Item 1.01 Entry into a Material Definitive Agreement.
On April 26, 2019, Palm Coast Data Holdco, Inc. (“Seller”),
a wholly owned indirect subsidiary of AMREP Corporation (“AMREP”), entered into a membership interest purchase agreement
(the “Purchase Agreement”) with Studio Membership Services, LLC (“Buyer”). The closing of the transactions
contemplated by the Purchase Agreement occurred on April 26, 2019 (the “Closing Date”).
Pursuant to the Purchase Agreement, Buyer acquired AMREP’s
fulfillment services business through the purchase from Seller of all of the membership interests (the “Membership Interests”)
of Palm Coast Data LLC (“PCDLLC”) (which owns all of the membership interests of FulCircle Media, LLC) and Media Data
Resources, LLC (PCDLLC, FulCircle Media, LLC and Media Data Resources, LLC are collectively referred to herein as the “Company
Group”).
The purchase price for the Membership Interests was $1.0
million, which was paid by Buyer to Seller on the Closing Date. In addition, (1) during the period from February 1, 2019
through the Closing Date, the Company Group distributed to Seller and its affiliates (not including the Company Group) $3.1
million of cash and (2) substantially all of the intercompany amounts of the Company Group due to or from AMREP and its
direct and indirect subsidiaries (not including the Company Group) were eliminated through offsets, releases and capital
contributions. Buyer and Seller provided customary indemnifications under the Purchase Agreement and provided each other with
customary representations, warranties and covenants.
In connection with the Purchase Agreement, PCDLLC entered into
two triple net lease agreements, each dated as of the Closing Date (each, a “Lease Agreement” and, together, the “Lease
Agreements”), pursuant to which PCDLLC has agreed to lease (1) from Two Commerce LLC (“TC”), a subsidiary of
AMREP, a 61,000 square foot facility located in Palm Coast, Florida, and (2) from Commerce Blvd Holdings, LLC (“CBH”),
a subsidiary of AMREP, an approximately 143,000 square foot facility in Palm Coast, Florida.
Pursuant to each Lease Agreement, all structural, mechanical,
maintenance and other costs associated with the applicable facility being leased are the responsibility of PCDLLC. The term of
each Lease Agreement is 10 years. At the option of PCDLLC, the expiration date of each Lease Agreement may be accelerated (1) to
the date PCDLLC pays the applicable landlord an amount equal to the present value of all future rent calculated as of the proposed
expiration date or (2) to a date within 30 days after the sixth anniversary of the Closing Date if PCDLLC pays the applicable landlord
an amount equal to 90% of the present value of all future rent calculated as of the proposed expiration date. Pursuant to the Lease
Agreements, PCDLLC will pay to TC and CBH the aggregate annual rent set forth below, which is payable in equal monthly installments
in each of the applicable years, subject to a waiver of the payment of rent attributable to the month of May 2019.
|
Year
|
Aggregate Annual Rent under
Both Lease Agreements
|
|
1
|
$1,900,000
|
|
2
|
$1,941,500
|
|
3
|
$1,985,328
|
|
4
|
$2,041,564
|
|
5
|
$2,105,294
|
|
6
|
$2,181,604
|
|
7
|
$2,260,585
|
|
8
|
$2,342,331
|
|
9
|
$2,426,937
|
|
10
|
$2,514,505
|
In connection with the transactions contemplated by the Purchase
Agreement, AMREP and its direct and indirect subsidiaries (not including the Company Group) retained their obligations under AMREP’s
defined benefit pension plan following the Closing Date. The transactions contemplated by the Purchase Agreement and the associated
work force reduction with respect to AMREP and its direct and indirect subsidiaries (not including the Company Group) resulted
in the acceleration of the funding of approximately $5.2 million of accrued pension-related obligations to AMREP’s defined
benefit pension plan pursuant to the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), and the
regulations thereunder. AMREP will timely notify the Pension Benefit Guaranty Corporation of the transactions contemplated
by the Purchase Agreement and, as permitted by ERISA, make an election to satisfy this accelerated funding obligation over a period
of seven years.
Following the Closing Date, AMREP and its remaining subsidiaries
have 11 employees focused on real estate acquisition, development, construction and related services.
The foregoing description of the Purchase Agreement and
Lease Agreements are summaries only and are qualified in all respects by the provisions of such documents, copies of which are
attached hereto as Exhibits 10.1 through 10.3 and are incorporated herein by reference.