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PROSPECTUS
LIBERTY GROUP PUBLISHING, INC.
OFFER TO EXCHANGE NEW SHARES OF ITS 14 3/4% SENIOR REDEEMABLE EXCHANGEABLE
CUMULATIVE PREFERRED STOCK,
LIQUIDATION PREFERENCE $25 PER SHARE, AND ITS 11 5/8% NEW SENIOR DISCOUNT
DEBENTURES DUE 2009
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 FOR ANY AND ALL OF
ITS OUTSTANDING
14 3/4% SENIOR REDEEMABLE EXCHANGEABLE CUMULATIVE PREFERRED STOCK, LIQUIDATION
PREFERENCE $25 PER SHARE,
AND 11 5/8% SENIOR DISCOUNT DEBENTURES DUE 2009, RESPECTIVELY
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON MAY 26,
1998, UNLESS EXTENDED.
Liberty Group Publishing, Inc., a Delaware corporation ("Holdings"), hereby
offers, upon the terms and subject to the conditions set forth in this
Prospectus (the "Prospectus") and the accompanying Letter of Transmittal (the
"Letter of Transmittal"), to exchange one share of its 14 3/4% Senior Redeemable
Exchangeable Cumulative Preferred Stock, liquidation preference $25 per share
(the "New Senior Preferred Stock"), which has been registered under the
Securities Act of 1933, as amended (the "Securities Act"), pursuant to a
Registration Statement of which this Prospectus is a part, for each outstanding
share of its 14 3/4% Senior Redeemable Exchangeable Cumulative Preferred Stock,
liquidation preference $25 per share (the "Old Senior Preferred Stock" and,
together with the New Senior Preferred Stock, the "Holdings Senior Preferred
Stock"). See "The Exchange Offer." The Old Senior Preferred Stock and the New
Senior Preferred Stock constitute the same class of preferred stock of Holdings.
Accordingly, the rights and preferences of the New Senior Preferred Stock are
identical in all material respects to the rights and preferences of the Old
Senior Preferred Stock except that the New Senior Preferred Stock has been
registered under the Securities Act and, therefore, will not bear legends
restricting the transfer thereof. See "Description of New Senior Preferred
Stock" for a description of the material provisions of the Certificate of
Designations relating to the Holdings Senior Preferred Stock.
In addition, Holdings hereby offers, upon the terms and subject to the
conditions set forth in this Prospectus and the accompanying Letter of
Transmittal (the "Letter of Transmittal"), to exchange $1,000 principal amount
at maturity of its 11 5/8% New Senior Discount Debentures due February 1, 2009
(the "New Debentures"), which have been registered under the Securities Act
pursuant to a Registration Statement of which this Prospectus is a part, for
each $1,000 principal amount at maturity of its outstanding 11 5/8% Senior
Discount Debentures due February 1, 2009 (the "Old Debentures" and, together
with the New Debentures, the "Debentures"). The form and terms of the New
Debentures are identical in all material respects to the form and terms of the
Old Debentures except that the New Debentures have been registered under the
Securities Act and, therefore, will not bear legends restricting the transfer
thereof. The New Debentures will evidence the same debt as the Old Debentures
and will be entitled to the benefits under the indenture governing the Old
Debentures (the "Indenture"). See "The Exchange Offer" and "Description of New
Debentures." The offering of the Old Senior Preferred Stock and Old Debentures
is referred to herein as the "Offering." The offering of New Senior Preferred
Stock and New Debentures are collectively referred to herein as the "Exchange
Offer." The Old Senior Preferred Stock and the Old Debentures are collectively
referred to herein as the "Old Securities." The New Senior Preferred Stock and
the New Debentures are referred to herein collectively as the "New Securities."
The Old Securities and the New Securities are collectively referred to herein as
the "Securities." Contemporaneously with the Exchange Offer, Liberty Group
Operating, Inc. ("Liberty Group Operating") will commence an offer to exchange,
pursuant to a separate prospectus, $1,000 principal amount of its 9 3/8% New
Senior Subordinated Notes due 2008 (the "New Senior Subordinated Notes") for
each $1,000 principal amount of its outstanding 9 3/8% Senior Subordinated Notes
due 2008 (the "Old Senior Subordinated Notes" and, together with the New Senior
Subordinated Notes, the "Senior Subordinated Notes").
Holdings will accept for exchange any and all Old Securities validly
tendered and not withdrawn prior to 5:00 p.m., New York City time, on May 26,
1998, unless extended (the "Expiration Date"), such expiration not to be later
than 30 business days from the date of this Prospectus. Tenders of Old
Securities may be withdrawn at any time prior to 5:00 p.m., New York City time,
on the Expiration Date. The Exchange Offer is subject to certain customary
conditions. See "The Exchange Offer."
The New Senior Preferred Stock will bear cumulative dividends at a rate of
14 3/4% per annum, payable quarterly on each February 1, May 1, August 1 and
November 1, commencing May 1, 1998. Dividends may be paid, at Holdings' option,
on any dividend payment date, either in cash or in additional shares of New
Senior Preferred Stock having a liquidation preference equal to the amount of
the dividend. The liquidation preference of the New Senior Preferred Stock will
be $25 per share. The New Senior Preferred Stock is redeemable at Holdings'
option, in whole or in part, at any time on or after February 1, 1999, at the
redemption prices set forth herein, plus accrued and unpaid dividends to the
date of redemption. Holdings is required, subject to certain conditions, to
redeem all of the New Senior Preferred Stock outstanding on February 1, 2010, at
a redemption price equal to 100% of the liquidation preference thereof, plus
accrued and unpaid dividends to the date of redemption. Upon the occurrence of a
Change of Control, Holdings will, subject to certain conditions, offer to
purchase all of the then outstanding shares of New Senior Preferred Stock at a
price equal to 100% of the liquidation preference thereof, plus accrued and
unpaid dividends to the purchase date. As of April 3, 1998, there was $231.0
Indebtedness (as defined herein) which ranked Senior to the Holdings Senior
Preferred Stock. See "Description of New Senior Preferred Stock" for a
description of the material provisions of the Certificate of Designations
relating to the Holdings Senior Preferred Stock.
(Cover continued on following page)
SEE "RISK FACTORS" COMMENCING ON PAGE 14 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE NEW
SECURITIES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION
AND/OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is April 27, 1998.
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(Continuation of cover page)
Subject to certain conditions, the New Senior Preferred Stock is
exchangeable, on any dividend payment date, in whole but not in part, at the
option of Holdings for 14 3/4% Senior Subordinated Debentures due 2010
(including any securities paid in lieu of cash interest, as described herein,
the "Exchange Debentures"). Interest on the Exchange Debentures will be payable
at the rate of 14 3/4% per annum and will accrue from the date of issuance
thereof. Interest on the Exchange Debentures will be payable semi-annually in
cash, in arrears on each February 1 and August 1, commencing on the first such
date after the exchange of the Exchange Debentures for the New Senior Preferred
Stock. The Exchange Debentures mature on February 1, 2010 and are redeemable, at
the option of Holdings, in whole or in part, on and after February 1, 1999, at
the redemption prices set forth herein, plus accrued and unpaid interest to the
date of redemption. Upon the occurrence of a Change of Control, Holdings will,
subject to certain conditions, offer to purchase all of the then outstanding
shares of Exchange Debentures at a price equal to 101% of the principal amount
thereof, plus accrued and unpaid interest to the repurchase date. See
"Description of Exchange Debentures" for a description of the material
provisions of the Exchange Indenture.
The New Debentures will mature on February 1, 2009. The issue price of the
Old Debentures represented a yield to maturity of 11 5/8% (computed on a
semi-annual bond equivalent basis) calculated from January 27, 1998. The New
Debentures will accrete at a rate of 11 5/8%, compounded semi-annually, to an
aggregate principal amount at maturity of $89.0 million by February 1, 2003.
Cash interest will not accrue on the New Debentures prior to February 1, 2003.
Commencing on August 1, 2003, cash interest on the New Debentures will be
payable at a rate of 11 5/8% per annum, semi-annually on February 1 and August 1
of each year. See "Description of New Debentures" for a description of the
material provisions of the Indenture.
The New Debentures will be redeemable at the option of Holdings, in whole
or in part, at any time on or after February 1, 2003, at the redemption prices
set forth herein, plus accrued and unpaid interest to the date of redemption. In
addition, at any time on or prior to February 1, 2001, Holdings may redeem up to
35% of the aggregate principal amount at maturity of the New Debentures
originally issued with the net cash proceeds of one or more Public Equity
Offerings (as defined herein) at a redemption price equal to 111.625% of the
Accreted Value (as defined herein) thereof plus accrued and unpaid interest to
the date of redemption; provided, that at least 65% of the original aggregate
principal amount at maturity of the New Debentures remains outstanding after
each such redemption. In the event of a Change of Control (as defined herein),
each Holder of New Debentures will have the right to require Holdings to
repurchase the New Debentures at a cash price equal to 101% of the Accreted
Value thereof plus accrued and unpaid interest to the date of repurchase in the
case of any such purchase prior to February 1, 2003, or 101% of the principal
amount at maturity thereof plus accrued and unpaid interest to the date of
repurchase in the case of any such purchase on or after February 1, 2003. See
"Description of New Debentures" for a description of the material provisions of
the Indenture.
The Exchange Debentures and the New Debentures will be general unsecured
obligations of Holdings and will rank pari passu in right of payment with all
existing and future Senior Indebtedness of Holdings and will rank senior in
right of payment to all future subordinated Indebtedness of Holdings. The
Exchange Debentures and the New Debentures will be effectively subordinated to
all liabilities of Holdings' subsidiaries. As of April 3, 1998, Holdings had
$51.0 million of Indebtedness outstanding and Holdings' subsidiaries had $180.0
million of Indebtedness outstanding. See "Capitalization."
The New Securities will initially be represented by a single permanent
global certificate in fully registered form and will be deposited with a
custodian for, and registered in the name of a nominee of, The Depositary Trust
Company, New York, New York ("DTC").
Based on an interpretation by the staff of the Securities and Exchange
Commission (the "Commission") set forth in several no-action letters to third
parties, Holdings believes that each series of New Securities issued in exchange
for each series of Old Securities pursuant to the Exchange Offer may be offered
for resale, resold and otherwise transferred by any Holder (as defined herein)
thereof (other than (i) a broker-dealer who purchases such New Securities
directly from Holdings to resell pursuant to Rule 144A or any other available
exemption under the Securities Act or (ii) any such Holder that is an
"affiliate" of Holdings, within the meaning of Rule 405 under the Securities
Act), without compliance with the registration and prospectus delivery
provisions of the Securities Act;
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provided, that the Holder is acquiring such New Securities in its ordinary
course of business and is not participating, and has no arrangement or
understanding with any person to participate, in any distribution of the New
Securities. See, e.g., Shearman & Sterling (available July 2, 1993), Morgan
Stanley & Co. Incorporated (available June 5, 1991), Exxon Capital Holdings
Corporation (available May 13, 1988). Persons wishing to exchange Old Securities
in the Exchange Offer must represent to Holdings that such conditions have been
met. However, any Holder who is an "affiliate" of Holdings or who tenders in the
Exchange Offer with the intention to participate, or for the purpose of
participating, in a distribution of the New Securities cannot rely on the
interpretation by the staff of the Commission set forth in the above-referenced
no-action letters, and must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any sale or transfer of
the Old Securities. See "The Exchange Offer--Consequences to Non-Tendering
Holders of Old Securities." In addition, each broker-dealer that receives New
Securities for its own account pursuant to the Exchange Offer must acknowledge
that it will deliver a prospectus, meeting the requirements under the Securities
Act, in connection with any resale of such New Securities. The Letter of
Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of New Securities received in exchange for Old Securities where
such Old Securities were acquired by such broker-dealer as a result of
market-making activities or other trading activities and not acquired directly
from Holdings. Holdings has agreed that for a period of 180 days after the
Expiration Date, it will make this Prospectus available to any broker-dealer for
use in connection with any such resale. See "Plan of Distribution." EXCEPT AS
DESCRIBED IN THIS PARAGRAPH, THIS PROSPECTUS MAY NOT BE USED FOR AN OFFER TO
RESELL, RESALE OR OTHER TRANSFER OF NEW SECURITIES.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
THIS PROSPECTUS, INCLUDING THE "SUMMARY," "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND "BUSINESS"
SECTIONS, CONTAINS "FORWARD-LOOKING STATEMENTS," WHICH CAN BE IDENTIFIED BY THE
USE OF FORWARD-LOOKING TERMINOLOGY, SUCH AS "MAY," "INTEND," "WILL," "EXPECT,"
"ANTICIPATE," "ESTIMATE," "SEEK," OR "CONTINUE" OR THE NEGATIVE THEREOF OR OTHER
VARIATIONS THEREON OR COMPARABLE TERMINOLOGY. IN PARTICULAR, ANY STATEMENTS,
EXPRESS OR IMPLIED, CONCERNING FUTURE OPERATING RESULTS OR THE ABILITY TO
GENERATE REVENUES, INCOME OR CASH FLOW TO SERVICE THE NEW SECURITIES ARE
FORWARD-LOOKING STATEMENTS. ALTHOUGH HOLDINGS BELIEVES THAT THE EXPECTATIONS
REFLECTED IN SUCH FORWARD-LOOKING STATEMENTS ARE REASONABLE, THERE CAN BE NO
ASSURANCE THAT SUCH EXPECTATIONS WILL PROVE TO HAVE BEEN ACCURATE. HOLDINGS
DISCLAIMS ANY OBLIGATION TO UPDATE ANY SUCH FORWARD-LOOKING STATEMENTS OR TO
PUBLICLY ANNOUNCE THE RESULTS OF ANY REVISIONS TO ANY OF THE FORWARD-LOOKING
STATEMENTS CONTAINED IN THIS PROSPECTUS TO REFLECT FUTURE EVENTS OR
DEVELOPMENTS. ALL FORWARD-LOOKING STATEMENTS ARE EXPRESSLY QUALIFIED BY SUCH
CAUTIONARY STATEMENTS AND OTHER INFORMATION CONTAINED IN THIS PROSPECTUS,
INCLUDING "RISK FACTORS."
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SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial statements,
including the notes thereto, appearing elsewhere in this Prospectus. Unless the
context otherwise requires, the term "Company" or "Liberty Group Operating"
refers to the assets, liabilities and operations of the 166 local newspapers and
related publications (the "Local Publications") previously owned by subsidiaries
of American Publishing Company ("APC"), a wholly-owned subsidiary of Hollinger
International Inc. ("Hollinger"). Holdings' operations are limited to owning all
the outstanding stock of the Company. The historical financial data of the
Company described herein is identical to the historical financial data of
Holdings. The pro forma financial data described herein is that of Holdings.
Capitalized terms not defined in this "Summary" section have the meanings set
forth elsewhere in this Prospectus.
THE COMPANY
OVERVIEW
The Company is a leading U.S. publisher of local newspapers and related
publications that are the dominant source of local news and print advertising in
their markets. The Company owns and operates 166 publications in rural markets
in 11 states: Arizona, Arkansas, California, Illinois, Iowa, Kansas, Michigan,
Minnesota, Missouri, New York and Pennsylvania. The majority of the Company's
paid daily newspapers have been published for more than 100 years and are
typically the only paid daily newspapers of general circulation in their
respective rural markets. The Company's newspapers face limited competition as a
result of operating in markets that are distantly located from large
metropolitan areas and that can support only one primary newspaper. The Company
has increased revenues primarily by acquiring new publications and saturating
existing markets and has increased profitability by aggressively pursuing cost
reduction opportunities. Through a combination of these efforts, total revenues
have grown from $73.7 million in 1993 to $98.7 million in 1997, representing a
compounded annual growth rate of 7.6%. The Company's annual revenue growth rates
for the years 1994 through 1997 were 11.1% in 1994, 6.7% in 1995, 11.6% in 1996
and 1.2% in 1997. During the same period, EBITDA has increased from $20.0
million in 1993 to $30.2 million in 1997, and EBITDA margins have improved from
27.2% to 30.6%. Giving effect to the Acquisition, the Company's pro forma loss
for the year ended December 31, 1997 would have been $11.6 million and such loss
would have been insufficient to cover fixed charges by $23.1 million.
The Company's newspapers are comprised of 55 paid daily newspapers with
circulations ranging from approximately 1,100 to 12,500 and 34 paid non-daily
newspapers with circulations ranging from approximately 100 to 41,000. In
addition, the Company publishes 77 free circulation and "total market coverage"
("TMC") publications with limited or no news or editorial content. TMC
publications are distributed free of charge and generally provide 100%
penetration in their areas of distribution. The Company believes that its paid
newspapers, together with its free circulation and TMC publications, are an
effective medium for advertisers to reach substantially all of the households in
the markets served by the Company. All of the Local Publications are located in
small towns that are not suburbs of large cities and that typically have
populations of less than 20,000. The Company's publications focus on local
content, including coverage of local youth, high school and college sports, as
well as local business, politics, entertainment and cultural news. Each of the
Company's publications is specifically tailored to its market in order to
provide local content that radio, television and large metropolitan newspapers
are unable to provide on a cost-effective basis because of their broader
geographic coverage. The Local Publications also differentiate themselves from
other forms of media by providing a cost-effective medium for local advertisers
to target their customers.
The Company believes that its stable revenues and EBITDA are a result of
its geographic diversification, limited competition, low newsprint requirements
and cost of labor, strong base of local advertisers and lack of reliance on
volatile classified advertising. The regional clusters in which the Local
Publications are published are geographically diverse, with no single market
representing more than 3.5% of the Company's 1997 total revenues. The Local
Publications are well-positioned in their markets and face limited direct
competition for either local newspaper advertising or circulation revenue.
Start-ups of newspapers are rare and potential competitors face considerable
barriers to entry due to the Company's established franchises. The Company's
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stable profitability is also a result of its favorable cost structure, which
includes low newsprint and labor cost as a percentage of total revenues. The
Company has relatively low exposure to fluctuations in newsprint prices due to
much lower page counts than large metropolitan newspapers, with newsprint
comprising 8.1% of the Company's 1997 total operating expenses, compared to
approximately 25% for large metropolitan newspapers. In addition, management of
the Company believes based upon its operating experience that advertising
revenues at the Company's publications tend to be more stable than the
advertising revenues of large metropolitan newspapers because the Company's
publications rely primarily on local advertising rather than national
advertising, with national advertising comprising 0.9% and local advertising
comprising 41.3% of the Company's 1997 total revenues. Local advertising is more
stable than national advertising because local service providers generally have
fewer effective advertising vehicles from which to choose. The Company also
relies less than large metropolitan newspapers upon classified advertising,
particularly "help wanted" sections, which tend to be cyclical.
The Company is led by the same experienced management team that had primary
responsibility for the acquisition activities and operations of the Local
Publications prior to the Acquisition (as defined herein). The five members of
the senior management team have, in the aggregate, over 125 years of experience
in the newspaper industry. The management team has a long history of integrating
acquisitions and improving the operations of both existing and acquired
publications. In addition, the Company retained all of the newspaper publishers
at the Local Publications. The local market knowledge of each newspaper's
publisher and his standing in the community are important in maintaining each
newspaper's local identity and in effectively serving its readership and
advertisers.
BUSINESS STRATEGY
The Company's business strategy is to continue to increase the
profitability of existing and acquired newspaper publications through market
leadership, aggressive cost controls, geographic clustering and revenue
enhancements. The Company attributes its strong historical results and its
positive outlook for growth and profitability to management's ability to
identify and complete acquisitions to which it has successfully applied the
following initiatives:
Market Leadership. The Company's newspapers generally have the largest
local news gathering resources in their markets and differentiate themselves
from large metropolitan newspapers by focusing on local information. The
Company's publications serve as the dominant medium for local print advertisers
to reach a specific audience and for readers interested in local events. The
Company believes that by supplementing its paid newspapers with TMC
publications, which are distributed to either all households in a given area or
all households that do not otherwise receive the paid newspapers, it enables
advertisers to reach substantially all households in the markets that they
serve. The Company seeks to enhance reader loyalty through excellent editorial
content, including the proper mix of local and national news to serve its
markets effectively, and high-quality presentation. In addition, because the
Company's newspapers are generally produced on modern offset presses, the
Company has the ability to execute attractive layouts and color enhancements
that are designed to attract readers.
Aggressive Cost Controls. The Company implements uniform operating policies
and establishes strict cost controls at each of its publications. The Company
believes that operating margins are increased by implementing consistent
policies and standards, including specific guidelines for staffing levels,
employee productivity, automation of pre-press operations and regional
production operations. In addition, the Company utilizes specific guidelines
regarding product quality, distribution and customer service, marketing and
promotion, financial controls and purchasing. The Company establishes strict
cost controls to maintain low overhead expenses and continuously seeks to
identify lower cost alternatives for, and to improve utilization of, raw
materials, equipment and services, including newsprint, ink, office equipment
and supplies, production equipment and telecommunication services.
Geographic Clustering. The Company seeks to concentrate its ownership of
publications into regional clusters in order to realize operating efficiencies,
such as the consolidation and sharing of production and printing functions,
management personnel and other general and administrative costs. In addition,
clustering
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enables management to maximize revenues through cross-selling and bundling
advertising among contiguous newspaper markets. The Company believes that its
clustering strategy enables its publications to achieve higher operating margins
than they otherwise would achieve on a stand-alone basis. In addition,
clustering spreads fixed costs, such as salaries, across publications, which
allows the Company to employ high-quality management that is shared among
contiguous markets.
Revenue Enhancements. The Company seeks to saturate its markets through
market layering, which focuses on introducing new products to increase
readership and advertising revenues. New products have historically included
both paid newspapers and free circulation publications, including TMC
publications. Other new products have included more frequent publication of
non-daily newspapers; shopping guides; and niche publications covering subjects,
such as children and parenting, employment, health, seniors and real estate,
that are of interest to residents of particular geographic areas and members of
particular demographic groups. The Company believes that its market layering
strategy has successfully increased its penetration, strengthened its market
presence and protected its publications from encroachment by competitors.
Attractive Acquisition Opportunities. The Company's low-cost operating
model, broad geographic coverage and successful acquisition history provide a
platform for the acquisition of local newspapers. The Company has a proven track
record of significantly improving the profitability of acquired operations by
implementing the same cost control systems and revenue enhancements that are in
place at existing properties. Favorable acquisition candidates would have some
or all of the following characteristics: a long publishing history, strong
readership and advertiser loyalty, editorial independence and potential
opportunities for revenue enhancements and increases in profitability through
cost reductions and synergies with the Company's existing operations. The
Company believes that the newspaper publishing industry is highly fragmented,
with over 7,500 paid daily and non-daily publications with circulations of less
than 25,000 operating in the United States today. The Company further believes
that competition is abating for these smaller publications as the historical
acquirors of such publications have grown too large for publications of this
size to have a meaningful impact on operations and have diverted resources
toward the acquisition of metropolitan newspapers.
THE ACQUISITION
On January 27, 1998 (the "Closing Date"), the Company acquired from
wholly-owned subsidiaries of Hollinger virtually all of the assets that were
used primarily in the business of publishing, marketing and distributing the
Local Publications (the "Acquisition") pursuant to the Asset Purchase Agreements
(as defined herein).
In consideration of the transfer of such assets, the Company paid Hollinger
the contractual purchase price of $309.1 million, plus interest of $1.1 million
calculated pursuant to the Asset Purchase Agreements, and received from
Hollinger a cash adjustment of $3.0 million, which resulted in a net cash
payment of $307.2 million (the "Purchase Price"), and assumed certain
liabilities related to the Local Publications. Pursuant to the Asset Purchase
Agreements, on April 2, 1998, the Company paid Hollinger approximately $3.6
million as a working capital adjustment and received from Hollinger an
additional cash adjustment of approximately $0.2 million. Of the total Purchase
Price, approximately $31.0 million represented consideration in connection with
a Non-Competition Agreement (the "Non-Competition Agreement") whereby Hollinger
and its affiliates have agreed not to compete with the Company's acquired
newspaper business. Also in connection with the Acquisition, the Company and
American Publishing Management Services, Inc. ("APMS"), a wholly-owned
subsidiary of Hollinger, entered into a Transitional Services Agreement (the
"Transitional Services Agreement") pursuant to which APMS has agreed to provide
to the the Company, at the Company's option, certain management and
administrative services at cost for a period of three years. See "The
Acquisition--Other Agreements Related to the Acquisition" for a description of
the material provisions of the Non-Competition Agreement and the Transitional
Services Agreement.
The Acquisition, including the payment of related fees and expenses, was
financed from: (i) proceeds of $180.0 million from the issuance and sale of the
Old Senior Subordinated Notes; (ii) proceeds of $50.5 million from the issuance
and sale of the Old Debentures; (iii) proceeds of $45.0 million from the
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issuance and sale of the Old Senior Preferred Stock; (iv) proceeds of $49.0
million from the issuance and sale of Holdings' Series B 10% Junior Redeemable
Cumulative Preferred Stock ("Holdings Junior Preferred Stock"); and (v) proceeds
of $8.0 million from the issuance and sale of shares of Holdings common stock
(together with the Acquisition and the establishment of the Revolving Credit
Facility (as defined herein), referred to herein as the "Transactions").
Management of the Company believes that the financing used for the Acquisition
provides the Company with the least expensive and most flexible form of
financing available to successfully implement the Company's operating and
acquisition strategies.
Holdings was incorporated under the laws of the State of Delaware in 1997
as part of the Acquisition and owns all of the capital stock of Liberty Group
Operating. Holdings maintains its principal executive offices at 3000 Dundee
Road, Suite 203, Northbrook, Illinois 60062, and its telephone number is (847)
272-2244.
RELATED TRANSACTIONS
On January 27, 1998, Liberty Group Operating sold $180.0 million aggregate
principal amount of its Old Senior Subordinated Notes (the "Note Offering")
which were issued pursuant to an indenture, dated as of January 27, 1998, among
Liberty Group Operating, as issuer, each of Liberty Group Operating's direct and
indirect subsidiaries, as guarantors, and State Street Bank and Trust Company,
as Trustee (the "Senior Subordinated Note Indenture"). Contemporaneously with
the Exchange Offer, Liberty Group Operating will commence an offer to exchange
$1,000 principal amount of its New Senior Subordinated Notes for each $1,000
principal amount of its Old Senior Subordinated Notes.
The net proceeds of the Note Offering were used, together with the proceeds
from the issuance and sale of the Old Debentures, the Old Senior Preferred
Stock, the Holdings Junior Preferred Stock and shares of Holdings Common Stock,
to finance the Acquisition and to pay related fees and expenses.
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THE EXCHANGE OFFER
Registration Rights
Agreements................. The Old Debentures were sold by Holdings on
January 27, 1998 to Donaldson, Lufkin & Jenrette
Securities Corporation ("DLJ"), Citibank
Securities, Inc., BT Alex. Brown and Chase
Securities Inc., as initial purchasers (the
"Initial Purchasers"), who sold the Old Debentures
to institutional investors. The Old Senior
Preferred Stock was sold by Holdings on January 27,
1998 to DLJ, as the initial purchaser ("DLJ"), who
also sold the Old Senior Preferred Stock to
institutional investors. In connection therewith,
the Company executed and delivered for the benefit
of the Holders of the Old Debentures and the Old
Senior Preferred Stock, respectively, certain
exchange and registration rights agreements (each a
"Registration Rights Agreement" and, collectively,
the "Registration Rights Agreements") providing for
the Exchange Offer.
The Exchange Offer......... One share of New Senior Preferred Stock in exchange
for each outstanding share of Old Senior Preferred
Stock. As of the date hereof, 1,800,000 shares of
Old Senior Preferred Stock are outstanding.
$1,000 principal amount at maturity of New
Debentures in exchange for each $1,000 principal
amount at maturity of outstanding Old Debentures.
As of the date hereof, $89.0 million aggregate
principal amount at maturity of Old Debentures are
outstanding.
Holdings will issue the New Debentures and New
Senior Preferred Stock to Holders as promptly as
practicable after the Expiration Date.
Based on an interpretation by the staff of the
Commission set forth in no-action letters issued to
third parties, the Company believes that the New
Securities issued in exchange for Old Securities
pursuant to the Exchange Offer may be offered for
resale, resold and otherwise transferred by any
Holder thereof (other than (i) a broker-dealer who
purchases such New Securities directly from the
Company to resell pursuant to Rule 144A or any
other available exemption under the Securities Act
or (ii) any such Holder that is an "affiliate" of
the Company within the meaning of Rule 405 under
the Securities Act) without compliance with the
registration and prospectus delivery provisions of
the Securities Act; provided, that the Holder is
acquiring such New Securities in its ordinary
course of business and is not participating, and
has no arrangement or understanding with any person
to participate, in any distribution of the New
Securities. See, e.g., Shearman & Sterling
(available July 2, 1993), Morgan Stanley & Co.
Incorporated (available June 5, 1991), Exxon
Capital Holdings Corporation (available May 13,
1988). Persons wishing to exchange Old Securities
in the Exchange Offer must represent to the Company
that such conditions have been met. However, any
Holder who is an "affiliate" of the Company or who
tenders in the Exchange Offer for the purpose of
distributing the New Securities cannot rely on the
interpretation of the staff of the Commission set
forth in the above-referenced no-action letters and
must comply with the registration and prospectus
delivery requirements of the Securities Act in
connection with any sale or transfer of the Old
Securities. See "The Exchange Offer--Consequences
to Non-Tendering Holders of Old Securities."
Each broker-dealer that receives New Securities for
its own account pursuant to the Exchange Offer must
acknowledge that it will deliver a prospectus
meeting the requirements of the Securities Act in
connection with any resale of such New Securities.
The Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it
is an "underwriter" within the
5
<PAGE> 9
meaning of the Securities Act. This Prospectus, as
it may be amended or supplemented from time to
time, may be used by a broker-dealer in connection
with resales of New Securities received in exchange
for Old Securities where such Old Securities were
acquired by such broker-dealer as a result of
market-making activities or other trading
activities and not acquired directly from the
Company. The Company has agreed that for a period
of 180 days after the Expiration Date, it will make
this Prospectus available to any broker-dealer for
use in connection with any such resale. See "Plan
of Distribution."
Expiration Date............ 5:00 p.m., New York City time, on May 26, 1998,
unless the Exchange Offer is extended (such
Expiration Date not to be later than 30 business
days from the date of this Prospectus), in which
case the term "Expiration Date" means the latest
date and time to which the Exchange Offer is
extended.
Conditions to the
Exchange Offer........... The Exchange Offer is subject to certain customary
conditions which may be waived by the Company. See
"The Exchange Offer--Conditions."
Procedures for Tendering
Old
Securities............... Each Holder of Old Securities wishing to accept the
Exchange Offer must complete, sign and date the
Letter of Transmittal, or a facsimile thereof, in
accordance with the instructions contained herein
and therein, and mail or otherwise deliver such
Letter of Transmittal, or such facsimile, or (in
the case of a book-entry transfer) an Agent's
Message (as defined herein) in lieu of the Letter
of Transmittal, together with Old Securities and
any other required documentation to the Exchange
Agent (as defined herein) at the address set forth
herein. By executing the Letter of Transmittal,
each Holder will represent to the Company that,
among other things, the New Securities acquired
pursuant to the Exchange Offer are being obtained
in the ordinary course of business of the person
receiving such New Securities, whether or not such
person is the Holder, that neither the Holder nor
any such other person has an arrangement or
understanding with any person to participate in the
distribution of such New Securities and that
neither the Holder nor any such other person is an
"affiliate," as defined under Rule 405 of the
Securities Act, of the Company. See "The Exchange
Offer--Procedures for Tendering." Each
broker-dealer that receives New Securities for its
own account in exchange for Old Securities, where
such Old Securities were acquired by such
broker-dealer as a result of market-making
activities or other trading activities, must
acknowledge that it will deliver a prospectus in
connection with any resale of such New Securities.
See "The Exchange Offer--Procedures for Tendering"
and "Plan of Distribution."
Special Procedures for
Beneficial Owners........ Any beneficial owner whose Old Securities are
registered in the name of a broker, dealer,
commercial bank, trust company or other nominee and
who wishes to tender should contact such registered
Holder promptly and instruct such registered Holder
to tender on such beneficial owner's behalf. If
such beneficial owner wishes to tender on such
owner's own behalf, such owner must, prior to
completing and executing the Letter of Transmittal
and delivering his Old Securities, either make
appropriate arrangements to register ownership of
the Old Securities in such owner's name or obtain a
properly completed bond power from the registered
Holder. The transfer of registered ownership may
take considerable time. See "The Exchange
Offer--Procedures for Tendering."
Guaranteed Delivery
Procedures............... Holders of Old Securities who wish to tender their
Old Securities and whose Old Securities are not
immediately available or who cannot deliver their
Old
6
<PAGE> 10
Securities, the Letter of Transmittal or any other
documents required by the Letter of Transmittal to
the Exchange Agent prior to the Expiration Date, or
who cannot complete the procedure for book-entry
transfer on a timely basis and deliver an Agent's
Message, must tender their Old Securities according
to the guaranteed delivery procedures set forth in
"The Exchange Offer--Guaranteed Delivery
Procedures."
Withdrawal Rights.......... Tenders may be withdrawn at any time prior to 5:00
p.m., New York City time, on the Expiration Date.
See "The Exchange Offer--Withdrawal of Tenders."
Acceptance of Old
Securities and Delivery of
New Securities........... Subject to certain conditions described under "The
Exchange Offer--Conditions," the Company will
accept for exchange any and all Old Securities
which are properly tendered in the Exchange Offer
prior to 5:00 p.m., New York City time, on the
Expiration Date. The New Securities issued pursuant
to the Exchange Offer will be delivered promptly
following the Expiration Date. See "The Exchange
Offer--Terms of the Exchange Offer."
Consequences to
Non-Tendering Holders of
Old Securities........... Upon consummation of the Exchange Offer, Holdings
will have no further obligation to register the Old
Securities. Thereafter, any Holder of Old
Securities who does not tender its Old Securities
in the Exchange Offer, including any Holder which
is an "affiliate" (as that term is defined in Rule
405 of the Securities Act) of the Company which
cannot tender its Old Securities in the Exchange
Offer, will continue to hold restricted securities
which may not be offered, sold or otherwise
transferred, pledged or hypothecated except
pursuant to Rule 144 and Rule 144A under the
Securities Act or pursuant to any other exemption
from registration under the Securities Act relating
to the disposition of securities. In addition, in
connection with any sale of Old Securities, an
opinion of counsel must be furnished to Holdings
that such an exemption is available for such sale.
Certain Federal Income
Tax Consequences......... Subject to certain conditions set forth under "The
Exchange Offer--Conditions," the exchange of Old
Securities for New Securities pursuant to the
Exchange Offer should not be treated as a taxable
exchange for federal income tax purposes. See
"Certain Federal Income Tax
Considerations--Consequences of the Exchange Offer
to Exchanging and Nonexchanging Holders."
Exchange Agents............ BankBoston, N.A. is serving as Exchange Agent in
connection with the exchange of New Senior
Preferred Stock for Old Senior Preferred Stock.
State Street Bank and Trust Company is serving as
Exchange Agent in connection with the exchange of
New Debentures for Old Debentures.
BankBoston, N.A. and State Street Bank and Trust
Company are collectively referred to herein as the
"Exchange Agent." See "The Exchange Offer--Exchange
Agent."
Net Proceeds............... Holdings will not receive any proceeds from the
issuance of New Securities offered in the Exchange
Offer. See "Use of Proceeds."
7
<PAGE> 11
SUMMARY OF TERMS OF NEW SENIOR PREFERRED STOCK
The Exchange Offer applies to 1,800,000 shares of Old Senior Preferred
Stock. The Old Senior Preferred Stock and the New Senior Preferred Stock
constitute the same class of preferred stock of Holdings. Accordingly, the
rights and preferences of the New Senior Preferred Stock are identical in all
material respects to the rights and preferences of the Old Senior Preferred
Stock except that the New Senior Preferred Stock has been registered under the
Securities Act and, therefore, will not bear legends restricting the transfer
thereof. See "Description of New Senior Preferred Stock" for a description of
the material provisions of the Certificate of Designations relating to Holdings
Senior Preferred Stock.
Issuer..................... Liberty Group Publishing, Inc.
Securities Offered......... 1,800,000 shares of 14 3/4% Senior Redeemable
Exchangeable Cumulative Preferred Stock, par value
$0.01 per share.
Liquidation Preference..... $25 per share plus accumulated and unpaid dividends
thereon.
Ranking.................... The New Senior Preferred Stock will rank senior to
the Holdings Junior Preferred Stock ($49.0 million
aggregate liquidation preference as of the date
hereof) and Holdings' common stock ("Holdings
Common Stock"). See "Description of Holdings'
Capital Stock."
Dividends.................. The New Senior Preferred Stock will bear cumulative
dividends at the rate of 14 3/4% per annum, payable
quarterly beginning on May 1, 1998 and accumulating
from January 27, 1998. Dividends may, at the option
of Holdings, be paid in cash or a number of shares
of New Senior Preferred Stock having an aggregate
liquidation preference equal to the amount of such
dividends.
Dividend Payment Dates..... February 1, May 1, August 1 and November 1 of each
year, commencing May 1, 1998.
Mandatory Redemption....... February 1, 2010 at a price equal to 100% of the
liquidation preference plus accrued and unpaid
dividends.
Optional Redemption........ The New Senior Preferred Stock will be redeemable
at the option of Holdings, in whole or in part, at
any time on or after February 1, 1999, at the
redemption prices set forth herein, plus all
accrued and unpaid dividends per share. See
"Description of New Senior Preferred
Stock--Optional Redemption."
Change of Control.......... Upon a change of control, subject to contractual
and other restrictions, Holdings must offer to
repurchase the New Senior Preferred Stock at 100%
of the liquidation preference plus accrued and
unpaid dividends.
Exchange Provisions........ The New Senior Preferred Stock is exchangeable into
the Exchange Debentures (in whole but not in part),
at Holdings' option, subject to certain conditions,
on any scheduled dividend payment date.
Voting Rights.............. The New Senior Preferred Stock will have no voting
rights with respect to general corporate matters
except as provided by law or to authorize the
issuance of senior or parity equity securities of
Holdings or to modify adversely the rights of the
New Senior Preferred Stock.
8
<PAGE> 12
SUMMARY OF TERMS OF EXCHANGE DEBENTURES
Issuer..................... Liberty Group Publishing, Inc.
Securities Offered......... 14 3/4% Senior Subordinated Debentures due 2010
issuable, at Holdings' option, in exchange for the
New Senior Preferred Stock in an aggregate
principal amount equal to the aggregate liquidation
preference of the New Senior Preferred Stock, plus,
without duplication, accrued and unpaid dividends
to the date fixed for the exchange thereof (the
"Exchange Date"), plus any additional Exchange
Debentures issued from time to time in lieu of cash
interest.
Maturity Date.............. February 1, 2010.
Interest Rate
and Payment Dates........ The Exchange Debentures will bear interest at a
rate of 14 3/4% per annum. Interest will accrue
from the date of issuance or from the most recent
interest payment date to which interest has been
paid or provided for or, if no interest has been
paid or provided for, from the Exchange Date.
Interest will be payable semi-annually in cash (or,
at the option of Holdings, in additional Exchange
Debentures) in arrears on each February 1 and
August 1, commencing with the first such date after
the Exchange Date.
Ranking.................... The Exchange Debentures will be subordinated to all
existing and future Senior Indebtedness of
Holdings. In addition, the Exchange Debentures will
be effectively subordinated to all existing and
future liabilities of Liberty Group Operating and
subsidiaries of Liberty Group Operating. The
Exchange Debentures will rank pari passu or senior
to any class or series of indebtedness that
expressly provides that it ranks pari passu or
subordinate to the Exchange Debentures, as the case
may be. As of April 3, 1998, there was $51.0
million of Senior Indebtedness of Holdings and
$180.0 million of Indebtedness of Liberty Group
Operating and subsidiaries of Liberty Group
Operating (excluding available borrowings and
letters of credit under the Revolving Credit
Facility) that would be senior to the Exchange
Debentures and $49.0 million of other liabilities
that would be pari passu with or subordinated to
the Exchange Debentures. See "Capitalization."
Optional Redemption........ The Exchange Debentures will be redeemable, at
Holdings' option, in whole or in part, at any time
on or after February 1, 1999, at the redemption
prices set forth herein, plus accrued and unpaid
interest to the date of redemption.
Change of Control.......... In the event of a Change of Control, each Holder of
Exchange Debentures will have a right to require
Holdings to repurchase Exchange Debentures at a
cash price equal to 101% of the principal amount
thereof plus accrued and unpaid interest to the
date of repurchase. See "Description of Exchange
Debentures--Repurchase of Exchange Debentures at
the Option of the Holder Upon a Change of Control."
Certain Covenants.......... The Exchange Indenture contains certain covenants
that, among other things, limit the ability of
Holdings and its subsidiaries to incur additional
debt, pay dividends or make certain other
restricted payments, enter into certain
transactions with affiliates, or merge or
consolidate with or sell all or substantially all
of their assets to any other person.
9
<PAGE> 13
SUMMARY OF TERMS OF NEW DEBENTURES
The Exchange Offer applies to $89.0 million aggregate principal amount at
maturity of Old Debentures. The form and terms of the New Debentures are
identical in all material respects to the form and terms of the Old Debentures
except that the New Debentures have been registered under the Securities Act
and, therefore, will not bear legends restricting the transfer thereof. The New
Debentures will evidence the same debt as the Old Debentures and will be
entitled to the benefits of the Indenture. See "Description of New Debentures"
for a description of the material provisions of the Indenture.
Issuer..................... Liberty Group Publishing, Inc.
Securities Offered......... $89.0 million aggregate principal amount at
maturity of 11 5/8% New Senior Discount Debentures
due 2009.
Maturity Date.............. February 1, 2009.
Yield and Interest......... 11 5/8% (computed on a semi-annual bond equivalent
basis) calculated from January 27, 1998. The New
Debentures will accrete at a rate of 11 5/8%,
compounded semi-annually, to an aggregate principal
amount at maturity of $89.0 million by February 1,
2003. Cash interest will not accrue on the New
Debentures prior to February 1, 2003. Commencing on
February 1, 2003, cash interest on the New
Debentures will be payable at a rate of 11 5/8% per
annum, semi-annually on February 1 and August 1 of
each year.
Ranking.................... The New Debentures will be general unsecured
obligations of Holdings and will rank pari passu in
right of payment with all existing and future
Senior Indebtedness of Holdings and will rank
senior in right of payment to all future
subordinated Indebtedness of Holdings. The New
Debentures will be effectively subordinated to all
liabilities of Holdings' subsidiaries. As of April
3, 1998, Holdings had $51.0 million of Indebtedness
and Holdings' subsidiaries would have had $180.0
million of Indebtedness outstanding, consisting of
Indebtedness under the New Senior Subordinated
Notes.
Optional Redemption........ The New Debentures will be redeemable at the option
of Holdings, in whole or in part, at any time on or
after February 1, 2003, at the redemption prices
set forth herein, plus accrued and unpaid interest
to the date of redemption. In addition, at any time
on or before February 1, 2001, Holdings may redeem,
on one or more occasions, up to an aggregate of 35%
of the aggregate principal amount at maturity of
the New Debentures originally issued with the net
cash proceeds of one or more Public Equity
Offerings (as defined herein) at a redemption price
equal to 111.625% of the Accreted Value thereof
plus accrued and unpaid interest to the date of
redemption; provided, that at least 65% of the
original aggregate principal amount at maturity of
the New Debentures remain outstanding after each
such redemption. See "Description of New
Debentures--Optional Redemption."
Change of Control.......... In the event of a Change of Control, each Holder of
New Debentures will have the right to require
Holdings to repurchase New Debentures at a cash
price equal to 101% of the Accreted Value thereof
plus accrued and unpaid interest to the date of
repurchase in the case of any such purchase prior
to February 1, 2003, or 101% of the principal
amount at maturity thereof plus accrued and unpaid
interest to the date of repurchase in the case of
any such purchase on or after February 1, 2003.
Holdings does not have, and may not in the future
have, any assets other
10
<PAGE> 14
than common stock of Liberty Group Operating (which
is pledged to secure Liberty Group Operating's
obligations under the Revolving Credit Facility).
As a result, Holdings' ability to repurchase all or
any part of the New Debentures upon the occurrence
of a Change of Control will be dependent upon the
receipt of dividends or other distributions from
its direct and indirect subsidiaries. The Revolving
Credit Facility and the Senior Subordinated Note
Indenture restrict the ability of Liberty Group
Operating to pay dividends and make other
distributions to Holdings. See "Risk
Factors--Holding Company Structure; Limitation on
Access to Cash Flow of Subsidiaries." If Holdings
is unable to obtain sufficient dividends from
Liberty Group Operating to permit the repurchase of
the New Debentures or does not refinance such
Indebtedness, Holdings will likely not have the
financial resources to purchase New Debentures upon
the occurrence of a Change of Control. In any
event, there can be no assurance that Holdings'
subsidiaries will have the resources available to
pay any such dividend or make any such
distribution. Furthermore, the Revolving Credit
Facility provides that certain change of control
events will constitute a default thereunder and the
Senior Subordinated Note Indenture provides that,
in the event of a Change of Control, Liberty Group
Operating will be required to offer to repurchase
the New Senior Subordinated Notes at the price
specified therefor. Holdings' failure to make a
Change of Control Offer when required or to
purchase tendered New Debentures when tendered
would constitute an Event of Default under the
Indenture. See "Description of New
Debentures--Certain Covenants--Repurchase of New
Debentures at the Option of the Holder Upon a
Change of Control."
Original Issue Discount.... For federal income tax purposes the New Debentures
will be treated as having been issued with
"original issue discount" ("OID"). Each Holder of
New Debentures will be required to include amounts
in gross income for federal income tax purposes in
advance of the receipt of cash payments to which
the income is attributable. See "Certain United
States Federal Tax
Considerations--Debentures--Original Issue
Discount."
Certain Covenants.......... The Indenture contains certain covenants that limit
the ability of Holdings and its subsidiaries to,
among other things, (i) incur additional
Indebtedness and issue Disqualified Capital Stock,
(ii) pay dividends or make other distributions,
(iii) create certain liens, (iv) sell certain
assets and stock of subsidiaries, (v) enter into
certain transactions with affiliates, and (vi)
effect certain mergers and consolidations. See
"Description of New Debentures--Certain Covenants."
RISK FACTORS
See "Risk Factors" for a discussion of certain factors that should be
considered in connection with an investment in the New Securities.
11
<PAGE> 15
SUMMARY COMBINED HISTORICAL AND PRO FORMA FINANCIAL DATA
The following table sets forth summary combined historical and pro forma
financial data of the Company. The summary historical financial data of the
Company described herein is identical to the summary historical financial data
of Holdings. The summary historical financial data as of December 31, 1997 and
for the years ended December 31, 1995, 1996 and 1997 are derived from the
combined financial statements of the Company, which have been audited by
independent auditors. The summary historical financial data for the years ended
December 31, 1993 and 1994 have been derived from the unaudited combined
financial statements of the Company and include, in the opinion of the Company,
all adjustments necessary to present fairly the data for such periods. The
results for the year ended December 31, 1997 are not necessarily indicative of
the results to be expected for any future period. The pro forma combined
statement of operations data for the year ended December 31, 1997 gives effect
to the Transactions as if they had occurred on January 1, 1997. The pro forma
combined balance sheet data as of December 31, 1997 gives effect to the
Transactions as if they had occurred on December 31, 1997. The data presented
below should be read in conjunction with the combined financial statements,
including the notes thereto, "Unaudited Pro Forma Combined Financial Data" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
<TABLE>
<CAPTION>
HISTORICAL
----------------------------------------------------
YEAR END31,DECEMBER PRO FORMA
---------------------------------------------------- YEAR ENDED
1993 1994 1995 1996 1997 DECEMBER 31, 1997
------- ------- ------- ------- -------- -----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Advertising................... $50,252 $56,770 $60,255 $66,816 $ 68,712 $ 68,712
Circulation................... 16,287 17,766 19,058 22,004 22,341 22,341
Job printing and other........ 7,128 7,328 8,054 8,722 7,666 7,666
------- ------- ------- ------- -------- --------
Total revenues.................. 73,667 81,864 87,367 97,542 98,719 98,719
Operating costs................. 23,743 25,880 29,405 31,320 29,318 29,318
Selling, general and
administrative................ 29,910 33,255 34,506 38,259 39,162 40,527
Depreciation and amortization... 7,450 7,722 7,290 7,854 7,470 15,027
------- ------- ------- ------- -------- --------
Income from operations.......... 12,564 15,007 16,166 20,109 22,769 13,847
Interest expense................ 10,711 10,991 11,195 10,968 10,551 25,416
------- ------- ------- ------- -------- --------
Income before income taxes...... 1,853 4,016 4,971 9,141 12,218 (11,569)
Income taxes.................... 778 1,687 2,338 4,006 5,271 --
------- ------- ------- ------- -------- --------
Net income................. $ 1,075 $ 2,329 $ 2,633 $ 5,135 $ 6,947 $(11,569)
======= ======= ======= ======= ======== ========
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997
-----------------------
HISTORICAL PRO FORMA
---------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 1,452 $ 686
Total assets................................................ 109,700 343,083
Total debt.................................................. -- 230,522
Holdings Senior Preferred Stock............................. -- 45,000
Holdings Junior Preferred Stock............................. -- 49,000
Stockholders' equity........................................ 99,139 8,000
OTHER DATA:
Ratio of earnings to fixed
charges(1).................... 1.2x 1.4x 1.4x 1.8x 2.2x --
Cash flow provided by (used in):
Operating activities.......... $ N/A $10,169 $ 7,889 $14,303 $ 14,577 $ 10,875
Investing activities.......... N/A 492 (14,906) (4,520) (3,370) (3,370)
Financing activities.......... N/A (10,638) 7,203 (9,944) (11,523) (735)
EBITDA(2)....................... 20,014 22,729 23,456 27,963 30,239 28,874
EBITDA margin(3)................ 27.2% 27.8% 26.8% 28.7% 30.6% 29.2%
Capital expenditures............ $ 1,813 $ 2,232 $ 2,255 $ 3,081 $ 1,713 $ 1,713
</TABLE>
(footnotes
on following page)
12
<PAGE> 16
NOTES TO SUMMARY COMBINED HISTORICAL AND PRO FORMA FINANCIAL DATA
(1) For purposes of computing the ratio of earnings to fixed charges, "earnings"
consist of income before income taxes plus fixed charges. "Fixed charges"
consist of interest on all indebtedness, amortization of deferred debt
financing costs and one-third of rental expense (the portion deemed
representative of the interest factor). The ratio of earnings to fixed
charges is helpful to investors as it provides a measure, generally
calculated consistently by all companies, of a company's ability to meet its
debt service requirements. On a pro forma basis for the year ended December
31, 1997, earnings were insufficient to cover fixed charges by $23.1
million.
(2) EBITDA represents net income before income taxes, interest expense and
depreciation and amortization. Management believes that the presentation of
EBITDA is helpful to investors as a measure of the Company's ability to meet
its working capital, capital expenditure and debt service requirements.
Management also believes that the presentation of EBITDA is helpful to
investors, because EBITDA will be used to determine compliance with certain
covenants contained in the Indenture and the Exchange Indenture. EBITDA,
however, should not be construed as an alternative to net income or cash
flows from operating activities, each as determined in accordance with
generally accepted accounting principles ("GAAP"), as a measure of operating
performance or liquidity. Further, EBITDA is not calculated consistently by
all companies and, accordingly, the presentation herein may not be
comparable to other similarly titled measures presented by other companies.
Management believes that the Company's financial stability can be depicted
to investors by its historical EBITDA, which during the period 1993 through
1997 has increased generally in amounts and percentages equal to the
Company's income from operations. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
(3) EBITDA margin represents EBITDA divided by total revenues.
13
<PAGE> 17
RISK FACTORS
In addition to the other matters described in this Prospectus, prospective
investors should carefully consider the following risk factors before deciding
to make an investment in the New Securities. Prospective investors should also
refer to the "Disclosure Regarding Forward-Looking Statements" found on page ii
of this Prospectus when evaluating this "Risk Factors" section and Holdings'
business, financial condition and operations.
SUBSTANTIAL LEVERAGE AND DEBT SERVICE OBLIGATIONS
Holdings is highly leveraged and has Indebtedness that is substantial in
relation to its stockholders' equity, tangible equity and cash flow. As of
December 31, 1997, on a pro forma basis after giving effect to the Transactions,
Holdings would have had $50.5 million of outstanding Indebtedness, $8.0 million
of stockholders' equity and $(301.4) million of tangible equity and Holdings'
subsidiaries would have had an aggregate of $180.0 million of outstanding
Indebtedness. As of December 31, 1997, on a pro forma basis after giving effect
to the Transactions, the ratio of outstanding indebtedness to total
capitalization was 0.69 to 1.00. For the year ended December 31, 1997, on a pro
forma basis after giving effect to the Transactions, earnings were insufficient
to cover fixed charges by $23.1 million. The degree to which the Company is
leveraged could have important consequences to holders of the New Securities,
including the following: (i) during the fiscal year ending December 31, 1998,
approximately two-thirds of the Company's cash flow from operations must be
dedicated to the payment of interest on the New Senior Subordinated Notes and
interest and principal on its other Indebtedness, thereby reducing the funds
available to the Company for other purposes; (ii) Indebtedness under the
Revolving Credit Facility is at variable rates of interest, which causes Liberty
Group Operating to be vulnerable to increases in interest rates; (iii) the
Company is substantially more leveraged than certain of its competitors, which
might place the Company at a competitive disadvantage; (iv) the Company may be
hindered in its ability to adjust rapidly to changing market conditions; (v) the
Company's substantial degree of leverage could make it more vulnerable in the
event of a downturn in general economic conditions or other adverse events in
its business; and (vi) the Company's ability to obtain additional financing for
working capital, capital expenditures, acquisitions or general corporate
purposes may be impaired.
HOLDING COMPANY STRUCTURE; LIMITATION ON ACCESS TO CASH FLOW OF SUBSIDIARIES
Holdings is a holding company, and its ability to pay dividends on the New
Senior Preferred Stock and interest on the New Debentures, is dependent upon the
receipt of dividends from its direct and indirect subsidiaries. Holdings does
not have and may not in the future have, any assets other than the common stock
of Liberty Group Operating. Liberty Group Operating is a party to the Senior
Subordinated Note Indenture and the Revolving Credit Facility, each of which
imposes substantial restrictions on Liberty Group Operating's ability to pay
dividends to Holdings. Any payment of dividends will be subject to the
satisfaction of certain financial conditions set forth in the Senior
Subordinated Note Indenture and the Revolving Credit Facility. The ability of
Liberty Group Operating and its subsidiaries to comply with such conditions in
the Senior Subordinated Note Indenture and the Revolving Credit Facility may be
affected by events that are beyond the control of Holdings. The breach of any
such condition could result in a default under the Senior Subordinated Note
Indenture and the Revolving Credit Facility, and in the event of any such
default, the holders of the Senior Subordinated Notes or the lenders under the
Revolving Credit Facility could elect to accelerate the maturity of all the
Senior Subordinated Notes or the loans under the Revolving Credit Facility. If
the maturity of the Senior Subordinated Notes or the loans under the Revolving
Credit Facility were to be accelerated, all such outstanding debt would be
required to be paid in full before Liberty Group Operating or its subsidiaries
would be permitted to distribute any assets or cash to Holdings. There can be no
assurance that the distributions to Holdings would be sufficient to repay all of
such outstanding debt and to meet its obligations to holders of New Senior
Preferred Stock or under the Indenture. Future borrowings by Liberty Group
Operating can be expected to contain restrictions or prohibitions on the payment
of dividends by Liberty Group Operating and its subsidiaries to Holdings. In
addition, under Delaware law, a subsidiary of a company is permitted to pay
dividends on its capital stock only out of its surplus or, in the event that it
has no surplus, out of its net profits for the year in which a dividend is
declared or for the immediately preceding fiscal
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year. Under Delaware law, surplus is defined as the excess of a company's total
assets over the sum of its total liabilities plus the par value of its
outstanding capital stock. In order to pay dividends in cash, Liberty Group
Operating must have surplus or net profits equal to the full amount of the cash
dividend at the time such dividend is declared. In determining Liberty Group
Operating's ability to pay dividends, Delaware law permits the Board of
Directors of Liberty Group Operating to revalue its assets and liabilities from
time to time to their fair market values in order to create surplus. Holdings
cannot predict what the value of its subsidiaries' assets or the amounts of
their liabilities will be in the future and, accordingly, there can be no
assurance that Holdings will be able to pay its obligations to holders of New
Senior Preferred Stock or its debt service obligations on the New Debentures.
