<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 24, 1997
REGISTRATION NO. 333-33111
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
THE PETERSEN COMPANIES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 2721 36-4099296
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of Classification Code Number) Identification No.)
incorporation or
organization)
----------------
6420 WILSHIRE BOULEVARD
LOS ANGELES, CALIFORNIA 90048
TELEPHONE: (213) 782-2000
(Address, including zip code, and telephone number, including
area code, of registrants' principal executive offices)
----------------
NEAL VITALE
PRESIDENT AND CHIEF OPERATING OFFICER
THE PETERSEN COMPANIES, INC.
6420 WILSHIRE BOULEVARD
LOS ANGELES, CALIFORNIA 90048
TELEPHONE: (213) 782-2000
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
COPIES TO:
DENNIS M. MYERS STEVEN L. GROSSMAN
KIRKLAND & ELLIS O'MELVENY & MYERS LLP
200 EAST RANDOLPH DRIVE 400 SOUTH HOPE STREET
CHICAGO, ILLINOIS 60601 LOS ANGELES, CALIFORNIA 90071
(312) 861-2000 (213) 669-6000
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
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, check the following box. [_]
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, 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. [_]
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 THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE 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>
EXPLANATORY NOTE
This Registration Statement contains two forms of prospectus: one to be used
in connection with a United States and Canadian offering of the registrant's
Class A Common Stock (the "U.S. Prospectus") and one to be used in connection
with a concurrent international offering of the registrant's Class A Common
Stock (the "International Prospectus" and, together with the U.S. Prospectus,
the "Prospectuses"). The International Prospectus will be identical to the
U.S. Prospectus except that it will have a different front cover page. The
U.S. Prospectus is included herein and is followed by the front cover page to
be used in the International Prospectus. The front cover page for the
International Prospectus included herein has been labeled "Alternate
International Cover Page."
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+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. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS (Subject to Completion)
Issued September 24, 1997
6,250,000 Shares
[LOGO OF PETERSEN]
The Petersen Companies, Inc.
CLASS A COMMON STOCK
----------
ALL OF THE 6,250,000 SHARES OF CLASS A COMMON STOCK OFFERED HEREBY ARE BEING
SOLD BY THE COMPANY. OF THE 6,250,000 SHARES OF CLASS A COMMON STOCK BEING
OFFERED HEREBY, 5,000,000 SHARES ARE BEING OFFERED INITIALLY IN THE UNITED
STATES AND CANADA BY THE U.S. UNDERWRITERS AND 1,250,000 SHARES ARE BEING
OFFERED INITIALLY OUTSIDE THE UNITED STATES AND CANADA BY THE
INTERNATIONAL UNDERWRITERS. SEE "UNDERWRITERS." PRIOR TO THE OFFERING,
THERE HAS BEEN NO PUBLIC MARKET FOR THE CLASS A COMMON STOCK OF THE
COMPANY. IT IS CURRENTLY ESTIMATED THAT THE INITIAL PUBLIC OFFERING
PRICE PER SHARE WILL BE BETWEEN $15 AND $17. SEE "UNDERWRITERS" FOR A
DISCUSSION OF THE FACTORS TO BE CONSIDERED IN DETERMINING THE
INITIAL PUBLIC OFFERING PRICE.
----------
THE COMPANY HAS TWO CLASSES OF AUTHORIZED COMMON STOCK CONSISTING OF THE CLASS
A COMMON STOCK OFFERED HEREBY AND CLASS B COMMON STOCK. SEE "DESCRIPTION OF
CAPITAL STOCK." HOLDERS OF CLASS A COMMON STOCK ARE ENTITLED TO ONE VOTE PER
SHARE ON EACH MATTER SUBMITTED TO A VOTE OF STOCKHOLDERS. THE CLASS B
COMMON STOCK IS NON-VOTING EXCEPT UNDER CERTAIN LIMITED CIRCUMSTANCES AND
AS REQUIRED BY LAW. ALL HOLDERS OF COMMON STOCK ARE ENTITLED TO RECEIVE
SUCH DIVIDENDS AND DISTRIBUTIONS, IF ANY, AS MAY BE DECLARED FROM TIME
TO TIME BY THE BOARD OF DIRECTORS. UPON COMPLETION OF THE OFFERING,
AFFILIATES OF THE COMPANY WILL RETAIN APPROXIMATELY 70% OF THE
OUTSTANDING VOTING POWER. SEE "PRINCIPAL STOCKHOLDERS."
----------
THE CLASS A COMMON STOCK HAS BEEN APPROVED FOR LISTING, SUBJECT TO OFFICIAL
NOTICE OF ISSUANCE, ON THE NEW YORK STOCK EXCHANGE UNDER THE SYMBOL "PTN."
----------
SEE "RISK FACTORS" BEGINNING ON PAGE 12 FOR INFORMATION THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS.
----------
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.
----------
PRICE $ A SHARE
----------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS (1) COMPANY (2)
-------- --------------- -----------
<S> <C> <C> <C>
Per Share.................................. $ $ $
Total (3).................................. $ $ $
</TABLE>
- -----
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriters."
(2) Before deducting expenses payable by the Company, estimated at
$1,500,000.
(3) The Company has granted to the U.S. Underwriters an option, exercisable
within 30 days of the date hereof, to purchase up to an aggregate of
937,500 additional Shares of Class A Common Stock at the Price to Public
less Underwriting Discounts and Commissions, for the purpose of covering
over-allotments, if any. If the U.S. Underwriters exercise such option
in full, the total Price to Public, Underwriting Discounts and
Commissions and Proceeds to Company will be $ , $ and $ ,
respectively. See "Underwriters."
----------
The Shares of Class A Common Stock are offered, subject to prior sale, when,
as and if accepted by the Underwriters named herein and subject to approval of
certain legal matters by O'Melveny & Myers LLP, counsel for the Underwriters.
It is expected that delivery of the Shares will be made on or about , 1997 at
the office of Morgan Stanley & Co. Incorporated, New York, N.Y., against
payment therefor in immediately available funds.
----------
MORGAN STANLEY DEAN WITTER DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
BT ALEX. BROWN GOLDMAN, SACHS & CO.
, 1997
<PAGE>
PETERSEN'S OPERATING STRUCTURE
Centralized Revenues Functions
__________________________
. Non-Endemic Advertising Sales
. Events & Trade Shows
. Licensing
. Electronic Publishing
. Subscription Marketing
. Newsstand Sales
. List Rental
. Database
. Affinity Group Marketing
. Television Programming
. Custom Publishing
AUTOMOTIVE
---
---
PERFORMANCE
MOTOR TREND
---
---
YOUTH
---
---
OUTDOOR
- -----
-----
PHOTO/MARINE
---
---
MOTORCYCLE/
---
---
BICYCLE
SPORT
--- ---
Centralized Corporate Functions
__________________________
.Senior Management
.Human Resources & Benefits
.Manufacturing & Distribution
.Paper Purchasing
.Finance/Treasury
.Information Systems
.Real Estate & Facilities
.Advertising Billing & Collection
.Accounting
.Fulfillment
.Creative Services
PETERSEN'S 15 CORE TITLES
<TABLE>
<S> <C> <C>
MOTOR TREND SKIN DIVER CIRCLE TRACK
TEEN SPORT PHOTOGRAPHIC
HOT ROD CAR CRAFT SPORT TRUCK
4 WHEEL & OFF-ROAD PETERSEN'S HUNTING DIRT RIDER
GUNS & AMMO MOTORCYCLIST CHEVY HIGH PERFORMANCE
</TABLE>
<PAGE>
[INSIDE FRONT COVER PAGE GATEFOLD GRAPHICS: PICTURES OF SAMPLE COVER PAGE OF 39
OF THE COMPANY'S MAGAZINES. THE COVER PAGES ARE ARRANGED AMONG THE COMPANY'S
SEVEN PUBLISHING GROUPS.]
<PAGE>
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR BY ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER
TO BUY ANY SECURITY OTHER THAN THE CLASS A COMMON STOCK OFFERED HEREBY, NOR
DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF
THE SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS
UNLAWFUL TO MAKE ANY SUCH OFFER OR SOLICITATION TO SUCH PERSON. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREBY SHALL UNDER ANY
CIRCUMSTANCE IMPLY THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY DATE
SUBSEQUENT TO THE DATE HEREOF.
----------------
UNTIL , 1997 (25 DAYS AFTER THE COMMENCEMENT OF THE OFFERING), ALL DEALERS
EFFECTING TRANSACTIONS IN THE CLASS A COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
----------------
FOR INVESTORS OUTSIDE THE UNITED STATES: NO ACTION HAS BEEN OR WILL BE TAKEN
IN ANY JURISDICTION BY THE COMPANY OR BY ANY UNDERWRITER THAT WOULD PERMIT A
PUBLIC OFFERING OF THE CLASS A COMMON STOCK OR POSSESSION OR DISTRIBUTION OF
THIS PROSPECTUS IN ANY JURISDICTION WHERE ACTION FOR THAT PURPOSE IS REQUIRED,
OTHER THAN IN THE UNITED STATES. PERSONS INTO WHOSE POSSESSION THIS PROSPECTUS
COMES ARE REQUIRED BY THE COMPANY AND THE UNDERWRITERS TO INFORM THEMSELVES
ABOUT AND TO OBSERVE ANY RESTRICTIONS AS TO THE OFFERING OF THE CLASS A COMMON
STOCK AND THE DISTRIBUTION OF THIS PROSPECTUS.
----------------
The Company's logo and each of the titles of the Company's publications
referenced herein are trademarks of the Company. Each trade name, trademark or
service mark of any other company appearing in this Prospectus is the property
of its holder.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary......................................................... 4
Risk Factors............................................................... 12
Use of Proceeds............................................................ 17
The Reorganization......................................................... 18
Capitalization............................................................. 19
Dividend Policy............................................................ 20
Dilution................................................................... 21
Unaudited Pro Forma Financial Data......................................... 22
Selected Historical Financial Data......................................... 31
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................................................ 33
Industry................................................................... 41
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Business................................................................... 42
Management................................................................. 56
Certain Relationships and Related Transactions............................. 64
Principal Stockholders..................................................... 66
Description of Capital Stock............................................... 68
Shares Eligible for Future Sale............................................ 71
Federal Income Tax Consequences to Non-United States Holders............... 72
Underwriters............................................................... 75
Legal Matters.............................................................. 78
Experts.................................................................... 78
Additional Information..................................................... 79
Index to Financial Statements.............................................. F-1
</TABLE>
----------------
Certain statements contained herein under "Prospectus Summary," "Risk
Factors," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business" including, without limitation, those
concerning the Company's business and operating strategy, contain certain
forward-looking statements concerning the Company's operations, economic
performance and financial condition. Because such statements involve risks and
uncertainties, actual results may differ materially from those expressed or
implied by such forward-looking statements. Factors that could cause such
differences include, but are not limited to, those discussed under "Risk
Factors."
----------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE CLASS A COMMON
STOCK. SPECIFICALLY, THE UNDERWRITERS MAY OVER-ALLOT IN CONNECTION WITH THIS
OFFERING, AND MAY BID FOR, AND PURCHASE, SHARES OF CLASS A COMMON STOCK IN THE
OPEN MARKET. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITERS."
3
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus. Unless otherwise indicated, the information
contained in the Prospectus: (i) assumes no exercise of the U.S. Underwriters'
over-allotment option and (ii) gives effect to the transactions described
herein under the heading "The Reorganization." On September 30, 1996, Petersen
Holdings, L.L.C. through a subsidiary acquired substantially all of the
publishing assets and assumed certain liabilities of Petersen Publishing
Company (the "Acquisition"). Unless the context otherwise requires: (i) the
term "Predecessor" is used herein to refer to the historical operations of the
publishing division of Petersen Publishing Company prior to the Acquisition;
(ii) the term "Petersen" is used herein to refer to the operations of Petersen
Holdings, L.L.C. and its consolidated subsidiaries following the Acquisition;
and (iii) the term "Company" is used herein to refer to The Petersen Companies,
Inc. and its consolidated subsidiaries after giving effect to the transactions
described herein under the heading "The Reorganization" and their respective
predecessors. See "The Reorganization." The Class A Common Stock and Class B
Common Stock to be outstanding immediately after completion of the Offering are
collectively referred to herein as the "Common Stock."
THE COMPANY
The Company is a leading publisher of special-interest magazines with a
diverse portfolio of 78 publications, including 25 monthly, 11 bimonthly and 42
single issue or annual publications. According to Veronis, Suhler and
Associates ("VSA"), special-interest magazine publishing has been the fastest
growing sector of the consumer magazine industry over the last five year
period. The special-interest nature of the Company's magazines creates an
opportunity for its advertisers to efficiently reach their target audience, as
the Company believes that its enthusiast readers value special-interest
magazines for both their product information as well as editorial content.
The Company's internationally-recognized magazines include: (i) Motor Trend,
which is a leading authority on new domestic and foreign automobiles and, with
its increase in rate base (expected paid circulation on which advertising rates
are based) to 1.15 million effective January 1998, is anticipated to be the
world's leading automotive magazine in terms of paid circulation; (ii) Teen,
which has the largest paid circulation of any of the Company's magazines with
paid circulation of more than 1.8 million as of the June 1997 issue; and (iii)
Hot Rod, which is one of the largest paid circulation automotive magazines in
the world with a paid circulation of over 800,000 as of the June 1997 issue.
The Company's other core publications are Petersen's 4 Wheel & Off-Road, Guns
and Ammo, Skin Diver, Sport, Car Craft, Petersen's Hunting, Motorcyclist,
Circle Track and Racing Technology, Petersen's Photographic, Sport Truck, Dirt
Rider and Chevy High Performance. The Company's 15 core magazines average over
30 years in publication.
Based on data from Mediamark Research, Inc. ("Mediamark"), the Company
estimates that its magazines are read by more adults and men than are the
magazines of any other U.S. special-interest publisher--approximately 48
million adults and 40 million male readers each month. Of the Company's 15 core
publications, nine are ranked first in their respective markets based on paid
circulation, including two magazines that are the only national magazines
published in their respective markets.
The Company had net revenues of $227.2 and $120.1 million for the twelve
months ended December 31, 1996 and the six months ended June 30, 1997,
respectively. The Company's principal sources of revenue are from advertising
and circulation. For the six months ended June 30, 1997, approximately 61.1% of
the Company's revenues were from advertising, 35.8% from circulation and 3.1%
from other sources. For the twelve months ended December 31, 1996, 13 of the
Company's 15 core magazines each generated an operating contribution (revenue
less direct costs associated with each magazine) of more than $1.0 million. Due
to the effects of the Acquisition, the Company reported net losses attributable
to common equity of $10.6 million and $20.3 million for the three months ended
December 31, 1996 and the six months ended June 30, 1997, respectively. The
Company expects to report a net loss for the third quarter of 1997, after
giving effect to a $12.2 million non-recurring non-cash compensation charge
recorded in that quarter.
4
<PAGE>
The Company is organized into seven publishing groups: Automotive
Performance, Motor Trend, Youth, Outdoor, Photo/Marine, Motorcycle/Bicycle and
Sport. Each publishing group is organized around one or more of the Company's
core monthly publications which target a distinct special-interest segment or
specific general-interest segment (e.g., Teen and Sport). The operations of
each group are focused on delivering high-quality editorial content, generating
endemic advertising sales and developing new titles or activities to reach such
group's enthusiast readers. Each publishing group is supported by a number of
centralized corporate functions. The Company conducts all of its non-endemic
advertising, subscription and newsstand sales and marketing activities and
develops ancillary revenue through event management, licensing arrangements and
electronic publishing on a centralized basis to take advantage of the broad
reach and significant market presence of the Company's magazine portfolio. In
addition, all of the Company's production, distribution and administrative
activities are centralized to achieve economies of scale and operating
synergies. The combination of each group's focused editorial and sales staff
supported by centralized corporate functions has enabled the Company to improve
profit margins and provides a competitive advantage in the development and
launch of new titles within an existing group.
BUSINESS AND OPERATING STRATEGY
The Company's business and operating strategy is designed to provide strong
revenue growth and increase profitability by improving the performance of
existing titles, launching and acquiring additional publications and developing
ancillary revenue streams by capitalizing on its internationally-recognized
brands and efficient operations. The key elements of this strategy include:
Cross-Sell Advertising and Expand Advertiser Base. Management believes that,
in addition to maintaining a strong endemic advertising base, it will continue
to increase revenues by cross-selling advertising space across all of the
Company's magazines that reach the advertiser's target markets. In addition,
the Company is improving existing and implementing new programs that will
enable its advertisers to purchase other marketing services, such as event
sponsorships, direct marketing programs, database access and services and
point-of-purchase promotions. Management intends to increase the Company's
advertiser base by targeting new advertisers in existing and new categories,
with a focus on non-endemic categories. The Company believes that its ability
to provide effective and efficient advertising enables it to maintain
competitive and in some cases premium advertising rates.
Increase Direct Subscription Sales and Magazine Prices. Management believes
that there are numerous opportunities to increase circulation revenues by
expanding direct subscription sales. The Company has invested in new
promotional programs, including direct mail, insert cards, gift campaigns and
cover wraps, designed to increase the number of subscriptions purchased
directly from the Company. Direct subscriptions provide significantly higher
revenues than those purchased through independent subscription agents. The
Company has also developed a database that includes detailed demographic
information on approximately 16 million current and former subscribers that
will enable it to more effectively cross-sell its publications and other
products directly to subscribers. In addition, the Company recently increased
the newsstand and subscription prices on certain publications to levels
comparable to those of competitive magazines and will continue to adjust its
magazine prices in the future based on market conditions.
Develop Ancillary Revenue Opportunities. The Company believes that there are
numerous opportunities to increase ancillary revenues by leveraging the
editorial content, readers and subscriber database and the internationally-
recognized brands of the Company's existing publications through domestic and
international licensing arrangements, strategic joint ventures, retail
alliances, affinity group marketing, electronic software and games and book
publishing. The Company has entered into agreements to license certain of its
brand names for television shows and compact disc and cassette music
recordings. In addition, the Company is currently negotiating the license of
certain of its brand names for use by an arena football team and for computer
game software.
5
<PAGE>
Develop and Launch New Titles. By using its core publications as platforms
for launching new "spin-off" publications, the Company has efficiently
developed and produced a diverse and profitable portfolio of highly-specialized
publications. The Company believes that it has a competitive advantage as a
result of its ability: (i) to identify potential markets for new publications;
(ii) to leverage existing editorial and advertising personnel and resources;
and (iii) to gain access to newsstand distribution channels. The Company plans
to continue to develop and launch new special-interest magazines that will
complement and enhance its existing portfolio.
Selectively Acquire Titles. The Company follows a disciplined acquisition
strategy designed to acquire titles that either enhance the Company's
competitive position in one of its existing special-interest segments or
establish a new cluster or group of publications that is complementary to the
Company's existing portfolio. The Company believes that its efficient operating
structure and favorable vendor contracts provides it with a competitive
advantage by reducing the operating costs of acquired titles. Management
believes that significant opportunities exist to acquire special-interest
magazines that will complement and enhance its existing portfolio. The Company
currently has no definitive agreement with respect to any acquisitions.
Develop Business-to-Business Opportunities. The Company believes that its
experience in developing, marketing and producing targeted special-interest
magazines will enable it to expand into business-to-business activities in the
markets served by its existing magazines. Such activities include trade
magazine publishing, trade shows, directories and database marketing. For
example, the Company recently acquired the rights to produce SHOT Business, the
monthly magazine of the National Shooting Sports Foundation.
Continue to Identify and Implement Operating Improvements. The Company's
current management identified and implemented operating improvements that have
resulted in significant cost savings through personnel reductions, lower lease
costs, tighter purchasing procedures and controls and restructuring the
Company's relationships with its principal vendors. In addition, the Company
adopted a new operating policy that provides for one or more of the following
actions if any of its publications generate continued losses: (i) discontinue
or sell such magazine; (ii) merge such magazine with one of the Company's
existing magazines; or (iii) enter into strategic partnerships with third
parties. The successful implementation of these improvements has contributed to
the improvement in the Company's EBITDA margin, which increased from 10.8% for
the ten month period ended September 30, 1996 to 25.0% for the six-month period
ended June 30, 1997. Due to the effects of the Acquisition, however, the
Company's operating income decreased from $15.8 million to $10.6 million and
its net income applicable to common equity decreased from $17.3 million to a
loss of $20.3 million during the same periods. The Company will remain focused
on identifying additional operating improvements to further increase its
operating efficiencies and gross profit margins.
BACKGROUND
The Company's origins date to 1948, when its founder, Robert E. Petersen,
first began publishing and selling a specialized newsletter entitled Hot Rod.
Since that time, the Company grew into a leading publisher of special-interest
magazines, expanding principally into areas in which Mr. Petersen had a
personal interest. On September 30, 1996, an investor group led by Willis Stein
& Partners, L.P. ("Willis Stein"), James D. Dunning, Jr. and certain members of
the Company's senior management (collectively, the "Investor Group") acquired,
through the Company, substantially all of the publishing assets of the
Predecessor in the Acquisition. The aggregate purchase price of the Acquisition
(including expenses and reflecting the receipt of a $2.5 million purchase price
adjustment) was approximately $462.8 million plus the assumption of unearned
subscription revenues and other liabilities of $49.0 million. To finance the
Acquisition, the Company: (i) borrowed $200.0 million under a $260.0 million
senior credit facility (the "Senior Credit Facility"); (ii) borrowed $100.0
million under a bridge financing facility (the "Bridge Financing Facility");
and (iii) received equity contributions of $165.3 million from the Investor
Group. Following the Acquisition, the Company issued $100.0 million in
aggregate principal amount of 11 1/8% Senior Subordinated Notes due 2006 (the
"Notes"), the proceeds of which were used to repay the Bridge Financing
Facility. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
The Company was incorporated in August 1996 under the laws of the State of
Delaware. The Company's principal executive offices are located at 6420
Wilshire Boulevard, Los Angeles, California 90048 and its telephone number is
(213) 782-2000.
6
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Class A Common Stock offered:
U.S. Offering................. 5,000,000 shares
International Offering........ 1,250,000 shares
----------
Total....................... 6,250,000 shares (1)
==========
Common Stock to be outstanding
after the Offering............. 34,090,994 shares (1)(2)
Use of proceeds................. The net proceeds to the Company from the
Offering will be used to repay certain
outstanding indebtedness under the Senior
Credit Facility and to redeem a portion of
the Notes issued by the Company's operating
subsidiary. See "Use of Proceeds."
Voting rights................... Upon completion of the Offering, the Company
will have two classes of outstanding Common
Stock. The Class A Common Stock and Class B
Common Stock are substantially identical,
except with respect to voting rights. Each
holder of Class A Common Stock is entitled to
one vote per share on all matters submitted
to a vote of stockholders and each holder of
Class B Common Stock is not entitled to vote
except under certain limited circumstances
and as required by law. See "Risk Factors--
Significant Influence of Certain
Stockholders" and "Description of Capital
Stock."
Proposed New York Stock Exchange
symbol......................... PTN
</TABLE>
- --------
(1) Assumes the U.S. Underwriters' over-allotment option is not exercised. See
"Underwriters."
(2) Includes 7,682,632 shares of Class B Common Stock. Does not include: (i)
320,685 shares of Class A Common Stock issuable upon the exercise of
options granted under the 1997 Long-Term Equity Incentive Plan (the "1997
Incentive Plan") or (ii) 1,811,141 additional shares of Class A Common
Stock reserved for grants or awards under The Petersen Companies, Inc. 1997
Long-Term Equity Incentive Plan (the "New Incentive Plan") or The Petersen
Companies, Inc. Employee Stock Discount Purchase Plan (the "Stock Purchase
Plan"). See "Management--1997 Long-Term Equity Incentive Plan" and "--
Employee Stock Discount Purchase Plan."
RISK FACTORS
Prospective investors should carefully consider the specific matters set
forth under "Risk Factors" as well as the other information and data included
in this Prospectus in evaluating an investment in the shares of Class A Common
Stock offered hereby.
7
<PAGE>
SUMMARY HISTORICAL FINANCIAL DATA
The following table presents summary historical financial data of: (i) the
Predecessor for each of the four years in the period ended November 30, 1995
and the ten months ended September 30, 1996, which have been derived from the
audited financial statements of the Predecessor and (ii) Petersen for the three
months ended December 31, 1996 and the six months ended June 30, 1997, which
have been derived from the audited financial statements of Petersen. The
audited financial statements of the Predecessor for each of the two years in
the period ended November 30, 1995 and the ten months ended September 30, 1996
and of Petersen for the three months ended December 31, 1996 and the six months
ended June 30, 1997 appear elsewhere in this Prospectus. The summary historical
financial data of the Predecessor for the ten months ended September 30, 1995,
the three months ended December 31, 1995 and the six months ended June 30, 1996
have been derived from unaudited financial statements of the Predecessor which,
in the opinion of management, include all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of the results
for the unaudited interim period. Results for the six months ended June 30,
1997 are not necessarily indicative of results that may be expected for the
entire year. The Acquisition was accounted for using the purchase method of
accounting. Accordingly, certain of the historical financial data of the
Predecessor is not comparable to that of Petersen. The summary historical
financial data set forth below should be read in conjunction with, and are
qualified by reference to, "Selected Historical Financial Data," "Management's
Discussion and Analysis of Financial Conditions and Results of Operations" and
the financial statements and the accompanying notes thereto included elsewhere
in this Prospectus.
<TABLE>
<CAPTION>
PREDECESSOR (1) PETERSEN (2) PREDECESSOR (1) PETERSEN (2)
------------------------------------------------------------------- ------------ --------------- ------------
TEN MONTHS
ENDED THREE MONTHS SIX MONTHS
YEAR ENDED NOVEMBER 30, SEPTEMBER 30, ENDED DECEMBER 31, ENDED JUNE 30,
-------------------------------------- ------------------ --------------------- ----------------------------
1992 1993 1994 1995 1995 1996 1995 1996 1996 1997
-------- -------- -------- -------- -------- -------- ------- ------------ --------------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OP-
ERATIONS DATA:
Net revenues.... $181,643 $187,212 $202,792 $214,515 $179,400 $189,614 $50,938 $ 53,277 $115,040 $ 120,143
Production,
selling and
other direct
costs.......... 135,155 142,254 149,586 171,579 140,831 148,874 42,342 41,223 91,971 82,440
-------- -------- -------- -------- -------- -------- ------- ---------- -------- ----------
Gross profit.... 46,488 44,958 53,206 42,936 38,569 40,740 8,596 12,054 23,069 37,703
General and
administrative
expenses....... 32,328 35,604 33,267 28,145 23,537 24,650 8,952 2,666 12,903 8,955
Amortization of
goodwill and
other
intangible
assets......... 1,235 198 421 433 355 339 111 8,992 196 18,151
-------- -------- -------- -------- -------- -------- ------- ---------- -------- ----------
Operating income
(loss)......... 12,925 9,156 19,518 14,358 14,677 15,751 (467) 396 9,970 10,597
Interest income
(expense),
net............ 856 317 476 549 428 352 209 (11,001) 85 (15,498)
Gain (loss) on
sale of assets
and minority
member's equity
in loss of
subsidiary..... -- -- -- -- -- 1,554 13 11 1,554 (28)
-------- -------- -------- -------- -------- -------- ------- ---------- -------- ----------
Income (loss)
before
provision for
income taxes... 13,781 9,473 19,994 14,907 15,105 17,657 (245) (10,594) 11,609 (4,929)
Provision for
income taxes
(3)............ (267) (251) (698) (549) (458) (331) (138) -- (199) --
-------- -------- -------- -------- -------- -------- ------- ---------- -------- ----------
Net income
(loss)......... 13,514 9,222 19,296 14,358 14,647 17,326 (383) (10,594) 11,410 (4,929)
Preferred unit
dividends...... -- -- -- -- -- -- -- -- -- (15,419)
-------- -------- -------- -------- -------- -------- ------- ---------- -------- ----------
Net income
(loss)
attributable to
common units... $ 13,514 $ 9,222 $ 19,296 $ 14,358 $ 14,647 $ 17,326 $ (383) $ (10,594) $ 11,410 $ (20,348)
======== ======== ======== ======== ======== ======== ======= ========== ======== ==========
Pro forma loss
per share (4).. $ (.38) $ (.73)
========== ==========
Pro forma
weighted
average number
of shares
outstanding
(4)............ 27,840,994 27,840,994
========== ==========
OTHER DATA:
Depreciation and
amortization... $ 3,381 $ 3,137 $ 3,118 $ 3,439 $ 2,704 $ 2,704 $ 1,015 $ 9,570 $ 1,667 $ 19,106
Capital
expenditures... 1,419 4,739 2,866 4,423 3,492 768 878 -- 463 228
EBITDA (5)...... 17,162 12,610 23,112 18,346 17,809 20,546 771 10,090 11,875 30,030
Cash provided by
operating
activities..... 2,479 10,680 27,059 9,593 5,530 24,719 N/A 22,376 23,808 18,119
Cash provided by
(used in)
investing
activities..... 11,545 (30) (14,478) 2,254 3,185 5,421 N/A (465,652) 1,704 2,183
Cash provided by
(used in)
financing
activities..... (14,013) (14,901) (17,382) (6,092) (5,377) (27,625) N/A 451,037 (2,425) (21,140)
</TABLE>
(footnotes appear on following page)
8
<PAGE>
<TABLE>
<CAPTION>
AS OF JUNE 30, 1997
--------------------------
PRO FORMA
AS
ACTUAL ADJUSTED (6)
-------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash
equivalents............ $ 6,923 $ 6,323
Working capital
deficiency (7)......... (27,503) (22,103)
Total assets............ 588,977 581,738
Total long-term debt,
including current
portion................ 277,750 188,531
Total equity............ 150,481 232,610
</TABLE>
(footnotes from previous page)
- --------
(1) The Predecessor's fiscal year ended on November 30.
(2) Petersen's fiscal year ends on December 31.
(3) Consists of state and local income taxes. As a subchapter S corporation
under the Internal Revenue Code of 1986, as amended (the "Code"), the
Predecessor was not subject to U.S. federal income taxes or most state
income taxes. Instead, such taxes were paid by the Predecessor's
stockholder. The Predecessor periodically paid dividends to its stockholder
in respect of such tax liabilities. Prior to the Reorganization, Petersen
was a limited liability company and was not subject to U.S. federal income
taxes or most state taxes. Instead, such taxes were paid by Petersen's
equity holders.
(4) Pro forma loss per share is based on the weighted average shares
outstanding after giving retroactive effect to 27,840,994 shares to be
issued in connection with the Reorganization (assuming an initial public
offering price of $16 per share, the midpoint of the range set forth on the
cover page of this Prospectus). See "The Reorganization."
(5) "EBITDA" is defined as income before interest expense, income taxes,
depreciation and amortization and gain on sale of assets. EBITDA is not a
measure of performance under generally accepted accounting principles
("GAAP"). Such items excluded from income in calculating EBITDA are
significant components in understanding and evaluating the Company's
financial performance. While EBITDA should not be considered in isolation
or as a substitute for net income, cash flows from operating activities and
other income or cash flow statement data prepared in accordance with GAAP
or as a measure of profitability or liquidity, management understands that
EBITDA is customarily used in evaluating the equity value of magazine
publishing companies. The EBITDA measures presented herein may not be
comparable to similarly titled measures of other companies.
(6) The unaudited pro forma as adjusted balance sheet data of the Company as of
June 30, 1997 gives effect to: (i) the $12,180 non-recurring non-cash
compensation expense recorded in the third quarter of 1997 in connection
with the issuance of Class D Common Units in exchange for all outstanding
Class B Common Units and Class C Common Units (the "Exchange") as described
under the heading "Certain Relationships and Related Transactions"; (ii)
the transactions as described under the heading "The Reorganization"
(collectively, the "Reorganization"); (iii) the Offering and the
application of the net proceeds therefrom as described under "Use of
Proceeds"; and (iv) the refinancing of the Company's Senior Credit
Facility, as if such transactions had occurred on June 30, 1997. All of the
outstanding Common Units of Petersen will be exchanged for Common Stock of
the Company in the Reorganization. See "The Reorganization," "Unaudited Pro
Forma Financial Data" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources."
(7) The calculation of working capital deficiency includes the current portions
of unearned subscription revenues, a non-cash obligation of the Company,
and deferred subscription acquisition costs. Excluding the current portions
of unearned subscription revenues and deferred subscription acquisition
costs, the Company's working capital would have been $1,303 on an actual
basis and $6,703 on a pro forma as adjusted basis, each as of June 30,
1997.
9
<PAGE>
SUMMARY UNAUDITED PRO FORMA FINANCIAL DATA
The following summary unaudited pro forma statement of operations data of the
Company for the twelve months ended December 31, 1996 and for the six months
ended June 30, 1996 give effect to: (i) the Acquisition and the financing
transactions related thereto; (ii) the transactions described under the heading
"The Reorganization"; (iii) the Offering and the application of the net
proceeds therefrom as described under "Use of Proceeds"; and (iv) the
refinancing of the Senior Credit Facility, each as if they had occurred at the
beginning of each such period. The summary unaudited pro forma statement of
operations for the six months ended June 30, 1997 give effect to the
transactions described in items (ii) through (iv) as if such transactions had
occurred at the beginning of such period. The unaudited pro forma balance sheet
data as of June 30, 1997 give effect to the Exchange and the transactions
described in items (ii) through (iv) above as if such transactions had occurred
on such date. This pro forma information is not necessarily indicative of the
results that would have occurred had the transactions referenced above been
completed on the dates indicated or the Company's actual or future results or
financial position. The summary pro forma statement of operations, balance
sheet and other data should be read in conjunction with the information
contained in "Unaudited Pro Forma Financial Data," "Selected Historical
Financial Data," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the financial statements and the notes thereto
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED
DECEMBER 31, SIX MONTHS ENDED SIX MONTHS ENDED
1996 (1) JUNE 30, 1996 JUNE 30, 1997
------------------- ---------------- ----------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net revenues............. $ 227,212 $ 115,040 $ 120,143
Production, selling and
other direct costs...... 175,127 89,623 82,440
---------- ---------- ----------
Gross profit............. 52,085 25,417 37,703
General and administra-
tive expenses (2) ...... 21,407 10,419 8,957
Amortization of goodwill
and other intangible
assets.................. 36,277 18,181 18,151
---------- ---------- ----------
Operating income (loss)
........................ (5,599) (3,183) 10,595
Interest expense, net.... (22,814) (14,763) (9,749)
Gain (loss) on sale of
assets.................. 1,554 1,554 (33)
---------- ---------- ----------
Income (loss) before pro-
vision for income taxes
and extraordinary item.. (26,859) (16,392) 813
Provision for income tax-
es...................... -- -- --
---------- ---------- ----------
Income (loss) before ex-
traordinary item........ $ (26,859) $ (16,392) $ 813
========== ========== ==========
Pro forma income (loss)
per share (3)(4)........ $ (.79) $ (.48) $ .02
========== ========== ==========
Pro forma weighted
average number of shares
outstanding (4)......... 34,090,994 34,090,994 34,090,994
========== ========== ==========
OTHER DATA:
Depreciation and amorti-
zation.................. $ 38,973 $ 19,652 $ 19,106
EBITDA (5)............... 33,487 16,469 30,023
</TABLE>
<TABLE>
<CAPTION>
AS OF
JUNE 30, 1997
-------------
<S> <C>
BALANCE SHEET DATA (2):
Cash and cash equivalents......................................... $ 6,323
Working capital deficiency (6).................................... (22,103)
Total assets...................................................... 581,738
Total long-term debt, including current portion................... 188,531
Total equity...................................................... 232,610
</TABLE>
(footnotes appear on following page)
10
<PAGE>
(footnotes from previous page)
(1) Includes the results of operations of the Predecessor for the nine month
period ended September 30, 1996 and the results of operations of the
Company for the three month period ended December 31, 1996 on a combined
basis.
(2) In connection with the Exchange, the Company recorded a non-recurring non-
cash compensation charge of $12,180 in the third quarter of 1997. Such
amount has not been reflected in the Pro Forma Statement of Operations Data
for any of the periods shown but is reflected in the Pro Forma Balance
Sheet Data.
(3) The pro forma net income (loss) per share excludes the extraordinary loss
from early extinguishment of debt in the amount of $8,049 for the twelve
months ended December 31, 1996, $8,049 for the six months ended June 30,
1996 and $6,986 for the six months ended June 30, 1997.
(4) Pro forma net income (loss) per share is based on the weighted average
shares outstanding after giving effect to 6,250,000 shares to be issued in
connection with the Offering and 27,840,994 shares to be issued in
connection with the Reorganization (assuming an initial public offering
price of $16, the midpoint of the range set forth on the cover page of this
Prospectus). See "The Reorganization."
(5) "EBITDA" is defined as income before interest expense, income taxes,
depreciation and amortization and gain on sale of assets. EBITDA is not a
measure of performance under GAAP. Such items excluded from income in
calculating EBITDA are significant components in understanding and
evaluating the Company's financial performance. While EBITDA should not be
considered in isolation or as a substitute for net income, cash flows from
operating activities and other income or cash flow statement data prepared
in accordance with GAAP, or as a measure of profitability or liquidity,
management understands that EBITDA is customarily used in evaluating the
equity value of magazine publishing companies. The EBITDA measures
presented herein may not be comparable to similarly titled measures of
other companies.
(6) The calculation of working capital deficiency includes the current portions
of unearned subscription revenues, a non-cash obligation of the Company,
and deferred subscription acquisition costs. Excluding the current portions
of unearned subscription revenues and deferred subscription acquisition
costs, the Company's working capital on a pro forma as adjusted basis would
have been $6,703 as of June 30, 1997.
11
<PAGE>
RISK FACTORS
This Prospectus contains certain forward-looking statements. While the
Company believes these statements are reasonable, prospective purchasers of
the Class A Common Stock offered hereby should be aware that actual results
could differ materially from those projected by such forward-looking
statements as a result of the risk factors set forth below or other factors.
Prospective investors should consider carefully the following factors as well
as the other information and data included in this Prospectus in determining
whether to purchase the Class A Common Stock offered hereby.
RISKS ASSOCIATED WITH FLUCTUATIONS IN PAPER COSTS AND POSTAL RATES
The Company's principal raw material is paper. Paper costs represented
approximately 20.7%, 25.9%, 22.8% and 20.4% of the Company's production,
selling and other direct costs for the six months ended June 30, 1997, the ten
months ended September 30, 1996 and the fiscal years ended November 30, 1994
and 1995, respectively. Certain commodity grades of paper have shown
considerable price volatility over the last decade, including the commodity
grade used by the Company. Paper prices rose sharply during the latter part of
1995, and, in response, the Predecessor purchased a large supply of paper in
anticipation of additional price increases and supply shortages continuing for
the remainder of 1995 and 1996. The increase in paper prices in late 1995 and
the Predecessor's large purchase at such increased prices materially adversely
affected the Predecessor's production, selling and other direct costs for the
year ended November 30, 1995 and the twelve months ended December 31, 1996.
Following the Acquisition, the Company entered into an agreement with World
Color Press, Inc. ("World Color") to secure sufficient paper to meet its
projected raw material needs through the end of 1997 at a fixed price. The
Company is currently in discussions with World Color regarding the terms on
which the Company will purchase paper in 1998. There can be no assurance that
the Company will be able to reach agreement with World Color on terms
favorable to the Company or that future fluctuations in paper prices will not
have a material adverse effect on the Company's results of operations or
financial condition.
The profitability of the Company's magazine publishing operations is also
affected by the cost of postage and could be materially adversely affected if
there is an increase in postal rates. The United States Postal Service has
recently requested approval for up to a 5.4% increase for commercial magazine
rates, which, if approved, is expected to become effective no sooner than May
1998. The Company estimates that its net income for the twelve months ended
December 31, 1996 would have been decreased by approximately $1.1 million and
its net loss for the six months ended June 30, 1997 would have been increased
by approximately $0.5 million if such a postal rate increase had occurred at
the beginning of each respective period (assuming in each case that the
Company was unable to pass the increase through to its advertisers or readers
or to take any other action to offset or minimize the impact of such
increase). Future fluctuations in postal rates could have a material adverse
effect on the Company's results of operations or financial condition. No
assurance can be given that the Company can recoup paper or postal cost
increases by passing them through to its advertisers and readers. In addition,
future fluctuations in paper prices or postal rates could have an effect on
quarterly comparisons of the results of operations and financial condition of
the Company. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Overview" and "Business--Raw Materials."
RISKS RELATING TO THE IMPORTANCE OF CERTAIN PUBLICATIONS
Certain of the Company's publications have historically represented a
significant portion of the Company's net revenues and operating contribution,
and the Company expects that such publications will continue to do so in the
future. Motor Trend, Teen and Hot Rod accounted for 14.3%, 11.4% and 8.5%,
respectively, of the Company's net revenues for the twelve months ended
December 31, 1996 and 16.3%, 12.6% and 8.7%, respectively, for the six months
ended June 30, 1997. In the aggregate, Motor Trend, Teen and Hot Rod accounted
for 50.1% and 41.7% of the Company's operating contribution for the twelve
months ended December 31, 1996 and the six months ended June 30, 1997,
respectively. As compared to industry standards, the Company believes it has a
diversified portfolio of special-interest publications and is not dependent on
any single publication; however, a significant decline in the performance of
any of these publications could have a material adverse effect on the
Company's results of operations.
12
<PAGE>
RISKS ASSOCIATED WITH RECENT NET LOSSES; EXPECTED THIRD QUARTER LOSS
The Acquisition was accounted for using the purchase method of accounting. As
a result, the Company's amortization of goodwill and other intangible assets
has significantly increased to approximately $35.0 million per year. In
addition, due to the effect of the increased borrowings of the Company to
finance the Acquisition, the Company's interest expense increased significantly
in periods following the Acquisition. The on-going impact of amortization and
interest expenses have resulted in the Company reporting significant net losses
in the periods following the Acquisition. The Company reported net losses
applicable to its common equity of $10.6 million and $20.3 million for the
three months ended December 31, 1996 and the six months ended June 30, 1997,
respectively. On a pro forma as adjusted basis giving effect to the Offering
and the application of net proceeds therefrom as described under "Use of
Proceeds" and the refinancing of the Senior Credit Facility, the Company had a
loss before provision for income taxes and extraordinary item of $26.9 million,
or $.79 per share, for the twelve months ended December 31, 1996. In addition,
the Company incurred a non-recurring non-cash compensation charge of $12.2
million in connection with the Exchange in the third quarter of 1997. As a
result of such charge and the on-going impact of the expenses related to the
Acquisition, the Company expects to report a net loss in the third quarter of
1997. There can be no assurance that the Company will report positive net
income in the future.
RISKS ASSOCIATED WITH SIGNIFICANT INDEBTEDNESS
As of June 30, 1997 on a pro forma as adjusted basis giving effect to the
Offering and the application of the net proceeds therefrom as described under
"Use of Proceeds" and the refinancing of the Senior Credit Facility, the
Company would have had outstanding indebtedness of approximately $188.5
million, representing 44.8% of the Company's total capitalization. See
"Capitalization." The Company incurred significant debt in connection with the
Acquisition and, following the Offering, will continue to have significant
indebtedness. The Company's leveraged financial position exposes it to the
risks that: (i) a substantial portion of the Company's cash flow from
operations will be dedicated to the payment of principal and interest on such
indebtedness; (ii) the Company's leveraged position may impede its ability to
obtain financing in the future for working capital, capital expenditures and
general corporate purposes; and (iii) the Company's leveraged financial
position may make it more vulnerable to economic downturns and may limit its
ability to withstand competitive pressures. The Company believes that it will
have sufficient capital to carry on its business and will be able to meet its
scheduled debt service requirements. However, there can be no assurance that
the future cash flow of the Company will be sufficient to meet the Company's
obligations and commitments. If the Company is unable to generate sufficient
cash flow from operations in the future to service its indebtedness and to meet
its other commitments, the Company will be required to adopt one or more
alternatives, such as refinancing or restructuring its indebtedness, selling
material assets or operations or seeking to raise additional debt or equity
capital. There can be no assurance that any of these actions could be effected
on a timely basis or on satisfactory terms or that these actions would enable
the Company to continue to satisfy its capital requirements. In addition, the
terms of existing or future debt agreements may prohibit the Company from
adopting any of these alternatives. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Liquidity and Capital
Resources."
The agreements governing the outstanding indebtedness of the Company impose
certain operating and financial restrictions on the Company. Specifically, the
Senior Credit Facility and the indenture (the "Indenture") pursuant to which
the Notes were issued contain certain restrictive covenants, including, but not
limited to, restrictions on incurrence of debt, dividend payments, certain
asset sales, transactions with affiliates, liens and investments.
Contemporaneously with the Offering, the Company intends to refinance its
existing indebtedness under the Senior Credit Facility with a new senior credit
facility (the "New Credit Facility"). The Company anticipates that the New
Credit Facility will impose operating and financial restrictions on the Company
similar to those contained in the Senior Credit Facility. A failure to comply
with the obligations in the Senior Credit Facility, the New Credit Facility or
the Indenture, as the case may be, could result in an event of default under
such agreements, which, if not cured or waived, would permit acceleration of
the indebtedness thereunder and acceleration of indebtedness under other
instruments that may contain cross-acceleration or cross-default provisions
which could have a material adverse effect on the Company.
13
<PAGE>
RISKS RELATING TO CONCENTRATION OF ADVERTISING REVENUES
For the twelve months ended December 31, 1996, automotive manufacturers and
retailers of original equipment and of aftermarket parts accounted for
approximately 17.0% and 21.5% of the Company's advertising revenues,
respectively. A significant decline in the advertising spending of the
automotive industry could have a material adverse effect on the Company's
results of operations, and could have an effect on quarterly comparisons of
the results of operations and financial condition of the Company. In addition,
advertising spending can be adversely affected by legislation, which may
affect the cost of advertising or the demand for the products of the Company's
advertisers. The Company anticipates that its revenues from manufacturers of
tobacco related products will decrease in the future as a result of the
resolution of certain litigation involving such manufacturers. Advertising
revenues from such manufacturers were $6.9 million, or 3.0% of the Company's
net revenues, for the twelve months ended December 31, 1996, and $3.9 million,
or 3.2% of the Company's net revenues, for the six months ended June 30, 1997.
CYCLICALITY AND SEASONALITY OF REVENUE
The Company's revenues from the publication of its magazines are principally
derived from advertising and circulation. Circulation revenues are generated
from subscription, newsstand and list rental sales. For the six months ended
June 30, 1997, approximately 61.1% of the Company's net revenues were from
advertising, 35.8% were from circulation and 3.1% were from other sources.
Advertising revenues of the Company, as well as those of the consumer magazine
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 advertising
mix, have corresponded with general economic downturns and regional and local
economic recessions. In addition, the Company's business is somewhat seasonal.
The Company typically experiences decreased revenue during the first and
fourth quarters of each calendar year due to the seasonal nature of activities
associated with its publications. For the twelve months ended December 31,
1996, approximately 24.5% of the Company's net revenues were generated in the
first quarter, 26.1% were generated in the second quarter, 25.9% were
generated in the third quarter and 23.5% were generated in the fourth quarter.
For a discussion of the cyclical and seasonal nature of the Company's
revenues, see "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Industry."
CONSOLIDATION OF PRINCIPAL VENDORS
The Company's principal vendors include paper suppliers, printers,
fulfillment houses and national newsstand distributors. Each of these
industries is currently experiencing significant consolidation among their
principal participants. Such consolidation may result in (i) decreased
competition for providing such services and thus increased prices; (ii)
interruptions and delays in services provided by such vendors; and (iii)
greater dependence on certain vendors. Consolidation could adversely affect
the Company's results of operations.
In addition, the historical patterns of newsstand distribution have changed
as a result of the on-going consolidation of newsstand wholesalers and the
shifting focus of such wholesalers to servicing retail outlets instead of
geographic areas. These changes, among others, have led to a decrease in
newsstand sales on an industry-wide basis. Newsstand sales accounted for
approximately 18.5% and 17.7% of the Company's net revenues for the twelve
months ended December 31, 1996 and the six months ended June 30, 1997,
respectively. The Company believes that such changes in newsstand distribution
may have an adverse impact on its results of operations.
COMPETITION
The consumer magazine publishing business is highly competitive. The Company
principally competes for advertising and circulation revenues with publishers
of other special-interest consumer magazines. Certain of such competitors are
larger and have greater financial resources than the Company. Other such
competitors are smaller and are capable of quickly identifying a niche
publication that could compete for the Company's readers and advertisers. In
addition to other special-interest magazines, the Company also competes for
advertising revenues with general-interest magazines and other forms of media,
including broadcast and cable television, radio, newspaper, direct marketing
and electronic media. There can be no assurance that the Company will be able
to compete effectively with such other forms of advertising in the future. See
"Business--Competition."
14
<PAGE>
DEPENDENCE ON KEY PERSONNEL
The Company is dependent on the continued services of its senior management
team. In connection with the Acquisition, the Company retained the services of
certain key employees to serve as senior executives of the Company, including
D. Claeys Bahrenburg, Neal Vitale and Richard S Willis, all of whom have
significant experience in the magazine publishing industry. Messrs.
Bahrenburg, Vitale and Willis each entered into an employment agreement with
the Company, which provides for his continued employment through December 31,
2001 and restricts his ability to compete with the Company during such
employment period and one year thereafter. See "Management--Employment
Agreements." Although the Company believes it could replace such key employees
in an orderly fashion should the need arise, the loss of any such key
personnel could have a material adverse effect on the Company. The Company
will not maintain key person insurance for any of its officers and employees.
See "Management--Directors, Executive Officers and Key Employees."
SIGNIFICANT INFLUENCE OF CERTAIN STOCKHOLDERS
Upon the completion of the Offering, Willis Stein and the other existing
stockholders will own approximately 28.4% and 47.9%, respectively, of the
outstanding Class A Common Stock (27.4% and 46.3%, respectively, if the U.S.
Underwriters' over-allotment option is exercised in full). Under the terms of
a Securityholders Agreement (as defined herein), holders of at least 25% and
up to approximately 45% of the Company's voting securities have agreed or may
agree to vote their shares in favor of those individuals designated by Willis
Stein to serve on the Board of Directors of the Company (the "Board of
Directors" or the "Board") and granted or may grant Willis Stein the right to
vote their shares on all significant corporate changes. As a result, Willis
Stein has the ability to elect all directors and control the policies and
operations of the Company. Such concentration of ownership could also have the
effect of delaying, deterring or preventing a change in control of the Company
that might otherwise be beneficial to stockholders. See "Principal
Stockholders."
POTENTIAL VOLATILITY OF FUTURE OPERATING RESULTS
The Company's operating results may fluctuate on a quarterly basis as a
result of a number of factors, including advertising and newsstand sales,
magazine start-up costs and timing and success of events. Fluctuations in
quarterly results could affect the market price of the Common Stock in a
manner unrelated to the long-term operating performance of the Company.
DIVIDEND POLICY; RESTRICTIONS ON PAYMENT OF DIVIDENDS
The Company intends to retain earnings to support its growth strategy and
reduce indebtedness and does not anticipate paying dividends in the
foreseeable future. As a holding company, the Company's ability to pay
dividends in the future is dependent upon the receipt of dividends or other
payments from its principal operating subsidiary. The payment of dividends by
such subsidiary to the Company for the purpose of paying dividends to holders
of Common Stock is prohibited by the Senior Credit Facility and is restricted
under the Indenture. The Company expects that the New Credit Facility will
likewise prohibit the payment of dividends to the Company for such purpose.
See "Dividend Policy."
ABSENCE OF PRIOR PUBLIC MARKET; MARKET PRICE FLUCTUATIONS
Prior to the Offering, there has been no public market for the Class A
Common Stock. The initial public offering price of the Class A Common Stock
will be determined by negotiations among the Company and the Representatives
(as defined) and may not be indicative of the market price for shares of the
Class A Common Stock after the Offering. For a description of factors
considered in determining the initial public offering price, see
"Underwriters." There can be no assurance that an active trading market for
the Class A Common Stock will develop or if developed, that such market will
be sustained. The market price for shares of the Class A Common Stock may be
significantly affected by such factors as quarter-to-quarter variations in the
Company's results of operations, news announcements or changes in general
market conditions. In addition, broad market fluctuation and general economic
and political conditions may adversely affect the market price of the Class A
Common Stock, regardless of the Company's actual performance.
15
<PAGE>
SUBSTANTIAL AND IMMEDIATE DILUTION
Based upon the Company's pro forma net tangible book value deficit as of
June 30, 1997, purchasers of the Class A Common Stock offered hereby will
experience an immediate dilution of $25.04 in the tangible net book value per
share of Class A Common Stock from an assumed initial public offering price of
$16 per share. See "Dilution."
IMPACT OF SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company expects to have 34,090,994
shares of Common Stock outstanding. Of these shares, the 6,250,000 shares of
Class A Common Stock (7,187,500 shares if the U.S. Underwriters' over-
allotment option is exercised in full) sold in the Offering will be freely
tradeable without restriction under the Securities Act of 1933, as amended
(the "Securities Act"), except any such shares which may be acquired by an
"affiliate" of the Company. Approximately 27,840,994 shares of Common Stock
will be eligible for sale in the public market, subject to compliance with the
resale volume limitations and other restrictions of Rule 144 under the
Securities Act, beginning one year after the date of this Prospectus.
Beginning 180 days after the completion of the Offering, the holders of an
aggregate of approximately 7,501,360 shares of Common Stock will have certain
rights to require the Company to register their shares of Common Stock under
the Securities Act at the Company's expense pursuant to the Securityholders
Agreement. In addition, holders of an aggregate of 20,339,634 shares of Common
Stock have certain "piggyback" registration rights under the Securityholders
Agreement (as defined). Future sales of the shares of Common Stock held by
existing stockholders could have an adverse effect on the price of the Class A
Common Stock. See "Shares Eligible for Future Sale."
CERTAIN ANTI-TAKEOVER EFFECTS
Certain provisions of the Company's Certificate of Incorporation and By-laws
may inhibit changes in control of the Company not approved by the Board of
Directors. These provisions include: (i) a classified Board of Directors; (ii)
a prohibition on stockholder action through written consents; (iii) a
requirement that special meetings of stockholders be called only by the Board;
(iv) advance notice requirements for stockholder proposals and nominations;
(v) limitations requiring the affirmative vote of holders of at least 66 2/3%
of the total votes eligible to be cast in the election of directors to amend,
alter or repeal the Company's Restated Certificate of Incorporation and By-
laws; and (vi) the authority of the Board to issue preferred stock with such
terms as the Board may determine without stockholder approval. The Company
will also be afforded the protections of Section 203 of the Delaware General
Corporation Law, which could have similar effects. See "Description of Capital
Stock." The Securityholders Agreement (as defined), provides Willis Stein with
the ability to control the vote on any significant corporate changes, such as
a merger, consolidation or sale of the Company.
In addition, the Indenture provides that upon a "change of control," each
Note holder will have the right to require the Company to purchase all or a
portion of such holder's Notes at a purchase price of 101% of the principal
amount thereof, together with accrued and unpaid interest, if any, to the date
of such redemption. A "change of control" is defined in the Indenture to
include, among other things, any person or group of persons acting in concert
as a partnership or other group (other than members of the Investor Group,
including Willis Stein) acquiring beneficial ownership of securities of the
Company representing 20% of the combined voting power of the then outstanding
securities of the Company. Such obligation, if it arises, could have a
material adverse effect on the Company. Such provision could also delay, deter
or prevent a takeover attempt.
16
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of 6,250,000 shares of Class A
Common Stock in the Offering are estimated to be approximately $92.0 million
(approximately $106.0 million if the U.S. Underwriters' over-allotment option
is exercised in full), assuming an initial public offering price of $16 per
share, the midpoint of the range set forth on the cover page of this
Prospectus. The Company intends to use such net proceeds as follows: (i)
approximately $64.2 million to repay a portion of the indebtedness incurred
under the Senior Credit Facility and (ii) approximately $27.8 million (as of
June 30, 1997) to redeem $25.0 million aggregate principal amount of the Notes
and to pay the redemption premium and accrued and unpaid interest thereon.
The indebtedness to be repaid under the Senior Credit Facility consists of
term loans, which have a scheduled maturity of December 31, 2002 and September
30, 2004. The Tranche A term loan generally amortizes in increasing increments
prior to maturity; the Tranche B term loan is payable primarily in balloon
payments due in 2003 and 2004. Such term loans bear interest at varying rates.
The overall effective interest rate for such indebtedness at August 31, 1997
was approximately 8.53%. In connection with the Offering, the Company expects
to refinance its remaining indebtedness under the Senior Credit Facility after
the application of the net proceeds of the Offering as described above. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
The Company used borrowings under the Senior Credit Facility and proceeds
from the Bridge Financing Facility to finance a portion of the Acquisition.
Proceeds from the sale of the Notes were used to repay the Bridge Financing
Facility. The Notes mature on November 15, 2006, and bear interest at the rate
of 11 1/8% per annum. The redemption of the Notes will be effected as soon as
practicable following the completion of the Offering. Pending such redemption,
the Company will invest such proceeds in short-term, investment grade,
interest-bearing securities. The amount necessary to redeem the Notes will
change depending on the actual date of the redemption. Any additional amount
so required will reduce the amount to be repaid under the Senior Credit
Facility.
The reduction in the Company's indebtedness as a result of the application
of the net proceeds of the Offering will enhance the Company's ability to make
acquisitions of publications and businesses complementary to the Company's
existing portfolio. See "Business--Business and Operating Strategy." The
Company, however, currently has no definitive agreements with respect to any
acquisitions, nor can there be any assurance that the Company will make any
such acquisition in the future.
17
<PAGE>
THE REORGANIZATION
The Company is a holding company that serves as Petersen's sole managing
member. The operations of Petersen are conducted by its operating subsidiary,
Petersen Publishing Company, L.L.C. ("Publishing"). The outstanding equity
securities of Petersen and the Company are held by a common group of investors
in the same relative proportions (other than certain equity interests of
Petersen held by management). The outstanding equity securities of Petersen
consist of one class of preferred units (the "Preferred Units") and two
classes of common units (the "Common Units"), designated as Class A and Class
D. There are five series of Class D Common Units.
Prior to the consummation of the Offering, all of the existing
securityholders of the Company and Petersen will enter into a Contribution and
Recapitalization Agreement (the "Recapitalization Agreement") pursuant to
which, among other things, each existing securityholder of the Company and
Petersen will contribute directly or indirectly all of its existing shares of
common stock of the Company and Preferred Units and Common Units of Petersen
to the Company in exchange for newly-issued shares of Common Stock. Pursuant
to the Recapitalization Agreement: (i) all of the Preferred Units of Petersen
will be exchanged for an aggregate of 11,708,907 shares of Common Stock
(assuming an initial public offering price of $16 per share, the midpoint of
the range set forth on the cover page of this Prospectus) and (ii) all of the
Class A and Class D Common Units of Petersen and all of the common stock of
the Company will be exchanged for an aggregate of 16,132,087 shares of Common
Stock. The number of shares of Common Stock that will be issued under the
Recapitalization Agreement to the existing securityholders of the Company and
Petersen will be determined according to the relative preference rankings of
such securities and will be based upon the initial public offering price of
the Class A Common Stock. The actual number of shares to be issued to each
securityholder in exchange for its Preferred Units under the Recapitalization
Agreement is subject to change based upon changes in the assumed initial
public offering price and the effective date of the transactions contemplated
by the Recapitalization Agreement. Following the transactions contemplated by
the Recapitalization Agreement, Petersen will be merged into Publishing. The
transactions described above are collectively referred to herein as the
"Reorganization." The Reorganization is conditioned upon the completion of the
Offering contemplated hereby.
Upon completion of the Reorganization, the Company's authorized capital will
include two classes of Common Stock, Class A Common Stock and Class B Common
Stock, which will be identical in all respects except that the Class B Common
Stock will be non-voting and will be convertible into Class A Common Stock
under certain circumstances. The Class B Common Stock will be issued in order
to enable the holders thereof, which are affiliates of bank holding companies,
to comply with regulatory requirements applicable to them.
Set forth below is the organizational structure of the Company, Petersen and
Publishing immediately prior to and following the Reorganization:
Prior to the Reorganization: After the Reorganization:
[LOGO OF THE REORGANIZATION]
18
<PAGE>
CAPITALIZATION
The following table sets forth at June 30, 1997: (i) the actual
capitalization of Petersen and the Company on a combined basis; (ii) the pro
forma capitalization of the Company after giving effect to the Exchange and
the Reorganization; and (iii) the pro forma as adjusted capitalization of the
Company to reflect (a) the sale by the Company of 6,250,000 shares of Class A
Common Stock pursuant to the Offering, assuming an initial public offering
price of $16 per share (the midpoint of the range set forth on the cover page
of this Prospectus), and the application of the net proceeds therefrom as
described under "Use of Proceeds" and (b) the refinancing of the Senior Credit
Facility. This table should be read in conjunction with "Selected Historical
Consolidated Financial Data," "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Unaudited Pro Forma Financial
Data" and the audited financial statements and the notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1997
---------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- ---------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Long-term debt, current portion.............. $ 6,000 $ 6,000 $ --
======== ======== ========
Long-term debt, less current portion:
Senior Credit Facility..................... $171,750 $171,750 $113,531
Senior Subordinated Notes.................. 100,000 100,000 75,000
-------- -------- --------
Total long-term debt, less current por-
tion.................................... 271,750 271,750 188,531
-------- -------- --------
Members' and Stockholders' equity:
Common Units............................... 1,707 -- --
Preferred Units............................ 181,464 -- --
Common Stock............................... 153 -- --
Preferred Stock, $0.01 par value, 5,000,000
shares authorized; no shares issued on an
actual, pro forma and pro forma as
adjusted basis............................ -- -- --
Class A Common Stock, $0.01 par value,
75,000,000 shares authorized; no shares
issued on an actual basis; 20,158,362
shares issued on a pro forma basis; and
26,408,362 shares issued on a pro forma as
adjusted basis (1)........................ -- 202 264
Class B Common Stock, $0.01 par value,
25,000,000 shares authorized; no shares
issued on an actual basis; 7,682,632
shares issued on a pro forma and pro forma
as adjusted basis......................... -- 77 77
Additional paid-in capital................. -- 195,225 284,382
Accumulated deficit (2).................... (30,944) (43,124) (50,363)
Less: Notes receivable from related
parties................................... (1,750) (1,750) (1,750)
-------- -------- --------
Total equity............................. 150,630 150,630 232,610
-------- -------- --------
Total capitalization................... $422,380 $422,380 $421,141
======== ======== ========
</TABLE>
- --------
(1) Does not include: (i) 320,685 shares of Class A Common Stock issuable upon
the exercise of options granted under the 1997 Incentive Plan or (ii)
1,811,141 additional shares of Class A Common Stock reserved for grants or
awards under the New Incentive Plan or Stock Purchase Plan.
