<PAGE> 1
As filed with the Securities and Exchange Commission on March 12, 1996
Registration No. 333-17113
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 3
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
HOLLINGER INTERNATIONAL INC.
(Exact name of registrant as specified in its charter)
95-3518892
(I.R.S. employer identification number)
DELAWARE
(State or other jurisdiction of
incorporation or organization)
HOLLINGER INTERNATIONAL PUBLISHING INC.
(Exact name of registrant as specified in its charter)
51-0370603
(I.R.S. employer identification number)
DELAWARE
(State or other jurisdiction of
incorporation or organization)
------------------------
401 NORTH WABASH AVENUE
CHICAGO, ILLINOIS 60611
(312) 321-2999
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
KENNETH L. SEROTA, ESQ.
VICE PRESIDENT--LAW AND FINANCE AND SECRETARY
HOLLINGER INTERNATIONAL INC.
401 NORTH WABASH AVENUE
CHICAGO, ILLINOIS 60611
(312) 321-2999
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------
Copy to:
MICHAEL C. MCLEAN
KIRKPATRICK & LOCKHART LLP
1500 OLIVER BUILDING
PITTSBURGH, PENNSYLVANIA 15222-2312
(412) 355-6458
WILLIAM P. ROGERS, JR.
CRAVATH, SWAINE & MOORE
WORLDWIDE PLAZA
825 8TH AVENUE
NEW YORK, NEW YORK 10019
(212) 474-1270
------------------------
Approximate date of commencement of proposed sale to public: FROM TIME TO
TIME AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, please check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
TO BE REGISTERED REGISTERED(1) PER UNIT(2)(3) PRICE(1)(2)(3) REGISTRATION FEE(4)
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<S> <C> <C> <C> <C>
Debt Securities(5)........................
- ----------------------------------------------------------------------------------------------------------------------------------
Convertible Securities(5).................
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Guarantee(6)..............................
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Total................................... $550,000,000 100% $550,000,000 $166,668
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(1) The aggregate initial offering price of the above-referenced securities
(collectively, the "Securities") registered hereby will not exceed
$550,000,000. Additional Securities in the principal amount of $50,000,000
are being registered hereby. The aggregate amount registered represents the
principal amount of any Debt Securities issued at their principal amount,
the issue price rather than the principal amount of any Debt Securities
issued at an original issue discount and the issue price of any Convertible
Securities.
(2) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457 under the Securities Act of 1933, as amended (the
"Securities Act").
(3) No separate consideration will be received for any Debt Securities or other
securities of Hollinger International Inc. or its affiliates that may be
issuable upon conversion of or in exchange for convertible or exchangeable
Debt Securities or Convertible Securities (including any securities issuable
upon stock splits or similar transactions pursuant to Rule 416).
(4) Calculated pursuant to Rule 457, based upon a bona fide estimate as of the
date hereof of the maximum offering price. An additional fee in the amount
of $15,152 is being paid in connection with the registration of additional
securities hereby. A filing fee of $151,516 was previously paid in
connection with the original filing of this Registration Statement relating
to the registration of $500,000,000 aggregate principal amount of
Securities.
(5) Includes such indeterminate amount of Debt Securities of the Company, such
indeterminate amount of Convertible Securities and such indeterminate
principal amount of Debt Securities, or number of shares of other securities
of the Company or its affiliates, as may be issued upon conversion of, or in
exchange for, or upon exercise of, convertible or exchangeable Debt
Securities or Convertible Securities of the Company (including any
securities issuable upon stock splits and similar transactions pursuant to
Rule 416).
(6) The Debt Securities and Convertible Securities will be unconditionally
guaranteed by Hollinger International Inc. on a senior subordinated basis.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING
PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN
OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE
IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO
REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED MARCH 12, 1997
PRELIMINARY PROSPECTUS SUPPLEMENT TO PRELIMINARY PROSPECTUS DATED MARCH 12, 1997
$530,000,000
HOLLINGER INTERNATIONAL PUBLISHING INC.
$265,000,000 % SENIOR NOTES DUE 2005
$265,000,000 % SENIOR SUBORDINATED NOTES DUE 2007
UNCONDITIONALLY GUARANTEED BY
HOLLINGER INTERNATIONAL INC. LOGO
------------------------
Hollinger International Publishing Inc. ("Publishing"), a wholly owned
subsidiary of Hollinger International Inc. (the "Company" and, where the context
so requires, its consolidated subsidiaries and affiliated companies), is
offering (the "Offering") the % Senior Notes due 2005 (the "Senior Notes") and
the % Senior Subordinated Notes due 2007 (the "Senior Subordinated Notes," and
collectively with the Senior Notes, the "Offered Notes").
The Senior Notes will be unsecured and senior obligations of Publishing and
will rank pari passu with all other senior indebtedness of Publishing, including
Publishing's bank credit facilities, will mature on , 2005 and will
bear interest at the rate of % per annum from , 1997, payable
semiannually on and , commencing , 1997. The
Senior Notes will not be redeemable at the option of Publishing prior to
maturity. The Company's subsidiaries guarantee the senior bank indebtedness of
Publishing and its subsidiaries and the stock of such subsidiaries is pledged to
secure such indebtedness. Publishing expects that the holders of the Senior
Notes, which initially will not be entitled to any such guarantees or security,
will be effectively subordinated to the claims of the lenders under Publishing's
bank credit facilities. The Senior Notes will also be effectively subordinated
to all existing and future liabilities of all of Publishing's subsidiaries. See
"Risk Factors" in the Prospectus. As of December 31, 1996, after giving pro
forma effect to the transactions listed under "Capitalization," which include
the Offering and the application of the net proceeds therefrom, the amount of
senior indebtedness of Publishing would have been $265.0 million, and the amount
of indebtedness of Publishing's subsidiaries would have been $459.7 million. In
addition, Publishing and its Restricted Subsidiaries expect to have up to $500.0
million of available credit under an amendment to Publishing's existing bank
credit facilities, which is planned to become effective on or before April 7,
1997, which if borrowed would constitute senior indebtedness of Publishing. A
short-term amendment to Publishing's existing bank credit facilities will
provide for an additional $50.0 million in available borrowing capacity on a
revolving basis.
The Senior Subordinated Notes will be unsecured senior subordinated
obligations of Publishing and will rank pari passu with all other senior
subordinated indebtedness of Publishing, including the existing 9 1/4% Senior
Subordinated Notes due 2006 (the "9 1/4% Notes"). The Senior Subordinated Notes
will mature on , 2007 and will bear interest at the rate of % per
annum from , 1997, payable semiannually on and ,
commencing , 1997. The Senior Subordinated Notes will be redeemable
at the option of Publishing any time after , 2002 at the redemption
prices set forth herein together with accrued and unpaid interest, if any, to
the redemption date.
The Offered Notes will not be entitled to the benefit of any sinking fund.
(continued on next page)
SEE "RISK FACTORS" ON PAGE 5 OF THE PROSPECTUS FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS IN EVALUATING AN
INVESTMENT IN THE OFFERED NOTES OFFERED HEREBY.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
<TABLE>
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PRICE TO PROCEEDS TO
PUBLIC(1) UNDERWRITING DISCOUNT(2) PUBLISHING(1)(3)
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<S> <C> <C> <C>
Per Senior Note............................ % % %
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Total...................................... $ $ $
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Per Senior Subordinated Note............... % % %
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Total...................................... $ $ $
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</TABLE>
(1) Plus accrued interest, if any, from March , 1997.
(2) Publishing has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(3) Before deducting expenses payable by Publishing estimated at $675,000.
------------------------
The Offered Notes are offered hereby by the several Underwriters, subject to
prior sale, when, as and if issued to and accepted by them, subject to approval
of certain legal matters by counsel for the several Underwriters and certain
other conditions. The Underwriters reserve the right to withdraw, cancel or
modify such offer and to reject orders in whole or in part. It is expected that
delivery of the Offered Notes will be made in New York, New York on or about
March , 1997.
------------------------
Underwriters for the Senior Notes
MERRILL LYNCH & CO. CIBC WOOD GUNDY SECURITIES CORP.
SCOTIA CAPITAL MARKETS
TD SECURITIES
Underwriters for the Senior Subordinated Notes
MERRILL LYNCH & CO.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
TD SECURITIES
BEAR, STEARNS & CO. INC.
CIBC WOOD GUNDY SECURITIES CORP.
------------------------
The date of this Prospectus Supplement is March , 1997.
<PAGE> 3
(continued from front cover)
The Company will irrevocably and unconditionally guarantee, on an unsecured
senior basis, in the case of the Senior Notes, and on an unsecured senior
subordinated basis, in the case of the Senior Subordinated Notes, the
performance and punctual payment when due, whether at stated maturity, by
acceleration or otherwise, of all the obligations of Publishing under the
Indentures (as defined) and the Offered Notes. Payments on the Company's
guarantee of the Senior Subordinated Notes will be subordinated, as set forth in
the Senior Subordinated Indenture (as defined), in right of payment to the prior
payment in full of all Senior Guarantor Indebtedness (as defined), including the
Company's guarantee of Publishing's obligations under its bank credit facilities
and the Senior Notes. The Offered Notes may also be guaranteed by one or more
Restricted Subsidiaries (as defined) from time to time under certain
circumstances. See "Description of Securities--Securities Guarantees" and
"Description of Securities--Guarantees" in the Prospectus.
If a Change of Control (as defined in the Prospectus) occurs at any time,
each holder with respect to the Offered Notes will have the right to require
that Publishing purchase such holder's Offered Notes, in whole or in part, at a
purchase price in cash equal to 101% of the principal amount thereof, together
with accrued and unpaid interest, if any, to the date of repurchase. In the
event of a Change of Control, there can be no assurance that Publishing will
have available funds sufficient to pay any or all of the Offered Notes that
might be delivered by holders thereof, and, accordingly, none of the holders of
the Offered Notes may receive the Change of Control Purchase Price (as defined
in the Prospectus) for their Offered Notes. See "Description of Debt
Securities--Certain Covenants with Respect to the Senior Securities" and
"Description of Debt Securities--Certain Covenants with Respect to the Senior
Subordinated Securities" in the Prospectus.
Application has been made to list the Offered Notes on the New York Stock
Exchange.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE SENIOR NOTES OR
THE SENIOR SUBORDINATED NOTES, AS THE CASE MAY BE, INCLUDING STABILIZING
TRANSACTIONS, SYNDICATE COVERING TRANSACTIONS AND PENALTY BIDS. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
<PAGE> 4
No person has been authorized to give any information or to make any
representation not contained or incorporated by reference in this Prospectus
Supplement and the accompanying Prospectus and, if given or made, such
information or representation must not be relied upon as having been authorized
by the Company or any underwriter, dealer or agent. Neither the delivery of this
Prospectus Supplemental and the accompanying Prospectus nor any sale made
hereunder or thereunder shall, under any circumstances, create an implication
that the information contained herein and in the accompanying Prospectus is
correct as of any date subsequent to the date hereof or that there has been no
change in the affairs of the Company or Publishing since the date hereof. This
Prospectus Supplement and the accompanying Prospectus do not constitute an offer
to sell or a solicitation of an offer to buy Offered Notes in any jurisdiction
in which such offer or solicitation is not authorized or in which the person
making such offer or solicitation is not qualified to do so or to any person to
whom it is unlawful to make such offer or solicitation.
As used in this Prospectus Supplement, unless the context otherwise
requires, (i) the "Company" refers to Hollinger International Inc. and, where
the context so requires, its consolidated subsidiaries and affiliated companies;
(ii) "Publishing" refers to Hollinger International Publishing Inc. and its
consolidated subsidiaries and affiliated companies; (iii) "Chicago Sun-Times"
refers to The Sun-Times Company and its consolidated subsidiaries; (iv)
"Jerusalem Post" refers to the subsidiaries of the Company which publish The
Jerusalem Post; (v) "The Telegraph" refers to Telegraph Group Limited (formerly
The Telegraph plc) and its consolidated subsidiaries and affiliated companies;
(vi) "DTH" refers to DT Holdings Limited; (vii) "FDTH" refers to First DT
Holdings Limited; (viii) "HTH" refers to Hollinger-Telegraph Holdings Inc.; (ix)
"Hollinger Inc." refers to Hollinger Inc. and its consolidated subsidiaries; (x)
"Southam" refers to Southam Inc. and its consolidated subsidiaries; and (xi)
"Fairfax" refers to John Fairfax Holdings Limited and its consolidated
subsidiaries.
Unless otherwise indicated, all circulation information contained in this
Prospectus Supplement represents average daily or non-daily circulation as of
December 31, 1996, as the case may be (after giving effect to the subsequent
disposition of the Company's interest in Fairfax), derived from the following
sources: (a) for the Company's United States community newspapers, the Chicago
Sun-Times, the Daily Southtown, Chicago-area suburban newspapers and Jerusalem
Post, from the Company's unaudited internal records for the month of December
1996; (b) for The Daily Telegraph and The Sunday Telegraph, from unaudited
circulation reports furnished to the Audit Bureau of Circulations in the United
Kingdom for the six month period July 1996 to January 1997; and (c) for Southam,
from unaudited internal records.
<PAGE> 5
THE COMPANY
OVERVIEW
The Company is a leading publisher of English-language newspapers in the
United States, the United Kingdom, Canada and Israel. Included among the 142
paid daily newspapers which the Company owns or has an interest in are the
Chicago Sun-Times and The Daily Telegraph. These 142 newspapers have a
world-wide daily combined circulation of approximately 3,953,000. In addition,
the Company owns or has an interest in 362 non-daily newspapers as well as
magazines and other publications. The Company's strategy is to achieve growth
through acquisitions and improvements in the cash flow and profitability of its
newspapers, principally through cost reductions. Since the Company's formation
in 1986, the existing senior management team has acquired 399 newspapers and
related publications (net of dispositions) in the United States, The Telegraph
in the United Kingdom and Jerusalem Post in Israel, and has made significant
investments in newspapers in Canada. Recently, the Company substantially
completed the sale of its 24.7% interest in Fairfax, a publicly held Australian
newspaper publisher.
The operations of the Company consist of its United States Newspaper Group
and its International Newspaper Group, which accounted for 32.6% and 67.4%,
respectively, of the Company's total operating revenues of $1,862.7 million for
the year ended December 31, 1996.
UNITED STATES NEWSPAPER GROUP. The Company is the largest newspaper
publishing group in the United States, as measured by paid daily newspapers
owned and operated, and one of the twelve largest in terms of daily circulation.
The Company's United States operations consist of its Chicago Group, led by the
Chicago Sun-Times, the eighth largest circulation metropolitan daily newspaper
in the United States, and its Community Newspaper Group, consisting of 324
newspapers and related publications. As of December 31, 1996, the Company
published a total of 399 newspapers and related publications in the United
States consisting of 103 daily newspapers with a total paid circulation of
approximately 1,240,000, 140 paid non-daily newspapers with a combined paid
circulation of approximately 1,256,000, and 156 free circulation publications
with a combined circulation of approximately 2,201,000. The total combined
circulation of the Company's United States publications as of December 31, 1996
was approximately 4,696,000. The Community Newspaper Group also includes, for
accounting and management purposes, the Company's wholly owned subsidiary which
publishes The Jerusalem Post, Israel's only English-language daily newspaper,
with a paid daily circulation of approximately 16,300. The related weekly
editions of The Jerusalem Post, including the English and French-language
international weekly editions, have a combined paid circulation of approximately
132,196. The Chicago Group and the Community Newspaper Group accounted for 17.9%
and 14.7%, respectively, of the Company's total operating revenues for the year
ended December 31, 1996, and together reported operating revenues of $607.4
million.
On December 16, 1996, the Company completed an exchange of newspaper assets
with Thomson Newspapers, Inc. and Cox Newspapers, Inc. through which the Company
acquired the Mount Vernon Register-News (Mount Vernon, Illinois--circulation
approximately 11,000), the Enid News (Enid, Oklahoma--circulation approximately
21,000) and the Herald-Palladium (St. Joseph/Benton Harbor,
Michigan--circulation approximately 32,000) and related publications in exchange
for four daily newspapers in Indiana and a daily in Texas (total circulation
approximately 21,000) and related publications and approximately $32.4 million
in cash.
INTERNATIONAL NEWSPAPER GROUP. The Company's International Newspaper Group
consists of its wholly owned subsidiary, The Telegraph, and a majority equity
interest in Southam, a publicly traded Canadian newspaper publisher.
THE TELEGRAPH. The Telegraph publishes The Daily Telegraph, the leading
quality (or broadsheet) newspaper in the United Kingdom. The Telegraph also
publishes The Sunday Telegraph, The Weekly Telegraph, the Electronic Telegraph
and The Spectator magazine. The Daily Telegraph is the largest circulation
quality daily newspaper in the United Kingdom with an average daily circulation
of approximately 1,097,000, representing a 38.5% share of the quality daily
newspaper market. The Daily Telegraph's Saturday edition has the highest average
daily circulation (approximately 1,253,000) among quality daily newspapers in
S-1
<PAGE> 6
the United Kingdom. The Sunday Telegraph is the second largest circulation
quality Sunday newspaper in the United Kingdom with an average Sunday
circulation of approximately 804,000. The Telegraph's operating revenues were
$451.9 million for the year ended December 31, 1996.
On August 8, 1996, the Company completed the acquisition of all of the
outstanding ordinary shares of The Telegraph (approximately 36%) not previously
controlled by the Company (the "Telegraph Minority Shares"). The acquisition was
effected by means of a "scheme of arrangement" under Section 425 of the
Companies Act 1985 of Great Britain (the "Scheme"). As a result, The Telegraph
became an indirect wholly owned subsidiary of the Company. The total
consideration paid by the Company was approximately $455.1 million.
SOUTHAM. Southam is a publicly held Canadian corporation with operations
in newspaper publishing, and to a lesser extent, in business communications.
Southam's consolidated revenues for the year ended December 31, 1996 were
Cdn.$1,095.7 million ($803.4 million). Southam is Canada's largest publisher of
daily newspapers with 32 daily newspapers and 58 non-daily newspapers with a
total daily circulation of approximately 1,601,000. Southam's principal
publications include The Gazette (Montreal), The Ottawa Citizen, the Calgary
Herald, The Vancouver Sun, The Province (Vancouver) and The Edmonton Journal. In
addition, the Southam Magazine and Information Group publishes Canadian and
United States business magazines and tabloids for the automotive, trucking,
construction, natural resources, manufacturing and other industries.
On May 24, 1996, a wholly owned Canadian subsidiary of Hollinger Inc.
purchased from a subsidiary of Power Corporation of Canada ("Power") 16,349,743
common shares of Southam held by Power (the "Power Shares"), representing
approximately 21.5% of Southam's then outstanding common shares, for an
aggregate consideration of Cdn.$294.3 million. The acquisition of the Power
Shares provided the Company and Hollinger Inc. with combined holdings of
approximately 40.9% of Southam's then outstanding common shares. On December 11,
1996, the Company purchased, through a wholly owned subsidiary of FDTH,
8,000,300 common shares of Southam for an aggregate consideration of Cdn.$160.0
million, which increased the combined holdings of the Company and Hollinger Inc.
to 50.7% of Southam's outstanding common shares. The Company intends to complete
an internal reorganization of its interests in Southam concurrently with the
consummation of the Offering in order to consolidate, for financial reporting
purposes, such interests in Publishing.
Since the acquisition of the Power Shares on May 24, 1996, the Company
implemented various changes designed to enhance its operating performance
through reduced costs and improved editorial quality, including, as described
below, the acquisition of additional Canadian newspapers and the disposition of
non-newspaper assets.
During September and October 1996, Southam completed the acquisition from
Thomson Newspapers of six paid daily newspapers and one community newspaper in
Ontario for approximately Cdn.$94.0 million and six paid daily newspapers and
one non-daily newspaper in Atlantic Canada for approximately Cdn.$120.0 million.
These transactions, which had previously been announced by Hollinger Inc. in May
1996, were referred to Southam by Hollinger Inc. because it considers such
newspapers to be a good fit with Southam's existing operations.
On September 30, 1996, Southam completed the sale of its construction data
group to a management-led group in the United States for Cdn.$86.0 million. The
division included mainly data and estimating services and had 1995 revenues and
net income of Cdn.$73.4 million and Cdn.$2.4 million, respectively. In October
1996, Southam completed the sale of its Southam Show Group, also known as
Southex Exhibitions, to the Daily Mail and General Trust plc, a media company,
for Cdn.$76.5 million. Also in October 1996, Southam announced its intention to
sell the rest of its business communications division, to restructure its
national advertising sales division and to restructure its electronic media
division in order to concentrate on opportunities on the Internet. Subsequently,
Southam determined not to sell certain publications in its business
communications division. For information concerning Southam's current business
strategy, see "Certain Information Concerning Southam--Business Strategy."
S-2
<PAGE> 7
On January 16, 1996, Southam announced that it would take a pretax charge
against its 1995 earnings of Cdn.$120.0 million ($88.1 million) as part of a
plan to enhance operating performance by reducing costs and improving editorial
quality. Approximately Cdn.$40.0 million of the charge relates to the writedown
of redundant assets at its Pacific Press facility, including printing equipment
and other operating assets, with the remaining Cdn.$80.0 million relating to
employee termination costs that will result from the permanent elimination of
750 positions. In 1995, Southam sold its book retailing division and the last of
its graphic businesses.
GENERAL. The Company was incorporated in the State of Delaware on December
28, 1990 and Publishing was incorporated in the State of Delaware on December
12, 1995. Each of the Company and Publishing has its executive offices at 401
North Wabash Avenue, Chicago, Illinois 60611, telephone number (312) 321-2299.
RECENT DEVELOPMENTS
SOUTHAM AND TELEGRAPH ACQUISITION FINANCINGS. The purchase of the Power
Shares was financed through a short-term bank credit facility in the amount of
Cdn.$300.0 million (the "Southam Facility") between International and a Canadian
chartered bank, of which approximately Cdn.$212.3 million ($155.0 million) is
outstanding. The Southam Facility is secured by, among other things, a guarantee
by Hollinger Inc. and a pledge of the Power Shares and 7,539,028 shares of Class
A Common Stock and 14,990,000 shares of Class B Common Stock of the Company held
by Hollinger Inc. The Southam Facility matures on March 31, 1997 (unless
extended), or earlier upon the occurrence of certain events, including the
closing date of any equity issue, debt financing, public or private placement or
high yield financing completed by the Company or any of its subsidiaries or by
Hollinger Inc. or certain of its Canadian subsidiaries. All net proceeds of any
such financing must be applied as a permanent prepayment of the Southam
Facility. The Company arranged a portion of the financing (L38.7 million) for
the December 1996 Southam share acquisition through an amendment to an existing
credit facility at FDTH (the "FDTH Credit Facility"). The balance of the
financing (estimated at approximately Cdn.$67.0 million) was provided by
intercompany advances from the Company and Publishing to FDTH. The Company
intends to seek extensions (as may be necessary) of the Southam Facility,
Publishing's existing bank credit facility (the "Publishing Credit Facility")
and the FDTH Credit Facility and to repay or refinance such facilities.
In August 1996, the Company completed public offerings of 11,500,000 shares
of its Class A Common Stock at $9.75 per share and 20,700,000 9 3/4% Preferred
Redeemable Increased Dividend Equity Securities ("PRIDES") at $9.75 per PRIDES.
The combined net proceeds of these offerings were $301.1 million. Such proceeds
were used, first, to finance a portion of the Scheme financing and to pay
outstanding indebtedness of The Telegraph and related transaction costs
(approximately $193.0 million), second, to pay a portion of the Southam Facility
indebtedness (approximately $55.0 million), with the balance available to be
used for general corporate purposes, including working capital. On August 7,
1996, Publishing and FDTH also borrowed approximately $435.0 million in the
aggregate to provide a portion of the financing for the Scheme and the repayment
of remaining outstanding bank indebtedness of The Telegraph (approximately
$139.5 million). The balance was used for general corporate purposes, including
transaction costs and working capital. The borrowings were made under short-term
bank credit agreements with certain financial institutions. After giving effect
to the prepayment by FDTH of approximately L205.0 million ($341.3 million) of
outstanding bank debt as a result of the Company's sale of a 19.9% interest in
Fairfax in December 1996 and January 1997 (see "Sale of the Company's Interest
in Fairfax"), the amount outstanding under the FDTH Credit Facility as amended
was L30.0 million ($51.8 million).
REORGANIZATION OF THE COMPANY'S SOUTHAM INTERESTS. The Company and
Hollinger Inc. now indirectly own a combined 50.7% interest in Southam (based on
Southam common shares outstanding as of January 16, 1997), as follows: (i) 18.5%
through HTH, a Canadian corporation which is jointly owned by two wholly owned
subsidiaries of the Company, and 0.6% through such subsidiaries, (ii) 21.2% (the
Power Shares) through Hollinger Eastern Publishing Inc., a newly formed Canadian
holding company ("Hollinger Eastern"), all the non-voting common shares, all
non-voting preference shares and voting preference shares representing one-half
of the voting power of which are owned by the Company and the balance of the
voting
S-3
<PAGE> 8
preference shares of which are owned by a wholly owned subsidiary of Hollinger
Inc. and (iii) 10.4% through a wholly owned subsidiary of FDTH as a result of
the December 1996 Southam share acquisition. A portion of these common shares of
Southam are currently subject to liens in favor of lenders: (w) in the case of
one-half of the common shares of HTH, to a trustee with respect to approximately
Cdn.$102.0 million outstanding principal amount of public debentures issued by
Hollinger Inc. (the "Southam-Linked Debentures") and the remaining one-half of
the common shares of HTH to the bank lenders of FDTH, (x) in the case of a 0.6%
interest held through subsidiaries of the Company to the bank lenders of FDTH,
(y) in the case of the Power Shares, certain Canadian bank lenders to the
Company to whom Cdn.$212.3 million ($155.0 million) is owing and (z) in the case
of the 10.4% interest, certain bank lenders to FDTH to whom L30.0 million ($51.8
million) was owing as of December 31, 1996, after giving effect to the
prepayment of an aggregate of L205.0 million ($341.3 million) from proceeds from
the sale of a portion of the Company's interest in Fairfax.
The Company intends to complete an internal reorganization of its interests
in Southam concurrently with the consummation of the Offering in order to
consolidate, for financial reporting purposes, such interests in Publishing and
the Restricted Group. The consummation of that reorganization is a condition to
the closing of the Offering. Subject to the consummation of the Offering and
application of the estimated use of proceeds therefrom, the Company anticipates
that the Company's majority interest in Southam will be held directly and
indirectly by Hollinger Eastern in which Publishing and Hollinger Inc. will own,
directly or indirectly, the following interests: (i) Publishing and its
subsidiaries will own 100% of the non-voting equity shares and non-voting
preference shares and (ii) each of Publishing and Hollinger Inc. (through its
wholly-owned subsidiary) will own 50% of the voting preference shares which have
only nominal equity value. In addition, under current plans the Company may
retain an indirect non-voting minority interest in common stock of an
intermediate holding company owning Hollinger Eastern.
The Company requires the consents of its bank lenders to effect the release
of liens on certain of the Southam common shares which will be transferred to
Publishing and its Restricted Subsidiaries as part of the internal
reorganization. Under the Company's financing plans, the Company expects to
repay or reduce outstanding bank indebtedness primarily through the issuance of
the Offered Notes. In addition, the Company expects to substitute a direct
pledge of Southam common shares owned by the Company representing approximately
8% of Southam's outstanding common shares for the current pledge of 50% of the
common shares of HTH under the Southam-Linked Debentures. HTH owns an 18.5%
interest in Southam. Upon such substitution, the HTH shares will be free and
clear of the pledge under the Southam-Linked Debentures. As a result, the
Company's interest in Southam which is directly or indirectly subject to pledge
under the Southam-Linked Debentures will be reduced from 18.5% to approximately
8%.
As the holder of the Company's Series A Preferred Stock, Hollinger Inc.'s
redemption rights are linked to the number of shares of HTH or Southam that at
the time of exercise are free and clear of encumbrances. The Share Exchange
Agreement entered into in connection with the October 1995 Telegraph
reorganization contains a covenant by Hollinger Inc. limiting the exercise of
its redemption rights as the holder of the Series A Preferred Stock. The Share
Exchange Agreement will be modified to reflect the substitution of the Southam
common shares for the HTH shares as collateral for the Southam-Linked
Debentures. After the substitution of collateral, Hollinger Inc. would then be
contractually entitled to exercise its redemption rights under the Series A
Preferred Stock proportionate to the number of such Southam common shares that
become free of the pledge under the Southam-Linked Debentures. The Series A
Preferred Stock has an aggregate redemption price of $79.2 million, of which
approximately $45.0 million could be subject to redemption by Hollinger Inc.
after such substitution of collateral has been completed. The Company expects
that shares of the Series A Preferred Stock will be redeemed, to the fullest
extent permissible, during 1997.
Upon the completion of the internal reorganization and related financing
transactions, including the Offering, Southam (and its holding companies) and
The Telegraph (and its holding companies and certain subsidiaries) will be
designated as Restricted Subsidiaries under the Indentures. The Company also
expects that, upon completion of such transactions, it will consolidate the
financial results of Southam with Publishing.
SALE OF THE COMPANY'S INTEREST IN FAIRFAX. On December 16, 1996, the
Company announced that Daily Telegraph Holdings BV ("DTH BV"), a Dutch
subsidiary of The Telegraph, had agreed conditionally to sell
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its approximate 25% interest in Fairfax to three Australian subsidiaries of
Brierley Investments Limited ("BIL") of New Zealand. Total proceeds from the
sale of the approximate 25% interest are anticipated to be approximately A$553.8
million ($436.0 million). The first tranche of the sale consisted of a 12.0%
interest and was completed on December 20, 1996 for A$254.8 million ($202.3
million). The second tranche consisted of a 7.9% interest and seven million
non-voting convertible debentures and was completed on January 10, 1997 for
A$192.3 million ($150.3 million). On January 10, 1997 the Company sold its
remaining 4.9% interest in Fairfax to SNCFE Limited, a Hong Kong affiliate of
Merrill Lynch & Co., for A$105.9 million ($83.4 million) in exchange for a
promissory note secured by the 4.9% interest in the ordinary shares of Fairfax
that were sold. The promissory note may be paid in cash or by redelivery of the
Fairfax shares and matures on the earliest of (i) April 6, 1997, and (ii) the
date the purchaser disposes of any shares of Fairfax so acquired. The Company
has assigned the promissory note and pledged the Fairfax shares received as
collateral for the note to its banks under the FDTH Credit Facility. The amount
due under the promissory note will be contributed or distributed to Publishing
or a Restricted Subsidiary and be eligible for inclusion in calculating the
amounts available for distribution as Restricted Payments under the Indenture.
Under Australian law, BIL can only acquire a 19.9% shareholding in Fairfax at
this time without being obliged to make a general offer to all shareholders
unless the Fairfax shareholders otherwise approve. An extraordinary general
meeting of Fairfax shareholders was held on February 21, 1997, but the
shareholders failed to adopt a resolution which would have enabled BIL to
acquire the remaining 4.9% stake in Fairfax at this time. The Company has been
advised that SNCFE Limited intends to pursue an early sale or monetization of
this 4.9% interest in Fairfax.
REORGANIZATION OF CANADIAN NEWSPAPER INTERESTS. On January 7, 1997, the
Boards of Directors of the Company and Hollinger Inc. announced that they had
reached an agreement in principle for the transfer by Hollinger Inc. of certain
of its owned Canadian publishing interests directly or indirectly to Hollinger
Eastern (the "Hollinger Inc. Transaction"), including (a) certain newspaper
assets located mainly in Ontario, including 12 daily and seven non-daily
newspapers, (b) certain newspaper assets located mainly in Saskatchewan,
including two daily and eight non-daily newspapers, (c) certain newspaper assets
located mainly in British Columbia, including nine daily and 19 non-daily
newspapers, and (d) UniMedia Inc., including three daily and 15 non-daily
newspapers in Quebec, for an aggregate consideration of approximately $382.0
million (Cdn.$523.0 million), subject to working capital adjustments and
currency exchange adjustments. The purchase price, all of which will be payable
to Hollinger Inc., is proposed to be satisfied in cash in the amount of $250.0
million, by the issuance of preferred stock of the Company, which, upon approval
of the stockholders, will be convertible into (i) a new series of mandatorily
convertible preferred stock of the Company similar to the PRIDES issued by the
Company in August 1996 having a face value of approximately $90.0 million, and
(ii) shares of Class A Common Stock of the Company having a nominal agreed value
of approximately $42.0 million.
The reorganization will not be completed until various terms and conditions
have been satisfied, including compliance with applicable covenants relating to
the Offered Notes and the 9 1/4% Notes, regulatory approvals have been obtained
and necessary bank financing has been arranged. See "Bank Arrangements" for
information concerning proposed long-term amendments to the Publishing Credit
Facility to provide up to $500.0 million in available credit for general
corporate purposes, including financing the cash portion of the Hollinger Inc.
Transaction. The issuance of the mandatorily convertible preferred stock and
Class A Common Stock is subject to stockholder approval. The holders of the
Company's Class A and Class B Common Stock and Series B Preferred Stock would be
entitled to vote as a single class at a meeting of the Company's stockholders.
Accordingly, Hollinger Inc. has sufficient voting power to approve the issuance
of such securities. The transaction is expected to be consummated no later than
the second quarter of 1997 and, if consummated, will be accounted for on an "as
if pooling of interests" basis.
CONSENT SOLICITATION. On February 19, 1997, Publishing completed a
solicitation of consents from the holders of the 9 1/4% Notes with respect to
certain amendments (the "Amendments") to the Indenture governing the 9 1/4%
Notes dated as of February 1, 1996 (the "1996 Indenture") between Publishing and
Fleet National Bank, as trustee (the "Trustee"). The primary purpose of the
Amendments is to facilitate the inclusion of certain international subsidiaries
of the Company, principally Southam and The Telegraph, as Restricted
Subsidiaries of Publishing and to enhance its corporate and financing
flexibility.
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On February 27, 1997, Publishing, the Company and the Trustee executed a
supplemental indenture to the 1996 Indenture to give effect to the Amendments.
As a result, the covenants relating to the 9 1/4% Notes will be substantially
the same as the covenants relating to the Senior Subordinated Notes offered
hereby.
The Company intends to designate Southam and The Telegraph (and certain
related holding companies and subsidiaries) as Restricted Subsidiaries under the
1996 Indenture upon (i) the completion of the internal reorganization of the
Company's interests in Southam and repayment or refinancing of outstanding bank
indebtedness secured by such interests in Southam (see "Reorganization of the
Company's Southam Interests" above) and (ii) the consummation of the Offering
and an amendment and restatement of the Publishing Credit Facility.
BANK ARRANGEMENTS. In connection with the consummation of the Offering,
Publishing intends to enter into a short-term amendment to the Publishing Credit
Facility, to become effective as of the date of issuance of the Offered Notes,
which will provide for $50.0 million in available borrowing capacity on a
revolving basis and which will be the same in all material respects as the
existing Publishing Credit Facility. Borrowings outstanding pursuant to such
amendment would mature on April 7, 1997, and would be secured by senior
guarantees of the Company and certain of its U.S. subsidiaries and other
security arrangements currently in effect under the Publishing Credit Facility.
Publishing intends to further amend the Publishing Credit Facility to
provide for a multicurrency, long-term revolving credit facility, which will
constitute the "New Bank Credit Facility" under the Indentures, providing up to
$500.0 million in available credit, which would become effective in late March
or early April 1997 and would be used for general corporate purposes, which may
include working capital, financing of the cash consideration payable under the
Hollinger Inc. Transaction and permitted acquisitions. The Company expects that
certain Canadian and English subsidiaries of Publishing will be borrowers under
separate borrowing tranches of the New Bank Credit Facility, that the facility
will be guaranteed by the Company and that the separate borrowing tranches will
be guaranteed by, and secured by pledges of assets of, subsidiaries of
Publishing. The amount, terms, conditions and covenants of the New Bank Credit
Facility (including maturity, interest rates, guarantees and other security
arrangements, financial covenants, and events of default) are subject to
negotiation and the completion, execution and delivery of definitive loan
documentation. Borrowings under the proposed short-term amendment to the
Publishing Credit Facility and the New Bank Credit Facility would each
constitute Senior Indebtedness under the Senior Subordinated Indenture.
RESULTS FOR THE FOURTH QUARTER AND THE YEAR ENDED DECEMBER 31, 1996
Fourth Quarter Results. The Company had total revenues of $502.9 million
for the quarter ended December 31, 1996, an increase of $232.7 million, or
86.1%, over the same period in 1995. The increase was due primarily to a $218.4
million increase relating to revenues as a result of the consolidation of
Southam. In addition to the revenues contributed by Southam, growth in
advertising revenues both at the United States Newspaper Group and the
International Newspaper Group and revenues contributed by community newspapers
that were acquired during the year contributed to the increase in revenues over
the prior year's quarter. Revenues for the United States Newspaper Group
increased $7.9 million to $161.8 million in the fourth quarter of 1996 from
$153.9 million in the fourth quarter of 1995. Revenues for the International
Newspaper Group increased $6.4 million to $122.7 million in the fourth quarter
of 1996 from $116.3 million in the fourth quarter of 1995.
EBITDA for the fourth quarter of 1996 increased $29.1 million, or 89.0%, to
$61.8 million, compared to $32.7 million in the quarter ended December 31, 1995.
Of the increase, $39.0 million is attributable to the consolidation of Southam.
Before giving effect to the the special charge incurred in the fourth quarter of
1996, as described below, and a reorganization expense incurred in the fourth
quarter of 1995, EBITDA for the Company for the fourth quarter of 1996 increased
$62.7 million, or 154%, to $103.4 million from $40.7 million in the fourth
quarter of 1995. The balance of the increase is due primarily to a decrease in
newsprint expenses, continued cost controls and the contribution from
acquisitions of community newspapers. EBITDA for the United States Newspaper
Group for the fourth quarter of 1996 increased $20.8 million to $34.2 million
from $13.4 million in the 1995 period. EBITDA for the International Newspaper
Group decreased $30.7 million to $(11.4) million from $19.3 million in the 1995
period. Adjusted for the special charge described below,
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EBITDA for the fourth quarter of 1996 increased $1.7 million to $21.0 million
from $19.3 million in the 1995 period. The increase is due primarily to
declining newsprint prices partially offset by increased usage of newsprint due
to an increase in circulation at The Telegraph.
The Company's operations were negatively affected in the fourth quarter of
1996 by a special charge relating to a direct prepaid subscription plan
implemented at The Telegraph. In the third quarter of 1996, The Telegraph began
soliciting prepaid, seven-day-a-week subscriptions through direct mail
promotions. The new subscription plan resulted in an additional 100,000 daily
and 200,000 Sunday sales by year end. In order to gain acceptance, the
subscriptions were initially sold at a loss, although The Telegraph intends to
increase prices with the goal of achieving profitability for the new
subscription program by the end of 1997. As a result of the subscription
program, advertising gains of $5.1 million in the fourth quarter of 1996 in the
International Newspaper Group were more than offset by circulation revenues
declines. The related special charge included in reorganization expenses and
other items was $32.3 million in the fourth quarter of 1996. In the fourth
quarter of 1995 there was a charge of $8.0 million for reorganization expenses.
Full Year 1996 Results. Revenues for the full year 1996 increased $898.4
million, or 93.2%, to $1,862.7 million from $964.3 million in 1995. The increase
was due primarily to $803.4 million attributable to the consolidation of
Southam. In addition, growth in advertising revenues both at the United States
Newspaper Group and the International Newspaper Group and revenues from
community newspapers that were acquired during the year contributed to the
increase in revenues over the prior year. Revenues for the United States
Newspaper Group increased $48.2 million, or 8.6%, to $607.4 million in 1996 from
$559.2 million in 1995. Revenues for the International Newspaper Group increased
$46.9 million, or 11.6%, to $451.9 million from $405.0 million in 1995.
EBITDA for the Company increased $109.2 million, or 98.0%, to $220.7
million in 1996 from $111.5 million in 1995. The increase is due primarily to
$98.1 million attributable to the consolidation of Southam. However, before
giving effect to the special charge incurred in the fourth quarter of 1996 and a
reorganization expense incurred in the fourth quarter of 1995, EBITDA increased
$142.8 million, or 119.5%, to $262.3 million in 1996 from $119.5 million in
1995. The increase is due primarily to $98.1 million attributable to the
consolidation of Southam, with the balance due primarily to a decrease in
newsprint expenses, continued cost controls and the contribution from
acquisitions of community newspapers. EBITDA for the United States Newspaper
Group increased $32.6 million, or 44.0%, to $106.7 million in 1996 from $74.1
million in 1995. EBITDA for the International Newspaper Group decreased $21.5
million, or 57.5%, to $15.9 million in 1996 from $37.4 million in 1995. Adjusted
for the Telegraph-related special charge, EBITDA for 1996 increased $10.8
million, or 20.9%, to $48.2 million in 1996 from $37.4 million in 1995. The
increase is due primarily to declining newsprint prices partially offset by
increased usage of newsprint due to an increase in circulation at The Telegraph.
OTHER FINANCING TRANSACTIONS
On September 30, 1996, FDTH issued 600 Cumulative Redeemable Fourth
Preference Shares, Series 1996 to a wholly owned subsidiary ("Argsub") of Argus
Corporation Limited ("Argus"), a Canadian corporation that owns, directly and
indirectly, approximately 31% of the common shares of Hollinger Inc. and the
voting stock of which is indirectly owned or controlled by Conrad M. Black, in
exchange for newly issued preference shares of Argsub. The preference shares so
issued to Argsub and the preference shares issued by Argsub to FDTH have an
aggregate redemption amount of $300.0 million. After giving effect to such
transaction, Argsub holds FDTH Preference Shares having an aggregate redemption
amount of $402.2 million and, in turn, FDTH and DTH hold in the aggregate
preference shares of Argsub having a redemption amount of $402.2 million. Each
series of preference shares of Argsub has terms substantially identical to the
series of FDTH Preference Shares in exchange for which it was issued or acquired
by Argsub. This transaction was reflected for United States accounting purposes
on the consolidated balance sheet of Publishing as of September 30, 1996 as (i)
an increase in equity investments in related parties equal to the redemption
amount of the newly issued preference shares and (ii) a corresponding increase
in redeemable preferred stock. Each of the Indentures provides that, in the
event that the FDTH Preference Shares issued to Argsub and the Argsub preference
shares issued to DTH and FDTH are not redeemed, retracted, transferred to DTH or
otherwise
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cancelled by July 1, 1997, the FDTH Preference Shares issued to Argsub will be
treated as indebtedness for purposes of the "Limitation on Indebtedness"
covenants in the Indentures governing the Senior Notes and the Senior
Subordinated Notes. See "Description of Debt Securities" in the accompanying
Prospectus.
The purchase contracts pursuant to which the FDTH Preference Shares have
been issued or sold to Argsub provide that Argsub will waive its right to
receive any dividend payments unless it contemporaneously makes an equivalent
dividend payment to DTH or FDTH, as the case may be.
The Company plans to redeem the DTH and FDTH Preference Shares held by
parties other than Argsub at their respective redemption dates in May and June
1997. See "Use of Proceeds." Following the redemption of such preference shares,
the FDTH Preference Shares issued to Argsub and the Argsub preference shares
issued to DTH and FDTH will be redeemed, retracted, transferred to DTH or
otherwise cancelled.
FINANCING AND ORGANIZATIONAL STRUCTURE
For financing and organizational purposes, the Company is currently divided
into (i) a Restricted Group, consisting of Publishing and the United States
Newspaper Group subsidiaries, including American Publishing Company, Chicago
Sun-Times, American Publishing (1991) Inc. ("AP-91") as well as Jerusalem Post,
and (ii) an Unrestricted Group, consisting of the International Newspaper group
subsidiaries, including DTH, FDTH, The Telegraph and their subsidiaries and
affiliated companies, and Hollinger Eastern, HTH and other companies owning
common shares of Southam. The operations of the companies comprising the
Restricted Subsidiaries, together with Publishing, have been consolidated for
purposes of calculating the financial covenants under the 9 1/4% Notes and the
Amended Publishing Credit Facility. Under the terms of the 9 1/4% Notes,
Publishing is restricted in its dealings with the shares, assets and operations
of the Restricted Subsidiaries.
Publishing intends to designate Southam and The Telegraph (and certain
related holding companies and subsidiaries) as Restricted Subsidiaries under the
Indentures as soon as practicable upon (i) the completion of the internal
reorganization of the Company's interests in Southam and repayment or
refinancing of outstanding bank indebtedness secured by such interests in
Southam and (ii) the consummation of the Offering and an amendment and
restatement of the Publishing Credit Facility, as described above under "Bank
Arrangements."
Set forth below is an organization chart which gives effect to the
designation of Southam (and its holding companies) and The Telegraph (and its
holding companies and certain subsidiaries) as Restricted Subsidiaries, the
ownership of the Company and its principal subsidiaries and affiliates,
including Publishing, the Restricted Subsidiaries and the Unrestricted
Subsidiaries (currently limited to certain foreign subsidiaries of The
Telegraph), and further gives effect to the acquisition of certain Canadian
newspapers from Hollinger Inc. pursuant to the Hollinger Inc. Transaction and
their ownership directly and indirectly by Hollinger Eastern.
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FLOW CHART
- ------------------
(1) Hon. Conrad M. Black owns directly and indirectly 48.3% of the outstanding
common shares of Hollinger Inc.
(2) 77.75% of voting power and 51.21% of combined equity interests of the Class
A Common Stock, Class B Common Stock and Series B Preferred Stock (without
giving effect to any conversion of Series A Preferred Stock into shares of
Class A Common Stock or any issuance of shares of Class A Common Stock in
connection with the PRIDES or the future issuance of shares of convertible
preferred stock and shares of Class A Common Stock proposed to be issued to
Hollinger Inc. in the Hollinger Inc. Transaction). See "Recent
Developments--Reorganization of Canadian Newspaper Interests."
(3) Excludes (a) non-voting preference shares of DTH and FDTH held by unrelated
parties and non-voting preference shares of FDTH held by DTH, which
preference shares are not convertible into voting shares, and (b) preference
shares issued or transferred by DTH and FDTH to subsidiaries of Argus. See
"Other Financing Transactions."
(4) Excludes L5.0 million non-voting preference shares of The Telegraph held by
FDTH, which preference shares are not convertible into voting shares.
(5) Publishing will hold indirectly 100% of the non-voting common shares, 100%
of the non-voting preference shares and voting preference shares
representing 50% of the voting power and 100% of the common equity of
Hollinger Eastern (Canada). Hollinger Inc. will hold the balance of the
voting preference shares. In addition, the Company may hold indirectly a
non-voting minority interest through common stock of an intermediate holding
company that will own equity capital of Hollinger Eastern.
(6) Approximately 8% of the common shares of Southam will be pledged to secure
certain indebtedness of Hollinger Inc. in substitution for the current
pledge of 50% of the common shares of HTH under the Southam-Linked
Debentures.
(7) The Company sold a 19.9% interest in Fairfax to BIL for cash and the
remaining 4.9% interest to SNCFE Limited in exchange for a promissory note
secured by the shares of Fairfax that were sold. The Company has been
advised that SNCFE Limited intends to pursue an early sale or monetization
of this 4.9% interest. See "Recent Developments--Sale of the Company's
Interest in Fairfax."
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THE OFFERING
<TABLE>
<S> <C>
ISSUES...................... $265,000,000 principal amount of % Senior Notes due 2005 (the
"Senior Notes").
$265,000,000 principal amount of % Senior Subordinated Notes
due 2007 (the "Senior Subordinated Notes").
MATURITY DATES.............. The Senior Notes will mature on ,
2005.
The Senior Subordinated Notes will mature on , 2007.
SINKING FUND................ None.
INTEREST PAYMENT DATES...... and of each year, commencing , 1997.
OPTIONAL REDEMPTION......... The Senior Notes will not be redeemable at the option of
Publishing prior to maturity.
The Senior Subordinated Notes will be subject to redemption at
any time on or after , 2002, at the option of
Publishing, in whole or in part, at the redemption prices set
forth herein.
CHANGE OF CONTROL........... In the event of a Change of Control, Publishing will be
required to make an offer to purchase the Senior Notes and the
Senior Subordinated Notes at a price, payable in cash, equal to
101% of their principal amount plus accrued and unpaid
interest, if any, to the date of repurchase. Other Indebtedness
of the Company and Publishing, including the 9 1/4% Notes,
contain provisions that would also require repayment or an
offer to purchase upon the occurrence of events similar to, or
the same as, a Change of Control. Due to the highly leveraged
nature of the Company and Publishing, there can be no assurance
that either of them would have sufficient funds to purchase the
Senior Notes or the Senior Subordinated Notes in the event of a
Change of Control.
GUARANTEES.................. The Senior Notes will be unconditionally guaranteed on a senior
unsecured basis by the Company. The Senior Subordinated Notes
will be unconditionally guaranteed by the Company on a senior
subordinated basis.
RANKING..................... The Senior Notes will be unsecured unsubordinated obligations
of Publishing ranking pari passu with all other unsecured
unsubordinated obligations of Publishing. The Guarantee of the
Senior Notes will similarly rank pari passu with all unsecured
unsubordinated obligations of the Company.
The Senior Subordinated Notes will be an unsecured senior
subordinated obligation of Publishing ranking pari passu with
all other senior subordinated obligations of Publishing,
including the 9 1/4% Notes, and subordinated in right of
payment to all Senior Indebtedness of Publishing. The Guarantee
of the Senior Subordinated Notes will similarly rank pari passu
with all senior subordinated obligations of the Company and
subordinated in right of payment to all Senior Guarantor
Indebtedness of the Company.
</TABLE>
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<TABLE>
<S> <C>
At December 31, 1996, after giving pro forma effect to the
transactions described under "Capitalization," the amount of
all Senior Indebtedness of Publishing would have been $265.0
million.
The Senior Notes and the Senior Subordinated Notes will also be
effectively subordinated to all Indebtedness and other
liabilities of subsidiaries of Publishing. At December 31,
1996, after giving pro forma effect to the transactions
described under "Capitalization," the subsidiaries of Publish-
ing would have had $459.7 million of Indebtedness.
CERTAIN COVENANTS........... The Indentures restrict the ability of Publishing and its
Restricted Subsidiaries to incur additional indebtedness or
guarantees, make certain restricted payments and investments,
issue or sell certain stock of subsidiaries, incur certain
liens, engage in certain transactions with affiliates, engage
in certain sales of assets, create certain encumbrances on the
ability of subsidiaries to pay dividends or engage in certain
mergers, consolidations or similar transactions. See
"Description of Debt Securities" in the accompanying
Prospectus.
USE OF PROCEEDS............. The net proceeds to be received by Publishing from the
Offerings will be used to repay certain indebtedness, to redeem
the outstanding DTH and FDTH Preference Shares held by third
parties, and for other corporate purposes. See "Use of
Proceeds."
LISTING..................... Application has been made to list the Senior Notes and the
Senior Subordinated Notes on the New York Stock Exchange.
RISK FACTORS................ Prospective purchasers of the Offered Notes should consider the
factors set forth under "Risk Factors" in the accompanying
Prospectus, as well as the other information set forth in this
Prospectus Supplement and the accompanying Prospectus,
including international holding company structure, substantial
leverage, risk of principal repayment, subordination of
securities and guarantee, restrictions in debt agreements,
other restrictive arrangements, growth strategy, newspaper
industry competition, cyclicality of revenues, newsprint costs,
foreign operations and currency exchange rates, control by
Hollinger Inc. and disproportionate voting rights, potential
conflicts of interest and absence of public market for the
securities and lack of liquidity.
</TABLE>
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USE OF PROCEEDS
The net proceeds to be received by the Company from the Offering are
estimated at $516.1 million, after deducting the underwriting discount and
estimated offering expenses to be paid by Publishing.
The net proceeds of the Offering will be used to repay the outstanding bank
indebtedness of the Company, Publishing and FDTH, including outstanding amounts
under the Southam Facility (as of December 31, 1996, $155.0 million was
outstanding at an interest cost of 10.0%); outstanding amounts under the
Publishing Credit Facility (as of December 31, 1996, $157.0 million was
outstanding at an interest cost of 7.88%); and amounts outstanding under the
FDTH Credit Facility (as of December 31, 1996, $51.8 million was outstanding at
an interest cost of 8.72%), after giving effect to prepayments from cash
proceeds received from the sale of The Telegraph's 7.9% interest in Fairfax in
January 1997. The balance of the total net proceeds, which is expected to be
$152.3 million, will be used to redeem the outstanding DTH and FDTH Preference
Shares held by third parties (at an aggregate redemption price of approximately
$124.2 million) at their respective redemption dates in May and June 1997 and
for general corporate purposes, which may include a dividend of up to $20.0
million from Publishing to the Company, working capital, repayment or reduction
of indebtedness or other obligations, and capital expenditures. Pending the
redemption of such DTH and FDTH Preference Shares, the Company will deposit an
amount sufficient to pay the aggregate redemption price in escrow.
The Offering is conditioned upon, among other things, (i) the short-term
amendment of the Publishing Credit Facility to provide $50.0 million in
available borrowing capacity (as described under "The Company--Recent
Developments--Bank Arrangements"), (ii) the completion of the internal
reorganization of the Company's interests in Southam and repayment or
refinancing of outstanding bank indebtedness secured by the Company's interests
in Southam, and (iii) the designation of Southam and The Telegraph as Restricted
Subsidiaries under the Indentures governing the Senior Notes, the Senior
Subordinated Notes and the 9 1/4% Notes. The internal reorganization
contemplates the transfer of the Company's and Hollinger Inc.'s combined 50.7%
interest in Southam to Hollinger Eastern and the release of liens in favor of
lenders in respect of a portion of these common shares of Southam. See "The
Company--Recent Developments--Reorganization of the Company's Southam
Interests."
