-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, V7tt1ITRhhT+fBxnnwJfkobAyIlj8rT5HARj+BG9IzRknWIKVlVHCLlsk+xeRigZ MLIXVPtQIOlKRVH1zjzZqA== 0000950131-96-006361.txt : 19961218 0000950131-96-006361.hdr.sgml : 19961218 ACCESSION NUMBER: 0000950131-96-006361 CONFORMED SUBMISSION TYPE: S-4 PUBLIC DOCUMENT COUNT: 15 FILED AS OF DATE: 19961217 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PETERSEN PUBLISHING CO LLC CENTRAL INDEX KEY: 0001029075 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 954597937 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-18017 FILM NUMBER: 96681846 BUSINESS ADDRESS: STREET 1: 6420 WILSHIRE BLVD CITY: LOS ANGELES STATE: CA ZIP: 90048 BUSINESS PHONE: 2137822000 MAIL ADDRESS: STREET 1: 6420 WILSHIRE BLVD CITY: LOS ANGELES STATE: CA ZIP: 90048 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PETERSEN CAPITAL CORP CENTRAL INDEX KEY: 0001029076 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 954597937 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-18017-01 FILM NUMBER: 96681847 BUSINESS ADDRESS: STREET 1: 6420 WILSHIRE BLVD CITY: LOS ANGELES STATE: CA ZIP: 90048 BUSINESS PHONE: 2137822000 MAIL ADDRESS: STREET 1: 6420 WILSHIRE BLVD CITY: LOS ANGELES STATE: CA ZIP: 90048 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PETERSEN HOLDINGS LLC CENTRAL INDEX KEY: 0001029077 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 954597937 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-18017-02 FILM NUMBER: 96681848 BUSINESS ADDRESS: STREET 1: 6420 WILSHIRE BLVD CITY: LOS ANGELES STATE: CA ZIP: 90048 BUSINESS PHONE: 2137822000 MAIL ADDRESS: STREET 1: 6420 WILSHIRE BLVD CITY: LOS ANGELES STATE: CA ZIP: 90048 S-4 1 FORM S-4 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 17, 1996 REGISTRATION NO. 333- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------- FORM S-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 --------------- PETERSEN PUBLISHING COMPANY, L.L.C. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 2721 95-4597937 (STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER JURISDICTION OF INDUSTRIAL CLASSIFICATION IDENTIFICATION NO.) INCORPORATION OR CODE NUMBER) ORGANIZATION) --------------- PETERSEN CAPITAL CORP. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 2721 95-4608878 (STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER JURISDICTION OF INDUSTRIAL CLASSIFICATION IDENTIFICATION NO.) INCORPORATION OR CODE NUMBER) ORGANIZATION) --------------- PETERSEN HOLDINGS, L.L.C. (EXACT NAME OF REGISTRANT A SPECIFIED IN ITS CHARTER) DELAWARE 2721 95-4597939 (STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER JURISDICTION OF INDUSTRIAL CLASSIFICATION IDENTIFICATION NO.) INCORPORATION OR CODE NUMBER) ORGANIZATION) --------------- 6420 WILSHIRE BOULEVARD LOS ANGELES, CALIFORNIA 90048 TELEPHONE: (213) 782-2000 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANTS' PRINCIPAL EXECUTIVE OFFICES) --------------- NEAL VITALE, PRESIDENT Copy to: PETERSEN PUBLISHING COMPANY, L.L.C. DENNIS M. MYERS 6420 WILSHIRE BOULEVARD KIRKLAND & ELLIS LOS ANGELES, CALIFORNIA 90048 200 EAST RANDOLPH DRIVE TELEPHONE: (213) 782-2000 CHICAGO, ILLINOIS 60601 (NAME, ADDRESS, INCLUDING ZIP CODE, (312) 861-2000 AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) --------------- APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after this Registration Statement becomes effective. If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. [_] If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box. [_] CALCULATION OF REGISTRATION FEE - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
PROPOSED PROPOSED MAXIMUM TITLE OF EACH CLASS OF AMOUNT MAXIMUM AGGREGATE AMOUNT OF SECURITIES TO BE TO BE OFFERING PRICE OFFERING REGISTRATION REGISTERED REGISTERED PER UNIT(1) PRICE(1) FEE - ------------------------------------------------------------------------------- 11 1/8% Series B Senior Subordinated Notes due 2006................. $100,000,000 100% $100,000,000 $30,303 - ------------------------------------------------------------------------------- Guarantees of Series B Senior Subordinated Notes due 2006....... $100,000,000 (2) (2) None
- ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- (1)Estimated pursuant to Rule 457 solely for the purpose of calculating the registration fee. (2)No further fee is payable pursuant to Rule 457(n). --------------- THE REGISTRANTS HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS SHALL FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A + +REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE + +SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY + +OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT + +BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR + +THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE + +SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE + +UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF + +ANY SUCH STATE. + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ SUBJECT TO COMPLETION, DATED DECEMBER 17, 1996 PROSPECTUS JANUARY , 1997 PETERSEN PUBLISHING COMPANY, L.L.C. PETERSEN CAPITAL CORP. OFFER TO EXCHANGE ITS 11 1/8% SERIES B SENIOR SUBORDINATED NOTES DUE 2006 FOR ANY AND ALL OF ITS OUTSTANDING 11 1/8% SERIES A SENIOR SUBORDINATED NOTES DUE 2006 THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON , 1997, UNLESS EXTENDED. Petersen Publishing Company, L.L.C., a Delaware limited liability company (the "Company"), and Petersen Capital Corp., a Delaware corporation ("Capital" and, together with the Company, the "Issuers"), hereby offer (the "Exchange Offer"), upon the terms and conditions set forth in this Prospectus (the "Prospectus") and the accompanying Letter of Transmittal (the "Letter of Transmittal"), to exchange $1,000 principal amount of their Series B 11 1/8% Senior Subordinated Notes due 2006 (the "New Notes"), registered under the Securities Act of 1933, as amended (the "Securities Act"), pursuant to a Registration Statement of which this Prospectus is a part, for each $1,000 principal amount of their outstanding 11 1/8% Senior Subordinated Notes due 2006 (the "Old Notes"), of which $100,000,000 principal amount is outstanding. The form and terms of the New Notes are the same as the form and term of the Old Notes (which they replace), except that the New Notes will bear a Series B designation and will have been registered under the Securities Act and, therefore, will not bear legends restricting their transfer and will not contain certain provisions relating to an increase in the interest rate which were included in the terms of the Old Notes in certain circumstances relating to the timing of the Exchange Offer. The New Notes will evidence the same debt as the Old Notes (which they replace) and will be issued under and be entitled to the benefits of the Indenture, dated as of November 15, 1996 (the "Indenture"), between the Issuers and United States Trust Company of New York, as trustee. The Old Notes and the New Notes are sometimes referred to herein collectively as the "Notes." See "The Exchange Offer" and "Description of the Notes." The Issuers will be jointly and severally liable for all payments due under the New Notes. Interest on the Notes will be paid semi-annually on November 15 and May 15 of each year, commencing on May 15, 1997. The Notes will mature on November 15, 2006 and will not be subject to any sinking fund requirement. The Notes will be redeemable by the Issuers, in whole or in part, at any time on or after November 15, 2001, at the redemption prices set forth herein, plus accrued and unpaid interest to the redemption date. Prior to November 15, 1999, the Issuers, at their option, may redeem in the aggregate up to 25% of the original principal amount of the Notes at 111.125% of the aggregate principal amount so redeemed plus accrued and unpaid interest to the redemption date with the Net Proceeds (as defined herein) of one or more Public Equity Offerings (as defined herein), provided that at least $75.0 million of the principal amount of the Notes originally issued remains outstanding immediately after the occurrence of any such redemption and that any such redemption occurs within 90 days following the closing of any such Public Equity Offering. See "Description of the Notes--Optional Redemption." The Notes will be general unsecured obligations of the Issuers, subordinated in right of payment to all existing and future Senior Indebtedness (as defined herein) of the Issuers and senior in right of payment to any subordinated indebtedness of the Issuers. As of August 31, 1996, after giving effect to the Transactions (as defined herein) and the Initial Offering (as defined herein), the Company would have had $200.0 million aggregate principal amount of Senior Indebtedness outstanding. In addition, the Company would have had $60.0 million of additional borrowing availability under the Senior Credit Facility (as defined herein). See "Capitalization" and "Description of the Notes." The Company's pro forma earnings were insufficient to cover pro forma fixed charges by $44.4 million for the year ended November 30, 1995 and $27.7 million for the nine (Cover continued on following page) ----------- SEE "RISK FACTORS," BEGINNING ON PAGE 18, FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY HOLDERS WHO TENDER THEIR OLD NOTES IN THE EXCHANGE OFFER. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. (Cover page continued) months ended August 31, 1996. See "Unaudited Pro Forma Financial Data." The Company's equity securities are held 99.9% by Petersen Holdings, L.L.C. ("Holdings") and 0.1% by BrightView Communications Group, Inc. ("BrightView"). Capital is a wholly owned subsidiary of the Company and will not have substantial operations or assets of any kind and will not have any revenues. The New Notes will be unconditionally guaranteed, on an unsecured senior subordinated basis by Holdings and certain future Restricted Subsidiaries (as defined herein), if any, of Holdings or the Company. The Company is a limited life entity that will continue in existence until December 31, 2016 or dissolution prior thereto as determined under the LLC Agreement (as defined herein). See "Limited Liability Company Agreement." In the event of a Change of Control (as defined herein), holders of the Notes will have the right to require the Issuers to purchase their Notes at 101% of the aggregate principal amount thereof plus accrued and unpaid interest to the purchase date. See "Description of the Notes--Change of Control Offer." In addition, the Issuers are obligated in certain instances to make offers to repurchase the Notes at a purchase price in cash equal to 100% of the principal amount thereof plus accrued and unpaid interest to the date of repurchase with the net cash proceeds of certain asset sales. See "Description of the Notes--Certain Covenants--Limitation on Certain Asset Sales." The Issuers will accept for exchange any and all Old Notes validly tendered and not withdrawn prior to 5:00 p.m., New York City time on 1997, unless extended by the Issuers in their sole discretion (the "Expiration Date"). Tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m. on the Expiration Date. The Exchange Offer is subject to certain customary conditions. The Old Notes were sold by the Issuers on November 25, 1996 to the Initial Purchasers (as defined herein) in a transaction not registered under the Securities Act in reliance upon an exemption under the Securities Act (the "Initial Offering"). The Initial Purchasers subsequently placed the Old Notes with qualified institutional buyers in reliance upon Rule 144A under the Securities Act. Accordingly, the Old Notes may not be reoffered, resold or otherwise transferred in the United States unless registered under the Securities Act or unless an applicable exemption from the registration requirements of the Securities Act is available. The New Notes are being offered hereunder in order to satisfy the obligations of the Issuers under the Registration Rights Agreement (as defined herein) entered into by the Issuers in connection with the Initial Offering. See "The Exchange Offer." Based on no-action letters issued by the staff of the Securities and Exchange Commission (the "Commission") to third parties, the Issuers believe the New Notes issued pursuant to the Exchange Offer may be offered for resale, resold and otherwise transferred by any holder thereof (other than any such holder that is an "affiliate" of the Issuers within the meaning of Rule 405 under the Securities Act) without compliance with the registration and prospectus delivery provisions of the Securities Act, provided that such New Notes are acquired in the ordinary course of such holder's business and such holder has no arrangement or understanding with any person to participate in the distribution of such New Notes. See "The Exchange Offer-Resale of the New Notes." Each broker-dealer (a "Participating Broker-Dealer") that receives New Notes for its own account pursuant to the Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such New Notes. The Letter of Transmittal states that by so acknowledging and by delivering a prospectus, a participating Broker-Dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. This Prospectus, as it may be amended or supplemented from time to time, may be used by a Participating Broker-Dealer in connection with resales of New Notes received in exchange for Old Notes where such Old Notes were acquired by such Participating Broker-Dealer as a result of marketmaking activities or other trading activities. The Issuers have agreed that, for a period of 180 days after the Expiration Date, they will make this Prospectus available to any Participating Broker-Dealer for use in connection with any such resale; provided, however, the Issuers and the Guarantor (as defined herein) have no obligation to amend or supplement this Prospectus unless one of them has received written notice from a Participating Broker-Dealer of their prospectus delivery requirements under the Exchange Act within five business days following consummation of the Exchange Offer. See "Plan of Distribution." Holders of Old Notes not tendered and accepted in the Exchange Offer will continue to hold such Old Notes and will be entitled to all the rights and benefits and will be subject to the limitations applicable thereto under the Indenture and with respect to transfer under the Securities Act. The Company will pay all the expenses incurred by it incident to the Exchange Offer. See "The Exchange Offer." ii (Cover page continued) There has not previously been any public market for the Old Notes or the New Notes. The Company does not intend to list the New Notes on any securities exchange or to seek approval for quotation through any automated quotation system. There can be no assurance that an active market for the New Notes will develop. See "Risk Factors-Absence of a Public Market Could Adversely Affect the Value of Notes." Moreover, to the extent that Old Notes are tendered and accepted in the Exchange Offer, the trading market for untendered and tendered but unaccepted Old Notes could be adversely affected. The New Notes will be available initially only in book-entry form and the Issuers expect that the New Notes issued pursuant to this Exchange Offer will be issued in the form of a Global Note (as defined herein), which will be deposited with, or on behalf of, The Depository Trust Company ("DTC") and registered in its name or in the name of Cede & Co., its nominee. Beneficial interests in the Global Note representing the New Notes will be shown on, and transfers thereof will be effected through, records maintained by the DTC and its participants. After the initial issuance of the Global Note, New Notes in certified form will be issued in exchange for the Global Note only under the limited circumstances set forth in the Indenture. See "Description of the Notes-Book-Entry; Delivery and Form." All of the titles of the Company's publications referenced herein are trademarks of the Company. iii AVAILABLE INFORMATION The Issuers and Holdings have filed with the Commission a Registration Statement on Form S-4 (the "Exchange Offer Registration Statement," which term shall encompass all amendments, exhibits, annexes and schedules thereto) pursuant to the Securities Act, and the rules and regulations promulgated thereunder, covering the New Notes being offered hereby. This Prospectus does not contain all the information set forth in the Exchange Offer Registration Statement. For further information with respect to the Issuers and the Exchange Offer, reference is made to the Exchange Offer Registration Statement. Statements made in this Prospectus as to the contents of any contract, agreement or other document referred to are not necessarily complete. With respect to each such contract, agreement or other document filed as an exhibit to the Exchange Offer Registration Statement, reference is made to the exhibit for a more complete description of the document or matter involved, and each such statement shall be deemed qualified in its entirety by such reference. The Exchange Offer Registration Statement, including the exhibits thereto, can be inspected and copied at the public reference facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, at the Regional Offices of the Commission at 7 World Trade Center, 13th Floor, New York, New York 10048 and at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such materials can be obtained from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The Commission maintains a Web site that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Commission. The address of such site is http://www.sec.gov. As a result of the filing of the Exchange Offer Registration Statement with the Commission, the Issuers and Holdings will become subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance therewith will be required to file periodic reports and other information with the Commission. The obligation of the Issuers and Holdings to file periodic reports and other information with the Commission will be suspended if the Notes are held of record by fewer than 300 holders as of the beginning of any fiscal year of the Issuers and Holdings other than the fiscal year in which the Exchange Offer Registration Statement is declared effective. The Issuers have agreed that, whether or not they are required to do so by the rules and regulations of the Commission, for so long as any of the Notes remain outstanding, they will furnish to the holders of the Notes and file with the Commission (unless the Commission will not accept such a filing) (i) all quarterly and annual financial information that would be required to be contained in a filing with the Commission on Forms 10-Q and 10-K if the Issuers were required to file such forms, including a "Management's Discussion and Analysis of Financial Condition and Results of Operations" and, with respect to the annual information only, a report thereon by the Issuers' certified independent accountants and (ii) all current reports that would be required to be filed with the Commission on Form 8-K if the Issuers were required to file such reports. In addition, for so long as any of the Notes remain outstanding, the Issuers have agreed to furnish to the holders of the Notes or any prospective transferee of any such holder, upon their request the information required to be delivered by Rule 144A(d)(4) under the Securities Act. iv CROSS REFERENCE SHEET PURSUANT TO ITEM 501(B) OF REGULATION S-K SHOWING LOCATION IN PROSPECTUS OF INFORMATION REQUIRED BY ITEMS OF PART I OF FORM S-4
REGISTRATION STATEMENT CAPTION OR ITEM NUMBER AND CAPTION LOCATION IN PROSPECTUS ----------------------- ---------------------- 1.Forepart of Registration Statement and Outside Front Cover Page of Prospectus...... Outside Front Cover Page 2.Inside Front and Outside Back Inside Front Cover Page; Outside Back Cover Cover Pages of Prospectus..... Page 3.Risk Factors, Ratio of Earnings to Fixed Charges and Other Summary; The Investors; Selected Historical Information................... Financial Data; Unaudited Pro Forma Financial Data 4.Terms of the Transaction........ Outside Front Cover Page; Summary; Description of the Notes; The Exchange Offer; Certain Federal Income Tax Consequences 5.Pro Forma Financial Information................... Unaudited Pro Forma Financial Data 6.Material Contracts with the Company Being Acquired........ Inapplicable 7.Additional Information Required...................... Inapplicable 8.Interests of Named Experts and Counsel....................... Legal Matters; Experts 9.Disclosure of Commission Position on Indemnification for Securities Act Liabilities................... Inapplicable 10.Information with Respect to S-3 Registrants................... Inapplicable 11.Incorporation of Certain Information by Reference...... Inapplicable 12.Information with Respect to S-3 or S-2 Registrants............ Inapplicable 13.Incorporation of Certain Information by Reference...... Inapplicable 14.Information with Respect to Registrants other than S-3 or Outside Front Cover Page; Summary; Risk S-2 Registrants............... Factors; The Transactions; The Investors; Use of Proceeds; Capitalization; Unaudited Pro Forma Financial Data; Selected Historical Financial Data; Management's Discussion and Analysis of Financial Condition and Results of Operations; Business; Management; Certain Transactions; Security Ownership of Certain Beneficial Owners and Management; Limited Liability Company Agreement; Description of Senior Credit Facility; Description of the Notes 15.Information with Respect to S-3 Companies..................... Inapplicable 16.Information with Respect to S-3 or S-2 Companies.............. Inapplicable 17.Information with Respect to Companies Other than S-3 or S- 2 Companies................... Inapplicable 18.Information if Proxies, Consents or Authorizations are to be Solicited..................... Inapplicable 19.Information if Proxies, Consents or Authorizations are not to Management; Security Ownership of Certain be Solicited or in an Exchange Beneficial Owners and Management; Certain Offer......................... Transactions
SUMMARY The following summary is qualified in its entirety by the more detailed information and financial statements, including the notes thereto, appearing elsewhere in this Prospectus. All references to fiscal years in this Prospectus refer to years ended November 30. On September 30, 1996, the Company acquired substantially all of the publishing assets and assumed certain liabilities of Petersen Publishing Company (the "Acquisition"). Unless the context otherwise requires: (i) the term "Petersen" refers to the historical operations of the publishing division of Petersen Publishing Company prior to the Acquisition; (ii) the term "Company" refers to Petersen Publishing Company, L.L.C. and its predecessors and subsidiaries; (iii) the term "Issuers" collectively refers to Petersen Publishing Company, L.L.C. and Petersen Capital Corp., a wholly owned subsidiary of the Company; (iv) the term "Holdings" refers to Petersen Holdings, L.L.C., which owns 99.9% of the Company's equity securities and (v) the term "BrightView" refers to BrightView Communications Group, Inc., which owns 0.1% of the Company's equity securities. THE COMPANY The Company is a leading publisher of special-interest magazines. The Company's diverse portfolio currently contains a total of 73 publications, including 22 monthly publications, 9 bi-monthly publications and 42 singe issue or annual publications. According to Media Market Research Institute, the Company's magazines reach over 40 million readers each month. The Company's nationally-recognized magazines include (i) Motor Trend, which is recognized as a leading authority on new domestic and foreign automobiles and has a current monthly circulation of approximately 1.0 million, (ii) 'TEEN, which has the largest circulation of any of the Company's magazines with a current monthly circulation of over 1.3 million and (iii) Hot Rod, which is one of the largest circulation automotive magazines in the world with a current monthly circulation of over 810,000. The Company's other core publications are well- known in their respective markets and include Guns & Ammo, Skin Diver, 4 Wheel & Off-Road, Car Craft, Petersen's Hunting, Motorcyclist, Sport Truck, Circle Track & Racing Technology ("Circle Track"), Photographic and Dirt Rider. Eight of the Company's 13 core publications ranked first in their respective markets based on annual circulation in 1995. The Company's principal sources of revenues are from advertising and circulation. The Company had net revenues of $213.6 million and $168.8 million for fiscal 1995 and the nine months ended August 31, 1996, respectively. Circulation revenues are generated from both subscription and newsstand sales. For fiscal 1995, approximately 58% of the Company's revenues were from advertising, 38% were from circulation (including 20% from subscription sales and 18% from newsstand sales) and 4% were from other sources. In fiscal 1995, the Company's 13 core publications each generated a minimum of approximately $1.0 million of profit contribution and, in the aggregate, generated over $55.2 million of the Company's profit contribution. During the same period, no single publication accounted for more than 15% of the Company's net revenues or 28% of profit contribution. As a result of such diversification, the Company believes that it is not dependent on any single publication and is less susceptible to shifts in advertising spending across industry sectors. The Company's core publications collectively average over 30 years in publication and have developed nationally-recognized branded titles within each of their respective markets. By using its core publications as a platform for launching new spin-off publications, the Company has been able to develop a portfolio of highly-specialized publications covering a wide variety of interests. The Company believes that its reputation as a high-quality publisher and its significant market presence have historically enabled its new publications to gain market share more rapidly in their respective special- interest segments. Substantially all of the Company's magazines target special-interest enthusiasts. By doing so, the Company is able to deliver a solid core audience to its advertisers on a consistent basis and create an opportunity for its advertisers to efficiently reach their target audience. Due to the special- interest nature of the Company's 1 magazines, readers not only value their specialized editorial content but also rely on such magazines as a catalogue of products in the relevant topic area. This catalogue aspect makes the Company's magazines an essential advertising medium for many of the Company's advertisers. Certain of the Company's advertisers rely on the Company's publications as their primary source of media advertising. As compared to general-interest magazines, the Company believes that its advertising revenues are less susceptible to changes in general economic conditions due to the diversity of its publications, the special- interest nature of its editorial content and the endemic nature of its advertiser base. In addition, the Company has a diverse advertiser base, with its top 25 advertisers accounting for only 32.6% and 32.9% of the Company's advertising revenues during fiscal 1995 and the nine months ended August 31, 1996, respectively. In addition to offering its advertisers targeted advertising within individual magazines, the Company can offer its advertisers the ability to reach a large audience by advertising across the Company's large portfolio of magazines. Management believes this capability was not fully developed by Petersen's prior management. In particular, the Company believes that many of its publications provide its advertisers with unique access to the adult male (ages 18 to 34) and young female (ages 12 to 19) markets. The Company believes that, in the aggregate, its publications reach more adult males than those of any other magazine publisher and reach over one-third of all young females in the United States. The adult male market is particularly attractive to advertisers due to its size and overall purchasing power, while the young female market provides advertisers with the opportunity to establish brand recognition during the formative stages of this important consumer group's buying patterns. The following table sets forth certain information regarding the Company's 13 core publications for its fiscal year ended November 30, 1995:
NET TOTAL CIRCULATION MAGAZINE TITLE REVENUES(A) CIRCULATION(B) RANK(B)(C) -------------- --------------------- --------------------- ----------- (AMOUNTS IN MILLIONS) (COPIES IN THOUSANDS) Motor Trend......... $31.3 950.6 2 of 4 'TEEN............... 24.1 1,311.8 3 of 3 Hot Rod............. 19.7 810.2 1 of 2 Guns & Ammo......... 13.6 570.8 1 of 2 Skin Diver.......... 13.3 229.0 1 of 2 4 Wheel & Off-Road.. 12.0 367.7 1 of 2 Car Craft........... 9.8 389.7 1 of 1 Petersen's Hunting.. 7.3 331.2 1 of 1 Motorcyclist........ 6.8 239.6 2 of 2 Sport Truck......... 6.2 192.1 1 of 2 Circle Track........ 6.0 131.6 2 of 2 Photographic........ 5.7 217.5 3 of 3 Dirt Rider.......... 5.4 160.8 1 of 3
- -------- (a) Includes advertising, circulation and other revenues for the year ended November 30, 1995. (b) Based on the average circulation for each publication for the year ended December 31, 1995. (c) Includes only national publications that are tracked by industry analysts and does not include small regional publications and newsletters The Company completed the Acquisition on September 30, 1996. The Company's investors pursued the Acquisition because they believed it offered an attractive opportunity to: (i) acquire a diverse portfolio of profitable magazines with significant growth potential; (ii) bring together a skilled and experienced management team, consisting of the Company's new senior managers and Petersen's existing publishers and editorial staff; (iii) apply professional management techniques to the Company's portfolio and improve its operating results by 2 increasing circulation and advertising revenues and reducing operating costs and (iv) further develop the Company's brand-name franchises with limited additional capital investment. Management believes that opportunities exist to achieve each of these results both in the near term and on a going-forward basis. BUSINESS AND OPERATING STRATEGY The Company's core publications collectively average over 30 years in publication and have developed nationally-recognized branded titles in each of their respective markets. The Company believes that the enthusiast nature of its readership provides it with a loyal subscriber base and enables it to deliver a solid core audience to its advertisers on a consistent basis. As a result, management believes that the Company maintains a number of significant competitive advantages. Historically, Petersen expanded primarily by introducing special-interest magazines to serve niche audiences in areas in which its founder had a personal interest. In pursuing such expansion, Petersen maintained a consistent focus on the high-quality editorial content of its magazines. However, Petersen was organized into six distinct publishing groups that essentially operated independently from one another and were focused primarily on editorial development and advertising revenue generation rather than overall profitability. As a result, management believes that Petersen did not fully realize all available operating synergies. The Company's new management team has significant experience in the magazine publishing industry. Based upon such experience, management has developed a detailed business and operating strategy for the Company, primarily comprising operating policies and procedures that have proven successful in their prior experience and are widely practiced throughout the publishing industry. The Company's business and operating strategy is primarily designed to leverage off of its nationally-recognized brand names and improve the profitability of the Company. The key elements of this strategy include: REORGANIZE OPERATING STRUCTURE. Following the Acquisition, new management reorganized several operating areas of the Company to facilitate a more integrated and unified approach to circulation, production and advertising sales, while retaining independent editorial direction of its magazines. The Company's circulation operations, which include such functions as subscription marketing and planning, fulfillment and newsstand distribution, were previously organized by magazine group and managed by generalists focused on each magazine group. Circulation operations have been reorganized on a functional basis across all of the Company's publications and will be managed by specialists within each function. Certain of these functions are being relocated to New York in order to take advantage of expertise not readily available elsewhere. In addition, the Company's production activities are being centralized across all of its publications rather than by magazine group. The Company's national advertising sales management is being relocated from Los Angeles to New York to be in closer proximity to national advertising accounts. Similarly, management of the young women's titles is being moved to New York to increase the visibility of such magazines among advertisers in the fashion and cosmetic industries. IMPLEMENT OPERATING IMPROVEMENTS. Management has identified and has substantially implemented operating improvements that are expected to result in significant cost savings. These measures include the following: . REDUCE OPERATING COSTS. At the time of the Acquisition, management identified certain cost reduction measures, including: (i) savings in personnel and related net lease costs; (ii) lower utilization of temporary employees and services; (iii) the consolidation of one or more of the Company's regional sales offices; (iv) tighter purchasing procedures and controls and (v) reductions in the Company's travel and entertainment expenditures. A substantial number of these cost reduction measures have been completed, including personnel reductions expected to result in annualized cost savings of approximately $4.9 million. 3 . RESTRUCTURE VENDOR RELATIONSHIPS. Immediately following the Acquisition, management commenced an extensive review of the Company's significant vendor relationships, including its printing, paper supply, fulfillment and newsstand distribution arrangements. Based on that review and meetings with certain of such vendors, management believes that there are opportunities to enhance these relationships and to improve the economic terms of such arrangements for the Company. Although no definitive agreements have been executed, the Company believes that it will be successful in achieving more favorable terms with many of its vendors. . IMPROVE PERFORMANCE OF CERTAIN PUBLICATIONS. Management believes that it can improve the Company's profitability by implementing changes designed to eliminate or significantly reduce the losses currently being generated by certain of the Company's publications. The Company has five magazines (Sassy, Sport, Petersen's Golfing, Bicycle Guide and Mountain Biker) that collectively accounted for negative profit contribution of $7.6 million and $5.2 million for fiscal 1995 and the nine months ended August 31, 1996, respectively. In December 1996, the Company completed the process of merging Sassy into 'TEEN, thereby eliminating the losses being generated by Sassy. Sassy generated negative profit contribution of $4.7 million and $2.9 million for fiscal 1995 and the nine months ended August 31, 1996, respectively. While the remaining magazines collectively are expected to break even or be marginally profitable in fiscal 1997, in the event such magazines continue to generate losses, management expects to take one or more of the following actions: (i) discontinue or sell such magazines; (ii) merge such magazines with the Company's existing magazines or (iii) enter into strategic partnerships with third parties. Management expects that a final decision with respect to each magazine will be made by the end of fiscal 1997. INCREASE CIRCULATION AND ADVERTISING REVENUES. Management believes that there are significant opportunities to increase circulation and advertising revenues. The Company has historically focused on the newsstand distribution channel and has relied heavily upon agency subscription sales in managing its circulation operations. Management believes that it can increase subscription revenues by instituting programs designed to increase the number of readers who buy subscriptions directly from the Company. For example, the Company has begun to develop a database of its over 32 million current or former subscribers that will allow it to cross-sell its other publications to such subscribers. In addition, management intends to increase the newsstand and subscription prices on certain of its publications in order to bring such prices in line with competitive publications. Management believes that it can increase the Company's advertising revenues by adopting a more unified approach to advertising sales, which will focus on enhancing the ability of the Company's advertisers to purchase advertising space across all of the Company's magazines that reach their target markets. In addition, management intends to increase the Company's advertiser base by targeting new advertisers and advertisers in other industry categories. Such advertisers include, among others, manufacturers of men's apparel, footwear and accessories and alcoholic beverages. The Company has also implemented a new commission sales policy designed to provide more effective incentives to the Company's advertising sales force. Prior management's policy did not provide additional incentives to sales personnel once they had reached their annual sales target, which often occurred prior to the conclusion of Petersen's fiscal year. In addition, by designing the database described above with the capability of identifying specific segments within each of its markets, the Company believes it can offer its advertisers increased value and thus generate additional advertising revenues. ESTABLISH PERFORMANCE-BASED INCENTIVES. The significant equity interests held by the Company's senior management provide such executives with an incentive to maximize the Company's overall profitability. In addition, to provide incentives to the Company's existing management and assist management in implementing the new business strategy, the Company plans to adopt new compensation arrangements designed to reward managers and other participating employees based upon the Company's operating performance. 4 Develop Ancillary Revenue Sources. The Company was historically operated as a traditional consumer magazine company deriving substantially all of its revenues from advertising and circulation sales. On an industry-wide basis, management estimates that consumer magazine publishers currently derive approximately 10% to 20% of their revenues from ancillary revenue sources while the Company currently derives only about 4% of its revenues from such sources. In recent months, the Company has begun to explore the ancillary revenue opportunities afforded by its well-established brand names. For example, the Company has recently entered into licensing agreements relating to the use of its Motor Trend and Hot Rod brand names for weekly television shows on The Nashville Network (TNN) and its Guns & Ammo brand name for a weekly television show on ESPN. In addition, because the editorial content of many of its magazines would also appeal to readers outside of the United States, management believes that significant opportunities exist to establish international licensing agreements, particularly in Asia, Australia, Great Britain and Western Europe. The Company believes that there are significant opportunities to increase revenues by leveraging off the editorial content and the nationally-recognized brand names of the Company's existing publications through licensing arrangements, strategic joint ventures, retail alliances, subscriber list rentals, affinity group marketing and electronic publishing. Establish New Titles. The Company has successfully expanded its magazine portfolio by launching new publications to serve niche audiences in related markets and by making selective acquisitions of existing magazine titles. Thirteen of the Company's 31 current monthly and bimonthly titles were launched or acquired by the Company since 1990. The Company plans to continue to develop and launch new special-interest magazines and acquire existing magazines that will complement and enhance its existing portfolio. THE TRANSACTIONS The Acquisition. The Company completed the Acquisition on September 30, 1996. The aggregate purchase price of the Acquisition, which is subject to certain working capital adjustments, was $450.0 million, plus the assumption of certain ongoing liabilities incurred in the ordinary course of business. The Company expects to receive approximately $4.0 million from Petersen as a result of the working capital adjustment. The Financing Plan. The Initial Offering was part of a plan designed to enable the Company to finance the Acquisition and to provide additional liquidity. In connection with the Acquisition, the Company: (i) borrowed $200.0 million under a $260.0 million senior credit facility (the "Senior Credit Facility"); (ii) borrowed $100.0 million under a bridge financing facility (the "Bridge Financing Facility") and (iii) received equity contributions of $165.3 million from an investor group led by Willis Stein & Partners, L.P. ("Willis Stein"). The Acquisition, the borrowings under the Senior Credit Facility and the Bridge Financing Facility and the equity contributions are collectively referred to herein as the "Transactions." The Company applied the net proceeds of the Initial Offering to repay the Bridge Financing Facility. The following table sets forth the sources and uses of funds in the Acquisition (dollars in thousands): SOURCES: Senior Credit Facility(a)(b)(c).................................. $200,000 Bridge Financing Facility(b)..................................... 100,000 Equity contributions(b).......................................... 165,300 -------- Total sources.................................................. $465,300 ======== USES: Acquisition consideration(c)..................................... $450,000 Fees and expenses(d)............................................. 15,300 -------- Total uses..................................................... $465,300 ========
5 - -------- (a) On a pro forma basis, as of August 31, 1996, the Company would have had $60.0 million of additional borrowing availability under the Senior Credit Facility. (b) First Union National Bank of North Carolina ("FBNC") and Canadian Imperial Bank of Commerce ("CIBC"), affiliates of First Union Capital Makers Corp. and CIBC Wood Gundy Securities Corp., the initial purchasers under the Initial Offering (the "Initial Purchasers"), are the agents and principal lenders under the Senior Credit Facility. First Union Corporation and CIBC were the lenders under the Bridge Financing Facility. First Union Investors, Inc. and CIBC WG Argosy Merchant Fund 2, L.L.C., both affiliates of the Initial Purchasers, provided a portion of the equity financing in connection with the Acquisition. (c) Does not reflect the working capital adjustment of approximately $4.0 million expected to be paid to the Company by Petersen in connection with the Acquisition. The proceeds therefrom will be used to reduce borrowings under the Senior Credit Facility. (d) Includes estimated fees and expenses related to the Transactions and the Initial Offering (including the Initial Purchasers' discount). To the extent such fees are less than estimated, the remainder will be applied to working capital. THE INVESTORS The Company's investors (the "Investors") include the following: Willis Stein; First Union Investors, Inc.; CIBC WG Argosy Merchant Fund 2, L.L.C.; Chase Equity Associates, L.P.; BankAmerica Investment Corporation; certain other limited partners of Willis Stein; Robert E. Petersen, Petersen's founder and the Company's Chairman Emeritus; and certain members of the Company's senior management, including Messrs. D. Claeys Bahrenburg, Neal Vitale, James D. Dunning, Jr., Laurence H. Bloch and Stuart Karu (the "Management Investors"). The Management Investors have significant experience in managing media-related companies and in managing leveraged acquisitions. The Company's controlling investor, Willis Stein, is a private investment fund with committed capital of approximately $343.0 million. The principals of Willis Stein were formerly with Continental Illinois Venture Corporation ("CIVC"), where they managed CIVC's investments in a number of media-related companies as well as other investments. THE ISSUERS Petersen Publishing Company, L.L.C. is a Delaware limited liability company. The Company's equity securities are held 99.9% by Holdings and 0.1% by BrightView. BrightView is the managing member of Holdings and as such controls the policies and operations of Holdings and of the Company. The Company was organized in September 1996 for the principal purpose of completing the Acquisition. Petersen's origins date back to 1948, when its founder, Robert E. Petersen, first began publishing and selling a specialized newsletter entitled Hot Rod. The Company's principal executive offices are located at 6420 Wilshire Boulevard, Los Angeles, California 90048 and its telephone number is (213) 782- 2000. Petersen Capital Corp., a wholly owned subsidiary of the Company, was incorporated in Delaware for the purpose of serving as a co-issuer of the Notes in order to facilitate the Initial Offering. Capital will not have substantial operations or assets of any kind and will not have any revenues. As a result, prospective purchasers of Notes should not expect Capital to participate in servicing the interest or principal obligations of the Notes. 6 THE INITIAL OFFERING NOTES....................... The Old Notes were sold by the Issuers on November 25, 1996 to the Initial Purchasers pursuant to a Purchase Agreement, dated November 20, 1996 (the "Purchase Agreement"). The Initial Purchasers subsequently resold the Old Notes to qualified institutional buyers pursuant to Rule 144A under the Securities Act. REGISTRATION RIGHTS Pursuant to the Purchase Agreement, the Issuers AGREEMENT................... and the Initial Purchasers entered into a Registration Rights Agreement, dated as of November 25, 1996 (the "Registration Rights Agreement"), which grants the holders of the Old Notes certain exchange and registration rights. The Exchange Offer is intended to satisfy such exchange rights which terminate upon the consummation of the Exchange Offer. THE EXCHANGE OFFER SECURITIES OFFERED.......... $100,000,000 aggregate principal amount of 11 1/8% Series B Senior Subordinated Notes due 2006 of the Issuers. THE EXCHANGE OFFER.......... $1,000 principal amount of New Notes in exchange for each $1,000 principal amount of Old Notes. As of the date hereof, $100,000,000 aggregate principal amount of Old Notes are outstanding. The Issuers will issue the New Notes to holders on or promptly after the Expiration Date. Based on an interpretation by the staff of the Commission set forth in no-action letters issued to third parties, the Issuers believe that New Notes issued pursuant to the Exchange Offer in exchange for Old Notes may be offered for resale, resold and otherwise transferred by any holder thereof (other than any such holder which is an "affiliate" of the Issuers within the meaning of Rule 405 under the Securities Act) without compliance with the registration and prospectus delivery provisions of the Securities Act, provided that such New Notes are acquired in the ordinary course of such holder's business and that such holder does not intend to participate and has no arrangement or understanding with any person to participate in the distribution of such New Notes. Each holder accepting the Exchange Offer is required to represent to the Issuers in the Letter of Transmittal that, among other things, the New Notes will be acquired by the holder in the ordinary course of business and the holder does not intend to participate and has no arrangement or understanding with any person to participate in the distribution of such New Notes. Any Participating Broker-Dealer that acquired Old Notes for its own account as a result of market- making activities or other trading activities may be a statutory underwriter. Each Participating Broker-Dealer that receives New Notes for its own account pursuant to the 7 Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such New Notes. The Letter of Transmittal states that by so acknowledging and by delivering a prospectus, a Participating Broker-Dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. This Prospectus, as it may be amended or supplemented from time to time, may be used by a Participating Broker-Dealer in connection with resale of New Notes received in exchange for Old Notes where such Old Notes were acquired by such Participating Broker-Dealer as a result of market-making activities or other trading activities. The Issuers have agreed that, for a period of 180 days after the Expiration Date, they will make this Prospectus available to any Participating Broker-Dealer for use in connection with any such resale; provided, however, the Issuers and the Guarantor (as defined herein) have no obligation to amend or supplement this Prospectus unless one of them has received written notice from a Participating Broker-Dealer of their prospectus delivery requirements under the Exchange Act within five business days following consummation of the Exchange Offer. See "Plan of Distribution." Any holder who tenders in the Exchange Offer with the intention to participate, or for the purpose of participating, in a distribution of the New Notes could not rely on the position of the staff of the Commission enunciated in no-action letters and, in the absence of an exemption therefrom, must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction. Failure to comply with such requirements in such instance may result in such holder incurring liability under the Securities Act for which the holder is not indemnified by the Issuers. EXPIRATION DATE............. 5:00 p.m., New York City time, on , 1997 unless the Exchange Offer is extended, in which case the term "Expiration Date" means the latest date and time to which the Exchange Offer is extended. ACCRUED INTEREST ON THE NEW NOTES AND THE OLD NOTES.... Each New Note will bear interest from its issuance date. Holders of Old Notes that are accepted for exchange will receive, in cash, accrued interest thereon to, but not including, the issuance date of the New Notes. Such interest will be paid with the first interest payment on the New Notes. Interest on the Old Notes accepted for exchange will cease to accrue upon issuance of the New Notes. CONDITIONS TO THE EXCHANGE The Exchange Offer is subject to certain OFFER....................... customary conditions, which may be waived by the Issuers. See "The Exchange Offer--Conditions." PROCEDURES FOR TENDERING Each holder of Old Notes wishing to accept the OLD NOTES................... Exchange Offer must complete, sign and date the accompanying Letter of 8 Transmittal, or a facsimile thereof, in accordance with the instructions contained herein and therein, and mail or otherwise deliver such Letter of Transmittal, or such facsimile, or an Agent's Message in connection with a book entry transfer, together with the Old Notes and any other required documentation to the Exchange Agent (as defined) at the address set forth herein. By executing the Letter of Transmittal, each holder will represent to the Issuers that, among other things, the New Notes acquired pursuant to the Exchange Offer are being obtained in the ordinary course of business of the person receiving such New Notes, whether or not such person is the holder, that neither the holder nor any such other person (i) has any arrangement or understanding with any person to participate in the distribution of such New Notes, (ii) is engaging or intends to engage in the distribution of such New Notes, or (iii) is an "affiliate," as defined under Rule 405 of the Securities Act, of the Issuers. See "The Exchange Offer--Purpose and Effect of the Exchange Offer" and "--Procedures for Tendering." UNTENDERED OLD NOTES........ Following the consummation of the Exchange Offer, holders of Old Notes eligible to participate but who do not tender their Old Notes will not have any further exchange rights and such Old Notes will continue to be subject to certain restrictions on transfer. Accordingly, the liquidity of the market for such Old Notes could be adversely affected. CONSEQUENCES OF FAILURE TO EXCHANGE................... The Old Notes that are not exchanged pursuant to the Exchange Offer will remain restricted securities. Accordingly, such Old Notes may be resold only (i) to the Issuers, (ii) pursuant to Rule 144A or Rule 144 under the Securities Act or pursuant to some other exemption under the Securities Act, (iii) outside the United States to a foreign person pursuant to the requirements of Rule 904 under the Securities Act, or (iv) pursuant to an effective registration statement under the Securities Act. See "The Exchange Offer--Consequences of Failure to Exchange." SHELF REGISTRATION If any holder of the Old Notes (other than any STATEMENT................... such holder which is an "affiliate" of the Issuers within the meaning of Rule 405 under the Securities Act) is not eligible under applicable securities laws to participate in the Exchange Offer, and such holder has provided information regarding such holder and the distribution of such holder's Old Notes to the Issuers for use therein, the Issuers has agreed to register the Old Notes on a shelf registration statement (the "Shelf Registration Statement") and use its best efforts to cause it to be declared effective by the Commission as promptly as practical on or after the consummation of the Exchange Offer. The Issuers has agreed to maintain the effectiveness of the Shelf Registration Statement for, under certain circumstances, a maximum of three years, to cover resales of the Old Notes held by any such holders. 9 SPECIAL PROCEDURES FOR BENEFICIAL OWNERS.......... Any beneficial owner whose Old Notes are registered in the name of a broker, dealer, commercial bank, trust company or other nominee and who wishes to tender should contact such registered holder promptly and instruct such registered holder to tender on such beneficial owner's behalf. If such beneficial owner wishes to tender on such owner's own behalf, such owner must, prior to completing and executing the Letter of Transmittal and delivering its Old Notes, either make appropriate arrangements to register ownership of the Old Notes in such owner's name or obtain a properly completed bond power from the registered holder. The transfer of registered ownership may take considerable time. The Issuers will keep the Exchange Offer open for not less than twenty days in order to provide for the transfer of registered ownership. GUARANTEED DELIVERY Holders of Old Notes who wish to tender their Old PROCEDURES................. Notes and whose Old Notes are not immediately available or who cannot deliver their Old Notes, the Letter of Transmittal or any other documents required by the Letter of Transmittal to the Exchange Agent (or comply with the procedures for book-entry transfer) prior to the Expiration Date must tender their Old Notes according to the guaranteed delivery procedures set forth in "The Exchange Offer--Guaranteed Delivery Procedures." WITHDRAWAL RIGHTS........... Tenders may be withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration Date. ACCEPTANCE OF OLD NOTES AND DELIVERY OF NEW NOTES...... The Issuers will accept for exchange any and all Old Notes which are properly tendered in the Exchange Offer prior to 5:00 p.m., New York City time, on the Expiration Date. The New Notes issued pursuant to the Exchange Offer will be delivered promptly following the Expiration Date. See "The Exchange Offer--Terms of the Exchange Offer." USE OF PROCEEDS............. There will be no cash proceeds to the Issuers from the exchange pursuant to the Exchange Offer. EXCHANGE AGENT.............. United States Trust Company of New York. THE NEW NOTES GENERAL..................... The form and terms of the New Notes are the same as the form and terms of the Old Notes (which they replace) except that (i) the New Notes bear a Series B designation, (ii) the New Notes have been registered under the Securities Act and, therefore, will not bear legends restricting the transfer thereof, and (iii) the holders of New Notes will not be entitled to certain rights under the Registration Rights Agreement, including the provisions providing for an increase in the interest rate on the Old Notes in certain 10 circumstances relating to the timing of the Exchange Offer, which rights will terminate when the Exchange Offer is consummated. See "The Exchange Offer--Purpose and Effect of the Exchange Offer." The New Notes will evidence the same debt as the Old Notes and will be entitled to the benefits of the Indenture. See "Description of the Notes." The Old Notes and the New Notes are referred to herein collectively as the "Notes." ISSUERS..................... The New Notes will be joint and several obligations of Petersen Publishing Company, L.L.C. and Petersen Capital Corp. MATURITY DATE............... November 15, 2006. INTEREST PAYMENT DATES...... Interest will accrue on the New Notes from the date of issuance (the "Issue Date") and will be payable semiannually on each November 15 and commencing May 15, 1997. OPTIONAL REDEMPTION......... The Notes will be redeemable at the option of the Issuers, in whole or in part, at any time on or after November 15, 2001, at the redemption prices set forth herein, plus accrued and unpaid interest to the redemption date. Prior to November 15, 1999, the Issuers, at their option, may redeem in the aggregate up to 25% of the original principal amount to the Notes at 111.125% of the aggregate principal amount so redeemed plus accrued and unpaid interest to the redemption date with the Net Proceeds of one or more Public Equity Offerings, provided that at least $75.0 million of the principal amount of Notes originally issued remain outstanding immediately after the occurrence of any redemption and that any such redemption occurs within 90 days following the closing of any such Public Equity Offering. RANKING..................... The Notes will be general unsecured obligations of the Issuers, subordinated in right of payment to all existing and future Senior Indebtedness of the Issuers and senior in right of payment to any subordinated indebtedness of the Issuers. As of August 31, 1996, after giving effect to the Transactions and the Initial Offering, the Company would have had $200.0 million aggregate principal amount of Senior Indebtedness outstanding. In addition, the Company would have had $60.0 million of additional borrowing availability under the Senior Credit Facility. GUARANTEES.................. The Notes will be unconditionally guaranteed, on an unsecured senior subordinated basis, as to the payment of principal, premium, if any, and interest, jointly and severally (the "Guarantees"), by Holdings and by all direct and indirect domestic Restricted Subsidiaries of Holdings and the Company having either assets or stockholders' equity in excess of $5,000 (the "Guarantors"). The Guarantees will be subordinated to all Senior Indebtedness of the 11 respective Guarantors. See "Description of the Notes--Certain Covenants--Limitation on Creation of Subsidiaries." CHANGE OF CONTROL........... In the event of a Change of Control, holders of the New Notes will have the right to require the Issuers to purchase their New Notes at 101% of the aggregate principal amount thereof plus accrued and unpaid interest to the purchase date. See "Description of the Notes--Change of Control Offer." ASSET SALE PROCEEDS......... The Issuers will be obligated in certain instances to make offers to repurchase the Notes at a purchase price in cash equal to 100% of the principal amount thereof plus accrued and unpaid interest to the date of repurchase with the net cash proceeds of certain asset sales. See "Description of the Notes--Certain Covenants-- Limitation on Certain Asset Sales." COVENANTS................... The Indenture contains covenants for the benefit of the holders of the Notes that, among other things, restrict the ability of the Company and any Restricted Subsidiaries (as defined herein) to: (i) incur additional Indebtedness; (ii) pay dividends and make distributions; (iii) issue stock of subsidiaries; (iv) make certain investments; (v) repurchase stock; (vi) create liens; (vii) enter into transactions with affiliates; (viii) enter into sale-leaseback transactions; (ix) merge or consolidate the Company or any Guarantors and (x) transfer and sell assets. The Indenture provides for restrictions on the ability of BrightView and Holdings to incur additional Indebtedness. These covenants are subject to a number of important exceptions, including the allowance of Permitted Tax Distributions (as defined herein) as a result of the Company's status as a limited liability company. See "Description of the Notes-- Certain Covenants." RISK FACTORS Prospective investors should carefully consider the specific matters set forth under "Risk Factors" as well as the other information and data included in this Prospectus before tendering the Old Notes in exchange for New Notes. 12 SUMMARY HISTORICAL FINANCIAL DATA The following tables present summary historical financial data for each of the five years in the period ended November 30, 1995 that have been derived from the audited financial statements of Petersen. The statements of income and divisional equity and statements of cash flows for each of the three years in the period ended November 30, 1995 and the notes thereto appear elsewhere in this Prospectus. The summary historical statement of operations balance sheet data as of and for the nine months ended August 31, 1996 and the summary historical statement operations data for the nine months ended August 31, 1995 of Petersen have been derived from unaudited financial statements, which, in the opinion of management, include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results for the unaudited interim periods. Results for the months ended August 31, 1996 are not necessarily indicative of results that may be expected for the entire year.
NINE MONTHS ENDED YEARS ENDED NOVEMBER 30, AUGUST 31, ------------------------------------------------ ------------------ 1991 1992 1993 1994 1995 1995 1996 -------- -------- -------- -------- -------- -------- -------- (DOLLARS IN THOUSANDS) STATEMENT OF OPERATING DATA: Net revenues............ $179,357 $180,503 $186,322 $201,967 $213,615 $160,234 $168,812 Production, selling and other direct costs..... 144,280 135,250 141,562 149,182 171,112 127,305 133,034 -------- -------- -------- -------- -------- -------- -------- Gross Profit............ 35,077 45,253 44,760 52,785 42,503 32,929 35,778 General and administrative expenses............... 32,089 32,328 35,604 33,267 28,145 20,109 20,920 -------- -------- -------- -------- -------- -------- -------- Operating income........ 2,988 12,925 9,156 19,518 14,358 12,820 14,858 Interest income, net.... (1,429) (856) (317) (476) (549) (335) (306) Gain on sale of assets.. -- -- -- -- -- -- (1,554) -------- -------- -------- -------- -------- -------- -------- Income before provision for income taxes....... 4,417 13,781 9,473 19,994 14,907 13,155 16,718 Provision for income taxes(a)............... 125 267 251 698 549 304 393 -------- -------- -------- -------- -------- -------- -------- Net income.............. $ 4,292 $ 13,514 $ 9,222 $ 19,296 $ 14,358 $ 12,851 $ 16,325 ======== ======== ======== ======== ======== ======== ======== OTHER DATA: Depreciation and amortization........... $ 4,496 $ 3,381 $ 3,137 $ 3,118 $ 3,439 $ 2,389 $ 2,449 Capital expenditures.... 4,018 1,419 4,739 2,866 4,423 3,069 695 EBITDA (b).............. 7,484 16,306 12,293 22,636 17,797 15,209 17,307 EBITDA margin........... 4.2% 9.0% 6.6% 11.2% 8.3% 9.5% 10.3%
AS OF AUGUST 31, 1996 --------------- BALANCE SHEET DATA: Working capital................................................. $ 2,284 Total assets.................................................... 57,492 Total debt...................................................... -- Total equity.................................................... 4,323
- -------- (a) Consists of state and local income taxes. As a subchapter S corporation under the Internal Revenue Code of 1986, as amended (the "Code"), Petersen has not been subject to U.S. federal income taxes or most state income taxes. Instead, such taxes have been paid by Petersen's stockholder. Petersen has paid dividends to its stockholder in respect of such tax liabilities. (b) "EBITDA" is defined as income before interest, income taxes, depreciation and amortization and gain on sale of assets. EBITDA is not a measure of performance under generally accepted accounting principles ("GAAP"). While EBITDA should not be considered in isolation or as a substitute for net income, cash flows from operating activities and other income or cash flow statement data prepared in accordance GAAP or as a measure of profitability or liquidity, management understands that EBITDA is customarily used in evaluating magazine publishing companies. 13 SUMMARY PRO FORMA FINANCIAL DATA The following summary pro forma statement of operations data of the Company give effect to, among other things, the Transactions and the Initial Offering, as if they had occurred at the beginning of each of the periods presented. The following unaudited pro forma condensed balance sheet data of the Company give effect to, among other things, the Transactions and the Initial Offering, as if they had occurred on August 31, 1996. Certain management assumptions and adjustments relating to Transactions and the Initial Offering are described in the accompanying notes hereto. The pro forma information should be read in conjunction with the financial statements of Petersen and the notes thereto, as November 30, 1995 and 1994 and for each of the three years in the period ended November 30, 1995, appearing elsewhere in this Prospectus. This pro forma information is not necessarily indicative of the results that would have occurred had the Transactions and the Initial Offering been completed on the dates indicated or the Company's actual or future results or financial position. The summary pro forma statement of operations, balance sheet and other data should be read in conjunction with the information contained in the financial statements of Petersen and the notes thereto, "Unaudited Pro Forma Financial Data," "Selected Historical Financial Data" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere herein.
YEAR ENDED NINE MONTHS ENDED NOVEMBER 30, 1995 AUGUST 31, 1996 ----------------- ----------------- (DOLLARS IN THOUSANDS) STATEMENT OF OPERATING DATA: Net revenues.............................. $213,615 $168,812 Production, selling and other direct costs.................................... 167,905 129,721 -------- -------- Gross profit.............................. 45,710 39,091 General and administrative expenses....... 23,781 17,821 Amortization of intangible assets......... 31,549 23,662 -------- -------- Operating loss............................ (9,620) (2,392) Interest expense(a)....................... 34,815 26,851 Gain on sale of assets.................... -- (1,554) -------- -------- Loss before provision for income taxes.... (44,435) (27,689) Provision for income taxes(b)............. -- -- -------- -------- Net loss.................................. $(44,435) $(27,689) ======== ======== OTHER DATA: Depreciation and amortization............. $ 34,988 $ 26,111 Capital expenditures...................... 4,423 695 EBITDA(c)(d).............................. 25,368 23,719 EBITDA margin............................. 11.9% 14.1%
AS OF AUGUST 31, 1996 --------------- BALANCE SHEET DATA: Working capital (deficiency)(e)................................. $(25,570) Total assets.................................................... 525,152 Total debt(f)................................................... 300,000 Total equity.................................................... 162,082
- -------- (a) Includes amortization of deferred financing costs related to the financing of the Acquisition in the amount of $4.4 million for the year ended November 30, 1995 and $4.0 million for the nine months ended August 31, 1996. (footnotes continued on next page) 14 (b) As a limited liability company under the Code, the Company is not subject to U.S. federal income taxes or most state income taxes. Instead, such taxes will be paid by the Company's equity holders. The Company is likely to make distributions to its equity holders in respect of such tax liabilities. (c) "EBITDA" is defined as income before interest, income taxes, depreciation and amortization and gain on sale of assets. EBITDA is not a measure of performance under GAAP. While EBITDA should not be considered in isolation or as a substitute for net income, cash flows from operating activities and other income or cash flow statement data prepared in accordance with GAAP, or as a measure of profitability or liquidity, management understands that EBITDA is customarily used in evaluating magazine publishing companies. (d) Pro forma EBITDA, as presented, reflects the following pro forma adjustments and does not reflect additional anticipated cost savings related to management's business and operating strategy, which is currently being implemented:
YEAR ENDED NINE MONTHS ENDED NOVEMBER 30, 1995 AUGUST 31, 1996 ----------------- ----------------- (DOLLARS IN THOUSANDS) Historical EBITDA...................... $17,797 $17,307 Pro forma adjustments: Replacement of executive management(1)....................... 3,713 2,585 Lease modifications(2)............... 72 322 October 1996 personnel reductions(3)....................... 3,786 2,989 Cost of excess space(4).............. -- 516 ------- ------- Pro forma EBITDA....................... $25,368 $23,719 ======= =======
The Company's management believes the following additional adjustments are relevant to evaluating the future operating performance of Company. The following additional adjustments, which eliminate the impact of certain nonrecurring charges and reflect the estimated impact of management's business and operating strategy, are based on estimates and assumptions made and believed to be reasonable by the Company and are inherently uncertain and subject to change. The following calculation should not be viewed as indicative of actual or future results. The following table reflects the effects of these items:
YEAR ENDED NINE MONTHS ENDED NOVEMBER 30, 1995 AUGUST 31, 1996 ----------------- ----------------- (DOLLARS IN THOUSANDS) Pro forma EBITDA....................... $25,368 $23,719 Additional adjustments: Consolidation of Sassy(5)............ 4,699 2,928 Reorganization of loss-producing magazine titles(6).................. 2,947 2,226 Nonrecurring software development costs(7)............................ 4,026 1,589 Prior personnel reductions(8)........ 3,689 1,385 Excess paper costs(9)................ 1,417 4,792 Other estimated cost savings(10)..... 1,111 737 ------- ------- Total pro forma adjustments........ 17,889 13,657 ------- ------- Adjusted pro forma EBITDA.............. $43,257 $37,376 ======= ======= Ratio of total debt to adjusted annualized pro forma EBITDA(11)....... 5.9x Ratio of adjusted pro forma EBITDA to pro forma cash interest expense(12)... 1.7x
-------- (1) Represents: (i) compensation and benefits paid to Mr. Petersen, Petersen's Chairman and founder, and Mr. Waingrow, Petersen's former President, net of compensation to be paid to the Company's new management team; (ii) travel and entertainment expenses attributable to Messrs. Petersen and Waingrow and (iii) compensation and benefits paid to certain support personnel and professional consultants working primarily for Messrs. Petersen and Waingrow. See "Unaudited Pro Forma Financial Data." 15 (2) Represents amounts paid in the periods presented for rent with respect to certain properties owned by Mr. Petersen over amounts payable in future periods pursuant to new leases negotiated in connection with the Acquisition. See "Unaudited Pro Forma Financial Data." (3) In connection with the Acquisition, the Company developed and has substantially implemented a restructuring plan, which includes the termination of certain employees in various corporate and operating positions. Amounts shown represent the savings related to the elimination of these salaries and related costs, as if such changes had occurred as of the beginning of the periods presented. See "Unaudited Pro Forma Financial Data." (4) As a result of personnel reductions and certain other operational consolidations, the Company will have excess space under lease. The Company estimates that the rental costs allocable to such space were $516,000 for the nine months ended August 31, 1996. (5) In December 1996, the Company completed the process of merging Sassy into 'TEEN, thereby eliminating the losses being generated by Sassy. In addition to the cost savings related to the Sassy personnel who will be part of the planned reduction in personnel (for which the costs are included in Note (3) above), the Company expects that the remaining costs of Sassy, net of related revenues, which are summarized below, will be eliminated:
YEAR ENDED NINE MONTHS ENDED NOVEMBER 30, 1995 AUGUST 31, 1996 ----------------- ----------------- (DOLLARS IN THOUSANDS) Revenues............................... $ 3,852 $ 4,794 Costs and expenses..................... 8,551 7,722 ------- ------- Total.................................. $(4,699) $(2,928) ======= =======
(6) Represents losses incurred by Petersen's Golfing, Sport, Bicycle Guide and Mountain Biker during the periods presented. While these magazines collectively are expected to break even or be marginally profitable in fiscal 1997, in the event such magazines continue to generate losses, management expects to take one or more of the following actions: (i) discontinue or sell such magazines; (ii) merge such magazines with the Company's existing magazines or (iii) enter into strategic partnerships with third parties. Management expects that a final decision with respect to each magazine will be made by the end of fiscal 1997. (7) In February 1992, Petersen engaged a consulting firm to design and install systems and related software for use in its operations. The systems and software principally related to an electronic magazine layout system, an advertising rate and circulation modeling system and an automated pre-press operating system. These systems were never fully implemented by Petersen, were replaced by commercially available systems and were ultimately abandoned during fiscal 1996. Petersen subsequently initiated litigation against the consulting firm. Petersen incurred costs of $4.0 million during the year ended November 30, 1995 and $1.6 million during the nine months ended August 31, 1996 related to the consulting agreement, including an accrual of $0.8 million during the nine months ended August 31, 1996 related to the resulting litigation, which remains the responsibility of Petersen. (8) Prior to the Acquisition, Petersen reduced its number of employees in accordance with a plan to reduce costs. The costs of payroll, benefits and severance related to these employee reductions that are estimated to be not recurring were $3.7 million during the year ended November 30, 1995 and $1.4 million during the nine months ended August 31, 1996. (9) Paper prices rose significantly during the latter part of 1995, and in response, Petersen purchased a large supply of 32 lb. paper in December 1995 at prices ranging from $0.61 to $0.66 per pound in anticipation of additional price increases and supply shortages continuing for the remainder of 1995 and 1996. Petersen purchased enough paper to meet all of its production requirements through September 1996. In May 1996, paper prices returned to historical levels of approximately $0.50 per pound. According to Resource Information Systems, Inc., the median price for a comparable grade of paper to that used by Petersen was approximately $0.50 per pound over the last 20 years (as adjusted for inflation). If Petersen had purchased paper at this price, production, selling and other direct costs would have been reduced by $1.4 million and $4.8 million in the year ended November 30, 1995 and the nine months ended August 31, 1996, respectively. Following the Acquisition, the Company entered into an oral agreement with a vendor to secure sufficient paper to meet its projected raw materials needs through the end of fiscal 1997 at or below current market prices. While there can be no assurances, the Company expects that such agreement will be finalized by the end of 1996. (10) Represents the estimate of the reduced levels of travel and entertainment expenses which will be incurred by the Company due to fewer employees and new travel and entertainment policies to be implemented by the Company. (11) Reflects the receipt by the Company of a working capital adjustment of approximately $4.0 million expected to be paid to the Company by Petersen in connection with the Acquisition. Such proceeds will be applied to reduce borrowings under the Senior Credit Facility. (footnotes continued on next page) 16 (12) Excludes amortization of deferred financing costs related to the financing of the Acquisition in the amount of $4.0 million for the nine months ended August 31, 1996. (e) The Company has a pro forma working capital deficiency of $25.6 million as of August 31, 1996 as a result of Petersen retaining all cash and cash equivalents pursuant to the terms of the Acquisition. Pro Forma current liabilities used to calculate this amount include $27.0 million of unearned subscription revenues, net. (f) Does not give effect to the receipt by the Company of a working capital adjustment of approximately $4.0 million expected to be paid to the Company by Petersen in connection with the Acquisition. Such proceeds will be used to reduce borrowings under the Senior Credit Facility. 17 RISK FACTORS This Prospectus including the documents incorporated by reference herein, contains certain forward-looking statements. While the Issuers believe these statements are reasonable, prospective investors should be aware that actual results could differ materially from those projected by such forward-looking statements as a result of the risk factors set forth below or other factors. Prospective investors should consider carefully the following factors as well as the other information and data included in this Prospectus tendering Old Notes in exchange for New Notes. The Issuers caution the reader, however, that this list of factors may not be exhaustive and that these or other factors could have an adverse effect on the Company's ability to service its indebtedness, including principal and interest payments on the Notes. SUBSTANTIAL LEVERAGE The Company incurred significant debt in connection with the Transactions. As of August 31, 1996, after giving pro forma effect to the Transactions and the Initial Offering, the Company would have had outstanding indebtedness of $300.0 million. The Company's pro forma earnings were insufficient to cover pro forma fixed charges by $44.4 million for the year ended November 30, 1995 and $27.7 million for the nine months ended August 31, 1996. The Company's leveraged financial position poses substantial consequences to holders of the Notes, including the risks that: (i) a substantial portion of the Company's cash flow from operations will be dedicated to the payment of interest on the Notes and the payment of principal and interest under the Senior Credit Facility and other indebtedness; (ii) the Company's leveraged position may impede its ability to obtain financing in the future for working capital, capital expenditures and general corporate purposes and (iii) the Company's highly leveraged financial position may make it more vulnerable to economic downturns and may limit its ability to withstand competitive pressures. Based upon the successful implementation of management's business and operating strategy, the Company believes that it will have sufficient capital to carry on its business and will be able to meet its scheduled debt service requirements. However, there can be no assurance that the future cash flow of the Company will be sufficient to meet the Company's obligations and commitments. In addition, the Senior Credit Facility contemplates that all borrowings thereunder will become due by 2004. If the Company is unable to generate sufficient cash flow from operations in the future to service its indebtedness and to meet its other commitments, the Company will be required to adopt one or more alternatives, such as refinancing or restructuring its indebtedness, selling material assets or operations or seeking to raise additional debt or equity capital. There can be no assurance that any of these actions could be effected on a timely basis or on satisfactory terms or that these actions would enable the Company to continue to satisfy its capital requirements. In addition, the terms of existing or future debt agreements, including the Indenture and the Senior Credit Facility, may prohibit the Company from adopting any of these alternatives. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources," "Description of Senior Credit Facility" and "Description of the Notes." FULL IMPLEMENTATION OF BUSINESS AND OPERATING STRATEGY Following the Acquisition, the Company employed a new senior management team and adopted a refined business and operating strategy. See "Business--Business and Operating Strategy." This business and operating strategy includes the implementation of certain operating improvements and the adoption of new circulation and advertising strategies. There can be no assurance that the Company will be able to fully implement this new business and operating strategy or that the anticipated results of this strategy, including the reduction of certain operating expenses, will be realized. In addition, after gaining experience with the Company's operations under its new strategy, the Company and the new senior management team may decide to alter or discontinue certain aspects of this strategy. Implementation of this strategy could also be affected by a number of factors beyond the Company's control, such as operating difficulties, increased operating costs, regulatory developments, general economic conditions or increased competition. Any such failure to implement this strategy could have a material adverse effect on the Company's ability to service its indebtedness, including principal and interest payments on the Notes. 18 The Company has reflected on a pro forma basis for the year ended November 30, 1995 and the nine months ended August 31, 1996 the anticipated benefits from the operating improvements and cost reduction measures included in management's business and operating strategy. These adjustments are based on a number of estimates and assumptions that, while considered reasonable by the Company, should not be viewed as indicative of the results that would have occurred had the Company's business and operating strategy been implemented on the dates indicated or the Company's actual or future results or financial position. Prospective investors are cautioned not to place undue reliance on these adjustments. See "Unaudited Pro Forma Financial Data." SUBORDINATION OF NOTES The Notes will be unsecured and subordinated to the prior right of payment of all existing and future Senior Indebtedness of the Issuers, including obligations under the Senior Credit Facility. The indebtedness under the Senior Credit Facility will also become due prior to the time the principal obligations under the Notes become due. Subject to certain limitations, the Indenture will permit the Issuers to incur additional Senior Indebtedness. See "Description of the Notes--Certain Covenants--Limitation on Additional Indebtedness." As a result of the subordination provisions contained in the Indenture, in the event of a liquidation or insolvency, the assets of the Issuers will be available to pay obligations on the Notes only after all Senior Indebtedness has been paid in full, and there may not be sufficient assets remaining to pay amounts due on any or all of the Notes then outstanding. The holders of any indebtedness of the Company's subsidiaries (other than Capital and Restricted Subsidiaries guaranteeing the Notes, if any) will be entitled to payment of their indebtedness from the assets of such subsidiaries prior to the holders of any general unsecured obligations of the Issuers, including the New Notes. In addition, substantially all of the assets of the Issuers and their subsidiaries will or may in the future be pledged to secure other indebtedness of the Issuers. See "Description of Senior Credit Facility" and "Description of the Notes." RESTRICTIONS IMPOSED BY THE SENIOR CREDIT FACILITY AND THE INDENTURE The agreements governing the outstanding indebtedness of the Company impose certain operating and financial restrictions on the Company. The Senior Credit Facility requires the Company to maintain specified financial ratios and tests, among other obligations, including a maximum leverage ratio, a minimum interest coverage ratio and a minimum fixed charge coverage ratio, each as defined in the Senior Credit Facility. In addition, the Senior Credit Facility restricts, among other things, the Company's ability to: (i) declare dividends or redeem or repurchase capital stock; (ii) prepay, redeem or purchase debt; (iii) incur liens and engage in sale leaseback transactions; (iv) make loans and investments; (v) issue more debt; (vi) amend or otherwise alter debt and other material agreements; (vii) make capital expenditures; (viii) engage in mergers, acquisitions and asset sales; (ix) transact with affiliates and (x) alter its lines of business. A failure to comply with the restrictions contained in the Senior Credit Facility could lead to an event of default thereunder which could result in an acceleration of such indebtedness. Such an acceleration would constitute an event of default under the Indenture relating to the Notes. In addition, the Indenture restricts, among other things, the Company's ability to: (i) incur additional indebtedness; (ii) pay dividends and make distributions; (iii) issue stock of subsidiaries; (iv) make certain investments; (v) repurchase stock; (vi) create liens; (vii) enter into transactions with affiliates; (viii) enter into sale-leaseback transactions; (ix) merge or consolidate the Company or any Guarantors and (x) transfer and sell assets. A failure to comply with the restrictions in the Indenture could result in an event of default under the Indenture. See "Description of Senior Credit Facility" and "Description of the Notes." RISKS ASSOCIATED WITH FLUCTUATIONS IN PAPER COSTS AND POSTAL RATES The Company's principal raw material is paper. The Company used 69.6 million, 76.0 million and 84.4 million pounds of commodity grade paper in its fiscal years ended November 30, 1993, 1994 and 1995, respectively, resulting in a total cost of paper during such periods of $29.0 million, $30.5 million and $39.3 million, respectively. While paper prices have increased by an average of less than 1% annually since 1989, certain commodity grades have shown considerable price volatility during that period, including the commodity grade used by the Company. Paper prices rose sharply during the latter part of 1995, and in response, Petersen 19 purchased a large supply of 32 lb. paper in December 1995 at prices ranging from $0.61 to $0.66 per pound in anticipation of additional price increases and supply shortages continuing for the remainder of 1995 and 1996. Petersen purchased enough paper to meet all of its production requirements through September 1996. The price of such paper subsequently returned to historical levels of approximately $0.50 per pound in May 1996. The increase in paper prices in late 1995 and Petersen's large purchase at such increased prices materially adversely affected Petersen's production, selling and other direct costs for year ended November 30, 1995 and the nine months ended August 31, 1996. These events increased Petersen's production, selling and other direct costs by approximately $1.4 million and $4.8 million for the year ended November 30, 1995 and the nine months ended August 31, 1996, respectively (assuming Petersen would have otherwise been able to purchase paper during these periods at the 20-year median price of approximately $0.50 per pound (as adjusted for inflation)). Following the Acquisition, the Company entered into an oral agreement with a vendor to secure sufficient paper to meet its projected raw material needs through the end of 1997 at or below current market prices. While there can be no assurances, the Company expects that such agreement will be finalized by the end of 1996. The profitability of the Company's magazine publishing operations is also affected by the cost of postage and could be materially adversely affected if there is an increase in postal rates and the increase is not passed through to the consumer. The last postal rate increase occurred in February 1995. Future fluctuations in paper prices or postal rates could have a material adverse effect on the Company's ability to service its indebtedness, including principal and interest payments on the Notes and could have an effect on quarterly comparisons of the results of operations and financial condition of the Company. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Overview" and "Business--Raw Materials." IMPORTANCE OF CERTAIN PUBLICATIONS Certain of the Company's publications have historically represented a significant portion of the Company's net revenues and profit contribution, and the Company expects that such publications will continue to do so in the future. In the aggregate, Motor Trend, 'TEEN and Hot Rod accounted for 35.2% and 57.0% of the Company's net revenues and profit contribution, respectively, for the year ended November 30, 1995 and 34.3% and 54.5%, respectively, for the nine months ended August 31, 1996. In addition, the Company derived approximately 17.9% and 20.6% of its advertising revenues from automotive manufacturers of original equipment and aftermarket parts, respectively, in fiscal 1995. As compared to industry standards, the Company believes it has a diversified portfolio of special-interest publications and is not dependent on any single publication; however, a significant decline in the performance of any of these publications or in the advertising spending of the automotive industry could have a material adverse effect on the Company's ability to service its indebtedness, including principal and interest payments on the Notes, and could have an effect on quarterly comparisons of the results of operations and financial condition of the Company. CYCLICALITY OF REVENUE The Company's principal sources of revenues from the publication of its magazines are derived from advertising and circulation. Circulation revenues are generated from both subscription and newsstand sales. For the year ended November 30, 1995, approximately 58% of the Company's revenues were from advertising, 38% were from circulation (including 20% from subscription sales and 18% from newsstand sales) and 4% were from other sources. Advertising revenues of the Company, as well as those of the consumer magazine industry in general, are cyclical and dependent upon general economic conditions. Historically, increases in advertising revenues have corresponded with economic recoveries while decreases, as well as changes in advertising mix, have corresponded with general economic downturns and regional and local economic recessions. As compared to general-interest magazines, the Company believes that its advertising revenues are less susceptible to changes in general economic conditions due to the diversity of its publications, the special-interest nature of its editorial content and the endemic nature of its advertiser base. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Overview--Cyclicality of Advertising Revenue" and "Business--Industry Overview." 20 COMPETITION The consumer magazine publishing business is highly competitive. The Company principally competes for advertising and circulation revenues with publishers of other special-interest consumer magazines with similar editorial content as those published by the Company. Certain of such competitors are larger and have greater financial resources than the Company. In addition to other special-interest magazines, the Company also competes for advertising revenues with general-interest magazines and other forms of media, including broadcast and cable television, radio, newspaper, direct marketing and electronic media. There can be no assurance that the Company will be able to compete effectively with such other forms of advertising in the future. See "Business-- Competition." DEPENDENCE ON KEY PERSONNEL The Company is dependent on the continued services of its senior management team. In connection with the Acquisition, the Company retained the services of certain key employees to serve as senior executives of the Company, including D. Claeys Bahrenburg, Neal Vitale, Richard Willis and the Company's existing executive publishers, all of whom have significant experience in the magazine publishing industry. Messrs. Bahrenburg, Vitale and Willis are each expected to enter into an employment agreement with the Company, which will provide for their continued employment for a five year term. See "Management--Employment Contracts." Although the Company believes it could replace such key employees in an orderly fashion should the need arise, the loss of such key personnel could have a material adverse effect on the Company. The Company will not maintain key person insurance for any of its officers, employees or directors. See "Management--Directors, Executive Officers and Key Employees." CONTROLLING EQUITYHOLDER The Company's equity securities are held 99.9% by Holdings and 0.1% by BrightView. BrightView is the managing member of Holdings and as such controls the policies and operations of Holdings and of the Company. See "Limited Liability Company Agreement." Under the terms of a Securityholders Agreement (as defined herein), all of the stockholders of BrightView have agreed to vote their shares in favor of those individuals designated by Willis Stein to serve on the Board of Directors of BrightView and granted Willis Stein the right to vote their shares on all significant corporate changes. As a result, Willis Stein has the ability to control the policies and operations of the Company. Circumstances may occur in which the interests of Willis Stein, as the principal equity holder of the Company, could be in conflict with the interests of the holders of the Notes. In addition, the equity investors may have an interest in pursuing acquisitions, divestitures or other transactions that, in their judgment, could enhance their equity investment, even though such transactions might involve risks to the holders of the Notes. See "Security Ownership of Certain Beneficial Owners and Management." LIMITATIONS ON CHANGE OF CONTROL In the event of a Change of Control, the Issuers will be required to make an offer for cash to repurchase the Notes at 101% of the principal amount thereof, plus accrued and unpaid interest and Additional Interest, if any, thereon to the repurchase date. Certain events involving a Change of Control may result in an event of default under the Senior Credit Facility or other indebtedness of the Issuers that may be incurred in the future. Moreover, the exercise by the holders of the Notes of their right to require the Issuers to repurchase the Notes will cause an event of default under the Senior Credit Facility or such other indebtedness, even if the Change of Control does not. The Issuers' obligations under this provision of the Indenture could delay, deter or prevent a sale of the Company which might otherwise be advantageous to holders of Notes. Finally, there can be no assurance that the Issuers will have the financial resources necessary to repurchase the Notes upon a Change of Control. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources" and "Description of the Notes--Change of Control Offer." 21 RISK OF FRAUDULENT TRANSFER Under applicable provisions of the U.S. Bankruptcy Code or comparable provisions of state fraudulent transfer or conveyance laws, if the Company, at the time it issued the Notes: (i) incurred such indebtedness with intent to hinder, delay or defraud creditors or (ii)(a) received less than reasonably equivalent value or fair consideration for incurring such indebtedness and (b)(1) was solvent at the time of incurrence, (2) was rendered insolvent by reason of such incurrence (and the application of the proceeds thereof), (3) was engaged or was about to engage in a business or transaction for which the assets remaining with the Company constituted unreasonably small capital to carry on its businesses or (4) intended to incur, or believed that it would incur, debts beyond its ability to pay such debts as they mature, then, in each case, a court of competent jurisdiction could void, in whole or in part, the Notes, or, in the alternative, subordinate the Notes to existing and future indebtedness of the Company. The measure of insolvency for purposes of the foregoing will vary depending upon the law applied in such case. Generally, however, the Company would be considered insolvent if the sum of its debts, including contingent liabilities, was greater than all of its assets at fair valuation or if the present fair saleable value of its assets was less than the amount that would be required to pay the probable liability on its existing debts, including contingent liabilities, as they become absolute and matured. Management believes that, for purposes of the U.S. Bankruptcy Code and state fraudulent transfer or conveyance laws, the Notes are being issued without the intent to hinder, delay or defraud creditors and for proper purposes and in good faith and that the Company, after the issuance of the Notes and the application of the proceeds thereof, will be solvent, will have sufficient capital for carrying on its business and will be able to pay its debts as they mature. There can be no assurance, however, that a court passing on such questions would agree with management's view. ABSENCE OF A PUBLIC MARKET COULD ADVERSELY AFFECT THE VALUE OF THE NOTES The Old Notes were issued to, and the Issuers believe are currently owned by, a relatively small number of beneficial owners. Prior to the Exchange Offer, there has not been any public market for the Old Notes. The Old Notes have not been registered under the Securities Act and will be subject to restrictions on transferability to the extent that they are not exchanged for New Notes by holders who are entitled to participate in this Exchange Offer. The holders of Old Notes (other than any such holder that is an "affiliate" of the Issuers within the meaning of Rule 405 under the Securities Act) who are not eligible to participate in the Exchange Offer are entitled to certain registration rights, and the Issuers are required to file a Shelf Registration Statement with respect to such Old Notes. The New Notes will constitute a new issue of securities with no established trading market. The Issuers do not intend to list the New Notes on any national securities exchange or seek the admission thereof to trading in the National Association of Securities Dealers Automated Quotation System. The Initial Purchasers have advised the Issuers that they currently intend to make a market in the New Notes, but they are not obligated to do so and may discontinue such market making at any time. In addition, such market making activity will be subject to the limits imposed by the Securities Act and the Exchange Act and may be limited during the Exchange Offer and the pendency of the Shelf Registration Statement. Accordingly, no assurance can be given that an active public or other market will develop for the New Notes or as to the liquidity of the trading market for the New Notes. If a trading market does not develop or is not maintained, holders of the New Notes may experience difficulty in reselling the New Notes or may be unable to sell them at all. If a market for the New Notes develops, any such market may be discontinued at any time. If a public trading market develops for the New Notes, future trading prices of such securities will depend on many factors including, among other things, prevailing interest rates, the Company's results of operations and the market for similar securities. Depending on prevailing interest rates, the market for similar securities and other factors, including the financial condition of the Company, the New Notes may trade at a discount from their principal amount. FAILURE TO FOLLOW EXCHANGE OFFER PROCEDURES COULD ADVERSELY AFFECT HOLDERS Issuance of the New Notes in exchange for the Old Notes pursuant to the Exchange Offer will be made only after a timely receipt by the Issuers of such Old Notes, a properly completed and duly executed Letter of 22 Transmittal and all other required documents. Therefore, holders of the Old Notes desiring to tender such Old Notes in exchange for New Notes should allow sufficient time to ensure timely delivery. The Issuers are under no duty to give notification of defects or irregularities with respect to the tenders of Old Notes for exchange. Old Notes that are not tendered or are tendered but not accepted will, following the consummation of the Exchange Offer, continue to be subject to the existing restrictions upon transfer thereof, and, upon consummation of the Exchange Offer, certain registration rights under the Registration Rights Agreement will terminate. In addition, any holder of Old Notes who tenders in the Exchange Offer for the purpose of participating in a distribution of the New Notes may be deemed to have received restricted securities, and if so, will be required to comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction. Each broker-dealer that receives New Notes for its own account in exchange for Old Notes, where such Old Notes were acquired by such broker-dealer as a result of market-making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of such New Notes. See "Plan of Distribution." To the extent that Old Notes are tendered and accepted in the Exchange Offer, the trading market for untendered and tendered but unaccepted Old Notes could be adversely affected. See "The Exchange Offer." 23 THE TRANSACTIONS The Acquisition. The Company completed the Acquisition on September 30, 1996. The aggregate purchase price of the Acquisition, which is subject to certain working capital adjustments, was $450.0 million, plus the assumption of certain ongoing liabilities incurred in the ordinary course of business. The Company expects to receive approximately $4.0 million from Petersen as a result of the working capital adjustment. The Financing Plan. The Initial Offering was part of a plan designed to enable the Company to finance the Acquisition and to provide for additional liquidity. In connection with the Acquisition, the Company: (i) borrowed $200.0 million under the $260.0 million Senior Credit Facility; (ii) borrowed $100.0 million under the Bridge Financing Facility and (iii) received equity contributions of $165.3 million from an investor group led by Willis Stein. See "Use of Proceeds." The borrowings under the Senior Credit Facility consist of a $100.0 million Tranche A Loan (as defined herein) and a $100.0 million Tranche B Loan (as defined herein), maturing on December 31, 2002 and September 30, 2004, respectively. The Revolving Credit Facility (as defined herein) provides for borrowings in the maximum principal amount of $60.0 million. The Tranche A Loan amortizes gradually prior to maturity; the Tranche B Loan is payable primarily in two balloon payments due in 2003 and 2004. The Revolving Credit Facility becomes due in full on December 31, 2002. See "Description of Senior Credit Facility." The following table sets forth the sources and uses of funds in the Acquisition (dollars in thousands): SOURCES: Senior Credit Facility(a)(b)(c)..................................... $200,000 Bridge Financing Facility(b)........................................ 100,000 Equity contributions(b)............................................. 165,300 -------- Total sources..................................................... $465,300 ======== USES: Acquisition consideration(c)........................................ $450,000 Fees and expenses(d)................................................ 15,300 -------- Total uses........................................................ $465,300 ========
- -------- (a) On a pro forma basis, as of August 31, 1996, the Company would have had $60.0 million of additional borrowing availability under the Senior Credit Facility. (b) FBNC and CIBC, affiliates of the Initial Purchasers, are the agents and principal lenders under the Senior Credit Facility. First Union Corporation and CIBC are the lenders under the Bridge Financing Facility. First Union Investors, Inc. and CIBC WG Argosy Merchant Fund 2, L.L.C., both affiliates of the Initial Purchasers, provided a portion of the equity financing in connection with the Acquisition. (c) Does not reflect the working capital adjustment of approximately $4.0 million expected to be paid to the Company by Petersen in connection with the Acquisition. The proceeds therefrom will be used to reduce borrowings under the Senior Credit Facility. (d) Includes estimated fees and expenses related to the Transactions and the Initial Offering (including the Initial Purchasers' discount). To the extent that such fees are less than estimated, the remainder will be applied to working capital. 24 THE INVESTORS The Investors pursued the Acquisition because they believed it offered an attractive opportunity to: (i) acquire a diverse portfolio of profitable magazines with significant growth potential; (ii) bring together a skilled and experienced management team, consisting of the Company's new senior managers and Petersen's existing publishers and editorial staff; (iii) apply professional management techniques to the Company's portfolio to improve its operating results by increasing circulation and advertising revenues and reducing operating costs and (iv) further develop the Company's brand-name franchises with limited additional capital investment. Management believes that opportunities exist to achieve each of these results both in the near term and on a going-forward basis. The Investors include the following: Willis Stein; First Union Investors, Inc.; CIBC WG Argosy Merchants Fund 2, L.L.C.; Chase Equity Associates, L.P.; BankAmerica Investment Corporation, certain other limited partners of Willis Stein; Robert E. Petersen, Petersen's founder and the Company's Chairman Emeritus and the Management Investors. Under the terms of a Securityholders Agreement, Willis Stein has the right to designate each member of the Board of BrightView and thus controls the affairs and policies of the Company. See "Security Ownership of Certain Beneficial Owners and Management" and "Limited Liability Company Agreement." Willis Stein is a private investment fund with committed capital of approximately $343.0 million. The principals of Willis Stein were formerly with CIVC, where they managed CIVC's investments in a number of media-related companies as well as other investments. The Management Investors have significant experience in managing media-related companies and in managing leveraged acquisitions. Mr. Bahrenburg has served as President of the Magazine Publishing Division of The Hearst Corporation ("Hearst") and as Publisher of both House Beautiful and Cosmopolitan. Mr. Vitale has served in a variety of managerial positions at Cahners Publishing Company, a division of Reed Elsevier, Inc. Such positions included Vice President of Consumer Publishing, Vice President/General Manager of Variety, and, most recently, Group Vice President, Entertainment, where he was responsible for the publication of Variety, Daily Variety, Broadcasting & Cable, Moving Pictures International, On Production and Tradeshow Week. Mr. Dunning currently serves as the Chairman and Chief Executive Officer of TransWestern Publishing Company, L.P. ("TransWestern"), the largest independent publisher of yellow pages in the United States, and was formerly Chairman of SRDS Media Information, L.P. ("SRDS"), a media information and database publisher. Earlier in his career, Mr. Dunning served as Executive Vice President of Ziff Communications and as President of Rolling Stone Magazine. Mr. Bloch is Vice Chairman and Chief Financial Officer of TransWestern and was formerly a director of SRDS. Mr. Karu is a director of TransWestern and was formerly interim Chief Executive Officer and a director of SRDS. See "Management." USE OF PROCEEDS The Company incurred $100.0 million of indebtedness under the Bridge Financing Facility pending the issuance and sale of the Old Notes. The Company applied the net proceeds of the Initial Offering to repay the Bridge Financing Facility. Affiliates of the Initial Purchasers were the lenders under the Bridge Financing Facility. The Bridge Financing Facility was used to finance a portion of the Acquisition. The Exchange Offer is intended to satisfy certain of the Issuers' obligations under the Registration Rights Agreement. The Issuers will not receive any cash proceeds from the issuance of the New Notes offered hereby. In consideration for issuing the New Notes contemplated in this Prospectus, the Issuers will receive Old Notes in like principal amount, the form and terms of which are the same as the form and terms of the New Notes (which replace the Old Notes), except as described herein. 25 CAPITALIZATION The following table sets forth the consolidated capitalization of the Company as of August 31, 1996 pro forma to give effect to the Transactions and the Initial Offering. The Old Notes surrendered in exchange for the New Notes will be retired and canceled and cannot be reissued. Accordingly, issuance of the New Notes will not result in any increase or decrease in the indebtedness of the Issuers or the Guarantor. As such, no effect has been given to the Exchange Offer in this capitalization table. The information in this table should be read in conjunction with "Unaudited Pro Forma Financial Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the financial statements and accompanying notes thereto appearing elsewhere in this Prospectus.
AUGUST 31, 1996 PRO FORMA ---------------------- (DOLLARS IN THOUSANDS) Total debt: Senior Credit Facility(a)(b)........................... $200,000 Notes.................................................. 100,000 -------- Total debt........................................... 300,000 Total equity............................................. 165,082 -------- Total capitalization..................................... $465,082 ========
- -------- (a) Current borrowings under the Senior Credit Facility consist of $200.0 million of term loans. The Senior Credit Facility also provides for a Revolving Credit Facility in the maximum principal amount of $60.0 million. See "Description of Senior Credit Facility." On a pro forma basis, as of August 31, 1996, the Company would have had $60.0 million of additional borrowing availability under the Revolving Credit Facility. (b) Does not reflect the working capital adjustment of approximately $4.0 million expected to be paid to the Company by Petersen in connection with the Acquisition. The proceeds therefrom will be used to reduce borrowings under the Senior Credit Facility. 26 UNAUDITED PRO FORMA FINANCIAL DATA The following unaudited pro forma consolidated financial data (the "Unaudited Pro Forma Financial Data") of the Company have been derived by the application of pro forma adjustments to the historical financial statements of Petersen for the periods indicated. The adjustments are described in the accompanying notes. The Unaudited Pro Forma Financial Data give effect to the Transactions and the Initial Offering as if the Transactions and the Initial Offering had occurred as of August 31, 1996, for purposes of the balance sheet data, and as of the beginning of each period presented, for purposes of the statement of operations data. The Unaudited Pro Forma Financial Data do not give effect to any transactions other than the Transactions and the Initial Offering and those discussed in the accompanying notes. The Unaudited Pro Forma Financial Data are provided for informational purposes only and do not purport to represent the results of operations or financial position of the Company had the Transactions and the Initial Offering in fact occurred on such dates, nor do they purport to be indicative of the financial position or results of operations as of any future date or for any future period. The Acquisition was accounted for using the purchase method of accounting. The total cost of the Acquisition will be allocated to the tangible and intangible assets acquired and liabilities assumed based upon their respective fair values as of the time the Acquisition was consummated. The excess of purchase cost over the historical basis of the net assets acquired has not been allocated in the accompanying Unaudited Pro Forma Financial Data. The pro forma adjustments are based upon available information and upon certain assumptions that management believes are reasonable. The actual allocation of purchase cost, however, and the resulting effect on income from operations may differ significantly from the pro forma amounts included herein. Following the Acquisition, the Company employed a new senior management team and adopted a refined business and operating strategy. This business and operating strategy includes the implementation of certain operating improvements and the adoption of new circulation and advertising strategies. The Unaudited Pro Forma Financial Data reflects certain of the cost reduction measures and operating improvements that are part of management's business and operating strategy and implemented in connection with the Acquisition. The Company's management believes that the successful implementation of its business and operating strategy will result in further cost savings and operating improvements. These additional adjustments are set forth in Note (i) to the Unaudited Pro Forma Financial Data. There can be no assurance that the Company will be able to fully implement its new business and operating strategy or that the anticipated results of this strategy, including the reduction of certain operating expenses, will be realized. See "Risk Factors-- Full Implementation of Business and Operating Strategy." The Old Notes surrendered in exchange for the New Notes will be retired and canceled and cannot be reissued. Accordingly, issuance of the New Notes will not result in any increase or decrease in the indebtedness of the Issuers or the Guarantor. As such, no effect has been given to the Exchange Offer in the Unaudited Pro Forma Financial Data. The Unaudited Pro Forma Financial Data and accompanying notes should be read in conjunction with the financial statements and accompanying notes thereto and the other financial information included elsewhere in this Prospectus. 27 PETERSEN PUBLISHING COMPANY, L.L.C. UNAUDITED PRO FORMA STATEMENT OF OPERATIONS DATA
YEAR ENDED NOVEMBER 30, 1995 ----------------------------------- PETERSEN PRO FORMA COMPANY HISTORICAL ADJUSTMENTS PRO FORMA ---------- ----------- --------- (DOLLARS IN THOUSANDS) STATEMENT OF OPERATIONS DATA: Net revenues.............................. $213,615 $ -- $213,615 Production, selling and other direct costs.................................... 171,112 (72)(a) 167,905 (3,135)(b) -------- -------- -------- Gross profit.............................. 42,503 3,207 45,710 General and administrative expenses....... 28,145 (3,713)(c) 23,781 (651)(b) Amortization of purchase cost to be allocated................................ -- 31,549 (d) 31,549 -------- -------- -------- Operating income (loss)................... 14,358 (23,978) (9,620) Interest Income........................... (549) 549 (e) -- Interest expense.......................... -- 34,815 (f) 34,815 -------- -------- -------- Income (loss) before provision for income taxes.................................... 14,907 (59,342) (44,435) Provision for income taxes................ 549 (549)(g) -- -------- -------- -------- Net income (loss)......................... $ 14,358 $(58,793) $(44,435) ======== ======== ======== OTHER DATA: Depreciation and amortization............. $ 3,439 $ 34,988 Capital expenditures...................... 4,423 4,423 EBITDA(h)(i).............................. 17,797 25,368 EBITDA margin............................. 8.3% 11.9% Ratio of earnings to fixed charges(j)..... 9.2x -- Earnings available to cover fixed charges(j)............................... $ 16,724 --
See Notes to Unaudited Pro Forma Statement of Operations Data. 28 PETERSEN PUBLISHING COMPANY, L.L.C. UNAUDITED PRO FORMA STATEMENT OF OPERATIONS DATA
NINE MONTHS ENDED AUGUST 31, 1996 ------------------------------------------- PETERSEN PRO FORMA COMPANY HISTORICAL ADJUSTMENTS PRO FORMA ----------- ------------ ----------- (DOLLARS IN THOUSANDS) STATEMENT OF OPERATIONS DATA: Net revenues..................... $ 168,812 $ -- $ 168,812 Production, selling and other direct costs.................... 133,034 (322)(a) 129,721 (2,475)(b) (516)(k) ----------- ----------- ----------- Gross profit..................... 35,778 3,313 39,091 General and administrative expenses........................ 20,920 (2,585)(c) 17,821 (514)(b) Amortization of purchase cost to be allocated.................... -- 23,662 (d) 23,662 ----------- ----------- ----------- Operating income (loss).......... 14,858 (17,250) (2,392) Interest Income.................. (306) 306 (e) -- Interest expense................. -- 26,851 (f) 26,851 Gain on sale of assets........... (1,554) -- (1,554) ----------- ----------- ----------- Income (loss) before provision for income taxes................ 16,718 (44,407) (27,689) Provision for income taxes....... 393 (393)(g) -- ----------- ----------- ----------- Net income (loss)................ $ 16,325 $ (44,014) $ (27,689) =========== =========== =========== OTHER DATA: Depreciation and amortization.... $ 2,449 $ 26,111 Capital expenditures............. 695 695 EBITDA(h)(i)..................... 17,307 23,719 EBITDA margin.................... 10.3% 14.1% Ratio of earnings to fixed charges(j)...................... 10.6x -- Earnings available to cover fixed charges(j)...................... $ 18,465 --
See Notes to Unaudited Pro Forma Statement of Operations Data. 29 NOTES TO UNAUDITED PRO FORMA STATEMENT OF OPERATIONS DATA (a) In connection with the Acquisition, the pre-existing lease agreement between Petersen and Mr. Petersen was assumed by the Company with certain modifications to rental rates. This adjustment reflects the impact of the lease modifications as if they were effective as of the beginning of the periods presented. (b) In connection with the Acquisition, the Company developed and has substantially implemented a restructuring plan, which included the termination of certain employees in various corporate and operating positions. The savings related to the elimination of these salaries and related costs, as if such changes had occurred as of the beginning of the periods presented, are as follows:
YEAR ENDED NINE MONTHS ENDED NOVEMBER 30, 1995 AUGUST 31, 1996 ----------------- ----------------- (DOLLARS IN THOUSANDS) Production, selling and other direct costs................................ $3,135 $2,475 General and administrative............ 651 514 ------ ------ Total................................. $3,786 $2,989 ====== ======
(c) Reflects the net savings in payroll, benefits, and other related expenses resulting from the replacement of Petersen's executive management by the Company's new executive management as if such changes had occurred as of the beginning of the periods presented as follows:
YEAR ENDED NINE MONTHS ENDED NOVEMBER 30, 1995 AUGUST 31, 1996 ----------------- ----------------- (DOLLARS IN THOUSANDS) Elimination of Petersen's executive management cost....................... $6,323 $4,543 Cost of consulting contract with former executive of Petersen................. (200) (150) New executive management cost.......... (2,410) (1,808) ------ ------ Total.................................. $3,713 $2,585 ====== ======
The cost of new management is based on the Employment Agreements (as defined herein) to be entered into between the Company and each of Messrs. Bahrenburg and Vitale and other estimated expenses associated with new management, including director fees and salaries of Holdings' officers. (d) The Acquisition was accounted for under the purchase method of accounting. Under purchase method accounting, the total purchase price will be allocated to the tangible and intangible assets acquired and liabilities assumed by the Company based upon their respective fair values as of the acquisition date based upon valuations and other studies that are not yet available. A preliminary allocation of the purchase price has been made to major categories of assets and liabilities for purposes of the pro forma financial statements based upon available information and assumptions that the Company's management believes are reasonable. However, such amounts are subject to change and final amounts may differ substantially. Assuming the pro forma remaining purchase costs to be allocated are $476.2 million (as adjusted to give effect to the receipt by the Company of a $4.0 million working capital adjustment) and such amount is amortized over 15 years, the resulting amortization is $31.7 million for the year ended November 30, 1995 and $23.8 million for the nine months ended August 31, 1996. (e) Reflects elimination of interest income attributable to cash and investments retained by Petersen. (f) Reflects the interest expense on the indebtedness incurred by the Company in connection with the Transactions and the Initial Offering, as if the Transactions and the Initial Offering had been consummated as of the beginning of the periods presented, based on the borrowings and their rates expected to be in effect at the offering date as follows: 30
YEAR ENDED NINE MONTHS ENDED RATE AMOUNT NOVEMBER 30, 1995 AUGUST 31, 1996 ------ -------- ----------------- ----------------- (DOLLARS IN THOUSANDS) Senior Credit Facility: Unused revolver commitment........... 0.500% $ 60,000 $ 300 $ 225 Tranche A Loan(1)..... 9.000 100,000 9,000 6,750 Tranche B Loan(1)..... 9.500 100,000 9,500 7,125 Notes................... 11.125 100,000 11,125 8,344 ------- ------- 29,925 22,444 Amortization of deferred financing costs........ 4,369 4,017 Imputed interest on account rent for excess space.................. 521 390 ------- ------- Total interest expense.. $34,815 $26,851 ======= =======
-------- (1) The Company has entered into a swap agreement with a bank providing for a fixed base rate of 6.23% in lieu of a floating LIBOR rate covering $150.0 million of the loans under the Senior Credit Facility through October 7, 1997, after which the amount is reduced to $100.0 million through October 7, 1999. (g) Eliminates the provisions for income taxes since the Company is a limited liability company and will not be subject to the certain state income taxes to which Petersen was subject. (h) "EBITDA" is defined as income before interest, income taxes, depreciation and amortization and gain on sale of assets. EBITDA is not a measure of performance under GAAP. While EBITDA should not be considered in isolation or as a substitute for net income, cash flows from operating activities and other income or cash flow statement data prepared in accordance with GAAP, or as a measure of profitability or liquidity, management understands that EBITDA is customarily used in evaluating magazine publishing companies. (i) Pro forma EBITDA, as presented, includes the effects of the pro forma adjustments and does not reflect additional anticipated cost savings related to management's business and operating strategy, which is currently being implemented. The Company's management believes the following additional adjustments are relevant to evaluating the future operating performance of the Company. The following additional adjustments, which eliminate the impact of certain nonrecurring charges reflect the estimated impact of management's business and operating strategy, are based on estimates and assumptions made and believed to be reasonable by the Company and are inherently uncertain and subject to change. The following calculation should not be viewed as indicative of actual or future results. The following table reflects the effect of certain of these items:
YEAR ENDED NINE MONTHS ENDED NOVEMBER 30, 1995 AUGUST 31, 1996 ----------------- ----------------- (DOLLARS IN THOUSANDS) Pro forma EBITDA....................... $25,368 $23,719 Additional adjustments: Consolidation of Sassy(1)............ 4,699 2,928 Reorganization of loss-producing magazine title(2)................... 2,947 2,226 Nonrecurring software development costs(3)............................ 4,026 1,589 Prior personnel reductions(4)........ 3,689 1,385 Excess paper costs(5)................ 1,417 4,792 Other estimated cost savings(6)...... 1,111 737 ------- ------- Total additional adjustments....... 17,889 13,657 ------- ------- Adjusted pro forma EBITDA.............. $43,257 $37,376 ======= ======= Radio of total debt to adjusted annualized pro forma EBITDA........... 5.9x Ratio of adjusted pro forma EBITDA to pro forma cash interest expense(7).... 1.7x
31 -------- (1) In December 1996, the Company completed the process of merging Sassy into 'TEEN, thereby eliminating the losses being generated by Sassy. In addition to the cost savings related to the Sassy personnel who were part of the reduction in personnel (for which the costs are included in a pro forma adjustment (see Note (b)), the Company expects that the remaining costs of Sassy, net of related revenues, which are summarized below, will be eliminated:
YEAR ENDED NINE MONTHS ENDED NOVEMBER 30, 1995 AUGUST 31, 1996 ----------------- ----------------- (DOLLARS IN THOUSANDS) Revenues............................... $ 3,852 $ 4,794 Costs and expenses..................... 8,551 7,722 ------- ------- Total.................................. $(4,699) $(2,928) ======= =======
(2) Represents losses incurred by Petersen's Golfing, Sport, Bicycle Guide and Mountain Biker during the periods presented. While these magazines collectively are expected to break even or be marginally profitable in fiscal 1997, in the event such magazines continue to generate losses, management expects to take one or more of the following actions: (i) discontinue or sell such magazines; (ii) merge such magazines with the Company's existing magazines or (iii) enter into strategic partnerships with third parties. Management expects that a final decision with respect to each magazine will be made by the end of fiscal 1997. (3) In February 1992, Petersen engaged a consulting firm to design and install systems and related software for use in its operations. The systems and software principally related to an electronic magazine layout system, an advertising rate and circulation modeling system and an automated pre-press operating system. These systems were never implemented by Petersen, were replaced by commercially available systems and were ultimately abandoned during fiscal 1996. Petersen subsequently initiated litigation against the consulting firm. Petersen incurred costs of $4.0 million during the year ended November 30, 1995 and $1.6 million during the nine months ended August 31, 1996 related to the consulting agreement, including an accrual of $0.8 million during the nine months ended August 31, 1996 related to the resulting litigation, which remains the responsibility of Petersen. (4) Prior to the Acquisition, Petersen reduced its number of employees in accordance with a plan to reduce costs. The costs of payroll, benefits and severance related to these in employee reductions that are estimated to be not recurring were $3.7 million during the year ended November 30, 1995 and $1.4 million during the nine months ended August 31, 1996. (5) Paper prices rose significantly during the latter part of 1995, and in response, Petersen purchased a large supply of 32 lb. paper supply in December 1995 at prices ranging from $0.61 to $0.66 per pound in anticipation of additional price increases and supply shortages continuing for the remainder of 1995 and 1996. Petersen purchased enough paper to meet all of its production requirements through September 1996. In May 1996, paper prices returned to historical levels of approximately $0.50 per pound. According to Resource Information Systems, Inc., the median price for a comparable grade of paper to that used by Petersen was approximately $0.50 per pound over the last 20 years (as adjusted for inflation). If Petersen had purchased paper at this price, production, selling and other direct costs would have been reduced by $1.4 million and $4.8 million in the year ended November 30, 1995 and the nine months ended August 31, 1996, respectively. Following the Acquisition, the Company entered into an oral agreement with a vendor to secure sufficient paper to meet its projected raw material needs through the end of fiscal 1997 at or below current market prices. While there can be no assurances, the Company expects that such agreement will be finalized by the end of 1996. (6) Represents the estimate of the reduced levels of travel and entertainment expenses which will be incurred by the Company due to fewer employees and new travel and entertainment policies to be implemented by the Company. (7) Excludes amortization of deferred financing costs related to the financing of the Acquisition in the amount of $4.0 million for the nine months ended August 31, 1996. (j) Earnings used in computing the pro forma ratio of earnings to fixed charges consist of pro forma income before provision for income taxes plus pro forma fixed charges. Pro forma fixed charges consist of: (i) interest expense, including amortization of debt issuance costs and (ii) the implied interest element of pro forma rent expense. Pro forma earnings were insufficient to cover pro forma fixed charges by $44.4 million for the year ended November 30, 1995 and $27.7 million for the nine months ended August 31, 1996. (k) As a result of personnel reductions and certain other operational consolidations, the Company will have excess space under lease. The amount shown is the Company's estimate of the rental costs which would have been charged to accrued liabilities for excess rental space recorded in the allocation of purchase price if the consolidations had occurred at the beginning of the periods presented. 32 PETERSEN PUBLISHING COMPANY, L.L.C. UNAUDITED PRO FORMA BALANCE SHEET DATA
AS OF AUGUST 31, 1996 ----------------------------------------------- ASSETS AND PETERSEN LIABILITIES TRANSACTION COMPANY HISTORICAL RETAINED(A) ADJUSTMENTS PRO FORMA ---------- ----------- ----------- --------- (DOLLARS IN THOUSANDS) ASSETS(B) Current assets Cash and cash equivalents..... $19,195 $(19,195) $465,300 (c) $ -- (450,000)(d) (15,300)(e) Short-term investments........ 55 (55) -- -- Accounts receivable, net...... 17,914 -- -- 17,914 Inventories................... 10,232 -- (1,086)(g) 9,146 Prepaid expenses and other current assets............... 678 -- -- 678 ------- -------- -------- -------- Total current assets............ 48,074 (19,250) (1,086) 27,738 Property and equipment, net..... 5,342 -- -- 5,342 Investments..................... 334 (334) -- -- Goodwill, net................... 2,952 (2,952) -- -- Purchase costs to be allocated(b)................... -- -- 450,000 (d) 480,233 1,033 (e) 15,766 (f) 13,434 (g) Deferred financing costs........ -- -- 14,011 (e) (2,962)(h) 11,049 Other assets.................... 790 -- -- 790 ------- -------- -------- -------- Total Assets.................... $57,492 $(22,536) $490,196 $525,152 ======= ======== ======== ======== LIABILITIES AND EQUITY(B) Current liabilities: Accounts payable.............. $ 6,651 $ (835) $ -- $ 5,816 Accrued payroll and related costs........................ 5,639 -- 4,700 (g) 10,339 Customer incentive bonuses.... 5,672 -- -- 5,672 Unearned subscription revenues, net................ 26,987 -- -- 26,987 Other accrued expenses and current liabilities.......... 841 (291) 3,944 (g) 4,494 ------- -------- -------- -------- Total current liabilities....... 45,790 (1,126) 8,644 53,308 Unearned subscription revenues, net............................ 5,981 -- -- 5,981 Deferred state income taxes..... 1,321 (1,321) -- -- Other noncurrent liabilities.... 77 -- 3,704 (g) 3,781 Senior Credit Facility.......... -- -- 200,000 (c) 200,000 Notes........................... -- -- 100,000 (c) 100,000 ------- -------- -------- -------- Total liabilities............... 53,169 (2,447) 312,348 363,070 Divisional equity............... 4,323 (20,089) 15,766 (f) -- Stockholders' equity............ -- -- 165,300 (c) 162,082 (2,962)(h) (256)(e) ------- -------- -------- -------- Total Liabilities and Equity.... $57,492 $(22,536) $490,196 $525,152 ======= ======== ======== ========
See Notes to Unaudited Pro Forma Balance Sheet Data. 33 NOTES TO UNAUDITED PRO FORMA BALANCE SHEET DATA (a) Reflects the assets and liabilities to be retained by Petersen. (b) The Acquisition was accounted for under the purchase method of accounting. Under purchase method accounting, the total purchase price will be allocated to the tangible and intangible assets acquired and liabilities assumed by the Company based upon their respective fair values as of the acquisition date based upon valuations and other studies that are not yet available. A preliminary allocation of the purchase price has been made to major categories of assets and liabilities for purposes of the pro forma financial statements based upon available information and assumptions that the Company's management believes are reasonable. However, such amounts are subject to change and final amounts may differ substantially. (c) Reflects the capitalization of the Company as if the Transactions and the Initial Offering had occurred as of August 31, 1996 (dollars in thousands): SOURCES OF FUNDS: Senior Credit Facility (1)....................................... $200,000 Notes............................................................ 100,000 Equity contributions............................................. 165,300 -------- Total sources.................................................. $465,300 ========
-------- (1) Does not include the estimated payment by Petersen to the Company for a purchase price adjustment of $4.0 million to reflect the actual level of working capital on the closing date of the Acquisition. Such proceeds therefrom will be used to reduce borrowings under the Senior Credit Facility. (d) Reflects the purchase price of the Acquisition. (e) Reflects the estimated professional fees and expenses related to the Transactions and the Initial Offering and the allocation thereof between deferred financing costs, stockholder's equity and the costs of the Acquisition to be allocated. (f) Reflects the excess of liabilities over assets acquired from Petersen which is added to the purchase price to be allocated. (g) To accrue for severance costs related to the October 1996 personnel reductions and for the estimated net future costs of excess space under long-term leases which the Company intends to sublease and sales taxes related to the Acquisition and the adjustment of the book value of the Company's inventory. (h)Reflects the write-off of deferred financing costs upon repayment of the Bridge Financing Facility. 34 SELECTED HISTORICAL FINANCIAL DATA The following tables present selected historical financial data for each of the five years in the period ended November 30, 1995 that have been derived from the audited financial statements of Petersen. The statements of income and retained earnings and statements of cash flows for each of the three years in the period ended November 30, 1995 and the notes thereto appear elsewhere in this Prospectus. The selected historical statement of operations and balance sheet data of Petersen as of and for the nine months ended August 31, 1995 and 1996 have been derived from unaudited financial statements, which, in the opinion of management, include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results for the unaudited interim periods. Results for the nine months ended August 31, 1996 are not necessarily indicative of results that may be expected for the entire year.
NINE MONTHS YEARS ENDED NOVEMBER 30, ENDED AUGUST 31, ------------------------------------------------ ------------------ 1991 1992 1993 1994 1995 1995 1996 -------- -------- -------- -------- -------- -------- -------- (DOLLARS IN THOUSANDS) STATEMENT OF OPERATIONS DATA: Net revenues: Advertising............ $101,208 $102,399 $105,101 $116,608 $123,410 $ 92,062 $ 99,108 Newsstand.............. 35,191 34,499 37,507 40,048 39,889 29,768 30,967 Subscriptions.......... 39,508 39,300 39,820 40,710 41,963 31,559 31,666 Other.................. 3,450 4,305 3,894 4,601 8,353 6,845 7,071 -------- -------- -------- -------- -------- -------- -------- Net revenues......... 179,357 180,503 186,322 201,967 213,615 160,234 168,812 Production, selling and other direct costs..... 144,280 135,250 141,562 149,182 171,112 127,305 133,034 -------- -------- -------- -------- -------- -------- -------- Gross profit............ 35,077 45,253 44,760 52,785 42,503 32,929 35,778 General and administrative expenses............... 32,089 32,328 35,604 33,267 28,145 20,109 20,920 -------- -------- -------- -------- -------- -------- -------- Operating income........ 2,988 12,925 9,156 19,518 14,358 12,820 14,858 Interest income, net.... (1,429) (856) (317) (476) (549) (335) (306) Gain on sale of assets.. -- -- -- -- -- -- (1,554) -------- -------- -------- -------- -------- -------- -------- Income before provision for income taxes....... 4,417 13,781 9,473 19,994 14,907 13,155 16,718 Provision for income taxes(a)............... 125 267 251 698 549 304 393 -------- -------- -------- -------- -------- -------- -------- Net income........... $ 4,292 $ 13,514 $ 9,222 $ 19,296 $ 14,358 $ 12,851 $ 16,325 ======== ======== ======== ======== ======== ======== ======== OTHER DATA: Depreciation and amortization........... $ 4,496 $ 3,381 $ 3,137 $ 3,118 $ 3,439 $ 2,389 $ 2,449 Capital expenditures.... 4,018 1,419 4,739 2,866 4,423 3,069 695 EBITDA(b)............... 7,484 16,306 12,293 22,636 17,797 15,209 17,307 EBITDA margin........... 4.2% 9.0% 6.6% 11.2% 8.3% 9.5% 10.3% Ratio of earnings to fixed charges.......... 3.6x 9.2x 6.8x 12.8x 9.2x 11.1x 10.6x Earnings available to cover fixed charges(c)............. $ 6,137 $ 15,457 $ 11,120 $ 21,684 $ 16,724 $ 14,463 $ 18,465 BALANCE SHEET DATA (AT PERIOD END): Working capital (deficiency)........... $(10,588) $ 1,591 $ (3,629) $(11,027) $ 5,760 $ 2,284 Total assets............ 56,396 50,973 46,792 55,264 66,808 57,492 Total debt.............. -- -- -- -- -- -- Total equity (capital deficiency)............ 4,626 4,126 (1,553) 361 8,627 4,323
- -------- (a) Consists of state and local income taxes. As a subchapter S corporation under the Code, Petersen has not been subject to U.S. federal income taxes or most state income taxes. Instead, such taxes have been paid by Petersen's stockholder. Petersen has periodically paid dividends to its stockholder in respect of such tax liabilities. (b) "EBITDA" is defined as income before interest, income taxes, depreciation and amortization and gain on sale of assets. EBITDA is not a measure of performance under GAAP. While EBITDA should not be considered in isolation or as a substitute for net income, cash flows from operating activities and other income or cash flow statement data prepared in accordance GAAP, or as a measure of profitability or liquidity, management understands that EBITDA is customarily used in evaluating magazine publishing companies. (c) Earnings used in computing the ratio of earnings to fixed charges consist of income before provision for income taxes plus fixed charges. Fixed charges consist of the implied interest element of rent expense for all periods presented except for the nine months ended August 31, 1996 for which fixed charges also included interest expense of $152,917. 35 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW The Company. The Company is a leading publisher of special-interest magazines. The Company's diverse portfolio currently contains a total of 73 publications, including 22 monthly publications, 9 bi-monthly publications and 42 single issue or annual publications. The Company operates primarily within the expanding special-interest segment of the consumer magazine publishing market. Over the last decade, special-interest publications targeted to niche audiences have enjoyed significant growth and are now estimated to account for approximately one quarter of the overall consumer magazine market in terms of total advertising and circulation spending. The Company had net revenues of $213.6 million and $168.8 million for the year ended November 30, 1995 and the nine months ended August 31, 1996, respectively. Sources of Revenue. The Company's principal sources of revenues from the publication of its magazines are derived from advertising and circulation. Circulation revenues are generated from both subscription and newsstand sales. For fiscal 1995, approximately 58% of the Company's revenues were from advertising, 38% were from circulation (including 20% from subscription sales and 18% from newsstand sales) and 4% were from other sources. Advertising revenues of the Company, as well as those of the consumer magazine industry in general, are cyclical and dependent upon general economic conditions. Historically, increases in advertising revenues have corresponded with economic recoveries while decreases, as well as changes in advertising mix, have corresponded with general economic downturns and regional and local economic recessions. As compared to general-interest magazines, the Company believes that its advertising revenues are less susceptible to changes in general economic conditions due to the diversity of its publications, the special-interest nature of its editorial content and the endemic nature of its advertiser base. See "Business--Industry Overview" and "Risk Factors-- Cyclicality of Revenues." Potential Operating Improvements. As part of its business and operating strategy, the Company has identified and is in the process of implementing certain cost reduction measures and operating improvements that are expected to result in annual cost savings when compared to Petersen's recent operating history. The following table sets forth certain expenses incurred by Petersen in each of the past three fiscal years and the nine-month periods ended August 31, 1995 and 1996, which the Company believes will not recur in future periods as a result of such cost reduction measures and operating improvements. See "Business--Business and Operating Strategy." Certain of these adjustments are reflected in the Company's unaudited pro forma financial data. See "Unaudited Pro Forma Financial Data." Unless otherwise noted, amounts shown have not been adjusted to reflect additional expenses which the Company expects to incur in future periods, including additional professional fees, interest expense, depreciation and amortization and other expenses. In addition, while the Company believes the following expenses will not recur in future periods, there can be no assurance that the Company will not incur other expenses similar to the expenses described below in future periods. The following calculation should not be viewed as indicative of future results.