(2) Pro forma accumulated deficit reflects the non-recurring non-cash
compensation charge of $12,180 related to the Exchange. The Company
determined the amount of such compensation charge based upon the
difference in value of the Class D Common Units and the Class B Common
Units and Class C Common Units. The value of the Class D Common Units was
determined by the Board of Directors as of the date of issuance based
primarily upon an independent appraisal of the Company. Pro forma as
adjusted accumulated deficit reflects the write-off of the remaining
unamortized deferred financing costs of $7,239 resulting from the
reduction of debt and the refinancing of the Company's Senior Credit
Facility.
19
<PAGE>
DIVIDEND POLICY
Since the Acquisition, the Company has not declared or paid any cash or
other dividends on its Common Stock and does not expect to pay dividends for
the foreseeable future. The Company anticipates that all of its earnings in
the foreseeable future will be used to support its growth strategy and reduce
indebtedness. As a holding company, the ability of the Company to pay
dividends in the future is dependent upon the receipt of dividends or other
payments from its principal operating subsidiary, Publishing. The payment of
dividends by Publishing to the Company for purposes of paying dividends to
holders of Common Stock is prohibited by the Senior Credit Facility and
restricted by the Indenture. The Company anticipates that the New Credit
Facility will likewise prohibit the payment of dividends by Publishing to the
Company for such purpose. Any future determination to pay dividends will be at
the discretion of the Board of Directors and will depend upon, among other
factors, the Company's results of operations, financial condition, capital
requirements and contractual restrictions. See "Risk Factors--Dividend Policy;
Restrictions on Payment of Dividends."
20
<PAGE>
DILUTION
The pro forma net tangible book value of the Company as of June 30, 1997 was
a deficit of $396.7 million, or $(14.25) per share of Common Stock. Pro forma
net tangible book value per share is determined by dividing the tangible net
worth of the Company (total assets less intangible assets and total
liabilities) by the aggregate number of shares of Common Stock outstanding,
assuming the Reorganization had taken place on June 30, 1997. After giving
effect to the sale of the 6,250,000 shares of Class A Common Stock offered
hereby (at an assumed initial public offering price of $16 per share, the
midpoint of the range set forth on the cover page of this Prospectus) and the
receipt and application of the net proceeds therefrom, pro forma net tangible
book value of the Company as of June 30, 1997 would have been a deficit of
approximately $308.0 million, or $(9.04) per share. This represents an
immediate increase in pro forma net tangible book value of $5.21 per share to
the current stockholders of the Company and an immediate dilution in pro forma
net tangible book value of $25.04 per share to purchasers of Class A Common
Stock in the Offering. The following table illustrates this per share
dilution.
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............ $16.00
Pro forma net tangible book value per share at June 30,
1997...................................................... (14.25)
Increase in pro forma net tangible book value per share
attributable to purchasers in the Offering................ 5.21
------
Pro forma net tangible book value per share after the
Offering.................................................. (9.04)
------
Dilution in pro forma net tangible book value per share to
purchasers of
Class A Common Stock in the Offering (1).................. $25.04
======
</TABLE>
- --------
(1) Dilution is determined by subtracting pro forma net tangible book value
per share after the Offering from the initial public offering price per
share.
The following table summarizes, on a pro forma basis, as of June 30, 1997,
the number of shares purchased, the total consideration paid (or to be paid)
and the average price per share paid (or to be paid) by the existing
stockholders and the purchasers of Class A Common Stock in the Offering, at an
assumed initial public offering price of $16 per share (the midpoint of the
range set forth on the cover page of this Prospectus), before deducting the
estimated offering expenses and underwriting discounts and commissions:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------ ---------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- -------------- ------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Existing stockholders....... 27,840,994 81.7% $168,160 62.7% $6.04
Purchasers of Class A Common
Stock in the Offering...... 6,250,000 18.3 100,000 37.3 16.00
---------- ----- -------- -----
Total..................... 34,090,994 100.0% $268,160 100.0%
========== ===== ======== =====
</TABLE>
The foregoing calculations exclude an aggregate of: (i) 320,685 shares of
Class A Common Stock issuable upon the exercise of options granted under the
1997 Incentive Plan or (ii) 1,811,141 additional shares of Class A Common
Stock reserved for grants or awards under the New Incentive Plan or Stock
Purchase Plan.
21
<PAGE>
UNAUDITED PRO FORMA FINANCIAL DATA
The following unaudited pro forma financial data (the "Unaudited Pro Forma
Financial Data") of the Company have been derived by the application of pro
forma adjustments to the historical financial statements of the Company,
Predecessor and Petersen for the periods indicated. The adjustments are
described in the accompanying notes. The twelve month period ended December
31, 1996 includes the operations of the Company from the period of inception
(August 15, 1996) to December 31, 1996, the operations of the Predecessor for
the nine months ended September 30, 1996 and the operations of Petersen for
the three months ended December 31, 1996 on a combined basis.
The unaudited pro forma statement of operations data for the twelve months
ended December 31, 1996 and for the six months ended June 30, 1996 give effect
to: (i) the Acquisition and the financing transactions and reduced operating
costs related thereto; (ii) the Reorganization; (iii) the Offering and the
application of the net proceeds therefrom as described under "Use of
Proceeds"; and (iv) the refinancing of the Company's Senior Credit Facility,
each as if they had occurred at the beginning of each such period. The
unaudited pro forma statement of operations data for the six months ended June
30, 1997 give effect to the transactions described in items (ii) through (iv)
above as if such transactions had occurred at the beginning of such period.
The unaudited pro forma statement of operations data do not give effect to the
non-recurring non-cash compensation charge of $12.2 million related to the
Exchange. The unaudited pro forma balance sheet data as of June 30, 1997 give
effect to the Exchange and the transactions described in items (ii) through
(iv) above as if such transactions occurred on such date. The Unaudited Pro
Forma Financial Data are provided for informational purposes only and do not
purport to represent the results of operations or financial position of the
Company had such transactions in fact occurred on such dates, nor do they
purport to be indicative of the financial position or results of operations as
of any future date or for any future period.
The Unaudited Pro Forma Financial Data and accompanying notes should be read
in conjunction with the financial statements and accompanying notes thereto
and the other financial information included elsewhere in this Prospectus.
22
<PAGE>
THE PETERSEN COMPANIES, INC.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS AND OTHER DATA
<TABLE>
<CAPTION>
COMPANY PREDECESSOR PETERSEN
----------------- ------------- ------------
ACTUAL
--------------------------------------------
NINE MONTHS THREE MONTHS
AUGUST 15, 1996 ENDED ENDED
(INCEPTION) TO SEPTEMBER 30, DECEMBER 31,
DECEMBER 31, 1996 1996 1996
----------------- ------------- ------------
<S> <C> <C> <C>
Net revenues.... $ -- $173,935 $ 53,277
Production,
selling and
other direct
costs.......... -- 137,301 41,223
------- -------- --------
Gross profit.... -- 36,634 12,054
General and
administrative
expenses....... -- 22,439 2,666
Amortization of
goodwill and
other
intangible
assets......... -- 307 8,992
------- -------- --------
Operating income
(loss)......... -- 13,888 396
Interest
income......... -- 472 113
Interest
expense........ -- (185) (11,114)
Gain on sale of
assets......... -- 1,554 --
------- -------- --------
Income (loss)
before equity
in loss of
subsidiary
minority
interest and
provision for
income taxes... -- 15,729 (10,605)
Equity in loss
of subsidiary.. (11) -- --
Minority
members' equity
in loss of
subsidiary..... -- -- 11
------- -------- --------
Income (loss)
before
provision for
income taxes
and
extraordinary
item........... (11) 15,729 (10,594)
Provision for
income taxes... -- (298) --
------- -------- --------
Income (loss)
before
extraordinary
item........... $ (11) $ 15,431 $(10,594)
======= ======== ========
Pro forma net
loss per
share (4)(5)...
Shares used in
computing pro
forma net loss
per share (5)..
EBITDA (6)...... $ (11) $ 16,785 $ 10,090
</TABLE>
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED DECEMBER 31, 1996
----------------------------------------------------------------------
PRO FORMA ADJUSTMENTS
-------------------------------------------------
ACQUISITION
AND REORGANIZATION (2),
OPERATING OFFERING AND
COMBINED ELIMINATIONS IMPROVEMENTS (1) REFINANCING (3) PRO FORMA
-------- ------------ ---------------- ------------------- ----------
<S> <C> <C> <C> <C> <C>
Net revenues.... $227,212 $ -- $ -- $ -- $ 227,212
Production,
selling and
other direct
costs.......... 178,524 -- (3,397) -- 175,127
-------- ------ -------- ------- ----------
Gross profit.... 48,688 -- 3,397 -- 52,085
General and
administrative
expenses....... 25,105 -- (3,698) -- 21,407
Amortization of
goodwill and
other
intangible
assets......... 9,299 -- 26,978 -- 36,277
-------- ------ -------- ------- ----------
Operating income
(loss)......... 14,284 -- (19,883) -- (5,599)
Interest
income......... 585 -- (472) -- 113
Interest
expense........ (11,299) -- (23,124) 11,496 (22,927)
Gain on sale of
assets......... 1,554 -- -- -- 1,554
-------- ------ -------- ------- ----------
Income (loss)
before equity
in loss of
subsidiary
minority
interest and
provision for
income taxes... 5,124 -- (43,479) 11,496 (26,859)
Equity in loss
of subsidiary.. (11) 11 -- -- --
Minority
members' equity
in loss of
subsidiary..... 11 (11) -- -- --
-------- ------ -------- ------- ----------
Income (loss)
before
provision for
income taxes
and
extraordinary
item........... 5,124 -- (43,479) 11,496 (26,859)
Provision for
income taxes... -- -- 298 -- --
-------- ------ -------- ------- ----------
Income (loss)
before
extraordinary
item........... $ 5,124 $ -- $(43,181) $11,496 $ (26,859)
======== ====== ======== ======= ==========
Pro forma net
loss per
share (4)(5)... $ (.79)
==========
Shares used in
computing pro
forma net loss
per share (5).. 34,090,994
==========
EBITDA (6)...... $ 26,875 $ -- $ 6,623 $ -- $ 33,487
</TABLE>
See Notes to Unaudited Pro Forma Statement of Operations and Other Data.
23
<PAGE>
THE PETERSEN COMPANIES, INC.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS AND OTHER DATA
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1996
-----------------------------------------------------------
PRO FORMA ADJUSTMENTS
------------------------------------
ACQUISITION REORGANIZATION (2),
PREDECESSOR AND OPERATING OFFERING AND
ACTUAL IMPROVEMENTS (1) REFINANCING (3) PRO FORMA
----------- ---------------- ------------------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net revenues............ $115,040 $ -- $ -- $ 115,040
Production, selling and
other direct costs..... 91,971 (2,348) -- 89,623
-------- -------- ------ ----------
Gross profit............ 23,069 2,348 -- 25,417
General and
administrative
expenses............... 12,903 (2,484) -- 10,419
Amortization of goodwill
and other intangible
assets................. 196 17,985 -- 18,181
-------- -------- ------ ----------
Operating income
(loss)................. 9,970 (13,153) -- (3,183)
Interest income......... 238 (238) -- --
Interest expense........ (153) (20,359) 5,749 (14,763)
Gain on sale of assets.. 1,554 -- -- 1,554
-------- -------- ------ ----------
Income (loss) before
provision for income
taxes and extraordinary
item................... 11,609 (33,750) 5,749 (16,392)
Provision for income
taxes.................. (199) 199 -- --
-------- -------- ------ ----------
Income (loss) before
extraordinary item..... $ 11,410 $(33,551) $5,749 $ (16,392)
======== ======== ====== ==========
Pro forma net loss per
share (4)(5)........... $ (.48)
==========
Shares used in computing
pro forma net loss per
share (5).............. 34,090,994
==========
EBITDA (6).............. $ 11,875 $ 4,594 $ -- $ 16,469
</TABLE>
See Notes to Unaudited Pro Forma Statement of Operations and Other Data.
24
<PAGE>
THE PETERSEN COMPANIES, INC.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS AND OTHER DATA
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1997
--------------------------------------------------------------------------
REORGANIZATION (2),
COMPANY PETERSEN OFFERING AND
ACTUAL ACTUAL CONSOLIDATED ELIMINATIONS REFINANCING (3) PRO FORMA
------- -------- ------------ ------------ ------------------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Net revenues............ $ -- $120,143 $120,143 $ -- $ -- $ 120,143
Production, selling and
other direct costs..... -- 82,440 82,440 -- -- 82,440
----- -------- -------- ----- ------ ----------
Gross profit............ -- 37,703 37,703 -- -- 37,703
General and administra-
tive expenses.......... 2 8,955 8,957 -- -- 8,957
Amortization of goodwill
and other intangible
assets................. -- 18,151 18,151 -- -- 18,151
----- -------- -------- ----- ------ ----------
Operating income
(loss)................. (2) 10,597 10,595 -- -- 10,595
Interest income......... -- 355 355 -- -- 355
Interest expense........ -- (15,853) (15,853) -- 5,749 (10,104)
Loss on sale of assets.. -- (33) (33) -- -- (33)
----- -------- -------- ----- ------ ----------
Income (loss) before mi-
nority interest and
provision for income
taxes.................. (2) (4,934) (4,936) -- 5,749 813
Equity in loss of sub-
sidiary................ (5) -- (5) 5 -- --
Minority members' equity
in loss of subsidiary.. -- 5 5 (5) -- --
----- -------- -------- ----- ------ ----------
Income (loss) before
provision for income
taxes and extraordinary
item................... (7) (4,929) (4,936) -- 5,749 813
Provision for income
taxes.................. -- -- -- -- -- --
----- -------- -------- ----- ------ ----------
Income (loss) before ex-
traordinary item....... $ (7) $ (4,929) $ (4,936) $ -- $5,749 $ 813
===== ======== ======== ===== ====== ==========
Pro forma net income per
share (4)(5)........... $ .02
==========
Shares used in computing
pro forma net income
per share (5).......... 34,090,994
==========
EBITDA (6) ............. $ (7) $ 30,030 $ -- $ -- $ -- $ 30,023
</TABLE>
See Notes to Unaudited Pro Forma Statement of Operations and Other Data.
25
<PAGE>
NOTES TO UNAUDITED PRO FORMA STATEMENT OF OPERATIONS AND OTHER DATA
(DOLLARS IN THOUSANDS)
(1) The Acquisition occurred on September 30, 1996. As a result, transactions
associated with the Acquisition were not recorded on the books and records
of the Predecessor and are not reflected in the actual Statement of
Operations Data of the Predecessor. Therefore, the following pro forma
adjustments have been made to reflect the transactions associated with the
Acquisition for the twelve months ended December 31, 1996 and for the six
months ended June 30, 1996, as if the Acquisition had occurred at the
beginning of the period presented. The adjustments for the twelve months
ended December 31, 1996 only apply to the nine months ended September 30,
1996 since the impact of the Acquisition has been reflected in the actual
amounts for the three months ended December 31, 1996.
(a) Amortization of goodwill and other intangible assets would have
increased as follows:
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, 1996 JUNE 30, 1996
------------------- ----------------
<S> <C> <C>
Goodwill............................ $17,978 $11,985
Subscriber list..................... 9,000 6,000
------- -------
Total increase in amortization of
goodwill and other intangible
assets............................. $26,978 $17,985
======= =======
</TABLE>
(b) Had the debt issued to finance the Acquisition been issued at the
beginning of the period presented, interest expense would have
increased and the deferred financing costs associated with the issuance
of the debt would have been amortized during the period. As a result,
total interest would have increased as follows:
<TABLE>
<CAPTION>
AVERAGE
INTEREST AMOUNT TWELVE MONTHS ENDED SIX MONTHS ENDED
RATE OUTSTANDING DECEMBER 31, 1996 JUNE 30, 1996
-------- ----------- ------------------- ----------------
<S> <C> <C> <C> <C>
SENIOR CREDIT FACILITY:
Tranche A & B term
loans.................. 9.0% $200,000 $13,500 $ 9,000
Revolver (commitment
fee)................... .5 60,000 225 150
Additional amortization
of deferred financing
costs.................. 755 504
SENIOR SUBORDINATED
NOTES:
Notes................... 11.125 100,000 8,344 5,563
Additional amortization
of deferred financing
costs.................. 300 200
BRIDGE FINANCING
FACILITY:
Interest expense........ 8.0 100,000 -- 1,980
Amortization of deferred
financing costs........ -- 2,962
------- -------
Total additional
interest expense....... $23,124 $20,359
======= =======
</TABLE>
(c) As a result of the Acquisition, cash on hand at September 30, 1996 was
retained by the Predecessor. Petersen is a limited liability company
with a minority interest owned by The Petersen Companies, Inc. These
changes result in the following pro forma adjustments for the twelve
months ended December 31, 1996 and for the six months ended June 30,
1996, as if the Acquisition had occurred at the beginning of the period
presented.
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, 1996 JUNE 30, 1996
------------------- ----------------
<S> <C> <C>
Reduction in interest income........ $472 $238
Reduction in provision for income
taxes.............................. 298 199
</TABLE>
26
<PAGE>
NOTES TO UNAUDITED PRO FORMA STATEMENT OF OPERATIONS AND OTHER DATA
(DOLLARS IN THOUSANDS)
The Predecessor was an S corporation, and as such recorded a provision
for certain state taxes. Petersen is a limited liability company,
therefore, the obligation for federal and state taxes is that of the
members. As a result, the provision for income taxes has been
eliminated.
(d) Subsequent to the Acquisition, management of Petersen implemented a
plan to reduce operating costs which included the replacement of the
Predecessor's executive management team by Petersen's executive
management team, the termination of employees in various corporate and
operating positions, a revised travel and entertainment policy and the
renegotiation of vendor contracts and the lease governing Petersen's
corporate headquarters. As a result of this plan, savings were realized
in "Production, selling and other direct costs" and "General and
administrative expenses." The following table reflects these savings as
if the plan had been implemented at the beginning of the periods
presented (in thousands):
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, 1996 JUNE 30, 1996
------------------- ----------------
<S> <C> <C>
Production, selling and other
direct costs:
Renegotiated lease............... $ 322 $ 215
Employee terminations............ 2,351 1,650
Subleasing of excess space....... 516 344
Reduced travel and
entertainment................... 208 139
------- -------
Total savings of production,
selling and other direct costs.. $ 3,397 $ 2,348
======= =======
General and administrative:
Employee terminations............ $ 488 $ 343
Elimination of Predecessor's
executive management costs...... 4,543 3,029
New executive management costs... (1,958) (1,305)
Reduced travel and
entertainment................... 625 417
------- -------
Total savings of general and
administrative.................. $ 3,698 $ 2,484
======= =======
</TABLE>
(2) On July 31, 1997, Petersen issued Class D Common Units in exchange for all
outstanding Class B Common Units and Class C Common Units. As a result,
the Company recorded a non-recurring non-cash compensation charge of
$12,180 in the third quarter of 1997. The Company determined the amount of
such compensation charge based upon the incremental value transferred in
the exchange of the Class B Common Units and Class C Common Units for the
Class D Common Units. The value of the Class D Common Units was determined
by the Board of Directors as of the date of issuance based primarily upon
an independent appraisal of the Company. Such amount has not been
reflected in the Pro Forma Statements of Operations Data for any of the
periods presented. See "Certain Relationships and Related Transactions."
(3) The column titled "Reorganization, Offering and Refinancing" reflects: (i)
net proceeds from the Offering of 6,250,000 shares of Class A Common Stock
offered hereby (at an assumed initial public offering price of $16 per
share, the midpoint of the range set forth on the cover page of this
Prospectus); (ii) the use of the net proceeds as follows: (a)
approximately $64,219 to repay a portion of the indebtedness incurred
under the Senior Credit Facility and (b) approximately $27,781 (as of June
30, 1997) to redeem $25,000 aggregate principal amount of the Notes and to
pay the redemption premium and accrued and unpaid interest thereon; and
(iii) the refinancing of the remaining amount outstanding under the Senior
Credit Facility, as described below, as if each of these transactions had
occurred at the beginning of the period presented. As a result, the
following pro forma adjustments are required:
27
<PAGE>
NOTES TO UNAUDITED PRO FORMA STATEMENT OF OPERATIONS AND OTHER DATA
(DOLLARS IN THOUSANDS)
(a) Interest expense would have been reduced as a result of the reduction
in debt. Such reduction would be offset by the amortization of deferred
financing costs associated with the paydown of debt. The net savings in
interest expense would be as follows:
<TABLE>
<CAPTION>
SIX SIX
TWELVE MONTHS MONTHS
AVERAGE MONTHS ENDED ENDED ENDED
INTEREST AMOUNT DECEMBER 31, JUNE 30, JUNE 30,
RATE PAID 1996 1996 1997
-------- ------- ------------ -------- --------
<S> <C> <C> <C> <C> <C>
Senior Credit Facility.. 9.0% $64,219 $5,780 $2,890 $2,890
Senior Subordinated
Notes.................. 11.125 25,000 2,781 1,391 1,391
------ ------ ------
Net reduction in
interest expense
associated with debt
reductions............. $8,561 $4,281 $4,281
====== ====== ======
</TABLE>
(b) Upon completion of the Offering, the Company plans to refinance the
remaining amount outstanding under the Senior Credit Facility at a more
favorable interest rate. As a result, interest expense will be
increased due to the remaining deferred financing costs associated with
the Senior Credit Facility being amortized, offset by the interest rate
reduction. In addition, costs associated with the new credit facility
will be capitalized and amortized over the term of the new debt. For
pro forma purposes, only the interest rate reduction and the
amortization of new deferred financing costs are included below. The
amortization of the deferred financing costs associated with the Senior
Credit Facility are treated as an extraordinary item resulting in a
decrease in interest expense.
<TABLE>
<CAPTION>
REDUCTION SIX SIX
IN TWELVE MONTHS MONTHS
AVERAGE MONTHS ENDED ENDED ENDED
INTEREST AMOUNT DECEMBER 31, JUNE 30, JUNE 30,
RATE REFINANCED 1996 1996 1997
--------- ---------- ------------ -------- --------
<S> <C> <C> <C> <C> <C>
Interest rate
reduction.............. 2.25% $135,781 $3,055 $1,528 $1,528
Amortize new deferred
financing costs........ (120) (60) (60)
------ ------ ------
Net decrease in interest
expense as a result of
debt refinance......... $2,935 $1,468 $1,468
====== ====== ======
</TABLE>
As a result of the transactions described in (a) and (b) above, interest
expense would have been reduced by $11,496, $5,749 and $5,749 for the
twelve months ended December 31, 1996 and the six months ended June 30,
1996 and 1997, respectively.
(4) The pro forma net loss per share excludes the extraordinary loss on early
extinguishment of debt of $8,049, $8,049 and $6,986 for the twelve months
ended December 31, 1996 and the six months ended June 30, 1996 and 1997,
respectively.
(5) Pro forma net income (loss) per share is based on the weighted average
shares outstanding after giving effect to 6,250,000 shares to be issued in
connection with the Offering and 27,840,994 shares to be issued in
connection with the Reorganization (assuming an initial public offering
price of $16, the midpoint of the range set forth on the cover page of
this Prospectus). See "The Reorganization."
(6) "EBITDA" is defined as income before interest expense, income taxes,
depreciation and amortization and gain on sale of assets. EBITDA is not a
measure of performance under generally accepted accounting principles
("GAAP"). Such items excluded from income in calculating EBITDA are
significant components in understanding and evaluating the Company's
financial performance. While EBITDA should not be considered in isolation
or as a substitute for net income, cash flows from operating activities
and other income or cash flow statement data prepared in accordance with
GAAP or as a measure of profitability or liquidity, management understands
that EBITDA is customarily used in evaluating the equity value of magazine
publishing companies. The EBITDA measures presented herein may not be
comparable to similarly titled measures of other companies.
28
<PAGE>
THE PETERSEN COMPANIES, INC.
UNAUDITED PRO FORMA BALANCE SHEET DATA
<TABLE>
<CAPTION>
AS OF JUNE 30, 1997
-----------------------------------------------------------------------------------------
ACTUAL
----------------- EXCHANGE AND OFFERING AND
COMPANY PETERSEN ELIMINATIONS CONSOLIDATED REORGANIZATION (1) REFINANCING (2) PRO FORMA
------- -------- ------------ ------------ ------------------ --------------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents........... $ -- $ 6,923 $ -- $ 6,923 $ -- $ (600) $ 6,323
Accounts receivable,
net................... -- 24,011 -- 24,011 -- -- 24,011
Inventories............ -- 3,721 -- 3,721 -- -- 3,721
Current portion of
deferred subscription
acquisition costs..... -- 40,711 -- 40,711 -- -- 40,711
Deferred direct mail
advertising costs..... -- 2,340 -- 2,340 -- -- 2,340
Prepaid expenses and
other current assets.. -- 653 -- 653 -- -- 653
------ -------- ------- -------- --------- -------- --------
Total current assets.... -- 78,359 -- 78,359 -- (600) 77,759
Investment in
Publishing............. 149 -- (149) -- -- -- --
Investment in Petersen
....................... 1,513 -- (1,513) -- -- -- --
Deferred subscription
acquisition costs...... -- 44,680 -- 44,680 -- -- 44,680
Property and equipment,
net.................... -- 3,360 -- 3,360 -- -- 3,360
Goodwill, net........... -- 341,595 -- 341,595 -- -- 341,595
Subscriber list, net.... -- 111,000 -- 111,000 -- -- 111,000
Deferred financing
costs.................. -- 9,352 -- 9,352 -- (6,639) 2,713
Other assets............ -- 631 -- 631 -- -- 631
------ -------- ------- -------- --------- -------- --------
Total assets............ $1,662 $588,977 $(1,662) $588,977 $ -- $ (7,239) $581,738
====== ======== ======= ======== ========= ======== ========
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable and
accrued liabilities... $ -- $ 16,623 $ -- $ 16,623 $ -- $ -- $ 16,623
Accrued payroll and
related costs......... -- 4,098 -- 4,098 -- -- 4,098
Accrued interest....... -- 3,628 -- 3,628 -- -- 3,628
Customer incentive
bonuses............... -- 5,735 -- 5,735 -- -- 5,735
Current portion of
unearned subscription
revenues, net......... -- 69,517 -- 69,517 -- -- 69,517
Current portion of
long-term debt........ -- 6,000 -- 6,000 -- (6,000) --
Other accrued expenses
and current
liabilities........... -- 261 -- 261 -- -- 261
------ -------- ------- -------- --------- -------- --------
Total current
liabilities............ -- 105,862 -- 105,862 -- (6,000) 99,862
Unearned subscription
revenues, net.......... -- 52,071 -- 52,071 -- -- 52,071
Senior credit facility.. -- 171,750 -- 171,750 -- (58,219) 113,531
Senior subordinated
notes.................. -- 100,000 -- 100,000 -- (25,000) 75,000
Other noncurrent
liabilities............ -- 8,664 -- 8,664 -- -- 8,664
------ -------- ------- -------- --------- -------- --------
Total liabilities....... -- 438,347 -- 438,347 -- (89,219) 349,128
Due to minority
members................ -- 149 (149) -- -- -- --
Members' equity:
Common units........... -- 1,707 -- 1,707 (1,707) -- --
Preferred units........ -- 181,464 -- 181,464 (181,464) -- --
Accumulated deficit.... -- (30,942) -- (30,942) 30,942 -- --
Less: Notes receivable
from related parties.. -- (1,748) -- (1,748) 1,748 -- --
------ -------- ------- -------- --------- -------- --------
Total members' equity... -- 150,481 -- 150,481 (150,481) -- --
------ -------- ------- -------- --------- -------- --------
Stockholders' equity:
Common stock........... 1,682 -- (1,529) 153 126 62 341
Additional paid-in
capital............... -- -- -- -- 195,225 89,157 284,382
Accumulated deficit.... (18) -- 16 (2) (43,122) (7,239) (50,363)
Less: Notes receivable
from related parties.. (2) -- -- (2) (1,748) -- (1,750)
------ -------- ------- -------- --------- -------- --------
Total stockholders'
equity................. 1,662 -- (1,513) 149 150,481 81,980 232,610
------ -------- ------- -------- --------- -------- --------
Total liabilities and
equity................. $1,662 $588,977 $(1,662) $588,977 $ -- $ (7,239) $581,738
====== ======== ======= ======== ========= ======== ========
</TABLE>
See Notes to Unaudited Pro Forma Balance Sheet Data.
29
<PAGE>
NOTES TO UNAUDITED PRO FORMA BALANCE SHEET DATA
(DOLLARS IN THOUSANDS)
(1) On July 31, 1997, Petersen issued Class D Common Units in exchange for
all outstanding Class B Common Units and Class C Common Units in the
Exchange. As a result, the Company recorded a non-recurring non-cash
compensation charge of $12,180 in the third quarter of 1997. Such
amount has been reflected in the pro forma balance sheet data. In
connection with the Reorganization, all of the outstanding Preferred
Units and Common Units will be converted into shares of Common Stock.
As a result, the members' equity of the limited liability company will
be transferred into the appropriate equity account of the Company.
(2) The column titled "Offering and Refinancing" reflects the following pro
forma adjustments as if each of the following transactions had occurred
at June 30, 1997:
(a) net proceeds from the Offering of 6,250,000 shares of Class A
Common Stock offered hereby (at an initial public offering price of
$16 per share, the midpoint of the range set forth on the cover
page of this Prospectus). As a result, Common Stock would have
increased by $62 and additional paid-in capital would have
increased by $89,157.
(b) the use of the net proceeds as follows: (i) approximately $64,219
to repay a portion of the indebtedness incurred under the Senior
Credit Facility (6,000 of which is current and $58,219 of which is
noncurrent) and (ii) approximately $27,781 (as of June 30, 1997) to
redeem $25,000 aggregate principal amount of the Notes and to pay
the redemption premium and accrued and unpaid interest thereon. As
a result of the reduction in the Notes and the Senior Credit
Facility, deferred financing costs of $3,211 were written off.
(c) the refinancing of the remaining amount outstanding under the
Senior Credit Facility. Costs of $600 are anticipated to be
incurred in connection with the refinancing. In addition, a write
off of $4,028 would have been recorded, representing the remaining
unamortized deferred financing costs associated with the Senior
Credit Facility.
As a result of the transactions described in (b) and (c) above,
deferred financing costs associated with the Senior Credit Facility
totaling $7,239 would have been written off. In addition, deferred
financing costs estimated to be $600 associated with the New Credit
Facility would have been capitalized. This would have resulted in a
net decrease in deferred financing costs of $6,639.
30
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
The following table presents selected historical financial data of: (i) the
Predecessor for each of the four years in the period ended November 30, 1995
and the ten months ended September 30, 1996, which have been derived from the
audited financial statements of the Predecessor and (ii) Petersen for the
three months ended December 31, 1996 and the six months ended June 30, 1997,
which have been derived from the audited financial statements of Petersen. The
audited financial statements of the Predecessor for each of the two years in
the period ended November 30, 1995 and the ten months ended September 30, 1996
and of Petersen for the three months ended December 31, 1996 and the six
months ended June 30, 1997 that appear elsewhere in this Prospectus. Each of
the audited financial statements referred to above have been audited by Ernst
& Young LLP, independent certified public accountants. The selected historical
financial data of the Predecessor for the ten months ended September 30, 1995,
the three months ended December 31, 1995 and the six months ended June 30,
1996 have been derived from unaudited financial statements which, in the
opinion of management, include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the results for
the unaudited interim period. Results for the six months ended June 30, 1997
are not necessarily indicative of results that may be expected for the entire
year. The Acquisition was accounted for using the purchase method of
accounting. Accordingly, certain of the historical financial data of the
Predecessor is not comparable to that of Petersen. The selected historical
financial data set forth below should be read in conjunction with, and are
qualified by reference to, "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the financial statements and the
accompanying notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PREDECESSOR (1)
---------------------------------------------------------
TEN MONTHS
ENDED
YEAR ENDED NOVEMBER 30, SEPTEMBER 30,
-------------------------------------- ------------------
1992 1993 1994 1995 1995 1996
-------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
(3):
Net revenues:
Advertising.... $103,539 $105,991 $117,433 $124,310 $103,422 $112,525
Newsstand...... 34,499 37,507 40,048 39,889 33,326 34,318
Subscriptions.. 40,324 41,258 42,639 43,901 36,811 36,474
Other.......... 3,281 2,456 2,672 6,415 5,841 6,297
-------- -------- -------- -------- -------- --------
Net revenues... 181,643 187,212 202,792 214,515 179,400 189,614
Production,
selling and
other direct
costs.......... 135,155 142,254 149,586 171,579 140,831 148,874
-------- -------- -------- -------- -------- --------
Gross profit.... 46,488 44,958 53,206 42,936 38,569 40,740
General and
administrative
expenses....... 32,328 35,604 33,267 28,145 23,537 24,650
Amortization of
goodwill and
other
intangible
assets......... 1,235 198 421 433 355 339
-------- -------- -------- -------- -------- --------
Operating income
(loss)......... 12,925 9,156 19,518 14,358 14,677 15,751
Interest income
............... 856 317 476 549 428 537
Interest
expense........ -- -- -- -- -- (185)
Gain (loss) on
sale of assets
and minority
members' equity
in loss of
subsidiary..... -- -- -- -- -- 1,554
-------- -------- -------- -------- -------- --------
Income (loss)
before
provision for
income taxes... 13,781 9,473 19,994 14,907 15,105 17,657
Provision for
income taxes
(4)............ (267) (251) (698) (549) (458) (331)
-------- -------- -------- -------- -------- --------
Net income
(loss)........ 13,514 9,222 19,296 14,358 14,647 17,326
Preferred unit
dividends...... -- -- -- -- -- --
-------- -------- -------- -------- -------- --------
Net income
(loss)
attributable to
common units... $ 13,514 $ 9,222 $ 19,296 $ 14,358 $ 14,647 $ 17,326
======== ======== ======== ======== ======== ========
Pro forma loss
per share (5)..
Pro forma
weighted
average number
of shares
outstanding
(5)............
<CAPTION>
PETERSEN (2) PREDECESSOR (1) PETERSEN (2)
--------------------- --------------- ------------
THREE MONTHS SIX MONTHS
ENDED DECEMBER 31, ENDED JUNE 30,
--------------------- ----------------------------
1995 1996 1996 1997
------- ------------ --------------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
(3):
Net revenues:
Advertising.... $29,362 $ 31,912 $67,397 $ 73,438
Newsstand...... 9,338 10,037 21,281 21,249
Subscriptions.. 10,725 10,404 21,828 21,736
Other.......... 1,513 924 4,534 3,720
------- ---------- ------- ----------
Net revenues... 50,938 53,277 115,040 120,143
Production,
selling and
other direct
costs.......... 42,342 41,223 91,971 82,440
------- ---------- ------- ----------
Gross profit.... 8,596 12,054 23,069 37,703
General and
administrative
expenses....... 8,952 2,666 12,903 8,955
Amortization of
goodwill and
other
intangible
assets......... 111 8,992 196 18,151
------- ---------- ------- ----------
Operating income
(loss)......... (467) 396 9,970 10,597
Interest income
............... 210 113 238 355
Interest
expense........ (1) (11,114) (153) (15,853)
Gain (loss) on
sale of assets
and minority
members' equity
in loss of
subsidiary..... 13 11 1,554 (28)
------- ---------- ------- ----------
Income (loss)
before
provision for
income taxes... (245) (10,594) 11,609 (4,929)
Provision for
income taxes
(4)............ (138) -- (199) --
------- ---------- ------- ----------
Net income
(loss)........ (383) (10,594) 11,410 (4,929)
Preferred unit
dividends...... -- -- -- (15,419)
------- ---------- ------- ----------
Net income
(loss)
attributable to
common units... $ (383) $ (10,594) $11,410 $ (20,348)
======= ========== ======= ==========
Pro forma loss
per share (5).. $ (.38) $ (.73)
========== ==========
Pro forma
weighted
average number
of shares
outstanding
(5)............ 27,840,994 27,840,994
========== ==========
</TABLE>
(footnotes appear on following page)
31
<PAGE>
<TABLE>
<CAPTION>
PREDECESSOR (1)
---------------------------------------------------
TEN MONTHS
ENDED
YEAR ENDED NOVEMBER 30, SEPTEMBER 30,
----------------------------------- ---------------
1992 1993 1994 1995 1995 1996
------- ------- -------- ------- ------ -------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
OTHER DATA:
Depreciation and
amortization... $ 3,381 $ 3,137 $ 3,118 $ 3,439 $2,704 $ 2,704
Capital
expenditures... 1,419 4,739 2,866 4,423 3,492 768
EBITDA (7)...... 17,162 12,610 23,112 18,346 17,809 20,546
Cash provided by
operating
activities..... 2,479 10,680 27,059 9,593 5,530 24,719
Cash provided by
(used in)
investing
activities..... 11,545 (30) (14,478) 2,254 3,185 5,421
Cash provided by
(used in)
financing
activities..... (14,013) (14,901) (17,382) (6,092) (5,377) (27,625)
BALANCE SHEET DATA (AT PERIOD END)
(3):
Cash and cash
equivalents.... $13,235 $ 8,984 $ 4,183 $ 9,938 $12,453
Working capital
deficiency
(8)............ 1,591 (3,629) (11,027) 5,760 (2,791)
Total assets.... 93,027 98,389 119,454 136,803 124,483
Total long-term
debt, including
current
portion........ -- -- -- -- --
Total equity
(capital
deficiency).... 4,126 (1,553) 361 8,627 (1,672)
<CAPTION>
PETERSEN (2) PREDECESSOR (1) PETERSEN (2)
------------------- --------------- ------------
THREE MONTHS SIX MONTHS ENDED
ENDED DECEMBER 31, JUNE 30,
------------------- ----------------------------
1995 1996 1996 1997
------ ------------ --------------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
OTHER DATA:
Depreciation and
amortization... $1,015 $ 9,570 $1,667 $19,106
Capital
expenditures... 878 -- 463 228
EBITDA (7)...... 771 10,090 11,875 30,030
Cash provided by
operating
activities..... N/A 22,376 23,808 18,119
Cash provided by
(used in)
investing
activities..... N/A (465,652) 1,704 2,183
Cash provided by
(used in)
financing
activities..... N/A 451,037 (2,425) (21,140)
BALANCE SHEET DATA (AT PERIOD END)
(3):
Cash and cash
equivalents.... $ 7,761 $ 6,923
Working capital
deficiency
(8)............ (18,484) (27,503)
Total assets.... 604,073 588,977
Total long-term
debt, including
current
portion........ 300,000 277,750
Total equity
(capital
deficiency).... 154,300 150,481
</TABLE>
(footnotes from previous page)
- -------
(1) The Predecessor's fiscal year ended on November 30.
(2) Petersen's fiscal year ends on December 31.
(3) Certain reclassifications have been made to the balance sheet and
statements of operations for each of the four years in the period ended
November 30, 1995 and the consolidated balance sheet and statements of
operations for the three months ended December 31, 1996 to conform their
presentation to the presentation for the six months ended June 30, 1997.
(4) Subscription revenues are shown net of agency commissions of $33,998,
$38,616, $42,000, $49,503, $41,194, $45,554, $12,662, $13,804, $26,940,
and $27,723 for the fiscal years ended November 30, 1992, 1993, 1994 and
1995, the ten months ended September 30, 1995 and 1996, the three months
ended December 31, 1995 and 1996 and the six months ended June 30, 1996
and 1997, respectively.
(5) Consists of state and local income taxes. As a subchapter S corporation
under the Code, the Predecessor was not subject to U.S. federal income
taxes or most state income taxes. Instead, such taxes have been paid by
the Predecessor's stockholder. The Predecessor periodically paid dividends
to its stockholder in respect of such tax liabilities. Prior to the
Reorganization, Petersen and Publishing were limited liability companies
and were not subject to U.S. federal income taxes or most state taxes.
Instead, such taxes were paid by Petersen's equity holders.
(6) Pro forma loss per share is based on the weighted average shares
outstanding after giving retroactive effect to 27,840,994 shares to be
issued in connection with the Reorganization (assuming an initial public
offering price of $16, the midpoint of the range set forth on the cover
page of this Prospectus). See "The Reorganization."
(7) "EBITDA" is defined as income before interest expense, income taxes,
depreciation and amortization and gain on sale of assets. EBITDA is not a
measure of performance under GAAP. Such items excluded in calculating
EBITDA are significant components in understanding and evaluating the
Company's financial performance. While EBITDA should not be considered in
isolation or as a substitute for net income, cash flows from operating
activities and other income or cash flow statement data prepared in
accordance with GAAP, or as a measure of profitability or liquidity,
management understands that EBITDA is customarily used in evaluating the
equity value of the magazine publishing companies. The EBITDA measures
presented herein may not be comparable to similarly titled measures of
other companies.
(8) The calculation of working capital deficiency includes the current
portions of unearned subscription revenues, a non-cash obligation of the
Company, and deferred subscription acquisition costs. Excluding the
current portions of unearned subscription revenues and deferred
subscription acquisition costs, the Company's working capital would have
been as follows: Fiscal 1992--$22,251; Fiscal 1993--$18,312; Fiscal 1994--
$13,367; Fiscal 1995--$32,429; ten months ended September 30, 1996--
$23,652; three months ended December 31, 1996--$8,844; and six months
ended June 30, 1997--$1,303.
32
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
OVERVIEW
The Company is a leading publisher of special-interest magazines with a
diverse portfolio of 78 publications, including 25 monthly, 11 bi-monthly and
42 single issue or annual publications. The Company operates primarily within
the expanding special-interest segment of the consumer magazine publishing
market. According to a survey by VSA of 84 general-interest and 111 special-
interest magazines, special-interest magazine publishing has been the fastest
growing sector of the consumer magazine industry over the last five year
period. The Company had net revenues of $120.1 million for the six months
ended June 30, 1997.
The Company's principal sources of revenues from the publication of its
magazines are derived from advertising and circulation. Circulation revenues
are generated from subscription, newsstand and list rental sales. For the six
months ended June 30, 1997, approximately 61.1% of the Company's revenues were
from advertising, 35.8% were from circulation (including 16.8% from
subscription sales (net of agency commissions), 17.7% from newsstand sales and
1.3% from list rentals) and approximately 3.1% were from other sources.
Advertising revenues of the Company, as well as those of the consumer magazine
industry in general, are cyclical and dependent upon general economic
conditions. As compared to general-interest magazines publishers, however, the
Company believes that its advertising revenues are less susceptible to changes
in general economic conditions due to the diversity of its publications and
the endemic nature of its advertiser base. No single advertiser has comprised
more than 5.0% of the Company's advertising revenues during any of the last
three years. In addition, the Company's top 20 advertisers only accounted for
approximately 30% of total advertising revenues for the twelve months ended
December 31, 1996. The Company anticipates that its revenues from
manufacturers of tobacco related products will decrease in the future as a
result of the resolution of certain litigation involving such manufacturers.
Advertising revenues from such manufacturers were $6.9 million for the twelve
months ended December 31, 1996 and $3.9 million for the six months ended June
30, 1997. The Company's revenues are generated predominantly from U.S.
sources.
The principal components of the Company's production and selling costs are
raw materials, advertising sales, distribution, printing and binding and
editorial expenses, which represented approximately 20.7%, 16.2%, 13.6%, 11.5%
and 11.0%, respectively, of the Company's cost of sales in the six months
ended June 30, 1997. The Company's principal raw material is paper. Paper
supply and prices are subject to volatility. The supply and prices of paper
may be significantly affected by many factors, including market fluctuations
and economic, political and weather conditions. Following the Acquisition, the
Company secured sufficient paper to meet its projected raw material needs
through the end of 1997 at a fixed price. The Company is currently in
discussions regarding the terms on which the Company will purchase paper in
1998. There can be no assurance that the Company will be able to reach
agreement on terms favorable to the Company. The Company currently purchases
all of its paper requirements on an as needed basis. As a result, the Company
does not carry a significant amount of paper in inventory. The Company has a
long-term agreement with World Color to print all of its magazines. The
Company's advertising and sales expense comprises salaries, commissions,
travel and entertainment, marketing, promotions and research. In addition, the
Company believes that its editorial expenses are lower because, among other
reasons, most of its editorial staff is not located in New York City. See
"Risk Factors--Risks Associated with Fluctuations in Paper Costs and Postal
Rates" and "Business--Production, Distribution and Fulfillment" and "--Raw
Materials."
Since the Acquisition, the Company has expended significant resources to
increase direct subscription sales, develop its subscriber database and
establish Petersen Enterprises to pursue ancillary revenue opportunities. In
addition, the Company has made improvements in its Youth Group publications,
including refocusing the editorial content and improving the design of Teen
and adding staff at All About You!. These investments are expected to
aggregate $9.0 million for the twelve months ended December 31, 1997. The
Company believes the return on such investments will be realized in future
periods. See "Business--Business and Operating Strategy."
33
<PAGE>
The Acquisition was accounted for using the purchase method of accounting. As
a result, the Acquisition has affected and will continue to affect the
Company's results of operations in certain significant respects. The aggregate
purchase price of the Acquisition (including expenses and reflecting the
receipt of a $2.5 million purchase price adjustment) was approximately $462.8
million plus the assumption of unearned subscription revenue and other
liabilities of approximately $49.0 which has been allocated to the tangible and
intangible assets acquired and liabilities assumed by the Company based upon
their respective fair values as of the acquisition date. The allocation of the
purchase price of the assets acquired in the Acquisition has resulted in annual
depreciation and amortization expense of approximately $35.0 million per year.
The Predecessor's historical annual depreciation and amortization expense over
the past five years has been less than $4.5 million per year.
Prior to the Acquisition, the Predecessor was operated as an S corporation
under the Code. As a result, it did not incur federal and state income taxes.
Federal and state income taxes (except with respect to certain states)
attributable to the Predecessor's income during such periods were incurred and
paid directly by the Predecessor's stockholder. The Predecessor made periodic
distributions to its stockholder in respect of such tax liability. As a limited
liability company, Petersen also does not incur federal and state income taxes.
Federal and state income taxes attributable to Petersen's income and tax
benefit attributable to Petersen's losses will be incurred directly by
Petersen's equity holders. Accordingly, no discussion of income taxes is
included in "Results of Operations" below. Any tax benefit attributable to
losses generated by Petersen prior to the Reorganization will not be available
to the Company. As a C corporation, the Company is fully subject to federal and
state income taxation.
RESULTS OF OPERATIONS
The following table summarizes historical results of operations as a
percentage of net revenues of: (i) the Predecessor for (a) the years ended
November 30, 1994 and 1995, (b) the ten months ended September 30, 1995 and
1996, (c) the three months ended December 31, 1995, and (d) the six months
ended June 30, 1996; and (ii) Petersen for (a) the three months ended December
31, 1996 and (b) the six months ended June 30, 1997.
<TABLE>
<CAPTION>
PREDECESSOR PETERSEN PREDECESSOR PETERSEN
---------------------------------------------- -------- ----------- --------
YEAR ENDED TEN MONTHS ENDED THREE MONTHS ENDED SIX MONTHS ENDED
NOVEMBER 30, SEPTEMBER 30, DECEMBER 31, JUNE 30,
-------------- ----------------- -------------------- --------------------
1994 1995 1995 1996 1995 1996 1996 1997
------ ------ ----------- ----- ----------- -------- ----------- --------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net revenues:
Advertising............ 57.9% 57.9% 57.6% 59.3% 57.6% 59.9% 58.6% 61.1%
Newsstand.............. 19.7 18.6 18.6 18.1 18.3 18.8 18.5 17.7
Subscriptions, net..... 21.0 20.5 20.5 19.2 21.1 19.5 19.0 18.1
Other.................. 1.4 3.0 3.3 3.4 3.0 1.8 3.9 3.1
------ ------ ----- ----- ----- ----- ----- -----
Total net revenues..... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Production, selling and
other direct costs.... 73.8 80.0 78.5 78.5 83.1 77.4 79.9 68.6
------ ------ ----- ----- ----- ----- ----- -----
Gross profit........... 26.2 20.0 21.5 21.5 16.9 22.6 20.1 31.4
General and
administrative
expenses.............. 16.4 13.1 13.1 13.0 17.6 5.0 11.2 7.5
Amortization of
goodwill and other
intangible assets..... .2 .2 .2 .2 .2 16.9 .2 15.1
------ ------ ----- ----- ----- ----- ----- -----
Operating income (loss)
...................... 9.6 6.7 8.2 8.3 N/A .7 8.7 8.8
Interest expense....... -- -- -- .1 -- 20.9 .1 13.2
Net income ............ 9.5% 6.7% 8.2% 9.1% N/A N/A 9.9% N/A
OTHER DATA:
EBITDA................. 11.4% 8.6% 9.9% 10.8% 1.5% 18.9% 10.3% 25.0%
</TABLE>
34
<PAGE>
PETERSEN SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO PREDECESSOR SIX MONTHS
ENDED JUNE 30, 1996
Net revenues. Net revenues increased $5.1 million, or 4.4%, to $120.1
million for the six months ended June 30, 1997 from $115.0 million for the six
months ended June 30, 1996. This increase is primarily the result of a $6.0
million, or 9.0%, increase in advertising revenues, offset by a $.1 million
decline in circulation revenues, a $.5 million decline in miscellaneous
revenues (mainly reprint revenues) and a $.3 million decline in show revenues.
The increase in advertising revenues was due principally to: (i) an overall
increase in the Company's advertising rates; (ii) higher advertising revenues
by Motor Trend, Teen and Hot Rod; and (iii) additional revenues from
relatively new and start-up publications. In December 1996 and June 1997, the
Company discontinued the publication of Sassy and Petersen's Golfing,
respectively. Net revenues for the period ended June 30, 1996 for those two
publications were $4.7 million (comprised of $2.9 million in advertising, $1.7
million in subscription and newsstand, and $.1 million other). Net revenues,
excluding these two discontinued publications, increased $9.8 million, or
8.9%, to $120.1 million for the six months ended June 30, 1997 from $110.4
million for the six months ended June 30, 1996.
Production, selling and other direct costs. Production, selling and other
direct costs decreased $9.5 million, or 10.4%, to $82.4 million for the six
months ended June 30, 1997 from $91.9 million for the six months ended June
30, 1996. Production, selling and other direct costs decreased as a percentage
of net revenues to 68.6% from 79.9% for the same periods. The successful
implementation of the Company's operating improvements contributed to the
decrease in production, selling and other direct costs. This decrease is
primarily comprised of a $6.7 million, or 28.2%, decrease in paper costs, a
$1.1 million, or 10.7%, decrease in printing expenses and a $3.4 million, or
13.5%, decrease in editorial and advertising sales expenses.
Other expenses. General and administrative expenses decreased $3.9 million,
or 30.6%, to $9.0 million for the six months ended June 30, 1997 from $12.9
million for the six months ended June 30, 1996. General and administrative
expenses decreased as a percentage of net revenues to 7.5% from 11.2% for the
same periods. The successful implementation of the Company's operating
improvements, including personnel and other operating expense reductions,
contributed to the decrease in general and administrative expenses.
Amortization of goodwill and other intangible assets increased to $18.2
million for the six months ended June 30, 1997 from $.2 million for the six
months ended June 30, 1996. This expense represents amortization of goodwill
and the subscribers list purchased in the Acquisition.
Operating income. Operating income increased $.6 million, or 6.3%, to $10.6
million for the six months ended June 30, 1997 from $10.0 million for the six
months ended June 30, 1996, for the reasons stated above. Operating income
increased as a percentage of net revenues to 8.8% from 8.7% for the same
periods.
Interest expense. Interest expense increased $15.7 million to $15.9 million
for the six months ended June 30, 1997 from $.2 million for the six months
ended June 30, 1996. This increase is the result of indebtedness incurred
under the Senior Credit Facility and the Notes in connection with the
Acquisition.
Net income (loss). The net loss was $4.9 million for the six months ended
June 30, 1997 as compared to net income of $11.4 million for the six months
ended June 30, 1996. This decrease is primarily the result of the increases in
interest and amortization expenses as stated above.
PETERSEN THREE MONTHS ENDED DECEMBER 31, 1996 COMPARED TO PREDECESSOR THREE
MONTHS ENDED DECEMBER 31, 1995.
Net Revenues. Net revenues increased $2.3 million, or 4.6%, to $53.2 million
for the three months ended December 31, 1996 from $50.9 million for the three
months ended December 31, 1995. This increase is primarily the result of a
$2.6 million or 8.7% increase in advertising revenues, offset by a $.6 million
decline in miscellaneous revenues (primarily reprint revenues). The increase
in advertising revenues was due principally to: (i) an overall increase in the
Company's advertising rates; (ii) higher advertising revenues by Motor Trend,
35
<PAGE>
Teen and Hot Rod; and (iii) additional revenues from relatively new and start-
up publications. In December 1996, the Company discontinued the publication of
Sassy. Net revenues for the period ended December 31, 1996 for this
publication were $.5 million (comprised of $.3 million in advertising and $.2
million in circulation).
Production, selling and other direct costs. Production, selling and other
direct costs decreased $1.1 million, or 2.6%, to $41.2 million for the three
months ended December 31, 1996 from $42.3 million for the three months ended
December 31, 1995. Production, selling and other direct costs decreased as a
percentage of net revenues to 77.4% from 83.1% for the same periods. The
successful implementation of the Company's operating improvements contributed
to the decrease in production, selling and other direct costs. This decrease
is primarily comprised of a $2.0 million, or 18.6%, decrease in paper costs
offset by a $1.1 million, or 84.0%, increase in circulation promotion for the
same periods.
Other expenses. General and administrative expenses decreased $6.3 million,
or 70.2%, to $2.7 million for the three months ended December 31, 1996 from
$9.0 million for the three months ended December 31, 1995. General and
administrative expenses decreased as a percentage of net revenues to 5.0% from
17.6% for the same periods. The successful implementation of the Company's
operating improvements, including personnel and other operating expense
reductions, contributed to the decrease in general and administrative
expenses. Amortization of goodwill and other intangible assets increased to
$9.0 million for the three months ended December 31, 1996 from $.1 million for
the three months ended December 31, 1995. This expense represents amortization
of goodwill and the subscribers list purchased in the Acquisition.
Operating income (loss). Operating income was $.4 million for the three
months ended December 31, 1996 as compared to an operating loss of $.5 million
for the three months ended December 31, 1995, for the reasons stated above.
Interest expense. Interest expense was $11.1 million, for the three months
ended December 31, 1996 as compared to interest expense of $.0 million for the
three months ended December 31, 1995. This increase is the result of
indebtedness incurred under the Senior Credit Facility, the Bridge Financing
Facility and the Notes in connection with the Acquisition.
Net loss. Net loss increased $10.2 million to $10.6 million for the three
months ended December 31, 1996 from $.4 million for the three months ended
December 31, 1995. This increase is primarily the result of the increased
interest and amortization expenses as stated above.
PREDECESSOR TEN MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO PREDECESSOR TEN
MONTHS ENDED SEPTEMBER 30, 1995
Net revenues. Net revenues increased $10.2 million, or 5.7%, to $189.6
million for the ten months ended September 30, 1996 from $179.4 million for
the ten months ended September 30, 1995. This increase is primarily the result
of a $9.1 million or 8.8% increase in advertising revenue and a $.7 million,
or .9%, increase in circulation revenues. The increase in advertising revenues
was due principally to: (i) an overall increase in the Company's advertising
rates and (ii) higher advertising revenues generated by Motor Trend and Teen.
The increase in newsstand revenues was due principally to increased sales of
Teen and All About You!
Production, selling and other direct costs. Production, selling and other
direct costs increased $8.0 million, or 5.7%, to $148.8 million for the ten
months ended September 30, 1996 from $140.8 million for the ten months ended
September 30, 1995. Production, selling and other direct costs, as a
percentage of net revenues, remained constant at 78.5% for the same periods.
This dollar increase was primarily the result of increased paper costs and
incremental production costs. See "--Overview."
Other expenses. General and administrative expenses increased $1.1 million,
or 4.7%, to $24.6 million for the ten months ended September 30, 1996 from
$23.5 million for the ten months ended September 30, 1995. General and
administrative expenses decreased as a percentage of net revenues to 13.0%
from 13.1% for the same periods. This increase was primarily the result of an
accrual of $.8 million for litigation expenses. This litigation remains the
responsibility of the seller under the terms of the Acquisition.
36
<PAGE>
Operating income. Operating income increased $1.1 million, or 7.3%, to $15.8
million for the ten months ended September 30, 1996 from $14.7 million for the
ten months ended September 30, 1995, for the reasons stated above. Operating
income increased as a percentage of net revenues to 8.3% from 8.2% for the
same periods.
Net income. Net income increased $2.7 million or 18.3% to $17.3 million for
the ten months ended September 30, 1996 from $14.6 million for the ten months
ended September 30, 1995, for the reasons stated above. Net income increased
as a percentage of net revenues to 9.1% from 8.2% for the same periods.
PREDECESSOR YEAR ENDED NOVEMBER 30, 1995 COMPARED TO PREDECESSOR YEAR ENDED
NOVEMBER 30, 1994
Net revenues. Net revenues for the year ended November 30, 1995 increased
$11.7 million, or 5.8%, to $214.5 million from $202.8 million for the year
ended November 30, 1994. Of this increase, advertising revenue accounted for
$6.9 million, revenues generated from the newly-established trade show and
event group accounted for $2.8 million and circulation revenue accounted for
$1.1 million. The increase in advertising revenue was principally due to the
Company's acquisition of Sassy in December 1994.
Production, selling and other direct costs. Production, selling and other
direct costs increased $22.0 million, or 14.7%, to $171.6 million for the year
ended November 30, 1995 from $149.6 million for the year ended November 30,
1994. Production, selling and other direct costs as a percentage of net
revenues increased to 80.0% from 73.8% for the same period. This increase is
primarily the result of the cost of launching new magazine titles, additional
costs associated with the publication of Sassy and increases in paper prices
and postal rates.
Other expenses. General and administrative expenses decreased $5.1 million,
or 15.4%, to $28.1 million for the year ended November 30, 1995 from $33.2
million for the year ended November 30, 1994. General and administrative
expenses decreased as a percentage of net revenues to 13.2% from 16.4% for the
same period. This decrease is primarily the result of lower compensation
expense for Mr. Petersen.
Operating income. Operating income decreased $5.2 million, or 26.4%, to
$14.3 million for the year ended November 30, 1995 from $19.5 million for the
year ended November 30, 1994, for the reasons stated above. Operating income
as a percentage of net revenues decreased to 6.7% from 9.6% for the same
periods.
Net income. Net income decreased $4.9 million, or 25.6%, to $14.4 million
for the years ended November 30, 1995 from $19.3 million for the year ended
November 30, 1994 for the reasons stated above. Net income as a percentage of
net revenues decreased to 6.7% from 9.5% for the same period.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents totaled $6.9 million and working capital
deficiency totaled $27.5 million at June 30, 1997. At December 31, 1996, cash
and cash equivalents totaled $7.8 million and working capital deficiency
totaled $18.5 million. The decrease in working capital from December 31, 1996
to June 30, 1997 resulted primarily from a $22.3 million repayment of bank
borrowings offset by cash generated from operations. Excluding the current
portion of unearned subscription revenues and deferred subscription
acquisition costs, working capital totaled $1.3 million at June 30, 1997 and
$8.8 million at December 31, 1996.
The Company's net cash provided by operations was $18.1 million for the six
months ended June 30, 1997 compared to $23.8 million for the six months ended
June 30, 1996. Of this difference, $10.5 million relates to changes in
inventory and $16.5 million relates to decreased net income, offset by a $19.1
million increase in depreciation and amortization and an aggregate $5.8
million increase in accrued liabilities. Net cash provided by operations was
$24.7 million, $9.6 million and $27.1 million in the ten months ended
September 30, 1996 and years ended November 30, 1995 and 1994, respectively.
37
<PAGE>
The Company's net cash provided by investing activities was $2.2 million for
the six months ended June 30, 1997, as compared to $1.7 million for the six
months ended June 30, 1996, which included $2.5 million in proceeds in the
sale of its Viking Color pre-press operations. Net cash provided by (used in)
investing activities was $5.4 million, $2.3 million and $(14.5) million in the
ten months ended September 30, 1996 and years ended November 30, 1995 and
1994, respectively. The Company's operations are not capital intensive. The
Company's capital expenditures were $.2 million and $.5 million in the six
months ended June 30, 1997 and 1996, respectively, and $.8 million, $4.4
million and $2.9 million in the ten months ended September 30, 1996 and the
fiscal years ended November 30, 1995 and 1994, respectively.
The Company's net cash used in financing activities for the six months ended
June 30, 1997 was comprised of $22.3 million of repayments of borrowings under
the Senior Credit Facility. Of this amount, $21.8 million represented an early
repayment. Net cash used in financing activities in prior years, comprised
principally of distribution of Predecessor's S corporation earnings to its
stockholder and changes in advances to other divisions of Petersen, were $27.6
million and $6.1 million and $17.4 million for the ten months ended September
30, 1996 and the years ended November 30, 1995 and 1994, respectively.