RESTRICTIONS IMPOSED BY TERMS OF HOLDINGS' AND THE COMPANY'S INDEBTEDNESS
The Indenture, the Senior Subordinated Note Indenture and the Revolving
Credit Facility impose upon Holdings and the Company certain restrictive
financial and operating covenants, including, among others, requirements that
Holdings and the Company maintain certain financial ratios and satisfy certain
financial tests, limitations on capital expenditures, and restrictions on the
ability of Holdings and the Company to incur debt, pay dividends or take certain
other corporate actions, all of which may restrict Holdings' and the Company's
ability to expand or to pursue its business strategies. Certain of the covenants
in the Revolving Credit Facility are more restrictive than those in the
Indenture and the Senior Subordinated Note Indenture. Changes in economic or
business conditions, results of operations or other factors could in the future
cause a violation of one or more covenants in Holdings' and the Company's debt
instruments, which could lead to such Indebtedness becoming immediately due and
payable. See "Description of New Debentures--Certain Covenants" and "Description
of Other Indebtedness--Revolving Credit Facility."
POSSIBLE INABILITY TO FUND CHANGE OF CONTROL OFFER
In the event of a Change of Control, each Holder of New Senior Preferred
Stock will have the right to require Holdings to repurchase all or any part of
the outstanding New Senior Preferred Stock at 100% of the liquidation preference
plus accrued and unpaid dividends.
In the event of a Change of Control, each Holder of New Debentures will
have the right to require Holdings to repurchase all or any part of the
outstanding New Debentures at a cash price specified therefor in the Indenture.
Holdings does not have, and may not in the future have, any assets other
than common stock of the Company. As a result, Holdings' ability to repurchase
all or any part of the New Securities upon the occurrence of a Change of Control
will be dependent upon the receipt of dividends or other distributions from its
direct and indirect subsidiaries. The Senior Subordinated Note Indenture and the
Revolving Credit Facility restrict the ability of the Company to pay dividends
and make other distributions to Holdings. If Holdings does not obtain sufficient
dividends from the Company to repurchase the New Securities or does not
refinance such Indebtedness, Holdings will likely not have the financial
resources to purchase the New Securities upon the occurrence of a Change of
Control. In any event, there can be no assurance that Holdings' subsidiaries
will have the resources available to pay such dividend or make any such
distribution. Furthermore, the Revolving Credit Facility provides that certain
change of control events will constitute a default thereunder, and the Senior
Subordinated Note Indenture provides that, in the event of a Change of Control,
the Company will be required to offer to repurchase the Senior Subordinated
Notes at the price specified therefor. Holdings' failure to make a Change of
Control offer when required or to purchase tendered New Debentures when tendered
would constitute an Event of Default under the Indenture. In addition, Holdings
could enter into certain transactions, including certain recapitalizations, that
would not constitute a Change of Control but would increase the amount of debt
outstanding at such time. See "Description of New Debentures--Certain
Covenants--Repurchase of New Debentures at the Option of the Holder Upon a
Change of Control," "Description of New Senior Preferred Stock" and "Description
of Other Indebtedness."
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CONTROL BY PRINCIPAL STOCKHOLDER
Green Equity Investors II, L.P. ("GEI"), an investment partnership managed
by Leonard Green & Partners, L.P. ("LGP"), owns approximately 90% of Holdings
Common Stock and all of the Holdings Junior Preferred Stock. Accordingly, GEI is
able to elect all of the members of the Board of Directors of Holdings and to
exercise control over Holdings' and Liberty Group Operating's business and
affairs. See "Principal Stockholders."
ABSENCE OF A PUBLIC MARKET
The New Securities are being offered to the holders of the Old Securities.
The Old Securities were issued on January 27, 1998, to a small number of
institutional investors and are eligible for trading in the Private Offering,
Resale and Trading through Automated Linkages (PORTAL) Market, the National
Association of Securities Dealers' screen-based, automated market for trading of
securities eligible for resale under Rule 144A. To the extent that Old
Securities are tendered and accepted in the Exchange Offer, the trading market
for the remaining untendered Old Securities could be adversely affected. There
is no existing trading market for the New Securities and there can be no
assurance regarding the future development of a market for the New Securities,
or the ability of holders of the New Securities to sell their New Securities or
the price at which such holders may be able to sell their New Securities.
Although the Initial Purchasers of the Old Securities have informed Holdings
that they currently intend to make a market in the New Securities, they are not
obligated to do so and any such market making may be discontinued at any time
without notice. As a result, the market price of the New Securities could be
adversely affected. Holdings does not intend to apply for listing or quotation
of the New Securities on any securities exchange or stock market.
ORIGINAL ISSUE DISCOUNT CONSEQUENCES OF THE DEBENTURES
The Debentures were issued at a substantial discount from their principal
amount. Consequently, the Holders of the Debentures generally will be required
to include amounts in gross income for federal income tax purposes in advance of
receipt of the cash payments to which the income is attributable. See "Certain
United States Federal Tax Considerations--Debentures" for a more detailed
discussion of the federal income tax consequences to the holders of the
Debentures of the purchase, ownership and disposition of the Debentures. If a
bankruptcy case is commenced by or against the Company under the United States
Bankruptcy Code after the issuance of the Debentures, the claim of a holder of
Debentures may be limited to an amount equal to the sum of (i) the price paid by
the holder for the Debentures (which price may be deemed to be the closing price
of the Debentures on their first day of trading); and (ii) that portion of the
OID that is not deemed to constitute "unmatured interest" for purposes of the
United States Bankruptcy Code. Any OID that was not amortized as of any such
bankruptcy filing would constitute "unmatured interest." The amortization for
purposes of a claim in bankruptcy may be calculated differently than the
amortization of OID for tax purposes.
TAX CONSEQUENCES OF DEEMED STOCK DISTRIBUTION WITH RESPECT TO THE NEW SENIOR
PREFERRED STOCK AND ORIGINAL ISSUE DISCOUNT ON EXCHANGE DEBENTURES; POTENTIAL
FOR TAXATION BEFORE RECEIPT OF CASH
If the redemption price of the New Senior Preferred Stock exceeds its issue
price by more than a de minimis amount, such excess may be treated as a
constructive distribution with respect to the New Senior Preferred Stock of
additional stock over the term of the New Senior Preferred Stock using a
constant interest rate method similar to that used for accruing OID. Because the
issue price as determined for federal income tax purposes of the New Senior
Preferred Stock distributed in lieu of payments of cash dividends will be equal
to the fair market value of the New Senior Preferred Stock at the time of
distribution, it is possible, depending on its fair market value at that time,
that such New Senior Preferred Stock will be issued with a redemption premium
large enough to be considered a dividend as described above. In such event,
holders may be required to include such premium in income as a distribution over
some period in advance of receiving the cash attributable to such income, and
such New Senior Preferred Stock might not trade separately, which circumstances
together might adversely affect the liquidity of the New Senior Preferred Stock.
See "Certain Federal Income Tax Consequences--Holdings Senior Preferred Stock."
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Further, to the extent holders of New Senior Preferred Stock receive
additional shares of New Senior Preferred Stock as a distribution in respect of
such New Senior Preferred Stock, such holders may be required to include in
gross income for federal income tax purposes the fair market value of such
stock, even though such holders have not received such fair market value in
cash. See "Certain Federal Income Tax Consequences--Holdings Senior Preferred
Stock."
Finally, Holdings may, at its option and under certain circumstances,
exchange the New Senior Preferred Stock for the Exchange Debentures. Any such
exchange will be a taxable event to holders of the New Senior Preferred Stock.
Furthermore, the Exchange Debentures may in certain circumstances be treated as
having been issued with OID for federal income tax purposes. In such event,
holders of the Exchange Debentures will be required to include such OID (as
ordinary income) in income over the life of the Exchange Debentures, in advance
of the receipt of the cash attributable to such income. See "Certain Federal
Income Tax Consequences--Exchange Debentures."
FRAUDULENT CONVEYANCE STATUTES
Under applicable provisions of federal bankruptcy law or comparable
provisions of state fraudulent transfer law, if, among other things, Holdings,
at the time it incurred the Indebtedness evidenced by the Debentures or the
Exchange Debentures, (i) (a) was or is insolvent or was rendered insolvent by
reason of such occurrence or (b) was or is engaged in a business or transaction
for which the assets remaining with Holdings constituted unreasonably small
capital or (c) intended or intends to incur, or believed or believes that it
would incur, debts beyond its ability to pay such debts as they mature, and
(ii) received or receives less than reasonably equivalent value or fair
consideration for the incurrence of such Indebtedness, then the New Debentures
and/or the Exchange Debentures could be voided, or claims in respect of the New
Debentures and/or the Exchange Debentures could be subordinated to all other
debts of Holdings. In addition, the payment of interest and principal by
Holdings pursuant to the New Debentures and/or the Exchange Debentures could be
voided and required to be returned to the person making such payment, or to a
fund for the benefit of the creditors of Holdings.
The measures of insolvency for purposes of the foregoing considerations
will vary depending upon the law applied in any proceeding with respect to the
foregoing. Generally, however, Holdings would be considered insolvent if (i) the
sum of its debts, including contingent liabilities, were greater than the
saleable value of all of its assets at a fair valuation or if the present fair
saleable value of its assets were less than the amount that would be required to
pay its probable liability on its existing debts, including contingent
liabilities, as they become absolute and mature or (ii) it could not pay its
debts as they become due.
On the basis of historical financial information, recent operating history
and other factors, Holdings believes that, after giving effect to the
Indebtedness incurred in connection with the Exchange Offer and the offering of
the Old Debentures it is not insolvent, does not have unreasonably small capital
for the business in which it is engaged and has not incurred debts beyond its
ability to pay such debts as they mature. There can be no assurance, however, as
to what standard a court would apply in making such determinations or that a
court would agree with Holdings' conclusions in this regard.
NEWSPAPER INDUSTRY COMPETITION
The Company's business is concentrated in newspapers and other publications
located primarily in rural markets in the United States. Revenues in the
newspaper industry primarily consist of advertising and paid circulation.
Competition for advertising expenditures and paid circulation comes from local,
regional and national newspapers, shoppers, television, radio, direct mail,
electronic media and other forms of communication and advertising media.
Competition for newspaper advertising expenditures is based largely upon
advertiser results, readership, advertising rates, demographics and circulation
levels, while competition for circulation and readership is based largely upon
the content of the newspaper, its price and the effectiveness of its
distribution. The Company's local and regional newspaper competitors are
typically unique to each market and many of the Company's competitors,
particularly publishers of large metropolitan newspapers, are larger and have
greater financial and distribution resources than the Company. See
"Business--Competition."
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DEPENDENCE ON LOCAL ECONOMIES
The Company's advertising revenues and, to a lesser extent, circulation
revenues, are dependent on a variety of factors specific to the communities that
the Company's publications serve. These factors include, among others, the size
and demographic characteristics of the local population, local economic
conditions in general, and the related retail segments in particular. If the
local economy, population or prevailing retail environment of a community served
by the Company were to experience a downturn, the Company's publications in that
market would be adversely affected, which in turn could have an adverse impact
on the Company's business, financial condition or results of operations.
ACQUISITION STRATEGY
The Company anticipates that it will grow through acquisitions of paid
daily and non-daily newspapers and free circulation publications. Acquisitions
may expose the Company to particular risks, including, without limitation,
diversion of management's attention and assumption of liabilities, either of
which could have a material adverse effect on the business, financial condition
or results of operations of the Company. Moreover, there can be no assurance
that the Company will be successful in identifying acquisition opportunities,
assessing the value, strengths and weaknesses of such opportunities or
integrating its acquisitions into the Company. In addition, the Company may
compete for certain acquisition targets with companies having greater financial
resources than the Company. The Company anticipates that it will finance
acquisitions through cash provided by operating activities and borrowings under
its Revolving Credit Facility, which would reduce the Company's cash available
for other purposes, including the repayment of Indebtedness, or increase the
Company's leverage ratio and the amount of Indebtedness ranking effectively
senior to the New Debentures. See "Business--Business Strategy."
PRICE AND AVAILABILITY OF NEWSPRINT
The basic raw material for newspapers is newsprint. The Company's newsprint
consumption totaled approximately $6.1 million in 1997, which was 6.2% of the
Company's total revenues. In 1997, the Company consumed approximately 14,750
metric tons of newsprint. The Company has no long-term contracts to purchase
newsprint. Although the Company is not dependent on its current sources for
newsprint, the inability of the Company to obtain an adequate supply of
newsprint in the future could have a material adverse effect on the business,
financial condition or results of operations of the Company. Historically, the
price of newsprint has been cyclical and volatile, dropping to almost $400 per
metric ton in 1992 and reaching approximately $770 per metric ton in 1996.
Significant increases in newsprint costs could have a material adverse effect on
the business, financial condition or results of operations of the Company.
Although the Company will seek to manage the effects of increases in prices of
newsprint through a combination of, among other things, technology improvements,
including web width reductions, inventory management and advertising and
circulation price increases, there can be no assurance that such actions will
mitigate any newsprint price increases. See "Business--Newsprint."
LACK OF STAND-ALONE OPERATING HISTORY
Holdings' and the Company's success depends to a great extent on the
management and other skills of their officers and on their ability to recruit
and retain other key personnel. In addition, on a pro forma basis after giving
effect to the Transactions, Holdings had losses of $11.6 million. Pursuant to
the Acquisition, the Company allocated management and administrative
responsibilities to certain retained employees which exceed the responsibilities
these employees had with Hollinger. The Company has the option pursuant to the
Transitional Services Agreement to obtain certain services in order to
facilitate the transition of the Company to a stand-alone operation. See "The
Acquisition--Other Agreements Related to the Acquisition" for a description of
the material provisions of the Transitional Services Agreement. Any failure of
the Company to implement management and operating systems that will allow it to
operate effectively as a stand-alone operation upon termination of the
Transitional Services Agreement could have a material adverse effect on the
Company's business, financial condition or results of operations.
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ENVIRONMENTAL MATTERS
The Company's operations are subject to federal, state and local
environmental laws and regulations pertaining to air and water quality, storage
tanks and the management and disposal of wastes at its facilities. Neither
Holdings nor the Company can predict with any certainty whether future events,
such as changes in existing laws and regulations or the discovery of conditions
not currently known to Holdings or the Company, may give rise to additional
costs that could be material. Furthermore, actions of federal, state and local
governments concerning environmental matters could result in laws or regulations
that could have a material adverse effect on the business, financial condition
or results of operations of the Company. Neither Holdings nor the Company is
aware of any pending legislation by federal, state or local governments relating
to environmental matters that, if enacted, would reasonably be expected to have
a material adverse effect on the business, financial condition or results of
operations of Holdings or the Company.
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USE OF PROCEEDS
The net proceeds of the Offering and the Note Offering were used, together
with the proceeds from the issuance and sale of the Holdings Junior Preferred
Stock and shares of Holdings Common Stock, to finance the Acquisition and to pay
related fees and expenses. The Exchange Offer is intended to satisfy certain
obligations of Holdings under the Registration Rights Agreements. Holdings will
not receive any proceeds from the issuance of the New Securities offered in the
Exchange Offer.
THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Old Senior Preferred Stock was sold by Holdings on January 27, 1998 to
the Initial Purchasers, which placed the Old Senior Preferred Stock with
institutional investors. The Old Debentures were sold by Holdings on January 27,
1998 to DLJ, as initial purchaser, which placed the Old Debentures with
institutional investors. In connection therewith, Holdings entered into the
Registration Rights Agreements, which required that, within 90 days following
the issuance of the Old Securities, Holdings file with the Commission a
registration statement under the Securities Act with respect to the issuance of
new preferred stock and new debentures of Holdings identical in all material
respects to the Old Senior Preferred Stock and Old Debentures, respectively, use
its best efforts to cause such registration statement to become effective under
the Securities Act and, upon the effectiveness of that registration statement,
offer to the Holders of Old Securities the opportunity to exchange their Old
Securities for a like principal amount of New Securities, which will be issued
without a restrictive legend and may be reoffered and resold by such Holders
without restrictions or limitations under the Securities Act. Copies of the
Registration Rights Agreements have been filed as exhibits to the Registration
Statement of which this Prospectus is a part. The term "Holder" means any person
(i) in whose name Old Securities are registered on the books of Holdings or any
other person who has obtained a properly completed bond power from the
registered Holder or (ii) whose Old Securities are held of record by DTC who
desires to deliver such Old Securities by book-entry transfer at DTC.
Based on an interpretation by the staff of the Commission set forth in
no-action letters issued to third parties, Holdings believes that New Securities
issued pursuant to the Exchange Offer in exchange for Old Securities may be
offered for resale, resold and otherwise transferred by any Holder thereof
(other than (i) a broker-dealer who purchases such New Securities directly from
Holdings to resell pursuant to Rule 144A or any other available exemption under
the Securities Act or (ii) any such Holder which is an "affiliate" of Holdings
within the meaning of Rule 405 under the Securities Act) without compliance with
the registration and prospectus delivery provisions of the Securities Act;
provided, that the Holder is acquiring such New Securities in the ordinary
course of its business and is not participating, and has no arrangement or
understanding with any person to participate, in any distribution of the New
Securities. See, e.g., Shearman & Sterling (available July 2, 1993) Morgan
Stanley & Co. Incorporated (available June 5, 1991), Exxon Capital Holdings
Corporation (available May 13, 1988). Persons wishing to exchange Old Securities
in the Exchange Offer must represent to Holdings that such conditions have been
met. Any Holder who tenders in the Exchange Offer for the purpose of
participating in a distribution of the New Securities could not rely on such
interpretation by the staff of the Commission and must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with a secondary resale transaction. In addition, any such resale
transaction should be covered by an effective registration statement containing
the selling security holders information required by Item 507 of Regulation S-K
of the Securities Act. Further, any Holder who may be deemed an "affiliate" of
Holdings cannot rely on the interpretation by the staff of the Commission set
forth in the above-referenced no-action letters with respect to resales of the
New Securities without compliance with the registration and prospectus delivery
requirements of the Securities Act.
In addition, each broker-dealer that receives New Securities for its own
account in exchange for Old Securities, where such Old Securities were acquired
by such broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus meeting the
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requirements of the Securities Act in connection with any resale of such New
Securities. See "Plan of Distribution."
As a result of the filing and the effectiveness of the Registration
Statement and the consummation of the Exchange Offer, Holdings' obligation to
make certain payments with respect to the Old Securities will be terminated. The
Old Securities were issued to a small number of sophisticated investors on
January 27, 1998. To the extent Old Securities are tendered and accepted in the
exchange, the principal amount of outstanding Old Securities will decrease with
a resulting decrease in the liquidity in the market therefor. Following the
Exchange Offer, Holders of Old Securities will continue to be subject to certain
restrictions on transfer. Accordingly, the liquidity of the market for the Old
Securities could be adversely affected.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, Holdings will accept any and all Old
Securities validly tendered and not withdrawn prior to 5:00 p.m., New York City
time, on the Expiration Date.
Holdings will issue one share of New Senior Preferred Stock in exchange for
each share of outstanding Old Senior Preferred Stock accepted in the Exchange
Offer. Holders may tender some or all of their Old Senior Preferred Stock
pursuant to the Exchange Offer.
The rights and preferences of the New Senior Preferred Stock will be
identical in all material respects to the rights and preferences of the Old
Senior Preferred Stock except that the New Senior Preferred Stock has been
registered under the Securities Act and, therefore, will not bear legends
restricting the transfer thereof.
Holdings will issue $1,000 principal amount at maturity of New Debentures
in exchange for each $1,000 principal amount at maturity of outstanding Old
Debentures accepted in the Exchange Offer. Holders may tender some or all of
their Old Debentures pursuant to the Exchange Offer. However, Old Debentures may
be tendered only in integral multiples of $1,000 at maturity.
The form and terms of the New Debentures will be identical in all material
respects to the form and terms of the Old Debentures except that the New
Debentures have been registered under the Securities Act and, therefore, will
not bear legends restricting the transfer thereof. The New Debentures will
evidence the same debt as the Old Debentures and will be entitled to the
benefits of the Indenture.
As of April 24, 1998, 1,800,000 shares of the Old Senior Preferred Stock
are outstanding and there was one registered Holder of the Old Senior Preferred
Stock. As of April 24, 1998, $89.0 million aggregate principal amount at
maturity of the Old Debentures were outstanding and there was one registered
holder of the Old Debentures. This Prospectus, together with the Letter of
Transmittal, is being sent to all such registered Holders as of the date hereof.
Holders of Old Securities do not have any appraisal or dissenters' rights
under the General Corporation Law of Delaware (or, in the case of Old
Debentures, under the Indenture), in connection with the Exchange Offer.
Holdings intends to conduct the Exchange Offer in accordance with the applicable
requirements of the Exchange Act and the rules and regulations of the Commission
thereunder.
Holdings shall be deemed to have accepted validly tendered Old Securities
when, as and if Holdings has given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering Holders
for the purpose of receiving the Old Securities.
If any tendered Old Securities are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, certificates for any such unaccepted Old Securities will be returned,
without expense, to the tendering Holder thereof as promptly as practicable
after the Expiration Date.
Holders who tender Old Securities in the Exchange Offer will not be
required to pay brokerage commissions or fees or, subject to the instructions in
the Letter of Transmittal, transfer taxes with respect to
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the exchange of Old Securities pursuant to the Exchange Offer. Holdings will pay
all charges and expenses, other than certain applicable taxes, in connection
with the Exchange Offer. See "--Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on
May 26, 1998, unless Holdings, in its sole discretion, extends the Exchange
Offer (such Expiration Date not to be later than 30 business days from the date
of this Prospectus), in which case the term "Expiration Date" shall mean the
latest date and time to which the Exchange Offer is extended.
In order to extend the Exchange Offer, Holdings will notify the Exchange
Agent of any extension by oral or written notice and will make a public
announcement thereof, each prior to 9:00 a.m., New York City time, on the next
business day after the previously scheduled expiration date.
Holdings reserves the right, in its sole discretion, (i) to delay accepting
any Old Securities, to extend the Exchange Offer or, if any of the conditions
set forth below under "--Conditions" shall not have been satisfied, to terminate
the Exchange Offer, by giving oral or written notice of such delay, extension or
termination to the Exchange Agent or (ii) to amend the terms of the Exchange
Offer in any manner. Any such delay in acceptance, extension, termination or
amendment will be followed as promptly as practicable by a public announcement
thereof. If the Exchange Offer is amended in a manner determined by Holdings to
constitute a material change, Holdings will promptly disclose such amendment by
means of a prospectus supplement that will be distributed to the registered
Holders and Holdings will extend the Exchange Offer for a period of five (5) to
ten (10) business days, depending upon the significance of the amendment and the
manner of disclosure to the registered Holders, if the Exchange Offer would
otherwise expire during such five (5) to ten (10) business day period.
Without limiting the manner in which Holdings may choose to make public
announcement of any delay, extension, termination or amendment of the Exchange
Offer, Holdings shall have no obligation to publish, advertise, or otherwise
communicate any such public announcement, other than by making a timely release
to the Dow Jones News Service.
PROCEDURES FOR TENDERING
Only a Holder of Old Securities may tender such Old Securities in the
Exchange Offer. To tender in the Exchange Offer, a Holder must complete, sign
and date the Letter of Transmittal, or a facsimile thereof, have the signatures
thereon guaranteed if required by the Letter of Transmittal, and mail or
otherwise deliver such Letter of Transmittal or such facsimile, or (in the case
of a book-entry transfer) an Agent's Message in lieu of the Letter of
Transmittal, together with the Old Securities, as applicable, and any other
required documents, to the Exchange Agent prior to 5:00 p.m., New York City
time, on the Expiration Date. To be tendered effectively, the Old Securities,
Letter of Transmittal and other required documents must be received by the
Exchange Agent at the address set forth below under "--Exchange Agent" prior to
5:00 p.m., New York City time, on the Expiration Date. The term "Agent's
Message" means a message, transmitted by DTC to and received by the Exchange
Agent and forming a part of a book-entry confirmation, which states that DTC has
received an express acknowledgment from the tendering participant, which
acknowledgment states that such participant has received and agrees to be bound
by the Letter of Transmittal and that Holdings may enforce such Letter of
Transmittal against such participant.
HOLDERS OF BOTH OLD SENIOR PREFERRED STOCK AND OLD DEBENTURES WILL RECEIVE
TWO (2) LETTERS OF TRANSMITTAL AND MUST DELIVER ONE COMPLETED LETTER OF
TRANSMITTAL DESCRIBING THE OLD SENIOR PREFERRED STOCK TO BE TENDERED TO THE
EXCHANGE AGENT FOR THE OLD SENIOR PREFERRED STOCK AND ONE COMPLETED LETTER OF
TRANSMITTAL DESCRIBING THE OLD DEBENTURES TO THE EXCHANGE AGENT FOR THE OLD
DEBENTURES.
Book-Entry Delivery of the Old Securities. Within two business days after
the date of this Prospectus, the Exchange Agent will establish an account with
respect to the Old Securities at DTC for purposes of the Exchange Offer. Any
financial institution that is a participant in the DTC system may make
book-entry delivery of Old Securities by causing DTC to transfer such Old
Securities into the Exchange Agent's account
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in accordance with DTC's procedure for such transfer. Although delivery of Old
Securities may be effected through book-entry at DTC, the Letter of Transmittal
(or facsimile thereof), with any required signature guarantees, or (in the case
of a book-entry transfer through the DTC Automatic Tender Offer Program
("ATOP")) an Agent's Message in lieu of the Letter of Transmittal, and any other
required documents, must be transmitted to and received by the Exchange Agent at
or prior to 5:00 p.m., New York City time, on the Expiration Date at one of its
addresses set forth in "--Exchange Agent." DELIVERY OF SUCH DOCUMENTS TO DTC IN
ACCORDANCE WITH ITS PROCEDURES DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE
AGENT.
The tender by a Holder will constitute an agreement between such Holder and
Holdings in accordance with the terms and subject to the conditions set forth
herein and in the Letter of Transmittal.
The method of delivery of Old Securities and the Letter of Transmittal and
all other required documents to the Exchange Agent is at the election and risk
of the Holder. Instead of delivery by mail, it is recommended that Holders use
an overnight or hand delivery service. In all cases, sufficient time should be
allowed to assure delivery to the Exchange Agent before the Expiration Date. No
Letter of Transmittal or Old Securities should be sent to Holdings. Holders may
request their respective brokers, dealers, commercial banks, trust companies or
nominees to effect the above transactions for such Holders.
Any beneficial owner whose Old Securities are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact the registered Holder promptly and instruct such
registered Holder to tender on such beneficial owner's behalf. If such
beneficial owner wishes to tender on such owner's own behalf, such owner must,
prior to completing and executing the Letter of Transmittal and delivering such
owner's Old Securities, either make appropriate arrangements to register
ownership of the Old Securities in such owner's name or obtain a properly
completed bond power from the registered Holder. The transfer of registered
ownership may take considerable time.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by an Eligible Institution (as defined below)
unless the Old Securities tendered pursuant thereto are tendered (i) by a
registered Holder who has not completed the box entitled "Special Registration
Instructions" or "Special Delivery Instructions" on the Letter of Transmittal or
(ii) for the account of an Eligible Institution. In the event that signatures on
a Letter of Transmittal or a notice of withdrawal, as the case may be, are
required to be guaranteed, such guarantee must be by a member firm of a
registered national securities exchange or of the National Association of
Securities Dealers, Inc., a commercial bank or trust company having an office or
correspondent in the United States or an "eligible guarantor institution" within
the meaning of Rule 17Ad-15 under the Exchange Act (an "Eligible Institution").
If the Letter of Transmittal is signed by a person other than the
registered Holder of any Old Securities listed therein, such Old Securities must
be endorsed or accompanied by a properly completed bond power, signed by such
registered Holder as such registered Holder's name appears on such Old
Securities.
If the Letter of Transmittal, any Old Securities or bond power is signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing and, unless waived by Holdings, evidence
satisfactory to Holdings of their authority to so act must be submitted with the
Letter of Transmittal.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of tendered Old Securities will be
determined by Holdings in its sole discretion, which determination will be final
and binding. Holdings reserves the absolute right to reject any and all Old
Securities not properly tendered or any Old Securities the acceptance of which
would, in the opinion of counsel for Holdings, be unlawful. Holdings also
reserves the right to waive any defects, irregularities or conditions of tender
as to particular Old Securities. Holdings' interpretation of the terms and
conditions of the Exchange Offer (including the instructions in the Letter of
Transmittal) will be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of Old Securities must be
cured within such time as Holdings shall determine. Although Holdings intends to
notify Holders of defects or irregularities with respect to tenders of Old
Securities, none of Holdings, the Exchange Agent nor any other person shall
incur any liability for failure
23
<PAGE> 27
to give such notification. Tenders of Old Securities will not be deemed to have
been made until such defects or irregularities have been cured or waived. Any
Old Securities received by the Exchange Agent that are not properly tendered and
as to which the defects or irregularities have not been cured or waived will be
returned by the Exchange Agent to the tendering Holders unless otherwise
provided in the Letter of Transmittal, as soon as practicable following the
Expiration Date.
In addition, Holdings reserves the right in its sole discretion to purchase
or make offers for any Old Securities that remain outstanding subsequent to the
Expiration Date or, as set forth below under "--Conditions," to terminate the
Exchange Offer and, to the extent permitted by applicable law, purchase Old
Securities in the open market, in privately negotiated transactions or
otherwise. The terms of any such purchases or offers could differ from the terms
of the Exchange Offer.
By tendering, each Holder will represent to Holdings that, among other
things, the New Securities acquired pursuant to the Exchange Offer are being
obtained in the ordinary course of business of the person receiving such New
Securities, whether or not such person is the Holder, that neither the Holder
nor any such other person has an arrangement or understanding with any person to
participate in the distribution of such New Securities and that neither the
Holder nor any such other person is an "affiliate," as defined under Rule 405 of
the Securities Act, of Holdings. If the Holder is a broker-dealer that will
receive New Securities for its own account in exchange for Old Securities that
were acquired as a result of market-making activities or other trading
activities, such Holder by tendering will acknowledge that it will deliver a
Prospectus in connection with any resale of such New Securities. See "Plan of
Distribution."
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Old Securities and (i) whose Old
Securities are not immediately available or (ii) who cannot deliver their Old
Securities, the Letter of Transmittal or any other required documents to the
Exchange Agent prior to the Expiration Date or who cannot complete the procedure
for book-entry transfer on a timely basis and deliver an Agent's Message, may
effect a tender if:
(a) the tender is made through an Eligible Institution;
(b) prior to the Expiration Date, the Exchange Agent receives from
such Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the Holder, the certificate number(s)
of such Old Securities and the principal amount of Old Securities tendered,
stating that the tender is being made thereby and guaranteeing that, within
three (3) New York Stock Exchange trading days after the Expiration Date,
the Letter of Transmittal (or facsimile thereof) together with the
certificate(s) representing the Old Securities to be tendered in proper
form for transfer (or a confirmation of a book-transfer into the Exchange
Agent's account at DTC with an Agent's Message) and any other documents
required by the Letter of Transmittal will be deposited by the Eligible
Institution with the Exchange Agent; and
(c) such properly completed and executed Letter of Transmittal (or
facsimile thereof), as well as the certificate(s) representing all tendered
Old Securities in proper form for transfer (or a confirmation of a
book-transfer into the Exchange Agent's account at DTC of Old Securities
delivered electronically) and all other documents required by the Letter of
Transmittal are received by the Exchange Agent within three (3) New York
Stock Exchange trading days after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to Holders who wish to tender their Old Securities according to the
guaranteed delivery procedures set forth above.
HOLDERS OF BOTH OLD SENIOR PREFERRED STOCK AND OLD DEBENTURES WHO WISH TO
TENDER THEIR OLD SENIOR PREFERRED STOCK AND OLD DEBENTURES ACCORDING TO THE
GUARANTEED DELIVERY PROCEDURES SET FORTH ABOVE MUST OBTAIN A NOTICE OF
GUARANTEED DELIVERY FROM EACH RESPECTIVE EXCHANGE AGENT AND MUST DELIVER ONE
COMPLETED NOTICE OF GUARANTEED DELIVERY IN CONNECTION WITH THE OLD SENIOR
PREFERRED STOCK TO BE TENDERED TO THE EXCHANGE AGENT FOR THE OLD SENIOR
PREFERRED STOCK AND ONE COMPLETED NOTICE OF GUARANTEED DELIVERY IN CONNECTION
WITH THE OLD DEBENTURES TO THE EXCHANGE AGENT FOR THE OLD DEBENTURES.
24
<PAGE> 28
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Old Securities may be
withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration
Date.
To withdraw a tender of Old Securities in the Exchange Offer, a written or
facsimile transmission notice of withdrawal must be received by the Exchange
Agent at its address set forth herein prior to 5:00 p.m., New York City time, on
the Expiration Date. Any such notice of withdrawal must: (i) specify the name of
the person having deposited the Old Securities to be withdrawn (the
"Depositor"), (ii) identify the Old Securities to be withdrawn (including the
certificate number or numbers and principal amount of such Old Securities),
(iii) be signed by the Holder in the same manner as the original signature on
the Letter of Transmittal by which such Old Securities were tendered (including
any required signature guarantees) or be accompanied by documents of transfer
sufficient to have the Trustee or Transfer Agent, as the case may be, with
respect to the Old Securities register the transfer of such Old Securities into
the name of the person withdrawing the tender, and (iv) specify the name in
which any such Old Securities are to be registered, if different from that of
the Depositor. All questions as to the validity, form and eligibility (including
time of receipt) of such notices will be determined by Holdings in its sole
discretion, which determination shall be final and binding on all parties. Any
Old Securities so withdrawn will be deemed not to have been validly tendered for
purposes of the Exchange Offer and no New Securities will be issued with respect
thereto unless the Old Securities so withdrawn are validly retendered. Properly
withdrawn Old Securities may be retendered by following one of the procedures
described above under "--Procedures for Tendering" at any time prior to the
Expiration Date.
Any Old Securities which have been tendered but which are not accepted for
payment due to withdrawal, rejection of tender or termination of the Exchange
Offer will be returned as soon as practicable to the Holder thereof without cost
to such Holder.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, Holdings shall not be
required to accept for exchange, or exchange Old Securities for, any New
Securities, and may terminate the Exchange Offer as provided herein before the
acceptance of such Old Securities, if:
(a) any action or proceeding is instituted or threatened in any court
or by or before any governmental agency with respect to the Exchange Offer
which, in the sole judgment of Holdings, might materially impair the
ability of Holdings to proceed with the Exchange Offer or materially impair
the contemplated benefits of the Exchange Offer to Holdings, or any
material adverse development has occurred in any existing action or
proceeding with respect to Holdings or any of its subsidiaries; or
(b) any change, or any development involving a prospective change, in
the business or financial affairs of Holdings or any of its subsidiaries
has occurred which, in the sole judgment of Holdings, might materially
impair the ability of Holdings to proceed with the Exchange Offer or
materially impair the contemplated benefits of the Exchange Offer to
Holdings; or
(c) any law, statute, rule or regulation is proposed, adopted or
enacted, which, in the sole judgment of Holdings, might materially impair
the ability of Holdings to proceed with the Exchange Offer or materially
impair the contemplated benefits of the Exchange Offer to Holdings; or
(d) any governmental approval has not been obtained, which approval
Holdings shall, in its sole discretion, deem necessary for the consummation
of the Exchange Offer as contemplated hereby.
If Holdings determines in its reasonable discretion that any of the
conditions are not satisfied, Holdings may: (i) refuse to accept any Old
Securities and return all tendered Old Securities to the tendering Holders,
(ii) extend the Exchange Offer and retain all Old Securities tendered prior to
the expiration of the Exchange Offer, subject, however, to the rights of Holders
to withdraw such Old Securities (see "--Withdrawal of Tenders"), or (iii) waive
such unsatisfied conditions with respect to the Exchange Offer and accept all
properly tendered Old Securities which have not been withdrawn. If such waiver
constitutes a material change to the Exchange Offer, Holdings will promptly
disclose such waiver by means of a prospectus supplement that
25
<PAGE> 29
will be distributed to the registered Holders and Holdings will extend the
Exchange Offer for a period of five (5) to ten (10) business days, depending
upon the significance of the waiver and the manner of disclosure to the
registered Holders, if the Exchange Offer would otherwise expire during such
five (5) to ten (10) business day period.
EXCHANGE AGENTS
BankBoston, N.A. has been appointed as Exchange Agent for the exchange of
New Senior Preferred Stock for Old Senior Preferred Stock pursuant to the
Exchange Offer. Questions and requests for assistance, requests for additional
copies of this Prospectus or of the Letter of Transmittal and requests for
Notices of Guaranteed Delivery with respect to Holdings Senior Preferred Stock
should be directed to the Exchange Agent addressed as follows:
By Mail
(registered or certified mail recommended):
BankBoston, N.A.
150 Royall Street
Canton, Massachusetts 02021
By Hand or Overnight Courier:
BankBoston, N.A.
150 Royall Street
Canton, Massachusetts 02021
By Facsimile:
(781) 575-2500
Confirmation by Phone
Scott Lanciloti
(781) 575-2514
State Street Bank and Trust Company has been appointed as Exchange Agent
for the exchange of New Debentures for Old Debentures pursuant to the Exchange
Offer. Questions and requests for assistance, requests for additional copies of
this Prospectus or of the Letter of Transmittal and requests for Notices of
Guaranteed Delivery with respect to the Debentures should be directed to the
Exchange Agent addressed as follows:
By Mail
(registered or certified mail recommended):
State Street Bank and Trust Company
Corporate Trust Department
P.O. Box 778
Boston, Massachusetts 02102-0078
By Hand or Overnight Courier:
State Street Bank and Trust Company
Corporate Trust Department, 4th Floor
Two International Place
Boston, Massachusetts 02110
By Facsimile:
(617) 664-5290
Confirmation by Phone
Kellie Mullen
(617) 664-5587
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by Holdings. The principal
solicitation is being made by mail; however, additional solicitation may be made
by telegraph, telephone or in person by officers and regular employees of
Holdings and its affiliates.
Holdings has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers or others
soliciting acceptances of the Exchange Offer. Holdings, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
it for its reasonable out-of-pocket expenses in connection therewith and will
pay the reasonable fees and expenses of
26
<PAGE> 30
one firm acting as counsel for the Holders of Old Securities should such Holders
deem it advisable to appoint such counsel.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by Holdings and are estimated in the aggregate to be approximately
$150,000. Such expenses include fees and expenses of the Exchange Agent and
Trustee, accounting and legal fees and printing costs, among others.
Holdings will pay all transfer taxes, if any, applicable to the exchange of
Old Securities pursuant to the Exchange Offer. If, however, certificates
representing New Securities, for principal amounts not tendered or accepted for
exchange are to be delivered to, or are to be issued in the name of, any person
other than the registered Holder of the Old Securities tendered, or if tendered
Old Securities are registered in the name of any person other than the person
signing the Letter of Transmittal, or if a transfer tax is imposed for any
reason other than the exchange of Old Securities pursuant to the Exchange Offer,
then the amount of any such transfer taxes (whether imposed on the registered
Holder or any other persons) will be payable by the tendering Holder. If
satisfactory evidence of payment of such taxes or exemption therefrom is not
submitted with the Letter of Transmittal, the amount of such transfer taxes will
be billed directly to such tendering Holder.
ACCOUNTING TREATMENT
The New Securities will be recorded at the same carrying value as the Old
Securities, as reflected in Holdings' accounting records on the date of the
exchange. Accordingly, no gain or loss for accounting purposes will be
recognized upon consummation of the Exchange Offer. The expenses of the Exchange
Offer will be amortized over the term of the New Securities.
CONSEQUENCES TO NON-TENDERING HOLDERS OF OLD SECURITIES
Upon consummation of the Exchange Offer, Holdings will have no further
obligation to register the Old Securities. Thereafter, any Holder of Old
Securities who does not tender its Old Securities in the Exchange Offer,
including any Holder which is an "affiliate" (as that term is defined in Rule
405 of the Securities Act) of the Company which cannot tender its Old Securities
in the Exchange Offer, will continue to hold restricted securities which may not
be offered, sold or otherwise transferred, pledged or hypothecated except
pursuant to Rule 144 and Rule 144A under the Securities Act or pursuant to any
other exemption from registration under the Securities Act relating to the
disposition of securities. In addition, in connection with any sale of Old
Securities, an opinion of counsel must be furnished to Holdings that such an
exemption is available for such sale.
27
<PAGE> 31
CAPITALIZATION
The following table sets forth the historical capitalization of Holdings as
of December 31, 1997 and its capitalization on a pro forma basis after giving
effect to the Transactions. This table should be read in conjunction with
"Unaudited Pro Forma Combined Financial Data" and the financial statements of
Holdings and the notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS 31,D1997BER
-----------------------
HISTORICAL PRO FORMA
---------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Long-term debt:
Revolving Credit Facility................................. $ -- $ --
Senior Subordinated Notes................................. -- 180,000
Debentures................................................ -- 50,522
------- --------
Total long-term debt................................... -- 230,522
Holdings Senior Preferred Stock............................. -- 45,000
Holdings Junior Preferred Stock............................. -- 49,000
Stockholders' equity........................................ 99,139 8,000
------- --------
Total capitalization................................... $99,139 $332,522
======= ========
</TABLE>
28
<PAGE> 32
UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
The following unaudited pro forma combined financial data has been prepared
by Holdings' management from the financial statements of Holdings and the notes
thereto included elsewhere in this Prospectus. For purposes of the following
unaudited pro forma combined financial data, the column entitled "Holdings"
refers to the historical financial position and results of operations of the
Local Newspaper Group of American Publishing Company. Holdings and Liberty Group
Operating were formed for the purpose of acquiring the Local Publications and,
accordingly, as of December 31, 1997, had no assets, liabilities, revenues or
expenses. The unaudited pro forma combined statements of operations for the year
ended December 31, 1997 reflect adjustments as if the Transactions had occurred
on January 1, 1997. The unaudited pro forma combined balance sheet as of
December 31, 1997 gives effect to the Transactions as if they had occurred on
December 31, 1997. See "The Acquisition."
The financial effects of the Transactions as presented in the pro forma
financial data are not necessarily indicative of either Holdings' financial
position or the results of its operations that would have been obtained had the
Transactions actually occurred on the dates set forth above, nor are they
necessarily indicative of the results of future operations. The pro forma
financial data should be read in conjunction with the notes thereto, which are
an integral part thereof, and with the financial statements of Holdings and the
notes thereto included elsewhere in this Prospectus.
29
<PAGE> 33
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
HOLDINGS ADJUSTMENTS PRO FORMA
-------- ----------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Revenues:
Advertising........................................... $68,712 $ -- $ 68,712
Circulation........................................... 22,341 -- 22,341
Job printing and other................................ 7,666 -- 7,666
------- -------- --------
Total revenues.......................................... 98,719 -- 98,719
Operating costs......................................... 89,310 -- 29,318
Selling, general and administrative..................... 39,162 (1,697)(a) 40,527
3,062(b)
Depreciation and amortization........................... 7,470 7,557(c) 15,027
------- -------- --------
Income from operations.................................. 22,769 (8,922) 13,847
Interest expense........................................ 10,551 14,865(d) 25,416
------- -------- --------
Income (loss) before income taxes....................... 12,218 (23,787) (11,569)
Income taxes............................................ 5,271 (5,271)(e) --
------- -------- --------
Net income (loss)....................................... $ 6,947 $(18,516) $(11,569)
======= ======== ========
EBITDA(f)............................................... $30,239 $ 28,874
</TABLE>
30
<PAGE> 34
NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
(a) Represents elimination of a portion of the intercompany management fees
charged by APC.
(b) Represents establishment of estimated costs of the Company and Holdings
operating on a stand-alone basis, consisting principally of corporate
office facilities, salaries and wages of corporate staff personnel and a
subordinated management fee to LGP.
(c) Represents adjustment necessary to amortize intangible assets over a
weighted-average life of 25 years. Holdings plans to amortize identifiable
intangible assets over their estimated useful lives (presently estimated
for covenants-not-to compete over 5 years, advertiser lists over 40 years,
subscriber lists over 27 years and mastheads over 40 years) and goodwill
over 40 years. Finalization of the value of specific intangible assets and
their useful lives is subject to completion of independent valuations which
are being undertaken. In the opinion of management of Holdings, completion
of independent valuations will not materially impact Holdings' estimate of
the fair value of the intangible assets or their useful lives and,
therefore, will not materially impact the unaudited pro forma combined
income statement.
(d) The interest expense adjustment is as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1997
-----------------
<S> <C>
Interest and fees on Revolving Credit Facility, Senior
Subordinated Notes and Debentures.................... $23,544
Other................................................. 1,872
-------
25,416
Less: amounts in historical statements of
operations........................................... (10,551)
-------
Adjustment to interest expense........................ $14,865
=======
</TABLE>
The Debentures do not pay cash interest until February 1, 2003. Holdings
has accrued interest expense and accreted the Debentures using the
interest method and the Debentures interest rate yield of 11 5/8%.
Interest expense on the Debentures in the years 1998 through 2003 which
will be recognized in Holdings' statement of operations as follows: 1998
$5.6 million; 1999 $6.7 million; 2000 $7.5 million; 2001 $8.4 million;
2002 $9.5 million and 2003 $0.8 million.
(e) Represents adjustment to eliminate historical income tax expense.
Subsequent to the Acquisition, Holdings anticipates that it will, for the
foreseeable future, be in a tax loss position. Given uncertainty as to the
timing of Holdings' ability to utilize such losses to offset future taxable
income, Holdings does not presently anticipate recording any tax benefit
associated with its pre-tax losses.
(f) EBITDA represents net income before income taxes, interest expense and
depreciation and amortization. Management believes that the presentation of
EBITDA is helpful to investors as a measure of the Company's ability to
meet its working capital, capital expenditure and debt service
requirements. Management also believes that the presentation of EBITDA is
helpful to investors, because EBITDA will be used to determine compliance
with certain covenants contained in the Indenture and the Exchange
Indenture. EBITDA, however, should not be construed as an alternative to
net income or cash flows from operating activities, each as determined in
accordance with GAAP, as a measure of operating performance or liquidity.
Further, EBITDA is not calculated consistently by all companies and,
accordingly, the presentation herein may not be comparable to other
similarly titled measures presented by other companies. Management believes
that the Company's financial stability can be depicted to investors by its
historical EBITDA, which during the period 1993 through 1997 has increased
generally in amounts and percentages equal to the Company's income from
operations. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
31
<PAGE> 35
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997
--------------------------------------------
HOLDINGS ADJUSTMENTS PRO FORMA
-------- ----------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents........................ $ 1,452 $ (766)(a) $ 686
Accounts receivable, net......................... 10,308 -- 10,308
Inventory........................................ 1,947 -- 1,947
Prepaid expenses and other current assets........ 278 -- 278
-------- --------- --------
Total current assets.......................... 13,985 (766) 13,219
Property, plant and equipment, net................. 20,503 -- 20,503
Intangible assets, net............................. 75,212 219,964(b) 295,176
Other assets....................................... -- 14,185(c) 14,185
-------- --------- --------
Total assets.................................. $109,700 $ 233,383 $343,083
======== ========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term liabilities......... $ 338 $ -- $ 338
Accounts payable................................. 1,119 -- 1,119
Accrued expenses................................. 2,223 -- 2,223
Deferred revenue................................. 4,411 -- 4,411
-------- --------- --------
Total current liabilities..................... 8,091 -- 8,091
Revolving Credit Facility.......................... -- -- --
Senior Subordinated Notes.......................... -- 180,000(d) 180,000
Debentures......................................... -- 50,522(d) 50,522
Long-term liabilities, less current portion........ 706 -- 706
Deferred income taxes.............................. 1,764 -- 1,764
-------- --------- --------
Total liabilities............................. 10,561 230,522 241,083
Holdings Senior Preferred Stock.................... -- 45,000(d) 45,000
Holdings Junior Preferred Stock.................... -- 49,000(d) 49,000
STOCKHOLDERS' EQUITY:
Net assets....................................... 99,139 (1,452)(a) --
(97,687)(b)
Common stock..................................... -- -- --
Additional paid-in-capital....................... -- 317,651(b) 8,000
(309,651)(c)(d)
Subscription receivable.......................... -- -- --
-------- --------- --------
Total stockholders' equity.................... 99,139 (91,139) 8,000
-------- --------- --------
Total liabilities and stockholders' equity.... $109,700 $ 233,383 $343,083
======== ========= ========
</TABLE>
32
<PAGE> 36
NOTES TO UNAUDITED PRO FORMA COMBINED BALANCE SHEET
(a) Represents elimination of cash not acquired in the Acquisition and cash and
cash equivalents remaining after consummation of the Acquisition and the
payment of fees and expenses.
(b) Represents recording of excess of purchase price of acquisition over fair
value of net assets acquired, as follows:
<TABLE>
<S> <C>
Purchase price.............................................. $309,100
Purchase price adjustment................................... 2,736
Acquisition fees and expenses............................... 5,815
--------
Total purchase price...................................... 317,651
Historical tangible net assets acquired..................... (22,475)
--------
Excess purchase price..................................... $295,176
========
</TABLE>
In the opinion of management of Holdings, the book value of the tangible
assets and liabilities of the Local Publications approximates their fair
value. Accordingly, the entire excess purchase price of the Acquisition has
been allocated to intangible assets. Holdings is having independent
valuations of the intangible assets of the Company performed to allocate
the value of intangible assets between specific intangibles and goodwill.
Subject to completion of the independent valuations, management believes
that the specific intangibles and estimated fair values to which the excess
purchase price will be allocated include: covenants-not-to-compete for
between $25 and $35 million, advertiser lists for between $115 and $140
million, subscriber lists for between $30 and $50 million, mastheads for
between $4 and $10 million and the remainder representing goodwill. In the
opinion of management of the Company, completion of the independent
valuations will not materially impact the Company's estimate of the fair
value of the intangible assets or their useful lives and, therefore, will
not have a material impact on the unaudited pro forma combined balance
sheet.
(c) Represents capitalized fees and expenses in connection with the Holdings
Senior Preferred Stock, Holdings Junior Preferred Stock, Senior Subordinated
Notes and the Revolving Credit Facility.
(d) Represents the recording of the Senior Discount Debentures, Holdings Senior
Preferred Stock, Holdings Junior Preferred Stock and Senior Subordinated
Notes.
33
<PAGE> 37
SELECTED COMBINED HISTORICAL AND PRO FORMA FINANCIAL DATA
The following table sets forth selected combined historical and pro forma
financial data of the Company. The historical financial data of the Company
described herein is identical to the historical financial data of Holdings. The
selected historical statement of operations and balance sheet data as of and for
each of the years ended December 31, 1995, 1996 and 1997 are derived from the
combined financial statements of the Company, which have been audited by
independent auditors. The selected historical statement of operations and
balance sheet data as of and for the years ended December 31, 1993 and 1994 have
been derived from the unaudited combined financial statements of the Company,
and include, in the opinion of management, all adjustments necessary to present
fairly the data for such periods. The results for the year ended December 31,
1997 are not necessarily indicative of the results to be expected for any future
period. The pro forma combined statement of operations data for the year ended
December 31, 1997 gives effect to the Transactions as if they had occurred on
January 1, 1997. The pro forma combined balance sheet data as of December 31,
1997 gives effect to the Transactions as if they had occurred on December 31,
1997. The data presented below should be read in conjunction with the combined
financial statements, including the notes thereto, "Unaudited Pro Forma Combined
Financial Data" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
<TABLE>
<CAPTION>
HISTORICAL
----------------------------------------------------
YEAR END31,DECEMBER PRO FORMA
---------------------------------------------------- YEAR ENDED
1993 1994 1995 1996 1997 DECEMBER 31, 1997
-------- -------- -------- -------- -------- -----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Advertising.................. $ 50,252 $ 56,770 $ 60,255 $ 66,816 $ 68,712 $ 68,712
Circulation.................. 16,287 17,766 19,058 22,004 22,341 22,341
Job printing and other....... 7,128 7,328 8,054 8,722 7,666 7,666
-------- -------- -------- -------- -------- --------
Total revenues................. 73,667 81,864 87,367 97,542 98,719 98,719
Operating costs................ 23,743 25,880 29,405 31,320 29,318 29,318
Selling, general and
administrative............... 29,910 33,255 34,506 38,259 39,162 40,527
Depreciation and
amortization................. 7,450 7,722 7,290 7,854 7,470 15,027
-------- -------- -------- -------- -------- --------
Income from operations......... 12,564 15,007 16,166 20,109 22,769 13,847
Interest expense............... 10,711 10,991 11,195 10,968 10,551 25,416
-------- -------- -------- -------- -------- --------
Income before income taxes..... 1,853 4,016 4,971 9,141 12,218 (11,569)
Income taxes................... 778 1,687 2,338 4,006 5,271 --
-------- -------- -------- -------- -------- --------
Net income..................... $ 1,075 $ 2,329 $ 2,633 $ 5,135 $ 6,947 $(11,569)
======== ======== ======== ======== ======== ========
BALANCE SHEET DATA (AT PERIOD
END):
Cash and cash equivalents...... $ 1,723 $ 1,746 $ 1,929 $ 1,768 $ 1,452 $ 686
Total assets................... 119,081 111,256 120,170 112,974 109,700 343,083
Total debt..................... -- -- -- -- -- 230,522
Holdings Senior Preferred
Stock........................ -- -- -- -- -- 45,000
Holdings Junior Preferred
Stock........................ -- -- -- -- -- 49,000
Stockholders' equity........... 105,965 98,636 106,945 102,980 99,139 8,000
OTHER DATA:
Ratio of earnings to fixed
charges(1)................... 1.2x 1.4x 1.4x 1.8x 2.2x --
Cash flow provided by (used
in):
Operating activities......... $ N/A $ 10,169 $ 7,889 $ 14,303 $ 14,577 $ 10,875
Investing activities......... N/A 492 (14,906) (4,520) (3,370) (3,370)
Financing activities......... N/A (10,638) 7,203 (9,944) (11,523) (735)
EBITDA(2)...................... 20,014 22,729 23,456 27,963 30,239 28,874
EBITDA margin(3)............... 27.2% 27.8% 26.8% 28.7% 30.6% 29.2%
Capital expenditures........... $ 1,813 $ 2,232 $ 2,255 $ 3,081 $ 1,713 $ 1,713
</TABLE>
(footnotes on following page)
34
<PAGE> 38
NOTES TO SELECTED COMBINED HISTORICAL AND PRO FORMA FINANCIAL DATA
(1) For purposes of computing the ratio of earnings to fixed charges, "earnings"
consist of income before income taxes plus fixed charges. "Fixed charges"
consist of interest on all indebtedness, amortization of deferred debt
financing costs and one-third of rental expense (the portion deemed
representative of the interest factor). The ratio of earnings to fixed
charges is helpful to investors as it provides a measure, generally
calculated consistently by all companies, of a company's ability to meet its
debt service requirements. On a pro forma basis for the year ended December
31, 1997, earnings were insufficient to cover fixed charges by $23.1
million.
(2) EBITDA represents net income before income taxes, interest expense and
depreciation and amortization. Management believes that the presentation of
EBITDA is helpful to investors as a measure of the Company's ability to meet
its working capital, capital expenditure and debt service requirements.
Management also believes that the presentation of EBITDA is helpful to
investors, because EBITDA will be used to determine compliance with certain
covenants contained in the Indenture and the Exchange Indenture. EBITDA,
however, should not be construed as an alternative to net income or cash
flows from operating activities, each as determined in accordance with GAAP,
as a measure of operating performance or liquidity. Further, EBITDA is not
calculated consistently by all companies and, accordingly, the presentation
herein may not be comparable to other similarly titled measures presented by
other companies. Management believes that the Company's financial stability
can be depicted to investors by its historical EBITDA, which during the
period 1993 through 1997 has increased generally in amounts and percentages
equal to the Company's income from operations. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
(3) EBITDA margin represents EBITDA divided by total revenues.