NINE MONTHS ENDED YEARS ENDED NOVEMBER 30, AUGUST 31, --------------------------- ----------------- 1993 1994 1995 1995 1996 -------- -------- -------- -------- -------- (DOLLARS IN THOUSANDS) Compensation of senior management(a)................... $ 12,273 $ 9,450 $ 3,713 $ 1,660 $ 2,585 Personnel reductions(b).......... 5,927 6,192 7,181 5,124 4,374 Excess travel and entertainment expenses(c)..................... 917 1,036 1,111 801 737 Renegotiation of lease with stockholder and sublease revenues to be realized(d)...... 52 65 72 54 838 Elimination of excess paper costs(e)........................ -- -- 1,417 310 4,792 Reduced software development costs(f)........................ 2,475 3,507 4,026 2,953 1,589 Reorganization of loss-producing magazine title(g)............... (170) 1,707 7,646 5,040 5,154 Reduced retirement plan contributions(h)................ 2,001 2,271 294 -- -- -------- -------- -------- -------- -------- Total nonrecurring expenses.... $ 23,475 $ 24,228 $ 25,460 $ 15,942 $ 20,069 ======== ======== ======== ======== ========
36 (footnotes from previous page) - -------- (a) Represents: (i) compensation and benefits paid to Mr. Petersen, Petersen's Chairman and founder, and Mr. Waingrow, Petersen's former President, net of compensation to be paid to the Company's new management team; (ii) travel and entertainment expenses attributable to Messrs. Petersen and Waingrow and (iii) compensation and benefits paid to certain support personnel and professional consultants working primarily for Messrs. Petersen and Waingrow. See "Unaudited Pro Forma Financial Data." (b) Represents compensation, related benefits and severance paid to certain former Petersen personnel who were terminated as part of cost reduction programs by Petersen and to employees terminated in October 1996 as part of the Company's personnel reduction program, net of the Company's estimate of a normal level of severance costs after the personnel reduction program is complete. See "Unaudited Pro Forma Financial Data." (c) Represents the Company's estimate of travel and entertainment expenses incurred by Petersen in excess of such expenses to be incurred by the Company after implementation of new travel and expense policies and personnel reduction. (d) Represents amounts paid in the periods presented for rent with respect to certain properties owned by Mr. Petersen over amounts payable in future periods pursuant to new leases negotiated in connection with the Acquisition and the Company's estimate of the rental costs which would have been charged to accrued liabilities for excess rental space recorded in the allocation of purchase price if the consolidations had occurred at the beginning of the periods presented. See "Unaudited Pro Forma Financial Data." (e) See "--Paper Prices" and "Unaudited Pro Forma Financial Data." (f) See "--Software Consulting Expenses" and "Unaudited Pro Forma Financial Data." (g) Represents losses incurred by Sassy, Petersen's Golfing, Sport, Bicycle Guide and Mountain Biker during the periods presented. In December 1996, the Company completed the process of merging Sassy into 'TEEN, thereby eliminating the losses being generated by Sassy. While the remaining magazines collectively are expected to break even or be marginally profitable in fiscal 1997, in the event such magazines continue to generate losses, management expects to take one or more of the following actions: (i) discontinue or sell such magazines; (ii) merge such magazines with the Company's existing magazines or (iii) enter into strategic partnerships with third parties. Management expects that a final decision with respect to each magazine will be made by the end of fiscal 1997. (h) The Company will not continue making contributions to Petersen's retirement plan and intends to establish a new defined contribution plan for which the estimated annual cost is $1.0 million annually. Paper Prices. The Company's principal raw material is paper. The Company used 69.6 million, 76.0 million and 84.4 million pounds of commodity grade paper in its fiscal years ended November 30, 1993, 1994 and 1995, respectively, resulting in a total cost of paper during such periods of $29.0 million, $30.5 million and $39.3 million, respectively. While paper prices have increased by an average of less than 1% annually since 1989, certain commodity grades have shown considerable price volatility during that period, including the commodity grade used by the Company. Paper prices rose sharply during the latter part of 1995, and in response, Petersen purchased a large supply of 32 lb. paper in December 1995 at prices ranging from $0.61 to $0.66 per pound in anticipation of additional price increases and supply shortages continuing for the remainder of 1995 and 1996. Petersen purchased enough paper to meet all of its production requirements through September 1996. The price of such paper subsequently returned to historical levels of approximately $0.50 per pound in May 1996. The increase in paper prices in late 1995 and Petersen's large purchase at such increased prices materially adversely affected Petersen's production, selling and other direct costs for year ended November 30, 1995 and the nine months ended August 31, 1996, respectively. These events increased Petersen's production, selling and other direct costs by approximately $1.4 million and $4.8 million for the year ended November 30, 1995 and for the nine months ended August 31, 1996, respectively (assuming Petersen would have otherwise been able to purchase paper during these periods at the 20-year median price of approximately $0.50 per pound (as adjusted for inflation)). Following the Acquisition, the Company entered into an oral agreement with a vendor to secure sufficient paper to meet its projected raw material needs through the end of fiscal 1997 at or below current market prices. While there can be no assurances, the Company expects that such agreement will be finalized by the end of 1996. No assurance can be given, however, that future fluctuations in paper prices after 1997 will not have a material adverse effect on the results of operations and financial condition of the Company. See "Risk Factors--Risks Associated with Fluctuations in Paper Costs and Postal Rates" and "Business--Raw Materials." Software Consulting Expenses. During the three year period ended November 30, 1995, Petersen engaged a consulting firm to design and install systems and related software for use in its operations. The systems and software principally related to an electronic magazine layout system, an advertising rate and circulation modeling system and an automated pre-press operating system. Petersen incurred total expenses of $2.5 million, $3.5 37 million and $4.0 million in each of the three years in the period ended November 30, 1995, respectively, with respect to this project. These systems were never completed satisfactorily. Petersen subsequently purchased and installed commercially available systems to perform such functions at a cost of less than $175,000. Petersen is currently engaged in litigation over the matter with the consulting firm and accrued $0.8 million in the nine months ended August 31, 1996 related to such litigation, which remains the responsibility of Petersen. Purchase Accounting Effects. The Acquisition was accounted for using the purchase method of accounting. As a result, the Acquisition will prospectively effect the Company's results of operations in certain significant respects. The aggregate pro forma acquisition cost (including the assumption of ongoing liabilities incurred in the ordinary course of business and estimated transaction expenses of $15.3 million) of approximately $480.2 million will be allocated to the tangible and intangible assets acquired and liabilities assumed by the Company based upon their respective fair values as of the acquisition date based upon valuations and other studies that are not yet available. The preliminary allocation of the purchase price of the assets acquired in the Acquisition is estimated to result in annual depreciation and amortization expense of approximately $35.0 million per year. The Company's historical annual depreciation and amortization expense over the past five years has been less than $4.5 million per year. In addition, due to the effects of the increased borrowing of the Company to finance the Acquisition, the Company's interest expense will increase significantly in the periods following the Acquisition. Provision for Income Taxes. Prior to the Acquisition, Petersen was operated as a subchapter S corporation under the Code. As a result, it did not incur federal and state income taxes (except with respect to certain states) and, accordingly, no discussion of income taxes is included in "Results of Operations" below. Federal and state income taxes (except with respect to certain states) with respect to Petersen's income during such periods were incurred and paid directly by Petersen's stockholder. Petersen made periodic distributions to its stockholder in respect of such tax liability. As a limited liability company, the Company will also not incur federal and state income taxes (except with respect to certain states). Federal and state income taxes (except with respect to certain states) with respect to the Company's income during future periods will be incurred and paid directly by the Company's equity holders. Pursuant to the terms of its limited liability company agreement, the Company will make distributions to its equity holders in respect of such tax liabilities in future periods. 38 RESULTS OF OPERATIONS The following table summarizes Petersen's historical results of operations as a percentage of revenue for the years ended November 30, 1993, 1994 and 1995 and for the nine month periods ended August 31, 1995 and 1996:
NINE MONTHS ENDED YEARS ENDED NOVEMBER 30, AUGUST 31, ---------------------------- ------------------ 1993 1994 1995 1995 1996 -------- -------- -------- -------- -------- (DOLLARS IN THOUSANDS) STATEMENT OF OPERATIONS DA- TA: Net revenues: Advertising............... 56.4% 57.7% 57.8% 57.5% 58.7% Newsstand................. 20.1 19.9 18.7 18.6 18.3 Subscriptions............. 21.4 20.1 19.6 19.7 18.8 Other..................... 2.1 2.3 3.9 4.2 4.2 -------- -------- -------- -------- -------- Total net revenues...... 100.0 100.0 100.0 100.0 100.0 Production, selling and other direct costs......... 76.0 73.9 80.1 79.4 78.8 -------- -------- -------- -------- -------- Gross profit................ 24.0 26.1 19.9 20.6 21.2 General and administrative expenses................... 19.1 16.4 13.2 12.6 12.4 -------- -------- -------- -------- -------- Operating income............ 4.9% 9.7% 6.7% 8.0% 8.8% ======== ======== ======== ======== ======== OTHER DATA: EBITDA...................... 6.6% 11.2% 8.3% 9.5% 10.3%
Nine Months Ended August 31, 1996 Compared to Nine Months Ended August 31, 1995 Total revenues for the nine months ended August 31, 1996 increased by $8.6 million, or 5.4%, to $168.8 million from $160.2 million for the nine months ended August 31, 1995. Of this increase, advertising revenue accounted for $7.0 million, supplemented by a $1.2 million increase in newsstand revenue and a $0.1 million increase in subscription revenue. The increase in advertising revenues was due principally to an overall increase in the Company's advertising rates and higher advertising revenues generated by Motor Trend, 'TEEN and All About You! The increase in newsstand revenue was due principally to increased sales of 'TEEN and All About You! Production, selling and other direct costs for the nine months ended August 31, 1996 increased by $5.7 million, or 4.5%, to $133.0 million from $127.3 million for the nine months ended August 31, 1995, primarily as a result of increased paper costs and incremental production costs. Production, selling and other direct costs decreased as a percent of revenues over the same period to 78.8% of revenues for the 1996 period from 79.4% of revenues for the 1995 period. See "--Overview--Paper Prices." General and administrative expenses for the nine months ended August 31, 1996 increased by $0.8 million, or 4.0%, to $20.9 million from $20.1 million for the nine months ended August 31, 1995, primarily as a result of an accrual of $0.8 million for expenses relating to litigation against the software consultant described in "--Overview--Software Consulting Expenses." General and administrative expenses decreased as a percent of revenues over the same period to 12.4% of revenues for the 1996 period from 12.6% of revenues for the 1995 period. Operating income for the nine months ended August 31, 1996 increased by $2.1 million, or 15.9%, to $14.9 million from $12.8 million for the nine months ended August 31, 1995, for the reasons stated above. Year Ended November 30, 1995 Compared to Year Ended November 30, 1994 Total revenues for the year ended November 30, 1995 increased by $11.6 million, or 5.8%, to $213.6 million from $202.0 million for the year ended November 30, 1994. Of this increase, advertising revenue 39 accounted for $6.8 million, partially offset by a $0.2 million decrease in newsstand revenue and supplemented by a $1.3 million increase in subscription revenue. The increase in advertising revenue was principally due to the Company's acquisition of Sassy in December 1994. Production, selling and other direct costs for the year ended November 30, 1995 increased by $21.9 million, or 14.7%, to $171.1 million from $149.2 million for the year ended November 30, 1994, primarily as a result of the cost of launching new magazine titles, additional costs associated with the publication of Sassy and increases in paper prices and postal rates. Production, selling and other direct costs increased as a percent of revenues over the same period to 80.1% of revenues for the 1995 period from 73.9% of revenues for the 1994 period due principally to the same causes. See "-- Overview--Paper Prices." General and administrative expenses for the year ended November 30, 1995 decreased by $5.2 million, or 15.4%, to $28.1 million from $33.3 million for the year ended November 30, 1994, primarily as a result of lower compensation expense for Mr. Petersen. General and administrative expenses decreased as a percent of revenues over the same period to 13.2% of revenues for the 1995 period from 16.4% of revenues for the 1994 period. Operating income for the year ended November 30, 1995 decreased by $5.1 million, or 26.4%, to $14.4 million from $19.5 million for the year ended November 30, 1994, for the reasons stated above. Year Ended November 30, 1994 Compared to Year Ended November 30, 1993 Total revenues for the year ended November 30, 1994 increased by $15.7 million, or 8.4%, to $202.0 million from $186.3 million for the year ended November 30, 1993. Of this increase, advertising revenue accounted for $11.5 million, supplemented by a $2.5 million increase in newsstand revenue and a $0.9 million increase in subscription revenue. The increase in advertising revenue was due primarily to the launch of Mountain Biker, 5.0 Liter Mustang, Hot Rod Bikes, Mustang & Fords and Custom Classic Trucks and the acquisition of Bicycle Guide. Production, selling and other direct costs for the year ended November 30, 1994 increased by $7.6 million, or 5.4%, to $149.2 million from $141.6 million for the year ended November 30, 1993, primarily as a result of incremental production costs from the launch of new magazines. Production, selling and other direct costs decreased as a percent of revenues over the same period to 73.9% of revenues for the 1994 period from 76.0% of revenues for the 1993 period principally due to a new printing contract with more favorable terms. General and administrative expenses for the year ended November 30, 1994 decreased by $2.3 million. or 6.6%, to $33.3 million from $35.6 million for the year ended November 30, 1993, primarily as a result of the completion of start-up activities for new magazine titles, partially offset by increased compensation expense for Mr. Petersen. General and administrative expenses decreased as a percent of revenues over the same period to 16.4% of revenues for the 1994 period from 19.1% of revenues for the 1993 period. Operating income for the year ended November 30, 1994 increased by $10.3 million, or 113.2%, to $19.5 million from $9.2 million for the year ended November 30, 1993, for the reasons stated above. LIQUIDITY AND CAPITAL RESOURCES Historical Cash Flows from Operating Activities. Net cash provided by operations was $24.8 million for the nine months ended August 31, 1996 compared to $3.0 million for the nine months ended August 31, 1995. Of this difference, $18.0 million relates to changes in inventory levels and $3.5 million relates to increased net income. Net cash provided by operations decreased to $9.6 million for the year ended November 30, 1995 from $27.1 million for the year ended November 30, 1994. This decrease resulted principally from a $10.6 million increase in inventories and a $4.9 million decrease in net income. The increase in net cash provided by operations to $27.1 million for the year ended November 30, 1994 from $10.7 million for the year ended November 30, 1993 was primarily due to a $10.1 million increase in net income and a $6.9 million change in balance in accounts payable. 40 Historical Cash Flows from Investing Activities. Net cash provided by investing activities was $5.1 million for the nine months ended August 31, 1996, including $2.5 million in proceeds from the sale of its Viking Color pre-press operations, compared to $3.6 million for the nine months ended August 31, 1995. Net cash provided by (used in) investing activities was $2.3 million, $(14.5) million and $(30,000) in the years ended November 30, 1995, 1994 and 1993, respectively. The changes were primarily due to the purchase and sale of marketable securities with cash. See "Capital Expenditures" below for the level of capital expenditures. Historical Cash Flow from Financing Activities. Net cash used in financing activities, which was comprised solely of distributions of Petersen's S corporation earnings to its stockholder and changes in advances to other divisions of Petersen, were $20.6 million, $5.1 million, $6.1 million, $17.4 million and $14.9 million for the nine months ended August 31, 1996 and 1995 and the years ended November 30, 1995, 1994 and 1993, respectively. Financing Activities Relating to the Acquisition. The Initial Offering was part of a plan designed to enable the Company to finance the Acquisition and to provide for additional liquidity. In connection with the Acquisition, the Company: (i) borrowed $200.0 million under the $260.0 million Senior Credit Facility; (ii) borrowed $100.0 million under the Bridge Financing Facility and (iii) received equity contributions of $165.3 million from an investor group led by Willis Stein. The Company used the proceeds from the Initial Offering to repay the Bridge Financing Facility. See "The Transactions." The borrowings under the Senior Credit Facility consist of a $100.0 million Tranche A Loan and a $100.0 million Tranche B Loan, maturing on December 31, 2002 and September 30, 2004, respectively. The Revolving Credit Facility provides for borrowings in the maximum principal amount of $60.0 million. The Tranche A Loan amortizes gradually prior to maturity; the Tranche B Loan is payable primarily in two balloon payments due in 2003 and 2004. The Revolving Credit Facility becomes due in full on December 31, 2002. The Senior Credit Facility contains customary provisions with respect to security, covenants (including financial covenants) and events of default. See "Description of Senior Credit Facility." Capital Expenditures. The Company's operations are not capital intensive. Capital expenditures were $0.7 million and $3.1 million in the nine months ended August 31, 1996 and 1995, respectively, and $4.4 million, $2.9 million and $4.7 million in the fiscal years ended November 30, 1995, 1994 and 1993, respectively. Liquidity. The Company's principal sources of funds following the Acquisition are anticipated to be cash flows from operating activities and borrowings under the Senior Credit Facility. Based upon the successful implementation of management's business and operating strategy, the Company believes that these funds will provide the Company with sufficient liquidity and capital resources for the Company to meet its current and future financial obligations, including the payment of principal and interest on the Notes, as well as to provide funds for the Company's working capital, capital expenditures and other needs. No assurance can be given, however, that this will be the case. The Company's future operating performance and ability to service or refinance the Notes and to repay, extend or refinance the Senior Credit Facility will be subject to future economic conditions and to financial, business and other factors, many of which are beyond the Company's control. See "Risk Factors." In the event of a Change of Control, the Company will be required to make an offer for cash to repurchase the Notes at 101% of the principal amount thereof, plus accrued and unpaid interest and Additional Interest, if any, thereon to the repurchase date. Certain events involving a Change of Control will result in an event of default under the Senior Credit Facility or other indebtedness of the Company that may be incurred in the future. Moreover, the exercise by the holders of the Notes of their right to require the Company to repurchase the Notes may cause an event of default under the Senior Credit Facility or such other indebtedness, even if the Change of Control does not. Finally, there can be no assurance that the Company will have the financial resources necessary to repurchase the Notes upon a Change of Control. See "Risk Factors--Change of Control" and "Description of the Notes--Change of Control Offer." INFLATION The Company believes that inflation has not had a material impact on its results of operations for three years ended November 30, 1995. 41 BUSINESS The Company is a leading publisher of special-interest magazines. The Company's diverse portfolio currently contains a total of 73 publications, including 22 monthly publications, 9 bimonthly publications and 42 single issue or annual publications. According to Media Market Research Institute, the Company's magazines reach over 40 million readers each month. The Company's nationally-recognized magazines include: (i) Motor Trend, which is recognized as a leading authority on new domestic and foreign automobiles and has a current monthly circulation of approximately 1.0 million; (ii) 'TEEN, which has the largest circulation of any of the Company's magazines with a current monthly circulation of over 1.3 million and (iii) Hot Rod, which is one of the largest circulation automotive magazines in the world with a current monthly circulation of over 810,000. The Company's other core publications are well-known in their respective markets and include Guns & Ammo, Skin Diver, 4 Wheel & Off-Road, Car Craft, Petersen's Hunting, Motorcyclist, Sport Truck, Circle Track, Photographic and Dirt Rider. Eight of the Company's 13 core publications ranked first in their respective markets base on annual circulation in 1995. The Company's principal sources of revenues are from advertising and circulation. The Company had net revenues of $213.6 million and $168.8 million for fiscal 1995 and the nine months ended August 31, 1996, respectively. Circulation revenues are generated from both subscription and newsstand sales. For fiscal 1995, approximately 58% of the Company's revenues were from advertising, 38% were from circulation (including 20% from subscription sales and 18% from newsstand sales) and 4% were from other sources. In fiscal 1995, the Company's 13 core publications each generated a minimum of approximately $1.0 million of profit contributions and, in the aggregate, generated over $55.2 million of the Company's profit contribution. During the same period, no single publication accounted for more than 15% of the Company's net revenues or 28% of profit contribution. As a result of such diversification, the Company believes that it is not dependent on any single publication and is less susceptible to shifts in advertising spending across industry sectors. The Company's core publications collectively average over 30 years in publication and have developed nationally-recognized branded titles within each of their respective markets. By using its core publications as a platform for launching new "spin-off" publications, the Company has been able to develop a portfolio of highly-specialized publications covering a wide variety of interests. The Company believes that its reputation as a high- quality publisher and its significant market presence has historically enabled its new publications to gain market share more rapidly in their respective special-interest segments. Substantially all of the Company's magazines target special-interest enthusiasts. By doing so, the Company is able to deliver a solid core audience to its advertisers on a consistent basis and create an opportunity for its advertisers to efficiently reach their target audience. Due to the special- interest nature of the Company's magazines, readers not only value their specialized editorial content but also rely on such magazines as a catalogue of products in the relevant topic area. This catalogue aspect makes the Company's magazines an essential advertising medium for many of the Company's advertisers. Certain of the Company's advertisers rely on the Company's publications as their primary source of media advertising. As compared to general-interest magazines, the Company believes that its advertising revenues are less susceptible to changes in general economic conditions due to the diversity of its publications, the special-interest nature of its editorial content and the endemic nature of its advertiser base. In addition, the Company has a diverse advertiser base, with its top 25 advertisers accounting for only 32.6% and 32.9% of the Company's advertising revenues during fiscal 1995 and the nine months ended August 31, 1996, respectively. In addition to offering its advertisers targeted advertising within individual magazines, the Company can offer its advertisers the ability to reach a large audience by advertising across the Company's large portfolio of magazines. Management believes this capability was not fully developed by Petersen's prior management. In particular, the Company believes that many of its publications provide its advertisers with unique access to the adult male (ages 18 to 34) and young female (ages 12 to 19) markets. The Company believes that, in the aggregate, its publications reach more adult males than those of any other magazine publisher and reach over one-third of all young females in the United States. The adult male market is particularly attractive to advertisers 42 due to its size and overall purchasing power, while the young female market provides advertisers with the opportunity to establish brand recognition during the formative stages of this important consumer group's buying patterns. The following table sets forth certain information regarding the Company's 13 core publications for its fiscal year ended November 30, 1995:
NET TOTAL CIRCULATION MAGAZINE TITLE REVENUES(A) CIRCULATION(B) RANK(B)(C) -------------- --------------------- --------------------- ----------- (AMOUNTS IN MILLIONS) (COPIES IN THOUSANDS) Motor Trend......... $31.3 950.6 2 of 4 'TEEN............... 24.1 1,311.8 3 of 3 Hot Rod............. 19.7 810.2 1 of 2 Guns & Ammo......... 13.6 570.8 1 of 2 Skin Diver.......... 13.3 229.0 1 of 2 4 Wheel & Off-Road.. 12.0 367.7 1 of 2 Car Craft........... 9.8 389.7 1 of 1 Petersen's Hunting.. 7.3 331.2 1 of 1 Motorcyclist........ 6.8 239.6 2 of 2 Sport Truck......... 6.2 192.1 1 of 2 Circle Track........ 6.0 131.6 2 of 3 Photographic........ 5.7 217.5 3 of 3 Dirt Rider.......... 5.4 160.8 1 of 3
- -------- (a) Includes advertising, circulation and other revenues for the year ended November 30, 1995. (b)Based on the average circulation for each publication for the year ended December 31, 1995. (c) Includes only national publications, that are tracked by industry analysts and does not include small regional publications and newsletters. The Company completed the Acquisition on September 30, 1996. The Investors pursued the Acquisition because they believed it offered an attractive opportunity to: (i) acquire a diverse portfolio of profitable magazines with significant growth potential; (ii) bring together a skilled and experienced management team, consisting of the Company's new senior managers and Petersen's existing publishers and editorial staff; (iii) apply professional management techniques to the Company's portfolio and improve its operating results by increasing circulation and advertising revenues and reducing operating costs and (iv) further develop the Company's brand-name franchises with limited additional capital investment. Management believes that opportunities exist to achieve each of these results both in the near term and on a going-forward basis. INDUSTRY OVERVIEW The consumer magazine market includes both general-interest and special- interest publications. General-interest magazines are characterized by broad- based editorial content and readership, while special-interest magazines have a more narrow editorial focus and subject-selective readership. The Company operates primarily within the expanding special-interest segment of the consumer magazine publishing market. The Company typically derives approximately 80% of its publication revenues from special-interest magazines with the balance coming from its general-interest publications, which include 'TEEN, All About You! and Sport. Over the last decade, special-interest publications targeted to niche audiences have enjoyed significant growth and are now estimated to account for approximately one quarter of the overall consumer magazine market in terms of total advertising and circulation spending. In recent years, special-interest magazines have generally exhibited stronger growth in both advertising and circulation spending as compared to general-interest magazines. For example, based on a representative survey of 111 general-interest and 115 special-interest magazines compiled by Veronis, Suhler & Associates, advertising and circulation spending on special-interest publications have grown at compound annual rates of 8.1% and 2.7%, respectively, as compared to 5.6% and 1.3%, respectively, for general- 43 interest publications during the period from 1990 to 1995. In addition, because special-interest magazines target enthusiasts, publishers are generally able to charge a higher cover price as compared to general-interest magazines. Based on the survey noted above, the average price of a special- interest magazine was $2.08 in 1995, nearly 50% higher than the $1.41 average price of a general-interest magazine. For much the same reason, the Company believes that readers of special-interest magazines are less price-sensitive than readers of general-interest magazines. Circulation revenues are generated from subscription and newsstand sales. On an industry-wide basis, approximately 18% of consumer magazines are currently distributed through newsstand sales and 82% are distributed through subscription sales. Over the last fifteen years, the aggregate number of consumer magazines distributed through newsstand sales has declined in relation to the number distributed through subscription sales. The Company believes that this decline is primarily the result of decreased newsstand sales of general-interest magazines while newsstand sales of special-interest magazines have remained relatively constant. Due to increases in newsstand cover prices, the amount of circulation revenue generated from newsstand sales by special-interest magazines has grown over the last decade. According to the survey noted above, the average price per copy for special-interest magazines increased at a compound annual growth rate of 2.6% for the period from 1990 to 1995. In addition, the Company believes that newsstand sales offer an economically attractive vehicle for launching new magazines, attracting more affluent subscribers and generating timely feedback about its editorial content. For both the year ended November 30, 1995 and the nine months ended August 31, 1996, approximately 49% of the Company's circulation revenues were derived from newsstand sales and 51% were derived from subscription sales. See "--Sources of Revenue." In general, magazine publishers generate the majority of their revenues from the sale of advertising. Advertising revenues, however, tend to be cyclical and dependent upon general economic conditions. Historically, increases in advertising revenues have corresponded with economic recoveries while decreases have corresponded with general economic downturns. As compared to general-interest magazines, the Company believes that its advertising revenues are less susceptible to changes in general economic conditions due to the diversity of its publications, the special-interest nature of its editorial content and the endemic nature of its advertiser base. Industry sources estimate that total advertising spending for special- interest publications increased by approximately 13% in 1995. According to the Publishers Information Bureau, the top ten categories of industries ranked by consumer magazine advertising expenditures in 1995 were automotive and automotive accessories (15%), mail order and direct response (11%), toiletries and cosmetics (10%), computers, office equipment and stationery (10%), business and consumer services (9%), food and food products (8%), apparel, footwear and accessories (7%), drugs and remedies (6%), travel, hotels and resorts (5%) and cigarettes, tobacco and accessories (4%). The automotive industry has traditionally accounted for the largest percentage of total advertising expenditures in the consumer magazine industry. During the period from 1990 to 1995, advertising spending by the automotive industry increased at a compound annual growth rate of 8.2%. In recent years, consumer magazine publishers have increasingly sought to diversify their earnings and more effectively utilize their existing publications by developing non-traditional revenue streams. In general, magazine publishers have sought to expand the use of their magazines' editorial content across different media formats and to capitalize on their existing brand names. On an industry-wide basis, the Company estimates that consumer magazine publishers currently derive approximately 10% to 20% of their net revenues from ancillary revenue sources, such as licensing arrangements, subscriber list rentals, joint ventures and new forms of media. The Company believes that its portfolio of special-interest magazines provides unique opportunities to develop ancillary revenues due to the special-interest nature of such magazines' editorial content and the enthusiast nature of their readership. BUSINESS AND OPERATING STRATEGY The Company's core publications collectively average over 30 years in publication and have developed nationally-recognized branded titles in each of their respective markets. The Company believes that the enthusiast 44 nature of its readership provides it with a loyal subscriber base and enables it to deliver a solid core audience to its advertisers on a consistent basis. As a result, management believes that the Company maintains a number of significant competitive advantages. Historically, Petersen expanded primarily by introducing special-interest magazines to serve niche audiences in areas in which its founder had a personal interest. In pursuing such expansion, Petersen maintained a consistent focus on the high-quality editorial content of its magazines. However, Petersen was organized into six distinct publishing groups that essentially operated independently from one another and were focused primarily on editorial development and advertising revenue generation rather than overall profitability. As a result, management believes that Petersen did not fully realize all available operating synergies. The Company's new management team has significant experience in the magazine publishing industry, Based upon such experience, management has developed a detailed business and operating strategy for the Company, primarily comprising operating policies and procedures that have proven successful in their prior experience and are widely practiced throughout the publishing industry. The Company's business and operating strategy is primarily designed to leverage off of its nationally-recognized brand names and improve the profitability of the Company. The key elements of this strategy include: REORGANIZE OPERATING STRUCTURE. Following the Acquisition, new management reorganized several operating areas of the Company to facilitate a more integrated and unified approach to circulation, production and advertising sales, while retaining independent editorial direction of its magazines. The Company's circulation operations, which include such functions as subscription marketing and planning, fulfillment and newsstand distribution, were previously organized by magazine group and managed by generalists focused on each magazine group. Circulation operations have been reorganized on a functional basis across all of the Company's publications and will be managed by specialists within each function. Certain of these functions are being relocated to New York in order to take advantage of expertise not readily available elsewhere. In addition, the 's production activities are being centralized across all of its publications rather than by magazine Company group. The Company's national advertising sales management is being relocated from Los Angeles to New York to be in closer proximity to national advertising accounts. Similarly, management of the young women's titles is being moved to New York to increase the visibility of such magazines among advertisers in the fashion and cosmetic industries. IMPLEMENT OPERATING IMPROVEMENTS. Management has identified and has substantially implemented operating improvements that are expected to result in significant cost savings. These measures include the following: . REDUCE OPERATING COSTS. At the time of the Acquisition, management identified certain cost reduction measures including: (i) savings in personnel and related net lease costs; (ii) lower utilization of temporary employees and services; (iii) the consolidation of one or more of the Company's regional sales offices; (iv) tighter purchasing procedures and controls and (v) reductions in the Company's travel and entertainment expenditures. A substantial number of these cost reduction measures have been completed, including personnel reductions expected to result in annualized cost savings of approximately $4.9 million. . RESTRUCTURE VENDOR RELATIONSHIPS. Immediately following the Acquisition, management commenced an extensive review of the Company's significant vendor relationships, including its printing, paper supply, fulfillment and newsstand distribution arrangements. Based on that review and meetings with certain of such vendors, management believes that there are opportunities to enhance these relationships and to improve the economic terms of such arrangements for the Company. Although no definitive agreements have been executed, the Company believes that it will be successful in achieving more favorable terms with many of its vendors. . IMPROVE PERFORMANCE OF CERTAIN PUBLICATIONS. Management believes that it can improve the Company's profitability by implementing changes designed to eliminate or significantly reduce the losses 45 currently being generated by certain of the Company's publications. The Company has five magazines (Sassy, Sport, Petersen's Golfing, Bicycle Guide and Mountain Biker) that collectively accounted for a negative profit contribution of $7.6 million and $5.2 million for fiscal 1995 and the nine months ended August 31, 1996, respectively. In December 1996, the Company completed the process of merging Sassy into 'TEEN, thereby eliminating the losses being generated by Sassy. Sassy generated negative profit contribution of $4.7 million and $2.9 million for fiscal 1995 and the nine months ended August 31, 1996, respectively. While the remaining magazines collectively are expected to break even or be marginally profitable in fiscal 1997, in the event such magazines continue to generate losses, management expects to take one or more of the following actions: (i) discontinue or sell such magazines; (ii) merge such magazines with the Company's existing magazines or (iii) enter into strategic partnerships with third parties. Management expects that a final decision with respect to each magazine will be made by the end of fiscal 1997. INCREASE CIRCULATION AND ADVERTISING REVENUES. Management believes that there are significant opportunities to increase circulation and advertising revenues. The Company has historically focused on the newsstand distribution channel and has relied heavily upon agency subscription sales in managing its circulation operations. Management believes that it can increase subscription revenues by instituting programs designed to increase the number of readers who buy subscriptions directly from the Company. For example, the Company has begun to develop a database of its over 32 million current or former subscribers that will allow it to cross-sell its other publications to such subscribers. In addition, management intends to increase the newsstand and subscription prices on certain of its publications in order to bring such prices in line with competitive publications. Management believes that it can increase the Company's advertising revenues by adopting a more unified approach to advertising sales, which will focus on enhancing the ability of the Company's advertisers to purchase advertising space across all of the Company's magazines that reach their target markets. In addition, management intends to increase the Company's advertiser base by targeting new advertisers and advertisers in other industry categories. Such advertisers include, among others, manufacturers of men's apparel, footwear and accessories and alcoholic beverages. The Company has also implemented a new commission sales policy designed to provide more effective incentives to the Company's advertising sales force. Prior management's policy did not provide additional incentives to sales personnel once they had reached their annual sales target, which often occurred prior to the conclusion of Petersen's fiscal year. In addition, by designing the database described above with the capability of identifying specific segments within each of its markets, the Company believes it can offer its advertisers increased value and thus generate additional advertising revenues. ESTABLISH PERFORMANCE-BASED INCENTIVES. The significant equity interests held by the Company's new senior management provide such executives with an incentive to maximize the Company's overall profitability. In addition, to provide incentives to the Company's existing management and assist new management in implementing the new business strategy, the Company plans to adopt new compensation arrangements designed to reward managers and other participating employees based upon the Company's operating performance. DEVELOP ANCILLARY REVENUE SOURCES. The Company was historically operated as a traditional consumer magazine company deriving substantially all of its revenues from advertising and circulation sales. On an industry-wide basis, management estimates that consumer magazine publishers currently derive approximately 10% to 20% of their revenues from ancillary revenue sources while the Company currently derives only about 4% of its revenues from such sources. In recent months, the Company has begun to explore the ancillary revenue opportunities afforded by its well-established brand names. For example, the Company has recently entered into licensing agreements relating to the use of its Motor Trend and Hot Rod brand names for weekly television shows on The Nashville Network (TNN) and its Guns & Ammo brand name for a weekly television show on ESPN. In addition, because the editorial content of many of its magazines would also appeal to readers outside of the United States, management believes that significant opportunities exist to establish international licensing agreements, particularly in Asia, Australia, Great Britain and Western Europe. The Company believes that there 46 are significant opportunities to increase revenues by leveraging off the editorial content and the nationally-recognized brand names of the Company's existing publications through licensing arrangements, strategic joint ventures, retail alliances, subscriber list rentals, affinity group marketing and electronic publishing. ESTABLISH NEW TITLES. The Company has successfully expanded its magazine portfolio by launching new publications to serve niche audiences in related markets and by making selective acquisitions of existing magazine titles. Thirteen of the Company's 31 current monthly and bimonthly titles were launched or acquired by the Company since 1990. The Company plans to continue to develop and launch new special-interest magazines and acquire existing magazines that will complement and enhance its existing portfolio. SOURCES OF REVENUE Substantially all of the Company's revenues are derived from advertising and circulation sales, with lesser amounts derived from other sources such as subscriber list rentals. Circulation revenues are generated from both subscription and newsstand sales. The following table sets forth the sources and amounts of the Company's revenues for the fiscal years ended November 30, 1993, 1994 and 1995 and the nine months ended August 31, 1996 (dollars in millions):
FISCAL YEARS ENDED NOVEMBER 30, NINE MONTHS ---------------------------------------- ENDED 1993 1994 1995 AUGUST 31, 1996 ------------ ------------ ------------ ---------------- SOURCES OF REVENUE AMOUNT % AMOUNT % AMOUNT % AMOUNT % ------------------ ------ ----- ------ ----- ------ ----- ---------------- Advertising............. $105.1 56.4% $116.6 57.7% $123.4 57.8% $ 99.1 58.7% Newsstand............... 37.5 20.1 40.1 19.9 39.9 18.7 31.0 18.3 Subscriptions........... 39.8 21.4 40.7 20.1 42.0 19.6 31.7 18.8 Other................... 3.9 2.1 4.6 2.3 8.3 3.9 7.0 4.2 ------ ----- ------ ----- ------ ----- -------- ------- Total................. $186.3 100.0% $202.0 100.0% $213.6 100.0% $ 168.8 100.0% ====== ===== ====== ===== ====== ===== ======== =======
Advertising. Advertising sales accounted for approximately 58% and approximately 59% of the Company's net revenues for fiscal 1995 and the nine months ended August 31, 1996, respectively. The Company's advertising rates and rate structures vary among the Company's publications and are based, among other things, on the circulation of the particular publication and the size and location of the advertisement in the publication. The Company's advertising rates for a full-page advertisement ranged from $1,390 to $24,295 in fiscal 1995. The Company's top 25 advertisers accounted for only 32.6% and 32.9% of the Company's advertising revenues during fiscal 1995 and the nine months ended August 31, 1996, respectively. As compared to general interest magazines, the Company believes that its advertising revenues are less susceptible to changes in general economic conditions due to the diversity of its publications, the special-interest nature of its editorial content and the endemic nature of the Company's advertiser base. The Company's advertising revenues are principally derived from large and small manufacturers of products endemic to the editorial content of the Company's magazines, such as aftermarket automotive parts, hunting equipment, recreational firearms, bicycles and bicycle accessories, diving equipment and photographic equipment and supplies. Such manufacturers utilize the Company's magazines to efficiently advertise their specialized products to the Company's enthusiast readership. In addition to revenues from endemic advertising, the Company also derives a portion of its advertising revenues from well-known national manufacturers of consumer products that do not directly relate to the editorial content of the Company's magazines, such as liquor, cosmetics, financial products and apparel. The Company derives the largest portion of its advertising revenues from the automotive industry, which has traditionally accounted for the largest percentage of total advertising expenditures in the consumer magazine industry. For fiscal 1995, the Company derived approximately 17.9% and 20.6% of its advertising revenues from automotive manufacturers of original equipment and aftermarket parts, respectively. 47 Newsstand. Newsstand distribution accounted for approximately 19% of the Company's net revenues for both fiscal 1995 and the nine months ended August 31, 1996. As compared to the industry average, the Company typically has a greater percentage of revenues derived from newsstand sales due to the Company's historic focus on the newsstand distribution channel and the significant number of single issue or annual publications, which are sold exclusively through newsstands. The Company generally receives between 40% and 50% of the cover price from an individual magazine sold through a newsstand with the balance of such cover price going to such magazine's distributor, wholesaler and retailer. Subscriptions. Subscription sales accounted for approximately 20% and approximately 19% of the Company's net revenues for fiscal 1995 and the nine months ended August 31, 1996, respectively. Subscriptions to the Company's magazines are generally sold either directly by the Company or by an independent subscription agent, such as Publishers' Clearinghouse. Such agents remit a percentage of the subscription price to the Company, ranging from 0% to 75%. In certain instances, the subscription agent receives a fee from the Company in addition to retaining the entire subscription price. In the aggregate, the Company receives approximately 10% to 15% of the total price of subscriptions sold through agents. The Company has historically sold its subscriptions using a variety of techniques including direct reply subscription cards, direct mail and television advertisements. Other Revenue Sources. The Company was historically operated as a traditional consumer magazine company deriving substantially all of its revenues from advertising and circulation sales. On an industry-wide basis, management estimates that consumer magazine publishers currently derive approximately 10% to 20% of their revenues from ancillary revenue sources while the Company currently derives only about 4% of its revenues from ancillary sources. These additional revenues are derived primarily from subscriber list rentals and sponsorship of special events, such trade shows and outdoor festivals that relate to the editorial content of the Company's magazines. In recent months, the Company has begun to explore the ancillary revenue opportunities afforded to it as a result of its well-established brand names. For example, the Company has recently entered into licensing agreements relating to the use of its Motor Trend and Hot Rod brand names for weekly television shows on The Nashville Network (TNN) and its Guns & Ammo brand name for a weekly television show on ESPN. The Company believes that there are significant opportunities to increase revenues by leveraging off the editorial content and the nationally-recognized brand names of the Company's existing publications. With the growth of electronic publishing, the Company believes that there will be increased opportunities to utilize the editorial content of the Company's publications across different formats. The Company has already established a web-site on the Internet for Motor Trend and Bicycle Guide, and expects to establish a 'TEEN web-site in the next twelve to twenty-four months. The Company believes that electronic publishing offers opportunities to generate additional revenues through increased advertising sales, access fees and additional subscription sales. The Company also believes that significant opportunities exist to generate additional revenues through affinity group marketing programs pursuant to which the Company would attempt to sell complementary products or services directly to its subscribers. Through such programs, the Company will seek to increase its sales to a typical subscriber from a single magazine subscription to a variety of related products and services. The Company believes that its special-interest publications will provide an attractive platform through which to pursue such programs. The Company also intends to enter into licensing arrangements with manufacturers for the use of the Company's nationally-recognized brand names. Because the editorial content of many of its magazines would also appeal to readers outside the United States, management believes that significant opportunities exist to establish international licensing agreements, particularly in Asia, Australia, Great Britain and Western Europe. Other areas that the Company believes it can develop additional revenue streams include developing business-to-business publications, sponsoring trade shows, generating additional subscriber list rentals and entering into strategic joint ventures. As a result of its large number of publications, the Company has a subscriber list that includes over 32 million names of current or former subscribers. The Company is currently developing a database that includes such names and believes that it can increase list rental income by marketing such subscriber list database to a broad group of potential users. 48 PUBLICATIONS For fiscal 1995, the Company's portfolio included 22 monthly, 7 bimonthly and 44 single issue or annual publications. The following table sets forth certain information relating to the Company's current portfolio of monthly and bimonthly publications:
AVERAGE CIRCULATION FOR THE YEAR ENDED DECEMBER 31, 1995 YEAR OF ---------------------------------------- FREQUENCY OF INTRODUCTION NEWSSTAND SUBSCRIPTION TOTAL PUBLICATION OR ACQUISITION ----------- -------------- ------------ ------------ -------------- (COPIES IN THOUSANDS) Motor Trend............. 163.8 786.8 950.6 Monthly 1949 'TEEN................... 386.6 925.2 1,311.8 Monthly 1957 Sassy................... 98.7 623.4 722.1 Monthly 1994 All About You!.......... 251.4 13.7 265.1 Bi-Monthly 1995 Hot Rod................. 141.3 668.9 810.2 Monthly 1948 Car Craft............... 297.2 92.5 389.7 Monthly 1953 4 Wheel & Off-Road...... 129.9 237.8 367.7 Monthly 1978 Sport Truck............. 81.7 110.4 192.1 Monthly 1991 Chevy High Performance.. 71.6 69.3 140.9 Monthly 1987 Circle Track............ 41.9 89.7 131.6 Monthly 1982 Rod & Custom............ 41.4 64.8 106.2 Monthly 1955 5.0 Liter Mustang....... 43.6 18.8 62.4 Monthly(b) 1994 Mustang & Fords......... 50.7 54.9 105.6 Bi-Monthly 1994 Custom Classic Trucks... 43.0 33.8 76.8 Bi-Monthly 1994 Hot Rod Bikes........... 39.0 34.9 73.9 Bi-Monthly(c) 1994 Kit Car................. 37.9 19.1 57.0 Bi-Monthly 1983 Skin Diver.............. 27.9 201.1 229.0 Monthly 1951 Photographic............ 43.9 173.6 217.5 Monthly 1972 Motorcyclist............ 77.4 162.2 239.6 Monthly 1971 Dirt Rider.............. 48.4 112.4 160.8 Monthly 1982 Bicycle Guide........... 19.3 87.8 107.1 10 Issues Per Year 1993 Sport Rider............. 69.0 32.2 101.2 Bi-Monthly 1993 Mountain Biker.......... 33.7 43.5 77.2 10 Issues Per Year 1994 Guns & Ammo............. 134.8 436.0 570.8 Monthly 1958 Handguns................ 63.3 106.0 169.3 Monthly 1987 Petersen's Hunting...... 40.3 290.9 331.2 Monthly 1973 Petersen's Bowhunting... 39.0 99.9 138.9 8 Issues Per Year 1988 Sport................... 105.4 648.8 754.2 Monthly 1988 Petersen's Golfing...... 36.7 121.3 158.0 Monthly 1994
- -------- (a) The Company has scheduled the launch of Super Street and 4x4 Power as monthly publications in fiscal 1996. These publications have no significant operating history and therefore have not been included in the table. (b) This publication was converted to a monthly publication from a bimonthly publication in October 1996. (c) Scheduled to become a monthly publication in January 1997. The Company also publishes a wide variety of single issue publications, annuals, hard cover books and technical volumes. These publications generally provide more in-depth coverage of topics addressed in the Company's monthly and bimonthly magazines. Examples of such single issue publications include Motor Trend New Car Buyer's Guide, Hot Rod Annual, Car Craft Drag Racing, Chevy High Performance Special, Guns & Ammo Annual, Firearms for Law Enforcement, Photo Buyer's Guide and Motorcycle Buyer's Guide. By utilizing portions of the editorial content previously appearing in its monthly and bimonthly publications, the Company is able to generate additional revenues in a cost-effective manner through such publications. In addition, the Company utilizes single issue publications as a means of developing and testing new publications. Many of the 49 Company's current monthly and bimonthly publications were first introduced as single issue publications. The Company published 42 single issue publications in fiscal 1996. The following sets forth a brief description of each of the Company's 13 core publications: Motor Trend is the Company's flagship publication and is recognized as a leading authority on new domestic and foreign automobiles. Founded by the Company in 1949, Motor Trend provides comprehensive information and guidance to new car buyers as well as car and truck enthusiasts. Motor Trend typically tests more than 200 new cars, trucks, minivans and sport utility vehicles annually, which the Company believes is more than any other competitive publication. Many of these tests are conducted in the context of multi-vehicle comparison tests, which provide the reader with detailed technical and driving analysis in an easy-to-understand format. Motor Trend's annual automotive industry awards (Car of the Year, Import Car of the Year and Truck of the Year) are widely regarded as the most prestigious in the industry. For fiscal 1995, Motor Trend generated approximately 15% of the Company's net revenues. In July 1996, the Company established a Motor Trend web-site on the Internet, which currently contains approximately 30% of the editorial content of the monthly edition. The Company believes that the Internet offers the Company additional opportunities to generate revenues through increased advertising sales, access fees and additional subscription sales. The Company has also licensed the use of the Motor Trend brand name in connection with a weekly television show for The Nashville Network (TNN). For fiscal 1996, the Company expects to publish six Motor Trend buyer's guides. Motor Trend competes for circulation on the basis of the nature and quality of its editorial content. Motor Trend's principal competitors are Car and Driver, Road & Track and Automobile. 'TEEN has the largest circulation of any of the Company's magazines. 'TEEN's editorial content covers a broad range of topics relevant to girls aged 12 to 19, including fashion, beauty, entertainment and a wide variety of contemporary issues. 'TEEN places a strong emphasis on the development of self-esteem and self-confidence among its readers. 'TEEN principally competes with Seventeen and YM (Young & Modern). For fiscal 1995, 'TEEN generated approximately 11% of the Company's net revenues. As part of its business strategy, management intends to make a number of changes to 'TEEN designed to increase its appeal to both readers and advertisers, including a refocusing of the editorial content of 'TEEN to attract more readers in their late teens in an effort to increase advertising revenues from the cosmetic and fashion apparel industries. In addition, management intends to improve 'TEEN's cover layout and artwork and upgrade the paper grade used for its production. 'TEEN's management is being moved to New York to increase its visibility among advertisers in the fashion and cosmetic industries. Hot Rod was the first magazine launched by the Company's founder in 1948. Hot Rod is dedicated to the sport of "hot rodding" and primarily focuses on high performance and personalized vehicles. Hot Rod's editorial content covers all aspects of the performance industry and features the latest trends, performance cars and trucks, custom built street rods as well as racing vehicles of all types. Hot Rod's comprehensive coverage includes in-depth product testing, technical articles, editorial commentary, road tests, engine buildups and photo stories on project cars. Hot Rod is the dominant publication in its targeted market. The Company has licensed the use of the Hot Rod brand name in connection with a weekly television show for The Nashville Network (TNN). For fiscal 1995, Hot Rod generated approximately 9% of the Company's net revenues. Guns & Ammo is edited for the sportsman with a keen interest in the practical applications of sporting firearms, with an emphasis on their safe and proper use. Guns & Ammo features information on current production of sporting arms and their use, as well as technical and semi-technical articles on all facets of sport shooting. As active participants, the editors of Guns & Ammo share the interests of their readers, and each issue of the magazine delivers a well-balanced editorial mix that includes hunting, shooting, reloading, antique and modem arms, ballistics and arms legislation. Natural resource protection and environmental preservation as well 50 as in-depth reviews of new products and new trends represent other major editorial issues covered by internationally renowned experts. Guns & Ammo principally competes with Shooting Times. The Company has licensed the use of the Guns & Ammo brand name in connection with a weekly television show for ESPN. For fiscal 1995, Guns & Ammo generated approximately 6% of the Company's net revenues. Skin Diver was introduced by the Company in 1951 and is the largest diving magazine in the world in terms of annual circulation. The magazine's editorial focus involves three basic categories: (i) diving news and diving safety and educational issues; (ii) dive product performance reviews and (iii) local and overseas dive travel. Skin Diver provides information on scuba diving equipment, snorkeling, underwater photography, shipwreck exploration, marine life, organized diving events, scuba education and dive travel. With global coverage of dive travel activities, Skin Diver features in every issue dive resorts, live-aboard dive boats and attractions in over 70 countries and islands around the world. All topics are covered by an internal staff and contributing editors who are among the most experienced and well trained divers in the world. Skin Diver is the only national publication that focuses primarily on skin diving and competes on a limited basis with Rodale's Scuba Diving. For fiscal 1995, Skin Diver generated approximately 6% of the Company's net revenues. 4 Wheel & Off-Road is widely considered the leading magazine among truck enthusiasts. Established in 1978, 4 Wheel & Off-Road is dedicated to the four- wheel drive enthusiast and industry. 4 Wheel & Off-Road is aimed at people who: (i) are considering the purchase of a new four-wheel drive vehicle; (ii) want to accessorize and improve their vehicle or (iii) frequently utilize their four-wheel drives for enjoyment, many times in a competitive setting. 4 Wheel & Off-Road is regarded as a prominent source of the latest and most accurate technical articles, including tests of new products and step-by-step installation of popular accessories such as suspension lifts and engine modifications. In addition to a strong technical base, 4 Wheel & Off-Road also features monthly articles which cover the nation's most unique truck and off- road events. 4 Wheel & Off-Road principally competes with Four Wheeler. For fiscal 1995, 4 Wheel & Off-Road generated approximately 6% of the Company's net revenues. Car Craft is the most comprehensive do-it-yourself street performance magazine currently in production in the United States. Established in 1953, Car Craft is devoted to knowledgeable enthusiasts interested in obtaining maximum legal performance from modified street machines and racing vehicles. Car Craft features informative monthly articles, including technical how-to- articles, in-depth testing of new performance cars and information regarding new performance technology. Car Craft does not currently face competition from any other national publication. For fiscal 1995, Car Craft generated approximately 5% of the Company's net revenues. Petersen's Hunting ("Hunting") is the only U.S. publication devoted entirely to the sport of recreational hunting. Every issue contains instructional and entertaining articles for the true hunting enthusiast. Hunting presents in- depth coverage of the various hunting disciplines: big and small game, waterfowl, upland game, guns and loads and foreign hunting. Monthly departments focus on the more specialized aspects of the sport and its equipment, including game management, vehicles, gun dogs, optics, handloading, bowhunting and firearms. Editorial coverage also includes conservation and ecological issues, the critical roles played in these areas by the hunter and the manufacturer, and basic where-to and how-to information for all types of recreational hunting. Hunting competes indirectly with American Hunter and, to a lesser extent, with North American Hunter and Sports Afield. For fiscal 1995, Hunting generated approximately 3% of the Company's net revenues. Motorcyclist is the only U.S. publication that is dedicated exclusively to street motorcycles. The magazine's editorial focus is on the practical aspects of owning, maintaining and riding a street motorcycle. Motorcyclist is written for the serious enthusiast, offering the most authoritative road tests in the industry along with information on how to improve and modify the reader's current motorcycles. Regular features include maintenance and performance- improvement articles and safety information such as helmet comparisons and riding-techniques. Motorcyclist principally competes with Cycle World. For fiscal 1995, Motorcyclist generated approximately 3% of the Company's net revenues. 51 Sport Truck is a full-service magazine that strives to keep its readers informed of every aspect concerning the street truck marketplace, covering the entire range of pickup and sport utility vehicles. Sport Truck provides both step-by-step and technical articles, which detail the customizing process and provide complete coverage of the product. Sport Truck's editorial focus is on the latest trucks on the market as well as prototypes, including both domestic and import models. Sport Truck's principal competition is from Truckin' magazine. For fiscal 1995, Sport Truck generated approximately 3% of the Company's net revenues. Circle Track is the leading technical magazine for oval-track racers, fans and enthusiasts. Circle Track provides a special emphasis on how-to technical articles, in-depth discussions of engine, chassis and racing technology, descriptive car features, behind-the-scenes event coverage and action photography. Circle Track was introduced in 1982 and currently competes with Stock Car Racing. For fiscal 1995, Circle Track generated approximately 3% of the Company's net revenues. Photographic magazine is a how-to guide dedicated to increasing photographic knowledge, skill and enjoyment for both amateurs and professionals. Photographic is edited for all levels of photography, blends equipment coverage with reports on photography techniques, workshops, schools, photo travel and contests. Each issue includes exciting travel features that encourage readers to test and improve their photography skills. Each issue also includes segments on outdoor and action photography as well as information on travel destinations and helpful information on how to best take advantage of the photographic opportunities travel brings. Photographic was introduced in 1972 and principally competes with American Photo and Popular Photography. For fiscal 1995, Photographic generated approximately 3% of the Company's net revenues. Dirt Rider is the world's largest dirt riding publication in terms of circulation and covers all aspects of off-road motorcycling. Dirt Rider offers readers full coverage of off-road motorcycling including new motorcycle evaluations, technical information, riding tips and the latest in riding accessories in an easy-to-read format. The editorial content focuses on accurate and insightful reviews of the latest machinery and aftermarket products from the off-road riding industry. Dirt Rider principally competes with Dirt Bike and Motocross Action. For fiscal 1995, Dirt Rider generated approximately 3% of the Company's net revenues. PRODUCTION AND DISTRIBUTION The Company employs a staff of professionals that oversees the production, printing, distribution and fulfillment of its magazines. Through the use of state-of-the-art production equipment, economies of scale in printing contracts and efficiencies in subscription solicitation and fulfillment, the Company is able to effectively produce and distribute all of its publications. The Company's production system for both graphics and editing is state-of-the art. Approximately 60 employees of the Company are engaged in the production and distribution of the Company's publications. In an effort to reduce production costs, the Company sold all of its assets relating to its pre-press operations to World Color Press, Inc. ("World Color") for approximately $2.5 million in February 1996. At the same time, the Company entered into an agreement with World Color pursuant to which World Color agreed to provide the Company's color separation, pre-press and related service requirements with respect to most of the Company's publications for the term of the agreement. Under the agreement, the Company is generally required to use World Color for at least 85% of its pre-press and related service requirements. This agreement with World Color expires on February 28, 2001. A majority of the Company's magazines, including Motor Trend, Hot Rod, 'TEEN, 4 Wheel & Off-Road, Car Craft, Circle Track, Skin Diver, Guns & Ammo and Hunting, are printed by World Color pursuant to an agreement that expires on December 31, 1998. The Company's remaining magazines including All About You! and Sport Rider, are printed by Johnson & Hardin Printing ("J&H"), pursuant to an agreement that expires on December 31, 1997. The Company believes that its relationships with its printers are good. However, should the Company need to change printers, it is confident that other printers of similar quality could be engaged on the 52 same or better terms. The Company believes that its high volume of printing with World Color and J&H enables it to receive favorable printing rates. The newsstand distribution of the Company's magazines is handled exclusively by Warner Publisher Services, Inc. ("Warner") pursuant to a distribution agreement. Such agreement will remain in effect until December 31, 1997, subject to automatic 90-day extensions thereafter unless either party delivers a termination notice. Warner distributes the Company's publications through a network of marketing representatives to domestic independent wholesalers as well as to other channels of distribution. Warner also provides the Company with other services, including management information and promotional and specialty marketing services. Warner's marketing representatives solicit national, regional and local retailers in an effort to expand the number of retail outlets for the Company titles. The Company's subscriptions are serviced by Neodata Services, Inc. ("Neodata"), which performs the following services for the Company: receiving, verifying, balancing and depositing payments from subscribers; maintaining master files on all subscribers by magazine; issuing bills and renewal notices to subscribers; issuing labels, packaging and mailing magazines as directed by the Company and furnishing various reports to monitor all aspects of the subscription operations. Immediately following the Acquisition, management commenced an extensive review of the Company's significant vendor relationships, including its printing, paper supply, fulfillment and newsstand distribution arrangements. Based on that review and subsequent meetings with certain of such vendors, management believes that there are opportunities to enhance these relationships and to improve the economic terms of such arrangements for the Company. Although no definitive agreements have been executed, the Company believes that it will be successful in either amending its existing agreements or entering into new agreements on more favorable terms with many of its vendors. RAW MATERIALS The Company's principal raw material is paper. The Company used 69.6 million, 76.0 million and 84.4 million pounds of commodity grade paper in its fiscal years ended November 30, 1993, 1994 and 1995, respectively, resulting in a total cost of paper during such periods of $29.0 million, $30.5 million and $39.3 million, respectively. While paper prices have increased by an average of less than 1% annually since 1989, certain commodity grades have shown considerable price volatility during that period, including the commodity grade used by the Company. Paper prices rose sharply during the later part of 1995, and in response, Petersen purchased a large supply of 32 lb. paper in December 1995 at prices ranging from $0.61 to $0.66 per pound in anticipation of additional price increases and supply shortages continuing for the remainder of 1995 and 1996. Petersen purchased enough paper to meet all of its production requirements through September 1996. The price of such paper subsequently returned to historical levels of approximately $0.50 per pound in May 1996. The increase in paper prices in late 1995 and Petersen's large purchase at such increased prices materially adversely affected Petersen's production, selling and other direct costs for year ended November 30, 1995 and the nine months ended August 31, 1996. These events increased Petersen's production, selling and other direct costs by approximately $1.4 million and $4.8 million for the year ended November 30, 1995 and the nine months ended August 31, 1996, respectively (assuming Petersen would have otherwise been able to purchase paper during these periods at the 20-year median price of approximately $0.50 per pound (as adjusted for inflation)). Following the Acquisition, the Company entered into an oral agreement with a vendor to secure sufficient paper to meet its projected raw material needs through the end of fiscal 1997 at or below current market prices. While there can be no assurances, the Company expects that such agreement will be finalized by the end of 1996. No assurance can be given, however, that future fluctuations in paper prices after 1997 will not have a material adverse effect on the results of operations and financial condition of the Company. See "Risk Factors--Paper Price Volatility and Postal Prices" and "Management's Discussion and Analysis of Financial Condition and Results of Operations-- Overview." 53 COMPETITION The magazine publishing business is highly competitive. The Company principally competes for advertising and circulation revenues with publishers of other special-interest consumer magazines with similar editorial content with those published by the Company. Such competitors include: K-III Communications Company, which publishes Seventeen, Automobile and Truckin'; Hachette Filipacchi Magazines, Inc., which publishes Road and Track, Car & Driver, Popular Photography and Cycle World; Gruner & Jahr Printing and Publishing Company, which publishes YM (Young & Modern); Rodale Press Inc., which publishes Bicycling and Rodale's Scuba Diving and The Times Mirror Company, which publishes Outdoor Life, Field & Stream and Golf Magazine. Certain of the Company's competitors are larger and have greater financial resources than the Company. Most of the Company's magazines face competition within each of their respective markets from one to three other publications. The Company believes that it competes with other special-interest publications based on the nature and quality of its magazines' editorial content. Eight of the Company's 13 core publications ranked first in their respective markets based on annual circulation in 1995. In addition to other special-interest magazines, the Company also competes for advertising revenues with general-interest magazines and other forms of media, including broadcast and cable television, radio, newspaper, direct marketing and electronic media. In competing with general-interest magazines and other forms of media, the Company relies on its ability to reach a targeted segment of the population in a cost-effective manner. INTELLECTUAL PROPERTY The Company believes that it has developed strong brand name awareness within each of its magazines' targeted markets. As a result, the Company regards its branded magazine titles and logos to be valuable assets. The Company has registered numerous trademarks, service marks and logos used in its publishing business in the United States and foreign countries in which the Company conducts business. In addition, each one of the Company's publications is protected under Federal copyright laws. In connection with the Acquisition, the Company entered into a license agreement with Mr. Petersen pursuant to which it was granted an exclusive license to use the Petersen name in perpetuity. The Company believes that it owns or licenses all the intellectual property rights necessary to conduct its business. PROPERTIES The Company publishes its magazines and houses its corporate and administrative staff at its headquarters located at 6420 Wilshire Boulevard, Los Angeles, California. Information relating to the Company's corporate headquarters and other regional sales offices is set forth in the following table:
LOCATION ADDRESS SQUARE FOOTAGE TERM EXPIRATION DESCRIPTION OF USE -------- ------- -------------- --------------- ------------------ Los Angeles............. 6420 Wilshire Boulevard 209,475 11/30/09 Headquarters Los Angeles............. 8480 Sunset Boulevard 2,300 month-to-month Photo Studio New York................ 437 Madison Avenue 25,000 8/31/04 Sales Office Chicago................. 815 North LaSalle Street 10,000 9/30/05 Sales Office Detroit................. 333 Fort Street 9,346 6/30/97 Sales Office Atlanta................. Five Concourse Parkway 3,524 4/30/98 Sales Office Dallas(a)............... 800 West Airport Freeway 2,929 12/31/97 Sales Office
- -------- (a) Such sales office was closed pursuant to management's business and operating strategy. The Company intends to sublease the property to a suitable tenant at its earliest opportunity. The Company intends to consolidate one or more of the regional sales offices listed above as part of its business and operating strategy. The Company leases space used for its corporate headquarters, photo studio and Chicago regional sales office from Mr. Petersen. See "Certain Transactions." 54 EMPLOYEES As of October 31, 1996, the Company employed approximately 543 full-time employees, none of whom are members of a union. After the Acquisition, the Company initiated a restructuring plan which included the termination of certain employees in various corporate and operating positions. The Company believes that its relations with its employees are satisfactory. LEGAL PROCEEDINGS The Company is a party to various litigation matters incidental to the conduct of its business. Management does not believe that the outcome of any of the matters in which it is currently involved will have a material adverse effect on the financial condition or results of operations of the Company. 55 MANAGEMENT DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES The following table sets forth certain information (ages as of August 31, 1996) with respect to the persons who are members of the Board of Directors (the "Board") of BrightView or executive officers or key employees of the Company or Holdings. BrightView controls the policies and operations of the Company. See "Limited Liability Company Agreement." Willis Stein has the ability to designate all of the members of the Board of BrightView pursuant to the Securityholders Agreement. See "Security Ownership of Certain Beneficial Owners and Management--Securityholders Agreement."
NAME AGE POSITION AND OFFICES ---- --- -------------------- D. Claeys Bahrenburg.... 49 Chief Executive Officer and Director Neal Vitale............. 43 President, Chief Operating Officer and Director Richard S. Willis....... 36 Executive Vice President--Chief Financial Officer Michael Borchetta....... 31 Vice President--Circulation Jay N. Cole............. 56 Executive Publisher John Dianna............. 54 Executive Publisher Ken Elliott............. 56 Executive Publisher Lee Kelly............... 54 Executive Publisher Richard P. Lague........ 52 Executive Publisher Paul J. Tzimoulis....... 58 Executive Publisher James D. Dunning, Jr. .. 49 Director, Chairman and Chief Executive Officer of Holdings Laurence H. Bloch....... 42 Director and Vice Chairman of Holdings Avy H. Stein............ 42 Director Daniel H. Blumenthal.... 33 Director Stuart Karu............. 49 Director Robert E. Petersen...... 69 Chairman Emeritus
D. Claeys Bahrenburg has served as the Chief Executive Officer of the Company and a Director of BrightView and Capital since the Acquisition. From 1989 to 1995, Mr. Bahrenburg served as President of Hearst's Magazine Publishing Division, the largest publisher of monthly magazines in the world. Prior to that time, he served as Executive Vice President and Group Publishing Director at Hearst from 1986 to 1989, where his responsibilities included overseeing 12 publications, new magazine development and brand development. From 1981 to 1986, Mr. Bahrenburg held the position of Publisher of both House Beautiful and Cosmopolitan. Neal Vitale has served as the President and Chief Operating Officer of the Company and a Director of BrightView and Capital since the Acquisition. From 1989 to 1996, Mr. Vitale was employed by Cahners Publishing Company ("Cahners"), a division of Reed Elsevier, Inc. and a leading business-to- business publisher, in a variety of managerial capacities, including Vice President of Consumer Publishing; Vice President/General Manager of Variety and, most recently, as Group Vice President, Entertainment, where he was responsible for the publication of Variety, Daily Variety, Broadcasting & Cable, Moving Pictures International, On Production and Tradeshow Week. From 1984 to 1989, Mr. Vitale was a partner at McNamee Consulting Company, Inc., a management consulting firm specializing in publishing and direct marketing. Richard S. Willis has served as Executive Vice President--Chief Financial Officer of the Company and Capital since the Acquisition. Prior to the end of 1996, Mr. Willis is expected to be elected as a director of BrightView. Prior to the Acquisition, Mr. Willis served as the Vice President, Finance of Petersen since October 56 1995. From 1993 to 1995, Mr. Willis served as the Executive Vice President and Chief Financial Officer of two divisions of World Color and from 1990 to 1993 as the Chief Financial Officer and Secretary of Aster Publishing Company. From 1987 to 1990, Mr. Willis served as the Chief Financial Officer and Vice President of Finance and Administration of the consumer magazine group of Cowles Media Company. Prior thereto, Mr. Willis held various financial and managerial positions with Capital Cities/ABC, including the Chief Financial Officer of its consumer magazine division. Mr. Willis is not affiliated with Willis Stein. Michael Borchetta has served as Vice President--Circulation of the Company since the Acquisition. Prior to joining the Company, Mr. Borchetta served as Circulation Director of Cahners since 1989. Mr. Borchetta has also held positions with Act III Communications and Cowles Media Company. Jay N. Cole currently serves as an Executive Publisher of the Company. Mr. Cole served with Petersen for over nine years, most recently as Vice President--Executive Publisher. Mr. Cole has primary responsibility for the publication of 'TEEN and All About You! John Dianna currently serves as an Executive Publisher of the Company. Mr. Dianna served with Petersen for over 27 years, most recently as Vice President--Executive Publisher. Mr. Dianna is primarily responsible for the publication of Hot Rod, 4 Wheel & Off-Road, Car Craft, Sport Truck, Circle Track and related publications. Ken Elliott currently serves as an Executive Publisher of the Company. Mr. Elliott served with Petersen for over 22 years, most recently as Vice President--Executive Publisher. Mr. Elliott is primarily responsible for the publications of Guns & Ammo, Hunting, Bowhunting and related publications. Lee Kelly currently serves as an Executive Publisher of the Company. Mr. Kelly served with Petersen for over 20 years, most recently as Vice President--Executive Publisher. Mr. Kelly is primarily responsible for the publication of Motor Trend, Sport and related publications. Richard P. Lague currently serves as an Executive Publisher of the Company. Mr. Lague served with Petersen for approximately 20 years, most recently as Vice President--Executive Publisher. Mr. Lague is primarily responsible for the publications of Motorcyclist and motorcycle related publications, Bicycle Guide and Mountain Biker. Paul J. Tzimoulis currently serves as an Executive Publisher of the Company. Mr. Tzimoulis served with Petersen for over 25 years, most recently as Vice President--Executive Publisher. Mr. Tzimoulis is responsible for the publication of Skin Diver and Photographic. James D. Dunning, Jr. has served as the Chairman and Chief Executive Officer of Holdings and a Director of BrightView and Capital since the Acquisition. Since 1992, Mr. Dunning has been Chairman and Chief Executive Officer of TransWestern, the largest independent publisher of yellow pages in the United States and is currently Chairman and Chief Executive Officer of The Dunning Group. Mr. Dunning was formerly Chairman of SRDS, a media information and database publisher. From 1987 to 1992, Mr. Dunning was Chairman, Chief Executive Officer and President of Multi-Local Media Information Group, Inc. ("MLM"), a yellow pages and database company. From 1985 to 1986, he served as Executive Vice President of Ziff Communications, a consumer and trade publisher. From 1982 to 1984, he was Senior Vice President and Director of Corporate Finance at Thomson McKinnon Securities, Inc. ("Thomson McKinnon"), an investment banking firm. Mr. Dunning served as President of Rolling Stone Magazine from 1977 to 1982. Laurence H. Bloch has served as the Vice Chairman of Holdings and a Director of BrightView and Capital since the Acquisition. Mr. Bloch also serves as Vice Chairman and Chief Financial Officer TransWestern, which he joined in 1993. From 1990 to 1992, Mr. Bloch was Senior Vice President and Chief Financial Officer of Lanxide Corporation, a materials technology company. Between 1980 and 1990, Mr. Bloch was an investment banker, initially with Thomson McKinnon and later as a Managing Director of Smith Barney. Mr. Bloch is a director of TransWestern and was formerly a director of SRDS and MLM. 57 Avy H. Stein has served as a Director of BrightView and Capital since the Acquisition. Mr. Stein has been a Managing Director of Willis Stein since its inception in 1994. Prior to that time, he served as a Managing Director of CIVC, a venture capital investment firm, from 1989 to 1994. Prior to his tenure at CIVC, Mr. Stein served as a special consultant for mergers and acquisitions to the Chief Executive Officer of NL Industries, Inc.; as the Chief Executive Officer and principal shareholder of Regent Corporation; as President of Cook Energy Corporation and as an attorney with Kirkland & Ellis, a national law firm. Mr. Stein also serves as a director of TransWestern and Tremont Corporation. Daniel H. Blumenthal has served as a Director of BrightView and Capital since the Acquisition. Mr. Blumenthal has been a Managing Director of Willis Stein since its inception in 1994. Prior to that time, he served as Vice President of CIVC from 1993 to 1994, and as a corporate tax attorney with Latham & Watkins, a national law firm, from 1988 to 1993. Stuart Karu has served as a Director of BrightView and Capital since the Acquisition. Mr. Karu currently is a private investor. During 1995, Mr. Karu served as the interim Chief Executive Officer of SRDS. Mr. Karu was formerly Chief Executive Officer and principal shareholder of Henry S. Kaufman, Inc., a national advertising agency. Mr. Karu serves as a director of TransWestern and was formerly a director of SRDS and MLM. Robert E. Petersen has served as the Chairman Emeritus of the Company since the Acquisition. Mr. Petersen founded Petersen in 1948 and served as its Chairman and Chief Executive Officer prior to the Acquisition. Directors of BrightView are currently elected by its stockholders to serve during the ensuing year or until a successor is duly elected and qualified. Executive officers of the Company are designated by the Managing Member to serve until their respective successors shall be duly designated and qualified. Executive officers of Capital are designated by its board of directors to serve until their respective successors shall be duly designated and qualified. There are no family relationships among the executive officers of the Issuers or the directors of BrightView or Capital. COMPENSATION OF DIRECTORS The Company is a limited liability company that is indirectly controlled by BrightView. See "Limited Liability Company Agreement." Each of the Directors of BrightView (other than Messrs. Bahrenburg and Vitale) will be paid annual compensation of $35,000, plus reimbursement for out-of-pocket expenses incurred in connection with attending Board meetings. COMPENSATION OF EXECUTIVE OFFICERS The compensation of executive officers of the Company will be determined by the Board of BrightView. The following Summary Compensation Table includes individual compensation information for the Chief Executive Officer and each of the four other most highly compensated executive officers of Petersen in the year ended December 31, 1995 (collectively, the "Named Executive Officers") for services rendered in all capacities to Petersen during the year ended December 31, 1995. There were no stock options exercised during Petersen's last fiscal year nor were there any options outstanding at the end of Petersen's last fiscal year. 58 SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION --------------------- ALL OTHER NAME AND PRINCIPAL POSITION AT PETERSEN SALARY BONUS COMPENSATION(A) - --------------------------------------- ---------- ---------- --------------- Robert E. Petersen(b).................... $1,500,000 $2,000,000 $4,052 Chairman of the Board Frederick R. Waingrow(c)................. 925,000 600,000 5,731 President John Dianna.............................. 214,750 35,000 5,731 Vice President, Executive Publisher Peter F. Clancy(d)....................... 196,500 40,000 5,731 Senior Vice President, Marketing & Sales Nigel P. Heaton(d)....................... 178,750 32,500 5,731 Vice President, Circulation Marketing Development
- -------- (a)Reflects contribution by Petersen on behalf of such person under Petersen's retirement plan. (b)Mr. Petersen resigned as Chairman of Petersen upon consummation of the Acquisition. (c)Mr. Waingrow resigned as President of Petersen upon consummation of the Acquisition. (d)No longer employed by the Company. COMMITTEES OF THE BOARD OF DIRECTORS The Board intends to establish two standing committees: (i) an Audit Committee and (ii) a Compensation Committee. The Board may also establish other committees to assist in the discharge of its responsibilities. The Audit Committee shall review and, as it shall deem appropriate, recommend to the Board internal accounting and financial controls for the Company and accounting principles and auditing practices and procedures to be employed in the preparation and review of financial statements of the Company. The Audit Committee shall make recommendations to the board concerning the engagement of independent public accountants to audit the annual financial statements of the Company and the scope of the audit to be undertaken by such accountants. Ernst & Young LLP presently serves as the independent auditors of the Company. The Company expects that three or four Directors will be appointed to the Audit Committee. The Compensation Committee shall review and, as it deems appropriate, recommend to the Board policies, practices and procedures relating to the compensation of managerial employees and the establishment and administration of employee benefit plans. The Compensation Committee shall have and exercise all authority under any employee stock option plans of the Company as the committee therein specified (unless the Board resolution appoints any other committee to exercise such authority), and shall otherwise advise and consult with the officers of the Company as may be requested regarding managerial personnel policies. The Company expects that three or four Directors will be appointed to the Compensation Committee. EMPLOYMENT AGREEMENTS The Company expects that Messrs. Bahrenburg, Vitale and Willis will each enter into an Executive Securities Purchase and Employment Agreement (the "Employment Agreements") with BrightView, Holdings and the Company. The Employment Agreements will provide for the continued employment of Mr. Bahrenburg as the Chief Executive Officer of the Company, Mr. Vitale as the President of the Company and Mr. Willis as the Chief Financial Officer of the Company until December 31, 2001 unless terminated earlier as provided in the respective Employment Agreement. The Employment Agreements of Messrs. Bahrenburg, Vitale and Willis will provide for: (i) an annual base salary of $500,000, $300,000, and $200,000 respectively (subject to annual increases based on the consumer price index); (ii) annual bonuses based on the achievement of certain EBITDA targets of up to half their base salary and (iii) a deferred bonus payable upon the first to occur of: (a) a sale of 59 the Company or (b) the fifth anniversary of the date of such agreements. Each executive's employment may be terminated by the Company at any time with cause or without cause. If such executive is terminated by the Company with cause or resigns other than for good reason, the executive will be entitled to his base salary and fringe benefits until the date of termination, but will not be entitled to any unpaid bonus. Messrs. Bahrenburg, Vitale and Willis will be entitled to their base salary and fringe benefits and any accrued bonus for a period of twelvemonths following their in the event such executive is terminated without cause or resigns with good reason. The Employment Agreements will also provide each executive with customary fringe benefits and vacation periods. "Cause" will be generally defined in the Employment Agreements to mean: (i) the commission of a felony or a crime involving moral turpitude; (ii) the commission of any other act or omission involving dishonesty, disloyalty or fraud; (iii) the substantial and repeated failure to perform duties as reasonably directed by the Board or Chairman of Holdings; (iv) gross negligence or willful misconduct with respect to the Company or any subsidiary; (v) any other material breach of the Employment Agreement or Company policy established by the Board, which breach, if curable, is not cured within 15 days after written notice thereof to the executive or (vi) the failure by the Company to generate a minimum level of EBITDA in any fiscal year. "Good Reason" will be defined to mean the occurrence, without such executive's consent, of any of the following: (i) the assignment to the executive of any significant duties materially inconsistent with the executive's status as a senior executive officer of the Company or a substantial adverse alteration in the nature or status of the executive's responsibilities; (ii) a reduction by the Company in the executive's annual base salary as in effect on the date hereof, except for across-the-board salary reductions similarly affecting all senior executives of the Company or (iii) the Board requires the executive to relocate from the New York area in the case of Mr. Bahrenburg and the Los Angeles area in the case of Messrs. Vitale and Willis. The Employment Agreements will also provide for the purchase by Messrs. Bahrenburg, Vitale and Willis of preferred equity securities of Holdings ("Preferred Units"), common equity securities of Holdings ("Common Units") and common stock of BrightView ("Common Stock") for a combination of cash and notes. See "Certain Transactions." The Company expects such Employment Agreements to be finalized over the next 30 days. Messrs. Dunning and Bloch will each receive an annual salary of $100,000 per annum for serving as Chairman and Vice Chairman of Holdings, respectively. Beginning in 1998, each will also be entitled, subject to approval of the Board to receive an annual bonus upon the Company achieving certain financial targets. In connection with the Acquisition, the Company entered into an employment agreement with Robert E. Petersen pursuant to which Mr. Petersen agreed to serve as Chairman Emeritus of the Company for a five-year period in exchange for annual compensation of $200,000 per annum. Under such agreement, Mr. Petersen has agreed to, among other things, act as a public spokesperson and representative of the Company at public functions and participate in significant meetings of the key executives of the Company concerning marketing and sales strategies, important personnel decisions and similar activities so required by the Chairman of the Board. The employment agreement entitles Mr. Petersen to certain fringe benefits and perquisites and severance payments equal to his annual salary for the remaining unexpired term of the agreement in the event he is terminated by the Company without cause or suffers a "constructive termination," which is defined to include (i) the relocation of Mr. Petersen from the Company's current principal executive office; (ii) any material breach of the employment agreement by the Company or (iii) the assignment of Mr. Petersen to a significantly lower position in the Company in terms of his responsibility, authority and status. 60 CERTAIN TRANSACTIONS The Company is party to a lease with a trust controlled by Mr. Petersen and his wife pursuant to which the Company leases office space for its corporate headquarters. The lease expires on November 30, 2009. In connection with the Acquisition, the lease was amended to provide for lease payments of $341,951 for each monthly period ending before November 30, 1996. For each fiscal year thereafter, the monthly lease payments will be increased at an annual rate of approximately 1.75%. On October 1, 1996, the Company entered into a lease with Mr. Petersen with respect to the Company's office space located at 815 North LaSalle Street in Chicago, Illinois. The lease expires on September 30, 2005 and provides for monthly lease payments of: (i) $16,500 for the period from October 1, 1996 to September 30, 1999; (ii) $17,500 for the period from October 1, 1999 to September 30, 2002 and (iii) $18,500 from October 1, 2002 through the end of the term of the lease. Pursuant to his Employment Agreement, Mr. Bahrenburg will purchase 20 shares of Common Stock at a price of $500.00 per share, 2,200 Class A Units at a price of $4.50 per unit and 2,200 Preferred Units at a price of $445.50 per unit. Mr. Bahrenburg will pay for these securities with promissory notes in the aggregate amount of $1,000,000. Of this amount, $200,000 will become due and payable on March 1, 1997 and $800,000 will become due and payable on the earlier to occur of: (i) December 31, 2001; (ii) the termination of Mr. Bahrenburg's employment with the Company or (iii) a sale of the Company. Such promissory notes will bear interest at a rate equal to the Company's weighted average cost of borrowing as determined by the Board. Mr. Bahrenburg's obligations under such notes will be secured by a pledge of the securities purchased therewith. In addition, pursuant to the Employment Agreement, the Company and Holdings will issue to Mr. Bahrenburg 5,150.708 Class A Units, 625 Class B Units and 625 Class C Units for no additional consideration. The securities issued to Mr. Bahrenburg without consideration will vest ratably over a period of five years. Pursuant to his Employment Agreement, Mr. Vitale will purchase 15 shares of Common Stock at a price of $500.00 per share, 1,650 Class A Units at a price of $4.50 per unit and 1,650 Preferred Units at a price of $445.50 per unit. Mr. Vitale will pay for these securities with promissory notes in the aggregate amount of $750,000. Such promissory notes will bear interest at a rate equal to the Company's weighted average cost of borrowing as determined by the Board and will become due and payable on the earlier to occur of: (i) December 31, 2001; (ii) the termination of Mr. Vitale's employment with the Company or (iii) a sale of the Company. Mr. Vitale's obligations under such notes will be secured by a pledge of the securities purchased therewith. In addition, pursuant to the Employment Agreement, the Company and Holdings will issue to Mr. Vitale 5,150.708 Class A Units, 625 Class B Units and 625 Class C Units for no additional consideration. The securities to be issued to Mr. Vitale without consideration will vest ratably over a period of five years. Pursuant to his Employment Agreement, Mr. Willis will purchase 4 shares of Common Stock at a price of $500.00 per share, 440 Class A Units at a price of $4.50 per unit and 440 Preferred Units at a price of $445.50 per unit. Mr. Willis will pay for these securities with promissory notes in the aggregate amount of $200,000. Such promissory notes will bear interest at a rate equal to the Company's weighted average cost of borrowing as determined by the Board and will become due and payable on the earlier to occur of: (i) December 31, 2001; (ii) the termination of Mr. Willis' employment with the Company or (iii) a sale of the Company. Mr. Willis' obligations under such notes will be secured by a pledge of the securities purchased therewith. In addition, pursuant to the Employment Agreement, the Company and Holdings will issue to Mr. Willis 1,030.142 Class A Units, 125 Class B Units and 125 Class C Units for no additional consideration. The securities to be issued to Mr. Willis without consideration will vest ratably over a period of five years. The securities to be issued to Messrs. Bahrenburg, Vitale and Willis pursuant to the Employment Agreements will be subject to repurchase by Holdings or BrightView in the event such executive leaves the Company's employ under certain circumstances. If such executive is terminated by the Company with cause or resigns without good reason (each as defined in their respective employment agreements), the purchase price for any unvested securities will be the lesser of their original cost or their fair market value and the purchase price 61 for any vested securities will be the fair market value of such securities. If such executive is terminated by the Company without cause or resigns with good reason, the Company can only repurchase such executive's unvested securities, at a price equal to the lesser of their original cost or their fair market value. In connection with the Acquisition, Messrs. Bahrenburg, Dunning, Bloch and Karu, Willis Stein, Petersen Properties Company, BankAmerica Investment Corporation and others entered into a securities purchase agreement (the "Securities Purchase Agreement") with Holdings and BrightView pursuant to which they purchased Preferred Units and Common Units of Holdings and Common Stock of BrightView for cash. The following table sets forth the securities purchased by such persons and the aggregate consideration paid for such securities:
HOLDINGS ----------------- BRIGHTVIEW DIRECTOR, EXECUTIVE OFFICER OR CLASS A PREFERRED COMMON AGGREGATE 10% OWNER UNITS UNITS STOCK CONSIDERATION ------------------------------ ------- --------- ---------- ------------- D. Claeys Bahrenburg........... 1,100 1,100 10 $ 500,000 James D. Dunning, Jr.(a)....... 4,620 4,620 42 2,100,000 Laurence H. Bloch(a)........... 2,200 2,200 20 1,000,000 Stuart Karu(a)................. 2,200 2,200 20 1,000,000 Willis Stein & Partners, L.P. ......................... 110,000 110,000 1,000 50,000,000 Petersen Properties Company.... 55,000 55,000 500 25,000,000 BankAmerica Investment Corpora- tion.......................... 44,000 44,000 400 20,000,000
- -------- (a) Pursuant to the Securities Purchase Agreement, Holdings and BrightView also issued to Messrs. Dunning, Bloch and Karu the following securities: Mr. Dunning--8,241.133 Class A Units, 1,000 Class B Units and 1,000 Class C Units; Mr. Bloch--6,180.850 Class A Units, 750 Class B Units and 750 Class C Units and Mr. Karu--4,120.567 Class A Units, 500 Class B Units and 500 Class C Units. As part of its business strategy, the Company plans to adopt new compensation arrangements designed to reward managers and other participating employees based on the Company's operating performance. In connection with such compensation arrangements, the Company expects to issue up to 11,331 Class A Units, 1,375 Class B Units and 1,375 Class C Units to certain members of management of other key employees of the Company. The Company has made no final determination with respect to when such equity securities will be issued or to whom, if at all. 62 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The Company's equity securities are held 99.9% by Holdings and 0.1% by BrightView. The following table sets forth certain information regarding the beneficial ownership of the equity securities of Holdings and BrightView by: (i) each of the Directors of BrightView and the executive officers of the Company; (ii) all Directors and executive officers as a group and (iii) each owner of more than 5% of any class of equity securities of Holdings or BrightView ("5% Owners"). The following table includes the securities to be issued to certain executive officers of the Company under the Employment Agreements. The equity ownership of Holdings for the persons listed below includes those interests owned indirectly through BrightView. Unless otherwise noted, the address for each executive officer of the Company and the Directors of BrightView is c/o the Company, 6420 Wilshire Boulevard, Los Angeles, California 90048. All of Capital's issued and outstanding capital stock is owned by the Company.