S-12
<PAGE> 17
CAPITALIZATION
The following table sets forth (i) the unaudited consolidated capitalization
of the Company as of December 31, 1996, (ii) the pro forma consolidated
capitalization of the Company after giving effect to the sale of the Company's
7.9% interest in Fairfax in January 1997 and the application of L86.6 million
($148.3 million) of the aggregate net cash proceeds received therefrom to repay
outstanding bank indebtedness under the FDTH Credit Facility and (iii) (x) the
Offering and (y) the completion of the internal reorganization of the Company's
interests in Southam and the refinancing or repayment of the indebtedness
incurred in connection with all of the foregoing transactions. This table should
be read in conjunction with the information under "Summary Financial
Information" and "Unaudited Pro Forma Consolidated Financial Information."
<TABLE>
<CAPTION>
AT DECEMBER 31, 1996
------------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
---------- ---------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
DEBT:
INTERNATIONAL
Short-term debt
Intercompany indebtedness owed to Hollinger Inc.............................. $ 1,092 $ 1,092 $ 1,092
Southam Facility (C$212,341,494)............................................. 155,031 -- --
---------- ---------- ------------
Total International debt................................................. 156,123 1,092 1,092
PUBLISHING
Short-term debt
Publishing Credit Facility................................................... 157,000 157,000 --(1)
Long-term debt
Senior Subordinated Notes due 2006........................................... 250,000 250,000 250,000
Notes offered hereby
Senior Notes............................................................... -- -- 265,000
Senior Subordinated Notes.................................................. -- -- 265,000
---------- ---------- ------------
Total Publishing......................................................... 407,000 407,000 780,000
SUBSIDIARIES
Short-term debt
Intercompany indebtedness owed to Hollinger Inc.............................. (1,029) (1,029) (1,029)
Overdraft (L85,660).......................................................... 147 147 147
FDTH Credit Facility (L111,654,957).......................................... 191,186 42,933 --
Southam Facility (C$212,341,494)............................................. -- 155,031 --
Capital lease obligations.................................................... 2,732 2,732 2,732
---------- ---------- ------------
Total Short-term debt.................................................... 193,036 199,814 1,850
Long-term debt including current maturities
Promissory notes--Southam (C$257,700,000).................................... 188,000(2) 188,000 (2) 188,000(2)
Notes--Southam (C$139,682,000)............................................... 101,982(2) 101,982 (2) 101,982(2)
Secured Notes due 1996-2001 (AP-91 Senior Notes)............................. 135,000 135,000 135,000
FDTH Credit Facility (L5,156,590)............................................ 8,830 8,830 8,830
Capital lease obligations.................................................... 13,215 13,215 13,215
Other........................................................................ 10,789 10,789 10,789
---------- ---------- ------------
Total Long-term debt..................................................... 457,816 457,816 457,816
---------- ---------- ------------
Total consolidated debt.......................................................... 1,213,975 1,065,722 1,240,758
Minority Interest................................................................ 109,943 109,943 109,943
Redeemable preference shares..................................................... 124,198(3) 124,198 (3) --(3)
Series A Preferred Stock......................................................... 79,167 79,167 79,167
STOCKHOLDERS' EQUITY:
Convertible Preferred Stock.................................................... 195,104 195,104 195,104
Class A Common Stock, $.01 par value
Authorized: 250,000,000 shares
Issued: 69,565,754 shares.................................................... 696 696 696
Class B Common Stock, $.01 par value
Authorized: 50,000,000 shares
Issued: 14,990,000 shares.................................................... 150 150 150
Additional paid in capital..................................................... 408,147 408,147 408,147
Retained earnings & cumulative foreign currency translation account............ 149,742 188,954 188,954
---------- ---------- ------------
Total stockholders' equity....................................................... 753,839 793,051 793,051
---------- ---------- ------------
Total capitalization............................................................. $2,281,122(3) $2,172,081(3) $2,222,919(3)
========= ========= ===========
</TABLE>
- ------------------
(1) Upon the consummation of the Offering, Publishing intends to enter into a
short-term amendment to the Publishing Credit Facility which will provide
for $50.0 million in available borrowing capacity on a revolving basis.
Publishing further intends to amend the Publishing Credit Facility to
provide for a long-term revolving credit facility providing up to $500.0
million in available credit, which it expects to enter into in late March or
early April 1997. See "The Company--Recent Developments--Bank Arrangements."
(2) Represents 100% of the outstanding indebtedness of Southam. The Company
currently owns 50.7% of the equity capital of Southam approximately 8% of
which is expected to be pledged to secure indebtedness of Hollinger Inc.
under the Southam-Linked Debentures in substitution for the release from
such pledge of 50% of HTH common shares owned by the Company. Available cash
at Southam, estimated to be $70.0 million, is expected to be applied to
reduce short-term indebtedness of Southam prior to March 31, 1997.
(3) Excluding FDTH preference shares held by Argsub in the aggregate amount of
$402.2 million and as adjusted for the redemption by the Company of the DTH
and FDTH Preference Shares held by third parties following the Offering at
an aggregate redemption price of approximately $124.2 million. Following
such redemption, the FDTH Preference Shares issued to Argsub and the Argsub
preference shares issued to DTH and FDTH will be redeemed, retracted,
transferred to DTH or otherwise cancelled at no additional cash expense to
the Company. See "The Company--Other Financing Transactions."
S-13
<PAGE> 18
UNAUDITED RESULTS OF OPERATIONS FOR THE FOURTH QUARTER
AND THE YEAR 1996
The following table sets forth certain unaudited income statement and other
information for the Company and its consolidated subsidiaries for the years
ended December 31, 1996 and 1995. The consolidated financial information for the
Company differs in certain respects with that of Publishing-Restricted Group for
purposes of the Indentures governing the Senior Notes, the Senior Subordinated
Notes and the 9 1/4% Notes.
HOLLINGER INTERNATIONAL INC.
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------------------------------------------------------------------------------
1996 1995
--------------------------------------------------- ---------------------------------------------------
UNITED UNITED
STATES INTERNATIONAL STATES INTERNATIONAL
NEWSPAPER NEWSPAPER CONSOLIDATED NEWSPAPER NEWSPAPER CONSOLIDATED
GROUP GROUP SOUTHAM TOTAL GROUP GROUP SOUTHAM TOTAL
--------- ------------- -------- ------------ --------- ------------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Operating Revenues
Advertising........ $ 403,328 $ 278,156 $551,552 $ 1,233,036 $ 372,597 $ 262,963 -- $635,560
Circulation........ 145,268 158,220 170,591 474,079 129,685 132,985 -- 262,670
Job Printing and
Other............ 58,776 15,526 81,297 155,599 56,931 9,090 -- 66,021
--------- --------- -------- ----------- --------- --------- -------- --------
Total Operating
Revenues........... 607,372 451,902 803,440 1,862,714 559,213 405,038 -- 964,251
Operating Expenses
Newsprint.......... 109,045 101,259 105,888 316,192 101,748 87,648 -- 189,396
Compensation
Costs............ 218,832 76,892 352,678 648,402 197,319 74,216 -- 271,535
Other.............. 172,788 225,506 237,573 635,867 178,007 205,800 -- 383,807
Depreciation and
Amortization..... 42,826 14,317 35,710 92,853 42,014 10,374 -- 52,388
Reorganization
expenses and
other items
(2).............. -- 32,327 9,240 41,567 8,000 -- -- 8,000
--------- --------- -------- ----------- --------- --------- -------- --------
Total Operating
Expenses........... 543,491 450,301 741,089 1,734,881 527,088 378,038 -- 905,126
--------- --------- -------- ----------- --------- --------- -------- --------
Operating Income..... $ 63,881 $ 1,601 $ 62,351 $ 127,833 $ 32,125 $ 27,000 $ -- $ 59,125
========= ========= ======== =========== ========= ========= ======== ========
Other Data:
EBITDA(1).......... -- -- -- $ 220,686 -- -- -- $111,513
</TABLE>
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED DECEMBER 31,
----------------------------------------------------------------------------------------------------------
1996 1995
--------------------------------------------------- ---------------------------------------------------
UNITED UNITED
STATES INTERNATIONAL STATES INTERNATIONAL
NEWSPAPER NEWSPAPER CONSOLIDATED NEWSPAPER NEWSPAPER CONSOLIDATED
GROUP GROUP SOUTHAM TOTAL GROUP GROUP SOUTHAM TOTAL
--------- ------------- -------- ------------ --------- ------------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Operating Revenues
Advertising........ $ 112,421 $ 78,932 $149,915 $ 341,268 $ 103,652 $ 73,852 $ -- $177,504
Circulation........ 36,873 38,325 46,368 121,566 35,283 40,143 -- 75,426
Job Printing and
Other............ 12,513 5,428 22,097 40,038 14,961 2,299 -- 17,260
--------- --------- -------- ----------- --------- --------- -------- --------
Total Operating
Revenues........... 161,807 122,685 218,380 502,872 153,896 116,294 -- 270,190
--------- --------- -------- ----------- --------- --------- -------- --------
Operating Expenses
Newsprint.......... 23,131 21,306 25,745 70,182 28,363 25,064 -- 53,427
Compensation
Costs............ 57,120 21,231 88,820 167,171 49,051 20,555 -- 69,606
Other.............. 47,388 59,186 55,534 162,108 55,066 51,367 -- 106,433
Depreciation and
Amortization..... 12,990 4,833 10,139 27,962 11,708 2,564 14,272
Reorganization
expenses and
other items...... -- 32,327 9,240 41,567 8,000 -- -- 8,000
--------- --------- -------- ----------- --------- --------- -------- --------
Total Operating
Expenses........... 140,629 138,883 189,478 468,990 152,188 99,550 -- 251,738
--------- --------- -------- ----------- --------- --------- -------- --------
Operating Income..... $ 21,178 $ (16,198) $ 28,902 $ 33,882 $ 1,708 $ 16,744 $ -- $ 18,452
========= ========= ======== =========== ========= ========= ======== ========
Other Data:
EBITDA(1).......... -- -- -- $ 61,844 -- -- -- $ 32,724
</TABLE>
- ---------
(1) EBITDA, on a consolidated basis, represents earnings before interest
expense, income taxes, depreciation and amortization, minority interest,
equity in earnings of affiliates and certain other income items.
(2) Represents $32.3 million of a special charge relating to a direct prepaid
subscription plan implemented at The Telegraph and $9.2 million of
restructuring charges at Southam.
S-14
<PAGE> 19
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following sets forth unaudited pro forma financial information for
Publishing and its subsidiaries (consisting of the United States Newspaper
Group, The Telegraph and Southam) as of and for the period noted. The pro forma
condensed consolidated balance sheet as of December 31, 1996 and the pro forma
condensed consolidated statement of operations for the year ended December 31,
1996 reflect the sale of the second tranche of the Company's interest in Fairfax
on January 10, 1997, consisting of a 7.9% interest. The sale of the first
tranche of the Company's interest in Fairfax, consisting of a 12.0% interest,
was completed on December 20, 1996, and the sale of the remaining 4.9% interest
is treated as a contingent sale for financial reporting purposes. The Company's
interest in Fairfax was held by an indirect subsidiary of DTH. The above
transaction has been reflected in the pro forma condensed consolidated balance
sheet as of December 31, 1996 assuming that the transaction had been consummated
as of that date and the pro forma condensed consolidated statement of operations
for the year ended December 31, 1996 assuming that the transaction had been
consummated as of January 1, 1996.
S-15
<PAGE> 20
HOLLINGER INTERNATIONAL PUBLISHING INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA HOLLINGER
HOLLINGER PRO FORMA ADJUSTMENTS INTERNATIONAL
INTERNATIONAL ----------------------- PUBLISHING INC.
PUBLISHING INC.(A) DEBIT CREDIT TOTAL
------------------- -------- -------- ---------------
<S> <C> <C> <C> <C>
Operating revenues......................... $ 1,862,714 $ 1,862,714
Operating costs and expenses............... 1,589,228 1,589,228
Reorganization and other costs............. 41,567(b) 41,567
Depreciation and amortization.............. 92,845 92,845
----------- -----------
Total operating costs and expenses....... 1,723,640 1,723,640
Operating income........................... 139,074 139,074
Other income (expense):
Interest expense......................... (96,010) 7,841(c) (88,169)
Interest expense to Hollinger
International Inc..................... (7,646) (7,646)
Interest and dividend income............. 11,100 11,100
Equity in earnings of affiliates......... 12,037 3,616(d) 8,421
Other income, net........................ 58,076 39,212(e) 97,288
----------- -----------
Total other income (expense)............... (22,443) 20,994
----------- -----------
Earnings before income taxes, minority
interest and extraordinary item.......... 116,631 160,068
Income Taxes............................... 44,883 3,136(f) 48,019
----------- -----------
Earnings before minority interest and
extraordinary item....................... 71,748 112,049
Minority Interest.......................... 33,138 33,138
----------- -----------
Earnings before extraordinary item......... 38,610 78,911
Extraordinary loss on debt
extinguishments.......................... (2,150) (2,150)
----------- -----------
Net earnings............................... $ 36,460 $ 76,761
=========== ===========
</TABLE>
S-16
<PAGE> 21
HOLLINGER INTERNATIONAL PUBLISHING INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AT DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA HOLLINGER
HOLLINGER PRO FORMA ADJUSTMENTS INTERNATIONAL
INTERNATIONAL ----------------------- PUBLISHING INC.
PUBLISHING INC.(A) DEBIT CREDIT TOTAL
------------------- -------- -------- ---------------
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents................ $ 145,497 $148,253(e) $148,253(g) $ 145,497
Accounts receivable, net................. 290,170 290,170
Inventories.............................. 26,147 26,147
Prepaid expenses and other current
assets................................ 22,693 22,693
----------- -----------
Total current assets....................... 484,507 484,507
Investments in affiliates, at equity..... 198,461 109,041(e) 89,420
Property, plant and equipment, net....... 505,890 505,890
Intangible assets, net................... 1,496,722 1,496,722
Other assets............................. 500,045 500,045
----------- -----------
$ 3,185,625 $ 3,076,584
=========== ===========
Current liabilities:
Current installments of long term debt... $ 35,285 $ 35,285
Bank indebtedness........................ 503,364 148,253(g) 355,111
Accounts payable......................... 104,994 104,994
Accrued expenses......................... 152,353 152,353
Income taxes payable..................... 38,888 38,888
Deferred revenue......................... 69,080 69,080
Due to Hollinger Inc..................... (1,029) (1,029)
----------- -----------
Total current liabilities.................. 902,935 754,682
Long term debt, less current
installments.......................... 675,263 675,263
Deferred income taxes.................... 70,705 70,705
Other liabilities........................ 53,788 53,788
----------- -----------
Total liabilities.......................... 1,702,691 1,554,438
Minority interest.......................... 109,943 109,943
Redeemable preference shares of DTH and
FDTH..................................... 526,412(h) 526,412(h)
Stockholder's Equity....................... 846,579 39,212(e) 885,791
----------- -----------
$ 3,185,625 $ 3,076,584
=========== ===========
</TABLE>
S-17
<PAGE> 22
HOLLINGER INTERNATIONAL PUBLISHING INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The pro forma adjustments reflect the following:
<TABLE>
<C> <S>
(a) Amounts represent Publishing results as of and for the year ended December 31, 1996,
including the Company's 50.7% interest in Southam. Concurrent with the consummation of
the Offering, the Company intends to complete an internal reorganization of its
interests in Southam so that, upon completion, the financial results of Southam will be
consolidated into Publishing.
(b) Represents $32.3 million of a special charge relating to a direct prepaid subscription
plan implemented at The Telegraph and $9.2 million of restructuring charges at Southam.
(c) Represents the reduction of interest expense on bank indebtedness as a result of the
application of the net proceeds from the sale of The Telegraph's 7.9% interest in
Fairfax in January 1997.
(d) Represents the reduction of the equity earnings of Fairfax.
(e) Represents the net proceeds from the sale and gain on sale of The Telegraph's 7.9%
interest in Fairfax on January 10, 1997. For financial reporting purposes, the sale of
the remaining 4.9% interest in Fairfax is treated as a contingent sale.
(f) Represents the tax effect of the pro forma adjustments.
(g) Represents the use of the net proceeds from the sale of The Telegraph's 7.9% interest
in Fairfax in January 1997 to pay down bank indebtedness. Additionally, Southam intends
to apply a significant portion of its cash balances (estimated to be $70.0 million) to
debt reduction.
(h) Represents (i) $124.2 million of redeemable preference shares held by third parties and
(ii) preference shares issued by FDTH to Argsub, a wholly owned subsidiary of Argus, a
Canadian corporation that owns, directly or indirectly, approximately 31% of the common
shares of Hollinger Inc. and the voting stock of which is indirectly owned or
controlled by Conrad M. Black, in exchange for newly issued preference shares of
Argsub. Argsub holds FDTH Preference Shares having an aggregate redemption amount of
$402.2 million and, in turn, FDTH and DTH hold in the aggregate preference shares of
Argsub in the same redemption amount. See "The Company--Other Financing Transactions."
The Company plans to redeem the DTH and FDTH Preference Shares held by third parties,
using a portion of the net proceeds of the Offering, at an aggregate redemption price
of approximately $124.2 million. Following such redemption, the FDTH Preference Shares
issued to Argsub and the Argsub preference shares issued to DTH and FDTH will be
redeemed, retracted, transferred to DTH or otherwise cancelled at no additional cash
expense to the Company. See "Use of Proceeds."
</TABLE>
S-18
<PAGE> 23
HOLLINGER INTERNATIONAL PUBLISHING INC.
AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED
FINANCIAL INFORMATION--OTHER DATA
FOR THE YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
The following sets forth certain financial information related to
Publishing based on the foregoing unaudited pro forma financial statements for
the year ended December 31, 1996 and as adjusted to reflect the issuance of the
Offered Notes and the application of the estimated net proceeds therefrom. The
information does not necessarily correspond to the calculations under the
Indentures governing the Senior Notes, the Senior Subordinated Notes and the
9 1/4% Notes.
------------------
<TABLE>
<CAPTION>
CONSOLIDATED ADJUSTED CONSOLIDATED
HOLLINGER HOLLINGER
INTERNATIONAL INTERNATIONAL
PUBLISHING INC. PUBLISHING INC.(A)
---------------------- ----------------------
PRO AS PRO AS
FORMA ADJUSTED(B) FORMA ADJUSTED(B)
-------- ----------- ------ -----------
<S> <C> <C> <C> <C>
EBITDA............................................ $ 231.9 $ 231.9 $176.1 $ 176.1
Adjustments(c).................................... 20.9 20.9 11.8 11.8
-------- --------- ------ ---------
Adjusted EBITDA................................... $ 252.8 $ 252.8 $187.9 $ 187.9
======== ========= ====== =========
Total Debt........................................ $1,064.6 $ 1,169.6 $899.5 $ 1,044.4
Redeemable Preference Shares(d)................... 124.2 -- 124.2 --
Total Debt/Adjusted EBITDA........................ 4.2x 4.6x 4.8x 5.6x
Total Debt + Redeemable Preference Shares/
Adjusted EBITDA................................. 4.7x 4.6x 5.4x 5.6x
</TABLE>
- ------------------
(a) Adjusted to include 43.07% of Southam's EBITDA and Total Debt.
(b) As adjusted to reflect the application of the proceeds from the Offering to
repay outstanding bank indebtedness of the Company, Publishing and FDTH as
well as the application by Southam of approximately $70.0 million in cash to
pay down existing debt at Southam.
(c) Adjustments reflect (i) the exclusion of non-recurring charges related to
workforce reductions by Southam ($9.2 million) and (ii) the inclusion of
cash flow acquisition adjustments by the United States Newspaper Group ($5.0
million) and by Southam ($6.6 million) to reflect certain acquisitions as if
they occurred on January 1, 1996.
(d) Excluding preference shares of FDTH held by Argsub, and as adjusted to
reflect the application of a portion of the net proceeds of the Offering to
redeem the DTH and FDTH Preference Shares held by third parties.
S-19
<PAGE> 24
SUMMARY FINANCIAL INFORMATION
THE COMPANY AND PUBLISHING--RESTRICTED GROUP
The following sets forth the consolidated historical financial information
for the Company and the Restricted Group as of and for the periods noted. The
historical balance sheet and income statement data as of December 31, 1993, 1994
and 1995 and for each of the years in the three year period ended December 31,
1995 have been derived from the Consolidated Financial Statements of the Company
and Publishing-Restricted Group which have been audited by KPMG Peat Marwick
LLP, independent certified public accountants. The data as of December 31, 1991
and 1992 and for the year ended December 31, 1991 and for the nine months ended
September 30, 1995 and 1996 are unaudited but, in the opinion of management,
reflects all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of such data. For information about certain
developments subsequent to September 30, 1996 and the results of operations for
the fourth quarter 1996 and the year ended December 31, 1996, see "The
Company--Recent Developments" and "Unaudited Results of Operations for the
Fourth Quarter and the Year 1996."
S-20
<PAGE> 25
SUMMARY FINANCIAL AND OTHER DATA(1)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------------------------------------------- ------------------------
1991 1992 1993 1994 1995 1995 1996
-------- -------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:(2)
COMPANY (CONSOLIDATED)
Operating revenues:
Advertising...................... $307,716 $325,165 $ 316,640 $ 522,381 $ 635,560 $ 458,056 $ 490,131
Circulation...................... 209,544 233,416 217,608 245,218 262,670 187,244 228,290
Job Printing..................... 19,735 22,066 25,044 27,675 49,198 36,008 39,372
Other............................ 8,735 11,338 10,309 13,563 17,539 12,753 16,989
-------- -------- ---------- ---------- ---------- ---------- ----------
Total operating revenues........... 545,730 591,985 569,601 808,837 964,967 694,061 774,782
Operating costs and expenses....... 450,797 473,368 447,262 693,108 857,091 617,970 679,225
Depreciation and amortization...... 32,037 35,226 34,545 45,200 52,388 38,116 39,320
-------- -------- ---------- ---------- ---------- ---------- ----------
Operating income................... 62,896 83,391 87,794 70,529 55,488 37,975 56,237
Interest expense................... (20,886) (27,167) (26,264) (32,593) (43,189) (31,446) (51,042)
Equity in earnings of affiliates... 18 6,382 13,476 35,659 16,449 23,222 20,254
Other income, net(3)............... 14,499 89,543 36,989 91,886 18,199 14,619 9,961
-------- -------- ---------- ---------- ---------- ---------- ----------
Earnings before income taxes,
minority interest, extraordinary
item and cumulative effect of
change in accounting for income
taxes............................ 56,527 152,149 111,995 165,481 46,947 44,370 35,410
Income taxes (benefit)............. 14,320 39,132 36,475 41,300 18,108 13,787 14,673
-------- -------- ---------- ---------- ---------- ---------- ----------
Earnings before minority interest,
extraordinary item and cumulative
effect of change in accounting
for income taxes................. 42,207 113,017 75,520 124,181 28,839 30,583 20,737
Minority interest.................. 11,166 14,848 25,475 21,409 22,637 17,048 12,770
-------- -------- ---------- ---------- ---------- ---------- ----------
Earnings before extraordinary item
and cumulative effect of change
in accounting for income taxes... 31,041 98,169 50,045 102,772 6,202 13,535 7,967
Extraordinary loss on debt
extinguishment................... -- -- -- -- -- -- (2,150)
Cumulative effect of change in
accounting for income taxes...... -- -- (24,256) -- -- -- --
-------- -------- ---------- ---------- ---------- ---------- ----------
Net earnings....................... $ 31,041 $ 98,169 $ 25,789 $ 102,772 $ 6,202 $ 13,535 $ 5,817
======== ======== ========== ========== ========== ========== ==========
Net earnings per common share...... $ 0.64 $ 2.02 $ 0.53 $ 1.90 $ 0.11 $ 0.24 $ 0.06
======== ======== ========== ========== ========== ========== ==========
Average number of common shares
outstanding...................... 48,601 48,601 48,601 53,980 56,956 56,956 76,344
======== ======== ========== ========== ========== ========== ==========
BALANCE SHEET DATA:(4)
COMPANY (CONSOLIDATED)
Working capital (deficit)........ $ 25,749 $ 58,259 $ (58,793) $ (10,621) $ (124,175) $ 5,168 $ (503,026)
Total assets(5).................. 855,692 748,843 1,034,155 1,463,755 1,570,105 1,394,054 2,598,161
Minority interest................ 41,871 64,039 79,290 109,518 97,298 116,811 --
Total long-term debt(13)......... 333,981 281,783 374,496 489,969 621,652 494,538 1,006,792
Redeemable preferred stock....... 80,966 208,767 206,846 204,101 306,452 206,130 606,858
Total stockholders' equity....... 253,693 72,907 111,664 303,469 295,244 304,960 728,158
RESTRICTED GROUP
(INCLUDING PUBLISHING)
Working capital (deficit)........ $(38,872) $(32,174) $ (31,862) $ 466 $ (82,218) $ 267 $ (131,878)
Total assets..................... 558,386 368,849 516,337 830,185 909,114 850,174 1,131,995
Total long-term debt............. 255,830 220,647 220,903 315,221 321,372 323,916 526,324
SEGMENT DATA:
Operating revenues:
Restricted Group................. $157,397 $173,219 $ 185,043 $ 422,594 $ 559,929 $ 405,317 $ 445,565
Unrestricted Group............... 388,333 418,766 384,558 386,243 405,038 288,744 329,217
-------- -------- ---------- ---------- ---------- ---------- ----------
Total operating revenues........... $545,730 $591,985 $ 569,601 $ 808,837 $ 964,967 $ 694,061 $ 774,782
======== ======== ========== ========== ========== ========== ==========
Operating income:
Restricted Group................. $ 3,938 $ 11,778 $ 18,069 $ 39,566 $ 32,275 $ 30,417 $ 47,733
Unrestricted Group............... 58,958 71,613 69,725 30,963 23,213 7,558 16,043
-------- -------- ---------- ---------- ---------- ---------- ----------
Total operating income............. $ 62,896 $ 83,391 $ 87,794 $ 70,529 $ 55,488 $ 37,975 $ 63,776
======== ======== ========== ========== ========== ========== ==========
EBITDA(6)
Restricted Group................. $ 28,828 $ 38,386 $ 43,582 $ 76,576 $ 74,290 $ 60,723 $ 77,529
Unrestricted Group............... 80,604 99,421 87,208 50,447 33,586 15,368 25,567
-------- -------- ---------- ---------- ---------- ---------- ----------
Total EBITDA....................... $109,432 $137,807 $ 130,790 $ 127,023 $ 107,876 $ 76,091 $ 103,096
======== ======== ========== ========== ========== ========== ==========
</TABLE>
S-21
<PAGE> 26
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
1991 1992 1993 1994 1995 1995 1996
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
FINANCIAL RATIOS AND OTHER DATA:
COMPANY (CONSOLIDATED)
Number of paid daily newspapers
(end of period)(7)............. 82 82 96 98 113 113 106
Market value of Fairfax equity
stake (end of period)(8)....... $ 423,989 $ 408,812 $ 393,820 $ 417,950
Market value of Southam equity
stake (end of period)(8)....... 163,643 157,174 152,949 183,450
Capital expenditures............. $ 61,058 $ 14,882 $ 9,162 $ 27,795 $ 21,699 $ 13,888 $ 15,950
Acquisition expenditures(9)...... 49,350 36,952 20,368 227,321 97,232 4,687 42,176
Ratio of earnings to fixed
charges(10).................... 3.67x 5.09x 3.64x 4.11x 1.82x 1.68x 1.29x
RESTRICTED GROUP
(INCLUDING PUBLISHING)
EBITDA(6)........................ $ 28,828 $ 38,386 $ 43,582 $ 76,576 $ 74,290 $ 60,723 $ 77,529
Cash distributions available from
Unrestricted Group (net)(11)... 17,347 29,032 8,592 8,390 8,721 3,032 362
-------- -------- ---------- ---------- ---------- ---------- ----------
Adjusted EBITDA.................. $ 46,175 $ 67,418 $ 52,174 $ 84,966 $ 83,011 $ 63,755 $ 77,891
======== ======== ========== ========== ========== ========== ==========
Capital expenditures............. $ 7,006 $ 5,605 $ 3,622 $ 16,409 $ 21,471 $ 18,470 $ 12,538
Interest expense................. 20,456 20,117 19,083 23,442 28,037 21,077 33,968
Acquisition expenditures(9)...... 23,780 736 20,368 214,947 99,554 4,687 42,176
Adjusted EBITDA/interest
expense........................ 2.26x 3.35x 2.73x 3.62x 2.96x 3.02x 2.29x
Total long-term debt/
EBITDA(12)..................... 8.87x 5.75x 5.07x 4.12x 4.33x 4.00x 5.09x
Total long-term debt/adjusted
EBITDA(12)..................... 5.54x 3.27x 4.23x 3.71x 3.87x 3.81x 5.07x
</TABLE>
- ------------------
(1) The financial data presented above is derived from the Supplemental
Consolidated Financial Statements of the Company. As a result of the
October 1995 reorganization, such financial statements include the accounts
of The Telegraph and DTH on an "as-if " pooling-of-interests basis. The
Supplemental Consolidated Financial Statements of Publishing--Restricted
Group include the accounts of Publishing and the subsidiaries of Publishing
comprising its United States Newspaper Group and treat the Unrestricted
Group as equity investments.
(2) The statement of operations data and other data include data for Jerusalem
Post for all periods presented, data for Chicago Sun-Times from the date of
its acquisition by the Company on March 31, 1994 and data for Daily
Southtown from the date of its acquisition by the Company on December 23,
1994.
(3) Other income, net includes interest income, gain on the sale of Telegraph
shares, gain on dilution of Fairfax interest, gain on the sale of
marketable securities, issuance costs of subsidiaries' redeemable preferred
stock and foreign currency gain (loss).
(4) The balance sheet data include The Telegraph, DTH and Jerusalem Post for
all periods presented, the Chicago Sun-Times as at September 30, 1994 and
thereafter and Daily Southtown as at December 31, 1994 and thereafter.
(5) Includes intangible assets, net of accumulated amortization, which amounted
to $529,694,000 at December 31, 1995 and $874,304,000 at September 30,
1996. Such intangible assets consist of the value of acquired subscriber
and advertiser lists, noncompetition agreements, archives and goodwill. The
amortization periods for intangible assets range from three to 40 years.
(6) EBITDA, on a consolidated basis and with respect to the Unrestricted Group,
represents earnings before interest expense, income taxes, depreciation and
amortization, minority interest, equity in earnings of affiliates and
certain other income items. Among the other income items excluded are gain
on the sale of Telegraph shares, gain on the sale of marketable securities,
gain on dilution of Fairfax interest and issue costs of subsidiaries'
redeemable preferred stock of $70,353,000, $28,538,000 and $80,592,000 for
the years ended December 31, 1992, 1993 and 1994, respectively. EBITDA,
with respect to the Restricted Group, represents earnings before interest
expense, income taxes, depreciation and amortization and equity in earnings
of unconsolidated subsidiaries (i.e., the Unrestricted Subsidiaries).
EBITDA is not intended to represent an alternative to operating income (as
determined in accordance with generally accepted accounting principles) as
an indicator of the Company's operating performance, or to cash flows from
operating activities (as determined in accordance with generally accepted
accounting principles) as a measure of liquidity. The Company believes that
EBITDA largely determines its ability to fund current operations and to
service debt due to the significant number of acquisitions made by the
Company which have resulted in non-cash charges for depreciation and
amortization. These non-cash charges have adversely affected net earnings,
but have not affected EBITDA.
(7) Number of paid daily newspapers owned by the Company and its subsidiaries
(excluding those newspapers published by Fairfax and Southam).
(8) Represents The Telegraph's 24.7% interest (196,374,606 shares and
convertible debentures) in Fairfax on December 31, 1995 and September 30,
1996, respectively, and the combined 19.3% interest of The Telegraph and
FDTH in Southam (14,790,000 shares) at each period end. See Note 3 to
Supplemental Consolidated Financial Statements of the Company
S-22
<PAGE> 27
for information concerning investments in affiliates. Does not include the
Company's and Hollinger Inc.'s combined holdings of approximately 21.5%
interest in Southam as a result of the purchase of 16,349,743 shares from
Power on May 24, 1996 or the subsequent purchases of 10.4% interest in
Southam on December 11, 1996.
(9) Represents costs of acquiring newspapers and investments in newspaper
companies. Such amounts do not include notes payable to former owners and
deferred amounts due under noncompetition agreements with former owners.
(10) The ratio of earnings to fixed charges is the sum of earnings before taxes
and minority interest (excluding undistributed earnings of affiliates) plus
interest expense, amortization of deferred financing charges and preferred
stock dividends divided by the sum of interest expense, amortization of
deferred financing charges and preferred stock dividends. The ratio is the
same for the Restricted Group as for the Company (consolidated).
(11) Represents the excess of the dividends paid on The Telegraph ordinary and
preference shares held by FDTH over the amount of dividends paid by FDTH
and DTH on their preference shares held by unrelated parties. Prior to the
Reorganization, Hollinger Inc., as the owner of all the outstanding
ordinary shares of DTH, received all distributions paid by DTH and FDTH
(exclusive of dividends paid to unrelated parties). On December 29, 1995,
DTH transferred all FDTH preference shares which it then held (with an
aggregate redemption amount of Cdn.$140.0 million ($102.8 million)) to a
wholly owned subsidiary of Argus Corporation Limited ("Argus"), a Canadian
corporation controlled by Conrad M. Black which owns directly and
indirectly approximately 31.6% of Hollinger Inc., in exchange for newly
issued preference shares (with an aggregate redemption amount of Cdn.$140.0
million ($102.8 million)) of such subsidiary with terms substantially
identical to those of the FDTH preference shares. This transaction was
reflected for United States accounting purposes on the consolidated balance
sheet of the Company as at December 31, 1995 as (i) an increase in equity
investments in related parties equal to the redemption amount of the newly
issued preference shares and (ii) a corresponding increase in redeemable
preferred stock. On September 30, 1996, FDTH issued newly issued shares of
redeemable preference stock with an aggregate redemption amount of $300.0
million to a wholly owned subsidiary of Argus in exchange for newly issued
preference stock of such subsidiary of Argus with substantially identical
terms. This transaction was also reflected for United States accounting
purposes on the consolidated balance sheet of the Company as at September
30, 1996 in the same manner as at December 31, 1995.
(12) EBITDA and adjusted EBITDA have been annualized for the nine-month periods
ended September 30, 1995 and 1996.
(13) Long-term debt includes current portion of long-term debt and short-term
bank obligations. Long-term debt does not include intercompany indebtedness
owed to Hollinger Inc.
S-23
<PAGE> 28
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
The Company's business is concentrated in the publishing, printing and
distribution of newspapers and is divided between the United States Newspaper
Group and the International Newspaper Group. The United States Newspaper Group
consists of the Chicago Group, comprised of the Chicago Sun-Times and suburban
newspapers in the Chicago metropolitan area and American Publishing Company,
comprised of the Company's community newspapers, operating in 28 states, and for
reporting and administrative purposes, Jerusalem Post. The International
Newspaper Group includes the operating results of The Telegraph and the
Company's equity share in the earnings of Fairfax and Southam for the periods
presented.
See "The Company--Recent Developments" and "Unaudited Results of Operations
for the Fourth Quarter and the Year 1996" for information concerning results of
operations for the fourth quarter 1996 and the year ended December 31, 1996.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED WITH NINE MONTHS ENDED
SEPTEMBER 30, 1995
Third quarter 1996 net earnings were $3.2 million, or 3 cents per share.
This compares with earnings of $1.5 million, or 2 cents per share, in 1995. Net
earnings for the nine months ended September 30, 1996 were $5.8 million, or 6
cents per share compared with $13.5 million, or 24 cents per share in 1995.
Earnings before extraordinary items in 1996 were $8.0 million, or 9 cents per
share compared with $13.5 million, or 24 cents per share in 1995. The 1995 nine
month earnings include a $12 million gain on the sale of an investment.
EBITDA for the third quarter increased 43.2% to $32.1 million from $22.4
million in 1995. For the nine months ended September 30, 1996 EBITDA increased
25.6% to $95.6 million from $76.1 million in 1995.
The solid increases in total revenues and EBITDA reflect the strong
business fundamentals of the Company. Operating income for the United States
Newspaper Group for the third quarter improved to $19.1 million from $9.4
million in 1995. Results in the quarter improved due to lower newsprint prices,
continued cost control, and the contribution from acquisitions of community
newspapers during the past twelve months.
The results of the 1996 third quarter were below the Company's expectations
due to the performance of its International Newspaper Group. Improved
circulation revenues of $1.5 million as a result of a cover price increase in
November 1995 and gains in advertising revenues of $5.9 million were partially
offset by increased newsprint and promotional costs. Although there is a
downward trend in the world price of newsprint, European price changes often lag
behind U.S. price changes and The Telegraph enters into medium term supply
contracts with vendors resulting in delays in increases and reductions of
newsprint costs. At the same time, The Telegraph is delivering editions with
increased pagination to an increased circulation base due to the success of its
direct subscription campaign and other promotional activities. The direct
subscription campaign and overall promotional initiatives, have successfully
added more than 100,000 prepaid subscribers to The Daily Telegraph circulation
increasing its average weekday circulation to approximately 1.1 million, a
trajectory that we are confident will extend into 1997. Additionally, the
International Newspaper Group is reducing the terms of many of its newsprint
supply contracts.
Operating revenues for the third quarter of 1996 increased 9.5% to $253.6
million from $231.7 million in 1995. Revenues for the nine months ended
September 30, 1996 increased 11.6% to $774.8 million from $694.1 million in
1995. The increase in revenues was largely due to cover price and advertising
revenue increases in the United Kingdom and to revenue contributed by the
community newspapers that were acquired during the past twelve months.
Operating income in the third quarter and nine months of 1996 increased
83.2% and 48.1%, respectively as compared to the same periods in the prior year.
The third quarter benefited from the effect of declining newsprint prices in the
United States. Total newsprint expense increased by 3.5% in the third quarter of
1996
S-24
<PAGE> 29
as compared to the same period in the prior year and newsprint as a percent of
sales was 20.3% for the third quarter of 1996 as compared to 21.4% for the third
quarter of 1995. Newsprint expense for the nine months ended September 30, 1996
increased 22.0% from 1995. Newsprint and other paper costs, in general,
increased substantially in 1995, reached and maintained peak price levels in the
fourth quarter of 1995 and the first quarter of 1996, and started a declining
trend in the second quarter of 1996 which continued through the third quarter of
1996. Although there is a downward trend in the world price of newsprint,
European price changes often lag behind U.S. price changes, resulting in delays
in increases and reductions in newsprint costs in the United Kingdom.
Compensation costs as a percentage of sales have remained relatively consistent
between years, both in the third quarter and year to date. Other operating
costs, including allocable expenses from Hollinger Inc. were 38.5% and 40.5% as
a percentage of sales for the third quarter of 1996 and 1995, respectively, and
38.2% and 40.4% as a percentage of sales for the nine months ended September 30,
1996 and 1995, respectively.
Depreciation and amortization increased for the third quarter and the nine
months ended September 30, 1996 from the comparable periods in the prior year.
Increased depreciation and amortization resulting from the acquisition of
community newspapers and the increased intangible asset as a result of the
purchase of additional shares of The Telegraph in the fourth quarter of 1995 and
the buyout of the minority interest of The Telegraph in August 1996 partially
offset by decreased amortization from the reevaluation of the remaining useful
life of certain intangible assets.
Interest expense increased by 105.9% to $22.1 million for the third quarter
of 1996 as compared to $10.8 million in 1995 and by 69.1% to $48.0 million for
the nine months ended September 30, 1996 as compared to $28.4 million in 1995.
The Company increased its borrowings in the last quarter of 1995 and during 1996
to fund the purchase of the additional 21.5% interest in Southam, the buyout of
The Telegraph minority and other acquisitions of community newspapers.
Equity in net earnings of affiliates increased 129.3% to $14.1 million in
the third quarter of 1996 from $6.2 million in 1995 and decreased 12.8% to $20.3
million for the nine months ended September 30, 1996 from $23.2 million in 1995.
The increase in third quarter equity earnings was as a result of improved net
earnings at Southam. Net earnings at Southam increased for both the quarter and
year to date as compared to prior year primarily due to acquisitions in the
current year, improved advertising revenues and stabilizing newsprint prices. In
addition, to improved earnings, Southam recognized a one-time gain on sale of
their Construction Data Group. The Company also realized the benefit, in the
third quarter, of accounting for the additional 21.5% interest in Southam. The
increase in equity earnings for the third quarter was partially offset by
declines at Fairfax in Australia resulting from higher depreciation and interest
costs related to the new production plant in Sydney and continuing weakness in
the Australian community.
GROUP OPERATING RESULTS
UNITED STATES NEWSPAPER GROUP
The United States Newspaper Group's operating revenues increased
approximately 10% from the prior year for both the third quarter and the nine
months ended September 30, 1996, primarily as a result of increased revenues at
the Community Newspaper Group. American Publishing Company (the Community Group)
operating revenues increased 24.9% to $67.7 million for the third quarter 1996
from $54.2 million in 1995 and 25.9% to $200.4 million for the nine months ended
September 30, 1996 from $159.1 million in 1995. Acquisitions at the Community
Group added $19.3 million and $50.0 million to revenues for the quarter and nine
months ended September 30, 1996, respectively, while same publication revenues
increased 2.5%. Circulation revenues at the Chicago Group increased 2.1% for the
third quarter and 4.7% for the nine months ended September 30, 1996 as compared
to the same periods in the prior year. Gains in circulation revenues at the
Chicago Group were offset by declines in advertising revenues due to continuing
weaknesses in the retail advertising markets. These fluctuations resulted in
revenues at the Chicago Group remaining flat for both the quarter and the nine
months.
Third quarter operating income of the United States Newspaper Group
increased 102.2% to $19.1 million in 1996 from $9.4 million in the prior year,
while operating income for the nine months ended September 30,
S-25
<PAGE> 30
1996 increased 40.4% to $42.7 million from $30.4 million in 1995. The third
quarter benefited from declining newsprint prices, while cost containment
efforts at both the Chicago Group and Community Group added to the increased
operating income for both the third quarter and the nine months ended September
30, 1996.
EBITDA for the third quarter increased 47.8% to $29.2 million in 1996 from
$19.7 million in 1995 and for the nine months ended September 30, 1996 increased
19.5% to $72.5 million from $60.7 million in 1995. Recent acquisitions at the
Community Group added $4.7 million and $11.9 million to EBITDA for the third
quarter and nine months ended September 30, 1996, respectively. Operating income
for the United States Newspaper Group increased by $9.7 million in the third
quarter primarily as a result of revenue enhancement, newsprint price reductions
and cost containment efforts.
INTERNATIONAL NEWSPAPER GROUP
Third quarter operating revenues for the International Newspaper Group
increased 8.8% to $104.2 million in 1996 from $95.8 million in 1995. Operating
revenues for the nine months ended September 30, 1996 increased 14.0% to $329.2
million from $288.7 million in 1995. Advertising revenues increased 10.4% and
5.3% in the quarter and year to date, respectively. Circulation revenues grew
4.1% in the third quarter and 29.1% year to date as compared to the same periods
in the prior year. The increase in circulation revenues is primarily as a result
of the increased cover price of The Daily Telegraph. The increase in revenues in
pounds sterling, for the third quarter was 10.1% and 17.6% for the nine months
ended September 30, 1996 as compared to the same periods in the prior year, but
the increase value of the U.S. dollar versus the British pound reduced the
reported U.S. dollar increase.
The International Newspaper Group's operating income for the third quarter
decreased by $1.7 million. Additional amortization of intangible assets as a
result of the acquisition of The Telegraph minority reduced operating income by
1.9 million. The benefits from increased circulation, advertising and other
revenues were partially offset by higher newsprint costs (largely due to volume
increases) and higher promotional costs during the usually weak third quarter.
Operating income for the nine months ended September 30, 1996 increased $6.0
million over 1995. Increased advertising circulation and other revenues during
this period more than offset higher newsprint and promotional costs.
Newsprint expenses increased for both the quarter and year to date as
compared with prior year as a result of both increased circulation, especially
at The Sunday Telegraph, and increased pagination. Although there is a downward
trend in the world price of newsprint, European price changes often lag behind
U.S. price changes and The Telegraph enters into medium term supply contracts
with vendors resulting in delays in increases and reductions of newsprint costs.
At the same time, The Telegraph is delivering editions with increased pagination
to an increased circulation base due to the success of its direct subscription
campaign and other promotional activities. The direct subscription campaign and
overall promotional initiatives, have successfully added more than 100,000
prepaid subscribers to The Daily Telegraph circulation increasing its average
weekday circulation to more than 1.1 million. Additionally, The Telegraph is
reducing the terms of many of its newsprint supply contracts. The increased
level of promotional activity at The Telegraph has continued through the third
quarter resulting in increased operating costs as compared to the prior year.
YEAR ENDED DECEMBER 31, 1995 COMPARED WITH YEAR ENDED DECEMBER 31, 1994
The Company had net earnings of $6.2 million in 1995, compared with net
earnings of $102.8 million in 1994. Net earnings per share were $0.11 per share
in 1995, compared with $ 1.90 per share in 1994. Earnings in 1995 were
unfavorably affected by a decrease of $19.3 million in equity in earnings of
affiliates (including the Company's share of a special restructuring charge and
loss on discontinued operations at Southam), an increase in interest expense of
$10.6 million and reorganization expenses of $8.0 million. Moreover, in 1994 net
earnings were favorably affected by gains on the sale of ordinary shares of The
Telegraph (which had a net earnings effect of $66.4 million or $1.23 per share).
Excluding these gains, the Reorganization expenses and the Southam charges, the
Company would have reported net earnings of $0.38 per share in 1995, compared
with $0.67 per share in 1994.
S-26
<PAGE> 31
The remaining net earnings decline was principally due to a decrease in
operating income (before giving effect to Reorganization expenses) of $7.0
million, or 10.0%, to $63.5 million in 1995 compared with $70.5 million in 1994.
The operating income of The Telegraph declined by 24.6%, to $23.3 million in
1995, from approximately $31.0 million in 1994, caused principally by a decline
in circulation revenues and higher newsprint costs. The United States Newspaper
Group's operating income increased $0.6 million, or 1.5%, to $40.3 million
(before giving effect to Reorganization expenses) from $39.6 million, due to an
increase by the Community Newspaper Group to $30.3 million from $23.4 million.
The Chicago Group experienced a decrease of 26.7% to $14.2 million, from
approximately $19.4 million, caused largely by an increase in newsprint costs.
The results in 1995 reflected a full year's operations of the Chicago Group
while results in 1994 reflected nine months operations for the Chicago Sun-Times
and related newspapers and exclude the results of the Daily Southtown.
OPERATING REVENUES. The following table shows the percentage increase in
revenues between 1995 and 1994 by principal business group.
<TABLE>
<CAPTION>
1995 VERSUS 1994
----------------
<S> <C>
United States Newspaper Group:
Chicago Group (1)....................................... 53.6%
Community Newspaper Group............................... 10.3%
Total................................................... 32.5%
International Newspaper Group............................. 4.9%
Total Operating Revenues.................................. 19.3%
</TABLE>
- ------------------
(1) Formed on March 31, 1994 with the acquisition of the Chicago Sun-Times and
61 associated newspapers.
United States Newspaper Group. Operating revenues in the United States
Newspaper Group were $559.9 million in 1995 (or 58.0% of total operating
revenues), an increase of $137.3 million, or 32.5%, over the same period in
1994. Most of the increase was attributable to the Chicago Group, where
operating revenues for the Chicago Sun-Times were only included for nine months
in 1994 due to the March 31, 1994 acquisition date, and operating revenues for
the Daily Southtown were excluded from 1994 due to its December 23, 1994
acquisition. The Community Newspaper Groups' revenues increased $21.1 million,
or 10.3%. For newspapers in the Community Newspaper Group operated for both
periods, revenues increased $8.5 million, or 4.1%.
Advertising revenues in the United States Newspaper Group were $372.6
million in 1995, an increase of $86.0 million, or 30.0%, over 1994. The Chicago
Group increased $73.6 million, due primarily to the inclusion of Chicago
Sun-Times and Daily Southtown subsequent to their acquisitions, while the
Community Newspaper Group increased $12.4 million, or 9.5%. For newspapers
operated for both periods, advertising revenues increased $4.3 million, or 3.3%.
Circulation revenues in the United States Newspaper Group were $129.7
million in 1995, an increase of $27.7 million, or 27.2% over 1994. Circulation
revenues for the Chicago Group increased $22.8 million due primarily to
inclusion of Chicago Sun-Times and Daily Southtown for the full 1995 period,
while circulation revenues at the Community Newspaper Group increased $4.9
million, or 10.6%. For newspapers operated for both periods, circulation
revenues increased $2.0 million, or 4.4%.
Job printing revenues, derived from utilizing available press capacity for
printing unaffiliated newspapers, fliers, retail store advertisements and real
estate listings for third parties, increased $21.5 million, or 77.8%, to $49.2
million in 1995 from $27.7 million in the same period in 1994, primarily due to
the acquisition of Daily Southtown.
International Newspaper Group. Operating revenues in the International
Newspaper Group, which consist exclusively of The Telegraph's operating
revenues, were $405.0 million in 1995 (or 42.0% of total operating revenues), an
increase of $18.8 million, or 4.9%, from 1994. When expressed in British pounds
sterling, revenues increased by 1.1%, principally as a result of cover price
recoveries and improved advertising revenues in the fourth quarter.
S-27
<PAGE> 32
Advertising revenues for 1995 increased $27.2 million to $263.0 million, or
11.5% over 1994. When expressed in British pounds sterling, advertising revenues
increased 8.0%. In local currency, classified advertising for The Daily
Telegraph showed a 21% increase due primarily to recruitment advertising, while
financial advertising revenues were 20% lower than in 1994 and display
advertising increased by approximately 3% over 1994.
Circulation revenues for 1995 were $133.0 million, a decline of $10.3
million, or 7.2%, from the 1994 period. When expressed in British pounds
sterling, circulation revenues declined by 10.1%, although average circulation
copies for The Daily Telegraph increased in 1995. When the weekday edition cover
price was reduced, there was no offsetting reduction in commissions paid to
wholesalers and retailers of The Daily Telegraph. Since circulation revenues are
recorded net of commissions paid to wholesalers and retailers, this resulted in
a decline in circulation revenue relating to weekday sales of The Daily
Telegraph from approximately 31.5p to 13.5p per copy. The cover price of the
Saturday edition, The Daily Telegraph's highest circulation day, was left
unaltered at 70p without loss of circulation. The cover price of The Sunday
Telegraph (average circulation approximately 697,000) was left unaltered at 70p.
Sunday edition circulation benefitted from a weekend voucher program introduced
in April 1994 which was discontinued in September 1995. The effect of the cover
price reduction on circulation revenues for 1994 was limited, but the full
effect of such reduction adversely affected circulation revenues for the first
nine months of 1995, notwithstanding a weekday cover price increase of 5p per
copy announced in July 1995. On November 20, 1995, The Daily Telegraph increased
the cover price of its weekday editions by an additional 5p to 40p and reduced
its recommended retail margin from 11.9p to 10.0p per copy, following a cover
price increase and a reduction of retail margin announced by its principal
competitor. Circulation revenues during the fourth quarter of 1995 improved by
40.1% in United States dollars and 35.7% in British pounds sterling over the
same period in 1994.
OPERATING COSTS AND EXPENSES. Operating costs and expenses are comprised
of (i) operating costs, (ii) general and administrative expenses, (iii)
depreciation and amortization expenses and (iv) allocable expenses from
Hollinger Inc. The following table shows the percentage increase in operating
costs and expenses between 1995 and 1994 by principal business group.
<TABLE>
<CAPTION>
1995 VERSUS 1994
----------------
<S> <C>
United States Newspaper Group:
Chicago Group........................................... 61.4%
Community Newspaper Group............................... 7.8%
Total................................................... 37.8%
International Newspaper Group............................. 7.5%
Total Operating Costs and Expenses........................ 23.2%
</TABLE>
United States Newspaper Group. Total operating costs and expenses in the
United States Newspaper Group were $527.7 million, an increase of $144.6
million, or 37.8%, over 1994. This increase was due primarily to the inclusion
of costs and expenses attributable to the Chicago Group for the full year. As a
percentage of total United States Newspaper Group revenues, operating costs and
expenses increased to 94.2% from 90.6%.
Operating costs, which consist primarily of labor and, to a lesser extent,
newsprint costs, were $424.1 million in 1995, an increase of $131.9 million, or
45.1%, over 1994. As a percentage of United States Newspaper Group revenues,
operating costs increased to 75.8% in 1995 from 69.1% in 1994. Most of this
increase was due to the inclusion of the Chicago Group for the full 1995 period.
The balance was due principally to higher newsprint costs, which offset cost
saving measures initiated by the Company, including reduced pagination, reduced
page size, improved efficiencies in distribution and the on-going staff
reduction program. Within the Chicago Group, newsprint costs as a percentage of
Chicago Group revenues rose by approximately six percentage points to 21.5% of
such revenues. Within the Community Newspaper Group, lower cost inventories
moderated the impact of increased newsprint costs so that newsprint costs as a
percentage of Community Newspaper Group revenues increased to 12.5% in 1995 from
9.6% in 1994. Newsprint costs are expected to increase further in 1996.