35
<PAGE> 39
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the historical
financial statements of the Company, including the notes thereto, appearing
elsewhere in this Prospectus. As used herein, with respect to the historical
financial data, references to the Company means the Local Publications. The
historical financial data of the Company described herein is identical to the
historical financial data of Holdings. Certain information in this section
includes forward-looking statements. Such forward-looking statements relate to
the Company's financial condition, results of operations, expansion plans and
business. Actual results could differ materially from the forward-looking
statements due to, among other things, the risks and uncertainties noted under
the heading "Disclosure Regarding Forward-Looking Statements" on page ii and
"Risk Factors" in this Prospectus. For information regarding the pro forma
financial condition and results of operations of the Company, see "Unaudited Pro
Forma Combined Financial Data."
OVERVIEW
The Company is a leading U.S. publisher of local newspapers and related
publications that are the dominant source of local news and print advertising in
their markets. The Company's total revenues are derived from advertising (69.6%
of 1997 total revenues), circulation (22.6%) and job printing and other (7.8%).
The Company's primary operating costs and expenses are comprised of
operating costs and selling, general and administrative expenses, which include,
prior to the Acquisition, a management fee paid to APC that was based upon a
percentage of total revenues. Salaries and employee benefits are the Company's
largest operating costs. The Company has been able to control salaries and
employee benefit expenses by realizing efficiencies from the implementation of
new technologies and the achievement of synergies from its strategy of
clustering its newspaper operations.
Certain administrative services, including accounting, payroll,
administration, tax services and financial reporting, have historically been
performed for the Company by APC. The Company was charged directly by APC for
certain of such services and also paid to APC a management fee that was based
upon a percentage of total revenues. The management fee to APC was discontinued
after the Acquisition. In addition, the Company has in place a Transitional
Services Agreement that allows for certain administrative services to be
provided by APMS until the Company can establish capabilities to provide its
administrative services in-house. The Company believes that the cost of any
services utilized under the Transitional Services Agreement will approximate the
management fees it was being charged by APC.
Prior to the Acquisition, the Company operated as a business unit of APC
and as such did not file separate tax returns. The income tax provision included
in the Company's combined financial statements was computed as if the Company
were a separate company. Subsequent to the Acquisition, the Company has been and
anticipates that it will be, for the foreseeable future, in a tax loss position.
Given the uncertainty as to the timing of the Company's ability to utilize such
losses to offset future taxable income, the Company does not presently
anticipate recording any tax benefit associated with its pre-tax losses. In
addition, the operations of the Company were historically financed through APC.
Holdings and the Company have a capital structure different than that set forth
in the Company's combined financial statements for periods preceding the
Transactions and, accordingly, historical interest expense is not indicative of
the interest expense that either Holdings or the Company incurs as a separate
company.
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<PAGE> 40
RESULTS OF OPERATIONS
The following table summarizes the Company's historical results of
operations as a percentage of total revenues for the years ended December 31,
1995, 1996 and 1997.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1995 1996 1997
----- ----- -----
<S> <C> <C> <C>
Revenues:
Advertising............................................... 69.0% 68.5% 69.6%
Circulation............................................... 21.8 22.6 22.6
Job printing and other.................................... 9.2 8.9 7.8
----- ----- -----
Total revenues.............................................. 100.0 100.0 100.0
Operating costs............................................. 33.7 32.1 29.7
Selling, general and administrative......................... 39.5 39.2 39.7
Depreciation and amortization............................... 8.3 8.1 7.6
----- ----- -----
Income from operations...................................... 18.5 20.6 23.1
EBITDA...................................................... 26.8% 28.7% 30.6%
</TABLE>
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Total Revenues. Total revenues for the year ended December 31, 1997
increased by $1.2 million, or 1.2%, to $98.7 million from $97.5 million for the
year ended December 31, 1996. The increase in total revenues was comprised of a
$1.9 million increase in advertising revenue and a $0.3 million increase in
circulation revenue offset by a $1.1 million decrease in job printing and other
revenue. During the year ended December 31, 1997, the Company acquired
publications in two markets. The publications acquired during the year ended
December 31, 1997 contributed $0.8 million to total revenues for such period.
The increase in advertising revenue during the year ended December 31, 1997 was
primarily due to general continued strength in demand for advertising in the
Company's markets. The increase in circulation revenue during the year ended
December 31, 1997 was primarily due to increases in the cover prices of selected
newspaper publications. The decrease in job printing and other revenue during
the year ended December 31, 1997 was primarily due to the Company pursuing fewer
opportunities for commercial printing than in the prior year.
Operating Costs. Operating costs for the year ended December 31, 1997
decreased by $2.0 million, or 6.4%, to $29.3 million from $31.3 million for the
year ended December 31, 1996. Operating costs decreased as a percentage of total
revenues to 29.7% for the year ended December 31, 1997 from 32.1% for the year
ended December 31, 1996. Approximately $1.3 million of the decrease in operating
costs as a percentage of total revenues during the year ended December 31, 1997
was due to declines in newsprint prices and approximately $0.7 million of the
decrease was due to the continued successful implementation of cost controls at
the Company's publications.
Selling, General and Administrative. Selling, general and administrative
expenses for the year ended December 31, 1997 increased by $0.9 million, or
2.4%, to $39.2 million from $38.3 million for the year ended December 31, 1996.
Selling, general and administrative expenses increased as a percentage of total
revenues to 39.7% for the year ended December 31, 1997 from 39.2% for the year
ended December 31, 1996. The increase in selling, general and administrative
expenses during the year ended December 31, 1997 was primarily due to the effect
of increases in the federal minimum wage requirements.
Depreciation and Amortization. Depreciation and amortization for the year
ended December 31, 1997 decreased by $0.4 million, or 4.9%, to $7.5 million from
$7.9 million for the year ended December 31, 1996. As a percentage of revenues,
depreciation and amortization was 8.1% in 1996 compared to 7.6% in 1997. The
decline was due to certain fixed assets and goodwill being fully depreciated or
amortized in 1996.
Income from Operations. Income from operations for the year ended December
31, 1997 increased by $2.7 million, or 13.2%, to $22.8 million from $20.1
million for the year ended December 31, 1996. Income from operations as a
percentage of total revenues increased to 23.1% for the year ended December 31,
1997
37
<PAGE> 41
from 20.6% for the year ended December 31, 1996. The increase in income from
operations was primarily due to higher total revenues and lower operating costs
described above.
EBITDA. EBITDA for the year ended December 31, 1997 increased by $2.3
million, or 8.1%, to $30.2 million from $28.0 million for the year ended
December 31, 1996. EBITDA margin increased to 30.6% for the year ended December
31, 1997 from 28.7% for the year ended December 31, 1996. The increase in EBITDA
and EBITDA margin during the year ended December 31, 1997 was primarily due to
higher total revenues and lower operating costs described above.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Total Revenues. Total revenues for the year ended December 31, 1996
increased by $10.2 million, or 11.6%, to $97.5 million from $87.4 million for
the year ended December 31, 1995. The increase in total revenues was comprised
of a $6.6 million increase in advertising revenue, a $2.9 million increase in
circulation revenue and a $0.7 million increase in job printing and other
revenue. During the year ended December 31, 1996, the Company acquired
publications in three markets. The publications acquired during the year ended
December 31, 1996 contributed $2.5 million to total revenues for such period.
The increase in advertising revenue during the year ended December 31, 1996 was
primarily due to a favorable economic environment, which promoted increased
spending by advertisers in the Company's markets. The increase in circulation
revenue during the year ended December 31, 1996 was primarily due to increases
in the cover prices of selected newspaper publications. The increase in job
printing and other revenue during the year ended December 31, 1996 was primarily
due to strong demand for commercial printing services in the Company's markets
and the Company's success in identifying and capturing such business.
Operating Costs. Operating costs for the year ended December 31, 1996
increased by $1.9 million, or 6.5%, to $31.3 million from $29.4 million for the
year ended December 31, 1995. Operating costs decreased as a percentage of total
revenues to 32.1% for the year ended December 31, 1996 from 33.7% for the year
ended December 31, 1995. The increase in operating costs during the year ended
December 31, 1996 was primarily due to increases in the price of newsprint and
increased costs associated with the higher total revenues described above.
Selling, General and Administrative. Selling, general and administrative
expenses for the year ended December 31, 1996 increased by $3.8 million, or
10.9%, to $38.3 million from $34.5 million for the year ended December 31, 1995.
Selling, general and administrative expenses decreased as a percentage of total
revenues to 39.2% for the year ended December 31, 1996 from 39.5% for the year
ended December 31, 1995. The increase in selling, general and administrative
expenses during the year ended December 31, 1996 was primarily due to expenses
associated with the growth of the Company's operations, including an increase in
the number of publications operated by the Company.
Income from Operations. Income from operations for the year ended December
31, 1996 increased by $3.9 million, or 24.4%, to $20.1 million from $16.2
million for the year ended December 31, 1995. Income from operations as a
percentage of total revenues increased to 20.6% for the year ended December 31,
1996 from 18.5% for the year ended December 31, 1995. The increase in income
from operations was primarily due to higher total revenues, partially offset by
higher operating costs, selling, general and administrative expenses and
depreciation and amortization.
EBITDA. EBITDA for the year ended December 31, 1996 increased by $4.5
million, or 19.2%, to $28.0 million from $23.5 million for the year ended
December 31, 1995. EBITDA margin increased to 28.7% for the year ended December
31, 1996 from 26.8% for the year ended December 31, 1995. The increase in EBITDA
and EBITDA margin during the year ended December 31, 1996 was primarily due to
higher total revenues, partially offset by higher operating costs and selling,
general and administrative expenses.
LIQUIDITY AND CAPITAL RESOURCES
Cash Provided by Operating Activities. Cash provided by operating
activities for the year ended December 31, 1997 increased $0.3 million to $14.6
million from $14.3 million for the year ended
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<PAGE> 42
December 31, 1996. The increase in cash provided by operating activities was
primarily due to an increase in the Company's net earnings and a decrease in
working capital requirements. Cash provided by operating activities for the year
ended December 31, 1996 increased $6.4 million to $14.3 million from $7.9
million for the year ended December 31, 1995. The increase in cash provided by
operating activities for the year ended December 31, 1996 was primarily due to
an increase in the Company's net earnings and a decline in working capital
requirements.
Cash Used in Investing Activities. Cash used in investing activities for
the year ended December 31, 1997 decreased $1.2 million to $3.4 million from
$4.5 million for the year ended December 31, 1996. The decrease in cash used in
investing activities for the year ended December 31, 1997 was primarily due to a
decrease in capital expenditures. Cash used in investing activities for the year
ended December 31, 1996 decreased $10.4 million to $4.5 million from $14.9
million for the year ended December 31, 1995. The decrease in cash used in
investing activities for the year ended December 31, 1996 was primarily due to a
decline in the number of newspaper acquisitions completed, partially offset by
an increase in capital expenditures. The Company's capital expenditures consist
of the purchase of machinery, equipment, furniture and fixtures relating to its
publishing operations. The Company has no material commitments for capital
expenditures. The most significant investing activities contemplated over the
next five years will be to pursue the Company's acquisition program of
opportunistically purchasing local newspapers in contiguous markets and clusters
of local newspapers in new markets. The Company will only pursue acquisitions
that it believes would contribute to the Company's overall cash flow growth. The
Company has a proven track record of significantly improving the revenues and
profitability of local newspaper acquisitions and the Company believes that it
will continue to be successful at integrating and improving future newspaper
acquisitions.
Cash Used in Financing Activities. Cash used in financing activities for
the year ended December 31, 1997 increased $1.6 million to $11.5 million from
$9.9 million for the year ended December 31, 1996. Cash used in financing
activities for the year ended December 31, 1996 increased $17.1 million to $9.9
million from $7.2 million of cash provided by financing activities for the year
ended December 31, 1995. The Company has historically relied upon Hollinger for
financing of its operations and has maintained its own cash balances only for
certain daily expenses. Subsequent to the Acquisition, the Company will be
financed independently of Hollinger.
Liquidity. The Company's principal sources of funds will be cash provided
by operating activities and borrowings under the Revolving Credit Facility (as
defined). As of April 3, 1998, there were no borrowings outstanding under the
Revolving Credit Facility. The Company believes that such funds will provide the
Company with sufficient liquidity and capital resources to meet its current and
future financial obligations.
Borrowings under the Revolving Credit Facility bear interest at an annual
rate, at the Company's option, equal to the Base Rate (as defined therein) or
the Eurodollar Rate (as defined therein) plus a margin that varies based upon a
ratio set forth therein. For the first six months following the Closing Date,
the interest rate for borrowings under the Revolving Credit Facility will have a
floor of the Base Rate plus 0.75% or the Eurodollar Rate plus 2.0%. Applicable
interest rates will be increased 2.0% per annum during the continuance of any
Event of Default (as defined therein) under the Revolving Credit Facility. In
addition to customary letters of credit fronting fees and other fees, the
Company pays a fee equal to the Applicable Margin for Eurodollar Rate Advances
(as defined therein) per annum on the aggregate amount of outstanding letters of
credit. The Company also pays a fee on the unused portion of the Revolving
Credit Facility. See "Description of Other Indebtedness--Revolving Credit
Facility" for a description of the material provisions of the Revolving Credit
Facility.
Holdings is highly leveraged and has Indebtedness that is substantial in
relation to its stockholders' equity, tangible equity and cash flow. As of
December 31, 1997, on a pro forma basis after giving effect to the Transactions,
Holdings would have had $50.5 million of outstanding Indebtedness, $8.0 million
of stockholders' equity and $(301.4) million of tangible equity and Holdings'
subsidiaries would have had an aggregate of $180.0 million of outstanding
Indebtedness. As of December 31, 1997, on a pro forma basis after giving effect
to the Transactions, the ratio of outstanding Indebtedness to total
capitalization was 0.69 to 1.00. For the year ended December 31, 1997, on a pro
forma basis after giving effect to the Transactions, earnings were
39
<PAGE> 43
insufficient to cover fixed charges by $23.1 million. The degree to which the
Company is leveraged could have important consequences to holders of the New
Securities, including the following: (i) for the fiscal year ending December 31,
1998, approximately two-thirds of the Company's cash flow from operations must
be dedicated to the payment of interest on the New Senior Subordinated Notes and
interest and principal on its other Indebtedness, thereby reducing the funds
available to the Company for other purposes; (ii) Indebtedness under the
Revolving Credit Facility is at variable rates of interest, which causes Liberty
Group Operating to be vulnerable to increases in interest rates; (iii) the
Company is substantially more leveraged than certain of its competitors, which
might place the Company at a competitive disadvantage; (iv) the Company may be
hindered in its ability to adjust rapidly to changing market conditions; (v) the
Company's substantial degree of leverage could make it more vulnerable in the
event of a downturn in general economic conditions or other adverse events in
its business; and (vi) the Company's ability to obtain additional financing for
working capital, capital expenditures, acquisitions or general corporate
purposes may be impaired.
In the future, as a result of the substantial indebtedness incurred in
connection with the Transactions, the Company will incur substantially higher
interest costs which will reduce the Company's liquidity. In addition, the
Company anticipates incurring approximately $1.4 million of additional costs
annually as a result of operating as a stand-alone company.
INFLATION
The Company believes that inflation has not had a material impact on its
results of operations for the years ended December 31, 1997, 1996 and 1995.
40
<PAGE> 44
BUSINESS
GENERAL
The Company is a leading U.S. publisher of local newspapers and related
publications that are the dominant source of local news and print advertising in
their markets. The Company owns and operates 166 publications in rural markets
in 11 states: Arizona, Arkansas, California, Illinois, Iowa, Kansas, Michigan,
Minnesota, Missouri, New York and Pennsylvania. The majority of the Company's
paid daily newspapers have been published for more than 100 years and are
typically the only paid daily newspapers of general circulation in their
respective rural markets. The Company's newspapers face limited competition as a
result of operating in markets that are distantly located from large
metropolitan areas and that can support only one primary newspaper. The Company
has increased revenues primarily by acquiring new publications and saturating
existing markets, and has increased profitability by aggressively pursuing cost
reduction opportunities. Through a combination of these efforts, total revenues
have grown from $73.7 million in 1993 to $98.7 million for the year ended
December 31, 1997, representing a compounded annual growth rate of 7.6%. The
Company's annual revenue growth rates for the years 1994 through 1997 were 11.1%
in 1994, 6.7% in 1995, 11.6% in 1996 and 1.2% in 1997. During the same period,
EBITDA has increased from $20.0 million in 1993 to $30.2 million for the year
ended December 31, 1997, and EBITDA margins have improved from 27.2% to 30.6%.
Giving effect to the Acquisition, the Company's pro forma loss for the year
ended December 31, 1997 would have been $11.6 million and such loss would have
been insufficient to cover fixed charges by $11.6 million.
The Company's newspapers are comprised of 55 paid daily newspapers with
circulations ranging from approximately 1,100 to 12,500 and 34 paid non-daily
newspapers with circulations ranging from approximately 100 to 41,000. In
addition, the Company publishes 77 free circulation and "total market coverage"
("TMC") publications with limited or no news or editorial content. TMC
publications are distributed free of charge and generally provide 100%
penetration in their areas of distribution. The Company believes that its paid
newspapers, together with its free circulation and TMC publications, are an
effective medium for advertisers to reach substantially all of the households in
the markets served by the Company. All of the Local Publications are located in
small towns that are not suburbs of large cities and that typically have
populations of less than 20,000. The Company's publications focus on local
content, including coverage of local youth, high school and college sports, as
well as local business, politics, entertainment and cultural news. Each of the
Company's publications is specifically tailored to its market in order to
provide local content that radio, television and large metropolitan newspapers
are unable to provide on a cost-effective basis because of their broader
geographic coverage. The Local Publications also differentiate themselves from
other forms of media by providing a cost-effective medium for local advertisers
to target their customers.
The Company believes that its stable revenues and EBITDA are a result of
its geographic diversification, limited competition, low newsprint requirements
and cost of labor, strong base of local advertisers and lack of reliance on
volatile classified advertising. The regional clusters in which the Local
Publications are published are geographically diverse, with no single market
representing more than 3.5% of the Company's 1997 total revenues. The Local
Publications are well-positioned in their markets and face limited direct
competition for either local newspaper advertising or circulation revenue.
Start-ups of newspapers are rare and potential competitors face considerable
barriers to entry due to the Company's established franchises. The Company's
stable profitability is also a result of its favorable cost structure, which
includes low newsprint and labor cost as a percent of total revenues. The
Company has relatively low exposure to fluctuations in newsprint prices due to
much lower page counts than large metropolitan newspapers, with newsprint
comprising 8.1% of the Company's 1997 total operating expenses, compared to
approximately 25% for large metropolitan newspapers. In addition, management of
the Company believes based upon its operating experience that advertising
revenues at the Company's publications tend to be more stable than the
advertising revenues of large metropolitan newspapers because the Company's
publications rely primarily on local advertising rather than national
advertising, with national advertising comprising 0.9% and local advertising
comprising 41.3% of the Company's 1997 total revenues. Local advertising is more
stable than national advertising because local service providers generally have
fewer effective advertising vehicles from which to choose. The Company also
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<PAGE> 45
relies less than large metropolitan newspapers upon classified advertising,
particularly "help wanted" sections, which tend to be cyclical.
The Company is led by the same experienced management team that had primary
responsibility for the acquisition activities and operations of the Local
Publications prior to the Acquisition. The five members of the senior management
team have, in the aggregate, over 125 years of experience in the newspaper
industry. The management team has a long history of integrating acquisitions and
improving the operations of both existing and acquired publications. In
addition, the Company retained all of the newspaper publishers at the Local
Publications. The local market knowledge of each newspaper's publisher and his
standing in the community are important in maintaining each newspaper's local
identity and in effectively serving its readership and advertisers.
BUSINESS STRATEGY
The Company's business strategy is to continue to increase the
profitability of existing and acquired newspaper publications through market
leadership, aggressive cost controls, geographic clustering and revenue
enhancements. The Company attributes its strong historical results and its
positive outlook for growth and profitability to management's ability to
identify and complete acquisitions to which it has successfully applied the
following initiatives:
Market Leadership. The Company's newspapers generally have the largest
local news gathering resources in their markets and differentiate themselves
from large metropolitan newspapers by focusing on local information. The
Company's publications serve as the dominant medium for local print advertisers
to reach a specific audience and for readers interested in local events. The
Company believes that by supplementing its paid newspapers with TMC
publications, which are distributed to either all households in a given area or
all households that do not otherwise receive paid newspapers, it enables
advertisers to reach substantially all households in the markets that they
serve. The Company seeks to enhance reader loyalty through excellent editorial
content, including the proper mix of local and national news to serve its
markets effectively, and high-quality presentation. In addition, because the
Company's newspapers are generally produced on modern offset presses, the
Company has the ability to execute attractive layouts and color enhancements
that are designed to attract readers.
Aggressive Cost Controls. The Company implements uniform operating policies
and establishes strict cost controls at each of its publications. The Company
believes that operating margins are increased by implementing consistent
policies and standards, including specific guidelines for staffing levels,
employee productivity, automation of pre-press operations and regional
production operations. In addition, the Company utilizes specific guidelines
regarding product quality, distribution and customer service, marketing and
promotion, financial controls and purchasing. The Company establishes strict
cost controls to maintain low overhead expenses and continuously seeks to
identify lower cost alternatives for, and to improve utilization of, raw
materials, equipment and services, including newsprint, ink, office equipment
and supplies, production equipment and telecommunication services.
Geographic Clustering. The Company seeks to concentrate its ownership of
publications into regional clusters in order to realize operating efficiencies,
such as the consolidation and sharing of production and printing functions,
management personnel and other general and administrative costs. In addition,
clustering enables management to maximize revenues through cross-selling and
bundling advertising among contiguous newspaper markets. The Company believes
that its clustering strategy enables its publications to achieve higher
operating margins than they otherwise would achieve on a stand-alone basis. In
addition, clustering spreads fixed costs, such as salaries, across publications,
which allows the Company to employ high-quality management that is shared among
contiguous markets.
Revenue Enhancements. The Company seeks to saturate its markets through
market layering, which focuses on introducing new products to increase
readership and advertising revenues. New products have historically included
both paid newspapers and free circulation publications, including TMC
publications. Other new products have included more frequent publication of
non-daily newspapers; shopping guides; and niche publications covering subjects,
such as children and parenting, employment, health, seniors and real
42
<PAGE> 46
estate, that are of interest to residents of particular geographic areas and
members of particular demographic groups. The Company believes that its market
layering strategy has successfully increased its penetration, strengthened its
market presence and protected its publications from encroachment by competitors.
Attractive Acquisition Opportunities. The Company's low-cost operating
model, broad geographic coverage and successful acquisition history provide a
platform for the acquisition of local newspapers. The Company has a proven track
record of significantly improving the profitability of acquired operations by
implementing the same cost control systems and revenue enhancements that are in
place at existing properties. Favorable acquisition candidates would have some
or all of the following characteristics: a long publishing history, strong
readership and advertiser loyalty, editorial independence and potential
opportunities for revenue enhancements and increases in profitability through
cost reductions and synergies with the Company's existing operations. The
Company believes that the newspaper publishing industry is highly fragmented,
with over 7,500 paid daily and non-daily publications with circulations of less
than 25,000 operating in the United States today. The Company further believes
that competition is abating for these smaller publications as the historical
acquirors of such publications have grown too large for publications of this
size to have a meaningful impact on operations and have diverted resources
toward the acquisition of metropolitan newspapers.
INDUSTRY OVERVIEW
Newspaper publishing is the oldest and largest segment of the media
industry. Due to a focus on local news, newspapers remain the dominant medium
for local advertising and, in calendar year 1996, accounted for more than 47.6%
of all local media advertising expenditures in the United States. In addition,
in calendar year 1996, U.S. newspaper advertising expenditures reached an
all-time high of approximately $38.2 billion, representing a compounded annual
growth rate of 6.1% since 1980. The Company believes that newspapers continue to
be the best medium for retail advertising, which emphasizes the price of goods,
in contrast to television, which is generally used for image advertising.
The number of adult readers of daily and Sunday newspapers is reported to
have increased from 106.0 million and 106.7 million in 1980 to 112.1 million and
128.6 million in 1996, respectively, representing compounded annual growth rates
of 0.4% and 1.2%, respectively. Readers of daily and Sunday newspapers tend to
be more highly educated and have higher incomes than non-newspaper readers. For
instance, 71% of college graduates and 66% of households with incomes greater
than $40,000 are reported to read a daily newspaper, compared to 61% of high
school graduates and 52% of households with incomes less than $40,000. The
Company believes that newspapers continue to be the most cost-effective means
for advertisers to reach this highly targeted demographic group. Reliable
circulation statistics for non-daily newspapers are not available.
Newspaper advertising revenues are cyclical and are generally affected by
changes in national and regional economic conditions. Classified advertising,
which typically makes up approximately one-third of newspaper advertising
revenues, is the most sensitive to economic improvements or slowdowns as it is
primarily affected by the demand for employment, real estate transactions and
automotive sales. However, management believes that the profitability of the
Company's publications is significantly more stable than the overall newspaper
industry due to a reduced dependence on classified advertising. In 1997,
classified advertising represented only 15.1% of the Company's total revenues.
Growth in newspaper advertising has exceeded growth in Gross Domestic
Product ("GDP") in every calendar year since 1993 and, in calendar year 1996,
newspaper advertising spending grew 5.8% while GDP grew by only 4.5%.
43
<PAGE> 47
OVERVIEW OF OPERATIONS
The Company's operations consist of 166 local newspapers and publications
strategically positioned in rural markets in 11 states. The Company's
publications are comprised of 55 paid daily and 34 paid non-daily newspapers
with average circulations of 4,372 and 3,194, respectively. In addition, the
Company publishes 77 free circulation publications with limited or no news or
editorial content.
The following chart sets forth information for the Company's publications
by state as of December 31, 1997:
<TABLE>
<CAPTION>
NUMBER OF NEWSPAPERS AND PUBLICATIONS AVERAGE CIRCULATION
--------------------------------------- -------------------
PAID PAID FREE PAID PAID
STATE DAILY NON-DAILY CIRCULATION TOTAL DAILY NON-DAILY
----- ----- --------- ----------- ----- ----- ---------
<S> <C> <C> <C> <C> <C> <C>
Arizona.................................. 0 2 1 3 0 3,562
Arkansas................................. 3 1 3 7 3,053 3,896
California............................... 2 3 3 8 4,985 2,231
Illinois................................. 12 16 15 43 3,810 3,784
Iowa..................................... 1 0 2 3 2,843 0
Kansas................................... 6 2 7 15 4,103 220
Michigan................................. 3 0 3 6 4,196 0
Minnesota................................ 1 0 1 2 2,234 0
Missouri................................. 11 6 16 33 4,577 1,487(1)
New York................................. 5 4 15 24 6,833 4,816
Pennsylvania............................. 11 0 11 22 4,438 0
-- -- -- --- ----- -----
Total.......................... 55 34 77 166 4,372 3,194
</TABLE>
- -------------------------
(1) Excludes circulation of Mid-South Trader, as such paper was closed as of
December 31, 1997.
In 1997, no single market within such states contributed more than 3.5% of
the Company's total revenues.
44
<PAGE> 48
The following is a list of the states and communities served by the
Company's paid daily newspapers, paid non-daily newspapers, and free circulation
publications and the mastheads of all 166 publications as of December 31, 1997:
ARIZONA
Globe
Arizona Silver Belt
Gila County Advantage
Moccasin
ARKANSAS
Heber Springs
The Sun Times
Helena
The Daily World
Daily World "TMC"
Newport
Newport Daily Independent
Newport Daily Independent "TMC"
Stuttgart
Stuttgart Daily Leader
The Stuttgart Daily "TMC"
CALIFORNIA
Mount Shasta
Dunsmuir News
Mount Shasta Herald
Supersaver Advertiser
Voice of the Mountain
Weed Press
Taft
Daily Midway Driller
Yreka
Siskiyou Daily News
Siskiyou Daily News "Extra"
ILLINOIS
Albion
Albion Journal Register
Prairie Post
Benton
Benton Evening News
The Benton Standard
Franklin Press
Canton
Daily Ledger
Little Giant Advertiser
Carmi
The Carmi Times
The Weekly Times
White County Shopper News
Chester
Chester Herald Tribune
Monday Herald
Christopher
Christopher Progress
DuQuoin
The Ashley News
DuQuoin Evening Call
Perry County Extra
Fairbury
The Blade
Flora
Ccap Special
Daily Advocate Press
Galatia
Money Stretcher
Galesburg
Pennysaver Press
Harrisburg
Eldorado Daily Journal
Harrisburg Daily Register
Herrin
The Spokesman
The Spokesman Sunday
Marion
Marion Daily Republican
Marion Daily Extra
Monmouth
Daily Review Atlas
Oquawka Current
Pennysaver
Murphysboro
American Monday
Murphysboro American
Norris City
Norris City Banner
Olney
Jasper County News Eagle, Advantage
The Olney Daily Mail
The Weekly Mail
Pontiac
Daily Leader
Home Times
Livingston Shopping News
Shawneetown
Gallatin Democrat
Ridgway News
West Frankfort
Daily American
Trader
IOWA
Charles City
Charles City Press
The Extra
Six County Shopper
KANSAS
Atchison
The Atchison Daily Globe
Globe Extra
Augusta
Augusta Advertiser
Augusta Daily Gazette
Derby
Daily Reporter
The Record
The Weekly Shopper
The Wichita Journal
El Dorado
The El Dorado Times
El Dorado Times Weekly
Shoppers Guide
Leavenworth
The Leavenworth Times
River Bend Journal
McPherson
McPherson Sentinel
The Sentinel Ad-Viser
MICHIGAN
Cheboygan
Cheboygan Daily Tribune
Shoppers Fair
Ionia
Sentinel-Standard
Sentinel-Standard "TMC"
Sault Ste. Marie
The Evening News
Tri County Buyers Guide
MINNESOTA
Crookston
Crookston Daily Times
Crookston Valley Shopper
MISSOURI
Boonville
Boonville Daily News
The Record
Brookfield
Daily News Bulletin
Camdenton
Lake Sun Leader
Carthage
The Carthage Press
The Carthage Press "TMC"
Chillicothe
C.T. Extra
Constitution Tribune
Greenfield
Lake Stockton Shopper
Miller Press
The Vedette
Kirksville
Kirksville Crier
Kirksville Daily Express & News
The Market Place
Macon
Chronicle Herald
Macon Journal
Marceline
Marceline Press/Chariton Courier
Sho-Me Shopper
Mexico
The Mexico Ledger
The Mexico Ledger "TMC"
Monroe City
Mark Twain Regional News
Monroe City News
Neosho
Neosho Daily News
Neosho Daily News "Etc."
Osage Beach
Vacation News
Rolla
Rolla Daily News
Rolla Daily News "Plus"
Saint James
Advertiser
St. James Leader Journal
Waynesville
The Daily Guide
Daily Guide Extra
Fort Wood Constitution
NEW YORK
Bath
Steuben Courier Advocate
Canajoharie
Mohawk Valley Pennysaver
Canisteo
Hornell Canisteo Penn-E-Saver
Dansville
Genesee County Express
Geneseeway Shopper
Herkimer
The Evening Telegram
Images
Hornell
Evening Tribune
The Spectator (Sunday)
The Tribune Extra
Little Falls
The Evening Times
Times-Saver
North Tonawanda
Grand Island Record
Record Advertiser
Tonawanda News
Tonawanda News Extra
Penn Yan
Chronicle Ad-Viser
The Chronicle-Express
Saugerties
Mountain Pennysaver
Saugerties Pennysaver
Saugerties Post Star
Wellsville
Allegany Co. Pennysaver
Wellsville Daily Reporter
Wellsville Daily "TMC"
PENNSYLVANIA
Corry
Corry Journal
Corry Journal "TMC"
Honesdale
The Independent Extra
The Wayne Independent
Kane
Kane Republican
Milton
Lewisburg Daily Journal
Milton Daily Standard
The Standard-Journal
Punxsutawney
Country Neighbors
The Punxsutawney Spirit
The Punxsutawney Spirit "TMC"
Ridgway
The Ridgway Record
Shop-Right
Saint Mary's
The Daily Press
The Daily Press "TMC"
Sayre
The Evening Times
The Times Extra
Titusville
Titusville Herald
Titusville Herald "TMC"
Warren
Warren County Guide
Waynesboro
The Record Herald
Record Herald Shoppers Express
45
<PAGE> 49
ADVERTISING
Advertising revenues are the largest component of a newspaper's revenues
followed by circulation revenues. The Company's advertising rate structures vary
among its publications and are a function of various factors, including results
achieved for advertisers, local market conditions and competition, as well as
circulation, readership, demographics and the type of advertising (whether
classified or display).
Substantially all of the Company's advertising revenues are derived from a
diverse group of local retailers and classified advertisers. Management of the
Company believes based upon its operating experience that the Company's
advertising revenues tend to be more stable than the advertising revenues of
large metropolitan newspapers because its publications rely on local advertising
rather than national advertising, with national advertising comprising 0.9% and
local advertising comprising 41.3% of the Company's 1997 total revenues. Local
advertising is more stable than national advertising because residents' ongoing
needs for local services provide a stable base of local businesses and local
advertisers generally have fewer effective advertising vehicles from which to
choose. Moreover, the Company relies less than large metropolitan newspapers
upon classified advertising revenues, particularly "help wanted" sections, which
tend to be cyclical. Classified advertising accounted for 15.1% of the Company's
1997 total revenues. The following table represents the breakdown of advertising
revenue components for the Company as a percentage of total revenues:
<TABLE>
<CAPTION>
YEAR END31,DECEMBER
------------------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Local advertising........................................... 41.8% 41.5% 41.3%
National advertising........................................ 0.8 0.9 0.9
Preprints................................................... 12.4 11.3 11.7
Classified.................................................. 13.8 14.4 15.1
Non-traditional............................................. 0.2 0.4 0.7
---- ---- ----
Total advertising revenue.............................. 69.0% 68.5% 69.6%
</TABLE>
The Company's advertising revenues are not reliant upon any one company or
industry but rather are supported by a variety of companies and industries. The
Company's corporate management works with its local newspaper management to
approve advertising rates and to establish goals for each year during a detailed
budget process. Corporate management also works with the advertising staff of
each local newspaper to develop marketing kits and presentations. A portion of
the compensation for the Company's publishers is based upon increasing
advertising revenues. In addition, corporate management facilitates the sharing
of advertising resources and information across the Company's publications.
CIRCULATION
While circulation revenue is not as significant as advertising revenue,
circulation trends impact the decisions of advertisers and advertising rates.
Substantially all of the Company's circulation revenues are derived from home
delivery sales of publications to subscribers and single copy sales made through
retailers and vending racks. The Company continuously seeks to improve its
publications in order to attract new readers and to engage existing readers more
fully. Quality enhancements implemented by management have included: converting
selected newspapers from afternoon to morning publication; upgrading and
expanding printing facilities and printing presses; increasing the use of color
and color photographs; improving graphic design and, when appropriate,
implementing complete redesigns; and developing creative and interactive
promotional campaigns.
Circulation accounted for approximately 22.6% of the Company's total
revenues in 1997. Approximately 78.4% of 1997 circulation revenues were derived
from subscription sales and approximately 21.6% were derived from single copy
sales. Single copy sales rates currently range from $0.35 to $0.50 per daily
copy. The Company owns and operates 55 paid daily publications that range in
circulations from approximately 1,100 to 12,500 and 34 paid non-daily
publications that range in circulations from approximately 100 to 41,000. The
Company's corporate management works with its local newspaper management to
establish subscription and single copy rates. The Company also implements
creative and interactive programs and promotions to increase readership through
both subscription and single copy sales.
46
<PAGE> 50
NEWSPRINT
The Company's typical local paid daily or non-daily local newspaper has 8
to 14 broadsheet pages. Newsprint represents the largest raw material expense of
the Company, but is not the most significant operating expense. The Company has
relatively low exposure to fluctuations in newsprint prices due to much lower
page counts than large metropolitan newspapers, with newsprint comprising 8.1%
of the Company's total 1997 operating expenses compared to approximately 25% for
large metropolitan newspapers. Newsprint expense increased significantly in 1995
on an industry-wide basis, peaking at $770 per metric ton in the first quarter
of 1996 (based on average East Coast transaction prices), as reported by the
trade publication Pulp and Paper Weekly. Prices began to decrease in the second
quarter of 1996, and by December 1996, had decreased to $500 per metric ton
(based on East Coast transaction prices). At December 31, 1997, newsprint prices
were $595 per metric ton (based on East Coast transaction prices). The Company
seeks to manage the effects of increases in prices of newsprint through a
combination of, among other things, technology improvements, including web width
reduction, inventory management and advertising and circulation price increases.
For example, the Company has been able to successfully pass on some of its
historical newsprint increases to consumers through increases in the cover
prices of its newspapers and reduced page counts. The Company has no long-term
contracts to purchase newsprint. The Company's newspapers purchase a portion of
their newsprint direct from paper mills and also make opportunistic spot market
purchases within their geographic regions. The Company believes that its
purchasing policies have resulted in the Company's publications obtaining
favorable newsprint prices.
EMPLOYEES
The Company employs approximately 1,900 employees in 11 states and has
agreements with 6 local collective bargaining agents representing, in the
aggregate, approximately 30 employees. One such collective bargaining agreement
expired in February 1998, but a tentative agreement has been reached by the
parties and the Company anticipates signing a new agreement in April 1998, which
would expire in April 2002. The other collective bargaining agreements are
scheduled to expire from time to time between April 1998 and June 2000. The
Company has not experienced any strikes or general work stoppages in the past
ten years and believes that its relations with its employees are excellent.
SEASONALITY
Newspaper companies tend to follow a distinct and recurring seasonal
pattern. The first quarter of the year tends to be the weakest quarter in terms
of revenues because advertising volume is then at its lowest level. Conversely,
the fourth quarter includes the effects of holiday season advertising. However,
the Company believes that seasonality has not had a material impact on the
Company's historical results of operations.
COMPETITION
Each of the Company's newspapers competes to varying degrees with
magazines, radio, television and cable television, as well as with some weekly
publications and other advertising media, including electronic media, for
advertising and circulation revenue. Competition for newspaper advertising is
largely based upon circulation, price and content of the newspaper. The
Company's paid daily newspapers are the dominant local news and information
source, with strong name recognition in their markets and virtually no direct
competition from similar daily newspapers published in their markets. In certain
of the Company's markets, some circulation competition exists from larger daily
newspapers that are published in metropolitan areas. However, the Company
believes that local newspaper publications such as the Company's newspapers have
several advantages over metropolitan newspaper publications, including a lower
cost structure, the ability to publish only on their most profitable days (i.e.,
paid non-daily newspapers), the ability to offer local advertisements more
effectively and the ability to avoid expensive investments in wire services and
syndicated feature material. The Company's advertising permits small merchants,
individual classified and other advertisers to advertise solely in their own
local areas at a cost lower than that of a full-run metropolitan newspaper
publication. Thus, the typical local newspaper has a broader advertiser base
than, and does not rely to the same degree as a metropolitan newspaper
publication on, major retailers for advertising revenues. In
47
<PAGE> 51
addition, the Company believes advertisers generally regard newspaper
advertising as the most effective method of advertising promotions and pricing
as compared to television, which is generally used to advertise image.
PROPERTIES AND FACILITIES
The Company has 91 operating and production facilities for its community
publications in the United States. Of the 91 operating and production
facilities, 71 are owned and the remaining 20 are leased for terms ranging from
one to five years. These facilities range in size from approximately 800 to
23,000 square feet. The Company uses modern data processing equipment in its
business management operations and in its typesetting. The Company believes that
all of its properties are in generally good condition, are well maintained and
are adequate for their current operations.
48
<PAGE> 52
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the name, age and position of individuals
who serve as directors of Holdings and executive officers of Holdings and
Liberty Group Operating. Each director of Holdings will hold office until the
next annual meeting of the stockholders or until his successor has been elected.
Qualified officers of Holdings and Liberty Group Operating are elected by their
respective Boards of Directors and serve at the discretion of such Boards.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Kenneth L. Serota......................... 36 President and Chief Executive Officer and Director
Kenneth W. Cope........................... 62 Executive Vice President and Director
George R. Sample.......................... 73 Executive Vice President
Kevin B. O'Shea........................... 38 Senior Vice President and Chief Financial Officer
Scott T. Champion......................... 36 Senior Vice President
Gene A. Hall.............................. 46 Senior Vice President
Joseph C. Piccirillo...................... 62 Senior Vice President
Leonard I. Green.......................... 64 Chairman of the Board of Directors
Gregory J. Annick......................... 34 Director
John G. Danhakl........................... 42 Director
Peter J. Nolan............................ 39 Director
</TABLE>
Kenneth L. Serota is President and Chief Executive Officer. Mr. Serota is
also a director of Holdings and the Company. He served as Vice President--Law &
Finance and Secretary of Hollinger from May 1995 to December 1997 and as a
director of APC from 1996 to 1997. Prior thereto, Mr. Serota served as Senior
Vice President of a privately held frozen food manufacturer from June 1992
through March 1995. Previously, Mr. Serota served as an attorney and a certified
public accountant in private practice. Mr. Serota has significant experience
negotiating and closing acquisitions of newspaper publications and primarily
focuses his efforts on executing the Company's acquisition program and
overseeing all administrative functions of Holdings and the Company.
Kenneth W. Cope is an Executive Vice President and has primary
responsibility for newspaper publications in the western region of the United
States. Mr. Cope is also a director of Holdings and the Company. He served as
Deputy Chairman of APC from August 1996 to January 1998. Prior thereto, he
served as Executive Vice President and a member of APC's Board of Directors from
1989 to 1996. Mr. Cope had been employed at APC since 1987 and had completed
more than 50 acquisitions of local publications during his tenure at APC. Prior
to his employment at APC, Mr. Cope was an owner of the Neosho Daily News in
Neosho, Missouri, which is a publication acquired by the Company in the
Acquisition. Mr. Cope has more than 38 years' experience in the newspaper
industry. Mr. Cope is also a director of Community Bank & Trust.
George R. Sample is an Executive Vice President. Mr. Sample has 51 years of
experience as an editor and publisher. He served as a member of the Board of
Directors of APC and was Vice Chairman of the Board of Directors of APC from
1991 to 1998. Mr. Sample has served as a Vice Chairman of certain of APC's
United States subsidiaries, as a regional manager of APC and as publisher of the
Corry Journal, which is a publication acquired by the Company in the
Acquisition.
Kevin B. O'Shea is a Senior Vice President and the Chief Financial Officer.
Mr. O'Shea served as Vice President and Corporate Treasurer of Bell & Howell
from February 1996 to March 1998. From 1989 to 1996, Mr. O'Shea served as Vice
President and Corporate Treasurer of Spencer Stuart, a global consulting firm.
Prior thereto, Mr. O'Shea served as Vice President and treasurer/group
controller for The Pritzker Organization, a large and diversified family holding
company.
Scott T. Champion is a Senior Vice President and has primary responsibility
for newspaper publications in the central region of the United States. He served
as a Senior Vice President of APC from 1996 to 1998. Prior thereto, he served as
a regional manager and district manager of APC and had been employed at APC
49
<PAGE> 53
since 1988. Prior to his employment at APC, Mr. Champion served as the publisher
of a group of privately owned newspaper publications. Mr. Champion currently
serves as the publisher of the Daily Review Atlas and Pennysaver in Monmouth,
Illinois, which publications were acquired by the Company in the Acquisition,
and has served in such position since 1984. Mr. Champion has more than 18 years'
experience in the newspaper industry.
Gene A. Hall is a Senior Vice President and has primary responsibility for
newspaper publications in the midwestern region of the United States. He served
as a Senior Vice President of APC from 1992 to 1998. Prior thereto, he served as
a regional manager of APC and had been employed at APC since 1988. Prior to his
employment at APC, Mr. Hall was the owner and publisher of the Charles City
Press, Six County Shopper and The Extra in Charles City, Iowa. Mr. Hall
currently serves as the publisher of the Charles City Press, Six County Shopper
and The Extra, which publications were acquired by the Company in the
Acquisition, and has served in such positions since 1986. Mr. Hall has more than
28 years' experience in the newspaper industry. Mr. Hall is also a director of
First Security Bank & Trust.
Joseph C. Piccirillo is a Senior Vice President and has primary
responsibility for newspaper publications in the eastern region of the United
States. He served as a Senior Vice President of APC from 1994 to 1998. Prior
thereto, he served as a regional manager of APC and had been employed at APC
since 1987. Prior to his employment at APC, Mr. Piccirillo served as regional
manager for the Bradford, Pennsylvania newspaper group that formed the core
group of APC. Mr. Piccirillo currently serves as the publisher of The Ridgway
Record and Shop-Right in Ridgway, Pennsylvania, which publications were acquired
by the Company in the Acquisition, and has served in such position since 1971.
Mr. Piccirillo has more than 40 years' experience in the newspaper industry.
Leonard I. Green is the Chairman of the Board of Directors of Holdings. He
has been an executive officer and an equity owner of LGP, a merchant banking
firm that manages GEI, since the formation of LGP and GEI in 1994 by the
principals of Leonard Green & Associates, L.P. ("LGA"). Mr. Green has also been,
individually or through a corporation, a partner in LGA, a merchant banking
firm, since its inception in 1989. Prior to forming LGA, Mr. Green had been a
partner of Gibbons, Green, van Amerongen for more than five years. Mr. Green is
also a director of Rite Aid Corporation, Carr-Gottstein Foods Co.,
Communications & Power Industries, Inc. and Hechinger Company.
Gregory J. Annick is a director of Holdings. He has been an executive
officer and an equity owner, through a trust, of LGP, a merchant banking firm
that manages GEI, since the formation of LGP and GEI in 1994 by the principals
of LGA. He joined LGA as an associate in 1989, became a principal in 1993, and
through a corporation became a partner of LGA in 1994. From 1988 to 1989, Mr.
Annick was an associate with the merchant banking firm of Gibbons, Green, van
Amerongen. Before that time, Mr. Annick was a financial analyst in mergers and
acquisitions with Goldman, Sachs & Co. Mr. Annick is also a director of
Carr-Gottstein Foods Co., Communications & Power Industries, Inc., Leslie's
Poolmart, Inc. and Hechinger Company.
John G. Danhakl is a director of Holdings. He has been an executive officer
and an equity owner of LGP, a merchant banking firm that manages GEI, since
1995. Mr. Danhakl had previously been a Managing Director at Donaldson, Lufkin &
Jenrette Securities Corporation ("DLJ") and had been with DLJ since 1990. Prior
to joining DLJ, Mr. Danhakl was a Vice President at Drexel Burnham Lambert
Incorporated ("Drexel"). Mr. Danhakl is also a director of Big 5 Corp.,
Communications & Power Industries, Inc., Leslie's Poolmart, Inc., Hechinger
Company, Twinlab Corporation and The Arden Group, Inc.
Peter J. Nolan is a director of Holdings. He has been an executive officer
and an equity owner of LGP, a merchant banking firm that manages GEI, since
April 1997. Mr. Nolan had previously been a Managing Director of DLJ and Co-Head
of DLJ's Los Angeles Investment Banking Division and had been with DLJ since
1990. Prior to joining DLJ, Mr. Nolan was a First Vice President at Drexel. Mr.
Nolan is also a member of the Supervisory Board of adidas AG and a director of
Wavetek Corporation.
50
<PAGE> 54
EXECUTIVE COMPENSATION
The information set forth in this section relates to Mr. Serota, who serves
as President and Chief Executive Officer of Holdings and the Company, and the
four next most highly compensated employees of Holdings and the Company who
serve as executive officers of Holdings and the Company and whose total
compensation for services rendered for 1997 exceeded $100,000 (collectively, the
"Named Executive Officers").
The following table summarizes the compensation received by the Named
Executive Officers from Hollinger or its wholly owned subsidiaries for the year
ended December 31, 1997:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION AWARD
-------------------------------------- ------------------------------------
SECURITIES
RESTRICTED UNDERLYING
OTHER ANNUAL STOCK OPTIONS/ LTIP ALL OTHER
NAME AND PRINCIPAL POSITION SALARY($) BONUS($) COMPENSATION($) AWARDS($) SARS(#) PAYOUTS($) COMPENSATION($)
- --------------------------- --------- -------- --------------- ---------- ---------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Kenneth L. Serota........ 239,652 44,000 -- -- 30,000 -- 29,833(1)
Chief Executive Officer
and President
Kenneth W. Cope.......... 187,500 10,000 -- -- 10,000 -- 31,000(2)
Executive Vice President
Scott T. Champion........ 56,160 106,898 6,000(3) -- -- -- 5,000(4)
Senior Vice President
Gene A. Hall............. 47,960 68,990 11,000(3) -- -- -- 5,000(4)
Senior Vice President
Joseph C. Piccirillo..... 80,800 53,400 -- -- -- -- 5,000(4)
Senior Vice President
</TABLE>
- ---------------
(1) Represents fees paid of $24,333 to Mr. Serota for services as a director of
APC and a car allowance of $5,500.
(2) Represents fees paid of $26,000 to Mr. Cope for services as a director of
APC and $5,000 as a deferred compensation contribution.
(3) Amounts based on a payment of $1,000 per operating facility in the region
managed.
(4) Amounts paid as deferred compensation contribution.
EMPLOYMENT CONTRACTS, CHANGE IN CONTROL ARRANGEMENTS AND OTHER PAYMENTS
The Company, Holdings and Kenneth Serota have entered into an employment
agreement, dated as of November 21, 1997 (the "Employment Agreement"), whereby
Mr. Serota has agreed to serve as President and Chief Executive Officer of the
Company for a period of three years commencing January 1, 1998 and for
additional successive one-year periods thereafter, unless either party gives
timely notice to the other that the employment term shall not be so extended.
The Employment Agreement provides for a base salary of $350,000, $375,000 and
$400,000 for the years 1998, 1999 and 2000, respectively, and those benefits
generally available to the employees of the Company, including life insurance,
health insurance, deferred compensation and profit sharing. In addition to
receiving a base salary, Mr. Serota is eligible to receive a bonus based on the
attainment of applicable performance standards agreeable to the Company and Mr.
Serota, including standards based on annual revenue growth, EBITDA growth,
completion of reasonably acceptable acquisitions and growth of acquired
properties. The Employment Agreement also provides, subject to certain
exceptions, that upon a termination of Mr. Serota's employment during the term
thereof (other than for "cause" as defined therein or voluntary resignation),
the Company is generally obligated to pay Mr. Serota the greater of one year's
salary or an amount equal to his base salary for the remaining term under the
Employment Agreement plus, in either case, a portion of his bonus for the year
of termination. The Company has also loaned to Mr. Serota $250,000 pursuant to
an Unsecured Promissory Note dated January 27, 1998. The amount of the loan will
be forgiven by the Company pro rata on a daily basis during the initial
three-year term of the Employment Agreement and shall be forgiven in its
entirety if Mr. Serota is terminated by the
51
<PAGE> 55
Company without cause, if Mr. Serota terminates his employment for good reason
(as defined therein), death or disability, or upon the consummation of an
initial public offering of securities of the Company or Holdings.
On January 27, 1998, in satisfaction of Holdings' and the Company's
obligations under the terms of the Employment Agreement, GEI transferred to Mr.
Serota 2% of the fully-diluted equity of Holdings and, in addition, Mr. Serota
purchased from GEI an additional 2% of the fully-diluted equity of Holdings for
the price and on the terms and conditions such equity was purchased by GEI. The
Company loaned to Mr. Serota 50% of the purchase price of such shares pursuant
to a Secured Recourse Promissory Note dated January 27, 1998. Such loan bears
interest at a rate equal to the applicable federal rate for loans of the same
maturity as of the date of the loan. The outstanding principal amount of the
loan, together with all interest accrued thereon, will be due and payable in
full upon the earlier of (i) a change in control (as defined in the Employment
Agreement) or (ii) January 1, 2001. The Employment Agreement provides certain
"call" rights to Holdings, which are generally exercisable upon Mr. Serota's
termination of employment with the Company.
Subsequent to the purchase of such shares by Mr. Serota and the Management
Investors (as defined), GEI owned approximately 90% of Holdings Common Stock.
Holdings, in turn, owns 100% of the outstanding common stock of Liberty Group
Operating. See "Management--Directors and Executive Officers," "--Compensation
of Directors" and "Principal Stockholders."
MANAGEMENT SHARES
On January 27, 1998, GEI transferred an aggregate of 3,200 shares of
Holdings Common Stock ("Management Shares") to the Chief Executive Officer of
the Company, Mr. Serota, pursuant to a management stockholders agreement (the
"Management Stockholders Agreement"). The Management Stockholders Agreement
contains a "call" option exercisable by Holdings upon termination of Mr.
Serota's employment with Holdings or Liberty Group Operating, a right of first
refusal in favor of Mr. Serota, certain "piggyback" registration rights,
"tag-along" sale rights and "drag-along" sale obligations consistent with the
terms of the Employment Agreement. In addition, Holdings or GEI may sell shares
of Holdings Common Stock to other current or prospective officers and employees
of Liberty Group Operating (together with the Senior Management Investors, the
"Management Investors"). As of the date hereof, a total of 4,800 Management
Shares have been transferred to employees other than Mr. Serota at a price of
$100 per share, for total consideration of $480,000.
Shares of Holdings Common Stock were sold to Management Investors pursuant
to Management Subscription and Stockholders Agreements among Holdings, GEI and
the respective Management Investor (each such agreement, a "Management Share
Agreement"). Pursuant to the Management Share Agreements, transfers of the
Management Shares (other than transfers to certain related transferees) are
subject to various restrictions, including a right of first refusal in favor of
Holdings. Each Management Share Agreement also contains a "call" option
exercisable by Holdings upon termination of the Management Investor's employment
with Holdings, Liberty Group Operating and their subsidiaries. The Management
Share Agreements also contain certain "piggyback" registration rights,
"tag-along" sale rights and "drag-along" sale obligations. These rights and
obligations lapse upon the occurrence of certain events. Each Management Share
Agreement contains a noncompetition provision which prohibits a Management
Investor from competing, directly or indirectly, with the Company's publications
located within certain designated communities for a period of three years from
the termination date of such Management Investor's employment with the Company
or its subsidiaries.
COMPENSATION OF DIRECTORS
Individuals who are officers of Liberty Group Operating and Holdings, as
well as Messrs. Green, Annick, Danhakl and Nolan, do not receive any
compensation directly for their service on Holdings' and Liberty Group
Operating's Boards of Directors. Liberty Group Operating has agreed, however, to
pay LGP certain fees for various management, consulting and financial planning
services, including assistance in strategic planning, providing market and
financial analyses, negotiating and structuring financing and exploring
expansion opportunities. See "Certain Relationships and Related Transactions."
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<PAGE> 56
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Upon the consummation of the Acquisition, LGP received a fee of $6.8
million for its services in arranging and structuring the Transactions. LGP is
an affiliate of GEI, an investment partnership which owns approximately 90% of
Holdings Common Stock and all outstanding shares of Holdings Junior Preferred
Stock. Holdings, in turn, owns 100% of the outstanding common stock of Liberty
Group Operating.
In connection with the Acquisition, Liberty Group Operating entered into a
Management Agreement with LGP pursuant to which Liberty Group Operating agreed
to pay LGP an annual management fee of $1.0 million. Such fee is payable in
equal monthly installments, but is subordinated in right of payment to the New
Debentures and the New Senior Subordinated Notes. See "Principal Stockholders,"
"Management--Directors and Executive Officers" and "--Compensation of
Directors."