HOLDINGS BRIGHTVIEW ------------------------------------ -------------------- SHARES OF PERCENT OF COMMON PERCENT PREFERRED PERCENT COMMON VOTING UNITS(A) OF CLASS UNITS OF CLASS STOCK(B) POWER(C) -------- -------- --------- -------- --------- ---------- DIRECTORS AND EXECUTIVE OFFICERS: D. Claeys Bahrenburg(d).......... 8,481 2.1% 3,300 * 30 1.4% Neal Vitale(e).......... 6,816 1.7 1,655 * 15 * Richard S. Willis(f).... 1,474 * 444 * 4 * James D. Dunning, Jr.(g)................. 12,903 3.1 4,662 1.2% 42 2.0 Laurence H. Bloch(h).... 8,401 2.0 2,220 * 20 * Avy H. Stein(i)......... 111,000 26.9 111,000 29.7 1,000 46.6(c) Daniel H. Blumenthal(i).......... 111,000 26.9 111,000 29.7 1,000 46.6(c) Stuart Karu (j)......... 6,341 1.5 2,220 * 20 * All Directors and executive officers as a group (8 persons)...... 155,415 37.7 125,541 33.5 1,131 52.7 5% OWNERS: Willis Stein & Partners, L.P.(k)................ 111,000 26.9 111,000 29.7 1,000 46.6(c) Robert E. Petersen(l)... 55,500 13.5 55,500 14.8 500 23.3 BankAmerica Investment Corporation(m)......... 44,400 10.7 44,400 11.9 400 -- Chase Equity Associates, L.P.(n)................ 33,300 8.1 33,300 8.9 300 -- Allstate Insurance Company(o)............. 33,300 8.1 33,300 8.9 300 14.0 First Union Investors, Inc.(p)................ 27,750 6.7 27,750 7.4 250 -- CIBC WG Argosy Merchant Fund 2, L.L.C.(q)...... 27,750 6.7 27,750 7.4 250 --
- -------- *Represents less than one percent. (a) The Common Units represent the common equity of Holdings and consist of Class A Units, Class B Units and Class C Units. Holders of Class B Units and Class C Units are entitled to share in any distribution on a pro rata basis with the holders of Class A Units, but only if the holders of the Preferred Units and the Class A Units have achieved an internal rate of return on their total investment of 30% in the case of Class B Units and 35% in the case of Class C Units. All Common Units listed in the table represent Class A Units unless otherwise noted. See "Limited Liability Company Agreement." (b) BrightView has two classes of outstanding common stock, the Class A Common Stock and the Class B Common Stock, which are identical in all respects except that the Class B Common Stock is nonvoting and is convertible to Class A Common Stock upon the occurrence of certain events. The Class B Common Stock was issued in order to comply with certain regulatory requirements imposed upon the holders, which are affiliates of bank holding companies. All shares listed in the table represent Class A Common Stock unless otherwise noted. (c) Under the terms of the Securityholders Agreement, all of the stockholders of BrightView have agreed to vote their shares in favor of those individuals designated by Willis Stein to serve on the Board of BrightView until such time as BrightView consummates a Qualified IPO (as defined below). Willis Stein also has the right to vote such stockholders shares on all significant corporate changes, such as a merger, consolidation or sale of the Company. As a result, Willis Stein has the ability to control the policies and operations of the Company. (d) Includes 5,151 Class A Units, which are subject to vesting in equal installments over a five-year period. Does not include 625 Class B Units and 625 Class C Units owned by Mr. Bahrenburg. (e) Includes 5,151 Class A Units, which are subject to vesting in equal installments over a five-year period. Does not include 625 Class B Units and 625 Class C Units owned by Mr. Vitale. 63 (f) Includes 1,030 Class A Units, which are subject to vesting in equal installments over a five-year period. Does not include 125 Class B Units and 125 Class C Units owned by Mr. Willis. (g) Does not include 1,000 Class B Units and 1,000 Class C Units owned by Mr. Dunning. (h) Does not include 750 Class B Units and 750 Class C Units owned by Mr. Bloch. (i) Includes 110,000 Common Units and 110,000 Preferred Units of Holdings and 1,000 shares of the Class A Common Stock of BrightView beneficially owned by Willis Stein. Such persons disclaim beneficial ownership of all such interests beneficially owned by Willis Stein. Such person's address is c/o Willis Stein, 227 West Monroe Street, Suite 4300, Chicago, Illinois 60606. (j) Does not include 500 Class B Units and 500 Class C Units owned by Mr. Karu. (k) Willis Stein's interest in Holdings and BrightView are owned through Petersen Investment Corp. The address of Willis Stein and Petersen Investment Corp. is 227 West Monroe Street, Suite 4300, Chicago, Illinois 60606. (l) Mr. Petersen's interest in Holdings and BrightView are owned through Petersen Properties Company. (m) Such person's address is c/o BankAmerica Investment Corporation ("BIC"), 231 S. LaSalle Street, Chicago, Illinois 60697. Such person holds Class B Common Stock of BrightView. Also includes securities held by an affiliate of BIC. (n) Such person's address is 380 Madison Avenue, 12th Floor, New York, New York 10017-2951. Such person holds Class B Common Stock of BrightView. (o) Such person's address is 3075 Sanders Road, Suite G5D, Northbrook, Illinois 60062-7127. (p) Such person's address is c/o First Union Capital Partners, Inc., One First Union Center, 301 S. College Street, 5th Floor, Charlotte, North Carolina 28288. Such person holds Class B Common Stock of BrightView. (q) Such person's address is 425 Lexington Avenue, 3rd Floor, New York, New York 10017. Such person holds Class B Common Stock of BrightView. SECURITYHOLDERS AGREEMENT At the time of the Acquisition, BrightView, Holdings, Petersen Investment Corp. and the Investors entered into a securityholders agreement (the "Securityholders Agreement"), providing for: (i) the composition of the Board of BrightView; (ii) restrictions on the transfer of equity securities of Holdings, BrightView and Petersen Investment Corp. (the "Equity Securities"); (iii) registration rights relating to the Equity Securities, (iv) obligations of the Investors upon a sale of the Company and (v) preemptive rights in favor of the non-Willis Stein Investors in connection with issuances of equity to Willis Stein. Under the terms of the Securityholders Agreement, all of the stockholders of BrightView have agreed to vote their shares in favor of those individuals designated by Willis Stein to serve on the Board of Directors of BrightView until such time as BrightView consummates an initial public offering of its equity securities resulting in the receipt by BrightView of at least $75.0 million of gross proceeds and which indicates a market capitalization of BrightView without giving effect to any issuances of equity securities following its initial capitalization of at least $330.0 million (a "Qualified IPO"). Willis Stein also has the right to control the vote on any significant corporate changes, such as a merger, consolidation or sale of the Company until the occurrence of a Qualified IPO. The Securityholders Agreement generally restricts the transfer of Equity Securities, other than in a public sale. Any proposed transfer of Equity Securities is subject to a right of first refusal in favor of BrightView or the other Investors and "tag-along" rights in favor of the other Investors. All of the Investors have agreed that Willis Stein (through BrightView) may control the circumstances under which a sale of the Company may take place, and that each Investor will consent to such transaction on the terms negotiated by Willis Stein. Willis Stein may also control the circumstances under which a public offering of Holdings' or BrightView's equity securities may take place. The Securityholders Agreement provides for up to four demand registrations in favor of Willis Stein, two demand registrations in favor of a majority of the non-Willis Stein Investors at such time as BrightView is eligible to use a short-form registration statement and unlimited "piggyback" registrations in favor of the Investors. LIMITED LIABILITY COMPANY AGREEMENT The Company and Holdings are each limited liability companies organized under the Delaware Limited Liability Company Act (the "LLC Act"). The Company is governed by a limited liability company agreement between Holdings and BrightView. The Company's equity securities are held 99.9% by Holdings and 0.1% by BrightView. Holdings is the Company's managing member and as such controls the policies and operations of the Company. Holdings is governed by a limited liability company agreement (the "LLC Agreement") among Willis Stein (through Petersen Investment Corp.), Mr. Petersen, certain members of the Company's management and the Investors (collectively the "Members"). The LLC Agreement governs the relative rights and duties of the Members. 64 BrightView is Holdings' managing member and as such controls the policies and operations of Holdings and of the Company through Holdings. BrightView was appointed as managing member pursuant to the LLC Agreement and may not be removed. In the event of BrightView's resignation as managing member, a new managing member will be appointed by Willis Stein (through Petersen Investment Corp.). The ownership interests of the Members in Holdings consist of Preferred Units and Common Units. The Preferred Units are entitled to a preferred yield of 12.0% per annum, compounded quarterly, and an aggregate liquidation preference of $163.5 million (net of any prior repayments of Preferred Units) plus any accrued and unpaid preferred yield (collectively, the "Preference Amount") on any liquidation or other distribution by Holdings. The Common Units represent the common equity of Holdings and consist of Class A Units, Class B Units and Class C Units. After payment of the Preference Amount, holders of Class A Units are entitled to share in any remaining proceeds of any liquidation or other distribution by Holdings pro rata according to the number of Class A Units held. After the holders of the Preferred Units and Class A Units have received an internal rate of return of 30% on their total investment, holders of Class B Units will be entitled to participate with the holders of Class A Units in any subsequent distributions. Similarly, after the holders of the Preferred Units and Class A Units have received an internal rate of return of 35% on their total investment, holders of Class C Units will be entitled to participate with the holders of Class A Units and the holders of Class B Units in any subsequent distributions. The Class B Units and Class C Units were issued to members of management to provide them with equity incentives. The LLC Agreement grants BrightView broad authority in establishing the magnitude and terms of management's equity participation in the Company. Both the Senior Credit Facility and the Indenture generally limit the Company's ability to pay cash distributions to Holdings and BrightView other than distributions in amounts approximately equal to the income tax liability of such members of the Company (or, in the case of Holdings, the income tax liability it would have had if it were required to pay income taxes) resulting from the taxable income of the Company ("Tax Distributions"). Tax Distributions will be based on the approximate highest combined tax rate that applies to any one of the members of the Company. The LLC Agreement, and therefore Holdings' existence, will continue in effect until the earlier to occur of: (i) December 3, 2026; (ii) a unanimous vote to that effect of its Members; (iii) a resolution to that effect of the managing member; (iv) the incapacity or expulsion of the managing member or any other event under the LLC Act which terminates Holdings unless the Members vote within 90 days to continue Holdings' existence or (v) the entry of a decree of judicial dissolution under the LLC Act. Other than as described in (iv) above, the death, retirement, resignation, expulsion, incapacity, bankruptcy or dissolution of a Member will not cause a dissolution of Holdings. The Company's limited liability company agreement contains similar terms governing the Company's continued existence. 65 DESCRIPTION OF SENIOR CREDIT FACILITY In connection with the Acquisition, the Company entered into the Senior Credit Facility, among FBNC and CIBC (together, the "Lenders") and the Company, pursuant to which the Lenders will lend to the Company up to $260.0 million in senior secured credit facilities, such amount to be allocated among: (i) a revolving credit facility up to $60.0 million (the "Revolving Credit Facility"); (ii) a tranche A term loan in an aggregate principal amount of $100.0 million (the "Tranche A Loan") and (iii) a tranche B term loan in an aggregate principal amount of $100.0 million (the "Tranche B Loan" and together with the Tranche A Loan, the "Term Loans"). Repayment. Commitments under the Revolving Credit Facility will not be reduced until maturity on December 31, 2002 and the Term Loans will be amortized on a quarterly basis commencing on March 31, 1997 based on the following schedule:
TRANCHE A TRANCHE B LOAN LOAN DATE AMORTIZATION AMORTIZATION ---- ------------ ------------ (DOLLARS IN THOUSANDS) 1997............................................... $ 0 $ 1,000 1998............................................... 10,000 1,000 1999............................................... 15,000 1,000 2000............................................... 20,000 1,000 2001............................................... 25,000 1,000 2002............................................... 30,000 1,000 2003............................................... 0 40,000 2004............................................... 0 54,000 -------- -------- Total............................................ $100,000 $100,000 ======== ========
Security; Guaranty. The Revolving Credit Facility and Term Loans will be secured by a first priority lien on substantially all of the properties and assets of the Company and its respective domestic subsidiaries, owned now or acquired later, including a pledge of all of the shares of the Company's respective existing and future domestic subsidiaries and 65% of the shares of their respective existing and future foreign subsidiaries. The Revolving Credit Facility and Term Loans are guaranteed by BrightView, Holdings and all of the Company's future domestic subsidiaries. Interest. At the Company's option, the interest rates per annum applicable to the Revolving Credit Facility and the Tranche A Loan will be a fluctuating rate of interest measured by reference either to: (i) LIBOR plus the applicable borrowing margin or (ii) the published prime rate of the Agent Bank (the "ABR") plus the applicable borrowing margin. The applicable borrowing margin for the Revolving Credit Facility and the Tranche A Loan will range from 1.375% to 2.750% for LIBOR based borrowings and 0.125% to 1.500% for ABR based borrowings. The applicable borrowing margin for the Tranche B Loan will be equal to that of the Revolving Credit Facility and Tranche A Loan plus 0.50%; provided, however, that the applicable margin for the Tranche B Loan will not be less than 2.625% for LIBOR based borrowings and 1.375% for ABR based borrowings. Fees. The Company has agreed to pay certain fees with respect to the Senior Credit Facility including: (i) upfront facility fees; (ii) agent and arrangement fees and (iii) commitment fees of 0.50% per annum on the unused portion of the Revolving Credit Facility until the Company's Leverage Ratio (as defined in the Senior Credit Facility) is less than or equal to 4:1 and 0.375% per annum thereafter. Use of Proceeds. The entire amount of the Term Loans were made available to the Company at the time of the Acquisition. The Revolving Credit Facility will be made available to finance certain permitted acquisitions, working capital requirements and general corporate purposes of the Company. 66 Prepayments; Reduction of Commitments. Term Loans are required to be prepaid and commitments under the Revolving Credit Facility are required to be permanently reduced with: (i) 75% of excess cash flow, which percentage may be reduced under certain circumstances; (ii) 100% of the net cash proceeds of all non-ordinary-course asset sales or other dispositions of the property by the Company and its subsidiaries (including insurance and condemnation proceeds), subject to limited exceptions, (iii) 100% of the net proceeds of issuances of debt obligations of the Company and its subsidiaries, subject to limited exceptions and (iv) 75% of the net proceeds of issuances of equity securities of the Company. Such mandatory prepayments and commitment reductions will first be allocated pro rata among the Term Loan and second to commitments under the Revolving Credit Facility. Within the Term Loans prepayments with proceeds from asset sales will be applied pro rata to the remaining amortization payments under each such Term Loan and proceeds from debtor equity issuances will be applied to amortization payments in inverse order at maturity. Voluntary prepayments will be permitted in whole or in part, at the option of the Company, in minimum principal amounts of $3.0 million or any greater multiple of $1.0 million, without premium or penalty. Covenants. The Senior Credit Facility contains covenants restricting the ability of the Company and its subsidiaries to, among other things: (i) declare dividends or redeem or repurchase capital stock; (ii) prepay, redeem or purchase debt; (iii) incur liens and engage in sale-leaseback transactions; (iv) make loans and investments; (v) issue more debt; (vi) amend or otherwise alter debt and other material agreements; (vii) make capital expenditures; (viii) engage in mergers, acquisitions and asset sales; (ix) transact with affiliates and (x) alter its lines of the business. The Company must also make certain customary indemnifications of the Lenders and their agents and will also be required to comply with financial covenants with respect to: (i) a maximum leverage ratio; (ii) a minimum interest coverage ratio and (iii) a minimum fixed charge coverage ratio. The Senior Credit Facility also contains certain customary affirmative covenants. Events of Default. Events of default under the Senior Credit Facility include: (i) the Company's failure to pay principal or interest when due; (ii) the Company's material breach of any covenant, representation or warranty contained in the loan documents; (iii) customary cross-default provisions; (iv) events of bankruptcy, insolvency or dissolution of the Company or its subsidiaries; (v) the levy of certain judgments against the Company, its subsidiaries, or their assets; (vi) certain adverse events under ERISA plans of the Company or its subsidiaries; (vii) the actual or asserted invalidity of security documents or guarantees of the Company or its subsidiaries and (viii) a change of control of the Company. 67 THE EXCHANGE OFFER PURPOSE AND EFFECT OF THE EXCHANGE OFFER The Old Notes were originally sold by the Issuers on November 25, 1996 to the Initial Purchasers pursuant to the Purchase Agreement. The Initial Purchasers subsequently resold the Old Notes to qualified institutional buyers in reliance on Rule 144A under the Securities Act. As a condition to the Purchase Agreement, the Issuers entered into the Registration Rights Agreement with the Initial Purchaser pursuant to which the Issuers have agreed, for the benefit of the holders of the Old Notes, at the Issuers' cost, to use their best efforts to (i) file the Exchange Offer Registration Statement within 45 days after the date of the original issue of the Old Notes with the Commission with respect to the Exchange Offer for the New Notes; (ii) use their best efforts to cause the Exchange Offer Registration Statement to be declared effective under the Securities Act within 135 days after the date of the original issuance of the Old Notes and (iii) unless the Exchange Offer would not be permitted by applicable law or Commission policy, commence the Exchange Offer and use their best efforts to issue on or prior to 45 days after the date on which the Exchange Offer Registration Statement was declared effective by the Commission (the "Exchange Offer Effectiveness Date"). Upon the Exchange Offer Registration Statement being declared effective, the Issuers will offer the New Notes in exchange for surrender of the Old Notes. The Issuers will keep the Exchange Offer open for not less than 20 days (or longer if required by applicable law) after the date on which notice of the Exchange Offer is mailed to the holders of the Old Notes. For each Old Note surrendered to the Issuers pursuant to the Exchange Offer, the holder of such Old Note will receive a New Note having a principal amount equal to that of the surrendered Old Note. Interest on each Old Note will accrue from the last interest payment date on which interest was paid on the Old Note surrendered in exchange therefor or, if no interest has been paid on such Old Note, from the date of its original issue. Interest on each New Note will accrue from the date of its original issue. Under existing interpretations of the staff of the Commission contained in several no-action letters to third parties, the New Notes will in general be freely tradeable after the Exchange Offer without further registration under the Securities Act. However, any purchaser of Old Notes who is an "affiliate" of the Issuers or who intends to participate in the Exchange Offer for the purpose of distributing the New Notes (i) will not be able to rely on the interpretation of the staff of the Commission, (ii) will not be able to tender its Old Notes in the Exchange Offer and (iii) must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any sale or transfer of the Old Notes, unless such sale or transfer is made pursuant to an exemption from such requirements. As contemplated by these no-action letters and the Registration Rights Agreement, each holder accepting the Exchange Offer is required to represent to the Issuers in the Letter of Transmittal that (i) the New Notes are to be acquired by the holder or the person receiving such New Notes, whether or not such person is the holder, in the ordinary course of business, (ii) the holder or any such other person (other than a broker-dealer referred to in the next sentence) is not engaging and does not intend to engage, in distribution of the New Notes, (iii) the holder or any such other person has no arrangement or understanding with any person to participate in the distribution of the New Notes, (iv) neither the holder nor any such other person is an "affiliate" of the Issuers within the meaning of Rule 405 under the Securities Act, and (v) the holder or any such other person acknowledges that if such holder or any other person participates in the Exchange Offer for the purpose of distributing the New Notes it must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale of the New Notes and cannot rely on those no-action letters. As indicated above, each Participating Broker-Dealer that receives a New Note for its own account in exchange for Old Notes must acknowledge that it (i) acquired the Old Notes for its own account as a result of market-making activities or other trading activities, (ii) has not entered into any arrangement or understanding with the Issuers or any "affiliate" of the Issuers (within the meaning of Rule 405 under the Securities Act) to distribute the New Notes to be received in the Exchange Offer and (iii) will deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of such New Notes. For a description of the procedures for resales by Participating Broker-Dealers, see "Plan of Distribution." 68 In the event that changes in the law or the applicable interpretations of the staff of the Commission do not permit the Issuers to effect such an Exchange Offer, or if for any other reason the Exchange Offer is not consummated within 195 days of the date of the original issuance of the Old Notes, the Issuers will (i) file the Shelf Registration Statement Registration Statement covering resales of the Old Notes; (ii) use their reasonable best efforts to cause the Shelf Registration Statement Registration Statement to be declared effective under the Securities Act and (iii) use their reasonable best efforts to keep effective the Shelf Registration Statement until the earlier of three years after its effective date. The Issuers will, in the event of the filing of the Shelf Registration Statement, provide to each applicable holder of the Old Notes copies of the prospectus which is a part of the Shelf Registration Statement, notify each such holder when the Shelf Registration Statement has become effective and take certain other actions as are required to permit unrestricted resale of the Old Notes. A holder of the Old Notes that sells such Old Notes pursuant to the Shelf Registration Statement permit generally will be required to be named as a selling security holder in the related prospectus and to deliver a prospectus to purchasers, will be subject to certain of the civil liability provisions under the Securities Act in connection with such sales and will be bound by the provisions of the Registration Rights Agreement which are applicable to such a holder (including certain indemnification obligations). In addition, each holder of the Old Notes will be required to deliver information to be used in connection with the Shelf Registration Statement and to provide comments on the Shelf Registration Statement within the time periods set forth in the Registration Rights Agreement in order to have their Old Notes included in the Shelf Registration Statement and to benefit from the provisions set forth in the following paragraph. The Registration Rights Agreement provides that (i) the Issuers will file an Exchange Offer Registration Statement with the Commission on or prior to 45 days after the date of the original issue of the Old Notes with the Commission, (ii) the Issuers will use their best efforts to have the Exchange Offer Registration Statement declared effective by the Commission on or prior to 135 days after the after the date of the original issue of the Old Notes, (iii) unless the Exchange Offer would not be permitted by applicable law or Commission policy, the Issuers will commence the Exchange Offer and use their best efforts to issue on or prior to 45 days after the Exchange Offer Effectiveness Date, New Notes in exchange for all Old Notes tendered prior thereto in the Exchange Offer and (iv) if obligated to file the Shelf Registration Statement, the Issuers will use their best efforts to file the Shelf Registration Statement with the Commission in a timely fashion. If (a) the Issuers fail to file any of the Registration Statements required by the Registration Rights Agreement on or before the date specified for such filing, (b) any of such Registration Statements is not declared effective by the Commission on or prior to the date specified for such effectiveness, or (c) the Issuers fail to consummate the Exchange Offer within 45 days of the effectiveness of the Exchange Offer Registration Statement, or (d) the Shelf Registration Statement or the Exchange Offer Registration Statement is declared effective but thereafter ceases to be effective or usable in connection with resales of Transfer Restricted Securities during the period specified in the Registration Rights Agreement (each such event referred to in clauses (a) through (d) above a "Registration Default"), the sole remedy available to holders of the Old Notes will be the immediate assessment of Additional Interest as follows: the per annum interest rate on the Old Notes will increase by 0.5% and the per annum interest rate will increase by an additional 0.25% for each subsequent 90-day period during which the Registration Default remains uncured, up to a maximum additional interest rate of 2.0% per annum in excess of 11 1/8% per annum. All Additional Interest will be payable to holders of the Old Notes in cash on each November 15 and May 15, commencing with the first such date occurring after any such Additional Interest commences to accrue, until such Registration Default is cured. After the date on which such Registration Default is cured, the interest rate on the Old Notes will revert to 11 1/8% per annum. Holders of Old Notes will be required to make certain representations to the Issuers (as described in the Registration Rights Agreement) in order to participate in the Exchange Offer and will be required to deliver information to be used in connection with the Shelf Registration Statement and to provide comments on the Shelf Registration Statement within the time periods set forth in the Registration Rights Agreement in order to have their Old Notes included in the Shelf Registration Statement and benefit from the provisions regarding Additional Investors set forth above. 69 The summary herein of certain provisions of the Registration Rights Agreement does not purport to be complete and is subject to, and is qualified in its entirety by, all the provisions of the Registration Rights Agreement, a copy of which is filed as an exhibit to the Exchange Offer Registration Statement of which this Prospectus is a part. Following the consummation of the Exchange Offer, holders of the Old Notes who were eligible to participate in the Exchange Offer but who did not tender their Old Notes will not have any further registration rights and such Old Notes will continue to be subject to certain restrictions on transfer. Accordingly, the liquidity of the market for such Old Notes could be adversely affected. TERMS OF THE EXCHANGE OFFER Upon the terms and subject to the conditions set forth in this Prospectus and in the Letter of Transmittal, the Issuers will accept any and all Old Notes validly tendered and not withdrawn prior to 5:00 p.m., New York City time, on the Expiration Date. The Issuers will issue $1,000 principal amount of New Notes in exchange for each $1,000 principal amount of outstanding Old Notes accepted in the Exchange Offer. Holders may tender some or all of their Old Notes pursuant to the Exchange Offer. However, Old Notes may be tendered only in integral multiples of $1,000. The form and terms of the New Notes are the same as the form and terms of the Old Notes except that (i) the New Notes bear a Series B designation and a different CUSIP Number from the Old Notes, (ii) the New Notes have been registered under the Securities Act and hence will not bear legends restricting the transfer thereof and (iii) the holders of the New Notes will not be entitled to certain rights under the Registration Rights Agreement, including the provisions providing for an increase in the interest rate on the Old Notes in certain circumstances relating to the timing of the Exchange Offer, all of which rights will terminate when the Exchange Offer is terminated. The New Notes will evidence the same debt as the Old Notes and will be entitled to the benefits of the Indenture. As of the date of this Prospectus, $100,000,000 aggregate principal amount of Old Notes were outstanding. The Issuers have fixed the close of business on , 1997 as the record date for the Exchange Offer for purposes of determining the persons to whom this Prospectus and the Letter of Transmittal will be mailed initially. Holders of Old Notes do not have any appraisal or dissenters' rights under the General Corporation Law of Delaware, the Limited Liability Company Act of Delaware or the Indenture in connection with the Exchange Offer. The Issuers intend to conduct the Exchange Offer in accordance with the applicable requirements of the Exchange Act and the rules and regulations of the Commission thereunder. The Issuers shall be deemed to have accepted validly tendered Old Notes when, as and if the Issuers have given oral or written notice thereof to the Exchange Agent. The Exchange Agent will act as agent for the tendering holders for the purpose of receiving the New Notes from the Issuers. If any tendered Old Notes are not accepted for exchange because of an invalid tender, the occurrence of certain other events set forth herein or otherwise, the certificates for any such unaccepted Old Notes will be returned, without expense, to the tendering holder thereof as promptly as practicable after the Expiration Date. Holders who tender Old Notes in the Exchange Offer will not be required to pay brokerage commissions or fees or, subject to the instructions in the Letter of Transmittal, transfer taxes with respect to the exchange of Old Notes pursuant to the Exchange Offer. The Issuers will pay all charges and expenses, other than transfer taxes in certain circumstances, in connection with the Exchange Fees and Expenses. EXPIRATION DATE; EXTENSIONS; AMENDMENTS The term "Expiration Date" shall mean 5:00 p.m., New York City time, on , 1997, unless the Issuers, in their sole discretion, extend the Exchange Offer, in which case the term "Expiration Date" shall mean the latest date and time to which the Exchange Offer is extended. 70 In order to extend the Exchange Offer, the Issuers will notify the Exchange Agent of any extension by oral or written notice and will mail to the registered holders an announcement thereof, each prior to 9:00 a.m., New York City time, on the next business day after the previously scheduled expiration date. The Issuers reserve the right, in their sole discretion, (i) to delay accepting any Old Notes, to extend the Exchange Offer or to terminate the Exchange Offer if any of the conditions set forth below under "Conditions" shall not have been satisfied, by giving oral or written notice of such delay, extension or termination to the Exchange Agent or (ii) to amend the terms of the Exchange Offer in any manner. Any such delay in acceptance, extension, termination or amendment will be followed as promptly as practicable by oral or written notice thereof to the registered holders. INTEREST ON THE NEW NOTES The New Notes will bear interest from their date of issuance. Holders of Old Notes that are accepted for exchange will receive, in cash, accrued interest thereon to, but not including, the date of issuance of the New Notes. Such interest will be paid with the first interest payment on the New Notes on May 15, 1997. Interest on the Old Notes accepted for exchange will cease to accrue upon issuance of the New Notes. Interest on the New Notes is payable semi-annually on each May 15 and November 15, commencing on May 15, 1997. PROCEDURES FOR TENDERING Only a holder of Old Notes may tender such Old Notes in the Exchange Offer. To tender in the Exchange Offer, a holder must complete, sign and date the Letter of Transmittal, or a facsimile thereof, have the signatures thereon guaranteed if required by the Letter of Transmittal, and mail or otherwise deliver such Letter of Transmittal or such facsimile, together with the Old Notes and any other required documents, to the Exchange Agent prior to 5:00 p.m., New York City time, on the Expiration Date. To be tendered effectively, the Old Notes, Letter of Transmittal or an Agent's Message in connection with a book-entry transfer and other required documents must be completed and received by the Exchange Agent at the address set forth below under "Exchange Agent" prior to 5:00 p.m., New York City time, on the Expiration Date. Delivery of the Old Notes may be made by book-entry transfer in accordance with the procedures described below. Confirmation of such bookentry transfer must be received by the Exchange Agent prior to the Expiration Date. The term "Agent's Message" means a message, transmitted by a book-entry transfer facility to, and received by, the Exchange Agent forming a part of a confirmation of a book-entry transfer, which states that such Book-Entry Transfer Facility has received an express acknowledgment from the participant in such Book-Entry Transfer Facility tendering the Notes that such participant has received and agrees to be bound by the terms of the Letter of Transmittal and that the Company may enforce such agreement against such participant. By executing the Letter of Transmittal, each holder will make to the Issuers the representations set forth above in the third paragraph under the heading "--Purpose and Effect of the Exchange Offer." The tender by a holder and the acceptance thereof by the Issuers will constitute agreement between such holder and the Issuers in accordance with the terms and subject to the conditions set forth herein and in the Letter of Transmittal. THE METHOD OF DELIVERY OF OLD NOTES AND THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND SOLE RISK OF THE HOLDER. AS AN ALTERNATIVE TO DELIVERY BY MAIL, HOLDERS MAY WISH TO CONSIDER OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO THE ISSUERS. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, 71 COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH HOLDERS. Any beneficial owner whose Old Notes are registered in the name of a broker, dealer, commercial bank, trust company or other nominee and who wishes to tender should contact the registered holder promptly and instruct such registered holder to tender on such beneficial owner's behalf. See "Instructions to Registered Holder and/or Book-Entry Transfer Facility Participant from Beneficial Owner" included with the Letter of Transmittal. Signatures on a Letter of Transmittal or a notice of withdrawal, as the case may be, must be guaranteed by an Eligible Institution (as defined below) unless the Old Notes tendered pursuant thereto are tendered (i) by a registered holder who has not completed the box entitled "Special Registration Instructions" or "Special Delivery Instructions" on the Letter of Transmittal or (ii) for the account of an Eligible Institution. In the event that signatures on a Letter of Transmittal or a notice of withdrawal, as the case may be, are required to be guaranteed, such guarantee must be by a member firm of the Medallion System (an "Eligible Institution"). If the Letter of Transmittal is signed by a person other than the registered holder of any Old Notes listed therein, such Old Notes must be endorsed or accompanied by a properly completed bond power, signed by such registered holder as such registered holder's name appears on such Old Notes with the signature thereon guaranteed by an Eligible Institution. If the Letter of Transmittal or any Old Notes or bond powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, offices of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing, and evidence satisfactory to the Issuers of their authority to so act must be submitted with the Letter of Transmittal. The Issuers understand that the Exchange Agent will make a request promptly after the date of this Prospectus to establish accounts with respect to the Old Notes at the Book-Entry Transfer Facility for the purpose of facilitating the Exchange Offer, and subject to the establishment thereof, any financial institution that is a participant in the Book-Entry Transfer Facility's system may make book-entry delivery of Old Notes by causing such Book-Entry Transfer Facility to transfer such Old Notes into the Exchange Agent's account with respect to the Old Notes in accordance with the Book-Entry Transfer Facility's procedures for such transfer. Although delivery of the Old Notes may be effected through book-entry transfer into the Exchange Agent's account at the Book-Entry Transfer Facility, an appropriate Letter of Transmittal properly completed and duly executed with any required signature guarantee and all other required documents must in each case be transmitted to and received or confirmed by the Exchange Agent at its address set forth below on or prior to the Expiration Date, or, if the guaranteed delivery procedures described below are complied with, within the time period provided under such procedures. Delivery of documents to the Book-Entry Transfer Facility does not constitute delivery to the Exchange Agent. All questions as to the validity, form, eligibility (including time of receipt), acceptance of tendered Old Notes and withdrawal of tendered Old Notes will be determined by the Issuers in their sole discretion, which determination will be final and binding. The Issuers reserve the absolute right to reject any and all Old Notes not properly tendered or any Old Notes the Issuers' acceptance of which would, in the opinion of counsel for the Issuers, be unlawful. The Issuers also reserve the right in their sole discretion to waive any defects, irregularities or conditions of tender as to particular Old Notes. The Issuers' interpretation of the terms and conditions of the Exchange Offer (including the instructions in the Letter of Transmittal) will be final and binding on all parties. Unless waived, any defects or irregularities in connection with tenders of Old Notes must be cured within such time as the Issuer shall determine. Although the Issuers intend to notify holders of defects or irregularities with respect to tenders of Old Notes, neither the Issuer, the Exchange Agent nor any other person shall incur any liability for failure to give such notification. Tenders of Old Notes will not be deemed to have been made until such defects or irregularities have been cured or waived. Any Old Notes received by the Exchange Agent that are not properly tendered and as to which the defects or irregularities have not been cured or waived will be 72 returned by the Exchange Agent to the tendering holders, unless otherwise provided in the Letter of Transmittal, as soon as practicable following the Expiration Date. GUARANTEED DELIVERY PROCEDURES Holders who wish to tender their Old Notes and (i) whose Old Notes are not immediately available, (ii) who cannot deliver their Old Notes, the Letter of Transmittal or any other required documents to the Exchange Agent or (iii) who cannot complete the procedures for book-entry transfer, prior to the Expiration Date, may effect a tender if: (a) the tender is made through an Eligible Institution, (b) prior to the Expiration Date, the Exchange Agent receives from such Eligible Institution a properly completed and duly executed Notice of Guaranteed Delivery (by facsimile transmission, mail or hand delivery) setting forth the name and address of the holder, the certificate number(s) of such Old Notes and the principal amount of Old Notes tendered, stating that the tender is being made thereby and guaranteeing that, within five New York Stock Exchange trading days after the Expiration Date, the Letter of Transmittal (or facsimile thereof) together with the certificate(s) representing the Old Notes (or a confirmation of book-entry transfer of such Notes into the Exchange Agent's account at the Book-Entry Transfer Facility), and any other documents required by the Letter of Transmittal will be deposited by the Eligible Institution with the Exchange Agent; and (c) such properly completed and executed Letter of Transmittal (of facsimile thereof), as well as the certificate(s) representing all tendered Old Notes in proper form for transfer (or a confirmation of book-entry transfer of such Old Notes into the Exchange Agent's account at the Book- Entry Transfer Facility), and all other documents required by the Letter of Transmittal are received by the Exchange Agent upon five New York Stock Exchange trading days after the Expiration Date. Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be sent to holders who wish to tender their Old Notes according to the guaranteed delivery procedures set forth above. WITHDRAWAL OF TENDERS Except as otherwise provided herein, tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration Date. To withdraw a tender of Old Notes in the Exchange Offer, a telegram, telex, letter or facsimile transmission notice of withdrawal must be received by the Exchange Agent at its address set forth herein prior to 5:00 p.m., New York City time, on the Expiration Date. Any such notice of withdrawal must (i) specify the name of the person having deposited the Old Notes to be withdrawn (the "Depositor"); (ii) identify the Old Notes to be withdrawn (including the certificate number(s) and principal amount of such Old Notes, or, in the case of Old Notes transferred by book-entry transfer, the name and number of the account at the Book-Entry Transfer Facility to be credited); (iii) be signed by the holder in the same manner as the original signature on the Letter of Transmittal by which such Old Notes were tendered (including any required signature guarantees) or be accompanied by documents of transfer sufficient to have the Trustee with respect to the Old Notes register the transfer of such Old Notes into the name of the person withdrawing the tender and (iv) specify the name in which any such Old Notes are to be registered, if different from that of the Depositor. All questions as to the validity, form and eligibility (including time of receipt) of such notices will be determined by the Issuers, whose determination shall be final and binding on all parties. Any Old Notes so withdrawn will be deemed not to have been validly tendered for purposes of the Exchange Offer and no New Notes will be issued with respect thereto unless the Old Notes so withdrawn are validly retendered. Any Old Notes which have been tendered but which are not accepted for exchange will be returned to the holder thereof without cost to such holder as soon as practicable after withdrawal, rejection of tender or termination of the Exchange Offer. Properly withdrawn Old Notes may be retendered by following one of the procedures described above under "--Procedures for Tendering" at any time prior to the Expiration Date. 73 CONDITIONS Notwithstanding any other term of the Exchange Offer, the Issuers shall not be required to accept for exchange, or exchange New Notes for, any Old Notes, and may terminate or amend the Exchange Offer as provided herein before the acceptance of such Old Notes, if: (a) any action or proceeding is instituted or threatened in any court or by or before any governmental agency with respect to the Exchange Offer which, in the reasonable judgment of the Issuers, might materially impair the ability of the Issuers to proceed with the Exchange Offer or any material adverse development has occurred in any existing action or proceeding with respect to the Issuers or any of their subsidiaries; or (b) any law, statute, rule, regulation or interpretation by the staff of the Commission is proposed, adopted or enacted, which, in the reasonable judgment of the Issuers, might materially impair the ability of the Issuers to proceed with the Exchange Offer or materially impair the contemplated benefits of the Exchange Offer to the Issuers; or (c) any governmental approval has not been obtained, which approval the Issuers shall, in their reasonable discretion, deem necessary for the consummation of the Exchange Offer as contemplated hereby. If the Issuers determine in their reasonable discretion that any of the conditions are not satisfied, the Issuers may (i) refuse to accept any Old Notes and return all tendered Old Notes to the tendering holders, (ii) extend the Exchange Offer and retain all Old Notes tendered prior to the expiration of the Exchange Offer, subject, however, to the rights of holders to withdraw such Old Notes (see "--Withdrawal of Tenders") or (iii) waive such unsatisfied conditions with respect to the Exchange Offer and accept all properly tendered Old Notes which have not been withdrawn. EXCHANGE AGENT United States Trust Company of New York has been appointed as Exchange Agent for the Exchange Offer. Questions and requests for assistance, requests for additional copies of this Prospectus or of the Letter of Transmittal and requests for Notice of Guaranteed Delivery should be directed to the Exchange Agent addressed as follows: By Mail: By Overnight Courier: United States Trust Company of New United States Trust Company of New York York P.O. Box 844 Cooper Station 770 Broadway New York, New York 10276-0844 New York, New York 10003 Attention: Corporate Trust Attention: Corporate Trust Operations Operations (registered or certified mail recommended) By Hand: Facsimile Transmission: (212) United States Trust Company of New 420-6152 York 111 Broadway Confirm by Telephone: (800) 548-6565 New York, New York 10006 Attention: Lower Level Corporate Trust Window DELIVERY TO AN ADDRESS OTHER THAN SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. FEES AND EXPENSES The expenses of soliciting tenders will be borne by the Issuers. The principal solicitation is being made by mail; however, additional solicitation may be made by telegraph, telecopy, telephone or in person by officers and regular employees of the Company and its affiliates. 74 The Company has not retained any dealer-manager in connection with the Exchange Offer and will not make any payments to brokers, dealers, or others soliciting acceptances of the Exchange Offer. The Company, however, will pay the Exchange Agent reasonable and customary fees for its services and will reimburse it for its reasonable out-of-pocket expenses in connection therewith. The cash expenses to be incurred in connection with the Exchange Offer will be paid by the Issuers. Such expenses include fees and expenses of the Exchange Agent and Trustee, accounting and legal fees and printing costs, among others. ACCOUNTING TREATMENT The New Notes will be recorded at the same carrying value as the Old Notes, which is face value, as reflected in the Company's accounting records on the date of exchange. Accordingly, no gain or loss for accounting purposes will be recognized by the Company. The expenses of the Exchange Offer will be expensed over the term of the New Notes. CONSEQUENCES OF FAILURE TO EXCHANGE The Old Notes that are not exchanged for New Notes pursuant to the Exchange Offer will remain restricted securities. Accordingly, such Old Notes may be resold only (i) to the Issuers (upon redemption thereof or otherwise), (ii) so long as the Old Notes are eligible for resale pursuant to Rule 144A, to a person inside the United States whom the seller reasonably believes is a qualified institutional buyer within the meaning of Rule 144A under the Securities Act in a transaction meeting the requirements of Rule 144A, in accordance with Rule 144 under the Securities Act, or pursuant to another exemption from the registration requirements of the Securities Act (and based upon an opinion of counsel reasonably acceptable to the Issuers), (iii) outside the United States to a foreign person in a transaction meeting the requirements of Rule 904 under the Securities Act, or (iv) pursuant to an effective registration statement under the Securities Act, in each case in accordance with any applicable securities laws of any state of the United States. RESALE OF THE NEW NOTES With respect to resales of New Notes, based on interpretations by the staff of the Commission set forth in no-action letters issued to third parties, the Company believes that a holder or other person who receives New Notes, whether or not such person is the holder (other than a person that is an "affiliate" of the Issuers within the meaning of Rule 405 under the Securities Act) who receives New Notes in exchange for Old Notes in the ordinary course of business and who is not participating, does not intend to participate, and has no arrangement or understanding with any person to participate, in the distribution of the New Notes, will be allowed to resell the New Notes to the public without further registration under the Securities Act and without delivering to the purchasers of the New Notes a prospectus that satisfies the requirements of Section 10 of the Securities Act. However, if any holder acquires New Notes in the Exchange Offer for the purpose of distributing or participating in a distribution of the New Notes, such holder cannot rely on the position of the staff of the Commission enunciated in such no-action letters or any similar interpretive letters, and must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction, unless an exemption from registration is otherwise available. Further, each Participating Broker-Dealer that receives New Notes for its own account in exchange for Old Notes, where such Old Notes were acquired by such Participating Broker-Dealer as a result of market-making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of such New Notes. As contemplated by these no-action letters and the Registration Rights Agreement, each holder accepting the Exchange Offer is required to represent to the Company in the Letter of Transmittal that (i) the New Notes are to be acquired by the holder or the person receiving such New Notes, whether or not such person is the holder, in the ordinary course of business, (ii) the holder or any such other person (other than a broker-dealer referred to in the next sentence) is not engaging and does not intend to engage, in the distribution of the New 75 Notes, (iii) the holder or any such other person has no arrangement or understanding with any person to participate in the distribution of the New Notes, (iv) neither the holder nor any such other person is an "affiliate" of the Issuers within the meaning of Rule 405 under the Securities Act, and (v) the holder or any such other person acknowledges that if such holder or other person participates in the Exchange Offer for the purpose of distributing the New Notes it must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale of the New Notes and cannot rely on those no-action letters. As indicated above, each Participating Broker-Dealer that receives a New Note for its own account in exchange for Old Notes must acknowledge that it will deliver a prospectus in connection with any resale of such New Notes. For a description of the procedures for such resales by Participating Broker-Dealers, see "Plan of Distribution." DESCRIPTION OF THE NOTES The New Notes will be issued under an Indenture, dated as of November 15, 1996 among the Issuers, the Guarantors stated therein and United States Trust Company of New York, as trustee (the "Trustee"). The terms of the New Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act") as in effect on the date of the Indenture. The form and terms of the New Notes are the same as the form and terms of the Old Notes (which they replace) except that (i) the New Notes bear a Series B designation, (ii) the New Notes have been registered under the Securities Act and, therefore, will not bear legends restricting the transfer thereof, and (iii) the holders of New Notes will not be entitled to certain rights under the Registration Rights Agreement, including the provisions providing for an increase in the interest rate on the Old Notes in certain circumstances relating to the timing of the Exchange Offer, which rights will terminate when the Exchange Offer is consummated. The New Notes are subject to all such terms, and holders of the New Notes are referred to the Indenture and the Trust Indenture Act for a statement of them. The following is a summary of the material terms and provisions of the New Notes. This summary does not purport to be a complete description of the New Notes and is subject to the detailed provisions of, and qualified in its entirety by reference to, the New Notes and the Indenture (including the definitions contained therein). A copy of the Indenture has been filed as an exhibit to the Exchange Offer Registration Statement of which this Prospectus forms a part. See "Available Information." Definitions relating to certain capitalized terms are set forth under "-- Certain Definitions" and throughout this description. Capitalized terms that are used but not otherwise defined herein have the meanings assigned to them in the Indenture and such definitions are incorporated herein by reference. The Old Notes and the New Notes are sometimes referred to herein collectively as the "Notes." GENERAL The Notes will be limited in aggregate principal amount to $100,000,000. The Notes will be general unsecured obligations of the Issuers, subordinated in right of payment to Senior Indebtedness of the Issuers and senior in right of payment to any current or future subordinated indebtedness of the Issuers. The Notes will be joint and several obligations of the Issuers. The Notes will be unconditionally guaranteed, on a senior subordinated basis, as to payment of principal, premium, if any, and interest, jointly and severally, by the Guarantors (including each Restricted Subsidiary which guarantees payment of the Notes pursuant to the covenant described under "Limitation on Creation of Subsidiaries"). MATURITY, INTEREST AND PRINCIPAL The Notes will mature on November 15, 2006. The Notes will bear interest at a rate of 11 1/8% per annum from the date of original issuance until maturity. Interest is payable semi-annually in arrears on each May 15 and November 15, commencing May 15, 1997, to holders of record of the Notes at the close of business on the immediately preceding May 1 and November 1, respectively. 76 OPTIONAL REDEMPTION The Notes will be redeemable at the option of the Issuers, in whole or in part, at any time on or after November 15, 2001 at the following redemption prices (expressed as a percentage of principal amount), together, in each case, with accrued interest to the redemption date, if redeemed during the twelve-month period beginning on November 15, of each year listed below:
YEAR PERCENTAGE ---- ---------- 2001........................................................... 105.563% 2002........................................................... 103.708% 2003........................................................... 101.854% 2004 and thereafter............................................ 100.000%
Notwithstanding the foregoing, the Issuers may redeem in the aggregate up to 25% of the original principal amount of Notes at any time and from time to time prior to November 15, 1999 at a redemption price equal to 111.125% of the aggregate principal amount so redeemed plus accrued interest to the redemption date out of the Net Proceeds of one or more Public Equity Offerings; provided that at least $75.0 million of the principal amount of Notes originally issued remain outstanding immediately after the occurrence of any such redemption and that any such redemption occurs within 90 days following the closing of any such Public Equity Offering. In the event of redemption of fewer than all of the Notes, the Trustee shall select, if the Notes are listed on a national securities exchange, in accordance with the rules of such exchange or, if the Notes are not so listed, either on a pro rata basis or by lot or in such other manner as it shall deem fair and equitable the Notes to be redeemed; provided, that if a partial redemption is made with the proceeds of a Public Equity Offering, selection of the Notes or portion thereof for redemption will be made by the Trustee on a pro rata basis, unless such method is prohibited. The Notes will be redeemable in whole or in part upon not less than 30 nor more than 60 days' prior written notice, mailed by first class mail to a holder's last address as it shall appear on the register maintained by the Registrar of the Notes. On and after any redemption date, interest will cease to accrue on the Notes or portions thereof called for redemption unless the Issuers shall fail to redeem any such Note. SUBORDINATION The indebtedness represented by the Notes is, to the extent and in the manner provided in the Indenture, subordinated in right of payment to the prior indefeasible payment and satisfaction in full in cash of all existing and future Senior Indebtedness of the Issuers. As of August 31, 1996, after giving pro forma effect to the Transactions and the Initial Offering, the principal amount of outstanding Senior Indebtedness of the Issuers, on a consolidated basis, would have been $200.0 million. In addition, the Issuers would have had $60.0 million of undrawn commitments available under the Revolving Credit Facility. In the event of any insolvency or bankruptcy case or proceeding, or any receivership, liquidation. arrangement, reorganization or other similar case or proceeding in connection therewith, relative to the Issuers or to their creditors, as such, or to their assets, whether voluntary or involuntary, or any liquidation, dissolution or other winding-up of the Issuers, whether voluntary or involuntary and whether or not involving insolvency or bankruptcy, or any general assignment for the benefit of creditors or other marshalling of assets or liabilities of the Issuers (except in connection with the merger or consolidation of the Issuers or its liquidation or dissolution following the transfer of substantially all of their assets, upon the terms and conditions permitted under the circumstances described under "--Mergers, Consolidations or Sale of Assets") (all of the foregoing referred to herein individually as a "Bankruptcy Proceeding" and collectively as "Bankruptcy Proceedings"), the holders of Senior Indebtedness of the Issuers will be entitled to receive payment and satisfaction in full in cash of all amounts due on or in respect of all Senior Indebtedness of the Issuers before the holders of the Notes are entitled to receive or retain any payment or distribution of any kind on account of the Notes. In the event that, notwithstanding the foregoing, the Trustee or any holder of Notes receives any payment or distribution of assets of the Issuers of any kind, whether in cash, property or securities, including, without limitation, by way of set-off 77 or otherwise, in respect of the Notes before all Senior Indebtedness of the Issuers is paid and satisfied in full in cash, then such payment or distribution will be held by the recipient in trust for the benefit of holders of Senior Indebtedness and will be immediately paid over or delivered to the holders of Senior Indebtedness or their representative or representatives to the extent necessary to make payment in full of all Senior Indebtedness remaining unpaid, after giving effect to any concurrent payment or distribution, or provision therefor, to or for the holders of Senior Indebtedness. By reason of such subordination, in the event of liquidation or insolvency, creditors of the Issuers who are holders of Senior Indebtedness may recover more, ratably, than other creditors of the Issuers, and creditors of the Issuers who are not holders of Senior Indebtedness or of the Notes may recover more, ratably, than the holders of the Notes. No payment or distribution of any assets or securities of the Issuers or any Restricted Subsidiary of any kind or character (including, without limitation. cash, property and any payment or distribution which may be payable or deliverable by reason of the payment of any other Indebtedness of the Issuers being subordinated to the payment of the Notes by the Issuers) may be made by or on behalf of the Issuers or any Restricted Subsidiary, including, without limitation, by way of set-off or otherwise, for or on account of the Notes, or for or on account of the purchase, redemption or other acquisition of the Notes, and neither the Trustee nor any holder or owner of any Notes shall take or receive from the Issuers or any Restricted Subsidiary, directly or indirectly in any manner, payment in respect of all or any portion of Notes following the delivery by the representative of the holders of Designated Senior Indebtedness (the "Representative") to the Trustee of written notice of the occurrence of a Payment Default, and in any such event, such prohibition shall continue until such Payment Default is cured, waived in writing or ceases to exist. At such time as the prohibition set forth in the preceding sentence shall no longer be in effect, subject to the provisions of the following paragraph, the Issuers shall resume making any and all required payments in respect of the Notes, including any missed payments. Upon the occurrence of a Non-Payment Event of Default on Designated Senior Indebtedness, no payment or distribution of any assets of the Issuers of any kind may be made by the Issuers, including, without limitation, by way of set- off or otherwise, on account of the Notes, or for on account of the purchase, redemption, defeasance or other acquisition of Notes, and neither the Trustee nor any holder or owner of Notes shall take or receive from the Issuers or any Restricted Subsidiary, directly or indirectly in any manner, payment in respect of all or any portion of the Notes for a period (a "Payment Blockage Period") commencing on the date of receipt by the Trustee of written notice from the Representative of such Non-Payment Event of Default unless and until (subject to any blockage of payments that may then be in effect under the preceding paragraph) the earliest of (x) more than 179 days shall have elapsed since receipt of such written notice by the Trustee, (y) such NonPayment Event of Default shall have been cured or waived in writing or shall have ceased to exist or such Designated Senior Indebtedness shall have been paid in full or (z) such Payment Blockage Period shall have been terminated by written notice to the Issuers or the Trustee from such Representative, after which, in the case of clause (x), (y) or (z), the Issuers shall resume making any and all required payments in respect of the Notes, including any missed payments. Notwithstanding any other provision of the Indenture, in no event shall a Payment Blockage Period commenced in accordance with the provisions of the Indenture described in this paragraph extend beyond 179 days from the date of the receipt by the Trustee of the notice referred to above (the "Initial Blockage Period"). Any number of additional Payment Blockage Periods may be commenced during the Initial Blockage Period; provided, however, that no such additional Payment Blockage Period shall extend beyond the Initial Blockage Period. After the expiration of the Initial Blockage Period, no Payment Blockage Period may be commenced until at least 180 consecutive days have elapsed from the last day of the Initial Blockage Period. Notwithstanding any other provision of the Indenture, no event of default with respect to Designated Senior Indebtedness (other than a Payment Default) which existed or was continuing on the date of the commencement of any Payment Blockage Period initiated by the Representative shall be, or be made, the basis for the commencement of a second Payment Blockage Period initiated by the Representative, whether or not within the Initial Blockage Period, unless such event of default shall have been cured or waived for a period of not less than 90 consecutive days. Each Guarantee will, to the extent set forth in the Indenture, be subordinated in fight of payment to the prior payment in full of all Senior Indebtedness of the respective Guarantor, including obligations of such 78 Guarantor with respect to the Senior Credit Facility (including any guarantee thereof), and will be subject to the fights of holders of Designated Senior Indebtedness of such Guarantor to initiate blockage periods, upon terms substantially comparable to the subordination of the Notes to all Senior Indebtedness of the Issuers. If the Issuers or any Guarantor fails to make any payment on the Notes or any Guarantee, as the case may be, when due or within any applicable grace period, whether or not on account of payment blockage provisions. such failure would constitute an Event of Default under the Indenture and would enable the holders of the Notes to accelerate the maturity thereof. See "--Events of Default." A holder of Notes by his acceptance of Notes agrees to be bound by such provisions and authorizes and expressly directs the Trustee, on his behalf. to take such action as may be necessary or appropriate to effectuate the subordination provided for in the Indenture and appoints the Trustee his attorney-in-fact for such purpose. CERTAIN COVENANTS The Indenture will contain, among other things, the following covenants. Except as otherwise specified, all of the covenants described below will appear in the Indenture. Limitation on Additional Indebtedness The Issuers will not, and will not permit any Restricted Subsidiary of the Issuers to, directly or indirectly, incur (as defined) any Indebtedness (including Acquired Indebtedness) unless (a) after giving effect to the incurrence of such Indebtedness and the receipt and application of the proceeds thereof, the ratio of the total Indebtedness of the Issuers and their Restricted Subsidiaries (excluding any Indebtedness owed to a Restricted Subsidiary by any other Restricted Subsidiary or the Issuers and any Indebtedness owed to the Issuers by any Restricted Subsidiary) to the Issuers' EBITDA (determined on a pro forma basis for the last four fiscal quarters of the Issuers for which financial statements are available at the date of determination) is less than 6.0 to 1; provided, however, that if the Indebtedness which is the subject of a determination under this provision is Acquired Indebtedness, or Indebtedness incurred in connection with the simultaneous acquisition of any Person, business, property or assets, then such ratio shall be determined by giving effect to (on a pro forma basis, as if the transaction had occurred at the beginning of the four-quarter period) both the incurrence or assumption of such Acquired Indebtedness or such other Indebtedness by the Issuers and the inclusion in the Issuers' EBITDA of the EBITDA of the acquired Person, business, property or assets and any pro forma expense and cost reductions calculated on a basis consistent with Regulation S-X under the Securities Act as in effect and as applied as of the date hereof, and (b) no Default or Event of Default shall have occurred and be continuing at the time or as a consequence of the incurrence of such Indebtedness. Neither BrightView nor Holdings will, directly or indirectly, incur or remain or become directly or indirectly liable with respect to any Indebtedness except that BrightView and Holdings (a) may guarantee (i) the Notes hereunder, (ii) the indebtedness of the Company under the Senior Credit Facility and the other Credit Documents (as defined in the Senior Credit Facility) and (iii) any Indebtedness of the Company or any Restricted Subsidiary permitted to be incurred under the immediately preceding paragraph and (b) may incur Indebtedness in an aggregate principal amount not exceeding $5,000,000 outstanding at any time issued to repurchase their Capital Stock from former management employees in connection with their termination or departure (provided that such Indebtedness is subordinated in right and time of payment to (i) and (ii) of (a) above). Notwithstanding the foregoing, the Issuers and their Restricted Subsidiaries may incur Permitted Indebtedness. Limitation on Restricted Payments The Issuers will not make, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, make, any Restricted Payment, unless: (a) no Default or Event of Default shall have occurred and be continuing at the time of or immediately after giving effect to such Restricted Payment; 79 (b) immediately after giving pro forma effect to such Restricted Payment, the Issuers could incur $1.00 of additional Indebtedness (other than Permitted Indebtedness) under the covenant set forth under "Limitation on Additional Indebtedness"; and (c) immediately after giving effect to such Restricted Payment, the aggregate of all Restricted Payments declared or made after the Issue Date does not exceed the sum of (1) 50% of the cumulative Consolidated Net Income of the Company subsequent to the Issue Date (or minus 100% of any cumulative deficit in Consolidated Net Income during such period) plus (2) 100% of the aggregate Net Proceeds and the fair market value of securities or other property received by the Company from the issue or sale, after the Issue Date, of Capital Stock (other than Disqualified Capital Stock or Capital Stock of the Company issued to any Subsidiary of the Company) of the Company or any Indebtedness or other securities of the Company convertible into or exercisable or exchangeable for Capital Stock (other than Disqualified Capital Stock) of the Company which has been so converted or exercised or exchanged, as the case may be, plus (3) without duplication of any amounts included in clause (1) and (2) above, 100% of the aggregate net proceeds of any equity contribution received by the Company from a holder of the Company's Capital Stock. For purposes of determining under this clause (c) the amount expended for Restricted Payments, cash distributed shall be valued at the face amount thereof and property other than cash shall be valued at its fair market value. The provisions of this covenant shall not prohibit (i) the payment of any distribution within 60 days after the date of declaration thereof, if at such date of declaration such payment would comply with the provisions of the Indenture, (ii) the retirement of any shares of Capital Stock of the Company or subordinated Indebtedness by conversion into, or by or in exchange for, shares of Capital Stock (other than Disqualified Capital Stock), or out of, the Net Proceeds of the substantially concurrent sale (other than to a Subsidiary of the Company) of other shares of Capital Stock of the Company (other than Disqualified Capital Stock), (iii) the redemption or retirement of Indebtedness of the Issuers subordinated to the Notes in exchange for, by conversion into, or out of the Net Proceeds of, a substantially concurrent sale or incurrence of Indebtedness (other than any Indebtedness owed to a Subsidiary) of the Issuers that is contractually subordinated in right of payment to the Notes to at least the same extent as the subordinated Indebtedness being redeemed or retired, (iv) the retirement of any shares of Disqualified Capital Stock by conversion into, or by exchange for, shares of Disqualified Capital Stock, or out of the Net Proceeds of the substantially concurrent sale (other than to a Subsidiary of the Company) of other shares of Disqualified Capital Stock, (v) if no Event of Default listed in clauses (i), (ii) or (vi) under "Events of Default" shall have occurred and be continuing, or would result from any such distribution, Permitted Tax Distributions or (vi) dividend payments or other distributions of cash by the Company in an amount not in excess of (y) $1,000,000 per fiscal year solely for the purpose of paying fees and expenses of BrightView and Holdings, including directors' fees, less (z) the amount of any management, advisory, consulting and similar fees, paid by the Company to Willis Stein and its Affiliates during such fiscal year. Not later than the date of making any Restricted Payment, the Issuers shall deliver to the Trustee an Officers' Certificate stating that such Restricted Payment is permitted and setting forth the basis upon which the calculations required by the covenant "Limitation on Restricted Payments" were computed, which calculations may be based upon the Issuer's latest available financial statements, and that no Default or Event of Default exists and is continuing and no Default or Event of Default will occur immediately after giving effect to any Restricted Payments. Limitation on Other Senior Subordinated Debt The Issuers will not, and will not permit any of their Restricted Subsidiaries to, directly or indirectly, incur, contingently or otherwise, any Indebtedness (other than the Notes and the Guarantees, as the case may be) that is both (i) subordinate in right of payment to any Senior Indebtedness of the Issuers or their Restricted Subsidiaries, as the case may be, and (ii) senior in right of payment to the Notes and the Guarantees, as the case may be. For purposes of this covenant, Indebtedness is deemed to be senior in right of payment to the Notes and the Guarantees, as the case may be, if it is not explicitly subordinate in right of payment to Senior Indebtedness 80 at least to the same extent as the Notes and the Guarantees, as the case may be, are subordinate to Senior Indebtedness. Limitations on Investments The Issuers will not, and will not permit any of their Restricted Subsidiaries to, make any Investment other than (i) a Permitted Investment or (ii) an Investment that is made as a Restricted Payment in compliance with the "Limitation on Restricted Payments" covenant, after the Issue Date. Limitations on Liens The Issuers will not, and will not permit any of their Restricted Subsidiaries to, create, incur or otherwise cause or suffer to exist or become effective any Liens of any kind (other than Permitted Liens) upon any property or assets of the Issuers or any Restricted Subsidiary or any shares of stock or debt of any Restricted Subsidiary which owns property or assets, now owned or hereafter acquired, unless (i) if such Lien secures Indebtedness which is pari passu with the Notes, then the Notes are secured on an equal and ratable basis with the obligations so secured until such time as such obligation is no longer secured by a Lien or (ii) if such Lien secures Indebtedness which is subordinated to the Notes, any such Lien shall be subordinated to the Lien granted to the Holders of the Notes to the same extent as such subordinated Indebtedness is subordinated to the Notes. Limitation on Transactions with Affiliates The Issuers will not, and will not permit any of their Restricted Subsidiaries to, directly or indirectly, enter into or suffer to exist any transaction or series of related transactions (including, without limitation, the sale, purchase, exchange or lease of assets, property or services) with any Affiliate (including entities in which the Issuers or any of its Restricted Subsidiaries own a minority interest) or holder of 10% or more of the Issuers' Common Stock (an "Affiliate Transaction"), other than transactions existing on the date hereof and described elsewhere in this Prospectus, or extend, renew, waive or otherwise modify the terms of any Affiliate Transaction entered into prior to the Issue Date if such extension, renewal, waiver or other modification is more disadvantageous to the Holders in any material respect than the original agreement as in effect on the Issue Date unless (i) such Affiliate Transaction is between or among the Issuers and their Wholly-Owned Subsidiaries or (ii) the terms of such Affiliate Transaction are fair and reasonable to the Issuers or such Restricted Subsidiary, as the case may be, and the terms of such Affiliate Transaction are at least as favorable as the terms which could be obtained by the Issuers or such Restricted Subsidiary, as the case may be, in a comparable transaction made on an arm's-length basis between unaffiliated parties. In any Affiliate Transaction involving an amount or having a value in excess of $1.0 million which is not permitted under clause (i) above, the Issuers must obtain a resolution of the Board of Directors certifying that such Affiliate Transaction complies with clause (ii) above. In transactions with a value in excess of $3.0 million which are not permitted under clause (i) above, the Issuers must obtain a written opinion as to the fairness of such a transaction from an independent investment banking firm. The foregoing provisions will not apply to (i) any Restricted Payment that is not prohibited by the provisions described under "Limitations on Restricted Payments" contained herein (ii) any transaction, approved by the Board of Directors of the Issuers, with an officer or director of the Issuers or of any Subsidiary in his or her capacity as officer or director entered into in the ordinary course of business (iii) transactions permitted by the Indenture under the provision "Merger, Consolidation or Sale of Assets" or (iv) transactions after the date of the Indenture that are expressly contemplated by the Securities Purchase Agreement and the Securityholders Agreement (including any registration rights described therein) and are not prohibited by any other provision of this Indenture or the Notes; provided, that the aggregate management, advisory, consulting and similar fees paid by the Company to Willis Stein and its Affiliates pursuant to the Securities Purchase Agreement or otherwise shall not exceed (y) $1,000,000 during any fiscal year less (z) the amount of any distributions made by the Company during such fiscal year pursuant to clause (vi) of the second paragraph under "-- Limitation on Restricted Payments," and provided further, that any such fees may accrue but shall not be paid by the Company at any time after the occurrence and during the continuance of a Default or Event of Default. 81 Limitation on Creation of Subsidiaries The Issuers shall not create or acquire, nor permit any of their Restricted Subsidiaries to create or acquire, any Subsidiary other than (i) a Restricted Subsidiary that is acquired or created in connection with the acquisition by the Company of a media related business or asset or (ii) an Unrestricted Subsidiary; provided, however, that each Restricted Subsidiary acquired or created pursuant to clause (i) shall at the time it has either assets or stockholders' equity in excess of $5,000 have evidenced its guarantee with such documentation satisfactory in form and substance to the Trustee relating thereto as the Trustee shall require, including, without limitation, a supplement or amendment to the Indenture and opinions of counsel as to the enforceability of such guarantee, pursuant to which such Restricted Subsidiary shall become a Guarantor. As of the Issue Date, the Company will have no Subsidiaries, other than Capital, and Capital will have no Subsidiaries. See "--General." Limitation on Certain Asset Sales The Issuers will not, and will not permit any of their Restricted Subsidiaries to, consummate an Asset Sale unless (i) the Issuers or such Restricted Subsidiary, as the case may be, receives consideration at the time of such sale or other disposition at least equal to the fair market value thereof (as determined in good faith by the Company's Board of Directors, and evidenced by a board resolution); (ii) not less than 85% of the consideration received by the Company or its Subsidiaries, as the case may be, is in the form of cash or Temporary Cash Investments and (iii) the Asset Sale Proceeds received by the Company or such Restricted Subsidiary are applied (a) first, to the extent the Company elects, or is required, to prepay, repay or purchase debt under any then existing Senior Indebtedness of the Company or any Restricted Subsidiary within 180 days following the receipt of the Asset Sale Proceeds from any Asset Sale, provided that any such repayment shall result in a permanent reduction of the commitments thereunder in an amount equal to the principal amount so repaid; (b) second, to the extent of the balance of Asset Sale Proceeds after application as described above, to the extent the Company elects, to an investment in assets (including Capital Stock or other securities purchased in connection with the acquisition of Capital Stock or property of another person) used or useful in businesses similar or ancillary to the business of the Company or such Restricted Subsidiary as conducted at the time of such Asset Sale, provided that such investment occurs or the Company or a Restricted Subsidiary enters into contractual commitments to make such investment, subject only to customary conditions (other than the obtaining of financing), on or prior to the 181st day following receipt of such Asset Sale Proceeds (the "Reinvestment Date") and Asset Sale Proceeds contractually committed are so applied within 270 days following the receipt of such Asset Sale Proceeds: and (c) third, if on the Reinvestment Date with respect to any Asset Sale, the Available Asset Sale Proceeds exceed $5.0 million, the Issuers shall apply an amount equal to such Available Asset Sale Proceeds to an offer to repurchase the Notes, at a purchase price in cash equal to 100% of the principal amount thereof plus accrued and unpaid interest, if any, to the date of repurchase (an "Excess Proceeds Offer"). If an Excess Proceeds Offer is not fully subscribed, the Company may retain the portion of the Available Asset Sale Proceeds not required to repurchase Notes. If the Issuers are required to make an Excess Proceeds Offer, the Issuers shall mail, within 30 days following the Reinvestment Date, a notice to the Holders stating, among other things: (1) that such Holders have the right to require the Issuers to apply the Available Asset Sale Proceeds to repurchase such Notes at a purchase price in cash equal to 100% of the principal amount thereof plus accrued and unpaid interest, if any, to the date of purchase; (2) the purchase date, which shall be no earlier than 30 days and not later than 60 days from the date such notice is mailed; (3) the instructions, determined by the Issuers, that each Holder must follow in order to have such Notes repurchased and (4) the calculations used in determining the amount of Available Asset Sale Proceeds to be applied to the repurchase of such Notes. Limitation on Preferred Stock of Subsidiaries The Issuers will not permit any Restricted Subsidiary to issue any Preferred Stock (except Preferred Stock to the Company or a Restricted Subsidiary) or permit any Person (other than the Company or a Subsidiary) to hold any such Preferred Stock unless the Company or such Restricted Subsidiary would be entitled to incur or 82 assume Indebtedness under the first paragraph of the covenant described under "Limitation on Additional Indebtedness" in the aggregate principal amount equal to the aggregate liquidation value of the Preferred Stock to be issued. Limitation on Capital Stock of Subsidiaries The Issuers will not (i) sell, pledge, hypothecate or otherwise convey or dispose of any Capital Stock of a Subsidiary (other than under the Senior Credit Facility or a successor facility or under the terms of any Designated Senior Indebtedness) or (ii) permit any of their Subsidiaries to issue any Capital Stock, other than to the Issuers or a wholly-owned Subsidiary of the Issuers. The foregoing restrictions shall not apply to an Asset Sale made in compliance with "Limitation on Certain Asset Sales" or the issuance of Preferred Stock in compliance with the covenant described under "Limitation on Preferred Stock of Subsidiaries." In no event will the Company sell, pledge, hypothecate or otherwise convey or dispose of any Capital Stock of Capital or will Capital issue any of its Capital Stock. Limitation on Sale and Lease-Back Transactions The Issuers will not, and will not permit any Restricted Subsidiary to, enter into any Sale and Lease-Back Transaction unless (i) the consideration received in such Sale and Lease-Back Transaction is at least equal to the fair market value of the property sold, as determined by a board resolution of the Company and (ii) the Issuers could incur the Attributable Indebtedness in respect of such Sale and Lease-Back Transaction in compliance with the covenant described under "Limitation on Additional Indebtedness." Payments for Consent Neither the Issuers nor any of their Subsidiaries shall, directly or indirectly, pay or cause to be paid any consideration, whether by way of interest, fee or otherwise, to any holder of any Notes for or as an inducement to any consent, waiver or amendment of any of the terms or provisions of the Indenture or the Notes unless such consideration is offered to be paid or agreed to be paid to all holders of the Notes which so consent, waive or agree to amend in the time frame set forth in solicitation documents relating to such consent. waiver or agreement. CHANGE OF CONTROL OFFER Within 20 days of the occurrence of a Change of Control, the Company shall notify the Trustee in writing of such occurrence and shall make an offer to purchase (the "Change of Control Offer") the outstanding Notes at a purchase price equal to 101% of the principal amount thereof plus any accrued and unpaid interest to the Change of Control Payment Date (as hereinafter defined) (such applicable purchase price being hereinafter referred to as the "Change of Control Purchase Price") in accordance with the procedures set forth in this covenant. Within 20 days of the occurrence of a Change of Control, the Company also shall (i) cause a notice of the Change of Control Offer to be sent at least once to the Dow Jones News Service or similar business news service in the United States and (ii) send by first-class mail, postage prepaid, to the Trustee and to each holder of the Notes, at the address appearing in the register maintained by the Registrar of the Notes, a notice stating: (i) that the Change of Control Offer is being made pursuant to this covenant and that all Notes tendered will be accepted for payment, and otherwise subject to the terms and conditions set forth herein; (ii) the Change of Control Purchase Price and the purchase date (which shall be a Business Day no earlier than 20 business days from the date such notice is mailed (the "Change of Control Payment Date")); (iii) that any Note not tendered will continue to accrue interest; (iv) that, unless the Issuers default in the payment of the Change of Control Purchase Price, any Notes accepted for payment pursuant to the Change of Control Offer shall cease to accrue interest after the Change of Control Payment Date; 83 (v) that holders accepting the offer to have their Notes purchased pursuant to a Change of Control Offer will be required to surrender the Notes to the Paying Agent at the address specified in the notice prior to the close of business on the Business Day preceding the Change of Control Payment Date. (vi) that holders will be entitled to withdraw their acceptance if the Paying Agent receives, not later than the close of business on the third Business Day preceding the Change of Control Payment Date, a telegram, telex, facsimile transmission or letter setting forth the name of the holder, the principal amount of the Notes delivered for purchase, and a statement that such holder is withdrawing his election to have such Notes purchased; (vii) that holders whose Notes are being purchased only in part will be issued new Notes equal in principal amount to the unpurchased portion of the Notes surrendered, provided that each Note purchased and each such new Note issued shall be in an original principal amount in denominations of $1,000 and integral multiples thereof; (viii) any other procedures that a holder must follow to accept a Change of Control Offer or effect withdrawal of such acceptance; and (ix) the name and address of the Paying Agent. On the Change of Control Payment Date, the Issuers shall, to the extent lawful, (i) accept for payment Notes or portions thereof tendered pursuant to the Change of Control Offer; (ii) deposit with the Paying Agent money sufficient to pay the purchase price of all Notes or portions thereof so tendered and (iii) deliver or cause to be delivered to the Trustee Notes so accepted together with an Officers' Certificate stating the Notes or portions thereof tendered to the Issuers. The Paying Agent shall promptly mail to each holder of Notes so accepted payment in an amount equal to the purchase price for such Notes, and the Issuers shall execute and issue, and the Trustee shall promptly authenticate and mail to such holder, a new Note equal in principal amount to any unpurchased portion of the Notes surrendered; provided that each such new Note shall be issued in an original principal amount in denominations of $1,000 and integral multiples thereof. The Indenture requires that if the Senior Credit Facility is in effect, or any amounts are owing thereunder or in respect thereof, at the time of the occurrence of a Change of Control, prior to the mailing of the notice to holders described in the preceding paragraph, but in any event within 20 days following any Change of Control, the Issuers on a joint and several basis covenant to (i) repay in full all obligations under or in respect of the Senior Credit Facility or offer to repay in full all obligations under or in respect of the Senior Credit Facility and repay the obligations under or in respect of the Senior Credit Facility of each lender who has accepted such offer or (ii) obtain the requisite consent under the Senior Credit Facility to permit the repurchase of the Notes as described above. The Issuers must first comply with the covenant described in the preceding sentence before they shall be required to purchase Notes in the event of a Change of Control; provided that the Issuers' failure to comply with the covenant described in the preceding sentence constitutes an Event of Default described in clause (iii) under "Events of Default" below if not cured within 60 days after the notice required by such clause. As a result of the foregoing, a holder of the Notes may not be able to compel the Issuers to purchase the Notes unless the Issuers are able at the time to refinance all of the obligations under or in respect of the Senior Credit Facility or obtain requisite consents under the Senior Credit Facility. Failure by the Issuers to make a Change of Control Offer when required by the Indenture constitutes a default under the Indenture and, if not cured within 60 days after notice, constitutes an Event of Default. The Indenture provides that, (A) if either Issuer or any Subsidiary thereof has issued any outstanding (i) Indebtedness that is subordinated in right of payment to the Notes or (ii) Preferred Stock, and such Issuer or Subsidiary is required to make a change of control offer or to make a distribution with respect to such subordinated Indebtedness or Preferred Stock in the event of a change of control, the Issuers shall not consummate any such offer or distribution with respect to such subordinated Indebtedness or Preferred Stock until such time as the Issuers shall have paid the Change of Control Purchase Price in full to the holders of Notes that have accepted the Issuers' Change of Control Offer and shall otherwise have consummated the Change of Control Offer made to holders of the Notes and (B) the Issuers will not issue Indebtedness that is subordinated 84 in right of payment to the Notes or Preferred Stock with change of control provisions requiring the payment of such Indebtedness or Preferred Stock prior to the payment of the Notes in the event of a Change in Control under the Indenture. In the event that a Change of Control occurs and the holders of Notes exercise their right to require the Issuers to purchase Notes, if such purchase constitutes a "tender offer" for purposes of Rule 14e-1 under the Exchange Act at that time, the Issuers will comply with the requirements of Rule 14e-1 as then in effect with respect to such repurchase. MERGER, CONSOLIDATION OR SALE OF ASSETS Neither of the Issuers nor any Guarantor will, consolidate with, merge with or into. or transfer all or substantially all of its assets (as an entirety or substantially as an entirety in one transaction or a series of related transactions), to any Person unless (in the case of the Company or any Guarantor): (i) the Company or such Guarantor, as the case may be, shall be the continuing Person, or the Person (if other than the Company or such Guarantors) formed by such consolidation or into which the Company or such Guarantors, as the case may be, is merged or to which the properties and assets of the Company or such Guarantor, as the case may be, are transferred shall be a corporation (or, in the case of the Company or Holdings, a corporation or a limited liability company) organized and existing under the laws of the United States or any State thereof or the District of Columbia and shall expressly assume, by a supplemental indenture, executed and delivered to the Trustee, in form satisfactory to the Trustee, all of the obligations of the Company or such Guarantor, as the case may be, under the Notes and the Indenture, and the obligations under the Indenture shall remain in full force and effect; provided, that at any time the Company or its successor is a limited liability company, there shall be a co-issuer of the Notes that is a corporation; (ii) immediately before and immediately after giving effect to such transaction, no Default or Event of Default shall have occurred and be continuing; (iii) immediately after giving effect to such transaction or series of transactions on a pro forma basis the Consolidated Net Worth of the Company or the surviving entity as the case may be is at least equal to the Consolidated Net Worth of the Company immediately before such transaction or series of transactions and (iv) immediately after giving effect to such transaction on a pro forma basis the Company or such Person could incur at least $1.00 of additional Indebtedness (other than Permitted Indebtedness) under the covenant set forth under "Limitation on Additional Indebtedness," provided that Holdings may merge into the Company, the Company may merge into Holdings and Holdings or the Company may merge into BrightView without complying with this clause (iv). In connection with any consolidation, merger or transfer of assets contemplated by this provision, the Issuers shall deliver, or cause to be delivered, to the Trustee, in form and substance reasonably satisfactory to the Trustee, an Officers' Certificate and an opinion of counsel, each stating that such consolidation, merger or transfer and the supplemental indenture in respect thereto comply with this provision and that all conditions precedent herein provided for relating to such transaction or transactions have been complied with. GUARANTEES The Notes are guaranteed on a senior subordinated basis by the Guarantors. All payments pursuant to the Guarantees by the Guarantors are subordinated in right of payment to the prior payment in full of all Senior Indebtedness of the Guarantor, to the same extent and in the same manner that all payments pursuant to the Notes are subordinated in right of payment to the prior payment in full of all Senior Indebtedness of the Issuers. The obligations of each Guarantor are limited to the maximum amount as will, after giving effect to all other contingent and fixed liabilities of such Guarantor (including, without limitation, any guarantees of Senior Indebtedness) and after giving effect to any collections from or payments made by or on behalf of any other Guarantor in respect of the obligations of such other Guarantor under its Guarantee or pursuant to its contribution obligations under the Indenture, result in the obligations of such Guarantor under the Guarantee not constituting a fraudulent conveyance or fraudulent transfer under federal or state law. Each Guarantor that makes a payment 85 or distribution under a Guarantee shall be entitled to a contribution from each other Guarantor in a pro rata amount based on the Adjusted Net Assets of each Subsidiary Guarantor. A Guarantor shall be released from all of its obligations under its Guarantee if all or substantially all of its assets are sold or all of its Capital Stock is sold, in each case in a transaction in compliance with the covenant described under "Limitation on Certain Asset Sales," or the Guarantor merges with or into or consolidates with, or transfers all or substantially all of its assets to, the Company or another Guarantor in a transaction in compliance with "Merger, Consolidation or Sale of Assets," and such Guarantor has delivered to the Trustee an Officers' Certificate and an opinion of counsel, each stating that all conditions precedent herein provided for relating to such transaction have been complied with. EVENTS OF DEFAULT The following events are defined in the Indenture as "Events of Default": (i) default in payment of any principal of, or premium, if any, on the Notes; (ii) default for 30 days in payment of any interest on the Notes; (iii) default by either of the Issuers or any Guarantor in the observance or performance of any other covenant in the Notes or the Indenture for 60 days after written notice from the Trustee or the holders of not less than 25% in aggregate principal amount of the Notes then outstanding; (iv) failure to pay when due principal, interest or premium in an aggregate amount of $1,000,000 or more with respect to any Indebtedness of the Issuers or any Restricted Subsidiary thereof, or the acceleration of any such Indebtedness aggregating $1,000,000 or more which default shall not be cured, waived or postponed pursuant to an agreement with the holders of such Indebtedness within 60 days after written notice as provided in the Indenture, or such acceleration shall not be rescinded or annulled within 20 days after written notice as provided in the Indenture; (v) any final judgment or judgments which can no longer be appealed for the payment of money in excess of $1,000,000 shall be rendered against either of the Issuers or any Restricted Subsidiary thereof, and shall not be discharged for any period of 60 consecutive days during which a stay of enforcement shall not be in effect; and (vi) certain events involving bankruptcy, insolvency or reorganization of either of the Issuers or any Restricted Subsidiary thereof. The Indenture provides that the Trustee may withhold notice to the holders of the Notes of any default (except in payment of principal or premium, if any, or interest on the Notes) if the Trustee considers it to be in the best interest of the holders of the Notes to do so. The Indenture will provide that if an Event of Default (other than an Event of Default resulting from certain events of bankruptcy, insolvency or reorganization) shall have occurred and be continuing, then the Trustee or the holders of not less than 25% in aggregate principal amount of the Notes then outstanding may declare to be immediately due and payable the entire principal amount of all the Notes then outstanding plus accrued interest to the date of acceleration and such amounts shall become immediately due and payable or if there are any amounts outstanding under or in respect of the Senior Credit Facility, such amounts shall become due and payable upon the first to occur of an acceleration of amounts outstanding under or in respect of the Senior Credit Facility or five business days after receipt by the Company and the representative of the holders of Senior Indebtedness under or in respect of the Senior Credit Facility, of notice of the acceleration of the Notes; provided, however, that after such acceleration but before a judgment or decree based on acceleration is obtained by the Trustee, the holders of a majority in aggregate principal amount of outstanding Notes may, under certain circumstances, rescind and annul such acceleration if all Events of Default, other than nonpayment of accelerated principal, premium or interest, have been cured or waived as provided in the Indenture. In case an Event of Default resulting from certain events of bankruptcy, insolvency or reorganization shall occur, the principal, 86 premium and interest amount with respect to all of the Notes shall be due and payable immediately without any declaration or other act on the part of the Trustee or the holders of the Notes. The holders of a majority in principal amount of the Notes then outstanding shall have the right to waive any existing default or compliance with any provision of the Indenture or the Notes and to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee, subject to certain limitations specified in the Indenture. No holder of any Note will have any right to institute any proceeding with respect to the Indenture or for any remedy thereunder, unless such holder shall have previously given to the Trustee written notice of a continuing Event of Default and unless also the holders of at least 25% in aggregate principal amount of the outstanding Notes shall have made written request and offered reasonable indemnity to the Trustee to institute such proceeding as a trustee, and unless the Trustee shall not have received from the holders of a majority in aggregate principal amount of the outstanding Notes a direction inconsistent with such request and shall have failed to institute such proceeding within 60 days. However, such limitations do not apply to a suit instituted on such Note on or after the respective due dates expressed in such Note. DEFEASANCE AND COVENANT DEFEASANCE The Indenture provides that the Issuers may elect either (a) to defease and be discharged from any and all obligations with respect to the Notes (except for the obligations to register the transfer or exchange of such Notes, to replace temporary or mutilated, destroyed, lost or stolen Notes, to maintain an office or agency in respect of the Notes and to hold monies for payment in trust) ("defeasance") or (b) to be released from their obligations with respect to the Notes under certain covenants contained in the Indenture and described above under "Certain Covenants" ("covenant defeasance"), upon the deposit with the Trustee (or other qualifying trustee), in trust for such purpose, of money and/or U.S. Government Obligations which through the payment of principal and interest in accordance with their terms will provide money, in an amount sufficient to pay the principal of, premium, if any, and interest on the Notes, on the scheduled due dates therefor or on a selected date of redemption in accordance with the terms of the Indenture. Such a trust may only be established if, among other things, the Issuers have delivered to the Trustee an Opinion of Counsel (as specified in the Indenture) (i) to the effect that neither the trust nor the Trustee will be required to register as an investment company under the Investment Company Act of 1940, as amended, and (ii) describing either a private ruling concerning the Notes or a published ruling of the Internal Revenue Service, to the effect that holders of the Notes or persons in their positions will not recognize income, gain or loss for federal income tax purposes as a result of such deposit, defeasance and discharge and will be subject to federal income tax on the same amount and in the same manner and at the same times, as would have been the case if such deposit, defeasance and discharge had not occurred. MODIFICATION OF INDENTURE From time to time, the Issuers, the Guarantors and the Trustee may, without the consent of holders of the Notes, amend the Indenture or the Notes or supplement the Indenture for certain specified purposes, including providing for uncertificated Notes in addition to certificated Notes, and curing any ambiguity, defect or inconsistency, or making any other change that does not adversely affect the rights of any holder. The Indenture contains provisions permitting the Issuers, the Guarantors and the Trustee, with the consent of holders of at least a majority in principal amount of the outstanding Notes, to modify or supplement the Indenture or the Notes, except that no such modification shall, without the consent of each holder affected thereby, (i) reduce the amount of Notes whose holders must consent to an amendment, supplement, or waiver to the Indenture or the Notes; (ii) reduce the rate of or change the time for payment of interest on any Note; (iii) reduce the principal of or premium on or change the stated maturity of any Note; (iv) make any Note payable in money other than that stated in the Note or change the place of payment from New York, New York; (v) change the amount or time of any payment required by the Notes or reduce the premium payable upon any redemption of Notes, or change the time before which no such redemption may be made; (vi) waive a default in the payment of the principal of, interest on, or redemption payment with respect to any Note; (vii) take any other action otherwise prohibited by 87 the Indenture to be taken without the consent of each holder affected thereby or (viii) affect the ranking of the Notes or the Guarantee in a manner adverse to the Holders. REPORTS TO HOLDERS So long as the Issuers are subject to the periodic reporting requirements of the Exchange Act, they will continue to furnish the information required thereby to the Commission and to the holders of the Notes. The Indenture provides that even if the Company is entitled under the Exchange Act not to furnish such information to the Commission or to the holders of the Notes, it will nonetheless continue to furnish such information to the Commission and holders of the Notes. COMPLIANCE CERTIFICATE The Issuers will deliver to the Trustee on or before 100 days after the end of the Issuers' fiscal year and on or before 50 days after the end of each the first, second and third fiscal quarters in each year an Officers' Certificate stating whether or not the signers know of any Default or Event of Default that has occurred. If they do, the certificate will describe the Default or Event of Default and its status. THE TRUSTEE The Trustee under the Indenture will be the Registrar and Paying Agent with regard to the Notes. The Indenture provides that, except during the continuance of an Event of Default, the Trustee will perform only such duties as are specifically set forth in the Indenture. During the existence of an Event of Default, the Trustee will exercise such rights and powers vested in it under the Indenture and use the same degree of care and skill in its exercise as a prudent person would exercise under the circumstances in the conduct of such person's own affairs. TRANSFER AND EXCHANGE Holders of the Notes may transfer or exchange the Notes in accordance with the Indenture. The Registrar under such Indenture may require a holder, among other things, to furnish appropriate endorsements and transfer documents, and to pay any taxes and fees required by law or permitted by the Indentures. The Registrar is not required to transfer or exchange any Note selected for redemption. Also, the Registrar is not required to transfer or exchange any Note for a period of 15 days before selection of the Notes to be redeemed. The registered holder of a Note may be treated as the owner of it for all purposes. CERTAIN DEFINITIONS Set forth below is a summary of certain of the defined terms used in the covenants contained in the Indenture. Reference is made to the Indenture for the full definition of all such terms as well as any other capitalized terms used herein for which no definition is provided. "Acquired Indebtedness" means Indebtedness of a Person (including an Unrestricted Subsidiary) existing at the time such Person becomes a Restricted Subsidiary or assumed in connection with the acquisition of assets from such Person. "Adjusted Net Assets" of a Guarantor at any date shall mean the lesser of the amount by which (x) the fair value of the property of such Guarantor exceeds the total amount of liabilities, including, without limitation, contingent liabilities (after giving effect to all other fixed and contingent liabilities), but excluding liabilities under the Guarantee, of such Guarantor at such date and (y) the present fair salable value of the assets of such Guarantor at such date exceeds the amount that will be required to pay the probable liability of such Guarantor on its debts (after giving effect to all other fixed and contingent liabilities and after giving effect to any collection from any Subsidiary of such Guarantor in respect of the obligations of such Subsidiary under the Guarantee), excluding Indebtedness in respect of the Guarantee, as they become absolute and matured. 88 "Affiliate" of any specified Person means any other Person which directly or indirectly through one or more intermediaries controls, or is controlled by, or is under common control with, such specified Person. For the purposes of this definition, "control" (including, with correlative meanings, the terms "controlling," "controlled by," and "under common control with"), as used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise. "Asset Sale" means the sale, transfer or other disposition (other than to the Company or any of its Restricted Subsidiaries) in any single transaction or series of related transactions of (a) any Capital Stock of or other equity interest in any Restricted Subsidiary of the Issuers, (b) all or substantially all of the assets of the Issuers or of any Restricted, Subsidiary thereof, (c) real property or (d) all or substantially all of the assets of any magazine or publishing property, or part thereof, owned by the Issuers or any Restricted Subsidiary thereof, or a division, line of business or comparable business segment of the Issuers or any Restricted Subsidiary thereof; provided that Asset Sales shall not include (i) sales, leases, conveyances, transfers or other dispositions to the Company or to a Restricted Subsidiary or to any other Person if after giving effect to such sale, lease, conveyance, transfer or other disposition such other Person becomes a Restricted Subsidiary or (ii) the sale or other disposition of any or all right, title and interest of the Company and its Subsidiaries in and to the assets and properties (other than cash) directly associated with the Scheduled Titles, and the sale or other disposition of any Investments made by the contribution of any of the Scheduled Titles to a joint venture, partnership or other Person (which may be a Subsidiary) as permitted by clause (xii) of the definition of Permitted Investments. "Asset Sale Proceeds" means, with respect to any Asset Sale, (i) cash received by the Issuers or any Restricted Subsidiary from such Asset Sale (including cash received as consideration for the assumption of liabilities incurred in connection with or in anticipation of such Asset Sale), after (a) provision for all income or other taxes measured by or resulting from such Asset Sale, (b) payment of all brokerage commissions, underwriting and other fees and expenses related to such Asset Sale, (c) provision for minority interest holders in any Restricted Subsidiary as a result of such Asset Sale and (d) deduction of appropriate amounts to be provided by the Issuers or a Restricted Subsidiary as a reserve, in accordance with GAAP, against any liabilities associated with the assets sold or disposed of in such Asset Sale and retained by the Issuers or a Restricted Subsidiary after such Asset Sale, including, without limitation, pension and other post employment benefit liabilities and liabilities related to environmental matters or against any indemnification obligations associated with the assets sold or disposed of in such Asset Sale, and (ii) promissory notes and other non-cash consideration received by the Issuers or any Restricted Subsidiary from such Asset Sale or other disposition upon the liquidation or conversion of such notes or non-cash consideration into cash. "Attributable Indebtedness" in respect of a Sale and Lease-Back Transaction means, as at the time of determination, the greater of (i) the fair value of the property subject to such arrangement (as determined by the Board of Directors) and (ii) the present value of the notes (discounted at a rate of 10%, compounded annually) of the total obligations of the lessee for rental payments during the remaining term of the lease included in such Sale and Lease-Back Transaction (including any period for which such lease has been extended). "Available Asset Sale Proceeds" means, with respect to any Asset Sale, the aggregate Asset Sale Proceeds from such Asset Sale that have not been applied in accordance with clauses (iii)(a) or (iii)(b), and which has not yet been the basis for an Excess Proceeds Offer in accordance with clause (iii)(c), of the first paragraph of "Certain Covenants--Limitation on Certain Asset Sales". "Capital Stock" means, with respect to any Person, any and all shares or other equivalents (however designated) of capital stock, partnership interests or any other participation, right or other interest in the nature of an equity interest in such Person or any option, warrant or other security convertible into any of the foregoing. "Capitalized Lease Obligations" means Indebtedness represented by obligations under a lease that is required to be capitalized for financial reporting purposes in accordance with GAAP, and the amount of such Debt shall be the capitalized amount of such obligations determined in accordance with GAAP. 89 A "Change of Control" means the occurrence of one or more of the following events: (i) Holdings and BrightView collectively shall cease to own all of the outstanding Capital Stock of the Company; (ii) prior to a Qualified IPO, (x) Holdings shall cease to be the managing member of the Company or shall otherwise cease to have the sole right and authority to exercise control over the management of the Company, (y) BrightView shall cease to be the managing member of Holdings or shall otherwise cease to have the sole right and authority to exercise control over the management of Holdings; or (z) Willis Stein shall cease to have the power (regardless of whether such power is exercised) to elect a majority of the Board of Directors of BrightView and (iii) in connection with or subsequent to a Qualified IPO, any Person or group of Persons acting in concert as a partnership or other group (other than the Permitted Holders) shall, as a result of a tender or exchange offer, open market purchases, privately negotiated purchases or otherwise, have become, after the date hereof, the "beneficial owner" (within the meaning of such term under Rule 13d-3 under the Exchange Act) of securities of Holdings or BrightView or such successor entity representing 20% or more of the combined voting power of the then outstanding securities of Holdings or BrightView or such successor entity, as the case may be, ordinarily (and apart from rights accruing under special circumstances) having the right to vote in the election of directors, managers or other members of its governing body. "Commodity Hedge Agreement" shall mean any option, hedge or other similar agreement or arrangement designed to protect against fluctuations in commodity or materials prices. "Common Stock" of any Person means all Capital Stock of such Person that s generally entitled to (i) vote in the election of directors of such Person or (ii) if such Person is not a corporation, vote or otherwise participate in the selection of the governing body, partners, managers or others that will control the management and policies of such Person. "Consolidated Interest Expense" means, with respect to any Person, for any period, the aggregate amount of interest which, in conformity with GAAP, would be set forth opposite the caption "interest expense" or any like caption on an income statement for such Person and its Subsidiaries on a consolidated basis (including, but not limited to, Redeemable Dividends, whether paid or accrued, on Preferred Stock of Subsidiaries of such Person, imputed interest included in Capitalized Lease Obligations, all commissions, discounts and other fees and charges owed with respect to letters of credit and bankers' acceptance financing, the net costs associated with hedging obligations, amortization of other financing fees and expenses, the interest portion of any deferred payment obligation, amortization of discount or premium, if any, and all other non-cash interest expense (other than interest amortized to cost of sales)) plus, without duplication, all net capitalized interest for such period and all interest incurred or paid under any guarantee of Indebtedness (including a guarantee of principal, interest or any combination thereof) of any Person, plus the amount of all dividends or distributions paid on Disqualified Stock (other than dividends paid or payable in shares of Capital Stock of the Company). "Consolidated Net Income" means, with respect to any Person, for any period, the aggregate of the Net Income of such Person and its Subsidiaries for such period, on a consolidated basis, determined in accordance with GAAP minus Permitted Tax Distributions (to the extent such Permitted Tax Distributions are made)" provided, however, that (a) the Net Income of any Person (the "other Person") in which the Person in question or any of its Subsidiaries has less than a 100% interest (which interest does not cause the net income of such other Person to be consolidated into the net income of the Person in question in accordance with GAAP) shall be included only to the extent of the amount of dividends or distributions paid to the Person in question or the Subsidiary, (b) the Net Income of any Subsidiary of the Person in question that is subject to any restriction or limitation on the payment of dividends or the making of other distributions (other than pursuant to the Notes or the Indenture) shall be excluded to the extent of such restriction or limitation, (c)(i) the Net Income of any Person acquired in a pooling of interests transaction for any period prior to the date of such acquisition and (ii) any net gain (but not loss) resulting from an Asset Sale by the Person in question or any of its Subsidiaries other than in the ordinary course of business shall be excluded and (d) extraordinary gains and losses (including any related tax effects on the Issuers) shall be excluded. 90 "Consolidated Net Worth" means, with respect to any Person at any date, the consolidated stockholder's equity of such Person less the amount of such stockholder's equity attributable to Disqualified Capital Stock of such Person and its Subsidiaries, as determined in accordance with GAAP. "Designated Senior Indebtedness" as to the Company or any Guarantor, as the case may be, means any Senior Indebtedness (a) under the Senior Credit Facility, or (b) which at the time of determination exceeds $25 million in aggregate principal amount (or accreted value in the case of Indebtedness issued at a discount) outstanding or available under a committed facility, and (i) which is specifically designated in the instrument evidencing such Senior Indebtedness as "Designated Senior Indebtedness" by such Person and (ii) as to which the Trustee has been given written notice of such designation. "Disqualified Capital Stock" means any Capital Stock of the Company or a Restricted Subsidiary thereof which, by its term (or by the terms of any security into which it is convertible or for which it is exchangeable at the option of the holder), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable at the option of the holder thereof, in whole or in part, on or prior to the maturity date of the Notes, for cash or securities constituting Indebtedness. Without limitation of the foregoing, Disqualified Capital Stock shall be deemed to include (i) any Preferred Stock of a Restricted Subsidiary of the Company and (ii) any Preferred Stock of the Company, with respect to either of which, under the terms of such Preferred Stock, by agreement or otherwise, such Restricted Subsidiary or the Company is obligated to pay current dividends or distributions in cash during the period prior to the maturity date of the Notes; provided, however, that Preferred Stock of the Company or any Restricted Subsidiary thereof that is issued with the benefit of provisions requiring a change of control offer to be made for such Preferred Stock in the event of a change of control of the Company or Restricted Subsidiary, which provisions have substantially the same effect as the provisions of the Indenture described under "Change of Control," shall not be deemed to be Disqualified Capital Stock solely by virtue of such provisions. "EBITDA " means, for any Person, for any period, an amount equal to (a) the sum of (i) Consolidated Net Income for such period, plus (ii) the provision for taxes for such period based on income or profits to the extent such income or profits were included in computing Consolidated Net Income and any provision for taxes utilized in computing net loss under clause (i) hereof, plus (iii) Consolidated Interest Expense for such period (but only including Redeemable Dividends in the calculation of such Consolidated Interest Expense to the extent that such Redeemable Dividends have not been excluded in the calculation of Consolidated Net Income), Plus (iv) depreciation for such period on a consolidated basis, plus (v) amortization of intangibles for such period on a consolidated basis, plus (vi) any other non-cash items reducing Consolidated Net Income for such period, plus (vii) to the extent not already included in Consolidated Net Income, all special management compensation earned or accrued prior to the Issue Date to the extent paid or accrued in such Period, plus (viii) Permitted Tax Distributions minus (b) all non-cash items increasing Consolidated Net Income for such period, all for such Person and its Subsidiaries determined in accordance with GAAP, except that with respect to the Issuers each of the foregoing items shall be determined on a consolidated basis with respect to the Issuers and their Restricted Subsidiaries only; provided, however, that, for purposes of calculating EBITDA during any fiscal quarter, cash income from a particular Investment of such Person shall be included only (x) if cash income has been received by such Person with respect to such Investment during each of the previous four fiscal quarters, or (y) if the cash income derived from such Investment is attributable to Temporary Cash Investments. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "GAAP" means generally accepted accounting principles consistently applied as in effect on the date of the Indenture. "incur" means, with respect to any Indebtedness or other obligation of any Person, to create, issue, incur (by conversion, exchange or otherwise), assume, guarantee or otherwise become liable in respect of such Indebtedness or other obligation or the recording, as required pursuant to GAAP or otherwise, of any such Indebtedness or other obligation on the balance sheet of such person (and "incurrence," "incurred," 91 "incurrable," and "incurring" shall have meanings correlative to the foregoing); provided that a change in GAAP that results in an obligation of such Person that exists at such time becoming Indebtedness shall not be deemed an incurrence of such Indebtedness. "Indebtedness" means (without duplication), with respect to any Person, any indebtedness at any time outstanding, secured or unsecured, contingent or otherwise, which is for borrowed money (whether or not the recourse of the lender is to the whole of the assets of such Person or only to a portion thereof), or evidenced by bonds, notes, debentures or similar instruments or representing the balance deferred and unpaid of the purchase price of any property (excluding, without limitation, any balances that constitute accounts payable or trade payables, and other accrued liabilities arising in the ordinary course of business) if and to the extent any of the foregoing indebtedness would appear as a liability upon a balance sheet of such Person prepared in accordance with GAAP, and shall also include, to the extent not otherwise included (i) any Capitalized Lease Obligations, (ii) obligations secured by a lien to which the property or assets owned or held by such Person is subject, whether or not the obligation or obligations secured thereby shall have been assumed (provided, however, that if such obligation or obligations shall not have been assumed, the amount of such indebtedness shall be deemed to be the lesser of the principal amount of the obligation or the fair market value of the pledged property or assets), (iii) guarantees of items of other Persons which would be included within this definition for such other Persons (whether or not such items would appear upon the balance sheet of the guarantor), (iv) all obligations for the reimbursement of any obligor on any letter of credit, banker's acceptance or similar credit transaction (provided that in the case of any such letters of credit, the items for which such letters of credit provide credit support are those of other Persons which would be included within this definition for such other Persons), (v) in the case of the Issuers, Disqualified Capital Stock of the Issuers or any Restricted Subsidiary thereof, and (vi) obligations of any such Person under any Interest Rate Agreement applicable to any of the foregoing (if and to the extent such Interest Rate Agreement obligations would appear as a liability upon a balance sheet of such Person prepared in accordance with GAAP). The amount of Indebtedness of any Person at any date shall be the outstanding balance at such date of all unconditional obligations as described above and, with respect to contingent obligations, the maximum liability upon the occurrence of the contingency giving rise to the obligation, provided (i) that the amount outstanding at any time of any Indebtedness issued with original issue discount is the principal amount of such Indebtedness less the remaining unamortized portion of the original issue discount of such Indebtedness at such time as determined in conformity with GAAP and (ii) that Indebtedness shall not include any liability for federal, state, local or other taxes. Notwithstanding any other provision of the foregoing definition, any trade payable arising from the purchase of goods or materials or for services obtained in the ordinary course of business shall not be deemed to be "Indebtedness" of the Company or any Restricted Subsidiaries for purposes of this definition. Furthermore, guarantees of (or obligations with respect to letters of credit supporting) Indebtedness otherwise included in the determination of such amount shall not also be included. "Interest Rate Agreement" shall mean any interest or foreign currency rate swap, cap, collar, option, hedge, forward rate or other similar agreement or arrangement designed to protect against fluctuations in interest rates or currency exchange rates. "Investments" means, directly or indirectly, any advance, account receivable (other than an account receivable arising in the ordinary course of business or acquired as part of the assets acquired by the Issuers in connection with an acquisition of assets which is otherwise permitted by the terms of the Indenture), loan or capital contribution to (by means of transfers of property to others, payments for property or services for the account or use of others or otherwise), the purchase of any stock, bonds, notes, debentures, partnership or joint venture interests or other securities of, the acquisition, by purchase or otherwise, of all or substantially all of the business or assets or stock or other evidence of beneficial ownership of, any Person or the making of any investment in any Person. Investments shall exclude (i) extensions of trade credit on commercially reasonable terms in accordance with normal trade practices and (ii) the repurchase of securities of any Person by such Person. "Issue Date" means the date the Notes are first issued by the Issuers and authenticated by the Trustee under the Indenture. 92 "Lien" means with respect to any property or assets of any Person, any mortgage or deed of trust, pledge, hypothecation, assignment, deposit arrangement, security interest, lien, charge, easement, encumbrance, preference, priority, or other security agreement or preferential arrangement of any kind or nature whatsoever on or with respect to such property or assets (including without limitation, any Capitalized Lease Obligation, conditional sales, or other title retention agreement having substantially the same economic effect as any of the foregoing). "Net Income" means, with respect to any Person for any period, the net income (loss) of such Person determined in accordance with GAAP. "Net Proceeds" means (a) in the case of any sale of Capital Stock by the Company or BrightView, the aggregate net proceeds received by the Company or BrightView, after payment of expenses, commissions and the like incurred in connection therewith, whether such proceeds are in cash or in property (valued at the fair market value thereof, as determined in good faith by the board of directors, at the time of receipt) and (b) in the case of any exchange, exercise, conversion or surrender of outstanding securities of any kind for or into shares of Capital Stock of the Company which is not Disqualified Stock, the net book value of such outstanding securities on the date of such exchange, exercise, conversion or surrender (plus any additional amount required to be paid by the holder to the Company upon such exchange, exercise, conversion or surrender, less any and all payments made to the holders, e.g., on account of fractional shares and less all expenses incurred by the Company in connection therewith). "Non-Payment Event of Default" means any event (other than a Payment Default) the occurrence of which entities one or more Persons to accelerate the maturity of any Designated Senior Indebtedness. "Officers' Certificate" means, with respect to any Person, a certificate signed by the Chief Executive Officer, the President or any Vice President and the Chief Financial Officer or any Treasurer of such Person that shall comply with applicable provisions of the Indenture. "Payment Default" means any default, whether or not any requirement for the giving of notice, the lapse of time or both, or any other condition to such default becoming an event of default has occurred, in the payment of principal of (or premium, if any) or interest on or any other amount payable in connection with Designated Senior Indebtedness. "Permitted Holders" means, collectively, Neal Vitale and each Person who purchased Capital Stock of Holdings, BrightView or Petersen Investment Corp. pursuant to the Securities Purchase Agreement. "Permitted Indebtedness" means: (i) Indebtedness of the Company or any Restricted Subsidiary arising under or in connection with the Senior Credit Facility in an amount not to exceed $260 million less any mandatory prepayments actually made thereunder (to the extent, in the case of payments of revolving credit indebtedness, that the corresponding commitments have been permanently reduced) or scheduled payments actually made thereunder; (ii) Indebtedness under the Notes and the Guarantees; (iii) Indebtedness not covered by any other clause of this definition which is outstanding on the date of the Indenture; (iv) Indebtedness of the Company to any Restricted Subsidiary and Indebtedness of any Restricted Subsidiary to the Company or another Restricted Subsidiary; (v) Interest Rate Agreements; (vi) Refinancing Indebtedness; 93 (vii) Indebtedness under Commodity Hedge Agreements entered into in the ordinary course of business consistent with reasonable business requirements and not for speculation; (viii) Indebtedness of the type described in, and secured by Liens of the type described in, clauses (ix) and (xix) of the definition of Permitted Liens; (ix) Indebtedness consisting of guarantees made in the ordinary course of business by the Company or any of its Subsidiaries of obligations of the Issuers or any of their Subsidiaries, which obligations are otherwise permitted under this Agreement; (x) Contingent Obligations of the Company or its Subsidiaries in respect of customary indemnification and purchase price adjustment obligations incurred in connection with an Asset Sale; provided that the maximum assumable liability in respect of all such obligations shall at no time exceed the gross proceeds actually received by the Company and its Subsidiaries in connection with such Asset Sale; and (xi) Purchase Money Indebtedness of the Company and its Subsidiaries and any refinancings, renewals or replacements of any such Purchase Money Indebtedness (subject to the limitations on the principal amount thereof set forth in this clause (iv)), and other Indebtedness that is unsecured (other than Indebtedness specified in clauses (i) through (x) above), which Purchase Money Indebtedness and other unsecured Indebtedness shall not exceed $10 million in the aggregate at any time. "Permitted Investments" means, for any Person, Investments made on or after the date of the Indenture consisting of: (i) Investments by the Company, or by a Restricted Subsidiary thereof, in the Company or a Restricted Subsidiary; (ii) Temporary Cash Investments; (iii) Investments by the Company, or by a Restricted Subsidiary thereof, in a Person, if as a result of such Investment (a) such Person becomes a Restricted Subsidiary of the Company, (b) such Person is merged, consolidated or amalgamated with or into, or transfers or conveys substantially all of its assets to, or is liquidated into, the Company or a Restricted Subsidiary thereof or (c) such businesses or assets are owned by the Company or a Restricted Subsidiary; (iv) an Investment that is made by the Company or a Restricted Subsidiary thereof in the form of any stock, bonds, notes, debentures, partnership or joint venture interests or other securities that are issued by a third party to the Issuers or Restricted Subsidiary solely as partial consideration for the consummation of an Asset Sale that is otherwise permitted under the covenant described under "Limitation on Sale of Assets"; (v) Investments consisting of (a) purchases and acquisitions of inventory, supplies, materials and equipment, or (b) licenses or leases of intellectual property and other assets, in each case in the ordinary course of business; (vi) Investments consisting of loans and advances to employees for reasonable travel, relocation and business expenses in the ordinary course of business, extensions of trade credit in the ordinary course of business, and prepaid expenses incurred in the ordinary course of business; (vii) without duplication, Investments consisting of Indebtedness permitted pursuant to clause (iv) under the definition of Permitted Indebtedness; (viii) Investments existing on the date of this Indenture; (ix) Investments of the Company under Interest Rate Agreements; (x) Investments under Commodity Hedge Agreements entered into in the ordinary course of business consistent with reasonable business requirements and not for speculation; (xi) Investments consisting of endorsements for collection or deposit in the ordinary course of business; (xii) Investments consisting of the contribution by the Company to partnerships, joint ventures or other Persons (including Subsidiaries) of the Scheduled Titles in exchange for equity interests in such Persons, provided that all such Investments are made within 365 days after the date hereof, 94 (xiii) Investments consisting of the licensing of publication titles and other assets pursuant to joint marketing arrangements with other Persons; and (xiv) Investments (other than Investments specified in clauses (i) through (xiii) above) in an aggregate amount, as valued at the time each such Investment is made, not exceeding $5 million for all such Investments from and after the date hereof. "Permitted Liens" means (i) Liens on property or assets of, or any shares of stock of or secured debt of, any corporation existing at the time such corporation becomes a Restricted Subsidiary of the Company or at the time such corporation is merged into the Company or any of its Restricted Subsidiaries; provided that such Liens are not incurred in connection with, or in contemplation of, such corporation becoming a Restricted Subsidiary of the Company or merging into the Company or any of its Restricted Subsidiaries, (ii) Liens securing Refinancing Indebtedness; provided that any such Lien does not extend to or cover any Property, shares or debt other than the Property, shares or debt securing the Indebtedness so refunded, refinanced or extended, (iii) Liens in favor of the Issuers or any of their Restricted Subsidiaries, (iv) Liens securing industrial revenue bonds, (v) Liens to secure Purchase Money Indebtedness that is otherwise permitted under the Indenture, provided that (a) any such Lien is created solely for the purpose of securing Indebtedness representing, or incurred to finance, refinance or refund, the cost (including sales and excise taxes, installation and delivery charges and other direct costs of, and other direct expenses paid or charged in connection with, such purchase or construction) of such Property, (b) the principal amount of the Indebtedness secured by such Lien does not exceed 100% of such costs, and (c) such Lien does not extend to or cover any Property other than such item of Property and any improvements on such item, (vi) statutory liens or landlords', carriers', warehouseman's, mechanics', suppliers', materialmen's, repairmen's or other like Liens arising in the ordinary course of business which do not secure any Indebtedness and with respect to amounts not yet delinquent or being contested in good faith by appropriate proceedings, if a reserve or other appropriate provision, if any, as shall be required in conformity with GAAP shall have been made therefor, (vii) other Liens securing obligations incurred in the ordinary course of business which obligations do not exceed $5 million in the aggregate at any one time outstanding, (viii) any extensions, substitutions, replacements or renewals of the foregoing, (ix) Liens for taxes, assessments or governmental charges that are being contested in good faith by appropriate proceedings, (x) Liens securing Capital Lease Obligations permitted to be incurred under clause (v) of the definition of "Permitted Indebtedness," provided that such Lien does not extend to any property other than that subject to the underlying lease, (xi) Liens securing Designated Senior Indebtedness, (xii) Liens existing on the date of this Indenture, (xiii) Liens imposed by law, such as Liens of carriers, warehousemen, mechanics, materialmen and landlords, and other similar Liens incurred in the ordinary course of business for sums not constituting borrowed money that are not overdue for a period of more than thirty (30) days or that are being contested in good faith by appropriate proceedings and for which adequate reserves have been established in accordance with GAAP (if so required), (xiv) Liens incurred in the ordinary course of business in connection with worker's compensation, unemployment insurance or other forms of government insurance or benefits, or to secure the performance of letters of credit, bids, tenders, statutory obligations, surety and appeal bonds, leases, government contracts and other similar obligations (other than obligations for borrowed money) entered into in the ordinary course of business, (xv) any attachment or judgment Lien not constituting an Event of Default under the Indenture that is being contested in good faith by appropriate proceedings and for which adequate reserves have been established in accordance with GAAP (if so required), (xvi) Liens arising from the filing, for notice purposes only, of financing statements in respect of operating leases, (xvii) Liens arising by operation of law in favor of depositary banks and collecting banks, incurred in the ordinary course of business, (xviii) Liens consisting of restrictions on the transfer of securities pursuant to applicable federal and state securities laws (xix) interests of lessors and licensors under leases and licenses to which the Issuers or any of their Restricted Subsidiaries is a party and (xx) with respect to any real property occupied by the Company or any of their Restricted Subsidiaries, all easements, rights or way, licenses and similar encumbrances on title that do not materially impair the use of such property of its intended purposes. "Permitted Tax Distributions" means, subject to the limitations set forth in clause (v) of the second paragraph under "Certain Covenants-Limitation on Restricted Payments," distributions by the Company to Holdings and BrightView from time to time in an amount approximately equal to the income tax liability of 95 such member of the Company (but in the case of Holdings and for so long as Holdings is treated as a passthrough entity for taxation purposes, to the income tax liability that Holdings would have if it were required to pay income taxes) resulting from the taxable income of the Company (after taking into account all of the Company's prior tax losses, to the extent such losses have not previously been deemed to reduce the taxable income of the Company and thereby reduce distributions for taxes in accordance herewith), such distribution for taxes shall be based on the approximate highest combined tax rate that applies to any one of the members of the Company. "Person" means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government (including any agency or political subdivision thereof). "Preferred Stock" means any Capital Stock of a Person, however designated, which entitles the holder thereof to a preference with respect to dividends, distributions or liquidation proceeds of such Person over the holders of other Capital Stock issued by such Person. "Property" of any Person means all types of real, personal, tangible, intangible or mixed property owned by such Person whether or not included in the most recent consolidated balance sheet of such Person and its Subsidiaries under GAAP. "Public Equity Offering" means a public offering by BrightView of shares of its Common Stock (however designated and whether voting or non-voting) and any and all rights, warrants or options to acquire such Common Stock; provided, however, that in connection with any such Public Equity Offering the net proceeds of such Public Equity Offering are contributed to the Company as common equity. "Purchase Money Indebtedness" means any Indebtedness incurred in the ordinary course of business by a Person to finance the cost (including the cost of construction) of an item of Property, the principal amount of which Indebtedness does not exceed the sum of (i) 100% of such cost and (ii) reasonable fees and expenses of such Person incurred in connection therewith. "Qualified IPO " shall have the meaning given to such term in the Securityholders Agreement. "Redeemable Dividend" means, for any dividend or distribution with regard to Disqualified Capital Stock, the quotient of the dividend or distribution divided by the difference between one and the maximum statutory federal income tax rate (expressed as a decimal number between 1 and 0) then applicable to the issuer of such Disqualified Capital Stock. "Refinancing Indebtedness" means Indebtedness that refunds, refinances or extends any Indebtedness of the Company outstanding on the Issue Date or other Indebtedness permitted to be incurred by the Company or its Restricted Subsidiaries pursuant to the terms of the Indenture, but only to the extent that (i) the Refinancing Indebtedness is subordinated to the Notes to at least the same extent as the Indebtedness being refunded, refinanced or extended, if at all, (ii) the Refinancing Indebtedness is scheduled to mature either (a) no earlier than the Indebtedness being refunded, refinanced or extended, or (b) after the maturity date of the Notes, (iii) the portion, if any, of the Refinancing Indebtedness that is scheduled to mature on or prior to the maturity date of the Notes has a weighted average life to maturity at the time such Refinancing Indebtedness is incurred that is equal to or greater than the weighted average life to maturity of the portion of the Indebtedness being refunded, refinanced or extended that is scheduled to mature on or prior to the maturity date of the Notes, (iv) such Refinancing Indebtedness is in an aggregate principal amount that is equal to or less than the sum of (a) the aggregate principal amount then outstanding under the Indebtedness being refunded, refinanced or extended, (b) the amount of accrued and unpaid interest, if any, and premiums owed, if any, not in excess of preexisting prepayment provisions on such Indebtedness being refunded, refinanced or extended and (c) the amount of customary fees, expenses and costs related to the incurrence of such Refinancing Indebtedness, and (v) such Refinancing Indebtedness is incurred by the same Person that initially incurred the Indebtedness being refunded, refinanced or extended, except that the Company may incur Refinancing Indebtedness to refund, refinance or extend Indebtedness of any Wholly-Owned Subsidiary of the Company. 96 "Restricted Payment" means any of the following: (i) the declaration or payment of any dividend or any other distribution or payment on Capital Stock of the Company or any Restricted Subsidiary of the Company or any payment made to the direct or indirect holders (in their capacities as such) of Capital Stock of the Company or any Restricted Subsidiary of the Company (other than (x) dividends or distributions payable solely in Capital Stock (other than Disqualified Stock) or in options, warrants or other rights to purchase Capital Stock (other than Disqualified Stock), and (y) in the case of Restricted Subsidiaries of the Company, dividends or distributions payable to the Company or to a Wholly-Owned Subsidiary of the Company), (ii) the purchase, redemption or other acquisition or retirement for value of any Capital Stock of the Company or any of its Restricted Subsidiaries (other than Capital Stock owned by the Company or a Wholly-Owned Subsidiary of the Company, excluding Disqualified Stock), (iii) the making of any principal payment on, or the purchase, defeasance, repurchase, redemption or other acquisition or retirement for value, prior to any scheduled maturity, scheduled repayment or scheduled sinking fund payment, of any Indebtedness which is subordinated in right of payment to the Notes other than subordinated Indebtedness acquired in anticipation of satisfying a scheduled sinking fund obligation, principal installment or final maturity, in each case due within one year of the date of acquisition, (iv) the making of any Investment or guarantee of any Investment in any Person other than a Permitted Investment, (v) any designation of a Restricted Subsidiary as an Unrestricted Subsidiary on the basis of the Investment by the Issuers therein and (vi) forgiveness of any Indebtedness of an Affiliate of the Issuers (other than a Restricted Subsidiary) to the Issuers or a Restricted Subsidiary. For purposes of determining the amount expended for Restricted Payments, cash distributed or invested shall be valued at the face amount thereof and property other than cash shall be valued at its fair market value. "Restricted Subsidiary" means a Subsidiary of the Company other than an Unrestricted Subsidiary and includes all of the Subsidiaries of the Company existing as of the Issue Date. The Board of Directors of the Company may designate any Unrestricted Subsidiary or any Person that is to become a Subsidiary as a Restricted Subsidiary if immediately after giving effect to such action (and treating any Acquired Indebtedness as having been incurred at the time of such action), the Company could have incurred at least $1.00 of additional Indebtedness (other than Permitted Indebtedness) pursuant to the "Limitation on Additional Indebtedness" covenant. "Sale and Lease-Back Transaction" means any arrangement with any Person providing for the leasing by the Company or any Restricted Subsidiary of the Company of any real or tangible personal Property, which Property has been or is to be sold or transferred by the Company or such Restricted Subsidiary to such Person in contemplation of such leasing. "Scheduled Titles" shall refer to the following publications: Sassy, Sport, Petersen's Golfing, Mountain Biker, Bicycle Guide, Custom Classic Trucks, Pro Basketball, Pro Baseball, Pro Football, Pro Hockey, College Basketball, College Football, Super Street, VW Custom & Classic, Event Scene, Hot Rod Bikes, 4x4 Power and Family Photo. "Securities Purchase Agreement" means the Securities Purchase Agreement, dated as of September 30, 1996, among Holdings, Petersen Investment Corp., BrightView, Petersen, Willis Stein and the Purchasers named therein. "Senior Credit Facility" means the Credit Agreement, dated as of September 30, 1996, among the Company, the lenders listed therein and FBNC, as administrative agent, and CIBC, as documentation agent, together with the documents related thereto (including, without limitation, any guarantee agreements and security documents), in each case as such agreements may be amended (including any amendment and restatement thereof), supplemented or otherwise modified from time to time, including any agreement extending the maturity of, refinancing, replacing or otherwise restructuring (including adding Subsidiaries of the Issuers as additional borrowers or guarantors thereunder) all or any portion of the Indebtedness under such agreement or any successor or replacement agreement and whether by the same or any other agent, lender or group of lenders. 97 "Senior Indebtedness" means the principal of and premium, if any, and interest (including, without limitation, interest accruing or that would have accrued but for the filing of a bankruptcy, reorganization or other insolvency proceeding whether or not such interest constitutes an allowable claim in such proceeding) on, and any and all other fees, expense reimbursement obligations and other amounts due pursuant to the terms of all agreements, documents and instruments providing for, creating, securing or evidencing or otherwise entered into in connection with (a) a Indebtedness of the Company owed to lenders under the Senior Credit Facility, (b) all obligations of the Company with respect to any Interest Rate Agreement, (c) all obligations of the Company to reimburse any bank or other person in respect of amounts paid under letters of credit, acceptances or other similar instruments, (d) all other Indebtedness of the Company which does not provide that it is to rank pari passu with or subordinate to the Notes and (e) all deferrals, renewals, extensions and refundings of, and amendments, modifications and supplements to, any of the Senior Indebtedness described above. Notwithstanding anything to the contrary in the foregoing, Senior Indebtedness will not include (i) Indebtedness of the Company to any of its Subsidiaries, (ii) Indebtedness represented by the Notes, (iii) any Indebtedness which by the express terms of the agreement or instrument creating, evidencing or governing the same is junior or subordinate in right of payment to any item of Senior Indebtedness, (iv) any trade payable arising from the purchase of goods or materials or for services obtained in the ordinary course of business and (v) Indebtedness (other than that described in clause (a) above) incurred in violation of the Indenture. "Subsidiary" of any specified Person means any corporation, partnership, joint venture, association or other business entity, whether now existing or hereafter organized or acquired, (i) in the case of a corporation, of which more than 50% of the total voting power of the Capital Stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, officers or trustees thereof is held by such first-named Person or any of its Subsidiaries; or (ii) in the case of a partnership, joint venture, association or other business entity, with respect to which such first-named Person or any of its Subsidiaries has the power to direct or cause the direction of the management and policies of such entity by contract or otherwise or if in accordance with generally accepted accounting principles such entity is consolidated with the first-named Person for financial statement purposes. "Temporary Cash Investments" means (i) Investments in marketable, direct obligations issued or guaranteed by the United States of America, or of any governmental agency or political subdivision thereof, maturing within 365 days of the date of purchase; (ii) Investments in certificates of deposit issued by a bank organized under the laws of the United States of America or any state thereof or the District of Columbia, in each case having capital, surplus and undivided profits totaling more than $500,000,000 and rated at least A by Standard & Poor's Corporation and A-2 by Moody's Investors Service, Inc., maturing within 365 days of purchase; or (iii) Investments not exceeding 365 days in duration in money market funds that invest substantially all of such funds' assets in the Investments described in the preceding clauses (i) and (ii). "Unrestricted Subsidiary" means (a) any Subsidiary of an Unrestricted Subsidiary and (b) any Subsidiary of the Company which is classified after the Issue Date as an Unrestricted Subsidiary by a resolution adopted by the Company; provided that a Subsidiary organized or acquired after the Issue Date may be so classified as an Unrestricted Subsidiary only if such classification is in compliance with the covenant set forth under "Limitation on Restricted Payments." The Trustee shall be given prompt notice by the Company of each resolution adopted by the managing member of the Company under this provision, together with a copy of each such resolution adopted. "Wholly-Owned Subsidiary" means any Restricted Subsidiary, all of the outstanding voting securities (other than directors' qualifying shares) of which are owned, directly or indirectly, by the Company. BOOK ENTRY, DELIVERY AND FORM The New Notes initially will be represented by one or more Notes in registered, global form without interest coupons (collectively, the "Global Note"). The Global Note will be deposited upon issuance with the Trustee, as custodian for DTC, in New York, New York, and registered in the name of DTC or its nominee, in each case 98 for credit to an account of a direct or indirect participant as described below. Notes sold to Accredited Investors may be represented by the Global Note or, if such an investor may not hold an interest in the Global Note, a certificated Note. Except as set forth below, the Global Note may be transferred, in whole and not in part, only to another nominee of DTC or to a successor of DTC or its nominee. Beneficial Interests in the Global Note may not be exchanged for Notes in certificated form except in the limited circumstances described below. See "--Exchange of Book-Entry Notes for Certificated Notes." The Notes may be presented for registration of transfer and exchange at the offices of the Registrar. DTC has advised the Company that DTC is a limited-purpose trust company created to hold securities for its participating organizations (collectively, the "Participants") and to facilitate the clearance and settlement of transactions in those securities between Participants through electronic book- entry changes in accounts of its Participants. The Participants include securities brokers and dealers (including the Initial Purchasers), banks, trust companies, clearing corporations and certain other organizations. Access to DTC's system is also available to other entities such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a Participant, either directly or indirectly (collectively, the "Indirect Participants"). Persons who are not Participants may beneficially own securities held by or on behalf of DTC only through the Participants or the Indirect Participants. The ownership interest and transfer of ownership interest of each actual purchaser of each security held by or on behalf of DTC are recorded on the records of the Participants and Indirect Participants. DTC has also advised the Company that pursuant to procedures established by it, (i) upon deposit of the Global Note, DTC will credit the accounts of Participants designated by the Exchange Agent with portions of the principal amount of the Global Note and (ii) ownership of such interests in the Global Note will be shown on, and the transfer of ownership thereof will be effected only through, records maintained by DTC (with respect to the Participants) or by the Participants and the Indirect Participants (with respect to other owners of beneficial interests in the Global Note). The laws of some states require that certain persons take physical delivery in definitive form of securities that they own. Consequently, the ability to transfer beneficial interests in a Global Note to such persons may be limited to that extent. Because DTC can act only on behalf of Participants, which in turn act on behalf of Indirect Participants and certain banks, the ability of a person having beneficial interests in a Global Note to pledge such interests to persons or entities that do not participate in the DTC system, or otherwise take actions in respect of such interests, may be affected by the lack of a physical certificate evidencing such interests. For certain other restrictions on the transferability of the Notes, see "--Exchange of Book-Entry Notes for Certificated Notes." EXCEPT AS DESCRIBED BELOW, OWNERS OF INTERESTS IN THE GLOBAL NOTES WILL NOT HAVE NOTES REGISTERED IN THEIR NAMES, WILL NOT RECEIVE PHYSICAL DELIVERY OF NOTES IN CERTIFICATED FORM AND WILL NOT BE CONSIDERED THE REGISTERED OWNERS OR HOLDERS THEREOF UNDER THE INDENTURE FOR ANY PURPOSE. Payments in respects of the principal of (and premium, if any) and interest on the Global Note registered in the name of DTC or its nominee will be payable to DTC or its nominee in its capacity as the registered holder under the Indenture. Under the terms of the Indenture, the Company and the Trustee will treat the persons in whose names the Notes, including the Global Note, are registered as the owners thereof for the purpose of receiving such payments and for any and all other purposes whatsoever. Consequently, neither the Company, the Trustee nor any agent of the Company or the Trustee has or will have any responsibility or liability for (i) any aspect or accuracy of DTC's records or any Participant's or Indirect Participant's records relating to or payments made on account of beneficial ownership interests in the Global Note, or for maintaining, supervising or reviewing any of DTC's records or any Participant's or Indirect Participant's records relating to the beneficial ownership interests in the Global Note, or (ii) any other matter relating to the actions and practices of DTC or any of its Participants or Indirect Participants. 99 DTC has advised the Company that its current practice, upon receipt of any payment in respect of securities such as the Notes (including principal and interest), is to credit the accounts of the relevant Participants with the payment on the payment date, in amounts proportionate to their respective holdings in principal amount of beneficial interests in the relevant security such as the Global Note as shown on the records of DTC. Payments by the Participants and the Indirect Participants to the beneficial owners of Notes will be governed by standing instructions and customary practices and will not be the responsibility of DTC, the Trustee or the Company. Neither the Company nor the Trustee will be liable for any delay by DTC or any of its Participants in identifying the beneficial owners of the Notes, and the Company and the Trustee may conclusively rely on and will be protected in relying on instructions from DTC or its nominee as the registered owner of the Notes for all purposes. Interests in the Global Note will trade in DTC's Same-Day Funds Settlement System and secondary market trading activity in such interests will therefore settle in immediately available funds, subject in all cases to the rules and procedures of DTC and its participants. Transfers between Participants in DTC will be effected in accordance with DTC's procedures, and will be settled in same-day funds. DTC has advised the Company that it will take any action permitted to be taken by a holder of Notes only at the direction of one or more Participants to whose account with DTC interests in the Global Notes are credited and only in respect of such portion of the aggregate principal amount of the Notes as to which such Participant or Participants has or have given such direction. However, if any of the events described under "--Exchange of Book Entry Notes for Certificated Notes" occur, DTC reserves the right to exchange the Global Notes for Notes in certificated form, and to distribute such Notes to its Participants. The information in this section concerning DTC, and its book-entry system has been obtained from sources that the Company believes to be reliable, but the Company takes no responsibility for the accuracy thereof. Although DTC has agreed to the foregoing procedures to facilitate transfers of interests in the Global Note among accountholders in DTC, it is under no obligation to perform or to continue to perform such procedures, and such procedures may be discontinued at any time. Neither the Company, the Trustee nor any agent of the Company or Trustee will have any responsibility for the performance by DTC, or its respective accountholders, indirect participants or accountholders of their respective obligations under the rules and procedures governing their operations. A Global Note is exchangeable for definitive Notes in registered certificated form if (i) DTC (x) notifies the Company that it is unwilling or unable to continue as depositary for the Global Note and the Company thereupon fails to appoint a successor depositary or (y) has ceased to be a clearing agency registered under the Exchange Act; (ii) the Company, at its option, notifies the Trustee in writing that it elects to cause the issuance of the Notes in certificated form or (iii) there shall have occurred and be continuing a Default or an Event of Default with respect to the Notes. In all cases, certificated Notes delivered in exchange for any Global Note or beneficial interests therein will be registered in the names, and issued in any approved denominations, requested by or on behalf of the depositary (in accordance with its customary procedures). CERTAIN FEDERAL INCOME TAX CONSEQUENCES The following discussion is based upon current provisions of the Internal Revenue Code of 1986, as amended, applicable Treasury regulations, judicial authority and administrative rulings and practice. There can be no assurance that the Internal Revenue Service (the "Service") will not take a contrary view, and no ruling from the Service has been or will be sought. Legislative, judicial or administrative changes or interpretations may be forthcoming that could alter or modify the statements and conditions set forth herein. Any such changes or interpretations may or may not be retroactive and could affect the tax consequences to holders. Certain holders (including insurance companies, tax-exempt organizations, financial institutions, broker-dealers, foreign corporations and persons who are not citizens or residents of the United States) may be subject to special rules 100 not discussed below. The Issuers recommend that each holder consult such holder's own tax advisor as to the particular tax consequences of exchanging such holder's Old Notes for New Notes, including the applicability and effect of any state, local or foreign tax laws. The Issuers believe that the exchange of Old Notes for New Notes pursuant to the Exchange Offer will not be treated as an "exchange" for federal income tax purposes because the New Notes will not be considered to differ materially in kind or extent from the Old Notes. Rather, the New Notes received by a holder will be treated as a continuation of the Old Notes in the hands of such holder. As a result, there will be no federal income tax consequences to holders exchanging Old Notes for New Notes pursuant to the Exchange Offer. PLAN OF DISTRIBUTION Each Participating Broker-Dealer that receives New Notes for its own account pursuant to the Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such New Notes. This Prospectus, as it may be amended or supplemented from time to time, may be used by a Participating Broker-Dealer in connection with resales of New Notes received in exchange for Old Notes where such Old Notes were acquired as a result of market-making activities or other trading activities. The Issuers have agreed that for a period of 180 days after the Expiration Date, they will make this Prospectus, as amended or supplemented, available to any Participating Broker- Dealer for use in connection with any such resale; provided, however, the Issuers and the Guarantor have no obligation to amend or supplement this Prospectus unless one of them has received written notice from a Participating Broker-Dealer of their prospectus delivery requirements under the Exchange Act within five business days following consummation of the Exchange Offer. In addition, until , 1997 (90 days after the commencement of the Exchange Offer), all dealers effecting transactions in the New Notes, whether or not participating in this distribution, may be required to deliver a prospectus. The Issuers will not receive any proceeds from any sales of the New Notes by Participating Broker Dealers. New Notes received by Participating Broker- Dealers for their own account pursuant to the Exchange Offer may be sold from time to time in one or more transactions in the over-the-counter market, in negotiated transactions, through the writing of options on the New Notes or a combination of such methods of resale, at market prices prevailing at the time of resale, at prices related to such prevailing market prices or negotiated prices. Any such resale may be made directly to purchasers or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any such Participating Broker-Dealer and/or the purchasers of any such New Notes. Any Participating Broker-Dealer that resells the New Notes that were received by it for its own account pursuant to the Exchange Offer and any broker or dealer that participates in a distribution of such New Notes may be deemed to be an "underwriter" within the meaning of the Securities Act and any profit on any such resale of New Notes and any commissions or concessions received by any such persons may be deemed to be underwriting compensation under the Securities Act. The Letter of Transmittal states that by acknowledging that it will deliver and by delivering a prospectus, a Participating Broker-Dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. For a period of 180 days after the Expiration Date, the Issuers will promptly send additional copies of this Prospectus and any amendment or supplement to this Prospectus to any Participating Broker-Dealer that requests such documents in the Letter of Transmittal. LEGAL MATTERS The validity of the issuance of the New Notes will be passed upon for the Issuers by Kirkland & Ellis, Chicago, Illinois (a partnership which includes professional corporations). Certain partners of Kirkland & Ellis are limited partners of Willis Stein. 101 INDEPENDENT AUDITORS The financial statements of the publishing division of Petersen Publishing Company at November 30, 1994 and 1995 and for each of the three years in the period ended November 30, 1995 appearing in this Prospectus and Registration Statement have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon appearing elsewhere herein, and are included in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. The Issuers and Holdings were formed in September 1996 to effect the Acquisition and, prior thereto, did not have any assets or liabilities or conduct any operations. The latest period for which financial information is included herein is as of and for the nine months ended August 31, 1996. As a result, separate financial statements of the Issuers and Holdings have not been included herein. 102 INDEX TO FINANCIAL STATEMENTS
