-----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, WLJPc4iKmEVzG0GY6P7fQ1DUP0NhsgO9TmZ1LlFnL8AbaeogRN8deWeQNxpBAAHi aTkJNBTJ4ysVcptSiS8sNQ== 0000950123-09-058814.txt : 20091106 0000950123-09-058814.hdr.sgml : 20091106 20091106070222 ACCESSION NUMBER: 0000950123-09-058814 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 20090930 FILED AS OF DATE: 20091106 DATE AS OF CHANGE: 20091106 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Dolan Media CO CENTRAL INDEX KEY: 0001396838 STANDARD INDUSTRIAL CLASSIFICATION: NEWSPAPERS: PUBLISHING OR PUBLISHING & PRINTING [2711] IRS NUMBER: 522065604 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-33603 FILM NUMBER: 091162755 BUSINESS ADDRESS: STREET 1: 222 SOUTH NINTH STREET, SUITE 2300 CITY: MINNEAPOLIS STATE: MN ZIP: 55402 BUSINESS PHONE: (612) 317-9420 MAIL ADDRESS: STREET 1: 222 SOUTH NINTH STREET, SUITE 2300 CITY: MINNEAPOLIS STATE: MN ZIP: 55402 10-Q 1 c91925e10vq.htm 10-Q 10-Q
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
     
þ   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended: September 30, 2009
OR
     
o   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From                      to                     .
Commission File Number: 001-33603
Dolan Media Company
(Exact name of registrant as specified in its charter)
     
Delaware
(State or other jurisdiction
of incorporation or organization)
  43-2004527
(I.R.S. Employer
Identification No.)
 
222 South Ninth Street, Suite 2300,
Minneapolis, Minnesota 55402

(Address, including zip code of registrant’s principal executive offices)
 
(612) 317-9420
Registrant’s telephone number, including area code
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
             
Large accelerated filer o   Accelerated filer þ   Non-accelerated filer o   Smaller reporting company o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ
On November 4, 2009, there were 30,083,354 shares of the registrant’s common stock outstanding.
 
 

 

 


 

         
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 Exhibit 2.1
 Exhibit 10.8
 Exhibit 10.9
 Exhibit 10.10
 Exhibit 31.1
 Exhibit 31.2
 Exhibit 32.1
 Exhibit 32.2
 Exhibit 99.1

 

 


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PART I — FINANCIAL INFORMATION
Item 1.   Financial Statements
Dolan Media Company
Condensed Consolidated Balance Sheets
(in thousands, except share data)
                 
    September 30,     December 31,  
    2009     2008  
    (unaudited)          
ASSETS
               
Current assets
               
Cash and cash equivalents
  $ 20,640     $ 2,456  
Accounts receivable, including unbilled services (net of allowances for doubtful accounts of $914 and $1,398 as of September 30, 2009 and December 31, 2008, respectively)
    53,338       38,776  
Unbilled pass-through costs
    14,893       7,164  
Prepaid expenses and other current assets
    4,642       4,881  
Deferred income taxes
    397       397  
 
           
Total current assets
    93,910       53,674  
Investments
    16,923       16,663  
Property and equipment, net
    15,534       21,438  
Finite-life intangible assets, net
    166,515       254,917  
Indefinite life intangible assets
    203,108       118,983  
Other assets
    5,490       5,166  
 
           
Total assets
  $ 501,480     $ 470,841  
 
           
LIABILITIES AND STOCKHOLDERS’ EQUITY
               
Current liabilities
               
Current portion of long-term debt
  $ 12,825     $ 12,048  
Due to sellers of acquired businesses
    13,000       75  
Accounts payable
    7,015       9,116  
Accrued pass-through liabilities
    27,356       21,598  
Accrued compensation
    7,801       7,673  
Accrued liabilities
    4,277       2,738  
Deferred revenue
    15,738       13,014  
 
           
Total current liabilities
    88,012       66,262  
Long-term debt, less current portion
    133,675       143,450  
Deferred income taxes
    7,644       18,266  
Deferred revenue and other liabilities
    4,772       5,136  
 
           
Total liabilities
    234,103       233,114  
 
           
 
               
Redeemable noncontrolling interest
    28,484       15,760  
 
           
Commitments and contingencies (Note 13)
               
Stockholders’ equity
               
Common stock, $0.001 par value; authorized: 70,000,000 shares; outstanding: 30,079,014 and 29,955,018 shares as of September 30, 2009 and December 31, 2008, respectively
    30       30  
Preferred stock, $0.001 par value; authorized: 5,000,000 shares; designated: 5,000 shares of Series A Junior Participating Preferred Stock; no shares outstanding
           
Additional paid-in capital
    285,513       291,310  
Accumulated deficit
    (46,650 )     (69,373 )
 
           
Total stockholders’ equity
    238,893       221,967  
 
           
Total liabilities and stockholders’ equity
  $ 501,480     $ 470,841  
 
           
See Notes to Unaudited Condensed Consolidated Interim Financial Statements

 

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Dolan Media Company
Unaudited Condensed Consolidated Statements of Operations
(in thousands, except share and per share data)
                                 
    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2009     2008     2009     2008  
Revenues
                               
Professional Services
  $ 39,996     $ 25,673     $ 126,322     $ 62,542  
Business Information
    22,348       22,211       66,998       68,406  
 
                       
Total revenues
    62,344       47,884       193,320       130,948  
 
                       
Operating expenses
                               
Direct operating: Professional Services
    15,553       9,941       46,693       22,688  
Direct operating: Business Information
    6,952       7,961       21,827       23,686  
Selling, general and administrative
    22,910       18,950       66,073       51,787  
Break-up fee
          1,500             1,500  
Amortization
    3,924       3,050       13,219       7,587  
Depreciation
    2,264       1,501       6,738       3,790  
 
                       
Total operating expenses
    51,603       42,903       154,550       111,038  
 
                               
Equity in earnings of affiliates
    731       1,329       3,461       4,355  
 
                       
Operating income
    11,472       6,310       42,231       24,265  
 
                       
Non-operating income (expense)
                               
Interest expense, net of interest income
    (1,607 )     (1,851 )     (5,305 )     (4,611 )
Non-cash interest income (expense) related to interest rate swaps
    205       (80 )     735       (58 )
Other income
    23       11       1,469       34  
 
                       
Total non-operating expense
    (1,379 )     (1,920 )     (3,101 )     (4,635 )
 
                       
Income before income taxes
    10,093       4,390       39,130       19,630  
Income tax expense
    (3,529 )     (1,471 )     (13,207 )     (7,257 )
 
                       
Net income
    6,564       2,919       25,923       12,373  
Less: Net income attributable to the redeemable noncontrolling interest
    (694 )     (466 )     (3,200 )     (1,516 )
 
                       
Net income attributable to Dolan Media Company
  $ 5,870     $ 2,453     $ 22,723     $ 10,857  
 
                       
 
                               
Earnings per share — basic:
                               
Net income attributable to Dolan Media Company
  $ 0.20     $ 0.09     $ 0.76     $ 0.42  
Accretion of redeemable noncontrolling interest, net of tax
    (0.02 )           (0.26 )      
 
                       
Net income attributable to Dolan Media Company common stockholders
  $ 0.18     $ 0.09     $ 0.50     $ 0.42  
 
                       
Weighted average shares outstanding — basic
    29,843,444       27,926,118       29,821,661       25,940,102  
 
                       
 
                               
Earnings per share — diluted:
                               
Net income attributable to Dolan Media Company
  $ 0.20     $ 0.09     $ 0.76     $ 0.42  
Accretion of redeemable noncontrolling interest, net of tax
    (0.02 )           (0.26 )      
 
                       
Net income attributable to Dolan Media Company common stockholders
  $ 0.18     $ 0.09     $ 0.50     $ 0.42  
 
                       
Weighted average shares outstanding — diluted
    29,932,275       28,059,701       29,908,462       26,105,413  
 
                       
See Notes to Unaudited Condensed Consolidated Interim Financial Statements

 

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Dolan Media Company
Unaudited Condensed Consolidated Statements of Stockholders’ Equity
(in thousands, except share data)
                                         
                    Additional              
    Common Stock     Paid-In     Accumulated        
    Shares     Amount     Capital     Deficit     Total  
Balance (deficit) at December 31, 2007
    25,088,718     $ 25     $ 212,364     $ (83,676 )   $ 128,713  
Net income
                      14,303       14,303  
Private placement of common stock, net of offering costs
    4,000,000       4       60,483             60,487  
Issuance of common stock in a business acquisition
    825,528       1       16,460             16,461  
Issuance of common stock pursuant to the exercise of stock options under the 2007 incentive compensation plan
    8,089             21             21  
Stock-based compensation expense, including issuance of restricted stock (shares are net of forfeitures)
    32,683             1,918             1,918  
Tax benefit on stock options exercised
                64             64  
 
                             
Balance (deficit) at December 31, 2008
    29,955,018     $ 30     $ 291,310     $ (69,373 )   $ 221,967  
Net income attributable to Dolan Media Company
                      22,723       22,723  
Accretion of redeemable noncontrolling interest, net of tax
                (7,665 )           (7,665 )
 
                                     
Net income attributable to Dolan Media Company common stockholders
                            15,058  
Issuance of common stock pursuant to the exercise of stock options under the 2007 incentive compensation plan
    5,033             7             7  
Stock-based compensation expense, including issuance of restricted stock (shares are net of forfeitures)
    118,963             1,861             1,861  
 
                             
Balance (deficit) at September 30, 2009
    30,079,014     $ 30     $ 285,513     $ (46,650 )   $ 238,893  
 
                             
See Notes to Unaudited Condensed Consolidated Interim Financial Statements

 

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Dolan Media Company
Unaudited Condensed Consolidated Statements of Cash Flows
(in thousands)
                 
    Nine Months Ended  
    September 30,  
    2009     2008  
Cash flows from operating activities
               
Net income
  $ 25,923     $ 12,373  
Distributions received from The Detroit Legal News Publishing, LLC
    4,200       5,600  
Distributions paid to holders of noncontrolling interest
    (3,145 )     (1,351 )
Non-cash operating activities:
               
Amortization
    13,219       7,587  
Depreciation
    6,738       3,790  
Equity in earnings of affiliates
    (3,461 )     (4,355 )
Stock-based compensation expense
    1,861       1,341  
Deferred income taxes
    166       (576 )
Change in value of interest rate swap and accretion of interest on note payable
    (731 )     213  
Amortization of debt issuance costs
    182       156  
Change in accounting estimate related to self-insured medical reserve
          (470 )
Changes in operating assets and liabilities, net of effects of business acquisitions:
               
Accounts receivable and unbilled pass-through costs
    (22,290 )     (9,354 )
Prepaid expenses and other current assets
    239       (1,840 )
Other assets
    (507 )     90  
Accounts payable and accrued liabilities
    7,110       1,048  
Deferred revenue
    2,600       1,959  
 
           
Net cash provided by operating activities
    32,104       16,211  
 
           
 
               
Cash flows from investing activities
               
Acquisitions and investments
    (2,441 )     (183,518 )
Capital expenditures
    (2,584 )     (3,957 )
Other
    100       100  
 
           
Net cash used in investing activities
    (4,925 )     (187,375 )
 
           
 
               
Cash flows from financing activities
               
Net payments on senior revolving note
          90,000  
Proceeds from borrowings or conversions on senior term notes
          25,000  
Payments on senior long-term debt
    (7,250 )     (2,746 )
Proceeds from private placement of common stock, net of offering costs
          60,541  
Capital contribution from holder of noncontrolling interest
          1,179  
Payment on unsecured note payable
    (1,750 )     (1,750 )
Payment of deferred financing costs
          (404 )
Proceeds from stock option exercises
    7       3  
Other
    (2 )     (6 )
 
           
Net cash (used) provided by financing activities
    (8,995 )     171,817  
 
           
 
               
Net increase in cash and cash equivalents
    18,184       653  
Cash and cash equivalents at beginning of the period
    2,456       1,346  
 
           
Cash and cash equivalents at end of the period
  $ 20,640     $ 1,999  
 
           
See Notes to Unaudited Condensed Consolidated Interim Financial Statements

 

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Notes to Unaudited Condensed Consolidated Interim Financial Statements
Note 1. Nature of Business and Significant Accounting Policies
Basis of Presentation: The condensed consolidated balance sheet as of December 31, 2008, which has been derived from audited financial statements, and the unaudited condensed consolidated interim financial statements of Dolan Media Company (the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and the instructions to the quarterly report on Form 10-Q and Rule 10-01 of Regulation S-X. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to these rules and regulations. Accordingly, these unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and related notes for the year ended December 31, 2008 included in the Company’s annual report on Form 10-K filed on March 12, 2009, with the Securities and Exchange Commission.
In the opinion of management, these unaudited condensed consolidated interim financial statements reflect all adjustments necessary for a fair presentation of the Company’s interim financial results. All such adjustments are of a normal and recurring nature. The results of operations for any interim period are not necessarily indicative of results for the full calendar year.
The statement of operations for the three and nine months ended September 30, 2008 changed from the Company’s previous presentation because a $1.5 million break-up fee recorded in the third quarter of 2008 was previously classified as a non-operating expense and is now included as an operating expense. See Note 3 for more information regarding the break-up fee.
The Company has also adjusted certain amounts on the balance sheet as of December 31, 2008 to reflect the retroactive application of the equity method of accounting to reflect that portion of the income and losses of GovDelivery, Inc. attributable to the Company’s ownership from the date of the income and investment. The Company had previously accounted for its investment in GovDelivery under the cost method of accounting. See Note 4 for more information about the change in the Company’s investment in GovDelivery.
The accompanying unaudited condensed consolidated interim financial statements include the accounts of the Company, its wholly-owned subsidiaries and it majority ownership interest in American Processing Company, LLC d/b/a NDeX (NDeX). The Company accounts for the percentage interest in NDeX that it does not own as noncontrolling interest.
All significant intercompany accounts and transactions have been eliminated in consolidation.
Use of Derivative Instruments: Under the Company’s bank credit facility, it is required to enter into derivative financial instrument transactions, such as swaps or interest rate caps, in order to manage or reduce its exposure to risk from changes in interest rates. The Company uses interest rate swaps because it is exposed to market risks related to interest rates, with its exposure to changes in interest rates being limited to borrowings under its credit facility. The Company has not designated these interest rate swap agreements for hedge accounting treatment. As of September 30, 2009, the Company had swap arrangements that convert $40.0 million of its variable rate term loan into a fixed rate obligation. The Company does not enter into derivatives or other financial instrument transactions for speculative purposes. The interest rate swaps are valued using market interest rates, and are included in “deferred revenue and other liabilities” in the Company’s unaudited condensed consolidated balance sheet and were valued at $1.9 million at September 30, 2009. These derivative instruments are classified within level 2 under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 820 (formerly Statement of Financial Accounting Standards (“SFAS”) No. 157).
Fair Value of Financial Instruments: The carrying value of cash equivalents, accounts receivable, and accounts payable approximate fair value because of the short-term nature of these instruments. To estimate the fair value of debt issuances that are not quoted on an exchange, the Company estimates an interest rate it would be required to pay if it had to refinance its debt. At September 30, 2009, the estimated fair value of debt was $133.4 million compared to a carrying value of $146.5 million.

 

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New Accounting Pronouncements: In December 2007, the FASB issued ASC 805 (formerly SFAS No. 141R) which changes how the Company accounts for business acquisitions occurring after January 1, 2009. ASC 805 requires the acquiring entity in a business combination to recognize all the assets acquired and liabilities assumed in the transaction and establishes the acquisition-date fair value as the measurement objective for all assets acquired and liabilities assumed in a business combination. Certain provisions of this standard will, among other things, impact the determination of acquisition-date fair value of consideration paid in a business combination (including contingent consideration); exclude transaction costs from acquisition accounting; and change accounting practices for acquired contingencies, acquisition-related restructuring costs, in-process research and development, indemnification assets, and tax benefits. For the Company, ASC 805 was effective beginning January 1, 2009. Accordingly, the Company is now required to expense, in the period incurred, acquisition-related costs, rather than including such costs in the purchase price as it has historically done in prior year periods. The Company did not consummate any acquisitions or incur any significant transaction related costs during the nine months ended September 30, 2009. See Note 14 “Subsequent Events” for information relating to acquisitions the Company consummated after September 30, 2009.
In December 2007, the FASB issued ASC 810 (formerly SFAS No. 160), which establishes new standards governing the accounting for and reporting of noncontrolling interest (NCI) in partially owned consolidated subsidiaries and the loss of control of subsidiaries. Certain provisions of this standard indicate, among other things, that NCI (previously referred to as minority interest), in most cases, be treated as a separate component of equity, not as a liability; that increases and decreases in the parent’s ownership interest that leave control intact be treated as equity transactions, rather than as step acquisitions or dilution gains or losses; and that losses of a partially owned consolidated subsidiary be allocated to the NCI even when such allocation might result in a deficit balance. This standard also requires the Company to change certain presentation and disclosures in its financial statements. For the Company, ASC 810 was effective beginning January 1, 2009. The Company’s noncontrolling interest consists of the 15.3% aggregate membership interest in its subsidiary, NDeX, held by APC Investments, LLC, Feiwell & Hannoy Professional Corporation and the sellers of Barrett-NDEx (defined in Note 3 below) or their transferees (as a group). Under the NDeX operating agreement, each of the holders of the noncontrolling interest has the right, for a certain period of time, to require NDeX to repurchase all or any portion of the NDeX membership interests held by such holder. To the extent any holder timely exercises this right, the purchase price of such membership interest will be based on 6.25 times NDeX’s trailing twelve month earnings before interest, taxes, depreciation and amortization less the aggregate amount of any interest bearing indebtedness outstanding for NDeX as of the date the repurchase occurs. Because the NCI has a redeemable feature outside of the control of the Company, the Company will continue to show the NCI on the mezzanine section of the balance sheet between “Liabilities” and “Stockholders’ Equity,” rather than as a separate component of equity. Because the redeemable feature of the NCI is based upon a formula, the Company is required to employ the provisions of ASC 480 (formerly EITF Topic D-98), which ASC 810 amended, and adjust the NCI to either the fair value or the redemption amount at each reporting period. The Company has recorded its noncontrolling interest at the redemption amount, with the adjustment recorded through “additional paid-in capital” rather than directly as a charge against earnings, and has therefore employed the two-class method as set forth in ASC 260 (formerly EITF 03-6) to calculate earnings per share based on net income attributable to its common stockholders. The Company has recorded an adjustment of $0.4 million and $7.7 million (both net of tax) to record the redeemable noncontrolling interest to its redemption value for the three and nine months ended September 30, 2009, respectively. If ASC 810 was effective at December 31, 2008, the carrying amount of the noncontrolling interest of $15.8 million would have been adjusted to reflect the redemption value of $16.8 million, resulting in a $0.6 million adjustment to additional paid-in capital (net of tax). The provisions of the standard have been applied to the NCI prospectively for periods after January 1, 2009, except for the presentation and disclosure requirements, which have been applied retrospectively to all periods presented.
In March 2008, the FASB updated its guidance in ASC 815, “Derivatives and Hedging” (formerly SFAS No. 161), requiring companies to provide enhanced disclosures regarding derivative instruments and hedging activities in order to better convey the purpose of derivative use in terms of the risks that such companies are intending to manage. Disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted, and (c) how derivative instruments and related hedged items affect a company’s financial position, financial performance, and cash flows are required. This was effective beginning January 1, 2009 for the Company. Accordingly, the Company has included the required disclosures in “Use of Derivative Instruments” above.

 

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In April 2009, the FASB issued guidance regarding interim disclosures about the fair value of financial instruments, which increases the frequency of certain fair value disclosures from annual to quarterly. Such disclosures include the fair value of all financial instruments within the scope of ASC 820 (formerly SFAS No. 107, “Disclosures about Fair Value of Financial Instruments”) as well as the methods and significant assumptions used to estimate fair value. This guidance was effective for interim periods ending after June 15, 2009. Accordingly, the Company has included these disclosures in “Fair Value of Financial Instruments” above.
In May 2009, the FASB updated its guidance in ASC 855 (formerly SFAS No. 165) regarding subsequent events, establishing principles and requirements for subsequent events. In particular, ASC 855 sets forth the period after the balance sheet date during which management shall evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, the circumstances under which an entity shall recognize events or transactions occurring after the balance sheet date in its financial statements, and the disclosures that an entity shall make about events or transactions that occurred after the balance sheet date. This updated guidance is effective for interim periods ending after June 15, 2009. Accordingly, the Company has applied the provisions of this statement in the current reporting period. See Note 14 for information relating to any subsequent events.
Note 2. Basic and Diluted Income Per Share
Basic per share amounts are computed, generally, by dividing net income by the weighted-average number of common shares outstanding. As described in the Company’s discussion of ASC 810 in Note 1 above, the Company has employed the two-class method to calculate earnings per share based on net income attributable to its common stockholders. At September 30, 2009 and December 31, 2008, there were no shares of preferred stock issued and outstanding. Diluted per share amounts assume the conversion, exercise, or issuance of all potential common stock instruments (see Note 12 for information on stock options) unless their effect is anti-dilutive.
The following table computes basic and diluted net income per share (in thousands, except per share amounts):
                                 
    Three Months     Nine Months  
    Ended September 30,     Ended September 30,  
    2009     2008     2009     2008  
 
Net income attributable to Dolan Media Company
  $ 5,870     $ 2,453     $ 22,723     $ 10,857  
Accretion of redeemable noncontrolling interest, net of tax
    (372 )           (7,665 )      
 
                       
Net income attributable to Dolan Media Company common stockholders
  $ 5,498     $ 2,453     $ 15,058     $ 10,857  
 
                       
 
                               
Basic:
                               
Weighted average common shares outstanding
    30,080       28,093       30,023       26,106  
Weighted average common shares of unvested restricted stock
    (237 )     (167 )     (201 )     (166 )
 
                       
Shares used in the computation of basic net income per share
    29,843       27,926       29,822       25,940  
 
                       
Net income attributable to Dolan Media Company common stockholders per share — basic
  $ 0.18     $ 0.09     $ 0.50     $ 0.42  
 
                       
 
                               
Diluted:
                               
Shares used in the computation of basic net income per share
    29,843       27,926       29,822       25,940  
Stock options and restricted stock
    89       134       86       165  
 
                       
Shares used in the computation of dilutive net income per share
    29,932       28,060       29,908       26,105  
 
                       
Net income attributable to Dolan Media Company common stockholders per share — diluted
  $ 0.18     $ 0.09     $ 0.50     $ 0.42  
 
                       
For the three months ended September 30, 2009 and 2008, options to purchase approximately 1.6 million and 1.2 million weighted shares of common stock, respectively, were excluded from the computation because their effect would have been anti-dilutive. For the nine months ended September 30, 2009 and 2008, options to purchase approximately 1.4 million and 13,000 weighted shares of common stock, respectively, were excluded from the computation because their effect would have been anti-dilutive.

 

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Note 3. Acquisitions
Management is responsible for determining the fair value of the assets acquired and liabilities assumed at the acquisition date. The fair values of the assets acquired and liabilities assumed represent management’s estimate of fair values. Management determines valuations through a combination of methods, which include internal rate of return calculations, discounted cash flow models, outside valuations and appraisals and market conditions. The Company did not consummate any acquisitions during the nine months ended September 30, 2009. See Note 14 for a discussion of acquisitions that the Company consummated after September 30, 2009. For acquisitions consummated in 2008, the Company has included the results of these acquisitions in the accompanying interim condensed consolidated statement of operations from the respective acquisition dates forward.
Wilford & Geske: On February 22, 2008, NDeX acquired the mortgage default processing services business of Wilford & Geske, a Minnesota law firm. Under the purchase agreement, NDeX was obligated to pay up to an additional $2.0 million in purchase price depending upon the adjusted EBITDA for this business during the twelve months ended March 31, 2009. In connection with the partial achievement of this performance target, NDeX paid an additional $1.3 million in purchase price to the sellers in the second quarter of 2009. The Company has allocated this amount to the long-term service agreement entered into with the law firm Wilford & Geske, which is being amortized over the remaining initial contract term.
Midwest Law Printing Co., Inc.: On June 30, 2008, the Company acquired the assets of Midwest Law Printing Co., Inc., which provides printing and appellate services in Chicago, Illinois. During the second quarter of 2009, the Company paid to the seller $75,000, which it had held back at the closing to secure indemnification claims. Under the purchase agreement, the Company was also obligated to pay the seller up to an additional $225,000 in three annual installments of up to $75,000 each based upon the revenues it earns from the assets in each of the three years following closing. In connection with the satisfaction of the first revenue target, the Company paid the seller $75,000 in additional purchase price, during the second quarter of 2009, which has been allocated to a customer list.
National Default Exchange, L.P. and related entities: On September 2, 2008, NDeX acquired all of the outstanding equity interests in National Default Exchange Management, Inc., National Default Exchange Holdings, LP, THP/ NDEx AIV, Corp., and THP/ NDEx AIV, LP (all of such entities referred to collectively as “Barrett-NDEx”). The table below (amounts in thousands) shows the Company’s preliminary allocation of purchase price, along with the final purchase price allocation completed in the third quarter of 2009. The final allocation also includes adjustments to goodwill for the achievement of the earnout ($13.0 million) as well as the adjustment to deferred income taxes recorded as a result of the adjustments to the fair value of the intangible assets acquired in this acquisition. See Note 8 for additional information relating to the deferred income taxes adjustment.
                         
    Amortization     Preliminary     Final  
    Period     Allocation     Allocation  
 
                       
Long-term service agreement
  25 years     $ 154,000     $ 59,728  
Customer list
  15 years             19,565  
Non-compete agreements
  5 years       5,000       3,198  
 
                   
Finite-life intangible assets
            159,000       82,491  
 
                       
Trade names
                6,537  
Goodwill
          37,827       116,927  
 
                   
Indefinite life intangible asset
            37,827       123,464  
 
                       
Software
  2 years       6,949       5,542  
 
                   
Total
          $ 203,776     $ 211,497  
 
                   
The Company’s preliminary purchase price allocation combined the services agreement with the Barrett law firm and customer list related to California foreclosure files as a single intangible asset. In completing the final allocation, the Company determined that the California customer list is a separate identifiable asset from the services agreement because the services agreement requires NDeX to provide mortgage default processing services only to the Barrett law firm whereas NDeX provides these services directly to California customers under no specific services agreement. The Company’s initial assumptions regarding Barrett-NDEx’s California operations also included obtaining new customers in the California market, the value of which the Company preliminarily allocated to the services agreement and later determined was goodwill.

 

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The values of the intangible assets and software acquired were estimated by management with the assistance of an independent third-party valuation firm. The primary assets acquired were the services agreement and the customer list. To estimate the fair value of these assets, the Company used a discounted cash flow analysis (income approach) using an average annual growth rate of approximately 3% and a discount rate of 15.4%.
The Company paid a premium over the fair value of the net tangible and identified intangible assets acquired in connection with this acquisition (i.e. goodwill) because the acquired business is a complement to NDeX and the Company anticipated cost savings and revenue synergies through combined general and administrative functions. This goodwill is deductible for tax purposes.
In connection with the closing of this acquisition, the Company also recorded, as additional purchase price, a liability of $1.5 million for the estimated severance costs related to involuntary employee terminations resulting from the anticipated elimination of certain duplicative positions, which was expected to be paid out in cash within the twelve months following the acquisition. This liability was included as goodwill in the preliminary allocation of the purchase price. In the second quarter of 2009, the Company eliminated certain positions in connection with this plan for aggregate payments of approximately $453,000. Also in the second quarter, the Company completed its plan of restructuring and determined that it will not be eliminating any additional positions under this restructuring plan. Accordingly, the Company reduced the liability to zero as a purchase price adjustment to goodwill.
Break-up Fee: Pursuant to its agreement with the sellers of a business that the Company intended to acquire, the Company paid $1.5 million to such sellers during the three months ended September 30, 2008 because the Company was unable to obtain debt financing on terms and timing satisfactory to the Company to close the acquisition. During the three months ended September 30, 2009, the Company changed its presentation of this expense on the statement of operations for the three and nine months ended September 30, 2008, from a non-operating expense to an operating expense because it determined that acquisitions are not an infrequent or unusual part of the Company’s operations.
Pro Forma Information: Actual results of operations of the companies acquired in 2008 are included in the unaudited condensed consolidated interim financial statements from the dates of acquisition. The unaudited pro forma condensed consolidated statement of operations of the Company, set forth below, gives effect to the following acquisitions: (1) the mortgage default processing services business of Wilford & Geske acquired in February 2008, (2) the assets of Legal & Business Publishers, Inc. acquired in February 2008, (3) the assets of Midwest Law Printing Company, Inc. acquired in June 2008, and (4) the business of Barrett-NDEx acquired in September 2008, using the purchase method as if the acquisitions occurred on January 1, 2008. These amounts are not necessarily indicative of the consolidated results of operations for future years or actual results that would have been realized had the acquisitions occurred as of the beginning of each such year. There is no corresponding pro forma data shown for the three and nine months ended September 30, 2009, as the Company has included each of the above acquisitions in its actual operating results for the full periods (in thousands, except per share data):
                 
    Pro Forma  
    Three Months     Nine Months  
    Ended     Ended  
    September 30,     September 30,  
    2008     2008  
Total revenues
  $ 61,446     $ 186,519  
Net income attributable to Dolan Media Company common stockholders
    2,566       11,446  
Net income attributable to Dolan Media Company common stockholders per share:
               
Basic
  $ 0.09     $ 0.43  
 
           
Diluted
  $ 0.09     $ 0.43  
 
           
Actual/Pro forma weighted average shares outstanding:
               
Basic
    28,482       26,675  
 
           
Diluted
    28,610       26,839  
 
           

 

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Note 4. Investments
Investments consisted of the following at September 30, 2009 and December 31, 2008 (in thousands):
                                 
    Accounting     Percent     September 30,     December 31,  
    Method     Ownership     2009     2008  
 
                               
The Detroit Legal News Publishing, LLC
  Equity       35     $ 15,680     $ 16,226  
GovDelivery, Inc.
  Equity (1)     22       1,243       437  
 
                           
Total
                  $ 16,923     $ 16,663  
 
                           
     
(1)   — The percentage of ownership for GovDelivery, Inc. is shown on a common stock equivalent basis.
For the three and nine month periods ended September 30, 2009 and 2008, the equity (loss) in earnings is as follows (in thousands):
                                 
    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2009     2008     2009     2008  
 
                               
The Detroit Legal News Publishing, LLC
  $ 924     $ 1,329     $ 3,654     $ 4,355  
GovDelivery, Inc.
    (193 )           (193 )      
 
                       
Total
  $ 731     $ 1,329     $ 3,461     $ 4,355  
 
                       
In the three and nine months ended September 30, 2009, the Company recorded the adjustment representing its share of the losses of GovDelivery, Inc. for 2009. This adjustment resulted from the Company’s application of the equity method of accounting for its investment in GovDelivery, Inc. in the third quarter of 2009. See below for more information regarding this change to the equity method of accounting.
The Detroit Legal News Publishing, LLC: The Company owns a 35% membership interest of The Detroit Legal News Publishing, LLC, or DLNP. The Company accounts for this investment using the equity method. Under DLNP’s membership operating agreement, the Company receives quarterly distributions based on its ownership percentage.
The difference between the Company’s carrying value and its 35% share of the members’ equity of DLNP relates principally to an underlying customer list at DLNP that is being amortized over its estimated economic life through 2015.
The following table summarizes certain key information relating to the Company’s investment in DLNP as of September 30, 2009 and December 31 2008, and for the three and nine months ended September 30, 2009 and 2008 (in thousands):
                 
    As of September 30,     As of December 31,  
    2009     2008  
Carrying value of investment
  $ 15,680     $ 16,226  
Underlying finite-lived customer list, net of amortization
    9,298       10,429  
                                 
    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2009     2008     2009     2008  
Equity in earnings of DLNP, net of amortization of customer list
  $ 924     $ 1,329     $ 3,654     $ 4,355  
Distributions received
    700       2,100       4,200       5,600  
Amortization expense
    377       377       1,131       1,131  

 

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DLNP publishes ten legal newspapers, along with one quarterly magazine, all located in southern Michigan. Summarized financial information for DLNP for the three and nine months ended September 30, 2009 and 2008 is as follows (in thousands):
                                 
    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2009     2008     2009     2008  
Revenues
  $ 9,565     $ 11,676     $ 33,048     $ 36,113  
Cost of revenues
    3,807       4,874       13,245       14,413  
 
                       
Gross profit
    5,758       6,802       19,803       21,700  
Selling, general and administrative expenses
    1,663       1,593       4,989       4,825  
 
                       
Operating income
    4,095       5,209       14,814       16,875  
 
                       
Net income
  $ 3,717     $ 4,873     $ 13,670     $ 15,673  
 
                       
 
                               
Company’s 35% share of net income
  $ 1,301     $ 1,706     $ 4,784     $ 5,486  
Less amortization of intangible assets
    377       377       1,130       1,131  
 
                       
Equity in earnings of DLNP, LLC
  $ 924     $ 1,329     $ 3,654     $ 4,355  
 
                       
GovDelivery, Inc.: In August 2009, the Company made an additional investment in GovDelivery, Inc. by purchasing 1,000,000 shares of its preferred stock for $1,000,000. Prior to this investment, the Company had accounted for its ownership in GovDelivery using the cost method of accounting because the Company only owned approximately 15.0% of GovDelivery’s outstanding voting stock (on an as-converted basis) and did not have the ability to exert influence. The additional investment increased the Company’s ownership in GovDelivery to 21.9% of the outstanding voting stock of GovDelivery (on an as-converted basis). As a result, the Company has determined that it will account for this investment using the equity method. Therefore, the Company has retroactively applied the equity method of accounting to reflect that portion of GovDelivery’s income and losses attributable to its ownership from the date of its original investment.
In addition to the Company’s ownership in GovDelivery, James P. Dolan, the Company’s Chairman, President and Chief Executive Officer personally owns approximately 139,000 shares of preferred stock of GovDelivery, or 1.0% (on an as-converted basis). He also served as a member of the GovDelivery board of directors until his resignation in March 2008.
Note 5. Intangible Assets
Indefinite Life Intangible Assets: Indefinite life intangible assets consist of trade names and goodwill. Trade names consist of trademarks and domain names associated with the Barrett-NDEx acquisition. The Company has determined that these assets have an indefinite life and therefore will not be amortized. The Company will review them annually for impairment. As of September 30, 2009, the trade names balance was $6.5 million. The Company had no balance for trade names as of December 31, 2008.
The following table represents the goodwill balances as of September 30, 2009 and December 31, 2008 and changes in goodwill by segment for the nine months ended September 30, 2009 (in thousands):
                         
    Professional     Business        
    Services     Information     Total  
Balance as of December 31, 2008
  $ 59,751     $ 59,232     $ 118,983  
Barrett-NDEx
    77,588             77,588  
 
                 
Balance as of September 30, 2009
  $ 137,339     $ 59,232     $ 196,571  
 
                 
The change in goodwill in the Professional Services Division resulted from the completion of the valuation of the assets acquired in the 2008 Barrett-NDEx acquisition as well as the $13.0 million earnout liability recorded as an addition to goodwill at September 30, 2009, in connection with the satisfaction of the $28.0 million adjusted EBITDA earnout target.

 

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Finite-Life Intangible Assets: The following table summarizes the components of finite-life intangible assets as of September 30, 2009 and December 31, 2008 (in thousands, except amortization periods):
                                                         
            As of September 30, 2009     As of December 31, 2008  
    Amortization     Gross     Accumulated             Gross     Accumulated        
    Period     Amount     Amortization     Net     Amount     Amortization     Net  
 
                                                       
Mastheads
    30     $ 11,965     $ (2,096 )   $ 9,869     $ 11,965     $ (1,796 )   $ 10,169  
Advertising customer lists
    5-11       16,566       (7,480 )     9,086       16,566       (6,286 )     10,280  
Subscriber customer lists
    2-14       7,645       (3,218 )     4,427       7,645       (2,666 )     4,979  
Professional services customer lists
    7       7,707       (4,542 )     3,165       7,632       (3,717 )     3,915  
Noncompete agreements
    5       3,948       (2,309 )     1,639       5,750       (666 )     5,084  
NDeX long-term service contracts
    15-25       120,857       (18,115 )     102,742       213,877       (10,779 )     203,098  
NDeX customer lists
    14-15       32,831       (1,918 )     30,913       13,267       (1,065 )     12,202  
Customer relationships
    14       3,283       (668 )     2,615       3,283       (496 )     2,787  
SunWel contract
    7       3,322       (1,263 )     2,059       3,322       (919 )     2,403  
 
                                         
Total intangibles
          $ 208,124     $ (41,609 )   $ 166,515     $ 283,307     $ (28,390 )   $ 254,917  
 
                                           
The change in the finite-life intangible assets as of September 30, 2009 resulted from the completion of the valuation of the assets acquired in the Barrett-NDEx acquisition; refer to Note 3 for additional information pertaining to the valuation of these intangible assets. Total amortization expense for finite-life intangible assets for the three months ended September 30, 2009 and 2008 was approximately $3.9 million and $3.1 million, respectively, and for the nine months ended September 30, 2009 and 2008 was approximately $13.2 million and $7.6 million, respectively. In the nine months ended September 30, 2009, the Company also recorded an additional $0.9 million of amortization expense to write off the non-compete agreement with Michael Barrett, a senior officer of Barrett-NDEx, who died in January 2009.
Note 6. Long-Term Debt, Capital Lease Obligation
A summary of long-term debt is as follows (in thousands):
                 
    September 30,     December 31,  
    2009     2008  
Senior secured debt (see below):
               
Senior variable-rate term note, payable in quarterly installments with a balloon payment due August 8, 2014
  $ 146,500     $ 153,750  
Senior variable-rate revolving note due August 8, 2012
           
 
           
Total senior secured debt
    146,500       153,750  
Unsecured note payable
          1,746  
Capital lease obligations
          2  
 
           
 
    146,500       155,498  
Less current portion
    12,825       12,048  
 
           
Long-term debt, less current portion
  $ 133,675     $ 143,450  
 
           
Senior Secured Debt: The Company and its consolidated subsidiaries have a credit agreement with U.S. Bank, NA and other syndicated lenders for a senior secured credit facility comprised of a term loan facility due and payable in quarterly installments with a final maturity date of August 8, 2014 and a revolving credit facility with a final maturity date of August 8, 2012. In accordance with the terms of this credit agreement, if at any time the outstanding principal balance of revolving loans under the revolving credit facility exceeds $25.0 million, such revolving loans will convert to an amortizing term loan, in the amount that the Company designates if it gives notice, due and payable in quarterly installments with a final maturity date of August 8, 2014.
At September 30, 2009, the Company had net unused available capacity of $40.0 million on its revolving credit facility, after taking into account the senior leverage ratio requirements under the credit facility, and outstanding debt of $146.5 million (all of which was under the term loan facility). At September 30, 2009, the weighted-average interest rate on the senior term note was 2.4%. The Company is subject to certain restrictions and covenant ratio requirements relating to its financing arrangement, all of which were satisfied as of September 30, 2009.
Unsecured Note Payable: During the nine months ended September 30, 2009, NDeX made the final $1.8 million payment to Feiwell & Hannoy on a $3.5 million non-interest bearing promissory note NDeX issued in connection with the acquisition of the mortgage default processing services business of Feiwell & Hannoy in January 2007.

 

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Note 7. Common and Preferred Stock
At September 30, 2009, the Company had 70,000,000 shares of common stock and 5,000,000 shares of preferred stock authorized and 30,079,014 shares of common stock and no shares of preferred stock outstanding. On January 29, 2009, the Company’s board of directors designated 5,000 shares of Series A Junior Participating Preferred Stock, which are issuable upon the exercise of rights as described in the Stockholder Rights Plan adopted by the Company on the same date. The rights to purchase 1/10,000 of a share of the Series A Junior Participating Preferred Stock were issued to the Company’s stockholders of record on February 9, 2009. All other authorized shares of preferred stock are undesignated.
Note 8. Income Taxes
The provision for income taxes is based upon estimated annual effective tax rates in the tax jurisdictions in which the Company operates. For the nine months ended September 30, 2009 and 2008, the effective tax rate was 36.7% and 40.0%, respectively. The decrease in the Company’s effective income tax rate resulted primarily from the receipt of non-taxable life insurance proceeds paid upon the death of Michael Barrett, a senior officer of Barrett-NDEx, in January 2009. At September 30, 2009, excluding the impact of discrete items, the Company estimates an annual effective tax rate for 2009 of 39.1%.
In the nine months ended September 30, 2009, the Company completed its purchase price allocation relating to the Barrett-NDEx acquisition. This resulted in a reduction of the estimated net deferred tax liabilities related to the Barrett-NDEx intangible assets from $13.0 million to $7.2 million due to changes in the tax basis of these assets and goodwill from the Company’s preliminary estimates.
Note 9. Other Income
In the nine months ended September 30, 2009, the Company recorded a net gain of $1.4 million on a company-owned life insurance policy on the life of Michael Barrett, a senior officer of Barrett-NDEx, who passed away in January 2009. This net gain includes a reduction for a $0.5 million contribution the Company made to Southern Methodist University Dedman School of Law from the life insurance proceeds, to establish a scholarship fund in Mr. Barrett’s name.
Note 10. Major Customers and Related Parties
In early 2009, NDeX and Trott & Trott, whose managing partner is NDeX chairman and chief executive officer David A. Trott, agreed to increase the fixed fee per file NDeX receives for each mortgage foreclosure, bankruptcy, eviction, litigation and other mortgage default file Trott & Trott refers to NDeX for processing under NDeX’s service agreement with Trott & Trott.
Note 11. Reportable Segments
The Company’s two reportable segments consist of its Professional Services Division and its Business Information Division. The Company determined its reportable segments based on the types of products sold and services performed. The Professional Services Division comprises two operating units providing support to the legal market, NDeX, which provides mortgage default processing services, and Counsel Press, LLC, which provides appellate services. Both of these operating units generate revenues through fee-based arrangements. The Business Information Division provides business information products through a variety of media, including court and commercial newspapers, weekly business journals and the Internet. The Business Information Division generates revenues from display and classified advertising (which includes sponsorships and ticket sales for events), public notices, circulation (primarily consisting of subscriptions), and sales from commercial printing and database information. In addition, the Company reports and allocates certain administrative activities as part of corporate-level expenses.

 

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The tables below reflect summarized financial information concerning the Company’s reportable segments for the three and nine months ended September 30, 2009 and 2008 (in thousands):
                                 
    Professional     Business              
    Services     Information     Corporate     Total  
    (In thousands)  
Three Months Ended September 30, 2009
                               
Revenues
  $ 39,996     $ 22,348     $     $ 62,344  
Direct operating expenses
    15,553       6,952             22,505  
Selling, general and administrative expenses
    10,537       8,770       3,603       22,910  
Amortization and depreciation
    4,663       1,322       203       6,188  
Equity in earnings of affiliates
          731             731  
 
                       
Operating income (loss)
  $ 9,243     $ 6,035     $ (3,806 )   $ 11,472  
 
                       
 
                               
Three Months Ended September 30, 2008
                               
Revenues
  $ 25,673     $ 22,211     $     $ 47,884  
Direct operating expenses
    9,941       7,961             17,902  
Selling, general and administrative expenses
    6,646       9,486       2,818       18,950  
Break-up fee
                1,500       1,500  
Amortization and depreciation
    3,059       1,275       217       4,551  
Equity in earnings of affiliates
          1,329             1,329  
 
                       
Operating income (loss)
  $ 6,027     $ 4,818     $ (4,535 )   $ 6,310  
 
                       
                                 
    Professional     Business              
    Services     Information     Corporate     Total  
    (In thousands)  
Nine Months Ended September 30, 2009
                               
Revenues
  $ 126,322     $ 66,998     $     $ 193,320  
Direct operating expenses
    46,693       21,827             68,520  
Selling, general and administrative expenses
    31,361       25,699       9,013       66,073  
Amortization and depreciation
    15,325       3,955       677       19,957  
Equity in earnings of affiliates
          3,461             3,461  
 
                       
Operating income (loss)
  $ 32,943     $ 18,978     $ (9,690 )   $ 42,231  
 
                       
 
                               
Nine Months Ended September 30, 2008
                               
Revenues
  $ 62,542     $ 68,406     $     $ 130,948  
Direct operating expenses
    22,688       23,686             46,374  
Selling, general and administrative expenses
    15,889       29,311       6,587       51,787  
Break-up fee
                1,500       1,500  
Amortization and depreciation
    7,124       3,663       590       11,377  
Equity in earnings of affiliates
          4,355             4,355  
 
                       
Operating income (loss)
  $ 16,841     $ 16,101     $ (8,677 )   $ 24,265  
 
                       
Note 12. Share-Based Compensation
Total share-based compensation expense for the three months ended September 30, 2009 and 2008, was approximately $0.7 million and $0.5 million, respectively, before income taxes. Total share-based compensation expense for the nine months ended September 30, 2009 and 2008, was approximately $1.9 million and $1.3 million, respectively, before income taxes.
The Company has reserved 2,700,000 shares of its common stock for issuance under its incentive compensation plan, of which there were 698,996 shares available for issuance under the plan as of September 30, 2009.
Stock Options: Share-based compensation expense related to grants of options for the three months ended September 30, 2009 and 2008, was approximately $0.4 million and $0.4 million, respectively, before income taxes and for the nine months ended September 30, 2009 and 2008, was approximately $1.2 million and $0.9 million, respectively, before income taxes.
The following weighted average assumptions were used to estimate the fair value of stock options granted in 2009:
         
Dividend yield
    0.0 %
Expected volatility
    48.0 %
Risk free interest rate
    2.0 %
Expected term of options
  4.75 years
Weighted average grant date fair value
  $ 5.35  

 

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The following table represents stock option activity for the nine months ended September 30, 2009:
                                 
            Weighted     Weighted     Weighted Average  
    Number of     Average Grant     Average     Remaining  
    Shares     Date Fair Value     Exercise Price     Contractual Life  
Outstanding options at December 31, 2008
    1,352,992     $ 4.54     $ 14.21     6.06 Yrs.  
Granted
    414,882       5.35       12.51        
Exercised
    (5,375 )     1.35       2.22        
Canceled or forfeited
    (98,168 )     4.95       14.38        
 
                             
Outstanding options at September 30, 2009
    1,664,331     $ 4.73     $ 13.81     5.56 Yrs.  
 
                             
Options exercisable at September 30, 2009
    571,290     $ 4.31     $ 13.21     5.10 Yrs.  
 
                             
At September 30, 2009, the aggregate intrinsic value of options outstanding was approximately $1.0 million, and the aggregate intrinsic value of options exercisable was approximately $0.8 million. At September 30, 2009, there was approximately $4.5 million of unrecognized compensation cost related to outstanding options, which is expected to be recognized over a weighted-average period of 2.7 years.
Restricted Stock Grants: The following table represents a summary of nonvested restricted stock activity for the nine months ended September 30, 2009:
                 
            Weighted  
            Average  
    Number     Grant Date  
    of Shares     Fair Value  
Nonvested, December 31, 2008
    149,296     $ 15.30  
Granted
    129,990       12.51  
Vested
    (43,233 )     15.06  
Canceled or forfeited
    (11,027 )     14.01  
 
             
Nonvested, September 30, 2009
    225,026     $ 13.80  
 
             
Share-based compensation expense related to grants of restricted stock for the three months ended September 30, 2009 and 2008 was approximately $0.3 million and $0.2 million, respectively, before income taxes and for the nine months ended September 30, 2009 and 2008, was approximately $0.6 million and $0.4 million, respectively, before income taxes. Total unrecognized compensation expense for unvested restricted shares of common stock as of September 30, 2009, was approximately $2.5 million, which is expected to be recognized over a weighted-average period of 2.9 years.
Note 13. Contingencies and Commitments
Litigation: From time to time, the Company is subject to certain claims and lawsuits that have arisen in the ordinary course of its business. Although the outcome of such existing matters cannot presently be determined, it is management’s opinion that the ultimate resolution of such existing matters will not have a material adverse effect on the Company’s results of operations or financial position.
NDeX: Each of the holders of the noncontrolling interest in NDeX has the right to require NDeX to repurchase all or any portion of the NDeX membership interest held by them. For APC Investments and Feiwell & Hannoy, this right is exercisable until February 7, 2010. If both APC Investments and Feiwell & Hannoy had exercised their respective put rights at September 30, 2009, NDeX would have been obligated to pay an aggregate of $17.2 million, payable in the form of a three-year unsecured note bearing interest at a rate equal to prime plus 2.0%. The put rights of other holders of noncontrolling interest in NDeX have not yet become exercisable.

 

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Note 14. Subsequent Events
The Company has evaluated subsequent events through the date this report was filed and those are as follows:
Albertelli. On October 1, 2009, NDeX entered into an asset purchase agreement with James E. Albertelli, P.A., The Albertelli Firm, P.C., Albertelli Title, Inc. and James E. Albertelli (collectively, the “Albertelli Sellers”), under the terms of which NDeX acquired the mortgage default processing services and certain title assets of the Albertelli Sellers on that date. NDeX paid $7.0 million in cash at closing, held back an additional $1.0 million to secure the Albertelli Sellers’ obligations under the asset purchase agreement (including payment of any indemnification claims and working capital adjustments) and will pay an additional $2.0 million in equal installments of $1.0 million on each of October 1, 2010 and 2011, respectively. In addition, NDeX may be obligated to pay the Albertelli Sellers up to an additional $9.0 million in three annual installments of up to $3.0 million each. The amount of these annual cash payments will be based upon the adjusted EBITDA for the acquired mortgage default processing services and related title business during the twelve calendar months ending on each of September 30, 2010, 2011, and 2012. The Company used available cash to fund the closing payment.
In addition, NDeX also entered into a twenty-year services agreement with James E. Albertelli, P.A. which provides for the exclusive referral of residential mortgage default and related files from the law firm to NDeX for processing in Florida.
DiscoverReady: On November 2, 2009, the Company acquired an 85% equity interest in DiscoverReady, LLC under the terms of a membership interest purchase agreement with DiscoveryReady, LLC, DR Holdco LLC, Steven R. Harber, David Shub, James K. Wagner, Paul Yerkes and C. Parkhill Mays. The Company paid the sellers $28.9 million in cash at closing and placed an additional $3.0 million in escrow pursuant to the terms of an escrow agreement to secure the sellers’ obligations under the purchase agreement (including payment of any indemnification claims and working capital and capital lease liability adjustments). After closing, DR Holdco LLC holds a 15% noncontrolling interest in DiscoverReady. The individual sellers of DiscoverReady, along with other DiscoverReady employees, own all of the equity interests of DR Holdco. The Company used $22.9 million in a combination of cash on the balance sheet at September 30, 2009 and cash flow from operations since September 30, 2009, as well as $9.0 million from its revolving line of credit, to fund the closing payments made in connection with this acquisition. At November 2, 2009, the Company had total outstanding debt of $155.5 million and available credit of approximately $31.0 million on our revolving line of credit, after taking into account the senior leverage ratio requirements under the Company’s credit agreement.
The Company will be required to record on its balance sheet an adjustment for that portion of DiscoverReady which it does not own as a noncontrolling interest. Because the redeemable feature of this noncontrolling interest is based on fair value, the Company is not required to record this adjustment as an item affecting net income attributable to Dolan Media Company common stockholders.
The Company expects to include the results of operations for this acquisition in its Professional Services segment.
Purchase Price Allocation and Pro Forma Financial Information. Since the initial purchase accounting for both the Albertelli and DiscoverReady acquisitions described above is not yet complete, it is not practicable for the Company to provide these required disclosures in this Form 10-Q.
Second Amendment to Credit Agreement. In connection with the acquisition of DiscoverReady, LLC described above, the Company and its subsidiaries amended its credit agreement with the syndicate of lenders that are party to that agreement. Under the terms of this amendment, the lenders consented to the acquisition of DiscoverReady and no changes were made to the material terms of the credit agreement. The Company paid $0.5 million in fees to the lenders in connection with this amendment.

 

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Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations
We recommend that you read the following discussion and analysis in conjunction with our unaudited condensed consolidated interim financial statements and the related notes included in this report. This discussion and analysis contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 and Section 27A of the Securities Act of 1933. We have based these forward-looking statements on our current expectations and projections about our future results, performance, prospects and opportunities. Forward looking statements are statements such as those contained in projections, plans, objectives, estimates, statements of future economic performance, and assumptions relating to any of the foregoing. We have tried to identify forward-looking statements by using words such as “may,” “will,” “expect,” “anticipate,” “believe,” “intend,” “estimate,” “goal,” “continue,” and similar expressions or terminology. By their very nature, forward-looking statements are based on information currently available to us and are subject to a number of known and unknown risks, uncertainties and other factors that could cause our actual results, performance, prospects or opportunities to differ materially from those expressed in, or implied by, these forward-looking statements. These risks, uncertainties and other factors include:
    our business operates in highly competitive markets and depends upon the economies and the demographics of the legal, financial and real estate sectors in the markets we serve and changes in those sectors could have an adverse effect on our revenues, cash flows and profitability;
    NDeX’s business revenues are very concentrated, as NDeX currently provides mortgage default processing services to eight law firm customers, and if the number of case files referred to our law firm customers, and ultimately to NDeX for processing, decreases or fails to increase, it may affect the cash flow of our law firm customers and their ability to pay us timely for services we perform and may also adversely affect our operating results and ability to execute our growth strategy;
    the key attorneys at each of NDeX’s law firm customers are employed by NDeX, some of whom, including David A. Trott, the chairman and chief executive officer of NDeX, also hold a direct or indirect equity interest in NDeX. As a result, these key attorneys may, in certain circumstances, have interests that differ from or conflict with our interests;
    government regulation of sub-prime, Alt-A and other residential mortgage products, including bills introduced in states where we do business (such as recently enacted foreclosure legislation in Michigan and Indiana), the Hope for Homeowners Act, the Emergency Economic Stabilization Act and Homeowner Affordability and Stability Plan, the Streamlined Modification Program, Protecting Tenants at Foreclosure Act of 2009, and voluntary foreclosure relief programs developed by lenders, loan servicers and the Hope Now Alliance, a consortium that includes loan servicers, may have an adverse affect on and restrict our mortgage default processing services and public notice operations;
    we have owned and operated DiscoverReady, LLC for a very short period of time and we are highly dependent on the skills and knowledge of the individuals serving as chief executive officer and president of DiscoverReady as none of our executive officers have managed or operated a discovery management and document review services company prior to this acquisition;
    DiscoverReady’s business revenues are very concentrated among a few customers and if these customers choose to manage their discovery with their own staff or by engaging another provider and if we are unable to develop new customer relationships, our operating results and the ability to execute our growth strategy may be adversely affected;
    we are dependent on our senior management team, especially James P. Dolan, our founder, chairman, president and chief executive officer; Scott J. Pollei, our executive vice president and chief operating officer; Mark W.C. Stodder, our executive vice president-business information; David A. Trott, chairman and chief executive officer, NDeX, and Vicki J. Duncomb, our vice president and chief financial officer;

 

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    the acquisition of DiscoverReady may expose us to particular business and financial risks that include, but are not limited to: (1) diverting management’s time, attention and resources from managing the business; (2) incurring significant additional capital expenditures and operating expenses to improve, coordinate or integrate managerial, operational, financial and administrative systems; (3) failing to integrate the operations, personnel and internal controls of DiscoverReady into our company or to manage DiscoverReady or our growth; and (4) facing operational difficulties in new markets or with new product and service offerings;
    we intend to continue to pursue acquisition opportunities, which we may not do successfully and which may subject us to considerable business and financial risks, and we may be required to incur additional indebtedness or raise additional capital to fund these acquisitions and this additional cash may not be available to us on satisfactory terms or at all;
    growing our business may place a strain on our management and internal systems, processes and controls; and
    we incurred additional indebtedness to close the acquisitions of Barrett-NDEx and DiscoverReady and this additional debt consumed a significant portion of our ability to borrow and may limit our ability to pursue other acquisitions or growth strategies.
See “Risk Factors” in Item 1A of our annual report on Form 10-K filed on March 12, 2009, with the Securities Exchange Commission for a description of these and other risks, uncertainties and factors that could cause our actual results, performance, prospects or opportunities to differ materially from those expressed in, or implied by, these forward-looking statements.
You should not place undue reliance on any forward-looking statements. Except as otherwise required by federal securities laws, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changed circumstances or any other reason after the date of this report.
In this quarterly report on Form 10-Q, unless the context requires otherwise, the terms “we,” “us,” and “our” refer to Dolan Media Company. When we refer to “NDeX” in this quarterly report on Form 10-Q, we mean all of our mortgage default processing operations, including Barrett-NDEx (defined below), all of which we formerly referred to as “APC.” When we refer to “Barrett-NDEx” in this quarterly report on Form 10-Q, we mean the mortgage default processing operations serving the Texas, California and Georgia markets that NDeX acquired from National Default Exchange Management, Inc., National Default Exchange Holdings, LP, THP/Barrett-NDEx AIV, Corp. and THP/Barrett-NDEx AIV, LP on September 2, 2008. The term “Barrett law firm” refers to Barrett, Daffin, Frappier, Turner & Engel, LLP and its two affiliated law firms.
Overview
We are a leading provider of professional services and necessary business information and to legal, financial and real estate sectors in the United States. We serve our customers through two complementary operating segments: our Professional Services Division and our Business Information Division. Our Professional Services Division comprises three business lines: NDeX, Counsel Press, and DiscoverReady. NDeX provides mortgage default processing services to eight law firms and also directly to mortgage lenders and loan servicers on California foreclosure files, and began processing Florida mortgage default files in early October in connection with the Albertelli acquisition described below. Counsel Press provides appellate services to law firms and attorneys nationwide. DiscoverReady, which we acquired on November 2, 2009 as described below, provides outsourced discovery management and document review services to major United States companies and their counsel.
Our Business Information Division publishes 64 print publications consisting of 14 paid daily publications, 30 paid non-daily publications and 20 non-paid non-daily publications, along with specialty publications and magazines. In addition, we provide business information electronically through our 45 on-line publication web sites, our 34 event and other non-publication web sites and our email notification systems.

 

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Our total revenues increased $14.5 million, or 30.2%, from $47.9 million for the three months ended September 30, 2008, to $62.3 million for the three months ended September 30, 2009, primarily as a result of our acquisition of Barrett-NDEx. For the nine months ended September 30, 2009, our total revenues increased $62.4 million, or 47.6% over the same prior year period, all of which resulted from businesses we acquired in 2008, including Barrett-NDEx. Our operating income increased from $6.3 million for the three months ended September 30, 2008 to $11.5 million for the three months ended September 30, 2009. On a year-to-date basis, our operating income has increased to $42.2 million, up 74.0%, or $18.0 million, from the same period in 2008. Acquisitions, primarily our acquisition of Barrett-NDEx in September 2008, accounted for the majority of the 39.2% increase in our operating expenses for the nine month periods. For the nine months ended September 30, 2009, expense controls in our Business Information division was offset by increased spending at NDeX, primarily as a result of file volume increases during that period. Further, net income attributable to Dolan Media Company increased significantly to $5.9 million for the third quarter of 2009 from $2.5 million for the same period in 2008. Net income attributable to Dolan Media Company doubled, from $10.9 million for the nine months ended September 30, 2008 to $22.7 million for the nine months ended September 30, 2009, primarily as a result of the Barrett-NDEx acquisition.
Recent Developments
New Line of Business in Professional Services Division
On November 2, 2009, we entered a new line of business in our Professional Services division with the acquisition of an 85% interest in DiscoverReady, LLC (as described in “Recent Acquisitions” below). DiscoverReady is a leading provider of outsourced discovery management and document review services to major United States companies and their counsel under fixed-fee arrangements. DiscoverReady is headquartered in New York City, with an office in Charlotte, North Carolina.
Discovery is the process by which parties use the legal system to obtain relevant information, primarily in litigation and regulatory matters. This process can be expensive and time-consuming for companies depending upon the number of e-mails, electronic files and paper documents a company must review to respond to a document request. DiscoverReady assists these companies and their counsel in document reviews and helping these companies manage the discovery process. DiscoverReady also provides related technology management services.
This is a new line of business for us and one in which none of our key employees or executive officers has any previous experience. In connection with the acquisition, we entered into three-year employment agreements with DiscoverReady co-founders James K. Wagner, Jr. and Steven R. Harber to continue to serve as DiscoverReady’s chief executive officer and president, respectively. We also entered into three-year employment agreements with Paul Yerkes and David Shub, two other key employees of DiscoverReady. Messrs. Wagner, Harber, Yerkes and Shub and other employees of DiscoverReady, together, indirectly own the remaining 15% equity interest in DiscoverReady.
Regulatory Environment
Over the past year, federal, state and local governmental entities have proposed, and in some cases, enacted legislation or taken other action that may have, and some of which has had, an adverse impact on the number of mortgage defaults case files referred to NDeX for processing, the length of time it takes to process such files, the time periods over which we recognize revenue associated with the processing of those files, and the number of foreclosure public notices placed in our Business Information products and DLNP (our minority investment) for publication. This enacted or proposed legislation includes the Hope for Homeowners Act of 2008, the Emergency Economic Stabilization Act, the Streamlined Modification Program, laws passed in both California and Maryland last year, and the Homeowner Affordability and Stability Plan, all of which are described in our annual report on Form 10-K filed with the SEC on March 12, 2009. Earlier this year, the California legislature passed legislation, which extends the redemption periods on new and pending foreclosures involving loans that certain criteria, including being owner-occupied when the loan became delinquent. Further, on April 28, 2009, President Obama announced new details for the “Making Home Affordable” program that is part of the Homeowner Affordability and Stability Plan, which provides, among other things, that servicers who participate in a second lien program will automatically reduce payments associated with a second lien mortgage when a borrower initiates a Home Affordable Modification on a first lien mortgage. In May 2009, Congress enacted the Helping Families Save Their Home Act of 2009, which includes the Protecting Tenants at Foreclosure Act of 2009. Under the Protecting Tenants at Foreclosure Act, the new owner of foreclosed property may not evict a tenant until the end of any existing bona fide lease term, except in very limited circumstances, and such new owner is further required to give the tenant 90 days advance notice before an eviction. During the third quarter of 2009, referrals of eviction files declined in many of our NDeX operations, which we believe to be a result of this legislation.

 

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In addition, beginning in July 2009, changes in the relevant state foreclosure laws in Indiana and Michigan require loan servicers to comply with additional notice requirements. Specifically, the Indiana law requires loan servicers to send Indiana borrowers a pre-suit notice at least thirty days prior to filing a foreclosure action, which we expect could delay a foreclosure at least 30 days. The Michigan law requires loan servicers to send and publish a special notice to certain Michigan borrowers that would give the borrower an opportunity to arrange a meeting with loan servicers to explore possible modification of the borrower’s loan. We expect this legislation could delay foreclosures for thirty to ninety days depending upon whether a borrower desires to meet with the loan servicers. During the third quarter of 2009, these Indiana and Michigan legislative changes caused a $3.0 million year-over-year decline in mortgage default processing services revenues because these laws delay or extend the length of the foreclosure process, thereby deferring a portion of our mortgage default processing services revenues on new files into future periods. Because the Michigan law adds additional steps to the foreclosure process, the period of time over which we recognize revenue on new foreclosure files lengthened. In Michigan, foreclosure file counts for the third quarter of 2009 increased nearly 4.5% year-over-year. In Indiana, foreclosure file counts in the third quarter 2009 decreased approximately 56% when compared to the third quarter of 2008 because the new legislation delays when a foreclosure action can be commenced, thus delaying when these files are referred to us for processing. As expected, we began to see Indiana file referrals increase toward the end of the third quarter of 2009.
As this new legislation primarily affects the timing in which we recognize revenue in Michigan and when we receive foreclosure file referrals in Indiana, we anticipate that we will begin to see Michigan and Indiana revenues and Indiana foreclosure file volumes recover over time as mortgage lenders and loan servicers refine processes they have developed in response to this legislation. Other mortgage default processing revenues from our NDeX operations, including those from Barrett-NDEx, offset revenue declines we experienced year-over-year as a result of this legislation. When compared to the second quarter of 2009, mortgage default processing services revenue declined $5.0 million, $3.3 million of which resulted from the new legislation in Michigan and Indiana described above, and $1.7 million of which we believe resulted, in large part, from continuing loan mitigation efforts on the part of loan servicers and federal agencies and other regulatory efforts.
During late July 2009, mortgage lenders and loan servicers met with the Obama administration and were asked to enter into at least 500,000 loan modifications under the Home Affordable Modification Program by November 2009. We believe that, during the third quarter of 2009, these mortgage lenders and loan servicers may have delayed the referral of some files to us so that they could evaluate such files as candidates under this program in response to the administration’s request.
In addition to enacted or proposed legislation, certain state and local governments have interpreted the Emergency Economic Stabilization Act as preempting state and local foreclosure requirements. Further, various lender and mortgage servicers have voluntarily focused their attention on loss mitigation, loan modification and similar efforts, including moratoria on certain foreclosure sales, in an attempt to reduce the number of mortgage defaults. We believe these efforts have caused lenders and mortgage servicers to delay when they refer mortgage default files to us for processing.
Adoption of Stockholder Rights Plan
On January 29, 2009, our board adopted a Stockholder Rights Plan, which is designed to protect our stockholders from potentially coercive takeover practices or takeover bids and to prevent an acquirer from gaining control of the company without offering a fair price to our stockholders. The plan is not intended to deter offers that are fair or otherwise in the best interests of our stockholders.
This plan is similar to plans that other public companies have adopted and our adoption of this plan was not prompted by any external actions. We have received no hostile communications or takeover approaches of any kind. We adopted the plan to give our board time to evaluate and respond to any unsolicited future attempts to acquire our company.

 

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In connection with the adoption of this plan, our board declared a dividend of one junior participating preferred stock purchase right for each outstanding share of our common stock, payable to the stockholders of record on February 9, 2009. Stockholders may request a copy of this plan by writing to our corporate secretary at our principal offices, 222 South Ninth Street, Suite 2300, Minneapolis, MN 55402.
Recent Acquisitions
We have grown significantly since our predecessor company commenced operations in 1992, in large part due to acquisitions, such as the following:
DiscoverReady: On November 2, 2009, we acquired an 85% equity interest in DiscoverReady, LLC under the terms of a membership interest purchase agreement with DiscoveryReady LLC, DR Holdco LLC, Steven R. Harber, David Shub, James K. Wagner, Paul Yerkes and C. Parkhill Mays. We paid the sellers $28.9 million in cash at closing and placed an additional $3.0 million in escrow pursuant to the terms of an escrow agreement to secure the sellers’ obligations under the purchase agreement (including payment of any indemnification claims and working capital and capital lease liability adjustments). After closing, DR Holdco LLC holds a 15% noncontrolling interest in DiscoverReady. The individual sellers of DiscoverReady, LLC, along with other DiscoverReady employees, own all the equity interests of DR Holdco. We used $22.9 million in a combination of cash on our balance sheet at September 30, 2009, cash flow from operations received from September 30, 2009, through November 2, 2009, as well as $9.0 million from our revolving line of credit, to fund the closing payments in connection with this acquisition.
In connection with the acquisition described above, DiscoverReady entered into employment agreements with each of the individual sellers of DiscoverReady, under the terms of which they serve as senior managers of DiscoveryReady. These employment agreements have a term of three years, except the agreement with C. Parkhill Mays, which has a term of six months.
As part of this acquisition, we, along with DR Holdco, amended and restated DiscoverReady’s limited liability agreement. Under the terms of the limited liability agreement, DR Holdco has the right, for a period of ninety days following November 2, 2012, to require DiscoverReady to repurchase all of its equity interest in DiscoverReady. To the extent that DR Holdco timely exercises this right, the purchase price of such equity interest will be based on the fair market value of such interest. During that same period, we also have the right to require DR Holdco to sell all or a portion its equity interest in DiscoverReady to us. If we timely exercise our right, we would pay DR Holdco an amount based on the fair market value of the equity interest. These rights may be exercised earlier under the following circumstances: An individual seller of DiscoverReady, except Mays, may require DiscoverReady to repurchase the portion of DR Holdco’s interest in DiscoverReady that he beneficially owns if he is terminated without cause or quits for good reason prior to the expiration of his employment agreement. If we terminate any individual seller of DiscoverReady for cause or if such seller quits without good reason, we can require DR Holdco to sell to us the portion of its interest in DiscoverReady that reflects such seller’s beneficial interest in us. The purchase price for that portion of the equity interest repurchased or sold if these rights are exercised will be based on fair market value. With respect to Mays, DiscoverReady will repurchase that portion of DR Holdco’s interest in DiscoverReady, which he beneficially owns at fair market value upon the expiration of his employment agreement.
DiscoverReady will engage an independent third party valuation firm to assist management in determining the fair market value of the equity interest being repurchased by DiscoverReady or sold to us if any of the above-described rights are exercised. The purchase price for any equity interests repurchased or sold pursuant to these rights, if exercised, will be paid in cash to the extent allowed by the terms of our then-existing credit agreement, or pursuant to a three-year unsecured promissory note, bearing interest at a rate equal to prime plus 1.0%.
Albertelli: On October 1, 2009, NDeX entered into an asset purchase agreement with James E. Albertelli, P.A., The Albertelli Firm, P.C., Albertelli Title, Inc. and James E. Albertelli (collectively, the “Albertelli Sellers”), under the terms of which NDeX acquired the mortgage default processing services and related title business of the Albertelli Sellers on such date. NDeX paid $7.0 million in cash at closing, held back an additional $1.0 million to secure the Albertelli Sellers’ obligations under the asset purchase agreement (including payment of any indemnification claims and working capital adjustments) and will pay an additional $2.0 million in equal installments of $1.0 million on each of October 1, 2010 and 2011, respectively.

 

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In addition, NDeX may be obligated to pay the Albertelli Sellers up to an additional $9.0 million in three annual installments of up to $3.0 million each. The amount of these annual cash payments will be based upon the adjusted EBITDA for the acquired mortgage default processing services and related title business during the twelve calendar months ending on each of September 30, 2010, 2011, and 2012. We used available cash to fund the closing payment.
NDeX also entered into a services agreement with James E. Albertelli, P.A. (the “Albertelli law firm”) pursuant to which NDeX has agreed to provide mortgage default processing and related title services to the Albertelli law firm in Florida. The services agreement provides for the exclusive referral of residential mortgage default and related files from the Albertelli law firm to NDeX for servicing. This agreement has an initial term of twenty years, which term may be automatically extended for two successive ten-year periods unless either party elects to terminate the term then-in-effect with prior notice. Under the services agreement, NDeX will be paid a fixed fee for each residential mortgage default and other file referred by the Albertelli law firm to NDeX for servicing, with the amount of such fixed fee being based upon the type of file. Beginning on October 1, 2010, this fixed fee per file will increase or decrease on an annual basis based on the yearly changes to an agreed-upon consumer price index. Under the services agreement, NDeX has also agreed to provide mortgage default processing and related title services in the State of Florida to the Albertelli law firm on an exclusive basis for a period of two years after the closing.
In connection with the transactions described above, NDeX also has entered into an employment agreement with James E. Albertelli, whereby NDeX employs him as an executive vice president. As a result of these transactions, NDeX now provides mortgage default processing services to law firm customers in California, Texas, Michigan, Indiana, Minnesota, Georgia and Florida as well as directly to mortgage lenders and loan servicers for California foreclosure files.
Barrett-NDEx: On September 2, 2008, NDeX acquired the equity interests of Barrett-NDEx for a total of $167.5 million in cash, of which $151.0 million was paid to or on behalf of the sellers of Barrett-NDEx, $15.0 million was placed in escrow to secure payment of indemnification claims and an additional $1.5 million was held back pending working capital adjustments. In addition to the cash payments, NDeX also issued to the sellers of Barrett-NDEx an aggregate 6.1% interest in NDeX, which had an estimated fair market value of approximately $11.6 million on July 28, 2008, the date the parties signed the equity purchase agreement. We also issued to the sellers of Barrett-NDEx 825,528 shares of our common stock. In addition, at September 30, 2009, we recorded $13.0 million as an addition to goodwill because Barrett-NDEx’s adjusted EBITDA for the four quarters ended September 30, 2009 exceeded the earn-out target of $28.0 million. We expect to use our available cash and, to the extent necessary, funds from our credit facility to make this payment. The working capital target of $2.0 million as set forth in the equity purchase agreement was not met, as there was an actual working capital (deficit) of $(1.4) million. As a result, NDeX recovered the $3.4 million shortfall by having the sellers of Barrett-NDEx release the $1.5 million holdback payable to them and by taking receipt of $1.9 million out of the escrow in 2008.
We completed our final allocation of the Barrett-NDEx purchase price during the third quarter, which resulted in the following changes from our preliminary purchase price allocation: (1) we reduced the allocation for our service agreement with the Barrett law firm from $154.0 million to $59.7 million; (2) we allocated $19.6 million to a customer list related to our loan servicer and mortgage lender customers for whom we provide mortgage default processing services directly on California foreclosure files; (3) we reduced the allocation for non-compete agreements from $5.0 million to $3.2 million; (4) we allocated $6.5 million to trade names associated with Barrett-NDEx; (5) we increased our allocation to goodwill from $37.8 million to $116.9 million (which also includes the $13.0 million adjustment to goodwill for the achievement of the earnout as well as the working capital shortfall adjustment, both discussed above); and (6) we decreased our allocation to software from $6.9 million to $5.5 million. Our preliminary purchase price allocation combined the services agreement with the Barrett law firm and the California customer list as a single intangible asset. In completing the final allocation, we determined that the California customer list is a separate identifiable asset from the services agreement because the services agreement requires us to provide mortgage default processing services only to the Barrett law firm whereas we provide these services directly to California customers under no specific services agreement. Our initial assumptions regarding this customer list also included obtaining new customers in the California market, the value of which we preliminarily allocated to the services agreement and later determined was goodwill.

 

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In connection with this acquisition, we also recorded, as additional purchase price, a liability of $1.5 million in estimated severance costs in connection with the elimination of certain duplicative positions, which we expected to pay out in cash within the twelve months following the close of the acquisition. In April 2009, we eliminated certain positions in connection with this plan for aggregate payments of approximately $453,000. Also in the second quarter, we completed our plan of restructure and determined that we will not be eliminating any additional positions under the restructuring plan. Accordingly, we reduced the liability to zero, as a purchase price adjustment to goodwill.
We have accounted for these acquisitions under the purchase method of accounting and have included the operating results of Barrett-NDEx, and expect to include the operating results of the Albertelli and DiscoverReady acquisitions, in the Professional Services segment in our unaudited condensed consolidated interim financial statements since the date we acquired it. As both the Albertelli and DiscoverReady acquisitions occurred after the end of the third quarter and nine months ended September 30, 2009, the operating results of these acquisitions are not included in the unaudited condensed consolidated interim financial statements presented in this Form 10-Q.
Revenues
We derive revenues from two operating segments, our Professional Services Division and our Business Information Division. For the three and nine months ended September 30, 2009, our total revenues were $62.3 million and $193.3 million, respectively, and the percentage of our total revenues attributed to each of our segments was as follows:
    64.2% and 65.3%, respectively, from our Professional Services Division; and
    35.8% and 34.7%, respectively, from our Business Information Division.
Professional Services. Our Professional Services Division generates revenues primarily by providing mortgage default processing, appellate services, and, beginning November 2, 2009 with the acquisition of DiscoverReady, outsourced discovery management and document review services through fee-based arrangements. Through NDeX, we assist eight law firms in processing foreclosure, bankruptcy, eviction and, to a lesser extent, litigation and other mortgage default processing case files for residential mortgages that are in default. We also provide these services directly to mortgage lenders and loan servicers for California foreclosure files. In addition, NDeX provides loan modification and loss mitigation support on mortgage default files to its customers and related real estate title work primarily to the Barrett law firm and, since October 1, 2009, the Albertelli law firm. We refer to revenues that NDeX derives from these sources collectively as “mortgage default processing service revenues.” Shareholders and/or principal attorneys of our law firm customers, including David A. Trott, chairman and chief executive officer of NDeX, are executive management employees of NDeX.
For the three and nine months ended September 30, 2009, we serviced approximately 83,300 and 267,500 mortgage default case files, respectively, of which approximately 53,900 and 168,000, respectively, were processed by businesses we acquired in 2008, including Barrett-NDEx. Our mortgage default processing service revenues accounted for 57.7% and 59.6%, respectively, of our total revenues and 89.9% and 91.2%, respectively, of our Professional Services Division’s revenues during the three and nine months ended September 30, 2009. We recognize mortgage default processing service revenues on a proportional performance basis over the period during which the services are provided, the calculation of which requires management to make estimates. We consolidate the operations, including revenues, of NDeX and record an adjustment for noncontrolling interest for the percentage of NDeX that we do not own. See “Noncontrolling Interest” below for a description of the impact of this noncontrolling interest in NDeX on our operating results.