S-28
<PAGE> 33
General and administrative expenses decreased $2.0 million, or 3.8%, to
$49.4 million in 1995 from $51.4 million in 1994. As a percentage of United
States Newspaper Group revenues, general and administrative expenses decreased
to 8.8% from 12.2%. This decrease was the result of the implementation of the
Company's cost reduction program, mainly at the Chicago Group which improved
versus 1994 even though it did not record a full year in 1994.
Expenses associated with the Reorganization were $8.0 million in 1995 and
there were no comparable unusual expenses in 1994.
International Newspaper Group. Total operating costs and expenses at The
Telegraph were $381.9 million in 1995, an increase of $26.6 million, or 7.5%,
over 1994. When expressed in British pounds sterling, total operating costs and
expenses increased 4.1% over 1994. Total operating costs and expenses as a
percentage of Telegraph revenues, were 94.3% in 1995, compared with 92.0% in
1994, primarily as a result of higher newsprint costs and lower revenues due to
reduced cover prices of the weekday edition of The Daily Telegraph. As a
percentage of Telegraph revenues, newsprint costs increased to 22% in 1995 from
17% in 1994.
General and administrative expenses were $40.7 million in 1995, an increase
of $9.2 million, or 28.7%, over 1994. When expressed in British pounds sterling,
general and administrative expenses increased by 26.6% in 1995.
OPERATING INCOME. The above changes in operating revenues and operating
costs and expenses resulted in the following increases (decreases) in operating
income between 1995 and 1994 by principal business group.
<TABLE>
<CAPTION>
1995 VERSUS 1994
----------------
<S> <C>
United States Newspaper Group:
Chicago Group (1)....................................... (26.7)%
Community Newspaper Group............................... 29.5%
Total(2)................................................ 1.8%
International Newspaper Group............................. (24.6)%
Total Operating Income(2)................................. (10.0)%
</TABLE>
- ------------------
(1) Formed on March 31, 1994 with the acquisition of the Chicago Sun-Times and
61 associated newspapers.
(2) Excludes effect of reorganization expenses of $8.0 million in 1995.
United States Newspaper Group. Operating income in the United States
Newspaper Group was $32.3 million in 1995, a decrease of $7.3 million, or 18.4%,
from 1994, after Reorganization expenses of $8.0 million in 1995. Otherwise,
increased revenue, due largely to the full period recognition of the Chicago
Group, and benefits from cost reduction efforts, were largely offset by higher
newsprint costs. The Community Newspaper Group's performance, notwithstanding
newsprint cost increases, improved by 29.5%, while the Chicago Group experienced
a decline of 26.7% caused largely by newsprint cost increases. As a percentage
of total United States Newspaper Group revenues, operating income declined to
5.8% from 9.4%.
International Newspaper Group. Operating income at The Telegraph was $23.3
million in 1995, a decrease of $7.6 million, or 24.6%, from 1994. As a
percentage of Telegraph revenues, operating income declined to 5.7% from 8.0%.
When expressed in British pounds sterling, the operating income decrease was
23.3%. This decline was attributable to the reduced cover price for the weekday
editions of The Daily Telegraph. Total newsprint costs in 1995 increased 29%
over 1994 (when expressed in British pounds sterling), but were partially offset
by cost savings measures.
EQUITY IN EARNINGS OF AFFILIATES. Equity in the earnings of Fairfax,
Southam and the two joint venture printing companies was $16.4 million in 1995
compared with $35.7 million in 1994. Fairfax accounted for $24.7 million, a
decrease of $7.2 million from the prior period. The equity in the 1995 Southam
loss was $10.7 million, compared with earnings of $3.5 million in 1994. Southam
recorded restructuring charges of Cdn.$120 million in 1995 with the Company's
share being equivalent to $9.0 million in net earnings or $0.16 per share.
Southam also experienced a loss on discontinued operations which had an impact
on the
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<PAGE> 34
Company equivalent to $1.7 million in net earnings, or $0.03 per share. The
restructuring charges consist of amounts for severance to be paid due to
downsizing and the write-down of fixed assets at a printing facility which will
be closed.
GAIN ON SALE OF SECURITIES. Other income of $14.7 million in 1995
consisted mostly of the gain on sale of subsidiary shares and marketable
securities in 1995 of $12.0 million. Comparable gains in 1994 consisted of a
gain of $80.6 million from the sale of 12.5 million ordinary shares of The
Telegraph in May 1994.
INTEREST EXPENSE. Interest expense increased by $10.6 million, or 32.5%,
to $43.2 million in 1995, compared with $32.6 million in 1994. Interest expense
related to the United States Newspaper Group increased by $6.9 million in 1995,
reflecting mainly the increase in long-term debt related to the acquisition of
the Daily Southtown in December 1994 and 16 paid daily community newspapers in
September and October 1995.
INCOME TAXES. Income tax expense for 1995 was $18.1 million, compared with
$41.3 million in 1994. Income tax expense for 1995 consisted of $2.8 million in
United States taxes and $15.3 million in foreign taxes, compared with $4.4
million United States taxes and $36.9 million in foreign taxes for 1994,
reflecting a substantial decline in operating income at The Telegraph in the
1995 period.
MINORITY INTERESTS. Minority interest reflects the interest of the
minority holders of ordinary shares of The Telegraph in the earnings of The
Telegraph and its affiliated companies and dividends on redeemable preferred
stock of two subsidiary companies. The amount attributable to minority interests
increased to $22.6 million in 1995, as compared with $21.4 million in 1994.
YEAR ENDED DECEMBER 31, 1994 COMPARED WITH YEAR ENDED DECEMBER 31, 1993
The Company had net earnings for 1994 of $102.8 million compared with $25.8
million for 1993. Net earnings per share for 1994 were $1.90 compared with $1.03
for 1993, before the unfavorable effect of a cumulative change in accounting for
income taxes of $0.50 per share in 1993. The improvement was primarily the
result of a $80.6 million gain on the sale of ordinary shares in The Telegraph
in 1994 (which after tax was equivalent to $1.23 per share) which has been
included in other income. The gain on the sale of Telegraph shares in 1993 was
$7.3 million, or $0.15 per share. The Company also benefitted from the
acquisition in March 1994 of the Chicago Group, consisting of the Chicago
Sun-Times and 61 related suburban newspapers in the Chicago metropolitan area,
and from an increase in equity in earnings of affiliated companies (principally
Fairfax) of approximately $22.2 million, enhanced further by the full year
effect of the increase in The Telegraph's ownership interest in Fairfax to 24.8%
from 15%. Results of operations were adversely affected by a 55.6% decline in
operating income in The Telegraph due in large part to a decline in circulation
revenue following reductions in the cover price of the weekday edition of The
Daily Telegraph in June 1994 in response to price competition from its principal
competitor.
OPERATING REVENUES. The following table shows the percentage increases in
revenues between 1994 and 1993 by principal business group.
<TABLE>
<CAPTION>
1994 VERSUS 1993
----------------
<S> <C>
United States Newspaper Group:
Chicago Group (1)....................................... --
Community Newspaper Group............................... 11.1%
Total................................................... 128.4%
International Newspaper Group............................. 0.4%
Total Operating Revenues.................................. 42.0%
</TABLE>
- ------------------
(1) Formed on March 31, 1994 with the acquisition of the Chicago Sun-Times and
61 associated newspapers.
United States Newspaper Group. Operating revenues in the United States
Newspaper Group were $422.6 million in 1994 (or 52.2% of total operating
revenues), an increase of $237.6 million, or 128.4%, over 1993. This increase
resulted primarily from the addition of revenues of $217.0 million from the
acquisition of
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<PAGE> 35
the Chicago Sun-Times and 61 associated newspapers in March 1994. Revenues in
the Community Newspaper Group were $205.5 million, an increase of $20.5 million,
or 11.1%, over 1993 principally as a result of acquisitions. For newspapers
operated in both periods, revenues increased $6.7 million, or 3.7%.
Advertising revenues in the United States Newspaper Group increased $171.6
million, or 149.2%, to $286.6 million in 1994 from $115.0 million in 1993. This
increase was primarily the result of the acquisition of the Chicago Sun-Times.
For newspapers operated in both periods, the increase was $5.4 million, or 4.9%.
Circulation revenues in the United States Newspaper Group increased $59.5
million, or 139.9%, to $102.0 million in 1994 from $42.5 million in 1993, almost
wholly as a result of acquisitions. Based on Company estimates, daily paid and
non-daily paid circulation of newspapers acquired during 1994 were approximately
577,000 and 815,000, respectively, which represented approximately 51% and 66%
of the aggregate to total paid circulation at December 31, 1994 for all
newspapers in the United States Newspaper Group. For newspapers operated in both
periods, circulation revenues increased $0.8 million, or 2.0%.
Job printing revenues increased $2.6 million, or 10.5%, to $27.7 million in
1994 from $25.0 million in 1993 as a result of targeted marketing efforts by the
Company in the geographic markets adjacent to the Company's principal production
facilities.
International Newspaper Group. Operating revenues at The Telegraph were
$386.2 million in 1994 (or 47.8% of total operating revenues), an increase of
$1.7 million, or 0.4%, over 1993. However, revenues expressed in British pounds
sterling declined 1.4% in 1994. Increases in advertising revenues were offset by
a decline in circulation revenues resulting from a period of intense price
competition initiated by The Daily Telegraph's principal competitor.
Advertising revenue increased $34.1 million, or 16.9%, to $235.8 million in
1994 from $201.6 million in 1993. When expressed in British pounds sterling,
newspaper advertising revenues increased 13.2% principally due to increases in
classified advertising and to a lesser extent in display advertising.
Circulation revenue declined $31.9 million, or 18.2%, to $143.2 million in
1994 from $175.1 million in 1993. When expressed in British pounds sterling,
circulation revenues declined 19.8% from 1993. This was primarily the result of
a reduction in the cover price of the weekday editions of The Daily Telegraph in
June 1994 from 48p to 30p in response to similar reductions by The Daily
Telegraph's principal competitor, without any offsetting reduction in
commissions paid to wholesalers and retailers.
OPERATING COSTS AND EXPENSES. Operating costs and expenses are comprised
of (i) operating costs, (ii) general and administrative expenses, (iii)
depreciation and amortization expenses and (iv) allocable expenses from
Hollinger Inc. The following table shows the percentage increases in operating
costs and expenses between 1994 and 1993 by principal business group.
<TABLE>
<CAPTION>
1994 VERSUS 1993
----------------
<S> <C>
United States Newspaper Group:
Chicago Group (1)....................................... --
Community Newspaper Group............................... 10.4%
Total................................................... 129.4%
International Newspaper Group............................. 12.8%
Total Operating Costs and Expenses........................ 53.2%
</TABLE>
- ------------------
(1) Formed on March 31, 1994 with the acquisition of Chicago Sun-Times and 61
associated newspapers.
United States Newspaper Group. Total operating costs and expenses in the
United States Newspaper Group were $383.0 million in 1994, an increase of $216.1
million, or 129.4%, over 1993. As a percentage of total United States Newspaper
Group revenues, however, such costs and expenses increased only slightly to
90.6% in 1994 from 90.2% in 1993.
Operating costs, which consist primarily of labor and, to a lesser extent,
newsprint costs, were $292.2 million, an increase of $183.1 million, or 167.8%,
over 1993, primarily as a result of acquisitions. As a
S-31
<PAGE> 36
percentage of United States Newspaper Group revenues, operating costs increased
to 69.2% in 1994 from 59.0% in 1993. This increase came principally from the
acquired Chicago Group, where operating costs amounted to 78.8% of Chicago Group
revenues, as compared to 58.9% of the Community Newspaper Group revenues. For
newspapers operated in both periods, operating costs increased $2.2 million, or
2.1%.
General and administrative expenses increased $21.9 million, or 74.1%, to
$51.4 million in 1994 from $29.5 million in 1993. As a percentage of United
States Newspaper Group revenues, general and administrative expenses decreased
to 12.2% in 1994 from 16.0% in 1993. This change came principally from the
acquired Chicago Group, where general and administrative expenses were 8.0% of
Chicago Group revenues, as compared to 16.6% of the Community Newspaper Group
revenues.
Depreciation and amortization expenses were $35.8 million, an increase of
$10.0 million, or 38.7%, over 1993, due primarily to the addition of $8.5
million in depreciation and amortization expenses relating to the acquisition of
Chicago Sun-Times in March 1994. As a percentage of United States Newspaper
Group operating revenues, depreciation and amortization was 8.5% in 1994 and
14.0% in 1993.
Expenses allocated from Hollinger Inc. were $3.6 million in 1994, an
increase of $1.1 million, or 43.2%, over 1993. This reflected the cost of
various additional management and administrative services provided by Hollinger
Inc. to the enlarged United States Newspaper Group in 1994.
International Newspaper Group. Total operating costs and expenses at The
Telegraph were $355.3 million in 1994, an increase of $40.4 million, or 12.8%,
over 1993. When expressed in British pounds sterling, total operating costs and
expenses increased 10.8% and, when viewed as a percentage of Telegraph revenue,
increased to 91.2% in 1994, from 81.2% in 1993. Most of the absolute increase in
costs occurred in operating costs, as the other category changes were nominal,
and most of the apparent shift in costs as a percentage of revenues was
attributable to the reduction in cover price in June 1994, which decreased the
revenue component of the calculation.
Operating costs at The Telegraph were $313.0 million in 1994, an increase
of $39.9 million, or 14.6%, from 1993, primarily due to increases in newsprint
costs and promotional expenditures. When expressed in British pounds sterling,
newsprint costs rose 15.1% over 1993 and promotional expenditures increased by
43.1%. As a consequence of the "price war," circulation was stimulated, which
increased the number of copies produced. At the same time, advertising volume
increased, which increased the number of pages per copy. Both factors
contributed to the increase in total operating costs. As a percentage of
Telegraph revenues (when expressed in British pounds sterling), labor costs
increased to 18.4% in 1994 from 17.5% in 1993, while newsprint costs increased
to 17.0% in 1994 from 14.6% in 1993.
General and administrative expenses were $31.5 million in 1994, an increase
of $0.2 million, or 0.5%, over the 1993 period. When expressed in British pound
sterling, general and administrative expenses declined by 1.6% in 1994.
OPERATING INCOME. The above changes in operating revenues and operating
costs and expenses resulted in the following increases (decreases) in operating
income between 1994 and 1993 by principal business group.
<TABLE>
<CAPTION>
1994 VERSUS 1993
----------------
<S> <C>
United States Newspaper Group:
Chicago Group (1)....................................... --
Community Newspaper Group............................... 17.0%
Total................................................... 119.0%
International Newspaper Group............................. (55.6)%
Total Operating Income.................................... (19.7)%
</TABLE>
- ------------------
(1) Formed on March 31, 1994 with the acquisition of the Chicago Sun-Times and
61 associated newspapers.
United States Newspaper Group. Operating income improved in 1994 by $21.5
million, or 119.0%, to $39.6 million. As a percentage of United States Newspaper
Group revenues, operating income declined
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<PAGE> 37
slightly from 9.8% to 9.4%. The Chicago Group represented $18.4 million of the
improvement during the nine months following the acquisition of the Chicago
Sun-Times and its 61 associated newspapers. The Chicago Group's lower operating
margin as compared to that of the Community Group accounted for the decline in
margin; however, even in this brief period the Chicago Group improved its
operating income as a percentage of Chicago Group operating revenues to 7.1%,
compared with 2.9% in 1993 on a pro forma basis. The Community Newspaper Group
improved its operating income as a percentage of Community Newspaper Group
operating revenues to 10.3% in 1994, compared with 9.8% in 1993.
International Newspaper Group. Operating income at The Telegraph was $31.0
million, a decline of $38.8 million, or 55.6%, from 1993. When expressed in
British pounds sterling, this represented a 54.0% decrease and was primarily due
to the reduction in cover price of weekday editions of The Daily Telegraph in
June 1994.
EQUITY IN THE EARNINGS OF AFFILIATES. Equity in the earnings of Fairfax,
Southam and the two printing joint ventures increased $22.2 million to $35.7
million in 1994, compared with $13.5 million in 1993. This increase reflected a
$18.4 million increase in earnings from Fairfax and the first full year effect
of the increase in The Telegraph's holding in Fairfax from 15.0% to 24.8%.
Equity accounting for the Southam investment commenced April 1, 1994 and added
$3.5 million to income in 1994.
OTHER INCOME. Other income of $80.8 million in 1994 consisted mainly of
the gain of $80.6 million from the May 1994 public sale of 12.5 million ordinary
shares of The Telegraph. Applicable income taxes relating to the sale of shares
aggregated $14.2 million. The net earnings effect of this gain was $66.4
million, equivalent to $1.25 per share. In 1993, other income was $29.1 million
principally as a result of the gain on the sale of 2.0 million ordinary shares
of The Telegraph ($7.3 million), a gain on the sale of marketable securities
($17.6 million) and a gain on dilution with respect to The Telegraph stake in
Fairfax ($3.6 million).
INTEREST EXPENSE. Interest expense increased by $6.3 million, or 24.1%, to
$32.6 million in 1994 as compared with $26.3 million in 1993. Interest expense
related to the United States Newspaper Group increased by $4.4 million to $23.4
million in 1994, reflecting an increase in long-term debt due to the acquisition
of Chicago Sun-Times, which was partially offset by a lower interest rate for
borrowings under the United States subsidiaries' bank credit facilities.
Interest expense of The Telegraph increased by $2.0 million, or 27.4%, as a
result of the full year effect of borrowings related to investments in Fairfax
and Southam made during 1993.
INCOME TAXES. Income tax expense for 1994 of $41.3 million consisted of
$4.4 million in United States income taxes, and $36.9 million in foreign taxes,
as compared with $36.5 million in 1993 when no United States income taxes were
payable.
Effective January 1, 1993, the Company adopted, on a prospective basis,
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes." The cumulative effect of the change in the method of accounting for
income taxes is reported as a non-cash charge of $24.3 million in the
Supplemental Consolidated Statement of Operations for the year ended December
31, 1993. The Cumulative effect principally represents the recording of deferred
tax liabilities related to certain intangible assets associated with the
International Newspaper Group which have no tax bases.
MINORITY INTEREST. Minority interest reflects the interest of the minority
holders of ordinary shares of The Telegraph in the earnings of The Telegraph and
its affiliated companies and dividends on the DTH and FDTH Preference Shares,
net of related swap income. The amount attributable to minority interest in 1994
declined to $21.4 million from $25.5 million in 1993, primarily as a result of
The Telegraph's earnings decline in 1994. The holdings of the minority in The
Telegraph increased to 41.4% at December 31, 1994 from 33.6% at December 31,
1993.
LIQUIDITY AND CAPITAL RESOURCES
WORKING CAPITAL. Working capital consists of current assets less current
liabilities. Current assets were $278.3 million at September 30, 1996 compared
with $197.6 million at December 31, 1995. Most of the increase was due to a
$71.0 million increase in cash and cash equivalents which came about mainly as a
result
S-33
<PAGE> 38
of financing activities taken in the first and third quarters of 1996 including
the public offering of Class A Common Stock, 9 1/4% Notes and PRIDES. Accounts
receivable increased by $12.4 million primarily a result of acquisitions, while
inventories were reduced by $7.1 million as the easing of newsprint prices
reduced the need for inventory hedge buying. Current liabilities, excluding debt
obligations were $159.2 million at September 30, 1996, compared with $124.8
million at December 31, 1995; the increase was the result of acquisitions.
DEBT. Current debt obligations, excluding the current portion of long term
debt, included in current liabilities were $587.3 million at September 30, 1996
compared with $147.9 million at December 31, 1995. This increase was due to
borrowings of under the Southam Facility during the second quarter of 1996 and
under the Publishing and FDTH facilities in the third quarter of 1996. The
Southam Facility matures on March 31, 1997, subject to earlier prepayment in
specified circumstances and the FDTH and Publishing facilities mature on April
7, 1997. Long-term debt, including the current portion, was $419.5 million at
September 30, 1996 compared with $473.8 million at December 31, 1995. In
September 1996, the Company made a $15 million principal payment on the Senior
Notes. The Company also entered into an amended FDTH credit facility to acquire
the additional 9.2% interest in Southam pursuant to the outstanding offer
referred to in Note 8 to the consolidated financial statements.
EBITDA. EBITDA, which represents the Company's earnings before interest
expense, income taxes, depreciation and amortization, minority interest, equity
in earnings of affiliates and other income was $95.6 million in the first nine
months of 1996 compared with $76.1 million in the first nine months of 1995. The
Company believes that EBITDA largely determines its ability to fund current
operations and to service debt. These acquisitions have resulted in non-cash
charges for depreciation and amortization which have reduced net earnings, but
have not affected EBITDA.
CASH FLOWS. Cash flows from operating activities were $66.8 million for
the nine months ended September 30, 1996, compared with $1.6 million in 1995.
Excluding changes in working capital (other than cash), cash provided by
operating activities was $58.6 million in 1996 and $42.0 million in 1995.
Cash flows related to investing activities were an outflow of $709.1
million in 1996, largely related to the acquisition of the additional 21.5%
interest in Southam, the minority buyout at The Telegraph and acquisitions at
the community group, and an inflow of $7.7 million in 1995, due largely to
Telegraph's proceeds from the sale of marketable securities of $17.7 million.
Cash flows related to financing activities were a net inflow of $711.3
million. This results from proceeds from public offerings and credit facilities.
Net cash outflows of $97.6 million in 1995 largely reflect reductions in debt
which were possible due to large cash equivalent balances.
CAPITAL EXPENDITURES AND ACQUISITION FINANCING. The United States
Newspaper Group and the International Newspaper Group have funded their capital
expenditures and acquisition and investment activities out of cash provided by
their respective operating activities, borrowings under their bank credit
facilities and, in the case of the United States Newspaper Group, borrowings
from institutional lenders, proceeds from the Company's initial public offering
in May 1994, concurrent debt and equity offerings in the February 1996 and
concurrent equity offerings in August 1996.
In May 1996, Hollinger Inc. acquired additional common shares of Southam
from a third party. This acquisition was financed by the Company through
borrowings of approximately Cdn.$300 million under the Southam Facility. The
Southam Facility is guaranteed by Hollinger Inc. The maturity date on the loan
was extended from November 26, 1996 to February 28, 1997 or earlier upon
occurrence of certain events, namely (i) one banking day prior to the maturity
date of the Publishing Credit Facility, which is currently scheduled to mature
on February 7, 1997; (ii) one banking day prior to the maturity date of the FDTH
Credit Facility, which is currently scheduled to mature on February 7, 1997; or
(iii) the closing date on any equity issue, debt financing, public or private
placement or high yield financing completed by the Company or any of its
subsidiaries or by Hollinger Inc. or certain of its Canadian subsidiaries. All
net proceeds of any financing referred to in (iii) above must be applied as a
permanent prepayment of the Southam Facility. The Hollinger Inc. guarantee of
the Southam Facility is secured by a pledge of the acquired Southam Shares and
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<PAGE> 39
7,539,028 shares of Class A Common Stock and 14,990,000 shares of Class B Common
Stock of the Company held indirectly by Hollinger Inc.
In connection with the Scheme, the Company entered into definitive
agreements with certain financial institutions for short term bank credit
facilities and bridge financing, in the aggregate amount of approximately $625.0
million. On August 7, 1996, the Company borrowed approximately $130.0 million
under the Amended Publishing Bank Credit Facility and approximately $305.0
million under the FDTH Credit Facility, which funds, together with the net
proceeds of the concurrent offerings of Class A Common Stock and PRIDES, were
used to finance the Scheme of approximately $455.1 million, pay outstanding debt
of The Telegraph of approximately $139.5 million and pay related transaction
costs of approximately $8.1 million.
EXISTING DEBT OBLIGATIONS. The Company, Publishing and its principal
subsidiaries are parties to various debt agreements which have been entered into
to fund acquisitions, working capital requirements and other corporate purposes.
At September 30, 1996 the indebtedness of the Company was $1,006.8 million
consisting of long-term debt of $419.5 million, and current bank loans of $587.3
million and at December 31, 1995, the indebtedness of the Company was $621.7
million, consisting of long-term debt of $473.8 million and current bank loans
of $147.9 million. Of the Company's total debt, $587.3 million is due on or
prior to March 31, 1997.
DIVIDENDS AND OTHER COMMITMENTS. The Company's sales of Class A Common
Stock and PRIDES has significantly increased its dividends obligations and the
Company also has significant debt service obligations, capital expenditures,
management fees due to Hollinger Inc. and dividends on its Series A Redeemable
Preferred Stock. Furthermore, the Company's wholly owned subsidiaries, DTH and
FDTH, have obligations in respect of their redeemable preferred stock (the "DTH
and FDTH Preference Shares"). The Company has an agreement to compensate
Hollinger Inc. for any payments made by Hollinger Inc. to the holders of the DTH
and FDTH Preference Shares in the event such holders exercise their retraction
rights set forth in the designation of such shares and Hollinger Inc. purchases
such shares pursuant to contractual arrangements with the holders. The timing of
any such payments by the Company to Hollinger Inc. will be determined by
Hollinger Inc. Hollinger Inc. has agreed that, so long as the FDTH Credit
Facility is outstanding, it will refrain from demanding any such payment from
the Company. The Company has been informed by Hollinger Inc. that it is in
compliance with the debt to equity ratio required under the terms of the DTH and
FDTH Preference Shares at September 30, 1996. There can be no assurance,
however, that Hollinger Inc. will continue to be in compliance with such ratio.
The Company will apply a portion of the net proceeds of the Offering to redeem
the outstanding preference shares of DTH and FDTH that are held by third
parties.
The amount available for the payment of dividends and other obligations by
the Company at any time is a function of (i) restrictions in agreements binding
the Company limiting its ability to pay dividends, management fees and other
payments and (ii) restrictions in agreements binding the Company's subsidiaries
limiting their ability to pay dividends, management fees and other payments to
the Company. The Company is not a party to a debt agreement that restricts the
payment of dividends. However, certain agreements binding Publishing and other
subsidiaries of the Company contain such restrictive provisions. As of September
30, 1996, the total amount of funds that would be unrestricted as to payment of
dividends, management fees and other payments by Publishing under its debt
instruments would, under the more restrictive provisions, have been
approximately $24.6 million. The foregoing calculation is based on the sum of
the following for the period January 1, 1996 to September 30, 1996: (i) 50% of
the sum of (x) consolidated net income of Publishing and its Restricted
Subsidiaries (principally its United States subsidiaries), or if it is a loss,
100% of such loss, and (y) amortization expense of Publishing and its
subsidiaries; (ii) 50% of the cash dividends received by Publishing and its
restricted subsidiaries from any unrestricted subsidiaries, including The
Telegraph; and (iii) $25 million. In addition, the amount available for
dividends is permitted to be increased, among other provisions, by the amount of
net cash proceeds from capital contributions made to Publishing. The Company's
subsidiaries, American Publishing (1991) Inc. and FDTH, also are parties to
agreements that limit their respective abilities to pay dividends and made other
payments to the Company.
The amount available for the payment of dividends and other obligations by
the Company at any time is limited by a number of binding agreements, but the
Company expects its internal cash flow and financing resources to be adequate to
meet its foreseeable requirements.
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<PAGE> 40
CERTAIN INFORMATION CONCERNING SOUTHAM
OVERVIEW
Southam is Canada's largest publisher of daily newspapers with 32 daily
newspapers and 58 non-daily newspapers with a total daily circulation of
approximately 1,601,000. Southam's principal publications include The Gazette
(Montreal), The Ottawa Citizen, the Calgary Herald, The Vancouver Sun, The
Province (Vancouver) and The Edmonton Journal. In addition, the Southam Magazine
and Information Group publishes Canadian and United States business magazines
and tabloids for the automotive, trucking, construction, natural resources,
manufacturing and other industries. Recently, Southam has sold or announced the
sale of various non-newspaper assets.
BUSINESS STRATEGY
Since the acquisition of the Power Shares on May 24, 1996, the Company has
positioned Southam to implement steps designed to enhance its operating
performance through reduced costs and improved editorial quality, including the
acquisition of additional Canadian newspapers and the disposition of
non-newspaper assets. See "The Company--Southam" for information regarding
certain Canadian newspaper acquisitions and dispositions of non-core businesses
completed in the fall of 1996.
Southam intends to continue to improve profitability of its existing and
newly acquired newspapers, magazines and other publications through the
implementation of the previously announced labor cost reduction program, the
decentralization of certain administrative and corporate functions, and
enhancements to editorial and product quality. During 1996 Southam terminated
approximately 265 employees as part of a 1995 plan which includes the
elimination of 750 positions and the write-down of redundant assets at its
Pacific Press facility in Vancouver, including printing equipment and other
operating assets. Southam is planning to install new printing equipment at its
Pacific Press facilities with an estimated completion date in 1997, which, when
operational, is expected to improve product quality as well as reduce labor and
other operating costs. In addition, Southam's business strategy includes
improvement of circulation and advertising revenues that focus on each of its
newspaper's natural circulation or readership advantages and improvement in its
newsprint purchase arrangements by coordinating, to the extent practicable, its
newsprint purchases with that of the Company. The Company also intends to
explore with Southam possible regional printing arrangements between Southam's
various newspapers located in different communities throughout Canada and the
Canadian newspapers to be acquired by the Company from Hollinger Inc.
SELECTED FINANCIAL DATA OF SOUTHAM
The selected consolidated financial data presented below for the five years
ended December 31, 1995 have been derived from Southam's audited consolidated
financial statements. The selected consolidated financial data for the nine
months ended September 30, 1995 and 1996 have been derived from Southam's
unaudited consolidated financial statements for such periods. Interim results
are not necessarily indicative of the results which may be expected for any
other interim period or for a full year. For additional information, see "The
Company--Recent Developments" and "Unaudited Results for the Fourth Quarter and
the Year 1996."
S-36
<PAGE> 41
The consolidated financial statements have been prepared in accordance with
Canadian GAAP, which differ in some significant respects from U.S. GAAP.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------------------------------ --------------------
1991 1992 1993 1994 1995 1995 1996
---------- ---------- ---------- ---------- ---------- -------- --------
(IN THOUSANDS OF CANADIAN DOLLARS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA: (1)
Revenue..................... $ 998,658 $ 986,617 $ 968,109 $ 976,171 $1,022,345 $734,490 $800,575
EBITDA...................... 41,501 62,452 87,852 119,107 112,537 71,441 80,761
Operating income (loss)
before unusual items and
income taxes.............. (38,456) (5,389) 29,914 65,167 59,411 30,988 37,642
Net income (loss) in
accordance with Canadian
GAAP(2)................... (153,157) (262,851) 21,568 44,008 (53,422) 4,687 57,182
Income (loss) per share in
accordance with Canadian
GAAP...................... (2.60) (4.26) 0.29 0.58 (.70) .06 .75
Net income (loss) in
accordance with U.S.
GAAP...................... (1) (1) 24,625 44,676 (54,630) 3,781 55,775
Income (loss) per share in
accordance with U.S.
GAAP...................... (1) (1) 0.34 0.58 (.72) .05 .73
BALANCE SHEET DATA: (1)
Working capital
(deficiency).............. $ 155,127 $ 44,329 $ (14,475) $ 5,064 $ 11,431 $ 47,868 $ 54,052
Total assets................ 1,381,567 894,359 914,241 898,933 823,115 841,803 958,252
Long-term debt.............. 652,781 312,883 169,548 124,500 187,276 184,000 321,827
Shareholders' equity in
accordance with Canadian
GAAP...................... 450,006 237,720 433,397 454,803 359,264 440,698 406,650
Shareholders' equity in
accordance with
U.S. GAAP................. (1) (1) 425,203 456,321 360,445 442,181 407,632
</TABLE>
- ------------------
(1) The consolidated financial statements of Southam have been prepared in
accordance with Canadian GAAP, which differ in some significant respects
from U.S. GAAP. Reconciliations as at December 31, 1991 and 1992 and for the
years ended December 31, 1991 and 1992 are not available.
(2) Southam had a loss from various discontinued operations of $98,584,000 in
1991, $138,483,000 in 1992, $14,526,000 in 1995 and $14,526,000 for the nine
months ended September 30, 1995, and a gain from various discontinued
operations of $2,096,000 in 1993 and $2,690,000 in 1994.
S-37
<PAGE> 42
CERTAIN INFORMATION CONCERNING CANADIAN NEWSPAPERS
TO BE ACQUIRED FROM HOLLINGER INC.
OVERVIEW OF TRANSACTION
The Hollinger Inc. Transaction, approved in principle by the Boards of
Directors of the Company and Hollinger Inc. on January 7, 1997 consists of the
transfer of certain of Hollinger Inc.'s Canadian publishing interests, including
(a) certain newspaper assets located mainly in Ontario, including 12 daily and
seven non-daily newspapers, (b) certain newspaper assets located mainly in
Saskatchewan, including two daily and eight non-daily newspapers, (c) certain
newspaper assets located mainly in British Columbia, including nine daily and 19
non-daily newspapers, and (d) UniMedia Inc., including three daily and 15
non-daily newspapers located in Quebec (collectively, the "Canadian
Newspapers").
The Company and Hollinger Inc. are negotiating definitive purchase
documentation, which is expected to be entered into in March 1997, which will
provide for the transfer of the Canadian Newspapers to the Company followed by a
transfer to Hollinger Eastern. At the time of such transfer, following the
Company's internal reorganization of its interests in Southam concurrently with
the consummation of the Offering, Hollinger Eastern will be a holding company
consolidated with Publishing with 50% of its voting preference shares held by
Hollinger Inc. (See "The Company--Recent Developments--Reorganization of the
Company's Southam Interests").
The Canadian Newspapers are now held by Hollinger Inc. directly or
indirectly through its Sterling Newspaper Group and UniMedia Inc.
Sterling Newspaper Group. The Sterling Newspaper Group consists of
newspapers in Canada which are owned and operated directly by Hollinger Inc. and
its wholly-owned subsidiary, Sterling Newspapers Ltd., a British Columbia
corporation ("Sterling") since the 1980s. Sterling has publications in British
Columbia, Alberta, Saskatchewan, Manitoba, Ontario and Prince Edward Island,
which include 23 daily newspapers and 28 non-daily newspapers. Sterling expanded
its operations by the acquisition in October 1995 of 19 Canadian paid
circulation newspapers from The Thomson Corporation, and the February 1996
acquisition from Armadale Co. Ltd., of two daily newspapers, the Regina
Leader-Post and the Saskatoon Star Phoenix, which are now Hollinger Inc.'s two
largest English-language daily newspapers in Canada, and 12 non-daily community
newspapers in Alberta, Saskatchewan and Manitoba.
UniMedia Inc. UniMedia, Inc., a wholly-owned, indirectly held subsidiary of
Hollinger Inc. ("UniMedia") since 1987, operates three paid circulation daily
French language newspapers in the Province of Quebec. In addition, UniMedia
operates 15 non-daily newspapers, several publication distribution businesses
and has several ancillary businesses, including the publication of religious
books.
BUSINESS STRATEGY
After the acquisition of the Canadian Newspapers from Hollinger Inc., the
Company intends to continue current efforts to improve the profitability of the
acquired papers and to capitalize on profitability improvements already
introduced by Hollinger Inc. The approach of both the Company and Hollinger Inc.
to improving profitability typically includes measures to reduce costs, improve
efficiency and enhance product quality, including the visual quality of printed
pages. Generally, the most significant source of savings is labor costs. The
Company also intends to achieve additional cost savings through the
centralization of newsprint purchasing and certain other functions, such as
accounting and personnel. The Company intends to coordinate, to the extent
practicable, its newsprint purchases for its United States newspapers with those
of the Canadian newspapers to be acquired from Hollinger Inc. as well as
Southam's newsprint purchases. To achieve greater product quality and cost
reductions, the Company, where justified by economic and operational criteria,
may regionalize production operations at its Canadian community newspapers and
may explore the feasibility of such regionalization with Southam's newspaper
operations in Canada. The Company also intends to enhance advertising and
circulation revenues by focusing on the natural circulation and readership
advantages of the particular newspapers acquired. Certain of the newspapers,
including the Armadale Group (consisting of 19 paid circulation newspapers) and
the Thomson Group (consisting of two
S-38
<PAGE> 43
daily newspapers and 12 non-daily community newspapers), were acquired by
Hollinger Inc. in February 1996 and October 1995, respectively, while others,
such as the Sterling Newspaper Group and UniMedia Inc., have been owned by
Hollinger Inc. for a number of years.
SELECTED FINANCIAL DATA OF CANADIAN NEWSPAPER INTERESTS
The selected financial data presented below for the year ended December 31,
1996 includes financial data for the Canadian Newspapers. The Company and
Hollinger Inc. have agreed in principle to transfer these newspaper assets
currently owned and controlled by Hollinger Inc. to the Company.
The selected unaudited financial data (in United States dollars) presented
below has been prepared in accordance with U.S. GAAP.
<TABLE>
<CAPTION>
INCOME STATEMENT DATA YEAR ENDED
DECEMBER 31, 1996
-----------------
(IN THOUSANDS)
<S> <C>
Revenue................................................ $ 213,619
EBITDA................................................. 37,250
Operating income....................................... 27,427
Net income............................................. 22,156
BALANCE SHEET DATA
Working capital........................................ $ 10,932
Total assets........................................... 298,492
Long-term debt......................................... 800
Shareholder's equity................................... 269,740
</TABLE>
S-39
<PAGE> 44
DESCRIPTION OF OFFERED NOTES
The following description of the particular terms of the Senior Notes and
the Senior Subordinated Notes supplements, and to the extent inconsistent
therewith replaces, the description of the general terms and provisions of the
Debt Securities set forth in the accompanying Prospectus, to which description
reference is hereby made. Any capitalized terms used herein without definition
have the same meanings as set forth in the Prospectus.
GENERAL
Each of the Senior Notes and the Senior Subordinated Notes will constitute
a separate Series as described in the accompanying Prospectus. The Senior Notes
will be issued under the Senior Indenture, will be limited to $265,000,000 in
aggregate principal amount and will mature on , 2005. The Senior
Subordinated Notes will be issued under the Senior Subordinated Indenture, will
be limited to $265,000,000 in aggregate principal amount and will mature on
, 2007. Reference is made to the accompanying Prospectus for a more
detailed description of the Indentures pursuant to which the Senior Notes and
Senior Subordinated Notes will be issued.
Principal of, premium, if any, and interest on the Offered Notes will be
payable, and the Offered Notes will be exchangeable and transferable at the
office or agency of Publishing in the City of New York maintained for such
purposes; provided, however, that payment of interest may be made at the option
of Publishing by check mailed to the person entitled thereto as shown on the
security register. No service charge will be made for any registration of
transfer, exchange or redemption of the Offered Notes, except in certain
circumstances for any tax or other governmental charge that may be imposed in
connection therewith.
GUARANTEE
The Company will irrevocably and unconditionally guarantee, on an unsecured
senior basis, in the case of the Senior Notes, and on an unsecured senior
subordinated basis, in the case of the Senior Subordinated Notes, the
performance and punctual payment when due, whether at stated maturity, by
acceleration or otherwise, of all the obligations of Publishing under the
Indentures and the Offered Notes. Payments on the Company's guarantee of the
Senior Subordinated Notes will be subordinated, as set forth in the Senior
Subordinated Indenture, in right of payment to the prior payment in full of all
Senior Guarantor Indebtedness, including the Company's guarantee of Publishing's
obligations under its bank credit facilities and the Senior Notes. The Offered
Notes may also be guaranteed by one or more Restricted Subsidiaries from time to
time under certain circumstances. See "Description of Securities--Securities
Guarantees" and "Description of Securities--Guarantees" in the Prospectus.
RANKING
The Senior Notes will be unsecured and senior obligations of Publishing and
will rank pari passu with all other senior indebtedness of Publishing. The
Senior Notes will bear interest at the rate of % per annum from ,
1997, or from the most recent interest payment date to which interest has been
paid or duly provided for, payable semiannually on and ,
commencing , 1997 to the Persons in whose name the Senior Notes (or
any predecessor Senior Notes) are registered at the close of business on the
or next preceding the relevant interest payment date. The
Senior Subordinated Notes will be unsecured senior subordinated obligations of
Publishing and will rank pari passu with all other senior subordinated
indebtedness of Publishing, including the 9 1/4% Notes. The Senior Subordinated
Notes will bear interest at the rate of % per annum, from , 1997
or from the most recent interest payment date to which interest has been paid or
duly provided for, payable semiannually on and , commencing
, 1997, to the person in whose name the Senior Subordinated Notes (or
any predecessor Senior Subordinated Notes) are registered at the close of
business on the or next preceding the relevant interest
payment date.
S-40
<PAGE> 45
OPTIONAL REDEMPTION
The Senior Notes will not be subject to redemption at the option of
Publishing at any time prior to maturity.
The Senior Subordinated Notes will be subject to redemption at any time on
or after , 2002 at the option of Publishing, in whole or in part, on
not less than 30 nor more than 60 days' prior notice in amounts of $1,000 or an
integral multiple thereof at the following redemption prices (expressed as
percentages of the principal amounts), if redeemed during the 12-month period
beginning of the years indicated below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
- ------------------------------------------------------------------------------- ----------
<S> <C>
2002........................................................................... %
2003........................................................................... %
2004........................................................................... %
</TABLE>
and thereafter at 100% of the principal amount, in each case together with
accrued and unpaid interest, if any, to the redemption date (subject to the
right of holders of record on the relevant record dates to receive interest due
on an interest payment date).
If less than all of the Senior Subordinated Notes are to be redeemed, the
Trustee shall select the Senior Subordinated Notes or the portion thereof to be
redeemed pro rata or by any other method the Trustee shall deem fair and
reasonable.
CHANGE OF CONTROL
In the event of a Change of Control, Publishing will be required to make an
offer to purchase each series of Offered Notes at a price, payable in cash,
equal to 101% of their principal amount plus accrued and unpaid interest to the
date of purchase. See "Description of Debt Securities--Certain Covenants with
Respect to the Senior Securities--Purchase of Securities Upon a Change of
Control" and "Description of Debt Securities--Certain Covenants with Respect to
the Senior Subordinated Securities--Purchase of Securities Upon a Change of
Control" in the accompanying Prospectus.
SINKING FUND
The Offered Notes will not be entitled to the benefit of any sinking fund.
DEFEASANCE
The provisions of the Indentures relating to defeasance and covenant
defeasance described under the caption "Description of Securities--Defeasance or
Covenant Defeasance" in the Prospectus shall apply to the Offered Notes.
BOOK-ENTRY SECURITIES
The Offered Notes will be issued in the form of global notes. The Global
Notes will be deposited with, or on behalf of DTC (the "Depository"), and
registered in the name of the Depository or a nominee thereof. Unless and until
it is exchanged in whole or in part for Offered Notes in definitive form, no
Offered Note may be transferred except as a whole by the Depository to a nominee
of such Depository or by a nominee to a successor of such Depository or a
nominee of such successor.
The Depository has advised Publishing as follows: The Depository is a
limited purpose trust company organized under the New York Banking Law, a
"banking organization" within the meaning of the New York Banking Law, a member
of the Federal Reserve System, a "clearing corporation" within the meaning of
the New York Uniform Commercial Code, and a "clearing agency" registered
pursuant to the provisions of Section 17A of the Securities Exchange Act of
1934, as amended. The Depository was created to hold securities of its
participants and to facilitate the clearance and settlement of securities
transactions among its participants in such securities through electronic
book-entry changes in participants' accounts thereby
S-41
<PAGE> 46
eliminating the need for physical movement of securities certificates. The
Depository's participants include securities brokers and dealers, banks, trust
companies, clearing corporations, and certain other organizations, some of whom
(and/or their representatives) own the Depository. Access to the Depository's
book-entry system is also available to others, such as banks, brokers, dealers
and trust companies that clear through or maintain a custodial relationship with
a participant, either directly or indirectly. The rules applicable to the
Depository are on file with the Securities and Exchange Commission.
S-42
<PAGE> 47
UNDERWRITING
Subject to the terms and conditions set forth in purchase agreements in
respect of each of the Senior Notes and the Senior Subordinated Notes (the
"Purchase Agreements"), Publishing has agreed to sell to each of the
underwriters named below (the "Underwriters"), and each of the Underwriters
severally has agreed to purchase, the principal amount of Senior Notes and the
Senior Subordinated Notes set forth opposite its name below.
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
UNDERWRITER SENIOR NOTES
- ---------------------------------------------------------------------------- -----------------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated................................................... $
CIBC Wood Gundy Securities Corp.............................................
Scotia Capital Markets (USA) Inc............................................
TD Securities (USA) Inc.....................................................
-------------
Total.......................................................... $ 265,000,000
=============
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
SENIOR
SUBORDINATED
UNDERWRITER NOTES
- ---------------------------------------------------------------------------- -----------------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated................................................... $
Donaldson, Lufkin & Jenrette Securities Corporation.........................
TD Securities (USA) Inc.....................................................
Bear, Stearns & Co. Inc.....................................................
CIBC Wood Gundy Securities Corp.............................................
-------------
Total.......................................................... $ 265,000,000
=============
</TABLE>
The Underwriters have advised Publishing that they propose initially to
offer the Senior Notes and the Senior Subordinated Notes to the public at the
respective public offering prices set forth on the cover page of this Prospectus
Supplement and to certain dealers at such prices less concessions not in excess
of % of the principal amount of the Senior Notes and % of the principal
amount of the Senior Subordinated Notes. The Underwriters may allow, and such
dealers may reallow, discounts not in excess of % of the principal amount
of the Senior Notes and % of the principal amount of the Senior Subordinated
Notes on sales to certain other dealers. After the initial public offering, the
public offering prices, concessions and discounts may be changed.
There currently is no public market for the either the Senior Notes or the
Senior Subordinated Notes. Although application is being made to list the Senior
Notes and the Senior Subordinated Notes on the New York Stock Exchange, there
can be no assurance as to the liquidity of the trading market for the Senior
Notes or the Senior Subordinated Notes or that an active public market for the
Senior Notes or the Senior Subordinated Notes will develop. If an active public
market does not develop, the market price and liquidity of the Senior Notes or
the Senior Subordinated Notes, as the case may be, may be adversely affected.
See "Risk Factors--Absence of Public Market for the Securities and Lack of
Liquidity."
More than 10% of the net proceeds from the sale of the Senior Notes and the
Senior Subordinated Notes will be used to repay indebtedness under credit
facilities provided by The Toronto-Dominion Bank, Canadian Imperial Bank of
Commerce, The Bank of Nova Scotia and other banks. The Toronto-Dominion Bank and
Toronto Dominion (Texas), Inc. are affiliates of TD Securities (USA) Inc., one
of the Underwriters, Canadian Imperial Bank of Commerce is an affiliate of CIBC
Wood Gundy Securities Corp., one of the Underwriters, and The Bank of Nova
Scotia is an affiliate of Scotia Capital Markets (USA) Inc., another of the
Underwriters. Consequently the Offering is being made pursuant to the provisions
of Article III, Section 44(c)(8) of the Rules of Fair Practice of the National
Association of Securities Dealers, Inc. (the "NASD"). Pursuant to such
provisions, the yield at which the Senior Notes and the Senior Subordinated
Notes are to be distributed can be no lower than that recommended by a
"qualified independent underwriter" meeting certain
S-43
<PAGE> 48
standards. In accordance with this requirement, Merrill Lynch, Pierce, Fenner &
Smith Incorporated ("Merrill Lynch") will serve in such role, and the yield at
which the Senior Notes and the Senior Subordinated Notes are to be distributed
will not be lower than that recommended by Merrill Lynch in its capacity as a
qualified independent underwriter. In such capacity and in its capacity as one
of the Underwriters, Merrill Lynch has participated in the preparation of the
Registration Statement of which this Prospectus Supplement is a part and has
performed due diligence with respect thereto. Publishing has agreed to indemnify
Merrill Lynch, in its capacity as the qualified independent underwriter, against
certain liabilities, including liabilities under the Securities Act.
The Company, certain officers and directors and Hollinger Inc. have agreed
that each will not, for a period of 90 days from the date of the Prospectus
Supplement, without the prior written consent of Merrill Lynch, directly or
indirectly, offer, sell, grant any option to purchase or otherwise dispose of,
any debt security of the Company which is publicly offered or sold pursuant to
Rule 144A under the Securities Act.
Publishing has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute to
payments the Underwriters may be required to make in respect thereof.
Merrill Lynch performs investment banking services for the Company,
Publishing, Hollinger Inc. and their affiliates from time to time, for which it
receives customary compensation.
The Underwriters may engage in stabilizing transactions, syndicate covering
transactions and penalty bids in accordance with Rule 104 under the Securities
Exchange Act of 1934. Stabilizing transactions permit bids to purchase the
underlying security so long as the stabilizing bids do not exceed a specified
maximum. Syndicate covering transactions involve purchases of Senior Notes or
Senior Subordinated Notes, as the case may be, in the open market after the
respective distributions have been completed in order to cover syndicate short
positions. Penalty bids permit the Underwriters to reclaim a selling concession
from a syndicate member when the Senior Notes or the Senior Subordinated Notes,
as the case may be, originally sold by such syndicate member are purchased in a
syndicate covering transaction to cover syndicate short positions. Such
stabilizing transactions, syndicate covering transactions and penalty bids may
cause the price of the Senior Notes or the Senior Subordinated Notes, as the
case may be, to be higher than it would otherwise be in the absence of such
transactions.
S-44
<PAGE> 49
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS, DATED MARCH 12, 1997
PROSPECTUS
HOLLINGER INTERNATIONAL PUBLISHING INC.
SECURITIES
UNCONDITIONALLY GUARANTEED BY
HOLLINGER INTERNATIONAL INC. LOGO
------------------------
This Prospectus relates to the offering of securities described herein of
Hollinger International Publishing Inc. ("Publishing"), a wholly owned
subsidiary of Hollinger International Inc. (the "Company"). Publishing may offer
from time to time (i) debt securities ("Debt Securities"), which may be any of
senior debt securities ("Senior Debt Securities"), senior subordinated debt
securities ("Senior Subordinated Debt Securities") or subordinated debt
securities ("Subordinated Debt Securities"), in each case consisting of
debentures, notes and/or other secured or unsecured evidences of indebtedness,
and (ii) convertible securities ("Convertible Securities"), which are
exchangeable or convertible into shares of or other securities of the Company or
its affiliates. The Debt Securities and the Convertible Securities are
collectively referred to as the "Securities" and will have an aggregate initial
offering price of up to $550.0 million. The Securities will be unconditionally
guaranteed by the Company. The Securities may be offered separately or together
(in any combination) and as separate series, in any case in amounts, at prices
and on terms to be determined at the time of sale.
The form in which the Securities are to be issued, their specific
designation, aggregate principal amount or aggregate initial offering price,
maturity, if any, rate and times of payment of interest or dividends, if any,
redemption, conversion, exchange and sinking fund terms, if any, voting or other
rights, if any, exercise price and detachability, if any, and other specific
terms will be set forth in a Prospectus Supplement (including any related term
sheet) relating to such Securities (the "Prospectus Supplement"), together with
the terms of offering of such Securities. If so specified in the applicable
Prospectus Supplement, Debt Securities of a series may be issued in whole or in
part in the form of one or more temporary or permanent global securities. The
Prospectus Supplement will also contain information, where applicable, about
certain material United States Federal income tax considerations relating to the
particular Securities offered hereby. The Prospectus Supplement will also
contain information, where applicable, as to any listing on a national
securities exchange of the Securities covered by such Prospectus Supplement.
FOR A DISCUSSION OF CERTAIN RISK FACTORS THAT SHOULD BE CONSIDERED IN
CONNECTION WITH AN INVESTMENT IN THE SECURITIES OFFERED HEREBY, SEE "RISK
FACTORS" BEGINNING ON PAGE 5.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
------------------------
The Securities may be sold directly, through agents designated from time to
time or to or through underwriters or dealers. See "Plan of Distribution." If
any agents of the issuer or any underwriters are involved in the sale of any
Securities in respect of which this Prospectus is being delivered, the names of
such agents or underwriters and applicable commissions or discounts will be set
forth in a Prospectus Supplement. The net proceeds to the issuer from such sale
also will be set forth in a Prospectus Supplement.
------------------------
The date of this Prospectus is , 1997.
<PAGE> 50
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE SENIOR NOTES OR
THE SENIOR SUBORDINATED NOTES, AS THE CASE MAY BE, INCLUDING STABILIZING
TRANSACTIONS, SYNDICATE COVERING TRANSACTIONS AND PENALTY BIDS. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
------------------------
As used in this Prospectus, unless the context otherwise requires, (i) the
"Company" refers to Hollinger International Inc. and, where the context so
requires, its consolidated subsidiaries and affiliated companies; (ii)
"Publishing" refers to Hollinger International Publishing Inc. and its
consolidated subsidiaries and affiliated companies; (iii) "Chicago Sun-Times"
refers to The Sun-Times Company and its consolidated subsidiaries; (iv)
"Jerusalem Post" refers to the subsidiaries of the Company which publish The
Jerusalem Post; (v) "The Telegraph" refers to Telegraph Group Limited (formerly
The Telegraph plc) and its consolidated subsidiaries and affiliated companies;
(vi) "DTH" refers to DT Holdings Limited; (vii) "FDTH" refers to First DT
Holdings Limited; (viii) "HTH" refers to Hollinger-Telegraph Holdings Inc.; (ix)
"Hollinger Inc." refers to Hollinger Inc. and its consolidated subsidiaries; (x)
"Southam" refers to Southam Inc. and its consolidated subsidiaries; and (xi)
"Fairfax" refers to John Fairfax Holdings Limited and its consolidated
subsidiaries.