PAGE NO. -------- PETERSEN PUBLISHING COMPANY PUBLISHING DIVISION Report of Ernst & Young LLP, Independent Auditors................... F-2 Balance Sheets at November 30, 1994 and 1995........................ F-3 Statements of Income and Divisional Equity for the years ended November 30, 1993, 1994 and 1995................................... F-4 Statements of Cash Flows for the years ended November 30, 1993, 1994 and 1995........................................................... F-5 Notes to Financial Statements....................................... F-6 Unaudited Condensed Balance Sheet at August 31, 1996................ F-11 Unaudited Condensed Statements of Income and Divisional Equity for the nine months ended August 31, 1995 and 1996..................... F-12 Unaudited Condensed Statements of Cash Flows for the nine months ended August 31, 1995 and 1996..................................... F-13 Notes to Unaudited Condensed Financial Statements................... F-14
F-1 REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS Board of Directors Petersen Publishing Company We have audited the accompanying balance sheets of Petersen Publishing Company, Publishing Division, as of November 30, 1994 and 1995, and the related statements of income and divisional equity, and cash flows for each of the three years in the period ended November 30, 1995. Our audits also included the financial statement schedule listed in Item 21(b) of this Registration Statement. These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Petersen Publishing Company, Publishing Division, at November 30, 1994 and 1995, and the results of its operations and its cash flows for each of the three years in the period ended November 30, 1995, in conformity with generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. Ernst & Young LLP Los Angeles, California February 7, 1996 F-2 PETERSEN PUBLISHING COMPANY PUBLISHING DIVISION BALANCE SHEETS (IN THOUSANDS)
NOVEMBER 30, --------------- 1994 1995 ------- ------- ASSETS Current assets: Cash and cash equivalents................................... $ 4,183 $ 9,938 Short-term investments...................................... 2,000 3,744 Accounts receivable, less allowance for doubtful accounts of $2,132 in 1994 and $2,220 in 1995.......................... 19,238 18,535 Inventories................................................. 9,501 21,347 Other prepaid expenses and current assets................... 1,129 1,213 ------- ------- Total current assets...................................... 36,051 54,777 Property and equipment, net................................... 6,457 7,784 Investments................................................... 8,513 -- Goodwill, net of accumulated amortization of $812 in 1994 and $1,127 in 1995............................................... 3,553 3,210 Other assets.................................................. 690 1,037 ------- ------- Total assets.............................................. $55,264 $66,808 ======= ======= LIABILITIES AND DIVISIONAL EQUITY Current liabilities: Accounts payable............................................ $ 8,231 $10,436 Accrued payroll and related costs........................... 6,718 6,116 Customer incentives payable................................. 4,849 5,204 Current portion of unearned subscription revenues, net of deferred subscription acquisition costs of $34,996 in 1994 and $38,161 in 1995........................................ 24,394 26,669 Other accrued expenses and current liabilities.............. 2,886 592 ------- ------- Total current liabilities................................. 47,078 49,017 Unearned subscription revenues, net of deferred subscription acquisition costs of $29,194 in 1994 and $31,834 in 1995..... 6,548 7,183 Deferred state income taxes................................... 915 1,321 Other noncurrent liabilities.................................. 362 660 ------- ------- Total liabilities......................................... 54,903 58,181 Commitments and contingencies Divisional equity............................................. 361 8,627 ------- ------- Total liabilities and divisional equity................... $55,264 $66,808 ======= =======
See accompanying notes. F-3 PETERSEN PUBLISHING COMPANY PUBLISHING DIVISION STATEMENTS OF INCOME AND DIVISIONAL EQUITY (IN THOUSANDS)
YEARS ENDED NOVEMBER 30, ---------------------------- 1993 1994 1995 -------- -------- -------- Net revenues: Advertising................................... $105,101 $116,608 $123,410 Newsstand..................................... 37,507 40,048 39,889 Subscriptions................................. 39,820 40,710 41,963 Other......................................... 3,894 4,601 8,353 -------- -------- -------- Total net revenues.......................... 186,322 201,967 213,615 Production, selling and other direct costs...... 141,562 149,182 171,112 -------- -------- -------- Gross profit.................................... 44,760 52,785 42,503 General and administrative expenses............. 35,604 33,267 28,145 -------- -------- -------- Income from operations.......................... 9,156 19,518 14,358 Interest income, net............................ (317) (476) (549) -------- -------- -------- Income before provision for income taxes........ 9,473 19,994 14,907 Provision for state income taxes................ 251 698 549 -------- -------- -------- Net income...................................... 9,222 19,296 14,358 Divisional equity (capital deficiency) at beginning of year.............................. 4,126 (1,553) 361 Distribution of S corporation earnings.......... -- (26,400) (3,391) Net change in advances to other divisions of the Company........................................ (14,901) 9,018 (2,701) -------- -------- -------- Divisional equity (capital deficiency) at end of year........................................... $ (1,553) $ 361 $ 8,627 ======== ======== ========
See accompanying notes. F-4 PETERSEN PUBLISHING COMPANY PUBLISHING DIVISION STATEMENTS OF CASH FLOWS (IN THOUSANDS)
YEARS ENDED NOVEMBER 30, ---------------------------- 1993 1994 1995 -------- -------- -------- OPERATING ACTIVITIES Net income...................................... $ 9,222 $ 19,296 $ 14,358 Adjustments to reconcile net cash provided by operating activities: Depreciation and amortization................. 3,137 3,118 3,439 Allowance for doubtful accounts............... 740 825 900 Deferred state income taxes................... -- 416 406 Changes in operating assets and liabilities: Accounts receivable........................... (2,711) (1,758) (197) Inventories................................... (796) (1,204) (11,846) Other prepaid expenses and current assets..... (389) (162) (84) Other assets.................................. (22) 385 (255) Accounts payable.............................. (4,828) 2,116 2,205 Accrued payable and related costs............. 3,123 842 (602) Customer incentives payable................... 25 830 355 Unearned subscription revenues, net........... 1,964 1,542 2,910 Other accrued expenses and current liabilities.................................. 959 1,111 (2,294) Other noncurrent liabilities.................. 256 (298) 298 -------- -------- -------- Net cash provided by operating activities....... 10,680 27,059 9,593 INVESTING ACTIVITIES Purchases of property and equipment............. (4,739) (2,866) (4,423) Purchases of magazines.......................... (1,850) (1,300) -- Sales of (payments for) investments--net........ 6,559 (10,312) 6,677 -------- -------- -------- Net cash (used in) provided by investing activities..................................... (30) (14,478) 2,254 FINANCING ACTIVITIES Distribution of S corporation earnings.......... -- (26,400) (3,391) Net change in advances to other divisions of the Company........................................ (14,901) 9,018 (2,701) -------- -------- -------- Net cash used in financing activities........... (14,901) (17,382) (6,092) -------- -------- -------- Increase (decrease) in cash and cash equivalents.................................... (4,251) (4,801) 5,755 Cash and cash equivalents at beginning year..... 13,235 8,984 4,183 -------- -------- -------- Cash and cash equivalents at end of year........ $ 8,984 $ 4,183 $ 9,938 ======== ======== ======== Supplemental information: Income taxes paid............................. $ 563 $ 342 $ 263 Interest received............................. 364 350 741 Interest paid................................. -- -- --
See accompanying notes. F-5 PETERSEN PUBLISHING COMPANY PUBLISHING DIVISION NOTES TO FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization Petersen Publishing Company (the "Petersen Company") is a California corporation which is wholly-owned by the R.E. & M.M. Petersen Living Trust. The Publishing Division of the Petersen Company ("Petersen") is engaged in the publishing business with revenues generated primarily from the publication of various special interest magazines and the sale of related advertising, principally within the United States. The Petersen Company's other major division, which is excluded from these financial statements, rents and manages commercial real estate properties and operates ranch properties. The Petersen Company has elected to be taxed as an S corporation for federal and state income tax purposes. Cash Equivalents Cash equivalents consist primarily of debt instruments with maturities of three months or less at the acquisition date. Inventories Inventories consist of paper held at a printing company and are stated at the lower of cost, which approximates the first-in, first-out method, or market. Deferred Subscription Acquisition Costs Deferred subscription acquisition costs consist primarily of agency commissions paid to obtain subscriptions and are amortized over the life of the related subscriptions. Depreciation and Amortization Depreciation is provided on the straight-line method over the estimated useful lives of the assets ranging from 3 to 5 years except for leasehold improvements which are amortized over the lesser of 10 years or the life of the lease. Goodwill Goodwill is amortized using the straight-line method over its useful life of 15 years and resulted from the acquisitions of Sport, Bicycle Guide, and Sassy during fiscal years 1988, 1993, and 1994, respectively. Income Taxes The Petersen Company has elected to be taxed as an S corporation for federal and state income tax purposes. As such, the Petersen Company is not subject to U.S. federal income taxes or most state income taxes. Petersen reports the state income taxes to which it is subject under the liability method as required by Statement No. 109, "Accounting for Income Taxes," issued by the Financial Accounting Standards Board ("FASB"). Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. F-6 PETERSEN PUBLISHING COMPANY PUBLISHING DIVISION NOTES TO FINANCIAL STATEMENTS--(CONTINUED) Revenue Recognition Advertising revenue, net of provisions for related rebates and discounts, is recognized at the "onsale" date of the publication containing the advertisement. Subscription revenue is deferred and recognized pro rata as fulfilled over the terms of such subscriptions and is recorded net of related agency commissions. Sales of magazines intended for retail distribution on newsstands are recorded at the time such publications are available for sale by distributors to the public and are reduced by an estimated provision for returns. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Revenues No customer accounted for over 10% of Petersen's revenues. Petersen's activities occur principally in the United States and revenues from outside the United States are less than 10% of Petersen's revenues. Advertising Expenses Petersen expenses the costs of advertising as incurred. Advertising expense for the years ended November 30, 1993, 1994 and 1995, were (in thousands) $437, $495 and $732, respectively. General and Administrative Expenses General and administrative expenses incurred by the Petersen Company were allocated between Petersen and the Real Estate Division with the Real Estate Division's portion equal to 3% of that Division's revenue which, in the opinion of Petersen's management, approximates the portion of such expenses which apply to the Real Estate Division. 2. FAIR VALUE OF FINANCIAL INSTRUMENTS In accordance with the requirements of Statement of Financial Accounting Standards No. 107, "Disclosures about Fair Value of Financial Instruments," the following methods and assumptions were used by Petersen in estimating its fair value disclosures for financial instruments: Cash and Cash equivalents: The carrying amounts reported in the balance sheets approximate its fair value. Short-term investments: The carrying amounts reported in the balance sheets approximate their fair value based upon quoted market prices. F-7 PETERSEN PUBLISHING COMPANY PUBLISHING DIVISION NOTES TO FINANCIAL STATEMENTS--(CONTINUED) 3. INVENTORIES Inventories consist of (in thousands):
NOVEMBER 30, -------------- 1994 1995 ------ ------- Paper....................................................... $5,461 $16,330 Magazines in process........................................ 4,040 5,017 ------ ------- $9,501 $21,347 ====== =======
4. PROPERTY AND EQUIPMENT Property and equipment consists of (in thousands):
NOVEMBER 30, --------------- 1994 1995 ------- ------- Buildings................................................. $ 342 $ 518 Office furniture and fixtures............................. 11,817 14,164 Machinery and equipment................................... 4,699 6,447 ------- ------- 16,858 21,129 Less accumulated depreciation and amortization............ 10,401 13,345 ------- ------- $ 6,457 $ 7,784 ======= =======
5. NOTES PAYABLE As of November 30, 1995, the Petersen Company had $3,000,000 available under an unsecured revolving line of credit (the "Agreement"). Subsequent to November 30, 1995, the Company renegotiated the terms of the Agreement increasing the amount available under the line to $10,000,000 and borrowed $10,000,000. The Agreement matures on December 27, 1996 and provides for interest at a fluctuating rate equal to the London Inter-bank Offered Rate plus 1.0% and is payable quarterly. The Agreement contains certain financial and nonfinancial covenants. The borrowings were repaid in full during 1996 (unaudited). 6. INCOME TAXES The liability for federal income taxes of an S corporation is the obligation of the Petersen Company's stockholder. Therefore, no provision or liability for federal income taxes is included in the accompanying financial statements. The provision for income taxes is comprised of California franchise taxes at a rate of 1.5%, which is the rate applicable to taxable income of S corporations, and provisions for income taxes in certain other states in which Petersen has operations. F-8 PETERSEN PUBLISHING COMPANY PUBLISHING DIVISION NOTES TO FINANCIAL STATEMENTS--(CONTINUED) The provision for income taxes consists of the following (in thousands):
YEARS ENDED NOVEMBER 30, -------------------------- 1993 1994 1995 -------- -------- -------- State: Current....................................... $ 251 $ 282 $ 143 Deferred...................................... -- 416 406 -------- -------- -------- $ 251 $ 698 $ 549 ======== ======== ========
A reconciliation of the provision for income taxes computed by applying the federal statutory rate of 34% to income before income taxes and the reported provision for income taxes is as follows (in thousands):
YEARS ENDED NOVEMBER 30, ---------------------------- 1993 1994 1995 -------- -------- -------- Income tax provision computed at statutory federal income tax rate.................. $ 3,221 $ 6,798 $ 5,068 State income taxes........................ 251 698 549 Effect of S Corporation election.......... (3,221) (6,798) (5,068) -------- -------- -------- Total provision......................... $ 251 $ 698 $ 549 ======== ======== ========
Petersen had deferred tax assets and liabilities as follows (in thousands):
NOVEMBER 30, ---------------- 1994 1995 ------- ------- Deferred tax asset: Accrued liabilities................................... $ 226 $ 220 Deferred tax liabilities: Subscription acquisition costs........................ (1,141) (1,541) ------- ------- Total deferred income tax liability................. $ (915) $(1,321) ======= =======
7. PROFIT-SHARING RETIREMENT PLAN The Petersen Company has a profit-sharing retirement plan (the "Plan") for employees, which has been qualified for tax exempt status by the Internal Revenue Service. Under the Plan, the Petersen Company may, at its discretion, make annual contributions for all eligible employees not to exceed 15% of their aggregate annual compensation. Petersen's contributions to the Plan for the years ended November 30, 1993, 1994 and 1995 were (in thousands) $3,001, $3,271 and $1,294, respectively. 8. COMMITMENTS AND CONTINGENCIES Leases Rent expense through November 30, 1994 includes amounts charged by the Petersen Company's Real Estate Division to Petersen for the use of various office facilities owned by the Petersen Company which were used by Petersen for its principal operating and corporate headquarters. As of that date, the Petersen Company sold its corporate headquarters building, which was first occupied by Petersen in March 1993, to its stockholder and F-9 PETERSEN PUBLISHING COMPANY PUBLISHING DIVISION NOTES TO FINANCIAL STATEMENTS--(CONTINUED) subsequent thereto Petersen's rent for this facility has been paid to the Petersen Company's stockholder in accordance with a lease which had an initial term of 15 years and expires November 30, 2009. In addition to the annual rentals, certain of the leases include renewal options and require payments of real estate taxes, insurance and other expenses. Rent expense is as follows (in thousands):
REAL ESTATE DIVISION OR SHAREHOLDER OTHERS TOTAL ----------- ------ ------ Year ended November 30: 1993........................................... $3,651 $1,290 $4,941 1994........................................... 3,939 1,130 5,069 1995........................................... 3,875 1,575 5,450
At November 30, 1995, minimum future annual rentals under long-term leases are as follows (in thousands):
SHAREHOLDER OTHERS TOTAL ----------- ------ ------- 1996.......................................... $ 4,596 $1,127 $ 5,723 1997.......................................... 4,676 1,109 5,785 1998.......................................... 4,758 910 5,668 1999.......................................... 4,841 853 5,694 2000.......................................... 4,926 853 5,779 Thereafter to 2009............................ 48,399 3,549 51,948 ------- ------ ------- $72,196 $8,401 $80,597 ======= ====== =======
Contingencies Petersen is a party to various legal actions and disputes arising in the ordinary course of business. Management believes, based on the advice of counsel, that any resulting liabilities from these actions will not have a material adverse effect on the financial position of Petersen. 9. EVENT SUBSEQUENT TO NOVEMBER 30, 1995 (UNAUDITED) In February 1996, Petersen sold all of its assets relating to its pre-press operations for approximately $2,500,000 in cash resulting in a gain of $1,554,000. On August 15, 1996, the Petersen Company entered into an asset purchase agreement to sell substantially all of the assets of Petersen to BrightView Communications Group, Inc. for approximately $450 million plus assumption of liabilities. The acquisition was consummated on September 30, 1996. F-10 PETERSEN PUBLISHING COMPANY PUBLISHING DIVISION UNAUDITED CONDENSED BALANCE SHEET (IN THOUSANDS)
AUGUST 31, 1996 ---------- ASSETS Current assets: Cash and cash equivalents......................................... $19,195 Short-term investments............................................ 55 Accounts receivable, less allowance for doubtful accounts of $2,326........................................................... 17,914 Inventories....................................................... 10,232 Other prepaid expenses and current assets......................... 678 ------- Total current assets............................................ 48,074 Property and equipment, net......................................... 5,342 Investments......................................................... 334 Goodwill, net of accumulated amortization of $1,526................. 2,952 Other assets........................................................ 790 ------- Total assets.................................................... $57,492 ======= LIABILITIES AND DIVISIONAL EQUITY Current liabilities: Accounts payable.................................................. $ 6,651 Accrued payroll and related costs................................. 5,639 Customer incentives payable....................................... 5,672 Current portion of unearned subscription revenues, net of deferred subscription acquisition costs of $44,165........................ 26,987 Other accrued expenses and current liabilities.................... 841 ------- Total current liabilities....................................... 45,790 Unearned subscription revenues, net of deferred subscription acquisition costs of $36,842....................................... 5,981 Deferred state income taxes......................................... 1,321 Other noncurrent liabilities........................................ 77 ------- Total liabilities............................................... 53,169 Commitments and contingencies Divisional equity................................................... 4,323 ------- Total liabilities and divisional equity......................... $57,492 =======
See accompanying notes to unaudited condensed financial statements. F-11 PETERSEN PUBLISHING COMPANY PUBLISHING DIVISION UNAUDITED CONDENSED STATEMENTS OF INCOME AND DIVISIONAL EQUITY (IN THOUSANDS)
NINE MONTHS ENDED AUGUST 31, ------------------ 1995 1996 -------- -------- Net revenues: Advertising.............................................. $ 92,062 $ 99,108 Newsstand................................................ 29,768 30,967 Subscriptions............................................ 31,559 31,666 Other.................................................... 6,845 7,071 -------- -------- Total net revenues..................................... 160,234 168,812 Production, selling and other direct costs................. 127,305 133,034 -------- -------- Gross profit............................................... 32,929 35,778 General and administrative expenses........................ 20,109 20,920 -------- -------- Income from operations..................................... 12,820 14,858 Interest income, net....................................... (335) (306) Gain on sale of assets..................................... -- (1,554) -------- -------- Income before provision for income taxes................... 13,155 16,718 Provision for state income taxes........................... 304 393 -------- -------- Net income................................................. 12,851 16,325 Divisional equity at beginning of period................... 361 8,627 Distribution of S corporation earnings..................... (3,300) (19,450) Net change in advances to other divisions of the Company... (1,804) (1,179) -------- -------- Divisional equity at end of period......................... $ 8,108 $ 4,323 ======== ========
See accompanying notes to unaudited condensed financial statements. F-12 PETERSEN PUBLISHING COMPANY PUBLISHING DIVISION UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
NINE MONTHS ENDED AUGUST 31, ------------------- 1995 1996 -------- --------- OPERATING ACTIVITIES Net income............................................... $ 12,851 $ 16,325 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization.......................... 2,389 2,449 Allowance for doubtful accounts........................ 675 450 Gain on sale of assets................................. -- (1,554) Changes in operating assets and liabilities: Accounts receivable.................................. 2,445 171 Inventories.......................................... (6,924) 11,115 Other prepaid expenses and current assets............ 27 535 Other assets......................................... (263) 310 Accounts payable..................................... (1,958) (3,785) Accrued payroll and related costs.................... (1,733) (477) Customer incentives payable.......................... (286) 468 Unearned subscription revenues, net.................. (2,330) (883) Other accrued expenses and current liabilities....... (2,122) 248 Other noncurrent liabilities......................... 224 (583) -------- --------- Net cash provided by operating activities................ 2,995 24,789 INVESTING ACTIVITIES Purchases of property and equipment...................... (3,069) (695) Proceeds from sale of assets............................. -- 2,500 Sales of investments--net................................ 6,668 3,292 -------- --------- Net cash provided by investing activities................ 3,599 5,097 FINANCING ACTIVITIES Proceeds from bank borrowing............................. -- 10,000 Repayment of bank borrowing.............................. -- (10,000) Distribution of S Corporation earnings................... (3,300) (19,450) Net change in advances to other divisions of the Company................................................. (1,804) (1,179) -------- --------- Net cash used in financing activities.................... (5,104) (20,629) -------- --------- Increase in cash and cash equivalents.................... 1,490 9,257 Cash and cash equivalents at beginning of period......... 4,183 9,938 -------- --------- Cash and cash equivalents at end of period............... $ 5,673 $ 19,195 ======== =========
See accompanying notes to unaudited condensed financial statements. F-13 PETERSEN PUBLISHING COMPANY PUBLISHING DIVISION NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION Petersen Publishing Company (the "Petersen Company") is a California corporation which is wholly-owned by the R.E. & M.M. Petersen Living Trust. The Publishing Division of the Petersen Company ("Petersen") is engaged in the publishing business with revenues generated primarily from the publication of various special-interest magazines and the sale of related advertising, principally within the United States. The Petersen Company's other major division, which is excluded from these financial statements, rents and manages commercial real estate properties and operates ranch properties. The Company has elected to be taxed as an S corporation for federal and state income tax purposes. Significant Accounting Policies See Note 1 to the Notes to Financial Statements appearing elsewhere herein for a summary of Petersen's significant accounting policies. 2. INVENTORIES Inventories consist of (dollars in thousands):
AUGUST 31, 1996 ---------- Paper........................................................... $ 5,115 Magazines in process............................................ 5,117 ------- $10,232 =======
3. PROPERTY AND EQUIPMENT Property and equipment consists of (dollars in thousands):
AUGUST 31, 1996 ---------- Buildings and improvements...................................... $ 366 Office furniture and fixtures................................... 12,030 Machinery and equipment......................................... 6,189 ------- 18,585 Less accumulated depreciation and amortization.................. 13,243 ------- $ 5,342 =======
4. NOTES PAYABLE As of November 30, 1995, the Petersen Company had $3,000,000 available under an unsecured revolving line of credit (the "Agreement"). Subsequent to November 30, 1995, the Petersen Company renegotiated the terms of the Agreement increasing the amount available under the line to $10,000,000 and borrowed $10,000,000. The Agreement matures on December 27, 1996 and provides for interest at a fluctuating rate equal to the London Inter-bank Offered Rate plus 1.0% and is payable quarterly. The Agreement contains certain financial and nonfinancial covenants. The borrowings were repaid in full during the nine months ended August 31, 1996. F-14 PETERSEN PUBLISHING COMPANY PUBLISHING DIVISION NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS--(CONTINUED) 5. PROFIT-SHARING RETIREMENT PLAN The Petersen Company has a profit-sharing retirement plan (the "Plan") for employees, which has been qualified for tax exempt status by the Internal Revenue Service. Under the Plan, the Petersen Company may, at its discretion, make annual contributions for all eligible employees not to exceed 15% of their aggregate annual compensation. Petersen's contributions to the Plan for the nine months ended August 31, 1995 and 1996 were (in thousands) $975 and $971, respectively. 6. COMMITMENTS AND CONTINGENCIES Leases Petersen leases its headquarters building from a stockholder of the Petersen Company in accordance with a lease which expires November 30, 2009. In addition, Petersen leases various office facilities from the company and others. In addition to the annual rentals, certain of the leases include renewal options and require payments of real estate taxes, insurance and other expenses. Rent expense is as follows (dollars in thousands):
REAL ESTATE DIVISION OR SHAREHOLDER OTHERS TOTAL ----------- ------ ------ Nine months ended August 31: 1995............................................ $2,778 $1,145 $3,923 1996............................................ 3,400 1,381 4,781
Contingencies Petersen is a party to various legal actions and disputes arising in the ordinary course of business. Management believes, based on the advice of counsel, that any resulting liabilities from these actions will not have a material adverse effect on the financial position of Petersen. 7. SALES OF CERTAIN ASSETS In February 1996, the Petersen Company sold all of its assets relating to its pre-press operations for approximately $2,500,000 in cash, resulting in a gain of $1,554,000. On August 15, 1996, the Petersen Company entered into an asset purchase agreement to sell substantially all of the assets of Petersen to BrightView Communications Group, Inc. for approximately $450 million, plus the assumption of certain liabilities. The acquisition was consummated on September 30, 1996. F-15 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH IN- FORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE ISSUERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR A SOLICITATION IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS OF THE ISSUERS SINCE THE DATE HEREOF. ---------------- TABLE OF CONTENTS
PAGE ---- Available Information.................................................... iii Summary.................................................................. 1 Risk Factors............................................................. 18 The Transactions......................................................... 24 The Investors............................................................ 25 Use of Proceeds.......................................................... 25 Capitalization........................................................... 26 Unaudited Pro Forma Financial Data....................................... 27 Selected Historical Financial Data....................................... 36 Management's Discussion and Analysis of Financial Condition and Results of Operations........................................................... 37 Business................................................................. 43 Management............................................................... 57 Certain Transactions..................................................... 62 Security Ownership of Certain Beneficial Owners and Management........... 64 Limited Liability Company Agreement...................................... 66 Description of Senior Credit Facility.................................... 67 The Exchange Offer....................................................... 69 Description of the Notes................................................. 77 Certain Federal Income Tax Consequences.................................. 101 Plan of Distribution..................................................... 102 Legal Matters............................................................ 102 Index to Financial Statements............................................ F-1 Independent Auditors..................................................... F-2
UNTIL , 1997 (90 DAYS AFTER THE COMMENCEMENT OF THE EXCHANGE OFFER), ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DE- LIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UN- SOLD ALLOTMENTS OR SUBSCRIPTIONS. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- ---------------- PROSPECTUS ---------------- $100,000,000 PETERSEN PUBLISHING COMPANY, L.L.C. PETERSEN CAPITAL CORP. OFFER TO EXCHANGE THEIR 11 1/8% SERIES B SENIOR SUBORDINATED NOTES DUE 2006 FOR ANY AND ALL OF THEIR OUTSTANDING 11 1/8% SENIOR SUBORDINATED NOTES DUE 2006 , 1997 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS. The Company. The Company is a limited liability company organized under the laws of the State of Delaware. Section 18-108 of the Delaware Limited Liability Company Act provides that, subject to such standards and restrictions, if any, as are set forth in its limited liability company agreement, a limited liability company may, and shall have the power to, indemnify and hold harmless any member or manager or other person from and against any and all claims and demands whatsoever. Article V of the Company's Limited Liability Company Agreement ("Article V") provides, among other things, that each natural person, partnership (whether general or limited), limited liability company, trust, estate, association, corporation, custodian, nominee or any entity in its own or any representative capacity ("Person"), who was or is made a party or is threatened to be made a party to or is involved in any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or arbitrative (a "Proceeding"), or any appeal in such a Proceeding or any inquiry or investigation that could lead to such a Proceeding, by reason of the fact that such Person, or a Person of which he is the legal representative, is or was a Member, Managing Member or Officer shall be indemnified by the Company to the fullest extent permitted by applicable law, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Company to provide broader indemnification rights than said law permitted the Company to provide prior to such amendment) against judgments, penalties (including excise and similar taxes and punitive damages), fines, settlements and reasonable expenses (including, without limitation, reasonable attorneys' fees) actually incurred by such Person in connection with such Proceeding, appeal, inquiry or investigation, and indemnification under Article V shall continue as to a Person who has ceased to serve in the capacity which initially entitled such Person to indemnity hereunder. Article V also provides that the right to indemnification conferred in Article V shall include the right to be paid or reimbursed by the Company the reasonable expenses incurred by a Person of the type entitled to be indemnified under Article V who was, is or is threatened to be, made a named defendant or respondent in a Proceeding in advance of the final disposition of the Proceeding and without any determination as to the Person's ultimate entitlement to indemnification; provided, however, that the payment of such expenses incurred by any such Person in advance of the final disposition of a Proceeding shall be made only upon delivery to the Company of a written affirmation by such Person of his or her good faith belief that he has met the standard of conduct necessary for indemnification under Article V and a written undertaking, by or on behalf of such Person, to repay all amounts so advanced if it shall ultimately be determined that such indemnified Person is not to be indemnified under Article V or otherwise. Article V also provides that the Company may purchase and maintain insurance, at its expense, to protect itself and any Member, Officer or agent of the Company who is or was serving at the request of the Company as a manager, director, officer, partner, venturer, proprietor, trustee, employee, agent or similar functionary of a foreign or domestic limited liability company, corporation, partnership, joint venture, sole proprietorship, trust, employee benefit plan or other enterprise against any expense, liability or loss, whether or not the Company would have the power to indemnify such Person against such expense, liability or loss under Article V. The Company intents to obtain insurance policies covering all of its Directors and officers against certain liabilities for actions taken in such capacities, including liabilities under the Securities Act of 1933. Capital. Capital is incorporated under the laws of the State of Delaware. Section 145 of the General Corporation Law of the State of Delaware, inter alia, ("Section 145") provides that a Delaware corporation may indemnify any persons who were, are or are threatened to be made, parties to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action II-1 by or in the right of such corporation), by reason of the fact that such person is or was an officer, director, employee or agent of such corporation, or is or was serving at the request of such corporation as a director, officer employee or agent of another corporation or enterprise. The indemnity may include expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding, provided such person acted in good faith and in a manner he reasonably believed to be in or not opposed to the corporation's best interests and, with respect to any criminal action or proceeding, had no reasonable cause to believe that his conduct was illegal. A Delaware corporation may indemnify any persons who are, were or are threatened to be made, a party to any threatened, pending or completed action or suit by or in the right of the corporation by reasons of the fact that such person was a director, officer, employee or agent of such corporation, or is or was serving at the request of such corporation as a director, officer, employee or agent of another corporation or enterprise. The indemnity may include expenses (including attorneys' fees) actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit, provided such person acted in good faith and in a manner he reasonably believed to be in or not opposed to the corporation's best interests, provided that no indemnification is permitted without judicial approval if the officer, director, employee or agent is adjudged to be liable to the corporation. Where an officer, director, employee or agent is successful on the merits or otherwise in the defense of any action referred to above, the corporation must indemnify him against the expenses which such officer or director has actually and reasonably incurred. Capital's Certificate of Incorporation provides that, to the fullest extent permitted by the General Corporation Law of the State of Delaware as the same exists or may hereafter be amended, a director of Capital shall not be liable to Capital or its stockholders for monetary damages for a breach of fiduciary duty as a director. Article V of the By-laws of Capital ("Article V") provides, among other things, that each person who was or is made a party or is threatened to be made a party to or is involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he, or a person of whom he is the legal representative, is or was a director or officer, of the corporation or is or was serving at the request of Capital as a director, officer, employee, fiduciary, or agent of another corporation or of a partnership, joint venture, trust or other enterprise, shall be indemnified and held harmless by Capital to the fullest extent which it is empowered to do so by the General Corporation Law of the State of Delaware, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits Capital to provide broader indemnification rights than said law permitted the corporation to provide prior to such amendment) against all expense, liability and loss (including attorneys' fees actually and reasonably incurred by such person in connection with such proceeding) and such indemnification shall inure to the benefit of his or her heirs, executors and administrators; provided, however, that, Capital shall indemnify any such person seeking indemnification in connection with a proceeding initiated by such person only if such proceeding was authorized by the board of directors of Capital. Article V also provides that persons who are not covered by the foregoing provisions of Article V and who are or were employees or agents of Capital, or who are or were serving at the request of Capital as employees or agents of another corporation, partnership, joint venture, trust or other enterprise, may be indemnified to the extent authorized at any time or from time to time by the board of directors. Section 145 further authorizes a corporation to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation or enterprise, against any liability asserted against him and incurred by him in any such capacity, arising out of his status as such, whether or not the corporation would otherwise have the power to indemnify him under Section 145. Article V further provides that Capital may purchase and maintain insurance on its own behalf and on behalf of any person who is or was a director, officer, employee, fiduciary, or agent of Capital or was serving at the request of Capital as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him or her and incurred by him or her in any such II-2 capacity, whether or not Capital would have the power to indemnify such person against such liability under Article V. All of Capital's directors and officers will be covered by insurance policies intended to be obtained by Capital against certain liabilities for actions taken in such capacities, including liabilities under the Securities Act of 1933. ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. (A) EXHIBITS. 2.1 Asset Purchase Agreement, dated as of August 15, 1996, by and between BrightView Communications Group, Inc. ("BrightView") and Petersen Publishing Company (the "Seller"), as amended by the Letter Agreement, dated as of September 30, 1996, by and among the Seller, BrightView, the Company and the Guarantor.+ 3.1 Limited Liability Company Agreement, dated as of September 30, 1996, by and among the Company and the Investors.* 3.2 Certificate of Formation of the Company. 3.3 Certificate of Incorporation of Capital. 3.4 By-Laws of Capital. 3.5 Certificate of Formation of Holdings 4.1 Indenture, dated as of November 15, 1996, by and among the Company, Capital, Holdings and certain restricted subsidiaries, as guarantors and United States Trust Company of New York, as trustee. 4.2 Forms of 11 1/8% Senior Subordinated Notes and Series B 11 1/8% Senior Subordinated Notes.* 4.3 Securities Purchase Agreement, dated November 20, 1996, by and among the Company, Capital , the guarantor named therein and the Initial Purchasers. 4.4 Credit Agreement, dated as of September 30, 1996, by and among the Company, the Lenders named therein, First Union National Bank of North Carolina ("First Union"), as Administrative Agent and Syndication Agent and CIBC, Inc., as Documentation Agent.* 4.5 Pledge and Security Agreement, dated as of September 30, 1996, by and between the Company and First Union, as Administrative Agent.* 4.6 Pledge and Security Agreement, dated as of September 30, 1996, by and among BrightView, the Guarantor and First Union, as Administrative Agent.* 4.7 Guaranty, dated as of September 30, 1996, by and among BrightView, the Guarantor and First Union, as Administrative Agent.* 4.8 Senior Subordinated Credit Agreement, dated as of September 30, 1996, among the Company, the guarantors named therein, the Lenders named therein and First Union, as Agent.* 4.9 Registration Rights Agreement, dated as of November 25, 1996, by and among the Company, the guarantor named therein and First Union and CIBC Wood Gundy Securities Corp., as Initial Purchasers.* 5.1 Opinion of Kirkland & Ellis.* 10.1 License Agreement, dated as of August 15, 1996, by and between Robert E. Petersen, BrightView and the Seller. 10.2 Employment Agreement, dated as of August 15, 1996, by and between BrightView and Robert E. Petersen. 10.3 Executive Securities Purchase and Employment Agreement, dated as of September 30, 1996, by and among BrightView, the Guarantor, the Company and D. Claeys Bahrenburg.*
II-3 10.4 Executive Securities Purchase and Employment Agreement, dated as of September 30, 1996, by and among BrightView, the Guarantor, the Company and Neal Vitale.* 10.5 Executive Securities Purchase and Employment Agreement, dated as of September 30, 1996, by and among BrightView, the Guarantor, the Company and Richard S. Willis.* 10.6 Securities Purchase Agreement, dated as of September 30, 1996, made by and among the Guarantor, Petersen Investment Corp., BrightView, the Seller, Willis Stein & Partners, L.P., and the other Persons set forth on Schedule A thereto.* 10.7 Securityholders Agreement, dated as of September 30, 1996, among Petersen Investment Corp., the Guarantor, BrightView and the other parties thereto.* 10.8 Promissory Note, dated as of September 30, 1996, from D. Claeys Bahrenburg in favor of BrightView in the amount of $8,000.* 10.9 Promissory Note, dated as of September 30, 1996, from D. Claeys Bahrenburg in favor of BrightView in the amount of $2,000.* 10.10 Promissory Note, dated as of September 30, 1996, from D. Claeys Bahrenburg in favor of Holdings in the amount of $891,000.* 10.11 Promissory Note, dated as of September 30, 1996, from D. Claeys Bahrenburg in favor of Holdings in the amount of $99,000.* 10.12 Promissory Note, dated as of September 30, 1996, from Neal Vitale in favor of BrightView in the amount of $7,500.* 10.13 Promissory Note, dated as of September 30, 1996, from Neal Vitale in favor of Holdings in the amount of $742,500.* 12.1 Statement Regarding Computation of Ratios of Earnings to Fixed Charges.* 21.1 Subsidiaries of the Company and Capital. 23.1 Consent of Ernst & Young L.L.P. 23.3 Consent of Kirkland & Ellis (included in Exhibit 5.1).* 24.1 Powers of Attorney (included in Part I to the Registration Statement). 25.1 Statement of Eligibility of Trustee on Form T-1.* 27.1 Financial Data Schedule. 99.1 Form of Letter of Transmittal.* 99.2 Form of Notice of Guaranteed Delivery.* 99.3 Form of Tender Instructions.*
- -------- * To be filed by amendment. + The Company agrees to furnish supplementally to the Commission a copy of any omitted schedule or exhibit to such agreement upon request by the Commission. (B) FINANCIAL STATEMENT SCHEDULES. Schedule II--Petersen Publishing Company, L.L.C.--Valuation and Qualifying Accounts. All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions, are inapplicable or not material, or the information called for thereby is otherwise included in the financial statements and therefore has been omitted. ITEM 22. UNDERTAKINGS. The undersigned registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement; (i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; II-4 (ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement; (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement; (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at the time shall be deemed to be the initial bonafide offering thereof; (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering; and (4) The undersigned registrant hereby undertakes as follows: that prior to any public reoffering of the securities registered hereunder through use of a prospectus which is a part of this registration statement, by any person or party who is deemed to be an underwriter within the meaning of Rule 145(c), the issuer undertakes that such reoffering prospectus will contain the information called for by the applicable registration form with respect to reofferings by persons who may be deemed underwriters, in addition to the information called for by the other items of the applicable form. (5) The registrant undertakes that every prospectus: (i) that is filed pursuant to paragraph (1) immediately preceding, or (ii) that purports to meet the requirements of Section 10(a)(3) of the Act and is used in connection with an offering of securities subject to Rule 415, will be filed as a part of an amendment to the registration statement and will not be used until such amendment is effective, and that, for purposes of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the "Securities Act") may be permitted to directors, officers and controlling persons of the registrant pursuant to the provisions described under Item 20 or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. (6) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. (7) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (8) The undersigned registrant hereby undertakes to respond to requests for information that is incorporated by reference into the prospectus pursuant to Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other II-5 equally prompt means. This includes information contained in documents filed subsequent to the effective date of the registration statement through the date of responding to the request. (9) The undersigned registrant hereby undertakes to supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the registration statement when it became effective. II-6 SIGNATURES PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, PETERSEN PUBLISHING COMPANY, L.L.C. HAS DULY CAUSED THIS REGISTRATION STATEMENT ON FORM S-4 TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF LOS ANGELES, STATE OF CALIFORNIA ON DECEMBER 16, 1996. PETERSEN PUBLISHING COMPANY, L.L.C. /s/ D. Claeys Bahrenburg By: _________________________________ D. Claeys Bahrenburg Chief Executive Officer POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Richard S. Willis, Daniel H. Blumenthal and Bradley J. Shisler and each of them, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any or all amendments (including post-effective amendments) to this registration statement (and any registration statement filed pursuant to Rule 462(b) under the Securities Act of 1933, as amended, for the offerings which this Registration Statement relates), and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. * * * * PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION STATEMENT AND POWER OF ATTORNEY HAVE BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED: SIGNATURE CAPACITY DATES /s/ D. Claeys Bahrenburg Chief Executive December 16, - ------------------------------------- Officer and 1996 D. CLAEYS BAHRENBURG Director of BrightView* (Principal Executive Officer) /s/ Richard S. Willis Executive Vice December 16, - ------------------------------------- President--Chief 1996 RICHARD S. WILLIS Financial Officer (Principal Financial and Accounting Officer) /s/ Neal Vitale Director of December 16, - ------------------------------------- BrightView* 1996 NEAL VITALE II-7 SIGNATURE CAPACITY DATES /s/ James D. Dunning, Jr. Director of December 16, - ------------------------------------- BrightView* 1996 JAMES D. DUNNING, JR. /s/ Laurence H. Bloch Director of December 16, - ------------------------------------- BrightView* 1996 LAURENCE H. BLOCH /s/ Avy H. Stein Director of December 16, - ------------------------------------- BrightView* 1996 AVY H. STEIN /s/ Daniel H. Blumenthal Director of December 16, - ------------------------------------- BrightView* 1996 DANIEL H. BLUMENTHAL /s/ Stuart Karu Director of December 16, - ------------------------------------- BrightView* 1996 STUART KARU - -------- * BrightView is the Managing Member of Petersen Holdings, L.L.C., which is in turn the Managing Member of Petersen Publishing Company, L.L.C. II-8 SIGNATURES PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, PETERSEN CAPITAL CORP. HAS DULY CAUSED THIS REGISTRATION STATEMENT ON FORM S-4 TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF LOS ANGELES, STATE OF CALIFORNIA ON DECEMBER 16, 1996. Petersen Capital Corp. /s/ James D. Dunning, Jr. By: _________________________________ James D. Dunning, Jr. Chairman POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Richard S. Willis, Daniel H. Blumenthal and Bradley J. Shisler and each of them, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any or all amendments (including post-effective amendments) to this registration statement (and any registration statement filed pursuant to Rule 462(b) under the Securities Act of 1933, as amended, for the offerings which this Registration Statement relates), and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. * * * * PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION STATEMENT AND POWER OF ATTORNEY HAVE BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED: SIGNATURE CAPACITY DATES /s/ James D. Dunning, Jr. Chairman and December 16, - ------------------------------------- Director (Principal 1996 JAMES D. DUNNING, JR. Executive Officer) /s/ Richard S. Willis Chief Financial December 16, - ------------------------------------- Officer (Principal 1996 RICHARD S. WILLIS Financial and Accounting Officer) /s/ Neal Vitale Director December 16, - ------------------------------------- 1996 NEAL VITALE II-9 SIGNATURE CAPACITY DATES /s/ D. Claeys Bahrenburg Director December 16, - ------------------------------------- 1996 D. CLAEYS BAHRENBURG /s/ Laurence H. Bloch Director December 16, - ------------------------------------- 1996 LAURENCE H. BLOCH /s/ Avy H. Stein Director December 16, - ------------------------------------- 1996 AVY H. STEIN /s/ Daniel H. Blumenthal Director December 16, - ------------------------------------- 1996 DANIEL H. BLUMENTHAL /s/ Stuart Karu Director December 16, - ------------------------------------- 1996 STUART KARU II-10 SIGNATURES PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, PETERSEN HOLDINGS, L.L.C. HAS DULY CAUSED THIS REGISTRATION STATEMENT ON FORM S-4 TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF LOS ANGELES, STATE OF CALIFORNIA ON DECEMBER 16, 1996. Petersen Holdings, L.L.C. /s/ James D. Dunning, Jr. By: _________________________________ James D. Dunning, Jr. Chairman POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Richard S. Willis, Daniel H. Blumenthal and Bradley J. Shisler and each of them, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any or all amendments (including post-effective amendments) to this registration statement (and any registration statement filed pursuant to Rule 462(b) under the Securities Act of 1933, as amended, for the offerings which this Registration Statement relates), and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. * * * * PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION STATEMENT AND POWER OF ATTORNEY HAVE BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED: SIGNATURE CAPACITY DATES /s/ James D. Dunning, Jr. Chairman and December 16, - ------------------------------------- Director of 1996 JAMES D. DUNNING, JR. BrightView* (Principal Executive Officer) /s/ Laurence H. Bloch Chief Financial December 16, - ------------------------------------- Officer and 1996 LAURENCE H. BLOCH Director of BrightView* (Principal Financial and Accounting Officer) /s/ Neal Vitale Director of December 16, - ------------------------------------- BrightView* 1996 NEAL VITALE II-11 SIGNATURE CAPACITY DATES /s/ D. Claeys Bahrenburg Director of December 16, - ------------------------------------- BrightView* 1996 D. CLAEYS BAHRENBURG /s/ Avy H. Stein Director of December 16, - ------------------------------------- BrightView* 1996 AVY H. STEIN /s/ Daniel H. Blumenthal Director of December 16, - ------------------------------------- BrightView* 1996 DANIEL H. BLUMENTHAL /s/ Stuart Karu Director of December 16, - ------------------------------------- BrightView* 1996 STUART KARU - -------- * BrightView is the Managing Member of Petersen Holdings, L.L.C. II-12 EXHIBITS - -------- 2.1 Asset Purchase Agreement, dated as of August 15, 1996, by and between BrightView Communications Group, Inc. ("BrightView") and Petersen Publishing Company (the "Seller"), as amended by the Letter Agreement, dated as of September 30, 1996, by and among the Seller, BrightView, the Company and the Guarantor.+ 3.1 Limited Liability Company Agreement, dated as of September 30, 1996, by and among the Company and the Investors.* 3.2 Certificate of Formation of the Company. 3.3 Certificate of Incorporation of Capital. 3.4 By-Laws of Capital. 4.1 Indenture, dated as of November 15, 1996, by and among the Company, Capital, Holdings and certain restricted subsidiaries, as guarantors and United States Trust Company of New York, as trustee. 4.2 Forms of 11-1/8% Senior Subordinated Notes and Series B 11-1/8% Senior Subordinated Notes*. 4.3 Securities Purchase Agreement, dated November 20, 1996, by and among the Company, Capital, the guarantor named therein and the Initial Purchasers. 4.4 Credit Agreement, dated as of September 30, 1996, by and among the Company, the Lenders named therein, First Union National Bank of North Carolina ("First Union"), as Administrative Agent and Syndication Agent and CIBC, Inc., as Documentation Agent.* 4.5 Pledge and Security Agreement, dated as of September 30, 1996, by and between the Company and First Union, as Administrative Agent.* 4.6 Pledge and Security Agreement, dated as of September 30, 1996, by and among BrightView, the Guarantor and First Union, as Administrative Agent.* 4.7 Guaranty, dated as of September 30, 1996, by and among BrightView, the Guarantor and First Union, as Administrative Agent.* 4.8 Senior Subordinated Credit Agreement, dated as of September 30, 1996, among the Company, the guarantors named therein, the Lenders named therein and First Union, as Agent.* 4.9 Registration Rights Agreement, dated as of November 25, 1996, by and among the Company, the guarantor named therein and First Union and CIBC Wood Gundy Securities Corp., as Initial Purchasers.* 5.1 Opinion of Kirkland & Ellis.* 10.1 License Agreement, dated as of August 15, 1996, by and between Robert E. Petersen, BrightView and the Seller. 10.2 Employment Agreement, dated as of August 15, 1996, by and between BrightView and Robert E. Petersen. 10.3 Executive Securities Purchase and Employment Agreement, dated as of September 30, 1996, by and among BrightView, the Guarantor, the Company and D.Claeys Bahrenburg.* 10.4 Executive Securities Purchase and Employment Agreement, dated as of September 30, 1996, by and among BrightView, the Guarantor, the Company and Neal Vitale.* 10.5 Executive Securities Purchase and Employment Agreement, dated as of September 30, 1996, by and among BrightView, the Guarantor, the Company and Richard S. Willis.* 10.5 Securities Purchase Agreement, dated as of September 30, 1996, made by and among the Guarantor, Petersen Investment Corp., BrightView, the Seller, Willis Stein & Partners, L.P., and the other Person set forth on Schedule A thereto.* ---------- 10.7 Securityholders Agreement, dated as of September 30, 1996, among Petersen Investment Corp., the Guarantor, BrightView and the other parties thereto.* 10.8 Promissory Note, dated as of September 30, 1996, from D. Claeys Bahrenburg in favor of Bright View in the amount of $8,000.* 10.9 Promissory Note, dated as of September 30, 1996, from D. Claeys Bahrenburg in favor of BrightView in the amount of $2,000* 10.10 Promissory Note, dated as of September 30, 1996, from D. Claeys Bahrenburg in favor of Holdings in the amount of $891,000.* 10.11 Promissory Note, dated as of September 30, 1996, from D. Claeys Bahrenburg in favor of Holdings in the amount of $99,000.* 10.12 Promissory Note, dated as of September 30, 1996, from Neal Vitale in favor of BrightView in the amount of $7,500.* 10.13 Promissory Note, dated as of September 30, 1996, from Neal Vitale in favor of Holdings in the amount of $742,5000.* 12.1 Statement Regarding Computation of Ratios of Earnings to Fixed Charges.* 21.1 Subsidiaries of the Company and Capital. 23.1 Consent of Ernst & Young L.L.P. 23.3 Consent of Kirkland & Ellis (included in Exhibit 5.1).* 24.1 Powers of Attorney (included in Part I to the Registration Statement). 25.1 Statement of Eligibility of Trustee on Form T-1.* 27.1 Financial Data Schedule.* 99.1 Form of Letter of Transmittal.* 99.2 Form of Notice of Guaranteed Delivery.* 99.3 Form of Tender Instructions.* - ---------- * To be filed by amendment. + The Company agrees to furnish supplementally to the Commission a copy of any omitted schedule or exhibit to such agreement upon request by the Commission EX-2.1(A) 2 ASSET PURCHASE AGREEMENT ASSET PURCHASE AGREEMENT dated as of August 15, 1996 by and between BRIGHTVIEW COMMUNICATIONS GROUP, INC. and PETERSEN PUBLISHING COMPANY
TABLE OF CONTENTS Page ARTICLE I SALE OF ASSETS, ASSUMPTION OF LIABILITIES AND RELATED TRANSACTIONS ................. 1 1.1 Purchase and Sale of Assets...................................... 1 1.2 Assumed Liabilities and Excluded Liabilities..................... 6 1.3 Amount Payable at Closing........................................ 7 1.4 Allocation of Purchase Price..................................... 8 1.5 Determination of Working Capital as of the Closing.......................................................... 8 1.6 Deposit.......................................................... 10 ARTICLE II CLOSING............................ 10 2.1 Closing Date..................................................... 10 2.2 Items to be Delivered at the Closing By Seller................... 10 2.3 Items to be Delivered at the Closing by Buyer.................... 11 ARTICLE III REPRESENTATIONS AND WARRANTIES OF SELLER......................... 12 3.1 Organization and Related Matters................................. 12 3.2 Financial Statements; No Other Liabilities....................... 12 3.3 Inventories...................................................... 13 3.4 Notes and Accounts Receivable.................................... 13 3.5 Taxes............................................................ 13 3.6 Material Contracts............................................... 14 3.7 Absence of Certain Developments.................................. 14 3.8 Title; Condition of Assets....................................... 15 3.9 Leases........................................................... 15 3.10 Intangible Property.............................................. 16 3.11 Authorization; No Conflicts...................................... 16 3.12 Legal Proceedings and Certain Labor Matters...................... 17 3.13 Insurance........................................................ 18 3.14 Permits.......................................................... 18 3.15 Compliance with Law; Environmental Compliance.................... 18 3.16 Employee Benefits................................................ 18
i 3.17 Bank Accounts, Powers, etc....................................... 19 3.18 No Brokers or Finders............................................ 20 3.19 Circulation...................................................... 20 3.20 Employees........................................................ 20 3.21 Barter........................................................... 20 3.22 Affiliate Transactions........................................... 20 3.23 Customer, Advertiser, Subscriber and Mailing Lists............................................................ 20 3.24 Closing Date..................................................... 21 3.25 Health and Welfare Plans......................................... 21 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF BUYER.......................... 21 4.1 Organization and Related Matters................................. 21 4.2 Authorization; No Conflicts...................................... 21 4.3 No Brokers or Finders............................................ 22 4.4 Legal Proceedings................................................ 22 4.5 WARN Act......................................................... 22 4.6 Disclaimer of Representations and Warranties..................... 22 ARTICLE V COVENANTS WITH RESPECT TO CONDUCT OF SELLER PRIOR TO CLOSING...................... 23 5.1 Access........................................................... 23 5.2 Conduct of Business.............................................. 23 5.3 Permits and Approvals............................................ 24 5.4 Government Filings............................................... 25 5.5 Sales and Transfer Taxes......................................... 25 5.6 Insurance Policies............................................... 26 ARTICLE VI ADDITIONAL CONTINUING COVENANTS.............. 26 6.1 Seller's Post-Closing Access..................................... 26 6.2 Rights to Petersen Intangible Property........................... 26 6.3 WARN Act......................................................... 27 6.4 Affiliate Agreements............................................. 27 6.5 Directorship..................................................... 27 6.6 Barter Bank...................................................... 27 6.7 Certain Employee Matters......................................... 27 6.8 Hart-Scott-Rodino Act Filings.................................... 29
ii 6.9 Further Transfers; Transition Assistance; Accounts Receivables............................................. 30 6.10 Exclusivity...................................................... 31 6.11 Covenant Not to Compete or Solicit............................... 31 6.12 Covenant Relating to Leases...................................... 32 ARTICLE VII GENERAL CONDITIONS OF PURCHASE.............. 33 7.1 No Orders; Legal Proceedings..................................... 33 7.2 Approvals........................................................ 33 ARTICLE VIII CONDITIONS TO OBLIGATIONS OF BUYER.............. 33 8.1 Representations and Warranties and Covenants of Seller........................................................... 33 8.2 No Material Adverse Change....................................... 34 8.3 Receipt of Closing Deliveries and Releases of Encumbrances..................................................... 34 8.4 Third Party Consents............................................. 34 8.5 Amendment and Restatement of Leases.............................. 34 8.6 Delivery of Opinion of Seller's Counsel.......................... 35 8.7 Petersen License; Change of Seller's Name........................ 35 ARTICLE IX CONDITIONS TO OBLIGATIONS OF SELLER............ 35 9.1 Representations and Warranties and Covenants of Buyer............................................................ 35 9.2 Employment of Petersen........................................... 35 9.3 Delivery of Opinion of Buyer's Counsel........................... 35 9.4 Receipt of Closing Deliveries and Release of Encumbrances..................................................... 35 ARTICLE X TERMINATION OF OBLIGATIONS; SURVIVAL.............. 36 10.1 Termination of Agreement......................................... 36 10.2 Effect of Termination............................................ 36 10.3 Limited Survival of Representations and Warranties....................................................... 37
iii 10.4 Effect of Closing Over Known Unsatisfied Conditions or Breached Covenants................................. 37 10.5 Notice of Breach of Representations or Warranties....................................................... 37 ARTICLE XI INDEMNIFICATION........................ 38 11.1 Obligations of Seller............................................ 38 11.2 Obligations of Buyer............................................. 38 11.3 Procedure........................................................ 38 11.4 Mitigation; Limitations on Indemnification....................... 39 11.5 Remedies Exclusive............................................... 40 ARTICLE XII TAX MATTERS AND INSURANCE................... 41 12.1 Tax Returns; Audits.............................................. 41 12.2 Wage Reporting................................................... 41 12.3 Insurance Matters................................................ 42 ARTICLE XIII PUBLICITY/CONFIDENTIALITY................... 43 13.1 Publicity and Reports............................................ 43 13.2 Confidentiality.................................................. 43 ARTICLE XIV DEFINITIONS.......................... 44 14.1 General Provisions............................................... 44 14.2 Specific Provisions.............................................. 45 ARTICLE XV GENERAL............................ 51 15.1 Amendments; Waivers.............................................. 51 15.2 Exhibits and Schedules; Integration.............................. 51 15.3 Best Efforts..................................................... 52 15.4 Governing Law.................................................... 52 15.5 No Assignment.................................................... 52 15.6 Headings......................................................... 52 15.7 Counterparts..................................................... 52
iv 15.8 Parties in Interest............................................. 52 15.9 Notices......................................................... 52 15.10 Expenses........................................................ 54 15.11 Attorneys' Fees................................................. 54 15.12 Representation By Counsel; Interpretation....................... 54 15.13 Severability.................................................... 54 15.14 Dispute Resolution; Agreement to Arbitrate...................... 54
v EXHIBITS A - Reconciliation Statement B - Bill of Sale and Assignment C - Lease Assignment and Assumption Agreement D - Copyright Assignment E - Trademark Assignment F - Assumption Agreement G - Form of License Agreement H - 1. Form of O'Melveny & Myers Opinion 2. Form of Opinion of Robert Gottlieb, Esq. I - Form of Kirkland & Ellis Opinion J - Form of Employment Agreement K - Special Power of Attorney L - Company Plan Assumption Agreement vi SCHEDULES Disclosure Schedule Schedule 1.1(a)(i) - Real Property Leases Schedule 1.1(a)(iii) - Motor Vehicles Schedule 1.1(a)(xiv) - Information Services Systems and Software Schedule 1.1(a)(xix) - Publications Constituting Purchased Assets Schedule 1.1(b)(xi) - Amounts Due From Petersen or Any of Petersen's Affiliates Schedule 1.1(b)(xvi) - Awards and Mementos Schedule 1.1(b)(xvii) - Works of Art and Antiques Schedule 1.4 - Fair Market Value of the Purchased Assets Schedule 3.1(a) - Qualifications And Good Standing Schedule 3.2(a) - Accounting Principles Schedule 3.2(b) - Debts, Liabilities and Obligations Schedule 3.5 - Tax Matters Schedule 3.6 - Material Contracts Schedule 3.7 - Certain Development Since June 30, 1996 Schedule 3.10(a) - Intangible Property Schedule 3.10(b) - Absence of Right to Use and Assign Intangible Property Schedule 3.11 - Seller's Approvals and Permits
vii Schedule 3.12 - Legal Proceedings and Certain Labor Matters Schedule 3.13 - Insurance Schedule 3.16(a) - Employer Benefits Schedule 3.16(b) - Employer Benefits Compliance Schedule 3.17 - Bank Accounts Schedule 3.19 - Circulation Schedule 3.21 - Barter Schedule 4.2 - Buyer's Approvals and Permits Schedule 6.4(a) - Affiliate Agreements that Terminate at Closing Schedule 6.4(b) - Affiliate Agreements that Remain in Effect Post-Closing Schedule 6.7(c) - Employees Entitled to Severance Upon Termination Schedule 6.12 - Form of Chicago Lease Schedule 14.2(a) - Material Facilities Leases
viii ASSET PURCHASE AGREEMENT This ASSET PURCHASE AGREEMENT dated as of August 15, 1996 by and between BRIGHTVIEW COMMUNICATIONS GROUP, INC., a Delaware corporation ("Buyer"), and PETERSEN PUBLISHING COMPANY, a California corporation ("Seller"). W I T N E S S E T H WHEREAS, Seller owns all of the assets used in connection with its publishing business (as further defined in Section 14.2 below, the "Business"); WHEREAS, Seller desires to sell, and Buyer desires to buy, the Purchased Assets (as defined in Section 1.1(a) below) on the terms and conditions hereinafter set forth; WHEREAS, Seller desires to convey, and Buyer desires to assume, the Assumed Liabilities (as defined in Section 1.2 below) on the terms and conditions hereinafter set forth; WHEREAS, Seller has invited Buyer to perform, and Buyer has performed, all necessary due diligence and business investigations with respect to Seller, the Purchased Assets and the Assumed Liabilities, with the intention that Buyer form its own conclusions regarding the condition and value of the business, property, liabilities, contracts and related matters of Seller pursuant to the parties' express intention that the sale of the Purchased Assets and the transfer of the Assumed Liabilities be without representation or warranty by Seller, express or implied, except as specifically set forth herein; WHEREAS, The R.E. & M.M. Petersen Living Trust (the "Petersen Trust") currently owns all of the outstanding capital stock of Seller; and NOW THEREFORE, in consideration of the mutual promises and covenants contained herein and intending to be legally bound, Buyer and Seller do hereby agree as follows: 1 ARTICLE I SALE OF ASSETS, ASSUMPTION OF LIABILITIES AND RELATED TRANSACTIONS 1.1 Purchase and Sale of Assets. (a) Purchased Assets. Subject to the terms and conditions of this Agreement, on the Closing Date, Seller shall sell, convey, assign, transfer and deliver to Buyer, and Buyer shall purchase, acquire and accept from Seller, all of the assets, properties, rights and contracts owned by Seller free and clear of all Encumbrances and restrictions of whatever nature, other than Permitted Encumbrances and other than Encumbrances to the extent arising from or securing Assumed Liabilities (the "Purchased Assets"), except the assets specifically identified in Section 1.1(b) (the "Excluded Assets"). The Purchased Assets shall include, without limitation, the following: (i) All leasehold interests in real property held by Seller and used primarily in connection with the Business, including those set forth as listed on Schedule 1.1(a)(i). (ii) All fixtures and improvements attached to any leasehold interest used primarily in connection with the Business. (iii) All machinery, apparatus, furniture, materials, supplies and other equipment of every type owned or leased by Seller and used primarily in connection with the Business, and those motor vehicles set forth on Schedule 1.1(a)(iii). (iv) All of Seller's accounts receivable arising from the conduct of the Business as of the date hereof ("Accounts Receivable"), together with any additions thereto received or generated by Seller, and subject to any reductions therefrom incurred by Seller, in operating the Business in the ordinary course after the date hereof through the Closing Date. (v) All inventory of goods, including all editorial material, manuscripts, notes and drafts, merchandise, office supplies, paper and other raw materials, 2 work in progress and finished products held for sale (the "Inventory") and other tangible personal property, including all trade fixtures, computers and related software, tooling, molds, dies and furniture, used primarily in connection with the Business as of the date hereof, together with any additions thereto received or generated by Seller, and subject to any reductions therefrom incurred by Seller, in operating the Business in the ordinary course after the date hereof through the Closing Date. (vi) Except as set forth in Section 1.1(b), all of Seller's rights and interests arising under or in connection with any Contracts to which Seller is a party and which relate primarily to the Business. (vii) Except as set forth in Section 1.1(b)(xx) below, all assets and licenses owned by, and other rights and interests of, Seller in connection with the production, promotion or distribution of any television programs, radio programs and other media programming, if any, including, without limitation, "Motor Trend TV," "Hot Rod Magazine TV," and "Guns & Ammo Presents: 'The American Shooter.'" (viii) All rights and interests to any Internet site that is maintained by Seller as of the date hereof and that relates to the Business. (ix) All of Seller's rights to organize, produce, control and promote the Events, including without limitation, "Miss Teenage America" and "The Great Model Search." (x) All demonstrations, stands, exhibits and related equipment used in connection with the Events. (xi) The "Hot Rod Roadshow," which consists of an 18-wheel tractor and trailer rig, a similarly painted van and the booths, racks, demonstration areas and related equipment into which the trailer may be converted for purposes of conducting Events, and all related assets owned by Seller. (xii) All transferable Permits relating primarily to the Business. 3 (xiii) Except for prepaid insurance, all of Seller's prepaid expenses arising from the conduct of the Business as of or prior to the date hereof including advances to Retained Employees (collectively, "Prepaid Expenses"), together with any additions thereto and subject to any reductions therefrom made or accrued by Seller in operating the Business in the ordinary course after the date hereof through the Closing Date. (xiv) Except as set forth in Section 1.1(b), the information services systems and software used primarily in the Business, including without limitation, those set forth on Schedule 1.1(a)(xiv) hereto. (xv) Seller's books of account relating to the Business. (xvi) All of Seller's tickets, licenses, passes and other rights to skyboxes, suites and other seats to any stadiums or other venues for any entertainment events, including without limitation professional sporting, race car and raceway events. (xvii) All of Seller's sales and subscription data, subscription lists, customer lists, advertiser lists, information and records relating to customers, suppliers, advertisers, subscribers, employees, accounts and referral sources of the Business; mailing lists, and, if any, advertising matter and all rights thereto used in the Business, whether current, historical, expired, outdated or otherwise; and all studies, plans, books, ledgers, files and business records of every kind (including all financial, business and marketing plans and information) relating primarily to the Business; in each case whether evidenced in writing, electronic data (including by computer) or otherwise. (xviii) Subject to Section 6.2 hereof, all of Seller's Intangible Property and corporate and trade names used in the Business; all goodwill associated with the Business; all of Seller's books and records relating primarily to the Business and its employees. 4 (xix) All of Seller's rights, in the United States and worldwide, to publish, sell, distribute and license those publications published by Seller, including all that are set forth on Schedule 1.1(a)(xix) hereto (the "Publications") and their respective component elements. (xx) All lists of contributors, authors, correspondents, reviewers, photographers, consultants, advisors, illustrators and editors used in the Business. (xxi) All inventories of back and current issues of each of the Publications, except for the single set of bound volumes of back and current issues held by Petersen. (xxii) All property reflected in Seller's barter accounts as of the Closing Date. (xxiii) All of Seller's choses of action, rights and interests arising under any insurance policy under which Seller is a beneficiary, but only to the extent that a claim under such policy would relate to the Purchased Assets or Assumed Liabilities, in each case to the full extent assignable under the terms thereof, and all other claims, causes of action, rights of recovery and rights to indemnification or set-off of any kind to the extent relating to the Purchased Assets or the Assumed Liabilities. (b) Excluded Assets. The assets that constitute Excluded Assets shall include only: (i) The consideration delivered to Seller pursuant to this Agreement. (ii) The assets, properties, rights and contracts owned or held by Seller and not used primarily in connection with the Business. (iii) Any inventory or other property sold by Seller in the ordinary course of business during the period of time from the date hereof until the Closing Date, to the extent not sold in breach of Section 5.2. (iv) All fee interests in real property owned by Seller, including, without limitation, all direct or 5 indirect rights and interests in duck club and ranch properties, and boat moorings, water companies and water rights. (v) Except as set forth in Section 1.1(a)(xxiii), Seller's insurance policies and related choses in action, rights and interests pursuant to which Seller is insured or is a beneficiary. (vi) Any automobiles owned by Seller, whether or not used in connection with the Business, other than those set forth on Schedule 1.1(a)(iii) (vii) Any rights to indemnification in favor of Petersen or any of Seller's other employees, officers or directors; and except as set forth in Section 1.1(a)(xxiii), any rights of Seller to indemnification, recovery, or set off of any kind. (viii) All of Seller's rights and interests to any software developed for Seller or the Business by Nth Degree. (ix) Seller's articles of incorporation, non-transferable franchises, corporate seals, minute books, stock books and other corporate records relating to the corporate organization and capitalization of Seller and all income tax records and nontransferable Permits or Permits not relating primarily to the Business. (x) Any Tax refund. (xi) All amounts due from Petersen or any of his Affiliates, to the extent set forth on Schedule 1.1(b)(xi). (xii) Cash on hand and in all bank accounts and cash equivalents. (xiii) Any goods or other assets on consignment or otherwise held for third parties. (xiv) Except as set forth in Section 1.1(a)(xv), all files and records of Seller that do not relate primarily to the Business; provided that Buyer shall receive 6 reasonable access (including after the Closing) to the information therein that pertains to the Business. (xv) Goods received by or purchased from Seller in barter transactions, reflected in Seller's barter accounts prior to the Closing Date and distributed to the shareholder of Seller pursuant to Section 6.6. (xvi) Any awards or mementos received by Petersen or any employee of Seller, and any personal office or boardroom furniture or fixtures, including, without limitation, any items set forth on Schedule 1.1(b)(xvi) hereto. (xvii) Any works of art and antiques (other than those held solely for publication in the Publications or display at Events) owned by Seller, including, without limitation, any items set forth on Schedule 1.1(b)(xvii) hereto. (xviii) Any Intangible Property described in Section 6.2 hereof. (xix) Petersen's single set of bound volumes of back and current issues of each of the Publications. (xx) Assets and licenses held by, and other rights and interests of, Seller relating solely to the production, promotion or distribution of television programs or music which were produced and aired prior to or during 1985. (xxi) Any Note in favor of Seller secured by a mortgage on real property. (xxii) All club memberships and hunting licenses held in Seller's name. 1.2 Assumed Liabilities and Excluded Liabilities. At the Closing, Buyer shall assume, and agree to pay, perform, fulfill and discharge all debts, claims, obligations and liabilities of Seller (collectively, the "Assumed Liabilities"); provided, however, that the Assumed Liabilities shall not include the following (collectively, the "Excluded Liabilities"): 7 (i) Any debts, claims, obligations or liabilities to the extent (A) not arising from the Business or (B) relating to any software developed for Seller or the Business by Nth Degree. (ii) Any liability of Seller for Taxes, including Taxes that could be imposed on account of a disqualification of any employee benefit plan. (iii) Any of Seller's liabilities or obligations under this Agreement or the agreements contemplated hereby. (iv) Except as contemplated by Sections 1.5, 5.3, 5.5 and 5.6, any of Seller's liabilities or obligations for expenses or fees incident to or arising out of the negotiation, preparation, approval or authorization of this Agreement or the consummation (or preparation for the consummation) of the transactions contemplated hereby (including all attorneys,' accountants,' investment banking, financial advisory, and brokerage fees and expenses). (v) Except with respect to those plans assumed by Buyer pursuant to Section 6.7(a), any liability or obligation under or with respect to any Company Plan or any other employee benefit plan, program, policy or arrangement presently or formerly maintained or contributed to by any member of the controlled group of companies (as such term is defined in Section 414 of the Code) of which Seller is or was a member, or with respect to which Seller or such controlled group member has any liability. (vi) Any of Seller's liabilities or obligations for indebtedness for borrowed money, or guarantees thereof. (vii) Any liabilities or obligations to the extent related to any of the Excluded Assets (including under any contracts, leases, commitments or understandings related thereto or any fee interest in real estate) or the Excluded Liabilities. (viii) Any liability or obligation to Petersen, the Petersen Trust, the Petersen Automotive Museum or any other director, shareholder or Affiliate of Seller, any individual related by blood or marriage to or beneficiary of any such 8 Person or any entity in which any such Person or individual owns any beneficial interest, except pursuant to the Wilshire Lease or the Chicago Lease, and except for the obligation to reimburse Petersen for business expenses (so long as Petersen gives Buyer written notice thereof prior to the determination of Working Capital pursuant to Section 1.5 and the calculation thereof is adjusted to include all such amounts). For purposes of this Section 1.2 and Section 10.5 below, "Seller" shall be deemed to include all predecessors to Seller and any Person with respect to which Seller is a successor-in-interest (including by operation of law, merger, liquidation, consolidation, assignment, assumption or otherwise). Seller hereby acknowledges that it is retaining the Excluded Liabilities, and Seller shall pay, discharge and perform all such liabilities and obligations promptly when due. Buyer hereby acknowledges that it is assuming the Assumed Liabilities, and Buyer shall pay, discharge and perform all such liabilities and obligations promptly when due. 1.3 Amount Payable at Closing. The purchase price to be paid to Seller by Buyer for the Purchased Assets shall be (a) the assumption of the Assumed Liabilities plus (b) $450,000,000, payable as described in the following sentence and subject to adjustment as provided in Section 1.5. At the Closing, Buyer shall (i) assume the Assumed Liabilities, and (ii) pay Seller $450,000,000 (less the amount of the Deposit and Accrued Interest, which shall be retained by Seller). Such cash purchase price payable at Closing, plus or minus the amounts paid pursuant to Section 1.5, as finally adjusted pursuant to Section 1.5, is hereinafter referred to as the Final Purchase Price. 1.4 Allocation of Purchase Price. Buyer and Seller shall negotiate in good faith to determine the fair market value of the Purchased Assets; provided, however, that for purposes of this Section 1.4 all accounts receivable shall be valued at their face value, net of reserves. If the Buyer and Seller are unable to agree prior to the Closing on such fair market value, Buyer shall secure an appraisal (the expense of which shall be borne equally by Buyer and Seller) of the Purchased Assets whose value is disputed as soon as reasonably practicable following the Closing (a draft as well as final copies of which shall be 9 furnished to Seller within ten days after receipt by Buyer), to determine the fair market value of such Purchased Assets. Buyer and Seller shall mutually agree upon an appraiser within 30 days after closing to conduct the valuation contemplated by this Section 1.4. Upon receipt of such appraisal, Buyer and Seller shall negotiate in good faith based upon such appraisal to determine the fair market value of the Purchased Assets. If within fifteen Business Days after their receipt of the appraisal, Buyer and Seller have not agreed on fair market value, the appraised value of the Purchased Assets whose value is disputed shall be their fair market value and the other Purchased Assets shall be valued at their agreed value. After Buyer and Seller so agree on the fair market value of the Purchased Assets, Buyer and Seller shall set forth such fair market values on Schedule 1.4 which shall be deemed to be part of this Agreement. For tax purposes, the Final Purchase Price shall be allocated among the Purchased Assets consistent with the fair market values thereof set forth on Schedule 1.4 and in accordance with Section 1060 of the Code. In such case, neither Buyer nor Seller, nor any of their respective affiliates, shall take any position in any income tax return or income tax audit which is inconsistent with Schedule 1.4 unless required to do so by applicable law. Buyer and Seller shall exchange drafts of any information returns required by Section 1060 of the Code, and any similar state statute that is applicable, at least 60 days prior to filing such returns and shall discuss in good faith any modification suggested by the receiving party. 1.5 Determination of Working Capital as of the Closing. (a) Within 120 days after the Closing Date, Seller shall deliver to Buyer a balance sheet (the "Statement") of the Purchased Assets and Assumed Liabilities immediately prior to the opening of business on the Closing Date, including as a schedule thereto a statement of Working Capital as of such time (the "Adjustment Schedule"). In connection with the preparation of the Statement and the Adjustment Schedule, Seller shall take and prepare a physical count of the Inventory. Seller shall engage the Auditors to observe the physical count of the Inventory and to audit the Statement, and the fees and expenses of the Auditors in connection therewith shall be borne equally by Buyer and Seller. Representatives of Buyer (which may, at Buyer's election, include representatives of Ernst & Young's Chicago office) shall 10 be permitted to observe such physical count. Seller's delivery of the Statement and the Adjustment Schedule to Buyer shall be certified by the Auditors to the effect that the Statement and Adjustment Schedule have been prepared based upon the Agreed Accounting Principles and reviewed by the Auditors in accordance with this Section 1.5. During the period immediately following Buyer's receipt of the Statement and the Adjustment Schedule and until the Working Capital is finally determined pursuant to this Section 1.5, Buyer and its representatives and agents shall be permitted to review Seller's books and records and working papers related to Seller's preparation of the Statement and the Adjustment Schedule and determination of the Working Capital. The Statement and the Adjustment Schedule shall become final and binding upon the parties 30 days following Buyer's receipt thereof or, if Buyer so elects, 90 days after the Closing, unless Buyer gives written notice of its disagreement ("Notice of Disagreement") to Seller prior to such date. Any Notice of Disagreement shall specify in reasonable detail the nature of any disagreement so asserted. If a timely Notice of Disagreement is received by Seller, then the Statement and the Adjustment Schedule (as revised in accordance with clause (x) or (y) below) shall become final and binding upon the parties on the earliest of (x) the date Buyer and Seller resolve in writing any differences they have with respect to the matters specified in the Notice of Disagreement or (y) the date all matters in dispute are finally resolved in writing by the Accounting Firm (as defined below) pursuant to this Section 1.5. During the 30 days following delivery of a Notice of Disagreement, Buyer and Seller shall seek in good faith to resolve in writing any differences which they may have with respect to the matters specified in the Notice of Disagreement. During such period, Seller shall be permitted to review Buyer's working papers relating to the Notice of Disagreement. At the end of such 30-day period, Buyer and Seller shall submit to a mutually satisfactory independent "big-six" accounting firm other than the Auditors (the "Accounting Firm") for review and resolution all matters which remain in dispute which were included in the Notice of Disagreement, and the Accounting Firm shall make a final determination of Working Capital in accordance with the guidelines and procedures set forth in this Agreement. If Buyer and Seller are unable to mutually agree on an Accounting Firm, Buyer and Seller shall select a "big-six" Accounting Firm by lot (after excluding the Auditors and one big- six accounting firm selected by each of Buyer and Seller). The fees and expenses of the Accounting Firm 11 shall be shared equally by Buyer and Seller. Working Capital shall then be determined pursuant to the Statement and the Adjustment Schedule. (b) If the amount of Working Capital as finally determined pursuant to Section 1.5(a) is greater than the amount of Working Capital reflected in the Reconciliation Statement attached hereto as Exhibit A (the "Reconciliation Statement"), Buyer shall, within three days of such final determination pursuant to Section 1.5(a) pay to Seller, in immediately available funds, the amount of such difference, together with interest thereon at the Agreed Rate from the Closing Date. If the amount of Working Capital as finally determined pursuant to Section 1.5(a) is less than the amount of Working Capital reflected in the Reconciliation Statement, Seller shall, within three days of such final determination pursuant to Section 1.5(a), pay to Buyer, in immediately available funds, the amount of such difference, together with interest thereon at the Agreed Rate from the Closing Date. 1.6 Deposit. Immediately following the execution of this Agreement by both parties, Buyer shall deliver to Seller by wire transfer in immediately available funds, a deposit in the amount of two million dollars ($2,000,000) (the "Deposit"), which Seller shall deposit in an interest-bearing account in Seller's name at a nationally-recognized banking institution. At the Closing, Seller shall retain the Deposit plus any interest accrued thereon from the date the Deposit was deposited by Seller ("Accrued Interest"). In the event that this Agreement is terminated (i) by Seller in accordance with Section 10.1(d) or (ii) on account of any condition to Closing (over which Buyer has control) not being satisfied, Buyer agrees that, in addition to any other rights and remedies available to Seller, Seller shall have the right to retain the Deposit and the Accrued Interest and Buyer shall have no claim to, or interest in, the Deposit and the Accrued Interest. In the event that this Agreement terminates for any other reason, Seller shall promptly refund to Buyer the amount of the Deposit plus the Accrued Interest. Buyer acknowledges that the retention of the Deposit by Seller shall not constitute a measure of Seller's damages for any claim for breach against Buyer brought under this Agreement. 12 ARTICLE II CLOSING 2.1 Closing Date. The Closing of the transaction shall take place at the offices of O'Melveny & Myers LLP, 400 South Hope Street, Los Angeles, California, on September 30, 1996 or on such later date that the last to be satisfied of the conditions specified in Articles VII, VIII, and IX is satisfied or waived, or at such other location or time as Seller and Buyer may agree. 2.2 Items to be Delivered at the Closing By Seller. At the Closing, Seller shall deliver or cause to be delivered to Buyer: (a) A Bill of Sale and Assignment, in substantially the form of Exhibit B. (b) An Assignment, Assumption and Estoppel Certificate and Agreement in the form of Exhibit C, with respect to each material Lease, executed and acknowledged by Seller and each lessor with respect thereto. (c) A Copyright Assignment, in substantially the form of Exhibit D. (d) A Trademark Assignment, in substantially the form of Exhibit E. (e) Such other instruments of transfer necessary or appropriate to transfer to and vest in Buyer all of Seller's right, title and interest in and to the Purchased Assets. (f) Copies of all Permits and Approvals described in Schedule 3.11, certified resolutions of Seller's board of directors authorizing and approving the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby, certified copies of Seller's certificate of incorporation and bylaws, a short-form certificate of good standing (certified by an appropriate government official of Seller's jurisdiction of incorporation as of a date not more than three business days prior to the Closing Date) and a certificate of the Secretary or Assistant Secretary of Seller as to the incumbency of the officer(s) of Seller (who shall not be 13 such Secretary or Assistant Secretary) executing this Agreement and the other agreements contemplated hereby to be executed and delivered by Seller. (g) All documentation required (pursuant to Treasury Regulation Section 1.1445-2(b)(2)) to exempt Seller from the withholding requirement of Section 1445 of the Code, consisting of (a) an affidavit from Seller to Buyer stating under penalty of perjury that Seller is not a foreign person and providing Seller's U.S. taxpayer identification number, or (b) a sworn affidavit of Seller that it is not a "U.S. real property holding corporation," as defined in Section 897 of the Code or (c) a "qualifying statement" obtained by Seller from the Internal Revenue Service. (h) The certificates, consents and other documents referred to herein as then deliverable by Seller. (i) The keys to all locks located on or in the Purchased Assets (and any and all cards, devices or things necessary to access any Purchased Assets). 2.3 Items to be Delivered at the Closing by Buyer. At the Closing, Buyer shall deliver to Seller: (a) An Assumption Agreement, in substantially the form of Exhibit E, pursuant to which Buyer shall assume the Assumed Liabilities. (b) The amount set forth in Section 1.3. (c) Such instruments as reasonably requested by any creditor, lessor or any other person whose consent is required to consummate the transactions contemplated by this Agreement and to evidence the assumption by Buyer of the Assumed Liabilities. (d) The certificates, consents and other documents referred to herein as then deliverable by Buyer. 14 ARTICLE III REPRESENTATIONS AND WARRANTIES OF SELLER Except as otherwise indicated on the Disclosure Schedule, Seller represents and warrants to Buyer as follows: 3.1 Organization and Related Matters. Seller is a corporation duly organized, validly existing and in good standing under the laws of California. The outstanding shares of Seller's capital stock consists of 5,000 shares of common stock, par value $100 per share, all of which are owned by the Petersen Trust. Except for such as are included in the Excluded Assets, Seller does not own or control (directly or indirectly) any stock, partnership interest, joint venture interest, equity participation or other security of interest in any other Person. Seller has all necessary corporate power and authority necessary to execute, deliver and perform this Agreement and to own its properties and assets and to carry on its businesses as now conducted and is duly qualified or licensed to do business as a foreign corporation in good standing in the jurisdictions listed in Schedule 3.1, which constitute all of the jurisdictions in which the ownership of the Purchased Assets or the conduct of Business requires it to be so qualified, except for jurisdictions where the failure to be so qualified does not have a material adverse effect on the Business, taken as a whole, as currently conducted. 3.2 Financial Statements; No Other Liabilities. (a) Seller has made available to Buyer balance sheets for Seller at November 30, 1993, 1994 and 1995 and the related statements of income and cash flows for the periods then ended, all of which have been audited by the Auditors whose reports thereon are included with such financial statements. Seller has also made available to Buyer unaudited balance sheets for Seller, at June 30, 1996 ("Latest Balance Sheet") and the related statements of income and cash flows for the seven month period then ended ("Latest Financial Statements"). Each of the foregoing financial statements (including in all cases the notes thereto, if any) is consistent with the books and records of Seller and presents fairly, in all material respects, the financial condition and results of operations of Seller, in accordance with generally accepted accounting principles consistently applied throughout the periods covered thereby 15 except as disclosed in the footnotes to the annual statements or as described in Schedule 3.2(a) hereto; provided, however, that the Latest Financial Statements are subject to normal year end adjustments (which, individually or in the aggregate, would not reasonably expected to be material) and lack footnotes and other presentation items. (b) Except as set forth on Schedule 3.2(b), Seller has no debts, liabilities or obligations of any nature (whether accrued, absolute, contingent, direct, indirect, perfected, inchoate, unliquidated or otherwise, whether due or to become due) arising out of transactions entered into at or prior to the Closing, or any transaction, series of transactions, action or inaction at or prior to the Closing, or any state of facts or condition existing at or prior to the Closing (regardless of when any such liability or obligation is asserted), except liabilities and obligations that (i) are included in the Excluded Liabilities, (ii) arise under Leases or Contracts included in the Purchased Assets, (iii) are reflected and reserved against on the Latest Balance Sheet in accordance with GAAP or disclosed in the notes to the most recent audited statements, (iv) are incurred in the ordinary course of business and consistent with past practice since the date of the Latest Balance Sheet or (v) arise in connection with the matters disclosed in Schedules 3.7, 3.10(b), 3.12 or 3.16(b). 3.3 Inventories. The inventories of Seller are properly reflected on Seller's books and records in accordance with GAAP. 3.4 Notes and Accounts Receivable. All material notes and accounts receivable of Seller (a) are valid receivables incurred in the ordinary course of business and (b) are properly reflected on Seller's books and records in accordance with GAAP. 3.5 Taxes. (a) Seller has made available to Buyer copies of all federal and all material state and local income and franchise Tax Returns of Seller for its taxable years ending in calendar years 1993, 1994 and, if available, 1995. All Taxes shown as due on such Tax Returns have been paid and, to the knowledge of Seller, all such Tax Returns are correct and complete in all material respects. Except as set forth on Schedule 3.5, as of the date 16 hereof, there is no taxing authority proceeding or audit pending with respect to Seller. (b) Seller currently is, and has at all times since its taxable year beginning December 1, 1983, qualified to be taxed as an "S corporation" for federal income tax purposes. The Seller is also taxed as an "S corporation" or the equivalent thereof in California (since December 1, 1987), Michigan (since December 1, 1983), New York (since December 1, 1993), Georgia (since December 1, 1993), Ohio (since December 1, 1983) and Illinois (since December 1, 1983). 3.6 Material Contracts. Schedule 3.6 lists, as of the date hereof, each Contract which is a Material Contract. True copies of all Material Contracts have been made available to Buyer. Each Material Contract is valid and subsisting, Seller has duly performed all its obligations under each Material Contract to which it is a party to the extent that such obligations to perform have accrued, and no breach or default, or, to Seller's knowledge, alleged breach or default, or event which would (with the passage of time, notice or both) constitute a breach or default by Seller thereunder, or, to Seller's knowledge, any other party or obligor thereunder, has occurred or, assuming that the requisite Approvals and Permits set forth on Schedule 3.11 are sought and obtained, as a result of the execution, delivery and performance of this Agreement will occur, except in each case for such as would not have a material adverse effect on the Business, taken as a whole. 3.7 Absence of Certain Developments. (a) Except as set forth on Schedule 3.7, since June 30, 1996 to the date hereof, there has been no material adverse change in the assets, liabilities, condition (financial or otherwise), operating results, business or cash flows of the Business, taken as a whole. (b) Except in connection with the transactions contemplated hereby or as set forth on Schedule 3.7, since June 30, 1996 to the date hereof, Seller has conducted the Business in the ordinary course of business consistent with past practice, and Seller has not: 17 (i) sold, assigned or transferred any of the Purchased Assets (or assets which, had they been retained by Seller, would be described by the definition of Purchased Assets), except such sale, assignment or transfer of inventory in the ordinary course of business consistent with past practice or which do not have a material adverse effect on the Business, taken as a whole, or mortgaged, pledged or subjected any of the Purchased Assets to any material Encumbrance, except for Permitted Encumbrances; (ii) made or granted any bonus or any wage, salary or other compensation increase to any employee, officer, director, consultant or adviser or made any other material change in terms or employment or engagement for any employee, officer, director, consultant or adviser, other than (A) the hiring and firing of employees in the ordinary course of business (B) any increase or bonus mandated by any of the Company Plans, (C) any increase or bonus in connection with a promotion in the ordinary course of business, and (D) annual merit salary increases in the ordinary course of business consistent with past practice; (iii) made or granted any material increase in, or amended or terminated, any existing Company Plan, or material amended or entered into any new collective bargaining agreement or multiemployer plan; (iv) made any capital expenditures or commitments therefor such that the aggregate outstanding amount of unpaid obligations and commitments with respect thereto shall comprise in excess of $500,000 of Assumed Liabilities on the Closing Date; (v) suffered any extraordinary loss, damage, destruction or casualty loss; or (vi) committed to any of the foregoing. (c) Seller has not at any time made or committed to make any unlawful payments for political contributions or to the knowledge of Seller made any bribes, kickback payments or other illegal payments. 18 3.8 Title; Condition of Assets. Seller has good and marketable title to all of the Purchased Assets, free and clear of any Encumbrance other than Permitted Encumbrances, and the Purchased Assets constitute all of the assets necessary to operate the Business as currently conducted. Seller has all rights, power and authority to sell, convey, assign, transfer and deliver the Purchased Assets to Buyer in accordance with the terms of this Agreement. At the Closing, Seller will convey good and marketable title to all of its real and personal property included within the Purchased Assets, free and clear of all Encumbrances other than Permitted Encumbrances. No software developed for Seller or the Business by Nth Degree is necessary to enable Buyer to operate the business in the same manner as currently operated by Seller. The buildings, improvements, fixtures, machinery, equipment and other tangible assets (whether owned or leased) included in the Purchased Assets are, to the knowledge of Seller, and except for ordinary wear and tear, in commercially reasonable condition and repair and are usable in the ordinary course of business and all such assets have been installed and maintained in accordance with all applicable laws, regulations and ordinances, except, in each instance, for such deficiencies and failures as do not have a material adverse effect on the Business, taken as a whole. None of the property reflected in Seller's barter accounts is used in the conduct of the Business. 3.9 Leases. (a) All material leasehold properties that constitute part of the Purchased Assets held by Seller as lessee are held under valid, binding and enforceable leases, subject only to such exceptions as are not, individually or in the aggregate, material to the Business, taken as a whole. (b) Seller has heretofore made available to Buyer a true, correct and complete copy of each leasehold interest comprising a portion of the Purchased Assets (each a "Lease"), together with all material amendments, modifications, alterations, and other changes thereto. (c) As of the date hereof, all conditions precedent to the enforceability of each Lease have been satisfied and, to the knowledge of Seller, there exists no breach or default, nor state of facts which, with the passage of time, notice, or both, would 19 result in a breach or default on the part of either Seller or the lessor thereunder. 3.10 Intangible Property. Schedule 3.10(a) sets forth a complete and correct list of all: (i) patented or registered Intangible Property and pending patent applications or other applications for registrations of Intangible Property owned or filed by or on behalf of the Business and (ii) all material trade names and unregistered trademarks and service marks owned or used by the Business. The Intangible Property included in the Purchased Assets, together with the property licensed under the Petersen License, comprises all of the intellectual property necessary for the operation of the Business as currently conducted. Except as set forth in Schedule 3.10(b): (i) Seller owns and possesses all right, title and interest in and to, or has a valid and enforceable license to use, the Intangible Property necessary for the operation of the Business as currently conducted subject to such exceptions as do not have a material adverse effect on the Business, taken as a whole; (ii) to Seller's knowledge, no claim by any third party contesting the validity, enforceability, use or ownership of any of such Intangible Property is currently outstanding or is threatened, subject to such exceptions as do not have a material adverse effect on the Business, taken as a whole; (iii) Seller has not received any notices of any infringement or misappropriation by the Business, or conflict with any third party with respect to the Intangible Property owned by Seller or used in the Business (including, without limitation, any demand or request that Seller license any rights from a third party) subject to such exceptions as do not have a material adverse effect on the Business, taken as a whole; and (iv) to Seller's knowledge, in the conduct of the Business, Seller is not infringing, misappropriating or otherwise conflicting with any Intangible Property or other rights of any third parties, except in each case such as do not have a material adverse effect on the Business, taken as a whole. 3.11 Authorization; No Conflicts. The execution, delivery and performance by Seller of this Agreement, the other agreements contemplated hereby and the transactions contemplated hereby and thereby have been duly and validly authorized by Seller and no other corporate act or proceeding on the part of Seller, its Board of Directors or its shareholder is necessary to authorize the execution, delivery or performance by Seller of this Agreement or any other agreement contemplated hereby or the 20 consummation of the transactions contemplated hereby or thereby. This Agreement, the Petersen License and each other agreement contemplated hereby or executed in connection herewith has been duly executed and delivered by Seller (and in the case of the Petersen License, Petersen) and each constitutes the legally valid and binding obligation of Seller, enforceable against Seller (and in the case of the Petersen License, Petersen) in accordance with its terms except as such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium and other similar laws and equitable principles relating to or limiting creditors' rights generally. The execution, delivery and performance by Seller of this Agreement, the Petersen License and each other agreement contemplated hereby or executed in connection herewith by it and the execution, delivery and performance by Petersen of the Petersen License and by Petersen of the Employment Agreement in the form attached hereto as Exhibit J (the "Employment Agreement"), will not (a) violate, conflict with, result in any breach of, constitute a default under, result in the termination or acceleration of, create in any party the right to accelerate, terminate, modify or cancel, or require any notice (whether upon lapse of time and/or the occurrence of any act or event or otherwise) under the Seller's Articles of Incorporation or bylaws or any Material Contract to which Seller (and in the case of the Petersen License and the Employment Agreement, Petersen) is a party, (b) result in the imposition of any Encumbrance against the Business, any Purchased Asset or any other property of Seller (and in the case of the Petersen License and the Employment Agreement, Petersen), or (c) violate any Law the violation of which would have a material adverse effect on the Business, taken as a whole. Schedule 3.11 lists, as of the date hereof, all material Approvals and Permits required to be obtained by Seller to consummate the purchase and sale of the Purchased Assets. Except for matters identified on Schedule 3.11, the execution, delivery and performance of this Agreement by Seller will not require any filing or registration with, or the issuance of any Approval or Permit by, any third party or Governmental Entity, except for such actions which, if not accomplished, do not have a material adverse effect on the Business, taken as a whole, as currently conducted. 3.12 Legal Proceedings and Certain Labor Matters. Except as listed on Schedule 3.12 as of the date of this Agreement, there is no Order or Action pending, or, to the knowledge of Seller, threatened, against or affecting Seller or 21 any of its properties or assets or by which the Purchased Assets are bound (or the Buyer is bound with respect to the Purchased Assets) that individually or when aggregated with one or more other such Orders or Actions has, or is reasonably expected as of the date of this Agreement to have, a material adverse effect on the Business, taken as a whole, the Purchased Assets, the Assumed Liabilities or the Seller's ability to perform this Agreement. Except as listed on Schedule 3.12 as of the date of this Agreement, there is no organized labor strike, dispute, slowdown or stoppage, or collective bargaining or unfair labor practice claim pending or, to the knowledge of Seller, threatened, against or affecting Seller or the Business nor any union or collective bargaining representation question or issue respecting employees of Seller so pending or threatened. 3.13 Insurance. Schedule 3.13 lists, as of the date hereof, all insurance policies currently owned by Seller and in force under which Seller is insured, that are material to the conduct of the Business, taken as a whole. Under the terms thereof, Seller is insured with reputable insurers against all risks normally insured against by companies in similar lines of business. All of such insurance policies, to the extent Seller is insured thereby, are in full force and effect and Seller is not in material default thereunder. 3.14 Permits. Seller holds all Permits that are required by any Governmental Entity to conduct its Business as now conducted and operate the Purchased Assets as they are now operated, and all such Permits are valid and in full force and effect, except, in each case, for such as do not, if not held, valid or in force, have a material adverse effect on the Business, taken as a whole, as currently conducted. To Seller's knowledge, Seller is in compliance with the terms and conditions of such Permits and has received no notices that it is in violation of any of the terms or conditions of such Permits except for such failures in compliance and violations as do not have a material adverse effect on the Business, taken as a whole, as currently conducted. To Seller's knowledge, no loss of any Permit that is material to the Business, taken as a whole, is threatened or pending other than pursuant to expiration in accordance with the terms thereof. 3.15 Compliance with Law; Environmental Compliance. Seller has conducted its businesses in accordance with applicable 22 Law, except for such failures as do not have a material adverse effect on the Business, taken as a whole, as currently conducted. There has not been any generation, use, transportation, treatment, storage, release or disposal of any Hazardous Substance in connection with the conduct of the Business in violation of any Environmental Law which has created any liability of Seller having a material adverse effect on the Business, taken as a whole. To Seller's knowledge, there has been no discharge, release or disposal of any Hazardous Substance on, under or from the Real Property subject to the Leases or previously owned or operated in the Business having a material adverse effect on the Business, taken as a whole. 3.16 Employee Benefits. Schedule 3.16(a) sets forth, as of the date hereof, a complete list of all material Employee Pension Benefit Plans (as defined in Section 3(2) of ERISA), Employee Welfare Benefit Plans (as defined in Section 3(1) of ERISA) and any other material employee benefit arrangements maintained by Seller or to which Seller contributes (collectively, the "Company Plans"). No such Company Plan is subject to Title IV of ERISA. Except as described in Schedule 3.16(b), with respect to each Company Plan, to Seller's knowledge: (a) such Company Plan, to the extent it is subject to any requirements under ERISA, complies therewith, except for any non-compliance which would not be reasonably likely to have a material adverse effect on the Business, taken as a whole; (b) all contributions payable by Seller which are due, if any, to such Company Plan and all benefits payable by Seller which are due, if any, with respect to each Company Plan have been paid in full; (c) Each such Company Plan that is an Employee Pension Benefit Plan that is intended to meet the requirements of a "qualified plan" under Section 401(a) of the Code has received a favorable determination letter from the IRS with respect to the Tax Reform Act of 1986 within the remedial amendment period; (d) Seller has made available to Buyer complete copies of the current plan documents, if any, and summary plan 23 descriptions, if applicable, with respect to each Company Plan, together with copies of any and all amendments thereof adopted through the date of this Agreement, the most recent determination letter received from the IRS, and the most recent Form 5500 Annual Report with all attachments, in each instance if required under ERISA; (e) there is no pending or threatened legal action, proceeding or, to Seller's knowledge, investigation against a Company Plan or the assets of any of the trusts under a Company Plan that would be reasonably likely to have a material adverse effect on the Business, taken as a whole; and (f) there have been no non-exempt "prohibited transactions" within the meaning of Section 406 of ERISA and Section 4975 of the Code or breaches of fiduciary duty with respect to a Company Plan that would be reasonably likely to have a material adverse effect on the Business, taken as a whole. 3.17 Bank Accounts, Powers, etc. Schedule 3.17 lists, as of the date of this Agreement, each bank, trust company, savings institution, brokerage firm, mutual fund or other financial institution with which Seller has an account or safe deposit box and the names and identification of all Persons authorized to draw thereon or to have access thereto. 3.18 No Brokers or Finders. No agent, broker, finder, or investment or commercial banker, or other Person or firm engaged by or acting on behalf of Seller or any of its Affiliates in connection with the negotiation, execution or performance of this Agreement or the transactions contemplated by this Agreement is or will be entitled to any brokerage or finder's or similar fee or other commission as a result of this Agreement or such transactions, except for Goldman, Sachs & Co., as to which Seller shall have full responsibility. 3.19 Circulation. Accurate and fair copies of the two most recent six-month audit reports issued by the Audit Bureau of Circulations ("ABC") with respect to each Publication, the circulation of which is audited by ABC, are attached to Schedule 3.19 hereto. To Seller's knowledge, each such audit report is accurate and fair in all material respects. 24 3.20 Employees. Seller is not a party to or bound by any written or oral contract with any labor union or collective bargaining agreement. Seller is not aware that it has any labor relations problems (including, without limitation, any union organization activities, threatened or actual strikes or work stoppages or material grievances) that are reasonably expected to have adverse monetary consequences for the Business in excess of $500,000 in the aggregate. 3.21 Barter. Schedule 3.21 sets forth all obligations of Seller with respect to the Business which arise therefrom or relate thereto to the extent such obligations exceed $250,000 alone or in the aggregate. 3.22 Affiliate Transactions. Contracts, arrangements and transactions between Seller and any Seller Affiliate (including use by Seller of assets in which any Seller Affiliate has any interest) in effect with respect to the period included in any financial statements described in Section 3.2(a) were, in the aggregate, on terms no more favorable to Seller than terms available to Seller from unrelated third parties, except to the extent that such contracts, arrangements and transactions did not have the effect of increasing revenues or decreasing expenses of Seller in any material respect. For purposes hereof, "Seller Affiliate" means Petersen or any other officer, director, shareholder or Affiliate of Seller, any individual related by blood or marriage to any such Person or any entity in which any such Person or individual owns any significant beneficial interest. 3.23 Customer, Advertiser, Subscriber and Mailing Lists. Seller has maintained and currently possesses all subscriber lists, customer lists, advertiser lists and mailing lists used in connection with the conduct of the Business as currently conducted, including all such lists necessary to continue the operation of the Business consistent with current practice, and all of such lists are in such condition as required in connection with the operation of the Business, as currently conducted. 3.24 Closing Date. All of the representations and warranties of Seller in this Article III and elsewhere in this Agreement and all information delivered in any schedule, attach ment or exhibit hereto or in any certificate delivered by Seller, 25 the Petersen Trust or Petersen to Buyer are true and correct in all material respects on the date of this Agreement and will be true and correct in all material respects on the Closing Date; provided, however, that until the date which is the second Business Day preceding the Closing, Seller shall be permitted to update the Disclosure Schedule to reflect any changes in facts or circumstances, or events, actions or failures to act, that occur after the date hereof. Such updated disclosure shall not, however, relieve Seller of any liability arising from the inaccuracy of a representation and warranty made as of the date hereof. 3.25 Health and Welfare Plans. Seller has paid, or will have paid, the premiums on all of its health and welfare insurance plans for all periods up to the Closing, and, to the Seller's knowledge, with respect to any policies where premiums would be adjusted in future periods to reflect loss experience in excess of the insurer's reserves for claims, the insurer's reserves are adequate to cover related claims exposure. Except for liabilities that will be reflected in Working Capital as of the Closing, such health and welfare insurance plans are not subject to any uninsured liabilities. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF BUYER Buyer represents and warrants to Seller as follows: 4.1 Organization and Related Matters. Buyer is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation. Buyer has all necessary corporate power and authority to execute, deliver and perform this Agreement and to carry on its business as now being conducted. 4.2 Authorization; No Conflicts. The execution, delivery and performance of this Agreement by Buyer has been duly and validly authorized by the Board of Directors of Buyer and by all other necessary corporate action on the part of Buyer. This Agreement constitutes the legal, valid and binding obligation of Buyer, enforceable against Buyer in accordance with its terms except as such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium and other similar laws and 26 equitable principles relating to or limiting creditors' rights generally. The execution, delivery and performance of this Agreement by Buyer will not (a) violate, or constitute a breach or default (whether upon lapse of time and/or the occurrence of any act or event or otherwise) under, the charter documents or by-laws of Buyer, (b) violate, or constitute a breach or default (whether upon lapse of time and/or the occurrence of any act or event or otherwise) under any Contract to which Buyer is a party, (c) result in the imposition of any Encumbrance against any material asset or property of Buyer or its Affiliates, or (d) violate any Law the violation of which would have a material adverse effect on Buyer's ability to perform its obligations under this Agreement. Schedule 4.2 lists, as of the date hereof, all material Approvals and Permits required to be obtained by Buyer to consummate the purchase and sale of the Purchased Assets. Except for matters identified on Schedule 4.2, the execution, delivery and performance of this Agreement by Buyer will not require any material filing or registration with, or the issuance of any material Approval or Permit by, any third party or Governmental Entity. 4.3 No Brokers or Finders. No agent, broker, finder or investment or commercial banker, or other Person or firms engaged by or acting on behalf of Buyer or its Affiliates in connection with the negotiation, execution or performance of this Agreement or the transactions contemplated by this Agreement is or will be entitled to any broker's or finder's or similar fees or other commissions as a result of this Agreement or such transactions. 4.4 Legal Proceedings. There is no Order or Action pending or, to the knowledge of Buyer, threatened, against or affecting Buyer or any of its properties or assets that individually or when aggregated with one or more other Actions has or, if determined adversely to the interest of Buyer, might reasonably be expected to have, a material adverse effect on Buyer's ability to perform this Agreement. 4.5 WARN Act. Buyer is not planning or contemplating, and has not made or taken, any decisions or actions concerning Seller after the Closing that would require the service of notice under the Worker Adjustment and Retraining Act of 1988 (the "WARN Act"). 27 4.6 Disclaimer of Representations and Warranties. Buyer acknowledges and agrees that the purchase and sale of the Purchased Assets hereunder shall be without representation or warranty by Seller, express or implied, except as specifically set forth in Article III or in any certificates delivered in connection herewith at the Closing. ARTICLE V COVENANTS WITH RESPECT TO CONDUCT OF SELLER PRIOR TO CLOSING 5.1 Access. Commencing upon the execution hereof by Seller, Seller shall afford, and cause its officers, directors, employees, attorneys, accountants and other agents to afford, to Buyer and its representatives (which term shall be deemed to include its independent accountants, counsel and lenders, and their respective counsel and advisors) reasonable access during normal business hours, upon reasonable notice and in such manner as will not unreasonably interfere with the conduct of their respective businesses, to all of Seller's respective properties, facilities, books, records, operating instructions and procedures, personnel, business, financial, legal, tax, compensation and other data and information concerning the Business and its affairs and operations, and all other information with respect to the Business as Buyer may request, for the purposes of familiarizing Buyer and its representatives with the Business, the Purchased Assets and the Assumed Liabilities, obtaining any necessary Approvals of or Permits for the transactions contemplated by this Agreement or otherwise consummating the transactions contemplated hereby. 5.2 Conduct of Business. Seller agrees that, prior to the Closing, it will not without the prior written consent of Buyer (which consent shall not be unreasonably withheld): (a) conduct the Business in any manner except in the ordinary course consistent with past practice (including, without limitation, maintaining the level and amount of subscription and other sales promotion expenditures, programs and activities in the ordinary course of the business): (b) terminate or fail to use its commercially reasonable efforts to renew or preserve any Permits material to 28 the conduct of the Business or otherwise fail to use commercially reasonable efforts to preserve intact its business organization and goodwill, fail to use its commercially reasonable efforts to keep available the services of its officers and employees, or fail to use commercially reasonable efforts to maintain satisfactory relationships with material brokers, distributors, suppliers, customers, advertisers, subscribers and others having material business relationships with the Business; (c) enter into, amend or modify any employment or severance agreement or arrangement with any employee (other than the hiring and firing of employees in the normal course of business) or grant any increase in any rate of pay benefits (whether salary or bonus) to or for, or commit to pay any special bonus to, any salaried employee, or grant any general or uniform increase in the rates of pay to or benefits for, or commit to pay any special bonus to, any employee compensated based upon an hourly rate (an "Hourly Employee") or any class thereof, or (ii) grant any increase in any rate of pay (whether salary or bonus) or benefits to or for, commit to pay any special bonus to, any Hourly Employee, except in each case for (A) any increase or bonus mandated by any of the Company Plans, (B) any increase or bonus in connection with a promotion and consistent with prior practices, and (C) annual merit salary increases in the ordinary course of business consistent with past practice; (d) fail to use commercially reasonable efforts to: (i) maintain the Purchased Assets in adequate operating condition and repair; (ii) maintain insurance reasonably comparable to that in effect on the date of the Latest Balance Sheet; (iii) maintain Inventory, supplies and spare parts at customary operating levels consistent with past practices; and (iv) in the event of a casualty, loss or damage to any of such Purchased Assets prior to the Closing Date for which Seller is insured, either repair or replace such Purchased Assets, or, if Buyer agrees, transfer the proceeds of such insurance to Buyer; (e) fail in any material respect to maintain its books, accounts and records in accordance with past custom and practice as used in the preparation of the Latest Balance Sheet and the financial statements described in Section 3.2 above; (f) enter into any new, or amend or terminate any existing, material contracts, agreements or commitments relating 29 to the Business other than any advertising contract entered into in the normal course of business or any contract that obligates Seller to pay amounts, and otherwise exposes Seller to liabilities, less than $250,000 in the aggregate; (g) institute any material change in the conduct of the Business; or (h) agree to or make any commitment to take any actions prohibited by this Section 5.2. 5.3 Permits and Approvals. Seller and Buyer shall cooperate and endeavor to obtain, and will promptly prepare, all registrations, filings and applications, requests and notices preliminary to, all Approvals and Permits identified on Schedule 3.11 or Schedule 4.2. Seller shall bear all out-of- pocket costs, expenses incurred or fees paid to third parties or Governmental Entities set forth on Schedule 3.11 in order to obtain such Approvals and Permits; provided, however, that Buyer and Seller shall each bear half of any fees paid or expenses incurred by either party in connection with any and all filings or proceedings required under the Hart-Scott-Rodino Act. To the extent that the Approval of a third party with respect to any Contract is required for the assignment of such Contract or to avoid a loss of contractual benefits thereunder in connection with the transactions contemplated by this Agreement but is not obtained prior to the Closing Date, this Agreement shall not be deemed to constitute an assignment of any such Contract, and Buyer shall assume no obligations or liabilities under any such Contract. Seller shall use its best efforts to advise Buyer promptly in writing with respect to any Contract which Seller knows or has substantial reason to believe will or may not be subject to assignment to Buyer hereunder. Without in any way limiting Seller's obligation to obtain consents and waivers necessary for the sale, transfer, assignment and delivery of the Purchased Assets, including all Contracts, to Buyer hereunder, if any such consent is not obtained or if such assignment is not permitted irrespective of consent and the Closing hereunder is consummated, Seller shall cooperate with Buyer in good faith to develop an alternative arrangement to ensure that Buyer obtains the benefits of each such Contract, subject to Buyer bearing the costs thereof, consistent with the economic results intended by this Agreement including enforcement for the benefit of Buyer of any and all rights of Seller against any other party arising out 30 of any breach or cancellation of any such Contract by such other party and, if requested by Buyer, acting as an agent on behalf of Buyer or as Buyer shall otherwise reasonably require. Buyer shall bear the costs of obtaining any non-governmental Approvals, if the party from whom such Approval is required has refused to grant such Approval because of Buyer's anticipated credit quality. 5.4 Government Filings. Buyer and Seller shall make any and all filings required under the Hart-Scott-Rodino Act (in accordance with Section 6.8 hereof) and any other Law requiring filings with any Governmental Entity with respect to the transactions contemplated hereby. Seller and Buyer shall furnish each other such necessary information and reasonable assistance as the other may reasonably request in connection with its preparation of necessary filings or submissions under the provisions of such Laws. Seller and Buyer will immediately supply to each other copies of all correspondence, filings or communications, including file memoranda evidencing telephonic conferences, by such party or its Affiliates with any Governmental Entity or members of its staff, with respect to the transactions contemplated by this Agreement and any related or contemplated or inconsistent transactions, except for documents filed pursuant to Item 4(c) of the Hart-Scott Rodino Notification and Report Form or communications regarding the same. 5.5 Sales and Transfer Taxes. Buyer and Seller shall each pay 50% of all real and personal property transfer taxes, if any, and all sales, use and other similar taxes, if any, imposed on or in connection with the purchase, sale or transfer of the Purchased Assets to, and the assumption of the Assumed Liabilities by, Buyer pursuant to this Agreement. Seller will, at its own expense, file all necessary Tax Returns and other documentation with respect to all such transfer, sales, use, and other similar taxes and fees, and, if required by applicable law, Buyer will, and will cause its affiliates to, join in the execution of any such Tax Returns and other documentation. 5.6 Insurance Policies. Prior to the Closing, Seller shall use its commercially reasonable efforts to cause Buyer to be named an additional insured party under each of Seller's insurance policies covering the Business and any insured period which includes the Closing Date, but only in respect of the 31 Purchased Assets and Assumed Liabilities for periods prior to the Closing, and shall promptly provide Buyer with evidence thereof; provided, however, that Seller reserves the right to terminate any such policies after the Closing Date upon 90 days prior notice to Buyer; and provided further that Buyer shall reimburse Seller for any increased premiums or other costs resulting from the addition of Buyer as an additional insured to such insurance policies. ARTICLE VI ADDITIONAL CONTINUING COVENANTS 6.1 Seller's Post-Closing Access. Buyer and Seller shall fully cooperate with the other party, as and to the extent reasonably requested by the other party, at the other party's sole expense, to make available to the other party such assistance and financial, Tax and other information (including the Books and Records) in connection with (a) any audit or other investigation by any taxing authority or any required reports or submissions (including any Tax Returns or other statutory reporting obligations of Seller) to Governmental Entities with respect to Seller relating to any period (or portion thereof) ending on or before the Closing Date, and (b) matters relating to insurance coverage of Seller, third-party litigation, claims, proceedings and investigations involving Seller, if any. Buyer and Seller shall preserve such information and the Books and Records for at least three years after the Closing Date, and thereafter to dispose thereof only after it shall have given the other party 90 days' prior written notice of such impending disposition and the opportunity (at the other party's expense) to remove and retain such information and the Books and Records. Any information obtained pursuant to this Section 6.1 or pursuant to any other section hereof providing for the sharing of information or the review of any Tax Return or other schedule relating to Taxes shall be subject to Section 13.2. 6.2 Rights to Petersen Intangible Property. Buyer acknowledges and agrees that it shall not have, and Buyer shall not acquire pursuant to this Agreement, any rights of ownership or use whatsoever with respect to the names and Marks "Petersen," "Petersen Publishing Company" and any derivatives thereof (even if used in the Publications or included in masthead or other designations of the Publication name); provided, however, that 32 Seller, Petersen and Buyer shall deliver at Closing a perpetual, royalty-free license to use the names "Petersen," "Petersen Publishing Company" and derivatives thereof in connection with the Business and the Publications and ancillary and related businesses (including, among other things, any future publications of Buyer) upon the terms of the license attached as Exhibit G hereto (the "Petersen License"). Seller agrees that, effective as of the Closing and except as otherwise contemplated by the Petersen License, it shall immediately cease and desist from any use of any such Intangible Property. 6.3 WARN Act. Buyer agrees that it will not take any action which causes the notice provisions of the WARN Act to be applicable to the transactions contemplated by this Agreement. 6.4 Affiliate Agreements. (a) Termination. Buyer and Seller acknowledge and agree that all of the contracts, agreements and other arrangements, whether written or oral, described on Schedule 6.4(a), between Seller on the one hand, and Petersen or any of his Affiliates (other than Seller or the Petersen Trust) on the other hand, shall be terminated as of the Closing without further payment by or obligation of either such party thereto to the other. (b) Honor Continuing Agreements. Subject to Section 6.12, Buyer agrees to honor from and after the Closing all obligations owing to Petersen or his Affiliates pursuant to the terms of the leases and agreements listed on Schedule 6.4(b). Buyer further agrees that it shall not attempt to better or otherwise re-negotiate the express terms of any lease or agreement listed on Schedule 6.4(b). 