 

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NDeX’s revenues are primarily driven by the number of residential mortgage defaults in each of the states in which we do business, as well as the type of files we process (e.g. foreclosures, evictions, bankruptcies or litigation) because each has a different pricing structure. Although the services agreements with our law firm customers contemplate the review and possible revision of the fees for the services we provided, price increases have not historically affected our mortgage default processing revenues materially. In most cases, our services agreements adjust the fee paid to us for the files we process on annual basis pursuant to an agreed-upon consumer price index. In other cases, our services agreements require us to agree with our law firm customer regarding the terms and amount of any fee increase. If we are unable to negotiate fixed fee increases under these agreements that at least take into account the increases in costs associated with providing mortgage default processing services, our operating and net margins could be adversely affected. During the first quarter of 2009, we revised our fee arrangements with Trott & Trott and Feiwell & Hannoy. During the second quarter of 2009, we revised our fee arrangement with Wilford & Geske. To date, we have not revised our fee arrangement with the Barrett law firm. You should refer to “Management’s Discussion and Analysis—Revenues” in our Form 10-K filed with the SEC on March 12, 2009 for more information about the conditions when the fixed fee per file we charge our law firm customers may change.
Through Counsel Press, we assist law firms and attorneys throughout the United States in organizing, preparing and filing appellate briefs, records and appendices, in paper and electronic format, that comply with the applicable rules of the U.S. Supreme Court, any of the 13 federal courts of appeals and any state appellate court or appellate division. For the three and nine months ended September 30, 2009, our appellate service revenues accounted for 6.5% and 5.8%, respectively, of our total revenues and 10.1% and 8.8%, respectively, of our Professional Services Division’s revenues. For the three and nine months ended September 30, 2009, we provided appellate services to attorneys in connection with approximately 2,300 and 6,600 appellate filings, respectively, in federal and state courts. We recognize appellate service revenues as the services are provided, which is when our final appellate product is filed with the court.
Beginning on November 2, 2009, we began to assist major United States companies and their counsel in outsourced discovery management and document review through DiscoverReady. We will consolidate the operations of DiscoverReady and record an adjustment for noncontrolling interest for the percentage of DiscoverReady that we do not own. Because the redeemable feature of this noncontrolling interest is based on fair value (unlike the noncontrolling interest in NDeX), we are not required to record this adjustment as an item affecting net income attributable to Dolan Media Company common stockholders. See “Noncontrolling Interest” below.
Business Information. Our Business Information Division generates revenues primarily from display and classified advertising, public notice and subscriptions. We sell commercial advertising consisting of display and classified advertising in all of our print products and on most of our web sites. We include within our display and classified advertising revenue those revenues generated by sponsorships, advertising and ticket sales generated by our local events. Our display and classified advertising revenues accounted for 10.5% and 10.5%, respectively, of our total revenues and 29.4% and 30.2%, respectively, of our Business Information Division’s revenues for the three and nine months ended September 30, 2009. We recognize display and classified advertising revenues upon publication of an advertisement in one of our publications or on one of our web sites. Advertising revenues are driven primarily by the volume, price and mix of advertisements published as well as how many local events are held.
We publish 305 different types of public notices in our court and commercial newspapers, including foreclosure notices, probate notices, notices of fictitious business names, limited liability company and other entity notices, unclaimed property notices, notices of governmental hearings and trustee sale notices. Our public notice revenues accounted for 19.7% and 18.5%, respectively, of our total revenues and 55.0% and 53.4%, respectively, of our Business Information Division’s revenues for the three and nine months ended September 30, 2009. We recognize public notice revenues upon placement of a public notice in one of our court and commercial newspapers. Public notice revenues are driven by the volume and mix of public notices published, which are affected by the number of residential mortgage foreclosures in the 14 markets where we are qualified to publish public notices and the rules governing publication of public notices in such states. In six of the states in which we publish public notices, the price for public notices is statutorily regulated, with market forces determining the pricing for the remaining states.
We sell our business information products primarily through subscriptions. For the three and nine months ended September 30, 2009, our circulation revenues, which consist of subscriptions and single-copy sales, accounted for 5.1% and 5.1%, respectively, of our total revenues and 14.2% and 14.7%, respectively, of our Business Information Division’s revenues. We recognize subscription revenues ratably over the subscription periods, which range from three months to multiple years, with the average subscription period being twelve months. Deferred revenue includes payment for subscriptions collected in advance that we expect to recognize in future periods. Circulation revenues are driven by the number of copies sold and the subscription rates charged to customers.

 

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Operating Expenses
Our operating expenses consist of the following:
    Direct operating expenses, which consist primarily of the cost of compensation and employee benefits for the processing staff at NDeX and Counsel Press and our editorial personnel in our Business Information Division, production and distribution expenses, such as compensation (including stock-based compensation expense) and employee benefits for personnel involved in the production and distribution of our business information products, the cost of newsprint and delivery of our business information products, and packaging and data service fees in connection with our California foreclosure files;
    Selling, general and administrative expenses, which consist primarily of the cost of compensation (including stock-based compensation expense) and employee benefits for our sales, human resources, accounting and information technology personnel, publishers and other members of management, rent, other sales and marketing related expenses and other office-related payments;
    Depreciation expense, which represents the cost of fixed assets and software allocated over the estimated useful lives of these assets, with such useful lives ranging from two to thirty years; and
    Amortization expense, which represents the cost of finite-lived intangibles acquired through business combinations allocated over the estimated useful lives of these intangibles, with such useful lives ranging from two to thirty years.
Total operating expenses as a percentage of revenues depends upon our mix of business from Professional Services, which is our higher margin revenue, and Business Information. This mix may shift between fiscal periods.
Equity in Earnings of Affiliates
The Detroit Legal News Publishing, LLC. We own 35.0% of the membership interests in DLNP, the publisher of The Detroit Legal News and ten other publications. We account for our investment in DLNP using the equity method. Our percentage share of DLNP’s earnings was $0.9 million and $1.3 million for the three months ended September 30, 2009 and 2008, respectively, which we recognized as operating income. This is net of amortization of $0.4 million for both periods. For the nine months ended September 30, 2009 and 2008, our percentage share of DLNP’s earnings was $3.7 million and $4.4 million, respectively. This is net of amortization of $1.1 million for both periods. NDeX handles all public notices required to be published in connection with files it services for Trott & Trott pursuant to our services agreement with Trott & Trott and places a significant amount of these notices in The Detroit Legal News. Trott & Trott pays DLNP for these public notices. See “Liquidity and Capital Resources — Cash Flow Provided by Operating Activities” below for information regarding distributions paid to us by DLNP.
GovDelivery, Inc. In August 2009, we made an additional investment in GovDelivery by purchasing 1,000,000 shares of its preferred stock for $1,000,000. Prior to this investment, we had accounted for our ownership in GovDelivery using the cost method of accounting because we only owned approximately 15.0% of GovDelivery’s outstanding voting stock (on an as-converted basis) and did not have any ability to exert influence. The additional investment increased our ownership in GovDelivery to 21.9%. As a result, we have determined that we will account for this investment using the equity method. Therefore, we have retroactively applied the equity method of accounting to reflect that portion of GovDelivery’s income and losses attributable to our ownership from the date of our original investment. In the three and nine months ended September 30, 2009, we recorded $0.2 million as the cumulative adjustment representing our share of the losses of GovDelivery for 2009.
Noncontrolling Interest
Noncontrolling interest for the nine months ended September 30, 2009 consisted of an aggregate 15.3% minority interest in NDeX held by APC Investments, LLC (7.6%), Feiwell & Hannoy (1.7%) and the sellers of Barrett-NDEx or their transferees (as a group) (6.1%). APC Investments, LLC is a limited liability company owned by the shareholders of Trott & Trott, including NDeX chairman and chief executive officer David A. Trott and NDeX’s two executive vice presidents in Michigan. Beginning on November 2, 2009, our noncontrolling interest also includes a 15% minority interest in DiscoverReady held by DR Holdco LLC.

 

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Under the terms of the NDeX operating agreement, each month, we are required to distribute NDeX’s earnings before interest, taxes, depreciation and amortization less debt service with respect to any interest-bearing indebtedness of NDeX, capital expenditures and working capital reserves to NDeX’s members on the basis of common equity interest owned. We paid the following distributions in the three and nine months ended September 30, 2009 and 2008:
                                 
    Three Months ended September 30,     Nine Months ended September 30,  
    (In thousands)     (In thousands)  
    2009     2008     2009     2008  
APC Investments
  $ 414     $ 362     $ 1,562     $ 1,098  
Feiwell & Hannoy
    93       81       350       253  
Sellers of Barrett-NDEx (as a group)*
    327             1,233        
 
                       
Total
  $ 834     $ 443     $ 3,145     $ 1,351  
 
                       
     
*   Members of NDeX since September 2, 2008.
There is no similar distribution obligation under the DiscoverReady limited liability company agreement; however, we are obligated to make quarterly tax distributions to each of the members of DiscoverReady.
In addition, APC Investments and Feiwell & Hannoy each have the right, until February 7, 2010, to require NDeX to repurchase all or any portion of their respective interest in NDeX. The sellers of Barrett-NDEx, each as members of NDeX, also have the right, for a period of six months following September 2, 2012, to require NDeX to repurchase all or any portion of their respective membership interest in NDeX. To the extent any minority member of NDeX timely exercises this right, the purchase price of such membership interest will be based on 6.25 times NDeX’s trailing twelve month earnings before interest, taxes, depreciation and amortization less the aggregate amount of any interest bearing indebtedness outstanding for NDeX as of the date the repurchase occurs. The aggregate purchase price would be payable by NDeX in the form of a three-year unsecured note bearing interest at a rate equal to prime plus 2.0%. To date, neither APC Investments nor Feiwell & Hannoy have exercised their put right. However, had they both exercised this right at September 30, 2009, NDeX would have been obligated to pay them $17.2 million in the aggregate under the terms described above.
Under the terms of the DiscoverReady limited liability agreement, DR Holdco has the right, for a period of ninety days following November 2, 2012, to require DiscoverReady to repurchase all or any portion of its equity interest in DiscoverReady. To the extent that DR Holdco timely exercises this right, the purchase price of such equity interest will be based on the fair market value of such interest. During that same period, we also have the right to require DR Holdco to sell its entire equity interest in DiscoverReady to us. If we timely exercise our right, we would pay DR Holdco an amount based on the fair market value of the equity interest. These rights may be exercised earlier under the following circumstances: An individual seller of DiscoverReady, except Mays, may require DiscoverReady to repurchase the portion of DR Holdco’s interest in DiscoverReady that he beneficially owns if he is terminated without cause or quits for good reason prior to the expiration of his employment agreement. If we terminate any individual seller of DiscoverReady for cause or if such seller quits without good reason, we can require DR Holdco to sell to us the portion of its interest in DiscoverReady that reflects such seller’s beneficial interest in us. The purchase price for that portion of the equity interest repurchased or sold if these rights are exercised based on the interest’s fair market value. With respect to Mays, DiscoverReady will repurchase that portion of DR Holdco’s interest in DiscoverReady, which he beneficially owns at fair market value upon the expiration of his employment agreement.
DiscoverReady will engage an independent third party valuation firm to assist it in determining the fair market value of the equity interest being repurchased by DiscoverReady or sold to us if any of the above-described rights are exercised. The purchase price for any equity interests repurchased or sold pursuant to these rights, if exercised, will be paid in cash to the extent allowed by the terms of our then-existing credit agreement, or pursuant to a three- year unsecured promissory note, bearing interest at a rate equal to prime plus 1.0%.

 

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As of January 1, 2009, we are required to record the redeemable noncontrolling interest in NDeX to its redemption amount at each reporting period. As a result, as of September 30, 2009, we recorded an adjustment in the amount of $12.7 million ($7.7 million net of taxes) to additional paid-in capital, which adjustment only reflects the noncontrolling interest in NDeX as we did not have noncontrolling interest in DiscoverReady at September 30, 2009. Please see our condensed consolidated statements of stockholders’ equity (deficit), as well as Note 1 to our unaudited condensed consolidated interim financial statements included in this report on Form 10-Q for further information regarding ASC 810 and its implications to our financial statements.
Critical Accounting Policies and Estimates
We prepare our condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States and the discussion of our financial condition and results of operations is based on these financial statements. The preparation of these financial statements requires management to make estimates, assumptions and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities.
We continually evaluate the policies and estimates we use to prepare our condensed consolidated financial statements. In general, management’s estimates and assumptions are based on historical experience, information provided by third-party professionals and assumptions that management believes to be reasonable under the facts and circumstances at the time these estimates and assumptions are made. Because of the uncertainty inherent in these matters, actual results could differ significantly from the estimates, assumptions and judgments we use in applying these critical accounting policies.
We believe the critical accounting policies that require the most significant assumptions and judgments in the preparation of our unaudited condensed consolidated financial statements include: purchase accounting; revenue recognition in connection with mortgage default processing services; impairment of goodwill, other intangible assets and other long-lived assets; share-based compensation expense; capitalization of developed software for internal and external use; income tax accounting; and allowances for doubtful accounts. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies” in Item 7 in our annual report on Form 10-K for the year ended December 31, 2008, which we filed with the SEC on March 12, 2009, and is available at the SEC’s web site at www.sec.gov, for a discussion (in addition to that provided below) as to how we apply these policies.
Revenue Recognition
We recognize mortgage default processing service revenues on a proportional performance basis over the period during which the services are provided, the calculation of which requires management to make significant estimates as to the appropriate timing of revenue recognition periods. We base these estimates primarily upon our historical experience and our knowledge of processing cycles in each of the states in which we do business, as well as recent legislative changes which impact the processing period.
We record revenues recognized for services performed, but not yet billed, to certain of our mortgage default processing customers as unbilled services, the calculation of which requires management to make significant estimates. We base these estimates on the proportional performance of the services provided in accordance with the revenue recognition policies discussed in the paragraph immediately above. As of September 30, 2009 and December 31, 2008, we recorded an aggregate $17.4 million and $12.5 million, respectively, as unbilled services to our mortgage default processing customers and included these amounts in accounts receivable on our balance sheet.

 

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Goodwill, Other Intangible Assets and Other Long-Lived Assets
We assess our goodwill and finite life intangible assets for impairment on an annual basis using a November 30 measurement date. We will conduct interim impairment assessments when circumstances and events indicate that we may not be able to recover the carrying value of the assets. These events include, but are not limited to, any strategic decisions we may make in response to economic or competitive conditions affecting our reporting units and the effect of the economic and regulatory environment on our business. We continue to evaluate whether circumstances and events have changed, thereby requiring us to conduct an interim test of our goodwill and other finite-lived assets. In particular, if we see an uncertain political and regulatory environment regarding mortgage foreclosures, tight credit markets, or volatility in our stock price with any resulting decline in our market capitalization, along with other uncertainties, an interim impairment test of our goodwill, tradenames and other finite-lived intangible assets may be triggered. This could result in a future material goodwill and/or intangible impairment charge, which could materially adversely impact our operational results for the period in which such charge is recorded.
We determine the estimated economic lives and related amortization expense for our intangible assets. To the extent actual useful lives are less than our previously estimated lives, we will increase our amortization expense. If the unamortized balance were deemed to be unrecoverable, we would recognize an impairment charge to the extent necessary to reduce the unamortized balance to the amount of expected future discounted cash flows, with the amount of such impairment charged to operations in the current period. We estimate useful lives of our intangible assets by reference to current and projected dynamics in the business information and mortgage default processing service industries and anticipated competitor actions. The amount of net income for the nine months ended September 30, 2009 would have been approximately $1.1 million higher if the actual useful lives of our finite-lived intangible assets were 10% longer than the estimates and approximately $1.2 million lower if the actual useful lives of our finite-lived intangible assets were 10% shorter than the estimates.
Share-based Compensation Expense
We estimate the fair value of share-based awards using the Black-Scholes option pricing model at the grant date, with compensation expense recognized as the requisite service is rendered. We have reserved 2,700,000 shares of our common stock for issuance under our incentive compensation plan, of which 698,996 shares were available for issuance under the plan as of September 30, 2009. We grant both stock options and restricted stock under our incentive compensation plan.
During the nine months ended September 30, 2009, we granted stock options exercisable for 414,882 shares of common stock at an exercise price equal to $12.51. The following weighted average assumptions were used in the Black-Scholes option pricing model to estimate the fair value of the stock options we granted during 2009:
         
    2009  
Dividend yield
    0.0 %
Expected volatility
    48.0 %
Risk free interest rate
    2.0 %
Expected term of options
  4.75 years  
Weighted average grant date fair value
  $ 5.35  
All options granted in 2009 are non-qualified options that vest in four equal annual installments commencing on the first anniversary of the grant date and expire seven years after the grant date.
Our share-based compensation expense for all options for the three months ended September 30, 2009 and 2008 was approximately $0.4 million for both periods, before income taxes. For the nine months ended September 30, 2009 and 2008, our share-based compensation expense for all granted options was approximately $1.2 million and $0.9 million for the nine months ended September 30, 2009 and 2008, respectively, before income taxes. Substantially all the expense related to our stock options is included in selling, general and administrative expenses. As of September 30, 2009, our estimated aggregate unrecognized share-based compensation expense for all unvested stock options was $4.5 million, which we expect to recognize over a weighted-average period of approximately 2.7 years.
During the nine months ended September 30, 2009, we granted 129,990 shares of restricted stock to management employees. All of these restricted shares vest in four equal annual installments commencing on the first anniversary of the grant date. The share-based expense for restricted stock awards is determined based on the market price of our stock on the date of grant applied to the total number of shares that are anticipated to fully vest. Compensation expense is amortized over the vesting period.

 

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Our share-based compensation expense for all restricted shares for the three months ended September 30, 2009 and 2008 was approximately $0.3 million and $0.2 million, respectively, before income taxes. For the nine months ended September 30, 2009 and 2008, our share-based compensation expense for all restricted shares was approximately $0.6 million and $0.4 million, respectively, before income taxes. The expense related to our restricted shares is split approximately 30% to direct operating expense and 70% to selling, general and administrative expense. As of September 30, 2009, our estimated aggregate unrecognized share-based compensation expense for all unvested restricted shares was $2.5 million, which we expect to recognize over a weighted-average period of approximately 2.9 years.
Income Taxes
Our effective income tax rate in the first nine months of 2009 was 36.7% compared to 40.0% in the first nine months of 2008. The decrease in our effective income tax rate resulted primarily from the receipt of non-taxable life insurance proceeds paid upon the death of Michael Barrett, a senior officer of Barrett-NDEx, in January 2009. The tax impact of these non-taxable proceeds was treated as a discrete item in the first quarter of 2009. The Company expects an annual effective tax rate for 2009 of 39.1%, excluding the impact of discrete items.
Allowances for Doubtful Accounts
We extend credit to our advertisers, public notice publishers, commercial printing customers and professional service customers based upon an evaluation of each customer’s financial condition, and collateral is generally not required. We establish allowances for doubtful accounts based on estimates of losses related to customer receivable balances. Specifically, we use prior credit losses as a percentage of credit sales, the aging of accounts receivable and specific identification of potential losses to establish reserves for credit losses on accounts receivable. We believe that no significant concentration of credit risk exists with respect to our Business Information Division. We had a significant concentration of credit risk with respect to our Professional Services Division as of September 30, 2009, because the amount due from the Barrett law firm was $14.9 million, or 27.8% of our consolidated net accounts receivable balance and the amount due from Trott & Trott was $6.9 million, or 12.9% of our consolidated net accounts receivable balance. However, to date, we have not experienced any problems with respect to collecting payment from our law firm customers.
We consider accounting for our allowance for doubtful accounts critical to both of our operating segments because of the significance of accounts receivable to our current assets and operating cash flows. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances might be required, which could have a material effect on our financial statements. See “Liquidity and Capital Resources” below for information regarding our receivables, allowance for doubtful accounts and day sales outstanding.
New Accounting Pronouncements
Please see Note 1 to our unaudited condensed consolidated interim financial statements included in this report on Form 10-Q as well as Note 1 to our audited condensed consolidated financial statements included in our annual report on Form 10-K filed with the SEC on March 12, 2009, for information about new accounting pronouncements affecting us.

 

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RESULTS OF OPERATIONS
The following table sets forth selected operating results, including as a percentage of total revenues, for the periods indicated below (in thousands, except per share data):
                                 
    Three Months Ended September 30,  
            % of             % of  
    2009     Revenues     2008     Revenues  
Revenues:
                               
Professional Services
  $ 39,996       64.2 %   $ 25,673       53.6 %
Business Information
    22,348       35.8 %     22,211       46.4 %
 
                       
Total revenues
    62,344       100.0 %     47,884       100.0 %
 
                       
Operating expenses:
                               
Professional Services
    30,753       49.3 %     19,646       41.0 %
Business Information
    17,044       27.3 %     18,722       39.1 %
Unallocated corporate operating expenses
    3,806       6.1 %     4,535       9.5 %
 
                       
Total operating expenses
    51,603       82.8 %     42,903       89.6 %
 
                               
Equity in earnings of affiliates
    731       1.2 %     1,329       2.8 %
 
                       
Operating income
    11,472       18.4 %     6,310       13.2 %
Interest expense, net
    (1,607 )     (2.6 )%     (1,851 )     (3.9 )%
Non-cash interest income related to interest rate swaps
    205       0.3 %     (80 )     (0.2 )%
Other income, net
    23             11       0.0 %
 
                       
Income before income taxes
    10,093       16.2 %     4,390       9.2 %
Income tax expense
    (3,529 )     (5.7 )%     (1,471 )     (3.1 )%
 
                       
Net income before noncontrolling interest
    6,564       10.5 %     2,919       6.1 %
Less: Net income attributable to the redeemable noncontrolling interest
    (694 )     (1.1 )%     (466 )     (1.0 )%
 
                       
Net income attributable to Dolan Media Company
  $ 5,870       9.4 %   $ 2,453       5.1 %
 
                       
 
                               
Net income attributable to Dolan Media Company per diluted share
  $ 0.20             $ 0.09          
 
                               
Accretion of redeemable noncontrolling interest, net of tax
    (0.02 )                      
 
                           
Net income attributable to Dolan Media Company common stockholders per diluted share
  $ 0.18             $ 0.09          
 
                           
 
                               
Weighted average diluted shares outstanding
    29,932               28,060          
 
                           
                                 
    Nine Months Ended September 30,  
            % of             % of  
    2009     Revenues     2008     Revenues  
Revenues:
                               
Professional Services
  $ 126,322       65.3 %   $ 62,542       47.8 %
Business Information
    66,998       34.7 %     68,406       52.2 %
 
                       
Total revenues
    193,320       100.0 %     130,948       100.0 %
 
                       
Operating expenses:
                               
Professional Services
    93,379       48.3 %     45,701       34.9 %
Business Information
    51,481       26.6 %     56,660       43.3 %
Unallocated corporate operating expenses
    9,690       5.0 %     8,677       6.6 %
 
                       
Total operating expenses
    154,550       79.9 %     111,038       84.8 %
 
Equity in earnings of affiliates
    3,461       1.8 %     4,355       3.3 %
 
                       
Operating income
    42,231       21.8 %     24,265       18.5 %
Interest expense, net
    (5,305 )     (2.7 )%     (4,611 )     (3.5 )%
Non-cash interest income related to interest rate swaps
    735       0.4 %     (58 )     0.0 %
Other income, net
    1,469       0.8 %     34       0.0 %
 
                       
Income before income taxes
    39,130       20.2 %     19,630       15.0 %
Income tax expense
    (13,207 )     (6.8 )%     (7,257 )     (5.5 )%
 
                       
Net income before noncontrolling interest
    25,923       13.4 %     12,373       9.4 %
Less: Net income attributable to the redeemable noncontrolling interest
    (3,200 )     (1.7 )%     (1,516 )     (1.2 )%
 
                       
Net income attributable to Dolan Media Company
  $ 22,723       11.8 %   $ 10,857       8.3 %
 
                       
 
                               
Net income attributable to Dolan Media Company per diluted share
  $ 0.76             $ 0.42          
 
                               
Accretion of redeemable noncontrolling interest, net of tax
    (0.26 )                      
 
                           
Net income attributable to Dolan Media Company common stockholders per diluted share
  $ 0.50             $ 0.42          
 
                           
 
                               
Weighted average diluted shares outstanding
    29,908               26,105          
 
                           

 

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Three Months Ended September 30, 2009
Compared to Three Months Ended September 30, 2008
Revenues
                                 
    Three Months Ended September 30,        
    2009     2008     Increase  
    ($’s in millions)  
Total revenues
  $ 62.3     $ 47.9     $ 14.5       30.2 %
Our revenues increased as a result of an increase in our countercyclical revenues (mortgage default processing services and public notice), including $16.9 million of increased revenues from Barrett-NDEx, which we acquired on September 2, 2008, as well as $0.8 million of increased revenues from our other NDeX operations (before considering the effects that new legislation in Michigan and Indiana had on our revenues as discussed below). Please see “Professional Services Divisions Results” below for more information. Organic growth (defined below) in our public notice revenues of $2.1 million also contributed to this increase in total revenues. This increase was partially offset by a $1.8 million organic decline in our cyclical display and classified advertising revenues, which we believe primarily resulted from local economic conditions in the markets we serve. Additionally, organic revenues at NDeX declined approximately $3.0 million during the quarter from the effect of the legislative changes in Michigan and Indiana described in “Recent Developments—Regulatory Environment” above, which delay or extend the length of the foreclosure process, and push a portion of our mortgage default processing revenues on new files to future periods.
We derived 64.2% and 53.6% of our total revenues from our Professional Services Division and 35.8% and 46.4% of our total revenues from our Business Information Division for the three months ended September 30, 2009 and 2008, respectively. This change in mix resulted primarily from our acquisition of Barrett-NDEx as well as general economic conditions in the markets we serve in our Business Information Division. We expect that our Professional Services Division revenues will continue to grow, due in part to the mortgage default processing services business of the Albertelli sellers, which we acquired on October 1, 2009, and DiscoverReady, which we acquired on November 2, 2009.
We define organic revenue growth/decline as the net increase or decrease in revenue produced by: (1) businesses we owned and operated prior to July 1, 2008, which we refer to as “existing businesses;” (2) customer lists, goodwill or other finite-life intangibles we purchased on or after July 1, 2008, and integrated into our existing businesses; and (3) businesses that we account for as acquisitions under the purchase method of accounting,” but do not report separately for internal financial purposes, which we refer to as “fold-in acquisitions.” We refer to the net increase or decrease in revenues produced by businesses that we owned and operated after July 1, 2008 and that we account for as acquisitions under the purchase method of accounting, but which are not fold-in acquisitions, as “growth/decline from acquired businesses.”

 

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Operating Expenses
                                 
    Three Months Ended September 30,        
    2009     2008     Increase (Decrease)  
    ($’s in millions)  
Total operating expenses
  $ 51.6     $ 42.9     $ 8.7       20.3 %
Direct operating expense
    22.5       17.9       4.6       25.7 %
Selling, general and administrative expenses
    22.9       19.0       4.0       20.9 %
Break-up fee
          1.5       (1.5 )   Not meaningful  
Depreciation expense
    2.3       1.5       0.8       50.8 %
Amortization expense
    3.9       3.1       0.9       28.7 %
Total operating expenses as a percentage of total revenues decreased from 89.6% for the three months ended September 30, 2008 to 82.8% for the three months ended September 30, 2009, largely due to strong third quarter 2009 revenues (when compared to third quarter of 2008) and expense control measures that we have implemented across both divisions, as well as the break-up fee paid in the third quarter of 2008. For the remainder of 2009, we expect total operating expenses as a percentage of total revenues to remain relatively constant with the third quarter.
Direct Operating Expenses. The increase in direct operating expenses consisted of a $5.6 million increase in our Professional Services Division and a $1.0 million decrease in our Business Information Division. You should refer to the more detailed discussions in the Professional Services Division Results and Business Information Division Results below for more information regarding the causes of these changes. Direct operating expenses as a percentage of total revenues decreased to 36.1% as of September 30, 2009 from 37.4% as of September 30, 2008. For the remainder of 2009, we expect our direct operating expenses as a percentage of total revenues to remain relatively constant with the third quarter.
Selling, General and Administrative Expenses. The increase in our selling, general and administrative expenses consisted of a $3.9 million increase in these expenses in our Professional Services Division, a $0.7 million decrease in these expenses in our Business Information Division, and a $0.8 million increase in unallocated corporate costs. You should refer to the more detailed discussions in the Professional Services Division Results and Business Information Division Results below for more information regarding the causes of the changes in each division’s selling, general and administrative expenses. Selling, general and administrative expenses attributable to our corporate operations increased $0.8 million, or 27.9%, to $3.6 million, for the three months ended September 30, 2009, from $2.8 million for the three months ended September 30, 2008. These expenses consist primarily of the cost of compensation and employee benefits for our human resources, accounting and information technology personnel, executive officers and other members of management, as well as unallocated portions of corporate insurance costs and costs associated with being a public company. The increase in operating expenses attributable to corporate operations was primarily due to an increase of $0.4 million as we continued to accrue for performance-based pay for our executive officers, as well as $0.3 million of severance accrued in connection with the elimination of an executive officer position. Selling, general and administrative expense as a percentage of revenue decreased to 36.7% as of September 30, 2009 from 39.6% as of September 30, 2008. This is largely due to expense control efforts that we have implemented across our divisions, as well as the increase in mortgage default processing services revenues in the third quarter of 2009 resulting from our acquisition of Barrett-NDEx.
Break-up Fee. In the third quarter of 2008, we paid $1.5 million to the sellers of a business we intended to acquire, but did not. We made this payment pursuant to our agreement with such sellers because we were unable to obtain debt financing on terms and timing that were satisfactory to us to close the acquisition. We have not entered into such break-up or termination agreements with other sellers of acquisition targets.
Depreciation and Amortization Expense. Our depreciation expense increased due to increased levels of property and equipment in the three months ended September 30, 2009, most notably due to the Barrett-NDEx acquisition. Our amortization expense increased primarily due to the amortization of finite-lived intangible assets acquired in the acquisition of Barrett-NDEx. Amortization expense in future periods will decrease as a result of the completion of the purchase price allocation of the assets acquired in the Barrett-NDEx acquisition by approximately $3.0 million annually, which we expect will be partially offset by increased amortization expense related to the finite-life intangible assets acquired in the Albertelli and DiscoverReady acquisitions.

 

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Interest Expense, Net
                                 
    Three Months Ended September 30,        
    2009     2008     Increase (Decrease)  
    ($’s in millions)  
Total interest expense, net
  $ 1.6     $ 1.9     $ (0.2 )     (13.2 )%
Interest on bank credit facility
    1.1       1.6       (0.5 )     (31.1 )%
Cash interest expense on interest rate swaps
    0.4       0.2       0.2       98.6 %
Amortization of deferred financing fees
    0.1       0.1             (2.5 )%
Other
          (0.1 )         Not meaningful  
Interest expense related to our bank credit facility decreased in the third quarter of 2009 due to decreased interest rates on our borrowings. The weighted average interest rate on our bank credit facility was 2.4% for the three months ended September 30, 2009 compared to 5.6% for the same period in 2008. For the three months ended September 30, 2009, our average outstanding borrowings were $149.1 million compared to $102.5 million for the same period in 2008. This increase in debt was primarily a result of the debt incurred to finance, in part, the acquisition of Barrett-NDEx in September 2008. Cash interest incurred on our interest rate swaps increased $0.2 million as a result of these interest rate changes.
Non-Cash Interest Income (Expense) Related to Interest Rate Swaps
                                 
    Three Months Ended September 30,        
    2009     2008     Increase  
    ($’s in millions)  
Non-cash interest income (expense) related to interest rate swaps
  $ 0.2     $ (0.1 )   $ 0.3     Not meaningful  
Non-cash interest income related to interest rate swaps increased as a result of a change in the estimated fair value of our interest rate swaps driven by interest rate changes. The estimated fair value of our fixed rate interest rate swaps recorded on our balance sheet is a liability of $1.9 million and $1.3 million, respectively, at September 30, 2009 and 2008.
Income Tax Expense
                                 
    Three Months Ended September 30,        
    2009     2008     Increase  
    ($’s in millions)  
Income tax expense
  $ 3.5     $ 1.5     $ 2.1       139.9 %
The increase in income tax expense was due to a $5.5 million increase in income before taxes but after noncontrolling interests. The effective tax rate in both quarters was 37.5%.
Professional Services Division Results
Revenues
                                 
    Three Months Ended September 30,        
    2009     2008     Increase  
    ($’s in millions)  
Total Professional Services Division revenues
  $ 40.0     $ 25.7     $ 14.3       55.8 %
Mortgage default processing service revenues
    35.9       21.2       14.7       69.6 %
Appellate services revenues
    4.0       4.5       (0.4 )     (9.5 )%
Professional Services Division revenues increased due to the increase in mortgage default processing service revenues, primarily from the acquisition of Barrett-NDEx in September 2008, which added $16.9 million in revenues for the three months ended September 30, 2009. This increase was partially offset by a decline in mortgage default processing service revenues resulting from new legislation in Michigan and Indiana that took effect in July 2009. These legislative changes are described under “Recent Developments—Regulatory Environment,” above. While the Michigan legislation did not adversely impact the number of files referred to us for processing during the quarter (when compared to third quarter 2008), it did lengthen the time over which we recognize revenue from these files because it added steps to the foreclosure process. The Indiana legislation negatively impacted the files referred to us for processing in that state, and corresponding revenue (when compared to third quarter 2008), because it delays the start of a foreclosure action. For the three months ended September 30, 2009, we serviced approximately 83,300 mortgage default case files compared to approximately 50,000 mortgage default case files that we serviced for the three months ended September 30, 2008. Barrett-NDEx accounted for approximately 50,500, or 60.6%, of the files we processed in the third quarter of 2009. Barrett-NDEx’s total file volume for the third quarter of 2008 was 45,500, which includes 13,700 files processed during the month that we owned them. File volume at Barrett-NDEx grew 11.0% from the third quarter of 2008 to the third quarter of 2009, which includes the two month period in the third quarter of 2008 when we did not own Barrett-NDEX.

 

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The Barrett law firm and Trott & Trott each accounted for more than 10%, and together accounted for approximately 80%, of our Professional Services Division revenues in the third quarter of 2009. For the same period in 2008, Trott & Trott, Feiwell & Hannoy, and the Barrett law firm each accounted for more than 10% of our Professional Services Division revenues.
Appellate services revenues decreased $0.4 million in the third quarter of 2009, while Counsel Press assisted with 2,300 appellate filings as compared to 2,400 for the same period in 2008. This slight decrease in the number of appellate filings was further compounded by lower average revenue per filing, which was driven by smaller filings being processed and pricing pressures in the market.
Operating Expenses
                                 
    Three Months Ended September 30,        
    2009     2008     Increase  
    ($’s in millions)  
Total operating expenses
  $ 30.8     $ 19.6     $ 11.1       56.5 %
Direct operating expense
    15.6       9.9       5.6       56.5 %
Selling, general and administrative expenses
    10.5       6.6       3.9       58.5 %
Depreciation expense
    1.5       0.8       0.7       90.2 %
Amortization expense
    3.1       2.2       0.9       38.8 %
Operating expenses increased primarily as a result of the operating costs of Barrett-NDEx, which we acquired in September 2008. This added $10.8 million in operating expenses and accounted for $5.4 million of the increase in direct operating expenses, and $3.7 million of the increase in selling, general, and administrative expenses. NDeX, operating expenses (exclusive of the effects of the Barrett-NDEx acquisition) increased slightly over the prior period due primarily to increased personnel and health insurance costs.
Amortization expense increased from the amortization of finite-lived intangible assets associated with the acquisition of Barrett-NDEx, which added $0.9 million in amortization expense. Depreciation expense also increased as a result of the addition of the Barrett-NDEx assets.
Total operating expenses attributable to our Professional Services Division as a percentage of Professional Services Division revenue increased slightly to 76.9% for the three months ended September 30, 2009 from 76.5% for the three months ended September 30, 2008.
Business Information Division Results
Revenues
                                 
    Three Months Ended September 30,        
    2009     2008     Increase (decrease)  
    ($’s in millions)  
Total Business Information Division Revenues
  $ 22.3     $ 22.2     $ 0.1       0.6 %
Display and classified advertising revenues
    6.6       8.4       (1.8 )     (21.7 )%
Public notice revenues
    12.3       10.2       2.1       21.0 %
Circulation revenues
    3.2       3.3       (0.2 )     (4.9 )%
Other revenues
    0.3       0.3             (1.9 )%
Our display and classified advertising revenues (which include revenues from events) decreased primarily due to an approximate 19% decrease in the number of ads placed in our publications, which we continue to believe is driven by the sluggish economy, as well as a decrease in the average price paid per classified and display ad across our publications. A decrease in the number and frequency of specialty publications and magazines published also contributed to the revenue decline. As our customers continue to control spending in response to the general economic conditions in the markets we serve, we expect our display and classified advertising revenues will continue to decline in 2009 when compared to the same period in 2008.
Our public notice revenues increased due to an approximate 9% increase in the total number of public notice ads placed in our publications, most of which are foreclosure notices. Foreclosure notices tend to be larger ads, which we are generally required to publish multiple times and thus they generate more revenue than other types of public notice. More than half of this revenue increase was driven by the increased number of foreclosure notices placed in our Maryland publication. Last year, a change in public notice laws in Maryland delayed the timing when foreclosure notices were placed in this publication, thus negatively affecting third quarter 2008 public notice revenues.

 

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Circulation revenues decreased due to a decline in the number of paid subscribers between September 30, 2008 and September 30, 2009. As of September 30, 2009, our paid publications had approximately 62,800 subscribers, a decrease of approximately 5,600, or 8.2%, from total paid subscribers of approximately 68,400 as of September 30, 2008. The majority of this decrease in paid subscriptions over these periods resulted from fewer responses to new subscription campaigns, which we believe is a result of the sluggish economy. We believe reader preference for on-line and web site access to our business journals, some of which we offer at discounted rates or no fee, has also contributed to a decline in circulation revenues. Revenues lost from this decline in paid subscriptions were partially offset by an increase in the average price per paid subscription.
The business information products we target to the Missouri, Minnesota, and Maryland markets each accounted for over 10% of our Business Information Division’s revenues for the three months ended September 30, 2009. For the same period in 2008, the business information products we target to the Missouri and Minnesota markets each accounted for over 10% of our Business Information Division’s revenues.
Operating Expenses
                                 
    Three Months Ended September 30,        
    2009     2008     Increase (decrease)  
    ($’s in millions)  
Total operating expenses
  $ 17.0     $ 18.7     $ (1.7 )     (9.0 )%
Direct operating expense
    7.0       8.0       (1.0 )     (12.7 )%
Selling, general and administrative expenses
    8.8       9.5       (0.7 )     (7.5 )%
Depreciation expense
    0.5       0.5             9.3 %
Amortization expense
    0.8       0.8             0.4 %
Direct operating expenses decreased primarily as a result of decreased production and distribution costs. These costs declined by $0.5 million primarily due to a reduction in the pages in our print publications, as well as the printing of fewer specialty publications and magazines and negotiating contract price reductions with our printing vendors. Business units also reduced their contract labor and freelance expenses as they relied more on in-house staff, thereby reducing direct operating expenses by approximately $0.2 million. In addition, decreased headcount and lower commissions and performance-based pay, which resulted from lower display and classified advertising revenues, accounted for another $0.1 million of the decrease.
Selling, general and administrative expenses declined primarily as a result of a reduction in personnel expenses, relating to a reduced headcount and lower commission and performance-based payments ($0.7 million). A $0.3 million reduction in bad debt expense as a result of more focused collection efforts also contributed to this decrease. Partially offsetting these decreases was an increase in promotional spending as we maintain and build our brands in several of the markets we serve. Total operating expenses attributable to our Business Information Division as a percentage of Business Information Division revenue decreased to 76.3% for the three months ended September 30, 2009 from 84.3% for the three months ended September 30, 2008, largely as a result of an increase in public notice revenues, which are higher margin revenues, and cost control efforts we implemented over the last four quarters.

 

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Nine Months Ended September 30, 2009
Compared to Nine Months Ended September 30, 2008
Revenues
                                 
    Nine Months Ended September 30,        
    2009     2008     Increase  
    ($’s in millions)  
Total revenues
  $ 193.3     $ 130.9     $ 62.4       47.6 %
Our countercyclical revenues (mortgage default processing services and public notice) accounted for the increase in our revenues, including $65.2 million of revenues from acquired businesses (defined below). These revenues primarily consisted of $64.2 million in revenues from the Barrett-NDEx business acquired on September 2, 2008. An increase in public notice revenues of $4.4 million, along with $0.8 million in revenues from the mortgage default processing services business of Wilford & Geske acquired on February 22, 2008, also contributed to our total increase in revenues for the period. These revenues were offset by a $5.1 million organic decline (defined below) in display and classified advertising revenues in our Business Information Division as a result of the local economic conditions in the markets we serve. Organic revenue decline in NDeX was $0.9 million for the nine month period, which was caused by mortgage lender and loan servicer responses to recently enacted legislation in Indiana as described in “Recent Developments—Regulatory Environment” above.
We derived 65.3% and 47.8% of our total revenues from our Professional Services Division and 34.7% and 52.2% of our total revenues from our Business Information Division for the nine months ended September 30, 2009 and 2008, respectively. This change in mix resulted primarily from the Barrett-NDEx acquisition in September 2008 as well as general economic conditions in the markets we serve.
We define organic revenue growth/decline as the net increase or decrease in revenue produced by: (1) businesses we owned and operated prior to January 1, 2008, which we refer to as “existing businesses;” (2) customer lists, goodwill or other finite-life intangibles we purchased on or after January 1, 2008, and integrated into our existing businesses; and (3) businesses that we account for as acquisitions under the purchase method of accounting, but do not report separately for internal financial purposes, which we refer to as “fold-in acquisitions.” We refer to the net increase or decrease in revenues produced by businesses that we owned and operated after January 1, 2008, and that we account for as acquisitions under the purchase method of accounting, but which are not fold-in acquisitions, as “growth/decline from acquired businesses.”
Operating Expenses
                                 
    Nine Months Ended September 30,        
    2009     2008     Increase  
    ($’s in millions)  
Total operating expenses
  $ 154.6     $ 111.0     $ 43.5       39.2 %
Direct operating expense
    68.5       46.4       22.1       47.8 %
Selling, general and administrative expenses
    66.1       51.8       14.3       27.6 %
Break-up fee
          1.5       (1.5 )   Not meaningful  
Depreciation expense
    6.7       3.8       2.9       77.8 %
Amortization expense
    13.2       7.6       5.6       74.2 %
Total operating expenses as a percentage of total revenues decreased from 84.8% for the nine months ended September 30, 2008 to 79.9% for the nine months ended September 30, 2009.
Direct Operating Expenses. The increase in direct operating expenses consisted of a $24.0 million increase in our Professional Services Division and a $1.9 million decrease in our Business Information Division. You should refer to the more detailed discussions in the Professional Services Division Results and Business Information Division Results below for more information regarding the causes of these changes. Direct operating expenses as a percentage of total revenues remained constant at 35.4% for the nine months ended September 30, 2009 and 2008.
Selling, General and Administrative Expenses. The increase in our selling, general and administrative expenses consisted of a $15.5 million increase in these expenses in our Professional Services Division, a $3.6 million decrease in these expenses in our Business Information Division, and a $2.4 million increase in unallocated corporate costs as discussed below. You should refer to the more detailed discussions in the Professional Services Division Results and Business Information Division Results below for more information regarding the causes of the changes in the divisional selling, general and administrative expenses. The increase in operating expenses attributable to corporate operations was primarily due to an increase in unallocated corporate insurance costs ($1.5 million), $0.5 of which is attributable to a change we made in the second quarter of 2008 in the accounting estimate related to our medical self-insurance reserve to more closely reflect past claims history. During the nine months ended September 30, 2009, we accrued $0.9 million for performance-based pay for our executive officers because, based on our financial performance thus far, it is likely that the performance targets will be met. We did not make similar accruals during the nine months ended September 30, 2008, because it was not likely, at that time, that the 2008 performance targets would be met. These factors contributed to the year-over-year increase in corporate operating expenses. Selling, general and administrative expense as a percentage of revenue decreased to 34.2% as of September 30, 2009 from 39.5% as of September 30, 2008. This is largely due to expense control efforts that have been put in place in our various businesses, as well as the significant increase in revenues recorded in our Professional Services Division in the first nine months of 2009 related to the Barrett-NDEx acquisition.

 

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Break-up Fee. There was no break-up fee paid during the nine months ended September 30, 2009. See “Break-up Fee” in the three-month discussion earlier in this report for more information about the $1.5 million break-up fee paid in the third quarter of 2008.
Depreciation and Amortization Expense. Our depreciation expense increased due to increased levels of property and equipment in the nine months ended September 30, 2009, most notably due to the Barrett-NDEx acquisition. Our amortization expense increased primarily due to the amortization of finite-lived intangible assets acquired in the 2008 acquisitions, including Barrett-NDEx. Additionally, in the nine months ended September 30, 2009, we fully amortized that portion of the non-compete intangible asset attributable to Michael Barrett, a senior officer at Barrett-NDEx, as a result of his death in January 2009, resulting in an additional $0.9 million in amortization expense.
Other Income, Net
                                 
    Nine Months Ended September 30,        
    2009     2008     Increase  
    ($’s in millions)  
Other income, net
  $ 1.5     $     $ 1.5     Not meaningful  
Other income, net increased by $1.5 million during the nine months ended September 30, 2009 as a result of the receipt of insurance proceeds on the company-owned life insurance of Michael C. Barrett, a senior officer of Barrett-NDEx, who passed away in January 2009. We used $0.5 million of these insurance proceeds to make a contribution to Southern Methodist University Dedman School of Law to establish a scholarship fund in his name. We netted this contribution against the gain recorded on the proceeds of the life insurance.
Interest Expense, Net
                                 
    Nine Months Ended September 30,        
    2009     2008     Increase (decrease)  
    ($’s in millions)  
Total interest expense, net
  $ 5.3     $ 4.6     $ 0.7       15.1 %
Interest on bank credit facility
    4.0       3.9       0.1       2.7 %
Cash interest expense on interest rate swaps
    1.2       0.5       0.7       139.4 %
Amortization of deferred financing fees
    0.2       0.2             16.9 %
Other
    (0.1 )     0.1       (0.1 )   Not meaningful  
Interest expense related to our bank credit facility increased slightly in the first nine months of 2009 due to increased average outstanding borrowings when compared to the second quarter of 2008. This was largely offset by a decline in our weighted average interest rate on these borrowings as discussed in the three month section above. For the nine months ended September 30, 2009, our average outstanding borrowings were $151.6 million compared to $80.5 million for the same period in 2008. This increase in debt was primarily a result of the debt incurred to finance, in part, the acquisition of Barrett-NDEx in September 2008. Cash interest incurred on our interest rate swaps increased as a result of interest rate changes.
Non-Cash Interest Income (Expense) Related to Interest Rate Swaps
                                 
    Nine Months Ended September 30,        
    2009     2008     Increase  
    ($’s in millions)  
Non-cash interest income (expense) related to interest rate swaps
  $ 0.7     $ (0.1 )   $ 0.8     Not meaningful  
Non-cash interest related to interest rate swaps increased as a result of a change in the estimated fair value of our interest rate swaps driven by interest rate changes. The estimated fair value of our fixed rate interest rate swaps recorded on our balance sheet is a liability of $1.9 million and $1.3 million, respectively, at September 30, 2009 and 2008.

 

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Income Tax Expense
                                 
    Nine Months Ended September 30,        
    2009     2008     Increase  
    ($’s in millions)  
Income tax expense
  $ 13.2     $ 7.3     $ 6.0       82.0 %
The increase in income tax expense was due to a $17.8 million increase in income before taxes but after noncontrolling interests which was partially offset by a decrease in effective tax rate during the first nine months of 2009 (36.7%) compared to the same period in 2008 (40.0%). The decrease in our effective tax rate resulted primarily from a decrease in the estimated state effective tax rate and the impact of non-taxable life insurance proceeds from Michael Barrett’s death.
Professional Services Division Results
Revenues
                                 
    Nine Months Ended September 30,        
    2009     2008     Increase (Decrease)  
    ($’s in millions)  
Total Professional Services Division revenues
  $ 126.3     $ 62.5     $ 63.8       102.0 %
Mortgage default processing service revenues
    115.2       51.1       64.1       125.6 %
Appellate services revenues
    11.1       11.5       (0.4 )     (3.1 )%
Professional Services Division revenues increased due to the increase in mortgage default processing service revenues primarily as a result of the acquisition of Barrett-NDEx in September 2008, which accounted for $64.2 million of this increase for the nine months ended September 30, 2009. The mortgage default processing service businesses that we acquired from Wilford & Geske in February 2008 accounted for an additional $0.8 million of the total increase in division and mortgage default processing services revenues. These increases were partially offset by decreased mortgage default processing services revenues primarily resulting from legislation in Indiana that took effect in July 2009, which is described in “Recent Developments—Regulatory Environment” above. For the nine months ended September 30, 2009, we serviced approximately 267,500 mortgage default case files, compared to approximately 123,300 mortgage default case files that we serviced for the nine months ended September 30, 2008. Barrett-NDEx accounted for approximately 156,000, or 58.3%, of the files we processed in the first nine months of 2009. Barrett-NDEx’s total file volume for the nine months ended September 30, 2008 was 128,300, which includes 13,700 files processed during the month that we owned them. File volume at Barrett-NDEx grew 21.6% from the nine months ended September 30, 2008 to the nine months ended September 30, 2009, which includes the eight month period during the nine months ended September 30, 2008 when we did not own Barrett-NDEX.
The Barrett law firm and Trott & Trott each accounted for more than 10%, and together accounted for approximately 80%, of our Professional Services Division revenues in the first nine months of 2009. For the same period in 2008, Trott & Trott, Feiwell & Hannoy, and the Barrett law firm each accounted for more than 10% of our Professional Services Division revenues.
Despite a slight increase in the number of appellate filings processed in the first nine months of 2009 (Counsel Press assisted with 6,600 appellate filings as compared to 6,500 in the first nine months of 2008), appellate service revenues decreased as a result of lower average revenue per filing, driven by smaller filings being processed and pricing pressures in the market.
Operating Expenses
                                 
    Nine Months Ended September 30,        
    2009     2008     Increase  
    ($’s in millions)  
Total operating expenses
  $ 93.4     $ 45.7     $ 47.7       104.3 %
Direct operating expense
    46.7       22.7       24.0       105.8 %
Selling, general and administrative expenses
    31.4       15.9       15.5       97.4 %
Depreciation expense
    4.5       1.8       2.7       145.0 %
Amortization expense
    10.8       5.3       5.5       104.7 %

 

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Operating expenses increased primarily as a result of the operating costs of Barrett-NDEx acquired in September 2008. This added $45.5 million in operating expenses, including $23.1 million of the increase in direct operating expenses and $14.3 million of the increase in selling, general, and administrative expenses. Direct operating expenses from NDeX (exclusive of those related to the Barrett-NDEx acquisition) increased as a result of increased personnel costs and other production costs associated with increased file volumes. Selling, general and administrative expenses increased resulting largely from increased personnel costs and health insurance costs.
Amortization expense increased from the amortization of finite-lived intangible assets associated with the 2008 acquisitions, most notably Barrett-NDEx, which added $5.3 million in amortization expense, including $0.9 million of additional amortization expense as a result of fully amortizing that portion of the non-compete intangible asset attributable to Michael Barrett as a result of his death in January 2009. Depreciation expense increased as a result of the addition of the Barrett-NDEx assets.
Total operating expenses attributable to our Professional Services Division as a percentage of Professional Services Division revenue increased to 73.9% for the nine months ended September 30, 2009 from 73.1% for the nine months ended September 30, 2008.
Business Information Division Results
Revenues
                                 
    Nine Months Ended September 30,        
    2009     2008     Increase (decrease)  
    ($’s in millions)  
Total Business Information Division Revenues
  $ 67.0     $ 68.4     $ (1.4 )     (2.1 )%
Display and classified advertising revenues
    20.2       25.3       (5.1 )     (20.1 )%
Public notice revenues
    35.8       31.4       4.4       14.0 %
Circulation revenues
    9.9       10.4       (0.6 )     (5.4 )%
Other revenues
    1.1       1.3       (0.2 )     (11.7 )%
Our display and classified advertising revenues (which include revenues from events) decreased primarily due to an approximate 18% decrease in the number of ads placed in our publications, which we believe was driven by the sluggish economy, as well as a decrease in the average price paid per classified and display ad across our publications.
Our public notice revenues increased due to an approximate 8% increase in the total number of public notice ads placed in our publications, most of which were foreclosures notices as noted in the third quarter discussion above. This increased revenue was primarily driven by the increased number of foreclosure notices placed in our Maryland publication for the reasons described in our three month discussion above. In addition, the acquisition of the assets of Legal and Business Publishers, Inc. in February 2008 added $0.2 million in revenues for the full first nine months in 2009.
Circulation revenues decreased slightly due to a decline in the number of paid subscribers between September 30, 2008 and September 30, 2009, as discussed in the three month section above.
The business information products we target to the Missouri, Minnesota, and Maryland markets each accounted for over 10% of our Business Information Division’s revenues for the nine months ended September 30, 2009 and 2008. For the same period in 2008, the business information products we target to the Missouri and Minnesota markets each accounted for over 10% of our Business Information Division’s revenues.

 

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Operating Expenses
                                 
    Nine Months Ended September 30,        
    2009     2008     Increase (decrease)  
    ($’s in millions)  
Total operating expenses
  $ 51.5     $ 56.7     $ (5.2 )     (9.1 )%
Direct operating expense
    21.8       23.7       (1.9 )     (7.8 )%
Selling, general and administrative expenses
    25.7       29.3       (3.6 )     (12.3 )%
Depreciation expense
    1.5       1.4       0.2       13.5 %
Amortization expense
    2.4       2.3       0.1       4.8 %
Direct operating expenses decreased primarily as a result of our decline in total revenue in this division, which resulted in lower production and distribution expenses (a $1.0 million cost savings). In addition, a reduction in personnel expenses related to a decrease in headcount as well as lower commission and performance-based pay account for $0.6 million of this decrease.
Selling, general and administrative expenses decreased primarily as a result of a decline in headcount and lower commission and performance based pay as a result of lower display and classified advertising revenues ($2.0 million). A $0.9 million decline in bad debt expense resulting from more focused collection efforts also contributed to this decrease. Total operating expenses attributable to our Business Information Division as a percentage of Business Information Division revenue decreased to 76.8% for the nine months ended September 30, 2009 from 82.8% for the nine months ended September 30, 2008, largely as a result of cost control efforts we implemented over the last four quarters.
Off Balance Sheet Arrangements
We have not entered into any off balance sheet arrangements.
Liquidity and Capital Resources
Our primary sources of liquidity are cash flows from operations, available capacity under our credit facility, distributions received from DLNP, and available cash reserves. The following table summarizes our cash and cash equivalents, working capital (deficit) and long-term debt, less current portion as of September 30, 2009 and December 31, 2008, as well as cash flows for the nine months ended September 30, 2009 and 2008 (in thousands):
                 
    September 30,     December 31,  
    2009     2008  
Cash and cash equivalents
  $ 20,640     $ 2,456  
Working capital (deficit)
    5,898       (12,588 )
Long-term debt, less current portion
    133,675       143,450  
                 
    Nine Months  
    Ended September 30,  
    2009     2008  
Net cash provided by operating activities
  $ 32,104     $ 16,211  
Net cash used in investing activities:
               
Acquisitions and investments
    (2,441 )     (183,518 )
Capital expenditures
    (2,584 )     (3,957 )
Net cash (used) provided by financing activities
    (8,995 )     171,817  
Cash Flows Provided by Operating Activities
The most significant inflows of cash are cash receipts from our customers. Operating cash outflows include payments to employees, payments to vendors for services and supplies and payments of interest and income taxes.
Net cash provided by operating activities for the nine months ended September 30, 2009, increased $15.9 million, or 98.0%, to $32.1 million from $16.2 million for the nine months ended September 30, 2008. This increase was primarily the result of improved net income, largely as a result of the acquired business of Barrett-NDEx in September 2008.

 

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Working capital increased by $18.5 million, from a deficit of $(12.6) million at December 31, 2008, to $5.9 million at September 30, 2009, resulting primarily from strong cash collections in 2009 driven by increased revenues in our Professional Services division. A significant increase in accounts receivable in 2009 due to increased sales and pass-through costs at Barrett-NDEx also contributed to the increase, but was partially offset by the $13.0 million liability recorded in connection with the achievement of the Barrett-NDEx earnout.
Our allowance for doubtful accounts, allowance for doubtful accounts as a percentage of gross receivables and days sales outstanding, or DSO, as of September 30, 2009 and December 31, 2008 is set forth in the table below:
                 
    September 30,     December 31,  
    2009     2008  
Allowance for doubtful accounts (in thousands)
  $ 914     $ 1,398  
Allowance for doubtful accounts as a percentage of gross accounts receivable
    1.7 %     3.5 %
Day sales outstanding
    79.4       62.6  
The decrease in allowance for doubtful accounts as a percentage of gross accounts receivable primarily results from of the large increase in receivables from the Barrett law firm, for which we carry no allowance for doubtful accounts. No allowance is carried on these accounts because, to date, we have not experienced any problems in collecting payment from the Barrett law firm. Additionally, focused collection efforts across our Business Information operating units has resulted in a decrease in the estimated reserves.
We calculate DSO by dividing net receivables by average daily revenue excluding circulation. Average daily revenue is computed by dividing total revenue by the total number of days in the period. In calculating our DSO for the year ended December 31, 2008, we annualized the revenues from Barrett-NDEx, which we have only owned since September 2, 2008. Our DSO increased significantly from December 31, 2008 to September 30, 2009, primarily because (1) at December 31, 2008, Trott & Trott paid a significant portion of its accounts receivable balance early, which it did not do at the end of September of 2009; and (2) the number of unbilled files from our Texas and California operations as well as the number of billed pass through costs related to our California operations grew, increasing accounts receivable from that operation.
We own 35.0% of the membership interests in The Detroit Legal Publishing, LLC, or DLNP, the publisher of The Detroit Legal News, and received distributions of $4.2 million in the nine months ended September 30, 2009 and $5.6 million in the nine months ended September 30, 2008. The operating agreement for DLNP provides for us to receive quarterly distribution payments based on our ownership percentage, which are a significant source of operating cash flow.
Cash Flows Used in Investing Activities
Net cash used in investing activities decreased $182.5 million to $(4.9) million in the nine months ending September 30, 2009 from $(187.4) million in the nine months ended September 30, 2008. In the first nine months of 2009 and 2008, we used cash primarily in connection with acquisitions and capital expenditures for offices, equipment, and software. Cash paid for acquisitions totaled $183.5 million for the nine months ended September 30, 2008, compared to $2.4 million paid during the nine months ended September 30, 2009. Acquisition spending during the first nine months of 2009 relates to earnouts paid during that period as well as the investment in GovDelivery that we made during the third quarter. Capital expenditures and purchases of software were approximately $2.6 million and $4.0 million for the nine months ended September 30, 2009 and 2008, respectively. About 30.0% of our capital spending in the first nine months of 2009 related to office moves and related expenditures and a building restoration project at one of our facilities, as well as upgrading our press equipment at our printing facilities, and another 24.0% related to spending on various technology enhancements. We expect the costs for capital expenditures to range between 1.5% and 2.5% of our total revenues, on an aggregated basis, for the year ending December 31, 2009, which we expect to use in the fourth quarter of 2009 for improvements to our proprietary case management systems, for telecommunications equipment at NDeX and in connection with our business continuity and disaster readiness initiatives. Since September 30, 2009, we paid an aggregate of $38.9 million to close the Albertelli and DiscoverReady acquisitions discussed in “Recent Acquisitions” above, which was funded by cash on our balance sheet at September 30, 2009, cash flow from operations received from September 30, 2009, through November 2, 2009, and a $9.0 million draw on our revolving line of credit.

 

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Finite-lived intangible assets decreased $88.4 million, or 34.7%, to $166.5 million at September 30, 2009 from $254.9 million as of December 31, 2008. The change in the finite-lived intangible assets resulted primarily from the completion of the valuation of the assets acquired in the Barrett- NDEx acquisition and the reclassification of amounts previously recorded as finite-lived intangible assets. These assets, which were originally recorded in connection with the Barrett-NDEx acquisition, were changed because the valuation of the acquired assets was completed in September 2009. See “Recent Acquisitions,” above for a discussion on the particular changes.
Goodwill increased to $196.6 million as of September 30, 2009, from $119.0 million at December 31, 2008. The change in goodwill resulted primarily from the completion of the valuation of the assets acquired in the Barrett-NDEx acquisition (See “Management’s Discussion and Analysis—Recent Acquisitions” above for more information about the completion of this purchase price allocation). In addition, we recorded $13.0 million as an adjustment to goodwill because Barrett-NDEx satisfied the earnout target as more fully described in “Recent Acquisitions” above. This adjustment also accounted for a portion of the change in goodwill that occurred as of September 30, 2009.
Cash Flows (Used) Provided by Financing Activities
Net cash provided by financing activities primarily includes borrowings under our revolving credit agreement and the issuance of long-term debt. Cash used in financing activities generally includes the repayment of borrowings under the revolving credit agreement and long-term debt and the payment of fees associated with the issuance of long-term debt.
Net cash (used) provided by financing activities decreased $180.8 million to a $(9.0) million use of cash in the nine months ended September 30, 2009 from $171.8 million of cash provided in the nine months ended September 30, 2008. In the first nine months of 2009, financing activity was limited to payments on our senior long-term debt and our unsecured note payable to Feiwell & Hannoy, as there were no new borrowings. Long-term debt, less current portion, decreased $9.8 million, or 6.8%, to $133.7 million as of September 30, 2009 from $143.5 million as of December 31, 2008.
Until February 7, 2010, APC Investments and Feiwell & Hannoy have the right to require NDeX to repurchase all or any portion of their respective membership interest in NDeX on the terms and conditions more fully described in “Noncontrolling Interest” above. To date, neither APC Investments nor Feiwell & Hannoy have exercised their respective put right. If APC Investments and Feiwell & Hannoy’s put rights had been exercised on September 30, 2009, NDeX would have been obligated to pay APC Investments and Feiwell & Hannoy $17.2 million in the aggregate over a period of three years with interest at a rate equal to prime plus 2.0%.
Credit Agreement. On August 8, 2007, we, including our consolidated subsidiaries, entered into a second amended and restated credit agreement, effective August 8, 2007, with a syndicate of bank lenders and U.S. Bank National Association, as lead bank and agent for the lenders, for a senior secured credit facility comprised of a term loan facility due and payable in quarterly installments with a final maturity date of August 8, 2014 and a revolving credit facility with a final maturity date of August 8, 2012. On November 2, 2009, we entered into a second amendment to our credit agreement with U.S. Bank and the syndicate of bank lenders under the terms of which such lenders consented to our acquisition of DiscoverReady (described in “Recent Acquisitions” above). There were no changes to material terms of the credit agreement under this amendment. In connection with this amendment, we paid the lenders approximately $0.5 million in fees.
At September 30, 2009, we had $146.5 million outstanding under our term loan, and no amount outstanding under our revolving line of credit and available capacity of approximately $40.0 million, after taking into account the senior leverage ratio requirements under the credit agreement. On November 2, 2009, we borrowed $9.0 million on our revolving line of credit to fund, in part, our acquisition of DiscoverReady, leaving approximately $31.0 million available on our revolving line of credit, after taking into account the senior leverage ratio requirements on our credit facility. We will use the remaining availability under our credit agreement, if at all, for working capital and other general corporate purposes, including the financing of acquisitions.

 

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At September 30, 2009, the weighted average interest rate on our senior term note was 2.4%. If we elect to have interest accrue (1) based on the prime rate, then such interest is due and payable on the last day of each month and (2) based on LIBOR, then such interest is due and payable at the end of the applicable interest period that we elect, provided that if the applicable interest period is longer than three months interest will be due and payable in three month intervals. At September 30, 2009, all of the interest on our senior note was based on LIBOR.
Future Needs
We expect that cash flow from operations, supplemented by short and long-term financing and the proceeds from our credit facility, as necessary, will be adequate to fund day-to-day operations, capital expenditure requirements, and the $13.0 million owed to the sellers of Barrett-NDEx in connection with the satisfaction of the earn-out target (see “Recent Acquisitions” above) , along with any payment obligations upon the exercise of the put right by APC Investments or Feiwell & Hannoy as described in “Noncontrolling Interest” above. However, our ability to generate sufficient cash flow in the future could be adversely impacted by regulatory, lender and other responses to the mortgage crisis, including new and proposed legislation and lenders’ voluntary and required loss mitigation efforts and moratoria, including those described in “Recent Developments — Regulatory Environment” in our annual report on Form 10-K filed with the SEC on March 12, 2009 and earlier in this report. In addition, since September 30, 2009, we also made aggregate payments of $38.9 million to close the Albertelli and DiscoverReady acquisitions (See “Recent Acquisitions” and “Cash Flows from Investing Activities” above).
We plan to continue to develop and evaluate potential acquisitions to expand our product and service offerings and customer base and enter new geographic markets. We intend to fund these acquisitions over the next twelve months with funds generated from operations and borrowings under our credit facility. We may also need to raise money to fund these acquisitions, as we did for the acquisition of Barrett-NDEx, through the sale of our equity securities or additional debt financing.
Our ability to secure short-term and long-term financing in the future will depend on several factors, including our future profitability and cash flow from operations, the quality of our short and long-term assets, our relative levels of debt and equity, the financial condition and operations of acquisition targets (in the case of acquisition financing), our stock price and the overall condition of the credit markets (which currently are, and may continue to be in the near future, difficult to access).
Item 3.   Quantitative and Qualitative Disclosures about Market Risk
We are exposed to market risks related to interest rates. Other types of market risk, such as foreign currency risk, do not arise in the normal course of our business activities. Our exposure to changes in interest rates is limited to borrowings under our credit facility. However, as of December 31, 2008, we had swap arrangements that convert $40.0 million of our variable rate term loan into a fixed rate obligation. Under our bank credit facility, we are required to enter into derivative financial instrument transactions, such as swaps or interest rate caps, in order to manage or reduce our exposure to risk from changes in interest rates. We do not enter into derivatives or other financial instrument transactions for speculative purposes.
We recognize all of our derivative instruments as either assets or liabilities in the consolidated balance sheet at fair value. The accounting for changes in the fair value of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship, and further, on the type of hedging relationship. As of September 30, 2009, our interest rate swap agreements were not designated for hedge accounting treatment and as a result, the fair value is classified within other deferred revenue and other liabilities on our balance sheet and as a component of interest expense in our statement of operations for the year then ended. For the three and nine months ended September 30, 2009, we recognized interest income of $0.3 million and $0.5 million, respectively, related to the change in fair value of the interest rate swap agreements. For the three months ended September 30, 2008, we recognized interest income of $1.2 million, and, for the nine months ended September 30, 2008, we recognized no interest income or expense, related to the change in fair value of the interest rate swap agreements. At September 30, 2009 and 2008, the estimated fair value of our fixed interest rate swaps was a liability of $1.9 million and $1.3 million, respectively.
If the future interest yield curve decreases, the fair value of our interest rate swap agreements will decrease and interest expense will increase. If the future interest yield curve increases, the fair value of our interest rate swap agreements will increase and interest expense will decrease.
Based on the variable-rate debt included in our debt portfolio, a 75 basis point increase in interest rates would have resulted in additional interest expense of $0.6 million (pre-tax) and $0.2 million (pre-tax) for the nine months ended September 30, 2009 and 2008, respectively.

 

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Item 4.   Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We carried out an evaluation, under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, of the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report. Based on such evaluation, our chief executive officer and chief financial officer have concluded that, as of the end of such period, our disclosure controls and procedures were effective and provided reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported accurately and within the time frames specified in the Securities and Exchange Commission’s rules and forms and accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There were not any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the three months ended September 30, 2009 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II — OTHER INFORMATION
Item 1.   Legal Proceedings
We are from time to time involved in ordinary, routine litigation incidental to our normal course of business, and we do not believe that any such existing litigation is material to our financial condition or results of operations.
Item 1A.   Risk Factors
The following risk factors supplement the risk factors included in our annual report on Form 10-K filed with the Securities and Exchange Commission on March 12, 2009 and also update and supersede those risk factors under the captions (which are being updated to account for the acquisition of DiscoverReady): (a) Regulation of the legal profession may constrain APC’s and Counsel Press’ operations, and numerous issues arising out of that regulation, its interpretation or its evolution could impair our ability to provide professional services to our customers and reduce our revenues and profitability; (b) Claims, even if not valid, that our case management software systems, document conversion system or other proprietary software products and information systems infringe on the intellectual property rights of others could increase our expenses or inhibit us from offering certain services; and (c) We may be required to incur additional indebtedness if any of the minority members of APC exercises its put right with respect to its membership interest in APC.
Other than as set forth below, there have been no material changes from the risk factors we previously disclosed in “Part I—Item 1A. Risk Factors” in our annual report on Form 10-K filed with the Securities and Exchange Commission on March 12, 2009, as updated by our disclosures in “Risk Factors” in Item 1A of Part II of our quarterly report on Form 10-Q filed with the SEC on August 7, 2009.

 

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We have owned and operated DiscoverReady, LLC for a very short period of time and none of our executive officers have managed or operated a discovery management and document review services company prior to this acquisition.
We acquired an 85% equity interest in DiscoverReady, LLC on November 2, 2009. DR Holdco, LLC, a limited liability company owned by James K. Wagner, Jr., Steven R. Harber, Paul Yerkes and David Shub, along with other DiscoverReady employees, owns the remaining 15% membership interest in DiscoverReady. DiscoverReady provides outsourced discovery management and document review services to major United States companies and their counsel. Prior to our acquisition of this business, our executive officers have not managed or operated a discovery management and document review business. Thus, we will rely heavily on the management skills and experiences of Messrs. Wagner and Harber, who have co-founded and built DiscoverReady and have a deep understanding of the discovery management and document review business. If our executive officers cannot effectively manage and operate this business, DiscoverReady’s, and our Professional Services division’s, operating results and prospects may be adversely affected and we may not be able to execute our growth strategy with respect to DiscoverReady.
We have employment agreements with Messrs. Wagner and Harber; however, these employment agreements do not ensure that either of them will not voluntarily terminate their employment with us. We also do not have key man insurance for either of Messrs. Wagner or Harber. The loss of either Messr. Wagner or Harber could require our executive officers to divert immediate attention to seeking a replacement and operating a business in which our executive officers have no prior experience. Our inability to find a suitable replacement for either of Messrs. Wagner or Harber on a timely basis could adversely affect our ability to operate and grow DiscoverReady.
DiscoverReady’s business revenues are very concentrated among a few customers and if these customers choose to manage their discovery with their own staff or by engaging another provider and if we are unable to develop new customer relationships, our operating results and the ability to execute our growth strategy may be adversely affected.
DiscoverReady generates revenue through fixed-fee arrangements for outsourced discovery management and document review services with major United States companies and their counsel. DiscoverReady’s top two customers are expected to account for more than 60% in the aggregate, of its projected revenues for 2009. Once of these customers is projected to account for 37% of its projected 2009 revenues and accounted for 33% of its 2008 revenues. Therefore, the success of our discovery management business is tied to our relationships with these key customers as well as our ability to develop new customer relationships. Our operating results and ability to execute our growth strategy for DiscoverReady could be adversely affected if (1) we lose business from any of these customers; (2) if these customers are affected by changes in the market and industry or other factors that cause them to be unable to pay for our services; or (3) if we are unable to attract additional business from current or new customers for any reason, including any of the following: poor service, the loss of key employees, such as James K. Wagner, Jr. and Steven R. Harber, the decision of our customers to perform document review services with its own staff or to engage the services to one of our competitors. If any of these were to occur, it could reduce the cash flow of DiscoverReady and adversely affect the results of operations of this business.
Regulation of the legal profession may constrain the operations of the businesses in our Professional Services division, and numerous issues arising out of that regulation, its interpretation or its evolution could impair our ability to provide professional services to our customers and reduce our revenues and profitability.
Each state has adopted laws, regulations and codes of ethics that provide for the licensure of attorneys, which grants attorneys the exclusive right to practice law and places restrictions upon the activities of licensed attorneys. The boundaries of the “practice of law,” however, are indistinct, vary from one state to another and are the product of complex interactions among state law, bar associations and constitutional law formulated by the U.S. Supreme Court. Many states define the practice of law to include the giving of advice and opinions regarding another person’s legal rights, the preparation of legal documents or the preparation of court documents for another person. In addition, all states and the American Bar Association prohibit attorneys from sharing fees for legal services with non-attorneys.

 

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Pursuant to services agreements between NDeX and its law firm customers, we provide mortgage default processing services to law firms and directly to mortgage lenders and loan servicers on California foreclosure files. Through Counsel Press, we provide procedural and technical advice to law firms and attorneys to enable them to file appellate briefs, records and appendices on behalf of their clients that comply with court rules. Through DiscoverReady, we provide outsourced discovery management and document review services under fixed fee arrangements. Current laws, regulations and codes of ethics related to the practice of law pose the following principal risks:
    State or local bar associations, state or local prosecutors or other persons may challenge the services provided by APC, Counsel Press or DiscoverReady as constituting the unauthorized practice of law. Any such challenge could have a disruptive effect upon the operations of our business, including the diversion of significant time and attention of our senior management. We may also incur significant expenses in connection with such a challenge, including substantial fees for attorneys and other professional advisors. If a challenge to any of these businesses were successful, we may need to materially modify our professional services operations in a manner that could adversely affect that division’s revenues and profitability and we could be subject to a range of penalties that could damage our reputation in the legal markets we serve. In addition, any similar challenge to the operations of NDeX’s law firm customers could adversely impact their mortgage default business, which would in turn adversely affect our Professional Service Division’s revenues and profitability;
    The services agreements to which NDeX is a party could be deemed to be unenforceable if a court were to determine that such agreements constituted an impermissible fee sharing arrangement between the law firm and NDeX; and
    Applicable laws, regulations and codes of ethics, including their interpretation and enforcement, could change in a manner that restricts NDeX’s, Counsel Press’s or DiscoverReady’s operations. Any such change in laws, policies or practices could increase our cost of doing business or adversely affect our revenues and profitability.
Claims, even if not valid, that our case management software systems, document conversion system, document review systems or other proprietary software products and information systems infringe on the intellectual property rights of others could increase our expenses or inhibit us from offering certain services.
Other persons could claim that they have patents and other intellectual property rights that cover or affect our use of software products and other components of information systems on which we rely to operate our business, including our two proprietary case management software systems we use to provide mortgage default processing services, our proprietary document conversion system we use to provide appellate services and the proprietary document review systems we use to provide outsourced discovery management and document review services. Litigation may be necessary to determine the validity and scope of third-party rights or to defend against claims of infringement. Any litigation, regardless of the outcome, could result in substantial costs and diversion of resources and could have a material adverse effect on our business. If a court determines that one or more of the software products or other components of information systems we use infringes on intellectual property owned by others or we agree to settle such a dispute, we may be liable for money damages. In addition, we may be required to cease using those products and components unless we obtain licenses from the owners of the intellectual property or redesign those products and components in such a way as to avoid infringement. In any event, such situations may increase our expenses or adversely affect the marketability of our services.

 

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We may be required to incur additional indebtedness if any of the holders of noncontrolling interest in NDeX or DiscoverReady exercise their put rights with respect to their interest in such entities or if we exercise our call right with respect to DiscoverReady.
Under the terms of NDeX’s operating agreement (as amended and restated), the minority members of APC have the right to require NDeX to repurchase all or any portion of their membership interests in NDeX (currently 15.3%). As of September 30, 2009, the redemption value of the put right of the minority members of NDeX was $28.5 million. APC Investments and Feiwell & Hannoy (holding 9.2% in the aggregate) may exercise the put right until February 7, 2010 and, had they both exercised their put right at September 30, 2009, we would be required to pay them an aggregate $17.2 million. The remaining minority members of NDeX (holding 6.1% in the aggregate) may exercise this right within the six month period following September 2, 2012.
We will incur additional indebtedness in the future if any minority member of NDeX exercises its put right because the purchase price paid by NDeX in connection with any such repurchase would be in the form of a three-year unsecured note. The principal amount of the note would be equal to (x) 6.25 times NDeX’s trailing twelve month EBITDA, less the aggregate amount of any interest-bearing indebtedness of NDeX as of the repurchase date, multiplied by (y) such minority member’s percentage ownership interest in NDeX. Such note would bear interest at a rate equal to prime plus 2%. If we are required to incur this additional indebtedness, it could decrease the amount of working capital available to fund our operations, which could impair our ability to operate and grow our business as planned.
Under the terms of the DiscoverReady limited liability company agreement, DR Holdco (which holds a 15% equity interest) has the right, for a period of ninety days following November 2, 2012, to require DiscoverReady to repurchase all of its equity interest in DiscoverReady. During that same period, we also have the right to require DR Holdco to sell all or a portion of it equity interest in DiscoverReady to us. These rights may be exercised earlier in certain limited circumstances. See “Noncontrolling Interest” above for more information about these circumstances. If either of the rights described above are exercised, the purchase price we will pay for the DR Holdco interest in DiscoverReady will be based on fair market value. At November 2, 2009, the fair market value of the DR Holdco interest in DiscoverReady was $5.6 million. We may be required to incur indebtedness should we or DR Holdco exercise our respective rights as we will may be required to pay the purchase price under the terms of a three-year unsecured note to the extent our credit agreement limits our ability to use our available cash. The note would bear interest at a rate equal to prime plus 1.0%.
Item 2.   Unregistered Sales of Securities and Use of Proceeds
None.
Item 3.   Defaults Upon Senior Securities
None.
Item 4.   Submission of Matters to a Vote of Security Holders
None.
Item 5.   Other Information
On November 2, 2009, we acquired an 85% equity interest in DiscoverReady, LLC under the terms and conditions of a membership interests purchase agreement by and among the DiscoverReady, LLC, DR Holdco LLC, Steven R. Harber, David Shub, James K. Wagner, Paul Yerkes, C. Parkhill Mays and us. In connection with this acquisition, DiscoverReady amended and restated its limited liability company agreement as of November 2, 2009. We describe the material terms and conditions of the purchase agreement and limited liability company agreement in more detail under “Management’s Discussion and Analysis—Recent Acquisitions” above, which is incorporated in this Item 5 by reference. Such descriptions of the membership interest purchase agreement and limited liability company agreement are qualified in their entirety by reference to the full text of such agreements that are filed with this quarterly report on Form 10-Q as Exhibits 2.1 and 10.9, respectively, and which are incorporated herein by reference.
Also, on November 2, 2009, we and our consolidated subsidiaries entered into a second amendment to our second amended and restated credit agreement with the syndicate of lenders that are party to that agreement under the terms of which such lenders consented to our acquisition of an 85% equity interest in DiscoverReady. We paid $500,000 in fees to the lenders in connection with this amendment. Such description of the second amendment is qualified in its entirety by reference to the full text of the second amendment, which is filed with this quarterly report on Form 10-Q as Exhibit 10.10 and which is incorporated herein by reference.