All dollar references in this Prospectus are to United States dollars
unless otherwise specifically indicated. Except as otherwise indicated, the
financial information in this Prospectus relating to The Telegraph has been
translated into United States dollars ("$") from British pounds sterling ("L")
and British pence ("p"), financial information relating to Fairfax has been
translated into United States dollars from Australian dollars ("A$"), and
financial information relating to Southam and the Canadian newspapers owned by
Hollinger Inc. to be transferred to the Company has been translated into United
States dollars from Canadian dollars ("Cdn.$"), using exchange rates at the end
of the period for which the relevant statements are prepared for assets,
liabilities and minority interest and the weighted average exchange rates for
the relevant period for items in the statements of operations.
Unless otherwise indicated, all circulation information contained in this
Prospectus represents average daily or non-daily circulation as of December 31,
1996, as the case may be (after giving effect to the subsequent disposition of
the Company's interest in Fairfax), derived from the following sources: (a) for
the Company's United States community newspapers, the Chicago Sun-Times, the
Daily Southtown, Chicago-area suburban newspapers and Jerusalem Post, from the
Company's unaudited internal records for the month of December 1996; (b) for The
Daily Telegraph and The Sunday Telegraph, from unaudited circulation reports
furnished to the Audit Bureau of Circulations in the United Kingdom for the six
month period July 1996 to January 1997; and (c) for Southam, from unaudited
internal records.
------------------------
2
<PAGE> 51
THE COMPANY
OVERVIEW
The Company is a leading publisher of English-language newspapers in the
United States, the United Kingdom, Canada and Israel. Included among the 142
paid daily newspapers which the Company owns or has an interest in are the
Chicago Sun-Times and The Daily Telegraph. These 142 newspapers have a
world-wide daily combined circulation of approximately 3,953,000. In addition,
the Company owns or has an interest in 362 non-daily newspapers as well as
magazines and other publications. The Company's strategy is to achieve growth
through acquisitions and improvements in the cash flow and profitability of its
newspapers, principally through cost reductions. Since the Company's formation
in 1986, the existing senior management team has acquired over 399 newspapers
and related publications (net of dispositions) in the United States, The
Telegraph in the United Kingdom and Jerusalem Post in Israel, and, together with
Hollinger Inc., in Canada (including a majority interest in Southam). Recently,
the Company substantially completed the sale of its 24.7% interest in Fairfax, a
publicly held Australian newspaper publisher.
UNITED STATES NEWSPAPER GROUP. The Company is the largest newspaper
publishing group in the United States, as measured by paid daily newspapers
owned and operated, and one of the twelve largest in terms of daily circulation.
The Company's United States operations consist of its Chicago Group, led by the
Chicago Sun-Times, the eighth largest circulation metropolitan daily newspaper
in the United States, and its Community Newspaper Group, consisting of 324
newspapers and related publications. As of December 31, 1996, the Company
published a total of 399 newspapers and related publications in the United
States consisting of 103 daily newspapers with a total paid circulation of
approximately 1,240,000, 140 paid non-daily newspapers with a combined paid
circulation of approximately 1,256,000, and 156 free circulation publications
with a combined circulation of approximately 2,201,000, and a total combined
circulation of approximately 4,696,000. The Community Newspaper Group also
includes, for accounting and management purposes, the Company's wholly-owned
subsidiary which publishes The Jerusalem Post, Israel's only English-language
daily newspaper, with a paid daily circulation of approximately 16,300. The
related weekend edition of The Jerusalem Post and English and French-language
international weekly editions have a combined paid circulation of approximately
132,196.
INTERNATIONAL NEWSPAPER GROUP. The Company's international operations
consist of its wholly owned subsidiary, The Telegraph, and a majority equity
interest in Southam, a publicly traded Canadian newspaper publisher.
THE TELEGRAPH. The Telegraph publishes The Daily Telegraph, the leading
quality (or broadsheet) newspaper in the United Kingdom. The Telegraph also
publishes The Sunday Telegraph, The Weekly Telegraph, the Electronic Telegraph
and The Spectator magazine. The Daily Telegraph is the largest circulation
quality daily newspaper in the United Kingdom with an average daily circulation
of approximately 1,097,000 representing a 38.5% share of the quality daily
newspaper market. The Daily Telegraph's Saturday edition has the highest average
daily circulation (approximately 1,253,000) among quality daily newspapers in
the United Kingdom. The Sunday Telegraph is the second largest circulation
quality Sunday newspaper in the United Kingdom with an average Sunday
circulation of approximately 804,000.
On August 8, 1996, the Company completed the acquisition of all of the
outstanding ordinary shares of The Telegraph (approximately 36%) not previously
controlled by the Company (the "Telegraph Minority Shares"). The acquisition was
effected by means of a "scheme of arrangement" under Section 425 of the
Companies Act 1985 of Great Britain (the "Scheme"). As a result, The Telegraph
became an indirect wholly owned subsidiary of the Company. The total
consideration paid by the Company was approximately $455.1 million.
SOUTHAM. Southam is a publicly held Canadian corporation with operations
in newspaper publishing, and to a lesser extent, in business communications.
Southam is Canada's largest publisher of daily newspapers with 32 daily
newspapers and 58 non-daily newspapers with a total daily circulation of
approximately 1,601,000. Its principal publications include The Gazette
(Montreal), The Ottawa Citizen, the Calgary Herald, The Vancouver Sun, The
Province (Vancouver) and The Edmonton Journal. In addition, the Southam Magazine
and Information Group publishes Canadian and United States business magazines
and tabloids for the automotive, trucking, construction, natural resources,
manufacturing and other industries.
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Recently, Southam has sold or announced the sale of various non-newspaper assets
and has announced that it intends to sell the balance of its business
communications division.
On May 24, 1996, a wholly owned Canadian subsidiary of Hollinger Inc.
purchased from a subsidiary of Power Corporation of Canada ("Power") 16,349,743
common shares of Southam held by Power (the "Power Shares"), representing
approximately 21.5% of Southam's then outstanding common shares, for an
aggregate consideration of Cdn.$294.3 million. The acquisition of the Power
Shares provided the Company and Hollinger Inc. with combined holdings of
approximately 40.9% of Southam's then outstanding common shares. On December 11,
1996, the Company purchased, through a wholly owned subsidiary of FDTH,
8,000,300 common shares of Southam for an aggregate consideration of Cdn.$160.0
million, which increased the combined holdings of the Company and Hollinger Inc.
to 50.7% of Southam's outstanding common shares. The Company intends to complete
an internal reorganization of its interests in Southam as soon as practicable
during the first quarter of 1997 in order to consolidate, for financial
reporting purposes, its Southam interests in Publishing.
GENERAL. The Company was incorporated in the State of Delaware on December
28, 1990 and Publishing was incorporated in the State of Delaware on December
12, 1995. Each of the Company and Publishing has its executive offices at 401
North Wabash Avenue, Chicago, Illinois 60611, telephone number (312) 321-2299.
OWNERSHIP BY HOLLINGER INC.
Hollinger Inc. directly and indirectly owns 51.21% of the combined equity
interest and 77.75% of the combined voting power of the outstanding Class A
Common Stock, par value $.01 per share ("Class A Common Stock"), Class B Common
Stock, par value $.01 per share ("Class B Common Stock", and together with Class
A Common Stock, "Common Stock"), and Series B Convertible Preferred Stock, par
value $.01 per share ("Series B Preferred Stock"), of the Company (without
giving effect to the future issuance of Class A Common Stock in connection with
the Company's Preferred Redeemable Increased Dividend Equity Securities
("PRIDES") or the Company's Series A Convertible Redeemable Preferred Stock, par
value $.01 per share ("Series A Preferred Stock"), or the proposed issuance to
Hollinger Inc. of Series C Preferred Stock and Class A Common Stock in
connection with the Hollinger Inc. Transaction (as defined below)). As a result,
Hollinger Inc. will continue to be able to control the outcome of any election
of directors and to direct management policy, strategic direction and financial
decisions of the Company and its subsidiaries. Hollinger Inc. owns all of the
outstanding Series A Preferred Stock of the Company, which is convertible at any
time into shares of Class A Common Stock at the initial conversion price of the
Canadian dollar equivalent of $14 per share. Based on the initial conversion
price, 5,684,361 shares of Class A Common Stock would have been issuable as of
February 21, 1997.
Hollinger Inc. is effectively controlled by The Hon. Conrad M. Black,
Chairman of the Board and Chief Executive Officer of Hollinger Inc. and the
Company, through his direct and indirect ownership and control of Hollinger
Inc.'s securities. Mr. Black has advised the Company that Hollinger Inc. does
not presently intend to reduce its voting power in the Company's outstanding
Common Stock to less than 50%. Furthermore, Mr. Black has advised the Company
that he does not presently intend to reduce his voting control over Hollinger
Inc. such that a third party would be able to exercise effective control over
it.
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RISK FACTORS
Prior to making an investment decision, prospective investors should
consider carefully the following factors, in addition to the other information
and financial data included or incorporated by reference in this Prospectus or
any Prospectus Supplement.
INTERNATIONAL HOLDING COMPANY STRUCTURE
Each of Publishing and the Company is an international holding company the
assets of which consist solely of investments in subsidiaries and affiliated
companies. As a result, the ability of Publishing or the Company to meet its
future financial obligations is dependent upon the availability of cash flows
from their United States and foreign subsidiaries and affiliated companies
(subject to applicable withholding taxes) through dividends, intercompany
advances, management fees and other payments. Publishing's and the Company's
subsidiaries and affiliated companies are under no obligation to pay dividends
and, in the case of Publishing and its principal United States and foreign
subsidiaries, are or will be subject to statutory restrictions and restrictions
in debt agreements that may limit their ability to pay dividends. See
"Restrictions in Debt Agreements" below. Substantially all of the shares of the
subsidiaries of the Company are currently pledged to lenders of the Company and
Publishing. The Company expects that when the existing facility is amended and
restated, borrowings by Publishing, The Telegraph and Hollinger Eastern will be
secured by a pledge of the shares of its principal United States and foreign
subsidiaries and cross-guarantees. In addition, following the completion of the
reorganization of the Company's and Hollinger Inc.'s Southam interests,
approximately 8% of the common shares of Southam owned indirectly by Publishing
will be pledged to secure Hollinger Inc.'s indebtedness under certain debentures
currently secured by shares of HTH owned by the Company. Publishing's and the
Company's right to participate in the distribution of assets of any subsidiary
or affiliated company upon its liquidation or reorganization will be subject to
the prior claims of their creditors of such subsidiary or affiliated company,
including trade creditors, except to the extent that Publishing or the Company
may itself be a creditor with recognized claims against such subsidiary or
affiliated company.
SUBSTANTIAL LEVERAGE
The Company and its subsidiaries have substantial leverage and have
substantial debt service obligations, as well as obligations under the Series A
Preferred Stock, the PRIDES, and the redeemable preferred shares of its
subsidiaries. The instruments governing the terms of the principal indebtedness
and redeemable preferred stock of the Company and its principal United States
and foreign subsidiaries contain various covenants, events of default and other
provisions that could limit the financial flexibility of the Company, including
the payment of dividends with respect to outstanding Common Stock and Preferred
Stock and the implementation of its growth strategy. A substantial portion of
the bank indebtedness of the Company and its subsidiaries becomes due during the
first half of 1997, which the Company intends to repay from the sale of the
Securities.
The substantial leveraged position of the Company could make it vulnerable
to a downturn in the operating performance of its business or a downturn in
economic conditions and could have the following consequences: (i) the Company's
ability to obtain additional debt financing on attractive terms for corporate or
other purposes, including the financing of future acquisitions, may be limited;
(ii) the funds available to the Company for its operations and for dividends on
its Common Stock, its Preferred Stock and its PRIDES may be reduced as a result
of the use of an increased portion of available cash flow to pay debt service;
(iii) certain of the Company's borrowings are and will continue to be at
variable rates of interest, which could result in higher interest expenses in
the event of increases in interest rates; and (iv) such indebtedness and
outstanding redeemable preferred stock contain financial and restrictive
covenants (including certain change of control provisions related to Hollinger
Inc.'s control of the Company), the failure to comply with which may result in
an event of default which, if not cured or waived, could have a material adverse
effect on the Company.
In addition, the instruments governing the terms of the principal
indebtedness of the Company and its principal United States and foreign
subsidiaries contain customary events of default, including, without limitation,
certain "change of control" provisions. Generally, a "change of control" is
defined in the instruments governing the terms of the principal indebtedness of
the Company and its principal United States and foreign subsidiaries to include,
without limitation, any person other than The Hon. Conrad M. Black
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beneficially owning voting stock representing more than 50% of the total voting
power of the Company. See "Control by Hollinger Inc. and Disproportionate Voting
Rights" below.
RISK OF PRINCIPAL REPAYMENT
Publishing's ability to pay principal when due on the Securities and its
other indebtedness or to refinance such obligations, and the ability of its
subsidiaries to make scheduled principal payments or to refinance their
respective indebtedness, depends on the financial and operating performance of
its subsidiaries as well as, with respect to the Securities and other
indebtedness of Publishing, its subsidiaries' ability to make dividend and other
payments to Publishing. There can be no assurance that Publishing's consolidated
operating results will continue to be sufficient or that future borrowing
facilities will be available for the payment or refinancing of such indebtedness
prior to maturity.
In the event Publishing is unable to make required payments or otherwise
comply with the terms of its indebtedness, including the Securities, the holders
of such indebtedness could accelerate the maturity thereof, which could result
in Publishing and the Company being forced to seek protection under applicable
bankruptcy laws or in an involuntary bankruptcy proceeding being brought against
Publishing or the Company. Under such circumstances, the holders of the
Securities may be adversely affected. See "Subordination of Securities and
Guarantee" below.
Following the planned reorganization of the Company's and Hollinger Inc.'s
interest in certain Canadian newspapers, it is expected that the Company's only
material assets will be its ownership of the capital stock of Publishing.
Accordingly, in the event that Publishing is unable to make payments of
principal or interest on any indebtedness, it is unlikely that the Company will
be able to do so.
SUBORDINATION OF SECURITIES AND GUARANTEE
The payment of principal of, premium, if any, and interest on, and any
other amounts owing in respect of, the Senior Subordinated Debt Securities or
Subordinated Debt Securities and the Company's guarantee of such Securities (the
"guarantee") will be subordinated to the prior payment in full of all existing
and future Senior Debt Securities or other Senior Indebtedness (as defined in
the applicable Indenture) of Publishing and the Company. Therefore, in the event
of the bankruptcy, liquidation, dissolution, reorganization or other winding up
of Publishing or the Company, the assets of Publishing and the Company will be
available to pay obligations on such Securities and the Guarantee only after all
Senior Indebtedness of Publishing or the Company, as applicable, including the
Senior Debt Securities, has been paid in full, and there may not be sufficient
assets remaining to pay amounts due on any or all of the Senior Subordinated
Debt Securities or Subordinated Debt Securities. In addition, Publishing and the
Company may not pay principal of, premium, if any, or interest on, or any other
amounts owing in respect of, such Securities, or purchase, redeem or otherwise
retire such Securities or make any deposit pursuant to defeasance provisions for
the Securities, if any Senior Debt Securities or Senior Indebtedness is not paid
when due, unless such default is cured or waived or has ceased to exist or such
Senior Indebtedness has been repaid in full. Under certain circumstances, no
payments may be made for a specified period with respect to the principal of,
premium, if any, and interest on, and any other amounts owing in respect of, the
Securities if a non-payment default exists with respect to certain Senior
Indebtedness, unless such default is cured, waived or has ceased to exist or
such indebtedness has been repaid in full. The Securities will also be
effectively subordinated to all existing and future liabilities of Publishing's
subsidiaries.
In addition, because the Company's Subsidiaries may guarantee the senior
bank indebtedness of Publishing or its Subsidiaries and the stock of such
Subsidiaries may be pledged to secure such Indebtedness, the Company expects
that the holders of the Senior Securities, which initially will not be entitled
to any such guarantees or security, will be effectively subordinated to the
claims of the Lenders under the New Bank Credit Facility or other creditors of
Publishing that are entitled to the benefits of such guarantees and security.
RESTRICTIONS IN DEBT AGREEMENTS
The instruments governing the terms of the principal indebtedness and
redeemable preferred stock of the Company and its principal subsidiaries contain
various covenants, events of default and other provisions that could limit the
flexibility of the Company. Such provisions include requirements to maintain
compliance with
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certain financial ratios, limitations on the ability of the Company and certain
of its subsidiaries to make acquisitions or investments without the consent of
the lenders and limitations on the ability of the Company's principal
subsidiaries to incur indebtedness, make dividend and other payments to the
Company and take certain other actions. In addition, such indebtedness is
secured by, among other things, pledges of the stock of the Company's principal
subsidiaries.
The amount available for the payment of dividends by the Company at any
time is a function of (i) restrictions in agreements binding the Company
limiting its ability to pay dividends and (ii) restrictions in agreements
binding the Company's subsidiaries limiting their ability to pay dividends to
the Company. Currently, the Company's bank credit facility used to finance the
acquisition of the Power Shares (the "Southam Facility"), among other things,
limits dividends on the Company's Class A Common Stock and Class B Common Stock,
to their current levels and on the Company's Series A Preferred Stock and PRIDES
in accordance with their existing terms. In addition, certain agreements binding
subsidiaries of the Company, including Publishing, American Publishing (1991)
Inc. and FDTH, contain provisions that limit their respective abilities to pay
dividends to the Company.
OTHER RESTRICTIVE ARRANGEMENTS
The Company's equity interests in The Telegraph are held through
intermediate English holding companies, DTH and FDTH, and the Company's and
Hollinger Inc.'s combined equity interests in Southam are currently held through
Hollinger Eastern Publishing Inc. ("Hollinger Eastern"), a newly formed Canadian
holding company, HTH, a Canadian corporation which is jointly owned by two
wholly owned subsidiaries of the Company and also through such subsidiaries, and
through a wholly owned subsidiary of FDTH.
DTH and FDTH have outstanding preference shares held by persons other than
the Company and its affiliates (the "DTH Preference Shares," the "FDTH
Preference Shares," and, collectively, the "DTH and FDTH Preference Shares")
which require the payment of quarterly dividends with a current effective
dividend cost of 5.5% per annum (after giving effect to certain interest rate
and currency exchange agreements). In addition, DTH owns all 165,000,000
non-cumulative redeemable preference shares of L1 per share issued by FDTH and
23,801,420 non-cumulative redeemable preference shares of Cdn.$1 per share
issued by FDTH which were transferred by Hollinger Inc. to DTH pursuant to the
HTH/FDTH Share Exchange Agreement dated July 19, 1995 (the "HTH/FDTH Share
Exchange Agreement"). All of the outstanding DTH Preference Shares are held by
unrelated parties and a portion of the outstanding FDTH Preference Shares are
held by unrelated third parties, with an aggregate redemption price of
approximately $125.0 million.
On December 29, 1995, DTH transferred all outstanding FDTH Preference
Shares which it then held (with an aggregate redemption amount of Cdn.$140
million ($102.6 million)) to a wholly owned English subsidiary ("Argsub") of
Argus Corporation Limited ("Argus"), a Canadian corporation all the voting stock
of which is indirectly owned or controlled by Mr. Black, in exchange for newly
issued preference shares (with an aggregate redemption amount of Cdn.$140
million ($102.6 million)) of such English subsidiary. On September 30, 1996,
FDTH issued 600 fourth preference shares, Series 1996 of FDTH (with an aggregate
redemption amount of $300.0 million) to Argsub in exchange for 600 newly issued
second preference shares, Series 1996 of Argsub (with an aggregate redemption
amount of $300.0 million). The preference shares of Argsub have terms
substantially identical to those of the FDTH Preference Shares for which they
were exchanged and constitute the entire issued and outstanding preference share
capital of Argsub. These transactions were structured to eliminate economic gain
or loss to Argus and Argsub on the preference shares. The issuance of additional
preference shares by FDTH to Argsub may occur prior to the redemption or
repayment of outstanding FDTH Preference Shares, which is expected to occur in
the second quarter of 1997. Argus owns directly and indirectly approximately
31.3% of the common shares of Hollinger Inc.
The DTH Preference Shares are redeemable at the option of the holder at any
time on four days' notice at a redemption price discounted in accordance with an
agreed formula, and the FDTH Preference Shares and the DTH Preference Shares are
redeemable by the issuer or the holders on the fifth anniversary of their
issuance (May and June 1997, respectively), each five year anniversary
thereafter and at other prescribed
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times and in prescribed circumstances, including where the consolidated debt of
Hollinger Inc. is more than two times its consolidated equity (the "Debt to
Equity Ratio"). Hollinger Inc. has informed the Company that as of September 30,
1996 it was in compliance with the Debt to Equity Ratio. The Debt to Equity
Ratio is affected by, among other things, Hollinger Inc.'s consolidated results
of operations, as well as changes in the levels of consolidated debt of
Hollinger Inc. and its subsidiaries, including the Company. Accordingly, there
can be no assurance that Hollinger Inc. will remain in compliance with the Debt
to Equity Ratio or that in the event of non-compliance, that holders of the DTH
or FDTH Preference Shares will not exercise their retraction rights against DTH
or FDTH or Hollinger Inc. pursuant to contractual arrangements with the holders
under which Hollinger Inc. has agreed to purchase the DTH and FDTH Preference
Shares. In the event Hollinger Inc. is required to purchase any DTH and FDTH
Preference Shares under these circumstances, Hollinger Inc. shall have the
right, following written notice, to require the Company to purchase such shares
at the then retraction price.
Hollinger Inc. has indemnified the holders of the DTH and FDTH Preference
Shares and agreed to purchase these preference shares if DTH or FDTH fails to
pay the full amount of dividends or redemption prices on such shares and in
certain other events. The Company has entered into an agreement to compensate
Hollinger Inc. for any payments made by Hollinger Inc. to holders of the DTH and
FDTH Preference Shares and to purchase any DTH and FDTH Preference Shares which
Hollinger Inc. is required to purchase in accordance with the terms thereof. The
timing of any such payments by the Company to Hollinger Inc. will be determined
by Hollinger Inc.
As indicated above, it is expected that the DTH and FDTH Preference Shares
will be redeemed in May and June 1997.
GROWTH STRATEGY
The Company's strategy is to achieve growth through acquisitions and
improvements in the cash flow and profitability of its newspapers, principally
through cost reductions. The Company's strategy presents risks inherent in
assessing the value, strengths and weaknesses of acquisition opportunities, in
evaluating the costs of new growth opportunities at existing operations and in
managing the numerous publications it has acquired and improving their operating
efficiency. While the Company believes that there are significant numbers of
potential acquisition candidates, the Company is unable to predict the number or
timing of future acquisition opportunities or whether any such opportunities
will meet the Company's acquisition criteria or, if such acquisitions occur,
whether the Company will be able to achieve improved operating efficiencies or
enhanced profitability. In addition, the Company's acquisition strategy is
largely dependent on the Company's ability to obtain additional debt or other
financing on acceptable terms. See "Substantial Leverage," "Restrictions in Debt
Agreements" and "Other Restrictive Arrangements" below.
NEWSPAPER INDUSTRY COMPETITION
Revenues in the newspaper industry are dependant primarily upon advertising
revenues and paid circulation. Competition for advertising and circulation
revenues comes from local and regional newspapers, radio, broadcast and cable
television, direct mail, and other communications and advertising media that
operate in the Company's markets. The extent and nature of such competition is,
in large part, determined by the location and demographics of the markets and
the number of media alternatives in those markets. Some of the Company's
competitors are larger and have greater financial resources than the Company.
For example, in the Chicago metropolitan area, the Chicago Sun-Times competes
with a large established metropolitan daily and Sunday newspaper that is the
fifth largest metropolitan daily and Sunday newspaper in the United States. In
the United Kingdom, The Daily Telegraph competes with other national newspapers,
principally The Times, which over the past two years substantially reduced its
cover price in an effort to then increase its circulation. This strategy led The
Daily Telegraph to reduce its weekday cover prices in June 1994 in order to
maintain its circulation levels, although its circulation revenues were
adversely affected. In July 1995 and November 1995, The Daily Telegraph,
following the lead of its principal competitor, increased its weekday cover
price by a total of 10p per copy, or 33%, with limited effect on circulation
levels to date. In June 1996, The Times reduced its cover price to 10p on
Mondays only, as part of its "summer sport promotion." To promote its "summer of
sport," The Daily Telegraph launched a 12-week voucher promotion beginning
Saturday, June 8, 1996, enabling readers
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to redeem vouchers to purchase The Daily Telegraph on Mondays for 10p. Beginning
in the fall of 1996, The Telegraph undertook promotional programs which, while
increasing circulation, have also significantly increased costs which had an
adverse effect on results of operations during the fourth quarter of 1996.
Operating costs in the first quarter of 1997 are also expected to be adversely
affected.
CYCLICALITY OF REVENUES
Advertising and, to a lesser extent, circulation revenues of the Company,
as well as those of the newspaper industry in general, are cyclical and
dependent upon general economic conditions. Historically, increases in
advertising revenues have corresponded with economic recoveries while decreases,
as well as changes in the mix of advertising, have corresponded with general
economic downturns and regional and local economic recessions. The Company
believes, however, that the geographic diversity of its global operations may
mitigate, to some degree, the effects of an economic downturn in any particular
market served by the Company.
NEWSPRINT COSTS
Newsprint represents the single largest raw material expense of the
Company's newspapers throughout the world and is one of its most significant
operating costs. Newsprint costs are cyclical and vary widely period to period.
Newsprint cost increased approximately 40% per metric ton in 1995 on an
industry-wide basis, and the average cost per metric ton of newsprint was
substantially higher in the first half of 1996 than in the first half of 1995.
Newsprint costs decreased significantly in the second half of 1996 but are
expected to increase during 1997. Although the Company has implemented measures
in an attempt to offset the rise in newsprint prices, such as reducing page
width and managing its return policy, price increases have had an adverse effect
on the Company's results of operations. The Company has no effective ability to
use long term fixed price newsprint supply contracts to hedge its exposure to
price fluctuations.
FOREIGN OPERATIONS AND CURRENCY EXCHANGE RATES
Operations outside of the United States accounted for approximately 67% of
the Company's operating revenues and approximately 50% of the Company's
operating income for the year ended December 31, 1996. In addition, equity in
earnings of Fairfax is in a foreign currency. In general, the Company does not
hedge against foreign currency exchange rate risks. As a result, the Company may
experience economic loss and a negative impact on earnings with respect to its
investments and on dividends from its foreign subsidiaries, solely as a result
of currency exchange rate fluctuations.
CONTROL BY HOLLINGER INC. AND DISPROPORTIONATE VOTING RIGHTS
Hollinger Inc. owns 33,610,754 shares of the Class A Common Stock and all
of the outstanding shares of the Class B Common Stock, constituting (as of
February 21, 1997) approximately 51.21% of the combined equity interest in the
Company and approximately 77.75% of the combined voting power of the Common
Stock and Series B Preferred Stock (without giving effect to any conversion of
Series A Preferred Stock into shares of Class A Common Stock or any issuance of
shares of Class A Common Stock in connection with the PRIDES). As a result,
Hollinger Inc. is in a position to control the outcome of substantially all
actions requiring stockholder approval, including the election of the entire
Board of Directors. The retention by Hollinger Inc. of securities representing
more than 50% of the voting power of the Company's outstanding Common Stock will
preclude any acquisition of control of the Company not favored by Hollinger Inc.
Subject to the fiduciary responsibilities of the directors of the Company to all
stockholders and the terms of agreements defining the ongoing relationships
between Hollinger Inc. and the Company, Hollinger Inc., through its ability to
control the outcome of any election of directors, will continue to be able to
direct management policy, strategic direction and financial decisions of the
Company. Hollinger Inc. is effectively controlled by The Hon. Conrad M. Black,
Chairman of the Board and Chief Executive Officer of Hollinger Inc. and the
Company, through his direct and indirect ownership and control of Hollinger
Inc.'s securities. Mr. Black has advised the Company that Hollinger Inc. does
not presently intend to reduce its voting power in the Company's outstanding
Common Stock to less than 50%. Furthermore, Mr. Black has advised the Company
that he does not presently intend to reduce his voting control over Hollinger
Inc. such that a third party would be able to exercise effective control over
it.
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Hollinger Inc. may sell or transfer shares of Class B Common Stock, and
thus potentially voting control of the Company, to an unaffiliated third person
provided such purchaser or transferee offers to purchase all shares of Class A
Common Stock from the holders thereof for an amount per share equal to the
amount per share received by Hollinger Inc. for the Class B Common Stock, as
provided in the Company's certificate of incorporation. Hollinger Inc. has
pledged all shares of Common Stock and Series A Preferred Stock owned by it to
Canadian chartered banks as collateral for outstanding indebtedness of Hollinger
Inc. and the Southam Facility. A default under such indebtedness could result in
a change of control of the Company.
POTENTIAL CONFLICTS OF INTEREST
The Company and Hollinger Inc. have entered into agreements for the purpose
of defining their ongoing relationships, including a Services Agreement (to
which Publishing is also a party) and a Business Opportunities Agreement. These
agreements were developed in the context of a parent-subsidiary relationship
and, therefore, were not the result of arms-length negotiations between
independent parties.
Services Agreement. The Services Agreement governs the provision by
Hollinger Inc. of certain advisory, consultative, procurement and administrative
services to the Company. The Services Agreement also contemplates that the
Company may provide services to Hollinger Inc. The services to be provided
pursuant to the Services Agreement include, among other things, strategic advice
and planning and financial services (including advice and assistance with
respect to acquisitions); assistance in operational matters; participation in
group insurance programs; and guarantees of indebtedness of the Company or other
forms of credit enhancements. The party receiving the services will reimburse
the party rendering the services for its allocable costs in providing those
services, as determined by the provider thereof or, in the case of a guarantee,
for an amount equal to the cost to the party of obtaining a bank letter of
credit in the amount of such guarantee. The party allocating its costs will
consider the salaries or other compensation payable to directors, officers and
employees actually providing services, out-of-pocket costs, the cost of
obtaining substantially equivalent services from a third party and other factors
as may be deemed appropriate. The Services Agreement will be in effect for so
long as Hollinger Inc. holds at least 50% of the voting power of the Company,
subject to termination by either party under certain specified circumstances.
Payments made pursuant to the Services Agreement are subject to the review and
approval of the Audit Committee of the Board of Directors of the Company.
In addition, Hollinger Inc. and The Telegraph are parties to a separate
services agreement under which The Telegraph bears two-thirds of the cost of the
office of the Chairman incurred by Hollinger Inc. as long as Mr. Black remains
Chairman of the Board of The Telegraph, and requires that other services will be
provided at cost, including the arrangement of insurance, assistance in the
arrangement of financing and assistance and advice on acquisitions, dispositions
and joint venture arrangements. Hollinger Inc. has assigned its rights and
obligations under The Telegraph services agreement to the Company and Publishing
on May 9, 1996 with the consent of The Telegraph.
Business Opportunities. The Business Opportunities Agreement provides that
the Company will be Hollinger Inc.'s principal vehicle for engaging in and
effecting acquisitions in newspaper businesses and in related media businesses
in the United States, Israel and, through The Telegraph, the European Community,
Australia and New Zealand (the "Telegraph Territory"). Hollinger Inc. has
reserved to itself the ability to pursue newspaper and all media acquisition
opportunities outside the United States, Israel and the Telegraph Territory, and
media acquisition opportunities unrelated to the newspaper business in the
United States, Israel and the Telegraph Territory, except that the Company is
permitted to increase its indirect investment in Southam. As part of the
Hollinger Inc. Transaction (as defined below) involving the purchase by the
Company of Canadian newspapers, Hollinger Inc. will waive the foregoing
limitation. The Business Opportunities Agreement does not restrict newspaper
companies in which Hollinger Inc. has a minority investment from acquiring
newspaper or media businesses in the United States, Israel or the Telegraph
Territory, nor does it restrict subsidiaries of Hollinger Inc. from acquiring up
to 20% interests in publicly held newspaper businesses in the United States. The
Business Opportunities Agreement will be in effect for so long as Hollinger Inc.
holds at least 50% of the voting power of the Company, subject to termination by
either party under specified circumstances.
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In addition, the Company and Hollinger Inc. have entered into business
transactions involving the reorganization or transfer of newspaper assets owned
indirectly by Hollinger Inc. In October 1995 the Company and Hollinger Inc.
consummated the transfer of Hollinger Inc.'s indirect majority interest in The
Telegraph through the Share Exchange Agreement dated July 19, 1995 (the
"Telegraph Reorganization"). On January 7, 1997, the Company and Hollinger Inc.
entered into a letter of intent relating to the transfer by Hollinger Inc. of
certain of its owned Canadian publishing interests, directly or indirectly, to
Hollinger Eastern (the "Hollinger Inc. Transaction"). These transactions have
been negotiated and approved by independent directors of the Company.
Continuing Agreements Relating to the Telegraph Reorganization. In
connection with the October 1995 Telegraph Reorganization, pursuant to which the
Company acquired Hollinger Inc.'s indirect majority interest in The Telegraph,
Hollinger Inc. and the Company entered into the Share Exchange Agreement (the
"Share Exchange Agreement"). Under the Share Exchange Agreement, Hollinger Inc.
and the Company have agreed that if the Company proposes to effect a public
offering of its equity or equity-linked securities for cash, or to issue
equity-linked securities in any acquisition by the Company of the stock or
assets of an unrelated corporation or entity, at any time during the 24 months
following the closing date of such agreement, (or prior to October 1997), the
Company's efforts to raise capital through such offering shall have priority
over any proposal by Hollinger Inc. to effect a public offering or sale of the
Company's equity securities by Hollinger Inc., unless a majority of the
disinterested members of an Independent Committee of the Company's Board of
Directors shall otherwise agree. For these purposes, an "Independent Committee"
means a committee of the Company's Board the majority of the members of which
are not employees or directors of Hollinger Inc. or employees of the Company, or
another committee of the Company's Board whose membership satisfies any more
restrictive requirements of independence of any securities exchange or market in
which the Company's equity securities are traded or listed. If during such
period Hollinger Inc. proposes to sell or otherwise dispose of any shares of
Series A Preferred Stock (other than certain transfers to Hollinger Inc.
subsidiaries or affiliates and pledges) or to offer or sell publicly any shares
of Class A Common Stock held by it or its affiliates, it shall first consult
with the Independent Committee so as not to interfere with any planned capital
market activities of the Company to be undertaken within this period.
The Share Exchange Agreement also includes a covenant by Hollinger Inc. to
limit the exercise of its redemption rights as a holder of shares of Series A
Preferred Stock to a number of shares proportionate to the number of HTH shares
or Southam common shares that at the time of such exercise have been delivered
to FDTH free and clear of encumbrances. The Company also agreed that so long as
any of the HTH shares are subject to the pledge under the Southam-Linked
Debentures, the Company will use reasonable commercial efforts not to take any
action, without the consent of Hollinger Inc., which itself would constitute an
event of default by Hollinger Inc. under the trust indenture relating to the
Southam-Linked Debentures. Hollinger Inc. has agreed to deliver to FDTH legal
title to the HTH shares free and clear of pledges, liens or encumbrances other
than certain permitted encumbrances. In connection with the reorganization of
the Company's and Hollinger Inc.'s interests in Southam, the Company will
substitute a portion of its interest in Southam common shares (approximately 8%)
for HTH shares now subject to such pledge which are owned by Publishing. Upon
such substitution, the HTH shares will be free and clear of the pledge under the
Southam-Linked Debentures. The Share Exchange Agreement will be modified
accordingly. Also, Hollinger Inc. would then be entitled to exercise its
redemption rights under the Series A Preferred Stock proportionate to the number
of such Southam common shares that become free of the pledge under the
Southam-Linked Debentures.
Under the agreement between the Company and Hollinger Inc. with respect to
the DTH and FDTH Preference Shares (the "DTH/FDTH Preference Share Agreement"),
the Company has agreed to compensate Hollinger Inc. for any payments made by
Hollinger Inc. to holders of the DTH and FDTH Preference Shares and to purchase
any DTH and FDTH Preference Shares which Hollinger Inc. is required to purchase
in accordance with the terms thereof. The timing of any such payments by the
Company to Hollinger Inc. will be determined by Hollinger Inc.
Reorganization of Canadian Newspaper Interests. On January 7, 1997, the
Boards of Directors of the Company and Hollinger Inc. announced that they had
reached an agreement in principle for the transfer by
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Hollinger Inc. of certain of its owned Canadian publishing interests, directly
or indirectly, to Hollinger Eastern, a subsidiary of Publishing, (the "Hollinger
Inc. Transaction"), including all of Hollinger Inc.'s interests in (a) certain
newspaper assets located mainly in Ontario, including 12 daily and seven
non-daily newspapers, (b) certain newspaper assets located mainly in
Saskatchewan, including two daily and eight non-daily newspapers, (c) certain
newspaper assets located mainly in British Columbia, including nine daily and 19
non-daily newspapers and (d) UniMedia Inc., for an aggregate consideration of
approximately $382.0 million (Cdn.$523.0 million), subject to working capital
and currency exchange adjustments. The purchase price, all of which will be
payable to Hollinger Inc., is proposed to be satisfied in cash in the amount of
$250.0 million, by the issuance of a new series of mandatorily convertible
preferred stock of the Company similar to the PRIDES issued by the Company in
August 1996 having a face amount of approximately $90.0 million, and by the
issuance of Class A Common Stock of the Company to Hollinger Inc. having a
nominal amount of approximately $42.0 million. The transaction is expected to be
consummated no later than the second quarter of 1997 but will be effective for
financial and accounting purposes as of January 7, 1997 and will be accounted
for on an "as if pooling" basis.
The Hollinger Inc. Transaction will not be completed until a definitive
acquisition agreement has been negotiated and executed, approval by the
Company's stockholders of the issuance of the mandatorily convertible preferred
stock and Class A Common Stock has been obtained, other terms and conditions
have been satisfied and regulatory approvals obtained. It is intended that
holders of the Company's Class A and Class B Common Stock and Series B Preferred
Stock will vote as a single class at a meeting of the Company's stockholders.
Hollinger Inc. has sufficient voting power to approve the Hollinger Inc.
Transaction.
ABSENCE OF PUBLIC MARKET FOR THE SECURITIES AND LACK OF LIQUIDITY
There currently is no public market for the Securities. Although
application may be made to list the Securities on the New York Stock Exchange,
there can be no assurance as to the liquidity of the trading market for the
Securities or that an active public market for the Securities will develop. If
an active market for the Securities does not develop, the market price and
liquidity of the Securities may be adversely affected.
USE OF PROCEEDS
Except as otherwise indicated in the accompanying Prospectus Supplement,
Publishing and the Company intend to use the net proceeds from the sale of the
Securities for general corporate purposes, including working capital, the
repayment or reduction of indebtedness or other obligations and possible future
acquisitions.
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the Company's and Publishing's consolidated
ratio of earnings to fixed charges for the periods indicated:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------------- --------------
1991 1992 1993 1994 1995 1995 1996
----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed Charges (the
Company)................................ 3.67x 5.09x 3.64x 4.76x 1.82x 1.68x 1.29x
Ratio of Earnings to Fixed Charges
(Publishing)............................ N/A N/A N/A N/A 1.84x N/A 1.44x
</TABLE>
The ratio of earnings to fixed charges is the sum of earnings before taxes
and minority interest (excluding undistributed earnings of affiliates) plus
interest expense, amortization of deferred financing charges and preferred stock
dividends divided by the sum of interest expense, amortization of deferred
financing charges and preferred stock dividends. No ratio is available for
Publishing for the four years ended December 31, 1994 and the nine months ended
September 30, 1995 as Publishing was not incorporated until the fourth quarter
of 1995.
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DESCRIPTION OF DEBT SECURITIES
The Debt Securities may be issued, from time to time, in one or more series
and will constitute either Senior Debt Securities, Senior Subordinated Debt
Securities or Subordinated Debt Securities. The following description of the
Senior Securities and Senior Subordinated Securities sets forth certain general
terms and provisions of such Securities and the Guarantees to which any
Prospectus Supplement may relate. The general terms of any Subordinated
Securities or any Convertible Securities will be set forth in an amendment or
supplement to this Prospectus. In addition, the particular terms of the
Securities offered by any Prospectus Supplement (the "Offered Securities"),
including the nature of any variation from the following general provisions
applicable to the Offered Securities, will be described in the Prospectus
Supplement relating to the Offered Securities.
The Senior Securities offered will be issued in one or more series under an
Indenture (the "Senior Indenture"), among Publishing, the Company, as Guarantor,
Fleet National Bank, as trustee (the "Trustee"). The Senior Subordinated
Securities offered hereby will be issued in one or more series under an
Indenture (the "Senior Subordinated Indenture" and, together with the Senior
Indenture, the "Indentures"), among Publishing, the Company, as Guarantor, and
Fleet National Bank, as trustee (the "Trustee"). The Indentures are subject to
and governed by the Trust Indenture Act. The following summary of the material
provisions of the Indentures does not purport to be complete and, where
reference is made to particular provisions of the Indentures, such provisions,
including the definitions of certain terms, are qualified in their entirety by
reference to all of the provisions of the Indentures and those terms made a part
of the Indentures by the Trust Indenture Act. For definitions of certain
capitalized terms used in the following summary, see "Certain Definitions"
below. Other capitalized terms used without definition are defined in the
Indentures.
RANKING OF SENIOR SECURITIES
The Senior Securities of each series will be unsecured and will rank pari
passu in right of payment with all other existing and future senior Indebtedness
of Publishing, including Publishing's Indebtedness under the New Bank Credit
Facility, and senior in right of payment to all existing and future Subordinated
Indebtedness of Publishing.
RANKING OF SENIOR SUBORDINATED SECURITIES
The payment of the principal of, premium, if any, and interest on the
Senior Subordinated Securities will be subordinated and subject in right of
payment, to the extent and in the manner set forth in the Senior Subordinated
Indenture, to the prior payment in full of all Senior Indebtedness of
Publishing. The Senior Subordinated Securities will be senior subordinated
indebtedness of Publishing ranking pari passu with all other future senior
subordinated indebtedness of Publishing and senior to all existing and future
Subordinated Indebtedness of Publishing.
Upon the occurrence and continuation of any default in the payment of any
Designated Senior Indebtedness beyond the applicable grace period, no payment or
distribution of any assets of Publishing of any kind or character (excluding
certain permitted equity or subordinated securities) shall be made on account of
the principal of, premium, if any, or interest on, the Senior Subordinated
Securities or on account of the purchase, redemption, defeasance or other
acquisition of or in respect of the Senior Subordinated Securities unless and
until such default has been cured, waived or has ceased to exist or such
Designated Senior Indebtedness shall have been discharged or paid in full in
cash or Cash Equivalents, or in any other manner acceptable to the requisite
holders of such Designated Senior Indebtedness.
Upon the occurrence and continuation of any nonpayment default with respect
to any Designated Senior Indebtedness pursuant to which the maturity thereof may
be accelerated (a "Non-payment Default") and after the receipt by the Trustee
from the Agent under the New Bank Credit Facility or, if none, from any other
representative of holders of any Designated Senior Indebtedness of a written
notice of such default, no payment or distribution of any assets of Publishing
of any kind or character (excluding certain permitted equity or subordinated
securities) shall be made by Publishing on account of any principal of, premium,
if any, or interest on, the Senior Subordinated Securities or on account of the
purchase, redemption, defeasance or
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<PAGE> 62
other acquisition of or in respect of the Senior Subordinated Securities for the
period specified below (the "Payment Blockage Period").
The Payment Blockage Period shall commence upon the date of receipt by the
Trustee of such notice of the Non-payment Default by the Trustee from a
representative of the holders of any Designated Senior Indebtedness and (subject
to any blockage then or thereafter in effect as a result of a payment default)
shall end on the earliest to occur of (i) 179 days having elapsed since the
receipt of such written notice by the Trustee (provided that any Designated
Senior Indebtedness as to which notice was given shall not theretofore have been
accelerated), (ii) the date such Non-payment Default and all Non-payment
Defaults as to which notice is given after such Payment Blockage Period is
initiated is cured or waived or ceases to exist or the Designated Senior
Indebtedness related thereto is discharged or paid in full or (iii) the date on
which such Payment Blockage Period (and all Non-payment Defaults as to which
notice is given after such Payment Blockage Period is initiated) shall have been
terminated by written notice to Publishing or the Trustee from the Agent under
the Credit Agreement or such other representative of holders of Designated
Senior Indebtedness, after which, in each such case, Publishing shall resume
making any and all required payments in respect of the Senior Subordinated
Securities, including any missed payments and accrued interest thereon. In no
event will a Payment Blockage Period extend beyond 179 days from the date of the
receipt by the Trustee of the notice initiating such Payment Blockage Period
(such 179-day period referred to as the "Initial Blockage Period"). Any number
of notices of Non-payment Defaults may be given during the Initial Blockage
Period; provided that during any 365-consecutive-day period only one Payment
Blockage Period during which payment of principal of, premium, if any, or
interest on, the Securities may not be made may commence and the duration of
such period may not exceed 179 days. No Nonpayment Default with respect to
Designated Senior Indebtedness that existed or was continuing on the date of the
commencement of any Payment Blockage Period will be, or can be, made the basis
for the commencement of a second Payment Blockage Period, whether or not within
a period of 365 consecutive days, unless such Non-payment Default has been cured
or waived for a period of not less than 90 consecutive days.
If Publishing fails to make any payment on the Senior Subordinated
Securities when due or within any applicable grace period, whether or not on
account of the payment blockage provisions referred to above, such failure would
constitute an Event of Default under the Senior Subordinated Indenture and would
enable the holders of the Senior Subordinated Securities to accelerate the
maturity thereof. See "Events of Default" below.
The Senior Subordinated Indenture provides that, in the event of (a) any
insolvency or bankruptcy case or proceeding, or any receivership, liquidation,
reorganization or other similar case or proceeding in connection therewith,
relative to Publishing or its assets, or (b) any liquidation, dissolution or
other winding up of Publishing, whether voluntary or involuntary and whether or
not involving insolvency or bankruptcy, or (c) any assignment for the benefit of
creditors or other marshaling of assets or liabilities of Publishing (except a
distribution in connection with a consolidation of Publishing with, or the
merger of Publishing into, another corporation or the liquidation or dissolution
of Publishing following conveyance, transfer or lease of its properties and
assets substantially as an entirety to another corporation upon the terms and
subject to the conditions of the provisions described in "Consolidation, Merger,
Sale of Assets" below), then and in any such event the holders of Senior
Indebtedness shall be entitled to receive payment in full in cash or Cash
Equivalents or in any other manner acceptable to the requisite holders of
Designated Senior Indebtedness before any payment or distribution (excluding
distributions of certain permitted equity or subordinated securities) is made on
account of the principal of, premium, if any, or interest on the Senior
Subordinated Securities or on account of the purchase, redemption, defeasance or
other acquisition of or in respect of the Senior Subordinated Securities
(including any payment or other distribution which may be received from the
holders of Subordinated Indebtedness as a result of any payment on such
Subordinated Indebtedness). Accordingly, the holders of the Senior Subordinated
Securities may recover nothing in the event of such a liquidation, dissolution
or other winding up of Publishing.
"Senior Indebtedness" means, with respect to Publishing, the principal of,
premium, if any, and interest in respect of the New Bank Credit Facility and any
other Indebtedness of Publishing (other than as otherwise provided in this
definition), whether outstanding on the date of the Senior Subordinated
Indenture or
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<PAGE> 63
thereafter created, incurred or assumed, unless, in the case of any particular
Indebtedness, the instrument creating or evidencing the same or pursuant to
which the same is outstanding expressly provides that such Indebtedness shall
not be senior in right of payment to the Senior Subordinated Securities. Without
limiting the generality of the foregoing, "Senior Indebtedness" shall include
the principal of, premium, if any, interest and all other obligations owing to
the lenders under (a) the New Bank Credit Facility and (b) the holders under the
Senior Securities. Notwithstanding the foregoing, "Senior Indebtedness" shall
not include (i) Indebtedness evidenced by the Senior Subordinated Securities and
the 9 1/4% Senior Subordinated Notes of Publishing due 2006 governed by the
Indenture dated as of February 1, 1996 among Publishing, the Company, as
Guarantor, and the Trustee (the "9 1/4% Notes"); (ii) Indebtedness of Publishing
that is subordinate or junior in right of payment to any other Indebtedness of
Publishing; (iii) Indebtedness of Publishing which, when incurred and without
respect to any other election under Section 1111(b) of Title 11, United States
Code, is without recourse to Publishing; (iv) Indebtedness which is represented
by Redeemable Capital Stock; (v) any liability for foreign, federal, state,
local or other taxes owed or owing by Publishing; (vi) Indebtedness of
Publishing to a Restricted Subsidiary or any other Affiliate of Publishing or
any of such Affiliate's subsidiaries; (vii) that portion of any Indebtedness
which at the time of Incurrence is issued in violation of the Senior
Subordinated Indenture; and (viii) trade payables owed or owing by Publishing.
"Designated Senior Indebtedness" means (i) all Senior Indebtedness under
the New Bank Credit Facility and (ii) any other Senior Indebtedness which, at
the time of determination, has an aggregate principal amount outstanding of at
least $50,000,000 and is specifically designated by Publishing in the instrument
evidencing such Senior Indebtedness or the agreement under which such Senior
Indebtedness arises as "Designated Senior Indebtedness."
The Senior Securities and the Senior Subordinated Securities will be
effectively subordinated to all existing and future liabilities of subsidiaries,
including in the case of the Restricted Subsidiaries, such subsidiaries'
guarantees of Publishing's obligations under the New Bank Credit Facility,
except to the extent the Restricted Subsidiaries may be required to provide
guarantees of the Senior Securities and the Senior Subordinated Securities, as
described herein, in which case such guarantees will be effectively subordinated
in right of payment to such subsidiaries' guarantees of Publishing's obligations
under the New Bank Credit Facility.
SECURITIES GUARANTEES
The Company will irrevocably and unconditionally Guarantee, on an unsecured
senior basis, in the case of the Senior Securities, and on an unsecured senior
subordinated basis to the same extent as the Senior Subordinated Securities are
subordinated to Senior Indebtedness, in the case of the Senior Subordinated
Securities, the performance and punctual payment when due, whether at Stated
Maturity, by acceleration or otherwise, of all the obligations of Publishing
under the Indentures and the Securities. Payments on the Company's Senior
Subordinated Guarantee will be subordinated, as set forth in the Senior
Subordinated Indenture, in right of payment to the prior payment in full of all
Senior Guarantor Indebtedness. See "Guarantees" below.
"Senior Guarantor Indebtedness" means, with respect to the Company or any
Restricted Subsidiary Guarantor (for the purposes of this definition, each a
"Guarantor"), (i) such Guarantor's guarantee of Publishing's payment obligations
in respect of the New Bank Credit Facility, (ii) such Guarantor's guarantee of
Publishing's payment obligations in respect of the FDTH Credit Agreement, (iii)
such Guarantor's guarantee of Publishing's obligations under the Senior
Securities and (iv) any other Indebtedness of such Guarantor (other than as
otherwise provided in this definition), whether outstanding on the date of the
Senior Subordinated Indenture or thereafter created, incurred or assumed,
unless, in the case of any particular Indebtedness, the instrument creating or
evidencing the same or pursuant to which the same is outstanding expressly
provides that such Indebtedness shall not be senior in right of payment to the
Guarantees. Notwithstanding the foregoing, "Senior Guarantor Indebtedness" will
not include (i) Indebtedness evidenced by such Guarantor's Guarantee of the
Senior Subordinated Securities; (ii) Indebtedness of such Guarantor that is
subordinate or junior in right of payment to any other Indebtedness of such
Guarantor; (iii) Indebtedness of such Guarantor which, when incurred and without
respect to any other election under Section 1111(b) of Title 11, United States
Code, is without recourse to such Guarantor; (iv) Indebtedness
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<PAGE> 64
which is represented by Redeemable Capital Stock of such Guarantor; (v) any
liability for foreign, federal, state, local or other taxes owed or owing by
such Guarantor; (vi) Indebtedness of such Guarantor to a Restricted Subsidiary
or any other Affiliate of such Guarantor or any of such Affiliate's
subsidiaries; (vii) that portion of any Indebtedness which at the time of
incurrence is issued in violation of the Senior Subordinated Indenture; and
(viii) trade payables owed or owing by such Guarantor.