6.5 Directorship. At Seller's request, Buyer shall cause each of Petersen and Margaret McNally Petersen to be appointed as a director of the Buyer promptly following the Closing and to be nominated by Buyer for re- election as a director in the slate of directors recommended by management of Buyer, if he should so desire, or she should so desire, respectively, at Buyer's next- ensuing meeting of stockholders at which directors, or the class of directors to which he is appointed, stand for election. 33 6.6 Barter Bank. Notwithstanding anything to the contrary in Section 5.2, at any time prior to the Closing, Petersen may cause the Seller to distribute to Petersen or the Petersen Trust any goods received by Seller in barter transactions (or proceeds thereof) and that are not used in the conduct of the Business. 6.7 Certain Employee Matters. (a) Benefits - Generally. Buyer shall indemnify Seller for all claims for severance arising from Buyer's termination of Retained Employees. Buyer will offer employment to each of Seller's employees who is employed with respect to the Business. Each such employee who becomes employed by Buyer shall be referred to herein as a "Retained Employee", and all such employees who become so employed by Buyer shall be referred to herein collectively as the "Retained Employees". For the benefit of all Retained Employees, Buyer shall continue to maintain through December 31, 1996 all health and welfare plans of Seller. Subject to the foregoing sentence, Buyer shall employ each Retained Employee at a total compensation level, including wages, salary and benefits, which is substantially equivalent in the aggregate to or greater than that provided to such Retained Employee by Seller with respect to the previous year; provided that, notwithstanding the foregoing, Buyer may modify such compensation level at any time subsequent to the Closing Date. Nothing in this Agreement shall limit Buyer's ability to terminate the employment of any Retained Employee at any time after the Closing and for any reason, including without cause; provided, however, that in addition to any severance payments that might be payable to any Retained Employee so terminated, Buyer shall also pay to any such Retained Employee an amount equal to any accrued and unpaid bonuses owing to such Retained Employee. (b) Company Plans. Subject to the fourth sentence of Section 6.7(a) and otherwise notwithstanding any other provision of this Agreement, on and after the Closing Date Seller shall retain the sponsorship of all Company Plans and all assets of and liabilities attributable to the Company Plans, including any obligations, liabilities or commitments with respect to the Retained Employees arising under Part 6 of Title I of ERISA and Section 4980B of the Code relating to any qualifying event occurring on or before the Closing Date. Buyer shall have no 34 right, title, interest, obligation, duty or liability with respect to the Company Plans or any other "employee pension benefit plan" (as such term is defined in Section 3(2) of ERISA) that is maintained or contributed to by (or required to be maintained or contributed to by) any person or entity that, together with Seller, is at any time treated as a single employer under Section 414 of the Code (each such employee pension benefit plan, an "ERISA Affiliate Plan"), and Seller shall indemnify and hold Buyer harmless against all claims, suits, damages, losses, costs and expenses arising out of any liabilities, obligations or commitments with respect to the Company Plans and the ERISA Affiliate Plans. (c) Benefit Arrangements for Retained Employees. As of the Closing Date, Seller shall vest, if so required in accordance with the terms thereof, all Retained Employees in all benefits accrued through the Closing Date under any Company Plan that is intended to be qualified within the meaning of Section 401(a) of the code. Effective as of the Closing Date and through July 31, 1997, Buyer shall provide to and on behalf of the Retained Employees such employee benefit plans, programs and compensation as it deems appropriate to fulfill its obligation under Section 6.7(a). (d) Mutual Cooperation. Subject to applicable privacy laws, Seller shall provide promptly to Buyer, at Buyer's request, any information or copies of personnel records (including addresses, dates of birth, dates of hire and dependent information) relating to the Retained Employees or relating to the service of Retained Employees with Seller (and predecessors of Seller, as applicable) prior to the Closing Date. Seller and Buyer shall each cooperate with the other and shall provide to the other such documentation, information and assistance as is reasonably necessary to effect the provisions of this Section 6.7. (e) Severance. If, after the Closing, the employment of any employee who is identified on Schedule 6.7(e) hereto is terminated, Buyer shall supplement any severance payments otherwise due to such terminated employee or, if no such severance payments are due to the employee, make severance payments, in either case such that the terminated employee shall receive, in a lump sum, severance payments at least equal to 18 months of such employee's then current base salary (or base 35 salary for the year preceding Closing, if greater); provided, however, that Buyer shall not be obligated to make any such payments to any employee whose employment is (i) terminated by the employee (except in the case of Constructive Termination Without Cause by the employee) or (ii) terminated by Buyer on account of a material breach of the employee's duties (which duties shall not be more demanding than the level of performance required of the employee as of the date hereof). For purposes of this Section 6.7(e), "Constructive Termination Without Cause" means the occurrence of any of the following events without the express written consent of the employee: (i) relocation from his principal office as of the date hereof (other than to an office in the same metropolitan area), (ii) any material breach by Buyer of the terms of the employee's employment or (iii) the assignment to the employee of a significantly lower position in the organization in terms of his responsibility, authority and status, requiring the employee to perform services not commensurate with the employee's ability, experience and qualifications, in any such case other than as a result of disability or retirement. (f) Profit Sharing Plan. Buyer shall contribute $1,300,000 to the Seller Profit Sharing Plan with respect to the period ending November 30, 1996. Buyer agrees that it shall not amend the plan to expand the coverage of the plan unless it increases such contribution to the plan in proportion to such inclusion or expansion. 6.8 Hart-Scott-Rodino Act Filings. (a) Buyer and Seller shall each promptly make or cause to be made the filings required of such party under the Hart-Scott-Rodino Act in accordance with Section 5.4 hereof and, as soon as reasonably practicable and after consultation with the other party, provide to the appropriate Governmental Entity any documentary material or other information that may be necessary in order to satisfy any request under the Hart-Scott-Rodino Act for additional information or otherwise to obtain any governmental approval; (b) Buyer and Seller shall each use its best efforts to resolve any objections that are asserted by any person under the antitrust or other laws with respect to the transactions contemplated by this Agreement and to avoid the entry of, or have vacated or terminated, any order, decree, judgment or ruling of any Governmental Entity restraining or 36 preventing the consummation of the transactions contemplated by this Agreement and any proceedings that might result in such entry; and (c) Buyer shall commit (by consent decree or otherwise) to sell, divest, hold separate or dispose of such assets or businesses of Buyer or the Business as may be necessary in order to obtain any needed consents or approvals or to avoid the entry of any such order, decree, judgment or ruling or proceeding that might result in such entry. 6.9 Further Transfers; Transition Assistance; Accounts Receivables. (a) Seller shall execute and deliver such further instruments of conveyance and transfer and take such additional action as Buyer may reasonably request to effect, consummate, confirm or evidence the transfer to Buyer of the Purchased Assets, the assumption by Buyer of the Assumed Liabilities and the conduct by Buyer of the Business (including with respect to obtaining and maintaining all licenses, permits, authorizations, accreditations and consents necessary or desirable in connection therewith), and Seller shall execute such, documents as may be reasonably requested to assist Buyer in preserving or perfecting its rights in the Purchased Assets and its ability to conduct the Business. Following the Closing, Seller agrees to cooperate with Buyer and to provide Buyer with all information and documentation reasonably necessary to permit the preparation and filing of all federal, state, local and other tax returns with respect to the Business; provided that Buyer shall reimburse the other party for such other party's reasonable out-of-pocket expenses in connection therewith. (b) Seller agrees that subsequent to the Closing it shall refer all customer, advertiser or subscriber inquiries with respect to the Business to Buyer. (c) Seller shall promptly forward to Buyer any and all proceeds from accounts receivable relating to the Business that are received by Seller but are for the account of Buyer, and for the period ending at the last of the sixth full calendar month after the Closing, shall furnish Buyer with a reasonably detailed monthly accounting with respect to any payments made to Seller under this Section 6.9(c), which accountings shall be subject to audit by Buyer (which audits shall contain normal auditing procedures and techniques). 37 6.10 Exclusivity. Seller shall not, directly or indirectly, through any officer, director, employee, agent, affiliate or otherwise (including through any investment banker, attorney or accountant retained by any of the foregoing), solicit, initiate or encourage the submission of any proposal or offer from any person or entity (including any of such person's or entity's officers, directors, employees, agents or other representatives) relating to any acquisition, direct or indirect, of all or a significant part of the assets used in the Business (other than sales of Inventory in the ordinary course of business consistent with past practice) or any other similar extraordinary transaction of any kind relating to the Business (including any merger or sale of substantially all of the stock of Seller), or participate in any discussions or negotiations regarding, or furnish to any other person or entity any information with respect to, or otherwise cooperate in any way with, or assist or participate in, facilitate or encourage any effort or attempt by any other person or entity to do or seek to do any of the foregoing. Seller shall immediately cease and cause to be terminated any and all discussions and negotiations with third parties regarding any of the foregoing. Seller shall promptly notify Buyer if any proposal with respect to the foregoing is made. 6.11 Covenant Not to Compete or Solicit. (a) Seller agrees that, and agrees that it shall cause Petersen, for a period of three years following the Closing Date, to ensure that no affiliate of either Seller or Peterson, directly or indirectly, either for itself or himself or through any other person, partnership, corporation or entity shall (i) engage in, participate in, or permit its or his name to be used by any enterprise engaging in or participating in, the business of publishing, printing, distributing or selling magazines in the United States, Canada, Mexico, Korea or elsewhere in the world, or otherwise in the conduct of any business competing with the Business, induce or attempt to induce any employee of the Seller or any subsidiary (other than Petersen's assistants) to leave the employ of the Seller or such subsidiary, (ii) hire or solicit the hiring of any person who was a Retained Employee (other than Petersen's secretaries or personal assistants), or (iii) induce or attempt to induce any customer, advertiser, subscriber, supplier, licensee or other business relation of Seller who becomes a customer, advertiser, subscriber, supplier, licensee or 38 other business relation of Buyer to cease doing business with Buyer. For purposes of this Agreement, the term "participate" includes any direct or indirect interest in any enterprise, whether as a stockholder, partner, joint venturer, franchiser, franchisee or otherwise (other than ownership of less than five percent (5%) of the stock of a publicly held corporation without any other material participation therein). Each of Seller and Petersen agrees that this covenant is reasonably designed to protect Buyer's substantial investment and is reasonable with respect to its duration, geographical area and scope. (b) If, at the time of enforcement of any of the provisions of this Section 6.11, a court determines that the restrictions stated herein are unreasonable under the circumstances then existing, then the parties hereto agree that the maximum period, scope or geographical area reasonable under the circumstances shall be substituted for the stated period, scope or area. The parties further agree that such court shall be allowed to revise the restrictions contained herein to cover the maximum period, scope or geographical area permitted by law. (c) If Seller or Petersen or any of its or his affiliates (the "Restricted Persons") breaches, or threatens to commit a breach of, any of the provisions of this Section 6.11 (the "Restrictive Covenants"), Buyer shall have the right and remedy to have the Restrictive Covenants specifically enforced by any court of competent jurisdiction, it being agreed that any breach or threatened breach of the Restrictive Covenants would cause irreparable injury to Buyer and that money damages would not provide an adequate remedy to Buyer. Such rights and remedies shall be independent of the others and severally enforceable, and shall be in addition to, and not in lieu of, any other rights and remedies available to Buyer at law or in equity. 6.12 Covenant Relating to Leases. At or prior to the Closing, Seller shall, and shall cause the Peterson Trust to, (i) amend the lease described on Schedule 6.4(b) with respect to the Wilshire Property (the "Wilshire Lease") so that Section 4 of such lease reads in its entirety as follows: 4.1 For the period commencing with the Closing (as defined in the Asset Purchase Agreement dated August 15, 39 1996, to which Lessee is a party) and ending November 30, 1996, an amount equal to Three Hundred Forty-One Thousand Nine Hundred Fifty-One Dollars ($341,951) per month. 4.2 For the period commencing December 1, 1996 and ending November 30, 1997, an amount equal to Three Hundred Forty-Seven Thousand Nine Hundred Twenty-One Dollars ($347,921) per month. 4.3 For the period commencing December 1, 1997 and ending November 30, 1998, an amount equal to Three Hundred Fifty-Three Thousand Nine Hundred Ninety-Two Dollars ($353,992) per month. 4.4 For the period commencing December 1, 1998 and ending November 30, 1999, an amount equal to Three Hundred Sixty Thousand One Hundred Eighty-Five Dollars ($360,185) per month. 4.5 For the period commencing December 1, 1999 and ending November 30, 2009, rent per month shall be increased by 1 3/4% per annum. and (ii) prepare and execute a written form of the lease described on Schedule 6.4(b) with respect to the property located at 815 N. LaSalle St., Chicago Illinois (the "Chicago Lease"), in the form attached hereto as Schedule 6.12. The amendment and lease referred to in clauses (i) and (ii) above, respectively, are to be effective as of the Closing. ARTICLE VII GENERAL CONDITIONS OF PURCHASE The obligations of the parties to effect the Closing shall be subject to the following conditions: 7.1 No Orders; Legal Proceedings. No Law or Order shall have been enacted, entered, issued, promulgated or enforced by any Governmental Entity, nor shall any Action have been instituted and remain pending by any Governmental Entity at what would otherwise be the Closing Date, which prohibits or restricts or would (if successful) prohibit or restrict the transactions contemplated by this Agreement. 40 7.2 Approvals. To the extent required by applicable Law, all Permits and Approvals required to be obtained from any Governmental Entity in connection with the sale of the Purchased Assets hereunder or Buyer's ownership or operation of the Business following the Closing shall have been received or obtained, or shall have been transferred to Buyer, on or prior to the Closing Date, except those which, if not obtained or so transferred, would not have total adverse monetary consequences in excess of 1.5% of the Final Purchase Price, and any applicable waiting period under the Hart-Scott-Rodino Act shall have expired or been terminated. ARTICLE VIII CONDITIONS TO OBLIGATIONS OF BUYER The obligations of Buyer to effect the Closing shall be subject to the following conditions except to the extent waived in writing by Buyer: 8.1 Representations and Warranties and Covenants of Seller. The representations and warranties of Seller herein contained shall be true in all material respects at the Closing Date with the same effect as though made at such time, Seller shall have in all material respects performed all obligations and complied with all covenants and conditions required by this Agreement to be performed or complied with by it at or prior to the Closing Date, and Seller shall have delivered to Buyer a certificate of Seller dated as of the Closing Date to such effect; provided, however, that in the event that (i) one or more representations or warranties of Seller is untrue or partially untrue at the Closing, but (ii) such fact does not have, or cannot reasonably be expected to have, total adverse monetary consequences to Buyer in excess of 1.5% of the Final Purchase Price, such fact shall not relieve Buyer of any of its obligations under this Agreement. 8.2 No Material Adverse Change. Since the date of the Latest Balance Sheet, there shall not have been, occurred or arisen any change or development in, or event affecting, the Business, taken as a whole, or any of the Purchased Assets or Assumed Liabilities that have, or can reasonably be expected to have, a material adverse effect on the condition (financial or otherwise), operating results, assets, liabilities, operations or 41 business of Seller taken as a whole (but excluding, for such purposes, the Excluded Assets and Excluded Liabilities), except for changes, developments and events affecting generally the magazine publishing industry, including, but not limited to, changes in or affecting interest rates, securities markets, paper prices, mailing costs, general levels of advertising and advertising rates, accounting principles, practices or conventions, applicable Laws or comparable events. For purposes of this Section 8.2, any such adverse changes, developments or events having, or reasonably expected to have, total adverse monetary consequences in an amount less than or equal to 1.5% of the Final Purchase Price shall not be considered to have had a material adverse effect on the Business, taken as a whole. 8.3 Receipt of Closing Deliveries and Releases of Encumbrances. Seller shall have delivered to Buyer each of the deliveries required to be delivered pursuant to Section 2.2 and shall have obtained releases of all material encumbrances relating to the Purchased Assets (other than the Permitted Encumbrances). 8.4 Third Party Consents. Seller shall have received or obtained all third party consents and approvals (including, without limitation, governmental approvals and permits) that are necessary for Seller to consummate the transactions contemplated hereby or that are required in order to prevent a breach of or default under, a termination or modification of, or acceleration of the terms of, any Contract identified with an asterisk on Schedule 3.6, in each case on terms reasonably satisfactory to Buyer, and except to the extent the absence thereof would not have a material adverse effect on the Business, taken as a whole, as currently conducted or on Buyer's ability to conduct the Business, taken as a whole, as currently conducted by Seller. 8.5 Amendment and Restatement of Leases. The Wilshire Lease shall have been amended in accordance with Section 6.12 and not otherwise amended and shall be in full force and effect, and the Chicago Lease shall have been executed by the Petersen Trust and delivered to Buyer. 8.6 Delivery of Opinion of Seller's Counsel. Buyer shall have received from O'Melveny & Myers LLP, special counsel to Seller, and Robert Gottlieb, Esq., counsel to Seller, opinions in form and substance as set forth in Exhibits H(1) and H(2), 42 respectively, in each case addressed to Buyer and dated as of the Closing. Such counsel shall also, at Buyer's request, deliver reliance letters in customary form to the senior secured creditors of Buyer from whom funds are received to pay the purchase price hereunder. 8.7 Petersen License; Change of Seller's Name. Petersen shall have executed and delivered to Buyer the Petersen License, and the Petersen License shall be in full force and effect; Seller shall have amended its certificate of incorporation to change its name from "Petersen Publishing" to a name which does not include "Publishing" or any other word relating to publishing, communications or media, or businesses related thereto, and shall have ceased using the name "Petersen Publishing" in any of its business activities. ARTICLE IX CONDITIONS TO OBLIGATIONS OF SELLER The obligations of Seller to effect the Closing shall be subject to the following conditions, except to the extent waived in writing by Seller: 9.1 Representations and Warranties and Covenants of Buyer. The representations and warranties of Buyer herein contained shall be true in all material respects at the Closing Date with the same effect as though made at such time, Buyer shall have in all material respects performed all obligations and complied with all covenants and conditions required by this Agreement to be performed or complied with by it at or prior to the Closing Date, and Buyer shall have delivered to Seller a certificate of Buyer, dated the Closing Date and signed by its President to such effect; provided, however, that in the event that (i) one or more representations or warranties of Buyer is untrue or partially untrue at the Closing, but (ii) such fact does not have, and can not reasonably be expected to have, total adverse monetary consequences to Seller in excess 1.5% of the Final Purchase Price, such fact shall not relieve Seller of any of its obligations under this Agreement. 9.2 Employment of Petersen. Buyer shall have entered into an employment contract with Petersen, in the form attached hereto as Exhibit J. 43 9.3 Delivery of Opinion of Buyer's Counsel. Seller shall have received from Kirkland & Ellis, counsel to Buyer, an opinion in form and substance as set forth in Exhibit I attached hereto, addressed to Seller and dated the Closing Date. 9.4 Receipt of Closing Deliveries and Release of Encumbrances. Buyer shall have delivered to Seller each of the deliveries required to be delivered pursuant to Section 2.3. ARTICLE X TERMINATION OF OBLIGATIONS; SURVIVAL 10.1 Termination of Agreement. Anything herein to the contrary notwithstanding, this Agreement and the transactions contemplated by this Agreement shall automatically terminate, without any notice, demand or action by either party, if the Closing does not occur on or before the close of business on December 31, 1996 (so long as the party so electing termination is not in material breach of any of its representations, warranties, covenants or agreements contained in this Agreement) unless extended by mutual consent in writing of Buyer and Seller and otherwise may be terminated at any time before the Closing as follows and in no other manner: (a) Mutual Consent. By mutual consent in writing of Buyer and Seller. (b) Conditions to Buyer's Performance Not Met. By Buyer by written notice to Seller if any event occurs or condition exists which would render impossible the satisfaction of one or more conditions to the obligations of Buyer to consummate the transactions contemplated by this Agreement as set forth in Articles VII or VIII. (c) Conditions to Seller's Performance Not Met. By Seller by written notice to Buyer if any event occurs or condition exists which would render impossible the satisfaction of one or more conditions to the obligation of Seller to consummate the transactions contemplated by this Agreement as set forth in Articles VII or IX. (d) Material Breach. By Buyer or Seller if there has been a material misrepresentation or other material breach 44 by the other party in its representations, warranties and covenants set forth herein; provided, however, that (i) in the case of a breach of covenant the breaching party shall have 10 business days after receipt of notice from the other party of its intention to terminate this Agreement if such breach continues, in which to cure such breach and (ii) misrepresentations by any one party having total adverse monetary consequences to the other party in an amount less than or equal to 1.5% of the Final Purchase Price, shall not be considered material for purposes of this Section 10.1(d). 10.2 Effect of Termination. In the event that this Agreement shall be terminated pursuant to Section 10.1, all further obligations of the parties under this Agreement shall terminate; provided that, subject to Section 10.3, the obligations of the parties contained in (i) Sections 1.6, 13.2, 15.10, 15.11 and 15.14, (ii) the second sentence of Section 5.3 and (iii) the Confidentiality Agreement, shall survive any such termination, and that a termination under Section 10.1 shall not relieve either party of any liability for a breach of, or for any misrepresentation under this Agreement, or be deemed to constitute a waiver of any available remedy for any such breach or misrepresentation. 10.3 Limited Survival of Representations and Warranties. The representations and warranties in this Agreement delivered by Buyer or Seller to the other party in connection with this Agreement shall continue through the Closing and shall expire as follows: (i) the representations and warranties in any of Sections 3.5 (Taxes) and 3.16 (Employee Benefits) shall continue through the expiration of the applicable statute of limitations, with respect to the liabilities in question; (ii) all other representations and warranties shall expire six (6) months after the Closing (with the exception of the first clause of the first sentence of Section 3.8 (Title; Condition of Assets) which shall continue unabated); and (iii) if a claim or notice is given under Article XI with respect to any representation or warranty prior to the 45 applicable expiration date, such claim shall continue indefinitely until it is finally resolved. 10.4 Effect of Closing Over Known Unsatisfied Conditions or Breached Covenants. If Buyer or Seller elects to proceed with the Closing aware of any respect in which any condition in its favor has not been satisfied or any representation, warranty or covenant by the other has been breached (the "Known Breach"), the Known Breach shall be deemed to be waived by such party, and such party shall be deemed to fully release and forever discharge the other party on account of any and all claims, demands or charges, known or unknown, to the extent arising from such Known Breach; provided, however, that no waiver of the Known Breach of a covenant shall be deemed to have occurred if the party aware of the other's breach so notifies the other prior to Closing. 10.5 Notice of Breach of Representations or Warranties. Seller shall give prompt notice to Buyer, and Buyer shall give prompt notice to Seller, of the occurrence, or failure to occur, of any event known to Seller or Buyer, as the case may be, that would cause any of its representations or warranties contained in this Agreement to be untrue in any material respect at any time from the date of this Agreement to the Closing Date; provided that in the case of Seller, "known" shall mean actual knowledge of any senior executive officer of Seller after due inquiry. ARTICLE XI INDEMNIFICATION 11.1 Obligations of Seller. Subject to the provisions of Section 11.4, from and after the Closing, Seller agrees to indemnify and hold harmless Buyer from and against any and all Losses (as and when incurred) arising from, as a result of, or based upon any breach or nonperformance of any of the (a) representations or warranties (subject to survivability under Section 10.3), or (b) covenants or agreements, made by Seller in or pursuant to this Agreement, including in any certificate delivered at the Closing in connection herewith; provided, however, that Losses as a result of, or based upon or arising from, any Environmental Law or any violation thereof shall be limited to those in connection with claims brought by third 46 parties (including Governmental Entities) and remediations necessary to comply with any Environmental Law; and 11.2 Obligations of Buyer. Subject to the provisions of Section 11.4, from and after the Closing, Buyer agrees to indemnify and hold harmless Seller from and against any Losses (as and when incurred) arising from, as a result of, or based upon, (a) any breach or nonperformance of any of the representations or warranties (subject to survivability under Section 10.3), or (b) covenants or agreements, made by Buyer in or pursuant to this Agreement, including in any certificate delivered in connection herewith. 11.3 Procedure. (a) Notice. Any party seeking indemnification of any Loss or potential Loss arising from a claim asserted by a third party shall give written notice to the party from whom indemnification is sought. Written notice to the Indemnifying Party of the existence of a third-party claim shall be given by the Indemnified Party within 30 days after its receipt of a written assertion of liability from the third party. The Indemnified Party shall not be foreclosed from obtaining all of its rights hereunder by any failure to provide timely notice of the existence of a third party claim to the Indemnifying Party except if, and then only to the extent that, the Indemnifying Party incurs an out-of- pocket expense or otherwise has been materially prejudiced as a direct result of such delay. (b) Defense. The Indemnifying Party shall be entitled to assume the defense and control of any action giving rise to an Indemnified Party's claim for indemnification under Article XI unless (x) the Indemnified Party reasonably believes an adverse determination with respect to the action, lawsuit, investigation, proceeding or other claim giving rise to such claim for indemnification is likely to be materially detrimental to or materially injure the Indemnified Party's future business prospects or (y) the claim seeks an injunction or equitable relief against the Indemnified Party that is likely to have a material adverse effect on the business of the Indemnified Party, taken as a whole. If the Indemnifying Party assumes the defense of any Indemnifiable Claim, it shall retain experienced counsel reasonably satisfactory to the Indemnified Party and the Indemnified Party may participate in the defense of such claim 47 and employ counsel of its choice for such purpose; provided that the fees and expenses of such separate counsel shall be borne by the Indemnified Party (other than any fees and expenses of such separate counsel that are incurred prior to the date the Indemnifying Party effectively assumes control of such defense). If the Indemnifying Party does not assume such defense, the Indemnified Party may compromise or settle the claim on behalf of and for the account and risk of the Indemnifying Party, who shall be bound by the result; provided, however, that the Indemnifying Party (i) shall be responsible only for the reasonable costs of defense and (ii) shall be entitled to participate (at its cost and with counsel of its choice) in the defense of any Action in which the Indemnified Party retained the defense thereof under clause (x) or (y) of the first sentence of this Section 11.3(b); and provided further, that the Indemnifying Party shall not be liable for any settlement or compromise of any such Action of which the Indemnified Party has retained the defense, that is effected without its prior written consent (which consent shall not be withheld unreasonably). (c) Settlement Limitations. Notwithstanding anything in this Section 11.3 to the contrary, the Indemnifying Party shall not, without the written consent of the Indemnified Party, settle or compromise any third party Action or permit a default or consent to entry of any judgment unless the claimant and the Indemnifying Party provide to the Indemnified Party a release from all liability in respect of the claim. Notwithstanding the foregoing, if a settlement offer solely for money damages is made by the applicable third party claimant, and the Indemnifying Party notifies the Indemnified Party in writing of the Indemnifying Party's willingness to accept the settlement offer and pay the amount called for by such offer, and the Indemnified Party declines to accept such offer, the Indemnified Party may continue to contest such claim, free of any participation by the Indemnifying Party, and the amount of any ultimate liability with respect to such Indemnifiable Claim that the Indemnifying Party has an obligation to pay hereunder shall be limited to the lesser of (i) the amount of the settlement offer that the Indemnified Party declined to accept, or (ii) the aggregate Losses of the Indemnified Party with respect to such claim. If the Indemnifying Party makes any payment on any claim, the Indemnifying Party shall be subrogated, to the extent of such payment, to all rights and remedies of the Indemnified Party to any insurance benefits (to the extent not used to offset Losses incurred by the 48 Indemnified Party in respect of which the Indemnified Party has not received indemnity payments from the Indemnifying Party). 11.4 Mitigation; Limitations on Indemnification. (a) The Indemnified Party shall take all commercially reasonable steps to mitigate all Losses, including, but not limited to, availing itself of any reasonable and prudent defenses, limitations, rights of contribution, and claims against third parties and other rights at Law (it being understood that any out- of-pocket costs paid to third parties in connection with such mitigation shall constitute Losses), and shall provide such evidence and documentation of the nature and extent of any Loss as may be reasonably requested by the Indemnifying Party. Notwithstanding any other provision of this Agreement, subject to the compliance by Buyer with the last sentence of Section 11.4(b), for purposes of determining whether a representation or warranty of Seller has been breached under clause (a) in the first sentence of Section 11.1, the representations and warranties of the Seller shall not be considered to include any of the materiality qualifiers or standards with respect to any effect of a matter or circumstance upon the Business. (b) Any recovery pursuant to Article XI shall be net of (i) any Tax benefits realized or realizable by the Indemnified Party based on the present value thereof by reason of such Losses, and (ii) the dollar amount of aggregate insurance proceeds receivable by the Indemnified Party with respect to such Losses in excess of the amount of the Basket. Seller shall not be required to indemnify any Person under Section 11.1 for a breach of a representation or warranty unless the aggregate of all amounts for which indemnity would otherwise be payable by Seller exceeds $3,250,000 (the "Basket"), and, in such event, Seller shall be responsible for the full amount of all Losses. Seller's indemnity obligations under Section 11.1 for a breach of representation or warranty shall be limited, in the aggregate, to 15% of the Final Purchase Price. In addition, for purposes of determining whether the amount of the Basket has been exceeded, no breach of a representation or warranty which results in losses of $37,500 or less shall be considered. 49 11.5 Remedies Exclusive. The remedies provided for in this Article XI shall constitute the sole and exclusive remedy for any post-Closing claims made for breach of this Agreement in connection with the transactions contemplated hereby, except for claims arising out of any breach of Section 13.2. Except for the remedies against Seller specifically provided for in this Agreement (and except as to remedies for Actual Fraud, as defined below), none of Buyer or any of its Affiliates shall have any recourse against Seller or Petersen in connection with, and Buyer hereby waives and forever releases and discharge Seller, Petersen and their respective Affiliates from and against, any and all Losses, directly or indirectly, as a result of, or based upon or arising from the conduct of the Business and any act or omission with respect to the Business prior to the Closing. Each party hereby waives any provision of law to the extent that it would limit or restrict the agreement contained in this Section 11.5, except with respect to one party's claim against the other for actual knowing fraud by Seller ("Actual Fraud"). Notwithstanding anything to the contrary elsewhere in this Agreement, no party or its Affiliates shall seek or be liable for any punitive or consequential damages, including, but not limited to loss of business reputation or opportunity relating to any breach or alleged breach of a representation or warranty set forth in this Agreement; provided that Buyer may seek, and Seller may be held liable for, consequential damages in the event of (i) a breach of Seller's obligation to transfer the Purchased Assets and Assumed Liabilities at Closing pursuant to the terms of this Agreement; (ii) a breach of Seller's obligations set forth in Section 6.10 or (iii) an intentional breach of any provision of this Agreement if such breach would reasonably be expected to frustrate the consummation of the sale of the Purchased Assets and assumption of the Assumed Liabilities contemplated by this Agreement. ARTICLE XII TAX MATTERS AND INSURANCE 12.1 Tax Returns; Audits. (a) Seller shall file when due all Tax Returns required to be filed by it, whether relating to periods ending before or after the Closing Date, and shall have the responsibility for, and sole right to control, compromise, settle or appeal any Tax audit or other proceeding in connection with 50 any matter that pertains to Seller's or Petersen's liability for Taxes. Buyer shall promptly (and in any event within 15 business days) notify Seller in writing upon receipt by Buyer of notice of any pending or threatened audits or assessments relating to Seller's or Petersen's liability for Taxes. (b) Seller shall have no liability under this Agreement for, and Buyer will indemnify Seller and Petersen against, (i) any Tax attributable to or resulting from the ownership of the Purchased Assets or the conduct of the Business by Buyer after the Closing and (ii) any Tax resulting from a breach of a representation, warranty or covenant of Buyer under this Agreement. 12.2 Wage Reporting. Buyer acknowledges that, at the Closing, Buyer will be purchasing substantially all the property used in the Business, and in connection therewith Buyer will employ individuals who immediately before the Closing Date were employed in such Business by Seller. Accordingly, pursuant to IRS Revenue Procedure 84-77, 1984-2 C.B. 753, provided that Seller provides Buyer with all necessary payroll records, Buyer shall furnish a Form W-2 for the year ended December 31, 1996 to each transferred employee which shall include all wage and other compensation paid to, and taxes withheld from, such employee by Seller during such period, and Seller shall be relieved of the responsibility to do so. (a) Employee Withholding Allowance Certificate (Form W-4). In accordance with IRS Procedure 84-77, Seller shall transfer to Buyer any Employee Withholding Allowance Certificate (Form W-4) in Seller's possession for each transferred Employee. (b) Calculation of "Annual Wage Limitation" for FICA. In accordance with IRS Regulation (S) 31.3121(a)(1)-1(b), in determining the "annual wage limitation" of each transferred employee for purposes of the Federal Income Contribution Act (FICA) for the year ending December 31, 1996, Buyer will include any remuneration received by such employee from Seller during such period. 12.3 Insurance Matters. With respect to the insurance policies covered by Section 1.1(a)(xxiii), including those as to 51 which Buyer is named an additional insured pursuant to Section 5.6, Buyer and Seller agree as follows: (a) Claims. Buyer is entitled to obtain the benefits under insurance policies held by Seller which are not assigned to Buyer at the Closing but which relate to (but only to the extent they relate to) the Purchased Assets or the Assumed Liabilities (the "Subject Policies"). Seller agrees, at Buyer's request, to file claims under the Subject Policies that relate to the Purchased Assets or Assumed Liabilities ("Claims"); provided, that Seller will have no obligation to file any Claim after December 31, 2000, or other than to the extent the Special Power of Attorney to be provided to Buyer as described below is insufficient to permit Buyer to file any Claim. Seller shall file any such Claim within 30 business days after presentation thereof by Buyer. The form of any such claims shall be prepared by Buyer. Seller shall have no obligation to ascertain or advise Buyer of the existence of any insurable claim under the Subject Policies. After a Claim has been filed, Seller shall not take any action with respect thereto or compromise or settle any Claim unless directed to do so by Buyer. Seller shall take all lawful actions in respect of Claims as are reasonably requested by Buyer, including the prosecution of Claims against insurers providing the Subject Policies, using counsel selected by Buyer; but only if Buyer pays any out-of-pocket costs of Seller, as they are incurred, in connection with the prosecution of Claims. Buyer shall have the right, as the attorney-in-fact of Seller, to make any filing and to prosecute, settle or compromise any Claim under a Subject Policy in the name of and on behalf of Seller. In furtherance thereof, Seller shall, on the Closing Date, execute a Special Power of Attorney in the form of Exhibit I hereto. (b) Assignment of Benefits; Payment. To the extent permitted by Law and the terms of the relevant Subject Policies, Seller shall, upon making a Claim requested by Buyer under the Subject Policies, notify the relevant insurer(s) that it has assigned to Buyer any amounts to be paid by such insurer(s) pursuant to such Claim and that all payments of insurance proceeds or benefits relating to such Claim should be paid directly to Buyer. In addition, Seller shall promptly pay to Buyer all insurance proceeds (net of 52 expenses) received by Seller in respect of Claims under the Subject Policies. (c) Preservation of Documents. Seller agrees to preserve all of its papers, records, correspondence or other documents or materials comprising or evidencing the existence of the Subject Policies, including the binders and policies relating to the same until December 31, 2000, and to provide true, correct and complete copies of the same to Buyer upon request as promptly as practicable. (d) No Effect on Seller Rights. The provisions of this Section 12.3 shall not limit or impair the right of Seller and its present or former Affiliates to file and prosecute claims under any insurance policy heretofore, now or hereafter maintained by Seller or its present or former Affiliates, including the Subject Policies. Buyer acknowledges that the Subject Policies contain coverage limitations that may now or in the future be exceeded by claims filed by Seller and its present or former Affiliates, and that Seller has no obligation to reimburse deductibles or allocate or maintain the availability of any coverage under the Subject Policies for the benefit of Buyer. Seller will have no responsibility for the accuracy or completeness of any information submitted by or on behalf of Buyer in connection with the filing or prosecution of Claims. Buyer hereby agrees to indemnify and hold Seller harmless from any Losses resulting from or arising in connection with the filing or prosecution of any Claims hereunder other than Losses resulting from or arising in connection with Seller's bad faith; provided, that for purposes of such indemnification, the parties agree that "Losses" shall not include diminutions in coverage remaining under policy limits due to the assertion and payment of Claims. ARTICLE XIII PUBLICITY/CONFIDENTIALITY 13.1 Publicity and Reports. Seller and Buyer shall coordinate all publicity relating to the transactions contemplated by this Agreement, and neither party shall issue any press release, publicity statement or other public notice relating to the identity of Buyer or the Final Purchase Price (or 53 any component thereof) hereunder without consulting with the other party, except that neither party shall be precluded from making such filings or giving such notices as may be required by Law or the rules of any stock exchange. 13.2 Confidentiality. All information disclosed by any party or its representatives, whether before or after the date hereof, in connection with the transactions contemplated by, or the discussions and negotiations preceding, this Agreement to any other party or its representatives shall be kept confidential by such other party and its representatives and shall not be used by any such Persons other than as contemplated by this Agreement, except to the extent that such information (i) was known by the recipient when received, (ii) is or hereafter becomes lawfully obtainable from other sources, (iii) is necessary or appropriate to disclose to a Governmental Entity having jurisdiction over the parties, (iv) as may otherwise be required by law, (v) was developed by such party or its representatives independent of any information which is otherwise confidential pursuant to this Section 13.2 or (vi) to the extent such duty as to confidentiality is waived in writing by the other party. If this Agreement is terminated in accordance with its terms, each party shall return all documents and reproductions thereof received by it or its representatives from the other party and, in the case of reproductions, all such reproductions made by the receiving party that include information not within the exceptions contained in the first sentence of this Section 13.2, unless the recipients provide assurances satisfactory to the requesting party that such documents have been destroyed. If the transactions contemplated hereby are consummated, Seller shall maintain as confidential and shall not use or disclose (except as required by law or as authorized in writing by Buyer) any material confidential or proprietary information or materials relating to the Business. At the Closing, Seller shall assign to Buyer all of its rights under all confidentiality agreements with prospective bidders entered into in connection with the process leading to the sale of the Business; provided, however, that Seller shall have no obligation to obtain consents or approvals from any Person in connection with such assignments and Seller makes no representation as to the effectiveness of any such assignment. In addition, Seller shall request the return or destruction as promptly as possible of all confidential information delivered to prospective buyers. In the event any party hereto is required by law to disclose any confidential 54 information, such party shall promptly notify each other party in writing, which notification shall include the nature of the legal requirement and the extent of the required disclosure, and shall cooperate with each other party to preserve the confidentiality of such information consistent with applicable law. ARTICLE XIV DEFINITIONS 14.1 General Provisions. For all purposes of this Agreement, except as otherwise expressly provided: (a) the terms defined in this Article XIV have the meanings assigned to them in this Article XIV and include the plural as well as the singular; (b) all accounting terms used herein have the meanings assigned to them under generally accepted accounting principles, except to the extent otherwise provided herein; (c) all references in this Agreement to designated "Articles," "Sections" and other subdivisions and to "Exhibits" and "Schedules" are to the designated Articles, Sections and other subdivisions of the body of this Agreement and to the Exhibits and Schedules to this Agreement; (d) pronouns of either gender or neuter shall include, as appropriate, the other pronoun forms; (e) whenever the term "including" is used in this Agreement (whether or not that term is followed by the phrase "without limitation" or words of similar effect) in connection with a listing of items within a particular classification, that listing will be interpreted to be illustrative only and will not be interpreted as a limitation on, or an exclusive listing of, the items within that classification; (f) whenever the phrase "ordinary course of business" is used in this Agreement, it means the usual and ordinary course of business consistent with past practice, including with respect to quantity and frequency; and 55 (g) the words "herein," "hereof" and "hereunder" and other words of similar import refer to this Agreement as a whole and not to any particular Article, Section or other subdivision. 14.2 Specific Provisions. As used in this Agreement the following definitions shall apply: "Accounts Receivable" has the meaning specified in Section 1.1(a)(iv). "Action" means any investigation, charge, claim, complaint, petition, suit or other proceeding, whether civil or criminal, in law or in equity, by or before any arbitrator or Governmental Entity. "Affiliate" means a Person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, a specified Person. "Agreed Accounting Principles" means the accounting principles, policies and practices applied in the preparation of Seller's audited financial statements as of and for the fiscal year ended November 30, 1995 referred to in Section 3.2(a), without regard to whether with respect to any matter there is more than one generally accepted accounting principle, or generally accepted accounting principles would permit or allow for more than one treatment or approach and without regard to any purchase accounting adjustments arising out of the consummation of the transactions contemplated hereby (it being understood that such principles, policies and practices are GAAP as in effect on the date hereof, except as specified to the contrary in the notes to such audited financial statements); and except that any provision for deferred Taxes shall be disregarded. "Agreed Rate" means, as of the date of any determination of interest to be made by reference thereto, the interest rate established on such date by Wells Fargo Bank, N.A. as its "prime" rate, or, if that rate is no longer established or published, a comparable interest rate. "Agreement" means this Agreement between Buyer and Seller, as amended or supplemented together with all Exhibits and Schedules hereto. 56 "Approval" means any approval, authorization, consent, qualification or registration, or any waiver of any of the foregoing, required to be obtained from any Governmental Entity or any other Person in order to comply with any applicable law or to prevent a breach or default under, a termination or a material modification of, or acceleration of the terms of, any material contract, understanding or arrangement. "Assumed Liabilities" is defined in Section 1.2. "Auditors" means Ernst & Young L.L.P., Los Angeles office, independent public accountants to Seller. "Books and Records" means all books, ledgers, files, reports, documents, plans and operating records of or maintained by Seller relating to or otherwise reasonably required for the operation of the Business. "Business" means the business, assets and properties, operating as a going concern, which constitutes Seller's publishing and media businesses and all related and ancillary businesses, including the production and promotion of Events; provided, however, that the term Business shall not include any business conducted by Seller solely with the Excluded Assets and Excluded Liabilities. "Business Day" means any day on which commercial banks are not authorized or required to close in Chicago, Illinois or Los Angeles, California. "Closing" means the consummation of the transactions contemplated by this Agreement. "Closing Date" means the date of the Closing. "Code" means the Internal Revenue Code of 1986, as amended. "Company Plan" is defined in Section 3.16. "Confidentiality Agreement" is defined in Section 15.2. 57 "Contract" means any written or oral agreement, arrangement, bond, commitment, contract, franchise indemnity, indenture, instrument, lease or license. "Deposit" is defined in Section 1.6. "Disclosure Schedule" means the Disclosure Schedule of even date herewith delivered by Seller to Buyer which sets forth certain exceptions to the representations and warranties made by Seller in Article III. "Employee Pension Benefit Plan" is defined in Section 3.16. "Employee Welfare Benefit Plan" is defined in Section 3.16. "Encumbrance" means any charge, mortgage, encumbrance, security interest or lien, whether imposed by agreement, understanding, law, equity or otherwise, provided, however, that "Encumbrance" shall not mean any restrictions on transfer generally arising under any applicable federal or state securities laws. "Environmental Laws" means any and all Laws for the purposes of regulating pollution and protecting the environment in effect as of the Closing Date. "Equity Securities" means any capital stock or other equity interest or any securities convertible into or exchangeable for capital stock or any other rights, warrants or options to acquire any of the foregoing securities. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended, and the related regulations and published interpretations. "ERISA Affiliate" means any Person other than Seller or any Subsidiary who is a member of a group which is under common control with Petersen who together with Petersen is treated as a single employer within the meaning of Sections 414(b), (c), (m) or (o) of the Code. 58 "Events" means the exhibits, public events and other promotional opportunities relating to the Publications including ones that are produced by Seller's Events & Promotions Department. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Excluded Assets" is defined in Section 1.1(b). "Excluded Liabilities" is defined in Section 1.2. "Final Purchase Price" is defined in Section 1.3. "GAAP" means generally accepted accounting principles in the United States as in effect as of the respective dates of the financial statements referred to in Section 3.2(a). "Governmental Entity" means any government or any agency, bureau, board, commission, court, department, official, political subdivision, regulatory body or authority, tribunal or other instrumentality of any government, whether federal, state or local, domestic or foreign. "Hart-Scott-Rodino Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the related regulations and published interpretations. "Hazardous Substance" means substances that are defined or listed in, or otherwise classified pursuant to, any applicable Environmental Laws or common law as "hazardous substances," "hazardous materials," "hazardous wastes" or "toxic substances." "Intangible Property" means any trade secret, secret process or know- how and any and all Marks; provided, however, that "Intangible Property" shall not mean retail or "shrink-wrap" computer software licenses held by Seller. "Inventory" is defined in Section 1.1(a)(v). "IRS" means the Internal Revenue Service or any successor entity. 59 "Law" means any constitutional provision, statute, permit, order, ordinance or other law, rule or regulation, of any Governmental Entity, common law and any Order. "Lease" is defined in Section 3.9. "Loss" means any loss, cost, damage, expense, liability, obligation, fine or penalty of any kind or nature, including, but not limited to, interest or other carrying costs, penalties, legal, accounting and other professional fees and expenses, whether or not arising out of third party claims or paid or incurred in the investigation, collection, prosecution and defense or settlement of claims, that may be imposed on or otherwise incurred or suffered by the specified person; provided, however, that Loss shall not include any consequential damages, or any cost, damage, expense, liability, obligation or penalty, that could not reasonably have been foreseen by the parties at the Closing Date. "Mark" means any brand name, copyright, patent, service mark, trademark, tradename, and all registrations or applications for registration of any of the foregoing. "Material Contract" means each Contract to which Seller is a party that (a) is a Material Facilities Lease, (b) by its terms obligates Seller to pay an amount in excess of $250,000 per year and which cannot be terminated or cancelled by Seller without liability or penalty upon 30 days' or less prior notice, (c) limits or restricts Seller from freely competing or conducting its business in any manner or place, (d) is a credit agreement, note, bond, mortgage, deed of trust or indenture evidencing any indebtedness of Seller for borrowed money, is a guaranty by Seller, or is an interest rate swap agreement or other derivative, (e) contains a right or obligation, other than pursuant to any Company Plan or Lease, of any Affiliate, officer or director, of Petersen or Seller, from or to Seller, (f) is a contract with any labor union, (g) is an agreement, arrangement or understanding (oral or written) with any officer, stockholder or other insider or affiliate of Seller (other than for employment on customary terms), (h) is an employment contract providing for payments in excess of $100,000, other than Seller's severance policy previously disclosed to Buyer, or (i) represents a contract upon which the Business is substantially dependent or 60 which is otherwise material to the Business; provided, however, that "Material Contract" shall not mean any of the Company Plans. "Material Facilities Leases" means each of the real property leasehold interests of Seller used in the Business and listed on Schedule 14.2(a). "Order" means any decree, injunction, judgment, order, ruling or writ. "PBGC" means the Pension Benefit Guaranty Corporation or any successor thereto. "Permit" means any license, permit, franchise, certificate of authority, or order, or any waiver of the foregoing, required to be issued by any Governmental Entity. "Permitted Encumbrance" means any Encumbrance that: (i) is a lien in respect of an Assumed Liability of a landlord, carrier, warehouseman, mechanic, materialman, or any other statutory lien arising in the ordinary course of business; (ii) is a lien for Taxes not yet due or being contested in good faith; (iii) with respect to the right of a lessee to use any property leased from Seller pursuant to a Lease disclosed on a schedule hereto or not required by this Agreement to be so disclosed, arises solely with respect to such leased property by the terms of the applicable lease; (iv) with respect to the right of Seller to use any property leased to Seller pursuant to a Lease disclosed on a schedule hereto or not required by this Agreement to be so disclosed, arises solely with respect to such leased property by the terms of the applicable lease; (v) is an Assumed Liability that is a purchase money security interest arising in the ordinary course of business; 61 (vi) with respect to interests in any partnership or trust, is an Assumed Liability and arises by the terms of the applicable partnership agreement or trust agreement (provided that such partnership or trust agreement is described on a schedule hereto or not required by this Agreement to be so disclosed), and not on account of a breach thereof; or (vii) with respect to any Material Contract disclosed on a schedule hereto, or any Contract which is not a Material Contract and not otherwise required to be disclosed on a schedule hereto, is an Assumed Liability and arises by the terms of the applicable Contract, and not on account of a breach thereof. "Person" means an association, a corporation, a limited liability company, an individual, a partnership, a trust or any other entity or organization, including a Governmental Entity. "Petersen" means Robert E. Petersen, Chairman of the Board and founder of Seller. "Petersen Trust" means the R.E. & M. M. Petersen Living Trust. "Petersen License" is defined in Section 6.2. "Publications" is defined in Section 1.1(a)(xix). "Purchased Assets" is defined in Section 1.1(a). "Real Property" means interests in real property, appurtenances thereto, and rights in connection therewith, owned or held by Seller, as the case may be. "Reconciliation Principles" mean the accounting principles described on the Reconciliation Statement as adjustments to Seller's current assets and current liabilities (as set forth on the Latest Balance Sheet) required to remove assets not included in Purchased Assets and liabilities not included in the Assumed Liabilities. "Reconciliation Statement" means the statement of Working Capital at June 30, 1996 attached hereto as Exhibit A. 62 "Tax" means any (A) foreign, federal, state, county or local income, sales and use, excise, franchise, real and personal property, transfer, gross receipt, capital stock, production, business and occupation, employment, payroll, severance or withholding tax or charge imposed by any Governmental Entity, any interest and penalties (civil or criminal) related thereto or to the nonpayment thereof, and any Loss in connection with the determination, settlement or litigation of any Tax liability or other tax, of any kind whatsoever; (B) liability of Seller for the payment of any amounts of the type described in clause (A) arising as a result of being (or ceasing to be) a member of any Affiliated Group (or being included (or required to be included) in any Tax Return relating thereto); and (C) liability of Seller for the payment of any amounts of the type described in clause (A) as a result of any express or implied obligation to indemnify or otherwise assume or succeed to the liability of any other person, other than an Assumed Liability. "Tax Return" means a report, return or other information required to be supplied to a Governmental Entity with respect to Taxes. "WARN Act" is defined in Section 4.5. "Working Capital" means the amount, if any, by which the current assets included in Purchased Assets (excluding cash and cash equivalents) exceed the current liabilities included in the Assumed Liabilities, as determined in accordance with the Agreed Accounting Principles, the Reconciliation Principles and Section 1.5. ARTICLE XV GENERAL 15.1 Amendments; Waivers. This Agreement and any Exhibit or Schedule attached hereto may be amended only by agreement in writing of both parties. No waiver of any provision nor consent to any exception to the terms of this Agreement shall be effective unless in writing and signed by the party to be bound and then only to the specific purpose, extent and instance so provided, except as provided in Section 10.4. 63 15.2 Exhibits and Schedules; Integration. Each Exhibit and Schedule delivered pursuant to the terms of this Agreement shall be in writing and shall constitute a part of this Agreement, although such Exhibits and Schedules need not be attached to each copy of this Agreement. This Agreement, together with such Exhibits and Schedules, constitutes the entire agreement between the parties pertaining to the subject matter hereof and supersedes all prior agreements and understandings of the parties in connection therewith, except for the confidentiality agreement dated June 3, 1996 by and between Goldman, Sachs & Co., as agent for Seller, and Willis Stein & Partners, L.P. (the "Confidentiality Agreement"). 15.3 Best Efforts. Subject to Section 5.3, each party will use its best efforts to cause all conditions to its obligations hereunder to be timely satisfied, to the end that the transactions contemplated by this Agreement shall be effected substantially in accordance with its terms as soon as reasonably practicable. 15.4 Governing Law. This Agreement, the legal relations between the parties and any Action, whether contractual or non- contractual, instituted by any party with respect to matters arising under or growing out of or in connection with or in respect of this Agreement shall be governed by and construed in accordance with the laws of the State of California applicable to contracts made and performed in such State and without regard to conflicts of law doctrines. 15.5 No Assignment. Neither this Agreement nor any rights or obligations under it are assignable, except that Buyer may assign all or any portion of its rights and obligations hereunder to any wholly-owned subsidiary of Buyer, and may assign all or any portion of its rights hereunder to one or more of its lenders, so long as Buyer remains liable with respect to its liabilities and obligations hereunder. 15.6 Headings. The descriptive headings of the Articles, Sections and subsections of this Agreement are for convenience only and do not constitute a part of this Agreement. 15.7 Counterparts. This Agreement and any amendment hereto or any other agreement or document delivered pursuant hereto may be executed in one or more counterparts and by 64 different parties in separate counterparts. All of such counterparts shall constitute one and the same agreement or other document and shall become effective unless otherwise provided therein when one or more counterparts have been signed by each party and delivered to the other party. 15.8 Parties in Interest. This Agreement shall be binding upon and inure to the benefit of each party, and (except as contemplated by Section 11.5) nothing in this Agreement, express or implied, is intended to confer upon any other person any rights or remedies of any nature whatsoever under or by reason of this Agreement. 15.9 Notices. Any notice or other communication hereunder must be given in writing and (a) delivered in person, (b) transmitted by telex, telefax or telecommunications mechanism provided that any notice so given is also mailed or sent as provided in clause (c), or (c) mailed by certified or registered mail, postage prepaid, receipt requested or sent by reputable overnight courier as follows: If to Buyer, addressed to: BrightView Communications Group, Inc. c/o Willis Stein & Partners, L.P. 227 West Monroe Street Suite 4300 Chicago, Illinois 60606 Telecopy: (312) 422-2418 Attn: Avy H. Stein Daniel H. Blumenthal With a copy to: Kirkland & Ellis 200 East Randolph Drive Chicago, Illinois 60601 Telecopy: (312) 861-2200 Attn: John A. Weissenbach, Esq. 65 If to Seller or Petersen, addressed to: Petersen Publishing Company 6420 Wilshire Blvd. Los Angeles, CA 90048 Telecopy: (213) 782-2734 Attn: Robert E. Petersen With copies to: O'Melveny & Myers LLP 400 S. Hope St. Los Angeles, CA 90071 Telecopy: (213) 669-6407 Attn: C. James Levin, Esq. and: Robert J. Gottlieb, Esq. 617 N. Maple Drive Beverly Hills, CA 90218 Telecopy: (213) 782-2855 or to such other address or to such other person as either party shall have last designated by such notice to the other party. Each such notice or other communication shall be effective (i) if given by telecommunication, on the Business Day on which it is transmitted (or if not transmitted on a Business Day, then on the first Business Day following the date of such transmission) to the applicable number specified in (or pursuant to) this Section 15.9 and an appropriate answerback is received, (ii) if given by mail or courier or any other means, when actually delivered. 15.10 Expenses. Except as otherwise provided herein, Seller and Buyer shall each pay their own expenses incident to the negotiation, preparation and performance of this Agreement and the transactions contemplated hereby, including, but not limited to, the fees, expenses and disbursements of their advisers. 15.11 Attorneys' Fees. In the event of any Action by any party arising under or out of, in connection with or in respect of this Agreement, including any participation in 66 bankruptcy proceedings to enforce against a party a right or claim in such proceedings, the prevailing party shall be entitled to reasonable attorneys' fees, costs and expenses incurred in such Action. Attorneys' fees incurred in enforcing any judgement in respect of this Agreement are recoverable as a separate item. The parties intend that the preceding sentence be severable from the other provisions of this Agreement, survive any judgment and, to the maximum extent permitted by law, not be deemed merged into such judgment. 15.12 Representation By Counsel; Interpretation. Seller and Buyer each acknowledge that each party to this Agreement has been represented by counsel in connection with this Agreement and the transactions contemplated by this Agreement. Accordingly, any rule of Law or any legal decision that would require interpretation of any claimed ambiguities in this Agreement against the party that drafted it has no application and is expressly waived. The provisions of this Agreement shall be interpreted in a reasonable manner to effect the intent of Buyer and Seller. 15.13 Severability. If any provision of this Agreement is determined to be invalid, illegal or unenforceable by any Governmental Entity, the remaining provisions of this Agreement shall remain in full force and effect provided that the essential terms and conditions of this Agreement for both parties remain valid, binding and enforceable. To the extent permitted by Law, the parties hereby to the same extent waive any provision of Law that renders any provision hereof prohibited or unenforceable in any respect. 15.14 Dispute Resolution; Agreement to Arbitrate. Except to the extent that any specific dispute resolution mechanism has been otherwise provided for with respect to any specific provision of this Agreement (unless such mechanism has been pursued to its conclusion and either the dispute in question remains unresolved or the resolution reached by such process has not been honored), in the event that any dispute arises between Buyer and Seller with respect to this Agreement or the transactions contemplated hereby, the following procedures shall apply. (a) The parties will attempt in good faith to resolve any dispute, controversy or claim under, arising out of, 67 relating to or in connection with this Agreement, including, but not limited to, the negotiation, execution, interpretation, construction, performance, non-performance, breach, termination, validity, scope, coverage or enforceability of this Agreement or any alleged fraud in connection therewith, promptly by negotiations between representatives of the parties. If any such dispute, controversy or claim should arise, duly authorized representatives of Buyer and Seller will meet at least once and will attempt to resolve the matter. Either representative may request the other to meet again within 14 days thereafter, at a mutually agreed time and place. If the matter has not been resolved within 30 days after the first meeting of the representatives (which period may be extended by mutual agreement), the parties will attempt in good faith to resolve the controversy or claim in accordance with the Center for Public Resources Model Procedure for Mediation of Business Disputes. (b) If the matter has not been resolved pursuant to the foregoing procedures within 60 days after the first meeting (which period may be extended by mutual agreement), the matter shall be resolved, at the request of either party, by arbitration conducted in accordance with the provisions of the Federal Arbitration Act (9 U.S.C. (S)(S)1-16) and in accordance with the Center for Public Resources Rules for Non- Administered Arbitration of Business Disputes, by one arbitrator mutually selected by the parties. If the parties are unable to agree on the selection of an arbitrator, they shall select an arbitrator through the procedures established by the Center for Public Resources Rules for Non-Administered Arbitration of Business Disputes. The arbitration of such issues, including the determination of any amount of damages suffered by any party hereto by reason of the acts or omissions of any party, shall be final and binding upon the parties, except that the arbitrator shall not be empowered to act as amiable compositeur or authorized to award punitive damages with respect to any such claim, dispute or controversy. No party shall seek any punitive damages relating to any matters under, arising out of, in connection with or relating to this Agreement. Equitable remedies shall be available in any such arbitration. The parties intend that this agreement to arbitrate be valid, binding, enforceable and irrevocable. 68 The substantive law of the State of California shall apply to any such arbitration proceedings. The place of any such arbitration shall be Los Angeles, California. Judgment upon the award rendered by the arbitrators may be entered by any court having jurisdiction thereof. (c) Notwithstanding the provisions of this Section 15.14, either party may seek injunctive or other equitable relief to maintain the status quo before any court of competent jurisdiction in connection with any claim, dispute or controversy arising out of this Agreement. 69 IN WITNESS WHEREOF, each of Buyer and Seller has caused this Agreement to be executed by its duly authorized representative as of the date first above written. BUYER: BRIGHTVIEW COMMUNICATIONS GROUP, INC., a Delaware corporation By:__________________________ Name:________________________ Title:_______________________ SELLER: PETERSEN PUBLISHING COMPANY, a California corporation By:__________________________ Name: Robert E. Peterson Title: Chairman of the Board 70 EX-2.1(B) 3 AMENDMENT TO ASSET PURCHASE AGREEMENT FIRST AMENDMENT TO ASSET PURCHASE AGREEMENT This First Amendment to Asset Purchase Agreement (this "Amendment"), dated as of September 30, 1996, amends that certain Asset Purchase Agreement (the "Agreement"), dated as of August 15, 1996, by and between BrightView Communications Group, Inc., a Delaware corporation ("Buyer"), and Petersen Publishing Company, a California corporation ("Seller"). Capitalized terms used herein without definition shall have the same meanings herein as set forth in the Agreement. RECITALS WHEREAS, Buyer and Seller desire to amend the Agreement to reflect certain changes; and WHEREAS, Section 15.1 of the Agreement requires that any amendment of the Agreement be executed in writing by both parties; and WHEREAS, effective as of the Closing, (i) Buyer will assign to Petersen Holdings, L.L.C., a Delaware limited liability company ("Holdings"), all of Buyer's rights under the Agreement and (ii) Holdings will assign all such rights to Petersen Publishing Company, L.L.C., a Delaware limited liability company ("Operating Company"); and NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements set forth herein, Buyer and Seller agree as follows: SECTION 1. AMENDMENTS TO AGREEMENT. 1.1 Section 6.7(a) of the Agreement is hereby amended so that the following clause is added to end of such Section: "provided further that notwithstanding any provision to the contrary in the Seller Profit Sharing Plan, any Retained Employee so terminated prior to the end of the 1996 Plan Year shall be entitled to any contributions to which the Retained Employee otherwise would have been entitled under the Seller Profit Sharing Plan had the Retained Employee remained employed by Buyer through the end of the 1996 Plan Year (as defined in the Seller Profit Sharing Plan)." 1.2 Section 6.7(f) of the Agreement is hereby amended by deleting the second sentence thereof. 1.3 Section 12.3 of the Agreement is hereby amended so that there are no brackets surrounding the phrase "including those as to which Buyer is named an additional insured pursuant to Section 5.6." SECTION 2. CONDITIONS TO EFFECTIVENESS. This Amendment shall become effective immediately upon its execution. SECTION 3. SURVIVAL OF ASSET PURCHASE AGREEMENT. Except as otherwise amended herein, the Agreement shall remain in full force and effect pursuant to the terms and conditions set forth therein. SECTION 4. MISCELLANEOUS. 4.1 EXECUTION IN COUNTERPARTS. This Amendment may be executed in multiple counterparts in accordance with Section 15.7 of the Agreement. 4.2 HEADINGS. Section and subsection headings in this Amendment are included herein for convenience of reference only and shall not constitute a part of this Amendment for any other purpose or be given any substantive effect. 4.3 GOVERNING LAW. This Amendment shall be construed according to the laws of the State of California as more fully set forth in Section 15.4 of the Agreement. 2 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed as of the date first above written. BUYER: BRIGHTVIEW COMMUNICATIONS GROUP, INC., a Delaware corporation By: ______________________________ Its: _________________________ SELLER: PETERSEN PUBLISHING COMPANY, a California corporation By: ______________________________ Its: _________________________ HOLDINGS: PETERSEN HOLDINGS, L.L.C., a Delaware limited liability company By: ________________________________ Its: ___________________________ OPERATING COMPANY: PETERSEN PUBLISHING COMPANY, L.L.C., a Delaware limited liability company By: _________________________________ Its: ____________________________ 3 EX-3.2 4 CERTIFICATE OF FORMATION OF PETERSEN CERTIFICATE OF FORMATION OF PETERSEN PUBLISHING COMPANY, L.L.C. The undersigned, being duly authorized to execute and file this Certificate of Formation for the purpose of forming a limited liability company pursuant to the Delaware Limited Liability Company Act, 6 Del. C. (S)(S) 18-101, et seq., does hereby certify as follows: FIRST The name of the limited liability company is Petersen Publishing Company, L.L.C. (the "Company"). SECOND The Company's registered office in the State of Delaware is located at 1013 Centre Road, in the City of Wilmington, County of New Castle, 19805. The registered agent of the Company for service of process at such address is Corporation Service Company. IN WITNESS WHEREOF, the undersigned has duly executed this Certificate of Formation as of the 18th day of September, 1996. _____________________________ THADDINE G. GOMEZ, AN AUTHORIZED PERSON EX-3.3 5 CERTIFICATE OF INCORPORATION OF PETERSEN CERTIFICATE OF INCORPORATION OF PETERSEN CAPITAL CORP. ARTICLE ONE The name of the corporation is Petersen Capital Corp. ARTICLE TWO The address of the corporation's registered office in the State of Delaware is 1013 Centre Road, in the City of Wilmington, County of New Castle, 19805. The name of its registered agent at such address is Corporation Service Company. ARTICLE THREE The nature of the business or purposes to be conducted or promoted is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware. ARTICLE FOUR The total number of shares of stock which the corporation has authority to issue is one thousand (1,000) shares of Common Stock, par value one cent ($0.01) per share. ARTICLE FIVE The name and mailing address of the sole incorporator are as follows: NAME MAILING ADDRESS ---- --------------- Thaddine G. Gomez 200 East Randolph Drive Suite 5700 Chicago, Illinois 60601 ARTICLE SIX The corporation is to have perpetual existence. ARTICLE SEVEN In furtherance and not in limitation of the powers conferred by statute, the board of directors of the corporation is expressly authorized to make, alter or repeal the by-laws of the corporation. ARTICLE EIGHT Meetings of stockholders may be held within or without the State of Delaware, as the by-laws of the corporation may provide. The books of the corporation may be kept outside the State of Delaware at such place or places as may be designated from time to time by the board of directors or in the by-laws of the corporation. Election of directors need not be by written ballot unless the by-laws of the corporation so provide. ARTICLE NINE To the fullest extent permitted by the General Corporation Law of the State of Delaware as the same exists or may hereafter be amended, a director of this corporation shall not be liable to the corporation or its stockholders for monetary damages for a breach of fiduciary duty as a director. Any repeal or modification of this ARTICLE NINE shall not adversely affect any right or protection of a director of the corporation existing at the time of such repeal or modification. ARTICLE TEN The corporation expressly elects not to be governed by (S)203 of the General Corporation Law of the State of Delaware. ARTICLE ELEVEN The corporation reserves the right to amend, alter, change or repeal any provision contained in this certificate of incorporation in the manner now or hereafter prescribed herein and by the laws of the State of Delaware, and all rights conferred upon stockholders herein are granted subject to this reservation. I, THE UNDERSIGNED, being the sole incorporator hereinbefore named, for the purpose of forming a corporation pursuant to the General Corporation Law of the State of Delaware, do make this certificate, hereby declaring and certifying that this is my act and deed and the facts stated herein are true, and accordingly have hereunto set my hand on the 29th day of October, 1996. ___________________________________ Thaddine G. Gomez Sole Incorporator EX-3.4 6 BY-LAWS OF PETERSEN CAPITAL CORP. BY-LAWS OF PETERSEN CAPITAL CORP. A Delaware corporation ARTICLE I --------- OFFICES ------- Section 1. Registered Office. The registered office of the corporation in the State of Delaware shall be located at 1013 Centre Road, Wilmington, Delaware, County of New Castle 19805. The name of the corporation's registered agent at such address shall be Corporation Service Company. The registered office and/or registered agent of the corporation may be changed from time to time by action of the board of directors. Section 2. Other Offices. The corporation may also have offices at such other places, both within and without the State of Delaware, as the board of directors may from time to time determine or the business of the corporation may require. ARTICLE II ---------- MEETINGS OF STOCKHOLDERS ------------------------ Section 1. Place and Time of Meetings. An annual meeting of the stockholders shall be held each year within one hundred twenty (120) days after the close of the immediately preceding fiscal year of the corporation for the purpose of electing directors and conducting such other proper business as may come before the meeting. The date, time and place of the annual meeting shall be determined by the president of the corporation; provided, that if the president does not act, the board of directors shall deter mine the date, time and place of such meeting. Section 2. Special Meetings. Special meetings of stockholders may be called for any purpose and may be held at such time and place, within or without the State of Delaware, as shall be stated in a notice of meeting or in a duly executed waiver of notice thereof. Section 3. Place of Meetings. The board of directors may designate any place, either within or without the State of Delaware, as the place of meeting for any annual meeting or for any special meeting called by the board of directors. If no designation is made, or if a special meeting be otherwise called, the place of meeting shall be the principal executive office of the corporation. Section 4. Notice. Whenever stockholders are required or permitted to take action at a meeting, written or printed notice stating the place, date, time, and, in the case of special meetings, the purpose or purposes, of such meeting, shall be given to each stockholder entitled to vote at such meeting not less than ten (10) nor more than sixty (60) days before the date of the meeting. All such notices shall be delivered, either personally or by mail, by or at the direction of the board of directors, the president or the secretary, and if mailed, such notice shall be deemed to be delivered when deposited in the United States mail, postage prepaid, addressed to the stockholder at his, her or its address as the same appears on the records of the corporation. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends for the express purpose of objecting at the beginning of the meeting to the transaction of any business because the meeting is not lawfully called or convened. Section 5. Stockholders List. The officer having charge of the stock ledger of the corporation shall make, at least ten (10) days before every meeting of the stockholders, a complete list of the stockholders entitled to vote at such meeting arranged in alphabetical order, showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. Section 6. Quorum. The holders of a majority of the outstanding shares of capital stock, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders, except as otherwise provided by statute or by the certificate of incorporation. If a quorum is not present, the holders of a majority of the shares present in person or represented by proxy at the meeting, and entitled to vote at the meeting, may adjourn the meeting to another time and/or place. Section 7. Adjourned Meetings. When a meeting is adjourned to another time and place, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting the corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than thirty (30) days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the -2- adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. Section 8. Vote Required. When a quorum is present, the affirmative vote of the majority of shares present in person or represented by proxy at the meeting and entitled to vote on the subject matter shall be the act of the stockholders, unless the question is one upon which by express provisions of an applicable law or of the certificate of incorporation a different vote is required, in which case such express provision shall govern and control the decision of such question. Section 9. Voting Rights. Except as otherwise provided by the General Corporation Law of the State of Delaware or by the certificate of incorporation of the corporation or any amendments thereto and subject to Section 3 of Article VI hereof, every stockholder shall at every meeting of the stockholders be entitled to one (1) vote in person or by proxy for each share of common stock held by such stockholder. Section 10. Proxies. Each stockholder entitled to vote at a meeting of stockholders or to express consent or dissent to corporate action in writing without a meeting may authorize another person or persons to act for him or her by proxy, but no such proxy shall be voted or acted upon after three (3) years from its date, unless the proxy provides for a longer period. A duly executed proxy shall be irrevocable if it states that it is irrevocable and if, and only as long as, it is coupled with an interest sufficient in law to support an irrevocable power. A proxy may be made irrevocable regardless of whether the interest with which it is coupled is an interest in the stock itself or an interest in the corporation generally. Any proxy is suspended when the person executing the proxy is present at a meeting of stockholders and elects to vote, except that when such proxy is coupled with an interest and the fact of the interest appears on the face of the proxy, the agent named in the proxy shall have all voting and other rights referred to in the proxy, notwithstanding the presence of the person executing the proxy. At each meeting of the stockholders, and before any voting commences, all proxies filed at or before the meeting shall be submitted to and examined by the secretary or a person designated by the secretary, and no shares may be represented or voted under a proxy that has been found to be invalid or irregular. Section 11. Action by Written Consent. Unless otherwise provided in the certificate of incorporation, any action required to be taken at any annual or special meeting of stockholders of the corporation, or any action which may be taken at any annual or special meeting of such stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the action so taken and bearing the dates of signature of the stockholders who signed the consent or consents, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted and shall be delivered to the corporation by delivery to its registered office in the state of Delaware, or the corpora- -3- tion's principal place of business, or an officer or agent of the corporation having custody of the book or books in which proceedings of meetings of the stockholders are recorded. Delivery made to the corporation's registered office shall be by hand or by certified or registered mail, return receipt requested provided, however, that no consent or consents delivered by certified or registered mail shall be deemed delivered until such consent or consents are actually received at the registered office. All consents properly delivered in accordance with this section shall be deemed to be recorded when so delivered. No written consent shall be effective to take the corporate action referred to therein unless, within sixty (60) days of the earliest dated consent delivered to the corporation as required by this section, written consents signed by the holders of a sufficient number of shares to take such corporate action are so recorded. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. Any action taken pursuant to such written consent or consents of the stockholders shall have the same force and effect as if taken by the stockholders at a meeting thereof. ARTICLE III ----------- DIRECTORS --------- Section 1. General Powers. The business and affairs of the corporation shall be managed by or under the direction of the board of directors. Section 2. Number, Election and Term of Office. The number of directors which shall constitute the first board shall be eleven (11). Thereafter, the number of directors shall be established from time to time by resolution of the board. The directors shall be elected by a plurality of the votes of the shares present in person or represented by proxy at the meeting and entitled to vote in the election of directors. The directors shall be elected in this manner at the annual meeting of the stockholders, except as provided in Section 4 of this Article III. Each director elected shall hold office until a successor is duly elected and qualified or until his or her earlier death, resignation or removal as hereinafter provided. Section 3. Removal and Resignation. Any director or the entire board of directors may be removed at any time, with or without cause, by the holders of a majority of the shares then entitled to vote at an election of directors. Whenever the holders of any class or series are entitled to elect one or more directors by the provisions of the corporation's certificate of incorporation, the provisions of this section shall apply, in respect to the removal without cause of a director or directors so elected, to the vote of the holders of the outstanding shares of that class or series and not to the vote of the outstanding shares as a whole. Any director may resign at any time upon written notice to the corporation. -4- Section 4. Vacancies. Vacancies and newly created directorships resulting from any increase in the authorized number of directors may be filled by a majority of the directors then in office, though less than a quorum, or by a sole remaining director. Each director so chosen shall hold office until a successor is duly elected and qualified or until his or her earlier death, resignation or removal as herein provided. Section 5. Annual Meetings. The annual meeting of each newly elected board of directors shall be held without other notice than this by-law immediately after, and at the same place as, the annual meeting of stockholders. Section 6. Other Meetings and Notice. Regular meetings, other than the annual meeting, of the board of directors may be held without notice at such time and at such place as shall from time to time be determined by resolution of the board. Special meetings of the board of directors may be called by or at the request of the president on at least twenty-four (24) hours notice to each director, either personally, by telephone, by mail, or by telegraph. Section 7. Quorum, Required Vote and Adjournment. A majority of the total number of directors shall constitute a quorum for the transaction of business. The vote of a majority of directors present at a meeting at which a quorum is present shall be the act of the board of directors. If a quorum shall not be present at any meeting of the board of directors, the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. Section 8. Committees. The board of directors may, by resolution passed by a majority of the whole board, designate one or more committees, each committee to consist of one or more of the directors of the corporation, which to the extent provided in such resolution or these by-laws shall have and may exercise the powers of the board of directors in the management and affairs of the corporation except as otherwise limited by law. The board of directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the board of directors. Each committee shall keep regular minutes of its meetings and report the same to the board of directors when required. Section 9. Committee Rules. Each committee of the board of directors may fix its own rules of procedure and shall hold its meetings as provided by such rules, except as may otherwise be provided by a resolution of the board of directors designating such committee. Unless otherwise provided in such a resolution, the presence of at least a majority of the members of the committee shall be necessary to constitute a quorum. In the event that a member and that member's alternate, if alternates are designated by the board of directors as provided in Section 8 of this Article III, of such committee is or are -5- absent or disqualified, the member or members thereof present at any meeting and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another member of the board of directors to act at the meeting in place of any such absent or disqualified member. Section 10. Communications Equipment. Members of the board of directors or any committee thereof may participate in and act at any meeting of such board or committee through the use of a conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other, and participation in the meeting pursuant to this section shall constitute presence in person at the meeting. Section 11. Waiver of Notice and Presumption of Assent. Any member of the board of directors or any committee thereof who is present at a meeting shall be conclusively presumed to have waived notice of such meeting except when such member attends for the express purpose of objecting at the beginning of the meeting to the transaction of any business because the meeting is not lawfully called or convened. Such member shall be conclusively presumed to have assented to any action taken unless his or her dissent shall be entered in the minutes of the meeting or unless his or her written dissent to such action shall be filed with the person acting as the secretary of the meeting before the adjournment thereof or shall be forwarded by registered mail to the secretary of the corporation immediately after the adjournment of the meeting. Such right to dissent shall not apply to any member who voted in favor of such action. Section 12. Action by Written Consent. Unless otherwise restricted by the certificate of incorporation, any action required or permitted to be taken at any meeting of the board of directors, or of any committee thereof, may be taken without a meeting if all members of the board or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the board or committee. ARTICLE IV ---------- OFFICERS -------- Section 1. Number. The officers of the corporation shall be elected by the board of directors and shall consist of a president, one or more vice- presidents, secretary, a treasurer, and such other officers and assistant officers as may be deemed necessary or desirable by the board of directors. Any number of offices may be held by the same person. In its discretion, the board of directors may choose not to fill any office for any period as it may deem advisable, except that the offices of president and secretary shall be filled as expeditiously as possible. -6- Section 2. Election and Term of Office. The officers of the corporation shall be elected annually by the board of directors at its first meeting held after each annual meeting of stockholders or as soon thereafter as conveniently may be. The president shall be elected annually by the board of directors at the first meeting of the board of directors held after each annual meeting of stockholders or as soon thereafter as conveniently may be. The president shall appoint other officers to serve for such terms as he or she deems desirable. Vacancies may be filled or new offices created and filled at any meeting of the board of directors. Each officer shall hold office until a successor is duly elected and qualified or until his or her earlier death, resignation or removal as hereinafter provided. Section 3. Removal. Any officer or agent elected by the board of directors may be removed by the board of directors whenever in its judgment the best interests of the corporation would be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the person so removed. Section 4. Vacancies. Any vacancy occurring in any office because of death, resignation, removal, disqualification or otherwise, may be filled by the board of directors for the unexpired portion of the term by the board of directors then in office. Section 5. Compensation. Compensation of all officers shall be fixed by the board of directors, and no officer shall be prevented from receiving such compensation by virtue of his or her also being a director of the corporation. Section 6. The President. The president shall be the chief executive officer of the corporation; shall preside at all meetings of the stockholders and board of directors at which he is present; subject to the powers of the board of directors, shall have general charge of the business, affairs and property of the corporation, and control over its officers, agents and employees; and shall see that all orders and resolutions of the board of directors are carried into effect. The president shall execute bonds, mortgages and other contracts requiring a seal, under the seal of the corporation, except where required or permitted by law to be otherwise signed and executed and except where the signing and execution thereof shall be expressly delegated by the board of directors to some other officer or agent of the corporation. The president shall have such other powers and perform such other duties as may be prescribed by the board of directors or as may be provided in these by-laws. Section 7. Vice-presidents. The vice-president, or if there shall be more than one, the vice-presidents in the order determined by the board of directors or by the president, shall, in the absence or disability of the president, act with all of the powers and be subject to all the restrictions of the president. The vice-presidents shall also perform such other duties and have such other powers as the board of directors, the president or these by-laws may, from time to time, prescribe. -7- Section 8. The Secretary and Assistant Secretaries. The secretary shall attend all meetings of the board of directors, all meetings of the committees thereof and all meetings of the stockholders and record all the proceedings of the meetings in a book or books to be kept for that purpose. Under the president's supervision, the secretary shall give, or cause to be given, all notices required to be given by these by-laws or by law; shall have such powers and perform such duties as the board of directors, the president or these by- laws may, from time to time, prescribe; and shall have custody of the corporate seal of the corporation. The secretary, or an assistant secretary, shall have authority to affix the corporate seal to any instrument requiring it and when so affixed, it may be attested by his signature or by the signature of such assistant secretary. The board of directors may give general authority to any other officer to affix the seal of the corporation and to attest the affixing by his signature. The assistant secretary, or if there be more than one, the assistant secretaries in the order determined by the board of directors, shall, in the absence or disability of the secretary, perform the duties and exercise the powers of the secretary and shall perform such other duties and have such other powers as the board of directors, the president, or secretary may, from time to time, prescribe. Section 9. The Treasurer and Assistant Treasurer. The treasurer shall have the custody of the corporate funds and securities; shall keep full and accurate accounts of receipts and disbursements in books belonging to the corporation; shall deposit all monies and other valuable effects in the name and to the credit of the corporation as may be ordered by the board of directors; shall cause the funds of the corporation to be disbursed when such disbursements have been duly authorized, taking proper vouchers for such disbursements; and shall render to the president and the board of directors, at its regular meeting or when the board of directors so requires, an account of the corporation; shall have such powers and perform such duties as the board of directors, the president or these by-laws may, from time to time, prescribe. If required by the board of directors, the treasurer shall give the corporation a bond (which shall be rendered every six (6) years) in such sums and with such surety or sureties as shall be satisfactory to the board of directors for the faithful performance of the duties of the office of treasurer and for the restoration to the corporation, in case of death, resignation, retirement, or removal from office, of all books, papers, vouchers, money, and other property of whatever kind in the possession or under the control of the treasurer belonging to the corporation. The assistant treasurer, or if there shall be more than one, the assistant treasurers in the order determined by the board of directors, shall in the absence or disability of the treasurer, perform the duties and exercise the powers of the treasurer. The assistant treasurers shall perform such other duties and have such other powers as the board of directors, the president or treasurer may, from time to time, prescribe. Section 10. Other Officers, Assistant Officers and Agents. Officers, assistant officers and agents, if any, other than those whose duties are provided for in these by-laws, shall have such authority and perform such duties as may from time to time be prescribed by resolution of the board of directors. -8- Section 11. Absence or Disability of Officers. In the case of the absence or disability of any officer of the corporation and of any person hereby authorized to act in such officer's place during such officer's absence or disability, the board of directors may by resolution delegate the powers and duties of such officer to any other officer or to any director, or to any other person whom it may select. ARTICLE V --------- INDEMNIFICATION OF OFFICERS, DIRECTORS AND OTHERS ------------------------------------------------- Section 1. Nature of Indemnity. Each person who was or is made a party or is threatened to be made a party to or is involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter a "proceeding"), by reason of the fact that he, or a person of whom he is the legal representative, is or was a director or officer, of the corporation or is or was serving at the request of the corporation as a director, officer, employee, fiduciary, or agent of another corporation or of a partnership, joint venture, trust or other enterprise, shall be indemnified and held harmless by the corporation to the fullest extent which it is empowered to do so unless prohibited from doing so by the General Corporation Law of the State of Delaware, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the corporation to provide broader indemnification rights than said law permitted the corporation to provide prior to such amendment) against all expense, liability and loss (including attorneys' fees actually and reasonably incurred by such person in connection with such proceeding) and such indemnification shall inure to the benefit of his heirs, executors and administrators; provided, however, that, except as provided in Section 2 hereof, the corporation shall indemnify any such person seeking indemnification in connection with a proceeding initiated by such person only if such proceeding was authorized by the board of directors of the corporation. The right to indemnification conferred in this Article V shall be a contract right and, subject to Sections 2 and 5 hereof, shall include the right to be paid by the corporation the expenses incurred in defending any such proceeding in advance of its final disposition. The corpor ation may, by action of its board of directors, provide indemnification to employees and agents of the corporation with the same scope and effect as the foregoing indemnification of directors and officers. Section 2. Procedure for Indemnification of Directors and Officers. Any indemnification of a director or officer of the corporation under Section 1 of this Article V or advance of expenses under Section 5 of this Article V shall be made promptly, and in any event within thirty (30) days, upon the written request of the director or officer. If a determination by the corporation that the director or officer is entitled to indemnification pursuant to this Article V is required, and the corporation fails to respond within sixty (60) days to a written request for indemnity, the corporation shall be deemed to have approved -9- the request. If the corporation denies a written request for indemnification or advancing of expenses, in whole or in part, or if payment in full pursuant to such request is not made within thirty (30) days, the right to indemnification or advances as granted by this Article V shall be enforceable by the director or officer in any court of competent jurisdiction. Such person's costs and expenses incurred in connection with successfully establishing his right to indemnification, in whole or in part, in any such action shall also be indemnified by the corporation. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in defending any proceeding in advance of its final disposition where the required undertaking, if any, has been tendered to the corporation) that the claimant has not met the standards of conduct which make it permissible under the General Corporation Law of the State of Delaware for the corporation to indemnify the claimant for the amount claimed, but the burden of such defense shall be on the corporation. Neither the failure of the corporation (including its board of directors, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he has met the applicable standard of conduct set forth in the General Corporation Law of the State of Delaware, nor an actual determination by the corporation (including its board of directors, independent legal counsel, or its stockholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that the claimant has not met the applicable standard of conduct. Section 3. Article Not Exclusive. The rights to indemnification and the payment of expenses incurred in defending a proceeding in advance of its final disposition conferred in this Article V shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, provision of the certificate of incorporation, by-law, agreement, vote of stockholders or disinterested directors or otherwise. Section 4. Insurance. The corporation may purchase and maintain insurance on its own behalf and on behalf of any person who is or was a director, officer, employee, fiduciary, or agent of the corporation or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him or her and incurred by him or her in any such capacity, whether or not the corporation would have the power to indemnify such person against such liability under this Article V. Section 5. Expenses. Expenses incurred by any person described in Section 1 of this Article V in defending a proceeding shall be paid by the corporation in advance of such proceeding's final disposition unless otherwise determined by the board of directors in the specific case upon receipt of an undertaking by or on behalf of the director or officer to repay such amount if it shall ultimately be determined that he or she is not entitled to be indemnified by the corporation. Such expenses incurred by other employees and agents -10- may be so paid upon such terms and conditions, if any, as the board of directors deems appropriate. Section 6. Employees and Agents. Persons who are not covered by the foregoing provisions of this Article V and who are or were employees or agents of the corporation, or who are or were serving at the request of the corporation as employees or agents of another corporation, partnership, joint venture, trust or other enterprise, may be indemnified to the extent authorized at any time or from time to time by the board of directors. Section 7. Contract Rights. The provisions of this Article V shall be deemed to be a contract right between the corporation and each director or officer who serves in any such capacity at any time while this Article V and the relevant provisions of the General Corporation Law of the State of Delaware or other applicable law are in effect, and any repeal or modification of this Article V or any such law shall not affect any rights or obliga tions then existing with respect to any state of facts or proceeding then existing. Section 8. Merger or Consolidation. For purposes of this Article V, references to "the corporation" shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, and employees or agents, so that any person who is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under this Article V with respect to the resulting or surviving corporation as he or she would have with respect to such constituent corporation if its separate existence had continued. ARTICLE VI ---------- CERTIFICATES OF STOCK --------------------- Section 1. Form. Every holder of stock in the corporation shall be entitled to have a certificate, signed by, or in the name of the corporation by the president or a vice-president and the secretary or an assistant secretary of the corporation, certifying the number of shares of a specific class or series owned by such holder in the corporation. If such a certificate is countersigned (1) by a transfer agent or an assistant transfer agent other than the corporation or its employee or (2) by a registrar, other than the corporation or its employee, the signature of any such president, vice-president, secretary, or assistant secretary may be facsimiles. In case any officer or officers who have signed, or whose facsimile signature or signatures have been used on, any such certificate or certificates -11- shall cease to be such officer or officers of the corporation whether because of death, resignation or otherwise before such certificate or certificates have been delivered by the corporation, such certificate or certificates may nevertheless be issued and delivered as though the person or persons who signed such certificate or certificates or whose facsimile signature or signatures have been used thereon had not ceased to be such officer or officers of the corporation. All certificates for shares shall be consecutively numbered or otherwise identified. The name of the person to whom the shares represented thereby are issued, with the number of shares and date of issue, shall be entered on the books of the corporation. Shares of stock of the corporation shall only be transferred on the books of the corporation by the holder of record thereof or by such holder's attorney duly authorized in writing, upon surrender to the corporation of the certificate or certificates for such shares endorsed by the appropriate person or persons, with such evidence of the authenticity of such endorsement, transfer, authorization, and other matters as the corporation may reasonably require, and accompanied by all necessary stock transfer stamps. In that event, it shall be the duty of the corporation to issue a new certificate to the person entitled thereto, cancel the old certificate or certificates, and record the transaction on its books. The board of directors may appoint a bank or trust company organized under the laws of the United States or any state thereof to act as its transfer agent or registrar, or both in connection with the transfer of any class or series of securities of the corporation. Section 2. Lost Certificates. The board of directors may direct a new certificate or certificates to be issued in place of any certificate or certificates previously issued by the corporation alleged to have been lost, stolen, or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen, or destroyed. When authorizing such issue of a new certificate or certificates, the board of directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen, or destroyed certificate or certificates, or his or her legal representative, to give the corporation a bond sufficient to indemnify the corporation against any claim that may be made against the corporation on account of the loss, theft or destruction of any such certificate or the issuance of such new certificate. Section 3. Fixing a Record Date for Stockholder Meetings. In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, the board of directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the board of directors, and which record date shall not be more than sixty (60) nor less than ten (10) days before the date of such meeting. If no record date is fixed by the board of directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be the close of business on the next day preceding the day on which notice is given, or if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall -12- apply to any adjournment of the meeting; provided, however, that the board of directors may fix a new record date for the adjourned meeting. Section 4. Fixing a Record Date for Action by Written Consent. In order that the corporation may determine the stockholders entitled to consent to corporate action in writing without a meeting, the board of directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the board of directors, and which date shall not be more than ten (10) days after the date upon which the resolution fixing the record date is adopted by the board of directors. If no record date has been fixed by the board of directors, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting, when no prior action by the board of directors is required by statute, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the corporation by delivery to its registered office in the State of Delaware, its principal place of business, or an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to the corporation's registered office shall be by hand or by certified or registered mail, return receipt requested. If no record date has been fixed by the board of directors and prior action by the board of directors is required by statute, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting shall be at the close of business on the day on which the board of directors adopts the resolution taking such prior action. Section 5. Fixing a Record Date for Other Purposes. In order that the corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment or any rights or the stockholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purposes of any other lawful action, the board of directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall be not more than sixty (60) days prior to such action. If no record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the board of directors adopts the resolution relating thereto. Section 6. Registered Stockholders. Prior to the surrender to the corporation of the certificate or certificates for a share or shares of stock with a request to record the transfer of such share or shares, the corporation may treat the registered owner as the person entitled to receive dividends, to vote, to receive notifications, and otherwise to exercise all the rights and powers of an owner. The corporation shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof. -13- Section 7. Subscriptions for Stock. Unless otherwise provided for in the subscription agreement, subscriptions for shares shall be paid in full at such time, or in such installments and at such times, as shall be determined by the board of directors. Any call made by the board of directors for payment on subscriptions shall be uniform as to all shares of the same class or as to all shares of the same series. In case of default in the payment of any installment or call when such payment is due, the corporation may proceed to collect the amount due in the same manner as any debt due the corporation. ARTICLE VII ----------- GENERAL PROVISIONS ------------------ Section 1. Dividends. Dividends upon the capital stock of the corporation, subject to the provisions of the certificate of incorporation, if any, may be declared by the board of directors at any regular or special meeting, pursuant to law. Dividends may be paid in cash, in property, or in shares of the capital stock, subject to the provisions of the certificate of incorporation. Before payment of any dividend, there may be set aside out of any funds of the corporation available for dividends such sum or sums as the directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the corporation, or any other purpose and the directors may modify or abolish any such reserve in the manner in which it was created. Section 2. Checks, Drafts or Orders. All checks, drafts, or other orders for the payment of money by or to the corporation and all notes and other evidences of indebtedness issued in the name of the corporation shall be signed by such officer or officers, agent or agents of the corporation, and in such manner, as shall be determined by resolution of the board of directors or a duly authorized committee thereof. Section 3. Contracts. The board of directors may authorize any officer or officers, or any agent or agents, of the corporation to enter into any contract or to execute and deliver any instrument in the name of and on behalf of the corporation, and such authority may be general or confined to specific instances. Section 4. Loans. The corporation may lend money to, or guarantee any obligation of, or otherwise assist any officer or other employee of the corporation or of its subsidiary, including any officer or employee who is a director of the corporation or its subsidiary, whenever, in the judgment of the directors, such loan, guaranty or assistance may reasonably be expected to benefit the corporation. The loan, guaranty or other assistance may be with or without interest, and may be unsecured, or secured in such manner as the board of directors shall approve, including, without limitation, a pledge of shares of stock of the corporation. Nothing in this section contained shall be deemed to deny, limit or -14- restrict the powers of guaranty or warranty of the corporation at common law or under any statute. Section 5. Fiscal Year. The fiscal year of the corporation shall be fixed by resolution of the board of directors. Section 6. Corporate Seal. The board of directors shall provide a corporate seal which shall be in the form of a circle and shall have inscribed thereon the name of the corporation and the words "Corporate Seal, Delaware". The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. Section 7. Voting Securities Owned By Corporation. Voting securities in any other corporation held by the corporation shall be voted by the president, unless the board of directors specifically confers authority to vote with respect thereto, which authority may be general or confined to specific instances, upon some other person or officer. Any person authorized to vote securities shall have the power to appoint proxies, with general power of substitution. Section 8. Inspection of Books and Records. Any stockholder of record, in person or by attorney or other agent, shall, upon written demand under oath stating the purpose thereof, have the right during the usual hours for business to inspect for any proper purpose the corporation's stock ledger, a list of its stockholders, and its other books and records, and to make copies or extracts therefrom. A proper purpose shall mean any purpose reasonably related to such person's interest as a stockholder. In every instance where an attorney or other agent shall be the person who seeks the right to inspection, the demand under oath shall be accompanied by a power of attorney or such other writing which authorizes the attorney or other agent to so act on behalf of the stockholder. The demand under oath shall be directed to the corporation at its registered office in the State of Delaware or at its principal place of business. Section 9. Section Headings. Section headings in these by-laws are for convenience of reference only and shall not be given any substantive effect in limiting or otherwise construing any provision herein. Section 10. Inconsistent Provisions. In the event that any provision of these by-laws is or becomes inconsistent with any provision of the certificate of incorporation, the General Corporation Law of the State of Delaware or any other applicable law, the provision of these by-laws shall not be given any effect to the extent of such inconsistency but shall otherwise be given full force and effect. -15- ARTICLE VIII ------------ AMENDMENTS ---------- These by-laws may be amended, altered, or repealed and new by-laws adopted at any meeting of the board of directors by a majority vote. The fact that the power to adopt, amend, alter, or repeal the by-laws has been conferred upon the board of directors shall not divest the stockholders of the same powers. -16- EX-3.5 7 CERTIFICATE OF FORMATION OF HOLDINGS CERTIFICATE OF FORMATION OF PETERSEN HOLDINGS, L.L.C. The undersigned, being duly authorized to execute and file this Certificate of Formation for the purpose of forming a limited liability company pursuant to the Delaware Limited Liability Company Act, 6 Del. C. (S)(S) 18-101, et seq., does hereby certify as follows: FIRST The name of the limited liability company is Petersen Holdings, L.L.C. (the "Company"). SECOND The Company's registered office in the State of Delaware is located at 1013 Centre Road, in the City of Wilmington, County of New Castle, 19805. The registered agent of the Company for service of process at such address is Corporation Service Company. IN WITNESS WHEREOF, the undersigned has duly executed this Certificate of Formation as of the 18th day of September, 1996. _____________________________ THADDINE G. GOMEZ, AN AUTHORIZED PERSON EX-4.1 8 INDENTURE EXHIBIT 4.1 ================================================================================ PETERSEN PUBLISHING COMPANY, L.L.C. and PETERSEN CAPITAL CORP., as ISSUERS, PETERSEN HOLDINGS, L.L.C. and CERTAIN RESTRICTED SUBSIDIARIES, as Guarantors and UNITED STATES TRUST COMPANY OF NEW YORK, as Trustee ____________________ INDENTURE Dated as of November 15, 1996 ____________________ $100,000,000 11 1/8% Senior Subordinated Notes due 2006 ================================================================================ CROSS-REFERENCE TABLE ---------------------
TIA Indenture Section Section - --------- --------- 310(a)(1)............................................... 7.10 (a)(2)............................................... 7.10 (a)(3)............................................... N.A. (a)(4)............................................... N.A. (b) ................................................ 7.08; 7.10; 12.02 (b)(1)............................................... 7.10 (b)(9)............................................... 7.10 (c) ................................................ N.A. 311(a) ................................................ 7.11 (b) ................................................ 7.11 (c) ................................................ N.A. 312(a) ................................................ 2.05 (b) ................................................ 12.03 (c) ................................................ 12.03 313(a) ................................................ 7.06 (b)(1)............................................... 7.06 (b)(2)............................................... 7.06 (c) ................................................ 12.02 (d) ................................................ 7.06 314(a) ................................................ 4.02; 4.04 12.02 (b) ................................................ N.A. (c)(1)............................................... 12.04; 12.05 (c)(2)............................................... 12.04; 12.05 (c)(3)............................................... N.A. (d) ................................................ N.A. (e) ................................................ 12.05 (f) ................................................ N.A. 315(a) ................................................ 7.01; 7.02 (b) ................................................ 7.05; 12.02 (c) ................................................ 7.01 (d) ................................................ 6.05; 7.01; 7.02 (e) ................................................ 6.11 316(a) (last sentence).................................. 12.06 (a)(1)(A)............................................ 6.05 (a)(1)(B)............................................ 6.04 (a)(2)............................................... 8.02 (b) ................................................ 6.07 (c) ................................................ 8.04 317(a)(1)............................................... 6.08 (a)(2)............................................... 6.09 (b) ................................................ 7.12 318(a) ................................................ 12.01
N.A. means Not Applicable ____________________ NOTE: This Cross-Reference Table shall not, for any purpose, be deemed to be a part of the Indenture. TABLE OF CONTENTS -----------------
Page ---- ARTICLE 1 DEFINITIONS AND INCORPORATION BY REFERENCE Section 1.01. Definitions............................................ 1 Section 1.02. Other Definitions...................................... 25 Section 1.03. Incorporation by Reference of Trust Indenture Act...... 26 Section 1.04. Rules of Construction.................................. 27 ARTICLE 2 THE NOTES Section 2.01. Dating; Incorporation of Form in Indenture............. 27 Section 2.01A. Depository Procedures.................................. 29 Section 2.01B. Exchanges of Book-Entry Notes for Certificated Notes................................................ 33 Section 2.01C. Exchange between Regulation S Notes and Rule 144A Notes and other Notes................................ 33 Section 2.02. Execution and Authentication........................... 34 Section 2.03. Registrar and Paying Agent............................. 35 Section 2.04. Paying Agent to Hold Money in Trust.................... 36 Section 2.05. Noteholder Lists....................................... 36 Section 2.06. Transfer and Exchange.................................. 37 Section 2.07. Replacement Notes...................................... 38 Section 2.08. Outstanding Notes...................................... 38 Section 2.09. Temporary Notes........................................ 39 Section 2.10. Cancellation........................................... 39 Section 2.11. Defaulted Interest..................................... 39 Section 2.12. Deposit of Moneys...................................... 40 Section 2.13. CUSIP Number........................................... 40 Section 2.14. Book-Entry Provisions for Global Notes................. 40 Section 2.15. Special Transfer Provisions............................ 42 Section 2.16. Computation of Interest................................ 44 ARTICLE 3 REDEMPTION Section 3.01. Notices to Trustee..................................... 44 Section 3.02. Selection by Trustee of Notes to Be Redeemed........... 44 Section 3.03. Notice of Redemption................................... 45 Section 3.04. Effect of Notice of Redemption......................... 46 Section 3.05. Deposit of Redemption Price............................ 46 Section 3.06 Notes Redeemed in Part................................. 47
-i-
Page ---- ARTICLE 4 COVENANTS Section 4.01. Payment of Notes....................................... 47 Section 4.02. SEC Reports............................................ 47 Section 4.03. Waiver of Stay, Extension or Usury Laws................ 48 Section 4.04. Compliance Certificate................................. 49 Section 4.05. Taxes.................................................. 50 Section 4.06. Limitation on Additional Indebtedness.................. 50 Section 4.07. Limitation on Preferred Stock of Restricted Subsidiaries.......................................... 51 Section 4.08. Limitation on Capital Stock of Restricted Subsidiaries.......................................... 51 Section 4.09. Limitation on Restricted Payments...................... 52 Section 4.10. Limitation on Certain Asset Sales...................... 53 Section 4.11. Limitation on Transactions with Affiliates............. 56 Section 4.12. Limitations on Liens................................... 57 Section 4.13. Limitations on Investments............................. 58 Section 4.14. Limitation on Creation of Subsidiaries................. 58 Section 4.15. Limitation on Other Senior Subordinated Debt........... 58 Section 4.16. Limitation on Sale and Lease-Back Transactions......... 58 Section 4.17. Payments for Consent................................... 59 Section 4.18. Corporate Existence.................................... 59 Section 4.19. Change of Control...................................... 59 Section 4.20. Maintenance of Office or Agency........................ 62 Section 4.21. Maintenance of Properties; Insurance; Books and Records; Compliance with Law.......................... 63 Section 4.22. Further Assurance to the Trustee....................... 63 ARTICLE 5 SUCCESSOR CORPORATION Section 5.01. Limitation on Consolidation, Merger and Sale of Assets................................................ 64 Section 5.02. Successor Person Substituted........................... 65 ARTICLE 6 DEFAULTS AND REMEDIES Section 6.01. Events of Default...................................... 65 Section 6.02. Acceleration........................................... 67 Section 6.03. Other Remedies......................................... 68
-ii-
Page ---- Section 6.04. Waiver of Past Defaults and Events of Default.......... 68 Section 6.05. Control by Majority.................................... 68 Section 6.06. Limitation on Suits.................................... 69 Section 6.07. Rights of Holders to Receive Payment................... 69 Section 6.08. Collection Suit by Trustee............................. 70 Section 6.09. Trustee May File Proofs of Claim....................... 70 Section 6.10. Priorities............................................. 71 Section 6.11. Undertaking for Costs.................................. 71 Section 6.12. Restoration of Rights and Remedies..................... 71 ARTICLE 7 TRUSTEE Section 7.01. Duties of Trustee...................................... 72 Section 7.02. Rights of Trustee...................................... 73 Section 7.03. Individual Rights of Trustee........................... 74 Section 7.04. Trustee's Disclaimer................................... 74 Section 7.05. Notice of Defaults..................................... 74 Section 7.06. Reports by Trustee to Holders.......................... 75 Section 7.07. Compensation and Indemnity............................. 75 Section 7.08. Replacement of Trustee................................. 76 Section 7.09. Successor Trustee by Consolidation, Merger, Etc........ 78 Section 7.10. Eligibility; Disqualification.......................... 78 Section 7.11. Preferential Collection of Claims Against Company...... 78 Section 7.12. Paying Agents.......................................... 78 ARTICLE 8 AMENDMENTS, SUPPLEMENTS AND WAIVERS Section 8.01. Without Consent of Holders............................. 79 Section 8.02. With Consent of Holders................................ 79 Section 8.03. Compliance with Trust Indenture Act.................... 81 Section 8.04. Revocation and Effect of Consents...................... 81 Section 8.05. Notation on or Exchange of Notes....................... 82 Section 8.06. Trustee to Sign Amendments, etc........................ 82 ARTICLE 9 DISCHARGE OF INDENTURE; DEFEASANCE Section 9.01. Discharge of Indenture................................. 83 Section 9.02. Legal Defeasance....................................... 83 Section 9.03. Covenant Defeasance.................................... 84 Section 9.04. Conditions to Defeasance or Covenant Defeasance........ 84
-iii-
Page ---- Section 9.05. Deposited Money and U.S. Government Obligations to Be Held in Trust; Other Miscellaneous Provisions......... 87 Section 9.06. Reinstatement.......................................... 87 Section 9.07. Moneys Held by Paying Agent............................ 88 Section 9.08. Moneys Held by Trustee................................. 88 ARTICLE 10 GUARANTEE OF NOTES Section 10.01. Guarantee.............................................. 89 Section 10.02. Execution and Delivery of Guarantees................... 90 Section 10.03. Limitation of Guarantee................................ 91 Section 10.04. Additional Guarantors.................................. 91 Section 10.05. Release of Guarantor................................... 91 Section 10.06. Guarantee Obligations Subordinated to Guarantor Senior Indebtedness................................... 92 Section 10.07. Payment Over of Proceeds upon Dissolution, etc., of a Guarantor........................................ 92 Section 10.08. Suspension of Guarantee Obligations When Guarantor Senior Indebtedness in Default........................ 94 Section 10.09. Subrogation to Rights of Holders of Guarantor Senior Indebtedness.......................................... 96 Section 10.10. Guarantee Subordination Provisions Solely to Define Relative Rights....................................... 97 Section 10.11. Application of Certain Article 11 Provisions........... 97 ARTICLE 11 SUBORDINATION OF NOTES Section 11.01. Notes Subordinate to Senior Indebtedness............... 98 Section 11.02. Payment Over of Proceeds upon Dissolution, etc......... 98 Section 11.03. Suspension of Payment When Senior Indebtedness in Default............................................... 100 Section 11.04. Trustee's Relation to Senior Indebtedness.............. 102 Section 11.05. Subrogation to Rights of Holders of Senior Indebtedness.......................................... 102 Section 11.06. Provisions Solely to Define Relative Rights............ 103 Section 11.07. Trustee to Effectuate Subordination.................... 103
-iv-
Page ---- Section 11.08. No Waiver of Subordination Provisions.................. 104 Section 11.09. Notice to Trustee...................................... 105 Section 11.10. Reliance on Judicial Order or Certificate of Liquidating Agent..................................... 106 Section 11.11. Rights of Trustee as a Holder of Senior Indebtedness; Preservation of Trustee's Rights...................... 106 Section 11.12. Article Applicable to Paying Agents.................... 106 Section 11.13. No Suspension of Remedies.............................. 107 ARTICLE 12 MISCELLANEOUS Section 12.01. Trust Indenture Act Controls........................... 107 Section 12.02. Notices................................................ 107 Section 12.03. Communications by Holders with Other Holders........... 109 Section 12.04. Certificate and Opinion as to Conditions Precedent..... 109 Section 12.05. Statements Required in Certificate and Opinion......... 109 Section 12.06. When Treasury Notes Disregarded........................ 110 Section 12.07. Rules by Trustee and Agents............................ 110 Section 12.08. Business Days; Legal Holidays.......................... 110 Section 12.09. Governing Law.......................................... 110 Section 12.10. No Adverse Interpretation of Other Agreements.......... 111 Section 12.11. No Recourse Against Others............................. 111 Section 12.12. Successors............................................. 111 Section 12.13. Multiple Counterparts.................................. 112 Section 12.14. Table of Contents, Headings, etc....................... 112 Section 12.15. Separability........................................... 112 EXHIBITS - -------- Exhibit A. Form of 144A Security...................................... A-1 Exhibit B. Form of Regulation S Security.............................. B-1 Exhibit C. Form of Legend for Global Securities....................... C-1 Exhibit D. Form of Certificate to Be Delivered in Connection with Transfers to Non-QIB Accredited Investors........... D-1
-v-
Page ---- Exhibit E. Form of Certificate to Be Delivered in Connection with Transfers Pursuant to Regulation S.................. E-1