 

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On November 6, 2009, we issued a press release announcing our acquisition of the membership interest in DiscoverReady, LLC, a copy of which is attached to this quarterly report on Form 10-Q as Exhibit 99.1.
Item 6.   Exhibits
             
Exhibit        
No   Title   Method of Filing
  2.1 *  
Membership Interests Purchase Agreement by and among DiscoverReady LLC, DR Holdco LLC, Steven R. Harber, David Shub, James K. Wagner, Paul Yerkes, C. Parkhill Mays and Dolan Media Company dated November 2, 2009
  Filed herewith.
       
 
   
  10.1    
Amendment No. 5 to the American Processing Company, LLC Operating Agreement dated July 1, 2009
  Incorporated by reference to Exhibit 10.2 of our quarterly report on Form 10-Q filed with the SEC on August 7, 2009.
       
 
   
  10.2    
Separation Agreement and General Release between Dolan Media Company and Mark E. Baumbach dated July 28, 2009
  Incorporated by reference to Exhibit 10.1 of our current report on Form 8-K filed with the SEC on July 28, 2009.
       
 
   
  10.3    
Amended and Restated Employment Agreement between Dolan Media Company and Scott J. Pollei dated August 1, 2009
  Incorporated by reference to Exhibit 10.1 of our current report on Form 8-K filed with the SEC on August 4, 2009.
       
 
   
  10.4    
Employment Agreement between Dolan Media Company and Vicki J. Duncomb dated August 1, 2009
  Incorporated by reference to Exhibit 10.2 of our current report on Form 8-K filed with the SEC on August 4, 2009.
       
 
   
  10.5    
Second Amendment to Employment Agreement between Dolan Media Company and Mark W.C. Stodder dated August 1, 2009
  Incorporated by reference to Exhibit 10.7 of our quarterly report on Form 10-Q filed with the SEC on August 7, 2009.
       
 
   
  10.6    
Services Agreement among American Processing Company, LLC (d/b/a NDeX) and James E. Albertelli, P.A. dated October 1, 2009
  Incorporated by reference to Exhibit 10.1 of our current report on Form 8-K filed with the SEC on October 5, 2009. Portions of this exhibit were omitted and have been filed separately with the Secretary of the SEC pursuant to an application for confidential treatment under Rule 406 of the Securities Act.
       
 
   
  10.7    
Asset Purchase Agreement among Dolan Media Company, American Processing Company, LLC (d/b/a NDeX), James E. Albertelli, P.A., The Albertelli Firm, P.C., Albertelli Title, Inc. and James E. Albertelli dated October 1, 2009
  Incorporated by reference to Exhibit 10.2 of our current report on Form 8-K filed with the SEC on October 5, 2009.
       
 
   
  10.8    
Consulting Agreement between Mark E. Baumbach and Dolan Media Company dated September 28, 2009
  Filed herewith.

 

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Exhibit        
No   Title   Method of Filing
  10.9    
Third Amended and Restated Limited Liability Company Agreement of DiscoverReady, LLC dated as of November 2, 2009
  Filed herewith.
       
 
   
  10.10    
Second Amendment to Second Amended and Restated Credit Agreement with Dolan Media Company, its consolidated subsidiaries and a syndicate of lenders dated November 2, 2009
  Filed herewith.
       
 
   
  31.1    
Section 302 Certification of James P. Dolan
  Filed herewith.
       
 
   
  31.2    
Section 302 Certification of Vicki J. Duncomb
  Filed herewith.
       
 
   
  32.1    
Section 906 Certification of James P. Dolan
  Furnished herewith.
       
 
   
  32.2    
Section 906 Certification of Vicki J. Duncomb
  Furnished herewith.
       
 
   
  99.1    
Press Release of Dolan Media Company dated November 6, 2009
  Filed herewith.
 
     
*   The schedules and exhibits to the Membership Interests Purchase Agreement have been omitted pursuant to Item 601(b)(2) of Regulation S-K. We agree to furnish supplementally to the SEC, upon request, a copy of the omitted schedules and exhibits.

 

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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
         


Dated: November 6, 2009
DOLAN MEDIA COMPANY


 
 
  By:   /s/ James P. Dolan    
    James P. Dolan   
    Chairman, Chief Executive Officer and President
(Principal Executive Officer) 
 
 
Dated: November 6, 2009     
 
  By:   /s/ Vicki J. Duncomb    
    Vicki J. Duncomb   
    Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)   

 

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Exhibit Index
             
Exhibit        
No   Title   Method of Filing
  2.1 *  
Membership Interests Purchase Agreement by and among DiscoverReady LLC, DR Holdco LLC, Steven R. Harber, David Shub, James K. Wagner, Paul Yerkes, C. Parkhill Mays and Dolan Media Company dated November 2, 2009
  Filed herewith.
       
 
   
  10.8    
Consulting Agreement between Mark E. Baumbach and Dolan Media Company dated September 28, 2009
  Filed herewith.
       
 
   
  10.9    
Third Amended and Restated Limited Liability Company Agreement of DiscoverReady, LLC dated as of November 2, 2009
  Filed herewith.
       
 
   
  10.10    
Second Amendment to Second Amended and Restated Credit Agreement with Dolan Media Company, its consolidated subsidiaries and a syndicate of lenders dated November 2, 2009
  Filed herewith.
       
 
   
  31.1    
Section 302 Certification of James P. Dolan
  Filed herewith.
       
 
   
  31.2    
Section 302 Certification of Vicki J. Duncomb
  Filed herewith.
       
 
   
  32.1    
Section 906 Certification of James P. Dolan
  Furnished herewith.
       
 
   
  32.2    
Section 906 Certification of Vicki J. Duncomb
  Furnished herewith.
       
 
   
  99.1    
Press Release of Dolan Media Company dated November 6, 2009
  Filed herewith.
 
     
*   The schedules and exhibits to the Membership Interests Purchase Agreement have been omitted pursuant to Item 601(b)(2) of Regulation S-K. We agree to furnish supplementally to the SEC, upon request, a copy of the omitted schedules and exhibits.

 

 

EX-2.1 2 c91925exv2w1.htm EXHIBIT 2.1 Exhibit 2.1
Exhibit 2.1
 
MEMBERSHIP INTERESTS PURCHASE AGREEMENT
by and among
DISCOVERREADY LLC,
a Delaware limited liability company,
DR HOLDCO LLC,
a Delaware limited liability company
STEVEN R. HARBER,
an individual
DAVID SHUB,
an individual
JAMES K. WAGNER,
an individual
PAUL YERKES,
an individual
C. PARKHILL MAYS,
an individual,
AND
DOLAN MEDIA COMPANY,
a Delaware corporation
November 2, 2009
 

 

 


 

Exhibit 2.1
MEMBERSHIP INTERESTS PURCHASE AGREEMENT
THIS MEMBERSHIP INTERESTS PURCHASE AGREEMENT (as amended, modified, supplemented or restated in accordance with its terms from time to time, this “Agreement”), dated as of November 2, 2009, is by and among (i) discoverReady LLC, a Delaware limited liability company (the “Company”), (ii) DR Holdco LLC, a Delaware limited liability company (the “Seller”), (iii) each of (a) Steven R. Harber, an individual, (b) David Shub, an individual, (c) James K. Wagner, an individual, (d) Paul Yerkes, an individual, and (e) C. Parkhill Mays, an individual (collectively, the “Guarantors,” and each a “Guarantor”), and (iii) Dolan Media Company, a Delaware corporation (the “Buyer”). Certain capitalized terms used but not otherwise defined herein shall have the meanings ascribed thereto in Section 10.12.
RECITALS
1. The Company is engaged in the business of providing document review and discovery management solutions and related services to its clients (the “Business”).
2. The Seller owns all of the issued and outstanding membership interests of the Company.
3. Subject to the terms and conditions set forth herein, the Buyer desires to purchase from the Seller, and the Seller desire to sell to the Buyer, such portion of the membership interests in the Company owned by the Seller such that after such purchase, the Buyer will own 85% of the membership interests in the Company (with the remaining 15% continuing to be owned by the Seller) (the membership interests to be purchased by the Buyer hereunder is sometimes referred to herein as the “Purchased Membership Interests”).
4. The Company has agreed to become a party to this Agreement for the purpose of agreeing to certain covenants applicable to it as set forth herein.
AGREEMENT
In consideration of the mutual covenants of the parties set forth in this Agreement and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
ARTICLE I
SALE AND TRANSFER OF THE PURCHASED MEMBERSHIP INTERESTS
1.1 Admission of the Buyer as a Member of the Company. At the Closing, a Third Amended and Restated Limited Liability Agreement of the Company shall be executed and delivered by and among the Company, the Seller and the Buyer, a copy of which is attached hereto as Exhibit 1.1 (the “Amended Operating Agreement”), to, among other things, allow for the transfer of the Purchased Membership Interests to the Buyer hereunder and the admission of the Buyer as a Member of the Company in connection therewith.

 

 


 

1.2 Sale and Transfer of the Purchased Membership Interests by the Seller to the Buyer. Pursuant and subject in all respects to the terms and conditions herein set forth and in reliance upon the respective representations and warranties of the parties set forth herein or in any document delivered pursuant hereto, at the Closing, the Seller shall sell, transfer and deliver to the Buyer, free and clear of all liens, hypothecations, mortgages, charges, security interests, pledges and other encumbrances and claims of any nature (the “Liens”), and the Buyer shall purchase from the Seller all of the Seller’s right, title and interest in the Purchased Membership Interests for the Purchase Price payable in accordance with Section 2.1 hereof.
1.3 Registration of the Purchased Membership Interests in the Buyer’s Name. As of the Closing, the Company will register in its books and records in the Buyer’s name the Purchased Membership Interests, which as of the Closing shall represent eighty-five percent (85%) of the Fully Diluted Interests in the Company.
ARTICLE II
CONSIDERATION AND MANNER OF PAYMENT
2.1 Purchase Price. The aggregate purchase price (the “Purchase Price”) to be paid by the Buyer to the Seller or its designees for the Purchased Membership Interests, and the rights and benefits conferred hereunder, shall be $31,875,000, subject to adjustment as provided herein. The Purchase Price shall be payable as follows:
(a) At the Closing, the Buyer shall deliver to the Seller, by wire transfer of immediately available funds to an account or accounts previously designated by the Seller in writing, an aggregate amount equal to (i) $28,875,000 (the “Closing Date Purchase Price”) which shall be paid to the Seller in accordance with the wire transfer instructions set forth on Schedule 2.1(a) attached hereto, minus (ii) the costs and expenses to be borne by the Seller pursuant to Section 9.4(c) hereof, minus (iii) the fees and other expenses to be borne by the Seller pursuant to Section 10.6(b) hereof, minus (iv) any fees or expenses incurred by the Company or the Buyer pursuant to Section 6.8 hereof, minus (v) fees and expenses incurred by the Company (directly or indirectly on behalf of the Seller) in connection with the negotiation of this Agreement and the Transaction Documents and the consummation of the transactions contemplated hereby and thereby (including any fees and expenses of counsel and any fees and expenses owed to VRA), minus (vi) fees and expenses incurred by the Company on behalf of the Seller pursuant to Section 9.7 hereof.
(b) At the Closing, the Buyer shall deliver to U.S. Bank National Association, as escrow agent (the “Escrow Agent”), by wire transfer of immediately available funds, $3,000,000 (the “Escrow Amount”). Such funds plus all income accrued thereon shall be maintained by the Escrow Agent to secure the Seller’s obligations under Section 9.2 of this Agreement and shall be administered and payable in accordance with an escrow agreement by and among Seller, Buyer and the Escrow Agent, in the form attached hereto as Exhibit 2.1(b) (the “Escrow Agreement”).

 

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2.2 Net Working Capital and Capital Lease Liability Adjustment.
(a) The Purchase Price shall be subject to adjustment as determined pursuant to this Section 2.2.
(b) If the Net Working Capital exceeds the Target Net Working Capital, then the Buyer shall pay to the Seller or its designee an amount equal to the difference between the Net Working Capital and the Target Net Working Capital in accordance with the provisions of Section 2.2(b)(iv). If the Net Working Capital is less than the Target Net Working Capital, then the Seller shall pay to the Buyer or its designee an amount equal to the difference between the Target Net Working Capital and the Net Working Capital in accordance with the provisions of Section 2.2(b)(iv). If the Capital Lease Liability exceeds $600,000, then the Seller shall pay to the Buyer or its designee an amount equal to the difference between the Capital Lease Liability and $600,000 in accordance with the provisions of Section 2.2(b)(iv). If the Capital Lease Liability exceeds $600,000, then the Seller shall pay to the Buyer or its designee an amount equal to the difference between the Capital Lease Liability and $600,000 in accordance with the provisions of Section 2.2(b)(iv).
(i) For purposes of this Agreement,
(A) “Capital Lease Liability” shall mean the aggregate liability for capital leases of the Company as of the Closing Date determined in accordance with GAAP.
(B) “Net Working Capital” shall mean (1) current assets (including security deposits and related restricted cash not specifically categorized as current assets, but excluding Income Tax assets) minus (2) current liabilities of the Company (including deferred revenue and the severance or change of control payments payable to Company employees related to the consummation of the transactions contemplated by this Agreement set forth on Schedule 2.2(b)(i)(B) hereof), but excluding Indebtedness, capital lease obligations, Income Tax liabilities and any amounts deducted from the Closing Date Purchase Price pursuant to Section 2.1(a) above and shall be an amount, determined as of the Closing Date, calculated in the same manner as “Net Working Capital” is calculated on Exhibit 2.2(b) attached hereto. In such calculation, all applicable line item amounts shall be determined on a basis consistent with GAAP, except to the extent that such basis is inconsistent with Exhibit 2.2(b), in which case Exhibit 2.2(b) shall control.
(C) “Target Net Working Capital” shall mean and be equal to $3,000,000.
(ii) On or before the date sixty (60) days after the Closing Date (such date of delivery, the “Settlement Date”), the Buyer shall deliver its good faith determination of (A) Net Working Capital (calculated in the manner provided in Section 2.2(b)(i)(B) (the “Buyer Net Working Capital”) and (B) Capital Lease Liability (the “Buyer Capital Lease Liability”). During the period from the Closing Date until the Settlement Date, the Buyer and its agents shall have such access to the books and records of the Company as the Buyer and its agents shall reasonably request in order to enable them to calculate the Buyer Net Working Capital and the Buyer Capital Lease Liability. During the period from the Settlement Date until twenty (20) days after the Settlement Date, the Buyer shall give the Seller and its agents such access to the assets and books and records of the Company and the Buyer (including, but not limited to, the work papers, schedules and other documents prepared by the Buyer in connection with its calculation of the Buyer Net Working Capital and the Buyer Capital Lease Liability) as the Seller and its agents shall reasonably request in order to enable them to verify the calculation of the Buyer Net Working Capital and the Buyer Capital Lease Liability.

 

3


 

(iii) On or before the twentieth (20th) day following the Settlement Date, the Seller shall deliver to the Buyer a notice of objection (an “Objection Notice”) or a notice of acceptance (an “Acceptance Notice”) with respect to the Buyer Net Working Capital and the Buyer Capital Lease Liability. If an Acceptance Notice is delivered to the Buyer or if no Objection Notice is delivered to the Buyer before the expiration of such 20 day period, the Buyer Net Working Capital and the Buyer Capital Lease Liability shall be final and binding on the parties hereto as the Net Working Capital and the Capital Lease Liability. Any Objection Notice shall specify in reasonable detail the items in the Buyer Net Working Capital and/or the calculation of the Buyer Capital Lease Liability disputed by the Seller and shall describe in reasonable detail the basis for the objection and all information in the possession of the Seller which forms the basis therefor, as well as the amount in dispute. If an Objection Notice is delivered in accordance with this Section 2.2(b)(iii), the Buyer and the Seller shall consult with each other with respect to the objection set forth therein. If the Buyer and the Seller are unable to reach agreement within ten (10) days after an Objection Notice has been given, all unresolved disputed items shall be promptly referred to the Arbitrator. The Arbitrator shall be directed to render a written report on the unresolved disputed issues with respect to the Net Working Capital and Capital Lease Liability as promptly as practicable, and to resolve only those issues of dispute set forth in the Objection Notice. If unresolved disputed issues are submitted to the Arbitrator, the Buyer and the Seller will each furnish to the Arbitrator such work papers, schedules and other documents and information relating to the unresolved disputed issues as the Arbitrator may reasonably request. The Arbitrator shall establish the procedures it shall follow (including procedures with regard to the presentation of evidence) giving due regard to the mutual intention of the Buyer and the Seller to resolve the disputed items and amounts as quickly, efficiently and inexpensively as possible. Any determination by the Arbitrator shall not be outside the range defined by the respective amounts in the Buyer Net Working Capital and/or the Buyer Capital Lease Liability, respectively, proposed by the Buyer’s and the Seller’s proposed adjustments thereto. The resolution of the dispute and the calculation of the Net Working Capital and the Capital Lease Liability by the Arbitrator shall be final and binding on the parties hereto. The fees and expenses of the Arbitrator shall be allocated between the parties in the proportion that the amounts determined by the Arbitrator against each party bears to the total amount in dispute (determined with respect to dollar amount).
(iv) If the Net Working Capital as finally determined pursuant to Section 2.2(b)(iii) is greater than the Target Net Working Capital, then the Buyer shall pay the difference thereof to the Seller. If the Net Working Capital as finally determined pursuant to Section 2.2(b)(iii) is less than the Target Net Working Capital, then the Seller shall pay to the Buyer the difference thereof. If the Capital Lease Liability as finally determined pursuant to Section 2.2(b)(iii) is greater than $600,000, then the Seller shall pay to the Buyer the amount by which such Capital Lease Liability exceeds $600,000. At the Buyer’s election in its sole discretion, the Seller’s obligations to pay all or any portion of the amount set forth in this Section 2.2(b)(iv) (the “Adjustment Payment”) may be satisfied from the Escrow Amount or paid by the Seller; provided however, that if such amounts are satisfied from the Escrow Amount, the Seller shall have the obligation to promptly (and in any event no later than 10 Business Days following payment of the Adjustment Payment) make a deposit to the Escrow Amount in an amount equal to the Adjustment Payment. All payments to be made pursuant to this Section 2.2(b)(iv) shall be made within five (5) Business Days following the final determination of the Net Working Capital and the Capital Lease Liability and by wire transfer of immediately available funds to a bank account designated in writing by the recipient prior thereto.

 

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ARTICLE III
REPRESENTATIONS AND WARRANTIES PERTAINING TO THE COMPANY
As a material inducement to the Buyer to enter into this Agreement, except as set forth on Schedules numbered to correspond with and relate to the individual Section numbers of this Article III, the Company represents and warrants to the Buyer as follows:
3.1 Organization and Qualification of the Company. The Company is duly organized, validly existing and in good standing as a limited liability company under the laws of the State of Delaware. The Company has the requisite limited liability company power and authority to own or lease all the properties owned or leased by it, and to conduct the Business as currently conducted by the Company. The Company is in good standing in the jurisdictions identified on Schedule 3.1. The Company has not failed to qualify to do business in any jurisdiction where such failure would have a Material Adverse Effect upon the Company. The Company does not own or lease property, or engage in any material activity, in any jurisdiction other than the jurisdictions identified on Schedule 3.1. The Company has no Subsidiaries. The Seller has previously delivered to the Buyer complete and correct copies of the Organizational Documents of the Company.
3.2 Authorization. The execution and delivery of this Agreement, and the performance by the Company of its obligations hereunder, have been duly authorized by all necessary limited liability company action and constitutes the legal, valid and binding obligation of the Company enforceable against the Company in accordance with the terms herein except as enforcement hereof may be limited by applicable Insolvency Laws.
3.3 Capitalization. After giving effect to the consummation of the transactions contemplated by this Agreement, immediately following the Closing, the only “membership interests” (as defined in the Act) in the Company issued and outstanding, reserved for issuance or committed to be issued will be:
(a) the membership interests in the Company owned by the Buyer, representing a 85% Participating Percentage; and
(b) the membership interests in the Company owned by the Seller, representing a 15% Participating Percentage.

 

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There are no preemptive, conversion, subscription or other rights, options, warrants or agreements granted or issued by, or binding upon, the Company for the purchase or acquisition of any membership interests in the Company. All provisions of the Amended Operating Agreement have been complied with in conjunction with the transfer by the Seller of the Purchased Membership Interests to the Buyer. The Purchased Membership Interests were duly and validly issued, fully paid and non assessable, are free and clear of all Liens and were issued in a manner not in violation of applicable provisions of federal and state securities laws. The Company has no equity appreciation rights, phantom equity plan or similar rights outstanding.
3.4 No Conflict. Except as set forth on Schedule 3.4, neither the execution and delivery of this Agreement by the Company nor the performance by the Company of the transactions contemplated hereby will, directly or indirectly:
(a) contravene, conflict with, or result in (with or without notice or lapse of time) a violation or breach of (i) any provision of the Organizational Documents of the Company, (ii) any resolution adopted by the governing body of the Company or the Seller as the sole member of the Company, or (iii) any Legal Requirement, Governmental Authorization, Material Contract or any Order to which the Company may be subject;
(b) give any Person or Governmental Body the right (with or without notice or lapse of time) to declare a default or exercise any remedy under, or to accelerate the maturity or performance of, or to cancel, terminate, modify, withdraw or suspend any Legal Requirement, Governmental Authorization, Material Contract or Order; or
(c) result in (with or without notice or lapse of time) the imposition or creation of any Lien upon or with respect to the Purchased Membership Interests or any assets of the Company.
3.5 No Consent Required. Except as set forth on Schedule 3.5, no Consent, notification, approval, Order or authorization of, or declaration, filing or registration with, any Person or Governmental Body is required to be made or obtained by the Company in connection with the authorization, execution, delivery, performance or lawful completion of this Agreement or the transactions contemplated hereby.
3.6 Financial Statements. Attached as Schedule 3.6 hereto are the following financial statements of the Company and accompanied by the related audit reports thereon of the Company’s independent auditors (collectively, the “Financial Statements”):
(a) the audited balance sheet as of December 31, 2008, the reviewed balance sheet as of December 31, 2007, and the unaudited balance sheet of December 31, 2006;
(b) the audited statement of operations of the Company for the twelve month period ended December 31, 2008, the reviewed statement of operations of the Company for the twelve month period ended December 31, 2007, and the unaudited statement of operations of the Company for the twelve month period ended December 31, 2006;

 

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(c) the audited cash flow statement for the Company for the twelve months ended December 31, 2008, the reviewed cash flow statement for the Company for the twelve months ended December 31, 2007, and the unaudited cash flow statement for the Company for the twelve months ended December 31, 2006; and
(d) the balance sheet of the Company as of August 31, 2009 (the “Latest Balance Sheet Date”) (the unaudited balance sheet of the Company of August 31, 2009 is referred to herein as the “Latest Balance Sheet”) and the unaudited statement of income for the Company for the eight month period ended August 31, 2009.
(e) Except as set forth on Schedule 3.6(e) hereto, there are no accounts receivable of the Company which are over $10,000 and ninety (90) days past due. All accounts receivable and unbilled receivables (collectively, the “Receivables”) reflected on the Latest Balance Sheet, and all Receivables arising subsequent to the date thereof, represent sales actually made or services actually performed in the ordinary course of business consistent with past practice. Unless paid or written off in the ordinary course of business in accordance with past practice prior to the Closing Date, such Receivables will be as of the Closing Date collectible net of respective reserves against such Receivables for allowances and bad debts, which such reserves are commercially reasonable and have been determined in accordance with GAAP.
The Financial Statements have been prepared in accordance with GAAP consistently applied throughout the periods indicated and fairly and accurately present the financial position of the Company, including, but not limited to, disclosure of all material liabilities, direct or contingent, of the Company required to be disclosed by GAAP, as of December 31, 2006, December 31, 2007, December 31, 2008 and the Latest Balance Sheet Date, and the results of its operations for the respective periods then ended, subject, in the case of the unaudited financial statements, to normal and immaterial year-end adjustments and the absence of footnotes and other presentation items required by GAAP. The books and records of the Company are accurate and complete in all material respects, and fairly and accurately present and reflect in all material respects all of the transactions described therein.
3.7 Internal Controls. The Company has established, and maintains, adheres to and enforces, a system of internal control over financial accounting that is effective in providing reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. The Company has not identified or been made aware of (a) any significant deficiency or material weakness in the system of internal control over financial accounting utilized by the Company, (b) any fraud, whether or not material, that involves the Company’s management or other employees who have a role in the preparation of financial statements or the internal accounting controls utilized by the Company or (c) any claim or allegation regarding any of the foregoing.

 

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3.8 Absence of Liabilities; No Indebtedness. The Company does not have any debts, liabilities or obligations of any nature (whether accrued or unaccrued, absolute or contingent, direct or indirect, known or unknown, choate or inchoate, perfected or unperfected, liquidated or unliquidated, or otherwise, and whether due or to become due) arising out of transactions entered into on or prior to the date hereof, or any transaction, series of transactions, action or inaction occurring on or prior to the date hereof, or any state of facts or condition existing on or prior to the date hereof (regardless of when such liability or obligation is asserted), that are required to be reflected on a balance sheet included in the Financial Statements prepared in accordance with GAAP, other than those liabilities (i) included in the Latest Balance Sheet, (ii) incurred in the ordinary course of the Business consistent with past practices with unrelated third parties, or (iii) to be performed in the ordinary course of business consistent with past practices after the Closing pursuant to any Contract or Governmental Authorization. The Company does not have any Indebtedness (other than capital lease obligations).
3.9 Personal Property.
(a) Except as set forth on Schedule 3.9(a), the Company possesses good and marketable, indefeasible title, free and clear of all Liens, to all of the personal property assets needed to conduct the Business as presently conducted by the Company.
(b) The tangible assets of the Company, taken as a whole, are in good operating condition and are useable in the ordinary course of business consistent with past practices, subject to normal wear and tear. There is no material tangible asset or material portion of the tangible assets that requires any repair or replacement other than repair and maintenance arising in the ordinary course of business consistent with past practices. No property owned or leased by the Company is located other than at the real property leased pursuant to one of the Real Property Leases.
(c) Schedule 3.9(c) contains a true and complete list of all material tangible property owned or leased by the Company.
(d) This representation does not apply to Proprietary Rights.
3.10 Compliance with Laws; Governmental Authorizations.
(a) During the last five (5) years, the Company has been operated in material compliance with each Legal Requirement or Governmental Authorization that is or was applicable to the Business.
(b) During the last five (5) years, no event has occurred or circumstance exists that may constitute or result in (with or without notice or lapse of time) a material violation by the Company of, or a failure on the part of the Company to comply in any material respect with any Legal Requirement or Governmental Authorization applicable to the Business.
(c) The Company has not in the last five (5) years received any notice or other communication from any Governmental Body or any other Person regarding, and there does not currently exist, nor at any time in the last five (5) years has there existed, any material violation of, or material failure to comply with, any Legal Requirement or Governmental Authorization.

 

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(d) The Company possesses all material Governmental Authorizations that are necessary to permit the Company to lawfully conduct and operate the Business and to permit the Company to own and use its respective assets (the “Company Governmental Authorizations”). Schedule 3.10(b) contains a complete and accurate list of each material Company Governmental Authorization. Each material Company Governmental Authorization is valid and in full force and effect. All applications required to have been filed for the renewal of the material Company Governmental Authorizations have been duly filed on a timely basis with the appropriate Governmental Bodies, and all other filings required to have been made with respect to such Company Governmental Authorizations have been duly made on a timely basis with the appropriate Governmental Bodies.
(e) No material Company Governmental Authorization is subject to termination or modification as a result of the authorization, execution, delivery, performance or lawful completion of this Agreement or the transactions contemplated hereby.
(f) The Seller has provided the Buyer with copies of any legal research or legal opinions in the possession or under control of the Company or the Seller relating to whether the business conducted by the Company constitutes the unauthorized practice of law.
3.11 Real Property.
(a) The Company does not own, nor has it agreed or have an option to purchase or sell, or is it obligated to purchase or sell, any real property.
(b) Schedule 3.11(b)-1 lists all real property leases, licenses and other occupancy agreements to which the Company is a party or by which the Company is bound as of the date hereof (the “Real Property Leases”). Except as set forth on Schedule 3.11(b)-2, the Company is not in material default of any of the terms of any Real Property Lease nor, to the Seller’s Knowledge, is any other party to any Real Property Lease in default under the terms thereof; and each such Real Property Lease is in full force and effect and is valid, binding and enforceable against the Company and each other party thereto in accordance with its terms except as enforcement may be limited by applicable Insolvency Laws. Accurate and complete copies of the Real Property Leases have heretofore been delivered to the Buyer by the Seller. Except as specified in Schedule 3.11(b)-3, the Company is in compliance with, and neither the Company nor the Seller has received any notice of default or any notice of noncompliance with respect to, any of the Real Property Leases or under any applicable state, federal and municipal laws and regulations relating thereto. The Company has no past due obligation as lessee under any Real Property Lease. No Real Property Lease has been assigned in whole or in part by the Company and no subleases have been entered into relating to any of the Real Property Leases. The real property and improvements leased pursuant to the Real Property Leases shall be referred to herein as the “Leased Real Property.” The Leased Real Property, taken as a whole, is in good order and repair. Except as set forth on Schedule 3.11(b)-4, there is no build out work or other improvements to be made under any of the Real Property Leases. Neither the Seller nor the Company has received any written notice or, to the Seller’s Knowledge, oral notice from any insurance company or board of fire underwriters of any defects or inadequacies that could adversely affect the insurability of any Leased Real Property or requesting the performance of any material work or alteration with respect to any Leased Real Property that could adversely affect insurability that has not been complied with. There is no pending or, to the Seller’s Knowledge, Threatened condemnation or other governmental taking of any Leased Real Property or any part thereof. There are no special, general or other assessments pending or, to the Seller’s Knowledge, Threatened against the Company or affecting any Leased Real Property that would be payable by the lessee thereof. Except as specified in the Real Property Leases, none of the Real Property Leases contain any provisions restricting the location (including present location and future location) of other business activities of the lessee (or assignee) thereunder. Except as set forth on Schedule 3.11(b)-5, neither the Seller nor the Company has entered into any brokerage arrangement with respect to any Real Property Lease.

 

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3.12 Contracts.
(a) Schedule 3.12(a) contains a complete and accurate list, and the Seller has delivered to the Buyer complete and correct copies (or forms thereof, where form agreements are used; provided that any and all material deviations or changes to the forms in any individual case are described on Schedule 3.12(a)), of the following Contracts to which the Company is a party (each, a “Material Contract”):
(i) each Contract with any customer of the Business pursuant to which the Company received in excess of $50,000 of net revenue from such customer during the twelve month period ended December 31, 2008 or reasonably expects to receive in excess of $50,000 of net revenue from such customer during the twelve month period ending December 31, 2009;
(ii) each partnership or joint venture Contract;
(iii) each Contract limiting the right or ability of the Company to engage in or compete with any Person in any line of business or in any geographical area in any material respect or granting to any Person a first-refusal, first-offer or similar preferential right to purchase or acquire any assets of the Company;
(iv) each Contract for the employment or engagement of, or with respect to the employment benefits, service conditions or severance of, any directors, executive officers or employees (a) with respect to directors, executive officers or employees paid in excess of $50,000 during calendar year 2008, (b) for directors, executive officers or employees being paid a base salary in excess of $50,000 during 2009, (c) which contains a provision that would require any payment to any employee, director or officer upon the consummation of the transactions contemplated hereby or (d) which resulted in an obligation by the Company in 2008 in excess of $50,000 or is expected to result in an obligation in excess of $50,000 in 2009;
(v) each collective bargaining agreement or arrangement with any labor union and any such agreements currently in negotiation or proposed;
(vi) each Contract for the license, development or use of Proprietary Rights, except for Commercial Software;
(vii) each Contract (or multiple Contracts with the same Person or Affiliates of such Person) for the purchase, maintenance or acquisition, or the sale or furnishing, of materials, supplies, merchandise, machinery, equipment, parts or other property or services by or to the Company (except that the Company need not list any such contract or series of contracts made in the ordinary course of business which require, individually or collectively, aggregate future payments of less than $50,000);

 

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(viii) each Contract under which the Company has borrowed or loaned any material amount of money, or any note, bond, indenture, mortgage, installment obligation or other evidence of indebtedness for any material amount of borrowed or loaned money or any guarantee of such indebtedness by the Company, the Seller or any Guarantor;
(ix) each agreement or Contract granting any Person a Lien on any assets of the Company;
(x) all Real Property Leases;
(xi) each assignment of inventions, non-solicitation or confidentiality agreement currently in force with any employee or consultant of the Company;
(xii) each agreement, Contract, commitment or arrangement for (A) capital expenditures, (B) relating to the acquisition of any material assets or construction of fixed assets for or in respect of the Leased Real Property (in each case, other than in the ordinary course of business consistent with past practice) or (C) the acquisition of any assets or equity interests of any Person;
(xiii) each Contract having a remaining term in excess of thirty (30) days, which is not terminable by the Company without penalty on thirty (30) days’ or less notice and which involves payments in excess of $50,000;
(xiv) each Contract between the Company, on the one hand, and the Seller or any Guarantor or any Affiliate of the Seller or any Guarantor, on the other hand;
(xv) each Contract providing for the indemnification of any officer, director, employee, agent, consultant or representative of the Company or other Person;
(xvi) each Contract for purchase or sale of any assets of the Company which is not in the ordinary course of business of the Company, whether by sale or purchase of stock or assets or any merger or consolidation; and
(xvii) any other Contract (or multiple Contracts with the same Person or Affiliates of such Person), whether or not made in the ordinary course of business, which involves payments in excess of $50,000 in consideration.
(b) All of the Material Contracts are in full force and effect and are valid and enforceable in all respects in accordance with their terms except as enforcement may be limited by applicable Insolvency Laws, and, to the Seller’s Knowledge, no event has occurred or circumstance exists that would give any Person the right (with or without notice or lapse of time) to declare a default or exercise any remedy under, or to accelerate the maturity or performance of, or to cancel, terminate or modify, any such Material Contract.

 

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(c) There are no pending renegotiations of any of the Material Contracts and all new Contracts which are being actively negotiated and which would be required to be listed on Schedule 3.12(a) are so listed thereon.
(d) The Company enjoys peaceful and undisturbed possession of all material leased personal or movable property under all such leases set forth, or required to be set forth, on Schedule 3.12(a), and all of such leases are valid and in full force and effect and are enforceable against the Company and against all other parties thereto except with respect to laws applicable to creditors rights and equitable principles generally, neither the Company nor, to the Seller’s Knowledge, any other party thereto is in default under any of such leases and no event has occurred which with the giving of notice or the passage of time or both could constitute a default under any of such leases.
(e) Except as set forth on Schedule 3.12(e), no Material Contract is subject to termination, modification or acceleration as a result of the transactions contemplated by this Agreement or the transactions contemplated hereby.
3.13 Proprietary Rights.
(a) The Company owns, or is licensed, or otherwise possesses the necessary rights, to use, distribute, sell, resell, license or sublicense, as applicable, all Proprietary Rights which are used, distributed, sold, resold, licensed and sublicensed in connection with, or which are otherwise necessary for, the Business of the Company (“Company Proprietary Rights”). Subject to obtaining Consent to the consummation of the transactions contemplated hereby under the items set forth on Schedule 3.13(a) from the other party thereto, each item of Company Proprietary Rights will, immediately subsequent to the Effective Time, continue to be owned and/or available for use, distribution, sale, resale, license or sublicense by the Company on terms which are identical to those pursuant to which the Company, immediately prior to the Effective Time, owned and/or had the right to use, distribute, sell, resell, license or sublicense, as applicable, such item.
(b) Schedule 3.13(b) contains a complete and correct list of all of the Company’s (i) patents and patent applications; (ii) registered, applied for and material unregistered trademarks and service marks; (iii) registered domain names; (iv) copyright registrations and applications for registration thereof; and (v) material computer software owned or used by the Company, including all Embedded Software (as defined below), but excluding Commercial Software (as defined below). Where applicable for the items listed on Schedule 3.13(b) (i.e. not including unregistered items or third party computer software), Schedule 3.13(b) contains the name of the registered owner, date of registration or application and name of registration body where the registration or application was made. All renewal and maintenance fees in respect of the items listed on Schedule 3.13(b) (if applicable) have been duly paid and all registrations therefor (A) are in full force, have not been cancelled, abandoned, adjudicated invalid, or otherwise terminated, (B) to the Seller’s Knowledge, are not subject to any opposition or nullity proceeding or interference, and (C) to the Seller’s Knowledge, no

 

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Person has Threatened to commence an opposition or nullity proceeding or interference. The Company has licenses for all Commercial Software used in the Business and use of such Commercial Software is, to the Seller’s Knowledge, in accordance with such licenses. “Commercial Software” means packaged commercially available software programs generally available to the public which (i) have been licensed to the Company pursuant to end-user licenses, (ii) are used in the Company’s Business but are not a component of, incorporated into (other than to provide generalized functions which are also used outside of services provided by the Company), or used in the development or delivery of any Company Product (as defined in Section 3.13(h) below) and (iii) have a cumulative acquisition cost or license fee to the Company for all software and rights to use under each such end-use license of less than $25,000. “Embedded Software” means third party Proprietary Rights (excluding Commercial Software) that are a component of, incorporated into or otherwise used in the development or delivery of any of the Company Products.
(c) Schedule 3.13(c)(i) contains a compete list of all (excluding Commercial Software) licenses, sublicenses and other agreements as to which the Company is a party and pursuant to which the Company is engaged, licensed, authorized or otherwise has rights to develop, use, distribute, sell, resell, license, sublicense, support, maintain, integrate or implement any Proprietary Rights of or for any third parties (collectively, the “Third Party Licenses“). Except as set forth in the Third Party Licenses listed on Schedule 3.13(c)(ii), the Company is not obligated to pay any fees, royalties or other compensation or consideration for the continued rights under the Third Party Licenses. Schedule 3.13(c)(iii) contains a compete list of all licenses, sublicenses and other agreements as to which the Company is a party and pursuant to which any third party is engaged, authorized or otherwise have rights to develop, create, design, use, modify, create derivative works of, distribute, sell, resell, license, sublicense, support, maintain, integrate or implement any of the Company Proprietary Rights or services (in whole or in part), including any source code escrow agreements (collectively, the “Company Licenses“). Except as set forth in the Company Licenses listed on Schedule 3.13(c)(iv), all of the Company Licenses exclude the imposition of the payment by the Company of consequential damages of the licensee or other party to the Company Licenses.
(d) Except for Commercial Software and other than Proprietary Rights which are the subject of Third Party Licenses (where the Company does not own any Proprietary Rights developed thereunder), (i) the Company is the sole and exclusive owner of the Company Proprietary Rights (free and clear of any Liens) (“Owned Proprietary Rights“), (ii) the Company is not obligated to pay any continuing fees, royalties or other compensation or consideration to any third party (including to any employee of the Company or other developer) with respect to any such Owned Proprietary Rights, and (iii) all such Owned Proprietary Rights were developed, created and designed by employees of the Company acting within the scope of their employment or by consultants or contractors who have assigned all of their right, title and interest in and to such Owned Proprietary Rights pursuant to agreements listed on Schedule 3.13(c)(ii). Except as set forth on Schedule 3.13(d), no government funding or university or college facilities were used in the development of the Company’s Products.

 

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(e) To the Seller’s Knowledge, the Company has not infringed, misappropriated, violated or engaged in unfair competition, and is not currently infringing, misappropriating, violating or engaging in unfair competition with respect to, any Proprietary Rights of any third party. To the Seller’s Knowledge, there are no claims pending or Threatened by any Person (i) alleging any such infringement, misappropriation, violation or unfair competition, (ii) against the use by the Company or any third party of any Company Proprietary Rights or (iii) challenging the ownership by the Company, validity or effectiveness of any Owned Proprietary Rights. With the exception of trademark, trade name and domain name clearance performed from time to time by the Company in the ordinary course prior to commencement of the Company’s use thereof, the Company has not undertaken or authorized legal counsel to undertake any investigation as to whether any Company Proprietary Rights infringes, misappropriates or otherwise violates any third party Proprietary Rights and, without limiting the generality of the foregoing, the Company has not received a non-infringement legal opinion with respect to any Company Proprietary Rights. To the Seller’s Knowledge, there is no unauthorized use, infringement, misappropriation or violation of any of the Company Proprietary Rights, including by an employee or former employee of the Company.
(f) Except as set forth on Schedule 3.13(f) (in reasonable detail to explain the reasons why each such item is set forth therein), the Company has not entered into any agreement under which the Company is restricted from selling, licensing or otherwise marketing or distributing any products or services, or granting to others the right to do so, whether to any class or type of customers or through any type of channel or in any geographic area or during any period of time, or otherwise, including by virtue of any exclusive arrangements with vendors, distributors, resellers or others.
(g) The Company has taken reasonable measures to safeguard and maintain the Company’s rights in, and the proprietary and confidential nature of any and all material trade secrets and confidential processes, algorithms, source code, know how, business methods, data, or other confidential information, data and materials owned by or licensed to the Company or used in the Business. All Persons, whether employees, consultants, contractors or otherwise who were involved in the development of Owned Proprietary Rights have executed and delivered to the Company an agreement regarding the protection of such Company Proprietary Rights, and the assignment to or ownership by the Company of all Proprietary Rights arising from the services performed for the Company by such Persons. To the Seller’s Knowledge, no current or prior officer, manager, employee, consultant or contractor of the Company claims, and, to the Seller’s Knowledge, there is no grounds to assert a claim to, or any ownership interest in, any such Proprietary Right as a result of having been involved in the development, creation or design of such property while employed or engaged by or consulting to the Company, or otherwise.
(h) The products and services which the Company markets as part of the Business are herein, the “Company Products.” During the twelve (12) month period immediately prior to the date hereof, none of the Company Proprietary Rights have exhibited defects which have materially affected the delivery or performance of the Company Products and which have not been substantially corrected in the ordinary course of business. To the Seller’s Knowledge, the products of the Company do not contain any “back door,” “time bomb,” “Trojan horse,” “worm,” “drop dead device,” “virus” (as these terms are commonly used in the computer software industry), or other software routines designed to permit unauthorized access, to disable or erase software or data, or to perform any other similar type of functions. Except as set forth on Schedule 3.13(h)(ii), the Company Products do not contain any open source or public library software (such as, but not limited to, software licensed under the GNU General Public License, the GNU Lesser General Public License, BSD License, Apache or Open LDAP Public License) (said open source or public library software is herein, collectively, “Open Source Software,” and all licenses under which such Open Source Software is used is herein, collectively, the “Open Source Licenses“).

 

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(i) Except as set forth in the items listed on Schedule 3.13(i)(i), the Company has not made any written representations, warranties, or guarantees, or offered service level agreements (or similar commitments) with respect to the Company Products. Schedule 3.13(i)(ii) lists all warranty claims or breach of guarantee claims (including any pending claims) and any material written customer complaints related to the Company Products for which a refund has been requested and the nature of such claims and the total dollar amount of refunds, payments and credits paid or issued under any representation, warranty, guarantee or service level agreement or otherwise for each of the last two complete fiscal years and the current fiscal year to date.
(j) Except as set forth on Schedule 3.13(j), (i) the Company has not used, purchased or authorized the use or purchase of, and is not currently using, as keywords, any trademark, service mark, or trade name of any competitor of the Company or any other Person, or any terms confusingly similar thereto (“Third Party Marks“), in any manner designed to: divert traffic from or to obscure another Person’s website, without the written consent of such other Person; to disrupt the experience of a visitor to the website of another Person, without the written consent of such other Person; to elevate search engine rankings of the Company or its Business above those of any competitor of the Company; or to infringe, tarnish, dilute or otherwise violate such Third Party Marks; and (ii) the Company has taken reasonable measures to comply with the Controlling the Assault of Non Solicited Pornography and Marketing Act of 2003 (the “CAN SPAM Act“), including, but not limited to, complying with all disclosure requirements, and those requirements relating to opt out mechanisms and requests, in regard to all electronic mail messages that qualify as “commercial electronic mail messages” within the meaning of the CAN SPAM Act.
(k) The computer software, hardware, systems and databases used internally in the operation of the Business (the “Computer System“) adequately meets the data processing needs of the Business and operations of the Company as presently conducted. The Company has arranged for back-up data processing services adequate to meet its data processing needs in the event the Computer System or any of its material components is rendered temporarily or permanently inoperative as a result of a natural or other disaster. To the Seller’s Knowledge, the Computer System performs substantially in accordance with the documentation related thereto. The Company has not suffered any failures, errors or breakdowns in the Computer System within the past twelve (12) months which have caused any substantial disruption or interruption in its Business.
(l) Except for the information a user may provide via the “Contact Us” page of the Company’s Websites, the Company Websites do not collect any personally identifiable information; provided, however, that to the extent the Company has collected personally identifiable information through the Company Websites, it has used such personally identifiable information in compliance with its privacy policy set forth in the Company Websites. The Company has adopted reasonable measures, including administrative, physical, and technical measures, to protect the confidentiality, security, availability and integrity of personally identifiable information maintained, processed or transmitted by or through the Company System. To the Seller’s Knowledge, the Company has not experienced any material breach of security of personally identifiable information maintained, processed or transmitted by the Company whether or not such security breach required notice thereof to any Person under any applicable Legal Requirement.

 

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3.14 ERISA.
(a) Schedule 3.14(a) sets forth a complete list of Employee Benefit Plans.
(b) The Seller has delivered complete and correct copies to the Buyer of (i) each written Employee Benefit Plan, as amended, together with all required unaudited financial statements and actuarial reports for the three (3) most recent plan years, if any; (ii) each funding vehicle with respect to each such plan, if any; (iii) the most recent determination letter, and any other material ruling or notice issued by any Governmental Body with respect to such plan within the last six (6) years; (iv) the Form 5500 Annual Report (or a description of any applicable exemption) and any PBGC Form 1 for the three (3) most recent plan years to the extent such forms are required for any Employee Benefit Plan; (v) the most recent summary plan description and any subsequent summary of material modifications thereto which relates to any such plan; and (vi) each other document, explanation or communication which is legally required to be provided to employees or participants in any such plan (assuming a written request therefor has been made by a participant) which describes any relevant aspect of any such plan that is not disclosed in previously delivered materials. A description of any unwritten Employee Benefit Plans, including a true and complete description of any material terms of such plan, is set forth on Schedule 3.14(b).
(c) Each Employee Benefit Plan (i) has been in compliance in all material respects and currently complies in all material respects in form and in operation with all applicable requirements of ERISA, the Code and any other applicable Legal Requirement, and has been operated in accordance with its terms (except for those terms which are inconsistent with the changes required by an applicable Legal Requirement for which changes to such plan are not yet required to be made, in which case the applicable Employee Benefit Plan has been administered in all material respects in accordance with the provisions of such applicable Legal Requirement); and (ii) has been and is operated and funded in such a manner as to qualify, where appropriate, for both federal and state purposes, for income tax exclusions to its participants, tax-exempt income for its funding vehicle, and the allowance of deductions and credits with respect to contributions thereto.
(d) Neither the Company nor any ERISA Affiliate has at any time participated in or made contributions to or had any other liability with respect to, any “employee benefit plan” (as defined in Section 3(3) of ERISA) which is (i) a “multiemployer plan” (as defined in Section 3(37) or 4001 of ERISA), (ii) a “multiple employer plan” (within the meaning of Section 413(c) of the Code), (iii) a “multiple employer welfare arrangement” (within the meaning of Section 3(40) of ERISA), or (iv) subject to Section 302 or Title IV of ERISA or Section 412 of the Code.

 

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(e) There are no actions, suits, investigations or claims pending or, to the Seller’s Knowledge, Threatened with respect to any Employee Benefit Plan, or the assets thereof (other than routine claims for benefits), and there are no facts which could reasonably give rise to any liability, action, suit, investigation, or claim against any Employee Benefit Plan, any fiduciary or plan administrator or other person dealing with any Employee Benefit Plan or the assets thereof.
(f) Except as could not result in material liability, no Person has: (i) entered into any nonexempt “prohibited transaction,” as such term is defined in ERISA and the Code, with respect to any Employee Benefit Plan; (ii) breached a fiduciary obligation with respect to any Employee Benefit Plan; or (iii) otherwise has any liability for any failure to act or comply in connection with the administration or investment of the assets of any Employee Benefit Plan.
(g) Except as set forth on Schedule 3.14(g), each Employee Benefit Plan of the Company may be amended, terminated, modified or otherwise revised by the Company, to the extent permitted by applicable Legal Requirements, on and after the Closing, without further liability to the Company.
(h) No Employee Benefit Plan provides medical, health, life insurance or other welfare-type benefits to retirees or former employees or individuals who terminate (or have terminated) employment with the Company or any ERISA Affiliate, or the spouses or dependents of any of the foregoing (except for limited continued medical benefit coverage for former employees, their spouses and other dependents as required to be provided under Section 4980B of the Code or Part 6 of Subtitle B of Title I of ERISA (“COBRA”) or any applicable state or other federal law requiring continuation of health coverage).
(i) With respect to all periods prior to the Closing, the requirements of COBRA have been satisfied with respect to each Employee Benefit Plan which is subject to COBRA.
(j) With respect to each Employee Benefit Plan, all contributions, payments, premiums, expenses, reimbursements or accruals for all periods ending prior to or as of the Closing (including periods from the first day of the then current plan year to the Closing) shall have been made or accrued on the appropriate Financial Statements and each such plan has no unfunded liability which is not reflected on the appropriate Financial Statements.
(k) Except as could not result in material liability, no communication or disclosure has been made that did not accurately reflect the terms and operations of any Employee Benefit Plan effective as of the time, if any, set forth in such communication or disclosure.

 

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(l) No Employee Benefit Plan or any other agreement, program, policy or other arrangement by or to which either the Company or any ERISA Affiliate, are bound or are otherwise liable, by its terms or in effect, could reasonably be expected to require any payment or transfer of money, property or other consideration on account of or in connection with the transactions contemplated by this Agreement or any subsequent termination of employment which payment or transfer could constitute an “excess parachute payment” within the meaning of Section 280G of the Code (for this purpose, the consummation of the transactions contemplated by this Agreement will be deemed to constitute a change in the ownership of a corporation (as described in Code Section 280G(b)(2)(A)(i)(I)).
(m) The Company has, for purposes of each Employee Benefit Plan, correctly classified those individuals performing services for the Company and its Affiliates as common law employees, leased employees, independent contractors or agents of the Company or its Affiliates.
(n) Each Employee Benefit Plan which is a “non-qualified deferred compensation plan” (as such term is defined in Section 409A(d)(1) of the Code) (i) was, for the period beginning on the later of (A) January 1, 2005, and (B) the date of the inception of such Employee Benefit Plan, and ending on December 31, 2008, administered in good faith compliance with the requirements of Section 409A of the Code and applicable guidance issued thereunder, (ii) has been, since the later of (A) January 1, 2009, and (B) the date of the inception of such Employee Benefit Plan, administered in compliance, in all material respects, with the requirements of Section 409A of the Code and the final regulations issued and outstanding thereunder, and (iii) has been, since the later of (A) January 1, 2009, and (B) the date of the inception of such Employee Benefit Plan, in a written form that complies with the requirements of Section 409A of the Code and final regulations issued and outstanding thereunder, such that, it could not reasonably be expected that, in the event of an audit by the Internal Revenue Service of either the Company or any individual participating in such Employee Benefit Plan, the additional tax described in Section 409A(a)(1)(B) would be assessed against any such participant with respect to benefits due or accruing under such Employee Benefit Plan.
(o) No Employee Benefit Plan is subject to any Legal Requirement arising under any jurisdiction outside of the United States and its territories.
3.15 Labor and Employment Matters and Workers Compensation.
(a) (i) None of the employees employed by the Company is a party to or bound by any collective bargaining agreement or other labor Contract with respect to their employment by the Company; (ii) no labor organization or group of employees has filed any representation petition or made any written demand for recognition; (iii) no organizing or decertification efforts are underway or Threatened; (iv) since the formation of the Company, no labor strike, work stoppage, slowdown or other material labor dispute has occurred, and none is underway or, to the Seller’s Knowledge, Threatened; (v) there is no employment-related charge (including, but not limited to, an unfair labor practice charge), complaint, grievance, investigation, inquiry or obligation of any kind, pending or, to the Seller’s Knowledge, Threatened, in any forum, relating to an alleged violation or breach by the Company (or its officers, directors, managers or members) of any Legal Requirement or Contract; (vi) all amounts due or accrued for all salary, wages, bonuses, commissions, vacation with pay, pension benefits or other employee benefits as of the Latest Balance Sheet Date are reflected in the Latest Balance Sheet; (vii) except as set forth on Schedule 3.15(a)(vii), no

 

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employee employed by the Company has any agreement as to length of notice or severance payment required to terminate his or her employment, other than such as results by law from the employment of an employee without an agreement as to notice or severance; and (viii) the Company will not have any liability under any benefit or severance policy, practice, agreement, plan, or program which exists or arises, or may be deemed to exist or arise, under any applicable law or otherwise, as a result of the transactions contemplated hereunder. With respect to the transactions contemplated herein, any notice required under any Legal Requirement or any collective bargaining agreement has been, or prior to the Closing will be, given, and all bargaining obligations with any employee representative have been, or prior to the Closing will be, satisfied. Within the past three (3) years, the Company has not implemented any plant closing or mass layoff of employees as those terms are defined in the Worker Adjustment and Retraining Notification Act of 1988, as amended, and the regulations issued thereunder, or any similar foreign, state or local law, regulation or ordinance (“WARN Act”). Within ninety (90) days preceding the date hereof, no employee employed in the Business has suffered an “employment loss” with the Company, as such term is defined in the WARN Act.
(b) Schedule 3.15(b) sets forth all expenses, obligations, duties and liabilities relating to any claims by employees and former employees (including dependents and spouses) employed by the Company or by any ERISA Affiliate made since the formation of the Company and the extent of any specific accrual on or reserve therefor set forth on the Financial Statements for (a) costs, expenses and other liabilities under any workers compensation laws in the United States, regulations, requirements or programs and (b) any other medical costs and expenses to the extent such information can be provided pursuant to applicable Legal Requirements. To the Seller’s Knowledge, no claim or injury, fact, event or condition exists that would give rise to a material claim (individually or in the aggregate) by employees or former employees (including dependents and spouses) employed by the Company or by any ERISA Affiliate under any United States workers compensation laws, regulations, requirements or programs or for any other medical costs and expenses.
(c) Schedule 3.15(c) sets forth all severance or change of control payments payable to Company employees related to the consummation of the transactions contemplated by this Agreement.
3.16 Employees. Schedule 3.16 is a complete and correct list setting forth as of the date hereof (i) the names and current compensation rates and other compensation of all individuals presently employed by the Company on a salaried basis, (ii) the names and current compensation rates of all individuals presently employed by the Company on an hourly or piecework basis (excluding temporary attorneys employed through staffing companies), and (iii) the names and total annual compensation for all independent contractors (excluding temporary attorneys employed through staffing companies) who render services on a regular or seasonal basis to the Company. Except as set forth on Schedule 3.16, no Person listed thereon has received any bonus or increase in compensation, nor has there been any “general increase” in the compensation or rate of compensation payable to any such employees, since the Latest Balance Sheet Date or since such date there has been no promise to the employees listed on Schedule 3.16, orally or in writing, of any bonus or increase in compensation, whether or not legally binding. Schedule 3.16 contains a list of material perquisites, including but not limited to, country club dues and similar memberships, car allowances and car payments, and housing subsidies, and the employees of the Company to which they have been given during the last three (3) years.

 

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3.17 Books and Records. Except as set forth on Schedule 3.17, the minute books and membership interests records of the Company, copies of which have been delivered by the Seller to the Buyer, are complete and correct in all material respects and have been maintained in accordance with sound business practices.
3.18 Affiliate Transactions. Except as set forth on Schedule 3.18, no officer, manager, member, director, employee or Affiliate of the Company or any entity in which any such Person or individual is an officer, director or the owner of five percent (5%) or more of the beneficial ownership interests, is a party to any Contract with the Company or has any interests in any property used in the Business or has any claim or right against the Company. Each Affiliate transaction was effected on terms equivalent to those which would have been established in an arm’s-length negotiation. Neither the Company nor any of its Affiliates has any direct or indirect interest in any competitor of the Company, except for passive ownership of less than one percent (1%) of the outstanding capital stock of any competing business that is publicly traded on any recognized exchange or in the over-the-counter market.
3.19 Insurance Policies. Schedule 3.19 contains a complete and accurate list of all insurance policies (including “self-insurance” programs) currently maintained by the Company that covers the Company and its operations other than those which are part of, or provided benefits under, an Employee Benefit Plan (the “Insurance Policies”) and all general liability policies maintained by the Company during the past three (3) years with respect to the Company and all material claims (other than claims made under group medical plans) now pending or made under any current or prior insurance policies during such three (3)-year period. The Insurance Policies are in full force and effect, the Company is not in default under any Insurance Policy, and no claim for coverage under any Insurance Policy has been denied. The Company has not received any notice of cancellation or, to the Seller’s Knowledge, intent to cancel or increase or intent to increase premiums with respect to the Insurance Policies.
3.20 Taxes.
(a) The Company has timely filed (taking into account applicable extensions) all Tax Returns required to be filed or fully remedied any delinquent filings within close proximity of the due date thereof (taking into account applicable extensions). All such Tax Returns are true, correct, and complete in all material respects. All Taxes owed by the Company have been paid (whether or not such Taxes are shown on any Tax Return). The unpaid Taxes of the Company (i) did not as of the Latest Balance Sheet Date exceed the reserve for tax liability (rather than any reserve for deferred Taxes established to reflect timing differences between book and tax income) set forth on the face of the Latest Balance Sheet and (ii) do not exceed that reserve as adjusted for the passage of time through the date hereof.
(b) The Company has timely remitted (or fully remedied any delinquent remittance within close proximity to the due date thereof) with respect to its employees, foreign creditors, independent contractors or other third parties all U.S. Federal and state Taxes, FICA, FUTA, and other Taxes required to be withheld and/or, if due, remitted and all Forms W 2 and 1099 required with respect thereto have been accurately completed in all material respects and timely filed, or if delinquent, such filing delinquencies have been fully remedied within close proximity of the due date thereof (taking into account applicable extensions).

 

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(c) The Company does not have any Tax deficiency outstanding, proposed, assessed, or, to the Seller’s Knowledge, Threatened by any Tax authority against the Company and the Company has not executed or requested any waiver of any statute of limitations on or extending the period for the assessment or collection of any Tax.
(d) No audit or other examination of any Tax Return of the Company is presently in progress or pending, nor has the Company been notified in writing of any request for such an audit or other examination.
(e) Schedule 3.20(e) contains a list of all jurisdictions (whether foreign or domestic) to which the Company is subject to Tax. There is no investigation or other Proceeding pending or, to the Seller’s Knowledge, Threatened by any Tax authority for any jurisdiction where the Company or the Seller does not file Tax Returns with respect to a given Tax that involves an assertion by such Tax authority that the Company is or may be subject to a given Tax in such jurisdiction in connection with the conduct of the Company prior to the Effective Time.
(f) Except as provided on Schedule 3.20(f), there are no Liens for Taxes on the assets of the Company other than Taxes not yet due and payable.
(g) The Company is not a party to or bound by any Tax indemnity, Tax sharing or Tax allocation agreements.
(h) The Company has never had a permanent establishment in any foreign country, as defined in any applicable Tax treaty or convention between the United States and such foreign country, nor has the Company had Taxable nexus or a Taxable presence in a jurisdiction in which it does not file Tax Returns.
(i) The Company has been taxed since its inception for federal and state income tax purposes as a partnership (or an entity disregarded from its owner) since its inception and has not elected to be treated as an association taxable as a corporation.
(j) The Company has not made an effective election under Section 754 of the Code.
(k) The Company will not be required to include any item of income in, or exclude any deduction from, taxable income for any taxable period (or portion thereof) ending after the Closing Date as a result of any: (i) change in method of accounting for a taxable period ending on or prior to the Closing Date; (ii) “closing agreement” as described in Section 7121 of the Code (or any corresponding or similar provision of state, local or foreign income Tax Legal Requirements) executed on or prior to the Closing Date; (iii) intercompany transactions or any excess loss account described in the Treasury Regulations promulgated under Section 1502 of the Code (or any corresponding or similar provision of state, local or foreign income Tax Legal Requirements); (iv) installment sale or open transaction disposition made on or prior to the Closing Date; or (v) prepaid amount received on or prior to the Closing Date.

 

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(l) To the Seller’s Knowledge, the Company has disclosed on its federal income and state income and franchise Tax Returns all positions taken therein that could give rise to a substantial understatement of federal income tax within the meaning of Section 6662 of the Code or any corresponding or similar provision of state tax Legal Requirements.
(m) None of the assets of the Company is the subject of a “safe-harbor lease” within the provisions of former Section 168(f)(8) of the Code, as in effect prior to amendment by the Tax Equity and Fiscal Responsibility Act of 1982. None of the assets of the Companies directly or indirectly secures any debt the interest on which is tax exempt under Section 103(e) of the Code. None of the assets of the Companies is “tax-exempt use property” within the meaning of Section 168(h) of the Code.
(n) Except as provided under the Current Operating Agreement, the Company has no obligation to make distributions with respect to Taxes of its owners for any period (or portion thereof) ending on or before the Closing Date.
3.21 Litigation.
(a) There is no pending Proceeding: (i) that has been commenced by or against the Company, (ii) that otherwise relates to or may affect the Company; or (iii) that challenges, or that may have the effect of preventing, delaying, making illegal, or otherwise interfering with, any of the transactions contemplated by this Agreement. No such Proceeding has, to the Seller’s Knowledge, been Threatened.
(b) (i) There is no Order to which the Company or the Business is subject; and (ii) no officer, manager, member, director, agent or employee of the Company is subject to any Order that prohibits such officer, manager, member, director, agent or employee from engaging in or continuing any conduct, activity or practice relating to the Company.
(c) (i) The Company is, and at all times has been, in compliance with all of the terms and requirements of each Order to which it is or has been subject; (ii) no event has occurred or circumstance exists that may constitute or result in (with or without notice or lapse of time) a violation of or failure to comply with any term or requirement of any Order to which the Company is subject; and (iii) the Company has not received any notice or other communication (whether oral or written) from any Governmental Body or any other Person regarding any actual, alleged, possible, or potential violation of, or failure to comply with, any term or requirement of any Order to which the Company is or has been subject.
3.22 Environmental and Safety Requirements.
(a) The Company and its operations are and have been for the past three years in compliance, in each case in all material respects, with all applicable Environmental and Safety Requirements, including possession of all Governmental Authorizations required under Environmental and Safety Requirements and filing of all notices or applications required thereby.

 

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(b) To the Seller’s Knowledge, (i) the Company has never generated, transported, treated, stored, disposed of, arranged for the disposal of, or otherwise handled, any Hazardous Materials at any site, location or facility owned or operated or used by the Business or at any offsite location and (ii) to the Seller’s Knowledge, no Hazardous Materials are present on, in, under or emanating from the Leased Real Property, and the Leased Real Property does not contain any Hazardous Materials except as, for either or both (i) and (ii), would not result in a condition in material violation of, or any material liability under, any applicable Environmental and Safety Requirements for which the Company would be responsible. The Company does not own or operate any underground storage tanks on the Leased Real Property.
(c) The Company has not been subject to, and the Company has not received any written notice, of any private, administrative or judicial action, Order, or investigation relating to any violation of Environmental and Safety Requirements or the presence or alleged presence of Hazardous Materials in, under, upon, or emanating from any real property now or previously owned by or used in the Company or any offsite location, that, in each case, remains unresolved. There are no pending or, to the Seller’s Knowledge, Threatened actions, investigations, Orders or Proceedings from or with respect to any Governmental Body or any other entity regarding any violation of or liability under Environmental and Safety Requirements.
(d) To the Seller’s Knowledge, no facts, events or conditions with respect to the past or present operations or facilities of the Company exist that would reasonably be expected to materially interfere with or prevent the Company’s continued compliance with, or give rise to any material common law or statutory liability or otherwise form the basis of any Proceeding against or involving the Company under any Environmental and Safety Requirement based on any such fact, event or circumstance, including, but not limited to, material liability for cleanup costs, personal injury or property damage.
(e) The Company does not have, control or possess any environmental studies with respect to the Leased Real Property or the Business.
(f) For purposes of this Agreement, “Environmental and Safety Requirements” means all federal, state and local or municipal laws, rules, regulations, ordinances, orders, statutes and requirements, and all common law, relating to public and worker health and safety with respect to exposure to Hazardous Materials, pollution or protection of the environment. For purposes of this Agreement, “Hazardous Materials” means (A) hazardous materials, hazardous substances, extremely hazardous substances or hazardous wastes, as those terms are defined by the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. §9601 et seq., the Resource Conservation and Recovery Act, 42 U.S.C. §6901 et seq., and any other Environmental and Safety Requirements; (B) petroleum, including, but not limited to, crude oil or any fraction thereof which is liquid at standard conditions of temperature and pressure (60 degrees Fahrenheit and 14.7 pounds per square inch absolute); (C) any radioactive material, including, but not limited to, any source, special nuclear, or by-product material as defined in 42 U.S.C. §2011 et seq.; (D) asbestos in any form or condition; and (E) any other material, substance or waste to which liability or standards of conduct have been imposed under any Environmental and Safety Requirements.

 

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3.23 Conduct of the Business. Since the Latest Balance Sheet Date, the Company has conducted the Business only in the ordinary course of business consistent with past practice, and has incurred no liabilities other than in the ordinary course of business consistent with past practice and there has been no Material Adverse Effect, and no contingency has developed or occurred which could reasonably be expected to result in or cause a Material Adverse Effect. Without limitation of the foregoing, since the Latest Balance Sheet Date, the Company has not:
(a) accelerated or delayed the provision of services, in a manner inconsistent with past practices;
(b) sold, assigned or transferred any asset or property right, or mortgaged, pledged or subjected such asset or property right to any Lien, charge or other restriction, except for Liens for current property taxes not yet due and payable;
(c) sold, assigned, transferred, abandoned or permitted to lapse any Governmental Authorizations that are required for the operation of the Business, or any of the Proprietary Rights or other intangible assets, or disclosed any material proprietary confidential information to any Person, granted any license or sublicense of any rights under or with respect to any Proprietary Rights or other intangible assets (other than customer licenses attendant to the ordinary course of business consistent with past practice);
(d) made or granted any increase in, or amended (except as may be required by law) or terminated, any existing plan, program, policy or arrangement, including, but not limited to, any Employee Benefit Plan or arrangement or adopted any new Employee Benefit Plan or arrangement, or entered into, modified or terminated any new collective bargaining agreement or multiemployer plan;
(e) undertaken any employee layoffs that could implicate the WARN Act;
(f) made any loans or advances to, or guarantees for the benefit of, or entered into any transaction with any stockholder, member, manager, employee, officer or director of the Business other than regular salary and expense reimbursement payments;
(g) suffered any extraordinary loss, damage, destruction or casualty loss to the Company or waived any rights of value in excess of $50,000, whether or not covered by insurance and whether or not in the ordinary course of business consistent with past practice;
(h) received written notification that any material customer of the Company or supplier to the Company will stop or materially decrease in any respect the rate of business done with the Company;
(i) entered into any other material transaction, other than in the ordinary course of business consistent with past practice; or
(j) committed to any of the foregoing.

 

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3.24 Absence of Questionable Payments. Neither the Company nor any of its respective members, managers, directors, officers, agents, employees or other Persons acting on behalf of the Company has (a) used any company or other funds for unlawful contributions, payments, gifts or entertainment, or made any unlawful expenditures relating to political activity to government officials or others or established or maintained any unlawful or unrecorded funds in violation of Section 104 of the Foreign Corrupt Practices Act of 1977 (15 U.S.C. §79dd 2), as amended, or any other applicable U.S. Federal, state or foreign law, (b) accepted or received any unlawful contributions, payments, expenditures or gifts, or (c) established or maintained any fund or asset that has not been recorded in the books and records of the Company.
3.25 Government Contracts. The Company is not a party to, or bound by the provisions of, any Contract (including purchase orders, blanket purchase orders and agreements and delivery orders) with the United States government or any department, agency or instrumentality thereof or any other Governmental Body.
3.26 Corporate Name; Business Locations. During the past five (5) years, the Company has only been known as or used the corporate, fictitious and trade names set forth on Schedule 3.26. The Company has not been the surviving entity of a merger or consolidation nor has the Company acquired all or substantially all of the assets of any Person. During the past five (5) years, the Company has not had an office or place of business other than as listed on Schedule 3.26.
3.27 Major Customers. Schedule 3.27 sets forth the Major Customers of the Company along with the dollar value of the revenue from each such client for the twelve-month period ended on the Latest Balance Sheet Date. In the twelve months preceding the Closing Date, no Major Customer of the Company has cancelled or otherwise terminated, or, to the Seller’s Knowledge, Threatened to cancel or otherwise terminate, its relationship with the Company or reduce, or, to the Seller’s Knowledge, Threatened to reduce, its business with the Company. The Company has not received any written notice nor is there any Seller’s Knowledge that any Major Customer intends to cancel or otherwise adversely modify its relationship with the Company, as a result of the transactions contemplated by this Agreement.
3.28 Brokers or Finders. Other than VRA Partners, LLC (“VRA”) (whose fees and expenses, including those incurred under the VRA Engagement Letter (a true and correct copy of which has been provided to the Buyer), will be paid by the Seller), none of the Company, the Seller, the Guarantors or any of their respective agents has incurred any obligation or liability, contingent or otherwise, for brokerage or finders’ fees or agents’ commissions or other similar payment in connection with this Agreement or the transactions contemplated hereby.

 

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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE SELLER
As a material inducement to the Buyer to enter into this Agreement, the Seller represents and warrants to the Buyer, except as set forth on Schedules numbered to correspond with and relate to the individual Section numbers of this Article IV, as follows:
4.1 Organization and Good Standing. The Seller is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Delaware. The Seller has the requisite company power and authority to execute and deliver this Agreement and the other Transaction Documents to be executed by it, to perform its obligations hereunder and thereunder and to consummate the transactions contemplated hereby and thereby. The Seller has previously delivered to the Buyer complete and correct copies of the Organizational Documents of the Seller.
4.2 Authorization. The execution and delivery of this Agreement and the Transaction Documents, and the performance by the Seller of its obligations hereunder and thereunder, have been duly authorized by all necessary company action. This Agreement and the other Transaction Documents to which the Seller is a party constitute the legal, valid and binding obligations of the Seller enforceable against the Seller in accordance with the terms hereof or thereof except as enforcement hereof may be limited by applicable Insolvency Laws.
4.3 Capitalization(a). All of the authorized and outstanding membership interests in the Seller (the “Seller Membership Interests”) are owned by those Persons identified and in the amounts set forth opposite their respective names on Schedule 4.3-1 attached hereto. Except as set forth on Schedule 4.3-2, there are no outstanding preemptive, conversion, subscription or other rights, warrants, options or agreements to issue, purchase or register any of the Seller Membership Interests. Each of the Seller Membership Interests was duly and validly issued, fully paid and non assessable, is free and clear of all Liens and was issued in a manner not in violation of applicable provisions of U.S. Federal and state securities laws. The Seller does not have any equity appreciation rights, phantom equity plan or similar rights.
4.4 Ownership; No Liens(a). The Seller is the record and beneficial owner of all of the Purchased Membership Interests, which have been duly and validly issued, fully paid, and non-assessable, and the Seller owns such membership interests in the Company free and clear of all Liens and there are no outstanding preemptive rights, warrants, options or other rights to purchase, or unitholder, voting trust or similar Contracts outstanding with respect to, all or any portion of the Purchased Membership Interests. Other than as described in the Amended Operating Agreement, upon consummation of the transactions contemplated by this Agreement, the Buyer will be vested with marketable title to the Purchased Membership Interests sold and transferred by the Seller, free and clear of all Liens.

 

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4.5 No Conflict. Neither the execution and delivery of this Agreement or any Transaction Document by the Seller nor the performance by the Seller of the transactions contemplated hereby or thereby will, directly or indirectly:
(a) contravene, conflict with, or result in (with or without notice or lapse of time) a violation or breach of (i) any provision of the Organizational Documents of the Seller, (ii) any resolution adopted by the governing body of the Seller, or (iii) any Legal Requirement, Governmental Authorization, Material Contract or any Order to which the Seller may be subject; or
(b) give any Person or Governmental Body the right (with or without notice or lapse of time) to declare a default or exercise any remedy under, or to accelerate the maturity or performance of, or to cancel, terminate, modify, withdraw or suspend any Contract, Legal Requirement, Governmental Authorization or Order applicable to the Seller.
4.6 No Business Activities. Except as set forth on Schedule 4.6 attached hereto, the Seller has no employees, assets or Liabilities, is not a party to any Contract and does not engage in any business or other activity other than its ownership of all of its membership interests in the Company and, prior to the Closing, the performance of its duties as the managing member of the Company.
4.7 Compliance with Instruments. The Seller is not in violation or breach of any term of the Organizational Documents of the Company.
4.8 Brokers and Finders. Except for VRA (whose fees and expenses, including those incurred under the VRA Engagement Letter, will be paid by the Seller), neither the Seller nor any of the Seller’s agents has incurred any obligation or liability, contingent or otherwise, for brokerage or finders’ fees or agents’ commissions or other similar payment in connection with this Agreement or the Transaction Documents or the transactions contemplated hereby and thereby.
4.9 No Consent Required. No Consent, notification, approval, Order or authorization of, or declaration, filing or registration with, any Person or Governmental Body is required to be made or obtained by the Seller in connection with the authorization, execution, delivery, performance or lawful completion of this Agreement, the Transaction Documents or the transactions contemplated hereby and thereby.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE BUYER
As a material inducement to the Seller to enter into this Agreement, the Buyer represents and warrants to the Seller as follows:
5.1 Organization and Good Standing. The Buyer is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. The Buyer has the requisite company power and authority to execute and deliver this Agreement and the other Transaction Documents to be executed by it, to perform its obligations hereunder and thereunder and to consummate the transactions contemplated hereby and thereby.

 

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5.2 Authorization. The execution and delivery of this Agreement and the Transaction Documents, and the performance by the Buyer of its obligations hereunder and thereunder, have been duly authorized by all necessary company action. This Agreement and the other Transaction Documents to which the Buyer is a party constitute the legal, valid and binding obligations of the Buyer enforceable against the Buyer in accordance with the terms herein except as enforcement hereof may be limited by applicable Insolvency Laws.
5.3 No Conflict. Except as set forth on Schedule 5.3, neither the execution and delivery of this Agreement or any Transaction Document by the Buyer nor the performance by the Buyer of the transactions contemplated hereby or thereby will, directly or indirectly:
(a) contravene, conflict with, or result in (with or without notice or lapse of time) a violation or breach of (i) any provision of the Organizational Documents of the Buyer, (ii) any resolution adopted by its governing body, or (iii) any Legal Requirement, Governmental Authorization, Contract or any Order to which the Buyer may be subject; or
(b) give any Person or Governmental Body the right (with or without notice or lapse of time) to declare a default or exercise any remedy under, or to accelerate the maturity or performance of, or to cancel, terminate, modify, withdraw or suspend any Contract, Legal Requirement, Governmental Authorization or Order applicable to the Buyer.
5.4 Brokers and Finders. Neither the Buyer nor its agents has incurred any obligation or liability, contingent or otherwise, for brokerage or finders’ fees or agents’ commissions or other similar payment in connection with this Agreement or the transactions contemplated hereby.
5.5 Buyer’s Reliance. Buyer acknowledges that it and its representatives have been permitted access to the books and records, facilities, equipment, tax returns, Contracts, insurance policies (or summaries thereof) and other properties and assets of the Company that it and its representatives have desired or requested to see or review. Buyer acknowledges that none of the Seller, the Company or any other person has made any representation or warranty, expressed or implied, as to the accuracy or completeness of any information regarding the Company furnished or made available to Buyer and its representatives, except as expressly set forth in this Agreement or in any certificate delivered in connection herewith, and neither the Seller nor any other Person shall have or be subject to any liability to Buyer or any other person resulting from the sale to Buyer, or Buyer’s use of, any such information, including any projections and offering memoranda and the information, documents or material made available to Buyer in any “data rooms,” management presentations, due diligence or in any other form in expectation of the transactions contemplated hereby. BUYER ACKNOWLEDGES THAT, SHOULD THE CLOSING OCCUR, BUYER SHALL ACQUIRE THE COMPANY WITHOUT ANY REPRESENTATION OR WARRANTY AS TO MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE, IN AN “AS IS” CONDITION AND ON A “WHERE IS” BASIS, EXCEPT AS OTHERWISE EXPRESSLY REPRESENTED OR WARRANTED IN THIS AGREEMENT; PROVIDED HOWEVER THAT NOTHING IN THIS SECTION 5.5 IS INTENDED TO LIMIT OR MODIFY THE REPRESENTATIONS AND WARRANTIES CONTAINED IN ARTICLES 3 AND 4.