The Company's EBITDA (excluding the impact of the sale of its Viking Color
pre-press operations in 1996) increased $18.1 million, or 152.9%, to $30.0
million for the six months ended June 30, 1997 from $11.9 million for the six
months ended June 30, 1996. EBITDA as a percentage of net revenues increased
to 25.0% from 10.3% for the same periods. The Company's EBITDA increased $9.3
million to $10.1 million for the three months ended December 31, 1996 from $.8
million for the three months ended December 31, 1995. EBITDA as a percentage
of net revenues increased to 18.9% from 1.5% for the same periods. The
successful implementation of the Company's operating improvements contributed
to these increases in EBITDA.
To finance the Acquisition, the Company: (i) borrowed $200.0 million under
the $260.0 million Senior Credit Facility; (ii) borrowed $100.0 million under
the Bridge Financing Facility; and (iii) received equity contributions of
$165.3 million from the Investor Group led by Willis Stein, James D. Dunning,
Jr. and certain members of the Company's senior management. Following the
Acquisition, the Company issued $100.0 million aggregate principal amount of
the Notes, the proceeds of which were used to repay the Bridge Financing
Facility.
The Senior Credit Facility consists of a $100.0 million Tranche A term loan
and a $100.0 million Tranche B term loan, maturing on December 31, 2002 and
September 30, 2004, respectively. The Company has repaid $11.0 million of the
$100.0 million Tranche A term loan and $11.3 million of the $100.0 million
Tranche B term loan as of August 31, 1997. In addition, the Senior Credit
Facility provides borrowings under a revolving facility in the maximum
principal amount of $60.0 million. The Tranche A term loan generally amortizes
in increasing increments prior to maturity; the Tranche B term loan is payable
primarily in balloon payments due in 2003 and 2004. The Revolving Credit
Facility becomes due in full on December 31, 2002. The Revolving Credit
Facility and the Tranche A term loan bear interest at either LIBOR (5.688% at
August 31, 1997) plus 1.375% to 2.750% based on borrowings or the prime rate
of the agent bank (8.5% at August 31, 1997) plus .125% to 1.5% based on
borrowings. The Tranche B term loan bears interest at either LIBOR plus 2.625%
to 3.250% based on borrowings or the prime rate of the agent bank plus 1.375%
to 2.0% based on borrowings. Since the Acquisition, the Company has been able
to fund operations from cash generated from operations and has not incurred
borrowings under the Revolving Credit Facility. The Senior Credit Facility
contains customary restrictions and requirements with respect to security,
covenants (including financial covenants) and events of default. The Company
is in compliance with the covenants of the Senior Credit Facility.
As of August 31, 1997, Publishing had outstanding $100.0 million aggregate
principal amount of the Notes. The Notes bear interest at a rate of 11 1/8%
per annum payable semi-annually in arrears on each May 15 and November 15. The
Notes are unsecured obligations of Publishing and are subordinated in right of
payment to all Senior Indebtedness of Publishing (as defined in the
Indenture). The Notes are unconditionally guaranteed, on a senior subordinated
basis, as to payment of principal, premium, if any, and interest, jointly and
severally by Petersen. The Indenture contains certain restrictive covenants,
including, but not limited to, restrictions on incurrence of debt, dividends
payments, certain assets sales, transactions with affiliates, liens and
investments. The Company, Petersen and Publishing are in compliance with the
Indenture.
38
<PAGE>
A portion of the consolidated debt of the Company bears interest at floating
rates; therefore, the Company's financial position is and will continue to be
affected by changes in prevailing interest rates. Effective October 7, 1996,
the Company purchased an interest rate cap on $150.0 million initial notional
principal amount at a fixed rate of 6.23%, which expires on October 7, 1999.
The cap is intended to provide partial protection from exposure relating to
the Company's variable rate debt instruments in the event of higher interest
rates. If the Company's actual borrowing rate had been higher by 1% during the
six months ended June 30, 1997, the interest rate cap agreement would have
resulted in interest savings of approximately $700,000. If the Company's
actual borrowing rate had been lower by 1% during the six months ended June
30, 1997, the interest rate cap agreement would not have provided the Company
with any interest expense savings.
The Company will use the net proceeds from the Offering as follows: (i)
approximately $64.2 million to repay a portion of the indebtedness incurred
under the Senior Credit Facility and (ii) approximately $27.8 million (as of
June 30, 1997) to redeem $25.0 million aggregate principal amount of the Notes
and to pay the redemption premium and accrued and unpaid interest thereon. In
connection with the Offering, the Company expects to refinance its remaining
indebtedness under the Senior Credit Facility after the application of the net
proceeds of the Offering. The New Credit Facility is expected to be a $175.0
million non-amortizing revolving credit facility maturing on September 30,
2002. The New Credit Facility will be secured by a first priority security
interest in all assets of Publishing. In addition, the borrowings under the
New Credit Facility will be guaranteed by the Company, which will be secured
by a pledge of all of the outstanding equity interests of Publishing. The New
Credit Facility will contain customary restrictions and requirements with
respect to security, covenants (including financial covenants) and events of
default, none of which are expected to be more restrictive than those of the
Senior Credit Facility.
In the event of a change of control (as defined in the Indenture), the
Company will be required to make an offer for cash to repurchase the Notes at
101% of the principal amount thereof, plus accrued and unpaid interest, if
any, thereon to the repurchase date. Certain events involving a change of
control will result in an event of default under the Senior Credit Facility or
other indebtedness of the Company that may be incurred in the future.
Moreover, the exercise by the holders of the Notes of their right to require
the Company to repurchase the Notes may cause an event of default under the
Senior Credit Facility or such other indebtedness, even if the change of
control does not. Finally, there can be no assurance that the Company will
have the financial resources necessary to repurchase the Notes upon a change
of control.
The Company believes that net cash provided by operations will be sufficient
to fund its future cash requirements. Excluding any acquisition activity, the
Company currently projects that it will not have to utilize the New Credit
Facility to fund operations. No assurances can be given, however, that this
will be the case. The Company expects that future cash requirements will
principally be for repayments of indebtedness, working capital requirements,
capital expenditures and other needs. The Company's future operating
performance and ability to service or refinance its current indebtedness will
be subject to future economic conditions and to financial, business and other
factors, many of which are beyond the Company's control. For a discussion of
certain relevant factors, see "Risk Factors."
SEASONALITY
Historically, the Company has experienced limited seasonality, with
decreased revenues during the first and fourth quarters of each calendar year
due to the seasonal nature of activities associated with its publications.
Historically, seasonality has not had an identifiable impact on the Company's
net income. The following table sets forth the unaudited net revenues of the
Company for its last eight quarters (in thousands):
<TABLE>
<CAPTION>
QUARTERS ENDED
-------------------------------------------------------------------------------------------
SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,
1995 1995 1996 1996 1996 1996 1997 1997
------------- ------------ --------- -------- ------------- ------------ --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues $56,411 $50,938 $55,694 $59,347 $58,895 $53,277 $57,474 $62,670
</TABLE>
39
<PAGE>
INFLATION
The Company believes that inflation has not had a material impact on its
results of operations for the periods discussed herein.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
SFAS No. 123, "Accounting for Stock-Based Compensation" encourages, but does
not require, a fair market value based method of accounting for employee stock
options or similar equity instruments. The Company has elected to continue to
measure compensation cost under Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" as was previously required, and to
comply with pro forma disclosure of net income and earnings per share as if
the fair market value based method of accounting had been applied.
In February 1997, the Financial Accounting Standards Board (the "FASB")
issued Statement of Financial Accounting Standards ("SFAS"), No. 128,
"Earnings Per Share" which simplifies the computation of earnings per share.
The statement is effective for financial statements issued for periods ending
after December 15, 1997 and requires restatement of all prior period earnings
per share data presented. The statement will be adopted in calendar year 1997
and is not expected to significantly impact the financial statements of the
Company.
In February 1997, the FASB issued SFAS, No. 129, which establishes new
standards for disclosing information about an entity's capital structure. The
statement is effective for financial statements issued for periods ending
after December 15, 1997. The statement will be adopted in calendar year 1997
and the Company will add certain disclosures to the footnotes of the financial
statements.
In June 1997, the FASB issued SFAS, No. 130, which establishes standards for
reporting and display of comprehensive income and its components. The
statement is effective for fiscal years beginning after December 15, 1997. The
statement will be adopted in calendar 1998 and the Company expects that it
will add additional disclosure to the financial statements.
40
<PAGE>
INDUSTRY
Market data used throughout this Prospectus were obtained from internal
surveys and from industry publications, including reports generated by VSA,
Mediamark and Publishers Information Bureau. These industry publications
generally indicate that the information contained therein has been obtained
from sources believed to be reliable, but that the accuracy and completeness
of such information is not guaranteed. The Company has not independently
verified such market data. Similarly, internal surveys, while believed to be
reliable, have not been verified by any independent source. These publications
were not commissioned by, or prepared at the request of, the Company or any of
its affiliates. The Company has not sought the consent of any of these
organizations to refer to their reports herein.
The consumer magazine market is comprised of both general-interest and
special-interest publications. General-interest magazines are characterized by
broad-based editorial content and readership, while special-interest magazines
have a more narrow editorial focus and subject-selective readership. During
the five years ended December 31, 1996 (the latest period for which data is
available), special-interest publications targeted to niche audiences have
grown significantly and are now estimated to account for approximately one
quarter of the overall consumer magazine market in terms of total advertising
and circulation spending. Special-interest magazines have generally exhibited
stronger growth in both advertising and circulation spending as compared to
general-interest magazines over the last five year period. For example, based
on a VSA survey of 84 general-interest and 111 special-interest magazines,
advertising and circulation spending on special-interest publications have
grown at compound annual rates of 9.5% and 2.5%, respectively, as compared to
8.9% and 1.9%, respectively, for general-interest publications during the
period from 1991 to 1996. In addition, because special-interest magazines
target enthusiasts, the publishers are typically able to charge a higher cover
price as compared to general-interest magazines. Based on the survey noted
above, the average price of a special-interest magazine was $2.18 in 1996,
nearly 50% higher than the $1.48 average price of a general-interest magazine.
For much the same reason, the Company believes that readers of special-
interest magazines are less price-sensitive than readers of general-interest
magazines.
Magazine publishers generate the majority of their revenues from the sale of
advertising. Advertising revenues, however, tend to be cyclical and dependent
upon general economic conditions. Historically, increases in advertising
revenues have corresponded with economic recoveries while decreases have
corresponded with economic downturns.
Industry sources estimate that total advertising spending for special-
interest publications increased by approximately 8.0% in 1996. According to
the Publishers Information Bureau, the top ten categories of industries ranked
by consumer magazine advertising expenditures in 1996 were automotive and
automotive accessories (12%), direct response companies (11%), computers,
office equipment and stationery (9%), toiletries and cosmetics (8%), business
and consumer services (8%), drugs and remedies (6%), foods and food products
(6%), apparel, footwear and accessories (6%), travel, hotels and resorts (5%)
and publishing and media (3%). The automotive industry has traditionally
accounted for the largest percentage of total advertising expenditures in the
consumer magazine industry. During the period from 1991 to 1996, advertising
spending by the automotive industry increased at a compound annual growth rate
of 9.0%.
Circulation revenues are generated from subscription, newsstand and list
rental sales. During the fifteen years ended December 31, 1996, the aggregate
number of consumer magazines distributed through newsstand sales declined in
relation to the number distributed through subscription sales. Due to
increases in newsstand cover prices, the amount of circulation revenue
generated from newsstand sales by special-interest magazines has grown over
the five years ended December 31, 1996. According to the VSA survey, the
average price per copy for special-interest magazines increased at a compound
annual growth rate of 2.2% for the period from 1991 to 1996. In addition, the
Company believes that newsstand sales offer an economically attractive vehicle
for launching new magazines, attracting more affluent subscribers and
generating timely feedback about its editorial content.
The historical patterns of newsstand distribution have changed as a result
of the on-going consolidation of newsstand wholesalers and the shifting focus
of such wholesalers to servicing retail outlets instead of geographic areas.
The changes, among others, have led to a decrease in newsstand sales on an
industry-wide basis.
In recent years, consumer magazine publishers have increasingly sought to
diversify their earnings and more effectively utilize their existing
publications by developing non-traditional revenue streams. In general,
magazine publishers have sought to expand the use of their magazines'
editorial content and other assets across different media formats and to
capitalize on their existing brand names.
41
<PAGE>
BUSINESS
The Company is a leading publisher of special-interest magazines with a
diverse portfolio of 78 publications, including 25 monthly, 11 bi-monthly and
42 single issue or annual publications. Based on data from Mediamark, the
Company estimates that its magazines are read by approximately 48 million
adult readers including 40 million male readers each month. The Company offers
its advertisers the ability to reach both a targeted market within its
individual magazines as well as a larger audience by advertising across the
Company's broad portfolio of magazines. The Company's internationally-
recognized magazines include: (i) Motor Trend, which is a leading authority on
new domestic and foreign automobiles and, with its increase in base rate
(expected paid circulation on which advertising rates are based) to 1.15
million effective January 1998, is anticipated to be the world's leading
automotive magazine in terms of paid circulation; (ii) Teen, which has the
largest paid circulation of any of the Company's magazines with paid
circulation of more than 1.8 million as of the June 1997 issue; and (iii) Hot
Rod, which is one of the largest paid circulation automotive magazines in the
world with a paid circulation of over 800,000 as of the June 1997 issue. Of
the Company's 15 core magazines, nine are ranked first in their respective
markets based on annual paid circulation in 1996, including two magazines that
are the only national magazines published in their respective markets.
The Company had net revenues of $227.2 million and $120.1 million for the
twelve months ended December 31, 1996 and the six months ended June 30, 1997,
respectively. The Company's principal sources of revenues are from advertising
and circulation. For the six months ended June 30, 1997, approximately 61.1%
of the Company's revenues were from advertising, 35.8% from circulation and
3.1% were from other sources. Due to the effects of the Acquisition, the
Company reported net losses attributable to common equity of $10.6 million and
$20.3 million for the three months ended December 31, 1996 and the six months
ended June 30, 1997, respectively. The Company expects to report a net loss
for the third quarter of 1997, after giving effect to a $12.2 million non-
recurring non-cash compensation charge recorded in that quarter.
The special-interest nature of the Company's magazines creates an
opportunity for its advertisers to efficiently reach their target audience, as
the Company believes that its enthusiast readers value special-interest
magazines for both their product information and editorial content. Based on
data from Mediamark, the Company estimates that its magazines are read by more
adult males (ages 18 to 34) than that of any other U.S. special-interest
magazine publisher and are read by approximately one-third of all young
females (ages 12 to 19) in the United States. The adult male market is
particularly attractive to advertisers due to its size and overall purchasing
power, while the young female market provides advertisers with the opportunity
to establish brand recognition during the early stages of this important
consumer group's buying behavior. Further, the Company believes that the
endemic nature of the Company's advertiser base and the diversity of its
publications makes its advertising revenues less susceptible to changes in
general economic conditions.
The Company is organized into seven publishing groups: Automotive
Performance, Motor Trend, Youth, Outdoor, Photo/Marine, Motorcycle/Bicycle and
Sport. Each publishing group is organized around one or more of the Company's
core monthly publications which target a distinct special-interest segment or
specific general-interest segment (e.g., Teen and Sport). The operations of
each group are focused on delivering high-quality editorial content,
generating endemic advertising sales and developing new titles or activities
to reach such group's enthusiast readers. Each publishing group is supported
by a number of centralized corporate functions. The Company conducts all of
its non-endemic advertising, subscription and newsstand sales and marketing
activities and develops ancillary revenue through event management, licensing
arrangements and electronic publishing on a centralized basis to take
advantage of the broad reach and significant market presence of the Company's
magazine portfolio. In addition, all of the Company's production, distribution
and administrative activities are centralized to achieve economies of scale
and operating synergies. The combination of each group's focused editorial and
sales staff supported by centralized corporate functions has enabled the
Company to improve profit margins and provides a competitive advantage in the
development and launch of new titles within an existing group.
42
<PAGE>
The Company's 15 core magazines average over 30 years in publication and
have developed internationally-recognized brands within each of their
respective markets. For the twelve months ended December 31, 1996, 13 of the
Company's 15 core magazines each generated an operating contribution of more
than $1.0 million. The following table sets forth certain information
regarding the Company's 15 core magazines for the twelve months ended December
31, 1996 and the six months ended June 30, 1997:
<TABLE>
<CAPTION>
NET
MAGAZINE TITLE REVENUES (1) TOTAL CIRCULATION (2) CIRCULATION RANK (3)(4)
- ------------------------ --------------------- --------------------- -----------------------
(AMOUNTS IN MILLIONS) (COPIES IN THOUSANDS)
<S> <C> <C> <C>
Motor Trend............. $ 32.5 1,047.7 2 of 4
Teen.................... 25.8 1,661.1 3 of 3
Hot Rod................. 19.3 780.4 1 of 2
Petersen's 4 Wheel &
Off-Road............... 13.5 365.8 1 of 3
Guns & Ammo............. 13.0 588.3 1 of 3
Skin Diver.............. 13.0 200.1 1 of 2
Sport................... 10.3 789.0 1 of 2
Car Craft............... 9.5 383.6 1 of 1
Petersen's Hunting...... 7.7 359.5 1 of 1
Motorcyclist............ 7.2 241.0 2 of 2
Circle Track and Racing
Technology............. 6.5 131.8 2 of 3
Petersen's
Photographic........... 6.4 202.9 3 of 3
Sport Truck............. 6.2 200.3 1 of 2
Dirt Rider.............. 6.1 165.6 1 of 3
Chevy High Performance.. 4.5 179.4 2 of 2
------ -------
Total................. $181.5 7,296.5
====== =======
</TABLE>
- --------
(1) Includes advertising, circulation and other revenues for the twelve months
ended December 31, 1996.
(2) Based on the average paid circulation (per issue) for each publication for
the six months ended June 30, 1997.
(3) Includes only national monthly publications (9 or more issues per year)
that are audited by the Audit Bureau of Circulation and believed by the
Company to directly compete with its publications, and based on average
paid circulation for the six months ended June 30, 1997.
(4) Does not include weekly or bi-weekly publications since such publications
are not generally considered by the Company to be competitive with its
monthly publications. With the exception of Sports Illustrated, the
Company is not aware of any significant weekly or bi-weekly publication
with similar editorial content to those of its publications. Sports
Illustrated, a weekly publication, has greater circulation than either of
the two monthly publications included in the table above (Sport and Inside
Sports).
BUSINESS AND OPERATING STRATEGY
The Company's business and operating strategy is designed to provide strong
revenue growth and increase profitability by improving the performance of
existing titles, launching and acquiring additional publications and
developing ancillary revenue streams by capitalizing on its internationally-
recognized brands and efficient operations. The key elements of this strategy
include:
Cross-Sell Advertising and Expand Advertiser Base. Management believes that,
in addition to maintaining a strong endemic advertising base, it will continue
to increase revenues by cross-selling advertising space across all of the
Company's magazines that reach the advertiser's target markets. In addition,
the Company is improving existing and implementing new programs that will
enable its advertisers to purchase other marketing services, such as event
sponsorships, direct marketing programs, database access and services and
point-of-purchase promotions. Management intends to increase the Company's
advertiser base by targeting new advertisers in existing and new categories,
with a focus on non-endemic categories. Such non-endemic categories include,
among others, apparel, footwear and accessories, cosmetics, food and beverages
and financial products. The Company believes that its ability to provide
effective and efficient advertising enables it to maintain competitive and in
some cases premium advertising rates.
43
<PAGE>
Increase Direct Subscription Sales and Magazine Prices. Management believes
that there are numerous opportunities to increase circulation revenues by
expanding direct subscription sales. The Company has historically focused on
the newsstand distribution channel and has relied heavily upon agency
subscription sales in managing its circulation operations. The Company has
invested in new promotional programs, including direct mail, insert cards,
gift campaigns and cover wraps, designed to increase the number of
subscriptions purchased directly from the Company. A direct subscription
typically generates approximately seven times more revenue to the Company than
an agency subscription. The Company has also developed a database that
includes detailed demographic information on approximately 16 million current
and former subscribers that will enable it to more effectively cross-sell its
publications and other products directly to subscribers. In addition, the
Company recently increased the newsstand and subscription prices on certain
publications to levels comparable to those of competitive magazines and will
continue to adjust its magazine prices in the future based on market
conditions.
Develop Ancillary Revenue Opportunities. The Company believes that there are
numerous opportunities to increase ancillary revenues by leveraging the
editorial content, readers and subscriber database and the internationally-
recognized brands of the Company's existing publications through domestic and
international licensing arrangements, strategic joint ventures, retail
alliances, affinity group marketing, electronic software and games and book
publishing. For the six months ended June 30, 1997, approximately 3.1% of the
Company's revenues were from ancillary sources of which 1.9% were from shows.
The Company is pursuing certain ancillary revenue opportunities afforded to it
by its well-established brand names. For example, the Company has licensed
Motor Trend and Hot Rod brand names for television shows on TNN and Hot Rod
for use in cassette and compact disc music recordings with EMI-Capital Music
Special Markets. In addition, the Company is currently negotiating the license
of Hot Rod for use as the brand name for a Los Angeles arena football team and
for computer game software.
Develop and Launch New Titles. By using its core publications as platforms
for launching new "spin-off" publications, the Company has efficiently
developed and produced a diverse and profitable portfolio of highly-
specialized publications. The Company believes that it has a competitive
advantage as a result of its editorial staff's ability to identify potential
markets for new publications and the Company's ability to gain access to
newsstand distribution channels has enabled its new publications to become
established and to leverage existing editorial and advertising personnel
resources and to gain access to newsstand distribution channels. Since the
Acquisition, the Company has launched six new multiple frequency publications,
which collectively generated approximately $3.4 million in revenues in the
first six months of 1997. Since the Acquisition, the Company has also
increased frequency on four publications from single issue to bi-monthly, and
has launched or anticipates to launch 14 new single issue publications. The
Company is currently negotiating with NASCAR to produce two automotive
publications. The Company plans to continue to develop and launch new special-
interest magazines that will complement and enhance its existing portfolio.
Selectively Acquire Titles. The Company follows a disciplined acquisition
strategy designed to acquire titles that either enhance the Company's
competitive position in one of its existing special-interest segments or
establish a new cluster or group of publications that is complementary to the
Company's existing portfolio. In evaluating acquisition candidates, management
considers whether such publications have developed or have the potential to
develop a brand identity. Since the Acquisition, the Company has acquired the
exclusive right to use the name of certain individuals for the following three
publications: Richard Petty's Stock Car Magazine, Dick Vitale's College
Basketball Yearbook and Bob Griese's College Football Yearbook. The Company
believes that its efficient operating structure provides it with a competitive
advantage by reducing the operating costs of acquired titles. Management
believes that significant opportunities exist to acquire special-interest
magazines that will complement and enhance its existing portfolio. The Company
currently has no definitive agreements with respect to any acquisitions.
Develop Business-to-Business Opportunities. The Company believes that its
experience in developing, marketing and producing targeted special-interest
magazines will enable it to expand into business-to-business activities in the
markets served by its existing magazines. Such activities include trade
magazine publishing, trade
44
<PAGE>
shows, directories and database marketing. For example, the Company recently
acquired the rights to produce SHOT Business, the monthly magazine of the
National Shooting Sports Foundation.
Continue to Identify and Implement Operating Improvements. The Company's
current management identified and implemented operating improvements that have
resulted in significant cost savings through personnel reductions, lower lease
costs, tighter purchasing procedures and controls and restructuring the
Company's relationships with its principal vendors. In addition, the Company
adopted a new operating policy that provides for one or more of the following
actions if any of its publications generate continued losses: (i) discontinue
or sell such magazine; (ii) merge such magazine with the Company's existing
magazines; or (iii) enter into strategic partnerships with third parties. The
successful implementation of these improvements has contributed to the
improvement in the Company's EBITDA margin, which increased from 10.8% for the
ten month period ended September 30, 1996 to 25.0% for the six-month period
ended June 30, 1997. Due to the effects of the Acquisition, however, the
Company's operating income decreased from $15.8 million to $10.6 million and
its net income applicable to common equity decreased from $17.3 million to a
loss of $20.3 million during the same periods. The Company will remain focused
on identifying additional operating improvements to further increase its
operating efficiencies and gross profit margins.
SOURCES OF REVENUE
Substantially all of the Company's revenues are derived from advertising and
circulation sales, with lesser amounts derived from other sources such as
domestic and international licensing arrangements. Circulation revenues are
generated from subscription and newsstand sales and list rentals. The
following table sets forth the sources and amounts of the Predecessor's
revenues for the fiscal years ended November 30, 1994 and 1995 and the
Company's revenues for the twelve months ended December 31, 1996 and the six
months ended June 30, 1997 (dollars in millions):
<TABLE>
<CAPTION>
PREDECESSOR COMBINED (1) COMPANY
---------------------------------- ------------------ --------------
FISCAL YEARS ENDED NOVEMBER 30, TWELVE MONTHS SIX MONTHS
---------------------------------- ENDED ENDED
1994 1995 DECEMBER 31, 1996 JUNE 30, 1997
---------------- ---------------- ------------------ --------------
SOURCES OF REVENUE AMOUNT % AMOUNT % AMOUNT % AMOUNT %
- ------------------ ---------------- ---------------- ------------------ --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Advertising............. $ 117.4 57.9% $ 124.3 57.9% $ 135.5 59.6% $ 73.4 61.1%
Newsstand............... 40.1 19.7 39.9 18.6 42.0 18.5 21.3 17.7
Subscriptions, net (2).. 42.6 21.0 43.9 20.5 43.3 19.1 21.7 18.1
Other................... 2.7 1.4 6.4 3.0 6.4 2.8 3.7 3.1
-------- ------- -------- ------- --------- -------- ------- ------
Total................. $ 202.8 100.0% $ 214.5 100.0% $ 227.2 100.0% $ 120.1 100.0%
======== ======= ======== ======= ========= ======== ======= ======
</TABLE>
- --------
(1) Reflects the operations of the Predecessor for nine months ended September
30, 1996 and those of Petersen for the three months ended December 31,
1996 on a combined basis.
(2) Subscription revenues are shown net of agency commissions of $42,000,
$49,503, $55,005, and $27,723 for the years ended November 30, 1994 and
1995, the twelve months ended December 31, 1996 and the six months ended
June 30, 1997, respectively.
Advertising
Advertising sales accounted for approximately 59.6% and approximately 61.1%
of the Company's net revenues for the twelve months ended December 31, 1996
and the six months ended June 30, 1997, respectively. The Company's
advertising rates and rate structures vary among the Company's publications
and are based, among other things, on the circulation of the particular
publication and the size and location of the advertisement in the publication.
As compared to general-interest magazines, the Company believes that its
advertising revenues are less susceptible to changes in general economic
conditions due to the diversity of its publications and the endemic nature of
its advertiser base. In addition, the Company has a diverse advertiser base,
with its top 20 advertisers accounting for only 29.7% of the Company's
advertising revenues during the twelve months ended December 31, 1996. The
Company anticipates that its revenues from manufacturers of tobacco related
products will decrease in the future as a result of the resolution of certain
litigation involving such manufacturers. Advertising revenues from such
manufacturers were $6.9 million for the twelve months ended December 31, 1996
and $3.9 million for the six months ended June 30, 1997.
45
<PAGE>
The Company's advertising revenues are principally derived from large and
small manufacturers of products endemic to the editorial content of the
Company's magazines, such as new cars, trucks and motorcycles, aftermarket
automotive parts, hunting equipment, recreational firearms, bicycles and
bicycle accessories, diving equipment and photographic equipment and supplies.
Such manufacturers utilize the Company's magazines to efficiently advertise
their specialized products to the Company's enthusiast readership. Certain of
the Company's advertisers rely on the Company's publications as their primary
source of media advertising. In addition to revenues from endemic advertising,
the Company also derives a portion of its advertising revenues from well-known
national manufacturers of consumer products that do not directly relate to the
editorial content of the Company's magazines, such as apparel, footwear and
accessories, cosmetics and food and beverages. The Company derives the largest
portion of its advertising revenues from the automotive industry, which has
traditionally accounted for the largest percentage of total advertising
expenditures in the consumer magazine industry. For the twelve months ended
December 31, 1996, the Company derived approximately 17.0% and 21.5% of its
advertising revenues from automotive manufacturers of original equipment and
aftermarket parts, respectively.
Newsstand
Newsstand sales accounted for approximately 18.5% and approximately 17.7% of
the Company's net revenues for the twelve months ended December 31, 1996 and
the six months ended June 30, 1997, respectively. The Company generally
receives between 40% and 50% of the cover price of an individual magazine sold
through a newsstand with the balance of such cover price going to such
magazine's distributor, wholesaler and retailer.
Subscriptions
Subscription sales accounted for approximately 19.1% and approximately 18.1%
of the Company's net revenues for the twelve months ended December 31, 1996
and the six months ended June 30, 1997, respectively. Subscriptions to the
Company's magazines are generally sold either directly by the Company or by an
independent subscription agent, such as Publishers Clearing House. The
percentage of subscriptions sold through an agent varies across the Company's
publications and generally ranges from 45% to 70% on the Company's core
publications. Such agents remit a percentage of the subscription price to the
Company. In certain instances, the subscription agent receives a fee from the
Company in addition to retaining the entire subscription price. In the
aggregate, the Company receives approximately 10% to 15% of the total price of
subscriptions sold through agents. In addition to utilizing subscription
agents, the Company has historically sold its subscriptions using a variety of
techniques including direct reply subscription cards, direct mail and
television advertisements.
Other Circulation
The Company has developed a database that includes detailed demographic
information on approximately 16 million current or former subscribers. The
Company uses this database to, among other things, develop specific subscriber
lists for third parties including the Company's advertisers. For the six
months ended June 30, 1997, subscriber list rental income accounted for
approximately 1.9% of net revenues. The Company believes it can continue to
increase list rental income by actively marketing its subscriber database to a
broad group of potential users.
Other Revenue Sources
Prior to the Acquisition, the Company was operated as a traditional consumer
magazine company deriving substantially all of its revenues from advertising
and circulation sales. Management estimates that many consumer magazine
publishers currently derive approximately 10% to 20% of their revenues from
ancillary revenue sources while the Company derived only about 3% to 4% of its
revenues from ancillary sources prior to the Acquisition. These additional
revenues are derived primarily from domestic and international licensing
arrangements and sponsorship of special events, such as trade shows and
outdoor festivals that relate to the
46
<PAGE>
editorial content of the Company's magazines. Since the Acquisition the
Company has pursued the ancillary revenue opportunities afforded to it as a
result of its internationally-recognized brands and has recently formed
Petersen Enterprises and added a new senior manager to pursue such
opportunities.
The Company believes that there are significant opportunities to increase
revenues by leveraging off the editorial content, readers and subscription
database and the internationally-recognized brands of the Company's existing
publications. With the growth of electronic publishing, the Company believes
that there will be increased opportunities to utilize the editorial content of
the Company's publications across different formats. The Company has already
established a web-site on the Internet for Motor Trend, Bicyclist and
Petersen's Photographic, and expects to establish a Teen web-site in the near
future. The Company believes that electronic publishing offers opportunities
to generate additional revenues through increased advertising sales, access
fees and additional subscription sales.
The Company also believes that significant opportunities exist to generate
additional revenues through affinity group marketing programs through which
the Company would sell complementary products or services in addition to
magazines directly to its subscribers. Through such programs, the Company will
seek to increase its revenues from a typical subscriber from a single magazine
subscription to a variety of related products and services. The Company
believes that its special-interest publications will provide an attractive
platform through which to pursue such programs. The Company also intends to
enter into licensing arrangements for products and services that use the
Company's internationally-recognized brands.
Because the editorial content of many of its magazines would also appeal to
readers outside the United States, management believes that significant
opportunities exist to establish international licensing agreements,
particularly in Asia, Australia, Great Britain and Western Europe. Other areas
that the Company believes it can develop additional revenue streams include
developing business-to-business publications and entering into strategic joint
ventures.
PUBLICATIONS
The Company is organized into seven publishing groups: Automotive
Performance, Motor Trend, Youth, Outdoor, Photo/Marine, Motorcycle/Bicycle and
Sport. Each publishing group is organized around one or more of the Company's
core monthly publications that targets a distinctive special-interest segment
or specific general-interest segment (e.g., Teen and Sport). Each publishing
group operates independently with respect to the generation of editorial
content and endemic advertising sales. In addition, each publishing group
develops "spin-off" publications that target related complimentary niches,
thereby leveraging the brand strength of its core publications.
47
<PAGE>
The Company's portfolio includes 25 monthly, 11 bi-monthly and 42 single
issue or annual publications. The following table sets forth selected
information relating to the Company's current portfolio of monthly and bi-
monthly publications:
<TABLE>
<CAPTION>
AVERAGE
CIRCULATION
FOR THE SIX
MONTHS ENDED FREQUENCY OF YEAR OF
GROUP MAGAZINE TITLE JUNE 30, 1997 (1) PUBLICATION (2) INTRODUCTION
------------------------ ------------------------ ----------------- --------------- ------------
(COPIES IN
THOUSANDS)
<C> <S> <C> <C> <C>
Automotive Performance: Hot Rod................. 780.4 Monthly 1948
Car Craft............... 383.6 Monthly 1953
Petersen's 4 Wheel &
Off-Road................ 365.8 Monthly 1977
Sport Truck............. 200.3 Monthly 1988
Chevy High Performance.. 179.4 Monthly 1987
Circle Track and Racing
Technology.............. 131.8 Monthly 1982
Rod & Custom............ 118.0 Monthly 1955
Mustang & Fords......... 100.4 Bi-Monthly 1980
Custom Classic Trucks
(3)..................... 93.9 Bi-Monthly 1994
Hot Rod Bikes (3)....... 71.4 Monthly 1994
5.0 Mustang (3)......... 58.5 Bi-Monthly 1994
Kit Car (3)............. 72.3 Monthly 1982
Super Street (4)........ -- Monthly 1996
4x4 Power (4)........... -- Monthly 1996
VW Custom & Classic
(4)..................... -- Bi-Monthly 1997
Watercraft Power (4).... -- Monthly 1997
Motor Trend: Motor Trend............. 1,047.7 Monthly 1949
Youth: Teen.................... 1,661.1 Monthly 1957
All About You!.......... 302.9 Monthly 1995
Outdoor: Guns & Ammo............. 588.3 Monthly 1958
Petersen's Hunting...... 359.5 Monthly 1973
Handguns................ 150.3 Monthly 1987
Petersen's Bowhunting... 161.5 Bi-Monthly 1989
SHOT Business (5)....... 21.0 Monthly 1993
Petersen's Shotguns
(4)..................... -- Bi-Monthly 1997
Rifle Shooter (4)....... -- Bi-Monthly 1997
Petersen's
Photo/Marine: Photographic............ 202.9 Monthly 1972
Skin Diver.............. 200.1 Monthly 1951
Family Photo (4)........ -- Bi-Monthly 1997
Motorcycle/Bicycle: Motorcyclist............ 241.0 Monthly 1912
Dirt Rider.............. 165.6 Monthly 1982
Mountain Biker.......... 124.9 Monthly 1994
Bicyclist............... 99.1 Bi-Monthly 1984
Sport Rider............. 92.2 Bi-Monthly 1993
Cruiser (4)............. -- Bi-Monthly 1997
Sport: Sport................... 789.0 Monthly 1946
</TABLE>
- -------
(1) Based on circulation information provided by the Company to the Audit
Bureau of Circulation except for SHOT Business.
(2) Magazines that are published 10 to 12 times per year are classified as
monthly publications. Magazines that are published 6 to 9 times per year
are classified as bi-monthly publications.
(3) Based on sworn average circulation for the six months ended December 31,
1996, except for Kit Car, which is for the six months ended December 31,
1995.
(4) No circulation information is available due to the publication's limited
operating history.
(5) Based on circulation information provided by BPA International for the
six-months ended June 30, 1996.
48
<PAGE>
Each publishing group produces single issue publications, annuals, hard
cover books and/or technical volumes. These publications generally provide
more in-depth coverage of topics addressed in the Company's monthly and bi-
monthly magazines. Examples of such single issue publications include Teen's
Celebs, Sharks & Divers, Muscle Car How-To's and BMX Racer. By utilizing
portions of the editorial content previously appearing in its monthly and bi-
monthly publications, the Company is able to generate additional revenues in a
cost-effective manner through such publications. In addition, the Company
utilizes single issue publications as a means of developing and testing new
publications. Many of the Company's current monthly and bi-monthly
publications were first introduced as single issue publications. The Company
has scheduled the publication of 44 single issue publications for 1997.
The following table sets forth selected information relating to magazines
that have increased or are anticipated to increase publication frequency or
were started, acquired or licensed since the Acquisition:
<TABLE>
<CAPTION>
MONTH OF
FIRST ISSUE
PUBLISHED BY
MAGAZINE TITLE FREQUENCY COMPANY
- ------------------------------------------------------- --------- --------------
<S> <C> <C>
INCREASED PUBLICATION FREQUENCY:
Motorcycle Cruiser.................................... 6 January 1997
Family Photo.......................................... 6 February 1997
Rifle Shooter......................................... 6 August 1997
Petersen's Shotguns................................... 6 September 1997
START-UPS:
4x4 Power............................................. 12 October 1996
Super Street.......................................... 12 October 1996
VW Custom & Classic................................... 6 November 1996
Watercraft Power...................................... 10 February 1997
Concealed Carry Guns.................................. 1 April 1997
Teen's Great Looks.................................... 4 May 1997
MX Racer.............................................. 6 May 1997
.22 Rimfire........................................... 1 June 1997
Sharks & Divers....................................... 1 June 1997
Test Fire............................................. 1 July 1997
Whoops!............................................... 1 July 1997
Teen's Celebs......................................... 1 September 1997
How It Works.......................................... 1 September 1997
Muscle Car How-To's................................... 1 October 1997*
Girls of Sport Truck.................................. 1 October 1997*
Chevy Small Block Engines............................. 1 November 1997*
4-Wheel Tech & How-To................................. 1 November 1997*
Teen's Guys........................................... 1 November 1997*
Build Your First Race Car............................. 1 December 1997*
BMX Racer............................................. 1 December 1997*
ACQUISITIONS OR LICENSES:
Richard Petty's Stock Car Racing...................... 4 July 1997
Bob Griese's College Football Preview................. 1 July 1997
Dick Vitale's College Basketball Preview.............. 1 October 1997*
SHOT Business......................................... 12 October 1997*
</TABLE>
- --------
* Projected.
49
<PAGE>
The following sets forth a brief description of each of the Company's 15
core magazines by publishing group:
AUTOMOTIVE PERFORMANCE GROUP
Hot Rod was the first magazine launched by the Company's founder in 1948.
Hot Rod is dedicated to the sport of "hot rodding" and primarily focuses on
high performance and personalized vehicles. Hot Rod's editorial content covers
all aspects of the automobile performance industry and features the latest
trends, performance cars and trucks, custom built street rods as well as
racing vehicles of all types. Hot Rod's comprehensive coverage includes in-
depth product testing, technical articles, editorial commentary, road tests,
engine buildups and photo stories on project cars. Hot Rod is the dominant
publication in its targeted market and competes with Popular Hot Rodding. The
Company has licensed the use of the Hot Rod brand name in connection with a
television show for TNN. For the twelve months ended December 31, 1996, Hot
Rod generated approximately 8.5% of the Company's net revenues.
Petersen's 4 Wheel & Off-Road ("4 Wheel & Off-Road") is a leading magazine
for four-wheel drive enthusiasts. Established in 1978, 4 Wheel & Off-Road is
dedicated to the four-wheel drive enthusiast and industry. 4 Wheel & Off-Road
is aimed at people who: (i) are considering the purchase of a new four-wheel
drive vehicle; (ii) want to accessorize and improve their vehicle; or (iii)
frequently drive their four-wheel drive in competitive settings. 4 Wheel &
Off-Road provides its readers with a significant number of technical articles,
including tests of new products and step-by-step installation of popular
accessories such as suspension lifts and engine modifications. In addition to
a strong technical base, 4 Wheel & Off-Road also features monthly articles
which cover the nation's truck and off-road events. 4 Wheel & Off-Road
principally competes with Four Wheeler and Off-Road. For the twelve months
ended December 31, 1996, 4 Wheel & Off-Road generated approximately 5.9% of
the Company's net revenues.
Car Craft is a comprehensive do-it-yourself street performance magazine.
Established in 1953, Car Craft is devoted to knowledgeable enthusiasts
interested in obtaining maximum performance from modified street machines and
racing vehicles. Car Craft features informative monthly articles, including
technical how-to-articles, in-depth testing of new performance cars and
information regarding new performance technology. For the twelve months ended
December 31, 1996, Car Craft generated approximately 4.2% of the Company's net
revenues.
Sport Truck provides its readers with information about the street truck
marketplace. Sport Truck provides both step-by-step and technical articles
that detail the customizing process and provides complete coverage of the
products and tools involved in the customization. Sport Truck focuses on the
latest trucks on the market as well as prototypes, including both domestic and
import models. Sport Truck's principal competition is from Truckin' magazine.
For the twelve months ended December 31, 1996, Sport Truck generated
approximately 2.7% of the Company's net revenues.
Chevy High Performance is designed to be an authoritative source for
enthusiasts who are interested in buying, building, restoring and modifying
high-performance Chevrolet automobiles ("Chevys"). Chevy High Performance was
first introduced in 1987 and was converted into a monthly publication in 1995.
Chevy High Performance provides its readers with in depth, step-by-step
technical articles that show the reader how to modify, fabricate and build
high performance into their Chevys. The magazine answers readers' questions
and offers shopping tips about performance and restoration. Features also
include the latest news, profile readers' cars and highlight upcoming Chevy
events. Chevy High Performance's principal competition is from Super Chevy
magazine. For the twelve months ended December 31, 1996, Chevy High
Performance generated approximately 2.0% of the Company's net revenues.
Circle Track & Racing Technology ("Circle Track") is a leading technical
magazine for oval-track racers, fans and enthusiasts. Circle Track provides an
emphasis on how-to technical articles, in-depth discussions of engine, chassis
and racing technology, descriptive car features, behind-the-scenes event
coverage and action photography. Circle Track was introduced in 1982 and
currently competes with Stock Car Racing and Open Wheel. For the twelve months
ended December 31, 1996, Circle Track generated approximately 2.8% of the
Company's net revenues.
50
<PAGE>
MOTOR TREND GROUP
Motor Trend is recognized as a leading authority on new domestic and foreign
automobiles. Founded by the Company in 1949, Motor Trend provides
comprehensive information and guidance to new car buyers as well as car and
truck enthusiasts. Motor Trend typically tests more than 200 new cars, trucks,
minivans and sport utility vehicles annually, which the Company believes is
more than any other competitive publication. Many of these tests are conducted
in the context of multi-vehicle comparison tests, which provide the reader
with detailed technical and driving analysis in an easy-to-understand format.
Motor Trend's annual automotive industry awards (Car of the Year, Import Car
of the Year and Truck of the Year) are widely regarded as one of the most
prestigious in the industry. During the last two years, Motor Trend has been
the fastest growing magazine in the automobile field in terms of paid
circulation.
For the twelve months ended December 31, 1996, Motor Trend generated
approximately 14.3% of the Company's net revenues. In June 1996, the Company
established a Motor Trend web-site on the Internet, which currently contains
approximately 30% of the editorial content of the monthly edition. During June
1997, the web-site averaged 466,762 hits per day. The Company believes that
the Internet offers the Company additional opportunities to generate revenues
through increased advertising sales, access fees and additional subscription
sales. The Company has also licensed the use of the Motor Trend brand name in
connection with a television show for TNN. In addition, the Company published
six Motor Trend buyer's guides in 1996. Motor Trend's principal competitors
are Car and Driver, Road & Track and Automobile.
YOUTH GROUP
Teen has the largest circulation of any of the Company's magazines. Teen's
editorial content covers a broad range of topics relevant to girls aged 12 to
19, including fashion, beauty, entertainment and a wide variety of
contemporary issues. Teen places a strong emphasis on the development of self-
esteem and self-confidence among its readers. In December 1996, the Company
discontinued the publication of Sassy and provided its subscribers with a Teen
subscription in early 1997. Teen principally competes with Seventeen and YM.
For the twelve months ended December 31, 1996, Teen generated approximately
11.4% of the Company's net revenues.
Following the Acquisition, management made a number of changes to Teen
designed to increase its appeal to both readers and advertisers, including
refocusing its editorial content to attract more readers in their late teens
in an effort to increase advertising revenues from the cosmetic and fashion
apparel industries. In addition, management improved Teen's cover layout and
artwork and upgraded the paper grade used for its production. Teen's
management has recently been moved to New York City to increase its visibility
among advertisers in the fashion and cosmetic industries.
OUTDOOR GROUP
Guns & Ammo is edited for the sportsman with an interest in the practical
applications of sporting firearms, with an emphasis on their safe and proper
use. Guns & Ammo features information on current production of sporting arms
and their use, as well as technical articles on all facets of sport shooting.
Each issue of Guns & Ammo delivers an editorial mix that includes hunting,
shooting, reloading, antique and modern arms, ballistics and firearms
legislation. Natural resource protection and environmental conservation as
well as in-depth reviews of new products and new trends represent other major
editorial issues covered by internationally renowned experts. Guns & Ammo
principally competes with Shooting Times and Guns. For the twelve months ended
December 31, 1996, Guns & Ammo generated approximately 5.7% of the Company's
net revenues.
Petersen's Hunting ("Hunting") is the only U.S. national monthly publication
devoted entirely to the sport of recreational hunting. Every issue contains
instructional and entertaining articles for the hunting enthusiast. Hunting
presents in-depth coverage of the various hunting disciplines: big and small
game, waterfowl, upland game, and foreign hunting. Monthly departments focus
on the more specialized aspects of the sport and its equipment, including game
management, vehicles, gun dogs, optics, handloading, bowhunting and firearms.
Editorial coverage also includes conservation and ecological issues, the roles
played in these areas by the hunter
51
<PAGE>
and the manufacturer, and basic where-to and how-to information for all types
of recreational hunting. Hunting has no direct competitors and indirectly
competes with American Hunter and North American Hunter, each of which is
associated with a hunting organization, and Sports Afield, which covers a wide
variety of outdoor activities. For the twelve months ended December 31, 1996,
Hunting generated approximately 3.4% of the Company's net revenues.
PHOTO/MARINE GROUP
Skin Diver was introduced by the Company in 1951 and is the largest diving
magazine in the world in terms of annual circulation. The magazine's editorial
focus involves three categories: (i) diving news, safety and educational
issues; (ii) dive product performance reviews; and (iii) local and overseas
dive travel. Skin Diver provides information on scuba diving equipment,
snorkeling, underwater photography, shipwreck exploration, marine life,
organized diving events, scuba education and dive travel. With global coverage
of dive travel activities, Skin Diver features in every issue dive resorts,
live-aboard dive boats and attractions in over 70 countries and islands around
the world. All topics are covered by an internal staff and contributing
editors who are among the most experienced and well trained divers in the
world. Skin Diver is the only national publication that focuses primarily on
all aspects of skin diving and competes on a limited basis with Rodale's Scuba
Diving. For the twelve months ended December 31, 1996, Skin Diver generated
approximately 5.7% of the Company's net revenues.
Petersen's Photographic ("Photographic") magazine is a how-to guide
dedicated to increasing photographic knowledge, skill and enjoyment for both
amateurs and professionals. Photographic is edited for all levels of
photography and blends equipment coverage with reports on photography
techniques, workshops, schools, photo travel and contests. Each issue includes
travel features that encourage readers to test and improve their photography
skills. Each issue also includes segments on outdoor and action photography as
well as information on travel destinations and information on how best to take
advantage of the photographic opportunities afforded by travel. Photographic
was introduced in 1972 and principally competes with American Photo and
Popular Photography. For the twelve months ended December 31, 1996,
Photographic generated approximately 2.8% of the Company's net revenues.
MOTORCYCLE/BICYCLE GROUP
Motorcyclist is the only U.S. national monthly publication that is dedicated
exclusively to street motorcycles. The magazine's editorial focus is on the
practical aspects of owning, maintaining and riding a street motorcycle.
Motorcyclist is written for the enthusiast, offering authoritative road tests
along with information on how to improve and modify the reader's current
motorcycles. Regular features include maintenance and performance-improvement
articles and safety information such as helmet comparisons and riding-
techniques. Motorcyclist principally competes with Cycle World. For the twelve
months ended December 31, 1996, Motorcyclist generated approximately 3.1% of
the Company's net revenues.
Dirt Rider is the world's largest dirt riding publication in terms of
circulation and covers all aspects of off-road motorcycling. Dirt Rider offers
readers full coverage of off-road motorcycling including new motorcycle
evaluations, technical information, riding tips and the latest in riding
accessories. The editorial content focuses on reviews of the latest machinery
and aftermarket products from the off-road riding industry. Dirt Rider
principally competes with Dirt Bike and Motocross Action. For the twelve
months ended December 31, 1996, Dirt Rider generated approximately 2.7% of the
Company's net revenues.
SPORT GROUP
Sport was acquired by the Company in 1988 and celebrated its 50th year in
publication in 1996. Sport is the largest monthly sports publication in the
market. Sport is designed to provide more in-depth and insightful coverage of
action both on and off the field than can be found through other sources of
sports news. Interviews, season previews, players and team evaluations and
behind-the-scenes reports for both professional and collegiate
52
<PAGE>
sports aim to give the reader insight not available from television,
newspapers or sports weeklies. Since the Acquisition, the Company has
implemented a number of changes to Sport designed to improve its operating
performance. The changes include redirecting its editorial focus and improving
its layout and graphic quality. Sport principally competes with Inside Sports.
The Company does not consider Sports Illustrated to be a competive publication
due primarily to the frequency of its publication. For the twelve months ended
December 31, 1996, Sport generated approximately 4.5% of the Company's net
revenues.
SALES AND MARKETING
The Company's sales and marketing activities are designed to implement the
Company's business and operating strategy of increasing advertising,
circulation and ancillary revenues. The Company employs a staff of 204 persons
who are engaged in sales and marketing.
Advertising
A key portion of the Company's advertising marketing strategy is designed to
increase advertising revenues from non-endemic advertisers. Non-endemic
advertising sales are currently handled by a centralized sales staff that is
managed from New York City, in order to be in close proximity to the major
non-endemic accounts. The Company also instituted a new commission plan for
salespersons in order to properly motivate the staff throughout the year and
upgraded the support staff in the areas of marketing, creative services and
research. The Company has also expanded the number of salespersons dedicated
to single, large advertising accounts, such as in the new automobile and
aftermarket fields. The Company's endemic advertising sales are made by each
publishing group.
Circulation
Prior to the Acquisition, circulation marketing was managed in Los Angeles
by a staff organized by magazine group. The department has subsequently been
moved to New York City, so it can more readily draw on experienced circulation
marketing talent, and has been reorganized along functional lines. The
Company's subscription marketing strategy is designed to increase the number
of readers who buy subscriptions directly from the Company. To implement this
strategy, the Company has instituted a number of new promotional programs such
as the creation and testing of over 70 direct mail packages, television
advertisement and new billing advertisement renewal efforts.
Ancillary Revenues
Since the Acquisition, the Company has pursued certain ancillary revenue
opportunities afforded it by its well-established brand names and intends to
continue to do so in the future. The Company has recently added a new senior
manager as well as three new staff members to focus on such opportunities.
PRODUCTION, DISTRIBUTION AND FULFILLMENT
The Company employs a staff of professionals to manage the production and
oversee the printing, distribution and fulfillment of its magazines, which are
outsourced to third parties. Through the use of state-of-the-art design and
production technology, economies of scale in printing contracts and
efficiencies in subscription solicitation and fulfillment, the Company is able
to effectively produce and distribute all of its publications. The Company's
production system for both graphics and editing utilizes an integrated
publishing environment that is networked with satellite offices and World
Color. Approximately 60 employees of the Company are engaged in the production
and distribution of the Company's publications.
The Company sold all of its assets relating to its pre-press operations to
World Color for approximately $2.5 million in February 1996. At the same time,
the Company entered into an agreement with World Color pursuant to which World
Color agreed to provide the Company's color separation, pre-press and related
service requirements with respect to most of the Company's publications for
the term of the agreement. Under the agreement, the Company is generally
required to use World Color for at least 85% of its pre-press and related
service requirements. This agreement with World Color expires on December 31,
2003.
53
<PAGE>
All of the Company's magazines are currently printed by World Color pursuant
to an agreement that expires on December 31, 2003. The Company believes that
its relationship with World Color is good. The Company believes, however, that
other printers of similar quality could be engaged on similar terms. The
Company believes that its high volume of printing with World Color enables it
to receive favorable printing rates. In February 1997, in exchange for an
agreement to purchase additional printing services, the Company's then
existing agreements with World Color were amended to extend the terms of the
agreement and to provide more favorable pricing terms with respect to color
separation, pre-press and related services.
The newsstand distribution of the Company's magazines is handled exclusively
by Warner Publisher Services, Inc. ("Warner") pursuant to a distribution
agreement. Such agreement will remain in effect until December 31, 1998,
subject to automatic 90-day extensions thereafter unless either party delivers
a termination notice. Warner distributes the Company's publications through a
network of marketing representatives to domestic independent wholesalers as
well as to other channels of distribution. Warner also provides the Company
with other services, including management information and promotional and
specialty marketing services. Warner's marketing representatives solicit
national, regional and local retailers in an effort to expand the number of
retail outlets for the Company titles. The Company believes that using a
single distribution agent enables it to receive favorable pricing terms. See
"Risk Factors--Consolidation of Principal Vendors."
The Company's subscriptions are serviced by Neodata Services, Inc.
("Neodata"), which: (i) receives, verifies, balances and deposits payments
from subscribers; (ii) maintains master files on all subscribers by magazine
and issues bills and renewal notices to subscribers; (iii) issues address
labels for the magazines as directed by the Company; and (iv) furnishes
various reports to monitor all aspects of the subscription operations. The
Company's existing agreement with Neodata may be terminated by either party
after August 31, 1998.
RAW MATERIALS
The Company's principal raw material is paper. Paper costs represented
approximately 20.7%, 25.9%, 22.8% and 20.4% of the Company's production,
selling and other direct costs for the six months ended June 30, 1997, the ten
months ended September 30, 1996 and the fiscal years ended November 30, 1994
and 1995, respectively. The Company's outside printer currently supplies the
Company with substantially all of its paper requirements. The Company believes
that using this arrangement enables it to obtain favorable pricing as a result
of the printer's large volume of paper purchasing. The available sources of
paper have been, and the Company believes will continue to be, adequate to
supply the Company's needs. Certain commodity grades of paper have shown
considerable price volatility over the last decade, including the commodity
grade used by the Company. Paper prices rose sharply during the latter part of
1995, and, in response, the Predecessor purchased a large supply of paper in
anticipation of additional price increases and supply shortages continuing for
the remainder of 1995 and 1996. The increase in paper prices in late 1995 and
the Predecessor's large purchase at such increased prices materially adversely
affected the Predecessor's production, selling and other direct costs for the
year ended November 30, 1995 and the twelve months ended December 31, 1996.
Following the Acquisition, the Company secured sufficient paper to meet its
projected raw material needs through the end of 1997 at a fixed price. The
Company is currently in discussions relating to the terms on which the Company
will purchase paper in 1998. There can be no assurance that the Company will
be able to reach agreement on terms favorable to the Company or that future
fluctuations in paper prices will not have a material adverse effect on the
results of operations and financial condition of the Company. See "Risk
Factors--Paper Price Volatility and Postal Prices" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Overview."
COMPETITION
The magazine publishing business is highly competitive. The Company
principally competes for advertising and circulation revenues with publishers
of other special-interest consumer magazines with similar editorial content as
those published by the Company. Such competitors include: K-III Communications
Company, which publishes Seventeen, Automobile and Truckin'; Hachette
Filipacchi Magazines, Inc. ("Hachette"), which publishes Road and Track, Car &
Driver, Popular Photography and Cycle World; Gruner + Jahr Publishing, which
publishes YM; Rodale Press Inc., which publishes Bicycling and Rodale's Scuba
Diving; and The Times Mirror Company, which publishes Outdoor Life and Field &
Stream. Certain of the Company's competitors are
54
<PAGE>
larger and have greater financial resources than the Company. Most of the
Company's magazines face competition within each of their respective markets
from one to three other monthly publications. The Company does not believe
that its magazines compete with weekly or bi-weekly publications and, with the
exception of Sports Illustrated, the Company is not aware of any significant
weekly or bi-weekly publication with similar editorial content to those of its
publications. The Company believes that it competes with other special-
interest publications based on the nature and quality of its magazines'
editorial content. Of the Company's 15 core magazines, nine are ranked first
in their respective markets based on annual circulation in 1996, including two
magazines that were the only national magazines published in their respective
markets.
In addition to other special-interest magazines, the Company also competes
for advertising revenues with general-interest magazines and other forms of
media, including broadcast and cable television, radio, newspaper, direct
marketing and electronic media. In competing with general-interest magazines
and other forms of media, the Company relies on its ability to reach a
targeted segment of the population in a cost-effective manner.
INTELLECTUAL PROPERTY
The Company believes that it has developed strong brand awareness within
each of its magazines' targeted markets. As a result, the Company regards its
branded magazine titles and logos to be valuable assets. The Company has
registered several trademarks, service marks and logos used in its publishing
business in the United States. In addition, each one of the Company's
publications is protected under Federal copyright laws. In connection with the
Acquisition, the Company entered into a license agreement with Mr. Petersen
pursuant to which it was granted an exclusive license to use the Petersen name
in perpetuity. The Company believes that it owns or licenses all the
intellectual property rights necessary to conduct its business.
PROPERTIES
The Company publishes its magazines and houses its corporate and
administrative staff at its headquarters located at 6420 Wilshire Boulevard,
Los Angeles, California. Information relating to the Company's corporate
headquarters and other regional sales offices, all of which are leased by the
Company, is set forth in the following table:
<TABLE>
<CAPTION>
LOCATION ADDRESS SQUARE FOOTAGE TERM EXPIRATION DESCRIPTION OF USE
-------- ------------------------ -------------- --------------- ------------------
<S> <C> <C> <C> <C>
Los Angeles............. 6420 Wilshire Boulevard 188,309 11/30/09 Headquarters
New York................ 110 Fifth Avenue 47,304 3/31/09 Circ./Sales/Corp.
New York (1)............ 437 Madison Avenue 29,301 10/31/04 Sales Office
Chicago................. 815 North LaSalle Street 10,407 9/30/05 Sales Office
Detroit................. 333 Fort Street 6,695 12/31/03 Sales Office
Boulder................. 5350 Manhattan Circle 1,435 2/28/99 Circulation
Atlanta................. Five Concourse Parkway 3,524 4/30/98 Sales Office
Dallas (2).............. 800 West Airport Freeway 1,230 12/31/97 Sales Office
</TABLE>
- --------
(1) The Company is currently pursuing opportunities to sublease this space.
(2) This sales office was closed pursuant to management's business and
operating strategy.
The Company leases space used for its corporate headquarters and Chicago
regional sales office from entities controlled by Mr. Petersen. See "Certain
Relationships and Related Transactions."
EMPLOYEES
As of June 30, 1997, the Company employed approximately 600 full-time
employees, none of whom are members of a union. The Company believes that its
relations with its employees are good.
LEGAL PROCEEDINGS
The Company is a party to various litigation matters incidental to the
conduct of its business. Although management cannot predict the outcome of any
of such matters, it does not believe that the outcome of any of the matters in
which it is currently involved will have a material adverse effect on the
financial condition or results of operations of the Company.
55
<PAGE>
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The following table sets forth certain information (ages as of June 15,
1997) with respect to the persons who are members of the Board of Directors,
executive officers or key employees of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
James D. Dunning, Jr. .. 50 Chairman of the Board and Chief Executive Officer
D. Claeys Bahrenburg.... 50 Vice Chairman of the Board and Chairman of the Executive Committee
Neal Vitale............. 43 President, Chief Operating Officer and Director
Richard S Willis........ 36 Executive Vice President, Chief Financial Officer and Director
Laurence H. Bloch....... 43 Vice Chairman of the Board
Avy H. Stein............ 42 Director
Daniel H. Blumenthal.... 33 Director
Stuart Karu............. 50 Director
John R. Willis.......... 47 Director
Michael Borchetta....... 32 Vice President, Circulation
James Guthrie........... 56 Executive Vice President, Marketing and Sales
Justin McCormack........ 37 President, Petersen Enterprises
John Dianna............. 54 President, Automotive Performance Group
Ken Elliott............. 57 Vice President, Executive Publisher, Outdoor Group
Lee Kelley.............. 55 President, Motor Trend Group
Richard P. Lague........ 53 Vice President, Executive Publisher, Motorcycle/Bicycle Group
Charlotte Anne Perkins.. 42 President, Sport Group
Paul J. Tzimoulis....... 60 Vice President, Executive Publisher, Photo/Marine Group
Amy P. Wilkins.......... 34 President, Youth Group
</TABLE>
DIRECTORS AND EXECUTIVE OFFICERS
James D. Dunning, Jr. has served as the Chairman of the Board and Chief
Executive Officer of the Company since the Acquisition. Since 1993, Mr.
Dunning has been Chairman and Chief Executive Officer of TransWestern
Publishing Company, L.P. ("TransWestern"), the largest independent publisher
of yellow pages in the United States and is currently Chairman and Chief
Executive Officer of The Dunning Group, Inc. Mr. Dunning was formerly Chairman
of SRDS Media Information, L.P. ("SRDS"), a media information and database
publisher. From 1987 to 1992, Mr. Dunning was Chairman, Chief Executive
Officer and President of Multi-Local Media Information Group, Inc. ("MLM"), a
yellow pages and database company. From 1985 to 1986, he served as Executive
Vice President of Ziff Communications, a consumer and trade publisher. From
1982 to 1984, Mr. Dunning was Senior Vice President and Director of Corporate
Finance at Thomson McKinnon Securities, Inc. ("Thomson McKinnon"), an
investment banking firm. Mr. Dunning served as President of Rolling Stone
Magazine from 1977 to 1982.