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<PAGE> 57
THE ACQUISITION
GENERAL
On January 27, 1998, the Acquisition was consummated pursuant to an Asset
Purchase Agreement, dated as of November 21, 1997, by and among Holdings,
Liberty Group Operating, GEI, Hollinger and certain of Hollinger's subsidiaries
and an Asset Purchase Agreement, dated as of November 21, 1997, by and among
Holdings, Liberty Group Operating, GEI, Hollinger and certain of Hollinger's
subsidiaries, and American Publishing Company of Illinois, a wholly-owned
subsidiary of Hollinger (collectively, the "Asset Purchase Agreements"). The
Asset Purchase Agreements provided for Liberty Group Operating to acquire (in
the manner described below) all of the assets that were used primarily in the
business of publishing, marketing and distributing the Local Publications. In
consideration of the transfer of such assets, the Company paid Hollinger
(including its affiliates) the contractual purchase price of $309.1 million,
plus interest of $1.1 million, calculated pursuant to the Asset Purchase
Agreements, and received from Hollinger a cash adjustment of $3.0 million, which
resulted in a net Purchase Price of $307.2 million. In addition, the Company
assumed certain specified liabilities of the Local Publications. Pursuant to the
Asset Purchase Agreements, on April 2, 1998, the Company paid Hollinger
approximately $3.6 million as a working capital adjustment and received from
Hollinger an additional cash adjustment of approximately $0.2 million.
The liabilities of the Local Publications assumed (collectively, the
"Assumed Liabilities") include: (i) liabilities reflected on the balance sheet
included in the financial statements dated as of September 30, 1997, (ii) other
liabilities incurred by the Local Publications since September 30, 1997 not in
breach of the Asset Purchase Agreements and in the ordinary course of business
that were of the type that would be reflected in a balance sheet prepared in
conformity with generally accepted accounting principles and consistent with the
financial statements referred to above, and (iii) certain other limited types of
liabilities specified in the Asset Purchase Agreements. Except for the Assumed
Liabilities, Hollinger and its affiliates retained all liabilities relating to
the operation of the Local Publications prior to the Closing Date, including,
among other things, liabilities relating to litigation, governmental claims and
environmental claims relating to the pre-closing operation of the Local
Publications (collectively, the "Retained Liabilities"). See "--Indemnification
Provisions."
The Acquisition, including the payment of related fees and expenses, was
financed from: (i) proceeds of $180.0 million from the issuance and sale of the
Old Senior Subordinated Notes; (ii) proceeds of $50.5 million from the issuance
and sale of the Old Debentures; (iii) proceeds of $45.0 million from the
issuance and sale of the Old Senior Preferred Stock; (iv) proceeds of $49.0
million from the issuance and sale of Holdings Junior Preferred Stock; and (v)
proceeds of $8.0 million from the issuance and sale of shares of Holdings Common
Stock. See "Description of Other Indebtedness" and "Description of Holdings'
Capital Stock." Management of the Company believes that the financing used for
the Acquisition provides the Company with the least expensive and most flexible
form of financing available to successfully implement the Company's operating
and acquisition strategies.
INDEMNIFICATION PROVISIONS
The Asset Purchase Agreements contain provisions customary for transactions
of similar size and type, including representations and warranties and certain
covenants, which generally will expire at the end of the eighteenth month
following the consummation of the Acquisition.
In addition, pursuant to the terms of the Asset Purchase Agreements,
Hollinger agreed to indemnify and reimburse the Company for all losses arising
from breaches of certain covenants and agreements of Hollinger in the Asset
Purchase Agreements, all Retained Liabilities, including environmental claims
arising from the pre-closing operation of the Local Publications, and certain
other matters as specified in the Asset Purchase Agreements. In turn, the
Company agreed to indemnify and reimburse Hollinger for all losses arising from
breaches of covenants and agreements of Liberty Group Operating and Holdings in
the Asset Purchase Agreements, liabilities and obligations of Liberty Group
Operating or Holdings relating to or arising out of the conduct of the business
or the use of the assets following the Acquisition or the Assumed Liabilities.
As to
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<PAGE> 58
such indemnification obligations of Hollinger and Liberty Group Operating, there
are no time limitations or deductibles.
OTHER AGREEMENTS RELATED TO THE ACQUISITION
Non-Competition Agreement. On January 27, 1998, the Company and Hollinger
entered into the Non-Competition Agreement, whereby Hollinger agreed not to
compete, directly or indirectly, with the Company's acquired publications. The
Non-Competition Agreement is for a term of five years from the Closing Date and
its scope includes all postal zip codes in which any publication owned by the
Company as of the Closing Date is distributed. Of the total Purchase Price of
the Acquisition, approximately $30.9 million represented consideration in
connection with the Non-Competition Agreement.
Transitional Services Agreement. On January 27, 1998, the Company and APMS
entered into the Transitional Services Agreement which requires APMS to, at the
Company's option, provide certain services to the Company in order to facilitate
the transition of the Company to a stand-alone operation. Such services include,
among others: (i) accounting and finance-related information systems and
administrative processing support, (ii) employee benefits and insurance
coverage, administrative and information processing support, and (iii) treasury
and advertising services. APMS will provide such services to the Company at cost
for a period of up to three years after the Closing Date.
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<PAGE> 59
PRINCIPAL STOCKHOLDERS
The information in the following table sets forth the ownership of Holdings
Common Stock by (i) each person who beneficially owns more than 5% of the
outstanding shares of Holdings Common Stock, (ii) each executive officer of
Holdings, (iii) each director of the Company, and (iv) all directors and
executive officers of Holdings as a group. Except as noted below, each person or
entity has sole voting and investment power with respect to the shares shown.
<TABLE>
<CAPTION>
NUMBER OF
SHARES PERCENT
--------- -------
<S> <C> <C>
Green Equity Investors II, L.P.(1).......................... 72,000 90.0%
Leonard I. Green(1)(2)...................................... 72,000 90.0
Gregory J. Annick(1)(2)..................................... 72,000 90.0
John G. Danhakl(1)(2)....................................... 72,000 90.0
Peter J. Nolan(1)(2)........................................ 72,000 90.0
Kenneth L. Serota........................................... 3,200 4.0
Kenneth W. Cope............................................. 800 1.0
George R. Sample............................................ 0 0.0
Kevin B. O'Shea............................................. 800 1.0
Scott T. Champion........................................... 800 1.0
Gene A. Hall................................................ 800 1.0
Joseph C. Piccirillo........................................ 800 1.0
All directors and executive officers as a group (11
persons)(3)............................................... 79,200 99.0
</TABLE>
- ---------------
(1) The address of Green Equity Investors II, L.P. and Messrs. Green, Annick,
Danhakl and Nolan is 11111 Santa Monica Boulevard, Suite 2000, Los Angeles,
California 90025.
(2) The shares shown as beneficially owned by Messrs. Green, Annick, Danhakl and
Nolan represent 72,000 shares owned of record by GEI. GEI is a Delaware
limited partnership managed by LGP, which is an affiliate of the general
partner of GEI. Each of Leonard I. Green, Jonathan D. Sokoloff, John G.
Danhakl, Gregory J. Annick, Peter J. Nolan and Jennifer Holden Dunbar,
either directly (whether through ownership interest or position) or through
one or more intermediaries, may be deemed to control LGP and such general
partner. LGP and such general partner may be deemed to control the voting
and disposition of the shares of Holdings Common Stock owned by GEI. As
such, Messrs. Green, Annick, Danhakl and Nolan may be deemed to have shared
voting and investment power with respect to all shares held by GEI. However,
such individuals disclaim beneficial ownership of the securities held by
GEI, except to the extent of their respective pecuniary interests therein.
(3) Includes the shares referred to in Note 2 above.
REGISTRATION AND OTHER CONTRACTUAL RIGHTS OF CERTAIN STOCKHOLDERS OF HOLDINGS
The Management Investors will be granted certain registration rights and
"tag-along" rights and will be subject to certain "drag-along" obligations. See
"Management--Management Shares."
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<PAGE> 60
DESCRIPTION OF NEW SENIOR PREFERRED STOCK
The following is a summary of the material provisions of the Certificate of
Designations relating to the Holdings Senior Preferred Stock, a copy of which is
filed as an exhibit to the Registration Statement of which this Prospectus is a
part. The definitions of certain capitalized terms used in the following summary
are set forth under "--Certain Definitions" below and "Description of New
Debentures--Certain Definitions." Other capitalized terms used herein and not
otherwise defined in this section shall have the meanings assigned to them in
the Certificate of Designations. See "Book-Entry; Delivery and Form" for
additional information regarding the New Senior Preferred Stock.
GENERAL
The Old Senior Preferred Stock was, and the New Senior Preferred Stock will
be, issued pursuant to the terms of the Certificate of Designations (the
"Certificate of Designations").
Holdings is authorized to issue 21,175,000 shares of preferred stock. As of
the date of this Prospectus, there are 1,800,000 shares of Old Senior Preferred
Stock and 49,000 shares of Holdings Junior Preferred Stock outstanding. The
Certificate of Incorporation of Holdings authorizes the Board of Directors,
without stockholder approval, to issue shares of preferred stock in addition to
the New Senior Preferred Stock from time to time in one or more series, with
such designations, preferences and relative participating, optional or other
special rights, qualifications, limitations or restrictions as determined by the
Board of Directors. As of the date hereof, all shares of authorized preferred
stock have been designated Holdings Senior Preferred Stock or Holdings Junior
Preferred Stock pursuant to the Certificate of Designations. The Board of
Directors of Holdings adopted resolutions creating a maximum of 21,000,000
shares of Holdings Senior Preferred Stock and Holdings filed the Certificate of
Designations with respect thereto with the Secretary of State of the State of
Delaware as required by Delaware law. Of the 21,000,000 shares of Holdings
Senior Preferred Stock, 1,800,000 shares were issued in the Offering and
1,800,000 shares are contemplated to be issued in the Exchange Offer. Subject to
certain conditions, the Holdings Senior Preferred Stock is exchangeable for
Exchange Debentures, in whole but not in part, at the option of Holdings on any
Dividend Payment Date. The New Senior Preferred Stock will be fully paid and
nonassessable, and the holders thereof (the "Holders") will not have any
subscription or preemptive rights with respect to securities of Holdings. For
purposes of this section and "Description of Exchange Debentures," the term
"Holders" shall mean the holders of either series of Holdings Senior Preferred
Stock.
RANKING
With respect to dividend distributions and distributions upon the
liquidation, winding up or dissolution of Holdings, the Holdings Senior
Preferred Stock will rank: (i) senior to all classes of Holdings Common Stock
and Holdings Junior Preferred Stock and each other class of capital stock or
series of preferred stock created hereafter (the "Junior Securities"), which
terms do not expressly provide that it ranks senior to the Holdings Senior
Preferred Stock; (ii) on a parity to each other class of capital stock or series
of preferred stock created after the Offer Date (the "Parity Securities"), which
terms expressly provide that it ranks on a parity to the Holdings Senior
Preferred Stock; and (iii) junior to each class of capital stock or series of
preferred stock created after the date hereof which terms have been approved by
the Holders of the Holdings Senior Preferred Stock and which expressly provide
that it ranks senior to the Holdings Senior Preferred Stock (the "Senior
Securities").
DIVIDENDS
Holders of Holdings Senior Preferred Stock will be entitled to receive,
when, as and if declared by the Board of Directors, out of funds legally
available therefor, distributions in the form of cash dividends on each share of
Holdings Senior Preferred Stock, at a rate per annum equal to 14 3/4% of the
liquidation preference per share of the Holdings Senior Preferred Stock, payable
quarterly. All dividends shall be cumulative, whether or not earned or declared,
on a daily basis from the Preferred Stock Issue Date and shall be payable
quarterly in arrears on each Dividend Payment Date, commencing on May 1, 1998;
provided that if any dividend payable
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on any Dividend Payment Date is not declared and paid in full in cash on such
Dividend Payment Date, the amount payable as dividends on such Dividend Payment
Date that is not paid in cash on such Dividend Payment Date shall be paid by
Holdings in additional fully paid and non-assessable shares (including
fractional shares, if applicable) of Holdings Senior Preferred Stock having an
aggregate liquidation preference equal to the amount of such dividends (rounded
to the nearest whole cent), it being understood that dividends shall begin to
accrue from such Dividend Payment Date on such additional shares of Holdings
Senior Preferred Stock whether such additional shares of Holdings Senior
Preferred Stock are issued on such date or any later date or are never issued.
The payment by Holdings in such additional shares of Holdings Senior Preferred
Stock shall constitute full payment of such dividend. Each distribution in the
form of a dividend (whether in cash or in additional shares of Holdings Senior
Preferred Stock) shall be payable to the Holders of Holdings Senior Preferred
Stock of record as they appear on the stock books of Holdings on such record
dates, not less than 10 nor more than 45 days preceding the related Dividend
Payment Date, as shall be fixed by the Board of Directors. Dividends shall cease
to accumulate in respect of shares of the Holdings Senior Preferred Stock on the
Exchange Date or on the date of their earlier redemption unless Holdings shall
have failed to issue the appropriate aggregate principal amount of Exchange
Debentures in respect of the Holdings Senior Preferred Stock on the Exchange
Date or shall have failed to pay the relevant redemption price on the date fixed
for redemption.
Dividends on account of arrears for any past Dividend Period and dividends
in connection with any optional redemption may be declared and paid at any time,
without reference to any regular Dividend Payment Date, to Holders of Holdings
Senior Preferred Stock of record on such date, not more than 45 days prior to
the payment thereof, as may be fixed by the Board of Directors.
No full dividends shall be declared by the Board of Directors or paid or
funds set apart for payment of dividends by Holdings on any Parity Securities
for any period unless full cumulative dividends shall have been or
contemporaneously are declared and paid in full, or declared and (in the case of
dividends payable in cash) a sum in cash set apart sufficient for such payment,
on the Holdings Senior Preferred Stock for all Dividend Periods terminating on
or prior to the date of payment of such full dividends on such Parity
Securities. If any dividends are not paid in full, as aforesaid, upon the shares
of the Holdings Senior Preferred Stock and any other Parity Securities, all
dividends declared upon shares of the Holdings Senior Preferred Stock and any
other Parity Securities shall be declared pro rata based on the relative
liquidation preference of the Holdings Senior Preferred Stock and such Parity
Securities. So long as any shares of the Holdings Senior Preferred Stock are
outstanding, Holdings shall not make any payment on account of, or set apart for
payment money for a sinking or other similar fund for, the purchase, redemption
or other retirement of, any of the Parity Securities or any warrants, rights,
calls or options exercisable for or convertible into any of the Parity
Securities, and shall not permit any corporation or other entity directly or
indirectly controlled by Holdings to purchase or redeem any of the Parity
Securities or any such warrants, rights, calls or options unless full dividends
on the Holdings Senior Preferred Stock shall have been paid or contemporaneously
are declared and paid in full.
So long as any shares of Holdings Senior Preferred Stock are outstanding,
and except for Restricted Payments permitted by the terms of the Certificate of
Designations, Holdings shall not (1) declare, pay or set apart for payment any
dividend on any of the Junior Securities or make any payment on account of, or
set apart for payment money for a sinking or other similar fund for, the
purchase, redemption or other retirement of, any of the Junior Securities or any
warrants, rights, calls or options exercisable for or convertible into any of
the Junior Securities (other than the repurchase, redemption or other
acquisition or retirement for value of Junior Securities (and any warrants,
rights, calls or options exercisable for or convertible into such Junior
Securities) held by certain employees of or consultants or advisors to Holdings
or any of its Subsidiaries, which repurchase, redemption or other acquisition or
retirement shall have been approved by a majority of the Board of Directors,
provided that such Junior Securities may only be repurchased, redeemed or
otherwise acquired or retired either in exchange for Junior Securities or upon
the termination, retirement, death or disability of such employee, consultant or
advisor), or (2) make any distribution in respect thereof, either directly or
indirectly, and whether in cash, obligations or shares of Holdings or other
property (other than distributions or dividends in Junior Securities to the
holders of Junior Securities), or (3) permit any
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<PAGE> 62
corporation or other entity directly or indirectly controlled by Holdings to
purchase or redeem any of the Junior Securities or any such warrants, rights,
calls or options, unless in any such case full cumulative dividends have been
paid in full in cash on the Holdings Senior Preferred Stock (such payment to
include the redemption of all shares of Holdings Senior Preferred Stock
previously issued as payment for dividends) and all other redemption or
repayment obligations in respect of the Holdings Senior Preferred Stock have
been paid in full in cash. See "--Limitation on Restricted Payments."
Dividends payable on shares of the Holdings Senior Preferred Stock for any
period less than a year shall be computed on the basis of a 360-day year of
twelve 30-day months and the actual number of days elapsed in the period for
which payable. If any Dividend Payment Date occurs on a day that is not a
Business Day, any accrued dividends otherwise payable on such Dividend Payment
Date shall be paid on the next succeeding Business Day.
OPTIONAL REDEMPTION
Holdings may (subject to contractual and other restrictions with respect
thereto and to the legal availability of funds therefor), at the option of
Holdings, redeem at any time or from time to time on or after February 1, 1999,
from any source of funds legally available therefor, in whole or in part, any or
all of the shares of the Holdings Senior Preferred Stock, at a redemption price
equal to the following percentages of the liquidation preference per share plus,
without duplication, an amount in cash equal to all accumulated and unpaid
dividends per share (including an amount in cash equal to a prorated dividend
for the period from the Dividend Payment Date immediately prior to the
Redemption Date to the Redemption Date) (the "Optional Redemption Price"), in
each case beginning on February 1 of the year indicated:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ---- ----------
<S> <C>
1999............................................. 105%
2000............................................. 104%
2001............................................. 103%
2002............................................. 102%
2003............................................. 101%
2004 and thereafter.............................. 100%
</TABLE>
In the event of partial redemptions of the Holdings Senior Preferred Stock,
Holdings shall effect such redemption as it determines, pro rata, according to
the number of shares held by each Holder of Holdings Senior Preferred Stock or
by lot, as may be determined by Holdings in its sole discretion. No optional
redemption may be authorized or made at any time when Holdings is making or
required to make within the next 30 days, or purchasing shares of Holdings
Senior Preferred Stock under, a Change of Control Offer. No partial redemptions
of Holdings Senior Preferred Stock may be authorized or made at any time when
full cumulative dividends on the Holdings Senior Preferred Stock for all past
Dividend Periods have not been declared and paid in full.
MANDATORY REDEMPTION
The Holdings Senior Preferred Stock will also be subject to mandatory
redemption (subject to contractual and other restrictions with respect thereto
and to the legally availability of funds therefor) in whole on February 1, 2010
at a price equal to 100% of the liquidation preference per share, plus, without
duplication, an amount in cash equal to all accumulated and unpaid dividends per
share (including an amount equal to a prorated dividend for the period from the
Dividend Payment Date immediately prior to the Redemption Date to the Redemption
Date) (the "Mandatory Redemption Price").
PROCEDURE FOR REDEMPTION
At least 15 days and not more than 60 days prior to the date fixed for any
redemption of the Holdings Senior Preferred Stock, written notice (the
"Redemption Notice") shall be given by first-class mail, postage prepaid, to
each Holder of Holdings Senior Preferred Stock of record on the record date
fixed for such
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<PAGE> 63
redemption of the Holdings Senior Preferred Stock at such Holder's address as
the same appears on the stock register of Holdings, provided that no failure to
give such notice nor any deficiency therein shall affect the validity of the
procedure for the redemption of any shares of Holdings Senior Preferred Stock to
be redeemed except as to the Holder or Holders to whom Holdings has failed to
give said notice or except as to the Holder or Holders whose notice was
defective. The Redemption Notice shall state: (1) whether the redemption is an
optional redemption or a mandatory redemption; (2) the Optional Redemption Price
or the Mandatory Redemption Price, as the case may be; (3) whether all or less
than all the outstanding shares of the Holdings Senior Preferred Stock are to be
redeemed and the total number of shares of the Holdings Senior Preferred Stock
being redeemed; (4) the number of shares of Holdings Senior Preferred Stock
held, as of the appropriate record date, by the Holder that Holdings intends to
redeem; (5) the date fixed for redemption; (6) that the Holder is to surrender
to Holdings, at the place or places where certificates for shares of Holdings
Senior Preferred Stock are to be surrendered for redemption, in the manner and
at the price designated, his certificate or certificates representing the shares
of Holdings Senior Preferred Stock to be redeemed; and (7) that dividends on the
shares of the Holdings Senior Preferred Stock to be redeemed shall cease to
accrue on such Redemption Date unless Holdings defaults in the payment of the
Optional Redemption Price or the Mandatory Redemption Price, as the case may be.
Holders of Holdings Senior Preferred Stock must surrender the certificate
or certificates representing shares of Holdings Senior Preferred Stock held by
the Holder to Holdings, duly endorsed, in the manner and at the place designated
in the Redemption Notice, and on the Redemption Date, the full Optional
Redemption Price or Mandatory Redemption Price, as the case may be, for such
shares shall be payable in cash to the Person whose name appears on such
certificate or certificates as the owner thereof, and each surrendered
certificate shall be canceled and retired. In the event that less than all of
the shares represented by any such certificate are redeemed, a new certificate
shall be issued representing the unredeemed shares.
Unless Holdings defaults in the payment in full of the applicable
redemption price, dividends on the Holdings Senior Preferred Stock called for
redemption shall cease to accumulate on the Redemption Date, and the Holders of
such redemption shares shall cease to have any further rights with respect
thereto on the Redemption Date, other than the right to receive the Optional
Redemption Price or the Mandatory Redemption Price, as the case may be, without
interest.
CHANGE OF CONTROL
Subject to contractual and other restrictions with respect thereto, upon
the occurrence of a Change of Control, Holdings shall make an offer (a "Change
of Control Offer") to each Holder of Holdings Senior Preferred Stock to
repurchase any or all of such Holder's shares of Holdings Senior Preferred Stock
at a purchase price in cash equal to 100.0% of the aggregate liquidation
preference thereof plus accumulated and unpaid dividends thereon, if any, to the
date of repurchase (the "Change of Control Payment").
Within 30 days following any Change of Control, Holdings shall mail a
notice to each Holder of Holdings Senior Preferred Stock stating: (i) that the
Change of Control Offer is being made pursuant to the Certificate of
Designations and that all shares of Holdings Senior Preferred Stock tendered
will be accepted for payment; (ii) the purchase price and the purchase date,
which shall be no sooner than 30 nor later than 60 days from the date such
notice is mailed (the "Change of Control Payment Date"); (iii) that any shares
not tendered will continue to accumulate dividends; (iv) that, unless Holdings
defaults in the payment of the Change of Control Payment, all shares of Holdings
Senior Preferred Stock accepted for payment pursuant to the Change of Control
Offer shall cease to accumulate dividends after the Change of Control Payment
Date; (v) that Holders electing to have any shares of Holdings Senior Preferred
Stock repurchased pursuant to a Change of Control Offer will be required to
surrender such shares, with the form entitled "Option of Holder to Elect
Purchase" on the reverse of the shares of Holdings Senior Preferred Stock,
completed, or transferred by book-entry transfer, to Holdings or its transfer
agent at the address specified in the notice prior to the close of business on
the third Business Day preceding the Change of Control Payment Date; (vi) that
Holders will be entitled to withdraw their election if Holdings or the transfer
agent, as the case may be, receives, not later than the close of business on the
third Business Day preceding the Change of Control Payment Date, a telegram,
telex, facsimile transmission or letter setting forth the name of the Holder,
the number of shares of Holdings
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Senior Preferred Stock delivered for repurchase, and a statement that such
Holder is withdrawing his election to have such shares repurchased; and (vii)
that Holders whose shares of Holdings Senior Preferred Stock are being
repurchased only in part will be issued new shares of Holdings Senior Preferred
Stock equal in liquidation preference to the unpurchased portion of the shares
of Holdings Senior Preferred Stock surrendered (or transferred by book-entry
transfer), which unpurchased portion must be equal to $25 in liquidation
preference or an integral multiple thereof.
On the Change of Control Payment Date, Holdings shall, to the extent
lawful, (i) accept for payment all shares of Holdings Senior Preferred Stock or
portions thereof properly tendered pursuant to the Change of Control Offer,
(ii) deposit with its transfer agent an amount equal to the Change of Control
Payment in respect of all shares of Holdings Senior Preferred Stock or portions
thereof so tendered, and (iii) deliver or cause to be delivered to the transfer
agent the shares of Holdings Senior Preferred Stock so accepted together with an
Officers' Certificate stating the aggregate liquidation preference of such
Holdings Senior Preferred Stock or portions thereof being repurchased by
Holdings. Holdings or its transfer agent, as the case may be, shall promptly
mail to each Holder of shares of Holdings Senior Preferred Stock so tendered the
Change of Control Payment for such shares or portions thereof. Holdings shall
promptly issue a certificate representing shares of Holdings Senior Preferred
Stock and mail (or cause to be transferred by book entry) to each Holder a new
certificate representing shares of Holdings Senior Preferred Stock equal in
liquidation preference to any unpurchased portion of such shares surrendered by
such Holder, if any; provided, that each such certificate shall have a
liquidation preference of $25 or an integral multiple thereof. Holdings shall
publicly announce the results of the Change of Control Offer on or as soon as
practicable after the Change of Control Payment Date.
Holdings shall comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of shares of Holdings Senior Preferred Stock in connection with a
Change of Control.
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding up of
the affairs of Holdings, the Holders of shares of Holdings Senior Preferred
Stock then outstanding will be entitled to be paid, out of the assets of
Holdings available for distribution to its stockholders, $25 per share of
Holdings Senior Preferred Stock plus an amount in cash equal to accumulated and
unpaid dividends thereon to the date fixed for liquidation, dissolution or
winding up (including an amount equal to a prorated dividend for the period from
the last Dividend Payment Date to the date fixed for liquidation, dissolution or
winding up) before any payment shall be made or any assets distributed to the
holders of any of the Junior Securities, including, without limitation, shares
of common stock of Holdings. Except as provided in the preceding sentence,
Holders of shares of Holdings Senior Preferred Stock shall not be entitled to
any distribution in the event of liquidation, dissolution or winding up of the
affairs of Holdings. If the assets of Holdings are not sufficient to pay in full
the liquidation payments payable to the holders of outstanding shares of the
Holdings Senior Preferred Stock and all Parity Securities, then the holders of
all such shares shall share equally and ratably in such distribution of assets
of Holdings in accordance with the amounts which would be payable on such
distribution if the amount to which the Holders of outstanding shares of
Holdings Senior Preferred Stock and the holders of outstanding shares of all
Parity Securities are entitled were paid in full.
Neither the sale, conveyance, exchange or transfer (for cash, shares of
stock, securities or other consideration) of all or substantially all of the
property or assets of Holdings nor the consolidation or merger of Holdings with
or into one or more corporations or other entities shall be deemed to be a
liquidation, dissolution or winding up of the affairs of Holdings (unless such
sale, conveyance, exchange or transfer is in connection with a liquidation,
dissolution or winding up of the business of Holdings).
VOTING RIGHTS
Holders of Holdings Senior Preferred Stock, except as otherwise required
under Delaware law, as set forth herein or in the Certificate of Designations,
shall have no voting rights with respect to general corporate matters.
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So long as any shares of the Holdings Senior Preferred Stock are
outstanding, Holdings shall not authorize any class of Parity Securities without
the affirmative vote or consent of Holders of at least a majority of the
outstanding shares of Holdings Senior Preferred Stock, voting or consenting, as
the case may be, separately as one class, given in person or by proxy, either in
writing or by resolution adopted at an annual or special meeting, except that
without the approval of Holders of Holdings Senior Preferred Stock, Holdings may
authorize and issue shares of Parity Securities in exchange for, or the proceeds
of which are used to redeem or repurchase, any or all shares of Holdings Senior
Preferred Stock then outstanding, provided that, in the case of Parity
Securities issued in exchange for, or the proceeds of which are used to redeem
or repurchase, less than all shares of Holdings Senior Preferred Stock then
outstanding, (i) the aggregate liquidation preference of such Parity Securities
shall not exceed the aggregate liquidation preference of, premium and accrued
and unpaid dividends on, and expenses in connection with the refinancing of, the
Holdings Senior Preferred Stock so exchanged, redeemed or repurchased, (ii) such
Parity Securities shall not be Disqualified Capital Stock, and (iii) Holdings
may pay dividends on such Parity Securities in the form of cash or such Parity
Securities.
So long as any shares of the Holdings Senior Preferred Stock are
outstanding, Holdings shall not authorize any class of new securities without
the affirmative vote or consent of Holders of at least a majority of the
outstanding shares of Holdings Senior Preferred Stock, voting or consenting, as
the case may be, separately as one class, given in person or by proxy, either in
writing or by resolution adopted at an annual or special meeting.
So long as any shares of the Holdings Senior Preferred Stock are
outstanding, Holdings shall not amend any rights provided to Holders of Holdings
Senior Preferred Stock pursuant to the Certificate of Designations so as to
affect adversely the specified rights, preferences, privileges or voting rights
of Holders of shares of Holdings Senior Preferred Stock or to authorize the
issuance of any additional shares of Holdings Senior Preferred Stock (other than
in payment of dividends on the Holdings Senior Preferred Stock) without the
affirmative vote or consent of Holders of at least a majority of the outstanding
shares of Holdings Senior Preferred Stock, voting or consenting, as the case may
be, separately as one class, given in person or by proxy, either in writing or
by resolution adopted at an annual or special meeting. The affirmative vote or
consent of Holders of at least a majority of the outstanding shares of Holdings
Senior Preferred Stock, voting or consenting, as the case may be, separately as
one class, whether voting in person or by proxy, either in writing or by
resolution adopted at an annual or special meeting, may waive compliance with
any provision of the Certificate of Designations applicable to the Holdings
Senior Preferred Stock.
Prior to the exchange of Holdings Senior Preferred Stock for Exchange
Debentures, Holdings shall not amend or modify the Exchange Indenture (except as
expressly provided therein in respect of amendments without the consent of
holders of Exchange Debentures) without the affirmative vote or consent of
Holders of at least a majority of the outstanding shares of Holdings Senior
Preferred Stock, voting or consenting, as the case may be, separately as one
class, given in person or by proxy, either in writing or by resolution adopted
at an annual or special meeting.
Except as provided herein, (i) the creation, authorization or issuance of
any shares of any Junior Securities, Parity Securities or Senior Securities, or
(ii) the increase or decrease in the amount of authorized capital stock of any
class, including Holdings Senior Preferred Stock, Holdings Junior Preferred
Stock or any other series of preferred stock, shall not require the consent of
Holders of Holdings Senior Preferred Stock and shall not be deemed to affect
adversely the rights, preferences, privileges or voting rights of Holders of
shares of Holdings Senior Preferred Stock.
In any case in which the Holders of shares of the Holdings Senior Preferred
Stock shall be entitled to vote pursuant to the provisions discussed above or
pursuant to Delaware law, each Holder of Holdings Senior Preferred Stock shall
be entitled to one vote for each share of Holdings Senior Preferred Stock held
and, except as otherwise required by Delaware law, in the event of such a vote,
the Holders of the Holdings Senior Preferred Stock shall vote together as a
single class.
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LIMITATION ON RESTRICTED PAYMENTS
Holdings will not, and will not permit any of its Subsidiaries to, directly
or indirectly make any Restricted Payment, unless, at the time of such
Restricted Payment: (a) no Default Event shall have occurred and be continuing
or would occur as a consequence thereof and (b) such Restricted Payment,
together with the aggregate of all other Restricted Payments made by Holdings
and its Subsidiaries after the Preferred Stock Issue Date, does not exceed the
sum (the "Basket") of (i) (y) Consolidated EBITDA of Holdings for the period
(taken as one accounting period), commencing on the first day of the first
fiscal quarter commencing on or prior to the Preferred Stock Issue Date, to and
including the last day of the fiscal quarter ended immediately prior to the date
of each such calculation (or, in the event Consolidated EBITDA for such period
is a deficit, then minus such deficit) less (z) 150% of Consolidated Fixed
Charges for such period, plus (ii) the aggregate Net Cash Proceeds received by
Holdings from the sale of Holdings's Qualified Capital Stock (other than in each
case (x) to a Subsidiary of Holdings, (y) to the extent applied in connection
with a Qualified Exchange and (z) to the extent applied to repurchase Capital
Stock pursuant to clause (b) of the definition of the Other Permitted Payments
after the Preferred Stock Issue Date). The following Restricted Payments are not
prohibited by the Certificate of Designations: (a) a Qualified Exchange; (b) the
payment of any dividend within 60 days after the date of declaration thereof, if
at said date of declaration such payment would have complied with the provisions
of the Certificate of Designations; and (c) Other Permitted Payments. The full
amount of any Restricted Payment made pursuant to clause (b) of the immediately
preceding sentence (but not pursuant to clauses (a) or (c) of the immediately
preceding sentence), however, will be deducted in the calculation of the
aggregate amount of Restricted Payments available to be made pursuant to the
Basket. The amount of any Restricted Payment, if other than in cash, shall be
the fair market value thereof, as determined in the good faith reasonable
judgment of the Board of Directors of Holdings.
REPORTS
So long as any shares of Holdings Senior Preferred Stock are outstanding,
Holdings shall furnish to each Holder of Holdings Senior Preferred Stock (at
such Holder's address listed in the register of Holders maintained by the
transfer agent and registrar of the Holdings Senior Preferred Stock): (i)
beginning at the end of Holdings' first fiscal year ending after the Preferred
Stock Issue Date, all quarterly and annual financial information that would be
required to be contained in a filing with the Commission on Forms 10-Q and 10-K
if Holdings were required to file such forms, including a "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and,
with respect to the annual information only, a report thereon by Holdings'
certified independent accountants, and (ii) all current reports that would be
required to be filed with the Commission on Form 8-K if Holdings were required
to file such reports.
SUBORDINATION
Any and all payments and distributions at any time declared or due on
account of the Holdings Senior Preferred Stock, including, without limitation,
dividend, redemption and change of control payments, ("Preferred Stock
Payments") shall be subordinated in right of payment to the payment in full in
cash or cash equivalents of all Senior Indebtedness whether outstanding on the
date hereof or hereafter created, incurred, assumed or guaranteed, and that such
subordination is for the benefit of the holders of such Senior Indebtedness. The
term "Senior Indebtedness" means (a) indebtedness of Holdings arising under the
Revolving Credit Facility and (b) the New Debentures. As of December 31, 1997,
on a pro forma basis after giving effect to the Transactions, Holdings would
have had $89.0 million long-term Senior Indebtedness outstanding.
Upon any distribution of assets of Holdings, winding up, total or partial
liquidation or reorganization of Holdings, whether voluntary or involuntary, the
holders of all Senior Indebtedness shall be entitled to receive payment on such
Senior Indebtedness in full in cash or cash equivalents before the Holders of
Holdings Senior Preferred Stock shall be entitled to receive any Preferred Stock
Payments. No payment (by set-off or otherwise) may be made by or on behalf of
Holdings with respect to Preferred Stock Payments for cash or property, (x) upon
the maturity of any Senior Indebtedness of Holdings by lapse of time,
acceleration or otherwise, unless and until all principal of, premium, if any,
and the interest on and fees in respect of such
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Senior Indebtedness are paid in full in cash or cash equivalents, (y) when such
payment is prohibited by the indenture or credit agreement relating to the
Senior Indebtedness and (z) in the event of default in the payment of any
principal of, premium, if any, or interest on and fees in respect of Senior
Indebtedness of Holdings when it becomes due and payable, whether at maturity or
at a date fixed for prepayment or by declaration or otherwise (a "Payment
Default"), unless and until such Payment Default has been cured or waived or
otherwise has ceased to exist.
Notwithstanding the other provisions of the Certificate of Designations, in
the event that a Holder receives any Preferred Stock Payment at a time when such
Holder has actual knowledge that such payment or distribution is prohibited by
the Certificate of Designations, or any indenture or Credit Agreement relating
to any Senior Indebtedness, such Preferred Stock Payment shall be held by the
Holders in trust for the benefit of, and shall be paid forthwith over and
delivered, upon written request, to, the Holders of Senior Indebtedness
remaining unpaid or unprovided for, or to the trustee or trustees under the
indenture relating to the Senior Indebtedness, ratably according to aggregate
principal amounts remaining unpaid on account of such Senior Indebtedness held
or represented by such, for application to the payment of all obligations with
respect to Senior Indebtedness remaining unpaid, to the extent necessary to pay
or to provide for the payment of all such obligations in full in cash or cash
equivalents in accordance with their terms, after giving effect to any
concurrent payment or distribution to or for Holders of Senior Indebtedness.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Certificate of Designations for the Holdings Senior Preferred Stock. Reference
is made to the Certificate of Designations for the full definition of such
terms, as well as any other terms used herein for which no definition is
provided.
"Asset Sale" means, with respect to any specified person, the following:
(i) (A) the sale, lease, conveyance or other disposition by such person of any
assets (including, without limitation, by way of a sale and leaseback) or (B)
the issue or sale by such person or any of its Subsidiaries of Equity Interests
of any of such person's Subsidiaries, and (ii) which occurs in a single
transaction or a series of related transactions.
"Default Event" means any of the following events: (1) any time when
Holdings fails to make a mandatory redemption of the Holdings Senior Preferred
Stock when required (whether or not any contractual or other restrictions apply
to such redemption) or (2) any time when Holdings fails to make an offer to
repurchase all of the outstanding shares of Holdings Senior Preferred Stock
following a Change of Control, if such offer to repurchase is required to be
made pursuant to the provisions of the Certificate of Designation (whether or
not any contractual or other restrictions apply to such redemption).
"Dividend Payment Date" means February 1, May 1, August 1 and November 1 of
each year.
"Dividend Period" means the Initial Dividend Period and, thereafter, each
Quarterly Dividend Period.
"Exchange Date" means a date on which shares of Holdings Senior Preferred
Stock is exchanged by Holdings for Exchange Debentures.
"Exchange Indenture" means the indenture between Liberty Group Publishing,
Inc. and State Street Bank and Trust Company, as trustee, dated as of January
27, 1998, relating to the Exchange Debentures.
"Initial Dividend Period" means the dividend period commencing on the
Preferred Stock Issue Date and ending on the day before the first Dividend
Payment Date to occur thereafter.
"Other Permitted Payments" means, without duplication, (a) the payments
provided for by clauses (a), (d) and (e) of the definition of "Exempted
Affiliate Transaction"; (b) the repurchase of common stock, stock options and
stock equivalents of Holdings held by former directors, officers or employees of
Holdings or any of its Subsidiaries ("Management Stock Repurchases") in an
aggregate amount not to exceed in any fiscal year $1.0 million, plus the amount
of any net cash proceeds to Holdings from (I) sales of Capital Stock of Holdings
to management employees subsequent to the Preferred Stock Issue Date (provided
further that the amount of any such net cash proceeds to Holdings to the extent
used for Management Stock Repurchases will be excluded from the calculation of
the available Basket pursuant to paragraph (m)(i)); and (II) any
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key-person life insurance policies, in either case, to the extent utilized for
Management Stock Repurchases; provided, that any amount not so paid in any
fiscal year may be paid in future fiscal years; and (c) Restricted Payments in
an aggregate amount not to exceed $4.0 million.
"Permitted Affiliate Transaction" means any Exempt Affiliate Transaction
and any other contract, agreement, arrangement or transaction between Holdings
or any of its Subsidiaries with any Affiliate (an "Affiliate Transaction") or
any series of related Affiliate Transactions the terms of which are fair and
reasonable to Holdings or such Subsidiary, as the case may be, and are at least
as favorable as the terms which could reasonably be expected to be obtained by
Holdings or such Subsidiary, as the case may be, in a comparable transaction
made on an arm's-length basis with persons who are not Affiliates; provided that
in connection with any Affiliate Transaction or series of related Affiliate
Transactions (other than Exempted Affiliate Transactions) (1) involving
consideration to either party in excess of $1.5 million, Holdings must deliver
an Officer's Certificate to the Holders, stating that the terms of such
Affiliate Transaction are fair and reasonable to Holdings, and no less favorable
to Holdings than could reasonably be expected to have been obtained in an
arm's-length transaction with a non-Affiliate and (2) involving consideration to
either party in excess of $7.5 million, Holdings must also, prior to
consummation thereof, obtain a favorable written opinion as to the fairness of
such transaction to Holdings from a financial point of view from an independent
investment banking firm of national reputation or, if pertaining to a matter for
which such investment banking firms do not customarily render such opinions, an
appraisal or valuation firm of national reputation; provided further, that these
requirements shall not apply to the sale or purchase of products or services by
Holdings or its Subsidiaries to or from any Affiliate of LGP or any Related
Party thereof, which sale or purchase is in the ordinary course of business and
is in accordance with industry practice.
"Preferred Stock Issue Date" means the date on which the Holdings Senior
Preferred Stock is, or was, originally issued by Holdings.
"Quarterly Dividend Period" shall mean the quarterly period commencing on
each February 1, May 1, August 1 and November 1 and ending on the day before the
following Dividend Payment Date.
"Redemption Date" with respect to any shares of Holdings Senior Preferred
Stock, means the date on which such shares of Holdings Senior Preferred Stock
are redeemed by Holdings.
BOOK ENTRY; DELIVERY AND FORM OF NEW SENIOR PREFERRED STOCK
The New Senior Preferred Stock initially will be represented by a single
permanent global certificate in definitive, fully registered form (the "Global
Certificate"). The Global Certificate will be deposited on the effective date
with, or on behalf of, DTC and registered in the name of a nominee of DTC.
The Global Certificate. The Company expects that, pursuant to procedures
established by DTC, (i) upon the issuance of the Global Certificate, DTC or its
custodian will credit, on its internal system, the number of shares of New
Senior Preferred Stock of the individual beneficial interests represented by
such global securities to the respective accounts of persons who have accounts
with such depositary and (ii) ownership of beneficial interest in the Global
Certificate will be shown on, and the transfer of such ownership will be
effected only through, records maintained by DTC or its nominee (with respect to
interest of participants) and the records of participants (with respect to
interests of persons other than participants). Such accounts initially will be
designated by or on behalf of the Holder and ownership of beneficial interests
in the Global Certificate will be limited to persons who have accounts with DTC
("participants") or persons who hold interests through participants.
So long as DTC, or its nominee, is the registered owner or Holder of the
shares of New Senior Preferred Stock, DTC or such nominee, as the case may be,
will be considered the sole owner or Holder of the shares of New Senior
Preferred Stock represented by such Global Certificate for all purposes. No
beneficial owner of an interest in the Global Certificate will be able to
transfer that interest except in accordance with DTC's procedures.
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Payments of the liquidation preference or redemption price and dividends on
(including Additional Dividends) the Global Certificate will be made to DTC or
its nominee, as the case may be, as the registered owner thereof. Neither
Holdings nor the Transfer Agent will have any responsibility or liability for
any aspect of the records relating to or payments made on account of beneficial
ownership interests in the Global Certificate or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interest.
Holdings expects that DTC or its nominee, upon receipt of any payment of
the liquidation preference, redemption price or dividends in respect of the
Global Certificate, will credit participants' accounts with payments in amounts
proportionate to their respective beneficial interests in the principal amount
of the Global Certificate as shown on the records of DTC or its nominee.
Holdings also expects that payments by participants to owners of beneficial
interests in the Global Certificate held through such participants will be
governed by standing instructions and customary practice, as is now the case
with securities held by the accounts of customers registered in the names of
nominees for such customers. Such payments will be the responsibility of such
participants.
Transfers between participants in DTC will be effected in the ordinary way
in accordance with DTC rules and will be settled in clearinghouse funds. If a
holder requires physical delivery of a Certificated Security for any reason,
including to sell shares of New Senior Preferred Stock to persons in states that
require physical delivery of the Certificate, or to pledge such securities, such
holder must transfer its interest in the Global Certificate, in accordance with
the normal procedures of DTC and with the procedures set forth in the
Certificate of Designations.
DTC has advised the Company that it will take any action permitted to be
taken by a Holder of New Senior Preferred Stock (including the presentation of
shares of New Senior Preferred Stock for exchange as described below) only at
the direction of one or more participants to whose account the DTC interests in
the Global Certificates are credited and only in respect of such shares of New
Senior Preferred Stock as to which such participant or participants has or have
given such direction.
DTC has advised Holdings as follows: DTC is a limited purpose trust company
organized under the laws of the State of New York, a member of the Federal
Reserve System, a "clearing corporation" within the meaning of the Uniform
Commercial Code and a "Clearing Agency" registered pursuant to the provisions of
Section 17A of the Exchange Act. DTC was created to hold securities for its
participants and facilitate the clearance and settlement of securities
transactions between participants through electronic book-entry changes in
accounts of its participants, thereby eliminating the need for physical movement
of certificates. Participants include securities brokers and dealers, banks,
trust companies and clearing corporations and certain other organizations.
Indirect access to the DTC system is available to others such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a participant, either directly or indirectly ("indirect
participants").
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in the Global Certificate among participants of DTC, it
is under no obligation to perform such procedures, and such procedures may be
discontinued at any time. Neither Holdings nor the Transfer Agent will have any
obligations under the rules and procedures governing their operations.
Certificated Securities. If DTC is at any time unwilling or unable to
continue as a depositary for the Global Certificate and a successor depositary
is not appointed by Holdings within 90 days, Certificated Securities will be
issued in exchange for the Global Certificate.
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DESCRIPTION OF EXCHANGE DEBENTURES
Set forth below is a summary of the material provisions of the Exchange
Indenture dated as of January 27, 1998 between Holdings and State Street Bank
and Trust Company, as trustee (together with any successor trustee, the
"Trustee"), pursuant to which the Exchange Debentures will be issued, a copy of
which is filed as an exhibit to the Registration Statement of which this
Prospectus is a part. The definitions of certain capitalized terms used in the
following summary are set forth under "Description of New Debentures--Certain
Definitions." Capitalized terms used herein and not otherwise defined in this
section shall have the meanings assigned to them in the Exchange Indenture.
GENERAL
The Exchange Debentures will be general unsecured senior subordinated
obligations of Holdings and will be limited in aggregate principal amount to the
liquidation preference of the New Senior Preferred Stock, plus, without
duplication, accumulated and unpaid dividends, on the date or dates on which it
is exchanged for Exchange Debentures (plus any additional Exchange Debentures
issued in lieu of cash interest as described herein). The Exchange Debentures
will be subordinated to all existing and future Senior Indebtedness of Holdings.
The Exchange Debentures will be issued in fully registered form only,
without coupons, in denominations of $1,000 and integral multiples thereof
(other than as described in "Description of New Senior Preferred Stock" or with
respect to additional Exchange Debentures issued in lieu of cash interest as
described herein). No service charge will be made for any registration of
transfer or exchange of Exchange Debentures, but Holdings may require payment of
a sum sufficient to cover any tax or other governmental charge payable in
connection therewith. The Exchange Debentures will not have the benefit of any
sinking fund.
The Exchange Debentures will mature on February 1, 2010. Each Exchange
Debenture will bear interest at the rate of 14 3/4% per annum from the Exchange
Date or from the most recent interest payment date to which interest has been
paid or provided for or, if no interest has been paid or provided for, from the
Exchange Date. Interest will be payable semi-annually in cash or, at the option
of Holdings, in additional Exchange Debentures in arrears on each February 1 and
August 1 commencing with the first such date after the Exchange Date to the
person in whose name the Exchange Debenture is registered at the close of
business on the January 15 or July 15 next preceding such interest payment date.
Interest on the Exchange Debentures will be calculated on the basis of a 360-day
year consisting of twelve 30-day months.
Principal of, premium, if any, and interest on the Exchange Debentures will
be payable, and the Exchange Debentures may be presented for registration of
transfer or exchange, at the office of the Paying Agent and Registrar. At
Holdings' option, interest, to the extent paid in cash, may be paid by check
mailed to the registered address of holders of the Exchange Debentures as shown
on the register for the Exchange Debentures. The Trustee will initially act as
Paying Agent and Registrar. Holdings may change any Paying Agent and Registrar
without prior notice to holders of the Exchange Debentures. Holders of the
Exchange Debentures must surrender Exchange Debentures to the Paying Agent to
collect principal payments.
EXCHANGE
Holdings may, at its option, on any Dividend Payment Date (herein the
"Exchange Date"), exchange all, but not less than all, of the then outstanding
shares of New Senior Preferred Stock into Exchange Debentures if such exchange
is then permitted by the terms of the Revolving Credit Facility and the
Indenture. To exchange New Senior Preferred Stock into Exchange Debentures,
Holdings shall send a written notice (the "Exchange Notice") of exchange by mail
to each Holder of New Senior Preferred Stock, which notice shall state: (a) that
Holdings has elected to exchange the New Senior Preferred Stock into Exchange
Debentures; (b) the Exchange Date, which shall be the next succeeding Dividend
Payment Date and shall not be less than 20 days following the date on which the
Exchange Notice is mailed; (c) that the Holder is to surrender to Holdings, at
the place or places where certificates for shares of New Senior Preferred Stock
are to be surrendered for exchange, in the manner designated in the Exchange
Notice, his certificate or certificates
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representing the shares of New Senior Preferred Stock to be exchanged (properly
endorsed or assigned for transfer); (d) that dividends on the shares of New
Senior Preferred Stock to be exchanged shall cease to accrue, and the Holders of
such shares shall cease to have any further rights with respect to such shares
(other than the right to receive Exchange Debentures), on the Exchange Date,
whether or not certificates for shares of New Senior Preferred Stock are
surrendered for exchange on the Exchange Date, unless Holdings shall default in
the delivery of Exchange Debentures; and (e) that interest on the Exchange
Debentures shall accrue from the Exchange Date whether or not certificates for
shares of New Senior Preferred Stock are surrendered for exchange on the
Exchange Date. On the Exchange Date, if the exchange is then permitted under the
Revolving Credit Facility and the Indenture, Holdings shall issue Exchange
Debentures in exchange for the New Senior Preferred Stock, provided that on the
Exchange Date: (a) there shall be legally available funds sufficient therefor
(including, without limitation, legally available funds sufficient therefor
under Sections 160 and 170 (or any successor provisions) of the Delaware General
Corporation Law); (b) either (i) a registration statement relating to the
Exchange Debentures shall have been declared effective under the Securities Act
prior to such exchange and shall continue to be in effect on the Exchange Date
or (ii)(y) Holdings shall have obtained a written opinion of counsel that an
exemption from the registration requirements of the Securities Act is available
for such exchange and that upon receipt of such Exchange Debentures pursuant to
such exchange made in accordance with such exemption, the holders (assuming such
holder is not an Affiliate of Holdings) thereof will not be subject to any
restrictions imposed by the Securities Act upon the resale thereof and (z) such
exemption is relied upon by Holdings for such exchange; (c) the Exchange
Indenture and the trustee thereunder (the "Trustee") shall have been qualified
under the Trust Indenture Act of 1939, as amended, if such qualification is
required; (d) immediately after giving effect to such exchange, no Default or
Event of Default (each as defined in the Exchange Indenture) would exist under
the Exchange Indenture; and (e) Holdings shall have delivered to the Trustee a
written opinion of counsel, dated the date of exchange, regarding the
satisfaction of the conditions set forth in clauses (a), (b) and (c).
In the event that the issuance of the Exchange Debentures is not permitted
on the Exchange Date set forth in the Exchange Notice, or any of the conditions
set forth in clauses (a) through (d) of the preceding sentence are not satisfied
on the Exchange Date set forth in the Exchange Notice, the Exchange Date shall
be deemed to be the first business day thereafter, if any, upon which all of
such conditions are satisfied.
Each Holder of outstanding shares of New Senior Preferred Stock shall be
entitled to receive Exchange Debentures in a principal amount equal to the sum
of (i) the liquidation preference of such Holder's shares of New Senior
Preferred Stock and (ii) the amount of accumulated and unpaid dividends, if any,
thereon; provided that Holdings may pay cash in lieu of issuing an Exchange Note
in a principal amount of less than $1,000.
PROCEDURE FOR EXCHANGE
On or before the Exchange Date, each Holder of New Senior Preferred Stock
shall surrender the certificate or certificates representing such shares of New
Senior Preferred Stock, in the manner and at the place designated in the
Exchange Notice. Holdings shall cause the Exchange Debentures to be executed on
the Exchange Date and, upon surrender in accordance with the Exchange Notice of
the certificates for any shares of New Senior Preferred Stock so exchanged
(properly endorsed or assigned for transfer), such shares shall be exchanged by
Holdings into Exchange Debentures. Holdings shall pay interest on the Exchange
Debentures at the rate and on the dates specified therein from the Exchange
Date.
If notice has been mailed as aforesaid, and if before the Exchange Date
(i) the Exchange Indenture shall have been duly executed and delivered by
Holdings and the Trustee and (ii) all Exchange Debentures necessary for such
exchange shall have been duly executed by Holdings and delivered to the Trustee
with irrevocable instructions to authenticate the Exchange Debentures necessary
for such exchange, then the rights of the Holders of shares of the New Senior
Preferred Stock as stockholders of Holdings shall cease (except the right to
receive Exchange Debentures), and the Person or Persons entitled to receive the
Exchange Debentures issuable upon exchange shall be treated for all purposes as
the registered Holder or Holders of such Exchange Debentures as of the date of
exchange without any further action of the Holders of New Senior Preferred
Stock.
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SUBORDINATION
The Exchange Debentures will be general, unsecured obligations of Holdings,
subordinated in right of payment to all Senior Indebtedness of Holdings. The
Exchange Debentures will be effectively subordinated to all existing and future
Indebtedness and other liabilities and commitments of Holdings' Subsidiaries
(including, without limitation, to Liberty Group Operating's obligations under
the Senior Subordinated Note Indenture and the Revolving Credit Facility, trade
payables and lease obligations). On a pro forma basis, as of December 31, 1997,
after giving effect to the Transactions, Holdings would have had $89.0 million
long-term Senior Indebtedness outstanding and Holdings' Subsidiaries would have
had $180.0 million long-term Indebtedness outstanding.
The Exchange Indenture provides that no payment (by set-off or otherwise)
may be made by or on behalf of Holdings or a Subsidiary on account of the
principal of, premium, if any, or interest on the Exchange Debentures (including
any repurchases of Exchange Debentures), or on account of the redemption
provisions of the Exchange Debentures or any Obligation in respect of the
Exchange Debentures, for cash or property, (i) upon the maturity of any Senior
Indebtedness of Holdings or such Subsidiary, as applicable, by lapse of time,
acceleration (unless waived) or otherwise, unless and until all principal of,
premium, if any, and the interest on and fees in respect of such Senior
Indebtedness are paid in full in cash or Cash Equivalents, or (ii) in the event
of default in the payment of any principal of, premium, if any, or interest on
or fee in respect of Senior Indebtedness of Holdings or such Subsidiary, as
applicable, when it becomes due and payable, whether at maturity or at a date
fixed for prepayment or by declaration or otherwise (a "Payment Default"),
unless and until such Payment Default has been cured or waived or otherwise has
ceased to exist.
Upon (i) the happening of an event of default (other than a Payment
Default) that permits the holders of Senior Indebtedness to declare such Senior
Indebtedness to be due and payable and (ii) written notice of such event of
default is given to Holdings and the Trustee by the Senior Discount Debentures
trustees or the holders of an aggregate of at least $25.0 million principal
amount outstanding of any other Senior Indebtedness or their representative (a
"Payment Notice"), then, unless and until such event of default has been cured
or waived or otherwise has ceased to exist, no payment (by set-off or otherwise)
may be made by or on behalf of Holdings, if Holdings is an obligor on such
Senior Indebtedness, or any Subsidiary which is an obligor under such Senior
Indebtedness on account of the principal of, premium, if any, or interest on the
Exchange Debentures (including any repurchases of any of the Exchange
Debentures), or on account of the redemption provisions of the Exchange
Debentures or any obligation in respect of the Exchange Debentures, in any such
case. Notwithstanding the foregoing, unless the Senior Indebtedness in respect
of which such event of default exists has been declared due and payable in its
entirety within 179 days after the Payment Notice is delivered as set forth
above (the "Payment Blockage Period") (and such declaration has not been
rescinded or waived), at the end of the Payment Blockage Period, Holdings and
its Subsidiaries shall be required to pay all sums not paid to the Holders of
the Exchange Debentures during the Payment Blockage Period due to the foregoing
prohibitions and to resume all other payments as and when due on the Exchange
Debentures. Any number of Payment Notices may be given; provided, however, that
(i) not more than one Payment Notice shall be given within a period of any 360
consecutive days, and (ii) no default that existed upon the date of such Payment
Notice or the commencement of such Payment Blockage Period (whether or not such
event of default is on the same issue of Senior Indebtedness) shall be made the
basis for the commencement of any other Payment Blockage Period.