 

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ARTICLE VI
COVENANTS PRIOR TO THE CLOSING
During the period from the date of this Agreement and continuing until the Closing Date, the Company and the Buyer agree that:
6.1 No Transfer or Inconsistent Action. The Company shall not sell, transfer or otherwise dispose of or in any way encumber any of the assets of the Company (other than in the ordinary course of business consistent with past practice) or take any action inconsistent with the terms of this Agreement or the Transaction Documents.
6.2 Conduct of Business in Ordinary Course. The Company shall carry on its business in the usual, regular and ordinary course, in substantially the same manner as conducted by Company immediately prior to the date hereof and use commercially reasonable efforts to preserve intact its present business organizations, keep available the services of its present officers and employees and preserve its relationships with clients, customers, suppliers and others having material business dealings with it to the end that its goodwill and ongoing business shall not be impaired in any material respect at the Closing Date. Without limiting the foregoing, except as consented to by the Buyer in writing or as specifically permitted by this Agreement:
(a) Other than in the ordinary course of business consistent with past practices or as may be necessary or advisable to satisfy an applicable Legal Requirement, the Company will not (i) amend an existing or enter into a new Employee Benefit Plan or amend or enter into a new collective bargaining agreement, (ii) make any representation or promise, oral or written, to any officer, employee or consultant of the Company concerning any compensation, bonus arrangement or Employee Benefit Plan, (iii) make any increase in the salary, wages or other compensation of any officer, employee or consultant of the Company whose annual salary is or, after giving effect to such change, would be $75,000 or more, (iv) hire or otherwise retain the services of any employee or independent contractor with annual compensation (whether fixed or contingent, and whether from salary, bonus, commission or otherwise) in excess of $75,000 in the aggregate, (v) create or permit to exist any Lien on any of the assets of the Company, (vi) make any new commitments for capital expenditures in excess of $50,000, (vii) issue any notes, bonds or other debt securities or any equity securities, (viii) except with respect to the property to be leased at 55 Broadway, New York, New York, for which drafts of such lease will be provided for review and comment by the Buyer and the Buyer’s consent (which shall not be unreasonably withheld or delayed) will be obtained prior to execution and delivery thereof, enter into any new material Contracts, (ix) acquire or incur any obligation in connection with the acquisition of any material asset, (x) make any change in the lines of business in which the Company participates or is engaged, or (xi) make or change any election, change an annual accounting period, adopt or change any accounting method, file any amended Tax Return, enter into any closing agreement, settle any Tax claim or assessment relating to the Company, surrender any right to claim a refund of Taxes, consent to any extension or waiver of the limitation period applicable to any Tax claim or assessment relating to the Company, or take any other similar action relating to the filing of any Tax Return or the payment of any Tax; and

 

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(b) The Company will (i) use commercially reasonable efforts to cause the assets of the Company, taken as a whole, to be maintained in good repair, order and condition (without making any material alterations thereto), subject to normal wear and tear, (ii) maintain and keep in full force all existing insurance, (iii) cause its books and records to be maintained in the regular and ordinary manner on a basis consistent with past practices, (iv) perform and comply in all material respects with its obligations under all Material Contracts, (v) comply in all material respects with all Legal Requirements, (vi) use commercially reasonable efforts to maintain all existing relationships with the material employees, agents, subscribers, customers and vendors of, and others having material business dealings with, the Company, and (vii) duly and timely file (taking into account any applicable extensions to file) or cause to be duly and timely filed all Tax Returns required to be filed with any Governmental Body and promptly pay or cause to be paid when due all Taxes, assessments and governmental charges, including interest and penalties levied or assessed, unless diligently contested in good faith by appropriate proceedings.
6.3 No Solicitations. Neither the Company nor the Seller shall, nor shall any of them authorize or permit any of their respective officers, directors, managers, Affiliates, equityholders or employees or any investment banker, financial advisor, attorney, accountant or other representative retained by the Company or the Seller to, entertain, solicit, initiate or encourage (including by way of furnishing information), or take any other action to facilitate (including the provision of information regarding the Company and the Business), any inquiries or the making of any proposal that constitutes, or may reasonably be expected to lead to, any tender or exchange offer, proposal for a merger, consolidation or other business combination involving the Company, or any proposal or offer to acquire in any manner a material equity interest in, or a material portion of the assets of, the Company or engage in any other transaction outside the ordinary course of business consistent with past practice and custom, other than the transactions contemplated by this Agreement, or agree to or endorse any such proposal, or engage in any negotiations or discussions with any Person relating to any such proposal.
6.4 Buyer’s Investigation. Upon reasonable notice, the Company shall afford to the employees, officers, attorneys, accountants and other authorized representatives of the Buyer reasonable access during normal business hours to the offices, facilities, properties, files, books and records of the Company so as to afford the Buyer the opportunity to make such review, examination and investigation thereof as the Buyer may reasonably request. The Buyer shall be permitted to make extracts from or to make copies of such books and records as may be reasonably necessary. In addition, the Company shall make available, or use its commercially reasonable efforts to make available, the officers, employees, clients, customers and vendors of the Company, in order that the employees, officers, attorneys, accountants or other authorized representatives of the Buyer may discuss with such Persons, the Company. No investigation by the Buyer or its representatives shall modify or limit the scope of the Company’s and the Seller’s representations and warranties in this Agreement or in the Transaction Documents or limit the Company’s or the Seller’s liability for any breach thereof. Without the prior written consent of the Company, the Buyer shall not contact any employees, clients, customers, vendors or third parties associated with the Company, other than the Seller, any Guarantor or any other employee of the Company who is involved or otherwise assisting the Company with the transactions contemplated by this Agreement.

 

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6.5 Advice of Changes; Filings. The Company shall, on a regular basis, report to the Buyer on operational matters of the Business and promptly advise the Buyer orally and in writing of any change or event having, or which, insofar as can reasonably be foreseen, could result in a Material Adverse Effect and shall promptly notify the Buyer of any representations and warranties that become no longer true. The Company shall promptly provide the Buyer copies of all filings made by the Company with any Governmental Body in connection with this Agreement and the Transaction Documents and the transactions contemplated hereby and thereby.
6.6 HSR Act and Similar Compliance. If necessary, the Buyer and the Company shall (a) make or cause to be made all filings required of each of them or any of their respective Affiliates under the HSR Act with respect to the transactions contemplated hereby as promptly as practicable and, in any event, within 7 Business Days after the date of this Agreement in the case of all filings required under the HSR Act, (b) comply at the earliest practicable date with any request under the HSR Act for additional information, documents or other materials received by each of them from the Federal Trade Commission (the “FTC”), the Antitrust Division of the United States Department of Justice (the “Antitrust Division”) or any other Governmental Body in respect of such filings or such transactions, (c) seek early termination of filings under the HSR Act, and (d) use commercially reasonable efforts to cooperate with each other in connection with any such filing and in connection with resolving any investigation or other inquiry of any of the FTC, the Antitrust Division or other Governmental Body with respect to any such filing. The Buyer, on the one hand, and the Seller, on the other hand, shall each pay fifty percent (50%) of the filing fees required to be paid under the HSR Act in connection with such filings. Each party hereto shall use commercially reasonable efforts to furnish to each other all information required for any application or other filing to be made pursuant to any applicable law in connection with the transactions contemplated by this Agreement. Each party hereto shall promptly inform the other parties hereto of any material oral communication with any Governmental Body regarding any such filings or any such transaction. No party hereto shall independently participate in any formal meeting with any Governmental Body in respect of any such filings, investigation or other inquiry without giving the other parties prior notice of the meeting and, to the extent permitted by such Governmental Body, the opportunity to attend and/or participate. Subject to applicable Legal Requirement, the parties hereto will consult and cooperate with one another in connection with any analyses, appearances, presentations, memoranda, briefs, arguments, opinions and proposals made or submitted by or on behalf of any party hereto relating to proceedings under the HSR Act. The Buyer and the Seller may, as each deems advisable and necessary, reasonably designate any competitively sensitive material provided to the other under this Section 6.6 as “outside counsel only.” Such materials and the information contained therein shall be given only to the outside legal counsel of the recipient and will not be disclosed by such outside counsel to employees, officers or directors of the recipient, unless express written permission is obtained in advance from the source of the materials (the Buyer or the Seller, as the case may be).

 

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6.7 Responsibility to Update and Disclose.
(a) During the period from the date hereof to the Closing Date or the earlier termination of this Agreement, the Company and the Seller shall give prompt written notice to Buyer of (i) the occurrence or non-occurrence of any event, circumstance or fact arising subsequent to the date of this Agreement which would result in any breach of a representation or warranty of the Company or the Seller in this Agreement or which would have the effect of making any representation or warranty of the Company or the Seller in this Agreement untrue or incorrect in any respect or (ii) any failure on the Company’s or the Seller’s part to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by him, her, or it hereunder. Except as set forth in Section 6.7(c), no such notice shall effect Buyer’s indemnification rights hereunder. Should any such event require any change to the Schedules to this Agreement, the Seller shall promptly deliver to Buyer a supplement to the Schedules to this Agreement specifying such change. Such notice may take the form of updated disclosure schedules.
(b) During the period from the date hereof to the Closing Date or the earlier termination of this Agreement, the Buyer shall give prompt written notice to the Seller of (i) the occurrence or non-occurrence of any event, circumstance or fact arising subsequent to the date of this Agreement which could result in any breach of a representation or warranty of the Buyer in this Agreement or which could have the effect of making any representation or warranty of the Buyer in this Agreement untrue or incorrect in any respect or (ii) any failure on the Buyer’s part to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it hereunder. Except as set forth in Section 6.7(d), no such notice shall effect the Seller’s indemnification rights hereunder. Should any such event require any change to the Schedules to this Agreement, the Buyer shall promptly deliver to Seller a supplement to the Schedules to this Agreement specifying such change. Such notice may take the form of updated disclosure schedules.
(c) In the event that the Seller delivers one or more notices pursuant to Section 6.7(a) and the Buyer does not exercise its right to terminate or does not decline to consummate the transactions contemplated by this Agreement on the basis of such disclosure, then the Buyer will be deemed to have accepted such updated disclosure. If the Closing occurs, the delivery of any such updated disclosure will be deemed to have cured any misrepresentation or breach of warranty that otherwise might have existed hereunder by reason of any such event, circumstance or fact which arose subsequent to the date of this Agreement and, from and after the Closing Date, no Buyer Indemnified Party will have any indemnification claim for any misrepresentation or breach of warranty related to such disclosure.
(d) In the event that the Buyer delivers one or more notices pursuant to Section 6.7(b) and the Seller does not exercise his right to terminate or does not decline to consummate the transactions contemplated by this Agreement on the basis of such disclosure, then the Seller, on behalf of the Company and the Seller, will be deemed to have accepted such updated disclosure. If the Closing occurs, the delivery of any such updated disclosure will be deemed to have cured any misrepresentation or breach of warranty that otherwise might have existed hereunder by reason of any such event, circumstance or fact which arose subsequent to the date of this Agreement and, from and after the Closing Date, no Seller Indemnified Party will have any indemnification claim for any such misrepresentation or breach of warranty related to such disclosure.

 

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6.8 Personal Guarantees. The Buyer agrees to reasonably cooperate with the Seller in obtaining releases for the Guarantors of those personal guarantees made by the Guarantors of certain indebtedness of the Company set forth on Schedule 6.8 attached hereto; provided, however, that the Company, the Seller and each Guarantor acknowledges and agrees that Buyer will be under no duty to expend any of its funds to obtain such releases, but, to the extent that the Buyer does expend any of its funds to holders of the guarantees in excess of $2,500 in the aggregate to obtain such releases, then the amounts in excess of $2,500 shall be subtracted from the Purchase Price paid at Closing.
ARTICLE VII
CONDITIONS PRECEDENT TO CLOSING
7.1 Conditions to All Parties’ Obligations. The obligations of the Seller and the Buyer to close the transactions contemplated by this Agreement are subject to the satisfaction at or before the Closing of the following conditions:
(a) Any applicable waiting periods under the HSR Act relating to the transactions contemplated hereby shall have expired or been terminated, without any conditions attached thereto.
(b) No claim, suit, action or other proceeding shall be pending or threatened before any court or Governmental Body seeking to restrain, prohibit or obtain damages or other relief in connection with this Agreement, the other Transaction Documents or the consummation of the transactions contemplated hereby and thereby and no investigation or inquiry shall have been made or commenced by any Governmental Body in connection with this Agreement, the Transaction Documents or such transactions.
7.2 Obligations of the Buyer. The obligation of the Buyer to close the transactions contemplated by this Agreement is subject to the satisfaction at or before the Closing of each of the following conditions:
(a) Each of the representations and warranties of the Company and the Seller made in or pursuant to this Agreement shall be true and correct in all material respects on and as of the Closing Date as if made on and as of the Closing Date, except that representations and warranties which address matters only as of a particular date must have been true and correct in all respects only as of the particular date, and the Buyer shall have received a certificate signed on behalf of the Company and the Seller to such effect and such certificate (subject to Section 6.7) shall be deemed to be a representation and warranty of the Company and the Seller as of the time immediately preceding the Closing. Each of the representations and warranties of the Company set forth in Sections 3.1, 3.2 and 3.3 and of the Seller in Sections 4.1, 4.2, 4.3 and 4.4 shall have been true and correct in all respects as of the date hereof and shall be true and correct in all respects as of the Closing Date as if made on and as of the Closing, and the Buyer shall have received a certificate signed on behalf of the Company and the Seller to such effect and such certificate shall be deemed to be a representation and warranty of the Company and the Seller as of the time immediately preceding the Closing.

 

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(b) The Company and the Seller shall have performed and complied in all material respects with all covenants and conditions required under this Agreement to be performed or complied with at or prior to the Closing, and the Buyer shall have received a certificate signed on behalf of the Company and the Seller to such effect and such certificate (subject to Section 6.7) shall be deemed to be a representation and warranty of the Company and the Seller as of the time immediately preceding the Closing.
(c) There shall have been no event, occurrence or condition subsequent to the date of this Agreement that has had, or could reasonably be expected to result in, a Material Adverse Effect.
(d) The Seller shall have delivered all documents required to be delivered at the Closing pursuant to Section 8.2 hereof.
(e) The Seller shall have delivered to Buyer all Governmental Authorizations required to operate the Business on terms and conditions reasonably satisfactory to the Buyer.
(f) Subject to the terms of this Agreement, all actions, proceedings, instruments, and documents reasonably required to carry out this Agreement or incidental hereto, and all other related legal matters, shall have been reasonably approved as to form and substance by the Buyer, and the Buyer shall have received all documents, certificates and other papers reasonably requested by it in connection therewith.
(g) The Buyer, the Seller and the Company shall have entered into the Amended Operating Agreement.
(h) The Company and Steven R. Harber shall have entered into an employment agreement substantially in the form of Exhibit 7.2(h) attached hereto (the “Harber Employment Agreement”).
(i) The Company and David Shub shall have entered into an employment agreement substantially in the form of Exhibit 7.2(i) attached hereto (the “Shub Employment Agreement”).
(j) The Company and James K. Wagner shall have entered into an employment agreement substantially in the form of Exhibit 7.2(j) attached hereto (the “Wagner Employment Agreement”).
(k) The Company and Paul Yerkes shall have entered into an employment agreement substantially in the form of Exhibit 7.2(k) attached hereto (the “Yerkes Employment Agreement”).
(l) The Company and C. Parkhill Mays shall have entered into an employment agreement substantially in the form of Exhibit 7.2(l) attached hereto (the “Mays Employment Agreement”).

 

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(m) The Seller, the Buyer and the escrow agent named therein shall have entered into an Escrow Agreement in the form of Exhibit 2.1(b) attached hereto.
(n) The Company shall have become party to that certain Second Amended and Restated Credit Agreement dated as of August 8, 2007, as amended, by and among U.S. Bank National Association, as Agent, the Buyer and its Subsidiaries party thereto as borrowers, and the lenders from time to time party thereto as “Banks”, as a co-borrower and shall execute all documents in connection therewith.
7.3 Conditions to Obligations of the Seller. The obligation of the Seller to close the transactions contemplated by this Agreement are subject to the satisfaction at or before the Closing of each of the following conditions:
(a) Each of the representations and warranties of the Buyer made in or pursuant to this Agreement shall be true and correct in all material respects on and as of the Closing Date as if made on and as of the Closing Date, except that representations and warranties which address matters only as of a particular date must have been true and correct in all respects only as of the particular date, and the Seller shall have received a certificate signed on behalf of the Buyer to such effect and such certificate (subject to Section 6.7) shall be deemed to be a representation and warranty of the Buyer as of the time immediately preceding the Closing. Each of the representations and warranties of the Buyer set forth in Sections 5.1 and 5.2 shall have been true and correct in all respects as of the date hereof and shall be true and correct in all respects as of the Closing Date as if made on and as of the Closing, and the Seller shall have received a certificate signed on behalf of the Buyer to such effect and such certificate shall be deemed to be a representation and warranty of the Buyer as of the time immediately preceding the Closing.
(b) The Buyer shall have performed and complied in all material respects with all covenants and conditions required of the Buyer under this Agreement to be performed or complied with by it at or prior to the Closing, and the Seller shall have received a certificate signed on behalf of the Buyer to such effect and such certificate (subject to Section 6.7) shall be deemed to be a representation and warranty of the Buyer as of the time immediately preceding the Closing.
(c) The Buyer shall have delivered all documents required to be delivered by it at the Closing pursuant to Section 8.3 hereof.
(d) Subject to the terms of this Agreement, all actions, proceedings, instruments, and documents reasonably required to carry out this Agreement or incidental hereto, and all other related legal matters, shall have been reasonably approved as to form and substance by the Seller, and the Seller shall have received all documents, certificates and other papers reasonably requested by it in connection therewith.
(e) The Guarantors shall have been released from all personal guarantees set forth on Schedule 6.8 which they have made on behalf of the Company or in connection with the Business on terms reasonably satisfactory to them.

 

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(f) The Company and Steven R. Harber shall have entered into the Harber Employment Agreement.
(g) The Company and David Shub shall have entered into the Shub Employment Agreement.
(h) The Company and James K. Wagner shall have entered into the Wagner Employment Agreement.
(i) The Company and Paul Yerkes shall have entered into the Yerkes Employment Agreement.
(j) The Company and C. Parkhill Mays shall have entered into the Mays Employment Agreement.
7.4 Reasonable Efforts. The Seller shall use commercially reasonable efforts, including reasonable cooperation with the other parties hereto, to secure fulfillment of all of the conditions precedent to the Buyer’s obligations hereunder, and the Buyer shall use commercially reasonable efforts, including reasonable cooperation with the other parties hereto, to secure fulfillment of all of the conditions precedent to the Seller’s obligations hereunder.
ARTICLE VIII
CLOSING
8.1 Closing. Subject to the satisfaction of the conditions precedent set forth herein, the transactions that are the subject of this Agreement shall be consummated at a closing (the “Closing”), which shall be held at the offices of Katten Muchin Rosenman LLP, 525 West Monroe, Chicago, Illinois 60661 on the fifth Business Day after the conditions set forth in Article VII have been satisfied in accordance with the provisions hereof, or at such later time or date to which the parties may agree in writing (the “Closing Date”). The Closing shall be deemed to be effective as of 12:01 a.m. Eastern Standard Time on the Closing Date (the “Effective Time”).
8.2 Deliveries by the Seller. At the Closing, the Seller shall deliver to the Buyer the following, all of which shall be deemed to be delivered simultaneously:
(a) Instruments of Conveyance of Purchased Membership Interests. The written instrument of assignment or transfer of the Purchased Membership Interests reasonably requested by the Buyer in form and substance satisfactory to the Buyer.
(b) Organizational Documents of the Company. A certificate of the Secretary of the Company certifying (i) as to the incumbency and signatures of the officers of the Company executing any documents being delivered to the Buyer in connection with the transactions contemplated hereby, and (ii) that attached to such certificate are true and correct copies of (x) the certificate of formation of the Company and all amendments thereto as in effect on the Closing Date and certified by the Secretary of State of the State of Delaware, (y) the Current Operating Agreement as in effect immediately prior to the execution of this Agreement, and the Amended Operating Agreement of the Company as in effect immediately after the Effective Time, and (z) the resolutions of the manager or the board of the Company and the written consent of the members of the Company authorizing the execution and delivery of this Agreement and the Transaction Document and the consummation of the transactions contemplated hereby and thereby.

 

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(c) Organizational Documents of the Seller. A certificate of the Secretary of the Seller certifying (i) as to the incumbency and signatures of the officers of the Seller executing any documents being delivered to the Buyer in connection with the transactions contemplated hereby, and (ii) that attached to such certificate are true and correct copies of (x) the certificate of formation of the Seller and all amendments thereto as in effect on the Closing Date and certified by the Secretary of State of the State of Delaware, (y) the Seller’s Operating Agreement as of the Effective Time, and (z) the resolutions of the board of managers of the Seller and the written consent of the members of the Seller authorizing the execution and delivery of this Agreement and the Transaction Document and the consummation of the transactions contemplated hereby and thereby.
(d) Required Consents. All (i) Governmental Authorizations needed in order to consummate the transactions contemplated by this Agreement and the Transaction Documents hereby and thereby in accordance with applicable Legal Requirements and in order for the Company to continue to operate the Business in accordance with applicable Legal Requirements shall have been obtained in form and substance reasonably satisfactory to the Buyer, and (ii) contract Consents needed to maintain the Material Contracts in full force and effect in form shall have been obtained in substance reasonably satisfactory to the Buyer.
(e) Good Standing Certificates. A good standing certificate for the Company issued not more than ten (10) days prior to the Closing Date by the Secretary of States of the State of Delaware and each jurisdiction in which the Company is qualified to do business as a limited liability company.
(f) Amended Operating Agreement. The Amended Operating Agreement duly executed by the Seller.
(g) Harber Employment Agreement. The Harber Employment Agreement duly executed by Steven R. Harber.
(h) Shub Employment Agreement. The Shub Employment Agreement duly executed by David Shub.
(i) Wagner Employment Agreement. The Wagner Employment Agreement duly executed by James K. Wagner.
(j) Yerkes Employment Agreement. The Yerkes Employment Agreement duly executed by Paul Yerkes.

 

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(k) Landlord Consents. To the extent required by a Real Property Lease, Landlord consent agreements, in form and substance reasonably satisfactory to the Buyer, executed by the lessors under the Real Property Leases listed on Schedule 3.11.
(l) FIRPTA Affidavits. A non-foreign affidavit dated as of the Closing Date sworn under penalty of perjury and in form and substance required under the Treasury Regulation pursuant to Section 1445 of the Code from the Seller stating that the Seller is not a “Foreign Person” as defined in Section 1445 of the Code.
(m) Escrow Agreement. The Escrow Agreement duly executed by the Seller and the Escrow Agent.
(n) Joinder to the Seller’s Operating Agreement. A joinder (the “Joinder”), in form and substance acceptable to the Buyer, to the Seller’s Operating Agreement pursuant to which the Buyer will be admitted to the Company as the Special Purpose Member (as defined in the Seller’s Operating Agreement), duly executed by the Seller.
(o) TD Bank Payoff Letter. A payoff letter, in form and substance acceptable to the Buyer, from and duly executed by TD Bank, setting forth (1) the amount of and the procedures for paying off all Indebtedness owed by the Company to TD Bank as of the Closing Date in full (the “TD Bank Payoff Amount”), (2) the agreement of TD Bank, upon receipt of the TD Bank Payoff Amount, that all Indebtedness owed by the Company to TD Bank shall be paid in full and the agreement of TD Bank to release all of its Liens, including, but not limited to, the filing of termination statements under the Uniform Commercial Code, upon any of the assets of any of the Company upon TD Bank’s receipt of the TD Bank Payoff Amount and (3) an acknowledgment by TD Bank that all Contracts between TD Bank and the Company shall be terminated and of no further force or effect as of the Closing Date.
(p) Bank of America Consent. A written consent, in form and substance acceptable to the Buyer, from and duly executed by Bank of America, pursuant to which Bank of America consents to and acknowledges that the consummation of the transactions contemplated by this Agreement shall not result in any breach or termination of any of the consulting services, general services or other agreements or Contracts between the Company and Bank of America.
(q) Lehman Brothers Consent. A written consent, in form and substance acceptable to the Buyer, from and duly executed by Lehman Brothers, Inc., pursuant to which Lehman Brothers, Inc. consents to and acknowledges that the consummation of the transactions contemplated by this Agreement shall not result in any breach or termination of any of the master services agreements or other Contracts between the Company and Lehman Brothers, Inc.
(r) Other Documents. Such other documents as the Buyer may reasonably request with respect to the transactions contemplated by this Agreement.

 

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8.3 Deliveries by the Buyer. At the Closing, the Buyer shall deliver to the Seller the following, all of which shall be deemed to be delivered simultaneously:
(a) Organizational Documents. A certificate of the Secretary of the Buyer certifying (i) as to the incumbency and signatures of the officers of the Buyer executing any documents being delivered to the Buyer in connection with the transactions contemplated hereby, and (ii) that attached to such certificate are true and correct copies of (y) the certificate of formation of the Buyer and all amendments thereto as in effect on the Closing Date and certified by the Secretary of State of the State of Delaware, and (z) the resolutions of the Buyer authorizing the execution and delivery of this Agreement and the Transaction Documents and the consummation of the transactions contemplated hereby and thereby.
(b) Purchase Price. Payment of the Purchase Price in accordance with Section 2.1.
(c) Good Standing Certificate. A good standing certificate for the Buyer issued not more than ten (10) days prior to the Closing Date by the Secretary of State of the State of Delaware.
(d) Amended Operating Agreement. The Amended Operating Agreement duly executed by the Buyer.
(e) Harber Employment Agreement. The Harber Employment Agreement duly executed by the Company.
(f) Shub Employment Agreement. The Shub Employment Agreement duly executed by the Company.
(g) Wagner Employment Agreement. The Wagner Employment Agreement duly executed by the Company.
(h) Yerkes Employment Agreement. The Yerkes Employment Agreement duly executed by the Company.
(i) Escrow Agreement. The Escrow Agreement duly executed by the Buyer and the escrow agent named therein.
(j) Joinder. The Joinder duly executed by the Buyer.
(k) Other Documents. Such other documents as the Buyer may reasonably request with respect to the transactions contemplated by this Agreement.
8.4 Termination.
(a) Notwithstanding any other provision of this Agreement, this Agreement may be terminated by written notice at any time prior to Closing:
(i) by either (A) the Buyer or (B) the Seller in each case after December 31, 2009;
(ii) by joint written consent of the Buyer and the Seller;

 

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(iii) by the Buyer, if the Company or the Seller materially breaches any of their respective representations, warranties or obligations hereunder and, if such breach is curable, such material breach shall not have been cured by the Company or the Seller or waived in writing by the Buyer within twenty (20) Business Days after receipt of written notice of such material breach from the Buyer;
(iv) by the Seller, if the Buyer materially breaches any of its representations, warranties or obligations hereunder and, if such breach is curable, such material breach shall not have been cured by the Buyer or waived in writing by the Seller within twenty (20) Business Days after receipt of written notice of such material breach from the Seller;
(v) by the Buyer within five (5) Business Days after receipt from the Seller of any notice pursuant to Section 6.7(a) hereof; or
(vi) by the Seller within five (5) Business Days after receipt from the Buyer of any notice pursuant to Section 6.7(b) hereof.
(b) In the event of termination under clause (a)(i) or (a)(ii) of this Section 8.4, no party shall have any liabilities pursuant to this Agreement to any other party unless such party was in breach of this Agreement in which case the nonbreaching party shall be entitled to pursue all of its rights and remedies. Termination under clause (a)(iii), (a)(iv), (a)(v) or (a)(vi) of this Section 8.4 shall be in addition to all other rights and remedies of the nonbreaching party.
ARTICLE IX
COVENANTS AFTER CLOSING
9.1 Access to Information. After the Closing Date, the Buyer will give, or cause to be given, to the Seller and its Representatives, during normal business hours, such reasonable access to the personnel, properties, titles, contracts, books, records, files and documents of the Company and, at the Seller’s expense, copies of such titles, contracts, books, records, files and documents, only as is necessary to allow the Seller to obtain information in connection with the preparation and any audit of the Company’s Tax Returns and any claims, demands, other audits, suits, actions or Proceedings by or against the Seller other than Direct Claims. The Buyer agrees to cooperate reasonably with the Seller after the Effective Time, at the Seller’s expense, with respect to any claims, demands, tax or other audits, suits, actions and Proceedings by or against the Company, other than Direct Claims.

 

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9.2 Indemnification.
(a) Indemnification by the Seller in General. Subject to any applicable limitations in this Section 9.2, from and after the Closing, the Seller agrees to indemnify, defend and save the Buyer and its Affiliates, and each of their respective officers, directors, managers, employees, equity holders, Employee Benefit Plans and fiduciaries, plan administrators or other parties dealing with such plans (each, a “Buyer Indemnified Party”), harmless from and against, and to promptly pay to each Buyer Indemnified Party or reimburse each Buyer Indemnified Party for, any and all liabilities (whether contingent, fixed or unfixed, liquidated or unliquidated, or otherwise), obligations, deficiencies, demands, claims, suits, actions, causes of action, assessments, losses, diminution in value, costs, expenses, interest, fines, penalties or costs or expense of any and all investigations, Proceedings, judgments, settlements and compromises (including reasonable fees and expenses of attorneys, accountants and other experts), excluding, however, consequential, incidental or indirect damages (other than reasonably foreseeable consequential damages or damages resulting from a breach or inaccuracy of a representation or warranty of the Company in Section 3.6) or punitive damages (provided that the foregoing exclusion of consequential, incidental, indirect or punitive damages from Losses shall not apply to the extent any such damages are imposed on or payable by a Buyer Indemnified Party to a third party) (individually and collectively, “Losses”) sustained or incurred by any such Buyer Indemnified Party relating to, resulting from, or otherwise arising out of any of the following:
(i) any breach or inaccuracy of a representation or warranty made in this Agreement by the Company or the Seller;
(ii) any non-compliance with or breach by the Company, the Seller or any Guarantor of any of the covenants or agreements contained in this Agreement to be performed by the Company, the Seller or any Guarantor;
(iii) the ownership, operation or conduct of the Company prior to the Effective Time (including any liabilities or obligations with respect to the services provided by the Company prior to the Effective Time, regardless of when such claim is made), other than (A) normal and customary current trade accounts payable and accruals (other than Income Tax accruals) of the Company, in each case arising in the ordinary course of business and in a manner consistent with past practices, but only to the extent that such trade accounts payable and accruals have been accrued for and are reflected in the calculation of Net Working Capital or (B) liabilities and obligations of the Company under any Material Contracts for liabilities or obligations arising after the Closing relating to the performance or non-performance by the Company under such Contracts after the Closing;
(iv) any claim for payment of fees and/or expenses incurred by the Company (directly or on behalf of the Seller or any Guarantor) in connection with the origin, negotiation, execution or consummation of the transactions contemplated by this Agreement and the Transaction Documents based upon any agreement or an alleged agreement between claimant and the Company or any of its Affiliates, including, but not limited to, any agreements or arrangements with counsel and VRA; and
(v) any Losses for or with respect to any Pre-Closing Taxes (including the non-payment thereof) and any Transfer Taxes (including the non-payment thereof).

 

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(b) [Reserved].
(c) Indemnification by the Buyer. Subject to any applicable limitations in this Section 9.2, from and after the Closing, the Buyer agrees to indemnify, defend and save the Seller and its Affiliates, and each of their respective officers, directors, managers, employees, equity holders and fiduciaries (each, a “Seller Indemnified Party”) harmless from and against, and to promptly pay to each Seller Indemnified Party or reimburse each Seller Indemnified Party for, any and all Losses sustained or incurred by such Seller Indemnified Party relating to, resulting from, or otherwise arising out of, any of the following:
(i) any breach or inaccuracy of a representation or warranty made in this Agreement by the Buyer;
(ii) any non-compliance with or breach by the Buyer of any of the covenants or agreements contained in this Agreement to be performed by the Buyer; and
(iii) any claim for payment of fees and/or expenses as a broker or finder in connection with the origin, negotiation, execution or consummation of the transactions contemplated by this Agreement and the Transaction Documents based upon any agreement or an alleged agreement between the claimant and the Buyer or any of its Affiliates.
(d) Indemnification Procedure for Third Party Claims.
(i) In the event that subsequent to the Closing any Person entitled to indemnification under this Agreement (an “Indemnified Party”) asserts a claim for indemnification or receives notice of the assertion of any claim or of the commencement of any action or Proceeding by any Person who is not a party to this Agreement or an Affiliate of a party to this Agreement (including any Governmental Body) (a “Third Party Claim”) against such Indemnified Party, against which a party to this Agreement is required to provide indemnification under this Agreement (an “Indemnifying Party”), the Indemnified Party shall give written notice of such claim to the Indemnifying Party within thirty (30) days after learning of such claim (the “Claim Notice”). The Indemnifying Party shall have the right, upon written notice to the Indemnified Party (the “Defense Notice”) within thirty (30) days after receipt from the Indemnified Party of the Claim Notice, which Defense Notice shall specify the counsel the Indemnifying Party will appoint to defend such claim (“Defense Counsel”), to conduct at its expense the defense against such claim in its own name, or, if necessary, in the name of the Indemnified Party; provided, however, that the Indemnified Party shall have the right to approve the Defense Counsel, and in the event the Indemnifying Party and the Indemnified Party cannot agree upon such counsel within ten (10) days after the Defense Notice is provided, then the Indemnifying Party shall propose an alternate Defense Counsel, which shall be subject again to the Indemnified Party’s approval (and such process shall be repeated until the Indemnified Party shall have approve the Defense Counsel specified by the Indemnifying Party.) If the Indemnifying Party delivers a Defense Notice, the delivery of such Defense Notice shall constitute acceptance of responsibility for such claim or action and the Indemnifying Party shall be fully responsible for all liabilities arising out of or relating to such claim or action including the costs of the defense thereof. Notwithstanding the foregoing, the Indemnifying Party shall not be entitled to assume control of a Third Party Claim and shall pay the reasonable fees and expenses of counsel retained by the Indemnified Party if (x) the Third Party Claim solely seeks injunctive or other equitable relief, (y) the Indemnified Party has been advised by counsel that the Indemnified Party’s interests in the Third Party Claim is or can reasonably be expected to be adverse to the interests of the Indemnifying Party and provides written notice of such determination to the Indemnifying Party, or (z) such Indemnifying Party is unable to or does not provide the Indemnified Party with reasonable assurance of its ability to pay the expenses of the defense against such Third Party Claim. Notwithstanding anything to the contrary in this Section 9.2(d), in the event that any Third Party Claim relates to Taxes, Section 9.4(g) (and not this Section 9.2(d)) shall apply.

 

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(ii) In the event that the Indemnifying Party shall fail to give the Defense Notice within the time period described above, it shall be deemed to have elected not to conduct the defense of the subject claim, and in such event the Indemnified Party shall have the right to conduct such defense in good faith and to compromise and settle the claim in good faith subject to the consent of the Indemnifying Party (which consent will not be unreasonably withheld) and such Indemnifying Party will be liable for all costs, expenses, settlement amounts or other Losses actually paid or incurred in connection therewith. If the Indemnifying Party is not entitled to assume the defense of a Third Party Claim because of reasons set forth in the last sentence of the preceding paragraph, the Indemnified Party may not settle the Third Party Claim without the written consent of the Indemnifying Party, which consent shall not be unreasonably withheld or delayed, if such settlement would lead to any liability or create any other obligation of the Indemnifying Party.
(iii) In the event that the Indemnifying Party does deliver a Defense Notice within the time period described above and thereby elects to conduct the defense of the subject claim, the Indemnifying Party shall diligently conduct such defense and the Indemnified Party will cooperate with and make available to the Indemnifying Party such assistance and materials as it may reasonably request, all at the expense of the Indemnifying Party, and the Indemnified Party shall have the right at its expense to participate in the defense assisted by counsel of its own choosing.
(iv) The Indemnifying Party may enter into any settlement of any Third Party Claim; provided, however, the Indemnifying Party may not enter into any settlement of any Third Party Claim without the prior written consent of the Indemnified Party if pursuant to or as a result of such settlement, (A) injunctive or other equitable relief would be imposed against the Indemnified Party, or (B) such settlement would or could reasonably be expected to lead to any liability or create any financial or other obligation on the part of the Indemnified Party.
(e) Direct Claims. It is the intent of the parties hereto that all direct claims by an Indemnified Party against a party hereto (or an Affiliate thereof) not arising out of Third Party Claims shall be subject to and benefit from the terms of this Section 9.2. Any claim under this Section 9.2(e) by an Indemnified Party for indemnification other than indemnification against a Third Party Claim (a “Direct Claim”) will be asserted by giving the Indemnifying Party written notice thereof, and the Indemnifying Party will have a period of thirty (30) calendar days within which to satisfy such Direct Claims, except for injunctive or equitable relief, which the Indemnified Party may pursue at any time. The Indemnifying Party shall only be deemed to reject such claim if it sends notice thereof to the Indemnified Party within such thirty (30) calendar day period, in which event the Indemnified Party will be free to pursue such remedies as may be available to the Indemnified Party under this Section 9.2 or otherwise. If the Indemnifying Party does not so respond within such thirty (30) calendar day period, the Indemnifying Party will be deemed to have accepted such claim, in which event the Indemnifying Party shall make payment to the Indemnified Party therefor pursuant to Section 9.2(h).

 

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(f) Failure to Give Timely Notice. A failure by an Indemnified Party to give timely, complete or accurate notice as provided in Section 9.2(c) will not affect the rights or obligations of any party hereunder except and only to the extent that, as a result of such failure, any party entitled to receive such notice was directly damaged as a direct result of such failure to give timely notice.
(g) Maximum Liability; Threshold for Recovery; Calculation of Losses.
(i) Except with respect to breaches or inaccuracies of, or related to, representations and warranties contained in the Seller Excluded Provisions, the Seller shall not be required to provide indemnification for Losses related to any Claim under Sections 9.2(a)(i) to 9.2(a)(iv) hereof in excess of an aggregate indemnified amount equal to the Cap. Except with respect to Losses related to Transfer Taxes and the Specified Tax Issues (with respect to which the Seller shall be liable without application of the Threshold), the Seller shall have no liability with respect to Losses related to any Claim under Section 9.2(a) until the total of all such Losses with respect to all such Claims under Section 9.2(a) hereof exceeds the Threshold, in which case the Seller shall be liable for all such Losses (i.e., not just those in excess of the Threshold) in an amount up to, but not in excess of, the Cap (except with respect to breaches or inaccuracies of, or related to, representations and warranties contained in the Seller Excluded Provisions and Claims arising under Section 9.2(a)(v) for which the Cap shall not apply); provided, however, that any payment by the Seller pursuant to Section 9.2(a)(i) with respect to a Seller Excluded Provision shall be considered in determining whether the Threshold has been met or exceeded.
(ii) Except with respect to breaches or inaccuracies of, or related to, representations and warranties contained in the Buyer Excluded Provisions, the Buyer shall not be required to provide indemnification for Losses related to any Claim under Section 9.2(c) hereof in excess of an aggregate indemnified amount equal to the Cap. The Buyer shall have no liability with respect to Losses related to any Claim under Section 9.2(c) until the total of all such Losses with respect to all such Claims under Section 9.2(c) hereof exceeds the Threshold, in which case the Buyer shall be liable for all such Losses (i.e., not just those in excess of the Threshold) in an amount up to, but not in excess of, the Cap (except with respect to breaches or inaccuracies of, or related to, representations and warranties contained in the Buyer Excluded Provisions for which the Cap shall not apply); provided, however, that any payment by the Buyer pursuant to Sections 9.2(c)(i) with respect to a Buyer Excluded Provision shall be considered in determining whether the Threshold has been met or exceeded.
(iii) Notwithstanding anything to the contrary in this Section 9.2, the amount of any Losses payable under this Section 9.2 by an Indemnifying Party shall be net of any amounts received by an Indemnified Party under applicable insurance policies or from any other Person alleged to be responsible therefor.
(iv) In no event shall Losses include any amounts specifically included with reasonable specificity as a liability in the calculation of the Net Working Capital.
(v) Notwithstanding anything to the contrary contained in this Section 9.2, in no event shall the Seller be liable for any amounts due to Buyer under Section 9.2 in excess of the Purchase Price.

 

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(vi) For purposes of any indemnification under this Section 9.2, in determining the amount of any Loss that is the subject matter of a claim for indemnification hereunder (but not for the purpose of determining whether a breach has occurred), each representation and warranty in Article III and Article IV shall be read without regard and without giving effect to any materiality or Material Adverse Effect standard or qualification (or any similar words or phrases) contained in such representation or warranty (as if such standard or qualification were deleted from such representation and warranty).
(h) Survival of Representations and Warranties. All of the representations and warranties set forth in this Agreement shall survive the execution and delivery of this Agreement and the consummation of the transactions for a period ending sixteen (16) months after the Closing Date except that (i) the representations and warranties contained in Section 3.2 (Authorization), Section 3.3 (Capitalization), Section 4.4 (Ownership; No Liens), Section 5.2 (Authorization) and representations and warranties that are fraudulently or willfully breached contained herein shall survive indefinitely and (ii) the representations and warranties contained in Section 3.14 (ERISA), and Section 3.20 (Taxes) shall survive until sixty (60) days following the expiration of the applicable statute of limitations period or any extensions or waivers thereof. It is agreed that in the event notice of any claim for indemnification under this Agreement with respect to any inaccuracy or a breach of representation or warranty or with respect to any other matter shall have been given within the applicable survival period, the claims and rights to indemnification relating to such inaccuracies or breaches of representations and warranties or other matters that are the subject of such indemnification claim shall survive until such time as such claim is finally resolved. An Indemnified Party’s right to indemnification, payment of Losses or other remedies based on any representation, warranty, covenant or obligation of another party contained in or made pursuant to this Agreement or any Transaction Document shall not be affected by any investigation conducted by such Indemnified Party or any of its representatives or (except as set forth in Section 6.7) any knowledge acquired (or capable of being acquired) by any such Indemnified Party or its representatives, in each case, at any time, whether before or after the execution and delivery of this Agreement or the Closing Date.
(i) Claims under Sections 9.2(a)(iii). The Buyer hereby agrees that any claim for indemnification under Section 9.2(a)(iii) hereof must be made within sixteen (16) months after the Closing Date. It is agreed that in the event notice of any claim for indemnification under this Agreement with respect to the matters set forth in Section 9.2(a)(iii) shall have been given within the applicable period, the claims and rights to indemnification relating thereto that are the subject of such indemnification claim shall survive until such time as such claim is finally resolved.
(j) Adjustment to Purchase Price. Any indemnification received under this Section 9.2 shall be, to the extent permitted by law, an adjustment to the Purchase Price.

 

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(k) Payments. With respect to any claim of an Indemnified Party made in good faith or portion thereof that is not being contested by the Indemnifying Party in good faith or upon the resolution of a claim or portion thereof contested by the Indemnifying Party as provided in Section 9.2(d), such payment shall be made by the Indemnifying Party (i) if the claim is not being contested, not later than thirty (30) days after receipt by the Indemnifying Party of written notice from the Indemnified Party stating the amount of the claim or (ii) if the claim is contested pursuant to Section 9.2(d), five (5) days after the resolution of any claim contested pursuant to Section 9.2(d). In addition, the Indemnifying Party shall reimburse the Indemnified Party for any and all costs or expenses of any nature or kind whatsoever (including, but not limited to, all attorney’s fees) incurred in seeking to collect any payments under this Section 9.2(k). Any payment required under this Section 9.2 that is not made when due shall bear interest until paid in full at the Prime Rate of interest as published in The Wall Street Journal (changing as and when such rate changes) plus four percent (4%) or, if less, the maximum rate permitted by applicable usury laws. Interest on any such unpaid amount shall be compounded monthly, computed on the basis of a 360-day year and shall be payable on demand.
(l) Exclusive Remedy. Other than with respect to injunctive or other equitable relief and other than claims based on fraud, any claim or cause of action (whether such claim sounds in tort, contract or otherwise and including statutory rights and remedies) based upon, relating to or arising out of this Agreement or the transactions contemplated by this Agreement must be brought by either one or more Buyer Indemnified Parties, on the one hand, or one or more Seller Indemnified Parties, on the other hand, in accordance with the provisions and applicable limitations of this Section 9.2, which shall constitute the sole and exclusive remedy of all parties, their Affiliates, successors and assigns and all Persons who may claim any rights through them, for any such claim or cause of action. Nothing in this Section 9.2(l) shall restrict the right of any party to seek specific performance in connection with any breach of any of the covenants contained in this Agreement.
(m) Except with respect to breaches or inaccuracies of, or related to, representations and warranties contained in the Seller Excluded Provisions or pursuant to Section 9.2(a)(v), the sole source of funds to satisfy indemnification claims under Section 9.2(a) shall be the funds held under the Escrow Agreement; provided, however that if and to the extent all or any portion of such funds are distributed or used for any purpose other than satisfaction of indemnification claims under Section 9.2(a) (other than with respect to breaches or inaccuracies of, or related to, representations and warranties contained in the Seller Excluded Provisions or pursuant to Section 9.2(a)(v)), then the Seller shall be obligated to satisfy such indemnification claims to the extent of the funds held under the Escrow Agreement distributed or used for such other purposes.
9.3 Restrictive Covenants.
(a) Acknowledgment. As an inducement to the Buyer to enter into this Agreement, the Transaction Documents and to consummate the transactions contemplated hereby and thereby, the Seller and each Guarantor (each such Person is individually referred to herein as a “Non-Compete Party,” and collectively as the “Non-Compete Parties”) acknowledges that it is necessary that the Non-Compete Parties undertake not to utilize their special knowledge of the Business and their relationships with customers and suppliers to compete with the Company.

 

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(b) Non-Compete. Each Non-Compete Party hereby agrees that for the Restricted Period, such Non-Compete Party will not, directly or indirectly, as agent, employee, consultant, representative, stockholder, manager, member, partner or in any other capacity, own (other than through the passive ownership of less than one percent (1%) of the publicly traded shares of any Person), operate, manage, control, engage in, invest in (other than through the passive ownership of less than one percent (1%) of the publicly traded shares of any Person) or participate in any manner in, act as a consultant or advisor to, render services for (alone or in association with any Person), or otherwise assist any Person that engages in or owns, invests in, operates, manages or controls any venture or enterprise that directly or indirectly engages or proposes to engage in any business competitive in any material respect with any material portion of the Business anywhere in the United States (the “Territory”).
(c) Confidential Information. Each Non-Compete Party shall keep secret and retain in strictest confidence, and shall not, without the prior written consent of the Buyer, furnish, make available or disclose to any third party or use for the benefit of such Non-Compete Party or any third party, any Confidential Information. As used in this Section 9.3(c), “Confidential Information” shall mean any information relating to this Agreement and the transactions contemplated hereby, the business or affairs of the Company, the Buyer or the Business, and information relating to financial statements, customer identities, potential customers, employees, suppliers, servicing methods, equipment, programs, strategies and information, analyses, profit margins or other proprietary information used by the Company; provided, however, that Confidential Information shall not include any information which is in the public domain or becomes generally known through no wrongful act on the part of any Non-Compete Party.
(d) Interference with Relationships. During the Restricted Period, each Non-Compete Party shall not, without the prior written consent of the Buyer, directly or indirectly, as agent, employee, consultant, distributor, representative, stockholder, manager, member, partner or in any other capacity, employ or engage, or recruit or solicit for employment or engagement, any person (i) who is employed or engaged by the Company or the Buyer or any of its Affiliates (both before and after the Closing Date), (ii) who was employed or engaged by the Company or the Buyer within six (6) months of such contact, or (iii) who was employed by the Company or engaged in the Business during the six (6) month period prior to the Closing Date, or otherwise seek to influence or alter any such person’s relationship with the Company or the Buyer.
(e) Blue-Pencil. If any court of competent jurisdiction shall at any time deem the term of any particular restrictive covenant contained in this Section 9.3 too lengthy or the Territory too extensive, the other provisions of this Section 9.3 shall nevertheless stand, and the Restricted Period and/or the Territory shall be reduced to such duration or size as such court shall determine to be permissible.
(f) Remedies. Each Non-Compete Party acknowledges and agrees that the covenants set forth in this Section 9.3 are reasonable and necessary for the protection of the Buyer’s business interests, that irreparable injury will result to the Buyer if any Non-Compete Party breaches any of the terms of this Section 9.3, and that in the event of any actual or Threatened breach by any Non-Compete Party of any of the provisions contained in this Section 9.3, the Buyer will have no adequate remedy at law. Each Non-Compete Party accordingly agrees that in the event of any actual or Threatened breach by such Non-Compete Party of any of the provisions contained in this Section 9.3, the Buyer shall be entitled to injunctive and other equitable relief, without the necessity of showing actual monetary damages and without posting any bond or other security. Nothing contained herein shall be construed as prohibiting the Buyer from pursuing any other remedies available to it for such breach or Threatened breach, including the recovery of any damages.

 

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9.4 Tax Matters.
(a) Pre-Closing Taxes. The Seller shall be responsible for (i) all Taxes imposed upon, or incurred by or with respect to the Company or the Assets for any period (or portion of any period) ending on or before the Closing Date and all Taxes allocated to pre-Closing periods pursuant to Section 9.4(f), (ii) any Taxes imposed on the Company or the Business resulting from the conversion of the Company’s method of accounting to an accrual method of accounting, and (iii) any Taxes imposed on the Buyer as a transferee of the Seller under Section 6901 of the Code or any similar or comparable Legal Requirement (such Taxes described in clauses (i), (ii) and (iii) above, collectively, the “Pre-Closing Taxes”). Notwithstanding the foregoing provision of this Section 9.4(a), the Seller shall not be responsible for any Pre-Closing Taxes (other than Income Taxes) specifically included as a liability in the calculation of the Net Working Capital, as finally determined pursuant to Section 2.2.
(b) Transfer Taxes. The Seller shall be responsible for and shall pay all documentary, stamp, sales, transfer, excise or similar Taxes, if any, resulting, directly or indirectly, from the transactions contemplated by this Agreement and the Transaction Documents (“Transfer Taxes”). The Seller shall timely file or cause to be filed all required documentation and Tax Returns with respect to such Transfer Taxes and pay in a timely manner any Taxes reflected on such Tax Returns. If the Seller fails to file any required Tax Returns with respect to Transfer Taxes, the Buyer, at the Seller’s expense, may file such Tax Returns. In the event the Seller does not timely pay any Transfer Taxes required to be paid by the Seller under this Section 9.4(b), at the Buyer’s election in its sole discretion, the Seller’s obligations to pay all or any portion of the Transfer Taxes may be satisfied from the Escrow Amount or paid by the Seller; provided, however, that if such amounts are satisfied from the Escrow Amount, the Seller shall have the obligation to promptly (and in any event no later than ten (10) Business Days following payment of the Unpaid Taxes from the Escrow Amount) make a deposit to the Escrow Amount in an amount equal to the Unpaid Taxes.
(c) Payment of Taxes. The Seller shall pay to the Buyer any payment of Taxes which are the responsibility of the Seller pursuant to this Section 9.4 (such Taxes, the “Unpaid Taxes”) within ten (10) Business Days after the Seller receives written notice from the Buyer requesting such payment and describing in reasonable detail the amount and calculation of such Taxes; provided that (i) Transfer Taxes shall be paid by the Seller in accordance with Section 9.4(b) above, and (ii) Income Taxes reflected on and payable pursuant to the Seller’s Returns shall be paid by the Seller in accordance with Section 9.4(d) below (and any remaining Income Taxes which are not payable pursuant to the Seller’s Returns, but which are otherwise responsibility of the Seller pursuant to this Section 9.4, including the New York City Unincorporated Business Tax, shall be paid by the Seller in accordance with this Section 9.4(c)). In the event that the Seller does not agree with the Buyer’s calculation of the Unpaid Taxes, (A) the Seller shall provide written notice to the Buyer within four (4) Business Days after the written notice from the Buyer and the Buyer and the Seller shall negotiate in good faith to resolve any dispute related to the amount of the Unpaid Taxes within five (5) Business Days after the Seller notice to the Buyer above, (B) the Seller shall pay the Unpaid Taxes

 

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in accordance with the timing requirement of this Section 9.4(c), and (C) if the Seller objected to the calculation of the Unpaid Taxes and the Buyer and the Seller were not able to resolve the dispute in accordance with clause (B) above, such dispute shall be submitted for final resolution to the Arbitrator in accordance with the procedures set forth in Section 2.2(b)(iii). If the Arbitrator determines that the actual amount of the Unpaid Taxes is less than the amount of Unpaid Taxes as calculated by the Buyer, the excess amount paid by the Seller shall be refunded by the Buyer to the Seller within ten (10) Business Days after such final resolution by the Arbitrator. In the event that the Seller fails to pay all or any portion of the Unpaid Taxes, at the Buyer’s election in its sole discretion, the Seller’s obligations to pay such Unpaid Taxes may be satisfied from the Escrow Amount or paid by the Seller; provided, however, that if such amounts are satisfied from the Escrow Amount, the Seller shall have the obligation to promptly (and in any event no later than ten (10) Business Days following payment of the Unpaid Taxes from the Escrow Amount) make a deposit to the Escrow Amount in an amount equal to the Unpaid Taxes.
(d) Pre-Closing Returns. The Seller shall prepare, or cause to be prepared, at the Seller’s expense, with reasonable assistance from the Company, all Income Tax Returns that are required to be filed after Closing by the Company relating to taxable periods ending on or before the Closing Date that are due after the Closing Date (the “Seller’s Returns”). The Seller shall submit each Seller’s Return to the Buyer for the Buyer’s reasonable comment no later than thirty (30) days before the due date for such Seller’s Return (including extensions). If the Seller fails to submit any Seller’s Return in accordance with this Section 9.4(d), the Buyer shall prepare, or cause to be prepared, at the Seller’s expense, such Seller’s Return. The Buyer shall promptly notify the Seller of any comments that the Buyer has to each Seller’s Return submitted by the Seller within fifteen (15) days of receipt of such Seller’s Return. If the Buyer and the Seller are unable to resolve any dispute relating to any Seller’s Return submitted by the Seller within twenty (20) days of receipt of such Seller’s Return, any dispute shall be submitted for final resolution to the Arbitrator in accordance with the procedures set forth in Section 2.2(b)(iii) which shall be charged with determining whether the Seller’s Return (or the portion thereof that is in dispute) has been prepared in accordance with this Section 9.4 All Seller’s Returns shall be prepared in all material respects, and all elections with respect to such Seller’s Returns shall be made in all material respects, in accordance with applicable Legal Requirements and, to the extent permitted by applicable Legal Requirements, in a manner consistent with the prior practice of the Company in its previous Income Tax Returns. No later than five (5) Business Days before the due date for any such Seller’s Return, the Seller shall file, or cause to be filed, and pay, or cause to be paid, the Taxes shown as due on such Seller’s Return. In the event the Seller does not timely pay any Taxes required to be paid by the Seller under this Section 9.4(d) (such Taxes, the “Pre-Closing Returns Taxes”), at the Buyer’s election in its sole discretion, the Seller’s obligation to pay Taxes shown as due on the Seller’s Return which has not been paid by the Seller in such five (5) Business Day period may be satisfied from the Escrow Amount; provided, however, that if such amount is satisfied from the Escrow Amount, then the Seller shall have the obligation to promptly (and in any event no later than ten (10) Business Days following payment of such Taxes from the Escrow Amount) make a deposit to the Escrow Amount in an amount equal to the amount of Taxes paid as shown as due on such Seller’s Return.

 

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(e) Tax Treatment and Purchase Price Allocation. The Buyer and the Seller shall treat the transaction contemplated by this Agreement as a purchase by the Buyer of a 85% interest in each of the assets held by the Company immediately prior to the Effective Time (the “Assets”) followed by a contribution by the Buyer and the Seller of their respective interests in the Assets to a partnership in accordance with Revenue Ruling 99-5, which purchase and contribution shall be deemed effective for all purposes as of the end of the Closing Date. The allocation of the Purchase Price (along with any other items constituting consideration for purposes of Section 1060 of the Code), taking into account any adjustments made thereto pursuant to this Agreement, shall be among the Assets in accordance with the principles and allocations set forth in Schedule 9.4(e) and no party hereto shall take any position inconsistent with such allocation for purposes of Section 1060 of the Code and the Treasury Regulations thereunder (and any similar provision of state, local or foreign law, as appropriate). The Buyer and the Seller and each of their respective Affiliates shall take all actions and properly and timely file all Tax Returns (including, but not limited to, IRS Form 8594 (Asset Acquisition Statement)) consistent with such allocation. If the Buyer and the Seller are unable to resolve any dispute relating to the allocation of the Purchase Price to the Assets included in Class VI Assets (other than the covenants set forth in Section 9.3) on Schedule 9.4(e), any such dispute shall be submitted for final resolution to the Arbitrator in accordance with the procedures set forth in Section 2.2(b)(iii).
(f) Allocation of Taxes. For all purposes under this Agreement involving the determination of Taxes (including the determination of any Pre-Closing Taxes other than Pre-Closing Taxes described in Sections 9.4(a)(ii) and (iii), which shall be allocated 100% to the Seller), in the case of Taxes that are payable with respect to any period that includes but does not end on the Closing Date, the portion of any such Tax that is allocable to the portion of the period ending on the Closing Date shall be (i) in the case of Taxes of the Company and the Business that are (x) based upon or related to income or receipts (including the New York City Unincorporated Business Tax), (y) imposed in connection with the sale or other transfer or assignment of property (real or personal, tangible or intangible), or (z) employment, social security or other similar taxes, deemed equal to the amount which would be payable if the taxable year ended on the Closing Date; and (ii) in the case of Taxes of the Company and the Business imposed on a periodic basis with respect to any assets or otherwise measured by the level of any item, deemed to be the amount of such Taxes for the entire period (or, in the case of such Taxes determined on an arrears basis, the amount of such Taxes for the immediately preceding period) multiplied by a fraction the numerator of which is the number of calendar days in the period ending on the Closing Date and the denominator of which is the number of calendar days in the entire period.
(g) Tax Contests. Tax Contests. The Buyer shall promptly notify the Seller in writing upon receipt by the Buyer of any notice of any audits, examinations, adjustments or assessments received by the Buyer relating to Taxes imposed on the Company for which a Buyer Indemnified Party may be entitled to receive indemnity under this Agreement (a “Tax Action”). Such notice shall state the nature and basis of the Tax Action and the amount of Taxes claimed with respect thereto, to the extent known. The Buyer’s failure to notify the Seller will not relieve any of the Seller of any liability that they may have, except to the extent the defense of such Tax Action is actually prejudiced as a direct result of the Buyer’s failure to give such notice. In the event that a

 

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Tax Action can be contested separately from any Tax Action relating to Taxes for which a Buyer Indemnified Party is not entitled to receive indemnity under this Agreement, the Seller may elect within fifteen (15) days of receiving notice of such Tax Action to represent the Company in such Tax Action (a “Seller’s Tax Contest”), and to employ counsel of its choice at the Seller’s expense, provided that (i) the Buyer shall be entitled to participate at its sole expense in such Seller’s Tax Contest, and (ii) the Seller may not agree to settle any Seller’s Tax Contest without the Buyer’s prior written consent, which consent shall not be unreasonably conditioned, withheld or delayed. In the event that a Tax Action cannot be contested separately from any Tax Action relating to Taxes for which a Buyer Indemnified Party is not entitled to receive indemnity under this Agreement, to the extent feasible, the Seller shall have the right to participate at its sole expense in such Tax action if and to the extent such matter is may result in Tax liability of the Seller.
(h) Tax Return Amendments. Unless otherwise required by the applicable Legal Requirements, without the Seller’s prior written consent (which consent shall not be unreasonably conditioned, withheld or delayed), the Buyer shall not (i) amend or cause or permit the amendment of any Tax Returns of the Company to the extent that such amendment will increase the liability of Seller for any Pre-Closing Taxes or their obligation to indemnify the Buyer for any Pre-Closing Taxes, or (ii) file a claim for refund of Taxes, attributable to any period (or portion of any period that includes but does not end on the Closing Date, to the extent Taxes are allocable to the Seller for such portion under Section 9.4(f)) ending on or before the Closing Date, unless such Tax refund was accrued as a receivable on the books and records of the Company and included in the Net Working Capital, as finally determined pursuant to Section 2.2. In the event the Buyer believes that an amendment of any such Tax Returns is required by the applicable Legal Requirement, the Buyer shall provide notice of such action at least fifteen (15) days prior to taking such action including an explanation of the applicable Legal Requirement. If the Seller and the Buyer are unable to resolve such issue within ten (10) days of such notice from the Buyer, the issue will be submitted for final resolution to the Arbitrator in accordance with the procedures set forth in Section 2.2(b)(iii).
(i) Tax Refunds. Any Tax refunds or rebates that are received by or on behalf of the Company or the Seller, and any amounts credited against Taxes to which the Company or the Buyer becomes entitled, that relate to any period (or portion of any period that includes but does not end on the Closing Date, to the extent Taxes are allocable to the Seller for such portion under Section 9.4(f)) ending on or before the Closing Date, shall be for the account of the Seller, and Buyer shall pay over, or cause the Company to pay over, to the Seller any such refund or the amount of any such credit within fifteen (15) days after receipt or entitlement thereto; provided, however, that the Seller shall not be entitled to any Tax refund or credit pursuant to this Section 9.4(i) to the extent such Tax refund or credit was accrued as a receivable on the books and records of the Company and included in the Net Working Capital, as finally determined pursuant to Section 2.2. Any such payments to the Seller pursuant to this Section 9.4(i) shall be treated as an adjustment to the Purchase Price.

 

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(j) Cooperation and Records Retention. The Seller and the Buyer shall (i) each provide the other with such assistance as may reasonably be requested by any of them in connection with the preparation of any Tax Return, audit, or other examination by any taxing authority or judicial or administrative proceedings relating to liability for Taxes, (ii) each retain and provide the other with any records or other information that may be relevant to such Tax Return, audit or examination, proceeding, or determination, and (iii) each provide the other with any final determination of any such audit or examination, proceeding, or determination that affects any amount required to be shown on any Tax Return of the other or the Company for any period. Without limiting the generality of the foregoing, the Company shall retain, until the applicable statutes of limitations (including any extensions) have expired, copies of all Tax Returns, supporting work schedules, and other records or information that may be relevant to such returns for all Tax periods or portions thereof ending before or including the Closing Date and shall not destroy or otherwise dispose of any such records without first providing the Buyer with a reasonable opportunity to review and copy the same. Each party shall bear its own expenses in complying with the foregoing provisions.
(k) Employment Tax Reporting. With respect to employment Tax matters, provided that that the Seller reasonably cooperates with, and provides all required information to, the Buyer and the Company with respect to matters in this Section 9.4(k), (i) the Company shall assume the Seller’s entire obligation to prepare, file and furnish IRS Form W-2’s with respect to the employees of the Company for the year including the Closing, (ii) the Seller, the Buyer and the Company hereby agree to elect the “predecessor-successor” basis for filing IRS Form W-2’s with respect to the Company’s employees pursuant to the alternative procedure prescribed by Section 5 of the Revenue Procedure 2004-53, 34 I.R.B. 320, and (iii) the Seller and the Buyer shall work in good faith to adopt similar procedures under Applicable Laws regarding wage payment, reporting and withholding for all employees in all appropriate jurisdictions.
(l) Coordination with Section 9.2(g) of the Agreement. The Buyer and the Seller acknowledge and agree that (i) with respect to breaches by the Seller of any Tax Representations, the Threshold limitation set forth in Section 9.2(g) shall apply only with respect to Tax Representations other than Tax Representations related to any Specified Tax Issues, (ii) the Seller shall be required to comply with all Seller Post-Closing Tax Covenants, but in the event of a breach by the Seller of any Seller Post-Closing Tax Covenants, the Threshold limitation set forth in Section 9.2(g) shall apply only with respect to Seller Post-Closing Tax Covenants other than Seller Post-Closing Tax Covenants related to any Specified Tax Issues, (iii) the Cap shall not apply to breaches by the Seller of any of (A) the Tax Representations, or (B) the Seller Post-Closing Tax Covenants, and (iv) neither the Threshold nor the Cap shall apply to any Claim related to Transfer Taxes. For avoidance of doubt, the foregoing paragraphs of this Section 9.4, including without limitation, provisions relating to the Buyer’s right to satisfy the Seller’s Tax obligations from the Escrow Amount, shall be subject to the limitations set forth in this paragraph.
9.5 Internal Controls. Between the date of this Agreement and the Closing Date, the Seller shall cooperate, and cause employees of the Company to cooperate with Buyer with respect to the further development, implementation and testing of internal control over financial reporting for the Company.

 

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9.6 Securities Filings. The Seller and the Company acknowledge and agree that the Buyer (and/or its Affiliates) from time to time may be required or deem it appropriate or desirable, and the Seller and the Company hereby authorize the Buyer (and/or its Affiliates), to disclose financial and other information about the transactions contemplated by this Agreement and the Transaction Documents and/or the Company’s business, assets, operations, results of operations, condition (financial or otherwise), performance, prospects and internal controls, including financial statements for the Company, in reports and/or registration statements filed with, or furnished to, the SEC by Buyer (and/or its Affiliates) or otherwise disclose (publicly or otherwise) any or all of such information. The Seller and the Company covenant and agree to cooperate with the Buyer in promptly obtaining and providing to the Buyer any such information requested by the Buyer. Without limiting the generality of the foregoing, the Company shall promptly (a) prepare and deliver to the Buyer such financial statements of the Company as the Buyer (and/or its Affiliates) may deem necessary for inclusion in any reports and/or registration statements that the Buyer (and/or its Affiliates) may file with, or furnish to, the SEC and (b) obtain, as and when requested by the Buyer and at the Company’s expense, (i) an audit by a registered independent public accounting firm of such financial statements of the Company as the Buyer (and/or its Affiliates) may deem necessary for inclusion of such financial statements, any portion thereof or any related financial information in any reports and/or registrations statements that the Buyer (and/or its Affiliates) may file with, or furnish to, the SEC and (ii) the consent, in form and substance acceptable to the Buyer, of any auditor of any financial statements of the Company to the inclusion or incorporation by reference of the auditors’ reports on such financial statements in any such SEC reports or registration statements.
9.7 Directors’ and Officers’ Indemnification.
(a) The Buyer agrees that, following the Closing Date, the Company shall include and maintain in effect in its Organizational Documents for a period of six (6) years after the Closing Date, provisions regarding the elimination of liability of directors (or their equivalent), indemnification of officers and directors thereof and advancement of expenses which are, with respect to the Company, no less advantageous to the intended beneficiaries than the corresponding provisions contained in such Organizational Documents as of the date of this Agreement.
(b) On or prior to the Closing Date, the Seller shall be entitled to cause the Company to use commercially reasonable efforts to obtain, at Seller’s sole cost and expense, a non-cancellable run-off insurance policy, for a period of six (6) years after the Closing Date, to provide insurance coverage for events, acts or omissions occurring on or prior to the Closing Date for all persons who were directors, officers or managers of the Company on or prior to the Closing Date.
(c) On or prior to the Closing Date, the Seller shall be entitled to cause the Company to use commercially reasonable efforts to obtain, at Seller’s sole cost and expense, a non-cancellable run-off insurance policy that covers events and omissions for actions of the Company occurring at any time prior to the Closing Date. If requested by the Seller, the Company will renew such insurance policy at Seller’s expense.

 

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ARTICLE X
MISCELLANEOUS
10.1 Notices, Consents, etc. Any notices, consents or other communications required to be sent or given hereunder by any of the parties shall in every case be in writing and shall be deemed properly served if (a) delivered personally or (b) delivered via email followed by a recognized overnight courier service, to the parties at the addresses as set forth below or at such other addresses as may be furnished in writing.
  (a)  
If to the Buyer or the Company (after the Closing Date):
 
     
c/o Dolan Media Company
22 South Ninth Street, Suite 2300
Minneapolis, Minnesota 55402
Attention: James P. Dolan
Email: jim.dolan@dolanmedia.com
 
     
with a copy to (which shall not constitute notice):
 
     
Katten Muchin Rosenman LLP
525 West Monroe Street
Chicago, Illinois 60661-3693
Attention: Walter S. Weinberg, Esq.
Email: walter.weinberg@kattenlaw.com
  (b)  
If to the Seller or the Company (before the Closing Date):
 
     
discoverReady LLC
55 Broadway, 21st Floor
New York, New York 10006
Attention: James K. Wagner
                 Steven R. Harber
Email: jim.wagner@discoverready.com
           steve.harber@discoverready.com
 
     
with a copy to (which shall not constitute notice):
 
     
Kaye Scholer LLP
425 Park Avenue
New York, New York 10022-3598
Attention: Emanuel S. Cherney, Esq.
Email: echerney@kayescholer.com

 

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Date of service of such notice shall be (x) the date such notice is personally delivered or (y) one (1) Business Day after the date of delivery to the overnight courier if sent by overnight courier.
10.2 Severability. The unenforceability or invalidity of any provision of this Agreement shall not affect the enforceability or validity of any other provision.
10.3 Amendment and Waiver. This Agreement may be amended, or any provision of this Agreement may be waived; provided that any such amendment or waiver will be binding on the Buyer only if such amendment or waiver is set forth in a writing executed by the Buyer; provided further that any such amendment or waiver will be binding upon the Seller only if such amendment or waiver is set forth in a writing executed by the Seller. The waiver by any party hereto of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any other breach.
10.4 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same agreement.
10.5 Deliveries. This Agreement, and any amendments hereto, to the extent signed and delivered by means of a facsimile machine or other electronic transmission (including transmission in portable document format by electronic mail), shall be treated in all manner and respects and for all purposes as an original agreement or amendment and shall be considered to have the same binding legal effect as if it were the original signed version thereof delivered in person. At the request of any party hereto or to any such other agreement or amendment, each other party hereto or thereto shall re-execute original forms thereof and deliver them to all other parties, except that the failure of any party to comply with such a request shall not render this Agreement or amendment invalid or unenforceable. No party hereto shall raise the use of a facsimile machine or other electronic transmission to deliver a signature, or the fact that any signature was transmitted or communicated through the use of a facsimile machine or other electronic transmission, as a defense to the formation or enforceability of a contract and each such party forever waives any such defense.
10.6 Expenses. Each of the parties shall pay all costs and expenses incurred or to be incurred by it in negotiating and preparing this Agreement and in closing and carrying out the transactions contemplated by this Agreement; provided, however, that (a) any Transfer Taxes shall be borne solely by the Seller and (b) the filing fees associated with any filing under the HSR Act with respect to the transactions contemplated hereby shall be borne one-half by the Seller, on the one hand, and one-half by the Buyer, on the other hand.
10.7 Headings. The subject headings of Articles and Sections of this Agreement are included for purposes of convenience of reference only and shall not affect the construction or interpretation of any of its provisions.

 

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10.8 Governing Law; Jurisdiction and Venue; Waiver of Jury Trial.
(a) THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED IN ALL RESPECTS, INCLUDING VALIDITY, INTERPRETATION AND EFFECT, BY THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO ITS RULES OF CONFLICTS OF LAW. EACH OF THE PARTIES IRREVOCABLY CONSENTS TO THE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED IN NEW YORK IN CONNECTION WITH ANY MATTER BASED UPON OR ARISING OUT OF THIS AGREEMENT AND AGREES THAT PROCESS MAY BE SERVED UPON THEM IN ANY MANNER AUTHORIZED BY THE LAWS OF THE STATE OF NEW YORK FOR SUCH PERSON AND WAIVES AND COVENANTS NOT TO ASSERT OR PLEAD ANY OBJECTION WHICH THEY MIGHT OTHERWISE HAVE TO SUCH JURISDICTION AND SUCH PROCESS.
(b) EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS OR EVENTS CONTEMPLATED HEREBY OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY HERETO. THE PARTIES HERETO EACH AGREE THAT ANY AND ALL SUCH CLAIMS AND CAUSES OF ACTION SHALL BE TRIED BY THE COURT WITHOUT A JURY. EACH OF THE PARTIES HERETO FURTHER WAIVES ANY RIGHT TO SEEK TO CONSOLIDATE ANY SUCH LEGAL PROCEEDING IN WHICH A JURY TRIAL HAS BEEN WAIVED WITH ANY OTHER LEGAL PROCEEDING IN WHICH A JURY TRIAL CANNOT OR HAS NOT BEEN WAIVED.
10.9 Attorneys’ Fees. In any action at law or equity to enforce this Agreement or the rights of any of the parties; hereunder, the prevailing party in such action or suit shall be entitled to receive a sum for its attorney’s fees and all other courts and expenses incurred in such action or suit.
10.10 Incorporation of Exhibits, and Schedules. The Exhibits and Schedules identified in this Agreement are incorporated herein by reference and made a part hereof
10.11 Assignment. This Agreement will be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns, but will not be assignable or delegable by any party without the prior written consent of the other parties, provided, however, that the Buyer shall be allowed to assign its rights and benefits hereto to (a) an Affiliate so long as the Affiliate assumes the Buyer’s obligations hereunder; (b) in connection with a sale of all or substantially all of the Buyer’s assets so long as the assignee assumes the Buyer’s obligations hereunder and (c) to the lenders of the Buyer or any Affiliate of the Buyer as collateral for security purposes. The Seller agree to provide any acknowledgment or consent required by any such lender in connection with any assignment referenced in clause (c) above.
10.12 Definitions. For purposes of this Agreement, in addition to terms elsewhere defined herein, the following terms have the meanings set forth below:
Acceptance Notice” has the meaning set forth in Section 2.2(b)(iii) hereof.
Act” means the Delaware Limited Liability Company Act, as amended.
Adjustment Payment” has the meaning set forth in Section 2.2(b)(iv).

 

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Affiliate” means, with respect to any Person: (i) any other Person directly or indirectly controlling, controlled by or under common control with the subject Person or (ii) any officer, director, trustee, managing member or general partner of the subject Person, provided that, for the purposes of this definition, “control” (including, with correlative meanings, the terms “controlled by” and “under common control with”), as used with respect to any Person, shall mean 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 Contract or otherwise.
Agreement” has the meaning set forth in the Preamble hereof.
Amended Operating Agreement” has the meaning set forth in Section 1.1 hereof.
Antitrust Division” has the meaning set forth in Section 6.6 hereof.
Arbitrator” means Ernst & Young.
Business” has the meaning set forth in the Recitals hereof.
Business Day” means any day other than a Saturday, Sunday or day on which commercial banks are authorized or required by law to close in Minneapolis, Minnesota.
Buyer” has the meaning set forth in the Preamble hereof.
Buyer Excluded ProvisionsSection 5.2 (Authorization) and Section 5.4 (Brokers and Finders).
Buyer Capital Lease Liability” has the meaning set forth in Section 2.2(b)(ii).
Buyer Indemnified Party” has the meaning set forth in Section 9.2(a) hereof.
Buyer Net Working Capital” has the meaning set forth in Section 2.2(b)(ii).
CAN-SPAM Act” has the meaning set forth in Section 3.13(j) hereof.
Cap” means an amount equal to Three Million Dollars ($3,000,000).
Capital Lease Liability” has the meaning set forth in Section 2.2(b)(i).
Claim” means, collectively, a Third Party Claim or a Direct Claim.
Claim Notice” has the meaning set forth in Section 9.2(d)(i) hereof.
Closing” has the meaning set forth in Section 8.1 hereof.
Closing Date” has the meaning set forth in Section 8.1 hereof.
Closing Date Purchase Price” has the meaning set forth in Section 2.1(a).

 

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COBRA” has the meaning set forth in Section 3.14(h) hereof.
Code” means the United States Internal Revenue Code of 1986, as amended.
Commercial Software” has the meaning set forth in Section 3.13(b).
Company Governmental Authorizations” has the meaning set forth in Section 3.10(d) hereof.
Company Licenses” has the meaning set forth in Section 3.13(c).
Company Products” has the meaning set forth in Section 3.13(h).
Company Proprietary Rights” has the meaning set forth in Section 3.13(a).
Company Websites” means Websites located at, or otherwise intended to be accessible by Internet users with web browsers visiting, uniform resource locators comprised of one of the domain names listed on Schedule 3.13(b)(i).
Computer System” has the meaning set forth in Section 3.13(k).
Confidential Information” has the meaning set forth in Section 9.3(c) hereof.
Consent(s)” means any approval, consent, ratification, permission, waiver or authorization (including any Governmental Authorization).
Contract” means any agreement, contract, license, lease, purchase order, obligation, promise, undertaking or other arrangement (whether written or oral and whether express or implied).
Current Operating Agreement” means that certain Second Amended and Restated Limited Liability Company Agreement for the Company, dated as of October 31, 2009, by and between the Company and the Seller.
Defense Counsel” has the meaning set forth in Section 9.2(d)(i) hereof.
Defense Notice” has the meaning set forth in Section 9.2(d)(i) hereof.
Direct Claim” has the meaning set forth in Section 9.2(e) hereof.
Documentation” means all source code, internal notes and memos, technical and design documentation, compiler information, drawings, system and program flow charts, diagrams, schematics, source language statements, user manuals, specifications, schematics, file layouts, report layouts, screen layouts, test results, activity or tracking logs or reports, other logs, and other installation, instructional, trouble shooting, customer service and training materials.
Effective Time” has the meaning set forth in Section 8.1 hereof.