D. Claeys Bahrenburg currently serves as Vice Chairman and Chairman of the
Executive Committee of the Company and has served as a Director of the Company
and as Chief Executive Officer of Publishing since the Acquisition. From 1989
to 1995, Mr. Bahrenburg served as President of the Magazine Publishing
Division of The Hearst Corporation ("Hearst"), the largest publisher of
monthly magazines in the world. From 1986 to 1989, Mr. Bahrenburg served as
Executive Vice President and Group Publishing Director at Hearst, where his
responsibilities included overseeing 12 publications, new magazine development
and brand development. From 1981 to 1986, Mr. Bahrenburg held the position of
Publisher of both House Beautiful and Cosmopolitan.
Neal Vitale currently serves as the President and Chief Operating Officer of
the Company and has served as a Director of the Company and President and
Chief Operating Officer of Publishing since the Acquisition. From 1989 to
1996, Mr. Vitale was employed by Cahners Publishing Company ("Cahners"), a
division of Reed Elsevier, Inc. and a leading business-to-business publisher,
in a variety of managerial capacities, including Vice President of Consumer
Publishing, Vice President/General Manager of Variety and, most recently, as
Group Vice
56
<PAGE>
President, Entertainment, where he was responsible for the publications of
Variety, Daily Variety, Broadcasting & Cable, Moving Pictures International,
On Production and Tradeshow Week. From 1984 to 1989, Mr. Vitale was a partner
at McNamee Consulting Company, Inc., a management consulting firm specializing
in publishing and direct marketing.
Richard S Willis currently serves as Executive Vice President, and Chief
Financial Officer of the Company and has served as a Director of the Company
since December 1996 and has served as Executive Vice President and Chief
Financial Officer of Publishing since the Acquisition. Prior to the
Acquisition, Mr. Willis served as the Vice President, Finance of the
Predecessor since October 1995. From 1993 to 1995, Mr. Willis served as the
Executive Vice President and Chief Financial Officer of two divisions of World
Color and from 1990 to 1993 as the Chief Financial Officer and Secretary of
Aster Publishing Company. From 1987 to 1990, Mr. Willis served as the Chief
Financial Officer and Vice President of Finance and Administration of the
consumer magazine group of Cowles Media Company. Prior thereto, Mr. Willis
held various financial and managerial positions with Capital Cities/ABC,
including the Chief Financial Officer of its consumer magazine division. Mr.
Willis is not affiliated with Willis Stein.
Laurence H. Bloch has served as the Vice Chairman of the Company since the
Acquisition. Mr. Bloch also serves as Vice Chairman and Chief Financial
Officer of TransWestern, which he joined in May 1993. From September 1990 to
March 1992, Mr. Bloch was Senior Vice President and Chief Financial Officer of
Lanxide Corporation, a materials technology company. Between 1980 and 1990,
Mr. Bloch was an investment banker, initially with Thomson McKinnon and later
as a Managing Director of Smith Barney. Mr. Bloch is a director of
TransWestern and was formerly a director of SRDS and MLM.
Avy H. Stein has served as a Director of the Company since the Acquisition.
Mr. Stein is a founder and Managing Director of Willis Stein. Prior to
founding Willis Stein, Mr. Stein served as a Managing Director of Continental
Illinois Venture Corporation ("CIVC"), a venture capital investment firm, from
1989 through 1994. Prior to his tenure at CIVC, Mr. Stein served as a special
consultant for mergers and acquisitions to the Chief Executive Officer of NL
Industries, Inc.; as the Chief Executive Officer and principal shareholder of
Regent Corporation; as President of Cook Energy Corporation and as an attorney
with Kirkland & Ellis, a national law firm. Mr. Stein also serves as a
director of TransWestern, Tremont Corporation, Racing Champions Corporation,
UC Television Network Corp. and a number of privately-held companies.
Daniel H. Blumenthal has served as a Director of the Company since the
Acquisition. Mr. Blumenthal is a founder and Managing Director of Willis
Stein. Prior to founding Willis Stein, Mr. Blumenthal served as Vice President
of CIVC from 1993 through 1994. Prior to his tenure at CIVC, Mr. Blumenthal
was a corporate tax attorney with Latham & Watkins, a national law firm, from
1988 to 1993. Mr. Blumenthal also serves as a director of a number of
privately-held companies.
Stuart Karu has served as a Director of the Company since the Acquisition.
Mr. Karu currently is a private investor. From 1994 to 1995, Mr. Karu served
as Vice Chairman of SRDS and in 1995 he served as the interim Chief Executive
Officer of SRDS. From 1992 to 1994, Mr. Karu was the Chief Executive Officer
and major shareholder of Balsam Spring Water. From 1979 to 1989, Mr. Karu was
the Chief Executive Officer and principal shareholder of Henry S. Kaufman,
Inc., a national advertising and public relations firm. Mr. Karu serves as a
director of TransWestern and was formerly a director of SRDS and MLM.
John R. Willis has served as a Director of the Company since December 1996.
Mr. Willis is a founder and Managing Director of Willis Stein. Prior to
founding Willis Stein, Mr. Willis served as President of CIVC from 1989
through 1994. Prior to his tenure at CIVC, Mr. Willis founded and served as a
Managing Director of Continental Mezzanine Investment Group, following his
serving in various senior lending positions at Continental Bank which he
joined in 1974. Mr. Willis also serves as a director of TransWestern and a
number of other privately-held companies.
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<PAGE>
Executive officers of the Company are duly elected by the Board of
Directors to serve until their respective successors are elected and
qualified. There are no family relationships between any of the Directors or
executive officers of the Company.
CERTAIN KEY EMPLOYEES
Michael Borchetta has served as Vice President, Circulation of the Company
since the Acquisition. Prior to joining the Company, Mr. Borchetta served as
Circulation Director of Cahners since January 1996 and as Subscription
Director of Cahners from January 1990 to January 1996. Mr. Borchetta has also
held positions with Act III Communications and Cowles Media Company.
James Guthrie has served as Executive Vice President, Marketing and Sales
since April 1997. From November 1987 to March 1997, Mr. Guthrie served as
Executive Vice President-Marketing Development at Magazine Publishers of
America ("MPA"). Prior to joining MPA, Mr. Guthrie was President and Chief
Operating Officer of the advertising agency John Emmerling, Inc. for six
years.
Justin McCormack has served as President, Petersen Enterprises since March
1997. From February 1993 to March 1997, Mr. McCormack served as Executive Vice
President of Marvel Characters, Inc. where he oversaw advertising, licensing
and merchandising for the Marvel Entertainment Group. From June 1991 to
February 1993, Mr. McCormack served as President and owner of the Nicholas
James Group, a consultant and supplier to entertainment and publishing
companies for special promotions, merchandising and new product development.
John Dianna currently serves as President, Automotive Performance Group of
Petersen. Mr. Dianna served with the Predecessor for over 27 years, and served
as Vice-President, Executive Publisher, Automotive Performance Group since
August 1991. Mr. Dianna is primarily responsible for the publication of Hot
Rod, 4 Wheel & Off-Road, Car Craft, Sport Truck, Circle Track and related
publications.
Ken Elliott currently serves as Vice President, Executive Publisher, Outdoor
Group of Petersen. Mr. Elliott served with the Predecessor for over 23 years,
and served as Vice President, Executive Publisher, Outdoor Group since October
1995. Mr. Elliott served as Group Publisher from December 1990 to October
1995. Mr. Elliott is primarily responsible for the publication of Guns & Ammo,
Hunting, Bowhunting, Handguns and related publications.
Lee Kelley currently serves as President, Motor Trend Group of Petersen. Mr.
Kelley served with the Predecessor for over 21 years, and served as Vice-
President, Executive Publisher, Motor Trend Group since August 1991. Mr.
Kelley is primarily responsible for the publication of Motor Trend and related
publications.
Richard P. Lague currently serves as Vice President, Executive Publisher,
Motorcycle/Bicycle Group of Petersen. Mr. Lague served with the Predecessor
for approximately 21 years, and served as Vice President, Executive Publisher
Motorcycle/Bicycle Group since February 1992. From August 1991 to February
1992, Mr. Lague served as Vice President Motorcycle/Bicycle Group. Mr. Lague
is primarily responsible for the publication of Motorcyclist and motorcycle
related publications, Bicycle Guide and Mountain Biker.
Charlotte Anne Perkins has served as President, Sport Group since March 1997
and is responsible for Sport and its special-interest publications. Prior to
joining the Company, Ms. Perkins served as Publishing Director of Sport
Traveler magazine, which she founded in September 1992, and previously held
various positions at Hearst and Hachette.
Paul J. Tzimoulis currently serves as Vice President, Executive Publisher,
Photo/Marine Group of Petersen. Mr. Tzimoulis served with the Predecessor for
over 32 years, and has served as Vice President, Executive Publisher,
Photo/Marine Group since August 1984. Mr. Tzimoulis is responsible for the
publication of Skin Diver and Photographic and other related publications.
Amy P. Wilkins has served as President, Youth Group since May 1997 and is
responsible for Teen and its special-interest publications. From April 1995 to
May 1997, Ms. Wilkins served as Publisher of Health magazine (published by
Time Warner, Inc.) after serving in various positions with Health since 1989.
58
<PAGE>
BOARD COMPOSITION
The Board of Directors will consist of ten members following the Offering,
which will include the nine current members of the Board plus one additional
"independent director" (within the meaning of the regulations of the New York
Stock Exchange (the "NYSE")). It is expected that the new director will be
approved to the Board within three months following the closing of the
Offering. All of the current members of the Board were designated by Willis
Stein pursuant to the terms of the Securityholders Agreement. See "Principal
Stockholders--Securityholders Agreement." Directors of the Company are
currently elected annually by its stockholders to serve during the ensuing
year or until their respective successors are duly elected and qualified.
Prior to the completion of the Offering, the Board will be divided into
three classes, as nearly equal in number as possible, with each Director
serving a three-year term and one class being elected at each year's annual
meeting of stockholders. The Company's By-laws provide that Directors shall be
elected by a plurality vote, with no cumulative voting. Messrs. R. Willis, J.
Willis and Karu will be in the class of directors whose term expires at the
1998 annual meeting of the Company's stockholders. Messrs. Bahrenburg,
Blumenthal and Bloch will be in the class of directors whose term expires at
the 1999 annual meeting of the Company's stockholders. Messrs. Vitale, Stein
and Dunning will be in the class of directors whose term expires at the 2000
annual meeting of the Company's stockholders. At each annual meeting of the
Company's stockholders, successors to the class of directors whose term
expires at such meeting will be elected to serve for three-year terms, and
until their respective successors are elected and qualified. The Company
intends to hold its first annual meeting of stockholders following the
completion of the Offering in 1998.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors currently has two committees: (i) an Audit Committee
and (ii) a Compensation Committee. Immediately prior to the completion of the
Offering, the Board will establish an Executive Committee.
The Audit Committee is currently comprised of Messrs. J. Willis, Bloch and
Karu. The Audit Committee reviews and recommends to the Board, as it deems
necessary, the internal accounting and financial controls for the Company and
the accounting principles and auditing practices and procedures to be employed
in preparation and review of financial statements of the Company. The Audit
Committee makes recommendations to the Board concerning the engagement of
independent public accountants and the scope of the audit to be undertaken by
such accountants. Ernst & Young LLP presently serves as the independent
auditors of the Company. Following the Offering, the composition of the Audit
Committee will be revised to comply with the requirements of the NYSE.
The Compensation Committee is currently comprised of Messrs. Stein, Dunning
and Blumenthal. The Compensation Committee reviews and, as it deems
appropriate, recommends to the Board policies, practices and procedures
relating to the compensation of the officers and other managerial employees
and the establishment and administration of employee benefit plans. The
Compensation Committee exercises all authority under any employee stock option
plans of the Company as the Committee therein specified (unless the Board
resolution appoints any other committee to exercise such authority), and
advises and consults with the officers of the Company as may be requested
regarding managerial personnel policies. The Compensation Committee will have
such additional powers and be granted additional authority as may be conferred
upon it from time to time by the Board.
The Executive Committee will be comprised of Messrs. Bahrenburg, Dunning and
Stein. The Executive Committee will be authorized, subject to certain
limitations, to exercise all of the powers of the Board of Directors during
periods between Board meetings. The Board may also establish other committees
to assist in the discharge of its responsibilities.
COMPENSATION OF DIRECTORS
Each of the Directors of the Company (other than Messrs. Bahrenburg, Vitale
and R. Willis) is paid annual compensation of $35,000, plus reimbursement for
out-of-pocket expenses incurred in connection with attending Board meetings.
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<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS
The following Summary Compensation Table includes individual compensation
information for the Chief Executive Officer and each of the four other most
highly compensated executive officers of the Company in the year ended December
31, 1996 (collectively, the "Named Executive Officers") for services rendered
in all capacities to the Company during the twelve months ended December 31,
1996. In certain circumstances, the amounts shown in the table combine the
compensation received for services that were provided to the Predecessor from
January 1, 1996 through September 30, 1996, and to the Company from October 1,
1996 through December 31, 1996. There were no stock options exercised during
the Company's last fiscal year nor were any options outstanding at the end of
the Company's last fiscal year.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------ -------------
STOCK ALL OTHER
PRINCIPAL POSITION YEAR SALARY($) BONUS($) AWARDS($) (1) COMPENSATION(S)
------------------ ---- ---------- -------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
James D. Dunning, Jr.
(2).................... 1996 $ 25,000 $ -- $ 37,085 $ 8,750 (3)
Chairman and Chief Ex-
ecutive Officer
D. Claeys Bahrenburg
(2).................... 1996 133,333 -- 23,180 --
Vice Chairman and
Chairman of
Executive Committee
Neal Vitale (2)......... 1996 111,133 25,000 23,180 --
President and Chief Op-
erating Officer
Richard S Willis........ 1996 181,791 50,000 4,635 115,875 (4)
Executive Vice Presi-
dent and Chief
Financial Officer
Robert E. Petersen (5).. 1996 1,175,000 -- -- --
Chairman Emeritus
</TABLE>
- --------
(1) Represents the estimated fair market value at the time of issuance of the
Class A, B and C Common Units of Petersen. Each of the Class A, B and C
Common Units issued to such executive officers were subject to vesting over
a five-year period and the Class B and C Common Units were not eligible to
participate in any distributions by Petersen until the original purchasers
of the Preferred Units and the remaining Class A Common Units achieved a
specified rate of return on their total investment in Petersen. The Class A
Common Units so issued were valued at $4.50 per unit, the price paid
therefor by the investors in connection with the Acquisition. Because of
the terms applicable to the Class B and C Common units, the fair market
value of such Class B and C Common Units was determined by the Board of
Directors to be zero at the time of issuance. At the end of the Company's
last fiscal year, the Named Executive Officers held the following Common
Units:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
COMMON UNITS COMMON UNITS COMMON UNITS
------------ ------------ ------------
<S> <C> <C> <C>
James D. Dunning, Jr................. 8,241 1,000 1,000
D. Claeys Bahrenburg................. 5,151 625 625
Neal Vitale.......................... 5,151 625 625
Richard S Willis..................... 1,030 125 125
</TABLE>
The value of such Common Units at the end of the Company's last fiscal year
was determined to be the same as at the time of the Acquisition in light of
their close proximity. On July 31, 1997, the Named Executive Officers
exchanged their Class B Common Units and Class C Common Units for Class D
Common Units, which resulted in the Company recording a non-recurring non-
cash charge of $12.2 million. The value received by each Named Executive
Officer as a result of the Exchange is as follows: James D. Dunning, Jr.--
$3.4 million; D. Claeys Bahrenburg--$2.1 million; Neal Vitale--$2.1 million;
and Richard S Willis--$.4 million. These amounts were determined based upon
the difference in value of the Class D Common Units and the Class B Common
Units and Class C Common Units. As a result of the Reorganization, all of
the Class D Common Units held by the Named Executive Officers will be
converted into the following number of shares of Class A Common Stock: James
D. Dunning, Jr.--477,449; D. Claeys Bahrenburg--171,744; Neal Vitale--
254,182; and Richard S Willis--94,803. See "Certain Relationships and
Related Transactions" and "Principal Stockholders."
(2) Executive's employment with the Company commenced on September 30, 1996.
See "--Employment Agreements."
(3) Represents amounts received as payment of director's fees.
(4) Represents payment made to Mr. Willis pursuant to the terms of his
Employment Agreement to reimburse him for losses incurred in connection
with the sale of his principal residence.
(5) Mr. Petersen served as Chief Executive Officer of the Predecessor prior to
the Acquisition.
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<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Compensation Committee was established in December 1996 and is
comprised of Messrs. Blumenthal, Dunning and Stein. Messrs. Blumenthal and
Stein are each Managing Directors of Willis Stein, which is a principal
stockholder of Company. See "Principal Stockholders."
EMPLOYMENT AGREEMENTS
In connection with the Acquisition, Messrs. Bahrenburg, Vitale and R. Willis
each entered into an Executive Securities Purchase and Employment Agreement
(the "Employment Agreements") with the Company. The Employment Agreements
provide for the continued employment of Mr. Bahrenburg as the Chief Executive
Officer of Publishing, Mr. Vitale as the President of Publishing and Mr.
Willis as the Chief Financial Officer of Publishing until December 31, 2001,
unless terminated earlier as provided in the respective Employment Agreement.
The Employment Agreements of Messrs. Bahrenburg, Vitale and Willis provide
for: (i) an annual base salary of $500,000, $325,000, and $200,000,
respectively (subject to annual increases based on the consumer price index);
(ii) annual bonuses of up to half base salary of such person based on the
achievement of certain EBITDA targets; and (iii) a deferred bonus payable upon
the first to occur of: (a) a sale of the Company or (b) the fifth anniversary
of the date of such agreements. Each executive's employment may be terminated
by the Company at any time with or without cause. If such executive is
terminated by the Company with "cause" or resigns other than for "good reason"
(each as defined in such agreements), the executive will be entitled to his
base salary and fringe benefits until the date of termination, but will not be
entitled to any unpaid bonus. Each of Messrs. Bahrenburg, Vitale and Willis is
entitled to his base salary and fringe benefits and any accrued bonus for a
period of twelve months following his termination in the event such executive
is terminated without cause or resigns with good reason. Pursuant to the
Employment Agreements, Messrs. Bahrenburg, Vitale and Willis each has agreed
not to compete with the Company during the employment period and for one year
thereafter. The Employment Agreements also provide each executive with
customary fringe benefits and vacation periods. "Cause" is generally defined
in the Employment Agreements to mean: (i) the commission of a felony or a
crime involving moral turpitude; (ii) the commission of any other act or
omission involving dishonesty, disloyalty or fraud; (iii) the substantial and
repeated failure to perform duties as reasonably directed by the Board or
Chairman; (iv) gross negligence or willful misconduct with respect to the
Company or any subsidiary; (v) any other material breach of the Employment
Agreement or Company policy established by the Board, which breach, if
curable, is not cured within 15 days after written notice thereof to the
executive; or (vi) the failure by the Company to generate a specified level of
EBITDA in any fiscal year. "Good reason" is defined to mean the occurrence,
without such executive's consent, of any of the following: (i) the assignment
to the executive of any significant duties materially inconsistent with the
executive's status as a senior executive officer of the Company or a
substantial diminution in the nature or status of the executive's
responsibilities; (ii) a reduction by the Company in the executive's annual
base salary as in effect on the date of such Employment Agreements, except for
across-the-board salary reductions similarly affecting all senior executives
of the Company; or (iii) the Board requires the executive to relocate from the
New York area in the case of Mr. Bahrenburg or the Los Angeles area in the
case of Mr. Vitale and Mr. Willis. The Employment Agreements also provided for
the purchase by Messrs. Bahrenburg, Vitale and Willis of Preferred Units,
Common Units and Common Stock for a combination of cash and notes. The Company
has agreed to nominate Messrs. Bahrenburg and Vitale to the Board of Directors
in accordance with their employment agreements. See "Certain Relationships and
Related Transactions."
Mr. Dunning receives an annual salary of $200,000 per annum for serving as
Chairman of Petersen and Mr. Bloch receives an annual salary of $100,000 per
annum for serving as Vice Chairman of Petersen. Beginning in 1998, each will
also be entitled, subject to approval of the Board, to receive an annual bonus
upon the Company achieving certain financial targets.
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<PAGE>
In connection with the Acquisition, the Company entered into an employment
agreement with Robert E. Petersen pursuant to which Mr. Petersen agreed to
serve as Chairman Emeritus of the Company for a five-year period in exchange
for annual compensation of $200,000 per annum. Under such agreement, Mr.
Petersen has agreed to, among other things, act as a public spokesperson and
representative of the Company at public functions and participate in
significant meetings of the key executives of the Company concerning marketing
and sales strategies, important personnel decisions and similar activities so
required by the Chairman of the Board. The employment agreement entitles Mr.
Petersen to certain fringe benefits and perquisites and severance payments
equal to his annual salary for the remaining unexpired term of the agreement
in the event he is terminated by the Company without cause or suffers a
"constructive termination," which is defined to include (i) the relocation of
Mr. Petersen from the Company's current principal executive office; (ii) any
material breach of the employment agreement by the Company; or (iii) the
assignment of Mr. Petersen to a significantly lower position in the Company in
terms of responsibility, authority and status.
1997 LONG-TERM EQUITY INCENTIVE PLAN
In July 1997, the Board of Directors, acting as managing member of Petersen,
adopted the Petersen Holdings, L.L.C. 1997 Long-Term Equity Incentive Plan
(the "1997 Incentive Plan"). The 1997 Incentive Plan authorizes the grant of
options to those officers, key employees of, and other key individuals
performing services for, Petersen and its subsidiaries as selected by the
Board of Directors or a committee of the Board (if the Board has delegated the
administration of the 1997 Incentive Plan to such committee). The 1997
Incentive Plan authorizes the granting of options to purchase up to 10,000
Class A Common Units, subject to adjustment upon the occurrence of certain
events. The price per Class A Common Unit payable upon the exercise of each
option granted under the 1997 Incentive Plan as well as the terms under which
the options may be exercised will be determined by the Board or Committee, as
the case may be, in its sole discretion at the time of grant.
To date, the Board, acting as managing member of Petersen has granted
options to purchase an aggregate of approximately 8,867 Class A Common Units
under the 1997 Incentive Plan. Such options vest and become exercisable on the
fifth anniversary of the grant date, provided that the optionee has been
continuously employed by Petersen through such date. In the event of an
initial public offering (an "IPO"), the Accelerated Portion (as defined) of
the option becomes fully vested and exercisable and the remaining portion
vests and becomes exercisable ratably, on a daily basis, over the period from
the date of the completion of the IPO through December 31, 1999, until the
employee ceases to be employed by Petersen. The "Accelerated Portion" means a
fraction, the numerator of which is the number of days from and after January
1, 1997 through the IPO completion date, and the denominator of which is
1,096. In addition, such options become immediately vested and exercisable
upon the sale of Petersen. In the event an optionee's employment with Petersen
is terminated for any reason, Petersen has the right to repurchase the Class A
Common Units issued or issuable upon the exercise of such option at a price
equal to fair market value. All of the outstanding options have an exercise
price equal per Class A Common Unit to the fair market value of a Class A
Common Unit on the date of grant.
Upon consummation of the Reorganization: (i) each option outstanding under
the 1997 Incentive Plan will cease to be exercisable for Class A Common Units
and will become exercisable instead for the number of shares of Class A Common
Stock into which the number of Class A Common Units previously subject to such
option is exchanged pursuant to the Recapitalization Agreement; (ii) the
exercise price of each such option is proportionately adjusted; (iii) the
Company will assume Petersen's obligations and succeed to the rights of
Petersen under the 1997 Incentive Plan; and (iv) any remaining units eligible
for issuance under the 1997 Incentive Plan will be cancelled.
Prior to the consummation of the Offering, the Board and stockholders of the
Company are expected to approve and adopt the New Incentive Plan. The New
Incentive Plan will be administered by the Compensation Committee of the Board
of Directors (the "Committee") composed of at least two non-employee directors
(as that term is defined in Rule 16b-3 under the Exchange Act), who will be
appointed by the Board. In addition to holders of options previously issued
under the 1997 Incentive Plan, certain employees, advisors and consultants of
the Company will be eligible to participate in the New Incentive Plan (a
"Participant"). The Committee will be authorized under the New Incentive Plan
to select the Participants and determine the terms and conditions of
62
<PAGE>
the awards under the New Incentive Plan. The New Incentive Plan will provide
for the issuance of the following types of incentive awards: stock options,
stock appreciation rights, restricted stock, performance grants and other
types of awards that the Compensation Committee deems consistent with the
purposes of the New Incentive Plan. An aggregate of 2,041,269 shares of Class
A Common Stock of the Company have been reserved for issuance under the New
Incentive Plan (including the 320,685 shares of Class A Common reserved for
issuance under the options previously issued under the 1997 Incentive Plan),
subject to certain adjustments reflecting changes in the Company's
capitalization. The New Incentive Plan will provide that Participants will be
limited to receiving awards relating to no more than 100,000 shares of Class A
Common Stock per year.
Options granted under the New Incentive Plan may be either incentive stock
options ("ISOs") or such other forms of non-qualified stock options ("NQOs")
as the Committee may determine. ISOs are intended to qualify as "incentive
stock options" within the meaning of Section 422 of the Code. The exercise
price of (i) an ISO granted to an individual who owns shares possessing more
than 10% of the total combined voting power of all classes of stock of the
Company (a "10% Owner") will be at least 110% of the fair market value of a
share of common stock on the date of grant and (ii) an ISO granted to an
individual other than a 10% Owner will be at least 100% of the fair market
value of a share of Class A Common Stock on the date of grant.
Options granted under the New Incentive Plan may be subject to time vesting
and certain other restrictions at the sole discretion of the Committee.
Subject to certain exceptions, the right to exercise an option generally will
terminate at the earlier of (i) the first date on which the initial grantee of
such option is not employed by the Company for any reason other than
termination without cause, death or permanent disability or (ii) the
expiration date of the option. If the holder of an option dies or suffers a
permanent disability while still employed by the Company, the right to
exercise all unexpired installments of such option shall be accelerated and
shall vest as of the latest of the date of such death, the date of such
permanent disability and the date of the discovery of such permanent
disability, and such option shall be exercisable, subject to certain
exceptions, for 180 days after such date. If the holder of an option is
terminated without cause, to the extent the option has vested, such option
will be exercisable for 30 days after such date.
All outstanding awards under the New Incentive Plan will terminate
immediately prior to consummation of a liquidation or dissolution of the
Company, unless otherwise provided by the Board. In the event of the sale of
all or substantially all of the assets of the Company or the merger of the
Company with another corporation, all restrictions on any outstanding awards
will terminate and Participants will be entitled to the full benefit of their
awards immediately prior to the closing date of such sale or merger, unless
otherwise provided by the Board.
The Board generally will have the power and authority to amend the New
Incentive Plan at any time without approval of the Company's stockholders,
subject to applicable federal securities and tax laws limitations (including
regulations of the NYSE).
EMPLOYEE STOCK DISCOUNT PURCHASE PLAN
The Petersen Companies, Inc. Employee Stock Discount Purchase Plan (the
"Employee Stock Purchase Plan") will be approved by the Board and the existing
stockholders prior to the consummation of the Offering. The Employee Stock
Purchase Plan will be established to give employees desiring to do so a
convenient means of purchasing shares of Class A Common Stock through payroll
deductions. The Employee Stock Purchase Plan will provide an incentive to
participate by permitting certain purchases at a discounted price equal to 85%
of fair market value of the Class A Common Stock on the date of purchase. The
Company believes that ownership of stock by employees will foster greater
employee interest in the success, growth and development of the Company. An
aggregate of 90,557 shares of Class A Common Stock have been reserved for sale
under the Employee Stock Purchase Plan.
63
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On December 1, 1994, the Company entered into a lease with a trust
controlled by Mr. Petersen and his wife pursuant to which the Company leases
office space for its corporate headquarters. The lease expires on November 30,
2009. In connection with the Acquisition, the lease was amended to provide for
lease payments of $341,951 for each monthly period ending before November 30,
1996. For each fiscal year thereafter, the monthly lease payments will be
increased at an annual rate of approximately 1.75%.
On October 1, 1996, the Company entered into a lease with Mr. Petersen with
respect to the Company's office space located at 815 North LaSalle Street in
Chicago, Illinois. The lease expires on September 30, 2005 and provides for
monthly lease payments of: (i) $16,500 for the period from October 1, 1996 to
September 30, 1999; (ii) $17,500 for the period from October 1, 1999 to
September 30, 2002; and (iii) $18,500 from October 1, 2002 through the end of
the term of the lease. The Company believes that the terms of the foregoing
leases are not as favorable as the Company could obtain from an independent
third party.
In connection with the Acquisition, Messrs. Dunning, Bahrenburg, Bloch and
Karu, Willis Stein, Petersen Properties Company, BankAmerica Investment
Corporation ("BAIC") and others entered into a securities purchase agreement
(the "Securities Purchase Agreement") with Petersen and the Company pursuant
to which they purchased Preferred Units and Common Units of Petersen and Class
A Common Stock of the Company for cash. The following table sets forth the
securities purchased by such persons pursuant to the Securities Purchase
Agreement (in each case as adjusted to give effect to the Reorganization and
based upon an assumed initial public offering price of $16 per share, the
midpoint of the range set forth on the cover page of this Prospectus) and the
aggregate consideration paid for such securities:
<TABLE>
<CAPTION>
AGGREGATE
DIRECTOR, EXECUTIVE OFFICER OR 10% OWNER COMMON STOCK CONSIDERATION
---------------------------------------- ------------ -------------
<S> <C> <C>
James D. Dunning, Jr. (1)(2)................... 330,060 $ 2,200,000
D. Claeys Bahrenburg........................... 75,014 500,000
Laurence H. Bloch (1).......................... 150,027 1,000,000
Stuart Karu (1)................................ 150,027 1,000,000
Willis Stein & Partners, L.P. ................. 7,501,360 50,000,000
Petersen Properties Company.................... 3,750,680 25,000,000
BankAmerica Investment Corporation (3)......... 3,000,544 20,000,000
Chase Equity Associates, L.P. ................. 2,250,408 15,000,000
Allstate Insurance Company..................... 2,250,408 15,000,000
</TABLE>
- --------
(1) Pursuant to the Securities Purchase Agreement, the Company also issued to
Messrs. Dunning, Bloch and Karu the following shares of Class A Common
Stock (giving effect to the Exchange and Reorganization) for no additional
consideration: Mr. Dunning--776,860 Class A Common Stock; Mr. Bloch--
462,940 Class A Common Stock; and Mr. Karu--287,102 Class A Common Stock.
(2) Includes 15,002 Class A Common Stock held in trusts for which Mr. Dunning
serves as trustee.
(3) Includes 300,054 shares of Class B Common Stock held by CIVC Partners II,
a partnership of which all of the partners are employees of BAIC or an
affiliate thereof.
Pursuant to his Employment Agreement, Mr. Bahrenburg purchased an aggregate
of 150,027 shares of Class A Common Stock for an aggregate purchase price of
$1.0 million (giving effect to the Exchange and the Reorganization). Mr.
Bahrenburg paid for these securities with promissory notes in the aggregate
amount of $1,000,000. Of this amount, $200,000 was paid on March 1, 1997 and
$800,000 will become due and payable on the earlier to occur of: (i) December
31, 2001; (ii) the termination of Mr. Bahrenburg's employment with the
Company; or (iii) a sale of the Company. Such promissory notes bear interest
at a rate equal to the Company's weighted average cost of borrowing (8.5% at
August 31, 1997) as determined by the Board. Mr. Bahrenburg's obligations
under such notes are secured by a pledge of the securities purchased
therewith. In addition, pursuant to the Employment Agreement, the Company
issued to Mr. Bahrenburg an aggregate of 358,877 shares of Class A Common
Stock (giving effect to the Exchange and the Reorganization) for no additional
consideration.
Pursuant to his Employment Agreement, Mr. Vitale purchased an aggregate of
112,520 shares of Class A Common Stock for an aggregate purchase price of
$750,000 (giving effect to the Exchange and the Reorganization). Mr. Vitale
paid for these securities with promissory notes in the aggregate amount of
$750,000. Such promissory notes will bear interest at a rate equal to the
Company's weighted average cost of borrowing
64
<PAGE>
(8.5% at August 31, 1997) as determined by the Board and will become due and
payable on the earlier to occur of: (i) December 31, 2001; (ii) the
termination of Mr. Vitale's employment with the Company; or (iii) a sale of
the Company. Mr. Vitale's obligations under such notes are secured by a pledge
of the securities purchased therewith. In addition, pursuant to the Employment
Agreement, the Company issued to Mr. Vitale an aggregate of 441,314 shares of
Class A Common Stock (giving effect to the Exchange and the Reorganization)
for no additional consideration.
Pursuant to his Employment Agreement, Mr. Willis purchased an aggregate of
45,008 shares of Class A Common Stock for an aggregate purchase price of
$300,000 (giving effect to the Exchange and the Reorganization). Mr. Willis
paid for these securities with $100,000 in cash and promissory notes in the
aggregate amount of $200,000. Such promissory notes bear interest at a rate
equal to the Company's weighted average cost of borrowing (8.5% at August 31,
1997) as determined by the Board and will become due and payable on the
earlier to occur of: (i) December 31, 2001; (ii) the termination of Mr.
Willis' employment with the Company; or (iii) a sale of the Company. Mr.
Willis' obligations under such notes are secured by a pledge of the securities
purchased therewith. In addition, pursuant to the Employment Agreement, the
Company issued to Mr. Willis an aggregate of 132,229 shares of Class A Common
Stock (giving effect to the Exchange and the Reorganization) for no additional
consideration.
A portion of the securities issued to Messrs. Bahrenburg, Vitale and Willis
pursuant to the Employment Agreements will be subject to repurchase by the
Company in the event such executive leaves the Company's employ under certain
circumstances. If such executive is terminated by the Company with cause or
resigns without good reason (each as defined in their respective employment
agreements), the purchase price for any unvested securities will be the lesser
of their original cost or their fair market value and the purchase price for
any vested securities will be the fair market value of such securities. If
such executive is terminated by the Company without cause or resigns with good
reason, the Company can only repurchase such executive's unvested securities
at a price equal to the lesser of their original cost or their fair market
value.
On July 31, 1997, Petersen and all of the holders of Class A, B and C Common
Units entered into an agreement whereby all of the outstanding Class B and C
Common Units were converted into five series of Class D Common Units in the
Exchange. The Class D Common Units for Messrs. Bahrenburg, Vitale and Willis
are subject to vesting and scheduled to vest on the fifth anniversary of their
issue date provided that the holder thereof has been continuously employed by
the Company through such date. Vesting accelerates upon death or disability of
such holder or the sale of Petersen. In the event of an IPO, vesting of such
Class D Common Units will accelerate as follows so long as the holder is
continuously employed through the date of such IPO: (i) if the holder
continues to be employed on the first, second or third anniversary of the IPO
date such that 33 1/3% will vest upon each of the first, second and third
anniversaries of the IPO date and (ii) if the holder ceases to be employed on
a date other than such an anniversary, such that a pro rata portion will vest
since the later of the IPO date and the last anniversary of the IPO date. As a
result of the Reorganization, these Class D Common Units will be exchanged for
shares of Class A Common Stock, which will continue to be subject to the same
vesting schedule set forth above for Messrs. Bahrenburg, Vitale and Willis.
The following table sets forth the shares of Class A Common Stock to be issued
to each executive officer of the Company for their Class D Common Units:
<TABLE>
<CAPTION>
NUMBER OF
CLASS A
NAME COMMON STOCK
---- ------------
<S> <C>
James D. Dunning, Jr............................................ 477,449
D. Claeys Bahrenburg ........................................... 171,744
Laurence H. Bloch............................................... 238,381
Stuart Karu..................................................... 137,396
Neal Vitale..................................................... 254,182
Richard S Willis................................................ 94,803
</TABLE>
Willis Stein, a significant stockholder of the Company, owns approximately
18.0% of the equity securities of Racing Champions Corporation ("Racing
Champions") and has two representatives on Racing Champions' board of
directors. The Company has entered into licensing and marketing arrangements
with Racing Champions in connection with the Racing Champions Mint and Racing
Champions Hot Rod Collection. The Company has received payments of
approximately $45,000 in 1997 from Racing Champions in connection with these
licenses.
65
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the equity securities of the Company as of September 15, 1997 and
immediately following the Offering (in each case giving effect to the
Reorganization at an assumed initial public offering price of $16 per share,
the midpoint of the range set forth of the cover page of this Prospectus) by:
(i) each of the Directors and the Named Executive Officers; (ii) all Directors
and executive officers as a group; and (iii) each owner of more than 5% of any
class of equity securities of the Company ("5% Owners"). The actual number of
shares to be issued to each existing stockholder of the Company in the
Reorganization is subject to change based upon changes in the assumed initial
public offering price and the effective date of the Reorganization. Unless
otherwise noted, the address for each executive officer of the Company is c/o
the Company, 6420 Wilshire Boulevard, Los Angeles, California 90048.
<TABLE>
<CAPTION>
CLASS A COMMON STOCK (1) CLASS B COMMON STOCK (1)
----------------------------- ----------------------------
PERCENT OF CLASS PERCENT OF CLASS
------------------ ------------------
FOLLOWING FOLLOWING
NO. OF PRIOR TO THE NO. OF PRIOR TO THE
SHARES OFFERING OFFERING SHARES OFFERING OFFERING
---------- -------- --------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
DIRECTORS AND NAMED EX-
ECUTIVE OFFICERS:
James D. Dunning, Jr.
(2).................... 1,106,920 5.5% 4.2% -- -- % -- %
D. Claeys Bahrenburg ... 583,918 2.9 2.2 -- -- --
Neal Vitale ............ 553,834 2.7 2.1 -- -- --
Richard S Willis ....... 177,237 * * -- -- --
Laurence H. Bloch (3)... 612,967 3.0 2.3 -- -- --
Avy H. Stein (4)........ 7,501,360 37.2 28.4 -- -- --
Daniel H. Blumenthal
(4).................... 7,501,360 37.2 28.4 -- -- --
Stuart Karu............. 437,129 2.2 1.7 -- -- --
John R. Willis (4)...... 7,501,360 37.2 28.4 -- -- --
All Directors and
executive officers as a
group
(9 persons)............ 10,973,365 54.4 41.6 -- -- --
5% OWNERS:
Willis Stein & Partners,
L.P. (5)............... 7,501,360 37.2 28.4 -- -- --
Robert E. Petersen (6).. 3,750,680 18.6 14.2 -- -- --
BankAmerica Investment
Corporation (1)(7)..... 3,000,544 13.0 10.2 3,000,544 39.1 39.1
Chase Equity Associates,
L.P. (1)(8)............ 2,250,408 10.7 8.2 931,408 12.1 12.1
Allstate Insurance Com-
pany (9)............... 2,250,408 11.2 8.5 -- -- --
First Union Investors,
Inc. (1)(10)........... 1,875,340 8.5 6.6 1,875,340 24.4 24.4
CIBC WG Argosy Merchant
Fund 2, L.L.C.
(1)(11)................ 1,875,340 8.5 6.6 1,875,340 24.4 24.4
</TABLE>
- -------
* Represents less than one percent.
(1) The Company has two classes of outstanding Common Stock, the Class A
Common Stock and the Class B Common Stock, which are identical in all
respects except that the Class B Common Stock is non-voting and is
convertible to Class A Common Stock under certain circumstances.
Beneficial ownership of the Common Stock has been determined in accordance
with the rules of the Commission. Pursuant to such rules, a person is
deemed to be the beneficial owner of any security in which that person has
the right to acquire beneficial ownership of such security within 60 days.
As a result, holders of Class B Common Stock are deemed to be the
beneficial owners of the Class A Common Stock issuable upon the conversion
thereof. Such shares of Class A Common Stock, however, are not deemed
outstanding for purposes of computing the percentage ownership of any
other person. See "Description of Capital Stock."
(2) Includes 15,002 shares of Class A Common Stock held in trusts for which
Mr. Dunning serves as trustee.
(3) Such shares of Class A Common Stock are held in a trust for which Mr.
Bloch serves as trustee.
(4) Includes 7,501,360 shares of the Class A Common Stock of the Company
beneficially owned by Willis Stein. Such persons disclaim beneficial
ownership of all such shares beneficially owned by Willis Stein. Such
person's address is c/o Willis Stein, 227 West Monroe Street, Suite 4300,
Chicago, Illinois 60606.
(5) The address of Willis Stein is 227 West Monroe Street, Suite 4300,
Chicago, Illinois 60606.
(6) Mr. Petersen's interests in the Company are owned through Petersen
Properties Company. Such person's address is 6420 Wilshire Boulevard, Los
Angeles, California 90048.
(7) Such person's address is c/o BankAmerica Investment Corporation, 231 S.
LaSalle Street, Chicago, Illinois 60697. Also includes shares of Class B
Common Stock held by CIVC Partners II, a partnership all of the partners
of which are employees of BAIC or an affiliate thereof.
(8) Such person's address is 380 Madison Avenue, 12th Floor, New York, New
York 10017-2951.
(9) Such person's address is 3075 Sanders Road, Suite G5D, Northbrook.
Illinois 60062-7127.
(10) Such person's address is c/o First Union Capital Partners, Inc., One First
Union Center, 301 S. College Street, 5th Floor, Charlotte, North Carolina
28288.
(11) Such person's address is 425 Lexington Avenue, 3rd Floor, New York, New
York 10017.
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<PAGE>
SECURITYHOLDERS AGREEMENT
At the time of the Acquisition, the Company, Petersen, Willis Stein and the
other investors named therein (collectively, the "Investors") entered into a
securityholders agreement (the "Securityholders Agreement"), providing for:
(i) the composition of the Board of Directors; (ii) restrictions on the
transfer of equity securities of Petersen, the Company and Petersen Investment
Corp. (the "Equity Securities"); (iii) registration rights relating to the
Equity Securities; (iv) obligations of the Investors upon a sale of the
Company; and (v) preemptive rights in favor of the non-Willis Stein Investors
in connection with issuances of equity to Willis Stein. Under the terms of the
Securityholders Agreement, all of the stockholders of the Company have agreed
to vote their shares in favor of those individuals designated by Willis Stein
to serve on the Board of Directors. Willis Stein also has the right to control
the vote on any significant corporate changes, such as a merger, consolidation
or sale of the Company until such time as the Company consummates an initial
public offering of its equity securities resulting in the receipt by the
Company of at least $75.0 million of gross proceeds and which indicates a
market capitalization of the Company without giving effect to any issuances of
equity securities following its initial capitalization of at least $330.0
million (a "Qualified IPO"). The Securityholders Agreement generally restricts
the transfer of Equity Securities, other than in a public sale. Any proposed
transfer of Equity Securities is subject to a right of first refusal in favor
of the Company or the other Investors and "tag-along" rights in favor of the
other Investors. All of the Investors have agreed that Willis Stein (through
the Company) may control the circumstances under which a sale of Petersen may
take place, and that each Investor will consent to such transaction on the
terms negotiated by Willis Stein. Willis Stein may also control the
circumstances under which a public offering of Holdings' or the Company's
equity securities may take place. The Securityholders Agreement provides for
up to four long-form and unlimited short-form demand registrations in favor of
Willis Stein, two short-form demand registrations in favor of a majority of
the non-Willis Stein Investors at such time as the Company is eligible to use
a short-form registration statement and unlimited "piggyback" registrations in
favor of the Investors.
Prior to the Offering, certain of the parties to the Securityholders
Agreement are expected to agree to extend the voting provisions of the
Securityholders Agreement for a period of at least 21 months following the
Offering. Such voting provisions would have otherwise terminated by their
terms as a result of the Offering being a Qualified IPO. As a result of such
amendment, Willis Stein will have the power to vote shares of Class A Common
Stock representing more than 50% of the Company's voting securities.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
GENERAL MATTERS
At the time of the Offering, the total amount of authorized capital stock of
the Company will consist of 75,000,000 shares of Class A Common Stock, par
value $.01 per share, 25,000,000 shares of Class B Common Stock, par value
$.01 per share and 5,000,000 shares of preferred stock, par value $.01 per
share (the "Preferred Stock"). Upon completion of the Offering, 26,408,362
shares of Class A Common Stock, 7,682,632 shares of Class B Common Stock and
no shares of Preferred Stock will be issued and outstanding (assuming an
initial public offering price of $16 per share, the midpoint of the range set
forth on the cover page of this Prospectus). As of August 31, 1997, there were
2,162.7 shares of Class A Common Stock and 1,200 shares of Class B Common
Stock outstanding, which were held by 27 and 5 holders of record,
respectively. The discussion herein describes the Company's capital stock, the
Restated Certificate of Incorporation and By-laws as anticipated to be in
effect upon consummation of the Offering. The following summary of certain
provisions of the Company's capital stock describes all material provisions
of, but does not purport to be complete and is subject to, and qualified in
its entirety by, the Restated Certificate of Incorporation and the By-laws of
the Company that are included as exhibits to the Registration Statement of
which this Prospectus forms a part and by the provisions of applicable law.
The Restated Certificate of Incorporation and By-laws will contain certain
provisions that are intended to enhance the likelihood of continuity and
stability in the composition of the Board of Directors and which may have the
effect of delaying, deferring or preventing a future takeover or change in
control of the Company unless such takeover or change in control is approved
by the Board of Directors.
CLASS A COMMON STOCK
The issued and outstanding shares of Class A Common Stock are, and the
shares of Class A Common Stock being offered by the Company will be upon
payment therefor, validly issued, fully paid and nonassessable. Subject to the
prior rights of the holders of any Preferred Stock, the holders of outstanding
shares of Class A Common Stock are entitled to receive dividends out of assets
legally available therefor at such time and in such amounts as the Board of
Directors may from time to time determine. See "Dividend Policy." The shares
of Common Stock are not convertible and the holders thereof have no preemptive
or subscription rights to purchase any securities of the Company. Upon
liquidation, dissolution or winding up of the Company, the holders of Common
Stock are entitled to receive pro rata the assets of the Company which are
legally available for distribution, after payment of all debts and other
liabilities and subject to the prior rights of any holders of Preferred Stock
then outstanding. Each outstanding share of Class A Common Stock is entitled
to one vote on all matters submitted to a vote of stockholders. There is no
cumulative voting. Except as otherwise required by law or the Restated
Certificate of Incorporation, the Class A Common Stock will vote on all
matters submitted to a vote of the stockholders, including the election of
directors.
CLASS B COMMON STOCK
Except with respect to voting and conversion rights, the Class B Common
Stock is identical to the Class A Common Stock. Under the Restated Certificate
of Incorporation, holders of Class B Common Stock have no right to vote on
matters submitted to a vote of stockholders, except (i) as otherwise required
by law and (ii) that the holders of Class B Common Stock shall have the right
to vote as a class on any amendment, repeal or modification to the Certificate
of Incorporation that adversely affects the powers, preferences or special
rights of the holders of the Class B Common Stock. In connection with the
occurrence (or the expected occurrence) of certain events, each holder of
Class B Common Stock is entitled to convert on a share-for-share basis any or
all of the shares of such holder's Class B Common Stock being (or expected to
be) distributed, disposed of or sold in connection with such event. In
general, these events include: (i) any public offering or public sale of such
shares by a holder thereof; (ii) any sale of securities of the Company to a
person or group of persons if, after such sale, such person or group of
persons in the aggregate would own or control securities which possess in the
aggregate the ordinary voting power to elect a majority of the Company's
directors; (iii) any sale of securities of
68
<PAGE>
the Company to a person or group of persons if, after such sale, such person or
group of persons would not, in the aggregate, own, control or have the right to
acquire more than 2% of the outstanding securities of any class of voting
securities of the Company; and (iv) a merger, consolidation or similar
transaction involving the Company if, after such transaction, a person or group
of persons in the aggregate would own or control securities which possess in
the aggregate the ordinary voting power to elect a majority of the surviving
company's directors.
PREFERRED STOCK
The Board of Directors may, without further action by the Company's
stockholders, from time to time, direct the issuance of shares of Preferred
Stock in series and may, at the time of issuance, determine the rights,
preferences and limitations of each series. Satisfaction of any dividend
preferences of outstanding shares of Preferred Stock would reduce the amount of
funds available for the payment of dividends on shares of Common Stock. Holders
of shares of Preferred Stock may be entitled to receive a preference payment in
the event of any liquidation, dissolution or winding-up of the Company before
any payment is made to the holders of shares of Common Stock. Under certain
circumstances, the issuance of shares of Preferred Stock may render more
difficult or tend to discourage a merger, tender offer or proxy contest, the
assumption of control by a holder of a large block of the Company's securities
or the removal of incumbent management. Upon the affirmative vote of a majority
of the total number of directors then in office, the Board of Directors,
without stockholder approval, may issue shares of Preferred Stock with voting
and conversion rights which could adversely affect the holders of shares of
Common Stock. Upon consummation of the Offering, there will be no shares of
Preferred Stock outstanding, and the Company has no present intention to issue
any shares of Preferred Stock.
CERTAIN PROVISIONS OF THE RESTATED CERTIFICATE OF INCORPORATION AND BY-LAWS
The Restated Certificate of Incorporation provides for the Board to be
divided into three classes, as nearly equal in number as possible, serving
staggered terms. Approximately one-third of the Board will be elected each
year. See "Management." Under the Delaware General Corporation Law, directors
serving on a classified board can only be removed for cause. The provision for
a classified board could prevent a party who acquires control of a majority of
the outstanding voting stock from obtaining control of the Board until the
second annual stockholders meeting following the date the acquiror obtains the
controlling stock interest. The classified board provision could have the
effect of discouraging a potential acquiror from making a tender offer or
otherwise attempting to obtain control of the Company and could increase the
likelihood that incumbent directors will retain their positions.
The Restated Certificate of Incorporation provides that stockholder action
can be taken only at an annual or special meeting of stockholders and cannot be
taken by written consent in lieu of a meeting. The Restated Certificate of
Incorporation and the By-laws provides that, except as otherwise required by
law, special meetings of the stockholders can only be called pursuant to a
resolution adopted by a majority of the Board of Directors or by the chief
executive officer of the Company. Stockholders will not be permitted to call a
special meeting or to require the Board to call a special meeting.
The By-laws establish an advance notice procedure for stockholder proposals
to be brought before an annual meeting of stockholders of the Company,
including proposed nominations of persons for election to the Board.
Stockholders at an annual meeting may only consider proposals or nominations
specified in the notice of meeting or brought before the meeting by or at the
direction of the Board or by a stockholder who was a stockholder of record on
the record date for the meeting, who is entitled to vote at the meeting and who
has given to the Company's Secretary timely written notice, in proper form, of
the stockholder's intention to bring that business before the meeting. Although
the By-laws do not give the Board the power to approve or disapprove
stockholder nominations of candidates or proposals regarding other business to
be conducted at a special or annual meeting, the By-laws may have the effect of
precluding the conduct of certain business at a meeting if the proper
procedures are not followed or may discourage or deter a potential acquiror
from conducting a solicitation of proxies to elect its own slate of directors
or otherwise attempting to obtain control of the Company.
69
<PAGE>
The Restated Certificate of Incorporation and By-laws provide that the
affirmative vote of holders of at least 66 2/3% of the total votes eligible to
be cast in the election of directors is required to amend, alter, change or
repeal certain of their Provisions. This requirement of a super-majority vote
to approve amendments to the Restated Certification of Incorporation and By-
laws could enable a minority of the Company's stockholders to exercise veto
power over any such amendments.
CERTAIN PROVISIONS OF DELAWARE LAW
Following the consummation of the Offering, the Company will be subject to
the "Business Combination" provisions of the Delaware General Corporation Law.
In general, such provisions prohibit a publicly held Delaware corporation from
engaging in various "business combination" transactions with any "interested
stockholder" for a period of three years after the date of the transaction
which the person became an "interested stockholder," unless: (i) the
transaction is approved by the Board of Directors prior to the date the
"interested stockholder" obtained such status; (ii) upon consummation of the
transaction which resulted in the stockholder becoming an "interested
stockholder," the "interested stockholder," owned at least 85% of the voting
stock of the corporation outstanding at the time the transaction commenced,
excluding for purposes of determining the number of shares outstanding those
shares owned by (a) persons who are directors and also officers and (b)
employee stock plans in which employee participants do not have the right to
determine confidentially whether shares held subject to the plan will be
tendered in a tender or exchange offer; or (iii) on or subsequent to such date
the "business combination" is approved by the board of directors and authorized
at an annual or special meeting of stockholders by the affirmative vote of at
least 66 2/3% of the outstanding voting stock winch is not owned by the
"interested stockholder." A "business combination" is defined to include
mergers, asset sales and other transactions resulting in financial benefit to a
stockholder. In general, an "interested stockholder" is a Person who, together
with affiliates and associates, owns (or within three years, did own) 15% or
more of a corporation's voting stock. The statute could prohibit or delay
mergers or other takeover or change in control attempts with respect to the
Company and, accordingly, may discourage attempts to acquire the Company.
LIMITATIONS ON LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Restated Certificate of Incorporation limits the liability of Directors
to the fullest extent permitted by the Delaware General Corporation Law. In
addition, the Restated Certificate of Incorporation will provide that the
Company shall indemnify Directors and officers of the Company to the fullest
extent permitted by such law. The Company anticipates entering into separate
indemnification agreements with its current Directors and executive officers
prior to the completion of the Offering which will have the effect of providing
such persons indemnification protection in the event the Restated Certificate
of Incorporation is subsequently amended.
LISTING
The Class A Common Stock has been approved for listing, subject to official
notice of issuance, on the NYSE under the symbol "PTN."
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Class A Common Stock is BankBoston,
N.A.
70
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to the Offering, there has been no market for the Common Stock of the
Company. The Company can make no predictions as to the effect, if any, that
sales of shares or the availability of shares for sale will have on the market
price prevailing from time to time. Nevertheless, sales of significant amounts
of the Common Stock in the public market, or the perception that such sales
may occur, could adversely affect prevailing market prices. See "Risk
Factors--Impact of Shares Eligible for Future Sale."
Upon completion of the Offering, the Company expects to have 34,090,994
shares of Common Stock outstanding. Of the shares outstanding after the
Offering, the 6,250,000 shares of Class A Common Stock (7,187,500 shares if
the U.S. Underwriters' over-allotment is exercised in full) sold in the
Offering will be freely tradeable without restriction under the Securities
Act, except for any such shares which may be acquired by an "affiliate" of the
Company (an "Affiliate"), as that term is defined in Rule 144 under the
Securities Act, which shares will be subject to the volume limitations of Rule
144.
An aggregate of 27,840,994 shares of Common Stock held by existing
stockholders upon completion of the Offering will be "restricted securities"
(as that phrase is defined in Rule 144) and may not be resold in the absence
of registration under the Securities Act or pursuant to exemptions from such
registration, including among others, the exemption provided by Rule 144 under
the Securities Act. One year after the date of this Prospectus, approximately
27,840,994 shares of Common Stock will be eligible for sale in the public
market pursuant to Rule 144, subject to the volume limitations and other
restrictions described below.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this Prospectus, if a period of at least one year has elapsed
since the later of the date the "restricted securities" were acquired from the
Company and the date they were acquired from an Affiliate, then the holder of
such restricted securities (including an Affiliate) is entitled to sell a
number of shares within any three-month period that does not exceed the
greater of 1% of the then outstanding shares of the Common Stock
(approximately 340,910 shares immediately after the Offering) or the average
weekly reported volume of trading of the Class A Common Stock on the NYSE
during the four calendar weeks preceding such sale. The holder may only sell
such shares through unsolicited brokers' transactions. Sales under Rule 144
are also subject to certain requirements pertaining to the manner of such
sales, notices of such sales and the availability of current public
information concerning the Company. Affiliates may sell shares not
constituting restricted shares in accordance with the foregoing volume
limitations and other requirements without regard to any holding period. Under
Rule 144(k), if a period of at least two years has elapsed between the later
of the date restricted securities were acquired from the Company and the date
they were acquired from an Affiliate, as applicable, a holder of such
restricted securities who is not an Affiliate at the time of the sale and has
not been an Affiliate for at least three months prior to the sale would be
entitled to sell the shares immediately without regard to the volume
limitations and other restrictions described above.
Any employee of the Company who purchased his or her shares of Common Stock
or received an option to purchase Common Stock pursuant to a written
compensation plan or contract while the Company was not subject to the
reporting requirements of the Exchange Act may be entitled to rely on the
resale provisions of Rule 701 under the Securities Act, which permits
nonaffiliates to sell their Rule 701 shares without having to comply with the
current public information, holding period, volume limitation or notice
provisions of Rule 144 and permits Affiliates to sell their Rule 701 shares
without having to comply with the holding period provision of Rule 144, in
each case beginning 90 days after the Company became subject to the reporting
requirements of the Exchange Act.
Notwithstanding the foregoing, in connection with the Offering, the
Company's executive officers, Directors, all existing stockholders of the
Company, who own in aggregate 27,840,994 shares of Common Stock have agreed
that, without the prior written consent of Morgan Stanley & Co. Incorporated
on behalf of the Underwriters, they will not (a) offer, pledge, loan, sell
contract to sell, sell any option or contract to purchase, purchase any option
or contract to sell, grant any option, right or warrant to purchase, or
otherwise
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transfer or dispose of, directly or indirectly, any shares of Common Stock or
any securities convertible into or exercisable or exchangeable for Common
Stock (whether such shares or any such securities are then owned by such
person or are thereafter acquired directly from the Company), or (b) enter
into any swap or similar agreement that transfers, in whole or in part, any of
the economic consequences of ownership of the Common Stock, whether any such
transaction described in clause (a) or (b) of this paragraph is to be settled
by delivery of such Common Stock or such other securities, in cash or
otherwise, for a period of 180 days after the date of this Prospectus, other
than (i) the sale to the Underwriters of the shares of Common Stock under the
Underwriting Agreement (as defined) or (ii) the issuance by the Company of
shares of Common Stock upon the exercise of an option sold or granted pursuant
to an existing benefit plan of the Company and outstanding on the date of this
Prospectus.
The Securityholders Agreement provides for up to four long-form and
unlimited short-form demand registrations in favor of Willis Stein, two short-
form demand registrations in favor of a majority of the non-Willis Stein
Investors at such time as the Company is eligible to use a short-form
registration statement and unlimited "piggyback" registrations in favor of the
Investors, in each case at the Company's expense. As a result of such
agreement, holders of an aggregate of 7,501,360 shares of Common Stock will
have the right to require the Company to register their shares of Common Stock
under the Securities Act at the Company's expense beginning 180 days after the
completion of the Offering. In addition, holders of an aggregate of 20,339,634
shares of Common Stock have certain "piggyback" registration rights under the
Securityholders Agreement.
FEDERAL INCOME TAX
CONSEQUENCES TO NON-UNITED STATES HOLDERS
GENERAL
The following discussion of the material United States federal income and
estate tax consequences of the ownership and disposition of Class A Common
Stock by a Non-U.S. Holder has been prepared in reliance upon an opinion to
the same effect delivered to the Company by Kirkland & Ellis, special counsel
to the Company. A copy of the opinion of Kirkland & Ellis is filed in an
exhibit to the Registration Statement, of which this Prospectus forms a part.
For this purpose, the term "Non-U.S. Holder" is defined as any person or
entity that is, for United States federal income tax purposes, a foreign
corporation, a non-resident alien individual, a foreign partnership or a non-
resident fiduciary of a foreign estate or trust. The opinion does not address
all aspects of United States federal income and estate taxes and does not deal
with foreign, state and local consequences that may be relevant to such Non-
U.S. Holders in light of their personal circumstances nor does it discuss
certain tax provisions which may apply to individuals who relinquish their
U.S. citizenship or residence. Furthermore, the opinion is based on provisions
of the Code, existing and proposed regulations promulgated thereunder and
administrative and judicial interpretations thereof, as of the date hereof,
all of which are subject to change either retroactively or prospectively. EACH
PROSPECTIVE PURCHASER OF CLASS A COMMON STOCK IS ADVISED TO CONSULT A TAX
ADVISOR WITH RESPECT TO CURRENT AND POSSIBLE FUTURE TAX CONSEQUENCES OF
ACQUIRING, HOLDING AND DISPOSING OF CLASS A COMMON STOCK AS WELL AS ANY TAX
CONSEQUENCES THAT MAY ARISE UNDER THE LAWS OF ANY U.S. STATE, MUNICIPALITY OR
OTHER TAXING JURISDICTION.
An individual may, subject to certain exceptions, be deemed to be a resident
alien (as opposed to a nonresident alien) by virtue of being present in the
United States for at least 31 days in the calendar year and for an aggregate
of at least 183 days during a three-year period ending in the current calendar
year (counting for such purposes all of the days present in the current year,
one-third of the days present in the immediately preceding year, and one-sixth
of the days present in the second preceding year). Resident aliens are subject
to U.S. federal tax as if they were U.S. citizens.
Subject to the foregoing and to the assumptions and qualifications set forth
in its opinion, Kirkland & Ellis has advised the Company of the following:
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DIVIDENDS
In the event that dividends are paid on shares of Class A Common Stock,
dividends paid to a Non-U.S. Holder of Class A Common Stock will be subject to
withholding of United States federal income tax at a 30% rate or such lower
rate as may be specified by an applicable income tax treaty. However, dividends
that are effectively connected with the conduct of a trade or business by the
Non-U.S. Holder within the United States and, where a tax treaty applies, are
attributable to a United States permanent establishment of the Non-U.S. Holder
and an Internal Revenue Service Form 4224 is filed with the payer, the
dividends are not subject to the withholding tax, but instead are subject to
United States federal income tax on a net income basis at applicable graduated
individual or corporate rates. Any such effectively connected dividends
received by a foreign corporation may, under certain circumstances, be subject
to an additional "branch profits tax" at a rate of 30% or such lower rate as
may be specified by an applicable income tax treaty.