In the event that, notwithstanding the foregoing, any payment or
distribution of assets of Holdings or any Subsidiary shall be received by the
Trustee or the Holders at a time when such payment or distribution is prohibited
by the foregoing provisions, such payment or distribution shall be held in trust
for the benefit of the holders of such Senior Indebtedness and shall be paid or
delivered by the Trustee or such Holders, as the case may be, to the holders of
such Senior Indebtedness remaining unpaid or unprovided for or to their
representative or representatives, or to the trustee or trustees under any
indenture pursuant to which any instruments evidencing any of such Senior
Indebtedness may have been issued, ratably according to the aggregate principal
amounts remaining unpaid on account of such Senior Indebtedness held or
represented by each, for application to the payment of all such Senior
Indebtedness remaining unpaid, to the extent necessary
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to pay or to provide for the payment of all such Senior Indebtedness in full in
cash or Cash Equivalents after giving effect to any concurrent payment or
distribution to the holders of such Senior Indebtedness.
Upon any distribution of assets of Holdings upon any dissolution, winding
up, total or partial liquidation or reorganization of Holdings, whether
voluntary or involuntary, in bankruptcy, insolvency, receivership or a similar
proceeding or upon assignment for the benefit of creditors or any marshaling of
assets or liabilities, (i) the holders of all Senior Indebtedness of Holdings
will first be entitled to receive payment of such Senior Indebtedness in full in
cash or Cash Equivalents before the Holders are entitled to receive any payment
on account of the principal of, premium, if any, and interest on the Exchange
Debentures or any Obligation in respect of the Exchange Debentures (other than
Junior Securities) and (ii) any payment or distribution of assets of Holdings of
any kind or character from any source, whether in cash, property or securities
(other than Junior Securities) to which the Holders or the Trustee on behalf of
the Holders would be entitled (by set-off or otherwise), except for the
subordination provisions contained in the Exchange Indenture, will be paid by
the liquidating trustee or agent or other person making such a payment or
distribution directly to the holders of such Senior Indebtedness or their
representative to the extent necessary to make payment in full of all such
Senior Indebtedness remaining unpaid, after giving effect to any concurrent
payment or distribution to the holders of such Senior Indebtedness.
No provision contained in the Exchange Indenture or the Exchange Debentures
will affect the obligation of Holdings which is absolute and unconditional, to
pay, when due, principal of, premium, if any, and interest on the Exchange
Debentures. The subordination provisions of the Exchange Indenture and the
Exchange Debentures do not prevent the occurrence of any Default or Event of
Default under the Exchange Indenture or otherwise limit the rights of the
Trustee or any Holder, subject to the four immediately preceding paragraphs nor
do the subordination provisions of the Exchange Indenture prevent the issuance
of Secondary Debentures in lieu of a cash payment of any or all interest due on
any Interest Payment Period.
As a result of the subordination provisions contained in the Exchange
Indenture, in the event of the liquidation, bankruptcy, reorganization,
insolvency, receivership or similar proceeding or an assignment for the benefit
of the creditors of Holdings or a marshaling of assets or liabilities of
Holdings, Holders of the Exchange Debentures may receive less, ratably, and
holders of Senior Indebtedness may receive more, ratably, than other creditors
of Holdings.
OPTIONAL REDEMPTION
Holdings will not have the right to redeem any Exchange Debentures prior to
February 1, 1999. Exchange Debentures will be redeemable for cash at the option
of Holdings, in whole or in part, at any time on or after February 1, 1999, upon
not less than 30 days nor more than 60 days notice to each Holder of Exchange
Debentures, at the following redemption prices (expressed as percentages of the
principal amount) if redeemed during the 12-month period commencing February 1
of the years indicated below, in each case (subject to the right of Holders of
record on a Record Date to receive the corresponding interest due on an Interest
Payment Date corresponding to such Record Date that is on or prior to such
Redemption Date) together with accrued and unpaid interest thereon to the
Redemption Date:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
1999...................................................... 105.0%
2000...................................................... 104.0%
2001...................................................... 103.0%
2002...................................................... 102.0%
2003...................................................... 101.0%
2004 and thereafter....................................... 100.0%
</TABLE>
In the case of a partial redemption, the Trustee shall select the Exchange
Debentures or portions thereof for redemption on a pro rata basis, by lot or in
such other manner it deems appropriate and fair. The Exchange Debentures may be
redeemed in part in multiples of $1,000 only.
The Exchange Debentures will not have the benefit of any sinking fund.
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Notice of any redemption will be sent, by first class mail, at least 30
days and not more than 60 days prior to the date fixed for redemption to the
Holder of each Exchange Debenture to be redeemed to such Holder's last address
as then shown upon the registry books of the Registrar. Any notice which relates
to a Exchange Debenture to be redeemed in part only must state the portion of
the principal amount equal to the unredeemed portion thereof and must state that
on and after the date of redemption, upon surrender of such Exchange Debenture,
a new Exchange Debenture or Exchange Debentures in a principal amount equal to
the unredeemed portion thereof will be issued. On and after the date of
redemption, interest will cease to accrue on the Exchange Debentures or portions
thereof called for redemption, unless Holdings defaults in the payment thereof.
CERTAIN COVENANTS
REPURCHASE OF EXCHANGE DEBENTURES AT THE OPTION OF THE HOLDER UPON A CHANGE OF
CONTROL
The Exchange Indenture provides that in the event that a Change of Control
has occurred, each Holder of Exchange Debentures will have the right, at such
Holder's option, pursuant to an offer (subject only to conditions required by
applicable law, if any) by Holdings (the "Change of Control Offer"), to require
Holdings to repurchase all or any part of such Holder's Exchange Debentures
(provided, that the principal amount of such Exchange Debentures must be $1,000
or an integral multiple thereof) on a date (the "Change of Control Purchase
Date") that is no later than 45 Business Days after the occurrence of such
Change of Control, at a cash price equal to 101% of the principal amount thereof
(the "Change of Control Purchase Price") plus accrued and unpaid interest to the
Change of Control Purchase Date. The Change of Control Offer shall be made
within 15 Business Days following a Change of Control and shall remain open for
20 Business Days following its commencement (the "Change of Control Offer
Period"). Upon expiration of the Change of Control Offer Period, Holdings
promptly shall purchase all Exchange Debentures properly tendered in response to
the Change of Control Offer.
As used herein, a "Change of Control" means (i) any merger or consolidation
of Holdings with or into any person or any sale, transfer or other conveyance,
whether direct or indirect, of all or substantially all of the assets of
Holdings on a consolidated basis, in one transaction or a series of related
transactions, if, immediately after giving effect to such transaction(s), any
"person" or "group" (as such terms are used for purposes of Sections 13(d) and
14(d) of the Exchange Act, whether or not applicable), other than any Excluded
Person or Excluded Persons, is or becomes the Beneficial Owner, directly or
indirectly, of more than 50% of the total voting power in the aggregate normally
entitled to vote in the election of directors, managers or trustees, as
applicable, of the transferee(s) or surviving entity or entities, (ii) any
"person" or "group," other than any Excluded Person or Excluded Persons, becomes
the Beneficial Owner, directly or indirectly, of more than 50% of the total
voting power in the aggregate of all classes of Capital Stock of Holdings then
outstanding normally entitled to vote in elections of directors, or (iii) during
any period of 12 consecutive months after the Issue Date, individuals who at the
beginning of any such 12-month period constituted the Board of Directors of
Holdings (together, in each case, with any new directors whose election by such
Board of Directors or whose nomination for election by the shareholders of
Holdings was approved by LGP or a Related Party of LGP or by the Excluded
Persons or by a vote of a majority of the directors then still in office who
were either directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any reason to
constitute a majority of the Board of Directors of Holdings then in office.
On or before the Change of Control Purchase Date, Holdings will (i) accept
for payment Exchange Debentures or portions thereof properly tendered pursuant
to the Change of Control Offer, (ii) deposit with the Paying Agent cash
sufficient to pay the Change of Control Purchase Price of all Exchange
Debentures so tendered, and (iii) deliver to the Trustee, Exchange Debentures so
accepted together with an Officers' Certificate listing the Exchange Debentures
or portions thereof being purchased by Holdings. The Paying Agent promptly will
pay the Holders of Exchange Debentures so accepted an amount equal to the Change
of Control Purchase Price and the Trustee promptly will authenticate and deliver
to such Holders a new Exchange Debenture equal in principal amount to any
unpurchased portion of the Exchange Debenture surrendered. Any Exchange
Debenture not so accepted will be delivered promptly by Holdings to the Holder
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thereof. Holdings publicly will announce the results of the Change of Control
Offer on or as soon as practicable after the Change of Control Purchase Date.
The obligations with respect to a Change of Control Offer shall be
satisfied to the extent actually performed by a third party in accordance with
the terms of the Exchange Indenture.
The Change of Control purchase feature of the Exchange Debentures may make
more difficult or discourage a takeover of Holdings and the removal of incumbent
management. The phrase "all or substantially all" of the assets of Holdings will
likely be interpreted under applicable state law and will be dependent upon
particular facts and circumstances. As a result, there may be a degree of
uncertainty in ascertaining whether a sale or transfer of "all or substantially
all" of the assets of Holdings has occurred. In addition, no assurances can be
given that Holdings will be able to acquire Exchange Debentures tendered upon
the occurrence of a Change of Control.
Any Change of Control Offer will be made in compliance with all applicable
laws, rules and regulations, including, if applicable, Regulation 14E under the
Exchange Act and the rules thereunder and all other applicable federal and state
securities laws and any provisions of the Exchange Indenture which conflict with
such laws shall be deemed to be superseded by the provisions of such laws.
If the Change of Control Purchase Date hereunder is on or after an interest
payment Record Date and on or before the associated Interest Payment Date, any
accrued and unpaid interest due on such Interest Payment Date will be paid to
the person in whose name an Exchange Debenture is registered at the close of
business on such Record Date, and such interest will not be payable to Holders
who tender the Exchange Debentures pursuant to such Change of Control Offer.
LIMITATION ON INCURRENCE OF ADDITIONAL INDEBTEDNESS AND DISQUALIFIED CAPITAL
STOCK
The Exchange Indenture provides that, except as set forth in this covenant,
Holdings will not, and will not permit any of its Subsidiaries to, directly or
indirectly, issue, assume, guaranty, incur, become directly or indirectly liable
with respect to (including as a result of an Acquisition), or otherwise become
responsible for, contingently or otherwise (individually and collectively, to
"incur" or, as appropriate, an "incurrence"), any Indebtedness (including
Acquired Indebtedness), other than Permitted Indebtedness. Notwithstanding the
foregoing, if (i) no Default or Event of Default shall have occurred and be
continuing at the time of, or would occur after giving effect on a pro forma
basis to, such incurrence of Indebtedness or Disqualified Capital Stock and
(ii) on the date of such incurrence (the "Incurrence Date"), after giving effect
on a pro forma basis to such incurrence of such Indebtedness or Disqualified
Capital Stock and the use of proceeds thereof, the Leverage Ratio shall not
exceed 7.5 to 1 (the "Debt Incurrence Ratio"), then Holdings and its
Subsidiaries may incur such Indebtedness or Disqualified Capital Stock.
In addition, the foregoing limitations will not apply to:
(a) the incurrence by Holdings or any Subsidiary of Purchase Money
Indebtedness on or after the Issue Date, provided, that (i) the aggregate
principal amount of such Indebtedness incurred on or after the Issue Date
and outstanding at any time pursuant to this paragraph (a) (including any
Indebtedness issued to refinance, replace or refund such Indebtedness)
shall not exceed $15.0 million, and (ii) in each case, such Indebtedness as
originally incurred shall not constitute more than 100% of the cost
(determined in accordance with GAAP) to Holdings or such Subsidiary, as
applicable, of the property so purchased or leased;
(b) the incurrence by Holdings or any Subsidiary of Indebtedness in an
aggregate principal amount outstanding at any time (including Indebtedness
incurred to refinance, replace or refund such Indebtedness) of up to $10.0
million (which may be incurred pursuant to the Credit Agreement); and
(c) the incurrence by Holdings or any Subsidiary of Indebtedness
pursuant to the Credit Agreement up to an aggregate principal amount
outstanding at any time (including any Indebtedness incurred to refinance,
replace or refund such Indebtedness) of $175.0 million, minus the amount of
any such
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Indebtedness retired with the Net Cash Proceeds from any Asset Sale or
assumed by a transferee in an Asset Sale.
Indebtedness or Disqualified Capital Stock of any person which is
outstanding at the time such person becomes a Subsidiary of Holdings (including
upon designation of any subsidiary or other person as a Subsidiary) or is merged
with or into or consolidated with Holdings or a Subsidiary of Holdings shall be
deemed to have been incurred at the time such person becomes such a Subsidiary
of Holdings or is merged with or into or consolidated with Holdings or a
Subsidiary of Holdings, as applicable.
Notwithstanding anything to the contrary contained in the Exchange
Indenture, Holdings will not, and will not permit any of its Subsidiaries to,
incur any Indebtedness that is contractually subordinate to any other
Indebtedness of Holdings unless such Indebtedness is at least as subordinate to
the Exchange Debentures.
LIMITATION ON RESTRICTED PAYMENTS
The Exchange Indenture provides that Holdings will not, and will not permit
any of its Subsidiaries to, directly or indirectly, make any Restricted Payment
if, after giving effect to such Restricted Payment on a pro forma basis, (1) a
Default or an Event of Default shall have occurred and be continuing, (2)
Holdings is not permitted to incur at least $1.00 of additional Indebtedness
pursuant to the Debt Incurrence Ratio in the covenant "Limitation on Incurrence
of Additional Indebtedness and Disqualified Capital Stock," or (3) the aggregate
amount of all Restricted Payments made by Holdings and its Subsidiaries,
including after giving effect to such proposed Restricted Payment, from and
after the Issue Date, would exceed the sum of (a) (i) Consolidated EBITDA of
Holdings for the period (taken as one accounting period), commencing on the
first day of the first fiscal quarter commencing on or prior to the Issue Date,
to and including the last day of the fiscal quarter ended immediately prior to
the date of each such calculation (or, in the event Consolidated EBITDA for such
period is a deficit, then minus 100% of such deficit) less (ii) 150% of
Consolidated Fixed Charges for such period, plus (b) the aggregate Net Cash
Proceeds received by Holdings as a Capital Contribution or from the sale of
Holdings' Qualified Capital Stock (other than in each case (i) to a Subsidiary
of Holdings, (ii) to the extent applied in connection with a Qualified Exchange,
and (iii) to the extent applied to repurchase Capital Stock pursuant to clause
(b) of the definition of Permitted Payments) after the Issue Date.
The provisions of the immediately preceding paragraph will not prohibit or
be violated by (A) a Qualified Exchange; (B) the payment or making of any
Restricted Payment within 60 days after the date of declaration thereof or the
making of any binding commitment in respect thereof, if at said date of
declaration or commitment, such Restricted Payment would have complied with the
provisions contained in clauses (1), (2) and (3) of the immediately preceding
paragraph; and (C) Permitted Payments. The full amount of any Restricted Payment
made pursuant to the foregoing clause (B) (but not pursuant to clauses (A) or
(C)) of the immediately preceding sentence, however, will be deducted in the
calculation of the aggregate amount of Restricted Payments available to be made
referred to in clause (3) of the immediately preceding paragraph.
For purposes of this covenant, the amount of any Restricted Payment, if
other than in cash, shall be the fair market value thereof, as determined in the
good faith reasonable judgment of the Board of Directors of Holdings.
LIMITATION ON DIVIDENDS AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES
The Exchange Indenture provides that the Holdings will not, and will not
permit any of its Subsidiaries to, directly or indirectly, create, assume or
suffer to exist any consensual restriction on the ability of any Subsidiary of
Holdings to pay dividends or make other distributions to or on behalf of, or to
pay any obligation to or on behalf of, or otherwise to transfer assets or
property to or on behalf of, or make or pay loans or advances to or on behalf
of, Holdings or any Subsidiary of Holdings, except (a) restrictions imposed by
the Exchange Debentures or the Exchange Indenture or by other Indebtedness of
Holdings ranking senior to or pari passu with the Exchange Debentures, provided
such restrictions are not materially more restrictive than those imposed by the
Exchange Indenture and the Exchange Debentures, (b) restrictions imposed by
applicable law, (c) existing restrictions under Indebtedness outstanding on the
Issue Date, (d) restrictions
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under any Acquired Indebtedness not incurred in violation of the Exchange
Indenture or any agreement relating to any property, asset or business acquired
by Holdings or any of its Subsidiaries, which restrictions in each case existed
at the time of Acquisition, were not put in place in connection with or in
anticipation of such Acquisition and are not applicable to any person, other
than the person acquired, or to any property, asset or business, other than the
property, assets and business so acquired, (e) any such restriction or
requirement imposed by Indebtedness incurred under the Credit Agreement in
accordance with the Exchange Indenture, provided such restriction or requirement
is not materially more restrictive than that imposed by the Revolving Credit
Facility as of the Issue Date, (f) restrictions with respect solely to a
Subsidiary of Holdings imposed pursuant to a binding agreement which has been
entered into for the sale or disposition of all or substantially all of the
Equity Interests or assets of such Subsidiary, provided such restrictions apply
solely to the Equity Interests or assets of such Subsidiary which are being
sold, (g) restrictions on transfer contained in Purchase Money Indebtedness
incurred pursuant to paragraph (a) of the covenant "Limitation on Incurrence of
Additional Indebtedness and Disqualified Capital Stock," provided such
restrictions relate only to the transfer of the property acquired with the
proceeds of such Purchase Money Indebtedness, and (h) in connection with and
pursuant to permitted Refinancings, replacements of restrictions imposed
pursuant to clauses (a), (c), (d), (e) or (g) of this paragraph that are not
materially more restrictive than those being replaced and do not apply to any
other person or assets than those that would have been covered by the
restrictions in the Indebtedness so refinanced. Notwithstanding the foregoing,
neither (a) customary provisions restricting subletting or assignment of any
lease entered into in the ordinary course of business, consistent with industry
practice, nor (b) Liens permitted under the terms of the Exchange Indenture
shall in and of themselves be considered a restriction on the ability of the
applicable Subsidiary to transfer such agreement or assets, as the case may be.
LIMITATION ON LIENS SECURING INDEBTEDNESS
Holdings will not, and will not permit any of its Subsidiaries to, create,
incur, assume or suffer to exist, to secure any Indebtedness, any Lien of any
kind, other than Permitted Liens, upon any of its assets now owned or acquired
on or after the date of the Exchange Indenture or upon any income or profits
therefrom unless Holdings provides, and causes its Subsidiaries to provide,
concurrently therewith or immediately thereafter, that the Exchange Debentures,
are equally and ratably so secured for so long as such Indebtedness so secured
remains outstanding; provided that, if such Indebtedness is Subordinated
Indebtedness, the Lien securing such Subordinated Indebtedness shall be
subordinate and junior to the Lien securing the Exchange Debentures with the
same relative priority as such Subordinated Indebtedness shall have with respect
to the Exchange Debentures.
LIMITATION ON SALE OF ASSETS AND SUBSIDIARY STOCK
The Exchange Indenture provides that Holdings will not, and will not permit
any of its Subsidiaries to, in one or a series of related transactions, convey,
sell, transfer, assign or otherwise dispose of, directly or indirectly, any of
its property, business or assets (other than cash or Cash Equivalents),
including by merger or consolidation, and including any sale or other transfer
or issuance of any Equity Interests (other than directors' qualifying shares) of
any Subsidiary of Holdings, whether by Holdings or a Subsidiary of Holdings, and
including (except as provided in clause (vi) of the third paragraph of this
covenant) any Sale and Leaseback Transaction (any of the foregoing, an "Asset
Sale"), unless (1) (a) within 360 days after the date of such Asset Sale, the
Net Cash Proceeds therefrom (the "Asset Sale Offer Amount") are applied to the
optional redemption of the Exchange Debentures in accordance with the terms of
the Exchange Indenture and other Indebtedness of Holdings ranking on a parity
with the Exchange Debentures from time to time outstanding with similar
provisions requiring Holdings to make an offer to purchase or to redeem such
Indebtedness with the proceeds from asset sales, pro rata in proportion to the
respective principal amounts (or accreted values in the case of Indebtedness
issued with an original issue discount) of the Exchange Debentures and such
other Indebtedness then outstanding or to the repurchase of the Exchange
Debentures and such other Indebtedness pursuant to a cash offer (subject only to
conditions required by applicable law, if any (pro rata in proportion to the
respective principal amounts (or accreted values in the case of Indebtedness
issued with an original issue discount) of the Exchange Debentures and such
other Indebtedness then outstanding)) (the "Asset Sale
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Offer") at a purchase price of 100% of principal amount (or accreted value in
the case of Indebtedness issued with an original issue discount) (the "Asset
Sale Offer Price") together with accrued and unpaid interest to the date of
payment, made within 360 days of such Asset Sale, or (b) within 360 days
following such Asset Sale, the Asset Sale Offer Amount is used (i) to make one
or more Acquisitions or invested in assets and property (other than notes,
bonds, obligations and securities) which in the good faith reasonable judgment
of the Board of Directors of Holdings will constitute or be a part of a Related
Business of Holdings or such Subsidiary (if it continues to be a Subsidiary)
immediately following such transaction or (ii) to retire permanently
Indebtedness incurred under the Credit Agreement pursuant to paragraph (c) of
the covenant "Limitation on Incurrence of Additional Indebtedness and
Disqualified Capital Stock" (including that in the case of a revolver or similar
arrangement that makes credit available, such commitment is so permanently
reduced by such amount), the Senior Subordinated Notes or the Debentures of
other Indebtedness ranking on a parity with any of the foregoing Indebtedness or
other Senior Indebtedness incurred pursuant to paragraph (b) of such covenant,
(2) at least 75% of the consideration for such Asset Sale or series of related
Asset Sales consists of cash or Cash Equivalents; provided that (x) the amount
of any liabilities (as shown on Holdings' most recent consolidated balance
sheet) of Holdings or any Subsidiary (other than Subordinated Indebtedness) that
are assumed by the transferee in such Asset Sale (provided that Holdings and its
Subsidiaries are released from all obligations in respect thereof) and (y) any
notes or other obligations received by Holdings or any such Subsidiary from such
transferee that are promptly (but in no event more than 90 days after receipt)
converted by Holdings or such Subsidiary into cash or Cash Equivalents (to the
extent of the cash or Cash Equivalents, as the case may be, received), shall be
deemed to be cash or Cash Equivalents, as the case may be, for purposes of this
provision, and such cash and Cash Equivalents shall be deemed to be Net Cash
Proceeds received from the Asset Sale of the related property sold for such
notes or other obligations, for purposes of this covenant, and, provided,
further, this clause (2) shall not apply to the sale or disposition of assets as
a result of a foreclosure (or a secured party taking ownership of such assets in
lieu of foreclosure) or as a result of an involuntary proceeding in which
Holdings cannot, directly or through its Subsidiaries, direct the type of
proceeds received, and (3) with respect to any Asset Sale or series of related
Asset Sales, Net Cash Proceeds of which exceed $2.0 million, the Board of
Directors of Holdings determines in good faith that Holdings or such Subsidiary,
as applicable, receives fair market value for such Asset Sale.
The Exchange Indenture provides that an acquisition of Exchange Debentures
pursuant to an Asset Sale Offer may be deferred until the accumulated Net Cash
Proceeds from Asset Sales not applied to the uses set forth in clause 1(b) above
(the "Excess Proceeds") exceeds $10.0 million and that each Asset Sale Offer
shall remain open for 20 Business Days following its commencement (the "Asset
Sale Offer Period"). Upon expiration of the Asset Sale Offer Period, Holdings
shall apply the Asset Sale Offer Amount plus an amount equal to accrued and
unpaid interest to the purchase of all Indebtedness properly tendered (on a pro
rata basis if the Asset Sale Offer Amount is insufficient to purchase all
Indebtedness so tendered) at the Asset Sale Offer Price (together with any
accrued interest). To the extent that the aggregate amount of Indebtedness
tendered pursuant to an Asset Sale Offer is less than the Asset Sale Offer
Amount, Holdings may use any remaining Net Cash Proceeds for general corporate
purposes as otherwise permitted by the Indenture and following each Asset Sale
Offer the Excess Proceeds amount shall be reset to zero.
Notwithstanding the foregoing provisions of this covenant, the following
transactions shall not be deemed Asset Sales:
(i) Holdings and each of its Subsidiaries may convey, sell, lease,
transfer, assign or otherwise dispose of property in the ordinary course of
business;
(ii) Holdings and each of its Subsidiaries may (x) convey, sell,
lease, transfer, assign or otherwise dispose of assets pursuant to and in
accordance with the limitation on mergers, sales or consolidations
provisions in the Indenture, (y) make Restricted Payments permitted by the
covenant "Limitation on Restricted Payments," and (z) engage in Exempted
Affiliate Transactions;
(iii) Holdings and each of its Subsidiaries may convey, sell,
transfer, assign or otherwise dispose of assets or issue Capital Stock to
Holdings or any Subsidiary;
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(iv) Holdings and each of its Subsidiaries may sell or dispose of
damaged, worn out or other obsolete property in the ordinary course of
business so long as such property is no longer necessary for the proper
conduct of the business of Holdings or such Subsidiary, as applicable;
(v) Holdings and each of its Subsidiaries may exchange assets held by
Holdings or a Subsidiary for assets held by any person or entity; provided
that (A) the assets received by Holdings or a Subsidiary in any such
exchange in the good faith reasonable judgment of the Board of Directors of
Holdings will immediately constitute, be a part of, or be used in, a
Related Business, (B) the Board of Directors of Holdings has determined
that the terms of any exchange are fair and reasonable, and (C) any such
exchange shall be deemed to be an Asset Sale to the extent that Holdings or
any Subsidiary receive cash or Cash Equivalents in such exchange;
(vi) Holdings and each of its Subsidiaries may engage in Sale and
Leaseback Transactions with respect to property acquired after the Issue
Date (other than property acquired in exchange for or with the proceeds
from the sale or other disposition of property held by Holdings or any
Subsidiary on the Issue Date);
(vii) Holdings and each of its Subsidiaries may liquidate Cash
Equivalents in the ordinary course of business;
(viii) Holdings and each of its Subsidiaries may create or assume
Liens (or permit any foreclosure thereon) not prohibited by the Indenture;
(ix) Holdings and each of its Subsidiaries may surrender or waive
contract rights or the settlement, release or surrender of contract, tort
or other claims of any kind; and
(x) Holdings and each of its Subsidiaries, may convey, sell, transfer,
assign or otherwise dispose of assets having an aggregate fair market value
not exceeding $2.0 million in any fiscal year.
All Net Cash Proceeds from an Event of Loss (other than the proceeds of any
business interruption insurance) shall be invested or otherwise used as provided
in clause 1 of the first paragraph of this covenant, all within 18 months from
the occurrence of such Event of Loss.
Any Asset Sale Offer will be made in compliance with all applicable laws,
rules and regulations, including, if applicable, Regulation 14E under the
Exchange Act and the rules thereunder and all other applicable Federal and state
securities laws and any provisions of the Indenture which conflict with such
laws shall be deemed to be superseded by the provisions of such laws.
If the payment date in connection with an Asset Sale Offer hereunder is on
or after an interest payment Record Date and on or before the associated
Interest Payment Date, any accrued and unpaid interest will be paid to the
person in whose name an Exchange Debenture is registered at the close of
business on such Record Date, and such interest will not be payable to Holders
who tender Exchange Debentures pursuant to such Asset Sale Offer.
LIMITATION ON TRANSACTIONS WITH AFFILIATES
The Exchange Indenture provides that Holdings will not, and will not permit
any of its Subsidiaries to, directly or indirectly, enter into any contract,
agreement, arrangement or transaction with any Affiliate (an "Affiliate
Transaction"), or any series of related Affiliate Transactions, unless the terms
of such Affiliate Transaction are fair and reasonable to Holdings or such
Subsidiary, as the case may be, and are at least as favorable as the terms which
could reasonably be expected to be obtained by Holdings or such Subsidiary, as
the case may be, in a comparable transaction made on an arm's-length basis with
persons who are not Affiliates.
Without limiting the foregoing, in connection with any Affiliate
Transaction or series of related Affiliate Transactions (other than Exempted
Affiliate Transactions) (1) involving consideration to either party in excess of
$1.5 million, Holdings must deliver an Officers' Certificate to the Trustee,
stating that the terms of such Affiliate Transaction are fair and reasonable to
Holdings, and no less favorable to Holdings than could
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reasonably be expected to have been obtained in an arm's-length transaction with
a non-Affiliate, and (2) involving consideration to either party in excess of
$7.5 million, Holdings must also, prior to consummation thereof, obtain a
favorable written opinion as to the fairness of such transaction to Holdings
from a financial point of view from an independent investment banking firm of
national reputation or, if pertaining to a matter for which such investment
banking firms do not customarily render such opinions, an appraisal or valuation
firm of national reputation; provided, that this sentence shall not apply to the
sale or purchase of products or services by Holdings or its Subsidiaries to or
from any Affiliate of LGP or any Related Party thereof, which sale or purchase
is in the ordinary course of business and in accordance with industry practice.
LIMITATION ON MERGER, SALE OR CONSOLIDATION
The Exchange Indenture provides that Holdings will not consolidate with or
merge with or into another person or, directly or indirectly, sell, lease,
convey or transfer all or substantially all of its assets (computed on a
consolidated basis), whether in a single transaction or a series of related
transactions, to another person or group of affiliated persons or adopt a plan
of liquidation, unless (i) either (a) Holdings is the continuing entity or (b)
the resulting, surviving or transferee entity or, in the case of a plan of
liquidation, the entity which receives the greatest value from such plan of
liquidation is a corporation organized under the laws of the United States, any
state thereof or the District of Columbia and expressly assumes by supplemental
indenture all of the obligations of Holdings in connection with the Exchange
Debentures and the Exchange Indenture; (ii) no Default or Event of Default shall
exist or shall occur immediately after giving effect on a pro forma basis to
such transaction; (iii) immediately after giving effect to such transaction on a
pro forma basis, the Consolidated Net Worth of the consolidated, resulting,
surviving or transferee entity or, in the case of a plan of liquidation, the
entity which receives the greatest value from such plan of liquidation is at
least equal to the Consolidated Net Worth of Holdings immediately prior to such
transaction; and (iv) immediately after giving effect to such transaction on a
pro forma basis, the consolidated, resulting, surviving or transferee entity or,
in the case of a plan of liquidation, the entity which receives the greatest
value from such plan of liquidation would immediately thereafter be permitted to
incur at least $1.00 of additional Indebtedness pursuant to the Debt Incurrence
Ratio set forth in the covenant "Limitation on Incurrence of Additional
Indebtedness and Disqualified Capital Stock."
Upon any consolidation or merger or any transfer of all or substantially
all of the assets of Holdings or consummation of a plan of liquidation in
accordance with the foregoing, the successor corporation formed by such
consolidation or into which Holdings is merged or to which such transfer is made
or, in the case of a plan of liquidation, the entity which receives the greatest
value from such plan of liquidation shall succeed to and (except in the case of
a lease) be substituted for, and may exercise every right and power of, Holdings
under the Exchange Indenture with the same effect as if such successor
corporation had been named therein as Holdings, and (except in the case of a
lease) Holdings shall be released from the obligations under the Exchange
Debentures and the Exchange Indenture except with respect to any obligations
that arise from, or are related to, such transaction.
For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise) of all or substantially all of the properties and assets of one or
more Subsidiaries, Holdings' interest in which constitutes all or substantially
all of the properties and assets of Holdings, shall be deemed to be the transfer
of all or substantially all of the properties and assets of Holdings.
LIMITATION ON LINES OF BUSINESS
The Exchange Indenture provides that neither Holdings nor any of its
Subsidiaries shall directly or indirectly engage to any substantial extent in
any line or lines of business activity other than that which, in the reasonable
good faith judgment of the Board of Directors of Holdings, is a Related
Business.
RESTRICTION ON SALE AND ISSUANCE OF SUBSIDIARY STOCK
The Exchange Indenture provides that Holdings will not sell, and its
Subsidiaries will not issue or sell, any shares of Capital Stock (other than
directors' qualifying shares) of any Subsidiary of Holdings to any
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person other than Holdings or a wholly owned Subsidiary of Holdings, except for
shares of common stock with no preferences or special rights or privileges and
with no redemption or prepayment provisions. Notwithstanding the foregoing, (a)
Holdings and its Subsidiaries may consummate an Asset Sale of all of the Capital
Stock owned by Holdings and its Subsidiaries of any Subsidiary and (b) Holdings
or any Subsidiary may pledge, hypothecate or otherwise grant a Lien on any
Capital Stock of any Subsidiary to the extent not prohibited under the covenant
"Limitation on Liens Securing Indebtedness."
LIMITATION ON STATUS AS INVESTMENT COMPANY
The Exchange Indenture prohibits Holdings and its Subsidiaries from being
required to register as an "investment company" (as that term is defined in the
Investment Company Act of 1940, as amended), or from otherwise becoming subject
to regulation under the Investment Company Act.
REPORTS
The Exchange Indenture provides that whether or not Holdings is subject to
the reporting requirement of Section 13 or 15(d) of the Exchange Act, Holdings
shall deliver to the Trustee and to each Holder and to prospective purchasers of
Exchange Debentures identified to Holdings, within 15 days after it is or would
have been (if it were subject to such reporting obligations) required to file
such with the Commission, annual and quarterly financial statements
substantially equivalent to financial statements that would have been included
in reports filed with the Commission, if Holdings were subject to the
requirements of Section 13 or 15(d) of the Exchange Act, including, with respect
to annual information only, a report thereon by Holdings' certified independent
public accountants as such would be required in such reports to the Commission,
and, in each case, together with a management's discussion and analysis of
financial condition and results of operations which would be so required and,
unless the Commission will not accept such reports, file with the Commission the
annual, quarterly and other reports which it is or would have been required to
file with the Commission.
EVENTS OF DEFAULT AND REMEDIES
The Exchange Indenture defines an Event of Default as (i) the failure by
Holdings to pay any installment of interest on the Exchange Debentures as and
when the same becomes due and payable and the continuance of any such failure
for 30 days, (ii) the failure by Holdings to pay all or any part of principal,
or premium, if any, on the Exchange Debentures when and as the same becomes due
and payable at maturity, redemption, by acceleration or otherwise, including,
without limitation, payment of the Change of Control Purchase Price or the Asset
Sale Offer Price, or otherwise, (iii) the failure by Holdings or any Subsidiary
of Holdings to observe or perform any other covenant or agreement contained in
the Exchange Debentures or the Exchange Indenture and the continuance of such
failure for a period of 30 days after written notice is given to Holdings by the
Trustee or to Holdings and the Trustee by the Holders of at least 25% in
aggregate principal amount of the Exchange Debentures outstanding, specifying
such Default, (iv) certain events of bankruptcy, insolvency or reorganization in
respect of Holdings or any of its Significant Subsidiaries, (v) a default in any
Indebtedness of Holdings or any of its Subsidiaries, with an aggregate principal
amount in excess of $15.0 million (a) resulting from the failure to pay
principal at maturity or (b) as a result of which the maturity of such
Indebtedness has been accelerated prior to its stated maturity, and (vi) final
unsatisfied judgments not covered by insurance aggregating in excess of $15.0
million, at any one time rendered against Holdings or any of its Subsidiaries
and not stayed, bonded or discharged within 60 days. The Exchange Indenture
provides that if an Event of Default occurs and is continuing, the Trustee must,
within 90 days after the occurrence of such Event of Default, give to the
Holders notice of such Event of Default.
If an Event of Default occurs and is continuing (other than an Event of
Default specified in clause (iv) above, relating to Holdings or any of its
Significant Subsidiaries), then in every such case, unless the principal of all
of the Exchange Debentures shall have already become due and payable, either the
Trustee or the Holders of at least 25% in aggregate principal amount of the
Exchange Debentures then outstanding, by notice in writing to Holdings (and to
the Trustee if given by Holders) (an "Acceleration Notice"), may declare all
principal, determined as set forth below, and accrued interest thereon to be due
and payable immediately. If an Event of Default specified in clause (iv) above
relating to Holdings or any of its Significant
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Subsidiaries occurs, all principal and accrued interest thereon will be
immediately due and payable without any declaration or other act on the part of
Trustee or the Holders. Upon any acceleration of maturity of the Exchange
Debentures, all principal of and accrued interest in the Exchange Debentures
shall become due and payable. The Holders of a majority in aggregate principal
amount of Exchange Debentures generally are authorized to rescind such
acceleration if all existing Events of Default, other than the non-payment of
the principal of, premium, if any, and interest on the Exchange Debentures which
have become due solely by such acceleration and except on default with respect
to any provision requiring a supermajority approval to amend, which default may
only be waived by such a supermajority, have been cured or waived.
The Holders of a majority in aggregate principal amount of the Exchange
Debentures at the time outstanding may waive on behalf of all the Holders any
default, except a default with respect to any provision requiring a
supermajority approval to amend, which default may only be waived by such a
supermajority, and except a default in the payment of principal of or interest
on any Exchange Debenture not yet cured or a default with respect to any
covenant or provision which cannot be modified or amended without the consent of
the Holder of each outstanding Exchange Debenture affected. Subject to the
provisions of the Exchange Indenture relating to the duties of the Trustee, the
Trustee will be under no obligation to exercise any of its rights or powers
under the Exchange Indenture at the request, order or direction of any of the
Holders, unless such Holders have offered to the Trustee reasonable security or
indemnity. Subject to all provisions of the Exchange Indenture and applicable
law, the Holders of a majority in aggregate principal amount of the Exchange
Debentures at the time outstanding will have the right to direct the time,
method and place of conducting any proceeding for any remedy available to the
Trustee, or exercising any trust or power conferred on the Trustee.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Exchange Indenture provides that Holdings may, at its option, elect to
have its obligations discharged with respect to the outstanding Exchange
Debentures ("Legal Defeasance"). Such Legal Defeasance means that Holdings shall
be deemed to have paid and discharged the entire indebtedness represented, and
the Exchange Indenture shall cease to be of further effect as to all outstanding
Exchange Debentures, except as to (i) rights of Holders to receive payments in
respect of the principal of, premium, if any, and interest on such Exchange
Debentures when such payments are due from the trust funds; (ii) the Company's
obligations with respect to such Exchange Debentures concerning issuing
temporary Exchange Debentures, registration of Exchange Debentures, mutilated,
destroyed, lost or stolen Exchange Debentures, and the maintenance of an office
or agency for payment and money for security payments held in trust; (iii) the
rights, powers, trust, duties and immunities of the Trustee, and Holdings'
obligations in connection therewith; and (iv) the Legal Defeasance provisions of
the Exchange Indenture. In addition, Holdings may, at its option and at any
time, elect to have the obligations of Holdings released with respect to certain
covenants that are described in the Exchange Indenture ("Covenant Defeasance")
and thereafter any omission to comply with such obligations shall not constitute
a Default or Event of Default with respect to the Exchange Debentures. In the
event Covenant Defeasance occurs, certain events (not including non-payment,
guarantees, bankruptcy, receivership, rehabilitation and insolvency events)
described under "Events of Default" will no longer constitute an Event of
Default with respect to Holdings.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i)
Holdings must irrevocably deposit with the Trustee, in trust, for the benefit of
the Holders of the Exchange Debentures, U.S. legal tender, U.S. Government
Obligations or a combination thereof, in such amounts as will be sufficient, in
the opinion of a nationally recognized firm of independent public accountants,
to pay the principal of, premium, if any or interest on such Exchange Debentures
on the stated date for payment thereof or on the redemption date of such
principal or installment of principal of, premium, if any, or interest on such
Exchange Debentures, and the Holders of Exchange Debentures must have a valid,
perfected, exclusive security interest in such trust; (ii) in the case of Legal
Defeasance before the date that is one year prior to the Stated Maturity,
Holdings shall have delivered to the Trustee an opinion of counsel in the United
States reasonably acceptable to the Trustee confirming that (A) Holdings has
received from, or there has been published by the Internal Revenue Service, a
ruling or (B) since the date of the Exchange Indenture, there has been a change
in the applicable
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federal income tax law, in either case to the effect that, and based thereon
such opinion of counsel shall confirm that, the Holders of such Exchange
Debentures will not recognize income, gain or loss for federal income tax
purposes as a result of such Legal Defeasance and will be subject to federal
income tax on the same amounts, in the same manner and at the same times as
would have been the case if such Legal Defeasance had not occurred; (iii) in the
case of Covenant Defeasance before the date that is one year prior to the Stated
Maturity, Holdings shall have delivered to the Trustee an opinion of counsel in
the United States reasonably acceptable to such Trustee confirming that the
Holders of such Exchange Debentures will not recognize income, gain or loss for
federal income tax purposes as a result of such Covenant Defeasance and will be
subject to federal income tax on the same amounts, in the same manner and at
same times as would have been the case if such Covenant Defeasance had not
occurred; (iv) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit; (v) such Legal Defeasance or Covenant
Defeasance shall not result in a breach or violation of, or constitute a default
under, the Exchange Indenture or any other material agreement or instrument to
which Holdings or any of its Subsidiaries is a party or by which Holdings or any
of its Subsidiaries is bound; (vi) Holdings shall have delivered to the Trustee
an Officers' Certificate stating that the deposit was not made by Holdings with
the interest of preferring the Holders of such Exchange Debentures over any
other creditors of Holdings or with the intent of defeating, hindering, delaying
or defrauding any other creditors of Holdings or others; and (vii) Holdings
shall have delivered to the Trustee an Officers' Certificate and an opinion of
counsel, each stating that the conditions precedent provided for in, in the case
of the Officers' Certificate, (i) through (vi) and, in the case of the opinion
of counsel, clauses (i) (with respect to the validity and perfection of the
security interest), (ii), (iii) and (v) of this paragraph have been complied
with.
AMENDMENTS AND SUPPLEMENTS
The Exchange Indenture contains provisions which permit Holdings and the
Trustee to enter into a supplemental indenture for certain limited purposes
without the consent of the Holders. The Exchange Indenture also permits Holdings
and the Trustee to enter into a supplemental indenture for the following
purposes: (i) prior to the Exchange Date, to evidence any modification to the
Indenture governing the Debentures approved by the holders of the Debentures
that does not require the consent of holders of Holdings Senior Preferred Stock
and (ii) prior to the Exchange Date, to evidence any modification to the
Exchange Indenture approved by the holders of Holdings Senior Preferred Stock.
With the consent of the Holders of not less than a majority in aggregate
principal amount of the Exchange Debentures at the time outstanding, Holdings
and the Trustee are permitted to amend or supplement the Exchange Indenture or
any supplemental indenture or modify the rights of the Holders; provided that no
such modification may, without the consent of Holders of at least 66 2/3% in
aggregate principal amount of Exchange Debentures at the time outstanding,
modify the provisions (including the defined terms used therein) of the covenant
"Repurchase of Exchange Debentures at the Option of the Holder Upon a Change of
Control" or the guarantee or subordination provisions of the Exchange Indenture
in a manner adverse to the Holders; and provided, that no such modification may,
without the consent of each Holder affected thereby: (i) change the Stated
Maturity on any Exchange Debentures, or reduce the principal amount thereof or
the rate (or extend the time for payment) of interest thereon or any premium
payable upon the redemption at the option of Holdings thereof, or change the
place of payment where, or the coin or currency in which, any Exchange
Debentures or any premium or the interest thereon is payable, or impair the
right to institute suit for the enforcement of any such payment on or after the
Stated Maturity thereof (or, in the case of redemption at the option of
Holdings, on or after the Redemption Date), or reduce the Change of Control
Purchase Price or the Asset Sale Offer Price or alter the provisions (including
the defined terms used therein) regarding the right of Holdings to redeem the
Exchange Debentures at its option in a manner adverse to Holders, or (ii) reduce
the percentage in principal amount of the outstanding Exchange Debentures, the
consent of whose Holders is required for any such amendment, supplemental
indenture or waiver provided for in the Exchange Indenture, or (iii) modify any
of the waiver provisions, except to increase any required percentage or to
provide that certain other provisions of the Exchange Indenture cannot be
modified or waived without the consent of the Holder of each outstanding
Exchange Debenture affected thereby.
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NO PERSONAL LIABILITY OF PARTNERS, STOCKHOLDERS, OFFICERS OR DIRECTORS
The Exchange Indenture provides that no direct or indirect stockholder,
employee, officer or director, as such, past, present or future of Holdings or
any successor entity shall have any personal liability in connection with the
Exchange Indenture or the Exchange Debentures solely by reason of his or its
status as such stockholder, employee, officer or director. Each Holder of
Exchange Debentures by accepting an Exchange Debenture waives and releases all
such liability, and acknowledges and consents to the transactions described
under "The Acquisition." The waiver and release are part of the consideration
for the issuance of the Exchange Debentures. Such waiver may not be effective to
waive liabilities under the federal securities laws and it is the view of the
Commission that such a waiver is against public policy.
EXCHANGE OF BOOK-ENTRY EXCHANGE DEBENTURES FOR CERTIFICATED EXCHANGE DEBENTURES
A Global Exchange Debenture is exchangeable for definitive Exchange
Debentures in registered certificated form if (i) DTC (x) notifies Holdings that
it is unwilling or unable to continue as depositary for the Global Exchange
Debenture and Holdings thereupon fails to appoint a successor depositary or (y)
has ceased to be a clearing agency registered under the Exchange Act, (ii)
Holdings, at its option, notifies the Trustee in writing that it elects to cause
the issuance of the Exchange Debentures in certificated form or (iii) there
shall have occurred and be continuing an Event of Default or any event which
after notice or lapse of time or both would be an Event of Default with respect
to the Exchange Debentures. In addition, beneficial interests in a Global
Exchange Debenture are exchangeable for definitive Exchange Debentures upon the
request of the beneficial holder to the Trustee through the applicable
procedures of DTC. In all cases, certificated Exchange Debentures delivered in
exchange for any Global Exchange Debenture or beneficial interests therein will
be registered in the names, and issued in any approved denominations, requested
by or on behalf of the depositary (in accordance with its customary procedures)
and will bear the applicable restrictive legend referred to in "Notice to
Investors," unless Holdings determines otherwise in compliance with applicable
law.
Except as set forth below, Exchange Debentures will be issued in
registered, global form in minimum denominations of $1,000 and integral
multiples of $1,000 in excess thereof.
Exchange Debentures initially will be represented by one or more Exchange
Debentures in registered global form without interest coupons (collectively, the
"Global Exchange Debenture"). The Global Exchange Debenture will be deposited
upon issuance with the Trustee as custodian for DTC, in New York, New York and
registered in the name of DTC or its nominee, in each case for credit to an
account of a direct or indirect participant in DTC as described below.
Except as set forth below, the Global Exchange Debenture may be
transferred, in whole and not in part, only to another nominee of DTC or to a
successor of DTC or its nominee. Beneficial interests in the Global Exchange
Debenture may not be exchanged for Exchange Debentures in certificated form
except in the limited circumstances described below. See "--Exchange of
Book-Entry Exchange Debentures for Certificated Exchange Debentures."
Transfer of beneficial interests in the Global Exchange Debenture will be
subject to the applicable rules and procedures of DTC and its direct or indirect
participants, which may change from time to time.
Initially, the Trustee will act as Paying Agent and Registrar. The Exchange
Debenture may be presented for registration of transfer and exchange at the
offices of the Registrar.
DEPOSITARY PROCEDURES
DTC has advised Holdings that DTC is a limited-purpose trust company
created to hold securities for its Participants and to facilitate the clearance
and settlement of transactions in those securities between Participants through
electronic book-entry changes in accounts of its Participants. The Participants
include securities brokers and dealers (including the Initial Purchasers),
banks, trust companies, clearing corporations and certain other organizations.
Access to DTC's system is also available to Indirect Participants. Persons who
are not Participants may beneficially own securities held by or on behalf of DTC
only through the Participants
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or the Indirect Participants. The ownership interests and transfer of ownership
interests of each actual purchaser of each security held by or on behalf of DTC
are recorded on the records of the Participants and Indirect Participants.
DTC has also advised Holdings that, pursuant to procedures established by
it, (i) upon deposit of the Global Exchange Debenture, DTC will credit the
accounts of Participants designated by Holdings with portions of the principal
amount of the Global Exchange Debenture and (ii) ownership of such interests in
the Global Exchange Debenture will be maintained by DTC (with respect to the
Participants) or by the Participants and the Indirect Participants (with respect
to other owners of beneficial interests in the Global Exchange Debenture).
Investors in the Global Exchange Debenture may hold their interests therein
directly through DTC, if they are Participants in such system. The laws of some
states require that certain persons take physical delivery in definitive form of
securities that they own. Consequently, the ability to transfer beneficial
interests in a Global Exchange Debenture to such persons will be limited to that
extent. Because DTC can act only on behalf of Participants the ability of a
person having beneficial interests in a Global Exchange Debenture to pledge such
interests to persons or entities that do not participate in the DTC system, or
otherwise take actions in respect of such interests, may be affected by the lack
of a physical certificate evidencing such interests. For certain other
restrictions on the transferability of the Exchange Debentures, see "--Exchange
of Book-Entry Exchange Debentures for Certificated Exchange Debentures."
EXCEPT AS DESCRIBED BELOW, OWNERS OF INTERESTS IN THE GLOBAL EXCHANGE
DEBENTURE WILL NOT HAVE EXCHANGE DEBENTURES REGISTERED IN THEIR NAMES, WILL NOT
RECEIVE PHYSICAL DELIVERY OF EXCHANGE DEBENTURES IN CERTIFICATED FORM AND WILL
NOT BE CONSIDERED THE REGISTERED OWNERS OR HOLDERS THEREOF UNDER THE EXCHANGE
INDENTURE FOR ANY PURPOSE.
Payments in respect of the principal of and premium and interest, if any,
on a Global Exchange Debenture registered in the name of DTC or its nominee will
be payable by the Trustee to DTC in its capacity as the registered Holder under
the Exchange Indenture. Under the terms of the Exchange Indenture, the Company
and the Trustee will treat the persons in whose names the Exchange Debentures,
including the Global Exchange Debenture, are registered as the owners thereof
for the purpose of receiving such payments and for any and all other purposes
whatsoever. Consequently, neither Holdings, the Trustee nor any agent of
Holdings or the Trustee has or will have any responsibility or liability for
(i) any aspect of DTC's records or any Participant's records relating to or
payments made on account of beneficial ownership interests in the Global
Exchange Debenture, or for maintaining, supervising or reviewing any of DTC's
records or any Participant's records relating to the beneficial ownership
interests in the Global Exchange Debenture or (ii) any other matter relating to
the actions and practices of DTC or any of its Participants. DTC has advised
Holdings that its current practice, upon receipt of any payment in respect of
securities such as the Exchange Debenture (including principal and interest), is
to credit the accounts of the relevant Participants with the payment on the
payment date, in amounts proportionate to their respective holdings in the
principal amount of beneficial interests in the relevant security as shown on
the records of DTC unless DTC has reason to believe it will not receive payment
on such payment date. Payments by the Participants to the beneficial owners of
Exchange Debenture will be governed by standing instructions and customary
practices and will be the responsibility of the Participants and will not be the
responsibility of DTC, the Trustee or Holdings. Neither Holdings nor the Trustee
will be liable for any delay by DTC or any of its Participants in identifying
the beneficial owners of the Exchange Debentures, and Holdings and the Trustee
may conclusively rely on and will be protected in relying on instructions from
DTC or its nominee for all purposes.
Interests in the Global Exchange Debenture are expected to be eligible to
trade in DTC's Same-Day Funds Settlement System and secondary market trading
activity in such interests will therefore settle in immediately available funds,
subject in all cases to the rules and procedures of DTC and its Participants.
Subject to the transfer restrictions set forth under "Notice to Investors,"
transfers between Participants in DTC will be effected in accordance with DTC's
procedures, and will be settled in same-day funds.
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DTC has advised Holdings that it will take any action permitted to be taken
by a Holder of Exchange Debentures only at the direction of one or more
Participants to whose account with DTC interests in the Global Exchange
Debenture are credited and only in respect of such portion of the aggregate
principal amount of the Exchange Debentures as to which such Participant or
Participants has or have given such direction. However, if there is an Event of
Default under the Exchange Debentures, DTC reserves the right to exchange the
Global Exchange Debenture for Exchange Debentures in certificated form, and to
distribute such Exchange Debentures to its Participants.
The information in this section concerning DTC and its book-entry systems
has been obtained from sources that Holdings believes to be reliable, but
Holdings takes no responsibility for the accuracy thereof.
Although DTC has agreed to the foregoing procedures to facilitate transfers
of interests in the Global Exchange Debenture among participants in DTC, it is
under no obligation to perform or to continue to perform such procedures, and
such procedures may be discontinued at any time. Neither Holdings nor the
Trustee will have any responsibility for the performance by DTC or its
participants or of their respective obligations under the rules and procedures
governing its operations.
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DESCRIPTION OF NEW DEBENTURES
Set forth below is a summary of the material provisions of the Indenture,
dated as of January 27, 1998, by and between Holdings and State Street Bank and
Trust Company, as trustee (the "Trustee"), pursuant to which the Old Debentures
were, and the New Debentures will be, issued, a copy of which is filed as an
exhibit to the Registration Statement of which this Prospectus is a part. The
definition of certain capitalized terms used in the following summary are set
forth under "--Certain Definitions" below. Capitalized terms used herein and not
otherwise defined in this section shall have the meanings assigned to them in
the Indenture.
GENERAL
The Old Debentures were, and the New Debentures will be, general unsecured
obligations of Holdings, limited in aggregate principal amount at maturity to
$89.0 million. The Debentures rank senior in right of payment to all future
subordinated Indebtedness of Holdings and pari passu in right of payment with
all existing and future Senior Indebtedness of Holdings. As of December 31,
1997, on a pro forma basis after giving effect to the Transactions, the
aggregate amount of Indebtedness of Holdings was $50.5 million (all of which was
attributable to the Old Debentures). Holdings conducts all of its operations
through its Subsidiaries. The Debentures are effectively subordinated to all
existing and future Indebtedness and other liabilities and commitments of
Holdings' Subsidiaries (including without limitation, Liberty Group Operating's
obligations under the Senior Subordinated Notes and the Revolving Credit
Facility, trade payables and lease obligations). As of December 31, 1997, on a
pro forma basis after giving effect to the Transactions, Holdings' Subsidiaries
would have had $180.0 million of Indebtedness outstanding, consisting of
Indebtedness under the Senior Subordinated Note Indenture.
The term "Subsidiaries" as used herein does not include Unrestricted
Subsidiaries. As of the date of the Indenture and as of the date hereof, none of
Holdings' Subsidiaries were Unrestricted Subsidiaries. However, under certain
circumstances, Holdings will be able to designate current or future Subsidiaries
as Unrestricted Subsidiaries. Unrestricted Subsidiaries generally will not be
subject to the restrictive covenants set forth in the Indenture.
The Debentures will mature on February 1, 2009. The Old Debentures were
issued at a substantial discount from their principal amount at maturity to
generate gross proceeds of $50.5 million. Holdings will not receive any proceeds
from the issuance of the New Debentures. The issue price of the Old Debentures
represented a yield to maturity of 11 5/8% (computed on a semi-annual bond
equivalent basis) calculated from January 27, 1998. Until February 1, 2003, no
cash interest will accrue on the Debentures, but the Accreted Value will
increase (representing amortization of OID) between the date of original
issuance and February 1, 2003, on a semi-annual bond equivalent basis using a
360-day year comprised of twelve 30-day months, such that the Accreted Value
shall be equal to the full principal amount at maturity of the Debentures on
February 1, 2003. Beginning on February 1, 2003, cash interest on the Debentures
will accrue at the rate of 11 5/8% per annum and will be payable semi-annually
on February 1 and August 1 of each year, commencing on August 1, 2003, to
Holders of the Debentures of record on the immediately preceding January 15 and
July 15, respectively. Interest on the New Debentures will accrue from the most
recent date to which interest has been paid, or, if no interest has been paid,
from February 1, 2003. Interest will be calculated on the basis of a 360-day
year consisting of twelve 30-day months. For purposes of this section only, the
term "Holders" shall mean holders of the Debentures.