-vi- INDENTURE, dated as of November 15, 1996, among PETERSEN PUBLISHING COMPANY, L.L.C., a Delaware limited liability company (the "Company"), and PETERSEN CAPITAL CORP., a Delaware corporation ("Capital" and, together with the Company, jointly and severally, the "Issuers"), the Guarantors (as hereinafter defined) and United States Trust Company of New York, as trustee (the "Trustee"). Each party agrees as follows for the benefit of the other parties and for the equal and ratable benefit of the Holders of the Company's 11 1/8% Senior Subordinated Notes due 2006 (the "Notes"). ARTICLE 1 DEFINITIONS AND INCORPORATION BY REFERENCE Section 1.01. Definitions. ----------- "Acquired Indebtedness" means Indebtedness of a Person (including an Unrestricted Subsidiary) existing at the time such Person becomes a Restricted Subsidiary or assumed in connection with the acquisition of assets from such Person. "Additional Interest" means additional interest on the Notes which the Issuers and the Guarantors, jointly and severally, agree to pay to the Holders pursuant to Section 4 of the Registration Rights Agreement. "Adjusted Net Assets" of a Guarantor at any date shall mean the lesser of the amount by which (x) the fair value of the property of such Guarantor exceeds the total amount of liabilities, including, without limitation, contingent liabilities (after giving effect to all other fixed and contingent liabilities), but excluding liabilities under the Guarantee, of such Guarantor at such date and (y) the present fair salable value of the assets of such Guarantor at such date exceeds the amount that will be required to pay the probable liability of such Guarantor on its debts (after giving effect to all other fixed and contingent liabilities and after giving effect to any collection from any Subsidiary of such Guarantor in respect of the obligations of such Subsidiary under the Guarantee), excluding Indebtedness in respect of the Guarantee, as they become absolute and matured. "Affiliate" of any specified Person means any other Person which directly or indirectly through one or more intermediaries controls, or is controlled by, or is under common control with, such specified Person. For the purposes of this definition, "control" (including, with correlative meanings, the -2- terms "controlling," "controlled by," and "under common control with"), as used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise. "Agent" means any Registrar, Paying Agent, or agent for service of notices and demands. "Asset Sale" means the sale, transfer or other disposition (other than to the Company or any of its Restricted Subsidiaries) in any single transaction or series of related transactions of (a) any Capital Stock of or other equity interest in any Restricted Subsidiary of the Issuers, (b) all or substantially all of the assets of the Issuers or of any Restricted Subsidiary thereof, (c) real property or (d) all or substantially all of the assets of any magazine or publishing property, or part thereof, owned by the Issuers or any Restricted Subsidiary thereof, or a division, line of business or comparable business segment of the Issuers or any Restricted Subsidiary thereof; provided that Asset -------- Sales shall not include (i) sales, leases, conveyances, transfers or other dispositions to the Company or to a Restricted Subsidiary or to any other Person if after giving effect to such sale, lease, conveyance, transfer or other disposition such other Person becomes a Restricted Subsidiary or (ii) the sale or other disposition of any or all right, title and interest of the Company and its Subsidiaries in and to the assets and properties (other than cash) directly associated with the Scheduled Titles, and the sale or other disposition of any Investments made by the contribution of any of the Scheduled Titles to a joint venture, partnership or other Person (which may be a Subsidiary) as permitted by clause (xii) of the definition of Permitted Investments. "Asset Sale Proceeds" means, with respect to any Asset Sale, (i) cash received by the Issuers or any Restricted Subsidiary from such Asset Sale (including cash received as consideration for the assumption of liabilities incurred in connection with or in anticipation of such Asset Sale), after (a) provision for all income or other taxes measured by or resulting from such Asset Sale, (b) payment of all brokerage commissions, underwriting and other fees and expenses related to such Asset Sale, (c) provision for minority interest holders in any Restricted Subsidiary as a result of such Asset Sale and (d) deduction of appropriate amounts to be provided by the Issuers or a Restricted Subsidiary as a reserve, in accordance with GAAP, against any liabilities associated with the assets -3- sold or disposed of in such Asset Sale and retained by the Issuers or a Restricted Subsidiary after such Asset Sale, including, without limitation, pension and other post-employment benefit liabilities and liabilities related to environmental matters or against any indemnification obligations associated with the assets sold or disposed of in such Asset Sale, and (ii) promissory notes and other non-cash consideration received by the Issuers or any Restricted Subsidiary from such Asset Sale or other disposition upon the liquidation or conversion of such notes or non-cash consideration into cash. "Attributable Indebtedness" in respect of a Sale and Lease-Back Transaction means, as at the time of determination, the greater of (i) the fair value of the property subject to such arrangement (as determined by the Board of Directors) and (ii) the present value of the notes (discounted at a rate of 10%, compounded annually) of the total obligations of the lessee for rental payments during the remaining term of the lease included in such Sale and Lease-Back Transaction (including any period for which such lease has been extended). "Available Asset Sale Proceeds" means, with respect to any Asset Sale, the aggregate Asset Sale Proceeds from such Asset Sale that have not been applied in accordance with clause (iii)(a) or (iii)(b) of Section 4.10(a) and which have not been the basis for an Excess Proceeds Offer in accordance with clause (iii)(c) of Section 4.10(a). "Board of Directors" with respect to any person means, (i) at any time such Person is a limited liability company, the board of directors of its managing member or, if such managing member is a limited liability company, the board of directors of such managing member's managing member, and (ii) otherwise the board of directors of such Person or any committee authorized to act therefor. "Board Resolution" means a copy of a resolution certified pursuant to an Officers' Certificate to have been duly adopted by the Board of Directors of an Issuer or a Guarantor, as appropriate, and to be in full force and effect, and delivered to the Trustee. "BrightView" means BrightView Communications Group, Inc., a Delaware corporation. "Capital" means the party named as such in the first paragraph of this Indenture until a successor replaces such party -4- pursuant to Article 5 of this Indenture and thereafter means the successor. "Capital Stock" means, with respect to any Person, any and all shares or other equivalents (however designated) of capital stock, partnership interests or any other participation, right or other interest in the nature of an equity interest in such Person or any option, warrant or other security convertible into any of the foregoing. "Capitalized Lease Obligations" means Indebtedness represented by obligations under a lease that is required to be capitalized for financial reporting purposes in accordance with GAAP, and the amount of such Indebtedness shall be the capitalized amount of such obligations determined in accordance with GAAP. "Cash Equivalents" means (i) direct obligations of the United States of America or any agency thereof, or obligations guaranteed or insured by the United States of America, provided that in each case such obligations mature -------- within one year from the date of acquisition thereof, (ii) certificates of deposit maturing within one year from the date of creation thereof issued by any U.S. national or state banking institution having capital, surplus and undivided profits aggregating at least $250,000,000 and at the time of investment rated at least A-1 by S&P and P-1 by Moody's, (iii) commercial paper with a maturity of 180 days or less issued by a corporation (except an Affiliate of the Company) organized under the laws of any state of the United States or the District of Columbia and at the time of investment rated at least A-1 by S&P or at least P-1 by Moody's and (iv) repurchase agreements and reverse repurchase agreements relating to marketable direct obligations issued or unconditionally guaranteed by the United States of America or issued by an agency thereof and backed by the full faith and credit of the United States of America, in each case maturing within one year from the date of acquisition; provided that the terms of such -------- agreements comply with the guidelines set forth in the Federal Financial Agreements of Depository Institutions with Securities Dealers and Others, as adopted by the Comptroller of the Currency and (v) tax-exempt auction rate securities and municipal preferred stock, in each case, subject to reset no more than 35 days after the date of acquisition and having a rating of at least AA by S&P or AA by Moody's at the time of investment. "Change of Control" means the occurrence of one or more of the following events: (i) Holdings and BrightView collectively shall cease to own all of the outstanding Capital -5- Stock of the Company; (ii) prior to a Qualified IPO, (x) Holdings shall cease to be the managing member of the Company or shall otherwise cease to have the sole right and authority to exercise control over the management of the Company; (y) BrightView shall cease to be the managing member of Holdings or shall otherwise cease to have the sole right and authority to exercise control over the management of Holdings; or (z) Willis Stein shall cease to have the power (regardless of whether such power is exercised) to elect a majority of the Board of Directors of BrightView; or (iii) in connection with or subsequent to a Qualified IPO, any Person or group of Persons acting in concert as a partnership or other group (other than the Permitted Holders) shall, as a result of a tender or exchange offer, open market purchases, privately negotiated purchases or otherwise, have become, after the date hereof, the "beneficial owner" (within the meaning of such term under Rule 13d-3 under the Exchange Act) of securities of Holdings or BrightView or such successor entity representing 20% or more of the combined voting power of the then outstanding securities of Holdings or BrightView or such successor entity, as the case may be, ordinarily (and apart from rights accruing under special circumstances) having the right to vote in the election of directors, managers or other members of its governing body. "Commodity Hedge Agreement" shall mean any option, hedge or other similar agreement or arrangement designed to protect against fluctuations in commodity or materials prices. "Common Stock" of any Person means all Capital Stock of such Person that is generally entitled to (i) vote in the election of directors of such Person or (ii) if such Person is not a corporation, vote or otherwise participate in the selection of the governing body, partners, managers or others that will control the management and policies of such Person. "Company" means the party named as such in the first paragraph of this Indenture until a successor replaces such party pursuant to Article 5 of this Indenture and thereafter means the successor. "Consolidated Interest Expense" means, with respect to any Person, for any period, the aggregate amount of interest which, in conformity with GAAP, would be set forth opposite the caption "interest expense" or any like caption on an income statement for such Person and its Subsidiaries on a consolidated basis (including, but not limited to, Redeemable Dividends, whether paid or accrued, on Subsidiary Preferred Stock, imputed interest included in Capitalized Lease Obligations, all commissions, discounts and other fees and charges owed with -6- respect to letters of credit and bankers' acceptance financing, the net costs associated with hedging obligations, amortization of other financing fees and expenses, the interest portion of any deferred payment obligation, amortization of discount or premium, if any, and all other non-cash interest expense (other than interest amortized to cost of sales)) plus, without duplication, all net capitalized interest for such period and all interest incurred or paid under any guarantee of Indebtedness (including a guarantee of principal, interest or any combination thereof) of any Person, plus the amount of all dividends or distributions paid on Disqualified Capital Stock (other than dividends paid or payable in shares of Capital Stock of the Company). "Consolidated Net Income" means, with respect to any Person, for any period, the aggregate of the Net Income of such Person and its Subsidiaries for such period, on a consolidated basis, determined in accordance with GAAP, minus ----- Permitted Tax Distributions (to the extent such Permitted Tax Distributions are made); provided, however, that (a) the Net Income of any Person (the "other -------- ------- Person") in which the Person in question or any of its Subsidiaries has less than a 100% interest (which interest does not cause the net income of such other Person to be consolidated into the net income of the Person in question in accordance with GAAP) shall be included only to the extent of the amount of dividends or distributions paid to the Person in question or the Subsidiary, (b) the Net Income of any Subsidiary of the Person in question that is subject to any restriction or limitation on the payment of dividends or the making of other distributions (other than pursuant to the Notes or this Indenture) shall be excluded to the extent of such restriction or limitation, (c) (i) the Net Income of any Person acquired in a pooling of interests transaction for any period prior to the date of such acquisition and (ii) any net gain (but not loss) resulting from an Asset Sale by the Person in question or any of its Subsidiaries other than in the ordinary course of business shall be excluded, and (d) extraordinary gains and losses (including any related tax effects on the Issuers) shall be excluded. "Consolidated Net Worth" means, with respect to any Person at any date, the consolidated stockholder's equity of such Person less the amount of such stockholder's equity attributable to Disqualified Capital Stock of such Person and its Subsidiaries, as determined in accordance with GAAP. "Corporate Trust Office" means the office of the Trustee at which at any particular time its corporate trust business shall be principally administered, which office at the -7- date of execution of this Indenture is located at United States Trust Company of New York, 114 West 47th Street, New York, New York 10036. "Default" means any event that is, or with the passing of time or giving of notice or both would be, an Event of Default. "Depository" means, with respect to the Notes issued in the form of one or more Global Notes, The Depository Trust Company or another Person designated as Depository by the Issuers, which Person must be a clearing agency registered under the Exchange Act. "Designated Senior Indebtedness," as to the Company or any Guarantor, as the case may be, means any Senior Indebtedness (a) under the Senior Credit Facility or (b) which at the time of determination exceeds $25 million in aggregate principal amount (or accreted value in the case of Indebtedness issued at a discount) outstanding or available under a committed facility, and (i) which is specifically designated in the instrument evidencing such Senior Indebtedness as "Designated Senior Indebtedness" by such Person and (ii) as to which the Trustee has been given written notice of such designation. "Disqualified Capital Stock" means any Capital Stock of the Company or a Restricted Subsidiary thereof which, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable at the option of the holder), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable at the option of the holder thereof, in whole or in part, on or prior to the maturity date of the Notes, for cash or securities constituting Indebtedness. Without limitation of the foregoing, Disqualified Capital Stock shall be deemed to include (i) any Preferred Stock of a Restricted Subsidiary of the Company and (ii) any Preferred Stock of the Company, with respect to either of which, under the terms of such Preferred Stock, by agreement or otherwise, such Restricted Subsidiary or the Company is obligated to pay current dividends or distributions in cash during the period prior to the maturity date of the Notes; provided, however, that Preferred Stock of the Company or any Restricted -------- ------- Subsidiary thereof that is issued with the benefit of provisions requiring a change of control offer to be made for such Preferred Stock in the event of a change of control of the Company or such Restricted Subsidiary, which provisions have substantially the same effect as the provisions -8- described in Section 4.19, shall not be deemed to be Disqualified Capital Stock solely by virtue of such provisions. "EBITDA" means, for any Person, for any period, an amount equal to (a) the sum of (i) Consolidated Net Income for such period, plus (ii) the provision for taxes for such period based on income or profits to the extent such income or profits were included in computing Consolidated Net Income and any provision for taxes utilized in computing net loss under clause (i) hereof, plus (iii) Consolidated Interest Expense for such period (but only including Redeemable Dividends in the calculation of such Consolidated Interest Expense to the extent that such Redeemable Dividends have not been excluded in the calculation of Consolidated Net Income), plus (iv) depreciation for such period on a consolidated basis, plus (v) amortization of intangibles for such period on a consolidated basis, plus (vi) any other non-cash items reducing Consolidated Net Income for such period, plus (vii) to the extent not already included in Consolidated Net Income, all special management compensation earned or accrued prior to the Issue Date to the extent paid or accrued in such Period, plus (viii) Permitted Tax Distributions minus (b) all non-cash items increasing Consolidated Net Income for such period, all for such Person and its Subsidiaries determined in accordance with GAAP, except that with respect to the Issuers each of the foregoing items shall be determined on a consolidated basis with respect to the Issuers and their Restricted Subsidiaries only; provided, -------- however, that, for purposes of calculating EBITDA during any fiscal quarter, - ------- cash income from a particular Investment of such Person shall be included only (x) if cash income has been received by such Person with respect to such Investment during each of the previous four fiscal quarters, or (y) if the cash income derived from such Investment is attributable to Temporary Cash Investments. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "GAAP" means generally accepted accounting principles consistently applied as in effect in the United States as of the date hereof. "Guarantee" means the guarantee of the Obligations of the Issuers with respect to the Notes by each Guarantor pursuant to the terms of Article 10 hereof. "Guarantor" means Holdings and each Restricted Subsidiary of the Issuers that hereafter becomes a Guarantor -9- pursuant to Section 10.04, and "Guarantors" means such entities, collectively. "Guarantor Senior Indebtedness" means the principal of and premium, if any, and interest (including, without limitation, interest accruing or that would have accrued but for the filing of a bankruptcy, reorganization or other insolvency proceeding whether or not such interest constitutes an allowable claim in such proceeding) on, and any and all other fees, expense reimbursement obligations, indemnities and other amounts due pursuant to the terms of all agreements, documents and instruments providing for, creating, securing or evidencing or otherwise entered into in connection with, (a) any Guarantor's direct incurrence of any Indebtedness or its guarantee of all Indebtedness of the Company or any Restricted Subsidiaries, in each case, owed to lenders under the Senior Credit Facility, (b) all obligations of such Guarantor with respect to any Interest Rate Agreement, (c) all obligations of such Guarantor to reimburse any bank or other person in respect of amounts paid under letters of credit, acceptances or other similar instruments, (d) all other Indebtedness of such Guarantor which does not provide that it is to rank pari passu with or ---- ----- subordinate to the Guarantees and (e) all deferrals, renewals, extensions and refundings of, and amendments, modifications and supplements to, any of the Guarantor Senior Indebtedness described above. Notwithstanding anything to the contrary in the foregoing, Guarantor Senior Indebtedness will not include (i) Indebtedness of such Guarantor to any of its Subsidiaries, (ii) Indebtedness represented by the Guarantees, (iii) any Indebtedness which by the express terms of the agreement or instrument creating, evidencing or governing the same is junior or subordinate in right of payment to any item of Guarantor Senior Indebtedness, (iv) any trade payable arising from the purchase of goods or materials or for services obtained in the ordinary course of business or (v) Indebtedness incurred in violation of this Indenture, except if such Indebtedness was incurred under the Senior Credit Facility based on financial information and certificates provided by responsible officers of the Company and relied on in good faith by the lenders thereunder in which event such Indebtedness shall be deemed to have been incurred in compliance with this Indenture and constitute Guarantor Senior Indebtedness. "Holder" or "Noteholder" means the Person in whose name a Note is registered on the Registrar's books. "Holdings" means Petersen Holdings, L.L.C., a Delaware limited liability company. -10- "incur" means, with respect to any Indebtedness or other obligation of any Person, to create, issue, incur (by conversion, exchange or otherwise), assume, guarantee or otherwise become liable in respect of such Indebtedness or other obligation or the recording, as required pursuant to GAAP or otherwise, of any such Indebtedness or other obligation on the balance sheet of such Person (and "incurrence," "incurred," "incurrable," and "incurring" shall have meanings correlative to the foregoing); provided that a change in GAAP that results in an -------- obligation of such Person that exists at such time becoming Indebtedness shall not be deemed an incurrence of such Indebtedness. "Indebtedness" means (without duplication), with respect to any Person, any indebtedness at any time outstanding, secured or unsecured, contingent or otherwise, which is for borrowed money (whether or not the recourse of the lender is to the whole of the assets of such Person or only to a portion thereof), or evidenced by bonds, notes, debentures or similar instruments or representing the balance deferred and unpaid of the purchase price of any property (excluding, without limitation, any balances that constitute accounts payable or trade payables, and other accrued liabilities arising in the ordinary course of business) if and to the extent any of the foregoing indebtedness would appear as a liability upon a balance sheet of such Person prepared in accordance with GAAP, and shall also include, to the extent not otherwise included (i) any Capitalized Lease Obligations, (ii) obligations secured by a Lien to which the property or assets owned or held by such Person is subject, whether or not the obligation or obligations secured thereby shall have been assumed (provided, however, that if such obligation or obligations -------- ------- shall not have been assumed, the amount of such Indebtedness shall be deemed to be the lesser of the principal amount of the obligation or the fair market value of the pledged property or assets), (iii) guarantees of items of other Persons which would be included within this definition for such other Persons (whether or not such items would appear upon the balance sheet of the guarantor), (iv) all obligations for the reimbursement of any obligor on any letter of credit, banker's acceptance or similar credit transaction (provided that in the case of -------- any such letters of credit, the items for which such letters of credit provide credit support are those of other Persons which would be included within this definition for such other Persons), (v) in the case of the Issuers, Disqualified Capital Stock of the Issuers or any Restricted Subsidiary thereof, and (vi) obligations of any such Person under any Interest Rate Agreement applicable to any of the foregoing (if and to the extent such Interest Rate Agreement obligations would -11- appear as a liability upon a balance sheet of such Person prepared in accordance with GAAP). The amount of Indebtedness of any Person at any date shall be the outstanding balance at such date of all unconditional obligations as described above and, with respect to contingent obligations, the maximum liability upon the occurrence of the contingency giving rise to the obligation, provided (i) -------- that the amount outstanding at any time of any Indebtedness issued with original issue discount is the principal amount of such Indebtedness less the remaining unamortized portion of the original issue discount of such Indebtedness at such time as determined in conformity with GAAP and (ii) that Indebtedness shall not include any liability for federal, state, local or other taxes. Notwithstanding any other provision of the foregoing definition, any trade payable arising from the purchase of goods or materials or for services obtained in the ordinary course of business shall not be deemed to be "Indebtedness" of the Company or any Restricted Subsidiary for purposes of this definition. Furthermore, guarantees of (or obligations with respect to letters of credit supporting) Indebtedness otherwise included in the determination of such amount shall not also be included. "Indenture" means this Indenture as amended, restated or supplemented from time to time. "Institutional Accredited Investor" means an institution that is an "accredited investor" as that term is defined in Rule 501 (a)(1), (2), (3) or (7) promulgated under the Securities Act. "Interest Payment Date" means the stated maturity of an installment of interest on the Notes. "Interest Rate Agreement" shall mean any interest or foreign currency rate swap, cap, collar, option, hedge, forward rate or other similar agreement or arrangement designed to protect against fluctuations in interest rates or currency exchange rates. "Investments" means, directly or indirectly, any advance, account receivable (other than an account receivable arising in the ordinary course of business or acquired as part of the assets acquired by the Issuers in connection with an acquisition of assets which is otherwise permitted by the terms of this Indenture), loan or capital contribution to (by means of transfers of property to others, payments for property or services for the account or use of others or otherwise), the purchase of any stock, bonds, notes, debentures, partnership or -12- joint venture interests or other securities of, the acquisition, by purchase or otherwise, of all or substantially all of the business or assets or stock or other evidence of beneficial ownership of, any Person or the making of any investment in any Person. Investments shall exclude (i) extensions of trade credit on commercially reasonable terms in accordance with normal trade practices and (ii) the repurchase of securities of any Person by such Person. "Issue Date" means the date the Notes are first issued by the Issuers and authenticated by the Trustee under this Indenture. "Issuer Request" means any written request signed in the names of each of the Issuers by the Chief Executive Officer, the President, any Vice President, the Chief Financial Officer or the Treasurer of each of the Issuers and attested to by the Secretary or any Assistant Secretary of each of the Issuers. "Issuers" means the parties named as such in the first paragraph of this Indenture until a successor replaces such parties pursuant to Article 5 of this Indenture and thereafter means the successor and any other obligor on the Notes. "Lien" means, with respect to any property or assets of any Person, any mortgage or deed of trust, pledge, hypothecation, assignment, deposit arrangement, security interest, lien, charge, easement, encumbrance, preference, priority, or other security agreement or preferential arrangement of any kind or nature whatsoever on or with respect to such property or assets (including, without limitation, any Capitalized Lease Obligation, conditional sales, or other title retention agreement having substantially the same economic effect as any of the foregoing). "Maturity Date" means November 15, 2006. "Moody's" means Moody's Investors Service, Inc. and its successors. "Net Income" means, with respect to any Person for any period, the net income (loss) of such Person determined in accordance with GAAP. "Net Proceeds" means (a) in the case of any sale of Capital Stock by the Company or BrightView, the aggregate net proceeds received by the Company or BrightView, after payment of expenses, commissions and the like incurred in connection therewith, whether such proceeds are in cash or in property -13- (valued at the fair market value thereof, as determined in good faith by the Board of Directors, at the time of receipt) and (b) in the case of any exchange, exercise, conversion or surrender of outstanding securities of any kind for or into shares of Capital Stock of the Company which is not Disqualified Capital Stock, the net book value of such outstanding securities on the date of such exchange, exercise, conversion or surrender (plus any additional amount required to be paid by the holder to the Company upon such exchange, exercise, conversion or surrender, less any and all payments made to the holders, e.g., on account of --- fractional shares and less all expenses incurred by the Company in connection therewith). "Non-Payment Event of Default" means any event (other than a Payment Default) the occurrence of which entitles one or more Persons to accelerate the maturity of any Designated Senior Indebtedness. "Non-U.S. Person" means a person who is not a U.S. person, as defined in Regulation S. "Notes" means the securities that are issued under this Indenture, as amended or supplemented from time to time pursuant to this Indenture. "Obligations" means, with respect to any Indebtedness, any principal, premium, interest, penalties, fees, indemnifications, reimbursements, damages and other expenses payable under the documentation governing such Indebtedness. "Offering" means the offering of the Notes as described in the Offering Memorandum. "Offering Memorandum" means the Offering Memorandum dated November, 1996 pursuant to which the Notes were offered. "Officer", with respect to any Person (other than the Trustee) means the Chief Executive Officer, the President, any Vice President and the Chief Financial Officer, the Treasurer or the Secretary of such Person, or any other officer designated by the Board of Directors of such Person, as the case may be. "Officers' Certificate" means, with respect to any Person, a certificate signed by the Chief Executive Officer, the President or any Vice President and the Chief Financial Officer or any Treasurer of such Person that shall comply with applicable provisions of this Indenture and delivered to the Trustee. -14- "Opinion of Counsel" means a written opinion reasonably satisfactory in form and substance to the Trustee from legal counsel which counsel is reasonably acceptable to the Trustee stating the matters required by Section 12.05 and delivered to the Trustee. "Payment Default" means any default, whether or not any requirement for the giving of notice, the lapse of time or both, or any other condition to such default becoming an Event of Default has occurred, in the payment of principal of (or premium, if any) or interest on or any other amount payable in connection with Designated Senior Indebtedness. "Permitted Holders" means, collectively, Neal Vitale and each Person who purchased Capital Stock of Holdings, BrightView or Petersen Investment Corp. pursuant to the Securities Purchase Agreement. "Permitted Indebtedness" means: (i) Indebtedness of the Company or any Restricted Subsidiary arising under or in connection with the Senior Credit Facility in an amount not to exceed $260,000,000, less any mandatory prepayments actually made thereunder (to the extent, in the case of payments of revolving credit indebtedness, that the corresponding commitments have been permanently reduced) or scheduled payments actually made thereunder; (ii) Indebtedness under the Notes and the Guarantees; (iii) Indebtedness not covered by any other clause of this definition which is outstanding on the date of this Indenture; (iv) Indebtedness of the Company to any Restricted Subsidiary and Indebtedness of any Restricted Subsidiary to the Company or another Restricted Subsidiary; (v) Interest Rate Agreements; (vi) [Intentionally blank]; (vii) Refinancing Indebtedness; (viii) Indebtedness under Commodity Hedge Agreements entered into in the ordinary course of business consistent -15- with reasonable business requirements and not for speculation; (ix) Indebtedness of the type described in, and secured by Liens of the type described in, clauses (ix) and (xix) of the definition of Permitted Liens; (x) Indebtedness consisting of guarantees made in the ordinary course of business by the Company or any of its Subsidiaries of obligations of the Issuers or any of their Subsidiaries, which obligations are otherwise permitted under this Indenture; (xi) Contingent Obligations of the Company or its Subsidiaries in respect of customary indemnification and purchase price adjustment obligations incurred in connection with an Asset Sale; provided that the -------- maximum assumable liability in respect of all such obligations shall at no time exceed the gross proceeds actually received by the Company and its Subsidiaries in connection with such Asset Sale; and (xii) Purchase Money Indebtedness of the Company and its Subsidiaries and any refinancings, renewals or replacements of any such Purchase Money Indebtedness (subject to the limitations on the principal amount thereof set forth in this clause (xii), and other Indebtedness that is unsecured (other than Indebtedness specified in clauses (i) through (x) above), which Purchase Money Indebtedness and other unsecured Indebtedness shall not exceed $10,000,000 in the aggregate at any time. "Permitted Investments" means, for any Person, Investments made on or after the date of this Indenture consisting of: (i) Investments by the Company or by a Restricted Subsidiary thereof, in the Company or a Restricted Subsidiary; (ii) Temporary Cash Investments; (iii) Investments by the Company, or by a Restricted Subsidiary thereof, in a Person, if as a result of such Investment (a) such Person becomes a Restricted Subsidiary of the Company, (b) such Person is merged, consolidated or amalgamated with or into, or transfers or conveys substantially all of its assets to, or is liquidated into, -16- the Company or a Restricted Subsidiary thereof or (c) such business or assets are owned by the Company or a Restricted Subsidiary; (iv) an Investment that is made by the Company or a Restricted Subsidiary thereof in the form of any stock, bonds, notes, debentures, partnership or joint venture interests or other securities that are issued by a third party to the Issuers or a Restricted Subsidiary solely as partial consideration for the consummation of an Asset Sale that is otherwise permitted by Section 4.10; (v) Investments consisting of (a) purchases and acquisitions of inventory, supplies, materials and equipment, or (b) licenses or leases of intellectual property and other assets in each case in the ordinary course of business; (vi) Investments consisting of loans and advances to employees for reasonable travel, relocation and business expenses in the ordinary course of business, extensions of trade credit in the ordinary course of business, and prepaid expenses incurred in the ordinary course of business; (vii) without duplication, Investments consisting of Indebtedness permitted pursuant to clause (iv) of the definition of Permitted Indebtedness; (viii) Investments existing on the date of this Indenture; (ix) Investments of the Company under Interest Rate Agreements; (x) Investments under Commodity Hedge Agreements entered into in the ordinary course of business consistent with reasonable business requirements and not for speculation; (xi) Investments consisting of endorsements for collection or deposit in the ordinary course of business; (xii) Investments consisting of the contribution by the Company to partnerships, joint ventures or other Persons (including Subsidiaries) of the Scheduled Titles in exchange for equity interests in such Persons, provided that all such Investments are made within 365 days after the date -------- hereof; -17- (xiii) Investments consisting of the licensing of publication titles and other assets pursuant to joint marketing arrangements with other Persons; and (xiv) Investments (other than Investments specified in clauses (i) through (xiii) above) in an aggregate amount, as valued at the time each such Investment is made, not exceeding $5,000,000 for all such Investments from and after the date hereof. "Permitted Liens" means (i) Liens on property or assets of, or any shares of stock of or secured debt of, any corporation existing at the time such corporation becomes a Restricted Subsidiary of the Company or at the time such corporation is merged into the Company or any of its Restricted Subsidiaries; provided that such Liens are not incurred in connection with, or in - -------- contemplation of, such corporation becoming a Restricted Subsidiary of the Company or merging into the Company or any of its Restricted Subsidiaries, (ii) Liens securing Refinancing Indebtedness; provided that any such Lien does not -------- extend to or cover any Property, shares or debt other than the Property, shares or debt securing the Indebtedness so refunded, refinanced or extended, (iii) Liens in favor of the or any of their Restricted Subsidiaries, (iv) Liens securing industrial revenue bonds, (v) Liens to secure Purchase Money Indebtedness that is otherwise permitted under this Indenture; provided that (a) -------- any such Lien is created solely for the purpose of securing Indebtedness representing, or incurred to finance, refinance or refund, the cost (including sales and excise taxes, installation and delivery charges and other direct costs of, and other direct expenses paid or charged in connection with, such purchase or construction) of such Property, (b) the principal amount of the Indebtedness secured by such Lien does not exceed 100% of such costs, and (c) such Lien does not extend to or cover any Property other than such item of Property and any improvements on such item, (vi) statutory liens or landlords', carriers', warehousemen's, mechanics', suppliers', materialmen's, repairmen's or other like Liens arising in the ordinary course of business which do not secure any Indebtedness and with respect to amounts not yet delinquent or being contested in good faith by appropriate proceedings, if a reserve or other appropriate provision, if any, as shall be required in conformity with GAAP shall have been made therefor, (vii) other Liens securing obligations incurred in the ordinary course of business which obligations do not exceed $5,000,000 in the aggregate at any one time outstanding, (viii) any extensions, substitutions, replacements or renewals of the foregoing, (ix) Liens for taxes, assessments or governmental charges that are being contested in -18- good faith by appropriate proceedings, (x) Liens securing Capitalized Lease Obligations permitted to be incurred under clause (v) of the definition of "Permitted Indebtedness"; provided that such Lien does not extend to any -------- property other than that subject to the underlying lease, (xi) Liens securing Designated Senior Indebtedness, (xii) Liens existing on the date of this Indenture, (xiii) Liens imposed by law, such as Liens of carriers, warehousemen, mechanics, materialmen and landlords, and other similar Liens incurred in the ordinary course of business for sums not constituting borrowed money that are not overdue for a period of more than thirty (30) days or that are being contested in good faith by appropriate proceedings and for which adequate reserves have been established in accordance with GAAP (if so required), (xiv) Liens incurred in the ordinary course of business in connection with worker's compensation, unemployment insurance or other forms of government insurance or benefits, or to secure the performance of letters of credit, bids, tenders, statutory obligations, surety and appeal bonds, leases, government contracts and other similar obligations (other than obligations for borrowed money) entered into in the ordinary course of business, (xv) any attachment or judgment Lien not constituting an Event of Default under this Indenture that is being contested in good faith by appropriate proceedings and for which adequate reserves have been established in accordance with GAAP (if so required), (xvi) Liens arising from the filing, for notice purposes only, of financing statements in respect of operating leases, (xvii) Liens arising by operation of law in favor of depositary banks and collecting banks, incurred in the ordinary course of business, (xviii) Liens consisting of restrictions on the transfer of securities pursuant to applicable federal and state securities laws, (xix) interests of lessors and licensors under leases and licenses to which the or any of their Restricted Subsidiaries is a party, and (xx) with respect to any real property occupied by the or any of their Restricted Subsidiaries, all easements, rights or way, licenses and similar encumbrances on title that do not materially impair the use of such property of its intended purposes. "Permitted Tax Distributions" means, subject to the limitations set forth in clause (v) of the second paragraph of Section 4.09, distributions by the Company to Holdings and BrightView from time to time in an amount approximately equal to the income tax liability of such member of the Company (but in the case of Holdings and for so long as Holdings is treated as a pass- through entity for taxation purposes, to the income tax liability that Holdings would have if it were required to pay income taxes) resulting from the taxable income of the Company (after taking into account all of the Company's prior tax losses, -19- to the extent such losses have not previously been deemed to reduce the taxable income of the Company and thereby reduce distributions for taxes in accordance herewith); such distribution for taxes shall be based on the approximate highest combined tax rate that applies to any one of the members of the Company. "Person" means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government (including any agency or political subdivision thereof). "Preferred Stock" means any Capital Stock of a Person, however designated, which entitles the holder thereof to a preference with respect to dividends, distributions or liquidation proceeds of such Person over the holders of other Capital Stock issued by such Person. "Private Placement Legend" means the legend initially set forth on the Notes in the form set forth on Exhibit A. "Property" of any Person means all types of real, personal, tangible, intangible or mixed property owned by such Person whether or not included in the most recent consolidated balance sheet of such Person and its Subsidiaries under GAAP. "Public Equity Offering" means a public offering by BrightView of shares of its Common Stock (however designated and whether voting or non-voting) and any and all rights, warrants or options to acquire such Common Stock; provided, however, that in connection with any such Public Equity Offering the - -------- ------- net proceeds of such Public Equity Offering are contributed to the Company as common equity. "Purchase Money Indebtedness" means any Indebtedness incurred in the ordinary course of business by a Person to finance the cost (including the cost of construction) of an item of Property, the principal amount of which Indebtedness does not exceed the sum of (i) 100% of such cost and (ii) reasonable fees and expenses of such Person incurred in connection therewith. "Qualified Institutional Buyer" or "QIB" shall have the meaning specified in Rule 144A promulgated under the Securities Act. "Qualified IPO" shall have the meaning given to such term in the Securityholders Agreement. -20- "Redeemable Dividend" means, for any dividend or distribution with regard to Disqualified Capital Stock, the quotient of the dividend or distribution divided by the difference between one and the maximum statutory federal income tax rate (expressed as a decimal number between 1 and 0) then applicable to the issuer of such Disqualified Capital Stock. "Redemption Date" when used with respect to any Note to be redeemed means the date fixed for such redemption pursuant to the terms of the Notes. "Refinancing Indebtedness" means Indebtedness that refunds, refinances or extends any Indebtedness of the Company outstanding on the Issue Date or other Indebtedness permitted to be incurred by the Company or its Restricted Subsidiaries pursuant to the terms of this Indenture, but only to the extent that (i) the Refinancing Indebtedness is subordinated to the Notes to at least the same extent as the Indebtedness being refunded, refinanced or extended, if at all, (ii) the Refinancing Indebtedness is scheduled to mature either (a) no earlier than the Indebtedness being refunded, refinanced or extended, or (b) after the maturity date of the Notes, (iii) the portion, if any, of the Refinancing Indebtedness that is scheduled to mature on or prior to the maturity date of the Notes has a weighted average life to maturity at the time such Refinancing Indebtedness is incurred that is equal to or greater than the weighted average life to maturity of the portion of the Indebtedness being refunded, refinanced or extended that is scheduled to mature on or prior to the maturity date of the Notes, (iv) such Refinancing Indebtedness is in an aggregate principal amount that is equal to or less than the sum of (a) the aggregate principal amount then outstanding under the Indebtedness being refunded, refinanced or extended, (b) the amount of accrued and unpaid interest, if any, and premiums owed, if any, not in excess of preexisting prepayment provisions on such Indebtedness being refunded, refinanced or extended and (c) the amount of customary fees, expenses and costs related to the incurrence of such Refinancing Indebtedness, and (v) such Refinancing Indebtedness is incurred by the same Person that initially incurred the Indebtedness being refunded, refinanced or extended, except that the Company may incur Refinancing Indebtedness to refund, refinance or extend Indebtedness of any Wholly-Owned Subsidiary of the Company. "Registration Rights Agreement" means the Registration Rights Agreement dated as of November 25, 1996 among the Issuers, Holdings and First Union Capital Markets Corp. and CIBC Wood Gundy Securities Corp., as Initial Purchasers. -21- "Regulation S" means Regulation S promulgated under the Securities Act. "Responsible Officer" when used with respect to the Trustee, means an officer or assistant officer assigned to the corporate trust department of the Trustee (or any successor group of the Trustee) or any other officer of the Trustee customarily performing functions similar to those performed by any of the above designated officers and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of his knowledge of and familiarity with the particular subject. "Restricted Payment" means any of the following: (i) the declaration or payment of any dividend or any other distribution or payment on Capital Stock of the Company or any Restricted Subsidiary of the Company or any payment made to the direct or indirect holders (in their capacities as such) of Capital Stock of the Company or any Restricted Subsidiary of the Company (other than (x) dividends or distributions payable solely in Capital Stock (other than Disqualified Capital Stock) or in options, warrants or other rights to purchase Capital Stock (other than Disqualified Capital Stock), and (y) in the case of Restricted Subsidiaries of the Company, dividends or distributions payable to the Company or to a Wholly-Owned Subsidiary of the Company), (ii) the purchase, redemption or other acquisition or retirement for value of any Capital Stock of the Company or any of its Restricted Subsidiaries (other than Capital Stock owned by the Company or a Wholly-Owned Subsidiary of the Company, excluding Disqualified Capital Stock), (iii) the making of any principal payment on, or the purchase, defeasance, repurchase, redemption or other acquisition or retirement for value, prior to any scheduled maturity, scheduled repayment or scheduled sinking fund payment, of any Indebtedness which is subordinated in right of payment to the Notes other than subordinated Indebtedness acquired in anticipation of satisfying a scheduled sinking fund obligation, principal installment or final maturity (in each case due within one year of the date of acquisition), (iv) the making of any Investment or guarantee of any Investment in any Person other than a Permitted Investment, (v) any designation of a Restricted Subsidiary as an Unrestricted Subsidiary on the basis of the Investment by the Issuers therein and (vi) forgiveness of any Indebtedness of an Affiliate of the Issuers (other than a Restricted Subsidiary) to the Issuers or a Restricted Subsidiary. For purposes of determining the amount expended for Restricted Payments, cash distributed or invested shall be valued at the face amount thereof and property other -22- than cash shall be valued at its fair market value determined by the Company's Board of Directors. "Restricted Security" has the meaning set forth in Rule 144(a)(3) promulgated under the Securities Act; provided that the Trustee shall be -------- entitled to request and conclusively rely upon an Opinion of Counsel with respect to whether any Note is a Restricted Security. "Restricted Subsidiary" means a Subsidiary of the Company other than an Unrestricted Subsidiary and includes all of the Subsidiaries of the Company existing as of the Issue Date. The Board of Directors of the Company may designate any Unrestricted Subsidiary or any Person that is to become a Subsidiary as a Restricted Subsidiary if immediately after giving effect to such action (and treating any Acquired Indebtedness as having been incurred at the time of such action), the Issuers could have incurred at least $1.00 of additional Indebtedness (other than Permitted Indebtedness) pursuant to Section 4.06. "Rule 144A" means Rule 144A promulgated under the Securities Act. "Sale and Lease-Back Transaction" means any arrangement with any Person providing for the leasing by the Company or any Restricted Subsidiary of the Company of any real or tangible personal Property, which Property has been or is to be sold or transferred by the Company or such Restricted Subsidiary to such Person in contemplation of such leasing. "S&P" means Standard & Poor's Corporation and its successors. "Scheduled Titles" shall refer to the following publications: Sassy, ----- Sport, Petersen's Golfing, Mountain Biker, Bicycle Guide, Custom Classic Trucks, - ----- ------------------ -------------- ------------- --------------------- Pro Basketball, Pro Baseball, Pro Football, Pro Hockey, College Basketball, - -------------- ------------ ------------ ---------- ------------------ College Football, Super Street, VW Custom & Classic, Event Scene, Hot Rod Bikes, - ---------------- ------------ ------------------- ----------- ------------- 4x4 Power and Family Photo. - --------- ------------ "SEC" means the United States Securities and Exchange Commission as constituted from time to time or any successor performing substantially the same functions. "Securities Act" means the Securities Act of 1933, as amended. -23- "Securities Purchase Agreement" means the Securities Purchase Agreement, dated as of September 30, 1996, among Holdings, Petersen Investment Corp., BrightView, Petersen, Willis Stein and the Purchasers named therein. "Securityholders Agreement" means the Securityholders Agreement, dated as of September 30, 1996, among Holdings, Petersen Investment Corp., BrightView and the Investors named therein. "Senior Credit Facility" means the Credit Agreement, dated as of September 30, 1996, among the Company, the lenders listed therein and First Union National Bank of North Carolina, as administrative agent, and Canadian Imperial Bank of Commerce, as documentation agent, together with the documents related thereto (including, without limitation, any guarantee agreements and security documents), in each case as such agreements may be amended (including any amendment and restatement thereof), supplemented or otherwise modified from time to time, including any agreement extending the maturity of, refinancing, replacing or otherwise restructuring (including adding Subsidiaries of the as additional borrowers or guarantors thereunder) all or any portion of the Indebtedness under such agreement or any successor or replacement agreement and whether by the same or any other agent, lender or group of lenders. "Senior Indebtedness" means the principal of and premium, if any, and interest (including, without limitation, interest accruing or that would have accrued but for the filing of a bankruptcy, reorganization or other insolvency proceeding whether or not such interest constitutes an allowable claim in such proceeding) on, and any and all other fees, expense reimbursement obligations, indemnities and other amounts due pursuant to the terms of all agreements, documents and instruments providing for, creating, securing or evidencing or otherwise entered into in connection with (a) all Indebtedness of the Company owed to lenders under the Senior Credit Facility, (b) all obligations of the Company with respect to any Interest Rate Agreement, (c) all obligations of the Company to reimburse any bank or other Person in respect of amounts paid under letters of credit, acceptances or other similar instruments, (d) all other Indebtedness of the Company which does not provide that it is to rank pari passu ---- ----- with or subordinate to the Notes and (e) all deferrals, renewals, extensions and refundings of, and amendments, modifications and supplements to, any of the Senior Indebtedness described above. Notwithstanding anything to the contrary in the foregoing, Senior Indebtedness will not include (i) Indebtedness of the Company to any of its Subsidiaries, -24- (ii) Indebtedness represented by the Notes, (iii) any Indebtedness which by the express terms of the agreement or instrument creating, evidencing or governing the same is junior or subordinate in right of payment to any item of Senior Indebtedness, (iv) any trade payable arising from the purchase of goods or materials or for services obtained in the ordinary course of business or (v) Indebtedness incurred in violation of this Indenture, except if such Indebtedness was incurred under the Senior Credit Facility based on financial information and certificates provided by responsible officers of the Company and relied on in good faith by the lenders thereunder, in which event such Indebtedness shall be deemed to have been incurred in compliance with this Indenture and constitute Senior Indebtedness. "Subsidiary" of any specified Person means any corporation, partnership, joint venture, association or other business entity, whether now existing or hereafter organized or acquired, (i) in the case of a corporation, of which more than 50% of the total voting power of the Capital Stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, officers or trustees thereof is held by such first-named Person or any of its Subsidiaries; or (ii) in the case of a partnership, joint venture, association or other business entity, with respect to which such first-named Person or any of its Subsidiaries has the power to direct or cause the direction of the management and policies of such entity by contract or otherwise or if in accordance with GAAP such entity is consolidated with the first-named Person for financial statement purposes. "Temporary Cash Investments" means (i) Investments in marketable direct obligations issued or guaranteed by the United States of America, or of any governmental agency or political subdivision thereof, maturing within 365 days of the date of purchase; (ii) Investments in certificates of deposit issued by a bank organized under the laws of the United States of America or any state thereof or the District of Columbia, in each case having capital, surplus and undivided profits at the time of investment totaling more than $500,000,000 and rated at the time of investment at least A by S&P and A-2 by Moody's maturing within 365 days of purchase; or (iii) Investments not exceeding 365 days in duration in money market funds that invest substantially all of such funds' assets in the Investments described in the preceding clauses (i) and (ii). -25- "TIA" means the Trust Indenture Act of 1939 (15 U.S. Code (S)(S) 77aaa-77bbbb) as in effect on the date of this Indenture (except as provided in Section 8.03 hereof). "Trustee" means the party named as such in this Indenture until a successor replaces it pursuant to this Indenture and thereafter means the successor. "Unrestricted Subsidiary" means (a) any Subsidiary of an Unrestricted Subsidiary and (b) any Subsidiary of the Company which is classified after the Issue Date as an Unrestricted Subsidiary by a resolution adopted by the Board of Directors of the Company; provided that a Subsidiary organized or acquired after -------- the Issue Date may be so classified as an Unrestricted Subsidiary only if such classification is in compliance with the covenant set forth in Section 4.09 hereof. The Trustee shall be given prompt notice by the Company of each resolution adopted by the Board of Directors of the Company under this provision, together with a copy of each such resolution adopted. "U.S. Government Obligations" means (a) securities that are direct obligations of the United States of America for the payment of which its full faith and credit are pledged or (b) obligations of a Person controlled or supervised by and acting as an agency or instrumentality of the United States of America, the payment of which is unconditionally guaranteed as a full faith and credit obligation by the United States of America, which, in either case, are not callable or redeemable at the option of the issuer thereof, and shall also include a depository receipt issued by a bank (as defined in Section 3(a)(2) of the Securities Act) as custodian with respect to any such U.S. Government Obligation or a specific payment of principal of or interest on any such U.S. Government Obligation held by such custodian for the account of the holder of such depository receipt; provided that (except as required by law) such -------- custodian is not authorized to make any deduction from the amount payable to the holder of such depository receipt from any amount received by the custodian in respect of the U.S. Government Obligation or a specific payment of principal or interest on any such U.S. Government Obligation held by such custodian for the account of the holder of such depository receipt. "Wholly-Owned Subsidiary" means any Restricted Subsidiary, all of the outstanding voting securities (other than directors' qualifying shares) of which are owned, directly or indirectly, by the Company. -26- "Willis Stein" means Willis Stein & Partners, L.P., a Delaware limited partnership. Section 1.02. Other Definitions. ----------------- The definitions of the following terms may be found in the sections indicated as follows:
Term Defined in Section ---- ------------------ "Affiliate Transaction".................. 4.11 "Agent Members".......................... 2.14 "Bankruptcy Law"......................... 6.01 "Business Day"........................... 12.08 "Change of Control Offer"................ 4.19 "Change of Control Payment Date"......... 4.19 "Covenant Defeasance".................... 9.03 "Custodian".............................. 6.01 "Event of Default"....................... 6.01 "Excess Proceeds Offer".................. 4.10 "Global Notes"........................... 2.01 "Guarantee Payment Blockage Period"...... 10.08 "Guarantor Representative................ 10.08 "Initial Blockage Period"................ 11.03 "Initial Guarantee Blockage Period"...... 10.08 "Legal Defeasance"....................... 9.02 "Legal Holiday".......................... 12.08 "Offer Period"........................... 4.10 "Offshore Physical Notes"................ 2.01 "Paying Agent"........................... 2.03 "Payment Blockage Period"................ 11.03 "Physical Notes"......................... 2.01 "Purchase Date".......................... 4.10 "Registrar".............................. 2.03 "Reinvestment Date"...................... 4.10 "Representative"......................... 11.03 "U.S. Physical Notes".................... 2.01
Section 1.03. Incorporation by Reference of Trust Indenture Act. ----------------------------------- Whenever this Indenture refers to a provision of the TIA, the portion of such provision required to be incorporated herein in order for this Indenture to be qualified under the TIA is incorporated by reference in and made a part of this Indenture. The following TIA terms used in this Indenture have the following meanings: -27- "Commission" means the SEC. "indenture securities" means the Notes. "indenture securityholder" means a Noteholder. "indenture to be qualified" means this Indenture. "indenture trustee" or "institutional trustee" means the Trustee. "obligor on the indenture securities" means the , the Guarantors or any other obligor on the Notes. All other terms used in this Indenture that are defined by the TIA, defined in the TIA by reference to another statute or defined by SEC rule have the meanings therein assigned to them. Section 1.04. Rules of Construction. --------------------- Unless the context otherwise requires: (1) a term has the meaning assigned to it herein, whether defined expressly or by reference; (2) an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP; (3) "or" is not exclusive; (4) words in the singular include the plural, and in the plural include the singular; (5) words used herein implying any gender shall apply to every gender; and (6) whenever in this Indenture there is mentioned, in any context, Principal, interest or any other amount payable under or with respect to any Note, such mention shall be deemed to include mention of the payment of Additional Interest to the extent that, in such context, Additional Interest is, was or would be payable in respect thereof. -28- ARTICLE 2 THE NOTES Section 2.01. Dating; Incorporation of Form in Indenture. ------------------------------------------ The Notes and the Trustee's certificate of authentication shall be substantially in the form of Exhibit A which is incorporated in and made part of this Indenture. The Notes may have notations, legends or endorsements required by law, stock exchange rule or usage. The Issuers may use "CUSIP" numbers in issuing the Notes. The Issuers shall approve the form of the Notes by Board Resolution. Each Note shall be dated the date of its authentication. The Notes are being offered and sold to Qualified Institutional Buyers (as defined) in reliance on Rule 144A ("Rule 144A Notes"). Notes also may be offered and sold to Institutional Accredited Investors (as defined) in transactions exempt from registration under the Securities Act not made in reliance on Rule 144A or Regulation S ("Other Notes") or in offshore transactions in reliance on Regulation S ("Regulation S Notes"). Rule 144A Notes and Other Notes which may be held in global form, other than Regulation S Notes initially will be represented by one or more Notes in registered, global form without interest coupons (collectively, the "Restricted Global Note"). The Restricted Global Note will be deposited upon issuance with the Trustee as custodian for The Depository Trust Company ("DTC"), in New York, New York, and registered in the name of DTC or its nominee, in each case for credit to an account of a direct or indirect participant as described below. Regulation S Notes initially will be represented by one or more global notes in registered, global form without interest coupons (collectively, the "Regulation S Global Note", and, together with the Restricted Global Note, the "Global Notes"). Notes sold to Accredited Investors may be represented by the Restricted Global Note or, if such an investor may not hold an interest in the Restricted Global Note, a certificated Note bearing the restrictive legend described under Exhibit A. The Regulation S Global Note will be registered in the name of DTC or its nominee and deposited with the Trustee as custodian for DTC. The Regulation S Global Note will be registered in the name of a nominee of DTC for credit to the accounts of Euroclear System ("Euroclear") and Cedel Bank, S.A. ("CEDEL"). On or prior to the 40th-day after the later of the commencement of the offering and the original issue date -29- (such period through and including such 40th day, the "Restricted Period") beneficial interests in the Regulation S Note may be held only through Euroclear or CEDEL, as indirect participants in DTC, unless transferred to a person that takes delivery in the form of an interest in the corresponding Restricted Global Note in accordance with the certification requirements described below. Beneficial interests in the Restricted Global Note may not be exchanged for beneficial interests in the Regulation S Global Note at any time except in the limited circumstances described below. See Section 2.01C. Except as set forth below, the Global Notes may be transferred, in whole and not in part, only to another nominee of DTC or to a successor of DTC or its nominee. Beneficial interests in the Global Notes may not be exchanged for Notes in certificated form except in the limited circumstances described below. See Section 2.01B. Rule 144A Notes and Other Notes (including beneficial interests in the Restricted Global Note) will be subject to certain restrictions on transfer and will bear a restrictive legend as described under Exhibit A. In addition, transfer of beneficial interests in the Global Notes will be subject to the applicable rules and procedures of DTC and its direct or indirect participants (including, if applicable, those of Euroclear and CEDEL), which may change from time to time. The Notes may be presented for registration of transfer and exchange at the offices of the Registrar. Section 2.02.A Depository Procedures --------------------- DTC has advised the Company that DTC is a limited-purpose trust company created to hold securities for its participating organizations (collectively, the "Participants") and to facilitate the clearance and settlement of transactions in those securities between Participants through electronic book-entry changes in accounts of its Participants. The Participants include securities brokers and dealers (including the Initial Purchaser), banks, trust companies, clearing corporations and certain other organizations. Access to DTC's system is also available to other entities such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a Participant, either directly or indirectly (collectively, the "Indirect Participants"). Persons who are not Participants may beneficially own securities held by or on behalf of DTC only through the Participants or the Indirect Participants. The ownership interest and transfer of ownership -30- interest of each actual purchaser of each security held by or on behalf of DTC are recorded on the records of the Participants and Indirect Participants. DTC has also advised the Company that pursuant to procedures established by it, (i) upon deposit of the Global Notes, DTC will credit the accounts of Participants designated by the Initial Purchaser with portions of the principal amount of the Global Notes and (ii) ownership of such interests in the Global Notes will be shown on, and the transfer of ownership thereof will be effected only through, records maintained by DTC (with respect to the Participants) or by the Participants and the Indirect Participants (with respect to other owners of beneficial interests in the Global Notes). Investors in the Restricted Global Note may hold their interests therein directly through DTC, if they are Participants in such system, or indirectly through organizations (including Euroclear and CEDEL) which are Participants in such system. Investors in the Regulation S Global Note must initially hold their interests therein through Euroclear or CEDEL, if they are accountholders in such systems, or indirectly through organizations which are accountholders in such systems. After the expiration of the Restricted Period (but not earlier), investors may also hold interests in the Regulation S Global Note through organizations other than Euroclear and CEDEL that are Participants in the DTC system. Euroclear and CEDEL will hold interests in the Regulation S Global Note on behalf of their accountholders through their respective depositors, which in turn will hold such interests in the Regulation S Global Note customers' securities accounts in their respective names on the books of DTC. The Chase Manhattan Bank, Brussels office, will initially act as depository for Euroclear, and Citibank, N.A., will initially act as depository for CEDEL. All interests in a Global Note, including those held through Euroclear or CEDEL, may be subject to the procedures and requirements of DTC. Those interests held through Euroclear or CEDEL may also be subject to the procedures and requirements of such system. The laws of some states require that certain persons take physical delivery in definitive form of securities that they own. Consequently, the ability to transfer beneficial interests in a Global Note to such persons may be limited to that extent. Because DTC can act only on behalf of Participants, which in turn act on behalf of Indirect Participants and certain banks, the ability of a person having beneficial interests in a Global Note to pledge such interests to persons or entities that do not participate in the DTC system, or otherwise take actions in -31- respect of such interests, may be affected by the lack of a physical certificate evidencing such interests. For certain other restrictions on the transferability of the Notes, see Section 2.01B. Except as described below, owners of interests in the Global Notes will not have Notes registered in their names, will not receive physical delivery of Notes in certificated form and will not be considered the registered owners or holders thereof under the Indenture for any purpose. Payments in respect of the principal of (and premium, if any) and interest on a Global Note registered in the name of DTC or its nominee will be payable to DTC or its nominee in its capacity as the registered holder under the Indenture. Under the terms of the Indenture, the Company and the Trustee will treat the persons in whose names the Notes, including the Global Notes, are registered as the owners thereof for the purpose of receiving such payments and for any and all other purposes whatsoever. Consequently, neither the Company, the Trustee nor any agent of the Company or the Trustee has or will have any responsibility or liability for (i) any aspect or accuracy of DTC's records or any Participant's or Indirect Participant's records relating to or payments made on account of beneficial ownership interests in the Global Notes, or for maintaining, supervising or reviewing any of DTC's records or any Participant's or Indirect Participant's records relating to the beneficial ownership interests in the Global Notes, or (ii) any other matter relating to the actions and practices of DTC or any of its Participants or Indirect Participants. DTC has advised the Company that its current practice, upon receipt of any payment in respect of securities such as the Notes (including principal and interest), is to credit the accounts of the relevant Participants with the payment on the payment date, in amounts proportionate to their respective holdings in principal amount of beneficial interests in the relevant security such as the Global Notes as shown on the records of DTC. Payments by the Participants and the Indirect Participants to the beneficial owners of Notes will be governed by standing instructions and customary practices and will not be the responsibility of DTC, the Trustee or the Company. Neither the Company nor the Trustee will be liable for any delay by DTC or any of its Participants in identifying the beneficial owners of the Notes, and the Company and the Trustee may conclusively rely on and will be protected in relying on instructions from DTC or its nominee as the registered owner of the Notes for all purposes. -32- Except for trades involving only Euroclear and CEDEL participants, interests in the Global Notes will trade in DTC's Same-Day Funds Settlement System and secondary market trading activity in such interests will therefore settle in immediately available funds, subject in all cases to the rules and procedures of DTC and its participants. Transfers between Participants in DTC will be effected in accordance with DTC's procedures, and will be settled in same-day funds. Transfers between accountholders in Euroclear and CEDEL will be effected in the ordinary way in accordance with their respective rules and operating procedures. Subject to compliance with the transfer restrictions applicable to the Notes described herein, cross-market transfers between the accountholders in DTC, on the one hand, and directly or indirectly through Euroclear or CEDEL accountholders, on the other hand, will be effected through DTC in accordance with DTC's rules on behalf of Euroclear or CEDEL, as the case may be, by its respective depositary; however, such cross-market transactions will require delivery of instructions to Euroclear or CEDEL, as the case may be, by the counterparty in such system in accordance with the rules and procedures and within the established deadlines (Brussels time) of such system. Euroclear or CEDEL, as the case may be, will, if the transaction meets its settlement requirements, deliver instructions to its respective depositary to take action to effect final settlement on its behalf by delivering or receiving interests in the relevant Global Note in DTC, and making or receiving payment in accordance with normal procedures for same-day fund settlement applicable to DTC. Euroclear accountholders and CEDEL accountholders may not deliver instructions directly to the depositories for Euroclear or CEDEL. Because of time zone differences, the securities account of a Euroclear or CEDEL accountholders purchasing an interest in a Global Note from a accountholders in DTC will be credited, and any such crediting will be reported to the relevant Euroclear or CEDEL participant, during the securities settlement processing day (which must be a business day for Euroclear or CEDEL) immediately following the settlement date of DTC. Cash received in Euroclear or CEDEL as a result of sales of interests in a Global Note by or through a Euroclear or CEDEL accountholders to a Participant in DTC will be received with value on the settlement date of DTC but will be available in the relevant Euroclear or CEDEL cash account only as of the business day for Euroclear or CEDEL following DTC's settlement date. -33- DTC has advised the Company that it will take any action permitted to be taken by a holder of Notes only at the direction of one or more Participants to whose account with DTC interests in the Global Notes are credited and only in respect of such portion of the aggregate principal amount of the Notes as to which such Participant or Participants has or have given such direction. However, if any of the events described under occurs DTC reserves the right to exchange the Global Notes for (in the case of the Restricted Global Note) legended Notes in certificated form, and to distribute such Notes to its Participants. The information in this section concerning DTC, Euroclear and CEDEL and their book-entry systems has been obtained from sources that the Company believes to be reliable, but the Company takes no responsibility for the accuracy thereof. Although DTC, Euroclear and CEDEL have agreed to the foregoing procedures to facilitate transfers of interests in the Regulation S Global Note and in the Restricted Global Note among accountholders in DTC, and accountholders of Euroclear and CEDEL, they are under no obligation to perform or to continue to perform such procedures, and such procedures may be discontinued at any time. None of the Company, the Initial Purchasers or the Trustee nor any agent of the Company or Trustee will have any responsibility for the performance by DTC, Euroclear or CEDEL or their respective accountholders, indirect participants or accountholders of their respective obligations under the rules and procedures governing their operations. Section 2.01B Exchange of Book-Entry Notes for Certificated Notes --------------------------------------------------- A Global Note is exchangeable for definitive Notes in registered certificated form if (i) DTC (x) notifies the Company that it is unwilling or unable to continue as depositary for the Global Note and the Company thereupon fails to appoint a successor depositary or (y) has ceased to be a clearing agency registered under the Exchange Act, (ii) the Company, at its option, notifies the Trustee in writing that it elects to cause the issuance of the Notes in certificated form or (iii) there shall have occurred and be continuing a Default or an Event of Default with respect to the Notes. In all cases, certificated Notes delivered in exchange for any Global Note or beneficial interests therein will be registered in the names, and issued in any approved denominations, requested by or on behalf of the depositary (in accordance with its customary procedures) and will bear, in the case of the Restricted Global Note, the restrictive -34- legend referred to in Exhibit A and, in the case of the Regulation S Global Note, the legend set forth in bold type on the cover of this Offering Memorandum, in each case, unless the Company determines otherwise in compliance with applicable law. Section 2.01C Exchanges between Regulation S Notes and Rule 144A Notes and -------------------------------------------------- --------- Other Notes ----------- Prior to the expiration of the Restricted Period, a beneficial interest in a Regulation S Global Note may be transferred to a person who takes delivery in the form of an interest in the corresponding Restricted Global Note only upon receipt by the Trustee of a written certification from the transferor to the effect that such transfer is being made (i)(a) to a person whom the transferor reasonably believes is a Qualified Institutional Buyer in a transaction meeting the requirements of Rule 144A or (b) pursuant to another exemption from the registration requirements under the Securities Act which is accompanied by an opinion of counsel regarding the availability of such exemption and (ii) in accordance with all applicable securities laws of any state of the United States or any other jurisdiction. Beneficial interests in the Restricted Global Note may be transferred to a person who takes delivery in the form of an interest in the Regulation S Global Note, whether before or after the expiration of the Restricted Period, only if the transferor first delivers to the Trustee a written certificate to the effect that such transfer is being made in accordance with Rule 903 or 904 of Regulation S or Rule 144 (if available) and that, if such transfer occurs prior to the expiration of the Restricted Period, the interest transferred will be held immediately thereafter through Euroclear or CEDEL. Any beneficial interest in one of the Global Notes that is transferred to a person who takes delivery in the form of an interest in another Global Note will, upon transfer, cease to be an interest in such Global Note and become an interest in such other Global Note and, accordingly, will thereafter be subject to all transfer restrictions and other procedures applicable to beneficial interests in such other Global Note for as long as it remains such an interest. Transfers involving an exchange of a beneficial interest in the Regulation S Global Note for a beneficial interest in the Restricted Global Note or vice versa will be effected in DTC by means of an instruction originated by DTC through the DTC/Deposit Withdraw at Custodian ("DWAC") system. Accordingly, in -35- connection with such transfer, upon notice from DTC through the DWAC system appropriate adjustments, this is initiated by beneficial holder through participant through DTC to Trustee, will be made to reflect a decrease in the principal amount of the Regulation S Global Note and a corresponding increase in the principal amount of the Restricted Global Note or vice versa, as applicable. Section 2.03. Execution and Authentication. ---------------------------- The Notes shall be executed on behalf of each Issuer by two Officers of such Issuer or an Officer and an Assistant Secretary of such Issuer. Such signature may be either manual or facsimile. The Issuers' seals shall be impressed, affixed, imprinted or reproduced on the Notes and may be in facsimile form. If an Officer whose signature is on a Note no longer holds that office at the time the Trustee authenticates the Note, the Note shall be valid nevertheless. A Note shall not be valid until the Trustee manually signs the certificate of authentication on the Note. Such signature shall be conclusive evidence that the Note has been authenticated under this Indenture. The Trustee or an authenticating agent shall authenticate Notes for original issue in the aggregate principal amount of $100,000,000 upon an Issuer Request. The aggregate principal amount of Notes outstanding at any time may not exceed such amount except as provided in Section 2.07 hereof. Upon receipt of the Issuer Request and an Officers' Certificate certifying that the registration statement relating to the exchange offer specified in the Registration Rights Agreement is effective under the Securities Act and that the conditions precedent to an exchange thereunder have been met; the Trustee shall authenticate an additional series of Notes in an aggregate principal amount not to exceed $100,000,000 for issuance in exchange for all Notes tendered for exchange pursuant to an exchange offer registered under the Securities Act or pursuant to a Private Exchange (as defined in the Registration Rights Agreement). Exchange Notes (as defined in the Registration Rights Agreement) or Private Exchange Notes (as defined in the Registration Rights Agreement) may have such distinctive series designation as and such changes in the form thereof as are specified in the Issuer Request referred to in the preceding sentence. The Notes shall be issuable only in registered form -36- without coupons and only in denominations of $1,000 and integral multiples thereof. The Trustee (at the expense of the Issuers) may appoint an authenticating agent to authenticate Notes. An authenticating agent may authenticate Notes whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such agent. An authenticating agent has the same right as an Agent to deal with the Issuers or an Affiliate. Section 2.04. Registrar and Paying Agent. -------------------------- The Issuers shall maintain an office or agency where Notes may be presented for registration of transfer or for exchange ("Registrar"), an office or agency located in the Borough of Manhattan, City of New York, State of New York where Notes may be presented for payment ("Paying Agent") and an office or agency where notices and demands to or upon the Issuers in respect of the Notes and this Indenture may be served. The Registrar shall keep a register of the Notes and of their transfer and exchange. The Issuers may have one or more additional Paying Agents. Neither the Issuers nor any Affiliate may act as Paying Agent. The Issuers may change any Paying Agent or Registrar without notice to any Noteholder. The Issuers shall enter into an appropriate agency agreement with any Registrar or Paying Agent not a party to this Indenture. The agreement shall implement the provisions of this Indenture that relate to such Agent and shall incorporate the provisions of the TIA. The Issuers shall notify the Trustee of the name and address of any such Agent. If the Issuers fail to maintain a Registrar or Paying Agent, or agent for service of notices and demands, or fail to give the foregoing notice, the Trustee shall act as such. The Issuers initially appoint the Trustee as Registrar, Paying Agent and agent for service of notices and demands in connection with the Notes. Section 2.05. Paying Agent to Hold Money in Trust. ----------------------------------- On or before 10:00 a.m. New York City time on each due date of the principal of and interest on any Notes, the Issuers shall deposit with the Paying Agent a sum sufficient to pay such principal and interest so becoming due. The Issuers at any time may require a Paying Agent to pay all money held by it to the Trustee and the Trustee, may at any time during the continuance of any Payment Default, upon written request to a Paying Agent, require such Paying Agent to forthwith pay to the Trustee all -37- sums so held in trust by such Paying Agent together with a complete accounting of such sums. Upon doing so, the Paying Agent shall have no further liability for the money. Section 2.06. Noteholder Lists. ---------------- The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of Noteholders. If the Trustee is not the Registrar, the Issuers shall furnish to the Trustee at least five Business Days before each Interest Payment Date, and at such other times as the Trustee may request in writing, a list in such form and as of such date as the Trustee may reasonably require of the names and addresses of Noteholders. Section 2.07. Transfer and Exchange. --------------------- Subject to Section 2.15, when a Note is presented to the Registrar with a request to register the transfer thereof, the Registrar shall register the transfer as requested and, when Notes are presented to the Registrar with a request to exchange them for an equal principal amount of Notes of other authorized denominations, the Registrar shall make the exchange as requested provided that every Note presented or surrendered for registration of transfer or exchange shall be duly endorsed, or be accompanied by a written instrument of transfer in form satisfactory to the Issuers and the Registrar duly executed by the Holder thereof or his attorney duly authorized in writing. To permit transfers and exchanges, upon surrender of any Note for registration of transfer at the office or agency maintained pursuant to Section 2.03 hereof, the Issuers shall execute and the Trustee shall authenticate Notes at the Registrar's request. Any exchange or transfer shall be without charge, except that the Issuers may require payment by the Holder of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation to a transfer or exchange, but this provision shall not apply to any exchange pursuant to Sections 2.09, 3.06 or 8.05 hereof. The Trustee shall not be required to register transfers of Notes or to exchange Notes for a period of 15 days before the mailing of notice of redemption of Notes to be redeemed. The Trustee shall not be required to exchange or register transfers of any Notes called or being called for redemption in whole or in part, except the unredeemed portion of any Note being redeemed in part. Any Holder of the Global Note shall, by acceptance of such Global Note, agrees that transfers of the beneficial interests in such Global Note may be effected only through a book -38- entry system maintained by the Holder of such Global Note (or its agent), and that ownership of a beneficial interest in the Global Note shall be required to be reflected in a book entry. Each Holder of a Note agrees to indemnify the Issuers and the Trustee against any liability that may result from the transfer, exchange or assignment of such Holder's Note in violation of any provision of this Indenture and/or applicable U.S. Federal or state securities law. Except as expressly provided herein, neither the Trustee nor the Registrar shall have any duty to monitor the Issuers' or any Guarantor's compliance with or have any responsibility with respect to the Issuers' or any Guarantor's compliance with any U.S. Federal or state securities laws. Section 2.08. Replacement Notes. ----------------- If a mutilated Note is surrendered to the Registrar or the Trustee or if the Holder of a Note presents evidence to the satisfaction of the Issuers and the Trustee that the Note has been lost, destroyed or wrongfully taken, the Issuers shall issue, the Guarantors shall endorse and the Trustee shall authenticate a replacement Note if the requirements of Section 8-405 of the New York Uniform Commercial Code as in effect on the date of this Indenture are met. An indemnity bond may be required by the Issuers or the Trustee that is sufficient in the judgment of the Issuers and the Trustee to protect the Issuers, the Trustee or any Agent from any loss which any of them may suffer if a Note is replaced. In every case of destruction, loss or theft, the applicant shall also furnish to the Issuers and to the Trustee evidence to their satisfaction of the destruction, loss or the theft of such Note and the ownership thereof. The Issuers may charge the Holder for their exceptional out- of-pocket expenses in replacing a Note and the Trustee may charge the Company for the Trustee's expenses (including, without limitation, attorneys' fees and disbursements). Every replacement Note is an additional obligation of the Issuers. Section 2.09. Outstanding Notes. ----------------- Notes outstanding at any time are all Notes authenticated by the Trustee except for those cancelled by it, those delivered to it for cancellation, and those described in this Section 2.08 as not outstanding and, to the extent set forth in Sections 9.01 and 9.02, on or after the date on which the conditions set forth in Sections 9.01 or 9.02 have been -39- satisfied, those Notes theretofore authenticated and delivered by the Trustee hereunder. If a Note is replaced pursuant to Section 2.07, it ceases to be outstanding until the Issuers and the Trustee receive proof satisfactory to each of them that the replaced Note is held by a bona fide purchaser. If a Paying Agent holds on a Redemption Date or Maturity Date money sufficient to pay the principal of, premium, if any, and accrued interest on Notes payable on that date, then on and after that date such Notes cease to be outstanding and interest on them ceases to accrue. Subject to Section 12.06, a Note does not cease to be outstanding solely because the Issuers or an Affiliate holds the Note. Section 2.010. Temporary Notes. --------------- Until definitive Notes are ready for delivery, the Issuers may prepare and the Trustee shall authenticate temporary Notes. Temporary Notes shall be substantially in the form, and shall carry all rights, of definitive Notes but may have variations that the Issuers consider appropriate for temporary Notes. Without unreasonable delay, the Issuers shall prepare and the Trustee shall authenticate definitive Notes in exchange for temporary Notes presented to it. Until such exchange, temporary Notes shall be entitled to the same rights, benefits and privileges as definitive Notes. Section 2.10. Cancellation. ------------ The Issuers at any time may deliver Notes to the Trustee for cancellation. The Registrar and the Paying Agent shall forward to the Trustee any Notes surrendered to them for transfer, exchange or payment. The Trustee shall cancel and destroy all Notes surrendered for transfer, exchange, payment or cancellation and deliver a certificate of destruction to the Issuers. Subject to Section 2.07 hereof, the Issuers may not issue new Notes to replace Notes in respect of which they have previously paid all principal, premium and interest accrued thereon, or delivered to the Trustee for cancellation. -40- Section 2.11. Defaulted Interest. ------------------ If the Issuers default in a payment of interest on the Notes, they shall pay the defaulted amounts, plus any interest payable on defaulted amounts pursuant to Section 4.01 hereof, to the persons who are Noteholders on a subsequent special record date. The Issuers shall fix the special record date and payment date in a manner satisfactory to the Trustee and provide the Trustee at least 20 days notice of the proposed amount of default interest to be paid, the special record date and the special payment date. At least 15 days before the special record date, the Issuers shall mail or cause to be mailed to each Noteholder at his address as it appears on the Notes register maintained by the Registrar a notice that states the special record date, the payment date (which shall be not less than five nor more than ten days after the special record date), and the amount to be paid. The Company may make payment of any defaulted interest in any other lawful manner not inconsistent with the requirements (if applicable) of any securities exchange on which the Notes may be listed and, upon such notice as may be required by such exchange, if, after written notice given by the Company to the Trustee of the proposed payment pursuant to this sentence, such manner of payment shall be deemed practicable by the Trustee. Section 2.12. Deposit of Moneys. ----------------- Prior to 10:00 a.m., New York City time, on each Interest Payment Date and Maturity Date, the Issuers shall have deposited with the Paying Agent in immediately available funds money sufficient to make cash payments, if any, due on such Interest Payment Date or Maturity Date, as the case may be, in a timely manner which permits the Trustee to remit payment to the Holders on such Interest Payment Date or Maturity Date, as the case may be. The principal and interest on Global Notes shall be payable to the Depository or its nominee, as the case may be, as the sole registered owner and the sole holder of the Global Notes represented thereby. The principal and interest on Physical Notes shall be payable at the office of the Paying Agent. Section 2.13. CUSIP Number. ------------ The Issuers in issuing the Notes may use a "CUSIP" number(s), and if so, the Trustee shall use the CUSIP number(s) in notices of redemption or exchange as a convenience to Holders, provided that any such notice may state -------- that no representation is made as to the correctness or accuracy of the CUSIP number(s) printed in the notice or on the Notes, and that reliance may be -41- placed only on the other identification numbers printed on the Notes. Section 2.14. Book-Entry Provisions for Global Notes. -------------------------------------- (a) The Global Notes initially shall (i) be registered in the name of the Depository or the nominee of such Depository, (ii) be delivered to the Trustee as custodian for such Depository and (iii) bear legends as set forth in Exhibit B. Members of, or participants in, the Depository ("Agent Members") shall have no rights under this Indenture with respect to any Global Note held on their behalf by the Depository, or the Trustee as its custodian, or under the Global Note, and the Depository may be treated by the Issuers, the Trustee and any agent of the Issuers or the Trustee as the absolute owner of the Global Note for all purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the Issuers, the Trustee or any agent of the Issuers or the Trustee from giving effect to any written certification, proxy or other authorization furnished by the Depository or impair, as between the Depository and its Agent Members, the operation of customary practices governing the exercise of the rights of a Holder of any Note. (b) Transfers of Global Notes shall be limited to transfer in whole, but not in part, to the Depository, its successors or their respective nominees. Interests of beneficial owners in the Global Notes may be transferred or exchanged for Physical Notes in accordance with the rules and procedures of the Depository and the provisions of Section 2.15. In addition, Physical Notes shall be transferred to all beneficial owners in exchange for their beneficial interests in Global Notes if (i) the Depository notifies the Issuers that it is unwilling or unable to continue as Depository for any Global Note and a successor depositary is not appointed by the Issuers within 90 days of such notice or (ii) an Event of Default has occurred and is continuing and the Registrar has received a written request from the Depository to issue Physical Notes. (c) In connection with any transfer or exchange of a portion of the beneficial interest in any Global Note to beneficial owners pursuant to paragraph (b), the Registrar shall (if one or more Physical Notes are to be issued) reflect on its books and records the date and a decrease in the principal amount of the Global Note in an amount equal to the principal amount of the beneficial interest in the Global Note to be transferred, and the Issuers shall execute, and the Trustee shall upon receipt of -42- an Issuer Order authenticate and make available for delivery, one or more Physical Notes of like tenor and amount. (d) In connection with the transfer of Global Notes as an entirety to beneficial owners pursuant to paragraph (b), the Global Notes shall be deemed to be surrendered to the Trustee for cancellation, and the Issuers shall execute, and the Trustee shall authenticate and deliver, to each beneficial owner identified by the Depository in writing in exchange for its beneficial interest in the Global Notes, an equal aggregate principal amount of Physical Notes of authorized denominations. (e) Any Physical Note constituting a Restricted Security delivered in exchange for an interest in a Global Note pursuant to paragraph (b), (c) or (d) shall, except as otherwise provided by paragraphs (a)(i)(x) and (c) of Section 2.15, bear the legend regarding transfer restrictions applicable to the Physical Notes set forth in Exhibit A. (f) The Holder of any Global Note may grant proxies and otherwise authorize any person, including Agent Members and persons that may hold interests through Agent Members, to take any action which a Holder is entitled to take under this Indenture, the Notes or the Guarantees. Section 2.15. Special Transfer Provisions. --------------------------- (a) Transfers to Non-QIB Institutional Accredited Investors and Non- --------------------------------------------------------------- U.S. Persons. The following provisions shall apply with respect to the - ------------ registration of any proposed transfer of a Note constituting a Restricted Security to any Institutional Accredited Investor which is not a QIB or to any Non-U.S. Person: (i) the Registrar shall register the transfer of any Note constituting a Restricted Security, whether or not such Note bears the Private Placement Legend, if (x) the requested transfer is after November , 1999 or (y) (1) in the case of a transfer to an Institutional Accredited Investor which is not a QIB (excluding Non-U.S. Persons), the proposed transferee has delivered to the Registrar a certificate substantially in the form of Exhibit C hereto or (2) in the case of a transfer to a Non-U.S. Person (including a QIB), the proposed transferor has delivered to the Registrar a certificate substantially in the form of Exhibit D hereto, provided, that -------- in the case of a transfer of a Note bearing the Private Placement Legend for a Note not bearing the Private Placement Legend, the Registrar has -43- received an Officers' Certificate authorizing such transfer; and (ii) if the proposed transferor is an Agent Member holding a beneficial interest in a Global Note, upon receipt by the Registrar of (x) the certificate, if any, required by paragraph (i) above and (y) instructions given in accordance with the Depository's and the Registrar's procedures, whereupon (a) the Registrar shall reflect on its books and records the date and (if the transfer does not involve a transfer of outstanding Physical Notes) a decrease in the principal amount of a Global Note in an amount equal to the principal amount of the beneficial interest in a Global Note to be transferred, and (b) the Issuers shall execute, the Guarantors shall endorse and the Trustee shall authenticate and make available for delivery one or more Physical Notes of like tenor and amount. (b) Transfers to QIBs. The following provisions shall apply with ----------------- respect to the registration of any proposed transfer of a Note constituting a Restricted Security to a QIB (excluding transfers to Non-U.S. Persons): (i) the Registrar shall register the transfer if such transfer is being made by a proposed transferor who has checked the box provided for on the form of Note stating, or has otherwise advised the Issuers and the Registrar in writing, that the sale has been made in compliance with the provisions of Rule 144A to a transferee who has signed the certification provided for on the form of Note stating, or has otherwise advised the Issuers and the Registrar in writing, that it is purchasing the Note for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a QIB within the meaning of Rule 144A, and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Issuers as it has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon its foregoing representations in order to claim the exemption from registration provided by Rule 144A; and (ii) if the proposed transferee is an Agent Member, and the Securities to be transferred consist of Physical Notes which after transfer are to be evidenced by an interest in the Global Note, upon receipt by the Registrar of instructions given in accordance with the Depository's and -44- the Registrar's procedures, the Registrar shall reflect on its books and records the date and an increase in the principal amount of the Global Note in an amount equal to the principal amount of the Physical Notes to be transferred, and the Trustee shall cancel the Physical Notes so transferred. (c) Private Placement Legend. Upon the transfer, exchange or ------------------------ replacement of Notes not bearing the Private Placement Legend, the Registrar shall deliver Notes that do not bear the Private Placement Legend. Upon the transfer, exchange or replacement of Notes bearing the Private Placement Legend, the Registrar shall deliver only Notes that bear the Private Placement Legend unless (i) it has received the Officers' Certificate required by paragraph (a)(i)(x) of this Section 2.15, (ii) there is delivered to the Registrar an Opinion of Counsel reasonably satisfactory to the Issuers and the Trustee to the effect that neither such legend nor the related restrictions on transfer are required in order to maintain compliance with the provisions of the Securities Act or (iii) such Note has been sold pursuant to an effective registration statement under the Securities Act and the Trustee has received an Officers' Certificate from the Issuers to such effect. (d) General. By its acceptance of any Note bearing the Private ------- Placement Legend, each Holder of such a Note acknowledges the restrictions on transfer of such Note set forth in this Indenture and in the Private Placement Legend and agrees that it will transfer such Note only as provided in this Indenture. The Registrar shall retain copies of all letters, notices and other written communications received pursuant to Section 2.14 or this Section 2.15. The Issuers shall have the right to inspect and make copies of all such letters, notices or other written communications at any reasonable time upon the giving of reasonable notice to the Registrar. Section 2.16. Computation of Interest. ----------------------- Interest on the Notes shall be computed on the basis of a 360-day year of twelve 30-day months. -45- ARTICLE 3 REDEMPTION Section 3.01. Notices to Trustee. ------------------ If the Issuers elect to redeem Notes pursuant to paragraph 6 of the Notes, (i) at least 45 days prior to the Redemption Date in the case of a partial redemption, (ii) at least 45 days prior to the Redemption Date in the case of a total redemption or (iii) during such other period as the Trustee may agree to (which agreement shall not unreasonably be withheld) the Issuers shall notify the Trustee in writing of the Redemption Date, the principal amount of Notes to be redeemed and the redemption price, and deliver to the Trustee an Officers' Certificate stating that such redemption will comply with the conditions contained in paragraph 6 of the Notes, as appropriate. Section 3.02. Selection by Trustee of Notes to Be Redeemed. -------------------------------------------- In the event that fewer than all of the Notes are to be redeemed, the Trustee shall select the Notes to be redeemed, if the Notes are listed on a national securities exchange, in accordance with the rules of such exchange or, if the Notes are not so listed, either on a pro rata basis or by lot, or such other method as it shall deem fair and equitable; provided, however, that if a -------- ------- partial redemption is made with the proceeds of a Public Equity Offering, selection of the Notes or portion thereof for redemption shall be made by the Trustee on a pro rata basis, unless such a method is prohibited. The Trustee --- ---- shall promptly notify the Issuers of the Notes selected for redemption and, in the case of any Notes selected for partial redemption, the principal amount thereof to be redeemed. The Trustee may select for redemption portions of the principal of the Notes that have denominations larger than $1,000. Notes and portions thereof the Trustee selects shall be redeemed in amounts of $1,000 or whole multiples of $1,000. For all purposes of this Indenture unless the context otherwise requires, provisions of this Indenture that apply to Notes called for redemption also apply to portions of Notes called for redemption. Section 3.03. Notice of Redemption. -------------------- At least 30 days, and no more than 60 days, before a Redemption Date, the Issuers shall mail, or cause to be mailed, a notice of redemption by first- class mail to each Holder of Notes to be redeemed at his or her last address as the same appears on -46- the registry books maintained by the Registrar pursuant to Section 2.03 hereof. The notice shall identify the Notes to be redeemed (including the CUSIP numbers thereof) and shall state: (1) the Redemption Date and the amount of premium and accrued interest to be paid; (2) the redemption price and the amount of premium and accrued interest to be paid; (3) if any Note is being redeemed in part, the portion of the principal amount of such Note to be redeemed and that, after the Redemption Date and upon surrender of such Note, a new Note or Notes in principal amount equal to the unredeemed portion will be issued; (4) the name and address of the Paying Agent; (5) that Notes called for redemption must be surrendered to the Paying Agent to collect the redemption price; (6) that unless the Issuers default in making the redemption payment, interest on Notes called for redemption ceases to accrue on and after the Redemption Date; (7) the provision of paragraph 6 of the Notes pursuant to which the Notes called for redemption are being redeemed; and (8) the aggregate principal amount of Notes that are being redeemed. At the Issuers' written request made at least five Business Days prior to the date on which notice is to be given, the Trustee shall give the notice of redemption in the Issuers' name and at the Issuers' sole expense. Section 3.04. Effect of Notice of Redemption. ------------------------------ Once the notice of redemption described in Section 3.03 is mailed, Notes called for redemption become due and payable on the Redemption Date and at the redemption price, including any premium, plus interest accrued to the Redemption Date. Upon surrender to the Paying Agent, such Notes shall be paid at the redemption price, including any premium, plus interest accrued to -47- the Redemption Date, provided that if the Redemption Date is after a regular -------- record date and on or prior to the Interest Payment Date, the accrued interest shall be payable to the Holder of the redeemed Notes registered on the relevant record date, and provided, further, that if a Redemption Date is a Legal -------- ------- Holiday, payment shall be made on the next succeeding Business Day and no interest shall accrue for the period from such Redemption Date to such succeeding Business Day. Section 3.05. Deposit of Redemption Price. --------------------------- On or prior to 10:00 A.M., New York City time, on each Redemption Date, the Issuers shall deposit with the Paying Agent in immediately available funds money sufficient to pay the redemption price of and accrued interest on all Notes to be redeemed on that date other than Notes or portions thereof called for redemption on that date which have been delivered by the Issuers to the Trustee for cancellation. On and after any Redemption Date, if money sufficient to pay the redemption price of and accrued interest on Notes called for redemption shall have been made available in accordance with the preceding paragraph, the Notes called for redemption will cease to accrue interest and the only right of the Holders of such Notes will be to receive payment of the redemption price of and, subject to the first proviso in Section 3.04, accrued and unpaid interest on such Notes to the Redemption Date. If any Note surrendered for redemption shall not be so paid, interest will be paid, from the Redemption Date until such redemption payment is made, on the unpaid principal of the Note and any interest not paid on such unpaid principal, in each case, at the rate and in the manner provided in the Notes. Section 3.06. Notes Redeemed in Part. ---------------------- Upon surrender of a Note that is redeemed in part, the Trustee shall authenticate for a Holder a new Note equal in principal amount to the unredeemed portion of the Note surrendered. -48- ARTICLE 4 COVENANTS Section 4.01. Payment of Notes. ---------------- The Issuers shall, jointly and severally, pay the principal of and interest (including all Additional Interest as provided in the Registration Rights Agreement) on the Notes on the dates and in the manner provided in the Notes and this Indenture. An installment of principal or interest shall be considered paid on the date it is due if the Trustee or Paying Agent holds on that date money designated for and sufficient to pay such installment. The Issuers shall pay interest on overdue principal (including post- petition interest in a proceeding under any Bankruptcy Law), and overdue interest, to the extent lawful, at the rate specified in the Notes. Section 4.02. SEC Reports. ----------- (a) The Issuers will file with the SEC all information, documents and reports to be filed with the SEC pursuant to Section 13 or 15(d) of the Exchange Act, in the case of the Company, whether or not the Company is required to file with the SEC pursuant to Section 13 or 15(d) of the Exchange Act, and in the case of Capital, only to the extent subject to such filing requirements. The Issuers (at their own expense) will file with the Trustee within 15 days after they file them with the SEC, copies of the annual reports and of the information, documents and other reports (or copies of such portions of any of the foregoing as the SEC may by rules and regulations prescribe) which the Issuers file with the SEC pursuant to Section 13 or 15(d) of the Exchange Act. Upon qualification of this Indenture under the TIA, the Issuers shall also comply with the provisions of TIA (S) 314(a). Delivery of such reports, information and documents to the Trustee is for informational purposes only and the Trustee's receipt of such shall not constitute constructive notice of any information contained therein or determinable from information contained therein, including the Issuers' compliance with any of their covenants hereunder (as to which the Trustee is entitled to rely exclusively on Officers' Certificates). (b) At the Issuers' expense, regardless of whether the Issuers are required to furnish such reports and other information referred to in paragraph (a) above to their -49- equityholders pursuant to the Exchange Act, the Company shall cause such reports and other information to be mailed to the Holders at their addresses appearing in the register of Notes maintained by the Registrar within 15 days after they file them with the SEC. (c) The Issuers shall, upon request, provide to any Holder of Notes or any prospective transferee of any such Holder any information concerning the Issuers (including financial statements) necessary in order to permit such Holder to sell or transfer Notes in compliance with Rule 144A under the Securities Act; provided, however, that the Issuers shall not be required to -------- ------- furnish such information in connection with any request made on or after the date which is three years from the later of (i) the date such Note (or any predecessor Note) was acquired from the Issuers or (ii) the date such Note (or any predecessor Note) was last acquired from an "affiliate" of the Issuers within the meaning of Rule 144 under the Securities Act. Section 4.03. Waiver of Stay, Extension or Usury Laws. --------------------------------------- The Issuers covenant (to the extent that they may lawfully do so) that they will not at any time insist upon, or plead (as a defense or otherwise) or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law or any usury law or other law which would prohibit or forgive the Issuers from paying all or any portion of the principal of, premium, if any, and/or interest on the Notes as contemplated herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants or the performance of this Indenture; and (to the extent that they may lawfully do so) the Issuers hereby expressly waive all benefit or advantage of any such law, and covenant that they will not hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted. Section 4.04. Compliance Certificate. ---------------------- (a) The Issuers shall deliver to the Trustee, within 100 days after the end of each fiscal year and on or before 50 days after the end of the first, second and third quarters of each fiscal year, an Officers' Certificate (one of the signers on behalf of each of the Issuers of which shall be the principal executive officer, principal financial officer or principal accounting officer of such Issuer) stating that a review of the activities of the Issuers and their Subsidiaries during such fiscal year or fiscal quarter, as the case may be, has been made -50- under the supervision of the signing Officers with a view to determining whether the Issuers have kept, observed, performed and fulfilled their obligations under this Indenture, and further stating, as to each such Officer signing such certificate, that to the best of his or her knowledge the Issuers have kept, observed, performed and fulfilled each and every covenant contained in this Indenture and are not in default in the performance or observance of any of the terms, provisions and conditions hereof (or, if a Default or Event of Default shall have occurred, describing all such Defaults or Events of Default of which he or she may have knowledge and what action they are taking or propose to take with respect thereto) and that to the best of his or her knowledge no event has occurred and remains in existence by reason of which payments on account of the principal of or interest, if any, on the Notes is prohibited or if such event has occurred, a description of the event and what action the Issuers are taking or propose to take with respect thereto. (b) So long as not contrary to the then current recommendations of the American Institute of Certified Public Accountants, the year-end financial statements delivered pursuant to Section 4.02 above shall be accompanied by a written statement of the Issuers' independent public accountants (who shall be a firm of established national reputation) that in making the examination necessary for certification of such financial statements nothing has come to their attention which would lead them to believe that the Issuers have violated any provisions of this Article 4 or Article 5 of this Indenture or, if any such violation has occurred, specifying the nature and period of existence thereof, it being understood that such accountants shall not be liable directly or indirectly for any failure to obtain knowledge of any such violation. (c) The Issuers will, so long as any of the Notes are outstanding, deliver to the Trustee, forthwith upon any Officer becoming aware of any Default or Event of Default, an Officers' Certificate specifying such Default or Event of Default and what action the Issuers are taking or propose to take with respect thereto. (d) The Company's fiscal year currently ends on November 30. The Company will provide notice to the Trustee of any change in its fiscal year. Section 4.05. Taxes. ----- The Issuers shall, and shall cause each of their Subsidiaries to, pay prior to delinquency all material taxes, -51- assessments, and governmental levies except as contested in good faith and by appropriate proceedings. Section 4.06. Limitation on Additional Indebtedness. ------------------------------------- The Issuers shall not, and shall not permit any Restricted Subsidiary of the Issuers to, directly or indirectly, incur any Indebtedness (including Acquired Indebtedness) unless (a) after giving effect to the incurrence of such Indebtedness and the receipt and application of the proceeds thereof, the ratio of the total Indebtedness of the Issuers and their Restricted Subsidiaries (excluding any Indebtedness owed to a Restricted Subsidiary by any other Restricted Subsidiary or the Issuers and any Indebtedness owed to the Issuers by any Restricted Subsidiary) to the Issuers' EBITDA (determined on a pro forma basis for the last four fiscal quarters of the Issuers for which financial statements are available at the date of determination) is less than 6.0 to 1; provided, however, that if the Indebtedness which is the subject of a - -------- ------- determination under this provision is Acquired Indebtedness, or Indebtedness incurred in connection with the simultaneous acquisition of any Person, business, property or assets, then such ratio shall be determined by giving effect to (on a pro forma basis, as if the transaction had occurred at the beginning of the four-quarter period) both the incurrence or assumption of such Acquired Indebtedness or such other Indebtedness by the Issuers and the inclusion in the Issuers' EBITDA of the EBITDA of the acquired Person, business, property or assets and any pro forma expense and cost reductions calculated on a basis consistent with Regulation S-X under the Securities Act as in effect and as applied as of the date hereof, and (b) no Default or Event of Default shall have occurred and be continuing at the time or as a consequence of the incurrence of such Indebtedness. Notwithstanding the foregoing, the Issuers and their Restricted Subsidiaries may incur Permitted Indebtedness. Neither BrightView nor Holdings shall, directly or indirectly, incur or remain or become directly or indirectly liable with respect to any Indebtedness except that BrightView and Holdings (a) may guarantee (i) the Notes, (ii) the indebtedness of the Company under the Senior Credit Facility and the other Credit Documents (as defined in the Senior Credit Facility) and (iii) any Indebtedness of the Company or any Restricted Subsidiary permitted to be incurred under the immediately preceding paragraphs and (b) may incur Indebtedness in an aggregate principal amount not exceeding $5,000,000 outstanding at any time issued to repurchase their Capital Stock -52- from former management employees in connection with their termination or departure (provided that such Indebtedness is subordinated in right and time of -------- payment to (i) and (ii) of (a) above). Section 4.07. Limitation on Preferred Stock of Restricted Subsidiaries. -------------------------------- The Issuers shall not permit any Restricted Subsidiary to issue any Preferred Stock (except Preferred Stock to the Company or a Restricted Subsidiary) or permit any Person (other than the Company or a Subsidiary) to hold any such Preferred Stock unless the Company or such Restricted Subsidiary would be entitled to incur or assume Indebtedness under the first paragraph of Section 4.06 hereof in an aggregate principal amount equal to the aggregate liquidation value of the Preferred Stock to be issued. Section 4.08. Limitation on Capital Stock of Subsidiaries. ------------------------------------------- The Issuers shall not (i) sell, pledge, hypothecate or otherwise convey or dispose of any Capital Stock of a Subsidiary (other than under the Senior Credit Facility or under the terms of any Designated Senior Indebtedness) or (ii) permit any of their Subsidiaries to issue any Capital Stock, other than to the Issuers or a Wholly-Owned Subsidiary of the Issuers. The foregoing restrictions shall not apply to an Asset Sale made in compliance with Section 4.10 hereof or the issuance of Preferred Stock in compliance with Section 4.07 hereof. In no event shall the Company sell, pledge, hypothecate or otherwise convey or dispose of any Capital Stock of Capital nor shall Capital issue any of its Capital Stock. Section 4.09. Limitation on Restricted Payments. --------------------------------- The Issuers will not make, and will not permit any of their Restricted Subsidiaries to, directly or indirectly, make, any Restricted Payment, unless: (a) no Default or Event of Default shall have occurred and be continuing at the time of or immediately after giving effect to such Restricted Payment; (b) immediately after giving pro forma effect to such Restricted --- ----- Payment, the Issuers could incur $1.00 of additional Indebtedness (other than Permitted Indebtedness) under Section 4.06 hereof; and -53- (c) immediately after giving effect to such Restricted Payment, the aggregate of all Restricted Payments declared or made after the Issue Date does not exceed the sum of (1) 50% of the cumulative Consolidated Net Income of the Company subsequent to the Issue Date (or minus 100% of any cumulative deficit in Consolidated Net Income during such period) plus (2) 100% of the aggregate Net Proceeds and the fair market value of securities or other property received by the Company from the issue or sale, after the Issue Date, of Capital Stock (other than Disqualified Capital Stock or Capital Stock of the Company issued to any Subsidiary of the Company) of the Company or any Indebtedness or other securities of the Company convertible into or exercisable or exchangeable for Capital Stock (other than Disqualified Capital Stock) of the Company which has been so converted or exercised or exchanged, as the case may be, plus (3) without duplication of any amounts included in clauses (1) and (2) above, 100% of the aggregate net proceeds of any equity contribution received by the Company from a holder of the Company's Capital Stock. For purposes of determining under this clause (c) the amount expended for Restricted Payments, cash distributed shall be valued at the face amount thereof and property other than cash shall be valued at its fair market value determined, in good faith, by the Issuers' Board of Directors of the Company. The provisions of this Section 4.09 shall not prohibit: (i) the payment of any distribution within 60 days after the date of declaration thereof, if at such date of declaration such payment would comply with the provisions of this Indenture; (ii) the retirement of any shares of Capital Stock of the Company or subordinated Indebtedness by conversion into, or by or in exchange for, shares of Capital Stock (other than Disqualified Capital Stock), or out of, the Net Proceeds of the substantially concurrent sale (other than to a Subsidiary of the Company) of other shares of Capital Stock of the Company (other than Disqualified Capital Stock); (iii) the redemption or retirement of Indebtedness of the Issuers subordinated to the Notes in exchange for, by conversion into, or out of the Net Proceeds of, a substantially concurrent sale or incurrence of Indebtedness (other than any Indebtedness owed to a Subsidiary) of the Issuers that is contractually subordinated in right of payment to the Notes to at least the same extent as the subordinated Indebtedness being redeemed or retired; (iv) the retirement of any shares of Disqualified Capital Stock by conversion into, or by exchange for, shares of Disqualified Capital Stock, or out of the Net Proceeds of the substantially concurrent sale (other than to a Subsidiary of the Company) of other shares of Disqualified -54- Capital Stock; (v) if no Event of Default listed in clause (1),(2),(6) or (7) of Section 6.01 shall have occurred and be continuing, or would result from any such distribution, Permitted Tax Distributions; or (vi) dividend payments or other distributions of cash by the Company in an amount not in excess of (y) $1,000,000 per fiscal year solely for the purpose of paying fees and expenses of BrightView and Holdings, including directors' fees, less (z) the amount of any management, advisory, consulting and similar fees paid by the Company to Willis Stein and its Affiliates during such fiscal year. Not later than the date of making any Restricted Payment, the Issuers shall deliver to the Trustee an Officers' Certificate stating that such Restricted Payment is permitted and setting forth the basis upon which the calculations required by this Section 4.09 were computed, which calculations may be based upon the Issuers' latest available financial statements, and that no Default or Event of Default exists and is continuing and no Default or Event of Default will occur immediately after giving effect to any Restricted Payments. Section 4.10. Limitation on Certain Asset Sales. --------------------------------- (a) The Issuers shall not, and shall not permit any of their Restricted Subsidiaries to, consummate an Asset Sale unless (i) the Company or such Restricted Subsidiary, as the case may be, receives consideration at the time of such sale or other disposition at least equal to the fair market value thereof (as determined in good faith by the Board of Directors of the Company, and evidenced by a Board Resolution); (ii) not less than 85% of the consideration received by the Company or its Subsidiaries, as the case may be, is in the form of cash or Temporary Cash Investments; and (iii) the Asset Sale Proceeds received by the Company or such Restricted Subsidiary are applied (a) first, to the extent the Company elects, or is required, to prepay, repay or purchase debt under any then existing Senior Indebtedness of the Company or any Restricted Subsidiary within 180 days following the receipt of the Asset Sale Proceeds from any Asset Sale; provided that any such repayment shall result in a permanent reduction of the commitments thereunder in an amount equal to the principal amount so repaid; (b) second, to the extent of the balance of Asset Sale Proceeds after application as described above, to the extent the Company elects, to an investment in assets (including Capital Stock or other securities purchased in connection with the acquisition of Capital Stock or property of another Person) used or useful in businesses similar or ancillary to the business of the Company or such Restricted Subsidiary as conducted at the time of such Asset Sale, provided -------- -55- that such investment occurs or the Issuers or a Restricted Subsidiary enters into contractual commitments to make such investment, subject only to customary conditions (other than the obtaining of financing), on or prior to the 181st day following receipt of such Asset Sale Proceeds (the "Reinvestment Date") and Asset Sale Proceeds contractually committed are so applied within 270 days following the receipt of such Asset Sale Proceeds; and (c) third, if, on the Reinvestment Date with respect to any Asset Sale, the Available Asset Sale Proceeds exceed $5,000,000, the Issuers shall apply an amount equal to such Available Asset Sale Proceeds to an offer to repurchase the Notes, at a purchase price in cash equal to 100% of the principal amount thereof plus accrued and unpaid interest, if any, to the date of repurchase (an "Excess Proceeds Offer"). (b) If the Issuers are required to make an Excess Proceeds Offer, the Issuers shall mail, within 30 days following the Reinvestment Date, a notice to the Holders stating, among other things: (1) that such Holders have the right to require the Issuers to apply the Available Asset Sale Proceeds to repurchase such Notes at a purchase price in cash equal to 100% of the principal amount thereof plus accrued and unpaid interest, if any, to the date of purchase; (2) the purchase date (the "Purchase Date"), which shall be no earlier than 30 days and not later than 60 days from the date such notice is mailed; (3) the instructions, determined by the Issuers, that each Holder must follow in order to have such Notes repurchased; and (4) the calculations used in determining the amount of Available Asset Sale Proceeds to be applied to the repurchase of such Notes. The Excess Proceeds Offer shall remain open for a period of 20 Business Days following its commencement (the "Offer Period"). The notice, which shall govern the terms of the Excess Proceeds Offer, shall state: (1) that the Excess Proceeds Offer is being made pursuant to this Section 4.10 and the length of time the Excess Proceeds Offer will remain open; (2) the purchase price and the Purchase Date; (3) that any Note not tendered or accepted for payment will continue to accrue interest; (4) that any Note accepted for payment pursuant to the Excess Proceeds Offer shall cease to accrue interest on and after the Purchase Date and the deposit of the purchase price with the Trustee; -56- (5) that Holders electing to have a Note purchased pursuant to any Excess Proceeds Offer will be required to surrender the Note, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Note completed, to the Issuers, a depositary, if appointed by the Issuers, or a Paying Agent at the address specified in the notice prior to the close of business on the Business Day preceding the Purchase Date; (6) that Holders will be entitled to withdraw their election if the Issuers, depositary or Paying Agent, as the case may be, receives, not later than the expiration of the Offer Period, a facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Note the Holder delivered for purchase and a statement that such Holder is withdrawing his election to have the Note purchased; (7) that, if the aggregate principal amount of Notes surrendered by Holders exceeds the Available Asset Sale Proceeds, the Issuers shall select the Notes to be purchased on a pro rata basis (with such adjustments as may be deemed appropriate by the Issuers so that only Notes in denominations of $1,000, or integral multiples thereof, shall be purchased); and (8) that Holders whose Notes were purchased only in part will be issued new Notes equal in principal amount to the unpurchased portion of the Notes surrendered. On or before the Purchase Date, the Issuers shall, to the extent lawful, accept for payment, on a pro rata basis to the extent necessary, Notes or portions thereof tendered pursuant to the Excess Proceeds Offer, deposit with the Paying Agent U.S. legal tender sufficient to pay the purchase price plus accrued interest, if any, on the Notes to be purchased and deliver to the Trustee an Officers' Certificate stating that such Notes or portions thereof were accepted for payment by the Issuers in accordance with the terms of this Section 4.10. The Paying Agent shall promptly (but in any case not later than 5 days after the Purchase Date) mail or deliver to each tendering Holder an amount equal to the purchase price of the Note tendered by such Holder and accepted by the Issuers for purchase, and the Issuers shall promptly issue a new Note, the guarantors shall endorse the guarantee thereon and the Trustee shall authenticate and mail or make available for delivery such new Note to such Holder equal in principal amount to any unpurchased portion of the Note surrendered. Any Note not so accepted shall be promptly mailed -57- or delivered by the Issuers to the Holder thereof. The Issuers will publicly announce the results of the Excess Proceeds Offer on the Purchase Date by sending a press release to the Dow Jones News Service or similar business news service in the United States. If an Excess Proceeds Offer is not fully subscribed, the Issuers may retain that portion of the Available Asset Sale Proceeds not required to repurchase Notes. Section 4.11. Limitation on Transactions with Affiliates. ------------------------------------------ (a) The Issuers shall not, and shall not permit any of their Restricted Subsidiaries to, directly or indirectly, enter into or suffer to exist any transaction or series of related transactions (including, without limitation, the sale, purchase, exchange or lease of assets, property or services) with any Affiliate (including entities in which the Issuers or any of its Restricted Subsidiaries own a minority interest) or holder of 10% or more of the Issuers' Common Stock (an "Affiliate Transaction") other than transactions existing on the date hereof and described on Schedule 4.11 hereto, or extend, renew, waive or otherwise modify the terms of any Affiliate Transaction entered into prior to the Issue Date if such extension, renewal, waiver or other modification is more disadvantageous to the Holders in any material respect than the original agreement as in effect on the Issue Date unless (i) such Affiliate Transaction is between or among the Issuers and their Wholly-Owned Subsidiaries; or (ii) the terms of such Affiliate Transaction are fair and reasonable to the Issuers or such Restricted Subsidiary, as the case may be, and the terms of such Affiliate Transaction are at least as favorable as the terms which could be obtained by the Issuers or such Restricted Subsidiary, as the case may be, in a comparable transaction made on an arm's-length basis between unaffiliated parties. In any Affiliate Transaction involving an amount or having a value in excess of $1,000,000 which is not permitted under clause (i) above, the Issuers must obtain a resolution of the Board of Directors certifying that such Affiliate Transaction complies with clause (ii) above. In transactions with a value in excess of $3,000,000 which are not permitted under clause (i) above, the Issuers must obtain a written opinion as to the fairness of such a transaction from an independent investment banking firm. (b) The limitations set forth in Section 4.11(a) shall not apply to (i) any Restricted Payment that is not prohibited by Section 4.09 hereof, (ii) any transaction, approved by the Board of Directors of the Issuers, with an officer or director of the Issuers or of any Subsidiary in his or her capacity as officer or director entered into in the ordinary course of business, (iii) -58- transactions permitted by Section 5.01 hereof or (iv) transactions after the date of this Indenture that are expressly contemplated by the Securities Purchase Agreement and the Securityholders Agreement (including any registration rights described therein) and are not prohibited by any other provision of this Indenture or the Notes; provided that the aggregate management, advisory, consulting and similar fees paid by the Company to Willis Stein and its Affiliates pursuant to the Securities Purchase Agreement or otherwise shall not exceed (y) $1,000,000 during any fiscal year less (z) the amount of any distributions made by the Company during such fiscal year pursuant to clause (vi) of the second paragraph of Section 4.09, and provided, further, that any such fees may accrue but shall not be paid by the Company at any time after the occurrence and during the continuance of a Default or Event of Default. Section 4.12. Limitations on Liens. -------------------- The Issuers shall not, and shall not permit any of their Restricted Subsidiaries to, create, incur or otherwise cause or suffer to exist or become effective any Liens of any kind (other than Permitted Liens) upon any property or asset of the Issuers or any Restricted Subsidiary or any shares of stock or debt of any Restricted Subsidiary which owns property or assets, now owned or hereafter acquired, unless (i) if such Lien secures Indebtedness which is pari ---- passu with the Notes, then the Notes are secured on an equal and ratable basis - ----- with the obligations so secured until such time as such obligation is no longer secured by a Lien or (ii) if such Lien secures Indebtedness which is subordinated to the Notes, any such Lien shall be subordinated to the Lien granted to the Holders of the Notes to the same extent as such subordinated Indebtedness is subordinated to the Notes. Section 4.13. Limitations on Investments. -------------------------- The Issuers shall not, and shall not permit any of their Restricted Subsidiaries to, make any Investment other than (i) a Permitted Investment or (ii) an Investment that is made as a Restricted Payment in compliance with Section 4.09 hereof, after the Issue Date. Section 4.14. Limitation on Creation of Subsidiaries. -------------------------------------- The Issuers shall not create or acquire, nor permit any of their Restricted Subsidiaries to create or acquire, any Subsidiary other than (i) a Restricted Subsidiary that is acquired or created in connection with the acquisition by the -59- Company of a media related business or asset, or (ii) an Unrestricted Subsidiary; provided, however, that each Restricted Subsidiary acquired or -------- ------- created pursuant to clause (i) shall at the time it has either assets or stockholder's equity in excess of $5,000 have evidenced its guarantee with such documentation satisfactory in form and substance to the Trustee relating thereto as the Trustee shall require, including, without limitation a supplement or amendment to this Indenture and Opinions of Counsel as to the enforceability of such guarantee, pursuant to which such Restricted Subsidiary shall become a Guarantor. Section 4.15. Limitation on Other Senior Subordinated Debt. -------------------------------------------- The Issuers shall not, and shall not permit any of their Restricted Subsidiaries to, directly or indirectly, incur, contingently or otherwise, any Indebtedness (other than the Notes and the Guarantees, as the case may be) that is both (i) subordinate in right of payment to any Senior Indebtedness of the Issuers or their Restricted Subsidiaries, as the case may be, and (ii) senior in right of payment to the Notes and the Guarantees, as the case may be. For purposes of this Section 4.15, Indebtedness is deemed to be senior in right of payment to the Notes and the Guarantees, as the case may be, if it is not explicitly subordinate in right of payment to Senior Indebtedness at least to the same extent as the Notes and the Guarantees, as the case may be, are subordinate to Senior Indebtedness. Section 4.16. Limitation on Sale and Lease-Back Transactions. ---------------------------------------------- The Issuers shall not, and shall not permit any Restricted Subsidiary to, enter into any Sale and Lease-Back Transaction unless (i) the consideration received in such Sale and Lease-Back Transaction is at least equal to the fair market value of the property sold, as determined, in good faith, by the Board of Directors of the Company and (ii) the Issuers could incur the Attributable Indebtedness in respect of such Sale and Lease-Back Transaction in compliance with Section 4.06. Section 4.17. Payments for Consent. -------------------- Neither the Issuers nor any of their Subsidiaries shall, directly or indirectly, pay or cause to be paid any consideration, whether by way of interest, fee or otherwise, to any Holder of any Notes for or as an inducement to any consent, waiver or amendment of any of the terms or provisions of this Indenture or the Notes unless such consideration is offered to be paid or agreed to be paid to all Holders of the Notes which so -60- consent, waive or agree to amend in the time frame set forth in solicitation documents relating to such consent, waiver or agreement. Section 4.18. Legal Existence. --------------- Subject to Article 5 hereof, the Issuers shall do or cause to be done all things necessary to preserve and keep in full force and effect (i) their legal existence, and the corporate, partnership or other existence of each Restricted Subsidiary, in accordance with the respective organizational documents (as the same may be amended from time to time) of each Restricted Subsidiary and the rights (charter and statutory), licenses and franchises of the Issuers and their Restricted Subsidiaries; provided, however, that the -------- ------- Issuers shall not be required to preserve any such right, license or franchise, or the corporate, partnership or other existence of any of their Restricted Subsidiaries if the Board of Directors of the Company shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Issuers and their Restricted Subsidiaries, taken as a whole, and that the loss thereof is not adverse in any material respect to the Holders. Section 4.19. Change of Control. ----------------- (a) Within 20 days of the occurrence of a Change of Control, the Company shall notify the Trustee in writing of such occurrence and shall make an offer to purchase (the "Change of Control Offer") the outstanding Notes at a purchase price equal to 101% of the principal amount thereof plus any accrued and unpaid interest thereon to the Change of Control Payment Date (such purchase price being hereinafter referred to as the "Change of Control Purchase Price") in accordance with the procedures set forth in this Section 4.19. If the Senior Credit Facility is in effect, or any amounts are owing thereunder, at the time of the occurrence of a Change of Control, prior to the mailing of the notice to Holders described in paragraph (b) below, but in any event within 20 days following any Change of Control, the Issuers on a joint and several basis covenant to (i) repay in full all obligations under the Senior Credit Facility or offer to repay in full all obligations under or in respect of the Senior Credit Facility and repay the obligations under or in respect of the Senior Credit Facility of each lender who has accepted such offer or (ii) obtain the requisite consent under the Senior Credit Facility to permit the repurchase of the Notes pursuant to this Section 4.19. The Issuers must first comply with the covenant -61- described in the preceding sentence before they shall be required to purchase Notes in the event of a Change of Control; provided that the Issuers' failure to -------- comply with the covenant described in the preceding sentence constitutes an Event of Default described in clause (3) under Section 6.01 hereof if not cured within 60 days after the notice required by such clause. (b) Within 20 days of the occurrence of a Change of Control, the Company also shall (i) cause a notice of the Change of Control Offer to be sent at least once to the Dow Jones News Service or similar business news service in the United States and (ii) send by first-class mail, postage prepaid, to the Trustee and to each Holder of the Notes, at the address appearing in the register maintained by the Registrar of the Notes, a notice stating: (i) that the Change of Control Offer is being made pursuant to this Section 4.19 and that all Notes tendered will be accepted for payment, and otherwise subject to the terms and conditions set forth herein; (ii) the Change of Control Purchase Price and the purchase date (which shall be a Business Day no earlier than 20 Business Days from the date such notice is mailed (the "Change of Control Payment Date")); (iii) that any Note not tendered will continue to accrue interest; (iv) that, unless the Issuers default in the payment of the Change of Control Purchase Price, any Notes accepted for payment pursuant to the Change of Control Offer shall cease to accrue interest after the Change of Control Payment Date; (v) that Holders accepting the offer to have their Notes purchased pursuant to a Change of Control Offer will be required to surrender the Notes, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Note completed, to the Paying Agent at the address specified in the notice prior to the close of business on the Business Day preceding the Change of Control Payment Date; (vi) that Holders will be entitled to withdraw their acceptance if the Paying Agent receives, not later than the close of business on the third Business Day preceding the Change of Control Payment Date, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Notes delivered for purchase, -62- and a statement that such Holder is withdrawing his election to have such Notes purchased; (vii) that Holders whose Notes are being purchased only in part will be issued new Notes equal in principal amount to the unpurchased portion of the Notes surrendered, provided that each Note purchased and each such new -------- Note issued shall be in an original principal amount in denominations of $1,000 and integral multiples thereof; (viii) any other procedures that a Holder must follow to accept a Change of Control Offer or effect withdrawal of such acceptance; and (ix) the name and address of the Paying Agent. On the Change of Control Payment Date, the Issuers shall, to the extent lawful, (i) accept for payment Notes or portions thereof tendered pursuant to the Change of Control Offer, (ii) deposit with the Paying Agent money sufficient to pay the purchase price of all Notes or portions thereof so tendered and (iii) deliver or cause to be delivered to the Trustee Notes so accepted together with an Officers' Certificate stating the Notes or portions thereof tendered to the Issuers. The Paying Agent shall promptly mail to each Holder of Notes so accepted payment in an amount equal to the purchase price for such Notes, and the Issuers shall execute and issue, the Guarantors shall endorse the Guarantee and the Trustee shall promptly authenticate and mail to such Holder, a new Note equal in principal amount to any unpurchased portion of the Notes surrendered; provided that each such new Note shall be issued in an -------- original principal amount in denominations of $1,000 and integral multiples thereof. (c) (i) If either Issuer or any Subsidiary thereof has issued any outstanding (A) Indebtedness that is subordinated in right of payment to the Notes or (B) Preferred Stock, and such Issuer or Subsidiary is required to make a change of control offer or to make a distribution with respect to such subordinated Indebtedness or Preferred Stock in the event of a change of control, the Issuers shall not consummate any such offer or distribution with respect to such subordinated Indebtedness or Preferred Stock until such time as the Issuers shall have paid the Change of Control Purchase Price in full to the Holders of Notes that have accepted the Issuers' Change of Control Offer and shall otherwise have consummated the Change of Control Offer made to Holders of the Notes and (ii) the Issuers will not issue Indebtedness that is subordinated in right of payment to the Notes or Preferred Stock with change of control provisions -63- requiring the payment of such Indebtedness or Preferred Stock prior to the payment of the Notes in the event of a Change in Control under the Indenture. In the event that a Change of Control occurs and the Holders of Notes exercise their right to require the Issuers to purchase Notes, if such purchase constitutes a "tender offer" for purposes of Rule 14e-1 under the Exchange Act at that time, the Issuers will comply with the requirements of Rule 14e-1 as then in effect with respect to such repurchase. Section 4.20. Maintenance of Office or Agency. ------------------------------- The Issuers shall maintain an office or agency where Notes may be surrendered for registration of transfer or exchange or for presentation for payment and where notices and demands to or upon the Issuers in respect of the Notes and this Indenture may be served. The Issuers shall give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Issuers shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the address of the Trustee as set forth in Section 12.02. The Issuers may also from time to time designate one or more other offices or agencies where the Notes may be presented or surrendered for any or all such purposes and may from time to time rescind such designations. The Issuers shall give prompt written notice to the Trustee of such designation or rescission and of any change in the location of any such other office or agency. The Issuers hereby initially designate the Corporate Trust Office of the Trustee set forth in Section 12.02 as such office of the Issuers. Section 4.21. Maintenance of Properties; Insurance; Books and Records; Compliance with Law. ------------------------------------------- (a) The Issuers shall, and shall cause each of their Restricted Subsidiaries to, at all times cause all properties used or useful in the conduct of their business to be maintained and kept in good condition, repair and working order (reasonable wear and tear excepted) and supplied with all necessary equipment, and shall cause to be made all necessary repairs, renewals, replacements, betterments and improvements thereto. -64- (b) The Issuers shall, and shall cause each of their Restricted Subsidiaries to, maintain insurance (which may include self-insurance) in such amounts and covering such risks as are usually and customarily carried with respect to similar facilities according to their respective locations. (c) The Issuers shall, and shall cause each of their Subsidiaries to, keep proper books of record and account, in which full and correct entries shall be made of all financial transactions and the assets and business of the Issuers and each Subsidiary of the Issuers, in accordance with GAAP consistently applied to the Issuers and their Subsidiaries taken as a whole. (d) The Issuers shall and shall cause each of their Subsidiaries to comply with all statutes, laws, ordinances or government rules and regulations to which they are subject, non-compliance with which would materially adversely affect the business, prospects, earnings, properties, assets or financial condition of the Issuers and their Subsidiaries taken as a whole. Section 4.22. Further Assurance to the Trustee. -------------------------------- The Issuers shall, upon the reasonable request of the Trustee, execute and deliver such further instruments and do such further acts as may be reasonably necessary or proper to carry out more effectively the provisions of this Indenture. ARTICLE 5 SUCCESSOR CORPORATION Section 5.01. Limitation on Consolidation, Merger and Sale of Assets. ---------------------------- (a) Neither of the Issuers will, nor will they permit any Guarantor to, consolidate with, merge with or into, or transfer all or substantially all of its assets (as an entirety or substantially as an entirety in one transaction or a series of related transactions), to any Person unless (in the case of the Company or any Guarantor): (i) the Company or such Guarantor, as the case may be, shall be the continuing Person, or the Person (if other than the Company or such Guarantor) formed by such consolidation or into which the Company or such Guarantor, as the case may be, is merged or to which the properties and assets of the Company or such Guarantor, as the case may be, are transferred shall be a corporation (or in the case of the Company or Holdings, a corporation or a limited liability company) -65- organized and existing under the laws of the United States or any State thereof or the District of Columbia and shall expressly assume, by a supplemental indenture, executed and delivered to the Trustee, in form and substance satisfactory to the Trustee, all of the obligations of the Company or such Guarantor, as the case may be, under the Notes and this Indenture, and the obligations under this Indenture shall remain in full force and effect; provided -------- that at any time the Company or its successor is a limited liability company there shall be a co-issuer of the Notes that is a corporation; (ii) immediately before and immediately after giving effect to such transaction, no Default or Event of Default shall have occurred and be continuing; (ii) immediately after giving effect to such transaction or series of transactions on a pro forma basis the Consolidated Net Worth of the Company or the surviving entity as the case may be is at least equal to the Consolidated Net Worth of the Company immediately before such transaction or series of transactions; and (iv) immediately after giving effect to such transaction on a pro forma basis the --- ----- Company or such Person could incur at least $1.00 of additional Indebtedness (other than Permitted Indebtedness) pursuant to Section 4.06 hereof, provided -------- that a Holdings may merge into the Company, the Company may merge into Holdings and Holdings or the Company may merge into BrightView without complying with this clause (iv). (b) In connection with any consolidation, merger or transfer of assets contemplated by this Section 5.01, the Issuers shall deliver, or cause to be delivered, to the Trustee, in form and substance reasonably satisfactory to the Trustee, an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger or transfer and the supplemental indenture in respect thereto comply with this Section 5.01 and that all conditions precedent herein provided for relating to such transaction or transactions have been complied with. Section 5.02. Successor Person Substituted. ---------------------------- Upon any consolidation or merger, or any transfer of all or substantially all of the assets of the Company or any Guarantor in accordance with Section 5.01 above, the successor corporation formed by such consolidation or into which the Company is merged or to which such transfer is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company or such Guarantor under this Indenture with the same effect as if such successor corporation had been named as the Company or such Guarantor herein, and thereafter the predecessor corporation shall be relieved of all obligations and covenants under this Indenture and the Notes. -66- ARTICLE 6 DEFAULTS AND REMEDIES Section 6.01. Events of Default. ----------------- An "Event of Default" occurs if (1) there is a default in the payment of any principal of, or premium, if any, on the Notes when the same becomes due and payable at maturity, upon acceleration, redemption or otherwise, whether or not such payment is prohibited by the provisions of Article 11 hereof; (2) there is a default in the payment of any interest on any Note when the same becomes due and payable and the Default continues for a period of 30 days, whether or not such payment is prohibited by the provisions of Article 11 hereof; (3) either of the Issuers or any Guarantor defaults in the observance or performance of any other covenant in the Notes or this Indenture for 60 days after written notice from the Trustee or the Holders of not less than 25% in the aggregate principal amount of the Notes then outstanding; (4) there is a default in the payment when due of principal, interest or premium in an aggregate amount of $1,000,000 or more with respect to any Indebtedness of either Issuer or any Restricted Subsidiary thereof, or their is an acceleration of any such Indebtedness aggregating $1,000,000 or more which default shall not be cured, waived or postponed pursuant to an agreement with the holders of such Indebtedness within 60 days after written notice by the Trustee or any Holder, or which acceleration shall not be rescinded or annulled within 20 days after written notice to the Issuers of such Default by the Trustee or any Holder; (5) the entry of a final judgment or judgments which can no longer be appealed for the payment of money in excess of $1,000,000 against either of the Issuers or any Restricted Subsidiary thereof and such judgment remains undischarged, for a period of 60 consecutive days during which a stay of enforcement of such judgment shall not be in effect; -67- (6) either of the Issuers or any Restricted Subsidiary pursuant to or within the meaning of any Bankruptcy Law: (A) commences a voluntary case, (B) consents to the entry of an order for relief against it in an involuntary case, (C) consents to the appointment of a Custodian of it or for all or substantially all of its property, (D) makes a general assignment for the benefit of its creditors, or (E) generally is not paying its debts as they become due; or (7) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that: (A) is for relief against either of the Issuers or any Restricted Subsidiary in an involuntary case, (B) appoints a Custodian of either of the Issuers or any Restricted Subsidiary or for all or substantially all of the property of either of the Issuers or any Restricted Subsidiary, or (C) orders the liquidation of either of the Issuers or any Restricted Subsidiary, and the order or decree remains unstayed and in effect for 60 days. The term "Bankruptcy Law" means Title 11, U.S. Code or any similar Federal or state law for the relief of debtors. The term "Custodian" means any receiver, trustee, assignee, liquidator or similar official under any Bankruptcy Law. The Trustee may withhold notice to the Holders of the Notes of any Default (except in payment of principal or premium, if any, or interest on the Notes) if the Trustee considers it to be in the best interest of the Holders of the Notes to do so. The Trustee shall not be charged with knowledge of any Default, Event of Default, Change of Control or Asset Sale in payment of Additional Interest unless written notice thereof shall have been given to a Responsible Officer at the corporate trust office of the Trustee by the Issuers or any other Person. -68- Section 6.02. Acceleration. ------------ If an Event of Default (other than an Event of Default arising under Section 6.01(6) or (7) with respect to either of the Issuers) occurs and is continuing, the Trustee by notice to the Issuers, or the Holders of not less than 25% in aggregate principal amount of the Notes then outstanding may by written notice to the Issuers and the Trustee declare to be immediately due and payable the entire principal amount of all the Notes then outstanding plus accrued but unpaid interest to the date of acceleration and (i) such amounts shall become immediately due and payable or (ii) if there are any amounts outstanding under or in respect of the Senior Credit Facility, such amounts shall become due and payable upon the first to occur of an acceleration of amounts outstanding under or in respect of the Senior Credit Facility or five Business Days after receipt by the Company and the Representative of notice of the acceleration of the Notes; provided, however, that after such acceleration -------- ------- but before a judgment or decree based on such acceleration is obtained by the Trustee, the Holders of a majority in aggregate principal amount of the outstanding Notes may rescind and annul such acceleration and its consequences if all existing Events of Default, other than the nonpayment of accelerated principal, premium, if any, or interest that has become due solely because of the acceleration, have been cured or waived and if the rescission would not conflict with any judgment or decree. No such rescission shall affect any subsequent Default or impair any right consequent thereto. In case an Event of Default specified in Section 6.01(6) or (7) with respect to either of the Issuers occurs, such principal, premium, if any, and interest amount with respect to all of the Notes shall be due and payable immediately without any declaration or other act on the part of the Trustee or the Holders of the Notes. Section 6.03. Other Remedies. -------------- If an Event of Default occurs and is continuing, the Trustee may pursue any available remedy by proceeding at law or in equity to collect the payment of principal of, or premium, if any, and interest on the Notes or to enforce the performance of any provision of the Notes or this Indenture and may take any necessary action requested of it as Trustee to settle, compromise, adjust or otherwise conclude any proceedings to which it is a party. The Trustee may maintain a proceeding even if it does not possess any of the Notes or does not produce any of them in the proceeding. A delay or omission by the Trustee or any -69- Noteholder in exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default. No remedy is exclusive of any other remedy. All available remedies are cumulative. Section 6.04. Waiver of Past Defaults and Events of Default. --------------------------------------------- Subject to Sections 6.02, 6.07 and 8.02 hereof, the Holders of a majority in principal amount of the Notes then outstanding have the right to waive any existing Default or Event of Default or compliance with any provision of this Indenture or the Notes. Upon any such waiver, such Default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other Default or Event of Default or impair any right consequent thereto. Section 6.05. Control by Majority. ------------------- The Holders of a majority in principal amount of the Notes then outstanding may direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on the Trustee by this Indenture. The Trustee, however, may refuse to follow any direction that conflicts with law or this Indenture or that the Trustee determines may be unduly prejudicial to the rights of another Noteholder not taking part in such direction, and the Trustee shall have the right to decline to follow any such direction if the Trustee, being advised by counsel, determines that the action so directed may not lawfully be taken or if the Trustee in good faith shall, by a Responsible Officer, determine that the proceedings so directed may involve it in personal liability; provided that the -------- Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction. Section 6.06. Limitation on Suits. ------------------- Subject to Section 6.07 below, a Noteholder may not institute any proceeding or pursue any remedy with respect to this Indenture or the Notes unless: (1) the Holder gives to the Trustee written notice of a continuing Event of Default; -70- (2) the Holders of at least 25% in aggregate principal amount of the Notes then outstanding make a written request to the Trustee to pursue the remedy; (3) such Holder or Holders offer and if requested provide to the Trustee indemnity reasonably satisfactory to the Trustee against any loss, liability or expense; (4) the Trustee does not comply with the request within 60 days after receipt of the request and the offer, and, if requested provision, of indemnity; and (5) no direction inconsistent with such written request has been given to the Trustee during such 60 day period by the Holders of a majority in aggregate principal amount of the Notes then outstanding. A Noteholder may not use this Indenture to prejudice the rights of another Noteholder or to obtain a preference or priority over another Noteholder. Section 6.07. Rights of Holders to Receive Payment. ------------------------------------ Notwithstanding any other provision of this Indenture, the right of any Holder of a Note to receive payment of principal of, or premium, if any, and interest of the Note (including Additional Interest) on or after the respective due dates expressed in the Note, or to bring suit for the enforcement of any such payment on or after such respective dates, is absolute and unconditional and shall not be impaired or affected without the consent of the Holder. Section 6.08. Collection Suit by Trustee. -------------------------- If an Event of Default in payment of principal, premium or interest specified in Section 6.01(1) or (2) hereof occurs and is continuing, the Trustee may recover judgment in its own name and as trustee of an express trust against the Issuers or the Guarantors (or any other obligor on the Notes) for the whole amount of unpaid principal and accrued interest remaining unpaid, together with interest on overdue principal and, to the extent that payment of such interest is lawful, interest on overdue installments of interest, in each case at the rate set forth in the Notes, and such further amounts as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. -71- Section 6.09. Trustee May File Proofs of Claim. -------------------------------- The Trustee may file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and the Noteholders allowed in any judicial proceedings relative to the Issuers or the Guarantors (or any other obligor upon the Notes), its creditors or its property and shall be entitled and empowered to collect and receive any monies or other property payable or deliverable on any such claims and to distribute the same after deduction of its charges and expenses to the extent that any such charges and expenses are not paid out of the estate in any such proceedings and any custodian in any such judicial proceeding is hereby authorized by each Noteholder to make such payments to the Trustee, and in the event that the Trustee shall consent to the making of such payments directly to the Noteholders, to pay to the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.07 hereof. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Noteholder any plan or reorganization, arrangement, adjustment or composition affecting the Notes or the rights of any Holder thereof, or to authorize the Trustee to vote in respect of the claim of any Noteholder in any such proceedings. Section 6.10. Priorities. ---------- If the Trustee collects any money pursuant to this Article 6, it shall pay out the money in the following order: FIRST: to the Trustee for amounts due under Section 7.07 hereof; SECOND: to Noteholders for amounts due and unpaid on the Notes for principal, premium, if any, and interest (including Additional Interest, if any) as to each, ratably, without preference or priority of any kind, according to the amounts due and payable on the Notes; and THIRD: to the Issuers or, to the extent the Trustee collects any amount from any Guarantor, to such Guarantor. -72- The Trustee may fix a record date and payment date for any payment to Noteholders pursuant to this Section 6.10. Section 6.11. Undertaking for Costs. --------------------- In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as Trustee, a court in its discretion may require the filing by any party litigant in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys' fees, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section 6.11 does not apply to a suit by the Trustee, a suit by a Holder pursuant to Section 6.07 hereof or a suit by Holders of more than 10% in principal amount of the Notes then outstanding. ARTICLE 7 TRUSTEE Section 7.01. Duties of Trustee. ----------------- (a) If an Event of Default actually known to a Responsible Officer of the Trustee has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture and use the same degree of care and skill in their exercise as a prudent man would exercise or use under the same circumstances in the conduct of his own affairs. (b) Except during the continuance of an Event of Default: (1) The Trustee need perform only those duties that are specifically set forth in this Indenture and no others. (2) In the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture but, in the case of any such certificates or opinions which by any provision hereof are specifically required to be furnished to the Trustee, the Trustee shall be under a duty -73- to examine the same to determine whether or not they conform to the requirements of this Indenture (but need not confirm or investigate the accuracy of mathematical calculations or other facts stated therein). (c) The Trustee may not be relieved from liability for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that: (1) This paragraph does not limit the effect of paragraph (b) of this Section 7.01. (2) The Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer, unless it is proved that the Trustee was negligent in ascertaining the pertinent facts. (3) The Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Sections 6.02, 6.05 or 6.06 hereof. (4) No provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its rights, powers or duties if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity satisfactory to it against such risk or liability is not reasonably assured to it. (d) Whether or not therein expressly so provided, paragraphs (a), (b), (c) and (e) of this Section 7.01 shall govern every provision of this Indenture that in any way relates to the Trustee. (e) The Trustee may refuse to perform any duty or exercise any right or power unless it receives indemnity satisfactory to it in its sole discretion against any loss, liability, expense or fee. (f) The Trustee shall not be liable for interest on any money received by it except as the Trustee may agree in writing with the Issuers or any Guarantor. Money held in trust by the Trustee need not be segregated from other funds except to the extent required by the law. -74- Section 7.02. Rights of Trustee. ----------------- Subject to Section 7.01 hereof: (1) The Trustee may rely on any document reasonably believed by it to be genuine and to have been signed or presented by the proper person. The Trustee need not investigate any fact or matter stated in the document. (2) Before the Trustee acts or refrains from acting, it may require an Officers' Certificate or an Opinion of Counsel, or both, which shall conform to the provisions of Section 12.05 hereof. The Trustee shall be protected and shall not be liable for any action it takes or omits to take in good faith in reliance on such certificate or opinion. (3) The Trustee may act through its attorneys and agents and shall not be responsible for the misconduct or negligence of any agent appointed by it with due care. (4) The Trustee shall not be liable for any action it takes or omits to take in good faith which it reasonably believes to be authorized or within its rights or powers. (5) The Trustee may consult with counsel of its selection, and the advice or opinion of such counsel as to matters of law shall be full and complete authorization and protection from liability in respect of any action taken, omitted or suffered by it hereunder in good faith and in accordance with the advice or opinion of such counsel. Section 7.03. Individual Rights of Trustee. ---------------------------- The Trustee in its individual or any other capacity may become the owner or pledgee of Notes and may make loans to, accept deposits from, perform services for or otherwise deal with the either of the Issuers or any Guarantor, or any Affiliates thereof, with the same rights it would have if it were not Trustee. Any Agent may do the same with like rights. The Trustee, however, shall be subject to Sections 7.10 and 7.11 hereof. Section 7.04. Trustee's Disclaimer. -------------------- The Trustee shall not be responsible for and makes no representation as to the validity or adequacy of this Indenture or the Notes or any Guarantee, it shall not be accountable for the Issuers' or any Guarantor's use of the proceeds from the sale -75- of Notes or any money paid to the Issuers or any Guaranty pursuant to the terms of this Indenture and it shall not be responsible for any statement in the Notes, Guarantee or this Indenture other than its certificate of authentication. Section 7.05. Notice of Defaults. ------------------ If a Default occurs and is continuing and if it is known to the Trustee, the Trustee shall mail to each Noteholder notice of the Default within 90 days after it occurs. Except in the case of a Default in payment of the principal of, or premium, if any, or interest on any Note the Trustee may withhold the notice if and so long as a committee of its Responsible Officers in good faith determine(s) that withholding the notice is in the interests of the Noteholders. Section 7.06. Reports by Trustee to Holders. ----------------------------- If required by TIA (S) 313(a), within 60 days after November of any year, commencing November , 1997, the Trustee shall mail to each Noteholder a brief report dated as of such November that complies with TIA (S) 313(a). The Trustee also shall comply with TIA (S) 313(b)(2). The Trustee shall also transmit by mail all reports as required by TIA (S) 313(c) and TIA (S) 313(d). Reports pursuant to this Section 7.06 shall be transmitted by mail: (1) to all registered Holders of Notes, as the names and addresses of such Holders appear on the Registrar's books; and (2) to such Holder of Notes as have, within the two years preceding such transmission, filed their names and addresses with the Trustee for that purpose. A copy of each report at the time of its mailing to Noteholders shall be filed with the SEC and each stock exchange on which the Notes are listed. The Issuers shall promptly notify the Trustee when the Notes are listed on any stock exchange. Section 7.07. Compensation and Indemnity. -------------------------- The Issuers and the Guarantors shall pay to the Trustee and Agents from time to time such compensation as shall be agreed in writing between the Company and the Trustee for its services hereunder (which compensation shall not be limited by any -76- provision of law in regard to the compensation of a trustee of an express trust). The Issuers and the Guarantors shall reimburse the Trustee and Agents upon request for all reasonable disbursements, expenses and advances incurred or made by it in connection with its duties under this Indenture, including the reasonable compensation, disbursements and expenses of the Trustee's agents and counsel. The Issuers and the Guarantors shall indemnify each of the Trustee and any predecessor Trustee for, and hold each of them harmless against, any and all loss, damage, claim, liability or expense, including without limitation taxes (other than taxes based on the income of the Trustee or such Agent) and reasonable attorneys' fees and expenses incurred by each of them in connection with the acceptance or performance of its duties under this Indenture including the reasonable costs and expenses of defending itself against any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder (including, without limitation, settlement costs). The Trustee or Agent shall notify the Issuers and the Guarantors in writing promptly of any claim asserted against the Trustee or Agent for which it may seek indemnity. However, the failure by the Trustee or Agent to so notify the Issuers and the Guarantors shall not relieve the Issuers and Guarantors of their obligations hereunder except to the extent the Issuers and the Guarantors are prejudiced thereby. Notwithstanding the foregoing, the Issuers and the Guarantors need not reimburse the Trustee for any expense or indemnify it against any loss or liability incurred by the Trustee through its negligence or bad faith. To secure the payment obligations of the Issuers and the Guarantors in this Section 7.07, the Trustee shall have a lien prior to the Notes on all money or property held or collected by the Trustee except such money or property held in trust to pay principal of and interest on particular Notes. The obligations of the Issuers and the Guarantors under this Section 7.07 to compensate and indemnify the Trustee, Agents and each predecessor Trustee and to pay or reimburse the Trustee, Agents and each predecessor Trustee for expenses, disbursements and advances shall be joint and several liabilities of the Issuers and each of the Guarantors and shall survive the satisfaction, discharge and termination of this Indenture, including any termination or rejection hereof under any bankruptcy law. When the Trustee incurs expenses or renders services after an Event of Default specified in Section 6.01(6) or (7) hereof occurs, the expenses and the compensation for the services -77- are intended to constitute expenses of administration under any Bankruptcy Law. For purposes of this Section 7.07, the term "Trustee" shall include any trustee appointed pursuant to Article 9. Section 7.08. Replacement of Trustee. ---------------------- The Trustee may resign by so notifying the Issuers and the Guarantors in writing. The Holders of a majority in principal amount of the outstanding Notes may remove the Trustee by notifying the removed Trustee in writing and may appoint a successor Trustee with the Issuers' written consent which consent shall not be unreasonably withheld. The Issuers may remove the Trustee at their election if: (1) the Trustee fails to comply with Section 7.10 hereof; (2) the Trustee is adjudged a bankrupt or an insolvent; (3) a receiver or other public officer takes charge of the Trustee or its property; (4) the Trustee otherwise becomes incapable of acting; or (5) a successor corporation becomes successor Trustee pursuant to Section 7.09 below. If the Trustee resigns or is removed or if a vacancy exists in the office of Trustee for any reason, the Issuers shall promptly appoint a successor Trustee. If a successor Trustee does not take office within 60 days after the retiring Trustee resigns or is removed, the retiring Trustee, the Issuers or the Holders of a majority in principal amount of the outstanding Notes may petition any court of competent jurisdiction for the appointment of a successor Trustee. If the Trustee fails to comply with Section 7.10 hereof, any Noteholder may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. -78- A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Issuers. Immediately following such delivery, the retiring Trustee shall, subject to its rights under Section 7.07 hereof, transfer all property held by it as Trustee to the successor Trustee, the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee under this Indenture. A successor Trustee shall mail notice of its succession to each Noteholder. Notwithstanding replacement of the Trustee pursuant to this Section 7.08, the Issuers obligations under Section 7.07 hereof shall continue for the benefit of the retiring Trustee. Section 7.09. Successor Trustee by Consolidation, Merger, Etc. ------------------------------------------- If the Trustee consolidates with, merges or converts into, or transfers all or substantially all of its corporate trust assets to, another corporation, subject to Section 7.10 hereof, the successor corporation without any further act shall be the successor Trustee. Section 7.10. Eligibility; Disqualification. ----------------------------- This Indenture shall always have a Trustee who satisfies the requirements of TIA (S) 310(a)(1) and (2) in every respect. The Trustee shall have a combined capital and surplus of at least $100,000,000 as set forth in its most recent published annual report of condition. The Trustee shall comply with TIA (S) 310(b), including the provision in (S) 310(b)(1). Section 7.11. Preferential Collection of Claims Against Company. ----------------------------------------- The Trustee shall comply with TIA (S) 311(a), excluding any creditor relationship listed in TIA (S) 311 (b). A Trustee who has resigned or been removed shall be subject to TIA (S) 311(a) to the extent indicated therein. Section 7.12. Paying Agents. ------------- The Issuers shall cause each Paying Agent other than the Trustee to execute and deliver to it and the Trustee an instrument in which such agent shall agree with the Trustee, subject to the provisions of this Section 7.12: (A) that it will hold all sums held by it as agent for the payment of principal of, or premium, if any, or interest -79- on, the Notes (whether such sums have been paid to it by the Issuers or by any obligor on the Notes) in trust for the benefit of Holders of the Notes or the Trustee; (B) that it will at any time during the continuance of any Event of Default, upon written request from the Trustee, deliver to the Trustee all sums so held in trust by it together with a full accounting thereof; and (C) that it will give the Trustee written notice within three (3) Business Days of any failure of the Issuers (or by any obligor on the Notes) in the payment of any installment of the principal of, premium, if any, or interest on, the Notes when the same shall be due and payable. ARTICLE 8 AMENDMENTS, SUPPLEMENTS AND WAIVERS Section 8.01. Without Consent of Holders. -------------------------- The Issuers and the Guarantors, when authorized by a Board Resolution of each of them, and the Trustee may amend, waive or supplement this Indenture or the Notes without notice to or consent of any Noteholder: (1) to comply with Section 5.01 hereof; (2) to provide for uncertificated Notes in addition to or in place of certificated Notes; (3) to comply with any requirements of the SEC under the TIA; (4) to cure any ambiguity, defect or inconsistency, or to make any other change that does not adversely affect the rights of any Noteholder; (5) to make any other change that does not adversely affect the rights of any Noteholders hereunder; or (6) to add a Guarantor. The Trustee is hereby authorized to join with the Issuers and the Guarantors in the execution of any supplemental -80- indenture authorized or permitted by the terms of this Indenture and to make any further appropriate agreements and stipulations which may be therein contained, but the Trustee shall not be obligated to enter into any such supplemental indenture which adversely affects its own rights, duties or immunities under this Indenture. Section 8.02. With Consent of Holders. ----------------------- The Issuers (each when authorized by a Board Resolution), the Guarantors (each when authorized by a Board Resolution) and the Trustee may modify or supplement this Indenture or the Notes with the written consent of the Holders of not less than a majority in aggregate principal amount of the outstanding Notes. The Holders of not less than a majority in aggregate principal amount of the outstanding Notes may waive compliance in a particular instance by the Issuers or Guarantors with any provision of this Indenture or the Notes. Subject to Section 8.04, without the consent of each Noteholder affected, however, an amendment, supplement or waiver, including a waiver pursuant to Section 6.04, may not: (1) reduce the amount of Notes whose Holders must consent to an amendment, supplement or waiver to this Indenture or the Notes; (2) reduce the rate of or change the time for payment of interest on any Note; (3) reduce the principal of or premium on or change the stated maturity of any Note; (4) make any Note payable in money other than that stated in the Note or change the place of payment from New York, New York; (5) change the amount or time of any payment required by the Notes or reduce the premium payable upon any redemption of the Notes in accordance with Section 3.07 hereof, or change the time before which no such redemption may be made; (6) waive a default in the payment of the principal of, or interest on, or redemption payment with respect to, any Note (including any obligation to make a Change of Control Offer or, after the ' obligation to purchase Notes arises thereunder, an Excess Proceeds Offer or modify any of the provisions or definitions with respect to such offers); -81- (7) make any changes in Sections 6.04 or 6.07 hereof or this sentence of Section 8.02; or (8) affect the ranking of the Notes or the Guarantee in a manner adverse to the Holders. After an amendment, supplement or waiver under this Section 8.02 or Section 8.01 becomes effective, the Issuers shall mail to the Holders a notice briefly describing the amendment, supplement or waiver. Upon the written request of the Issuers, accompanied by a Board Resolution authorizing the execution of any such supplemental indenture, and upon the receipt by the Trustee of evidence reasonably satisfactory to the Trustee of the consent of the Noteholders as aforesaid and upon receipt by the Trustee of the documents described in Section 8.06 hereof, the Trustee shall join with the Issuers and the Guarantors in the execution of such supplemental indenture unless such supplemental indenture affects the Trustee's own rights, duties or immunities under this Indenture, in which case the Trustee may, but shall not be obligated to, enter into such supplemental indenture. It shall not be necessary for the consent of the Holders under this Section to approve the particular form of any proposed amendment, supplement or waiver, but it shall be sufficient if such consent approves the substance thereof. Section 8.03. Compliance with Trust Indenture Act. ----------------------------------- Every amendment to or supplement of this Indenture or the Notes shall comply with the TIA as then in effect. Section 8.04. Revocation and Effect of Consents. --------------------------------- Until an amendment, supplement, waiver or other action becomes effective, a consent to it by a Holder of a Note is a continuing consent conclusive and binding upon such Holder and every subsequent Holder of the same Note or portion thereof, and of any Note issued upon the transfer thereof or in exchange therefor or in place thereof, even if notation of the consent is not made on any such Note. Any such Holder or subsequent Holder, however, may revoke the consent as to his Note or portion of a Note, if the Trustee receives the written notice of revocation before the date the amendment, supplement, waiver or other action becomes effective. -82- The Issuers may, but shall not be obligated to, fix a record date for the purpose of determining the Holders entitled to consent to any amendment, supplement, or waiver. If a record date is fixed, then, notwithstanding the preceding paragraph, those Persons who were Holders at such record date (or their duly designated proxies), and only such Persons, shall be entitled to consent to such amendment, supplement, or waiver or to revoke any consent previously given, whether or not such Persons continue to be Holders after such record date. No such consent shall be valid or effective for more than 90 days after such record date unless the consent of the requisite number of Holders has been obtained. After an amendment, supplement, waiver or other action becomes effective, it shall bind every Noteholder, unless it makes a change described in any of clauses (1) through (8) of Section 8.02 hereof. In that case the amendment, supplement, waiver or other action shall bind each Holder of a Note who has consented to it and every subsequent Holder of a Note or portion of a Note that evidences the same debt as the consenting Holder's Note. Section 8.05. Notation on or Exchange of Notes. -------------------------------- If an amendment, supplement, or waiver changes the terms of a Note, the Trustee (in accordance with the specific written direction of the Issuers) shall request the Holder of the Note (in accordance with the specific written direction of the Issuers) to deliver it to the Trustee. In such case, the Trustee shall place an appropriate notation on the Note about the changed terms and return it to the Holder. Alternatively, if the Issuers or the Trustee so determines, the Issuers in exchange for the Note shall issue, the Guarantors shall endorse, and the Trustee shall authenticate a new Note that reflects the changed terms. Failure to make the appropriate notation or issue a new Note shall not affect the validity and effect of such amendment supplement or waiver. Section 8.06. Trustee to Sign Amendments, etc. ------------------------------- The Trustee shall sign any amendment, supplement or waiver authorized pursuant to this Article 8 if the amendment, supplement or waiver does not adversely affect the rights, duties, liabilities or immunities of the Trustee. If it does, the Trustee may, but need not, sign it. In signing or refusing to sign such amendment, supplement or waiver the Trustee shall be entitled to receive and, subject to Section 7.01 hereof, shall be fully protected in relying upon an Officers' Certificate and an -83- Opinion of Counsel stating that such amendment, supplement or waiver is authorized or permitted by this Indenture and is a legal, valid and binding obligation of the Issuers and Guarantors, enforceable against the Issuers and Guarantors in accordance with its terms (subject to customary exceptions). ARTICLE 9 DISCHARGE OF INDENTURE; DEFEASANCE Section 9.01. Discharge of Indenture. ---------------------- The Issuers and the Guarantors may terminate their obligations under the Notes, the Guarantees and this Indenture, except the obligations referred to in the last paragraph of this Section 9.01, if there shall have been cancelled by the Trustee or delivered to the Trustee for cancellation all Notes theretofore authenticated and delivered (other than any Notes that are asserted to have been destroyed, lost or stolen and that shall have been replaced as provided in Section 2.07 hereof) and the Issuers have paid all sums payable by them hereunder or deposited all required sums with the Trustee. After such delivery the Trustee upon Issuer request shall acknowledge in writing the discharge of the Issuers' and the Guarantors' obligations under the Notes, the Guarantees and this Indenture except for those surviving obligations specified below. Notwithstanding the satisfaction and discharge of this Indenture, the obligations of the Issuers in Sections 7.07, 9.05 and 9.06 hereof shall survive. Section 9.02. Legal Defeasance. ---------------- The Issuers may at their option, by Board Resolution of the Board of Directors of each of the Issuers, be discharged from then obligations with respect to the Notes and the Guarantors discharged from their obligations under the Guarantees on the date the conditions set forth in Section 9.04 below are satisfied (hereinafter, "Legal Defeasance"). For this purpose, such Legal Defeasance means that the Issuers shall be deemed to have paid and discharged the entire indebtedness represented by the Notes and to have satisfied all its other obligations under such Notes and this Indenture insofar as such Notes are concerned (and the Trustee, at the expense of the Issuers, shall, subject to -84- Section 9.06 hereof, execute instruments in form and substance reasonably satisfactory to the Trustee and Issuers acknowledging the same), except for the following which shall survive until otherwise terminated or discharged hereunder: (A) the rights of Holders of outstanding Notes to receive solely from the trust funds described in Section 9.04 hereof and as more fully set forth in such Section, payments in respect of the principal of, premium, if any, and interest on such Notes when such payments are due, (B) the Issuers' obligations with respect to such Notes under Sections 2.03, 2.04, 2.05, 2.06, 2.07, 2.08, 2.09 and 4.20 hereof, (C) the rights, powers, trusts, duties, and immunities of the Trustee hereunder (including claims of, or payments to, the Trustee under or pursuant to Section 7.07 hereof) and (D) this Article 9. Subject to compliance with this Article 9, the Issuers may exercise their option under this Section 9.02 with respect to the Notes notwithstanding the prior exercise of its option under Section 9.03 below with respect to the Notes. Section 9.03. Covenant Defeasance. ------------------- At the option of the Issuers, pursuant to a Board Resolution of the Board of Directors of each of the Issuers, the Issuers and the Guarantors shall be released from their respective obligations under Sections 4.02 through 4.19 and Section 4.21 hereof, inclusive, and clause (a)(iii) of Section 5.01 hereof with respect to the outstanding Notes on and after the date the conditions set forth in Section 9.04 hereof are satisfied (hereinafter, "Covenant Defeasance"). For this purpose, such Covenant Defeasance means that the Issuers and the Guarantors may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in any such specified Section or portion thereof, whether directly or indirectly by reason of any reference elsewhere herein to any such specified Section or portion thereof or by reason of any reference in any such specified Section or portion thereof to any other provision herein or in any other document, but the remainder of this Indenture and the Notes shall be unaffected thereby. Section 9.04. Conditions to Defeasance or Covenant Defeasance. ------------------------------------ The following shall be the conditions to application of Section 9.02 or Section 9.03 hereof to the outstanding Notes: (1) the Issuers shall irrevocably have deposited or caused to be deposited with the Trustee (or another trustee satisfying the requirements of Section 7.10 hereof who shall -85- agree to comply with the provisions of this Article 9 applicable to it) as funds in trust for the purpose of making the following payments, specifically pledged as security for, and dedicated solely to, the benefit of the Holders of the Notes, (A) money in an amount, or (B) U.S. Government Obligations which through the scheduled payment of principal and interest in respect thereof in accordance with their terms will provide, not later than the due date of any payment, money in an amount, or (C) a combination thereof, sufficient, in the opinion of a nationally-recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, to pay and discharge, and which shall be applied by the Trustee (or other qualifying trustee) to pay and discharge, the principal of, premium, if any, and accrued interest on the outstanding Notes at the maturity date of such principal, premium, if any, or interest, or on dates for payment and redemption of such principal, premium, if any, and interest selected in accordance with the terms of this Indenture and of the Notes; (2) no Event of Default or Default with respect to the Notes shall have occurred and be continuing on the date of such deposit, or shall have occurred and be continuing at any time during the period ending on the 91st day after the date of such deposit or, if longer, ending on the day following the expiration of the longest preference period under any Bankruptcy Law applicable to the Issuers in respect of such deposit (it being understood that this condition shall not be deemed satisfied until the expiration of such period); (3) such Legal Defeasance or Covenant Defeasance shall not cause the Trustee to have a conflicting interest for purposes of the TIA with respect to any securities of the Company; (4) such Legal Defeasance or Covenant Defeasance shall not result in a breach or violation of, or constitute default under any other agreement or instrument to which the Issuers are a party or by which they are bound; (5) the Issuers shall have delivered to the Trustee an Opinion of Counsel stating that, as a result of such Legal Defeasance or Covenant Defeasance, neither the trust nor the Trustee will be required to register as an investment company under the Investment Company Act of 1940, as amended; -86- (6) in the case of an election under Section 9.02 above, the Issuers shall have delivered to the Trustee an Opinion of Counsel stating that (i) the Issuers have received from, or there has been published by, the Internal Revenue Service a ruling to the effect that or (ii) there has been a change in any applicable Federal income tax law with the effect that, and such opinion shall confirm that, the Holders of the outstanding Notes or persons in their positions will not recognize income, gain or loss for Federal income tax purposes solely as a result of such Legal Defeasance and will be subject to Federal income tax on the same amounts, in the same manner, including as a result of prepayment, and at the same times as would have been the case if such Legal Defeasance had not occurred; (7) in the case of an election under Section 9.03 hereof, the Issuers shall have delivered to the Trustee an Opinion of Counsel to the effect that the Holders of the outstanding Notes will not recognize income, gain or loss for Federal income tax purposes as a result of such Covenant Defeasance and will be subject to Federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred; (8) the Issuers shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent provided for relating to either the Legal Defeasance under Section 9.02 above or the Covenant Defeasance under Section 9.03 hereof (as the case may be) have been complied with; (9) the Issuers shall have delivered to the Trustee an Officers' Certificate stating that the deposit under clause (1) was not made by the Issuers with the intent of defeating, hindering, delaying or defrauding any creditors of the Company or others; (10) the Issuers shall have paid or duly provided for payment under terms mutually satisfactory to the Issuers and the Trustee all amounts then due to the Trustee pursuant to Section 7.07 hereof; and (11) the Issuers shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel (to the extent matters of law are involved), each stating that (x) all conditions precedent herein provided for relating to either the legal defeasance under paragraph 9.02 above or -87- the covenant defeasance under paragraph 9.03 above, as the case may be, have been complied with and (y) if any other Indebtedness of the Issuers shall then be outstanding or committed, such legal defeasance or covenant defeasance will not violate the provisions of the agreements or instruments evidencing such Indebtedness. Section 9.05. Deposited Money and U.S. Government Obligations to Be Held in Trust; Other Miscellaneous Provisions. -------------------------------------- All money and U.S. Government Obligations (including the proceeds thereof) deposited with the Trustee pursuant to Section 9.04 hereof in respect of the outstanding Notes shall be held in trust and applied by the Trustee, in accordance with the provisions of such Notes and this Indenture, to the payment, either directly or through any Paying Agent, to the Holders of such Notes, of all sums due and to become due thereon in respect of principal, premium, if any, and accrued interest, but such money need not be segregated from other funds except to the extent required by law. The Issuers and the Guarantors shall (on a joint and several basis) pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the U.S. Government Obligations deposited pursuant to Section 9.04 hereof or the principal, premium, if any, and interest received in respect thereof other than any such tax, fee or other charge which by law is for the account of the Holders of the outstanding Notes. Anything in this Article 9 to the contrary notwithstanding, the Trustee shall deliver or pay to the Issuers from time to time upon an Issuer Request any money or U.S. Government Obligations held by it as provided in Section 9.04 hereof which, in the opinion of a nationally-recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, are in excess of the amount thereof which would then be required to be deposited to effect an equivalent Legal Defeasance or Covenant Defeasance. Section 9.06. Reinstatement. ------------- If the Trustee or Paying Agent is unable to apply any money or U.S. Government Obligations in accordance with Section 9.01, 9.02 or 9.03 hereof by reason of any legal proceeding or by reason of any order or judgment of any court or -88- governmental authority enjoining, restraining or otherwise prohibiting such application, the Issuers' and each Guarantor's obligations under this Indenture, the Notes and the Guarantees shall be revived and reinstated as though no deposit had occurred pursuant to this Article 9 until such time as the Trustee or Paying Agent is permitted to apply all such money or U.S. Government Obligations in accordance with Section 9.01 hereof; provided, however, that if -------- ------- the Issuers or the Guarantors have made any payment of principal of, premium, if any, or accrued interest on any Notes because of the reinstatement of their obligations, the Issuers or the Guarantors, as the case may be, shall be subrogated to the rights of the Holders of such Notes to receive such payment from the money or U.S. Government Obligations held by the Trustee or Paying Agent. Section 9.07. Moneys Held by Paying Agent. --------------------------- In connection with the satisfaction and discharge of this Indenture, all moneys then held by any Paying Agent under the provisions of this Indenture shall, upon written demand of the Issuers, be paid to the Trustee, or if sufficient moneys have been deposited pursuant to Section 9.01 hereof, to the Issuers upon an Issuer Request (or, if such moneys had been deposited by the Guarantors, to such Guarantors), and thereupon such Paying Agent shall be released from all further liability with respect to such moneys. Section 9.08. Moneys Held by Trustee. ---------------------- Any moneys deposited with the Trustee or any Paying Agent or then held by the Issuers or the Guarantors in trust for the payment of the principal of, or premium, if any, or interest on any Note that are not applied but remain unclaimed by the Holder of such Note for two years after the date upon which the principal of, or premium, if any, or interest on such Note shall have respectively become due and payable shall be repaid to the Issuers (or, if appropriate, the Guarantors) upon an Issuer Request, or if such moneys are then held by the Issuers or the Guarantors in trust, such moneys shall be released from such trust; and the Holder of such Note entitled to receive such payment shall thereafter, as an unsecured general creditor, look only to the Issuers and the Guarantors for the payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money shall thereupon cease; provided, -------- however, that the Trustee or any such Paying Agent, before being required to - ------- make any such repayment, may, at the expense of the Issuers and the Guarantors, either mail to each Noteholder affected, at the address shown in the register of the Notes -89- maintained by the Registrar pursuant to Section 2.03 hereof, or cause to be published once a week for two successive weeks, in a newspaper published in the English language, customarily published each Business Day and of general circulation in the City of New York, New York, a notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such mailing or publication, any unclaimed balance of such moneys then remaining will be repaid to the Issuers. After payment to the Issuers or the Guarantors or the release of any money held in trust by the Issuers or any Guarantors, as the case may be, Noteholders entitled to the money must look only to the Issuers and the Guarantors for payment as general creditors unless applicable abandoned property law designates another person. ARTICLE 10 GUARANTEE OF NOTES Section 10.01. Guarantee. --------- Subject to the provisions of this Article 10, each Guarantor hereby jointly and severally unconditionally guarantees to each Holder and to the Trustee, (i) the due and punctual payment of the principal of, and premium, if any, and interest on each Note, when and as the same shall become due and payable, whether at maturity, by acceleration or otherwise, the due and punctual payment of interest (including Additional Interest) on the overdue principal of, and premium, if any, and interest on the Notes, to the extent lawful, and the due and punctual performance of all other Obligations of the Issuers to the Holders or the Trustee (including without limitation amounts due the Trustee under Section 7.07) all in accordance with the terms of such Note and this Indenture, and (ii) in the case of any extension of time of payment or renewal of any Notes or any of such other Obligations, that the same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, at stated maturity, by acceleration or otherwise. Each Guarantor hereby agrees that its obligations hereunder shall be absolute and unconditional, irrespective of, and shall be unaffected by, any invalidity, irregularity or unenforceability of any such Note or this Indenture, any failure to enforce the provisions of any such Note or this Indenture, any waiver, modification or indulgence granted to the Issuers with respect thereto by the Holder of such Note or the Trustee, or any -90- other circumstances which may otherwise constitute a legal or equitable discharge of a surety or such Guarantor. Each Guarantor hereby waives diligence, presentment, demand for payment, filing of claims with a court in the event of merger or bankruptcy of the Issuers, any right to require a proceeding first against the Issuers, protest or notice with respect to any such Note or the Indebtedness evidenced thereby and all demands whatsoever, and covenants that this Guarantee will not be discharged as to any such Note except by payment in full of the principal thereof, premium if any, and interest thereon and as provided in Section 9.01 hereof. Each Guarantor further agrees that, as between such Guarantor, on the one hand, and the Holders and the Trustee, on the other hand, (i) the maturity of the Obligations guaranteed hereby may be accelerated as provided in Article 6 hereof for the purposes of this Guarantee, notwithstanding any stay, injunction or other prohibition preventing such acceleration in respect of the Obligations guaranteed hereby, and (ii) in the event of any declaration of acceleration of such Obligations as provided in Article 6 hereof, such Obligations (whether or not due and payable) shall forthwith become due and payable by each Guarantor for the purpose of this Guarantee. In addition, without limiting the foregoing provisions, upon the effectiveness of an acceleration under Article 6 hereof, the Trustee shall promptly make a demand for payment on the Notes under the Guarantee provided for in this Article 10 and not discharged. The Guarantee set forth in this Section 10.01 shall not be valid or become obligatory for any purpose with respect to a Note until the certificate of authentication on such Note shall have been signed by or on behalf of the Trustee by its manual signature. Section 10.02. Execution and Delivery of Guarantees. ------------------------------------ To evidence the Guarantee set forth in this Article 10, each Guarantor hereby agrees that a notation of such Guarantee substantially in the form included in Exhibit E hereto shall be placed on each Note authenticated and made available for delivery by the Trustee and that this Guarantee shall be executed on behalf of each Guarantor by the manual or facsimile signature of an Officer of each Guarantor. Each Guarantor hereby agrees that the Guarantee set forth in Section 10.01 shall remain in full force and effect notwithstanding any failure to endorse on each Note a notation of such Guarantee. -91- If an Officer of a Guarantor whose signature is on the Guarantee no longer holds that office at the time the Trustee authenticates the Note on which the Guarantee is endorsed, the Guarantee shall be valid nevertheless. The delivery of any Note by the Trustee, after the authentication thereof hereunder, shall constitute due delivery of the Guarantee set forth in this Indenture on behalf of each Guarantor. Section 10.03. Limitation of Guarantee. ----------------------- The obligations of each Guarantor are limited to the maximum amount as will, after giving effect to all other contingent and fixed liabilities of such Guarantor (including, without limitation, any guarantees of Senior Indebtedness) and after giving effect to any collections from or payments made by or on behalf of any other Guarantor in respect of the obligations of such other Guarantor under its Guarantee or pursuant to its contribution obligations under this Indenture, result in the obligations of such Guarantor under the Guarantee not constituting a fraudulent conveyance or fraudulent transfer under federal or state law. Each Guarantor that makes a payment or distribution under a Guarantee shall be entitled to a contribution from each other Guarantor in a pro rata amount based on the Adjusted Net Assets of each Guarantor. Section 10.04. Additional Guarantors. --------------------- The Issuers covenant and agree that they will cause any Person which becomes obligated to guarantee the Notes, pursuant to the terms of Section 4.14 hereof, to execute a guarantee satisfactory in form and substance to the Trustee pursuant to which such Restricted Subsidiary shall guarantee the obligations of the Issuers under the Notes and this Indenture in accordance with this Article 10 with the same effect and to the same extent as if such Person had been named herein as a Guarantor. Section 10.05. Release of Guarantor. -------------------- A Guarantor shall be released from all of its obligations under its Guarantee if: (i) the Guarantor has sold all or substantially all of its assets or the Company and its Restricted Subsidiaries have sold all of the Capital Stock of the Guarantor owned by them, in each case in a transaction in compliance with Sections 4.10 and 5.01 hereof; or -92- (ii) the Guarantor merges with or into or consolidates with, or transfers all or substantially all of its assets to, the Company or another Guarantor in a transaction in compliance with Section 5.01 hereof; and in each such case, such Guarantor has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent herein provided for relating to such transactions have been complied with. Section 10.06. Guarantee Obligations Subordinated to Guarantor Senior Indebtedness. ---------------------------------- Each Guarantor covenants and agrees, and each Holder of Notes, by its acceptance thereof, likewise covenants and agrees, that to the extent and in the manner hereinafter set forth in this Article 10, the Indebtedness represented by the Guarantee and the payment of the principal of, premium, if any, and interest on the Notes pursuant to the Guarantee by such Guarantor are hereby expressly made subordinate and subject in right of payment as provided in this Article 10 to the prior payment in full in cash of all existing and future Guarantor Senior Indebtedness of such Guarantor. This Section 10.06 and the following Sections 10.07 through 10.11 shall constitute a continuing offer to all Persons who, in reliance upon such provisions, become holders of or continue to hold Guarantor Senior Indebtedness of any Guarantor; and such provisions are made for the benefit of the holders of Guarantor Senior Indebtedness of each Guarantor; and such holders are made obligees hereunder and they or each of them may enforce such provisions. Section 10.07. Payment Over of Proceeds upon Dissolution, etc., of a Guarantor. --------------------------------- In the event of (a) any insolvency or bankruptcy case or proceeding, or any receivership, liquidation, reorganization or other similar case or proceeding in connection therewith, relative to any Guarantor or to its creditors, as such, or to its assets, whether voluntary or involuntary, or (b) any liquidation, dissolution or other winding-up of any Guarantor, whether voluntary or involuntary and whether or not involving insolvency or bankruptcy or (c) any general assignment for the benefit of creditors or any other marshaling of assets or liabilities of any Guarantor (except in connection with the merger or consolidation of the Issuers or its liquidation or dissolution following the transfer of substantially all of its assets, upon the terms and -93- conditions permitted under the circumstances described under Section 5.01), then and in any such event: (1) the holders of all Guarantor Senior Indebtedness of such Guarantor shall be entitled to receive payment in full in cash of all amounts due on or in respect of all such Guarantor Senior Indebtedness before the Holders of the Notes are entitled to receive or retain, pursuant to the Guarantee of such Guarantor, any payment or distribution of any kind or character by such Guarantor on account of any of its Obligations on its Guarantee; and (2) any payment or distribution of assets of such Guarantor of any kind or character, whether in cash, property or securities, by set-off or otherwise, to which the Holders or the Trustee would be entitled but for the subordination provisions of this Article 10 shall be paid by the liquidating trustee or agent or other Person making such payment or distribution, whether a trustee in bankruptcy, a receiver or liquidating trustee or otherwise, directly to the holders of Guarantor Senior Indebtedness of such Guarantor or their representative or representatives or to the trustee or trustees under any indenture under which any instruments evidencing any of such Guarantor Senior Indebtedness may have been issued, ratably according to the aggregate amounts remaining unpaid on account of such Guarantor Senior Indebtedness held or represented by each, to the extent necessary to make payment in full in cash of all such Guarantor Senior Indebtedness remaining unpaid, after giving effect to any concurrent payment or distribution, or provision thereof, to the holders of such Guarantor Senior Indebtedness; and (3) in the event that, notwithstanding the foregoing provisions of this Section 10.07, the Trustee or the Holder of any Note shall have received any payment or distribution of assets of such Guarantor of any kind or character, whether in cash, property or securities, including, without limitation, by way of set-off or otherwise, in respect of any of its Obligations on its Guarantee before all Guarantor Senior Indebtedness of such Guarantor is paid and satisfied in full in cash then in such event such payment or distribution shall be paid over or delivered forthwith to the trustee in bankruptcy, receiver, liquidating trustee, custodian, assignee, agent or other Person making payment or distribution of assets of such Guarantor for application to the payment of all such Guarantor Senior Indebtedness remaining unpaid, to the extent necessary to pay all of such -94- Guarantor Senior Indebtedness in full in cash after giving effect to any concurrent payment or distribution to or for the holders of such Guarantor Senior Indebtedness. The consolidation of a Guarantor with, or the merger of a Guarantor with or into, another Person or the liquidation or dissolution of a Guarantor following the conveyance, transfer or lease of its properties and assets substantially as an entirety to another Person upon the terms and conditions set forth in Article 5 hereof shall not be deemed a dissolution, winding-up, liquidation, reorganization, assignment for the benefit of creditors or marshaling of assets and liabilities of such Guarantor for the purposes of this Article 10 if the Person formed by such consolidation or the surviving entity of such merger or the Person which acquires by conveyance, transfer or lease such properties and assets substantially as an entirety, as the case may be, shall, as a part of such consolidation, merger, conveyance, transfer or lease, comply with the conditions set forth in such Article 5 hereof. Section 10.08. Suspension of Guarantee Obligations When Guarantor Senior Indebtedness in Default. ----------------------------------- (a) Unless Section 10.07 hereof shall be applicable, after the occurrence of a Payment Default no payment or distribution of any assets or securities of a Guarantor (or any Restricted Subsidiary or Subsidiary of such Guarantor) of any kind or character (including, without limitation, cash, property and any payment or distribution which may be payable or deliverable by reason of the payment of any other Indebtedness of such Guarantor being subordinated to its Obligations on its Guarantee) may be made by or on behalf of such Guarantor (or any Restricted Subsidiary or Subsidiary of such Guarantor), including, without limitation, by way of set-off or otherwise, for or on account of its Obligations on its Guarantee, and neither the Trustee nor any holder or owner of any Notes shall take or receive from any Guarantor (or any Restricted Subsidiary or Subsidiary of such Guarantor), directly or indirectly in any manner, payment in respect of all or any portion of its Obligations on its Guarantee following the delivery by the representative of the holders of Guarantor Senior Indebtedness (the "Guarantor Representative") to the Trustee of written notice of the occurrence of a Payment Default, and in any such event, such prohibition shall continue until such Payment Default is cured, waived in writing or ceases to exist. At such time as the prohibition set forth in the preceding sentence shall no longer be in effect, subject to the provisions of the following -95- paragraph (b), such Guarantor shall resume making any and all required payments in respect of its Obligations under its Guarantee. (b) Unless Section 10.07 hereof shall be applicable, upon the occurrence of a Non-Payment Event of Default on Designated Senior Indebtedness, no payment or distribution of any assets of such Guarantor of any kind or character shall be made by such Guarantor, including, without limitation, by way of set-off or otherwise, on account of any of its Obligations on its Guarantee for a period (the "Guarantee Payment Blockage Period") commencing on the date of receipt by the Trustee of written notice from the Guarantor Representative of such Non-Payment Event of Default, unless and until (subject to any blockage of payments that may then be in effect under the preceding paragraph (a)) the earliest to occur of the following events: (w) more than 179 days shall have elapsed since the date of receipt of such written notice by the Trustee, (x) such Non-Payment Event of Default shall have been cured or waived in writing or shall have ceased to exist, (y) such Designated Senior Indebtedness shall have been discharged or paid in full in cash or (z) such Guarantee Payment Blockage Period shall have been terminated by written notice to such Guarantor or the Trustee from the Guarantor Representative initiating such Guarantee Payment Blockage Period, or the holders of at least a majority in principal amount of such issue of Designated Senior Indebtedness, after which, in the case of clause (w), (x), (y) or (z), such Guarantor shall resume making any and all required payments in respect of its Obligations on its Guarantee. Notwithstanding any other provisions of this Indenture, no Non-Payment Event of Default with respect to Designated Senior Indebtedness which existed or was continuing on the date of the commencement of any Guarantee Payment Blockage Period initiated by the Guarantor Representative shall be, or be made, the basis for the commencement of a second Guarantee Payment Blockage Period initiated by the Guarantor Representative unless such event of default shall have been cured or waived for a period of not less than 90 consecutive days. In no event shall a Guarantee Payment Blockage Period extend beyond 179 days from the date of the receipt by the Trustee of the notice referred to in this Section 10.08(b) or, in the event of a Non-Payment Event of Default which formed the basis for a Payment Blockage Period under Section 11.03(b) hereof, 179 days from the date of the receipt by the Trustee of the notice referred to in Section 11.03(b) (the "Initial Guarantee Blockage Period"). Any number of additional Guarantee Payment Blockage Periods may be commenced during the Initial Guarantee Blockage Period; provided, however, that no such additional Guarantee Payment Blockage Period - -------- ------- shall extend -96- beyond the Initial Guarantee Blockage Period. After the expiration of the Initial Guarantee Blockage Period, no Guarantee Payment Blockage Period may be commenced under this Section 10.08(b) and no Payment Blockage Period may be commenced under Section 11.03(b) hereof until at least 180 consecutive days have elapsed from the last day of the Initial Guarantee Blockage Period. (c) In the event that, notwithstanding the foregoing, the Trustee or the Holder of any Note shall have received any payment from a Guarantor prohibited by the foregoing provisions of this Section 10.08, then and in such event such payment shall be paid over and delivered forthwith to the Guarantor Representative initiating the Guarantee Payment Blockage Period, in trust for distribution to the holders of Guarantor Senior Indebtedness or, if no amounts are then due in respect of Guarantor Senior Indebtedness, promptly returned to the Guarantor, or as a court of competent jurisdiction shall direct. Section 10.09. Subrogation to Rights of Holders of Guarantor Senior Indebtedness. -------------------------------- Upon the payment in full of all amounts payable under or in respect of all Guarantor Senior Indebtedness of a Guarantor, the Holders shall be subrogated to the rights of the holders of such Guarantor Senior Indebtedness to receive payments and distributions of cash, property and securities of such Guarantor made on such Guarantor Senior Indebtedness until all amounts due to be paid under the Guarantee shall be paid in full. For the purposes of such subrogation, no payments or distributions to holders of Guarantor Senior Indebtedness of any cash, property or securities to which Holders of the Notes or the Trustee would be entitled except for the provisions of this Article 10, and no payments over pursuant to the provisions of this Article 10 to holders of Guarantor Senior Indebtedness by Holders of the Notes or the Trustee, shall, as among each Guarantor, its creditors other than holders of Guarantor Senior Indebtedness and the Holders of the Notes, be deemed to be a payment or distribution by such Guarantor to or on account of such Guarantor Senior Indebtedness. If any payment or distribution to which the Holders would otherwise have been entitled but for the provisions of this Article 10 shall have been applied, pursuant to the provisions of this Article 10, to the payment of all amounts payable under Guarantor Senior Indebtedness, then and in such case, the Holders shall be entitled to receive from the holders of such Guarantor Senior Indebtedness at the time outstanding any payments or -97- distributions received by such holders of Guarantor Senior Indebtedness in excess of the amount sufficient to pay all amounts payable under or in respect of such Guarantor Senior Indebtedness in full in cash or Cash Equivalents. Section 10.10. Guarantee Subordination Provisions Solely to Define Relative Rights. ---------------------------------- The subordination provisions of this Article 10 are and are intended solely for the purpose of defining the relative rights of the Holders of the Notes on the one hand and the holders of Guarantor Senior Indebtedness on the other hand. Nothing contained in this Article 10 or elsewhere in this Indenture or in the Notes is intended to or shall (a) impair, as among each Guarantor, its creditors other than holders of its Guarantor Senior Indebtedness and the Holders of the Notes, the obligation of such Guarantor, which is absolute and unconditional, to make payments to the Holders in respect of its Obligations on its Guarantee in accordance with its terms; or (b) affect the relative rights against such Guarantor of the Holders of the Notes and creditors of such Guarantor other than the holders of the Guarantor Senior Indebtedness; or (c) prevent the Trustee or the Holder of any Note from exercising all remedies otherwise permitted by applicable law upon a Default or an Event of Default under this Indenture, subject to the rights, if any, under this Article 10 of the holders of Guarantor Senior Indebtedness (1) in any case, proceeding, dissolution, liquidation or other winding-up, assignment for the benefit of creditors or other marshaling of assets and liabilities of the Issuers referred to in Section 10.07 hereof, to receive, pursuant to and in accordance with such Section, cash, property and securities otherwise payable or deliverable to the Trustee or such Holder, or (2) under the conditions specified in Section 10.08 hereof, to prevent any payment prohibited by such Section or enforce their rights pursuant to Section 10.08(c) hereof. The failure by any Guarantor to make a payment in respect of its obligations on its Guarantee by reason of any provision of this Article 10 shall not be construed as preventing the occurrence of a Default or an Event of Default hereunder. Section 10.11. Application of Certain Article 11 Provisions. ---------------------- The provisions of Sections 11.04, 11.07, 11.08, 11.09, 11.10, 11.12 and 11.13 hereof shall apply, mutatis mutandis, to each Guarantor and their ------- -------- respective holders of Guarantor Senior Indebtedness and the rights, duties and obligations set forth -98- therein shall govern the rights, duties and obligations of each Guarantor, the holders of Guarantor Senior Indebtedness, the Holders and the Trustee with respect to the Guarantee and all references therein to Article 11 hereof shall mean this Article 10. ARTICLE 11 SUBORDINATION OF NOTES Section 11.01. Notes Subordinate to Senior Indebtedness. ---------------------------------------- The Issuers covenant and agree, and each Holder of Notes, by its acceptance thereof, likewise covenants and agrees, that, to the extent and in the manner hereinafter set forth in this Article 11, the Indebtedness represented by the Notes and the payment of the principal of, premium, if any, and interest on the Notes are hereby expressly made subordinate and subject in right of payment as provided in this Article 11 to the prior indefeasible payment in full in cash of all existing and future Senior Indebtedness. This Article 11 shall constitute a continuing offer to all Persons who, in reliance upon such provisions, become holders of or continue to hold Senior Indebtedness; and such provisions are made for the benefit of the holders of Senior Indebtedness; and such holders are made obligees hereunder and they or each of them may enforce such provisions. Section 11.02. Payment Over of Proceeds upon Dissolution, etc. ----------------------------- In the event of (a) any insolvency or bankruptcy case or proceeding, or any receivership, liquidation, arrangement, reorganization or other similar case or proceeding in connection therewith, relative to the Issuers or to their creditors, as such, or to its assets, whether voluntary or involuntary or (b) any liquidation, dissolution or other winding-up of the Issuers, whether voluntary or involuntary and whether or not involving insolvency or bankruptcy, or (c) any general assignment for the benefit of creditors or any other marshalling of assets or liabilities of the Issuers, (except in connection with the merger or consolidation of the Issuers or its liquidation or dissolution following the transfer of substantially all of its assets, upon the terms and conditions permitted under the -99- circumstances described under Section 5.01) then and in any such event: (1) the holders of Senior Indebtedness shall be entitled to receive payment in full in cash of all amounts due on or in respect of all Senior Indebtedness before the Holders of the Notes are entitled to receive or retain any payment or distribution of any kind or character on account of principal of, premium, if any, or interest on the Notes; and (2) any payment or distribution of assets of the Issuers of any kind or character, whether in cash, property or securities, by set-off or otherwise, to which the Holders or the Trustee would be entitled but for the provisions of this Article 11 shall be paid by the liquidating trustee or agent or other Person making such payment or distribution, whether a trustee in bankruptcy, a receiver or liquidating trustee or otherwise, directly to the holders of Senior Indebtedness or their representative or representatives or to the trustee or trustees under any indenture under which any instruments evidencing any of such Senior Indebtedness may have been issued, ratably according to the aggregate amounts remaining unpaid on account of the Senior Indebtedness held or represented by each, to the extent necessary to make payment in full in cash of all Senior Indebtedness remaining unpaid, after giving effect to any concurrent payment or distribution, or provision therefor, to the holders of such Senior Indebtedness; and (3) in the event that, notwithstanding the foregoing provisions of this Section 11.02, the Trustee or the Holder of any Note shall have received any payment or distribution of assets of the Issuers of any kind or character, whether in cash, property or securities, including, without limitation, by way of set-off or otherwise, in respect of principal of, premium, if any, and interest on the Notes before all Senior Indebtedness is paid and satisfied in full in cash then in such event such payment or distribution shall be paid over or delivered forthwith to the trustee in bankruptcy, receiver, liquidating trustee, custodian, assignee, agent or other Person making payment or distribution of assets of the Issuers for application to the payment of all Senior Indebtedness remaining unpaid, to the extent necessary to pay all Senior Indebtedness in full in cash after giving effect to any concurrent payment or distribution, or provision therefor, to or for the holders of Senior Indebtedness. -100- The consolidation of the Issuers with, or the merger of the Issuers with or into, another Person or the liquidation or dissolution of the Issuers following the conveyance, transfer or lease of its properties and assets substantially as an entirety to another Person upon the terms and conditions set forth in Article 5 hereof shall not be deemed a dissolution, winding-up, liquidation, reorganization, assignment for the benefit of creditors or marshaling of assets and liabilities of the Issuers for the purposes of this Article 11 if the Person formed by such consolidation or the surviving entity of such merger or the Person which acquires by conveyance, transfer or lease such properties and assets substantially as an entirety, as the case may be, shall, as a part of such consolidation, merger, conveyance, transfer or lease, comply with the conditions set forth in such Article 5 hereof. Section 11.03. Suspension of Payment When Senior Indebtedness in Default. --------------------------------- (a) Unless Section 11.02 hereof shall be applicable, after the occurrence of a Payment Default no payment or distribution of any assets or securities of the Issuers or any Restricted Subsidiary of any kind or character (including, without limitation, cash, property and any payment or distribution which may be payable or deliverable by reason of the payment of any other Indebtedness of the Issuers being subordinated to the payment of the Notes by the Issuers) may be made by or on behalf of the Issuers or any Restricted Subsidiary, including, without limitation, by way of set-off or otherwise, for or on account of principal of, premium, if any, or interest on the Notes, or for or on account of the purchase, redemption or other acquisition of the Notes, and neither the Trustee nor any holder or owner of any Notes shall take or receive from the Issuers or any Restricted Subsidiary, directly or indirectly in any manner, payment in respect of all or any portion of Notes following the delivery by the representative of the holders of Designated Senior Indebtedness (the "Representative") to the Trustee of written notice of the occurrence of a Payment Default, and in any such event, such prohibition shall continue until such Payment Default is cured, waived in writing or ceases to exist. At such time as the prohibition set forth in the preceding sentence shall no longer be in effect, subject to the provisions of the following paragraph (b), the Issuers shall resume making any and all required payments in respect of the Notes, including any missed payments. (b) Unless Section 11.02 hereof shall be applicable, upon the occurrence of a Non-Payment Event of Default on -101- Designated Senior Indebtedness, no payment or distribution of any assets of the Issuers of any kind or character shall be made by the Issuers, including, without limitation, by way of set-off or otherwise, on account of any principal of, premium, if any, or interest on the Notes or on account of the purchase, redemption, defeasance or other acquisition of Notes and neither the Trustee nor any holder or owner of Notes shall take or receive from the issuers or any Restricted Subsidiary, directly or indirectly in any manner, payment in respect of all or any portion of the Notes for a period (a "Payment Blockage Period") commencing on the date of receipt by the Trustee of written notice from the Representative of such Non-Payment Event of Default unless and until (subject to any blockage of payments that may then be in effect under the preceding paragraph (a)) the earliest to occur of the following events: (w) more than 179 days shall have elapsed since the date of receipt of such written notice by the Trustee, (x) such Non-Payment Event of Default shall have been cured or waived in writing or shall have ceased to exist, (y) such Designated Senior Indebtedness shall have been discharged or paid in full in cash or (z) such Payment Blockage Period shall have been terminated by written notice to the Issuers or the Trustee from the Representative initiating such Payment Blockage Period, or the holders of at least a majority in principal amount of such issue of Designated Senior Indebtedness, after which, in the case of clause (w), (x), (y) or (z), the Issuers shall resume making any and all required payments in respect of the Notes, including any missed payments. Notwithstanding any other provisions of this Indenture, no Non-Payment Event of Default with respect to Designated Senior Indebtedness which existed or was continuing on the date of the commencement of any Payment Blockage Period initiated by the Representative shall be, or be made, the basis for the commencement of a second Payment Blockage Period initiated by the Representative unless such event of default shall have been cured or waived for a period of not less than 90 consecutive days. In no event shall a Payment Blockage Period extend beyond 179 days from the date of the receipt by the Trustee of the notice referred to in this Section 11.03(b) (the "Initial Blockage Period"). Any number of additional Payment Blockage Periods may be commenced during the Initial Blockage Period; provided, -------- however, that no such additional Payment Blockage Period shall extend beyond the - ------- Initial Blockage Period. After the expiration of the Initial Blockage Period, no Payment Blockage Period may be commenced under this Section 11.03(b) and no Guarantee Payment Blockage Period may be commenced under Section 10.08(b) hereof until at least 180 consecutive days have elapsed from the last day of the Initial Blockage Period. -102- (c) In the event that, notwithstanding the foregoing, the Trustee or the Holder of any Note shall have received any payment prohibited by the foregoing provisions of this Section 11.03, then and in such event such payment shall be paid over and delivered forthwith to the Representative initiating the Payment Blockage Period, in trust for distribution to the holders of Senior Indebtedness or, if no amounts are then due in respect of Senior Indebtedness, promptly returned to the Issuers, or otherwise as a court of competent jurisdiction shall direct. Section 11.04. Trustee's Relation to Senior Indebtedness. ---------------------------- With respect to the holders of Senior Indebtedness, the Trustee undertakes to perform or to observe only such of its covenants and obligations as are specifically set forth in this Article 11, and no implied covenants or obligations with respect to the holders of Senior Indebtedness shall be read into this Indenture against the Trustee. The Trustee shall not be deemed to owe any fiduciary duty to the holders of Senior Indebtedness and the Trustee shall not be liable to any holder of Senior Indebtedness if it shall mistakenly pay over or deliver to Holders, the Issuers or any other Person moneys or assets to which any holder of Senior Indebtedness shall be entitled by virtue of this Article 11 or otherwise. Section 11.05. Subrogation to Rights of Holders of Senior Indebtedness. -------------------------------- Upon the payment in full of all Senior Indebtedness, the Holders of the Notes shall be subrogated to the rights of the holders of such Senior Indebtedness to receive payments and distributions of cash, property and securities applicable to the Senior Indebtedness until the principal of, premium, if any and interest on the Notes shall be paid in full. For purposes of such subrogation, no payments or distributions to the holders of Senior Indebtedness of any cash, property or securities to which the Holders of the Notes or the Trustee would be entitled except for the provisions of this Article 11, and no payments over pursuant to the provisions of this Article 11 to the holders of Senior Indebtedness by Holders of the Notes or the Trustee, shall, as among the Issuers, their creditors other than holders of Senior Indebtedness and the Holders of the Notes, be deemed to be a payment or distribution by the Issuers to or on account of the Senior Indebtedness. If any payment or distribution to which the Holders would otherwise have been entitled but for the provisions of this -103- Article 11 shall have been applied, pursuant to the provisions of this Article 11, to the payment of all amounts payable under the Senior Indebtedness of the Issuers, then and in such case the Holders shall be entitled to receive from the holders of such Senior Indebtedness at the time outstanding any payments or distributions received by such holders of such Senior Indebtedness in excess of the amount sufficient to pay all amounts payable under or in respect of such Senior Indebtedness in full in cash or Cash Equivalents. Section 11.06. Provisions Solely to Define Relative Rights. ------------------------------------ The provisions of this Article 11 are and are intended solely for the purpose of defining the relative rights of the Holders of the Notes on the one hand and the holders of Senior Indebtedness on the other hand. Nothing contained in this Article or elsewhere in this Indenture or in the Notes is intended to or shall (a) impair, as among the Issuers, their creditors other than holders of Senior Indebtedness and the Holders of the Notes, the obligation of the Issuers, which is absolute and unconditional, to pay to the Holders of the Notes the principal of, premium, if any, and interest on the Notes as and when the same shall become due and payable in accordance with their terms; or (b) affect the relative rights against the Issuers of the Holders of the Notes and creditors of the Issuers other than the holders of Senior Indebtedness; or (c) prevent the Trustee or the Holder of any Note from exercising all remedies otherwise permitted by applicable law upon a Default or an Event of Default under this Indenture, subject to the rights, if any, under this Article 11 of the holders of Senior Indebtedness (1) in any case, proceeding, dissolution, liquidation or other winding-up, assignment for the benefit of creditors or other marshaling of assets and liabilities of the Issuers referred to in Section 11.02 hereof, to receive, pursuant to and in accordance with such Section, cash, property and securities otherwise payable or deliverable to the Trustee or such Holder, or (2) under the conditions specified in Section 11.03, to prevent any payment prohibited by such Section or enforce their rights pursuant to Section 11.03(c) hereof. The failure to make a payment on account of principal of, premium, if any, or interest on the Notes by reason of any provision of this Article 11 shall not be construed as preventing the occurrence of a Default or an Event of Default hereunder. -104- Section 11.07. Trustee to Effectuate Subordination. ----------------------------------- Each Holder of a Note by his acceptance thereof authorizes and directs the Trustee on his behalf to take such action as may be necessary or appropriate to effectuate the subordination provided in this Article and appoints the Trustee his attorney-in-fact for any and all such purposes, including, in the event of any dissolution, winding-up, liquidation or reorganization of the Issuers whether in bankruptcy, insolvency, receivership proceedings, or otherwise, the timely filing of a claim for the unpaid balance of the indebtedness of the Issuers owing to such Holder in the form required in such proceedings and the causing of such claim to be approved. If the Trustee does not file such a claim prior to 30 days before the expiration of the time to file such a claim, the holders of Senior Indebtedness, or any Representative, may file such a claim on behalf of Holders of the Notes. Section 11.08. No Waiver of Subordination Provisions. -------------------------- (a) No right of any present or future holder of any Senior Indebtedness to enforce subordination as herein provided shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of the Issuers or by any act or failure to act, in good faith, by any such holder, or by any non-compliance by the Issuers with the terms, provisions and covenants of this Indenture, regardless of any knowledge thereof any such holder may have or be otherwise charged with. (b) Without limiting the generality of subsection (a) of this Section 11.08, the holders of Senior Indebtedness may, at any time and from time to time, without the consent of or notice to the Trustee or the Holders of the Notes, without incurring responsibility to the Holders of the Notes and without impairing or releasing the subordination provided in this Article 11 or the obligations hereunder of the Holders of the Notes to the holders of Senior Indebtedness, do any one or more of the following: (1) change the manner, place or terms of payment or extend the time of payment of, or renew or alter, Senior Indebtedness or any instrument evidencing the same or any agreement under which Senior Indebtedness is outstanding; (2) sell, exchange, release or otherwise deal with any property pledged, mortgaged or otherwise securing Senior Indebtedness; (3) release any Person liable in any manner for the collection or payment of Senior Indebtedness; and (4) exercise or refrain from exercising any rights against the Issuers and any other Person; provided, however, that in no -------- ------- event shall any such actions limit the right -105- of the Holders of the Notes to take any action to accelerate the maturity of the Notes pursuant to Article 6 hereof or to pursue any rights or remedies hereunder or under applicable laws if the taking of such action does not otherwise violate the terms of this Indenture. Section 11.09. Notice to Trustee. ----------------- (a) The Issuers shall give prompt written notice to the Trustee of any fact known to the Issuers which would prohibit the making of any payment to or by the Trustee at its Corporate Trust Office in respect of the Notes. Notwithstanding the provisions of this Article 11 or any other provision of this Indenture, the Trustee shall not be charged with knowledge of the existence of any facts which would prohibit the making of any payment to or by the Trustee in respect of the Notes, unless and until the Trustee shall have received written notice thereof from the Issuers or a holder of Senior Indebtedness or from any trustee, fiduciary or agent therefor; and, prior to the receipt of any such written notice, the Trustee, subject to the provisions of this Section 11.09, shall be entitled in all respects to assume that no such facts exist; provided, -------- however, that if the Trustee shall not have received the notice provided for in - ------- this Section 11.09 at least five Business Days prior to the date upon which by the terms hereof any money may become payable for any purpose under this Indenture (including, without limitation, the payment of the principal of, premium, if any, or interest on any Note), then, anything herein contained to the contrary notwithstanding but without limiting the rights and remedies of the holders of Senior Indebtedness or any trustee, fiduciary or agent therefor, the Trustee shall have full power and authority to receive such money and to apply the same to the purpose for which such money was received and shall not be affected by any notice to the contrary which may be received by it within five Business Days prior to such date; nor shall the Trustee be charged with knowledge of the curing of any such default or the elimination of the act or condition preventing any such payment unless and until the Trustee shall have received an Officers' Certificate to such effect. (b) Subject to the provisions of Section 7.01 hereof, the Trustee shall be entitled to rely on the delivery to it of a written notice to the Trustee and the Issuers by a Person representing itself to be a holder of Senior Indebtedness (or a trustee, fiduciary or agent therefor) to establish that such notice has been given by a holder of Senior Indebtedness (or a trustee, fiduciary or agent therefor); provided, however, that failure to give such -------- ------- notice to the Issuers shall not affect in -106- any way the ability of the Trustee to rely on such notice. In the event that the Trustee determines in good faith that further evidence is required with respect to the right of any Person as a holder of Senior Indebtedness to participate in any payment or distribution pursuant to this Article 11, the Trustee may request such Person to furnish evidence to the reasonable satisfaction of the Trustee as to the amount of Senior Indebtedness held by such Person, the extent to which such Person is entitled to participate in such payment or distribution and any other facts pertinent to the rights of such Person under this Article 11, and if such evidence is not furnished, the Trustee may defer any payment to such Person pending judicial determination as to the right of such Person to receive such payment. Section 11.10. Reliance on Judicial Order or Certificate of Liquidating Agent. -------------------------------- Upon any payment or distribution of assets of the Issuers referred to in this Article 11, the Trustee, subject to the provisions of Section 7.01 hereof, and the Holders shall be entitled to rely upon any order or decree entered by any court of competent jurisdiction in which such insolvency, bankruptcy, receivership, liquidation, reorganization, dissolution, winding-up or similar case or proceeding is pending, or a certificate of the trustee in bankruptcy, receiver, liquidating trustee, custodian, assignee for the benefit of creditors, agent or other Person making such payment or distribution, delivered to the Trustee or to the Holders, for the purpose of ascertaining the Persons entitled to participate in such payment or distribution, the holders of Senior Indebtedness and other Indebtedness of the Issuers, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article 11; provided that the foregoing shall -------- apply only if such court has been fully apprised of the provisions of this Article 11. Section 11.11. Rights of Trustee as a Holder of Senior Indebtedness; Preservation of Trustee's Rights. --------------------------------- The Trustee in its individual capacity shall be entitled to all the rights set forth in this Article 11 with respect to any Senior Indebtedness which may at any time be held by it, to the same extent as any other holder of Senior Indebtedness, and nothing in this Indenture shall deprive the Trustee of any of its rights as such holder. Nothing in this Article 11 shall apply to claims of, or payments to, the Trustee under or pursuant to Section 7.07 hereof. -107- Section 11.12. Article Applicable to Paying Agents. ----------------------------------- In case at any time any Paying Agent other than the Trustee shall have been appointed by the Issuers and be then acting hereunder, the term "Trustee" as used in this Article 11 shall in such case (unless the context otherwise requires) be construed as extending to and including such Paying Agent within its meaning as fully for all intents and purposes as if such Paying Agent were named in this Article 11 in addition to or in place of the Trustee. Section 11.13. No Suspension of Remedies. ------------------------- Nothing contained in this Article 11 shall limit the right of the Trustee or the Holders of Notes to take any action to accelerate the maturity of the Notes pursuant to Article 6 or to pursue any rights or remedies hereunder or under applicable law, subject to the rights, if any, under this Article 11 of the holders, from time to time, of Senior Indebtedness. ARTICLE 12 MISCELLANEOUS Section 12.01. Trust Indenture Act Controls. ---------------------------- If any provision of this Indenture limits, qualifies or conflicts with another provision which is required to be included in this Indenture by the TIA, the required provision shall control. Section 12.02. Notices. ------- Except for notice or communications to Holders any notice or communication shall be given in writing and delivered in person, sent by facsimile, delivered by commercial courier service or mailed by first-class mail, postage prepaid, addressed as follows: -108- If to the Issuers or any Guarantor: Petersen Publishing Company, L.L.C. 6420 Wilshire Boulevard Los Angeles, California 90048 Attention: Executive Vice President-Chief Financial Officer Fax Number: Copy to: Kirkland & Ellis 200 East Randolph Drive Chicago, Illinois 60601 Attention: John A. Weissenbach, Esq. If to the Trustee: United States Trust Company of New York 114 West 47th Street New York, New York 10036 Attention: Corporate Trust Department Fax Number: (212) 852-1625 Copy to: Kramer, Levin, Naftalis & Frankel 919 Third Avenue New York, New York 10022 Attention: Michele D. Ross Fax Number: (212) 715-8000 Such notices or communications shall be effective when received and shall be sufficiently given if so given within the time prescribed in this Indenture. The Issuers, the Guarantors or the Trustee by written notice to the others may designate additional or different addresses for subsequent notices or communications. -109- Any notice or communication mailed to a Noteholder shall be mailed to him by first-class mail, postage prepaid, at his address shown on the register kept by the Registrar. Failure to mail a notice or communication to a Noteholder or any defect in it shall not affect its sufficiency with respect to other Noteholders. If a notice or communication to a Noteholder is mailed in the manner provided above, it shall be deemed duly given, whether or not the addressee receives it. In case by reason of the suspension of regular mail service, or by reason of any other cause, it shall be impossible to mail any notice as required by this Indenture, then such method of notification as shall be made with the approval of the Trustee shall constitute a sufficient mailing of such notice. Section 12.03. Communications by Holders with Other Holders. -------------------------------------------- Noteholders may communicate pursuant to TIA (S) 312(b) with other Noteholders with respect to their rights under this Indenture or the Notes. The Issuers, the Guarantors, the Trustee, the Registrar and anyone else shall have the protection of TIA (S) 312(c). Section 12.04. Certificate and Opinion as to Conditions Precedent. ---------------------------------------- Upon any request or application by the Issuers or any Guarantor to the Trustee to take any action under this Indenture, the Issuers or such Guarantor shall furnish to the Trustee: (1) an Officers' Certificate (which shall include the statements set forth in Section 12.05 below) stating that, in the opinion of the signers, all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with; and (2) an Opinion of Counsel (which shall include the statements set forth in Section 12.05 below) stating that, in the opinion of such counsel, all such conditions precedent have been complied with. Section 12.05. Statements Required in Certificate and Opinion. ---------------------------------------------- Each certificate and opinion with respect to compliance with a condition or covenant provided for in this Indenture shall include: -110- (1) a statement that the Person making such certificate or opinion has read such covenant or condition; (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (3) a statement that, in the opinion of such Person, it or he has made such examination or investigation as is necessary to enable it or him to express an informed opinion as to whether or not such covenant or condition has been complied with; and (4) a statement as to whether or not, in the opinion of such Person, such covenant or condition has been complied with. Section 12.06. When Treasury Notes Disregarded. ------------------------------- In determining whether the Holders of the required aggregate principal amount of Notes have concurred in any direction, waiver or consent, Notes owned by the Issuers, any Guarantor or any other obligor on the Notes or by any Affiliate of any of them shall be disregarded, except that for the purposes of determining whether the Trustee shall be protected in relying on any such direction, waiver or consent, only Notes as to which a Responsible Officer of the Trustee has received an Officer's Certificate stating that such securities are so owned shall be so disregarded. Notes so owned which have been pledged in good faith shall not be disregarded if the pledgee establishes to the satisfaction of the Trustee the pledgee's right so to act with respect to the Notes and that the pledgee is not an Issuers, a Guarantor or any other obligor upon the Notes or any Affiliate of any of them. Section 12.07. Rules by Trustee and Agents. --------------------------- The Trustee may make reasonable rules for action by or meetings of Noteholders. The Registrar and Paying Agent may make reasonable rules for their functions. Section 12.08. Business Days; Legal Holidays. ----------------------------- A "Business Day" is a day that is not a Legal Holiday. A "Legal Holiday" is a Saturday, a Sunday, a federally-recognized holiday or a day on which banking institutions are not required to be open in the State of New York. If a payment date is a -111- Legal Holiday at a place of payment, payment may be made at that place on the next succeeding day that is not a Legal Holiday, and no interest shall accrue for the intervening period. Section 12.09. Governing Law. ------------- THIS INDENTURE AND THE NOTES SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. EACH OF THE PARTIES HERETO AGREES TO SUBMIT TO THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS INDENTURE OR THE NOTES. Section 12.10. No Adverse Interpretation of Other Agreements. --------------------------------------------- This Indenture may not be used to interpret another indenture, loan, security or debt agreement of the Issuers or any Subsidiary thereof. No such indenture, loan, security or debt agreement may be used to interpret this Indenture. Section 12.11. No Recourse Against Others. -------------------------- No recourse for the payment of the principal of or premium, if any, or interest on any of the Notes, or for any claim based thereon or otherwise in respect thereof, and no recourse under or upon any obligation, covenant or agreement of the Issuers or any Guarantor in this Indenture or in any supplemental indenture, or in any of the Notes, or because of the creation of any Indebtedness represented thereby, shall be had against any stockholder, officer, director or employee, as such, past, present or future, of the Issuers or of any successor corporation or against the property or assets of any such stockholder, officer, employee or director, either directly or through the Issuers or any Guarantor, or any successor corporation thereof, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise; it being expressly understood that this Indenture and the Notes are solely obligations of the Issuers and the Guarantors, and that no such personal liability whatever shall attach to, or is or shall be incurred by, any stockholder, officer, employee or director of the Issuers or any Guarantor, or any successor corporation thereof, because of the creation of the indebtedness hereby authorized, or under or by reason of the obligations, covenants or agreements contained in this Indenture or the Notes or implied therefrom, and that any and all such personal liability of, and any and all claims against every stockholder, officer, employee and director, are hereby expressly -112- waived and released as a condition of, and as a consideration for, the execution of this Indenture and the issuance of the Notes. It is understood that this limitation on recourse is made expressly for the benefit of any such shareholder, employee, officer or director and may be enforced by any of them. Section 12.12. Successors. ---------- All agreements of the Issuers and the Guarantors in this Indenture and the Notes shall bind their respective successors. All agreements of the Trustee, any additional trustee and any Paying Agents in this Indenture shall bind its successor. Section 12.13. Multiple Counterparts. --------------------- The parties may sign multiple counterparts of this Indenture. Each signed counterpart shall be deemed an original, but all of them together represent one and the same agreement. Section 12.14. Table of Contents, Headings, etc. -------------------------------- The table of contents, cross-reference sheet and headings of the Articles and Sections of this Indenture have been inserted for convenience of reference only, are not to be considered a part hereof, and shall in no way modify or restrict any of the terms or provisions hereof. Section 12.15. Separability. ------------ Each provision of this Indenture shall be considered separable and if for any reason any provision which is not essential to the effectuation of the basic purpose of this Indenture or the Notes shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. -113- IN WITNESS WHEREOF, the parties have caused this Indenture to be duly executed all as of the date and year first written above. PETERSEN PUBLISHING COMPANY, L.L.C. By: ____________________________________ Name: Title: ATTEST: _________________________ Name: Title: PETERSEN CAPITAL CORP. By: ____________________________________ Name: Title: ATTEST: _________________________ Name: Title: Guarantor: PETERSEN HOLDINGS, L.L.C. By: ____________________________________ Name: Title: ATTEST: __________________________ Name: Title: -114- UNITED STATES TRUST COMPANY OF NEW YORK as Trustee, By: ____________________________________ Name: Title: ATTEST: ___________________________ Name: Title: EXHIBIT A --------- (FACE OF NOTE) [FORM OF NOTE] THIS NOTE HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS, EXCEPT AS SET FORTH BELOW. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE ACT) OR (B) IT IS AN "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(a)(1), (2), (3) OR (7) UNDER THE ACT) (AN "ACCREDITED INVESTOR") OR (C) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS NOTE IN AN OFFSHORE TRANSACTION, (2) AGREES THAT IT WILL NOT WITHIN THREE YEARS AFTER THE ORIGINAL ISSUANCE OF THIS NOTE RESELL OR OTHERWISE TRANSFER THIS NOTE EXCEPT (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) INSIDE THE UNITED STATES TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE ACT, (C) INSIDE THE UNITED STATES TO AN ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES (OR HAS FURNISHED ON ITS BEHALF BY A U.S. BROKER-DEALER) TO THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THIS NOTE (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE TRUSTEE), (D) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE ACT, (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE ACT (IF AVAILABLE) OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND (3) AGREES THAT IT WILL GIVE TO EACH PERSON TO WHOM THIS NOTE IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THIS NOTE WITHIN THREE YEARS AFTER ORIGINAL ISSUANCE OF THIS NOTE, IF THE PROPOSED TRANSFEREE IS AN ACCREDITED INVESTOR, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE TRUSTEE AND THE COMPANY SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS EITHER OF THEM MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM OR IN A TRANSACTION NOT SUBJECT TO THE REGISTRATION REQUIREMENTS OF THE ACT. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANING GIVEN TO THEM BY REGULATION S UNDER THE ACT. A-1 CUSIP 71 6336AAO Number PETERSEN PUBLISHING COMPANY, L.L.C. PETERSEN CAPITAL CORP. 11 1/8% SENIOR SUBORDINATED NOTE DUE 2006 Petersen Publishing Company, L.L.C., a Delaware limited liability company (the "Company", which term includes any successor corporation) and Petersen Capital Corp., a Delaware corporation (jointly and severally, together with the Company, the "Issuers"), for value received promise to pay to CEDE & CO. or registered assigns the principal sum of ONE HUNDRED MILLION DOLLARS ($100,000,000), on November 15, 2006. Interest Payment Dates: May 15 and November 15, commencing May 15, 1997 Record Dates: May 1 and November 1 This Note shall not be valid or obligatory for any purpose until the certificate of authentication shall have been executed by the Trustee by its manual signature. Reference is made to the further provisions of this Security contained herein, which will for all purposes have the same effect as if set forth at this place. A-2 IN WITNESS WHEREOF, the Issuers have caused this Note to be signed manually or by facsimile by their duly authorized Officers. PETERSEN PUBLISHING COMPANY, L.L.C. By: _____________________________________ By: _____________________________________ PETERSEN CAPITAL CORP. By: _____________________________________ By: _____________________________________ Certificate of Authentication: This is one of the 11 1/8% Senior Subordinated Notes due 2006 referred to in the within-mentioned Indenture Dated: UNITED STATES TRUST COMPANY OF NEW YORK as Trustee, By: ___________________________________ Authorized Signatory A-3 (REVERSE SIDE) PETERSEN PUBLISHING COMPANY, L.L.C. PETERSEN CAPITAL CORP. 11 1/8% SENIOR SUBORDINATED NOTE DUE 2006 1. INTEREST. Petersen Publishing Company, L.L.C., a Delaware limited liability company (the "Company") and Petersen Capital Corp., a Delaware corporation, jointly and severally (and together with the Company, the "Issuers"), promise to pay interest on the principal amount of this Note semiannually on May 15 and November 15 of each year (each an "Interest Payment Date"), commencing on May 15, 1997, at the rate of 11 1/8% per annum. Interest will be computed on the basis of a 360-day year of twelve 30-day months. Interest on the Notes will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the date of the original issuance of the Notes. The Issuers shall pay interest on overdue principal, and on overdue premium, if any, and overdue interest, to the extent lawful, at the rate equal to 2% per annum in excess of the rate borne by the Notes. 2. METHOD OF PAYMENT. The Issuers will pay interest on this Note provided for in Paragraph 1 above (except defaulted interest) to the person who is the registered Holder of this Note at the close of business on the May 1 or November 1 preceding the Interest Payment Date (whether or not such day is a Business Day). The Holder must surrender this Note to a Paying Agent to collect principal payments. The Issuers will pay principal, premium, if any, and interest in money of the United States that at the time of payment is legal tender for payment of public and private debts; provided, however, that the Issuers may pay principal, premium, -------- ------- if any, and interest by check payable in such money. They may mail an interest check to the Holder's registered address. 3. PAYING AGENT AND REGISTRAR. Initially, United States Trust Company of New York (the "Trustee") will act as Paying Agent and Registrar. The Issuers may change any Paying Agent or Registrar without notice to the Holders of the Notes. Neither the Issuers nor any of their Subsidiaries or Affiliates may act as Paying Agent but may act as Registrar. A-4 4. INDENTURE; RESTRICTIVE COVENANTS. The Issuers issued this Note under an Indenture dated as of November 15, 1996 (the "Indenture") among the Issuers, the Guarantors and the Trustee. The terms of this Note include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S. Code (S)(S) 77aaa-77bbbb) as in effect on the date of the Indenture. This Note is subject to all such terms, and the Holder of this Note is referred to the Indenture and said Trust Indenture Act for a statement of them. All capitalized terms in this Note, unless otherwise defined, have the meanings assigned to them by the Indenture. The Notes are general unsecured obligations of the Issuers limited to $100,000,000 aggregate principal amount. The Indenture imposes certain restrictions on, among other things, the incurrence of indebtedness, the incurrence of liens and the issuance of capital stock by subsidiaries of the Issuers, mergers and sale of assets, the payments of dividends on, or the repurchase of, capital stock of the Issuers and their subsidiaries, certain other restricted payments by the Issuers and their subsidiaries, certain transactions with, and investments in, their affiliates, certain sale and lease- back transactions and a provision regarding change-of-control transactions. 5. SUBORDINATION. The Indebtedness evidenced by the Notes is, to the extent and in the manner provided in the Indenture, subordinated and subject in right of payment to the prior payment in full of all Senior Indebtedness as defined in the Indenture, and this Note is issued subject to such provisions. Each Holder of this Note, by accepting the same, (a) agrees to and shall be bound by such provisions, (b) authorizes and directs the Trustee, on behalf of such Holder, to take such action as may be necessary or appropriate to effectuate the subordination as provided in the Indenture and (c) appoints the Trustee attorney-in-fact of such Holder for such purpose; provided, however, that the -------- ------- Indebtedness evidenced by this Note shall cease to be so subordinate and subject in right of payment upon any defeasance of this Note referred to in Paragraph 18 below. 6. OPTIONAL REDEMPTION. The Issuers, at their option, may redeem the Notes, in whole or in part, at any time on or after November 15, 2001 upon not less than 30 nor more than 60 days' notice, at the redemption prices (expressed as percentages of principal amount), set forth below, plus accrued and unpaid interest to the Redemption Date, if redeemed during the twelve month period beginning on November 15 of each year listed below: A-5
Year Redemption Price ---- ---------------- 2001 ...................................... 105.563% 2002 ...................................... 103.708% 2003 ...................................... 101.854% 2004 and thereafter ....................... 100.000%
Notwithstanding the foregoing, the Issuers may redeem in the aggregate up to 25% of the original principal amount of Notes at any time and from time to time prior to November 15, 1999 at a redemption price equal to 111.125% of the aggregate principal amount so redeemed, plus accrued interest to the Redemption Date out of the Net Proceeds of one or more Public Equity Offerings; provided -------- that at least $75,000,000 of the principal amount of Notes originally issued remain outstanding immediately after the occurrence of any such redemption and that any such redemption occurs within 90 days following the closing of any such Public Equity Offering. 7. NOTICE OF REDEMPTION. Notice of redemption will be mailed via first class mail at least 30 days but not more than 60 days prior to the redemption date to each Holder of Notes to be redeemed at its registered address as it shall appear on the register of the Notes maintained by the Registrar. On and after any Redemption Date, interest will cease to accrue on the Notes or portions thereof called for redemption unless the Issuers shall fail to redeem any such Note. 8. OFFERS TO PURCHASE. The Indenture requires that certain proceeds from Asset Sales be used, subject to further limitations contained therein, to make an offer to purchase certain amounts of Notes in accordance with the procedures set forth in the Indenture. The Issuers are also required to make an offer to purchase Notes upon the occurrence of a Change of Control in accordance with procedures set forth in the Indenture. 9. REGISTRATION RIGHTS. Pursuant to the Registration Rights Agreement among the Issuers, the Guarantors and First Union Capital Markets Corp. and CIBC Wood Gundy Securities Corp., as initial purchasers of the Notes, the Issuers and the Guarantors will be obligated to consummate an exchange offer pursuant to which the Holder of this Note shall have the right to exchange this Note for Notes of a separate series issued under the Indenture (or a trust indenture substantially identical to the Indenture in accordance with the terms of the Registration Rights Agreement) which have been registered under the Securities Act, in like principal amount and having substantially identical terms as the Notes. The Holders shall be entitled to receive certain additional interest payments in the event such exchange offer is not consummated and upon A-6 certain other conditions, all pursuant to and in accordance with the terms of the Registration Rights Agreement. 10. DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in registered form without coupons in denominations of $1,000 and integral multiples thereof. A Holder may register the transfer or exchange of Notes in accordance with the Indenture. The Registrar may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and to pay any taxes and fees required by law or permitted by the Indenture. The Registrar need not register the transfer of or exchange any Note selected for redemption or register the transfer of or exchange any Note for a period of 15 days before the mailing of notice of redemption of Notes to be redeemed or any Note after it is called for redemption in whole or in part, except the unredeemed portion of any Note being redeemed in part. 11. PERSONS DEEMED OWNERS. The registered Holder of this Note may be treated as the owner of it for all purposes. 12. UNCLAIMED MONEY. If money for the payment of principal, premium or interest on any Note remains unclaimed for two years, the Trustee or Paying Agent will pay the money back to the Issuers at their written request. After that, Holders entitled to money must look to the Issuers for payment as general creditors unless an "abandoned property" law designates another person. 13. AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain exceptions, the Indenture or the Notes may be modified, amended or supplemented by the Issuers, the Guarantors and the Trustee with the consent of the Holders of at least a majority in principal amount of the Notes then outstanding and any existing default or compliance with any provision may be waived in a particular instance with the consent of the Holders of a majority in principal amount of the Notes then outstanding. Without the consent of Holders, the Issuers, the Guarantors and the Trustee may amend the Indenture or the Notes or supplement the Indenture for certain specified purposes including providing for uncertificated Notes in addition to certificated Notes, and curing any ambiguity, defect or inconsistency, or making any other change that does not materially and adversely affect the rights of any Holder. 14. SUCCESSOR ENTITY. When a successor corporation assumes all the obligations of its predecessor under the Notes and the Indenture and immediately before and thereafter no Default exists and A-7 certain other conditions are satisfied, the predecessor corporation will be released from those obligations. 15. DEFAULTS AND REMEDIES. Events of Default are set forth in the Indenture. If an Event of Default (other than an Event of Default pursuant to Section 6.01(6) or (7) of the Indenture with respect to either of the Issuers) occurs and is continuing, the Trustee by notice to the Issuers, or the Holders of not less than 25% in aggregate principal amount of the Notes then outstanding, may declare to be immediately due and payable the entire principal amount of all the Notes then outstanding plus accrued but unpaid interest to the date of acceleration; provided, however, that after such acceleration but before judgement or decree - -------- ------- based on such acceleration is obtained by the Trustee, the Holders of a majority in aggregate principal amount of the outstanding Notes may, under certain circumstances, rescind and annul such acceleration and its consequences if all existing Events of Default, other than the nonpayment of principal, premium or interest that has become due solely because of the acceleration, have been cured or waived and if the rescission would not conflict with any judgment or decree. No such rescission shall affect any subsequent Default or impair any right consequent thereto. In case an Event of Default specified in Section 6.01(6) or (7) of the Indenture with respect to either of the Issuers occurs, such principal amount, together with premium, if any, and interest with respect to all of the Notes, shall be due and payable immediately without any declaration or other act on the part of the Trustee or the Holders of the Notes. 16. TRUSTEE DEALINGS WITH THE ISSUERS The Trustee under the Indenture, in its individual or any other capacity, may make loans to, accept deposits from, and perform services for the Issuers, any Guarantor or their Affiliates, and may otherwise deal with the Issuers any Guarantor or their Affiliates, as if it were not Trustee. 17. NO RECOURSE AGAINST OTHERS. As more fully described in the Indenture, a director, officer, employee or stockholder, as such, of the Issuers or any Guarantor shall not have any liability for any obligations of the Issuers or any Guarantor under the Notes or the Indenture or for any claim based on, in respect or by reason of, such obligations or their creation. The Holder of this Note by accepting this Note waives and releases all such liability. The waiver and release are part of the consideration for the issuance of this Note. 18. DEFEASANCE AND COVENANT DEFEASANCE. The Indenture contains provisions for defeasance of the entire indebtedness on this Note and for defeasance of certain A-8 covenants in the Indenture upon compliance by the Issuers with certain conditions set forth in the Indenture. 19. ABBREVIATIONS. Customary abbreviations may be used in the name of a Holder of a Note or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (Uniform Gifts to Minors Act). 20. CUSIP NUMBERS. Pursuant to a recommendation promulgated by the Committee on Uniform Note Identification Procedures, the Issuers have caused CUSIP Numbers to be printed on the Notes and has directed the Trustee to use CUSIP numbers in notices of redemption as a convenience to Holders of the Notes. No representation is made as to the accuracy of such numbers either as printed on the Notes or as contained in any notice of redemption and reliance may be placed only on the other identification numbers placed thereon. 21. GOVERNING LAW. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. EACH OF THE PARTIES HERETO AGREES TO SUBMIT TO THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS NOTE. THE ISSUERS WILL FURNISH TO ANY HOLDER OF A NOTE UPON WRITTEN REQUEST AND WITHOUT CHARGE A COPY OF THE INDENTURE. REQUESTS MAY BE MADE TO: PETERSEN PUBLISHING COMPANY, L.L.C., 6420 Wilshire Boulevard, Los Angeles, California 90048, Attention: Executive Vice President - Chief Financial Officer. 22. GUARANTEE. The Note is initially entitled to the benefits of the Guarantee of the Guarantors whose signature appears on the notation endorsed on this Note and may thereafter be entitled to certain other Guarantees made for the benefit of the Holders. Upon the terms and subject to the conditions set forth in the Indenture, each Guarantor has jointly and severally with any other Guarantor, unconditionally guaranteed on a senior basis that the principal of, and premium, if any, interest and Additional Interest, if any, on and any additional amounts, if any, with respect to the Notes will be duly and punctually paid in full when due, whether at maturity, by acceleration or otherwise, and interest on overdue principal, premium, if any, and (to the extent permitted by law) interest on any interest or Additional Interest, if any, on the Notes and all other A-9 Obligations of the Issuers to the Holders or the Trustee under the Notes or the Indenture (including fees, expenses or other Obligations) will be promptly paid in full or performed. A Guarantor shall be released from the Guarantee upon the terms and subject to the conditions set forth in the Indenture. Reference is hereby made to Article 10 of the Indenture and to Exhibit A to the Indenture for the terms of the Guarantee. A-10 ASSIGNMENT I or we assign and transfer this Note to: (Insert assignee's social security or tax I.D. number) ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ (Print or type name, address and zip code of assignee) and irrevocably appoint: ________________________________________________________________________________ ________________________________________________________________________________ Agent to transfer this Note on the books of the Company. The Agent may substitute another to act for him. [Check One] --------- [ ] (a) this Note is being transferred in compliance with the exemption from registration under the Securities Act provided by Rule 144A thereunder. or -- [ ] (b) this Note is being transferred other than in accordance with (a) above and documents are being furnished which comply with the conditions of transfer set forth in this Note and the Indenture. If none of the foregoing boxes is checked, the Trustee or Registrar shall not be obligated to register this Note in the name of any person other than the Holder hereof unless and until the conditions to any such transfer of registration set forth herein and in Section 2.15 of the Indenture shall have been satisfied. -2- Date: ____________________ Your Signature: ______________________________ ______________________________________________ (Sign exactly as your name appears on the other side of this Note) Signature Guarantee: ______________________________________________ TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED The undersigned represents and warrants that it is purchasing this Note for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a "qualified institutional buyer" within the meaning of Rule 144A under the Securities Act and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Company as the undersigned has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon the undersigned's foregoing representations in order to claim the exemption from registration provided by Rule 144A. Dated: __________________ ____________________________ NOTICE: To be executed by an executive officer NOTATION ON NOTE RELATING TO GUARANTEE Petersen Holdings, L.L.C. (the "Guarantor", which term includes any successor Person under the Indenture) has unconditionally guaranteed, on a senior subordinated basis, jointly and severally with any future Guarantors, to the extent set forth in the Indenture and subject to the provisions of the Indenture, (a) the due and punctual payment of the principal of and interest on the Notes, whether at maturity, by acceleration or otherwise, the due and punctual payment of interest on overdue principal, and, to the extent permitted by law, interest, and the due and punctual performance of all other Obligations of the Issuers to the Noteholders or the Trustee all in accordance with the terms set forth in Article 10 of the Indenture, and (b) in case of any extension of time of payment or renewal of any Notes or any of such other Obligations, that the same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise. The obligations of the Guarantor to the Noteholders and to the Trustee pursuant to this Guarantee and the Indenture are expressly set forth in Article 10 of the Indenture and reference is hereby made to the Indenture for the precise terms of this Guarantee. This Guarantee shall not be valid or obligatory for any purpose until the certificate of authentication on the Note upon which this Guarantee is noted shall have been executed by the Trustee under the Indenture by the manual signature of one of its authorized signatories. Guarantor: Petersen Holdings, L.L.C. By: ___________________________________________ Name: Title: OPTION OF HOLDER TO ELECT PURCHASE If you want to elect to have all or any part of this Note purchased by the Company pursuant to Section 4.10 or Section 4.19 of the Indenture, check the appropriate box: [_] Section 4.10 [_] Section 4.19 If you want to have only part of the Note purchased by the pursuant to Section 4.10 or Section 4.19 of the Indenture, state the amount you elect to have purchased: $_________________ Date: ____________ Your Signature: _________________________________________________ (Sign exactly as your name appears on the face of this Note) ___________________________ Signature Guaranteed EXHIBIT B --------- (FACE OF NOTE) [FORM OF NOTE] THIS NOTE HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS, EXCEPT AS SET FORTH BELOW. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE ACT) OR (B) IT IS AN "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(a)(1), (2), (3) OR (7) UNDER THE ACT) (AN "ACCREDITED INVESTOR") OR (C) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS NOTE IN AN OFFSHORE TRANSACTION, (2) AGREES THAT IT WILL NOT WITHIN THREE YEARS AFTER THE ORIGINAL ISSUANCE OF THIS NOTE RESELL OR OTHERWISE TRANSFER THIS NOTE EXCEPT (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) INSIDE THE UNITED STATES TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE ACT, (C) INSIDE THE UNITED STATES TO AN ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES (OR HAS FURNISHED ON ITS BEHALF BY A U.S. BROKER-DEALER) TO THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THIS NOTE (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE TRUSTEE), (D) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE ACT, (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE ACT (IF AVAILABLE) OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND (3) AGREES THAT IT WILL GIVE TO EACH PERSON TO WHOM THIS NOTE IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THIS NOTE WITHIN THREE YEARS AFTER ORIGINAL ISSUANCE OF THIS NOTE, IF THE PROPOSED TRANSFEREE IS AN ACCREDITED INVESTOR, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE TRUSTEE AND THE COMPANY SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS EITHER OF THEM MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM OR IN A TRANSACTION NOT SUBJECT TO THE REGISTRATION REQUIREMENTS OF THE ACT. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANING GIVEN TO THEM BY REGULATION S UNDER THE ACT. B-1 CUSIP UO4393AA9 Number PETERSEN PUBLISHING COMPANY, L.L.C. PETERSEN CAPITAL CORP. 11 1/8% SENIOR SUBORDINATED NOTE DUE 2006 Petersen Publishing Company, L.L.C., a Delaware limited liability company (the "Company", which term includes any successor corporation) and Petersen Capital Corp., a Delaware corporation (jointly and severally, together with the Company, the "Issuers"), for value received promise to pay to CEDE & CO. or registered assigns the principal sum of NO DOLLARS ($0), on November 15, 2006. Interest Payment Dates: May 15 and November 15, commencing May 15, 1997 Record Dates: May 1 and November 1 This Note shall not be valid or obligatory for any purpose until the certificate of authentication shall have been executed by the Trustee by its manual signature. Reference is made to the further provisions of this Security contained herein, which will for all purposes have the same effect as if set forth at this place. B-2 IN WITNESS WHEREOF, the Issuers have caused this Note to be signed manually or by facsimile by their duly authorized Officers. PETERSEN PUBLISHING COMPANY, L.L.C. By: _______________________________________ By: _______________________________________ PETERSEN CAPITAL CORP. By: _______________________________________ By: _______________________________________ Certificate of Authentication: This is one of the 11 1/8% Senior Subordinated Notes due 2006 referred to in the within-mentioned Indenture Dated: UNITED STATES TRUST COMPANY OF NEW YORK as Trustee, By: ___________________________________ Authorized Signatory B-3 (REVERSE SIDE) PETERSEN PUBLISHING COMPANY, L.L.C. PETERSEN CAPITAL CORP. 11 1/8% SENIOR SUBORDINATED NOTE DUE 2006 1. INTEREST. Petersen Publishing Company, L.L.C., a Delaware limited liability company (the "Company") and Petersen Capital Corp., a Delaware corporation, jointly and severally (and together with the Company, the "Issuers"), promise to pay interest on the principal amount of this Note semiannually on May 15 and November 15 of each year (each an "Interest Payment Date"), commencing on May 15, 1997, at the rate of 11 1/8% per annum. Interest will be computed on the basis of a 360-day year of twelve 30-day months. Interest on the Notes will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the date of the original issuance of the Notes. The Issuers shall pay interest on overdue principal, and on overdue premium, if any, and overdue interest, to the extent lawful, at the rate equal to 2% per annum in excess of the rate borne by the Notes. 2. METHOD OF PAYMENT. The Issuers will pay interest on this Note provided for in Paragraph 1 above (except defaulted interest) to the person who is the registered Holder of this Note at the close of business on the May 1 or November 1 preceding the Interest Payment Date (whether or not such day is a Business Day). The Holder must surrender this Note to a Paying Agent to collect principal payments. The Issuers will pay principal, premium, if any, and interest in money of the United States that at the time of payment is legal tender for payment of public and private debts; provided, however, that the Issuers may pay principal, premium, -------- ------- if any, and interest by check payable in such money. They may mail an interest check to the Holder's registered address. 3. PAYING AGENT AND REGISTRAR. Initially, United States Trust Company of New York (the "Trustee") will act as Paying Agent and Registrar. The Issuers may change any Paying Agent or Registrar without notice to the Holders of the Notes. Neither the Issuers nor any of their Subsidiaries or Affiliates may act as Paying Agent but may act as Registrar. B-4 4. INDENTURE; RESTRICTIVE COVENANTS. The Issuers issued this Note under an Indenture dated as of November 15, 1996 (the "Indenture") among the Issuers, the Guarantors and the Trustee. The terms of this Note include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S. Code (S)(S) 77aaa-77bbbb) as in effect on the date of the Indenture. This Note is subject to all such terms, and the Holder of this Note is referred to the Indenture and said Trust Indenture Act for a statement of them. All capitalized terms in this Note, unless otherwise defined, have the meanings assigned to them by the Indenture. The Notes are general unsecured obligations of the Issuers limited to $100,000,000 aggregate principal amount. The Indenture imposes certain restrictions on, among other things, the incurrence of indebtedness, the incurrence of liens and the issuance of capital stock by subsidiaries of the Issuers, mergers and sale of assets, the payments of dividends on, or the repurchase of, capital stock of the Issuers and their subsidiaries, certain other restricted payments by the Issuers and their subsidiaries, certain transactions with, and investments in, their affiliates, certain sale and lease- back transactions and a provision regarding change-of-control transactions. 5. SUBORDINATION. The Indebtedness evidenced by the Notes is, to the extent and in the manner provided in the Indenture, subordinated and subject in right of payment to the prior payment in full of all Senior Indebtedness as defined in the Indenture, and this Note is issued subject to such provisions. Each Holder of this Note, by accepting the same, (a) agrees to and shall be bound by such provisions, (b) authorizes and directs the Trustee, on behalf of such Holder, to take such action as may be necessary or appropriate to effectuate the subordination as provided in the Indenture and (c) appoints the Trustee attorney-in-fact of such Holder for such purpose; provided, however, that the -------- ------- Indebtedness evidenced by this Note shall cease to be so subordinate and subject in right of payment upon any defeasance of this Note referred to in Paragraph 18 below. 6. OPTIONAL REDEMPTION. The Issuers, at their option, may redeem the Notes, in whole or in part, at any time on or after November 15, 2001 upon not less than 30 nor more than 60 days' notice, at the redemption prices (expressed as percentages of principal amount), set forth below, plus accrued and unpaid interest to the Redemption Date, if redeemed during the twelve month period beginning on November 15 of each year listed below: B-5
Year Redemption Price ---- ---------------- 2001 .................................. 105.563% 2002 .................................. 103.708% 2003 .................................. 101.854% 2004 and thereafter ................... 100.000%
Notwithstanding the foregoing, the Issuers may redeem in the aggregate up to 25% of the original principal amount of Notes at any time and from time to time prior to November 15, 1999 at a redemption price equal to 111.125% of the aggregate principal amount so redeemed, plus accrued interest to the Redemption Date out of the Net Proceeds of one or more Public Equity Offerings; provided -------- that at least $75,000,000 of the principal amount of Notes originally issued remain outstanding immediately after the occurrence of any such redemption and that any such redemption occurs within 90 days following the closing of any such Public Equity Offering. 7. NOTICE OF REDEMPTION. Notice of redemption will be mailed via first class mail at least 30 days but not more than 60 days prior to the redemption date to each Holder of Notes to be redeemed at its registered address as it shall appear on the register of the Notes maintained by the Registrar. On and after any Redemption Date, interest will cease to accrue on the Notes or portions thereof called for redemption unless the Issuers shall fail to redeem any such Note. 8. OFFERS TO PURCHASE. The Indenture requires that certain proceeds from Asset Sales be used, subject to further limitations contained therein, to make an offer to purchase certain amounts of Notes in accordance with the procedures set forth in the Indenture. The Issuers are also required to make an offer to purchase Notes upon the occurrence of a Change of Control in accordance with procedures set forth in the Indenture. 9. REGISTRATION RIGHTS. Pursuant to the Registration Rights Agreement among the Issuers, the Guarantors and First Union Capital Markets Corp. and CIBC Wood Gundy Securities Corp., as initial purchasers of the Notes, the Issuers and the Guarantors will be obligated to consummate an exchange offer pursuant to which the Holder of this Note shall have the right to exchange this Note for Notes of a separate series issued under the Indenture (or a trust indenture substantially identical to the Indenture in accordance with the terms of the Registration Rights Agreement) which have been registered under the Securities Act, in like principal amount and having substantially identical terms as the Notes. The Holders shall be entitled to receive certain additional interest payments in the event such exchange offer is not consummated and upon B-6 certain other conditions, all pursuant to and in accordance with the terms of the Registration Rights Agreement. 10. DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in registered form without coupons in denominations of $1,000 and integral multiples thereof. A Holder may register the transfer or exchange of Notes in accordance with the Indenture. The Registrar may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and to pay any taxes and fees required by law or permitted by the Indenture. The Registrar need not register the transfer of or exchange any Note selected for redemption or register the transfer of or exchange any Note for a period of 15 days before the mailing of notice of redemption of Notes to be redeemed or any Note after it is called for redemption in whole or in part, except the unredeemed portion of any Note being redeemed in part. 11. PERSONS DEEMED OWNERS. The registered Holder of this Note may be treated as the owner of it for all purposes. 12. UNCLAIMED MONEY. If money for the payment of principal, premium or interest on any Note remains unclaimed for two years, the Trustee or Paying Agent will pay the money back to the Issuers at their written request. After that, Holders entitled to money must look to the Issuers for payment as general creditors unless an "abandoned property" law designates another person. 13. AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain exceptions, the Indenture or the Notes may be modified, amended or supplemented by the Issuers, the Guarantors and the Trustee with the consent of the Holders of at least a majority in principal amount of the Notes then outstanding and any existing default or compliance with any provision may be waived in a particular instance with the consent of the Holders of a majority in principal amount of the Notes then outstanding. Without the consent of Holders, the Issuers, the Guarantors and the Trustee may amend the Indenture or the Notes or supplement the Indenture for certain specified purposes including providing for uncertificated Notes in addition to certificated Notes, and curing any ambiguity, defect or inconsistency, or making any other change that does not materially and adversely affect the rights of any Holder. 14. SUCCESSOR ENTITY. When a successor corporation assumes all the obligations of its predecessor under the Notes and the Indenture and immediately before and thereafter no Default exists and B-7 certain other conditions are satisfied, the predecessor corporation will be released from those obligations. 15. DEFAULTS AND REMEDIES. Events of Default are set forth in the Indenture. If an Event of Default (other than an Event of Default pursuant to Section 6.01(6) or (7) of the Indenture with respect to either of the Issuers) occurs and is continuing, the Trustee by notice to the Issuers, or the Holders of not less than 25% in aggregate principal amount of the Notes then outstanding, may declare to be immediately due and payable the entire principal amount of all the Notes then outstanding plus accrued but unpaid interest to the date of acceleration; provided, however, that after such acceleration but before judgement or decree - -------- ------- based on such acceleration is obtained by the Trustee, the Holders of a majority in aggregate principal amount of the outstanding Notes may, under certain circumstances, rescind and annul such acceleration and its consequences if all existing Events of Default, other than the nonpayment of principal, premium or interest that has become due solely because of the acceleration, have been cured or waived and if the rescission would not conflict with any judgment or decree. No such rescission shall affect any subsequent Default or impair any right consequent thereto. In case an Event of Default specified in Section 6.01(6) or (7) of the Indenture with respect to either of the Issuers occurs, such principal amount, together with premium, if any, and interest with respect to all of the Notes, shall be due and payable immediately without any declaration or other act on the part of the Trustee or the Holders of the Notes. 16. TRUSTEE DEALINGS WITH THE ISSUERS The Trustee under the Indenture, in its individual or any other capacity, may make loans to, accept deposits from, and perform services for the Issuers, any Guarantor or their Affiliates, and may otherwise deal with the Issuers any Guarantor or their Affiliates, as if it were not Trustee. 17. NO RECOURSE AGAINST OTHERS. As more fully described in the Indenture, a director, officer, employee or stockholder, as such, of the Issuers or any Guarantor shall not have any liability for any obligations of the Issuers or any Guarantor under the Notes or the Indenture or for any claim based on, in respect or by reason of, such obligations or their creation. The Holder of this Note by accepting this Note waives and releases all such liability. The waiver and release are part of the consideration for the issuance of this Note. 18. DEFEASANCE AND COVENANT DEFEASANCE. The Indenture contains provisions for defeasance of the entire indebtedness on this Note and for defeasance of certain B-8 covenants in the Indenture upon compliance by the Issuers with certain conditions set forth in the Indenture. 19. ABBREVIATIONS. Customary abbreviations may be used in the name of a Holder of a Note or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (Uniform Gifts to Minors Act). 20. CUSIP NUMBERS. Pursuant to a recommendation promulgated by the Committee on Uniform Note Identification Procedures, the Issuers have caused CUSIP Numbers to be printed on the Notes and has directed the Trustee to use CUSIP numbers in notices of redemption as a convenience to Holders of the Notes. No representation is made as to the accuracy of such numbers either as printed on the Notes or as contained in any notice of redemption and reliance may be placed only on the other identification numbers placed thereon. 21. GOVERNING LAW. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. EACH OF THE PARTIES HERETO AGREES TO SUBMIT TO THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS NOTE. THE ISSUERS WILL FURNISH TO ANY HOLDER OF A NOTE UPON WRITTEN REQUEST AND WITHOUT CHARGE A COPY OF THE INDENTURE. REQUESTS MAY BE MADE TO: PETERSEN PUBLISHING COMPANY, L.L.C., 6420 Wilshire Boulevard, Los Angeles, California 90048, Attention: Executive Vice President - Chief Financial Officer. 22. GUARANTEE. The Note is initially entitled to the benefits of the Guarantee of the Guarantors whose signature appears on the notation endorsed on this Note and may thereafter be entitled to certain other Guarantees made for the benefit of the Holders. Upon the terms and subject to the conditions set forth in the Indenture, each Guarantor has jointly and severally with any other Guarantor, unconditionally guaranteed on a senior basis that the principal of, and premium, if any, interest and Additional Interest, if any, on and any additional amounts, if any, with respect to the Notes will be duly and punctually paid in full when due, whether at maturity, by acceleration or otherwise, and interest on overdue principal, premium, if any, and (to the extent permitted by law) interest on any interest or Additional Interest, if any, on the Notes and all other B-9 Obligations of the Issuers to the Holders or the Trustee under the Notes or the Indenture (including fees, expenses or other Obligations) will be promptly paid in full or performed. A Guarantor shall be released from the Guarantee upon the terms and subject to the conditions set forth in the Indenture. Reference is hereby made to Article 10 of the Indenture and to Exhibit A to the Indenture for the terms of the Guarantee. B-10 ASSIGNMENT I or we assign and transfer this Note to: (Insert assignee's social security or tax I.D. number) ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ (Print or type name, address and zip code of assignee) and irrevocably appoint: ________________________________________________________________________________ ________________________________________________________________________________ Agent to transfer this Note on the books of the Company. The Agent may substitute another to act for him. [Check One] --------- [ ] (a) this Note is being transferred in compliance with the exemption from registration under the Securities Act provided by Rule 144A thereunder. or -- [ ] (b) this Note is being transferred other than in accordance with (a) above and documents are being furnished which comply with the conditions of transfer set forth in this Note and the Indenture. If none of the foregoing boxes is checked, the Trustee or Registrar shall not be obligated to register this Note in the name of any person other than the Holder hereof unless and until the conditions to any such transfer of registration set forth herein and in Section 2.15 of the Indenture shall have been satisfied. -2- Date: ____________________ Your Signature: ________________________________ ________________________________________________ (Sign exactly as your name appears on the other side of this Note) Signature Guarantee: ________________________________________________ TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED The undersigned represents and warrants that it is purchasing this Note for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a "qualified institutional buyer" within the meaning of Rule 144A under the Securities Act and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Company as the undersigned has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon the undersigned's foregoing representations in order to claim the exemption from registration provided by Rule 144A. Dated: __________________ ____________________________ NOTICE: To be executed by an executive officer NOTATION ON NOTE RELATING TO GUARANTEE Petersen Holdings, L.L.C. (the "Guarantor", which term includes any successor Person under the Indenture) has unconditionally guaranteed, on a senior subordinated basis, jointly and severally with any future Guarantors, to the extent set forth in the Indenture and subject to the provisions of the Indenture, (a) the due and punctual payment of the principal of and interest on the Notes, whether at maturity, by acceleration or otherwise, the due and punctual payment of interest on overdue principal, and, to the extent permitted by law, interest, and the due and punctual performance of all other Obligations of the Issuers to the Noteholders or the Trustee all in accordance with the terms set forth in Article 10 of the Indenture, and (b) in case of any extension of time of payment or renewal of any Notes or any of such other Obligations, that the same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise. The obligations of the Guarantor to the Noteholders and to the Trustee pursuant to this Guarantee and the Indenture are expressly set forth in Article 10 of the Indenture and reference is hereby made to the Indenture for the precise terms of this Guarantee. This Guarantee shall not be valid or obligatory for any purpose until the certificate of authentication on the Note upon which this Guarantee is noted shall have been executed by the Trustee under the Indenture by the manual signature of one of its authorized signatories. Guarantor: Petersen Holdings, L.L.C. By: __________________________________________________ Name: Title: OPTION OF HOLDER TO ELECT PURCHASE If you want to elect to have all or any part of this Note purchased by the Company pursuant to Section 4.10 or Section 4.19 of the Indenture, check the appropriate box: [_] Section 4.10 [_] Section 4.19 If you want to have only part of the Note purchased by the pursuant to Section 4.10 or Section 4.19 of the Indenture, state the amount you elect to have purchased: $_________________ Date: ____________ Your Signature: _______________________________________________ (Sign exactly as your name appears on the face of this Note) ___________________________ Signature Guaranteed EXHIBIT C --------- FORM OF LEGEND FOR GLOBAL NOTES Any Global Note authenticated and delivered hereunder shall bear a legend (which would be in addition to any other legends required in the case of a Restricted Security) in substantially the following form: THIS NOTE IS A GLOBAL NOTE WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITORY OR A NOMINEE OF A DEPOSITORY. THIS NOTE IS NOT EXCHANGEABLE FOR NOTES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE DEPOSITORY OR ITS NOMINEE EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE, AND NO TRANSFER OF THIS NOTE (OTHER THAN A TRANSFER OF THIS NOTE AS A WHOLE BY THE DEPOSITORY TO A NOMINEE OF THE DEPOSITORY OR BY A NOMINEE OF THE DEPOSITORY TO THE DEPOSITORY OR ANOTHER NOMINEE OF THE DEPOSITORY) MAY BE REGISTERED EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (A NEW YORK CORPORATION) ("DTC") TO THE ISSUERS OR THEIR AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. C-1 EXHIBIT D --------- Form of Certificate to Be Delivered in Connection with Transfers to Non-QIB Accredited Investors ----------------------------------------- ___________, ____ United States Trust Company of New York Attention: Corporate Trust Department Re: Petersen Publishing Company, L.L.C. and Petersen Capital Corp. (the "Issuers") 11 1/8% Senior Subordinated Notes due 2006 (the "Notes") -------------------------------------- Dear Sirs: In connection with our proposed purchase of $_______ aggregate principal amount of the Notes, we confirm that: 1. We understand that any subsequent transfer of the Notes is subject to certain restrictions and conditions set forth in the Indenture dated as of November 15, 1996 relating to the Notes and the undersigned agrees to be bound by, and not to resell, pledge or otherwise transfer the Securities except in compliance with, such restrictions and conditions and the Securities Act of 1933, as amended (the "Securities Act"). 2. We understand that the Notes have not been registered under the Securities Act, and that the Notes may not be offered or sold except as permitted in the following sentence. We agree, on our own behalf and on behalf of any accounts for which we are acting as hereinafter stated, that if we should sell any Notes within three years after the original issuance of the Notes, we will do so only (A) to the Issuers or any subsidiary thereof, (B) inside the United States in compliance with Rule 144A under the Securities Act, to a "qualified institutional buyer" (as defined in Rule 144A), (C) inside the United States to an "accredited investor" (as defined below) that, prior to such transfer, furnishes to you a signed letter substantially in the form of this letter, (D) outside the United States to a foreign person in compliance with Rule 904 of Regulation S under the Securities Act, (E) pursuant to the exemption from registration provided by Rule 144 under the Securities Act (if available), or (F) pursuant to an effective registration statement under the Securities Act, and we further agree to D-1 provide to any person purchasing any of the Notes from us a notice advising such purchaser that resales of the Notes are restricted as stated herein. 3. We understand that, on any proposed resale of any Notes, we will be required to furnish to you and the Issuers such certifications, legal opinions and other information as you and the Issuers may reasonably require to confirm that the proposed sale complies with the foregoing restrictions. We further understand that the Notes purchased by us will bear a legend to the foregoing effect. 4. We are an "accredited investor" (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act) and have such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of our investment in the Notes, and we and any accounts for which we are acting are each able to bear the economic risk of our or its investment. 5. We are acquiring the Notes purchased by us for our own account or for one or more accounts (each of which is an institutional "accredited investor") as to each of which we exercise sole investment discretion. You and the Issuers are entitled to rely upon this letter and are irrevocably authorized to produce this letter or a copy hereof to any interested party in any administrative or legal proceedings or official inquiry with respect to the matters covered hereby. Very truly yours, [Name of Transferee] By: _____________________________________ Authorized Signature D-2 EXHIBIT E --------- Form of Certificate to Be Delivered in Connection with Transfers Pursuant to Regulation S ----------------------------------- ______________, ____ United States Trust Company of New York 114 West 47th Street New York, New York 10036 ] Attention: Corporate Trust Department Re: Petersen Publishing Company, L.L.C. and Petersen Capital Corp. (the "Issuers") 11 1/8% Senior Subordinated Notes due 2006 (the "Notes") -------------------------------------- Dear Sirs: In connection with our proposed sale of $___________ aggregate principal amount of the Notes, we confirm that such sale has been effected pursuant to and in accordance with Regulation S under the U.S. Securities Act of 1933, as amended (the "Securities Act"), and, accordingly, we represent that: (1) the offer of the Notes was not made to a person in the United States; (2) either (a) at the time the buy offer was originated, the transferee was outside the United States or we and any person acting on our behalf reasonably believed that the transferee was outside the United States, or (b) the transaction was executed in, on or through the facilities of a designated off-shore securities market and neither we nor any person acting on our behalf knows that the transaction has been pre- arranged with a buyer in the United States; (3) no directed selling efforts have been made in the United States in contravention of the requirements of Rule 903(b) or Rule 904(b) of Regulation S, as applicable; (4) the transaction is not part of a plan or scheme to evade the registration requirements of the Securities Act; and E-1 (5) we have advised the transferee of the transfer restrictions applicable to the Notes. You and the Issuers are entitled to rely upon this letter and are irrevocably authorized to produce this letter or a copy hereof to any interested party in any administrative or legal proceedings or official inquiry with respect to the matters covered hereby. Terms used in this certificate have the meanings set forth in Regulation S. Very truly yours, [Name of Transferor] By: ________________________________________ Authorized Signature E-2 EX-4.2 9 NOTE EXHIBIT 4.2 NOTE THIS NOTE HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS, EXCEPT AS SET FORTH BELOW. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE ACT) OR (B) IT IS AN "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(a)(1), (2), (3) OR (7) UNDER THE ACT) (AN "ACCREDITED INVESTOR") OR (C) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS NOTE IN AN OFFSHORE TRANSACTION, (2) AGREES THAT IT WILL NOT WITHIN THREE YEARS AFTER THE ORIGINAL ISSUANCE OF THIS NOTE RESELL OR OTHERWISE TRANSFER THIS NOTE EXCEPT (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) INSIDE THE UNITED STATES TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE ACT, (C) INSIDE THE UNITED STATES TO AN ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES (OR HAS FURNISHED ON ITS BEHALF BY A U.S. BROKER-DEALER) TO THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THIS NOTE (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE TRUSTEE), (D) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE ACT, (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE ACT (IF AVAILABLE) OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND (3) AGREES THAT IT WILL GIVE TO EACH PERSON TO WHOM THIS NOTE IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THIS NOTE WITHIN THREE YEARS AFTER ORIGINAL ISSUANCE OF THIS NOTE, IF THE PROPOSED TRANSFEREE IS AN ACCREDITED INVESTOR, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE TRUSTEE AND THE COMPANY SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS EITHER OF THEM MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM OR IN A TRANSACTION NOT SUBJECT TO THE REGISTRATION REQUIREMENTS OF THE ACT. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANING GIVEN TO THEM BY REGULATION S UNDER THE ACT. THIS NOTE IS A GLOBAL NOTE WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITORY OR A NOMINEE OF A DEPOSITORY. THIS NOTE IS NOT EXCHANGEABLE FOR NOTES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE DEPOSITORY OR ITS NOMINEE EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE, AND NO TRANSFER OF THIS NOTE (OTHER THAN A TRANSFER OF THIS NOTE AS A WHOLE BY THE DEPOSITORY TO A NOMINEE OF THE DEPOSITORY OR BY A NOMINEE OF THE DEPOSITORY TO THE DEPOSITORY OR ANOTHER NOMINEE OF THE DEPOSITORY) MAY BE REGISTERED EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (A NEW YORK CORPORATION) ("DTC") TO THE ISSUERS OR THEIR AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. CUSIP 71 6336AAO Number 001 PETERSEN PUBLISHING COMPANY, L.L.C. PETERSEN CAPITAL CORP. 11 1/8% SENIOR SUBORDINATED NOTE DUE 2006 Petersen Publishing Company, L.L.C., a Delaware limited liability company (the "Company", which term includes any successor corporation) and Petersen Capital Corp., a Delaware corporation (jointly and severally, together with the Company, the "Issuers"), for value received promise to pay to CEDE & CO. or registered assigns the principal sum of ONE HUNDRED MILLION DOLLARS ($100,000,000), on November 15, 2006. Interest Payment Dates: May 15 and November 15, commencing May 15, 1997 Record Dates: May 1 and November 1 This Note shall not be valid or obligatory for any purpose until the certificate of authentication shall have been executed by the Trustee by its manual signature. Reference is made to the further provisions of this Security contained herein, which will for all purposes have the same effect as if set forth at this place. IN WITNESS WHEREOF, the Issuers have caused this Note to be signed manually or by facsimile by their duly authorized Officers. PETERSEN PUBLISHING COMPANY, L.L.C. By: _________________________________________ Neal Vitale President/Chief Operating Officer By: _________________________________________ Richard Willis Chief Financial Officer PETERSEN CAPITAL CORP. By: _________________________________________ Neal Vitale Vice President By: _________________________________________ Richard Willis Chief Financial Officer Certificate of Authentication: This is one of the 11 1/8% Senior Subordinated Notes due 2006 referred to in the within-mentioned Indenture Dated: UNITED STATES TRUST COMPANY OF NEW YORK as Trustee, By: ___________________________________ Authorized Signatory (REVERSE SIDE) PETERSEN PUBLISHING COMPANY, L.L.C. PETERSEN CAPITAL CORP. 11 1/8% SENIOR SUBORDINATED NOTE DUE 2006 1. INTEREST. Petersen Publishing Company, L.L.C., a Delaware limited liability company (the "Company") and Petersen Capital Corp., a Delaware corporation (jointly and severally) and together with the Company, the "Issuers"), promise to pay interest on the principal amount of this Note semiannually on May 15 and November 15 of each year (each an "Interest Payment Date"), commencing on May 15, 1997, at the rate of 11 1/8% per annum. Interest will be computed on the basis of a 360-day year of twelve 30-day months. Interest on the Notes will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the date of the original issuance of the Notes. The Issuers shall pay interest on overdue principal, and on overdue premium, if any, and overdue interest, to the extent lawful, at the rate equal to 2% per annum in excess of the rate borne by the Notes. 2. METHOD OF PAYMENT. The Issuers will pay interest on this Note provided for in Paragraph 1 above (except defaulted interest) to the person who is the registered Holder of this Note at the close of business on the May 1 or November 1 preceding the Interest Payment Date (whether or not such day is a Business Day). The Holder must surrender this Note to a Paying Agent to collect principal payments. The Issuers will pay principal, premium, if any, and interest in money of the United States that at the time of payment is legal tender for payment of public and private debts; provided, however, that the Issuers may pay principal, premium, -------- ------- if any, and interest by check payable in such money. They may mail an interest check to the Holder's registered address. 3. PAYING AGENT AND REGISTRAR. Initially, United States Trust Company of New York (the "Trustee") will act as Paying Agent and Registrar. The Issuers may change any Paying Agent or Registrar without notice to the Holders of the Notes. Neither the Issuers nor any of their Subsidiaries or Affiliates may act as Paying Agent but may act as Registrar. 4. INDENTURE; RESTRICTIVE COVENANTS. The Issuers issued this Note under an Indenture dated as of November 15, 1996 (the "Indenture") among the Issuers, the Guarantors and the Trustee. The terms of this Note include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S. Code (S)(S) 77aaa-77bbbb) as in effect on the date of the Indenture. This Note is subject to all such terms, and the Holder of this Note is referred to the Indenture and said Trust Indenture Act for a statement of them. All capitalized terms in this Note, unless otherwise defined, have the meanings assigned to them by the Indenture. The Notes are general unsecured obligations of the Issuers limited to $100,000,000 aggregate principal amount. The Indenture imposes certain restrictions on, among other things, the incurrence of indebtedness, the incurrence of liens and the issuance of capital stock by subsidiaries of the Issuers, mergers and sale of assets, the payments of dividends on, or the repurchase of, capital stock of the Issuers and their subsidiaries, certain other restricted payments by the Issuers and their subsidiaries, certain transactions with, and investments in, their affiliates, certain sale and lease- back transactions and a provision regarding change-of-control transactions. 5. SUBORDINATION. The Indebtedness evidenced by the Notes is, to the extent and in the manner provided in the Indenture, subordinated and subject in right of payment to the prior payment in full of all Senior Indebtedness as defined in the Indenture, and this Note is issued subject to such provisions. Each Holder of this Note, by accepting the same, (a) agrees to and shall be bound by such provisions, (b) authorizes and directs the Trustee, on behalf of such Holder, to take such action as may be necessary or appropriate to effectuate the subordination as provided in the Indenture and (c) appoints the Trustee attorney-in-fact of such Holder for such purpose; provided, however, that the -------- ------- Indebtedness evidenced by this Note shall cease to be so subordinate and subject in right of payment upon any defeasance of this Note referred to in Paragraph 18 below. 6. OPTIONAL REDEMPTION. The Issuers, at their option, may redeem the Notes, in whole or in part, at any time on or after November 15, 2001 upon not less than 30 nor more than 60 days' notice, at the redemption prices (expressed as percentages of principal amount), set forth below, plus accrued and unpaid interest to the Redemption Date, if redeemed during the twelve month period beginning on November 15 of each year listed below:
Year Redemption Price ---- ---------------- 2001...................................... 105.563% 2002...................................... 103.708% 2003...................................... 101.854% 2004 and thereafter....................... 100.000%