Dividends paid to an address outside the United States are presumed to be
paid to a resident of such country (unless the payer has knowledge to the
contrary) for purposes of the withholding discussed above and for purposes of
determining the applicability of a tax treaty rate. However, under proposed
regulations, in the case of dividends paid after December 31, 1997 (December
31, 1999 in the case of dividends paid to accounts in existence on or before
the date that is 60 days after the proposed regulations are published as final
regulations), a Non-U.S. Holder generally would be subject to United States
withholding tax at a 31% rate under the backup withholding rules described
below, rather than at a 30% rate or at a reduced rate under an income tax
treaty, unless certain certification procedures (or, in the case of payments
made outside the United States with respect to an offshore account, certain
documentary evidence procedures) are complied with, directly or through an
intermediary. Currently, certain certification and disclosure requirements must
be complied with in order to be exempt from withholding under the effectively
connected income exemption discussed above.
A Non-U.S. Holder of Class A Common Stock eligible for a reduced rate of
United States withholding tax pursuant to an income tax treaty may obtain a
refund of any excess amounts withheld by filing an appropriate claim for refund
with the IRS.
GAIN ON DISPOSITION OF COMMON STOCK
A Non-U.S. Holder will generally not be subject to United States federal
income tax with respect to gain recognized on a sale or other disposition of
Class A Common Stock unless: (i) the gain is effectively connected with a trade
or business of the Non-U.S. Holder in the United States and, where a tax treaty
applies, is attributable to a United States permanent establishment of the Non-
U.S. Holder; (ii) in the case of a Non-U.S. Holder who is an individual and
holds the Class A Common Stock as a capital asset, such holder is present in
United States for 183 or more days in the taxable year of the sale or other
disposition and certain other conditions are met; or (iii) the Company is or
has been a "U.S. real property holding corporation" for United States federal
income tax purposes. The Company believes it is not and does not anticipate
becoming a "U.S. real property holding corporation" for United States federal
income tax purposes.
If an individual Non-U.S. Holder falls under clause (i) above, he will,
unless an applicable treaty provides otherwise, be taxed on his net gain
derived from the sale under regular graduated United States federal income tax
rates. If an individual Non-U.S. Holder falls under clause (ii) above, he will
be subject to a flat 30% tax on the gain derived from the sale, which may be
offset by certain United States capital losses.
If a Non-U.S. Holder that is a foreign corporation falls under clause (i)
above, it will be taxed on its gain under regular graduated United States
federal income tax rates and may be subject to an additional branch profits tax
equal to 30% of its effectively connected earnings and profits within the
meaning of the Code for the taxable year, as adjusted for certain items, unless
it qualifies for a lower rate under an applicable income tax treaty.
FEDERAL ESTATE TAX
Class A Common Stock held by an individual Non-U.S. Holder at the time of
death will be included in such holder's gross estate for United States federal
estate tax purposes, unless an applicable estate tax treaty provides otherwise.
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<PAGE>
INFORMATION REPORTING AND BACKUP WITHHOLDING TAX
Under Treasury regulations, the Company must report annually to the IRS and
to each Non-U.S. Holder the amount of dividends paid to such holder and the tax
withheld with respect to such dividends, regardless of whether withholding was
required. Copies of the information returns reporting such dividends and
withholding may also be made available to the tax authorities in the country in
which the Non-U.S. Holder resides under the provisions of an applicable income
tax treaty.
A backup withholding tax is imposed at the rate of 31% on certain payments to
persons that fail to furnish certain identifying information to the payer.
Backup withholding generally will not apply to dividends paid to a Non-U.S.
Holder at an address outside the United States (unless the payer has knowledge
that the payee is a U.S. person). However, under proposed regulations, in the
case of dividends paid after December 31, 1997 (December 31, 1999 in the case
of dividends paid to accounts in existence on or before the date that is 60
days after the proposed regulations are published as final regulations), a Non-
U.S. Holder generally would be subject to withholding tax at a 31% rate, unless
certain certification procedures (or, in the case of payments made outside the
United States with respect to an offshore account, certain documentary evidence
procedures) are complied with, directly or through an intermediary. Backup
withholding and information reporting generally will also apply to dividends
paid on Class A Common Stock at addresses inside the United States to Non-U.S.
Holders that fail to provide certain identifying information in the manner
required.
Payment of the proceeds of a sale of Class A Common Stock by or through a
United States office of a broker is subject to both backup withholding and
information reporting unless the beneficial owner provides the payer with its
name and address and certifies under penalties of perjury that it is a Non-U.S.
Holder, or otherwise establishes an exemption. In general, backup withholding
and information reporting will not apply to a payment of the proceeds of a sale
of Class A Common Stock by or through a foreign office of a broker. If,
however, such broker is, for United States federal income tax purposes, a U.S.
person, a controlled foreign corporation, or a foreign person that derives 50%
or more if its gross income for certain periods from the conduct of a trade or
business in the United States, such payments will be subject to information
reporting, but not backup withholding, unless (i) such broker has documentary
evidence in its records that the beneficial owner is a Non-U.S. Holder and
certain other conditions are met or (ii) the beneficial owner otherwise
establishes an exemption. Proposed regulations would, if adopted, alter the
foregoing rules in certain respects. Among other things, the proposed
regulations would provide certain presumptions under which a Non-U.S. Holder
would be subject to backup withholding and information reporting unless the
Company receives certification from the holder of a non-U.S. status.
Any amounts withheld under the backup withholding rules generally will be
allowed as a refund or a credit against such holder's U.S. federal income tax
liability provided the required information is furnished in a timely manner to
the IRS.
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UNDERWRITERS
Under the terms and subject to the conditions contained in the Underwriting
Agreement dated the date hereof (the "Underwriting Agreement"), the U.S.
Underwriters named below for whom Morgan Stanley & Co. Incorporated,
Donaldson, Lufkin & Jenrette Securities Corporation, BT Alex. Brown
Incorporated and Goldman, Sachs & Co. are acting as U.S. Representatives, and
the International Underwriters named below for whom Morgan Stanley & Co.
International Limited, Donaldson, Lufkin & Jenrette International, BT Alex.
Brown International, a division of Bankers Trust International PLC, and
Goldman Sachs International are acting as International Representatives, have
severally agreed to purchase, and the Company has agreed to sell to them the
respective number of shares of Class A Common Stock set forth opposite the
names of such Underwriters below:
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
---- ---------
<S> <C>
U.S. Underwriters:
Morgan Stanley & Co. Incorporated..................................
Donaldson, Lufkin & Jenrette Securities Corporation................
BT Alex. Brown Incorporated........................................
Goldman, Sachs & Co................................................
---------
Subtotal......................................................... 5,000,000
---------
International Underwriters:
Morgan Stanley & Co. International Limited.........................
Donaldson, Lufkin & Jenrette International.........................
BT Alex. Brown International, a division of Bankers Trust Interna-
tional PLC........................................................
Goldman Sachs International........................................
---------
Subtotal......................................................... 1,250,000
---------
Total.......................................................... 6,250,000
=========
</TABLE>
The U.S. Underwriters and the International Underwriters, and the U.S.
Representatives and the International Representatives, are collectively
referred to as the "Underwriters" and the "Representatives," respectively. The
Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares of Class A Common
Stock offered hereby are subject to the approval of certain legal matters by
their counsel and to certain other conditions. The Underwriters are obligated
to take and pay for all of the shares of Class A Common Stock offered hereby
(other than those covered by the U.S. Underwriters' over-allotment option
described below) if any such shares are taken.
Pursuant to the Agreement between U.S. and International Underwriters, each
U.S. Underwriter has represented and agreed that, with certain exceptions: (i)
it is not purchasing any Shares (as defined herein) for the account of anyone
other than a United States or Canadian Person (as defined herein) and (ii) it
has not offered or sold, and will not offer or sell, directly or indirectly,
any Shares or distribute any prospectus relating to the Shares outside the
United States or Canada or to anyone other than a United States or Canadian
Person. Pursuant to the Agreement between U.S. and International Underwriters,
each International Underwriter has represented and agreed that, with certain
exceptions: (i) it is not purchasing any Shares for the account of any United
States or Canadian Person and (ii) it has not offered or sold, and will not
offer or sell, directly or indirectly, any Shares or distribute any prospectus
relating to the Shares in the United States or Canada or to any United States
or Canadian Person. With respect to any Underwriter that is a U.S. Underwriter
and an International Underwriter, the foregoing representations and agreements
(i) made by it in its capacity as a U.S. Underwriter apply only to it in its
capacity as a U.S. Underwriter and (ii) made by it in its capacity as an
International Underwriter apply only to it in its capacity as an International
Underwriter. The foregoing limitations do not apply to stabilization
transactions or to certain other transactions specified in the Agreement
between U.S. and International Underwriters. As used herein, "United States or
Canadian Person" means any national or resident of the United States or
Canada, or any corporation, pension, profit-sharing or other trust or other
entity organized under the
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laws of the United States or Canada or of any political subdivision thereof
(other than a branch located outside the United States and Canada of any
United States or Canadian Person), and includes any United States or Canadian
branch of a person who is otherwise not a United States or Canadian Person.
All shares of Class A Common Stock to be purchased by the Underwriters under
the Underwriting Agreement are referred to herein as the "Shares."
Pursuant to the Agreement between U.S. and International Underwriters, sales
may be made between the U.S. Underwriters and International Underwriters of
any number of Shares as may be mutually agreed. The per share price of any
Shares sold shall be the public offering price set forth on the cover page
hereof, in United States dollars, less an amount not greater than the per
share amount of the concession to dealers set forth below.
Pursuant to the Agreement between U.S. and International Underwriters, each
U.S. Underwriter has represented that it has not offered or sold, and has
agreed not to offer or sell, any Shares, directly or indirectly, in any
province or territory of Canada or to, or for the benefit of, any resident of
any province or territory of Canada in contravention of the securities laws
thereof and has represented that any offer or sale of Shares in Canada will be
made only pursuant to an exemption from the requirement to file a prospectus
in the province or territory of Canada in which such offer or sale is made.
Each U.S. Underwriter has further agreed to send to any dealer who purchases
from it any of the Shares a notice stating in substance that, by purchasing
such Shares, such dealer represents and agrees that it has not offered or
sold, and will not offer or sell, directly or indirectly, any of such Shares
in any province or territory of Canada or to, or for the benefit of, any
resident of any province or territory of Canada in contravention of the
securities laws thereof and that any offer or sale of Shares in Canada will be
made only pursuant to an exemption from the requirement to file a prospectus
in the province or territory of Canada in which such offer or sale is made,
and that such dealer will deliver to any other dealer to whom it sells any of
such Shares a notice containing substantially the same statement as is
contained in this sentence.
Pursuant to the Agreement between U.S. and International Underwriters, each
International Underwriter has represented and agreed that (i) it has not
offered or sold and, prior to the date six months after the closing date for
the sale of the Shares to the International Underwriters, will not offer or
sell, any Shares to persons in the United Kingdom except to persons whose
ordinary activities involve them in acquiring, holding, managing or disposing
of investments (as principal or agent) for the purposes of their businesses or
otherwise in circumstances which have not resulted and will not result in an
offer to the public in the United Kingdom within the meaning of the Public
Offers of Securities Regulations 1995; (ii) it has complied and will comply
with all applicable provisions of the Financial Services Act 1986 with respect
to anything done by it in relation to the Shares in, from or otherwise
involving the United Kingdom; and (iii) it has only issued or passed on and
will only issue or pass on in the United Kingdom any document received by it
in connection with the offering of the Shares to a person who is of a kind
described in Article 11(3) of the Financial Services Act 1986 (Investment
Advertisements) (Exemptions) Order 1996 or is a person to whom such document
may otherwise lawfully be issued or passed on.
Pursuant to the Agreement between U.S. and International Underwriters, each
International Underwriter has further represented that it has not offered or
sold, and has agreed not to offer or sell, directly or indirectly, in Japan or
to or for the account of any resident thereof, any of the Shares acquired in
connection with the distribution contemplated hereby, except for offers or
sales to Japanese International Underwriters or dealers and except pursuant to
any exemption from the registration requirements of the Securities and
Exchange Law and otherwise in compliance with applicable provisions of
Japanese law. Each International Underwriter has further agreed to send to any
dealer who purchases from it any of the Shares a notice stating in substance
that, by purchasing such Shares, such dealer represents and agrees that it has
not offered or sold, and will not offer or sell, any of such Shares, directly
or indirectly, in Japan or to or for the account of any resident thereof
except for offers or sales to Japanese International Underwriters or dealers
and except pursuant to any exemption from the registration requirements of the
Securities and Exchange Law and otherwise in compliance with applicable
provisions of Japanese law, and that such dealer will send to any other dealer
to whom it sells any of such Shares a notice containing substantially the same
statement as is contained in this sentence.
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<PAGE>
The Underwriters initially propose to offer part of the shares of Class A
Common Stock directly to the public at the public offering price set forth on
the cover page hereof and part to certain dealers at a price that represents a
concession not in excess of $ a share under the public offering price. Any
Underwriter may allow, and such dealers may reallow, a concession not in
excess of $ a share to other Underwriters or to certain other dealers.
After the initial offering of the shares of Class A Common Stock, the offering
price and other selling terms may from time to time be varied by the
Representatives.
Pursuant to the Underwriting Agreement, the Company has granted to the U.S.
Underwriters an option, exercisable for 30 days from the date of this
Prospectus, to purchase up to an aggregate of 937,500 additional shares of
Class A Common Stock at the public offering price set forth on the cover page
hereof, less underwriting discounts and commissions. The U.S. Underwriters may
exercise such option to purchase solely for the purpose of covering over-
allotments, if any, made in connection with the offering of the shares of
Class A Common Stock offered hereby. To the extent such option is exercised,
each U.S. Underwriter will become obligated, subject to certain conditions, to
purchase approximately the same percentage of such additional shares of Class
A Common Stock as the number set forth next to such U.S. Underwriter's name in
the preceding table bears to the total number of shares of Class A Common
Stock set forth next to the names of all U.S. Underwriters in the preceding
table.
The Class A Common Stock has been approved for listing, subject to official
notice of issuance, on the NYSE under the symbol "PTN." In order to meet the
requirements for listing the Class A Common Stock on the NYSE, the
Underwriters have undertaken to meet the NYSE's minimum distribution, issuance
and market value requirements.
Each of the Company, the Company's executive officers and Directors and all
other stockholders of the Company have agreed that, without the prior written
consent of Morgan Stanley & Co. Incorporated on behalf of the Underwriters,
they will not, during the period ending 180 days after the date of this
Prospectus, (i) offer, pledge, loan, sell, contract to sell, sell any option
or contract to purchase, purchase any option or contract to sell, grant any
option, right or warrant to purchase, or otherwise transfer or dispose of,
directly or indirectly, any shares of Class A Common Stock or any securities
convertible into or exercisable or exchangeable for Class A Common Stock
(whether such shares or any such securities are then owned by such person or
are thereafter acquired directly from the Company), or (ii) enter into any
swap or other arrangement that transfers to another, in whole or in part, any
of the economic consequences of ownership of the Class A Common Stock, whether
any such transaction described in clause (i) or (ii) of this paragraph is to
be settled by delivery of Class A Common Stock or such other securities, in
cash or otherwise. The restrictions described in this paragraph do not apply
to (a) the sale to the Underwriters of the shares of Class A Common Stock
under the Underwriting Agreement or (b) the issuance by the Company of shares
of Class A Common Stock upon the exercise of an option or warrant sold or
granted pursuant to an existing employee benefit plan of the Company and
outstanding on the date of this Prospectus.
At the request of the Company, the Underwriters have reserved shares of
Class A Common Stock offered hereby for sale, at the initial public offering
price, up to 312,500 shares to be issued by the Company and offered hereby for
Directors, officers, employees, business associates and related persons of the
Company. The number of shares of Class A Common Stock available for sale to
the general public will be reduced to the extent such persons purchase such
reserved shares. Any reserved shares which are not so purchased will be
offered by the Underwriters to the general public on the same basis as the
other shares offered hereby.
The Underwriters have informed the Company that they do not intend sales to
discretionary accounts to exceed five percent of the total number of shares of
Class A Common Stock offered by them.
In order to facilitate the offering of the Class A Common Stock, the
Underwriters may engage in transactions that stabilize, maintain or otherwise
affect the price of the Class A Common Stock. Specifically, the Underwriters
may over-allot in connection with the Offering, creating a short position in
the Class A Common Stock for their own account. In addition, to cover over-
allotments or to stabilize the price of the Class A Common Stock, the
Underwriters may bid for, and purchase, shares of Class A Common Stock in the
open market. Finally,
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<PAGE>
the underwriting syndicate may reclaim selling concessions allowed to an
Underwriter or a dealer for distributing the Class A Common Stock in the
Offering, if the syndicate repurchases previously distributed Class A Common
Stock in transactions to cover syndicate short positions, in stabilization
transactions or otherwise. Any of these activities may stabilize or maintain
the market price of the Class A Common Stock above independent market levels.
The Underwriters are not required to engage in these activities, and may end
any of these activities at any time.
The Company and the Underwriters have agreed to indemnify each other against
certain liabilities, including liabilities under the Securities Act.
PRICING OF THE OFFERING
Prior to the Offering, there has been no public market for the Common Stock.
The initial public offering price will be determined by negotiations between
the Company and the Representatives. Among the factors to be considered in
determining the initial public offering price will be the Company's record of
operations, the Company's current financial position and future prospects, the
experience of its management, the economies of the industry in general, the
general condition of the equity securities market, sales, earnings and certain
other financial operating information of the Company in recent periods, the
price-earnings ratios, price-sales ratios, market prices of securities and
certain financial and operating information of companies engaged in activities
similar to those of the Company. The estimated initial public offering price
range set forth on the cover page of this Preliminary Prospectus is subject to
change as a result of market conditions and other factors. There can be no
assurance that a regular trading market for the shares of Class A Common Stock
will develop after the offering or, if developed, that a public trading market
can be sustained. There can be no assurance that the prices at which the Class
A Common Stock will sell in the public market after the Offering will not be
lower than the prices at which it is offered by the Underwriters in the
Offering.
LEGAL MATTERS
The validity of the Class A Common Stock offered hereby will be passed upon
for the Company by Kirkland & Ellis, Chicago, Illinois (a partnership which
includes professional corporations). Certain legal matters will be passed upon
for the Underwriters by O'Melveny & Myers LLP, Los Angeles, California.
EXPERTS
The financial statements of The Petersen Companies, Inc. as of December 31,
1996 and June 30, 1997 and for the period from August 15, 1996 (inception) to
December 31, 1996 and the six months ended June 30, 1997, the consolidated
financial statements of Petersen Holdings, L.L.C. as of December 31, 1996 and
June 30, 1997 and for the three months ended December 31, 1996 and the six
months ended June 30, 1997 and the financial statements of the publishing
division of Petersen Publishing Company as of November 30, 1995 and September
30, 1996 and for each of the two years in the period ended November 30, 1995
and the ten months ended September 30, 1996 included in this Prospectus have
been audited by Ernst & Young LLP, independent auditors, as stated in their
reports appearing herein and are included in reliance upon such reports given
upon the authority of such firm as experts in accounting and auditing.
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<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 (the "Registration Statement," which term shall encompass all amendments,
exhibits, annexes and schedules thereto) pursuant to the Securities Act, and
the rules and regulations promulgated thereunder, with respect to the Class A
Common Stock being offered in the Offering. This Prospectus does not contain
all the information set forth in the Registration Statement. For further
information with respect to the Company and the securities offered hereby,
reference is made to the Registration Statement. Statements made in this
Prospectus as to the contents of any contract, agreement or other document
referred to are not necessarily complete. With respect to each such contract,
agreement or other document filed as an exhibit to the Registration Statement,
reference is made to the exhibit for a more complete description of the
document or matter involved, and each such statement shall be deemed qualified
in its entirety by such reference. The Registration Statement, including the
exhibits thereto, can be inspected and copied at the public reference
facilities maintained by the Commission referred to below.
Upon completion of the Offering, the Company will become subject to the
informational requirements of the Exchange Act, and in accordance therewith
will be required to file periodic reports and other information with the
Commission. Petersen and Publishing are currently subject to the informational
requirements of the Exchange Act as the result of the effectiveness of its
Registration Statement on Form S-4 (Registration No. 333-18017) and in
accordance therewith file periodic reports and other information with the
Commission. Such reports and other information regarding the Company may be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, at
the Regional Offices of the Commission at Seven World Trade Center, 13th
Floor, New York, New York 10048 and at Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Copies of such materials can be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. The Commission
maintains a Web site that contains reports, proxy, information statements and
other information regarding registrants that file electronically with the
Commission. The address of such site is http://www.sec.gov.
The Company intends to furnish its stockholders with annual reports
containing consolidated financial statements audited by independent certified
public accountants.
79
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGES
-----
<S> <C>
THE PETERSEN COMPANIES, INC.
Report of Ernst & Young LLP, Independent Auditors...................... F-2
Balance Sheets at December 31, 1996 and June 30, 1997.................. F-3
Statements of Operations for the period from August 15, 1996
(inception) to December 31, 1996 and the six months ended June 30,
1997.................................................................. F-4
Statements of Shareholders' Equity for the period from August 15, 1996
(inception) to December 31, 1996 and the six months ended June 30,
1997.................................................................. F-5
Statements of Cash Flows for the period from August 15, 1996
(inception) to December 31, 1996 and the six months ended June 30,
1997.................................................................. F-6
Notes to Financial Statements.......................................... F-7
PETERSEN HOLDINGS, LLC
Report of Ernst & Young LLP, Independent Auditors...................... F-10
Consolidated Balance Sheets at December 31, 1996 and June 30, 1997..... F-11
Consolidated Statements of Operations for the three months ended
December 31, 1996 and the six months ended June 30, 1997.............. F-12
Consolidated Statements of Members' Equity for the three months ended
December 31, 1996 and the six months ended June 30, 1997.............. F-13
Consolidated Statements of Cash Flows for the three months ended
December 31, 1996 and the six months ended June 30, 1997.............. F-14
Notes to Consolidated Financial Statements............................. F-15
PETERSEN PUBLISHING COMPANY PUBLISHING DIVISION
Report of Ernst & Young LLP, Independent Auditors...................... F-23
Balance Sheets at November 30, 1995 and September 30, 1996............. F-24
Statements of Operations and Divisional Equity for the years ended
November 30, 1994 and 1995, the six months ended June 30, 1996
(unaudited) and the ten months ended September 30, 1996............... F-25
Statements of Cash Flows for the years ended November 30, 1994 and
1995, the six months ended June 30, 1996 (unaudited) and the ten
months ended September 30, 1996....................................... F-26
Notes to Financial Statements.......................................... F-27
</TABLE>
F-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors
The Petersen Companies, Inc.
We have audited the accompanying balance sheets of The Petersen Companies,
Inc. (formerly known as BrightView Communications Group, Inc.), as of December
31, 1996 and June 30, 1997, and the related statements of operations and
shareholders' equity and cash flows for the period from August 15, 1996
(inception) to December 31, 1996 and the six months ended June 30, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of The Petersen Companies,
Inc., at December 31, 1996 and June 30, 1997, and the results of its
operations and its cash flows for the period from August 15, 1996 (inception)
to December 31, 1996 and the six months ended June 30, 1997, in conformity
with generally accepted accounting principles.
Ernst & Young LLP
Los Angeles, California
August 7, 1997, except as to Note 6 as to
which the date is September 12, 1997
F-2
<PAGE>
THE PETERSEN COMPANIES, INC.
BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
------------ --------
<S> <C> <C>
ASSETS
Investment in Petersen Publishing, L.L.C. ............... $ 154 $ 149
Investment in Petersen Holdings, L.L.C. ................. 1,506 1,513
------ ------
Total assets............................................. $1,660 $1,662
====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities.............................................. $ -- $ --
Commitments and contingencies
Shareholders' equity:
Class A Shares, $0.01 par value, 10,000 shares
authorized; 2,163.5 shares issued and outstanding..... 1,073 1,082
Class B Shares, $0.01 par value, 10,000 shares
authorized; 1,200 shares issued and outstanding....... 600 600
Accumulated deficit.................................... (11) (18)
------ ------
1,662 1,664
Notes receivable from related parties.................. (2) (2)
------ ------
Total liabilities and shareholders' equity............... $1,660 $1,662
====== ======
</TABLE>
See accompanying notes.
F-3
<PAGE>
THE PETERSEN COMPANIES, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
AUGUST 15, 1996 SIX MONTHS
(INCEPTION) TO ENDED
DECEMBER 31, JUNE 30,
1996 1997
--------------- ----------
<S> <C> <C>
Net revenues......................................... $ -- $ --
General and administrative expenses.................. -- 2
----- -----
Loss from operations................................. -- (2)
Equity in loss of subsidiary......................... (11) (5)
----- -----
Net loss............................................. $ (11) $ (7)
===== =====
</TABLE>
See accompanying notes.
F-4
<PAGE>
THE PETERSEN COMPANIES, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NOTES
RECEIVABLE
CLASS A COMMON CLASS B COMMON FROM TOTAL
--------------- ---------------- ACCUMULATED RELATED SHAREHOLDERS'
SHARES AMOUNT SHARES AMOUNT DEFICIT PARTIES EQUITY
------- ------- ------- ------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance as of August 15,
1996 (inception)....... -- $ -- -- $ -- $ -- $ -- $ --
Contributed capital..... 2,145 1,073 1,200 600 -- -- 1,673
Loans to related
parties................ -- -- -- -- -- (2) (2)
Net loss................ -- -- -- -- (11) -- (11)
------ ------- ------- ------- ----- ----- ------
Balance as of December
31, 1996............... 2,145 1,073 1,200 600 (11) (2) 1,660
Contributed capital..... 18 9 -- -- -- -- 9
Net loss................ -- -- -- -- (7) -- (7)
------ ------- ------- ------- ----- ----- ------
Balance as of June 30,
1997................... 2,163 $1,082 1,200 $600 $ (18) $ (2) $1,662
====== ======= ======= ======= ===== ===== ======
</TABLE>
See accompanying notes.
F-5
<PAGE>
THE PETERSEN COMPANIES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
AUGUST 15, 1996 SIX MONTHS
(INCEPTION) TO ENDED
DECEMBER 31, JUNE 30,
1996 1997
--------------- ----------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss........................................... $ (11) $ (7)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Equity in loss of subsidiary...................... 11 5
------- ------
Net cash used in operating activities.............. -- (2)
INVESTING ACTIVITIES
Investment in Petersen Publishing Company,
L.L.C. ........................................... (165) 1
Investment in Petersen Holdings, L.L.C. ........... (1,505) (9)
------- ------
Net cash used in investing activities.............. (1,670) (8)
FINANCING ACTIVITIES
Proceeds from issuance of stock.................... 1,670 10
------- ------
Net cash provided by financing activities.......... 1,670 10
------- ------
Increase (decrease) in cash........................ -- --
Cash at beginning of period........................ -- --
------- ------
Cash at end of period.............................. $ -- $ --
======= ======
</TABLE>
See accompanying notes.
F-6
<PAGE>
THE PETERSEN COMPANIES, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
BrightView Communications Group, Inc. is a Delaware corporation, which
changed its name to The Petersen Companies, Inc. on August 7, 1997 (the
"Company"). The Company owns 1.0% of Petersen Holdings, L.L.C. ("Holdings")
and .1% of Petersen Publishing Company, L.L.C. ("Petersen"). The Company has
no business operations other than the investment in Holdings and Petersen.
BrightView was organized in August 1996 for the principal purpose of investing
in Holdings and Petersen. The Company is Holdings' managing member and as such
controls the policies and operations of Holdings and of Petersen through
Holdings.
Basis of Presentation
The financial statements reflect the activity of the Company for the period
from August 15, 1996 (inception) through December 31, 1996 and for the six
month period ended June 30, 1997, after elimination of intercompany
transactions. The Company reflects its investment in both Holdings and
Petersen on the equity method of accounting.
2. LONG-TERM DEBT
Senior Credit Facility:
On September 30, 1996, Petersen entered into a Senior Credit Facility with
First Union National Bank of North Carolina and CIBC Inc. (the "Lenders")
pursuant to which the Lenders agreed to loan Petersen up to $260,000,000. Such
amount was allocated among a revolving credit facility for up to $60,000,000
(the "Revolver"), of which up to $10,000,000 can be in the form of letters of
credit; a tranche A term loan for up to $100,000,000 (the "Tranche A Loan");
and a tranche B term loan for up to $100,000,000 (the "Tranche B Loan").
The Revolver and the Tranche A Loan bear interest at either LIBOR (5.688% at
June 30, 1997), plus 1.375% to 2.750%, based on borrowings or the prime rate
of the agent bank (8.5% at June 30, 1997), plus .125% to 1.5%, based on
borrowings. As of December 31, 1996 and June 30, 1997, Petersen had no
borrowings outstanding under the Revolver. However, a letter of credit for
$1,600,000 issued in January 1997 reduces the amount available under the
Revolver. The letter of credit expires in January 1998. Any future borrowings
under the Revolver will mature on December 31, 2002. As of December 31, 1996,
Petersen had $100,000,000 outstanding under the Tranche A Loan at a weighted
average interest rate of 8.375%. As of June 30, 1997, Petersen had $89,000,000
outstanding under the Tranche A Loan at a weighted average interest rate of
8.277%.
The Tranche B Loan bears interest at either LIBOR (5.688% at June 30, 1997),
plus 2.625% to 3.250%, based on borrowings or the prime rate of the agent bank
(8.5% at June 30, 1997), plus 1.375% to 2.0% based on borrowings. As of
December 31, 1996, Petersen had $100,000,000 outstanding under the Tranche B
Loan at a weighted average interest rate of 8.875%. As of June 30, 1997,
Petersen had $88,750,000 outstanding under the Tranche B Loan at a weighted
average interest rate of 8.777%.
F-7
<PAGE>
THE PETERSEN COMPANIES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The Revolver and Tranche A Loan mature on December 31, 2002 and Tranche B
Loan matures on September 30, 2004. Minimum annual repayment commitments for
the Tranche A Loan and Tranche B Loan are as follows:
<TABLE>
<CAPTION>
TRANCHE A LOAN TRANCHE B LOAN
-------------- --------------
<S> <C> <C>
1997 (6 months)................................ $ -- $ 500
1998........................................... 10,000 1,000
1999........................................... 15,000 1,000
2000........................................... 20,000 1,000
2001........................................... 25,000 1,000
Thereafter..................................... 19,000 84,250
------- -------
Total........................................ $89,000 $88,750
======= =======
</TABLE>
The Revolver is required to be permanently reduced and the Tranche A Loan
and Tranche B Loan are required to be prepaid with (i) 75% of excess cash flow
(as defined in the Senior Credit Facility), (ii) proceeds from asset sales or
other dispositions of property, (iii) proceeds from the issuance of certain
debt obligations or equity securities. In the six months ended June 30, 1997,
Petersen repaid $22,250,000 of the borrowings under the Senior Credit
Facility, including a prepayment of $11,000,000 on the Tranche A Loan and a
prepayment of $10,750,000 on the Tranche B Loan.
The Senior Credit Facility contains certain restrictive covenants including
but not limited to restrictions on capital expenditures, payments of
dividends, liens, investments and disposals of assets, as well as financial
covenants including a maximum leverage ratio, minimum interest coverage ratio
and minimum fixed charge coverage ratio, all as defined in the Senior Credit
Facility. As of June 30, 1997, Petersen was in compliance with the covenants
of the Senior Credit Facility.
The Senior Credit Facility is guaranteed by Holdings and the Company.
Petersen estimates that the book value of the Senior Credit Facility
approximates its fair value.
Bridge Notes:
In August 1996, Petersen entered into a Bridge Commitment Agreement whereby
First Union Corporation and CIBC Inc. agreed to lend Petersen up to
$100,000,000 aggregate amount of senior subordinated increasing rate notes
(the "Bridge Notes"). The Bridge Notes bore interest at the prime rate (as
announced from time to time by First Union National Bank of North Carolina)
plus 425 basis points, with a maximum of 12.5% per annum. The interest rate
would increase by an additional 50 basis points under certain circumstances.
In December 1996, Petersen repaid the Bridge Notes in full.
F-8
<PAGE>
THE PETERSEN COMPANIES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
3. INVESTMENTS IN HOLDINGS AND PETERSEN
In August 1996, the Company issued shares of Class A and Class B Common
stock in exchange for proceeds aggregating $1,672,500. At the same time, the
Company invested $1,505,250 in 1.0% of Holdings and $167,250 in .1% of
Petersen. The Company reflects their proportionate share of the loss in both
Holdings and Petersen each period.
4. INCOME TAXES
No provision or liability for federal or state income taxes is included in
the accompanying financial statements. The difference between the tax bases
and the reported amounts of the Company's assets and liabilities is not
material at December 31, 1996 and June 30, 1997. The Company had no deferred
tax assets and liabilities at December 31, 1996 or June 30, 1997.
5. CONTINGENCIES
The Company is a party to various legal actions and disputes arising in the
ordinary course of business. Management believes, based on the advice of
counsel, that any resulting liabilities from these actions will not have a
material adverse effect on the financial position of the company.
6. EVENTS SUBSEQUENT TO JUNE 30, 1997
On August 5, 1997, the Board of Directors of the Company authorized the
filing with the Securities and Exchange Commission of a registration statement
for the sale by the Company of shares of its Class A Common Stock to the
public. It is contemplated that in connection with the offering, all of the
existing securityholders of the Company and Holdings will enter into an
agreement in which all of the Holdings Common Units and Preferred Units and
all of the Company's common stock will be exchanged for an aggregate of
20,158,362 shares of Class A Common Stock and 7,682,632 shares of Class B
Common Stock.
F-9
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors
Petersen Holdings, L.L.C.
We have audited the accompanying consolidated balance sheets of Petersen
Holdings, L.L.C., as of December 31, 1996 and June 30, 1997, and the related
consolidated statements of operations, members' equity and cash flows for the
three months ended December 31, 1996 and the six months ended June 30, 1997.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Petersen
Holdings, L.L.C., at December 31, 1996 and June 30, 1997, and the consolidated
results of its operations and its cash flows for the three months ended
December 31, 1996 and the six months ended June 30, 1997, in conformity with
generally accepted accounting principles.
Ernst & Young LLP
Los Angeles, California
July 31, 1997, except as to Note 12 as to
which the date is September 12, 1997
F-10
<PAGE>
PETERSEN HOLDINGS, L.L.C.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
------------ ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................ $ 7,761 $ 6,923
Accounts receivable, less allowance for doubtful
accounts of $1,604 (1996) and $1,722 (1997)......... 20,141 24,011
Inventories.......................................... 4,408 3,721
Current portion of deferred subscription acquisition
costs............................................... 43,835 40,711
Deferred direct mail advertising costs, net of
accumulated amortization of $307 (1997)............. -- 2,340
Other prepaid expenses and current assets............ 730 653
--------- ---------
Total current assets................................... 76,875 78,359
Deferred subscription acquisition costs................ 41,168 44,680
Property and equipment, net of accumulated depreciation
of $560 (1996) and $1,501 (1997)...................... 4,152 3,360
Goodwill, net of accumulated amortization of $5,992
(1996) and $17,979 (1997)............................. 353,556 341,595
Subscriber list and established work force, net of
accumulated amortization of $3,000 (1996) and $9,000
(1997)................................................ 117,000 111,000
Deferred financing costs, net of accumulated
amortization of $3,276 (1996) and $4,659 (1997)....... 10,735 9,352
Other assets........................................... 587 631
--------- ---------
Total assets........................................... $ 604,073 $ 588,977
========= =========
LIABILITIES AND MEMBERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities............. $ 13,288 $ 16,623
Accrued payroll and related costs.................... 1,963 4,098
Accrued interest on long-term debt................... 2,041 3,628
Customer incentives payable.......................... 5,785 5,735
Current portion of unearned subscription revenues.... 71,163 69,517
Current portion of long-term debt.................... 1,000 6,000
Other accrued expenses and current liabilities....... 119 261
--------- ---------
Total current liabilities.............................. 95,359 105,862
Unearned subscription revenues......................... 47,608 52,071
Long-term debt......................................... 299,000 271,750
Other noncurrent liabilities........................... 7,652 8,664
Due to minority member................................. 154 149
Members' equity:
Common units......................................... 1,671 1,707
Preferred units...................................... 165,171 181,464
Accumulated deficit.................................. (10,594) (30,942)
--------- ---------
156,248 152,229
Less: Notes receivable from related parties.......... (1,948) (1,748)
--------- ---------
Total members' equity.................................. 154,300 150,481
--------- ---------
Total liabilities and members' equity.................. $ 604,073 $ 588,977
========= =========
</TABLE>
See accompanying notes.
F-11
<PAGE>
PETERSEN HOLDINGS, L.L.C.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PETERSEN HOLDINGS,
L.L.C.
-----------------------
THREE MONTHS SIX MONTHS
ENDED ENDED
DECEMBER 31, JUNE 30,
1996 1997
------------ ----------
<S> <C> <C>
Net revenues:
Advertising......................................... $ 31,912 $ 73,438
Newsstand........................................... 10,037 21,249
Subscriptions (net of agency commissions of $13,804
and $27,723 for the three months ended December 31,
1996 and the six months ended June 30, 1997,
respectively)...................................... 10,404 21,736
Other............................................... 924 3,720
---------- ----------
Total net revenues.................................... 53,277 120,143
Production, selling and other direct costs (including
rent paid to a related party of $1,032 and $2,187,
for the three months ended December 31, 1996 and the
six months ended June 30, 1997, respectively)........ 41,223 82,440
---------- ----------
Gross profit.......................................... 12,054 37,703
General and administrative expenses................... 2,666 8,955
Amortization of goodwill and other intangible assets.. 8,992 18,151
---------- ----------
Income from operations................................ 396 10,597
Other income (expense):
Interest income..................................... 113 355
Interest expense.................................... (11,114) (15,853)
Loss on sale of assets.............................. -- (33)
---------- ----------
Loss before minority interest......................... (10,605) (4,934)
Minority members' equity in loss of subsidiary........ 11 5
---------- ----------
Net loss.............................................. (10,594) (4,929)
Preferred unit dividends.............................. -- (15,419)
---------- ----------
Net loss attributable to common units................. $ (10,594) $ (20,348)
========== ==========
Pro forma net loss per share.......................... $ (.38) $ (.73)
========== ==========
Pro forma weighted average number of common shares
outstanding.......................................... 27,840,994 27,840,994
========== ==========
</TABLE>
See accompanying notes.
F-12
<PAGE>
PETERSEN HOLDINGS, L.L.C.
CONSOLIDATED STATEMENTS OF MEMBERS' EQUITY
(IN THOUSANDS, EXCEPT UNIT AMOUNTS)
<TABLE>
<CAPTION>
NOTES
RECEIVABLE
COMMON UNITS PREFERRED UNITS FROM TOTAL
-------------- ---------------- ACCUMULATED RELATED MEMBERS'
UNITS AMOUNT UNITS AMOUNTS DEFICIT PARTIES EQUITY
------- ------ ------- -------- ----------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance as of September
30, 1996............... -- $ -- -- $ -- $ -- $ -- $ --
Contributed capital, net
of costs............... 413,550 1,671 371,295 165,171 -- -- 166,842
Loans to related
parties................ -- -- -- -- -- (1,948) (1,948)
Net loss................ -- -- -- -- (10,594) -- (10,594)
------- ------ ------- -------- -------- ------- --------
Balance as of December
31, 1996............... 413,550 1,671 371,295 165,171 (10,594) (1,948) 154,300
Contributed capital..... 4,061 36 1,960 874 -- -- 910
Preferred unit
dividend............... -- -- -- 15,419 (15,419) -- --
Payments against notes
receivable from related
parties................ -- -- -- -- -- 200 200
Net loss................ -- -- -- -- (4,929) -- (4,929)
------- ------ ------- -------- -------- ------- --------
Balance as of June 30,
1997................... 417,611 $1,707 373,255 $181,464 $(30,942) $(1,748) $150,481
======= ====== ======= ======== ======== ======= ========
</TABLE>
See accompanying notes.
F-13
<PAGE>
PETERSEN HOLDINGS, L.L.C.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED ENDED
DECEMBER 31, JUNE 30,
1996 1997
------------ ----------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss............................................... $ (10,594) $ (4,929)
Adjustment to reconcile net loss to net cash provided
by operating activities:
Depreciation and amortization......................... 12,849 20,791
Allowance for doubtful accounts....................... -- 828
Loss on sale of assets................................ -- 33
Changes in operating assets and liabilities:
Accounts receivable................................... (2,092) (4,698)
Inventories........................................... 6,017 687
Deferred subscription acquisition costs............... (11,061) (388)
Deferred direct mail advertising costs................ -- (2,647)
Accounts payable and accrued liabilities.............. 9,102 2,848
Accrued payroll and related costs..................... (3,677) 2,135
Accrued interest on long-term debt.................... 2,041 1,587
Customer incentives payable........................... 411 (50)
Unearned subscription revenues........................ 11,840 2,817
Other current assets, net............................. 34 619
Other noncurrent liabilities.......................... 7,506 (1,514)
--------- --------
Total adjustments..................................... 32,970 23,048
--------- --------
Net cash provided by operating activities.............. 22,376 18,119
--------- --------
INVESTING ACTIVITIES
Decrease in minority interest.......................... -- (5)
Purchases of property and equipment.................... -- (228)
Purchases of magazines................................. -- (122)
Proceeds from sale of assets........................... -- 38
Acquisition of assets of publishing division of
Petersen Publishing Company, including liabilities
assumed and net of costs associated with the
acquisition........................................... (465,652) 2,500
--------- --------
Net cash (used in) provided by investing activities.... (465,652) 2,183
--------- --------
FINANCING ACTIVITIES
Proceeds from bank borrowings.......................... 200,000 --
Repayment of bank borrowings........................... -- (22,250)
Proceeds from issuance of Senior Subordinated Notes.... 100,000 --
Increase in deferred financing costs................... (14,011) --
Proceeds from issuance of members units................ 165,135 910
Reduction in notes receivable, related party........... -- 200
Costs associated with capital contributions............ (241) --
Cash contribution by minority member................... 154 --
--------- --------
Net cash provided by (used in) financing activities.... 451,037 (21,140)
--------- --------
Increase in cash and cash equivalents.................. 7,761 (838)
Cash and cash equivalents at beginning of period....... -- 7,761
--------- --------
Cash and cash equivalents at end of period............. $ 7,761 $ 6,923
========= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during period for:
Interest.............................................. $ 5,576 $ 10,842
========= ========
Taxes................................................. $ -- $ 12
========= ========
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
During the three months ended December 31, 1996, the Company extended a loan
to related parties of $1,948 in exchange for Common and Preferred Units.
During the six months ended June 30, 1997, the Company increased goodwill and
accrued liabilities by $2,526 representing adjustments to the allocation of
the purchase price of the Acquisition. Additionally, the Company accrued the
cumulative Preferred Unit dividend of $15,419 during the six months ended June
30, 1997.
See accompanying notes.
F-14
<PAGE>
PETERSEN HOLDINGS, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Petersen Holdings, L.L.C. ("Holdings") is a Delaware limited liability
company. Holdings owns 99.9% of Petersen Publishing Company, L.L.C. (the
"Company"). Holdings has no business operations other than those of the
Company. The remaining 0.1% of the Company is owned by BrightView
Communications Group, Inc. ("BrightView"). The Company was organized in 1996
for the principal purpose of completing the acquisition (the "Acquisition") of
substantially all of the assets and assuming certain liabilities of the
Publishing Division of Petersen Publishing Company ("Petersen") (see Note 2).
The Company is engaged in the publishing business with revenues generated
primarily from the publication of various special interest magazines and the
sale of related advertising, principally within the United States.
Basis of Presentation
The consolidated financial statements reflect the consolidated activity of
Holdings and the Company from October 1, 1996 through December 31, 1996 and the
six month period ended June 30, 1997, after elimination of intercompany
transactions and segregation of minority interest.
Certain reclassifications have been made to the consolidated balance sheets
and statements of operations for the three months ended December 31, 1996 to
conform to the presentation for the six months ended June 30, 1997.
Earnings Per Share
Pro forma net loss per share is based on the weighted average shares
outstanding after giving retroactive effect to the issuance of 27,840,994
shares of common stock in connection with the reorganization described in Note
12.
Cash Equivalents
Cash equivalents consist primarily of debt instruments with maturities of
three months or less at the acquisition date. The carrying amounts of cash and
cash equivalents reported in the balance sheet approximate its fair value.
Inventories
Inventories, consisting of paper held at a printing company, are stated at
the lower of cost, which approximates the first-in, first-out method, or
market.
Deferred Subscription Acquisition Costs
Deferred subscription acquisition costs consist of agency commissions paid to
obtain subscriptions and are amortized over the life of the related
subscriptions ranging from 12 to 36 months.
Depreciation and Amortization
Depreciation is provided on the straight-line method over the estimated
useful lives of the assets ranging from 3 to 5 years except for leasehold
improvements which are amortized over the lesser of 10 years or the life of the
lease.
Goodwill and Other Intangible Assets
Goodwill resulting from the Acquisition will be amortized using the straight-
line method over its estimated useful life of 15 years. Other intangible assets
(consisting mainly of subscriber lists and established work force) will be
amortized over their estimated useful lives of ten years. Deferred financing
costs will be amortized over the term of the debt: ten years for the Senior
Subordinated Notes and an average of seven years for the Senior Credit
Facility.
F-15
<PAGE>
PETERSEN HOLDINGS, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Income Taxes
As a limited liability company, Holdings is not subject to U.S. federal
income taxes or state income taxes.
Revenue Recognition
Advertising revenue, net of provisions for related rebates and discounts, is
recognized at the "on sale" date of the publication containing the
advertisement. Subscription revenue is deferred and recognized pro rata as
fulfilled over the terms of such subscriptions and is recorded net of related
agency commissions. Sales of magazines intended for retail distribution on
newsstands are recorded at the time such publications are available for sale
by distributors to the public and are reduced by an estimated provision for
returns.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Revenues
No customer accounted for over 10% of the Company's revenues. The Company's
activities occur principally in the United States and revenues from outside
the United States are less than 10% of the Company's revenues.
Advertising Expenses
The Company began a new mailing program in 1997. The Company accounts for
its direct response advertising costs in accordance with the American
Institute of Certified Public Accountants' Statement of Position 93-7
"Reporting on Advertising Costs," pursuant to which qualified direct response
advertising is capitalized and amortized over its expected period of future
benefit. Such capitalized costs include primarily printing and postage to
current and potential subscribers and totaled $2,647,000 at June 30, 1997 and
will be amortized over twelve months (the estimated period of future benefit),
beginning two months after mailing. No direct response advertising costs were
capitalized at December 31, 1996. Amortization of direct response advertising
costs was $307,000 for the six months ended June 30, 1997 and is included in
production, selling and other direct costs.
The Company expenses all other costs of advertising as incurred. Advertising
expense for the three months ended December 31, 1996 and the six months ended
June 30, 1997 were $23,000, and $946,000, respectively.
2. ACQUISITION OF THE PUBLISHING DIVISION OF PETERSEN PUBLISHING COMPANY
In August 1996, BrightView entered into an Asset Purchase Agreement to
purchase substantially all of the assets of the publishing division of
Petersen. BrightView assigned its rights under such agreement to the Company
and the Company assumed all of BrightView's obligations thereunder. The
aggregate purchase price (including expenses) was $462,800,000 (including
costs associated with the Acquisition), plus the assumption of unearned
subscription revenues and other certain liabilities totaling approximately
$49,000,000. The Asset Purchase Agreement provided for a final settlement of
the purchase price related to changes in the working capital of Petersen
between June 30, 1996 and September 30, 1996. During the six months ended June
30, 1997, the Company received $2,526,000 related to such changes and
increased goodwill and accrued liabilities accordingly. The Acquisition was
completed on September 30, 1996. In connection with the Acquisition, the
Company recorded goodwill of approximately $360,000,000 and other intangible
assets of approximately $120,000,000. Goodwill amortization expense for the
three months ended December 31, 1996 and the six months ended June 30, 1997
was $5,992,000 and $12,109,000, respectively. Amortization of other intangible
assets was $3,000,000 and $6,000,000 for the three months ended December 31,
1996 and the six months ended June 30, 1997, respectively.
In order to finance the Acquisition, the Company entered into a Senior
Credit Facility for up to $260,000,000, issued 11 1/8% Senior Subordinated
Notes for $100,000,000 and Holdings issued equity securities for $165,000,000.
See Notes 5 and 8 for a more comprehensive discussion of the debt and equity
issuances.
F-16
<PAGE>
PETERSEN HOLDINGS, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. INVENTORIES
Inventories consist of (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
------------ --------
<S> <C> <C>
Paper.................................................. $ 611 $ 1,562
Magazines in process................................... 3,797 2,159
------- -------
$ 4,408 $ 3,721
======= =======
</TABLE>
4. PROPERTY AND EQUIPMENT
Property and equipment consists of (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
------------ --------
<S> <C> <C>
Leasehold improvements................................. $ 283 $ 283
Machinery and equipment................................ 2,230 2,379
Office furniture and equipment......................... 2,199 2,199
------- -------
4,712 4,861
Less accumulated depreciation and amortization......... 560 1,501
------- -------
$ 4,152 $ 3,360
======= =======
</TABLE>
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS No.
121"), which became effective for the Company in 1996. The adoption of SFAS
No. 121 did not have a material impact on the Company's financial position or
results of operations.
5. LONG-TERM DEBT
Senior Credit Facility:
On September 30, 1996, the Company entered into a Senior Credit Facility
with First Union National Bank of North Carolina and CIBC Inc. (the "Lenders")
pursuant to which the Lenders agreed to loan the Company up to $260,000,000.
Such amount was allocated among a revolving credit facility for up to
$60,000,000 (the "Revolver"), of which up to $10,000,000 can be in the form of
letters of credit; a tranche A term loan for up to $100,000,000 (the "Tranche
A Loan"); and a tranche B term loan for up to $100,000,000 (the "Tranche B
Loan").
The Revolver and the Tranche A Loan bear interest at either LIBOR (5.688% at
June 30, 1997), plus 1.375% to 2.750%, based on borrowings or the prime rate
of the agent bank (8.5% at June 30, 1997), plus .125% to 1.5%, based on
borrowings. As of December 31, 1996 and June 30, 1997, the Company had no
borrowings outstanding under the Revolver. However, a letter of credit for
$1,600,000 issued in January 1997 reduces the amount available under the
Revolver. The letter of credit expires in January 1998. Any future borrowings
under the Revolver will mature on December 31, 2002. As of December 31, 1996,
the Company had $100,000,000 outstanding under the Tranche A Loan at a
weighted average interest rate of 8.375%. As of June 30, 1997, the Company had
$89,000,000 outstanding under the Tranche A Loan at a weighted average
interest rate of 8.277%.
The Tranche B Loan bears interest at either LIBOR (5.688% at June 30, 1997),
plus 2.625% to 3.250%, based on borrowings or the prime rate of the agent bank
(8.5% at June 30, 1997), plus 1.375% to 2.0% based on
F-17
<PAGE>
PETERSEN HOLDINGS, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
borrowings. As of December 31, 1996, the Company had $100,000,000 outstanding
under the Tranche B Loan at a weighted average interest rate of 8.875%. As of
June 30, 1997, the Company had $88,750,000 outstanding under the Tranche B
Loan at a weighted average interest rate of 8.777%.
The Revolver and Tranche A Loan mature on December 31, 2002 and Tranche B
Loan matures on September 30, 2004. Minimum annual repayment commitments for
the Tranche A Loan and Tranche B Loan are as follows:
<TABLE>
<CAPTION>
TRANCHE A LOAN TRANCHE B LOAN
-------------- --------------
(IN THOUSANDS)
<S> <C> <C>
1997 (6 months)................................ $ -- $ 500
1998........................................... 10,000 1,000
1999........................................... 15,000 1,000
2000........................................... 20,000 1,000
2001........................................... 25,000 1,000
Thereafter..................................... 19,000 84,250
------- -------
Total........................................ $89,000 $88,750
======= =======
</TABLE>
The Revolver is required to be permanently reduced and the Tranche A Loan
and Tranche B Loan are required to be prepaid with (i) 75% of excess cash flow
(as defined in the Senior Credit Facility), (ii) proceeds from asset sales or
other dispositions of property, (iii) proceeds from the issuance of certain
debt obligations or equity securities. In the six months ended June 30, 1997,
the Company repaid $22,250,000 of the borrowings under the Senior Credit
Facility, including a prepayment of $11,000,000 on the Tranche A Loan and a
prepayment of $10,750,000 on the Tranche B Loan.
The Senior Credit Facility contains certain restrictive covenants including
but not limited to restrictions on capital expenditures, payments of
dividends, liens, investments and disposals of assets, as well as financial
covenants including a maximum leverage ratio, minimum interest coverage ratio
and minimum fixed charge coverage ratio, all as defined in the Senior Credit
Facility. As of June 30, 1997, the Company was in compliance with the
covenants of the Senior Credit Facility.
The Senior Credit Facility is guaranteed by Holdings and BrightView.
The Company estimates that the book value of the Senior Credit Facility
approximates its fair value.
The Company incurred costs of approximately $7,000,000 in connection with
the Senior Credit Facility. These costs have been included in Deferred
Financing Costs and are being amortized over the term of the loans. During the
three months ended December 31, 1996 and the six months ended June 30, 1997,
the Company amortized approximately $250,000 and $1,183,000, respectively, of
such deferred financing costs. As a result of the early repayments, during the
six months ended June 30, 1997 the Company recorded additional amortization of
deferred financing costs of approximately $687,000.
11 1/8% Senior Subordinated Notes due 2006:
Holdings, the Company and its wholly-owned subsidiary, Petersen Capital
Corp. (together, the "Issuers"), issued $100,000,000 in 11 1/8% Senior
Subordinated Notes due 2006 (the "Notes") pursuant to an Offering Memorandum
dated November 20, 1996. The Notes bear interest at 11 1/8% per annum, payable
semi-annually on November 15 and May 15, commencing May 15, 1997. The Notes
will mature on November 15, 2006 and will not be subject to any sinking fund
requirement. The Notes are redeemable at the option of the Issuers, in whole
or in part, at any time on or after November 15, 2001, at the redemption
prices set forth in the Notes
F-18
<PAGE>
PETERSEN HOLDINGS, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Purchase Agreement, plus accrued and unpaid interest to the date of
redemption. Under certain circumstances, prior to November 15, 1999, the
Issuers, at their option, may redeem in the aggregate up to 25% of the
original principal amount of the Notes at 111.125% of the aggregate principal
amount so redeemed, plus accrued and unpaid interest.
The Notes are general unsecured obligations of the Issuers and are
subordinated in right of payment to all existing and future senior
indebtedness of the Issuers. The Notes are guaranteed by Holdings.
The Indenture governing the Notes (the "Indenture") contains certain
restrictive covenants, including but not limited to, restrictions on
incurrence of debt, dividend payments, certain asset sales, transactions with
affiliates, liens and investments. As of June 30, 1997, the Company was in
compliance with the covenants contained in the Indenture.
The Company incurred costs of approximately $4,000,000 in connection with
the issuance of the Notes. These costs have been included in Deferred
Financing Costs and are being amortized over the term of the Notes. During the
three months ended December 31, 1996, and the six months ended June 30, 1997
the Company amortized approximately $67,000 and $200,000, respectively, of
such deferred financing costs.
On March 11, 1997, the Company exchanged all of the outstanding Notes for
substantially identical notes that were registered pursuant to a registration
statement on Form S-4 under the Securities Act of 1933.
The Company estimates that the book value of the Senior Subordinated Notes
approximates their fair value.
Bridge Notes:
In August 1996, the Company entered into a Bridge Commitment Agreement
whereby First Union Corporation and CIBC Inc. agreed to lend the Company up to
$100,000,000 aggregate amount of senior subordinated increasing rate notes
(the "Bridge Notes"). The Bridge Notes bore interest at the prime rate (as
announced from time to time by First Union National Bank of North Carolina)
plus 425 basis points, with a maximum of 12.5% per annum. The interest rate
would increase by an additional 50 basis points under certain circumstances.
In December 1996, with proceeds from the issuance of the Notes, the Company
repaid the Bridge Notes in full, together with accrued interest of
approximately $1,980,000. In addition to this interest expense, the Company
incurred approximately $3,000,000 in costs associated with the Bridge Notes.
This amount is included in amortization of Deferred Financing Costs for the
three months ended December 31, 1996.
6. INCOME TAXES
The liability for federal and state income taxes of a limited liability
company is the obligation of the members. Therefore, no provision or liability
for federal or state income taxes is included in the accompanying financial
statements. The difference between the tax bases and the reported amounts of
the Company's assets and liabilities is not material at December 31, 1996 and
June 30, 1997. The Company had no deferred tax assets and liabilities at
December 31, 1996 or June 30, 1997.
Both the Senior Credit Facility and the Indenture governing the Notes
generally limit the Company's ability to pay cash distributions to Holdings
and BrightView other than distributions in amounts approximately equal to the
income tax liability of such members of the Company (or, in the case of
Holdings, the income tax liability it would have had if it were required to
pay income taxes) resulting from the taxable income of the Company ("Tax
Distributions"). Tax Distributions will be based on the approximate highest
combined tax rate that applies to any one of the members of the Company.
F-19
<PAGE>
PETERSEN HOLDINGS, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. MEMBERS' EQUITY
The Company and Holdings are each limited liability companies organized
under the Delaware Limited Liability Company Act (the "LLC Act"). Holdings is
the Company's managing member and as such controls the policies and operations
of the Company. Holdings is governed by a limited liability company agreement
(the "LLC Agreement") among Willis Stein & Partners, L.P. (through Petersen
Investment Corp.), Petersen, certain members of the Company's management and
other investors (collectively the "Members"). As a limited liability company
organized under Delaware law, members of Holdings are not liable for debts or
other obligations of Holdings. The LLC Agreement governs the relative rights
and duties of the Members. BrightView is Holdings' managing member and as such
controls the policies and operations of Holdings and of the Company through
Holdings.
The ownership interests of the Members in Holdings consist of Preferred
Units and Common Units. The Preferred Units are entitled to a preferred yield
of 12.0% per annum, compounded quarterly, and an aggregate liquidation
preference of $166.3 million (net of any prior repayments of Preferred Units)
plus any accrued and unpaid preferred yield (collectively, the "Preference
Amount") on any liquidation or other distribution by Holdings. The Common
Units represent the common equity of Holdings and consist of Class A Common
Units, Class B Common Units and Class C Common Units. After payment of the
Preference Amount, holders of Class A Common Units are entitled to share in
any remaining proceeds of any liquidation or other distribution by Holdings
pro rata according to the number of Class A Common Units held. After the
holders of the Preferred Units and Class A Common Units have received an
internal rate of return of 30%, inclusive of the Preference Amount, on their
total investment, holders of Class B Common Units will be entitled to
participate with the holders of Class A Common Units in any subsequent
distributions. Similarly, after the holders of the Preferred Units and Class A
Common Units have received an internal rate of return of 35% on their total
investment, holders of Class C Common Units will be entitled to participate
with the holders of Class A Common Units and the holders of Class B Common
Units in any subsequent distributions. The Class B Common Units and Class C
Common Units were issued to members of management to provide them with equity
incentives. The LLC Agreement grants BrightView broad authority in
establishing the magnitude and terms of management's equity participation in
the Company. See Note 11 for information as to the subsequent conversion of
Class B and Class C Common Units.
The LLC Agreement, and therefore Holdings' existence, will continue in
effect until the earlier to occur of: (i) December 3, 2026; (ii) a unanimous
vote to that effect of its Members or their successors in interest; (iii) a
resolution to that effect of the managing member; (iv) the incapacity or
expulsion of the managing member or any other event under the LLC Act which
terminates Holdings unless the Members vote within 90 days to continue
Holdings' existence or (v) the entry of a decree of judicial dissolution under
the LLC Act. Other than as described in (iv) above, the death, retirement,
resignation, expulsion, incapacity, bankruptcy or dissolution of a Member will
not cause a dissolution of Holdings. The Company's limited liability company
agreement contains similar terms governing the Company's continued existence.
During the six months ended June 30, 1997, Holdings received $910,000 in
exchange for the issuance of additional Preferred Units and Common Units. See
Note 9 for a discussion of other transactions concerning Members' Equity.
Additionally, Holdings accrued $15,419,000 for the preferred yield on the
Preferred Units which represents the cumulative compounded yield through June
30, 1997.
8. PROFIT-SHARING RETIREMENT PLAN
Petersen had a profit-sharing retirement plan (the "Plan") for employees,
which was qualified for tax exempt status by the Internal Revenue Service.
Under the Plan, Petersen, at its discretion, made annual contributions for all
eligible employees not to exceed 15% of their aggregate annual compensation.
In November
F-20
<PAGE>
PETERSEN HOLDINGS, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1996, Petersen and the Company entered into an amendment to the Plan, whereby
the Company became a sponsor of the Plan. Both Petersen and the Company agreed
to make contributions to the Plan on behalf of their respective employees
based on compensation paid by each company. However, in connection with the
Acquisition, the Company agreed to make the contribution to the Plan for 1996.
In December 1996, the Company contributed $1,300,000 to the Plan. No
contributions were made during the six months ended June 30, 1997 to the Plan.
In June 1997, the Company agreed to transfer the assets of the Plan into a new
401K Plan (the "New Plan"). Under the New Plan, the Company shall make
matching contributions equal to 50% of the first 6% of the participants' basic
compensation. As of June 30, 1997, $44,000 had been paid representing the
Company's matching contribution.
