1
Exhibit 2(i)
March 1, 1996
▇▇. ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Michiana News Services, Inc.
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Re: Option to Acquire the Majerek Companies
Dear Tad:
This Option Agreement is made and entered into this _____ day of
March, 1996, by and between UNITED MAGAZINE COMPANY (hereinafter referred to as
"Buyer") and ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ (individually and as
trustee), ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ (individually and as trustee), ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇,
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ and
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ (hereinafter collectively referred to as "Sellers" or
"Shareholders") for an option to acquire Michiana News Services, Inc., a
Michigan corporation, together with its trucking company (▇▇▇▇▇) and re-ship
operations (hereinafter referred to as the "Company"), having wholesale
newspaper, magazine and periodicals distribution businesses with offices
located in Niles, Michigan, under the following terms and conditions:
1. For and in consideration of the sum of one hundred and no/100
dollars ($100.00), and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Company hereby grant to Buyer
the option, during the term set forth in Paragraph 4 hereof (the "Term"), to
cause the Company to merge with a to-be-formed wholly-owned subsidiary of Buyer
("Sub"). Buyer may exercise its option upon written notice to the Company at
any time during the Term.
2. The consideration payable to the shareholders of the Company in the
event of the contemplated merger shall be calculated as follows:
a. an amount equal to sixty percent (60% of the net annual
wholesale sales of the Company, to be calculated as of December 31,
1995; plus or minus
b. the actual net worth of the Company (exclusive of any
intangibles), which is estimated to be a deficit of two million one
hundred two thousand five hundred seventy-eight and no/100 dollars
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($-2,102,578.00), such amount to be increased or decreased as of date
of closing pursuant to a certified financial statement to be completed
by the parties in accordance with generally accepted accounting
principles.
c. Exhibit A is attached hereto to illustrate the procedure
(but not necessarily the amounts) agreed upon in making the
calculations in paragraph 2(b), above.
3. Buyer and the Company acknowledge and agree that the estimated net
total of Paragraphs 2(a) and 2(b), above, as of the date of execution of this
Option Agreement, amounts to approximately fourteen million seven hundred
fifty-five thousand three hundred ninety-eight and no/100 dollars
(14,755,398.00), based upon the Company's PRO FORMA financial statement
attached hereto as Exhibit A. Such figure, as adjusted at closing, shall be the
total Consideration, to be payable as follows:
a. fifty-seven and ninety-three hundredths percent (57.93%) of
the Consideration shall be payable in voting common shares of the
capital stock of Buyer, to be valued for the purposes of this
transaction at one and 50/100 dollars ($1.50) per share. Sellers
understand and agree that the shares of Buyer's capital stock will be
restricted pursuant to applicable federal securities regulations;
b. forty-two and seven hundredths percent (42.07%) of the
Consideration shall be payable in immediately available funds at
closing, as hereinafter defined.
4. The term of this Option Agreement shall commence upon the written
acceptance by the Company of this proposal, and shall continue thereafter until
the earlier of (i) the termination or expiration of either of Buyer's options
to purchase the assets of Ohio Periodical Distributors, Inc., Northern News
Company and MacGregor News Agency, Inc. (collectively, the "▇▇▇▇▇▇▇ Companies")
and to acquire The ▇▇▇▇▇ Companies ("▇▇▇▇▇") on terms and conditions set forth
on Exhibits B and C, respectively, hereto; (ii) the exercise of the Company's
election to terminate this option pursuant to this Paragraph 4; or (iii) August
31, 1996. In the event Buyer does not purchase the assets of ▇▇▇▇▇▇▇ Companies
and close on the merger of ▇▇▇▇▇ on the terms and conditions set forth in
Exhibits B and C hereto simultaneous with the Closing of the merger of the
Company and the Sub, then the Company may, in its sole discretion, either
proceed to close with Buyer on this transaction or refuse to do so.
Notwithstanding anything contained herein to the contrary, the Company shall
have the right to terminate this Option Agreement and Buyer's rights hereunder
on written notice to Buyer in the event Buyer has not, on or before May 31,
1996, obtained a financing commitment satisfactory to Buyer to enable Buyer to
complete the merger of the Company and the acquisition ▇▇▇▇▇ and the assets of
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▇▇▇▇▇▇▇ Companies or if there has, since the date hereof, been a material
adverse change in the financial condition or prospects of Buyer or any of its
subsidiaries, the ▇▇▇▇▇▇ Companies or ▇▇▇▇▇.
