether or not
such Indemnified Person is a party to any action or proceeding out of which
any such expenses arise, other than any of the foregoing claimed by an
Indemnified Person to the extent incurred by reason of the gross negligence
or willful misconduct of such Indemnified Person. No Indemnified Person
shall be responsible or liable to any of the Company, FBS, Zondervan,
HarperCollins, the Investors or any other person for any consequential
damages which may be alleged as a result of or relating to the transactions
contemplated hereby or by the Asset Purchase Agreement.
14K. DESCRIPTIVE HEADINGS, ETC. The descriptive headings of the
several paragraphs of this Agreement are inserted for convenience only and
do not constitute a part of this Agreement. References herein to a
paragraph are, unless otherwise specified, to one of the paragraphs of this
Agreement and references to an "Exhibit" are, unless otherwise specified,
to one of the Exhibits to this Agreement.
14L. GOVERNING LAW. This Agreement and the Securities shall be
construed and enforced in accordance with, and the rights of the parties
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shall be governed by, the law of the State of New York without reference to
such State's conflicts of laws principles.
14M. COUNTERPARTS. This Agreement may be executed simultaneously
in two or more counterparts, each of which shall be deemed an original, and
it shall not be necessary in making proof of this Agreement to produce or
account for more than one such counterpart.
IN WITNESS WHEREOF, the Company and the Purchasers have executed
this Agreement as of the date first above written.
FAMILY BOOKSTORES COMPANY, INC.
By:____________________________________
Name:
Title:
ELECTRA INVESTMENT TRUST P.L.C.
By:____________________________________
Name:
Title:
ELECTRA ASSOCIATES, INC.
By:____________________________________
Name:
Title:
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