Principal, premium, if any, and interest on the Debentures will be payable,
and the Debentures may be presented for registration of transfer or exchange, at
the office or agency of Holdings maintained for such purpose, which office or
agency shall be maintained in the Borough of Manhattan, The City of New York.
Except as set forth below, at the option of Holdings, payment of interest may be
made by check mailed to the Holders at the addresses set forth upon the registry
books of Holdings. No service charge will be made for any registration of
transfer or exchange of Debentures, but Holdings may require payment of a sum
sufficient to cover any tax or other governmental charge payable in connection
therewith. Until otherwise designated by Holdings, Holdings' office or agency
will be the corporate trust office of the Trustee presently located at the
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office of the Trustee in the Borough of Manhattan, The City of New York. The Old
Debentures were, and the New Debentures will be, issued only in fully registered
form, without coupons, in denominations of $1,000 and integral multiples
thereof.
OPTIONAL REDEMPTION
Holdings will not have the right to redeem any Debentures prior to
February 1, 2003 (other than out of the Net Cash Proceeds of a Public Equity
Offering, as described in the next paragraph). The Debentures will be redeemable
for cash at the option of Holdings, in whole or in part, at any time on or after
February 1, 2003, upon not less than 30 days nor more than 60 days notice to
each Holder of Debentures, at the following redemption prices (expressed as
percentages of the principal amount) if redeemed during the 12-month period
commencing February 1 of the years indicated below, in each case (subject to the
right of Holders of record on a Record Date to receive the corresponding
interest due on an Interest Payment Date corresponding to such Record Date that
is on or prior to such Redemption Date) together with accrued and unpaid
interest thereon to the Redemption Date:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2003...................................................... 105.813%
2004...................................................... 103.875%
2005...................................................... 101.938%
2006 and thereafter....................................... 100.000%
</TABLE>
Notwithstanding the foregoing, at any time on or prior to February 1, 2001,
Holdings may redeem, on one or more occasions, up to an aggregate of 35% of the
aggregate principal amount at maturity of the Debentures originally outstanding
at a redemption price equal to 111.625% of the Accreted Value thereof plus
accrued and unpaid interest to the date of redemption, with cash from the Net
Cash Proceeds to Holdings of one or more Public Equity Offerings; provided, that
at least 65% of the aggregate principal amount of the Debentures originally
outstanding remain outstanding immediately after the occurrence of each such
redemption; provided, further, that such notice of redemption shall be sent
within 30 days after the date of closing of any such Public Equity Offering, and
such redemption shall occur within 60 days after the date such notice is sent.
In the case of a partial redemption, the Trustee shall select the
Debentures or portions thereof for redemption on a pro rata basis, by lot or in
such other manner it deems appropriate and fair. The Debentures may be redeemed
in part in multiples of $1,000 only.
The Debentures will not have the benefit of any sinking fund.
Notice of any redemption will be sent, by first class mail, at least 30
days and not more than 60 days prior to the date fixed for redemption to the
Holder of each Debenture to be redeemed to such Holder's last address as then
shown upon the registry books of the Registrar. Any notice which relates to a
Debenture to be redeemed in part only must state the portion of the principal
amount equal to the unredeemed portion thereof and must state that on and after
the date of redemption, upon surrender of such Debenture, a new Debenture or
Debentures in a principal amount equal to the unredeemed portion thereof will be
issued. On and after the date of redemption, interest will cease to accrue on
the Debentures or portions thereof called for redemption, unless Holdings
defaults in the payment thereof.
CERTAIN COVENANTS
REPURCHASE OF DEBENTURES AT THE OPTION OF THE HOLDER UPON A CHANGE OF CONTROL
The Indenture provides that in the event that a Change of Control has
occurred, each Holder of Debentures will have the right, at such Holder's
option, pursuant to an offer (subject only to conditions required by applicable
law, if any) by Holdings (the "Change of Control Offer"), to require Holdings to
repurchase all or any part of such Holder's Debentures (provided, that the
principal amount of such Debentures must be $1,000 or an integral multiple
thereof) on a date (the "Change of Control Purchase Date") that is no later than
45 Business Days after the occurrence of such Change of Control, at a cash price
equal to 101% of the Accreted Value thereof plus accrued and unpaid interest to
the Change of Control
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Purchase Date in the case of any such purchase prior to February 1, 2003, or
101% of the principal amount at maturity thereof plus accrued and unpaid
interest to the Change of Control Purchase Date in the case of any such purchase
on or after February 1, 2003 (the "Change of Control Purchase Price"). The
Change of Control Offer shall be made within 15 Business Days following a Change
of Control and shall remain open for 20 Business Days following its commencement
(the "Change of Control Offer Period"). Upon expiration of the Change of Control
Offer Period, Holdings shall promptly purchase all Debentures properly tendered
in response to the Change of Control Offer.
As used herein, a "Change of Control" means (i) any merger or consolidation
of Holdings with or into any person or any sale, transfer or other conveyance,
whether direct or indirect, of all or substantially all of the assets of
Holdings on a consolidated basis, in one transaction or a series of related
transactions, if, immediately after giving effect to such transaction(s), any
"person" or "group" (as such terms are used for purposes of Sections 13(d) and
14(d) of the Exchange Act, whether or not applicable), other than any Excluded
Person or Excluded Persons, is or becomes the Beneficial Owner, directly or
indirectly, of more than 50% of the total voting power in the aggregate normally
entitled to vote in the election of directors, managers or trustees, as
applicable, of the transferee(s) or surviving entity or entities, (ii) any
"person" or "group," other than any Excluded Person or Excluded Persons, becomes
the Beneficial Owner, directly or indirectly, of more than 50% of the total
voting power in the aggregate of all classes of Capital Stock of Holdings then
outstanding normally entitled to vote in elections of directors, or (iii) during
any period of 12 consecutive months after the Issue Date, individuals who at the
beginning of any such 12-month period constituted the Board of Directors of
Holdings (together, in each case, with any new directors whose election by such
Board of Directors or whose nomination for election by the shareholders of
Holdings was approved by LGP or a Related Party of LGP or by the Excluded
Persons or by a vote of a majority of the directors then still in office who
were either directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any reason to
constitute a majority of the Board of Directors of Holdings then in office, as
applicable.
On or before the Change of Control Purchase Date, Holdings will (i) accept
for payment Debentures or portions thereof properly tendered pursuant to the
Change of Control Offer, (ii) deposit with the Paying Agent cash sufficient to
pay the Change of Control Purchase Price (together with accrued and unpaid
interest) of all Debentures so tendered, and (iii) deliver to the Trustee
Debentures so accepted together with an Officers' Certificate listing the
Debentures or portions thereof being purchased by Holdings. The Paying Agent
promptly will pay the Holders of Debentures so accepted an amount equal to the
Change of Control Purchase Price (together with accrued and unpaid interest),
and the Trustee promptly will authenticate and deliver to such Holders a new
Debenture equal in principal amount to any unpurchased portion of the Debenture
surrendered. Any Debentures not so accepted will be delivered promptly by
Holdings to the Holder thereof. Holdings publicly will announce the results of
the Change of Control Offer on or as soon as practicable after the Change of
Control Purchase Date.
Prior to making an offer to purchase Debentures upon a Change of Control,
but in any event within 90 days following such a Change of Control, Holdings
will either repay all outstanding Indebtedness of its Subsidiaries (including
Liberty Group Operating) or obtain the requisite consents, if any, under the
Credit Agreement and the Senior Subordinated Note Indenture to permit the
repurchase of the Debentures as required by this covenant. Holdings will not be
required to purchase any Debentures until it has complied with the preceding
sentence, but Holdings' failure to make a Change of Control Offer when required
or to purchase tendered Debentures when tendered would constitute an Event of
Default under the Indenture.
The obligations with respect to a Change of Control Offer shall be
satisfied to the extent actually performed by a third party in accordance with
the terms of the Indenture.
The Change of Control purchase feature of the Debentures may make more
difficult or discourage a takeover of Holdings and the removal of incumbent
management. The phrase "all or substantially all" of the assets of Holdings will
likely be interpreted under applicable state law and will be dependent upon
particular facts and circumstances. As a result, there may be a degree of
uncertainty in ascertaining whether a sale or transfer of "all or substantially
all" of the assets of Holdings has occurred. In addition, no assurances can be
given that Holdings will be able to acquire Debentures tendered upon the
occurrence of a Change of Control.
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Any Change of Control Offer will be made in compliance with all applicable
laws, rules and regulations, including, if applicable, Regulation 14E under the
Exchange Act and the rules thereunder and all other applicable Federal and state
securities laws and any provisions of the Indenture which conflict with such
laws shall be deemed to be superseded by the provisions of such laws.
If the Change of Control Purchase Date hereunder is on or after an interest
payment Record Date and on or before the associated Interest Payment Date, any
accrued and unpaid interest due on such Interest Payment Date will be paid to
the person in whose name a Debenture is registered at the close of business on
such Record Date, and such interest will not be payable to Holders who tender
the Debentures pursuant to such Change of Control Offer.
The Credit Agreement and the Senior Subordinated Note Indenture restrict
Liberty Group Operating from paying dividends or making other distributions to
Holdings. If Holdings is unable to obtain dividends from Liberty Group Operating
sufficient to permit the repurchase of the Debentures or does not refinance such
Indebtedness, Holdings will likely not have the financial resources to
repurchase Debentures. In any event, there can be no assurance that Holdings'
Subsidiaries will have the resources available to pay any such dividend or make
any such distribution.
LIMITATION ON INCURRENCE OF ADDITIONAL INDEBTEDNESS AND DISQUALIFIED CAPITAL
STOCK
The Indenture provides that, except as set forth in this covenant, Holdings
will not, and will not permit any of its Subsidiaries to, directly or
indirectly, issue, assume, guaranty, incur, become directly or indirectly liable
with respect to (including as a result of an Acquisition), or otherwise become
responsible for, contingently or otherwise (individually and collectively, to
"incur" or, as appropriate, an "incurrence"), any Indebtedness (including
Acquired Indebtedness), other than Permitted Indebtedness. Notwithstanding the
foregoing, if (i) no Default or Event of Default shall have occurred and be
continuing at the time of, or would occur after giving effect on a pro forma
basis to, such incurrence of Indebtedness or Disqualified Capital Stock and
(ii) on the date of such incurrence (the "Incurrence Date"), after giving effect
on a pro forma basis to such incurrence of such Indebtedness or Disqualified
Capital Stock and the use of proceeds thereof, the Leverage Ratio shall not
exceed 7.5 to 1 (the "Debt Incurrence Ratio"), then Holdings and its
Subsidiaries may incur such Indebtedness or Disqualified Capital Stock.
In addition, the foregoing limitations will not apply to:
(a) the incurrence by Holdings or any of its Subsidiaries of Purchase
Money Indebtedness on or after the Issue Date; provided, that (i) the
aggregate principal amount of such Indebtedness incurred on or after the
Issue Date and outstanding at any time pursuant to this paragraph (a)
(including any Indebtedness issued to refinance, replace or refund such
Indebtedness) shall not exceed $15.0 million, and (ii) in each case, such
Indebtedness as originally incurred shall not constitute more than 100% of
the cost (determined in accordance with GAAP) to Holdings or such
Subsidiary, as applicable, of the property so purchased or leased;
(b) the incurrence by Holdings or any of its Subsidiaries of
Indebtedness in an aggregate principal amount outstanding at any time
(including Indebtedness incurred to refinance, replace or refund such
Indebtedness) of up to $10.0 million (which may be incurred pursuant to the
Credit Agreement); and
(c) the incurrence by Holdings or any of its Subsidiaries of
Indebtedness, pursuant to the Credit Agreement, up to an aggregate
principal amount outstanding at any time (including any Indebtedness
incurred to refinance, replace or refund such Indebtedness) of $175.0
million, minus the amount of any such Indebtedness retired with the Net
Cash Proceeds from any Asset Sale or assumed by a transferee in an Asset
Sale.
Indebtedness or Disqualified Capital Stock of any person which is
outstanding at the time such person becomes a Subsidiary of Holdings (including
upon designation of any subsidiary or other person as a Subsidiary) or is merged
with or into or consolidated with Holdings or a Subsidiary of Holdings, shall be
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deemed to have been incurred at the time such person becomes such a Subsidiary
of Holdings or is merged with or into or consolidated with Holdings or a
Subsidiary of Holdings, as applicable.
Notwithstanding anything to the contrary contained in the Indenture,
Holdings will not, and will not permit any of its Subsidiaries to, incur any
Indebtedness that is contractually subordinate to any other Indebtedness of
Holdings unless such Indebtedness is at least as subordinate to the Debentures,
as applicable.
LIMITATION ON RESTRICTED PAYMENTS
The Indenture provides that Holdings will not, and will not permit any of
its Subsidiaries to, directly or indirectly, make any Restricted Payment if,
after giving effect to such Restricted Payment on a pro forma basis, (1) a
Default or an Event of Default shall have occurred and be continuing, (2)
Holdings is not permitted to incur at least $1.00 of additional Indebtedness
pursuant to the Debt Incurrence Ratio in the covenant "Limitation on Incurrence
of Additional Indebtedness and Disqualified Capital Stock," or (3) the aggregate
amount of all Restricted Payments made by Holdings and its Subsidiaries,
including, after giving effect to such proposed Restricted Payment from and
after the Issue Date, would exceed the sum of (a)(i) Consolidated EBITDA of
Holdings for the period (taken as one accounting period), commencing on the
first day of the first fiscal quarter commencing on or prior to the Issue Date,
to and including the last day of the fiscal quarter ended immediately prior to
the date of each such calculation (or, in the event Consolidated EBITDA for such
period is a deficit, then minus such deficit) less (ii) 150% of Consolidated
Fixed Charges for such period, plus (b) the aggregate Net Cash Proceeds received
by Holdings from the sale of Holdings' Qualified Capital Stock (other than in
each case (i) to a Subsidiary of Holdings, (ii) to the extent applied in
connection with a Qualified Exchange and (iii) to the extent applied to
repurchase Capital Stock pursuant to clause (b) of the definition of Permitted
Payments) after the Issue Date.
The provisions of the immediately preceding paragraph will not prohibit or
be violated by (A) a Qualified Exchange; (B) the payment or making of any
Restricted Payment within 60 days after the date of declaration thereof or the
making of any binding commitment in respect thereof, if at said date of
declaration or commitment, such Restricted Payment would have complied with the
provisions contained in clauses (1), (2) and (3) of the immediately preceding
paragraph; and (C) Permitted Payments. The full amount of any Restricted Payment
made pursuant to the foregoing clause (B) (but not pursuant to clauses (A) or
(C)) of the immediately preceding sentence, however, will be deducted in the
calculation of the aggregate amount of Restricted Payments available to be made
referred to in clause (3) of the immediately preceding paragraph.
For purposes of this covenant, the amount of any Restricted Payment, if
other than in cash, shall be the fair market value thereof, as determined in the
good faith reasonable judgment of the Board of Directors of Holdings.
LIMITATION ON DIVIDENDS AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES
The Indenture provides that Holdings will not, and will not permit any of
its Subsidiaries to, directly or indirectly, create, assume or suffer to exist
any consensual restriction on the ability of any Subsidiary of Holdings to pay
dividends or make other distributions to or on behalf of, or to pay any
obligation to or on behalf of, or otherwise to transfer assets or property to or
on behalf of, or make or pay loans or advances to or on behalf of, Holdings or
any Subsidiary of Holdings, except (a) restrictions imposed by the Debentures or
the Indenture or by other Indebtedness of Holdings ranking pari passu with the
Debentures, provided such restrictions are not materially more restrictive than
those imposed by the Debentures or the Indenture, (b) restrictions imposed by
applicable law, (c) existing restrictions under Indebtedness outstanding on the
Issue Date, (d) restrictions under any Acquired Indebtedness not incurred in
violation of the Indenture or any agreement relating to any property, asset or
business acquired by Holdings or any of its Subsidiaries, which restrictions in
each case existed at the time of Acquisition, were not put in place in
connection with or in anticipation of such Acquisition and are not applicable to
any person, other than the person acquired, or to any property, asset or
business, other than the property, assets and business so acquired, (e) any such
restriction or requirement imposed by Indebtedness incurred under the Credit
Agreement, in accordance with the Indenture, provided such restriction or
requirement is not materially more restrictive than that imposed by the
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Revolving Credit Facility as of the Issue Date, (f) restrictions with respect
solely to a Subsidiary of Holdings imposed pursuant to a binding agreement which
has been entered into for the sale or disposition of all or substantially all of
the Equity Interests or assets of such Subsidiary, provided such restrictions
apply solely to the Equity Interests or assets of such Subsidiary which are
being sold, (g) restrictions on transfer contained in Purchase Money
Indebtedness incurred pursuant to paragraph (a) of the covenant "Limitation on
Incurrence of Additional Indebtedness and Disqualified Capital Stock," provided
such restrictions relate only to the transfer of the property acquired with the
proceeds of such Purchase Money Indebtedness, and (h) in connection with and
pursuant to permitted Refinancings, replacements of restrictions imposed
pursuant to clauses (a), (c), (d), (e) or (g) of this paragraph that are not
materially more restrictive than those being replaced and do not apply to any
other person or assets than those that would have been covered by the
restrictions in the Indebtedness so refinanced. Notwithstanding the foregoing,
neither (a) customary provisions restricting subletting or assignment of any
lease entered into in the ordinary course of business, consistent with industry
practice, nor (b) Liens permitted under the terms of the Indenture shall in and
of themselves be considered a restriction on the ability of the applicable
Subsidiary to transfer such agreement or assets, as the case may be.
LIMITATION ON LIENS SECURING INDEBTEDNESS
Holdings will not, and will not permit any of its Subsidiaries to, create,
incur, assume or suffer to exist, to secure any Indebtedness, any Lien of any
kind, other than Permitted Liens, upon any of their respective assets now owned
or acquired on or after the date of the Indenture or upon any income or profits
therefrom unless Holdings provides, and causes its Subsidiaries to provide,
concurrently therewith or immediately thereafter, that the Debentures are
equally and ratably so secured for so long as such Indebtedness so secured
remains outstanding; provided that, if such Indebtedness is Subordinated
Indebtedness, the Lien securing such Subordinated Indebtedness shall be
subordinate and junior to the Lien securing the Debentures with the same
relative priority as such Subordinated Indebtedness shall have with respect to
the Debentures.
LIMITATION ON SALE OF ASSETS AND SUBSIDIARY STOCK
The Indenture provides that Holdings will not, and will not permit any of
its Subsidiaries to, in one or a series of related transactions, convey, sell,
transfer, assign or otherwise dispose of, directly or indirectly, any of its
property, business or assets (other than cash or Cash Equivalents), including by
merger or consolidation, and including any sale or other transfer or issuance of
any Equity Interests (other than directors' qualifying shares) of any Subsidiary
of Holdings, whether by Holdings or a Subsidiary of Holdings, and including
(except as provided in clause (vi) of the third paragraph of this covenant) any
Sale and Leaseback Transaction (any of the foregoing, an "Asset Sale"), unless
(1)(a) within 360 days after the date of such Asset Sale, the Net Cash Proceeds
therefrom (the "Asset Sale Offer Amount") are applied to the optional redemption
of the Debentures in accordance with the terms of the Indenture and other
Indebtedness of Holdings ranking on a parity with the Debentures from time to
time outstanding with similar provisions requiring Holdings to make an offer to
purchase or to redeem such Indebtedness with the proceeds from asset sales, pro
rata in proportion to the respective principal amounts (or accreted values in
the case of Indebtedness issued with an OID) of the Debentures and such other
Indebtedness then outstanding or to the repurchase of the Debentures and such
other Indebtedness pursuant to a cash offer (subject only to conditions required
by applicable law, if any (pro rata in proportion to the respective principal
amounts (or accreted values in the case of Indebtedness issued with an OID) of
the Debentures and such other Indebtedness then outstanding) (the "Asset Sale
Offer") at a purchase price of 100% of principal amount (or accreted value in
the case of Indebtedness issued with an OID) (the "Asset Sale Offer Price")
together with accrued and unpaid interest to the date of payment, made within
360 days of such Asset Sale, or (b) within 360 days following such Asset Sale,
the Asset Sale Offer Amount is used (i) to make one or more Acquisitions or
invested in assets and property (other than notes, bonds, obligations and
securities) which in the good faith reasonable judgment of the Board of
Directors of Holdings will constitute or be a part of a Related Business of
Holdings or such Subsidiary (if it continues to be a Subsidiary) immediately
following such transaction or (ii) to retire permanently Indebtedness incurred
under the Credit Agreement pursuant to paragraph (c) of the covenant "Limitation
on Incurrence of Additional Indebtedness and Disqualified Capital Stock"
(including that in the
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case of a revolver or similar arrangement that makes credit available, such
commitment is so permanently reduced by such amount) the Senior Subordinated
Notes or other Indebtedness ranking on a parity with either the foregoing
Indebtedness or other Indebtedness, incurred pursuant to paragraph (b) of such
covenant, (2) at least 75% of the consideration for such Asset Sale or series of
related Asset Sales consists of cash or Cash Equivalents; provided that (x) the
amount of any liabilities (as shown on Holdings' most recent consolidated
balance sheet) of Holdings or any Subsidiary (other than Subordinated
Indebtedness) that are assumed by the transferee in such Asset Sale (provided
that Holdings and its Subsidiaries are released from all obligations in respect
thereof) and (y) any notes or other obligations received by Holdings or any such
Subsidiary from such transferee that are promptly (but in no event more than 90
days after receipt) converted by Holdings or such Subsidiary into cash or Cash
Equivalents (to the extent of the cash or Cash Equivalents, as the case may be,
received), shall be deemed to be cash or Cash Equivalents, as the case may be,
for purposes of this provision, and such cash and Cash Equivalents shall be
deemed to be Net Cash Proceeds received from the Asset Sale of the related
property sold for such notes or other obligations, for purposes of this
covenant; provided, further, this clause (2) shall not apply to the sale or
disposition of assets as a result of a foreclosure (or a secured party taking
ownership of such assets in lieu of foreclosure) or as a result of an
involuntary proceeding in which Holdings cannot, directly or through its
Subsidiaries, direct the type of proceeds received, and (3) with respect to any
Asset Sale or series of related Asset Sales, Net Cash Proceeds of which exceed
$2.0 million, the Board of Directors of Holdings determines in good faith that
Holdings or such Subsidiary, as applicable, receives fair market value for such
Asset Sale.
The Indenture provides that an acquisition of Debentures pursuant to an
Asset Sale Offer may be deferred until the accumulated Net Cash Proceeds from
Asset Sales not applied to the uses set forth in clause 1(b) above (the "Excess
Proceeds") exceeds $10.0 million and that each Asset Sale Offer shall remain
open for 20 Business Days following its commencement (the "Asset Sale Offer
Period"). Upon expiration of the Asset Sale Offer Period, Holdings shall apply
the Asset Sale Offer Amount plus an amount equal to accrued and unpaid interest
to the purchase of all Indebtedness properly tendered (on a pro rata basis if
the Asset Sale Offer Amount is insufficient to purchase all Indebtedness so
tendered) at the Asset Sale Offer Price (together with any accrued and unpaid
interest). To the extent that the aggregate amount of Indebtedness tendered
pursuant to an Asset Sale Offer is less than the Asset Sale Offer Amount,
Holdings may use any remaining Net Cash Proceeds for general corporate purposes
as otherwise permitted by the Indenture and following each Asset Sale Offer the
Excess Proceeds amount shall be reset to zero.
Notwithstanding the foregoing provisions of this covenant, the following
transactions shall not be deemed Asset Sales:
(i) Holdings and each of its Subsidiaries may convey, sell, lease,
transfer, assign or otherwise dispose of property in the ordinary course of
business;
(ii) Holdings and each of its Subsidiaries may (x) convey, sell,
lease, transfer, assign or otherwise dispose of assets pursuant to and in
accordance with the limitation on mergers, sales or consolidations
provisions in the Indenture, (y) make Restricted Payments permitted by the
covenant "Limitation on Restricted Payments," and (z) engage in Exempted
Affiliate Transactions;
(iii) Holdings and each of its Subsidiaries may convey, sell,
transfer, assign or otherwise dispose of assets or issue Capital Stock to
Holdings or any of its Subsidiaries;
(iv) Holdings and each of its Subsidiaries may sell or dispose of
damaged, worn out or other obsolete property in the ordinary course of
business so long as such property is no longer necessary for the proper
conduct of the business of Holdings or such Subsidiary, as applicable;
(v) Holdings and each of its Subsidiaries may exchange assets held by
Holdings or a Subsidiary for assets held by any person or entity; provided
that (A) the assets received by Holdings or a Subsidiary in any such
exchange in the good faith reasonable judgment of the Board of Directors of
Holdings will immediately constitute, be a part of, or be used in, a
Related Business, (B) the Board of Directors of Holdings has determined
that the terms of any exchange are fair and reasonable, and (C) any such
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exchange shall be deemed to be an Asset Sale to the extent that Holdings or
any Subsidiary receive cash or Cash Equivalents in such exchange;
(vi) Holdings and each of its Subsidiaries may engage in Sale and
Leaseback Transactions with respect to property acquired after the Issue
Date (other than property acquired in exchange for or with the proceeds
from the sale or other disposition of property held by Holdings or any
Subsidiary on the Issue Date);
(vii) Holdings and each of its Subsidiaries may liquidate Cash
Equivalents in the ordinary course of business;
(viii) Holdings and each of its Subsidiaries may create or assume
Liens (or permit any foreclosure thereon) not prohibited by the Indenture;
(ix) Holdings and each of its Subsidiaries may surrender or waive
contract rights or the settlement, release or surrender of contract, tort
or other claims of any kind; and
(x) Holdings and its Subsidiaries, collectively, may convey, sell,
transfer, assign or otherwise dispose of assets having an aggregate fair
market value not exceeding $2.0 million in any fiscal year.
All Net Cash Proceeds from an Event of Loss (other than the proceeds of any
business interruption insurance) shall be invested or otherwise used as provided
in clause 1 of the first paragraph of this covenant, all within 18 months from
the occurrence of such Event of Loss.
Any Asset Sale Offer will be made in compliance with all applicable laws,
rules and regulations, including, if applicable, Regulation 14E under the
Exchange Act and the rules thereunder and all other applicable Federal and state
securities laws and any provisions of the Indenture which conflict with such
laws shall be deemed to be superseded by the provisions of such laws.
If the payment date in connection with an Asset Sale Offer hereunder is on
or after an interest payment Record Date and on or before the associated
Interest Payment Date, any accrued and unpaid interest will be paid to the
person in whose name a Debenture is registered at the close of business on such
Record Date, and such interest will not be payable to Holders who tender
Debentures pursuant to such Asset Sale Offer.
LIMITATION ON TRANSACTIONS WITH AFFILIATES
The Indenture provides that neither Holdings nor any of its Subsidiaries
will be permitted after the Issue Date to enter into any contract, agreement,
arrangement or transaction with any Affiliate (an "Affiliate Transaction"), or
any series of related Affiliate Transactions (other than Exempted Affiliate
Transactions), unless the terms of such Affiliate Transaction are fair and
reasonable to Holdings or such Subsidiary, as the case may be, and are at least
as favorable as the terms which could reasonably be expected to be obtained by
Holdings or such Subsidiary, as the case may be, in a comparable transaction
made on an arm's-length basis with persons who are not Affiliates.
Without limiting the foregoing, in connection with any Affiliate
Transaction or series of related Affiliate Transactions (other than Exempted
Affiliate Transactions) (1) involving consideration to either party in excess of
$1.5 million, Holdings must deliver an Officers' Certificate to the Trustee,
stating that the terms of such Affiliate Transaction are fair and reasonable to
Holdings, and no less favorable to Holdings than could reasonably be expected to
have been obtained in an arm's-length transaction with a non-Affiliate, and (2)
involving consideration to either party in excess of $7.5 million, Holdings must
also, prior to consummation thereof, obtain a favorable written opinion as to
the fairness of such transaction to Holdings from a financial point of view from
an independent investment banking firm of national reputation or, if pertaining
to a matter for which such investment banking firms do not customarily render
such opinions, an appraisal or valuation firm of national reputation; provided,
that this sentence shall not apply to the sale or purchase of products or
services by Holdings or its Subsidiaries to or from any Affiliate of LGP or any
Related Party thereof, which sale or purchase is in the ordinary course of
business and in accordance with industry practice.
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LIMITATION ON MERGER, SALE OR CONSOLIDATION
The Indenture provides that Holdings will not consolidate with or merge
with or into another person or, directly or indirectly, sell, lease, convey or
transfer all or substantially all of its assets (computed on a consolidated
basis), whether in a single transaction or a series of related transactions, to
another person or group of affiliated persons or adopt a plan of liquidation,
unless (i) either (a) Holdings is the continuing entity or (b) the resulting,
surviving or transferee entity or, in the case of a plan of liquidation, the
entity which receives the greatest value from such plan of liquidation is a
corporation organized under the laws of the United States, any state thereof or
the District of Columbia and expressly assumes by supplemental indenture all of
the obligations of Holdings in connection with the Debentures and the Indenture;
(ii) no Default or Event of Default shall exist or shall occur immediately after
giving effect on a pro forma basis to such transaction; (iii) immediately after
giving effect to such transaction on a pro forma basis, the Consolidated Net
Worth of the consolidated, resulting, surviving or transferee entity or, in the
case of a plan of liquidation, the entity which receives the greatest value from
such plan of liquidation is at least equal to the Consolidated Net Worth of
Holdings immediately prior to such transaction; and (iv) immediately after
giving effect to such transaction on a pro forma basis, the consolidated,
resulting, surviving or transferee entity or, in the case of a plan of
liquidation, the entity which receives the greatest value from such plan of
liquidation would immediately thereafter be permitted to incur at least $1.00 of
additional Indebtedness pursuant to the Debt Incurrence Ratio set forth in the
covenant "Limitation on Incurrence of Additional Indebtedness and Disqualified
Capital Stock."
Upon any consolidation or merger or any transfer of all or substantially
all of the assets of Holdings or consummation of a plan of liquidation in
accordance with the foregoing, the successor corporation formed by such
consolidation or into which Holdings is merged or to which such transfer is made
or, in the case of a plan of liquidation, the entity which receives the greatest
value from such plan of liquidation shall succeed to and (except in the case of
a lease) be substituted for, and may exercise every right and power of, Holdings
under the Indenture with the same effect as if such successor corporation had
been named therein as Holdings, and (except in the case of a lease) Holdings
shall be released from the obligations under the Debentures and the Indenture
except with respect to any obligations that arise from, or are related to, such
transaction.
For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise) of all or substantially all of the properties and assets of one or
more Subsidiaries, Holdings' interest in which constitutes all or substantially
all of the properties and assets of Holdings, shall be deemed to be the transfer
of all or substantially all of the properties and assets of Holdings.
LIMITATION ON LINES OF BUSINESS
The Indenture provides that neither Holdings nor any of its Subsidiaries
shall directly or indirectly engage to any substantial extent in any line or
lines of business activity other than that which, in the reasonable good faith
judgment of the Board of Directors of Holdings, is a Related Business.
RESTRICTION ON SALE AND ISSUANCE OF SUBSIDIARY STOCK
The Indenture provides that Holdings will not sell, and its Subsidiaries
will not issue or sell, any shares of Capital Stock (other than directors'
qualifying shares) of any Subsidiary of Holdings to any person other than
Holdings or a wholly owned Subsidiary of Holdings, except for shares of common
stock with no preferences or special rights or privileges and with no redemption
or prepayment provisions. Notwithstanding the foregoing, (a) Holdings and its
Subsidiaries may consummate an Asset Sale of all of the Capital Stock owned by
Holdings and its Subsidiaries of any Subsidiary and (b) Holdings or any
Subsidiary may pledge, hypothecate or otherwise grant a Lien on any Capital
Stock of any Subsidiary to the extent not prohibited under the covenant
"Limitation on Liens Securing Indebtedness."
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LIMITATION ON STATUS AS INVESTMENT COMPANY
The Indenture prohibits Holdings and its Subsidiaries from being required
to register as an "investment company" (as that term is defined in the
Investment Company Act of 1940, as amended), or from otherwise becoming subject
to regulation under the Investment Company Act.
REPORTS
The Indenture provides that whether or not Holdings is subject to the
reporting requirement of Section 13 or 15(d) of the Exchange Act, Holdings shall
deliver to the Trustee and to each Holder and to prospective purchasers of
Debentures identified to Holdings, within 15 days after it is or would have been
(if it were subject to such reporting obligations) required to file such with
the Commission, annual and quarterly financial statements substantially
equivalent to financial statements that would have been included in reports
filed with the Commission, if Holdings were subject to the requirements of
Section 13 or 15(d) of the Exchange Act, including, with respect to annual
information only, a report thereon by Holdings' certified independent public
accountants as such would be required in such reports to the Commission, and, in
each case, together with a management's discussion and analysis of financial
condition and results of operations which would be so required and, unless the
Commission will not accept such reports, file with the Commission the annual,
quarterly and other reports which it is or would have been required to file with
the Commission.
EVENTS OF DEFAULT AND REMEDIES
The Indenture defines an Event of Default as (i) the failure by Holdings to
pay any installment of interest on the Debentures as and when the same becomes
due and payable and the continuance of any such failure for 30 days, (ii) the
failure by Holdings to pay all or any part of principal, or premium, if any, on
the Debentures when and as the same becomes due and payable at maturity,
redemption, by acceleration or otherwise, including, without limitation, payment
of the Change of Control Purchase Price or the Asset Sale Offer Price, or
otherwise, (iii) the failure by Holdings or any Subsidiary of Holdings to
observe or perform any other covenant or agreement contained in the Debentures
or the Indenture and the continuance of such failure for a period of 30 days
after written notice is given to Holdings by the Trustee or to Holdings and the
Trustee by the Holders of at least 25% in aggregate principal amount of the
Debentures outstanding, specifying such Default, (iv) certain events of
bankruptcy, insolvency or reorganization in respect of Holdings or any of its
Significant Subsidiaries, (v) a default in any Indebtedness of Holdings or any
of its Subsidiaries, with an aggregate principal amount in excess of $15.0
million (a) resulting from the failure to pay principal at maturity or (b) as a
result of which the maturity of such Indebtedness has been accelerated prior to
its stated maturity, and (vi) final unsatisfied judgments not covered by
insurance aggregating in excess of $15.0 million, at any one time rendered
against Holdings or any of its Subsidiaries and not stayed, bonded or discharged
within 60 days. The Indenture provides that if an Event of Default occurs and is
continuing, the Trustee must, within 90 days after the occurrence of such Event
of Default, give to the Holders notice of such Event of Default.
If an Event of Default occurs and is continuing (other than an Event of
Default specified in clause (iv) above, relating to Holdings or any of its
Significant Subsidiaries), then in every such case, either the Trustee or the
Holders of at least 25% in aggregate principal amount of the Debentures then
outstanding, by notice in writing to Holdings (and to the Trustee if given by
Holders) (an "Acceleration Notice"), may declare all the Debentures to be due
and payable immediately. If an Event of Default specified in clause (iv) above
relating to Holdings or any of its Significant Subsidiaries occurs, all
outstanding Debentures will be immediately due and payable without any
declaration or other act on the part of Trustee or the Holders. Upon any
acceleration of maturity of the Debentures, all principal of and accrued
interest on (if on or after February 1, 2003) or Accreted Value on (if prior to
February 1, 2003) the Debentures shall be due and payable immediately. The
Holders of a majority in aggregate principal amount of Debentures generally are
authorized to rescind such acceleration if all existing Events of Default, other
than the non-payment of the principal of, premium, if any, and interest on the
Debentures which have become due solely by such acceleration and except on
default with respect to any provision requiring a supermajority approval to
amend, which default may only be waived by such a supermajority, have been cured
or waived.
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The Holders of a majority in aggregate principal amount of the Debentures
at the time outstanding may waive on behalf of all the Holders any default,
except a default with respect to any provision requiring a supermajority
approval to amend, which default may only be waived by such a supermajority, and
except a default in the payment of principal of or interest on any Debenture not
yet cured or a default with respect to any covenant or provision which cannot be
modified or amended without the consent of the Holder of each outstanding
Debenture affected. Subject to the provisions of the Indenture relating to the
duties of the Trustee, the Trustee will be under no obligation to exercise any
of its rights or powers under the Indenture at the request, order or direction
of any of the Holders, unless such Holders have offered to the Trustee
reasonable security or indemnity. Subject to all provisions of the Indenture and
applicable law, the Holders of a majority in aggregate principal amount of the
Debentures at the time outstanding will have the right to direct the time,
method and place of conducting any proceeding for any remedy available to the
Trustee, or exercising any trust or power conferred on the Trustee.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Indenture provides that Holdings may, at its option, elect to have its
obligations discharged with respect to the outstanding Debentures ("Legal
Defeasance"). Such Legal Defeasance means that Holdings shall be deemed to have
paid and discharged the entire indebtedness represented, and the Indenture shall
cease to be of further effect as to all outstanding Debentures, except as to
(i) rights of Holders to receive payments in respect of the principal of,
premium, if any, and interest on such Debentures when such payments are due from
the trust funds; (ii) Holdings' obligations with respect to such Debentures
concerning issuing temporary Debentures, registration of Debentures, mutilated,
destroyed, lost or stolen Debentures, and the maintenance of an office or agency
for payment and money for security payments held in trust; (iii) the rights,
powers, trust, duties and immunities of the Trustee, and Holdings' obligations
in connection therewith; and (iv) the Legal Defeasance provisions of the
Indenture. In addition, Holdings may, at its option and at any time, elect to
have the obligations of Holdings released with respect to certain covenants that
are described in the Indenture ("Covenant Defeasance") and thereafter any
omission to comply with such obligations shall not constitute a Default or Event
of Default with respect to the Debentures. In the event Covenant Defeasance
occurs, certain events (not including non-payment, bankruptcy, receivership,
rehabilitation and insolvency events) described under "Events of Default" will
no longer constitute an Event of Default with respect to the Debentures.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i)
Holdings must irrevocably deposit with the Trustee, in trust, for the benefit of
the Holders of the Debentures, U.S. legal tender, U.S. Government Obligations or
a combination thereof, in such amounts as will be sufficient, in the opinion of
a nationally recognized firm of independent public accountants, to pay the
principal of, premium, if any, and interest on such Debentures on the stated
date for payment thereof or on the redemption date of such principal or
installment of principal of, premium, if any, or interest on such Debentures,
and the Holders of Debentures must have a valid, perfected, exclusive security
interest in such trust; (ii) in the case of Legal Defeasance before the date
that is one year prior to the Stated Maturity, Holdings shall have delivered to
the Trustee an opinion of counsel in the United States reasonably acceptable to
the Trustee confirming that (A) Holdings has received from, or there has been
published by the Internal Revenue Service, a ruling or (B) since the date of the
Indenture, there has been a change in the applicable federal income tax law, in
either case to the effect that, and based thereon such opinion of counsel shall
confirm that, the Holders of such Debentures will not recognize income, gain or
loss for federal income tax purposes as a result of such Legal Defeasance and
will be subject to federal income tax on the same amounts, in the same manner
and at the same times as would have been the case if such Legal Defeasance had
not occurred; (iii) in the case of Covenant Defeasance before the date that is
one year prior to the Stated Maturity, Holdings shall have delivered to the
Trustee an opinion of counsel in the United States reasonably acceptable to such
Trustee confirming that the Holders of such Debentures will not recognize
income, gain or loss for federal income tax purposes as a result of such
Covenant Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at same times as would have been the case if
such Covenant Defeasance had not occurred; (iv) no Default or Event of Default
shall have occurred and be continuing on the date of such deposit; (v) such
Legal Defeasance or Covenant Defeasance shall not result in a breach or
violation of, or constitute a default under,
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the Indenture or any other material agreement or instrument to which Holdings or
any of its Subsidiaries is a party or by which Holdings or any of its
Subsidiaries is bound; (vi) Holdings shall have delivered to the Trustee an
Officers' Certificate stating that the deposit was not made by Holdings with the
interest of preferring the Holders of such Debentures over any other creditors
of Holdings or with the intent of defeating, hindering, delaying or defrauding
any other creditors of Holdings or others; and (vii) Holdings shall have
delivered to the Trustee an Officers' Certificate and an opinion of counsel,
each stating that the conditions precedent provided for in, in the case of the
Officers' Certificate, (i) through (vi) and, in the case of the opinion of
counsel, clauses (i) (with respect to the validity and perfection of the
security interest), (ii), (iii) and (v) of this paragraph have been complied
with.
AMENDMENTS AND SUPPLEMENTS
The Indenture contains provisions which permit Holdings and the Trustee to
enter into a supplemental indenture for certain limited purposes without the
consent of the Holders. With the consent of the Holders of not less than a
majority in aggregate principal amount of the Debentures at the time
outstanding, Holdings and the Trustee are permitted to amend or supplement the
Indenture or any supplemental indenture or modify the rights of the Holders;
provided that no such modification may, without the consent of Holders of at
least 66 2/3% in aggregate principal amount of Debentures at the time
outstanding, modify the provisions (including the defined terms used therein) of
the covenant "Repurchase of Debentures at the Option of the Holder Upon a Change
of Control" of the Indenture in a manner adverse to the Holders; and provided,
that no such modification may, without the consent of each Holder affected
thereby: (i) change the Stated Maturity on any Debenture, or reduce the
principal amount thereof, or amend or modify the calculation on the Accreted
Value so as to reduce the amount of Accreted Value of the Debentures or the rate
of accretion on the Debentures, or reduce the rate (or extend the time for
payment) of interest thereon or any premium payable upon the redemption at the
option of Holdings thereof, or change the place of payment where, or the coin or
currency in which, any Debenture or any premium or the interest thereon is
payable, or impair the right to institute suit for the enforcement of any such
payment on or after the Stated Maturity thereof (or, in the case of redemption
at the option of Holdings, on or after the Redemption Date), or reduce the
Change of Control Purchase Price or the Asset Sale Offer Price or alter the
provisions (including the defined terms used therein) regarding the right of
Holdings to redeem the Debentures at its option in a manner adverse to Holders,
or (ii) reduce the percentage in principal amount of the outstanding Debentures,
the consent of whose Holders is required for any such amendment, supplemental
indenture or waiver provided for in the Indenture, or (iii) modify any of the
waiver provisions, except to increase any required percentage or to provide that
certain other provisions of the Indenture cannot be modified or waived without
the consent of the Holder of each outstanding Debenture affected thereby.
NO PERSONAL LIABILITY OF PARTNERS, STOCKHOLDERS, OFFICERS OR DIRECTORS
The Indenture provides that no direct or indirect stockholder, employee,
officer or director, as such, past, present or future of Holdings or any
successor entity shall have any personal liability in connection with the
Indenture or the Debentures solely by reason of his or its status as such
stockholder, employee, officer or director. Each Holder of Debentures by
accepting a Debenture waives and releases all such liability, and acknowledges
and consents to the transactions described under "The Acquisition." The waiver
and release are part of the consideration for the issuance of the Debentures.
Such waiver may not be effective to waive liabilities under the federal
securities laws and it is the view of the Commission that such a waiver is
against public policy.
CERTAIN DEFINITIONS
Set forth below is a summary of certain defined terms used in the
Certificate of Designations, the Exchange Indenture and the Indenture relating
to the Debentures. Reference is made to the Certificate of Designations, the
Exchange Indenture and the Indenture for the full definitions of such terms, as
well as any other terms used in "Description of New Senior Preferred Stock,"
"Description of Exchange Debentures" or "Description of New Debentures."
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"Accreted Value" means, as of any date of determination, the sum (rounded
to the nearest whole dollar) of (a) the initial offering price of the Debentures
or the Exchange Debentures, as the case may be, and (b) the portion of the
excess of the principal amount at maturity of the Debentures or the Exchange
Debentures, as the case may be, over such initial offering price which shall
have been accreted thereon through such date, such amount to be so accreted on a
daily basis at the rate of 11 5/8% per annum, in the case of the Debentures,
14 3/4% per annum, in the case of the Exchange Debentures, compounded
semi-annually on each February 1 and August 1 from the date of issuance of the
Debentures or the Exchange Debentures, as the case may be, through the date of
determination. On and after February 1, 2003, the Accreted Value of the
Debentures shall be equal to the principal amount at maturity.
"Acquired Indebtedness" means Indebtedness or Disqualified Capital Stock of
any person existing at the time such person becomes a Subsidiary of Holdings,
including by designation, or is merged or consolidated into or with Holdings or
one of its Subsidiaries.
"Acquisition" means the purchase or other acquisition of, or combination
with, any person (including, without limitation, the acquisition of more than
50% of the Equity Interests of any person) or all or substantially all the
assets of any person by any other person, whether by purchase, stock purchase,
merger, consolidation or other transfer, and whether or not for consideration.
"Affiliate" means any person directly or indirectly controlling or
controlled by or under direct or indirect common control with Holdings. For
purposes of this definition, the term "control" means the power to direct the
management and policies of a person, directly or through one or more
intermediaries, whether through the ownership of voting securities, by contract,
or otherwise, provided, that, with respect to ownership interest in Holdings and
its Subsidiaries, a Beneficial Owner of 10% or more of the total voting power
normally entitled to vote in the election of directors, managers or trustees, as
applicable, shall for such purposes be deemed to constitute control.
"Average Life" means, as of the date of determination, with respect to any
security or instrument, the quotient obtained by dividing (i) the sum of the
products (a) of the number of months from the date of determination to the date
or dates of each successive scheduled principal (or redemption) payment of such
security or instrument and (b) the amount of each such respective principal (or
redemption) payment by (ii) the sum of all such principal (or redemption)
payments.
"Beneficial Owner" or "beneficial owner" for purposes of the definition of
Change of Control and Affiliate has the meaning attributed to it in Rules 13d-3
and 13d-5 under the Exchange Act (as in effect on the Issue Date), whether or
not applicable.
"Board of Directors" means, with respect to any person, the Board of
Directors of such person or any committee of the Board of Directors of such
person authorized, with respect to any particular matter, to exercise the power
of the Board of Directors of such person.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday
which is not a day on which banking institutions in New York, New York are
authorized or obligated by law or executive order to close.
"Capitalized Lease Obligation" means, as to any person, the obligations of
such person under a lease that are required to be classified and accounted for
as capital lease obligations under GAAP and, for purposes of this definition,
the amount of such obligations at any date shall be the capitalized amount of
such obligations at such date, determined in accordance with GAAP.
"Capital Stock" means, with respect to any corporation, any and all shares,
interests, rights to purchase (other than convertible or exchangeable
Indebtedness or Senior Indebtedness that is not itself otherwise capital stock),
warrants, options, participations or other equivalents of or interests (however
designated) in stock issued by that corporation.
"Cash Equivalent" means (a) securities issued or directly and fully
guaranteed or insured by the United States Government, or any agency or
instrumentality thereof, having maturities of not more than one year from the
date of acquisition thereof; (b) marketable general obligations issued by any
state of the United
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States of America or any political subdivision of any such state or any public
instrumentality thereof maturing within one year from the date of acquisition
thereof and, at the time of acquisition thereof, having a credit rating of "A"
or better from either Standard & Poor's Ratings Group or Moody's Investors
Service, Inc.; (c) certificates of deposit, time deposits, eurodollar time
deposits, overnight bank deposits or bankers' acceptances having maturities of
not more than one year from the date of acquisition thereof of any domestic
commercial bank, the long-term debt of which is rated at the time of acquisition
thereof at least "A" or the equivalent thereof by either Standard & Poor's
Ratings Group or Moody's Investors Service, Inc. and having capital and surplus
in excess of $500,000,000; (d) repurchase obligations with a term of not more
than seven days for underlying securities of the types described in clauses (a),
(b) and (c) above entered into with any bank meeting the qualifications
specified in clause (c) above; (e) commercial paper rated at the time of
acquisition thereof at least A-2 or the equivalent thereof by Standard & Poor's
Ratings Group or P-2 or the equivalent thereof by Moody's Investors Service,
Inc., or carrying an equivalent rating by a nationally recognized rating agency,
if both of the two named rating agencies cease publishing ratings of
investments, and in either case maturing within 270 days after the date of
acquisition thereof; and (f) interests in any investment company which invests
solely in instruments of the type specified in clauses (a) through (e) above.
"Consolidated EBITDA" means, with respect to any person, for any period,
the Consolidated Net Income of such person for such period adjusted to add
thereto (to the extent deducted from net revenues in determining Consolidated
Net Income), without duplication, the sum of (i) consolidated income taxes,
(ii) consolidated depreciation and amortization (including amortization of debt
issuance costs in connection with any Indebtedness of such person and its
Subsidiaries), (iii) Consolidated Fixed Charges and (iv) all other non-cash
charges; provided that consolidated income taxes, depreciation and amortization
of a Subsidiary of such person that is less than wholly owned shall only be
added to the extent of the equity interest of such person in such Subsidiary.
"Consolidated Fixed Charges" of any person means, for any period, the
aggregate amount (without duplication and determined in each case in accordance
with GAAP) of (a) interest expensed or capitalized, paid, accrued, or scheduled
to be paid or accrued (including, in accordance with the following sentence,
interest attributable to Capitalized Lease Obligations) of such person and its
Consolidated Subsidiaries during such period, excluding amortization of debt
issuance costs incurred in connection with the Holdings Senior Preferred Stock,
the Exchange Debentures, the Debentures, the Senior Subordinated Notes or the
Credit Agreement but including (i) original issue discount and non-cash interest
payments or accruals on any Indebtedness, (ii) the interest portion of all
deferred payment obligations, and (iii) all commissions, discounts and other
fees and charges owed with respect to bankers' acceptances and letters of credit
financings and currency and Interest Swap and Hedging Obligations, in each case
to the extent attributable to such period, and (b) the amount of cash dividends
paid by such person or any of its Consolidated Subsidiaries in respect of
Preferred Stock (other than by Subsidiaries of such person to such person or
such person's wholly owned Subsidiaries). For purposes of this definition, (x)
interest on a Capitalized Lease Obligation shall be deemed to accrue at an
interest rate reasonably determined by Holdings to be the rate of interest
implicit in such Capitalized Lease Obligation in accordance with GAAP and (y) to
the extent such expense would result in a liability upon the consolidated
balance sheet of such person in accordance with GAAP, interest expense
attributable to any Indebtedness represented by the guaranty by such person or a
Subsidiary of such person of an obligation of another person shall be deemed to
be the interest expense attributable to the Indebtedness guaranteed.
Notwithstanding the foregoing, Consolidated Fixed Charges shall not include
costs, fees and expenses incurred in connection with the Transactions, and any
non-cash charge or expense associated with the write-off of deferred debt
issuance costs associated with the Credit Agreement, the Senior Subordinated
Notes, the Holdings Senior Preferred Stock, the Exchange Debentures, or the
Debentures.
"Consolidated Net Income" means, with respect to any person for any period,
the net income (or loss) of such person and its Consolidated Subsidiaries
(determined on a consolidated basis in accordance with GAAP) for such period,
adjusted to exclude (only to the extent included in computing such net income
(or loss) and without duplication): (a) all gains and losses which are either
extraordinary (as determined in accordance with GAAP) or are either unusual or
nonrecurring (including any gain from the sale or other
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disposition of assets outside the ordinary course of business or from the
issuance or sale of any Capital Stock), (b) the net income, if positive, of any
person, other than a Consolidated Subsidiary, in which such person or any of its
Consolidated Subsidiaries has an interest, except to the extent of the amount of
any dividends or distributions actually paid in cash to such person or a
Consolidated Subsidiary of such person during such period, but in any case not
in excess of such person's pro rata share of such person's net income for such
period, (c) the net income or loss of any person acquired in a pooling of
interests transaction for any period prior to the date of such Acquisition, (d)
the net income, if positive, of any of such person's Consolidated Subsidiaries
in the event and solely to the extent that the declaration or payment of
dividends or similar distributions is not at the time permitted by operation of
the terms of its charter or bylaws or any other agreement, instrument, judgment,
decree, order, statute, rule or governmental regulation applicable to such
Consolidated Subsidiary, (e) the effects of changes in accounting principles,
(f) any non-cash compensation expense in connection with the exercise of, grant
to or repurchase from officers, directors and employees of stock, stock options
or stock equivalents, (g) any non-cash charge or expense associated with the
write-off of deferred debt issuance costs associated with the Credit Agreement,
the Senior Subordinated Notes or the Debentures, and (h) costs, fees and
expenses incurred in connection with the Transactions.
"Consolidated Net Worth" of any person at any date means the aggregate
consolidated stockholders' equity of such person (plus amounts of equity
attributable to preferred stock) and its Consolidated Subsidiaries, as would be
shown on the consolidated balance sheet of such person prepared in accordance
with GAAP, adjusted to exclude (to the extent included in calculating such
equity), (a) the amount of any such stockholders' equity attributable to
Disqualified Capital Stock or treasury stock of such person and its Consolidated
Subsidiaries, (b) all upward revaluations and other write-ups in the book value
of any asset of such person or a Consolidated Subsidiary of such person
subsequent to the Issue Date, and (c) all investments in Subsidiaries that are
not Consolidated Subsidiaries and in persons that are not Subsidiaries.
"Consolidated Subsidiary" means, for any person, each Subsidiary of such
person (whether now existing or hereafter created or acquired) the financial
statements of which are consolidated for financial statement reporting purposes
with the financial statements of such person in accordance with GAAP.
"consolidated" means, with respect to Holdings, the consolidated accounts
of its Subsidiaries with those of Holdings, all in accordance with GAAP;
provided that "consolidated" will not include consolidation of the accounts of
any Unrestricted Subsidiary with the accounts of Holdings.
"Credit Agreement" means the one or more credit agreements (including,
without limitation, the Revolving Credit Facility) entered into by and among
Holdings, certain of its subsidiaries (if any) and certain financial
institutions, which provide for in the aggregate one or more term loans and/or
revolving credit and letter of credit facilities, including any related notes,
guarantees, collateral documents, instruments and agreements executed in
connection therewith, as such credit agreement and/or related documents may be
amended, restated, supplemented, renewed, replaced or otherwise modified from
time to time whether or not with the same agent, trustee, representative lenders
or holders, and, subject to the proviso to the next succeeding sentence
irrespective of any changes in the terms and conditions thereof. Without
limiting the generality of foregoing, the term "Credit Agreement" shall include
any amendment, amendment and restatement, renewal, extension, restructuring,
supplement or modification to any such credit agreement and all refundings,
refinancings and replacements of any such credit agreement, including any
agreement (i) extending the maturity of any Indebtedness incurred thereunder or
contemplated thereby, (ii) adding or deleting borrowers or guarantors
thereunder, so long as borrowers and issuers include one or more of Holdings and
its Subsidiaries and their respective successors and assigns, (iii) increasing
the amount of Indebtedness incurred thereunder or available to be borrowed
thereunder, provided that on the date such Indebtedness is incurred it would not
be prohibited by the covenant "Limitation on Incurrence of Additional
Indebtedness and Disqualified Capital Stock," or (iv) otherwise altering the
terms and conditions thereof in a manner not prohibited by the terms hereof.
"Disqualified Capital Stock" means (a) except as set forth in (b), with
respect to any person, any Equity Interest of such person that, by its terms or
by the terms of any security into which it is convertible, exercisable or
exchangeable, is, or upon the happening of an event or the passage of time or
both would be, required to be
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redeemed or repurchased (including at the option of the holder thereof) by such
person or any of its Subsidiaries, in whole or in part, on or prior to the
Stated Maturity of the Debentures or the Exchange Debentures, as the case may
be, and (b) with respect to any Subsidiary of such person (including with
respect to any Subsidiary of Holdings), any Equity Interests other than any
common equity with no preference, privileges, or redemption or repayment
provisions and preferred equity owned by Holdings or one of its Subsidiaries.
"Equity Interest" of any person means any shares, interests, participations
or other equivalents (however designated) in such person's equity, and shall in
any event include any Capital Stock issued by, or partnership or membership
interests in, such person.
"Event of Loss" means, with respect to any property or asset, (i) any loss,
destruction or damage of such property or asset or (ii) any condemnation,
seizure or taking, by exercise of the power of eminent domain or otherwise, of
such property or asset, or confiscation or requisition of the use of such
property or asset.