GENERAL
Reference is made to the Prospectus Supplement for the following terms of
the Offered Securities: (1) the title of the Offered Securities; (2) the price
(expressed as a percentage of the aggregate principal amount thereof) at which
the Offered Securities will be issued; (3) any limit on the aggregate principal
amount of the Offered Securities or the series of which the Offered Securities
are a part; (4) the date or dates (or manner of determining the same) on which
the Offered Securities will mature; (5) the rate or rates (which may be fixed or
variable) per annum (or the method or methods by which such rate or rates will
be determined) at which the Offered Securities will bear interest, if any, and
the date or dates from which such interest will accrue; (6) the date or dates on
which interest, if any, will be payable and the record dates for such interest
payment dates; (7) if the trustee in respect of the Offered Securities is other
than the Trustee (or any successor thereto), the identity of the trustee; (8)
the place or places where the principal of (and premium, if any) and interest,
if any, on the Offered Securities will be payable and each office or agency
where the Offered Securities may be presented for transfer or exchange; (9) any
mandatory or optional sinking fund or purchase fund or similar provision and the
terms and conditions thereof; (10) any provisions relating to the date after
which, the circumstances under which, the price or prices at which, and the
currency or currency unit in which, the Offered Securities may, pursuant to any
optional or mandatory redemption or conversion provisions, be redeemed or
converted at the option of the Publishing or of the holder and certain other
terms and provisions of such optional or mandatory redemption or conversion;
(11) any terms applicable to the Offered Securities issued at an issue price
below their stated principal amount, including the issue price thereof and the
rate or rates at which such original issue discount will occur; (12) if the
Offered Securities are denominated in other than United States dollars, the
currency or currencies (including composite currencies) in which the Offered
Securities are denominated; (13) the index, if any, used to determine the amount
of payments of principal of (and premium, if any) or interest, if any, on the
Offered Securities; (14) if payments of principal (and premium, if any) or
interest, if any, in respect of the Offered Securities are to be made in a
currency other than United States dollars or the amount of such payments are to
be determined with reference to an index based on a currency or currencies other
than that in which the Offered Securities are denominated, the currency or
currencies (including composite currencies) in which such payments are to be
made, or the manner in which such amounts are to be determined, respectively;
(15) if the amount payable upon acceleration of the Offered Securities is other
than the full principal amount, the portion of the principal amount payable upon
acceleration; (16) any provisions relating to the conversion of Offered
Securities into Securities of another series; (17) any provisions restricting
defeasance of the Offered Securities; (18) if any additional or special events
of default are applicable to the Offered Securities, the terms and conditions of
such events of default; (19) if the Offered Securities will be issued, in whole
or in part, in the form of one or more temporary or permanent Global Securities,
the identity of the depositary for such Global Securities and certain other
terms and conditions relating to the Global Securities; and (20) any other terms
of the Offered Securities and the Guarantees not inconsistent with the
provisions of the Indentures.
Unless otherwise indicated in the Prospectus Supplement in respect of which
this Prospectus is being delivered, principal of, premium, if any, and interest
on the Offered Securities (other than Offered Securities issued as Global
Securities) will be payable, and the Offered Securities (other than Offered
Securities issued as Global Securities) will be exchangeable and transferable at
the office or agency of Publishing in the City of New York maintained for such
purposes; provided, however, that payment of interest may be made at the option
of Publishing by check mailed to the Person entitled thereto as shown on the
security register.
Unless otherwise indicated in the Prospectus Supplement relating thereto,
the Offered Securities will be issued only in fully registered form without
coupons, in denominations of $1,000 or any integral multiple thereof. For
certain information about Offered Securities in global form, see "Global
Securities" below. No service charge will be made for any registration of
transfer, exchange or redemption of Offered Securities,
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<PAGE> 65
except in certain circumstances for any tax or other governmental charge that
may be imposed in connection therewith.
GLOBAL SECURITIES
Offered Securities of any series may be issued, in whole or in part, in the
form of one or more Global Securities that will be deposited with a depositary
(the "Depositary") or with a nominee for a Depositary identified in the
Prospectus Supplement relating to such series. Unless and until it is exchanged
in whole or in part for Offered Securities in definitive registered form, a
Global Security may not be transferred except as a whole by the Depositary to a
nominee of the Depositary or by a nominee of the Depositary to the Depositary or
another nominee of the Depositary or by the Depositary or any nominee to a
successor Depositary or a nominee of any successor.
The specific terms of the depositary arrangement with respect to any series
of Offered Securities to be represented by a Global Security will be described
in the Prospectus Supplement relating to such series. Publishing, however,
anticipates that the provisions set forth below generally will apply to such
depositary arrangements.
Upon the issuance of a Global Security, the Depositary will credit, on its
book-entry registration and transfer system, the respective principal amounts of
the Offered Securities represented by such Global Security to the accounts of
persons that have accounts with such Depositary ("participants"). The accounts
to be credited shall be designated by any underwriters or agents participating
in the distribution of such Offered Securities or by Publishing if the
Securities are offered and sold directly by Publishing. Ownership of beneficial
interest in a Global Security will be limited to participants or persons that
hold interests through participants, but Publishing has no obligation to any
persons that hold interests through participants. Ownership of beneficial
interests in such Global Security will be shown on, and the transfer of that
ownership will be effected only through, records maintained by the Depositary
for such Global Security (with respect to interests of participants) or by
participants or persons that hold through participants (with respect to
interests of persons other than participants). The laws of some states require
that certain purchasers of securities take physical delivery of the securities
to definitive form. Such limits and laws may impair the ability to transfer
beneficial interest in a Global Security.
As long as the Depositary or its nominee is the registered owner of such
Global Security, the Depositary or its nominee, as the case may be, will be
considered the sole owner or holder of the Offered Securities represented by the
Global Security for all purposes under the Indentures. Except as set forth
below, owners of beneficial interests in a Global Security will not be entitled
to have the Security represented by such Global Security registered in their
names, will not receive or be entitled to receive physical delivery of such
Securities in definitive form and will not be considered the owners or holders
thereof under the Indentures.
Payments of principal (and premium, if any) and interest, if any, on
Offered Securities represented by a Global Security registered in the name of a
Depositary or its nominee will be made to such Depositary or its nominee, as the
case may be, as the registered owner of such Global Security. Neither
Publishing, the Guarantor, the Trustee, any Paying Agent nor the Security
Registrar for such Security will have any responsibility or liability for any
aspect of the records relating to or payments made on account of beneficial
ownership interests in such Global Security or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interests.
Publishing expects that the Depositary for any Offered Securities
represented by a Global Security, upon receipt of any payment of principal (and
premium, if any) or interest, if any, in respect of a permanent Global Security
will, except as provided below, immediately credit participants' accounts with
payments in amounts proportionate to their respective beneficial interests in
the principal amount of such Global Security as shown on the records of the
Depositary. Publishing also expects that payments by participants to owners of
beneficial interests in such Global Security held through such participants will
be governed by standing instructions and customary practices, as is now the case
with the securities held for the accounts of customers registered in "street
names" and will be the responsibility of such participants.
If the Depositary for any Offered Securities represented by a Global
Security is at any time unwilling or unable to continue as Depositary and a
successor Depositary is not appointed by Publishing within 90 days,
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<PAGE> 66
Publishing will issue Offered Securities in definitive form in exchange for such
Global Security. In addition, Publishing may at any time and in its sole
discretion determine not to have any of the Offered Securities of a series
represented by one or more Global Securities and, in such event, will issue in
exchange therefor Offered Securities of such a series. Further, if Publishing so
specifies with respect to Offered Securities of a series, an owner of a
beneficial interest in a Global Security representing Securities Offered
Securities of that series may, on terms acceptable to Publishing and the
Depositary for such Global Security receive Offered Securities of such series in
a definitive form. In any such instance, an owner of a beneficial interest in a
Global Security will be entitled to physical delivery in definitive form of
Offered Securities of the series represented by the Global Security equal in
principal amount to such beneficial interest and to have such Offered Securities
registered in its name. Securities of such series so issued in definitive form
will be issued in denominations, unless otherwise specified by Publishing, of
$1,000 and integral multiples thereof if the Offered Securities of such series
are denominated in United States dollars.
The Indentures will contain, among others, the following covenants, which
will apply to Publishing, the Restricted Subsidiaries and, in certain cases, the
Company. As set forth below the effect of many of the covenants will change once
both of The Telegraph and Southam are Restricted Subsidiaries.
CERTAIN COVENANTS WITH RESPECT TO THE SENIOR SECURITIES
Limitation on Indebtedness. (a) Publishing will not, and will not permit
any of its Restricted Subsidiaries to, Incur any Indebtedness (including any
Acquired Indebtedness but excluding any Permitted Indebtedness) except for (x)
Indebtedness of Publishing or (y) Indebtedness of a Restricted Subsidiary
constituting Acquired Indebtedness, Permitted Subsidiary Indebtedness or Foreign
Subsidiary Indebtedness, provided that, in the case of the foregoing clauses (x)
and (y), the Consolidated Cash Flow Ratio for Publishing and the Restricted
Subsidiaries for the four full fiscal quarters immediately preceding the
Incurrence of such Indebtedness taken as one period is not greater than 6.0:1.0.
In addition (and without limiting the foregoing requirement), unless both of The
Telegraph and Southam are Restricted Subsidiaries, Publishing shall not permit
any Restricted Subsidiary to Incur any Indebtedness other than Acquired
Indebtedness or Permitted Subsidiary Indebtedness. For purposes of determining
the Consolidated Cash Flow Ratio for any period, pro forma effect shall be given
to (i) the Incurrence of such Indebtedness and (if applicable) the application
of the net proceeds therefrom, including to refinance other Indebtedness, as if
such Indebtedness was Incurred, and the application of such proceeds occurred,
at the beginning of such four-quarter period; (ii) the Incurrence, repayment or
retirement of any other Indebtedness by Publishing and its Restricted
Subsidiaries since the first day of such four-quarter period as if such
Indebtedness was Incurred, repaid or retired at the beginning of such
four-quarter period; (iii) in the case of Acquired Indebtedness, the related
acquisition (as if such acquisition had been consummated on the first day of
such four-quarter period); and (iv) any acquisition or disposition by Publishing
and its Restricted Subsidiaries of any company or any business or any assets out
of the ordinary course of business, whether by merger, stock purchase or sale or
asset purchase or sale or any related repayment of Indebtedness, in each case
since the first day of such four-quarter period (as if such acquisition or
disposition had been consummated on the first day of such four-quarter period).
(b) Prior to September 1, 1997, neither Publishing nor any Restricted
Subsidiary will issue any Public Debt unless the aggregate principal amount (or
initial proceeds in the case of Public Debt sold with "original issue discount"
(within the meaning of Section 1273(a) of the Internal Revenue Code of 1986, as
amended)) of Public Debt so issued from the date of the Senior Indenture that is
pari passu with any Senior Securities does not exceed the aggregate principal
amount (or initial proceeds in the case of Public Debt sold with "original issue
discount") of Public Debt so issued from the date of the Senior Indenture that
is pari passu with or subordinated to the Senior Subordinated Securities.
(Section 10.08)
Limitation on Restricted Payments. (a) Publishing will not, and will not
permit any Restricted Subsidiary to, directly or indirectly:
(i) declare or pay any dividend or make any other distribution or
payment on or in respect of Publishing's Capital Stock (including dividends
or distributions of the Capital Stock of any Subsidiary), or make any other
payment to the direct or indirect holders (in their capacities as such) of
Publishing's Capital Stock (other than (x) dividends or distributions
payable in shares of Publishing's Qualified
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Capital Stock or in options, warrants or other rights to acquire such
Qualified Capital Stock and (y) a dividend or distribution of up to $175
million payable to the Company, provided that, simultaneously or in
connection with such dividend or distribution, the Company contributes or
transfers, directly or indirectly, to Publishing all of the Capital Stock
of Hollinger Eastern then held by the Company; and provided further that
Hollinger Eastern then holds not less than 42% of the voting interest of
Southam);
(ii) purchase, redeem or otherwise acquire or retire for value,
directly or indirectly, any Capital Stock of Publishing or any Capital
Stock of any Affiliate of Publishing (other than Capital Stock of any
Wholly Owned Restricted Subsidiary (or, provided that both of The Telegraph
and Southam are Restricted Subsidiaries, Capital Stock of a Restricted
Subsidiary) or Capital Stock of a Person that is, or immediately following
such repurchase will become, a Wholly Owned Restricted Subsidiary (or,
provided that both of The Telegraph and Southam are Restricted
Subsidiaries, a Restricted Subsidiary) or options, warrants or other rights
to acquire such Capital Stock;
(iii) make any principal payment on, or repurchase, redeem, defease,
retire or otherwise acquire for value, prior to any scheduled principal
payment, sinking fund payment or maturity, any Subordinated Indebtedness
(other than pursuant to clause (c) of the "Limitation on Sale of Assets"
covenant);
(iv) declare or pay any dividend or distribution on any Capital Stock
of any Restricted Subsidiary to any Person (other than (x) dividends and
distributions on Preferred Stock of Restricted Subsidiaries or Mirror
Preferred or (y) dividends and distributions made to any Person (other than
a controlling Affiliate of Publishing or an Affiliate of such Affiliate
(other than Publishing and any Restricted Subsidiary)) on a pro rata basis
consistent with the ownership interests in such Capital Stock to the owners
of such Capital Stock, except that, in the case of the Capital Stock of a
Restricted Subsidiary that is a Guarantor, (i) no Default or Event of
Default shall have occurred and be continuing; and (ii) no holders of any
other Indebtedness of Publishing or any Restricted Subsidiary shall have an
Acceleration Right);
(v) Incur, create or assume any guarantee of Indebtedness of any
Affiliate of Publishing (other than a Wholly Owned Restricted Subsidiary of
Publishing (or, provided that both of The Telegraph and Southam are
Restricted Subsidiaries, a Restricted Subsidiary of Publishing) except as
permitted by the "Limitation on Issuances of Guarantees of Indebtedness"
covenant;
(vi) make any Investment in any Person (other than any Permitted
Investments); or
(vii) designate any Restricted Subsidiary as an Unrestricted
Subsidiary;
(any of the payments described in paragraphs (i) through (vii) above, other than
any such action that is a Permitted Payment (as defined below), collectively,
"Restricted Payments") unless at the time of and after giving effect to the
proposed Restricted Payment (the amount of any such Restricted Payment, if other
than cash, as determined by the Board of Directors, whose determination shall be
conclusive and evidenced by a Board Resolution), (1) no Default or Event of
Default shall have occurred and be continuing; (2) no holders of any other
Indebtedness of Publishing or any Restricted Subsidiary shall have an
Acceleration Right; (3) immediately before and immediately after giving effect
to such transaction on a pro forma basis, Publishing could Incur $1.00 of
additional Indebtedness (other than Permitted Indebtedness) under the provisions
described above under "Limitation on Indebtedness"; and (4) the aggregate amount
of all such Restricted Payments declared or made after the date of the Indenture
(provided that, in the case of a Restricted Payment by a Restricted Subsidiary,
such Restricted Payment is calculated for the purposes of this paragraph (4) by
multiplying the amount of the Restricted Payment by the percentage of
Publishing's common equity in such Restricted Subsidiary at the time of such
Restricted Payment but disregarding, in the case of Southam, common equity
interests which are pledged to secure the Southam-Linked Debentures) does not
exceed the sum of:
(A) 50% of the sum of (i) the aggregate cumulative Consolidated Net
Income of Publishing and its Restricted Subsidiaries accrued during the
period (treated as a single accounting period) beginning on the first day
of Publishing's fiscal quarter commencing prior to the date of the Senior
Indenture and ending on the last day of Publishing's last fiscal quarter
ending prior to the date of the Restricted Payment (or, if such aggregate
cumulative Consolidated Net Income shall be a loss, 100% of such loss
(treating a loss as a negative number)) and (ii) the aggregate cumulative
Amortization Expense of Publishing and
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its Restricted Subsidiaries accrued during the period (treated as a single
accounting period) beginning on the first day of Publishing's fiscal
quarter commencing prior to the date of the Indenture and ending on the
last day of Publishing's last fiscal quarter ending prior to the date of
the Restricted Payment;
(B) 50% of the aggregate cumulative cash dividends or distributions
received by Publishing and its Consolidated Restricted Subsidiaries from
any of Publishing's Unrestricted Subsidiaries during the period (treated as
a single accounting period) beginning on the first day of Publishing's
fiscal quarter commencing prior to the date of the Senior Indenture and
ending on the last day of Publishing's last fiscal quarter ending prior to
the date of the Restricted Payment; provided, however, that for purposes of
this clause (B), cash dividends and distributions shall not include,
without duplication, (x), prior to the time that Southam shall be a
Restricted Subsidiary, cash dividends received by Publishing from
Publishing's Unrestricted Subsidiaries not in excess of the Southam
Dividend Amount, (y) cash dividends or distributions received by Publishing
or any Wholly Owned Restricted Subsidiary in accordance with clause (vii)
of paragraph (b) of this "Limitation on Restricted Payments" covenant or
(z) dividends or distributions on any Argsub Preferred received by FDTH or
DTH;
(C) the aggregate Net Cash Proceeds received after the date of the
Senior Indenture by Publishing from the issuance or sale (other than to any
of its Restricted Subsidiaries) of its Qualified Capital Stock or any
options, warrants or rights to purchase such Qualified Capital Stock
(except, in each case, to the extent such proceeds are used to purchase,
redeem or otherwise retire Capital Stock, Subordinated Indebtedness or Pari
Passu Indebtedness as set forth below);
(D) the aggregate Net Cash Proceeds received after the date of the
Senior Indenture by Publishing (other than from any of its Restricted
Subsidiaries) upon the exercise of any options or warrants to purchase
Qualified Capital Stock of Publishing;
(E) the aggregate Net Cash Proceeds received after the date of the
Senior Indenture by Publishing (other than from any of its Subsidiaries)
from cash capital contributions made to Publishing (other than from the
proceeds of the Common Stock Offering);
(F) the aggregate amount by which any Indebtedness (other than
Permitted Indebtedness) of Publishing or any Restricted Subsidiary is
reduced after the date of the Senior Indenture as a result of the
conversion or exchange of debt securities or Redeemable Capital Stock of
Publishing that has been converted into or exchanged for Qualified Capital
Stock of Publishing to the extent such debt securities or Redeemable
Capital Stock were originally sold for cash plus the aggregate Net Cash
Proceeds received by Publishing at the time of any such conversion or
exchange; and
(G) $25,000,000.
(b) Notwithstanding the foregoing, and, in the case of clauses (ii)
through (viii) below, so long as (1) there is no Default or Event of Default
continuing and (2) no holders of any other Indebtedness of Publishing or any
Restricted Subsidiary have an Acceleration Right, the foregoing provisions will
not prohibit the following actions (clauses (i) through (x) being referred to as
"Permitted Payments"):
(i) the payment of any dividend or distribution within 60 days after
the date of declaration thereof, if at such date of declaration such
payment would be permitted by the provisions of paragraph (a) of this
section and such payment will be deemed to have been paid on such date of
declaration for purposes of the calculation required by paragraph (a) of
this covenant;
(ii) any repurchase, redemption or other acquisition or retirement of
any shares of Capital Stock of Publishing in exchange for (including any
such exchange pursuant to the exercise of a conversion right or privilege
in connection with which cash is paid in lieu of the issuance of fractional
shares or scrip), or out of the Net Cash Proceeds of a substantially
concurrent issue and sale for cash (other than to a Restricted Subsidiary)
of other Qualified Capital Stock of Publishing; provided that the Net Cash
Proceeds from the issuance of such shares of Qualified Capital Stock are
excluded from clauses 4(D) and (4)(E) of paragraph (a) of this covenant;
(iii) any repurchase, redemption, defeasance, retirement or
acquisition for value or payment of principal of any Subordinated
Indebtedness in exchange for, or out of the net proceeds of, a
substantially
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concurrent issuance and sale for cash (other than to any Restricted
Subsidiary of Publishing) of any Qualified Capital Stock of Publishing;
provided that the Net Cash Proceeds from the issuance of such Qualified
Capital Stock are excluded from clauses 4(D) and (4)(E) of paragraph (a) of
this section; and
(iv) the repurchase, redemption, defeasance, retirement, refinancing,
acquisition for value or payment of principal of any Subordinated
Indebtedness (other than Redeemable Capital Stock) (a "refinancing")
through the issuance of new Subordinated Indebtedness of Publishing;
provided that any such new Subordinated Indebtedness (1) shall be in a
principal amount that does not exceed the principal amount so refinanced
(or, if the subordinated Indebtedness so refinanced provides for an amount
less than the principal amount thereof to be due and payable upon a
declaration or acceleration thereof, then such lesser amount as of the date
of determination), plus the amount of any premium required to be paid in
connection with such refinancing pursuant to the terms of such refinanced
Indebtedness and any reasonable out-of-pocket expenses of Publishing
Incurred in connection with such refinancing; (2) has an Average Life to
Stated Maturity greater than the remaining Average Life to Stated Maturity
of the Securities; (3) has a Stated Maturity for its final scheduled
principal payment later than the Stated Maturity for the final scheduled
principal payment of the Securities; and (4) is expressly subordinated in
right of payment to the Securities at least to the same extent as the
Indebtedness to be refinanced;
(v) dividends paid to the Company after the date of the Senior
Indenture to the extent not in excess of the Southam Dividend Amount;
(vi) loans, advances, dividends or distributions by any Restricted
Subsidiary to Publishing or any Wholly Owned Restricted Subsidiary and by
FDTH or, to the extent it has received such funds, directly or indirectly
from FDTH, DTH or Publishing to the Company for the purpose of redeeming
shares of Series A Preferred Stock not exceeding in the aggregate any
payments made by Hollinger Inc. to FDTH pursuant to the provisions of the
HTH/FDTH Share Exchange Agreement;
(vii) loans, advances, dividends or distributions to the Company in
amounts not to exceed $1 million per year to permit the Company to
repurchase, redeem or otherwise acquire or retire any shares of its Capital
Stock from employees, former employees or their estates upon disability,
death, retirement or termination of employment;
(viii) tax payments pursuant to a Tax Sharing Agreement to the extent
that the aggregate amount of such payments do not exceed the aggregate
amount of the tax payments that Publishing and the Restricted Subsidiaries
would have been required to make if they alone constituted a single
consolidated tax group;
(ix) payments by Publishing or a Restricted Subsidiary in accordance
with the Scheme of Arrangement; and
(x) the issuance or redemption of or payment of distributions on
Mirror Preferred, but only to the extent Argsub Preferred is simultaneously
issued, redeemed or pays (or is deemed to pay) dividends, respectively, and
only so long as no cash is transferred in any such transaction, except for
cash payments in respect of certain Mirror Preferred made directly from
FDTH to DTH at the direction of Argsub.
For purposes of this "Limitation on Restricted Payments" covenant, if
the Board of Directors designates a Restricted Subsidiary as an Unrestricted
Subsidiary, or a Restricted Subsidiary is deemed to be so designated, a
"Restricted Payment" shall be deemed to have been made in an amount equal to the
fair value of the Investment of Publishing and its other Restricted Subsidiaries
in such Restricted Subsidiary as determined by the Board of Directors with the
concurrence of a majority of the Independent Directors (there being at least one
Independent Director), whose good faith determination shall be conclusive. If a
particular Restricted Payment involves a non-cash payment, including a
distribution of assets, then such Restricted Payment shall be deemed to be in an
amount equal to the fair market value of the non-cash portion of such Restricted
Payment as determined by the Board of Directors, whose good faith determination
shall be conclusive. (Section 10.09)
Limitation on Transactions with Affiliates. (a) Publishing will not,
and will not permit any of its Restricted Subsidiaries to, directly or
indirectly, enter into or suffer to exist any transaction or series of related
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transactions (including, without limitation, the sale, purchase, exchange or
lease of assets, property or services) with any Affiliate of Publishing (other
than Publishing or a Wholly Owned Restricted Subsidiary or, if both of the
Telegraph and Southam are Restricted Subsidiaries, a Restricted Subsidiary)
unless (a) such transaction or series of related transactions is on terms that
are no less favorable to Publishing or such Restricted Subsidiary, as the case
may be, than would be available in a comparable transaction in arm's-length
dealings with an unrelated third party and (b) with respect to any transaction
or series of related transactions involving aggregate payments in excess of
$5,000,000, Publishing delivers an Officers' Certificate to the Trustee
certifying that such transaction or series of related transactions complies with
clause (a) above and such transaction or series of related transactions has been
approved by a majority of the Independent Directors of the Board of Directors;
provided that any transaction or series of related transactions otherwise
permitted under this paragraph (other than any transaction or series of related
transactions with respect to the making of any Permitted Investment pursuant to
clause (ix) of the definition of "Permitted Investment" or any Restricted
Payment permitted pursuant to the "Limitation on Restricted Payments" covenant
described above (other than those referred to in clause (vi) of paragraph (b)
thereof) pursuant to which Publishing or any Restricted Subsidiary shall receive
or render value exceeding $15,000,000 shall not be permitted unless, prior to
the consummation of any such transaction or series of related transactions,
Publishing shall have received an opinion, from an independent nationally
recognized investment banking firm or firm experienced in the appraisal or
similar review of similar types of transactions, that such transaction is fair
to Publishing from a financial point of view; provided further, that this
covenant shall not apply to (i) transactions or agreements as in effect or
securities outstanding on the date of the Senior Indenture (provided that any
amendment to any existing agreement (including the Services Agreement and the
Business Opportunities Agreement), and any transaction pursuant to the Business
Opportunities Agreement, shall require approval pursuant to this covenant;
notwithstanding the foregoing, any amendment to the Services Agreement or the
Business Opportunities Agreement shall require the approval of a majority of the
Independent Directors); (ii) directors' fees approved by the Board of Directors;
(iii) any employee benefit plan or arrangement entered into or made available to
officers or other employees of Publishing or the Restricted Subsidiaries in the
ordinary course of business; (iv) sales by Publishing and its Restricted
Subsidiaries of their products in the ordinary course of business on
arm's-length terms; (v) tax payments pursuant to a Tax Sharing Agreement to the
extent that the aggregate amount of such payments do not exceed the aggregate
amount of the tax payments that Publishing and the Restricted Subsidiaries would
have been required to make if they alone constituted a single consolidated tax
group; (vi) loans, advances, dividends or distributions by FDTH, DTH or
Publishing to the Company in amounts and for the purpose permitted by clauses
(v) and (vii) of paragraph (b) of the "Limitation on Restricted Payments"
covenant described above; (vii) payments made to Hollinger Inc. pursuant to the
Services Agreement that constitute the reimbursement for the fair value (as
determined by a majority of the Independent Directors serving on an Independent
Committee) of services received by Publishing or a Restricted Subsidiary
consistent with past practices, and (viii) the issuance or redemption,
retraction or transfer of or payment of dividends, distributions or other
amounts on Mirror Preferred by DTH or FDTH to an Argsub, but only to the extent
that such Argsub simultaneously, as the case may be, issues or redeems or pays
dividends, distributions or other amounts (or is deemed to have taken any such
action) to DTH or FDTH, in each case in equivalent amounts. (Section 10.10)
Limitation on Liens. (a) Publishing will not, and will not permit any
Restricted Subsidiary to Incur, affirm or suffer to exist any Lien of any kind
securing any pari passu Public Debt or any Subordinated Indebtedness of
Publishing (including any assumption, guarantee or other liability with respect
thereto by any Restricted Subsidiary) upon any property or assets (including any
intercompany notes) of Publishing or any Restricted Subsidiary owned on the date
of the Indenture or acquired after the date of the Indenture, or any income or
profits therefrom, unless (i) in the case of any Lien securing pari passu Public
Debt, the Senior Securities are secured by a Lien on such property, assets or
proceeds that is senior in priority to or pari passu with such Lien and (ii) in
the case of any Lien securing Subordinated Indebtedness of Publishing, the
Securities are secured by a Lien on such property, assets or proceeds that is
senior in priority to such Lien, except for (x) any Lien securing Acquired
Indebtedness created prior to (and not created in connection with, or in
contemplation of) the Issuance of such pari passu Public Debt or the Incurrence
of such Subordinated Indebtedness by Publishing or any Restricted Subsidiary, in
each case which Indebtedness is permitted under
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the provisions of the "Limitation on Indebtedness" covenant described above
(provided that any such Lien only extends to the assets that were subject to
such Lien securing such Acquired Indebtedness prior to the related acquisition
by Publishing or its Restricted Subsidiaries) and (y) any Lien securing
Indebtedness owing to Publishing or a Wholly Owned Restricted Subsidiary by a
Restricted Subsidiary.
(b) Notwithstanding the foregoing, any security interest granted by
Publishing or any Restricted Subsidiary to secure the Senior Securities created
pursuant to paragraph (a) above shall provide by its terms that such security
interest shall be automatically and unconditionally released and discharged upon
the release by the holders of the Indebtedness of Publishing or any Restricted
Subsidiary described in paragraph (a) above of their security interest
(including any deemed release upon payment in full of all obligations under such
Indebtedness), at a time when (A) no pari passu Public Debt or Subordinated
Indebtedness of Publishing or any Restricted Subsidiary has been secured by such
property or assets of Publishing or any such Restricted Subsidiary or (B) the
holders of all such pari passu Public Debt and Subordinated Indebtedness which
is secured by such property or assets of Publishing or any such Restricted
Subsidiary also release their security interest in such property or assets
(including any deemed release upon payment in full of all obligations under such
Indebtedness). (Section 10.11)
Limitation on Issuances of Guarantees of Indebtedness. (a) Publishing will
not permit any Restricted Subsidiary, directly or indirectly, to guarantee,
assume or in any other manner become liable with respect to any Indebtedness of
Publishing (other than pursuant to the New Bank Credit Facility) unless such
Restricted Subsidiary simultaneously executes and delivers a supplemental
indenture to the Senior Indenture providing for a senior guarantee of the Senior
Securities and if such Indebtedness of Publishing is by its terms expressly
subordinated to the Senior Securities, any such assumption, guarantee or other
liability of such Restricted Subsidiary with respect to such Indebtedness shall
be subordinated to such Restricted Subsidiary's guarantee to the same extent as
such Indebtedness is subordinated to the Senior Securities.
(b) Notwithstanding the foregoing, any guarantee by a Restricted Subsidiary
of the Senior Securities that is provided pursuant to the foregoing paragraph or
under the provisions of the "Limitation on Issuance and Sale of Capital Stock of
Restricted Subsidiaries" covenant described below may provide by its terms that
it shall be automatically and unconditionally released and discharged (i) upon
any sale, exchange or transfer, to any Person not an Affiliate of Publishing, of
all of Publishing's Capital Stock in, or all or substantially all the assets of,
such Restricted Subsidiary, which sale, exchange or transfer is in compliance
with the Indenture, (ii) if the Restricted Subsidiary issuing such guarantee
ceases to be a Restricted Subsidiary or (iii) upon the release by the holders of
the Indebtedness of Publishing described in paragraph (a) above of their
Guarantee by such Restricted Subsidiary (including any deemed release upon
payment in full of all obligations under such Indebtedness), at a time when (A)
no Indebtedness of Publishing or any Restricted Subsidiary has been guaranteed
by such Restricted Subsidiary or (B) the holders of all such other Indebtedness
which is guaranteed by such Restricted Subsidiary also release their Guarantee
by such Restricted Subsidiary (including any deemed release upon payment in full
of all obligations under such Indebtedness). (Section 10.12)
Limitation on Sale of Assets. (a) Publishing will not, and will not permit
any of its Restricted Subsidiaries to, directly or indirectly, consummate an
Asset Sale unless (i) at least 80% of the proceeds from such Asset Sale are
received in cash (provided that the amount of (A) any Pari Passu Indebtedness or
Indebtedness of such Restricted Subsidiary that is pari passu with any guarantee
of the Senior Securities (as shown on Publishing's or such Restricted
Subsidiaries' most recent balance sheet or in the notes thereto) of Publishing
or any such Restricted Subsidiary that is assumed by the transferee of any asset
in connection with any Asset Sale and (B) any deferred payment obligations
received by Publishing or any such Restricted Subsidiary as proceeds of an Asset
Sale that are concurrently with the Asset Sale converted into cash without
recourse to Publishing or any of its Restricted Subsidiaries shall be deemed to
be cash for purposes of this provision; provided further that, for purposes of
this clause (i), "cash" shall include any cash proceeds received from the sale
of securities received in an Asset Sale as long as at the time of such Asset
Sale, Publishing or its Restricted Subsidiary, as applicable, has entered into a
legally binding agreement for the sale of such securities and such securities
are sold within 90 days of such Asset Sale; and provided further that this
clause (i) shall not apply to (x) Newspapers Businesses received by Publishing
or a Restricted Subsidiary
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from the transferee as consideration for an Asset Sale (an "Asset Swap") so long
as, immediately before and immediately after giving effect to such transaction
on a pro forma basis, Publishing could incur $1.00 of additional Indebtedness
(other than Permitted Indebtedness) under the provisions described above under
"Limitation on Indebtedness," (y) a CST Real Estate Transaction or (z) a
Permitted Real Estate Sale) and (ii) Publishing or such Restricted Subsidiary
receives consideration at the time of such Asset Sale at least equal to the fair
market value of the shares or assets sold (as determined by the Board of
Directors of Publishing and evidenced by a board resolution). The value of any
properties or assets (other than cash) received pursuant to an Asset Sale shall
be determined by the Board of Directors of Publishing and evidenced by a Board
Resolution; provided that if the value of the asset which is the subject of the
Asset Sale is in excess of $25,000,000, the value of the properties or assets
received shall be determined by an independent nationally recognized investment
banking firm or firm experienced in the appraisal or similar review of similar
types of assets (provided that for purposes of this sentence, any CST Real
Estate Transaction shall be deemed to involve an asset whose value exceeds
$25,000,000).
(b) If all or a portion of the Net Cash Proceeds of any Asset Sale is not
applied to permanently repay or otherwise permanently retire any Pari Passu
Indebtedness then outstanding as permitted or required by the terms thereof, or
if no such Pari Passu Indebtedness is then outstanding, Publishing or a
Restricted Subsidiary, as the case may be, may, within 12 months of the Asset
Sale, invest the Net Cash Proceeds in properties and assets that (as determined
by the Board of Directors) replace the properties and assets that were the
subject of the Asset Sale or in properties and assets that will be used in the
businesses of Publishing or its Restricted Subsidiaries existing on the date of
the Senior Indenture or in businesses reasonably related thereto. The amount of
such Net Cash Proceeds neither used to permanently repay or prepay Pari Passu
Indebtedness nor used or invested as set forth in this paragraph constitutes
"Excess Proceeds."
(c) When the aggregate amount of Excess Proceeds equals or exceeds
$20,000,000, Publishing will apply the Excess Proceeds to the repayment of the
Senior Securities and any Pari Passu Indebtedness required to be repurchased
under the instrument governing such Pari Passu Indebtedness as follows: (i)
Publishing will make an offer to purchase (an "Offer") from all holders of the
Senior Securities in accordance with the procedures set forth in the Senior
Indenture in the maximum principal amount (expressed as a multiple of $1,000) of
Senior Securities that may be purchased out of an amount (the "Securities
Amount") equal to the product of such Excess Proceeds multiplied by a fraction,
the numerator of which is the outstanding principal amount of the Senior
Securities, and the denominator of which is the sum of the outstanding principal
amount of the Senior Securities and such Pari Passu Indebtedness (subject to
proration in the event such amount is less than the aggregate Offered Price (as
defined herein) of all Securities tendered) and (ii) to the extent required by
such Pari Passu Indebtedness to permanently reduce the principal amount of such
Pari Passu Indebtedness, Publishing will make an offer to purchase or otherwise
repurchase or redeem Pari Passu Indebtedness (a "Pari Passu Offer") in an amount
(the "Pari Passu Debt Amount") equal to the excess of the Excess Proceeds over
the Securities Amount; provided that in no event will the Pari Passu Debt Amount
exceed the principal amount of such Pari Passu Indebtedness plus the amount of
any premium required to be paid to repurchase such Pari Passu Indebtedness. The
offer price shall be payable in cash in an amount equal to 100% of the principal
amount of the Senior Securities plus accrued and unpaid interest, if any, to the
date (the "Purchase Date") such Offer is consummated (the "Offered Price"), in
accordance with the procedures set forth in the Senior Indenture. To the extent
that the aggregate Offered Price of the Senior Securities tendered pursuant to
the Offer is less than the Securities Amount relating thereto or the aggregate
amount of Pari Passu Indebtedness that is purchased is less than the Pari Passu
Debt Amount (the amount of such shortfall, if any, constituting a "Deficiency"),
Publishing may then (i)(a) to the extent required by the Senior Subordinated
Securities Indenture, purchase Senior Subordinated Securities tendered pursuant
to an offer by Publishing for the Senior Subordinated Securities (the "Senior
Subordinated Securities Offer") at a purchase price of 100% of their principal
amount plus accrued interest to the date of purchase in accordance with the
procedures set forth in the Senior Subordinated Securities Indenture and (b) to
the extent required by the terms of any other senior subordinated Indebtedness
(other than the Senior Subordinated Securities) to permanently reduce the
principal amount of such other senior subordinated Indebtedness, make an offer
to purchase or otherwise repurchase or redeem such other senior subordinated
Indebtedness, or (ii) use such Deficiency in the business of Publishing and its
Restricted Subsidiaries. Upon completion of the purchase of
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all Securities tendered pursuant to an Offer and repurchase of the Pari Passu
Indebtedness pursuant to a Pari Passu Offer, the amount of Excess Proceeds, if
any, shall be reset at zero.
(d) Whenever the aggregate amount of Excess Proceeds received by Publishing
exceeds $20,000,000, such Excess Proceeds will, prior to the purchase of Senior
Securities, Pari Passu Indebtedness or Senior Subordinated Securities or
Indebtedness described in paragraph (c) above, be set aside by Publishing in a
separate account pending (i) deposit with the depository or a paying agent of
the amount required to purchase the Senior Securities or Pari Passu Indebtedness
tendered in an offer or Pari Passu Offer, (ii) delivery by Publishing of the
Offered Price to the holders of the Senior Securities or Pari Passu Indebtedness
tendered in an Offer or a Pari Passu Offer and (iii) application, as set forth
above, of Excess Proceeds in the business of Publishing and its Restricted
Subsidiaries. Such Excess Proceeds may be invested in Temporary Cash
Investments; provided that the maturity date of any such investment made after
the amount of Excess Proceeds equals or exceeds $20,000,000 shall not be later
than the Purchase Date. Publishing shall be entitled to any interest or
dividends accrued, earned or paid on such Temporary Cash Investments; provided
that Publishing will not be entitled to such interest and will not withdraw such
interest from the separate account if an Event of Default has occurred and is
continuing.
(e) If Publishing becomes obligated to make an Offer pursuant to paragraph
(c) above, the Senior Securities will be purchased by Publishing, at the option
of the holder thereof, in whole or in part in integral multiples of $1,000, on a
date that is not earlier than 30 days and not later than 60 days from the date
the notice is given to holders, or such later date as may be necessary for
Publishing to comply with the requirements under the Exchange Act, subject to
proration in the event the Securities Amount is less than the aggregate Offered
Price of all Senior Securities tendered.
(f) Publishing will comply with the applicable tender offer rules,
including Rule 14e-1 under the Exchange Act, and any other applicable securities
laws or regulations in connection with an Offer.
(g) Publishing will not, and will not permit any Subsidiary to, create or
permit to exist or become effective any restriction (other than restrictions
existing under (i) Indebtedness as in effect on the date of the Indenture as
such Indebtedness may be refinanced form time to time or (ii) any Pari Passu
Indebtedness existing on the date of the Senior Indenture or thereafter;
provided, in each case, that such restrictions are no less favorable to the
holders of Senior Securities than those existing on the date of the Indenture)
that would expressly impair the ability of Publishing to make an Offer to
purchase the Senior Securities or, if such Offer is made, to pay for the Senior
Securities tendered for purchase. (Section 10.15)
Purchase of Senior Securities upon a Change of Control. If a Change of
Control occurs at any time, then each holder with respect to Senior Securities
of any Series will have the right to require that Publishing purchase such
holder's Senior Securities in whole or in part in integral multiples of $1,000,
at a purchase price (the "Change of Control Purchase Price") in cash in an
amount equal to 101% of the principal amount of such Senior Securities, plus
accrued and unpaid interest, if any, to the date of purchase (the "Change of
Control Purchase Date"), pursuant to the offer described below (the "Change of
Control Offer") and the other procedures set forth in the Senior Indenture.
Within 30 days following any Change of Control, Publishing shall notify the
Trustee thereof and give written notice of such Change of Control to each holder
with respect to Senior Securities of any Series, by first-class mail, postage
prepaid, at his address appearing in the security register, stating, among other
things, (i) the purchase price, (ii) the Change of Control Purchase Date, which
shall be a Business Day no earlier than 30 days nor later than 60 days from the
date such notice is mailed, or such later date as is necessary to comply with
requirements under the Exchange Act, (iii) that any Senior Security not tendered
will continue to accrue interest, (iv) that, unless Publishing defaults in the
payment of the purchase price, any Senior Securities accepted for payment
pursuant to the Change of Control Offer will cease to accrue interest after the
Change of Control Purchase Date and (v) certain other procedures that a holder
of Senior Securities must follow to accept a Change of Control Offer or to
withdraw such acceptance.
If a Change of Control Offer is made, there can be no assurance that
Publishing will have available funds sufficient to pay the Change of Control
Purchase Price for any or all of the Senior Securities that might be delivered
by holders of the Senior Securities seeking to accept the Change of Control
Offer and, accordingly,
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none of the holders of the Senior Securities may receive the Change of Control
Purchase Price for their Senior Securities in the event of a Change of Control.
The failure of Publishing to make or consummate the Change of Control Offer or
pay the Change of Control Purchase Price when due will give the Trustee and the
holders of the Senior Securities the rights described below under "Events of
Default."
The existence of a holder's right to require Publishing to repurchase such
holder's Senior Securities upon a Change of Control may deter a third party from
acquiring Publishing in a transaction which constitutes a Change of Control.
The provisions of the Senior Indenture may not afford holders of Senior
Securities the right to require Publishing to repurchase the Senior Securities
in the event of a highly leveraged transaction or certain transactions with
Publishing's management or its Affiliates or the management of the Company or
Hollinger Inc. or their Affiliates, including a reorganization, restructuring,
merger or similar transaction (including, in certain circumstances, an
acquisition of Publishing by its management or affiliates) involving Publishing
that may adversely affect holders of the Senior Securities, if such transaction
is not a transaction defined as a Change of Control. Reference is made to
"Certain Definitions" for the definition of "Change of Control." A transaction
involving Publishing's management or its Affiliates or the management of the
Company or Hollinger Inc. or their Affiliates, or a transaction involving a
recapitalization of Publishing, may result in a Change of Control if it is the
type of transaction specified by such definition.
Publishing will comply with the applicable tender offer rules, including
Rule 14e-1 under the Exchange Act, and any other applicable securities laws or
regulations in connection with a Change of Control Offer.
Publishing shall not, and shall not permit any Subsidiary to, create or
permit to exist or become effective any restriction (other than restrictions
existing under (i) Indebtedness as in effect on the date of the Senior Indenture
as such Indebtedness may be refinanced from time to time, provided that such
restrictions are no less favorable to the Holders than those existing on the
date of the Senior Indenture) that would expressly impair the ability of
Publishing to make a Change of Control Offer to purchase the Senior Securities
or, if such Change of Control Offer is made, to pay for the Senior Securities
tendered for purchase. (Section 10.14)
Limitation on Issuance and Sale of Capital Stock of Restricted
Subsidiaries. (a) Until such time as both of The Telegraph and Southam are
Restricted Subsidiaries, Publishing will not permit (i) any Restricted
subsidiary to issue any Capital Stock (other than to Publishing or any Wholly
Owned Restricted Subsidiary) or (ii) any Person (other than Publishing or a
Wholly Owned Restricted Subsidiary) to acquire any Capital Stock of any
Restricted Subsidiary form Publishing or any Restricted Subsidiary, except upon
the sale of all of the outstanding Capital Stock of such Restricted Subsidiary
owned by Publishing and the designation of such Subsidiary as an Unrestricted
Subsidiary; provided, however, that Publishing or a Restricted Subsidiary may
issue or sell common stock of a Restricted Subsidiary to a Person that is not an
Affiliate of Publishing so long as, on or prior to the consummation of such
issuance or sale, such Restricted Subsidiary issues and delivers a supplemental
indenture to the Senior Indenture providing for the guarantee of the Senior
Securities, which guarantee shall be senior to any Subordinated Indebtedness of
such Restricted Subsidiary (and in the case of any Indebtedness of such
Restricted Subsidiary that constitutes a guarantee of Subordinated Indebtedness
of Publishing, the terms of such subordination shall be at least as favorable to
the holders of the Senior Securities as the terms under which the related
Subordinated Indebtedness of Publishing is subordinated to the Senior
Securities); and
(b) On or after the time that both Southam and The Telegraph are Restricted
Subsidiaries, (i) without limiting the requirements of the "Limitation on Sale
of Assets" covenant described above, in the event that (x) Publishing or a
Restricted Subsidiary issues or sells (other than to a Restricted Subsidiary)
Capital Stock of a Restricted Subsidiary (1) that was a Subsidiary on February
1, 1997 (which, for the purposes of this clause (1), is deemed to include
Southam and Hollinger Eastern), (2) any substantial portion of the operating
assets of which were held by a Subsidiary on February 1, 1997 and were
generating material revenue and cash flows on such date, or (3) any substantial
portion of the operating assets of which consist of assets that are acquired by
Publishing or a Restricted Subsidiary pursuant to the Hollinger Inc. Transaction
and (y) such issuance or sale involves less than 100% of the Capital Stock of
such Restricted Subsidiary held by Publishing and the Restricted Subsidiaries at
the time of such issuance or sale, then (1) the Net Cash Proceeds of such
issuance or sale shall be applied to permanently repay or otherwise permanently
retire any Senior Securities or
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Pari Passu Indebtedness then outstanding, as permitted or required by the terms
thereof, and (2) to the extent not so applied, may be applied to repay or retire
other Indebtedness or otherwise used in the Company's business; provided that
the foregoing clause (i) shall not apply to any new issuance of Capital Stock by
Southam as long as (a) Southam is a Public Entity at the time of such issuance;
(b) neither Publishing nor any other Restricted Subsidiary has at any time after
February 1, 1997 sold any assets and contributed, directly or indirectly, the
proceeds therefrom to Southam; and (c) neither Publishing nor any other
Restricted Subsidiary has at any time after February 1, 1997 contributed,
directly or indirectly, any Newspaper Businesses to Southam other than those
Newspaper Businesses acquired in the Hollinger Inc. Transaction; and (ii) if any
issuance of Capital Stock by a Restricted Subsidiary or sale or disposition of
Capital Stock of a Restricted Subsidiary results in a Restricted Subsidiary
ceasing to qualify as a Subsidiary, such transaction would be deemed, for
purposes of the "Limitation on Restricted Payments" covenant described above, to
constitute the designation of such former Restricted Subsidiary as an
Unrestricted Subsidiary. (Section 10.15)
Limitation on Dividends and Other Payment Restrictions Affecting Restricted
Subsidiaries. Publishing will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective any encumbrance or restriction on the ability of any
Restricted Subsidiary to (a) pay dividends or make any other distribution on its
Capital Stock to Publishing or any other Restricted Subsidiary, (b) pay any
Indebtedness owed to Publishing or any Restricted Subsidiary, (c) make any
Investment in Publishing or (d) transfer any of its properties or assets to
Publishing or any Restricted Subsidiary, except (i) any encumbrance or
restriction pursuant to or in connection with the New Bank Credit Facility or
the FDTH Credit Facility, each as in effect on the date such Subsidiary becomes
a Restricted Subsidiary or any other agreement in effect on the date of the
Senior Indenture (including the AP-91 Senior Notes), (ii) any encumbrance or
restriction, with respect to a Restricted Subsidiary that is not a Restricted
Subsidiary of Publishing on the date of the Senior Indenture, in existence at
the time such Person becomes a Restricted Subsidiary of Publishing and not
Incurred in connection with, or in contemplation of, such Person becoming a
Restricted Subsidiary, (iii) any encumbrance or restriction pursuant to or in
connection with documents existing or securing any Foreign Subsidiary
Indebtedness that is not materially more restrictive than the terms of any such
restrictions existing on the date of the Senior Indenture or the date such
Subsidiary becomes a Restricted Subsidiary, as determined in good faith by an
officer of Publishing, (iv) encumbrances or restrictions entered into by Southam
in connection with Indebtedness of Southam Incurred at a time when Southam is a
Public Entity, (v) encumbrances or restrictions contained in the terms of any
Mirror Preferred, provided that such Mirror Preferred continues to qualify as
such under the definition thereof, (vi) customary provisions restricting
subletting or assignment of any lease governing a leasehold interest of
Publishing or any Restricted Subsidiary and (vii) any encumbrance or restriction
existing under any agreement that extends, renews, refinances or replaces the
agreements containing the encumbrances or restrictions in the foregoing clauses
(i), (ii) and (iii) (other than the covenants in the AP-91 Senior Notes),
provided that the terms and conditions of any such encumbrances or restrictions
are not materially less favorable to the holders of the Securities than those
under or pursuant to the agreement evidencing the Indebtedness so extended,
renewed, refinanced or replaced. (Section 10.16)
Provision of Financial Statements. Whether or not the Company is subject
to Section 13(a) or 15(d) of the Exchange Act, it will, to the extent permitted
under the Exchange Act, file with the Commission the annual reports, quarterly
reports and other documents that it would have been required to file with the
Commission pursuant to such Sections 13(a) or 15(d) of the Exchange Act,
including any "summarized information" or other information relating to
Publishing as may be required by Regulation S-X under the Exchange Act or by the
Commission, if it were so subject, such documents to be filed with the
Commission on or prior to the respective dates (the "Required Filing Dates") by
which it would have been required so to file such documents if it were so
subject. The Company will in any event (x) within 15 days of each Required
Filing Date (i) transmit by mail to all holders of Senior Securities, as their
names and addresses appear in the security register, without cost to such
holders of Senior Securities and (ii) file with the Trustee copies of the annual
reports, quarterly reports and other documents which the Company would have been
required to file with the Commission pursuant to Section 13(a) or 15(d) of the
Exchange Act if it were subject to such Sections and (y) if filing such
documents by the Company with the Commission is not permitted under the Exchange
Act, promptly upon written request and payment of the reasonable cost of
duplication and delivery,
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supply copies of such documents to any prospective holder of Senior Securities
at Publishing's cost. (Section 10.17)
Limitation on the Designation of Additional Restricted or Unrestricted
Subsidiaries. (a) The Board of Directors may designate any Restricted
Subsidiary as an Unrestricted Subsidiary if (i) such action is in compliance
with the "Limitation on Restricted Payments" covenant described above and (ii)
such action complies with the definition of "Unrestricted Subsidiaries."
(b) The Board of Directors may designate any Unrestricted Subsidiary or any
Person that is to become a Restricted Subsidiary as a Restricted Subsidiary if
immediately after giving effect to such action (and treating any Acquired
Indebtedness as having been incurred at the time of such action), Publishing
could have incurred at least $1.00 of additional Indebtedness pursuant to the
"Limitation on Indebtedness" covenant described above. (Section 10.20)
Additional Covenants. The Indenture also contains covenants with respect
to the following matters: (i) payment of principal, premium and interest; (ii)
maintenance of an office or agency in The City of New York; (iii) arrangements
regarding the handling of money held in trust; (iv) maintenance of corporate
existence; (v) payment of taxes and other claims; (vi) maintenance of
properties; (vii) maintenance of insurance; and (viii) statement by officers as
to default.
CERTAIN COVENANTS WITH RESPECT TO THE SENIOR SUBORDINATED SECURITIES
Limitation on Indebtedness. (a) Publishing will not, and will not permit
any of its Restricted Subsidiaries to, Incur any Indebtedness (including any
Acquired Indebtedness but excluding any Permitted Indebtedness) except for (x)
Indebtedness of Publishing or (y) Indebtedness of a Restricted Subsidiary
constituting Acquired Indebtedness, Permitted Subsidiary Indebtedness or Foreign
Subsidiary Indebtedness, provided that, in the case of the foregoing clauses (x)
and (y), the Consolidated Cash Flow Ratio for Publishing and the Restricted
Subsidiaries for the four full fiscal quarters immediately preceding the
Incurrence of such Indebtedness taken as one period is not greater than 6.0:1.0.
In addition (and without limiting the foregoing requirement), unless both of The
Telegraph and Southam are Restricted Subsidiaries, Publishing shall not permit
any Restricted Subsidiary to Incur any Indebtedness other than Acquired
Indebtedness or Permitted Subsidiary Indebtedness. For purposes of determining
the Consolidated Cash Flow Ratio for any period, pro forma effect shall be given
to (i) the Incurrence of such Indebtedness and (if applicable) the application
of the net proceeds therefrom, including to refinance other Indebtedness, as if
such Indebtedness was Incurred, and the application of such proceeds occurred,
at the beginning of such four-quarter period; (ii) the Incurrence, repayment or
retirement of any other Indebtedness by Publishing and its Restricted
Subsidiaries since the first day of such four-quarter period as if such
Indebtedness was Incurred, repaid or retired at the beginning of such
four-quarter period; (iii) in the case of Acquired Indebtedness, the related
acquisition (as if such acquisition had been consummated on the first day of
such four-quarter period); and (iv) any acquisition or disposition by Publishing
and its Restricted Subsidiaries of any company or any business or any assets out
of the ordinary course of business, whether by merger, stock purchase or sale or
asset purchase or sale or any related repayment of Indebtedness, in each case
since the first day of such four-quarter period (as if such acquisition or
disposition had been consummated on the first day of such four-quarter period).