5. During the term of this option, the Company shall retain the
exclusive right to continue operating its businesses. The Company shall strive
to maintain, to the extent possible, the current balance sheet and
profitability of the Company as reported to Buyer at the execution of this
Agreement. At closing, the Company and its shareholders shall warrant to Buyer
the accuracy of its balance sheet. During the Company's continuing operations,
the parties acknowledge that the Company may find itself in competitive bid
situations with Buyer, and the parties agree that the submission of such
proposals by either party shall have no effect on the continued viability of
this Option Agreement. Further, Sellers agree that from and after the execution
of this Option Agreement, Sellers will cause the business of the Company to be
conducted in the usual and ordinary course, and will, consistent with such
operation, use all reasonable efforts to preserve the present business
organization substantially intact and to continue the present business
relationships with publishers and customers. In the event Sellers acquire Twin
City News Agency, Inc. of Lafayette, Indiana, prior to closing under the Stock
Purchase Agreement, the value of the annualized sales of the acquired agency
shall be included in the calculation of the purchase price under this option at
an amount equal to the formula set forth in paragraph 2, above.
6. Notwithstanding anything contained herein to the contrary, the
Company reserves the right to sell non-operating assets and to make
distributions to its shareholders to the extent such transactions will not
inhibit the Company from achieving as of Closing the targets set forth on its
PRO FORMA balance sheet attached hereto as Exhibit A.
7. During the term of this option, Sellers shall cooperate with Buyer
to complete Buyer's due diligence process on the Company, and further, Sellers
shall cooperate with Buyer and assist in its negotiations with lending
institutions and investment bankers as may reasonably be required by Buyer. The
parties agree that they will both participate in any presentations that may be
made to either investment banks or lending institutions. Buyer and the Company
further covenant and agree that they will work together to bring the
transaction contemplated hereunder to a successful conclusion. The Company
shall make available to Buyer, for its due diligence, all of the Company's
records, including tax and accounting records, and any other information on the
Company as may be required by Buyer. The Company acknowledges that Buyer's
decision to exercise this option is dependent upon its ability to complete a
thorough due diligence review of the Company.
8. During the Term of this Option, Buyer will cause its business and
the business of its wholly-owned subsidiaries to be conducted in the usual and
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ordinary course and will not amend, modify or otherwise supplement its option
agreements with the ▇▇▇▇▇▇▇ Companies attached hereto as Exhibit B and with
▇▇▇▇▇, attached hereto as Exhibit C, without the Company's prior written
consent.
9. In the event Buyer elects not to exercise the option granted
hereunder, Buyer and Sellers hereby agree, for themselves, their successors and
assigns, to release and forever discharge the other party, its successors and
assigns, from any and all debts, claims, demands, damages, actions and causes
of action whatsoever, past, present or future, which can or may ever be
asserted as a result of, or in any way arising out of, this Option Agreement
and/or the effects or consequences thereof.
10. The parties recognize that the nature of information being made
available to Buyer and its agents and employees pursuant to its due diligence
review of the Company is of such a confidential nature that the parties agree
that this information shall be kept confidential, and in the event Buyer does
not exercise its option to purchase the Company, all records and information
shall be immediately returned to Sellers.
11. The parties agree that, immediately upon Buyer's exercise of the
option provided hereunder, they shall enter into good faith negotiations of a
Merger Agreement acceptable to Buyer and the Company's shareholders which sets
forth usual and customary provisions, representations, warranties, covenants
and indemnities (and limitations thereof) of Buyer, the Company and its
shareholders, including, but not limited to, those relating to the ownership of
assets, compliance with laws, accuracy of financial statements, existence of
contracts and such other items as may be reasonably required by Buyer or the
Company and its shareholders, with all said representations, warranties,
covenants and indemnities to survive the closing, such agreement to be fully
executed within thirty (30) days after Buyer provides to the Company written
notices of its exercise of this option. The transaction is intended to qualify
as a partially tax-free reorganization with cash boot of up to 49% of the
Consideration. Performance by Sellers is contingent upon this transaction
qualifying as a tax-free exchange of the corporate stock. The transaction shall
close no later than thirty (30) days after the execution of the definitive
Merger Agreement.
12. The parties agree that the terms and conditions of any addendum
executed by the parties to amend or expand upon the terms of this option, shall
thereafter be incorporated by reference into this Option Agreement.
13. The parties agree that, upon the execution of this Option
Agreement, they will enter into a Joint Operating Agreement, in the form
attached hereto as Exhibit B, for the purposes of preserving, maintaining and
enhancing the value of the optioned companies during the term of this option.