 

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Embedded Software” has the meaning set forth in Section 3.13(b).
Employee Benefit Plan” means any of the following (whether written, unwritten or terminated) which the Company has maintained, sponsored, made contributions to, or with respect to which the Company has had any other liability (contingent or otherwise) at any time; or with respect to any of the following which is subject to Section 302 or Title IV of ERISA or Section 412 of the Code, any of the following with respect to which any ERISA Affiliate has or had any liability (contingent or otherwise) at any time: (a) any “employee welfare benefit plan,” as defined in Section 3(1) of ERISA, including, but not limited to, any medical plan, life insurance plan, short-term or long-term disability plan, dental plan, and sick leave; (b) any “employee pension benefit plan,” as defined in Section 3(2) of ERISA, including, but not limited to, any excess benefit, top hat or deferred compensation plan or any nonqualified deferred compensation or retirement plan or arrangement or any qualified defined contribution or defined benefit plan; or (c) any other plan, policy, program, arrangement or agreement which provides employee benefits or benefits to any current or former employee, dependent, beneficiary, director, independent contractor or like person, including, but not limited to, any severance agreement or plan, personnel policy, vacation time, holiday pay, service award, moving expense reimbursement programs, tool allowance, safety equipment allowance, material fringe benefit plan or program, bonus or incentive plan, stock option, restricted stock, stock bonus or deferred bonus plan, salary reduction, change-of-control or employment agreement (or consulting agreement with a former employee).
Environmental and Safety Requirements” has the meaning set forth in Section 3.22(f) hereof.
ERISA” means the Employee Retirement Income Security Act of 1974, as amended.
ERISA Affiliate” means any Person who constitutes or has constituted all or part of a controlled group or has been or is under common control with, or whose employees were or are treated as employed by, the Company, any subsidiary and/or any predecessor of the Company, under Section 414 of the Code.
Escrow Agent” has the meaning set forth in Section 2.1(b) hereof.
Escrow Agreement” has the meaning set forth in Section 2.1(b) hereof.
Escrow Amount” has the meaning set forth in Section 2.1(b) hereof.
Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.
Exhibits” means the exhibits attached to this Agreement.
Financial Statements” has the meaning set forth in Section 3.6 hereof.
FTC” has the meaning set forth in Section 6.6 hereof.

 

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Fully Diluted Interests” means (i) the interests issued and outstanding plus (ii) the interests issuable upon the exercise in full of all outstanding rights, options, warrants or agreements granted or issued by, or binding upon, the Company for the purchase or acquisition of any membership interests in the Company.
GAAP” means United States generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board (or any successor authority) that are applicable as the date of determination, consistently applied in accordance with past practices.
Governmental Authorization” means any approval, consent, license, permit, waiver, or other authorization issued, granted, given, or otherwise made available by or under the authority of any Governmental Body or pursuant to any Legal Requirement.
Governmental Body” means any:
(i) federal, state, county, municipal, city, town village, district, or other jurisdiction or government of any nature;
(ii) governmental or quasi-governmental authority of any nature (including any governmental agency, branch, department, official, or other entity and any court or other tribunal); or
(iii) body exercising, or entitled or purporting to exercise, any administrative, executive, judicial, legislative, police, regulatory, or taxing authority or power of any nature.
Guaranty Percentage” means, with respect to each Guarantor a fraction, the numerator of which is the proceeds received by such Guarantor in connection with transactions contemplated by this Agreement and the denominator of which is the total proceeds received by all of the Guarantors under this Agreement.
Harber Employment Agreement” has the meaning set forth in Section 7.2(h) hereof.
Hazardous Materials” has the meaning set forth in Section 3.22(f) hereof.
HSR Act” means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.
Income Tax Return” means any return, declaration, report, claim for refund, or information return or statement relating to Income Taxes, including any schedule or attachment thereto, and including any amendment thereof.
Income Taxes” means Taxes (i) imposed on, or with reference to, net income or gross receipts, or (ii) imposed on, or with reference to, multiple bases including net income or gross receipts.

 

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Indebtedness” of any Person means the principal of, premium, if any, unpaid interest on, and other amounts owing in respect of, (a) indebtedness for borrowed money, (b) indebtedness for borrowed money guaranteed, directly or indirectly, in any manner by such Person, or in effect guaranteed, directly or indirectly, in any manner by such Person through an agreement, contingent or otherwise, to supply funds to, or in any other manner invest in, the debtor, or to purchase indebtedness for borrowed money, or to purchase and pay for property if not delivered or pay for services if not performed, primarily for the purpose of enabling the debtor to make payment of the indebtedness for borrowed money or to assure the owners of the indebtedness for borrowed money against loss, (c) all indebtedness for borrowed money secured by any Lien upon property owned by such Person, even though such Person has not in any manner become liable for the payment of such indebtedness, and (d) renewals, extensions and refunding of any such indebtedness for borrowed money.
Indemnified Party” has the meaning set forth in Section 9.2(d)(i) hereof.
Indemnifying Party” has the meaning set forth in Section 9.2(d)(i) hereof.
Insolvency Laws” means any bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or other similar Legal Requirements affecting the enforcement of creditors rights generally, and general principles of equity (regardless of whether enforcement is considered in a proceeding in law or equity).
Insurance Policies” has the meaning set forth in Section 3.19 hereof.
Internal Controls” has the meaning of the term “internal control over financial reporting” as defined in the rules and regulations promulgated by the Securities and Exchange Commission.
Joinder” has the meaning set forth in Section 8.2(o) hereof.
Latest Balance Sheet” has the meaning set forth in Section 3.6(d) hereof.
Latest Balance Sheet Date” has the meaning set forth in Section 3.6(d) hereof.
Leased Real Property” has the meaning set forth in Section 3.11(b) hereof.
Legal Requirement” means any federal, state, local, municipal or other constitution, ordinance, regulation, statute, rule or other law adopted, enacted, implemented, or promulgated by or under the authority of any Governmental Body or by the eligible voters of any jurisdiction, and any agreement, approval, consent, injunction, judgment, license, Order, or Governmental Authorization by or with any Governmental Body or to which the Company is a party or by which the Company is bound.
Liens” has the meaning set forth in Section 1.2 hereof.
Losses” has the meaning set forth in Section 9.2(a) hereof.

 

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Major Customers” means the ten (10) largest customers of the Company, as measured by the dollar amount of the revenue received by the Company, for the twelve month period ending December 31, 2008.
Material Adverse Effect” means any change or effect that individually or when taken together with all other changes or effects that have occurred during any relevant period of time prior to the date of determination of the occurrence of such change or effect, is materially adverse to the Business, including the condition (financial or otherwise) or results of operations of the Company or the Business, but excluding any effect resulting from or relating to (a) general economic conditions or general business conditions in the industry in which the Business is primarily engaged (including as a result of an outbreak or escalation of hostilities involving the United States or the declaration by the United States of a national emergency or war, or the occurrence of any other calamity or crisis (including any act of terrorism) or any change in financial, political or economic conditions in the United States or elsewhere (including deterioration of the credit markets and the consequences resulting therefrom)) except to the extent such conditions or changes have had or are likely to have a disproportionate effect on the Company or its assets, liabilities or results of operations compared to other companies in the same industry, (b) any public announcements of the transactions contemplated by this Agreement or (c) any action taken by Buyer or any of its Affiliates or representatives in contravention of this Agreement.
Material Contracts” has the meaning set forth in Section 3.12(a).
Mays Employment Agreement” has the meaning set forth in Section 7.2(l) hereof.
Member” has the meaning given to such term in the Current Operating Agreement.
Net Working Capital” has the meaning set forth in Section 2.2(b)(i).
Non-Compete Party” has the meaning set forth in Section 9.3(a) hereof.
Object Code” means codes resulting from the translation or processing of the Source Code by a computer into machine language or intermediate code, which is thus in a form not convenient for human understanding of the program logic, but which is appropriate for execution or interpretation by a computer.
Objection Notice” has the meaning set forth in Section 2.2(b)(iii) hereof.
Open Source Licenses” has the meaning set forth in Section 3.13(h).
Open Source Software” has the meaning set forth in Section 3.13(h).
Order” means any award, injunction, judgment, order, ruling, subpoena, or verdict or other decision entered, issued, made, or rendered by any court, administrative agency, or other Governmental Body or by any arbitrator.

 

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Organizational Documents” means (a) the articles or certificate of incorporation and the bylaws of a corporation; (b) any charter or similar document adopted or filed in connection with the creation, formation, or organization of a Person (e.g., a certificate of formation, articles of organization or certificate of limited partnership), and any agreement governing such Person (e.g., a limited liability company agreement, operating agreement or partnership agreement); and (c) any amendment to any of the foregoing.
Owned Proprietary Rights” has the meaning set forth in Section 3.13(d).
Participating Percentage” has the meaning set forth in the Amended Operating Agreement.
PBGC” means Pension Benefit Guaranty Corporation.
Person” means any individual, sole proprietorship, partnership, limited liability company, joint venture, trust, unincorporated association, corporation, other entity or government (whether federal, provincial, state, county, city or otherwise, including, but not limited to, any instrumentality, division, agency or department thereof).
Pre-Closing Returns Taxes” has the meaning set forth in Section 9.4(d).
Pre-Closing Taxes” has the meaning set forth in Section 9.4(a).
Proceeding” means any claim, suit, litigation, arbitration, hearing, audit, charge, investigation, or other action (whether civil, criminal, administrative, investigative, or informal) commenced, brought, conducted, or heard by or before, or otherwise involving, any Governmental Body, arbitrator or mediator.
Proprietary Rights” of any Person means all intellectual property, confidential information, and proprietary information of such Person, including, but not limited to, (a) patents and patent applications (including all reissuances, continuations, continuations-in-part, revisions, extensions and reexaminations thereof) and patent disclosures and inventions (whether or not patentable and whether or not reduced to practice); (b) trademarks, service marks, trade dress, trade names, Internet domain names, assumed names and entity names, together with the goodwill of the Business associated with and symbolized by such trademarks, service marks, trade dress, trade names and entity names, in each case whether or not registered; (c) published and unpublished works of authorship, whether copyrightable or not, including all statutory and common law copyrights associated therewith; (d) all registrations, applications, extensions and renewals for any of the terms listed in clauses (b) and (c); (e) trade secrets; (f) Websites; (g) all computer programs, software and databases, including operating systems, applications, routines, interfaces, and algorithms, whether in Source Code or Object Code; and (h) Documentation.
Purchase Price” has the meaning set forth in Section 2.1 hereof.
Purchased Membership Interests” has the meaning set forth in the Recitals hereof.
Real Property Leases” has the meaning set forth in Section 3.11(b) hereof.
Representatives” means officers, directors, managers, employees, agents, attorneys, accountants, advisors and representatives.

 

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Restricted Period” means (i) for James K. Wagner and Steven R. Harber, a period commencing on the Closing Date and ending five (5) years from the Closing Date, (ii) for David Shub, a period commencing on the Closing Date and ending three (3) years from the Closing Date and (iii) for Paul Yerkes and C. Parkhill Mays, a period commencing on the Closing Date and ending on March 1, 2011.
Schedules” means the disclosure schedules attached to this Agreement.
SEC” means the Securities Exchange Commission.
Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.
Seller” has the meaning set forth in the Preamble hereof.
Seller Excluded Provisions” means Section 3.2 (Authorization), Section 3.3 (Capitalization), Section 3.20 (Taxes), Section 3.28 (Brokers or Finders), Section 4.1 (Organization and Good Standing), Section 4.2 (Authorization), Section 4.4 (Ownership; No Liens), and Section 4.8 (Brokers and Finders).
Seller Indemnified Party” has the meaning set forth in Section 9.2(c) hereof.
Seller Membership Interests” has the meaning set forth in Section 4.3 hereof.
Seller Post-Closing Tax Covenants” means the Tax covenants of the Seller set forth in Section 9.4.
Seller’s Knowledge” means, with respect to any applicable matter, the knowledge that Steven R. Harber, James K. Wagner, C. Parkhill Mays, David Shub or Paul Yerkes actually has or should have after reasonable inquiry.
Seller’s Operating Agreement” means that certain limited liability company agreement for the Seller, dated as of October 31, 2009, a copy of which is attached hereto as Exhibit 10.12.
Seller’s Returns” has the meaning set forth in Section 9.4(a).
Seller’s Tax Contest” has the meaning set forth in Section 9.4(g).
Settlement Date” has the meaning set forth in Section 2.2(b)(ii).
Shub Employment Agreement” has the meaning set forth in Section 7.2(i) hereof.
Source Code” means code suitable for reading or reproduction by computer and/or photocopying equipment, consisting of a full source language statement for software programs and applications and reusable software modules or templates, including, but not limited to, any programmers’ comments, any maintenance documentation, a master diskette or tape, duplicating instructions, and any and all other existing materials reasonably required to enable reasonably skilled programmers to use, compile, maintain, support and modify computer software.

 

64


 

Specified Tax Issues” means (i) the additional tax, interest and penalties arising under Section 409A of the Code and any reporting and withholding obligations related thereto, (ii) the issuance and sale by the Company of any units or other membership interests in the Company and any reporting and withholding obligations related thereto, (iii) any Tax liability or Loss resulting from any liability of the Company or the Seller to the New York State Department of Taxation and Finance, including liability or Loss resulting from the tax lien in favor New York State Department of Taxation and Finance described in Judgment Docket Book Inquiry, Control Number 002596107 — 01, with a docketing date of August 18, 2009, and (iv) any Tax liability or Loss resulting from any incorrect information provided by the Seller to the Company and the Buyer pursuant to Section 9.4(k).
Subsidiary” means, with respect to any Person, any corporation, limited liability company, partnership, association or entity of which (i) if a corporation, a majority of the total voting power of shares of stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers, or trustees thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person or a combination thereof, or (ii) if a limited liability company, partnership, association, or other entity (other than a corporation), a majority of partnership or other similar ownership interest thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more Subsidiaries of that Person or a combination thereof. For purposes hereof, a Person or Persons shall be deemed to have a majority ownership interest in a limited liability company, partnership, association or other entity (other than a corporation) if such Person or Persons shall be allocated a majority of limited liability company, partnership, association, or other entity gains or losses or shall be or control any managing director, managing member or general partner of such limited liability company, partnership, association, or other business entity.
Target Net Working Capital” has the meaning set forth in Section 2.2(b)(i).
Tax(es)” means any and all federal, state, local or foreign taxes, assessments and other governmental charges based on or measured by gross receipts, income, profits, sales, use and occupation, and franchise, estimated, alternative minimum, add on minimum, sales, use, real or immovable property, personal or movable property, intangible property, social security, employment, unemployment, payroll, deductions at source, employee or other withholding, including any interest, penalties or additions to tax or additional amounts in respect of the foregoing; whether disputed or not, and including any transferee or secondary liability in respect of any tax (whether by law, contractual agreement, or otherwise) and any liability in respect of any tax as a result of being a member of any affiliated, consolidated, combined, unitary, or similar group.
Tax Action” has the meaning set forth in Section 9.4(g).
Tax Representations” means the representations and warranties by the Seller set forth in Section 3.20 (Taxes).
Tax Returns” means returns, declarations, reports, claims for refund, information returns or other documents (including any related or supporting schedules, statements or information and any amendment thereof) filed or required to be filed in connection with the determination, assessment or collection of any Taxes of any party or the administration of any laws, regulations or administrative requirements relating to any Taxes.

 

65


 

TD Bank” means TD Bank, N.A. f/k/a Commerce Bank, N.A.
TD Bank Payoff Amount” has the meaning set forth in Section 8.2(o)(i) hereof.
Territory” has the meaning set forth in Section 9.3(b) hereof.
Third Party Claim” has the meaning set forth in Section 9.2(d)(i) hereof.
Third Party Licenses” has the meaning set forth in Section 3.13(c) hereof.
Third Party Marks” has the meaning set forth in Section 3.13(j) hereof.
Threshold” means $250,000.
A claim, Proceeding, dispute, action, or other matter will be deemed to have been “Threatened” if any notice, demand or statement has been given or made.
Transaction Documents” means each agreement, document, certificate and instrument being delivered pursuant to this Agreement including the Amended Operating Agreement.
Transfer” means, when used as a noun, any voluntary sale, hypothecation, pledge, assignment, attachment, or other transfer, and, when used as a verb, means, voluntarily to sell, hypothecate, pledge, assign, or otherwise transfer.
Transfer Taxes” has the meaning set forth in Section 9.4(b) hereof.
Unpaid Taxes” has the meaning set forth in Section 9.4(c) hereof.
VRA” has the meaning set forth in Section 3.28 hereof.
VRA Engagement Letter” means that certain Engagement Letter by and between the Company and VRA.
Wagner Employment Agreement” has the meaning set forth in Section 7.2(j) hereof.
WARN Act” has the meaning set forth in Section 3.15(a) hereof.
Websites” means all series of interconnected pages on the World Wide Web, documents, files, content, written materials, graphics and designs, formatted using HTML code or another web-based code, and all content, information and other materials associated therewith, including, but not limited to, (i) any computer software, script, programming code, formatting code, data, methodologies and processes used in the operation thereof or otherwise related thereto; (ii) all versions, works in process, updates, fixes, enhancements, and releases thereof; (iii) all mirror sites associated with the foregoing; and (iv) all copyrights, trademarks, trade secrets and other intellectual property, in any jurisdiction, inherent in the foregoing or appurtenant thereto.

 

66


 

Yerkes Employment Agreement” has the meaning set forth in Section 7.2(k) hereof.
10.13 Entire Agreement. This Agreement, the Preamble, the Recitals and all the Schedules and Exhibits attached to this Agreement (all of which shall be deemed incorporated in the Agreement and made a part hereof) and the other Transaction Documents set forth the entire understanding of the parties, and supersede and preempt all prior oral or written understandings and agreements with respect to the subject matter hereof (including, but not limited to, any term sheet and/or letter of intent), and shall not be modified or affected by any offer, proposal, statement or representation, oral or written, made by or for any party in connection with the negotiation of the terms hereof, and may be modified only by instruments signed by all of the parties hereto.
10.14 No Third Party Beneficiary. This Agreement shall inure exclusively to the benefit of and be binding upon the parties hereto and their respective successors, assigns, executors and legal representatives and any Person entitled to indemnification under Section 9.2. Nothing in this Agreement, express or implied, is intended to confer on any Person other than the parties hereto or their respective successors and assigns and any Person entitled to indemnification under Section 9.2 any rights, remedies, obligations or liabilities under or by reason of this Agreement.
10.15 Interpretative Matters. Unless the context otherwise requires, (a) all references to Articles, Sections or Schedules are to Articles, Sections or Schedules in this Agreement, (b) each accounting term not otherwise defined in this Agreement has the meaning assigned to it in accordance with GAAP, (c) words in the singular or plural include the singular and plural, pronouns stated in either the masculine, the feminine or neuter gender shall include the masculine, feminine and neuter and (d) the term “including” shall mean by way of example and not by way of limitation. The parties hereto have participated jointly in the negotiation and drafting of this Agreement. If an ambiguity or questions of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties, and no presumption or burden of proof shall arise favoring any party by virtue of the authorship of any of the provisions of this Agreement.
10.16 Further Assurances. The Buyer and the Seller shall from time to time after the Closing, at any other party’s reasonable request, execute and deliver or cause to be executed and delivered such instruments of transfer, conveyance and assignment (in addition to those delivered at the Closing), and take or cause to be taken such other action, as such any party may reasonably require, to effect, consummate, confirm, or evidence the transactions contemplated hereby. The Seller and the Buyer will also do such acts as are reasonably necessary to perform their covenants and agreements herein.

 

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ARTICLE XI
GUARANTEE BY THE GUARANTORS
11.1 Each Guarantor, for valuable consideration, hereby irrevocably, unconditionally, absolutely and continually jointly and severally guarantees (the “Guarantee”) the performance of the Seller of the terms and provisions of this Agreement (the “Guaranteed Obligations”), provided, however, that in no event shall any Guarantor be liable for an amount in excess of his Guaranty Percentage of the Guaranteed Obligations.
11.2 Each Guarantor hereby expressly waives: (i) notice of the acceptance by the Company of this Guarantee, (ii) notice of the existence or creation or non-payment of the Guaranteed Obligations, (iii) presentment, demand, notice of dishonor, protest, notice of protest and all other notices whatsoever, either in respect of this Guarantee or the Guaranteed Obligations, (iv) all diligence in collection or protection of, or realization upon, the Guaranteed Obligations, any obligations hereunder, or any security or guaranty of any of the foregoing and (v) any defenses not available to the Seller.
11.3 Each Guarantor agrees that his liability hereunder shall be primary and direct and that (i) the Buyer shall not be required to pursue any right or remedy it may have against the Seller or any other Guarantor under this Guarantee or otherwise or to first commence any proceeding or obtain any judgment against the Seller or any other Guarantor in order to enforce this Guarantee, and (ii) this Guarantee may be immediately enforced by the Buyer or its assigns upon the nonpayment when due of any amount due from the Seller to the Buyer with respect to the Guaranteed Obligations.
11.4 Each Guarantor agrees that the Seller may, from time to time, extend the time for performance or otherwise modify, alter, or change the terms of the Guaranteed Obligations without in any way releasing or discharging such Guarantor from any obligations hereunder; provided, however, that any such extension, modification, alteration or change does not increase the obligations of such Guarantor hereunder. This Guarantee shall not be released, extinguished, modified or in any way affected by the failure on the part of the Buyer or its assigns to enforce all the rights or remedies available to it. Each Guarantor consents and agrees that the insolvency, bankruptcy or dissolution of the Seller shall not relieve such Guarantor of his obligations assumed hereunder. This Guarantee shall inure to the benefit of the Buyer and its successors and assigns.
[Remainder of Page Intentionally Left Blank.
Signature Pages Follow.]

 

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IN WITNESS WHEREOF, the parties have executed this Membership Interests Purchase Agreement as of the date first written above.
         
  DISCOVERREADY LLC
 
 
  By:   /s/ James K. Wagner, Jr.    
    Name:   James K. Wagner, Jr.    
    Its: CEO and Manager 
 
  DR HOLDCO LLC
 
 
  By:   /s/ James K. Wagner, Jr.    
    Name:   James K. Wagner    
    Its: CEO and Manager 
 
  DOLAN MEDIA COMPANY
 
 
  By:   /s/ James P. Dolan    
    Name:   James P. Dolan    
    Its: Chairman, President and CEO 
 
  GUARANTORS
 
 
  /s/ James K. Wagner    
  James K. Wagner, individually   
     
  /s/ Steven R. Harber    
  Steven R. Harber, individually   
     
  /s/ David Shub    
  David Shub, individually   
 
  /s/ Paul Yerkes    
  Paul Yerkes, individually   
 
  /s/ C. Parkhill Mays    
  C. Parkhill Mays, individually   
     

 


 

         
TABLE OF CONTENTS
         
    Page  
 
       
ARTICLE I SALE AND TRANSFER OF THE PURCHASED MEMBERSHIP INTERESTS
    1  
 
       
1.1 Admission of the Buyer as a Member of the Company
    1  
1.2 Sale and Transfer of the Purchased Membership Interests by the Seller to the Buyer
    2  
1.3 Registration of the Purchased Membership Interests in the Buyer’s Name
    2  
 
       
ARTICLE II CONSIDERATION AND MANNER OF PAYMENT
    2  
 
       
2.1 Purchase Price
    2  
2.2 Net Working Capital and Capital Lease Liability Adjustment
    3  
 
       
ARTICLE III REPRESENTATIONS AND WARRANTIES PERTAINING TO THE COMPANY
    5  
 
       
3.1 Organization and Qualification of the Company
    5  
3.2 Authorization
    5  
3.3 Capitalization
    5  
3.4 No Conflict
    6  
3.5 No Consent Required
    6  
3.6 Financial Statements
    6  
3.7 Internal Controls
    7  
3.8 Absence of Liabilities; No Indebtedness
    8  
3.9 Personal Property
    8  
3.10 Compliance with Laws; Governmental Authorizations
    8  
3.11 Real Property
    9  
3.12 Contracts
    10  
3.13 Proprietary Rights
    12  
3.14 ERISA
    16  
3.15 Labor and Employment Matters and Workers Compensation
    18  
3.16 Employees
    19  
3.17 Books and Records
    20  
3.18 Affiliate Transactions
    20  
3.19 Insurance Policies
    20  
3.20 Taxes
    20  
3.21 Litigation
    22  
3.22 Environmental and Safety Requirements
    22  
3.23 Conduct of the Business
    24  
3.24 Absence of Questionable Payments
    25  
3.25 Government Contracts
    25  

 

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    Page  
 
       
3.26 Corporate Name; Business Locations
    25  
3.27 Major Customers
    25  
3.28 Brokers or Finders
    25  
 
       
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE SELLER
    26  
 
       
4.1 Organization and Good Standing
    26  
4.2 Authorization
    26  
4.3 Capitalization
    26  
4.4 Ownership; No Liens
    26  
4.5 No Conflict
    27  
4.6 No Business Activities
    27  
4.7 Compliance with Instruments
    27  
4.8 Brokers and Finders
    27  
4.9 No Consent Required
    27  
 
       
ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE BUYER
    27  
 
       
5.1 Organization and Good Standing
    27  
5.2 Authorization
    28  
5.3 No Conflict
    28  
5.4 Brokers and Finders
    28  
5.5 Buyer’s Reliance
    28  
 
       
ARTICLE VI COVENANTS PRIOR TO THE CLOSING
    29  
 
       
6.1 No Transfer or Inconsistent Action
    29  
6.2 Conduct of Business in Ordinary Course
    29  
6.3 No Solicitations
    30  
6.4 Buyer’s Investigation
    30  
6.5 Advice of Changes; Filings
    31  
6.6 HSR Act and Similar Compliance
    31  
6.7 Responsibility to Update and Disclose
    32  
6.8 Personal Guarantees
    33  
 
       
ARTICLE VII CONDITIONS PRECEDENT TO CLOSING
    33  
 
       
7.1 Conditions to All Parties’ Obligations
    33  
7.2 Obligations of the Buyer
    33  
7.3 Conditions to Obligations of the Seller
    35  
7.4 Reasonable Efforts
    36  
 
       
ARTICLE VIII CLOSING
    36  
 
       
8.1 Closing
    36  
8.2 Deliveries by the Seller
    36  
8.3 Deliveries by the Buyer
    39  
8.4 Termination
    39  

 

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    Page  
 
       
ARTICLE IX COVENANTS AFTER CLOSING
    40  
 
       
9.1 Access to Information
    40  
9.2 Indemnification
    41  
9.3 Restrictive Covenants
    46  
9.4 Tax Matters
    48  
9.5 Internal Controls
    52  
9.6 Securities Filings
    53  
9.7 Directors’ and Officers’ Indemnification
    53  
 
       
ARTICLE X MISCELLANEOUS
    54  
 
       
10.1 Notices, Consents, etc.
    54  
10.2 Severability
    55  
10.3 Amendment and Waiver
    55  
10.4 Counterparts
    55  
10.5 Deliveries
    55  
10.6 Expenses
    55  
10.7 Headings
    55  
10.8 Governing Law; Jurisdiction and Venue; Waiver of Jury Trial
    56  
10.9 Attorneys’ Fees
    56  
10.10 Incorporation of Exhibits, and Schedules
    56  
10.11 Assignment
    56  
10.12 Definitions
    56  
10.13 Entire Agreement
    67  
10.14 No Third Party Beneficiary
    67  
10.15 Interpretative Matters
    67  
10.16 Further Assurances
    67  
 
       
ARTICLE XI GUARANTEE BY THE GUARANTORS
    68  
 
       

 

iii


 

SCHEDULES
Schedule A — Members
Schedule 2.1(a) — Schedule of Sellers
Schedule 2.3 — Purchase Price Allocation
Schedule 3.1 — Foreign Jurisdictions
Schedule 3.3 — Capitalization
Schedule 3.4 — No Conflict
Schedule 3.5 — Required Consents
Schedule 3.6 — Financial Statements
Schedule 3.9(a) — Liens on Personal Property
Schedule 3.9(c) — Personal Property
Schedule 3.10(b) -Governmental Authorizations
Schedule 3.11 — Real Property Leases
Schedule 3.12(a) — Material Contracts
Schedule 3.12(e) — Material Contracts Subject to Termination, Modification or Acceleration
Schedule 3.13(b) — Proprietary Rights
Schedule 3.13(c) — Third Party Licenses and Company Licenses
Schedule 3.13(d)(ii) — Proprietary Rights Assignment Agreements
Schedule 3.13(f) — Restrictions on the Company
Schedule 3.13(h) — Company Products
Schedule 3.13(i) — Representations and Warranties on Company Products
Schedule 3.13(j) — Third Party Marks
Schedule 3.14(a) — Employee Benefit Plans
Schedule 3.14(b) — Unwritten Employee Benefit Plans
Schedule 3.14(g) — Non-Changeable Employee Benefit Plans
Schedule 3.15(a)(vii) — Employment Termination Conditions
Schedule 3.15(b) — Workers Compensation
Schedule 3.15(c) — Change in Control Payments
Schedule 3.16 — Employees
Schedule 3.18 — Affiliate Transactions
Schedule 3.19 — Insurance Policies
Schedule 3.20(e) — Tax Jurisdictions
Schedule 3.20(f) — Tax Liens
Schedule 3.21(a) — Proceedings
Schedule 3.26 — Corporate Names/Business Locations
Schedule 3.27 — Major Customers
Schedule 4.2 — Ownership
Schedule 4.4 — Sellers Conflicts
Schedule 5.3 — Buyer Conflicts

 

iv


 

EXHIBITS
Exhibit 1.1 — Amended Operating Agreement
Exhibit 2.1(b) — Escrow Agreement
Exhibit 2.2(b) — Working Capital Calculation Example
Exhibit 7.2(h) — Harber Employment Agreement
Exhibit 7.2(i) — Shub Employment Agreement
Exhibit 7.2(j) — Wagner Employment Agreement
Exhibit 7.2(k) — Yerkes Employment Agreement
Exhibit 7.2(l) — Mays Employment Agreement
Exhibit 10.12 — Seller’s Operating Agreement

 

v

EX-10.8 3 c91925exv10w8.htm EXHIBIT 10.8 Exhibit 10.8
Exhibit 10.8
BUSINESS CONSULTING AGREEMENT
This Business Consulting Agreement (the “Agreement”) is entered into effective this 28th day of September, 2009 (the “Effective Date”) by and between Mark E. Baumbach d/b/a Baumbach Consulting, 4517 Claremore Court, Edina, MN 55435 (the “Consultant”) and Dolan Media Company, 222 South Ninth Street, Suite 2300, Minneapolis, MN 55402 (the “Company” with reference to the following facts:
  A.  
The Company desires to receive certain consulting services from the Consultant.
 
  B.  
The Consultant desires to provide those consulting services to the Company under the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants set forth herein and intending to be legally bound, the parties hereto agree as follows:
 
1. Consulting Services. The Company hereby engages the Consultant to perform special studies, due diligence and other services (collectively, the “Services”) in accordance with the terms and conditions set forth in this Agreement. Consultant will provide the Services pursuant to project work statements (each an “SOW”), which shall describe the details of the Services the Company has requested for any particular project. Any of the Company’s chief executive officer, chief operating officer and chief financial officer may request for the Consultant to perform Services. Each SOW shall be incorporated in and made a part of this Agreement. To the extent there are any conflicts or inconsistencies between this Agreement and any SOW, this Agreement shall govern and control unless the parties have expressly agreed otherwise in the SOW that a specific provision of this Agreement is amended, in which case this Agreement shall be so amended, but only with respect to such SOW.
2. Term of the Agreement. This term of this Agreement will begin on the Effective Date and will remain in effect until terminated as provided in this Section 2.
  a.  
Either party may terminate this Agreement on 10 days’ notice to the other party in writing, by certified mail or personal delivery, provided that in the case of a termination by Baumbach, this Agreement will not be terminated until Baumbach has provided all the Services described under any active SOW.
 
  b.  
Either party may terminate this Agreement if the other party materially breaches any provision of this Agreement and such party fails to cure its breach within ten (10) days after written notice from the non-breaching party.
 
  c.  
 Upon termination of this Agreement or expiration of the term hereof:  (a) each party shall remain liable to the other for any breach of this Agreement prior to such expiration or termination; and (b) the Consultant will be entitled to all amounts due from the Company under this Agreement up to the date of termination or expiration.  
3. Time Devoted by Consultant. It is anticipated the Consultant will spend the amount of time reasonably necessary to provide the Services by the deadlines set by the Company, recognizing that the particular amount of time may vary from day to day and from week to week.

 

 


 

4. Place Where Services Will be Rendered. The Consultant will perform most Services at a location to be determined in Consultant’s sole discretion.  In addition, the Consultant will perform Services by telephone and at such other places as reasonably necessary to perform the Services, including the Company’s offices and the offices of potential acquisition targets.
5. Payment to Consultant. The Company will pay the Consultant at a rate of $200.00 per hour as consideration for the Services. The Company will also reimburse the Consultant for his reasonable out-of-pocket expenses incurred in providing the Services; provided that any such expenses have been previously approved in writing by the Company.  Promptly after the end of each calendar month, the Consultant will submit an itemized monthly invoice setting forth the hours for which Consultant provided Services and the type of services provided, along with the out-of-pocket expenses incurred in the preceding month with original receipts. The Company will pay the Consultant the amounts due as indicated by invoices submitted by the Consultant within 30 days of receipt.
6. Independent Contractor. By this Agreement, the parties intend to create the relationship of independent contractor and not that of an employer-employee and hereby acknowledge that, with respect to the Services, the Consultant has been engaged as an independent contractor and not an employee of the Company. Accordingly, the Consultant shall be responsible for payment of all taxes including U.S. Federal, State and local taxes arising out of the Consultant’s activities in accordance with this Agreement, including by way of illustration but not limitation, Federal and State income tax, Social Security tax, Unemployment Insurance taxes, and any other taxes or business license fee or insurance as required. Neither party is the agent of the other and neither party shall have the right to bind the other by contract or otherwise, except as expressly provided in this Agreement.
7. Work for Hire. Work Product (as defined below) is “work made for hire” for purposes of the copyright laws of the United States and will be the Company’s sole and exclusive property. Further, to the extent that (i) any Work Product may not by operation of law be deemed works made for hire, or (b) ownership rights with respect to any Work Product may not vest in Client as contemplated by this Agreement, then, in each case, this Agreement will automatically operate as an irrevocable grant, transfer, sale and assignment by Consultant to Company of all right, title and interest in such Work Product. The term “Work Product” means all original material created by the Company for Baumbach under this Agreement, including ideas, concepts, drawings, information, works of authorship, documents and tangible items.
8. Employment of Others. The Company may from time to time request that the Consultant arrange for the services of others.  All costs to the Consultant for those services will be paid by the Company but in no event shall the Consultant employ others without the prior authorization of the Company.
9. Confidentiality. The terms and conditions of that certain mutual nondisclosure agreement between the Company and Baumbach dated September 28, 2009 is incorporated herein by reference as if such terms and conditions were fully set forth in this Agreement.
10. No Assignment. Subject to the immediately following sentence, this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns, each of which such successors and permitted assigns shall be deemed to be a party hereto for all purposes hereof.  No party may assign, delegate or otherwise transfer either this Agreement or any of his or its rights, interests, or obligations hereunder without the prior written approval of the other parties.

 

 


 

11. Miscellaneous. This Agreement, together with each statement of work now or hereinafter executed, constitutes the entire agreement and understandings of the parties concerning the Services to be provided by Baumbach to the Company. This Agreement expressly supersedes all prior agreements and commitments of the parties, whether oral or written, regarding the Services. Nothing contained in this Agreement shall constitute a commitment by the Company or any of its affiliates to into any other arrangement or agreement relating to the Services. This Agreement may not be amended, supplement or modified, except in a writing signed by both of the parties. This Agreement shall be governed by and construed in accordance with the laws of the State of Minnesota, without giving effect to its choice of law principles. This Agreement shall bind and inure to the benefit of the parties hereto and their respective heirs, legal representatives, successors and assigns. The terms and conditions of paragraphs 7 and 9 shall survive the termination of this Agreement. This Agreement may be executed by facsimile or email transmission and in one or more counterparts, each of which shall constitute an original and all of which together shall constitute one instrument. The parties agree to execute such other document or instruments and take such other actions as are necessary to consummate the transactions contemplated by this Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

 


 

[SIGNATURE PAGE TO THE BUSINES CONSULTING AGREEMENT BETWEEN
MARK E. BAUMBACH AND DOLAN MEDIA COMPANY DATED SEPTEMBER 28, 2009]
         
  Dolan Media Company
 
 
   /s/ Scott J. Pollei    
  By:  Scott J. Pollei, its Executive Vice   
    President and Chief Operating Officer   
     
  /s/ Mark E. Baumbach    
  MARK E. BAUMBACH D/B/A BAUMBACH CONSULTING   
     

 

 

EX-10.9 4 c91925exv10w9.htm EXHIBIT 10.9 Exhibit 10.9
Exhibit 10.9
DISCOVERREADY LLC
THIRD AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT
dated as of November 2, 2009
THE MEMBERSHIP INTERESTS REPRESENTED BY THIS THIRD AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY OTHER APPLICABLE SECURITIES LAWS. SUCH MEMBERSHIP INTERESTS MAY NOT BE SOLD, ASSIGNED, PLEDGED OR OTHERWISE DISPOSED OF AT ANY TIME WITHOUT EFFECTIVE REGISTRATION UNDER SUCH ACT AND LAWS OR EXEMPTION THEREFROM, AND COMPLIANCE WITH THE OTHER RESTRICTIONS ON TRANSFERABILITY SET FORTH HEREIN.

 

 


 

THIRD AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT
OF
DISCOVERREADY LLC
THIS THIRD AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT, dated as of November 2, 2009, is by and among the Company and the Persons set forth as Members on Exhibit A attached hereto and made a part hereof. Capitalized terms used but not otherwise defined herein shall have the meanings specified in Article I hereof.
RECITALS
A. The Company was formed by the filing of its Certificate of Formation pursuant to the Act on February 7, 2005 for the purpose of conducting the Business.
B. The owners of the Minority Member a party thereto and the Company were parties to the Original Operating Agreement, which governed the constitution and operation of the Company prior to October 31, 2009.
C. The owners of the Minority Member a party thereto and the Company entered into the First Amended and Restated Operating Agreement, which was subsequently amended and governed the constitution and operation of the Company prior to November 1, 2009.
D. On November 1, 2009 all of the owners of the Minority Member contributed (the “Contribution”) all of their Membership Interests in the Company to the Minority Member pursuant to that certain Restructuring Agreement, dated as November 1, 2009, by and among the Minority Member and all of the owners of the Minority Member.
E. Effective immediately after the consummation of the Contribution, the Minority Member and the Company entered into the Second Amended and Restated Operating Agreement, dated as of November 1, 2009, to govern the constitution and operation of the Company from and after the Contribution until the effectiveness of this Agreement.
F. Effective as of the date hereof, Dolan purchased eighty-five percent (85%) of the Membership Interests in the Company from the Minority Member pursuant to the terms of that certain Membership Interests Purchase Agreement, dated as of the date hereof, by and among Dolan, the Company, the Minority Member and the other persons identified therein (the “Membership Interests Purchase Agreement”).
G. The parties hereto now desire to supersede the Second Amended and Restated Operating Agreement by entering into this Agreement which sets forth, among other things, the governance of the Company, the respective ownership interests of the Members, and the relationship of the parties thereto.

 

1


 

AGREEMENT
In consideration of the foregoing premises and the mutual covenants and agreements set forth herein, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
Article I
Defined Terms
In addition to the capitalized terms defined throughout this Agreement, the following capitalized terms shall have the meanings specified in this Article I.
Acquisition” means (i) the consolidation or merger of a Person into or with the Company in which the Company is the surviving entity, (ii) the acquisition, in one or more transactions, of a majority of the outstanding Equity Interests of a Person by the Company, or (iii) the sale or transfer by a Person of all or a significant portion of its assets or the assets of a division, business unit, business line or other operations of such Person to the Company.
Act” means the Delaware Limited Liability Company Act, and any successor statute, as amended from time to time.
Additional Members” means the Persons admitted as additional Members in accordance with Section 3.4.
Adjusted Capital Account Deficit” means, with respect to any Member, the deficit balance, if any, in such Member’s Capital Account as of the end of the relevant taxable year or other period, after giving effect to the following adjustments:
(a) credit such Capital Account by any amounts which such Member is obligated to restore pursuant to this Agreement (including any note obligations) or is deemed to be obligated to restore pursuant to the penultimate sentence of each of Regulations Sections 1.704-2(i)(5) and 1.704-2(g); and
(b) debit such Capital Account by the items described in Regulations Section 1.704-1(b)(2)(ii)(d)(4), (5) and (6).
The foregoing definition of Adjusted Capital Account Deficit is intended to comply with the provisions of Regulations Section 1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith.
Adjusted EBITDA” means the sum, without duplication, of net income of the Company for a specified period, as
  (A)  
reduced by the amount of any (i) gains derived from any unusual and infrequent, nonrecurring event that would be characterized as “extraordinary” under GAAP, (ii) gains resulting from the sale or other disposition of assets not in the ordinary course of business, (iii) gains attributable to adjustments relating to prior periods; all to the extent the foregoing items are included in the determination of net income; and

 

2


 

  (B)  
increased by the amount of any (i) interest expense, (ii) income or gross receipts taxes, (iii) depreciation and amortization, (iv) losses derived from any unusual and infrequent, nonrecurring event that would be characterized as “extraordinary” under GAAP, (v) net losses resulting from the sale or other disposition of assets not in the ordinary course of business, and (vi) deductions or losses attributable to adjustments relating to prior periods; all to the extent the foregoing items are deducted in the determination of net income.
Affiliate” of, or a Person “Affiliated” with, a specified Person means (i) a spouse, descendant (natural or adopted) or ancestor (natural or adopted) of such specified Person, or (ii) a Person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, the specified Person; provided, however, that, for the purposes of this definition, “control” (including, with correlative meanings, the terms “controlled by” and “under common control with”), as used with respect to any Person, shall mean 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 or by contract or otherwise. Without limiting the foregoing, the ownership of ten percent (10%) or more of the voting securities of a Person shall be deemed to constitute control.
Agreement” means this Third Amended and Restated Limited Liability Company Agreement, as amended, modified, supplemented or restated from time to time in accordance with its terms.
Appraiser” is defined in Section 7.7(c).
Assumed Tax Rate” means, with respect to any taxable year of the Company, the maximum federal, state and local income tax rate (adjusted for any deductions or credits allowed by one taxing authority for taxes paid to another taxing authority and further adjusted to the extent the long-term capital gain tax rate is applicable to the taxable income with respect to which tax distributions are to be made under Section 4.1(b)) applicable to an individual resident of New York, New York for such taxable year, all as reasonably determined by the Manager.
Attorney-in-Fact” is defined in Section 5.10(a).
Available Cash” means all cash revenues, funds and proceeds received by the Company and any of its subsidiaries and any other any source, less the sum of (i) all payments of principal, interest and other amounts on any indebtedness of the Company; (ii) all expenses and expenditures paid in cash by the Company; and (iii) working capital reserves and reserves for contingencies as determined by the Manager in its sole discretion.
Business” means (i) the business of providing document review and discovery management solutions and related services to its customers; and (ii) any similar, related or complementary business or activity that the Company conducts, as may be modified or expanded by the Manager as set forth herein.

 

3


 

Business Day” means any day, other than a Saturday or a Sunday, that is neither a legal holiday nor a day on which banking institutions are generally authorized or required by law or regulation to close in the City of New York, New York.
Buying Holder” is defined in Section 7.5(a).
Call Closing” is defined in Section 7.8(b).
Call Closing Date” is defined in Section 7.8(b).
Call Delivery Date” is defined in Section 7.8(a).
Call Equity Value Per Common Unit” means, as of a specified date, an amount equal to (a) 1.05 multiplied by (b) the Equity Value Per Common Unit.
Call Note” means a promissory note issued by Dolan pursuant to Section 7.8, which such Call Note shall (i) be unsecured, (ii) be for a term of three years with level payments of principal and interest during the term thereof, (iii) bear interest at a rate equal to the then prevailing prime rate plus one percent (1%) and (iv) be subject to the terms and conditions of any subordination agreement requested by the Senior Agent and the Senior Lenders.
Call Notice” is defined in Section 7.8(a).
Call Purchase Price” means an amount equal to the product of (i) the Call Equity Value Per Common Unit, multiplied by (ii) the number of Common Units represented by the Call Securities (determined on a Common Equivalent Basis).
Call Purchase Price Calculation” is defined in Section 7.8(c).
Call Purchase Price Objection Notice” is defined in Section 7.8(c).
Call Securities” is defined in Section 7.8(b).
Capital Account” means the account maintained by the Company for each Member. If any Membership Interest in the Company is transferred pursuant to the terms hereof, the transferee shall succeed to the Capital Account of the transferor to the extent the Capital Account is attributable to the transferred Membership Interest in the Company. It is intended that the Capital Accounts of all Membership Interest Holders or other holders of Membership Interests in the Company shall be maintained in compliance with the provisions of Regulation Section 1.704-1(b), and all provisions hereof relating to the maintenance of Capital Accounts shall be interpreted and applied in a manner consistent with that Regulation.
Capital Call Notice” is defined in Section 3.3(a).
Capital Contribution” means the total amount of cash and the Gross Asset Value of any other assets contributed to the Company by a Member, net of liabilities assumed or to which the assets contributed are subject.

 

4


 

Certificate of Formation” means the Certificate of Formation of the Company as filed with the Secretary, and as the same may be amended or amended and restated from time to time.
Certificates” is defined in Section 7.1.
Code” means the United States Internal Revenue Code of 1986, as amended, or any corresponding provision of any succeeding law.
Common Equivalent Basis” shall mean, as of a specified date, the sum of (i) the number of Common Units outstanding as of such date, plus (ii) the number of Common Units issuable upon conversion, exercise or exchange of any Convertible Securities then outstanding or issuable pursuant to any other agreement or arrangement then in effect as of such date.
Common Unit” means a Membership Interest representing a fractional part of the ownership of the Company and having the rights and obligations specified with respect to the Common Units in this Agreement.
Company Property” means any and all property, real or personal, tangible or intangible, owned of record or beneficially by the Company.
Company” means the Delaware limited liability company formed pursuant to the Certificate of Formation, as such limited liability company may be constituted from time to time, and including its successors.
Convertible Securities” means any rights, options or warrants to purchase Common Units or other Membership Interests in the Company, and securities of any type whatsoever that are, or may become, convertible into or exchangeable for Common Units or other Membership Interests in the Company.
Declined Contribution” is defined in Section 3.3(b).
Declined Offered Securities” is defined in Section 7.5(b).
Declining Buying Holder” is defined in Section 7.5(b).
Declining Investor” is defined in Section 3.5(b).
Depreciation” means, for each Fiscal Year, an amount equal to the depreciation, amortization, or other cost recovery deduction allowable with respect to assets for such Fiscal Year, except that if the Gross Asset Value of the assets differs from its adjusted basis for federal income tax purposes at the beginning of such Fiscal Year, Depreciation shall be an amount which bears the same ratio to such beginning Gross Asset Value as the federal income tax depreciation, amortization, or other cost recovery deduction for such Fiscal Year bears to such beginning adjusted tax basis; provided, however, that if the adjusted basis for federal income tax purposes of an asset at the beginning of such Fiscal Year is zero, Depreciation shall be determined with reference to such beginning Gross Asset Value using any reasonable method selected by the Manager.

 

5


 

Disputing Buying Holder” is defined in Section 7.5(e).
Disputes” is defined in Section 10.5(a).
Dolan” means Dolan Media Company, a Delaware corporation.
Dolan Sale Amount” is defined in Section 7.9.
Economic Interest” means a Member’s or Economic Owner’s share of the Company’s Profits and Losses and distributions pursuant to this Agreement and the Act.
Economic Owner” means any owner of an Economic Interest who is not a Member. No owner of an Economic Interest which is not a Member shall be deemed a “member” (as the term is used in the Act) of the Company and, except as otherwise specifically provided herein, shall have no rights as a “Member” under this Agreement, including, but not limited to, any right to participate in the management and affairs of the Company, the right to vote or otherwise participate in any decisions of the Members, or any right to receive information concerning the Business and the Company such as the rights to inspect the Company’s books and records pursuant to Section 9.2 or otherwise or to receive reports pursuant to Section 9.4 or otherwise.
Eligible Investor” is defined in Section 3.5.
Equity Interests” means capital stock, equity interests or profit participations or other similar interests, however designated, of or in a corporation, partnership, limited liability company, trust or other entity, whether or not any of such interests are voting, and including, but not limited to, common stock, member interests, warrants, preferred stock, convertible debentures, and all agreements, instruments and documents convertible, in whole or in part, into any one or more or all of the foregoing.
Equity Value” means, as of a specified date, the aggregate amount that would be distributed by the Company to the Membership Interest Holders if the Company were sold as a going concern as of such date in an arm’s length transaction between a willing seller and a willing buyer after subtracting the aggregate amount of any indebtedness of the Company as of such date and after taking into consideration reasonable transaction fees and expenses for such a transaction, contingencies, payouts under any equity incentive compensation plan and any other reasonable transaction costs, but without discount for the illiquidity of any equity securities in the Company or the minority interest represented by any such securities.
Equity Value Per Common Unit” means, as of a specified date, an amount equal to the quotient of (x) Equity Value and (y) the number of Common Units of the Company outstanding as of such date (determined on a Common Equivalent Basis).
Excluded Securities” shall mean (i) the issuance of Equity Interests or Convertible Securities in the Company (A) to employees, consultants, officers or directors of the Company pursuant to any equity incentive plans adopted by the Manager, (B) in connection with an Acquisition, (C) pursuant to a public offering or (D) pursuant to a waiver of preemptive rights by a Supermajority-in-Interest of the Members; or (ii) the issuance of Common Units upon conversion of any Convertible Securities or other class or series of Membership Interests.

 

6


 

Exiting Minority Member” is defined in Section 7.7(a).
First Amended and Restated Operating Agreement” means that certain First Amended and Restated Limited Liability Company Agreement of discoverReady LLC, dated as of October 31, 2009, by and among the owners of the Minority Member a party thereto and the Company which superseded in its entirety the Original Operating Agreement.
Fiscal Year” means the calendar year or such other period selected by the Manager. The Company’s tax year shall be the same as its Fiscal Year.
Forced Sale Equity Value Per Common Unit” means, as of a specified date, an amount equal to the Equity Value Per Common Unit.
Forced Sale Purchase Price” means an amount equal to the product of (i) the Forced Sale Equity Value Per Common Unit, multiplied by (ii) the number of Common Units represented by the Parkhill Securities (determined on a Common Equivalent Basis).
Formula Value Per Common Unit” means, as of a specified date, an amount equal to the quotient of (x) the difference between (i) the product of (A) the Company’s Adjusted EBITDA for the most recently completed twelve (12) calendar months prior to such date and (B) 5.0 and (ii) the aggregate amount of any indebtedness of the Company as of such date and (y) the number of Common Units of the Company outstanding as of such date (determined on a Common Equivalent Basis).
GAAP” means United States generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as may be approved by a significant segment of the accounting profession, which are applicable to the circumstances as of any date of determination.
Gross Asset Value” means, with respect to any asset, the asset’s adjusted basis for federal income tax purposes, except as follows:
(a) The initial Gross Asset Value of any asset contributed by a Member to the Company shall be the fair market value of such asset, as determined by the Manager;
(b) The Gross Asset Values of all Company Property shall be adjusted to equal the respective fair market values of such property, as determined by the Manager, as of the following times: (i) the acquisition of an additional Economic Interest by any new or existing Member in exchange for more than a de minimis Capital Contribution; (ii) the distribution by the Company to a Member of more than a de minimis amount of Company Property as consideration for an Economic Interest; and (iii) the liquidation of the Company within the meaning of § 1.704-1(b)(2)(ii)(g) of the Regulations; provided, however, that adjustments pursuant to clauses (i) and (ii) above shall be made only if the Manager reasonably determines that such adjustments are necessary or appropriate to reflect the relative economic interests of the Members in the Company;

 

7


 

(c) The Gross Asset Value of any Company Property distributed to any Member shall be adjusted to equal the fair market value of such property on the date of distribution as determined by the Manager; and
(d) The Gross Asset Values of Company assets shall be increased (or decreased) to reflect any adjustments to the adjusted basis of such assets pursuant to Section 734(b) or Section 743(b) of the Code, but only to the extent that such adjustments are taken into account in determining Capital Accounts pursuant to § 1.704-1(b)(2)(iv)(m) of the Regulations; provided, however, that Gross Asset Values shall not be adjusted pursuant to this subsection (d) to the extent the Manager determines that an adjustment pursuant to subsection (b) hereof is necessary or appropriate in connection with a transaction that would otherwise result in an adjustment pursuant to this subsection (d).
If the Gross Asset Value of an asset has been determined or adjusted pursuant to paragraph (a), (b), or (d) hereof, such Gross Asset Value shall thereafter be adjusted by the Depreciation taken into account with respect to such asset for purposes of computing Profits and Losses.
Holdco Percentage” means, with respect to each equity holder in the Minority Member, the percentage set forth opposite such Person’s name on Exhibit C attached hereto (as such Schedule may be as amended from time to time by written notice from the Minority Member to the Manager).
Indemnitees” is defined in Section 5.6.
Involuntary Withdrawal” means, with respect to a Member, the occurrence of any of the following events:
(a) the Member (i) makes a general assignment for the benefit of creditors; (ii) files a voluntary petition of bankruptcy; is adjudged bankrupt or insolvent or has entered against it an order for relief in any bankruptcy or insolvency proceeding; (iii) seeks, consents to, or acquiesces in the appointment of a trustee for, receiver for, or the liquidation of the Member or of all or any substantial part of the Member’s properties; or (iv) files an answer or other pleading admitting, or failing to contest, the material allegations of a petition filed against the Member in any proceeding described in subsections (i) through (iii) hereof;
(b) if the Member is a partnership or limited liability company, the dissolution and commencement of winding up of the Member;
(c) if the Member is a corporation, the dissolution of the corporation or the revocation of its charter; or
(d) if the Member is an individual, his or her death or legal incompetency.

 

8


 

Liquidation Amount” means, with respect to a Member, the amount distributable to such Member pursuant to Section 8.2(a)(iv).
Make-Up Buying Holders” is defined in Section 7.5(b).
Majority-in-Interest of the Members” means the Member or Members holding in the aggregate a majority of the Participating Percentages held by the Members.
Manager” is defined in Section 5.1(a).
Mays Employment Term” has the same meaning as the term “Employment Term,” as that term is defined in that certain Employment Agreement, dated as of the date hereof, by and between the Company and C. Parkhill Mays.
Member” means any Person whose name is set forth on Exhibit A attached hereto or who has become a Member pursuant to the terms of this Agreement.
Membership Interest Holder” means any Person who holds a Membership Interest, whether as a Member or as an Economic Owner.
Membership Interest” means an ownership interest in the Company having the rights and obligations provided in this Agreement.
Minority Member” means DR Holdco LLC, a Delaware limited liability company.
Negative Capital Account” means a Capital Account with a balance of less than zero.
Notice” is defined in Section 10.2.
Notice of Exercise” is defined in Section 7.5(b).
Offered Securities” is defined in Section 7.5(a).
Offered Securities Closing Date” is defined in Section 7.5(c).
Offeror” is defined in Section 7.5(a).
Officer” is defined in Section 5.2(a).
Optional Capital Contributions” is defined in Section 3.3.
Original Operating Agreement” means that certain Limited Liability Company Agreement of discoverReady LLC, dated as of September 15, 2005, by and among the owners of the Minority Member a party thereto and the Company.
Outside Date” is defined in Section 7.5(d).

 

9


 

Parkhill Securities” is defined in Section 7.7(d).
Participating Buying Holder” is defined in Section 7.5(b).
Participating Investor” is defined in Section 3.4(b)(ii).
Participating Notice” is defined in Section 3.4(b)(ii).
Participating Percentage” means, as to each Member at any given time, the percentage equivalent of a fraction, the numerator of which is the total number of Common Units held by such Member, and the denominator of which is the total number of Common Units outstanding hereunder (all as determined on a Common Equivalent Basis).
Participating Transfer Notice” is defined in Section 7.5(b).
Permitted Transferee” means, (i) with respect to a Member who is an individual, the spouse, the lineal descendants or ancestors of such Member or any trust created primarily for the benefit of such Member or his or her spouse, lineal descendants and/or ancestors, (ii) with respect to a Member that is a trust, the beneficiaries of such trust, and (iii) with respect to a Member that is an entity, the direct equity owners of such Member.
Person” means and includes any individual, corporation, partnership, association, limited liability company, trust, estate, custodian, nominee or any other individual or entity in its own or any representative capacity.
Profits” and Losses” for each period taken into account under Article IV, an amount equal to the Company’s taxable income or taxable loss for such period, determined in accordance with federal income tax principles, with the following adjustments:
(a) There shall be added to such taxable income or taxable loss an amount equal to any income received by the Company during such period which is wholly exempt from federal income tax (e.g., interest income which is exempt from federal income tax under Section 103 of the Code);
(b) Any expenditures of the Company described in Section 705(a)(2)(B) of the Code or treated as Section 705(a)(2)(B) expenditures pursuant to § 1.704-1(b)(2)(iv)(i) of the Regulations, and not otherwise taken into account in computing Profits or Losses, shall be subtracted from such taxable income or loss;
(c) In the event the Gross Asset Value of any Company asset is adjusted pursuant to the terms of this Agreement, the amount of such adjustment shall be taken into account as gain or loss from the disposition of such asset for purposes of computing Profits or Losses;
(d) Gain or loss resulting from any disposition of Company Property with respect to which gain or loss is recognized for federal income tax purposes shall be computed by reference to the Gross Asset Value of the Company property disposed of, notwithstanding that the adjusted tax basis of such Company property differs from its Gross Asset Value;

 

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(e) In lieu of the depreciation, amortization, and other cost recovery deductions taken into account in computing such taxable income or loss, there shall be taken into account Depreciation for such Fiscal Year or other period;
(f) To the extent an adjustment to the adjusted tax basis of any Company asset pursuant to Section 734(b) or Section 743(b) of the Code is required pursuant to § 1.704-1(b)(2)(iv)(m)(4) of the Regulations to be taken into account in determining Capital Accounts as a result of a distribution other than in liquidation of a Member’s Economic Interest, the amount of such adjustment shall be treated as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases the basis of the asset) from the disposition of the asset and shall be taken into account for purposes of computing Profits or Losses; and
(g) Any items that are specially allocated pursuant to Section 4.3(c) and Section 4.4 shall not be taken into account in computing Profits and Losses.
Proportionate Amount” means a number of Common Units equal to the product of (i) the number of Common Units held by the Minority Member and (ii) the applicable Holdco Percentage.
Purchase Amount” is defined in Section 7.9.
Put Closing” is defined in Section 7.7(b).
Put Closing Date” is defined in Section 7.7(b).
Put Delivery Date” is defined in Section 7.7(a).
Put Equity Value Per Common Unit” means, as of a specified date, an amount equal to (a) 0.95 multiplied by (b) the Equity Value Per Common Unit.
Put Note” means a promissory note issued by the Company pursuant to Section 7.7, which such Put Note shall (i) be unsecured, (ii) be for a term of three years with level monthly payments of principal and interest during the term thereof, (iii) bear interest at a fixed rate equal to the then prevailing prime rate plus one percent (1%) and (iv) be subject to the terms and conditions of any subordination agreement requested by the Senior Agent and the Senior Lenders.
Put Notice” is defined in Section 7.7(a).
Put Purchase Price” means an amount equal to the product of (i) the Put Equity Value Per Common Unit, multiplied by (ii) the number of Common Units represented by the Put Securities (determined on a Common Equivalent Basis).
Put Purchase Price Calculation” is defined in Section 7.7(c).

 

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Put Purchase Price Objection Notice” is defined in Section 7.7(c).
Put Securities” is defined in Section 7.7(b).
Regulations” means the income tax regulations, including any temporary regulations, from time to time promulgated under the Code.
ROFR Closing” is defined in Section 7.5(c).
Sale of the Company” means either (i) the sale, lease, license, transfer, conveyance or other disposition, in one transaction or a series of related transactions, of a material portion of the assets of the Company and any of its subsidiaries, taken as a whole, or (ii) a transaction or series of transactions (including by way of merger, consolidation, recapitalization, reorganization or sale of stock or equity interests) the result of which is that the Members immediately prior to such transaction are, after giving effect to such transaction, no longer, in the aggregate, the “beneficial owners” (as such term is defined in Rule 13d-3 and Rule 13d-5 promulgated under the Securities Exchange Act), directly or indirectly through one or more intermediaries, of more than fifty percent (50%) of the voting power of the outstanding Membership Interests of the Company.
Second Amended and Restated Operating Agreement” means that certain Second Amended and Restated Limited Liability Company Agreement of discoverReady LLC, dated as of November 1, 2009, by and between the Minority Member and the Company which superseded in its entirety the First Amended and Restated Operating Agreement.
Secretary” means the Secretary of State of the State of Delaware.
Securities Act” means the Securities Act of 1933, as amended, or any similar federal statute as the same shall be in effect from time to time.
Sell” (or any derivative thereof), as to any Common Unit, shall mean to sell, or in any other way directly or indirectly transfer, assign, distribute or otherwise dispose of such Common Unit, either voluntarily or involuntarily.
Selling Holder” is defined in Section 7.5(a).
Selling Minority Member” is defined in Section 7.8(a).
Senior Agent” means U.S. Bank National Association, a national banking association, as agent (together with any successor in such capacity) for the Senior Lenders.
Senior Credit Agreement” means (i) that certain Second Amended and Restated Credit Agreement, dated as of August 8, 2007 (as the same may hereafter be amended, supplemented, increased, extended, restated, or otherwise modified from time to time), by and among the Company and certain Affiliates of the Company parties thereto, as the borrowers thereunder, the Senior Agent and the Senior Lenders and (ii) any other loan or credit agreement or other financing arrangement entered into in connection with any refinancing of all or any portion of the indebtedness incurred under any agreement described in the immediately preceding clause (i) or this clause (ii).

 

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Senior Indebtedness” means all obligations, liabilities and indebtedness of the Company incurred from time to time under a Senior Credit Agreement.
“Senior Lenders” means those various financial institutions which may become, from time to time, lenders under a Senior Credit Agreement.
Senior Liens” means the liens and security interests granted by the Company in all of its rights, title and interest in and to its now owned and hereinafter acquired assets to the Senior Agent and/or Senior Lenders pursuant to a Senior Security Agreement.
Senior Security Agreement” means any collateral or security agreement by and between the Company and the Senior Agent, on behalf of the Senior Lenders, entered into, from time to time, in connection with, or otherwise securing, any Senior Indebtedness.
Substituted Member” means any Person admitted to the Company as a substitute or additional Member pursuant to the provisions of Section 7.3.
Supermajority-in-Interest of the Members” means the Member or Members holding in the aggregate ninety (90%) or more of the Participating Percentages held by the Members.
Tag-Along Notice” is defined in Section 7.9.
Tag-Along Amount” is defined in Section 7.9.
Tag Transfer Notice” is defined in Section 7.9.
Tax Distribution” means distributions by the Company pursuant to Section 4.1(b).
Tax Matters Partner” is defined in Section 9.5.
Third Party Claim” is defined in Section 5.6.
Third Party Purchaser” is defined in Section 7.6.
Transaction” is defined in Section 7.9.
Transfer” means, when used as a noun, any direct or indirect voluntary sale, hypothecation, pledge, assignment, attachment, or other transfer, and, when used as a verb, means, directly or indirectly to voluntarily sell, hypothecate, pledge, assign, or otherwise transfer.
Transfer Notice” is defined in Section 7.5(a).
Transfer Offer” is defined in Section 7.5(a).
Transfer Offer Price Per Security” is defined in Section 7.5(a).
UCC” is defined in Section 7.1.

 

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Article II
Formation and Name; Office; Purpose; Term
2.1. Formation of the Company. The Company was formed as a Delaware limited liability company pursuant to the Act. The Manager shall use reasonable efforts to assure that all filing, recording, publishing and other acts necessary or appropriate for compliance with all requirements for the continuation of the Company as a limited liability company under the Act are made or taken. Each party hereto represents and warrants that it is duly authorized to join in this Agreement and that the Person executing this Agreement on its behalf is duly authorized to do so.
2.2. Name of the Company. The name of the Company is “discoverReady LLC”. The Company may do business under that name and under any other name or names that the Manager selects. If the Company does business under a name other than that set forth in its Certificate of Formation, then the Company shall comply with any requirements of the Act or applicable law necessary to do business under such name or names.
2.3. Purpose. The purpose of the Company is to engage in the Business and, in connection therewith, in any lawful act or activity which may be conducted by a limited liability company organized under the laws of the State of Delaware and in all activities necessary or incidental to the foregoing. The purpose of the Company may be changed only with the written consent of the Manager.
2.4. Term. The term of the Company began with the filing of the Certificate of Formation with the Secretary and shall continue in perpetuity, unless its existence is terminated pursuant to Article VIII hereof.
2.5. Registered Office; Registered Agent; Principal Office; Other Offices. The registered office of the Company required by the Act to be maintained in the State of Delaware shall be the office of the registered agent named in the Certificate of Formation or such other office (which need not be a place of business of the Company) as the Manager may designate from time to time in the manner provided by law. The registered agent of the Company in the State of Delaware shall be the registered agent named in the Certificate of Formation or such other Person or Persons as the Manager may designate from time to time in the manner provided by law. The principal office of the Company shall be at such place as the Manager may designate from time to time, which need not be in the State of Delaware, and the Company shall maintain records there. The Company may have such other offices as the Manager may designate from time to time.
2.6. Members. The name, address, fax and telephone numbers, email address, tax identification number, Common Units and Participating Percentage of each Member as of the date hereof are set forth on Exhibit A attached hereto. The Manager can amend such Exhibit from time to time in accordance with the terms of this Agreement, and thereafter, on the books and records of the Company. Any reference in this Agreement to Exhibit A shall be deemed to refer to Exhibit A as amended and then in effect in accordance with the terms of this Agreement.

 

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2.7. No State-Law Partnership. Except for tax purposes as set forth in the next succeeding sentence of this Section 2.7, the Members intend that the Company not be a partnership (including, but not limited to, a limited partnership) or joint venture, and that no Member be a partner or joint venturer of any other Member by virtue of this Agreement, and neither this Agreement nor any other document entered into by the Company or any Member relating to the subject matter hereof shall be construed to suggest otherwise. The Members intend that the Company shall be treated as a partnership for federal and, if applicable, state or local income tax purposes, and that each Member and the Company shall file all tax returns and shall otherwise take all tax and financial reporting positions in a manner consistent with such treatment.
Article III
Capital Contributions
3.1. Membership Interests. The “membership interests” (as defined in the Act) in the Company shall be represented by the Membership Interests, which shall represent the Members’ interest in the Profits and Losses of the Company and the right to vote on all matters as provided in this Agreement. Each Common Unit represents the right to one vote on any matter that is or can be subject to a vote by a Member of the Company as provided for in this Agreement, the Act or applicable law. Upon receipt of a Member’s Capital Contribution, such Member shall be deemed to own, and shall be the sole record owner of, the Common Units set forth opposite its name on Exhibit A hereto, which schedule may be amended from time to time by the Manager (without the consent of any other Person) in accordance with the terms of this Agreement.
3.2. Initial Capital Contributions. On or about the time of their execution of this Agreement, each Member has made an initial capital contribution to the capital of the Company in the amount set forth in the books and records of the Company. Each Member shall be liable only to make such Member’s initial capital contribution to the Company expressly provided in this Section 3.2 and shall have no obligations to contribute additional capital to the Company.
3.3. Optional Capital Contributions by Members. If additional capital is requested by the Manager, Dolan and the Minority Member may make additional Capital Contributions to the Company (the “Optional Capital Contributions”), pursuant to the following procedures:
(a) Capital Call Notices of Optional Capital Contributions. The Manager shall send a notice to the Minority Member (the “Capital Call Notice”) that sets forth (i) a description of the contemplated use of such Optional Capital Contributions (including a description of the contemplated Acquisition if the Capital Call Notice is to fund such an Acquisition); (ii) the aggregate amount of such Optional Capital Contributions being called by the Manager; (iii) the amount of each Member’s pro rata share (in proportion to their then current Participating Percentages) of such Optional Capital Contributions; and (iv) the date by which such Optional Capital Contributions must be paid to the Company. Within ten (10) Business Days of the date of delivery of the Capital Call Notice, the Minority Member shall notify the Manager whether such Minority Member intends to contribute its Optional Capital Contribution requested pursuant to the Capital Call Notice. If the Minority Member fails to respond to such Capital Call Notice within such ten (10) day period, then such Minority Member shall be deemed to have declined to contribute its or his Optional Capital Contribution.

 

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(b) Procedures Regarding Insufficient Optional Capital Contributions. If the Minority Member decides not to contribute its pro rata share of an Optional Capital Contribution prior to the expiration of the period specified in the Capital Call Notice (such amounts are hereinafter referred to as the “Declined Contribution”), the Manager, in its sole discretion, may decide to allow Dolan or its Affiliate to make additional Capital Contributions to the Company to fund Dolan’s pro rata share of its Optional Capital Contribution and all or any portion of such Declined Contribution. Notwithstanding the foregoing, if the Capital Call Notice is to fund an Acquisition and the Minority Member does not elect to make an Optional Capital Contribution in an amount equal to at least fifty percent (50%) of the amount set forth in the Capital Call Notice sent to the Minority Member, Dolan shall not be allowed to make the Optional Capital Contribution to the Company to fund the Acquisition that is the subject to the Capital Call Notice unless the Minority Member otherwise consents to such Optional Capital Contribution. Any such Optional Capital Contributions made pursuant to this Section 3.3(b) shall be in exchange for the issuance of additional Common Units in the Company in an amount equal to the amount of Capital Contributions made by Dolan (including the amount of such Declined Contribution funded by Dolan) pursuant to this Section 3.3(b) divided by the Formula Value Per Common Unit.
(c) Rejection of Optional Capital Contribution. If the Minority Member does not elect to make an Optional Capital Contribution in an amount equal to at least fifty percent (50%) of the amount set forth in the Capital Call Notice sent to the Minority Member, then the Manger, in its sole discretion, may, if the purpose of the Capital Call Notice is to fund an Acquisition, allow Dolan or its designee to pursue and consummate the Acquisition that is the subject of the Capital Call Notice on its own or with other Persons.
3.4. Issuance of Additional Membership Interests.
(a) The Manager may cause the Company to issue additional Common Units or other Membership Interests (or options, warrants or rights therefor) (collectively, “New Securities”) for any purpose, at any time or from time to time, in one or more series or classes, with such designations, preferences and relative, participating, optional or other special rights, powers and duties, including rights, powers and duties senior to the Common Units or other Membership Interests in the Company, all as shall be determined by the Manager, including (i) the allocations of items of Company income, gain, loss, deduction and credit to each such class or series of Membership Interests, (ii) the rights of each such class or series of Membership Interests to share in Company distributions, (iii) the rights to vote (or denial of the rights to vote) on matters submitted to the Members hereunder and (iv) the rights of each such class or series of Membership Interests upon dissolution and liquidation of the Company, for such consideration and on such terms and conditions as shall be determined by the Manager, without the approval of the Members, to Persons who, at the time of such issuance, are not Members or Affiliates of Members of the Company. Without limiting the generality of the foregoing, the Manager may authorize and issue additional Common Units or other Membership Interests in the Company as all or any portion of the consideration to be paid by the Company for an Acquisition and the issuance price of any such additional Common Units may be equal to, greater than or less than the Formula Value Per Common Unit, as determined by the Manager.

 

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(b) Preemptive Rights. Except for any issuance of Excluded Securities, if the Manager proposes to issue New Securities pursuant to Section 3.4(a), each of Dolan and the Minority Member (each an “Eligible Investor”) shall have the following preemptive rights with respect to each such issuance of New Securities:
(i) The Manager shall give each Eligible Investor written notice (the “Preemptive Notice”) of the Manager’s intention to have the Company issue New Securities. The Preemptive Notice shall describe (i) the series or class of such New Securities to be issued including, but not limited to, the designations, preferences and relative, participating, optional or other special rights, powers and duties of such New Securities, and (ii) the price and the general terms upon which the Manager proposes to have the Company issue such New Securities. So long as an Eligible Investor continues to be an “Accredited Investor” within the meaning of the Securities Act (and makes representations and warranties to that effect), then each such Eligible Investor shall have fifteen (15) Business Days from the date of receipt of any such Preemptive Notice to agree to purchase up to that portion of the New Securities to be issued by the Company equal to (i) the number of Common Units (determined on a Common Equivalent Basis) held by such Eligible Investor as of the date of the Preemptive Notice, divided by (ii) all of the Company’s Common Units outstanding as of the date of the Preemptive Notice (determined on a Common Equivalent Basis), for the price and upon the general terms specified in the Preemptive Notice by giving written notice to the Manager and stating therein the quantity of New Securities to be purchased by such Eligible Investor. The Eligible Investors shall close on the purchase of the New Securities within thirty (30) days after the expiration of such 15-Business Day period.
(ii) If one, but not both of the Eligible Investors, does not exercise its rights under this Section 3.4(b) (in such capacity, a “Declining Investor”), the Company shall so advise the other Eligible Investor which is exercising its rights under this Section 3.4(b) (in such capacity, a “Participating Investor”) by providing the Participating Investor with written notice (the “Participating Notice”) within ten (10) Business Days after the expiration of the fifteen (15) Business Day period in which such rights could have been exercised. The Participating Investor shall thereupon for a period of five (5) Business Days from the date of such Participating Notice be entitled to purchase the share of the New Securities which could have been purchased by the Declining Investor. The Participating Investor shall close on the purchase of the New Securities within thirty (30) days after the expiration of the 5-Business Day period.
(iii) The Company shall have one hundred twenty (120) days after the date of the Preemptive Notice to sell or enter into an agreement (pursuant to which the sale of New Securities covered thereby shall be closed, if at all, within sixty (60) days from the date of such agreement) to sell the remaining New Securities not purchased by the Eligible Investors or the Participating Investor, as the case may be, at a price no less and upon the same terms and conditions as those specified in the Preemptive Notice. If the price of the New Securities decreases or the terms and conditions change, the provisions of this Section 3.4(b) shall again apply de novo.

 

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3.5. No Interest on Capital Contributions. Members shall not be paid interest on their Capital Contributions.
3.6. Return of Capital Contributions. Except as otherwise provided in this Agreement, no Member shall have the right to receive the return of any Capital Contribution.
3.7. Form of Return of Capital. If a Member is entitled to receive a return of a Capital Contribution, the Member shall not have the right to receive any form of consideration other than cash in return of the Member’s Capital Contribution.
3.8. Capital Accounts. The Company shall maintain a separate Capital Account for each Member.
3.9. Loans. Any Member or an Affiliate of a Member may, at any time, make or cause a loan to be made to the Company in any amount and on such terms upon which the Manager and such Member or Affiliate agree. Each Membership Interest Holder acknowledges and agrees that nothing in this Agreement shall prohibit the Manager from, in its sole discretion, including the Company in the comprehensive cash management system utilized by Dolan and its Affiliates and, as a result, (i) the Company’s cash balances will be distributed on a daily basis to Dolan to hold on behalf of the Company, (ii) Dolan will be providing short-term financing to the Company to fund the Company’s working capital needs and (iii) at any time, there may be either an intercompany loan balance owed by Dolan to the Company or an intercompany loan balance owed by the Company to Dolan; provided, however, that in either instance no interest will be assessed on any such intercompany loan balances.
Article IV
Distributions and Allocations
4.1. Distributions of Available Cash. For purposes of this Article IV, a “Member” shall be deemed to include an Economic Owner.
(a) Distributions.
(a) The Manager may in its sole discretion from time to time cause the Company to make distributions of Available Cash to the Members. Subject to the rights of any senior or pari passu securities issued pursuant to Section 3.4, distributions of Available Cash shall be made to the Members, pro rata in accordance with their respective Participating Percentages.
(b) If any assets of the Company are distributed in kind to the Members, those assets shall be valued on the basis of their fair market value, and unless otherwise agreed upon by the Members, such assets shall be distributed to the Members in the same proportions as the Members would have received if such distribution in kind was instead a distribution of Available Cash, and each Member receiving a distribution in kind shall receive an interest in such assets as a tenant-in-common with all other Members receiving such distribution. The fair market value of the assets to be distributed in kind shall be determined by the Manager in its reasonable discretion.