9. RELATED PARTY TRANSACTIONS
In connection with the Acquisition, the Company entered into employment
agreements with three officers of the Company. Pursuant to these employment
agreements, the officers purchased Common Units and Preferred Units with
promissory notes aggregating approximately $1,950,000. Of this amount,
$200,000 was paid on March 1, 1997 and the balance of each promissory note
will be due and payable on the earlier to occur of: (i) December 31, 2001;
(ii) the termination of the employment with the Company of the officers; or
(iii) a sale of the Company. Such promissory notes bear interest at a rate
equal to the Company's weighted average cost of borrowings. In addition,
Holdings issued to each of the officers additional Common Units without
additional consideration. Such Common Units vest ratably over a period of five
years.
See Note 10 for additional related party transactions.
10. COMMITMENTS AND CONTINGENCIES
Leases
Rent expense includes amounts charged to the Company by a member of Holdings
(the "Member") for the use of various office facilities, including its
corporate headquarters, owned by the Member. The lease governing the corporate
headquarters building had an initial term of 15 years and expires November 30,
2009. In connection with the Acquisition, the Company assumed this lease,
subject to certain reductions to the annual rental amounts and will continue
to pay rent to the Member. The lease provides for lease payments of $341,951
for each monthly period ended before November 30, 1996. For each fiscal year
thereafter, the monthly lease payments will be increased at an annual rate of
approximately 1.75%.
On October 1, 1996, the Company entered into another lease with the Member
for office space located in Chicago, Illinois. The lease expires on September
30, 2005 and provides for monthly lease payments of: (i) $16,500 for the
period from October 1, 1996 to September 30, 1999; (ii) $17,500 for the period
from October 1, 1999 to September 30, 2002; and (iii) $18,500 for October 1,
2002 through the end of the term of the lease. The Company believes such lease
provides for lease payments at a market rate and for terms as favorable to the
Company as could have been negotiated with a third party at arm's length.
In addition to the lease for its corporate headquarters, the Company assumed
other leases for sales offices throughout the United States. In addition to
the annual rentals, certain of these leases include renewal options and
require payments of real estate taxes, insurance and other expenses.
Rent expense is as follows (in thousands):
<TABLE>
<CAPTION>
RELATED
PARTY OTHERS TOTAL
------- ------ ------
<S> <C> <C> <C>
Three months ended December 31, 1996.................. $1,032 $452 $1,484
Six months ended June 30, 1997........................ 2,187 714 2,901
</TABLE>
F-21
<PAGE>
PETERSEN HOLDINGS, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
At June 30, 1997, minimum future annual rentals under long-term leases are
as follows (in thousands):
<TABLE>
<CAPTION>
RELATED
PARTY OTHERS TOTAL
------- ------- -------
<S> <C> <C> <C>
1997 (6 months)...................................... $ 2,193 $ 735 $ 2,928
1998................................................. 4,452 1,348 5,800
1999................................................. 4,530 1,281 5,811
2000................................................. 4,614 1,277 5,891
2001................................................. 4,691 1,277 5,968
Thereafter to 2009................................... 39,181 11,831 51,012
------- ------- -------
Total.............................................. $59,661 $17,749 $77,410
======= ======= =======
</TABLE>
Contingencies
The Company is a party to various legal actions and disputes arising in the
ordinary course of business. Management believes, based on the advice of
counsel, that any resulting liabilities from these actions will not have a
material adverse effect on the financial position of the Company.
11. EVENTS SUBSEQUENT TO JUNE 30, 1997
In July 1997, Holdings' limited liability company agreement was amended to
create new classes of equity securities. The new units (collectively, the
"Class D Common Units") were issued to the holders of the Class B Common Units
and Class C Common Units pro rata according to ownership of the Class B Common
Units and Class C Common Units. In connection with the issuance of the Class D
Common Units in such exchange, Holdings recognized a non-recurring, non-cash
compensation charge of approximately $12.2 million in July 1997.
Additionally, in July 1997 Holdings established the Petersen Holdings,
L.L.C. 1997 Long-Term Equity Incentive Plan (the "Incentive Plan") pursuant to
which Holdings granted, to certain of the Company's employees, options to
purchase Class A Common Units. Such options vest on the fifth year after the
date of issuance. Should certain events occur (including an initial public
offering of the BrightView's common stock pursuant to a registration statement
filed with the Securities and Exchange Commission), the vesting period would
accelerate to an approximate three year vesting period. The exercise price for
each option is $320.685 per Class A Common Unit, which is equal to the fair
market value of each Class A Common Unit as determined by the Board of
Directors of BrightView, acting as Holdings' managing member, at the date of
grant of the options. Holdings is authorized to issue up to 10,000 Class A
Common Units under the Incentive Plan and in July 1997 granted to Company
employees, options to purchase an aggregate of 8,867 Class A Common Units.
12. EVENTS SUBSEQUENT TO JULY 31, 1997
On August 5, 1997, the Board of Directors of BrightView authorized the
filing with the Securities and Exchange Commission of a registration statement
for the sale by BrightView of shares of its Class A Common Stock to the
public. It is contemplated that in connection with the offering, all of
existing securityholders of BrightView and Holdings will enter into an
agreement in which all of Holdings Common Units and Preferred Units and all of
BrightView's common stock will be exchanged for an aggregate of 20,158,362
shares of Class A Common Stock and 7,682,632 shares of Class B Common Stock.
F-22
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors
Petersen Publishing Company
We have audited the accompanying balance sheets of Petersen Publishing
Company, Publishing Division, as of November 30, 1995 and September 30, 1996,
and the related statements of operations and divisional equity, and cash flows
for each of the two years in the period ended November 30, 1995 and for the
ten months ended September 30, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Petersen Publishing
Company, Publishing Division, at November 30, 1995 and September 30, 1996, and
the results of its operations and its cash flows for each of the two years in
the period ended November 30, 1995 and the ten months ended September 30,
1996, in conformity with generally accepted accounting principles.
Ernst & Young LLP
Los Angeles, California
December 16, 1996
F-23
<PAGE>
PETERSEN PUBLISHING COMPANY
PUBLISHING DIVISION
BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NOVEMBER 30, SEPTEMBER 30,
1995 1996
------------ -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................... $ 9,938 $ 12,453
Short-term investments............................ 3,744 55
Accounts receivable, less allowance for doubtful
accounts of $2,220 (1995) and $1,871 (1996)...... 18,535 18,777
Inventories....................................... 21,347 8,518
Current portion of deferred subscription
acquisition costs................................ 38,161 40,313
Other prepaid expenses and current assets......... 1,213 1,431
-------- --------
Total current assets................................ 92,938 81,547
Deferred subscription acquisition costs............. 31,834 33,629
Property and equipment, net......................... 7,784 5,241
Goodwill, net of accumulated amortization of $1,127
(1995) and $1,442 (1996)........................... 3,210 2,924
Other assets........................................ 1,037 1,142
-------- --------
Total assets........................................ $136,803 $124,483
======== ========
LIABILITIES AND DIVISIONAL EQUITY (CAPITAL
DEFICIENCY)
Current liabilities:
Accounts payable.................................. $ 10,436 $ 5,907
Accrued payroll and related costs................. 6,116 5,614
Customer incentives payable....................... 5,204 5,374
Current portion of unearned subscription
revenues......................................... 64,830 66,756
Other accrued expenses and current liabilities.... 592 687
-------- --------
Total current liabilities........................... 87,178 84,338
Unearned subscription revenues...................... 39,017 40,175
Deferred state income taxes......................... 1,321 1,494
Other noncurrent liabilities........................ 660 148
-------- --------
Total liabilities................................... 128,176 126,155
Commitments and contingencies
Divisional equity (capital deficiency).............. 8,627 (1,672)
-------- --------
Total liabilities and divisional equity (capital
deficiency)........................................ $136,803 $124,483
======== ========
</TABLE>
See accompanying notes.
F-24
<PAGE>
PETERSEN PUBLISHING COMPANY
PUBLISHING DIVISION
STATEMENTS OF OPERATIONS AND DIVISIONAL EQUITY (CAPITAL DEFICIENCY)
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS TEN MONTHS
NOVEMBER 30, ENDED ENDED
------------------ JUNE 30, SEPTEMBER 30,
1994 1995 1996 1996
-------- -------- ----------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net revenues:
Advertising.................... $117,433 $124,310 $ 67,397 $112,525
Newsstand...................... 40,048 39,889 21,281 34,318
Subscriptions (net of agency
commissions of $42,000,
$49,503, $26,940 and $45,554
for the years ended November
30, 1994 and 1995, the six
months ended June 30, 1996 and
the ten months ended September
30, 1996, respectively)....... 42,639 43,901 21,828 36,474
Other.......................... 2,672 6,415 4,534 6,297
-------- -------- -------- --------
Total net revenues.............. 202,792 214,515 115,040 189,614
Production, selling and other
direct costs (including rent
paid to a related party of
$3,939, $3,875, $2,298, and
$3,778 in years ended 1994,
1995, the six months ended June
30, 1996 and the ten months
ended September 30, 1996,
respectively).................. 149,586 171,579 91,971 148,874
-------- -------- -------- --------
Gross profit.................... 53,206 42,936 23,069 40,740
General and administrative
expenses....................... 33,267 28,145 12,903 24,650
Amortization of goodwill and
other intangible assets........ 421 433 196 339
-------- -------- -------- --------
Income from operations.......... 19,518 14,358 9,970 15,751
Interest income................. 476 549 238 537
Interest expense................ -- -- (153) (185)
Gain on sale of assets.......... -- -- 1,554 1,554
-------- -------- -------- --------
Income before provision for
income taxes................... 19,994 14,907 11,609 17,657
Provision for state income
taxes.......................... (698) (549) (199) (331)
-------- -------- -------- --------
Net income...................... 19,296 14,358 11,410 17,326
Divisional equity (capital
deficiency) at beginning of
period......................... (1,553) 361 (8,379) 8,627
Distribution of S corporation
earnings....................... (26,400) (3,391) (1,950) (21,470)
Net change in advances to other
divisions of the Company....... 9,018 (2,701) (474) (6,155)
-------- -------- -------- --------
Divisional equity (capital
deficiency) at end of period... $ 361 $ 8,627 $ 607 $ (1,672)
======== ======== ======== ========
</TABLE>
See accompanying notes.
F-25
<PAGE>
PETERSEN PUBLISHING COMPANY
PUBLISHING DIVISION
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS TEN MONTHS
NOVEMBER 30, ENDED ENDED
------------------ JUNE 30, SEPTEMBER 30,
1994 1995 1996 1996
-------- -------- ----------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income...................... $ 19,296 $ 14,358 $ 11,609 $ 17,326
Adjustments to reconcile net
cash provided by operating
activities:
Depreciation and amortization.. 3,118 3,439 1,667 2,704
Allowance for doubtful
accounts...................... 825 900 376 45
Gain on sale of assets......... -- -- (1,554) (1,554)
Deferred state income taxes.... 416 406 209 173
Changes in operating assets and
liabilities:
Accounts receivable........... (1,758) (197) (5,215) (287)
Inventories................... (1,204) (11,846) 11,148 12,829
Deferred subscription
acquisition costs............ (12,593) (5,805) (3,117) (3,947)
Other prepaid expenses and
current assets............... (162) (84) (84) (217)
Other assets.................. 385 (255) 6 (158)
Accounts payable.............. 2,116 2,205 104 (4,529)
Accrued payroll and related
costs........................ 842 (602) 660 (502)
Customer incentives payable... 830 355 353 170
Unearned subscription
revenues..................... 14,135 8,715 6,283 3,084
Other accrued expenses and
current liabilities.......... 1,111 (2,294) 1,455 95
Other noncurrent liabilities.. (298) 298 (92) (513)
-------- -------- -------- --------
Net cash (used in) provided by
operating activities........... 27,059 9,593 23,808 24,719
INVESTING ACTIVITIES
Purchases of property and
equipment...................... (2,866) (4,423) (463) (768)
Purchases of magazines.......... (1,300) -- -- --
Sales of investments............ 7,000 6,677 -- 3,689
Purchases of investments........ (17,312) -- (333) --
Proceeds from sale of assets.... -- -- 2,500 2,500
-------- -------- -------- --------
Net cash (used in) provided by
investing activities........... (14,478) 2,254 1,704 5,421
FINANCING ACTIVITIES
Proceeds from bank borrowing.... -- -- -- 10,000
Repayment of bank borrowing..... -- -- -- (10,000)
Distribution of S corporation
earnings....................... (26,400) (3,391) (1,950) (21,470)
Net change in advances to other
divisions of the Company....... 9,018 (2,701) (475) (6,155)
-------- -------- -------- --------
Net cash used in financing
activities..................... (17,382) (6,092) (2,425) (27,625)
-------- -------- -------- --------
Increase (decrease) in cash and
cash equivalents............... (4,801) 5,755 23,087 2,515
Cash and cash equivalents at
beginning period............... 8,984 4,183 (13,663) 9,938
-------- -------- -------- --------
Cash and cash equivalents at end
of period...................... $ 4,183 $ 9,938 $ 9,424 $ 12,453
======== ======== ======== ========
Supplemental information:
Income taxes paid.............. $ 342 $ 263 $ -- $ 40
Interest received.............. 350 741 238 538
Interest paid.................. -- -- -- 185
</TABLE>
See accompanying notes.
F-26
<PAGE>
PETERSEN PUBLISHING COMPANY
PUBLISHING DIVISION
NOTES TO FINANCIAL STATEMENTS
(Information Related to the Six Months Ended June 30, 1996 is Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Petersen Publishing Company (the "Petersen Company") is a California
corporation which is wholly-owned by the R.E. & M.M. Petersen Living Trust. The
Publishing Division of the Petersen Company ("Petersen") is engaged in the
publishing business with revenues generated primarily from the publication of
various special interest magazines and the sale of related advertising,
principally within the United States. The Petersen Company's other major
division, which is excluded from these financial statements, rents and manages
commercial real estate properties and operates ranch properties.
The Petersen Company has elected to be taxed as an S corporation for federal
and state income tax purposes.
Basis of Presentation
On August 15, 1996, the Company entered into an asset purchase agreement to
sell substantially all of the assets of the Publishing Division to BrightView
Communications Group, Inc. ("BrightView") for approximately $462,800,000
(including costs associated with the Acquisition), plus the assumption of
certain liabilities totaling approximately $49,000,000. The acquisition was
consummated on September 30, 1996.
Although these financial statements present the Publishing Division's balance
sheet as of the time of the sale, these financial statements have been prepared
as if the Publishing Division will continue as a going concern and as a
division of the Company. No adjustments have been made to reflect the purchase
of assets, the assumption of liabilities by BrightView or the expenses incurred
by Petersen Company related to the sale of Petersen.
Certain reclassifications have been made to the 1995 financial statements to
conform to the 1996 presentation.
Cash Equivalents and Short-Term Investments
Cash equivalents consist primarily of debt instruments with maturities of
three months or less at the acquisition date. Short-term investments consist of
state and local government debt securities (considered available-for-sale
securities) with maturities greater than 90 days; however, none of Petersen's
investments have maturities greater than one year. Petersen has no investments
in equity securities. Short-term investments are carried at fair value which
approximates cost.
Inventories
Inventories consist of paper held at a printing company and are stated at the
lower of cost, which approximates the first-in, first-out method, or market.
Deferred Subscription Acquisition Costs
Deferred subscription acquisition costs consist of agency commissions paid to
obtain subscriptions and are amortized over the life of the related
subscriptions ranging from 12 to 36 months.
Depreciation and Amortization
Depreciation is provided on the straight-line method over the estimated
useful lives of the assets ranging from 3 to 5 years except for leasehold
improvements which are amortized over the lesser of 10 years or the life of the
lease.
Goodwill
Goodwill is amortized using the straight-line method over its useful life of
15 years and resulted from the acquisitions of Sport, Bicycle Guide, and Sassy
during fiscal years 1988, 1993, and 1994, respectively.
F-27
<PAGE>
PETERSEN PUBLISHING COMPANY
PUBLISHING DIVISION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(Information Related to the Six Months Ended June 30, 1996 is Unaudited)
Income Taxes
The Petersen Company has elected to be taxed as an S corporation for federal
and state income tax purposes. As such, the Petersen Company is not subject to
U.S. federal income taxes or most state income taxes. Petersen reports the
state income taxes to which it is subject under the liability method as
required by Statement No. 109, "Accounting for Income Taxes," issued by the
Financial Accounting Standards Board ("FASB"). Under this method, deferred tax
assets and liabilities are determined based on differences between financial
reporting and tax bases of assets and liabilities and are measured using the
enacted tax rates and laws that will be in effect when the differences are
expected to reverse.
Revenue Recognition
Advertising revenue, net of provisions for related rebates and discounts, is
recognized at the "on sale" date of the publication containing the
advertisement. Subscription revenue is deferred and recognized pro rata as
fulfilled over the terms of such subscriptions and is recorded net of related
agency commissions. Sales of magazines intended for retail distribution on
newsstands are recorded at the time such publications are available for sale
by distributors to the public and are reduced by an estimated provision for
returns.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Revenues
No customer accounted for over 10% of Petersen's revenues. Petersen's
activities occur principally in the United States and revenues from outside
the United States are less than 10% of Petersen's revenues.
Advertising Expenses
Petersen expenses the costs of advertising as incurred. Advertising expense
(in thousands) for the years ended November 30, 1994 and 1995, the six months
ended June 30, 1996 and the ten months ended September 30, 1996, were $495,
$732, $351 and $700, respectively.
General and Administrative Expenses
General and administrative expenses incurred by the Petersen Company were
allocated between Petersen and the Real Estate Division with the Real Estate
Division's portion equal to 3% of that Division's revenue which, in the
opinion of Petersen's management, approximates the portion of such expenses
which apply to the Real Estate Division.
2. FAIR VALUE OF FINANCIAL INSTRUMENTS
In accordance with the requirements of Statement of Financial Accounting
Standards No. 107, "Disclosures about Fair Value of Financial Instruments,"
the following methods and assumptions were used by Petersen in estimating its
fair value disclosures for financial instruments:
Cash and Cash equivalents: The carrying amounts reported in the balance
sheets approximate its fair value.
Short-term investments: The carrying amounts reported in the balance
sheets approximate their fair value based upon quoted market prices.
F-28
<PAGE>
PETERSEN PUBLISHING COMPANY
PUBLISHING DIVISION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(Information Related to the Six Months Ended June 30, 1996 is Unaudited)
3. INVENTORIES
Inventories consist of (in thousands):
<TABLE>
<CAPTION>
NOVEMBER 30, SEPTEMBER 30,
1995 1996
------------ -------------
<S> <C> <C>
Paper........................................... $16,330 $3,933
Magazines in process............................ 5,017 4,585
------- ------
$21,347 $8,518
======= ======
</TABLE>
4. PROPERTY AND EQUIPMENT
Property and equipment consists of (in thousands):
<TABLE>
<CAPTION>
NOVEMBER 30, SEPTEMBER 30,
1995 1996
------------ -------------
<S> <C> <C>
Buildings..................................... $ 518 $ 436
Machinery and equipment....................... 14,164 12,057
Office furniture and fixtures................. 6,447 6,189
------- -------
21,129 18,682
Less accumulated depreciation and
amortization................................. 13,345 13,441
------- -------
$ 7,784 $ 5,241
======= =======
</TABLE>
In February 1996, Petersen sold all of its assets relating to its pre-press
operations for approximately $2,500,000 in cash, resulting in a gain of
$1,554,000.
In March 1995, the Financing Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS No.
121"), which became effective for the Company in 1996. The Company does not
expect the adoption of SFAS No. 121 to have a material impact on the Company's
financial position or results of operations.
5. NOTES PAYABLE
As of November 30, 1995, the Petersen Company had $3,000,000 available under
an unsecured revolving line of credit (the "Agreement"). During the ten months
ended September 30, 1996, the Company renegotiated the terms of the Agreement
increasing the amount available under the line to $10,000,000 and borrowed
$10,000,000. The Agreement expires on December 27, 1996 and provides for
interest at a fluctuating rate equal to the London Inter-bank Offered Rate
plus 1.0% and is payable quarterly. The Agreement contains certain financial
and nonfinancial covenants. The borrowings were repaid in full in March 1996.
6. INCOME TAXES
The liability for federal income taxes of an S corporation is the obligation
of the Petersen Company's stockholder. Therefore, no provision or liability
for federal income taxes is included in the accompanying financial statements.
The provision for income taxes is comprised of California franchise taxes at a
rate of 1.5%, which is the rate applicable to taxable income of S
corporations, and provisions for income taxes in certain other states in which
Petersen has operations.
F-29
<PAGE>
PETERSEN PUBLISHING COMPANY
PUBLISHING DIVISION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(Information Related to the Six Months Ended June 30, 1996 is Unaudited)
The provision for income taxes consists of the following (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS TEN MONTHS
NOVEMBER 30, ENDED ENDED
------------- JUNE 30, SEPTEMBER 30,
1994 1995 1996 1996
------ ------ ---------- -------------
<S> <C> <C> <C> <C>
State:
Current........................... $ 282 $ 143 $ 95 $158
Deferred.......................... 416 406 104 173
------ ------ ---- ----
$ 698 $ 549 $199 $331
====== ====== ==== ====
</TABLE>
A reconciliation of the provision for income taxes computed by applying the
federal statutory rate of 34% to income before income taxes and the reported
provision for income taxes is as follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS TEN MONTHS
NOVEMBER 30, ENDED ENDED
---------------- JUNE 30, SEPTEMBER 30,
1994 1995 1996 1996
------- ------- ---------- -------------
<S> <C> <C> <C> <C>
Income tax provision computed
at statutory federal income
tax rate.................... $ 6,798 $ 5,068 $ 3,947 $ 6,003
State income taxes........... 698 549 199 331
Effect of S Corporation
election.................... (6,798) (5,068) (3,947) (6,003)
------- ------- ------- -------
Total provision............ $ 698 $ 549 $ 199 $ 331
======= ======= ======= =======
</TABLE>
Petersen had deferred tax assets and liabilities as follows (in thousands):
<TABLE>
<CAPTION>
NOVEMBER 30, SEPTEMBER 30,
1995 1996
------------ -------------
<S> <C> <C>
Deferred tax asset:
Accrued liabilities........................... $ 220 $ 205
Deferred tax liabilities:
Subscription acquisition costs................ (1,541) (1,699)
------- -------
Total deferred income tax liability......... $(1,321) $(1,494)
======= =======
</TABLE>
7. PROFIT-SHARING RETIREMENT PLAN
The Petersen Company has a profit-sharing retirement plan (the "Plan") for
employees, which has been qualified for tax exempt status by the Internal
Revenue Service. Under the Plan, the Petersen Company may, at its discretion,
make annual contributions for all eligible employees not to exceed 15% of
their aggregate annual compensation. Petersen's contributions (in thousands)
to the Plan for the years ended November 30, 1994 and 1995, the six months
ended June 30, 1996 and the ten months ended September 30, 1996 were $3,271
$1,294, none and $1,083, respectively.
F-30
<PAGE>
PETERSEN PUBLISHING COMPANY
PUBLISHING DIVISION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(Information Related to the Six Months Ended June 30, 1996 is Unaudited)
8. COMMITMENTS AND CONTINGENCIES
Leases
Rent expense through November 30, 1994 includes amounts charged by the
Petersen Company's Real Estate Division to Petersen for the use of various
office facilities owned by the Petersen Company which were used by Petersen
for its principal operating and corporate headquarters. As of that date, the
Petersen Company sold its corporate headquarters building, which was first
occupied by Petersen in March 1993, to its stockholder and subsequent thereto
Petersen's rent for this facility has been paid to the Petersen Company's
stockholder in accordance with a lease which had an initial term of 15 years
and expires November 30, 2009.
In addition to the annual rentals, certain of the leases include renewal
options and require payments of real estate taxes, insurance and other
expenses.
Rent expense is as follows (in thousands):
<TABLE>
<CAPTION>
REAL ESTATE
DIVISION OR
SHAREHOLDER OTHERS TOTAL
----------- ------ ------
<S> <C> <C> <C>
Year ended November 30:
1994........................................... $3,939 $1,130 $5,069
1995........................................... 3,875 1,575 5,450
Six months ended June 30, 1996................... 2,298 606 2,904
Ten months ended September 30, 1996.............. 3,778 1,627 5,405
</TABLE>
At September 30, 1996, minimum future annual rentals under long-term leases
are as follows (in thousands):
<TABLE>
<CAPTION>
SHAREHOLDER OTHERS TOTAL
----------- ------ -------
<S> <C> <C> <C>
1996 (Two months ended November 30)............ $ 766 $ 195 $ 961
1997........................................... 4,676 1,101 5,777
1998........................................... 4,758 906 5,664
1999........................................... 4,841 850 5,691
2000........................................... 4,926 850 5,776
2001........................................... 5,012 850 5,862
Thereafter to 2009............................. 43,387 2,337 45,724
------- ------ -------
$68,366 $7,089 $75,455
======= ====== =======
</TABLE>
Contingencies
Petersen is a party to various legal actions and disputes arising in the
ordinary course of business. Management believes, based on the advice of
counsel, that any resulting liabilities from these actions will not have a
material adverse effect on the financial position of Petersen.
F-31
<PAGE>
[INSIDE BACK COVER PAGE GRAPHICS: PICTURES OF VARIOUS TRADEMARKS OF THE COMPANY
INCLUDING A SAMPLE PAGE FROM THE MOTOR TREND INTERNET WEB SITE AND A SAMPLE
TELEVISION SCREEN FROM THE MOTOR TREND TELEVISION SHOW.]
<PAGE>
[LOGO OF PETERSEN]
[The Petersen Companies, Inc.]
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+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. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS (Subject to Completion)
Issued September 24, 1997
6,250,000 Shares
[LOGO]
The Petersen Companies, Inc.
CLASS A COMMON STOCK
----------
ALL OF THE 6,250,000 SHARES OF CLASS A COMMON STOCK OFFERED HEREBY ARE BEING
SOLD BY THE COMPANY. OF THE 6,250,000 SHARES OF CLASS A COMMON STOCK BEING
OFFERED HEREBY, 1,250,000 SHARES ARE BEING OFFERED INITIALLY OUTSIDE THE
UNITED STATES AND CANADA BY THE INTERNATIONAL UNDERWRITERS AND 5,000,000
SHARES ARE BEING OFFERED INITIALLY IN THE UNITED STATES AND CANADA BY THE
U.S. UNDERWRITERS. SEE "UNDERWRITERS." PRIOR TO THE OFFERING, THERE HAS
BEEN NO PUBLIC MARKET FOR THE CLASS A COMMON STOCK OF THE COMPANY. IT IS
CURRENTLY ESTIMATED THAT THE INITIAL PUBLIC OFFERING PRICE PER SHARE
WILL BE BETWEEN $15 AND $17. SEE "UNDERWRITERS" FOR A DISCUSSION OF
THE FACTORS TO BE CONSIDERED IN DETERMINING THE INITIAL PUBLIC
OFFERING PRICE.
----------
THE COMPANY HAS TWO CLASSES OF AUTHORIZED COMMON STOCK CONSISTING OF THE CLASS
A COMMON STOCK OFFERED HEREBY AND CLASS B COMMON STOCK. SEE "DESCRIPTION OF
CAPITAL STOCK." HOLDERS OF CLASS A COMMON STOCK ARE ENTITLED TO ONE VOTE PER
SHARE ON EACH MATTER SUBMITTED TO A VOTE OF STOCKHOLDERS. THE CLASS B
COMMON STOCK IS NON-VOTING EXCEPT UNDER CERTAIN LIMITED CIRCUMSTANCES AND
AS REQUIRED BY LAW. ALL HOLDERS OF COMMON STOCK ARE ENTITLED TO RECEIVE
SUCH DIVIDENDS AND DISTRIBUTIONS, IF ANY, AS MAY BE DECLARED FROM TIME
TO TIME BY THE BOARD OF DIRECTORS. UPON COMPLETION OF THE OFFERING,
AFFILIATES OF THE COMPANY WILL RETAIN APPROXIMATELY 70% OF THE
OUTSTANDING VOTING POWER. SEE "PRINCIPAL STOCKHOLDERS."
----------
THE CLASS A COMMON STOCK HAS BEEN APPROVED FOR LISTING, SUBJECT TO OFFICIAL
NOTICE OF ISSUANCE, ON THE NEW YORK STOCK EXCHANGE, UNDER THE SYMBOL "PTN."
----------
SEE "RISK FACTORS" BEGINNING ON PAGE 12 FOR INFORMATION THAT SHOULD
BE CONSIDERED BY PROSPECTIVE INVESTORS.
----------
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.
----------
PRICE $ A SHARE
----------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS (1) COMPANY (2)
-------- --------------- -----------
<S> <C> <C> <C>
Per Share.................................. $ $ $
Total (3).................................. $ $ $
</TABLE>
- -----
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriters."
(2) Before deducting expenses payable by the Company, estimated at
$1,500,000.
(3) The Company has granted to the U.S. Underwriters an option, exercisable
within 30 days of the date hereof, to purchase up to an aggregate of
937,500 additional Shares of Class A Common Stock at the Price to Public
less Underwriting Discounts and Commissions, for the purpose of covering
over-allotments, if any. If the U.S. Underwriters exercise such option
in full, the total Price to Public, Underwriting Discounts and
Commissions and Proceeds to Company will be $ , $ and $ ,
respectively. See "Underwriters."
----------
The Shares of Class A Common Stock are offered, subject to prior sale, when,
as and if accepted by the Underwriters named herein and subject to approval of
certain legal matters by O'Melveny & Myers LLP, counsel for the Underwriters.
It is expected that delivery of the Shares will be made on or about , 1997 at
the office of Morgan Stanley & Co. Incorporated, New York, N.Y., against
payment therefor in immediately available funds.
----------
MORGAN STANLEY DEAN WITTER DONALDSON, LUFKIN & JENRETTE
INTERNATIONAL
BT ALEX. BROWN INTERNATIONAL GOLDMAN SACHS INTERNATIONAL
, 1997
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following is a statement of estimated expenses, to be paid solely by the
Company, of the issuance and distribution of the securities being registered:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee............. $ 52,273
NASD filing fee................................................. 17,750
NYSE original listing fee....................................... 189,600
Blue Sky fees and expenses (including attorneys' fees and ex-
penses)........................................................ 20,000
Printing expenses............................................... 300,000
Accounting fees and expenses.................................... 300,000
Transfer agent's fees and expenses.............................. 10,000
Legal fees and expenses......................................... 400,000
Miscellaneous expenses (including certain anticipated roadshow
expenses)...................................................... 210,377
----------
Total......................................................... $1,500,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company is incorporated under the laws of the State of Delaware. Section
145 of the General Corporation Law of the State of Delaware, inter alia,
("Section 145") provides that a Delaware corporation may indemnify any persons
who were, are or are threatened to be made, parties to any threatened, pending
or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of
such corporation), by reason of the fact that such person is or was an
officer, director, employee or agent of such corporation, or is or was serving
at the request of such corporation as a director, officer employee or agent of
another corporation or enterprise. The indemnity may include expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such
action, suit or proceeding, provided such person acted in good faith and in a
manner he reasonably believed to be in or not opposed to the corporation's
best interests and, with respect to any criminal action or proceeding, had no
reasonable cause to believe that his conduct was illegal. A Delaware
corporation may indemnify any persons who are, were or are threatened to be
made, a party to any threatened, pending or completed action or suit by or in
the right of the corporation by reasons of the fact that such person was a
director, officer, employee or agent of such corporation, or is or was serving
at the request of such corporation as a director, officer, employee or agent
of another corporation or enterprise. The indemnity may include expenses
(including attorneys' fees) actually and reasonably incurred by such person in
connection with the defense or settlement of such action or suit, provided
such person acted in good faith and in a manner he reasonably believed to be
in or not opposed to the corporation's best interests, provided that no
indemnification is permitted without judicial approval if the officer,
director, employee or agent is adjudged to be liable to the corporation. Where
an officer, director, employee or agent is successful on the merits or
otherwise in the defense of any action referred to above, the corporation must
indemnify him against the expenses which such officer or director has actually
and reasonably incurred.
The Company's Certificate of Incorporation provides that, to the fullest
extent permitted by the General Corporation Law of the State of Delaware as
the same exists or may hereafter be amended, a director of the Company shall
not be liable to the Company or its stockholders for monetary damages for a
breach of fiduciary duty as a director.
Article V of the By-laws of the Company ("Article V") provides, among other
things, that each person who was or is made a party or is threatened to be
made a party to or is involved in any action, suit or proceeding,
II-1
<PAGE>
whether civil, criminal, administrative or investigative, by reason of the
fact that he or a person of whom he is the legal representative, is or was a
director or officer, of the corporation or is or was serving at the request of
the Company as a director, officer, employee, fiduciary, or agent of another
corporation or of a partnership, joint venture, trust or other enterprise,
shall be indemnified and held harmless by the Company to the fullest extent
which it is empowered to do so by the General Corporation Law of the State of
Delaware, as the same exists or may hereafter be amended (but, in the case of
any such amendment, only to the extent that such amendment permits the Company
to provide broader indemnification rights than said law' permitted the Company
to provide prior to such amendment) against all expense, liability and loss
(including attorneys' fees actually and reasonably incurred by such person in
connection with such proceeding, and such indemnification shall inure to the
benefit of his or her heirs, executors and administrators; provided, however,
that, the Company shall indemnify any such person seeking indemnification in
connection with a proceeding initiated by such person only if such proceeding
was authorized by the board of directors of the Company.
Article V also provides that persons who are not covered by the foregoing
provisions of Article V and who are or were employees or agents of the
Company, or who are or were serving at the request of the Company as employees
or agents of another corporation, partnership, joint venture, trust or other
enterprise, may be indemnified to the extent authorized at any time or from
time to time by the board of directors.
Section 145 further authorizes a corporation to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee
or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation
or enterprise, against any liability asserted against him and incurred by him
in any such capacity, arising out of his status as such, whether or not the
corporation would otherwise have the power to indemnify him under Section 145.
Article V further provides that the Company may purchase and maintain
insurance on its own behalf and on behalf of any person who is or was a
director, officer, employee, fiduciary, or agent of the Company or was serving
at the request of the Company as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
against any liability asserted against him or her and incurred by him or her
in any such capacity, whether or not the Company would have the power to
indemnify such person against such liability under Article V.
Under the Securityholders Agreement, the Company agrees to indemnify certain
of its directors and officers against certain liabilities, including
liabilities under the Securities Act.
II-2
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
On September 30, 1996, the Company sold an aggregate of 2,106 shares of
Class A Common Stock and 1,200 shares of Class B Common Stock for $500 per
share pursuant to the terms of a Securities Purchase Agreement dated as of the
date thereof. The following persons purchased such shares in the amounts set
forth opposite their names:
<TABLE>
<CAPTION>
CLASS A COMMON STOCK CLASS B COMMON STOCK
-------------------- ----------------------
NAME SHARES NAME SHARES
---- ------ ---- ------
<S> <C> <C> <C>
Willis Stein & Partners
L.P. .................. 1,000 Chase Equity Associates, L.P. ........... 300
Petersen Properties Com-
pany................... 500 BankAmerica Investment Corporation ...... 360
Allstate Insurance Com-
pany................... 300 CIVC Partners II......................... 40
Norwest Equity Capital,
L.L.C. ................ 100 CIBC WG Argosy Merchant Fund 2, L.L.C. .. 250
Nassau Capital Partners
II, L.P. .............. 99.5 FUI, Inc. ............................... 250
NAS Partners I,
L.L.C. ................ .5
James D. Dunning, Jr. .. 42
The Laurence and Cindy
Bloch Trust............ 20
Stuart Karu............. 20
Thomas J. Strauss....... 1
Irwin Bard.............. 10
Bernard Shavitz......... 3
D. Claeys Bahrenburg.... 10
----- -----
Total................. 2,106 Total.................................... 1,200
===== =====
</TABLE>
In connection with the execution of their respective Employment Agreements
on September 30, 1996, the Company sold an aggregate of 41 shares of Class A
Common Stock at a price of $500 per share to the following executive officers:
<TABLE>
<CAPTION>
NAME SHARES
---- ------
<S> <C>
D. Claeys Bahrenburg............................................ 20
Neal Vitale..................................................... 15
Richard S Willis................................................ 6
On February 10, 1997, the Company sold an aggregate of 11.2 shares of Class
A Common Stock at a price of $500 per share to the following employees of the
Company:
<CAPTION>
NAME SHARES
---- ------
<S> <C>
Richard P. Lague................................................ 2
John Dianna..................................................... 2
Lee Kelley...................................................... 0.2
Paul J. Tzimoulis............................................... 2
David Myers..................................................... 1
Ken Elliott..................................................... 1
Jay Cole........................................................ 1
James D. Dunning III Trust...................................... 1
David F. Dunning Trust.......................................... 1
On June 13, 1997, the Company sold an aggregate of 6 shares of Class A
Common Stock at a price of $550 per share to the following employees of the
Company:
<CAPTION>
NAME SHARES
---- ------
<S> <C>
James Guthrie................................................... 2
Charlotte A. Perkins............................................ 1
Amy P. Wilkins.................................................. 1
Justin McCormack................................................ 2
</TABLE>
II-3
<PAGE>
Immediately prior to and contingent upon the consummation of the Offering,
the Company will effect the Reorganization whereby, among other things, all of
the existing securityholders of the Company and Petersen will enter into a
Contribution and Recapitalization Agreement (the "Recapitalization Agreement")
pursuant to which, among other things, each existing securityholder will
contribute all of its Preferred Units and Common Units of Petersen and common
stock of the Company to the Company in exchange for newly-issued shares of
Common Stock. Pursuant to the Recapitalization Agreement, the existing
securityholders of Petersen Holdings L.L.C. will receive an aggregate of
27,840,994 shares of Common Stock of the Company (assuming an initial public
offering price of $16 per share).
Except as set forth above, the Company has not sold any securities. All of
the transactions described above were effected in reliance upon the exemption
from the registration requirement of the Securities Act contained in Section
4(2) of the Securities Act and Regulation D and Rule 701 promulgated
thereunder on the basis such transactions did not involve any public offering.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS.
<TABLE>
<C> <S>
**1.1 Form of Underwriting Agreement.
2.1 Form of Contribution and Recapitalization Agreement by and among the
Company, Petersen, Publishing and all of the Company's existing
stockholders.
3.1 Form of Restated Certificate of Incorporation of the Company.
3.2 Form of Amended and Restated By-Laws of the Company.
**4.1 Indenture, dated as of November 15, 1996, by and among Petersen,
Publishing, Capital and United States Trust Company of New York, as
trustee.
**4.2 Forms of 11 1/8% Senior Subordinated Notes and Series B 11 1/8%
Senior Subordinated Notes.
**4.3 Securities Purchase Agreement, dated November 20, 1996, by and among
Petersen, Capital, Publishing and the Initial Purchasers.
**4.4 Credit Agreement, dated as of September 30, 1996, by and among
Publishing, the Lenders named therein, First Union National Bank of
North Carolina ("First Union"), as Administrative Agent and
Syndication Agent and CIBC, Inc., as Documentation Agent.
**4.5 Pledge and Security Agreement, dated as of September 30, 1996, by and
between Publishing and First Union, as Administrative Agent.
**4.6 Pledge and Security Agreement, dated as of September 30, 1996, by and
among the Company, Petersen and First Union, as Administrative Agent.
**4.7 Guaranty, dated as of September 30, 1996, by and among the Company,
Petersen and First Union, as Administrative Agent.
**4.8 Senior Subordinated Credit Agreement, dated as of September 30, 1996,
among Publishing, the guarantors named therein, the Lenders named
therein and First Union, as Agent.
**4.9 Registration Rights Agreement, dated November 20, 1996, by and among
Publishing, Capital and the Initial Purchasers named therein.
4.10 Specimen of Class A Common Stock.
**4.11 Term sheet relating to the New Credit Facility.
5.1 Opinion and consent of Kirkland & Ellis.
8.1 Opinion of Kirkland & Ellis regarding certain tax matters.
**10.1 License Agreement, dated as of August 15, 1996, by and between Robert
E. Petersen, the Company and the Seller.+
**10.2 Employment Agreement, dated as of August 15, 1996, by and between the
Company and Robert E. Petersen.+
**10.3 Executive Securities Purchase and Employment Agreement, dated as of
September 30, 1996, by and among the Company, Petersen, Publishing
and D. Claeys Bahrenburg.+
**10.4 Executive Securities Purchase and Employment Agreement, dated as of
September 30, 1996, by and among the Company, Petersen, Publishing
and Neal Vitale.+
**10.5 Securities Purchase Agreement, dated as of September 30, 1996, made
by and among Petersen, Petersen Investment Corp., the Company, the
Seller, Willis Stein & Partners, L.P., and the other Persons set
forth on Schedule A thereto.+
10.6 Reserved.
**10.7 Securityholders Agreement, dated as of September 30, 1996, among
Petersen Investment Corp., Petersen, the Company and the other
parties thereto.+
</TABLE>
II-4
<PAGE>
<TABLE>
<C> <S>
**10.8 Promissory Note, dated as of September 30, 1996, from D. Claeys
Bahrenburg in favor of the Company in the amount of $8,000.+
**10.9 Promissory Note, dated as of September 30, 1996, from D. Claeys
Bahrenburg in favor of the Company in the amount of $2,000.+
**10.10 Promissory Note, dated as of September 30, 1996, from D. Claeys
Bahrenburg in favor of Petersen in the amount of $891,000.+
**10.11 Promissory Note, dated as of September 30, 1996, from D. Claeys
Bahrenburg in favor of Petersen in the amount of $99,000.+
**10.12 Promissory Note, dated as of September 30, 1996, from Neal Vitale in
favor of the Company in the amount of $7,500.+
**10.13 Promissory Note, dated as of September 30, 1996, from Neal Vitale in
favor of Petersen in the amount of $742,500.+
**10.14 Asset Purchase Agreement, dated as of August 15, 1996, by and
between the Company (formerly known as BrightView Communications
Group, Inc.) and Petersen Publishing Company (the "Seller"), as
amended by the Letter Agreement, dated as of September 30, 1996, by
and among the Seller, the Company, Petersen and Publishing,
incorporated by reference to Exhibit 2.1 of the Registration
Statement on Form S-4 (333-18017) of Petersen, Publishing and
Petersen Capital Corp.
*10.15 The Petersen Companies, Inc. 1997 Long-Term Equity Incentive Plan.
*10.16 The Petersen Companies, Inc. Employee Stock Discount Purchase Plan.
10.17 Agreement, dated as of July 31, 1997, between and among Petersen,
the Company, Publishing and Messrs. Dunning, Bloch, Karu, Vitale and
R. Willis.
*10.18 Petersen Holdings, L.L.C. 1997 Long-Term Equity Incentive Plan.
10.19 Form of Amendment No. 1 to Securityholders Agreement, among Petersen
Investment Corp., Petersen, the Company and the other parties
thereto.
11.1 Calculation of Earnings Per Share.
**21.1 Subsidiaries of the Company.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Kirkland & Ellis (included in Exhibit 5.1).
**24.1 Powers of Attorney.
**27.1 Financial Data Schedule.
</TABLE>
- --------
* To be filed by amendment.
**Previously filed.
+ Incorporated by reference to the same numbered exhibit to the Registration
Statement on S-4 (Registration No. 333-18017) of Petersen, Publishing and
Petersen Capital Corp.
(B) FINANCIAL STATEMENT SCHEDULES.
Schedule II--Petersen Holdings, L.L.C.--Valuation and Qualifying Accounts.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes to provide to the underwriter
at closing specified in the underwriting agreement certificates in such
denominations and registered in such names as requested by the Underwriter to
permit prompt delivery to each purchaser.
The undersigned registrant hereby undertakes:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For purposes of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating
II-5
<PAGE>
to the securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Securities Act") may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other
than the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-6
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE PETERSEN
COMPANIES, INC., HAS DULY CAUSED THIS AMENDMENT NO. 2 TO REGISTRATION
STATEMENT ON FORM S-1 TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO
DULY AUTHORIZED, IN THE CITY OF LOS ANGELES, STATE OF CALIFORNIA, ON SEPTEMBER
23, 1997.
THE PETERSEN COMPANIES, INC.
/s/ Neal Vitale
By: _________________________________
NEAL VITALEPRESIDENT
* * * *
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 2 TO REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN
THE CAPACITIES AND ON THE DATES INDICATED:
SIGNATURE CAPACITY DATE
* Chairman of the Board
- ------------------------------------- and Chief Executive September 23,
JAMES D. DUNNING, JR. Officer (Principal 1997
Executive Officer)
/s/ Richard S Willis Executive Vice
- ------------------------------------- President--Chief September 23,
RICHARD S WILLIS Financial Officer and 1997
Director (Principal
Financial and
Accounting Officer)
* Director
- ------------------------------------- September 23,
D. CLAEYS BAHRENBERG 1997
/s/ Neal Vitale Director
- ------------------------------------- September 23,
NEAL VITALE 1997
* Director
- ------------------------------------- September 23,
LAURENCE H. BLOCH 1997
* Director
- ------------------------------------- September 23,
AVY H. STEIN 1997
* Director
- ------------------------------------- September 23,
DANIEL H. BLUMENTHAL 1997
* Director
- ------------------------------------- September 23,
STUART KARU 1997
* Director
- ------------------------------------- September 23,
1997
JOHN A. WILLIS
* The undersigned, by signing his name hereto, does sign and execute this
Amendment No. 2 to Registration Statement pursuant to the Power of Attorney
executed by the above-named officers and Directors and filed with the
Securities and Exchange Commission on behalf of such officers and Directors.
/s/ Neal Vitale
- -------------------------------------
NEAL VITALE, ATTORNEY-IN-FACT
II-7
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We have audited the consolidated financial statements of Petersen Holdings,
LLC as of December 31, 1996 and June 30, 1997, and for the three months ended
December 31, 1996 and the six months ended June 30, 1997, and have issued our
report thereon dated July 31, 1997, except as to Note 12 as to which the date
is September 12, 1997 (included elsewhere in this Registration Statement). Our
audits also included the financial statement schedule listed in Item 16(b) of
this Registration Statement. These schedules are the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
Ernst & Young LLP
Los Angeles, California
July 31, 1997, except as to
Note 12 as to which the date
is
September 12, 1997
S-1
<PAGE>
PETERSEN HOLDINGS, L.L.C.
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C--ADDITIONS COLUMN D COLUMN E
- --------------------------- ---------- ------------------- ---------- ---------
BALANCE AT CHARGED TO CHARGED BALANCE
BEGINNING COSTS AND TO OTHER AT END
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD
- --------------------------- ---------- ---------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Reserves and allowances
deducted from assets
accounts:
Allowance for doubtful
accounts of Petersen
Holdings, L.L.C.:
Three months ended Decem-
ber 31, 1996............ $1,871 -- -- $(267)(a) $1,604
Six months ended June 30,
1997.................... $1,604 $828 -- $(710)(a) $1,722
</TABLE>
- --------
(a) Represents amounts written-off against the allowance for doubtful accounts,
net of recoveries.
S-2
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
**1.1 Form of Underwriting Agreement.
2.1 Form of Contribution and Recapitalization Agreement by and among the
Company, Petersen, Publishing and all of the Company's existing
stockholders.
3.1 Form of Restated Certificate of Incorporation of the Company.
3.2 Form of Amended and Restated By-Laws of the Company.
**4.1 Indenture, dated as of November 15, 1996, by and among Petersen,
Publishing, Capital and United States Trust Company of New York, as
trustee.
**4.2 Forms of 11 1/8% Senior Subordinated Notes and Series B 11 1/8% Senior
Subordinated Notes.
**4.3 Securities Purchase Agreement, dated November 20, 1996, by and among
Petersen, Capital, Publishing and the Initial Purchasers.
**4.4 Credit Agreement, dated as of September 30, 1996, by and among
Publishing, the Lenders named therein, First Union National Bank of
North Carolina ("First Union"), as Administrative Agent and
Syndication Agent and CIBC, Inc., as Documentation Agent.
**4.5 Pledge and Security Agreement, dated as of September 30, 1996, by and
between Publishing and First Union, as Administrative Agent.
**4.6 Pledge and Security Agreement, dated as of September 30, 1996, by and
among the Company, Petersen and First Union, as Administrative Agent.
**4.7 Guaranty, dated as of September 30, 1996, by and among the Company,
Petersen and First Union, as Administrative Agent.
**4.8 Senior Subordinated Credit Agreement, dated as of September 30, 1996,
among Publishing, the guarantors named therein, the Lenders named
therein and First Union, as Agent.
**4.9 Registration Rights Agreement, dated November 20, 1996, by and among
Publishing, Capital and the Initial Purchasers named therein.
4.10 Specimen of Class A Common Stock.
**4.11 Term sheet relating to the New Credit Facility.
5.1 Opinion and consent of Kirkland & Ellis.
8.1 Opinion of Kirkland & Ellis regarding certain tax matters.
**10.1 License Agreement, dated as of August 15, 1996, by and between Robert
E. Petersen, the Company and the Seller.+
**10.2 Employment Agreement, dated as of August 15, 1996, by and between the
Company and Robert E. Petersen.+
**10.3 Executive Securities Purchase and Employment Agreement, dated as of
September 30, 1996, by and among the Company, Petersen, Publishing and
D. Claeys Bahrenburg.+
**10.4 Executive Securities Purchase and Employment Agreement, dated as of
September 30, 1996, by and among the Company, Petersen, Publishing and
Neal Vitale.+
**10.5 Securities Purchase Agreement, dated as of September 30, 1996, made by
and among Petersen, Petersen Investment Corp., the Company, the
Seller, Willis Stein & Partners, L.P., and the other Persons set forth
on Schedule A thereto.+
10.6 Reserved.
**10.7 Securityholders Agreement, dated as of September 30, 1996, among
Petersen Investment Corp., Petersen, the Company and the other parties
thereto.+
**10.8 Promissory Note, dated as of September 30, 1996, from D. Claeys
Bahrenburg in favor of the Company in the amount of $8,000.+
**10.9 Promissory Note, dated as of September 30, 1996, from D. Claeys
Bahrenburg in favor of the Company in the amount of $2,000.+
**10.10 Promissory Note, dated as of September 30, 1996, from D. Claeys
Bahrenburg in favor of Petersen in the amount of $891,000.+
**10.11 Promissory Note, dated as of September 30, 1996, from D. Claeys
Bahrenburg in favor of Petersen in the amount of $99,000.+
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
**10.12 Promissory Note, dated as of September 30, 1996, from Neal Vitale in
favor of the Company in the amount of $7,500.+
**13.13 Promissory Note, dated as of September 30, 1996, from Neal Vitale in
favor of Petersen in the amount of $742,500.+
**10.14 Asset Purchase Agreement, dated as of August 15, 1996, by and between
the Company (formerly known as BrightView Communications Group, Inc.)
and Petersen Publishing Company (the "Seller"), as amended by the
Letter Agreement, dated as of September 30, 1996, by and among the
Seller, the Company, Petersen and Publishing, incorporated by
reference to Exhibit 2.1 of the Registration Statement on Form S-4
(333-18017) of Petersen, Publishing and Petersen Capital Corp.
*10.15 The Petersen Companies, Inc. 1997 Long-Term Equity Incentive Plan.
*10.16 The Petersen Companies, Inc. Employee Stock Discount Purchase Plan.
10.17 Agreement, dated as of July 31, 1997, between and among Petersen, the
Company, Publishing and Messrs. Dunning, Bloch, Karu, Vitale and R.
Willis.
*10.18 Petersen Holdings, L.L.C. 1997 Long-Term Equity Incentive Plan.
10.19 Form of Amendment No. 1 to Securityholders Agreement, among Petersen
Investment Corp., Petersen, the Company and the other parties thereto.
11.1 Calculation of Earnings Per Share.
**21.1 Subsidiaries of the Company.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Kirkland & Ellis (included in Exhibit 5.1).
**24.1 Powers of Attorney.
**27.1 Financial Data Schedule.
</TABLE>
- --------
* To be filed by amendment.
**Previously filed.
+ Incorporated by reference to the same numbered exhibit to the Registration
Statement on S-4 (Registration No. 333-18017) of Petersen, Publishing and
Petersen Capital Corp.
<PAGE>
EXHIBIT 2.1
CONTRIBUTION AND RECAPITALIZATION AGREEMENT
-------------------------------------------
This Contribution and Recapitalization Agreement (this "Agreement") is
made as of September __, 1997, by and among The Petersen Companies, Inc., a
Delaware corporation (the "Company"), Willis Stein & Partners, L.P. ("Willis
Stein"), Nassau Capital Partners II, L.P. ("Nassau") and NAS Partners I, L.L.C.
("NAS" and, together with Willis Stein and Nassau, the "PIC Investors"), and
each of the other Persons listed on the Schedule of Investors attached hereto
(each, a "Holdings Investor" and all of such Persons, collectively, the
"Holdings Investors"). The PIC Investors and the Holdings Investors are
collectively referred to herein as the "Investors." Capitalized terms used
herein and not otherwise defined herein have the meanings given to such terms in
Section 8 below.
The Investors hold all of the outstanding capital stock of the Company
and, with the Company, hold directly or indirectly all of the membership
interests in Petersen Holdings, L.L.C., a Delaware limited liability company
("Holdings"), Petersen Publishing Company, L.L.C., a Delaware limited liability
company ("Publishing"), and Petersen Investment Corp., a Delaware corporation
("PIC"). The Company and the Investors desire to consummate the transactions
contemplated by this Agreement in order to facilitate an initial public offering
and sale by the Company of shares of its common stock pursuant to an effective
registration statement filed with the U.S. Securities and Exchange Commission
(the "SEC") under the Securities Act (the "Company IPO"). The Company has
engaged Morgan Stanley Dean Witter, Donaldson, Lufkin & Jenrette Securities
Corporation, Alex. Brown & Sons Incorporated and Goldman Sachs & Co. to act as
representatives of the underwriters of such offering (the "Underwriters") and,
in connection therewith, contemplates entering into an underwriting agreement
(the "Underwriting Agreement") with such persons.
Immediately prior to the effectiveness of the registration statement
filed with the SEC in connection with the Company IPO, the Company will file an
amendment to its certificate of incorporation substantially in the form of
Exhibit A hereto (the "Certificate of Amendment") with the Secretary of State of
the State of Delaware to increase the number of authorized shares of Class A
Common Stock, par value $.01 per share (the "Company Voting Stock"), and to
increase the number of authorized shares of Class B Common Stock, par value $.01
per share (the "Company Non-Voting Stock" and, together with the Company Voting
Stock, the "Company Stock"). Upon filing the Certificate of Amendment, each
share of Company Voting Stock outstanding prior thereto (the "Old Company Voting
Stock") will be canceled and the Company will issue to the holder thereof shares
of Company Voting Stock on the terms set forth herein, and each share of Company
Non-Voting Stock outstanding prior thereto (the "Old Company Non-Voting Stock"
and, together with the Old Company Voting Stock, the "Old Company Stock") will
be canceled and the Company will issue to the holder thereof shares of Company
Non-Voting Stock on the terms set forth herein. Such amendment to the Company's
certificate of incorporation, cancellation of the outstanding
<PAGE>
shares of Old Company Stock and issuance of Company Stock to the holders of Old
Company Stock are referred to herein collectively as the "Recapitalization
Transactions."
The PIC Investors hold all of the outstanding shares of capital stock
of PIC and the Holdings Investors hold all of the outstanding membership
interests in Holdings, other than those membership interests in Holdings held by
the Company or PIC. The PIC Investors desire to contribute to the Company all
of the outstanding shares of PIC's Common Stock, par value $.01 per share (the
"PIC Common Stock"), and all of the outstanding shares of PIC's Preferred Stock,
par value $.01 per share (the "PIC Preferred Stock" and, together with the PIC
Common Stock, the "PIC Stock"). The Holdings Investors desire to contribute to
the Company all of their membership interests in Holdings, including all of
their Class A Common Units, Class D Common Units and Preferred Units of Holdings
(each as defined in the LLC Agreement and all referred to herein collectively as
the "Holdings Units"). In exchange, the Company shall issue to the PIC
Investors and the Holdings Investors shares of the Company Voting Stock or
Company Non-Voting Stock, as provided herein. The transactions described in
this paragraph and more particularly described below are referred to herein
collectively as the "Contribution Transactions". The Contribution Transactions
will be consummated immediately prior to the consummation of the Company IPO and
are intended to be tax-free pursuant to Section 351 of the Internal Revenue Code
of 1986, as amended.
In consideration of the mutual covenants and agreements set forth
herein and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
Section 1. Recapitalization and Contribution.
1A. Authorization of Company Stock. Prior to the Closing, the
Company shall authorize the issuance to the Investors of shares of Company
Voting Stock and shares of Company Non-Voting Stock in the amounts required to
be issued to the Investors hereunder.
1B. Contribution Transactions. Subject to the satisfaction or waiver
of the conditions set forth in Section 3 below, each of the Investors and the
Company agrees to and shall consummate, at the Closing, the following
Contribution Transactions:
(i) Each of the PIC Investors shall contribute, transfer and assign to
the Company the number of shares of PIC Common Stock and the number of shares of
PIC Preferred Stock set forth opposite its name on the Schedule of Investors,
each of the Holdings Investors shall contribute, transfer and assign to the
Company all of the Class A Common Units, and Preferred Units of Holdings held by
such Holdings Investor, as set forth opposite its name on the Schedule of
Investors, and each of the Class D Holders shall contribute, transfer and assign
to the Company all of the Class D1 Common Units, Class D2 Common Units, Class D3
Common Units, Class D4 Common Units, Class D5 Common Units held by such Class D
Holder.
-2-
<PAGE>
(ii) In exchange for the PIC Stock and the Holdings Units contributed
by the Investors, the Company shall issue a number of shares of Company Voting
Stock to each of the Voting Investors and Company Non-Voting Stock to each of
the Non-Voting Investors equal to:
(a) in the case of PIC Preferred Stock and Preferred Units of
Holdings, the quotient determined by dividing (x) the sum of the Accreted
Value of the PIC Preferred Stock and Preferred Units of Holdings held by
such Investor, by (y) the IPO Price; and
(b) in the case of PIC Common Stock and Common Units of Holdings,
the product determined by multiplying (x) the aggregate number of shares of
PIC Common Stock, Class A Common Units and "Converted Class D Units" held
by such Investor by (y) the Conversion Ratio.
For purposes of the foregoing, each Class D Holder will be deemed to
hold the number of "Converted Class D Units" set forth opposite such Class D
Holder's name on the attached Schedule of Class D Units (which is equivalent to
the number of Class A Common Units which are equal in value to the Class D
Common Units held by such Class D Holder). Class D Holders will receive no
other consideration in respect of their Class D Units.
(iii) At the written election of any Investor, the Company shall,
in lieu of issuing Company Voting Stock to such Investor, issue an equal number
of shares of Company Non-Voting Stock to such Investor.
1C. Recapitalization Transactions. Each of the Investors and the
Company understands and agrees that, effective upon filing of the Certificate of
Amendment, the shares of Old Company Voting Stock or Old Company Non-Voting
Stock held by such Investor shall be canceled and deemed to be no longer
outstanding, and the Company shall issue to each Investor:
(i) the right to receive at the Closing a number of shares of Company
Voting Stock or Company Non-Voting Stock, respectively, equal to the quotient
determined by dividing (a) the Accreted Value of a number Preferred Units of
Holdings equal to (x) the number of shares of Old Company Stock held by such
Investor multiplied by (y) the Imputed Preferred Holdings Multiple by (b) the
IPO Price; plus
(ii) a number of shares of Company Voting Stock or Company Non-Voting
Stock, respectively, equal to the product of (x) the number of shares of Old
Company Stock held by such Investor, multiplied by (y) the Imputed Common
Holdings Multiple, multiplied by (z) the Conversion Ratio.
1D. Holdings Options. Each Investor hereby acknowledges and agrees
that in accordance with the terms of the Holdings Options, contemporaneously
with the consummation of the Contribution Transactions, (i) each of the Holdings
Options shall cease to be exercisable to purchase Class A Common Units of
Holdings and, in lieu thereof, shall automatically become exercisable, subject
to the other terms and conditions set forth therein, to purchase up to a number
-3-
<PAGE>
of shares of Company Stock equal to the Unit Exercise Number thereof multiplied
by the Conversion Ratio (provided that such maximum number of shares of Company
Stock issuable under any Holdings Option shall be rounded up or down to the
nearest whole share of Company Stock), and (ii) the exercise price per share of
Company Stock for each of the Holdings Options shall be automatically adjusted
to be equal to the Unit Exercise Price thereof divided by the Conversion Ratio.
For purposes hereof, the "Unit Exercise Number" means, in respect of any
Holdings Option, the maximum number of Class A Common Units obtainable upon
exercise thereof immediately prior to consummation of the Contribution
Transactions, and the "Unit Exercise Price" means, in respect of any Holdings
Option, the price payable per Class A Common Unit upon exercise thereof
immediately prior to consummation of the Contribution Transactions.
1E. No Fractional Shares. If any fractional interest in a share of
Company Stock would, except for the provisions of this Section 1E, be
deliverable to any Investor upon contribution of such Investor's PIC Stock or
Holdings Units or upon conversion of such Investor's Old Company Stock after
taking into account and consolidating all shares of Company Stock to be issued
to such Investor pursuant to the Recapitalization Transactions and the
Contribution Transactions, such fractional interest shall be rounded up or down
to the nearest whole share of Company Stock.
1F. Closing. The closing of the Contribution Transactions (the
"Closing") shall take place at the offices of Kirkland & Ellis, 200 E. Randolph
Drive, Chicago, Illinois, or at such other place as may be agreeable to Willis
Stein and the Company, immediately prior to the consummation of the Company IPO
(the "Closing Date"). Upon execution of this Agreement, each Investor shall
deliver to the Company stock certificates evidencing all of such Investor's
outstanding shares of PIC Stock and Old Company Stock, duly endorsed in blank or
accompanied by duly executed stock powers, and each Holdings Investor shall
deliver to the Company such documentation as the Company may reasonably request
to indorse such Holdings Investor's delivery to the Company of such Investor's
Holdings Units. At the Closing, the Company shall cancel all such certificates
and shall deliver to each Investor stock certificates evidencing the shares of
Company Stock to be issued as described in Paragraphs 1B and 1C and as set forth
on the Schedule of Investors, registered in such Investor's or its nominee's
name (it being understood that such amounts of shares of stock set forth in the
Schedule of Investors have been calculated assuming the IPO Price and a Closing
Date as set forth therein, and that such amounts shall be adjusted in accordance
with the provisions hereof if the actual IPO Price or Closing Date are different
than as assumed).