(b) Prior to September 1, 1997, neither Publishing nor any Restricted
Subsidiary will issue any Public Debt, unless the aggregate principal amount (or
initial proceeds in the case of Public Debt sold with "original issue discount"
(within the meaning of Section 1273(a) of the Internal Revenue Code of 1986, as
amended)) of Public Debt so issued since the date of the Senior Subordinated
Indenture that is Senior Indebtedness does not exceed the aggregate principal
amount (or initial proceeds in the case of Public Debt sold with "original issue
discount") of Public Debt so issued since the date of the Senior Subordinated
Indenture that is pari passu with or subordinated to the 9 1/4% Notes and any
Senior Subordinated Securities. (Section 10.08)
Limitation on Restricted Payments. (a) Publishing will not, and will not
permit any Restricted Subsidiary to, directly or indirectly:
(i) declare or pay any dividend or make any other distribution or
payment on or in respect of Publishing's Capital Stock (including dividends
or distributions of the Capital Stock of any Subsidiary), or make any other
payment to the direct or indirect holders (in their capacities as such) of
Publishing's
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Capital Stock (other than (x) dividends or distributions payable in shares
of Publishing's Qualified Capital Stock or in options, warrants or other
rights to acquire such Qualified Capital Stock and (y) a dividend or
distribution of up to $175 million payable to International; provided that,
simultaneously or in connection with such dividend or distribution,
International contributes or transfers, directly or indirectly, to
Publishing all of the Capital Stock of Hollinger Eastern then held by
International; and provided further that Hollinger Eastern then holds not
less than 42% of the voting interest of Southam);
(ii) purchase, redeem or otherwise acquire or retire for value,
directly or indirectly, any Capital Stock of Publishing or any Capital
Stock of any Affiliate of Publishing (other than Capital Stock of any
Wholly Owned Restricted Subsidiary (or, provided that both of The Telegraph
and Southam are Restricted Subsidiaries, Capital Stock of a Restricted
Subsidiary) or Capital Stock of a Person that is, or immediately following
such repurchase will become, a Wholly Owned Restricted Subsidiary (or,
provided that both of The Telegraph and Southam are Restricted
Subsidiaries, a Restricted Subsidiary)), or options, warrants or other
rights to acquire such Capital Stock;
(iii) make any principal payment on, or repurchase, redeem, defease,
retire or otherwise acquire for value, prior to any scheduled principal
payment, sinking fund payment or maturity, any Subordinated Indebtedness;
(iv) declare or pay any dividend or distribution on any Capital Stock
of any Restricted Subsidiary to any Person (other than (x) dividends and
distributions on Preferred Stock of Restricted Subsidiaries or Mirror
Preferred or (y) dividends and distributions made to any Person (other than
a controlling Affiliate of Publishing or an Affiliate of such Affiliate
(other than Publishing and any Restricted Subsidiary)) on a pro rata basis
consistent with the ownership interests in such Capital Stock to the owners
of such Capital Stock, except that, in the case of the Capital Stock of a
Restricted Subsidiary that is a Guarantor, (i) no Default or Event of
Default shall have occurred and be continuing; and (ii) no holders of any
other Indebtedness of Publishing or any Restricted Subsidiary shall have an
Acceleration Right);
(v) Incur, create or assume any guarantee of Indebtedness of any
Affiliate of Publishing (other than a Wholly Owned Restricted Subsidiary of
Publishing (or, provided that both of The Telegraph and Southam are
Restricted Subsidiaries, a Restricted Subsidiary of Publishing) except as
permitted by the "Limitation on Issuances of Guarantees of Indebtedness"
covenant described below;
(vi) make any Investment in any Person (other than any Permitted
Investments); or
(vii) designate any Restricted Subsidiary as an Unrestricted
Subsidiary;
(any of the payments described in paragraphs (i) through (vii) above, other than
any such action that is a Permitted Payment (as defined below), collectively,
"Restricted Payments") unless at the time of and after giving effect to the
proposed Restricted Payment (the amount of any such Restricted Payment, if other
than cash, as determined by the Board of Directors, whose determination shall be
conclusive and evidenced by a Board Resolution), (1) no Default or Event of
Default shall have occurred and be continuing; (2) no holders of any other
Indebtedness of Publishing or any Restricted Subsidiary shall have an
Acceleration Right; (3) immediately before and immediately after giving effect
to such transaction on a pro forma basis, Publishing could incur $1.00 of
additional Indebtedness (other than Permitted Indebtedness) under the provisions
described under the "Limitation on Indebtedness" covenant and (4) the aggregate
amount of all such Restricted Payments declared or made after the date of the
Senior Subordinated Indenture (provided that, in the case of a Restricted
Payment by a Restricted Subsidiary, such Restricted Payment is calculated for
the purposes of this paragraph (4) by multiplying the amount of the Restricted
Payment by the percentage of Publishing's common equity interest in such
Restricted Subsidiary at the time of such Restricted Payment but disregarding,
in the case of Southam, common equity interests which are pledged to secure the
Southam-Linked Debentures) does not exceed the sum of:
(A) 50% of the sum of (i) the aggregate cumulative Consolidated Net
Income of Publishing and its Restricted Subsidiaries accrued during the
period (treated as a single accounting period) beginning on the first day
of Publishing's fiscal quarter commencing prior to the date of the Senior
Subordinated Indenture and ending on the last day of Publishing's last
fiscal quarter ending prior to the date of the Restricted Payment (or, if
such aggregate cumulative Consolidated Net Income shall be a loss, 100% of
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such loss (treating a loss as a negative number)) and (ii) the aggregate
cumulative Amortization Expense of Publishing and its Restricted
Subsidiaries accrued during the period (treated as a single accounting
period) beginning on the first day of Publishing's fiscal quarter
commencing prior to the date of the Indenture and ending on the last day of
Publishing's last fiscal quarter ending prior to the date of the Restricted
Payment;
(B) 50% of the aggregate cumulative cash dividends or distributions
received by Publishing and its Consolidated Restricted Subsidiaries from
any of Publishing's Unrestricted Subsidiaries during the period (treated as
a single accounting period) beginning on the first day of Publishing's
fiscal quarter commencing prior to the date of the Senior Subordinated
Indenture and ending on the last day of Publishing's last fiscal quarter
ending prior to the date of the Restricted Payment; provided, however, that
for purposes of this clause (B), cash dividends and distributions shall not
include, without duplication, (x), prior to the time that Southam shall be
a Restricted Subsidiary, cash dividends received by Publishing from
Publishing's Unrestricted Subsidiaries not in excess of the Southam
Dividend Amount, (y) cash dividends or distributions received by Publishing
or any Wholly Owned Restricted Subsidiary in accordance with clause (vii)
of paragraph (b) of this "Limitation on Restricted Payments" covenant or
(z) dividends or distributions on any Argsub Preferred received by FDTH or
DTH;
(C) the aggregate Net Cash Proceeds received after the date of the
Senior Subordinated Indenture by Publishing from the issuance or sale
(other than to any of its Restricted Subsidiaries) of its Qualified Capital
Stock or any options, warrants or rights to purchase such Qualified Capital
Stock (except, in each case, to the extent such proceeds are used to
purchase, redeem or otherwise retire Capital Stock, Subordinated
Indebtedness or Pari Passu Indebtedness as set forth below);
(D) the aggregate Net Cash Proceeds received after the date of the
Senior Subordinated Indenture by Publishing (other than from any of its
Restricted Subsidiaries) upon the exercise of any options or warrants to
purchase Qualified Capital Stock of Publishing;
(E) the aggregate Net Cash Proceeds received after the date of the
Senior Subordinated Indenture by Publishing (other than from any of its
Subsidiaries) from cash capital contributions made to Publishing (other
than from the proceeds of the Common Stock Offering);
(F) the aggregate amount by which any Indebtedness (other than
Permitted Indebtedness) of Publishing or any Restricted Subsidiary is
reduced after the date of the Senior Subordinated Indenture as a result of
the conversion or exchange of debt securities or Redeemable Capital Stock
of Publishing that has been converted into or exchanged for Qualified
Capital Stock of Publishing to the extent such debt securities or
Redeemable Capital Stock were originally sold for cash plus the aggregate
Net Cash Proceeds received by Publishing at the time of any such conversion
or exchange; and
(G) $25,000,000.
(b) Notwithstanding the foregoing, and, in the case of clauses (ii) through
(viii) below, so long as (1) there is no Default or Event of Default continuing
and (2) no holders of any other Indebtedness of Publishing or any Restricted
Subsidiary have an Acceleration Right, the foregoing provisions will not
prohibit the following actions (clauses (i) through (x) being referred to as
"Permitted Payments"):
(i) the payment of any dividend or distribution within 60 days after
the date of declaration thereof, if at such date of declaration such
payment would be permitted by the provisions of paragraph (a) of this
section and such payment will be deemed to have been paid on such date of
declaration for purposes of the calculation required by paragraph (a) of
this covenant;
(ii) any repurchase, redemption or other acquisition or retirement of
any shares of Capital Stock of Publishing in exchange for (including any
such exchange pursuant to the exercise of a conversion right or privilege
in connection with which cash is paid in lieu of the issuance of fractional
shares or scrip), or out of the Net Cash Proceeds of a substantially
concurrent issue and sale for cash (other than to a Restricted Subsidiary)
of other Qualified Capital Stock of Publishing; provided that the Net Cash
Proceeds from the issuance of such shares of Qualified Capital Stock are
excluded from clauses 4(D) and (4)(E) of paragraph (a) of this covenant;
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(iii) any repurchase, redemption, defeasance, retirement or
acquisition for value or payment of principal of any Subordinated
Indebtedness in exchange for, or out of the net proceeds of, a
substantially concurrent issuance and sale for cash (other than to any
Restricted Subsidiary of Publishing) of any Qualified Capital Stock of
Publishing; provided that the Net Cash Proceeds from the issuance of such
Qualified Capital Stock are excluded from clauses 4(D) and (4)(E) of
paragraph (a) of this section; and
(iv) the repurchase, redemption, defeasance, retirement, refinancing,
acquisition for value or payment of principal of any Subordinated
Indebtedness (other than Redeemable Capital Stock) or Pari Passu
Indebtedness (a "refinancing") through the issuance of new Subordinated
Indebtedness of Publishing; provided that any such new Subordinated
Indebtedness (1) shall be in a principal amount that does not exceed the
principal amount so refinanced (or, if the Subordinated Indebtedness so
refinanced provides for an amount less than the principal amount thereof to
be due and payable upon a declaration or acceleration thereof, then such
lesser amount as of the date of determination), plus the amount of any
premium required to be paid in connection with such refinancing pursuant to
the terms of such refinanced Indebtedness and any reasonable out-of-pocket
expenses of Publishing Incurred in connection with such refinancing; (2)
has an Average Life to Stated Maturity greater than the remaining Average
Life to Stated Maturity of the Senior Subordinated Securities; (3) has a
Stated Maturity for its final scheduled principal payment later than the
Stated Maturity for the final scheduled principal payment of the Senior
Subordinated Securities; and (4) is expressly subordinated in right of
payment to the Senior Subordinated Securities at least to the same extent
as the Indebtedness to be refinanced;
(v) dividends paid to the Company after the date of the Senior
Subordinated Indenture to the extent not in excess of the Southam Dividend
Amount;
(vi) loans, advances, dividends or distributions by any Restricted
Subsidiary to Publishing or any Wholly Owned Restricted Subsidiary and by
FDTH or, to the extent it has received such funds directly or indirectly
from FDTH, DTH or Publishing to the Company for the purpose of redeeming
shares of Series A Preferred Stock not exceeding in the aggregate any
payments made by Hollinger Inc. to FDTH pursuant to the provisions of the
HTH/FDTH Share Exchange Agreement;
(vii) loans, advances, dividends or distributions to the Company in
amounts not to exceed $1 million per year to permit the Company to
repurchase, redeem or otherwise acquire or retire any shares of its Capital
Stock from employees, former employees or their estates upon disability,
death, retirement or termination of employment;
(viii) tax payments pursuant to a Tax Sharing Agreement to the extent
that the aggregate amount of such payments do not exceed the aggregate
amount of the tax payments that Publishing and the Restricted Subsidiaries
would have been required to make if they alone constituted a single
consolidated tax group;
(ix) payments by Publishing or a Restricted Subsidiary in connection
with the Scheme of Arrangement; and
(x) the issuance or redemption of or payment of distributions on
Mirror Preferred, but only to the extent Argsub Preferred is simultaneously
issued, redeemed or pays (or is deemed to pay) dividends, respectively, and
only so long as no cash is transferred in any such transaction, except for
cash payments in respect of certain Mirror Preferred made directly from
FDTH to DTH at the direction of Argsub.
For purposes of this "Limitation on Restricted Payments" covenant, if the
Board of Directors designates a Restricted Subsidiary as an Unrestricted
Subsidiary, or a Restricted Subsidiary is deemed to be so designated, a
"Restricted Payment" shall be deemed to have been made in an amount equal to the
fair value of the Investment of Publishing and its other Restricted Subsidiaries
in such Restricted Subsidiary as determined by the Board of Directors with the
concurrence of a majority of the Independent Directors (there being at least one
Independent Director), whose good faith determination shall be conclusive. If a
particular Restricted Payment involves a non-cash payment, including a
distribution of assets, then such Restricted Payment shall be deemed to be in an
amount equal to the fair market value of the non-cash portion of such Restricted
Payment as determined by the Board of Directors, whose good faith determination
shall be conclusive. (Section 10.09)
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Limitation on Transactions with Affiliates. (a) Publishing will not, and
will not permit any of its Restricted Subsidiaries to, directly or indirectly,
enter into or suffer to exist any transaction or series of related transactions
(including, without limitation, the sale, purchase, exchange or lease of assets,
property or services) with any Affiliate of Publishing (other than Publishing or
a Wholly Owned Restricted Subsidiary, or, if both of The Telegraph and Southam
are Restricted Subsidiaries, a Restricted Subsidiary) unless (a) such
transaction or series of related transactions is on terms that are no less
favorable to Publishing or such Restricted Subsidiary, as the case may be, than
would be available in a comparable transaction in arm's-length dealings with an
unrelated third party and (b) with respect to any transaction or series of
related transactions involving aggregate payments in excess of $5,000,000,
Publishing delivers an Officers' Certificate to the Trustee certifying that such
transaction or series of related transactions complies with clause (a) above and
such transaction or series of related transactions has been approved by a
majority of the Independent Directors of the Board of Directors; provided that
any transaction or series of related transactions otherwise permitted under this
paragraph (other than any transaction or series of related transactions with
respect to the making of any Permitted Investment pursuant to clause (ix) of the
definition of "Permitted Investment" or any Restricted Payment permitted
pursuant to the "Limitation on Restricted Payments" covenant described above
(other than those referred to in clause (vi) of paragraph (b) thereof)) pursuant
to which Publishing or any Restricted Subsidiary shall receive or render value
exceeding $15,000,000 shall not be permitted unless, prior to the consummation
of any such transaction or series of related transactions, Publishing shall have
received an opinion, from an independent nationally recognized investment
banking firm or firm experienced in the appraisal or similar review of similar
types of transactions, that such transaction is fair to Publishing from a
financial point of view; provided further, that this covenant shall not apply to
(i) transactions or agreements as in effect or securities outstanding on the
date of the Senior Subordinated Indenture (provided that any amendment to any
existing agreement (including the Services Agreement and the Business
Opportunities Agreement), and any transaction pursuant to the Business
Opportunities Agreement, shall require approval pursuant to this covenant;
notwithstanding the foregoing, any amendment to the Services Agreement or the
Business Opportunities Agreement shall require the approval of a majority of the
Independent Directors); (ii) directors' fees approved by the Board of Directors;
(iii) any employee benefit plan or arrangement entered into or made available to
officers or other employees of Publishing or the Restricted Subsidiaries in the
ordinary course of business; (iv) sales by Publishing and its Restricted
Subsidiaries of their products in the ordinary course of business on
arm's-length terms; (v) tax payments pursuant to a Tax Sharing Agreement to the
extent that the aggregate amount of such payments do not exceed the aggregate
amount of the tax payments that Publishing and the Restricted Subsidiaries would
have been required to make if they alone constituted a single consolidated tax
group; (vi) loans, advances, dividends or distributions by FDTH, DTH or
Publishing to the Company in amounts and for the purpose permitted by clauses
(v) and (vii) of paragraph (b) of the "Limitation on Restricted Payments"
covenant described above; (vii) payments made to Hollinger Inc. pursuant to the
Services Agreement that constitute the reimbursement for the fair value (as
determined by a majority of the Independent Directors serving on an Independent
Committee) of services received by Publishing or a Restricted Subsidiary
consistent with past practices and (viii) the issuance or redemption, retraction
or transfer of or payment of dividends, distributions or other amounts on Mirror
Preferred by DTH or FDTH to an Argsub, but only to the extent that such Argsub
simultaneously, as the case may be, issues or redeems or pays dividends,
distributions or other amounts (or is deemed to have taken any such action) to
DTH or FDTH, in each case in equivalent amounts. (Section 10.10)
Limitation on Other Subordinated Indebtedness. Neither Publishing nor any
Restricted Subsidiary Guarantor will Incur or permit to exist any Indebtedness
(other than the Senior Subordinated Securities or a Guarantee thereof pursuant
to the Senior Subordinated Indenture, as applicable) that is subordinate in
right of payment to any Senior Indebtedness of Publishing (or such Guarantor)
unless such Indebtedness is also pari passu with, or subordinate in right of
payment to, the Senior Subordinated Securities or the Guarantee of such
Guarantor, as the case may be. For purposes of such covenant, Indebtedness will
be deemed to be pari passu with the Senior Subordinated Securities or such
Guarantee if it is subordinate to Senior Indebtedness of Publishing or the
relevant Guarantee pursuant to subordination provisions substantially similar to
those described under "Ranking of Senior Subordinated Securities" above.
(Section 10.11)
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Limitation on Liens. (a) Publishing will not, and will not permit any
Restricted Subsidiary to Incur, affirm or suffer to exist any Lien of any kind
securing any Pari Passu Indebtedness or Subordinated Indebtedness of Publishing
(including any assumption, guarantee or other liability with respect thereto by
any Restricted Subsidiary) upon any property or assets (including any
intercompany notes) of Publishing or any Restricted Subsidiary owned on the date
of the Senior Subordinated Indenture or acquired after the date of the Senior
Subordinated Indenture, or any income or profits therefrom, unless (i) in the
case of any Lien securing Pari Passu Indebtedness, the Senior Subordinated
Securities are secured by a Lien on such property, assets or proceeds that is
senior in priority to or pari passu with such Lien and (ii) in the case of any
Lien securing Subordinated Indebtedness of Publishing, the Senior Subordinated
Securities are secured by a Lien on such property, assets or proceeds that is
senior in priority to such Lien, except for (x) any Lien securing Acquired
Indebtedness created prior to (and not created in connection with, or in
contemplation of) the incurrence of such Pari Passu Indebtedness or Subordinated
Indebtedness by Publishing or any Restricted Subsidiary, in each case which
Indebtedness is permitted under the provisions of the "Limitation on
Indebtedness" covenant described above (provided that any such Lien only extends
to the assets that were subject to such Lien securing such Acquired Indebtedness
prior to the related acquisition by Publishing or its Restricted Subsidiaries)
and (y) any Lien securing Indebtedness owing to Publishing or a Wholly Owned
Restricted Subsidiary by a Restricted Subsidiary.
(b) Notwithstanding the foregoing, any security interest granted by
Publishing or any Restricted Subsidiary to secure the Senior Subordinated
Securities created pursuant to paragraph (a) above shall provide by its terms
that such security interest shall be automatically and unconditionally released
and discharged upon the release by the holders of the Indebtedness of Publishing
or any Restricted Subsidiary described in paragraph (a) above of their security
interest (including any deemed release upon payment in full of all obligations
under such Indebtedness), at a time when (A) no other Pari Passu Indebtedness
and Subordinated Indebtedness of Publishing or any Restricted Subsidiary has
been secured by such property or assets of Publishing or any such Restricted
Subsidiary or (B) the holders of all such other Pari Passu Indebtedness and
Subordinated Indebtedness which is secured by such property or assets of
Publishing or any such Restricted Subsidiary also release their security
interest in such property or assets (including any deemed release upon payment
in full of all obligations under such Indebtedness). (Section 10.12)
Limitation on Issuances of Guarantees of Indebtedness. (a) Publishing will
not permit any Restricted Subsidiary, directly or indirectly, to guarantee,
assume or in any other manner become liable with respect to any Pari Passu
Indebtedness or Subordinated Indebtedness of Publishing unless such Restricted
Subsidiary simultaneously executes and delivers a supplemental indenture to the
Senior Subordinated Indenture providing for a guarantee of the Senior
Subordinated Securities and (A) if the Senior Subordinated Securities are
subordinated in right of payment to such Indebtedness, the guarantee under the
supplemental indenture shall be subordinated to the same extent as the Senior
Subordinated Securities are subordinated to such Indebtedness under the Senior
Subordinated Indenture and (B) if such Indebtedness of Publishing is by its
terms expressly subordinated to the Senior Subordinated Securities, any such
assumption, guarantee or other liability of such Restricted Subsidiary with
respect to such Indebtedness shall be subordinated to such Restricted
Subsidiary's guarantee to the same extent as such Indebtedness is subordinated
to the Senior Subordinated Securities.
(b) Notwithstanding the foregoing, any guarantee by a Restricted Subsidiary
of the Senior Subordinated Securities that is provided pursuant to the foregoing
paragraph or under the provisions of the "Limitation on Issuance and Sale of
Capital Stock of Restricted Subsidiaries" covenant described below may provide
by its terms that it shall be automatically and unconditionally released and
discharged (i) upon any sale, exchange or transfer, to any Person not an
Affiliate of Publishing, of all of Publishing's Capital Stock in, or all or
substantially all the assets of, such Restricted Subsidiary, which sale,
exchange or transfer is in compliance with the Senior Subordinated Indenture,
(ii) if the Restricted Subsidiary issuing such guarantee ceases to be a
Restricted Subsidiary or (iii) upon the release by the holders of the
Indebtedness of Publishing described in paragraph (a) above of their Guarantee
by such Restricted Subsidiary (including any deemed release upon payment in full
of all obligations under such Indebtedness), at a time when (A) no Indebtedness
of Publishing or any Restricted Subsidiary has been guaranteed by such
Restricted Subsidiary or (B) the holders of all such other Indebtedness which is
guaranteed by such Restricted Subsidiary also release their Guarantee by such
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Restricted Subsidiary (including any deemed release upon payment in full of all
obligations under such Indebtedness). (Section 10.13)
Limitation on Sale of Assets. (a) Publishing will not, and will not permit
any of its Restricted Subsidiaries to, directly or indirectly, consummate an
Asset Sale unless (i) at least 80% of the proceeds from such Asset Sale are
received in cash (provided that the amount of (A) any Senior Indebtedness (as
shown on Publishing's or such Restricted Subsidiaries' most recent balance sheet
or in the notes thereto) of Publishing or any such Restricted Subsidiary that is
assumed by the transferee of any asset in connection with any Asset Sale and (B)
any deferred payment obligations received by Publishing or any such Restricted
Subsidiary as proceeds of an Asset Sale that are concurrently with the Asset
Sale converted into cash without recourse to Publishing or any of its Restricted
Subsidiaries shall be deemed to be cash for purposes of this provision; provided
further that, for purposes of this clause (i), "cash" shall include any cash
proceeds received from the sale of securities received in an Asset Sale as long
as at the time of such Asset Sale, Publishing or its Restricted Subsidiary, as
applicable, has entered into a legally binding agreement for the sale of such
securities and such securities are sold within 90 days of such Asset Sale; and
provided further that this clause (i) shall not apply to (x) Newspaper
Businesses received by Publishing or a Restricted Subsidiary from the transferee
as consideration for an Asset Sale (an "Asset Swap") so long as, immediately
before and immediately after giving effect to such transaction on a pro forma
basis, Publishing could incur $1.00 of additional Indebtedness (other than
Permitted Indebtedness) under the provisions described above under "Limitation
on Indebtedness," (y) a CST Real Estate Transaction or (z) a Permitted Real
Estate Sale, and (ii) Publishing or such Restricted Subsidiary receives
consideration at the time of such Asset Sale at least equal to the fair market
value of the shares or assets sold (as determined by the Board of Directors of
Publishing and evidenced by a board resolution). The value of any properties or
assets (other than cash) received pursuant to an Asset Sale shall be determined
by the Board of Directors of Publishing and evidenced by a Board Resolution;
provided that if the value of the asset which is the subject of the Asset Sale
is in excess of $25,000,000, the value of the properties or assets received
shall be determined by an independent nationally recognized investment banking
firm or firm experienced in the appraisal or similar review of similar types of
assets (provided that for purposes of this sentence, any CST Real Estate
Transaction shall be deemed to involve an asset whose value exceeds
$25,000,000).
(b) If all or a portion of the Net Cash Proceeds of any Asset Sale is not
applied to permanently repay or otherwise permanently retire any Senior
Indebtedness then outstanding as permitted or required by the terms thereof, or
if no such Senior Indebtedness is then outstanding, Publishing or a Restricted
Subsidiary, as the case may be, may, within 12 months of the Asset Sale, invest
the Net Cash Proceeds in properties and assets that (as determined by the Board
of Directors) replace the properties and assets that were the subject of the
Asset Sale or in properties and assets that will be used in the businesses of
Publishing or its Restricted Subsidiaries existing on the date of the Senior
Subordinated Indenture or in businesses reasonably related thereto. The amount
of such Net Cash Proceeds neither used to permanently repay or prepay Senior
Indebtedness nor used or invested as set forth in this paragraph constitutes
"Excess Proceeds."
(c) When the aggregate amount of Excess Proceeds equals or exceeds
$20,000,000, Publishing will apply the Excess Proceeds to the repayment of the
Senior Subordinated Securities and any Pari Passu Indebtedness required to be
repurchased under the instrument governing such Pari Passu Indebtedness as
follows: (i) Publishing will make an offer to purchase (an "Offer") from all
holders of the Senior Subordinated Securities in accordance with the procedures
set forth in the Indenture in the maximum principal amount (expressed as a
multiple of $1,000) of Senior Subordinated Securities that may be purchased out
of an amount (the "Securities Amount") equal to the product of such Excess
Proceeds multiplied by a fraction, the numerator of which is the outstanding
principal amount of the Securities, and the denominator of which is the sum of
the outstanding principal amount of the Senior Subordinated Securities and such
Pari Passu Indebtedness (subject to proration in the event such amount is less
than the aggregate Offered Price (as defined herein) of all Senior Subordinated
Securities tendered) and (ii) to the extent required by such Pari Passu
Indebtedness to permanently reduce the principal amount of such Pari Passu
Indebtedness, Publishing will make an offer to purchase or otherwise repurchase
or redeem Pari Passu Indebtedness (a "Pari Passu Offer") in an amount (the "Pari
Passu Debt Amount") equal to the excess of the Excess Proceeds over the
Securities Amount; provided that in no event will the Pari Passu Debt Amount
exceed the
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principal amount of such Pari Passu Indebtedness plus the amount of any premium
required to be paid to repurchase such Pari Passu Indebtedness. The offer price
shall be payable in cash in an amount equal to 100% of the principal amount of
the Senior Subordinated Securities plus accrued and unpaid interest, if any, to
the date (the "Purchase Date") such Offer is consummated (the "Offered Price"),
in accordance with the procedures set forth in the Senior Subordinated
Indenture. To the extent that the aggregate Offered Price of the Senior
Subordinated Securities tendered pursuant to the Offer is less than the
Securities Amount relating thereto or the aggregate amount of Pari Passu
Indebtedness that is purchased is less than the Pari Passu Debt Amount (the
amount of such shortfall, if any, constituting a "Deficiency"), Publishing shall
use such Deficiency in the business of Publishing and its Restricted
Subsidiaries. Upon completion of the purchase of all Senior Subordinated
Securities tendered pursuant to an Offer and repurchase of the Pari Passu
Indebtedness pursuant to a Pari Passu Offer, the amount of Excess Proceeds, if
any, shall be reset at zero.
(d) Whenever the aggregate amount of Excess Proceeds received by Publishing
exceeds $20,000,000, such Excess Proceeds will, prior to the purchase of Senior
Subordinated Securities or any Pari Passu Indebtedness described in paragraph
(c) above, be set aside by Publishing in a separate account pending (i) deposit
with the depository or a paying agent of the amount required to purchase the
Senior Subordinated Securities or Pari Passu Indebtedness tendered in an Offer
or Pari Passu Offer, (ii) delivery by Publishing of the Offered Price to the
holders of the Securities or Pari Passu Indebtedness tendered in an Offer or a
Pari Passu Offer and (iii) application, as set forth above, of Excess Proceeds
in the business of Publishing and its Restricted Subsidiaries. Such Excess
Proceeds may be invested in Temporary Cash Investments; provided that the
maturity date of any such investment made after the amount of Excess Proceeds
equals or exceeds $20,000,000 shall not be later than the Purchase Date.
Publishing shall be entitled to any interest or dividends accrued, earned or
paid on such Temporary Cash Investments; provided that Publishing will not be
entitled to such interest and will not withdraw such interest from the separate
account if an Event of Default has occurred and is continuing.
(e) If Publishing becomes obligated to make an Offer pursuant to paragraph
(c) above, the Senior Subordinated Securities will be purchased by Publishing,
at the option of the holder thereof, in whole or in part in integral multiples
of $1,000, on a date that is not earlier than 30 days and not later than 60 days
from the date the notice is given to holders, or such later date as may be
necessary for Publishing to comply with the requirements under the Exchange Act,
subject to proration in the event the Securities Amount is less than the
aggregate Offered Price of all Senior Subordinated Securities tendered.
(f) Publishing will comply with the applicable tender offer rules,
including Rule 14e-1 under the Exchange Act, and any other applicable securities
laws or regulations in connection with an Offer.
(g) Publishing will not, and will not permit any Subsidiary to, create or
permit to exist or become effective any restriction (other than restrictions
existing under (i) Indebtedness as in effect on the Issue Date as such
Indebtedness may be refinanced from time to time or (ii) any Senior Indebtedness
existing on the date of the Senior Subordinated Indenture or thereafter;
provided, in each case, that such restrictions are no less favorable to the
holders of Senior Subordinated Securities than those existing on the date of the
Senior Subordinated Indenture) that would expressly impair the ability of
Publishing to make an Offer to purchase the Senior Subordinated Securities or,
if such Offer is made, to pay for the Senior Subordinated Securities tendered
for purchase. (Section 10.14)
Purchase of Securities upon a Change of Control. If a Change of Control
occurs at any time, each holder with respect to Senior Subordinated Securities
of any Series will have the right to require that Publishing purchase such
holder's Securities in whole or in part in integral multiples of $1,000, at a
purchase price (the "Change of Control Purchase Price") in cash in an amount
equal to 101% of the principal amount of such Senior Subordinated Securities,
plus accrued and unpaid interest, if any, to the date of purchase (the "Change
of Control Purchase Date"), pursuant to the offer described below (the "Change
of Control Offer") and the other procedures set forth in the Senior Subordinated
Indenture.
Within 30 days following any Change of Control, Publishing shall notify the
Trustee thereof and give written notice of such Change of Control to each holder
of Senior Subordinated Securities, by first-class mail, postage prepaid, at his
address appearing in the security register, stating, among other things, (i) the
purchase price, (ii) the Change of Control Purchase Date, which shall be a
Business Day no earlier than 30 days nor
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later than 60 days from the date such notice is mailed, or such later date as is
necessary to comply with requirements under the Exchange Act, (iii) that any
Senior Subordinated Security not tendered will continue to accrue interest, (iv)
that, unless Publishing defaults in the payment of the purchase price, any
Senior Subordinated Securities accepted for payment pursuant to the Change of
Control Offer will cease to accrue interest after the Change of Control Purchase
Date and (v) certain other procedures that a holder of Senior Subordinated
Securities must follow to accept a Change of Control Offer or to withdraw such
acceptance.
If a Change of Control Offer is made, there can be no assurance that
Publishing will have available funds sufficient to pay the Change of Control
Purchase Price for any or all of the Senior Subordinated Securities that might
be delivered by holders of the Senior Subordinated Securities seeking to accept
the Change of Control Offer and, accordingly, none of the holders of the Senior
Subordinated Securities may receive the Change of Control Purchase Price for
their Senior Subordinated Securities in the event of a Change of Control. The
failure of Publishing to make or consummate the Change of Control Offer or pay
the Change of Control Purchase Price when due will give the Trustee and the
holders of the Senior Subordinated Securities the rights described under "Events
of Default."
The existence of a holder's right to require Publishing to repurchase such
holder's Senior Subordinated Securities upon a Change of Control may deter a
third party from acquiring Publishing in a transaction which constitutes a
Change of Control.
The provisions of the Senior Subordinated Indenture may not afford holders
of Senior Subordinated Securities the right to require Publishing to repurchase
the Senior Subordinated Securities in the event of a highly leveraged
transaction or certain transactions with Publishing's management or its
Affiliates or the management of the Company or Hollinger Inc. or their
Affiliates, including a reorganization, restructuring, merger or similar
transaction (including, in certain circumstances, an acquisition of Publishing
by its management or affiliates) involving Publishing that may adversely affect
holders of the Senior Subordinated Securities, if such transaction is not a
transaction defined as a Change of Control. Reference is made to "Certain
Definitions" for the definition of "Change of Control." A transaction involving
Publishing's management or its Affiliates or the management of the Company or
Hollinger Inc. or their Affiliates, or a transaction involving a
recapitalization of Publishing, may result in a Change of Control if it is the
type of transaction specified by such definition.
Publishing will comply with the applicable tender offer rules, including
Rule 14e-1 under the Exchange Act, and any other applicable securities laws or
regulations in connection with a Change of Control Offer.
Publishing shall not, and shall not permit any Subsidiary to, create or
permit to exist or become effective any restriction (other than restrictions
existing under (i) Indebtedness as in effect on the date of the Senior
Subordinated Indenture as such Indebtedness may be refinanced from time to time
or (ii) any Senior Indebtedness existing on the date of the Senior Subordinated
Indenture or thereafter; provided, in each case, that such restrictions are no
less favorable to the Holders than those existing on the date of the Senior
Subordinated Indenture) that would expressly impair the ability of Publishing to
make a Change of Control Offer to purchase the Senior Subordinated Securities
or, if such Change of Control Offer is made, to pay for the Senior Subordinated
Securities tendered for purchase. (Section 10.15)
Limitation on Issuance and Sale of Capital Stock of Restricted
Subsidiaries. (a) Until such time as both of The Telegraph and Southam are
Restricted Subsidiaries, Publishing will not permit (i) any Restricted
Subsidiary to issue any Capital Stock (other than to Publishing or any Wholly
Owned Restricted Subsidiary) or (ii) any Person (other than Publishing or a
Wholly Owned Restricted Subsidiary) to acquire any Capital Stock of any
Restricted Subsidiary from Publishing or any Restricted Subsidiary, except upon
the sale of all of the outstanding Capital Stock of such Restricted Subsidiary
owned by Publishing and the designation of such Subsidiary as an Unrestricted
Subsidiary; provided, however, that Publishing or a Restricted Subsidiary may
issue or sell common stock of a Restricted Subsidiary to a Person that is not an
Affiliate of Publishing so long as, on or prior to the consummation of such
issuance or sale, such Restricted Subsidiary issues and delivers a supplemental
indenture to the Indenture providing for the guarantee of the Securities, which
guarantee shall be subordinated in right of payment to any Senior Indebtedness
of such Restricted Subsidiary, on substantially the same terms as the Senior
Subordinated Securities are subordinated to all Senior Indebtedness of
Publishing; and
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(b) On or after the time that both Southam and The Telegraph are Restricted
Subsidiaries, (i) without limiting the requirements of the "Limitation on Sale
of Assets" covenant described above, in the event that (x) Publishing or a
Restricted Subsidiary issues or sells (other than to a Restricted Subsidiary)
Capital Stock of a Restricted Subsidiary (1) that was a Subsidiary on February
1, 1997 (which, for the purposes of this clause (1), is deemed to include
Southam and Hollinger Eastern), (2) any substantial portion of the operating
assets of which were held by a Subsidiary on February 1, 1997 and were
generating material revenue and cash flows on such date, or (3) any substantial
portion of the operating assets of which consist of assets that are acquired by
Publishing or a Restricted Subsidiary pursuant to the Hollinger Inc. Transaction
and (y) such issuance or sale involves less than 100% of the Capital Stock of
such Restricted Subsidiary held by Publishing and the Restricted Subsidiaries at
the time of such issuance or sale, then the Net Cash Proceeds of such issuance
or sale (1) shall be applied to permanently repay or otherwise permanently
retire any Senior Indebtedness then outstanding, as permitted or required by the
terms thereof, or (2) if there is no Senior Indebtedness then outstanding, then
the balance of such Net Cash Proceeds shall be deemed to constitute Excess
Proceeds for purposes of paragraph (c) of the "Limitation on Sale of Assets"
covenant described above; provided that the foregoing clause (i) shall not apply
to any new issuance of Capital Stock by Southam as long as (a) Southam is a
Public Entity at the time of such issuance; (b) neither Publishing nor any other
Restricted Subsidiary has at any time after February 1, 1997 sold any assets and
contributed, directly or indirectly, the proceeds therefrom to Southam; and (c)
neither Publishing nor any other Restricted Subsidiary has at any time after
February 1, 1997 contributed, directly or indirectly, any Newspaper Businesses
to Southam other than those Newspaper Businesses acquired in the Hollinger Inc.
Transaction; and (ii) if any issuance of Capital Stock by a Restricted
Subsidiary or sale or disposition of Capital Stock of a Restricted Subsidiary
results in a Restricted Subsidiary ceasing to qualify as a Subsidiary, such
transaction would be deemed, for purposes of the "Limitation or Restricted
Payments" covenant described above, to constitute the designation of such former
Restricted Subsidiary as an Unrestricted Subsidiary. (Section 10.16)
Limitation on Dividends and Other Payment Restrictions Affecting Restricted
Subsidiaries. Publishing will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective any encumbrance or restriction on the ability of any
Restricted Subsidiary to (a) pay dividends or make any other distribution on its
Capital Stock to Publishing or any other Restricted Subsidiary, (b) pay any
Indebtedness owed to Publishing or any Restricted Subsidiary, (c) make any
Investment in Publishing or (d) transfer any of its properties or assets to
Publishing or any Restricted Subsidiary, except (i) any encumbrance or
restriction pursuant to or in connection with the New Bank Credit Facility or
the FDTH Credit Facility, each as in effect on the date such Subsidiary becomes
a Restricted Subsidiary or any other agreement in effect on the date of the
Senior Subordinated Indenture (including the AP-91 Senior Notes), (ii) any
encumbrance or restriction, with respect to a Restricted Subsidiary that is not
a Restricted Subsidiary of Publishing on the date of the Senior Subordinated
Indenture, in existence at the time such Person becomes a Restricted Subsidiary
of Publishing and not Incurred in connection with, or in contemplation of, such
Person becoming a Restricted Subsidiary, (iii) any encumbrance or restriction
pursuant to or in connection with documents existing or securing any Foreign
Subsidiary Indebtedness that is not materially more restrictive than the terms
of any such restrictions existing on the date of the Senior Subordinated
Indenture or the date such Subsidiary becomes a Restricted Subsidiary, as
determined in good faith by an officer of Publishing, (iv) encumbrances or
restrictions entered into by Southam in connection with Indebtedness of Southam
Incurred at a time when Southam is a Public Entity, (v) encumbrances or
restrictions contained in the terms of any Mirror Preferred, provided that such
Mirror Preferred continues to qualify as such under the definition thereof, (vi)
customary provisions restricting subletting or assignment of any lease governing
a leasehold interest of Publishing or any Restricted Subsidiary and (vii) any
encumbrance or restriction existing under any agreement that extends, renews,
refinances or replaces the agreements containing the encumbrances or
restrictions in the foregoing clauses (i), (ii) and (iii) (other than the
covenants in the AP-91 Senior Notes); provided that the terms and conditions of
any such encumbrances or restrictions are not materially less favorable to the
holders of the Securities than those under or pursuant to the agreement
evidencing the Indebtedness so extended, renewed, refinanced or replaced.
(Section 10.17)
Provision of Financial Statements. Whether or not the Company is subject
to Section 13(a) or 15(d) of the Exchange Act, it will, to the extent permitted
under the Exchange Act, file with the Commission the
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annual reports, quarterly reports and other documents that it would have been
required to file with the Commission pursuant to such Sections 13(a) or 15(d) of
the Exchange Act, including any "summarized information" or other information
relating to Publishing as may be required by Regulation S-X under the Exchange
Act or by the Commission, if it were so subject, such documents to be filed with
the Commission on or prior to the respective dates (the "Required Filing Dates")
by which it would have been required so to file such documents if it were so
subject. The Company will in any event (x) within 15 days of each Required
Filing Date (i) transmit by mail to all holders of Senior Subordinated
Securities, as their names and addresses appear in the security register,
without cost to such holders of Senior Subordinated Securities and (ii) file
with the Trustee copies of the annual reports, quarterly reports and other
documents which the Company would have been required to file with the Commission
pursuant to Section 13(a) or 15(d) of the Exchange Act if it were subject to
such Sections and (y) if filing such documents by the Company with the
Commission is not permitted under the Exchange Act, promptly upon written
request and payment of the reasonable cost of duplication and delivery, supply
copies of such documents to any prospective holder of Senior Subordinated
Securities at Publishing's cost. (Section 10.18)
Limitation on the Designation of Additional Restricted or Unrestricted
Subsidiaries. (a) The Board of Directors may designate any Restricted
Subsidiary as an Unrestricted Subsidiary if (i) such action is in compliance
with the "Limitation on Restricted Payments" covenant described above and (ii)
such action complies with the definition of "Unrestricted Subsidiaries."
(b) The Board of Directors may designate any Unrestricted Subsidiary or any
Person that is to become a Restricted Subsidiary as a Restricted Subsidiary if
immediately after giving effect to such action (and treating any Acquired
Indebtedness as having been incurred at the time of such action), Publishing
could have incurred at least $1.00 of additional Indebtedness pursuant to the
"Limitation on Indebtedness" covenant described above. (Section 10.21)
Additional Covenants. The Indenture also contains covenants with respect
to the following matters: (i) payment of principal, premium and interest; (ii)
maintenance of an office or agency in The City of New York; (iii) arrangements
regarding the handling of money held in trust; (iv) maintenance of corporate
existence; (v) payment of taxes and other claims; (vi) maintenance of
properties; (vii) maintenance of insurance; and (viii) statement by officers as
to default.
CONSOLIDATION, MERGER, SALE OF ASSETS
Each of the Indentures will provide that Publishing shall not, in a single
transaction or a series of related transactions, consolidate with or merge with
or into any other Person or sell, assign, convey, transfer, lease or otherwise
dispose of all or substantially all of its properties and assets to any Person
or group of affiliated Persons, or permit any of its Restricted Subsidiaries to
enter into any such transaction or transactions (other than, in the case of a
Restricted Subsidiary, such a consolidation, merger or transfer with or to one
or more wholly owned Restricted Subsidiaries) if such transaction or
transactions, in the aggregate, would result in a sale, assignment, conveyance,
transfer, lease or disposition of all or substantially all of the properties and
assets of Publishing and its Restricted Subsidiaries on a Consolidated basis to
any other Person or group of affiliated Persons, unless at the time and after
giving effect thereto (a) either (i) Publishing shall be the continuing
corporation or (ii) the Person (if other than Publishing) formed by such
consolidation or into which Publishing is merged or the Person which acquires by
sale, assignment, conveyance, transfer, lease or disposition all or
substantially all of the properties and assets of Publishing and its Restricted
Subsidiaries on a Consolidated basis (the "Surviving Entity") will be a
corporation duly organized and validly existing under the laws of the United
States of America, any state thereof or the District of Columbia and such Person
assumes by a supplemental indenture in form and substance reasonably
satisfactory to the Trustee, all the obligations of Publishing under the
Securities and the relevant Indenture, and the relevant Indenture will remain in
full force and effect; (b) immediately before and immediately after giving
effect to such transaction on a pro forma basis, no Default or Event of Default
shall have occurred and be continuing; (c) immediately after giving effect to
the transaction on a pro forma basis, the Consolidated Net Worth of the
Surviving Entity is not less than the Consolidated Net Worth of Publishing and
the Restricted Subsidiaries immediately prior to the transaction; (d)
immediately before and immediately after giving effect to such transaction on a
pro forma basis (on the assumption that the transaction occurred on the first
day of the four-quarter period
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immediately prior to the consummation of such transaction with the appropriate
adjustments with respect to the transaction being included in such pro forma
calculation), Publishing (or the Surviving Entity if Publishing is not the
continuing obligor under the Indenture) could incur $1.00 of additional
Indebtedness under the "Limitation on Indebtedness" covenant in the relevant
Indenture (other than Permitted Indebtedness); (e) if any of the property or
assets of Publishing or any of its Restricted Subsidiaries would thereupon
become subject to any Lien, the "Limitation on Liens" covenant in the relevant
Indenture are complied with; and (f) Publishing or the Surviving Entity shall
have delivered, or caused to be delivered, to the Trustee, in form and substance
reasonably satisfactory to the Trustee, an officers' certificate and an opinion
of counsel, each to the effect that such consolidation, merger, transfer, sale,
assignment, lease or other transaction and the supplemental indenture in respect
thereto comply with the provisions described herein and that all conditions
precedent herein provided for relating to such transaction have been complied
with.
Neither the Company nor any Restricted Subsidiary Guarantor shall, and
Publishing will not permit a Restricted Subsidiary Guarantor to, in a single
transaction or series of related transactions, consolidate with or merge with or
into any other Person (other than Publishing, the Company or any other
Restricted Subsidiary Guarantor), or sell, assign, convey, transfer, lease or
otherwise dispose of all or substantially all of its properties and assets on a
Consolidated basis to any Person (other than Publishing, the Company or any
other Restricted Subsidiary Guarantor) if such transaction or transactions, in
the aggregate, would result in a sale, assignment, conveyance, transfer, lease
or disposition of all or substantially all of the properties and assets of such
Guarantor to any other Person or group of affiliated Persons, unless at the time
and after giving effect thereto: (a) either (i) the Company or such Restricted
Subsidiary Guarantor shall be the continuing corporation or (ii) the Person (if
other than the Company or such Restricted Subsidiary Guarantor) formed by such
consolidation or into which the Company or such Restricted Subsidiary Guarantor,
as the case may be, is merged or the Person which acquires by sale, assignment,
conveyance, transfer, lease or disposition all or substantially all the
properties and assets of the Company or such Restricted Subsidiary Guarantor
shall be a corporation duly organized and validly existing under the laws of the
United States, any state thereof or the District of Columbia and shall expressly
assume by a supplemental indenture, executed and delivered to the Trustee, in a
form and substance reasonably satisfactory to the Trustee, all the obligations
of the Company or such Restricted Subsidiary Guarantor, as the case may be,
under the Senior Securities, the Senior Subordinated Securities and the relevant
Indenture; (b) immediately before and immediately after giving effect to such
transaction on a pro forma basis, no Default or Event of Default shall have
occurred and be continuing; and (c) the Company or such Restricted Subsidiary
Guarantor, as the case may be, shall have delivered or caused to be delivered to
the Trustee, in form and substance reasonably satisfactory to the Trustee, an
officers' certificate and an opinion of counsel, each stating that such
consolidation, merger, sale, assignment, conveyance, transfer, lease or
disposition and such supplemental indenture comply with the relevant Indenture.
In the event of any transaction described in and complying with the
conditions listed in the immediately preceding paragraphs in which Publishing,
the Company or any Restricted Subsidiary Guarantor is not the continuing
corporation, the successor Person formed or remaining shall succeed to, and be
substituted for, and may exercise every right and power of, Publishing, the
Company or such Restricted Subsidiary Guarantor, as the case may be, and
Publishing, the Company or such Restricted Subsidiary Guarantor, as the case may
be, would be discharged from all obligations and covenants under the relevant
Indenture, the Senior Securities, the Senior Subordinated Securities and such
Guarantee; provided that in the case of a transfer by lease, the predecessor
shall not be released from the payment of principal and interest on the Senior
Securities, the Senior Subordinated Securities or such Guarantee, as the case
may be.
EVENTS OF DEFAULT
An Event of Default with respect to the Offered Securities of any Series
will occur under the Indentures if:
(i) there shall be a default in the payment of any interest on any
Securities of that Series when it becomes due and payable, and such default
shall continue for a period of 30 days;
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(ii) there shall be a default in the payment of the principal of (or
premium, if any, on) any Securities of that Series when and as the same
shall become due and payable at its Maturity (upon acceleration, optional
or mandatory redemption, required repurchase or otherwise);
(iii) (a) there shall be a default in the performance, or breach, of
any covenant or agreement of Publishing under the relevant Indenture (other
than a default in the performance, or breach, of a covenant or agreement
which is specifically dealt with in paragraphs (i) or (ii) or in clauses
(b) and (c) of this paragraph (iii)) and such default or breach shall
continue for a period of 30 days after written notice has been given, by
certified mail, (x) to Publishing by the Trustee or (y) to Publishing and
the Trustee by the holders of at least 25% in aggregate principal amount of
the outstanding Notes; (b) there shall be a default in the performance or
breach of the provisions described above under "Consolidation, Merger, Sale
of Assets;" or (c) Publishing shall have failed to make or consummate a
Change of Control Offer in accordance with the "Purchase of Securities upon
a Change of Control" covenant in the relevant Indenture;
(iv) one or more defaults shall have occurred under any agreements,
indentures or instruments under which Publishing, the Company or any
Restricted Subsidiary then has outstanding Indebtedness in excess of
$5,000,000 in the aggregate and, if not already matured at its final
maturity in accordance with its terms, such Indebtedness shall have been
accelerated;
(v) any Guarantee relating to any such Series shall for any reason
cease to be, or be asserted in writing by any guarantor or Publishing not
to be, in full force and effect, enforceable in accordance with its terms,
except to the extent contemplated by the relevant Indenture and any such
Guarantee;
(vi) one or more final judgments, orders or decrees for the payment of
money in excess of $5,000,000, either individually or in the aggregate,
shall be entered against Publishing, the Company or any Restricted
Subsidiary or any of their respective properties and shall not be
discharged and either (a) enforcement proceedings shall have been commenced
upon such judgment, order or decree or (b) there shall have been a period
of 60 consecutive days during which a stay of enforcement of such judgment
or order, by reason of an appeal or otherwise, shall not be in effect;
(vii) there shall have been the entry by a court of competent
jurisdiction of (a) a decree or order for relief in respect of Publishing,
any guarantor or any Material Restricted Subsidiary in an involuntary case
or proceeding under any applicable Bankruptcy Law or (b) a decree or order
adjudging Publishing, any guarantor or any Material Restricted Subsidiary
bankrupt or insolvent, or seeking reorganization, arrangement, adjustment
or composition of or in respect of Publishing, any guarantor or any
Material Restricted Subsidiary under any applicable federal or state law,
or appointing a custodian, receiver, liquidator, assignee, trustee,
sequestrator or similar official of Publishing, any guarantor or any
Material Restricted Subsidiary or of any substantial part of its property,
or ordering the winding up or liquidation of its affairs, and any such
decree or order for relief shall continue to be in effect, or any such
other decree or order shall be unstayed and in effect, for a period of 60
consecutive days;
(viii) (a) Publishing, any guarantor or any Material Restricted
Subsidiary shall commence a voluntary case or proceeding under any
applicable Bankruptcy Law or any other case or proceeding to be adjudicated
bankrupt or insolvent, (b) Publishing, any guarantor or any Material
Restricted Subsidiary consents to the entry of a decree or order for relief
in respect of Publishing, such guarantor or such Material Restricted
Subsidiary in an involuntary case or proceeding under any applicable
Bankruptcy Law or to the commencement of any bankruptcy or insolvency case
or proceeding against it, (c) Publishing, any guarantor or any Material
Restricted Subsidiary files a petition or answer or consent seeking
reorganization or relief under any applicable federal or state law, (d)
Publishing, any guarantor or any Material Restricted Subsidiary (x)
consents to the filing of such petition or the appointment of, or taking
possession by, a custodian, receiver, liquidator, assignee, trustee,
sequestrator or similar official of Publishing, such guarantor or such
Material Restricted Subsidiary or of any substantial part of its property,
(y) makes an assignment for the benefit of creditors or (z) admits in
writing its inability to pay its debts generally as they become due or (e)
Publishing, any guarantor or any Material Restricted Subsidiary takes any
corporate action in furtherance of any such actions in this paragraph
(viii); or
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(ix) any outstanding Mirror Preferred shall cease to qualify as Mirror
Preferred under the definition thereof.
If an Event of Default (other than as specified in paragraphs (vii) and
(viii) of the prior paragraph with respect to Publishing) occurs and is
continuing with respect to Securities of any Series, the Trustee or the holders
of not less than 25% in aggregate principal amount of the outstanding Securities
hereunder (each such Series acting as a separate class) may, and the Trustee
upon the request of the holders of not less than 25% in the aggregate principal
amount of the outstanding Securities of such Series shall, declare the principal
amount (or, if the Securities of such Series are Original Issue Discount
Securities, such portion of the principal amount as may be specified in the
terms of that Series) of all the Securities of such Series to be due and payable
immediately in an amount equal to the principal amount of the Securities of such
Series, together with accrued and unpaid interest, if any, to the date the
Securities of such Series shall have become due and payable, by a notice in
writing to Publishing (and to the Trustee if given by the holders of the
Securities of such Series) and, if the New Bank Credit Facility is in effect, to
the agent under the New Bank Credit Facility, and upon any such declaration such
amount shall become immediately due and payable; and thereupon the Trustee may,
at its discretion, proceed to protect and enforce the rights of the holders of
the Securities of such Series. If an Event of Default specified in clause (vii)
or (viii) of the prior paragraph (if the Event of Default is with respect to all
Series of Securities then outstanding) occurs with respect to Publishing and is
continuing, then all the Securities of such Series shall ipso facto become and
be immediately due and payable, in an amount equal to the principal amount of
the Securities of a Series (or, if the Securities of such Series are Original
Issue Discount Securities, such portion of the principal amount as may be
specified in the terms thereof), together with accrued and unpaid interest, if
any, to the date the Securities of such Series become due and payable, without
any declaration or other action on the part of the Trustee or any holder.