"Excluded Person" means GEI and its Related Parties.
"Exempted Affiliate Transaction" means (a) compensation, indemnification
and other benefits paid or made available (x) pursuant to the employment
agreements between Holdings and members of its senior management, or (y) for or
in connection with services actually rendered to Holdings and comparable to
those generally paid or made available by entities engaged in the same or
similar businesses (including reimbursement or advancement of reasonable
out-of-pocket expenses, directors' and officers' liability insurance and loans
to officers, directors and employees (i) in the ordinary course of business and
(ii) to purchase Holdings Common Stock in an amount not to exceed $1.0 million),
(b) transactions, expenses and payments in connection with the Transactions,
(c) any Restricted Payments or other payments or transactions expressly
permitted under the covenant "Limitation on Restricted Payments," (d) payments
to LGP for management services under the Management Services Agreement in an
amount not to exceed $1.5 million in any fiscal year, plus reimbursement of
reasonable out-of-pocket costs and expenses, (e) payments to LGP for reasonable
and customary fees and expenses for financial advisory and investment banking
services provided to Holdings in connection with major financial transactions,
and (f) transactions between or among Holdings and its Subsidiaries or between
or among Subsidiaries of Holdings, provided that any ownership interest in any
such Subsidiary which is not beneficially owned directly or indirectly by
Holdings or any of its Subsidiaries is not beneficially owned by an Affiliate of
Holdings other than by virtue of the direct or indirect ownership interest in
such Subsidiary held (in the aggregate) by Holdings and/or one or more of its
Subsidiaries.
"GAAP" means United States generally accepted accounting principles set
forth in the opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as approved by a significant segment of the
accounting profession in the United States as in effect on the Issue Date.
"GEI" means Green Equity Investors II, L.P.
"Indebtedness" of any person means, without duplication, (a) all
liabilities and obligations, contingent or otherwise, of any such person, to the
extent such liabilities and obligations would appear as a liability upon the
consolidated balance sheet of such person in accordance with GAAP, (i) in
respect of borrowed money (whether or not the recourse of the lender is to the
whole of the assets of such person or only to a portion thereof), (ii) evidenced
by bonds, notes, debentures or similar instruments, (iii) representing the
balance deferred and unpaid of the purchase price of any property or services,
except those incurred in the ordinary course of its business that would
constitute ordinarily a trade payable to trade creditors; (b) all liabilities
and obligations, contingent or otherwise, of such person (i) evidenced by
bankers' acceptances or similar instruments issued or accepted by banks, (ii)
relating to any Capitalized Lease Obligation, or (iii) evidenced by a letter of
credit or a reimbursement obligation of such person with respect to any letter
of credit; (c) all net obligations of such person under Interest Swap and
Hedging Obligations; (d) all liabilities and obligations of others of the kind
described in the preceding clauses (a), (b) or (c) that such person has
guaranteed or that is otherwise its legal liability or which are secured by one
or more Liens on any assets or property of such
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person; provided that if the liabilities or obligations which are secured by a
Lien have not been assumed in full by such person or are not such person's legal
liability in full, the amount of such Indebtedness for the purposes of this
definition shall be limited to the lesser of the amount of such Indebtedness
secured by such Lien or the fair market value of the assets or property securing
such Lien; (e) any and all deferrals, renewals, extensions, refinancing and
refundings of (whether direct or indirect), or amendments, modifications or
supplements to, any liability of the kind described in any of the preceding
clauses (a), (b), (c) or (d), or this clause (e), whether or not between or
among the same parties; and (f) all Disqualified Capital Stock of such person
(measured at the greater of its voluntary or involuntary maximum fixed
repurchase price plus accrued and unpaid dividends). For purposes hereof, the
"maximum fixed repurchase price" of any Disqualified Capital Stock which does
not have a fixed repurchase price shall be calculated in accordance with the
terms of such Disqualified Capital Stock as if such Disqualified Capital Stock
were purchased on any date on which Indebtedness shall be required to be
determined pursuant to the Indenture, and if such price is based upon, or
measured by, the Fair Market Value of such Disqualified Capital Stock, such Fair
Market Value to be determined in good faith by the Board of Directors of the
issuer (or managing general partner of the issuer) of such Disqualified Capital
Stock.
"Interest Swap and Hedging Obligation" means any obligation of any person
pursuant to any interest rate swap agreement, interest rate cap agreement,
interest rate collar agreement, interest rate exchange agreement, currency
exchange agreement or any other agreement or arrangement designed to protect
against fluctuations in interest rates or currency values, including, without
limitation, any arrangement whereby, directly or indirectly, such person is
entitled to receive from time to time periodic payments calculated by applying
either a fixed or floating rate of interest on a stated notional amount in
exchange for periodic payments made by such person calculated by applying a
fixed or floating rate of interest on the same notional amount.
"Investment" by any person in any other person means (without duplication)
(a) the acquisition (whether by purchase, merger, consolidation or otherwise) by
such person (whether for cash, property, services, securities or otherwise) of
capital stock, bonds, notes, debentures, partnership or other ownership
interests or other securities, including any options or warrants, of such other
person or any agreement to make any such acquisition; (b) the making by such
person of any deposit with, or advance, loan or other extension of credit to,
such other person (including the purchase of property from another person
subject to an understanding or agreement, contingent or otherwise, to resell
such property to such other person) or any commitment to make any such advance,
loan or extension (but excluding accounts receivable, endorsements for
collection or deposits arising in the ordinary course of business); (c) other
than guarantees of Indebtedness of Holdings or any Subsidiary to the extent
permitted by the covenant "Limitation on Incurrence of Additional Indebtedness
and Disqualified Capital Stock," the entering into by such person of any
guarantee of, or other credit support or contingent obligation with respect to,
Indebtedness or other liability of such other person; (d) the making of any
capital contribution by such person to such other person; and (e) the
designation by the Board of Directors of Holdings of any person to be an
Unrestricted Subsidiary. Holdings shall be deemed to make an Investment in an
amount equal to the fair market value of the net assets of any subsidiary (or,
if neither Holdings nor any of its Subsidiaries has theretofore made an
Investment in such subsidiary, in an amount equal to the Investments being
made), at the time that such subsidiary is designated an Unrestricted
Subsidiary, and any property transferred to an Unrestricted Subsidiary from
Holdings or a Subsidiary of Holdings shall be deemed an Investment valued at its
fair market value at the time of such transfer. The amount of any such
Investment shall be reduced by any liabilities or obligations of Holdings or any
of its Subsidiaries to be assumed or discharged in connection with such
Investment by an entity other than Holdings or any of its Subsidiaries. For
purposes of clarification and greater certainty, the designation of a newly
formed subsidiary as an Unrestricted Subsidiary shall not constitute an
Investment.
"Issue Date" means January 27, 1998.
"Leverage Ratio" on any date of determination (the "Transaction Date")
means the ratio, on a pro forma basis, of (a) the aggregate amount of
Indebtedness of Holdings and its Subsidiaries on a consolidated basis to (b) the
aggregate amount of Consolidated EBITDA of Holdings attributable to continuing
operations and businesses (exclusive of amounts attributable to operations and
businesses permanently discontinued or disposed of) for the Reference Period;
provided, that for purposes of calculating Consolidated EBITDA for
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this definition, (i) Acquisitions which occurred during the Reference Period or
subsequent to the Reference Period and on or prior to the Transaction Date shall
be assumed to have occurred on the first day of the Reference Period, (ii)
transactions giving rise to the need to calculate the Leverage Ratio shall be
assumed to have occurred on the first day of the Reference Period, (iii) the
incurrence of any Indebtedness or issuance of any Disqualified Capital Stock
during the Reference Period or subsequent to the Reference Period and on or
prior to the Transaction Date (and the application of the proceeds therefrom to
the extent used to refinance or retire other Indebtedness) shall be assumed to
have occurred on the first day of the Reference Period, and (iv) the
Consolidated Fixed Charges of such person attributable to interest on any
Indebtedness or dividends on any Disqualified Capital Stock bearing a floating
interest (or dividend) rate shall be computed on a pro forma basis as if the
average rate in effect from the beginning of the Reference Period to the
Transaction Date had been the applicable rate for the entire period, unless such
person or any of its Subsidiaries is a party to an Interest Swap or Hedging
Obligation (which shall remain in effect for the 12-month period immediately
following the Transaction Date) that has the effect of fixing the interest rate
on the date of computation, in which case such rate (whether higher or lower)
shall be used.
"LGP" means Leonard Green & Partners, L.P.
"Lien" means any mortgage, charge, pledge, lien (statutory or otherwise),
privilege, security interest, hypothecation or other encumbrance upon or with
respect to any property of any kind, real or personal, movable or immovable, now
owned or hereafter acquired.
"Management Agreement" means the management agreement, dated as of the
Issue Date, between Liberty Group Operating and LGP substantially as in effect
on the Issue Date.
"Net Cash Proceeds" means the aggregate amount of cash or Cash Equivalents
received by Holdings in the case of a sale of Qualified Capital Stock and by
Holdings and its Subsidiaries in respect of an Asset Sale plus, in the case of
an issuance of Qualified Capital Stock upon any exercise, exchange or conversion
of securities (including options, warrants, rights and convertible or
exchangeable debt) of Holdings that were issued for cash on or after the Issue
Date, the amount of cash originally received by Holdings upon the issuance of
such securities (including options, warrants, rights and convertible or
exchangeable debt) less, in each case, the sum of all payments, fees,
commissions and (in the case of Asset Sales, reasonable and customary) expenses
(including, without limitation, the fees and expenses of legal counsel and
investment banking fees and expenses) incurred in connection with such Asset
Sale or sale of Qualified Capital Stock, and, in the case of an Asset Sale only,
less (i) the amount (estimated reasonably and in good faith by Holdings) of
income, franchise, sales and other applicable taxes required to be paid by
Holdings or any of its respective Subsidiaries in connection with such Asset
Sale; (ii) the amounts of any repayments of Indebtedness secured, directly or
indirectly, by Liens on the assets which are the subject of such Asset Sale or
Indebtedness associated with such assets which is due by reason of such Asset
Sale (i.e., such disposition is permitted by the terms of the instruments
evidencing or applicable to such Indebtedness, or by the terms of a consent
granted thereunder, on the condition that the proceeds (or portion thereof) of
such disposition be applied to such Indebtedness), and other fees, expenses and
other expenditures, in each case, reasonably incurred as a consequence of such
repayment of Indebtedness (whether or not such fees, expenses or expenditures
are then due and payable or made, as the case may be); (iii) all amounts deemed
appropriate by Holdings (as evidenced by a signed certificate of the Chief
Financial Officer of Holdings delivered to the Trustee) to be provided as a
reserve, in accordance with GAAP, against any liabilities associated with such
assets which are the subject of such Asset Sale; and (iv) with respect to Asset
Sales by Subsidiaries of Holdings, the portion of such cash payments
attributable to persons holding a minority interest in such Subsidiary.
"Permitted Indebtedness" means any of the following:
(a) that Holdings may incur Indebtedness evidenced by the Debentures
and represented by the Indenture and Indebtedness evidenced by the Exchange
Debentures and represented by the Exchange Indenture up to the amounts
specified therein as of the date thereof and Liberty Group Operating and
its Subsidiaries may incur Indebtedness evidenced by the Senior
Subordinated Notes and the guarantees
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thereof and represented by the indenture related thereto up to the amounts
specified therein as of the date hereof;
(b) that Holdings and its Subsidiaries, as applicable, may incur
Refinancing Indebtedness with respect to any Indebtedness or Disqualified
Capital Stock, as applicable, that was permitted by the Indenture to be
incurred and any Indebtedness of Holdings outstanding on the Issue Date
after giving effect to the Transactions;
(c) Holdings and its Subsidiaries may incur Indebtedness solely in
respect of bankers' acceptances and letters of credit (in addition to any
such Indebtedness incurred under the Credit Agreement in accordance with
the Indenture) (to the extent that such incurrence does not result in the
incurrence of any obligation to repay any obligation relating to borrowed
money of others), all in the ordinary course of business in accordance with
customary industry practices, in amounts and for the purposes customary in
Holdings' industry; provided, that the aggregate principal amount
outstanding of such Indebtedness (including any Indebtedness issued to
refinance, refund or replace such Indebtedness) shall not exceed $5.0
million;
(d) Holdings and its Subsidiaries may incur Indebtedness arising from
tender, bid, performance or government contract bonds, other obligations of
like nature, or warranty or contractual service obligations of like nature,
in any case, incurred by Holdings or its Subsidiaries in the ordinary
course of business;
(e) Holdings and its Subsidiaries may incur Interest Swap and Hedging
Obligations that are incurred for the purpose of fixing or hedging interest
rate or currency risk with respect to any fixed or floating rate
Indebtedness that is permitted by the Indenture to be outstanding or any
receivable or liability the payment of which is determined by reference to
a foreign currency; provided, that the notional amount of any such Interest
Swap and Hedging Obligation does not exceed the principal amount of
Indebtedness to which such Interest Swap and Hedging Obligation relates;
and
(f) Holdings may incur Indebtedness to any Subsidiary, and any
Subsidiary may incur Indebtedness to any other Subsidiary or to Holdings;
provided, that, in the case of Indebtedness of Holdings, such obligations
shall be unsecured and subordinated in all respects to Holdings'
obligations pursuant to the New Debentures and the date of any event that
causes such Subsidiary to no longer be a Subsidiary shall be an Incurrence
Date.
"Permitted Investment" means Investments in (a) any of the Debentures or
Exchange Debentures; (b) Cash Equivalents; (c) intercompany notes to the extent
permitted under clause (f) of the definition of "Permitted Indebtedness,"
provided that Indebtedness under any such notes of a Subsidiary shall be deemed
to be a Restricted Investment if such person ceases to be a Subsidiary; (d)
Investments in the form of promissory notes of members of Holdings' management
not to exceed $1.0 million in principal amount at any time outstanding solely in
consideration of the purchase by such persons of Qualified Capital Stock of
Holdings; (e) Investments by Holdings or any Subsidiary in any person that is or
immediately after such Investment becomes a Subsidiary, or immediately after
such Investment merges or consolidates into Holdings or any Subsidiary in
compliance with the terms of the Indenture, provided that such person is engaged
in all material respects in a Related Business; (f) Investments in Holdings by
any Subsidiary, provided that in the case of Indebtedness constituting any such
Investment, such Indebtedness shall be unsecured and subordinated in all
respects to Holdings' obligations under the Debentures; (g) Investments in
securities of trade creditors or customers received in settlement of obligations
that arose in the ordinary course of business or pursuant to any plan of
reorganization or similar arrangement upon the bankruptcy or insolvency of such
trade creditors or customers; (h) Investments by Holdings outstanding on the
Issue Date; (i) transactions or arrangements with officers or directors of
Holdings or any Subsidiary entered into in the ordinary course of business
(including compensation or employee benefit arrangements with any officer or
director of Holdings or any Subsidiary permitted under the covenant "Limitation
on Transactions with Affiliates"); (j) Investments in persons (other than
Affiliates of Holdings) received as consideration from Asset Sales to the extent
not prohibited by the covenant "Limitation on Sale of Assets and Subsidiary
Stock"; (k) additional Investments at any time outstanding not to exceed the sum
of (i) $5.0 million and (ii) the cumulative gain (net of taxes and all payments,
fees, commissions and expenses incurred in such sale or disposition) realized by
Holdings and its Subsidiaries in cash or Cash Equivalents on the sale or other
disposition after the Issue Date of
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Investments (including Permitted Investments and Restricted Investments) made
after the Issue Date in accordance with the Indenture (but only to the extent
that such gain is excluded from the net income of Holdings and the Consolidated
Subsidiaries by the definition of Consolidated Net Income); and (l) the
acquisition of Equity Interests of a person engaged in a Related Business, other
than a person described in clause (e), through the issuance of Holdings Common
Stock.
"Permitted Lien" means (a) Liens existing on the Issue Date; (b) Liens
imposed by governmental authorities for taxes, assessments or other charges not
yet subject to penalty or which are being contested in good faith and by
appropriate proceedings, if adequate reserves with respect thereto are
maintained on the books of Holdings in accordance with GAAP; (c) statutory liens
of carriers, warehousemen, mechanics, materialmen, landlords, repairmen or other
like Liens arising by operation of law in the ordinary course of business
provided that (i) the underlying obligations are not overdue for a period of
more than 60 days, or (ii) such Liens are being contested in good faith and by
appropriate proceedings and adequate reserves with respect thereto are
maintained on the books of Holdings in accordance with GAAP; (d) Liens securing
the performance of bids, trade contracts (other than borrowed money), leases,
statutory obligations, surety and appeal bonds, performance bonds and other
obligations of a like nature incurred in the ordinary course of business; (e)
easements, rights-of-way, zoning, similar restrictions and other similar
encumbrances or title defects which, singly or in the aggregate, do not in any
case materially detract from the value of the property subject thereto (as such
property is used by Holdings or any of its Subsidiaries) or interfere with the
ordinary conduct of the business of Holdings or any of its Subsidiaries; (f)
Liens arising by operation of law in connection with judgments, only to the
extent, for an amount and for a period not resulting in an Event of Default with
respect thereto; (g) pledges or deposits made in the ordinary course of business
in connection with workers' compensation, unemployment insurance and other types
of social security legislation; (h) Liens securing the Debentures or the
Exchange Debentures; (i) Liens securing Indebtedness of a person existing at the
time such person becomes a Subsidiary or is merged with or into Holdings or a
Subsidiary or Liens securing Indebtedness incurred in connection with an
Acquisition, provided that such Liens were in existence prior to the date of
such Acquisition, were not incurred in anticipation thereof, and do not extend
to any other assets; (j) Liens arising from Purchase Money Indebtedness
permitted to be incurred under paragraph (a) of the covenant "Limitation on
Incurrence of Additional Indebtedness and Disqualified Capital Stock," provided
such Liens relate solely to the property which is subject to such Purchase Money
Indebtedness; (k) leases or subleases granted to other persons in the ordinary
course of business not materially interfering with the conduct of the business
of Holdings or any of its Subsidiaries or materially detracting from the value
of the assets of Holdings or any Subsidiary; (l) Liens arising from
precautionary Uniform Commercial Code financing statement filings regarding
operating leases entered into by Holdings or any of its Subsidiaries in the
ordinary course of business; (m) Liens securing Refinancing Indebtedness
incurred to refinance any Indebtedness that was previously so secured in
accordance with the Indenture; (n) Liens securing Indebtedness under the Credit
Agreement incurred in accordance with the Indenture; (o) Liens securing
Indebtedness incurred under paragraph (b) of the covenant "Limitation on
Incurrence of Additional Indebtedness and Disqualified Capital Stock"; and (p)
any interest or title of a lessor under any lease, whether or not characterized
as capital or operating, provided that such Liens do not extend to any property
or assets which is not leased property subject to such lease.
"Permitted Payments" means, without duplication, (a) the payments provided
for by clauses (a), (d) and (e) of the definition of "Exempted Affiliate
Transaction"; provided that in the case of clause (d) of such definition, no
Default or Event of Default shall have occurred or be continuing and the
obligation to pay such amounts has been subordinated to the payment of the
Debentures or the Exchange Debentures, as the case may be; (b) the repurchase of
common stock, stock options and stock equivalents of Holdings held by former
directors, officers or employees of Holdings or any of its Subsidiaries in an
aggregate amount not to exceed in any fiscal year $1.0 million plus the
aggregate Net Cash Proceeds received by Holdings from the sale of Holdings
Common Stock to directors, officers or employees of Holdings; provided, that any
amount not so paid in any fiscal year may be paid in future fiscal years; and
(c) Restricted Payments in an aggregate amount not to exceed $4.0 million.
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"pro forma" includes, with respect to an Acquisition or the incurrence of
Indebtedness in connection therewith, all adjustments, permitted or required to
be included pursuant to Article 11 of Regulation S-X and subject to agreed-upon
procedures to be performed by Holdings' independent accountants to determine
whether the pro forma calculations are made in accordance with Article 11 of
Regulation S-X.
"Public Equity Offering" means an underwritten offering of common stock of
Holdings or a Subsidiary for cash pursuant to an effective registration
statement under the Securities Act, provided at the time of or upon consummation
of such offering, such common stock of Holdings or a Subsidiary is listed on a
national securities exchange or quoted on the national market system of the
Nasdaq Stock Market.
"Purchase Money Indebtedness" of any person means any Indebtedness of such
person to any seller or other person incurred to finance the acquisition or
construction (including in the case of a Capitalized Lease Obligation, the
lease) of any business or real or personal tangible property (or, in each case,
any interest therein) acquired or constructed after the Issue Date which, in the
reasonable good faith judgment of the Board of Directors of Holdings, is related
to a Related Business of Holdings and which is incurred concurrently with, or
within 180 days of, such acquisition or the completion of such construction and,
if secured, is secured only by the assets so financed.
"Qualified Capital Stock" means any Capital Stock that is not Disqualified
Capital Stock.
"Qualified Exchange" means any legal defeasance, redemption, retirement,
repurchase or other acquisition of Capital Stock or Indebtedness of Holdings
issued on or after the Issue Date with the Net Cash Proceeds received by
Holdings from the substantially concurrent sale of its Qualified Capital Stock
or any exchange of Qualified Capital Stock of Holdings for any Capital Stock or
Indebtedness of Holdings issued on or after the Issue Date.
"Reference Period" with regard to any person means the four full fiscal
quarters (or such lesser period during which such person has been in existence)
ended immediately preceding any date upon which any determination is to be made
pursuant to the terms of the Debentures or the Indenture; provided that
"Reference Period" with regard to Holdings shall include periods prior to the
Acquisition of its predecessors.
"Refinancing Indebtedness" means Indebtedness or Disqualified Capital Stock
(a) issued in exchange for, or the proceeds from the issuance and sale of which
are used substantially concurrently to repay, redeem, defease, refund,
refinance, discharge or otherwise retire for value, in whole or in part, or (b)
constituting an amendment, modification or supplement to, or a deferral or
renewal of ((a) and (b) above are, collectively, a "Refinancing"), any
Indebtedness or Disqualified Capital Stock in a principal amount or, in the case
of Disqualified Capital Stock, liquidation preference, not to exceed (after
deduction of the amount of fees, consents, premiums, prepayment penalties and
reasonable expenses incurred in connection with such Refinancing) the lesser of
(i) the principal amount or, in the case of Disqualified Capital Stock,
liquidation preference, of the Indebtedness or Disqualified Capital Stock so
Refinanced and (ii) if such Indebtedness being Refinanced was issued with an
original issue discount, the accreted value thereof (as determined in accordance
with GAAP) at the time of such Refinancing; provided, that (A) such Refinancing
Indebtedness of any Subsidiary of Holdings shall only be used to Refinance
outstanding Indebtedness or Disqualified Capital Stock of such Subsidiary, (B)
such Refinancing Indebtedness shall (x) not have an Average Life shorter than
the Indebtedness or Disqualified Capital Stock to be so refinanced at the time
of such Refinancing and (y) in all respects, be no less subordinated or junior,
if applicable, to the rights of Holders of the Debentures than was the
Indebtedness or Disqualified Capital Stock to be refinanced, (C) such
Refinancing Indebtedness shall have a final stated maturity or redemption date,
as applicable, no earlier than the final stated maturity or redemption date, as
applicable, of the Indebtedness or Disqualified Capital Stock to be so
refinanced, and (D) such Refinancing Indebtedness shall be secured (if secured)
in a manner no more adverse to the Holders of the Debentures than the terms of
the Liens (if any) securing such refinanced Indebtedness, including, without
limitation, the amount of Indebtedness secured shall not be increased (except by
the amount of fees, consents, premiums, prepayment penalties and reasonable
expenses incurred in connection with such Refinancing). For purposes of
clarification and greater certainty, if Indebtedness permitted by the terms of
the Indenture (including clauses (a), (b) and (c) of the second paragraph of
"Limitation on Incurrence of Additional Indebtedness and Disqualified Capital
Stock") is repaid, redeemed,
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defeased, refunded, refinanced, discharged or otherwise retired for value from
the proceeds of Refinancing Indebtedness, the maximum amount of such Refinancing
Indebtedness shall be determined in accordance with the provisions of this
definition, and the amount of such Refinancing Indebtedness in excess of the
amount of such Indebtedness (as permitted by this definition) shall not reduce
the amount of Indebtedness permitted by the terms of this Indenture (including,
without limitation, not reducing or counting towards the amounts set forth in
such clauses (a), (b) and (c)).
"Related Business" means the business conducted (or proposed to be
conducted, including the activities referred to as being contemplated by
Holdings, as described or referred to in this Prospectus) by Holdings as of the
Issue Date and any and all businesses that in the good faith judgment of the
Board of Directors of Holdings are reasonably related businesses, including
reasonably related extensions thereof.
"Related Party" means any partnership or corporation which is managed by or
controlled by LGP or any Affiliate thereof.
"Restricted Investment" means, in one or a series of related transactions,
any Investment, other than investments in Cash Equivalents and other Permitted
Investments; provided, however, that a merger of another person with or into
Holdings or a Subsidiary in accordance with the terms of the Indenture shall not
be deemed to be a Restricted Investment so long as the surviving entity is
Holdings or a direct wholly owned Subsidiary.
"Restricted Payment" means, with respect to any person, (a) the declaration
or payment of any dividend or other distribution in respect of Equity Interests
of such person or any Subsidiary of such person, (b) any payment on account of
the purchase, redemption or other acquisition or retirement for value of Equity
Interests of such person or any Subsidiary of such person, (c) other than with
the proceeds from the substantially concurrent sale of, or in exchange for,
Refinancing Indebtedness, any purchase, redemption or other acquisition or
retirement for value of, any payment in respect of any amendment of the terms of
or any defeasance of, any Subordinated Indebtedness, directly or indirectly, by
such person or any Subsidiary of such person prior to the scheduled maturity,
any scheduled repayment of principal, or scheduled sinking fund payment, as the
case may be, of such Indebtedness, (d) any Restricted Investment by such person
and, (e) any payment provided for by clause (d) of the definition of "Exempted
Affiliate Transaction"; provided, however, that the term "Restricted Payment"
does not include (i) any dividend, distribution or other payment on or with
respect to Equity Interests of Holdings to the extent payable solely in shares
of Qualified Capital Stock of Holdings; (ii) any dividend, distribution or other
payment to Holdings, or to any of its Subsidiaries, by Holdings or any of its
Subsidiaries; (iii) payments made pursuant to the Transactions; (iv) Permitted
Investments; or (v) pro rata dividends and other distributions on Equity
Interests of any Subsidiary by such Subsidiary.
"Sale and Leaseback Transaction" means any transaction by which Holdings or
a Subsidiary, directly or indirectly, becomes liable as a lessee or as a
guarantor or other surety with respect to any lease of any property (whether
real or personal or mixed), whether now owned or hereafter acquired that
Holdings or any Subsidiary has sold or transferred or is to sell or transfer to
any other person in a substantially concurrent transaction with such assumption
of liability.
"Significant Subsidiary" shall have the meaning provided under Regulation
S-X of the Securities Act, as in effect on the Issue Date.
"Stated Maturity," when used with respect to any Debenture, means February
1, 2009 and when used in respect to any Exchange Debenture, means February 1,
2010.
"Subordinated Indebtedness" means Indebtedness of Holdings or a Subsidiary
that is subordinated in right of payment by its terms or the terms of any
document or instrument relating thereto to the Debentures or the Exchange
Debentures, as the case may be, in any respect or has a final stated maturity
after the Stated Maturity.
"Subsidiary," with respect to any person, means (i) a corporation a
majority of whose Equity Interests with voting power, under ordinary
circumstances, to elect directors is at the time, directly or indirectly, owned
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by such person, by such person and one or more Subsidiaries of such person or by
one or more Subsidiaries of such person, (ii) any other person (other than a
corporation) in which such person, one or more Subsidiaries of such person, or
such person and one or more Subsidiaries of such person, directly or indirectly,
at the date of determination thereof has at least majority ownership interest,
or (iii) a partnership in which such person or a Subsidiary of such person is,
at the time, a general partner. Notwithstanding the foregoing, an Unrestricted
Subsidiary shall not be a Subsidiary of Holdings or of any Subsidiary of
Holdings. Unless the context requires otherwise, Subsidiary means each direct
and indirect Subsidiary of Holdings.
"Unrestricted Subsidiary" means any subsidiary of Holdings that does not
own any Capital Stock of, or own or hold any Lien on any property of, Holdings
or any other Subsidiary of Holdings and that, at the time of determination,
shall be an Unrestricted Subsidiary (as designated by the Board of Directors of
Holdings); provided, that (i) such subsidiary shall not engage, to any
substantial extent, in any line or lines of business activity other than a
Related Business, (ii) neither immediately prior thereto nor after giving pro
forma effect to such designation would there exist a Default or Event of
Default, and (iii) immediately after giving pro forma effect thereto, Holdings
could incur at least $1.00 of Indebtedness pursuant to the Debt Incurrence Ratio
of the covenant "Limitation on Incurrence of Additional Indebtedness and
Disqualified Capital Stock." The Board of Directors of Holdings may designate
any Unrestricted Subsidiary to be a Subsidiary; provided that (i) no Default or
Event of Default is existing or will occur as a consequence thereof and (ii)
immediately after giving effect to such designation, on a pro forma basis,
Holdings could incur at least $1.00 of Indebtedness pursuant to the Debt
Incurrence Ratio of the covenant "Limitation on Incurrence of Additional
Indebtedness and Disqualified Capital Stock." Each such designation shall be
evidenced by filing with the Trustee a certified copy of the resolution giving
effect to such designation and an Officers' Certificate certifying that such
designation complied with the foregoing conditions.
"U.S. Government Obligations" means direct non-callable obligations of, or
noncallable obligations guaranteed by, the United States of America for the
payment of which obligation or guarantee the full faith and credit of the United
States of America is pledged.
BOOK-ENTRY, DELIVERY AND FORM OF NEW GLOBAL DEBENTURE
Except as set forth below, the New Debentures will be issued in registered,
global form in minimum denominations of $1,000 and integral multiples of $1,000
in excess thereof.
New Debentures initially will be represented by one or more debentures in
registered global form without interest coupons (collectively, the "New Global
Debenture"). The New Global Debenture will be deposited upon issuance with the
Trustee as custodian for DTC, in New York, New York and registered in the name
of DTC or its nominee, in each case for credit to an account of a direct or
indirect participant in DTC as described below.
Except as set forth below, the New Global Debenture may be transferred, in
whole and not in part, only to another nominee of DTC or to a successor of DTC
or its nominee. Beneficial interests in the New Global Debenture may not be
exchanged for New Debentures in certificated form except in the limited
circumstances described below. See "--Exchange of Book-Entry New Debentures for
Certificated New Debentures."
Transfer of beneficial interests in the New Global Debenture will be
subject to the applicable rules and procedures of DTC and its direct or indirect
participants, which may change from time to time.
Initially, the Trustee will act as Paying Agent and Registrar. The New
Debentures may be presented for registration of transfer and exchange at the
offices of the Registrar.
DEPOSITARY PROCEDURES
DTC has advised Holdings that DTC is a limited-purpose trust company
created to hold securities for its participating organizations (collectively,
the "Participants") and to facilitate the clearance and settlement of
transactions in those securities between Participants through electronic
book-entry changes in accounts of its Participants. The Participants include
securities brokers and dealers (including the Initial Purchasers), banks, trust
companies, clearing corporations and certain other organizations. Access to
DTC's system is also
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available to other entities such as banks, brokers, dealers and trust companies
that clear through or maintain a custodial relationship with a Participant,
either directly or indirectly (collectively, the "Indirect Participants").
Persons who are not Participants may beneficially own securities held by or on
behalf of DTC only through the Participants or the Indirect Participants. The
ownership interests and transfer of ownership interests of each actual purchaser
of each security held by or on behalf of DTC are recorded on the records of the
Participants and Indirect Participants.
DTC has also advised Holdings that, pursuant to procedures established by
it, (i) upon deposit of the New Global Debenture, DTC will credit the accounts
of Participants with portions of the principal amount of the New Global
Debenture and (ii) ownership of such interests in the New Global Debenture will
be maintained by DTC (with respect to the Participants) or by the Participants
and the Indirect Participants (with respect to other owners of beneficial
interests in the New Global Debenture).
Investors in the New Global Debenture may hold their interests therein
directly through DTC, if they are Participants in such system. The laws of some
states require that certain persons take physical delivery in definitive form of
securities that they own. Consequently, the ability to transfer beneficial
interests in a New Global Debenture to such persons will be limited to that
extent. Because DTC can act only on behalf of Participants, the ability of a
person having beneficial interests in a New Global Debenture to pledge such
interests to persons or entities that do not participate in the DTC system, or
otherwise take actions in respect of such interests, may be affected by the lack
of a physical certificate evidencing such interests. For certain other
restrictions on the transferability of the New Debentures, see "--Exchange of
Book-Entry New Debentures for Certificated New Debentures."
EXCEPT AS DESCRIBED BELOW, OWNERS OF INTERESTS IN THE NEW GLOBAL DEBENTURE
WILL NOT HAVE NEW DEBENTURES REGISTERED IN THEIR NAMES, WILL NOT RECEIVE
PHYSICAL DELIVERY OF NEW DEBENTURES IN CERTIFICATED FORM AND WILL NOT BE
CONSIDERED THE REGISTERED OWNERS OR HOLDERS THEREOF UNDER THE INDENTURE FOR ANY
PURPOSE.
Payments in respect of the principal of and premium, if any, and interest
on the New Global Debenture registered in the name of DTC or its nominee will be
payable by the Trustee to DTC in its capacity as the registered Holder under the
Indenture. Under the terms of the Indenture, Holdings and the Trustee will treat
the persons in whose names the New Debentures, including the New Global
Debenture, are registered as the owners thereof for the purpose of receiving
such payments and for any and all other purposes whatsoever. Consequently,
neither Holdings, the Trustee nor any agent of Holdings or the Trustee has or
will have any responsibility or liability for (i) any aspect of DTC's records or
any Participant's records relating to or payments made on account of beneficial
ownership interests in the New Global Debenture, or for maintaining, supervising
or reviewing any of DTC's records or any Participant's records relating to the
beneficial ownership interests in the New Global Debenture or (ii) any other
matter relating to the actions and practices of DTC or any of its Participants.
DTC has advised Holdings that its current practice, upon receipt of any payment
in respect of securities such as the New Debentures (including principal and
interest), is to credit the accounts of the relevant Participants with the
payment on the payment date, in amounts proportionate to their respective
holdings in the principal amount of beneficial interests in the relevant
security as shown on the records of DTC unless DTC has reason to believe it will
not receive payment on such payment date. Payments by the Participants to the
beneficial owners of New Debentures will be governed by standing instructions
and customary practices and will be the responsibility of the Participants and
will not be the responsibility of DTC, the Trustee or Holdings. Neither Holdings
nor the Trustee will be liable for any delay by DTC or any of its Participants
in identifying the beneficial owners of the New Debentures, and Holdings and the
Trustee may conclusively rely on and will be protected in relying on
instructions from DTC or its nominee for all purposes.
Interests in the New Global Debenture are expected to be eligible to trade
in DTC's Same-Day Funds Settlement System and secondary market trading activity
in such interests will therefore settle in immediately available funds, subject
in all cases to the rules and procedures of DTC and its Participants.
Subject to the transfer restrictions set forth under "Notice to Investors,"
transfers between Participants in DTC will be effected in accordance with DTC's
procedures, and will be settled in same-day funds.
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DTC has advised Holdings that it will take any action permitted to be taken
by a Holder of New Debentures only at the direction of one or more Participants
to whose account with DTC interests in the New Global Debenture are credited and
only in respect of such portion of the aggregate principal amount of the New
Debentures as to which such Participant or Participants has or have given such
direction. However, if there is an Event of Default under the New Debentures,
DTC reserves the right to exchange the New Global Debenture for New Debentures
in certificated form, and to distribute such New Debentures to its Participants.
The information in this section concerning DTC and its book-entry systems
has been obtained from sources that Holdings believes to be reliable, but
Holdings takes no responsibility for the accuracy thereof.
Although DTC has agreed to the foregoing procedures to facilitate transfers
of interests in the New Global Debenture among participants in DTC, it is under
no obligation to perform or to continue to perform such procedures, and such
procedures may be discontinued at any time. Neither Holdings nor the Trustee
will have any responsibility for the performance by DTC or its respective
participants of their respective obligations under the rules and procedures
governing its operations.
EXCHANGE OF BOOK-ENTRY NEW DEBENTURES FOR CERTIFICATED NEW DEBENTURES
A New Global Debenture is exchangeable for definitive New Debentures in
registered certificated form if (i) DTC (x) notifies Holdings that it is
unwilling or unable to continue as depositary for the New Global Debenture and
Holdings thereupon fails to appoint a successor depositary or (y) has ceased to
be a clearing agency registered under the Exchange Act, (ii) Holdings, at its
option, notifies the Trustee in writing that it elects to cause the issuance of
the New Debentures in certificated form, or (iii) there shall have occurred and
be continuing an Event of Default or any event which after notice or lapse of
time or both would be an Event of Default with respect to the New Debentures. In
addition, beneficial interests in a New Global Debenture are exchangeable for
definitive New Debentures upon the request of the beneficial holder to the
Trustee through the applicable procedures of DTC. In all cases, certificated New
Debentures delivered in exchange for any New Global Debenture or beneficial
interests therein will be registered in the names, and issued in any approved
denominations, requested by or on behalf of the depositary (in accordance with
its customary procedures) and will bear the applicable restrictive legend
referred to in "Notice to Investors," unless Holdings determines otherwise in
compliance with applicable law.
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DESCRIPTION OF OTHER INDEBTEDNESS
REVOLVING CREDIT FACILITY
On January 27, 1998, the Company entered into a five-year, $125.0 million
revolving credit facility (the "Revolving Credit Facility") with a syndicate of
financial institutions for whom Citicorp USA, Inc. acts as administrative agent.
The Revolving Credit Facility includes a $10.0 million subfacility for letters
of credit. As of April 3, 1998, there were no borrowings outstanding under the
Revolving Credit Facility. The Revolving Credit Facility will be used by the
Company for general corporate purposes and to finance subsequent acquisitions.
The Revolving Credit Facility is secured by a first priority security
interest in substantially all of the tangible and intangible assets of Liberty
Group Operating and of Holdings and Holdings' present and future direct and
indirect subsidiaries. In addition, the loans under the Revolving Credit
Facility are guaranteed, subject to certain limitations, by Holdings and by all
future direct and indirect subsidiaries of Liberty Group Operating and of
Holdings.
Borrowings under the Revolving Credit Facility bear interest at an annual
rate, at the Company's option, equal to the Base Rate (as defined therein) or
the Eurodollar Rate (as defined therein) plus a margin that varies based upon a
ratio set forth therein. For the first six months following the Closing Date,
the interest rate for borrowings under the Revolving Credit Facility will have a
floor of the Base Rate plus 0.75% or the Eurodollar Rate plus 2.0%. Applicable
interest rates will be increased 2.0% per annum during the continuance of any
Event of Default (as defined therein) under the Revolving Credit Facility. In
addition to customary letters of credit fronting fees and other fees, the
Company pays a fee equal to the Applicable Margin for Eurodollar Rate Advances
(as defined therein) per annum on the aggregate amount of outstanding letters of
credit. The Company also pays a fee on the unused portion of the Revolving
Credit Facility.
The obligation of the lenders under the Revolving Credit Agreement to
advance funds is subject to the satisfaction of certain conditions customary in
agreements of this type. In addition, the Company is subject to certain
affirmative and negative covenants customarily contained in agreements of this
type. The Revolving Credit Facility also provides for customary events of
default. See "Risk Factors--Secured Indebtedness; Subordination."
SENIOR SUBORDINATED NOTES
Contemporaneously with the Exchange Offer, Liberty Group Operating will
offer the New Senior Subordinated Notes in exchange for any and all of its
outstanding Old Senior Subordinated Notes. The Senior Subordinated Notes are
senior subordinated unsecured obligations of Liberty Group Operating which
mature on February 1, 2008. Cash interest on the Senior Subordinated Notes
accrues at the rate of 9 3/8% per annum and will be payable semi-annually in
arrears on February 1 and August 1 of each year, commencing August 1, 1998, to
the holders of record on the immediately preceding January 15 and July 15,
respectively.
On or after February 1, 2003, the Senior Subordinated Notes may be redeemed
at the option of Liberty Group Operating, in whole at any time or in part from
time to time, at a redemption price equal to the applicable percentage of the
principal amount thereof set forth below, plus accrued and unpaid interest, if
any, to the redemption date, if redeemed during the twelve-month period
commencing on February 1, 2003 in the years set forth below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- ----------
<S> <C>
2003........................................................ 104.688%
2004........................................................ 103.125%
2005........................................................ 101.563%
2006 and thereafter......................................... 100.000%
</TABLE>
Notwithstanding the foregoing, at any time on or prior to February 1, 2001,
Liberty Group Operating may use the net proceeds of one or more Public Equity
Offerings (as defined therein) to redeem up to 35% of the
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Senior Subordinated Notes at a redemption price equal to 109.375% of the
principal amount thereof plus accrued and unpaid interest, if any, to the
redemption date; provided, however, at least 65% of the original aggregate
principal amount of the Senior Subordinated Notes remain outstanding after each
such redemption.
The Senior Subordinated Notes Indenture contains covenants that, among
other things, limit the ability of Liberty Group Operating to enter into certain
mergers or consolidations, incur certain liens, and its subsidiaries to incur
additional indebtedness, pay dividends and make certain other restricted
payments and engage in certain transactions with affiliates.
Upon certain circumstances, including a change in control (as defined in
the Senior Subordinated Notes Indenture), Liberty Group Operating will be
required to make an offer to purchase the Senior Subordinated Notes at prices
specified in the Senior Subordinated Notes Indenture. The Senior Subordinated
Notes Indenture will contain certain customary events of default, which will
include the failure to pay interest and principal, the failure to comply with
certain covenants in the Senior Subordinated Notes or certain events occurring
under bankruptcy laws.
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DESCRIPTION OF HOLDINGS' CAPITAL STOCK
Holdings' Certificate of Incorporation authorizes Holdings to issue shares
of Holdings Common Stock and shares of Preferred Stock.
HOLDINGS COMMON STOCK
Subject to the rights of the holders of any Preferred Stock which may be
outstanding, all shares of Holdings Common Stock will participate equally in
dividends payable to holders of Holdings Common Stock when, as and if declared
by the Holdings' Board of Directors and in net assets available for distribution
to holders of Holdings Common Stock on liquidation or dissolution, will have one
vote per share on all matters submitted to a vote of the Holdings' stockholders
and will not have cumulative voting rights in the election of directors. All
issued and outstanding shares of Holdings Common Stock are fully paid and
nonassessable, and the holders thereof do not have preemptive rights. As of the
date hereof, 96.0% of the outstanding shares of Holdings Common Stock are owned
by GEI, and 4.0% are owned by the management of Holdings.
HOLDINGS PREFERRED STOCK
The Certificate of Incorporation of Holdings generally authorizes the
issuance of shares of preferred stock in series to be established by resolution
of the Holdings Board of Directors. A Certificate of Designations created two
series, the "Holdings Senior Preferred Stock" and the "Holdings Junior Preferred
Stock," and fixed for each such series the designations, preferences and
relative, participating, optional or other special rights, and the
qualifications, limitations or restrictions thereof. In connection with the
consummation of the Transactions, Holdings' Board of Directors authorized the
issuance of Holdings Senior Preferred Stock and Holdings Junior Preferred Stock.
On January 27, 1998, 1,800,000 shares of Old Senior Preferred Stock were issued
to institutional investors. Pursuant to the Exchange Offer, New Senior Preferred
Stock will be exchanged for any and all outstanding shares of Old Senior
Preferred Stock.
HOLDINGS JUNIOR PREFERRED STOCK
The Holdings Junior Preferred Stock has a liquidation preference over the
Holdings Common Stock equal to the initial liquidation value of the Holdings
Junior Preferred Stock plus accrued and unpaid dividends thereon. Such initial
liquidation value is $49.0 million in the aggregate. The Holdings Junior
Preferred Stock is subject to a mandatory redemption on February 1, 2010 at 100%
of the liquidation preference plus accrued and unpaid dividends. Holdings may,
at its option, redeem the Holdings Junior Preferred Stock at any time at 100% of
the liquidation preference plus accrued and unpaid dividends. Upon a change of
control, Holdings must offer to repurchase the Holdings Junior Preferred Stock
at 100% of its liquidation preference plus accrued and unpaid dividends. The
Holdings Junior Preferred Stock bears cumulative dividends at the rate of 10%
per annum. Dividends may, at the option of Holdings, be paid in cash or in a
number of shares of Holdings Junior Preferred Stock having a liquidation
preference equal to the amount of the dividend. The terms of the Holdings Junior
Preferred Stock contain certain restrictions on junior payments. The Holdings
Junior Preferred Stock has no voting rights with respect to general corporate
matters except as provided by law or to authorize the issuance of senior or
parity equity securities of Holdings or to modify adversely the rights of the
Holdings Junior Preferred Stock.
Other than as set forth above with respect to ranking, the powers, rights,
designations and preferences, and qualifications, restrictions and limitations
thereof, of the Holdings Junior Preferred Stock are substantially similar to
those of the Holdings Senior Preferred Stock, except that the Holdings Junior
Preferred Stock is not exchangeable for senior subordinated notes of Holdings.
All outstanding shares of the Holdings Junior Preferred Stock were purchased by
GEI on January 27, 1998.
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CERTAIN UNITED STATES FEDERAL TAX CONSIDERATIONS
The following discussion is a summary of the material United States federal
income tax considerations relevant to the acquisition, ownership and disposition
of the New Securities acquired in and under the terms of the Exchange Offer by
Holders of Old Securities who acquired such Old Securities at their initial
issue for cash, but does not purport to be a complete analysis of all potential
tax effects. To the extent this summary discusses matters of law or legal
conclusions, it constitutes the opinion of Mayer, Brown & Platt. The discussion
is based upon the Internal Revenue Code of 1986, as amended (the "Code"),
Treasury Regulations, Internal Revenue Service (the "Service") rulings and
pronouncements and judicial decisions all in effect as of the date hereof, all
of which are subject to change at any time, and any such change may be applied
retroactively in a manner that could adversely affect a Holder of the New
Securities. See the discussion below, "Possible Legislative Changes Affecting
Holdings Senior Preferred Stock or Exchange Debentures." The discussion does not
address all of the federal income tax consequences that may be relevant to a
Holder in light of such Holder's particular circumstances or to Holders subject
to special rules, such as certain financial institutions, tax-exempt entities,
insurance companies, dealers in securities, traders in securities who elect to
mark to market, and persons holding the New Securities as part of a "straddle,"
"hedge" or "conversion transaction." Moreover, the effect of any applicable
state, local or foreign tax laws is not discussed. The discussion deals only
with New Securities held as "capital assets" within the meaning of Section 1221
of the Code.
As used herein, the term "U.S. Holder" means a beneficial owner of a New
Security who or which is for U.S. federal income tax purposes (i) a citizen or
resident of the United States, (ii) a corporation or partnership created or
organized in the United States or under the laws of the United States or of any
State, (iii) an estate the income of which is subject to U.S. federal income
taxation regardless of its source, or (iv) a trust if, and only if, (a) a court
within the United States is able to exercise primary supervision over the
administration of the trust and (b) one or more U.S. persons have the authority
to control all substantial decisions of the trust. The term U.S. Holder also
includes certain former U.S. citizens whose income and gain on the New
Securities will be subject to U.S. taxation. As used herein, the term "Non-U.S.
Holder" means a beneficial owner of a New Security that is not a U.S. Holder.
Unless otherwise indicated from the context, for purposes of this section,
"Holder" means either a U.S. Holder or a Non-U.S. Holder.
Holdings has not sought and will not seek any rulings from the Service with
respect to any position of Holdings discussed below. There can be no assurance
that the Service will not take a different position from Holdings concerning the
tax consequences of the acquisition, ownership or disposition of the New
Securities or that any such position would not be sustained.
PROSPECTIVE INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH REGARD TO
THE APPLICATION OF THE TAX CONSIDERATIONS DISCUSSED BELOW TO THEIR PARTICULAR
SITUATIONS AS WELL AS THE APPLICATION OF ANY STATE, LOCAL, FOREIGN OR OTHER TAX
LAWS.
CONSEQUENCES OF THE EXCHANGE OFFER TO EXCHANGING AND NONEXCHANGING HOLDERS
The exchange of an Old Security for a New Security pursuant to the Exchange
Offer will not be taxable to the exchanging Holders for federal income tax
purposes. As a result (i) an exchanging Holder will not recognize any gain or
loss on the exchange; (ii) the holding period for the New Security will include
the holding period for the Old Security; (iii) the basis of the New Security
will be the same as the basis for the Old Security; and (iv) the original issue
discount on the New Debentures will be the same as on the Old Debentures.
The Exchange Offer will result in no federal income tax consequences to a
nonexchanging Holder.
LIQUIDATED DAMAGES
The treatment of interest described below with respect to the Debentures is
based in part upon Holdings' determination that, as of the date of issuance of
the Old Debentures, the possibility that Liquidated Damages would be paid to
Holders of the Old Debentures pursuant to a Registration Default was remote. The
Service
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may take a different position, which could affect the timing and character of
interest income reported by Holders of the Debentures. While not free from
doubt, if such Liquidated Damages should in fact be paid, Holdings believes the
Liquidated Damages would be taxable to a Holder as ordinary income in accordance
with such Holder's method of accounting.
DEBENTURES
Original Issue Discount. The Old Debentures were issued with original issue
discount ("OID") and thus the New Debentures will also have OID. Total OID is
equal to the excess of the stated redemption price at maturity of the Debentures
over the issue price of the Debentures. The stated redemption price at maturity
of the Debentures will equal the total of all payments required to be made
thereon, other than payments of qualified stated interest. Qualified stated
interest generally is stated interest that is unconditionally payable in cash or
property (other than debt instruments of the issuer) at least annually at a
single fixed rate. Therefore, because no interest is required to be paid in cash
on the Debentures until August 1, 2003, the Debentures should be treated as
having been issued without any qualified stated interest. Accordingly, the sum
of all interest payable pursuant to the stated interest rate on the Debentures
over the entire term should be treated as part of the stated redemption price at
maturity.
A Holder of a Debenture will be required to include OID in income
periodically over the term of a Debenture before receipt of the cash or other
payment attributable to such income. In general, a Holder must include in gross
income for federal income tax purposes the sum of the daily portions of OID with
respect to the Debentures for each day during the taxable year or portion of a
taxable year on which such Holder holds the Debenture ("Accrued OID"). The daily
portion is determined by allocating to each day of any accrual period within a
taxable year a pro rata portion of an amount equal to the adjusted issue price
of the Debenture at the beginning of the accrual period multiplied by the yield
to maturity of the Debenture. For purposes of computing OID, Holdings will use
six-month accrual periods which end on the date in the calendar year
corresponding to the maturity date of the Debentures and the date six months
prior to such maturity date, with the exception of the initial accrual period.
The adjusted issue price of a Debenture at the beginning of any accrual period
is the issue price of the Debenture increased by the Accrued OID for all prior
accrual periods (less any cash payments on the Debentures). Under these rules,
Holders will have to include in gross income increasingly greater amounts of OID
in each successive accrual period. Each payment made under a Debenture will be
treated first as a payment of OID to the extent of OID that has accrued as of
the date of payment and has not been allocated to prior payments and second as a
payment of principal.
For purposes of calculating OID on the Debentures, Holdings' option to
redeem the Debentures at any time and the right of a Holder to tender Debentures
in certain circumstances will not affect the determination of the yield or the
maturity of the Debentures.
Taxable Disposition of Debentures. Generally, any sale or redemption of
Debentures will result in taxable gain or loss equal to the difference between
the amount of cash or other property received and the Holder's adjusted tax
basis in the Debentures. A Holder's adjusted tax basis will be the Holder's
initial tax basis, increased by any Accrued OID with respect to any Debenture
includable in such Holder's gross income and decreased by the amount of any cash
payments received by such Holder regardless of whether such payments are
denominated as interest. Any gain or loss upon a sale or disposition of a
Debenture by an original Holder will generally be capital gain or loss. In
general, the maximum tax rate for non-corporate taxpayers on long-term capital
gains is 20% for most capital assets (including the Debentures) held for more
than 18 months. Capital gain of non-corporate taxpayers on such assets having a
holding period of more than one year but not more than 18 months will be subject
to a maximum tax rate of 28%.
HOLDINGS SENIOR PREFERRED STOCK
Distributions on Holdings Senior Preferred Stock. Distributions on Holdings
Senior Preferred Stock, whether paid in cash or in additional shares of Holdings
Senior Preferred Stock, will be taxable as ordinary dividend income to the
extent that the cash amount or the fair market value of any Holdings Senior
Preferred Stock distributed on the Holdings Senior Preferred Stock does not
exceed the Company's current and
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accumulated earnings and profits (as determined for federal income tax
purposes). To the extent that the amount of such distributions paid on the
Holdings Senior Preferred Stock exceeds the Company's current and accumulated
earnings and profits, the distributions will be treated as a return of capital,
thus reducing the Holder's adjusted tax basis in such Holdings Senior Preferred
Stock. The amount of any such excess distribution that is greater than the
Holder's adjusted basis in the Holdings Senior Preferred Stock will be taxed as
capital gain. There can be no assurance that the Company will have sufficient
earnings and profits to cause distributions on Holdings Senior Preferred Stock
to be treated as dividends for federal income tax purposes, particularly in
light of the fact that the Company is newly-formed, and expects to generate
significant losses for its first several years of operation. For purposes of the
remainder of this discussion, the term "dividend" refers to a distribution paid
out of allocable earnings and profits, unless the context indicates otherwise.
A Holder's initial tax basis in any additional shares of Holdings Senior
Preferred Stock distributed by the Company will be equal to the fair market
value of such additional shares on their date of distribution. A Holder's
holding period for such additional shares will commence with their distribution,
and will not include such Holder's holding period for the shares of Holdings
Senior Preferred Stock with respect to which the additional shares are
distributed.
To the extent that dividends are treated as ordinary income, dividends
received by corporate Holders that are U.S. Holders will be eligible for the 70%
dividends-received deduction under Section 243 of the Code, subject to
limitations generally applicable to the dividends-received deduction, including
those contained in Sections 246 and 246A of the Code and the provisions for
computation of adjusted current earnings for purposes of the corporate
alternative minimum tax. The 70% dividends-received deduction may be reduced if
a Holder's shares of Holdings Senior Preferred Stock are debt financed. Under
Section 246(c) of the Code, the 70% dividends-received deduction will not be
available with respect to stock that is held for 45 days or less during the
90-day period beginning on the date which is 45 days before the date on which
such stock becomes ex-dividend with respect to such dividend (90 days or less
during the 180-day period beginning on the date which is 90 days before the date
on which such stock becomes ex-dividend with respect to such dividend in the
case of a dividend on preferred stock attributable to a period or periods
aggregating more than 366 days). The length of time that a Holder is deemed to
have held stock for these purposes is reduced by periods during which the
Holder's risk of loss with respect to the stock is diminished by reason of the
existence of certain options, contracts to sell, short sales or similar
transactions. Section 246(c) also denies the 70% dividends-received deduction to
the extent that a corporate Holder is under an obligation, with respect to
substantially similar or related property, to make payments corresponding to the
dividend received. The Clinton Administration has proposed legislation which
would, if enacted, affect the availability of the dividends-received deduction
for dividends on Holdings Senior Preferred Stock. See "--Possible Legislative
Changes."