Section 2. Securityholders Agreement Matters. Each of the Investors
hereby (a) acknowledges that it has received prompt written notice of the
Company's intention to effect the Company IPO contemplated by the Underwriting
Agreement pursuant to Section 5.2(a) of the Securityholders Agreement, (b)
irrevocably waives any rights that it has pursuant to Section 5.2 of the
Securityholders Agreement (the "Piggyback Rights") to have the Company include
Registrable Securities (as defined in the Securityholders Agreement) in the
Company IPO contemplated by the Underwriting Agreement and (c) acknowledges that
the shares of Company Stock that are issued as described herein shall be
"Manager Common Stock" and "Registrable Securities" within the meaning of the
Securityholders Agreement.
-4-
<PAGE>
Section 3. Conditions to the Obligations of the Parties at the
Closing.
3A. Conditions to the Obligations of the Investors. The obligations
of each of the Investors hereunder are subject to the satisfaction or waiver of
the following conditions: (i) the representations and warranties of the Company
are true and correct in all material respects at and as of the Closing as though
then made, (ii) all conditions precedent to the consummation of the Company IPO
shall have been satisfied or waived (including the conditions to the obligations
of the parties to the Underwriting Agreement relating thereto between the
Company and the underwriters party thereto) and (iii) the Certificate of
Amendment shall have been duly filed with the Secretary of State of the State of
Delaware and shall be in full force and effect under the laws of the State of
Delaware.
3B. Conditions to the Obligations of the Company. The obligations of
the Company hereunder are subject to the satisfaction or waiver of the following
conditions: (i) the representations and warranties of the Investors are true
and correct in all respects at and as of the Closing as though then made, (ii)
all conditions precedent to the consummation of the Company IPO shall have been
satisfied or waived (including the conditions to the obligations of the parties
to the Underwriting Agreement relating thereto between the Company and the
underwriters party thereto), (iii) the Certificate of Amendment shall have been
duly filed with the Secretary of State of the State of Delaware and shall be in
full force and effect under the laws of the State of Delaware and (iv) the
amendment to the Securityholders Agreement in the form of Exhibit B attached
hereto shall have been executed by certain Investors and shall be in full force
and effect.
Section 4. Representations and Warranties of the Investors.
4A. Ownership of PIC Stock and Holdings Units. Each Investor
severally represents and warrants to the Company that such Investor (i) is the
beneficial and record owner of the amount of each class and type of PIC Stock,
Holdings Units and Old Company Stock set forth opposite its name on the Schedule
of Investors attached hereto, (ii) holds such PIC Stock, Holdings Units or Old
Company Stock, as applicable, free and clear of all liens, charges and other
encumbrances (subject only to liens, charges and other encumbrances pursuant to
agreements with the Company), and (iii) holds no capital stock of PIC or the
Company or membership interest in Holdings, other than the Class D Common Units
of Holdings. Each of the Class D Holders represent and warrants to the Company
that he has not transferred any interest in any of the Class D1 Common Units,
Class D2 Common Units, Class D3 Common Units, Class D4 Common Units, Class D5
Common Units issued to him by Holdings and that he holds such interests free and
clear of all liens, charges and other encumbrances (subject only to liens,
charges and other encumbrances pursuant to agreements with the Company).
4B. Transfer. Each Investor severally represents and warrants to the
Company that such Investor has full power, authority and legal right to execute
and deliver this Agreement and to perform the terms and provisions hereof.
-5-
<PAGE>
4C. Registration Statement. Each Investor severally represents and
warrants to the Company that such Investor has received and reviewed the
prospectus included in the Amendment No.1 to Registration Statement on Form S-1
prepared by the Company and filed with the Securities and Exchange Commission on
September 15, 1997 relating to the Company IPO (the "Registration Statement").
4D. Capitalization of PIC. Each PIC Investor severally represents
and warrants that as of the Closing, the authorized capital stock of PIC shall
consist of 200,000 shares of PIC Preferred Stock, of which 121,000 shares shall
be issued and outstanding, and 200,000 shares PIC Common Stock, of which 121,000
shares shall be issued and outstanding, and that PIC shall not have outstanding
any other stock or securities convertible or exchangeable for any shares of its
capital stock or containing any profit participation features, nor shall it have
outstanding any rights or options to subscribe for or to purchase its capital
stock or any stock or securities convertible into or exchangeable for its
capital stock or any stock appreciation rights or phantom stock plans.
4E. Investment Intent; Accredited Investor. Each Investor severally
represents and warrants that such Investor: (i) is acquiring the Restricted
Securities acquired hereunder for its own account with the present intention of
holding such securities for investment purposes and it has no intention of
selling such securities in a public distribution in violation of the federal
securities laws or any applicable state securities laws; provided that nothing
contained herein will prevent such Investor and the subsequent holders of
Restricted Securities from transferring such securities in compliance with the
provisions of Section 6 hereof and the Securityholders Agreement; (ii) possesses
knowledge and experience in financial and business matters such that it is
capable of evaluating the risks of the investment in the securities issued
pursuant to this Agreement; and (iii) is an "accredited investor" as defined in
Rule 501(a) under the Securities Act.
Section 5. Representations and Warranties of the Company.
5A. Organization; Good Standing. The Company is a corporation duly
organized, validly existing, and in good standing under the laws of the State of
Delaware, and has all requisite power and authority to own and operate its
properties and assets and to carry on its business as now conducted and as
proposed to be conducted, to execute, deliver and carry out the provisions of
this Agreement and to issue the Company Stock.
5B. Authorization. As of the Closing, all action on the part of the
Company necessary for the authorization, execution and delivery of this
Agreement, the performance of all obligations of the Company hereunder and the
authorization, issuance and delivery of the Company Stock will have been taken,
and will constitute a valid and legally binding obligations of the Company,
enforceable in accordance with its terms except (i) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium, and other laws of general
application affecting enforcement of creditors' rights generally, (ii) as
limited by laws relating to the availability of specific performance, injunctive
relief, or other equitable remedies, and (iii) to the extent the indemnification
provisions contained herein may be limited by applicable federal or state
securities law.
-6-
<PAGE>
5C. Valid Issuance of Company Stock. The shares of Company Stock
when issued and delivered in accordance with the terms of this Agreement for the
consideration expressed herein, will be duly and validly issued, fully paid, and
nonassessable, and will be free of restrictions on transfer other than
restrictions on transfer under the Securityholders Agreement and applicable
state and federal securities laws.
5D. Capitalization. As of the Closing, after the filing of the
Certificate of Amendment and after giving effect to the Recapitalization
Transactions and the Contribution Transactions, the authorized capital stock of
the Company shall consist of (i) 5,000,000 shares of preferred stock, par value
$.01 per share, of which no shares shall be issued and outstanding, (ii)
75,000,000 shares of Company Voting Stock, of which only the shares issued
hereunder shall be issued and outstanding immediately prior to the issuance of
shares in the Company IPO, and (iii) 25,000,000 shares of Company Non-Voting
Stock, of which only the shares hereunder shall be issued and outstanding
immediately prior to the issuance of shares in the Company IPO. Except for
Holdings Options exercisable in the aggregate for 8,866.53 Class A Common Units,
except for the obligations of the Company to issue Company Stock to the
Underwriters pursuant to the Underwriting Agreement in connection with the
Company IPO and except as otherwise described in the Registration Statement, the
Company shall not have outstanding any other stock or securities convertible or
exchangeable for any shares of its capital stock or containing any profit
participation features, nor shall it have outstanding any rights or options to
subscribe for or to purchase its capital stock or any stock or securities
convertible into or exchangeable for its capital stock or any stock appreciation
rights or phantom stock plans.
Section 6. Transfer.
6A. Restrictions. Restricted Securities are only transferable (i)
pursuant to public offerings registered under the Securities Act, (ii) pursuant
to Rule 144 or Rule 144A if such rules are available and (iii) subject to the
conditions specified in Section 6B below, any other legally available means of
transfer pursuant to the Securities Act.
6B. Procedure for Transfer. In connection with the transfer of any
Restricted Securities (other than a transfer referred to in clauses (i) or (ii)
of Section 6A above), the holder thereof will deliver written notice to the
Company describing in reasonable detail the transfer or proposed transfer,
together with an opinion of Kirkland & Ellis or other counsel which (to the
Company's reasonable satisfaction) is knowledgeable in securities law matters to
the effect that such transfer of Restricted Securities may be effected without
registration of such Restricted Securities under the Securities Act. In
addition, if the holder of such Restricted Securities delivers to the Company an
opinion of such counsel that no subsequent transfer of such Restricted
Securities will require registration under the Securities Act. The Company will
promptly upon such contemplated transfer deliver new certificates for such
Restricted Securities which do not bear the Securities Act legend set forth in
Section 6C below. If the Company is not required to deliver new certificates
for such Restricted Securities not bearing such legend, the holder thereof will
not transfer the same until the prospective transferee has confirmed to the
Company in writing its agreement to be bound by the agreements related to
transfer of Restricted Securities contained in this Agreement.
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<PAGE>
6C. Legend. Each certificate representing Restricted Securities
shall be endorsed with the legend in substantially the form set forth below.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ORIGINALLY ISSUED ON
__________, 1997 AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED. THE TRANSFER OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE IS SUBJECT TO THE CONDITIONS SPECIFIED IN THE CONTRIBUTION
AGREEMENT, DATED AS OF SEPTEMBER __, 1997, AS AMENDED AND MODIFIED FROM
TIME TO TIME, BY AND AMONG THE ISSUER (THE "COMPANY") AND CERTAIN
INVESTORS, AND THE COMPANY RESERVES THE RIGHT TO REFUSE THE TRANSFER OF
SUCH SECURITIES UNTIL SUCH CONDITIONS HAVE BEEN FULFILLED WITH RESPECT TO
SUCH TRANSFER. A COPY OF SUCH CONDITIONS SHALL BE FURNISHED BY THE COMPANY
TO THE HOLDER HEREOF UPON WRITTEN REQUEST AND WITHOUT CHARGE.
Whenever any of the Restricted Securities cease to be Restricted Securities, the
holder thereof will be entitled to receive from the Company, without expense,
upon surrender to the Company of the certificate representing such securities, a
new certificate representing such securities of like tenor but not bearing a
legend of the character set forth above.
Section 7. Termination. Upon execution by Willis Stein and the
Company of any agreement to terminate this Agreement at any time prior to
consummation of the Company IPO, this Agreement shall immediately terminate.
Upon any such termination, no party hereunder shall have any liability hereunder
to any other party hereto, except for wilful breach hereof by such party prior
to such termination.
Section 8. Certain Definitions.
"Accreted Value" of any PIC Stock or Holdings Unit as of any date
means:
(i) in the case of any share of PIC Preferred Stock, the sum of the
Unreturned Preferred Capital and the Unpaid Preferred Yield of such share (as
defined in the Certificate of Incorporation of PIC); and
(ii) in the case of any Preferred Unit of Holdings, the quotient
determined by dividing (x) the sum as of such date of the Unreturned Preferred
Capital and the Unpaid Preferred Yield (as defined in the LLC Agreement),
divided by (y) the aggregate number of Preferred Units outstanding as of the
determination thereof.
"Board" means the Board of Directors of the Company.
-8-
<PAGE>
"Class A Common Units" has the meaning given to such term in the LLC
Agreement.
"Class D Common Units" means the Class D1 Common Units, Class D2
Common Units, Class D3 Common Units, Class D4 Common Units and Class D5 Common
Units, each as defined in the LLC Agreement.
"Class D Holder" means each holder of Class D Common Units listed on
the attached Schedule of Class D Units.
"Conversion Ratio" means 36.166847.
"Holdings Options" means the options which were granted to employees
of the Company and its Subsidiaries as of July 31, 1997 to purchase the number
of Class A Common Units of Holdings.
"Imputed Common Holdings Multiple" means 1.13265.
"Imputed Preferred Holdings Multiple" means 1.11111.
"IPO Price" means the price per share at which the Company Stock is to
be offered and sold to the public at the closing of the Company IPO.
"LLC Agreement" means the Limited Liability Company Agreement of
Holdings originally effective as of September 30, 1996, as amended and restated
as of July 31, 1997.
"Non-Voting Investors" means, collectively, BankAmerica Investment
Corporation, CIVC Partners II, Chase Equity Associates, L.P., FUI, Inc. and CIBC
WG Argosy Merchant Fund 2, L.L.C.
"Restricted Securities" means the Company Stock and Company Class B
Stock issued hereunder and any securities issued with respect to such Company
Stock or Company Class B Stock by way of any stock dividend or stock split, or
in connection with a combination of shares, recapitalization, merger,
consolidation or other reorganization. As to any particular Restricted
Securities, such securities will cease to be Restricted Securities when (a) they
have been effectively registered under the Securities Act and disposed of in
accordance with the registration statement covering them, (b) they have become
eligible for sale pursuant to Rule 144 or Rule 144A or (c) an opinion of
Kirkland & Ellis or other counsel which (to the Company's reasonable
satisfaction) is knowledgeable in securities law matters to the effect that the
transfer of such Restricted Securities may be effected without registration of
such Restricted Securities under the Securities Act and that no subsequent
transfer of such Restricted Securities will require registration under the
Securities Act has been delivered to the Company.
"Securities Act" means the Securities Act of 1933, as amended, or any
similar federal law then in force.
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<PAGE>
"Securityholders Agreement" means the Securityholders Agreement dated
as of September 30, 1996 among PIC, Holdings, the Company and certain of the
Investors, as amended.
"Voting Investors" means all Investors other than the Non-Voting
Investors.
Section 9. Miscellaneous.
9A. Reasonable Best Efforts. Each Investor shall use its reasonable
best efforts to cause the conditions to the obligations of the parties contained
in Section 3 hereof to be satisfied promptly, including without limitation by
voting such Investor's Old Voting Shares and Old Non-Voting Shares to approve
the Certificate of Amendment.
9B. Amendment and Waiver. Any modification, amendment or waiver of
any provision of this Agreement shall be effective against any Investor if such
modification, amendment or waiver is approved in writing by Willis Stein;
provided that any amendment, modification or waiver of any provision of this
Agreement which has a material adverse effect on any Investor in its capacity as
such, which would be borne disproportionately by such Investor relative to
Willis Stein (measured by the value of such Investor's holdings of PIC Stock,
Holdings Units and Old Company Stock), shall be effective against such Investor
only if consented to in writing by such Investor; provided further that if more
than one Investor is materially adversely affected in such a disproportionate
manner, such amendment, modification or waiver shall be effective against all
Investors who are similarly so affected if consented to in writing by Investors
holding a majority in value of the PIC Stock, Holdings Units and Old Company
Stock held by such holders.
9C. No Transfer. Each of the Investors hereby agrees that it will
not, directly or indirectly, transfer any interest in any of its PIC Stock,
Holdings Units or Old Company Stock except to the Company at the Closing, unless
this Agreement is terminated prior thereto in accordance with Section 7 above.
9D. Severability. Whenever possible, each provision of this
Agreement will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision will be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of such provision or the remaining provisions of this Agreement.
9E. Captions. The captions used in this Agreement are for the
convenience of reference only and do not constitute a part of this Agreement and
will not be deemed to limit, characterize or in any way affect any provision of
this Agreement, and all provisions of this Agreement will be enforced and
construed as if no caption had been used in this Agreement.
9F. Gender. Reference herein to any gender, including the neutral
gender, includes each other gender.
-10-
<PAGE>
9G. Entire Agreement. This Agreement, together with all exhibits and
schedules attached hereto, and the other agreements dated the date hereof,
contain the entire agreement between the parties with respect to the subject
matter hereof, and supersede any prior understandings, agreements or
representations by or between the parties, written or oral, which may have
related to the subject matter hereof in any way.
9H. Counterparts. This Agreement may be executed in one or more
counterparts all of which taken together will constitute one and the same
instrument.
9I. Governing Law. The corporate law of Delaware will govern all
issues concerning the relative rights of the Company and its stockholders. All
other issues concerning this Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, without giving effect to any
choice of law or conflict of law provision or rule (whether of the State of
Delaware or any other jurisdiction) that would cause the application of the law
of any jurisdiction other than the State of Delaware.
9J. No Third Party Beneficiary Rights. This Agreement is intended
solely for the benefit of the parties hereto. Nothing herein shall be construed
or deemed to create any rights or benefits in any third parties or third party
beneficiaries.
9K. Several Obligations; Understanding Among Investors. The
obligations hereunder of each of the Investors shall be several and not joint.
The liabilities of each PIC Investor in respect of the representations and
warranties included in Section 4D above shall be several, in proportion to each
such Investor's holdings of PIC Stock. The determination of each Investor to
execute this Agreement, to contribute PIC Stock and Holdings Units pursuant
hereto and to consent to the cancellation of its Old Common Stock and the
issuance therefor of Company Stock has been made by such Investor independent of
any other Investor and independent of any statements or opinions as to the
advisability of such transaction which may have been made or given by any other
Investor or by any agent or employee of any other Investor. In addition, it is
acknowledged by each of the other Investors that Willis Stein has not acted as
an agent of such Investor in connection with making its investment hereunder and
that Willis Stein shall not be acting as an agent of such Investor in connection
with monitoring its investment hereunder or in any other respect.
* * * * *
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Contribution and
Recapitalization Agreement as of the date first written above.
THE PETERSEN COMPANIES, INC.
By: ________________________________
Title:
WILLIS STEIN & PARTNERS, L.P.
By: Willis Stein & Partners, L.L.C.
Its: General Partner
By: ________________________________
Name: Daniel H. Blumenthal
Title: Managing Director
NASSAU CAPITAL PARTNERS II, L.P.
By: Nassau Capital, L.L.C.
Title: General Partner
By: _______________________________
Name:
Title:
NAS PARTNERS I, L.L.C.
By: _______________________________
Name:
Title:
PETERSEN PROPERTIES
By: _______________________________
Name: Robert E. Petersen
Title: Chairman of the Board
BANKAMERICA INVESTMENT CORPORATION
By: _______________________________
Name:
Title:
<PAGE>
[Signature Page to Contribution and Recapitalization Agreement]
CHASE EQUITY ASSOCIATES, L.P.
By: Chase Capitals Partners
Its: General Partner
By:
------------------------------
Name:
Title: General Partner
ALLSTATE INSURANCE COMPANY
By:
------------------------------
Name:
Title:
FUI, INC.
By:
------------------------------
Name:
Title:
CIBC WG ARGOSY MERCHANT FUND 2, L.L.C.
By:
------------------------------
Name:
Title:
NORWEST EQUITY CAPITAL, L.L.C.
By: Itasca NEC, L.L.C.
Its: Managing Member
By:
------------------------------
Name:
Title:
------------------------------------
James D. Dunning,Jr.
JAMES D. DUNNING III TRUST
By:
------------------------------
Name:
Title:
<PAGE>
[Signature Page to Contribution and Recapitalization Agreement]
DAVID F. DUNNING TRUST
By: ________________________________
Name:
Title:
CIVC PARTNERS II
By: ________________________________
Name:
Title: A General Partner
THE LAURENCE H. BLOCH AND CINDY BLOCH
TRUST
By: ________________________________
Name: Laurence H. Bloch
Title:
_____________________________________
Stuart Karu
_____________________________________
Thomas J. Strauss
_____________________________________
Irwin Bard
_____________________________________
Bernard Shavitz
_____________________________________
D. Claeys Bahrenburg
_____________________________________
Neal Vitale
<PAGE>
[Signature Page to Contribution and Recapitalization Agreement]
________________________________________
Richard S Willis
________________________________________
John Dianna
________________________________________
Richard P. Lague
________________________________________
Paul Tzimoulis
________________________________________
David Myers
________________________________________
Ken Elliot
________________________________________
Lee Kelley
________________________________________
Michael Borchetta
________________________________________
Justin McCormack
DEAN WITTER REYNOLDS, Custodian for Justin
McCormack IRA Rollover
By: _______________________________
Name:
Title:
<PAGE>
[Signature Page to Contribution and Recapitalization Agreement]
MLPF&S, Custodian FPO James Guthrie IRA FBO
James Guthrie
By: _______________________________
Name:
Title:
_________________________________________
Charlotte Perkins
_________________________________________
Amy Wilkins
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE OF INVESTORS (PAGE 1)
====================================================================================================================================
Imputed Ownership of
Direct Ownership of Holdings LLC
Direct Ownership of PCI Holdings LLC through PCI(2)
-------------------------- -------------------------- ----------------------
A (Voting) B (Non-voting) Preferred Class A Preferred Class A
Group Shares Shares Units Common Units Units Common Units
- ----- ---------- -------------- --------- ------------ --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Willis Stein & Partners, L.P. 1,000.0 - 110,000.0(1) 110,000.0(1) 1,111.1 1,132.6
Petersen Publishing Company 500.0 - 55,000.0 55,000.0 555.6 566.3
BankAmerica Investment Corporation - 360.0 39,600.0 39,600.0 400.0 407.8
Chase Equity Associates, L.P. - 300.0 33,000.0 33,000.0 333.3 339.8
Allstate Insurance Company 300.0 - 33,000.0 33,000.0 333.3 339.8
FUI, Inc. - 250.0 27,500.0 27,500.0 277.8 283.2
CIBC WG Argosy Merchant Fund 2, L.L.C. - 250.0 27,500.0 27,500.0 277.8 283.2
Norwest Equity Capital, L.L.C. 100.0 - 11,000.0 11,000.0 111.1 113.3
Nassau Capital Partners II L.P. 99.5 - 10,945.6(1) 10,945.6(1) 110.6 112.7
James D. Dunning, Jr. 42.0 - 4,620.0 4,620.0 46.7 47.6
James D. Dunning III Trust 1.0 - 110.0 110.0 1.1 1.1
David F. Dunning Trust 1.0 - 110.0 110.0 1.1 1.1
CIVC Partners II - 40.0 4,400.0 4,400.0 44.4 45.3
D. Claeys Bahrenburg 30.0 - 3,300.0 3,300.0 33.3 34.0
The Laurence H. Bloch and Cindy Bloch Trust 20.0 - 2,200.0 2,200.0 22.2 22.7
Stuart Karu 20.0 - 2,200.0 2,200.0 22.2 22.7
Neal Vitale 15.0 - 1,650.0 1,650.0 16.7 17.0
Richard S. Willis 6.0 - 660.0 660.0 6.7 6.8
Irwin Bard 10.0 - 1,100.0 1,100.0 11.1 11.3
Bernard Shavitz 3.0 - 330.0 330.0 3.3 3.4
John Dianna 2.0 - 220.0 220.0 2.2 2.3
Dick Lague 2.0 - 220.0 220.0 2.2 2.3
Paul Tzimoulis 2.0 - 220.0 220.0 2.2 2.3
David Myers 1.0 - 110.0 110.0 1.1 1.1
Ken Elliot 1.0 - 110.0 110.0 1.1 1.1
Lee Kelley 0.2 - 22.0 22.0 0.2 0.2
Michael Borchetta - - - - - -
Thomas J. Strauss 1.0 - 110.0 110.0 1.1 1.1
Justin McCormick 2.0 - 220.0 220.0 2.2 2.3
MLPF&S Custodian FPO James Guthrie IRRA FBO James 1.8 - 200.0 200.0 2.0 2.1
Charlotte Perkins 0.7 - 80.0 80.0 0.8 0.8
Amy Wilkins 0.9 - 100.0 100.0 1.0 1.0
NAS Partners I L.L.C. 0.5 - 54.4(1) 54.4(1) 0.5 0.6
---------- -------------- --------- --------- --------- ------------
Sub-Total 2,162.7 1,200.0 369,892.0 369,892.0 3,736.3 3,808.7
========== ============== ========= ========= ========= ============
</TABLE>
<TABLE>
<CAPTION>
Management Units Total Direct & Imputed
Total Direct & Imputed Direct Ownership of Ownership of
Ownership of Holdings LLC Holdings LLC Holdings LLC
-------------------------- -------------------------- ----------------------
Converted
Class A Class D
Preferred Common Common Common
Group Units Percent Units Units(3) Units Percent
- ----- ---------- -------------- --------- ------------ --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Willis Stein & Partners, L.P. 111,111.1 29.7% - - 111,132.6 24.9%
Petersen Publishing Company 55,555.6 14.9% - - 55,566.3 12.5%
BankAmerica Investment Corporation 40,000.0 10.7% - - 40,007.8 9.0%
Chase Equity Associates, L.P. 33,333.3 8.9% - - 33,339.8 7.5%
Allstate Insurance Company 33,333.3 8.9% - - 33,339.8 7.5%
FUI, Inc. 27,777.8 7.4% - - 27,783.2 6.2%
CIBC WG Argosy Merchant Fund 2, L.L.C. 27,777.8 7.4% - - 27,783.2 6.2%
Norwest Equity Capital, L.L.C. 11,111.1 3.0% - - 11,113.3 2.5%
Nassau Capital Partners II L.P. 11,056.2 3.0% - - 11,058.3 2.5%
James D. Dunning, Jr. 4,666.7 1.2% 8,278.6 13,201.3 26,147.5 5.9%
James D. Dunning III Trust 111.1 0.0% - - 111.1 0.0%
David F. Dunning Trust 111.1 0.0% - - 111.1 0.0%
CIVC Partners II 4,444.4 1.2% - - 4,445.3 1.0%
D. Claeys Bahrenburg 3,333.3 0.9% 5,174.1 4,748.7 13,256.8 3.0%
The Laurence H. Bloch and Cindy Bloch Trust 2,222.2 0.6% 6,209.0 6,591.1 15,022.8 3.4%
Stuart Karu 2,222.2 0.6% 4,139.3 3,798.9 10,160.9 2.3%
Neal Vitale 1,666.7 0.4% 5,174.1 7,028.0 13,869.2 3.1%
Richard S. Willis 666.7 0.2% 1,034.8 2,621.3 4,322.9 1.0%
Irwin Bard 1,111.1 0.3% - - 1,111.3 0.2%
Bernard Shavitz 333.3 0.1% - - 333.4 0.1%
John Dianna 222.2 0.1% 413.9 - 636.2 0.1%
Dick Lague 222.2 0.1% 413.9 - 636.2 0.1%
Paul Tzimoulis 222.2 0.1% 413.9 - 636.2 0.1%
David Myers 111.1 0.0% 207.0 - 318.1 0.1%
Ken Elliot 111.1 0.0% 413.9 - 525.1 0.1%
Lee Kelley 22.2 0.0% 413.9 - 436.2 0.1%
Michael Borchetta - 0.0% 413.9 - 413.9 0.1%
Thomas J. Strauss 111.1 0.0% - - 111.1 0.0%
Justin McCormick 222.2 0.1% 413.9 - 636.2 0.1%
MLPF&S Custodian FPO James Guthrie IRRA FBO James 202.0 0.1% 413.9 - 616.0 0.1%
Charlotte Perkins 80.8 0.0% 413.9 - 494.8 0.1%
Amy Wilkins 101.0 0.0% 413.9 - 515.0 0.1%
NAS Partners I L.L.C. 54.9 0.0% - - 54.9 0.0%
---------- ----- --------- --------- --------- ------
Sub-Total 373,628.3 100.0% 34,356.3 37,989.3 446,046.3 100.0%
========== ===== ========= ========= ========= ======
</TABLE>
Defined Terms
- -------------
The Petersen Companies, Inc. ("PCI")
Petersen Holdings, L.L.C. ("Holdings LLC")
Petersen Publishing, L.L.C. ("Publishing LLC")
Petersen Investment Corp. ("PIC")
- -------------------------------
(1) Represents holdings of Common Stock or Preferred Stock of PIC, as
applicable. Also represents an equivalent number of Class A Common Units or
Preferred Units, as applicable, held indirectly through PIC.
(2) Includes PCI's ownership of Publishing LLC.
(3) Assumes an IPO Price within the $15 per share to $17 per share filing range
as shown on the cover of the Prospectus.
CONFIDENTIAL
<PAGE>
SCHEDULE OF INVESTORS (PAGE 2)
- -------------------------------------------------------------------------------
Common Shares of The Petersen Companies, Inc.
<TABLE>
<CAPTION>
From Direct Ownership of Holdings LLC
--------------------------------------------------------------------------------
Invested Management Units
----------------------------- ------------------------------
Class A Preferred Class A Converted Class
Entity Common Units Units Common Units D Common Units Sub-Total
- ------------------------------------------- -------------- ------------- ------------- --------------- -----------
<S> <C> <C> <C> <C> <C>
Willis Stein & Partners, L.P. 3,978,353.2 3,447,222.5 - - 7,425,575.6
Petersen Publishing Company 1,989,176.6 1,723,611.2 - - 3,712,787.8
BankAmerica Investment Corporation 1,432,207.1 1,241,000.1 - - 2,673,207.2
Chase Equity Associates, L.P. 1,193,506.0 1,034,166.7 - - 2,227,672.7
Allstate Insurance Company 1,193,506.0 1,034,166.7 - - 2,227,672.7
FUI, Inc. 994,588.3 861,805.6 - - 1,856,393.9
CIBC WG Argosy 994,588.3 861,805.6 - - 1,856,393.9
Norwest Equity Capital, L.L.C. 397,835.3 344,722.2 - - 742,557.6
Nassau Capital Partners II L.P. 395,868.3 343,017.8 - - 738,886.1
James D. Dunning, Jr. 167,090.8 144,783.3 299,411.8 477,449.2 1,088,735.2
James D. Dunning III Trust 3,978.4 3,447.2 - - 7,425.6
David F. Dunning Trust 3,978.4 3,447.2 - - 7,425.6
CIVC Partners II 159,134.1 137,888.9 - - 297,023.0
D. Claeys Bahrenburg 119,350.6 103,416.7 187,132.4 171,744.3 581,644.0
The Laurence H. Bloch and Cindy Bloch Trust 79,567.1 68,944.4 224,558.9 238,381.1 611,451.5
Stuart Karu 79,567.1 68,944.4 149,705.9 137,395.4 435,612.9
Neal Vitale 59,675.3 51,708.3 187,132.4 254,181.6 552,697.6
Richard S. Willis 23,870.1 20,683.3 37,426.5 94.802.9 176,782.8
Irwin Bard 39,783.5 34,472.2 - - 74,255.8
Bernard Shavitz 11,935.1 10,341.7 - - 22,276.7
John Dianna 7,956.7 6,894.4 14,970.6 - 29,821.7
Dick Lague 7,956.7 6,894.4 14,970.6 - 29,821.7
Paul Tzimoulis 7,956.7 6,894.4 14,970.6 - 29,821.7
David Myers 3,978.4 3,447.2 7,485.3 - 14,910.9
Ken Elliot 3,978.4 3,447.2 14,970.6 - 22,396.2
Lee Kelley 795.7 689.4 14,970.6 - 16,455.7
Michael Borchetta - - 14,970.6 - 14,970.6
Thomas J. Strauss 3,978.4 3,447.2 - - 7,425.6
Justin McCormick 7,956.7 6,894.4 14,970.6 - 29,821.7
James Guthrie 7,233.4 6,267.7 14,970.6 - 28,471.6
Charlotte Perkins 2,893.3 2,507.1 14,970.6 - 20,371.0
Amy Wilkins 3,616.7 3,133.8 14,970.6 - 21,721.1
NAS Partners I L.L.C. 1,967.1 1,704.4 - - 3,671.5
Other Management - - - - -
Public - - - - -
-------------- ------------- ------------- --------------- -----------
Total 13,377,827.4 11,591,818.2 1,242,559.1 1,373,954.5 27,586,159.2
Total Shares
From Ownership of PCI through Total
Imputed Ownership of Holdings LLC -------------------------
---------------------------------------- Class A Class B
Class A Preferred Voting Non-Voting
Entity Common Units Units Sub-Total Total Shares Shares
- ------------------------------------------- -------------- ------------ ----------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Willis Stein & Partners, L.P. 40,964.3 34,820.4 75,784.7 7,501,360.0 7,501.360.0 -
Petersen Publishing Company 20,482.1 17,410.2 37,892.4 3,750,680.0 3,750,680.0 -
BankAmerica Investment Corporation 14,747.1 12,535.4 27,282.5 2,700,490.0 - 2,700,490.0
Chase Equity Associates, L.P. 12,289.3 10,446.1 22,735.4 2,250,408.0 1,319,000.0 931,408.0
Allstate Insurance Company 12,289.3 10,446.1 22,735.4 2,250.408.0 2,250,408.0 -
FUI, Inc. 10,241.1 8,705.1 18,946.2 1,875,340.0 - 1,875,340.0
CIBC WG Argosy 10,241.1 8,705.1 18,946.2 1,875,340.0 - 1,875,340.0
Norwest Equity Capital, L.L.C. 4,096.4 3,482.0 7,578.5 750,136.0 750,136.0 -
Nassau Capital Partners II L.P. 4,076.2 3,464,8 7,541.0 746,427.0 746,427.0 -
James D. Dunning, Jr. 1,720.5 1,462.5 3,183.0 1,091,918.0 1,091,918.0 -
James D. Dunning III Trust 41.0 34.8 75.8 7,501.0 7,501.0 -
David F. Dunning Trust 41.0 34.8 75.8 7,501.0 7,501.0 -
CIVC Partners II 1,638.6 1,392.8 3,031.4 300,054.0 - 300,054.0
D. Claeys Bahrenburg 1,228.9 1,044.6 2,273.5 583,918.0 583,918.0 -
The Laurence H. Bloch and Cindy Bloch Trust 819.3 696.4 1,515.7 612,967.0 612,967.0 -
Stuart Karu 819.3 696.4 1,515.7 437,129.0 437,129.0 -
Neal Vitale 614.5 522.3 1,136.8 553,834.0 553,834.0 -
Richard S. Willis 245.8 208.9 454.7 177,237.0 177,237.0 -
Irwin Bard 409.6 348.2 757.8 75,014.0 75,014.0 -
Bernard Shavitz 122.9 104.5 227.4 22,504.0 22,504.0 -
John Dianna 81.9 69.6 151.6 29,973.0 29,973.0 -
Dick Lague 81.9 69.6 151.6 29,973.0 29,973.0 -
Paul Tzimoulis 81.9 69.6 151.6 29,973.0 29,973.0 -
David Myers 41.0 34.8 75.8 14,987.0 14,987.0 -
Ken Elliot 41.0 34.8 75.8 22,472.0 22,472.0 -
Lee Kelley 8.2 7.0 15.2 16,471.0 16,471.0 -
Michael Borchetta - - - 14,971.0 14,971.0 -
Thomas J. Strauss 41.0 34.8 75.8 7,501.0 7,501.0 -
Justin McCormick 81.9 69.6 151.6 29,973.0 29,973.0 -
James Guthrie 74.5 63.3 137.8 28,609.0 28,609.0 -
Charlotte Perkins 29.8 25.3 55.1 20,426.0 20,426.0 -
Amy Wilkins 37.2 31.7 68.9 21,790.0 21,790.0 -
NAS Partners I L.L.C. 20.3 17.2 37.5 3,709.0 3,709.0 -
Other Management - - - - - -
Public - - - - 6,250,000.0 -
-------------- ------------ ----------- ------------ ------------ ------------
Total 137,748.7 117,089.1 254,837.8 27,840,994.0 26,408,362.0 7,682,632.0
Total Shares 34,090,994.0
For the calculation of the number of shares issued in exchange for Preferred Units, the IPO Price has been assumed to be equal to
the midpoint ($16 per share) of the filing range as shown on the cover of the Prospectus and the Closing Date has been assumed to be
September 30, 1997. All numbers shown in the table above are denominated in Common Shares of The Petersen Companies, Inc.
</TABLE>
CONFIDENTIAL
<PAGE>
SCHEDULE OF CLASS D UNITS
- --------------------------------------------------------------------------------
Converted
Class D Units (1)
-----------------
James D. Dunning, Jr. 13,201.29
The Laurence H. Bloch and Cindy Bloch Trust 6,591.15
Stuart Karu 3,798.93
D. Claeys Bahrenburg 4,748.67
Neal Vitale 7,028.03
Richard S. Willis 2,621.26
---------
Total 37,989.33
- -----------------
(1) Assumes an IPO Price within the $15 per share to $17 per share filing range
as shown on the cover of the Prospectus.
CONFIDENTIAL
<PAGE>
EXHIBIT 3.1
RESTATED CERTIFICATE OF INCORPORATION
OF
THE PETERSEN COMPANIES, INC.
ARTICLE I - Name
----------------
The name of the corporation is The Petersen Companies, Inc.
(hereinafter referred to as the "Corporation").
ARTICLE II - Registered Office
------------------------------
The address of the registered office of the Corporation in the State
of Delaware is 1013 Centre Road, in the City of Wilmington, County of New Castle
19805. The name of the registered agent of the Corporation at that address is
Corporation Service Company.
ARTICLE III - Purpose
---------------------
The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware (the "Delaware General Corporation Law").
ARTICLE IV - Capital Stock
--------------------------
Part A. General. The maximum number of shares of capital stock that
the Corporation is authorized to have outstanding at any one time is 105,000,000
shares, consisting of: (i) 5,000,000 shares of Preferred Stock, par value $0.01
per share (the "Preferred Stock"); (ii) 75,000,000 shares of Class A Common
Stock, par value $0.01 per share (the "Class A Common") and (iii) 25,000,000
shares of Class B Common Stock, par value $0.01 per share (the "Class B Common"
and, together with the Class A Common, the "Common Stock").
Part B. Preferred Stock. Authority is hereby expressly vested in the
Board of Directors of the Corporation, subject to the provisions of this ARTICLE
IV and to the limitations prescribed by law, to authorize the issuance from time
to time of one or more series of Preferred Stock. The authority of the Board of
Directors with respect to each series shall include, but not be limited to, the
determination or fixing of the following by resolution or resolutions adopted by
the affirmative vote of a majority of the total number of the Directors then in
office:
<PAGE>
(1) The designation of such series;
(2) The dividend rate of such series, the conditions and dates upon
which such dividends shall be payable, the relation which such dividends shall
bear to the dividends payable on any other class or classes or series of the
Corporation's capital stock and whether such dividends shall be cumulative or
non-cumulative;
(3) Whether the shares of such series shall be subject to redemption
for cash, property or rights, including securities of any other corporation, by
the Corporation or upon the happening of a specified event and, if made subject
to any such redemption, the times or events, prices, rates, adjustments and
other terms and conditions of such redemptions;
(4) The terms and amount of any sinking fund provided for the purchase
or redemption of the shares of such series;
(5) Whether or not the shares of such series shall be convertible
into, or exchangeable for, at the option of either the holder or the Corporation
or upon the happening of a specified event, shares of any other class or classes
or of any other series of the same class of the Corporation's capital stock and,
if provision be made for conversion or exchange, the times or events, prices,
rates, adjustments and other terms and conditions of such conversions or
exchanges;
(6) The restrictions, if any, on the issue or reissue of any
additional Preferred Stock;
(7) The rights of the holders of the shares of such series upon the
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation; and
(8) The provisions as to voting, optional and/or other special rights
and preferences, if any, including, without limitation, the right to elect one
or more Directors.
Part C. Common Stock. Except as otherwise provided in this Part C or
as otherwise required by applicable law, all shares of Class A Common and Class
B Common shall be identical in all respects and shall entitle the holders
thereof to the same rights, preferences and privileges, subject to the same
qualifications, limitations and restrictions, as set forth herein.
(1) Except as otherwise provided in this Part C or as otherwise
required by applicable law, the holders of Class A Common shall be entitled to
one vote per share on all matters to be voted on by the Corporation's
stockholders, and the holders of Class B Common shall have no right to vote on
any matters to be voted on by the Corporation's stockholders; provided that the
holders of the Class B Common shall have the right to vote as a separate class
on any merger or consolidation of the Corporation with or into another entity or
entities, or any recapitalization or reorganization, in which shares of Class B
Common would receive or be exchanged for consideration different on a per share
basis from the consideration received with respect to or in exchange for shares
of Class A Common or would otherwise be treated differently from shares of Class
A Common, except that shares of Class B Common may, without such a separate
class vote, receive or be exchanged for non-voting securities (except as
otherwise required by law) which are
-2-
<PAGE>
otherwise identical on a per share basis in amount and form to the voting
securities received with respect to or in exchange for the Class A Common so
long as (i) such non-voting securities are convertible into voting securities on
the same terms as the Class B Common is convertible into Class A Common and (ii)
all other consideration is equal on a per share basis.
(2) As and when dividends are declared or paid with respect to shares
of Common Stock, whether in cash, property or securities of the Corporation, the
holders of Class A Common and the holders of Class B Common shall be entitled to
receive such dividends pro rata at the same rate per share of each class of
Common Stock; provided that (i) if dividends are declared or paid in shares of
Class A Common or Class B Common, the dividends payable in shares of Class A
Common shall be payable to holders of Class A Common and the dividends payable
in shares of Class B Common shall be payable to holders of Class B Common and
(ii) if the dividends consist of other voting securities of the Corporation, the
Corporation shall make available to each holder of Class B Common, at such
holder's request, dividends consisting of non-voting securities (except as
otherwise required by law) of the Corporation which are otherwise identical to
the voting securities and which are convertible into such voting securities on
the same terms as the Class B Common is convertible into the Class A Common.
The rights of the holders of Common Stock to receive dividends are subject to
the provisions of the Preferred Stock.
(3) Subject to the provisions of the Preferred Stock, the holders of
the Class A Common and the holders of the Class B Common shall be entitled to
participate pro rata at the same rate per share of each class of Common Stock in
all distributions to the holders of the Common Stock in any liquidation,
dissolution or winding up of the Corporation.
(4) Conversion.
(a) Conversion of Class B Common.
(i) In connection with the occurrence (or the expected
occurrence as described in (iii) below) of any Conversion Event, each holder of
Class B Common shall be entitled to convert into an equal number of shares of
Class A Common any or all of the shares of such holder's Class B Common being
(or expected to be) distributed, disposed of or sold in connection with such
Conversion Event.
(ii) For purposes of this paragraph (4)(a) of this Part C, a
"Conversion Event" shall mean (a) any public offering or public sale of
securities of the Corporation (including a public offering registered under the
Securities Act of 1933 and a public sale pursuant to Rule 144 of the Securities
and Exchange Commission or any similar rule then in force), (b) any sale of
securities of the Corporation to a person or group of persons (within the
meaning of the Securities Exchange Act of 1934, as amended (the "Exchange Act"))
if, after such sale, such person or group of persons in the aggregate would own
or control securities which possess in the aggregate the ordinary voting power
to elect a majority of the Corporation's directors (provided that such sale has
been approved by the Corporation's Board of Directors or a committee thereof),
(c) any sale of securities of the Corporation to a person or group of persons
(within the meaning of the Exchange Act) if, after such sale, such person or
group of persons in the aggregate would own or control securities of the
Corporation (excluding any Class B Common being converted and disposed of in
-3-
<PAGE>
connection with such Conversion Event) which possess in the aggregate the
ordinary voting power to elect a majority of the Corporation's directors, (d)
any sale of securities of the Corporation to a person or group of persons
(within the meaning of the Exchange Act) if, after such sale, such person or
group of persons would not, in the aggregate, own, control or have the right to
acquire more than two percent (2%) of the outstanding securities of any class of
voting securities of the Corporation, and (e) a merger, consolidation or similar
transaction involving the Corporation if, after such transaction, a person or
group of persons (within the meaning of the Exchange Act) in the aggregate would
own or control securities which possess in the aggregate the ordinary voting
power to elect a majority of the surviving corporation's directors (provided
that the transaction has been approved by the Corporation's Board of Directors
or a committee thereof). For purposes of this paragraph (4)(a) of this Part C,
a "person" shall include any natural person and any corporation, partnership,
joint venture, trust, unincorporated organization and any other entity or
organization.
(iii) Each holder of Class B Common shall be entitled to
convert shares of Class B Common in connection with any Conversion Event if such
holder reasonably believes that such Conversion Event shall be consummated, and
a written request for conversion from any holder of Class B Common to the
Corporation stating such holder's reasonable belief that a Conversion Event
shall occur shall be conclusive and shall obligate the Corporation to effect
such conversion in a timely manner so as to enable each such holder to
participate in such Conversion Event. The Corporation shall not cancel the
shares of Class B Common so converted before the tenth day following such
Conversion Event and shall reserve such shares until such tenth day for
reissuance in compliance with the next sentence. If any shares of Class B Common
are converted into shares of Class A Common in connection with a Conversion
Event and such shares of Class A Common are not actually distributed, disposed
of or sold pursuant to such Conversion Event, such shares of Class A Common
shall be promptly converted back into the same number of shares of Class B
Common.
(b) Conversion Procedure.
--------------------
(i) Unless otherwise provided in connection with a Conversion
Event, each conversion of shares of Class B Common into shares of Class A Common
shall be effected by the surrender of the certificate or certificates
representing the shares to be converted at the principal office of the
Corporation at any time during normal business hours, together with a written
notice by the holder of such Class B Common stating that such holder desires to
convert the shares, or a stated number of the shares, of Class B Common
represented by such certificate or certificates into Class A Common. Unless
otherwise provided in connection with a Conversion Event, each conversion shall
be deemed to have been effected as of the close of business on the date on which
such certificate or certificates have been surrendered and such notice has been
received, and at such time the rights of the holder of the converted Class B
Common as such holder shall cease and the person or persons in whose name or
names the certificate or certificates for shares of Class A Common are to be
issued upon such conversion shall be deemed to have become the holder or holders
of record of the shares of Class A Common represented thereby.
(ii) Promptly after the surrender of certificates and the
receipt of such written notice, the Corporation shall issue and deliver in
accordance with the surrendering holder's instructions (a) the certificate or
certificates for the Class A Common issuable upon such
-4-
<PAGE>
conversion and (b) a certificate representing any Class B Common which was
represented by the certificate or certificates delivered to the Corporation in
connection with such conversion but which was not converted.
(iii) The issuance of certificates for Class A Common upon
conversion of Class B Common shall be made without charge to the holders of such
shares for any issuance tax in respect thereof or other cost incurred by the
Corporation in connection with such conversion and the related issuance of Class
A Common.
(iv) The Corporation shall at all times reserve and keep
available out of its authorized but unissued shares of Class A Common, solely
for the purpose of issuance upon the conversion of the Class B Common, such
number of shares of Class A Common issuable upon the conversion of all
outstanding Class B Common. All shares of Class A Common which are so issuable
shall, when issued, be duly and validly issued, fully paid and nonassessable and
free from all taxes, liens and charges. The Corporation shall take all such
actions as may be necessary to assure that all such shares of Class A Common may
be so issued without violation of any applicable law or governmental regulation
or any requirements of any domestic securities exchange upon which shares of
Class A Common may be listed (except for official notice of issuance which shall
be immediately transmitted by the Corporation upon issuance).
(v) The Corporation shall not close its books against the
transfer of Class B Common or of Class A Common issued or issuable upon
conversion of Class B Common in any manner which would interfere with the timely
conversion of Class B Common. The Corporation shall assist and cooperate with
any holder of Class B Common required to make any governmental filings or obtain
any governmental approval prior to or in connection with any conversion of Class
B Common hereunder (including, without limitation, making any filings required
to be made by the Corporation).
(c) Stock Splits. If the Corporation in any manner subdivides or
combines the outstanding shares of one class of Common Stock, the outstanding
shares of the other class of Common Stock shall be proportionately subdivided or
combined in a similar manner.
ARTICLE V - Existence
---------------------
The Corporation is to have perpetual existence.
ARTICLE VI - By-laws
--------------------
In furtherance and not in limitation of the powers conferred by the
Delaware General Corporation Law, the Board of Directors of the Corporation is
expressly authorized to make, alter, amend, change, add to or repeal the By-laws
of the Corporation by the affirmative vote of a majority of the total number of
Directors then in office. Any alteration or repeal of the By-laws of the
Corporation by the stockholders of the Corporation shall require the affirmative
vote of at least a majority of the voting power of the then outstanding shares
of capital stock of the Corporation
-5-
<PAGE>
entitled to vote on such alteration or repeal, subject to ARTICLE IX hereof and
ARTICLE VII of the Corporation's By-laws.
ARTICLE VII - Stockholders and Directors
----------------------------------------
Part A. Stockholder Action. Election of Directors need not be by
written ballot unless the By-laws of the Corporation so provide. Subject to any
rights of holders of any series of Preferred Stock, from and after the date on
which the Class A Common of the Corporation is registered pursuant to the
Exchange Act, (i) any action required or permitted to be taken by the
stockholders of the Corporation must be effected at an annual or special meeting
of stockholders of the Corporation and may not be effected in lieu thereof by
any consent in writing by such stockholders, (ii) special meetings of
stockholders of the Corporation may be called only by either the Board of
Directors pursuant to a resolution adopted by the affirmative vote of the
majority of the total number of Directors then in office or by the chief
executive officer of the Corporation and (iii) advance notice of stockholder
nominations of persons for election to the Board of Directors of the Corporation
and of business to be brought before any annual meeting of the stockholders by
the stockholders of the Corporation shall be given in the manner provided in the
By-laws of the Corporation.
Part B. Number of Directors and Term of Office. Subject to any rights
of holders of any series of Preferred Stock to elect additional Directors under
specified circumstances, the number of Directors which shall constitute the
Board of Directors of the Corporation shall be fixed from time to time in the
manner set forth in the By-laws of the Corporation. The Directors of the
Corporation shall be divided into three classes: Class I, Class II and Class
III. Membership in such class shall be as nearly equal in number as possible.
The term of office of the initial Class I Directors shall expire at the annual
election of Directors by the stockholders of the Corporation in 1998, the term
of office of the initial Class II Directors shall expire at the annual election
of Directors by the stockholders of the Corporation in 1999 and the term of
office of the initial Class III Directors shall expire at the annual election of
Directors by the stockholders of the Corporation in 2000, or thereafter when
their respective successors in each case are elected by the stockholders and
qualified, subject however, to prior death, resignation, retirement,
disqualification or removal from office for cause. At each succeeding annual
election of Directors by the stockholders of the Corporation beginning in 1998,
the Directors chosen to succeed those whose terms then expire shall be
identified as being of the same class as the Directors they succeed and shall be
elected for a term expiring at the third succeeding annual election of Directors
by the stockholders of the Corporation, or thereafter when their respective
successors in each case are elected by the stockholders and qualified. If the
number of Directors is changed, any increase or decrease shall be apportioned
among the classes so as to maintain the number of Directors in each class as
nearly equal as possible, and any additional Director of any class elected to
fill a vacancy resulting from an increase in such class shall hold office for a
term that shall coincide with the remaining term of that class, but in no case
shall a decrease in the number of Directors shorten the term of any incumbent
Director.
Part C. Removal and Resignation. No Director may be removed from
office without cause and without the affirmative vote of the holders of a
majority of the voting power of the then outstanding shares of capital stock of
the Corporation entitled to vote generally in the
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election of Directors voting together as a single class; provided, however, that
if the holders of any class or series of capital stock are entitled by the
provisions of this Restated Certificate (it being understood that any references
to this Restated Certificate shall include any duly authorized certificate of
designation) to elect one or more Directors, such Director or Directors so
elected may be removed without cause only by the vote of the holders of a
majority of the outstanding shares of that class or series entitled to vote.
Any Director may resign at any time upon written notice to the Corporation.
Part D. Vacancies and Newly Created Directorships. Subject to any
rights of holders of any series of Preferred Stock to fill such newly created
Directorships or vacancies, any newly created Directorships resulting from any
increase in the authorized number of Directors and any vacancies in the Board of
Directors resulting from death, resignation, disqualification or removal from
office for cause shall, unless otherwise provided by law or by resolution
approved by the affirmative vote of a majority of the total number of Directors
then in office, be filled only by resolution approved by the affirmative vote of
a majority of the total number of Directors then in office. Any Director so
chosen shall hold office until the next election of the class for which such
Director shall have been chosen, and until his successor shall have been duly
elected and qualified, unless he shall resign, die, become disqualified or be
removed for cause.
Part E. Effectiveness. The provisions of this ARTICLE VII shall
terminate and be of no further force and effect in the event that the initial
public offering of the Corporation's Common Stock as contemplated by the
Corporation's Prospectus included in the Registration Statement is not
consummated within 30 days of the Effective Date.
ARTICLE VIII - General Provisions
---------------------------------
Part A. Dividends. The Board of Directors shall have authority
from time to time to set apart out of any assets of the Corporation otherwise
available for dividends a reserve or reserves as working capital or for any
other purpose or purposes, and to abolish or add to any such reserve or reserves
from time to time as said Board may deem to be in the interest of the
Corporation; and said Board shall likewise have power to determine in its
discretion, except as herein otherwise provided, what part of the assets of the
Corporation available for dividends in excess of such reserve or reserves shall
be declared in dividends and paid to the stockholders of the Corporation.
Part B. Issuance of Stock. The shares of all classes of stock of
the Corporation may be issued by the Corporation from time to time for such
consideration as from time to time may be fixed by the Board of Directors of the
Corporation, provided that shares of stock having a par value shall not be
issued for a consideration less than such par value, as determined by the Board.
At any time, or from time to time, the Corporation may grant rights or options
to purchase from the Corporation any shares of its stock of any class or classes
to run for such period of time, for such consideration, upon such terms and
conditions, and in such form as the Board of Directors may determine. The Board
of Directors shall have authority, as provided by law, to determine that only a
part of the consideration which shall be received by the Corporation for the
shares of its stock which it shall issue from time to time, shall be capital;
provided, however, that,
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if all the shares issued shall be shares having a par value, the amount of the
part of such consideration so determined to be capital shall be equal to the
aggregate par value of such shares. The excess, if any, at any time, of the
total net assets of the Corporation over the amount so determined to be capital,
as aforesaid, shall be surplus. All classes of stock of the Corporation shall
be and remain at all times nonassessable.
The Board of Directors is hereby expressly authorized, in its
discretion, in connection with the issuance of any obligations or stock of the
Corporation (but without intending hereby to limit its general power so to do in
other cases), to grant rights or options to purchase stock of the Corporation of
any class upon such terms and during such period as the Board of Directors shall
determine, and to cause such rights to be evidenced by such warrants or other
instruments as it may deem advisable.
Part C. Inspection of Books and Records. The Board of Directors
shall have power from time to time to determine to what extent and at what times
and places and under what conditions and regulations the accounts and books of
the Corporation, or any of them, shall be open to the inspection of the
stockholders; and no stockholder shall have any right to inspect any account or
book or document of the Corporation, except as conferred by the laws of the
State of Delaware, unless and until authorized so to do by resolution of the
Board of Directors or of the stockholders of the Corporation.
Part D. Location of Meetings, Books and Records. Except as
otherwise provided in the By-laws, the stockholders of the Corporation and the
Board of Directors may hold their meetings and have an office or offices outside
of the State of Delaware and, subject to the provisions of the laws of said
State, may keep the books of the Corporation outside of said State at such
places as may, from time to time, be designated by the Board of Directors.
ARTICLE IX - Amendments
-----------------------
The Corporation reserves the right to amend, alter, change or repeal
any provision contained in this Restated Certificate in the manner now or
hereinafter prescribed herein and by the laws of the State of Delaware, and all
rights conferred upon stockholders herein are granted subject to this
reservation. Notwithstanding anything contained in this Restated Certificate to
the contrary, Parts A, B and C of ARTICLE IV, ARTICLE VII, ARTICLE X, and this
ARTICLE IX of this Restated Certificate shall not be altered, amended or
repealed and no provision inconsistent therewith shall be adopted without the
affirmative vote of the holders of at least 662/3% of the voting power of the
then outstanding shares of capital stock of the Corporation entitled to vote on
such alteration, amendment or repeal, voting together as a single class (other
than any alteration or amendment to Part A of ARTICLE IV that increases the
authorized number of shares of Preferred Stock, Class A Common or Class B
Common); provided further that no amendment or waiver of any provision of Part C
of ARTICLE IV shall be effective without the prior approval of the holders of a
majority of the then outstanding Class B Common voting as a separate class.
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ARTICLE X - Liability
---------------------
Part A. Limitation of Liability.
------- -----------------------
(1) To the fullest extent permitted by the Delaware General
Corporation Law as it now exists or may hereafter be amended (but, in the case
of any such amendment, only to the extent that such amendment permits the
Corporation to provide broader indemnification rights than permitted prior
thereto), and except as otherwise provided in the Corporation's By-laws, no
Director of the Corporation shall be liable to the Corporation or its
stockholders for monetary damages arising from a breach of fiduciary duty owed
to the Corporation or its stockholders.
(2) Any repeal or modification of the foregoing paragraph by the
stockholders of the Corporation shall not adversely affect any right or
protection of a Director of the Corporation existing at the time of such repeal
or modification.
Part B. Right to Indemnification. Each person who was or is made a
party or is threatened to be made a party to or is otherwise involved (including
involvement as a witness) in any action, suit or proceeding, whether civil,
criminal, administrative or investigative (a "proceeding"), by reason of the
fact that he or she is or was a Director or officer of the Corporation or, while
a Director or officer of the Corporation, is or was serving at the request of
the Corporation as a Director, officer, employee or agent of another corporation
or of a partnership, joint venture, trust or other enterprise, including service
with respect to an employee benefit plan (an "indemnitee"), whether the basis of
such proceeding is alleged action in an official capacity as a Director or
officer or in any other capacity while serving as a Director or officer, shall
be indemnified and held harmless by the Corporation to the fullest extent
authorized by the Delaware General Corporation Law, as the same exists or may
hereafter be amended (but, in the case of any such amendment, only to the extent
that such amendment permits the Corporation to provide broader indemnification
rights than permitted prior thereto), against all expense, liability and loss
(including attorneys' fees, judgments, fines, excise exercise taxes or penalties
and amounts paid in settlement) reasonably incurred or suffered by such
indemnitee in connection therewith and such indemnification shall continue as to
an indemnitee who has ceased to be a Director, officer, employee or agent and
shall inure to the benefit of the indemnitee's heirs, executors and
administrators; provided, however, that, except as provided in Part C of this
ARTICLE X with respect to proceedings to enforce rights to indemnification, the
Corporation shall indemnify any such indemnitee in connection with a proceeding
(or part thereof) initiated by such indemnitee only if such proceeding (or part
thereof) was authorized by the Board of Directors of the Corporation. The right
to indemnification conferred in this Part B of this ARTICLE X shall be a
contract right and shall include the obligation of the Corporation to pay the
expenses incurred in defending any such proceeding in advance of its final
disposition (an "advance of expenses"); provided, however, that, if and to the
extent that the Delaware General Corporation Law requires, an advance of
expenses incurred by an indemnitee in his or her capacity as a Director or
officer (and not in any other capacity in which service was or is rendered by
such indemnitee, including, without limitation, service to an employee benefit
plan) shall be made only upon delivery to the Corporation of an undertaking (an
"undertaking"), by or on behalf of such indemnitee, to repay all amounts so
advanced if it shall ultimately be determined by final judicial decision from
which there is no further right to appeal (a "final adjudication") that such
indemnitee is not entitled to be indemnified for such
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<PAGE>
expenses under this Part B or otherwise. The Corporation may, by action of its
Board of Directors, provide indemnification to employees and agents of the
Corporation with the same or lesser scope and effect as the foregoing
indemnification of Directors and officers.
Part C. Procedure for Indemnification. Any indemnification of a
Director or officer of the Corporation or advance of expenses under Part B of
this ARTICLE X shall be made promptly, and in any event within forty-five days
(or, in the case of an advance of expenses, twenty days), upon the written
request of the Director or officer. If a determination by the Corporation that
the Director or officer is entitled to indemnification pursuant to this ARTICLE
X is required, and the Corporation fails to respond within sixty days to a
written request for indemnity, the Corporation shall be deemed to have approved
the request. If the Corporation denies a written request for indemnification or
advance of expenses, in whole or in part, or if payment in full pursuant to such
request is not made within forty-five days (or, in the case of an advance of
expenses, twenty days), the right to indemnification or advances as granted by
this ARTICLE X shall be enforceable by the Director or officer in any court of
competent jurisdiction. Such person's costs and expenses incurred in connection
with successfully establishing his or her right to indemnification, in whole or
in part, in any such action shall also be indemnified by the Corporation. It
shall be a defense to any such action (other than an action brought to enforce a
claim for the advance of expenses where the undertaking required pursuant to
Part B of this ARTICLE X, if any, has been tendered to the Corporation) that the
claimant has not met the standards of conduct which make it permissible under
the Delaware General Corporation Law for the Corporation to indemnify the
claimant for the amount claimed, but the burden of such defense shall be on the
Corporation. Neither the failure of the Corporation (including its Board of
Directors, independent legal counsel or its stockholders) to have made a
determination prior to the commencement of such action that indemnification of
the claimant is proper in the circumstances because he or she has met the
applicable standard of conduct set forth in the Delaware General Corporation
Law, nor an actual determination by the Corporation (including its Board of
Directors, independent legal counsel or its stockholders) that the claimant has
not met such applicable standard of conduct, shall be a defense to the action or
create a presumption that the claimant has not met the applicable standard of
conduct. The procedure for indemnification of other employees and agents for
whom indemnification is provided pursuant to Part B of this ARTICLE X shall be
the same procedure set forth in this Part C for Directors or officers, unless
otherwise set forth in the action of the Board of Directors providing
indemnification for such employee or agent.
Part D. Insurance. The Corporation may purchase and maintain
insurance on its own behalf and on behalf of any person who is or was a
Director, officer, employee or agent of the Corporation or was serving at the
request of the Corporation as a Director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against any
expense, liability or loss asserted against him or her and incurred by him or
her in any such capacity, whether or not the Corporation would have the power to
indemnify such person against such expenses, liability or loss under the
Delaware General Corporation Law.