After a declaration of acceleration has been made with respect to the
Securities of any or all Series, as the case may be, but before a judgment or
decree for payment of the money due has been obtained by the Trustee, the
holders of a majority in aggregate principal amount of outstanding Securities of
such Series, by written notice to Publishing and the Trustee, may rescind and
annul such declaration and its consequences if (a) Publishing has paid or
irrevocably deposited with the Trustee a sum sufficient to pay (i) all sums paid
or advanced by the Trustee under the relevant Indenture and the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, (ii) all overdue interest on all outstanding Securities of such
Series, (iii) the principal of and premium, if any, on any outstanding
Securities of such Series which have become due otherwise than by such
declaration of acceleration and interest thereon at the rate or rates presented
therefor by the terms of the Securities of such Series and (iv) to the extent
that payment of such interest is lawful, interest upon overdue interest at the
rate or rates presented therefor by the terms of the Securities of such Series;
and (b) all Events of Default with respect to such Series of Securities, other
than the nonpayment of principal of the Securities of such Series which have
become due solely by such declaration of acceleration, have been cured or
waived.
The holders of not less than a majority in aggregate principal amount of
the outstanding Securities of any Series may on behalf of the holders of all the
Securities of such Series waive any past defaults under the Indenture and its
consequences, except a default in the payment of the principal of, premium, if
any, or interest on any Security of such Series, or in respect of a covenant or
provision which under the relevant Indenture cannot be modified or amended
without the consent of the holder of each Security of such Series outstanding.
Publishing is also required to notify the Trustee within five business days
of the occurrence of any Default.
The Trust Indenture Act of 1939 contains limitations on the rights of the
Trustee, should it become a creditor of Publishing or any guarantor, to obtain
payment of claims in certain cases or to realize on certain property received by
it in respect of any such claims, as security or otherwise. The Trustee is
permitted to engage in other transactions; provided that if it acquires any
conflicting interest it must eliminate such conflict upon the occurrence of an
Event of Default or else resign.
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DEFEASANCE OR COVENANT DEFEASANCE
Publishing may, at its option and at any time (provided, that Publishing
obtains all legal opinions and complies with all other requirements under the
Indenture), elect to have the obligations of Publishing and any Guarantor
discharged with respect to the outstanding Offered Securities of any Series
("defeasance"). Such defeasance means that Publishing and any Guarantor shall be
deemed to have paid and discharged the entire indebtedness represented by the
defeased Securities of such Series, (which shall thereafter be deemed to be
"Outstanding" only for purposes of the provisions of the relevant Indenture
governing the money or U.S. Government Obligations deposited in trust pursuant
to the provisions described in the following paragraph, and for purposes of the
provisions governing the rights of holders of the defeased Securities of such
Series and the obligations of Publishing described in the following clauses (i)
and (ii)) and to have satisfied all its other obligations under such Securities
of such Series and the Indenture, except for (i) the rights of holders of
outstanding Securities of such Series to receive payments in respect of the
principal of, premium, if any, and interest on such Securities of such Series
when such payments are due, (ii) Publishing's obligations with respect to the
Securities of such Series concerning issuing temporary Securities of such
Series, registration of Securities of such Series, mutilated, destroyed, lost or
stolen Securities of such Series, and the maintenance of an office or agency for
payment and money for security payments held in trust, (iii) the rights, powers,
trusts, duties and immunities of the Trustee and (iv) the defeasance provisions
of the relevant Indenture. In addition, Publishing may, at its option and at any
time, elect to have the obligations of Publishing released with respect to
certain covenants (provided that Publishing's obligations to pay interest,
premium, if any, and principal on the Securities of such Series under the
relevant Indenture shall remain in full force and effect as long as the
Securities of such Series are outstanding), that are described in the relevant
Indenture ("covenant defeasance") and any omission to comply with such
obligations shall not constitute a Default or an Event of Default with respect
to the Securities of such Series. In the event covenant defeasance occurs,
certain events (not including nonpayment, bankruptcy and insolvency events)
described under "Events of Default" will no longer constitute an Event of
Default with respect to the Securities of such Series. In the event of covenant
defeasance, the defeased Securities of such Series will thereafter be deemed to
be not "Outstanding" for purposes of any direction, waiver, consent or
declaration or Acts of Holders in connection with the covenants from which
Publishing has been released, but shall continue to be deemed "Outstanding" for
all other purposes under the Indenture.
In order to exercise either defeasance or covenant defeasance, (i)
Publishing must irrevocably deposit with the Trustee, in trust, for the benefit
of the holders of the Securities of such Series, cash in United States dollars,
U.S. Government Obligations (as defined in the relevant Indenture), or a
combination thereof, in such amounts as will be sufficient, in the opinion of a
nationally recognized firm of independent public accountants, to pay and
discharge the principal of, premium, if any, and interest on the outstanding
Securities of such Series on the Stated Maturity of such principal or
installment of principal (or on any date selected by Publishing on which the
Defeased Securities may be redeemed in whole at the option of Publishing (such
date being referred to as the "Defeasance Redemption Date"), if when exercising
either defeasance or covenant defeasance, Publishing has delivered to the
Trustee irrevocable notice to redeem all of the outstanding Securities of such
Series on the Defeasance Redemption Date); (ii) in case of defeasance,
Publishing shall have delivered to the Trustee an opinion of independent counsel
in the United States stating that (A) Publishing has received from, or there has
been published by, the Internal Revenue Service a ruling or (B) since the date
of the relevant Indenture, there has been a change in the applicable federal
income tax law, in either case to the effect that the holders of the outstanding
Securities of such Series will not recognize income, gain or loss for federal
income tax purposes as a result of such defeasance and will be subject to
federal income tax on the same amounts, in the same manner and at the same times
as would have been the case if such defeasance had not occurred; (iii) in the
case of covenant defeasance, Publishing shall have delivered to the Trustee an
opinion of independent counsel in the United States to the effect that the
holders of the outstanding Securities of such Series will not recognize income,
gain or loss for federal income tax purposes as a result of such covenant
defeasance and will be subject to federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such covenant
defeasance bad not occurred; (iv) no Default or Event of Default shall have
occurred and be continuing on the date of such deposit or insofar as clause
(vii) or (viii) under the first paragraph under "Events of Default" above are
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concerned, at any time during the period ending on the 121st day after the date
of deposit; (v) such defeasance or covenant defeasance shall not cause the
Trustee for the Securities of such Series to have a conflicting interest with
respect to any securities of Publishing; (vi) such defeasance or covenant
defeasance shall not result in a breach or violation of, or constitute a Default
under, the relevant Indenture or, in the case of the Senior Subordinated
Indenture, a breach or violation of any provision of any agreement relating to
any Senior Indebtedness; (vii) Publishing shall have delivered to the Trustee an
opinion of independent counsel in the United States to the effect that after the
121st day following the deposit, the trust funds will not be subject to the
effect of any applicable bankruptcy, insolvency, reorganization or similar laws
affecting creditors' rights generally and, in the case of the Senior
Subordinated Indenture the trust funds will not be subject to any rights of
holders of Senior Indebtedness, including, without limitation, those arising
under the Senior Subordinated Indenture; (viii) Publishing shall have delivered
to the Trustee an officers' certificate stating that the deposit was not made by
Publishing with the intent of preferring the holders of the Securities of such
Series over the other creditors of Publishing with the intent of defeating,
hindering, delaying or defrauding creditors of Publishing; (ix) no event or
condition shall exist that would prevent Publishing from making payments of the
principal of, premium, if any, and interest on the Securities of such Series on
the date of such deposit or at any time ending on the 121st day after the date
of such deposit; and (x) Publishing shall have delivered to the Trustee an
officers' certificate and an opinion of independent counsel, each stating that
all conditions precedent provided for relating to either the defeasance or the
covenant defeasance, as the case may be, have been complied with. (Section 4.04)
SATISFACTION AND DISCHARGE
The Indentures will cease to be of further effect (except as to surviving
rights of registration of transfer or exchange of the Securities of any Series,
as expressly provided for in the Indentures) as to all outstanding Securities of
any Series when (i) either (a) all the Securities of any Series theretofore
authenticated and delivered (except lost, stolen or destroyed Securities of any
Series which have been replaced or paid and Securities of any Series for whose
payment funds have been deposited in trust by Publishing and thereafter repaid
to Publishing or discharged from such trust) have been delivered to the Trustee
for cancellation or (b) all Securities of any Series not theretofore delivered
to the Trustee for cancellation (x) have become due and payable, (y) will become
due and payable at their Stated Maturity within one year or (z) are to be called
for redemption within one year under arrangements satisfactory to the Trustee
for the giving of notice of redemption by the Trustee in the name, and at the
expense, of Publishing, and Publishing has irrevocably deposited or caused to be
deposited with the Trustee as trust funds in trust an amount sufficient to pay
and discharge the entire indebtedness on the Securities of any Series not
theretofore delivered to the Trustee for cancellation, including principal of,
premium, if any, and accrued interest on such Securities of any Series, at such
Maturity, Stated Maturity or redemption date; (ii) Publishing has paid or caused
to be paid all other sums payable under the relevant Indenture by Publishing;
and (iii) Publishing has delivered to the Trustee an officers' certificate and
an opinion of counsel in the United States each stating that all conditions
precedent under the relevant Indenture relating to the satisfaction and
discharge of such Indenture have been complied with, and that such satisfaction
and discharge will not result in a breach or violation of, or constitute a
Default under, such Indenture or, in the case of the Senior Subordinated
Indenture, a breach or violation of any provision of any agreement relating to
any Senior Indebtedness. (Section 13.01)
MODIFICATIONS AND AMENDMENTS
Modifications and amendments of the Indentures with respect to any Series
of Securities may be made by Publishing, the Company, any Restricted Subsidiary
Guarantor and the Trustee with the consent of greater than 50% of the holders in
aggregate outstanding principal amount of the Securities of any such Series;
provided, however, that no such modification or amendment may, without the
consent of the holder of each outstanding Securities of any Series affected
thereby: (i) change the Stated Maturity of the principal of, or any installment
of interest on, any Securities of any Series or waive a default in the payment
of the principal or interest on any Security or reduce the principal amount
thereof or the rate of interest thereon or any premium payable upon the
redemption thereof, or change the coin or currency in which any Securities of
any Series or any premium or the interest thereon is payable, or impair the
right to institute suit for the enforcement of any such payment after the Stated
Maturity thereof; (ii) amend, change or modify the obligation of Publishing to
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make and consummate a Change of Control Offer in the event of a Change of
Control in accordance with the "Purchase of Debt Securities on Change of
Control" covenant in the relevant Indenture including amending, changing or
modifying any definitions with respect thereto; (iii) reduce the percentage in
principal amount of outstanding Securities of any Series, the consent of whose
holders is required for any such supplemental indenture, or the consent of whose
holders is required for any waiver; (iv) modify any of the provisions relating
to supplemental indentures requiring the consent of holders or relating to the
waiver of past defaults or relating to the waiver of certain covenants, except
to increase the percentage of outstanding Securities of any Series required for
such actions or to provide that certain other provisions of the Indentures
cannot be modified or waived without the consent of the holder of each Security
of any Series affected thereby; (v) except as otherwise permitted under
"Consolidation, Merger, Sale of Assets" above, consent to the assignment or
transfer by Publishing, the Company or any Restricted Subsidiary Guarantor of
any of its respective rights and obligations under the Indentures; or (vi) amend
or modify any of the provisions of the Senior Subordinated Indenture relating to
the subordination of the Senior Subordinated Securities of any Series or any
guarantee in any manner adverse to the holders of the Securities of any Series.
No amendment or modification of the Senior Subordinated Indenture shall
adversely affect the rights of any holders of Senior Indebtedness under the
subordination provisions of the Senior Subordinated Indenture unless the
requisite holders of each issue of Senior Indebtedness affected thereby shall
have consented to such amendment or modification.
The holders of greater than 50% in aggregate principal amount of the
Securities of any Series outstanding may waive compliance with certain
restrictive covenants and provisions of the relevant Indenture.
GUARANTEES
Each of the Indentures provides that the Company will unconditionally
guarantee the due and punctual payment of principal, premium, if any, and
interest on the Securities of any Series pursuant to the relevant Company
Guarantee. The Securities of any Series may also be guaranteed by one or more
Restricted Subsidiaries from time to time under certain circumstances.
In addition, the Senior Subordinated Indenture provides that the
Indebtedness to be evidenced by any Guarantee (including the payment of
principal of, premium, if any, and interest on the Senior Subordinated
Securities) will be subordinated to Senior Guarantor Indebtedness to the same
extent as the Senior Subordinated Securities are subordinated to Senior
Indebtedness. In particular, the Guarantee under the Senior Subordinated
Indenture will rank subordinate to the guarantee issued by the Company in
respect of the New Bank Credit Facility, the FDTH Credit Facility and the Senior
Securities. Each Guarantee will provide that upon any voluntary or involuntary
liquidation or dissolution of the Company or any Restricted Subsidiary
Guarantor, as the case may be, or any bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to the Company or such Restricted
Subsidiary Guarantor or any of their respective property, all Senior
Indebtedness guaranteed by it must be paid in full or provision made for such
payment, before any payment or distribution is made upon principal of, premium,
if any, or interest on, the Senior Subordinated Securities of such Series. By
reason of such subordination, in the event of liquidation or insolvency,
creditors of the Company or such Restricted Subsidiary Guarantor who are holders
of guarantees of Senior Indebtedness by the Company or such Restricted
Subsidiary Guarantor may recover more ratably than the holders of the Senior
Subordinated Securities of such Series and the holders of the Senior
Subordinated Securities of such Series may not recover any amounts in such
event.
GOVERNING LAW
The Indentures and the Securities of all Series will be governed by, and
construed in accordance with, the laws of the State of New York, without giving
effect to the conflicts of law principles thereof.
CERTAIN DEFINITIONS
Each of the Indentures contains the following certain definitions.
"Acceleration Right" means a right, which at the time is immediately
exercisable (without further notice or lapse of time), by the holders or a
trustee to cause the acceleration of the maturity of Indebtedness of Publishing
or a Restricted Subsidiary having an aggregate principal amount outstanding of
at least $5,000,000; provided that this definition shall exclude the rights of
the holders of the existing preference shares of DTH
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and FDTH to require that Restricted Subsidiaries or Affiliates of Publishing
purchase those shares pursuant to the terms of the governing instruments or
existing agreements relating to such preference shares existing on January 1,
1997;
"Acquired Indebtedness" means Indebtedness of a Person (including an
Unrestricted Subsidiary) (i) existing at the time such Person becomes a
Restricted Subsidiary or (ii) assumed in connection with the acquisition of
assets from such Person, in each case, other than Indebtedness incurred in
connection with, or in contemplation of, such Person becoming a Restricted
Subsidiary or such acquisition. Acquired Indebtedness will be deemed to be
incurred on the date of the related acquisition of assets from any Person or the
date the acquired Person becomes a Restricted Subsidiary.
"Affiliate" means, with respect to any specified Person, (i) any other
Person directly or indirectly controlling or controlled by or under direct or
indirect common control with such specified Person or (ii) any other Person that
owns, directly or indirectly, 10% or more of such Person's equity ownership or
Voting Stock or any officer or director of any such Person or other Person or
with respect to any natural Person, any person having a relationship with such
Person by blood, marriage or adoption not more remote than first cousin. For the
purposes of this definition, "control" when used with respect to any specified
Person means the power to direct the management and policies of such Person
directly or indirectly, whether through ownership of voting securities, by
contract or otherwise; and the terms "controlling" and "controlled" have
meanings relative to the foregoing.
"Agent" means The Toronto-Dominion Bank, the administrative agent under the
New Bank Credit Facility, and its successors and assigns.
"Amortization Expense" of any Person means, for any period, amounts
recognized during such period as (i) amortization of goodwill or (ii)
amortization of any other intangible assets with an original life of ten years
or more, in each case in accordance with GAAP and to the extent reflected in the
Consolidated Net Income of Publishing and the Restricted Subsidiaries; provided,
however, that in determining the aggregate cumulative Amortization Expense of
Publishing and its Restricted Subsidiaries for purposes of the "Limitation on
Restricted Payments" covenant in the relevant Indenture following the date on
which both of The Telegraph and Southam are Restricted Subsidiaries, the
Amortization Expense of Restricted Subsidiaries that are not Wholly Owned
Restricted Subsidiaries shall be determined in accordance with the actual
percentage of Publishing's common equity in such Restricted Subsidiary on the
date of the transaction necessitating the determination (thus, for example, in
the case of a Restricted Subsidiary in which Publishing owns a 51% common equity
interest on the date of the Restricted Payment, 51% of such Restricted
Subsidiary's Amortization Expense would be included in the calculation of the
aggregate cumulative Amortization Expense of Publishing and the Restricted
Subsidiaries).
"AP-91" means American Publishing (1991) Inc., a wholly owned, indirect
Subsidiary.
"AP-91 Senior Notes" means the $150 million original principal amount of
senior secured notes issued by AP-91.
"Argsub" means a wholly owned subsidiary of Argus.
"Argsub Preferred" means Capital Stock of a wholly owned subsidiary of
Argus issued to and held by DTH or FDTH.
"Argus" means Argus Corporation Limited, a Canadian corporation, so long as
such corporation is controlled by Hon. Conrad M. Black or his heirs, executors
and legal representatives of his Affiliates.
"Asset Sale" means any sale, issuance, conveyance, transfer, lease or other
disposition (including, without limitation, by way of merger, consolidation or
sale and leaseback transaction but not the grant of a pledge or security
interest) (collectively, a "transfer"), directly or indirectly, in one or a
series of related transactions, of (i) any Capital Stock of any Restricted
Subsidiary; (ii) all or substantially all of the properties and assets of any
division or line of business of Publishing or any of its Restricted
Subsidiaries; or (iii) any other properties or assets (other than cash) of
Publishing or any Restricted Subsidiary, other than in the ordinary course of
business. For the purposes of this definition, the term "Asset Sale" shall not
include any transfer of properties and assets (A) that is governed by the
provisions described under "Consolidation,
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Merger, Sale of Assets," (B) from any Restricted Subsidiary to Publishing in
accordance with the terms of the Indenture, (C) having a market value of less
than $1,000,000 (it being understood that if the market value of the properties
or assets being transferred exceeds $1,000,000, the entire value and not just
the portion in excess of $1,000,000, shall be deemed to have been the subject of
an Asset Sale), (D) which are obsolete (in the case of equipment) to
Publishing's and its Restricted Subsidiaries' businesses, (E) to any Wholly
Owned Restricted Subsidiary, (or, provided that both of The Telegraph and
Southam are Restricted Subsidiaries, a Restricted Subsidiary), (F) from any
Wholly Owned Restricted Subsidiary to any other Wholly Owned Restricted
Subsidiary, (or, provided that both of The Telegraph and Southam are Restricted
Subsidiaries, from a Restricted Subsidiary to a Restricted Subsidiary), (G)
consisting of any transfer of HTH common shares by FDTH or any Restricted
Subsidiary which may acquire or hold such HTH common shares to Hollinger Inc.
pursuant to the provisions of the HTH/FDTH Share Exchange Agreement, (H) by
Southam, provided that (i) Southam is a Restricted Subsidiary, (ii) Southam is a
Public Entity at the time of such sale of assets and (iii) the proceeds of such
sale of assets are not paid as a dividend or distribution on Southam's equity
capital; provided, however, that any issuance by Southam of its Capital Stock
shall be subject to the requirements of clause (i) of paragraph (b) of the
"Limitation on Issuance and Sale of Capital Stock of Restricted Subsidiaries"
covenant in the relevant Indenture, and (I) any issuance of Mirror Preferred so
long as the conditions set forth in the definition of Mirror Preferred are
satisfied.
"Average Life to Stated Maturity" means, as of the date of determination
with respect to any Indebtedness, the quotient obtained by dividing (i) the sum
of the products of (a) the number of years from the date of determination to the
date or dates of each successive scheduled principal payment of such
Indebtedness multiplied by (b) the amount of each such principal payment by (ii)
the sum of all such principal payments.
"Bankruptcy Law" means Title 11 of the United States Code, as amended, or
any similar United States federal or state or foreign law relating to
bankruptcy, insolvency, receivership, winding-up, liquidation, reorganization or
relief of debtors or any amendment to, succession to or change in any such law.
"Board of Directors" means the board of directors of Publishing or any duly
authorized committee of such board.
"Board Resolution" means a copy of a resolution certified by the Secretary
as an Assistant Secretary of Publishing to have been duly adopted by the board
of directors of Publishing or a duly authorized committee of such board and to
be in full force and effect on the date of such certification, and delivered to
the Trustee.
"Business Opportunities Agreement" means the Business Opportunities
Agreement dated as of February 7, 1996, between the Company and Hollinger Inc.
and any amendment, modification or supplement thereto or restatement thereof and
any similar agreements entered into after the date of the original issuance of
the Notes in accordance with the terms of the Indenture.
"Capital Lease Obligation" of any Person means any obligation of such
Person and its subsidiaries on a consolidated basis under any capital lease of
real or personal property which, in accordance with GAAP, has been recorded as a
capitalized lease obligation.
"Capital Stock" of any Person means any and all shares, interests,
participations or other equivalents (however designated) of such Person's
capital stock.
"Cash Equivalents" means (i) any evidence of Indebtedness with a maturity
of 180 days or less issued or directly and fully guaranteed or insured by the
United States of America or any agency or instrumentality thereof (provided,
that the full faith and credit of the United States of America is pledged in
support thereof); (ii) certificates of deposit or acceptances with a maturity of
180 days or less of any financial institution that is a member of the Federal
Reserve System having combined capital and surplus and undivided profits of not
less than $500,000,000; (iii) commercial paper with a maturity of 180 days or
less issued by a corporation that is not an Affiliate of Publishing organized
under the laws of any state of the United States or the District of Columbia and
rated A-1 (or higher) according to S&P or P-1 (or higher) according to Moody's
or at least an equivalent rating category of another nationally recognized
securities rating agency; (iv) any money market deposit accounts issued or
offered by a domestic commercial bank having capital and surplus in excess of
$500,000,000; and (v) repurchase agreements and reverse repurchase agreements
relating to marketable
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direct obligations issued or unconditionally guaranteed by the government of the
United States of America or issued by any agency thereof and backed by the full
faith and credit of the United States of America, in each case maturing within
180 days from the date of acquisition; provided that the terms of such
agreements comply with the guidelines set forth in the Federal Financial
Agreements of Depository Institutions With Securities Dealers and Others, as
adopted by the Comptroller of the Currency on October 31, 1985.
"Change of Control" means the occurrence of any of the following:
(a) there is a report filed on Schedule 13D, 14D-1 or 14D-1F (or any
successor schedule, form or report) pursuant to the Exchange Act,
disclosing that any person (for purposes of this definition, as the term
"person" is used in Section 13(d)(3) or Section 14(d)(2) of the Exchange
Act or any successor provision to either of the foregoing), other than any
person consisting solely of Conrad M. Black (or his heirs, executors or
legal representatives) and his Affiliates, has become the beneficial owner
(as the term "beneficial owner" is defined under Rule 13d-3 or any
successor rule or regulation promulgated under the Exchange Act) of Voting
Stock representing 50% or more of the total voting power attached to all
Voting Stock of Hollinger Inc., the Company or Publishing then outstanding;
provided, however, that a person shall not be deemed to be the beneficial
owner of, or to own beneficially, (i) any securities tendered pursuant to a
tender or exchange offer made by or on behalf of such person or any of such
person's Affiliates until such tendered securities are accepted for
purchase or exchange thereunder, or (ii) any securities if such beneficial
ownership (A) arises solely as a result of a revocable proxy delivered in
response to a proxy or consent solicitation made pursuant to applicable
law, and (B) is not also then reportable on Schedule 13D (or any successor
schedule) under the Exchange Act;
(b) there is a report filed or required to be filed with any
securities commission or securities regulatory authority in Canada,
disclosing that any offeror (as the term "offeror" is defined in Section
89(l) of Securities Act (Ontario) for the purpose of Section 101 of such
Securities Act or any successor provision of the foregoing) other than any
person consisting solely of Conrad M. Black (or his heirs, executors or
legal representatives) and his Affiliates, has acquired beneficial
ownership (within the meaning of the Securities Act (Ontario)) of, or the
power to exercise control or direction over, or securities convertible
into, any voting or equity shares of Hollinger Inc., that together with
such offeror's securities (as the term "offeror's securities" is defined in
Section 89(l) of the Securities Act (Ontario) or any successor provision
thereto in relation to the voting or equity shares of Hollinger Inc.) would
constitute Voting Stock of Hollinger Inc. representing 50% or more of the
total voting power attached to all Voting Stock of Hollinger Inc. then
outstanding;
(c) the Company shall cease to own, directly or indirectly, 100% of
the Voting Stock of Publishing;
(d) there is consummated a consolidation (involving a business
combination) or merger of Publishing or the Company, as the case may be,
(i) in which Publishing or the Company, as the case may be, is not the
continuing or surviving corporation or (ii) pursuant to which any Voting
Stock of Publishing or the Company, as the case may be, would be
reclassified, changed or converted into or exchanged for cash, securities
or other property, other than (in each case) a consolidation or merger of
Publishing or the Company, as the case may be, in which the holders of the
Voting Stock of Publishing or the Company, as the case may be, immediately
prior to the consolidation or merger have, directly or indirectly, 50% or
more of the Voting Stock of the continuing or surviving corporation
immediately after such transaction; or
(e) Conrad M. Black (or his heirs, executors and legal
representatives) and his Affiliates cease to beneficially own and control
the voting of, directly or indirectly, Voting Stock of Publishing or the
Company representing a greater percentage of the total voting power
attached to the Voting Stock of Publishing or the Company than the
percentage beneficially owned and controlled, directly or indirectly, by
any other single shareholder of Publishing or the Company together with its
Affiliates (a "Designated Transaction") and there shall occur a Rating
Decline.
Under each Indenture a "Rating Decline" will be deemed to have occurred if,
on any date within the period (the "Rating Period") beginning on the date (the
"Reference Date") of the earlier to occur of (A) the first public announcement
by Publishing or any other Person of an intention to effect any Designated
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Transaction and (B) the occurrence of such Designated Transaction, and ending on
the date 90 days thereafter, either of the following events has occurred: (1)
the Securities of any Series (or any other securities of Publishing which are
rated by a Rating Agency on the date which is 61 days prior to the Reference
Date (the "Rating Date")) shall be rated by any Rating Agency at any time during
the Rating Period at a rating which is lower than the rating of the Securities
of any Series (or such other securities of Publishing, as the case may be) by
such Rating Agency on the Rating Date by one or more gradations (including
gradations within Rating Categories as well as between Rating Categories) or (2)
any Rating Agency shall have withdrawn its rating of the Securities of any
Series (or such other securities of Publishing, as the case may be) during the
Rating Period.
Conrad M. Black has advised Publishing that Hollinger Inc. does not
presently intend to reduce its voting power in the Company's outstanding Common
Stock to less than 50%. Furthermore, Mr. Black has advised Publishing that he
does not presently intend to reduce his voting control over Hollinger Inc. such
that a third party would be able to exercise effective control over it.
Hollinger Inc. has pledged all shares of the Company's Common Stock and Series A
Preferred Stock owned by it to a Canadian chartered bank as collateral for
outstanding indebtedness of Hollinger Inc. A default under such indebtedness and
foreclosure upon such shares may result in a Change of Control.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" means the Securities and Exchange Commission, as from time to
time constituted, created under the Exchange Act, or if at any time after the
execution of the relevant Indenture such Commission is not existing and
performing the duties now assigned to it under the Trust Indenture Act, then the
body performing such duties at such time.
"Consolidated Assets" means with respect to Publishing, the total assets
shown on the balance sheet of Publishing and its Restricted Subsidiaries, as
determined on a consolidated basis in accordance with GAAP, as of Publishing's
latest full fiscal quarter.
"Consolidated Cash Flow Ratio" means, as at any date of determination, the
ratio of (i) the aggregate amount of Indebtedness of Publishing and the
Restricted Subsidiaries on a Consolidated basis outstanding as at such date to
(ii) the Operating Cash Flow of Publishing and the Restricted Subsidiaries
(determined on a Consolidated basis) for the most recently completed period of
four consecutive fiscal quarters of Publishing; provided (a) that once both of
The Telegraph and Southam are Restricted Subsidiaries, for the purpose of
determining the Consolidated Cash Flow Ratio, the Indebtedness and Operating
Cash Flow of Restricted Subsidiaries that are not Wholly Owned Restricted
Subsidiaries shall be determined in accordance with the actual percentage of
Publishing's common equity interest in such Restricted Subsidiary on the date of
determination of the Consolidated Cash Flow Ratio (thus, for example, in the
case of a Restricted Subsidiary in which Publishing owns a 51% common equity
interest, 51% each of such Restricted Subsidiary's Indebtedness and Operating
Cash Flow would be included in the calculation of Publishing's aggregate
Indebtedness and Operating Cash Flow, respectively); and provided further that
(i) so long as Southam is a Restricted Subsidiary and (ii) until such time as
Southam is not a Public Entity, the portion of Operating Cash Flow represented
by Southam Operating Cash Flow shall not exceed thirty-three and one third
percent (33 1/3%) and, to the extent Southam Cash Flow represents greater than
thirty-three and one third percent (33 1/3%) of Operating Cash Flow, such excess
shall be deducted from Operating Cash Flow and (b) that, so long as any Southam
shares owned by Publishing or a Restricted Subsidiary are pledged, directly or
indirectly, to secure Indebtedness other than Indebtedness of Publishing or a
Restricted Subsidiary, the equity interest in Southam represented by such shares
shall be excluded for purposes of calculating the percentage of Southam's
Indebtedness and Operating Cash Flow to be included in determining Publishing's
aggregate Indebtedness and Operating Cash Flow on a Consolidated basis.
"Consolidated Net Income (Loss)" of Publishing and the Restricted
Subsidiaries means, for any period, the Consolidated net income (or loss (and
treating a loss as a negative number)) of Publishing and the Restricted
Subsidiaries for such period as determined in accordance with GAAP, adjusted by
(a) excluding, without duplication, to the extent included in calculating such
Consolidated Net Income (or Loss), (i) all extraordinary gains and losses, (ii)
the portion of Consolidated net income (or loss) of Publishing and its
Restricted Subsidiaries allocable to Investments in unconsolidated Persons
(other than Unrestricted Subsidi-
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aries) to the extent that cash dividends or distributions have not actually been
received by such Person or one of its Restricted Subsidiaries, (iii) the portion
of Consolidated net income (or loss) of Publishing and its Restricted
Subsidiaries allocable to Publishing's Unrestricted Subsidiaries (or to payments
received therefrom), (iv) net income (or loss) of a Person combined with
Publishing or any of its subsidiaries on a "pooling of interests" basis
attributable to any period prior to the date of combination, (v) any gain or
loss, net of taxes, realized upon the termination of any employee pension
benefit plan, (vi) aggregate net gains and losses (less all fees and expenses
relating thereto) in respect of dispositions of assets (including without
limitation sales of shares of Unrestricted Subsidiaries or unconsolidated
Persons and non-cash writeoffs of assets (provided that there are no continuing
cash expenses related to such writeoffs)) other than in the ordinary course of
business, (vii) any income, gain or loss resulting from the issuance, sale or
redemption of Mirror Preferred or Argsub Preferred, (viii) the net income of any
Restricted Subsidiary to the extent that the declaration of dividends or similar
distributions by that Restricted Subsidiary of that income is not at the time
permitted, directly or indirectly, by operation of the terms of its charter or
any agreement, instrument, judgment, decree, order, statute, rule or
governmental regulations applicable to that Restricted Subsidiary or its
stockholders; provided, however, that the foregoing shall not apply to the net
income of AP-91 relating to the business of AP-91, as conducted as of the date
of the Indenture, on account of restrictions on AP-91 in agreements as in effect
on the date of the Indenture, restrictions permitted under in clauses (iii) and
(iv) of the "Limitation on Dividends and Other Payment Restrictions Affecting
Restricted Subsidiaries" covenant in the relevant Indenture (to the extent such
clauses are applicable at the time of determination), (ix) any restoration to
income of any contingency reserve, except to the extent that provision for such
reserve was made out of income accrued at any time following the date of the
Indenture, (x) any net gain from the collection of proceeds of life insurance
policies, (xi) any gain arising from the acquisition of any securities, or the
extinguishment, under GAAP, of any Indebtedness of Publishing or one of its
Restricted Subsidiaries, (xii) aggregate net gains or losses relating to foreign
currency transactions or translations and (xiii) redundancy costs relating to
the permanent elimination of jobs, provided that the amount of such expenses are
certified by Publishing's independent accountants, and (b) subtracting, without
duplication, the aggregate amount of dividends on Preferred Stock of Restricted
Subsidiaries to the extent that such Preferred Stock is included as Indebtedness
in the calculation of Publishing's Consolidated Cash Flow Ratio. In calculating
the Operating Cash Flow of Publishing and its Restricted Subsidiaries, the
Consolidated Net Income of Restricted Subsidiaries that are not Wholly Owned
Restricted Subsidiaries will be included only to the extent of Publishing's
common equity interest in such Restricted Subsidiaries, as provided in the
definition of Operating Cash Flow.
"Consolidated Net Worth" means the common and preferred stockholders'
equity of Publishing and its Restricted Subsidiaries (exclusive of any
redeemable capital stock), as determined on a Consolidated basis and in
accordance with GAAP.
"Consolidated Tangible Assets" means the total assets appearing on a
Consolidated balance sheet of Publishing and its Restricted Subsidiaries less,
without duplication, each of the following: (i) all applicable depreciation,
amortization and other valuation reserves; (iii) all other intangible assets and
deferred charges; (iv) deferred income tax assets (to the extent recorded as an
asset); and (v) all investments in unconsolidated subsidiaries (including all
Unrestricted Subsidiaries).
"Consolidation" means, with respect to any Person, the consolidation of the
accounts of such Person and each of its subsidiaries if and to the extent the
accounts of such Person and each of its subsidiaries would normally be
consolidated with those of such Person, all in accordance with GAAP; provided,
however, that the accounts of any Unrestricted Subsidiary shall not be
consolidated with Publishing but instead the interest of Publishing or any
Restricted Subsidiary therein will be accounted for as an investment. The term
"Consolidated" shall have a correlative meaning.
"CST Real Estate" means the real estate, including land, building and
fixtures, located at 401 North Wabash Avenue, Chicago, Illinois, where
Publishing currently maintains its headquarters, and all improvements thereon.
"CST Real Estate Transactions" means the sale or other disposition (other
than to an Affiliate) of all or any portion of the interest of Publishing or a
Restricted Subsidiary in the CST Real Estate.
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"Currency Agreements" means one or more of the following agreements which
shall be entered into with one or more financial institutions: foreign exchange
contracts, currency swap agreements or other similar agreements or arrangements
designed to protect against fluctuations in currency values.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"DTH" means DT Holdings Limited, a corporation under the laws of England
and its successors and assigns.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Extraordinary Cash Dividend" means in respect of the Southam Interests:
(i) a cash dividend in respect of a particular calendar year
representing the excess, if any, of (A) the aggregate of all cash dividends
declared and paid on such securities during the calendar year over (B) the
greatest of (x) 200% of the aggregate of all cash dividends declared and
paid on such securities during the immediately preceding calendar year, (y)
300% of the average of the aggregate of all cash dividends declared and
paid on such securities during the immediately preceding three calendar
years; and (z) 100% of the aggregate consolidated net income of the issuer
of such securities, before extraordinary items, for its immediately
preceding fiscal year; and
(ii) any cash dividend declared by Southern on its common shares which
the directors of Southam by resolution determine to be extraordinary,
taking into account the amount of the dividend, the effect of the dividend
on the market value of such securities after payment thereof, the form of
payment, the financial position of Southam, economic conditions, business
practices and such other factors as the directors of Southam consider to be
relevant.
"FDTH" means First DT Holdings Limited, a corporation under the laws of
England and its successors and assigns.
"FDTH Credit Facility" means the credit agreement dated as of May 30, 1996,
among FDTH, the financial institutions party thereto and The Toronto-Dominion
Bank, as issuing bank and Agent, as such agreement may be amended, renewed,
extended, substituted, refinanced, restructured, replaced, supplemented or
otherwise modified from time to time (including, without limitation, any
successive renewals, extensions, substitutions, refinancings, restructurings,
replacements, supplementations or other modifications of the foregoing that
increase the aggregate amount of borrowings outstanding or the aggregate
commitments of the lenders thereunder).
"Foreign Subsidiary Indebtedness" means Indebtedness Incurred by a non-U.S.
domiciled Restricted Subsidiary that has no material U.S. operations.
"Generally Accepted Accounting Principles" or "GAAP" means generally
accepted accounting principles in the United States, consistently applied, which
are in effect on the date of the relevant Indenture.
"Guarantee" means the guarantee by the Company and, if the context
requires, by any Restricted Subsidiary Guarantor of the Indenture Obligations.
"Guaranteed Debt" of any Person means, without duplication, all
Indebtedness of any other Person referred to in the definition of Indebtedness
guaranteed directly or indirectly in any manner by such Person, or in effect
guaranteed directly or indirectly by such Person through an agreement (i) to pay
or purchase such Indebtedness or to advance or supply funds for the payment or
purchase of such Indebtedness (or to indemnify another Person for the costs
thereof), (ii) to purchase, sell or lease (as lessee or lessor) property, or to
purchase or sell services, primarily for the purpose of enabling the debtor to
make payment of such Indebtedness or to assure the holder of such Indebtedness
against loss, (iii) to supply funds to, or in any other manner invest in, the
debtor (including any agreement to pay for property or services without
requiring that such property be received or such services be rendered), (iv) to
maintain working capital or equity capital of the debtor, or otherwise to
maintain the net worth, solvency or other financial condition of the debtor or
(v) otherwise to assure a creditor against loss, provided that the term
"guarantee" shall not include endorsements for collection or deposit, in either
case in the ordinary course of business.
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"Hollinger Inc. Transaction" means the transaction, in all material
respects as announced publicly on January 7, 1997, by which Hollinger Inc. is to
transfer, directly or indirectly, to Hollinger Eastern certain of its owned
Canadian publishing interests for an aggregate consideration not to exceed $382
million, subject to working capital adjustments and currency exchange
adjustments.
"Hollinger Eastern" means Hollinger Eastern Publishing Inc., a Canadian
corporation, and its successors and assigns.
"Hollinger International/Hollinger Eastern Interests" means Preferred Stock
of any Person (or other Capital Stock convertible or exchangeable into Preferred
Stock of such Person) which holds the voting interests of Hollinger Eastern
which are owned by the Company and its Subsidiaries as of the date that
Hollinger Eastern is designated as a Restricted Subsidiary.
"Hollinger International Guarantee" means (i) in the case of the Senior
Indenture, the unsecured, senior guarantee of the Senior Securities provided by
the Company and (ii) in the case of the Senior Subordinated Indenture, the
unsecured senior subordinated guarantee of the Securities.
"HTH" means Hollinger-Telegraph Holdings Inc., a corporation continued
under the laws of Alberta, and its successors and assigns.
"HTH/FDTH Share Exchange Agreement" means the share exchange agreement
dated as of July 19, 1995, between Hollinger Inc. and FDTH, as amended,
supplemented or otherwise modified from time to time.
"Incur" means create, issue, assume, guarantee or otherwise in any manner
become directly or indirectly liable for or with respect to or otherwise incur.
"Indebtedness" means, with respect to any Person, without duplication, (i)
all indebtedness of such Person for borrowed money or for the deferred purchase
price of property or services (or other obligations to former owners of acquired
businesses), excluding any trade payables and other accrued current liabilities
arising in the ordinary course of business, but including, without limitation,
all obligations, contingent or otherwise, of such Person in connection with any
letters of credit issued under letter of credit facilities, acceptance
facilities or other similar facilities and in connection with any agreement to
purchase, redeem, exchange, convert or otherwise acquire for value any Capital
Stock of such Person, or any warrants, rights or options to acquire such Capital
Stock, now or hereafter outstanding, (ii) all obligations of such Person
evidenced by bonds, notes, debentures or other similar instruments, (iii) all
indebtedness created or arising under any conditional sale or other title
retention agreement with respect to property acquired by such Person (even if
the rights and remedies of the seller or lender under such agreement in the
event of default are limited to repossession or sale of such property), but
excluding trade payables arising in the ordinary course of business, (iv) all
obligations under Interest Rate Agreements and Currency Agreements of such
Person, (v) all Capital Lease Obligations of such Person, (vi) all Indebtedness
referred to in clauses (i) through (v) above of other Persons and all dividends
of other Persons, the payment of which is secured by (or for which the holder of
such Indebtedness has an existing right, contingent or otherwise, to be secured
by) any Lien, upon or with respect to property (including, without limitation,
accounts and contract rights) owned by such Person, even though such Person has
not assumed or become liable for the payment of such Indebtedness, (vii) all
Guaranteed Debt of such Person, (viii) all Redeemable Capital Stock and (without
duplication) all Preferred Stock of Restricted Subsidiaries other than (a)
Mirror Preferred, provided that such Mirror Preferred continues to qualify as
such under the definition thereof, (b) the Hollinger International/ Hollinger
Eastern Interests, provided that the Company grants a security interest in such
Hollinger International/Hollinger Eastern Interests as security for its
guarantee of the Senior Securities or the Senior Subordinated Securities, as the
case may be, which security interest, in either case, shall be subordinate to
any security interest in the Hollinger International/Hollinger Eastern Interests
that may be granted under the New Bank Credit Facility, and (c) Preferred Stock
held by Restricted Subsidiaries or Publishing, in each case valued at the
greater of its voluntary or involuntary maximum fixed repurchase price plus
accrued and unpaid dividends and (ix) any amendment, supplement, modification,
deferral, renewal, extension, refunding or refinancing of any Indebtedness of
the types referred to in clauses (i) through (viii) above; provided, however,
that this definition shall not apply to Indebtedness represented by the
Southam-Linked Debentures which are secured, directly or indirectly, by shares
of Southam which are owned directly or indirectly by Publishing. For purposes
hereof, the "maximum fixed repurchase price" of any Redeemable Capital Stock or
Preferred Stock
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which does not have a fixed repurchase price shall be calculated in accordance
with the terms of such Redeemable Capital Stock or Preferred Stock as if such
Redeemable Capital Stock or Preferred Stock were purchased on any date on which
Indebtedness shall be required to be determined pursuant to the Indenture, and
if such price is based upon, or measured by, the fair market value of such
Redeemable Capital Stock or Preferred Stock, such fair market value to be
determined in good faith by the Board of Directors of such Person.
"Indenture Obligations" means the obligations of Publishing under the
relevant Indenture or under the Securities to pay principal of, premium, if any,
and interest when due and payable, and all other amounts due or to become due
under or in connection with the relevant Indenture and, the Securities and the
performance of all other obligations to the Trustee, the Paying Agent and the
holders under the relevant Indenture and the Securities, according to the terms
thereof.
"Independent Committee" means a committee of the board of directors of
Publishing whose membership meets the requirements of the New York Stock
Exchange applicable to audit committees as in effect on the date of original
issuance of the Notes or a committee of the board of directors of Publishing
whose membership satisfies any more restrictive requirements of independence of
any securities exchange or market on which Publishing's or the Company's equity
securities are traded or listed.
"Independent Director" means a member of the board of directors of a Person
that is not an officer, employee or former officer or employee of such Person or
one of its Affiliates and, with respect to any transaction or series of related
transactions, a member of the board of directors who does not have any material
direct or indirect financial interest in or with respect to such transaction or
series of related transactions (including for such purpose the interest of any
other Person with respect to whom such director is also a director, officer or
employee).
"Interest Rate Agreements" means one or more of the following agreements
which shall be entered into from time to time with one or more financial
institution: interest rate protection agreements (including, without limitation,
interest rate swaps, caps, floors, collars and similar agreements) and/or other
types of interest rate hedging agreements.
"Investment" means, with respect to any Person, directly or indirectly, any
advance, loan (including guarantees), or other extension of credit or capital
contribution to (by means of any transfer of cash or other property to others or
any payment for property or services for the account or use of others), or any
purchase, acquisition or ownership by such Person of any Capital Stock, bonds,
notes, debentures or other securities issued or owned by, any other Person and
all other items that are or would be classified as investments on a balance
sheet prepared in accordance with GAAP.
"Lien" means any mortgage, charge, pledge, lien (statutory or otherwise),
security interest, hypothecation or other encumbrance upon or with respect to
any property of any kind, real or personal, movable or immovable, now owned or
hereafter acquired.
"Material Restricted Subsidiary" means each Restricted Subsidiary of
Publishing which (i) for the most recent fiscal year of Publishing accounted for
more than 5% of the Consolidated revenues of Publishing and its Restricted
Subsidiaries or (ii) at the end of such fiscal year was the owner (beneficial or
otherwise) of more than 5% of the Consolidated Assets of Publishing and its
Restricted Subsidiaries, all as shown on Publishing's Consolidated financial
statements for such fiscal year.
"Maturity" when used with respect to any Security means the date on which
the principal of such Security becomes due and payable as therein provided or as
provided in the relevant Indenture, whether at Stated Maturity, the Purchase
Date or the redemption date and whether by declaration of acceleration, Offer in
respect of Excess Proceeds, Change of Control, call for redemption or otherwise.
"Media Business" means the business of the broadcast of radio or television
broadcasting, cable and satellite programs (including national, regional or
local radio, television, cable and satellite programs).
"Mirror Preferred" means Preferred Stock of DTH or FDTH currently held by
or hereafter issued to an Argsub (i) having terms (including, without
limitation, terms with respect to liquidation, redemption and dividends)
identical to those contained in Argsub Preferred issued or transferred
simultaneously with such
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Argsub's acquisition of such DTH or FDTH Preferred Stock in equivalent amounts
to DTH or FDTH, as the case may be, and (ii) in respect of which no cash
payments are or have been made by the issuer thereof, except for cash payments
in respect of certain Mirror Preferred directly from FDTH to DTH at the
direction of Argsub; provided that, at such time as (x) the foregoing clauses
(i) and (ii) are no longer satisfied, (y) the issuer of any Argsub Preferred
Incurs any Indebtedness or other liability other than tax liabilities or
pursuant to such Argsub Preferred or acquires any other assets other than the
Mirror Preferred, or (z) the holder of any Mirror Preferred transfers such stock
other than to a Wholly Owned Restricted Subsidiary, then (1) an Event of Default
will occur under the Indenture, (2) such Preferred Stock of FDTH held by Argsub,
will be deemed to be Redeemable Capital Stock that is Incurred on such date; and
provided further that in the event that the Mirror Preferred have not been
redeemed, retracted, transferred to DTH or otherwise cancelled without the
payment of cash (except for cash payments in respect of certain Mirror Preferred
directly to DTH) on or before July 1, 1997, then such Preferred Stock shall be
treated as Indebtedness for the purposes of the "Limitation on Indebtedness"
covenant in the relevant Indenture.
"Net Cash Proceeds" means (a) with respect to any Asset Sale by any Person,
the proceeds thereof in the form of cash or cash equivalents including payments
of principal and interest in respect of deferred payment obligations when
received in the form of, or stock or other assets when disposed of for, cash or
cash equivalents (except to the extent that such obligations are financed or
sold with recourse to Publishing or any Restricted Subsidiary) net of (i)
brokerage commissions and other reasonable fees and expenses (including fees and
expenses of counsel and investment bankers) related to such Asset Sale, (ii)
provisions for all taxes payable as a result of such Asset Sale, (iii) payments
made to retire indebtedness where payment of such indebtedness is secured by the
assets or properties the subject of such Asset Sale, (iv) amounts required to be
paid to any Person (other than Publishing or any Restricted Subsidiary) owning a
beneficial interest in the assets subject to the Asset Sale and (v) appropriate
amounts to be provided by Publishing or any Restricted Subsidiary, as the case
may be, as a reserve, in accordance with GAAP, against any liabilities
associated with such Asset Sale and retained by Publishing or any Restricted
Subsidiary, as the case may be, after such Asset Sale, including, without
limitation, pension and other postemployment benefit liabilities, liabilities
related to environmental matters and liabilities under any indemnification
obligations associated with such Asset Sale, all as determined and reflected in
an officers' certificate delivered to the Trustee and (b) with respect to any
issuance or sale of Capital Stock or options, warrants or rights to purchase
Capital Stock, or debt securities or Capital Stock that have been converted into
or exchanged for Capital Stock, as referred to in the "Limitation on Restricted
Payments" covenant in the relevant Indenture, the proceeds of such issuance or
sale in the form of cash or cash equivalents, including payments in respect of
deferred payment obligations when received in the form of, or stock or other
assets when disposed of for, cash or cash equivalents (except to the extent that
such obligations are financed or sold with recourse to Publishing or any
Restricted Subsidiary), net of attorney's fees, accountant's fees and brokerage,
consultation, underwriting and other fees and expenses actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result thereof.
"New Bank Credit Facility" means the credit agreement dated as of May 30,
1996 among Publishing, the financial institutions party thereto and The
Toronto-Dominion Bank, as issuing bank and agent, as such agreement may be
amended, renewed, extended, substituted, refinanced, restructured, replaced,
supplemented or otherwise modified from time to time (including, without
limitation, any successive renewals, extensions, substitutions, refinancings,
restructurings, replacements, supplementations or other modifications of the
foregoing that increase the aggregate amount of borrowings outstanding or the
aggregate commitments of the lenders thereunder).
"Newspaper Business" means the business of publishing and distributing
(including distributing by electronic means) newspapers, magazines and other
paid or free publications having national, regional, local or targeted markets,
including publications having limited or no news or editorial content such as
shoppers or other "total market coverage" publications and similar publications.
"Operating Cash Flow" means, for any period, an amount equal to the
Consolidated Net Income of Publishing and the Restricted Subsidiaries for such
period, plus, to the extent deducted in calculating such Consolidated Net
Income, (a) interest expense and other financing costs and expenses, (b)
dividends paid on any Preferred Stock of Restricted Subsidiaries to the extent
such Preferred Stock is included as Indebtedness
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in the calculation of Publishing's Consolidated Cash Flow Ratio, (c)
depreciation and amortization and (d) all taxes, whether or not deferred,
applicable to such period.
For purposes of calculating Operating Cash Flow for the four fiscal
quarters most recently completed prior to any date on which an action is taken
that requires a calculation of the Consolidated Cash Flow Ratio, (a) any Person
that is a Restricted Subsidiary on such date (or would become a Restricted
Subsidiary in connection with the transaction that requires the determination of
such ratio) shall be deemed to have been a Restricted Subsidiary at all times
during such period, (b) any Person that is not a Restricted Subsidiary on such
date (or would cease to be a Restricted Subsidiary in connection with the
transaction that requires the determination of such ratio) shall be deemed not
to have been a Restricted Subsidiary at any time during such period, (c) if
Publishing or any Restricted Subsidiary shall have in any manner acquired or
disposed of any operating business (including without limitation acquisitions
accounted for on a "pooling of interests" or "as if pooling of interests" basis)
during or subsequent to such period, such calculation shall be made on a pro
forma basis on the assumption that such acquisition or disposition has been
completed on the first day of such period and (d) in the case of a Restricted
Subsidiary that is not a Wholly Owned Restricted Subsidiary, the determination
of the percentage of the Operating Cash Flow of such Restricted Subsidiary that
is to be included in the calculation of Publishing's Consolidated Cash Flow
Ratio shall be made on a pro forma basis on the assumption that the percentage
of Publishing's common equity interest in such Restricted Subsidiary on the
first day of such period was equivalent to its common equity interest on the
date of the determination (it being understood, in the case of foregoing clause
(c), that if such pro forma calculations have been made in accordance with
Regulation S-X under the Exchange Act, such method of calculation (but not
necessarily the adjustments) shall be presumed to be acceptable) (it being
further understood that the foregoing clause (d) shall not be operative until
such time as both of The Telegraph and Southam shall be Restricted
Subsidiaries).
"Opinion of Counsel" means a written opinion of counsel, in form and
substance reasonably satisfactory to the Trustee, who may be counsel for
Publishing or the Trustee, and who shall be reasonably acceptable to the
Trustee, including but not limited to an Opinion of Independent Counsel.
"Opinion of Independent Counsel" means a written opinion, in form and
substance reasonably satisfactory to the Trustee, by someone who is not an
employee or former employee of Publishing and who shall be reasonably acceptable
to the Trustee.
"Original Issue Discount Security" means (i) any Security which provides
for an amount less than the principal amount thereof to be due and payable upon
a declaration of acceleration of the Maturity thereof, and (ii) any other
Security which is issued with "original issue discount" within the meaning of
Section 1273(a) of the Internal Revenue Code of 1986, as amended, and the
regulations thereunder.