 

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(b) Distributions to Pay Tax Liabilities. Notwithstanding anything to the contrary contained herein and, on or prior to the fifth Business Day before each date following the date hereof on which federal corporate quarterly estimated tax payments are required to be made by Dolan, the Company shall, to the extent cash is available as determined by the Manager in good faith, distribute to each of the Members an amount equal to the product of (i) the Company’s estimated taxable income for the most recently completed quarter, or portion thereof, as applicable (determined without regard to any depreciation or amortization deductions arising from or related to the assets deemed for income tax purposes contributed by Dolan to the Company pursuant to the Membership Interest Purchase Agreement), multiplied by (ii) each Member’s Participating Percentage, and multiplied by (iii) the Assumed Tax Rate, provided that such distributions do not violate the Act and provided that, and only to the extent that, distributions made pursuant to Section 4.1(a) herein and amounts withheld pursuant to Section 4.7(a) with respect to such quarter are insufficient to allow the Members to pay their estimated tax liability resulting from their ownership of membership interests in the Company with respect to such quarter. In the event the taxable income for the Fiscal Year was underestimated by the Company, the Company shall, to the extent cash is available as determined by the Manager in good faith, distribute to each of the Members, on or prior to March 31st of each Fiscal Year (commencing with March 31st of 2010), an amount equal to the product of (i) the amount by which the Company underestimated its taxable income for the most recently completed Fiscal Year, or portion thereof, as applicable (determined without regard to any depreciation or amortization deductions arising from or related to the assets deemed for income tax purposes contributed by Dolan to the Company pursuant to the Membership Interest Purchase Agreement), multiplied by (ii) each Member’s Participating Percentage, and multiplied by (iii) the Assumed Tax, provided that such distributions do not violate the Act and provided that, and only to the extent that, distributions made pursuant to Section 4.1(a) herein and this Section 4.1(b) and amounts withheld pursuant to Section 4.7(a) with respect to such Fiscal Year are insufficient to allow the Members to pay their tax liability resulting from their ownership of membership interests in the Company with respect to such Fiscal Year. Notwithstanding anything to the contrary herein, any distributions made pursuant to this Section 4.1(b) shall be treated as an advance of amounts distributable under Section 4.1(a) and shall not alter the aggregate amounts otherwise distributable to any Member under Section 4.1(a) and Section 8.2(a)(iv). Notwithstanding anything to the contrary in this Section 4.1(b), in no event shall the Company make Tax Distributions to any Member in the Fiscal Year in which the Company is liquidated and dissolved. Notwithstanding anything to the contrary in this section 4.1(b), the Company shall not make Tax Distributions after the dissolution of the Company in accordance with Article VIII.
4.2. Restrictions on Distributions. Notwithstanding anything to the contrary herein, no distribution (including a distribution under Section 4.1(b) hereof) shall be made if, after giving effect to such distribution, in the judgment of the Manager, the Company would not be able to pay its debts as they become due in the ordinary course of business (including any debt arising under the Senior Credit Agreement), the Company’s total assets would be less than the sum of its total liabilities or such distribution would otherwise violate applicable law.

 

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4.3. Allocations of Profits and Losses.
(a) Except as otherwise required by Section 704(b) of the Code and the Regulations thereunder and subject to Sections 4.3(b) through 4.3(i) below, Profits and Losses of the Company for any taxable year shall be allocated to the Members pro rata in proportion to their respective Participating Percentages. Notwithstanding the foregoing, the Members hereby acknowledge and agree that if the Company is entitled to deduct with respect to any taxable year any amounts on account of bonuses paid by the Minority Member or the disposition or exercise of options to purchase interests in the Minority Member, such Company deductions shall be specially allocated solely to the Minority Member.
(b) In the event that any Member unexpectedly receives any adjustments, allocations or distributions described in Regulations Sections 1.704-1(b)(2)(ii)(d)(4), (5), or (6), which create or increase an Adjusted Capital Account Deficit of such Member, then items of Company income and gain (consisting of a pro rata portion of each item of Company income, including gross income, and gain for such year and, if necessary, for subsequent years) shall be specially allocated to such Member in an amount and manner sufficient to eliminate as quickly as possible, to the extent required by the Regulations, the Adjusted Capital Account Deficit so created.
(c) Losses allocated pursuant to Section 4.3(a) shall not exceed the maximum amount of Losses that can be allocated without causing any Member to have a Adjusted Capital Account Deficit at the end of any taxable year. In the event that some but not all of the Members would have an Adjusted Capital Account Deficit as a consequence of an allocation of Losses pursuant to Section 4.3(a), the limitations set forth herein shall be applied on a Member-by-Member basis and Losses not allocable to any Member as a result of such limitation shall be allocated to the other Members in accordance with the positive balances in such Members’ Capital Accounts so as to allocate the maximum permissible Losses to each Member under Regulations Section 1.704-1(b)(2)(ii)(d).
(d) In the event that any Member would have an Adjusted Capital Account Deficit at the end of any Fiscal Year, the Capital Account of such Member shall be specially credited with items of Company income (including gross income) and gain in the amount of such excess as quickly as possible; provided, that an allocation pursuant to this Section 4.3(d) shall be made only if and to the extent that such Member would have such an excess deficit Capital Account balance after all other allocations provided for in this Section 4.3 tentatively have been made as if this Section 4.3(d) and Section 4.3(b) were not in this Agreement. This Section 4.3(d) is intended to minimize the potential distortion to the economic arrangement of the Members that might otherwise be caused by Section 4.3(b), while ensuring that this Agreement complies with the requirements of the alternate test for economic effect contained in Regulations Section 1.704-1(b)(2)(ii)(d) and shall be interpreted in a manner consistent with such intent.

 

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(e) Notwithstanding any other provision of this Section 4.3, if there is a net decrease in the partnership minimum gain (as defined in Regulations Section 1.704-2(b)(2) during a Fiscal Year, then each Member shall be allocated items of income (including gross income) and gain for such Fiscal Year (and if necessary for subsequent Fiscal Years) equal to that Member’s share of the net decrease in partnership minimum gain. This Section 4.3(e) is intended to comply with the minimum gain chargeback requirement of Regulations Section 1.704-2 and shall be interpreted consistently therewith. If in any Fiscal Year that the Company has a net decrease in the partnership minimum gain, the minimum gain chargeback requirement would cause a distortion in the economic arrangement among the Members and it is not expected that the Company will have sufficient other income to correct that distortion, the Manager may cause the Company to seek to have the Internal Revenue Service waive the minimum gain chargeback requirement in accordance with Regulations Section 1.704-2(f)(4).
(f) Notwithstanding any other provision of this Section 4.3 except Section 4.3(e), if there is a net decrease in partner minimum gain (as defined in Regulations Section 1.704-2(i)(3) attributable to a partner nonrecourse debt (as defined in Regulations Section 1.704-2(b)(4) during any Company Fiscal Year, each Member who has a share of the partner minimum gain as of the beginning of the Fiscal Year shall be specially allocated items of Company income and gain for such Fiscal Year (and, if necessary, subsequent Fiscal Years) equal to such Member’s share of the net decrease in partner minimum gain attributable to such partner nonrecourse debt. A Member’s share of the net decrease in partner minimum gain shall be determined in accordance with Regulations Section 1.704-2(i)(4); provided, however, that a Member shall not be subject to this provision to the extent that an exception is provided by Regulations Section 1.704-2(i)(4) and any rulings issued with respect thereto. Any partner minimum gain allocated pursuant to this provision shall consist of first, gains recognized from the disposition of Company property subject to the partner nonrecourse debt, and, second, if necessary, a pro rata portion of the Company’s other items of income or gain (including gross income) for that Fiscal Year. This Section 4.3 is intended to comply with the minimum gain chargeback requirement in Regulations Section 1.704-2(i)(4) and shall be interpreted consistently therewith.
(g) Items of Company loss, deduction and expenditures described in Section 705(a)(2)(B) of the Code which are attributable to any nonrecourse debt of the Company and are characterized as partner nonrecourse deductions (as defined in Regulations Section 1.704-2(i)) shall be allocated to the Members in accordance with Regulations Section 1.704-2(i).
(h) Nonrecourse deductions (as defined in Regulations Section 1.704-2(b)(1)) for any taxable year or other period shall be allocated to the Members pro rata in accordance with their Participating Percentages. The amount of nonrecourse deductions and excess nonrecourse liabilities shall be determined in accordance with Regulations Section 1.704-2(c).
(i) To the extent that an adjustment to the adjusted tax basis of any Company asset pursuant to Sections 734(b) or 743(b) of the Code is required, pursuant to Regulations Sections 1.704-1(b)(2)(iv)(m)(2) or 1.704-1(b)(2)(iv)(m)(4), to be taken into account in determining Capital Accounts as the result of a distribution to a Member in complete liquidation of his, her or its Membership Interest, the amount of such adjustment to Capital Accounts shall be treated as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases such basis), and such gain or loss shall be specially allocated to the Members in accordance with their Participating Percentages in the Company in the event Regulations Section 1.704-1(b)(2)(iv)(m)(2) applies, or to the Member to whom such distribution was made in the event Regulations Section 1.704-1(b)(2)(iv)(m)(4) applies.

 

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4.4. Special Allocations Relating to Entity-Level Taxes. Notwithstanding anything to the contrary herein, in the event that any state, local or other income tax imposed on the Company as an entity is reduced by reason of the holding of an interest by any Member, no part of the expense of the Company for such tax shall be allocated to such Member.
4.5. Allocation upon Dissolution and Liquidation of the Company. It is the intent of the Members that the Liquidation Amounts distributable to the Members pursuant to Section 8.2(a)(iv) shall be equal to Members’ respective ending Capital Account balances. Therefore, notwithstanding anything to the contrary in this Agreement, to the extent not inconsistent with the applicable Regulations under Section 704 of the Code, if, upon the liquidation or dissolution of the Company, any Member’s ending Capital Account balance (determined immediately after all items of Profits, Losses, and other items of income, gain, loss and deduction have been tentatively allocated under this Agreement and reflected in the Capital Accounts of the Members as if this Section 4.5 were not in this Agreement) is less than the Liquidation Amount, then (i) such Member shall be specially allocated items of income or gain (including gross income) for such year (and, if necessary, for the preceding year if the Company has not yet filed its tax return for such preceding year), and (ii) the other Members shall be specially allocated items of loss or deduction for such year (and, if necessary, for the preceding year if the Company has not yet filed its tax return for such preceding year), until such Member’s actual Capital Account balance equals the Liquidation Amount for such Member. The special allocation provision provided by this Section 4.5 shall be applied in such a manner so as to cause the difference between each Member’s Liquidation Amount and the balance in its Capital Account (determined after this allocation, but immediately prior to the distributions pursuant to Section 8.2(a)(iv)) to be the smallest dollar amount possible.
4.6. Allocation for Income Tax Purposes.
(a) Allocation in General. Except as otherwise provided in Section 4.6(b), for each Fiscal Year, items of Company income, gain, loss, deduction and expense, shall be allocated, for federal, state and local income tax purposes, among the Members in the same manner as the Profits (and the items thereof) or Losses (and the items thereof) of which such items are components were allocated pursuant to Section 4.3.
(b) Section 704(c) Items. In accordance with Section 704(c) of the Code and the Regulations thereunder, income, gain, loss, and deduction with respect to any property contributed to the capital of the Company shall, solely for tax purposes, be allocated among the Members so as to take account of any variation between the adjusted basis of such property to the Company for federal income tax purposes and its initial Gross Asset Value. If the Gross Asset Value of a Company asset is adjusted pursuant to clause (b) of the definition of Gross Asset Value, subsequent allocations of income, gain, loss, and deduction with respect to such asset for tax purposes shall take account of any variation between the adjusted basis of such asset for federal income tax purposes and its Gross Asset Value in the same manner as under Section 704(c) of the Code and the Regulations thereunder. Any elections or other decisions relating to such allocations shall be made by the Manager in its sole discretion. The Members hereby acknowledge and agree that all Company depreciation and amortization deductions arising from or related to the assets deemed for income tax purposes contributed by Dolan to the Company pursuant to the Membership Interest Purchase Agreement shall be allocated to Dolan as quickly as possible pursuant to the provisions of Section 704(c) of the Code and the Regulations thereunder.

 

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(c) Allocations Solely for Tax Purposes. Allocations pursuant to this Section 4.6 are solely for purposes of federal, state and local taxes and shall not affect, or in any way be taken into account in computing, any Member’s Capital Account or share of Profits and Losses or other items or distributions pursuant to any provision of this Agreement.
4.7. Withholding.
(a) The Company shall comply with the withholding provisions of Federal, state and local law and shall remit amounts withheld to and file required forms with the applicable jurisdictions. To the extent the Company is required to withhold and pay over any amounts to any authority with respect to distributions or allocations to any Member, the amount withheld shall be treated as a distribution in the amount of the withholding to that Member for all purposes under this Agreement. In the event of any claimed over-withholding, the Member shall be limited to a refund claim against the applicable jurisdiction. If the amount withheld was not withheld from actual distribution to a Member, the Company may, at the Manager’s option, (i) require the Member to reimburse the Company for such withholding upon request by the Manager, or (ii) reduce any subsequent distributions to the Member by the amount of such withholding. Each Member agrees to furnish the Company with any representations and forms as shall reasonably be requested by the Manager to assist it in determining the extent of, and in fulfilling, the Company’s withholding obligations.
(b) In the event that, during any taxable year, the Company is required to withhold and remit to any governmental authority any amounts (each such amount, the “Withholding Amount") on account of any bonuses paid by the Minority Member or any disposition or exercise of options to purchase interests in the Minority Member, the Company shall withhold the Withholding Amount from any distributions due to the Minority Member pursuant to Section 4.1(a) (including pursuant to Section 8.2(a)(iv)) with respect to such taxable year. If the amount distributable to the Minority Member pursuant to Section 4.1(a) is insufficient, the Company may, at the Manager’s option, (i) require the Minority Member to reimburse the Company for such Withholding Amount upon request by the Manager, or (ii) reduce any subsequent distributions to the Member by the Withholding Amount.
Article V
Management by Manager
5.1. Manager.
(a) In General. Except as otherwise specifically provided in this Agreement and except for circumstances in which the delegation of such authority is not permitted as a matter of law, the powers of the Company shall be exercised by or under the authority of, and the business and affairs of the Company shall be managed exclusively under the direction and control of, a manager (the “Manager"), who need not to be a Member. The Manager shall be elected by a Majority-in-Interest of the Members. The Members hereby agree that Dolan shall serve as the initial Manager.

 

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(b) Term of Office; Resignation and Removal. The Manager shall serve until resignation, removal or death (if the Manager is an individual) or dissolution and liquidation (if the Manager is an entity). The Manager may resign as such by delivering its, his or hers written resignation to the Company at the Company’s principal office. Such resignation shall be effective upon receipt unless it is specified to be effective at some other time or upon the happening of some other event. A Manager may be removed as such only by a Majority-in-Interest of the Members.
(c) Vacancies. Any vacancy in the office of the Manager shall be filled by a Majority-in-Interest of the Members.
(d) Reimbursement. The Manager shall be entitled to reimbursements of any out-of-pocket costs incurred in connection with its activities as a Manager.
5.2. Authority of the Manager.
(a) The Manager may (but need not), from time to time, designate and appoint one or more persons as an officer of the Company (each an “Officer” and collectively the “Officers”). Any Officers so designated shall have such authority and perform such duties as the Manager may, from time to time, delegate to them. The Manager may assign titles to particular Officers. Unless the Manager otherwise decides, if the title is one commonly used for officers of a business corporation, the assignment of such title shall constitute the delegation to such Officer of the authority and duties that are customarily associated with that office. Each Officer shall hold office until such Officer’s successor shall be duly designated and shall qualify or until such Officer’s death or until such Officer shall resign or shall have been removed by the Manager. Any number of offices may be held by the same individual. The salaries or other compensation, if any, of the Officers and agents of the Company shall be fixed from time to time by the Manager.
(b) The Manager shall be responsible for the management and operation of the Company and perform, including, but not limited to, the following services on behalf of the Company, directly or indirectly, through the Officers:
(i) conduct the operation and management of the Business;
(ii) determine the appropriate amount of reserves to be maintained by the Company and for anticipated future expenses, costs and taxes;
(iii) from time to time borrow money on behalf of the Company;
(iv) enter into any contract on behalf of the Company;
(v) approve any Acquisition or any Sale of the Company; and
(vi) enter into any agreement or commitment binding upon the Company with respect to any of the foregoing.

 

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(c) The provisions contained in Section 5.1 and this Section 5.2 supersede any authority granted to the Members pursuant to the Act, to the extent so permitted under the Act. Unless a Member is also a Manager, no Member shall have any power or authority to take any action on behalf of the Company or bind the Company unless specifically authorized to do so by the Manager. Any Member who takes any action on behalf of the Company or binds the Company in violation of this Section 5.2 shall be solely responsible for any loss and expense incurred as a result of the unauthorized action and shall indemnify and hold the Company harmless with respect to any such loss or expense.
5.3. Performance of Duties; No Liability of Manager. No Member shall have any duty to the Company or any other Member of the Company except as expressly set forth herein or in other written agreements. The Manager shall not be liable to the Company or to any Member for any loss or damage sustained by the Company or any Member, unless the loss or damage shall proven to have been the result of fraud or intentional misconduct by the Manager. In performing his, or her or its duties, each such Person shall be entitled to rely in good faith on the provisions of this Agreement and on information, opinions, reports or statements (including financial statements and information, opinions, reports or statements as to the value or amount of the assets, liabilities, profits or losses of the Company or any facts pertinent to the existence and amount of assets from which distributions to Members might properly be paid) of the following other Persons or groups: any lawyer, independent accountant, appraiser or other expert or professional employed or engaged by or on behalf of the Company, or any other Person who has been selected with reasonable care by or on behalf of the Company, in each case as to matters which such relying Person reasonably believes to be within such other Person’s competence. No Member or the Manager shall be personally liable under any judgment of a court, or in any other manner, for any debt, obligation or liability of the Company, whether that liability or obligation arises in contract, tort or otherwise, solely by reason of being a Member or a Manager.
5.4. Right to Engage in Other Activities. Subject to the express provisions of this Agreement and any written agreements with the Company or between or among any Members, to which a Person may be a party or otherwise subject, each Member and the Manager, at any time and from time to time, may engage in and own interests in other business ventures of any type and description, independently or with others. Each Member and the Manager may conduct any other business or activity whatsoever and receive and enjoy profits or compensation therefrom, and the Members and the Manager shall not be accountable to the Company or to any Member with respect to that business or activity even if the business or activity competes with the Company’s business. Each Member waives any rights the Member might otherwise have to share or participate in such other interests or activities of any other Member or the Manager or their respective Affiliates. Notwithstanding the foregoing, Dolan agrees that it and its subsidiaries will only engage, directly or indirectly, in the Business through the Company (other than investments made pursuant to Section 3.3(c) hereof).
5.5. Transactions Between the Company and the Members. Notwithstanding that it may constitute a conflict of interest, the Members and the Manager and their respective Affiliates may engage in any transaction (including the purchase, sale, lease or exchange of any property or the rendering of any service or the establishment of any salary, other compensation or other terms of employment) with the Company and/or one or more of its subsidiaries so long as such transaction is on arm’s length, commercially reasonable terms, as approved by the Manager, including the transactions contemplated by Section 3.9.

 

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5.6. Right to Indemnification.
(a) None of the Manager, any Member or any of their respective Affiliates, or, in each case, any of their respective equityholders, officers, directors, employees or agents, shall be liable, responsible or accountable in damages or otherwise to the Company or any Member for any action taken or failure to act on behalf of the Company within the scope of the authority conferred on the Manager or such Member by this Agreement or by law unless such action or omission was performed or omitted fraudulently or involved intentional misconduct. The Company shall indemnify and hold harmless the Manager, each Member and their respective Affiliates and, in each case, their respective equityholders, officers, directors, employees and agents (collectively, the “Indemnitees”) from and against any loss, expense, damage or injury suffered or sustained by them by reason of any acts, omissions or alleged acts or omissions arising out of their status as the Manager or as a Member or their activities on behalf of the Company, including, but not limited to, any judgment, award, settlement, reasonable attorneys’ fees and other costs or expenses incurred in connection with the defense of any actual or threatened action, proceeding or claim (a “Third Party Claim”), if the acts, omissions or alleged acts or omissions upon which such actual or threatened action, proceeding or claim is based were for a purpose reasonably believed to be in the best interests of the Company and within the power or authority delegated to such party hereunder and were not performed or omitted fraudulently or in bad faith or as a result of gross negligence by such party and did not involve misappropriation of Company funds. Any such indemnification shall only be from the assets of the Company. The Company shall be entitled to prompt written notice of any Third Party Claim and shall have the exclusive right to defend or settle such claim at its expense, subject to the right of the Indemnitee to participate in such defense, with Indemnitee’s own counsel at Indemnitee’s own cost. To the extent the Indemnitee is permitted by the Company to defend or settle any Third Party Claim and incurs legal costs in connection therewith, such costs shall be advanced by the Company prior to the final disposition of such Third Party Claim, upon receipt of an undertaking by the Indemnitee to repay such amount if it shall be ultimately determined that the Indemnitee is not entitled to be indemnified by the Company. The indemnification and advancement of expenses provided by this Section 5.6(a) shall continue as to a Person that has ceased to be a Manager or Member and shall inure to the benefit of the successors, assigns, heirs, executors, and administrators of such a Person.
(b) Without limitation of the foregoing in Section 5.6(a), the Company and each Member hereby acknowledges that one or more of the Indemnitees may have certain rights to indemnification, advancement of expenses and/or insurance provided by an Affiliate (such Affiliate, an “Indemnifying Affiliate”). The Company and each Member hereby agrees that, with respect to any such Indemnitees, the Company (i) is, relative to each Indemnifying Affiliate, the indemnitor of first resort (i.e., its obligations to the applicable Indemnitee under this Agreement are primary and any duplicative, overlapping or corresponding obligations of an Indemnifying Affiliate are secondary), (ii) shall be required to make all advances and other payments under this

 

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Agreement, and shall be fully liable therefor, without regard to any rights any Indemnitee may have against his or her Indemnifying Affiliate, and (iii) irrevocably waives, relinquishes and releases any such Indemnifying Affiliate from any and all claims against such Indemnifying Affiliate for contribution, subrogation or any other recovery of any kind in respect thereof. The Company further agrees that no advancement or payment by an Indemnifying Affiliate on behalf of an Indemnitee with respect to any claim for which such Indemnitee has sought indemnification from the Company shall affect the foregoing and any such Indemnifying Affiliate shall have a right of contribution and/or be subrogated to the extent of such advancement or payment to all of the rights of recovery of any such applicable Indemnitee against the Company. The Company and each Member agree that each Indemnifying Affiliate is an express third party beneficiary of the terms of this Section 5.6(b).
5.7. Nonexclusivity of Rights. The right to indemnification and the advancement and payment of expenses conferred in this Article V shall not be exclusive of any other right that a Member or member or partner of the Manager, or other Person indemnified pursuant to this Article V may have or hereafter acquire under any contract, law (common or statutory) or provision of this Agreement.
5.8. Insurance. The Company may obtain and maintain, at its expense, insurance to protect itself, the Manager and/or any agent of the Company who is or was serving as an officer, agent or other representative of the Company or at the request of the Company as a manager, representative, director, officer, partner, trustee, employee, agent or similar functionary of another foreign or domestic limited liability company, corporation, partnership, joint venture, 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 this Article V.
5.9. Savings Clause. If this Article V or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Company shall nevertheless indemnify and hold harmless each Person indemnified pursuant to this Article V as to costs, charges and expenses (including reasonable attorneys’ fees and expenses), judgments, fines and amounts paid in settlement with respect to any such Proceeding, appeal, inquiry or investigation to the full extent permitted by any applicable portion of this Article V that shall not have been invalidated and to the fullest extent permitted by applicable law.
5.10. Power of Attorney.
(a) Grant of Power. Each Member constitutes and appoints the Manager as the Member’s true and lawful attorney-in-fact (“Attorney-in-Fact”), and in the Member’s name, place and stead, to make, execute, sign, acknowledge, and file, with respect to the Company:
(i) all documents (including amendments to the Certificate of Formation) which the Attorney-in-Fact deems appropriate to reflect any amendment, change, or modification of this Agreement that has been approved in accordance with Section 10.4 of this Agreement;

 

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(ii) any and all other certificates or other instruments required to be filed by the Company under the laws of the State of Delaware or of any other state or jurisdiction, including, but not limited to, any certificate or other instruments necessary in order for the Company to continue to qualify as a limited liability company under the laws of the State of Delaware;
(iii) one or more applications to use an assumed name;
(iv) all documents and instruments which the Attorney-in-Fact deems necessary and appropriate to execute on behalf of a Member if such Member does not take any actions properly requested by the Manager pursuant to Section 7.5; and
(v) subject to the provisions of Section 8.1, all documents which may be required to dissolve and terminate the Company and to cancel its Certificate of Formation.
(b) Irrevocability. The foregoing power of attorney is irrevocable and is coupled with an interest, and, to the extent permitted by applicable law, shall survive the death, disability, dissolution, insolvency or bankruptcy of a Member or the Transfer of a Membership Interest, except that if the transferee of such Membership Interest is approved for admission as a Substituted Member pursuant to Section 7.3(d), this power of attorney granted by the transferor shall survive the delivery of the assignment for the sole purpose of enabling the Attorney-in-Fact to execute, acknowledge and file any documents needed to effectuate the substitution.
Article VI
Members
6.1. No Control of the Company; Other Limitations. Unless a Member is also the Manager, a Member shall not participate in the management or control of the Business, transact any business for the Company or have the power to act for or bind the Company, all such powers being vested solely and exclusively in the Manager. Except as otherwise required by the Act, a Member, as such, shall not be personally liable for any of the debts, liabilities, contracts or any other obligations of the Company.
6.2. Incapacity or Dissolution. The death, incapacity, dissolution or bankruptcy of a Member, or the transfer of all of his, her or its interest in the Company to anyone that is not a Member, shall not cause a dissolution of the Company, but the rights of such Member to share in the Profits and Losses of the Company, to receive distributions of Company funds and to assign an interest pursuant to Article VII hereof shall, on the happening of such an event, devolve on his, her or its successor-in-interest, if any, and the Company shall continue as a limited liability company under the Act.
6.3. Members’ Meetings. Meetings of the Members for the transaction of such business as may properly be brought before the meeting shall be held on such dates and at such times as may be determined by the Manager. Except as required by non-waivable provisions of applicable law, the Manager shall not be required to convene any meetings of the Members, except for an annual meeting to be held within forty-five (45) days of the end of the fiscal year of the Company.

 

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(a) Place of Members’ Meetings. All meetings of the Members shall be held at the principal place of business of the Company or at any other place in the United States as shall be specified or fixed in the notices or waivers of notice thereof; provided, however, that a Member may participate in a meeting of the Members by means of telephone or similar communications equipment, so long as all of the Members participating in the meeting can hear each other at the same time. Such participation shall constitute presence in person at the meeting.
(b) Notice of Members’ Meeting. Except as otherwise required by law or provided in this Agreement, written notice of any meeting of Members stating the place, date and hour of the meeting and the purpose for which the meeting is called, shall be given to each Member entitled to vote at such meeting not less than forty-eight (48) hours nor more than sixty (60) days before the meeting date, by or at the direction of the Manager.
(c) Waiver of Notice. Any Member, either before or after any Members’ meeting, may waive in writing notice of the meeting, and such waiver shall be deemed the equivalent of giving notice. Attendance at a meeting by a Member shall constitute a waiver of notice, except when the Member attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened.
(d) Proxies. To the fullest extent permitted by law, a Member entitled to vote at a meeting of Members or to express consent or dissent to Company action in writing without a meeting may authorize another Person or Persons to act for such Member by proxy authorized by an instrument in writing or by an electronic transmission permitted by law and filed in accordance with the procedure established for such meeting or action.
(e) Members’ Voting Rights. Each Member shall be entitled to one vote for each Common Unit held of record by such Member as of the corresponding record date. The Members shall not be entitled to cumulative voting.
(f) Quorum and Required Vote. Except as otherwise required by law or provided in this Agreement, at any meeting of the Members, the presence in person or by proxy of Members holding a majority of the Participating Percentages, shall constitute a quorum for the transaction of business. Except as otherwise required by law or provided in this Agreement, at any meeting of the Members at which a quorum is present, the affirmative vote of the Members holding a majority of the Common Units present at the meeting in person or by proxy and entitled to vote on the subject matter shall be the act of the Members.

 

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(g) Action by Written Consent. Except as otherwise provided by law, any action required or permitted to be taken at a Members’ meeting may be taken without a meeting and without a vote if a written consent is signed or electronically transmitted by the Members holding in the aggregate the requisite amount of the Participating Percentages required to approve such action and such writings or electronic transmissions are filed with the records of the Company. Notice of any action taken without a meeting shall be given to all Members promptly following the taking thereof. Any such action taken shall have the same force and effect as if action had been taken by the Members at a meeting thereof.
(h) Record Date. The date on which notice of a meeting of Members is sent shall be the record date for the determination of the Members entitled to notice of or to vote at such meeting (including any adjournment thereof). The record date for determining the Members entitled to consent to action in writing without a meeting 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 Company.
6.4. Supermajority-in-Interest Consent Requirement. Notwithstanding anything to the contrary herein, without the consent of a Supermajority-in-Interest of the Members, the Company shall not:
(a) (i) Enter any line of business other than the Business, or (ii) exit any line of business in which the Company is engaged in as of the date hereof;
(b) Other than the Senior Indebtedness and the Senior Liens and the intercompany cash management system between the Company and its Affiliates, borrow money or secure indebtedness by mortgage, pledge, or other lien on any assets of the Company; or
(c) Enter into, alter or modify any transaction, agreement, arrangement or understanding with, or pay any fees or other amounts to, the Members or their Affiliates, except as otherwise expressly provided in this Agreement or pursuant to the Employment Agreements (as defined in the Membership Interests Purchase Agreement); provided, however, this Section 6.4(c) shall not apply to (i) the reimbursement to Members for costs which they incur on behalf of the Company in the ordinary course of the Business or (ii) any allocation of corporate overhead of Dolan or any of its subsidiaries to the Company in accordance with Dolan’s annual budgeting process.
6.5. Information Rights. The Company shall, to the extent applicable, (i) provide to a representative of the Minority Member (the “Observer”) copies of all notices, documents and information furnished to the Manager in anticipation of a meeting of the Manager in its capacity as the manager of the Company or pursuant to an action by written consent of the Manager in its capacity as the manager of the Company, and (ii) provide the Observer with copies of the minutes of any such meetings to the extent that such minutes are kept or of such executed written consents of the Manager. Notwithstanding the foregoing, the Company shall not be required under this Section 6.5 to provide access to the Observer to attorney/client privileged communications, whether in the form of written materials or a meeting of the Manager. The Minority Member and the Observer shall maintain the confidentiality of all proprietary information (“Information”) acquired pursuant to this Section 6.5 and shall not disclose or use such information other than (A) Information that (i) was in such Person’s possession prior to its disclosure to such Person pursuant to the terms of this Section 6.5; (ii) is or becomes available to such Person from a source that,

 

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to such Person’s knowledge after due inquiry, is not bound by an agreement with the Company or the Manager prohibiting such disclosure; (iii) is independently developed by such Person without reliance on, reference to or use of any Information provided to such Person pursuant to the terms of this Section 6.5; (iv) must be disclosed by such Person under applicable law or pursuant to legal process or regulatory inquiry, or (B) with the written consent of the Manager, which consent may be withheld in its reasonable discretion. The confidentiality provisions set forth in this Section 6.5 shall survive any termination of this Section 6.5 or this Agreement. The Minority Member acknowledges and agrees that the rights granted to it in this Section 6.5 shall terminate and be of no further effect from and after the time that the Minority Member ceases to hold at least five (5%) of the Participating Percentages.
Article VII
Certificates; Transfer of Membership Interests
7.1. Certificates. Upon the request of any Membership Interest Holder, the Company shall issue a certificate (each a “Certificate”) representing the Membership Interests held by such Membership Interest Holder in the Company. The Certificates shall be in such form as shall be determined by the Manager and shall be signed on behalf of the Company by the Manager. The Certificates shall be consecutively numbered or otherwise identified. The name and address of the person to whom a Certificate may be issued and the date of issue shall be entered in the certificate register of the Company. In case of a lost, destroyed or mutilated Certificate, a replacement may be issued upon such terms and indemnity to the Company as the Manager or its counsel may prescribe. All Membership Interests of the Company shall be deemed to be “securities” within the meaning of Section 8-102(a)(15) of the Uniform Commercial Code as in effect from time to time in the State of Delaware (the “UCC”), including for purposes of the grant, pledge, attachment or perfection of a security interest in the Membership Interests. The law of the State of Delaware is hereby designated as the issuer’s jurisdiction within the meaning of Section 8-110(d) of the UCC for purposes of the matters specified therein. So long as any Membership Interests are pledged by a Member as collateral security, the Company shall not take any action to “opt-out” of the treatment of the Membership Interests of the Company as “securities” under Article 8 of the UCC.
7.2. Legends. Certificates, if any, representing Membership Interests that are issued to any Membership Interest Holder shall bear a legend in substantially the following form:
“THIS CERTIFICATE EVIDENCES THE MEMBERSHIP INTERESTS IN DISCOVERREADY LLC (THE “ISSUER”) HELD BY THE OWNER OF THIS CERTIFICATE AS SET FORTH IN THIS CERTIFICATE AND SHALL BE A SECURITY FOR PURPOSES OF ARTICLE 8 OF THE UNIFORM COMMERCIAL CODE. THE MEMBERSHIP INTERESTS REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR ANY APPLICABLE STATE SECURITIES LAWS (THE “STATE LAWS”), AND MAY NOT BE OFFERED, SOLD, ASSIGNED, PLEDGED OR TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR THE STATE LAWS OR AN EXEMPTION FROM REGISTRATION THEREUNDER. THE TRANSFER OF THE MEMBERSHIP INTERESTS REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO THE CONDITIONS SPECIFIED IN A THIRD AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT, DATED AS OF NOVEMBER 2, 2009, AS AMENDED FROM TIME TO TIME, GOVERNING THE ISSUER AND ITS MEMBERS AND ECONOMIC OWNERS. A COPY OF SUCH CONDITIONS SHALL BE FURNISHED BY THE ISSUER TO THE HOLDER HEREOF UPON WRITTEN REQUEST AND WITHOUT CHARGE.”

 

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7.3. Transfers.
(a) Except as otherwise permitted in Sections 7.4, 7.5, 7.6, 7.7, 7.8 or 7.9 no Person may Transfer all or any portion of the Membership Interests in the Company held by such Person; provided, however, if any Senior Indebtedness is then outstanding or the commitments under the Senior Credit Agreement have not been terminated, then if the Membership Interests owned by Dolan have been pledged to the Senior Agent, the consent of the Senior Agent will also be required to effectuate any mortgage, lien, pledge or hypothecation of all or such portion of the Membership Interests held by Dolan sought to be Transferred hereunder to a Person other than the Senior Agent.
(b) In addition to the other requirements of this Section 7.3, unless waived by the Manager in its sole discretion or as otherwise provided in Section 7.4, no Transfer of all or any portion of Membership Interests in the Company shall be made unless the following conditions are met:
(i) The Transfer will not violate registration requirements under any federal or state securities laws;
(ii) The transferee delivers to the Company a written instrument agreeing to be bound by the terms of this Agreement and assume all obligations of the transferor under this Agreement with respect to the Membership Interests being transferred; and
(iii) The Transfer will not result in the Company being subject to the Investment Company Act of 1940, as amended.
(c) Each Member hereby acknowledges the reasonableness of the prohibition contained in this Section 7.3 in view of the purposes of the Company and the relationship of the Members. Any Person to whom Membership Interests in the Company are attempted to be transferred in violation of this Section 7.3 shall not be entitled to vote on matters coming before the Members, participate in the management of the Company, act as an agent of the Company, receive distributions from the Company or have any other rights in or with respect to the Membership Interests in the Company.

 

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(d) No transferee of a Member’s Membership Interest in the Company shall become a Substituted Member unless such transfer shall be made in compliance with Sections 7.3(a) and 7.3(b) and:
(i) the Manager shall have consented to the admission of such transferee as a Substituted Member; and
(ii) the transferring Member and the transferee shall have executed and acknowledged such other instruments as the Manager may deem necessary and desirable.
(e) A transferee of a Member’s Membership Interest in the Company that is not admitted as a Substituted Member shall become an Economic Owner.
(f) If the number of Units to be transferred pursuant to any Transfer hereunder will be based on the Holdco Percentage, then no less than five (5) days prior to the consummation of such Transfer, the Manager shall provide the Minority Member written notice of such proposed Transfer in order to provide the Minority Member the opportunity to update Exhibit C hereto.
7.4. Permitted Transferees.
(a) Notwithstanding anything to the contrary in Section 7.3(a), but subject to Sections 7.3(b) and 7.3(d), each Member shall have the right to Transfer, at any time, all or any portion of Membership Interests in the Company held by such Member to one or more of their Permitted Transferees.
(b) Notwithstanding any provision to the contrary contained in this Agreement, Dolan shall be permitted to mortgage, pledge or hypothecate its Membership Interests (including Common Units) in the Company, directly or indirectly, as collateral security in connection with any loan or other indebtedness from a lender or creditor, including, but not limited to, any lender or creditor under any Senior Credit Agreement. Any such lender or creditor to whom such Membership Interests have been mortgaged, pledged or hypothecated shall be permitted to dispose of such encumbered Membership Interests in the Company by means of foreclosure or other applicable action and any purchaser of such encumbered Membership Interests shall be deemed admitted as a Substituted Member in the Company, all without requiring any consent under Sections 7.3(a) or compliance with 7.3(b). Upon Dolan’s request, the Manager shall prepare, execute and deliver any written instrument of assignment or transfer as may be reasonably requested or desired by the lender or creditor of Dolan or any Affiliate thereof to perfect its security interest in Dolan’s Membership Interests in the Company.

 

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7.5. Right of First Refusal. This Section 7.5 shall not apply to any Transfer to the Company, to Dolan (or any of its Affiliates) or to any Permitted Transferees or any Transfers pursuant to Sections 7.4(b), 7.6, 7.7, 7.8 or 7.9. Except for Transfers to Permitted Transferees, no Membership Interest Holder shall Transfer any Membership Interests owned by such Membership Interest Holder for a period of three (3) years from the date hereof. Thereafter:
(a) If a Membership Interest Holder receives a bona fide offer which such Membership Interest Holder desires to accept (a “Transfer Offer”) to sell any Membership Interests owned by him, her or it (such Membership Interest Holder desiring to sell such Membership Interests being referred to in this Section 7.5 as a “Selling Holder”), then such Selling Holder shall cause the Transfer Offer to be reduced to writing and shall deliver written notice of such Transfer Offer (a “Transfer Notice”), accompanied by a copy of such Transfer Offer, to the Manager and each of the Members (each such Member (other than the Selling Holder, a “Buying Holder”), setting forth the identity of the offeror (the “Offeror”), the number of Membership Interests proposed to be transferred (the “Offered Securities”), the price per security contained in the Transfer Offer (the “Transfer Offer Price Per Security”), and all other terms applicable thereto. The Transfer Notice shall also contain an irrevocable offer to sell the Offered Securities to the Buying Holders. Each such Buying Holder shall have five (5) days from the date of receipt of any such Transfer Notice to agree to purchase that portion, but not less than that portion, of the Offered Securities to be sold by the Selling Holder equal to (i) the number of Common Units (determined on a Common Equivalent Basis) held by such Buying Holder as of the date of the Transfer Notice, divided by (ii) all of the Common Units outstanding as of the date of the Transfer Notice (determined on a Common Equivalent Basis), at a price equal to the Transfer Offer Price Per Security and upon substantially the same terms as contained in the Transfer Offer by giving written notice to the Selling Holder and the Manager and stating therein the quantity of Offered Securities to be purchased by such Buying Holder.
(b) If one or more of the Buying Holders do not exercise his, her or its rights under this Section 7.5 (in such capacity, each a “Declining Buying Holder”), the Manager shall promptly so advise each of the Buying Holders which are exercising their rights under this Section 7.5 (in such capacity, each a “Participating Buying Holder”) by providing each Participating Buying Holder with written notice (the “Participating Transfer Notice”) and within five (5) days after the date of such Participating Transfer Notice, each Participating Buying Holder shall notify the Manager of his, her or its willingness to purchase all of the Offered Securities which could have been purchased by all of the Declining Buying Holders (collectively, the “Declined Offered Securities”) at the same price and upon the same terms specified in the Transfer Notice. To the extent that two or more Participating Buying Holder agree to purchase all of the Declined Offered Securities, then each Participating Buying Holder shall be obligated to purchase that portion, but not less that that portion, of the Declined Offered Securities equal to (i) the number of Common Units (determined on a Common Equivalent Basis) held by such Participating Buying Holder as of the date of the Transfer Notice, divided by (ii) all of the Common Units (determined on a Common Equivalent Basis) held by all such Participating Buying Holders as of the date of the Transfer Notice. The Participating Buying Holders that agree to purchase Declined Offered Securities are referred to as “Make-Up Buying Holders”. The Manager shall send to each Make-Up Buying Holder a notice immediately following the expiration of such five-day period setting forth the quantity of the Declined Offered Securities to be purchased, and the aggregate purchase price to be paid, by such Make-Up Buying Holder. If the Buying Holders and the Make-Up Buying Holders do not elect to acquire all of the Offered Securities, the Selling Holder shall have the right to sell the Offered Securities pursuant to Section 7.5(d) below.

 

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(c) If the Buying Holders and the Make-Up Buying Holders elect to acquire all of the Offered Securities, each Buying Holder and each Make-Up Buying Holder shall close (the “ROFR Closing”) on the purchase of the Offered Securities and the Declined Offered Securities, as applicable, to be purchased by such Buying Holders and Make-Up Buying Holders, as applicable, on a date specified by the Manager, which date shall not be later than twenty (20) days from the date of the notice of the Transfer Offer (the “Offered Securities Closing Date”). At the ROFR Closing, (i) the Selling Holder shall (A) endorse and deliver to the Manager any certificates (but only if certificates representing Membership Interests have been issued) representing the Offered Securities held by such Selling Holder for cancellation by the Manager, (B) execute and deliver any other instruments requested by the Manager to evidence the Transfer of the Offered Securities to the Buying Holders and the Make-Up Buying Holders, as applicable, and (C) execute and deliver a transfer agreement, substantially in the form of Exhibit B hereto (a “Transfer Agreement”).
(d) If the Buying Holders and the Make-Up Buying Holders do not elect to acquire all of the Offered Securities, then the Selling Holder shall have the right for a period of thirty (30) calendar days from the Offered Securities Closing Date (the “Outside Date”) to sell to the Offeror the Offered Securities at a price per Offered Security of not less than the Transfer Offer Price Per Security and on the other terms specified in the Transfer Offer provided that the Offeror has first complied with each of the provisions of Section 7.3(b). To the extent that the sale of the Offered Securities to the Offeror is not consummated on or prior to the Outside Date pursuant to this Section 7.5, then the provisions of this Section 7.5 shall apply de novo.
(e) Notwithstanding anything to the contrary in this Section 7.5, in the event the form of consideration specified in the Transfer Offer is other than cash, each Buying Holder or Make-Up Buying Holder, as applicable, shall have the option of paying the Transfer Offer Price Per Security in cash in an amount equal to the fair market value of such non-cash consideration unless it is reasonably practicable to deliver substantially identical non-cash consideration, in which case each Buying Holder or Make-Up Buying Holder, as applicable, shall deliver such substantially identical non-cash consideration if requested by the Selling Holder. Fair market value for any such non-cash consideration shall be mutually agreed upon by the Selling Holder and each Buying Holder or Make-Up Buying Holder, as applicable; provided, however, that if the Selling Holder, on the one hand, and any Buying Holder or Make-Up Buying Holder, on the other hand (any such Buying Holder or Make-Up Buying Holder, a “Disputing Buying Holder”), are unable to agree upon the fair market value for any such non-cash consideration then fair market value shall be determined by a nationally recognized investment banking or valuation firm mutually acceptable to the Selling Holder and such Disputing Buying Holder(s) with the costs of such investment banking or valuation firm to be borne equally between the Selling Holder, on the one hand, and the Disputing Buying Holder(s), on the other hand; provided, further, however, in the event the Selling Holder and such Disputing Buying Holder(s) are unable to promptly (but in any event no later than fifteen (15) days from the date of receipt of any such Transfer Notice) agree upon the selection of such investment banking or valuation firm then such disagreement shall be considered a “Dispute” for purposes of Section 10.5 and shall be submitted to arbitration pursuant to the terms and conditions of Section 10.5.

 

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7.6. Drag-Along Rights. If the Manager, in its sole discretion, elects to consummate a Sale of the Company to an independent third party (a “Third Party Purchaser”), the Manager shall notify the Membership Interest Holders in writing of such Sale of the Company. Upon request by the Manager, each Membership Interest Holder will consent to and raise no objections to the proposed transaction, and will take all other actions reasonably necessary or desirable to cause the consummation of such Sale of the Company on the terms proposed by the Manager. The obligations of the Membership Interest Holders pursuant to this Section 7.6 with respect to a Sale of the Company are subject to the following conditions: (x) the consideration payable with respect to the Membership Interests upon consummation of such Sale of the Company to all of the Membership Interest Holders shall be allocated among the Membership Interest Holders as set forth in accordance with their respective Participating Percentages, and (y) upon the consummation of the Sale of the Company, all of the Membership Interest Holders who hold Membership Interests shall receive the same form and payment of consideration per Membership Interest. Each Membership Interest Holder shall pay his, her or its pro rata share of the reasonable, third-party out-of-pocket expenses incurred by the Manager in connection with such transaction and shall be obligated to join based on his, her or its pro rata share in any indemnification or other obligations that the Manager agrees to provide in respect of the Company and its subsidiaries’ operations in connection with such Sale of the Company (other than any such obligations that relate specifically to a particular Membership Interest Holder such as indemnification with respect to representations and warranties given by a Membership Interest Holder regarding such Membership Interest Holder’s title to and ownership of any Membership Interests); provided that (x) no Membership Interest Holder shall be obligated in connection with such Transfer to agree to indemnify or hold harmless the Third Party Purchaser with respect to an amount in excess of the net cash proceeds paid to such Membership Interest Holder in connection with such Transfer, and (y) (A) no Membership Interest Holder who is a natural person and who, at the time of the closing of such sale, is already subject to a non-compete or other restrictive covenant in favor of the Company (each an “Existing Restrictive Covenant”) shall be obligated to agree to any additional non-compete or other restrictive covenant; provided, however, that each such Membership Interest Holder shall reaffirm and ratify all such Existing Restrictive Covenants at the closing of such sale and shall, if requested by the Third Party Purchaser, consent to the assignment by the Company of all such Existing Restrictive Covenants to the Third Party Purchaser and (B) no other Membership Interest Holder shall be obligated to agree to any non-compete or other restrictive covenant that is broader in scope or duration than any non-compete or other restrictive covenant agreed to by the Manager in any such Sale of the Company. To the extent that a Membership Interest Holder does not take any actions when requested by the Manager pursuant to this Section 7.6 each such Membership Interest Holder hereby constitutes and appoints the Manager as such Membership Interest Holder’s true and lawful Attorney-in-Fact and authorizes the Attorney-in-Fact to execute on behalf of such Membership Interest Holder any and all documents and instruments which the Attorney-in-Fact deems necessary and appropriate in connection with the Sale of the Company. The foregoing power of attorney is irrevocable and is coupled with an interest. The rights under this Section 7.6 may be exercised by the Senior Agent holding a lien on or security interest in Membership Interests pursuant to Section 7.4(b) constituting at least fifty percent (50%) of the Participating Percentages if such Senior Agent is foreclosing any such lien or security interest as described in Section 7.4(b).

 

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7.7. Put Right.
(a) Notwithstanding anything to the contrary in Section 7.5, during the period commencing on the third (3rd) anniversary of the date hereof and ending on the date which is ninety (90) days thereafter, the Minority Member (an “Exiting Minority Member”) will have the right to require the Company to purchase all (or such lesser amount as may be agreed upon by the Exiting Minority Member and the Company) of such Exiting Minority Member’s Common Units for an aggregate purchase price equal to the Put Purchase Price by delivering written notice of the exercise of such right to the Manager (the “Put Notice”). The date on which the Manager receives the Put Notice hereinafter is referred to as the “Put Delivery Date”. The Company and the Exiting Minority Member each acknowledge and agree that, for purposes of calculating the Put Purchase Price, the specified date with respect to the Put Equity Value Per Common Unit shall be the last day of the calendar month ending immediately prior to the Put Closing Date (as defined below).
(b) The Company shall be obligated to purchase all of the Exiting Minority Member’s Common Units requested to be purchased by such Exiting Minority Member in the Put Notice pursuant to Section 7.7(a) hereof (the “Put Securities”), at a closing (the “Put Closing”) on such date as mutually agreed to by the Manager and such Exiting Minority Member, which date shall not be prior to the later of (i) sixty (60) days after the Put Delivery Date or (ii) ten (10) days after the final determination of the Put Purchase Price pursuant to Section 7.7(c) (such date of closing, the “Put Closing Date”). At the Put Closing, (i) an Exiting Minority Member shall (A) endorse and deliver to the Manager any certificates (but only if certificates representing Common Units have been issued) representing the Put Securities held by such Exiting Minority Member to be purchased by the Company, (B) execute and deliver any other instruments requested by the Manager to evidence the purchase of the Put Securities by the Company, and (C) execute and deliver to the Manager a Transfer Agreement, and (ii) (A) the Company shall pay to the Exiting Minority Member all or such portion of the Put Purchase Price by wire transfer of immediately available funds that the Company is permitted to pay at such time pursuant to the terms and conditions of the Senior Credit Agreement and (B) to the extent that any portion of the Put Purchase Price is not paid in cash at the Put Closing, then the Company shall issue and deliver to such Exiting Minority Member a Put Note in an aggregate principal amount equal to the unpaid portion of the Put Purchase Price.
(c) Appraisal. Within ten (10) days after a Put Notice shall have been received by the Manager, the Manager shall deliver to the Exiting Minority Member its good faith determination of the Put Purchase Price (the “Put Purchase Price Calculation”). The Exiting Minority Member shall have ten (10) days from the date of receipt of the Put Purchase Price Calculation to deliver to the Manager a notice of objection (a “Put Purchase Price Objection Notice”) with respect to the Put Purchase Price Calculation. If no Put Purchase Price Objection Notice is delivered by the Exiting Minority Member to the Manager before the expiration of such ten (10) day period, then the Put Purchase Price Calculation shall be final and binding on the Exiting Minority Member. If a Put Purchase Price Objection Notice is delivered in accordance with this Section 7.7(c), the Manager and the Exiting Minority Member shall consult with each other with respect to the objection set forth therein. If the Manager and the Exiting Minority Member are unable to reach agreement within ten (10) days after such a Put Purchase Price Objection Notice has been given, then the Manager shall, within fifteen (15) days thereafter, select in good faith an independent investment bank or independent appraiser (such Person, the “Appraiser”) to make an independent determination of the Put Purchase Price. The Appraiser shall determine the Put Purchase Price within thirty (30) days of selection. The determination of the Put Purchase Price by the Appraiser shall be final and binding on the Company and the Exiting Minority Member. The Company, on the one hand, and the Exiting Minority Member, on the other hand, shall share equally the costs of engagement of an Appraiser for any determination of the Put Purchase Price.

 

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(d) In addition to the rights set forth above, (A) in the event that a Guarantor (as defined in the Membership Interests Purchase Agreement) ceases to be an employee of the Company on account of (i) the Company terminating such Guarantor’s employment with the Company without Cause (as such term is defined in such Guarantor’s Employment Agreement) or (ii) such Guarantor terminating his employment with the Company for Good Reason (as such term is defined in such Guarantor’s Employment Agreement), then the Minority Member shall have the right to require the Company to purchase the Proportionate Amount as such term applies to such Guarantor (or such lesser amount as may be agreed to by such Guarantor, the Manager and the Minority Member) of the Minority Member’s Common Units for an aggregate purchase price equal to the Put Purchase Price pursuant to the procedures set forth in this Section 7.7, or (B) with respect to C. Parkhill Mays only, after the expiration of the Mays Employment Term, the Company shall purchase from the Minority Member the Proportionate Amount as such term applies to C. Parkhill Mays (or such lesser amount as may be agreed to by C. Parkhill Mays, the Company and the Minority Member; such amount so purchased by the Company, the “Parkhill Securities”) of the Minority Member’s Common Units for an aggregate purchase price equal to the Forced Sale Purchase Price pursuant to the procedures set forth in this Section 7.7.
7.8. Call Option.
(a) Notwithstanding anything to the contrary in Section 7.5, at any time during the period commencing on the third (3rd) anniversary of the date hereof and ending on the date which is ninety (90) days thereafter, Dolan will have the continuing right to purchase all or any portion of the Minority Member’s Common Units (any such Member, a “Selling Minority Member”) for an aggregate purchase price equal to the Call Purchase Price by delivering written notice of the exercise of such right to such Selling Minority Member (the “Call Notice”). The date on which such Selling Minority Member receives the Call Notice hereinafter is referred to as the “Call Delivery Date”. Dolan and such Selling Minority Member each acknowledge and agree that, for purposes of calculating the Call Purchase Price, the specified date with respect to the Call Equity Value Per Common Unit shall be the last day of the calendar month ending immediately prior to the Call Closing Date (as defined below).
(b) The Selling Minority Member shall be obligated to sell all of such Selling Minority Member’s Common Units to Dolan requested to be purchased by Dolan in the Call Notice pursuant to Section 7.8(a) hereof (the “Call Securities”), at a closing (the “Call Closing”) on such date as mutually agreed to by Dolan and such Selling Minority Member, which date shall not be later than the earlier of (i) sixty (60) days after the Call Delivery Date or (ii) ten (10) days after the final determination of the Call Purchase Price pursuant to Section 7.8(c) (such date of closing, the “Call Closing Date”). At the Call Closing, (i) a Selling Minority Member shall (A) endorse and deliver to Dolan any certificates (but only if certificates representing Common Units have been issued) representing the Call Securities held by such Selling Minority Member to be purchased by Dolan, (B) execute and deliver any other instruments requested by Dolan to evidence the purchase of the Call Securities by Dolan, and (C) execute and deliver to Dolan a Transfer Agreement, (ii) (A) Dolan shall pay to the Selling Minority Member all or such portion of the Call Purchase Price by wire transfer of immediately available funds that Dolan is permitted to pay at such time pursuant to the terms and conditions of the Senior Credit Agreement and (B) to the extent that any portion of the Call Purchase Price is not paid in cash at the Call Closing, then Dolan shall issue and deliver to such Selling Minority Member a Call Note in an aggregate principal amount equal to the unpaid portion of the Call Purchase Price.

 

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(c) Within ten (10) days after a Call Notice shall have been received by the Dolan, the Manager shall deliver to the Selling Minority Member its good faith determination of the Call Purchase Price (the “Call Purchase Price Calculation”). The Selling Minority Member shall have five (5) days from the date of receipt of the Call Purchase Price Calculation to deliver to Dolan a notice of objection (a “Call Purchase Price Objection Notice”) with respect to the Call Purchase Price Calculation. If no Call Purchase Price Objection Notice is delivered by the Selling Minority Member to Dolan before the expiration of such five (5) day period, then the Call Purchase Price Calculation shall be final and binding on the Selling Minority Member. If a Call Purchase Price Objection Notice is delivered in accordance with this Section 7.8(c), Dolan and the Selling Minority Member shall consult with each other with respect to the objection set forth therein. If Dolan and the Selling Minority Member are unable to reach agreement within ten (10) days after such a Call Purchase Price Objection Notice has been given, then the Appraiser shall be appointed pursuant to the procedures set forth in Section 7.7 to make an independent determination of the Call Purchase Price. The Appraiser shall determine the Call Purchase Price within thirty (30) days of selection. The determination of the Call Purchase Price by the Appraiser shall be final and binding on Dolan and the Selling Minority Member. Dolan, on the one hand, and the Selling Minority Member, on the other hand, shall share equally the costs of engagement of an Appraiser for any determination of the Call Purchase Price.
(d) In addition to the rights set forth above, in the event that a Guarantor (as defined in the Membership Interests Purchase Agreement) ceases to be an employee of the Company on account of (i) the Company terminating such Guarantor’s employment with the Company for Cause or (ii) such Guarantor terminating his employment with the Company without Good Reason, then Dolan shall have the right to require the Minority Member to sell the Proportionate Amount as such term applies to such Guarantor (or such lesser amount as may be agreed to by such Guarantor, Dolan and the Minority Member) of the Minority Member’s Common Units to Dolan for an aggregate purchase price equal to the Call Purchase Price pursuant to the procedures set forth in this Section 7.8.
7.9. Tag-Along Rights.
(a) If Dolan proposes to Sell to a Third Party Purchaser any or all of the Membership Interests owned by Dolan (a “Transaction”), then Dolan shall refrain from effecting a Transaction unless, prior to the consummation thereof: (i) Dolan shall provide the Minority Member with written notice (a “Tag Transfer Notice”) at least ten (10) Business Days prior to the closing date of the Transaction, setting forth: (A) the name and address of the proposed Third Party Purchaser; (B) the number of Membership Interests proposed to be sold by Dolan (the “Dolan Sale Amount”); and (C) the purchase price and other terms and conditions of payment and the closing date for the proposed Sale (including, when available, a copy of any purchase agreement related thereto); and (ii) the Minority Member shall have been afforded the opportunity to join in such Transaction as required by this Section 7.9. Any purported Transaction subject to this Section 7.9 not made in compliance with this Section 7.9 shall be void and of no force and effect and shall not be recorded upon the books and records of the Company.

 

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(b) If the Minority Member desires to participate in such Transaction, the Minority Member shall notify Dolan by providing Dolan with a written notice (the “Tag-Along Notice”) on or before the expiration of the tenth (10th) Business Day following receipt of the Tag Transfer Notice indicating that the Minority Member desires to Sell its proportionate number of Common Units (as calculated below) on the same terms and conditions set forth in the Tag Transfer Notice. The maximum number of Common Units that the Minority Member shall be entitled to Sell to a Third Party Purchaser in accordance with this Section 7.9 shall be determined by multiplying (x) the total number of Common Units owned by the Minority Member at the time of receipt of the Tag Transfer Notice by (y) a fraction, the numerator of which is equal to the number of Common Units proposed to be sold to the Third Party Purchaser by Dolan and the denominator of which is equal to the total number of Common Units owned by Dolan. The total number of Common Units that the Minority Member shall be entitled to sell to the Third Party Purchaser is referred to herein as the “Tag-Along Amount.” If Dolan does not receive a Tag-Along Notice from the Minority Member within the period specified above, the Minority Member shall be deemed to have waived its rights to participate in the Transaction and Dolan shall thereafter be free to sell its Common Units to the Third Party Purchaser in the amount and on the same terms and conditions set forth in the Tag Transfer Notice, subject to Section 7.9(h) below. Except as otherwise provided in Section 7.9(c), if the Minority Member provides Dolan with a Tag-Along Notice within the period specified above, Dolan may not effect such Transaction unless the Third Party Purchaser shall have purchased the Tag-Along Amount from the Minority Member on the same terms and conditions set forth in the Transfer Notice.
(c) If the sum of the number of Common Units proposed to be sold to the Third Party Purchaser by Dolan and the Minority Member exceeds the number of Common Units that such Third Party Purchaser is willing to purchase (the “Purchase Amount”), then Dolan shall be obligated to reduce the Dolan Sale Amount to an amount equal to the product of (x) Dolan’s Participating Percentage as of the date of the Tag Transfer Notice multiplied by (y) the Purchase Amount.
(d) Any indemnity required to be provided by Dolan and/or the Minority Member to the Third Party Purchaser in a purchase agreement relating to such Transaction will be several and not joint.
(e) Dolan and the Minority Member shall be required to bear their pro rata share, based on the number of Common Units included in such Transaction, of the expenses of the transaction payable by Dolan, including reasonable legal, accounting and investment banking fees and expenses.
(f) The Manager shall, upon request by Dolan or the Minority Member, issue to Dolan or the Minority Member one or more certificates, if applicable, registered in the names and in the denominations (aggregating in a number equal to the original denomination) requested by Dolan or the Minority Member, to facilitate any partial sale of Common Units pursuant to this Section 7.9.

 

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(g) To the extent that a Tag Transfer Notice has been delivered to the Minority Member and any prospective Third Party Purchaser is unwilling or otherwise refuses to purchase Common Units from the Minority Member, Dolan shall not Sell to such prospective Third Party Purchaser any Membership Interests, unless and until, simultaneously with such Sale, Dolan shall purchase such Common Units from the Minority Member on the same terms and conditions specified in the Tag Transfer Notice.
(h) Subject to the rights of the Minority Member to participate in the Transaction as provided in this Section 7.9, Dolan may conclude a Transaction covered by the Tag Transfer Notice on the terms and conditions described in the Tag Transfer Notice; provided, however, that the closing of such Transaction takes place no later than one hundred eighty (180) days following delivery to the Minority Member of a Tag Transfer Notice. Any proposed Transaction on terms and conditions more favorable to the Third Party Purchaser than those described in the Tag Transfer Notice, as well as any proposed sale of any Common Units by Dolan more than one hundred eighty (180) days following delivery to the Minority Member of a Tag Transfer Notice, shall again be subject to the tag-along rights of the Minority Member and shall require compliance by Dolan with the procedures described in this Section 7.9.
(i) The exercise or non-exercise of the rights of the Minority Member under this Section 7.9 to participate in one or more Transactions shall not limit the Minority Member’s right to participate in any subsequent Transaction pursuant to this Section 7.9.
7.10. Withdrawal of Members. No Member shall have the right to withdraw from the Company, except in the case of an Involuntary Withdrawal. Immediately upon the occurrence of an Involuntary Withdrawal, the successor(s) of the Member so withdrawing shall thereupon become Economic Owner(s) but shall not become Member(s). No Member shall have the right to receive the return of any capital contribution in connection with an Involuntary Withdrawal.
7.11. No Appraisal Rights. No Member shall be entitled to any appraisal rights with respect to such Member’s Membership Interests, whether individually or as part of any class or group of Members, in the event of a merger, consolidation, Sale of the Company or other transaction involving the Company or its securities unless such rights are expressly provided by the agreement of merger, agreement of consolidation or other document effectuating such transaction.

 

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Article VIII
Dissolution, Liquidation, and Termination of the Company
8.1. Events of Dissolution. The Company shall be dissolved upon the decision of the Manager to liquidate or dissolve the Company.
8.2. Procedure for Winding Up and Dissolution.
(a) If the Company is dissolved, the Manager shall wind up its affairs. On the winding up of the affairs of the Company, the assets of the Company shall be distributed in the following order of priority:
(i) first, to pay the costs and expenses of the winding up, liquidation and termination of the Company;
(ii) second, to creditors of the Company, including any liabilities and obligations payable to the Members or Affiliates of the Members (other than in such Person’s capacity as an equityholder of the Company);
(iii) third, to establish reserves determined by the Manager to be reasonably adequate to meet any and all contingent or unforeseen liabilities or obligations of the Company; and
(iv) fourth, in accordance with Section 4.1(a).
(b) Notwithstanding anything to the contrary in this Agreement, upon a liquidation within the meaning of Regulations Section 1.704-1(b)(2)(ii)(g), if any Member has a deficit Capital Account balance (after giving effect to all contributions, distributions, allocations and other Capital Account adjustments for all taxable years, including the year during which such liquidation occurs), such Member shall have no obligation to make any contribution to the capital of the Company and the deficit balance in such Member’s Capital Account shall not be considered an asset of the Company or as a debt owed by such Member to the Company or to any other Person for any purpose whatsoever.
8.3. Cancellation of Certificate. On completion of the distribution of Company assets as provided herein, the Company is terminated, and shall file a certificate of cancellation with the Secretary, cancel any other filings made pursuant to Section 2.1 and take such other actions as may be necessary to terminate the Company.
Article IX
Books, Records, Accounting, and Tax Elections
9.1. Bank Accounts. All funds of the Company shall be deposited in a bank account or accounts maintained in the Company’s name. The Manager shall determine the institution or institutions at which the accounts will be opened and maintained, the types of accounts, and the Persons who will have authority with respect to the accounts and the funds therein.
9.2. Books and Records.
(a) The Manager shall keep or cause to be kept complete and accurate customary books and records of the Company and supporting documentation of the transactions with respect to the conduct of the Company’s business. The records shall include, but not be limited to, a copy of the Certificate of Formation and this Agreement and all amendments to the Certificate of Formation and this Agreement, a current list of the names and last known business, residence, or mailing addresses of all Members, and the Company’s federal, state and local tax returns. Each of the Members shall have reasonable access to the books and records of the Company.

 

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(b) The books and records shall be kept on the cash or accrual method of accounting, as determined from time to time by the Manager, and shall be available at the Company’s principal office for examination by any Member or the Member’s duly authorized representative at any and all reasonable times during normal business hours. Each Member shall reimburse the Company for all costs and expenses incurred by the Company in connection with the Member’s inspection and copying of the Company’s books and records.
(c) All matters concerning (i) the determination of the relative amount of allocations and distributions among the Members pursuant to Articles III and IV and (ii) accounting procedures and determinations, and other determinations not specifically and expressly provided for by the terms of this Agreement, shall be reasonably determined by the Manager, whose determination shall be final and conclusive as to all of the Members absent manifest clerical error.
9.3. Annual Accounting Period. The annual accounting period of the Company shall end on December 31. The Company’s taxable year shall be selected by the Manager, subject to the requirements and limitations of the Code.
9.4. Reports. The Manager shall prepare and distribute to the Members, as promptly as practicable after the end of each applicable period, quarterly and year-end reports concerning the financial condition of the Company, which shall include information regarding sales, profits and losses, cash flow, revenue and expenses and a balance sheet, which, in the case of the year-end reports, shall be audited. Within ninety (90) days after the end of each taxable year of the Company, the Manager shall use its good faith efforts to cause to be sent to each Person who was a Membership Interest Holder at any time during the taxable year then ended, that tax information concerning the Company which is necessary for preparing the Membership Interest Holder’s income tax returns for that year.
9.5. Tax Matters Partner; Tax Elections. Dolan is hereby designated the “tax matters partner” of the Company as defined in Section 6231 of the Code (the “Tax Matters Member”). The Tax Matters Member shall inform each other Member of all significant matters that may come to its attention in its capacity as Tax Matters Member by giving notice thereof and forwarding to each other Member copies of all significant written communications it may receive in that capacity. The Tax Matters Member may make any tax elections for the Company allowed under the Code, or the tax laws of any state or other jurisdiction having taxing jurisdiction over the Company; provided that neither the Tax Matters Member, the Manager or any Member shall make any election or take any other action that would cause or permit the Company or any successor to the Company to be taxed as a corporation for federal income tax purposes. The Tax Matters Member may, in its sole discretion, make or revoke the election referred to in Section 754 of the Code. The Company shall reimburse Dolan for any reasonable costs it incurs in its capacity as the Tax Matters Partner. Each of the Members will, upon request, supply the information necessary to properly give effect to such election.
9.6. Title to Company Property. All real and personal property acquired by the Company shall be acquired and held by the Company in its name.

 

43


 

Article X
General Provisions
10.1. Further Assurances. Each Member shall execute all such certificates and other documents and shall do all such filing, recording, publishing and other acts as the Manager deems appropriate to comply with the requirements of law for the formation and operation of the Company and to comply with any laws, rules, and regulations relating to the acquisition, operation, or holding of the property of the Company.
10.2. Notifications. Except as otherwise provided in this Agreement, any notice, demand, consent, election, offer, approval, request, or other communication (collectively, a “Notice”) required or permitted hereunder must be in writing and either delivered personally or by (i) certified or registered mail, postage prepaid, return receipt requested, (ii) means of a facsimile machine or other electronic transmission (including transmission in portable document format by electronic mail) or (iii) a recognized overnight delivery service. A Notice must be addressed to a Member at the Member’s last known address, facsimile number or electronic mail address on the records of the Company. A Notice to the Company must be addressed to the Company at the Company’s principal office. A Notice delivered personally will be deemed given when delivered. A Notice that is sent by mail will be deemed given three (3) Business Days after it is mailed. A Notice sent by facsimile or other electronic transmission (including transmission in portable document format by electronic mail) will be deemed given on the next Business Day after the date of such delivery so long as a copy also is sent by other means permitted hereunder. A Notice sent by recognized overnight delivery service will be deemed given when received or refused. Any party may designate, by Notice to all of the others, substitute addresses, including electronic mail addresses, or addressees for Notices; and, thereafter, Notices are to be directed to those substitute addresses or addressees.
10.3. Specific Performance. The parties recognize that irreparable injury will result from a breach of any provision of this Agreement and that money damages will be inadequate to fully remedy the injury. Accordingly, in the event of a breach or threatened breach of one or more of the provisions of this Agreement, any party to this Agreement who may be injured (in addition to any other rights and remedies that may be available to such Person under this Agreement, any other agreement or under any law) shall be entitled (without posting a bond or other security) to one or more preliminary or permanent orders (i) restraining and enjoining any act which would constitute a breach or (ii) compelling the performance of any obligation which, if not performed, would constitute a breach.
10.4. Amendment; Waivers. Except as otherwise provided in this Section 10.4, this Agreement may be amended, modified or supplemented, and waivers of or consents to departures from the provisions hereof may be given, from time to time only by a written instrument approved by the Manager; provided, however, that so long as any Senior Indebtedness is outstanding or the commitments under the Senior Credit Agreement have not been terminated, the Senior Agent must give its prior written consent to any amendment or modification of Sections 7.3(a), 7.4(b), 7.5, 7.7, 7.8, 10.4 or 10.12, which consent shall not be

 

44


 

unreasonably withheld. Notwithstanding the foregoing to the contrary, the Manager shall have the right, without obtaining any consent of any of the Members, to amend this Agreement, including, but not limited to, Exhibit A hereto, as may be reasonably required to reflect any of the following transactions: (i) to reflect the admission of Substituted Members or Additional Members in accordance with the terms of this Agreement (including as a result of any additional Capital Contributions pursuant to Section 3.3 or the issuance of additional Common Units or other Membership Interests pursuant to Section 3.4), (ii) to reflect the change of any information set forth on Exhibit A (e.g., upon the Transfer of any Common Units by a Member), (iii) any amendments required in connection with the issuance of any new class of securities pursuant to Section 3.4, (iv) to cure any ambiguity or to correct or supplement any provision herein that may be inconsistent with any other provision herein, or (v) to delete or add any provision in this Agreement required to be deleted or added by a state “Blue Sky” commissioner or similar such official, which deletion or addition is deemed by such official to be for the benefit of the Members. Notwithstanding the foregoing, no amendment, modification or supplement to this Agreement shall be effective against a Member to the extent such amendment, modification or supplement (i) would materially adversely affect any Member’s interests in the Company or (ii) causes such Member to become personally liable for any obligation or the Company, unless, in either case, such Member expressly agrees in writing to such amendment, modification or supplement. Notwithstanding the foregoing, the prior written consent of (1) the Manager and (2) for so long as the Minority Member owns any Common Units in the Company, the Minority Member shall be required to effect an amendment, modification or supplement to Sections 3.3, 3.4(b), 4.1, 6.4, 7.5, 7.7, 7.8, 7.9 or 10.4 of this Agreement. The Members hereby specifically consent to an amendment of this Agreement from time to time in such manner as is reasonably determined by the Manager, upon the advice of counsel for the Company, to be necessary or reasonably helpful to ensure that the allocations of Profits and Losses and individual items thereof are given effect for federal income tax purposes, including any amendments determined by the Manager, in consultation with counsel to the Company, to be necessary to comply with the Regulations under Section 704 of the Code.
10.5. Arbitration; Submission to Jurisdiction.
(a) Subject to Section 10.3, with respect to disputes, problems or claims arising out of or in connection with this Agreement (“Disputes”), the Members shall, in good faith, use their reasonable best efforts to resolve any such Dispute. If after such efforts the Members are unable within ten (10) days of the arising of a Dispute to resolve such Dispute in good faith, they shall promptly mutually agree upon a qualified, independent third party experienced in the area in the Dispute to resolve such Dispute within thirty (30) days of the date the Dispute is first submitted to such independent third party. The determination(s) of such qualified, independent third party shall be final and binding for purposes of this Agreement. Notwithstanding the foregoing, in the event (i) such third party is unable to make a determination within said thirty (30) day period, or (ii) the Members are unable to agree upon a third party to resolve the Dispute, either party may submit to final and binding arbitration before JAMS, with an office located in Minneapolis, Minnesota, or its successor, pursuant to the Federal Arbitration Act, 9 U.S.C. Sec. 1 et seq. Either party may commence the arbitration process called for in this Agreement by filing a written demand for arbitration with

 

45


 

JAMS, with a copy to the other party. The arbitration will be conducted in Minneapolis, Minnesota, in accordance with the provisions of JAMS Streamlined Arbitration Rules and Procedures in effect at the time of filing of the demand for arbitration. The parties will cooperate with JAMS and with one another in selecting an arbitrator from JAMS panel of neutrals, and in scheduling the arbitration proceedings. The provisions of this Section 10.5(a) with respect to the arbitration before JAMS may be enforced by any court of competent jurisdiction, and the parties seeking enforcement shall be entitled to an award of all costs, fees and expenses, including attorneys fees, to be paid by the parties against whom enforcement is ordered. The fees and expenses of such arbitration shall be borne by the non-prevailing party, as determined by such arbitration. The parties hereto agree that this Section 10.5(a) has been included to rapidly and inexpensively resolve any disputes between them with respect to the matters described above, and that this paragraph shall be grounds for dismissal of any court action commenced by any party with respect to a dispute arising out of such matters.
(b) Consent to Jurisdiction. The parties hereto hereby irrevocably submit themselves to the exclusive jurisdiction of the courts of the State of Minnesota located in Hennepin County, Minnesota and to the jurisdiction of the United States District Court for the District of Minnesota for the purpose of enforcing any arbitration decision that may be issued pursuant to Section 10.5(a) hereof, obtaining any court order pursuant to Section 10.3 and bringing any other action that may be brought in connection with the provisions hereof. The parties hereto hereby individually agree that they shall not assert any claim that they are not subject to the jurisdiction of such courts, that the venue is improper, that the forum is inconvenient or any similar objection, claim or argument. Service of process on any of the parties hereto with regard to any such action may be made by mailing the process to such Persons by regular or certified mail to the address of such Person specified in Section 10.2.
10.6. GOVERNING LAW. ALL QUESTIONS CONCERNING THE CONSTRUCTION, VALIDITY AND INTERPRETATION OF THIS AGREEMENT AND THE EXHIBIT HERETO WILL BE GOVERNED BY THE INTERNAL LAW, AND NOT THE LAW OF CONFLICTS, OF THE STATE OF DELAWARE.
10.7. Disclosure. Notwithstanding anything in this Agreement which may imply the contrary, Dolan and its Affiliates may (i) disclose the existence of this Agreement and the terms and conditions hereof and/or (ii) file a copy of this Agreement required by applicable law, including, but not limited to, any applicable securities laws.
10.8. Descriptive Headings; Interpretation. The descriptive headings of this Agreement are inserted for convenience of reference only and do not constitute a substantive part of this Agreement. Whenever required by the context, any pronoun used in this Agreement shall include the corresponding masculine, feminine, or neuter forms, and the singular form of nouns, pronouns, and verbs shall include the plural and vice versa. The use of the word “including” in this Agreement shall be by way of example rather than by limitation. Reference to any agreement, document, or instrument means such agreement, document, or instrument as amended or otherwise modified from time to time in accordance with the terms thereof, and, if applicable, hereof. Without limiting the generality of the immediately preceding sentence, no amendment or other modification to any agreement, document, or instrument that requires the consent of any Person pursuant to the terms of this Agreement or any other agreement will be

 

46


 

given effect hereunder unless such Person has consented in writing to such amendment or modification. The use of the words “or,” “either,” and “any” shall not be exclusive. The parties hereto have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties hereto, and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any of the provisions of this Agreement. Wherever a conflict exists between this Agreement and any other agreement, this Agreement shall control but solely to the extent of such conflict.
10.9. Severability. Each provision hereof shall be considered separable. The invalidity or unenforceability of any provisions hereof in any jurisdiction shall not affect the validity, legality or enforceability of the remainder hereof in such jurisdiction or the validity, legality or enforceability hereof, including any such provision, in any other jurisdiction, it being intended that all rights and obligations of the parties hereunder shall be enforceable to the fullest extent permitted by law. If, for any reason, any provision or provisions herein are determined to be invalid and contrary to any existing or future law, such invalidity shall not impair or affect the other provisions herein.
10.10. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original and all of which, when taken together, shall constitute one and the same document.
10.11. Attorneys’ Fees. In any action or proceeding brought to enforce any provision of this Agreement, or where any provision hereof is validly asserted as a defense, the prevailing party shall be entitled to recover reasonable attorneys’ fees and expenses from the non-prevailing party in addition to any other available remedy.
10.12. Binding Provisions. This Agreement is binding upon, and inures to the benefit of, the parties hereto and their respective heirs, executors, administrators, personal and legal representatives, successors, and permitted assigns; provided, however, so long as any Senior Indebtedness is outstanding or the commitments under the Senior Credit Agreement have not been terminated, the Senior Agent and the Senior Lenders shall have the rights granted them as third party beneficiaries under Sections 7.3(a), 7.4(b), 7.7 and 7.8 hereof.
10.13. Entire Agreement. This Agreement embodies the complete agreement and understanding among the parties and supersede and preempt any prior understandings, agreements or representations by or among the parties, written or oral, which may have related to the subject matter hereof in any way.