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Please acknowledge your agreement with the terms and conditions of the
option outlined above by signing and returning to me the enclosed copy of this
Option Agreement. Buyer and Sellers agree and acknowledge that they execute
this Option Agreement intending to be legally bound.
Very truly yours,
AGREED TO AND ACCEPTED UNITED MAGAZINE COMPANY,
this _____ day of March, 1996 an Ohio corporation
_________________________ _________________________
▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ By: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
individually and on behalf of the Its: Chairman
Company and its shareholders
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ADDENDUM
To Option Agreement
An Addendum made this _____ day of ____________ , 1996, to an Option
Agreement for the acquisition of Michiana News Service, Inc., entered into by
and between United Magazine Company and ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, representing the
Majerek family interests ("Majerek"). The parties understand and agree that the
following terms and conditions will be met to the mutual satisfaction of both
parties at the time of closing.
1. Prior to or at closing on the merger, ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ and A. ▇▇▇▇▇
▇▇▇▇▇▇▇ shall be released from all personal liability for the debts and
obligations of Michiana News Service, Inc. ("Michiana") which they have
personally guaranteed.
2. At closing on the merger, Unimag/Michiana will enter into a supply agreement
with Hall of Cards and Books, Inc., an Indiana corporation ("HOCAB"). The terms
of the agreement will be the supply to HOCAB of wholesale magazines at
Michiana's cost, plus 10% All books to be supplied to HOCAB by Unimag/Michiana
at a 43% discount. This provision shall continue in effect for five (5) years
provided that Majerek or his children or grandchildren, or entities controlled
by them, shall have a majority interest in HOCAB or its successor(s). At the
end of five (5) years, HOCAB shall receive Unimag/Michiana's (or if applicable,
the survivor of Sub or Unimag/Michiana) best discount as calculated by
averaging the discount then given to its three largest customers.
3. HOCAB owes Michiana, in accounts and notes receivable, an amount not in
excess of $2,500,000.00. At closing on the Merger Agreement, Majerek shall pay
in full, from the proceeds, all such accounts and notes receivable in excess of
60 days, except for the sum of $1,250,000.00, which will be converted to a
cognovit note, amortized over five years at an interest rate equal to prime
plus one percent (but not to exceed a total annual rate of ten percent) with
HOCAB to make 60 equal monthly installments of principal plus interest. The
note will be secured by the stock of HOCAB and by 833,333 shares of the Unimag
stock owned by Majereks after closing. The note shall contain such operating
covenants and restrictions as are mutually satisfactory to the parties. The
entire balance of the note shall be due on sale of a majority of the assets or
stock of HOCAB to a purchaser other than the children or grandchildren of
Majerek or entities controlled by them. Unimag/Michiana will have the right of
first refusal to purchase HOCAB.
4. Real estate used by the operations of the business and known as the "Niles
building" will be leased by Unimag/Michiana for a period of three years at an
agreed upon market rental rate. Unimag/Michiana shall have an option to
purchase the Niles building, exercisable at any time during the three years.
Unimag/Michiana will have the sole right to sublease the property, but will at
all times guarantee the performance of any sublease. During the term of the
lease, Majereks shall have the right to list the building for sale and close on
a sale, provided however, that Unimag/Michiana shall have the right of first
refusal on any such sale. The Majerek real estate known as the "Ft. ▇▇▇▇▇
building" will be purchased by Unimag/Michiana with payment in full at closing.
Each of the above buildings will be appraised by an independent national
appraiser to establish both market rent and purchase price, and the parties
shall share
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equally the cost of such appraisals.
5. At closing, Unimag/Michiana will purchase the assets and liabilities of
▇▇▇▇▇ Trucking for $1.00 and other good and valuable consideration, based upon
the following balance sheet items: Assets (to be valued at fair market value),
including customer contracts, accounts receivable of $50,000.00 and trailers
valued at $50,000.00; and liabilities, including bank debt at $55,000.00 and
trailer installment notes at $45,000.00. Unimag/Michiana will assume the leases
on the six tractors and employ ▇▇▇▇▇ ▇▇▇▇▇. The above amounts are approximate.
Liabilities assumed or paid shall not exceed the value of the assets.
6. Closing on the Merger Agreement shall be subject to Unimag/Michiana entering
into three year employment agreements with ▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇▇▇ and ▇▇▇
▇▇▇▇▇▇▇, upon terms and conditions reasonably satisfactory to the parties.