Under Section 1059 of the Code, the tax basis of Holdings Senior Preferred
Stock that has been held by a corporate Holder for two years or less (ending on
the earliest of the date on which the Company declares, announces or agrees to
the amount or payment of an actual or constructive dividend) is reduced (but not
below zero) by the non-taxed portion of an "extraordinary dividend" for which a
dividends-received deduction is allowed, with such reduction treated as
occurring at the beginning of the ex-dividend date of such dividend; provided,
however, that in the case of certain redemptions of Holdings Senior Preferred
Stock, amounts of redemption proceeds that are treated as a dividend (as
described below under "--Redemption, Sale or Exchange of Holdings Senior
Preferred Stock") are treated as an extraordinary dividend without regard to the
period of time such stock was held. To the extent a corporate Holder's tax basis
would have been reduced below zero but for the foregoing limitation, such Holder
must treat such amount as gain recognized on the sale or exchange of such
Holdings Senior Preferred Stock for the taxable year in which such dividend is
received. Generally, in the case of Holdings Senior Preferred Stock, an
"extraordinary dividend" would be a dividend that (i) equals or exceeds 5% of
the Holder's adjusted basis in such stock (treating all dividends having ex-
dividend dates within an 85-day period as a single dividend); or (ii) exceeds
20% of the Holder's adjusted basis in such stock (treating all dividends having
ex-dividend dates within a 365-day period as a single dividend). If an election
is made by the Holder, under certain circumstances the fair market value of
Holdings
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Senior Preferred Stock as of the day before the ex-dividend date may be
substituted for the Holder's adjusted basis in applying these tests.
Special rules exist with respect to extraordinary dividends that are
"qualified preferred dividends," which are any fixed dividends payable with
respect to any share of stock which (i) provides for fixed preferred dividends
payable not less frequently than annually; and (ii) is not in arrears as to
dividends at the time the Holder acquires such stock. A qualified preferred
dividend does not include any dividend payable with respect to any share if the
actual rate of return of such stock for the period the stock has been held by
the Holder receiving the dividend exceeds 15%.
Redemption Premium on Holdings Senior Preferred Stock. If the redemption
price of redeemable preferred stock exceeds its issue price by more than a de
minimis amount, such excess may be treated as a constructive distribution of
additional stock on preferred stock over the term of the preferred stock using a
constant interest rate method similar to that described above for accruing OID.
See the discussion above under "--Debentures--Original Issue Discount." Such
excess will generally be considered de minimis as long as it is less than the
redemption price of the preferred stock multiplied by 1/4 of 1% multiplied by
the number of complete years until the issuer must redeem the preferred stock.
The issue price of the Holdings Senior Preferred Stock for purposes of
determining whether there will be constructive distributions of additional stock
thereon should be equal to the initial offering price to the public (excluding
bond houses and brokers) at which price a substantial amount of the Holdings
Senior Preferred Stock was sold. Thus, there should be no redemption premium on
such Holdings Senior Preferred Stock subject to the rules discussed above.
Because the issue price as determined for federal income tax purposes of the
Holdings Senior Preferred Stock distributed in lieu of payments of cash
dividends will be equal to its fair market value at the time of distribution,
however, it is possible, depending on its fair market value at that time, that
such Holdings Senior Preferred Stock will be issued with a redemption premium
large enough to be considered a dividend under the above rules. In such event,
as noted above, Holders would be required to include such premium in income as a
distribution over some period in advance of receiving the cash attributable to
such income and such Holdings Senior Preferred Stock might not trade separately,
which circumstances together might adversely affect the liquidity of the
Holdings Senior Preferred Stock.
Neither the mandatory redemption feature nor the Holder put of the Holdings
Senior Preferred Stock should affect the amount or timing of any constructive
distributions on the Holdings Senior Preferred Stock.
Redemption, Sale or Exchange of Holdings Senior Preferred Stock. A
redemption of shares of Holdings Senior Preferred Stock in exchange for Exchange
Debentures or for cash, and a sale of Holdings Senior Preferred Stock will be
taxable events.
A redemption of shares of Holdings Senior Preferred Stock for cash will
generally be treated as a sale or exchange if the Holder does not own, actually
or constructively within the meaning of Section 318 of the Code, any stock of
the Company other than the Holdings Senior Preferred Stock. If a Holder does
own, actually or constructively, such other stock (including stock redeemed), a
redemption of Holdings Senior Preferred Stock may be treated as a dividend to
the extent of the Company's current and accumulated earnings and profits (as
determined for federal income tax purposes). Such dividend treatment would not
be applied if the redemption is "substantially disproportionate" with respect to
the Holder under Section 302(b)(2) of the Code or is "not essentially equivalent
to a dividend" with respect to a Holder under Section 302(b)(1) of the Code. A
distribution to a Holder will be "not essentially equivalent to a dividend" if
it results in a "meaningful reduction" in the Holder's stock interest in the
Company. For these purposes, a redemption of Holdings Senior Preferred Stock for
cash that results in a reduction in the proportionate interest in the Company
(taking into account any constructive ownership) of a Holder whose relative
stock interest in the Company is minimal and who exercises no control over
corporate affairs should be regarded as a meaningful reduction in the Holder's
stock interest in the Company.
If the redemption of the Holdings Senior Preferred Stock for cash is not
treated as a distribution taxable as a dividend or if the Holdings Senior
Preferred Stock is sold, the redemption or sale would result in capital gain or
loss equal to the difference between the amount of cash and the fair market
value of other proceeds
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received in such sale or redemption and the Holder's adjusted tax basis in the
Holdings Senior Preferred Stock sold or redeemed. For a description of the
treatment of capital gain, see the discussion above under "--Debentures--Taxable
Disposition of Debentures."
A redemption of Holdings Senior Preferred Stock in exchange for Exchange
Debentures will be subject to the same general rules as a redemption for cash,
except that the Holder would have capital gain or loss equal to the difference
between the issue price of the Exchange Debentures received and the Holder's
adjusted tax basis in the Holdings Senior Preferred Stock redeemed. The issue
price of the Exchange Debentures would be determined in the manner described
below for purposes of computing original issue discount on the Exchange
Debentures. See the discussion below under "--Exchange Debentures--Original
Issue Discount."
If a redemption of Holdings Senior Preferred Stock is treated as a
distribution that is taxable as a dividend, the amount of the distribution will
be measured by the amount of cash or the issue price of the Exchange Debentures
received by the Holder. The Holder's adjusted tax basis in the redeemed Holdings
Senior Preferred Stock will be transferred to any remaining stock holdings in
the Company. If the Holder does not retain any stock ownership in the Company,
the Holder may lose such basis entirely. Under the "extraordinary dividend"
provisions of Section 1059 of the Code, a corporate Holder may, under certain
circumstances, be required to reduce its basis in its remaining shares of stock
of the Company (and possibly recognize gain upon such distribution) to the
extent the Holder claims the 70% dividends-received deduction with respect to
the dividend.
EXCHANGE DEBENTURES
Original Issue Discount. If the Holdings Senior Preferred Stock is
exchanged for Exchange Debentures at a time when the stated redemption price at
maturity of the Exchange Debentures exceeds their issue price by more than a de
minimis amount, the Exchange Debentures will be treated as having OID equal to
the entire amount of such excess. OID will generally be considered de minimis as
long as it is less than the stated redemption price at maturity of the Exchange
Debentures multiplied by 1/4 of 1% multiplied by the number of complete years to
maturity. If the Exchange Debentures are deemed to be traded on an established
securities market at any time during the 60-day period ending 30 days after
their issue date, the issue price of the Exchange Debentures will be their fair
market value as determined as of their issue date. Subject to certain
limitations described in the Treasury Regulations governing OID, the Exchange
Debentures will be deemed to be traded on an established securities market if,
among other things, price quotations are readily available from dealers, brokers
or traders. Similarly, if the Holdings Senior Preferred Stock, but not the
Exchange Debentures issued and exchanged therefor, is deemed to be traded on an
established securities market at the time of the exchange, then the issue price
of each Exchange Debenture should be the fair market value of the Holdings
Senior Preferred Stock exchanged therefor at the time of the exchange. The
Holdings Senior Preferred Stock will generally be deemed to be traded on an
established securities market if it appears on a system of general circulation
that provides a reasonable basis to determine fair market value based either on
recent price quotations or recent sales transactions. In the event that neither
the Holdings Senior Preferred Stock nor the Exchange Debentures are deemed to be
traded on an established securities market, the issue price of the Exchange
Debentures will be their stated principal amount or, in the event the Exchange
Debentures do not bear "adequate stated interest" within the meaning of Section
1274 of the Code, their "imputed principal amount," which is generally the sum
of the present values of all payments due under the Exchange Debentures,
discounted from the date of payment to their issue date at the appropriate
"applicable federal rates."
The stated redemption price at maturity of the Exchange Debentures would
equal the total of all payments required to be made thereon, other than payments
of qualified stated interest (as defined above under "--Debentures--Original
Issue Discount"). Therefore, because the Company has the option to pay interest
thereon in additional Exchange Debentures, the Exchange Debentures should be
treated as having been issued without any qualified stated interest.
Accordingly, the sum of all interest payable pursuant to the stated interest
rate on the Exchange Debentures over the entire term should be treated as OID
and accrued into income under a constant yield method by the Holder, and the
Holder should not treat the receipt of stated
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interest on the Exchange Debentures as interest for federal income tax purposes.
See the discussion above under "--Debentures--Original Issue Discount."
An additional Exchange Debenture (a "Secondary Debenture") issued in
payment of interest with respect to an initially issued Exchange Debenture (an
"Initial Debenture") will not be considered as a payment made on the Initial
Debenture and will be aggregated with the Initial Debenture for purposes of
computing and accruing OID on the Initial Debenture. As between the Initial
Debenture and the Secondary Debenture, the Company will allocate the adjusted
issue price of the Initial Debenture between the Initial Debenture and the
Secondary Debenture in proportion to their respective principal amounts. That
is, upon its issuance of a Secondary Debenture with respect to an Initial
Debenture, the Company intends to treat the Initial Debenture and the Secondary
Debenture as initially having the same adjusted issue price and inherent amount
of OID per dollar of principal amount. The Initial Debenture and the Secondary
Debenture derived therefrom will be treated as having the same yield to
maturity. Similar treatment will be applied when additional Exchange Debentures
are issued on Secondary Debentures.
Redemption or Sale of Exchange Debentures. Generally, any redemption or
sale of Exchange Debentures by a Holder would result in taxable gain or loss
equal to the difference between the amount of cash received and the Holder's tax
basis in the Exchange Debentures. The tax basis of a Holder who receives an
Exchange Debenture in exchange for Holdings Senior Preferred Stock will
generally be equal to the issue price of the Exchange Debenture on the date the
Exchange Debenture is issued plus any OID on the Exchange Debenture included in
the Holder's income prior to sale or redemption of the Exchange Debenture,
reduced by any amortizable bond premium applied against the Holder's income
prior to sale or redemption of the Exchange Debenture and by any payments on the
Exchange Debenture. Such gain or loss would be capital gain or loss.
NON-U.S. HOLDERS OF SECURITIES
On October 14, 1997, final Treasury Regulations (the "1997 Final
Regulations") were issued that affect the U.S. taxation of Non-U.S. Holders of
the Securities. The 1997 Final Regulations generally are effective for payments
made after December 31, 1998, regardless of the issue date of the Securities
with respect to which such payments are made, subject to certain transition
rules. The discussion under this heading and under "--Backup Withholding" below
is for informational purposes only and is not intended to be a complete
discussion of either the statutory and regulatory provisions that apply to
payments made on the Securities before January 1, 1999, or the provisions of the
1997 Final Regulations. Prospective Non-U.S. Holders are urged to consult their
tax advisors with respect to the possible applicability of the various
withholding provisions of the Code and the Treasury Regulations promulgated
thereunder.
Dividends on Holdings Senior Preferred Stock. Dividends paid to a Non-U.S.
Holder are subject to a U.S. withholding tax at a 30% rate, or if applicable, a
lower treaty rate, unless the dividend is effectively connected with the conduct
of trade or business in the United States by a Non-U.S. Holder (and, if certain
tax treaties apply, is attributable to a United States permanent establishment
maintained by such Non-U.S. Holder). A dividend that is effectively connected
with the conduct of a trade or business in the United States by a Non-U.S.
Holder (and, if certain tax treaties apply, is attributable to a United States
permanent establishment maintained by such Non-U.S. Holder) will be taxed to
such Holder as though such Holder were a U.S. Holder, in the manner described
below under "--Interest and OID on Debentures and Exchange Debentures" with
respect to effectively connected interest income.
Interest and OID on Debentures and Exchange Debentures. Payments of
interest and Accrued OID on the Debentures and Exchange Debentures by Holdings
or any paying agent to a beneficial owner of a Debenture or an Exchange
Debenture that is a Non-U.S. Holder will not be subject to U.S. federal
withholding tax, provided that (i) such Holder does not own, actually or
constructively, 10 percent or more of the total combined voting power of all
classes of stock of Holdings entitled to vote; (ii) such Holder is not, for U.S.
federal income tax purposes, a controlled foreign corporation related, directly
or indirectly, to Holdings through stock ownership; (iii) such Holder is not a
bank receiving interest described in Section 881(c)(3)(A) of the Code; and (iv)
certain certification requirements (summarized below) are met (the "Portfolio
Interest Exception"). If a Non-U.S. Holder of a Debenture or an Exchange
Debenture is engaged
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in a trade or business in the United States, and if interest or OID on the
Debenture or the Exchange Debenture is effectively connected with the conduct of
such trade or business (and, if certain tax treaties apply, is attributable to a
U.S. permanent establishment maintained by the Non-U.S. Holder) the Non-U.S.
Holder, although exempt from U.S. withholding tax, will generally be subject to
regular U.S. income tax on such interest or OID in the same manner as if it were
a U.S. Holder. In addition, if such Non-U.S. Holder is a foreign corporation, it
may be subject to a branch profits tax equal to 30% (or such lower rate provided
by an applicable treaty) of its effectively connected earnings and profits for
the taxable year, subject to certain adjustments. For purposes of the branch
profits tax, interest or OID on a Debenture or an Exchange Debenture will be
included in the earnings and profits of such Non-U.S. Holder if such interest or
OID is effectively connected with the conduct by the Non-U.S. Holder of a trade
or business in the United States.
For payments of interest and Accrued OID on the Debentures and Exchange
Debentures made prior to January 1, 1999, in order to qualify for the Portfolio
Interest Exception, either (i) the beneficial owner of a Debenture or an
Exchange Debenture must certify on Internal Revenue Service Form W-8 or a
substitute form that is substantially similar to Form W-8, under penalties of
perjury, to Holdings or a paying agent, as the case may be, that such owner is a
Non-U.S. Holder and must provide such owner's name and address or (ii) a
securities clearing organization, bank or other financial institution that holds
customers' securities in the ordinary course of its trade or business (a
"Financial Institution") and holds the Debenture or the Exchange Debenture on
behalf of the beneficial owner thereof must certify, under penalties of perjury,
to Holdings or paying agent, as the case may be, that such certificate has been
received from the beneficial owner by it or by a Financial Institution between
it and the beneficial owner and must furnish the payor with a copy thereof. A
certificate described in this paragraph is effective only with respect to
payments of interest or Accrued OID made to the certifying Non-U.S. Holder after
delivery of the certificate in the calendar year of its delivery and the two
immediately succeeding calendar years. In lieu of the certificate described in
this paragraph, a Non-U.S. Holder engaged in a trade or business in the United
States (with which interest payments or OID accruals on the Debenture or the
Exchange Debenture are effectively connected) must provide to Holdings a
properly executed Internal Revenue Service Form 4224 in order to claim an
exemption from withholding tax.
A payment of interest or Accrued OID on the Debentures and Exchange
Debentures made to a foreign beneficial owner after December 31, 1998, generally
will qualify for the Portfolio Interest Exception or, as the case may be, the
exception from withholding for income effectively connected with the conduct of
a trade or business in the United States if, at the time such payment is made,
the withholding agent holds a valid Form W-8 (or an acceptable substitute form)
from the beneficial owner and can reliably associate such payment with such
Form W-8. In addition, under certain circumstances a withholding agent is
allowed under the 1997 Final Regulations to rely on Form W-8 (or an acceptable
substitute form) furnished by a financial institution or other intermediary on
behalf of one or more beneficial owners (or other intermediaries) without having
to obtain copies of the beneficial owner's Form W-8 (or substitute thereof),
provided that the financial institution or intermediary has entered into a
withholding agreement with the Service and thus is a "qualified intermediary,"
and may not be required to withhold on payments made to certain other
intermediaries if certain conditions are met.
Disposition of Securities. Under current law, a Non-U.S. Holder of a
Security generally will not be subject to U.S. federal income tax on any gain
recognized on the sale, exchange or other disposition of such Security, unless
(i) the gain is effectively connected with the conduct of a trade or business in
the United States of the Non-U.S. Holder (and, if certain tax treaties apply, is
attributable to a U.S. permanent establishment maintained by the Non-U.S.
Holder); (ii) the Non-U.S. Holder is an individual who holds the Security as a
capital asset, is present in the United States for 183 days or more in the
taxable year of the disposition and either (a) such individual has a U.S. "tax
home" (as defined for U.S. federal income tax purposes) or (b) the gain is
attributable to an office or other fixed place of business maintained in the
United States by such individual; (iii) the Non-U.S. Holder is subject to tax
pursuant to the Code provisions applicable to certain U.S. expatriates; or (iv)
in the case of Holdings Senior Preferred Stock, Holdings is or has been during
the five-year period ending on the date of disposition a "United States real
property holding corporation" for U.S. federal income tax purposes (which
Holdings does not believe that it has been and does not anticipate becoming). In
the case of a Non-U.S. Holder that is described under clause (i) above, its gain
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will be subject to the U.S. federal income tax on net income that applies to
U.S. persons and, in addition, if such Non-U.S. Holder is a foreign corporation,
it may be subject to the branch profits tax as described above. An individual
Non-U.S. Holder that is described under clause (ii) above will be subject to a
flat 30% tax on gain derived from the sale, which may be offset by U.S. capital
losses (notwithstanding the fact that he or she is not considered a U.S.
resident). Thus, individual Non-U.S. Holders who have spent 183 days or more in
the United States in the taxable year in which they contemplate a sale of a
Debenture are urged to consult their tax advisors as to the tax consequences of
such sale.
Estate Tax Consequences. A Security held by an individual who is not a U.S.
citizen or resident (as specially defined for United States federal estate tax
purposes) at the time of his or her death will not be subject to U.S. federal
estate tax as a result of such individual's death, provided that, at the time of
such individual's death, the individual does not own, actually or
constructively, 10% or more of the total combined voting power of all classes of
stock of Holdings entitled to vote and payments with respect to such Security
would not have been effectively connected with the conduct by such individual of
a trade or business in the United States.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES TO HOLDINGS AND TO CORPORATE HOLDERS
If the yield to maturity on a debt instrument equals or exceeds the sum of
the relevant applicable federal rate (the "AFR") plus five percentage points, in
certain circumstances, such debt instrument is considered an "applicable high
yield discount obligation" ("AHYDO") for federal income tax purposes. Further,
if the yield to maturity of a debt instrument should equal or exceed the sum of
the relevant AFR plus six percentage points, the portion of such yield on such
AHYDO that equals or exceeds the AFR plus six percentage points is considered
"Excess Yield" for federal income tax purposes.
The Debentures constitute AHYDOs because the yield to maturity of the
Debentures is equal to or greater than the sum of the AFR plus five percentage
points. Therefore, a portion of the tax deductions that would otherwise be
available to Holdings in respect of such Debentures will be deferred, which, in
turn, may reduce the after-tax cash flows of Holdings. Holdings will not be
entitled to deduct OID that accrues with respect to the Debentures until amounts
attributable to OID are paid in cash. Because the yield to maturity of the
Debentures does not equal or exceed the sum of the relevant AFR plus six
percentage points, no portion of the OID accruing on the Debentures will be
characterized as Excess Yield.
It is impossible to determine at the present time whether the Exchange
Debentures will have a yield to maturity that equals or exceeds the sum of the
AFR plus five or six percentage points. If the Exchange Debentures should have a
yield to maturity that equals or exceeds the AFR plus five percentage points,
but does not equal or exceed the AFR plus six percentage points, the Exchange
Debentures will be AHYDOs and the Company's interest deductions on the Exchange
Debentures will be subject to the same restrictions described as affecting the
Debentures in the immediately preceding paragraph.
If, moreover, the Exchange Debentures should have a yield to maturity that
equals or exceeds the sum of the relevant AFR plus six percentage points, with
such excess constituting Excess Yield as defined above, the "disqualified
portion" (as defined in the following sentence) of the OID accruing on the
Exchange Debentures would be characterized as a non-deductible dividend with
respect to the Company and also may be treated as a dividend distribution solely
for purposes of the dividends-received deduction of Sections 243, 246 and 246A
of the Code with respect to U.S. Holders which are corporations. In general, the
"disqualified portion" of OID for any accrual period will be equal to the
product of (i) a percentage determined by dividing the Excess Yield by the yield
to maturity; and (ii) the OID for the accrual period. Subject to otherwise
applicable limitations, such a corporate Holder would be entitled to a
dividends-received deduction with respect to the disqualified portion of the
accrued OID if the Company has sufficient current or accumulated earnings and
profits. To the extent that the Company's earnings and profits are insufficient,
any portion of the OID that otherwise would have been recharacterized as a
dividend for purposes of the dividends-received deduction will continue to be
taxed to the Holder as ordinary OID income in accordance with the rules
described above in "--Exchange Debentures--Original Issue Discount."
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POSSIBLE LEGISLATIVE CHANGES AFFECTING HOLDINGS SENIOR PREFERRED STOCK OR
EXCHANGE DEBENTURES
On a number of recent occasions, most recently in February, 1998, the
Clinton Administration has proposed tax law changes that, if enacted into law
substantially as proposed, would affect the tax treatment of corporate Holders
of Holdings Senior Preferred Stock or Exchange Debentures that are treated as
AHYDOs. See the discussion of AHYDOs under "--Certain Federal Income Tax
Consequences to Holdings and Corporate Holders." In particular, the Clinton
Administration's February, 1998, proposal would eliminate entirely the 70%
dividends-received deduction for certain debt-like preferred stock, effective
for stock issued after the date of enactment of such legislation (which could
include Holdings Senior Preferred Stock paid as a dividend after such date of
enactment). Earlier proposals of the Clinton Administration would have reduced
the dividends-received deduction in other ways, and as proposed would have
restricted deductions for dividends paid after the proposal's effective date
even with respect to stock issued before such effective date. It cannot be
predicted with certainty whether this proposal or other similar proposals will
be introduced in Congress as proposed legislation, or, if introduced, whether,
or in what form, such proposed legislation may be enacted and, if enacted, what
the effective date or dates would be. Corporate Holders of Holdings Senior
Preferred Stock are urged to consult their own tax advisors regarding the
possible effects of this proposed legislation.
BACKUP WITHHOLDING
A Holder may be subject, under certain circumstances, to backup withholding
at a 31% rate with respect to "reportable payments" on the Securities. This
withholding generally applies only if the Holder (i) fails to furnish his or her
social security or other taxpayer identification number ("TIN"); (ii) furnishes
an incorrect TIN; (iii) is notified by the Service that he or she has failed to
report properly payments of interest and dividends and the Service has notified
Holdings that the Holder is subject to backup withholding; or (iv) fails, under
certain circumstances, to provide a certified statement, signed under penalty of
perjury, that the TIN provided is his or her correct number and that he or she
is not subject to backup withholding. Any amount withheld from payment to a
Holder under the backup withholding rules is allowable as a credit against such
Holder's federal income tax liability, provided that the required information is
furnished to the Service. Certain Holders (including, among others, corporations
and foreign individuals who comply with certain certification requirements) are
not subject to backup withholding. Holders should consult their tax advisors as
to their qualifications for exemption from backup withholding and the procedure
for obtaining such an exemption.
INFORMATION REPORTING
The Company is required to furnish certain information to the Service and
will furnish annually to record Holders of the Securities information with
respect to dividends or interest paid, or OID accruing, as the case may be, on
the Securities during the calendar year. The information with respect to OID
accruing on the Debentures or Exchange Debentures will be based on the adjusted
issue price of the Debentures or Exchange Debentures and will be applicable if
the Holder is an original Holder of the Debentures or Exchange Debentures who
purchased the Debentures at the issue price or received the Exchange Debentures
in exchange for Holdings Senior Preferred Stock. Subsequent Holders who purchase
Debentures or Exchange Debentures for an amount other than the adjusted issue
price and/or on a date other than the last day of an accrual period will be
required to determine for themselves the amount of OID, if any, they are
required to include in gross income for federal income tax purposes.
120
<PAGE> 124
SUBSEQUENT PURCHASERS
The foregoing does not discuss special rules that may affect the treatment
of purchasers that acquire the Securities other than at the time of original
issuance at the issue price, including those provisions of the Code relating to
the treatment of "market discount" and "acquisition premium." For example, the
market discount provisions of the Code may require a subsequent purchaser of
Debentures or Exchange Debentures at a market discount to treat all or a portion
of any gain recognized upon sale or other disposition of such Debentures or
Exchange Debentures as ordinary income and to defer a portion of any interest
expense that would otherwise be deductible on any Indebtedness incurred or
maintained to purchase or carry such Debentures or Exchange Debentures until the
holder disposes of such Debentures or Exchange Debentures in a taxable
transaction.
121
<PAGE> 125
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Securities for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
Prospectus meeting the requirements of the Securities Act in connection with any
resale of such New Securities. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of New Debentures or New Senior Preferred Stock received in
exchange for Old Debentures or Old Senior Preferred Stock, respectively, where
such Old Securities were acquired as a result of market-making activities or
other trading activities and not acquired directly from Holdings. Holdings has
agreed that for a period of 180 days after the Expiration Date, it will make
this Prospectus, as amended or supplemented, available to any broker-dealer for
use in connection with any such resale.
Holdings will not receive any proceeds from any sale of New Securities by
broker-dealers. New Securities received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the New Securities or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer that resells New Securities that were received by it for its own
account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such New Securities may be deemed to be an
"underwriter" within the meaning of the Securities Act, and any profit on any
such resale of New Securities and any commissions or concessions received by any
such persons may be deemed to be underwriting compensation under the Securities
Act. The Letter of Transmittal states that by acknowledging that it will deliver
and by delivering a Prospectus, a broker-dealer will not be deemed to admit that
it is an "underwriter" within the meaning of the Securities Act.
For a period of 180 days after the Expiration Date, Holdings will promptly
send additional copies of this Prospectus and any amendment or supplement to
this Prospectus to any broker-dealer that requests such documents in the Letter
of Transmittal. Holdings has agreed to pay the expenses incident to the Exchange
Offer and will indemnify the Holders of the Old Securities against certain
liabilities, including liabilities under the Securities Act, in connection with
the Exchange Offer.
LEGAL MATTERS
Mayer, Brown & Platt, Chicago, Illinois will pass upon certain legal
matters regarding the legality of the New Securities for Holdings.
EXPERTS
The combined financial statements of the Company as of December 31, 1996
and 1997 and for each of the years in the three-year period ended December 31,
1997 and the balance sheet of Liberty Group Publishing, Inc. as of December 31,
1997, included elsewhere in the Prospectus have been included herein in reliance
upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, appearing elsewhere herein, and upon the authority of said firm as
experts in accounting and auditing.
122
<PAGE> 126
AVAILABLE INFORMATION
Holdings has filed with the Commission a Registration Statement on Form S-4
(the "Registration Statement") under the Securities Act with respect to the
securities being offered by this Prospectus. This Prospectus does not contain
all the information set forth in the Registration Statement and the exhibits
thereto, to which reference is hereby made.
The Registration Statements and exhibits thereto may be inspected and
copied at the public reference facilities maintained by the Commission at
Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and
at the Commission's Regional Offices at 7 World Trade Center, New York, New York
10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies
of such materials may be obtained by mail from the Public Reference Section of
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. The Commission
maintains a Web site (http://www.sec.gov) that contains reports and information
statements and other information regarding registrants, such as Holdings, that
file electronically with the Commission.
Holdings currently is not subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). As a result of
the Exchange Offer, Holdings will become subject to such requirements. In
addition, pursuant to the Indenture and the Exchange Indenture, Holdings has
agreed to file with the Commission and provide to the Holders of the Old
Securities annual reports and the information to be delivered pursuant to
Sections 13 and 15(d) of the Exchange Act.
123
<PAGE> 127
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
LIBERTY GROUP PUBLISHING, INC.
Independent Auditors' Report................................ F-2
Balance Sheet as of December 31, 1997....................... F-3
Notes to Balance Sheet...................................... F-4
LOCAL NEWSPAPER GROUP OF AMERICAN PUBLISHING COMPANY
Independent Auditors' Report................................ F-6
Combined Financial Statements:
Combined Statements of Net Assets as of December 31, 1996
and 1997............................................... F-7
Combined Statements of Operations and Changes in Net
Assets for the Years Ended December 31, 1995, 1996 and
1997................................................... F-8
Combined Statements of Cash Flows for the Years Ended
December 31, 1995, 1996 and 1997....................... F-9
Notes to Combined Financial Statements.................... F-10
</TABLE>
F-1
<PAGE> 128
INDEPENDENT AUDITORS' REPORT
The Directors
Liberty Group Publishing, Inc.:
We have audited the accompanying balance sheet of Liberty Group Publishing,
Inc. as of December 31, 1997. This financial statement is the responsibility of
the Company's management. Our responsibility is to express an opinion on this
financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit of a balance sheet includes examining, on a test basis,
evidence supporting the amounts and disclosures in that balance sheet. An audit
of a balance sheet also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
balance sheet presentation. We believe that our audit of the balance sheet
provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Liberty Group Publishing, Inc. as
of December 31, 1997, in conformity with generally accepted accounting
principles.
KPMG PEAT MARWICK LLP
Chicago, Illinois
February 17, 1998
F-2
<PAGE> 129
LIBERTY GROUP PUBLISHING, INC.
BALANCE SHEET
DECEMBER 31, 1997
<TABLE>
<S> <C>
ASSETS
Total assets................................................ $ --
=====
LIABILITIES AND STOCKHOLDERS' EQUITY
Total liabilities........................................... $ --
-----
STOCKHOLDERS' EQUITY:
Preferred stock, par value $0.01; 21,175,000 shares
authorized, none issued................................ --
Common stock, par value $0.01; 80,000,000 shares
authorized, 100 shares subscribed for.................. 100
Subscription receivable................................... (100)
-----
Total stockholders' equity............................. --
-----
Total liabilities and stockholders' equity............. $ --
=====
</TABLE>
See accompanying notes to balance sheet.
F-3
<PAGE> 130
LIBERTY GROUP PUBLISHING, INC.
NOTES TO BALANCE SHEET
DECEMBER 31, 1997
(1) FORMATION OF COMPANY
Liberty Group Publishing, Inc. (the "Holdings") was formed on November 19,
1997 under the laws of the State of Delaware. Holdings has entered into a
subscription agreement dated November 19, 1997 to issue 100 shares of common
stock for total consideration of $100 to Green Equity Investors II, L.P.
Holdings entered into a subscription agreement dated November 19, 1997 to
acquire 100 shares of common stock, representing 100% of the issued share
capital, of Liberty Group Operating, Inc. (the "Company") for total
consideration of $100.
(2) SUBSEQUENT EVENTS (UNAUDITED)
On January 23, 1998, Holdings amended and restated its certificate of
incorporation to, among other things, increase the authorized number of shares
of all classes of common stock which Holdings has the authority to issue to
21,255,000 shares, of which 21,175,000 shares are designated as preferred stock,
par value $0.01 per share, and 80,000 shares are designated as common stock,
$0.01 per share. Share information in the accompanying balance sheet has been
adjusted to reflect the amendment and restatement of Holdings' Certificate of
Incorporation.
On January 27, 1998, the Company acquired, for cash payments of $307.2
million, consisting of the contractual purchase price of $309.1 million, plus
interest of $1.1 million and a cash adjustment of $3.0 million, from
wholly-owned subsidiaries of Hollinger International, Inc. ("Hollinger")
virtually all of the assets and assumed certain liabilities that were used
primarily in the business of publishing, marketing and distributing certain
local newspapers. Of the total purchase price, approximately $31.0 million
represented consideration in connection with a non-competition agreement whereby
Hollinger and its affiliates have agreed not to compete, directly or indirectly,
with the Company's acquired operations for a period of five years.
The acquisition, including the payment of related fees and expenses, was
financed from the (i) proceeds of $180.0 million from the issuance and sale by
the Company of $180.0 million aggregate principal amount of 9.375% Senior
Subordinated Notes due February 1, 2008, (ii) proceeds of $50.5 million from the
issuance and sale by Holdings of $89.0 million aggregate principal amount at
maturity of 11.625% Senior Discount Debentures due February 1, 2009 (the
"Debentures"), (iii) proceeds of $45.0 million from the issuance and sale of 1.8
million shares of 14.75% Senior Redeemable Exchangeable Cumulative Preferred
Stock (the "Senior Preferred Stock"), (iv) proceeds of $49.0 million from the
issuance and sale of 49,000 shares of 10% Series B Junior Redeemable Cumulative
Preferred Stock (the "Junior Preferred Stock"), and (v) proceeds of $8.0 million
from the issuance and sale of 80,000,000 shares of Holdings common stock. In
connection with the financing of the acquisition, Holdings made a capital
contribution of $129.1 million, representing the net proceeds from the sale by
Holdings of the securities described above, to the Company.
The Debentures issued by Holdings are general unsecured obligations and pay
no cash interest until February 1, 2003. The Debentures will, however, accrete
on a semi-annual equivalent bond basis to a principal amount at maturity of
$89.0 million on February 1, 2003. Thereafter, cash interest on the Debentures
will accrue and be payable semi-annually on February 1 and August 1 of each
year. The Debentures are redeemable for cash at the option of Holdings anytime
after February 1, 2003 at stipulated redemption amounts, or in certain limited
circumstances, are partially redeemable on or prior to February 1, 2001 at a
redemption amount of 111.625% of the accreted value.
The Senior Preferred Stock issued by Holdings is, with respect to dividend
distributions and distributions upon the liquidation, winding up or dissolution
of Holdings, senior to the common stock and Junior Preferred Stock of Holdings.
Dividends may be paid, at Holdings' option, on any dividend payment date in cash
or in additional shares of Senior Preferred Stock having a liquidation
preference equal to the dividend amount. The liquidation preference of the
Senior Preferred Stock is $25 per share. The Senior Preferred Stock is
F-4
<PAGE> 131
redeemable at the option of Holdings anytime after February 1, 1999 at
stipulated redemption amounts and is mandatorily redeemable, subject to certain
conditions, on February 1, 2010 at a price equal to 100% of its liquidation
preference per share. In the event of a change in control of Holdings, Holdings
must offer to repurchase the Senior Preferred Stock at 100% of its liquidation
preference per share. The holders of shares of Senior Preferred Stock are not
entitled or permitted to vote on any matters voted upon by the stockholders of
Holdings. Subject to certain conditions, the Senior Preferred Stock is
exchangeable, on any dividend payment date, in whole, but not in part, at the
option of Holdings for Holdings 14.375% Senior Subordinated Debentures (the
"Exchange Debentures") maturing February 1, 2010. The Exchange Debentures are
redeemable prior to maturity on substantially the same terms as the Senior
Preferred Stock.
The Junior Preferred Stock issued by Holding is, with respect to dividend
distributions and distributions upon the liquidation, winding up or dissolution
of holdings, senior to the common stock of Holdings. The Junior Preferred Stock
is redeemable at the option of Holdings at 2010 at a price equal to 100% of its
liquidation preference per share and is mandatorily redeemable on February 1,
2010 at a price equal to 100% of its liquidation preference per share. In the
event of a change in control of Holdings, Holdings must offer to repurchase the
Holdings Junior Preferred Stock at 100% of its liquidation preference per share.
The holders of shares of Junior Preferred Stock are not entitled to vote on any
matters voted upon by the stockholders of Holdings.
On January 27, 1998, the Company and American Publishing Management
Services, Inc. ("APMS"), a wholly-owned subsidiary of Hollinger, entered into a
transitional services agreement which provides that APMS will, at the Company's
option, provide certain services to the Company, including accounting and
finance-related information systems and administrative processing support,
employee benefits and insurance coverage, administrative and information
processing support, and treasury and advertising services. APMS will provide
such services at cost for a period of up to three years.
On January 27, 1998, the Company entered into a five-year $125.0 million
revolving credit facility (the "Revolving Credit Facility"). The Revolving
Credit Facility is secured by substantially all of the tangible and intangible
assets of the Company. Borrowings under the revolving credit facility bear
interest at an annual rate, at the Company's option equal to the Base Rate (as
defined therein) or the Eurodollar Rate (as defined therein) plus a margin that
varies based upon a ratio set forth therein (the "Applicable Margin"). For the
first six months the interest rate for borrowings under the Revolving Credit
Facility will have a floor of the Base Rate plus 0.75% or the Eurodollar Rate
plus 2.0%. Under the terms of the Revolving Credit Facility, the Company pays a
fee equal to the Applicable Margin for Eurodollar Rate Advances (as defined
therein) per annum on the aggregate amount of outstanding letters of credit. The
Company also pays a fee of 0.5% on the unused portion of the Revolving Credit
Facility.
On January 27, 1998, the Company entered into a Management Agreement with
Leonard Green & Partners, L.P. ("LGP"), the principal shareholder of Holdings,
whereby LGP will provide management, consulting and financial planning services
to the Company for an annual management fee of $1.0 million.
F-5
<PAGE> 132
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Hollinger International Inc.:
We have audited the accompanying combined statements of net assets of the
Local Newspaper Group of American Publishing Company, a group of publishing
businesses owned by American Publishing Company or its subsidiaries (the
"Business"), a wholly-owned subsidiary of Hollinger International Inc., as of
December 31, 1996 and 1997, and the related combined statements of operations
and changes in net assets and cash flows for each of the years in the three-year
period ended December 31, 1997. These combined financial statements are the
responsibility of the Business' management. Our responsibility is to express an
opinion on these combined 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 combined financial statements referred to above present
fairly, in all material respects, the combined net assets of the Business as of
December 31, 1996 and 1997, and the results of their operations and their cash
flows for each of the years in the three-year period ended December 31, 1997 in
conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Chicago, Illinois
February 17, 1998
F-6
<PAGE> 133
LOCAL NEWSPAPER GROUP OF AMERICAN PUBLISHING COMPANY
COMBINED STATEMENTS OF NET ASSETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DE31,BER
--------------------
1996 1997
-------- --------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 1,768 $ 1,452
Accounts receivable, net of allowance for doubtful
accounts of $1,022 in 1996 and $1,014 in 1997.......... 10,619 10,308
Inventories............................................... 1,611 1,947
Prepaid expenses and other current assets................. 259 278
-------- --------
Total current assets................................... 14,257 13,985
Property, plant and equipment, net of accumulated
depreciation.............................................. 21,552 20,503
Intangible assets, net of accumulated amortization.......... 77,165 75,212
-------- --------
Total assets........................................... $112,974 $109,700
======== ========
LIABILITIES AND NET ASSETS
CURRENT LIABILITIES:
Current portion of long-term liabilities.................. $ 627 $ 338
Accounts payable.......................................... 1,204 1,119
Accrued expenses.......................................... 2,016 2,223
Deferred revenue.......................................... 4,329 4,411
-------- --------
Total current liabilities.............................. 8,176 8,091
Long-term liabilities, less current portion................. 1,152 706
Deferred income taxes....................................... 666 1,764
-------- --------
Total liabilities...................................... 9,994 10,561
Net assets.................................................. 102,980 99,139
-------- --------
Total liabilities and net assets....................... $112,974 $109,700
======== ========
</TABLE>
See accompanying notes to combined financial statements.
F-7
<PAGE> 134
LOCAL NEWSPAPER GROUP OF AMERICAN PUBLISHING COMPANY
COMBINED STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS EN31, DECEMBER
--------------------------------
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
REVENUES:
Advertising.............................................. $ 60,255 $ 66,816 $ 68,712
Circulation.............................................. 19,058 22,004 22,341
Job printing and other................................... 8,054 8,722 7,666
-------- -------- --------
Total revenues............................................. 87,367 97,542 98,719
OPERATING COSTS AND EXPENSES:
Operating costs.......................................... 29,405 31,320 29,318
Selling, general and administrative...................... 34,506 38,259 39,162
Depreciation and amortization............................ 7,290 7,854 7,470
-------- -------- --------
Income from operations..................................... 16,166 20,109 22,769
Interest expense........................................... 11,195 10,968 10,551
-------- -------- --------
Income before income taxes................................. 4,971 9,141 12,218
Income taxes............................................... 2,338 4,006 5,271
-------- -------- --------
Net income................................................. 2,633 5,135 6,947
Net assets, beginning of period............................ 96,355 106,945 102,980
Transfer (to) from APC, net................................ 7,957 (9,100) (10,788)
-------- -------- --------
Net assets, end of period.................................. $106,945 $102,980 $ 99,139
======== ======== ========
</TABLE>
See accompanying notes to combined financial statements.
F-8
<PAGE> 135
LOCAL NEWSPAPER GROUP OF AMERICAN PUBLISHING COMPANY
COMBINED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS END31,DECEMBER
-------------------------------
1995 1996 1997
-------- ------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................. $ 2,633 $ 5,135 $ 6,947
Adjustments to reconcile net income to net cash provided by
operating activities:
Amortization................................................ 4,172 4,383 4,250
Depreciation................................................ 3,118 3,471 3,220
Changes in assets and liabilities, net of acquisitions:
Accounts receivable....................................... (1,391) (376) 311
Inventories............................................... (1,969) 1,850 (336)
Prepaid expenses and other current assets................. 17 (1) (19)
Accounts payable.......................................... 548 (577) (85)
Accrued expenses.......................................... 159 228 207
Deferred revenue.......................................... 602 190 82
-------- ------- --------
Cash provided by operating activities....................... 7,889 14,303 14,577
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment................... (2,255) (3,081) (1,713)
Proceeds from sales of assets............................... 29 342 35
Acquisitions, net of cash acquired.......................... (12,680) (1,781) (1,692)
-------- ------- --------
Cash used in investing activities........................... (14,906) (4,520) (3,370)
-------- ------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term liabilities........................... (754) (844) (735)
Transfer (to) from APC, net................................. 7,957 (9,100) (10,788)
-------- ------- --------
Cash provided by (used in) financing activities............. 7,203 (9,944) (11,523)
-------- ------- --------
Net increase (decrease) in cash and cash equivalents........ 186 (161) (316)
Cash and cash equivalents, at beginning of period........... 1,743 1,929 1,768
-------- ------- --------
Cash and cash equivalents, at end of period................. $ 1,929 $ 1,768 $ 1,452
======== ======= ========
</TABLE>
See accompanying notes to combined financial statements.
F-9
<PAGE> 136
LOCAL NEWSPAPER GROUP OF AMERICAN PUBLISHING COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) DESCRIPTION OF BUSINESS
The Local Newspaper Group of American Publishing Company (the "Business")
represents a portion of the small and mid-size daily and weekly newspapers owned
by American Publishing Company or its subsidiaries ("APC"), a wholly owned
subsidiary of Hollinger International Inc. The Business is located in 11 states
with the largest concentration of newspapers being in the Midwest. Raw
materials, mainly newsprint and ink, are readily available, and the Business is
not dependent on a single or limited number of suppliers. Customers range from
individual subscribers to local and national advertisers. No individual customer
accounts for a significant percentage of revenues.
(B) BASIS OF PRESENTATION
The accompanying combined financial statements represent all of the net
assets and associated revenues, expenses, and cash flows of the Business,
assuming that the Business, currently part of APC, was organized for all periods
as a separate legal entity. Intercompany transactions between entities
comprising the Business have been eliminated. Certain net assets of the Business
are to be transferred to a separate legal entity under an agreement in principle
described in Note 10.
The Business maintains its own cash only for certain daily expenses;
principal operating cash disbursements are paid by APC on behalf of the
Business. Such cash disbursements, interest, income taxes and related-party
transactions are paid by APC and are reflected as a change in the net activity
with APC.
APC has historically provided certain services to the Business, including
accounting, payroll administration, tax services, consulting assistance on
operational issues and financial reporting. The cost of providing such services
is recovered by APC by allocating to the Business a management fee using a
percentage of revenue method. The management fee, which is included in selling,
general and administrative expenses, was $2,162, $2,422 and $2,192 for the years
ended December 31, 1995, 1996 and 1997, respectively. In the opinion of
management of the Business, such management fee is representative of the cost of
performing such services.
As the Business' operations represent a portion of APC, the operations of
the Business have been financed through, and certain of the assets of the
Business have been pledged as security for borrowings of, APC. The Business'
interest expense represents an allocation of APC's interest expense (calculated
as APC's weighted average interest rate of 10.46%, 10.45% and 10.64% for the
years ended December 31, 1995, 1996 and 1997, respectively, applied to the
average balances of the net assets of the Business for each respective period).
Subsequent to completion of the transactions described in Note 10, the Business
is expected to have a capital structure different than that in the accompanying
combined statements of net assets and, accordingly, interest expense is not
necessarily indicative of the interest expense that the Business would have
incurred as a separate independent entity.
Details with respect to the transfers (to) from APC, net, follow:
<TABLE>
<CAPTION>
YEARS EN31, DECEMBER
--------------------------------
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Cash transferred to APC.................................... $(63,406) $(71,581) $(73,318)
Cash disbursements by APC on behalf of the Business........ 55,520 44,983 44,836
Current income tax liabilities............................. 2,486 4,108 4,612
Management fees............................................ 2,162 2,422 2,531
Interest................................................... 11,195 10,968 10,551
-------- -------- --------
$ 7,957 $( 9,100) $(10,788)
======== ======== ========
</TABLE>
F-10
<PAGE> 137
LOCAL NEWSPAPER GROUP OF AMERICAN PUBLISHING COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
(C) 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 reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(D) INVENTORIES
Inventories consist principally of newsprint, which is valued at the lower
of cost or not realizable value. Cost is determined using the first-in,
first-out (FIFO) or moving-average method.
(E) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is recorded at cost. Routine maintenance and
repairs are expensed as incurred.
Depreciation is calculated under the straight-line method over the
estimated useful lives, principally 25 years for buildings and improvements and
5 to 10 years for machinery and equipment. Leasehold improvements are amortized
using the straight-line method over the shorter of the lease term or estimated
useful life of the asset.
(F) INTANGIBLE ASSETS
Intangible assets consist principally of circulation-related assets,
noncompetition agreements with former owners of acquired newspapers, and the
excess of acquisition costs over estimated fair value of net assets acquired
(goodwill). The fair market value of intangible assets purchased is determined
primarily through the use of independent appraisals. Amortization is calculated
using the straight-line method over the respective estimated useful lives
ranging from 30 years for circulation related assets, 3 to 15 years for
noncompetition agreements, and 40 years for goodwill.
The Business assesses the recoverability of its long-lived assets, such as
property, plant and equipment and intangible assets whenever events or changes
in business circumstances indicate the carrying amount of the assets, or related
group of assets, may not be fully recoverable. Factors leading to impairment
include a combination of historical losses, anticipated future losses and
inadequate cash flow. The write-down is reported with other income in the
combined statement of operations and changes in net assets. The assessment of
recoverability is based on management's estimate. If undiscounted operating cash
flows do not exceed the net book value of the long-lived assets, then a
permanent impairment has occurred. The Business would record the difference
between the net book value of the long-lived asset and the fair value of such
asset as a charge against income in the combined statement of operations if such
a difference arose.
(G) REVENUE RECOGNITION
Circulation revenue, which is billed to the customers at the beginning of
the subscription period, is recognized on a straight-line basis over the term of
the related subscription. Advertising revenue is recognized upon publication of
the advertisements. The revenue for job printing is recognized upon delivery.
F-11
<PAGE> 138
LOCAL NEWSPAPER GROUP OF AMERICAN PUBLISHING COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
(H) INCOME TAXES
The Business represents a business unit of APC and as such does not file
separate income tax returns. The income tax provision included in the
accompanying combined statements of operations and changes in net assets has
been computed as if the Business were a separate company.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to the difference between financial statement carrying
amounts of existing assets and liabilities and their respective tax basis.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Current income taxes are
reflected as a decrease of transfers to APC as APC is responsible for the
payment of income tax liabilities. State income taxes are computed utilizing a
blended state rate of 5%, which is net of federal income tax benefit.
(I) CASH AND CASH EQUIVALENTS
Cash and cash equivalents represent cash and highly liquid certificates of
deposit with a maximum term at origination of three months or less.
(2) ACQUISITIONS
During the years ended December 31, 1995, 1996 and 1997, the Business
acquired certain newspaper businesses for $12,680, $1,781 and $1,385. Using the
purchase method of accounting, the purchase prices were allocated to the assets
and liabilities acquired based on their estimated fair values. The excess of the
purchase prices over the estimated fair value of the tangible and identifiable
intangible assets acquired (goodwill) was $4,396, $1,369 and $1,170 for the
years ended December 31, 1995, 1996 and 1997, respectively. Results of the
acquired newspaper businesses have been included in combined statements of
operations and net assets since the dates of acquisition.
(3) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following:
<TABLE>
<CAPTION>
DE31,BER
--------------------------------
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Land....................................................... $ 1,954 $ 1,955 $ 2,131
Buildings and improvements................................. 12,544 13,386 13,906
Machinery and equipment.................................... 18,454 18,826 19,781
Furniture and fixtures..................................... 8,076 9,456 10,425
-------- -------- --------
41,028 43,623 46,243
Less accumulated depreciation.............................. (19,036) (22,071) (25,740)
-------- -------- --------
$ 21,992 $ 21,552 $ 20,503
======== ======== ========
</TABLE>
F-12
<PAGE> 139
LOCAL NEWSPAPER GROUP OF AMERICAN PUBLISHING COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
(4) INTANGIBLE ASSETS
Intangible assets consisted of the following:
<TABLE>
<CAPTION>
DE31,BER
--------------------------------
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Non-compete agreements..................................... $ 28,526 $ 28,646 $ 28,646
Subscriber lists........................................... 50,741 50,741 50,741
Advertiser lists........................................... 21,214 21,214 21,214
Goodwill................................................... 37,531 36,672 38,970
-------- -------- --------
138,012 137,273 139,571
Less accumulated amortization.............................. (55,725) (60,108) (64,359)
-------- -------- --------
$ 82,287 $ 77,165 $ 75,212
======== ======== ========
</TABLE>
(5) ACCRUED EXPENSES
Accrued expenses consisted of the following:
<TABLE>
<CAPTION>
DE31,BER
----------------------------
1995 1996 1997
------ ------ ------
<S> <C> <C> <C>
Accrued payroll............................................. $ 727 $ 818 $ 944
Accrued vacation............................................ 339 330 309
Accrued bonus............................................... 392 520 554
Accrued realty tax.......................................... 90 79 101
Accrued other............................................... 240 269 315
------ ------ ------
$1,788 $2,016 $2,223
====== ====== ======
</TABLE>
(6) LONG-TERM LIABILITY
The long-term liability represents amounts due under non-interest-bearing
non-compete agreements through 2004.
The aggregate amount of principal payments at December 31, 1997 follows:
<TABLE>
<S> <C>
1998........................................................ $ 338
1999........................................................ 240
2000........................................................ 193
2001........................................................ 82
2002........................................................ 70
Thereafter.................................................. 121
------
$1,044
======
</TABLE>
F-13
<PAGE> 140
LOCAL NEWSPAPER GROUP OF AMERICAN PUBLISHING COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
(7) INCOME TAXES
Income tax expense (benefit) for the periods shown below consisted of:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
------- -------- -----
<S> <C> <C> <C>
Year ended December 31, 1997:
U.S. Federal.............................................. $4,009 $ 659 $4,668
State and local........................................... 603 -- 603
------ ----- ------
4,612 659 5,271
====== ===== ======
Year ended December 31, 1996:
U.S. Federal.............................................. 3,599 (102) 3,497
State and local........................................... 509 -- 509
------ ----- ------
4,108 (102) 4,006
====== ===== ======
Year ended December 31, 1995:
U.S. Federal.............................................. 2,186 (148) 2,038
State and local........................................... 300 -- 300
------ ----- ------
2,486 (148) 2,338
====== ===== ======
</TABLE>
Income tax expense differed from the amounts computed by applying the U.S.
Federal income tax rate of 35% to earnings before income tax expense as a result
of the following:
<TABLE>
<CAPTION>
YEARS ENDED
DE31,BER
------------------------
1995 1996 1997
------ ------ ------
<S> <C> <C> <C>
Computed "expected" tax expense............................. $1,740 $3,199 $4,276
Increase in income taxes resulting from:
Amortization of goodwill.................................. 344 344 344
State and local income taxes.............................. 254 463 651
------ ------ ------
$2,338 $4,006 $5,271
====== ====== ======
</TABLE>
F-14
<PAGE> 141
LOCAL NEWSPAPER GROUP OF AMERICAN PUBLISHING COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at 1997, 1996 and 1995 are
presented below:
<TABLE>
<CAPTION>
DE31,BER
--------------------------
1995 1996 1997
------ ------ ----
<S> <C> <C> <C>
Deferred tax assets:
Accounts receivable, principally due to allowance for
doubtful accounts...................................... $ 387 $ 409 $ 405
Property, plant and equipment, principally due to
differences in depreciation............................ -- 59 --
Compensated absences, principally due to accrual for
financial reporting purposes........................... 135 132 124
------ ------ ------
Deferred tax assets............................... 522 600 529
------ ------ ------
Deferred tax liabilities:
Intangible assets, principally due to differences in basis
and amortization....................................... 2,514 1,266 1,766
Property, plant, and equipment, principally due to
differences in depreciation............................ 902 -- 527
------ ------ ------
Total gross deferred tax liabilities.............. 3,416 1,266 2,293
------ ------ ------
Net deferred tax liability........................ $2,894 $ 666 $1,764
====== ====== ======
</TABLE>
(8) EMPLOYEE BENEFIT PLANS
The Business sponsors a noncontributory (defined contribution) retirement
savings plan for all employees satisfying minimum service requirements as
defined in the plan. The Business did not make any contributions to the plan
during 1995, 1996 or 1997.
(9) FINANCIAL INSTRUMENTS
Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial instruments.
These estimates are subjective in nature and involve uncertainties and matters
of significant judgment and, therefore, may not represent actual values of the
financial instruments that could be realized in the future.
The carrying value of all financial instruments at December 31, 1995, 1996
and 1997 approximated their estimated fair values.
(10) SALE OF BUSINESS (UNAUDITED)
On November 21, 1997, Hollinger International Inc. and certain of its
subsidiaries executed asset purchase agreements to sell virtually all of the
assets and certain liabilities of the Business to Liberty Group Operating, Inc.
for cash consideration of $309.1 million. Such transaction was consummated on
January 27, 1998.
F-15
<PAGE> 142
======================================================
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS, AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY HOLDINGS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL OR THE SOLICITATION OF ANY OFFER TO BUY ANY SECURITY OTHER THAN THE NEW
DEBENTURES AND NEW SENIOR PREFERRED STOCK OFFERED BY THIS PROSPECTUS, NOR DOES
IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY THE NEW
DEBENTURES OR NEW SENIOR PREFERRED STOCK BY ANYONE IN ANY JURISDICTION IN WHICH
SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH
OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT
TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF HOLDINGS
SINCE SUCH DATE.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Summary..................................... 1
Risk Factors................................ 14
Use of Proceeds............................. 20
The Exchange Offer.......................... 20
Capitalization.............................. 28
Unaudited Pro Forma Combined Financial
Data...................................... 29
Selected Combined Historical and Pro Forma
Financial Data............................ 34
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................ 36
Business.................................... 41
Management.................................. 49
Certain Relationships and Related
Transactions.............................. 53
The Acquisition............................. 54
Principal Stockholders...................... 56
Description of New Senior Preferred Stock... 57
Description of Exchange Debentures.......... 67
Description of New Debentures............... 84
Description of Other Indebtedness........... 109
Description of Holdings' Capital Stock...... 111
Certain United States Federal Tax
Considerations............................ 112
Plan of Distribution........................ 122
Legal Matters............................... 122
Experts..................................... 122
Available Information....................... 123
Index to Financial Statements............... F-1
</TABLE>
======================================================
======================================================
LIBERTY GROUP PUBLISHING
14 3/4% NEW SENIOR REDEEMABLE EXCHANGEABLE CUMULATIVE
PREFERRED STOCK
($25 LIQUIDATION PREFERENCE
PER SHARE)
AND
11 5/8% NEW SENIOR DISCOUNT
DEBENTURES DUE 2009
-----------------------------------
PROSPECTUS
-----------------------------------
APRIL 27, 1998
======================================================