Notwithstanding the foregoing, the Issuers may redeem in the aggregate up to 25% of the original principal amount of Notes at any time and from time to time prior to November 15, 1999 at a redemption price equal to 111.125% of the aggregate principal amount so redeemed, plus accrued interest to the Redemption Date out of the Net Proceeds of one or more Public Equity Offerings; provided -------- that at least $75,000,000 of the principal amount of Notes originally issued remain outstanding immediately after the occurrence of any such redemption and that any such redemption occurs within 90 days following the closing of any such Public Equity Offering. 7. NOTICE OF REDEMPTION. Notice of redemption will be mailed via first class mail at least 30 days but not more than 60 days prior to the redemption date to each Holder of Notes to be redeemed at its registered address as it shall appear on the register of the Notes maintained by the Registrar. On and after any Redemption Date, interest will cease to accrue on the Notes or portions thereof called for redemption unless the Issuers shall fail to redeem any such Note. 8. OFFERS TO PURCHASE. The Indenture requires that certain proceeds from Asset Sales be used, subject to further limitations contained therein, to make an offer to purchase certain amounts of Notes in accordance with the procedures set forth in the Indenture. The Issuers are also required to make an offer to purchase Notes upon the occurrence of a Change of Control in accordance with procedures set forth in the Indenture. 9. REGISTRATION RIGHTS. Pursuant to the Registration Rights Agreement among the Issuers, the Guarantors and First Union Capital Markets Corp. and CIBC Wood Gundy Securities Corp., as initial purchasers of the Notes, the Issuers and the Guarantors will be obligated to consummate an exchange offer pursuant to which the Holder of this Note shall have the right to exchange this Note for Notes of a separate series issued under the Indenture (or a trust indenture substantially identical to the Indenture in accordance with the terms of the Registration Rights Agreement) which have been registered under the Securities Act, in like principal amount and having substantially identical terms as the Notes. The Holders shall be entitled to receive certain additional interest payments in the event such exchange offer is not consummated and upon certain other conditions, all pursuant to and in accordance with the terms of the Registration Rights Agreement. 10. DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in registered form without coupons in denominations of $1,000 and integral multiples thereof. A Holder may register the transfer or exchange of Notes in accordance with the Indenture. The Registrar may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and to pay any taxes and fees required by law or permitted by the Indenture. The Registrar need not register the transfer of or exchange any Note selected for redemption or register the transfer of or exchange any Note for a period of 15 days before the mailing of notice of redemption of Notes to be redeemed or any Note after it is called for redemption in whole or in part, except the unredeemed portion of any Note being redeemed in part. 11. PERSONS DEEMED OWNERS. The registered Holder of this Note may be treated as the owner of it for all purposes. 12. UNCLAIMED MONEY. If money for the payment of principal, premium or interest on any Note remains unclaimed for two years, the Trustee or Paying Agent will pay the money back to the Issuers at their written request. After that, Holders entitled to money must look to the Issuers for payment as general creditors unless an "abandoned property" law designates another person. 13. AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain exceptions, the Indenture or the Notes may be modified, amended or supplemented by the Issuers, the Guarantors and the Trustee with the consent of the Holders of at least a majority in principal amount of the Notes then outstanding and any existing default or compliance with any provision may be waived in a particular instance with the consent of the Holders of a majority in principal amount of the Notes then outstanding. Without the consent of Holders, the Issuers, the Guarantors and the Trustee may amend the Indenture or the Notes or supplement the Indenture for certain specified purposes including providing for uncertificated Notes in addition to certificated Notes, and curing any ambiguity, defect or inconsistency, or making any other change that does not materially and adversely affect the rights of any Holder. 14. SUCCESSOR ENTITY. When a successor corporation assumes all the obligations of its predecessor under the Notes and the Indenture and immediately before and thereafter no Default exists and certain other conditions are satisfied, the predecessor corporation will be released from those obligations. 15. DEFAULTS AND REMEDIES. Events of Default are set forth in the Indenture. If an Event of Default (other than an Event of Default pursuant to Section 6.01(6) or (7) of the Indenture with respect to either of the Issuers) occurs and is continuing, the Trustee by notice to the Issuers, or the Holders of not less than 25% in aggregate principal amount of the Notes then outstanding, may declare to be immediately due and payable the entire principal amount of all the Notes then outstanding plus accrued but unpaid interest to the date of acceleration; provided, however, that after such acceleration but before judgement or decree - -------- ------- based on such acceleration is obtained by the Trustee, the Holders of a majority in aggregate principal amount of the outstanding Notes may, under certain circumstances, rescind and annul such acceleration and its consequences if all existing Events of Default, other than the nonpayment of principal, premium or interest that has become due solely because of the acceleration, have been cured or waived and if the rescission would not conflict with any judgment or decree. No such rescission shall affect any subsequent Default or impair any right consequent thereto. In case an Event of Default specified in Section 6.01(6) or (7) of the Indenture with respect to either of the Issuers occurs, such principal amount, together with premium, if any, and interest with respect to all of the Notes, shall be due and payable immediately without any declaration or other act on the part of the Trustee or the Holders of the Notes. 16. TRUSTEE DEALINGS WITH THE ISSUERS The Trustee under the Indenture, in its individual or any other capacity, may make loans to, accept deposits from, and perform services for the Issuers, any Guarantor or their Affiliates, and may otherwise deal with the Issuers any Guarantor or their Affiliates, as if it were not Trustee. 17. NO RECOURSE AGAINST OTHERS. As more fully described in the Indenture, a director, officer, employee or stockholder, as such, of the Issuers or any Guarantor shall not have any liability for any obligations of the Issuers or any Guarantor under the Notes or the Indenture or for any claim based on, in respect or by reason of, such obligations or their creation. The Holder of this Note by accepting this Note waives and releases all such liability. The waiver and release are part of the consideration for the issuance of this Note. 18. DEFEASANCE AND COVENANT DEFEASANCE. The Indenture contains provisions for defeasance of the entire indebtedness on this Note and for defeasance of certain covenants in the Indenture upon compliance by the Issuers with certain conditions set forth in the Indenture. 19. ABBREVIATIONS. Customary abbreviations may be used in the name of a Holder of a Note or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (Uniform Gifts to Minors Act). 20. CUSIP NUMBERS. Pursuant to a recommendation promulgated by the Committee on Uniform Note Identification Procedures, the Issuers have caused CUSIP Numbers to be printed on the Notes and have directed the Trustee to use CUSIP numbers in notices of redemption as a convenience to Holders of the Notes. No representation is made as to the accuracy of such numbers either as printed on the Notes or as contained in any notice of redemption and reliance may be placed only on the other identification numbers placed thereon. 21. GOVERNING LAW. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. EACH OF THE PARTIES HERETO AGREES TO SUBMIT TO THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS NOTE. THE ISSUERS WILL FURNISH TO ANY HOLDER OF A NOTE UPON WRITTEN REQUEST AND WITHOUT CHARGE A COPY OF THE INDENTURE. REQUESTS MAY BE MADE TO: PETERSEN PUBLISHING COMPANY, L.L.C., 6420 Wilshire Boulevard, Los Angeles, California 90048, Attention: Executive Vice President - Chief Financial Officer. 22. GUARANTEE. The Note is initially entitled to the benefits of the Guarantee of the Guarantors whose signature appears on the notation endorsed on this Note and may thereafter be entitled to certain other Guarantees made for the benefit of the Holders. Upon the terms and subject to the conditions set forth in the Indenture, each Guarantor has jointly and severally with any other Guarantor, unconditionally guaranteed on a senior basis that the principal of, and premium, if any, interest and Additional Interest, if any, on and any additional amounts, if any, with respect to the Notes will be duly and punctually paid in full when due, whether at maturity, by acceleration or otherwise, and interest on overdue principal, premium, if any, and (to the extent permitted by law) interest on any interest or Additional Interest, if any, on the Notes and all other Obligations of the Issuers to the Holders or the Trustee under the Notes or the Indenture (including fees, expenses or other Obligations) will be promptly paid in full or performed. A Guarantor shall be released from the Guarantee upon the terms and subject to the conditions set forth in the Indenture. Reference is hereby made to Article 10 of the Indenture and to Exhibit A to the Indenture for the terms of the Guarantee. ASSIGNMENT I or we assign and transfer this Note to: (Insert assignee's social security or tax I.D. number) ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ (Print or type name, address and zip code of assignee) and irrevocably appoint: ________________________________________________________________________________ ________________________________________________________________________________ Agent to transfer this Note on the books of the Company. The Agent may substitute another to act for him. [Check One] --------- [ ] (a) this Note is being transferred in compliance with the exemption from registration under the Securities Act provided by Rule 144A thereunder. or -- [ ] (b) this Note is being transferred other than in accordance with (a) above and documents are being furnished which comply with the conditions of transfer set forth in this Note and the Indenture. If none of the foregoing boxes is checked, the Trustee or Registrar shall not be obligated to register this Note in the name of any person other than the Holder hereof unless and until the conditions to any such transfer of registration set forth herein and in Section 2.15 of the Indenture shall have been satisfied. -2- Date: ____________________ Your Signature:_________________________________ ________________________________________________ (Sign exactly as your name appears on the other side of this Note) Signature Guarantee: ________________________________________________ TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED The undersigned represents and warrants that it is purchasing this Note for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a "qualified institutional buyer" within the meaning of Rule 144A under the Securities Act and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Company as the undersigned has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon the undersigned's foregoing representations in order to claim the exemption from registration provided by Rule 144A. Dated: __________________ ____________________________ NOTICE: To be executed by an executive officer NOTATION ON NOTE RELATING TO GUARANTEE Petersen Holdings, L.L.C. (the "Guarantor", which term includes any successor Person under the Indenture) has unconditionally guaranteed, on a senior subordinated basis, jointly and severally with any future Guarantors, to the extent set forth in the Indenture and subject to the provisions of the Indenture, (a) the due and punctual payment of the principal of and interest on the Notes, whether at maturity, by acceleration or otherwise, the due and punctual payment of interest on overdue principal, and, to the extent permitted by law, interest, and the due and punctual performance of all other Obligations of the Issuers to the Noteholders or the Trustee all in accordance with the terms set forth in Article 10 of the Indenture, and (b) in case of any extension of time of payment or renewal of any Notes or any of such other Obligations, that the same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise. The obligations of the Guarantor to the Noteholders and to the Trustee pursuant to this Guarantee and the Indenture are expressly set forth in Article 10 of the Indenture and reference is hereby made to the Indenture for the precise terms of this Guarantee. This Guarantee shall not be valid or obligatory for any purpose until the certificate of authentication on the Note upon which this Guarantee is noted shall have been executed by the Trustee under the Indenture by the manual signature of one of its authorized signatories. Guarantor: Petersen Holdings, L.L.C. By: ____________________________________________ Name: Neal Vitale Title: Executive Vice President OPTION OF HOLDER TO ELECT PURCHASE If you want to elect to have all or any part of this Note purchased by the Company pursuant to Section 4.10 or Section 4.19 of the Indenture, check the appropriate box: [_] Section 4.10 [_] Section 4.19 If you want to have only part of the Note purchased by the pursuant to Section 4.10 or Section 4.19 of the Indenture, state the amount you elect to have purchased: $_________________ Date: ____________ Your Signature: ______________________________________________ (Sign exactly as your name appears on the face of this Note) ___________________________ Signature Guaranteed (FACE OF NOTE) REGULATION S NOTE THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933 (THE "SECURITIES ACT"), AND MAY NOT BE OFFERED, SOLD, OR DELIVERED IN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, ANY U.S. PERSON, UNLESS THE SECURITIES ARE REGISTERED UNDER THE SECURITIES ACT OR AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS THEREOF IS AVAILABLE. THIS NOTE IS A GLOBAL NOTE WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITORY OR A NOMINEE OF A DEPOSITORY. THIS NOTE IS NOT EXCHANGEABLE FOR NOTES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE DEPOSITORY OR ITS NOMINEE EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE, AND NO TRANSFER OF THIS NOTE (OTHER THAN A TRANSFER OF THIS NOTE AS A WHOLE BY THE DEPOSITORY TO A NOMINEE OF THE DEPOSITORY OR BY A NOMINEE OF THE DEPOSITORY TO THE DEPOSITORY OR ANOTHER NOMINEE OF THE DEPOSITORY) MAY BE REGISTERED EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (A NEW YORK CORPORATION) ("DTC") TO THE ISSUERS OR THEIR AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. CUSIP UO4393AA9 Number 001 PETERSEN PUBLISHING COMPANY, L.L.C. PETERSEN CAPITAL CORP. 11 1/8% SENIOR SUBORDINATED NOTE DUE 2006 Petersen Publishing Company, L.L.C., a Delaware limited liability company (the "Company", which term includes any successor corporation) and Petersen Capital Corp., a Delaware corporation (jointly and severally, together with the Company, the "Issuers"), for value received promise to pay to CEDE & CO. or registered assigns the principal sum of NO DOLLARS ($0), on November 15, 2006. Interest Payment Dates: May 15 and November 15, commencing May 15, 1997 Record Dates: May 1 and November 1 This Note shall not be valid or obligatory for any purpose until the certificate of authentication shall have been executed by the Trustee by its manual signature. Reference is made to the further provisions of this Security contained herein, which will for all purposes have the same effect as if set forth at this place. IN WITNESS WHEREOF, the Issuers have caused this Note to be signed manually or by facsimile by their duly authorized Officers. PETERSEN PUBLISHING COMPANY, L.L.C. By: ____________________________________ Neal Vitale President/Chief Operating Officer By: ____________________________________ Richard Willis Chief Financial Officer PETERSEN CAPITAL CORP. By: ____________________________________ Neal Vitale Vice President By: ____________________________________ Richard Willis Chief Financial Officer Certificate of Authentication: This is one of the 11 1/8% Senior Subordinated Notes due 2006 referred to in the within-mentioned Indenture Dated: UNITED STATES TRUST COMPANY OF NEW YORK as Trustee, By: ___________________________________ Authorized Signatory (REVERSE SIDE) PETERSEN PUBLISHING COMPANY, L.L.C. PETERSEN CAPITAL CORP. 11 1/8% SENIOR SUBORDINATED NOTE DUE 2006 1. INTEREST. Petersen Publishing Company, L.L.C., a Delaware limited liability company (the "Company") and Petersen Capital Corp., a Delaware corporation (jointly and severally, and together with the Company, the "Issuers"), promise to pay interest on the principal amount of this Note semiannually on May 15 and November 15 of each year (each an "Interest Payment Date"), commencing on May 15, 1997, at the rate of 11 1/8% per annum. Interest will be computed on the basis of a 360-day year of twelve 30-day months. Interest on the Notes will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the date of the original issuance of the Notes. The Issuers shall pay interest on overdue principal, and on overdue premium, if any, and overdue interest, to the extent lawful, at the rate equal to 2% per annum in excess of the rate borne by the Notes. 2. METHOD OF PAYMENT. The Issuers will pay interest on this Note provided for in Paragraph 1 above (except defaulted interest) to the person who is the registered Holder of this Note at the close of business on the May 1 or November 1 preceding the Interest Payment Date (whether or not such day is a Business Day). The Holder must surrender this Note to a Paying Agent to collect principal payments. The Issuers will pay principal, premium, if any, and interest in money of the United States that at the time of payment is legal tender for payment of public and private debts; provided, however, that the Issuers may pay principal, premium, -------- ------- if any, and interest by check payable in such money. They may mail an interest check to the Holder's registered address. 3. PAYING AGENT AND REGISTRAR. Initially, United States Trust Company of New York (the "Trustee") will act as Paying Agent and Registrar. The Issuers may change any Paying Agent or Registrar without notice to the Holders of the Notes. Neither the Issuers nor any of their Subsidiaries or Affiliates may act as Paying Agent but may act as Registrar. 4. INDENTURE; RESTRICTIVE COVENANTS. The Issuers issued this Note under an Indenture dated as of November 15, 1996 (the "Indenture") among the Issuers, the Guarantors and the Trustee. The terms of this Note include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S. Code (S)(S) 77aaa-77bbbb) as in effect on the date of the Indenture. This Note is subject to all such terms, and the Holder of this Note is referred to the Indenture and said Trust Indenture Act for a statement of them. All capitalized terms in this Note, unless otherwise defined, have the meanings assigned to them by the Indenture. The Notes are general unsecured obligations of the Issuers limited to $100,000,000 aggregate principal amount. The Indenture imposes certain restrictions on, among other things, the incurrence of indebtedness, the incurrence of liens and the issuance of capital stock by subsidiaries of the Issuers, mergers and sale of assets, the payments of dividends on, or the repurchase of, capital stock of the Issuers and their subsidiaries, certain other restricted payments by the Issuers and their subsidiaries, certain transactions with, and investments in, their affiliates, certain sale and lease- back transactions and a provision regarding change-of-control transactions. 5. SUBORDINATION. The Indebtedness evidenced by the Notes is, to the extent and in the manner provided in the Indenture, subordinated and subject in right of payment to the prior payment in full of all Senior Indebtedness as defined in the Indenture, and this Note is issued subject to such provisions. Each Holder of this Note, by accepting the same, (a) agrees to and shall be bound by such provisions, (b) authorizes and directs the Trustee, on behalf of such Holder, to take such action as may be necessary or appropriate to effectuate the subordination as provided in the Indenture and (c) appoints the Trustee attorney-in-fact of such Holder for such purpose; provided, however, that the -------- ------- Indebtedness evidenced by this Note shall cease to be so subordinate and subject in right of payment upon any defeasance of this Note referred to in Paragraph 18 below. 6. OPTIONAL REDEMPTION. The Issuers, at their option, may redeem the Notes, in whole or in part, at any time on or after November 15, 2001 upon not less than 30 nor more than 60 days' notice, at the redemption prices (expressed as percentages of principal amount), set forth below, plus accrued and unpaid interest to the Redemption Date, if redeemed during the twelve month period beginning on November 15 of each year listed below: Year Redemption Price ---- ---------------- 2001 .................................... 105.563% 2002 .................................... 103.708% 2003 .................................... 101.854% 2004 and thereafter ..................... 100.000% Notwithstanding the foregoing, the Issuers may redeem in the aggregate up to 25% of the original principal amount of Notes at any time and from time to time prior to November 15, 1999 at a redemption price equal to 111.125% of the aggregate principal amount so redeemed, plus accrued interest to the Redemption Date out of the Net Proceeds of one or more Public Equity Offerings; provided that at least $75,000,000 of the principal amount of -------- Notes originally issued remain outstanding immediately after the occurrence of any such redemption and that any such redemption occurs within 90 days following the closing of any such Public Equity Offering. 7. NOTICE OF REDEMPTION. Notice of redemption will be mailed via first class mail at least 30 days but not more than 60 days prior to the redemption date to each Holder of Notes to be redeemed at its registered address as it shall appear on the register of the Notes maintained by the Registrar. On and after any Redemption Date, interest will cease to accrue on the Notes or portions thereof called for redemption unless the Issuers shall fail to redeem any such Note. 8. OFFERS TO PURCHASE. The Indenture requires that certain proceeds from Asset Sales be used, subject to further limitations contained therein, to make an offer to purchase certain amounts of Notes in accordance with the procedures set forth in the Indenture. The Issuers are also required to make an offer to purchase Notes upon the occurrence of a Change of Control in accordance with procedures set forth in the Indenture. 9. REGISTRATION RIGHTS. Pursuant to the Registration Rights Agreement among the Issuers, the Guarantors and First Union Capital Markets Corp. and CIBC Wood Gundy Securities Corp., as initial purchasers of the Notes, the Issuers and the Guarantors will be obligated to consummate an exchange offer pursuant to which the Holder of this Note shall have the right to exchange this Note for Notes of a separate series issued under the Indenture (or a trust indenture substantially identical to the Indenture in accordance with the terms of the Registration Rights Agreement) which have been registered under the Securities Act, in like principal amount and having substantially identical terms as the Notes. The Holders shall be entitled to receive certain additional interest payments in the event such exchange offer is not consummated and upon certain other conditions, all pursuant to and in accordance with the terms of the Registration Rights Agreement. 10. DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in registered form without coupons in denominations of $1,000 and integral multiples thereof. A Holder may register the transfer or exchange of Notes in accordance with the Indenture. The Registrar may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and to pay any taxes and fees required by law or permitted by the Indenture. The Registrar need not register the transfer of or exchange any Note selected for redemption or register the transfer of or exchange any Note for a period of 15 days before the mailing of notice of redemption of Notes to be redeemed or any Note after it is called for redemption in whole or in part, except the unredeemed portion of any Note being redeemed in part. 11. PERSONS DEEMED OWNERS. The registered Holder of this Note may be treated as the owner of it for all purposes. 12. UNCLAIMED MONEY. If money for the payment of principal, premium or interest on any Note remains unclaimed for two years, the Trustee or Paying Agent will pay the money back to the Issuers at their written request. After that, Holders entitled to money must look to the Issuers for payment as general creditors unless an "abandoned property" law designates another person. 13. AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain exceptions, the Indenture or the Notes may be modified, amended or supplemented by the Issuers, the Guarantors and the Trustee with the consent of the Holders of at least a majority in principal amount of the Notes then outstanding and any existing default or compliance with any provision may be waived in a particular instance with the consent of the Holders of a majority in principal amount of the Notes then outstanding. Without the consent of Holders, the Issuers, the Guarantors and the Trustee may amend the Indenture or the Notes or supplement the Indenture for certain specified purposes including providing for uncertificated Notes in addition to certificated Notes, and curing any ambiguity, defect or inconsistency, or making any other change that does not materially and adversely affect the rights of any Holder. 14. SUCCESSOR ENTITY. When a successor corporation assumes all the obligations of its predecessor under the Notes and the Indenture and immediately before and thereafter no Default exists and certain other conditions are satisfied, the predecessor corporation will be released from those obligations. 15. DEFAULTS AND REMEDIES. Events of Default are set forth in the Indenture. If an Event of Default (other than an Event of Default pursuant to Section 6.01(6) or (7) of the Indenture with respect to either of the Issuers) occurs and is continuing, the Trustee by notice to the Issuers, or the Holders of not less than 25% in aggregate principal amount of the Notes then outstanding, may declare to be immediately due and payable the entire principal amount of all the Notes then outstanding plus accrued but unpaid interest to the date of acceleration; provided, however, that after such acceleration but before judgement or decree - -------- ------- based on such acceleration is obtained by the Trustee, the Holders of a majority in aggregate principal amount of the outstanding Notes may, under certain circumstances, rescind and annul such acceleration and its consequences if all existing Events of Default, other than the nonpayment of principal, premium or interest that has become due solely because of the acceleration, have been cured or waived and if the rescission would not conflict with any judgment or decree. No such rescission shall affect any subsequent Default or impair any right consequent thereto. In case an Event of Default specified in Section 6.01(6) or (7) of the Indenture with respect to either of the Issuers occurs, such principal amount, together with premium, if any, and interest with respect to all of the Notes, shall be due and payable immediately without any declaration or other act on the part of the Trustee or the Holders of the Notes. 16. TRUSTEE DEALINGS WITH THE ISSUERS The Trustee under the Indenture, in its individual or any other capacity, may make loans to, accept deposits from, and perform services for the Issuers, any Guarantor or their Affiliates, and may otherwise deal with the Issuers any Guarantor or their Affiliates, as if it were not Trustee. 17. NO RECOURSE AGAINST OTHERS. As more fully described in the Indenture, a director, officer, employee or stockholder, as such, of the Issuers or any Guarantor shall not have any liability for any obligations of the Issuers or any Guarantor under the Notes or the Indenture or for any claim based on, in respect or by reason of, such obligations or their creation. The Holder of this Note by accepting this Note waives and releases all such liability. The waiver and release are part of the consideration for the issuance of this Note. 18. DEFEASANCE AND COVENANT DEFEASANCE. The Indenture contains provisions for defeasance of the entire indebtedness on this Note and for defeasance of certain covenants in the Indenture upon compliance by the Issuers with certain conditions set forth in the Indenture. 19. ABBREVIATIONS. Customary abbreviations may be used in the name of a Holder of a Note or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (Uniform Gifts to Minors Act). 20. CUSIP NUMBERS. Pursuant to a recommendation promulgated by the Committee on Uniform Note Identification Procedures, the Issuers have caused CUSIP Numbers to be printed on the Notes and have directed the Trustee to use CUSIP numbers in notices of redemption as a convenience to Holders of the Notes. No representation is made as to the accuracy of such numbers either as printed on the Notes or as contained in any notice of redemption and reliance may be placed only on the other identification numbers placed thereon. 21. GOVERNING LAW. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. EACH OF THE PARTIES HERETO AGREES TO SUBMIT TO THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS NOTE. THE ISSUERS WILL FURNISH TO ANY HOLDER OF A NOTE UPON WRITTEN REQUEST AND WITHOUT CHARGE A COPY OF THE INDENTURE. REQUESTS MAY BE MADE TO: PETERSEN PUBLISHING COMPANY, L.L.C., 6420 Wilshire Boulevard, Los Angeles, California 90048, Attention: Executive Vice President - Chief Financial Officer. 22. GUARANTEE. The Note is initially entitled to the benefits of the Guarantee of the Guarantors whose signature appears on the notation endorsed on this Note and may thereafter be entitled to certain other Guarantees made for the benefit of the Holders. Upon the terms and subject to the conditions set forth in the Indenture, each Guarantor has jointly and severally with any other Guarantor, unconditionally guaranteed on a senior basis that the principal of, and premium, if any, interest and Additional Interest, if any, on and any additional amounts, if any, with respect to the Notes will be duly and punctually paid in full when due, whether at maturity, by acceleration or otherwise, and interest on overdue principal, premium, if any, and (to the extent permitted by law) interest on any interest or Additional Interest, if any, on the Notes and all other Obligations of the Issuers to the Holders or the Trustee under the Notes or the Indenture (including fees, expenses or other Obligations) will be promptly paid in full or performed. A Guarantor shall be released from the Guarantee upon the terms and subject to the conditions set forth in the Indenture. Reference is hereby made to Article 10 of the Indenture and to Exhibit A to the Indenture for the terms of the Guarantee. ASSIGNMENT I or we assign and transfer this Note to: (Insert assignee's social security or tax I.D. number) ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ (Print or type name, address and zip code of assignee) and irrevocably appoint: ________________________________________________________________________________ ________________________________________________________________________________ Agent to transfer this Note on the books of the Company. The Agent may substitute another to act for him. [Check One] --------- [ ] (a) this Note is being transferred in compliance with the exemption from registration under the Securities Act provided by Rule 144A thereunder. or -- [ ] (b) this Note is being transferred other than in accordance with (a) above and documents are being furnished which comply with the conditions of transfer set forth in this Note and the Indenture. If none of the foregoing boxes is checked, the Trustee or Registrar shall not be obligated to register this Note in the name of any person other than the Holder hereof unless and until the conditions to any such transfer of registration set forth herein and in Section 2.15 of the Indenture shall have been satisfied. -2- Date: ____________________ Your Signature:_______________________________ ______________________________________________ (Sign exactly as your name appears on the other side of this Note) Signature Guarantee: ______________________________________________ TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED The undersigned represents and warrants that it is purchasing this Note for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a "qualified institutional buyer" within the meaning of Rule 144A under the Securities Act and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Company as the undersigned has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon the undersigned's foregoing representations in order to claim the exemption from registration provided by Rule 144A. Dated: __________________ ___________________________________ NOTICE: To be executed by an executive officer NOTATION ON NOTE RELATING TO GUARANTEE Petersen Holdings, L.L.C. (the "Guarantor", which term includes any successor Person under the Indenture) has unconditionally guaranteed, on a senior subordinated basis, jointly and severally with any future Guarantors, to the extent set forth in the Indenture and subject to the provisions of the Indenture, (a) the due and punctual payment of the principal of and interest on the Notes, whether at maturity, by acceleration or otherwise, the due and punctual payment of interest on overdue principal, and, to the extent permitted by law, interest, and the due and punctual performance of all other Obligations of the Issuers to the Noteholders or the Trustee all in accordance with the terms set forth in Article 10 of the Indenture, and (b) in case of any extension of time of payment or renewal of any Notes or any of such other Obligations, that the same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise. The obligations of the Guarantor to the Noteholders and to the Trustee pursuant to this Guarantee and the Indenture are expressly set forth in Article 10 of the Indenture and reference is hereby made to the Indenture for the precise terms of this Guarantee. This Guarantee shall not be valid or obligatory for any purpose until the certificate of authentication on the Note upon which this Guarantee is noted shall have been executed by the Trustee under the Indenture by the manual signature of one of its authorized signatories. Guarantor: Petersen Holdings, L.L.C. By: _________________________________________ Name: Neal Vitale Title: Executive Vice President OPTION OF HOLDER TO ELECT PURCHASE If you want to elect to have all or any part of this Note purchased by the Company pursuant to Section 4.10 or Section 4.19 of the Indenture, check the appropriate box: [_] Section 4.10 [_] Section 4.19 If you want to have only part of the Note purchased by the pursuant to Section 4.10 or Section 4.19 of the Indenture, state the amount you elect to have purchased: $_________________ Date: ____________ Your Signature: (Sign exactly as your name appears on the face of this Note) ___________________________ Signature Guaranteed EX-4.3 10 SECURITIES PURCHASE AGREEMENT EXHIBIT 4.3 ________________________________________________________________________________ SECURITIES PURCHASE AGREEMENT by and among PETERSEN PUBLISHING COMPANY, L.L.C. and PETERSEN CAPITAL CORP., THE GUARANTOR named herein and THE INITIAL PURCHASERS NAMED HEREIN _____________________________ Dated as of November 20, 1996 _______________________________________________________________________________ TABLE OF CONTENTS -----------------
Page ---- ARTICLE I DEFINITIONS Section 1.1. Definitions .............................................. 1 Section 1.2. Accounting Terms; Financial Statements ................... 5 ARTICLE II ISSUE OF NOTES; PURCHASE AND SALE OF NOTES; RIGHTS OF HOLDERS OF NOTES; OFFERING BY INITIAL PURCHASERS Section 2.1. Issue of Notes ........................................... 5 Section 2.2. Purchase, Sale and Delivery of Notes ..................... 6 Section 2.3. Registration Rights of Holders of Notes .................. 7 Section 2.4. Offering by the Initial Purchasers ....................... 7 ARTICLE III REPRESENTATIONS AND WARRANTIES; RESALE OF NOTES Section 3.1. Representations and Warranties of the Issuers and the Guarantor .......................................... 7 Section 3.2. Resale of Notes .......................................... 18 ARTICLE IV CONDITIONS PRECEDENT TO CLOSING Section 4.1. Conditions Precedent to Obligations of the Initial Purchasers ..................................... 19 ARTICLE V COVENANTS Section 5.1. Covenants of the Issuers and the Guarantor ............... 21
-i-
Page ---- ARTICLE VI FEES Section 6.1. Costs, Expenses and Taxes ................................ 24 ARTICLE VII INDEMNITY Section 7.1. Indemnity ................................................ 25 Section 7.2. Contribution ............................................. 27 Section 7.3. Registration Rights Agreement ............................ 29 ARTICLE VIII MISCELLANEOUS Section 8.1. Survival of Provisions ................................... 29 Section 8.2. Termination .............................................. 29 Section 8.3. No Waiver; Modifications in Writing ...................... 30 Section 8.4. Information Supplied by the Initial Purchasers ........... 31 Section 8.5. Communications ........................................... 31 Section 8.6. Execution in Counterparts ................................ 31 Section 8.7. Successors ............................................... 31 Section 8.8. Governing Law ............................................ 32 Section 8.9. Severability of Provisions ............................... 32 Section 8.10. Headings ................................................. 32 SIGNATURE PAGE ......................................................... 33 SCHEDULE I
-ii- SECURITIES PURCHASE AGREEMENT, dated as of November 20, 1996 (the "Agreement"), among PETERSEN PUBLISHING COMPANY, L.L.C., a Delaware limited liability company (the "Company"), PETERSEN CAPITAL CORP., a Delaware corporation and a wholly-owned subsidiary of the Company ("Capital" and, together with the Company, the "Issuers"), PETERSEN HOLDINGS, L.L.C. (the "Guarantor"), and FIRST UNION CAPITAL MARKETS CORP. ("First Union") and CIBC WOOD GUNDY SECURITIES CORP. ("CIBC") (the "Initial Purchasers"). In consideration of the mutual covenants and agreements set forth herein and for good and valuable consideration, the receipt of which is hereby acknowledged, the parties agree as follows: ARTICLE I DEFINITIONS ----------- Section 1.1. Definitions. As used in this Agreement, and unless the ----------- context requires a different meaning, the following terms have the meanings indicated: "Accredited Investor" has the meaning provided therefor in Section 3.2 ------------------- of this Agreement. "Act" means the Securities Act of 1933, as amended, and the rules and --- regulations of the Commission thereunder. "Affiliate" means, with respect to any Person, any other Person which --------- directly or indirectly through one or more intermediaries controls, or is controlled by, or is under common control with, the Person in question. For purposes of this definition, "control" (including, with correlative meanings, the terms "controlling", "controlled by" and "under common control with"), as used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by agreement or otherwise; provided, however, that beneficial ownership of at least 10% of the -------- ------- voting securities of a Person shall be deemed to be control. "Agreement" means this Agreement, as the same may be amended, --------- supplemented or modified in accordance with the terms hereof and in effect. -2- "Basic Documents" means, collectively, the Indenture, the Notes, the --------------- Guarantee, the Registration Rights Agreement and this Agreement. "BrightView" shall mean BrightView Communications Group, Inc. ---------- "Business Day" means each Monday, Tuesday, Wednesday, Thursday and ------------ Friday which is not a day on which banking institutions in the City of New York are authorized or obligated by law to close. "Capital Stock" of any Person means any and all shares, interests or ------------- other participations in, and other equivalents (however designated and whether voting or non-voting) of such Person's equity, including membership interests or units in a limited liability company, and includes, without limitation, all series and classes of such equity. "Closing" has the meaning provided therefor in Section 2.2 of this ------- Agreement. "Code" means the Internal Revenue Code of 1986, as amended. ---- "Commission" means the Securities and Exchange Commission or any ---------- similar agency then having jurisdiction to enforce the Act. "Default" means any event, act or condition which, with notice or ------- lapse of time or both, would constitute an Event of Default. "ERISA" means the Employee Retirement Income Security Act of 1974, as ----- amended. "Event of Default" means any event defined as an Event of Default in ---------------- the Indenture. "Exchange Act" means the Securities Exchange Act of 1934, as amended, ------------ and the rules and regulations of the Commission thereunder. "Exchange Notes" has the meaning provided therefor in the Registration -------------- Rights Agreement. "Final Memorandum" has the meaning provided therefor in Section 2.1 of ---------------- this Agreement. -3- "Guarantee" has the meaning provided therefor in Section 2.1 of this --------- Agreement. "Guarantor" has the meaning set forth in the introductory paragraph to --------- this Agreement. "Indemnified Party" has the meaning provided therefor in Section ----------------- 7.1(c) of this Agreement. "Indemnifying Party" has the meaning provided therefor in Section ------------------ 7.1(c) of this Agreement. "Indenture" means the indenture dated as of November 15, 1996 among --------- the Issuers, the Guarantor and United States Trust Company of New York, as Trustee, under which the Notes will be issued. "Initial Purchasers" has the meaning set forth in the introductory ------------------ paragraph to this Agreement. "Lien" means, with respect to any property or assets of any Person, ---- any mortgage or deed of trust, pledge, hypothecation, assignment, deposit arrangement, security interest, lien, charge, easement, encumbrance, preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever on or with respect to such property or assets (including without limitation, any Capitalized Lease Obligations (as defined in the Indenture)), conditional sales, or other title retention agreement having substantially the same economic effect as any of the foregoing. "Material Adverse Effect" means, with respect to the Issuers, a ----------------------- material adverse effect on the business, condition (financial or otherwise), results of operations or prospects of the Issuers, taken as a whole; provided -------- that, with respect to the Issuers, "Material Adverse Effect" shall also mean a material adverse effect on the ability of the Issuers to perform their obligations under this Agreement or the Basic Documents or on the ability of the Guarantor to perform its obligations under the Guarantee. "Memorandum" has the meaning provided therefor in Section 2.1 of this ---------- Agreement. "Notes" means the 11 1/8% Senior Subordinated Notes due 2006 of the ----- Issuers. -4- "Offering" has the meaning assigned thereto in the Memorandum. -------- "Offering Materials" has the meaning provided therefor in Section 7.1 ------------------ of this Agreement. "Person" means any individual, corporation, partnership, trust, ------ incorporated or unincorporated association, joint venture, joint-stock company, government (or an agency or political subdivision thereof) or other entity of any kind. "Petersen" means the publishing division of Petersen Publishing -------- Company, a California corporation. "PORTAL" means the Private Offering, Resales, and Trading through ------ Automated Linkages Market. "Preliminary Memorandum" has the meaning provided therefor in Section ---------------------- 2.1 of this Agreement. "Private Exchange Notes" shall have the meaning provided therefor in ---------------------- the Registration Rights Agreement. "Proceeding" has the meaning provided therefor in Section 7.1(c) of ---------- this Agreement. "QIB" has the meaning provided therefor in Section 3.2 of this --- Agreement. "Registration Rights Agreement" means the registration rights ----------------------------- agreement among the Issuers, the Guarantor and the Initial Purchasers relating to the Notes. "Senior Credit Facility" has the meaning provided therefor in the ---------------------- Indenture. "State" means each of the states of the United States, the District of ----- Columbia and the Commonwealth of Puerto Rico. "State Commission" means any agency of any State having jurisdiction ---------------- to enforce such State's securities laws. "Subsidiaries" means, with respect to any Person, any corporation, ------------ partnership, joint venture, association or other business entity, whether now existing or hereafter organized or acquired, (i) in the case of a corporation, of which more than 50% of the total voting power of the capital stock entitled (without regard to the occurrence of any contingency) to vote in -5- the election of directors, officers or trustees thereof is held by such first- named Person or any of its Subsidiaries; or (ii) in the case of a partnership, limited liability company, joint venture, association or other business entity, with respect to which such first-named Person or any of its Subsidiaries has the power to direct or cause the direction of the management and policies of such entity by contract or otherwise or if in accordance with generally accepted accounting principles such entity is consolidated with the first-named Person for financial statement purposes. "Taxes" has the meaning provided therefor in Section 3.1(v) of this ----- Agreement. "Time of Purchase" has the meaning provided therefor in Section 2.2 of ---------------- this Agreement. "Trust Indenture Act" means the Trust Indenture Act of 1939, as ------------------- amended, and the rules and regulations of the Commission thereunder. Section 1.2. Accounting Terms; Financial Statements. All accounting -------------------------------------- terms used herein not expressly defined in this Agreement shall have the respective meanings given to them in accordance with sound accounting practice. The term "sound accounting practice" shall mean such accounting practice as, in the opinion of the independent accountants regularly retained by the Company, conforms at the time to generally accepted accounting principles in the United States applied on a consistent basis except for changes with which such accountants concur. All determinations to which accounting principles apply shall be made in accordance with sound accounting practice. ARTICLE II ISSUE OF NOTES; PURCHASE AND SALE OF NOTES; RIGHTS OF HOLDERS OF NOTES; OFFERING BY INITIAL PURCHASERS ------------------------------------- Section 2.1. Issue of Notes. The Company has authorized the issuance -------------- of $100,000,000 aggregate principal amount of the Notes which are to be issued pursuant to the Indenture. Each Note will be substantially in the form of the Note set forth as Exhibit A to the Indenture. The Notes will be unconditionally guaranteed by the Guarantor pursuant to the terms of the Indenture (the "Guarantee"). -6- The Notes will be offered and sold to the Initial Purchasers without being registered under the Act, in reliance on exemptions therefrom. In connection with the sale of the Notes, the Issuers and the Guarantor have prepared a preliminary offering memorandum dated October 28, 1996 (the "Preliminary Memorandum") and prepared a final offering memorandum dated November 20, 1996 (the "Final Memorandum" and, together with the Preliminary Memorandum, the "Memorandum") setting forth or including a description of the terms of the Notes, the terms of the offering, a description of the Issuers and the Guarantor and any material developments relating to the Issuers and the Guarantor occurring after the date of the most recent financial statements included therein. Section 2.2. Purchase, Sale and Delivery of Notes. On the basis of ------------------------------------ the representations, warranties, agreements and covenants herein contained and subject to the terms and conditions herein set forth, the Issuers agree that they will sell to each Initial Purchaser, and each Initial Purchaser agrees, acting severally and not jointly, that it will purchase from the Issuers at the Time of Purchase, the principal amount of the Notes set forth opposite the name of such Initial Purchaser on Schedule I hereto at a price equal to 97% of the principal amount thereof. The purchase, sale and delivery of the Notes will take place at a closing (the "Closing") at the offices of Cahill Gordon & Reindel, 80 Pine Street, New York, New York, at 10:00 A.M., New York time, on November , 1996, or such later date and time, if any, as the Initial Purchasers and the Company shall agree. The time at which such Closing is concluded is herein called the "Time of Purchase." One or more certificates in definitive form for the Notes that the Initial Purchasers have agreed to purchase hereunder, and in such denomination or denominations and registered in such name or names as the Initial Purchasers request upon notice to the Company at least 24 hours prior to the Closing, shall be delivered by or on behalf of the Issuers to the Initial Purchasers, against payment by or on behalf of the Initial Purchasers of the purchase price therefor by wire transfer of immediately available funds wired in accordance with the written instructions of the Company. The Issuers will make such certificate or certificates for the Notes available for checking and packaging by the Initial Purchasers at the offices of First Union or CIBC, or such other place as First Union and CIBC may designate, at least 24 hours prior to the Closing. -7- Section 2.3. Registration Rights of Holders of Notes. The Initial --------------------------------------- Purchasers and their direct and indirect transferees of the Notes will have such rights with respect to the registration thereof under the Act and qualification of the Indenture under the Trust Indenture Act as are set forth in the Registration Rights Agreement. Section 2.4. Offering by the Initial Purchasers. The Initial ---------------------------------- Purchasers propose to make an offering of the Notes at the price and upon the terms set forth in the Final Memorandum, as soon as practicable after this Agreement is entered into and as in the judgment of the Initial Purchasers is advisable. ARTICLE III REPRESENTATIONS AND WARRANTIES; RESALE OF NOTES ----------------------------------------------- Section 3.1. Representations and Warranties of the Issuers and the ----------------------------------------------------- Guarantor. The Issuers and the Guarantor, jointly and severally, represent and - --------- warrant to and agree with each of the Initial Purchasers as follows: (a) The Final Memorandum, as of its date and at the Time of Purchase, will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, except that the representations and warranties set forth in this Section 3.1(a) do not apply to statements or omissions made in reliance upon and in conformity with information relating to the Initial Purchasers furnished to the Company in writing by the Initial Purchasers expressly for use in the Final Memorandum or any amendment or supplement thereto as set forth in Section 8.4 hereof. (b) To the best of the Company's knowledge, the financial statements of Petersen together with related notes, set forth in the Final Memorandum fairly present the financial condition of Petersen, as of the dates indicated and the results of operations and changes in financial position for the periods therein specified in conformity with generally accepted accounting principles consistently applied throughout the periods involved (except as otherwise stated therein), except that the unaudited interim financial statements are subject to normal year-end adjustments; the summary and selected financial data in the Final Memorandum present fairly the financial information shown therein and -8- have been prepared and compiled on a basis consistent with audited financial statements included therein, except as otherwise stated therein; and the pro forma financial information and the related notes thereto included in the Final Memorandum have been prepared using reasonable assumptions and (except with respect to note (d) to Summary Pro Forma Financial Data and note (i) to Unaudited Pro Forma Financial Data, which each include supplemental adjustments not required under the Act) have been prepared in accordance with the applicable requirements of the Act and include all adjustments necessary to present fairly the pro forma financial information included in the Final Memorandum at the respective dates and for the respective periods indicated. Ernst & Young LLP, which has reported upon the audited financial statements included in the Memorandum, is an independent public accounting firm as required by the Act and the rules and regulations thereunder. (c) The Company and the Guarantor are limited liability companies duly organized, validly existing and in good standing under the laws of the State of Delaware and have filed all reports with the Secretary of State of Delaware required to obtain a certificate of existence from that office. Capital is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has filed all reports with the Secretary of State of Delaware required to obtain a certificate of existence from that office. Each of the Company, Capital and the Guarantor, is duly qualified and in good standing as a foreign corporation or limited liability company, and is authorized to do business, in each jurisdiction in which the ownership or leasing of any property or the character of its operations makes such qualification necessary and in which the failure so to qualify could reasonably be expected to have a Material Adverse Effect. None of the Company, Capital or the Guarantor have any subsidiaries other than the Company and Capital. (d) As of the Time of Purchase (after giving effect to the Offering), the Company will have the capitalization as set forth in the Final Memorandum, except as otherwise noted therein. All of the issued and outstanding Capital Stock of the Company, Capital and the Guarantor are validly issued, fully paid and nonassessable (other than certain equity securities issued to the Company's management that are subject to forfeiture under certain conditions) and were not issued in violation of any preemptive or similar rights. As -9- of the date hereof, except as set forth in the Final Memorandum, (i) 99.9% of the Capital Stock of the Company and Capital is owned directly or indirectly by the Guarantor, free and clear of any Liens, (ii) there are no outstanding subscriptions, options, warrants, rights, convertible securities or other binding agreements or commitments of any character obligating the Guarantor or the Issuers to issue any securities and (iii) there is no agreement, understanding or arrangement among the Guarantor or the Issuers and their respective securityholders or any other Person relating to the ownership or disposition of any Capital Stock in the Guarantor or the Issuers or the governance of the Guarantor's or the Issuers' affairs, and such agreements, arrangements or understandings will not be breached or violated as a result of the execution and delivery of, or the consummation of the transactions contemplated by, this Agreement and the Basic Documents. (e) This Agreement has been duly authorized, executed and delivered by the Issuers and the Guarantor and (assuming the due authorization, execution and delivery by the Initial Purchasers), is a valid and legally binding agreement of the Issuers and the Guarantor, enforceable against each of them in accordance with its terms except (i) that the enforcement hereof may be subject to bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or other similar laws now or hereafter in effect relating to creditors' rights generally, and to general principles of equity and the discretion of the court before which any proceeding therefor may be brought and (ii) as any rights to indemnity or contribution hereunder may be limited by federal and state securities laws and public policy considerations. (f) The Indenture has been duly authorized by the Issuers and the Guarantor and, when executed and delivered by the Issuers and the Guarantor (assuming the due authorization, execution and delivery by the Trustee), will constitute a valid and legally binding agreement of the Issuers and the Guarantor, enforceable against each of them in accordance with its terms except that the enforcement thereof may be subject to (i) bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or other similar laws now or hereafter in effect relating to creditors' rights generally and (ii) general principles of equity and the discretion of the court before which any proceeding therefor may be brought. -10- (g) The Registration Rights Agreement has been duly authorized by the Issuers and the Guarantor and, when executed and delivered by the Issuers and the Guarantor (assuming the due authorization, execution and delivery by the Initial Purchasers), will constitute a valid and legally binding agreement of the Issuers and the Guarantor, enforceable against each of them in accordance with its terms except (i) that the enforcement thereof may be subject to bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or other similar laws now or hereafter in effect relating to creditors' rights generally, and to general principles of equity and the discretion of the court before which any proceeding therefor may be brought and (ii) as any rights to indemnity or contribution thereunder may be limited by federal and state securities laws and public policy considerations. (h) The Notes, the Exchange Notes and the Private Exchange Notes have each been duly authorized by the Issuers and, when executed by the Issuers and authenticated by the Trustee in accordance with the provisions of the Indenture and, in the case of the Notes, delivered to and paid for by the Initial Purchasers in accordance with the terms of this Agreement, will be entitled to the benefits of the Indenture and will constitute valid and legally binding obligations of the Issuers enforceable in accordance with their terms, except that the enforcement thereof may be subject to (i) bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or other similar laws now or hereafter in effect relating to creditors' rights generally, and (ii) general principles of equity and the discretion of the court before which any proceeding therefor may be brought. (i) The Guarantees endorsed on the Notes and the guarantees to be endorsed on the Exchange Notes and the Private Exchange Notes have each been duly authorized by the Guarantor and, when the Notes are executed by the Issuers and authenticated by the Trustee in accordance with the provisions of the Indenture and delivered to and paid for by the Initial Purchasers in accordance with the terms of this Agreement, the Guarantees will be entitled to the benefits of the Indenture and will constitute valid and legally binding obligations of the Guarantor enforceable in accordance with their terms, except that the enforcement thereof may be subject to (i) bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or other similar laws now or hereafter in effect relating to -11- creditors' rights generally, and (ii) general principles of equity and the discretion of the court before which any proceeding therefor may be brought. (j) Immediately after the consummation of the transactions contemplated by this Agreement (including the use of proceeds from the sale of Notes at the Time of Purchase), the fair value and present fair saleable value of the assets of the Company (on a consolidated basis) will exceed the sum of its stated liabilities and identified contingent liabilities; the Company (on a consolidated basis) will not be, after giving effect to the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby (including the use of proceeds from the sale of Notes at the Time of Purchase), (i) left with unreasonably small capital with which to carry on its business as it is proposed to be conducted, (ii) unable to pay its debts (contingent or otherwise) as they mature or (iii) otherwise insolvent. (k) Each of the Issuers and the Guarantor (to the extent a party thereto) has all requisite limited liability company or corporate power and authority to (i) execute, deliver and perform its obligations under this Agreement and each of the Basic Documents, (ii) execute, deliver and perform its obligations under all other agreements and instruments executed and delivered by the Company pursuant to or in connection with this Agreement, and each of the Basic Documents and (iii) issue the Notes and the Guarantee, as the case may be, in the manner and for the purpose contemplated by this Agreement. (l) Subsequent to the date as of which information is given in the Final Memorandum there has not been (i) any event or condition that has had or that could reasonably be expected to have a Material Adverse Effect, (ii) any transaction entered into by the Issuers or the Guarantor, other than in the ordinary course of business, that is material to the Issuers or the Guarantor, or (iii) any dividend or distribution of any kind declared, paid or made by the Guarantor or the Company on its common equity. (m) Except as set forth in the Final Memorandum, there is no action, suit, investigation or proceeding, governmental or otherwise, pending or, to the best knowledge of the Company, threatened to which the Issuers or the Guarantor is or would be a party or of which the properties or assets of the Issuers or the Guarantor are or may be -12- subject that (i) seeks to restrain, enjoin, prevent the consummation of or otherwise challenge the issuance and sale of the Notes by the Issuers or the making of the Guarantee by the Guarantor or any of the other transactions contemplated hereby, (ii) questions the legality or validity of any such transactions or seeks to recover damages or obtain other relief in connection with any such transactions or (iii) could, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. (n) The execution, delivery and performance by the Issuers and the Guarantor (to the extent a party thereto) of this Agreement and the Basic Documents, and the issuance and sale by the Issuers of the Notes, the making of the Guarantees by the Guarantor, and the execution, delivery and performance by the Issuers and the Guarantor (to the extent a party thereto) of all other agreements and instruments to be executed and delivered by the Issuers and the Guarantor, pursuant hereto or thereto or in connection herewith or therewith, and compliance by the Issuers and the Guarantor (to the extent a party thereto) with the terms and provisions hereof and thereof, do not and will not (i) violate any provision of any law, rule or regulation (including, without limitation, Regulation G, T, U or X of the Board of Governors of the Federal Reserve System), order, writ, judgment, decree, determination or award presently in effect or in effect at the Time of Purchase having applicability to the Issuers or the Guarantor or (ii) conflict with or result in a breach of or constitute a default under the organizational documents of the Issuers or the Guarantor or, as of the Time of Purchase, any indenture or loan or credit agreement, or any other material agreement or instrument, to which the Issuers or the Guarantor, is a party or by which the Issuers or the Guarantor, or any of their respective properties or assets may be bound or affected, or (iii) except as contemplated by this Agreement and the Basic Documents, result in, or require the creation or imposition of, any Lien upon or with respect to any of the properties now owned or hereafter acquired by the Issuers or, the Guarantor, except, in each case, where such violation, conflict, default or creation or imposition of any Lien would not (individually or in the aggregate) reasonably be expected to have a Material Adverse Effect. (o) Each agreement or instrument executed and delivered by the Issuers or the Guarantor (to the extent a party thereto) in connection with this Agreement and the Basic Documents has been duly and validly authorized, -13- executed and delivered by the Issuers and the Guarantor (to the extent a party thereto) and constitutes or will constitute a valid and legally binding obligation of the Issuers and the Guarantor (to the extent a party thereto), enforceable against them in accordance with its terms, except (i) that the enforcement thereof may be subject to bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or other similar laws now or hereafter in effect relating to creditors' rights generally, and to general principles of equity and the discretion of the court before which any proceeding therefor may be brought and (ii) as any rights to indemnity and contribution hereunder and thereunder may be limited by applicable law. (p) Neither the Issuers nor the Guarantor is currently or, after giving effect to the consummation of the transactions contemplated by this Agreement and the Basic Documents, will be (i) in violation of its respective organizational documents, (ii) in default (nor will an event occur which with notice or passage of time or both would constitute such a default) under or in violation of any indenture or loan or credit agreement or any other material agreement or instrument to which it is a party or by which it or any of its properties or assets may be bound or affected (except as set forth in the Final Memorandum), (iii) in violation of any order of any court, arbitrator or governmental body or (iv) in violation of or will have violated any statute, rule or regulation of any governmental authority, which default or violation (individually or in the aggregate) could reasonably be expected to (x) affect the legality, validity or enforceability of this Agreement or any of the Basic Documents or (y) have a Material Adverse Effect. (q) Except as set forth in the Final Memorandum, no authorization, consent, approval, license, qualification or formal exemption from, nor any filing, declaration or registration with, any court, governmental agency or regulatory authority or any securities exchange is required in connection with the execution, delivery or performance by the Issuers or the Guarantor of this Agreement, or any of the Basic Documents, except (i) as may be required under state securities or "blue sky" laws or the laws of any foreign jurisdiction in connection with the offer and sale of the Notes or (ii) as would not (individually or in the aggregate) have a Material Adverse Effect. All such authorizations, consents, approvals, licenses, qualifications, exemptions, filings, declarations and -14- registrations set forth in the Final Memorandum (other than as disclosed therein) which are required to have been obtained by the date hereof have been obtained or made, as the case may be, and are in full force and effect and not the subject of any pending or, to the knowledge of the Company, threatened attack by appeal or direct proceeding or otherwise. (r) The Issuers are not and immediately after the Time of Purchase will not be "investment companies" or, to the Company's knowledge, companies "controlled" by an "investment company" within the meaning of the Investment Company Act of 1940, as amended. (s) The execution and delivery of this Agreement and the other Basic Documents and the sale of the Notes to the Initial Purchasers will not involve any non-exempt prohibited transaction within the meaning of Section 406 of ERISA or Section 4975 of the Code on the part of the Issuers or any of their Subsidiaries. No Reportable Event (as defined in Section 4043 of ERISA) has occurred during the five-year period prior to the date on which this representation is made or deemed made with respect to any Employee Benefit Plan (as defined below), and the Issuers and each of their Subsidiaries have complied in all material respects with the applicable provisions of ERISA and the Code in connection with the Employee Benefit Plans. The present value of all accrued benefits under each Employee Benefit Plan subject to Title IV of ERISA (based on the current liability, interest rate and other assumptions used in preparation of the plan's Form 5500 Annual Report) did not, as of the last annual valuation date prior to the date on which this representation is made or deemed made, exceed the value of the assets of such plan allocable to such accrued benefits. Neither the Issuers, any of their Subsidiaries, nor any Commonly Controlled Entity (as defined below) has had a complete or partial withdrawal from any Multiemployer Plan (as defined in Section 4001(a)(3) of ERISA), and neither the Issuers, any of their Subsidiaries, nor any Commonly Controlled Entity would become subject to any liability under ERISA if the Issuers, any of their Subsidiaries, or any such Commonly Controlled Entity were to withdraw completely from all Multiemployer Plans as of the valuation date most closely preceding the date on which such representation is made or deemed made. No such Multiemployer Plan is in reorganization or insolvent. There are no material liabilities of the Issuers, any of their Subsidiaries, or any Commonly Controlled Entity for post- -15- retirement benefits to be provided to their current and former employees under Plans which are welfare benefit plans (as described in Section 3(1) of ERISA). "Commonly Controlled Entity" shall mean any person or entity that, together with any Issuer or any Subsidiary of an Issuer, is treated as a single employer under Section 414(b), (c), (m) or (o) of the Code. "Employee Benefit Plan" shall mean an employee benefit plan, as defined in Section 3(3) of ERISA, which is maintained or contributed to by an Issuer, any of their Subsidiaries or any Commonly Controlled Entity or to which an Issuer, any of their Subsidiaries or any Commonly Controlled Entity may have liability. (t) The Company has good and valid title to, or valid and enforceable leasehold interests (other than with respect to the lease relating to the Company's New York office) in, all properties and assets identified in the Final Memorandum as owned or leased, respectively, by it which are material to the business of the Company, free and clear of all Liens, except (i) such Liens as are described in the Final Memorandum or (ii) Liens created in the ordinary course of business which are Permitted Liens (as defined in the Indenture). All of the leases material to the business of the Company and under which the Company holds properties described in the Final Memorandum, are valid and binding as leased by them, with such exceptions as are not material and do not interfere with the use made and proposed to be made of such properties by the Company. (u) No form of general solicitation or general advertising was used by the Issuers or the Guarantor or their representatives in connection with the offer and sale of the Notes. Neither the Issuers or the Guarantor nor any Person authorized to act for any of them has, either directly or indirectly, sold or offered for sale any of the Notes or any other similar security of the Issuers to, or solicited any offers to buy any thereof from, or has otherwise approached or negotiated in respect thereof with, any Person or Persons other than with or through the Initial Purchasers; and the Issuers and the Guarantor agree that neither they nor any Person acting on their behalf will sell or offer for sale any Notes to, or solicit any offers to buy any Notes from, or otherwise approach or negotiate in respect thereof with, any Person or Persons so as thereby to bring the issuance or sale of any of the Notes within the provisions of Section 5 of the Act. -16- (v) All tax returns required to be filed by the Issuers in any jurisdiction (including foreign jurisdictions) have been so filed and all taxes, assessments, fees and other charges including, without limitation, withholding taxes, penalties, and interest ("Taxes") due or claimed to be due have been paid, other than those Taxes being contested in good faith and those Taxes for which adequate reserves or accruals have been established in accordance with generally accepted accounting principles, except where the failure to file such returns or to pay such Taxes is not reasonably likely to have, singly or in the aggregate, a Material Adverse Effect. The Company knows of no actual or proposed additional tax assessments for any fiscal period against the Issuers that, individually or in the aggregate, is reasonably likely to have a Material Adverse Effect. (w) The Company is the sole and exclusive owner or licensee of all trade names, unregistered trademarks and service marks, brand names, patents, registered and unregistered copyrights, registered trademarks and service marks, and all applications for any of the foregoing, and all permits, grants and licenses or other rights with respect thereto, the absence of which would have or could reasonably be expected to have a Material Adverse Effect. Except as set forth in the Final Memorandum, neither of the Issuers has been charged with any material infringement of any intangible property of the character described above or been notified or advised of any material claim of any other Person relating to any of the intangible property which infringements or claims (individually or in the aggregate) would have a Material Adverse Effect. (x) Except as set forth in the Final Memorandum, the Issuers comply with all, and have no liability under any, laws, rules and regulations (including, without limitation, all applicable environmental laws, rules and regulations) applicable to the Issuers, and the Issuers own or possess and are operating in compliance in all material respects with the terms, provisions, conditions, restrictions and limitations contained in all licenses, franchises, approvals, certificates and permits (including, without limitation, environmental permits) from all Federal, state, territorial, foreign and local governmental and regulatory authorities which are necessary to own or lease their respective properties and assets and to the conduct of their respective businesses (other than compliance with or liability under such laws, rules, regulations, licenses, -17- franchises, approvals, certificates or permits that are immaterial in scope or application to the Issuers). There are no citations or notices of forfeiture or other proceedings pending or, to the best knowledge of the Company, threatened or any basis therefor which would lead to the revocation, termination, suspension or non-renewal of any such license, franchise, approval, certificate or permit except where all such revocations, terminations, suspensions or non-renewals, individually or in the aggregate, would not have a Material Adverse Effect. Other than as disclosed in the Final Memorandum, (i) there are no license renewal or rate or tariff proceedings existing, pending or, to the best knowledge of the Company, threatened against the Issuers or the Guarantor that would have a Material Adverse Effect, and (ii) there are no restrictions or limitations contained in any applicable license, franchise, approval, certificate or permit, or, to the best knowledge of the Company, threatened or proposed in any pending or contemplated hearing, proceeding or procedure, that would have a Material Adverse Effect. (y) The Notes, the Guarantees, the Indenture, and the Registration Rights Agreement conform in all material respects to the description thereof in the Final Memorandum. (z) Assuming the accuracy of the Initial Purchasers' representation and warranties set forth in Section 3.2 hereof, and the due performance by the Initial Purchasers of the covenants and agreements set forth in Section 3.2 hereof, the offer and sale of the Notes to the Initial Purchasers in the manner contemplated by this Agreement and the Memorandum does not require registration under the Act and the Indenture does not require qualification under the Trust Indenture Act of 1939, as amended. (aa) Except as set forth in the Final Memorandum, there is no strike, labor dispute, slowdown or work stoppage with the employees of the company which is pending or, to the best knowledge of the Company, threatened. (bb) Each of the Company and its Subsidiaries carries insurance (including self insurance) in such amounts and covering such risks as in its reasonable determination is adequate for the conduct of its business and the value of its properties. -18- (cc) No securities of the Issuers are of the same class (within the meaning of Rule 144A under the Act) as the Notes and listed on a national securities exchange registered under Section 6 of the Exchange Act, or quoted in a U.S. automated interdealer quotation system. (dd) Neither of the Issuers nor the Company has taken, nor will any of them take, directly or indirectly, any action designed to, or that might be reasonably expected to, cause or result in stabilization or manipulation of the price of the Notes. (ee) None of the Issuers, the Guarantors, any of their respective Affiliates or any person acting on its or their behalf (other than the Initial Purchaser) has engaged in any directed selling efforts (as that term is defined in Regulation S under the Act ("Regulation S") with respect to the Notes and the Company, the Guarantor and their respective Affiliates and any person acting on its or their behalf (other than the Initial Purchaser) have acted in accordance with the offering restrictions requirements of Regulation S. (ff) The statistical and market-related data included in the Final Memorandum are based on or derived from sources which the Company believes to be reliable and accurate or represents the Company's good faith estimates that are made on the basis of data derived from such sources. (gg) Except as stated in the Final Memorandum, the Company does not know of any claims for services, either in the nature of a finder's fee or financial advisory fee, with respect to the offering of the Notes and the transactions contemplated by the Final Memorandum. Section 3.2. Resale of Notes. Each of the Initial Purchasers --------------- represents and warrants (as to itself only) that it is a "qualified institutional buyer" as defined in Rule 144A of the Act ("QIB"). Each of the Initial Purchasers agrees with the Issuers (as to itself only) that (a) it has not and will not solicit offers for, or offer or sell, the Notes by any form of general solicitation or general advertising (as those terms are used in Regulation D under the Act) or in any manner involving a public offering within the meaning of Section 4(2) of the Act; and (b) it has and will solicit offers for the Notes only from, and will offer the Notes only to (A) in the case of offers inside the United States, (i) Persons whom the Initial Purchasers reasonably believe to be QIBs or, if any such Person is buying -19- for one or more institutional accounts for which such Person is acting as fiduciary or agent, only when such Person has represented to the Initial Purchasers that each such account is a QIB, to whom notice has been given that such sale or delivery is being made in reliance on Rule 144A, and, in each case, in transactions under Rule 144A or (ii) a limited number of other institutional investors reasonably believed by the Initial Purchasers to be "Accredited Investors" (as defined in Rule 501(a)(1), (2), (3) or (7) of the Act) that, prior to their purchase of the Notes, deliver to the Initial Purchasers a letter containing the representations and agreements set forth in Annex A to the Final Memorandum and (B) in the case of offers outside the United States, to Persons other than U.S. Persons ("foreign purchasers," which term shall include dealers or other professional fiduciaries in the United States acting on a discretionary basis for foreign beneficial owners (other than an estate or trust)); provided, -------- however, that, in the case of this clause (B), in purchasing such Notes such - ------- Persons are deemed to have represented and agreed as provided under the caption "Notice to Investors" contained in the Final Memorandum. ARTICLE IV CONDITIONS PRECEDENT TO CLOSING ------------------------------- Section 4.1. Conditions Precedent to Obligations of the Initial -------------------------------------------------- Purchasers. The obligation of each Initial Purchaser to purchase the Notes to - ---------- be purchased by it hereunder is subject, at the Time of Purchase, to the satisfaction of the following conditions: (a) At the Time of Purchase, the Initial Purchasers shall have received the opinion, dated as of the Time of Purchase and addressed to the Initial Purchasers, of Kirkland & Ellis, counsel for the Issuers and the Guarantor, in form and substance satisfactory to counsel for the Initial Purchasers, to the effect as set forth on Exhibit A hereto. --------- (b) The Initial Purchasers shall have received an opinion, addressed to the Initial Purchasers in form and substance satisfactory to the Initial Purchasers and dated the Time of Purchase, of Cahill Gordon & Reindel, counsel to the Initial Purchasers. (c) The Initial Purchasers shall have received from Ernst & Young LLP a comfort letter or letters dated the date -20- hereof and the Closing in form and substance reasonably satisfactory to counsel to the Initial Purchasers. (d) The representations and warranties made by the Issuers and the Guarantor herein shall be true and correct in all material respects (except for changes expressly provided for in this Agreement) on and as of the Time of Purchase with the same effect as though such representations and warranties had been made on and as of the Time of Purchase, the Issuers and the Guarantor shall have complied in all material respects with all agreements as set forth in or contemplated hereunder and in the Basic Documents required to be performed by it at or prior to the Time of Purchase and the Company shall have furnished to each Purchaser a certificate, dated the Time of Purchase, to such effect. (e) Subsequent to the date of the Final Memorandum, (i) there shall not have been any change, or any development involving a prospective change, which has had or could reasonably be expected to have a Material Adverse Effect and (ii) the Issuers shall have conducted their respective businesses only in the ordinary course. (f) At the Time of Purchase and after giving effect to the consummation of the transactions contemplated by this Agreement and the Basic Documents, there shall exist no Default or Event of Default. (g) The purchase of and payment for the Notes by the Initial Purchasers hereunder shall not be prohibited or enjoined (temporarily or permanently) by any applicable law or governmental regulation (including, without limitation, Regulation G, T, U or X of the Board of Governors of the Federal Reserve System). (h) At the Time of Purchase, the Initial Purchasers shall have received a certificate, dated the Time of Purchase, from the Issuers and the Guarantor stating that the conditions specified in Sections 4.1(d), (e), (f) and (g) have been satisfied or duly waived at the Time of Purchase. (i) Each of the Basic Documents shall be satisfactory in form and substance to each of the Initial Purchasers and shall have been executed and delivered by all the respective parties thereto and shall be in full force and effect. -21- (j) All proceedings taken in connection with the issuance of the Notes and the transactions contemplated by this Agreement, the Basic Documents and all documents and papers relating thereto shall be reasonably satisfactory to the Initial Purchasers and counsel to the Initial Purchasers. The Initial Purchasers and counsel to the Initial Purchasers shall have received copies of such papers and documents as they may reasonably request in connection therewith, all in form and substance reasonably satisfactory to them. On or before the Closing, the Initial Purchasers and counsel to the Initial Purchasers shall have received such further documents, opinions, certificates and schedules or other instruments relating to the business, corporate, legal and financial affairs of the Issuers as they may reasonably request. ARTICLE V COVENANTS --------- Section 5.1. Covenants of the Issuers and the Guarantor. The Issuers ------------------------------------------ and the Guarantor covenant and agree with each of the Initial Purchasers that: (a) The Issuers will not amend or supplement the Final Memorandum or any amendment or supplement thereto of which the Initial Purchasers shall not previously have been advised and furnished a copy for a reasonable period of time prior to the proposed amendment or supplement and as to which the Initial Purchasers shall not have given their consent, which consent shall not be unreasonably withheld. The Issuers will promptly, upon the reasonable request of the Initial Purchasers or counsel to the Initial Purchasers, make any amendments or supplements to the Preliminary Memorandum or the Final Memorandum that may be necessary or advisable in connection with the resale of the Notes by the Initial Purchasers. (b) The Issuers will cooperate with the Initial Purchasers in arranging for the qualification of the Notes for offering and sale under the securities or "Blue Sky" laws of such jurisdictions as the Initial Purchasers may designate and will continue such qualifications in effect for as long as may be reasonably necessary to complete the resale of the Notes; provided, however, that in connection therewith, the Issuers shall not be required to qualify as a foreign corporation or to execute a general consent to -22- service of process in any jurisdiction or subject itself to taxation in excess of a nominal dollar amount in any such jurisdiction where it is not then so subject. (c) If, at any time prior to the completion of the distribution by the Initial Purchasers of the Notes or the Private Exchange Notes, any event occurs or information becomes known as a result of which the Final Memorandum as then amended or supplemented would include any untrue statement of a material fact, or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, or if for any other reason it is necessary at any time to amend or supplement the Final Memorandum to comply with applicable law, the Issuers will promptly notify the Initial Purchasers thereof (who thereafter will not use such Final Memorandum until appropriately amended or supplemented) and will prepare, at the expense of the Issuers, an amendment or supplement to the Final Memorandum that corrects such statement or omission or effects such compliance. (d) The Issuers will, without charge, provide to the Initial Purchasers and to counsel to the Initial Purchasers as many copies of the Preliminary Memorandum and the Final Memorandum or any amendment or supplement thereto as the Initial Purchasers may reasonably request. (e) The Issuers will apply the net proceeds from the sale of the Notes as set forth under "Use of Proceeds" in the Final Memorandum. (f) For and during the period ending on the date no Notes are outstanding, the Issuers will furnish to the Initial Purchasers copies of all reports and other communications (financial or otherwise) furnished by the Issuers to the Trustee or the holders of the Notes and, promptly after available, copies of any reports or financial statements furnished to or filed by the Issuers with the Commission or any national securities exchange on which any class of securities of the Company may be listed. (g) Prior to the Time of Purchase, the Company will furnish to the Initial Purchasers, as soon as they have been prepared, a copy of any unaudited interim financial statements of the Company for any period subsequent to the period covered by the most recent financial statements appearing in the Final Memorandum. -23- (h) None of the Issuers or any of its Affiliates will sell, offer for sale or solicit offers to buy or otherwise negotiate in respect of any "security" (as defined in the Act) which could be integrated with the sale of the Notes in a manner which would require the registration under the Act of the Notes. (i) The Issuers will not solicit any offer to buy or offer to sell the Notes by means of any form of general solicitation or general advertising (as those terms are used in Regulation D under the Act) or in any manner involving a public offering within the meaning of Section 4(2) of the Act. (j) For so long as any of the Notes remain outstanding and are "restricted securities" within the meaning of Rule 144(a)(3) under the Act and not salable in full under Rule 144 under the Act (or any successor provision), the Issuers will make available, upon request, to any seller of such Notes the information specified in Rule 144A(d)(4) under the Act, unless the Issuers are then subject to Section 13 or 15(d) of the Exchange Act. (k) The Issuers will use their best efforts to (i) permit the Notes to be included for quotation on PORTAL and (ii) permit the Notes to be eligible for clearance and settlement through The Depository Trust Company. (l) The Issuers and the Guarantor (to the extent a party thereto) will do and perform all things required to be done and performed by them under this Agreement and the Basic Documents prior to or after the Closing and to satisfy all conditions precedent on their part to the obligations of the Initial Purchasers to purchase and accept delivery of the Notes. (m) In connection with Notes offered and sold in an offshore transaction (as defined in Regulation S) the Issuers will not register any transfer of such Notes not made in accordance with the provisions of Regulation S and will not, except in accordance with the provisions of Regulation S, if applicable, issue any such Notes in the form of definitive securities. -24- ARTICLE VI FEES ---- Section 6.1. Costs, Expenses and Taxes. The Issuers and the ------------------------- Guarantor, jointly and severally, agree to pay all costs and expenses incident to the performance of their obligations under this Agreement, whether or not the transactions contemplated herein are consummated or this Agreement is terminated pursuant to Section 8.2 hereof, including, but not limited to, all costs and expenses incident to (i) the printing, word processing and reproduction of this Agreement, each of the Basic Documents, any amendment or supplement to or modification of any of the foregoing and any and all other documents furnished pursuant hereto or thereto or in connection herewith or therewith, (ii) any costs of printing the Preliminary Memorandum and the Final Memorandum and any amendment or supplement thereto, any other marketing related materials, (iii) all arrangements relating to the delivery to the Initial Purchasers of copies of the foregoing documents, (iv) the fees and disbursements of the counsel, the accountants and any other experts or advisors retained by the Company, (v) preparation (including printing), issuance and delivery to the Initial Purchasers of the Notes, (vi) the qualification of the Notes under state securities and "Blue Sky" laws, including filing fees, word processing and reproduction costs of any "Blue Sky" memoranda and fees and disbursements of counsel to the Initial Purchasers relating thereto not to exceed $15,000, (vii) expenses of Company personnel and the cost of any privately chartered air travel in connection with any meetings with prospective investors in the Notes, (viii) fees and expenses of the trustee, including fees and expenses of counsel to the Trustee, (ix) all expenses and listing fees incurred in connection with the application for quotation of the Notes on PORTAL, (x) any fees charged by investment rating agencies for the rating of the Notes, and (xi) except as limited by Article VII, all costs and expenses (including, without limitation, reasonable attorneys' fees and expenses), if any, in connection with the enforcement of this Agreement, the Notes or any other agreement furnished pursuant hereto or thereto or in connection herewith or therewith. In addition, the Issuers shall pay any and all stamp, transfer and other similar taxes payable or determined to be payable in connection with the execution and delivery of this Agreement, any Basic Document or the issuance of the Notes, and shall save and hold each Initial Purchaser harmless from and against any and all liabilities with respect to or resulting from any delay in paying, or omission to pay, such taxes. -25- ARTICLE VII INDEMNITY --------- Section 7.1. Indemnity. --------- (a) Indemnification by the Issuers and the Guarantor. The Issuers and ------------------------------------------------ the Guarantor, jointly and severally, agree and covenant to hold harmless and indemnify each of the Initial Purchasers and any Affiliates thereof (including any director, officer, employee, agent or controlling Person of any of the foregoing) from and against any losses, claims, damages, liabilities and expenses (including expenses of investigation) to which such Initial Purchaser and its Affiliates may become subject arising out of or based upon any untrue statement or alleged untrue statement of any material fact contained in the Memorandum and any amendments or supplements thereto, the Basic Documents, any documents filed with the Commission or any State Commission (collectively, the "Offering Materials") or arising out of or based upon the omission or alleged omission to state in any of the Offering Materials a material fact required to be stated therein or necessary to make the statements therein not misleading; provided, however, that the Issuers and the Guarantor shall not be liable under - -------- ------- this paragraph (a) to the extent that such losses, claims, damages or liabilities arose out of or are based upon an untrue statement or omission made in any of the documents referred to in this paragraph (a) in reliance upon and in conformity with the information relating to the Initial Purchasers furnished in writing by such Initial Purchasers for inclusion therein; provided, further, -------- ------- that the Issuers and the Guarantor shall not be liable under this paragraph (a) to the extent that such losses, claims, damages or liabilities arose out of or are based upon an untrue statement or omission made in any Memorandum that is corrected in the Final Memorandum (or any amendment or supplement thereto) if the person asserting such loss, claim, damage or liability purchased Notes from an Initial Purchaser in reliance on such Memorandum but was not given the Final Memorandum (or any amendment or supplement thereto) on or prior to the confirmation of the sale of such Notes. The Issuers and the Guarantor, on a joint and several basis, further agree to reimburse each Initial Purchaser for any reasonable legal and other expenses as they are incurred by it in connection with investigating, preparing to defend or defending any lawsuits, claims or other proceedings or investigations arising in any manner out of or in connection with such Person being an Initial Purchaser; provided that if the -------- Issuers or the Guarantor reimburses an Initial Purchaser hereunder for any expenses incurred in connection with a lawsuit, claim or other proceeding -26- for which indemnification is sought, such Initial Purchaser hereby agrees to refund such reimbursement of expenses to the extent that the losses, claims, damages or liabilities are not entitled to indemnification hereunder. The Issuers and the Guarantor further agree that the indemnification, contribution and reimbursement commitments set forth in this Article VII shall apply whether or not an Initial Purchaser is a formal party to any such lawsuits, claims or other proceedings. The indemnity, contribution and expense reimbursement obligations of the Issuers and the Guarantor under this Article VII shall be in addition to any liability the Issuers and the Guarantor may otherwise have. (b) Indemnification by the Initial Purchasers. Each of the Initial ----------------------------------------- Purchasers agrees and covenants, severally and not jointly, to hold harmless and indemnify the Issuers and the Guarantor and any Affiliates thereof (including any director, officer, employee, agent or controlling Person of any of the foregoing) from and against any losses, claims, damages, liabilities and expenses insofar as such losses, claims, damages, liabilities or expenses arise out of or are based upon any untrue statement of any material fact contained in the Offering Materials, or upon the omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that such untrue statement or omission was made in reliance upon and in conformity with the information relating to such Initial Purchaser furnished in writing by such Initial Purchaser for inclusion therein. The indemnity, contribution and expense reimbursement obligations of the Initial Purchasers under this Article VII shall be in addition to any liability the Initial Purchasers may otherwise have. (c) Procedure. If any Person shall be entitled to indemnity hereunder --------- (each an "Indemnified Party"), such Indemnified Party shall give prompt written notice to the party or parties from which such indemnity is sought (each an "Indemnifying Party") of the commencement of any action, suit, investigation or proceeding, governmental or otherwise (a "Proceeding"), with respect to which such Indemnified Party seeks indemnification or contribution pursuant hereto; provided, however, that the failure so to notify the Indemnifying Parties shall - -------- ------- not relieve the Indemnifying Parties from any obligation or liability except to the extent that the Indemnifying Parties have been prejudiced materially by such failure. The Indemnifying Parties shall have the right, exercisable by giving written notice to an Indemnified Party promptly after the receipt of written notice from such Indemnified Party of such Proceeding, to assume, at the Indemnifying Parties' expense, the defense of any -27- such Proceeding, with counsel reasonably satisfactory to such Indemnified Party; provided, however, that an Indemnified Party or parties (if more than one such - -------- ------- Indemnified Party is named in any Proceeding) shall have the right to employ separate counsel in any such Proceeding and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Indemnified Party or parties unless: (1) the Indemnifying Parties agree to pay such fees and expenses; or (2) the Indemnifying Parties fail promptly to assume the defense of such Proceeding or fail to employ counsel reasonably satisfactory to such Indemnified Party or parties; or (3) the named parties to any such Proceeding (including any impleaded parties) include both such Indemnified Party or parties and the Indemnifying Party or an Affiliate of the Indemnifying Party and such Indemnified Parties, and the Indemnified Parties shall have been advised in writing by counsel that there may be one or more legal defenses available to such Indemnified Party or parties that are different from or additional to those available to the Indemnifying Parties, in which case, if such Indemnified Party or parties notifies the Indemnifying Parties in writing that it elects to employ separate counsel at the expense of the Indemnifying Parties, the Indemnifying Parties shall not have the right to assume the defense thereof and such counsel shall be at the expense of the Indemnifying Parties, it being understood, however, that, unless there exists a conflict among Indemnified Parties, the Indemnifying Parties shall not, in connection with any one such Proceeding or separate but substantially similar or related Proceedings in the same jurisdiction, arising out of the same general allegations or circumstances, be liable for the fees and expenses of more than one separate firm of attorneys (together with appropriate local counsel) at any time for such Indemnified Party or Parties, or for fees and expenses that are not reasonable. No Indemnified Party or Parties will settle any Proceeding without the consent of the Indemnifying Party or Parties (but such consent shall not be unreasonably withheld). No Indemnifying Party shall, without the prior written consent of the Indemnified Party, effect any settlement of any pending or threatened Proceeding in respect of which any Indemnified Party is or could have been a party and indemnity could have been sought hereunder by such Indemnified Party, unless such settlement includes an unconditional release of such Indemnified Party from all liability or claims that are the subject of such Proceeding. Section 7.2. Contribution. If for any reason the indemnification ------------ provided for in Section 7.1 of this Agreement is unavailable to an Indemnified Party, or insufficient to hold it harmless, in respect of any losses, claims, damages, liabilities -28- or expenses referred to therein, then each applicable Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall contribute to the amount paid or payable by such Indemnified Party as a result of such losses, claims, damages or liabilities in such proportion as is appropriate to reflect not only the relative benefits received by the Indemnifying Party on the one hand and the Indemnified Party on the other, but also the relative fault of the Indemnifying and Indemnified Parties in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities, as well as any other relevant equitable considerations. The relative benefits received by the Indemnifying and Indemnified Parties shall be deemed to be in the same proportion as the total proceeds from the offering of the Notes (before deducting expenses) received by the Issuers bear to the total discounts and commissions received by each Initial Purchaser. The relative fault of the Indemnifying and Indemnified Parties shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Indemnifying or Indemnified Parties and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The amount paid or payable by a party as a result of the losses, claims, damages and liabilities referred to above shall be deemed to include any legal or other fees or expenses incurred by such party in connection with investigating or defending any such claim. The Issuers and the Guarantor and each of the Initial Purchasers agree that it would not be just and equitable if contribution pursuant to the immediately preceding paragraph were determined pro rata or per capita or by any other method of allocation which does not take into account the equitable considerations referred to in such paragraph. Notwithstanding any other provision of this Section 7.2, no Initial Purchaser shall be obligated to make contributions hereunder that in the aggregate exceed the total discounts, commissions and other compensation received by such Initial Purchaser under this Agreement, less the aggregate amount of any damages that such Initial Purchaser has otherwise been required to pay by reason of the untrue or alleged untrue statements or the omissions or alleged omissions to state a material fact. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. -29- Section 7.3. Registration Rights Agreement. Notwithstanding anything ----------------------------- to the contrary in this Article 7, the indemnification and contribution provisions of the Registration Rights Agreement shall govern any claim with respect thereto. ARTICLE VIII MISCELLANEOUS ------------- Section 8.1. Survival of Provisions. The representations, warranties ---------------------- and covenants of the Issuers, the Guarantor, their respective officers and the Initial Purchasers made herein, the indemnity and contribution agreements contained herein and each of the provisions of Articles VI, VII and VIII shall remain operative and in full force and effect regardless of (a) any investigation made by or on behalf of the Issuers, the Guarantor, any Initial Purchaser or any Indemnified Party, (b) acceptance of any of the Notes and payment therefor, (c) any termination of this Agreement, or (d) disposition of the Notes by the Initial Purchasers whether by redemption, exchange, sale or otherwise. Section 8.2. Termination. (a) This Agreement may be terminated in ----------- the sole discretion of the Initial Purchasers by notice to the Company given prior to the Time of Purchase in the event that the Issuers shall have failed, refused or been unable to perform all obligations and satisfy all conditions on their part to be performed or satisfied hereunder at or prior thereto or, if at or prior to the Closing: (i) the Issuers or the Guarantor shall have sustained any loss or interference with respect to their businesses or properties from fire, flood, hurricane, accident or other calamity, whether or not covered by insurance, or from any strike, labor dispute, slow down or work stoppage or any legal or governmental proceeding, which loss or interference, in the sole judgment of the Initial Purchasers, has had or has a Material Adverse Effect, or there shall have been, in the sole judgment of the Initial Purchasers, any event or development that, individually or in the aggregate, has or could be reasonably likely to have a Material Adverse Effect (including without limitation a Change of Control (as defined in the Indenture) of the Issuers or the Guarantor), except in each case as described in the Final Memorandum (exclusive of any amendment or supplement thereto); -30- (ii) trading in securities of the Company or in securities generally on the New York Stock Exchange, American Stock Exchange or the Nasdaq National Market shall have been suspended or minimum or maximum prices shall have been established on any such exchange or market; (iii) a banking moratorium shall have been declared by New York or United States authorities; (iv) there shall have been (A) an outbreak or escalation of hostilities between the United States and any foreign power, or (B) an outbreak or escalation of any other insurrection or armed conflict involving the United States or any other national or international calamity or emergency, or (C) any material change in the financial markets of the United States which, in the case of (A), (B) or (C) above and in the sole judgment of the Initial Purchasers, makes it impracticable or inadvisable to proceed with the offering or the delivery of the Notes as contemplated by the Final Memorandum; or (v) any securities of the Company shall have been downgraded or placed on any "watch list" for possible downgrading by any nationally recognized statistical rating organization. (b) Termination of this Agreement pursuant to this Section 8.2 shall be without liability of any party to any other party except as provided in Section 8.1 hereof. Section 8.3. No Waiver; Modifications in Writing. No failure or delay ----------------------------------- on the part of the Issuers, the Guarantors or any Initial Purchaser in exercising any right, power or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, power or remedy preclude any other or further exercise thereof or the exercise of any other right, power or remedy. The remedies provided for herein are cumulative and are not exclusive of any remedies that may be available to the Issuers or the Guarantor or any Initial Purchaser at law or in equity or otherwise. No waiver of or consent to any departure by the Issuers or the Guarantor from any provision of this Agreement shall be effective unless signed in writing by the party entitled to the benefit thereof, provided that notice of any such waiver -------- shall be given to each party hereto as set forth below. Except as otherwise provided herein, no amendment, modification or termination of any provision of this Agreement shall be effective unless signed in writing by or on behalf of each of the Issuers, the Guarantor and each Initial -31- Purchaser. Any amendment, supplement or modification of or to any provision of this Agreement, any waiver of any provision of this Agreement, and any consent to any departure by the Issuers or the Guarantor from the terms of any provision of this Agreement, shall be effective only in the specific instance and for the specific purpose for which made or given. Except where notice is specifically required by this Agreement, no notice to or demand on the Issuers or the Guarantor in any case shall entitle the Issuers or the Guarantor to any other or further notice or demand in similar or other circumstances. Section 8.4. Information Supplied by the Initial Purchasers. The ---------------------------------------------- statements set forth in the first paragraph on page (i), the fourth and the fifth sentences of the third paragraph and in the sixth paragraph under the heading "Plan of Distribution" in the Final Memorandum (to the extent such statements relate to the Initial Purchasers) constitute the only information furnished by the Initial Purchasers to the Company for the purposes of Sections 3.1(a) and 7.1(a) and (b) hereof. Section 8.5. Communications. All notices, demands and other -------------- communications provided for hereunder shall be in writing, and, (a) if to the Initial Purchasers, shall be given by registered or certified mail, return receipt requested, telex, telegram, telecopy, courier service or personal delivery, addressed to First Union Capital Markets Corp., 301 South College Street TW-10, Charlotte, NC 28288, and CIBC Wood Gundy Securities Corp., 425 Lexington Avenue, 3rd floor, New York, New York 10017, with a copy to Cahill Gordon & Reindel, 80 Pine Street, New York, New York, 10005, Attention: Roger Meltzer, Esq. and (b) if to the Issuers or the Guarantor, shall be given by similar means to 6420 Wilshire Boulevard, Los Angeles, California 90048, attn: Chief Financial Officer and General Counsel, with copies to Kirkland & Ellis, 200 East Randolph Drive, Chicago, IL 60601, attn: John Weissenbach, Esq. In each case notices, demands and other communications shall be deemed given when received. Section 8.6. Execution in Counterparts. This Agreement may be executed ------------------------- in any number of counterparts and by different parties hereto on separate counterparts, each of which counterparts, when so executed and delivered, shall be deemed to be an original and all of which counterparts, taken together, shall constitute but one and the same Agreement. Section 8.7. Successors. This Agreement shall inure to the benefit of ---------- and be binding upon the Initial Purchasers, the Issuers, the Guarantor and their respective successors and legal representatives, and nothing expressed or mentioned in this -32- Agreement is intended or shall be construed to give any other Person any legal or equitable right, remedy or claim under or in respect of this Agreement, or any provisions herein contained; this Agreement and all conditions and provisions hereof being intended to be and being for the sole and exclusive benefit of such Persons and for the benefit of no other Person except that (i) the indemnities of the Issuers and the Guarantor contained in Section 7.1(a) of this Agreement shall also be for the benefit of the directors, officers, employees and agents of the Initial Purchasers and any Person or Persons who control the Initial Purchasers within the meaning of Section 15 of the Act or Section 20 of the Exchange Act and (ii) the indemnities of the Initial Purchasers contained in Section 7.1(b) of this Agreement shall also be for the benefit of the directors of the Issuers and the Guarantor, their officers and any Person or Persons who control the Issuers or the Guarantor within the meaning of Section 15 of the Act or Section 20 of the Exchange Act. No purchaser of Notes from the Initial Purchasers will be deemed a successor because of such purchase. Section 8.8. Governing Law. THIS AGREEMENT SHALL BE DEEMED TO BE A ------------- CONTRACT MADE UNDER THE LAWS OF THE STATE OF NEW YORK, AND FOR ALL PURPOSES SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF SAID STATE, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. Section 8.9. Severability of Provisions. Any provision of this -------------------------- Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof or affecting the validity or enforceability of such provision in any other jurisdiction. Section 8.10. Headings. The Article and Section headings and Table of -------- Contents used or contained in this Agreement are for convenience of reference only and shall not affect the construction of this Agreement. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first written above. PETERSEN PUBLISHING COMPANY, L.L.C. (a Delaware limited liability company) By: ____________________________________ Name: Title: PETERSEN CAPITAL CORP. (a Delaware corporation) By: ____________________________________ Name: Title: PETERSEN HOLDINGS, L.L.C. (a Delaware limited liability company) as Guarantor By: ___________________________________ Name: Title: FIRST UNION CAPITAL MARKETS CORP. By: ___________________________________ Name: Title: CIBC WOOD GUNDY SECURITIES CORP. By: ___________________________________ Name: Title: SCHEDULE I
Principal Amount Initial Purchaser of Notes - ----------------- ---------------- First Union Capital Markets Corp. $ 55,000,000 CIBC Wood Gundy Securities Corp. 45,000,000 ------------ Total $100,000,000 ------------
EX-10.1 11 LICENSE AGREEMENT EXHIBIT 10.1 LICENSE AGREEMENT THIS LICENSE AGREEMENT (the "Agreement") is made and entered into as of August 15, 1996 by and between Robert E. Petersen ("Petersen") and Petersen Publishing Company, a California corporation (the "Company", and together with Petersen, the "Licensor"), and BrightView Communications Group, Inc., a Delaware corporation (including permitted assignees and/or sublicensees, the "Licensee"). WHEREAS, Licensee and the Company entered into that certain Asset Purchase Agreement dated August 15, 1996 (the "Asset Purchase Agreement") for the conveyance of various assets of the Company, including, but not limited to, (a) any brand name, copyright, patent, service mark, trademark - and all registrations or applications for registration of any of the foregoing - listed on Schedule A hereto (the "Marks") and (b) all of the Company's rights, in the United States and worldwide, to publish, sell, distribute and license those publications set forth on Schedule B to this Agreement (the "Publications"); WHEREAS, Licensee desires to use, and Licensor desires to grant to Licensee, the right to use the name, tradename, dba, copyright, service mark and trademark "Petersen" and "Petersen Publishing Company" and derivatives thereof (the "Licensed Property") as provided herein; WHEREAS, a Licensor serves as a trustee of the R.E. & M.M. Petersen Living Trust, dated January 17, 1983, which currently owns all of the outstanding capital stock of the Company; NOW, THEREFORE, in consideration of the recitals above and the mutual promises set forth below, effective as of the Closing under the Asset Purchase Agreement, the parties hereto agree as follows: 1. License. Licensor hereby grants to Licensee a royalty free exclusive ------- license (the "License") to use the Licensed Property solely in connection with Licensee's publication, sale, distribution and licensing of the Publications and the Marks for the conduct of a publishing, programming, events and media business, including without limitation electronic media, by Licensee with the various assets conveyed to Licensee under the Asset Purchase Agreement, and new or additional publications, media, programming or events and the business and activities ancillary thereto (collectively, the "Publishing Business"). Licensee may not grant a license or sub-license to use the Licensed Property to any Person other than the Licensee, except for Persons controlled by, or under common control with, Licensee or as contemplated by Section 16 below. Licensor agrees that it will not use or grant to Person any license to use the Licensed Property for purposes competitive to the Licensee's Publishing Business. For purposes of this Agreement, "Person" means an association, a corporation, a limited liability company, an individual, a partnership, a trust or any other entity or organization, including any government or any agency, bureau, board, commission, court, department, official, political subdivision, tribunal or other instrumentality of any government, whether federal, state or local, domestic or foreign. Except as provided in the first or third sentence of this Section 1, nothing in this Agreement shall affect the right of Licensor to use and license the Licensed Property; except that Licensor agrees not to use the name "Petersen Publishing Company" to conduct any business. 2. Term of License. The term of the License shall commence as of the --------------- date hereof and shall continue in perpetuity, unless this Agreement is earlier terminated pursuant to the terms hereof (the "Term"). 3. Use of Licensed Property. Licensee shall not use and shall cease ------------------------ any use of the Licensed Property in a manner that: (i) contravenes any statute or regulation; (ii) impairs the validity or enforceability of the Licensed Property; (iii) impairs the quality of products and services with which the Licensed Property is used; (iv) associates the Licensed Property with any immoral, lewd, prurient, lascivious or licentious conduct or image (except to the extent, if any, consistent with the practices and policies of the Company prior to the Closing); or (v) disparages the Licensed Property, the Licensor, or any Affiliate of Licensor. For purposes of this Agreement, "Affiliate of Licensor" or "Affiliate" shall mean any spouse and members of 2 the immediate family of Petersen and any Person controlled by, or under common control with, Licensor. Licensee agrees that all proprietary right and goodwill in the Licensed Property shall inure to the benefit of Licensor, that the uses of the Licensed Property by Licensee shall not create any interest or right, express or implied, of the Licensee in the Licensed Property except as set forth in this Agreement, and that Licensee does not and will not assert any claim to any ownership thereof. If, by operation of law, or otherwise, Licensee is deemed to or appears to own any property rights in the Licensed Property, Licensee shall, at Licensor's request, execute any and all documents necessary to confirm or otherwise establish Licensor's rights therein. The rights of copyright granted by the License shall not be construed as granting to Licensor any ownership rights in works of authorship created by or for Licensee. 4. Preservation of Licensed Property. Licensee, at its cost, shall --------------------------------- take all steps necessary to preserve and protect the validity of the Licensed Property, to the extent relating to the Publishing Business. All displays of the Licensed Property by Licensee shall bear such trademark and/or copyright notices or other legal notices which Licensor from time to time may prescribe, and all such notices shall be printed legibly and irremovably. 5. Approvals, Samples, Quality Control. ----------------------------------- (a) The quality of Publications, new or additional publications, media and events and other activities of the Publishing Business for which the Licensee utilizes at any time and in any manner any Licensed Property (the "Relevant Publications") shall meet or exceed the quality of any products or services provided by Licensor or any Affiliate of Licensor prior to the date hereof. (b) In the event Licensor shall have reasonable cause to believe that the standard of quality required herein for the Relevant Publications has not been met, Licensor shall give notice thereof to Licensee specifying in reasonable detail the alleged deficiencies, and Licensee shall have a period of 30 days within which to conform to such standard. Licensee shall permit representatives of Licensor to inspect Licensee's facilities upon reasonable 3 notice and during normal business hours to determine whether Licensee is maintaining the quality standard set forth in this Section 5. 6. Infringement Actions. In the event that Licensee learns of any -------------------- infringement, misuse or misappropriation of the Licensed Property, it shall promptly notify Licensor thereof in writing. In such event, Licensee shall have the initial right to institute any legal action or proceeding concerning infringement, misuse or misappropriation of the Licensed Property and at its option to join Licensor as plaintiff. If Licensee institutes any legal action or proceeding, Licensee shall indemnify and hold Licensor harmless from and against any and all liabilities, damages, judgments, penalties, losses, costs, expenses, claims, suits or demands relating to or arising out of such legal action or proceeding. Licensee may select counsel of its choice, and shall control the action and shall bear the entire cost of such action, and shall be entitled to retain the entire amount of any recovery by way of judgment, award, decree or settlement. If Licensee determines, in its sole discretion, not to institute any legal action or proceeding, Licensor shall have the right, but not the obligation, to institute any legal action or proceeding; provided, however, that Licensor agrees to indemnify and hold Licensee harmless from and against any and all liabilities, damages, judgments, penalties, losses, costs, expenses, claims, suits or demands relating to or arising out of such legal action or proceeding. In such event, Licensor may select counsel of its choice, and shall control the action and shall bear the entire cost of such action, and shall be entitled to retain the entire amount of any recovery by way of judgment, award, decree or settlement. Each party shall cooperate with the other party in any such actions against third parties, and may if such party desires, elect to be represented by counsel of its choice, but at its own expense. 7. Indemnification. Licensee will protect, defend, indemnify and --------------- hold Licensor and Affiliates, and the officers, directors, employees, shareholders and agents of each of them, harmless from and against any and all liabilities, damages, judgments, penalties, losses, costs, expenses (including without limitation reasonable attorneys' fees), claims, suits, or demands relating to or arising from any breach by Licensee of any of its representations, warranties or agreements hereunder or by reason 4 of the publication, distribution or other use by Licensee of the Licensed Property. 8. Insurance. Licensee shall obtain and maintain during the Term of --------- this Agreement and for a period of five (5) years following its termination, standard comprehensive Public and Product Liability and Advertising Insurance, from a recognized insurance company which is reasonably acceptable to Licensor. The form of said insurance must be reasonably acceptable to Licensor, and the policy shall name Licensor as an additional named insured. Such policy shall provide protection against any and all claims, demands and causes of action arising out of any defects or failure to perform alleged or otherwise, of the Relevant Publications or any material used in connection therewith or any use thereof. The amount of coverage shall be not less than Five Million Dollars ($5,000,000) combined single limit, with a deductible amount not to exceed Ten Thousand Dollars ($10,000), for each single occurrence for bodily injury and/or for property damage. The policy shall provide for thirty (30) days prior notice to Licensor from the insurer by Registered or Certified Mail, return receipt requested, in the event of any modification, cancellation or termination. Licensee agrees to furnish Licensor with a certificate of insurance evidencing same within thirty (30) days after Closing under the Asset Purchase Agreement and, in no event shall Licensee publish, distribute or sell any issue of any Relevant Publication incorporating any Licensed Property prior to receipt by Licensor of such evidence of insurance. For the purposes of this paragraph, "Licensor" shall include agents and employees of Licensor and agents, employees, officers, directors and partners of any Affiliate. 9. Termination. ----------- (a) Licensor may terminate this Agreement with respect to the Licensee's ability to use or license the Licensed Property in connection with a Publication (or any new or additional publication or media) and the Marks and activities (including, without limitation, publishing, programming, events and other media) related to such Publication (or new or additional publication or media) upon written notice effective immediately, if Licensee commits any material breach of this Agreement in connection with such Publication (or new publication or other media) or its Marks and related activities (including, without 5 limitation, publishing, programming, events and other media) and fails to cure the breach within sixty (60) days after receipt of Licensor's written request to do so; (b) In addition to its rights to terminate this Agreement in part under Section 9(a), Licensor may terminate this Agreement, in whole, upon written notice effective immediately, if Licensee has materially breached this Agreement with respect to any three or more Publications, new or additional publications, or media or its Marks or related activities and in connection therewith Licensor has exercised its rights to terminate this Agreement, in part, pursuant to Section 9(a). (c) Licensee may terminate this Agreement for its convenience at any time by giving Licensor ten (10) days prior written notice thereto, provided however that no such termination shall relieve Licensee of its obligations to indemnify and hold harmless Licensor pursuant to Sections 6 or 7 hereof. 10. Effect of Termination. If this Agreement is terminated, or --------------------- terminated in part pursuant to Section 9(a), Licensee and its receivers, representatives, trustees, agents, administrators, successors and/or permitted assignees of Licensee shall have no further rights to use the Licensed Property hereunder (or, if terminated in part, with respect to the Publications, new or additional publications, or other media and related activities so terminated). 11. Equitable Relief and Monetary Damages. Licensee acknowledges ------------------------------------- that a breach of this Agreement by Licensee would cause immediate and irreparable harm to Licensor for which money damages could not adequately compensate Licensor. Therefore, Licensor shall have the right to enforce this Agreement, not only by an action or actions for damages, but also by an action or actions for specific performance or injunctive or other equitable relief in order to enforce or prevent any violations of the terms or conditions of this Agreement, without proof of actual damages and without the posting of bond or other security. 12. Amendments; Waivers. This Agreement and any Schedule attached ------------------- hereto may be amended only by agreement in writing of both parties. No waiver of any provision nor consent 6 to any exception to the terms of this Agreement shall be effective unless in writing and signed by the party to be bound and then only to the specific purpose, extent and instance so provided. 13. Exhibits and Schedules; Integration. Each Schedule delivered ----------------------------------- pursuant to the terms of this Agreement shall be in writing and shall constitute a part of this Agreement, although such Schedule need not be attached to each copy of this Agreement. This Agreement, together with such Schedules, constitutes the entire agreement between the parties pertaining to the subject matter hereof and supersedes all prior agreements and understandings of the parties in connection therewith. 14. Governing Law. This Agreement, the legal relations between the ------------- parties and any Action, whether contractual or non-contractual, instituted by any party with respect to matters arising under or growing out of or in connection with or in respect of this Agreement shall be governed by and construed in accordance with the laws of the State of California applicable to contracts made and performed in such State and without regard to conflicts of law doctrines. For purposes of this Agreement, "Action" shall mean any complaint, petition, suit or other proceeding, whether civil or criminal, in law or in equity, before any arbitrator or any government or any agency, bureau, board, commission, court, department, official, political subdivision, tribunal or other instrumentality of any government, whether state, federal or local, domestic or foreign. 15. Assignment. Licensor shall not assign any of its rights or ---------- privileges hereunder without the prior written consent of Licensee (which consent the Licensee shall not withhold unreasonably), except to an Affiliate or member of the immediate family of Petersen. Licensee shall not assign any of its rights or privileges hereunder without the prior written consent of Licensor (which consent the Licensor shall not withhold unreasonably), except to a successor in ownership of all or substantially all of the assets related to the Publishing Business or substantially all of the stock of Licensee. Licensee may sub-license the Licensed Property to any entity in which it holds a significant economic interest or in a transaction from which it derives a significant economic benefit, if the following apply: 7 (a) Licensee retains control rights sufficient to permit Licensee to ensure enforcement against sub-licensee of the terms set forth in Sections 3 and 5 of this Agreement; (b) the sub-license entered into between Licensee and its sub- licensee expressly permits Licensor to enforce the terms of this Agreement against the sub-licensee; and (c) Licensee is liable to Licensor for any breach of its sub-licensee of this Agreement and any such breach by a sub-licensee shall also constitute a breach of this Agreement by Licensee. 16. Current Assignment of Licensed Property. Notwithstanding anything --------------------------------------- herein to the contrary, and provided that this Agreement is in effect at the time of the deaths of Robert E. Petersen and Margaret Petersen, Licensor hereby assigns to Licensee, effective immediately upon the deaths of the last to die of Robert E. Petersen and Margaret Petersen, all of Licensor's right, title and interest in and to: (a) the Licensed Property for use in the Publishing Business; and (b) all other licensed rights (if any) granted by Licensor to Licensee pursuant to this Agreement. The terms and conditions of this Agreement shall terminate simultaneously with the effectiveness of such assignments. 17. Headings. The descriptive headings of the Sections and -------- Subsections of this Agreement are for convenience only and do not constitute a part of this Agreement. 18. Counterparts. This Agreement and any amendment hereto or any ------------ other agreement or document delivered pursuant hereto may be executed in one or more counterparts and by different parties in separate counterparts. All of such counterparts shall constitute one and the same agreement or other document and shall become effective unless otherwise provided therein when one or more counterparts have been signed by each party and delivered to the other party. 19. Parties in Interest. This Agreement shall be binding upon and ------------------- inure to the benefit of each party, and nothing in this Agreement, express or implied, is intended to confer upon 8 any other person any rights or remedies of any nature whatsoever under or by reason of this Agreement. 20. Notices. Any notice or other communication hereunder must be ------- given in writing and (a) delivered in person, (b) transmitted by telex, telefax or telecommunications mechanism provided that any notice so given is also mailed or sent as provided in clause (c), or (c) mailed by certified or registered mail, postage prepaid, receipt requested or sent by reputable overnight courier as follows: If to Licensee, addressed to: BrightView Communications Group, Inc. c/o Willis Stein & Partners L.L.C. 227 West Monroe Street Suite 4300 Chicago, Illinois 60606 Telecopy: (312) 422-2424 Attn: Avy H. Stein Daniel H. Blumenthal With a copy to: Kirkland & Ellis 200 East Randolph Drive Chicago, IL 60601 Telecopy: (312) 861-2200 Attn: John A. Weissenbach, Esq. If to Licensor, addressed to: Robert E. Petersen 6420 Wilshire Boulevard Los Angeles, California 90048 Telecopy: (213) 782-2734 9 With copies to: O'Melveny & Myers LLP 400 S. Hope St. Los Angeles, CA 90071 Telecopy: (213) 669-6407 Attn: C. James Levin, Esq. and: Robert Gottlieb, Esq. 617 Maple Drive Beverly Hills, California 90210 Telecopy: (213) 782-2855 or to such other address or to such other person as either party shall have last designated by such notice to the other party. Each such notice or other communication shall be effective (i) if given by telecommunication, on the business day on which it is transmitted (or if not transmitted on a business day, then on the first business day following the date of such transmission) to the applicable number specified in (or pursuant to) this Section 20 and an appropriate answerback is received, (ii) if given by mail or courier or any other means, when actually delivered. 21. Expenses. Licensee and Licensor shall each pay their own -------- expenses incident to the negotiation, preparation and performance of this Agreement and the transactions contemplated hereby, including, but not limited to, the fees, expenses and disbursements of their advisers. 22. Attorneys' Fees. In the event of any Action by any party arising --------------- under or out of, in connection with or in respect of this Agreement, including any participation in bankruptcy proceedings to enforce against a party a right or claim in such proceedings, the prevailing party shall be entitled to reasonable attorneys' fees, costs and expenses incurred in such Action. Attorneys' fees incurred in enforcing any judgement in respect of this Agreement are recoverable as a separate item. The parties intend that the preceding sentence be severable from the other provisions of this Agreement, survive any judgment and, 10 to the maximum extent permitted by law, not be deemed merged into such judgment. 23. Representation By Counsel; Interpretation. Licensee and Licensor ----------------------------------------- each acknowledge that each party to this Agreement has been represented by counsel in connection with this Agreement and the transactions contemplated by this Agreement. Accordingly, any rule of law or any legal decision that would require interpretation of any claimed ambiguities in this Agreement against the party that drafted it has no application and is expressly waived. The provisions of this Agreement shall be interpreted in a reasonable manner to effect the intent of Licensor and Licensee. 24. Severability. If any provision of this Agreement is determined ------------ to be invalid, illegal or unenforceable by any Governmental Entity, the remaining provisions of this Agreement shall remain in full force and effect provided that the essential terms and conditions of this Agreement for both parties remain valid, binding and enforceable. For purpose of this Agreement, "Governmental Entity" means any government or any agency, bureau, board, commission, court, department, official, political subdivision, tribunal or other instrumentality of any government, whether federal, state or local, domestic or foreign. To the extent permitted by Law, the parties hereby to the same extent waive any provision of Law that renders any provision hereof prohibited or unenforceable in any respect. 25. Dispute Resolution; Agreement to Arbitrate. Except to the extent ------------------------------------------ that any specific dispute resolution mechanism has been otherwise provided for with respect to any specific provision of this Agreement (or such mechanism has been pursued to its conclusion and either the dispute in question remains unresolved or the resolution reached by such process has not been honored), in the event that any dispute arises between Licensor and Licensee with respect to this Agreement or the transactions contemplated hereby, the following procedures shall apply. (a) The parties will attempt in good faith to resolve any dispute, controversy or claim under, arising out of, relating to or in connection with this Agreement, including, but not limited to, the negotiation, execution, 11 interpretation, construction, performance, non-performance, breach, termination, validity, scope, coverage or enforceability of this Agreement or any alleged fraud in connection therewith, promptly by negotiations between representatives of the parties. If any such dispute, controversy or claim should arise, duly authorized representatives of Licensor and Licensee will meet at least once and will attempt to resolve the matter. Either representative may request the other to meet again within 14 days thereafter, at a mutually agreed time and place. If the matter has not been resolved within 30 days after the first meeting of the representatives (which period may be extended by mutual agreement), the parties will attempt in good faith to resolve the controversy or claim in accordance with the Center for Public Resources Model Procedure for Mediation of Business Disputes. (b) If the matter has not been resolved pursuant to the foregoing procedures within 60 days after the first meeting (which period may be extended by mutual agreement), the matter shall be resolved, at the request of either party, by arbitration conducted in accordance with the provisions of the Federal Arbitration Act (9 U.S.C. (S)(S)1-16) and in accordance with the Center for Public Resources Rules for Non-Administered Arbitration of Business Disputes, by one arbitrator mutually selected by the parties. If the parties are unable to agree on the selection of an arbitrator, they shall select an arbitrator through the procedures established by the Center for Public Resources Rules for Non-Administered Arbitration of Business Disputes. The arbitration of such issues, including the determination of any amount of damages suffered by any party hereto by reason of the acts or omissions of any party, shall be final and binding upon the parties, except that the arbitrator shall not be empowered to act as amiable compositeur or authorized to award punitive damages with respect to any such claim, dispute or controversy. No party shall seek any punitive damages relating to any matters under, arising out of, in connection with or relating to this Agreement. Equitable remedies shall be available in any such arbitration. The parties intend that this agreement to arbitrate be valid, binding, enforceable and irrevocable. The substantive law of the State of California shall apply 12 to any such arbitration proceedings. The place of any such arbitration shall be Los Angeles, California. Judgment upon the award rendered by the arbitrators may be entered by any court having jurisdiction thereof. (c) Notwithstanding the provisions of this Section 24, either party may seek injunctive or other equitable relief to maintain the status quo before any court of competent jurisdiction in connection with any claim, dispute or controversy arising out of this Agreement. IN WITNESS WHEREOF, the authorized representatives of the parties hereto have duly executed this Agreement as of the first date above. LICENSEE: -------- BRIGHTVIEW COMMUNICATIONS GROUP, INC. By:_________________________ Its:________________ LICENSOR: -------- By: _________________________ Robert E. Petersen PETERSEN PUBLISHING COMPANY By:_________________________ Its:________________ 13 SPOUSAL CONSENT The undersigned, being the spouse of Robert E. Petersen, does hereby consent to this Agreement and agree to be bound by the terms of the Agreement. By: __________________________ Margaret McNally Petersen Dated: August 15, 1996 14 EX-10.2 12 EMPLOYMENT AGREEMENT EXHIBIT 10.2 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT is entered into as of August 15, 1996 and shall be effective as of the Closing Date (as defined in the Asset Purchase Agreement described below) by and between BrightView Communications Group, Inc., a Delaware corporation ("Employer"), and Robert E. Petersen ("Employee"). -------- -------- WITNESSETH: WHEREAS, Employee is the founder and Chairman of the Board of Petersen Publishing Company, a California corporation (the "Company"), which has been ------- engaged in the publishing business since 1948; WHEREAS, pursuant to an Asset Purchase Agreement, dated as of August 15, 1996, between Employer and the Company (the "Asset Purchase Agreement"), ------------------------ Employer has acquired and assumed substantially all of the Company's assets and liabilities relating to the publishing business; WHEREAS, the Board of Directors of Employer (the "Board") has determined ----- that because of Employee's substantial experience and business relationships in connection with the publishing business and Employee's familiarity with the clientele served by Employer, it is in Employer's best interest and that of its stockholders to secure services of Employee, to secure certain additional commitments from Employee and to provide Employee with certain additional benefits; and WHEREAS, Employer and Employee desire to set forth in this Agreement the terms and conditions of Employee's employment with Employer. NOW, THEREFORE, in consideration of the mutual promises and covenants herein contained, the parties agree, effective as of the Closing Date under the Asset Purchase Agreement, as follows: 1. Term. Employer agrees to employ Employee and Employee agrees to serve ---- Employer, in accordance with the terms of this Agreement, for a term of five (5) years, commencing on the Closing Date (as defined in the Asset Purchase Agreement), unless this Agreement is earlier terminated in accordance with the provisions which follow. 2. Specific Position; Duties and Responsibilities. Employer and Employee ---------------------------------------------- agree that, subject to the provisions of this Agreement, Employer will employ Employee and Employee will serve Employer as Chairman Emeritus for the duration of this Agreement. Employee shall have such corporate power and authority as shall reasonably be required to enable the discharge of the duties of his office. For the term of this Agreement, Employee shall report only to the Chairman of the Board of Employer. Employee's duties shall not, unless otherwise consented to by Employee, exceed the following: i. as requested by the Chairman of the Board of Employer, advising such Chairman concerning the conduct of the publishing business previously conducted by the Company (the "Business"); -------- ii. as requested by the Chairman of the Board of Employer, acting as a public spokesperson and representative of Employer at public functions relating to the Business; iii. introducing other key executives of Employer to clientele of the Business known to Employee; and iv. as requested by the Chairman of the Board of Employer, participating in significant meetings of the key executives of Employer concerning the strategy to be adopted by the Business, marketing and sales objectives and plans, important personnel decisions and similar activities that are material to the conduct of the Businesses by Employer's top management. Employer acknowledges that Employee is not required to devote his full-time business efforts to Employer. 2 As a result, and notwithstanding anything to the contrary in this Agreement, Employee shall not be required to devote more than 40 hours of service to Employer in any month; provided that for each year during the term of this Agreement, Employee, upon delivering notice to Employer, shall be entitled to designate two periods of up to three weeks each during which Employee shall not be required to provide any services under this Agreement. Employee shall be required to conduct his duties only at reasonable business hours and shall be required to attend meetings, events or other gatherings only after receiving reasonable advance notice thereof (which shall be received not less than seven business days prior to the date of such meeting, event or gathering). Employer acknowledges that Employee maintains an active business and social calendar, and that it shall not be able to require Employee to reschedule prior commitments in order to conduct duties required hereunder. 3. Total Compensation and Business Expenses. ---------------------------------------- a. Total Compensation. ------------------ During the term of this Agreement, Employer agrees to pay Employee total compensation at the rate of $200,000 per year (the "Total Compensation"). ------------------ Employee may, at his sole discretion, allocate the Total Compensation towards (i) his own salary, (ii) the salary and benefits of any assistant(s) hired by Employer for exclusive use by Employee, or (iii) expenses incurred in connection with his duties not specifically related to an event or meeting which Employer requested Employee to attend or host. In the event that Employer requests Employee to attend or host any meeting, event, or other occasion, Employer shall reimburse Employee for reasonable expenses incurred by Employee in connection therewith upon the same terms as it reimburses expenses of its most senior executives, including travel at first class air fare rates. If Employee uses services or facilities not available for reimbursement to such executives under Employer's policies, he shall nevertheless be reimbursed at the rate for the most comparable service or facility that is reimbursable under Employer's policies. The Employer must request (and Employee shall then have the option to attend or host) that Employee attend or host the meetings, events and 3 occasions set forth on Schedule 3(a) attached hereto. In the event of the death of the Employee prior to the expiration of the term of this Agreement, Employer shall continue to pay each assistant, described in clause (ii) above, a salary, at a level equivalent to the salary each assistant was receiving immediately prior to Employee's death, for a period of six (6) months following Employee's death. b. Additional Benefits. ------------------- Employee shall also be entitled to the following additional benefits (collectively, the "Additional Benefits"): ------------------- i. During the life of Employee and the life of his spouse, Employer shall maintain for the benefit of Employee and his spouse, life, medical, dental, disability and insurance plans and policies having coverage that is equal to or better than the coverage provided by the plans and policies that the Company provided to Employee and his spouse immediately prior to the Closing Date contemplated by the Asset Purchase Agreement; provided, however, that if such coverage becomes unobtainable at a cost comparable to that incurred by the Company to maintain such coverage prior to the Closing Date (as defined in the Asset Purchase Agreement), Employer shall provide coverage as nearly comparable as practicable for the same cost as most recently incurred for the coverage not obtainable. ii. During the term of this Agreement, Employee, at Employer's expense, shall be permitted to use, on a personal basis, all stadium and arena luxury boxes and suites maintained by the Company as of the date hereof which Employer elects, at Employer's sole discretion, to maintain during the term of this Agreement. Prior to the beginning of each season (or the calendar year, if the boxes or suites are not received on a seasonal basis), Employer shall offer to Employee the opportunity to reserve the boxes or suites for use on dates (or for events) to be identified by Employee (and Employee shall specify the number of seats to be reserved for each such date or event). Employee shall not be entitled to reserve boxes or suites for more than 25% of the available dates or events. In addition, to the extent that such boxes and suites are not otherwise being used by Employer, Employer will notify Employee as and when any such boxes or suites, or any part thereof, are available for use 4 by Employee, and upon receipt of such notification (which may be by telephone) Employee will promptly indicate whether Employee will use all or any portion of such available boxes and suites. In addition, prior to any transfer, sale or relinquishment of any right or interest in any such boxes or suites (or the right to future leases or use thereof) after the term of this Agreement, Employer shall first offer to transfer its rights in or to any box or suite (or such right to future lease or use) to Employee to the extent permitted by the contract governing Employer's use of such box or suite, at a price equal to Employer's cost. c. Perquisites. ----------- In addition to the salary and benefits contemplated above, Employee shall also be entitled to the following perquisites of his office: i. Employee shall be entitled to paid vacation in accordance with Employer's policies that are applicable to full-time executive employees of Employer. ii. Employee shall be entitled, at Employee's request, to attend any conventions, congresses, events or similar public gatherings of business people in the publishing industry or in a trade covered by a publication of the Business, as a representative of Employer. iii. Employer shall provide Employee with at least the office specified in Section 7(d) as his place of employment with no alteration or diminishment of the fixtures and furniture therein, nor of the telephone, facsimile or data transmission and receipt capabilities thereof so long as Employer leases such space. 4. Termination. The employment of Employee by Employer, shall be ----------- terminated prior to expiration of the term of this Agreement only (i) upon delivery of written notice by Employee to Employer, which notice Employee may deliver in his sole discretion, (ii) subject to compliance with Section 4(c), upon delivery of written notice by Employer to Employee, which notice shall specify whether termination is for cause pursuant to Section 4(b) or otherwise, and which notice Employer may deliver in its sole discretion, or (iii) as provided in this Section 4: 5 a. Disability. ---------- In the event that Employee shall fail, because of illness, incapacity or injury which is determined to be total and permanent by a physician mutually acceptable to Employer and Employee, to render services required hereunder for one hundred twenty consecutive calendar days, Employee's employment hereunder may be terminated by written notice of termination from Employer to Employee. Thereafter, Employer shall continue, until (i) Employee dies, (ii) Employee recovers from such disability and returns to service or (iii) 365 days after such determination, whichever first occurs, to pay Total Compensation to Employee at a rate and time and in an amount and manner equal to the Total Compensation payable immediately prior to the termination, minus (ii) the amount of any cash payments to Employee under the terms of Employer's disability insurance or its other disability benefits or plans. b. For Cause. --------- Employee's employment hereunder may be terminated and his rights to receive Total Compensation and (subject to the terms of any plans relating thereto) Additional Benefits hereunder in respect of any period after such termination, shall terminate 30 days after a determination by the Board, acting in good faith based upon actual knowledge at such time, that during the term of this Agreement Employee has been grossly negligent, has engaged in willful misconduct or a breach of fiduciary duty, has repeatedly or intentionally failed to perform stated duties in accordance with the terms of this Agreement, has willfully violated any law, rule or regulation or has been convicted of a felony, in each case in a manner that has materially adversely affected the reputation and financial performance of the Businesses. Notwithstanding the foregoing, Employee shall not be terminated for cause pursuant to this Section 4(c) unless Employee has received notice of a proposed termination for cause at least 60 days prior to the effective date thereof, has been given the reasonable opportunity to cure any action giving rise to the termination (if such action is susceptible to cure), and has had an opportunity to be heard before the Board acts to terminate Employee. 6 c. Constructive Termination. ------------------------ If Employer takes any of the actions described in the second paragraph of this subsection (c), Employee may terminate his employment because of a Constructive Termination Without Cause (as defined below) at any time after the 10th day after a notice of intent to terminate pursuant to this Section 4(c) has been delivered to the Board, provided such condition (if susceptible to cure) is not so cured prior to the end of that 10th day. Upon such termination, Employee shall be entitled to continue to receive his Total Compensation for the remaining unexpired term of this Agreement, as and when such payments would otherwise be due hereunder. For purposes of this Agreement, "Constructive Termination Without Cause" means the occurrence of any of the following events without the express written consent of Employee: (i) relocation from his principal office as described in Section 6(d) hereof, (ii) any other material breach of this Agreement by Employer, or (iii) the assignment to Employee of a significantly lower position in the organization in terms of his responsibility, authority and status, requiring Employee to perform services not commensurate with Employee's ability, experience and qualifications, in any such case other than as a result of grounds for termination of employment for cause under Section 4(b), for disability under Section 4(a) or because of retirement or the termination of employment by Employee for any other reason. d. Termination Without Cause. If Employer terminates Employee's ------------------------- employment hereunder other than in accordance with Section 4(a) or 4(b), Employee shall be entitled to continue to receive his Total Compensation for the remaining unexpired term of this Agreement, as and when such payments would otherwise be due hereunder. 5. Indemnity. To the fullest extent permitted by applicable law and the --------- bylaws of Employer, as from time to time in effect, Employer shall indemnify Employee and hold Employee harmless for any acts or decisions made in good faith while performing services for Employer, and Employer shall use its best efforts to obtain coverage for Employee under any liability insurance policy or policies now in force or hereafter obtained 7 during the term of this Agreement that cover other officers of Employer. To the same extent, Employer will pay and, subject to any legal limitations, advance all expenses, including reasonable attorneys' fees and costs of court approved settlements, actually incurred by Employee in connection with the defense of any action, suit or proceeding and in connection with any appeal thereon, which has been brought against Employee by reason of Employee's service as an officer or agent of Employer or of a subsidiary of Employer. The rights granted to Employee by this Section 5 shall be in addition to, and not in limitation of, any other rights that Employee may obtain by reason of law or statute, or pursuant to Employer's documents of incorporation or bylaws, or under the terms of any other contracts or agreements. 6. Miscellaneous. ------------- a. Succession; Survival. -------------------- This Agreement shall inure to the benefit of and shall be binding upon Employer, its successors and assigns, but without the prior written consent of Employee this Agreement may not be assigned, whether by operation of law or express assumption all obligations of Employer hereunder or otherwise. The obligations and duties of Employee hereunder are personal and otherwise not assignable. b. Waiver. ------ No failure on the part of any party to exercise or delay in exercising any right hereunder shall be deemed a waiver thereof or of any other right, nor shall any single or partial exercise preclude any further or other exercise of such right or any other right. c. Choice of Law. ------------- This Agreement, the legal relations between the parties and any action, whether contractual or non-contractual, instituted by any party with respect to matters arising under or growing out of or in connection with or in respect of this Agreement, the relationship of the parties or the subject matter hereof shall be governed by and construed in accordance with the laws of the State of California applicable to contracts made and 8 performed in such State and without regard to conflicts of law doctrines, to the extent permitted by law. d. Place of Employment. ------------------- During the term of this Agreement, Employee's principal office shall be the same office space (without modification or alteration) that Employee and his personal staff occupy on the 20th floor of the Company's headquarters immediately prior to the date of this Agreement, so long as Employer leases such space. e. Severability. ------------ If this Agreement shall for any reason be or become unenforceable in any material respect by any party, this Agreement shall thereupon terminate and become unenforceable by the other party as well. In all other respects, if any provision of this Agreement is held invalid or unenforceable, the remainder of this Agreement shall nevertheless remain in full force and effect, and if any provision is held invalid or unenforceable with respect to particular circumstances, it shall nevertheless remain in full force and effect in all other circumstances, to the fullest extent permitted by law. f. Section Headings. ---------------- Section and other headings contained in this Agreement are for convenience of reference only and shall not affect in any way the meaning or interpretation of this Agreement. g. Counterparts. ------------ This Agreement and any amendment hereto may be executed in one or more counterparts. All of such counterparts shall constitute one and the same agreement and shall become effective when a copy signed by each party has been delivered to the other party. h. Other Activities. ---------------- Employee agrees to comply with the requirements of Section 6.11 of the Asset Purchase Agreement on the terms and subject to the conditions and limitations therein. Such Section 9 6.11, insofar as it relates to Employee's actions is hereby incorporated into this Agreement and made a part hereof. Employer agrees that, subject to compliance by Employee with his obligations under Section 6.11 of the Asset Purchase Agreement, Employee may serve as a director or in any other capacity of any business enterprise or governmental entity or trade association, whether or not their activities involve or relate to the business of the Employer, provided in each case that such service does not in any material way prevent Employee from performing his duties hereunder. Subject to compliance by Employee with his obligations under Section 6.11 of the Asset Purchase Agreement, Employee may make and manage personal business investments of his choice and serve in any capacity with any civic, educational or charitable organization without seeking or obtaining approval by the Board. i. No Duty to Mitigate. ------------------- Employee shall have no duty to mitigate any damages suffered by Employee in connection with Employer's breach of this Agreement. 10 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. "EMPLOYER" BrightView Communications Group, Inc. By _________________________ Its ________________________ "EMPLOYEE" ____________________________ Robert E. Petersen 625 Mountain Drive ---------------------------- Beverly Hills, CA 90210 ---------------------------- 11 Schedule 3(a) 1. The Shot Show 2. The annual convention of the National Rifle Association 3. The annual SEMA convention 4. Any events sponsored by Employer 12 EX-21.1 13 LIST OF SUBSIDIARIES EXHIBIT 21.1 The following is a list of the subsidiaries of each of the Registrants. Unless otherwise noted, each listed company is wholly owned, either directly or indirectly, by Petersen Holdings, L.L.C. List of Subsidiaries - -------------------- PETERSEN HOLDINGS, L.L.C.
STATE OR OTHER JURISDICTION OF INCORPORATION OR NAMES UNDER WHICH SUCH NAME OF SUBSIDIARY ORGANIZATION SUBSIDIARY DOES BUSINESS - ------------------------------------- ------------------- ------------------------------------ Petersen Publishing Company, L.L.C.(1) Delaware Petersen Publishing Company, L.L.C. Petersen Capital Corp. Delaware Petersen Capital Corp. (1) Petersen Publishing Company, L.L.C.'s equity securities are 99.9% owned by Petersen Holdings, L.L.C. and 0.1% by BrightView Communications Group, Inc. PETERSON PUBLISHING COMPANY, L.L.C. STATE OR OTHER JURISDICTION OF INCORPORATION OR NAMES UNDER WHICH SUCH NAME OF SUBSIDIARY ORGANIZATION SUBSIDIARY DOES BUSINESS - ------------------------- --------------------------------- --------------------------------- Petersen Capital Corp. Delaware Petersen Capital Corp. PETERSEN CAPITAL CORP. STATE OR OTHER JURISDICTION OF INCORPORATION OR NAMES UNDER WHICH SUCH NAME OF SUBSIDIARY ORGANIZATION SUBSIDIARY DOES BUSINESS - ------------------------- -------------------------------- ---------------------------------- None.
EX-23.2 14 CONSENT EXHIBIT 23.2 Consent of Independent Auditors We consent to the reference to our firm under the caption "Experts" and to the use of our report dated February 7, 1996, in the Registration Statement (Form S- 4 No. 333- ) and related Prospectus of Petersen Publishing Company, L.L.C. for the registration of $100,000,000 of its 11-1/8% Series B Subordinated Notes due 2006. ERNST & YOUNG LLP December , 1996 Los Angeles, California EX-27 15 FINANCIAL DATA SCHEDULE WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
5 1000 YEAR 9-MOS NOV-30-1995 AUG-31-1996 DEC-01-1994 DEC-01-1995 NOV-30-1995 AUG-31-1996 9,938 19,195 3,744 55 20,755 20,240 (2,220) (2,326) 21,347 10,232 54,777 48,074 21,129 18,585 (13,345) (13,243) 66,808 57,492 49,017 45,790 0 0 0 0 0 0 0 0 8,627 4,323 66,808 57,492 213,615 168,812 213,615 168,812 171,112 133,034 171,112 133,034 28,145 20,920 900 450 0 0 14,907 16,718 549 393 14,358 16,325 0 0 0 0 0 0 14,358 16,325 0 0 0 0
-----END PRIVACY-ENHANCED MESSAGE-----