 

47


 

10.14. Delivery by Facsimile or Other Electronic Transmission. This Agreement, and any amendments hereto, to the extent signed and delivered by means of a facsimile machine or other electronic transmission (including transmission in portable document format by electronic mail), shall be treated in all manner and respects and for all purposes as an original agreement or instrument and shall be considered to have the same binding legal effect as if it were the original signed version thereof delivered in person. At the request of any party hereto, each other party hereto shall re-execute original forms thereof and deliver them to all other parties, except that the failure of any party to comply with such a request shall not render this Agreement, the agreements referred to herein, and each other agreement or instrument entered into in connection herewith or therewith or contemplated hereby or thereby, and any amendments hereto or thereto, invalid or unenforceable. No party hereto shall raise the use of a facsimile machine or other electronic transmission to deliver a signature, or the fact that any signature was transmitted or communicated through the use of a facsimile machine or other electronic transmission, as a defense to the formation or enforceability of a contract and each such party forever waives any such defense.
10.15 Third Party Beneficiary. The parties hereto hereby agree that each of the members of the Minority Member are a third party beneficiary of the rights of the Minority Member pursuant to Section 7.7 hereof and as such shall have the right to bring an action for a breach thereof.
[Signature Page Follows]

 

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IN WITNESS WHEREOF, the undersigned have executed this Third Amended and Restated Operating Agreement of discoverReady LLC as of the date first written above.
         
  COMPANY:

DISCOVERREADY LLC

 
 
  By:   /s/ James P. Dolan    
    Name:   James P. Dolan   
    Title:   Vice President   
 
  MEMBERS:

DOLAN MEDIA COMPANY

 
 
  By:   /s/ James P. Dolan    
    Name:   James P. Dolan   
    Title:   Chairman, President and Chief Executive Officer   
 
  DR HOLDCO LLC
 
 
  By:   /s/ James K. Wagner, Jr.    
    Name:   James K. Wagner, Jr.   
    Title:   CEO and Manager   
 
[signature pages continued on next page]

 

 


 

With respect to Section 10.15 hereof, the members of the Minority Member listed below:
     
/s/ Steve Harber
 
Steve Harber
   
 
   
/s/ Jim Wagner
 
Jim Wagner
   
 
   
/s/ Paul Yerkes
 
Paul Yerkes
   
 
   
/s/ David Shub
 
David Shub
   
 
   
/s/ Parkhill Mays
 
Parkhill Mays
   

 

 


 

EXHIBIT A
List of Members, Capital Contributions,
Common Units and Participating Percentages
                 
Name, Address, Phone           Participating  
and Fax of Member   Common Units     Percentage  
Dolan Media Company
               
222 South Ninth Street, Suite 2300
               
Minneapolis, Minnesota 55402
               
Attention: James P. Dolan
               
Phone: (612) 317-9425
               
Fax: (612) 317-9434
    850,000       85 %
 
               
DR Holdco, LLC
               
55 Broadway, 21st Floor
               
New York, New York 10006
               
Attention: James K. Wagner
               
                 Steven R. Harber
               
Phone:                     
               
Fax:                     
    150,000       15 %
 
           
 
               
TOTAL
    1,000,000       100 %
 
           

 

 


 

EXHIBIT B
Form of Transfer Agreement

 

 


 

TRANSFER AGREEMENT
BETWEEN
[BUYING HOLDER(S)/DISCOVERREADY LLC/DOLAN MEDIA COMPANY]
AND
SELLING HOLDER
[                          , 20     ]

 

 


 

TRANSFER AGREEMENT
This TRANSFER AGREEMENT (the “Agreement”) is entered into as of [                          , 20     ] (the “Closing Date”), between [Buying Holder(s)/discoverReady LLC/Dolan Media Company] (the “Purchaser”) and DR Holdco LLC, a Delaware limited liability company (the “Seller”). Certain capitalized terms used but not otherwise defined herein shall have the meanings ascribed thereto in Section 5.1 hereof
RECITALS
WHEREAS, the Seller is the current record and beneficial owner of                      Common Units (the “Transferred Units”) of discoverReady LLC, a Delaware limited liability company (the “Company”);
WHEREAS, Purchaser and Seller are parties to that certain Third Amended and Restated Limited Liability Company Agreement of discoverReady LLC, dated as of November 2, 2009 (as may be amended, restated or otherwise modified from time to time, the “LLC Agreement”);
WHEREAS, [Purchaser is exercising its rights to purchase the Transferred Units under the LLC Agreement][Seller is exercising its rights to sell the Transferred Units under the LLC Agreement]; and
WHEREAS, Purchaser desires to purchase from Seller, and Seller desires to sell and transfer to Purchaser, Transferred Units for the consideration and upon the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing, of the mutual covenants and agreements herein contained and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereby agree as follows:
1. AGREEMENT TO SELL AND PURCHASE.
1.1 Sale and Purchase. Subject to the terms and conditions of this Agreement, Seller agrees to sell to Purchaser and Purchaser agrees to purchase from the Seller, the Transferred Units at a purchase price of $           per Transferred Unit.
1.2 Delivery. At the closing (a) the Seller will deliver to Purchaser certificates representing the Transferred Units, if applicable, duly endorsed (or accompanied by duly executed Transferred Unit transfer forms), for transfer to Purchaser, and (b) Purchaser will deliver to Seller the amount set forth on Seller’s signature page hereto (the “Purchase Price”).

 

 


 

2. REPRESENTATIONS AND WARRANTIES OF THE SELLER.
As an inducement to Purchaser to enter into and perform this Agreement, Seller hereby makes the following representations and warranties to Purchaser:
2.1 Organization and Good Standing. The Seller is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Delaware. The Seller has the requisite company power and authority to execute and deliver this Agreement to be executed by it, to perform its obligations hereunder and to consummate the transactions contemplated hereby.
2.2 Authorization. The execution and delivery of this Agreement, and the performance by the Seller of its obligations hereunder, have been duly authorized by all necessary company action. This Agreement constitutes the legal, valid and binding obligations of the Seller enforceable against the Seller in accordance with the terms hereof or thereof except as enforcement hereof may be limited by applicable Insolvency Laws.
2.3 Ownership; No Liens. The Seller is the record and beneficial owner of all of the Transferred Units, which have been duly and validly issued, fully paid, and non-assessable, and the Seller owns such membership interests in the Company free and clear of all Liens and there are no outstanding preemptive rights, warrants, options or other rights to purchase, or unitholder, voting trust or similar Contracts outstanding with respect to, all or any portion of the Transferred Units. Other than as described in the LLC Agreement, upon consummation of the transactions contemplated by this Agreement, the Purchaser will be vested with marketable title to the Transferred Units sold and transferred by the Seller, free and clear of all Liens.
2.4 No Conflict
(a) Neither the execution and delivery of this Agreement by the Seller nor the performance by the Seller of the transactions contemplated hereby will, directly or indirectly:
(b) contravene, conflict with, or result in (with or without notice or lapse of time) a violation or breach of (i) any provision of the Organizational Documents of the Seller, (ii) any resolution adopted by the governing body of the Seller, or (iii) any Legal Requirement, Governmental Authorization, Contract or any Order to which the Seller may be subject; or
(c) give any Person or Governmental Entity the right (with or without notice or lapse of time) to declare a default or exercise any remedy under, or to accelerate the maturity or performance of, or to cancel, terminate, modify, withdraw or suspend any Contract, Legal Requirement, Governmental Authorization or Order applicable to the Seller
2.5 No Consent Required. No Consent, notification, approval, Order or authorization of, or declaration, filing or registration with, any Person or Governmental Entity is required to be made or obtained by the Seller in connection with the authorization, execution, delivery, performance or lawful completion of this Agreement or the transactions contemplated hereby.

 

 


 

3. REPRESENTATIONS AND WARRANTIES OF PURCHASER.
As an inducement to Seller to enter into and perform this Agreement, Purchaser hereby makes the following representations and warranties to the Seller:
3.1 Organization and Good Standing. The Purchaser is a [corporation/limited liability company] duly organized, validly existing and in good standing under the laws of the State of Delaware. The Purchaser has the requisite company power and authority to execute and deliver this Agreement to be executed by it, to perform its obligations hereunder and to consummate the transactions contemplated hereby.
3.2 Authorization. The execution and delivery of this Agreement, and the performance by the Purchaser of its obligations hereunder, have been duly authorized by all necessary company action. This Agreement constitutes the legal, valid and binding obligations of the Purchaser enforceable against the Purchaser in accordance with the terms herein except as enforcement hereof may be limited by applicable Insolvency Laws.
3.3 No Conflict. Neither the execution and delivery of this Agreement by the Purchaser nor the performance by the Purchaser of the transactions contemplated hereby will, directly or indirectly:
(a) contravene, conflict with, or result in (with or without notice or lapse of time) a violation or breach of (i) any provision of the Organizational Documents of the Purchaser, (ii) any resolution adopted by its governing body, or (iii) any Legal Requirement, Governmental Authorization, Contract or any Order to which the Purchaser may be subject; or
(b) give any Person or Governmental Entity the right (with or without notice or lapse of time) to declare a default or exercise any remedy under, or to accelerate the maturity or performance of, or to cancel, terminate, modify, withdraw or suspend any Contract, Legal Requirement, Governmental Authorization or Order applicable to the Purchaser.
4. COVENANTS AND AGREEMENTS.
4.1 Reasonable Efforts; Further Assurances; Cooperation. Subject to the other provisions hereof, each party shall use its reasonable, good faith efforts to perform its obligations hereunder and to take, or cause to be taken, and do, or cause to be done, all things necessary, proper or advisable under Legal Requirements to cause the transactions contemplated herein to be effected as soon as practicable, in accordance with the terms hereof and shall cooperate fully with each other and its officers, directors, employees, agents, counsel, accountants and other designees in connection with any step required to be taken as a part of its obligations hereunder.
4.2 Transfer Taxes. All transfer, documentary, sales, use, stamp, registration, value added and other such taxes and fees (including any penalties and interest) incurred in connection with the sale of the Transferred Units pursuant to this Agreement shall be paid by the Seller when due, and the Seller shall, at its own expense, file all necessary tax returns and other documentation with respect to all such taxes and fees.

 

 


 

5. DEFINITIONS.
5.1 Definitions. For the purposes of this Agreement, the following terms have the meanings set forth below:
Contract” means any agreement, contract, license, lease, purchase order, obligation, promise, undertaking or other arrangement (whether written or oral and whether express or implied).
Consent(s)” means any approval, consent, ratification, permission, waiver or authorization (including any Governmental Authorization).
Governmental Authorization” means any approval, consent, license, permit, waiver, or other authorization issued, granted, given, or otherwise made available by or under the authority of any Governmental Entity or pursuant to any Legal Requirement.
Governmental Entity” means any federal, state or local government (whether U.S. or foreign) or any court, administrative agency, commission or government authority acting under the authority of the federal or any state or local government.
Insolvency Laws” means any bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or other similar Legal Requirements affecting the enforcement of creditors rights generally, and general principles of equity (regardless of whether enforcement is considered in a proceeding in law or equity).
Legal Requirement” means any requirement arising under any action, law, treaty, rule or regulation, determination or direction of a Governmental Entity.
Liens” means any mortgage, pledge, lien, security interest, charge, claim, pledge or other encumbrance.
Losses” means any liabilities (whether contingent, fixed or unfixed, liquidated or unliquidated, or otherwise), obligations, deficiencies, demands, claims, suits, actions, or causes of action, assessments, losses, costs, expenses, interest, fines, penalties, actual or punitive damages (including reasonable fees and expenses of attorneys, accountants and other experts).
Order” means any award, injunction, judgment, order, ruling, subpoena, or verdict or other decision entered, issued, made, or rendered by any court, administrative agency, or other Governmental Entity or by any arbitrator.
Organizational Documents” means (a) the articles or certificate of incorporation and the bylaws of a corporation; (b) any charter or similar document adopted or filed in connection with the creation, formation, or organization of a Person (e.g., a certificate of formation, articles of organization or certificate of limited partnership), and any agreement governing such Person (e.g., a limited liability company agreement, operating agreement or partnership agreement); and (c) any amendment to any of the foregoing.

 

 


 

Person” means any individual, sole proprietorship, partnership, limited liability company, joint venture, trust, unincorporated association, corporation, other entity or government (whether federal, provincial, state, county, city or otherwise, including, but not limited to, any instrumentality, division, agency or department thereof).
Purchaser Indemnified Party” means the Purchaser and its successors, assigns and affiliates and each of their respective equityholders, directors, managers, officers, employees, and agents.
Seller Indemnified Party” means the Seller and its successors, assigns and affiliates and each of their respective equityholders, directors, managers, officers, employees, and agents.
6. INDEMNIFICATION.
6.1 Survival of Representations and Warranties. All representations and warranties contained herein or made in writing by any party in connection herewith will survive the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby.
6.2 Indemnification by the Seller. From and after the Closing Date, the Seller agrees to indemnify, defend and hold harmless each Purchaser Indemnified Party forever from and against any and all Losses suffered, sustained or incurred by any Purchaser Indemnified Party relating to, resulting from, arising out of or otherwise by virtue of: (a) any inaccuracy in the representations or warranties of the Seller contained in this Agreement, or (b) the failure of the Seller to perform any of its covenants or obligations contained in this Agreement.
6.3 Indemnification by the Purchaser. From and after the Closing Date, the Purchaser agrees to indemnify, defend and hold harmless each Seller Indemnified Party forever from and against any and all Losses suffered, sustained or incurred by any Seller Indemnified Party relating to, resulting from, arising out of or otherwise by virtue of: (a) any inaccuracy in the representations or warranties of the Purchaser contained in this Agreement, or (b) the failure of the Purchaser to perform any of its covenants or obligations contained in this Agreement.
7. MISCELLANEOUS.
7.1 Waiver and Amendment. Any agreement on the part of a party to any extension or waiver of any provision hereof shall be valid only if set forth in an instrument signed on behalf of such party. This Agreement may not be amended, modified or supplemented, except by written agreement of the parties.
7.2 Entire Agreement. This Agreement and schedules and other documents referred to herein which form a part hereof contain the entire understanding of the parties hereto with respect to the subject matter hereof. This Agreement supersedes all prior agreements and understandings, oral and written, with respect to its subject matter.

 

 


 

7.3 Severability. Should any provision of this Agreement for any reason be declared invalid or unenforceable, such decision shall not affect the validity or enforceability of any of the other provisions of this Agreement, which other provisions shall remain in full force and effect and the application of such invalid or unenforceable provision to Persons or circumstances other than those as to which it is held invalid or unenforceable shall be valid and be enforced to the fullest extent permitted by law.
7.4 Binding Effect; Assignment. This Agreement and all of the provisions hereof shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, executors, successors and permitted assigns, but except as contemplated herein, neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned, directly or indirectly, by any party without the prior written consent of the other parties hereto, except that Purchaser may assign all or any portion of its rights hereunder to one or more of its Affiliates, provided that, no such assignment shall relieve Purchaser of its obligations hereunder.
7.5 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
7.6 Governing Law; Consent to Jurisdiction. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of Delaware or any other jurisdiction) that would cause the application of the law of any jurisdiction other than the State of Delaware.
[Remainder of Page Intentionally Left Blank]

 

 


 

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date set forth in the first paragraph hereof.
         
  PURCHASER:

[BUYING HOLDER(S)/DISCOVERREADY
LLC/DOLAN MEDIA COMPANY]

 
 
  By      
    Name:      
    Title:      
 
  SELLER:

DR HOLDCO LLC

 
 
  By      
    Name:      
    Title:      
 
     
Transferred Units   Aggregate Purchase Price for Transferred Units
 
   
           Common Units:
  $                    

 

 


 

EXHIBIT C
As of the date hereof, the Holdco Percentage for each of the equity members of the Minority Member are as follows:
         
James K Wagner
    36.0 %
Steven R. Harber
    36.0 %
David Shub
    13.1 %
Parkhill Mays
    2.1 %
Paul Yerkes
    2.9 %

 

 

EX-10.10 5 c91925exv10w10.htm EXHIBIT 10.10 Exhibit 10.10
Exhibit 10.10
SECOND AMENDMENT TO
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
This SECOND AMENDMENT TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT (this “Amendment”), made and entered into as of November 2, 2009, is by and among DOLAN MEDIA COMPANY, a Delaware corporation (“Dolan”), Dolan, in its capacity as agent for the Borrowers (“Borrowers’ Agent”), DOLAN FINANCE COMPANY, a Minnesota corporation (“Dolan Finance”), DOLAN PUBLISHING COMPANY, a Delaware corporation, DOLAN PUBLISHING FINANCE COMPANY, a Minnesota corporation, CLEO COMPANY, a Delaware corporation, LONG ISLAND BUSINESS NEWS, INC., a New York corporation, DAILY JOURNAL OF COMMERCE, INC., a Delaware corporation, LAWYER’S WEEKLY, INC., a Delaware corporation, LEGAL LEDGER, INC., a Minnesota corporation, THE JOURNAL RECORD PUBLISHING CO., a Delaware corporation, DAILY REPORTER PUBLISHING COMPANY, a Delaware corporation, NEW ORLEANS PUBLISHING GROUP, INC., a Louisiana corporation, NOPG, L.L.C., a Louisiana limited liability company, WISCONSIN PUBLISHING COMPANY, a Minnesota corporation, LEGAL COM OF DELAWARE, INC., a Delaware corporation, MISSOURI LAWYERS MEDIA, INC., a Missouri corporation, THE DAILY RECORD COMPANY, a Maryland corporation, IDAHO BUSINESS REVIEW, INC., an Idaho corporation, FINANCE AND COMMERCE, INC., a Minnesota corporation, COUNSEL PRESS, LLC, a Delaware limited liability company, ARIZONA NEWS SERVICE, LLC, a Delaware limited liability company, DOLAN DLN LLC, a Delaware limited liability company, DOLAN APC LLC, a Delaware limited liability company, AMERICAN PROCESSING COMPANY, LLC, a Michigan limited liability company, THP / NDEX AIV CORP., a Delaware corporation, THP / NDEX AIV, L.P., a Delaware limited partnership, NATIONAL DEFAULT EXCHANGE HOLDINGS, LP, a Delaware limited partnership, NATIONAL DEFAULT EXCHANGE MANAGEMENT, INC., a Delaware corporation, NATIONAL DEFAULT EXCHANGE GP, LLC, a Delaware limited liability company, NATIONAL DEFAULT EXCHANGE, LP, a Delaware limited partnership, NDEX TECHNOLOGIES, LLC, a Texas limited liability company, NDEX WEST, LLC, a Delaware limited liability company, and NDEX TITLE SERVICES, L.L.C., a Texas limited liability company (each (other than Dolan in its capacity as Borrowers’ Agent) a “Borrower” and, collectively, the “Borrowers”), the banks party to the Credit Agreement defined below (individually, a “Bank” and, collectively, the “Banks”), and U.S. BANK NATIONAL ASSOCIATION, a national banking association (“USBNA”), as agent for the Banks (in such capacity, the “Agent”).
RECITALS
A. The Borrowers’ Agent, the Borrowers, the Banks and the Agent are parties to that certain Second Amended and Restated Credit Agreement dated as of August 8, 2007, as amended by that certain First Amendment to Second Amended and Restated Credit Agreement dated as of July 28, 2008 (as further amended, supplemented or modified from time to time, the “Credit Agreement”).

 

 


 

B. The Borrowers’ Agent has requested in accordance with clause (iii) of the definition of “Permitted Acquisitions” in the Credit Agreement that the Banks consent to the acquisition by Dolan of approximately eighty-five percent (85%) of the outstanding Equity Interests of DiscoverReady LLC on substantially the terms set forth in that certain Non-Binding Acquisition Proposal dated September 29, 2009 delivered to the Agent (the “Proposal Letter”).
C. The Majority Banks are willing to grant such consent, and to amend certain provisions of the Credit Agreement, in each case on and subject to the terms of this Amendment.
AGREEMENT
NOW, THEREFORE, for good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto hereby covenant and agree to be bound as follows:
Section 1. Capitalized Terms. Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to them in the Credit Agreement, unless the context shall otherwise require.
Section 2. Consents. In accordance with the terms of the Credit Agreement, the Majority Banks hereby grant the following consent, subject in each case to Section 4 of this Amendment (the “Consent”):
2.1. Dolan shall be permitted to acquire approximately eighty-five percent (85%) of the outstanding Equity Interests of discoverReady LLC, a Delaware limited liability company (“DiscoverReady”), on substantially the terms set forth in the draft Membership Interests Purchase Agreement provided to the Agent on or before the date hereof by and among DiscoverReady, the “Seller” party thereto, Dolan, and the other Persons party thereto, or on such other terms as are reasonably acceptable to Agent (the “DiscoverReady Acquisition”); provided that the consideration for such Acquisition shall be applied against the amounts set forth in clause (i)(d) of the definition in Permitted Acquisition for the current fiscal year.
Section 3. Amendments. Subject in each case only to the terms of Section 4, the Credit Agreement is hereby amended as follows, such amendments to take effect on the date the conditions set forth in Section 4 below are fully satisfied in accordance with the terms of such Section:
3.1. New Definitions. Section 1.1 of the Credit Agreement is hereby amended by adding the following terms thereto in the proper alphabetical order:
DiscoverReady”: discoverReady LLC, a Delaware limited liability company.
DiscoverReady Acquisition”: The acquisition by Dolan of approximately 85% of the Equity Interests of DiscoverReady in accordance with the terms and conditions set forth in the Second Amendment.

 

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DiscoverReady LLC Agreement”: The Third Amended and Restated Limited Liability Company Agreement of discoverReady LLC dated as of the date of consummation of the DiscoverReady Acquisition.
DiscoverReady Ownership Percentage”: As of any date of determination, the percentage ownership interest that Dolan maintains in DiscoverReady.
DiscoverReady Purchase Agreement”: The Membership Interest Purchase Agreement by and among Dolan, the “Sellers” party thereto, and the other Persons party thereto.
DiscoverReady Side Letter”: The letter agreement dated as of the date of consummation of the DiscoverReady Acquisition by and between the Agent and the members of DiscoverReady.
Second Amendment”: The Second Amendment to Second Amended and Restated Credit Agreement dated as of November 2, 2009 by and among the Borrowers, the Borrowers’ Agent, the Banks and the Agent.
Second Amendment Closing Date”: The date the conditions to effectiveness of the Second Amendment set forth in Section 4 thereof have been satisfied in full or waived by the Majority Banks.
3.2. Amended Definition. The definition of “Pro Forma EBITDA” set forth in Section 1.1 of the Credit Agreement is hereby amended by deleting the word “and” before clause (h) and adding the following to the end of such definition:
and (i) the sum of clauses (i) and (ii) above with respect to the DiscoverReady Acquisition shall be deemed to be $5,500,000 multiplied by the DiscoverReady Ownership Percentage.
3.3. Subsidiaries. Section 4.18 of the Credit Agreement is hereby amended by replacing such section in its entirety with the following:
Section 4.18 Subsidiaries. As of the date of the consummation of the DiscoverReady Acquisition, each Subsidiary of the Borrowers’ Agent is a Borrower and the Borrowers have no Subsidiaries other than those listed on Schedule 4.18, which sets forth the number and percentage of the shares of each class of Equity Interests owned beneficially or of record by the Borrowers, and the jurisdiction of organization of each Borrower.

 

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3.4. Acquisitions; Subsidiaries, Partnerships and Joint Ventures and Ownership. Section 6.5 of the Credit Agreement is hereby amended by deleting the word “or” before clause (f) and adding new clauses (g) and (h) thereto as follows:
(g) without the prior written consent of the Agent, appoint, consent to the appointment of, or otherwise elect a manager of DiscoverReady other than Dolan Media or another wholly-owned Subsidiary of Dolan Media; or (h) without the prior written consent of the Agent, consent to a Lien on all or any part of the Equity Interests in DiscoverReady (other than a Lien in favor of the Agent for the benefit of the Banks).
3.5. Restricted Payments. Section 6.7 of the Credit Agreement is hereby amended by deleting the word “and” before clause (g) and adding new clauses (h) and (i) thereto as follows:
(h) Restricted Payments consisting of dividends payable to members of DiscoverReady other than a Borrower pursuant to the terms of the DiscoverReady LLC Agreement, and (i) payments made in satisfaction of Dolan’s obligations under Section 7.7 of the DiscoverReady LLC Agreement, as may be amended from time to time in accordance with the terms of this Agreement.
3.6. Transactions with Affiliates. Section 6.8 of the Credit Agreement is hereby amended by deleting the word “or” before clause (ii) thereof and adding a new clause (iii) thereto as follows:
or (iii) without the consent of the Majority Banks, amend, modify, supplement or waive, or consent to the amendment, modification, supplement or waiver of, the terms of the DiscoverReady LLC Agreement relating to (A) dividends or other distributions on account of the Equity Interests of DiscoverReady (including those set forth in Article IV thereof), (B) restrictions and conditions on Liens or on the Equity Interests in DiscoverReady (including those set forth in Section 7.3 and 7.4 thereof and the definition of Permitted Transferee therein), and (C) the drag-along and tag-along rights with respect to sale of the Equity Interests in, and assets of, DiscoverReady (including those set forth in Section 7.6 and 7.9 thereof).
3.7. Investments. Section 6.12 of the Credit Agreement is hereby amended by renumbering the existing clauses (l) and (m) as clauses (m) and (n), respectively, and adding a new clause (l) thereto as follows:
(l) Investments by any Borrower in DiscoverReady, (i) to the extent existing on the Second Amendment Closing Date, and (ii) to the extent made after the Second Amendment Closing Date (A) in connection with any Permitted Acquisition or (B) in an aggregate amount not to exceed $5,000,000 (net of actual cash returns on investment) less the aggregate principal amount of any Indebtedness outstanding pursuant to Section 6.13(m)(ii)(B);

 

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3.8. Indebtedness. Section 6.13 of the Credit Agreement is hereby amended by renumbering the existing clause (m) as clause (o) and adding new clauses (m) and (n) thereto as follows:
(m) unsecured Indebtedness of DiscoverReady to any other Borrower (i) to the extent existing on the Second Amendment Closing Date, and (ii) to the extent incurred after the Second Amendment Closing Date (A) in connection with any Permitted Acquisition or (B) in an aggregate principal amount outstanding not to exceed $5,000,000 less the amount of any Investments (net of actual cash returns on investment) made pursuant to Section 6.12(l)(ii)(B);
(n) unsecured Indebtedness consisting of a “Put Note” issued by DiscoverReady pursuant to Section 7.7 of the DiscoverReady LLC Agreement, as may be amended from time to time in accordance with the terms of this Agreement; and
3.9. Schedules. Schedules 4.18 and 6.8 to the Credit Agreement are hereby amended by replacing such Schedules in their entirety with Schedules 4.18 and 6.8 in the form attached hereto, with such changes as may be approved by the Agent to conform to the DiscoverReady Acquisition.
3.10. Tax Lien; Letter of Credit. Notwithstanding anything to the contrary contained herein or in any other Loan Document, (i) the Lien filed against DiscoverReady in the County Clerk’s office, New York, as Index Number E029010382006 in the amount of $1,139.49 shall be deemed to be a permitted Lien under § 6.14 of the Credit Agreement so long as DiscoverReady is (a) contesting the Lien in good faith by appropriate proceedings, (b) DiscoverReady’s title to its property is not materially adversely affected by the Lien, (c) DiscoverReady’s use of such property in the ordinary course of its business is not materially interfered with thereby, (d) adequate reserves with respect to the Lien have been set aside on DiscoverReady’s books in accordance with GAAP, and (e) DiscoverReady promptly satisfies such Lien after it ceases contesting the Lien pursuant to clause (a) hereof, and (ii) DiscoverReady shall be permitted to have outstanding Indebtedness consisting of reimbursement obligations under a letter of credit issued for the benefit of a real property lessor, secured by cash collateral, provided that neither the reimbursement obligations nor the cash collateral exceed $80,000.
Section 4. Conditions to Effectiveness. This Amendment shall be a legal, valid and binding agreement against the parties hereto upon the due execution and delivery of this Amendment by the Majority Banks, the Agent, the Borrowers’ Agent and the Borrowers and, as such, no signatory hereto shall be permitted to unilaterally rescind or revoke its signature hereto or otherwise contest the validity or enforceability of this Amendment as against such Person (except as specifically provided in the following provisions of this Section 4). The Consent and the other amendments set forth in Section 3 shall be deemed void ab initio and shall cease to have any force or effect if any of the conditions set forth in this Section 4 are not satisfied by the earlier of the consummation of the DiscoverReady Acquisition and December 31, 2009 (unless any such conditions are waived in writing by the Majority Banks).
4.1. No Default or Event of Default shall have occurred and be continuing on the date of consummation of the DiscoverReady Acquisition.

 

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4.2. The Borrowers’ Agent shall have delivered to the Agent a certificate calculating the Senior Leverage Ratio reflecting on a pro forma basis the DiscoverReady Acquisition (for this purpose, using the amount in clause (a) of the definition of Senior Leverage Ratio calculated as of the date of consummation of the DiscoverReady Acquisition and using Pro Forma EBITDA after giving effect to the amendment in Section 3.2(b) above), which Senior Leverage Ratio shall be less than the maximum allowed Senior Leverage Ratio as of such date less 0.25.
4.3. The Agent shall have received copies or a final draft of the DiscoverReady Purchase Agreement and each other material document, instrument and agreement executed in connection with the DiscoverReady Acquisition (the “DiscoverReady Acquisition Documents”), together with current lien search reports for DiscoverReady and the Seller under the DiscoverReady Purchase Agreement and, subject to Section 3.10 above, lien release letters and other documents as the Agent may reasonably require to evidence the termination of Liens on the business and Equity Interests to be acquired (other than Liens permitted under Section 6.14 of the Credit Agreement).
4.4. The Agent shall have received a consent in favor of the Agent and the Banks to the collateral assignment of rights and indemnities under the DiscoverReady Acquisition Documents in substantially the form attached hereto as Exhibit B (the “DiscoverReady Acquisition Collateral Assignment”) and (if delivered to the Borrowers) opinions of counsel for the selling parties in favor of the Agent and the Banks.
4.5. The closing of the DiscoverReady Acquisition shall occur not later than December 31, 2009 and the Borrowers shall have Availability of not less than $10,000,000 as of such closing date.
4.6. DiscoverReady shall execute and delivery to the Agent (i) a joinder agreement in the form attached hereto as Exhibit C (the “Joinder Agreement (Credit Agreement)”) in order to become obligated to repay the Loans and the other amounts payable under the Loan Documents and (ii) a Security Agreement in the form attached hereto as Exhibit D (the “DiscoverReady Security Agreement”) in order to grant to the Agent a first priority security interest subject no other Liens, except for Liens permitted pursuant to Section 6.14 of the Credit Agreement, in the assets of DiscoverReady.
4.7. The Equity Interests in DiscoverReady owned by Dolan shall have been pledged to the Agent pursuant to an amendment to Dolan’s Existing Pledge Agreement in substantially the form set forth in Exhibit E attached hereto (the “Pledge Agreement Amendment”) and certificate(s) representing such Equity Interests shall have been delivered to the Agent, together with duly executed instruments of transfer or assignment in blank, each in form and substance reasonably satisfactory to the Agent.
4.8. DiscoverReady shall have executed and delivered to the Agent a Collateral Assignment (Trademarks) in substantially the form attached hereto as Exhibit F (the “DiscoverReady Trademarks Assignment”).
4.9. The DiscoverReady LLC Agreement shall be in form and substance reasonably satisfactory to the Agent.

 

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4.10. The members of DiscoverReady shall have executed and delivered to the Agent the DiscoverReady Side Letter in substantially the form attached hereto as Exhibit G.
4.11. The Agent shall have received a certificate of the Secretary or Assistant Secretary (or other appropriate officer) of DiscoverReady dated as of the Second Amendment Closing Date and certifying to the following:
(i) a true and accurate copy of the limited liability company resolutions of such Borrower authorizing the execution, delivery and performance of the Loan Documents to which such Borrower is a party contemplated hereby and thereby;
(ii) the incumbency, names, titles and signatures of the officers of such Borrower authorized to execute the Loan Documents to which such Borrower is a party and to request Advances;
(iii) a true and accurate copy of the Certificate of Formation of such Borrower with all amendments thereto, certified by the appropriate governmental official of the jurisdiction of organization as of a date acceptable to the Agent; and
(iv) a true and accurate copy of the DiscoverReady LLC Agreement, including all amendments thereto.
4.12. The Agent shall have received a certificate of good standing for DiscoverReady in the jurisdiction of its organization and in the jurisdictions where the character of the properties owned or leased by such Borrower or the Business conducted by such Borrower makes such qualification necessary, certified by the appropriate governmental officials as of a date acceptable to the Agent.
4.13. All Security Documents (or financing statements with respect thereto) in respect of DiscoverReady shall have been appropriately filed or recorded to the satisfaction of the Agent; any pledged collateral in respect of DiscoverReady shall have been duly delivered to the Agent; and the priority and perfection of the Liens created by the Security Documents in respect of DiscoverReady shall have been established to the satisfaction of the Agent and its counsel.
4.14. The Agent shall have received certified copies of all documents evidencing any necessary corporate action, consent or governmental or regulatory approval (if any) with respect to this Amendment.
4.15. The Agent (a) shall have received for the ratable benefit of the Banks executing this Second Amendment the fees set forth in a separate fee letter dated as of October 28, 2009 (the “Fee Letter”) between the Agent and the Borrower’s Agent, the payment of which shall be subject to the consummation of the DisoverReady Acquisition, and (b) shall have received for itself the fees set forth in the Fee Letter.

 

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4.16. All corporate and legal proceedings relating to the Borrowers and all instruments and agreements in connection with the transactions contemplated by this Amendment shall be reasonably satisfactory in scope, form and substance to the Agent, such documents where appropriate to be certified by proper corporate or governmental authorities.
Section 5. Representations, Warranties, Authority, No Adverse Claim.
5.1. Reassertion of Representations and Warranties, No Default. Each Borrower hereby represents that on and as of the date hereof and after giving effect to this Amendment (a) all of the representations and warranties contained in the Credit Agreement are true, correct and complete in all material respects as of the date hereof as though made on and as of such date, except for changes permitted by the terms of the Credit Agreement and except for representations and warranties made as of a specific earlier date, which shall be true and correct in all material respects as of such earlier date, and (b) there will exist no Default or Event of Default under the Credit Agreement as amended by this Amendment on such date which has not been waived by the Banks.
5.2. Authority, No Conflict, No Consent Required. Each Borrower represents and warrants that such Borrower has the power and legal right and authority to enter into this Amendment, the Pledge Agreement Amendment, the DiscoverReady Security Agreement, the Joinder Agreement (Credit Agreement), the DiscoverReady Acquisition Collateral Assignment, the DiscoverReady Trademarks Assignment, and any other instrument or agreement executed by such Borrower in connection with this Amendment (the “Amendment Documents”) and has duly authorized as appropriate the execution and delivery of the Amendment Documents and other agreements and documents executed and delivered by such Borrower in connection herewith or therewith by proper corporate action, and none of the Amendment Documents nor the agreements contained herein or therein contravenes or constitutes a default under any agreement, instrument or indenture to which such Borrower is a party or a signatory or a provision of such Borrower’s Certificate of Incorporation, Bylaws, Certificate of Formation, LLC Agreement, Partnership Agreement or any other agreement or requirement of law, or result in the imposition of any Lien on any of its property under any agreement binding on or applicable to such Borrower or any of its property except, if any, in favor of the Banks. Each Borrower represents and warrants that no consent, approval or authorization of or registration or declaration with any Person, including but not limited to any governmental authority, is required in connection with the execution and delivery by such Borrower of the Amendment Documents or other agreements and documents executed and delivered by such Borrower in connection therewith or the performance of obligations of such Borrower therein described, except for those which such Borrower has obtained or provided and as to which such Borrower has delivered certified copies of documents evidencing each such action to the Banks.
5.3. No Adverse Claim. Each Borrower warrants, acknowledges and agrees that no events have taken place and no circumstances exist at the date hereof which would give such Borrower a basis to assert a defense, offset or counterclaim to any claim of the Banks with respect to the Obligations.

 

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Section 6. Limited Purpose Consent. Notwithstanding anything contained herein, the Consent (i) is limited consent and waiver, (ii) is effective only with respect to the specific transactions described in this Amendment for the specific instance and the specific purpose for which it is given, (iii) shall not be effective for any other purpose or transaction, and (iv) except as expressly set forth in Section 3 and subject to Section 4, does not constitute an amendment or basis for a subsequent waiver of any of the provisions of the Credit Agreement. Except as expressly provided in Section 3 and subject to Section 4, (a) all of the terms and conditions of the Credit Agreement remain in full force and effect and none of such terms and conditions are, or shall be construed as, otherwise amended or modified, and (b) nothing in this Amendment shall constitute a waiver by the Banks of any Default or Event of Default, or of any right, power or remedy available to the Banks under the Credit Agreement or any other Loan Document, whether any such defaults, rights, powers or remedies presently exist or arise in the future.
Section 7. Affirmation of Credit Agreement, Further References, Affirmation of Security Interest. The Banks and the Borrowers each acknowledge and affirm that the Credit Agreement, as hereby amended, is hereby ratified and confirmed in all respects and all terms, conditions and provisions of the Credit Agreement, except as amended by this Amendment, shall remain unmodified and in full force and effect. All references in any document or instrument to the Credit Agreement are hereby amended and shall refer to the Credit Agreement as amended by this Amendment. Each Borrower confirms to the Banks that the Obligations are and continue to be secured by the security interest granted by the Borrowers in favor of the Banks under the Security Documents, and all of the terms, conditions, provisions, agreements, requirements, promises, obligations, duties, covenants and representations of the Borrowers under such documents and any and all other documents and agreements entered into with respect to the obligations under the Credit Agreement are incorporated herein by reference and are hereby ratified and affirmed in all respects by the Borrowers.
Section 8. Merger and Integration, Superseding Effect. This Amendment, from and after the date hereof, embodies the entire agreement and understanding between the parties hereto and supersedes and has merged into this Amendment all prior oral and written agreements on the same subjects by and between the parties hereto with the effect that this Amendment shall control with respect to the specific subjects hereof and thereof.
Section 9. Severability. Whenever possible, each provision of this Amendment and the other Amendment Documents and any other statement, instrument or transaction contemplated hereby or thereby or relating hereto or thereto shall be interpreted in such manner as to be effective, valid and enforceable under the applicable law of any jurisdiction, but, if any provision of this Amendment, the other Amendment Documents or any other statement, instrument or transaction contemplated hereby or thereby or relating hereto or thereto shall be held to be prohibited, invalid or unenforceable under the applicable law, such provision shall be ineffective in such jurisdiction only to the extent of such prohibition, invalidity or unenforceability, without invalidating or rendering unenforceable the remainder of such provision or the remaining provisions of this Amendment, the other Amendment Documents or any other statement, instrument or transaction contemplated hereby or thereby or relating hereto or thereto in such jurisdiction, or affecting the effectiveness, validity or enforceability of such provision in any other jurisdiction.

 

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Section 10. Successors. The Amendment Documents shall be binding upon the Borrowers and the Banks and their respective successors and assigns, and shall inure to the benefit of the Borrowers and the Banks and the successors and assigns of the Banks.
Section 11. Legal Expenses. As provided in Section 9.2 of the Credit Agreement, the Borrowers agree to pay or reimburse the Agent, upon execution of this Amendment, for all reasonable out-of-pocket expenses paid or incurred by the Agent, including filing and recording costs and fees, charges and disbursements of outside counsel to the Agent (determined on the basis of such counsel’s generally applicable rates, which may be higher than the rates such counsel charges the Agent in certain matters) and/or the allocated costs of in-house counsel incurred from time to time, in connection with the Credit Agreement, including in connection with the negotiation, preparation, execution, collection and enforcement of the Amendment Documents and all other documents negotiated, prepared and executed in connection with the Amendment Documents, and in enforcing the obligations of the Borrowers under the Amendment Documents, and to pay and save the Banks harmless from all liability for, any Taxes or Other Taxes which may be payable with respect to the execution or delivery of the Amendment Documents, which obligations of the Borrowers shall survive any termination of the Credit Agreement.
Section 12. Headings. The headings of various sections of this Amendment have been inserted for reference only and shall not be deemed to be a part of this Amendment.
Section 13. Counterparts. The Amendment Documents may be executed in several counterparts as deemed necessary or convenient, each of which, when so executed, shall be deemed an original, provided that all such counterparts shall be regarded as one and the same document, and any party to the Amendment Documents may execute any such agreement by executing a counterpart of such agreement. Signature pages delivered by facsimile or other electronic transmission (including by email in .pdf format) shall be considered original signatures hereto, all of which shall be equally valid.
Section 14. Governing Law. THE AMENDMENT DOCUMENTS SHALL BE GOVERNED BY THE INTERNAL LAWS OF THE STATE OF MINNESOTA, WITHOUT GIVING EFFECT TO CONFLICT OF LAW PRINCIPLES THEREOF, BUT GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL BANKS, THEIR HOLDING COMPANIES AND THEIR AFFILIATES.
[THIS PAGE INTENTIONALLY LEFT BLANK]

 

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IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed as of the date and year first above written.
         
  DOLAN MEDIA COMPANY,
as a Borrower and as Borrowers’ Agent
 
 
  By:   /s/ James P. Dolan    
    Name:   James P. Dolan   
    Title:   President   
 
  DOLAN FINANCE COMPANY
DOLAN PUBLISHING COMPANY
DOLAN PUBLISHING FINANCE COMPANY
CLEO COMPANY
LONG ISLAND BUSINESS NEWS, INC.
DAILY JOURNAL OF COMMERCE, INC.
LAWYER’S WEEKLY, INC.
LEGAL LEDGER, INC.
THE JOURNAL RECORD PUBLISHING CO.
DAILY REPORTER PUBLISHING COMPANY
NEW ORLEANS PUBLISHING GROUP, INC.
NOPG, L.L.C.
WISCONSIN PUBLISHING COMPANY
LEGAL COM OF DELAWARE, INC.
MISSOURI LAWYERS MEDIA, INC.
THE DAILY RECORD COMPANY
IDAHO BUSINESS REVIEW, INC.
FINANCE AND COMMERCE, INC.
COUNSEL PRESS, LLC
ARIZONA NEWS SERVICE, LLC
DOLAN DLN, LLC
DOLAN APC LLC
 
 
  By:   /s/ James P. Dolan    
    Name:   James P. Dolan   
    Title:   President   
 
  AMERICAN PROCESSING COMPANY, LLC    
  By:   Dolan APC LLC, its Managing Member    
     
  By:   /s/ James P. Dolan    
    Name:   James P. Dolan   
    Title:   President   
[Signature Page 1 to Second Amendment to Second Amended and Restated Credit Agreement]

 

 


 

         
  THP / NDEX AIV CORP.
 
 
  By:   /s/ James P. Dolan    
    Name:   James P. Dolan   
    Title:   Vice President   
 
  THP / NDEX AIV, L.P.
 
 
  By:   /s/ James P. Dolan    
    Name:   James P. Dolan   
    Title:   Vice President   
 
  NATIONAL DEFAULT EXCHANGE MANAGEMENT, INC.
 
 
  By:   /s/ James P. Dolan    
    Name:   James P. Dolan   
    Title:   Vice President   
 
  NATIONAL DEFAULT EXCHANGE HOLDINGS, LP    
 
  By:   /s/ James P. Dolan    
    Name:   James P. Dolan   
    Title:   Vice President   
 
  NATIONAL DEFAULT EXCHANGE GP, LLC
 
 
  By:   /s/ James P. Dolan    
    Name:   James P. Dolan   
    Title:   Vice President   
 
[Signature Page 2 to Second Amendment to Second Amended and Restated Credit Agreement]

 

 


 

         
  NATIONAL DEFAULT EXCHANGE, LP
 
 
  By:   /s/ James P. Dolan    
    Name:   James P. Dolan   
    Title:   Vice President   
 
  NDEX TECHNOLOGIES, LLC
 
 
  By:   /s/ James P. Dolan    
    Name:   James P. Dolan   
    Title:   Vice President   
 
  NDEX WEST, LLC
 
 
  By:   /s/ James P. Dolan    
    Name:   James P. Dolan   
    Title:   Vice President   
 
  NDEX TITLE SERVICES, L.L.C.
 
 
  By:   /s/ James P. Dolan    
    Name:   James P. Dolan   
    Title:   Vice President   
 
[Signature Page 3 to Second Amendment to Second Amended and Restated Credit Agreement]

 

 


 

         
  U.S. BANK NATIONAL ASSOCIATION,
as Agent
 
 
  By:   /s/ Bradley R. Sprang    
    Bradley R. Sprang   
    Vice President   
 
  U.S. BANK NATIONAL ASSOCIATION,
as a Bank
 
 
  By:   /s/ Bradley R. Sprang    
    Bradley R. Sprang   
    Vice President   
 
[Signature Page 4 to Second Amendment to Second Amended and Restated Credit Agreement]

 

 


 

         
  BANK OF AMERICA, N.A., (Successor by merger to
LaSalle Bank National Association)
 
 
  By:   /s/ Thomas P. Sullivan    
    Name:   Thomas P. Sullivan   
    Title:   Senior Vice President   
 
[Signature Page 5 to Second Amendment to Second Amended and Restated Credit Agreement]

 

 


 

         
  ASSOCIATED BANK, NATIONAL ASSOCIATION
 
 
  By:   /s/ Nicholas G. Myers    
    Name:   Nicholas G. Myers   
    Title:   Vice President   
 
[Signature Page 6 to Second Amendment to Second Amended and Restated Credit Agreement]

 

 


 

         
  BANK OF THE WEST
 
 
  By:   /s/ Philip P. Krump    
    Name:   Philip P. Krump   
    Title:   Vice President   
 
[Signature Page 7 to Second Amendment to Second Amended and Restated Credit Agreement]

 

 


 

         
  COMERICA BANK
 
 
  By:   /s/ Andrea Kaetchi    
    Name:   Andrea Kaetchi   
    Title:   Assistant Vice President   
 
[Signature Page 8 to Second Amendment to Second Amended and Restated Credit Agreement]

 

 


 

         
  COOPERATIEVE CENTRALE RAIFFEISEN-BOERENLEENBANK B.A., “RABOBANK
NEDERLAND”, NEW YORK BRANCH
 
 
  By:   /s/ Eric Hurshman    
    Name:   Eric Hurshman   
    Title:   Managing Director   
     
  By:   /s/ Brett Delfino    
    Name:   Brett Delfino   
    Title:   Executive Director   
[Signature Page 9 to Second Amendment to Second Amended and Restated Credit Agreement]

 

 


 

         
  KEYBANK NATIONAL ASSOCIATION
 
 
  By:   /s/ Jennifer A. O’Brien    
    Name:   Jennifer A. O’Brien   
    Title:   Vice President   
[Signature Page 10 to Second Amendment to Second Amended and Restated Credit Agreement]

 

 


 

SCHEDULE 4.18
SUBSIDIARIES
                 
                Issued and
    State of   Percentage   Outstanding
Subsidiary   Organization   Ownership   Shares
 
               
Arizona News Service, LLC
  Delaware     100 %   1,000 Class A Units
 
               
Cleo Company
  Delaware     100 %   100 shares of Common Stock
 
               
Counsel Press, LLC
  Delaware     100 %   1,000 Class A Units
 
               
Daily Journal of Commerce, Inc.
  Delaware     100 %   100 shares of Common Stock
 
               
The Daily Record Company
  Maryland     100 %   20,000 shares of Common Stock
 
               
Daily Reporter Publishing Company
  Delaware     100 %   100 shares of Common Stock
 
               
Dolan APC LLC
  Delaware     100 %   1,000 Class A Units
 
               
Dolan DLN LLC
  Delaware     100 %   1,000 Class A Units
 
               
Dolan Finance Company
  Minnesota     100 %   1,000 shares of Common Stock
 
               
Dolan Publishing Company
  Delaware     100 %   100 shares of Common Stock
 
               
Finance and Commerce, Inc.
  Minnesota     100 %   13,900 shares of Common Stock
 
               
The Journal Record Publishing Co.
  Delaware     100 %   100 shares of Common Stock
 
               
Legal Com of Delaware, Inc.
  Delaware     100 %   1,000 shares of Common Stock
 
               
Legal Ledger, Inc.
  Minnesota     100 %   100 shares of Common Stock
 
               
Long Island Business News, Inc.
  New York     100 %   5,040 shares of Common Stock
 
               
New Orleans Publishing Group, Inc.
  Louisiana     100 %   100 shares of Common Stock

 

Sch 4.18-1


 

                 
                Issued and
    State of   Percentage   Outstanding
Subsidiary   Organization   Ownership   Shares
 
               
Lawyer’s Weekly, Inc.
  Delaware     100 %   100 shares of Common Stock
 
               
Wisconsin Publishing Company
  Minnesota     100 %   100 shares of Common Stock
 
               
NOPG, L.L.C.
  Louisiana   100% owned by
New Orleans
Publishing Group, Inc.
   
 
               
Missouri Lawyers Media, Inc.
  Missouri   100% owned by Legal
Com of Delaware, Inc.
  20,000 shares of Common Stock
 
               
Idaho Business Review, Inc.
  Idaho   100% owned by Daily
Record Company
  100,000 shares of Common Stock
 
               
Dolan Publishing Finance Company
  Minnesota   100% owned by Dolan
Publishing Company
  100 shares of Common Stock
 
               
American Processing Company, LLC
  Michigan   84.67% owned by
Dolan APC LLC
  1,386,554 Common Units
 
               
THP/NDEx AIV Corp.
  Delaware   100% owned by American
Processing Company, LLC
  1,000 shares of Common Stock
 
               
THP/NDEx AIV, L.P.
  Delaware   100% of limited partner
interests owned by
THP/NDEx AIV Corp.;
100% of general partner
interests owned by American
Processing Company, LLC
   
 
               
National Default Exchange Management, Inc.
  Delaware   85.943% owned by
American Processing Company, LLC;
14.057% owned by THP/NDEx AIV, L.P.
  99,999 shares of Common Stock

 

Sch 4.18-2


 

                 
                Issued and
    State of   Percentage   Outstanding
Subsidiary   Organization   Ownership   Shares
 
               
National Default Exchange Holdings, LP
  Delaware   85.943% owned by
American Processing Company, LLC;
14.057% owned by THP/NDEx AIV, L.P.
  1,000,000 units
 
               
National Default Exchange GP, LLC
  Delaware   100% owned by
National Default Exchange
Holdings, LP
   
 
               
National Default Exchange, LP
  Delaware   99% owned by
National Default Exchange
Holdings, LP; 1% owned by
National Default
Exchange GP, LLC
   
 
               
NDEx Technologies, LLC
  Texas   100% owned by
National Default Exchange
Holdings, LP
   
 
               
NDEx West, LLC
  Delaware   100% owned by
National Default Exchange
Holdings, LP
   
 
               
NDEx Title Services, L.L.C.
  Texas   100% owned by
National Default Exchange
Holdings, LP
   
 
               
discoverReady LLC
  Delaware   85% owned by Dolan Media   850,000 common units

 

Sch 4.18-3


 

SCHEDULE 6.8
AFFILIATE TRANSACTIONS
1.   Services Agreement dated as of March 14, 2006 by and among Trott & Trott, Professional Corporation, David A. Trott and APC
2.   Employment Agreement dated as of March 14, 2006 by and between David A. Trott and APC, as amended December 29, 2008
3.   Office and Space Sharing Agreement dated as of March 14, 2006 by and between Trott & Trott, Professional Corporation and APC
4.   Sublease dated as of March 14, 2006 by and between Trott & Trott, Professional Corporation and APC
5.   Services Agreement dated as of January 9, 2006 by and among Feiwell & Hannoy, P.C., Michael Feiwell, Doug Hannoy and APC
6.   Employment Agreement dated as of January 9, 2007 by and between Michael J. Feiwell and APC, as amended December 29, 2008
7.   Employment Agreement dated as of January 9, 2007 by and between Douglas Hannoy and APC, as amended December 29, 2008
 
8.   Sublease dated as of January 9, 2007 by and between Wolverines I, Inc. and APC
9.   Office and Space Sharing Agreement dated as of January 9, 2007 by and between Feiwell & Hannoy, P.C. and APC
 
10.   Amended and Restated Operating Agreement of APC dated as of March 14, 2006, as amended
 
11.   APC Note payable to Dolan Finance Company dated as of November 10, 2006
 
12.   APC Note payable to Dolan Finance Company dated as of January 9, 2007
 
13.   APC Note payable to Dolan Finance Company dated as of January 9, 2008
 
14.   APC Note payable to Dolan Finance Company dated as of January 8, 2009
 
15.   APC Note payable to Dolan Finance Company dated September 2, 2008
 
16.   APC Note payable to Dolan Finance Company dated October 1, 2009
17.   Amended and Restated Employment Agreement dated as of April 1, 2007 by and between Dolan Media Company and James P. Dolan, as amended December 29, 2008

 

Sch 6.8-1


 

18.   Amended and Restated Employment Agreement dated as of August 1, 2009 by and between Dolan Media Company and Scott Pollei
19.   Employment Agreement dated as of April 1, 2007 by and between Dolan Media Company and Mark W.C. Stodder, as amended December 29, 2008 and August 1, 2009
20.   Employment Agreement dated as of August 1, 2009 by and between Dolan Media Company and Vicki J. Duncomb
21.   Net Director, LLC, in which David A. Trott owns 11.1%, provides an information clearing house service used by APC
22.   American Servicing Corporation, in which David A. Trott owns 60%, provides property tax searches and courier services to APC
23.   Lease dated as of April 1, 2007 by and between APC and NW13, LLC, in which David A. Trott owns 75%
24. Lease by and between Lawyers Weekly, Inc. and NW13, LLC
25.   Agreement by and between Dolan Media Company and Trott & Trott, Professional Corporation to pay Trott & Trott a fee in connection with Dolan Finance’s loan to APC
26.   Option Agreement pursuant to which Frappier Daffin & Barrett, LLP shall grant to Trott & Trott, Professional Corporation an option to purchase Frappier Daffin & Barrett, LLP’s equity interests in Brown & Shapiro, LLP
27.   Sublease for 15000 Surveyor Blvd., Addison, Texas 75001, by and between National Default Exchange Holdings, LP and Barrett Daffin Frappier Turner & Engel, LLP
28.   Sublease for 1900 St. James Place, Houston, Texas 77056, by and between National Default Exchange Holdings, LP and Barrett Daffin Frappier Turner & Engel, LLP
29.   Office Sharing Agreements, by and between National Default Exchange Holdings, LP, Barrett Daffin Frappier Turner & Engel, LLP
30.   Access Agreement for 15000 Surveyor Blvd., Addison, Texas 75001, by and between National Default Exchange Holdings, LP and Michael C. Barrett
31.   Amended and Restated Services Agreement, by and between National Default Exchange, LP and Barrett Daffin Frappier Turner & Engel, LLP, as amended
32.   Services Agreement, by and between National Default Exchange, LP and Barrett Daffin & Frappier, LLP, as amended
33.   Services Agreement, by and between NDEx West, LLC and Barrett Daffin Frappier Treder & Weiss, LLP, as amended

 

Sch 6.8-2


 

34.   Employment Agreement dated as of November 2, 2009 between Jim Wagner and discoverReady LLC
 
35.   Employment Agreement dated as of November 2, 2009 between Steve Harber and discoverReady LLC
 
36.   Employment Agreement dated as of November 2, 2009 between Paul Yerkes and discoverReady LLC
 
37.   Employment Agreement dated as of November 2, 2009 between David Shub and discoverReady LLC.
38.   Employment Agreement dated as of November 2, 2009 between Parkhill Mays and discoverReady LLC.

 

Sch 6.8-3


 

EXHIBIT A TO
SECOND AMENDMENT
[INTENTIONALLY OMITTED; NOT USED]

 

 


 

EXHIBIT B TO
SECOND AMENDMENT
DISCOVERREADY ACQUISITION COLLATERAL ASSIGNMENT
(See Attached)

 

 


 

COLLATERAL ASSIGNMENT OF UNDERTAKINGS
UNDER ACQUISITION DOCUMENTS
THIS COLLATERAL ASSIGNMENT (“Assignment”) is made as of November 2, 2009, by DOLAN MEDIA COMPANY, a Delaware corporation (the “Purchaser”), in favor of U.S. BANK NATIONAL ASSOCIATION, a national banking association, as agent for the Banks (as defined below) (the “Agent”).
RECITALS
A. DR Holdco LLC (the “Seller”), the Purchaser, and the other entities party thereto have entered into that certain Membership Interests Purchase Agreement dated as of November 2, 2009 (the “Membership Interests Purchase Agreement”) pursuant to which, among other things, the Seller has agreed to transfer to Dolan Media Company certain equity interests in discoverReady LLC, a Delaware limited liability company (the DiscoverReady Acquisition”).
B. Pursuant to the terms of the Membership Interests Purchase Agreement and the other documents executed and delivered in connection therewith (collectively with the Membership Interests Purchase Agreement, the “Acquisition Documents”), the Seller has made certain representations, warranties, covenants and indemnification agreements and other agreements (collectively, the “Undertakings”) in favor of the Purchaser.
C. The Purchaser, the other entities party thereto as borrowers (together with the Purchaser, the “Borrowers”), Dolan Media Company, as the Borrowers’ Agent, the Agent and various financial institutions as may become, from time to time, parties thereto (the “Banks”) are parties to that certain Second Amended and Restated Credit Agreement dated as of August 8, 2007 (as the same may be amended, restated, supplemented or otherwise modified from time to time, the “Credit Agreement”), pursuant to which the Agent and the Banks have agreed to make loans and other financial accommodations to or for the benefit of the Borrowers.
D. It is a condition precedent to the obligations of the Agent and the Banks to continue to extend credit accommodations pursuant to the terms of the Credit Agreement that this Assignment be executed and delivered by the Purchaser.
E. The Purchaser finds it advantageous, desirable, and in its best interests to comply with the requirement that this Assignment be executed and delivered to the Agent for itself and the benefit of the Banks.

 

Ex. B-1


 

NOW, THEREFORE, in consideration of the premises set forth herein and for other good and valuable consideration, receipt of which is hereby acknowledged, the Purchaser hereby agrees as follows:
1. The Purchaser hereby collaterally hypothecates, assigns and grants to Agent, for the benefit of itself and the Banks, as additional security for the payment and performance in full of the Obligations (as such term is defined in the Credit Agreement), a security interest in all of the Purchaser’s rights and remedies with respect to any and all of the Undertakings.
2. The Purchaser agrees to (a) promptly notify the Agent when it becomes aware of any dispute with, and claim against, any person or entity for which the Purchaser has a claim in excess of $50,000 in the aggregate under the Acquisition Documents (such claims the “Material Claims”); (b) subject to the last sentence of this Section 2, diligently enforce such claim; and (c) promptly provide the Agent with copies of all notices, demands, requests and other communications sent or received by the Purchaser pursuant to the Acquisition Documents with respect to Material Claims, as well as prior written notice of the Purchaser’s intention to exercise any power, right or remedy pursuant to the Acquisition Documents with respect to Material Claims. In no event shall the Purchaser, without the prior written consent of the Agent, waive, release or discharge any person or entity with respect to any Undertaking or compromise or settle any Undertaking or any claim or dispute with respect to any Undertaking, unless the Purchaser determines in its reasonable business judgment that any such action will not have a material adverse effect on the conduct of its business, and no such waiver, release, discharge, compromise or settlement shall be effective without the prior written consent of the Agent, unless the Purchaser determines in its reasonable business judgment that any such action will not have a material adverse effect on the conduct of its business.
3. The Purchaser hereby irrevocably authorizes and empowers the Agent as its agent at any time after the occurrence and during the continuance of an Event of Default (as such term is defined in the Credit Agreement) to (a) either directly or on behalf of the Purchaser, assert any claims and demands and enforce any rights and remedies as the Purchaser, may have, from time to time, with respect to the Undertakings, as the Agent may deem proper, and (b) receive and collect any and all proceeds, awards or amounts due to the Purchaser under any Acquisition Document (including, without limitation, any amounts due such Purchaser in respect of any indemnification claims under any Acquisition Document) and promptly apply all such amounts on account of the Obligations in accordance with Section 8.10 of the Credit Agreement. The Purchaser hereby irrevocably, until the Obligations are paid in full, makes, constitutes and appoints the Agent (and all officers, employees or agents designated by the Agent) as the Purchaser’s true and lawful attorney to assert, at any time after the occurrence and during the continuance of an Event of Default, any claims and demands or enforce any rights and remedies with respect to the Undertakings and collect such proceeds, awards and amounts with respect to the Undertakings and to apply such monies promptly to the Obligations in such manner as the Agent shall elect.
4. The Purchaser hereby agrees and acknowledges that the Agent shall not be deemed to have assumed any of the obligations or liabilities of the Purchaser under any Acquisition Document by reason of this Assignment or otherwise, and further agrees to indemnify, protect, defend and hold the Agent harmless from and with respect to any claims or demands by the Seller thereunder.

 

Ex. B-2


 

5. The Purchaser hereby agrees that, after the occurrence and during the continuance of an Event of Default, if the Purchaser shall receive any monies with respect to an Undertaking, whether or not by reason of any assertion by either the Purchaser or the Agent of its rights under any Acquisition Document, said monies shall be received in trust by the Purchaser for the Agent and immediately turned over to the Agent by the Purchaser for prompt application to the Obligations in such manner as the Agent shall elect.
6. The Purchaser hereby agrees that, after the occurrence and during the continuation of an Event of Default, it shall not deduct or set off against any amounts owing by the Seller to the Purchaser pursuant to a claim with respect to any Undertaking any amounts owed by the Purchaser to the Seller, without the prior written consent of the Agent, unless such amount is no more than de minimis.
7. This Assignment may be executed in several counterparts as deemed necessary or convenient, each of which, when so executed, shall be deemed an original, provided that all such counterparts shall be regarded as one and the same document, and either party to this Assignment may execute any such agreement by executing a counterpart of such agreement.
8. THIS ASSIGNMENT SHALL BE GOVERNED BY THE INTERNAL LAWS OF THE STATE OF MINNESOTA, WITHOUT GIVING EFFECT TO CONFLICT OF LAW PRINCIPLES THEREOF, BUT GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL BANKS, THEIR HOLDING COMPANIES AND THEIR AFFILIATES.
[The next page is the signature page.]

 

Ex. B-3


 

IN WITNESS WHEREOF, this Assignment has been executed and delivered as of the day and year first written above.
         
  DOLAN MEDIA COMPANY
 
 
  By:      
    Name:      
    Title:      

 

Ex. B-4


 

         
         
AGREED AND ACCEPTED
this ___ day of November, 2009
   
 
       
U.S. BANK NATIONAL ASSOCIATION,
as Agent
   
 
       
By:
       
 
 
 
Bradley R. Sprang
Vice President
   

 

Ex. B-5


 

ACKNOWLEDGEMENT
The undersigned hereby acknowledges the foregoing Assignment and agrees that the Undertakings shall inure to the benefit of the Agent and the Banks, and the Agent shall have the right to assert and enforce all or any of such Undertakings against the undersigned, in each case in accordance with the terms of the foregoing Assignment. The undersigned agrees that the undersigned shall not deduct from or set off against any amount owing by the undersigned to the Agent, any Bank or the Borrower pursuant to a claim with respect to any Undertaking, any amounts the undersigned claims are due from the Agent, any Bank or the Borrower to the extent the same is prohibited by the terms of the foregoing Assignment. The undersigned agrees and acknowledges that the Agent and the Banks shall not be deemed to have assumed any of the obligations or liabilities of the Borrower under the Acquisition Documents by reason of the Assignment or otherwise.
             
Dated: November __, 2009   DR HOLDCO LLC    
 
           
         
 
  By:        
 
  Title:  
 
   
 
     
 
   

 

Ex. B-6


 

EXHIBIT C TO
SECOND AMENDMENT
JOINDER AGREEMENT (CREDIT AGREEMENT)
(See Attached)

 

 


 

JOINDER AGREEMENT
This Joinder Agreement (this “Agreement”), dated as of November 2, 2009 (the “Effective Date”), is made by DISCOVERREADY LLC, a Delaware limited liability company (the “New Borrower”), in favor of U.S. BANK NATIONAL ASSOCIATION, as Agent for the Banks under the Credit Agreement (each as defined below).
RECITALS
A. Dolan Media Company, a Delaware corporation, Dolan Finance Company, a Minnesota corporation, Dolan Publishing Company, a Delaware corporation, Dolan Publishing Finance Company, a Minnesota corporation, Cleo Company, a Delaware corporation, Long Island Business News, Inc., a New York corporation, Daily Journal of Commerce, Inc., a Delaware corporation, Lawyer’s Weekly, Inc., a Delaware corporation, Legal Ledger, Inc., a Minnesota corporation, The Journal Record Publishing Co., a Delaware corporation, Daily Reporter Publishing Company, a Delaware corporation, New Orleans Publishing Group, Inc., a Louisiana corporation, NOPG, L.L.C., a Louisiana limited liability company, Wisconsin Publishing Company, a Minnesota corporation, Legal Com of Delaware, Inc., a Delaware corporation, Missouri Lawyers Media, Inc., a Missouri corporation, The Daily Record Company, a Maryland corporation, Idaho Business Review, Inc., an Idaho corporation, Finance and Commerce, Inc., a Minnesota corporation, Counsel Press, LLC, a Delaware limited liability company, Arizona News Service, LLC, a Delaware limited liability company, Dolan DLN LLC, a Delaware limited liability company, Dolan APC LLC, a Delaware limited liability company, American Processing Company, LLC, a Michigan limited liability company, THP / NDEx AIV Corp., a Delaware corporation, THP / NDEx AIV, L.P., a Delaware limited partnership, National Default Exchange Holdings, LP, a Delaware limited partnership, National Default Exchange Management, Inc., a Delaware corporation, National Default Exchange GP, LLC, a Delaware limited liability company, National Default Exchange, LP, a Delaware limited partnership, NDEx Technologies, LLC, a Texas limited liability company, NDEx West, LLC, a Delaware limited liability company and NDEx Title Services, L.L.C., a Texas limited liability company (each individually, an “Existing Borrower” and, collectively, the “Existing Borrowers”), the Borrowers’ Agent party thereto, the banks which are signatories thereto (individually, a “Bank” and, collectively, the “Banks”), and U.S. Bank National Association, as agent for the Banks (in such capacity, the “Agent”), have entered into a Second Amended and Restated Credit Agreement dated as of August 8, 2007 (as the same may be amended, restated, supplemented or otherwise modified from time to time, the “Credit Agreement”).
B. The New Borrower desires to become a Borrower under the Credit Agreement and the other Loan Documents (as defined therein).

 

Ex. C-1


 

NOW THEREFORE, for and in consideration of the mutual covenants, conditions, stipulations and agreements set forth herein and in the Credit Agreement and the other Loan Documents, and other valuable consideration, the receipt of which is hereby acknowledged, the undersigned hereby consent and agree as follows:
1. Capitalized terms used in this Agreement, but not otherwise defined, shall have the meanings ascribed to them in the Credit Agreement.
2. Without in any manner affecting the Existing Borrowers’ joint and several liability under the Loan Documents, the New Borrower hereby jointly and severally assumes and agrees to perform all of the terms, restrictions, obligations and conditions of a “Borrower” under the Credit Agreement, the Notes and each other Loan Document to which any Existing Borrower is a party and, by execution of this Agreement, is hereby designated a “Borrower” for purposes of, and agrees to be bound by, each and all terms of the Credit Agreement, the Notes and each other Loan Document to which any Existing Borrower is a party. Without limiting the generality of the foregoing, the New Borrower hereby (a) expressly agrees that it is jointly and severally liable for and assumes all Obligations under the Credit Agreement, the Notes and all other Loan Documents to which any Existing Borrower is a party, and (b) agrees to perform for the Agent’s and the Banks’ benefit and be bound by the terms and covenants of the Credit Agreement, the Notes or each other Loan Document to which any Existing Borrower is a party.
3. Subject to Section 5 hereof, the Agent confirms that the New Borrower is a “Borrower” under the Loan Documents and all of the rights and obligations of a Borrower under the Credit Agreement shall inure to and bind, as a joint and several obligor, the New Borrower.
4. The New Borrower represents to the Agent and the Banks that:
(a) It is a limited liability company duly organized, validly existing and in good standing under the laws of the state of its formation, and has the power and authority and the legal right to own and operate its properties and to conduct the business in which it is currently engaged.
(b) It has the power and authority and the legal right to execute and deliver, and to perform its obligations under, this Agreement, the Credit Agreement, the Notes and all other Loan Documents and has taken all necessary action required by its form of organization to authorize such execution, delivery and performance.
(c) This Agreement, the Credit Agreement, the Notes and all other Loan Documents constitute its legal, valid and binding obligations enforceable in accordance with their terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors’ rights generally and by general equitable principles (whether enforcement is sought by proceedings in equity or at law).

 

Ex. C-2


 

(d) The execution, delivery and performance of this Agreement, the Credit Agreement and all other Loan Documents will not (i) violate any provision of any law, statute, rule or regulation or any order, writ, judgment, injunction, decree, determination or award of any court, governmental agency or arbitrator presently in effect having applicability to it, (ii) violate or contravene any provision of its organizational documents, or (iii) result in a breach of or constitute a default under any indenture, loan or credit agreement or any other agreement, lease or instrument to which it is a party or by which it or any of its properties may be bound or result in the creation of any lien thereunder. It is not in default under or in violation of any such law, statute, rule or regulation, order, writ, judgment, injunction, decree, determination or award or any such indenture, loan or credit agreement or other agreement, lease or instrument in any case in which the consequences of such default or violation could have a material adverse effect on its business, operations, properties, assets or condition (financial or otherwise).
(e) No order, consent, approval, license, authorization or validation of, or filing, recording or registration with, or exemption by, any governmental or public body or authority is required on its part to authorize, or is required in connection with the execution, delivery and performance of, or the legality, validity, binding effect or enforceability of, this Agreement, the Credit Agreement, the Notes and all other Loan Documents.
(f) There are no actions, suits or proceedings pending or, to its knowledge, threatened against or affecting it or any of its properties before any court or arbitrator, or any governmental department, board, agency or other instrumentality which, if determined adversely to it, would have a material adverse effect on its business, operations, property or condition (financial or otherwise) or on its ability to perform its obligations hereunder and under this Agreement, the Credit Agreement, the Notes and all other Loan Documents.
(g) It expects to derive benefits from the transactions resulting in the creation of the Obligations. The Agent and the Banks may rely conclusively on the continuing warranty, hereby made, that the New Borrower continues to be benefited by the Banks’ extension of credit accommodations to the Borrowers and neither the Agent nor the Banks shall have any duty to inquire into or confirm the receipt of any such benefits, and this Agreement, the Credit Agreement, the Notes and all other Loan Documents to which it is a party shall be effective and enforceable by the Agent and the Banks without regard to the receipt, nature or value of any such benefits.
(h) The representations and warranties contained in Article IV of the Credit Agreement are true and correct, with respect to the New Borrower, as of the Effective Date, except to the extent such representations and warranties specifically relate to an earlier date, in which case they are true and correct as of such earlier date, and after giving effect to this Agreement, there will exist no breach of such representations and warranties.
5. Effectiveness. This Agreement shall become effective upon the Second Amendment Effective Date.

 

Ex. C-3


 

6. Governing Law and Construction. THE VALIDITY, CONSTRUCTION AND ENFORCEABILITY OF THIS AGREEMENT SHALL BE GOVERNED BY THE INTERNAL LAWS OF THE STATE OF MINNESOTA, WITHOUT GIVING EFFECT TO CONFLICT OF LAWS PRINCIPLES THEREOF, BUT GIVING EFFECT TO FEDERAL LAWS OF THE UNITED STATES APPLICABLE TO NATIONAL BANKS. Whenever possible, each provision of this Agreement and any other statement, instrument or transaction contemplated hereby or thereby or relating hereto or thereto shall be interpreted in such manner as to be effective and valid under such applicable law, but, if any provision of this Agreement or any other statement, instrument or transaction contemplated hereby or thereby or relating hereto or thereto shall be held to be prohibited or invalid under such applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement or any other statement, instrument or transaction contemplated hereby or thereby or relating hereto or thereto.
7. Waiver of Jury Trial. EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT.
8. Counterparts. This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument, and any of the parties hereto may execute this Agreement by signing any such counterpart.
9. New Borrower Acknowledgements. The New Borrower hereby acknowledges that (a) it has received from the Borrowers’ Agent true and correct copies of each Loan Document, (b) it has been advised by counsel in the negotiation, execution and delivery of this Agreement, and (c) the New Borrower shall rely entirely upon its own judgment with respect to its business, and any review, inspection or supervision of, or information supplied to, the New Borrower by the Banks is for the protection of the Banks and neither the New Borrower nor any third party is entitled to rely thereon.
(REMAINDER OF PAGE IS INTENTIONALLY LEFT BLANK)

 

Ex. C-4


 

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first above written.
         
  DISCOVERREADY LLC,
as New Borrower
 
 
  By:      
    Name:      
    Title:      
 
Address for purposes of notice:
222 South Ninth Street
Suite 2300
Minneapolis, MN 55402
Attention:                     

 

Ex. C-5


 

         
  U.S. BANK NATIONAL ASSOCIATION,
as Agent
 
 
  By:      
    Bradley R. Sprang   
    Vice President   

 

Ex. C-6


 

         
EXHIBIT D TO
SECOND AMENDMENT
SECURITY AGREEMENT (DISCOVERREADY)
(See Attached)

 

 


 

SECURITY AGREEMENT
(discoverReady LLC)
THIS SECURITY AGREEMENT (this “Agreement”), dated as of November 2, 2009, is made and given by DISCOVERREADY LLC, a Delaware limited liability company (the “Grantor”), to U.S. BANK NATIONAL ASSOCIATION, a national banking association, as agent (in such capacity, together with any successor in such capacity, the “Secured Party”) for the banks (the “Banks”) party from time to time to the Credit Agreement defined below.
RECITALS
A. The Grantor (by way of joinder), the other entities parties thereto as “Borrowers”, the Banks and the Secured Party have entered into a Second Amended and Restated Credit Agreement dated as of August 8, 2007 (as the same may be amended, supplemented, extended, restated, or otherwise modified from time to time, the “Credit Agreement”), pursuant to which the Banks have agreed to extend to the Grantor and the other Borrowers certain credit accommodations.
B. It is a condition precedent to the obligation of the Secured Party to continue to extend credit accommodations pursuant to the terms of the Credit Agreement that this Agreement be executed and delivered by the Grantor.
C. The Grantor finds it advantageous, desirable and in its best interests to comply with the requirement that it execute and deliver this Agreement to the Secured Party.
NOW, THEREFORE, in consideration of the premises and in order to induce the Banks to extend credit accommodations to the Grantor under the Credit Agreement, the Grantor hereby agrees with the Secured Party for the benefit of the Secured Party and the Banks as follows:
Section 1. Defined Terms.
1(a) As used in this Agreement, the following terms shall have the meanings indicated:
Account” shall mean a right to payment of a monetary obligation, whether or not earned by performance, (i) for property that has been or is to be sold, leased, licensed, assigned, or otherwise disposed of, (ii) for services rendered or to be rendered, (iii) for a policy of insurance issued or to be issued, (iv) for a secondary obligation incurred or to be incurred, (v) for energy provided or to be provided, (vi) for the use or hire of a vessel under a charter or other contract, (vii) arising out of the use of a credit or charge card or information contained on or for use with the card, or (viii) as winnings in a lottery or other game of chance operated, sponsored, licensed or authorized by a State or governmental unit of a State, or person licensed or authorized to operate the game by a State or governmental unit of a State. The term includes health-care insurance receivables.

 

Ex. D-1


 

Account Debtor” shall mean a Person who is obligated on or under any Account, Chattel Paper, Instrument or General Intangible.
Chattel Paper” shall mean a record or records that evidence both a monetary obligation and a security interest in specific goods, a security interest in specific goods and software used in the goods, a security interest in specific goods and license of software used in the goods, a lease of specific goods, or a lease of specific goods and license of software used in the goods.
Collateral” shall mean all property and rights in property now owned or hereafter at any time acquired by the Grantor in or upon which a Security Interest is granted to the Secured Party by the Grantor under this Agreement.
Default” shall mean any event which, with the giving of notice or lapse of time, or both, would constitute an Event of Default.
Deposit Account” shall mean any demand, time, savings, passbook or similar account maintained with a bank.
Document” shall mean a document of title or a warehouse receipt.
Equipment” shall mean all machinery, equipment, motor vehicles, furniture, furnishings and fixtures, including all accessions, accessories and attachments thereto, and any guaranties, warranties, indemnities and other agreements of manufacturers, vendors and others with respect to such Equipment.
Event of Default” shall have the meaning given to such term in 0 hereof.
Financing Statement” shall have the meaning given to such term in 0 hereof.
Fixtures” shall mean goods that have become so related to particular real property that an interest in them arises under real property law.

