CONFIDENTIAL

 

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                                                                    EXHIBIT 10.1

 

January 3, 2005

 

CONFIDENTIAL

 

Liberty Group Operating, Inc.

3000 Dundee Road, Suite 202

Northbrook, Illinois  60062

Attention:   Kenneth Serota

 

Ladies and Gentlemen:

 

FINANCING. Liberty Group Operating, Inc. ("you" or "Company") has advised Wells

Fargo Bank, National Association ("we" or "us") that the Company would like to

have up to $330,000,000 available to refinance existing indebtedness of the

Company and Liberty Group Publishing, Inc. ("Holdings"), retire preferred stock

of Holdings, make certain fee and expense payments, and provide for its ongoing

working capital and letter of credit needs. The financing we propose

("Financing") is described in the Summary of Terms and Conditions attached as

Exhibit A ("Term Sheet"), and consists of a $50,000,000 senior secured revolving

credit facility with a sublimit for letters of credit ("Revolver"), and a

$280,000,000 senior secured term loan ("Term Loan").

 

COMMITMENT. Subject to the terms and conditions of this letter, we are pleased

to commit up to $50,000,000 of the Financing and to endeavor to form a syndicate

of institutional lenders and accredited investors acceptable to the Company and

us to provide the remainder of the Financing plus, if we so decide, a portion of

our commitment. Our commitment may be reduced as and when commitments to provide

a portion of the Financing exceeding such remainder are received from such

lenders.

 

If necessary for successful syndication of the Financing, we are willing to

commit up to $25,000,000 of second lien term financing, which would reduce the

first lien Term Loan to an aggregate amount of $255,000,000 and our commitment

for the first lien Financing to $25,000,000. Pricing for the second lien term

financing would be floating rate, at LIBOR plus 5.50%.

 

We will act as sole and exclusive lead arranger and book runner for the

Financing, and also as administrative agent for the syndicate of lenders. You

agree that no additional agents, co-agents or arrangers will be appointed, no

other titles will be awarded and no compensation (other than as set forth in

this letter and the Fee Letter referred to below) will be paid in connection

with the Financing, unless you and we agree in writing.

 

CONDITIONS TO COMMITMENT. Our commitment is conditioned on (a) no material

adverse change occurring in the business, assets, condition (financial or

otherwise), or results of operations of the Company or any of its material

subsidiaries, taken as a whole, or in the enforceability of the credit

documentation for the transactions contemplated hereby, in each case since the

date of the latest audited financial statements provided to us, (b) our being

satisfied with the results of our continuing due diligence review of the Company

and discovering no information in the course of our due diligence or otherwise

that we reasonably believe has a materially adverse impact on any of the items

in (a) above, (c) the information provided by the

 

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Company as described above being correct in all material respects, and (d) the

conditions to be set forth in the loan documents being satisfied. We note that

the commitments of prospective lenders will be conditioned on their satisfaction

with their own due diligence reviews.

 

Our commitment is also conditioned on the negotiation, execution and delivery of

loan documents acceptable to you, us, the other lenders and respective counsel,

not later than February 28, 2005. The Term Sheet does not include all of the

conditions, business and financial covenants, representations, warranties,

defaults, definitions and other terms to be contained in the loan documents,

some of which must still be developed and agreed upon.

 

SYNDICATION. We intend to commence syndication efforts promptly after you sign

this letter. You agree to cooperate with us in good faith toward a successful

Closing and to take all actions we reasonably request of you to assist us in

forming a syndicate of lenders and completing a syndication satisfactory to us,

in consultation with you and with your approval of the identities of the lenders

in the syndicate. These actions will include (a) providing us with all

information we consider reasonably necessary, and in the form we reasonably

request, including information and projections relating to the Financing and its

uses, (b) assisting us in preparing an information memorandum for use in

connection with the syndication, and verifying the information contained

therein, (c) making senior officers and representatives of the Company available

during the syndication to make presentations concerning the business and

prospects of the Company at one or more meetings and conference calls we may

arrange with prospective lenders, and (d) providing assistance to us in

obtaining ratings from rating agencies prior to the Closing. The content of the

information memorandum will be subject to your approval prior to distribution.

You also agree to refrain from any activity in the bank loan syndication market

and the private placement market from the date you sign this letter until the

date the Closing occurs and the syndication has been successfully completed or

this letter is terminated in accordance with the provisions herein.

 

You represent and warrant (in the case of industry information, to the best of

your knowledge) that (a) all information (other than financial projections) that

you or your representatives have provided or will provide to us or any

prospective lender is, or when provided will be, correct in all material

respects and does not, or when provided will not, contain any untrue statement

of a material fact or omit to state a material fact necessary in order to make

the statements contained therein not materially misleading in light of the

circumstances under which they are made, and (b) all financial projections that

have been or will be so provided have been or will be prepared in good faith

based on reasonable assumptions (it being understood that assumptions as to

future results are inherently subject to uncertainty and contingencies, many of

which are beyond your control, and that no assurance can be given that any

particular projections will be realized). You agree to supplement such

information and projections from time to time before the Closing and during the

syndication so that these representations and warranties remain correct. We will

use the information and projections without independent verification in

syndicating the Financing.

