each Loan Party that is party thereto, enforceable against such
Loan Party in accordance with its terms, except as such enforceability may be
limited by Debtor Relief Laws and by general principles of equity, regardless of
whether considered in a proceeding in equity or at law.
SECTION 5.05.
Financial Statements; No Material Adverse Effect.
(a)
(i)
The
Audited Financial Statements and the Unaudited Financial Statements fairly
present in all material respects the consolidated financial condition of
Reader's Digest, WRC Media, Direct Holdings and their respective Subsidiaries as
of the dates thereof and their results of operations for the period covered
thereby in accordance with GAAP consistently applied throughout the periods
covered thereby, except as otherwise expressly noted therein and, in the case of
the Unaudited Financial Statements, subject to normal year-end audit adjustments
and the absence of footnotes.
(II)
THE UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET OF THE COMPANY AND ITS
SUBSIDIARIES AS AT DECEMBER 31, 2006 (INCLUDING THE NOTES THERETO) (THE "PRO
FORMA BALANCE SHEET") HAS BEEN PREPARED GIVING EFFECT (AS IF SUCH EVENTS HAD
OCCURRED ON SUCH DATE) TO THE TRANSACTION, EACH MATERIAL ACQUISITION BY READER'S
DIGEST, WRC MEDIA, DIRECT HOLDINGS OR ANY OF THEIR RESPECTIVE SUBSIDIARIES
CONSUMMATED AFTER JUNE 30, 2006 (AND, WITH RESPECT TO WRC MEDIA, AFTER
DECEMBER 31, 2005) AND PRIOR TO THE CLOSING DATE AND ALL OTHER TRANSACTIONS THAT
WOULD BE REQUIRED TO BE GIVEN PRO FORMA EFFECT BY REGULATION S-X PROMULGATED
UNDER THE EXCHANGE ACT.
THE PRO FORMA BALANCE SHEET HAS BEEN PREPARED IN GOOD
FAITH, BASED ON ASSUMPTIONS BELIEVED BY THE COMPANY TO BE REASONABLE AS OF THE
DATE OF DELIVERY THEREOF, AND PRESENTS FAIRLY IN ALL MATERIAL RESPECTS IN
ACCORDANCE WITH GAAP THE PRO FORMA FINANCIAL POSITION OF THE COMPANY AND ITS
SUBSIDIARIES AS AT DECEMBER 31, 2006 AND THEIR PRO FORMA RESULTS OF OPERATIONS
FOR THE PERIODS COVERED THEREBY, ASSUMING THAT THE EVENTS SPECIFIED IN THE
PRECEDING SENTENCE HAD ACTUALLY OCCURRED AT SUCH DATE.
(B)
SINCE JUNE 30, 2006, THERE HAS BEEN NO EVENT OR CIRCUMSTANCE, EITHER
INDIVIDUALLY OR IN THE AGGREGATE, THAT HAS HAD OR COULD REASONABLY BE EXPECTED
TO HAVE A MATERIAL ADVERSE EFFECT.
(C)
THE FORECASTS OF CONSOLIDATED BALANCE SHEETS, INCOME STATEMENTS AND CASH
FLOW STATEMENTS OF THE COMPANY AND ITS SUBSIDIARIES FOR EACH FISCAL YEAR THROUGH
2013, COPIES OF WHICH HAVE BEEN FURNISHED TO THE ADMINISTRATIVE AGENT PRIOR TO
THE CLOSING DATE, HAVE BEEN PREPARED IN GOOD FAITH ON THE BASIS OF ASSUMPTIONS
BELIEVED TO BE REASONABLE AT THE TIME MADE, IT BEING UNDERSTOOD THAT FORECASTS
ARE, BY THEIR NATURE, INHERENTLY UNCERTAIN AND ACTUAL RESULTS MAY VARY FROM SUCH
FORECASTS AND THAT SUCH VARIATIONS MAY BE MATERIAL.
(D)
AS OF THE CLOSING DATE, EXCEPT AS DISCLOSED IN ANY SCHEDULE TO THIS
AGREEMENT, NEITHER THE COMPANY NOR ANY SUBSIDIARY HAS ANY INDEBTEDNESS OR OTHER
OBLIGATIONS OR LIABILITIES, DIRECT OR CONTINGENT (OTHER THAN (I) THE
INDEBTEDNESS, OBLIGATIONS AND LIABILITIES REFLECTED ON SCHEDULE 5.05,
(II) OBLIGATIONS ARISING UNDER THIS AGREEMENT, THE SENIOR SUBORDINATED NOTE
86
Indenture, the Company