"Outstanding" when used with respect to Securities means, as of the date of
determination, all Securities theretofore authenticated and delivered under the
relevant Indenture, except:
(a) Securities theretofore cancelled by the Trustee or delivered to
the Trustee for cancellation;
(b) Securities, or portions thereof, for whose payment or redemption
money in the necessary amount has been theretofore irrevocably deposited
with the Trustee or any Paying Agent (other than Publishing) in trust or
set aside and segregated in trust by Publishing (if Publishing shall act as
its own Paying Agent) for the Holders of such Securities; provided, that if
such Securities are to be redeemed, notice of such redemption has been duly
given pursuant to the relevant Indenture or provision therefor reasonably
satisfactory to the Trustee has been made;
(c) Securities, except to the extent provided in the provisions
described above under "Defeasance or Covenant Defeasance"; and
(d) Securities in exchange for or in lieu of which other Securities
have been authenticated and delivered pursuant to the relevant Indenture,
other than any such Securities in respect of which there shall have been
presented to the Trustee and Publishing proof reasonably satisfactory to
each of them that such Securities are held by a bona fide purchaser in
whose hands the Securities are valid obligations of Publishing; provided,
however, that in determining whether the Holders of the requisite principal
amount of Outstanding Securities have given any request, demand,
authorization, direction, notice, consent or
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waiver hereunder, Securities owned by Publishing or any other obligor upon
the Securities or any Affiliate of Publishing or such other obligor shall
be disregarded and deemed not to be Outstanding, except that, in
determining whether the Trustee shall be protected in relying upon any such
request, demand, authorization, direction, notice, consent or waiver, only
Securities which the Trustee actually knows to be so owned shall be so
disregarded. Securities so owned which have been pledged in good faith may
be regarded as Outstanding if the pledgee establishes to the reasonable
satisfaction of the Trustee the pledgee's right so to act with respect to
such Securities and that the pledgee is not Publishing or any other obligor
upon the Securities or any Affiliate of Publishing or such other obligor.
"Pari Passu Indebtedness" means (i) in the case of the Senior Indenture,
any Indebtedness of Publishing that is pari passu in right of payment with the
Senior Securities and (ii) in the case of the Senior Subordinated Indenture,
Indebtedness of Publishing that is pari passu with the Senior Subordinated
Securities.
"Permitted Indebtedness" means the following:
(i) Indebtedness of Publishing or Foreign Subsidiary Indebtedness
under the New Bank Credit Facility in an aggregate principal amount at any
one time outstanding not to exceed $150 million, and once both of The
Telegraph and Southam are Restricted Subsidiaries, $250 million and, once
the Hollinger Inc. Transaction closes, $475 million; provided, however,
that Indebtedness under the New Bank Credit Facility may not be Incurred
under this paragraph for purposes of purchasing or otherwise acquiring the
Capital Stock or a substantial portion of the assets of another Person
(including the minority interest in Southam but excluding acquisitions of
inventory, equipment and similar assets in the ordinary course of business)
unless, immediately after giving effect to such transaction on a pro forma
basis, Publishing could Incur $1.00 additional Indebtedness (other than
Permitted Indebtedness) under the "Limitation on Indebtedness" covenant in
the relevant Indenture;
(ii) Once Southam is a Restricted Subsidiary and until such time as
Southam is not a Public Entity, Indebtedness of Southam; provided that the
Southam Cash Flow Ratio for the four full fiscal quarters immediately
preceding the Incurrence of such Indebtedness taken as one period is not
greater than 4.0:1.0 (for purposes of determining the Southam Cash Flow
Ratio for any period, pro forma effect shall be given to (i) the Incurrence
of such Indebtedness and (if applicable) the application of the net
proceeds therefrom, including to refinance other Indebtedness, as if such
Indebtedness was Incurred, and the application of such proceeds occurred,
at the beginning of such four-quarter period; (ii) the Incurrence,
repayment or retirement of any other Indebtedness by Southam or any of its
Restricted Subsidiaries since the first day of such four-quarter period as
if such Indebtedness was Incurred, repaid or retired at the beginning of
such four-quarter period; (iii) in the case of Acquired Indebtedness, the
related acquisition (as if such acquisition had been consummated on the
first day of such four-quarter period); and (iv) any acquisition or
disposition by Southam or any of its Restricted Subsidiaries of any company
or any business or any assets out of the ordinary course of business,
whether by merger, stock purchase or sale or asset purchase or sale or any
related repayment of Indebtedness, in each case since the first day of such
four-quarter period, as if such acquisition or disposition had been
consummated on the first day of such four-quarter period); provided,
however, that Southam may not Incur Indebtedness under this paragraph for
purposes of purchasing or otherwise acquiring the Capital Stock or a
substantial portion of the assets of another Person (including the minority
interest in Southam but excluding acquisitions of inventory, equipment and
similar assets in the ordinary course of business) unless, immediately
after giving effect to such transaction on a pro forma basis, Publishing
could Incur $1.00 of additional Indebtedness (other than Permitted
Indebtedness) under the "Limitation on Indebtedness" covenant in the
relevant Indenture;
(iii) guarantees by, and Liens on the property of, any Restricted
Subsidiary guaranteeing or securing Indebtedness of Publishing or Foreign
Subsidiary Indebtedness under the New Bank Credit Facility and, provided
that both of The Telegraph and Southam are Restricted Subsidiaries,
guarantees of and Liens securing the FDTH Credit Facility, which guarantees
or Liens are in existence on the Issue Date or the date upon which they
became Restricted Subsidiaries or guarantees that are otherwise permitted
under the "Limitation on Issuances of Guarantees of Indebtedness" covenant
in the relevant Indenture;
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(iv) Indebtedness of Publishing pursuant to the Senior Securities or
the Senior Subordinated Securities issued on the date of the relevant
Indenture and Indebtedness of any Restricted Subsidiary constituting a
Guarantee of any such Securities;
(v) Indebtedness of Publishing or any Restricted Subsidiary
outstanding on the date of the relevant Indenture and listed on a schedule
to the relevant Indenture;
(vi) Indebtedness (a) of Publishing owing to a Wholly Owned Restricted
Subsidiary or, provided that both of The Telegraph and Southam are
Restricted Subsidiaries, a Restricted Subsidiary, or (b) of a Wholly Owned
Restricted Subsidiary owing to Publishing or another Wholly Owned
Restricted Subsidiary or, provided that both of The Telegraph and Southam
are Restricted Subsidiaries, a Restricted Subsidiary owing to another
Restricted Subsidiary or Publishing; provided that any such Indebtedness is
made pursuant to an intercompany note setting forth the principal amount,
interest rate and payment dates, the maturity or similar terms and, in the
case of Indebtedness of Publishing owing to a Wholly Owned Restricted
Subsidiary or a Restricted Subsidiary, as the case may be, is subordinated
in right of payment from and after such time as the Securities shall become
due and payable (whether at Stated Maturity, acceleration or otherwise) to
the payment and performance of Publishing's obligations under the Notes;
provided further that (x) any disposition, pledge or transfer of any such
Indebtedness to a Person (other than (A) to Publishing or a Wholly Owned
Restricted Subsidiary or, provided that both of The Telegraph and Southam
are Restricted Subsidiaries, a Restricted Subsidiary or (B) a pledge of
such Indebtedness to secure Indebtedness existing at such time under, and
pursuant to the terms of, the New Bank Credit Facility or the AP-91 Senior
Notes and, provided that both of The Telegraph and Southam are Restricted
Subsidiaries, the FDTH Credit Facility and the Southam credit facilities
existing on January 1, 1997, as amended) will be deemed to be an Incurrence
of such Indebtedness by the obligor not permitted by this clause (vi) and
(y) any transaction pursuant to which any Wholly Owned Restricted
Subsidiary or, provided that both of The Telegraph and Southam are
Restricted Subsidiaries, a Restricted Subsidiary, that has Indebtedness
owing to Publishing or any other Wholly Owned Restricted Subsidiary (or,
provided that both of The Telegraph and Southam are Restricted
Subsidiaries, any other Restricted Subsidiary), ceases to be a Wholly Owned
Restricted Subsidiary or, provided that both of The Telegraph and Southam
are Restricted Subsidiaries, a Restricted Subsidiary, will be deemed to be
the Incurrence of Indebtedness by Publishing or such other Restricted
Subsidiary that is not permitted by this clause (vi);
(vii) obligations of Publishing or any Restricted Subsidiary pursuant
to Interest Rate Agreements or Currency Agreements designed to protect
Publishing or any Restricted Subsidiary against fluctuations in interest
rates or currency exchange rates in respect of Indebtedness of Publishing
or any of its Restricted Subsidiaries or changes in dividend rates in
respect of preference shares of DTH, the notional amount of which (in the
case of Interest Rate Agreements) and the notional or exchange amount of
which (in the case of Currency Agreements) do not exceed the aggregate
principal amount of such Indebtedness or of such preference shares of DTH,
as the case may be;
(viii) guarantees by Restricted Subsidiaries of Senior Indebtedness
(in the case of the Senior Subordinated Indenture) or Pari Passu
Indebtedness (in the case of the Senior Indenture) of Publishing otherwise
permitted to be Incurred in accordance with the "Limitation on
Indebtedness" covenant in the relevant Indenture;
(ix) Indebtedness of Publishing or a Restricted Subsidiary Incurred to
finance a new printing plant for the Chicago Sun-Times and the liabilities
directly associated therewith (collectively, the "CST Printing Plant") in
an aggregate amount not in excess of the lesser of (x) $75,000,000 and (y)
the aggregate amount needed to finance the CST Printing Plant and
associated financing costs;
(x) letter of credit reimbursement obligations Incurred by Publishing
or a Restricted Subsidiary in the ordinary course of business to support
workers' compensation insurance obligations to the extent that such
obligations are recorded on the balance sheet of the issuer;
(xi) any renewals, extensions, substitutions, refundings, refinancings
or replacements (collectively, a "refinancing") of any Indebtedness
Incurred pursuant to the ratio test set forth in paragraph (a) of the
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"Limitation on Indebtedness" covenant or described in paragraphs (ii),
(iii), (iv), (v), (viii), (ix) and (xii) of this definition of "Permitted
Indebtedness" by Publishing or by the obligor of such Permitted
Indebtedness, including any successive refinancings, so long as (x) such
refinancing does not increase the aggregate principal amount of
Indebtedness represented thereby and, in the case of Pari Passu
Indebtedness or Subordinated Indebtedness, such refinancing does not reduce
the Average Life to Stated Maturity or the Stated Maturity of such
Indebtedness and (y) any such refinancing Indebtedness shall not be senior
in right at payment to the Indebtedness so refinanced;
(xii) provided that both of The Telegraph and Southam are Restricted
Subsidiaries, Indebtedness of Publishing or any Restricted Subsidiary in an
aggregate amount at any time outstanding not to exceed $25 million in
respect of purchase money obligations, provided such Indebtedness (a) is
Incurred within 180 days of the purchase of the relevant assets, (b) does
not exceed the actual purchase price of such assets and (c) any related
Liens do not extend to any assets other than those being purchased; and
(xiii) provided that both of The Telegraph and Southam are Restricted
Subsidiaries, Indebtedness of Publishing or any Restricted Subsidiary in an
aggregate principal amount at any time outstanding not to exceed $10
million.
"Permitted Investment" means any of the following provided that, in the
case of clauses (vii), (viii),(ix), (x), (xi) and (xii), (a) no Default or Event
of Default shall have occurred and be continuing, (b) no holders of any other
Indebtedness of Publishing or any Restricted Subsidiary shall have an
Acceleration Right and (c) immediately before and immediately after giving
effect to such Investment, on a pro forma basis, Publishing could Incur $1.00 of
additional Indebtedness (other than Permitted Indebtedness) under the
"Limitation on Indebtedness" covenant in the relevant Indenture:
(i) Investments in any Wholly Owned Restricted Subsidiary (or,
provided that both of The Telegraph and Southam are Restricted
Subsidiaries, a Restricted Subsidiary) or Publishing or Investments in a
Person, if as a result of such Investment (A) such Person becomes a Wholly
Owned Restricted Subsidiary (or, provided that both of The Telegraph and
Southam are Restricted Subsidiaries, a Restricted Subsidiary), or (B) such
Person is merged, consolidated or amalgamated with or into, or transfers or
conveys substantially all of its assets to, or is liquidated into,
Publishing or any Wholly Owned Restricted Subsidiary (or, provided that
both of The Telegraph and Southam are Restricted Subsidiaries, a Restricted
Subsidiary);
(ii) Investments in the Securities;
(iii) Indebtedness owing to a Wholly Owned Restricted Subsidiary or,
provided that both of The Telegraph and Southam are Restricted
Subsidiaries, a Restricted Subsidiary, in each case as described under
clause (vi) of the definition of "Permitted Indebtedness";
(iv) Temporary Cash Investments;
(v) Investments acquired by Publishing or any Subsidiary in connection
with an Asset Sale permitted under the "Limitation on Sale of Assets"
covenant in the relevant Indenture to the extent such Investments are
non-cash consideration as permitted under such covenant;
(vi) Investments in existence on the date of the relevant Indenture;
(vii) Investments in or in Persons owning Newspaper Business or Media
Business assets (including investments in Unrestricted Subsidiaries but
excluding Investments in Affiliates that control Publishing) in an
aggregate amount following the date of the relevant Indenture not in excess
of the greater of (i) $40,000,000 or (ii) 25% of the aggregate cumulative
cash dividends or distributions received by Publishing and its Restricted
Subsidiaries from any of Publishing's Unrestricted Subsidiaries received
during the period (treated as a single accounting period) after the date of
the relevant Indenture and prior to the date of the Permitted Investment;
provided, however, that for purposes of this clause, cash dividends or
distributions shall not include the Southam Dividend Amount or any cash
dividends or distributions received by Publishing or any Wholly Owned
Restricted Subsidiary in accordance with clause (vii) of paragraph (b) of
the "Limitation on Restricted Payments" covenant in the relevant Indenture;
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(viii) provided that The Telegraph is a Restricted Subsidiary,
Investments in West Ferry Printers and Trafford Park Printers to cover The
Telegraph's share of operating losses associated with the printing of
newspapers and to finance capital expenditures related to the printing
business; provided that, at the time of any such Investment, neither West
Ferry Printers nor Trafford Park Printers shall be engaged in any business
other than the business of printing newspapers, periodicals and similar
media;
(ix) Investments by Southam in Newspaper Businesses and Media
Businesses in Canada; provided that (i) Southam is at the time a Restricted
Subsidiary, (ii) Southam is at the time a Public Entity, and (iii) the
Investment is not made in an Affiliate of Southam (other than a Subsidiary
of Southam); and provided further that, unless such Investment by Southam
otherwise qualifies as a Permitted Investment under this definition (other
than pursuant to this clause (x)), such Investment will constitute a
Restricted Payment under the "Limitation on Restricted Payments" covenant
in the relevant Indenture;
(x) Investments by DTH or FDTH in Argsub Preferred, provided that (x)
the issuer of such Argsub Preferred simultaneously makes an Investment in
Mirror Preferred of DTH or FDTH, as the case may be, in an equivalent
amount and (y) such Mirror Preferred continues to qualify as such under the
definition thereof; and
(xi) in addition to the Investments described in clauses (i) through
(xi) of this definition of "Permitted Investments," Investments in any
Restricted Subsidiary, Unrestricted Subsidiary or in any joint venture or
other entity in an amount not to exceed $10,000,000 in the aggregate since
the date of the relevant Indenture; provided that so long as The Telegraph
is a Restricted Subsidiary, the loan of $6,000,000 from Publishing to FDTH
prior to the time The Telegraph became a Restricted Subsidiary shall not
count against the $10,000,000 amount provided for in this clause (xii).
"Permitted Real Estate Sale" means any Asset Sale not involving an
Affiliate of Publishing consisting of the sale of any printing or distribution
facility (including the associated real property and the improvements and
fixtures forming a part thereof) (other than the CST Real Estate) formerly used
by Publishing or a Restricted Subsidiary in the production of newspapers and
related publications (or acquired by one of them as part of the acquisition of a
Newspaper Business whether or not used by Publishing) and that after such Asset
Sale will not be used for the production of any newspaper or related publication
of Publishing or a Restricted Subsidiary, provided that the aggregate value (as
determined by the Board of Directors of Publishing) of all such Asset Sales
completed within any twelve-month period shall not exceed $5,000,000 (it being
understood that this definition does not include, among other things, any Asset
Sale consisting of the sale of any printing or distribution facility in
connection with the sale by Publishing or any Restricted Subsidiary of any
Newspaper Business).
"Permitted Subsidiary Indebtedness" means Indebtedness of the Restricted
Subsidiaries, taken as a whole, with an aggregate principal amount outstanding
(calculated exclusive of the AP-91 Senior Notes) not in excess of the greater of
(x) $40,000,000 and (y) 10% of Consolidated Tangible Assets measured as of the
most recent fiscal quarter.
"Preferred Stock" means, with respect to any Person, any Capital Stock of
any class or classes (however designated) which is preferred as to the payment
of dividends or distributions, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such Person, over the
Capital Stock of any other class in such Person; provided that this definition
shall not include Mirror Preferred provided that such Mirror Preferred continues
to qualify as such under the definition thereof.
"Public Debt" means any notes, bonds or debentures or other evidence of
Indebtedness issued in the public markets or the market for securities sold
pursuant to Rule 144A under the Securities Act of 1933.
"Public Entity" means an entity (x) in which the equity interest of the
Company and its Affiliates does not exceed 80%, (y) in which the market value of
the Capital Stock held by non-affiliates exceeds $100,000,000, and (z) the
Capital Stock of which is traded on a recognized national securities exchange in
the United States or a prescribed securities exchange in Canada.
"Publishing" means Hollinger International Publishing Inc., a corporation
incorporated under the laws of Delaware, until a successor Person shall have
become such pursuant to the provisions described above under "Consolidation,
Merger, Sale of Assets" and thereafter "Publishing" shall mean such successor
Person. To the
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extent necessary to comply with the requirements of the provisions of Trust
Indenture Act Sections 310 through 317 as they are applicable to Publishing, the
term "Publishing" shall include any other obligor with respect to the Securities
for purposes of complying with such provisions, including any Guarantor.
"Publishing Request" or "Publishing Order" means a written request or order
signed in the name of Publishing by any one of its Chairman of the Board, its
Vice Chairman, its President or a Vice President (regardless of Vice
Presidential designation), and by any one of its Treasurer, an Assistant
Treasurer, its Secretary or an Assistant Secretary, and in form and substance
reasonably satisfactory to the Trustee and delivered to the Trustee.
"Qualified Capital Stock" of any Person means any and all Capital Stock of
such Person other than Redeemable Capital Stock.
"Rating Agency" means Standard & Poor's Corporation and its successors
("S&P"), and Moody's Investors Service, Inc. and its successors ("Moody's"), or
if S&P and Moody's or both shall not make a rating of the Notes publicly
available, a nationally recognized United States statistical rating agency or
agencies, substituted for S&P or Moody's or both, as the case may be.
"Rating Category" is defined in the Indenture as each major rating category
symbolized by (a) in the case of S&P, AAA, AA, A, BBB, BB, B, CCC, CC and C and
each such Rating Category shall include pluses or minuses ("gradations")
modifying such capital letters; and (b) in the case of Moody's, Aaa, Aa, A, Baa,
Ba, B, Caa, Ca and C and each such Rating Category shall include added numerals
such as 1, 2 or 3 ("gradations") modifying such letters.
"Redeemable Capital Stock" means any Capital Stock that, either by its
terms or by the terms of any security into which it is convertible or
exchangeable or otherwise, is, or upon the happening of an event or passage of
time would be, required to be redeemed prior to any Stated Maturity of the
principal of the Notes or is redeemable at the option of the holder thereof at
any time prior to any such Stated Maturity, or is convertible into or
exchangeable for debt securities at any time prior to any such Stated Maturity
at the option of the holder thereof; provided that this definition shall not
include Mirror Preferred provided that such Mirror Preferred continues to
qualify as such under the definition thereof.
"Restricted Subsidiary" means, initially, each Subsidiary of Publishing
existing on the date of the Indenture, other than DTH and its Subsidiaries, and
any other Subsidiary designated from time to time by the Board of Directors of
Publishing as a "Restricted Subsidiary" in accordance with the "Restricted
Subsidiaries" covenant of the Indenture.
"Restricted Subsidiary Guarantor" means each Subsidiary of Publishing that
is required to issue a Guarantee of the Securities under the terms of the
Indenture.
"Scheme of Arrangement" means the acquisition by FDTH of the publicly held
shares in The Telegraph not owned by FDTH or any of its Affiliates effected by
way of a "Scheme of Arrangement" under Section 425 of the Companies Act 1985 of
England.
"Securities Act" means the Securities Act of 1933, as amended.
"Series" means any series of debentures, notes, bonds or other evidence of
Indebtedness issued pursuant to either of the Indentures.
"Series A Preferred Shares" means the Series A Redeemable Convertible
Preferred Stock of the Company, as in effect on the date of the relevant
Indenture.
"Services Agreement" means the Services Agreement dated as of February 7,
1996, as amended in connection with the 9 1/4% Notes offering, among the
Company, Publishing and Hollinger Inc., and as the same may be further amended
in accordance with the terms of the relevant Indenture.
"Southam Cash Flow" means, for any period, an amount equal to the Southam
Net Income for such period, plus, to the extent deducted in calculating such
Southam Net Income, (a) interest expense and other financing costs and expenses,
(b) dividends paid on any Preferred Stock of Restricted Subsidiaries of Southam
to the extent such Preferred Stock is included as Indebtedness in the
calculation of the Southam
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Cash Flow Ratio, (c) depreciation and amortization, and (d) all taxes, whether
or not deferred, applicable to such period.
For purposes of calculating Southam Cash Flow for the four fiscal quarters
most recently completed prior to any date on which an action is taken that
requires a calculation of the Southam Cash Flow Ratio, (a) any Person that is a
Restricted Subsidiary of Southam on such date (or would become a Restricted
Subsidiary of Southam in connection with the transaction that requires the
determination of such ratio) shall be deemed to have been a Restricted
Subsidiary of Southam at all times during such period, (b) any Person that is
not a Restricted Subsidiary of Southam on such date (or would cease to be a
Restricted Subsidiary of Southam in connection with the transaction that
requires the determination of such ratio) shall be deemed not to have been a
Restricted Subsidiary of Southam at any time during such period;(c)if Southam or
any of its Restricted Subsidiaries shall have in any manner acquired or disposed
of any operating business during or subsequent to such period, such calculation
shall be made on a pro forma basis on the assumption that such acquisition or
disposition has been completed on the first day of such period; and (d) in the
case of a Restricted Subsidiary that is not a Wholly Owned Restricted
Subsidiary, the determination of the percentage of the Operating Cash Flow of
such Restricted Subsidiary that is to be included in the calculation of
Publishing's Consolidated Cash Flow Ratio shall be made on a pro forma basis on
the assumption that the percentage of Publishing's common equity interest in
such Restricted Subsidiary on the first day of such period was equivalent to its
common equity interest on the date of the determination (it being understood, in
the case of the foregoing clause (c), that if such pro forma calculations have
been made in accordance with Regulation S-X under the Exchange Act, such method
of calculation (but not necessarily the adjustments) shall be presumed to be
acceptable).
"Southam Cash Flow Ratio" means, as at any date of determination, the ratio
of (i) the aggregate amount of Indebtedness of Southam and its Restricted
Subsidiaries outstanding as at such date to (ii) the Southam Cash Flow
(determined on a Consolidated basis for Southam and its Restricted Subsidiaries)
for the most recently completed period of four consecutive fiscal quarters of
Southam, provided that once Southam is a Restricted Subsidiary, for the purpose
of determining the Southam Cash Flow Ratio, the Indebtedness and Southam Cash
Flow of Restricted Subsidiaries of Southam that are not Wholly Owned Restricted
Subsidiaries of Southam shall be determined in accordance with the actual
percentage of Southam's common equity interest in such Restricted Subsidiary on
the date of determination of the Southam Cash Flow Ratio (thus, for example, in
the case of a Restricted Subsidiary of Southam in which Southam owns a 51%
common equity interest, 51% each of such Restricted Subsidiary's Indebtedness
and Southam Cash Flow would be included in the calculation of Southam's
aggregate Indebtedness and the aggregate Southam Cash Flow, respectively).
"Southam Dividend Amount" means the lesser of (x) the aggregate amount paid
or payable by the Guarantor since the date of original issuance of the Notes in
respect of regularly scheduled periodic dividends on the Series A Preferred and
(y) the aggregate amount of the Southam Interests Dividends received by
Publishing since the date of original issuance of the Notes on account of its
ownership interest (whether direct or indirect) in Southam.
"Southam Interests" means 7,395,000 Southam common shares held by the
Company or its subsidiaries; provided, however, that if Southam shall pay a
dividend, or make a distribution, on its common shares in the form of capital
stock of the same or another corporation, or subdivide its outstanding common
shares into a greater number of common shares, or combine its outstanding common
shares into a smaller number of common shares, or effect a reorganization or
reclassification of its Capital Stock, or amalgamate, enter into an arrangement
or consolidation or merge with or into another entity (other than an
amalgamation, arrangement, consolidation or merger which does not result in a
reclassification or change of the outstanding common shares of Southam), the
"Southam Interests" shall thereafter include any securities distributed with
respect to any such shares or into which any such shares shall be converted,
changed or reclassified or for which any such shares shall be exchanged.
"Southam Interests Dividend" means a dividend or other distribution paid on
or with respect to the Southam Interests on or prior to the earlier of (i) the
redemption date for the redemption of all the Series A Preferred Shares
outstanding as of such redemption date or (ii) the date of final distribution to
the holders of
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the Series A Preferred Shares of the full preferential amount provided under the
terms thereof; provided, however, that the term "Southam Interests Dividend"
does not mean or include (x) any part of any dividend or distribution that is
payable otherwise than in cash or that constitutes an Extraordinary Cash
Dividend as applied to the Southam Interests, or (y) any dividend or
distribution on or with respect to the 7,395,000 Southam common shares held by
the Company or its subsidiaries.
"Southam-Linked Debentures" means the debentures of Hollinger Inc. in the
original principal amount of Cdn.$125,000,000 due November 1, 1998.
"Southam Net Income (or Loss)" means, for any period, the Consolidated net
income (or loss (and treating a loss as a negative number)) of Southam and its
Restricted Subsidiaries for such period as determined in accordance with GAAP,
adjusted by (a) excluding, without duplication, to the extent included in
calculating such Consolidated net income (or loss), (i) all extraordinary gains
and losses, (ii) the portion of consolidated net income (or loss) of Southam and
its Restricted Subsidiaries allocable to Investments in unconsolidated Persons
(other than Unrestricted Subsidiaries) to the extent that cash dividends or
distributions have not actually been received by Southam or one of its
Restricted Subsidiaries, (iii) the portion of Consolidated net income (or loss)
of Southam and its Restricted Subsidiaries allocable to Southam's Unrestricted
Subsidiaries (or to payments received therefrom), (iv) net income (or loss) of a
Person combined with Southam or any of its Subsidiaries on a "pooling of
interests" basis attributable to any period prior to the date of combination,
(v) any gain or loss, net of taxes, realized upon the termination of any
employee pension benefit plan, (vi) aggregate net gains and losses (less all
fees and expenses relating thereto) in respect of dispositions of assets
(including without limitation sales of shares of Unrestricted Subsidiaries or
unconsolidated Persons and non-cash writeoffs of assets (provided that there are
no continuing cash expenses related to such writeoffs)) other than in the
ordinary course of business, (vii) the net income of any Restricted Subsidiary
to the extent that the declaration of dividends or similar distributions by that
Restricted Subsidiary of that income is not at the time permitted, directly or
indirectly, by operation of the terms of its charter or any agreement,
instrument, judgment, decree, order, statute, rule or governmental regulations
applicable to that Restricted Subsidiary or its stockholders; provided, however,
that the foregoing shall not apply to the restrictions permitted under clause
(iv) of the "Limitation on Dividends and Other Payment Restrictions Affecting
Restricted Subsidiaries" covenant in the relevant Indenture (to the extent such
provision is applicable at the time of determination), (viii) any restoration to
income of any contingency reserve, except to the extent that provision for such
reserve was made out of income accrued at any time following the date of the
Indenture, (ix) any net gain from the collection of proceeds of life insurance
policies, (x) any gain arising from the acquisition of any securities, or the
extinguishment, under GAAP, of any Indebtedness of Southam or one of its
Restricted Subsidiaries, (xi) aggregate net gains or losses relating to foreign
currency transactions or translations, (xii) redundancy costs relating to the
permanent elimination of jobs, provided that the amount of such expenses are
certified by Southam's independent accountants, and (b) subtracting, without
duplication, the aggregate amount of dividends on Preferred Stock of Restricted
Subsidiaries of Southam (i) to the extent such Preferred Stock is not equivalent
to common stock for purposes of the payment of dividends and (ii) to the extent
that such Preferred Stock is included as Indebtedness in the calculation of the
Southam Cash Flow Ratio.
"Stated Maturity," when used with respect to any Indebtedness or any
installment of interest thereon, means the dates specified in such Indebtedness
as the fixed date on which the principal of such Indebtedness or such
installment of interest, as the case may be, is due and payable.
"Subordinated Indebtedness" means (i) in the case of any person other than
Publishing, Indebtedness of such person that is expressly subordinate in right
of payment to any other Indebtedness of such Person pursuant to a written
agreement, and (ii) in the case of Publishing, Indebtedness of Publishing that
is expressly subordinate in right of payment to the Senior Securities, in the
case of the Senior Indenture, or the Senior Subordinated Securities, in the case
of the Senior Subordinated Indenture.
"Subsidiary" means any Person a majority of the equity ownership of the
Voting Stock of which is at the time owned, directly or indirectly, by
Publishing or by one or more Subsidiaries, or by Publishing and one or more
other Subsidiaries; provided that, notwithstanding the foregoing, (i) Southam
will be a Subsidiary so long as a majority of the Voting Stock of Southam is
held by a Person in which, directly or indirectly, (x) 50%
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of the Voting Stock is held by Publishing and the remainder is held by Hollinger
Inc. and (y) 100% of the non-voting Capital Stock is held by Publishing, and
(ii) Hollinger Eastern will be a Subsidiary so long as 50% of its Voting Stock
is held, directly or indirectly, by Publishing and the remainder is held,
directly or indirectly, by Hollinger Inc.
"Tax Sharing Agreement" means an agreement providing for the payment of
amounts in lieu of income taxes among Publishing and other companies with which
it forms a single consolidated tax group.
"The Telegraph" means Telegraph Group Limited (formerly The Telegraph plc),
a corporation under the laws of England.
"Temporary Cash Investments" means (i) any evidence of Indebtedness,
maturing not more than one year after the date of acquisition, issued by the
United States of America, or an instrumentality or agency thereof, and
guaranteed fully as to principal, premium, if any, and interest by the United
States of America, (ii) any certificate of deposit, maturing not more than one
year after the date of acquisition, issued by, or time deposit of, the Trustee
or a commercial banking institution that is a member of the Federal Reserve
System and that has combined capital and surplus and undivided profits of not
less than $500,000,000, whose debt has a rating, at the time as of which any
investment therein is made, of "P-1" (or higher) according to Moody's or "A-1"
(or higher) according to S&P, (iii) commercial paper, maturing not more than one
year after the date of acquisition, issued by a corporation (other than an
Affiliate or Restricted Subsidiary of Publishing) organized and existing under
the laws of the United States of America with a rating, at the time as of which
any investment therein is made, of "P-1" (or higher) according to Moody's or
"A-1" (or higher) according to S&P, (iv) any money market deposit accounts
issued or offered by the Trustee or a domestic commercial bank having capital
and surplus in excess of $500,000,000.
"Trust Indenture Act" means the Trust Indenture Act of 1939, as amended.
"Unrestricted Subsidiary" means any Subsidiary that is not a Restricted
Subsidiary, including any Restricted Subsidiary that becomes an Unrestricted
Subsidiary in accordance with the "Restricted Subsidiaries" covenant of the
Indenture; provided, however, that a Person may not be designated as an
Unrestricted Subsidiary unless (i) the creditors of such Person have no direct
or indirect recourse (including, but not limited to, recourse with respect to
the payment of principal or interest on Indebtedness of such Subsidiary) to
Publishing or a Restricted Subsidiary and (ii) a default by such Person on any
of its Indebtedness will not result in, or permit any holder of Indebtedness of
Publishing or a Restricted Subsidiary to declare, a default on such Indebtedness
of Publishing or a Restricted Subsidiary or cause the payment thereof to be
accelerated or payable prior to its Stated Maturity. Any subsidiary of an
Unrestricted Subsidiary shall be an Unrestricted Subsidiary for purposes of the
relevant Indenture.
"Voting Stock" means stock of the class or classes pursuant to which the
holders thereof have the general voting power under ordinary circumstances to
elect at least a majority of the board of directors, managers or trustees of a
corporation (irrespective of whether or not at the time stock of any other class
or classes shall have or might have voting power by reason of the happening of
any contingency).
"Wholly Owned Restricted Subsidiary" means a Restricted Subsidiary all the
outstanding Capital Stock (other than directors' qualifying shares) of which are
owned by Publishing or another Wholly Owned Restricted Subsidiary or, in the
case of a Restricted Subsidiary of Southam, all the outstanding Capital Stock
(other than directors' qualifying shares) of which are owned by Southam or
another Wholly Owned Restricted Subsidiary of Southam.
In addition, the Senior Subordinated Indenture contains the following
definition.
"Permitted Junior Securities" means, so long as the effect of any exclusion
employing this definition is not to cause the Securities to be treated in (a)
any insolvency or bankruptcy case or proceeding, or any receivership,
liquidation, reorganization or other similar case or proceeding in connection
therewith, relative to Publishing or to its assets, or (b) any liquidation,
dissolution or other winding up of Publishing, whether voluntary or involuntary
and whether or not involving insolvency or bankruptcy, or (c) any assignment for
the benefit of creditors or any other marshaling of assets or liabilities of
Publishing as part of the same class of claims as the Senior Indebtedness or any
class of claims pari passu with, or senior to, the Senior Indebtedness, for any
payment or distribution, debt or equity securities of Publishing or any
successor corporation provided
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for by a plan of reorganization or readjustment that are subordinated at least
to the same extent that the Securities are subordinated to the payment of all
Senior Indebtedness then outstanding; provided that (1) if a new corporation
results from such reorganization or readjustment, such corporation assumes any
Senior Indebtedness not paid in full in cash or Cash Equivalents in connection
with such reorganization or readjustment and (2) the rights of the holders of
such Senior Indebtedness are not, without the consent of such holders, altered
by such reorganization or readjustment.
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PLAN OF DISTRIBUTION
The Company may sell Securities to one or more underwriters for public
offering and sale by them or may sell Securities to investors directly or
through agents or dealers. Any such underwriter, agent or dealer involved in the
offer and sale of the Securities will be named in an applicable Prospectus
Supplement. Securities offered pursuant to a particular Prospectus Supplement
are referred to herein as "Offered Securities."
Underwriters may offer and sell the Offered Securities at a fixed price or
prices, which may be changed, or from time to time at market prices prevailing
at the time of sale, at prices related to such prevailing market prices or at
negotiated prices. The Company also may, from time to time, authorize
underwriters acting as its agents to offer and sell the Offered Securities upon
the terms and conditions set forth in any Prospectus Supplement. In connection
with the sale of Offered Securities, underwriters may be deemed to have received
compensation from the Company in the form of underwriting discounts or
commissions and may also receive commissions from purchasers of Offered
Securities for whom they may act as agent. Underwriters may sell Offered
Securities to or through dealers, and such dealers may receive compensation in
the form of discounts, concessions or commissions from the underwriters and/or
commissions (which may be changed from time to time) from the purchasers for
whom they may act as agent.
Any underwriting compensation paid by the Company to underwriters or agents
in connection with the offering of Offered Securities, and any discounts,
concessions or commissions allowed by underwriters to participating dealers,
will be set forth in an applicable Prospectus Supplement. Underwriters, dealers
and agents participating in the distribution of the Offered Securities may be
deemed to be underwriters under the Securities Act, and any discounts and
commissions received by them and any profit realized by them on resale of the
Offered Securities may be deemed to be underwriting discounts and commissions
under the Securities Act. Underwriters, dealers and agents may be entitled,
under agreements with the Company, to indemnification against and contribution
toward certain civil liabilities, including liabilities under the Securities
Act, and to reimbursement by the Company for certain expenses.
If a dealer is utilized in the sale of the Securities in respect of which
this Prospectus is delivered, the Company will sell such Securities to such
dealer, as principal. The dealer may then resell such Securities to the public
at varying prices to be determined by such dealer at the time of resale.
If so indicated in an applicable Prospectus Supplement, the Company will
authorize dealers acting as its agents to solicit offers by certain institutions
to purchase Offered Securities from the Company at the public offering price set
forth in such Prospectus Supplement pursuant to Delayed Delivery Contracts
("Contracts") providing for payment and delivery on the date or dates stated in
such Prospectus Supplement. Each Contract will be for an amount not less than,
and the aggregate principal amount of Offered Securities sold pursuant to
Contracts shall not be less nor more than, the respective amounts stated in such
Prospectus Supplement. Institutions with whom Contracts, when authorized, may be
made include commercial and savings banks, insurance companies, pension funds,
investment companies, educational and charitable institutions and other
institutions, but will in all cases be subject to the approval of the Company.
Contracts will not be subject to any conditions except (i) the purchase by an
institution of the Offered Securities covered by its Contracts shall not at the
time of delivery be prohibited under the laws of any jurisdiction in the United
States to which such institution is subject, and (ii) if the Offered Securities
are being sold to underwriters, the Company shall have sold to such underwriters
the total principal amount of the Offered Securities less the principal amount
thereof covered by Contracts. Agents and underwriters will have no
responsibility in respect of the delivery or performance of Contracts.
LEGAL MATTERS
Certain legal matters in connection with the Securities offered hereby will
be passed upon for the Company by Kirkpatrick & Lockhart LLP, Pittsburgh,
Pennsylvania. Certain legal matters relating to the Securities offered hereby
will be passed upon for any underwriter, dealer or agent by Cravath, Swaine &
Moore, New York, New York.
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EXPERTS
The consolidated financial statements of the Company as of December 31,
1995 and 1994, and for each of the years in the three-year period ended December
31, 1995 incorporated herein by reference from the Company's Annual Report on
Form 10-K for the year ended December 31, 1995 (as amended) have been
incorporated by reference in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants, and upon the authority of said firm as
experts in accounting and auditing.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files periodic reports, proxy solicitation materials and other
information with the Securities and Exchange Commission (the "Commission"). Such
reports, proxy solicitation materials and other information can be inspected and
copied at the public reference facilities maintained by the Commission at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
Commission's Regional Offices located at Seven World Trade Center, Suite 1300,
New York, New York 10048 and 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such materials can be obtained from the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates. The Commission maintains a Website that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission. Such reports, proxy
and information statements and other information may be found on the
Commission's site address, http://www.sec.gov. The Class A Common Stock is
listed on the NYSE. Such reports, proxy solicitation materials and other
information can also be inspected and copied at the NYSE at 20 Broad Street, New
York, New York 10005.
The Company has filed with the Commission a registration statement on Form
S-3 (herein, together with all amendments and exhibits, referred to as the
"Registration Statement") under the Securities Act with respect to the offering
made hereby. This Prospectus does not contain all of the information set forth
in the Registration Statement, certain portions of which are omitted in
accordance with the rules and regulations of the Commission. Such additional
information may be obtained from the Commission's principal office in
Washington, D.C. as set forth above. For further information, reference is
hereby made to the Registration Statement, including the exhibits filed as a
part thereof or otherwise incorporated herein. Statements made in this
Prospectus as to the contents of any documents referred to are not necessarily
complete, and in each instance reference is made to such exhibit for a more
complete description and each such statement is modified in its entirety by such
reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission (File No.
0-24004) pursuant to the Exchange Act are incorporated herein by reference:
1. the Company's Annual Report on Form 10-K for the year ended December 31,
1995 (as amended);
2. the Company's Proxy Statement for the Annual Meeting of Stockholders
held May 28, 1996;
3. the Company's Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1996, June 30, 1996 and September 30, 1996 (as amended);
4. the Company's Current Reports on Form 8-K dated February 7, 1996, April
24, 1996, August 7, 1996, December 11, 1996 (as amended on February 24, 1997),
January 7, 1997 and February 28, 1997; and
5. the description of the Class A Common Stock contained in the Company's
Registration Statement on Form 8-A, as the same may be amended.
All reports and other documents filed by the Company pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this
Prospectus and any Prospectus Supplement and prior to the termination of the
offering made by this Prospectus and any Prospectus Supplement shall be deemed
to be incorporated by reference herein. Any statement contained herein or in a
document incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this
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Prospectus and any Prospectus Supplement to the extent that a statement
contained herein or in any other subsequently filed document which also is
incorporated or deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as modified or superseded, to constitute a part of this
Prospectus and any Prospectus Supplement.
The Company will provide without charge to each person to whom a copy of
this Prospectus and any Prospectus Supplement is delivered, upon the written or
oral request of such person, a copy of any or all of the documents that are
incorporated herein by reference, other than exhibits to such information
(unless such exhibits are specifically incorporated by reference into such
documents). Requests should be directed to Hollinger International Inc., 401
North Wabash Avenue, Chicago, Illinois 60611, Attention: Secretary, telephone
number (312) 321-2299.
66
<PAGE> 115
======================================================
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS IN
CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. NEITHER THE
DELIVERY OF THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS NOR ANY SALE MADE
HEREUNDER OR THEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO NOT CONSTITUTE AN OFFER OR
SOLICITATION BY ANYONE IN ANY STATE IN WHICH SUCH OFFER OR SOLICITATION IS NOT
AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUPPLEMENT
The Company.................................. S-1
The Offering................................. S-10
Use of Proceeds.............................. S-12
Capitalization............................... S-13
Unaudited Results of Operations for the
Fourth Quarter and the Year 1996........... S-14
Unaudited Pro Forma Consolidated Financial
Information................................ S-15
Summary Financial Information................ S-20
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................. S-24
Certain Information Concerning Southam....... S-36
Certain Information Concerning Canadian
Newspapers to be Acquired from Hollinger
Inc. ...................................... S-38
Description of Offered Notes................. S-40
Underwriting................................. S-43
PROSPECTUS
The Company.................................. 3
Risk Factors................................. 5
Use of Proceeds.............................. 12
Ratio of Earnings to Fixed Charges........... 12
Description of Debt Securities............... 13
Plan of Distribution......................... 64
Legal Matters................................ 64
Experts...................................... 65
Available Information........................ 65
Incorporation of Certain Documents by
Reference.................................. 65
</TABLE>
======================================================
======================================================
$530,000,000
HOLLINGER INTERNATIONAL INC. LOGO
$265,000,000
% SENIOR NOTES
DUE 2005
$265,000,000
% SENIOR SUBORDINATED NOTES
DUE 2007
------------------------------------
PROSPECTUS SUPPLEMENT
------------------------------------
Underwriters for the Senior Notes
MERRILL LYNCH & CO.
CIBC WOOD GUNDY SECURITIES CORP.
SCOTIA CAPITAL MARKETS
TD SECURITIES
Underwriters for the Senior
Subordinated Notes
MERRILL LYNCH & CO.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
TD SECURITIES
BEAR, STEARNS & CO. INC.
CIBC WOOD GUNDY SECURITIES CORP.
MARCH , 1997
======================================================
<PAGE> 116
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses to be paid by the Company in connection with the
distribution of the securities being registered are as follows:
<TABLE>
<S> <C>
Securities and Exchange Commission filing fee.................. $166,668
NYSE listing fee............................................... --
NASD filing fee................................................ 30,500
Accounting fees and expenses................................... 150,000
Legal fees and expenses........................................ 175,000
Printing....................................................... 125,000
Trustees' fees................................................. 17,000
Miscellaneous expenses......................................... 10,832
--------
Total........................................................ $675,000
========
</TABLE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS. The following exhibits are filed as part of this registration
statement:
<TABLE>
<CAPTION>
EXHIBIT PRIOR FILING OR
NUMBER DESCRIPTION SEQUENTIAL PAGE NUMBER
- ------- ------------------------------------------------------- -------------------------
<C> <S> <C>
1.01 Forms of Purchase Agreement between Publishing and the
Purchasers with respect to the Senior Securities and
the Senior Subordinated Securities (previously filed)
4.01 Form of Senior Indenture, dated as of ,
among Publishing, the Company, as Guarantor and Fleet
National Bank, as Trustee relating to the Senior
Securities (previously filed)
4.02 Form of Senior Subordinated Indenture, dated as of
, among Publishing, the Company, as
Guarantor and Fleet National Bank, as Trustee relating
to the Senior Subordinated Securities (previously
filed)
4.04 Specimen certificate evidencing Class A Common Stock Incorporated by reference
to Exhibit 4.1 to
Registration Statement on
Form S-1 (No. 33-74980)
5.01 Opinion of Kirkpatrick & Lockhart LLP
23.01 Consent of Kirkpatrick & Lockhart LLP (included in
Exhibit 5.01)
23.02 Consent of KPMG Peat Marwick LLP
24.01 Powers of Attorney (included on original signature page
of this registration statement)
25.01 Statement of Eligibility under the Trust Indenture Act
of 1939, as amended, of Fleet National Bank, as Trustee
under the Senior Indenture relating to the Senior
Securities (previously filed)
25.02 Statement of Eligibility under the Trust Indenture Act
of 1939, as amended, of Fleet National Bank, as Trustee
under the Senior Subordinated Indenture relating to the
Senior Subordinated Securities (previously filed)
</TABLE>
II-1
<PAGE> 117
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Amendment No. 3 to
its Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Chicago, State of Illinois, on March
11, 1997.
HOLLINGER INTERNATIONAL
PUBLISHING INC.
HOLLINGER INTERNATIONAL INC.
By: /s/ CONRAD M. BLACK
---------------------------------
Conrad M. Black,
Chairman of the Board
and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ ----------------------------------------- ------------------
<C> <S> <C>
/s/ CONRAD M. BLACK Chairman of the Board, Chief Executive March 11, 1997
- ------------------------------ Officer and Director (Principal Executive
Conrad M. Black Officer)
* President, Chief Operating Officer and March 11, 1997
- ------------------------------ Director
F. David Radler
/s/ J. A. BOULTBEE Vice President and Chief Financial March 11, 1997
- ------------------------------ Officer (Principal Financial Officer)
J. A. Boultbee
/s/ FREDERICK A. CREASEY Group Corporate Controller (Principal March 11, 1997
- ------------------------------ Accounting Officer)
Frederick A. Creasey
* Director March 11, 1997
- ------------------------------
Barbara Amiel Black
* Director March 11, 1997
- ------------------------------
Dwayne O. Andreas
* Director March 11, 1997
- ------------------------------
Richard Burt
Director March , 1997
- ------------------------------
Raymond G. Chambers
* Director March 11, 1997
- ------------------------------
Daniel W. Colson
* Director March 11, 1997
- ------------------------------
Henry A. Kissinger
* Director March 11, 1997
- ------------------------------
Marie-Josee Kravis
* Director March 11, 1997
- ------------------------------
Shmuel Meitar
</TABLE>
<PAGE> 118
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ ----------------------------------------- ------------------
<C> <S> <C>
- ------------------------------ Director March , 1997
Richard N. Perle
* Director March 11, 1997
- ------------------------------
Robert S. Strauss
* Director March 11, 1997
- ------------------------------
Alfred Taubman
* Director March 11, 1997
- ------------------------------
James R. Thompson
* Director March 11, 1997
- ------------------------------
Lord Weidenfeld
* Director March 11, 1997
- ------------------------------
Leslie H. Wexner
*By: /s/ KENNETH L. SEROTA March 11, 1997
------------------------
Kenneth L. Serota
Attorney-in-fact,
pursuant to power of
attorney previously filed
as part of this
Registration Statement
</TABLE>
<PAGE> 119
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PRIOR FILING OR
NO. DESCRIPTION SEQUENTIAL PAGE NUMBER
- ------- ------------------------------------------------------- -------------------------
<C> <S> <C>
1.01 Forms of Purchase Agreement between Publishing and the
Purchasers with respect to the Senior Securities and
the Senior Subordinated Securities (previously filed)
4.01 Form of Indenture, dated as of , among
Publishing, the Company, as Guarantor, and Fleet
National Bank, as Trustee relating to the Senior
Securities (previously filed)
4.02 Form of Senior Subordinated Indenture, dated as of
, among Publishing, the Company, as
Guarantor, and Fleet National Bank, as Trustee relating
to the Senior Subordinated Securities (previously
filed)
4.04 Specimen certificate evidencing Class A Common Stock Incorporated by reference
to Exhibit 4.1 to
Registration Statement on
Form S-1 (No. 33-74980)
5.01 Opinion of Kirkpatrick & Lockhart LLP
23.01 Consent of Kirkpatrick & Lockhart LLP (included in
Exhibit 5.01)
23.02 Consent of KPMG Peat Marwick LLP
24.01 Powers of Attorney (included on original signature page
of this Registration Statement)
25.01 Statement of Eligibility under the Trust Indenture Act
of 1939, as amended, of Fleet National Bank, as Trustee
under the Indenture relating to the Senior Securities
(previously filed)
25.02 Statement of Eligibility under the Trust Indenture Act
of 1939, as amended, of Fleet National Bank, as Trustee
under the Senior Subordinated Indenture relating to the
Senior Subordinated Securities (previously filed)
</TABLE>
<PAGE> 1
Exhibit 5.01
March 11, 1997
Hollinger International Publishing Inc.
401 North Wabash Avenue
Chicago, Illinois 60611
Ladies and Gentlemen:
We are acting as counsel to Hollinger International Publishing Inc., a
Delaware corporation ("Publishing"), and Hollinger International Inc., a
Delaware corporation (the "Guarantor"), in connection with the Registration
Statement on Form S-3 (No. 333-17113), originally filed by Publishing and the
Guarantor with the Securities and Exchange Commission on November 29, 1996, as
amended (the "Registration Statement"), in connection with the registration
pursuant to the Securities Act of 1933, as amended (the "Act"), of senior debt
securities of Publishing with an aggregate initial public offering price or
purchase price of up to $275,000,000 (the "Senior Debt Securities"), the
guarantee by the Guarantor (the "Senior Guarantee") related thereto, the senior
subordinated debt securities of Publishing with an aggregate initial public
offering price or purchase price of up to $275,000,000 (the "Senior Subordinated
Debt Securities") (the Senior Debt Securities and the Senior Subordinated Debt
Securities collectively, the "Debt Securities"), and the guarantee by the
Guarantor (the "Senior Subordinated Guarantee") related thereto (the Senior
Guarantee and the Senior Subordinated Guarantee collectively, the "Guarantees"),
to be offered on a continuous or delayed basis pursuant to the provisions of
Rule 415 under the Act.
We have examined (i) the proposed form of indenture relating to the
Senior Debt Securities (the "Senior Indenture") among Publishing, the Guarantor
and Fleet National Bank, as Trustee, under which the Senior Debt Securities may
be issued and in which the terms of the Senior Guarantee will be set forth, (ii)
the proposed form of indenture relating to the Senior Subordinated Debt
Securities (the "Senior Subordinated Indenture") among Publishing, the Guarantor
and Fleet National Bank, as Trustee, under which the Senior Subordinated Debt
Securities may be issued and in which the terms of the Senior Subordinated
Guarantee will be set forth, (iii) the Registration Statement, (iv) Publishing's
Restated Certificate of Incorporation and By-laws, each as amended to date, and
(v) the Guarantor's Restated Certificate of Incorporation and By-laws, each as
amended to date. We
<PAGE> 2
Hollinger International Publishing Inc.
March 11, 1997
Page 2
have also examined such other public and corporate documents, certificates,
instruments and corporate records, and such questions of law, as we have deemed
necessary for purposes of this opinion. We are familiar with the proceedings
taken and proposed to be taken by Publishing and the Guarantor in connection
with the issuance and sale of the Debt Securities and in connection with the
Guarantees.
Based on the foregoing, we are of the opinion that, subject to (i) the
proposed additional proceedings being taken as now contemplated prior to the
issuance of the Debt Securities, (ii) the terms of the Debt Securities being
otherwise in compliance with then applicable law, (iii) the due execution,
acknowledgement and delivery of the Senior Indenture and the Senior Subordinated
Indenture by the Trustee, Publishing and the Guarantor, (iv) the effectiveness
of the Registration Statement under the Act and the qualification of the Senior
Indenture and the Senior Subordinated Indenture under the Trust Indenture Act of
1939, and (v) the due execution, authentication and delivery of the Debt
Securities in accordance with the provisions of their respective Indentures, the
Debt Securities will, upon issuance and sale thereof and payment therefor as
described in the Registration Statement, be legally issued and binding
obligations of Publishing and the Guarantees will be legally binding obligations
of the Guarantor, subject in each case to the effect of bankruptcy, insolvency,
reorganization, receivership, moratorium and other similar laws affecting the
rights and remedies of creditors generally and subject to the effect of general
principles of equity, whether applied by a court of law or equity.
We consent to the use of this opinion as Exhibit 5.1 to the
Registration Statement and to the reference to the undersigned in the
Prospectus that forms part of the Registration Statement.
Yours truly,
/s/ Kirkpatrick & Lockhart LLP
<PAGE> 1
EXHIBIT 23.02
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Hollinger International Inc.
Hollinger International Publishing Inc.:
We consent to the use of our report dated February 27, 1996, relating to the
consolidated balance sheets of Hollinger International Inc. and subsidiaries as
of December 31, 1995 and 1994, and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the years in the
three-year period ended December 31, 1995, incorporated herein by reference from
the Company's Annual Report on Form 10-K (as amended) for the year ended
December 31, 1995, and to the reference of our firm under the heading "Experts"
in the Prospectus.
/s/ KPMG Peat Marwick LLP
Chicago, Illinois
March 11, 1997