 

INDEMNIFICATION AND EXPENSES. You agree to indemnify and hold harmless us, the

prospective lenders and our and their respective directors, officers, employees,

agents, attorneys and affiliates (each, an "indemnified person") from and

against all losses, claims, damages, liabilities and expenses which may be

incurred by or asserted against an indemnified person in connection with or

arising out of this letter, the Financing, the use of the proceeds thereof, or

any related transaction, regardless of whether the indemnified person is a party

thereto, and to reimburse each indemnified person on demand for all reasonable

out-of-pocket legal and other expenses incurred in connection with investigating

or defending any of the

 

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foregoing, provided that this indemnity will not, as to any indemnified person,

apply to losses, claims, damages, liabilities or expenses arising from the

willful misconduct or gross negligence of such indemnified person or any breach

by such indemnified person of its obligations under this letter. No party hereto

will be liable to any other party hereto for indirect or consequential damages

relating to any such matters. You also agree to pay all of our reasonable

out-of-pocket expenses (including fees and expenses of our outside counsel)

incurred in connection with preparing, negotiating and enforcing this letter and

the loan documents, conducting the due diligence reviews, syndicating the

Financing and related matters.

 

GENERAL. Your obligations to pay the expenses set forth in the last sentence

under Indemnification and Expenses above will survive the Closing or the

expiration or termination of our commitments in this letter. Your

representations and warranties under Syndication above, and your indemnification

obligations under Indemnification and Expenses above, will be superseded at the

Closing by the representations and warranties and indemnification provisions,

respectively, in the loan documents.

 

This letter may be terminated by the Company at any time, in its sole

discretion, and without any further liability except under the first sentence

under Indemnification and Expenses above and the fourth full paragraph on this

page (relating to confidentiality).

 

This letter is supplemented by a separate fee letter dated the date hereof from

us to you (the "Fee Letter"). This letter and the Fee Letter constitute the

entire understanding of the parties hereto with respect to the subject matter

hereof and supersede all prior and current understandings and agreements,

whether written or oral. Any changes to this letter or the Fee Letter must be

agreed in writing by the parties hereto. This letter and the Fee Letter may be

executed in any number of counterparts (and delivery of an executed counterpart

by telecopier will be effective as delivery of a manually executed counterpart),

which together will constitute one agreement, and will be governed by and

construed in accordance with the internal laws of the State of New York. The

parties hereto hereby waive any right to trial by jury with respect to any

claim, action, suit or proceeding arising out of or contemplated by this letter

and/or the Fee Letter.

 

You agree not to disclose this letter, the Fee Letter or any of their terms,

directly or indirectly, to any person other than your employees, agents and

advisors who are directly involved in the Financing or related transactions and

agree not to disclose the same, or as may be required by law (in which case you

agree to inform us promptly thereof); provided that after you sign and return

this letter and the Fee Letter, the foregoing restrictions will cease to apply

to this letter but continue to apply to the Fee Letter. This letter is for your

benefit only and may not be relied upon by, and does not create any rights in

favor of, any other person or entity, including those who are authorized to

receive copies hereof.

 

If you are in agreement with the foregoing, please sign and return to us a copy

of this letter and the Fee Letter, no later than 5:00 p.m., Pacific time, on

January 12, 2005. Our commitment and other agreements herein will expire at that

time if by then we have not received such signed letters.

 

We look forward to working with you on this transaction.

 

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                                      Very truly yours,

 

                                      WELLS FARGO BANK, NATIONAL

                                      ASSOCIATION

 

                                      By: /s/ Alex Y. Kim

                                          -----------------------

                                      Name: Alex Y. Kim

                                      Title: Vice President

 

Accepted and agreed to:

 

LIBERTY GROUP OPERATING, INC.

 

By: /s/ Ken Serota

    -------------------------

Name: Ken Serota

Title: President and Chief Executive Officer

 

Dated: January 12, 2005

 

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                                    EXHIBIT A

 

                          LIBERTY GROUP OPERATING, INC.

 

                         SUMMARY OF TERMS AND CONDITIONS

                  $330,000,000 SENIOR SECURED CREDIT FACILITIES

 

I.    THE SENIOR CREDIT FACILITIES

 

Borrower:                      Liberty Group Operating, Inc.

 

Guarantors:                    All existing and future subsidiaries of the

                               Borrower (the "Guarantors" and together with the

                               Borrower, the "Credit Parties"); provided,

                               however, that non-U.S. subsidiaries shall only be

                               required to deliver guarantees to the extent it

                               would not result in material increased tax

                               liabilities for the Credit Parties.