Part E. Service for Subsidiaries. Any person serving as a Director,
officer, employee or agent of another corporation, partnership, limited
liability company, joint venture or other enterprise, at least 50% of whose
equity interests are owned by the Corporation (a "subsidiary"
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for this ARTICLE X) shall be conclusively presumed to be serving in such
capacity at the request of the Corporation.
Part F. Reliance. Persons who after the date of the adoption of
this provision become or remain Directors or officers of the Corporation or who,
while a Director or officer of the Corporation, become or remain a Director,
officer, employee or agent of a subsidiary, shall be conclusively presumed to
have relied on the rights to indemnity, advance of expenses and other rights
contained in this ARTICLE X in entering into or continuing such service. The
rights to indemnification and to the advance of expenses conferred in this
ARTICLE X shall apply to claims made against an indemnitee arising out of acts
or omissions which occurred or occur both prior and subsequent to the adoption
hereof.
Part G. Non-Exclusivity of Rights. The rights to indemnification and
to the advance of expenses conferred in this ARTICLE X shall not be exclusive of
any other right which any person may have or hereafter acquire under this
Restated Certificate or under any statute, by-law, agreement, vote of
stockholders or disinterested Directors or otherwise.
Part H. Merger or Consolidation. For purposes of this ARTICLE X,
references to the "Corporation" shall include, in addition to the resulting
Corporation, any constituent Corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
Directors, officers and employees or agents, so that any person who is or was a
Director, officer, employee or agent of such constituent Corporation, or is or
was serving at the request of such constituent Corporation as a Director,
officer, employee or agent of another Corporation, partnership, joint venture,
trust or other enterprise, shall stand in the same position under this ARTICLE X
with respect to the resulting or surviving Corporation as he or she would have
with respect to such constituent Corporation if its separate existence had
continued.
ARTICLE XI - Business Combinations
----------------------------------
The Corporation expressly elects to be governed by Section 203 of the
Delaware General Corporation Law.
* * * * *
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EXHIBIT 3.2
AMENDED AND RESTATED BY-LAWS
OF
THE PETERSEN COMPANIES, INC.
A Delaware Corporation
(Adopted as of September __, 1997)
ARTICLE I
---------
OFFICES
-------
Section 1. Registered Office. The registered office of The Petersen
Companies, Inc. (the "Corporation") in the State of Delaware shall be located at
1013 Centre Road, in the City of Wilmington, Delaware, County of New Castle
19805. The name of the Corporation's registered agent at such address shall be
Corporation Service Company. The registered office and/or registered agent of
the Corporation may be changed from time to time by action of the Board of
Directors.
Section 2. Other Offices. The Corporation may also have offices at such
other places, both within and without the State of Delaware, as the Board of
Directors may from time to time determine or the business of the Corporation may
require.
ARTICLE II
----------
MEETINGS OF STOCKHOLDERS
------------------------
Section 1. Annual Meeting. An annual meeting of the stockholders shall be
held each year within 150 days after the close of the immediately preceding
fiscal year of the Corporation or at such other time specified by the Board of
Directors for the purpose of electing Directors and conducting such other proper
business as may come before the annual meeting. At the annual meeting,
stockholders shall elect Directors and transact such other business as properly
may be brought before the annual meeting pursuant to Section 11 of ARTICLE II
hereof.
Section 2. Special Meetings. Special meetings of the stockholders may only
be called in the manner provided in the Restated Certificate of Incorporation.
Section 3. Place of Meetings. The Board of Directors may designate any
place, either within or without the State of Delaware, as the place of meeting
for any annual meeting or for any special meeting. If no designation is made, or
if a special meeting be otherwise called, the place of meeting shall be the
principal executive office of the Corporation. If for any reason any annual
meeting shall not be held during any year, the business thereof may be
transacted at any special meeting of the stockholders.
<PAGE>
Section 4. Notice. Whenever stockholders are required or permitted to take
action at a meeting, written or printed notice stating the place, date, time
and, in the case of special meetings, the purpose or purposes, of such meeting,
shall be given to each stockholder entitled to vote at such meeting not less
than 10 nor more than 60 days before the date of the meeting. All such notices
shall be delivered, either personally or by mail, by or at the direction of the
Board of Directors, the chairman of the board, the president or the secretary,
and if mailed, such notice shall be deemed to be delivered when deposited in the
United States mail, postage prepaid, addressed to the stockholder at his, her or
its address as the same appears on the records of the Corporation. Attendance of
a person at a meeting shall constitute a waiver of notice of such meeting,
except when the person attends for the express purpose of objecting at the
beginning of the meeting to the transaction of any business because the meeting
is not lawfully called or convened.
Section 5. Stockholders List. The officer having charge of the stock
ledger of the Corporation shall make, at least 10 days before every meeting of
the stockholders, a complete list of the stockholders entitled to vote at such
meeting arranged in alphabetical order, showing the address of each stockholder
and the number of shares registered in the name of each stockholder. Such list
shall be open to the examination of any stockholder, for any purpose germane to
the meeting, during ordinary business hours, for a period of at least 10 days
prior to the meeting, either at a place within the city where the meeting is to
be held, which place shall be specified in the notice of the meeting or, if not
so specified, at the place where the meeting is to be held. The list shall also
be produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
Section 6. Quorum. The holders of a majority of the outstanding shares of
capital stock entitled to vote, present in person or represented by proxy, shall
constitute a quorum at all meetings of the stockholders, except as otherwise
provided by the General Corporation Law of the State of Delaware or by the
Restated Certificate of Incorporation. If a quorum is not present, the holders
of a majority of the shares present in person or represented by proxy at the
meeting, and entitled to vote at the meeting, may adjourn the meeting to another
time and/or place. When a specified item of business requires a vote by a class
or series (if the Corporation shall then have outstanding shares of more than
one class or series) voting as a class or series, the holders of a majority of
the shares of such class or series shall constitute a quorum (as to such class
or series) for the transaction of such item of business.
Section 7. Adjourned Meetings. When a meeting is adjourned to another time
and place, notice need not be given of the adjourned meeting if the time and
place thereof are announced at the meeting at which the adjournment is taken. At
the adjourned meeting the Corporation may transact any business which might have
been transacted at the original meeting. If the adjournment is for more than 30
days, or if after the adjournment a new record date is fixed for the adjourned
meeting, a notice of the adjourned meeting shall be given to each stockholder of
record entitled to vote at the meeting.
Section 8. Vote Required. When a quorum is present, the affirmative vote
of the majority of shares present in person or represented by proxy at the
meeting and entitled to vote on the subject matter shall be the act of the
stockholders, unless (i) by express provisions of an applicable law or
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<PAGE>
of the Restated Certificate of Incorporation a different vote is required, in
which case such express provision shall govern and control the decision of such
question, or (ii) the subject matter is the election of Directors, in which case
Section 2 of ARTICLE III hereof shall govern and control the approval of such
subject matter.
Section 9. Voting Rights. Except as otherwise provided by the General
Corporation Law of the State of Delaware, the Restated Certificate of
Incorporation of the Corporation or any amendments thereto or these By-laws,
every stockholder shall at every meeting of the stockholders be entitled to (i)
one vote in person or by proxy for each share of common stock (other than Class
B Common Stock) held by such stockholder and (ii) no vote in person or by proxy
for each share of Class B Common Stock held by such stockholder.
Section 10. Proxies. Each stockholder entitled to vote at a meeting of
stockholders or to express consent or dissent to corporate action in writing
without a meeting may authorize another person or persons to act for him or her
by proxy, but no such proxy shall be voted or acted upon after three years from
its date, unless the proxy provides for a longer period. A duly executed proxy
shall be irrevocable if it states that it is irrevocable and if, and only as
long as, it is coupled with an interest sufficient in law to support an
irrevocable power. A proxy may be made irrevocable regardless of whether the
interest with which it is coupled is an interest in the stock itself or an
interest in the Corporation generally. Any proxy is suspended when the person
executing the proxy is present at a meeting of stockholders and elects to vote,
except that when such proxy is coupled with an interest and the fact of the
interest appears on the face of the proxy, the agent named in the proxy shall
have all voting and other rights referred to in the proxy, notwithstanding the
presence of the person executing the proxy. At each meeting of the stockholders,
and before any voting commences, all proxies filed at or before the meeting
shall be submitted to and examined by the secretary or a person designated by
the secretary, and no shares may be represented or voted under a proxy that has
been found to be invalid or irregular.
Section 11. Business Brought Before an Annual Meeting. At an annual
meeting of the stockholders, only such business shall be conducted as shall have
been properly brought before the meeting. To be properly brought before an
annual meeting, business must be (i) specified in the notice of meeting (or any
supplement thereto) given by or at the direction of the Board of Directors, (ii)
brought before the meeting by or at the direction of the Board of Directors or
(iii) otherwise properly brought before the meeting by a stockholder. For
business to be properly brought before an annual meeting by a stockholder, the
stockholder must have given timely notice thereof in writing to the secretary of
the Corporation. To be timely, a stockholder's notice must be delivered to or
mailed and received at the principal executive offices of the Corporation, not
less than 60 days nor more than 90 days prior to the meeting; provided, however,
that in the event that less than 70 days' notice or prior public announcement of
the date of the meeting is given or made to stockholders, notice by the
stockholder to be timely must be so received not later than the close of
business on the 10th day following the date on which such notice of the date of
the annual meeting was mailed or such public announcement was made. A
stockholder's notice to the secretary shall set forth as to each matter the
stockholder proposes to bring before the annual meeting (i) a brief description
of the business desired to be brought before the annual meeting, (ii) the name
and address, as they appear on the Corporation's books, of the stockholder
proposing such business, (iii) the class and number
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of shares of the Corporation which are beneficially owned by the stockholder and
(iv) any material interest of the stockholder in such business. Notwithstanding
anything in these By-laws to the contrary, no business shall be conducted at an
annual meeting except in accordance with the procedures set forth in this
section. The presiding officer of an annual meeting shall, if the facts warrant,
determine and declare to the meeting that business was not properly brought
before the meeting and in accordance with the provisions of this section; if he
should so determine, he shall so declare to the meeting and any such business
not properly brought before the meeting shall not be transacted. For purposes of
this section, "public announcement" shall mean disclosure in a press release
reported by Dow Jones News Service, Associated Press or a comparable national
news service. Nothing in this section shall be deemed to affect any rights of
stockholders to request inclusion of proposals in the Corporation's proxy
statement pursuant to Rule 14a-8 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act").
ARTICLE III
-----------
Directors
---------
Section 1. General Powers. The business and affairs of the Corporation
shall be managed by or under the direction of the Board of Directors. In
addition to such powers as are herein and in the Restated Certificate of
Incorporation expressly conferred upon it, the Board of Directors shall have and
may exercise all the powers of the Corporation, subject to the provisions of the
laws of Delaware, the Restated Certificate of Incorporation and these By-laws.
Section 2. Number, Election and Term of Office. Subject to any rights of
the holders of any series of Preferred Stock to elect additional Directors under
specified circumstances, the number of Directors which shall constitute the
Board of Directors shall be fixed from time to time by resolution adopted by the
affirmative vote of a majority of the total number of Directors then in office.
The Directors shall be elected by a plurality of the votes of the shares present
in person or represented by proxy at the meeting and entitled to vote in the
election of Directors; provided that, whenever the holders of any class or
series of capital stock of the Corporation are entitled to elect one or more
Directors pursuant to the provisions of the Restated Certificate of
Incorporation of the Corporation (including, but not limited to, for purposes of
these By-laws, pursuant to any duly authorized certificate of designation), such
Directors shall be elected by a plurality of the votes of such class or series
present in person or represented by proxy at the meeting and entitled to vote in
the election of such Directors. The Directors shall be elected and shall hold
office only in the manner provided in the Restated Certificate of Incorporation.
Section 3. Removal and Resignation. No Director may be removed from office
without cause and without the affirmative vote of the holders of a majority of
the voting power of the then outstanding shares of capital stock entitled to
vote generally in the election of Directors voting together as a single class;
provided, however, that if the holders of any class or series of capital stock
are entitled by the provisions of the Restated Certificate of Incorporation (it
being understood that any references to the Restated Certificate of
Incorporation shall include any duly authorized certificate of designation) to
elect one or more Directors, such Director or Directors so elected may
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<PAGE>
be removed without cause only by the vote of the holders of a majority of the
outstanding shares of that class or series entitled to vote. Any Director may
resign at any time upon written notice to the Corporation.
Section 4. Vacancies. Vacancies and newly created directorships resulting
from any increase in the total number of Directors may be filled only in the
manner provided in the Restated Certificate of Incorporation.
Section 5. Nominations.
(a) Only persons who are nominated in accordance with the procedures
set forth in these By-laws shall be eligible to serve as Directors. Nominations
of persons for election to the Board of Directors of the Corporation may be made
at a meeting of stockholders (i) by or at the direction of the Board of
Directors or (ii) by any stockholder of the Corporation who was a stockholder of
record at the time of giving of notice provided for in this By-law, who is
entitled to vote generally in the election of Directors at the meeting and who
shall have complied with the notice procedures set forth below in Section 5(b).
(b) In order for a stockholder to nominate a person for election to
the Board of Directors of the Corporation at a meeting of stockholders, such
stockholder shall have delivered timely notice of such stockholder's intent to
make such nomination in writing to the secretary of the Corporation. To be
timely, a stockholder's notice shall be delivered to or mailed and received at
the principal executive offices of the Corporation (i) in the case of an annual
meeting, not less than 60 nor more than 90 days prior to the first anniversary
of the preceding year's annual meeting; provided, however, that in the event
that the date of the annual meeting is changed by more than 30 days from such
anniversary date, notice by the stockholder to be timely must be so received not
later than the close of business on the 10th day following the earlier of the
day on which notice of the date of the meeting was mailed or public disclosure
of the meeting was made, and (ii) in the case of a special meeting at which
Directors are to be elected, not later than the close of business on the 10th
day following the earlier of the day on which notice of the date of the meeting
was mailed or public disclosure of the meeting was made. Such stockholder's
notice shall set forth (i) as to each person whom the stockholder proposes to
nominate for election as a Director at such meeting all information relating to
such person that is required to be disclosed in solicitations of proxies for
election of Directors, or is otherwise required, in each case pursuant to
Regulation 14A under the Exchange Act (including such person's written consent
to being named in the proxy statement as a nominee and to serving as a Director
if elected); (ii) as to the stockholder giving the notice (A) the name and
address, as they appear on the Corporation's books, of such stockholder and (B)
the class and number of shares of the Corporation which are beneficially owned
by such stockholder and also which are owned of record by such stockholder; and
(iii) as to the beneficial owner, if any, on whose behalf the nomination is
made, (A) the name and address of such person and (B) the class and number of
shares of the Corporation which are beneficially owned by such person. At the
request of the Board of Directors, any person nominated by the Board of
Directors for election as a Director shall furnish to the secretary of the
Corporation that information required to be set forth in a stockholder's notice
of nomination which pertains to the nominee.
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<PAGE>
(c) No person shall be eligible to serve as a Director of the
Corporation unless nominated in accordance with the procedures set forth in this
section. The chairman of the meeting shall, if the facts warrant, determine and
declare to the meeting that a nomination was not made in accordance with the
procedures prescribed by this section, and if he should so determine, he shall
so declare to the meeting and the defective nomination shall be disregarded. A
stockholder seeking to nominate a person to serve as a Director must also comply
with all applicable requirements of the Exchange Act, and the rules and
regulations thereunder with respect to the matters set forth in this section.
Section 6. Annual Meetings. The annual meeting of the Board of Directors
shall be held without other notice than this By-law immediately after, and at
the same place as, the annual meeting of stockholders.
Section 7. Other Meetings and Notice. Regular meetings, other than the
annual meeting, of the Board of Directors may be held without notice at such
time and at such place as shall from time to time be determined by resolution of
the Board of Directors. Special meetings of the Board of Directors may be called
by the chairman of the board, the president (if the president is a Director) or,
upon the written request of at least a majority of the Directors then in office,
the secretary of the Corporation on at least 24 hours notice to each Director,
either personally, by telephone, by mail or by telecopy.
Section 8. Chairman of the Board, Quorum, Required Vote and Adjournment.
The Board of Directors shall elect, by the affirmative vote of a majority of the
total number of Directors then in office, a chairman of the board, who shall
preside at all meetings of the stockholders and Board of Directors at which he
or she is present and shall have such powers and perform such duties as the
Board of Directors may from time to time prescribe. If the chairman of the board
is not present at a meeting of the stockholders or the Board of Directors, the
president (if the president is a Director and is not also the chairman of the
board) shall preside at such meeting, and, if the president is not present at
such meeting, a majority of the Directors present at such meeting shall elect
one of their members to so preside. A majority of the total number of Directors
then in office shall constitute a quorum for the transaction of business. Unless
by express provision of an applicable law, the Restated Certificate of
Incorporation or these By-laws a different vote is required, the vote of a
majority of Directors present at a meeting at which a quorum is present shall be
the act of the Board of Directors. If a quorum shall not be present at any
meeting of the Board of Directors, the Directors present thereat may adjourn the
meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present.
Section 9. Committees. The Board of Directors may, by resolution passed by
a majority of the total number of Directors then in office, designate one or
more committees, each committee to consist of one or more of the Directors of
the Corporation, which to the extent provided in such resolution or these By-
laws shall have, and may exercise, the powers of the Board of Directors in the
management and affairs of the Corporation, except as otherwise limited by law.
The Board of Directors may designate one or more Directors as alternate members
of any committee, who may replace any absent or disqualified member at any
meeting of the committee. Such committee or committees shall have such name or
names as may be determined from time to time by resolution
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<PAGE>
adopted by the Board of Directors. Each committee shall keep regular minutes of
its meetings and report the same to the Board of Directors upon request.
Section 10. Committee Rules. Each committee of the Board of Directors may
fix its own rules of procedure and shall hold its meetings as provided by such
rules, except as may otherwise be provided by a resolution of the Board of
Directors designating such committee. Unless otherwise provided in such a
resolution, the presence of at least a majority of the members of the committee
shall be necessary to constitute a quorum. Unless otherwise provided in such a
resolution, in the event that a member and that member's alternate, if
alternates are designated by the Board of Directors, of such committee is or are
absent or disqualified, the member or members thereof present at any meeting and
not disqualified from voting, whether or not such member or members constitute a
quorum, may unanimously appoint another member of the Board of Directors to act
at the meeting in place of any such absent or disqualified member.
Section 11. Communications Equipment. Members of the Board of Directors or
any committee thereof may participate in and act at any meeting of such board or
committee through the use of a conference telephone or other communications
equipment by means of which all persons participating in the meeting can hear
and speak with each other, and participation in the meeting pursuant to this
section shall constitute presence in person at the meeting.
Section 12. Waiver of Notice and Presumption of Assent. Any member of the
Board of Directors or any committee thereof who is present at a meeting shall be
conclusively presumed to have waived notice of such meeting except when such
member attends for the express purpose of objecting at the beginning of the
meeting to the transaction of any business because the meeting is not lawfully
called or convened. Such member shall be conclusively presumed to have assented
to any action taken unless his or her dissent shall be entered in the minutes of
the meeting or unless his or her written dissent to such action shall be filed
with the person acting as the secretary of the meeting before the adjournment
thereof or shall be forwarded by registered mail to the secretary of the
Corporation immediately after the adjournment of the meeting. Such right to
dissent shall not apply to any member who voted in favor of such action.
Section 13. Action by Written Consent. Unless otherwise restricted by the
Restated Certificate of Incorporation, any action required or permitted to be
taken at any meeting of the Board of Directors, or of any committee thereof, may
be taken without a meeting if all members of such board or committee, as the
case may be, consent thereto in writing, and the writing or writings are filed
with the minutes of proceedings of the board or committee.
ARTICLE IV
----------
OFFICERS
--------
Section 1. Number. The officers of the Corporation shall be elected by the
Board of Directors and shall consist of a chairman of the board, a chief
executive officer, a president, one or more vice-presidents, a secretary, a
chief financial officer and such other officers and assistant
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<PAGE>
officers as may be deemed necessary or desirable by the Board of Directors. Any
number of offices may be held by the same person, except that neither the chief
executive officer nor the president shall also hold the office of secretary. In
its discretion, the Board of Directors may choose not to fill any office for any
period as it may deem advisable, except that the offices of president and
secretary shall be filled as expeditiously as possible.
Section 2. Election and Term of Office. The officers of the Corporation
shall be elected annually by the Board of Directors at its first meeting held
after each annual meeting of stockholders or as soon thereafter as convenient.
Vacancies may be filled or new offices created and filled at any meeting of the
Board of Directors. Each officer shall hold office until a successor is duly
elected and qualified or until his or her earlier death, resignation or removal
as hereinafter provided.
Section 3. Removal. Any officer or agent elected by the Board of Directors
may be removed by the Board of Directors at its discretion, but such removal
shall be without prejudice to the contract rights, if any, of the person so
removed.
Section 4. Vacancies. Any vacancy occurring in any office because of
death, resignation, removal, disqualification or otherwise may be filled by the
Board of Directors.
Section 5. Compensation. Compensation of all executive officers shall be
approved by the Board of Directors, and no officer shall be prevented from
receiving such compensation by virtue of his or her also being a Director of the
Corporation; provided however, that compensation of all executive officers may
be determined by a committee established for that purpose if so authorized by
the unanimous vote of the Board of Directors.
Section 6. Chairman of the Board. The chairman of the board shall preside
at all meetings of the stockholders and of the Board of Directors and shall have
such other powers and perform such other duties as may be prescribed to him or
her by the Board of Directors or provided in these By-laws.
Section 7. Vice-Chairman of the Board. Whenever the chairman of the board
in unable to serve, by reason of sickness, absence, or otherwise, the vice-
chairman shall have the powers and perform the duties of the chairman of the
board. The vice-chairman shall have such other powers and perform such other
duties as may be prescribed by the chairman of the board, the board of directors
or these By-laws.
Section 8. Chief Executive Officer. The chief executive officer shall have
the powers and perform the duties incident to that position. Subject to the
powers of the Board of Directors and the chairman of the board, the chief
executive officer shall be in the general and active charge of the entire
business and affairs of the Corporation, and shall be its chief policy making
officer. The chief executive officer shall have such other powers and perform
such other duties as may be prescribed by the Board of Directors or provided in
these By-laws. The chief executive officer is authorized to execute bonds,
mortgages and other contracts requiring a seal, under the seal of the
Corporation, except where required or permitted by law to be otherwise signed
and executed and except where the signing and execution thereof shall be
expressly delegated by the Board of Directors to some
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<PAGE>
other officer or agent of the Corporation. Whenever the president is unable to
serve, by reason of sickness, absence or otherwise, the chief executive officer
shall perform all the duties and responsibilities and exercise all the powers of
the president.
Section 9. The President. The president of the Corporation shall, subject
to the powers of the Board of Directors, the chairman of the board and the chief
executive officer, have general charge of the business, affairs and property of
the Corporation, and control over its officers, agents and employees. The
president shall see that all orders and resolutions of the Board of Directors
are carried into effect. The president is authorized to execute bonds,
mortgages and other contracts requiring a seal, under the seal of the
Corporation, except where required or permitted by law to be otherwise signed
and executed and except where the signing and execution thereof shall be
expressly delegated by the Board of Directors to some other officer or agent of
the Corporation. The president shall have such other powers and perform such
other duties as may be prescribed by the chairman of the board, the chief
executive officer, the Board of Directors or as may be provided in these By-
laws.
Section 10. Vice-Presidents. The vice-president, or if there shall be
more than one, the vice-presidents in the order determined by the Board of
Directors or the chairman of the board, shall, in the absence or disability of
the president, act with all of the powers and be subject to all the restrictions
of the president. The vice-presidents shall also perform such other duties and
have such other powers as the Board of Directors, the chairman of the board, the
chief executive officer, the president or these By-laws may, from time to time,
prescribe. The vice-presidents may also be designated as executive vice-
presidents or senior vice-presidents, as the Board of Directors may from time to
time prescribe.
Section 11. The Secretary and Assistant Secretaries. The secretary shall
attend all meetings of the Board of Directors, all meetings of the committees
thereof and all meetings of the stockholders and record all the proceedings of
the meetings in a book or books to be kept for that purpose or shall ensure that
his or her designee attends each such meeting to act in such capacity. Under the
chairman of the board's supervision, the secretary shall give, or cause to be
given, all notices required to be given by these By-laws or by law; shall have
such powers and perform such duties as the Board of Directors, the chairman of
the board, the chief executive officer, the president or these By-laws may, from
time to time, prescribe; and shall have custody of the corporate seal of the
Corporation. The secretary, or an assistant secretary, shall have authority to
affix the corporate seal to any instrument requiring it and when so affixed, it
may be attested by his or her signature or by the signature of such assistant
secretary. The Board of Directors may give general authority to any other
officer to affix the seal of the Corporation and to attest the affixing by his
or her signature. The assistant secretary, or if there be more than one, any of
the assistant secretaries, shall in the absence or disability of the secretary,
perform the duties and exercise the powers of the secretary and shall perform
such other duties and have such other powers as the Board of Directors, the
chairman of the board, the chief executive officer, the president, or secretary
may, from time to time, prescribe.
Section 12. The Chief Financial Officer. The chief financial officer
shall have the custody of the corporate funds and securities; shall keep full
and accurate all books and accounts of the
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Corporation as shall be necessary or desirable in accordance with applicable law
or generally accepted accounting principles; shall deposit all monies and other
valuable effects in the name and to the credit of the Corporation as may be
ordered by the chairman of the board or the Board of Directors; shall cause the
funds of the Corporation to be disbursed when such disbursements have been duly
authorized, taking proper vouchers for such disbursements; and shall render to
the Board of Directors, at its regular meeting or when the Board of Directors so
requires, an account of the Corporation; shall have such powers and perform such
duties as the Board of Directors, the chairman of the board, the chief executive
officer, the president or these By-laws may, from time to time, prescribe. If
required by the Board of Directors, the chief financial officer shall give the
Corporation a bond (which shall be rendered every six years) in such sums and
with such surety or sureties as shall be satisfactory to the Board of Directors
for the faithful performance of the duties of the office of chief financial
officer and for the restoration to the Corporation, in case of death,
resignation, retirement or removal from office of all books, papers, vouchers,
money and other property of whatever kind in the possession or under the control
of the chief financial officer belonging to the Corporation.
Section 13. Other Officers, Assistant Officers and Agents. Officers,
assistant officers and agents, if any, other than those whose duties are
provided for in these By-laws, shall have such authority and perform such duties
as may from time to time be prescribed by resolution of the Board of Directors.
Section 14. Absence or Disability of Officers. In the case of the absence
or disability of any officer of the Corporation and of any person hereby
authorized to act in such officer's place during such officer's absence or
disability, the Board of Directors may by resolution delegate the powers and
duties of such officer to any other officer or to any Director, or to any other
person selected by it.
ARTICLE V
---------
CERTIFICATES OF STOCK
---------------------
Section 1. Form. Every holder of stock in the Corporation shall be
entitled to have a certificate, signed by, or in the name of the Corporation by
the chairman of the board, the chief executive officer or the president and the
secretary or an assistant secretary of the Corporation, certifying the number of
shares owned by such holder in the Corporation. If such a certificate is
countersigned (i) by a transfer agent or an assistant transfer agent other than
the Corporation or its employee or (ii) by a registrar, other than the
Corporation or its employee, the signature of any such chairman of the board,
chief executive officer, president, secretary or assistant secretary may be
facsimiles. In case any officer or officers who have signed, or whose facsimile
signature or signatures have been used on, any such certificate or certificates
shall cease to be such officer or officers of the Corporation whether because of
death, resignation or otherwise before such certificate or certificates have
been delivered by the Corporation, such certificate or certificates may neverthe
less be issued and delivered as though the person or persons who signed such
certificate or certificates or whose facsimile signature or signatures have been
used thereon had not ceased to be
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<PAGE>
such officer or officers of the Corporation. All certificates for shares shall
be consecutively numbered or otherwise identified. The name of the person to
whom the shares represented thereby are issued, with the number of shares and
date of issue, shall be entered on the books of the Corporation. Shares of
stock of the Corporation shall only be transferred on the books of the
Corporation by the holder of record thereof or by such holder's attorney duly
authorized in writing, upon surrender to the Corporation of the certificate or
certificates for such shares endorsed by the appropriate person or persons, with
such evidence of the authenticity of such endorsement, transfer, authorization
and other matters as the Corporation may reasonably require, and accompanied by
all necessary stock transfer stamps. In that event, it shall be the duty of the
Corporation to issue a new certificate to the person entitled thereto, cancel
the old certificate or certificates and record the transaction on its books.
The Board of Directors may appoint a bank or trust company organized under the
laws of the United States or any state thereof to act as its transfer agent or
registrar, or both in connection with the transfer of any class or series of
securities of the Corporation.
Section 2. Lost Certificates. The Board of Directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates previously issued by the Corporation alleged to have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing such issue of a new certificate or certificates, the Corporation
may, in its discretion and as a condition precedent to the issuance thereof,
require the owner of such lost, stolen or destroyed certificate or certificates,
or his or her legal representative, to give the Corporation a bond sufficient to
indemnify the Corporation against any claim that may be made against the
Corporation on account of the loss, theft or destruction of any such certificate
or the issuance of such new certificate.
Section 3. Fixing a Record Date for Stockholder Meetings. In order that
the Corporation may determine the stockholders entitled to notice of or to vote
at any meeting of stockholders or any adjournment thereof, the Board of
Directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the Board of
Directors, and which record date shall not be more than 60 nor less than 10 days
before the date of such meeting. If no record date is fixed by the Board of
Directors, the record date for determining stockholders entitled to notice of or
to vote at a meeting of stockholders shall be the close of business on the next
day preceding the day on which notice is first given. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board of Directors may fix a new record date for the adjourned meeting.
Section 4. Fixing a Record Date for Other Purposes. In order that the
Corporation may determine the stockholders entitled to receive payment of any
dividend or other distribution or allotment or any rights or the stockholders
entitled to exercise any rights in respect of any change, conversion or exchange
of stock, or for the purposes of any other lawful action, the Board of Directors
may fix a record date, which record date shall not precede the date upon which
the resolution fixing the record date is adopted, and which record date shall be
not more than 60 days prior to such action. If no record date is fixed, the
record date for determining stockholders for any such purpose shall be at the
close of business on the day on which the Board of Directors adopts the
resolution relating thereto.
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<PAGE>
Section 5. Registered Stockholders. Prior to the surrender to the
Corporation of the certificate or certificates for a share or shares of stock
with a request to record the transfer of such share or shares, the Corporation
may treat the registered owner as the person entitled to receive dividends, to
vote, to receive notifications and otherwise to exercise all the rights and
powers of an owner. The Corporation shall not be bound to recognize any
equitable or other claim to or interest in such share or shares on the part of
any other person, whether or not it shall have express or other notice thereof.
Section 6. Subscriptions for Stock. Unless otherwise provided for in the
subscription agreement, subscriptions for shares shall be paid in full at such
time, or in such installments and at such times, as shall be determined by the
Board of Directors. Any call made by the Board of Directors for payment on
subscriptions shall be uniform as to all shares of the same class or as to all
shares of the same series. In case of default in the payment of any installment
or call when such payment is due, the Corporation may proceed to collect the
amount due in the same manner as any debt due the Corporation.
ARTICLE VI
----------
GENERAL PROVISIONS
------------------
Section 1. Dividends. Dividends upon the capital stock of the
Corporation, subject to the provisions of the Restated Certificate of
Incorporation, if any, may be declared by the Board of Directors at any regular
or special meeting, in accordance with applicable law. Dividends may be paid in
cash, in property or in shares of the capital stock, subject to the provisions
of the Restated Certificate of Incorporation. Before payment of any dividend,
there may be set aside out of any funds of the Corporation available for
dividends such sum or sums as the Directors from time to time, in their absolute
discretion, think proper as a reserve or reserves to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the
Corporation, or any other purpose and the Directors may modify or abolish any
such reserve in the manner in which it was created.
Section 2. Checks, Drafts or Orders. All checks, drafts or other orders
for the payment of money by or to the Corporation and all notes and other
evidences of indebtedness issued in the name of the Corporation shall be signed
by such officer or officers, agent or agents of the Corporation, and in such
manner, as shall be determined by resolution of the Board of Directors or a duly
authorized committee thereof.
Section 3. Contracts. In addition to the powers otherwise granted to
officers pursuant to ARTICLE IV hereof, the Board of Directors may authorize any
officer or officers, or any agent or agents, of the Corporation to enter into
any contract or to execute and deliver any instrument in the name of and on
behalf of the Corporation, and such authority may be general or confined to
specific instances.
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<PAGE>
Section 4. Loans. The Corporation may lend money to, or guarantee any
obligation of, or otherwise assist any officer or other employee of the
Corporation or of its subsidiaries, including any officer or employee who is a
Director of the Corporation or its subsidiaries, whenever, in the judgment of
the Directors, such loan, guaranty or assistance may reasonably be expected to
benefit the Corporation. The loan, guaranty or other assistance may be with or
without interest, and may be unsecured, or secured in such manner as the Board
of Directors shall approve, including, without limitation, a pledge of shares of
stock of the Corporation. Nothing in this section shall be deemed to deny,
limit or restrict the powers of guaranty or warranty of the Corporation at
common law or under any statute.
Section 5. Fiscal Year. The fiscal year of the Corporation shall be fixed
by resolution of the Board of Directors.
Section 6. Corporate Seal. The Board of Directors may provide a corporate
seal which shall be in the form of a circle and shall have inscribed thereon the
name of the Corporation and the words "Corporate Seal, Delaware." The seal may
be used by causing it or a facsimile thereof to be impressed or affixed or
reproduced or otherwise.
Section 7. Voting Securities Owned By Corporation. Voting securities in
any other Corporation held by the Corporation shall be voted by the chief
executive officer, the president or a vice-president, unless the Board of
Directors specifically confers authority to vote with respect thereto, which
authority may be general or confined to specific instances, upon some other
person or officer. Any person authorized to vote securities shall have the
power to appoint proxies, with general power of substitution.
Section 8. Inspection of Books and Records. The Board of Directors shall
have power from time to time to determine to what extent and at what times and
places and under what conditions and regulations the accounts and books of the
Corporation, or any of them, shall be open to the inspection of the
stockholders; and no stockholder shall have any right to inspect any account or
book or document of the Corporation, except as conferred by the laws of the
State of Delaware, unless and until authorized so to do by resolution of the
Board of Directors or of the stockholders of the Corporation.
Section 9. Section Headings. Section headings in these By-laws are for
convenience of reference only and shall not be given any substantive effect in
limiting or otherwise construing any provision herein.
Section 10. Inconsistent Provisions. In the event that any provision of
these By-laws is or becomes inconsistent with any provision of the Restated
Certificate of Incorporation, the General Corporation Law of the State of
Delaware or any other applicable law, the provision of these By-laws shall not
be given any effect to the extent of such inconsistency but shall otherwise be
given full force and effect.
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ARTICLE VII
-----------
AMENDMENTS
----------
In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors of the Corporation is expressly authorized to
make, alter, amend, change, add to or repeal these By-laws by the affirmative
vote of a majority of the total number of Directors then in office. Any
alteration or repeal of these By-laws by the stockholders of the Corporation
shall require the affirma tive vote of a majority of the outstanding shares of
the Corporation entitled to vote on such alteration or repeal; provided,
however, that Section 11 of ARTICLE II and Sections 2, 3, 4 and 5 of ARTICLE III
and this ARTICLE VII of these By-laws shall not be altered, amended or repealed
and no provision inconsistent therewith shall be adopted without the affirmative
vote of the holders of at least 66 2/3% of the outstanding shares of the
Corporation entitled to vote on such alteration or repeal.
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<PAGE>
EXHIBIT 4.10
[LOGO OF THE PETERSEN COMPANIES, INC.]
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
SEE REVERSE SIDE FOR CUSIP 716335 10 4
CERTAIN DEFINITIONS
This certifies that is the registered holder of
FULLY PAID AND NON-ASSESSABLE SHARES OF THE CLASS A COMMON STOCK OF THE PAR
VALUE $.01 EACH OF
THE PETERSEN COMPANIES, INC.
transferable on the books of The Petersen Companies, Inc. by the holder hereof
in person or by duly authorized attorney upon surrender of this Certificate
properly endorsed. This Certificate and the shares represented are issued and
shall be subject to all of the provisions of the Certificate of Incorporation
and the By-laws of The Petersen Companies, Inc., and all amendments thereto,
copies of which are on file with the Transfer Agent. This Certificate is not
valid until countersigned by the Transfer Agent and registered by the
Registrar.
WITNESS the facsimile seal of The Petersen Companies, Inc. and the facsimile
signatures of its duly authorized officers.
Dated:
/s/ Richard S. Willis /s/ Neal Vitale
----------------------- -----------------------
Richard S. Willis Neal Vitale
Secretary President
COUNTERSIGNED: BANK BOSTON, N.A.
(Boston, MA or New York, NY)
BY: TRANSFER AGENT and REGISTRAR
--------------------------------------------
AUTHORIZED SIGNATURE
The Company will furnish without charge to each stockholder who so
requests a statement of the rights, privileges, restrictions, voting powers,
limitations and qualifications of the several classes of stock of the Company.
Requests may be directed to the Chief Financial Officer of The Petersen
Companies, Inc., 6420 Wilshire Boulevard, Los Angeles, California 90048.
The following abbreviations, when used in the inscription on the face of
this Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
UNIF GIFT MIN ACT ______ CUSTODIAN ______
(Cust) (Minor)
Under Uniform Gift to Minors
Act -
TEN COM - as tenants in common -----------------
(State)
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of survivorship
and not as tenants in common
UNIF TRANS MIN ACT ______ CUSTODIAN ______
(Cust) (Minor)
Under Uniform Transfers to Minors
Act -
-----------------
(State)
Additional abbreviations also may be used though not in the above list.
For Value Received, _________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- ---------------------------------------
- ---------------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
_________________________________________________________________________ Shares
represented by the within Certificate, and do hereby irrevocably constitute and
appoint
___________________________________________________________________ as Attorney,
to transfer the said shares on the books of the within named corporation with
full power of substitution in the premises.
Dated
------------------- ----------------------------------------
SIGNATURE
NOTICE THE SIGNATURE TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME AS WRITTEN UPON
THE FACE OF THE CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATEVER.
<PAGE>
KIRKLAND & ELLIS
PARTNERSHIPS INCLUDING PROFESSIONAL CORPORATIONS
200 East Randolph Drive EXHIBIT 5.1
Chicago, Illinois 60601 -----------
To Call Writer Direct: 312 861-2000 Facsimile:
312 861-2000 312 861-2200
September 23, 1997
The Petersen Companies, Inc.
6420 Wilshire Boulevard
Los Angeles, CA 90048
Re: The Petersen Companies, Inc.
Registration Statement on Form S-1
Registration No. 333-33111
----------------------------------
Ladies and Gentlemen:
We are acting as special counsel to The Petersen Companies, Inc., a
Delaware corporation (the "Company"), in connection with the proposed
registration by the Company of 7,187,500 shares (the "Shares") of its Class A
Common Stock, par value $.01 per share (the "Common Stock"), to be issued and
sold by the Company pursuant to a Registration Statement on Form S-1
(Registration No. 333-33111), filed with the Securities and Exchange Commission
(the "Commission") under the Securities Act of 1933, as amended (the "Act")
(such Registration Statement, as amended or supplemented, is hereinafter
referred to as the "Registration Statement"). The Shares are to be sold pursuant
to an underwriting agreement (the "Underwriting Agreement") between the Company,
Morgan Stanley & Co. Incorporated, Donaldson, Lufkin & Jenrette Securities
Corporation, BT Alex. Brown Incorporated, Goldman Sachs & Co., as
representatives of the several U.S. Underwriters, and Morgan Stanley & Co.
International Limited, Donaldson, Lufkin & Jenrette International, BT Alex.
Brown International and Goldman Sachs International, as representatives of the
several International Underwriters.
In that connection, we have examined such corporate proceedings,
documents, records and matters of law as we have deemed necessary to enable us
to render this opinion.
For purposes of this opinion, we have assumed the authenticity of all
documents submitted to us as originals, the conformity to the originals of all
documents submitted to us as
<PAGE>
KIRKLAND & ELLIS
The Peterson Companies, Inc.
September 23, 1997
Page 2
copies and the authenticity of the originals of all documents submitted to us as
copies. We have also assumed the legal capacity of all natural persons, the
genuineness of the signatures of persons signing all documents in connection
with which this opinion is rendered, the authority of such persons signing on
behalf of the parties thereto other than the Company and the due authorization,
execution and delivery of all documents by the parties thereto other than the
Company. As to any facts material to the opinions expressed herein, we have
relied upon the statements and representations of officers and other
representations of the Company and others. For purposes of numbered paragraph 1,
we have relied exclusively upon certificates issued by governmental authorities
in the relevant jurisdictions and such opinion is not intended to provide any
conclusion or assurance beyond that conveyed by such certificates.
Our opinion expressed below is subject to the qualifications that we
express no opinion as to the applicability of, compliance with, or effect of any
laws except the internal laws of the State of New York, the General Corporation
Law of the State of Delaware and the federal law of the United States of
America.
Based upon and subject to the foregoing qualifications, assumptions
and limitations and the further limitations set forth below, we hereby advise
you that in our opinion:
(1) The Company is a corporation existing and in good standing under
the laws of the State of Delaware.
(2) Upon the effectiveness of the Restated Certificate of
Incorporation of the Company, the Shares will be duly authorized, and, when (i)
the Registration Statement becomes effective under the Act, (ii) the Board of
Directors of the Company has taken all necessary action to approve the issuance
and sale of the Shares, (iii) the Shares have been duly executed and delivered
on behalf of the Company countersigned by the Company's transfer agent/registrar
and (iv) the Shares are issued in accordance with the terms of the Underwriting
Agreement upon receipt of the consideration to be paid therefor, the Shares will
be validly issued, fully paid and nonassessable.
We hereby consent to the filing of this opinion with the Commission as
Exhibit 5.1 to the Registration Statement. We also consent to the reference to
our firm under the heading "Legal Matters" in the Registration Statement. In
giving this consent, we do not thereby admit that we are in the category of
persons whose consent is required under Section 7 of the Act or the rules and
regulations of the Commission. This opinion and consent may be incorporated by
reference in a
<PAGE>
KIRKLAND & ELLIS
The Peterson Companies, Inc.
September 23, 1997
Page 3
subsequent registration statement on Form S-1 filed pursuant to Rule 462(b)
under the Act with respect to the registration of additional securities for sale
in the offering contemplated by the Registration Statement.
We do not find it necessary for the purposes of this opinion, and
accordingly we do not purport to cover herein, the application of the securities
or "Blue Sky" laws of the various states to the issuance and sale of the Shares.
This opinion is limited to the specific issues addressed herein, and
no opinion may be inferred or implied beyond that expressly stated herein. We
assume no obligation to revise or supplement this opinion should the present
laws of the State of New York, the General Corporation Law of the State of
Delaware or the federal law of the United States be changed by legislative
action, judicial decision or otherwise.
This opinion is furnished to you pursuant to the applicable rules and
regulations promulgated under the Act in connection with the filing of the
Registration Statement.
Very truly yours,
/s/ Kirkland & Ellis
KIRKLAND & ELLIS
<PAGE>
KIRKLAND & ELLIS
PARTNERSHIPS INCLUDING PROFESSIONAL CORPORATIONS
200 East Randolph Drive Exhibit 8.1
Chicago, Illinois 60601 -----------
To Call Writer Direct: 312 861-2000 Facsimile:
312 861-2000 312 861-2200
September 23, 1997
The Petersen Companies, Inc.
6420 Wilshire Boulevard
Los Angeles, California 90048
In connection with The Petersen Companies, Inc.'s initial public
offering of up to 7,187,500 shares of its Class A Common Stock, par value $0.01
per share, you have requested our opinion concerning certain statements set
forth in the Registration Statement on Form S-1 (Registration No. 333-33111)
filed with the Securities and Exchange Commission under the Securities Act of
1933, as amended (as of its effective date, the "Registration Statement").
Based on the foregoing and subject to the further qualifications set
forth in the Registration Statement and herein, under the law in effect on the
date hereof, we are of the opinions ascribed to us in the Registration Statement
under the caption "Federal Income Tax Consequences to Non-United States
Holders."
The opinions set forth therein are based on the applicable provisions
of the Internal Revenue Code of 1986, as amended; the Treasury Regulations
promulgated or proposed thereunder; current positions of the Internal Revenue
Service (the "IRS") contained in published revenue rulings, revenue procedures
and announcements; existing judicial decisions; and other applicable
authorities.
In conclusion, we should note that unlike a ruling from the IRS,
opinions of counsel are not binding on the IRS. Hence, no assurance can be given
that the opinions stated in the Registration Statement will not be successfully
challenged by the IRS or rejected by a court. We express no opinion concerning
any federal income tax matter other than that discussed therein.
Very Truly Yours,
/s/ Kirkland & Ellis
Kirkland & Ellis
<PAGE>
EXHIBIT 10.17
AGREEMENT
AGREEMENT dated as of this July 31, 1997 between and among Petersen
Holdings, L.L.C., a Delaware limited liability company (the "Company"),
BrightView Communications, Inc., a Delaware corporation ("BrightView"), Petersen
Publishing Company, L.L.C., a Delaware limited liability company ("Publishing"),
James D. Dunning, Jr. ("Dunning"), Laurence H. Bloch ("Bloch"), Stuart Karu
("Karu" and, collectively with Dunning and Bloch, the "Investors"), D. Claeys
Bahrenburg ("Bahrenburg"), Neal Vitale ("Vitale") and Richard S Willis ("Willis"
and collectively with Bahrenburg and Vitale, the "Executives"). The Executives
and the Investors are referred to herein collectively as the "Holders" and each
is referred to herein individually as a "Holder." Capitalized terms contained
in this letter and not otherwise defined herein shall have the meanings ascribed
to such terms in the Amended and Restated Limited Liability Company Agreement of
Petersen Holdings, L.L.C. dated as of September 30, 1996 (the "LLC Agreement").
Contemporaneously with the consummation of the transactions contemplated
hereby, the Company will approve the Petersen Holdings, L.L.C. 1997 Long-Term
Equity Incentive Plan (the "Plan") and grant options to purchase Class A Common
Units of the Company (the "Options") to the persons and in the amounts set forth
on Schedule I hereto. Each of the Holders is the holder of certain Class B
Common Units and Class C Common Units. The Company and the Holders have
proposed that the Holders deliver all of such Class B Common Units and Class C
Common Units to the Company in exchange for newly issued Class D Common Units of
Holdings on the terms set forth in the LLC Agreement as amended and restated as
of the date hereof set forth in Exhibit A hereto (the "Amended LLC Agreement").
Each of the Executives obtained his Class B Common Units and Class C Common
Units pursuant to, and holds such units in accordance with the terms of, an
Executive Securities Purchase and Employment Agreement dated as of September 30,
1996 with the Company, BrightView and Publishing (each, as amended, an
"Employment Agreement").
In consideration of the mutual agreements set forth herein and other good
and valuable consideration the receipt of which is hereby acknowledged, each of
the parties hereto hereby agrees as follows:
1. Executive Carry Securities and Outstanding Class A Common Units. All of
the Class A Common Units issuable upon exercise of the Options shall be
deemed to be outstanding for purposes of the definitions of "30% IRR
Executive Percentage" and "35% IRR Executive Percentage" set forth in
the LLC Agreement, and the portion of such Class A Common Units
identified on Schedule I attached hereto as "Executive Carry Securities"
shall, upon designation thereof as "Executive Carry Securities" by the
Willis Stein Majority Holders, be deemed to be Executive Carry
Securities for purposes of the LLC Agreement.
2. Amended LLC Agreement. Pursuant to Section 12.5 of the LLC Agreement,
the undersigned hereby acknowledge and agree to the form and terms of
the Amended LLC Agreement.
<PAGE>
3. Exchange of Class B Common Units and Class C Common Units for Class D
Common Units. Each of the Holders agrees that, effective upon the
effectiveness of the Amended LLC Agreement, all of such Holder's Class B
Common Units and Class C Common Units as of the date hereof shall be
automatically converted into Class D Common Units of the series and in
the amount set forth for such Holder on Schedule II attached hereto (the
"Exchange").
4. Vesting of Class D Common Units. Each of the Executives agrees that the
Class D Common Units issued to such Executive are "Executive Securities"
and "Vesting Executive Securities" within the meaning of such
Executive's Employment Agreement, are subject to the Repurchase Option
set forth in such agreement and, notwithstanding any other provision of
the Employment Agreement, such Class D Common Units are Unvested
Securities and not Vested Securities (for purposes of such Executive's
Employment Agreement) and shall become vested, within the meaning
thereof, only as set forth in this paragraph 4. Without limiting the
foregoing, (i) the first two sentences of paragraph 2(b) of each of the
Employment Agreements is hereby deleted therefrom, and (ii) any
securities received by an Executive in exchange for, upon conversion of
or otherwise in respect of such Class D Common Units (in connection with
any recapitalization, reorganization, merger, consolidation or any other
change in the structure or ownership interests of the Company, including
but not limited to an IPO Roll-up or any other exchange or contribution
of substantially all of the equity securities of the Company for
securities of any other entity), shall continue to be Vesting Executive
Securities. For purposes hereof, "IPO Roll-up" means a transaction
approved by the Board of Directors of BrightView pursuant to which
holders of all or a substantially portion of the equity interests in the
Company would contribute such interests to BrightView in exchange for
capital stock of BrightView or another transaction pursuant to which all
or a substantial part of the Company's equity interests would be
converted in to capital stock of BrightView, in connection with an
offering and sale to the public of shares of capital stock of BrightView
pursuant to a registration statement filed with the U.S. Securities and
Exchange Commission under the Securities Act of 1933, as amended.
(a) The Class D Common Units issued to an Executive will fully
vest on the fifth anniversary of the date hereof, if and only if such
Executive is, and has been, continuously employed by the Company from
the date of this Agreement through such date; provided that if an
Executive's period of such continuous employment by the Company is
terminated upon the death or Disability of such Executive while an
employee of the Company, the Class D Common Units held by such Executive
shall upon such termination of employment be deemed to be Vested
Securities, for purposes of such Executive's Employment Agreement.
(b) If an Executive has been continuously employed by the Company
from the date of this Agreement until a Public Offering, then from and
after the date of consummation of the Public Offering (the "IPO Date")
such Executive's Class D Common Units shall commence to vest (to the
extent not previously vested) in accordance with the following
accelerated schedule: so long as such Executive has remained
continuously employed by the Company from the date of this Agreement,
2
<PAGE>
(i) 33 1/3% of such Executive's Class D Common Units will vest upon
each of the first, second and third anniversaries of the IPO Date, and
(ii) as of any date other than an anniversary of the IPO Date, the
cumulative percentage of such Executive's Class D Common Units to
become vested shall be determined on a pro rata basis according to the
number of days elapsed since the IPO Date or the prior anniversary
thereof, if more recent. For purposes hereof, "Public Offering" means
any offering by the Company or any successor entity to the Company
(pursuant to a Reorganization or IPO Roll-up, as defined in the Plan)
of its capital stock or equity securities to the public pursuant to an
effective registration statement under the Securities Act, as then in
effect, or any comparable statement under any similar federal statute
then in force.
(c) If an Executive has been continuously employed by the Company
from the date of this Agreement until a Sale of the Company, the
portion of such Executive's Class D Common Units which has not become
vested at the date of such event shall immediately vest with respect
to 100% of such Executive's Class D Common Units simultaneously with
the consummation of the Sale of the Company.
(d) Within 30 days after the issuance to each Executive of the
Class D Common Units, such Executive shall make an effective election
with respect to such units with the Internal Revenue Service under
Section 83(b) of the Internal Revenue Code and the regulations
promulgated thereunder in a form mutually acceptable to the Company
and such Executive.
5. Additional Agreements. Each of the Holders agrees that the Class D
Common Units issued to such Holder shall be subject to the
restrictions set forth in the Securityholders Agreement, as amended,
in the same manner and to the same effect as the Class B Common Units
and Class C Common Units held by such Holder. Each of the Investors
also agrees that the Class D Common Units issued to such Investor
shall be subject to the restrictions set forth in each other agreement
to which such Holder is a party, to the same extent as the Class B
Common Units and Class C Common Units held by such Investor are
subject to such restrictions prior to the Exchange.
6. Agreement Governs. Notwithstanding any provision of any Employment
Agreement to the contrary, each of the Executives agrees that, to the
extent that any provision of this Agreement is inconsistent with any
provision of such Executive's Employment Agreement, the provisions of
this Agreement shall control and supersede such inconsistent provision
of such Executive's Employment Agreement.
7. Miscellaneous. This Agreement may be executed in two or more
counterparts, any one of which need not contain the signatures of more
than one party, but all of which
3
<PAGE>
taken together shall constitute one and the same Agreement. Each of the
Holders agrees that at any time and from time to time upon the written
request of the Company, such Holder shall execute and deliver such further
documents and do such further acts and things as the Company may reasonably
request in order to effect the purposes of this Agreement. None of the
terms or provisions of this Agreement may be waived, altered, modified or
amended except by an instrument in writing, duly executed by the parties
hereto. This Agreement and all obligations of the Holders hereunder shall
together with the rights and remedies of the Company hereunder, inure to
the benefit of the Company and its successors and assigns. This Agreement,
those documents expressly referred to herein and other documents of even
date herewith embody the complete agreement and understanding among the
parties and supersede and preempt any prior understandings, agreements or
representations by or among the parties, written or oral, which may have
related to the subject matter hereof in any way.
* * * * *
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of July 31, 1997.
PETERSEN HOLDINGS, L.L.C.
By: BRIGHTVIEW COMMUNICATIONS GROUP, INC.
Its: MANAGING MEMBER
By: /s/ James D. Dunning, Jr.
-------------------------------------
Name: James D. Dunning, Jr.
Title: Chief Executive Officer
BRIGHTVIEW COMMUNICATIONS GROUP, INC.
By: /s/ James D. Dunning, Jr.
-------------------------------------
Name: James D. Dunning, Jr.
Title: Chief Executive Officer
PETERSEN PUBLISHING COMPANY, L.L.C.
By: Robert E. Petersen
-------------------------------------
Name: Robert E. Petersen
Title:
/s/ James D. Dunning, Jr.
-------------------------------------
James D. Dunning, Jr.
/s/ Laurence H. Bloch
-------------------------------------
Laurence H. Bloch
/s/ Stuart Karu
-------------------------------------
Stuart Karu
/s/ D. Claeys Bahrenburg
-------------------------------------
D. Claeys Bahrenburg
/s/ Neal Vitale
-------------------------------------
Neal Vitale
/s/ Richard S Willis
-------------------------------------
Richard S Willis
<PAGE>
EXHIBIT 10.19
AMENDMENT NO. 1 TO SECURITYHOLDERS AGREEMENT
--------------------------------------------
This Amendment No. 1 to Securityholders Agreement (this "Amendment")
is made as of September __, 1997, by and among The Petersen Companies, Inc., a
Delaware corporation formerly known as BrightView Communications Group, Inc.
(the "Company"), Petersen Holdings, L.L.C., a Delaware limited liability company
("Holdings"), and the other Persons executing this Amendment and listed on the
Schedule of Investors attached hereto (each, an "Investor" and all of such
Persons, collectively, the "Investors").
The Company, Holdings and the Investors are parties to a
Securityholders Agreement, dated as of September 30, 1996 among the Company,
Holdings and the Investors (the "Securityholders Agreement"), and wish to amend
the Securityholders Agreement as provided herein. The execution and delivery of
this Amendment is a condition to the obligations of the Company and the
Investors under the Contribution and Recapitalization Agreement, dated as of
September __, 1997, by and among the Company and the Investors (the
"Contribution Agreement").
In consideration of the mutual agreements set forth herein and in the
Contribution Agreement and other good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. Section 2.1(b) of the Securityholders Agreement is hereby amended
and restated to read in its entirety as set forth below:
"(b) The provisions of this Section 2.1 shall terminate automatically
and be of no further force or effect as of the day twenty-one (21)
calendar months after the consummation of the Contribution
Transactions, as defined in the Contribution and Recapitalization
Agreement, dated as of September __, 1997, among The Petersen
Companies, Inc., Willis Stein, Nassau Capital Partners II, L.P., NAS
Partners I, L.L.C. and the other Persons listed on the Schedule of
Investors attached thereto, as amended.
2. The following is added as Section 6.1(f) of the Securityholders
Agreement:
"(f) The provisions of this Section 6.1 shall terminate automatically
and be of no further force or effect upon a Qualified IPO."
3. This Amendment may be executed in two or more counterparts, all
of which taken together will constitute one and the same agreement.
* * * * *
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment No. 1
to Securityholders Agreement as of the date first written above.
THE PETERSEN COMPANIES, INC.
By:
-------------------------------
Name:
Title:
PETERSEN HOLDINGS, L.L.C.
By: The Petersen Companies, Inc.
Its: Manager
By:
-------------------------------
Name:
Title:
WILLIS STEIN & PARTNERS, L.P.
By: Willis Stein & Partners, L.L.C.
Its: General Partner
By:
-------------------------------
Name: Daniel H. Blumenthal
Title: Managing Director
NASSAU CAPITAL PARTNERS II, L.P.
By: Nassau Capital, L.L.C.
Title: General Partner
By:
-------------------------------
Name:
Title:
NAS PARTNERS I, L.L.C.
By:
-------------------------------
Name:
Title:
<PAGE>
[Signature Page to Amendment No. 1 to Securityholders Agreement]
PETERSEN PROPERTIES
By:
-------------------------------
Name: Robert E. Petersen
Title: Chairman of the Board
CHASE EQUITY ASSOCIATES, L.P.
By: Chase Capital Partners
Its: General Partner
By:
-------------------------------
Name:
Title: General Partner
BANKAMERICA INVESTMENT CORPORATION
By:
-------------------------------
Name:
Title:
CIVC PARTNERS II
By:
-------------------------------
Name:
Title: A General Partner
CIBC WG ARGOSY MERCHANT FUND 2, L.L.C.
By:
-------------------------------
Name:
Title:
ALLSTATE INSURANCE COMPANY
By:
-------------------------------
Name:
Title:
<PAGE>
[Signature Page to Amendment No. 1 to Securityholders Agreement]
FUI, INC.
By:
-------------------------------
Name:
Title:
NORWEST EQUITY CAPITAL, L.L.C.
By: Itasca NEC, L.L.C.
Its: Managing Member
By:
-------------------------------
Name:
Title:
-----------------------------------
James D. Dunning, Jr.
THE LAURENCE H. BLOCH AND CINDY BLOCH
TRUST
By:
-------------------------------
Name: Laurence H. Bloch
Title:
-----------------------------------
Stuart Karu
-----------------------------------
Thomas J. Strauss
-----------------------------------
Irwin Bard
-----------------------------------
Bernard Shavitz
-----------------------------------
D. Claeys Bahrenburg
<PAGE>
[Signature Page to Amendment No. 1 to Securityholders Agreement]
-----------------------------------
Neal Vitale
-----------------------------------
Richard S Willis
-----------------------------------
John Dianna
-----------------------------------
Richard P. Lague
-----------------------------------
Paul Tzimoulis
-----------------------------------
David Myers
-----------------------------------
Ken Elliot
-----------------------------------
Lee Kelley
-----------------------------------
Michael Borchetta
-----------------------------------
Justin McCormack
<PAGE>
[Signature Page to Amendment No. 1 to Securityholders Agreement]
DEAN WITTER REYNOLDS, Custodian for
Justin McCormack IRA Rollover
By:
------------------------------
Name:
Title:
MLPF&S, Custodian FPO James Guthrie IRA
FBO James Guthrie
By:
------------------------------
Name:
Title:
-----------------------------------
Charlotte Perkins
-----------------------------------
Amy Wilkins
<PAGE>
EXHIBIT 11.1
PETERSEN HOLDINGS, L.L.C.
COMPUTATION OF EARNINGS PER COMMON SHARE
(Amounts in thousands, except share data)
<TABLE>
<CAPTION>
Historical
----------------------------------
Three Months Six Months
Ended Ended
December 31, 1996 June 30, 1997
----------------- -------------
<S> <C> <C>
Weighted average shares
outstanding 27,840,994 27,840,994
---------- ----------
Net loss $ (10,594) $ (4,929)
Preferred unit dividends - (15,419)
---------- ----------
Net loss attributable to
common shares $ (10,594) $ (20,348)
---------- ----------
Pro forma net loss per share $ (0.38) $ (0.73)
---------- ----------
</TABLE>
THE PETERSEN COMPANIES, INC.
COMPUTATION OF PRO FORMA EARNINGS PER COMMON SHARE
(Amounts in thousands, except share data)
<TABLE>
<CAPTION>
Twelve Months Six Months Six Months
Ended Ended Ended
December 31, 1996 June 30, 1996 June 30, 1997
----------------- ------------- -------------
<S> <C> <C> <C>
Weighted average shares
outstanding 34,090,994 34,090,994 34,090,994
---------- ---------- ----------
Income (loss) before extra-
ordinary item $ (26,869) $ (16,392) $ 813
---------- ---------- ----------
Pro forma income (loss)
per share $ (0.79) $ (0.48) $ 0.02
---------- ---------- ----------
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the references to our firm under the captions "Selected
Historical Financial Data" and "Experts" and to the use of our reports dated
August 7, 1997 (except as to Note 6 as to which the date is September 12,
1997) for The Petersen Companies, Inc., July 31, 1997 (except Note 12, as to
which the date is September 12, 1997) for Petersen Holdings, L.L.C. and
December 16, 1996 for Petersen Publishing Company, Publishing Division, in the
Registration Statement (Amendment No. 2 to Form S-1 No. 333-33111) and related
Prospectus of The Petersen Companies, Inc. for the registration of 6,250,000
shares of its Class A Common Stock.
Ernst & Young LLP
Los Angeles, California
September 23, 1997