 

Ex. D-2


 

General Intangibles” shall mean any personal property (other than goods, Accounts, Chattel Paper, Deposit Accounts, Documents, Instruments, Investment Property, Letter of Credit Rights and money) including things in action, contract rights, payment intangibles, software, corporate and other business records, inventions, designs, patents, patent applications, service marks, trademarks, tradenames, trade secrets, internet domain names, engineering drawings, good will, registrations, copyrights, licenses, franchises, customer lists, tax refund claims, royalties, licensing and product rights, rights to the retrieval from third parties of electronically processed and recorded data and all rights to payment resulting from an order of any court.
Instrument” shall mean a negotiable instrument or any other writing which evidences a right to the payment of a monetary obligation and is not itself a security agreement or lease and is of a type which is transferred in the ordinary course of business by delivery with any necessary endorsement or assignment.
Inventory” shall mean goods, other than farm products, which are leased by a person as lessor, are held by a person for sale or lease or to be furnished under a contract of service, are furnished by a person under a contract of service, or consist of raw materials, work in process, or materials used or consumed in a business or incorporated or consumed in the production of any of the foregoing and supplies, in each case wherever the same shall be located, whether in transit, on consignment, in retail outlets, warehouses, terminals or otherwise, and all property the sale, lease or other disposition of which has given rise to an Account and which has been returned to the Grantor or repossessed by the Grantor or stopped in transit.
Investment Property” shall mean a security, whether certificated or uncertificated, a security entitlement, a securities account and all financial assets therein, a commodity contract or a commodity account.
Letter of Credit Right” shall mean a right to payment or performance under a letter of credit, whether or not the beneficiary has demanded or is at the time entitled to demand payment or performance.
Lien” shall mean any security interest, mortgage, pledge, lien, charge, encumbrance, title retention agreement or analogous instrument or device (including the interest of the lessors under capitalized leases), in, of or on any assets or properties of the Person referred to.
Obligations” shall mean (a) all indebtedness, liabilities and obligations of the Grantor and the other Borrowers to the Secured Party, the Banks and/or the Rate Protection Providers (as defined in the Credit Agreement) of every kind, nature or description under the Credit Agreement, including the Grantor’s and the other Borrowers’ obligation on any promissory note or notes under the Credit Agreement and any note or notes hereafter issued in substitution or replacement thereof, (b) the Rate Protection Obligations (as defined in the Credit Agreement), and (c) all liabilities of the Grantor under this Agreement, in all of the foregoing cases whether due or to become due, and whether now existing or hereafter arising or incurred.

 

Ex. D-3


 

Person” shall mean any individual, corporation, partnership, limited partnership, limited liability company, joint venture, firm, association, trust, unincorporated organization, government or governmental agency or political subdivision or any other entity, whether acting in an individual, fiduciary or other capacity.
Security Interest” shall have the meaning given such term in Section 2 hereof.
1(b) All other terms used in this Agreement which are not specifically defined herein shall have the meaning assigned to such terms in Article 9 of the Uniform Commercial Code as in effect in the State of Minnesota.
1(c) Unless the context of this Agreement otherwise clearly requires, references to the plural include the singular, references to the singular include the plural and “or” has the inclusive meaning represented by the phrase “and/or.” The words “include,” “includes” and “including” shall be deemed to be followed by the phrase “without limitation.” The words “hereof,” “herein,” “hereunder” and similar terms in this Agreement refer to this Agreement as a whole and not to any particular provision of this Agreement. References to Sections are references to Sections in this Agreement unless otherwise provided.
Section 2. Grant of Security Interest. As security for the payment and performance of all of the Obligations, the Grantor hereby grants to the Secured Party for the ratable benefit of the Secured Party and the Banks a security interest (the “Security Interest”) in all of the Grantor’s right, title, and interest in and to the following, whether now or hereafter owned, existing, arising or acquired and wherever located:
2(a) All Accounts;
2(b) All Chattel Paper;
2(c) All Deposit Accounts;
2(d) All Documents;
2(e) All Equipment;
2(f) All Fixtures;

 

Ex. D-4


 

2(g) All General Intangibles;
2(h) All Instruments;
2(i) All Inventory;
2(j) All Investment Property;
2(k) All Letter of Credit Rights; and
2(l) To the extent not otherwise included in the foregoing, all other rights to the payment of money, including rents and other sums payable to the Grantor under leases, rental agreements and other Chattel Paper; all books, correspondence, credit files, records, invoices, bills of lading, and other documents relating to any of the foregoing, including, without limitation, all tapes, cards, disks, computer software, computer runs, and other papers and documents in the possession or control of the Grantor or any computer bureau from time to time acting for the Grantor; all rights in, to and under all policies insuring the life of any officer, director, stockholder or employee of the Grantor, the proceeds of which are payable to the Grantor; all accessions and additions to, parts and appurtenances of, substitutions for and replacements of any of the foregoing; and all proceeds (including insurance proceeds) and products thereof.
Notwithstanding the foregoing provisions of this Section 2, the pledge and grant of a Lien and Security Interest as provided herein shall not extend to, and the term “Collateral” shall not include, any contract, Instrument, license or Chattel Paper in which the Grantor has any right, title or interest in and to the extent such contract, Instrument, license or Chattel Paper includes an enforceable provision containing a restriction on assignment such that the creation of a security interest in the right, title or interest of the Grantor therein would be prohibited and would, in and of itself, cause or result in a default thereunder enabling another Person party to such contract, Instrument, license or Chattel Paper to enforce any remedy with respect thereto (the “Excluded Collateral”); provided that the foregoing exclusion shall not apply if (a) such prohibition has been waived or such other Person has otherwise consented to the creation hereunder of a security interest in such contract, Instrument, license or Chattel Paper or (b) such prohibition would be rendered ineffective pursuant to Sections 9-407(a) or 9-408(a) of Article 9 of the Uniform Commercial Code, as applicable and as then in effect in any relevant jurisdiction, or any other applicable law (including the Bankruptcy Code) or principles of equity; provided, further, that immediately upon the ineffectiveness or lapse or termination of any such provision, the Collateral shall include, and such Debtor shall be deemed to have granted a security interest in, all its rights, title and interests in and to such contract, Instrument, license or Chattel Paper as if such provision had never been in effect; and provided, further, that the foregoing exclusion shall in no way be construed so as to limit, impair or otherwise affect the Secured Party’s unconditional continuing security interest in and to all rights, title and interests of the Grantor in or to any payment obligations or other rights to receive monies due or to become due under any such contract, Instrument, license or Chattel Paper and in any such monies and other proceeds of such contract, Instrument, license or Chattel Paper.

 

Ex. D-5


 

Section 3. Grantor Remains Liable. Anything herein to the contrary notwithstanding, (a) the Grantor shall remain liable under the Accounts, Chattel Paper, General Intangibles and other items included in the Collateral to the extent set forth therein to perform all of its duties and obligations thereunder to the same extent as if this Agreement had not been executed, (b) the exercise by the Secured Party of any of the rights hereunder shall not release the Grantor from any of its duties or obligations under the Accounts or any other items included in the Collateral, and (c) neither the Secured Party nor any Bank shall have any obligation or liability under Accounts, Chattel Paper, General Intangibles and other items included in the Collateral by reason of this Agreement, nor shall the Secured Party or any Bank be obligated to perform any of the obligations or duties of the Grantor thereunder or to take any action to collect or enforce any claim for payment assigned hereunder.
Section 4. Title to Collateral. Except for dispositions permitted under Section 5, the Grantor has (or will have at the time it acquires rights in Collateral hereafter acquired or arising) and will maintain so long as the Security Interest may remain outstanding, title to each item of Collateral (including the proceeds and products thereof), free and clear of all Liens except the Security Interest and except Liens permitted by the Credit Agreement (the “Permitted Liens”). The Grantor will not license any Collateral except in the ordinary course of business. The Grantor will defend the Collateral against all claims or demands of all Persons (other than the Secured Party) claiming the Collateral or any interest therein, subject to the rights of Persons holding Permitted Liens. As of the date of execution of this Agreement, no effective financing statement or other similar document used to perfect and preserve a security interest under the laws of any jurisdiction (a “Financing Statement”) covering all or any part of the Collateral is on file in any recording office, except such as may have been filed (a) in favor of the Secured Party for the benefit of the Banks relating to this Agreement, or (b) to perfect Permitted Liens.
Section 5. Disposition of Collateral. The Grantor will not sell, lease or otherwise dispose of, or discount or factor with or without recourse, any Collateral, except for sales of items of Inventory in the ordinary course of business and dispositions of Equipment which are immediately replaced with comparable replacement equipment and except as permitted under the Credit Agreement.
Section 6. Names, Offices, Locations, Jurisdiction of Organization. The Grantor’s legal name (as set forth in its constituent documents filed with the appropriate governmental official or agency) and jurisdiction of organization is as set forth in the opening paragraph hereof. The organizational number of the Grantor is set forth on the signature page of this Agreement. The Grantor will from time to time at the reasonable request of the Secured Party provide the Secured Party with current good standing certificates and/or state-certified constituent documents from the appropriate governmental officials no more than once in any twelve-month period unless an Event of Default has occurred and is continuing. The chief place of business and chief executive office of the Grantor are located at its address set forth on the signature page hereof. The Grantor will not locate or relocate any item of Collateral into any jurisdiction in which an additional Financing Statement would be required to be filed to maintain the Secured Party’s perfected security interest in such Collateral and will not change its name, the location of its chief place of business and chief executive office or its corporate structure (including without limitation, its jurisdiction of organization) unless the Secured Party has been given at least 30 days prior written notice thereof and the Grantor has executed and delivered to the Secured Party such Financing Statements and other instruments reasonably requested by the Secured Party during such 30 day period to continue the perfection of the Security Interest, provided that the foregoing shall not affect the Grantor’s obligations under Section 8.

 

Ex. D-6


 

Section 7. Rights to Payment. Except as the Grantor may otherwise advise the Secured Party in writing, each Account, Chattel Paper, Document, General Intangible and Instrument constituting or evidencing Collateral is (or, in the case of all future Collateral, will be when arising or issued), to the knowledge of the Grantor, the valid, genuine and legally enforceable obligation of the Account Debtor or other obligor named therein or in the Grantor’s records pertaining thereto as being obligated to pay or perform such obligation. Without the Secured Party’s prior written consent, the Grantor will not agree to any modifications, amendments, subordinations, cancellations or terminations of the obligations of any such Account Debtors or other obligors except in the ordinary course of business. The Grantor will perform and comply in all material respects with all its obligations under any items included in the Collateral and exercise promptly and diligently its rights thereunder.
Section 8. Further Assurances; Attorney-in-Fact.
8(a) The Grantor agrees that from time to time, at its expense, it will promptly execute and deliver all further instruments and documents, and take all further action, that the Secured Party may reasonably request, in order to perfect and protect the Security Interest granted or purported to be granted hereby or to enable the Secured Party to exercise and enforce its rights and remedies hereunder with respect to any Collateral (but any failure to request or assure that the Grantor execute and deliver such instrument or documents or to take such action shall not affect or impair the validity, sufficiency or enforceability of this Agreement and the Security Interest, regardless of whether any such item was or was not executed and delivered or action taken in a similar context or on a prior occasion). Without limiting the generality of the foregoing, the Grantor will, promptly and from time to time at the reasonable request of the Secured Party: (i) execute and file such Financing Statements or continuation statements in respect thereof, or amendments thereto, and such other instruments or notices (including fixture filings with any necessary legal descriptions as to any goods included in the Collateral which the Secured Party determines might be deemed to be fixtures, and instruments and notices with respect to vehicle titles), as may be necessary or desirable, or as the Secured Party may reasonably request, in order to perfect, preserve, and enhance the Security Interest granted or purported to be granted hereby; (ii) obtain from any bailee holding any material item of Collateral an acknowledgement, in form reasonably satisfactory to the Secured Party that such bailee holds such collateral for the benefit of the Secured Party; (iii) obtain from any securities intermediary, or other party holding any item of Collateral constituting uncertified securities, book-entry securities or securities entitlements, control agreements in form reasonably satisfactory to the Secured Party; and (iv) deliver and pledge to the Secured Party, all Instruments and Documents, duly indorsed or accompanied by duly executed instruments of transfer or assignment, with full recourse to the Grantor, all in form and substance reasonably satisfactory to the Secured Party.

 

Ex. D-7


 

8(b) The Grantor hereby authorizes the Secured Party to file one or more Financing Statements or continuation statements in respect thereof, and amendments thereto, relating to all or any part of the Collateral without the signature of the Grantor where permitted by law. The Grantor irrevocably waives any right to notice of any such filing. A photocopy or other reproduction of this Agreement or any Financing Statement covering the Collateral or any part thereof shall be sufficient as a Financing Statement where permitted by law.
8(c) The Grantor will furnish to the Secured Party from time to time statements and schedules further identifying and describing the Collateral and such other reports in connection with the Collateral as the Secured Party may reasonably request, all in reasonable detail and in form and substance reasonably satisfactory to the Secured Party.
8(d) In furtherance, and not in limitation, of the other rights, powers and remedies granted to the Secured Party in this Agreement, the Grantor hereby appoints the Secured Party the Grantor’s attorney-in-fact, with full authority in the place and stead of the Grantor and in the name of the Grantor or otherwise, from time to time in the Secured Party’s good faith discretion upon the occurrence and during the continuance of an Event of Default, to take any action (including the right to collect on any Collateral) and to execute any instrument that the Secured Party may reasonably believe is necessary or advisable to accomplish the purposes of this Agreement, in a manner consistent with the terms hereof.
Section 9. Taxes and Claims. The Grantor will promptly pay all taxes and other governmental charges levied or assessed upon or against any Collateral or upon or against the creation, perfection or continuance of the Security Interest, as well as all other claims of any kind (including claims for labor, material and supplies) against or with respect to the Collateral, except to the extent (a) such taxes, charges or claims are being contested in good faith by appropriate proceedings, (b) such proceedings do not involve any material danger of the sale, forfeiture or loss of any of the Collateral or any interest therein and (c) such taxes, charges or claims are adequately reserved against on the Grantor’s books in accordance with generally accepted accounting principles.
Section 10. Books and Records. The Grantor will keep and maintain at its own cost and expense satisfactory and complete records of the Collateral, including a record of all payments received and credits granted with respect to all Accounts, Chattel Paper and other items included in the Collateral.
Section 11. Inspection, Reports, Verifications. The Grantor will at all reasonable times permit the Secured Party or its representatives or any other Person designated pursuant to Section 5.5 of the Credit Agreement (a “Designated Person”) to examine or inspect any Collateral, any evidence of Collateral and the Grantor’s books and records concerning the Collateral, wherever located in accordance with Section 5.5 of the Credit Agreement. The Grantor will from time to time as reasonably requested by the Secured Party furnish to the Secured Party a report on its Accounts, Chattel Paper, General Intangibles and Instruments, naming the Account Debtors or other obligors thereon, the amount due and the aging thereof. After the occurrence and during the continuance of an Event of Default, the Secured Party, its designee or any other Designated Person is authorized to contact Account Debtors and other Persons obligated on any such Collateral from time to time to verify the existence, amount and/or terms of such Collateral.

 

Ex. D-8


 

Section 12. Notice of Loss. The Grantor will promptly notify the Secured Party of any loss of or material damage to any material item of Collateral or of any substantial adverse change, known to the Grantor, in any material item of Collateral or the prospect of payment or performance thereof.
Section 13. Insurance. The Grantor will keep the Inventory and Equipment insured to the extent required by Section 5.3 of the Credit Agreement. Each such policy or the certificate with respect thereto shall provide that such policy shall not be canceled or allowed to lapse unless at least 30 days prior written notice is given to the Secured Party.
Section 14. Lawful Use; Fair Labor Standards Act. The Grantor will use and keep the Collateral, and will require that others use and keep the Collateral, only for lawful purposes, without violation, in any material respect, of any federal, state or local law, statute or ordinance. All Inventory of the Grantor as of the date of this Agreement that was produced by the Grantor or with respect to which the Grantor performed any manufacturing or assembly process was produced by the Grantor (or such manufacturing or assembly process was conducted) in compliance in all material respects with all requirements of the Fair Labor Standards Act, and all Inventory produced, manufactured or assembled by the Grantor after the date of this Agreement will be so produced, manufactured or assembled, as the case may be.
Section 15. Action by the Secured Party. If the Grantor at any time fails to perform or observe any of the foregoing agreements, the Secured Party shall have (and the Grantor hereby grants to the Secured Party) the right, power and authority (but not the duty) to perform or observe such agreement on behalf and in the name, place and stead of the Grantor (or, at the Secured Party’s option, in the Secured Party’s name) and to take any and all other actions which the Secured Party may reasonably deem necessary to cure or correct such failure (including, without limitation, the payment of taxes, the satisfaction of Liens, the procurement and maintenance of insurance, the execution of assignments, security agreements and Financing Statements, and the indorsement of instruments); and the Grantor shall thereupon pay to the Secured Party on demand the amount of all monies expended and all costs and expenses (including reasonable attorneys’ fees and legal expenses) incurred by the Secured Party in connection with or as a result of the performance or observance of such agreements or the taking of such action by the Secured Party, together with interest thereon from the date expended or incurred at the highest lawful rate then applicable to any of the Obligations, and all such monies expended, costs and expenses and interest thereon shall be part of the Obligations secured by the Security Interest.

 

Ex. D-9


 

Section 16. Insurance Claims. As additional security for the payment and performance of the Obligations, the Grantor hereby assigns to the Secured Party any and all monies (including proceeds of insurance and refunds of unearned premiums) due or to become due under, and all other rights of the Grantor with respect to, any and all policies of insurance now or at any time hereafter covering the Collateral or any evidence thereof or any business records or valuable papers pertaining thereto. At any time after the occurrence and during the continuance of any Event of Default, the Secured Party may (but need not), in the Secured Party’s name or in the Grantor’s name, execute and deliver proofs of claim, receive all such monies, indorse checks and other instruments representing payment of such monies, and adjust, litigate, compromise or release any claim against the issuer of any such policy. Notwithstanding any of the foregoing, so long as no Event of Default exists the Grantor shall be entitled to all insurance proceeds with respect to Equipment or Inventory provided that such proceeds are applied to the cost of replacement Equipment or Inventory.
Section 17. The Secured Party’s Duties. The powers conferred on the Secured Party hereunder are solely to protect its and the Banks’ interest in the Collateral and shall not impose any duty upon it to exercise any such powers. The Secured Party shall be deemed to have exercised reasonable care in the safekeeping of any Collateral in its possession if such Collateral is accorded treatment substantially equal to the safekeeping which the Secured Party accords its own property of like kind. Except for the safekeeping of any Collateral in its possession and the accounting for monies and for other properties actually received by it hereunder, neither the Secured Party nor any Bank shall have any duty, as to any Collateral, as to ascertaining or taking action with respect to calls, conversions, exchanges, maturities, tenders or other matters relative to any Collateral, whether or not the Secured Party or any Bank has or is deemed to have knowledge of such matters, or as to the taking of any necessary steps to preserve rights against any Persons or any other rights pertaining to any Collateral. The Secured Party will take action in the nature of exchanges, conversions, redemptions, tenders and the like requested in writing by the Grantor with respect to the Collateral in the Secured Party’s possession if the Secured Party in its reasonable judgment determines that such action will not impair the Security Interest or the value of the Collateral, but a failure of the Secured Party to comply with any such request shall not of itself be deemed a failure to exercise reasonable care with respect to the taking of any necessary steps to preserve rights against any Persons or any other rights pertaining to any Collateral.
Section 18. Default. Each of the following occurrences shall constitute an Event of Default under this Agreement: (a) the Grantor shall fail to observe or perform any covenant or agreement applicable to the Grantor under this Agreement and such failure to observe or perform shall continue for 30 calendar days; or (b) any representation or warranty made by the Grantor in this Agreement or any schedule, exhibit, supplement or attachment hereto or in any financial statements, or reports or certificates heretofore or at any time hereafter submitted by or on behalf of the Grantor to the Secured Party shall prove to have been false or misleading when made in any material respect; or (c) any Event of Default shall occur under the Credit Agreement.
Section 19. Remedies on Default. Upon the occurrence and during the continuance of an Event of Default:
19(a) The Secured Party may exercise and enforce any and all rights and remedies available upon default to a secured party under Article 9 of the Uniform Commercial Code as in effect in the State of Minnesota.

 

Ex. D-10


 

19(b) The Secured Party shall have the right to enter upon and into and take possession of all or such part or parts of the properties of the Grantor, including lands, plants, buildings, Equipment, Inventory and other property as may be necessary or appropriate in the judgment of the Secured Party to permit or enable the Secured Party to manufacture, produce, process, store or sell or complete the manufacture, production, processing, storing or sale of all or any part of the Collateral, as the Secured Party may elect, and to use and operate said properties for said purposes and for such length of time as the Secured Party may deem necessary or appropriate for said purposes without the payment of any compensation to the Grantor therefor. The Secured Party may require the Grantor to, and the Grantor hereby agrees that it will, at its expense and upon request of the Secured Party forthwith, assemble all or part of the Collateral as directed by the Secured Party and make it available to the Secured Party at a place or places to be designated by the Secured Party.
19(c) Any disposition of Collateral may be in one or more parcels at public or private sale, at any of the Secured Party’s offices or elsewhere, for cash, on credit, or for future delivery, and upon such other terms as the Secured Party may reasonably believe are commercially reasonable. The Secured Party shall not be obligated to dispose of Collateral regardless of notice of sale having been given, and the Secured Party may adjourn any public or private sale from time to time by announcement made at the time and place fixed therefor, and such disposition may, without further notice, be made at the time and place to which it was so adjourned.
19(d) The Secured Party is hereby granted a license or other right to use, without charge, all of the Grantor’s property, including, without limitation, all of the Grantor’s labels, trademarks, copyrights, patents and advertising matter, or any property of a similar nature, as it pertains to the Collateral, in completing production of, advertising for sale and selling any Collateral, and the Grantor’s rights under all licenses and all franchise agreements shall inure to the Secured Party’s benefit until the Obligations are paid in full.
19(e) If notice to the Grantor of any intended disposition of Collateral or any other intended action is required by law in a particular instance, such notice shall be deemed commercially reasonable if given in the manner specified for the giving of notice in 0 hereof at least ten calendar days prior to the date of intended disposition or other action, and the Secured Party may exercise or enforce any and all other rights or remedies available by law or agreement against the Collateral, against the Grantor, or against any other Person or property. The Secured Party (i) may dispose of the Collateral in its then present condition or following such preparation and processing as the Secured Party deems commercially reasonable, (ii) shall have no duty to prepare or process the Collateral prior to sale, (iii) may disclaim warranties of title, possession, quiet enjoyment and the like, and (iv) may comply with any applicable state or federal law requirements in connection with a disposition of the Collateral and none of the foregoing actions shall be deemed to adversely affect the commercial reasonableness of the disposition of the Collateral.

 

Ex. D-11


 

19(f) The Secured Party, at any time after the occurrence and during the continuance of an Event of Default, may require that the Grantor instruct all current and future account debtors and obligors on other Collateral to make all payments directly to a lockbox (the “Lockbox”) controlled by the Secured Party. All payments received in the Lockbox shall be transferred to a special bank account (the “Collateral Account”) maintained at the Secured Party subject to withdrawal by the Secured Party only. After the Secured Party’s exercise of its rights to direct account debtors or other obligors on any Collateral to make payments directly to the Secured Party or to require the Grantor to establish a Lockbox, the Grantor shall immediately deliver all full and partial payments on any Collateral received by the Grantor to the Secured Party in their original form, except for endorsements where necessary. Until such payments are so delivered to the Secured Party, such payments shall be held in trust by the Grantor for and as the Secured Party’s property, and shall not be commingled with any funds of the Grantor. After an Event of Default has occurred and is continuing, the Secured Party shall apply all collections in accordance with Section 21 hereof. Any application of any collection to the payment of any Obligation is conditioned upon final payment of any check or other instrument.
Section 20. Remedies as to Certain Rights to Payment. Upon the occurrence of and during the continuance of an Event of Default the Secured Party may (i) notify any Account Debtor or other Person obligated on any Accounts or other Collateral that the same have been assigned or transferred to the Secured Party and that the same should be performed as requested by, or paid directly to, the Secured Party, as the case may be, and the Grantor shall join in giving such notice, if the Secured Party so requests, and (ii) the Secured Party may, in the Secured Party’s name or in the Grantor’s name, demand, sue for, collect or receive any money or property at any time payable or receivable on account of, or securing, any such Collateral or grant any extension to, make any compromise or settlement with or otherwise agree to waive, modify, amend or change the obligation of any such Account Debtor or other Person. If any payments on any such Collateral are received by the Grantor after an Event of Default has occurred and during the continuance thereof, such payments shall be held in trust by the Grantor as the property of the Secured Party and shall not be commingled with any funds or property of the Grantor and shall be forthwith remitted to the Secured Party for application on the Obligations.
Section 21. Application of Proceeds. All cash proceeds received by the Secured Party in respect of any sale of, collection from, or other realization upon all or any part of the Collateral may, in the discretion of the Secured Party, be held by the Secured Party as collateral for, or then or at any time thereafter be applied in whole or in part by the Secured Party against, all or any part of the Obligations (including, without limitation, any expenses of the Secured Party payable pursuant to 0 hereof) in accordance with Section 8.10 of the Credit Agreement; provided, however, that notwithstanding the foregoing, the Secured Party shall be entitled to retain and apply in accordance with Section 8.10 of the Credit Agreement not more than eighty-five percent (85%) of the net cash proceeds of any such sale, collection or other realization of, from or upon the Collateral.

 

Ex. D-12


 

Section 22. Costs and Expenses; Indemnity. The Grantor will pay or reimburse the Secured Party on demand for all out-of-pocket expenses (including in each case all filing and recording fees and taxes and all reasonable fees and expenses of counsel and of any experts and agents) incurred by the Secured Party or any Bank in connection with the creation, perfection, protection, satisfaction, foreclosure or enforcement of the Security Interest and the preparation, administration, continuance, amendment or enforcement of this Agreement, and all such costs and expenses shall be part of the Obligations secured by the Security Interest. The Grantor shall indemnify and hold the Secured Party and each Bank harmless from and against any and all claims, losses and liabilities (including reasonable attorneys’ fees) growing out of or resulting from this Agreement and the Security Interest hereby created (including enforcement of this Agreement) or the Secured Party’s actions pursuant hereto, except claims, losses or liabilities resulting from the Secured Party’s gross negligence or willful misconduct as determined by a final judgment of a court of competent jurisdiction. Any liability of the Grantor to indemnify and hold the Secured Party and each Bank harmless pursuant to the preceding sentence shall be part of the Obligations secured by the Security Interest. The obligations of the Grantor under this Section shall survive any termination of this Agreement.
Section 23. Waivers; Remedies; Marshalling. This Agreement can be waived, modified, amended, terminated (other than termination pursuant to Section 28 hereof) or discharged, and the Security Interest can be released, only explicitly in a writing signed by the Secured Party. A waiver so signed shall be effective only in the specific instance and for the specific purpose given. Mere delay or failure to act shall not preclude the exercise or enforcement of any rights and remedies available to the Secured Party. All rights and remedies of the Secured Party shall be cumulative and may be exercised singly in any order or sequence, or concurrently, at the Secured Party’s option, and the exercise or enforcement of any such right or remedy shall neither be a condition to nor bar the exercise or enforcement of any other. The Grantor hereby waives all requirements of law, if any, relating to the marshalling of assets which would be applicable in connection with the enforcement by the Secured Party of its remedies hereunder, absent this waiver.
Section 24. Notices. Any notice or other communication to any party in connection with this Agreement shall be in writing and shall be sent by manual delivery, facsimile transmission, overnight courier or United States mail (postage prepaid) addressed to such party at the address specified on the signature page hereof, or at such other address as such party shall have specified to the other party hereto in writing. All periods of notice shall be measured from the date of delivery thereof if manually delivered, from the date of sending thereof if sent by facsimile transmission, from the first business day after the date of sending if sent by overnight courier, or from four days after the date of mailing if mailed.
Section 25. Grantor Acknowledgments. The Grantor hereby acknowledges that (a) it has been advised by counsel in the negotiation, execution and delivery of this Agreement, (b) neither the Secured Party nor any Bank has any fiduciary relationship to the Grantor, the relationship being solely that of debtor and creditor, and (c) no joint venture exists between the Grantor and the Secured Party or any Bank.

 

Ex. D-13


 

Section 26. Continuing Security Interest; Assignments under Credit Agreement. This Agreement shall (a) create a continuing security interest in the Collateral and shall remain in full force and effect until payment in full of the Obligations and the expiration of the obligations, if any, of the Secured Party to extend credit accommodations to the Grantor and any other Borrower, (b) be binding upon the Grantor, its successors and assigns, and (c) inure to the benefit of, and be enforceable by, the Secured Party and its successors, transferees, and assigns. Without limiting the generality of the foregoing clause (c), the Secured Party may assign or otherwise transfer all or any portion of its rights and obligations under the Credit Agreement to any other Persons to the extent and in the manner provided in the Credit Agreement and may similarly transfer all or any portion of its rights under this Agreement to such Persons.
Section 27. [Intentionally Omitted.]
Section 28. Termination of Security Interest. Upon payment in full of the Obligations and the expiration of any obligation of the Secured Party and the Banks to extend credit accommodations to the Grantor and each other Borrower under the Credit Agreement, the Security Interest granted hereby shall terminate. Upon any such termination, the Secured Party will return to the Grantor such of the Collateral then in the possession of the Secured Party as shall not have been sold or otherwise applied pursuant to the terms hereof and execute and deliver to the Grantor such documents as the Grantor shall reasonably request to evidence such termination. Any reversion or return of Collateral upon termination of this Agreement and any instruments of transfer or termination shall be at the expense of the Grantor and shall be without warranty by, or recourse on, the Secured Party or any Bank. As used in this Section, “Grantor” includes any assigns of Grantor, any Person holding a subordinate security interest in any of the Collateral or whoever else may be lawfully entitled to any part of the Collateral. At the request and sole expense of the Grantor, the Grantor shall be released from its obligations hereunder in the event that all of the Equity Interests of the Grantor shall be sold, transferred or otherwise disposed of in a transaction consented to by the Majority Banks (as defined in the Credit Agreement) or otherwise permitted by Section 6.1 of the Credit Agreement; provided that the Borrowers’ Agent shall have delivered to the Secured Party, at least five business days prior to the date of the proposed release, a written request for release identifying the relevant Grantor and the terms of the sale or other disposition in reasonable detail, including the price thereof and any expenses in connection therewith, together with a certification by the Borrowers’ Agent stating that such transaction is in compliance with the Credit Agreement and the other Loan Documents.
Section 29. Governing Law and Construction. THE VALIDITY, CONSTRUCTION AND ENFORCEABILITY OF THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF MINNESOTA, WITHOUT GIVING EFFECT TO CONFLICT OF LAWS PRINCIPLES THEREOF, EXCEPT TO THE EXTENT THAT THE VALIDITY OR PERFECTION OF THE SECURITY INTEREST HEREUNDER, OR REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR COLLATERAL ARE MANDATORILY GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF MINNESOTA. Whenever possible, each provision of this Agreement and any other statement, instrument or transaction contemplated hereby or relating hereto shall be interpreted in such manner as to be effective and valid under such applicable law, but, if any provision of this Agreement or any other statement, instrument or transaction contemplated hereby or relating hereto shall be held to be prohibited or invalid under such applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement or any other statement, instrument or transaction contemplated hereby or relating hereto.

 

Ex. D-14


 

Section 30. Consent to Jurisdiction. AT THE OPTION OF THE SECURED PARTY, THIS AGREEMENT MAY BE ENFORCED IN ANY FEDERAL COURT OR MINNESOTA STATE COURT SITTING IN HENNEPIN COUNTY; AND THE GRANTOR CONSENTS TO THE JURISDICTION AND VENUE OF ANY SUCH COURT AND WAIVES ANY ARGUMENT THAT VENUE IN SUCH FORUMS IS NOT CONVENIENT. IN THE EVENT THE GRANTOR COMMENCES ANY ACTION IN ANOTHER JURISDICTION OR VENUE UNDER ANY TORT OR CONTRACT THEORY ARISING DIRECTLY OR INDIRECTLY FROM THE RELATIONSHIP CREATED BY THIS AGREEMENT, THE SECURED PARTY AT ITS OPTION SHALL BE ENTITLED TO HAVE THE CASE TRANSFERRED TO ONE OF THE JURISDICTIONS AND VENUES ABOVE-DESCRIBED, OR IF SUCH TRANSFER CANNOT BE ACCOMPLISHED UNDER APPLICABLE LAW, TO HAVE SUCH CASE DISMISSED WITHOUT PREJUDICE.
Section 31. Waiver of Notice and Hearing. THE GRANTOR HEREBY WAIVES ALL RIGHTS TO A JUDICIAL HEARING OF ANY KIND PRIOR TO THE EXERCISE BY THE SECURED PARTY OF ITS RIGHTS TO POSSESSION OF THE COLLATERAL WITHOUT JUDICIAL PROCESS OR OF ITS RIGHTS TO REPLEVY, ATTACH, OR LEVY UPON THE COLLATERAL WITHOUT PRIOR NOTICE OR HEARING. THE GRANTOR ACKNOWLEDGES THAT IT HAS BEEN ADVISED BY COUNSEL OF ITS CHOICE WITH RESPECT TO THIS PROVISION AND THIS AGREEMENT.
Section 32. Waiver of Jury Trial. THE GRANTOR AND THE SECURED PARTY BY THEIR ACCEPTANCE OF THIS AGREEMENT, IRREVOCABLY WAIVE ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
Section 33. Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument.
Section 34. General. All representations and warranties contained in this Agreement or in any other agreement between the Grantor and the Secured Party or any Bank shall survive the execution, delivery and performance of this Agreement and the creation and payment of the Obligations. The Grantor waives notice of the acceptance of this Agreement by the Secured Party. Captions in this Agreement are for reference and convenience only and shall not affect the interpretation or meaning of any provision of this Agreement.
[Remainder of this page intentionally left blank.]

 

Ex. D-15


 

IN WITNESS WHEREOF, the Grantor and the Secured Party have caused this Agreement to be duly executed and delivered by its officer thereunto duly authorized as of the date first above written.
                     
Organizational ID #                            DISCOVERREADY LLC    
 
                   
 
      By:            
                 
 
          Name:        
 
             
 
   
 
          Title:        
 
             
 
   
Address for Grantor:

222 South Ninth Street
Suite 2300
Minneapolis, MN 55402
Fax (612) 317-9434
Attention:                     

 

Ex. D-16


 

ACCEPTED:
U.S. BANK NATIONAL ASSOCIATION,
as Secured Party
         
By
 
 
   
 
  Bradley R. Sprang    
 
  Vice President    
Address for the Secured Party:
U.S. Bank National Association
800 Nicollet Mall
Minneapolis, MN 55402
Fax: (612) 303-2264
Attention: Bradley R. Sprang (BC-MN-H03Q)

 

Ex. D-17


 

EXHIBIT E TO
SECOND AMENDMENT
AMENDMENT TO PLEDGE AGREEMENT (DOLAN)
(See Attached)

 

 


 

FIRST AMENDMENT TO PLEDGE AGREEMENT
(Dolan Media Company)
THIS FIRST AMENDMENT TO PLEDGE AGREEMENT (this “Amendment”), made and entered into as of November 2, 2009, is made and given by DOLAN MEDIA COMPANY, a Delaware corporation (the “Pledgor”), in favor of U.S. BANK NATIONAL ASSOCIATION, a national banking association as Agent (in such capacity, together with any successors in such capacity, the “Secured Party”) for the banks (the “Banks”) party from time to time to the Credit Agreement defined below.
RECITALS
A. The Pledgor, the other Borrowers party thereto, the Borrower’s Agent, the Banks and the Secured Party are parties to a Second Amended and Restated Credit Agreement dated as of August 8, 2007 (as the same may hereafter be amended, restated, supplemented or otherwise modified from time to time, the “Credit Agreement”) pursuant to which the Banks agreed to extend to the Pledgor and the other Borrowers certain credit accommodations.
B. The Pledgor has executed a Pledge Agreement in favor of the Secured Party dated as of August 31, 2004 (the “Pledge Agreement”).
C. The Pledgor is the owner of the shares of stock, membership interests or other ownership interests (the “Pledged Equity Interests”) described in Schedule I hereto issued by the entities named therein.
D. It is a condition precedent to the obligation of the Banks to continue to extend credit accommodations pursuant to the terms of the Credit Agreement that this Amendment be executed and delivered by the Pledgor.
E. The Pledgor finds it advantageous, desirable and in the best interests of the Pledgor to comply with the requirement that this Amendment be executed and delivered to the Secured Party for the benefit of the Secured Party and the Banks.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and in order to induce the Banks to continue to extend credit accommodations to the Pledgor thereunder, the Pledgor hereby agrees with the Secured Party for the benefit of the Secured Party and the Banks as follows:
Section 1. Capitalized Terms. Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to them in the Pledge Agreement, unless the context shall otherwise require.

 

Ex. E-1


 

Section 2. Amendments. The Pledge Agreement is hereby amended as follows:
2.1. Recital B. Recital B of the Pledge Agreement is amended in its entirety to read as follows:
B. The Pledgor is the owner of the shares of stock, membership interests or other ownership interests (the “Equity Interests”) described in Schedule I hereto issued by the entities named therein.
2.2. Pledge. Section 2(b) of the Pledge Agreement is amended in its entirety to read as follows:
2(b) All additional shares of stock, membership interests or other ownership interests of any issuer of the Pledged Equity Interests from time to time acquired by the Pledgor in any manner, and the certificates representing such additional shares, membership interest, or other ownership interests, and all dividends, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such shares.
2.3. Certain Warranties and Covenants. Section 4(e) of the Pledge Agreement is amended in its entirety to read as follows:
4(e) The Pledged Equity Interests constitute the percentage of the issued and outstanding shares of stock, membership interests or other equity interests of the respective issuers thereof indicated on Schedule I (if any such percentage is so indicated).
2.4. Voting Rights; Dividends; Etc. Section 6(a) of the Pledge Agreement is amended in its entirety to read as follows:
6(a) Subject to paragraph (d) of this Section 6, the Pledgor shall be entitled to exercise or refrain from exercising any and all voting and other consensual rights pertaining to the Pledged Equity Interests or any other stock, membership interests, or other equity interests that become part of the Collateral or any part thereof for any purpose not inconsistent with the terms of this Agreement or the Credit Agreement; provided, however, that the Pledgor shall not exercise or refrain from exercising any such right if such action could reasonably be expected to have a material adverse effect on the value of the Collateral or any material part thereof.
2.5. Additional Shares. The heading of Section 7 is amended to read as follows: “Additional Equity Interests.”

 

Ex. E-2


 

2.6. Additional Equity Interests. Section 7(b) of the Pledge Agreement is amended in its entirety to read as follows:
7(b) The Pledgor agrees that it will (i) cause each issuer of the Pledged Shares that it controls not to issue any stock or other securities, membership interests, or other equity interests in addition to or in substitution for the Pledged Equity Interests issued by such issuer, except to the Pledgor and, in the case of discoverReady LLC, a Delaware limited liability company (“discoverReady”), issuances to its other members that do not, individually or in the aggregate, reduce the percentage interest that Pledgor owns in discoverReady below 85%, and (ii) pledge hereunder, immediately upon its acquisition (directly or indirectly) thereof, any and all additional shares of stock or other securities, membership interests, or equity interests of each issuer of the Pledge Shares.
2.7. Pledged Equity Interests. Each instance of the term “Pledged Shares”, as it appears in the Pledge Agreement, is deleted and replaced with the term “Pledged Equity Interests”.
2.8. Schedule I. Schedule I to the Pledge Agreement is hereby amended in its entirety to read as set forth on Schedule I hereto which is made part of the Pledge Agreement as Schedule I thereto.
Section 3. Effectiveness of Amendments. The amendments contained in this Amendment shall become effective upon delivery by the Pledgor of, and compliance by the Pledgor with, the following:
3.1. This Amendment duly executed by the Pledgor and the Secured Party.
3.2. A certificate representing and evidencing the Pledged Equity Interests in discoverReady LLC represented by certificate no. 1, duly endorsed to be in blank in favor of the Agent.
3.3. Certified copies of all documents evidencing any necessary corporate action, consent or governmental or regulatory approval (if any) with respect to this Amendment and any other instrument or agreement executed by the Pledgor in connection with this Amendment (together with this Amendment, collectively, the “Amendment Documents”).
3.4. The Pledgor shall have satisfied such other conditions as specified by the Banks, including payment of all unpaid legal fees and expenses incurred by the Banks through the date of this Amendment in connection with the Pledge Agreement and the other Amendment Documents.

 

Ex. E-3


 

Section 4. Representations, Warranties, Authority, No Adverse Claim.
4.1. Reassertion of Representations and Warranties, No Default. The Pledgor hereby represents that on and as of the date hereof and after giving effect to this Amendment (a) all of the representations and warranties contained in the Pledge Agreement and the Credit Agreement are true, correct and complete in all material respects as of the date hereof as though made on and as of such date, except for changes permitted by the terms of the Pledge Agreement and except for representations and warranties made as of a specific earlier date, which shall be true and correct in all material respects on such earlier date, and (b) there will exist no Default or Event of Default under the Pledge Agreement, as amended by this Amendment, or the Credit Agreement on such date which has not been waived by the Banks.
4.2. Authority, No Conflict, No Consent Required. The Pledgor represents and warrants that the Pledgor has the power and legal right and authority to enter into the Amendment Documents and has duly authorized as appropriate the execution and delivery of the Amendment Documents by proper organizational action, and none of the Amendment Documents nor the agreements contained herein or therein contravenes or constitutes a default under any agreement, instrument or indenture to which the Pledgor is a party or a signatory or a provision of the Pledgor’s organizational documents or any other agreement or requirement of law, or result in the imposition of any Lien on any of its property under any agreement binding on or applicable to the Pledgor or any of its property except, if any, in favor of the Banks. The Pledgor represents and warrants that no consent, approval or authorization of or registration or declaration with any Person, including but not limited to any governmental authority, is required in connection with the execution and delivery by the Pledgor of the Amendment Documents or other agreements and documents executed and delivered by the Pledgor in connection therewith or the performance of obligations of the Pledgor therein described, except for those which the Pledgor has obtained or provided and as to which the Pledgor has delivered certified copies of documents evidencing each such action to the Banks.
4.3. No Adverse Claim. The Pledgor warrants, acknowledges and agrees that no events have taken place and no circumstances exist at the date hereof which would give the Pledgor a basis to assert a defense, offset or counterclaim to any claim of the Banks with respect to the Obligations.
Section 5. Affirmation of Pledge Agreement, Further References, Affirmation of Security Interest. The Banks and the Pledgor each acknowledge and affirm that the Pledge Agreement, as hereby amended, is hereby ratified and confirmed in all respects and all terms, conditions and provisions of the Pledge Agreement, except as amended by this Amendment, shall remain unmodified and in full force and effect. All references in any document or instrument to the Pledge Agreement are hereby amended and shall refer to the Pledge Agreement as amended by this Amendment.
Section 6. Merger and Integration, Superseding Effect. This Amendment, from and after the date hereof, embodies the entire agreement and understanding between the parties hereto and supersedes and has merged into this Amendment all prior oral and written agreements on the same subjects by and between the parties hereto with the effect that this Amendment, shall control with respect to the specific subjects hereof and thereof.

 

Ex. E-4


 

Section 7. Successors. The Amendment Documents shall be binding upon the Pledgor and the Banks and their respective successors and assigns, and shall inure to the benefit of the Pledgor and the Banks and the successors and assigns of the Banks.
Section 8. Headings. The headings of various sections of this Amendment have been inserted for reference only and shall not be deemed to be a part of this Amendment.
Section 9. Counterparts. The Amendment Documents may be executed in several counterparts as deemed necessary or convenient, each of which, when so executed, shall be deemed an original, provided that all such counterparts shall be regarded as one and the same document, and any party to the Amendment Documents may execute any such agreement by executing a counterpart of such agreement.
Section 10. Governing Law. THE AMENDMENT DOCUMENTS SHALL BE GOVERNED BY THE INTERNAL LAWS OF THE STATE OF MINNESOTA, WITHOUT GIVING EFFECT TO CONFLICT OF LAW PRINCIPLES THEREOF, BUT GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL BANKS, THEIR HOLDING COMPANIES AND THEIR AFFILIATES.
[Remainder of page intentionally left blank.]

 

Ex. E-5


 

IN WITNESS WHEREOF, the Pledgor and the Secured Party have caused this Amendment to be executed as of the date and year first above written.
                 
    PLEDGOR:    
 
               
    DOLAN MEDIA COMPANY    
 
               
 
  By:            
             
 
      Name:  
 
   
 
      Title:  
 
   

 

Ex. E-6


 

ACCEPTED:
U.S. BANK NATIONAL ASSOCIATION,
as Secured Party
         
By:
       
 
 
 
Bradley R. Sprang
   
 
  Vice President    

 

Ex. E-7


 

SCHEDULE I TO
FIRST AMENDMENT TO
PLEDGE AGREEMENT
SCHEDULE I
PLEDGED EQUITY INTERESTS
Equity Interest Issuer: Dolan Finance Company, a Minnesota corporation
Percentage Ownership: 100%
Class of Stock: Common
Certificate No(s).: 3
Par Value: $.01
Number of Shares: 1,000
Equity Interest Issuer: Dolan Publishing Company, a Delaware corporation
Percentage Ownership: 100%
Class of Stock: Common
Certificate No(s).: 3
Par Value: $.001
Number of Shares: 100

 

Ex. E-8


 

Equity Interest Issuer:   Cleo Company (f/k/a Henry M. Greene & Associates, Inc.), a Delaware corporation
Percentage Ownership: 100%
Class of Stock: Common
Certificate No(s).: 4
Par Value: $.01
Number of Shares: 100
Equity Interest Issuer: Long Island Business News, Inc., a New York corporation
Percentage Ownership: 100%
Class of Stock: Common
Certificate No(s).: 50
Par Value: $1.00
Number of Shares: 5,040
Equity Interest Issuer: Daily Journal of Commerce, Inc., a Delaware corporation
Percentage Ownership: 100%
Class of Stock: Common
Certificate No(s).: 4
Par Value: $.01
Number of Shares: 100

 

Ex. E-9


 

Equity Interest Issuer:   Lawyer’s Weekly, Inc. (f/k/a Virginia Publishing Company), a Delaware corporation
Percentage Ownership: 100%
Class of Stock: Common
Certificate No(s).: 4
Par Value: N/A
Number of Shares: 100
Equity Interest Issuer: Legal Ledger, Inc., a Minnesota corporation
Percentage Ownership: 100%
Class of Stock: Common
Certificate No(s).: 4
Par Value: $.01
Number of Shares: 100
Equity Interest Issuer: The Journal Record Publishing Co., a Delaware corporation
Percentage Ownership: 100%
Class of Stock: Common
Certificate No(s).: 4
Par Value: $.01
Number of Shares: 100

 

Ex. E-10


 

Equity Interest Issuer: Daily Reporter Publishing Company, a Delaware corporation
Percentage Ownership: 100%
Class of Stock: Common
Certificate No(s).: 4
Par Value: $.01
Number of Shares: 100
Equity Interest Issuer: New Orleans Publishing Group, Inc., a Louisiana corporation
Percentage Ownership: 100%
Class of Stock: Common
Certificate No(s).: 11
Par Value: no par value
Number of Shares: 100
Equity Interest Issuer: Wisconsin Publishing Company, a Minnesota corporation
Percentage Ownership: 100%
Class of Stock: Common
Certificate No(s).: 4
Par Value: $0.01
Number of Shares: 100

 

Ex. E-11


 

Equity Interest Issuer: Legal Com of Delaware, Inc., a Delaware corporation
Percentage Ownership: 100%
Class of Stock: Common
Certificate No(s).: 4
Par Value: no par value
Number of Shares: 1,000
Equity Interest Issuer: The Daily Record Company, a Maryland corporation
Percentage Ownership: 100%
Class of Stock: Common
Certificate No(s).: 1765
Par Value: $10.00
Number of Shares: 20,000
Equity Interest Issuer: Finance and Commerce, Inc., a Minnesota corporation
Percentage Ownership: 100%
Class of Stock: Common
Certificate No(s).: 11
Par Value: $.001
Number of Shares: 13,900

 

Ex. E-12


 

Equity Interest Issuer: Counsel Press, LLC, a Delaware limited liability company
Percentage Ownership: 100%
Certificate No(s).: A-2
Number of Membership Interests: 1,000 Class A units
Equity Interest Issuer: Arizona News Service, LLC, a Delaware limited liability company
Percentage Ownership: 100%
Certificate No(s).: A-1
Number of Membership Interests: 1,000 Class A units
Equity Interest Issuer: Dolan DLN LLC
Percentage Ownership: 100%
Certificate No(s).: A-1
Number of Membership Interests: 1,000 Class A units
Equity Interest Issuer: discoverReady LLC, a Delaware limited liability company
Percentage Ownership: 85%
Certificate No(s).: 1
Number of Membership Interests: 850,000 common units

 

Ex. E-13


 

EXHIBIT F TO
SECOND AMENDMENT
DISCOVERREADY TRADEMARKS ASSIGNMENT
(See Attached)

 

 


 

COLLATERAL ASSIGNMENT (TRADEMARKS)
This COLLATERAL ASSIGNMENT (TRADEMARKS) (the “Assignment”), dated as of November 2, 2009, made and given by DISCOVERREADY LLC, a limited liability company organized under the laws of the State of Delaware (the “Assignor”), to U.S. BANK NATIONAL ASSOCIATION, a national banking association, as agent (in such capacity, together with any successor in such capacity, the “Assignee”) for the banks (the “Banks”) party to the Credit Agreement described below.
RECITALS
A. The Assignor, the Assignee, the other Borrowers party thereto and the Banks have entered into a Second Amended and Restated Credit Agreement dated as of August 8, 2007 (as amended, supplemented, extended, restated, or otherwise modified from time to time, the “Credit Agreement”) pursuant to which the Banks have agreed to extend certain credit accommodations to the Assignor under the terms and conditions set forth therein (all terms capitalized and used herein without being defined shall have the meaning given them in the Credit Agreement).
B. To secure all the liabilities and obligations of the Assignor to the Assignee and the Banks arising under the Credit Agreement, including, without limitation, all “Obligations” (as defined in the Credit Agreement) of Assignor to Assignee, the Banks and/or the “Rate Protection Providers” (as defined in the Credit Agreement), whether now existing or hereafter arising (the “Liabilities”), the Assignor has pledged and granted to the Assignee a security interest in the property described in a Security Agreement dated as of November 2, 2009, by Assignor and the other parties thereto (as amended, supplemented, affirmed, or otherwise modified from time to time, the “Security Agreement”) by and between Assignor and Assignee which property includes general intangibles, including, without limitation, applications for patents, applications for trademarks, patents, inventions, trademarks, trade names, domain names, copyrights and trade secrets.
C. Pursuant to the Credit Agreement and the Security Agreement, it is a requirement that this Assignment be executed and delivered by the Assignor.
NOW, THEREFORE, in consideration of the premises and to induce the Banks to extend credit accommodations under the Credit Agreement, the parties hereto agree as follows:
1. Subject to the terms and conditions of this Assignment, the Assignor does hereby assign all of its right, title and interest in and to all of the present trademarks, domain names, and trade names and the registrations and applications therefor owned by the Assignor (the “Trademarks”), including but not limited to those set forth on Exhibit A hereto, and including, without limitation, all proceeds thereof together with the right to recover for past, present and future infringements, all rights corresponding thereto throughout the world and all renewals and extensions thereof, together with the goodwill of the business associated with said Trademarks, said Trademarks to be held and enjoyed by the Assignee, for itself and for the benefit of the Banks, and for their legal representatives, successors and assigns, as fully and entirely as the same would have been held by the

 

Ex. F-1


 

Assignor had this Assignment not been made. The foregoing assignment shall be effective only upon the occurrence and during the continuance of an Event of Default under the Credit Agreement and upon written notice by the Assignee to the Assignor of the acceptance by the Assignee of this Assignment, which written notice shall constitute conclusive proof of the matters set forth therein. After the occurrence and during the continuance of an Event of Default under the Credit Agreement, the Assignee shall be entitled to transfer the Trademarks pursuant to an Assignment of Trademarks substantially in the form of Exhibit B. The Assignor hereby irrevocably authorizes the Assignee to date the undated Assignments of Trademarks and otherwise complete such Assignments at the time of transfer and agrees to sign whatever documents are necessary to transfer ownership of Assignor’s domain names from Assignor to the new owner. Notwithstanding the foregoing provisions of this Section 1, the Assignee acquires no security interest or other rights in the United States for any Trademark that is the subject of an intent-to-use application before the U.S. Patent and Trademark Office until such time as a verified amendment to allege use or statement of use is filed for such application or the Assignee arranges for an assignment of such Trademarks from the Assignee to a purchaser that would satisfy the requirements of Section 10 of the Lanham Act, 15 U.S.C. Section 1060. At the time that Assignee seeks to transfer all other Trademarks pursuant to Exhibit B, it may also complete Exhibit C with respect to any U.S. intent-to-use applications and, provided that Exhibit C satisfies the conditions of the preceding sentence, Assignor agrees that it will promptly execute and return the same to Assignee.
2. The Assignor hereby covenants and warrants that:
(a) except for applications pending, the Trademarks listed on Exhibit A have been duly issued and are subsisting and have not been adjudged invalid or unenforceable, in whole or in part;
(b) to the best of the Assignor’s knowledge, each of the Trademarks material to the conduct of the Assignor’s business is valid and enforceable;
(c) no claim has been made to the Assignor or, to the knowledge of the Assignor, to any other person, that use of any of the Trademarks does or may violate the rights of any third person and no claim has been made by the Assignor that any other person is infringing upon the rights of the Assignor under the Trademarks;
(d) the Assignor has the unqualified right to enter into this Assignment and perform its terms;
(e) the Assignor will be, until the Liabilities shall have been satisfied in full and the Loan Documents shall have been terminated, in compliance with the statutory notice requirements relating to its use of the Trademarks;
(f) to the best of the Assignor’s knowledge, the Assignor is the sole and exclusive owner of the entire and unencumbered right, title and interest in and to each of the Trademarks, free and clear of any liens, charges and encumbrances, including without limitation, licenses and covenants by the Assignor not to sue third persons, other than liens under this Assignment and the Security Agreement;

 

Ex. F-2


 

(g) the Trademarks listed on Exhibit A are all of the trademark registrations and applications therefore now owned by the Assignor;
(h) the Assignor has marked with an asterisk each U.S. intent-to-use trademark application listed on Exhibit A for which a verified amendment to allege use or statement of use has not been filed; and
(i) the Assignor will, at any time upon the Assignee’s reasonable request, communicate to the Assignee, its successors and assigns, any facts relating to the Trademarks or the history thereof as may be known to the Assignor or its officers, employees and agents, and cause such officers, employees and agents to testify as to the same in any infringement or other litigation at the request of the Assignee.
3. The Assignor agrees that, until the rights of the Assignee in the Trademarks are terminated pursuant to Section 6, it will not enter into any agreement that is inconsistent with its obligations under this Assignment.
4. If, before the Liabilities shall have been satisfied in full and the expiration of the obligations, if any, of the Assignee and the Banks to extend credit accommodations to the Assignor, the Assignor shall obtain rights to any new trademark, domain name or trade name, or become entitled to the benefit of any trademark application, registration, trademark, domain name or trade name or any renewal or extension of any trademark registration or domain name, such shall be included in the definition of “Trademarks” as used in this Assignment — (except for purposes of Section 2 hereof), Section 1 hereof shall automatically apply thereto, and the Assignor shall submit annual reports to the Assignee each year not later than December 31, commencing December 31, 2009, notifying Assignee of (i) any new trademarks, domain names, or trade names adopted, acquired, or applied for during the previous year and (ii) any changes to the status of any previously listed Trademarks, including without limitation U.S. trademark applications for which verified amendments to allege use and statements of use have now been filed. If the Assignee does not receive such a report within fifteen days after the deadline, then the Assignee is authorized to obtain updated information on the Trademarks from the appropriate trademark or domain name registrars or third party providers at the Assignor’s expense (provided that the Assignor shall not be deemed to have defaulted under the terms hereof and no Event of Default shall exist solely for failure to send such report unless the Assignor fails to deliver such report to the Assignee within 30 days after receipt of a written request from the Assignee for such report). The Assignor authorizes the Assignee to modify this Assignment, without the consent of the Assignor, by amending Exhibit A hereto to include any future trademark, domain name or trade name.
5. Except as permitted by the Credit Agreement, the Assignor agrees not to sell, assign or encumber its interest in, or grant any license with respect to, any of the Trademarks, except for the licenses listed on Exhibit D hereto or otherwise with the Assignee’s prior written consent.

 

Ex. F-3


 

6. The Assignor agrees that it will authorize, execute and deliver to Assignee all documents reasonably requested by Assignee to facilitate the purposes of this Assignment, including but not limited to documents required to record Assignee’s interest in any appropriate office in any domestic or foreign jurisdiction. At the time the annual report is prepared in accordance with Section 4, Assignor agrees to provide Assignee with an updated Exhibit A for filing with the U.S. Patent and Trademark Office. If the Assignee does not receive the updated Exhibit A within fifteen days after the deadline, then Assignee is authorized to prepare and record Exhibit A at the Assignor’s expense (provided that the Assignor shall not be deemed to have defaulted under the terms hereof and no Event of Default shall exist solely for failure to send such updated Exhibit A unless the Assignor fails to deliver such Exhibit A to the Assignee within 30 days after receipt of a written request from the Assignee for such Exhibit A). At such time as the Credit Agreement and the other Loan Documents shall have been terminated in accordance with their terms, the Assignee shall on demand of the Assignor execute and deliver to the Assignor all termination statements and other instruments as may be necessary or proper to terminate this Assignment and assign to the Assignor all the Assignee’s rights in the Trademarks, subject to any disposition thereof which may have been made by the Assignee pursuant thereto or pursuant to the Loan Documents. All documents prepared and all actions taken by the Assignee pursuant to this Collateral Assignment shall be at Assignor’s expense.
7. The Assignor shall have the duty, through counsel reasonably acceptable to the Assignee, (i) to prosecute diligently any pending Trademark application that constitutes a Trademark which the Assignor reasonably deems material to the operation of its business as of the date of this Assignment or thereafter until the Credit Agreement and the Loan Documents shall have been terminated in accordance with their terms, and (ii) to preserve and maintain all rights in all Trademarks the Assignor reasonably deems material to the operation of its business. Any expenses incurred in connection with applications that constitute Trademarks shall be borne by the Assignor. The Assignor shall not abandon any application presently pending that constitutes a Trademark which the Assignor reasonably deems material to the operation of its business without the written consent of the Assignee.
8. Upon the occurrence and during the continuance of an Event of Default, the Assignee shall have the right but shall in no way be obligated to bring suit in its own name, the name of the Assignor, or the name of the Banks to enforce or to defend the Trademarks and any license thereunder if the Assignor has failed to bring such suit in circumstances in which it would be commercially reasonable to bring such suit. The Assignor shall at the reasonable request of the Assignee do any and all lawful acts and execute any and all proper documents required by the Assignee in aid of such enforcement or defense (including without limitation participation as a plaintiff or defendant in any proceeding) and the Assignor shall promptly, upon demand, reimburse and indemnify the Assignee for all reasonable costs and expenses incurred by the Assignee in the exercise of its rights under this Section.
9. This Assignment shall also serve to evidence the security interest in the Trademarks granted by the Assignor to the Assignee pursuant to the Security Agreement. Nothing in this Assignment shall be construed to limit such security interest in the Trademarks.
10. No course of dealing between the Assignor and the Assignee, failure to exercise, nor any delay in exercising, on the part of the Assignee, any right, power or privilege hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, power or privilege.

 

Ex. F-4


 

11. All of the Assignee’s rights and remedies with respect to the Trademarks, whether established hereby, by any other agreements or by law shall be cumulative and may be exercised singularly or concurrently.
12. This Assignment is subject to modification only by a writing signed by the parties, except as provided in Section 4 hereof.
13. This Assignment shall inure to the benefit of and be enforceable by the Assignee and its successors, transferees and assigns, and be binding upon the Assignor and its successors and assigns.
14. THIS ASSIGNMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS (WITHOUT GIVING EFFECT TO THE CONFLICTS OF LAW PRINCIPLES THEREOF) OF (I) ANY STATE AS TO RIGHTS AND INTERESTS HEREUNDER WHICH ARISE UNDER THE LAWS OF SUCH STATE, (II) THE UNITED STATES OF AMERICA AS TO RIGHTS AND INTERESTS HEREUNDER WHICH ARE REGISTERED OR FOR THE REGISTRATION OF WHICH APPLICATION IS PENDING WITH THE UNITED STATES PATENT AND TRADEMARK OFFICE, (III) THE STATE OF MINNESOTA IN ALL OTHER RESPECTS. Whenever possible, each provision of this Assignment and any other statement, instrument or transaction contemplated hereby or relating hereto shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Assignment or any other statement, instrument or transaction contemplated hereby or relating hereto shall be held to be prohibited or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Assignment or any other statement, instrument or transaction contemplated hereby or relating hereto. In the event of any conflict within, between or among the provisions of this Assignment, any other Loan Document or any other statement, instrument or transaction contemplated hereby or thereby or relating hereto or thereto, those provisions giving the Assignee the greater right shall govern.
[The remainder of this page is intentionally left blank.]

 

Ex. F-5


 

IN WITNESS WHEREOF, the Assignor has executed this instrument as of the date first above written.
             
    ASSIGNOR:    
 
           
    DISCOVERREADY LLC    
 
           
 
  By:  
 
   
 
     
 
   
 
     
 
   
Address for Assignor:
c/o Dolan Media Company
222 South Ninth Street
Suite 2300
Minneapolis, Minnesota 55402
Attention:                     
Fax: (612) 317-9434
Address for Assignee:
U.S. Bank National Association
800 Nicollet Mall
Minneapolis, Minnesota 55402
Attention: Bradley R. Sprang (BC-MN-H03Q)
Fax: (612) 303-2264
COLLATERAL ASSIGNMENT OF TRADEMARKS
(DISCOVERREADY LLC)

 

Ex. F-6


 

EXHIBIT A TO
COLLATERAL ASSIGNMENT
(TRADEMARKS)
TRADEMARKS
                                 
        Serial   Application   Registration   Registration   Status of
Country   Mark   No.   Date   No.   Date   Mark
USA
  DYNAMIC DATA FILTER*     77558609     8/29/08     N/A     N/A   Published (Pending) Intent to Use
USA
  BIZBLAST*     77558603     8/29/08     N/A     N/A   Published (Pending) Intent to Use
USA
  DYNAMIC DATA
ANALYSIS
    77388273     2/4/08     N/A     N/A   Published (pending)
USA
  ESI360*     77214073     6/24/07     N/A     N/A   Published (Pending) Intent to Use
USA
  PRIVVIEW*     77214077     6/24/07     N/A     N/A   Published (Pending) Intent to Use
USA
  I-DECISION     77087437     1/21/07     3554625     12/30/08   Registered
USA
  PRIVBANK     77087440     1/21/07     3554626     12/30/08   Registered
USA
  DISCOVERYBANK     77087441     1/21/07     3558105     1/6/09   Registered
USA
  APEX REVIEW     78704616     8/31/05     3132658     8/22/06   Registered
USA
  DISCOVERYCENTRE     78695268     8/18/05     3212447     2/27/07   Registered
USA
  DISCOVERREADY     78515728     11/12/04     3035616     12/27/05   Registered

 

Ex. F-7


 

Domains
1. discoveready.com
2. discoveready.net
3. discoverready.com
4. discoverview.com
5. Discoverview.net
6. Discoveryview.com
7. Discoveryview.net
8. esi360.com
9. profilesinchange.com
10. readypoint.com

 

Ex. F-8


 

EXHIBIT B TO
COLLATERAL ASSIGNMENT
(TRADEMARKS)

ASSIGNMENT OF TRADEMARKS

(Registered and Pending Use-Based Applications)
This Assignment having an effective date of  _____,  _____  is made by and between  _____, a corporation organized under the laws of the State of  _____  (“Assignor”) and  _____, a  _____  (“Assignee”).
WHEREAS, Assignor has adopted and owns certain trademarks which are registered in the U.S. Patent and Trademark Office or which are the subject of pending use-based applications in the U.S. Patent and Trademark Office (hereinafter the “Marks”) and,
WHEREAS, Assignee is desirous of acquiring the Marks and registration therefor.
NOW THEREFORE, in consideration of and in exchange for good and valuable consideration, the receipt of which is hereby acknowledged, Assignor does hereby sell, assign and transfer unto Assignee, and its successors and assigns, all of its right, title and interest in and to the Marks, and the registrations and applications therefor, together with that part of the good will of the business connected with the use of and symbolized by the Marks, and including Assignor’s entire right, title and interest in and to any and all causes of action and rights of recovery for past infringement of the Marks. Assignor hereby covenants that it has full right to convey the entire interest herein assigned, and that it has not executed, and will not execute, any agreements inconsistent herewith. Assignor hereby irrevocably authorizes  _____  to date this undated Assignment and otherwise complete this Assignment at the time of transfer.
[The remainder of this page is intentionally left blank.]

 

Ex. F-9


 

IN WITNESS WHEREOF, the parties have executed this assignment as of the dates identified below.
                         
                 
 
          (Assignor)    
 
                       
Date:
          By:            
                     
 
              Title:  
 
   
 
                       
              (Assignee)    
 
                       
Date:
          By:            
                     
 
              Title:  
 
   

 

Ex. F-10


 

EXHIBIT C TO
COLLATERAL ASSIGNMENT
(TRADEMARKS)

ASSIGNMENT OF TRADEMARKS

(Intent-To-Use Applications)
This Assignment having an effective date of  _____,  _____  is made by and between  _____, a corporation organized under the laws of the State of  _____  (“Assignor”) and  _____, a  _____  (“Assignee”).
WHEREAS, Assignor has adopted and owns certain trademarks which are the subject of pending intent-to-use applications in the U.S. Patent and Trademark Office (hereinafter the “Marks”) and,
WHEREAS, Assignee is desirous of acquiring the Marks and applications therefor.
NOW THEREFORE, in consideration of and in exchange for good and valuable consideration, the receipt of which is hereby acknowledged, Assignor does hereby sell, assign and transfer unto Assignee, and its successors and assigns, all of its right, title and interest in and to the Marks, and the applications therefor, together with that part of the good will of the business connected with the use of and symbolized by the Marks, and including Assignor’s entire right, title and interest in and to any and all causes of action and rights of recovery for past infringement of the Marks. Assignor hereby covenants that it has full right to convey the entire interest herein assigned, and that it has not executed, and will not execute, any agreements inconsistent herewith. As indicated below, each Mark is the subject of a verified allegation of use under §§ 1(c) or 1(d) of the Lanham Act that has been filed with the U.S. Patent and Trademark Office, or it is being assigned as part of a transfer of the entire business or portion thereof to which the Marks pertain as required by § 10 of the Lanham Act.
[The remainder of this page is intentionally left blank.]

 

Ex. F-11


 

IN WITNESS WHEREOF, the parties have executed this assignment as of the dates identified below.
                         
                 
 
          (Assignor)    
 
                       
Date:
          By:            
                     
 
              Title:  
 
   
 
                       
              (Assignee)    
 
                       
Date:
          By:            
                     
 
              Title:  
 
   

 

Ex. F-12


 

EXHIBIT D TO
COLLATERAL ASSIGNMENT
(TRADEMARKS)
LICENSES
None.

 

Ex. F-13


 

EXHIBIT G TO
SECOND AMENDMENT
DISCOVERREADY SIDE LETTER
(See Attached)

 

 


 

November 2, 2009
DR Holdco LLC
55 Broadway
21st Floor
New York, NY 10006
         
 
  Re:   discoverReady LLC, a Delaware limited liability company (the “Company”)
Gentlemen:
In connection with the Second Amendment to the Second Amended and Restated Credit Agreement dated as of August 8, 2007 (as amended, restated, supplemented or otherwise modified from time to time, the “Credit Agreement”) among the Company, Dolan APC LLC, a Delaware limited liability company, the other entities party thereto as “Borrowers”, the Borrowers’ Agent, U.S. Bank National Association, as agent (in such capacity, the “Agent”) on behalf of the financial institutions party thereto as “Banks”, and such Banks, together with all other agreements, documents and instruments entered into by Company in connection therewith (collectively, the “Loan Documents”), Agent hereby agrees with you as follows:
1.   Section 6.7(d) of the Credit Agreement permits “Restricted Payments” (as defined therein) consisting of dividends payable to members of the Company other than a Borrower pursuant to the Company’s Third Amended and Restated Operating Agreement to be made by the Company. Agent acknowledges that the Company’s Amended and Restated Operating Agreement restricts the Company from amending, modifying or waiving such provision without the prior written consent of the Supermajority-in-Interest Members (as defined therein).
2.   You are hereby deemed, so long as you remain a member of the Company, an intended third-party beneficiary of the proviso to Section 21 of that certain Security Agreement (discoverReady LLC) dated concurrently herewith (as amended, restated, supplemented or otherwise modified from time to time, the “Security Agreement”) by the Company in favor of the Agent. You hereby consent to such proviso and Agent agrees (i) not to amend, modify or waive such proviso without your prior written consent, which consent shall not be unreasonably withheld, and (ii) following receipt of the cash proceeds from any sale of, collection from, or other realization upon all or any part of the Collateral (as defined in the Security Agreement) as contemplated in such Section 21, Agent shall promptly remit 15% of the net cash proceeds from any such sale of, collection or other realization to the Company for distribution to the parties entitled thereto.
This letter agreement shall be governed by the internal laws of the State of Minnesota. This letter agreement shall be binding on the successors, assigns, heirs and administrators of the parties hereto. This letter agreement may be executed in any number of separate counterparts, each of which shall, collectively and separately, constitute one agreement. Signatures delivered by facsimile or other electronic transmission shall be treated as original signatures for all purposes hereof, including enforcement of this letter agreement.

 

Ex. G-1


 

Sincerely,
U.S. Bank National Association,
as Agent
         
By:
       
 
 
 
   
 
  Bradley R. Sprang    
 
  Vice President    

 

Ex. G-2


 

Agreed to and Accepted:
DR Holdco LLC
             
By:
           
         
 
  Name:        
 
     
 
   
 
  Title:        
 
     
 
   

 

Ex. G-3


 

Acknowledged:
Dolan Media Company
             
By:
           
         
 
  Name:        
 
     
 
   
 
  Title:        
 
     
 
   

 

Ex. G-4

EX-31.1 6 c91925exv31w1.htm EXHIBIT 31.1 Exhibit 31.1
Exhibit 31.1
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, James P. Dolan, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Dolan Media Company;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15 (e) and 15d-15 (e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f)) for the registrant and have:
  (a)  
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
  (b)  
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
  (c)  
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
  (d)  
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
  (a)  
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
  (b)  
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: November 6, 2009
         
  By:   /s/ James P. Dolan    
    James P. Dolan   
    Chairman, Chief Executive Officer and President   

 

 

EX-31.2 7 c91925exv31w2.htm EXHIBIT 31.2 Exhibit 31.2
Exhibit 31.2
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Vicki J. Duncomb, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Dolan Media Company;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15 (e) and 15d-15 (e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f)) for the registrant and have:
  (a)  
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
  (b)  
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
  (c)  
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
  (d)  
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
  (a)  
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
  (b)  
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: November 6, 2009
         
  By:   /s/ Vicki J. Duncomb    
    Vicki J. Duncomb   
    Vice President and Chief Financial Officer   

 

 

EX-32.1 8 c91925exv32w1.htm EXHIBIT 32.1 Exhibit 32.1
Exhibit 32.1
CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Dolan Media Company (the “Company”) on Form 10-Q for the three months ended September 30, 2009, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, James P. Dolan, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: November 6, 2009
         
  By:   /s/ James P. Dolan    
    James P. Dolan   
    Chairman, Chief Executive Officer and President   

 

 

EX-32.2 9 c91925exv32w2.htm EXHIBIT 32.2 Exhibit 32.2
Exhibit 32.2
CERTIFICATION OF THE CHIEF FINANCIAL OFFICER PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Dolan Media Company (the “Company”) on Form 10-Q for the three months ended September 30, 2009, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Vicki J. Duncomb, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: November 6, 2009
         
  By:   /s/ Vicki J. Duncomb    
    Vicki J. Duncomb   
    Vice President and Chief Financial Officer   

 

 

EX-99.1 10 c91925exv99w1.htm EXHIBIT 99.1 Exhibit 99.1
Exhibit 99.1
FOR IMMEDIATE RELEASE
(DOLAN MEDIA COMPANY LOGO)
DOLAN MEDIA ACQUIRES MAJORITY INTEREST IN DISCOVERREADY,
NATIONAL OUTSOURCED DISCOVERY MANAGEMENT PROVIDER
MINNEAPOLIS, MN — (November 6, 2009) — Dolan Media Company (NYSE: DM), a leading provider of professional services and business information to the legal, financial and real estate sectors in the United States, said today that it acquired an 85% equity interest in DiscoverReady, LLC, a leading provider of outsourced discovery management and fixed-fee document review services to major companies and their counsel.
With headquarters in New York City and an office in Charlotte, N.C., DiscoverReady assists major corporations and their counsel in litigation and regulatory matters by providing integrated discovery solutions that drastically reduce legal costs while delivering high quality, defensible document review. Its customers include leading law firms, major banks and Wall Street firms, and Fortune 500 corporations.
Dolan Media Company Chairman, President and Chief Executive Officer James P. Dolan said that DiscoverReady will become the third business line offered by Dolan Media’s Professional Services Division.
“This is an exciting step for us at Dolan Media because it brings a proven management team leading a company with an innovative and exciting set of competitive advantages,” said Jim Dolan. “DiscoverReady’s focus on large corporations, cost effective fixed-fee pricing models and recurring revenue strategies made it a very attractive addition to our Professional Services Division. We look forward to building on DiscoverReady’s already very strong growth.”
Co-founders James K. Wagner Jr. and Steven R. Harber will remain as chief executive officer and president, respectively, and will continue to run the company, reporting to Dolan Media Chief Operating Officer, Scott Pollei. Wagner, Harber and other employees control the 15% minority ownership of DiscoverReady. The company’s employees will be retained.
“We are very pleased to be a part of the Dolan Media family,” Wagner said. “We are excited to have such a strong foundation to support our clients, the long-term development of our team of professionals, and the continuing growth of our business.”
Harber said the match between companies was an attractive part of the deal. “Dolan Media is a natural fit for DiscoverReady due to its partner-driven approach of investing in quality companies and empowering management teams to scale rapidly and expand their business models,” Harber said.

 

 


 

Discovery, the process by which parties use the legal system to obtain relevant information, is expensive and time-consuming. Complex cases can involve millions of e-mails, electronic files and paper documents that must be reviewed. Explosive growth in legal costs is a major issue for large companies and their law firms, and discovery often is the biggest single cost component.
DiscoverReady uses proprietary processes and tools such as its PrivBank™, PrivView™, and Dynamic Data Analysis™ to streamline attorney document reviews and deliver defensible results at costs that can be as much as 40% lower than traditional methods. The company also provides technology management services.
Wagner and Harber were practicing attorneys before starting down entrepreneurial paths that led to the formation of DiscoverReady in 2005. Both men previously worked in legal technology fields, using their legal experience to solve challenges faced by law firms and corporate legal departments.
Dolan Media Company is a leading provider of professional services and business information to the legal, financial and real estate sectors. Its Professional Services Division provides specialized services to the legal profession through its subsidiaries, NDeX, Counsel Press and now DiscoverReady. NDeX is a leading provider of mortgage default processing services in the United States. Counsel Press is the nation’s largest provider of appellate services to the legal community. The Company’s Business Information Division publishes business journals, court and commercial media and other highly focused information products and services, operates web sites and produces events for targeted professional audiences in each of the 21 geographic markets that it serves across the United States.
Dolan Media is simultaneously filing with the Securities Exchange Commission its quarterly report on Form 10-Q. which describes this transaction in more detail in both “Management’s Discussion and Analysis—Recent Acquisitions” and Item 5 of Part II. The Form 10-Q is available on the SEC’s web site at www.sec.gov.

 

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Safe Harbor Statement
This release contains forward-looking statements that reflect our current expectations and projections about our future results, performance, prospects and opportunities. The words “expect,” “believes,” “continue,” “will,” and similar expressions are intended to identify forward-looking statements. These forward-looking statements are based on information currently available to us and are subject to a number of risks, uncertainties and other factors that may cause our actual results, performance, prospects or opportunities to be materially different from those expressed in, or implied by, such forward looking statements. These risks, uncertainties and other factors include, but are not limited to, the following: we have owned and operated DiscoverReady for a short period of time and none of our executive officers have managed or operated a discovery management or document review services company prior to the acquisition of DiscoveryReady; DiscoverReady's business revenues are very concentrated among a few customers and if these customers choose to manage their discovery with their own staff or by engaging another provider and if we are unable to develop new customer relationships, our operating results and the ability to execute our growth strategy may be adversely affected; integration of acquired businesses may place a strain on our management and internal systems, processes and controls; the acquisition of DiscoverReady may expose us to particular business and financial risks that include, but are not limited to: (1) diverting management’s time, attention and resources from managing the business; (2) incurring significant additional capital expenditures and operating expenses to improve, coordinate or integrate managerial, operational, financial and administrative systems; (3) failing to integrate the operations, personnel and internal controls of DiscoverReady into our company or to manage DiscoverReady or our growth; and (4) facing operational difficulties in new markets or with new product and service offerings; and we incurred additional indebtedness to close the acquisition of DiscoverReady and this additional debt may limit our ability to pursue other acquisitions or growth strategies. Please also see “Risk Factors” contained in Item 1A of our annual report on Form 10-K filed with the SEC on March 12, 2009, and Item 1A of Part II of our quarterly reports on Form 10-Q filed with the SEC on August 7, 2009 and November 6, 2009, all available at the SEC’s web site at www.sec.gov, for a description of some of these and other risks, uncertainties and factors that could cause our actual results, performance, prospects or opportunities to differ materially from those expressed in, or implied by, forward looking statements. You should not place undue reliance on any forward-looking statements. Except as required by federal securities law, we assume no obligation to update publicly or to revise these forward-looking statements for any reason, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available, new events occur or circumstances change in the future.

 

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