 

Sole Lead Arranger and Book    Wells Fargo Bank, National Association ("Wells

Runner:                        Fargo," the "Lead Arranger").

 

Administrative Agent:          Wells Fargo (the "Administrative Agent").

 

Collateral Agent:              Wells Fargo (the "Collateral Agent").

 

Lenders:                       Wells Fargo and a syndicate of financial

                               institutions and other accredited investors (the

                               "Lenders").

 

Closing Date:                  The date the initial loans are made under the

                               Senior Credit Facilities.

 

Type and Amount:               Revolver: A $50,000,000 senior secured revolving

                               credit facility (the "Revolver" or "Revolving

                               Loans"). The Revolver will also be available for

                               standby and commercial letters of credit. In

                               addition, a portion of the Revolver in an amount

                               to be agreed upon shall be available for swing

                               line advances (the "Swingline Loans"). Swingline

                               Loans will constitute usage under the Revolver

                               (except for purposes of computing the Commitment

                               Fee, as defined below) and will reduce

                               availability of the Revolving Loans and the

                               letters of credit dollar-for-dollar.

 

                               Term Loan: A $280,000,000 senior secured term

                               loan facility (the "Term Loan" and together with

                               the Revolver, the "Senior Credit Facilities"),

                               provided in two tranches. "Tranche B-1" of the

                               Term Loan may be in an aggregate amount of up to

                               $80,000,000 and shall

 

                                      A-1

 

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                               be drawn in full on the Closing Date. "Tranche

                               B-2" of the Term Loan may be in an aggregate

                               amount of up to $210,000,000 and shall be drawn

                               in full in a single drawing on a date that is not

                               more than 60 days from the Closing Date, in

                               connection with redemption of the Senior

                               Subordinated Notes, Holdings Senior Discount

                               Notes and Holdings Preferred Stock.

                               Notwithstanding the above, the final aggregate

                               amount of the Tranche B-1 Term Loan and the

                               Tranche B-2 Term Loan together shall not exceed

                               $280,000,000. A commitment fee shall apply to the

                               committed amount of the Tranche B-2 Term Loan

                               prior to draw.

 

Final Maturity:                Revolver: Six (6) years from the Closing Date.

 

                               Term Loan: Seven (7) years from the Closing Date.

 

Repayment:                     The Term Loan will be payable in quarterly

                               principal installments equal to 1/4 of 1% of the

                               aggregate original principal amount of the Term

                               Loan, beginning with the fiscal quarter after the

                               Closing Date, with the remaining principal amount

                               payable in full at the Term Loan Final Maturity.

 

                               Any outstanding loans under the Revolver will be

                               payable and the commitment will terminate at the

                               Revolver Final Maturity.

 

Purpose:                       A description of the sources and uses of the

                               funds used to consummate the Transaction is set

                               forth in the Sources and Uses Table annexed as

                               Schedule A(I) hereto. In addition, the Revolver

                               will provide for the working capital requirements

                               and other general corporate purposes of the

                               Credit Parties after the consummation of the

                               Transaction.

 

                               As used herein "Transaction" shall refer to the

                               refinancing of existing indebtedness, retiring of

                               preferred stock, and fee and expense payments set

                               forth in the Sources and Uses Table annexed as

                               Schedule A(I) hereto.

 

Collateral:                    The Senior Credit Facilities and any interest

                               rate protection agreement or other permitted

                               hedging agreement entered into with any Lender

                               (or any affiliate of any Lender) will be secured

                               by: (i) 100% of the capital stock of the Borrower

                               and each of its direct and indirect domestic

                               subsidiaries and 65% of the capital stock of the

                               Borrower's direct and indirect foreign

                               subsidiaries (unless the pledge of the stock of

                               any such foreign subsidiary is reasonably likely

                               to create adverse tax consequences), but

                               excluding certain non-material foreign

                               subsidiaries to be mutually agreed upon, and (ii)

                               all present and hereafter acquired tangible and

                               intangible assets of the Borrower and its

                               domestic subsidiaries, but excluding any

                               leasehold interest in real

 

                                      A-2

 

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                               estate and any immaterial owned real estate, in

                               each case except for fixtures in which the Credit

                               Party has an interest (all such property and

                               assets described in clauses (i) and (ii)

                               hereinafter referred to as the "Collateral").

 

Interest Rates:                All amounts outstanding under the Senior Credit

                               Facilities shall bear interest, at the Borrower's

                               option, at the Base Rate or at the reserve

                               adjusted Eurodollar Rate plus, in each case, an

                               applicable margin as set forth in Schedule A(II)

                               attached hereto.

 

                               Swingline Loans shall bear interest at the rate

                               applicable to Revolving Loans which are Base Rate