7. The above agreements shall be binding upon Unimag/Michiana, its assigns or
successors in interest.
If you agree that these items are the issues to be addressed at the time of
closing in form and substance, please so indicate by your signature, and this
document will be made a part of the Option Agreement.
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ /s/ ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
------------------------------ -------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, individually and
Chairman on behalf of Michiana and its
United Magazine Company Shareholders
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Unimag
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Normalized Balance Sheet ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇
As of December 31, 1995 UNIMAG ▇▇▇▇▇▇▇ ACCOUNTING TOTAL STALL MAJEREK ACCOUNTING TOTAL
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Current Assets
Cash 232,040 405,142 637,182 4,586,593 0 0 5,223,775
Account Receivable
Trade 6,581,522 5,455,286 12,036,808 8,402,664 2,420,591 0 22,860,063
Retail 0 1,599,022 1,599,022 0 1,183,000 0 2,782,022
Shareholder Receivable 0 0 0 0 1,921,486 0 1,921,486
Inventory 5,641,769 4,099,853 9,741,622 11,077,628 1,959,546 0 22,778,796
Other current Assets 316,075 16,116 332,191 404,342 457,111 0 1,193,644
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Total Current Asset 12,771,406 11,575,419 24,346,825 24,471,227 7,941,734 0 56,759,786
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Property Plant & Equipment
Land 0 590,000 590,000 97,662 0 0 687,662
Building 141,276 2,803,519 2,944,795 751,230 398,000 0 4,094,025
Display Racks 0 932,785 932,785 978,859 728,399 0 2,640,043
Furniture and Fixtures 777,339 4,765,705 5,543,044 1,153,811 645,500 0 7,342,355
Vehicles 456,861 1,604,584 2,061,445 1,045,277 285,679 0 3,392,401
Assets held for sale 0
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Gross PP&E 1,375,476 10,696,593 12,072,069 4,026,839 2,057,578 0 18,156,485
Accumulated Depreciation 0 (3,376,479) (3,376,479) 0 0 0 (3,376,479)
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Net 1,375,476 7,320,114 8,695,590 4,026,839 2,057,578 0 14,780,006
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Other assets
Notes Receivable nonrelated 0 0 0 0 0 0
Other 2,950 0 2,950 260,231 3,000 0 266,181
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2,950 0 2,950 260,231 3,000 0 266,181
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Intangibles
Purchase Premium 34,648,442 34,648,442 77,738,090 112,386,532
O&R Records/customer list 2,183,819 0 2,183,819 251,389 560,363 0 2,995,571
Non compete 425,000 0 425,000 294,733 971,752 0 1,691,485
Consulting 0 0 0 0 218,446 0 218,446
Goodwill 8,611,331 3,000,890 1,384,432 12,996,653 889,127 1,080,388 (5,100,000) 9,866,168
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Total Intangibles 11,220,150 3,000,890 36,032,874 50,253,914 1,435,249 2,830,949 72,638,090 127,158,202
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Total Assets 25,369,982 21,896,422 36,032,874 83,299,278 30,193,546 12,833,261 72,638,090 198,964,175
======================================================================================================
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UNIMAG
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Normalized Balance Sheet ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇
As of December 31, 1995 UNIMAG ▇▇▇▇▇▇▇ ACCOUNTING TOTAL STALL MAJEREK ACCOUNTING TOTAL
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Current Liabilities
Short term Debt 345,575 0 345,575 1,400,000 750,000 0 2,495,575
Current Portion long term debt 362,500 0 362,500 190,262 822,000 0 1,374,762
Current Portion capital leases 0 0 0 0 0 0
Publisher Payables 12,161,026 16,032,023 28,193,049 8,882,233 4,268,422 0 41,343,704
Other payables 806,269 21,240 827,509 237,711 0 0 1,065,220
Accrued expenses (327,040) 42,166 (284,874) 364,077 122,240 0 201,443
Deferred taxes 0 223,875 223,875 2,339,312 1,022,400 0 3,585,587
458 Reserve 1,532,286 2,186,137 3,718,423 2,084,000 750,000 0 6,552,423
Related Party 0 0 0 0 1,109,859 0 1,109,859
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Current Liabilities 14,880,616 18,505,441 33,386,057 15,497,595 8,844,921 0 57,728,573
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Long term debt
Long-term Debt 1,652,837 4,761,142 16,977,737 23,391,716 0 3,259,969 38,091,664 64,743,349
Long term Capital leases 0 0 0 0 0 0
Dealer advance payments 40,000 0 40,000 0 0 0 40,000
Pension & Postretirement 2,880,000 2,880,000 0 0 2,880,000
Other 0 14,272 14,272 0 0 0 14,272
Related Party 0 0 0 0 0 0
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4,572,837 4,775,414 16,977,737 26,325,988 0 3,259,969 38,091,664 67,677,621
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Common stock subject to Puts 3,935,461 3,935,461 0 3,935,461
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Stockholders Equity Asset Deal
Common Stock 250 (1,384,432) 1,384,432 250 5,000,000 100,000 (5,100,000) 250
Paid in Capital 42,744,575 0 17,670,705 60,415,280 0 0 39,646,426 100,061,706
Retained earnings (40,763,757) 0 0 (40,763,757) 9,695,951 628,371 0 (30,439,436)
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1,981,068 (1,384,432) 19,055,137 19,651,773 14,695,951 728,371 34,546,426 69,622,520
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Total Liabilities and
Stockholders Equity 25,369,982 21,896,422 36,032,874 83,299,278 30,193,546 12,833,261 72,638,090 198,964,175
======================================================================================================
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10
UNIMAG
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Normalized Income Statement ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇
As of December 31, 1995 UNIMAG ▇▇▇▇▇▇▇ ACCOUNTING TOTAL STALL MAJEREK ACCOUNTING TOTAL
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Sales 57,039,662 65,056,274 122,095,936 82,869,983 28,096,626 233,062,545
Cost of Sales (44,878,484) (48,612,571) (93,491,055) (61,984,576) (22,013,114) (177,488,745)
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Gross Profit 12,161,178 16,443,703 28,604,881 20,885,407 6,083,512 55,573,799
GPM% 21.32% 25.28% 23.43% 25.20% 21.65% 23.85%
Other Operating Income 1,688,265 1,851,624 3,539,889 1,824,972 580,004 5,944,865
Employee Related Costs (8,196,084) (9,588,702) (17,784,786) (11,578,187) (2,964,215) (32,327,188)
Other SG&A (4,012,008) (3,826,281) (7,838,289) (5,817,463) (1,828,305) (15,484,057)
Other Income, net 427,920 10,391 438,311 471,857 160,111 1,070,279
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EBITDA 2,069,271 4,890,734 6,960,005 5,786,586 2,031,107 14,777,698
Cash Interest (219,865) (122,383) (342,248) 0 (577,789) (920,037)
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Operating Cash Flow 1,849,406 4,768,352 6,617,758 5,786,586 1,453,318 13,857,661
Non cash
Depreciation & Amort. (1,128,259) (694,614) (900,822) (2,723,695) (1,167,005) (1,011,636) (1,557,844) (6,460,180)
Put Interest (369,437) 0 (369,437) 0 0 (369,437)
Consulting in stock (294,719) 0 (294,719) 0 0 (294,719)
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Total non cash (1,792,415) (694,614) (900,822) (3,387,851) (1,167,005) (1,011,636) (1,557,844) (7,124,336)
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Net Income before tax 56,991 4,073,737 (900,822) 3,229,906 4,619,581 441,682 (1,557,844) 6,733,325
======================================================================================================
RETURN ON SALES 6.26% 2.65% 5.57% 1.57% 2.89%
Purchase Price
60% of sales 39,033,764 39,033,764 49,721,990 16,857,976 105,613,730
+/- tangible net worth (4,385,322) (4,385,322) 13,260,702 (2,102,578) 6,772,801
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Total purchase price 34,648,442 34,648,442 62,982,691 14,755,397 112,386,531
======================================================================================================
Distribution
Cash 16,977,737 16,977,737 29,513,689 6,207,596 52,699,021
Stock of Unimag 17,670,705 17,670,705 33,469,002 8,547,802 59,687,509
======================================================================================================
34,648,442 34,648,442 62,982,691 14,755,397 112,386,531
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Distribution
Cash 49% 49% 46.86% 42.07%
Stock of Unimag 51% 51% 53.14% 57.93%
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Present Shares 15,334 11,045,000 26,660,334 26,660,334
New Shares 11,780,470 11,780,470 22,312,668 5,698,534 39,791,673
Total Shares After
Purchase 15,615,334 22,825,470 38,440,804 22,312,668 5,698,534 66,452,007
Phase 1 Ownership 40.62% 59.38% 100.00%
Phase 2 Ownership 23.50% 34.35% 33.58% 8.58% 100.00%
▇▇▇▇▇ ▇ Ownership 16.38% 23.95% 23.41% 5.98%
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